Alight's Retention Gains Clash With Revenue Step-Down, EBITDA Outlooks Split on Seasonality

Date of Call: Aug 4, 2026

Financials Results

• Revenue: $511M, down 3% YOY
• EPS: $0.91 adjusted EPS, down from $2.09 in Q2 2025
• Gross Margin: Adjusted gross profit margin declined 440 basis points YOY
• Operating Margin: Adjusted EBITDA margin of 18%, down from 24% in the prior year period

Guidance:

• Full year 2026 revenue expected between $2.78B and $2.98B.
• Full year adjusted EBITDA expected between $400M and $415M.
• Q3 2026 revenue expected between $469M and $479M, with adjusted EBITDA between $55M and $61M.
• Q4 2026 expected to see a significant rebound in EBITDA and cash, enabling full year expectations.
• 2027 focus on achieving efficiency gains and improvement in bookings/renewals.
• 2028 expected to drive quarter-over-quarter growth as improvements take effect.

Business Commentary:

Revenue and Project Revenue Growth:

• Alight reported second quarter revenue of $511 million, with recurring revenue at $471 million and project revenue at $40 million.
• Recurring revenue was down 4.3% year-over-year due to prior commercial activity, while project revenue increased by 11%.
• The growth in project revenue was driven by higher-than-expected volumes and project activities.

EBITDA and Profitability:

• Alight's adjusted EBITDA for the second quarter was $92 million, representing an 18% margin.
• This exceeded market expectations primarily due to higher project revenue and operational efficiencies.
• The improvement in EBITDA was supported by strong cash generation and cost management.

Liquidity and Cash Flow:

• Alight maintained a strong liquidity position, exiting the quarter with $545 million in total liquidity, including $215 million in cash.
• Year-to-date free cash flow was $101 million, with $48 million in the second quarter.
• The strong liquidity provides flexibility for reinvestment and business growth initiatives.

Leadership and Strategic Initiatives:

• Key leadership hires included Steve Lasher as CFO and Dinesh Tulsiani as President of Employer Solutions.
• These appointments aimed to strengthen leadership and advance strategic growth initiatives.
• The focus is on enhancing service delivery, client relationships, and leveraging AI for operational improvements.

Transformation and AI Integration:

• Alight is investing in AI to enhance user experience and service quality, with specific initiatives in health, wealth, and leave solutions.
• AI tools are being deployed to improve efficiency and personalization while ensuring security and privacy.
• The strategic use of AI is expected to drive future growth and improve commercial execution.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated: 'I'm very pleased to have Steve Lasher... we are delighted to have him on board.' and 'Our transformation initiatives remain on track... we've continued to see improvement in our renewal activity and commercial execution.' Also noted: 'I'm increasingly energized and excited about the opportunity we have ahead.' and 'The path forward is clear. Drive service excellence, deepen client relationships, and execute on our transformation agenda with urgency and discipline.'

Q&A:

• Question from Pete Heckman (DA Davidson): As we think about retention, Can one of you talk a little bit about the retention rates that you saw for full year 2025 and how that progressed kind of through the year and then how that might compare? I know it's going to take time to show real improvements, but I guess in the first half of 2026, do you feel like that number has continued to deteriorate? Has it bottomed or has it improved?
  Response: Management is encouraged by better trends in renewals and delivery excellence compared to last year at this point, with improved account coverage (now 500 clients) providing better visibility and momentum.

• Question from Pete Heckman (DA Davidson): I didn't hear you say it, but certainly I think that One of the highlights of the first half, or one of the main positives, has been how well free cash flow has held up on a year-over-year basis. In terms of, if I didn't hear you say it, I apologize, but did you mention at all how you're thinking about free cash flow conversion for the full year against EBITDA?
  Response: Full year 2026 free cash flow conversion is expected to be in the 40 to 43% range, with a trough in Q3 due to annual enrollment expenses and a rebound in Q4.

• Question from Curtis Nagel (Bank of America): Just a quick one for me. Maybe just, again, kind of square the commentary on the better retention trends. You know, I know these things take a long time to flow through given the contract cycles, but just given, you know, the pretty material step down in applied recurring revenue for the back half of the year, just trying to square again kind of the timing and, you know, what's, you know, I guess which contracts, you know, I guess, you know, for that step down, which, you know, of those from last year, just, yeah, again, it's kind of a big step down. So, just if you could square that.
  Response: The revenue step down in the back half of 2026 is due to a 12-18 month lag from commercial execution issues in 2024 and 2025, mainly impacting renewals, with some impact from point solutions.

• Question from Ross Cole (Needman and Co.): I wanted to ask a little bit more about your adjusted EBITDA guide. So for 3Q, it makes sense. But then can you maybe go into a little bit more about how you're thinking about the implied 4Q guide? Because that's a pretty big step up. I'm wondering, how do you plan on getting to that? Or maybe what's going into that number?
  Response: The Q4 EBITDA step-up is driven by normal seasonality, with expenses peaking in Q3 for annual enrollment and then offsetting in Q4, not by any abnormal items. Revenue rebounds naturally in Q4.

• Question from Pete Heckman (DA Davidson): You had said a brief comment basically saying, like, looking out at 2028 as the time where we should start to see, I think you said, like, quarter over quarter improvements. I just want to see if you could – provide a little additional commentary there, and I just want to make sure you weren't talking about year-over-year improvements, given some of the seasonality of the business, or I guess quarter-over-quarter improvement in some of the metrics.
  Response: Management expects net commercial activity and P&L growth factors to start improving in 2028 due to strengthened operations, AI capabilities, and better commercial execution, as RFP wins from 2027 begin to materialize.

• Question from Pete Heckman (DA Davidson): ...would you assume kind of your net leverage here? would maybe peak. I guess, do you have insights into that yet or that you can kind of talk to us about?
  Response: The focus is on maintaining balance sheet flexibility. No major debt paydowns are planned; the company is evaluating options (buybacks, M&A, etc.) to deploy cash for the best return, with clarity to come.

Contradiction Point 1

Retention Trends vs. Revenue Step-Down

Positive retention trends conflict with a material revenue decline forecast.

Pete Heckman (DA Davidson) - Pete Heckman (DA Davidson)

2026Q2: The company is encouraged by current trends. Account coverage has expanded from 100 to 500 clients, providing better visibility into renewals. Trends for loss and compression at this point in the year are favorable compared to the same point last year. Client feedback from recent meetings and demos is very positive, indicating strong momentum in delivery excellence. The long sales cycle means improvements will take time to reflect in the P&L. - Rowan(CEO)

Can you discuss the full-year 2025 retention rates, their progression throughout the year, and whether the trend continued to deteriorate, bottomed, or improved in the first half of 2026? - Curtis Nagel (Bank of America)

2026Q2: There is a 12 to 18 month lag between commercial activity and its impact on revenue. The weakness in the second half is primarily due to renewal and commercial execution issues from 2024 and 2025, with the majority of the impact (Q3) coming from 2025 activity. - Rowan(CEO)

Contradiction Point 2

EBITDA Seasonality and Drivers

Explanation for Q4 EBITDA step-up differs between quarters.

Ross Cole (Needman and Co.) - Ross Cole (Needman and Co.)

2026Q2: The Q3 EBITDA is lower due to higher expenses for annual enrollment. Q4 naturally sees a higher EBITDA seasonally. The increase is driven by the rebound of revenue and cash flow after the Q3 trough, with no abnormal items beyond regular seasonality and some contribution from new accounts. - Steve Lasher(CFO)

"What is driving the significant step-up in the implied Q4 adjusted EBITDA guide?" - Ross Cole (Needham & Co, for Kyle Peterson)

2026Q2: The Q3 EBITDA drag is primarily from higher expenses related to annual enrollment. Q4 naturally rebounds as these expenses are offset, and it is typically the higher EBITDA quarter seasonally. Some new account revenue also comes online in Q4. The pattern is consistent with historical seasonality. - Rohit Verma(CEO) and Stephen Lasher(CFO)

Contradiction Point 3

Commercial Execution and Retention Trends

Contradiction between positive near-term trends and a forecasted significant revenue weakness in H2.

What was Pete Heckman's analysis of DA Davidson's earnings call? - Pete Heckman (DA Davidson)

2026Q2: The company is encouraged by current trends... Trends for loss and compression at this point in the year are favorable compared to the same point last year... Client feedback... is very positive, indicating strong momentum. - Rowan(CEO)

How did retention rates progress through full-year 2025, and has the trend continued to deteriorate, bottomed, or improved in the first half of 2026? - Curtis Nagel (Bank of America)

2026Q2: The weakness in the second half is primarily due to renewal and commercial execution issues from 2024 and 2025... - Rowan(CEO)

Contradiction Point 4

Free Cash Flow Conversion Expectations

Contradiction on the expected full-year free cash flow conversion rate.

Pete Heckman (DA Davidson) - Pete Heckman (DA Davidson)

2026Q2: Full-year free cash flow conversion is expected to be in the 40 to 43% range. - Steve Lasher(CFO)

What is your guidance for free cash flow conversion as a percentage of EBITDA for the full year? - Pete Heckmann (D.A. Davidson)

2026Q1: We believe that we'll continue to see solid free cash flow generation for the year... it's a reasonable range that we expecting it to do. - Rohit Verma(CEO)

Contradiction Point 5

Root Cause of Revenue and Margin Pressure

Contradiction on whether pressure is due to renewal issues or broader execution challenges.

"What are your key insights from the earnings call, Curtis Nagel?" - Curtis Nagel (Bank of America)

2026Q2: The weakness in the second half is primarily due to renewal and commercial execution issues from 2024 and 2025, with the majority of the impact (Q3) coming from 2025 activity. - Rowan(CEO)

How do you reconcile the comments on improved retention with the significant decline in applied recurring revenue in the second half of the year? - Peter Christiansen (Citigroup Inc., Research Division)

2025Q4: The financial underperformance stems from execution challenges in operational excellence, client relationship management, technology, and product innovation—not a strategic direction issue. - Rohit Verma(CEO)