Alight, Inc. / Delaware (ALIT) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This discussion includes forward-looking statements. See ‘Disclaimer Regarding Forward-Looking Statements’ for certain cautionary information regarding forward-looking statements and ‘Risk Factors’ in Item 1A. of this Annual Report for a list of factors that could cause actual results to differ materially from those predicted in those statements.
This discussion includes references to non-GAAP financial measures as defined in the rules of the SEC. We present such non-GAAP financial measures as we believe such information is of interest to the investment community because it provides additional meaningful methods of evaluating certain aspects of the Company’s operating performance from period to period on a basis that may not be otherwise apparent under U.S. generally accepted accounting principles (“U.S. GAAP”), and these provide a measure against which our businesses may be assessed in the future. Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited. These financial measures should be viewed in addition to, not in lieu of, the consolidated financial statements for the year ended December 31, 2024. See ‘Non-GAAP Financial Measures’ below for further discussion.
BUSINESS
Overview
Alight is a technology-enabled services company delivering human capital management solutions to many of the world’s largest and most complex organizations. This includes the implementation and administration of employee benefits (e.g. health, wealth and leaves benefits) solutions. Alight’s numerous solutions and services are utilized year-round by employees and their family members in support of their overall health, wealth and wellbeing goals. Participants can access their solutions digitally, including through a mobile application on Alight Worklife®, our intuitive, cloud-based employee engagement platform. Through Alight Worklife, the Company believes it is defining the future of employee benefits by providing an enterprise level, integrated offering designed to drive better outcomes for organizations and individuals.
We aim to be the pre-eminent employee experience partner by providing personalized experiences that help employees make the best decisions for themselves and their families about their health, wealth and wellbeing. At the same time, we help employers tackle their biggest people and business challenges by helping them understand prevalence, trends and risks to generate better outcomes for the future, such as improved employee productivity and retention, while also realizing a return on their people investment. Our data, analytics and AI allow us to deliver actionable insights that drive measurable outcomes, such as healthcare claims savings, for companies and their people.
Business Combination
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 December 31, 2024, Alight owned approximately 99% of the economic interest in the Predecessor, had 100% of the voting power and controlled the management of the Predecessor. The non-voting ownership percentage held by noncontrolling interest was less than 1% as of December 31, 2024.
Divestiture
On July 12, 2024, the Company, completed the previously announced sale (the “Transaction”) of the “Divested Business” entities affiliated with H.I.G. Capital, L.L.C. (collectively, “Buyer”), pursuant to the terms of the Stock and Asset Purchase Agreement (the “Purchase Agreement”), dated as of March 20, 2024. Under the terms of the Purchase Agreement, the Buyer agreed to acquire the Divested Business for total consideration of up to $1.2 billion, in the form of (1) $1.0 billion in cash (the “Closing Cash Consideration”) payable at the closing of the transactions (the “Closing”) contemplated by the Purchase Agreement, (2) a note with an aggregate principal amount of $50 million, and an initial fair value of $35 million as of July 12, 2024 issued at Closing (the “Seller Note”) by an indirect parent of Buyer (the “Note Issuer”) and (3) contingent upon the financial performance of the Divested Business for the 2025 fiscal year, a note with an aggregate principal amount of up to $150 million (the “Additional Seller Note”) and an initial fair value of $43 million as of July 12, 2024 to be issued by the Note Issuer. The Seller Note has a stated interest rate of 8.0%. The Company incurred higher operating expenses in 2024 as a result of professional fees paid in conjunction with the Transaction.
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EXECUTIVE SUMMARY OF FINANCIAL RESULTS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Alight. This MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements (Part II, Item 8 of this Form 10-K). This section generally discusses the results of our operations for the year ended December 31, 2024 compared to the year ended December 31, 2023. For a discussion of the year ended December 31, 2023 compared to the year ended December 31, 2022, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024, noting the results for the year ended December 31, 2023 and year ended December 31, 2022 have since been recast in this Form 10-K.
The following table sets forth our historical results of operations for the periods indicated below:
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | 2024 | 2023 | 2022 | |||||||||||
| Revenue | $ | 2,332 | $ | 2,386 | $ | 2,207 | ||||||||
| Cost of services, exclusive of depreciation and amortization | 1,442 | 1,504 | 1,472 | |||||||||||
| Depreciation and amortization | 96 | 72 | 49 | |||||||||||
| Gross Profit | 794 | 810 | 686 | |||||||||||
| Operating Expenses | ||||||||||||||
| Selling, general and administrative | 585 | 590 | 479 | |||||||||||
| Depreciation and intangible amortization | 299 | 301 | 301 | |||||||||||
| Total Operating expenses | 884 | 891 | 780 | |||||||||||
| Operating Income (Loss) From Continuing Operations | (90) | (81) | (94) | |||||||||||
| Other (Income) Expense | ||||||||||||||
| (Gain) Loss from change in fair value of financial instruments | (57) | 10 | (38) | |||||||||||
| (Gain) Loss from change in fair value of tax receivable agreement | 34 | 118 | (41) | |||||||||||
| Interest expense | 103 | 131 | 121 | |||||||||||
| Other (income) expense, net | (22) | (3) | (12) | |||||||||||
| Total Other (income) expense, net | 58 | 256 | 30 | |||||||||||
| Income (Loss) From Continuing Operations Before Taxes | (148) | (337) | (124) | |||||||||||
| Income tax expense (benefit) | (8) | (20) | 16 | |||||||||||
| Net Income (Loss) From Continuing Operations | (140) | (317) | (140) | |||||||||||
| Net Income (Loss) From Discontinued Operations, Net of Tax | (19) | (45) | 68 | |||||||||||
| Net Income (Loss) | (159) | (362) | (72) | |||||||||||
| Net income (loss) attributable to noncontrolling interests | (2) | (17) | (10) | |||||||||||
| Net Income (Loss) Attributable to Alight, Inc. | $ | (157) | $ | (345) | $ | (62) |
REVIEW OF RESULTS
Key Components of Our Continuing Operations
Revenue
Our clients’ demand for our services ultimately drives our revenues. We generate primarily all of our revenue, which is highly recurring, from fees for services provided from contracts across all solutions, which is primarily based on a contracted fee charged per participant per period (e.g., monthly or annually, as applicable). Our contracts typically have three to five-year terms for ongoing services with mutual renewal options. The majority of the Company’s revenue is recognized over time when control of the promised services is transferred, and the customers simultaneously receive and consume the benefits of our services. Payment terms are consistent with industry practice. We calculate growth rates for each of our solutions in relation to recurring revenues and revenues from project work. One of the components of our growth in recurring revenues is the increase in net commercial activity which reflects items such as client wins and losses (“Net Commercial Activity”). We define client wins as sales to new clients and sales of new solutions to existing clients. We define client losses as instances where clients do not renew or terminate their arrangements in relation to individual
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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. We use annual revenue retention rates as an important measure to manage our business. We calculate annual revenue retention on a gross basis by identifying the clients from whom we generated revenue in the prior year and determining what percentage of that revenue is generated from those same clients for the same solutions in the subsequent year.
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.
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 and the Additional Seller Note.
(Gain) Loss from Change in Fair Value of Tax Receivable Agreement
(Gain) loss from change in fair value of Tax Receivable Agreement ("TRA") includes the impact of the revaluation to fair value at the end of each reporting period.
Interest Expense
Interest expense primarily includes interest expense related to our outstanding debt.
Other (Income) Expense, net
Other (income) expense, net includes non-operating expenses and income, including realized (gains) and losses from remeasurement of foreign currency transactions, and Transition Services Agreement (the "TSA") income for providing various corporate services to the Divested Business.
Results of Continuing Operations for the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
Revenue
Revenues were $2,332 million for the year ended December 31, 2024 as compared to $2,386 million for the prior year period. The decrease of $54 million, or 2.3%, was driven by lower volumes, Net Commercial Activity, project revenue and the wind-down of our Hosted business operations. We experienced short term impacts in the first half of 2024 when compared to the prior year period as a result of large deal go-live timing and softness in BPaaS bookings in the first half of 2023. We also measure revenue growth as it relates to our cloud-based products and solutions that are central to our Alight Worklife® platform and our next generation product suite, BPaaS Solutions. For the year ended December 31, 2024, we recorded BPaaS revenue of $499 million, which represented growth of 15.0% compared to the prior year period.
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Recurring revenues for the year ended December 31, 2024 decreased by $32 million, or 1.5%, from $2,167 million in the prior year period to $2,135 million and were primarily driven by lower volumes and Net Commercial Activity.
Cost of Services, exclusive of Depreciation and Amortization
Cost of services, exclusive of depreciation and amortization, decreased $62 million, or 4.1%, for the year ended December 31, 2024 as compared to the prior year period. The decrease was primarily driven by lower revenues and, lower compensation and benefits expenses, primarily stock-based compensation and savings realized in conjunction with productivity initiatives.
Depreciation and Amortization
Depreciation and amortization expenses increased by $24 million, or 33.3%, as compared to the prior year period, primarily driven by capitalized software.
Selling, General and Administrative
Selling, general and administrative expenses decreased $5 million, or 0.8%, for the year ended December 31, 2024 as compared to the prior year period. The decrease was driven by lower compensation expenses primarily related to share-based awards and lower costs incurred from our restructuring program, partially offset by higher professional fees related to the sale and separation of our Payroll and Professional Services businesses.
Depreciation and Intangible Amortization
Depreciation and intangible amortization expenses decreased by $2 million, or 0.7%, and was consistent compared to the prior year period.
Change in Fair Value of Financial Instruments
There was a $57 million gain related to the change in the fair value of financial instruments for the year ended December 31, 2024 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 primarily due to changes in the underlying assumptions of each respective instrument, including changes in the risk-free interest rate, volatility, cost of debt, forecasts, and the closing stock price for the period and are primarily related to the Seller Earnout and Additional Seller Note. See Note 14 "Financial Instruments" within the Consolidated Financial Statements within Item 8 of this Annual Report 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 $34 million for the year ended December 31, 2024, a decrease of $84 million compared to a loss of $118 million for the prior year period. The change in fair value was due to the conversion of non-controlling interests during the year ended December 31, 2024, changes in the Company's assumptions related to the timing of the utilization of tax attributes during the term of the TRA, changes in the discount rate and the passage of time.
Interest Expense
Interest expense decreased $28 million for the year ended December 31, 2024 as compared to the prior year period. The decrease was primarily due to the partial repayment of debt during the year, the opportunistic repricing of our 2028 term loan and higher interest income, partially offset by the Company's hedges. See Note 8 “Debt” for additional information.
Other (Income) Expense, net
Under the terms of the TSA as described in Note 4 "Discontinued Operations", the Company is providing technology infrastructure, risk and security, and various other corporate services to the Divested Business subsequent to the close. We recorded $19 million for services performed under the TSA for the year ended December 31, 2024 in Other (income) expense, net, and the corresponding expenses were recognized in Cost of services and Selling, general and administrative expense in the consolidated statement of comprehensive income (loss).
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Income (Loss) From Continuing Operations Before Taxes
Loss from continuing operations before taxes was $148 million for the year ended December 31, 2024 as compared to loss from continuing operations before taxes of $337 million for the year ended December 31, 2023. The decrease in loss was primarily attributable to lower interest expense as a result of the partial debt repayment and other income recorded in conjunction with the TSA and the non-operating fair value remeasurements of financial instruments and the TRA.
Income Tax Expense (Benefit)
Income tax benefit was $8 million for the year ended December 31, 2024, as compared to an income tax benefit of $20 million for the prior year period. The effective tax rate of 5% for the year ended December 31, 2024 was lower than the 21% U.S. statutory corporate income tax rate primarily due to the Company’s non-deductible expenses, tax credits, and changes in valuation allowance. The effective tax rate of 6% for the year ended December 31, 2023 was lower than the 21% U.S. statutory corporate income tax rate primarily due to the Company’s non-deductible expenses, tax credits, and changes in valuation allowance. See Note 7 “Income Taxes” within the Consolidated Financial Statements within Item 8 of this Annual Report for additional information.
Results of Continuing Operations for the Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022
Revenue
Revenues were $2,386 million for the year ended December 31, 2023 as compared to $2,207 million for the prior year period. The increase of $179 million reflects growth of 8.1%. 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 year ended December 31, 2023, we recorded BPaaS revenue of $434 million, which represented growth of 44.7% compared to the prior year period.
Recurring revenues for the year ended December 31, 2023 increased by $164 million, or 8.2%, from $2,003 million in the prior year period to $2,167 million and is a result of higher revenues related to Net Commercial Activity and our 2022 acquisition, partially offset by lower volumes.
Cost of Services, exclusive of Depreciation and Amortization
Cost of services, exclusive of depreciation and amortization, increased $32 million, or 2.2%, for the year ended December 31, 2023 as compared to the prior year period. The increase was primarily driven by growth in revenues, including investments in key resources and as a result of our 2022 acquisition, partially offset by productivity initiatives.
Selling, General and Administrative
Selling, general and administrative expenses increased $111 million, or 23.2%, for the year ended December 31, 2023 as compared to the prior year period. The increase was primarily driven by the inclusion of expenses from our 2022 acquisition and costs incurred from our previously announced restructuring program, partially offset by lower compensation expenses related to share-based awards.
Depreciation and Intangible Amortization
Depreciation and intangible amortization expenses remained consistent when comparing the year ended December 31, 2023 to the prior year period.
Change in Fair Value of Financial Instruments
There was a loss of $10 million related to the change in the fair value of financial instruments for the year ended December 31, 2023 compared to a gain of $38 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, forecasts, 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 $118 million for the year ended December 31, 2023, compared to a gain of $41 million for the prior year period. This revaluation loss was due to changes in the discount rate,
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passage of time, and changes in the expected 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 $10 million for the year ended December 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” within the Consolidated Financial Statements within Item 8 of this Annual Report for additional information.
Income (Loss) From Continuing Operations Before Taxes
Loss from continuing operations before taxes was $337 million for the year ended December 31, 2023 as compared to loss from continuing operations before taxes of $124 million for the year ended December 31, 2022. The increase in loss from continuing operations before taxes was primarily due to non-operating fair value remeasurements associated with financial instruments and the TRA.
Income Tax Expense (Benefit)
Income tax benefit was $20 million for the year ended December 31, 2023, as compared to an income tax expense of $16 million for the prior year period. The effective tax rate of 6% for the year ended December 31, 2023 was lower than the 21% U.S. statutory corporate income tax rate primarily due to the Company’s non-deductible expenses, tax credits, and changes in valuation allowance. The effective tax rate of 13% for the year ended December 31, 2022 was lower than the 21% U.S. statutory corporate income tax rate primarily due to the Company’s non-deductible expenses, tax credits, and changes in valuation allowance. See Note 7 “Income Taxes” within the Consolidated Financial Statements within Item 8 of this Annual Report 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 From Continuing Operations and Adjusted Diluted Earnings Per Share From Continuing Operations
Adjusted Net Income From Continuing Operations, which is defined as net income (loss) from continuing operations attributable to Alight, Inc., adjusted for intangible amortization and the impact of certain non-cash items that we
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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 From Continuing Operations.
Adjusted Diluted Earnings Per Share From Continuing Operations is defined as Adjusted Net Income From Continuing Operations divided by the adjusted weighted-average number of shares of common stock, diluted. The adjusted weighted shares calculation assumes the full exchange of the non-controlling interest units and the full amount of non-vested time-based restricted units that were determined to be antidilutive and therefore excluded from the U.S. GAAP diluted earnings per share. Adjusted Diluted Earnings Per Share From Continuing Operations, including the adjusted weighted-average number of shares, is used by us and our investors to evaluate our core operating performance and to benchmark our operating performance against our competitors.
A reconciliation of Adjusted Net Income (Loss) From Continuing Operations and the computation of Adjusted Diluted Earnings Per Share From Continuing Operations is as follows:
| Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in millions, except share and per share amounts) | 2024 | 2023 | 2022 | |||||||
| Numerator: | ||||||||||
| Net Income (Loss) From Continuing Operations Attributable to Alight, Inc. (1) | $ | (138) | $ | (300) | $ | (130) | ||||
| Conversion of noncontrolling interest | (2) | (17) | (10) | |||||||
| Intangible amortization | 280 | 281 | 278 | |||||||
| Share-based compensation | 76 | 139 | 164 | |||||||
| Transaction and integration expenses (2) | 82 | 29 | 19 | |||||||
| Restructuring | 63 | 73 | 46 | |||||||
| (Gain) Loss from change in fair value of financial instruments | (57) | 10 | (38) | |||||||
| (Gain) Loss from change in fair value of tax receivable agreement | 34 | 118 | (41) | |||||||
| Other | 8 | 1 | (1) | |||||||
| Tax effect of adjustments (3) | (85) | (100) | (109) | |||||||
| Adjusted Net Income From Continuing Operations | $ | 261 | $ | 234 | $ | 178 | ||||
| Denominator: | ||||||||||
| Weighted average shares outstanding - basic | 539,861,208 | 489,461,259 | 458,558,192 | |||||||
| Dilutive effect of the exchange of noncontrolling interest units | 510,237 | — | — | |||||||
| Dilutive effect of RSUs | — | — | — | |||||||
| Weighted average shares outstanding - diluted | 540,371,445 | 489,461,259 | 458,558,192 | |||||||
| Exchange of noncontrolling interest units(4) | 518,412 | 44,569,341 | 74,665,373 | |||||||
| Impact of unvested RSUs(5) | 7,325,106 | 10,080,390 | 7,624,817 | |||||||
| Adjusted shares of Class A Common Stock outstanding - diluted(6)(7) | 548,214,963 | 544,110,990 | 540,848,382 | |||||||
| Basic (Net Loss) Earnings Per Share From Continuing Operations | $ | (0.25) | $ | (0.61) | $ | (0.28) | ||||
| Diluted (Net Loss) Earnings Per Share From Continuing Operations | $ | (0.25) | $ | (0.61) | $ | (0.28) | ||||
| Adjusted Diluted Earnings Per Share From Continuing Operations | $ | 0.48 | $ | 0.43 | $ | 0.33 |
__________________________________________________________
(1)Excludes the impact of discontinued operations. Comparable periods have been recast to exclude these impacts.
(2)Transaction and integration expenses primarily relate to acquisitions and divestiture activities.
(3)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.
(4)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.
(5)Includes non-vested time-based restricted stock units that were determined to be antidilutive for U.S. GAAP diluted earnings per share purposes.
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(6)Excludes two tranches of contingently issuable seller earnout shares: (i) 7.5 million shares will be issued if the Company's Class A Common Stock's volume-weighted average price ("VWAP") is $12.50 for any 20 trading days within a consecutive period of 30 trading days; (ii) 7.5 million shares will be issued if the Company's Class A Common Stock VWAP is $15.00 for any 20 trading days within a consecutive period of 30 trading days. Both tranches have a seven-year duration.
(7)Excludes approximately 10.9 million and 27.4 million performance-based units, which represents the gross number of shares expected to vest based on achievement of the respective performance conditions as of December 31, 2024 and 2023, respectively.
Adjusted EBITDA From Continuing Operations and Adjusted EBITDA Margin From Continuing Operations
Adjusted EBITDA From Continuing Operations is defined as earnings before interest, taxes, depreciation and intangible amortization adjusted for the impact of certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance. Adjusted EBITDA Margin From Continuing Operations is defined as Adjusted EBITDA From Continuing Operations divided by revenue. Adjusted EBITDA and Adjusted EBITDA Margin From Continuing Operations are non-GAAP financial measures used by management and our stakeholders to provide useful supplemental information that enables a better comparison of our performance across periods as well as to evaluate our core operating performance. A reconciliation of Adjusted EBITDA From Continuing Operations to Net Income (Loss) From Continuing Operations is as follows:
| Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | 2024 | 2023 | 2022 | |||||||
| Net Income (Loss) From Continuing Operations (1) | $ | (140) | $ | (317) | $ | (140) | ||||
| Interest expense | 103 | 131 | 121 | |||||||
| Income tax expense (benefit) | (8) | (20) | 16 | |||||||
| Depreciation | 115 | 92 | 72 | |||||||
| Intangible amortization | 280 | 281 | 278 | |||||||
| EBITDA From Continuing Operations | 350 | 167 | 347 | |||||||
| Share-based compensation | 76 | 139 | 164 | |||||||
| Transaction and integration expenses (2) | 82 | 29 | 19 | |||||||
| Restructuring | 63 | 73 | 46 | |||||||
| (Gain) Loss from change in fair value of financial instruments | (57) | 10 | (38) | |||||||
| (Gain) Loss from change in fair value of tax receivable agreement | 34 | 118 | (41) | |||||||
| Other | 8 | 1 | (1) | |||||||
| Adjusted EBITDA From Continuing Operations | $ | 556 | $ | 537 | $ | 496 | ||||
| Revenue | $ | 2,332 | $ | 2,386 | $ | 2,207 | ||||
| Adjusted EBITDA Margin From Continuing Operations (3) | 23.8 | % | 22.5 | % | 22.5 | % |
(1)Adjusted EBITDA excludes the impact of discontinued operations. Comparable periods have been recast to exclude these impacts.
(2)Transaction and integration expenses primarily relate to acquisition and divestiture activities.
(3)Adjusted EBITDA Margin From Continuing Operations is defined as Adjusted EBITDA From Continuing Operations as a percentage of revenue.
Revenue Disaggregation and 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.
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Employer Solutions Results
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in millions) | 2024 | 2023 | 2022 | |||||||||||
| Employer Solutions Revenue | ||||||||||||||
| Recurring | $ | 2,135 | $ | 2,141 | $ | 1,960 | ||||||||
| Project | 197 | 219 | 204 | |||||||||||
| Total Employer Solutions Revenue | $ | 2,332 | $ | 2,360 | $ | 2,164 | ||||||||
| Employer Solutions Gross Profit | $ | 794 | $ | 812 | $ | 687 | ||||||||
| Employer Solutions Gross Profit Margin | 34.0 | % | 34.4 | % | 31.7 | % | ||||||||
| Employer Solutions Adjusted Gross Profit | $ | 904 | $ | 912 | $ | 768 | ||||||||
| Employer Solutions Adjusted Gross Profit Margin | 38.8 | % | 38.6 | % | 35.5 | % |
Employer Solutions Results of Operations for the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
Employer Solutions Revenue
Employer Solutions revenue was $2,332 million for the year ended December 31, 2024 as compared to $2,360 million for the prior year period. The overall decrease of $28 million was primarily driven by decreases in recurring revenues from lower volumes, Net Commercial Activity and project revenue. We experienced annual revenue retention rates of 95% and 97% in 2024 and 2023, respectively.
Employer Solutions Gross Profit and Adjusted Gross Profit
Employer Solutions gross profit was $794 million for the year ended December 31, 2024 compared to $812 million for the prior year period. The decrease of $18 million was driven by a decrease in revenue and increases in costs associated with funding growth of current and future revenues, partially offset by lower expenses related to productivity initiatives. Employer Solutions adjusted gross profit for the year ended December 31, 2024 decreased $8 million to $904 million from $912 million in the prior year period, primarily driven by a decrease in revenue and increases in costs associated with funding growth of current and future revenues, partially offset by lower expenses related to productivity initiatives.
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Gross Profit to Adjusted Gross Profit Reconciliation
| Year Ended December 31, 2024 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | Employer Solutions | Other | Total | |||||||
| Gross Profit | $ | 794 | $ | — | $ | 794 | ||||
| Add: stock-based compensation | 14 | — | 14 | |||||||
| Add: depreciation and amortization | 96 | — | 96 | |||||||
| Adjusted Gross Profit | $ | 904 | $ | — | $ | 904 | ||||
| Gross Profit Margin | 34.0 | % | — | % | 34.0 | % | ||||
| Adjusted Gross Profit Margin | 38.8 | % | — | % | 38.8 | % | ||||
| Year Ended December 31, 2023 | ||||||||||
| (in millions) | Employer Solutions | Other | Total | |||||||
| Gross Profit | $ | 812 | $ | (2) | $ | 810 | ||||
| Add: stock-based compensation | 30 | — | 30 | |||||||
| Add: depreciation and amortization | 70 | 2 | 72 | |||||||
| Adjusted Gross Profit | $ | 912 | $ | — | $ | 912 | ||||
| Gross Profit Margin | 34.4 | % | (7.7) | % | 33.9 | % | ||||
| Adjusted Gross Profit Margin | 38.6 | % | — | % | 38.2 | % | ||||
| Year Ended December 31, 2022 | ||||||||||
| (in millions) | Employer Solutions | Other | Total | |||||||
| Gross Profit | $ | 687 | $ | (1) | $ | 686 | ||||
| Add: stock-based compensation | 34 | — | 34 | |||||||
| Add: depreciation and amortization | 47 | 2 | 49 | |||||||
| Adjusted Gross Profit | $ | 768 | $ | 1 | $ | 769 | ||||
| Gross Profit Margin | 31.7 | % | (2.3) | % | 31.1 | % | ||||
| Adjusted Gross Profit Margin | 35.5 | % | 2.3 | % | 34.8 | % |
LIQUIDITY AND CAPITAL RESOURCES
Executive Summary
Our primary sources of liquidity include our existing cash and cash equivalents, cash flows from operations and availability under our revolving credit facility. Our primary uses of liquidity are operating expenses, funding of our debt requirements and capital expenditures.
We believe that our available cash and cash equivalents, cash flows from operations and availability under our revolving credit facility will be sufficient to meet our liquidity needs, including principal and interest payments on debt obligations, capital expenditures, anticipated quarterly dividend payments, payments on our TRA and anticipated working capital requirements for the foreseeable future. We believe our liquidity position at December 31, 2024 remained strong. We will continue to closely monitor and proactively manage our liquidity position in consideration of the evolving economic outlook and changing interest rate environment.
Indebtedness
In July 2024, we paid down $440 million of the Sixth Incremental Term Loans balance and we fully repaid the principal balance of $300 million Secured Senior Notes with proceeds from the Transaction. We used the remainder of after-tax cash proceeds to return capital and for general corporate purposes, including reinvestment into growth opportunities.
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In January 2025, the Company entered into Amendment No. 11 to Credit Agreement with a syndicate of lenders to establish a new class of Seventh Incremental Term Loans with an aggregate principal amount of $2,030 million and to reprice the outstanding Sixth Incremental Term Loans due August 31, 2028 by reducing the applicable rate from SOFR + 2.25% to SOFR + 1.75%.
Share Repurchases
In August 2022, we established a repurchase program allowing for authorized share repurchases. In March 2024, the Company’s Board of Directors authorized the repurchase of up to an additional $200 million of the Company’s Class A Common Stock.
On June 18, 2024, the Company announced that it entered into an accelerated share repurchase agreement (the "ASR") with Barclays Bank PLC (the "ASR counterparty") to repurchase $75 million of Alight's Class A Common Stock, as part of the Company's existing share repurchase program. On July 16, 2024, the Company made an initial payment of $75 million to the ASR counterparty and received an initial delivery of shares equal in value to 80% of the prepayment amount of $75 million, based on Alight’s closing share price as of the effective date of July 15, 2024. The final number of shares repurchased was based on the volume-weighted average price of Alight's Class A Common Stock during the term of the transaction, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR. The ASR was settled on September 23, 2024, resulting in an additional delivery of 2,400,041 shares of Alight's Class A Common Stock.
During the three months ended September 30, 2024, the Company repurchased 10,563,306 shares of Alight's Class A Common Stock in aggregate for $75 million as part of the ASR.
During the year ended December 31, 2024, there were 22,327,717 Class A Common Stock shares repurchased under the Program inclusive of shares repurchased under the ASR discussed above. As of December 31, 2024, the total remaining amount authorized for repurchase was $81 million.
On February 13, 2025, the Company’s Board of Directors authorized the repurchase of up to an additional $200 million of the Company’s Class A common stock, providing a total amount authorized for repurchase of $281 million after giving effect to the increase. Repurchases may be conducted through open market purchases or privately negotiated transactions in compliance with Rule 10b-18 under the Exchange Act, including pursuant to Rule 10b5-1 trading plans. The actual timing and amount of future repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors. The stock repurchase program does not obligate Alight to acquire any amount of common stock, and the program may be suspended or terminated at any time by Alight at its discretion without prior notice.
Quarterly Dividend Program
On November 12, 2024, the Company announced that its Board of Directors approved a new quarterly dividend program, declaring a regular cash dividend of $0.04 per share of Class A Common Stock, payable on December 16, 2024 to shareholders of record at the close of business on December 2, 2024. The dividend resulted in aggregate payments of approximately $21 million during the year ended December 31, 2024. While the Company intends to continue paying regular cash dividends on a quarterly basis, any decision to declare and pay dividends in the future will be made at the sole discretion of our Board of Directors, whose decision will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our Board of Directors may deem relevant.
On February 13, 2025, the Company announced that its Board of Directors approved the payment of a quarterly dividend in the amount of $0.04 per share of Class A Common Stock on March 17, 2025, to shareholders of record as of the close of business on March 3, 2025.
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 Consolidated Balance Sheets as of December 31, 2024 and December 31, 2023, with a corresponding amount in Fiduciary liabilities. Fiduciary funds are not used for general corporate purposes and are not a source of liquidity for us.
The following table provides a summary of cash flows from continuing operating, investing, and financing activities for the periods presented.
| Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | 2024 | 2023 | 2022 | |||||||
| Cash provided by operating activities - continuing operations | $ | 193 | $ | 247 | $ | 238 | ||||
| Cash provided by (used in) investing activities - continuing operations | 847 | (139) | (218) | |||||||
| Cash used for financing activities - continuing operations | (1,096) | (144) | (184) |
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Operating Activities
Net cash provided by operating activities was $193 million for the year ended December 31, 2024 compared to $247 million for the year ended December 31, 2023. The decrease in cash provided by operating activities was primarily due to increased expenses related to the sale of the Payroll and Professional Services business.
Investing Activities
Cash provided by investing activities was $847 million for the year ended December 31, 2024 from cash used in investing activities of $139 million for the prior year period. The increase in cash provided by investing activities was primarily driven by net proceeds from the sale of the Divested Business, and a decrease in capital expenditures.
Financing Activities
Cash used in financing activities for the year ended December 31, 2024 was $1,096 million as compared to cash used in financing activities of $144 million in the prior year. The primary drivers of cash used for financing activities were $765 million of debt repayments, $167 million of share repurchases, $62 million of TRA payments, $59 million of shares/units withheld in lieu of taxes, $27 million of finance lease payments, and dividend payments of $21 million, partially offset by a $5 million net increase in fiduciary liabilities. The increase in fiduciary cash was primarily due to timing of client funding and subsequent disbursement of payments.
Cash, Cash Equivalents and Fiduciary Assets
At December 31, 2024, our continuing operations cash and cash equivalents were $343 million, an increase of $19 million from December 31, 2023. Of the total balances of cash and cash equivalents as of December 31, 2024 and December 31, 2023, none of the balances were restricted as to use.
Some of our client agreements require us to hold funds on behalf of clients to pay obligations on their behalf. The levels of Fiduciary assets and liabilities can fluctuate significantly, depending on when we collect the amounts from clients and make payments on their behalf. Such funds are not available to service our debt or for other corporate purposes. There is typically a short period of time between when the Company receives funds and when it pays obligations on behalf of clients. We are entitled to retain investment income earned on fiduciary funds, when investment strategies are deployed, in accordance with industry custom and practice, which has historically been immaterial. In our Consolidated Balance Sheets, the amount we report for Fiduciary assets and Fiduciary liabilities are equal. Our continuing operations Fiduciary assets included cash of $239 million and $234 million at December 31, 2024 and December 31, 2023, respectively.
Other Liquidity Matters
Our cash flows from operations, borrowing availability and overall liquidity are subject to risks and uncertainties. For further information, see the “Risk Factors” section within Item 1A of this 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 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. For the year ended December 31, 2024, we paid $62 million related to the TRA. As of December 31, 2024, we expect to make payments of approximately $100 million in 2025 and payments in the range of $175 million to $200 million in 2026.
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Contractual Obligations and Commitments
In March 2024, the Company entered into an agreement with a third-party provider in the ordinary course of business for the use of certain cloud services. Under this agreement, the Company is committed to purchase services totaling $286 million over a five years term.
For the year ended December 31, 2024, the Company had various obligations and commitments outstanding including debt of $2,025 million, operating leases of $73 million, finance leases of $58 million and purchase obligations of $286 million. Over the twelve months ending December 31, 2025, we expect to pay $25 million, $18 million, $16 million and $72 million for our debt, operating leases, finance leases and purchase obligations, respectively. For further information of each these obligations, refer to the Consolidated Financial Statements within Item 8 of this Annual Report, Note 8 “Debt”, Note 19 “Lease Obligations” and Note 20 “Commitments and Contingencies” within the Consolidated Financial Statements within Item 8 of this Annual Report.
During 2018, the Company executed an agreement to form a strategic partnership with Wipro, a leading global information technology, consulting and business process services company, through 2028. As of December 31, 2024, the non-cancellable services obligation totaled $664 million, with $162 million expected to be paid over the twelve months ending December 31, 2025. We may terminate our arrangement with Wipro with cause or for our convenience. In the case of a termination for convenience, we would be required to pay a termination fee. If we had terminated the Wipro arrangement on December 31, 2024, we estimate that the termination charges would have been approximately $235 million.
Critical Accounting Estimates
These consolidated financial statements conform to U.S. GAAP, which 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 revenue and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. The areas that we believe include critical accounting policies are revenue recognition, goodwill and accounting for the TRA. The critical accounting policies discussed below involve making difficult, subjective or complex accounting estimates that could have a material effect on our financial condition and results of operations. Different estimates that we could have used, or changes in estimates that are reasonably likely to occur, may have a material effect on our results of operations and financial condition.
Revenue Recognition
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. Substantially all of the Company’s revenue is recognized over time as the customer simultaneously receives and consumes the benefits of our services. On occasion, we may be entitled to a fee based on achieving certain performance criteria or contract milestones. Any taxes assessed on revenues relating to services provided to our clients are recorded on a net basis.
The Company capitalizes incremental costs to obtain and fulfill contracts with a customer that are expected to be recovered. Assets recognized for the costs to fulfill a contract are amortized on a systematic basis over the expected life of the underlying customer relationships. For further discussion, see Note 3 “Revenue from Contracts with Customers” within the Consolidated Financial Statements.
Tax Receivable Agreement
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). We record additional liabilities under the TRA as and when Class A units of Alight Holdings are exchanged for Class A Common Stock of Alight, Inc. Liabilities resulting from these exchanges are recorded on a gross undiscounted basis and are not remeasured at fair value. During the year ended December 31, 2024, an additional TRA liability of $90 million was established as a result of these exchanges. This amount along with the deferred tax impact of exchanges of $11 million for the year ended December 31, 2024, are excluded from the portion of the TRA liability that is measured at fair value on a recurring basis. 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 $857 million TRA liability balance at December 31, 2024 assumes: (i) a constant blended U.S. federal, state and local income tax rate of 26%, (ii) no material changes in tax law, (iii) the ability to utilize tax attributes based on current alternative tax forecasts, and (iv)
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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 7.9%, which was determined based on benchmark rates of a similar duration. A hypothetical increase or decrease of 75 bps in the discount rate assumptions used for fiscal year 2024, would result in a change in our TRA liability balance of approximately $18 million.
Goodwill
Goodwill for each reporting unit is tested for impairment annually as of October 1, or more frequently if there are indicators that a reporting unit may be impaired. Accounting Standard Codification 350, Intangibles and Other ("ASC 350") states that an optional qualitative impairment assessment can be performed to determine whether an impairment is more likely than not by considering various factors such as macroeconomic and industry trends, reporting unit performance and overall business changes. If inconclusive evidence results from the qualitative impairment test, a quantitative assessment is performed where the Company determines the fair value of the reporting units by using a combination of the present value of expected future cash flows and a market approach based on earnings multiple data from peer companies using unobservable level 3 inputs. If an impairment is identified, an impairment is recorded by the amount that the carrying value exceeds the fair value for each reporting unit as a non-recurring fair value measurement. While the future cash flows are consistent with those that are used in our internal planning process inclusive of long-term growth assumptions, estimating cash flows requires significant judgment. Future changes to our projected cash flows can vary from the cash flows eventually realized, which may have a material impact on the outcomes of future goodwill impairment tests. The Company uses a weighted average cost of capital that represents the blended average required rate of return for equity and debt capital based on observed market return data and company specific risk factors.
During the fourth quarter of 2024, the Company performed a quantitative assessment in accordance with ASC 350. We evaluated the potential for goodwill impairment by considering macroeconomic conditions, industry and market conditions, cost factors, both current and future expected financial performance, and relevant entity-specific events for each of the reporting units. We also considered our overall market performance discretely as well as in relation to our peers. We utilized a discount rate of 11.0% and a long-term growth rate of 3.5% for our Health Solutions and Wealth Solutions reporting units in the determination of fair value. Other significant assumptions utilized included the Company’s projections of expected future revenues and EBITDA margin, which is defined as earnings before interest, taxes, depreciation and intangible amortization as a percentage of revenue. The Company determined the fair value of its reporting units exceeded the carrying value as of October 1, 2024, and therefore, goodwill was not impaired. Based on the results of the Company’s quantitative assessment, the fair value of the Health Solutions and Wealth Solutions reporting units exceeded their carrying values by 1.2% and 55.7%, respectively. A hypothetical 25-basis point increase in the discount rate or a hypothetical 50-basis point decrease in the long-term growth rate could have resulted in a goodwill impairment in the Company’s Health Solutions reporting unit of $125 million.
At December 31, 2024, our Health Solutions and Wealth Solutions reporting units had $3,084 million and $128 million of goodwill, respectively.