Description

Alight, Inc (ALIT - $9.16) 

Sponsored by veteran value creator Bill Foley, ALIT emerged as a public company via a SPAC transaction in July 2021. Given its large moat (an installed base comprised of 70% of the Fortune 1000), high visibility (approximately 82% of its $2.7B of annual revenues are recurring) and recent new bookings and business momentum, we believe ALIT, which combines software-as-a-service capabilities and automated service delivery with data and artificial intelligence (AI), is poised for accelerated and sustainable near-term and long-term revenue and EBITDA growth, as well as significant multiple expansion toward its peer valuation multiples.

We believe ALIT is a misunderstood stock, being ignored and wrongfully tainted amid the continued torrid SPAC bear market.  ALIT appears to be in the early innings of enjoying business tailwinds, offering us very attractive risk/reward at only 10.4X 2022 EBITDA, a substantial discount to a peer group at approximately 20-23X. At a rerated multiple of 18X, we see conservative upside toward $18 in the next 12 months, as ALIT becomes a more seasoned stock and gains respect as a high quality BPaaS (Business Process as a Service) technology company in coming quarters.  We see further catalysts and additional upside through its continued M&A program, as well as its potential as a strategic takeover target itself. 

Business Overview and Recent Trends

“I am just going to add the customer lens to it. It continues to exceed my expectations…how our One Alight approach….is driving excitement in our install base and in the net new market, so that's what's exciting for us.” — CEO Stephan Scholl

Through its Alight Worklife platform, ALIT is bringing together a holistic view across health, wealth, well-being and payroll to more than 30 million people at the world's most influential companies. ALIT’s management believes this unique capability set is generating positive momentum in the marketplace, as companies fully embrace the differentiated experience and return on investment ALIT can provide. 

Given its strong business momentum in Q3, ALIT raised its full year revenue and EBITDA guidance for the second time in 2021. Specifically, ALIT posted BPaaS revenue growth of approximately 20% and adjusted EBITDA growth of approximately 16% during Q3. ALIT enjoyed BPaaS bookings growth of approximately 42%, with significant new logo wins and expanding relationships with large global companies, representing strong leading indicators for 2022 and beyond. 

Secular Tailwinds

65% of American adults say they are planning to switch jobs in the next year. Additionally, Millennials and Gen Z 
workers make up more than half of the workforce and are potentially even more likely to be searching for another job. The pandemic has accelerated a tightening of the labor market, on top of this, companies are grappling with their return to the workplace strategies, vaccine requirements and keeping their workplace healthy and prepared. Employees are asking for more when they leave one company for another; employees are saying that they want a different experience, and they have higher expectations of their employers. They are voting with their careers. 

“The pressure employees are putting on companies is changing the conversation and it's elevating the conversation. Things like benefits, employee engagement and well-being are no longer HR conversations. These are C-suite and Board level discussions because putting employees at the center has become a business imperative. We believe these very real challenges companies are facing have created tremendous tailwind for Alight.” — CEO Stephan Scholl November 2021

Management asserts: 1) how companies are treating their workers, 2) what they're doing to improve employee experience and 3) their overall well-being has never been more important. 

Alight's BPaaS solutions leverage the Alight Worklife engagement platform to provide tools and technologies employees can use to maximize the value of their benefits and improve outcomes, driving increased productivity and helping employers develop high performing cultures. 

For some perspective, management highlights as an example a major manufacturing company it works with which needs to hire thousands of engineers; but they need and want employees who are going to stick with them for the long-term and not switch jobs after a year or two. At the same time, their job candidates are asking for more. They don't just want foosball tables and free lunches; they want to know how their employers are going to care for them and their families throughout their career. This creates an incredible opportunity for this employer to align its benefits and employee

experience strategy to create a differentiated employer value proposition that will attract and retain workers for the long-term. 

“We believe Alight is the only company that can work with this client and others like it. To support their employees and their families from higher to retire across health, wealth, well-being and payroll in one seamless experience.” — CEO Stephan Scholl

Alight’s Value Proposition: Case Study 

An employee is diagnosed with breast cancer. 

“For most people, this is an overwhelming and confusing experience, trying to determine which healthcare providers to entrust your care to, navigating treatment options, second opinions and not to mention the incoming bills. Now, what if that same employee had an entirely different experience that was personalized to their unique situation. This is where Alight changes the game. Using the Alight Worklife platform, this same employee gets bespoke information and messages related to her care. Prompting her to an Alight Nurse Pro, who can assist her in finding the right provider. Suggest support groups to help her cope with the mental and emotional impact of her diagnosis. Direct her to a second opinion and essentially guide her through her entire journey.” — CEO Stephan Scholl November 2021

M&A

Smart bolt-on acquisitions are in ALIT’s blood. As such, we continue to expect more value creating smaller-scale acquisitions, in addition to the acquisitions of the AON Retiree Health Exchange (which gives ALIT additional scale, expertise and capabilities in Medicare enrollment to further expand on its ability to serve employees from hire to retire) and Consumer Medical (which strengthens its existing clinical healthcare navigation capabilities) - both of which closed after the close of Q3. 

William P. Foley, II

With invested capital of $440.5 million in ALIT, Bill Foley is a preeminent operator and deal maker with a long, proven track record of shareholder value creation. Through a 30+ year career, Foley has consistently accelerated growth and improved operating margins, as well as executed strategic M&A and exceeded cost reduction targets on acquisitions. Bottom line: He has developed a value creation framework to identify and execute investments and drive value for shareholders. We believe ALIT will prove to be an all-star quality Bill Foley-type investment, directly drawn from his successful playbook. 

 Summary

“We see strong momentum going into the fourth quarter that continues that trajectory following off Q3.  And so, we'll be out…once we get through our Q4 earnings with official 2022 guidance, but what I'd say is, I think the momentum continues. We continue to have good pipeline, good bookings data that enable us to feel good about how we're entering 2022.” — CFO Katie Rooney November 2021 

“We think [CEO] Stephan and his team…are best-in-class. And we share his vision…with unlocking the power of Alight's BPaaS platform. And it's funny because we were just talking…Alight started this year or started out as a public company…they talked about organic revenue growth of 1% for 2021. Then sometime in the second quarter they said: “Well we're going to get maybe 3% revenue growth…3% 4% maybe up to 5%. Then today they guided to 5% to 6% in 2021…and you can expect revenue to continue to accelerate…and my own personal opinion is going to be a high single-digit grower in the very near future. That's going to get you a rerate [at a] much higher multiple of EBITDA and we think you're going to be a very happy owner there.” — Bill Foley November 2021

We believe ALIT’s combined moat and secular tailwinds will continue to drive business momentum - leading indicators for a continued meet and/or beat and raise dynamic which should rerate ALIT’s valuation to much higher multiples closer, yet still at a nice discount, to its peers, yielding a stock price of at least $18 in the next 12 months. Lastly, we would certainly not be surprised to see a strategic buyer show up to acquire this high quality, undervalued company at a premium price. 

Catalyst

Continued bookings and revenue growth 

Meet and/or beat and raise dynamic driven by secular tailwinds 

More mainstream analyst coverage

Accretive acquisitions

Rerate to peer group multiples that are 20 + X vs ALIT’s approximate 10X. 

Potential strategic takeout target