Alight, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts are in U.S. dollars; financial amounts below are in millions unless stated otherwise.
Business context and reporting comparability
Alight provides cloud-based human capital technology and services, primarily through Employer Solutions, alongside Professional Services and Hosted Business. The filing compares the 2022 “Successor” with 2021 “Predecessor” periods. The July 2021 business combination changed accounting basis, taxes, acquired-intangible amortization, share-based compensation and debt structure; accordingly, comparisons are not fully like-for-like.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $715 | $672 | $1,440 | $1,361 |
| Gross profit / margin | $219 / 30.6% | $217 / 32.3% | $442 / 30.7% | $435 / 32.0% |
| Operating income (loss) | $(23) | $56 | $(25) | $102 |
| Net income (loss) | $52 | $(4) | $39 | $(25) |
| Net income (loss) attributable to Alight | $51 | $(4) | $40 | $(25) |
| Adjusted EBITDA (non-GAAP) | $142 | $145 | $284 | $278 |
| Adjusted EBITDA less capital expenditures (non-GAAP) | $104 | $117 | $205 | $223 |
Q2 basic and diluted EPS were $0.11 and $0.10; six-month basic and diluted EPS were $0.09 and $0.07. Net income benefited from fair-value gains of $50 on financial instruments and $38 on the tax receivable agreement (TRA) in Q2; these non-operating gains more than offset the operating loss. Q2 cost of services rose 11% and SG&A rose 50% year over year; higher acquired-intangible amortization also weighed on operating results.
Q2 revenue increased 6% year over year, with Employer Solutions up 8%; Professional Services was down 1% and Hosted Business down 9%. BPaaS revenue was $128, up 36%, while BPaaS bookings were $234, down 3%. For the first half, BPaaS revenue was $242, up 29%, and bookings were $356, up 27%. Professional Services project revenue was affected by client timing delays, and its adjusted EBITDA was $(3) in both Q2 and the first half.
Cash provided by operating activities was $118 for the first half, versus $58 in the comparable 2021 period. Capital expenditures were $79, versus $55; cash used in financing was $56. Cash and cash equivalents were $272 at June 30, down from $372 at year-end 2021. An additional $1,354 of fiduciary cash was held for clients and is not available for corporate purposes.
Total debt, net, was $2,840, including $31 current and $2,809 long-term; cash borrowing availability under the $294 revolving facility was unused apart from $4 of letters of credit. Debt fair value was reported as $2,687. The company refinanced term loans in January 2022, with the principal term loan now maturing in 2028 and bearing SOFR plus 300 basis points. Management said liquidity, operating cash flows and revolver availability should cover foreseeable needs, while noting it is monitoring rising interest rates.
Material changes, outlook and risks
- Recurring revenue rose 8% in Q2 and 7% in the first half; first-half project revenue declined 2%. Growth reflected acquisitions, volumes and net commercial activity, while higher delivery, investment and compensation costs constrained margins.
- Interest expense fell to $29 in Q2 from $61 and to $58 in the first half from $123, primarily following debt reduction and refinancing after the business combination. Interest paid in the first half was $63.
- The company’s restructuring plan is expected to run through Q4 2022, with estimated total costs of about $140 and expected annual cost savings of about $196 by 2022. $125 of costs had been incurred through June 30; actual costs and savings may differ.
- TRA liability was $537, including $7 current. Management did not expect material TRA payments within the next year and anticipated payments becoming more material beginning in 2024. The agreement provides certain former owners 85% of specified tax benefits.
- Non-cancellable Wipro service obligations total about $1.04 billion over the periods disclosed, including $71 for the remainder of 2022. Termination for convenience may require a fee, including a portion of remaining minimum service commitments.
- No material changes to previously disclosed risk factors were reported. Risks include economic and inflationary pressures, competition, cybersecurity and data protection, execution of technology and operational initiatives, client timing, interest rates, litigation and reliance on third-party providers.
- On August 1, 2022, after quarter-end, the board authorized up to $100 of share repurchases, without an obligation to purchase shares or an expiration date. Management also reported an internal realignment of certain executive responsibilities.
Important facts for investors to verify
- Assess the quality and durability of revenue growth, particularly BPaaS bookings versus revenue and the recovery of Professional Services project demand.
- Reconcile GAAP operating losses and net income with adjusted EBITDA, including the effects of fair-value gains, amortization, share-based compensation and restructuring adjustments.
- Track cash generation after capital expenditures, corporate cash excluding fiduciary funds, debt maturities, floating-rate exposure and refinancing terms.
- Monitor restructuring spending against the remaining estimated $15 and whether the stated cost savings are achieved.
- Review assumptions underlying TRA payments, Seller Earnout valuations and the proposed share repurchase program.