12:27 PM EDT, 08/08/2024 (MT Newswires) -- Alight's (ALIT) closing of the $1.2 billion sale of its payroll and professional services business negatively impacted its Q2 revenue but is expected to drive stronger gross margins and higher recurring revenue, over the mid-term, Wedbush said in a note to clients Thursday.

The company's total revenue in Q2 fell 4% year-over-year to $538 million due to decreased volumes and project revenue impacts, while non-GAAP earnings stood at $0.05 per share, missing the $0.11 estimate, Wedbush said.

Alight said Tuesday its adjusted earnings before interest, taxes, depreciation and amortization in Q2 was $105 million, down from $119 million a year earlier.

"While the transaction is a headwind to revenues, it will provide [Alight] stronger [earnings before interest, taxes, depreciation and amortization] and gross margins along with higher recurring revenues over the mid-term to help meet the board's goals for strategic portfolio review and further accelerate margin expansion and more recurring revenue," Wedbush said.

Alight also recently announced that Chief Executive Stephan Scholl will step down once a successor is found. Scholl will stay on during the search, with independent Director Dave Guilmette appointed as vice chair to facilitate a smooth transition.

For H2, Alight expects revenue of $1.21 billion to $1.23 billion, boosted by Business Process as a Service revenue, according to the note.

"Overall, while it is very disappointing to see Stephan leave and a disappointing quarter, we believe [Alight] is well-positioned longer term following its divesture of its payroll and professional services business with higher-value [Business Process as a Service] deals the focus," Wedbush said.

Wedbush maintained an outperform rating on Alight but lowered its price target to $10 from $12.

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