Item 1. Financial Statements.
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
The accompanying notes are an integral part of these condensed consolidated financial statements.
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation and Nature of Business
Foley Trasimene Acquisition Corp. (“FTAC”) was incorporated in Delaware on March 26, 2020. FTAC was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
On July 2, 2021 (the “Closing Date”), FTAC completed the business combination (the “Business Combination”) with Alight Holding Company, LLC (f/k/a Tempo Holding Company, LLC) (“Alight Holdings” or the “Predecessor”) contemplated by the Business Combination Agreement (as amended and restated as of April 29, 2021) between FTAC, Alight Holdings and other interested parties (the “Business Combination Agreement”). On the Closing Date, pursuant to the Business Combination Agreement, FTAC became a wholly owned subsidiary of Alight, Inc. (“Alight”, “the Company”, “we” “us” “our” or the “Successor”) and was renamed Alight Group, Inc. As a result of the Business Combination, and by virtue of such series of mergers and related transactions, the combined company is now organized in an “Up-C” structure, in which substantially all of the assets and business of Alight are held by Alight Holdings, of which Alight is the managing member pursuant to the terms of the Second Amended and Restated Limited Liability Company Agreement of Alight Holdings that went into effect upon the completion of the Business Combination. As a result of the Business Combination, Alight owns approximately 85% of the economic interest in Alight Holdings, but will have 100% of the voting power and will control the management of Alight Holdings. Immediately following the completion of the Business Combination, the ownership percentage held by noncontrolling interest is approximately 15%.
Basis of Presentation
As a result of the Business Combination, for accounting purposes, the Company is the acquirer and Alight Holdings is the acquiree and accounting predecessor. While the Closing Date was July 2, 2021, we have determined that as the impact of one day would be immaterial to the results of operations, we will utilize July 1, 2021 as the date of the Business Combination for accounting purposes. Therefore, the financial statement presentation includes the financial statements of Alight Holdings as Predecessor for the periods prior to July 1, 2021 and the Company as Successor for the periods after July 1, 2021, including the consolidation of Alight Holdings.
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and should be read in conjunction with the Consolidated Financial Statements contained in the Company’s Registration Statement on Form S-1 filed on August 2, 2021, as amended. In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair presentation have been included. All significant intercompany transactions and balances have been eliminated upon consolidation. The results of operations for interim periods are not necessarily indicative of the results to be expected for future quarters or for the full fiscal year ending December 31, 2021.
Nature of Business
We are a leading cloud-based provider of integrated digital human capital and business solutions. We have an unwavering belief that a company’s success starts with its people, and our solutions connect human insights with technology. Leveraging artificial intelligence (“AI”) and data analytics, we provide an integrated, personalized experience for employees using technology-driven solutions that unlock value for employers. Our mission-critical solutions enable employees to enrich their health, wealth and wellbeing which helps global organizations achieve a high-performance culture. Our solutions include:
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•
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Employer Solutions: driven by our digital, software and AI-led capabilities and spanning total employee wellbeing and engagement, including integrated benefits administration, healthcare navigation, financial health, employee wellness and payroll. These solutions are designed to support employers in effectively managing their workforce through a seamless, integrated platform. We leverage data across all interactions and activities to improve the consumer experience, reduce operational costs and better inform management processes and decision-making. In addition, employees benefit from an integrated portal and user experience, coupled with a full-service client care center, helping them manage the full life cycle of their health, wealth and careers.
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•
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Professional Services: includes our project-based cloud deployment and consulting offerings that provide expertise with both human capital and financial platforms. Specifically, this includes cloud advisory and deployment, and optimization services for cloud platforms such as Workday, SAP SuccessFactors, Oracle, and Cornerstone OnDemand.
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2. Accounting Policies and Practices
Use of Estimates
The preparation of the accompanying Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of reserves and expenses.
These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Management believes its estimates to be reasonable given the current facts available. Management adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity markets, and foreign currency exchange rate movements increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be predicted with certainty, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment would, if applicable, be reflected in the financial statements in future periods.
Concentration of Risk
The Company has no significant off-balance sheet risks related to foreign exchange contracts or other foreign hedging arrangements. Management believes that its account receivable credit risk exposure is limited, and the Company has not experienced significant write-downs in its accounts receivable balances. Additionally, there was no single client who accounted for more than 10% of the Company’s revenues in any of the periods presented.
Cash and Cash Equivalents
Cash and cash equivalents include cash balances. At September 30, 2021 and December 31, 2020, Cash and cash equivalents totaled $769 million and $506 million, respectively, and none of the balances were restricted as to its use.
Fiduciary Assets and Liabilities
Some of the Company’s agreements require it to hold funds to pay certain obligations on behalf of its clients. Funds held on behalf of clients are segregated from Company funds, and their use is restricted to the payment of obligations on behalf of clients. There is typically a short period of time between when the Company receives funds and when it pays obligations on behalf of clients. These funds are recorded as Fiduciary assets with the related obligation recorded as Fiduciary liabilities in the Condensed Consolidated Balance Sheets.
Commissions Receivable
Commissions receivable, which is recorded in Other current assets and Other assets in the Condensed Consolidated Balance Sheets, are contract assets that represent estimated variable consideration for commissions to be received from insurance carriers for performance obligations that have been satisfied. The current portion of Commissions receivable is expected to be received within one year, while the non-current portion of Commissions receivable is expected to be received beyond one year.
Allowance for Expected Credit Losses
The Company’s allowance for expected credit losses with respect to trade receivables and contract assets is based on a combination of factors, including evaluation of historical write-offs, current conditions and reasonable economic forecasts that affect collectability and other qualitative and quantitative analysis. Receivables, net included an allowance for expected credit losses of $4 million and $15 million at September 30, 2021 and December 31, 2020, respectively.
Fixed Assets, Net
The Company records fixed assets at cost. We compute depreciation and amortization using the straight-line method on the estimated useful lives of the assets, which are generally as follows:
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Asset Description
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Asset Life
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Capitalized software
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Lesser of the life of an associated license, or 4 to 7 years
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Leasehold improvements
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Lesser of estimated useful life or lease term, not to exceed 10 years
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Furniture, fixtures and equipment
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4 to 10 years
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Computer equipment
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4 to 6 years
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Goodwill and Intangible Assets, Net
In applying the acquisition method of accounting for business combinations, amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition, with the remainder recorded as goodwill. Intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. Goodwill is tested for impairment annually as of October 1, and whenever indicators of impairment arise.
Derivatives
The Company uses derivative financial instruments, such as interest rate swaps. Interest rate swaps are used to manage interest risk exposures and have been designated as cash flow hedges. The changes in the fair value of derivatives that qualify for hedge accounting as cash flow hedges are recorded in Accumulated other comprehensive loss. Amounts are reclassified from Accumulated other comprehensive loss into earnings when the hedge exposure affects earnings.
The Company discontinues hedge accounting prospectively when: (1) the derivative expires or is sold, terminated, or exercised; (2) the qualifying criteria are no longer met; or (3) management removes the designation of the hedging relationship.
Foreign Currency
Certain of the Company’s non-U.S. operations use their respective local currency as their functional currency. The operations that do not have the U.S. dollar as their functional currency translate their financial statements at the current exchange rates in effect at the balance sheet date and revenues and expenses using rates that approximate those in effect during the period. The resulting translation adjustments are included in net foreign currency translation adjustments within the Condensed Consolidated Statements of Stockholders’ Equity. Gains and losses from the remeasurement of monetary assets and liabilities that are denominated in a non-functional currency are included in Other expense, net within the Condensed Consolidated Statements of Comprehensive Income (Loss). The impact of the foreign exchange gains and losses for the Successor three months ended September 30, 2021 was a gain of $1 million. The impact of the foreign exchange gains and losses for the Predecessor six months ended June 30, 2021 and three and nine months ended September 30, 2020 were a loss of $9 million, a loss of $3 million, and a gain of $2 million, respectively.
Share-Based Compensation Costs
Share-based payments to employees, including grants of restricted share units (“RSUs”) and performance-based restricted share units (“PRSUs”), for both the Predecessor and Successor periods, are measured based on their estimated grant date fair value. The Company recognizes compensation expense on a straight-line basis over the requisite service period for awards expected to ultimately vest. Forfeitures are estimated on the date of grant and revised if actual or expected forfeiture activity differs materially from original estimates.
Earnings Per Share
Basic earnings per share is calculated by dividing the net loss attributable to Alight, Inc. by the weighted average number of shares of Class A Common Stock issued and outstanding for the Successor period. The computation of diluted earnings per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue shares were exercised or converted into shares or resulted in the issuance of shares that would then share in the net income of the Alight, Inc.
Warrants
Warrant agreements related to warrants to purchase the Company’s Class A Common Stock are accounted for as liabilities at fair value within Financial instruments on the Condensed Consolidated Balance Sheets and are subject to remeasurement at each balance sheet date. Any change in fair value is recognized within the Condensed Consolidated Statements of Comprehensive Income (Loss).
Tax Receivable Agreement
In connection with the Business Combination, we entered into a Tax Receivable Agreement (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. The Company accounts for the TRA as a liability at fair value and is subject to remeasurement at each balance sheet date. Any change in fair value is recognized within the Condensed Consolidated Statements of Comprehensive Income (Loss).
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Seller Earnouts
Upon completion of the Business Combination, we executed a contingent consideration agreement (the “Seller Earnouts”) that results in the issuance of non-voting shares of Class B-1 and Class B-2 Common Stock, which automatically converts into Class A Common Stock upon the achievement of certain criteria. The majority of the Seller Earnouts are accounted for as a contingent consideration liability at fair value within Financial instruments on the Condensed Consolidated Balance Sheets and are subject to remeasurement at each balance sheet date. Any change in fair value is recognized within the Condensed Consolidated Statements of Comprehensive Income (Loss).
Noncontrolling Interest
Noncontrolling interest represents the Company’s noncontrolling interest in consolidated subsidiaries which are not attributable, directly or indirectly, to the controlling Class A Common Stock ownership of the Company. Net (loss) income is reduced by the portion of net (loss) income that is attributable to noncontrolling interests. These noncontrolling interests are convertible into Class A Common Stock of the Company at the holder’s discretion.
Income Taxes
During the Predecessor periods, a portion of the Company’s earnings were subject to certain U.S. federal, state and foreign taxes. During the Successor period, the portion of earnings allocable to the Company is subject to corporate level tax rates at the U.S. federal, state and local levels. Therefore, the amount of income taxes recorded in the Predecessor periods are not representative of the expenses expected in the future.
The computation of the effective tax rate and provision at each interim period requires the use of certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income that is subject to tax, permanent differences between the Company’s U.S. GAAP earnings and taxable income, and the likelihood of recovering deferred tax assets existing as of the balance sheet date. The estimates used to compute the provision for income taxes may change throughout the year as new events occur, additional information is obtained or as tax laws and regulations change. Accordingly, the effective tax rate for future interim periods may vary materially.
The Company accounts for income taxes pursuant to the asset and liability method which requires it to recognize current tax liabilities or receivables for the amount of taxes it estimates are payable or refundable for the current year, deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts and their respective tax bases of assets and liabilities and the expected benefits of net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible.
The Company recognizes the benefits of tax return positions in the financial statements if it is “more-likely-than-not” they will be sustained by a taxing authority. The measurement of a tax position meeting the more-likely-than-not criteria is based on the largest benefit that is more than 50 percent likely to be realized. Only information that is available at the reporting date is considered in the Company’s recognition and measurement analysis and events or changes in facts and circumstances are accounted for in the period in which the event or change in circumstance occurs.
New Accounting Pronouncements: Recently Adopted
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This guidance provides optional expedients and exceptions for certain contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate that is expected to be discontinued because of reference rate reform. The guidance permits entities not to apply modification accounting or remeasure lease payments in lease contracts if the changes to the contract are related to the discontinuation of the reference rate. If certain criteria are met, the amendments also allow exceptions to the dedesignation criteria of the hedging relationship and the assessment of hedge effectiveness during the transition period. For held-to-maturity debt securities, one-time sale and/or transfer to available-for-sale or trading may be made for held-to-maturity debt securities that both reference an eligible reference rate and were classified as held-to-maturity before January 1, 2020. In January 2021, the FASB issued ASU 2021-01, which provides optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities under way in global financial markets. An entity will apply this guidance on a prospective basis. The new guidance became effective as of March 12, 2020, and will not apply to any contract modifications made, sales and transfers of held-to-maturity
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debt securities, and hedging relationships entered into or evaluated after December 31, 2022. At the time of adoption, there was no impact to our Condensed Consolidated Financial Statements. The Company will continue to assess the impact as the reference rate transition occurs over the next two years.
Callable Debt Securities
In October 2020, the FASB issued ASU 2020-08, “Codification Improvements to Subtopic 310-20 – Receivables – Nonrefundable Fees and Other Costs.” The new accounting guidance clarifies that a reporting entity should assess whether a callable debt security purchased at a premium is within the scope of ASC 310-20-35-33 each reporting period, which impacts the amortization period for nonrefundable fees and other costs. The guidance must be applied on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The new guidance is effective for the Company for the fiscal year 2021 and respective interim periods. The Company adopted this standard on January 1, 2021. The adoption of this guidance had no material impact upon our Condensed Consolidated Financial Statements.
3. Revenue from Contracts with Customers
The majority of the Company’s revenue is highly recurring and is derived from contracts with customers to provide integrated, cloud-based human capital solutions that empower clients and their employees to manage their health, wealth and HR needs. The Company’s revenues are disaggregated by recurring and project revenues within each reportable segment. Recurring revenues are typically longer term in nature and more predictable on an annual basis, while project revenues consist of project work of a shorter duration. See Note 12 “Segment Reporting” for quantitative disclosures of recurring and project revenues by reportable segment. The Company’s reportable segments are Employer Solutions, Professional Services and Hosted Business. Employer Solutions are driven by our digital, software and AI-led capabilities and spanning total employee wellbeing and engagement, including integrated employee wellness, benefits administration, healthcare navigation and financial health. Professional Services includes our cloud deployment, advisory and application management services. The Company believes these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.
Revenues are recognized when control of the promised services is transferred to the customer in the amount that best reflects the consideration to which the Company expects to be entitled in exchange for those services. The majority of the Company’s revenue is recognized over time as the customer simultaneously receives and consumes the benefits of our services. On occasion, we may be entitled to a fee based on achieving certain performance criteria or contract milestones. To the extent that we cannot estimate with reasonable assurance the likelihood that we will achieve the performance target, we will constrain this portion of the transaction price and recognize it when or as the uncertainty is resolved. Any taxes assessed on revenues relating to services provided to our clients are recorded on a net basis. All of the Company’s revenues are described in more detail below.
Administrative Services
We provide benefits, human resource and payroll administration services across all of our solutions, which are highly recurring. The Company’s contracts may include administration services across one or multiple solutions and typically have three to five-year terms with mutual renewal options.
These contracts typically consist of an implementation phase and an ongoing administration phase:
Implementation phase – In connection with the Company’s long-term agreements, highly customized implementation efforts are often necessary to set up clients and their human resource, payroll or benefit programs on the Company’s systems and operating processes. Work performed during the implementation phase is considered a set-up activity because it does not transfer a service to the customer. Therefore, it is not a separate performance obligation. As these agreements are longer term in nature, our contracts generally provide that if the client terminates a contract, we are entitled to an additional payment for services performed through the termination date designed to recover our up-front costs of implementation. Any fees received from the customer as part of the implementation are in effect, an advance payment for the future ongoing administration services to be provided.
Ongoing administration services phase – For all solutions, the ongoing administration phase includes a variety of plan and payroll administration services and system support services. More specifically, these services include data management, calculations, reporting, fulfillment/communications, compliance services, call center support, and in our Health solutions agreements, annual on-boarding and enrollment support. While there are a variety of activities performed across all solutions, the overall nature of the obligation is to provide integrated administration solutions to the customer. The agreement represents a stand-ready obligation to perform these activities across all solutions on an as-needed basis. The customer obtains value from each period of service, and each time increment (i.e., each month, or each benefit cycle in the case of our Health solutions arrangements) is distinct and substantially the same. Accordingly, the ongoing administration services for each solution represents a series and each series (i.e., each month, or each benefit cycle including the enrollment period in the case of our Health solutions arrangements) of distinct services are deemed to
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be a single performance obligation. In agreements that include multiple performance obligations, the transaction price related to each performance obligation is based on a relative stand-alone selling price basis. We establish the stand-alone selling price using observable market prices that the Company charges separately for similar solutions to similar customers.
Our contracts with our clients specify the terms and conditions upon which the services are based. Fees for these services are primarily based on a contracted fee charged per participant per period (e.g., monthly or annually, as applicable). These contracts may also include fixed components, including lump-sum implementation fees. Our fees are not typically payable until the commencement of the ongoing administration phase. Once fees become payable, payment is typically due on a monthly basis as we perform under the contract, and we are entitled to be reimbursed for work performed to date in the event of termination.
For Health solutions administration services, each benefits cycle inclusive of the enrollment period represents a time increment under the series guidance and is a single performance obligation. Although ongoing fees are typically not payable until the commencement of the ongoing administrative phase, we begin transferring services to our customers approximately four months prior to payments being due as part of our annual enrollment services. Although our per-participant fees are considered variable, they are typically predictable in nature, and therefore we do not generally constrain any portion of our transaction price estimates. We use an input method based on the labor costs incurred relative to total labor costs as the measure of progress in satisfying our Health solutions performance obligation commencing when the customer’s annual enrollment services begin. Given that the Health solutions enrollment and administrative services are stand-ready in nature, it can be difficult to estimate the total expected efforts or hours we will incur for a particular benefits cycle. Therefore, the input measure is based on the historical effort expended each month, which is measured as labor cost.
For all other benefits administration, human resources and payroll services where each month represents a distinct time increment under the series guidance, we allocate the transaction price to the month we are performing our services. Therefore, the amount recognized each month is the variable consideration related to that month plus any fixed monthly or annual fee, which is recognized on a straight-line basis. Revenue for these types of arrangements are therefore more consistent throughout the year.
In the normal course of business, we enter into change orders or other contract modifications to add or modify services provided to the customer. We evaluate whether these modifications should be accounted for as separate contracts or a modification to an existing contract. To the extent that the modification changes a promise that forms part of the underlying series, the modification is not accounted for as a separate contract.
Other Contracts
In addition to the ongoing administration services, the Company also has services across all solutions that represent separate performance obligations and that are often shorter in duration, such as our cloud deployment services, cloud advisory services, participant financial advisory services, and enrollment services not bundled with ongoing administration services.
Fee arrangements can be in the form of fixed-fee, time-and-materials, or fees based on assets under management. Payment is typically due on a monthly basis as we perform under the contract, and we are entitled to be reimbursed for work performed to date in the event of termination.
Services may represent stand-ready obligations that meet the series provision, in which case all variable consideration is allocated to each distinct time increment.
Other services are recognized over-time based on a method that faithfully depicts the transfer of value to the customer, which may be based on the value of labor hours worked or time elapsed, depending on the facts and circumstances.
A portion of the fees for enrollment services not bundled with ongoing administration services may be in the form of commissions received from carriers and are variable in nature. These annual enrollment services are typically completed over a short period. However, the Company may continue to receive commissions from carriers until the respective policy lapses or is cancelled. The Company bases the estimates of total transaction price on supportable evidence from an analysis of past transactions, and only includes amounts that are probable of being received or not refunded. This is an area requiring significant judgement and as a result, the estimated total transaction price may be lower than the ultimate amount of commissions we may collect. Consequently, the estimate of total transaction price is adjusted over time as the Company receives confirmation of cash received, or as other information becomes available.
The Company has elected to apply practical expedients to not disclose the revenue related to unsatisfied performance obligations if (1) the contract has an original duration of one year or less, or (2) the variable consideration is allocated entirely to an unsatisfied performance obligation which is recognized as a series of distinct goods and services that form a single performance obligation.
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Contract Costs
Costs to obtain a Contract
The Company capitalizes incremental costs to obtain a contract with a customer that are expected to be recovered. Assets recognized for the costs to obtain a contract, which primarily includes sales commissions paid in relation to the initial contract, are amortized over the expected life of the underlying customer relationships, which is 7 years for our payroll and cloud solutions and 15 years for all of our other solutions. Commissions paid in relation to contract renewals were immaterial for all periods. The expected life of the underlying customer relationships considers the initial contract terms, which range from 3-5 years as well as expected renewals. For situations where the duration of the contract is 1 year or less, the Company has applied a practical expedient and recognized the costs of obtaining a contract as an expense when incurred. These costs are recorded in Cost of services, exclusive of depreciation and amortization in the Condensed Consolidated Statements of Comprehensive Income (Loss).
Costs to fulfill a Contract
The Company capitalizes costs to fulfill contracts which includes highly customized implementation efforts to set up clients and their human resource, payroll or benefit programs. Assets recognized for the costs to fulfill a contract are amortized on a systematic basis over the expected life of the underlying customer relationships, which is 7 years for our payroll and cloud solutions and 15 years for all of our other solutions.
Amortization for all contracts costs are recorded in Cost of services, exclusive of depreciation and amortization in the Condensed Consolidated Statements of Comprehensive Income (Loss) (see Note 5 “Other Financial Data”).
4. Acquisitions
2021 Acquisitions
Alight Business Combination
On July 2, 2021, the Company completed the Business Combination for consideration transferred of approximately $5.0 billion. The Business Combination was accounted for using the acquisition method under Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”), which requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The preliminary consideration and allocation of the purchase price to the fair value of the combined assets acquired and liabilities assumed is presented below. The preliminary measurement of consideration transferred, including noncontrolling interest, and the allocations reflect the best estimates of the valuations currently available and are subject to change once additional analyses are completed. The accounting for the Business Combination is not complete as the valuation for certain acquired assets and liabilities have not been finalized and these final valuations of the assets and liabilities could have a material impact on the preliminary purchase price allocation disclosed below. The allocation will be finalized as soon as practicable, but no later than one year from the acquisition date.
On the Closing Date, the Company paid $36 million of deferred underwriting costs related to FTAC’s initial public offering and $37 million of fees related to the PIPE Investment, which were treated as a reduction of equity. Approximately $21 million of the Company’s acquisition-related costs were paid on the Closing Date. Additionally, $39 million of seller transaction costs were paid on the Closing Date, including $36 million in advisory and investment banker fees that were contingent upon the consummation of the Business Combination. As these fees are considered success fees in nature, they are considered to have been incurred “on the line”, and therefore, were not recognized in the Condensed Consolidated Statements of Comprehensive Income (Loss) in either the Predecessor or Successor periods.
On the Closing Date, approximately $36 million of certain executive compensation related expenses that were contingent upon the closing of the Business Combination were triggered. As these expenses were contingent upon the change-in-control event, they are considered to have been incurred “on the line”, and therefore, were not recognized in the Condensed Consolidated Statements of Comprehensive Income (Loss) in either the Predecessor or Successor periods.
The following table summarizes the preliminary consideration transferred (in millions):
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Cash consideration to prior equityholders(1)
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$
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1,055
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Repayment of debt
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1,814
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Total cash consideration
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$
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2,869
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Continuing unitholders rollover equity into the Company(2)
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1,414
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Contingent consideration - Tax Receivable Agreement(3)
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578
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Contingent consideration - Seller Earnouts(3)
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109
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Total consideration transferred
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$
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4,970
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Noncontrolling interest(4)
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$
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|
838
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|
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(1) Includes cash consideration paid to reimburse seller for certain transaction expenses.
(2) The Company issued approximately 141 million shares that had a total fair value of approximately $1.4 billion based on the price of $10 per share on July 2, 2021, the acquisition date.
(3) The TRA and Seller Earnouts represent liability classified contingent consideration. The estimated fair values are preliminary and subject to adjustments in subsequent periods. Refer to Note 9 “Stockholders’ and Members’ Equity”, Note 14 “Financial Instruments” and Note 15 “Fair Value Measurement” for further discussion.
(4) The fair value of the noncontrolling interest is estimated based on the fair value of acquired business. The fair value of the noncontrolling interest is preliminary and subject to adjustments in subsequent periods. The noncontrolling interest is exchangeable for Company Class A Common Stock at the option of the holder. Refer to Note 9 “Stockholders’ and Members’ Equity” for additional information.
The following table summarizes the preliminary purchase price allocation (in millions):
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Cash and cash equivalents
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$
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460
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Receivables
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|
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486
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|
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Fiduciary assets
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|
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1,015
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|
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Other current assets
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|
|
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159
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|
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Fixed assets
|
|
|
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206
|
|
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Deferred tax assets, net
|
|
|
|
4
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|
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Other assets
|
|
|
|
440
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|
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Accounts payable and accrued liabilities
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|
|
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(327
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)
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Fiduciary liabilities
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|
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(1,015
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)
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Other current liabilities
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|
|
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(302
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)
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Debt assumed
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|
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(2,370
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)
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Other liabilities
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(381
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)
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Intangible assets
|
|
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4,078
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|
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Total identifiable net assets
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$
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|
2,453
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|
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Goodwill
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$
|
|
3,356
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Intangible Assets
Intangible assets were identified that met either the separability criterion or the contractual-legal criterion described in ASC 805. The trade name intangible asset represents the corporate Alight tradename, which was valued using the relief-from-royalty method. The technology related intangible assets represent software developed by Alight Holdings to differentiate its product/service offerings for its customers, valued using the relief-from-royalty method. The customer related and contract based intangible assets represent strong, long-term relationships with customers, valued using the multi-period excess earnings method. The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows:
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Fair value
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Useful life
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Identifiable intangible assets
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(in millions)
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|
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(in years)
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Definite lived trade names
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|
$
|
|
400
|
|
|
15
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|
Technology related intangibles
|
|
$
|
|
222
|
|
|
6
|
|
Customer related and contract based intangibles
|
|
$
|
|
3,456
|
|
|
15
|
Goodwill
Approximately $3.4 billion has been preliminarily allocated to goodwill. Goodwill represents the excess of the gross consideration transferred over the fair value of the underlying net tangible and identifiable definite-lived intangible assets acquired. Qualitative factors that contribute to the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from goodwill, including assembled workforce and expected future market conditions.
Pro Forma Financial Information
The following unaudited pro forma financial information presents the results of operations as if the Business Combination had occurred on January 1, 2020. The unaudited pro forma results may not necessarily reflect the actual results of operations that would have been achieved nor are they necessarily indicative of future results of operations.
The unaudited pro forma financial information is as follows (in millions):
14
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Pro forma revenue
|
|
$
|
|
690
|
|
|
$
|
|
668
|
|
|
$
|
|
2,051
|
|
|
$
|
|
2,008
|
|
|
Pro forma net loss
|
|
$
|
|
(111
|
)
|
|
$
|
|
(70
|
)
|
|
$
|
|
(121
|
)
|
|
$
|
|
(136
|
)
|
|
Pro forma net loss attributable to controlling interest
|
|
$
|
|
(99
|
)
|
|
$
|
|
(56
|
)
|
|
$
|
|
(107
|
)
|
|
$
|
|
(111
|
)
|
|
Pro forma net loss attributable to noncontrolling interest
|
|
$
|
|
(12
|
)
|
|
$
|
|
(14
|
)
|
|
$
|
|
(14
|
)
|
|
$
|
|
(25
|
)
|
The unaudited pro forma financial information does not assume any impacts from revenue, cost or other operating synergies that could be generated as a result of the Business Combination. The unaudited pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved had the Business Combination been consummated on January 1, 2020.
The Successor and Predecessor periods have been combined in the pro forma financial information for the three and nine months ended September 30, 2021 and 2020 and include adjustments to reflect intangible asset amortization based on the economic values derived from definite-lived intangible assets and a reduction in interest expense related to the repayment of existing debt. Additionally, the unaudited pro forma financial information includes nonrecurring, direct transaction costs incurred in connection with the Business Combination of approximately $11 million for the nine months ended September 30, 2020. These adjustments are net of taxes.
2020 Acquisition
The Company completed one acquisition during the year ended December 31, 2020. The acquisition was not material to the Company’s results of operations, financial position, or cash flows. The Company accounted for the acquisition as a business combination under ASC 805. The goodwill identified by this acquisition is primarily attributed to the synergies that are expected to be realized as well as intangible assets that do not qualify for separate recognition, such as assembled workforce. Goodwill is not amortized and is deductible for tax purposes. Upon completion of this acquisition, the business is now wholly-owned by the Company.
5. Other Financial Data
Condensed Consolidated Balance Sheets Information
Receivables, net
The components of Receivables, net are as follows (in millions):
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Billed and unbilled receivables
|
|
$
|
|
509
|
|
|
|
$
|
547
|
|
|
Allowance for expected credit losses
|
|
|
|
(4
|
)
|
|
|
|
|
(15
|
)
|
|
Balance at end of period
|
|
$
|
|
505
|
|
|
|
$
|
|
532
|
|
As a result of the Business Combination, all receivables acquired were recorded at preliminary fair value and allowance for expected credit losses previously recorded by the Predecessor was reduced to zero as of July 1, 2021 (see Note 4 “Acquisitions”). The Company has not experienced significant write-downs in its receivable balances.
Other current assets
The components of Other current assets are as follows (in millions):
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Deferred project costs
|
|
$
|
|
39
|
|
|
|
$
|
|
53
|
|
|
Prepaid expenses
|
|
|
|
65
|
|
|
|
|
|
57
|
|
|
Commissions receivable
|
|
|
|
35
|
|
|
|
|
|
32
|
|
|
Other
|
|
|
|
33
|
|
|
|
|
|
21
|
|
|
Total
|
|
$
|
|
172
|
|
|
|
$
|
|
163
|
|
15
Other assets
The components of Other assets are as follows (in millions):
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Deferred project costs
|
|
$
|
|
252
|
|
|
|
$
|
|
228
|
|
|
Operating lease right of use asset
|
|
|
|
144
|
|
|
|
|
|
129
|
|
|
Commissions receivable
|
|
|
|
33
|
|
|
|
|
|
25
|
|
|
Other
|
|
|
|
27
|
|
|
|
|
|
26
|
|
|
Total
|
|
$
|
|
456
|
|
|
|
$
|
|
408
|
|
The current and non-current portions of deferred project costs relate to costs to obtain and fulfill contracts (see Note 3 “Revenue from Contracts with Customers”). During the Successor three months ended September 30, 2021 and the Predecessor six months ended June 30, 2021 and three and nine months ended September 30, 2020, total amortization expense of $17 million, $33 million, $15 million and $47 million was recorded in Cost of services, exclusive of depreciation and amortization in the Condensed Consolidated Statements of Comprehensive Income (Loss), respectively.
Other assets include the fair value of outstanding derivative instruments related to interest rate swaps. The balance in Other assets as of September 30, 2021 was $5 million (see Note 13 “Derivative Financial Instruments” for further information).
Fixed assets, net
The components of Fixed assets, net are as follows (in millions):
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Capitalized software
|
|
$
|
|
40
|
|
|
|
$
|
|
242
|
|
|
Leasehold improvements
|
|
|
|
39
|
|
|
|
|
|
63
|
|
|
Computer equipment
|
|
|
|
98
|
|
|
|
|
|
192
|
|
|
Furniture, fixtures and equipment
|
|
|
|
12
|
|
|
|
|
|
21
|
|
|
Construction in progress
|
|
|
|
44
|
|
|
|
|
|
28
|
|
|
Total Fixed assets, gross
|
|
|
|
233
|
|
|
|
|
|
546
|
|
|
Less: Accumulated depreciation
|
|
|
|
14
|
|
|
|
|
|
212
|
|
|
Fixed assets, net
|
|
$
|
|
219
|
|
|
|
$
|
|
334
|
|
As a result of the Business Combination, all fixed assets acquired were recorded at preliminary fair value and accumulated depreciation previously recorded by the Predecessor was reduced to zero as of July 1, 2021 (see Note 4 “Acquisitions”). In addition, as part of the purchase price accounting for the Business Combination, Capitalized software related to internally developed software in-service as of the Closing Date was reclassified and included in the preliminary fair value of the Technology related intangible assets acquired.
Included in Computer equipment are assets under finance leases. The balances as of September 30, 2021 and December 31, 2020, net of accumulated depreciation related to these assets, were $67 million and $83 million, respectively.
Other current liabilities
The components of Other current liabilities are as follows (in millions):
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Deferred revenue
|
|
$
|
|
123
|
|
|
|
$
|
|
148
|
|
|
Operating lease liabilities
|
|
|
|
53
|
|
|
|
|
|
41
|
|
|
Finance lease liabilities
|
|
|
|
28
|
|
|
|
|
|
28
|
|
|
Other
|
|
|
|
85
|
|
|
|
|
|
107
|
|
|
Total
|
|
$
|
|
289
|
|
|
|
$
|
|
324
|
|
16
Other liabilities
The components of Other liabilities are as follows (in millions):
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Deferred revenue
|
|
$
|
|
54
|
|
|
|
$
|
|
60
|
|
|
Operating lease liabilities
|
|
|
|
132
|
|
|
|
|
|
155
|
|
|
Finance lease liabilities
|
|
|
|
40
|
|
|
|
|
|
59
|
|
|
Unrecognized tax positions
|
|
|
|
49
|
|
|
|
|
|
48
|
|
|
Other
|
|
|
|
83
|
|
|
|
|
|
125
|
|
|
Total
|
|
$
|
|
358
|
|
|
|
$
|
|
447
|
|
The current and non-current portions of deferred revenue relates to consideration received in advance of performance under client contracts. During the Successor three months ended September 30, 2021 and the Predecessor six months ended June 30, 2021 and nine months ended September 30, 2020, revenue of approximately $22 million, $101 million, and $152 million was recognized that was recorded as deferred revenue at the beginning of each period, respectively.
Other current liabilities and Other liabilities include the fair value of outstanding derivative instruments related to interest rate swaps. The balances in Other current liabilities as of September 30, 2021 and December 31, 2020 were $12 million and $28 million, respectively. The balances in Other liabilities as of September 30, 2021 and December 31, 2020 were $1 million and $19 million, respectively (see Note 13 “Derivative Financial Instruments” for further information).
6. Goodwill and Intangible assets, net
The changes in the net carrying amount of goodwill are as follows (in millions):
|
|
|
Predecessor
|
|
|
|
|
Employer
|
|
|
Professional
|
|
|
|
|
|
|
|
|
|
Solutions
|
|
|
Services
|
|
|
Total
|
|
|
Balance as of December 31, 2020
|
|
$
|
|
1,985
|
|
|
$
|
|
260
|
|
|
$
|
|
2,245
|
|
|
Measurement period adjustments
|
|
|
|
2
|
|
|
|
|
—
|
|
|
|
|
2
|
|
|
Foreign currency translation
|
|
|
|
2
|
|
|
|
|
1
|
|
|
|
|
3
|
|
|
Balance as of June 30, 2021
|
|
$
|
|
1,989
|
|
|
$
|
|
261
|
|
|
$
|
|
2,250
|
|
The preliminary Successor goodwill at both July 1, 2021 and September 30, 2021 was $3.4 billion and $36 million for Employer Solutions and Professional Services, respectively. Of the preliminary Successor goodwill established during the period, $1.5 billion of the goodwill was tax deductible.
The Company did not identify any impairment for the Successor period from July 1, 2021 to September 30, 2021, nor the Predecessor period December 31, 2020 to June 30, 2021. Goodwill is reviewed for impairment utilizing a qualitative assessment or a quantitative goodwill impairment test and the Company determined that it was more likely than not that no impairment of goodwill existed as of the evaluation date.
Intangible assets by asset class are as follows (in millions):
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer related and contract based
intangibles
|
|
$
|
|
3,456
|
|
|
$
|
|
58
|
|
|
$
|
|
3,398
|
|
|
$
|
|
2,078
|
|
|
$
|
|
486
|
|
|
$
|
|
1,592
|
|
|
Technology related intangibles
|
|
|
|
222
|
|
|
|
|
9
|
|
|
|
|
213
|
|
|
|
|
316
|
|
|
|
|
180
|
|
|
|
|
136
|
|
|
Trade name (finite life)
|
|
|
|
400
|
|
|
|
|
7
|
|
|
|
|
393
|
|
|
|
|
8
|
|
|
|
|
6
|
|
|
|
|
2
|
|
|
Trade name (indefinite life)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
3
|
|
|
|
|
—
|
|
|
|
|
3
|
|
|
Total
|
|
$
|
|
4,078
|
|
|
$
|
|
74
|
|
|
$
|
|
4,004
|
|
|
$
|
|
2,405
|
|
|
$
|
|
672
|
|
|
$
|
|
1,733
|
|
17
The net carrying amount of Intangible assets as of September 30, 2021 includes the preliminary fair values for customer related and contract based identifiable intangible assets, technology related intangible assets and tradename assets based on management’s preliminary estimate of fair value (see Note 4 “Acquisitions” for further information).
As a result of the Business Combination, all accumulated amortization previously recorded by the Predecessor was reduced to zero as of July 1, 2021. Amortization expense from finite-lived intangible assets for the Successor three months ended September 30, 2021 and the Predecessor six months ended June 30, 2021 and three and nine months ended September 30, 2020 was $74 million, $100 million, $51 million and $151 million, respectively, which was recorded in Depreciation and intangible amortization in the Condensed Consolidated Statements of Comprehensive Income (Loss).
Subsequent to September 30, 2021, the annual amortization expense is expected to be as follows (in millions):
|
|
|
Customer Related
|
|
|
Technology
|
|
|
Trade
|
|
|
|
|
and Contract Based
|
|
|
Related
|
|
|
Name
|
|
|
|
|
Intangibles
|
|
|
Intangibles
|
|
|
Intangible
|
|
|
Remainder of 2021 (October - December)
|
|
$
|
|
58
|
|
|
$
|
|
10
|
|
|
$
|
|
6
|
|
|
2022
|
|
|
|
230
|
|
|
|
|
37
|
|
|
|
|
27
|
|
|
2023
|
|
|
|
230
|
|
|
|
|
37
|
|
|
|
|
27
|
|
|
2024
|
|
|
|
230
|
|
|
|
|
37
|
|
|
|
|
27
|
|
|
2025
|
|
|
|
230
|
|
|
|
|
37
|
|
|
|
|
27
|
|
|
Thereafter
|
|
|
|
2,420
|
|
|
|
|
55
|
|
|
|
|
279
|
|
|
Total amortization expense
|
|
$
|
|
3,398
|
|
|
$
|
|
213
|
|
|
$
|
|
393
|
|
7. Income Taxes
The Company’s effective tax rate for the Successor three months ended September 30, 2021 was 0%, and for the Predecessor six months ended June 30, 2021 was 17%. The Company’s effective tax rate for the Predecessor three months ended September 2020 was 74% and for the Predecessor nine months ended September 30, 2020 was 16%.
The change in the effective tax rate is primarily driven by the Business Combination as the Predecessor and certain of its subsidiaries operated in the U.S. as partnerships for income tax purposes and generally as corporate entities in non-U.S. jurisdictions. The Predecessor effective tax rate for the applicable periods was substantially lower due to the fact that certain subsidiaries are subject to federal, state, local and foreign income taxes (as applicable).
The effective tax rate for the Successor three months ended September 30, 2021 is lower than the 21% U.S. statutory corporate income tax rate primarily due to non-recurring non-deductible items related to the Business Combination.
8. Debt
Debt outstanding consisted of the following (in millions):
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
Maturity Date
|
|
2020
|
|
|
Term Loan
|
|
May 1, 2024
|
|
$
|
|
634
|
|
|
Term Loan, Amended
|
|
October 31, 2026
|
|
|
|
1,976
|
|
|
Secured Senior Notes
|
|
June 1, 2025
|
|
|
|
300
|
|
|
Unsecured Senior Notes
|
|
June 1, 2025
|
|
|
|
1,230
|
|
|
$24m Revolving Credit Facility
|
|
May 1, 2022
|
|
|
|
—
|
|
|
$226m Revolving Credit Facility, Amended
|
|
October 31, 2024
|
|
|
|
—
|
|
|
Other
|
|
December 31, 2021
|
|
|
|
10
|
|
|
Total gross debt
|
|
|
|
|
|
4,150
|
|
|
Less: term loan and senior note financing fees and premium, net
|
|
|
|
|
|
(72
|
)
|
|
Total debt, net
|
|
|
|
|
|
4,078
|
|
|
Less: current portion of long term debt, net
|
|
|
|
|
|
(37
|
)
|
|
Total long term debt, net
|
|
|
|
$
|
|
4,041
|
|
18
|
|
|
|
|
Successor
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
Maturity Date
|
|
2021
|
|
|
Term Loan
|
|
May 1, 2024
|
|
$
|
|
73
|
|
|
Term Loan, Amended
|
|
October 31, 2026
|
|
|
|
1,963
|
|
|
Term Loan, Third Incremental(1)
|
|
August 31, 2028
|
|
|
|
519
|
|
|
Secured Senior Notes
|
|
June 1, 2025
|
|
|
|
315
|
|
|
$294m Revolving Credit Facility, Amended
|
|
August 31, 2026
|
|
|
|
—
|
|
|
Other
|
|
December 31, 2021
|
|
|
|
12
|
|
|
Total debt, net
|
|
|
|
|
|
2,882
|
|
|
Less: current portion of long term debt, net
|
|
|
|
|
|
(43
|
)
|
|
Total long term debt, net
|
|
|
|
$
|
|
2,839
|
|
(1) The net balance for the Third Incremental Term Loan includes unamortized debt issuance costs of $6 million.
Purchase Accounting
As part of purchase accounting for the Business Combination, the debt obligations assumed were recorded at fair value, under ASC 805, which resulted in an aggregate increase in the debt liability of $60 million. The fair value increase will be amortized over the respective terms of the debt obligations and recorded in Interest expense on the Condensed Consolidated Statements of Comprehensive Income (Loss) (See Note 4 “Acquisitions”).
Term Loan
In May 2017, the Company entered into a 7-year Initial Term Loan. During November 2017 and November 2019, the Company entered into Incremental Term Loans under identical terms as the Initial Term Loan. In August 2020, the Company refinanced the Term Loan by paying down $270 million of principal using the proceeds from the August 2020 Unsecured Senior Notes issuance, extending the maturity date on $1,986 million of the balance to October 31, 2026, and adding an interest rate floor of 50 bps. As part of the consideration transferred in the Business Combination, $556 million of principal was repaid on the portion of the Term Loan that was not amended. In August 2021, the Company entered into a new Third Incremental Term Loan facility for $525 million that matures August 31, 2028.
Interest rates on the Term Loan borrowings are based on the London Interbank Offered Rate (“LIBOR”) subject to a 50 bps interest rate floor in respect of the Amended and Third Incremental Loans, plus a margin based on defined ratios; 275 or 300 bps for the Term Loan, 325 or 350 bps for the amended Term Loan, and 300 bps for the Third Incremental Term Loan. The Company used the 1‑month LIBOR rate for all periods presented. The Company is required to make principal payments at the end of each fiscal quarter based on defined terms in the agreement with the remaining principal balances due on the maturity dates. The first mandatory principal payment for the Third Incremental Term Loan is due December 31, 2021. During the Successor three months ended September 30, 2021 and the Predecessor six months ended June 30, 2021, and three and nine months ended September 30, 2020, the Company made total principal payments of $563 million, $13 million, $277 million and $291 million. The Company utilized swap agreements to fix a portion of the floating interest rates to May 2024 (see Note 13 “Derivative Financial Instruments”).
Secured Senior Notes
During May 2020, the Company issued $300 million of Secured Senior Notes. These Secured Senior Notes have a maturity date of June 1, 2025 and accrue interest at a fixed rate of 5.75% per annum, payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2020.
Unsecured Senior Notes
In May 2017, the Company issued $500 million of Initial Unsecured Senior Notes. During November 2017, July 2019, and August 2020, the Company issued additional Unsecured Senior Notes under identical terms as the Initial Unsecured Senior Notes for $180 million, $280 million, and $270 million, respectively (collectively “Unsecured Senior Notes”). The Unsecured Senior Notes had a maturity date of June 1, 2025 and accrue interest at a fixed rate of 6.750% per annum, payable semi-annually on June 1 and December 1 of each year.
As part of the consideration transferred in the Business Combination, the Unsecured Senior Notes were fully redeemed.
Revolving Credit Facility
In May 2017, the Company entered into a 5-year $250 million Revolver with a multi-bank syndicate with a maturity date of May 1, 2022. During August 2020, the Company extended the maturity date for $226 million of the Revolver to October 31, 2024. In
19
August 2021, the Company replaced and refinanced the Revolvers with a $294 million Revolver with a maturity date of August 31, 2026. At September 30, 2021, $4 million of unused letters of credit related to various insurance policies and real estate leases were issued under the Revolver and there were no additional borrowings. The Company is required to make periodic payments for commitment fees and interest related to the Revolver and outstanding letters of credit. During the Successor three months ended September 30, 2021 and the Predecessor six months ended June 30, 2021 and the three and nine months ended September 30, 2020 the Company made immaterial payments related to these fees.
As part of the acquisition of NGA HR during the year ended December 31, 2019, the Company acquired a revolving credit facility of approximately $21 million secured on the accounts receivable balance of NGA HR. As of September 30, 2021, the outstanding borrowings under this facility were $12 million, which are reflected in Other in the table above. The facility matures on December 31, 2021, at which time any outstanding borrowings are repayable in full, with interest payable monthly. Interest is calculated as LIBOR plus 3.5% per annum.
Financing Fees, Premiums and Interest Expense
The Company capitalized financing fees and premiums related to the Term Loan, Revolver and Secured Senior Notes issued. These financing fees and premiums were recorded as an offset to the aggregate debt balances and are being amortized over the respective loan terms.
The unamortized financing fees and premiums related to the $556 million payment of the Term Loan in July 2021 and the redemption of the Unsecured Senior Notes in July 2021, were written down as part of the purchase accounting for the Business Combination.
For the Successor three months ended September 30, 2021, a $1 million benefit was recorded, for the Predecessor six months ended June 30, 2021, and three and nine months ended September 30, 2020, expenses of $8 million, $4 million and $13 million, respectively, were amortized and recorded in Interest expense in the Condensed Consolidated Statements of Comprehensive Income (Loss).
As part of the purchase accounting for the Business Combination, the unamortized financing fees related to the Revolver were written off. In August 2021, $1 million of fees associated with the refinanced Revolver were capitalized. As the Revolver has no outstanding balance as of September 30, 2021, the related $1 million of financing fees are recorded in Other assets and are being amortized on a straight-line basis over the term of the Revolver. The straight-line amortization is immaterial each year. Amortization for all periods was recorded in Interest expense in the Condensed Consolidated Statements of Comprehensive Income (Loss). As of September 30, 2021, immaterial and $1 million of unamortized financing fees related to the Revolver are recorded in Other current assets and Other assets, respectively, on the Condensed Consolidated Balance Sheets. As of December 31, 2020, $1 million and $1 million of unamortized financing fees related to the Revolver are recorded in Other current assets and Other assets, respectively, on the Condensed Consolidated Balance Sheets.
Total interest expense related to the debt instruments for the Successor three months ended September 30, 2021 and Predecessor six months ended June 30, 2021 and three and nine months ended September 30, 2020 was $25 million, $105 million, $51 million and $151 million, respectively, which included amortization of financing fees of $1 million benefit for the Successor three months ended September 30, 2021 and expenses of approximately $8 million, $4 million and $13 million, for the Predecessor six months ended June 30, 2020 and three and nine months ended September 30, 2020, respectively. Interest expense is recorded in Interest expense in the Condensed Consolidated Statements of Comprehensive Income (Loss).
Principal Payments
Aggregate contractual principal payments as of September 30, 2021 are as follows (in millions):
|
Remainder of 2021 (October - December)
|
|
$
|
|
19
|
|
|
2022
|
|
|
|
32
|
|
|
2023
|
|
|
|
32
|
|
|
2024
|
|
|
|
84
|
|
|
2025
|
|
|
|
325
|
|
|
Thereafter
|
|
|
|
2,378
|
|
|
Total payments
|
|
$
|
|
2,870
|
|
20
9. Stockholders’ and Members’ Equity
Predecessor Equity
Class A Common Units
There were no grants of Class A common units during the six months ended June 30, 2021 or the nine months ended September 30, 2020. Each holder of Class A common units is entitled to one vote per unit.
Class A-1 Common Units
During the six months ended June 30, 2021, the Company granted 643 Restricted Class A-1 common units. There were no grants of Class A-1 common units during the nine months ended September 30, 2020. Holders of Class A-1 common units are not entitled to voting rights.
Class B Common Units
During the six months ended June 30, 2021 there were no grants of Class B common units, and during the nine months ended September 30, 2020 the Company granted 6,409 units. Holders of Class B common units are not entitled to voting rights.
Successor Equity
Preferred Stock
Upon the Closing of the Business Combination, 1,000,000 preferred shares, par value $0.0001, were authorized. There are no preferred shares issued and outstanding as of September 30, 2021.
Class A Common Stock
As of September 30, 2021, 446,802,741 Class A common shares, including 7,821,091 of unvested Class A common shares, were legally issued and outstanding, par value $0.0001. Holders of Class A Common Shares are entitled to one vote per share, and together with the holders of shares of Company Class B Common Stock, will participate ratably in any dividends that may be declared by the Company’s Board of Directors.
Class B Common Stock
Upon the Closing of the Business Combination, the Seller Earnouts resulted in the issuance of a total of 14,999,998 Class B instruments (including 850,416 Unvested Class B common shares related to employee compensation) to the equityholders of the Predecessor. The equityholders of the Predecessor that exchanged their Predecessor Class A units for Alight Class A common shares in the Business Combination received Class B common shares, and the equityholders of the Predecessor that continue to hold Class A units of Alight Holdings (“Continuing Unitholders”) received Class B common units of Alight Holdings.
The Class B Common Stock and Class B common units are not entitled to a vote and accrue dividends equal to amounts declared per corresponding Class A common share and Class A unit; however, such dividends are paid if and when such Class B share or Class B unit converts into a Class A share or Class A unit. If any of the Class B common shares or Class B common units do not vest on or before the seventh anniversary of the Closing Date, such shares or units will be automatically forfeited and cancelled for no consideration and will not be entitled to receive any cumulative dividend payments.
These Class B instruments (excluding the Unvested B common shares related to employee compensation) are liability classified; refer to Note 14 “Financial Instruments” for additional information.
As further described below, there are two series of Class B instruments outstanding.
Class B-1
As of September 30, 2021, 4,990,453 Class B-1 common shares were legally issued and outstanding, par value of $0.0001, including 425,208 Unvested Class B-1 common shares related to employee compensation. Class B-1 common shares vest and automatically convert into shares of Class A Common Stock on a 1-for-1 basis if the volume weighted average price (“VWAP”) of the Class A common shares equals or exceeds $12.50 per share for 20 or more trading days within a consecutive 30-trading day period (or in the event of a change of control or liquidation event that implies a $12.50 per share valuation on a diluted basis).
To the extent any Unvested Class B-1 common share automatically converts into a share of Class A Common Stock, (i) such share or unit shall remain unvested in accordance with the terms and conditions of the applicable award agreement until it vests or is forfeited in accordance with the terms thereof and (ii) such share or unit shall be treated as Unvested Class A consideration as if such share or unit was part of the Unvested Class A consideration as of the Closing Date.
As of September 30, 2021, 2,509,546 Class B-1 common units of Alight Holdings were legally issued and outstanding. Class B-1 common units vest and automatically convert into Class A common units of Alight Holdings on a 1-for-1 basis if the VWAP of the
21
Class A common shares equals or exceeds $12.50 per share for 20 or more trading days within a consecutive 30-trading day period (or in the event of a change of control or liquidation event that implies a $12.50 per share valuation on a diluted basis).
Class B-2
As of September 30, 2021, 4,990,453 Class B-2 common shares were legally issued and outstanding, par value of $0.0001, including 425,208 Unvested Class B-2 common shares related to employee compensation. Class B-2 common shares vest and automatically convert into shares of Class A common shares on a 1-for-1 basis if the VWAP of the Class A common shares equals or exceeds $15.00 per share for 20 or more trading days within a consecutive 30-trading day period (or in the event of a change of control or liquidation event that implies a $15.00 per share valuation on a diluted basis).
To the extent any Unvested Class B-2 common share automatically converts into a share of Class A Common Stock, (i) such share or unit shall remain unvested in accordance with the terms and conditions of the applicable award agreement until it vests or is forfeited in accordance with the terms thereof and (ii) such share or unit shall be treated as Unvested Class A consideration as if such share or unit was part of the Unvested Class A consideration as of the Closing Date.
As of September 30, 2021, 2,509,546 Class B-2 common units of Alight Holdings were legally issued and outstanding. Class B-2 common units vest and automatically convert into Class A common units of Alight Holdings on a 1-for-1 basis if the VWAP of the Class A common shares equals or exceeds $15.00 per share for 20 or more trading days within a consecutive 30-trading day period (or in the event of a change of control or liquidation event that implies a $15.00 per share valuation on a diluted basis).
Class B-3
Upon the Closing of the Business Combination, 10,000,000 Class B-3 common shares, par value $0.0001 per share, were authorized. There are no Class B-3 common shares issued and outstanding as of September 30, 2021.
Class V Common Stock
As of September 30, 2021, 77,459,687 Class V common shares were legally issued and outstanding, par value of $0.0001. Holders of Class V Common Stock are entitled to one vote per share and have no economic rights. The Class V Common Stock is held on a 1-for-1 basis with Class A Units in Alight Holdings held by Continuing Unitholders. The Class A Units, together with an equal number of shares of Company Class V Common Stock, can be exchanged for an equal number of shares of Company Class A Common Stock.
Class Z Common Stock
Upon the Closing of the Business Combination, a total of 8,671,507 Class Z instruments were issued to the equityholders of the Predecessor. The equityholders of the Predecessor that exchanged their Predecessor Class A units for Alight Class A common shares in the Business Combination received Class Z common shares, and the Continuing Unitholders received Class Z common units of Alight Holdings. The Class Z instruments were issued to the equityholders of the Predecessor to allow for the re-allocation of the consideration paid to the holders of unvested management equity (i.e., the Unvested Class A, Unvested Class B-1, and Unvested Class B-2 common shares) to the equityholders of the Predecessor in the event such equity is forfeited under the terms of the applicable award agreement and will only vest in connection with any such forfeiture.
As of September 30, 2021, 5,595,577 Class Z common shares (5,046,819 Class Z-A, 274,379 Class Z-B-1, and 274,379 Class Z-B-2) were legally issued and outstanding, par value of $0.0001. Holders of Class Z-A, Class Z-B-1 and Class Z-B-2 common shares are not entitled to voting rights. A portion automatically converts into shares of Company Class A Common Stock, Company Class B-1 or Company Class B-2 Common Stock, as applicable, in connection with the forfeiture of the Unvested Class A, Unvested Class B-1, and Unvested Class B-2 common shares issued to participating management holders.
As of September 30, 2021, 3,075,930 Class Z common units (2,774,272 Class Z-A, 150,829 Class Z-B-1, and 150,829 Class Z-B-2) were legally issued and outstanding. Holders of Class Z-A, Class Z-B-1 and Class Z-B-2 common units are not entitled to voting rights. A portion automatically converts into units of Alight Holdings Class A common units, Alight Holdings Class B-1 or Alight Holdings Class B-2 common units, as applicable, in connection with the forfeiture of the Unvested Class A, Unvested Class B-1, and Unvested Class B-2 common shares issued to participating management holders.
Class A Units
Holders of Alight Holdings Class A units can exchange all or any portion of their Class A units, together with the cancellation of an equal number of shares of Alight Class V Common Stock, for a number of shares of Alight Class A Common Stock equal to the number of exchanged Class A units. Alight has the option to cash settle any future exchange.
The Continuing Unitholders’ ownership of Class A units represents the noncontrolling interest of the Company, which is accounted for as permanent equity on the Condensed Consolidated Balance Sheets. As of September 30, 2021, there were 524,262,428 Class A Units outstanding, of which 446,802,741 are held by the Company and 77,459,687 are held by the noncontrolling interest of the Company.
22
The Alight Holdings Operating Agreement contains provisions which require that a one-to-one ratio is maintained between each class of Alight Holdings units held by Alight and its subsidiaries (including the FTAC Surviving Corporation and the Alight Blockers, but excluding subsidiaries of Alight Holdings) and the number of outstanding shares of the corresponding class of Alight common stock, subject to certain exceptions (including in respect of management equity in the form of options, rights or other securities which have not been converted into or exercised for Alight common stock). In addition, the Alight Holdings Operating Agreement permits Alight, in its capacity as the managing member of Alight Holdings, to take actions to maintain such ratio, including undertaking stock splits, combinations, recapitalizations and exercises of the exchange rights of holders of Alight Holdings units.
The following table reflects the changes in our outstanding stock:
|
|
|
Successor
|
|
|
|
|
Class A
|
|
|
Class B-1
|
|
|
Class B-2
|
|
|
Class V
|
|
|
Class Z
|
|
|
Balance at July 1, 2021
|
|
|
438,968,920
|
|
|
|
4,990,453
|
|
|
|
4,990,453
|
|
|
|
77,459,687
|
|
|
|
5,595,577
|
|
|
Issuance for compensation to non-employees(1)
|
|
|
12,730
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance at September 30, 2021
|
|
|
438,981,650
|
|
|
|
4,990,453
|
|
|
|
4,990,453
|
|
|
|
77,459,687
|
|
|
|
5,595,577
|
|
(1) Issued to certain members of the Board of Directors in lieu of cash retainer.
Dividends
There were no dividends declared during the Successor three months ended September 30, 2021.
Accumulated Other Comprehensive Loss
As of September 30, 2021, the Accumulated other comprehensive loss balance included unrealized losses for interest rate swaps and foreign currency translation adjustments related to our foreign subsidiaries that do not have the U.S. dollar as their functional currency. The tax effect for all periods presented was immaterial.
Changes in accumulated other comprehensive loss, net of non-controlling interests and tax, are as follows (in millions):
|
|
|
Predecessor
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Swaps(1)
|
|
|
Total
|
|
|
Balance at December 31, 2020
|
|
$
|
|
5
|
|
|
$
|
|
(47
|
)
|
|
$
|
|
(42
|
)
|
|
Other comprehensive income before reclassifications, net of tax
|
|
|
|
4
|
|
|
|
|
10
|
|
|
|
|
14
|
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax
|
|
|
|
—
|
|
|
|
|
7
|
|
|
|
|
7
|
|
|
Net current period other comprehensive income, net of tax
|
|
|
|
4
|
|
|
|
|
17
|
|
|
|
|
21
|
|
|
Balance at March 31, 2021
|
|
$
|
|
9
|
|
|
$
|
|
(30
|
)
|
|
$
|
|
(21
|
)
|
|
Other comprehensive income (loss) before reclassifications, net of tax
|
|
|
|
4
|
|
|
|
|
(1
|
)
|
|
|
|
3
|
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax
|
|
|
|
—
|
|
|
|
|
7
|
|
|
|
|
7
|
|
|
Net current period other comprehensive income, net of tax
|
|
|
|
4
|
|
|
|
|
6
|
|
|
|
|
10
|
|
|
Balance at June 30, 2021
|
|
$
|
|
13
|
|
|
$
|
|
(24
|
)
|
|
$
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Swaps(1)
|
|
|
Total
|
|
|
Balance at July 1, 2021
|
|
$
|
|
—
|
|
|
$
|
|
—
|
|
|
$
|
|
—
|
|
|
Other comprehensive loss before reclassifications, net of tax
|
|
|
|
2
|
|
|
|
|
1
|
|
|
|
|
3
|
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Net current period other comprehensive loss, net of tax
|
|
|
|
2
|
|
|
|
|
1
|
|
|
|
|
3
|
|
|
Balance at September 30, 2021
|
|
$
|
|
2
|
|
|
$
|
|
1
|
|
|
$
|
|
3
|
|
(1)Reclassifications from this category are recorded in Interest expense. See Note 13 “Derivative Financial Instruments” for additional information.
23
10. Share-Based Compensation Expense
Predecessor Plans
Prior to the Business Combination, share-based payments to employees include grants of restricted share units (“RSUs”) and performance based restricted share units (“PRSUs”), which consist of both Class A-1 and Class B common units in each type, are measured based on their estimated grant date fair value. The Company recognizes compensation expense on a straight-line basis over the requisite service period for awards expected to ultimately vest. As a result of the change in control related to the Business Combination, the vesting of the time-based RSU Class B units accelerated on the Closing Date. The remaining unvested PRSU Class B units have vesting conditions that are contingent upon the achievement of defined internal rates of return and multiples on invested capital occurrence and of certain liquidity events. The Class A-1 RSUs and PRSUs that were unvested as of the Closing Date have time-based and/or vesting conditions that are contingent upon the achievement of defined internal rates of return and multiples on invested capital occurrence and of certain liquidity events. Both the unvested Class A-1 and Class B units were replaced with unvested Alight common shares as discussed below.
The following tables summarizes the unit activity related to the RSUs and PRSUs during the Predecessor six months ended June 30, 2021:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
Fair Value
|
|
|
Predecessor
|
|
RSUs
|
|
|
Per Unit
|
|
|
PRSUs
|
|
|
Per Unit
|
|
|
Balance as of December 31, 2020
|
|
|
2,999
|
|
|
$
|
|
4,563
|
|
|
|
9,223
|
|
|
$
|
|
4,015
|
|
|
Granted
|
|
|
254
|
|
|
|
|
28,875
|
|
|
|
389
|
|
|
|
|
24,420
|
|
|
Vested
|
|
|
(517
|
)
|
|
|
|
5,459
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Forfeited
|
|
|
(121
|
)
|
|
|
|
4,527
|
|
|
|
(567
|
)
|
|
|
|
2,626
|
|
|
Balance as of June 30, 2021
|
|
|
2,614
|
|
|
$
|
|
6,741
|
|
|
|
9,045
|
|
|
$
|
|
4,888
|
|
Successor Plans
Predecessor Replacement Awards
In connection with the Business Combination, the holders of certain unvested awards under the Predecessor plans were granted replacement awards in the Successor company.
|
|
•
|
Class B units: The unvested Class B units of Alight Holdings were granted replacement Unvested Class A common shares, Unvested Class B-1 common shares, and Unvested Class B-2 common shares of the Company that ultimately vest on the third anniversary of the Closing Date, but could vest earlier based on market-based vesting terms consistent to those under the Predecessor Plan.
|
|
|
•
|
Class A-1 units: The unvested Class A-1 units were granted replacement Unvested Class A common shares, Unvested Class B common shares, and Unvested Class B-2 common shares of the Company on an equivalent fair value basis. The time and market-based vesting conditions are consistent with those under the Predecessor Plan.
|
The Class B and Class A-1 units that were replaced represent the Unvested Class A, Unvested Class B-1 and Unvested Class B-2 common shares subject to the forfeiture re-allocation provision per the Class Z instruments discussed in Note 9 “Stockholders’ and Members’ Equity”. These unvested shares are accounted for as restricted stock in accordance with ASC 718.
Successor Awards
In connection with the Business Combination, the Company adopted the Alight, Inc. 2021 Omnibus Incentive Plan. Under this plan, for grants issued during the Successor three months ended September 30, 2021, approximately 50% of the units are subject to time-based vesting requirements and approximately 50% are subject to performance-based vesting requirements. The majority of the time-based RSUs vest ratably each December 31 over a three-year period with one-third vesting on December 31, 2021, 2022 and 2023. The majority of the PRSUs vest upon achievement of the Company’s performance goal, Total Contract Value of Business Process as a Service ("BPaaS"). The Company recognizes expense associated with the PRSUs when the achievement of the performance condition is deemed probable.
The aggregate grant date fair value of RSUs and PRSUs granted during the Successor period three months ended September 30, 2021 was $116 million and $114 million, respectively.
Restricted Share Units and Performance Based Restricted Share Units
24
The following tables summarizes the unit activity related to the RSUs and PRSUs during the Successor three months ended September 30, 2021:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
Fair Value
|
|
|
Successor
|
|
RSUs(1)
|
|
|
Per Unit
|
|
|
PRSUs(1)
|
|
|
Per Unit
|
|
|
Balance as of July 1, 2021
|
|
|
854,764
|
|
|
$
|
|
9.91
|
|
|
|
7,816,743
|
|
|
$
|
|
9.99
|
|
|
Granted
|
|
|
9,178,145
|
|
|
|
|
12.64
|
|
|
|
9,045,415
|
|
|
|
|
12.64
|
|
|
Vested
|
|
|
(12,730
|
)
|
|
|
|
11.48
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Balance as of September 30, 2021
|
|
|
10,020,179
|
|
|
$
|
|
12.41
|
|
|
|
16,862,158
|
|
|
$
|
|
11.41
|
|
(1) These share totals include both unvested shares and restricted stock units.
Share-based Compensation
The Company recorded the share-based compensation costs related to the RSUs and PRSUs for the Successor three months ended September 30, 2021, the Predecessor six months ended June 30, 2021, and three and nine months ended September 2020 of $15 million, $5 million, $1 million and $5 million, respectively.
As of September 30, 2021, total future compensation expense related to unvested RSUs was $116 million which will be recognized over a remaining weighted-average amortization period of approximately 2.3 years. As of September 30, 2021, total future compensation expense related to PRSUs was $161 million which will be recognized over approximately the next 2.4 years.
11. Earnings Per Share
Basic earnings per share is calculated by dividing the net loss attributable to Alight, Inc. by the weighted average number of shares of Class A Common Stock issued and outstanding for the Successor period. The computation of diluted earnings per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue shares were exercised or converted into shares or resulted in the issuance of shares that then would then share in the net income of Alight, Inc. The Company’s Class V Common Stock and Class Z Common Stock do not participate in the earnings or losses of the Company and are therefore not participating securities and have not been included in either the basic or diluted earnings per share calculations.
In conjunction with the Business Combination, the Company issued Seller Earnouts contingent consideration, which is payable in the Company’s common stock when the related market conditions are achieved. As the related conditions to pay the consideration had not been satisfied as of the end of the Successor period, the Seller Earnouts were excluded from the diluted earnings per share calculations.
Basic and diluted earnings per share are as follows (in millions, except for share and per share amounts):
|
|
|
Successor
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
|
|
|
2021
|
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
Net loss attributable to Alight, Inc. - basic and diluted
|
|
$
|
|
(107
|
)
|
|
Denominator
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
|
|
438,968,920
|
|
|
Basic and diluted net loss per share
|
|
$
|
|
(0.24
|
)
|
For the Successor three months ended September 30, 2021, 77,459,687 units related to noncontrolling interests, 59,633,274 warrants, and 9,988,297 unvested RSUs, were not included in the computation of diluted shares outstanding as their impact would have been anti-dilutive.
In addition, 14,999,998 shares related to the Seller Earnouts and 16,043,624 unvested PRSUs were excluded from the calculation of basic and diluted earnings per share as the market and performance conditions had not yet been met as of the end of the period.
25
12. Segment Reporting
The Company’s reportable segments have been determined using a management approach, which is consistent with the basis and manner in which the Company’s chief operating decision maker (“CODM”) uses financial information for the purposes of allocating resources and evaluating performance. The Company’s CODM is its Chief Executive Officer. The CODM evaluates the performance of the Company based on its total revenue and segment profit.
The CODM also uses revenue and segment profit to manage and evaluate our business, make planning decisions, and as performance measures for Company-wide bonus plans. These key financial measures provide an additional view of our operational performance over the long-term and provide useful information that we use in order to maintain and grow our business.
The accounting policies of the segments are the same as those described in Note 2 “Accounting Policies and Practices.” The Company does not report assets by reportable segments as this information is not reviewed by the CODM on a regular basis.
Information regarding the Company’s current reportable segments is as follows (in millions):
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2021
|
|
|
|
2021
|
|
|
2020
|
|
|
2020
|
|
|
Employer Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring
|
|
$
|
|
522
|
|
|
|
$
|
|
1,049
|
|
|
$
|
|
498
|
|
|
$
|
|
1,516
|
|
|
Project
|
|
|
|
65
|
|
|
|
|
|
107
|
|
|
|
|
61
|
|
|
|
|
162
|
|
|
Total Employer Solutions
|
|
|
|
587
|
|
|
|
|
|
1,156
|
|
|
|
|
559
|
|
|
|
|
1,678
|
|
|
Professional Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring
|
|
|
|
32
|
|
|
|
|
|
60
|
|
|
|
|
28
|
|
|
|
|
78
|
|
|
Project
|
|
|
|
61
|
|
|
|
|
|
124
|
|
|
|
|
65
|
|
|
|
|
194
|
|
|
Total Professional Services
|
|
|
|
93
|
|
|
|
|
|
184
|
|
|
|
|
93
|
|
|
|
|
272
|
|
|
Hosted Business
|
|
|
|
10
|
|
|
|
|
|
21
|
|
|
|
|
16
|
|
|
|
|
58
|
|
|
Total
|
|
$
|
|
690
|
|
|
|
$
|
|
1,361
|
|
|
$
|
|
668
|
|
|
$
|
|
2,008
|
|
|
|
|
Segment Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2021
|
|
|
|
2021
|
|
|
2020
|
|
|
2020
|
|
|
Employer Solutions
|
|
$
|
|
151
|
|
|
|
$
|
|
274
|
|
|
$
|
|
120
|
|
|
$
|
|
389
|
|
|
Professional Services
|
|
|
|
4
|
|
|
|
|
|
7
|
|
|
|
|
12
|
|
|
|
|
23
|
|
|
Hosted Business
|
|
|
|
(2
|
)
|
|
|
|
|
(3
|
)
|
|
|
|
—
|
|
|
|
|
4
|
|
|
Total of all reportable segments
|
|
|
|
153
|
|
|
|
|
|
278
|
|
|
|
|
132
|
|
|
|
|
416
|
|
|
Share-based compensation
|
|
|
|
15
|
|
|
|
|
|
5
|
|
|
|
|
1
|
|
|
|
|
5
|
|
|
Transaction and integration
|
|
|
|
3
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Non-recurring professional expenses(1)
|
|
|
|
17
|
|
|
|
|
|
18
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Transformation initiatives(2)
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
11
|
|
|
Restructuring
|
|
|
|
3
|
|
|
|
|
|
9
|
|
|
|
|
10
|
|
|
|
|
57
|
|
|
Other(3)
|
|
|
|
2
|
|
|
|
|
|
(5
|
)
|
|
|
|
4
|
|
|
|
|
28
|
|
|
Depreciation
|
|
|
|
14
|
|
|
|
|
|
49
|
|
|
|
|
24
|
|
|
|
|
66
|
|
|
Intangible amortization
|
|
|
|
74
|
|
|
|
|
|
100
|
|
|
|
|
51
|
|
|
|
|
151
|
|
|
Operating Income
|
|
|
|
25
|
|
|
|
|
|
102
|
|
|
|
|
42
|
|
|
|
|
98
|
|
|
Loss from change in fair value of financial instruments
|
|
|
|
90
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Loss from change in fair value of tax receivable agreement
|
|
|
|
27
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Interest expense
|
|
|
|
28
|
|
|
|
|
|
123
|
|
|
|
|
61
|
|
|
|
|
172
|
|
|
Other expense (income), net
|
|
|
|
—
|
|
|
|
|
|
9
|
|
|
|
|
3
|
|
|
|
|
(1
|
)
|
|
Loss Before Income Tax (Benefit) Expense
|
|
$
|
|
(120
|
)
|
|
|
$
|
|
(30
|
)
|
|
$
|
|
(22
|
)
|
|
$
|
|
(73
|
)
|
26
|
(1)
|
Non-recurring professional expenses primarily includes external advisor costs related to the Company’s Business Combination completed in the third quarter of 2021.
|
|
(2)
|
Transformation initiatives in fiscal year 2020 includes expenses related to enhancing our data center.
|
|
(3)
|
Other primarily includes long-term incentive expenses and expenses related to acquisitions in fiscal year 2020, offset by Other expense (income), net.
|
There was no single client who accounted for more than 10% of the Company’s revenues in any of the periods presented.
13. Derivative Financial Instruments
The Company is exposed to market risks, including changes in interest rates. To manage the risk related to these exposures, the Company has entered into various derivative instruments that reduce these risks by creating offsetting exposures.
Interest Rate Swaps
The Company has utilized swap agreements that will fix the floating interest rates associated with its Term Loan as shown in the following table:
|
Designation Date
|
|
Effective Date
|
|
Initial Notional Amount
|
|
|
Notional Amount Outstanding as of September 30, 2021
|
|
|
Fixed Rate
|
|
Expiration Date
|
|
July 2021
|
|
August 2020
|
|
|
|
557,500,000
|
|
|
|
|
557,500,000
|
|
|
|
2.5070
|
|
%
|
|
May 2022
|
|
July 2021
|
|
August 2020
|
|
|
|
89,863,420
|
|
|
|
|
98,078,920
|
|
|
|
3.0854
|
|
%
|
|
February 2023
|
|
July 2021
|
|
August 2020
|
|
|
|
181,205,050
|
|
|
|
|
168,155,300
|
|
|
|
0.7775
|
|
%
|
|
May 2024
|
|
July 2021
|
|
August 2020
|
|
|
|
388,877,200
|
|
|
|
|
373,963,200
|
|
|
|
0.7430
|
|
%
|
|
May 2024
|
|
July 2021
|
|
May 2022
|
|
|
|
220,130,318
|
|
|
|
n/a
|
|
|
|
0.5170
|
|
%
|
|
May 2024
|
|
July 2021
|
|
May 2022
|
|
|
|
306,004,562
|
|
|
|
n/a
|
|
|
|
0.5127
|
|
%
|
|
May 2024
|
Concurrent with execution of the Business Combination and the $556 million pay down of the Term Loan, three hedges were terminated, and two previously unfloored hedges were amended to incorporate an interest rate floor of 50 bps. All interest rate swaps were redesignated as cash flow hedges in accordance with ASC 805.
Our swap agreements amortize or accrete based on achieving targeted hedge ratios. All interest rate swaps have been designated as cash flow hedges. As a result of the amendment, the fair value of the instruments at the time of re-designation are being amortized into interest expense over the remaining life of the instruments.
Financial Instrument Presentation
The fair values and location of outstanding derivative instruments recorded in the Condensed Consolidated Balance Sheets are as follows (in millions):
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
|
5
|
|
|
|
$
|
|
—
|
|
|
Total
|
|
$
|
|
5
|
|
|
|
$
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
|
12
|
|
|
|
$
|
|
28
|
|
|
Other liabilities
|
|
|
|
1
|
|
|
|
|
|
19
|
|
|
Total
|
|
$
|
|
13
|
|
|
|
$
|
|
47
|
|
The Company estimates that approximately $2 million of derivative losses included in Accumulated other comprehensive loss as of September 30, 2021 will be reclassified into earnings over the next twelve months.
14. Financial Instruments
Seller Earnouts
Upon completion of the Business Combination, the equity owners of Alight Holdings received an earnout in the form of non-voting shares of Class B-1 and Class B-2 Common Stock, which automatically convert into Class A Common Stock if, at any time
27
during the seven years following the Closing Date certain criteria are achieved. See Note 9 “Stockholders’ and Members’ Equity” for additional information regarding the Seller Earnouts.
The portion of the Seller Earnouts related to employee compensation is accounted for as share-based compensation. See Note 10 “Share-Based Compensation Expense” for additional information.
The majority of the Seller Earnouts, which are not related to employee compensation, are accounted for as a contingent consideration liability at fair value within Financial instruments on the Condensed Consolidated Balance Sheets because the Seller Earnouts do not meet the criteria for classification within equity. This portion of the Seller Earnouts are subject to remeasurement at each balance sheet date and as of September 30, 2021, the Seller Earnouts had a fair value of $144 million. For the Successor three months ended September 30, 2021, a loss of $35 million was recorded in Loss from change in fair value of financial instruments in the Condensed Consolidated Statements of Comprehensive Income (Loss).
Warrants
In connection with the Business Combination, the Company has issued and outstanding warrants to purchase Class A common shares at a price of $11.50 per share, subject to adjustment for stock splits and/or extraordinary dividends, as described in the warrant agreement, including 10,000,000 warrants that were issued as a result of the consummation of the Forward Purchase Agreements (“Forward Purchase Warrants”). As of September 30, 2021, there were 59,633,274 warrants outstanding, which includes 34,499,941 Public Warrants, 10,000,000 Forward Purchase Warrants, and 15,133,333 Private Warrants that were exchanged for an equivalent number of Class C Units representing limited liability company interests of Alight Holdings and will have the same terms as the Private Warrants. Each of the Public Warrants, Forward Purchase Warrants and Class C Units (collectively the “Warrants”) are exercisable for one share of Alight, Inc. Class A Common Stock.
The Warrants will expire July 2, 2026, 5 years after the completion of the Business Combination and are exercisable beginning after certain lock-up periods as described in the warrant agreement. Once the warrants become exercisable, the Company may redeem for $0.01 per warrant the outstanding Public Warrants if the Company’s Class A Share price equals or exceeds $18.00 per share, subject to certain conditions and adjustments. If the Company’s Class A Share price is greater than $10.00 per share but less than $18.00 per share, then the Company may redeem Warrants for $0.10 per warrant, subject to certain conditions and adjustments. Holders may elect to exercise their warrants on a cashless basis.
The Company accounts for Warrants as liabilities at fair value within Financial instruments on the Condensed Consolidated Balance Sheets because the Warrants do not meet the criteria for classification within equity. The Warrants are subject to remeasurement at each balance sheet date. As of September 30, 2021, the Warrants had a fair value of $182 million. For the Successor three months ended September 30, 2021, a loss of $55 million was recorded in Loss from change in fair value of financial instruments in the Condensed Consolidated Statements of Comprehensive Income (Loss).
15. Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting standards related to fair value measurements include a hierarchy for information and valuations used in measuring fair value that is broken down into three levels based on reliability, as follows:
|
|
•
|
Level 1 – observable inputs such as quoted prices in active markets for identical assets and liabilities;
|
|
|
•
|
Level 2 – inputs other than quoted prices for identical assets in active markets that are observable either directly or indirectly; and
|
|
|
•
|
Level 3 – unobservable inputs in which there is little or no market data which requires the use of valuation techniques and the development of assumptions.
|
28
The Company’s financial assets and liabilities measured at fair value on a recurring basis are as follows (in millions):
|
|
|
Successor
|
|
|
|
|
September 30, 2021
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
—
|
|
|
$
|
|
5
|
|
|
$
|
|
—
|
|
|
$
|
|
5
|
|
|
Total assets recorded at fair value
|
|
$
|
|
—
|
|
|
$
|
|
5
|
|
|
$
|
|
—
|
|
|
$
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
—
|
|
|
$
|
|
13
|
|
|
$
|
|
—
|
|
|
$
|
|
13
|
|
|
Contingent consideration liability
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
29
|
|
|
|
|
29
|
|
|
Seller Earnouts liability
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
144
|
|
|
|
|
144
|
|
|
Warrant liability
|
|
|
|
182
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
182
|
|
|
Tax receivable agreement liability
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
605
|
|
|
|
|
605
|
|
|
Total liabilities recorded at fair value
|
|
$
|
|
182
|
|
|
$
|
|
13
|
|
|
$
|
|
778
|
|
|
$
|
|
973
|
|
|
|
|
Predecessor
|
|
|
|
|
December 31, 2020
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
—
|
|
|
$
|
|
47
|
|
|
$
|
|
—
|
|
|
$
|
|
47
|
|
|
Foreign currency hedges
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Contingent consideration liability
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
26
|
|
|
|
|
26
|
|
|
Total liabilities recorded at fair value
|
|
$
|
|
—
|
|
|
$
|
|
47
|
|
|
$
|
|
26
|
|
|
$
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
The valuations of the derivatives intended to mitigate our interest rate risk are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable market-based inputs, including interest rate curves, interest rate volatility, or spot and forward exchange rates, and reflects the contractual terms of these instruments, including the period to maturity. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential non-performance risk.
Warrants
The Company accounts for the Warrants for the Company’s Class A Common Stock as liabilities at fair value because the warrants do not meet the criteria for classification within equity. The provisions of all warrant agreements provide similar value to its holders; therefore, all Warrants are valued based on the closing market price of the applicable date of the Condensed Consolidated Balance Sheets, within Financial instruments. The change in the fair value of the Warrant liability is recorded in Loss from change in fair value of financial instruments in the Condensed Consolidated Statements of Comprehensive Income (Loss).
Contingent Consideration
The contingent consideration liabilities relate to acquisitions completed during the years ended December 31, 2020 and 2018, and are included in Other current liabilities and Other liabilities on the Condensed Consolidated Balance Sheets. The fair value of these liabilities is determined using a discounted cash flow analysis. Changes in the fair value of the liabilities are included in Other expense, net in the Condensed Consolidated Statements of Comprehensive Income (Loss). Significant unobservable inputs are used in the assessment of fair value, including assumptions regarding discount rates and probability assessments based on the likelihood of reaching the various targets set out in the acquisition agreements. The following table summarizes the changes in deferred contingent consideration liabilities (in millions):
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2021
|
|
|
|
2021
|
|
|
2020
|
|
|
2020
|
|
|
Beginning balance
|
|
$
|
|
29
|
|
|
|
$
|
|
26
|
|
|
$
|
|
22
|
|
|
$
|
|
22
|
|
|
Acquisitions
|
|
|
|
—
|
|
|
|
|
|
2
|
|
|
|
|
3
|
|
|
|
|
3
|
|
|
Accretion of contingent consideration
|
|
|
|
—
|
|
|
|
|
|
1
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Ending Balance
|
|
$
|
|
29
|
|
|
|
$
|
|
29
|
|
|
$
|
|
25
|
|
|
$
|
|
25
|
|
29
Seller Earnouts
The Company accounts for the Seller Earnouts as contingent consideration liabilities at fair value in Financial Instruments in the Condensed Consolidated Balance Sheets. The fair value of the Seller Earnouts is determined using Monte Carlo simulation and Option Pricing Methods. Changes in the fair value of the liability is included in Loss from change in fair value of financial instruments in the Condensed Consolidated Statements of Comprehensive Income (Loss). Significant unobservable inputs are used in the assessment of fair value, including the following assumptions: volatility, risk-free interest rate, expected holding period and probability assessments based on the likelihood of reaching the performance targets defined in the Business Combination.
Tax Receivable Agreement
In connection with the Business Combination, Alight entered into the Tax Receivable Agreement (the “TRA”) with certain owners of Alight Holdings prior to the Business Combination. Pursuant to the TRA, we will pay certain sellers, as applicable, 85% of the tax benefits, of any savings that we realize, calculated using certain assumptions, as a result of (i) tax basis adjustments from sales and exchanges of Alight Holdings equity interests in connection with or following the Business Combination and certain distributions with respect to Alight Holdings equity interests, (ii) our utilization of certain tax attributes, and (iii) certain other tax benefits related to entering into the TRA.
Actual tax benefits realized by Alight may differ from tax benefits calculated under the TRA as a result of the use of certain assumptions in the TRA, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits. While the amount of existing tax basis, the anticipated tax basis adjustments and the actual amount and utilization of tax attributes, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, we expect that the payments that Alight may make under the TRA may be substantial.
The Company’s TRA liability and Seller Earnouts liability are measured at fair value on a recurring basis using significant unobservable inputs (Level 3). The fair value of the TRA and Seller Earnouts are preliminary and the final fair value could have a material impact on the preliminary purchase price allocation disclosed. The fair values will be finalized as soon as practicable, but no later than one year from the acquisition date. The following table provides a reconciliation of the TRA liability and Seller Earnout liability for the Successor three months ended September 30, 2021:
|
|
|
Successor
|
|
|
|
|
TRA
|
|
|
Seller Earnouts
|
|
|
|
|
Liability
|
|
|
Liability
|
|
|
Balance at July 1, 2021
|
|
$
|
|
578
|
|
|
$
|
|
109
|
|
|
Loss from change in fair value of TRA
|
|
|
|
27
|
|
|
|
|
—
|
|
|
Loss from change in fair value of Seller Earnouts
|
|
|
|
—
|
|
|
|
|
35
|
|
|
Balance at September 30, 2021
|
|
$
|
|
605
|
|
|
$
|
|
144
|
|
30
Non-Recurring Fair Value Measurements
The Company’s financial liabilities not measured at fair value on a recurring basis are as follows (in millions):
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
September 30, 2021
|
|
|
|
December 31, 2020
|
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long term debt, net
|
|
$
|
|
43
|
|
|
$
|
|
43
|
|
|
|
$
|
|
37
|
|
|
$
|
|
37
|
|
|
Long term debt, net
|
|
|
|
2,839
|
|
|
|
|
2,848
|
|
|
|
|
|
4,041
|
|
|
|
|
4,090
|
|
|
Total
|
|
$
|
|
2,882
|
|
|
$
|
|
2,891
|
|
|
|
$
|
|
4,078
|
|
|
$
|
|
4,127
|
|
The carrying value of the Term Loan, Secured Senior Notes and Unsecured Senior Notes include the outstanding principal balances, less any unamortized discount or premium. The carrying value of the Term Loan approximates fair value as it bears interest at variable rates and we believe our credit risk is consistent with when the debt originated. The outstanding balances under the Senior Notes have fixed interest rates and the fair value is classified as Level 2 within the fair value hierarchy and corroborated by observable market data (see Note 8 “Debt”).
The carrying amounts of Cash and cash equivalents, Receivables, net and Accounts payable and accrued liabilities approximate their fair values due to the short-term maturities of these instruments.
During the Successor three months ended September 30, 2021 and the Predecessor six months ended June 30, 2021, and three and nine months ended September 30, 2020 there were no transfers in or out of the Level 1, Level 2 or Level 3 classifications.
16. Restructuring and Integration
During the third quarter of 2019, management initiated a restructuring and integration plan (“the Plan”) following the completion of the Hodges acquisition and in anticipation of the NGA HR acquisition, which was completed on November 1, 2019. The Plan is intended to integrate and streamline operations across the Company and is expected to generate cost reductions related to position eliminations and facility and system rationalizations. The Company expects to incur costs related to severance, contract and lease exits and other related costs. The Company expects these restructuring and integration activities and related expenses to affect continuing operations through the first quarter of 2022.
The Plan is expected to result in cumulative costs of approximately $135 million through the end of the plan, consisting of approximately $80 million in severance and related benefits, and approximately $55 million in other costs, including technology realization, lease consolidation costs, advisory and consulting fees. The Plan is expected to generate annual cost savings of approximately $196 million by 2022.
From the inception of the Plan through September 30, 2021, the Company has incurred total expenses of $103 million. These charges are recorded in Cost of services, exclusive of depreciation and amortization and Selling, general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Income (Loss).
The following table summarizes restructuring costs by type that have been incurred through September 30, 2021 and are estimated to be incurred through the end of the Plan. Estimated costs by type may be revised in future periods as these assumptions are updated:
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
Estimated
|
|
|
Estimated
|
|
|
|
|
September 30,
|
|
|
|
June 30,
|
|
|
Inception to
|
|
|
Remaining
|
|
|
Total
|
|
|
|
|
2021
|
|
|
|
2021
|
|
|
Date
|
|
|
Costs
|
|
|
Cost(1)
|
|
|
Employer Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Related Benefits
|
|
$
|
|
1
|
|
|
|
$
|
|
6
|
|
|
$
|
|
46
|
|
|
$
|
|
21
|
|
|
$
|
|
67
|
|
|
Other Restructuring Costs(2)
|
|
|
|
2
|
|
|
|
|
|
2
|
|
|
|
|
44
|
|
|
|
|
4
|
|
|
|
|
48
|
|
|
Total Employer Solutions
|
|
$
|
|
3
|
|
|
|
$
|
|
8
|
|
|
$
|
|
90
|
|
|
$
|
|
25
|
|
|
$
|
|
115
|
|
|
Professional Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Related Benefits
|
|
$
|
|
—
|
|
|
|
$
|
|
1
|
|
|
$
|
|
8
|
|
|
$
|
|
5
|
|
|
$
|
|
13
|
|
|
Other Restructuring Costs(2)
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
5
|
|
|
|
|
2
|
|
|
|
|
7
|
|
|
Total Professional Services
|
|
$
|
|
—
|
|
|
|
$
|
|
1
|
|
|
$
|
|
13
|
|
|
$
|
|
7
|
|
|
$
|
|
20
|
|
|
Total Restructuring Costs
|
|
$
|
|
3
|
|
|
|
$
|
|
9
|
|
|
$
|
|
103
|
|
|
$
|
|
32
|
|
|
$
|
|
135
|
|
|
(1)
|
Actual costs, when incurred, may vary due to changes in the assumptions built into the Plan. Significant assumptions that may change when plans are finalized and implemented include, but are not limited to, changes in severance calculations, changes in the assumptions underlying
|
31
|
|
sublease loss calculations due to changing market conditions, and changes in the overall analysis that might cause the Company to add or cancel component initiatives.
|
|
(2)
|
Other costs associated with the Plan primarily include consulting and legal fees and lease consolidation.
|
As of September 30, 2021, approximately $4 million of the restructuring liability is unpaid and is recorded in Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets.
|
|
|
Predecessor
|
|
|
|
|
Severance and Related Benefits
|
|
|
Other Restructuring Costs
|
|
|
Total
|
|
|
Accrued restructuring liability as of December 31, 2020
|
|
$
|
|
12
|
|
|
$
|
|
3
|
|
|
$
|
|
15
|
|
|
Restructuring charges
|
|
|
|
7
|
|
|
|
|
2
|
|
|
|
|
9
|
|
|
Cash payments
|
|
|
|
(13
|
)
|
|
|
|
(5
|
)
|
|
|
|
(18
|
)
|
|
Accrued restructuring liability as of June 30, 2021
|
|
$
|
|
6
|
|
|
$
|
|
—
|
|
|
$
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
Severance and Related Benefits
|
|
|
Other Restructuring Costs
|
|
|
Total
|
|
|
Accrued restructuring liability as of July 1, 2021
|
|
$
|
|
6
|
|
|
$
|
|
—
|
|
|
$
|
|
6
|
|
|
Restructuring charges
|
|
|
|
1
|
|
|
|
|
2
|
|
|
|
|
3
|
|
|
Cash payments
|
|
|
|
(3
|
)
|
|
|
|
(2
|
)
|
|
|
|
(5
|
)
|
|
Accrued restructuring liability as of September 30, 2021
|
|
$
|
|
4
|
|
|
$
|
|
—
|
|
|
$
|
|
4
|
|
17. Employee Benefits
Defined Contribution Savings Plans
Certain of the Company’s employees participate in a defined contribution savings plan sponsored by the Company. For the Successor three months ended September 30, 2021 and the Predecessor six months ended June 30, 2021 and three and nine months ended September 30, 2020, expenses were $11 million, $31 million, $9 million and $38 million, respectively. Expenses were recognized in Cost of services, exclusive of depreciation and amortization and Selling, general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Income (Loss).
18. Commitments and Contingencies
Legal
The Company is subject to various claims, tax assessments, lawsuits, and proceedings that arise in the ordinary course of business relating to the delivery of our services and the effectiveness of our technologies. The damages claimed in these matters are or may be substantial. Accruals for any exposures, and related insurance or other receivables, when applicable, are included on the Condensed Consolidated Balance Sheets and have been recognized in Selling, general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Income (Loss) to the extent that losses are deemed probable and are reasonably estimable. These amounts are adjusted from time to time as developments warrant. Management believes that the reserves established are appropriate based on the facts currently known. The reserves recorded at September 30, 2021 and December 31, 2020 were not significant.
Guarantees and Indemnifications
The Company provides a variety of service performance guarantees and indemnifications to its clients. The maximum potential amount of future payments represents the notional amounts that could become payable under the guarantees and indemnifications if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or other methods. These notional amounts may bear no relationship to the future payments that may be made, if any, for these guarantees and indemnifications.
To date, the Company has not been required to make any payment under any client arrangement as described above. The Company has assessed the current status of performance risk related to the client arrangements with performance guarantees and believes that any potential payments would be immaterial to the Condensed Consolidated Financial Statements.
32
Purchase Obligations
The Company’s expected cash outflow for non-cancellable purchase obligations related to purchases of information technology assets and services is $6 million, $26 million, $26 million, $27 million, $9 million, and $7 million, for the remainder of 2021 and the years ended 2022, 2023, 2024, 2025, and thereafter, respectively.
Service Obligations
On September 1, 2018, the Company executed an agreement to form a strategic partnership with Wipro, a leading global information technology, consulting and business process services company.
The Company’s expected cash outflow for non-cancellable service obligations related to our strategic partnership with Wipro is $34 million, $141 million, $147 million, $154 million, $162 million and $502 million for the remainder of 2021 and the years ended 2022, 2023, 2024, 2025 and thereafter, respectively.
The Company may terminate its arrangement with Wipro for cause or for the Company’s convenience. In the case of a termination for convenience, the Company would be required to pay a termination fee, including certain of Wipro’s unamortized costs, plus 25% of any remaining portion of the minimum level of services the Company agreed to purchase from Wipro over the course of 10 years.
19. Subsequent Events
In October 2021, the Company completed the acquisition of the Aon Retiree Health Exchange business from Aon plc for approximately $200 million. The Aon Retiree Health Exchange is a leading retiree healthcare insurance exchange platform, serving employers and their retirees. Aon Retiree Health Exchange expands Alight’s ability to serve employees from hire to retire by providing additional scale, expertise and capabilities in Medicare enrollment.
In October 2021, the Company completed the acquisition of ConsumerMedical, a leading clinical advocacy, decision support and expert second opinion company with a long history of helping individuals through some of the nation’s largest employers, health plans, carriers and private exchanges. This acquisition is not expected to be material to our consolidated results.
In August 2021, the Company entered into an incremental Term Loan facility in the amount of $525 million to be used for both acquisitions and general corporate purposes, as disclosed in the notes above.
Events and transactions occurring through the date of issuance of these financial statements have been evaluated by management and, when appropriate, recognized or disclosed in the financial statements or the notes to the Condensed Consolidated Financial Statements.
33