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Alight, Inc. / Delaware - Quarter Report: 2023 September (Form 10-Q)

10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

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: 001-39299

 

Alight, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

86-1849232

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

4 Overlook Point

Lincolnshire, IL

60069

(Address of principal executive offices)

(Zip Code)

(224) 737-7000

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

 

ALIT

 

New York Stock Exchange

 

 

 

 

 

 

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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 October 26, 2023, the registrant had 501,183,396 shares of Class A Common Stock, par value $0.0001 per share, 4,990,453 shares of Class B-1 Common Stock, par value $0.0001 per share, 4,990,453 shares of Class B-2 Common Stock, par value $0.0001 per share, 36,565,810 shares of Class V Common Stock, par value $0.0001 per share, 4,663,187 shares of Class Z-A Common Stock, par value $0.0001 per share, 266,947 shares of Class Z-B-1 Common Stock, par value $0.0001 per share, and 266,947 shares of Class Z-B-2 Common Stock, par value $0.0001 per share, outstanding.

 

 


 

Table of Contents

 

Page

 

 

 

 

Forward-Looking Statements

 

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements

3

Condensed Consolidated Balance Sheets (Unaudited)

3

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

4

 

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

5

Condensed Consolidated Statements of Cash Flows (Unaudited)

7

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

Controls and Procedures

40

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

42

Item 3.

Defaults Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

44

Signatures

45

 

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 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:

declines in economic activity in the industries, markets, and regions our clients serve, including as a result of macroeconomic factors beyond our control, increases in inflation rates or interest rates, or changes in monetary and fiscal policies;
the possibility that the Company may be adversely affected by other economic, business or competitive factors;
risks associated with competition with the Company’s competitors;
cyber-attacks and security vulnerabilities and other significant disruptions in the Company’s information technology systems and networks that could expose the Company to legal liability, impair its reputation or have a negative effect on the Company’s results of operations;
our handling of confidential, personal or proprietary data;
changes in applicable laws or regulations;
an inability to successfully execute on operational and technological enhancements designed to drive value for our clients or drive internal efficiencies;
claims (particularly professional liability claims), litigation or other proceedings against us;
the inability to adequately protect key intellectual property rights or proprietary technology;
past and prospective acquisitions, including the failure to successfully integrate operations, personnel, systems, technologies and products of the acquired companies, adverse tax consequences of acquisitions, greater than expected liabilities of the acquired companies and charges to earnings from acquisitions;
the success of our strategic partnerships with third parties;
the possibility of a decline in continued interest in outsourced services;
our inability to retain and attract experienced and qualified personnel;
recovery following a catastrophic event, disaster or other business continuity problem;
our inability to deliver a satisfactory product to our clients;
damage to our reputation;
our reliance on third-party licenses and service providers;
our handling of client funds;
changes in regulations that could have an adverse effect on the Company’s business;
the Company’s international operations;
the profitability of our engagements due to unexpected circumstances;
changes in accounting principles or treatment;

1


 

contracting with government clients;
the significant influence certain legacy investors and sponsor investors have over us;
the potential for conflicts of interest arising out of any members of our board of directors allocating their time to other businesses and not exclusively to us, and the fact that our charter contains a corporate opportunities waiver so directors will not be required to present potential business opportunities to us;
the incurrence of increased costs and becoming subject to additional regulations and requirements as a result of being a public company, including those related to internal controls over financial reporting;
an inability to successfully remedy the material weakness in our tax accounting identified during the 2022 fiscal year or the identification of any future deficiencies in internal controls over financial reporting;
changes in our capital structure, including from the issuance of new shares by us or sales of shares by legacy investors, which could adversely affect the market price of our stock;
our obligations under our Tax Receivable Agreement ("TRA");
changes to our credit ratings or interest rates which could affect our financial resources, ability to raise additional capital, generate sufficient cash flows, or generally maintain operations; and
other risks and uncertainties indicated in this report and our other public filings, including those set forth under the section entitled “Risk Factors” in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the "SEC") on March 1, 2023 (the "Annual Report").

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), 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)

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

(in millions, except par values)

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

276

 

 

$

 

250

 

Receivables, net

 

 

 

664

 

 

 

 

678

 

Other current assets

 

 

 

290

 

 

 

 

379

 

Total Current Assets Before Fiduciary Assets

 

 

 

1,230

 

 

 

 

1,307

 

Fiduciary assets

 

 

 

1,319

 

 

 

 

1,509

 

Total Current Assets

 

 

 

2,549

 

 

 

 

2,816

 

Goodwill

 

 

 

3,682

 

 

 

 

3,679

 

Intangible assets, net

 

 

 

3,632

 

 

 

 

3,872

 

Fixed assets, net

 

 

 

357

 

 

 

 

320

 

Deferred tax assets, net

 

 

 

5

 

 

 

 

6

 

Other assets

 

 

 

524

 

 

 

 

542

 

Total Assets

 

$

 

10,749

 

 

$

 

11,235

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

 

428

 

 

$

 

508

 

Current portion of long-term debt, net

 

 

 

25

 

 

 

 

31

 

Other current liabilities

 

 

 

312

 

 

 

 

300

 

Total Current Liabilities Before Fiduciary Liabilities

 

 

 

765

 

 

 

 

839

 

Fiduciary liabilities

 

 

 

1,319

 

 

 

 

1,509

 

Total Current Liabilities

 

 

 

2,084

 

 

 

 

2,348

 

Deferred tax liabilities

 

 

 

63

 

 

 

 

60

 

Long-term debt, net

 

 

 

2,776

 

 

 

 

2,792

 

Long-term tax receivable agreement

 

 

 

634

 

 

 

 

568

 

Financial instruments

 

 

 

87

 

 

 

 

97

 

Other liabilities

 

 

 

213

 

 

 

 

281

 

Total Liabilities

 

$

 

5,857

 

 

$

 

6,146

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

Preferred stock at $0.0001 par value: 1.0 shares authorized, none issued and outstanding

 

$

 

 

 

$

 

 

Class A Common Stock: $0.0001 par value, 1,000.0 shares authorized; 501.1 and 478.3 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

 

 

Class B Common Stock: $0.0001 par value, 20.0 shares authorized; 10.0 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

 

 

Class V Common Stock: $0.0001 par value, 175.0 shares authorized; 36.6 and 63.5 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

 

 

Class Z Common Stock: $0.0001 par value, 12.9 shares authorized; 5.2 and 5.6 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

 

 

Treasury stock, at cost (6.4 and 1.5 shares at September 30, 2023 and December 31, 2022, respectively)

 

 

 

(52

)

 

 

 

(12

)

Additional paid-in-capital

 

 

 

4,823

 

 

 

 

4,514

 

Retained deficit

 

 

 

(341

)

 

 

 

(158

)

Accumulated other comprehensive income

 

 

 

96

 

 

 

 

95

 

Total Alight, Inc. Stockholders' Equity

 

$

 

4,526

 

 

$

 

4,439

 

Noncontrolling interest

 

 

 

366

 

 

 

 

650

 

Total Stockholders' Equity

 

$

 

4,892

 

 

$

 

5,089

 

Total Liabilities and Stockholders' Equity

 

$

 

10,749

 

 

$

 

11,235

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

3


 

Alight, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

Three Months Ended

 

Three Months Ended

 

 

 

Nine Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

 

September 30,

 

September 30,

 

(in millions, except per share amounts)

2023

 

2022

 

 

 

2023

 

2022

 

Revenue

$

 

813

 

$

 

750

 

 

$

 

2,450

 

$

 

2,190

 

Cost of services, exclusive of depreciation and amortization

 

 

535

 

 

 

523

 

 

 

 

1,618

 

 

 

1,497

 

Depreciation and amortization

 

 

21

 

 

 

15

 

 

 

 

61

 

 

 

39

 

Gross Profit

 

 

257

 

 

 

212

 

 

 

 

771

 

 

 

654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

177

 

 

 

178

 

 

 

 

555

 

 

 

475

 

Depreciation and intangible amortization

 

 

84

 

 

 

84

 

 

 

 

254

 

 

 

254

 

Total Operating expenses

 

 

261

 

 

 

262

 

 

 

 

809

 

 

 

729

 

Operating Income (Loss)

 

 

(4

)

 

 

(50

)

 

 

 

(38

)

 

 

(75

)

Other (Income) Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

(Gain) Loss from change in fair value of financial instruments

 

 

(36

)

 

 

10

 

 

 

 

(11

)

 

 

(53

)

(Gain) Loss from change in fair value of tax receivable agreement

 

 

11

 

 

 

(20

)

 

 

 

30

 

 

 

(63

)

Interest expense

 

 

34

 

 

 

31

 

 

 

 

100

 

 

 

89

 

Other (income) expense, net

 

 

2

 

 

 

(6

)

 

 

 

9

 

 

 

(14

)

Total Other (income) expense, net

 

 

11

 

 

 

15

 

 

 

 

128

 

 

 

(41

)

Income (Loss) Before Taxes

 

 

(15

)

 

 

(65

)

 

 

 

(166

)

 

 

(34

)

Income tax expense (benefit)

 

 

31

 

 

 

(20

)

 

 

 

26

 

 

 

(28

)

Net Income (Loss)

 

 

(46

)

 

 

(45

)

 

 

 

(192

)

 

 

(6

)

Net income (loss) attributable to noncontrolling interests

 

 

2

 

 

 

(8

)

 

 

 

(9

)

 

 

(9

)

Net Income (Loss) Attributable to Alight, Inc.

$

 

(48

)

$

 

(37

)

 

 $

 

(183

)

$

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (net loss) earnings per share

$

 

(0.10

)

$

 

(0.08

)

 

$

 

(0.38

)

$

 

0.01

 

Diluted (net loss) earnings per share

$

 

(0.10

)

$

 

(0.08

)

 

$

 

(0.38

)

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

$

 

(46

)

$

 

(45

)

 

$

 

(192

)

$

 

(6

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of derivatives

 

 

(2

)

 

 

45

 

 

 

 

(8

)

 

 

122

 

Foreign currency translation adjustments

 

 

(3

)

 

 

(13

)

 

 

 

3

 

 

 

(28

)

Total Other comprehensive income (loss), net of tax:

 

 

(5

)

 

 

32

 

 

 

 

(5

)

 

 

94

 

Comprehensive Income (Loss) Before Noncontrolling Interests

 

 

(51

)

 

 

(13

)

 

 

 

(197

)

 

 

88

 

Comprehensive income (loss) attributable to noncontrolling interests

 

 

1

 

 

 

(2

)

 

 

 

(15

)

 

 

6

 

Comprehensive Income (Loss) Attributable to Alight, Inc.

$

 

(52

)

$

 

(11

)

 

$

 

(182

)

$

 

82

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

4


 

Alight, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

Total

 

 

 

 

 

Total

 

 

 

Common

 

 

Treasury

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Alight, Inc.

 

 

Noncontrolling

 

 

Stockholders'

 

(in millions)

 

Stock

 

 

Stock

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity

 

 

Interest

 

 

Equity

 

Balance at June 30, 2023

 

$

 

 

 

$

 

(26

)

 

$

 

4,734

 

 

$

 

(293

)

 

$

 

100

 

 

$

 

4,515

 

 

$

 

439

 

 

$

 

4,954

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(48

)

 

 

 

 

 

 

 

(48

)

 

 

 

2

 

 

 

 

(46

)

Other comprehensive income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

(4

)

 

 

 

(1

)

 

 

 

(5

)

Conversion of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

56

 

 

 

 

 

 

 

 

 

 

 

 

56

 

 

 

 

(74

)

 

 

 

(18

)

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

 

 

35

 

Shares withheld in lieu of taxes

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

(2

)

Share repurchases

 

 

 

 

 

 

 

(26

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26

)

 

 

 

 

 

 

 

(26

)

Balance at September 30, 2023

 

$

 

 

 

$

 

(52

)

 

$

 

4,823

 

 

$

 

(341

)

 

$

 

96

 

 

$

 

4,526

 

 

$

 

366

 

 

$

 

4,892

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

Total

 

 

 

 

 

Total

 

 

 

Common

 

 

Treasury

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Alight, Inc.

 

 

Noncontrolling

 

 

Stockholders'

 

(in millions)

 

Stock

 

 

Stock

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity

 

 

Interest

 

 

Equity

 

Balance at December 31, 2022

 

$

 

 

 

$

 

(12

)

 

$

 

4,514

 

 

$

 

(158

)

 

$

 

95

 

 

$

 

4,439

 

 

$

 

650

 

 

$

 

5,089

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(183

)

 

 

 

 

 

 

 

(183

)

 

 

 

(9

)

 

 

 

(192

)

Other comprehensive income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

1

 

 

 

 

(6

)

 

 

 

(5

)

Common stock issued under ESPP

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

4

 

Conversion of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

203

 

 

 

 

 

 

 

 

 

 

 

 

203

 

 

 

 

(269

)

 

 

 

(66

)

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

110

 

 

 

 

 

 

 

 

 

 

 

 

110

 

 

 

 

 

 

 

 

110

 

Shares withheld in lieu of taxes

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

 

 

(8

)

Share repurchases

 

 

 

 

 

 

 

(40

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40

)

 

 

 

 

 

 

 

(40

)

Balance at September 30, 2023

 

$

 

 

 

$

 

(52

)

 

$

 

4,823

 

 

$

 

(341

)

 

$

 

96

 

 

$

 

4,526

 

 

$

 

366

 

 

$

 

4,892

 

 

 

5


 

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

Total

 

 

 

 

 

Total

 

 

 

Common

 

 

 

Treasury

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Alight, Inc.

 

 

Noncontrolling

 

 

Stockholders'

 

 

 

Stock

 

 

 

Stock

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

 

Interest

 

 

Equity

 

Balance at June 30, 2022

 

$

 

 

 

$

 

 

 

$

 

4,311

 

 

$

 

(56

)

 

$

 

61

 

 

$

 

4,316

 

 

$

 

779

 

 

$

 

5,095

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37

)

 

 

 

 

 

 

 

(37

)

 

 

 

(8

)

 

 

 

(45

)

Other comprehensive income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26

 

 

 

 

26

 

 

 

 

6

 

 

 

 

32

 

Conversion of non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

(1

)

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

 

 

 

 

 

54

 

Share repurchases

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

(12

)

Balance at September 30, 2022

 

$

 

 

 

$

 

(12

)

 

$

 

4,366

 

 

$

 

(93

)

 

$

 

87

 

 

$

 

4,348

 

 

$

 

776

 

 

$

 

5,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

Total

 

 

 

 

 

Total

 

 

 

Common

 

 

 

Treasury

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Alight, Inc.

 

 

Noncontrolling

 

 

Stockholders'

 

 

 

Stock

 

 

 

Stock

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

 

Interest

 

 

Equity

 

Balance at December 31, 2021

 

$

 

 

 

 $

 

 

 

$

 

4,228

 

 

$

 

(96

)

 

$

 

8

 

 

$

 

4,140

 

 

$

 

788

 

 

$

 

4,928

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

3

 

 

 

 

(9

)

 

 

 

(6

)

Other comprehensive income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

79

 

 

 

 

79

 

 

 

 

15

 

 

 

 

94

 

Measurement period adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

(1

)

Conversion of non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

(17

)

 

 

 

(7

)

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

129

 

 

 

 

 

 

 

 

 

 

 

 

129

 

 

 

 

 

 

 

 

129

 

Share repurchases

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

(12

)

Shares vested, net of shares withheld in lieu of taxes

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

(1

)

Balance at September 30, 2022

 

$

 

 

 

$

 

(12

)

 

$

 

4,366

 

 

$

 

(93

)

 

$

 

87

 

 

$

 

4,348

 

 

$

 

776

 

 

$

 

5,124

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

6


 

Alight, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

Nine Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(in millions)

 

2023

 

2022

 

Operating activities:

 

 

 

 

 

Net income (loss)

 

$

 

(192

)

$

 

(6

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation

 

 

 

76

 

 

 

56

 

Intangible asset amortization

 

 

 

239

 

 

 

237

 

Noncash lease expense

 

 

 

15

 

 

 

19

 

Financing fee and premium amortization

 

 

 

(2

)

 

 

(1

)

Share-based compensation expense

 

 

 

110

 

 

 

129

 

(Gain) loss from change in fair value of financial instruments

 

 

 

(11

)

 

 

(53

)

(Gain) loss from change in fair value of tax receivable agreement

 

 

 

30

 

 

 

(63

)

Release of unrecognized tax provision

 

 

 

(1

)

 

 

(29

)

Deferred tax expense (benefit)

 

 

 

30

 

 

 

(6

)

Other

 

 

 

7

 

 

 

4

 

Changes in operating assets and liabilities, net of business combinations:

 

 

 

 

 

 

 

Accounts receivable

 

 

 

12

 

 

 

(73

)

Accounts payable and accrued liabilities

 

 

 

(79

)

 

 

(2

)

Other assets and liabilities

 

 

 

17

 

 

 

(11

)

Cash provided by operating activities

 

$

 

251

 

$

 

201

 

Investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

 

 

(127

)

 

 

(115

)

Cash used in investing activities

 

$

 

(127

)

$

 

(115

)

Financing activities:

 

 

 

 

 

 

 

Net increase (decrease) in fiduciary liabilities

 

 

 

(190

)

 

 

74

 

Borrowings from banks

 

 

 

 

 

 

104

 

Financing fees

 

 

 

 

 

 

(3

)

Repayments to banks

 

 

 

(19

)

 

 

(134

)

Principal payments on finance lease obligations

 

 

 

(17

)

 

 

(20

)

Payments on tax receivable agreements

 

 

 

(7

)

 

 

 

Tax payment for shares/units withheld in lieu of taxes

 

 

 

(8

)

 

 

(1

)

Deferred and contingent consideration payments

 

 

 

(9

)

 

 

(81

)

Repurchase of shares

 

 

 

(40

)

 

 

(12

)

Other financing activities

 

 

 

1

 

 

 

 

Cash provided by (used in) financing activities

 

$

 

(289

)

$

 

(73

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

 

1

 

 

 

(7

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

 

(164

)

 

 

6

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

 

1,759

 

 

 

1,652

 

Cash, cash equivalents and restricted cash at end of period

 

$

 

1,595

 

$

 

1,658

 

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

7


 

Alight, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation and Nature of Business

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 September 30, 2023, Alight owned 93% 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 approximately 7% as of September 30, 2023.

As a result of the Business Combination, for accounting purposes, the Company is the acquirer and Alight Holdings is the acquiree and accounting predecessor. Within this Quarterly Report on Form 10-Q, there are some instances where we reference activity that relates to this Predecessor period or accounting as a result of the Business Combination.

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, 2022, filed with the Securities and Exchange Commission (“SEC”) on March 1, 2023. 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. The results of operations for interim periods are not necessarily indicative of the results to be expected for future quarters or for the full fiscal year ending December 31, 2023.

Segment Reporting

Effective January 1, 2023, the Company's former Hosted business revenues and gross margin are reported in Other as the business is no longer core to the Company’s operations. There is no change in composition among the Employer Solutions and Professional Services segments. Additionally, the Company changed its measure of segment profit and loss that is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the Company’s segments and assessing business performance. See Note 12 “Segment Reporting” for additional information.

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 solutions include:

Employer Solutions: driven by our digital, software and AI-led capabilities powered by the Alight Worklife® platform and spanning total employee wellbeing, including integrated benefits administration, healthcare navigation, financial wellbeing, leave of absence management, retiree healthcare and payroll. 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 careers.
Professional Services: includes our project-based cloud deployment and consulting offerings that provide expertise with both human capital and financial platforms. Specifically, this includes cloud advisory and deployment, and optimization services for cloud platforms such as Workday, SAP SuccessFactors, Oracle, and Cornerstone OnDemand.

 

 

8


 

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.

New Accounting Pronouncements

There are no recently issued accounting pronouncements that are expected to have a material impact upon our Condensed Consolidated Financial Statements.

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 segments are Employer Solutions and Professional Services. Employer Solutions are 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 and payroll. Professional Services includes project-based cloud deployment and consulting offerings. The Company believes these revenue categories depict 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, human resource and payroll administration 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, highly customized implementation efforts are often necessary to set up clients and their human resource, payroll 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 payroll administration services 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

9


 

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 price basis. We establish 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.

For all other benefits administration, human resources and payroll services where each month represents a distinct time increment under the series guidance, we allocate the transaction price to the month we are performing our services. Therefore, the amount recognized each month is the variable consideration related to that month plus any fixed monthly or annual fee, which is recognized on a straight-line basis. Revenue for these types of arrangements is therefore more consistent throughout the year.

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 cloud deployment services, cloud advisory services, 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.

10


 

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 three years.

The Company has elected to apply practical expedients to not disclose the revenue related to unsatisfied performance obligations if (1) the contract has an original duration of one year or less, or (2) the variable consideration is allocated entirely to an unsatisfied performance obligation which is recognized as a series of distinct goods and services that form a single performance obligation.

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 7 years for our payroll and cloud solutions and generally 15 years for all of our other solutions. For situations where the duration of the contract is 1 year or less, the Company has applied a practical expedient and recognized the costs of obtaining a contract as an expense when incurred. These costs are recorded in Cost of services, exclusive of depreciation and amortization in the Condensed Consolidated Statements of Comprehensive Income (Loss).


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, payroll 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 7 years for our payroll and cloud solutions and generally 15 years for all of our other solutions.

Amortization for all contracts costs is recorded in Cost of services, exclusive of depreciation and amortization in the Condensed Consolidated Statements of Comprehensive Income (Loss), see Note 5 “Other Financial Data”.

 

4. Acquisitions

2022 Acquisitions

In December 2022, the Company completed the acquisition of ReedGroup for a preliminary purchase price of approximately $87 million, net of cash acquired. This acquisition was not material to the Company’s results of operations, financial position, or cash flows. The Company accounted for the acquisition as a business combination under Accounting Standards Codification Topic 805, Business Combinations. The goodwill identified by this acquisition is primarily attributed to the synergies that are expected to be realized as well as intangible assets that do not qualify for separate recognition, such as assembled workforce. None of the goodwill is expected to be deductible for income tax purposes. The preliminary purchase price allocation was based upon a preliminary valuation, and the Company's estimates and assumptions are subject to change within the measurement period (not to exceed twelve months following the acquisition date). For the nine months ended September 30, 2023, there were immaterial changes to the preliminary purchase price allocation. The business is now wholly owned by the Company and is included within the Employer Solutions segment.

5. Other Financial Data

Condensed Consolidated Balance Sheets Information

Receivables, net

The components of Receivables, net are as follows (in millions):

 

 

September 30,

 

 

 

December 31,

 

 

 

2023

 

 

 

2022

 

Billed and unbilled receivables

 

$

 

676

 

 

 

$

 

687

 

Allowance for expected credit losses

 

 

 

(12

)

 

 

 

 

(9

)

Balance at end of period

 

$

 

664

 

 

 

$

 

678

 

 

11


 

 

Other current assets

The components of Other current assets are as follows (in millions):

 

 

September 30,

 

 

 

December 31,

 

 

 

2023

 

 

 

2022

 

Deferred project costs

 

$

 

47

 

 

 

$

 

43

 

Prepaid expenses

 

 

 

77

 

 

 

 

 

68

 

Commissions receivable

 

 

 

49

 

 

 

 

 

149

 

Other

 

 

 

117

 

 

 

 

 

119

 

Total

 

$

 

290

 

 

 

$

 

379

 

 

Other assets

The components of Other assets are as follows (in millions):

 

 

September 30,

 

 

 

December 31,

 

 

 

2023

 

 

 

2022

 

Deferred project costs

 

$

 

363

 

 

 

$

 

342

 

Operating lease right of use asset

 

 

 

76

 

 

 

 

 

86

 

Commissions receivable

 

 

 

24

 

 

 

 

 

28

 

Other

 

 

 

61

 

 

 

 

 

86

 

Total

 

$

 

524

 

 

 

$

 

542

 

 

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 the three months ended September 30, 2023 and 2022 were $14 million and $12 million, respectively, and $42 million and $37 million for the nine months ended September 30, 2023 and 2022, respectively, and are recorded in Cost of services, exclusive of depreciation and amortization in the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss).

Other current assets and Other assets include the fair value of outstanding derivative instruments related to interest rate swaps. The balances in Other current assets as of September 30, 2023 and December 31, 2022 were $78 million and $72 million, respectively. The balances in Other assets as of September 30, 2023 and December 31, 2022 were $44 million and $62 million, respectively (see Note 13 “Derivative Financial Instruments” for additional information).

Other current liabilities

The components of Other current liabilities are as follows (in millions):

 

 

September 30,

 

 

 

December 31,

 

 

 

2023

 

 

 

2022

 

Deferred revenue

 

$

 

137

 

 

 

$

 

141

 

Operating lease liabilities

 

 

 

38

 

 

 

 

 

34

 

Finance lease liabilities

 

 

 

14

 

 

 

 

 

25

 

Other

 

 

 

123

 

 

 

 

 

100

 

Total

 

$

 

312

 

 

 

$

 

300

 

Other liabilities

The components of Other liabilities are as follows (in millions):

 

 

September 30,

 

 

 

December 31,

 

 

 

2023

 

 

 

2022

 

Deferred revenue

 

$

 

85

 

 

 

$

 

93

 

Operating lease liabilities

 

 

 

79

 

 

 

 

 

103

 

Finance lease liabilities

 

 

 

5

 

 

 

 

 

18

 

Unrecognized tax positions

 

 

 

12

 

 

 

 

 

13

 

Other

 

 

 

32

 

 

 

 

 

54

 

Total

 

$

 

213

 

 

 

$

 

281

 

 

The current and non-current portions of deferred revenue relates to consideration received in advance of performance under client contracts. During the nine months ended September 30, 2023 and 2022, revenue of approximately, $139 million and $108 million was recognized that was recorded as deferred revenue at the beginning of each period.

12


 

Other current liabilities as of September 30, 2023 and December 31, 2022, included the current portion of tax receivable agreement liability of $50 million and $7 million, respectively (see Note 15 "Tax Receivable Agreement" for additional information).

Other current liabilities and Other liabilities include the fair value of outstanding derivative instruments related to interest rate swaps. There were no interest rate swaps recorded in Other current liabilities as of September 30, 2023 and December 31, 2022, respectively (see Note 13 “Derivative Financial Instruments” for additional information).

6. Goodwill and Intangible assets, net

The changes in the net carrying amount of goodwill are as follows (in millions):

 

 

Employer

 

 

Professional

 

 

 

 

 

 

 

Solutions

 

 

Services

 

 

Total

 

Balance as of December 31, 2022

 

$

 

3,606

 

 

$

 

73

 

 

$

 

3,679

 

Acquisitions(1)

 

 

 

4

 

 

 

 

 

 

 

 

4

 

Foreign currency translation

 

 

 

(1

)

 

 

 

 

 

 

 

(1

)

Balance at September 30, 2023

 

$

 

3,609

 

 

$

 

73

 

 

$

 

3,682

 

(1)Amount related to preliminary purchase price adjustments from the 2022 acquisition.

Intangible assets by asset class are as follows (in millions):

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

Gross

 

 

 

 

 

 

Net

 

 

Gross

 

 

 

 

 

 

Net

 

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amount

 

 

Amortization

 

 

Amount

 

Intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer-related and contract based
   intangibles

 

$

 

3,668

 

 

 $

 

548

 

 

$

 

3,120

 

 

$

 

3,670

 

 

$

 

364

 

 

$

 

3,306

 

Technology related intangibles

 

 

 

263

 

 

 

 

96

 

 

 

 

167

 

 

 

 

263

 

 

 

 

63

 

 

 

 

200

 

Trade name (finite life)

 

 

 

409

 

 

 

 

64

 

 

 

 

345

 

 

 

 

408

 

 

 

 

42

 

 

 

 

366

 

Total

 

$

 

4,340

 

 

$

 

708

 

 

$

 

3,632

 

 

$

 

4,341

 

 

$

 

469

 

 

$

 

3,872

 

The change in gross carrying amounts for customer-related and contract-based intangibles includes the unfavorable impact of foreign currency translation adjustments.

Amortization expense from finite-lived intangible assets for each of the three months ended September 30, 2023 and 2022, was $79 million and $78 million, respectively. Amortization expense from finite-lived intangible assets for the nine months ended September 30, 2023 and 2022, was $239 million and $237 million, respectively. Amortization expense from finite-lived intangible assets was recorded in Depreciation and intangible amortization in the Condensed Consolidated Statements of Comprehensive Income (Loss).

The following table reflects intangible assets net carrying amount and weighted-average remaining useful lives as of September 30, 2023 (in millions, except for years):

 

 

September 30, 2023

 

 

December 31, 2022

 

 

Net

 

 

Weighted-Average

 

 

Net

 

 

Weighted-Average

 

 

Carrying

 

 

Remaining

 

 

Carrying

 

 

Remaining

 

 

Amount

 

 

Useful Lives

 

 

Amount

 

 

Useful Lives

Intangible assets:

 

 

 

 

 

 

 

 

 

 

 

Customer-related and contract-based
   intangibles

 

$

 

3,120

 

 

 

 

12.7

 

 

$

 

3,306

 

 

 

13.5

Technology-related intangibles

 

 

 

167

 

 

 

 

3.8

 

 

 

 

200

 

 

 

4.5

Trade name (finite life)

 

 

 

345

 

 

 

 

12.6

 

 

 

 

366

 

 

 

13.3

Total

 

$

 

3,632

 

 

 

 

 

 

$

 

3,872

 

 

 

 

 

13


 

Subsequent to September 30, 2023, 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

 

2023 (October - December)

 

$

 

61

 

 

 $

 

11

 

 

 $

 

7

 

 $

 

79

 

2024

 

 

 

246

 

 

 

44

 

 

 

 

29

 

 

 

319

 

2025

 

 

 

246

 

 

 

44

 

 

 

 

28

 

 

 

318

 

2026

 

 

 

246

 

 

 

 

44

 

 

 

 

27

 

 

 

317

 

2027

 

 

 

246

 

 

 

 

22

 

 

 

 

27

 

 

 

295

 

Thereafter

 

 

 

2,075

 

 

 

2

 

 

 

 

227

 

 

 

2,304

 

Total amortization expense

 

$

 

3,120

 

 

 $

 

167

 

 

 $

 

345

 

 $

 

3,632

 

 

7. Income Taxes

The Company’s effective tax rates for the three months ended September 30, 2023 and 2022 were (207%) and 31%, respectively. The Company’s effective tax rates for the nine months ended September 30, 2023 and 2022 were (16%) and 82%, respectively.

The changes in the effective tax rates were primarily driven by the Company’s forecasted ability to partially benefit from current year anticipated tax attributes for which a full federal valuation allowance was provided for in the prior period. The effective tax rates for the three and nine months ended September 30, 2023 was lower than the 21% U.S. statutory corporate income tax rate. This difference is primarily due to lower realization of certain anticipated tax attributes in the U.S., as well as losses in certain non-U.S. jurisdictions for which tax benefits have not been recorded.

8. Debt

Debt outstanding consisted of the following (in millions):

 

 

 

 

September 30,

 

 

December 31,

 

 

 

Maturity Date

 

2023

 

 

2022

 

Term Loan

 

May 1, 2024

 

$

 

 

 

$

 

65

 

Term Loan, B-1 (1)

 

August 31, 2028

 

 

 

 

 

 

 

2,448

 

Fifth Incremental Term Loans(2)

 

August 31, 2028

 

 

 

2,494

 

 

 

 

 

Secured Senior Notes

 

June 1, 2025

 

 

 

307

 

 

 

 

310

 

$300 million Revolving Credit Facility, Amended

 

August 31, 2026

 

 

 

 

 

 

 

 

Total debt, net

 

 

 

 

 

2,801

 

 

 

 

2,823

 

Less: current portion of long-term debt, net

 

 

 

 

 

(25

)

 

 

 

(31

)

Total long-term debt, net

 

 

 

$

 

2,776

 

 

$

 

2,792

 

 

(1)
The net balance for the B-1 Term Loan includes unamortized debt issuance costs at December 31, 2022 of approximately $8 million.
(2)
The net balance for the Fifth Incremental Term Loans includes unamortized debt issuance costs at September 30, 2023 of approximately $9 million.

Term Loan

In May 2017, the Company entered into a 7-year Initial Term Loan. During November 2017 and November 2019, the Company entered into Incremental Term Loans under identical terms as the Initial Term Loan. In August 2020, the Company refinanced a portion of the Term Loan by paying down $270 million of principal using the proceeds from the August 2020 Unsecured Senior Notes issuance, extending the maturity date on $1,986 million of the balance to October 31, 2026, and adding an interest rate floor of 50 bps (the "Amended Term Loan"). As part of the consideration transferred in the Business Combination, $556 million of principal was repaid on 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 $525 million that matures August 31, 2028. In January 2022, the Company refinanced the Amended Term Loan and the Third Incremental Term Loan to have a concurrent maturity date of August 31, 2028 and updated interest rate terms as described below (the "B-1 Term Loan"). In March 2023, the Company refinanced the remaining portion of the 7-year Term Loan in full by increasing the existing B-1 Term Loan by approximately $65 million under identical terms as the B-1 Term Loan.

Interest rates on the B-1 Term Loan borrowings are based on the Secured Overnight Financing Rate ("SOFR") plus a margin. The Company is required to make principal payments at the end of each fiscal quarter based on defined terms in the agreement with the remaining principal balances due on the maturity dates.

14


 

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 $2,507 million to reprice the outstanding Initial Term B-1 Loans due August 31, 2028 by reducing the applicable rate from a SOFR + 3.00% to SOFR + 2.75%. The Company utilized swap agreements to fix a portion of the floating interest rates through December 2026 (see Note 13 “Derivative Financial Instruments”).

During the three and nine months ended September 30, 2023, the Company made total principal payments of $6 million and $19 million, respectively. During the three and nine months ended September 30, 2022 the Company made total principal payments $8 million and $24 million, respectively.

Secured Senior Notes

In May 2020, the Company issued $300 million of Secured Senior Notes. These Secured Senior Notes have a maturity date of June 1, 2025 and accrue interest at a fixed rate of 5.75% per annum, payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2020.

Revolving Credit Facility

In May 2017, the Company entered into a 5-year $250 million revolving credit facility with a multi-bank syndicate with a maturity date of May 1, 2022. During August 2020, the Company extended the maturity date for $226 million of the revolving credit facility to October 31, 2024. In August 2021, the Company replaced and refinanced the revolving credit facilities with a $294 million revolving credit facility with a maturity date of August 31, 2026. In March 2023, the Company amended and upsized the revolving credit facility to $300 million and updated the benchmark reference rate from LIBOR to Term SOFR. No changes were made to the maturity date. At September 30, 2023, approximately $3 million of unused letters of credit related to various insurance policies and real estate leases were issued under the revolving credit facility and there were no borrowings. The Company is required to make periodic payments for commitment fees and interest related to the revolving credit facility and outstanding letters of credit. During the three and nine months ended September 30, 2023 and 2022, respectively, the Company made immaterial payments related to these fees.

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 September 30, 2023 and 2022 was $57 million and $37 million, respectively, which included an immaterial and a $1 million benefit for the three months ended September 30, 2023 and 2022, respectively. Total interest expense related to the debt instruments for the nine months ended September 30, 2023 and 2022 was $163 million and $92 million, respectively, which included a $1 million and a $2 million benefit for the nine months ended September 30, 2023 and 2022, respectively. Interest expense is recorded in Interest expense in the Condensed Consolidated Statements of Comprehensive Income (Loss), and is net of interest rate swap derivative gains recognized.

Principal Payments

Aggregate remaining contractual principal payments as of September 30, 2023 are as follows (in millions):

2023

 

$

 

8

 

2024

 

 

 

25

 

2025

 

 

 

325

 

2026

 

 

 

25

 

2027

 

 

 

25

 

Thereafter

 

 

 

2,393

 

Total payments

 

$

 

2,801

 

 

 

 

9. Stockholders' Equity

 

Preferred Stock

Upon the Closing Date of the Business Combination, 1,000,000 preferred shares, par value $0.0001 per share, were authorized. There were no preferred shares issued and outstanding as of September 30, 2023.

Class A Common Stock

15


 

As of September 30, 2023, 501,094,650 shares of Class A Common Stock, including 6,013,049 of shares of unvested Class A Common Stock, were legally issued and outstanding. Holders of shares of Class A Common Stock are entitled to one vote per share, and together with the holders of shares of Class B Common Stock, will participate ratably in any dividends that may be declared by the Company’s Board of Directors.

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 14,999,998 Class B instruments (including 667,065 unvested shares of Class B Common Stock related to employee compensation as of September 30, 2023) to the equityholders of the Predecessor. The equityholders of the Predecessor that exchanged their Predecessor Class A units for shares of Class A Common Stock in the Business Combination received shares of Class B Common Stock, and the equityholders of the Predecessor that continue to hold Class A units of Alight Holdings (“Continuing Unitholders”) received Class B common units of Alight Holdings.

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 September 30, 2023, 4,990,453 shares of Class B-1 Common Stock were legally issued and outstanding, including 333,533 unvested shares of Class B-1 Common Stock related to employee compensation. Shares of Class B-1 Common Stock vest and automatically convert into shares of Class A Common Stock on a 1-for-1 basis if the volume weighted average price (“VWAP”) of the shares of Class A Common Stock equals or exceeds $12.50 per share for 20 or more trading days within a consecutive 30-trading day period (or in the event of a change of control or liquidation event that implies a $12.50 per share valuation on a diluted basis).

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 September 30, 2023, 2,509,546 Class B-1 common units of Alight Holdings were legally issued and outstanding. Class B-1 common units vest and automatically convert into Class A common units of Alight Holdings on a 1-for-1 basis if the VWAP of the shares of Class A Common Stock equals or exceeds $12.50 per share for 20 or more trading days within a consecutive 30-trading day period (or in the event of a change of control or liquidation event that implies a $12.50 per share valuation on a diluted basis).

Class B-2

As of September 30, 2023, 4,990,453 shares of Class B-2 Common Stock were legally issued and outstanding, including 333,533 unvested shares of Class B-2 Common Stock related to employee compensation. Shares of Class B-2 Common Stock vest and automatically convert into shares of Class A Common Stock on a 1-for-1 basis if the VWAP of the shares of Class A Common Stock equals or exceeds $15.00 per share for 20 or more trading days within a consecutive 30-trading day period (or in the event of a change of control or liquidation event that implies a $15.00 per share valuation on a diluted basis).

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 September 30, 2023, 2,509,546 Class B-2 common units of Alight Holdings were legally issued and outstanding. Class B-2 common units vest and automatically convert into Class A common units of Alight Holdings on a 1-for-1 basis if the VWAP of the shares of Class A Common Stock equals or exceeds $15.00 per share for 20 or more trading days within a consecutive 30-trading day period (or in the event of a change of control or liquidation event that implies a $15.00 per share valuation on a diluted basis).

Class B-3

Upon the Closing Date of the Business Combination, 10,000,000 shares of Class B-3 Common Stock, par value $0.0001, were authorized. There are no shares of Class B-3 Common Stock issued and outstanding as of September 30, 2023.

Class V Common Stock

16


 

As of September 30, 2023, 36,565,810 shares of Class V Common Stock were legally issued and outstanding. Holders of Class V Common Stock are entitled to one vote per share and have no economic rights. The Class V Common Stock is held on a 1-for-1 basis with Class A Units in Alight Holdings held by Continuing Unitholders. The Class A Units, together with an equal number of shares of Class V Common Stock, can be exchanged for an equal number of shares of Class A Common Stock.

Class Z Common Stock

Upon the Closing Date of the Business Combination, a total of 8,671,507 Class Z instruments were issued to the equityholders of the Predecessor. The equityholders of the Predecessor that exchanged their Predecessor Class A units for shares of Class A Common Stock in the Business Combination received shares of Class Z Common Stock, and the Continuing Unitholders received Class Z common units of Alight Holdings. The Class Z instruments were issued to the equityholders of the Predecessor to allow for the re-allocation of the consideration paid to the holders of unvested management equity (i.e., the unvested shares of Class A, Class B-1, and Class B-2 Common Stock) to the equityholders of the Predecessor in the event such equity is forfeited under the terms of the applicable award agreement and will only vest in connection with any such forfeiture.

As of September 30, 2023, 5,197,081 shares of Class Z Common Stock (4,663,187 Class Z-A, 266,947 Class Z-B-1, and 266,947 Class Z-B-2) were legally issued and outstanding. Holders of shares of Class Z-A, Class Z-B-1 and Class Z-B-2 Common Stock are not entitled to voting rights. The Class Z shares convert into shares of Class A Common Stock, Class B-1 Common Stock or Class B-2 Common Stock, as applicable, in connection with the ultimate forfeiture of the shares of unvested Class A, unvested Class B-1, and unvested Class B-2 common stock issued to participating management holders.

As of September 30, 2023, 2,856,875 Class Z common units (2,563,387 Class Z-A, 146,744 Class Z-B-1, and 146,744 Class Z-B-2) were legally issued and outstanding. Holders of Class Z-A, Class Z-B-1 and Class Z-B-2 common units are not entitled to voting rights. The Class Z units convert into units of Alight Holdings Class A common units, Alight Holdings Class B-1 or Alight Holdings Class B-2 common units, as applicable, in connection with the ultimate forfeiture of the shares of unvested Class A, unvested Class B-1, and unvested Class B-2 common stock issued to participating management holders.

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 September 30, 2023, there were 537,660,460 Class A Units outstanding, of which 501,094,650 are held by the Company and 36,565,810 are held by the noncontrolling interest of the Company.

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 nine months ended September 30, 2023, 26,915,655 Class A units and a corresponding number of shares of Class V Common Stock were exchanged for Class A Common Stock. As a result of the exchanges, Alight, Inc. increased its ownership in Alight Holdings and accordingly increased its equity by approximately $269 million, recorded in Additional paid-in capital. Pursuant to the TRA that we entered into in connection with the Business Combination, described in Note 15 "Tax Receivable Agreement," the Class A unit exchanges created additional TRA liabilities of $86 million, with offsets to Additional paid-in-capital. An additional $20 million increase to Additional paid-in-capital was due to exchanges as a result of deferred tax assets due to our change in ownership.

Secondary Offerings

On March 6, 2023, the Company completed a secondary offering of 46,000,000 shares of the Company’s Class A Common Stock by certain selling stockholders at a public offering price of $9.00 per share. In connection with the offering, the selling stockholders granted the underwriters a 30-day option to purchase up to 6,900,000 additional shares of the Company’s Class A Common Stock, which the underwriters exercised in full. The Company did not sell any shares of Class A Common Stock in the offering and did not receive any proceeds from the offering. Alight paid the costs associated with the sale of shares by the selling stockholders, net of the underwriting discounts.

17


 

On August 16, 2023, the Company completed a secondary offering of 22,500,000 shares of the Company’s Class A Common Stock by certain selling stockholders at a public offering price of $7.98 per share. The Company did not sell any shares of Class A Common Stock in the offering and did not receive any proceeds from the offering. The Company paid the costs associated with the sale of shares by the selling stockholders, net of the underwriting discounts.

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 $100 million of issued and outstanding shares of Class A Common Stock, par value $0.0001 per share, from time to time, depending on market conditions and alternate uses of capital. The Program has no expiration date and may be suspended or discontinued at any time. The Program does not obligate the Company to purchase any particular number of shares and there is no guarantee as to any number of shares being repurchased by the Company.

During the three and nine months ended September 30, 2023, 3,294,008 and 4,921,468 Class A Common Stock shares, respectively, were repurchased under the Program for a total cost of $26 million and $40 million, respectively. As of September 30, 2023, there was $48 million remaining under the Program authorization for future share repurchases. Repurchased shares are reflected as Treasury Stock on the Consolidated Balance Sheets as a component of equity.

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, 2022

 

 

470,756,961

 

 

 

4,990,453

 

 

 

4,990,453

 

 

 

63,481,465

 

 

 

5,595,577

 

 

 

1,506,385

 

Conversion of noncontrolling interest

 

 

19,345,591

 

 

 

 

 

 

 

 

 

(19,345,591

)

 

 

 

 

 

 

Shares granted upon vesting

 

 

1,035,470

 

 

 

 

 

 

 

 

 

 

 

 

(398,496

)

 

 

 

Issuance for compensation to non-employees(1)

 

 

18,059

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share repurchases

 

 

(1,148,435

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,148,435

 

Balance at March 31, 2023

 

 

490,007,646

 

 

 

4,990,453

 

 

 

4,990,453

 

 

 

44,135,874

 

 

 

5,197,081

 

 

 

2,654,820

 

Conversion of noncontrolling interest

 

 

58,766

 

 

 

 

 

 

 

 

 

(58,766

)

 

 

 

 

 

 

Shares granted upon vesting

 

 

842,570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance for compensation to non-employees(1)

 

 

19,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share repurchases

 

 

(479,025

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

479,025

 

Balance at June 30, 2023

 

 

490,449,936

 

 

 

4,990,453

 

 

 

4,990,453

 

 

 

44,077,108

 

 

 

5,197,081

 

 

 

3,133,845

 

Conversion of noncontrolling interest

 

 

7,511,298

 

 

 

 

 

 

 

 

 

(7,511,298

)

 

 

 

 

 

 

Shares granted upon vesting

 

 

389,767

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance for compensation to non-employees(1)

 

 

24,608

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share repurchases

 

 

(3,294,008

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,294,008

 

Balance at September 30, 2023

 

 

495,081,601

 

 

 

4,990,453

 

 

 

4,990,453

 

 

 

36,565,810

 

 

 

5,197,081

 

 

 

6,427,853

 

 

(1) Issued to certain members of the Board of Directors in lieu of cash retainer.

(2) Does not include 6,013,049 of unvested Class A common shares as of September 30, 2023.

 

18


 

Dividends

There were no dividends declared during the three and nine months ended September 30, 2023.

Accumulated Other Comprehensive Income

As of September 30, 2023, 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

 

 

 

Swaps(1)

Total

 

Balance at June 30, 2023

 

$

 

(6

)

 

$

 

106

 

 

$

 

100

 

Other comprehensive (loss) income before reclassifications

 

 

 

(4

)

 

 

 

20

 

 

 

 

16

 

Tax expense (benefit)

 

 

 

1

 

 

 

 

1

 

 

 

 

2

 

Other comprehensive (loss) income before reclassifications, net of tax

 

 

 

(3

)

 

 

 

21

 

 

 

 

18

 

Amounts reclassified from accumulated other comprehensive income

 

 

 

-

 

 

 

 

(22

)

 

 

 

(22

)

Tax expense

 

 

 

-

 

 

 

 

-

 

 

 

 

 

Amounts reclassified from accumulated other comprehensive income, net of tax

 

 

 

-

 

 

 

 

(22

)

 

 

 

(22

)

Net current period other comprehensive income, net of tax

 

 

 

(3

)

 

 

 

(1

)

 

 

 

(4

)

Balance at September 30, 2023

 

$

 

(9

)

 

$

 

105

 

 

$

 

96

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

Currency

 

 

 

Interest

 

 

 

 

 

 

Translation

 

 

 

Rate

 

 

 

 

 

 

Adjustments

 

 

 

Swaps(1)

Total

 

Balance at December 31, 2022

 

$

 

(11

)

 

$

 

106

 

 

$

 

95

 

Other comprehensive (loss) income before reclassifications

 

 

 

2

 

 

 

 

54

 

 

 

 

56

 

Tax expense (benefit)

 

 

 

-

 

 

 

 

3

 

 

 

 

3

 

Other comprehensive (loss) income before reclassifications, net of tax

 

 

 

2

 

 

 

 

57

 

 

 

 

59

 

Amounts reclassified from accumulated other comprehensive income

 

 

 

-

 

 

 

 

(58

)

 

 

 

(58

)

Tax expense

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

Amounts reclassified from accumulated other comprehensive income, net of tax

 

 

 

-

 

 

 

 

(58

)

 

 

 

(58

)

Net current period other comprehensive income, net of tax

 

 

 

2

 

 

 

 

(1

)

 

 

 

1

 

Balance at September 30, 2023

 

$

 

(9

)

 

$

 

105

 

 

$

 

96

 

 

(1) Reclassifications from this category are recorded in Interest expense. See Note 13 “Derivative Financial Instruments” for additional information.

10. Share-Based Compensation Expense

Predecessor Plans

Prior to the Business Combination, share-based payments to employees include grants of restricted share units (“RSUs”) and performance based restricted share units (“PRSUs”), which consist of both Class A-1 and Class B common units in each type, are measured based on their estimated grant date fair value. The grant date fair value of the RSUs is equal to the value of the shares acquired by the Predecessor’s initial investors at the time of Alight Holding’s formation in 2017. The grant date fair values of the PRSUs are based on a Monte Carlo simulation methodology, which requires management to make certain assumptions and apply judgement.

Management determined the expected volatility based on the average implied asset volatilities of comparable companies as we do not have sufficient trading history for the PRSUs. The expected term represents the period that the PRSUs are expected to be outstanding. Because of the lack of sufficient historical data necessary to calculate the expected term, we used the contractual vesting period of five years to estimate the expected term. For the Predecessor period, the key assumptions included in the Monte Carlo simulation were expected volatility of 45%, a risk-free interest rate of 1% and no expected dividends.

19


 

The Company recognizes share-based compensation expense on a straight-line basis over the requisite service period for awards expected to ultimately vest. As a result of the change in control related to the Business Combination, the vesting of the time-based PRSU Class B units accelerated on the Closing Date. Prior to the Closing Date, the time-based PRSUs vested ratably over periods of one to five years. The remaining unvested PRSU Class B units have vesting conditions that are contingent upon the achievement of defined internal rates of return and multiples on invested capital occurrence and of certain liquidity events. The Class A-1 RSUs and PRSUs that were unvested as of the Closing Date have time-based and/or vesting conditions that are contingent upon the achievement of defined internal rates of return and multiples on invested capital occurrence and of certain liquidity events. Both the unvested Class A-1 and Class B units were replaced with unvested shares of Alight common stock as discussed below.

Successor Plans

Share-based payments consist of grants of RSUs and PRSUs. The Company recognizes compensation expense on a straight-line basis over the requisite service period for awards expected to ultimately vest.

Predecessor Replacement Awards

In connection with the Business Combination, the holders of certain unvested awards under the Predecessor plans were granted replacement awards in the Successor company.

Class B units: The unvested Class B units of Alight Holdings were granted replacement unvested shares of Class A Common Stock, unvested shares of Class B-1 common stock, and unvested shares of Class B-2 common stock of the Company that ultimately vest on the third anniversary of the Closing Date, but could vest earlier based on the achievement of certain market-based conditions.
Class A-1 units: The unvested Class A-1 units of Alight Holdings were granted replacement unvested shares of Class A Common Stock, unvested shares of Class B common stock, and unvested shares of Class B-2 common stock of the Company on an equivalent fair value basis. The service-based portion of the grant vests ratably over periods of two to five years and the remaining portion vests upon achievement of certain market-based conditions.

The Class B and Class A-1 units that were replaced represent the unvested Class A, unvested Class B-1 and unvested Class B-2 common stock subject to the forfeiture re-allocation provision per the Class Z instruments discussed in Note 9 “Stockholders’ Equity”. These unvested shares are accounted for as restricted stock in accordance with Accounting Standards Codification ("ASC") 718.

Successor Awards

In connection with the Business Combination, the Company adopted the Alight, Inc. 2021 Omnibus Incentive Plan. Under this plan, for grants issued during the nine months ended September 30, 2023, approximately 59% of the units are subject to time-based vesting requirements and approximately 41% are subject to performance-based vesting requirements. The majority of the time-based RSUs vest ratably each March 10 over a three-year period with one-third vesting on each of March 10, 2024, 2025 and 2026. The PRSUs granted in 2023 vest upon achievement of the Company’s performance goal, Total Business Process as a Service ("BPaaS") Revenue and Adjusted EBITDA.

The Company begins to recognize expense associated with the PRSUs when the achievement of the performance condition is deemed probable. During the nine months ended September 30, 2023, expected achievement levels did not change for any of the performance periods based on management's analysis of the corresponding performance conditions.

The fair value of each RSU and PRSU is based upon the grant date market price. The aggregate grant date fair value of RSUs and PRSUs granted during the nine months ended September 30, 2023 was approximately $50 million and $34 million, respectively.

Restricted Share Units and Performance Based Restricted Share Units

The following tables summarizes the unit activity related to the RSUs and PRSUs during the nine months ended September 30, 2023:

 

 

 

 

 

 

Weighted

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

 

 

 

Grant Date

 

 

 

 

 

 

Fair Value

 

 

 

 

 

Fair Value

 

 

RSUs(1)

 

 

Per Unit

 

 

PRSUs(1)(2)

 

 

Per Unit

 

Balance as of December 31, 2022

 

 

7,766,161

 

 

$

 

10.28

 

 

 

30,085,723

 

 

$

 

11.38

 

Granted

 

 

5,635,935

 

 

 

 

8.86

 

 

 

3,849,868

 

 

 

 

8.84

 

Vested

 

 

(2,241,874

)

 

 

 

9.38

 

 

 

(1,031,264

)

 

 

 

10.84

 

Forfeited

 

 

(1,677,522

)

 

 

 

9.60

 

 

 

(3,281,215

)

 

 

 

9.76

 

Balance as of September 30, 2023

 

 

9,482,700

 

 

$

 

9.77

 

 

 

29,623,112

 

 

$

 

11.25

 

 

20


 

(1) These share totals include both unvested shares and restricted stock units.

(2) PRSUs granted includes both new grants in the period as well as adjustments in the period to existing grants to account for the expected level of achievement of the performance-based vesting requirements.

Share-based Compensation

Total share-based compensation costs related to the RSUs and PRSUs are recorded in the Condensed Consolidated Statements of Comprehensive Income (Loss) as follows (in millions):

 

 

 

 

Three Months Ended September 30

 

Nine Months Ended September 30

 

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

Cost of services, exclusive of depreciation and amortization

 

 

$

 

9

 

 

$

 

12

 

 

$

 

27

 

 

$

 

29

 

Selling, general and administrative

 

 

 

 

26

 

 

 

 

42

 

 

 

 

83

 

 

 

 

100

 

Total share-based compensation expense

 

 

$

 

35

 

 

$

 

54

 

 

$

 

110

 

 

$

 

129

 

As of September 30, 2023, total future compensation expense related to unvested RSUs was $57 million, which will be recognized over a remaining weighted-average amortization period of approximately 1.4 years. As of September 30, 2023, total future compensation expense related to PRSUs was $85 million, which will be recognized over a remaining weighted-average amortization period of approximately 1.2 years.

 

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 1% nor greater than 10% of his or her base pay for each payroll period in the Payment Period. At the end of each Payment Period, the accumulated deductions are used to purchase shares of Class A Common Stock from the Company up to a maximum of 1,250 shares for any one employee during a Payment Period. Shares are purchased at a price equal to 85% of the fair market value of the Company’s Class A Common Stock on the last business day of a Payment Period. For the three and nine months ended September 30, 2023, 706,366 shares had been issued under the ESPP and the amount of share-based compensation expense related to the ESPP was $1 million.

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 September 30, 2023, the Seller Earnouts were excluded from the diluted earnings per share calculations.

21


 

Basic and diluted (net loss) earnings per share are as follows (in millions, except for share and per share amounts):

 

 

Three Months Ended September 30

 

 

Nine Months Ended September 30

 

 

 

2023

 

 

 

2022

 

 

2023

 

 

2022

 

Basic and diluted (net loss) earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to Alight, Inc. - basic

 

$

 

(48

)

 

 $

 

(37

)

 

$

 

(183

)

 

$

 

3

 

Loss impact of conversion of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

Net (loss) income attributable to Alight, Inc. - diluted

 

$

 

(48

)

 

 $

 

(37

)

 

$

 

(183

)

 

$

 

2

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding - basic

 

 

 

493,226,324

 

 

 

 

457,904,703

 

 

 

 

486,683,943

 

 

 

 

457,535,329

 

Dilutive effect of the exchange of noncontrolling interest units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75,800,317

 

Dilutive effect of RSUs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

770,953

 

Weighted-average shares outstanding - diluted

 

 

 

493,226,324

 

 

 

 

457,904,703

 

 

 

 

486,683,943

 

 

 

 

534,106,599

 

Basic (net loss) earnings per share

 

$

 

(0.10

)

 

 $

 

(0.08

)

 

$

 

(0.38

)

 

$

 

0.01

 

Diluted (net loss) earnings per share

 

$

 

(0.10

)

 

 $

 

(0.08

)

 

$

 

(0.38

)

 

$

 

 

For the three months ended September 30, 2023 and 2022, 36,565,810 and 75,800,317 of Alight Holdings Class A units, respectively, related to noncontrolling interests were not included in the computation of diluted shares outstanding as their impact would have been anti-dilutive. For the three months ended September 30, 2023 and 2022, 9,161,197 and 10,289,937 of unvested RSUs, respectively, were not included in the computation of diluted shares outstanding as their impact would have been anti-dilutive.

For the nine months ended September 30, 2023, 36,565,810 of Alight Holdings Class A units related to noncontrolling interests were not included in the computation of diluted shares outstanding as their impact would have been anti-dilutive. For the nine months ended September 30, 2023 and 2022, 9,161,197 and 9,518,984 of unvested RSUs, respectively, were not included in the computation of diluted shares outstanding as their impact would have been anti-dilutive.

In addition, for the three and nine months ended September 30, 2023 and 2022, 14,999,998 shares, respectively, related to the Seller Earnouts were excluded from the calculation of basic and diluted earnings per share.

For the three and nine months ended September 30, 2023 and 2022, 28,547,275 and 33,148,917 unvested PRSUs, respectively, were excluded from the calculation of basic and diluted earnings per share. For the three and nine months ended September 30, 2023 and 2022, the share amounts were calculated based on expected achievement levels and were excluded as the performance conditions were not met as of the end of the respective periods.

12. Segment Reporting

Effective January 1, 2023, the Company's former Hosted business revenues and gross profit are reported in Other as the business is no longer core to the Company’s operations. There is no change in composition among the Employer Solutions and Professional Services segments.

Additionally, the Company changed its measure of segment profit and loss that is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the Company’s segments and assessing business performance.

Prior to January 1, 2023, the Company reported its measure of segment profit as earnings before interest, taxes, depreciation and intangible amortization adjusted for the impact of certain non-cash and other items that the Company does not consider in the evaluation of ongoing operational performance. Effective January 1, 2023, the Company's measure of segment profit is gross profit, which is defined as revenue less cost of services. Accordingly, prior period amounts have been reclassified to conform to the current period presentation, in all material respects.

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.

22


 

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 current reportable segments is as follows (in millions):

 

 

Revenue

 

 

 

Three Months Ended September 30

 

Nine Months Ended September 30

 

 

 

2023

 

2022

 

 

2023

 

2022

 

Employer Solutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

$

 

634

 

 $

 

583

 

 

 $

 

1,942

 

 $

 

1,712

 

Project

 

 

 

67

 

 

 

62

 

 

 

 

179

 

 

 

170

 

Total Employer Solutions

 

 

 

701

 

 

 

645

 

 

 

 

2,121

 

 

 

1,882

 

Professional Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

 

 

36

 

 

 

32

 

 

 

 

104

 

 

 

94

 

Project

 

 

 

69

 

 

 

63

 

 

 

 

199

 

 

 

182

 

Total Professional Services

 

 

 

105

 

 

 

95

 

 

 

 

303

 

 

 

276

 

Total Reportable Segments

 

 

 

806

 

 

 

740

 

 

 

 

2,424

 

 

 

2,158

 

Other

 

 

 

7

 

 

 

10

 

 

 

 

26

 

 

 

32

 

Total revenue

 

$

 

813

 

 $

 

750

 

 

 $

 

2,450

 

 $

 

2,190

 

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 September 30

 

Nine Months Ended September 30

 

 

 

2023

 

2022

 

 

2023

 

2022

 

 Employer Solutions

 

 $

 

231

 

 $

 

189

 

 

 $

 

709

 

 $

 

593

 

 Professional Services

 

 

 

26

 

 

 

23

 

 

 

 

64

 

 

 

62

 

 Other

 

 

 

-

 

 

 

-

 

 

 

 

(2

)

 

 

(1

)

  Total Gross Profit

 

 

 

257

 

 

 

212

 

 

 

 

771

 

 

 

654

 

 Selling, general and administrative

 

 

 

177

 

 

 

178

 

 

 

 

555

 

 

 

475

 

 Depreciation and intangible amortization

 

 

 

84

 

 

 

84

 

 

 

 

254

 

 

 

254

 

 Operating Income (Loss)

 

 

 

(4

)

 

 

(50

)

 

 

 

(38

)

 

 

(75

)

 (Gain) Loss from change in fair value of financial instruments

 

 

 

(36

)

 

 

10

 

 

 

 

(11

)

 

 

(53

)

 (Gain) Loss from change in fair value of tax receivable agreement

 

 

 

11

 

 

 

(20

)

 

 

 

30

 

 

 

(63

)

 Interest expense

 

 

 

34

 

 

 

31

 

 

 

 

100

 

 

 

89

 

 Other (income) expense, net

 

 

 

2

 

 

 

(6

)

 

 

 

9

 

 

 

(14

)

 Income (Loss) Before Taxes

 

 $

 

(15

)

 $

 

(65

)

 

 $

 

(166

)

 $

 

(34

)

 

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.

23


 

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
September 30, 2023

 

 

Fixed Rate

 

Expiration Date

December 2021

 

August 2020

 

$

 

181,205,050

 

 

$

 

518,924,498

 

 

 

0.7203

 

%

 

April 2024

December 2021

 

August 2020

 

$

 

388,877,200

 

 

$

 

647,175,722

 

 

 

0.6826

 

%

 

April 2024

December 2021

 

May 2022

 

$

 

220,130,318

 

 

$

 

270,851,202

 

 

 

0.4570

 

%

 

April 2024

December 2021

 

May 2022

 

$

 

306,004,562

 

 

$

 

345,425,078

 

 

 

0.4480

 

%

 

April 2024

December 2021

 

April 2024

 

$

 

871,205,040

 

 

 

n/a

 

 

 

1.6533

 

%

 

June 2025

December 2021

 

April 2024

 

$

 

435,602,520

 

 

 

n/a

 

 

 

1.6560

 

%

 

June 2025

December 2021

 

April 2024

 

$

 

435,602,520

 

 

 

n/a

 

 

 

1.6650

 

%

 

June 2025

March 2022

 

June 2025

 

$

 

1,197,000,000

 

 

 

n/a

 

 

 

2.5540

 

%

 

December 2026

March 2023

 

March 2023

 

$

 

150,000,000

 

 

$

 

150,000,000

 

 

 

3.9025

 

%

 

December 2026

March 2023

 

March 2023

 

$

 

150,000,000

 

 

$

 

150,000,000

 

 

 

3.9100

 

%

 

December 2026

Concurrent with the refinancing of certain term loans, we amended our interest rate swaps to incorporate Term SOFR. In accordance with ASC 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 nine months ended September 30, 2023, we executed two additional interest rate swaps, which 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):

 

 

September 30,

 

 

 

December 31,

 

 

 

2023

 

 

 

2022

 

Assets

 

 

 

 

 

 

 

 

 

Other current assets

 

$

 

78

 

 

 

$

 

72

 

Other assets

 

 

 

44

 

 

 

 

 

62

 

Total

 

$

 

122

 

 

 

$

 

134

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Other current liabilities

 

$

 

 

 

 

$

 

 

Other liabilities

 

 

 

 

 

 

 

 

 

Total

 

$

 

 

 

 

$

 

 

The Company estimates that approximately $87 million of derivative gains included in Accumulated other comprehensive income as of September 30, 2023 will be reclassified into earnings over the next twelve months.

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 September 30, 2023 and December 31, 2022, the Seller Earnouts had a fair value of $73 million and $96 million, respectively. For the three months ended September 30, 2023, the fair value remeasurement of the Seller Earnouts was a gain of $37 million. For the

24


 

three months ended September 30, 2022, the Company recorded a loss of $10 million related to the fair value remeasurement of the Seller Earnouts. For the nine months ended September 30, 2023 and 2022, the Company recorded a gain of $24 million and a gain of $53 million, respectively, related to the remeasurement of the Seller Earnouts. Gains or losses related to the remeasurement of Seller Earnouts are recorded in (Gain) Loss from change in fair value of financial instruments within the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss).

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 50%, risk-free interest rate of 4.62%, expected holding period of 4.76 years and probability assessments based on the likelihood of reaching the performance targets defined in the Business Combination. An increase in the risk-free interest rate or expected volatility would result in an decrease in the fair value measurement of the Seller Earnouts and vice versa.

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 September 30, 2023, the expense recorded by the Company as a result of the forfeiture of unvested management equity relating to the consideration that will be re-allocated to the holders of Class Z instruments upon vesting was $1 million. For the three months ended September 30, 2022, the Company recorded an immaterial change in fair value of financial instruments in the Condensed Consolidated Statements of Comprehensive Income (Loss) as a result of the forfeiture of unvested management equity relating to the consideration that will be re-allocated to the holders of Class Z instruments upon vesting. For the nine months ended September 30, 2023 and 2022, the Company recorded expense of $13 million and $1 million, respectively, in (Gain) Loss from change in fair value of financial instruments in the Condensed Consolidated Statements of Comprehensive Income (Loss) as a result of the forfeiture of unvested management equity relating to the consideration that will be re-allocated to the holders of Class Z instruments upon vesting. See Note 9 “Stockholders’ Equity” for additional information regarding these instruments.

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 September 30, 2023 assumes: (i) a constant blended U.S. federal, state and local income tax rate of 26.4%; (ii) no material changes in tax law; (iii) the ability to utilize tax attributes based on current tax forecasts; and (iv) future payments under the TRA are made when due under the TRA. The amount of the expected future payments under the TRA has been discounted to its present value using a discount rate of 9.5%.

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 nine months ended September 30, 2023, an additional TRA liability of $86 million was established as a result of these exchanges. This amount along with the total impact of exchanges of $43 million for the year ended December 31, 2022, are excluded from the portion of the TRA liability that is measured at fair value on a recurring basis.

The following table summarizes the changes in the TRA liabilities (in millions):

 

 

Tax Receivable

 

 

 

Agreement Liability

 

Beginning balance as of December 31, 2022

 

$

 

575

 

Fair value remeasurement

 

 

 

30

 

Payments

 

 

 

(7

)

Conversion of noncontrolling interest

 

 

 

86

 

Ending Balance as of September 30, 2023

 

 

 

684

 

Less: current portion included in other current liabilities

 

 

 

(50

)

Total long-term tax receivable agreement liability

 

$

 

634

 

 

25


 

 

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:

Level 1 – observable inputs such as quoted prices in active markets for identical assets and liabilities;
Level 2 – inputs other than quoted prices for identical assets in active markets that are observable either directly or indirectly; and
Level 3 – unobservable inputs in which there is little or no market data which requires the use of valuation techniques and the development of assumptions.

The Company’s financial assets and liabilities measured at fair value on a recurring basis are as follows (in millions):

 

 

September 30, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

 

 

$

 

122

 

 

$

 

 

 

$

 

122

 

Total assets recorded at fair value

 

$

 

 

 

$

 

122

 

 

$

 

 

 

$

 

122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration liability

 

$

 

 

 

$

 

 

 

$

 

8

 

 

$

 

8

 

Seller Earnouts liability

 

 

 

 

 

 

 

 

 

 

 

73

 

 

 

 

73

 

Tax receivable agreement liability (1)

 

 

 

 

 

 

 

 

 

 

 

555

 

 

 

 

555

 

Total liabilities recorded at fair value

 

$

 

 

 

$

 

 

 

$

 

636

 

 

$

 

636

 

 

 

 

December 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

 

 

$

 

134

 

 

$

 

 

 

$

 

134

 

Total assets recorded at fair value

 

$

 

 

 

$

 

134

 

 

$

 

 

 

$

 

134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration liability

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

13

 

Seller Earnouts liability

 

 

 

 

 

 

 

 

 

 

 

96

 

 

 

 

96

 

Tax receivable agreement liability (1)

 

 

 

 

 

 

 

 

 

 

 

532

 

 

 

 

532

 

Total liabilities recorded at fair value

 

$

 

 

 

$

 

 

 

$

 

641

 

 

$

 

641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)
Excludes the portion of liability related to the exchanges of Class A Units not measured at fair value on a recurring basis.

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 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 an acquisition completed by the Predecessor in 2018, and are included in Other current liabilities and Other 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

26


 

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 September 30

 

 

 

Nine Months Ended September 30

 

 

 

2023

 

 

2022

 

 

 

2023

 

2022

 

Beginning balance

 

$

 

13

 

 

$

 

25

 

 

 

$

 

13

 

$

 

33

 

Acquisitions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measurement period adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

Accretion of contingent consideration

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Remeasurement of acquisition-related contingent consideration

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

(9

)

Payments

 

 

 

(5

)

 

 

 

 

 

 

 

 

(5

)

 

 

 

Ending Balance

 

$

 

8

 

 

$

 

23

 

 

 

$

 

8

 

$

 

23

 

 

Non-Recurring Fair Value Measurements

The Company’s financial liabilities not measured at fair value on a recurring basis are as follows (in millions):

 

 

September 30, 2023

 

 

 

December 31, 2022

 

 

 

Carrying Value

 

 

Fair Value

 

 

 

Carrying Value

 

 

Fair Value

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt, net

 

$

 

25

 

 

$

 

25

 

 

 

$

 

31

 

 

$

 

31

 

Long-term debt, net

 

 

 

2,776

 

 

 

 

2,783

 

 

 

 

 

2,792

 

 

 

 

2,780

 

Total

 

$

 

2,801

 

 

$

 

2,808

 

 

 

$

 

2,823

 

 

$

 

2,811

 

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 Notes have fixed interest rates and the fair value is classified as Level 2 within the fair value hierarchy and corroborated by observable market data (see Note 8 “Debt”).

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 the nine months ended September 30, 2023 and 2022, there were no transfers in or out of the Level 1, Level 2 or Level 3 classifications.

17. Restructuring

Transformation Program

On February 20, 2023, the Company approved a two-year strategic transformation restructuring program (the “Transformation Program”) intended to accelerate the Company’s back-office infrastructure into the cloud and transform its operating model leveraging technology in order to reduce its overall future costs. The Transformation Program includes process and system optimization, third party costs associated with technology infrastructure transformation, and elimination of full-time positions. The Company currently expects to record in the aggregate approximately $140 million in pre-tax restructuring charges over the two-year period. The restructuring charges are expected to include severance charges with an estimated range from $40 million to $50 million over the two-year period and other restructuring charges related to items such as data center exit costs, third party fees, and costs associated with transitioning existing technology and processes with an estimated range of $90 million to $100 million over the two-year period. The Company estimates an annual savings of over $100 million after the Transformation Program is completed. The Transformation Program commenced in the first quarter of 2023 and is expected to be substantially completed over an estimated two-year period.

From the inception of the plan through September 30, 2023, the Company has incurred total expenses of $73 million. These charges are recorded in Selling, general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Income (Loss).

27


 

The following table summarizes restructuring costs by type that have been incurred.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

 

 

Estimated

 

 

Estimated

 

 

 

September 30,

 

 

September 30,

 

 

 

Inception to

 

 

Remaining

 

 

Total

 

 

 

2023

 

 

2023

 

 

 

Date

 

 

Costs

 

 

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employer Solutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and Related Benefits

 

$

 

3

 

 

$

 

8

 

 

$

 

8

 

 

$

 

12

 

 

$

 

20

 

Other Restructuring Costs(1)

 

 

 

10

 

 

 

 

47

 

 

 

 

47

 

 

 

 

45

 

 

 

 

92

 

Total Employer Solutions

 

$

 

13

 

 

$

 

55

 

 

$

 

55

 

 

$

 

57

 

 

$

 

112

 

Professional Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and Related Benefits

 

$

 

 

 

$

 

1

 

 

$

 

1

 

 

$

 

3

 

 

$

 

4

 

Total Professional Services

 

$

 

 

 

$

 

1

 

 

$

 

1

 

 

$

 

3

 

 

$

 

4

 

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and Related Benefits

 

$

 

3

 

 

$

 

15

 

 

$

 

15

 

 

$

 

6

 

 

$

 

21

 

Other Restructuring Costs(1)

 

 

 

1

 

 

 

 

2

 

 

 

 

2

 

 

 

 

1

 

 

 

 

3

 

Total Corporate

 

$

 

4

 

 

$

 

17

 

 

$

 

17

 

 

$

 

7

 

 

$

 

24

 

Total Restructuring Costs

 

$

 

17

 

 

$

 

73

 

 

$

 

73

 

 

$

 

67

 

 

$

 

140

 

(1)
Other restructuring costs associated with the Transformation Program primarily include data center exit costs, third party fees associated with the restructuring, and costs associated with transitioning existing technology and processes.

As of September 30, 2023, approximately $16 million of the Company's total restructuring liability is unpaid and is recorded in Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets.

 

Severance and

 

 

Other Restructuring

 

 

 

 

 

 

Related Benefits

 

 

Costs

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued restructuring liability as of December 31, 2022

$

 

 

 

$

 

 

 

$

 

 

Restructuring charges

 

 

24

 

 

 

 

49

 

 

 

 

73

 

Cash payments

 

 

(13

)

 

 

 

(45

)

 

 

 

(58

)

Accrued restructuring liability as of September 30, 2023

$

 

11

 

 

$

 

4

 

 

$

 

15

 

 

Plan

During the third quarter of 2019, management initiated a restructuring and integration plan (the “Plan”) following the completion of the Hodges acquisition and in anticipation of the NGA HR acquisition, which was completed on November 1, 2019. The Plan was intended to integrate and streamline operations across the Company and to generate cost reductions related to position eliminations and facility and system rationalizations. This restructuring and integration plan was complete as of December 31, 2022.

The following table summarizes the changes in the accrual balance:

 

Severance and

 

 

Other Restructuring

 

 

 

 

 

 

Related Benefits

 

 

Costs

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued restructuring liability as of December 31, 2022

$

 

4

 

 

$

 

4

 

 

$

 

8

 

Cash payments

 

 

(3

)

 

 

 

(4

)

 

 

 

(7

)

Accrued restructuring liability as of September 30, 2023

$

 

1

 

 

$

 

 

 

$

 

1

 

 

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 September 30, 2023 and 2022, expenses were $7 million and $14 million, respectively. For the nine months ended September 30, 2023 and 2022, expenses were $41 million and $45 million, respectively. Expenses were recognized in Cost of services, exclusive of depreciation and amortization and Selling, general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Income (Loss).

28


 

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 September 30, 2023 and December 31, 2022 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.

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

The Company’s expected cash outflow for non-cancellable purchase obligations related to purchases of information technology assets and services is $6 million, $27 million, $9 million, $4 million, $3 million, and none for the remainder of 2023 and the years ended 2024, 2025, 2026, 2027, and thereafter, respectively.

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 $37 million, $154 million, $162 million, $170 million, $178 million, and $154 million for the remainder of 2023 and the years ended 2024, 2025, 2026, 2027, and thereafter, respectively.

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 25% of any remaining portion of the minimum level of services the Company agreed to purchase from Wipro over the course of 10 years.

29


 

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 is defining the future of employee wellbeing through the power of our integrated health, wealth, wellbeing and payroll solutions powered by Alight Worklife®. Alight Worklife® is a high-tech employee engagement platform with a human touch – that brings together our mission-critical wellbeing solutions to our clients to drive better outcomes for organizations and individuals.

Against the current macro environment, both employers and employees face considerable challenges that impact their ability to succeed and thrive now and in the future. Employees are shouldering more and more responsibility for healthcare costs, while struggling with short-and-long-term financial needs in an inflationary environment, among other daily challenges. These trends have driven the need for integrated, personalized tools to help employees make more informed decisions around all aspects of their health, finances and wellbeing. For their part, employers are facing increasing cost pressures, ever-changing workforce regulations and evolving dynamics across the employer/employee relationship, driving the need for flexibility, engagement and effective solutions for compliance. We believe Alight is uniquely positioned between the employer and employee to address these factors and drive better outcomes for both.

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 and realize a return on their people investment. Our data, analytics and Artificial Intelligence ("AI") allow us to deliver actionable insights that drive measurable outcomes for companies and their people. We provide solutions to manage health and retirement benefits, tools for payroll and 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 September 30, 2023, Alight owned 93% 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 approximately 7% as of September 30, 2023.

As a result of the Business Combination, for accounting purposes, the Company is the acquirer and Alight Holdings is the acquiree and accounting predecessor. Within this Quarterly Report on Form 10-Q, there are some instances where we reference activity that relates to this Predecessor period or accounting as a result of the Business Combination.

Segment Reporting

Effective January 1, 2023, the Company's former Hosted business revenues and gross margin are reported in Other as the business is no longer core to the Company’s operations. There is no change in composition among the Employer Solutions and Professional Services segments.

 

 

 

30


 

EXECUTIVE SUMMARY OF FINANCIAL RESULTS

The following table sets forth our historical results of operations for the periods indicated below:

 

 

Three Months Ended September 30

 

 

 

Nine Months Ended September 30

 

(in millions)

 

2023

 

2022

 

 

 

2023

 

2022

 

Revenue

 

$

 

813

 

$

 

750

 

 

 

$

 

2,450

 

$

 

2,190

 

Cost of services, exclusive of depreciation and amortization

 

 

 

535

 

 

 

523

 

 

 

 

 

1,618

 

 

 

1,497

 

Depreciation and amortization

 

 

 

21

 

 

 

15

 

 

 

 

 

61

 

 

 

39

 

Gross Profit

 

 

 

257

 

 

 

212

 

 

 

 

 

771

 

 

 

654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

 

177

 

 

 

178

 

 

 

 

 

555

 

 

 

475

 

Depreciation and intangible amortization

 

 

 

84

 

 

 

84

 

 

 

 

 

254

 

 

 

254

 

Total Operating expenses

 

 

 

261

 

 

 

262

 

 

 

 

 

809

 

 

 

729

 

Operating Income (Loss)

 

 

 

(4

)

 

 

(50

)

 

 

 

 

(38

)

 

 

(75

)

Other (Income) Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Gain) Loss from change in fair value of financial instruments

 

 

 

(36

)

 

 

10

 

 

 

 

 

(11

)

 

 

(53

)

(Gain) Loss from change in fair value of tax receivable agreement

 

 

 

11

 

 

 

(20

)

 

 

 

 

30

 

 

 

(63

)

Interest expense

 

 

 

34

 

 

 

31

 

 

 

 

 

100

 

 

 

89

 

Other (income) expense, net

 

 

 

2

 

 

 

(6

)

 

 

 

 

9

 

 

 

(14

)

Total Other (income) expense, net

 

 

 

11

 

 

 

15

 

 

 

 

 

128

 

 

 

(41

)

Income (Loss) Before Taxes

 

 

 

(15

)

 

 

(65

)

 

 

 

 

(166

)

 

 

(34

)

Income tax expense (benefit)

 

 

 

31

 

 

 

(20

)

 

 

 

 

26

 

 

 

(28

)

Net Income (Loss)

 

 

 

(46

)

 

 

(45

)

 

 

 

 

(192

)

 

 

(6

)

Net income (loss) attributable to noncontrolling interests

 

 

 

2

 

 

 

(8

)

 

 

 

 

(9

)

 

 

(9

)

Net Income (Loss) Attributable to Alight, Inc.

 

$

 

(48

)

$

 

(37

)

 

 

$

 

(183

)

$

 

3

 

REVIEW OF RESULTS

Key Components of Our 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.

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.

31


 

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 charge 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 Operations for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Revenue

Revenues were $813 million for the three months ended September 30, 2023 as compared to $750 million for the prior year period. The increase of $63 million reflects growth of 8.7% in our Employer Solutions segment and 10.5% in our Professional Services segment. 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 September 30, 2023, we recorded BPaaS revenue of $184 million, which represented growth of 21.9% compared to the prior year period.

In addition, we also consider BPaaS bookings, defined as total contract value ("TCV") for BPaaS customer agreements executed in the period, to be a key indicator of future revenue growth and is used as a metric of commercial activity by management and investors. For the three months ended September 30, 2023, BPaaS bookings of $262 million represents an increase of 26.0% compared to the prior year period. Since the start of 2021, we have delivered BPaaS TCV bookings of nearly $2.0 billion, ahead of our three-year goal of $1.5 billion by the end of 2023.

Recurring revenues increased by $52 million, or 8.3%, from $625 million to $677 million and are related to growth in both the Employer Solutions and Professional Services segments. Growth in Employer Solutions is a result of higher revenues related to increased volumes, Net Commercial Activity and our 2022 acquisition. Growth in Professional Services is primarily a result of higher project revenues.

Cost of Services, exclusive of Depreciation and Amortization

Cost of services, exclusive of depreciation and amortization, increased $12 million, or 2.3%, for the three months ended September 30, 2023 as compared to the prior year period. The increase was primarily driven by growth in revenues, including investments in key resources and our 2022 acquisition, partially offset by productivity initiatives.

Selling, General and Administrative

Selling, general and administrative expenses decreased $1 million, or 0.6%, for the three months ended September 30, 2023 as compared to the prior year period. The decrease was primarily driven by compensation expenses related to share-based awards, partially offset by the inclusion of expenses from our 2022 acquisition and costs incurred from our previously announced restructuring program.

Depreciation and Intangible Amortization

Depreciation and intangible amortization expenses remained consistent when comparing the three months ended September 30, 2023 to the prior year period.

32


 

Change in Fair Value of Financial Instruments

There was a $36 million gain related to the change in the fair value of financial instruments for the three months ended September 30, 2023 compared to a loss of $10 million for the prior year period. We are required to remeasure the financial instruments at 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 $11 million for the three months ended September 30, 2023, a decrease of $31 million compared to a gain of $20 million for the prior year period. This revaluation loss is due to changes in the discount rate, passage of time, and changes in the Company's assumptions related to the timing of the utilization of tax attributes during the term of the TRA, which we are required to revalue at the end of each reporting period.

Interest Expense

Interest expense increased $3 million for the three months ended September 30, 2023 as compared to the prior year period. The increase was primarily due to higher interest expense on our Term Loan due to movement in market interest rates. See Note 8 “Debt” for additional information.

Income (Loss) Before Income Taxes

Loss before income taxes was $15 million for the three months ended September 30, 2023 as compared to loss before taxes of $65 million for the three months ended September 30, 2022. The decrease in loss before income taxes was primarily due to non-operating fair value remeasurements associated with financial instruments and the TRA, as well as an increase in revenue and benefits from productivity initiatives, offset by increases in costs associated with investment in key resources and the 2022 acquisition.

Income Tax Expense (Benefit)

Income tax expense was $31 million for the three months ended September 30, 2023, as compared to an income tax benefit of $20 million for the prior year period. The effective tax rate of (207%) for the three months ended September 30, 2023 is lower than the 21% U.S. statutory corporate income tax rate primarily due to lower realization of certain anticipated tax attributes in the U.S., as well as losses in certain non-U.S. jurisdictions for which tax benefits have not been recorded. The effective tax rate of 31% for the three months ended September 30, 2022 is higher than 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.

 

Results of Operations for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Revenue

Revenues were $2,450 million for the nine months ended September 30, 2023 as compared to $2,190 million for the prior year period. The increase of $260 million reflects growth of 12.7% in our Employer Solutions segment and 9.8% in our Professional Services segment. We measure revenue growth as it relates to the cloud-based products and solutions that are central to our Alight Worklife® platform and our next generation product suite, BPaaS Solutions. For the nine months ended September 30, 2023, we recorded BPaaS revenue of $534 million, which represented growth of 35.9% compared to the prior year period.

In addition, we also consider BPaaS bookings, defined as total contract value for BPaaS customer agreements executed in the period, to be a key indicator of future revenue growth and is used as a metric of commercial activity by management and investors. For the nine months ended September 30, 2023, BPaaS bookings of $486 million represented a decline of 13.8% compared to the prior year period, however, since the start of 2021, we have delivered BPaaS TCV bookings of nearly $2.0 billion, ahead of our goal of $1.5 billion by the end of 2023.

Recurring revenues increased by $234 million, or 12.7%, from $1,838 million to $2,072 million and are related to growth in both the Employer Solutions and Professional Services segments. Growth in Employer Solutions is a result of higher revenues related to increased volumes, Net Commercial Activity and our 2022 acquisition. Growth in Professional Services is primarily a result of higher project revenues.

Cost of Services, exclusive of Depreciation and Amortization

Cost of services, exclusive of depreciation and amortization, increased $121 million, or 8.1%, for the nine months ended September 30, 2023 as compared to the prior year period. The increase was primarily driven by growth in revenues, including investments in key resources and our 2022 acquisition, partially offset by productivity initiatives.

33


 

Selling, General and Administrative

Selling, general and administrative expenses increased $80 million, or 16.8%, for the nine months ended September 30, 2023 as compared to the prior year period. The increase was primarily driven by costs incurred from our previously announced restructuring program as well as the inclusion of expenses from our 2022 acquisition, partially offset by lower compensation expenses related to share-based awards.

Depreciation and Intangible Amortization

Depreciation and intangible amortization expenses was consistent compared to the nine months ended September 30, 2023 to the prior year period.

Change in Fair Value of Financial Instruments

The change in the fair value of financial instruments resulted in a gain of $11 million for the nine months ended September 30, 2023, a decrease of $42 million compared to a gain of $53 million for the prior year period. We are required to remeasure the financial instruments at 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. The change in the fair value was due to changes in the underlying assumptions, including the decrease at September 30, 2023 in the risk free interest rate, volatility, and the closing stock price for the period ended. See Note 14 "Financial Instruments" for additional information.

Change in Fair Value of Tax Receivable Agreement

The change in the fair value of the Tax Receivable Agreement resulted in a loss of $30 million for the nine months ended September 30, 2023, a decrease of $93 million compared to a gain of $63 million for the prior year period. This revaluation loss is due to changes in the discount rate, passage of time, and changes in the Company's assumptions related to the timing of the utilization of tax attributes during the term of the TRA, which we are required to revalue at the end of each reporting period.

Interest Expense

Interest expense increased $11 million for the nine months ended September 30, 2023 as compared to the prior year period. The increase was primarily due to higher interest expense on our Term Loan due to movement in market interest rates. See Note 8 “Debt” for additional information.

Income (Loss) Before Income Taxes

Loss before income taxes was $166 million for the nine months ended September 30, 2023. Loss before tax benefit was $34 million for the nine months ended September 30, 2022. The increase in loss before income taxes was primarily due to non-operating fair value remeasurements associated with financial instruments and the TRA, and restructuring costs.

Income Tax Expense (Benefit)

Income tax expense was $26 million for the nine months ended September 30, 2023, as compared to tax benefit of $28 million for the prior year period. The effective tax rate of (16%) for the nine months ended September 30, 2023 is lower than the 21% U.S. statutory corporate income tax rate primarily due to lower realization of certain anticipated tax attributes in the U.S., as well as losses in certain non-U.S. jurisdictions for which tax benefits have not been recorded. The effective tax rate of 82% for the nine months ended September 30, 2022 is higher than 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 a tax benefit has 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:

Measure does not reflect changes in, or cash requirements for, our working capital needs or contractual commitments;
Measure does not reflect our interest expense or the cash requirements to service interest or principal payments on our indebtedness;

34


 

Measure does not reflect our tax expense or the cash requirements to pay our taxes, including payments related to the Tax Receivable Agreement;
Measure does not reflect the impact on earnings or changes resulting from matters that we consider not to be indicative of our future operations;
Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often need to be replaced in the future, and the adjusted measure does not reflect any cash requirements for such replacements; and
Other companies may calculate adjusted measures differently, limiting its usefulness as a comparative measure.

Adjusted Net Income and Adjusted Diluted Earnings Per Share

Adjusted Net Income, which is defined as net income (loss) attributable to Alight, Inc. adjusted for intangible amortization and the impact of certain non-cash items that we do not consider in the evaluation of ongoing operational performance, is a non-GAAP financial measure used solely for the purpose of calculating Adjusted Diluted Earnings Per Share.

Adjusted Diluted Earnings Per Share is defined as Adjusted Net Income 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, 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 to Net Loss Attributable to Alight, Inc. and the computation of Adjusted Diluted Earnings Per Share is as follows:

 

 

Three Months Ended September 30

 

 

Nine Months Ended September 30

 

(in millions, except share and per share amounts)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (Loss) Income Attributable to Alight, Inc.

 

$

 

(48

)

 

$

 

(37

)

 

$

 

(183

)

 

$

 

3

 

Conversion of noncontrolling interest

 

 

 

2

 

 

 

 

(8

)

 

 

 

(9

)

 

 

 

(9

)

Intangible amortization

 

 

 

79

 

 

 

 

78

 

 

 

 

239

 

 

 

 

237

 

Share-based compensation

 

 

 

35

 

 

 

 

54

 

 

 

 

110

 

 

 

 

129

 

Transaction and integration expenses

 

 

 

6

 

 

 

 

2

 

 

 

 

16

 

 

 

 

11

 

Restructuring

 

 

 

17

 

 

 

 

23

 

 

 

 

73

 

 

 

 

43

 

(Gain) Loss from change in fair value of financial instruments

 

 

 

(36

)

 

 

 

10

 

 

 

 

(11

)

 

 

 

(53

)

(Gain) Loss from change in fair value of tax receivable agreement

 

 

 

11

 

 

 

 

(20

)

 

 

 

30

 

 

 

 

(63

)

Other

 

 

 

1

 

 

 

 

(1

)

 

 

 

2

 

 

 

 

2

 

Tax effect of adjustments (1)

 

 

 

7

 

 

 

 

(37

)

 

 

 

(44

)

 

 

 

(104

)

Adjusted Net Income

 

$

 

74

 

 

$

 

64

 

 

$

 

223

 

 

$

 

196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

 

 

493,226,324

 

 

 

 

457,904,703

 

 

 

 

486,683,943

 

 

 

 

457,535,329

 

Dilutive effect of the exchange of noncontrolling interest units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75,800,317

 

Dilutive effect of RSUs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

770,953

 

Weighted average shares outstanding - diluted

 

 

 

493,226,324

 

 

 

 

457,904,703

 

 

 

 

486,683,943

 

 

 

 

534,106,599

 

Exchange of noncontrolling interest units(2)

 

 

 

40,858,016

 

 

 

 

75,800,317

 

 

 

 

47,618,819

 

 

 

 

 

Impact of unvested RSUs(3)

 

 

 

9,161,197

 

 

 

 

10,289,937

 

 

 

 

9,161,197

 

 

 

 

9,518,984

 

Adjusted shares of Class A Common Stock outstanding - diluted(4)

 

 

543,245,537

 

 

 

543,994,957

 

 

 

543,463,959

 

 

 

 

543,625,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (Net Loss) Earnings Per Share

 

$

 

(0.10

)

 

$

 

(0.08

)

 

$

 

(0.38

)

 

$

 

0.01

 

Diluted (Net Loss) Earnings Per Share

 

$

 

(0.10

)

 

$

 

(0.08

)

 

$

 

(0.38

)

 

$

 

 

Adjusted Diluted Earnings Per Share(4) (5)

 

$

 

0.14

 

 

$

 

0.12

 

 

$

 

0.41

 

 

$

 

0.36

 

 

(1)
Income tax effects have been calculated based on statutory tax rates for both U.S. and foreign jurisdictions based on the Company's mix of income and adjusted for significant changes in fair value measurement.
(2)
Assumes the full exchange of the units held by noncontrolling interests for shares of Class A Common Stock of Alight, Inc. pursuant to the exchange agreement.

35


 

(3)
Includes non-vested time-based restricted stock units that were determined to be antidilutive for U.S. GAAP diluted earnings per share purposes.
(4)
Excludes two tranches of contingently issuable seller earnout shares: (i) 7.5 million shares will be issued if the volume-weighted average price ("VWAP") of the Company's Class A Common Stock is >$12.50 for 20 consecutive trading days; and (ii) 7.5 million shares will be issued if the VWAP of the Company's Class A Common Stock is >$15.00 for 20 consecutive trading days. Both tranches have a seven-year duration.
(5)
Excludes 28,547,275 and 33,148,917 performance-based units, which represents the gross number of shares expected to vest based on achievement of the respective performance conditions as of September 30, 2023 and September 30, 2022, respectively.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA 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 is defined as Adjusted EBITDA divided by revenue. Adjusted EBITDA And Adjusted EBITDA Margin 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 to Net Loss is as follows:

 

 

Three Months Ended September 30

 

 

Nine Months Ended September 30

 

(in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net Loss

 

$

 

(46

)

 

$

 

(45

)

 

$

 

(192

)

 

$

 

(6

)

Interest expense

 

 

 

34

 

 

 

 

31

 

 

 

 

100

 

 

 

 

89

 

Income tax expense (benefit)

 

 

 

31

 

 

 

 

(20

)

 

 

 

26

 

 

 

 

(28

)

Depreciation

 

 

 

26

 

 

 

 

21

 

 

 

 

76

 

 

 

 

56

 

Intangible amortization

 

 

 

79

 

 

 

 

78

 

 

 

 

239

 

 

 

 

237

 

EBITDA

 

 

 

124

 

 

 

 

65

 

 

 

 

249

 

 

 

 

348

 

Share-based compensation

 

 

 

35

 

 

 

 

54

 

 

 

 

110

 

 

 

 

129

 

Transaction and integration expenses (1)

 

 

 

6

 

 

 

 

2

 

 

 

 

16

 

 

 

 

11

 

Restructuring

 

 

 

17

 

 

 

 

23

 

 

 

 

73

 

 

 

 

43

 

(Gain) Loss from change in fair value of financial instruments

 

 

 

(36

)

 

 

 

10

 

 

 

 

(11

)

 

 

 

(53

)

(Gain) Loss from change in fair value of tax receivable agreement

 

 

 

11

 

 

 

 

(20

)

 

 

 

30

 

 

 

 

(63

)

Other(2)

 

 

 

1

 

 

 

 

(1

)

 

 

 

2

 

 

 

 

2

 

Adjusted EBITDA

 

$

 

158

 

 

$

 

133

 

 

$

 

469

 

 

 

 

417

 

Revenue

 

$

 

813

 

 

$

 

750

 

 

$

 

2,450

 

 

$

 

2,190

 

Adjusted EBITDA Margin(3)

 

 

 

19.4

%

 

 

 

17.7

%

 

 

 

19.1

%

 

 

 

19.0

%

 

(1) Transaction and integration expenses primarily relate to acquisition activity.

(2) Other primarily includes expenses related to debt financing.

(3) Adjusted EBITDA Margin is defined as Adjusted EBITDA 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 September 30

 

 

Nine Months Ended September 30

 

($ in millions)

 

2023

 

 

2022

 

 

2023

 

2022

 

Employer Solutions Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

$

 

634

 

 

$

 

583

 

 

$

 

1,942

 

$

 

1,712

 

Project

 

 

 

67

 

 

 

 

62

 

 

 

 

179

 

 

 

170

 

Total Employer Solutions Revenue

 

$

 

701

 

 

$

 

645

 

 

$

 

2,121

 

$

 

1,882

 

Employer Solutions Gross Profit

 

$

 

231

 

 

$

 

189

 

 

$

 

709

 

$

 

593

 

Employer Solutions Gross Profit Margin

 

 

 

33.0

%

 

 

 

29.3

%

 

 

 

33.4

%

 

 

31.5

%

Employer Solutions Adjusted Gross Profit

 

$

 

260

 

 

$

 

214

 

 

$

 

792

 

$

 

656

 

Employer Solutions Adjusted Gross Profit Margin

 

 

 

37.1

%

 

 

 

33.2

%

 

 

 

37.3

%

 

 

34.9

%

 

36


 

Employer Solutions Segment Results of Operations for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Employer Solutions Revenue

Employer Solutions revenue was $701 million for the three months ended September 30, 2023 as compared to $645 million for the prior year period. The overall increase of $56 million was primarily driven by recurring revenues from increases in Net Commercial Activity, project revenue and volumes as well as the impact from our 2022 acquisition.

Employer Solutions Gross Profit and Adjusted Gross Profit

Employer Solutions gross profit was $231 million for the three months ended September 30, 2023 compared to $189 million for the prior year period. The increase of $42 million was driven by revenue growth and lower expenses related to productivity initiatives, partially offset by employee compensation costs and increases in costs associated with funding growth of current and future revenues. Employer Solutions adjusted gross profit for the three months ended September 30, 2023 increased $46 million to $260 million from $214 million in the prior year period primarily due to revenue growth and lower expenses related to productivity initiatives, partially offset by employee compensation costs and increases in costs associated with funding growth of current and future revenues.

Employer Solutions Segment Results of Operations for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Employer Solutions Revenue

Employer Solutions revenue was $2,121 million for the nine months ended September 30, 2023 as compared to $1,882 million for the prior year period. The overall increase of $239 million was driven by recurring revenues from increases in Net Commercial Activity, project revenue and volumes as well as the impact from our 2022 acquisition.

Employer Solutions Gross Profit and Adjusted Gross Profit

Employer Solutions gross profit was $709 million for the nine months ended September 30, 2023 compared to $593 million for the prior year period. The increase of $116 million was driven by revenue growth and lower expenses related to productivity initiatives, partially offset by employee compensation costs and increases in costs associated with funding growth of current and future revenues. Employer Solutions adjusted gross profit for the nine months ended September 30, 2023 increased $136 million to $792 million from $656 million in the prior year period primarily due to revenue growth and lower expenses related to productivity initiatives, partially offset by employee compensation costs and increases in costs associated with funding growth of current and future revenues.

Professional Services Results

 

 

Three Months Ended September 30

 

 

Nine Months Ended September 30

 

($ in millions)

 

2023

 

 

2022

 

 

2023

 

2022

 

Professional Services Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

$

 

36

 

 

$

 

32

 

 

$

 

104

 

$

 

94

 

Project

 

 

 

69

 

 

 

 

63

 

 

 

 

199

 

 

 

182

 

Total Professional Services Revenue

 

$

 

105

 

 

$

 

95

 

 

$

 

303

 

$

 

276

 

Professional Services Gross Profit

 

$

 

26

 

 

$

 

23

 

 

$

 

64

 

$

 

62

 

Professional Services Gross Profit Margin

 

 

 

24.8

%

 

 

 

24.2

%

 

 

 

21.1

%

 

 

22.5

%

Professional Services Adjusted Gross Profit

 

$

 

27

 

 

$

 

25

 

 

$

 

67

 

$

 

65

 

Professional Services Adjusted Gross Profit Margin

 

 

 

25.7

%

 

 

 

26.3

%

 

 

 

22.1

%

 

 

23.6

%

Professional Services Segment Results of Operations for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Professional Services Revenue

Professional Services revenue was $105 million for the three months ended September 30, 2023 as compared to $95 million for the prior year period. The increase of $10 million was due to an increase of project revenue of $6 million, coupled with an increase of recurring revenue of $4 million.

Professional Services Gross Profit and Adjusted Gross Profit

Professional Services gross profit and adjusted gross profit both increased by $3 million and $2 million, respectively, when compared to the prior period.

37


 

Professional Services Segment Results of Operations for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Professional Services Revenue

Professional Services revenue was $303 million for the nine months ended September 30, 2023 as compared to $276 million for the prior year period. The increase of $27 million was due to an increase in project revenue of $17 million and $10 million, respectively.

Professional Services Gross Profit and Adjusted Gross Profit

Professional Services gross profit and adjusted gross profit increased by $2 million and $2 million, respectively, when compared to the prior year period.

Gross Profit to Adjusted Gross Profit Reconciliation by Segment

 

 

Three Months Ended September 30, 2023

 

($ in millions)

 

Employer Solutions

 

Professional Services

 

Other

 

Total

 

Gross Profit

 

$

231

 

$

26

 

$

-

 

$

257

 

     Add: stock-based compensation

 

 

9

 

 

-

 

 

-

 

 

9

 

     Add: depreciation and amortization

 

 

20

 

 

1

 

 

-

 

 

21

 

Adjusted Gross Profit

 

$

260

 

$

27

 

$

-

 

$

287

 

Gross Profit Margin

 

 

33.0

%

 

24.8

%

 

-

 

 

31.6

%

Adjusted Gross Profit Margin

 

 

37.1

%

 

25.7

%

 

-

 

 

35.3

%

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2022

 

($ in millions)

 

Employer Solutions

 

Professional Services

 

Other

 

Total

 

Gross Profit

 

$

189

 

$

23

 

$

-

 

$

212

 

     Add: stock-based compensation

 

 

11

 

 

1

 

 

-

 

 

12

 

     Add: depreciation and amortization

 

 

14

 

 

1

 

 

-

 

 

15

 

Adjusted Gross Profit

 

$

214

 

$

25

 

$

-

 

$

239

 

Gross Profit Margin

 

 

29.3

%

 

24.2

%

 

-

 

 

28.3

%

Adjusted Gross Profit Margin

 

 

33.2

%

 

26.3

%

 

-

 

 

31.9

%

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2023

 

($ in millions)

 

Employer Solutions

 

Professional Services

 

Other

 

Total

 

Gross Profit

 

$

709

 

$

64

 

$

(2

)

$

771

 

     Add: stock-based compensation

 

 

25

 

 

2

 

 

-

 

 

27

 

     Add: depreciation and amortization

 

 

58

 

 

1

 

 

2

 

 

61

 

Adjusted Gross Profit

 

$

792

 

$

67

 

$

-

 

$

859

 

Gross Profit Margin

 

 

33.4

%

 

21.1

%

 

-7.7

%

 

31.5

%

Adjusted Gross Profit Margin

 

 

37.3

%

 

22.1

%

 

-

 

 

35.1

%

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2022

 

($ in millions)

 

Employer Solutions

 

Professional Services

 

Other

 

Total

 

Gross Profit

 

$

593

 

$

62

 

$

(1

)

$

654

 

     Add: stock-based compensation

 

 

27

 

 

2

 

 

-

 

 

29

 

     Add: depreciation and amortization

 

 

36

 

 

1

 

 

2

 

 

39

 

Adjusted Gross Profit

 

$

656

 

$

65

 

$

1

 

$

722

 

Gross Profit Margin

 

 

31.5

%

 

22.5

%

 

-3.1

%

 

29.9

%

Adjusted Gross Profit Margin

 

 

34.9

%

 

23.6

%

 

3.1

%

 

33.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38


 

LIQUIDITY AND FINANCIAL CONDITION

Liquidity

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 September 30, 2023 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.

In August 2022, we established a repurchase program allowing for up to $100 million in authorized share repurchases. As of September 30, 2023, approximately $48 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 September 30, 2023 and December 31, 2022, 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 following table provides a summary of cash flows from operating, investing, and financing activities for the periods presented.

 

 

Nine Months Ended September 30

 

(in millions)

 

2023

 

2022

 

Cash provided by operating activities

 

$

 

251

 

$

 

201

 

Cash used in investing activities

 

 

 

(127

)

 

 

(115

)

Cash provided by (used in) financing activities

 

 

 

(289

)

 

 

(73

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

 

1

 

 

 

(7

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

 

(164

)

 

 

6

 

Cash, cash equivalents, and restricted cash at end of period

 

$

 

1,595

 

$

 

1,658

 

Operating Activities

Net cash provided by operating activities was $251 million for the nine months ended September 30, 2023 compared to $201 million for the nine months ended September 30, 2022. 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 increased $12 million to $127 million for the nine months ended September 30, 2023 from $115 million for the prior year period, driven by capital expenditures.

Financing Activities

Cash used for financing activities for the nine months ended September 30, 2023 was $289 million as compared to cash used for financing activities of $73 million in the prior year. The primary drivers of cash used for financing activities were due to a $190 million net decrease in fiduciary liabilities, $40 million of share repurchases, $19 million of debt repayments, $17 million of finance lease payments, $9 million of deferred and contingent consideration payments, $7 million of TRA payments, and $8 million of shares/units withheld in lieu of taxes. The decrease in fiduciary cash is primarily due to timing of client funding and subsequent disbursement of payments.

Cash, Cash Equivalents and Fiduciary Assets

At September 30, 2023, our cash and cash equivalents were $276 million, an increase of $26 million from December 31, 2022. Of the total balances of cash and cash equivalents as of September 30, 2023 and December 31, 2022, 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 Consolidated Balance Sheets, the amount we report for Fiduciary assets and Fiduciary liabilities are

39


 

equal. Our Fiduciary assets included cash of $1,319 million and $1,509 million at September 30, 2023 and December 31, 2022, 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 nine months ended September 30, 2023, we paid $7 million related to the TRA and no further payments are expected to be made during the remainder of 2023. As of September 30, 2023, we expect to make payments of approximately $50 million in 2024.

Contractual Obligations and Commitments

There have been no material changes to our obligations and commitments during the nine months ended September 30, 2023.

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, 2022. 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.

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, due to the material weaknesses in our internal control over financial reporting related to our income tax accounting as further described below, our disclosure controls and procedures were not effective as of September 30, 2023.

40


 

Notwithstanding, the conclusion by management that our disclosure controls and procedures as of September 30, 2023 were not effective, and notwithstanding the material weaknesses in our internal control over financial reporting described below, management believes that the condensed consolidated financial statements and related financial information included in this Quarterly Report on Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with U.S. GAAP.
 

Remediation of Material Weakness in Internal Control Over Financial Reporting

In connection with the preparation and audit of the consolidated financial statements as of and for the year ended December 31, 2022, a material weakness over financial reporting was identified. This material weakness related to internal controls over the accounting for the income tax provision in accordance with GAAP.

Specifically, the Company did not have the appropriate complement of resources within its tax department commensurate with the nature and complexity associated with the Company’s income tax provision process. As a result, the design and operation of our internal controls associated with the accounting for the Company’s income tax provision was not designed to operate at a level of precision necessary to provide reasonable assurance that a material misstatement of the Company’s annual or interim financial statements would be detected or prevented.

Management does not believe that these control deficiencies materially affected the results and accuracy of any of its annual or interim financial statements. Further, management believes and has concluded that the consolidated financial statements for the prior periods and included in this report fairly present, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

We are committed to maintaining a strong internal control environment. As of September 30, 2023, we have implemented remediation activities for the material weakness in internal control over financial reporting described above, with appropriate oversight from the Audit Committee. The remediation actions were multi-phased and included the following:
(i) conducting a complete assessment of the organizational structure of the Company’s tax team to identify any gaps or weaknesses, including necessary subject matter expertise, and make necessary changes to the personnel;
(ii) engaging and working with an independent, third-party review team to conduct a review of tax department processes and procedures with a particular emphasis on roles, responsibilities and accountabilities;
(iii) enhancing the level of precision in management’s review controls related to the review of significant tax balances to ensure transactions are recorded accurately and completely in accordance with GAAP, and
(iv) strengthening our income tax internal controls with enhanced documentation, technical oversight and training.

Management believes it has substantially completed the implementation of its remediation efforts outlined above. However, until the operational effectiveness of related internal controls is validated through testing, the material weakness described above will continue to exist. Management believes the remediation measures implemented will strengthen the Company’s internal control over financial reporting and remediate the material weakness.

Changes in Internal Control over Financial Reporting

Except as noted above, there have been no changes 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.

41


 

PART II—OTHER INFORMATION

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 March 1, 2023. 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.

There have been no material changes from the risk factors previously disclosed under "Part I, Item IA. Factors" in the Company’s filing mentioned in the aforementioned paragraph.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

The following table provides information regarding purchases of our Class A Common Stock that were made by us during the three months ended September 30, 2023.

 

 

 

 

 

 

 

 

 

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)

 

July 1, 2023 through July 31, 2023

 

 

 

 

$

 

 

 

 

 

 

$

 

74

 

August 1, 2023 through August 31, 2023

 

 

2,301,625

 

 

 

 

8.24

 

 

 

2,301,625

 

 

 

 

55

 

September 1, 2023 through September 30, 2023

 

 

992,383

 

 

 

 

7.54

 

 

 

992,383

 

 

 

 

48

 

Balance as of September 30, 2023

 

 

3,294,008

 

 

$

 

8.02

 

 

 

3,294,008

 

 

$

 

48

 

 

(1)
Average price paid per share for open market purchases includes broker commissions.
(2)
On August 1, 2022, we announced a share repurchase program, under which we may repurchase up to $100 million of issued and outstanding shares of Class A Common Stock, par value $0.0001 per share, from time to time, depending on market conditions and alternate uses of capital, which has no expiration date and may be suspended or discontinued at any time. In the third quarter of 2023, we repurchased 3,294,008 shares for $26 million, or approximately $8.02 per share, under this share repurchase program. For additional information, see Note 9 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Trading Arrangements

Our officers (as defined in Rule 16a-1 under the Exchange Act) and directors may from time to time enter into plans or arrangements for the purchase or sale of our Class A Common Stock that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.

42


 

During the three months ended September 30, 2023, the officers and directors of the Company set forth in the table below entered into trading plans during an open insider trading window.

 

Name

Title

Adoption Date

Expiration Date(1)

Aggregate # of securities to be sold(2)

Stephan Scholl

Chief Executive Officer and Director

9/14/2023

6/21/2024

Up to 1,500,000

Katie J. Rooney

Chief Financial Officer & Chief Operating Officer

9/15/2023

8/6/2024

Up to 1,178,904(3)

Dinesh Tulsiani

Chief Strategy Officer

9/15/2023

9/6/2024

Up to 14,988

 

(1)
Each trading arrangement permitted or permits transactions through and including the earlier to occur of (a) the completion of all purchases or sales or (b) the date listed in the table. Each arrangement also provided or provides for automatic termination in the event of liquidation, dissolution, bankruptcy, insolvency, or death, of the adopting person.
(2)
The volume and timing of sales is determined, in part, based on pricing triggers outlined in the trading arrangement.
(3)
The Rule 10b5-1 trading arrangement provides for the sale of a percentage of shares to be received upon future vesting of certain outstanding equity awards, net of any shares withheld by us to satisfy applicable taxes. The number of shares to be withheld, and thus the exact number of shares to be sold pursuant to Ms. Rooney’s Rule 10b5-1 trading arrangement, can only be determined upon the occurrence of the future vesting events. For purposes of this disclosure, we have reported the maximum aggregate number of shares to be sold without subtracting any shares to be withheld upon future vesting events.

Each of the 10b5-1 plans in the above table included a representation from the director or officer to the broker administering the plan that such individual was not in possession of any material nonpublic information regarding the Company or the securities subject to the plan. A similar representation was made to the Company in connection with the adoption of the plan under the Company’s insider trading policy. Those representations were made as of the date of adoption of the 10b5-1 plan and speak only as of that date. In making those representations, there is no assurance with respect to any material nonpublic information of which the director or officer was unaware, or with respect to any material nonpublic information acquired by the director or officer or the Company after the date of the representation.

During the three months ended September 30, 2023, other than noted above, none of our officers or directors adopted, terminated or modified a 10b5-1 equity trading plan, or adopted, terminated, or modified any “non-Rule 10b5-1 equity trading arrangement”.

Section 13(r) Disclosure

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) of the Exchange Act, we hereby incorporate by reference herein Exhibit 99.1 of this report, which includes disclosures regarding activities at Mundys S.p.A. (formerly Atlantia S.p.A.), which may be, or may have been at the time considered to be, an affiliate of Blackstone Inc. (“Blackstone”) and, therefore, our affiliate during the three months ended September 30, 2023.

 

 

43


 

Item 6. Exhibits.

 

Exhibit

Number

Description

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of Alight, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 12, 2021).

3.2

 

Amended and Restated Bylaws of Alight, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed with the SEC on July 12, 2021).

10.1*

 

Release Agreement, dated as of August 18, 2023, by and between Alight Solutions LLC and Cesar Jelvez.

10.2*

 

Amendment No. 9 to the Credit Agreement, dated as of September 20, 2023 (correcting Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on September 20, 2023).

31.1*

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1*

 

Section 13(r) Disclosure.

101.INS*

Inline XBRL Instance Document

101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104*

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* Filed herewith.

** Furnished herewith.

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.

44


 

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: November 1, 2023

By:

/s/ Katie Rooney

Katie Rooney

Chief Financial Officer and Chief Operating Officer

 

 

 

(Principal Financial Officer, Principal Accounting Officer and Authorized Signatory)

 

45