Alight, Inc. — 2021 Form 10-K
Business context and reporting period. Alight provides cloud-based human capital and business services, including benefits administration, healthcare navigation, payroll, employee wellbeing, and cloud consulting. The fiscal year ended December 31, 2021. Alight completed its business combination on July 2, 2021; consequently, its financial statements report six months as the “Predecessor” and six months as the “Successor.” Management’s combined-year comparisons add those periods together, but are not U.S. GAAP results or pro forma financial statements.
Key financial results
| Metric | 2021 | Comparable period / change |
|---|---|---|
| Revenue | $2.915 billion combined | $2.728 billion in 2020; up 7% |
| Recurring revenue | $2.429 billion combined | $2.231 billion in 2020; up 9% |
| BPaaS revenue / bookings | $390 million / $602 million | Revenue up 17%; bookings up 128% versus 2020 |
| Gross profit | $967 million combined | $834 million in 2020; combined gross margin approximately 33%, versus 31% |
| Operating income | $167 million combined | $147 million in 2020; combined operating margin approximately 6%, versus 5% |
| Adjusted EBITDA | $621 million combined | $564 million in 2020; up 10%. Non-GAAP measure. |
| Net income (loss) | $73 million net loss when reported six-month periods are added | $103 million net loss in 2020. The combined amount is not a GAAP annual result. |
| Cash from operations | $115 million combined | $233 million in 2020; down 51% |
| Capital expenditures | $114 million combined | $90 million in 2020 |
| Cash and cash equivalents | $372 million at year-end | $506 million at December 31, 2020 |
| Debt | $2.868 billion carrying value; $2.858 billion contractual principal | $4.078 billion carrying value at December 31, 2020 |
Adjusted EBITDA less capital expenditures was $507 million combined, versus $474 million in 2020; this non-GAAP measure is not cash available for discretionary use. Cash flow from operations declined, which management attributed principally to higher working-capital requirements and non-cash items related to the business combination.
Material changes and segment trends
- Employer Solutions revenue rose 9% to $2.503 billion combined, primarily reflecting acquisition-related revenue, higher volumes, commercial activity, and transitions to cloud services. Annual revenue retention was 97%, versus 96% in 2020. Segment Adjusted EBITDA increased to $618 million from $533 million.
- Professional Services revenue was $370 million combined, up 1%. Segment Adjusted EBITDA fell to $8 million from $31 million, as higher investment and delivery costs outweighed revenue growth.
- Hosted Business revenue declined 42% to $42 million as clients moved to cloud-based services; segment Adjusted EBITDA was a $5 million loss.
- Interest expense fell 23% to $180 million combined, primarily following redemption of unsecured senior notes and partial repayment of the term loan in connection with the business combination.
- SG&A increased 14% to $526 million combined, reflecting compensation awards and business-combination professional costs. Depreciation and intangible amortization increased 21% to $274 million, principally due to purchase-accounting intangibles and acquisitions.
Liquidity, debt, and unusual items
- Year-end cash and cash equivalents were $372 million. A further $1.280 billion of fiduciary assets was held for clients, matched by fiduciary liabilities, and is not available for corporate purposes. Management said available cash, operating cash flow, and revolving-credit availability should meet foreseeable liquidity needs.
- Debt carrying value was $2.868 billion, including $38 million current and $2.830 billion long-term. The company disclosed approximately $2.6 billion of variable-rate debt exposure. It uses interest-rate swaps to hedge part of that exposure; a 25-basis-point increase above the loan floor on the unhedged portion was estimated to increase annual interest expense by $1 million.
- The balance sheet included a $581 million Tax Receivable Agreement (TRA) liability. Alight is generally required to pay former owners 85% of specified realized or deemed tax benefits. The company did not expect material TRA payments within two years, with payments expected to become more material beginning in 2024. It cautioned that payments may exceed actual cash tax benefits and may be accelerated on certain change-of-control events.
- Successor-period results included a $65 million loss from fair-value changes in financial instruments, including warrant and seller-earnout remeasurement, and a $37 million gain from TRA remeasurement. Most warrants were exercised or redeemed in December 2021; none remained outstanding at year-end.
- 2021 included the July business combination and October acquisition of AON Retiree Health Exchange for approximately $199 million. Combined-year comparisons are affected by acquisition accounting and the changed corporate tax structure.
- Contractual commitments included $2.858 billion of debt principal, $210 million of operating leases, $65 million of finance leases, and $95 million of purchase obligations. The Wipro partnership had $1.106 billion of non-cancellable service obligations, including $141 million expected in 2022; estimated termination charges were at least $377 million as of year-end.
- The company cited continuing risks from COVID-19, cyber incidents and data privacy, competition, regulation, talent and wage pressures, client-fund handling, service delivery, and variable interest rates. It gave no specific financial guidance in the provided filing text. Management said liquidity remained strong while it continued to monitor economic conditions.
- Alight reported that disclosure controls were effective. Management did not provide an assessment of internal control over financial reporting for 2021, citing the business combination and the inability to complete the assessment without unreasonable effort or expense. The auditor issued an unqualified opinion on the financial statements but did not audit internal controls.
Important facts for investors to verify
- Assess underlying growth and profitability using the reported Predecessor and Successor periods, and distinguish management’s non-GAAP combined-year comparisons from GAAP results.
- Track operating cash flow, working-capital movements, capital spending, and the gap between Adjusted EBITDA and cash generation.
- Review debt maturities, variable-rate exposure, hedge coverage, and the effect of subsequent SOFR refinancing disclosed in the filing.
- Monitor TRA liability assumptions, future payments, and potential acceleration; the recorded $581 million fair value depends on significant estimates.
- Verify acquisition integration, retention, BPaaS bookings conversion, and the economics of the transition away from Hosted Business, including the Wipro commitment.
- Consider dilution and governance: significant investors held substantial voting influence, additional shares could be issued, and the company said it had no plans to pay cash dividends in the foreseeable future.