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 audited consolidated financial statements which are included in the Company's 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 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 March 31, 2023, Alight owned 92% 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 8% as of March 31, 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.
31
EXECUTIVE SUMMARY OF FINANCIAL RESULTS
The following table sets forth our historical results of operations for the periods indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
|
March 31, |
|
March 31, |
|
(in millions) |
|
2023 |
|
2022 |
|
Revenue |
|
$ |
|
831 |
|
$ |
|
725 |
|
Cost of services, exclusive of depreciation and amortization |
|
|
|
555 |
|
|
|
491 |
|
Depreciation and amortization |
|
|
|
19 |
|
|
|
11 |
|
Gross Profit |
|
|
|
257 |
|
|
|
223 |
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
185 |
|
|
|
140 |
|
Depreciation and intangible amortization |
|
|
|
85 |
|
|
|
85 |
|
Total Operating expenses |
|
|
|
270 |
|
|
|
225 |
|
Operating Income (Loss) |
|
|
|
(13 |
) |
|
|
(2 |
) |
Other (Income) Expense |
|
|
|
|
|
|
|
(Gain) Loss from change in fair value of financial instruments |
|
|
|
25 |
|
|
|
(13 |
) |
(Gain) Loss from change in fair value of tax receivable agreement |
|
|
|
8 |
|
|
|
(5 |
) |
Interest expense |
|
|
|
33 |
|
|
|
29 |
|
Other (income) expense, net |
|
|
|
3 |
|
|
|
(1 |
) |
Total Other (income) expense, net |
|
|
|
69 |
|
|
|
10 |
|
Income (Loss) Before Taxes |
|
|
|
(82 |
) |
|
|
(12 |
) |
Income tax expense (benefit) |
|
|
|
(8 |
) |
|
|
1 |
|
Net Income (Loss) |
|
|
|
(74 |
) |
|
|
(13 |
) |
Net income (loss) attributable to noncontrolling interests |
|
|
|
(6 |
) |
|
|
(2 |
) |
Net Income (Loss) Attributable to Alight, Inc. |
|
$ |
|
(68 |
) |
$ |
|
(11 |
) |
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.
32
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 March 31, 2023 Compared to the Three Months Ended March 31, 2022
Revenue
Revenues were $831 million for the three months ended March 31, 2023 as compared to $725 million for the prior year period. The increase of $106 million reflects growth of 16.1% in our Employer Solutions segment and 8.9% 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 three months ended March 31, 2023, we recorded BPaaS revenue of $171 million, which represents growth of 50% 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 three months ended March 31, 2023, BPaaS bookings of $75 million represents a decline of 38.5% compared to the prior year period.
Recurring revenues increased by $100 million, or 16.3%, from $612 million to $712 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 $64 million, or 13.0%, for the three months ended March 31, 2023 as compared to the prior year period. The increase was primarily driven by growth in revenues, including investments in key resources and the recent acquisition.
Selling, General and Administrative
Selling, general and administrative expenses increased $45 million, or 32.1%, for the three months ended March 31, 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.
Depreciation and Amortization
Depreciation and intangible amortization expenses increased $8 million, or 8.3%, for the three months ended March 31, 2023 as compared to the prior year period. The increase was primarily driven by amortization related to identifiable intangible assets acquired from the 2022 acquisition.
Change in Fair Value of Financial Instruments
The change in the fair value of financial instruments was a loss of $25 million for the three months ended March 31, 2023, a decrease of $38 million compared to a gain of $13 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
33
period the change occurred. The change in the fair value was due to changes in the underlying assumptions, including the decrease in the risk free interest rate, volatility, and the closing stock price for the period ended March 31, 2023. 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 was a loss of $8 million for the three months ended March 31, 2023, a decrease of $13 million compared to a gain of $5 million for the prior year period. This revaluation loss is due to changes in the discount rate 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 $4 million for the three months ended March 31, 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 $82 million for the three months ended March 31, 2023. Loss before income taxes was $12 million for the three months ended March 31, 2022. The decrease in Loss before income taxes was primarily due to the fair value remeasurements associated with certain liabilities and other drivers as identified above.
Income Tax Expense (Benefit)
Income tax benefit was $8 million for the three months ended March 31, 2023, as compared to tax expense of $1 million for the prior year period. The effective tax rate of 10% for the three months ended March 31, 2023 is lower than the 21% U.S. statutory corporate income tax rate primarily due to the Company’s inability to fully benefit from certain anticipated tax attributes in the US, as well as losses in certain non-U.S. jurisdictions for which tax benefits have not been recorded. The effective tax rate of (12)% for the three months ended March 31, 2022 is lower than the 21% U.S. statutory corporate income tax rate primarily due to the Company’s inability to benefit from certain tax attributes in the U.S., as well as 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;
•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.
34
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, the total amount of warrants that were exercised, and 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 |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
(in millions, except share and per share amounts) |
|
2023 |
|
|
2022 |
|
Numerator: |
|
|
|
|
|
|
|
|
Net (Loss) Income Attributable to Alight, Inc. |
|
$ |
|
(68 |
) |
|
$ |
|
(11 |
) |
Conversion of noncontrolling interest |
|
|
|
(6 |
) |
|
|
|
(2 |
) |
Intangible amortization |
|
|
|
80 |
|
|
|
|
79 |
|
Share-based compensation |
|
|
|
37 |
|
|
|
|
33 |
|
Transaction and integration expenses |
|
|
|
2 |
|
|
|
|
6 |
|
Restructuring |
|
|
|
26 |
|
|
|
|
6 |
|
(Gain) Loss from change in fair value of financial instruments |
|
|
|
25 |
|
|
|
|
(13 |
) |
(Gain) Loss from change in fair value of tax receivable agreement |
|
|
|
8 |
|
|
|
|
(5 |
) |
Other |
|
|
|
1 |
|
|
|
|
2 |
|
Tax effect of adjustments (1) |
|
|
|
(33 |
) |
|
|
|
(28 |
) |
Adjusted Net Income |
|
$ |
|
72 |
|
|
$ |
|
67 |
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic |
|
|
|
476,145,761 |
|
|
|
|
456,838,216 |
|
Exchange of noncontrolling interest units(2) |
|
|
|
57,966,505 |
|
|
|
|
76,220,431 |
|
Impact of unvested RSUs(3) |
|
|
|
10,412,840 |
|
|
|
|
11,137,394 |
|
Adjusted shares of Class A Common Stock outstanding - diluted(4) |
|
|
|
544,525,106 |
|
|
|
|
544,196,041 |
|
|
|
|
|
|
|
|
|
|
Basic (Net Loss) Earnings Per Share |
|
$ |
|
(0.14 |
) |
|
$ |
|
(0.02 |
) |
Adjusted Diluted Earnings Per Share(4) (5) |
|
$ |
|
0.13 |
|
|
$ |
|
0.12 |
|
(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.
(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 31,079,227 and 35,501,399 performance-based units, which represents the gross number of shares expected to vest based on achievement of the respective performance conditions as of March 31, 2023 and March 31, 2022, respectively.
35
Adjusted EBITDA
Adjusted EBITDA, which 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, is a non-GAAP financial measure used by management and our stakeholders to provide useful supplemental information that enables a better comparison of our performance across periods. Adjusted EBITDA is used by management and stakeholders to evaluate our core operating performance. A reconciliation of Adjusted EBITDA to Net Loss is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
(in millions) |
|
2023 |
|
|
2022 |
|
Net Loss |
|
$ |
|
(74 |
) |
|
$ |
|
(13 |
) |
Interest expense |
|
|
|
33 |
|
|
|
|
29 |
|
Income tax expense (benefit) |
|
|
|
(8 |
) |
|
|
|
1 |
|
Depreciation |
|
|
|
24 |
|
|
|
|
17 |
|
Intangible amortization |
|
|
|
80 |
|
|
|
|
79 |
|
EBITDA |
|
|
|
55 |
|
|
|
|
113 |
|
Share-based compensation |
|
|
|
37 |
|
|
|
|
33 |
|
Transaction and integration expenses (1) |
|
|
|
2 |
|
|
|
|
6 |
|
Restructuring |
|
|
|
26 |
|
|
|
|
6 |
|
(Gain) Loss from change in fair value of financial instruments |
|
|
|
25 |
|
|
|
|
(13 |
) |
(Gain) Loss from change in fair value of tax receivable agreement |
|
|
|
8 |
|
|
|
|
(5 |
) |
Other(2) |
|
|
|
1 |
|
|
|
|
2 |
|
Adjusted EBITDA |
|
$ |
|
154 |
|
|
$ |
|
142 |
|
Revenue |
|
$ |
|
831 |
|
|
$ |
|
725 |
|
Adjusted EBITDA Margin(3) |
|
|
|
18.5 |
% |
|
|
|
19.6 |
% |
(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 |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
($ in millions) |
|
2023 |
|
|
2022 |
|
Employer Solutions Revenue |
|
|
|
|
|
|
|
|
Recurring |
|
$ |
|
669 |
|
|
$ |
|
570 |
|
Project |
|
|
|
54 |
|
|
|
|
53 |
|
Total Employer Solutions Revenue |
|
$ |
|
723 |
|
|
$ |
|
623 |
|
Employer Solutions Gross Profit |
|
$ |
|
238 |
|
|
$ |
|
204 |
|
Employer Solutions Gross Profit Margin |
|
|
|
32.9 |
% |
|
|
|
32.7 |
% |
Employer Solutions Adjusted Gross Profit |
|
$ |
|
264 |
|
|
$ |
|
221 |
|
Employer Solutions Adjusted Gross Profit Margin |
|
|
|
36.5 |
% |
|
|
|
35.5 |
% |
Employer Solutions Segment Results of Operations for the Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022
Employer Solutions Revenue
Employer Solutions revenue was $723 million for the three months ended March 31, 2023 as compared to $623 million for the prior year period. The overall increase of $100 million was driven by recurring revenues of $99 million as a result of Net Commercial Activity, project revenue, and volumes as well as the impact from our 2022 acquisition.
36
Employer Solutions Gross Profit and Adjusted Gross Profit
Employer Solutions gross profit was $238 million for the three months ended March 31, 2023 compared to $204 million for the prior year period. The increase of $34 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 growth of current and future revenues. Employer Solutions adjusted gross profit for the three months ended March 31, 2023 increased $43 million to $264 million from $221 million in the prior year period primarily due to productivity initiatives, partially offset by employee compensation and increases in costs associated with growth.
Professional Services Results
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
($ in millions) |
|
2023 |
|
|
2022 |
|
Professional Services Revenue |
|
|
|
|
|
|
|
|
Recurring |
|
$ |
|
33 |
|
|
$ |
|
30 |
|
Project |
|
|
|
65 |
|
|
|
|
60 |
|
Total Professional Services Revenue |
|
$ |
|
98 |
|
|
$ |
|
90 |
|
Professional Services Gross Profit |
|
$ |
|
19 |
|
|
$ |
|
19 |
|
Professional Services Gross Profit Margin |
|
|
|
19.4 |
% |
|
|
|
21.1 |
% |
Professional Services Adjusted Gross Profit |
|
$ |
|
20 |
|
|
$ |
|
19 |
|
Professional Services Adjusted Gross Profit Margin |
|
|
|
20.4 |
% |
|
|
|
21.1 |
% |
Professional Services Segment Results of Operations for the Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022
Professional Services Revenue
Professional Services revenue was $98 million for the three months ended March 31, 2023 as compared to $90 million for the prior year period. The increase of $8 million was due to an increase in recurring revenue and project revenue of $3 million and $5 million, respectively.
Professional Services Gross Profit and Adjusted Gross Profit
Professional Services gross profit remained flat at $19 million for both periods. Adjusted gross profit increased $1 million to $20 million for the three months ended March 31, 2023.
Gross Profit to Adjusted Gross Profit Reconciliation by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2023 |
|
($ in millions) |
|
Employer Solutions |
|
Professional Services |
|
Other |
|
Total |
|
Gross Profit |
|
$ |
238 |
|
$ |
19 |
|
$ |
- |
|
$ |
257 |
|
Add: stock-based compensation |
|
|
8 |
|
|
1 |
|
|
- |
|
|
9 |
|
Add: depreciation and amortization |
|
|
18 |
|
|
- |
|
|
1 |
|
|
19 |
|
Adjusted Gross Profit |
|
$ |
264 |
|
$ |
20 |
|
$ |
1 |
|
$ |
285 |
|
Gross Profit Margin |
|
|
32.9 |
% |
|
19.4 |
% |
|
0.0 |
% |
|
30.9 |
% |
Adjusted Gross Profit Margin |
|
|
36.5 |
% |
|
20.4 |
% |
|
10.0 |
% |
|
34.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2022 |
|
($ in millions) |
|
Employer Solutions |
|
Professional Services |
|
Other |
|
Total |
|
Gross Profit |
|
$ |
204 |
|
$ |
19 |
|
$ |
- |
|
$ |
223 |
|
Add: stock-based compensation |
|
|
7 |
|
|
- |
|
|
- |
|
|
7 |
|
Add: depreciation and amortization |
|
|
10 |
|
|
- |
|
|
1 |
|
|
11 |
|
Adjusted Gross Profit |
|
$ |
221 |
|
$ |
19 |
|
$ |
1 |
|
$ |
241 |
|
Gross Profit Margin |
|
|
32.7 |
% |
|
21.1 |
% |
|
0.0 |
% |
|
30.8 |
% |
Adjusted Gross Profit Margin |
|
|
35.5 |
% |
|
21.1 |
% |
|
8.3 |
% |
|
33.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
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 March 31, 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 March 31, 2023, approximately $78 million remained available for share repurchases under our share repurchase program.
Cash on our balance sheet includes funds available for general corporate purposes. Funds held on behalf of clients in a fiduciary capacity are segregated and shown in Fiduciary assets on the Condensed Consolidated Balance Sheets as of March 31, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
|
March 31, |
|
March 31, |
|
(in millions) |
|
2023 |
|
2022 |
|
Cash provided by operating activities |
|
$ |
|
72 |
|
$ |
|
19 |
|
Cash used in investing activities |
|
|
|
(45 |
) |
|
|
(41 |
) |
Cash provided by (used in) financing activities |
|
|
|
(160 |
) |
|
|
305 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
|
— |
|
|
|
(2 |
) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
|
(133 |
) |
|
|
281 |
|
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
1,626 |
|
$ |
|
1,933 |
|
Operating Activities
Net cash provided by operating activities was $72 million for the three months ended March 31, 2023 compared to $19 million for the three months ended March 31, 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 $4 million to $45 million for the three months ended March 31, 2023 from $41 million for the prior year period, driven by capital expenditures.
Financing Activities
Cash used for financing activities for the three months ended March 31, 2023 was $160 million as compared to cash provided by financing activities of $305 million in the prior year. The primary drivers of cash used for financing activities were due to a $121 million net decrease in fiduciary liabilities, $10 million of share repurchases, $7 million of finance lease payments, $7 million of tax receivable agreement payments, $6 million of debt repayments, $6 million of shares/units withheld in lieu of taxes and $3 million of deferred consideration payments. 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 March 31, 2023, our cash and cash equivalents were $239 million, a decrease of $11 million from December 31, 2022. Of the total balances of cash and cash equivalents as of March 31, 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
38
historically been immaterial. In our Consolidated Balance Sheets, the amount we report for Fiduciary assets and Fiduciary liabilities are equal. Our Fiduciary assets included cash of $1,387 million and $1,509 million at March 31, 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 three months ended March 31, 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 March 31, 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 three months ended March 31, 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.