Conferencia de resultados del T3 de 2026 de Alight (ALIT): Eleva sus previsiones mientras los ingresos caen un 6%

Puntos clave

• Alight presentó unos ingresos en el tercer trimestre de 2026 de 500 millones de dólares, lo que supone un descenso interanual de aproximadamente el 6%, ya que la menor ejecución comercial de años anteriores continuó afectando a los ingresos recurrentes.
• Los ingresos recurrentes fueron de 458 millones de dólares, con una caída del 6%, mientras que los ingresos por proyectos disminuyeron un 5%, hasta los 42 millones de dólares. La actividad en proyectos superior a la prevista y los volúmenes en el área de Wealth impulsaron el trimestre.
• El EBITDA ajustado cayó a 86 millones de dólares desde los 138 millones, con una contracción del margen del 26% al 17%. La dirección señaló como factores clave la combinación de ingresos, las iniciativas de productividad y la programación temporal de ciertos costes.
• Alight elevó sus previsiones de ingresos para todo el año a un rango de 2.115 a 2.125 millones de dólares y la de EBITDA ajustado a un rango de 410 a 420 millones de dólares.
• La tasa de retención de renovaciones se situó en la parte alta del rango del 90%. La dirección prevé que los beneficios financieros derivados de la mejora en las renovaciones comiencen a manifestarse a partir del segundo semestre de 2027.
• La directiva aún prevé un descenso de los ingresos en 2027, a medida que la debilidad comercial previa se refleje en los resultados, antes de que el impulso comercial se acelere y respalde el crecimiento en las principales líneas de producto en 2028.

Datos financieros clave

Rendimiento empresarial y operativo

Alight señaló que su negocio recurrente suele experimentar un desfase de entre 12 y 18 meses entre la ejecución comercial y el reconocimiento de ingresos. Por lo tanto, los resultados actuales continúan reflejando la menor actividad de años anteriores.

La retención de renovaciones mejoró hasta la parte alta del rango del 90%, y aproximadamente el 25% de las renovaciones incluyeron además una ampliación de servicios. La empresa incorporó varias cuentas entre clientes corporativos de menos de 15.000 empleados y registró victorias adicionales en las áreas de Leaves (bajas/permisos) y Wealth (patrimonios). La directiva también afirmó que Alight defendió con éxito varias renovaciones competitivas frente a proveedores que le habían arrebatado negocio el año anterior.

Alight continuó implementando la IA en sus operaciones de servicio. Sus herramientas de IA de agentes apoyan aproximadamente 15 millones de llamadas de participantes al año mediante un enrutamiento mejorado, respuestas más rápidas y, en algunos casos, resolución automatizada. La dirección enfatizó que las inversiones actuales en IA están destinadas principalmente a mejorar la calidad del servicio y la experiencia del usuario, esperando que los beneficios de productividad se desarrollen con el tiempo.

Tras el cierre del trimestre, Alight adquirió Abett, cuyo motor de datos integra información de planes de salud, gestores de prestaciones farmacéuticas, plataformas de administración de beneficios, sistemas de gestión de personal y otras fuentes. La dirección prevé que la adquisición refuerce la inteligencia en materia de beneficios y amplíe las capacidades de análisis de datos sanitarios de Alight.

La compañía atiende a 30 millones de participantes a través de su plataforma y administra aproximadamente 1,7 billones de dólares en activos de Wealth. Asimismo, destacó las oportunidades de venta cruzada en las áreas de Health, Wealth y Leaves.

Previsiones de la dirección

La dirección se mantiene cautelosa respecto a los ingresos por proyectos del cuarto trimestre debido a su naturaleza variable, y prevé que los ingresos por proyectos de todo el año se mantengan prácticamente estables en comparación con 2025.

La empresa prevé que el tercer trimestre siga siendo, por estacionalidad, el de menor margen, mientras que el cuarto y el primer trimestre suelen generar márgenes más elevados. La directiva planea ofrecer previsiones más detalladas para 2027 cuando presente los resultados del cuarto trimestre.

Alight prevé que el impulso comercial se fortalezca durante 2027. Sin embargo, la dirección reiteró que es probable que los ingresos disminuyan el próximo año a medida que el rendimiento comercial anterior continúe trasladándose a los estados financieros. Anticipa un dinamismo más acelerado y un crecimiento en las líneas de productos clave en 2028.

Riesgos y aspectos a vigilar

• Se espera que el menor rendimiento comercial del año anterior presione los ingresos recurrentes a corto plazo y contribuya a un descenso de la facturación en 2027.
• Los ingresos por proyectos son variables y pueden provocar fluctuaciones trimestrales en los resultados consolidados.
• Parte de la mejora del margen del tercer trimestre reflejó la distribución temporal de los costes, ya que se prevé que ciertos gastos se trasladen al cuarto trimestre.
• La fijación de precios sigue siendo competitiva. La dirección señaló compresión de tarifas en un número limitado de cuentas, aunque no lo calificó como una tendencia generalizada del mercado.
• La mejora de las renovaciones tiene un impacto financiero diferido, y se prevé que sus beneficios empiecen a apreciarse principalmente a partir de la segunda mitad de 2027.
• Alight rechazó llevar a cabo una posible transacción con prestamistas debido a que las condiciones propuestas no resultaban satisfactorias. Su préstamo a plazo vence en agosto de 2028, y la dirección afirmó que la liquidez otorga margen de tiempo para abordar la estructura de capital.

Puntos destacados del turno de preguntas de analistas

La directiva atribuyó el rendimiento superior de los ingresos del tercer trimestre frente a sus expectativas internas a la solidez de los ingresos por proyectos y al incremento de los volúmenes de Wealth. Estas fuentes de ingresos requirieron costes marginales limitados, lo que se tradujo en una conversión favorable al EBITDA junto con las iniciativas de productividad.

En cuanto a la retención, la directiva indicó que la tasa situada en la parte alta del 90% incluye la pérdida de clientes y la compresión de tarifas en toda la cartera. Su objetivo es que la retención se acerque a escasos puntos porcentuales del 100%, pero señaló que el cuarto trimestre sigue siendo un periodo activo de renovaciones con varias decisiones pendientes.

La dirección no espera que la actividad comercial neta se acerque a un nivel prácticamente plano durante 2026. Indicó que es más probable que dicho impulso se desarrolle en algún momento de 2027.

En lo referente a la refinanciación, la directiva afirmó que Alight no depende de financiación externa para sus necesidades de capital de trabajo o inversión. La empresa prevé esperar a obtener unas condiciones que considere adecuadas, respaldada por su liquidez, su generación de caja y el vencimiento de deuda de agosto de 2028.

Transcripción completa de la llamada de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Good afternoon, and welcome to Alight's Third Quarter 2026 Earnings Conference Call. [Operator Instructions] There is a presentation accompanying today's call available on the Elite Investor Relations website. I will now turn the call over to Jennifer Belodeau of IMS Investor Relations to read the safe harbor statements.

Unknown Attendee

Thank you. Today's discussion includes forward-looking statements within the meaning of the federal securities laws. These statements reflect management's current views and expectations and are subject to risks and uncertainties that could cause actual results to differ materially. Factors that may cause such differences are described in today's earnings release and in Elite's filings with the Securities and Exchange Commission, including in the Risk Factors section of its most recent annual report on Form 10-K. The company undertakes no obligation to update any forward-looking statements, except as required by law. In addition, during today's call, the company may reference certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the earnings release available on the company's website. I'll now turn the call over to Rohit Verma, Chief Executive Officer of late. Please go ahead.

Rohit Verma

Thank you, Jennifer. Good afternoon, and welcome to Allie's Third Quarter 2026 Earnings Call. Today, I'm joined by Steve Lasher, our Chief Financial Officer, who will take us through the details of our third quarter results and Dinesh Tulsiani, President in Floor Solutions, who have invited on the call today to give us a deeper look at our operations, particularly our acquisition of Abett. We delivered a solid performance in the quarter. exceeding revenue and adjusted EBITDA expectations for the third consecutive quarter. This result is a great proof point of enhanced and disciplined execution. Our revenue beat was bolstered by strong project revenue and higher volumes in our core business.

During the quarter, we continued to drive progress on our transformation initiatives. As we've shared previously, the focus has been to enhance service excellence, speed of innovation and user experience. During the quarter, we rolled out new genic voice capabilities, delivered our AI-enabled annual enrollment configuration for enterprise clients and further develop our intelligent data interchange. We also expanded account executive coverage to relationships, which represent over 95% of our recurring revenue. These enhancements have enabled us to significantly improve book retention to the high 90s in the quarter while also inspiring greater confidence in the third-party evaluator and the consultant community, which will ultimately help us build an even stronger new business pipeline.

We expect that the financial impact of this enhanced renewal activity will begin showing its impact in the latter half of 2027 and beyond. From an operational standpoint, we further strengthened our leadership team with the addition of Bruce Wolf as our wealth leader, made progress driving increased velocity in our technology delivery and continued in-sourcing critical client service functions. Subsequent to the quarter, we acquired a bet, a provider of advanced data engine capabilities to Fortune 50 companies today.

We are excited about the capabilities will add to help us further strengthen our competitive advantage. Looking at our financial performance. Third quarter revenue of $500 million included $458 million in recurring revenue and $42 million in project revenue. Recurring revenue was down 6% over the prior year period as a result of commercial activity in 2025 and earlier. As we've previously discussed, our recurring business experiences in approximately 12 to 18-month lag between the point of commercial execution to revenue realization.

Our results currently reflect the impact of muted commercial execution from previous years, and we expect our financial results to continue reflecting that impact for the near term. That said, execution of our strategic road map is setting us up well to accelerate commercial activity and reverse the trends from the past years. Our liquidity position is strong with $542 million in total liquidity, consisting of $212 million of cash and $330 million undrawn revolver. Year-to-date, we've generated $108 million in free cash flow, and we remain confident in our cash generation for the remainder of 2026 and beyond.

Overall, we are pleased with our performance and progress during the third quarter and energized to advance our transformation initiatives. It is important to keep in mind that Alight truly has a unique position in the marketplace. We serve a majority of the Fortune 500 and each of our 3 product lines has substantial opportunity for growth and market expansion. In Health, our largest offering, we are continuously evaluating and adding partners to increase our portfolio of solutions to better serve our customers and their employees.

We continue to integrate new partners through our light Work Life platform the industry's largest benefits platform with 30 million participants. We've recently added new partners to provide a full spectrum of mental health support, wellness resources and GLP-1 solutions. Wealth is our second largest business with approximately $1.7 trillion under administration. As you can imagine, for large organizations with diverse employee population and salary levels, retirement plan administration can be complex, and our customers rely on us to provide effective and seamless support.

Alight has the largest scale in pension administration and is one of the largest defined contribution record keeper. Of note, we recently partnered with BNY to create an integrated retirement solution to support plan administration and investing, and we are continuously pursuing opportunities to add value to our wealth offering. Our relationship with BNY also uniquely positions us to facilitate Trump accounts for our clients.

With the existing dependent verification infrastructure we already have in place for our 30 million participants, Alight is well placed to take a leadership position as more employees consider adopting Trump accounts. Finally, leaves our third offering represents a significant growth opportunity. Leaves of absence regulations are continuously evolving and growing and ensuring compliance can be time consuming for employers and their HR teams.

Alight's platform provides a wide range of services including leave of absence administration, medical and disability guidelines as well as short-term disability administration to provide the right options while also ensuring compliance. There are substantial cross-selling opportunities in conjunction with Health and as 1 of the few scale providers in the space, Alight is uniquely positioned to meet the growing leave of absence market. In my view, there are 3 key elements as we continue to build a stronger alight, strengthening renewal retention, rebuilding bookings to grow our market leadership with the addition of new logos and executing on our road map of service excellence, user experience and better benefit outcomes to drive improved commercial activity.

We have made good progress in a short period of time on all of these fronts, and I'm increasingly optimistic about our enhancements appealing to our customers and prospects. Our enhanced offerings, strong coverage of our client base and focused management team gives me confidence in our ability to build momentum in our commercial activity moving forward. As you recall, we have been focused on 5 strategic initiatives for investments that focus on the user experience and service excellence. Now we'll hear from Dinesh Tolsiani on the progress we've made against these initiatives and what is giving us confidence in our commercial activity moving forward.

Dinesh Tulsiani

Thanks, Rohit. The benefits vertical continues to grow and become more complex, driving strong demand for benefit solutions, a like meets the benefits compliance, delivery and technology needs of our clients so that they can focus on running their businesses rather than dedicating internal resources to managing their benefits programs. All benefits, including health savings, financial planning and retirement programs encompass a large TAM and are viewed as an essential offering.

We have a proven track record and legacy of trust providing solutions for a broad range of organizations from Fortune 500 to midsize or smaller entities because benefit programs are largely considered a nondiscretionary expense, -- while we are not completely immune to the macro environment, our business model is highly resilient. As Rohit mentioned, shortly after the close of the third quarter, we acquired a bet, a health care and benefits technology company. Its core product, the data engine unified information from health plans, pharmacy benefit managers, benefits administration platforms, workforce systems, point solutions and other sources.

This acquisition advances our strategy from administrating benefits to helping employers measure and improve them, supporting stronger outcomes for times and their employees, combined with Alight's ability to engage 30 million people on the live work life platform at key decision points. These insights can be translated into targeted communications to drive better benefits decisions, Abbet will further strengthen our core, make our solution more valuable with its ability to broaden our benefits intelligence, we will expand our value proposition to our clients, further strengthening relationships. Abbet also extends a light into a broader health data analytics market. Together, these capabilities strengthen our position within our total addressable market.

We continue to leverage and deploy AI across our organization with the goal of increasing efficiency to improve service excellence and user experience. While we see great potential with AI-driven enhancements -- at our core, we are a people business, and we are unwavering in our view that effective benefits administration requires human insight, empathy and accountability enabled by technology. The AI tools we are deploying are designed to be predictive, personalized and able to give meaningful assistance to our members, while also meeting security, privacy and auditability thresholds.

We've made good progress and seeing favorable results with our launch of agentic AI at our call center. They're using AI, not as a replacement for our call representatives, but as a tool to enable us in responding to the approximately 15 million calls we take every year from our participants. These capabilities allow our reps to provide quicker and more intuitive responses for enhanced service. As we detail here with our AI capabilities, we can more accurately route collars to the best suited representative or in some cases, resolve questions without going to customer service representative. .

Additionally, we have seen call times to use, which allows us to serve more participants with less wait time. We are excited about the efficiencies that AI tools are already providing for our clients and continue to explore opportunities to make the core experience faster and easier.

With that, I can turn the call over to Steve to discuss our financials.

Stephen Lasher

Thanks, Dinesh, and good afternoon, everyone. I'll now walk you through our third quarter 2026 results. As Rohit mentioned, in the third quarter, we're pleased to have exceeded expectations for revenue and adjusted EBITDA for the third consecutive quarter. Revenue for the third quarter was $500 million, a decrease of approximately 6% compared to the prior year. As we discussed previously, commercial execution activity, whether favorable or unfavorable, takes some time to impact our results and disappointing commercial activity in prior years is currently working its way through our financials. Project revenue for the quarter was $42 million, a decline of 5% compared to the third quarter last year.

Project revenue is variable by nature and can create fluctuations in our quarter-to-quarter consolidated results. Adjusted gross profit in the third quarter was $168 million, down $38 million from the prior year period, reflecting an adjusted gross profit margin of 34%. Third quarter 2026 adjusted EBITDA was $86 million, with an adjusted EBITDA margin of 17%, compared to $138 million or an adjusted EBITDA margin of 26% in the prior year period. We exceeded our expectations in the quarter, largely due to higher-than-expected volumes and project revenue in the quarter.

Adjusted net income in the third quarter was $19 million with an adjusted EPS of $0.66, compared to $62 million of adjusted net income and adjusted EPS of $2.32 in the third quarter of 2025. Our balance sheet remains strong with $542 million in total liquidity, consisting of $212 million of cash and our $330 million undrawn revolver. Year-to-date free cash flow was $108 million. We believe our liquidity and cash generation will continue to provide us with the flexibility to effectively pursue our business objectives. Of note, on October 14, 2026, we filed a Form 8-K, updating investors on our confidential discussions with certain lenders regarding our existing credit facility.

We have elected not to pursue a potential transaction with our lenders at this time as we did not reach terms that were satisfactory to a light given our strong position from a liquidity standpoint, better-than-expected financial performance and confidence in our strategic direction. Our term loan does not mature until August 2028, and we believe we have ample runway to extend our capital structure at the right time.

Looking forward, with our visibility today, we expect full year revenue to be between $2.115 billion and $2.125 billion, raising the midpoint of our revenue guidance from $2.08 billion to $2.12 billion. We expect full year adjusted EBITDA between $410 million and $420 million, raising the midpoint of our adjusted EBITDA guidance from $407.5 million to $415 million. Our liquidity and cash generation remains strong, and we continue to benefit from disciplined cost management, operational streamlining and progress on our transformation activities across IT and operations. We believe we have a strong foundation in place to support reinvestment in the business as we look to build momentum in 2027 and beyond.

Now I'll give the call back to Rohit.

Rohit Verma

Thanks, Steve. As you can see, we are proceeding with purpose, conviction and a detailed road map as we drive our transformation strategy and we believe our ability to exceed revenue and adjusted EBITDA expectations in each of the first 3 quarters of this year serves as early evidence of our initial progress. As we close 2026, -- we continue to strengthen our foundation with strategic investments to enhance our product offering and drive service excellence with a goal of building back a more favorable retention environment and increasing our leadership position.

I, together with our leadership team, continue to be extremely engaged with our clients, prospects, consultants and third-party evaluators to ensure our work is resonating, and we are strictly acting on their inputs to reinforce our relationships. Our client engagement has been wide-ranging, including innovation days for Candidate small group sessions where we show the customers and partners how we build our technology road map. Leadership attendance at finalist meetings to reinforce our commitment and stewardship meetings to demonstrate insights and thought leadership.

As we move through 2027, we expect to see heightened momentum in our commercial activity as we leverage the market advantage of our execution of our strategic initiatives to win new logos and expand existing relationships. In 2028, we anticipate that momentum will accelerate and drive growth across key product lines. Our healthy liquidity and cash generation underpins our ongoing efforts and continue to provide a competitive advantage as we move forward. We have the right team, tools and strategy in place to drive service excellence, deepen client relationships and execute on our strategic agenda with urgency and discipline, and we are energizing clear eyed about our path forward. .

Operator, we'll now open the call for questions.

Operator

[Operator Instructions] The first question is from Curtis Nagle from Bank of America.

Preguntas y respuestas

Curtis Nagle

Great. First, I just wanted to talk through the moving pieces for the recurring revs in the third quarter, I think looked a little better than I think we all were expecting. I think was guys something sort of in the 10% down range. So what drove the upside? And then for 4Q, it would imply kind of a step down. So I'm just trying to figure out sort of what all the moving pieces are from 4Q to 3Q and just sort of what happened, I guess.

Rohit Verma

Curtis, it's great to hear from you. So there were really 3 drivers that happened. The project revenue came in better than we had expected. We got volumes growing in our wealth business as well. Those were really the drivers that helped the revenue outperformance -- and then as we look at Q3 versus Q4, we are -- as you know, last year, we had underperformance of the project revenue. So we're looking at that, and we're being thoughtful about it as how we think about it. We still believe that we will be roughly flattish to project revenues last year.

So we're just taking a cautious approach and want to make sure that we continue to provide a guide that is our best estimate based on what we can see at the current time. And that's the reason why we passed on some of the outperformance of 3Q into the full year guide.

Operator

The next question is from Kyle Peterson from Needham & Company.

Kyle Peterson

Great. I want to start a bit on the margin performance this quarter looked really strong, which is good to see. I guess, how much of that was -- whether it was from some of the project revenue coming in better than expected? Just trying to tease out the swing factors and what drove some of that upside versus expectations?

Rohit Verma

Yes. As you know, Kyle, first of all, thank you for asking the question. Good to hear from you -- as you know, the 2 areas that caused the revenue outperformance, both from a project standpoint as well as a volume standpoint, that doesn't take as much incremental from a cost perspective, so they just tend to have a better flow-through. So one, you saw that. Second, as I've shared with you before, that we are continuing to push on productivity initiatives. So you saw some element of that coming in.

And those were really the factors that drove the margin performance. As you know, seasonally, Q3 tends to be a lower margin because we take on cost for annual enrollment, that kind of unwinds itself in Q4, and that's reflected in our guide of how we're thinking about Q4 revenue and Q4 margin.

Kyle Peterson

Okay. That's really helpful. And then I guess I wanted to follow up on the comments about the potential kind of debt refinancing and decision not to pursue the transaction. I totally hear you guys have plenty of runway. But I guess maybe if you could give a little more color on what would give you guys more confidence potentially going back to the markets? Like how much of that is, whether it's just better market conditions? Or was there some feedback that you guys want to be able to show some of the improvements and turnaround that you guys are making under the hood? Just any more color as to the decision to wait and what could potentially bring you back would be great.

Rohit Verma

Yes. Yes. Thank you, Kyle. Look, I think you've sort of answered the question a little bit already. First and foremost, -- it's important to note that we have plenty of time for our maturity, right? Our maturity is in August of 2028. We have $215 million of cash on our balance sheet. We've shared before that we feel confident about our cash generation for the remainder of the year, which means that by the end of the year, we will have more cash on the balance sheet and we'll be in a stronger position from that standpoint. We've demonstrated a beat in Q3, and we've raised our Q4 guidance. I think those are all data points that we believe further strengthen our case as the lenders underwrite our risks.

We're not dependent on neither for our working capital nor for investment capital. So -- and we're not in any kind of rush or bind. We are generating plenty of cash. So that's not a rush. We just want to stay disciplined, and we want to make sure that we get the right terms and the right deal for the company. That's the most important thing. And we just felt like we were not getting that because maybe we were a bit earlier than expected, and there was more need to see some proof points, which we're now putting on the board.

Operator

The next question is from Scott Schoenhaus from KeyBanc Capital Markets.

Scott Schoenhaus

Congrats on the quarter and update. So revenue question and margin question. The revenue question is you mentioned in your prepared remarks, Rohit, that you had some new logo wins -- maybe you can provide some color on what kind of customers these are how you won these customers for the competitive conversions. And then you mentioned high 90% renewal rates. Where do we stand from here for the rest of the year on closing in on getting to 100%, if that's possible, and provide any color on the renewals?

Rohit Verma

Yes. Great question, Scott. I'm looking forward to seeing you next week. Look, let me start by saying that we feel good about where our commercial activity is -- and the progress that we've made. It's tracking to our plan. It's not at the level that we want it to be from a sustainability perspective. So to your point earlier, do we want to get renewals higher? Absolutely. Every quarter this year, we've improved on our renewal position, and that is the first step in winning new business. We continue to win new business. We expanded services with our large market clients on the health side with some point solutions and a light partner network. On our enterprise clients, which is less than 15,000 employees, we added several new logos.

On the lease side, we added several new logos in wealth. We have continued to add some AFA, which is the Allied Financial Advisory business. And our renewal activity was strong in Q3 and it continues to be better from what it was in the prior year. In fact, with 25% of the renewals, we've added -- we've expanded a service with them. And the other thing that I would say is that we have defended competitive renewals against several names to whom we lost last year. So the work that we've been doing in terms of our AI initiative in terms of our user experience, in terms of service excellence, that's really resonating with our client base, and they're starting to see that.

Obviously, those are things that -- some we've delivered this year, some we will continue to deliver. And as we deliver those, I think it gives us the confidence that we can develop further momentum in our commercial execution. Hence, you saw what I said, right, 2026 is all about building the foundation, consolidating the foundation, getting things right, 2027 is about building momentum and 2028 is about driving growth. We -- Q4 is still a very active renewal period. We still have several renewals that are outstanding in terms of the decisions. And I think we will continue to receive those decisions between now and end of the year.

Like I said, so far, we feel good about where we are, but there's more work to do because certainly from a sustainability perspective, we want to get to within a couple of points of 100. Right now, we're in the high 90s, which is better than where we were last year at this point, but more work for us to continue doing, right? We're not taking our foot off the pedal.

Scott Schoenhaus

Great. Great color, it. On the margin side, you talked about -- and you just mentioned it again, the AI initiatives, and it's really resonating and you're seeing a lot of progress. It sounds like it's helping supplement and support customer service levels beyond expectations here. And clearly, you guys blew out our margin expectations. How should we think structurally now as you're deploying AI more about margins in your business given the outperformance in the quarter?

Rohit Verma

I would say that our focus of AI has been a lot more on quality and service excellence than purely on productivity. I think productivity is a byproduct that we will continue to see come out over the coming quarters. As we said earlier, we are still seeing the '23, 2026 commercial activity work its way, and that will have its impact in 2027 as well. So we will see a drop in revenue in 2027, as we've shared that with you before. But we believe that some of the things that we've been working on, they will continue to help us hold the margin. And that's really what our focus will be. We will come back to you in Q4 with better guidance on 2027 and how we expect the margin to move I think the seasonality of the margin will continue to hold, which is Q3 seasonally will be our lowest margin quarter Q4 and Q1 being the higher-margin quarters for us.

I think you will continue to see that seasonality. There is more work for us to do before we start to say that AI is truly impacting the margin story. I think there is some impact, but most of that impact we pushed on is on quality and user experience, which are not always margin drivers, but more a driver of confidence from our clients that we can deliver on the work that they want us to. Steve, do you want to add anything to that?

Stephen Lasher

I think you hit on it. And again, just we were happy with third quarter. Some of those improvement within margin is also a little bit of timing. So when you take a look at the back end of the year, when we looked at our second half guide. Again, some of that is we didn't see some of the costs roll in the third quarter that we were expecting. So when you look at how we took our guide up, you'll see we did pass through EBITDA, but not as much from a third quarter to fourth quarter. So again, looking at that second half just to be a balanced perspective. So I just wanted to add that for you.

Operator

The next question is from Pete Heckmann from D.A. Davidson.

Peter Heckmann

Sounds like great results, particularly the revenue retention improving every quarter this year. Can you talk about like when you talk about the tracking to high 90s and maybe a target of 97%, 98% revenue retention. Remind us, that calculation include pricing as well as the impact of new business. Remind us what's included in that figure.

Rohit Verma

Yes, when we look at renewal retention, we look at our entire book and we look at what is the level of revenue we're retaining on the entire book. So that includes any losses as well as any margin compression that we're seeing -- fee compression that is Yes, sorry, not margin fee compression.

Peter Heckmann

Got it. Okay. And then just with some new logos, improving retention? I guess, do you think you can get to a point where like net commercial activity is pretty close to flattish as you exit this year?

Rohit Verma

Look, I -- that's a measure that we don't report on. So I will not start a reporting trend on it. But what I would say to you is that, as I've said before that I think that kind of momentum is what we expect to see sometime in 2027 and not in 2026.

Peter Heckmann

Got it. Okay. And then just 1 more, and I apologize if you already said it. I have juggling a couple of different reports here this afternoon. But -- did you talk about a target for free cash flow conversion from your adjusted EBITDA guidance goal for the year?

Rohit Verma

We haven't talked about it, but as we think about it, we would probably -- if you look at conversion from the EBITDA, it's probably in the 40% range.

Stephen Lasher

Yes. I think we're just consistent with what we've shared before.

Peter Heckmann

That's right. Okay. It looks like year-to-date, it's about 38%. So that's in line Okay. I appreciate it. I'll get back in the queue.

Operator

The next question is from Peter Christiansen from Citi.

Peter Christiansen

Appreciate the chance to ask the question here. Last question. You did talk about pricing somewhat. Just curious as if pricing discounts, promotions, what have you have intensified over the last year? And then I am curious, I think you mentioned that things are possibly turn around with the TPEs. Just curious if you have any sense of sentiment improvement from that time.

Rohit Verma

Yes. Thank you for your question. Great hearing from you. So if we step back, there are a few things that are packed in it, right? So if I think about -- let's talk about the TPE sentiment first. I'll go backwards to go forward. The TPE sentiment has been positive. I've actually been seeing third-party values and consultants. They clearly want to see more proof points to come through. But in the conversation that they're seeing the proposals, as they're seeing how we're presenting to clients as they're seeing our commitment to technology and what we're doing, they certainly feel like we're back on our front foot after a while and some of them have even commented that they're seeing the alike that they were used to seeing 5 years ago in terms of how we are showing up in the marketplace.

So we take that as a positive. We're certainly seeing the RFP activity. The second part of your question around the renewal activity, that, as I've mentioned before, we continue to see renewals getting better. We had about 25% of their renewals so far that were competitive this year versus what we have seen in the past, which was a little bit of a higher number than that. As far as compression is concerned, look, we're -- we've got a few places where we've had compression -- and there are a handful of accounts that are accounting for most of the compression -- and it really depends on the kind of service that we have, how long that's been there, how much it has gone into market, how much we are in a position to transform the operation, if there are certain clients that want some very unique handling of their stuff. Those places we're holding on things, and then there are places where we believe that the service is fairly vanilla and it warrants some level of pricing compression to stay competitive in the market. We're doing that.

So -- it's a little bit of a mixed bag. I won't say that there is a universal or a secular trend around renewal and compression.

Stephen Lasher

And the only thing I'll add to that is, look, from a pricing perspective, I think it's competitive out there, but our differentiation is really the integrated health, wealth lease platform and then also the addition of a vet give us that data intelligence layer that really is something that's not easily replicated across the industry, and we feel pretty good about where we are.

Peter Christiansen

Just a quick follow-up. If I recall correctly, I think 2026 was a smaller year in terms of total renewals as a percentage of current clients. Does that reverse in '27? Does that -- does it become a much larger percentage of the overall client book that is renewing next year? Or is that a year ahead of that? I'm not sure.

Rohit Verma

We've not -- we don't really look at it that way. Last year was a decent size renewal year. This year also has been a decent size renewal year. So it's kind of hard to say. And I'll give you some examples of what I mean by that, right? We could have an account where the actual renewal date says 1/1/2028, and they could decide that they want to do an RFP because they just have a complicated account or they could say that they are about to have some kind of an M&A and they want to get this done. So they might start renewal this year in 2026 well in anticipation of 2028.

Now they may not get to an answer until late 2027 or they may not get to an answer until early 2027, depending on procurement process is running. So it's kind of hard to think about it. I think what we want to start doing at some point is to really give you a sense of how much of the book is actually expiring on a certain date. And for most of our book, it either expires on the first or first of January or first of July. So we can start to give some kind of a window on that. When we look at commercial execution, it's purely on what are the renewals that are in play that we're actively negotiating right now, right? So that's how we have been thinking about it.

And this year certainly started slow, but it has picked up over the course of the last couple of quarters.

Operator

There are no further questions at this time. I would like to turn the floor back over to Rohit Verma for closing comments.

Rohit Verma

Thank you so much, Sachi. Thank you, everybody, for joining us today. Thank you to all our employees for the hard work that they're doing. Thank you to all our investors and stakeholders that are with us and a special thank you to all the clients that continue to place their confidence with us in making some of the most important decision for their most important asset, which is their employees. We look forward to talking to you again soon and until next quarter. Take care and be well, God bless.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.