UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 3, 2024, the registrant had
Table of Contents
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PART I. |
1 |
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Item 1. |
3 |
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3 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) |
4 |
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Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) |
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6 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
7 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
28 |
Item 3. |
35 |
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Item 4. |
36 |
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PART II. |
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Item 1. |
37 |
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Item 1A. |
37 |
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Item 2. |
38 |
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Item 3. |
38 |
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Item 4. |
38 |
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Item 5. |
38 |
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Item 6. |
39 |
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40 |
i
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements include, but are not limited to, statements regarding the sale of our Payroll & Professional Services business, including the likelihood of the consummation of the transaction, the expected time period to consummate the transaction, statements that relate to expectations regarding future financial performance, and business strategies or expectations for our business. Forward-looking statements can often be identified by the use of words such as “anticipate,” “appear,” “approximate,” “believe,” “continue,” “could,” “estimate,” “expect,” “foresee,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “would” or similar expressions or the negative thereof. These forward-looking statements are based on information available as of the date of this report and the Company’s management’s current expectations, forecasts and assumptions, and involve a number of judgments, known and unknown risks and uncertainties and other factors, many of which are outside the control of the Company and its directors, officers and affiliates. Accordingly, forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date. The Company does not undertake any obligation to update, add or otherwise correct any forward-looking statements contained herein to reflect events or circumstances after the date they were made, whether as a result of new information, future events, inaccuracies that become apparent after the date hereof or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:
1
These risk factors do not identify all risks that we face, and our business, financial condition and results of operations could also be affected by factors, events or uncertainties that are not presently known to us or that we currently do not consider to present material risks.
Website and Social Media Disclosure
We use our website (www.alight.com) and our corporate Facebook (http://www.facebook.com/AlightGlobal), Instagram (@alight_solutions), LinkedIn (www.linkedin.com/company/alightsolutions), X (formerly known as Twitter) (@alightsolutions), and YouTube (www.youtube.com/c/AlightSolutions) accounts as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, filings made with the SEC and public conference calls and webcasts. The information on our website is not part of this Quarterly Report.
The Company makes available free of charge on its website or provides a link on its website to the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after those reports are electronically filed with, or furnished to, the SEC. To access these filings, go to the Company’s website and under the “Investors” heading, click on “Financials.”
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Alight, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
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March 31, |
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December 31, |
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2024 |
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2023 |
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(in millions, except par values) |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables, net |
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Other current assets |
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Fiduciary assets |
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Current assets held for sale |
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Total Current Assets |
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Goodwill |
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Intangible assets, net |
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Fixed assets, net |
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Deferred tax assets, net |
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Other assets |
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Long-term assets held for sale |
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— |
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Total Assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Liabilities |
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Current Liabilities |
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Accounts payable and accrued liabilities |
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$ |
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$ |
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Current portion of long-term debt, net |
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Other current liabilities |
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Fiduciary liabilities |
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Current liabilities held for sale |
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Total Current Liabilities |
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Deferred tax liabilities |
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Long-term debt, net |
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Long-term tax receivable agreement |
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Financial instruments |
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Other liabilities |
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Long-term liabilities held for sale |
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— |
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Total Liabilities |
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$ |
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$ |
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Stockholders' Equity |
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Preferred stock at $ |
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$ |
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— |
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$ |
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— |
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Class A Common Stock: $ |
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— |
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— |
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Class B Common Stock: $ |
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— |
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— |
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Class V Common Stock: $ |
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— |
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— |
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Class Z Common Stock: $ |
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— |
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— |
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Treasury stock, at cost ( |
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( |
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( |
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Additional paid-in-capital |
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Retained deficit |
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( |
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( |
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Accumulated other comprehensive income |
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Total Alight, Inc. Stockholders' Equity |
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$ |
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$ |
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Noncontrolling interest |
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Total Stockholders' Equity |
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$ |
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$ |
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Total Liabilities and Stockholders' Equity |
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$ |
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$ |
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
3
Alight, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
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Three Months Ended |
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Three Months Ended |
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March 31, |
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March 31, |
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(in millions, except per share amounts) |
2024 |
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2023 |
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Revenue |
$ |
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$ |
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Cost of services, exclusive of depreciation and amortization |
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Depreciation and amortization |
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Gross Profit |
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Operating Expenses |
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Selling, general and administrative |
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Depreciation and intangible amortization |
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Total Operating expenses |
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Operating Income (Loss) From Continuing Operations |
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( |
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( |
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Other (Income) Expense |
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(Gain) Loss from change in fair value of financial instruments |
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(Gain) Loss from change in fair value of tax receivable agreement |
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Interest expense |
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Other (income) expense, net |
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Total Other (income) expense, net |
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Income (Loss) From Continuing Operations Before Taxes |
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( |
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( |
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Income tax expense (benefit) |
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( |
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( |
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Net Income (Loss) From Continuing Operations |
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( |
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( |
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Net Income (Loss) From Discontinued Operations, Net of Tax |
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Net Income (Loss) |
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( |
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( |
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Net income (loss) attributable to noncontrolling interests |
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( |
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( |
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Net Income (Loss) Attributable to Alight, Inc. |
$ |
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( |
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$ |
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( |
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Earnings Per Share |
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Basic |
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Continuing operations |
$ |
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( |
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$ |
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( |
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Discontinued operations |
$ |
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$ |
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Net Income (Loss) |
$ |
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( |
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$ |
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( |
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Diluted |
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Continuing operations |
$ |
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( |
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$ |
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( |
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Discontinued operations |
$ |
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$ |
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Net Income (Loss) |
$ |
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( |
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$ |
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( |
) |
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Net Income (Loss) |
$ |
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( |
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$ |
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( |
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Other comprehensive income (loss), net of tax: |
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Change in fair value of derivatives |
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( |
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Foreign currency translation adjustments |
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( |
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Total Other comprehensive income (loss), net of tax: |
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( |
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Comprehensive Income (Loss) Before Noncontrolling Interests |
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( |
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( |
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Comprehensive income (loss) attributable to noncontrolling interests |
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( |
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( |
) |
Comprehensive Income (Loss) Attributable to Alight, Inc. |
$ |
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( |
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$ |
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( |
) |
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
4
Alight, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
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Accumulated |
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Additional |
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Other |
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Total |
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Total |
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Common |
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Treasury |
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Paid-in |
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Retained |
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Comprehensive |
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Alight, Inc. |
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Noncontrolling |
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Stockholders' |
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(in millions) |
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Stock |
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Stock |
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Capital |
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Deficit |
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Income |
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Equity |
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Interest |
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Equity |
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Balance at December 31, 2023 |
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$ |
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— |
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$ |
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( |
) |
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$ |
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$ |
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( |
) |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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( |
) |
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( |
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Other comprehensive income, net |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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Conversion of noncontrolling interest |
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— |
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— |
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— |
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— |
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( |
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( |
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Share-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Shares withheld in lieu of taxes |
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— |
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— |
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( |
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— |
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— |
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( |
) |
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— |
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( |
) |
Share repurchases |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Other |
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— |
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— |
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( |
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— |
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— |
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( |
) |
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( |
) |
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( |
) |
Balance at March 31, 2024 |
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$ |
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— |
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$ |
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( |
) |
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$ |
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$ |
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( |
) |
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$ |
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$ |
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$ |
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$ |
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Accumulated |
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Additional |
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Other |
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Total |
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Total |
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Common |
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Treasury |
Paid-in |
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Retained |
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Comprehensive |
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Alight, Inc. |
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Noncontrolling |
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Stockholders' |
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Stock |
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Stock |
Capital |
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Deficit |
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Loss |
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Equity |
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Interest |
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Equity |
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Balance at December 31, 2022 |
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$ |
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— |
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$ |
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( |
) |
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$ |
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$ |
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( |
) |
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$ |
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$ |
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$ |
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$ |
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|||||
Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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( |
) |
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( |
) |
Other comprehensive income (loss), net |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Conversion of non-controlling interest |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Share-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Shares vested, net of shares |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
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— |
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( |
) |
Share repurchases |
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— |
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( |
) |
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— |
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— |
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— |
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( |
) |
|
|
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— |
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( |
) |
Balance at March 31, 2023 |
|
$ |
|
— |
|
|
$ |
|
( |
) |
|
$ |
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|
$ |
|
( |
) |
|
$ |
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|
$ |
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$ |
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|
$ |
|
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
5
Alight, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended |
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Three Months Ended |
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March 31, |
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March 31, |
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(in millions) |
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2024 |
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2023 |
|
||||
Operating activities: |
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Net income (loss) |
|
$ |
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( |
) |
$ |
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( |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation |
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Intangible asset amortization |
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Noncash lease expense |
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Financing fee and premium amortization |
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( |
) |
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( |
) |
Share-based compensation expense |
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(Gain) loss from change in fair value of financial instruments |
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(Gain) loss from change in fair value of tax receivable agreement |
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|
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Release of unrecognized tax provision |
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|
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— |
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( |
) |
Deferred tax expense (benefit) |
|
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|
( |
) |
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( |
) |
Other |
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|
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— |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Accounts payable and accrued liabilities |
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( |
) |
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( |
) |
Other assets and liabilities |
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Cash provided by operating activities |
|
$ |
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|
$ |
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|
||
Investing activities: |
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|
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Capital expenditures |
|
|
|
( |
) |
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( |
) |
Cash used in investing activities |
|
$ |
|
( |
) |
$ |
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( |
) |
Financing activities: |
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Net increase (decrease) in fiduciary liabilities |
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( |
) |
|
Repayments to banks |
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|
( |
) |
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( |
) |
Principal payments on finance lease obligations |
|
|
|
( |
) |
|
|
( |
) |
Payments on tax receivable agreements |
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|
( |
) |
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( |
) |
Tax payment for shares/units withheld in lieu of taxes |
|
|
|
( |
) |
|
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( |
) |
Deferred and contingent consideration payments |
|
|
|
— |
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|
|
( |
) |
Repurchase of shares |
|
|
|
— |
|
|
|
( |
) |
Cash used in financing activities |
|
$ |
|
( |
) |
$ |
|
( |
) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
|
( |
) |
|
|
— |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
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|
( |
) |
|
|
( |
) |
Cash, cash equivalents and restricted cash at beginning of period(a) |
|
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period(a) |
|
$ |
|
|
$ |
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|
||
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|
|
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|
||
Reconciliation of cash, cash equivalents, and restricted cash to the Condensed Consolidated Balance Sheets(a) |
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|
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|
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|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
||
Restricted cash included in fiduciary assets |
|
|
|
|
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|
||
Total cash, cash equivalents and restricted cash |
|
$ |
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|
$ |
|
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
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|
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Fixed asset additions acquired through finance leases |
|
$ |
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$ |
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||
Right of use asset additions acquired through operating leases |
|
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(a)
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
6
Alight, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation and Nature of Business
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and should be read in conjunction with the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on February 29, 2024. In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair presentation have been included. All intercompany transactions and balances have been eliminated upon consolidation.
On
On March 20, 2024, Alight, Inc. entered into a definitive agreement (the “Disposition Agreement”) to sell its Professional Services segment and its Payroll & HCM Outsourcing businesses within the Employer Solutions segment (“Payroll and Professional Services business”) for a purchase price of up to approximately $
The Company's cash flows are presented inclusive of discontinued operations on the condensed consolidated statement of cash flows for all periods presented. The significant operating and investing non-cash components included in our condensed consolidated statement of cash flows for discontinued operations are included in Note 4.
Nature of Business
We are a leading cloud-based provider of integrated digital human capital and business solutions. We have an unwavering belief that a company’s success starts with its people, and our solutions connect human insights with technology. The Alight Worklife® employee engagement platform provides a seamless customer experience by combining content, plus artificial intelligence (“AI”) and data analytics to enable Alight’s business process as a service ("BPaaS") model. Our mission-critical solutions enable employees to enrich their health, wealth and wellbeing which helps global organizations achieve a high-performance culture.
Our primary business, Employer Solutions, is driven by our Alight Worklife platform, and includes total employee wellbeing, integrated benefits administration, healthcare navigation, financial wellbeing, leaves solutions, and retiree healthcare. We leverage data across all interactions and activities to improve the employee experience, reduce operational costs and better inform management processes and decision-making. Our clients’ employees benefit from an integrated platform and user experience, coupled with a full-service customer care center, helping them manage the full life cycle of their health wealth and wellbeing.
2. Accounting Policies and Practices
Use of Estimates
The preparation of the accompanying Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of reserves and expenses.
These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Management believes its estimates to be reasonable given the current facts available. Management adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity markets, and foreign currency exchange rate movements increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be predicted with certainty, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment would, if applicable, be reflected in the financial statements in future periods.
7
New Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. This guidance will be effective for the annual periods beginning the year ended December 31, 2024, and for interim periods beginning January 1, 2025. Early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the standard to determine the impact of adoption to its condensed consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This guidance will be effective for the annual periods beginning the year ended December 31, 2025. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. The Company is currently evaluating the standard to determine the impact of adoption to its condensed consolidated financial statements and disclosures.
3. Revenue from Contracts with Customers
The majority of the Company’s revenue is highly recurring and is derived from contracts with customers to provide integrated, cloud-based human capital solutions that empower clients and their employees to manage their health, wealth and HR needs. The Company’s revenues are disaggregated by recurring and project revenues within each reportable segment. Recurring revenues are typically longer term in nature and more predictable on an annual basis, while project revenues consist of project work of a shorter duration. See Note 12 “Segment Reporting” for quantitative disclosures of recurring and project revenues by reportable segment. The Company’s reportable segment is Employer Solutions. Employer Solutions is driven by our digital, software and AI-led capabilities powered by the Alight Worklife® platform and spanning total employee wellbeing and engagement, including integrated benefits administration, healthcare navigation, financial health and employee wellbeing. The Company believes the Employer Solutions revenue category depicts how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.
Revenues are recognized when control of the promised services is transferred to the customer in the amount that best reflects the consideration to which the Company expects to be entitled in exchange for those services. The majority of the Company’s revenue is recognized over time as the customer simultaneously receives and consumes the benefits of our services. We may occasionally be entitled to a fee based on achieving certain performance criteria or contract milestones. To the extent that we cannot estimate with reasonable assurance the likelihood that we will achieve the performance target, we will constrain this portion of the transaction price and recognize it when or as the uncertainty is resolved. Any taxes assessed on revenues relating to services provided to our clients are recorded on a net basis. All of the Company’s revenues are described in more detail below.
Administrative Services
We provide benefits and human resource services across all of our solutions, which are highly recurring. The Company’s contracts may include administration services across one or multiple solutions and typically have three to five-year terms with mutual renewal options.
These contracts typically consist of an implementation phase and an ongoing administration phase:
Implementation phase – In connection with the Company’s long-term agreements, implementation efforts are often necessary to set up clients and their human resource or benefit programs on the Company’s systems and operating processes. Work performed during the implementation phase is considered a set-up activity because it does not transfer a service to the customer. Therefore, it is not a separate performance obligation. As these agreements are longer term in nature, our contracts generally provide that if the client terminates a contract, we are entitled to an additional payment for services performed through the termination date designed to recover our up-front costs of implementation. Any fees received from the customer as part of the implementation are, in effect, an advance payment for the future ongoing administration services to be provided.
Ongoing administration services phase – For all solutions, the ongoing administration phase includes a variety of plan and system support services. More specifically, these services include data management, calculations, reporting, fulfillment/communications, compliance services, call center support, and in our Health Solutions agreements, annual on-boarding and enrollment support. While there are a variety of activities performed across all solutions, the overall nature of the obligation is to provide integrated administration solutions to the customer. The agreement represents a stand-ready obligation to perform these activities across all solutions on an as-needed basis. The customer obtains value from each period of service, and each time increment (i.e., each month, or each benefit cycle in the case of our Health Solutions arrangements) is distinct and substantially the same. Accordingly, the ongoing administration services for each solution represents a series and each series (i.e., each month, or each benefit cycle including the enrollment period in the case of our Health Solutions arrangements) of distinct services are deemed to be a single performance obligation. In agreements that include multiple performance obligations, the transaction price related to each performance obligation is based on a relative stand-alone selling
8
price basis. We establish the stand-alone selling price using a suitable estimation method, which includes a market assessment approach using observable market prices the Company charges separately for similar solutions to similar customers, or an expected cost plus margin approach.
Our contracts with our clients specify the terms and conditions upon which the services are based. Fees for these services are primarily based on a contracted fee charged per participant per period (e.g., monthly or annually, as applicable). These contracts may also include fixed components, including lump-sum implementation fees. Our fees are not typically payable until the commencement of the ongoing administration phase. Once fees become payable, payment is typically due on a monthly basis as we perform under the contract, and we are entitled to be reimbursed for work performed to date in the event of termination.
For Health Solutions administration services, each benefits cycle inclusive of the enrollment period represents a time increment under the series guidance and is a single performance obligation. Although ongoing fees are typically not payable until the commencement of the ongoing administrative phase, we begin transferring services to our customers approximately four months prior to payments being due as part of our annual enrollment services. Although our per-participant fees are considered variable, they are typically predictable in nature, and therefore we do not generally constrain any portion of our transaction price estimates. We use an input method based on the labor costs incurred relative to total labor costs as the measure of progress in satisfying our Health Solutions performance obligation commencing when the customer’s annual enrollment services begin. Given that the Health Solutions enrollment and administrative services are stand-ready in nature, it can be difficult to estimate the total expected efforts or hours we will incur for a particular benefits cycle. Therefore, the input measure is based on the historical effort expended, which is measured as labor cost.
In the normal course of business, we enter into change orders or other contract modifications to add or modify services provided to the customer. We evaluate whether these modifications should be accounted for as separate contracts or a modification to an existing contract. To the extent that the modification changes a promise that forms part of the underlying series, the modification is not accounted for as a separate contract.
Other Contracts
In addition to the ongoing administration services, the Company also has services across all solutions that represent separate performance obligations and that are often shorter in duration, such as our participant financial advisory services and enrollment services not bundled with ongoing administration services.
Fee arrangements can be in the form of fixed-fee, time-and-materials, or fees based on assets under management. Payment is typically due on a monthly basis as we perform under the contract, and we are entitled to be reimbursed for work performed to date in the event of termination.
Services may represent stand-ready obligations that meet the series provision, in which case all variable consideration is allocated to each distinct time increment.
Other services are recognized over-time based on a method that faithfully depicts the transfer of value to the customer, which may be based on the value of labor hours worked or time elapsed, depending on the facts and circumstances.
The majority of the fees for enrollment services not bundled with ongoing administration services may be in the form of commissions received from insurance carriers for policy placement and are variable in nature. These annual enrollment services include both employer-sponsored arrangements that place both retiree Medicare coverage and voluntary benefits and direct-to-consumer Medicare placement. Our performance obligations under these annual enrollment services are typically completed over a short period upon which a respective policy is placed or confirmed with no ongoing fulfillment obligations. For both the employer-sponsored and direct-to-consumer arrangements, we recognize the majority of the placement revenue in the fourth quarter of the calendar year, which is when most of the placement or renewal activity occurs. However, the Company may continue to receive commissions from carriers until the respective policy lapses or is canceled. The Company bases the estimates of total transaction price on supportable evidence from an analysis of past transactions, and only includes amounts that are probable of being received or not refunded.
As it relates to the direct-to-consumer arrangements, because our obligation is complete upon placement of the policy, we recognize revenue at that date, which includes both compensation due to us in the first year as well as an estimate of the total renewal commissions that will be received over the lifetime of the policy. The variable consideration estimate requires significant judgement, and will vary based on product type, estimated commission rates and the expected lives of the respective policies and other factors.
For both the employer-sponsored and direct-to-customer arrangements, the estimated total transaction price may differ from the ultimate amount of commissions we may collect. Consequently, the estimate of total transaction price is adjusted over time as the Company receives confirmation of cash received, or as other information becomes available.
A portion of the Company's revenue is subscription-based where monthly fees are paid to the Company. The subscription-based revenue is recognized straight-line over the contract term, which is generally
9
Contract Costs
Costs to obtain a Contract
The Company capitalizes incremental costs to obtain a contract with a customer that are expected to be recovered. Assets recognized for the costs to obtain a contract, which primarily includes sales commissions paid in relation to the initial contract, are amortized over the expected life of the underlying customer relationships, which is generally
Costs to fulfill a Contract
The Company capitalizes costs to fulfill contracts which includes highly customized implementation efforts to set up clients and their human resource or benefit programs. Assets recognized for the costs to fulfill a contract are amortized on a systematic basis over the expected life of the underlying customer relationships, which is generally
4. Discontinued Operations and Assets Held for Sale
On March 20, 2024, the Company entered into the Disposition Agreement to sell its Payroll & Professional Services business to an affiliate of H.I.G. Capital for up to $
After the sale is complete, upon satisfaction or waiver of the closing conditions, a number of services are expected to continue under a Transition Services Agreement.
10
The following tables presents the carrying value of assets and liabilities for the Payroll & Professional Services business as presented within assets and liabilities held for sale on our condensed consolidated balance sheets and results as reported in income (loss) from discontinued operations, net of tax, within our condensed consolidated statements of comprehensive income (loss) (in millions):
|
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March 31, |
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December 31, |
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2024 |
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2023 |
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Assets |
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Cash and cash equivalents |
|
$ |
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$ |
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Receivables, net |
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Other current assets |
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Fiduciary assets |
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Goodwill |
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— |
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Intangible assets, net |
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— |
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Fixed assets, net |
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— |
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Deferred tax assets, net |
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— |
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Other assets |
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— |
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Current assets held for sale |
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Goodwill |
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— |
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Intangible assets, net |
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— |
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Fixed assets, net |
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— |
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Deferred tax assets, net |
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— |
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Other assets |
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— |
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Long-term assets held for sale |
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$ |
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— |
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$ |
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Liabilities |
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Accounts payable and accrued liabilities |
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$ |
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$ |
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Other current liabilities |
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Fiduciary liabilities |
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Deferred tax liabilities |
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— |
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— |
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Other liabilities |
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— |
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Current liabilities held for sale |
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Deferred tax liabilities |
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— |
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— |
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Other liabilities |
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— |
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Long-term liabilities held for sale |
|
$ |
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— |
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$ |
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Three Months Ended |
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2024 |
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2023 |
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Revenue |
$ |
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|
$ |
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Cost of services, exclusive of depreciation and amortization |
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Depreciation and amortization |
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Gross Profit |
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Operating Expenses |
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Selling, general and administrative |
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Depreciation and intangible amortization |
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Total Operating Expenses |
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Income (loss) from Discontinued Operations |
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Interest expense |
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- |
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- |
|
Other (income) expense, net |
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Income (Loss) from Discontinued Operations Before Income Taxes |
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Income tax expense (benefit) |
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Net Income (Loss) from Discontinued Operations, Net of Tax |
$ |
|
|
$ |
|
|
The expense amounts reflected above represent only the direct costs attributable to the Payroll & Professional Services business and excludes allocations of corporate costs that will be retained following the sale. Neither the discontinued operations presented above, nor continuing operations, reflect the impact of any cost reimbursement that will be received under a Transition Services Agreement following the close of the transaction upon the satisfaction or waiver of closing conditions.
11
The Company's cash flows are presented inclusive of discontinued operations on the condensed consolidated statement of cash flows for all periods presented. The significant operating and investing non-cash components included in our condensed consolidated statement of cash flows for the discontinued operations are as follows (in millions):
|
Three Months Ended |
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||||||
|
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|
||||||
|
2024 |
|
2023 |
|
||||
Depreciation |
$ |
|
|
$ |
|
|
||
Intangible asset amortization |
$ |
|
|
$ |
|
|
||
Capital expenditures |
$ |
|
|
$ |
|
|
||
Share-based compensation expense |
$ |
|
— |
|
$ |
|
|
5. Other Financial Data
Condensed Consolidated Balance Sheets Information
Receivables, net
The components of Receivables, net are as follows (in millions):
|
|
March 31, |
|
|
|
December 31, |
|
||||
|
|
2024 |
|
|
|
2023 |
|
||||
Billed and unbilled receivables |
|
$ |
|
|
|
|
$ |
|
|
||
Allowance for expected credit losses |
|
|
|
( |
) |
|
|
|
|
( |
) |
Balance at end of period |
|
$ |
|
|
|
|
$ |
|
|
Other current assets
The components of Other current assets are as follows (in millions):
|
|
March 31, |
|
|
|
December 31, |
|
||||
|
|
2024 |
|
|
|
2023 |
|
||||
Deferred project costs |
|
$ |
|
|
|
|
$ |
|
|
||
Prepaid expenses |
|
|
|
|
|
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|
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|
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Commissions receivable |
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|
|
|
|
|
|
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Other |
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|
|
|
|
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|
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Total |
|
$ |
|
|
|
|
$ |
|
|
Other assets
The components of Other assets are as follows (in millions):
|
|
March 31, |
|
|
|
December 31, |
|
||||
|
|
2024 |
|
|
|
2023 |
|
||||
Deferred project costs |
|
$ |
|
|
|
|
$ |
|
|
||
Operating lease right of use asset |
|
|
|
|
|
|
|
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||
Commissions receivable |
|
|
|
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
|
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Total |
|
$ |
|
|
|
|
$ |
|
|
The current and non-current portions of deferred project costs relate to costs to obtain and fulfill contracts (see Note 3 “Revenue from Contracts with Customers”). Total amortization expense related to deferred project costs for each of the three months ended March 31, 2024 and 2023 were $
Other current assets and Other assets include the fair value of outstanding derivative instruments related to interest rate swaps. The balances in as of March 31, 2024 and December 31, 2023 were $
12
Other current liabilities
The components of Other current liabilities are as follows (in millions):
|
|
March 31, |
|
|
|
December 31, |
|
||||
|
|
2024 |
|
|
|
2023 |
|
||||
Deferred revenue |
|
$ |
|
|
|
|
$ |
|
|
||
Operating lease liabilities |
|
|
|
|
|
|
|
|
|
||
Finance lease liabilities |
|
|
|
|
|
|
|
|
|
||
Other |
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|
|
|
|
|
|
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||
Total |
|
$ |
|
|
|
|
$ |
|
|
Other liabilities
The components of Other liabilities are as follows (in millions):
|
|
March 31, |
|
|
|
December 31, |
|
||||
|
|
2024 |
|
|
|
2023 |
|
||||
Deferred revenue |
|
$ |
|
|
|
|
$ |
|
|
||
Operating lease liabilities |
|
|
|
|
|
|
|
|
|
||
Finance lease liabilities |
|
|
|
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
|
|
$ |
|
|
The current and non-current portions of deferred revenue relates to consideration received in advance of performance under client contracts. During the three months ended March 31, 2024 and 2023, revenue of approximately $
Other current liabilities as of March 31, 2024 and December 31, 2023, included the current portion of tax receivable agreement liability of $
Other current liabilities and Other liabilities include the fair value of outstanding derivative instruments related to interest rate swaps. There were
6. Goodwill and Intangible assets, net
The changes in the net carrying amount of goodwill are as follows (in millions):
|
|
|
||
|
|
|
|
|
|
Total |
|
||
Balance as of December 31, 2023 |
$ |
|
|
|
Foreign currency translation |
|
|
— |
|
Balance at March 31, 2024 |
$ |
|
|
Intangible assets by asset class are as follows (in millions):
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||||||||||||||||
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
||||||||||
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
||||||||||||
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
||||||||||||
Intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer-related and contract based intangibles |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
||||||
Technology related intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Trade name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
13
Amortization expense from finite-lived intangible assets for each of the three months ended March 31, 2024 and 2023, was $
The following table reflects intangible assets net carrying amount and weighted-average remaining useful lives as of March 31, 2024 and December 31, 2023 (in millions, except for years):
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|||||||||||||
|
|
Net |
|
|
Weighted-Average |
|
|
Net |
|
|
Weighted-Average |
|||||||
|
|
Carrying |
|
|
Remaining |
|
|
Carrying |
|
|
Remaining |
|||||||
|
|
Amount |
|
|
Useful Lives |
|
|
Amount |
|
|
Useful Lives |
|||||||
Intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Customer-related and contract-based intangibles |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
||||
Technology-related intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trade name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
Subsequent to March 31, 2024, the annual amortization expense is expected to be as follows (in millions):
|
|
Customer-Related |
|
|
Technology |
|
|
Trade |
|
|
|
||||||||
|
|
and Contract Based |
|
|
Related |
|
|
Name |
|
|
|
||||||||
|
|
Intangibles |
|
|
Intangibles |
|
|
Intangibles |
|
Total |
|
||||||||
2024 (April - December) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
||||
2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Thereafter |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|||
Total amortization expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
7. Income Taxes
The Company’s effective tax rates for the three months ended March 31, 2024 and 2023 were
8. Debt
Debt outstanding consisted of the following (in millions):
|
|
|
|
March 31, |
|
|
December 31, |
|
||||
|
|
Maturity Date |
|
2024 |
|
|
2023 |
|
||||
Fifth Incremental Term Loans(1) |
|
|
|
|
|
|
|
|
|
|||
Secured Senior Notes |
|
|
|
|
|
|
|
|
|
|||
$ |
|
|
|
|
— |
|
|
|
|
— |
|
|
Total debt, net |
|
|
|
|
|
|
|
|
|
|
||
Less: current portion of long-term debt, net |
|
|
|
|
|
( |
) |
|
|
|
( |
) |
Total long-term debt, net |
|
|
|
$ |
|
|
|
$ |
|
|
Term Loan
In May 2017, the Company entered into a
14
the portion of the Term Loan that was not amended. In August 2021, the Company entered into a new Third Incremental Term Loan facility for $
Interest rates on the B-1 Term Loan borrowings are based on the Secured Overnight Financing Rate ("SOFR") plus a margin.
In September 2023, the Company entered into Amendment No. 9 to Credit Agreement with a syndicate of lenders to establish a new class of Fifth Incremental Term Loans with an aggregate principal amount of $
During each of the three months ended March 31, 2024 and 2023, the Company made total principal payments of $
Secured Senior Notes
In May 2020, the Company issued $
Revolving Credit Facility
In May 2017, the Company entered into a
Financing Fees, Premiums and Interest Expense
The Company capitalized financing fees and premiums related to the Term Loan, Revolver and Secured Senior Notes issued. These financing fees and premiums were recorded as an offset to the aggregate debt balances and are being amortized over the respective loan terms.
Total interest expense related to the debt instruments for the three months ended March 31, 2024 and 2023 was $
Principal Payments
Aggregate remaining contractual principal payments as of March 31, 2024 are as follows (in millions):
2024 |
|
$ |
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
2028 |
|
|
|
|
|
Total payments |
|
$ |
|
|
9. Stockholders' Equity
Preferred Stock
Upon the Closing Date of the Business Combination,
Class A Common Stock
15
As of March 31, 2024,
Class B Common Stock
Upon the Closing Date of the Business Combination, certain equityholders of Alight Holdings received earnouts (the "Seller Earnouts") that resulted in the issuance of a total of
The Class B Common Stock and Class B common units are not entitled to a vote and accrue dividends equal to amounts declared per corresponding share of Class A Common Stock and Class A unit; however, such dividends are paid if and when such share of Class B Common Stock or Class B unit converts into a share of Class A Common Stock or Class A unit. If any of the shares of Class B Common Stock or Class B common units do not vest on or before the seventh anniversary of the Closing Date, such shares or units will be automatically forfeited and cancelled for no consideration and will not be entitled to receive any cumulative dividend payments.
These Class B instruments (excluding the unvested shares of Class B Common Stock related to employee compensation) are liability classified; refer to Note 14 “Financial Instruments” for additional information.
As further described below, there are two series of Class B instruments outstanding.
Class B-1
As of March 31, 2024,
To the extent any unvested share of Class B-1 Common Stock automatically converts into a share of Class A Common Stock, (i) such share or unit shall remain unvested in accordance with the terms and conditions of the applicable award agreement until it vests or is forfeited in accordance with the terms thereof and (ii) such share or unit shall be treated as unvested Class A consideration as if such share or unit was part of the unvested Class A consideration as of the Closing Date.
As of March 31, 2024,
Class B-2
As of March 31, 2024,
To the extent any unvested share of Class B-2 Common Stock automatically converts into a share of Class A Common Stock, (i) such share or unit shall remain unvested in accordance with the terms and conditions of the applicable award agreement until it vests or is forfeited in accordance with the terms thereof and (ii) such share or unit shall be treated as unvested Class A consideration as if such share or unit was part of the unvested Class A consideration as of the Closing Date.
As of March 31, 2024,
Class B-3
Upon the Closing Date of the Business Combination,
Class V Common Stock
16
As of March 31, 2024,
Class Z Common Stock
Upon the Closing Date of the Business Combination, a total of
As of March 31, 2024,
As of March 31, 2024,
Class A Units
Holders of Alight Holdings Class A units can exchange all or any portion of their Class A units, together with the cancellation of an equal number of shares of Class V Common Stock, for a number of shares of Class A Common Stock equal to the number of exchanged Class A units. Alight has the option to cash settle any future exchange.
The Continuing Unitholders’ ownership of Class A units represents the noncontrolling interest of the Company, which is accounted for as permanent equity on the Condensed Consolidated Balance Sheets. As of March 31, 2024, there were
The Alight Holdings limited liability company agreement contains provisions which require that a one-to-one ratio is maintained between each class of Alight Holdings units held by Alight and its subsidiaries (including the Alight Group, Inc. and certain tax blocker entities, but excluding subsidiaries of Alight Holdings) and the number of outstanding shares of the corresponding class of Alight common stock, subject to certain exceptions (including in respect of management equity in the form of options, rights or other securities which have not been converted into or exercised for Alight common stock). In addition, the Alight Holdings limited liability company agreement permits Alight, in its capacity as the managing member of Alight Holdings, to take actions to maintain such ratio, including undertaking stock splits, combinations, recapitalizations and exercises of the exchange rights of holders of Alight Holdings units.
Exchange of Class A Units
During the three months ended March 31, 2024,
Share Repurchase Program
On August 1, 2022, the Company's Board of Directors authorized a share repurchase program (the "Program"), under which the Company may repurchase up to $
17
During the three months ended March 31, 2024, there were
The following table reflects the changes in our outstanding stock:
|
|
Class A(2) |
|
|
Class B-1 |
|
|
Class B-2 |
|
|
Class V |
|
|
Class Z |
|
|
Treasury |
|
||||||
Balance at December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Conversion of noncontrolling interest |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
Shares granted upon vesting |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Issuance for compensation to non-employees(1) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Share repurchases |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Share forfeitures |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
(2)
Dividends
There were no dividends declared during the three months ended March 31, 2024.
Accumulated Other Comprehensive Income
As of March 31, 2024, the Accumulated other comprehensive income ("AOCI") balance included unrealized gains and losses for interest rate swaps and foreign currency translation adjustments related to our foreign subsidiaries that do not have the U.S. dollar as their functional currency. The tax effect on the Company's pre-tax AOCI items is recorded in the AOCI balance. This tax is comprised of two items: (1) the tax effects related to the unrealized pre-tax items recorded in AOCI and (2) the tax effect related to certain valuation allowances that have also been recorded in AOCI. When unrealized items in AOCI are recognized, the associated tax effects on these items will also be recognized in the tax provision.
Changes in accumulated other comprehensive income, net of noncontrolling interests, are as follows (in millions):
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|||
|
|
|
Currency |
|
|
|
Interest |
|
|
|
|||||
|
|
|
Translation |
|
|
|
Rate |
|
|
|
|||||
|
|
|
Adjustments (1) |
|
|
|
Swaps (2) |
Total |
|
||||||
Balance at December 31, 2023 |
|
$ |
|
( |
) |
|
$ |
|
|
|
$ |
|
|
||
Other comprehensive income (loss) before reclassifications |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
||
Tax (expense) benefit |
|
|
|
|
|
|
|
( |
) |
|
|
|
- |
|
|
Other comprehensive income (loss) before reclassifications, net of tax |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
||
Amounts reclassified from accumulated other comprehensive income |
|
|
|
- |
|
|
|
|
( |
) |
|
|
|
( |
) |
Tax expense |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Amounts reclassified from accumulated other comprehensive income, net of tax |
|
|
|
- |
|
|
|
|
( |
) |
|
|
|
( |
) |
Net current period other comprehensive income (loss), net of tax |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
||
Balance at March 31, 2024 |
|
$ |
|
( |
) |
|
$ |
|
|
|
$ |
|
|
(1) Foreign currency translation adjustments include $
(2) Reclassifications from this category are recorded in Interest expense. See Note 13 “Derivative Financial Instruments” for additional information.
10. Share-Based Compensation
The Company has an active equity incentive plan, the Alight, Inc. 2021 Omnibus Incentive Plan (the "Incentive Plan"), under which the Company has been authorized to grant share-based awards to key employees and non-employee directors, which consist of restricted stock units ("RSUs") and performance share units ("PRSUs"). Under this plan, for grants issued during the three months ended March 31, 2024, approximately
18
Restricted Share Units and Performance Based Restricted Share Units
RSUs are valued at the market price of a share of the Company’s common stock on the date of grant. In general, these awards vest ratably over a
The Company’s PRSUs contain various performance and service conditions that must be satisfied for an employee to earn the right to benefit from the award. The PRSUs vest upon achievement of various performance metrics aligned to goals established by the Company. Expense is recognized on a straight-line basis over the requisite service period, based on the probability of achieving the performance conditions, with changes in expectations recognized as an adjustment to earnings in the period of the change. Compensation cost is not recognized for performance share units that do not vest because service or performance conditions are not satisfied, and any previously recognized compensation cost is reversed.
The weighted-average grant-date fair value per share of RSUs and PRSUs granted during the three months ended March 31, 2024 was approximately $
The following tables summarizes the RSU and PRSU activity during the three months ended March 31, 2024:
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
||||
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
||||
|
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
Grant Date |
|
||||
|
|
|
|
|
|
Fair Value |
|
|
|
|
|
|
Fair Value |
|
||||
|
|
RSUs |
|
|
|
Per Unit |
|
|
PRSUs(1) |
|
|
|
Per Unit |
|
||||
Balance as of December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
||
Balance as of March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
The Company expects to forfeit approximately
Share-based Compensation Expense
Total share-based compensation expense related to the RSUs and PRSUs are recorded in the Condensed Consolidated Statements of Comprehensive Income (Loss) as follows (in millions):
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||||
|
|
|
March 31, |
|
|
March 31, |
|
||||
|
|
|
2024 |
|
|
2023 |
|
||||
Cost of services, exclusive of depreciation and amortization |
|
|
$ |
|
|
|
$ |
|
|
||
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
||
Total share-based compensation expense |
|
|
$ |
|
|
|
$ |
|
|
As of March 31, 2024, total future compensation expense related to unvested RSUs was $
Employee Stock Purchase Plan
In December 2022, the Company began offering its employees an Employee Stock Purchase Plan (the “ESPP”). Under the ESPP, all full-time and certain part-time employees of the Company based in the U.S. and certain other countries are eligible to purchase Class A Common Stock of the Company twice per year at the end of a six-month payment period (a “Payment Period”). During each Payment Period, eligible employees who so elect may authorize payroll deductions in an amount no less than
19
As of March 31, 2024,
11. Earnings Per Share
Basic earnings per share is calculated by dividing the net income (loss) attributable to Alight, Inc. by the weighted average number of shares of Class A Common Stock issued and outstanding. The computation of diluted earnings per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue shares were exercised or converted into shares or resulted in the issuance of shares that would then share in the net income of Alight, Inc. The Company’s Class V Common Stock and Class Z Common Stock do not participate in the earnings or losses of the Company and are therefore not participating securities and have not been included in either the basic or diluted earnings per share calculations.
In conjunction with the Business Combination, the Company issued Seller Earnouts contingent consideration, which is payable in the Company’s Common Stock when the related market conditions are achieved. As the related conditions to pay the consideration had not been satisfied as of March 31, 2024, the Seller Earnouts were excluded from the diluted earnings per share calculations.
Basic and diluted (net loss) earnings per share are as follows (in millions, except for share and per share amounts):
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
|
March 31, |
|
||||
|
|
2024 |
|
|
2023 |
|
||||
Basic and diluted (net loss) earnings per share: |
|
|
|
|
|
|
|
|
||
Numerator |
|
|
|
|
|
|
|
|
||
Net Income (Loss) From Continuing Operations |
|
$ |
|
( |
) |
|
$ |
|
( |
) |
Less: Net loss attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
||
Net Income (loss) from continuing operations attributable to Alight, Inc. |
|
$ |
|
( |
) |
|
$ |
|
( |
) |
Net Income (Loss) From Discontinued Operations, Net of Tax |
|
|
|
|
|
|
|
|
||
Net Income (Loss) Attributable to Alight, Inc. - basic |
|
$ |
|
( |
) |
|
$ |
|
( |
) |
Loss impact of conversion of noncontrolling interest |
|
|
|
( |
) |
|
|
|
— |
|
Net income (loss) attributable to Alight, Inc. - diluted |
|
$ |
|
( |
) |
|
$ |
|
( |
) |
Denominator |
|
|
|
|
|
|
|
|
||
Weighted-average shares outstanding - basic |
|
|
|
|
|
|
|
|
||
Dilutive effect of the exchange of noncontrolling interest units |
|
|
|
|
|
|
|
— |
|
|
Weighted-average shares outstanding - diluted |
|
|
|
|
|
|
|
|
||
Basic (net loss) earnings per share |
|
|
|
|
|
|
|
|
||
Continuing operations |
|
$ |
|
( |
) |
|
$ |
|
( |
) |
Discontinued operations |
|
$ |
|
|
|
$ |
|
|
||
Net Income (Loss) |
|
$ |
|
( |
) |
|
$ |
|
( |
) |
Diluted (net loss) earnings per share |
|
|
|
|
|
|
|
|
||
Continuing operations |
|
$ |
|
( |
) |
|
$ |
|
( |
) |
Discontinued operations |
|
$ |
|
|
|
$ |
|
|
||
Net Income (Loss) |
|
$ |
|
( |
) |
|
$ |
|
( |
) |
For the three months ended March 31, 2023
In addition, for each of the three months ended March 31, 2024 and 2023,
For the three months ended March 31, 2024 and 2023,
12. Segment Reporting
On March 20, 2024, the Company entered into the Disposition Agreement to sell its Payroll & Professional Services business. As a result of the agreement, the Company has
20
The Company’s reportable segments have been determined using a management approach, which is consistent with the basis and manner in which the Company’s chief operating decision maker (“CODM”) uses financial information for the purposes of allocating resources and evaluating performance. The Company’s Chief Executive Officer is its CODM. The CODM evaluates the performance of the Company based on its total revenue and segment profit.
The CODM also uses revenue and segment gross profit to manage and evaluate our business, make planning decisions, and as performance measures for Company-wide bonus plans. These key financial measures provide an additional view of our operational performance over the long-term and provide useful information that we use in order to maintain and grow our business.
The accounting policies of the segments are the same as those described in Note 2 “Accounting Policies and Practices.” The Company does not report assets by reportable segments as this information is not reviewed by the CODM on a regular basis.
Information regarding the Company’s reportable segment revenue is as follows (in millions):
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
|
|
|
Three Months Ended |
|
|
|
Three Months Ended |
|
||
|
|
|
March 31, |
|
|
|
March 31, |
|
||
|
|
|
2024 |
|
|
|
2023 |
|
||
Employer Solutions |
|
|
|
|
|
|
|
|
||
Recurring |
|
$ |
|
|
|
$ |
|
|
||
Project |
|
|
|
|
|
|
|
|
||
Total Employer Solutions |
|
|
|
|
|
|
|
|
||
Other |
|
|
|
- |
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
There was no single client who accounted for more than 10% of the Company’s revenues in any of the periods presented.
|
|
Segment Profit |
|
|||||||
|
|
|
Three Months Ended |
|
|
|
Three Months Ended |
|
||
|
|
|
March 31, |
|
|
|
March 31, |
|
||
|
|
|
2024 |
|
|
|
2023 |
|
||
Employer Solutions |
|
$ |
|
|
|
$ |
|
|
||
Other |
|
|
|
- |
|
|
|
|
- |
|
Total Gross Profit |
|
|
|
|
|
|
|
|
||
Selling, general and administrative |
|
|
|
|
|
|
|
|
||
Depreciation and intangible amortization |
|
|
|
|
|
|
|
|
||
Operating Income (Loss) From Continuing Operations |
|
|
|
( |
) |
|
|
|
( |
) |
(Gain) Loss from change in fair value of financial instruments |
|
|
|
|
|
|
|
|
||
(Gain) Loss from change in fair value of tax receivable agreement |
|
|
|
|
|
|
|
|
||
Interest expense |
|
|
|
|
|
|
|
|
||
Other (income) expense, net |
|
|
|
|
|
|
|
|
||
Income (Loss) From Continuing Operations Before Taxes |
|
$ |
|
( |
) |
|
$ |
|
( |
) |
13. Derivative Financial Instruments
The Company is exposed to market risks, including changes in interest rates. To manage the risk related to these exposures, the Company has entered into various derivative instruments that reduce these risks by creating offsetting exposures.
21
Interest Rate Swaps
The Company has utilized swap agreements that will fix the floating interest rates associated with its Term Loan as shown in the following table:
Designation Date |
|
Effective Date |
|
Initial Notional Amount |
|
|
Notional Amount Outstanding as of |
|
|
Fixed Rate |
|
Expiration Date |
|||||||
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
||||||
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
||||||
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
||||||
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
||||||
|
|
$ |
|
|
|
|
n/a |
|
|
|
|
% |
|
||||||
|
|
$ |
|
|
|
|
n/a |
|
|
|
|
% |
|
||||||
|
|
$ |
|
|
|
|
n/a |
|
|
|
|
% |
|
||||||
|
|
$ |
|
|
|
|
n/a |
|
|
|
|
% |
|
||||||
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
||||||
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
Concurrent with the refinancing of certain term loans, we amended our interest rate swaps to incorporate Term SOFR. In accordance with Accounting Standards Codification Topic 848, Reference Rate Reform, we did not redesignate the interest rate hedges when they were amended from LIBOR to SOFR; as we are permitted to maintain the designation through the transition. During the three months ended March 31, 2024, we have not executed any new interest rate swaps. Our interest rate swaps have been designated as cash flow hedges.
Certain swap agreements amortize or accrete based on achieving targeted hedge ratios. All interest rate swaps have been designated as cash flow hedges. The Company currently has two instruments that the fair value of the instruments at the time of re-designation are being amortized into interest expense over the remaining life of the instruments.
Financial Instrument Presentation
The fair values and location of outstanding derivative instruments recorded in the Condensed Consolidated Balance Sheets are as follows (in millions):
|
|
March 31, |
|
|
|
December 31, |
|
||||
|
|
2024 |
|
|
|
2023 |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
||
Other current assets |
|
$ |
|
|
|
|
$ |
|
|
||
Other assets |
|
|
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
|
|
|
||
Other current liabilities |
|
$ |
|
|
|
|
$ |
|
|
||
Other liabilities |
|
|
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
|
|
$ |
|
|
The Company estimates that approximately $
14. Financial Instruments
Seller Earnouts
Upon completion of the Business Combination, the equity owners of Alight Holdings received an earnout in the form of non-voting shares of Class B-1 and Class B-2 Common Stock, which automatically convert into Class A Common Stock if, at any time during the seven years following the Closing Date certain criteria are achieved. See Note 9 “Stockholders’ Equity” for additional information regarding the Seller Earnouts.
The portion of the Seller Earnouts related to employee compensation is accounted for as share-based compensation. See Note 10 “Share-Based Compensation Expense” for additional information.
The portion of the Seller Earnouts, which are not related to employee compensation, are accounted for as a contingent consideration liability at fair value within Financial instruments on the Condensed Consolidated Balance Sheets because the Seller Earnouts do not meet the criteria for classification within equity. This portion of the Seller Earnouts are subject to remeasurement at each balance sheet date. At March 31, 2024 and December 31, 2023, the Seller Earnouts had a fair value of $
22
the three months ended March 31, 2024, the fair value remeasurement of the Seller Earnouts was a loss of $
The fair value of the Class B-1 and B-2 Seller Earnouts, and the Class Z-B-1 and Z-B-2 contingent consideration instruments, is determined using Monte Carlo simulation and Option Pricing Methods (Level 3 inputs, see Note 16 "Fair Value Measurements"). Significant unobservable inputs are used in the assessment of fair value, including the following assumptions: volatility of
In addition, the Class Z instruments are also accounted for as a contingent consideration liability at fair value within Financial instruments on the Condensed Consolidated Balance Sheets because these instruments do not meet the criteria for classification within equity. The fair value of the Class Z-A contingent consideration is determined using the ending share price as of the last day of each quarter. For the three months ended March 31, 2024 and 2023, the Company recorded losses of $
15. Tax Receivable Agreement
In connection with the Business Combination, Alight entered into the TRA with certain owners of Alight Holdings prior to the Business Combination. Pursuant to the TRA, the Company will pay certain sellers, as applicable, 85% of the tax benefits, of any savings that we realize, calculated using certain assumptions, as a result of (i) tax basis adjustments from sales and exchanges of Alight Holdings equity interests in connection with or following the Business Combination and certain distributions with respect to Alight Holdings equity interests, (ii) our utilization of certain tax attributes, and (iii) certain other tax benefits related to entering into the TRA.
Actual tax benefits realized by Alight may differ from tax benefits calculated under the TRA as a result of the use of certain assumptions in the TRA, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits. While the amount of existing tax basis, the anticipated tax basis adjustments and the actual amount and utilization of tax attributes, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, we expect that the payments that Alight may make under the TRA will be substantial.
The Company’s TRA liability established upon completion of the Business Combination is measured at fair value on a recurring basis using significant unobservable inputs (Level 3). The TRA liability balance at March 31, 2024 assumes: (i) a constant blended U.S. federal, state and local income tax rate of
Subsequent to the Business Combination, we record additional liabilities under the TRA as and when Class A units of Alight Holdings are exchanged for Class A Common Stock. Liabilities resulting from these exchanges will be recorded on a gross undiscounted basis and are not remeasured at fair value. During the three months ended March 31, 2024, an additional TRA liability of $
23
The following table summarizes the changes in the TRA liabilities (in millions):
|
|
Tax Receivable |
|
||
|
|
Agreement Liability |
|
||
Beginning balance as of December 31, 2023 |
|
$ |
|
|
|
Fair value remeasurement |
|
|
|
|
|
Payments |
|
|
|
( |
) |
Conversion of noncontrolling interest |
|
|
|
|
|
Ending Balance as of March 31, 2024 |
|
|
|
|
|
Less: current portion included in other current liabilities |
|
|
|
( |
) |
Total long-term tax receivable agreement liability |
|
$ |
|
|
16. Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting standards related to fair value measurements include a hierarchy for information and valuations used in measuring fair value that is broken down into three levels based on reliability, as follows:
The Company’s financial assets and liabilities measured at fair value on a recurring basis are as follows (in millions):
|
|
March 31, 2024 |
|
|||||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest rate swaps |
|
$ |
|
— |
|
|
$ |
|
|
|
$ |
|
— |
|
|
$ |
|
|
||
Total assets recorded at fair value |
|
$ |
|
— |
|
|
$ |
|
|
|
$ |
|
— |
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest rate swaps |
|
$ |
|
— |
|
|
$ |
|
— |
|
|
$ |
|
— |
|
|
$ |
|
— |
|
Contingent consideration liability |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
||
Seller Earnouts liability |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
||
Tax receivable agreement liability (1) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
||
Total liabilities recorded at fair value |
|
$ |
|
— |
|
|
$ |
|
— |
|
|
$ |
|
|
|
$ |
|
|
|
|
December 31, 2023 |
|
|||||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest rate swaps |
|
$ |
|
— |
|
|
$ |
|
|
|
$ |
|
— |
|
|
$ |
|
|
||
Total assets recorded at fair value |
|
$ |
|
— |
|
|
$ |
|
|
|
$ |
|
— |
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest rate swaps |
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||
Contingent consideration liability |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
||
Seller Earnouts liability |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
||
Tax receivable agreement liability (1) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
||
Total liabilities recorded at fair value |
|
$ |
|
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
The valuations of the derivatives intended to mitigate our interest rate risk are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable
24
market-based inputs, including interest rate curves, interest rate volatility, or spot and forward exchange rates, and reflects the contractual terms of these instruments, including the period to maturity. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential non-performance risk.
Contingent Consideration
The contingent consideration liabilities relate to acquisitions in previous years and are included in Other current liabilities on the Condensed Consolidated Balance Sheets. The fair value of these liabilities is determined using a discounted cash flow analysis. Changes in the fair value of the liabilities are included in Other (income) expense, net in the Condensed Consolidated Statements of Comprehensive Income (Loss). Significant unobservable inputs are used in the assessment of fair value, including assumptions regarding discount rates and probability assessments based on the likelihood of reaching the various targets set out in the acquisition agreements.
The following table summarizes the changes in deferred contingent consideration liabilities (in millions):
|
|
Three Months Ended March 31 |
|
|||||||
|
|
2024 |
|
|
2023 |
|
||||
Beginning balance |
|
$ |
|
|
|
$ |
|
|
||
Measurement period adjustments |
|
|
|
|
|
|
|
|
||
Accretion of contingent consideration |
|
|
|
|
|
|
|
|
||
Remeasurement of acquisition-related contingent consideration |
|
|
|
|
|
|
|
|
||
Payments |
|
|
|
|
|
|
|
|
||
Ending Balance |
|
$ |
|
|
|
$ |
|
|
Additional Disclosures Regarding Fair Value Measurement
The fair value of the Company’s debt is classified as Level 2 within the fair value hierarchy and corroborated by observable market data is as follows (in millions):
|
|
March 31, 2024 |
|
|
|
December 31, 2023 |
|
||||||||||||||
|
|
Carrying Value |
|
|
Fair Value |
|
|
|
Carrying Value |
|
|
Fair Value |
|
||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current portion of long-term debt, net |
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
||||
Long-term debt, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
The carrying value of the Term Loan, Secured Senior Notes include the outstanding principal balance, less any unamortized premium. The carrying value of the Term Loan approximates fair value as it bears interest at variable rates and we believe our credit risk is consistent with when the debt originated. The outstanding balances under the Senior
The carrying amounts of Cash and cash equivalents, Receivables, net and Accounts payable and accrued liabilities approximate their fair values due to the short-term maturities of these instruments.
During each of the three months ended March 31, 2024 and 2023, there were
17. Restructuring
Transformation Program
25
From the inception of the plan through March 31, 2024, the Company has incurred total expenses of $
The following table summarizes restructuring costs by type that have been incurred.
|
|
Three Months Ended |
|
|
|
Three Months Ended |
|
|
|
|
Estimated |
|
|
Estimated |
|
||||||||||
|
|
March 31, |
|
|
|
March 31, |
|
Inception to |
|
|
Remaining |
|
|
Total |
|
||||||||||
|
|
2024 |
|
|
|
2023 |
|
|
|
Date |
|
|
Costs |
|
|
Cost |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Employer Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Severance and Related Benefits |
|
$ |
|
|
|
$ |
|
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
||||
Other Restructuring Costs(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Employer Solutions |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||||
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Severance and Related Benefits |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||||
Other Restructuring Costs(1) |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Corporate |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||||
Total Restructuring Costs |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
As of March 31, 2024, approximately $
|
Severance and |
|
|
Other Restructuring |
|
|
|
|
|
|||||
|
Related Benefits |
|
|
Costs |
|
|
Total |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Accrued restructuring liability as of December 31, 2023 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
Restructuring charges |
|
|
|
|
|
|
|
|
|
|
|
|||
Cash payments |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
Accrued restructuring liability as of March 31, 2024 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
18. Employee Benefits
Defined Contribution Savings Plans
Certain of the Company’s employees participate in a defined contribution savings plan sponsored by the Company. For the three months ended March 31, 2024 and 2023, expenses were $
19. Commitments and Contingencies
Legal
The Company is subject to various claims, tax assessments, lawsuits, and proceedings that arise in the ordinary course of business relating to the delivery of our services and the effectiveness of our technologies. The damages claimed in these matters are or may be substantial. Accruals for any exposures, and related insurance or other receivables, when applicable, are included on the Condensed Consolidated Balance Sheets and have been recognized in Selling, general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Income (Loss) to the extent that losses are deemed probable and are reasonably estimable. These amounts are adjusted from time to time as developments warrant. Management believes that the reserves established are appropriate based on the facts currently known. Management believes that the reserves established are appropriate based on the facts currently known. The reserves recorded at March 31, 2024 and December 31, 2023 were not significant.
Guarantees and Indemnifications
The Company provides a variety of service performance guarantees and indemnifications to its clients. The maximum potential amount of future payments represents the notional amounts that could become payable under the guarantees and indemnifications if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or other methods. These notional amounts may bear no relationship to the future payments that may be made, if any, for these guarantees and indemnifications.
26
To date, the Company has not been required to make any payment under any client arrangement as described above. The Company has assessed the current status of performance risk related to the client arrangements with performance guarantees and believes that any potential payments would be immaterial to the Condensed Consolidated Financial Statements.
Purchase Obligations
In March 2024, the Company entered into an agreement with a third-party provider in the ordinary course of business for the use of certain cloud services. Under this agreement, the Company is committed to purchase services totaling $
Service Obligations
On September 1, 2018, the Company executed an agreement to form a strategic partnership with Wipro, a leading global information technology, consulting and business process services company. The Company’s expected cash outflow for non-cancellable service obligations related to our strategic partnership with Wipro is $
The Company may terminate its arrangement with Wipro for cause or for the Company’s convenience. In the case of a termination for convenience, the Company would be required to pay a termination fee, including certain of Wipro’s unamortized costs, plus
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes which are included elsewhere in this Quarterly Report on Form 10-Q and with the Annual Report. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in "Item 1A. Risk Factors" in our Annual Report and in this Quarterly Report on Form 10-Q, particularly under the caption "Forward-Looking Statements."
BUSINESS
Overview
Alight delivers human capital management solutions to many of the world’s largest and most complex companies. This includes the implementation and administration of both employee wellbeing (e.g. health, wealth and leaves benefits). In addition, the Company implements and runs human capital management software platforms on behalf of third-party providers. Alight’s numerous solutions and services are utilized year-round by employees and their family members in support of their overall health, wealth and wellbeing goals. Participants can access their solutions digitally, including through a mobile application on Alight Worklife®, our intuitive, cloud-based employee engagement platform. Through Alight Worklife, the Company believes it is defining the future of employee wellbeing by providing an enterprise level, integrated offering designed to drive better outcomes for organizations and individuals.
We aim to be the pre-eminent employee experience partner by providing personalized experiences that help employees make the best decisions for themselves and their families about their health, wealth and wellbeing. At the same time, we help employers tackle their biggest people and business challenges by helping them understand prevalence, trends and risks to generate better outcomes for the future, such as improved employee productivity and retention, while also realizing a return on their people investment. Our data, analytics and AI allow us to deliver actionable insights that drive measurable outcomes, such as healthcare claims savings, for companies and their people. We provide solutions to manage health and retirement benefits, tools for HR management, as well as solutions to manage the workforce from the cloud.
On July 2, 2021 (the “Closing Date”), Alight Holding Company, LLC (the "Predecessor" or "Alight Holdings") completed a business combination (the "Business Combination") with a special purpose acquisition company. On the Closing Date, pursuant to the Business Combination Agreement, the special purpose acquisition company became a wholly owned subsidiary of Alight, Inc. (“Alight”, the “Company”, “we” “us” “our” or the “Successor”). As of March 31, 2024, Alight owned approximately 99% of the economic interest in the Predecessor, had 100% of the voting power and controlled the management of the Predecessor. The non-voting ownership percentage held by noncontrolling interest was less than 1% as of March 31, 2024.
On March 20, 2024, the Company announced that it has signed a definitive agreement to sell its Professional Services segment and its Payroll & HCM Outsourcing businesses within the Employer Solutions segment (“Payroll & Professional Services business”) to an affiliate of H.I.G. Capital for up to $1.2 billion, subject to certain adjustments and regulatory approvals. Pursuant to the terms of the agreement, an affiliate of H.I.G. Capital will acquire the Payroll & Professional Services business for a transaction value of up to $1.2 billion, in the form of $1 billion in cash and up to $200 million in a seller note, of which $150 million is contingent upon the Payroll & Professional Services business' 2025 financial performance. The transaction is expected to close by mid-year 2024, subject to customary closing conditions, including regulatory approvals. The Company has incurred, and expects to continue to incur, higher operating expenses in 2024 as a result of professional fees incurred in conjunction with the transaction.
28
EXECUTIVE SUMMARY OF FINANCIAL RESULTS
The following table sets forth our historical results of operations for the periods indicated below:
|
|
|
|
|
|
|
|
||
|
|
|
Three Months Ended |
Three Months Ended |
|
||||
|
|
|
March 31, |
March 31, |
|
||||
(in millions) |
|
|
2024 |
2023 |
|
||||
Revenue |
|
$ |
|
559 |
|
$ |
|
586 |
|
Cost of services, exclusive of depreciation and amortization |
|
|
|
356 |
|
|
|
382 |
|
Depreciation and amortization |
|
|
|
21 |
|
|
|
17 |
|
Gross Profit |
|
|
|
182 |
|
|
|
187 |
|
|
|
|
|
|
|
|
|
||
Operating Expenses |
|
|
|
|
|
|
|
||
Selling, general and administrative |
|
|
|
146 |
|
|
|
151 |
|
Depreciation and intangible amortization |
|
|
|
76 |
|
|
|
76 |
|
Total Operating expenses |
|
|
|
222 |
|
|
|
227 |
|
Operating Income (Loss) From Continuing Operations |
|
|
|
(40 |
) |
|
|
(40 |
) |
Other (Income) Expense |
|
|
|
|
|
|
|
||
(Gain) Loss from change in fair value of financial instruments |
|
|
|
21 |
|
|
|
25 |
|
(Gain) Loss from change in fair value of tax receivable agreement |
|
|
|
55 |
|
|
|
8 |
|
Interest expense |
|
|
|
31 |
|
|
|
33 |
|
Other (income) expense, net |
|
|
|
1 |
|
|
|
1 |
|
Total Other (income) expense, net |
|
|
|
108 |
|
|
|
67 |
|
Income (Loss) Before Taxes From Continuing Operations |
|
|
|
(148 |
) |
|
|
(107 |
) |
Income tax expense (benefit) |
|
|
|
(27 |
) |
|
|
(23 |
) |
Net Income (Loss) From Continuing Operations |
|
|
|
(121 |
) |
|
|
(84 |
) |
Net Income (Loss) From Discontinued Operations, Net of Tax |
|
|
|
5 |
|
|
|
10 |
|
Net Income (Loss) |
|
|
|
(116 |
) |
|
|
(74 |
) |
Net income (loss) attributable to noncontrolling interests |
|
|
|
(2 |
) |
|
|
(6 |
) |
Net Income (Loss) Attributable to Alight, Inc. |
|
$ |
|
(114 |
) |
$ |
|
(68 |
) |
REVIEW OF RESULTS
Key Components of Our Continuing Operations
Revenue
Our clients’ demand for our services ultimately drives our revenues. We generate primarily all of our revenue, which is highly recurring, from fees for services provided from contracts across all solutions, which is primarily based on a contracted fee charged per participant per period (e.g., monthly or annually, as applicable). Our contracts typically have three to five-year terms for ongoing services with mutual renewal options. The majority of the Company’s revenue is recognized over time when control of the promised services is transferred, and the customers simultaneously receive and consume the benefits of our services. Payment terms are consistent with industry practice. We calculate growth rates for each of our solutions in relation to recurring revenues and revenues from project work. One of the components of our growth in recurring revenues is the increase in net commercial activity which reflects items such as client wins and losses (“Net Commercial Activity”). We define client wins as sales to new clients and sales of new solutions to existing clients. We define client losses as instances where clients do not renew or terminate their arrangements in relation to individual solutions or all of the solutions that we provide. We measure revenue growth as it relates to the cloud-based products and solutions that are central to our Alight Worklife® platform and next generation product suite, BPaaS Solutions.
Cost of Services, exclusive of Depreciation and Amortization
Cost of services, exclusive of depreciation and amortization includes compensation-related and vendor costs directly attributable to client-related services and costs related to application development and client-related infrastructure.
Depreciation and Amortization
Depreciation and amortization expenses include the depreciation and amortization related to our hardware, software and application development. Depreciation and amortization may increase or decrease in absolute dollars in future periods depending on the future level of capital investments in hardware, software and application development.
29
Selling, General and Administrative
Selling, general and administrative expenses include compensation-related costs for administrative and management employees, system and facilities expenses, and costs for external professional and consulting services.
Depreciation and Intangible Amortization
Depreciation and intangible amortization expenses consist of charges relating to the depreciation of the property and equipment used in our business and the amortization of acquired customer-related and contract based intangible assets and technology related intangible assets. Depreciation and intangible amortization may increase or decrease in absolute dollars in future periods depending on the future level of capital investments in hardware and other equipment as well as amortization expense associated with future acquisitions.
(Gain) Loss from Change in Fair Value of Financial Instruments
(Gain) loss from change in fair value of financial instruments includes the impact of the revaluation to fair value at the end of each reporting period for the Seller Earnouts contingent consideration.
(Gain) Loss from Change in Fair Value of Tax Receivable Agreement
(Gain) loss from change in fair value of Tax Receivable Agreement ("TRA") includes the impact of the revaluation to fair value at the end of each reporting period.
Interest Expense
Interest expense primarily includes interest expense related to our outstanding debt.
Other (Income) Expense, net
Other (income) expense, net includes non-operating expenses and income, including realized (gains) and losses from remeasurement of foreign currency transactions.
Results of Continuing Operations for the Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023
Revenue
Revenues were $559 million for the three months ended March 31, 2024 as compared to $586 million for the prior year period. The decrease of $27 million or 4.6% was driven by lower volumes, net commercial activity and project revenue within our Employer Solutions segment and the wind-down of our Hosted business operations. We expect short term impacts in the first half of 2024 when compared to the prior year period as a result of large deal go-live timing and previous softness in BPaaS bookings in the first half of 2023. We also measure revenue growth as it relates to our cloud-based products and solutions that are central to our Alight Worklife® platform and our next generation product suite, BPaaS Solutions. For the three months ended March 31, 2024, we recorded BPaaS revenue of $117 million, which represented growth of 20.6% compared to the prior year period.
Recurring revenues decreased by $22 million, or 4.1%, from $543 million in the prior year period to $521 million and are related to decreases in our Employer Solutions segment driven by lower volumes and Net Commercial Activity.
Cost of Services, exclusive of Depreciation and Amortization
Cost of services, exclusive of depreciation and amortization, decreased $26 million, or 6.8%, for the three months ended March 31, 2024 as compared to the prior year period. The decrease was primarily driven by lower revenues and productivity initiatives, partially offset by continued investments in key resources.
Selling, General and Administrative
Selling, general and administrative expenses decreased $5 million, or 3.3%, for the three months ended March 31, 2024 as compared to the prior year period. The decrease was driven by lower compensation expenses primarily related to share-based awards and lower costs incurred from our restructuring program, partially offset by professional fees related to the planned sale of our Payroll and Professional Services businesses.
Depreciation and Intangible Amortization
Depreciation and intangible amortization expenses remained consistent when comparing the three months ended March 31, 2024 to the prior year period.
Change in Fair Value of Financial Instruments
There was a $21 million loss related to the change in the fair value of financial instruments for the three months ended March 31, 2024 compared to a loss of $25 million for the prior year period. We are required to remeasure the financial instruments at
30
the end of each reporting period and reflect a gain or loss for the change in fair value of the financial instruments in the period the change occurred. Changes in the fair value are due to changes in the underlying assumptions, including changes in the risk free interest rate, volatility, and the closing stock price for the period. See Note 14 "Financial Instruments" for additional information.
Change in Fair Value of Tax Receivable Agreement
The change in the fair value of the TRA resulted in a loss of $55 million for the three months ended March 31, 2024, an increase of $47 million compared to a loss of $8 million for the prior year period. This revaluation loss is due to conversion of non-controlling interest during the three months ended March 31, 2024, changes in the Company's assumptions related to the timing of the utilization of tax attributes during the term of the TRA, changes in the discount rate, and passage of time.
Interest Expense
Interest expense decreased $2 million for the three months ended March 31, 2024 as compared to the prior year period. The decrease was primarily due to increased hedging activity at favorable market rates, the opportunistic repricing of our 2028 term loan and higher interest income. See Note 8 “Debt” for additional information.
Income (Loss) Before Taxes From Continuing Operations
Loss before taxes from continuing operations was $148 million for the three months ended March 31, 2024 as compared to loss before taxes from continuing operations of $107 million for the three months ended March 31, 2023. The increase was primarily due to non-operating fair value remeasurements associated with financial instruments and the TRA.
Income Tax Expense (Benefit)
Income tax benefit was $27 million for the three months ended March 31, 2024, as compared to an income tax benefit of $23 million for the prior year period. The effective tax rate of 18% for the three months ended March 31, 2024 was lower than the 21% U.S. statutory corporate income tax rate primarily due to non-deductible portion of stock compensation expense. The effective tax rate of 21% for the three months ended March 31, 2023 was equal to the 21% U.S. statutory corporate income tax rate primarily due to the recognition of a benefit for an uncertain tax position for which the statute of limitations has lapsed, and partially offset by losses in certain non-U.S. jurisdictions for which tax benefits have not been recorded. See Note 7 “Income Taxes” for additional information.
Non-GAAP Financial Measures
The presentation of non-GAAP financial measures is used to enhance our management and stakeholders understanding of certain aspects of our financial performance. This discussion is not meant to be considered in isolation, superior to, or as a substitute for the directly comparable financial measures prepared in accordance with U.S. GAAP. Management also uses supplemental non-GAAP financial measures to manage and evaluate the business, make planning decisions, allocate resources and as performance measures for Company-wide bonus plans. These key financial measures provide an additional view of our operational performance over the long-term and provide useful information that we use in order to maintain and grow our business.
The measures referred to as “adjusted”, have limitations as analytical tools, and such measures should not be considered either in isolation or as a substitute for net income or other methods of analyzing our results as reported under U.S. GAAP. Some of the limitations are:
Adjusted Net Income From Continuing Operations and Adjusted Diluted Earnings Per Share From Continuing Operations
Adjusted Net Income From Continuing Operations, which is defined as net income (loss) from continuing operations, adjusted for intangible amortization and the impact of certain non-cash items that we do not consider in the evaluation of ongoing operational
31
performance, is a non-GAAP financial measure used solely for the purpose of calculating Adjusted Diluted Earnings Per Share From Continuing Operations.
Adjusted Diluted Earnings Per Share From Continuing Operations is defined as Adjusted Net Income From Continuing Operations divided by the adjusted weighted-average number of shares of common stock, diluted. The adjusted weighted shares calculation assumes the full exchange of the non-controlling interest units and the full amount of non-vested time-based restricted units that were determined to be antidilutive and therefore excluded from the U.S. GAAP diluted earnings per share. Adjusted Diluted Earnings Per Share From Continuing Operations, including the adjusted weighted-average number of shares, is used by us and our investors to evaluate our core operating performance and to benchmark our operating performance against our competitors.
A reconciliation of Adjusted Net Income (Loss) From Continuing Operations and the computation of Adjusted Diluted Earnings Per Share From Continuing Operations is as follows:
|
|
|
Three Months Ended |
|
|
|
Three Months Ended |
|
||
|
|
|
March 31, |
|
|
|
March 31, |
|
||
(in millions, except share and per share amounts) |
|
|
2024 |
|
|
|
2023 |
|
||
Numerator: |
|
|
|
|
|
|
|
|
||
Net Income (Loss) From Continuing Operations Attributable to Alight, Inc. (1) |
|
$ |
|
(119 |
) |
|
$ |
|
(78 |
) |
Conversion of noncontrolling interest |
|
|
|
(2 |
) |
|
|
|
(6 |
) |
Intangible amortization |
|
|
|
71 |
|
|
|
|
71 |
|
Share-based compensation |
|
|
|
28 |
|
|
|
|
34 |
|
Transaction and integration expenses (2) |
|
|
|
17 |
|
|
|
|
2 |
|
Restructuring |
|
|
|
15 |
|
|
|
|
23 |
|
(Gain) Loss from change in fair value of financial instruments |
|
|
|
21 |
|
|
|
|
25 |
|
(Gain) Loss from change in fair value of tax receivable agreement |
|
|
|
55 |
|
|
|
|
8 |
|
Other |
|
|
|
— |
|
|
|
|
1 |
|
Tax effect of adjustments (3) |
|
|
|
(29 |
) |
|
|
|
(29 |
) |
Adjusted Net Income From Continuing Operations |
|
$ |
|
57 |
|
|
$ |
|
51 |
|
|
|
|
|
|
|
|
|
|
||
Denominator: |
|
|
|
|
|
|
|
|
||
Weighted average shares outstanding - basic |
|
|
|
540,780,315 |
|
|
|
|
476,145,761 |
|
Dilutive effect of the exchange of noncontrolling interest units |
|
|
|
1,189,156 |
|
|
|
|
— |
|
Weighted average shares outstanding - diluted |
|
|
|
541,969,471 |
|
|
|
|
476,145,761 |
|
Exchange of noncontrolling interest units(4) |
|
|
|
4,471,277 |
|
|
|
|
57,966,505 |
|
Impact of unvested RSUs(5) |
|
|
|
10,158,541 |
|
|
|
|
10,412,840 |
|
Adjusted shares of Class A Common Stock outstanding - diluted(6)(7) |
|
|
|
556,599,289 |
|
|
|
|
544,525,106 |
|
|
|
|
|
|
|
|
|
|
||
Basic (Net Loss) Earnings Per Share From Continuing Operations |
|
$ |
|
(0.22 |
) |
|
$ |
|
(0.16 |
) |
Diluted (Net Loss) Earnings Per Share From Continuing Operations |
|
$ |
|
(0.22 |
) |
|
$ |
|
(0.16 |
) |
Adjusted Diluted Earnings Per Share From Continuing Operations |
|
$ |
|
0.10 |
|
|
$ |
|
0.09 |
|
Adjusted EBITDA From Continuing Operations and Adjusted EBITDA Margin From Continuing Operations
Adjusted EBITDA From Continuing Operations is defined as earnings before interest, taxes, depreciation and intangible amortization adjusted for the impact of certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance. Adjusted EBITDA Margin From Continuing Operations is defined as Adjusted EBITDA From Continuing Operations
32
divided by revenue. Adjusted EBITDA and Adjusted EBITDA Margin From Continuing Operations are non-GAAP financial measures used by management and our stakeholders to provide useful supplemental information that enables a better comparison of our performance across periods as well as to evaluate our core operating performance. A reconciliation of Adjusted EBITDA From Continuing Operations to Net Income (Loss) From Continuing Operations is as follows:
|
|
|
Three Months Ended |
|
|
|
Three Months Ended |
|
||
|
|
|
March 31, |
|
|
|
March 31, |
|
||
(in millions) |
|
|
2024 |
|
|
|
2023 |
|
||
Net Income (Loss) From Continuing Operations (1) |
|
$ |
|
(121 |
) |
|
$ |
|
(84 |
) |
Interest expense |
|
|
|
31 |
|
|
|
|
33 |
|
Income tax expense (benefit) |
|
|
|
(27 |
) |
|
|
|
(23 |
) |
Depreciation |
|
|
|
26 |
|
|
|
|
22 |
|
Intangible amortization |
|
|
|
71 |
|
|
|
|
71 |
|
EBITDA From Continuing Operations |
|
|
|
(20 |
) |
|
|
|
19 |
|
Share-based compensation |
|
|
|
28 |
|
|
|
|
34 |
|
Transaction and integration expenses (2) |
|
|
|
17 |
|
|
|
|
2 |
|
Restructuring |
|
|
|
15 |
|
|
|
|
23 |
|
(Gain) Loss from change in fair value of financial instruments |
|
|
|
21 |
|
|
|
|
25 |
|
(Gain) Loss from change in fair value of tax receivable agreement |
|
|
|
55 |
|
|
|
|
8 |
|
Other |
|
|
|
— |
|
|
|
|
1 |
|
Adjusted EBITDA From Continuing Operations |
|
$ |
|
116 |
|
|
$ |
|
112 |
|
Revenue |
|
$ |
|
559 |
|
|
$ |
|
586 |
|
Adjusted EBITDA Margin From Continuing Operations (3) |
|
|
|
20.8 |
% |
|
|
|
19.1 |
% |
(1) Adjusted EBITDA excludes the impact of discontinued operations. Comparable periods have been recast to exclude these impacts.
(2) Transaction and integration expenses primarily relate to acquisition and divestiture activities.
(3) Adjusted EBITDA Margin From Continuing Operations is defined as Adjusted EBITDA From Continuing Operations as a percentage of revenue.
Segment Revenue and Adjusted Gross Profit
Adjusted gross profit is defined as revenue less cost of services adjusted for depreciation, amortization and share-based compensation. Adjusted gross profit margin percent is defined as adjusted gross profit divided by revenue. Management uses adjusted gross profit and adjusted gross profit margin percent as key measures in making financial, operating and planning decisions and in evaluating our performance. We believe that presenting adjusted gross profit and adjusted gross profit margin percent is useful to investors as it eliminates the impact of certain non-cash expenses and allows a direct comparison between periods.
Employer Solutions Results
|
|
|
Three Months Ended |
|
|
|
Three Months Ended |
|
||
|
|
|
March 31, |
|
|
|
March 31, |
|
||
($ in millions) |
|
|
2024 |
|
|
|
2023 |
|
||
Employer Solutions Revenue |
|
|
|
|
|
|
|
|
||
Recurring |
|
$ |
|
521 |
|
|
$ |
|
533 |
|
Project |
|
|
|
38 |
|
|
|
|
43 |
|
Total Employer Solutions Revenue |
|
$ |
|
559 |
|
|
$ |
|
576 |
|
Employer Solutions Gross Profit |
|
$ |
|
182 |
|
|
$ |
|
187 |
|
Employer Solutions Gross Profit Margin |
|
|
|
32.6 |
% |
|
|
|
32.5 |
% |
Employer Solutions Adjusted Gross Profit |
|
$ |
|
208 |
|
|
$ |
|
210 |
|
Employer Solutions Adjusted Gross Profit Margin |
|
|
|
37.2 |
% |
|
|
|
36.5 |
% |
Employer Solutions Segment Results of Operations for the Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023
Employer Solutions Revenue
Employer Solutions revenue was $559 million for the three months ended March 31, 2024 as compared to $576 million for the prior year period. The overall decrease of $17 million was primarily driven by decreases in recurring revenues from lower volumes, net commercial activity and project revenue.
Employer Solutions Gross Profit and Adjusted Gross Profit
Employer Solutions gross profit was $182 million for the three months ended March 31, 2024 compared to $187 million for the prior year period. The decrease of $5 million was driven by a decrease in revenue and lower expenses related to productivity initiatives, partially offset by increases in costs associated with funding growth of current and future revenues. Employer Solutions adjusted gross profit for the three months ended March 31, 2024 decreased $2 million to $208 million from $210 million in the prior year period
33
primarily driven by a decrease in revenue and lower expenses related to productivity initiatives, partially offset by increases in costs associated with funding growth of current and future revenues.
LIQUIDITY AND CAPITAL RESOURCES
Executive Summary
Our primary sources of liquidity include our existing cash and cash equivalents, cash flows from operations and availability under our revolving credit facility. Our primary uses of liquidity are operating expenses, funding of our debt requirements and capital expenditures.
We believe that our available cash and cash equivalents, cash flows from operations and availability under our revolving credit facility will be sufficient to meet our liquidity needs, including principal and interest payments on debt obligations, capital expenditures, payments on our Tax Receivable Agreement and anticipated working capital requirements for the foreseeable future. We believe our liquidity position at March 31, 2024 remains strong. We will continue to closely monitor and proactively manage our liquidity position in light of changing economic conditions and the volatility of interest rates. The Company expects to use the net after-tax cash proceeds from the expected sale of its Payroll & Professional Services business to reduce debt, return capital and for general corporate purposes, including reinvestment into growth opportunities.
In August 2022, we established a repurchase program allowing for up to $100 million in authorized share repurchases. In March 2024, the Company’s Board of Directors authorized the repurchase of up to an additional $200 million of the Company’s Class A common stock. As of March 31, 2024, approximately $248 million remained available for share repurchases under our share repurchase program.
Cash on our balance sheet includes funds available for general corporate purposes. Funds held on behalf of clients in a fiduciary capacity are segregated and shown in Fiduciary assets on the Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023, with a corresponding amount in Fiduciary liabilities. Fiduciary funds are not used for general corporate purposes and are not a source of liquidity for us.
The Company's cash flows are presented inclusive of discontinued operations on the condensed consolidated statement of cash flows for all periods presented. The following table provides a summary of cash flows from operating, investing, and financing activities for the periods presented.
|
|
|
Three Months Ended |
|
|
|
Three Months Ended |
|
||
|
|
|
March 31, |
|
|
|
March 31, |
|
||
(in millions) |
|
|
2024 |
|
|
|
2023 |
|
||
Cash provided by operating activities |
|
$ |
|
100 |
|
|
$ |
|
72 |
|
Cash used in investing activities |
|
|
|
(36 |
) |
|
|
|
(45 |
) |
Cash used in financing activities |
|
|
|
(74 |
) |
|
|
|
(160 |
) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
|
(2 |
) |
|
|
|
— |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
|
(12 |
) |
|
|
|
(133 |
) |
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
1,747 |
|
|
$ |
|
1,626 |
|
Operating Activities
Net cash provided by operating activities was $100 million for the three months ended March 31, 2024 compared to $72 million for the three months ended March 31, 2023. The increase in cash provided by operating activities was primarily due to a decrease in our net working capital requirements.
Investing Activities
Cash used for investing activities decreased $9 million to $36 million for the three months ended March 31, 2024 from $45 million for the prior year period, driven by capital expenditures.
Financing Activities
Cash used for financing activities for the three months ended March 31, 2024 was $74 million as compared to cash used for financing activities of $160 million in the prior year. The primary drivers of cash used for financing activities were $62 million of TRA payments, $57 million of shares/units withheld in lieu of taxes, $9 million of finance lease payments, $6 million of debt repayments, partially offset by a $60 million net increase in fiduciary liabilities. The increase in fiduciary cash is primarily due to timing of client funding and subsequent disbursement of payments.
34
Cash, Cash Equivalents and Fiduciary Assets
At March 31, 2024, our continuing operations cash and cash equivalents were $256 million, a decrease of $68 million from December 31, 2023. Of the total balances of cash and cash equivalents as of March 31, 2024 and December 31, 2023, none of the balances were restricted as to use.
Some of our client agreements require us to hold funds on behalf of clients to pay obligations on their behalf. The levels of Fiduciary assets and liabilities can fluctuate significantly, depending on when we collect the amounts from clients and make payments on their behalf. Such funds are not available to service our debt or for other corporate purposes. There is typically a short period of time between when the Company receives funds and when it pays obligations on behalf of clients. We are entitled to retain investment income earned on fiduciary funds, when investment strategies are deployed, in accordance with industry custom and practice, which has historically been immaterial. In our Condensed Consolidated Balance Sheets, the amount we report for Fiduciary assets and Fiduciary liabilities are equal. Our continuing operations Fiduciary assets included cash of $250 million and $234 million at March 31, 2024 and December 31, 2023, respectively.
Other Liquidity Matters
Our cash flows from operations, borrowing availability and overall liquidity are subject to risks and uncertainties. For further information, see the “Risk Factors” section within Item 1A of our Annual Report.
We do not have any material business, operations or assets in Russia, Belarus or Ukraine and we have not been materially impacted by the actions of the Russian government. Our total revenues from these three countries are de minimis for all periods presented.
Tax Receivable Agreement
In connection with the Business Combination, we entered into the TRA with certain of our pre-Business Combination owners that provides for the payment by Alight to such owners of 85% of the benefits that Alight is deemed to realize as a result of the Company’s share of existing tax basis acquired in the Business Combination and other tax benefits related to entering into the Tax Receivable Agreement.
Actual tax benefits realized by Alight may differ from tax benefits calculated under the TRA as a result of the use of certain assumptions in the TRA, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits. While the amount of existing tax basis, the anticipated tax basis adjustments and the actual amount and utilization of tax attributes, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, we expect that the payments that Alight may make under the TRA will be substantial. For the three months ended March 31, 2024, we paid $62 million related to the TRA and no further payments are expected to be made during the remainder of 2024. As of March 31, 2024, we expect to make payments of approximately $89 million in 2025.
Contractual Obligations and Commitments
In March 2024, the Company entered into an agreement with a third-party provider in the ordinary course of business for the use of certain cloud services. Under this agreement, the Company is committed to purchase services totaling $250 million over a 5-year term. There have been no other material changes to our obligations and commitments during the three months ended March 31, 2024.
Our material contractual obligations include debt, non-cancellable contractual service and purchase obligations and lease obligations. For additional information regarding debt and non-cancellable contractual service and purchases obligations, see the Condensed Consolidated Financial Statements within Item 1 of this Quarterly Report on Form 10-Q, Note 8 “Debt”, and Note 19 “Commitments and Contingencies”.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements.
Critical Accounting Estimates
There were no material changes from the Critical Accounting Estimates disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023. Please refer to "Critical Accounting Estimates" described in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our Annual Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For quantitative and qualitative disclosures about market risk, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report. Our exposures to market risk have not changed materially since the filing of the Annual Report.
35
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures. Based on the aforementioned evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2024, the Company's disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
36
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are a party to a variety of legal proceedings that arise in the normal course of our business. While the results of these legal proceedings cannot be predicted with certainty, we believe that the final outcome of these proceedings will not have a material adverse effect, individually or in the aggregate, on our results of operations or financial condition.
Item 1A. Risk Factors.
Factors that could cause our actual results to differ materially from those in this Quarterly Report on Form 10-Q are any of the risks described in our Annual Report filed with the SEC on February 29, 2024. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
In addition to the risk factors previously disclosed under "Part I, Item IA. Factors" in the Company’s Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating our Company and our business. Any of the following risks could materially and adversely affect our business financial condition and results of operations.
Risks Related to the Disposition
Our business and financial results could be adversely impacted during the pending sale of our Payroll and Professional Services Businesses, particularly if there is a delay in the completion of the Disposition.
On March 20, 2024, the Company entered into an asset purchase agreement to sell its Payroll and Professional Services Businesses (the “Disposition”) to an affiliate of H.I.G. Capital (“HIG”). The pending Disposition may cause disruptions to the Company’s business or business relationships, and may create uncertainty surrounding the Company’s ongoing business operations, which could materially and adversely affect our financial condition or results of operations, regardless of whether the Disposition is completed, including as a result of the attention of Company’s management being directed to transaction-related considerations and being diverted from the day-to-day operations of the Company’s business, seeking alternative relationships with third parties or seeking to terminate or renegotiated their relationships with the Company, and preparing for the post-closing separation of the businesses. Following the closing of the Disposition, we will enter into an agreement with HIG, whereby we and HIG will provide various transition services for specified periods beginning on the closing date. In the course of performing our obligations under such agreement, we will allocate certain of our resources, including assets, facilities, equipment and the time and attention of our management and other teammates, for the benefit of the Payroll and Professional Services Business and not ours, which may negatively impact our financial condition or results of operations.
If the Disposition is not completed for any reason, investor confidence could decline. A failed transaction may result in negative publicity, protracted litigation, and may affect our relationships with our clients and other business partners. In addition, in the event of a failed transaction, we will have expended significant management resources in an effort to complete the sale, and we will have incurred significant transaction costs, including legal fees, financial advisor fees and other related costs, without any commensurate benefit. Accordingly, if the proposed Disposition is not completed on the terms set forth in the operative agreement or at all, our business, results of operations, financial condition, cash flows and stock price may be materially adversely affected.
The Company has incurred, and will continue to incur, transaction costs in connection with the pending Disposition, and many of these fees and costs are payable regardless of whether or not the sale is completed.
If the proposed sale of the Payroll and Professional Services Businesses is completed, the Company may not achieve the operational and financial results that it anticipates in the future.
If the proposed sale of the Payroll and Professional Services Businesses is completed, the Company’s operational and financial profile will change upon the Disposition. As a result, the Company’s diversification of revenue sources will diminish, and the Company’s results of operations, cash flows, working capital and financing requirements may be subject to increased volatility and greater risk as a result of the concentration of its business. Moreover, shares of our Class A Common Stock will represent an investment in a smaller company than in existence today and our exposure to the risks inherent in our remaining businesses will increase. Additionally, our ability to return to the payroll and professional services business line is restricted by the terms of the non-competition commitments made pursuant to the terms of the agreement governing the Disposition.
The price of our Class A Common Stock may be volatile during the pending Disposition, and stockholders could lose all or part of their investment.
The trading price of our Class A Common Stock may at times be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond the Company’s control. In addition to other factors, these factors may include the
37
timing and process for completion of the Disposition, including potential delays which may cause significant fluctuations in the price of our Class A Common Stock.
The occurrence of any event, change or other circumstances that could give rise to the termination of the agreement governing the sale of our Payroll and Professional Services Businesses could adversely affect our future business.
There are significant risks and uncertainties associated with the pending Disposition. The occurrence of certain events, changes or any other circumstances could give rise to the termination of the agreement governing the Disposition and cause the sale not to be completed. For instance, there is no assurance that the parties to the agreement will receive the necessary regulatory approvals required to close the transaction. If the parties fail to obtain such approvals or to meet other conditions necessary to complete the sale as set forth in the operative agreement, the Company may not be able to close the transaction and the Company may not realize the anticipated benefits to its business and financial condition.
Our liquidity following the close of our pending sale of the Payroll and Professional Services Businesses and our planned used of proceeds may not be actualized, and we may use the proceeds from the Disposition and other available funds in ways that may not improve our results of operations, financial condition, cash flows or enhance the value of our Class A Common Stock.
Following the closing of the pending sale of our Payroll and Professional Services Businesses, we plan to use sale proceeds and other available funds in a variety of potential ways, including to repay debt, make stock repurchases and/or for general corporate purposes. A number of factors may impact our ability to repurchase stock and the timing of any such stock repurchases, including market conditions, the price of our common stock, our results of operations, financial condition, cash flows, available financing, leverage ratios, and legal, regulatory and contractual requirements and restrictions. Accordingly, the actual amount of common stock we repurchase may be less, perhaps substantially, and the period of time over which we make any stock repurchases may be substantially longer, than we currently anticipate.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information regarding purchases of our Class A Common Stock that were made by us during the three months ended March 31, 2024.
|
|
|
|
|
|
|
|
|
Total number of |
|
|
Approximate dollar |
|
|||||
|
|
|
|
|
|
|
|
|
shares purchased as |
|
|
value of shares that may |
|
|||||
|
|
|
|
|
|
|
|
|
part of publicly |
|
|
yet be purchased under |
|
|||||
|
|
Total number of |
|
|
Average price |
|
|
announced plans |
|
|
the plans or programs |
|
||||||
|
|
shares purchased |
|
|
paid per share(1) |
|
|
or programs |
|
|
(in millions) (2) |
|
||||||
January 1, 2024 through January 31, 2024 |
|
|
— |
|
|
$ |
|
— |
|
|
|
— |
|
|
$ |
|
48 |
|
February 1, 2024 through February 29, 2024 |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
48 |
|
March 1, 2024 through March 31, 2024 |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
248 |
|
Balance as of March 31, 2024 |
|
|
— |
|
|
$ |
|
— |
|
|
|
— |
|
|
$ |
|
248 |
|
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Trading Arrangements
During the three months ended March 31, 2024,
38
Item 6. Exhibits.
Exhibit Number |
|
Description |
|
|
|
2.1 |
|
|
3.1 |
|
|
3.2 |
|
|
10.1* |
|
|
10.2* |
|
|
10.3* |
|
|
10.4* |
|
|
31.1* |
|
|
31.2* |
|
|
32.1** |
|
|
32.2** |
|
|
101.INS* |
|
Inline XBRL Instance Document |
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document With Embedded Linkbase Documents |
104* |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
** Furnished herewith.
The related exhibits and schedules are not being filed herewith. The registrant agrees to furnish supplementally a copy of any such exhibits and schedules to the Securities and Exchange Commission upon request.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Alight, Inc. |
(Registrant)
|
|
|
|
Date: May 8, 2024 |
|
By: |
/s/ Katie Rooney |
|
|
|
Katie Rooney |
|
|
|
Chief Financial Officer and Chief Operating Officer |
|
|
|
(Principal Financial Officer, Principal Accounting Officer and Authorized Signatory) |
40