S-1 1 d621537ds1.htm S-1 S-1
Table of Contents

As filed with the Securities and Exchange Commission on February 14, 2019.

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Alight Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   7374   83-1936294

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

4 Overlook Point

Lincolnshire, Illinois 60069

Telephone: (224) 737-7000

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Paulette R. Dodson

Executive Vice President—Legal, General Counsel & Corporate Secretary

Alight Inc.

4 Overlook Point

Lincolnshire, Illinois 60069

Telephone: (224) 737-7000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Joshua Ford Bonnie

Edgar J. Lewandowski

Simpson Thacher & Bartlett LLP

900 G Street, N.W.

Washington, D.C. 20001

Telephone: (202) 636-5500

 

Joshua N. Korff

Michael Kim

Luke R. Jennings

Kirkland & Ellis LLP

601 Lexington Avenue

New York, New York 10022

Telephone: (212) 446-4800

 

 

Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after the Registration Statement is declared effective.

 

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Proposed

Maximum
Aggregate

Offering Price(1)(2)

 

Amount of

Registration Fee

Class A Common Stock, par value $0.01 per share

 

$100,000,000

  $12,120

 

 

(1)

Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.

(2)

Includes                  shares of Class A common stock that are subject to the underwriters’ option to purchase additional shares.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2019

PRELIMINARY PROSPECTUS

             Shares

 

 

LOGO

Alight Inc.

Class A Common Stock

$         per share

 

 

This is the initial public offering of shares of Class A common stock of Alight Inc. We are selling                  shares of our Class A common stock. We currently expect the initial public offering price to be between $         and $         per share of Class A common stock. We have applied to list our shares of Class A common stock on the Nasdaq Global Select Market (“Nasdaq”) under the trading symbol “ALIT.”

Holders of shares of our Class A common stock are entitled to one vote for each share of Class A common stock held of record on all matters on which stockholders are entitled to vote generally. Each holder of Class B common stock shall be entitled, without regard to the number of shares of Class B common stock held by such holder, to one vote for each LLC Unit (as defined herein) held by such holder on all matters on which stockholders of Alight Inc. are entitled to vote generally. See “Description of Capital Stock.”

After the completion of this offering, affiliates of The Blackstone Group L.P. and the Co-Investors (as defined herein) will be parties to a stockholders agreement and will beneficially own approximately     % of the combined voting power of our Class A and Class B common stock (or     % if the underwriters exercise in full their option to purchase additional shares of Class A common stock). As a result, we will be a “controlled company” within the meaning of the Nasdaq corporate governance standards. See “Management—Controlled Company Exception” and “Principal Stockholders.”

Alight Inc. intends to use all of the net proceeds from this offering (including from any exercise by the underwriters of their option to purchase additional shares of Class A common stock) to purchase a number of newly issued LLC Units from Alight OpCo (as defined herein) that is equivalent to the number of shares of Class A common stock that we offer and sell in this offering, as described under “Organizational Structure—Offering Transactions.” Alight Inc. intends to cause Alight OpCo to use these proceeds to repay a portion of our senior secured credit facilities and senior notes. See “Use of Proceeds.”

 

 

Investing in shares of our Class A common stock involves risks. See “Risk Factors” beginning on page 19.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

     Per
Share
     Total  

Initial public offering price

   $                    $                

Underwriting discounts and commissions

   $        $    

Proceeds, before expenses, to Alight Inc.

   $        $    

Please see the section entitled “Underwriting” for a description of compensation payable to the underwriters.

To the extent that the underwriters sell more than                  shares of our Class A common stock, the underwriters have the option to purchase up to an additional                  shares of our Class A common stock from us at the initial public offering price less the underwriting discount, within 30 days from the date of this prospectus.

The underwriters expect to deliver the shares of our Class A common stock against payment in New York, New York on or about                 , 2019.

 

 

 

BofA Merrill Lynch   J.P. Morgan   Morgan Stanley

 

 

The date of this prospectus is                 , 2019.

 


Table of Contents

LOGO


Table of Contents

Table of Contents

 

 

 

 

Neither we nor the underwriters have authorized anyone to provide you with information different from that contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by us or on our behalf. Neither we nor the underwriters take any responsibility for, or can provide any assurance as to the reliability of, any information other than the information in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by us or on our behalf. We and the underwriters are offering to sell, and seeking offers to buy, shares of our Class A common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our Class A common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

Through and including                 , 2019 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

About This Prospectus

Financial Statement Presentation

This prospectus includes certain historical condensed and consolidated financial and other data for Tempo Holding Company, LLC, a Delaware limited liability company (“Alight OpCo”). Following this offering, Alight OpCo will be the predecessor of Alight Inc. for financial reporting purposes. Immediately following this offering, Alight Inc. will be a holding company, and its sole material asset will be a controlling equity interest in Alight OpCo. As the sole managing member of Alight OpCo, Alight Inc. will operate and control all of the business and affairs of Alight OpCo and, through Alight OpCo and its subsidiaries, conduct our business. The reorganization will be accounted for as a reorganization of entities under common control. As a result, the consolidated financial statements of Alight Inc. will recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical financial statements of Alight OpCo. Alight Inc. will consolidate

 

  i  


Table of Contents

Alight OpCo on its consolidated financial statements and record a noncontrolling interest related to the LLC Units (as defined below) held by our pre-IPO owners on its consolidated balance sheet and statement of operations.

On May 1, 2017, Tempo Acquisition, LLC, a wholly-owned subsidiary of Alight OpCo, acquired the technology-enabled human resources (“HR”) business of Aon, plc (“Aon”) (such transaction, the “Separation”). Tempo Acquisition, LLC applied acquisition accounting under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations. As Tempo Acquisition, LLC did not have any previous operations, the Alight business previously owned by Aon is viewed as the predecessor to Alight OpCo and its consolidated subsidiaries. Accordingly, the audited consolidated financial statements of Alight OpCo include a black line as of April 30, 2017, and present combined carve-out information of the predecessor for periods prior to April 30, 2017 and consolidated information of the successor for periods following April 30, 2017.

Exit from Hosted Business

We report our results of operations in two segments: Solutions and Hosted Business. In 2014, we stopped actively pursuing new clients in our Hosted Business and instead chose to focus our strategic efforts and resources on enhancing our suite of Human Capital Management (“HCM”) solutions to help clients realize the benefits of cloud-based solutions. While we have successfully migrated a significant number of our Hosted clients to cloud-based solutions, we continue to support a number of active Hosted clients under agreements that are scheduled to expire by 2023. Accordingly, while we will continue to perform our existing Hosted Business agreements, we do not intend to renew such agreements or enter into any new Hosted Business agreements. See “Business—Hosted Business Services.”

Certain Definitions

As used in this prospectus, unless otherwise noted or the context requires otherwise:

 

   

“Alight,” the “Company,” “we,” “us” and “our” refer (1) prior to the consummation of the Offering Transactions described under “Organizational Structure—Offering Transactions,” to Alight OpCo and its consolidated subsidiaries and (2) after the Offering Transactions described under “Organizational Structure—Offering Transactions,” to Alight Inc. and its consolidated subsidiaries.

 

   

“Blackstone” or “our Sponsor” refer to investment funds associated with The Blackstone Group L.P.

 

   

“Co-Investors” refers to certain co-investors who, together with Blackstone, will be parties to the stockholders agreement we intend to enter into in connection with this offering.

 

   

“Existing owners” or “pre-IPO owners” refer collectively to Blackstone, the Co-Investors and the management and other equity holders who are the owners of Alight immediately prior to the Offering Transactions.

Descriptions of our “solutions” in this prospectus refer to the solutions that we offer through our Solutions segment.

 

 

Unless indicated otherwise, the information included in this prospectus assumes no exercise by the underwriters of their option to purchase up to an additional                  shares of Class A common stock from us and that the shares of Class A common stock to be sold in this offering are sold at $         per share, which is the midpoint of the price range indicated on the front cover of this prospectus.

 

  ii  


Table of Contents

SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in shares of our Class A common stock. You should read this entire prospectus carefully, including the section entitled “Risk Factors” and the financial statements and the related notes thereto included elsewhere in this prospectus, before you decide to invest in shares of our Class A common stock.

Overview

Alight is a leading provider of integrated, cloud-based human capital solutions that empower our clients and their employees to manage their health, wealth and HR needs. Our scale, 25+ year operating history, deep domain expertise and technology platforms enable us to serve the complex demands of our clients and today’s workforce. We provide solutions to nearly 3,000 employers, including 66 of the Fortune 100 and 240 of the Fortune 500, and serve 22 million of their current and former employees and their 18 million family members. In 2017, we processed more than 340 million benefits and HR transactions.

Employers are continuously competing to attract, engage and retain talent. Critical to that effort is the seamless delivery of comprehensive health, wealth and HR programs that create an enriched employee experience. Employers are also confronted with rising costs, increasing regulation, growing administrative complexity and the need to integrate and deploy new technologies to address their benefits and HR requirements. At the same time, employees are increasingly required to take greater responsibility for their healthcare and financial decisions and expect an integrated, consumer-centric experience.

We address these challenges for both employers and their employees. We offer innovative, consumer-focused solutions that allow our clients to engage and enable their employees to make better choices while controlling cost, managing risk and driving better business results. When an employee starts a new job, enrolls in healthcare or retirement plans, receives a paycheck, or experiences a variety of life events, our solutions enable employees to comprehensively manage their total well-being across health, wealth and work from employment through retirement. Our solutions include:

 

   

Health Solutions: We are the #1 provider of health technology and administration solutions that enable employees to enroll in and manage their medical, dental and voluntary benefits. Additionally, we offer consumer-directed healthcare solutions, such as spending accounts, and data and analytics-driven healthcare navigation services for employees.

 

   

Wealth Solutions: We are a top provider of defined benefit and defined contribution plan administration and financial well-being solutions, including wealth navigation tools and participant advisory services.

 

   

HCM Solutions: We are a leading provider of cloud advisory and deployment, application management services and HR and payroll services for cloud platforms, such as Workday, Cornerstone OnDemand, Oracle and SAP SuccessFactors.

All of our solutions are supported by a suite of enabling capabilities to drive consumer engagement and understanding, including digital tools, communications consulting services and the Alight Partner Network, a curated set of complementary niche provider solutions.

We deliver our solutions through proprietary technology platforms, a strong network of strategic partnerships and a structured approach to instill and sustain enterprise-wide practices of excellence, which we refer to as the “Alight Operating Model.” The Alight Operating Model helps us make better decisions with facts and data, pursue the root cause of performance issues and work to prevent problems before they occur. Our



 

1


Table of Contents

proprietary technologies include our core benefits processing platforms and consumer engagement tools, which power our solutions across health, wealth and HCM. Our strategic partnerships with providers, such as Alegeus, Personal Capital and Workday, enhance our solutions across our core areas of health, wealth and HCM. The tools, capabilities and culture that comprise the Alight Operating Model enable us to deliver these technologies and partner offerings to our clients with consistency and quality.

We serve a broad range of clients, including Fortune 500 companies and mid-market businesses, across a diverse range of industry verticals, including financial services, retail & hospitality, technology & communications, manufacturing, healthcare & pharmaceuticals and natural resources. We believe our deep domain expertise in benefits and HR, our comprehensive suite of solutions and our deeply-embedded technology platforms differentiate us in the market and provide us with a significant competitive advantage. Additionally, our intense focus on solving the complex needs of our clients has enabled us to establish long-term, deeply-embedded client relationships with high levels of retention. For example, our top 20 Solutions clients, ranked by revenue, have been with us for an average of 15 years. We have also achieved Solutions revenue retention of 97% or greater in each of the last seven years. We calculate revenue retention for a year by identifying the clients from whom we generated Solutions revenue the prior year and determining what percentage of that revenue is generated from those same clients for the same solutions in the subsequent year.

Our highly recurring revenue model is primarily based on a contracted fee charged per benefit plan participant per period (e.g., monthly or annually, as applicable), with additional revenue recorded on a time-and-materials, fixed fee or other project specific basis. For the nine months ended September 30, 2018 and the year ended December 31, 2017, our Solutions segment generated revenue of $1.6 billion and $2.1 billion, respectively, and Adjusted EBITDA of $371 million and $423 million, respectively. Revenue from our health, wealth and HCM solutions represented 53%, 27% and 19%, respectively, of the revenue of our Solutions segment for the nine months ended September 30, 2018 and 55%, 28% and 15%, respectively, of the 2017 revenue of our Solutions segment.

Market Opportunity

We believe there are several important market dynamics that are transforming the way companies engage, manage and retain their employees with respect to health and wealth benefits and other HR decisions. We believe these trends impact organizations regardless of size, industry, and geography, and represent a significant incremental global opportunity for Alight. According to International Data Corporation (“IDC”), the global market for HR Management Services was approximately $139 billion in 2017 and is predicted to grow at a nearly 7% compound annual growth rate and will reach approximately $179 billion by 2021. Key trends driving our market opportunity are as follows:

 

   

Increased cost and complexity of managing benefits and HR: Employers are challenged by the increasing complexities of managing benefits and HR. These can include the frequent and numerous changes to the types of healthcare plans offered, navigating the changing carrier landscape and subsequently communicating these changes to employees. In addition, employers must constantly adapt to and comply with changing regulatory requirements at the federal, state and local levels, and are focused on managing compliance requirements associated with changing regulatory frameworks. In addition, in order to hire, train and retain the best talent, HR organizations are tasked with utilizing technology and data-driven solutions to provide employees a broader range of benefits, amenities and other services.

 

   

Employers are shifting the responsibility for managing health and wealth decisions to employees: To manage the costs and risks of navigating the healthcare services market and provision of retirement plans, employers are continuing to redesign the benefits they offer to their employees and other plan participants. Employers are often also shifting a greater percentage of the cost of benefits to the



 

2


Table of Contents
 

employees, but at the same time offering greater control of healthcare and financial decisions with the rise of tools and solutions.

 

   

Employers are demanding integrated, end-to-end human capital management solutions: Companies are often served by a range of niche providers to satisfy their benefits and HR technology and services needs. This construct, characterized by multiple, specialty providers, burdens organizations with siloed solutions that do not seamlessly work together, which leads to higher costs and yields a sub-optimal solution set that reduces functionality and limits the ability to share and use data across solutions. As a result, organizations are increasingly seeking end-to-end, integrated solutions across health and wealth to support participants’ total well-being.

 

   

Employees are demanding a more personalized, consumer-centric experience: The proliferation of modern, consumer-facing applications has led consumers to expect real-time accessibility and an intuitive user experience. Employees demand and rely on personalized solutions and insights, delivered seamlessly across digital and other channels, to help navigate their health, wealth and career decisions. Further, employees expect a single portal to comprehensively view their benefits, compensation and other HR-related information, and the tools to help them explore, compare and choose health plans and providers, across multiple touchpoints including mobile applications, website or expert advice over the phone.

 

   

HR solutions are rapidly shifting to the cloud: Organizations are increasingly transitioning their HR technology environments to the cloud in order to reduce cost, increase speed and flexibility, and standardize functionality. As delivery models shift, organizations are increasingly focused on finding strategic partners that can help them migrate and run solutions in a cloud-based environment. For example, according to a May 2018 Gartner forecast report, the global market for Cloud Consulting and Implementation Services was approximately $72 billion in 2017 and is predicted to grow at an approximately 21% compound annual growth rate and reach approximately $183 billion in 2022.

 

   

Innovative technologies and the automation of core processes provide opportunities to further enhance client offerings: Providers of innovative solutions are increasingly leveraging advancements in technology, such as robotic process automation (“RPA”), to automate the processing of repetitive tasks and allow clients to focus on their core businesses. Such technologies can effectively streamline processes, facilitate digital delivery of services and improve user experience to enhance overall value proposition to clients.



 

3


Table of Contents

Our Solutions

We offer innovative solutions to employers that address their needs, from the most basic to the most complex, across health, wealth and HR. Our health and wealth solutions are powered by our proprietary, cloud-based core benefits platforms, which serve both large enterprises and small and mid-market clients. We also provide a proprietary, front-end consumer portal, UPoint, which serves as the critical integration point for users, clients and partners, enabling a seamless consumer experience. Through our HCM solutions, we provide cloud advisory and deployment, application management services and HR and payroll services for cloud platforms, such as Workday, Cornerstone OnDemand, Oracle and SAP SuccessFactors.

Health Solutions Health Administration Healthcare Navigation Consumer-Directed Healthcare (CDH) Wealth Solutions Defined Contribution Administration Defined Benifit Administration Financial Wellbeing HCM Solutions Cloud Advisory & Deployment Application Management Services Cloud HR and Payroll Services Enabling Capabilities & Technologies Consumer Experience | UPoint & Cloud-based Platforms Partner Network | Data Analytics

LOGO

Our Competitive Strengths

Leading Scaled Provider of Human Capital Solutions with a Successful 25+ Year Operating History

We are the #1 provider of health technology and administration solutions and a top provider of defined benefit and defined contribution plan administration and financial well-being solutions. We also believe we are one of the largest and most comprehensive providers of Workday services in the world with over 1,000 certified professionals and deep expertise that spans Workday Human Capital Management, Payroll and Financial Management. Throughout our over 25 year history, we have developed significant operational scale, deep domain expertise and innovative technologies to enable us to solve the most complex benefits and HR needs of our clients. As of September 30, 2018, we served 22 million of our clients’ employees and their 18 million family members, and in 2017, we processed more than 340 million benefits and HR transactions. We believe that our scale and leadership positions us well to navigate our clients’ broad and complex needs.



 

4


Table of Contents

Deep Domain Expertise and Operational Excellence

We believe we pioneered the market for benefits technology solutions and throughout our history have developed significant domain expertise that our clients trust. Our rich knowledge and understanding of today’s complex regulatory and compliance environments enable us to develop and deliver tailored solutions to meet the evolving needs of our clients. For example, nearly 40% of our health-aligned colleagues have ten or more years of experience, and we support more than 14,000 unique health plan designs. Our domain expertise is an important component of the Alight Operating Model, which provides the tools, methodology and infrastructure for our high-quality service delivery. We are widely recognized for our industry and thought leadership. For example, for the fourth straight year, we have been recognized as a leader in NelsonHall’s NEAT Vendor Evaluation for Health & Wellness Benefits Administration. Additionally, in our HCM solutions, Everest Group identified us as a Leader among Workday-based HR Business Process Services (BPS) providers.

Highly Embedded, Long-Term Relationships with a Broad Base of Clients

We work with chief human resource officers and other senior management at many of the world’s largest and most successful organizations across a diverse range of industry verticals. We believe every business is a people business, and we strive to deliver excellent client service to enable employers and their employees to thrive every day. Our business model is highly recurring and underpinned by long-term, deeply embedded client relationships. Our client relationships are typically structured on a contracted fee basis, charged per benefit plan participant per period (e.g., monthly or annually, as applicable), that is highly stable and predictable. We provide solutions to nearly 3,000 clients, from the largest, most complex organizations, including 66 of the Fortune Global 100 and 240 of the Fortune Global 500, to mid-market businesses. As of September 30, 2018, our top 20 Solutions clients, ranked by revenue, had been with us for an average of 15 years. Our client base has consistently high retention rates, achieving Solutions revenue retention of 97% or greater in each of the last seven years. Additionally, five of our top 20 Solutions clients have been our clients for each of the last 20 years.

Comprehensive Suite of Integrated Health, Wealth and HCM Solutions

We provide a comprehensive suite of integrated solutions across health, wealth and HCM that help our clients control costs, manage risk and improve the health and financial well-being of their employees. Our solutions are delivered through our proprietary, front-end consumer portal, UPoint, and are supplemented by trained professionals that offer high-touch care and support for the most complex needs. Our solutions and UPoint portal, coupled with our scale and distribution, also make us a preferred partner for innovative, adjacent solution technologies that further enhance the holistic solution set we deliver to our clients and their employees. This enables us to cross-sell additional solutions to clients. In 2017, 48% of our Solutions revenue was generated from clients utilizing solutions across health, wealth and HCM.

Proprietary, Cloud-based Technology Platforms

Our proprietary, cloud-based technology platforms power a complex set of health and wealth solutions at scale. We have a service-oriented technology architecture that supports transaction processing at scale, shared productivity, data and analytics and an easily accessible, consumer-facing web portal. Our platforms are able to provide both integrated and standalone health and wealth solutions, and we believe we have one of the leading, multi-service benefits platforms. Our platforms are flexible and scalable and can handle the most complex benefit plan designs for the largest employers, as well as less complex or smaller-scale programs. Additionally, UPoint provides employees with a single access point to manage all of their benefits and HR needs. Our platforms support over 1.4 billion web pages and 200 million web and call center interactions annually.



 

5


Table of Contents

Our Growth Strategies

Expand Relationships with Existing Clients

We have a demonstrated track record of selling additional solutions and thereby expanding the scope and depth of our client relationships. For example, from 2015 to 2017, 57% of our top 100 Solutions clients increased the number of solutions purchased from us. Additionally, we have increased the annual revenue generated from each of our top 100 Solutions clients by an average of approximately 15% during that time period. We intend to deepen and expand relationships with existing clients and increase share of spend with clients that do not currently utilize our comprehensive suite of human capital solutions. Further, as our clients continue to consolidate their vendor relationships, we expect opportunities to expand our existing relationships to continue to increase.

Develop Relationships with New Clients

We intend to continue to acquire new clients across a variety of sizes and geographies. Key areas of focus for expanding our client base include the following opportunities:

 

   

Large-Market: We plan to capitalize on our market leadership position by leveraging our sales and marketing teams to win additional large-market clients, which we define as employers with greater than 10,000 employees. These larger employers often have the most complex benefits and HR demands, which our solutions and technologies are well suited to serve. We will continue to invest in our sales and marketing capabilities to further enhance the effectiveness of our go-to-market strategies targeting the large-market.

 

   

Mid-Market: We are actively pursuing clients in the middle market, which we define as employers with between 1,000 and 10,000 employees. We are executing a focused sales strategy utilizing a direct salesforce, strategic broker channel partnerships and Human Resources Management Systems (“HRMS”) platform partnerships, while adapting our existing solution portfolio to the needs of mid-market clients. We also provide solutions to clients, whom we have primarily inherited through acquisitions, with smaller employee counts. As of September 2018, we had 2,400 mid-market or smaller Solutions clients.

 

   

Global Client Expansion: We plan to grow beyond the U.S. and Canada, primarily in our HCM solutions. We believe our HCM solutions and deep domain expertise position us well for global expansion given the increased focus of clients on standardizing their HCM platforms across geographies. We have already had success with more than 85 Workday implementations for companies headquartered outside of the U.S. and Canada, including in Europe and Asia.

Continue to Innovate to Expand Our Capabilities and Expertise

We aim to continuously enhance and improve our solutions and capabilities to better serve the needs of our clients and their employees. Our breadth and depth of capabilities, coupled with our scale and deep client relationships, provides us with significant opportunity to innovate continuously and to bring new solutions to market. In addition, we recently launched and continue to expand the Alight Partner Network to further enhance and extend our offerings. We believe our scale and extensive client relationships make us a preferred partner for innovative, specialized solution providers.

 

   

Health Solutions: The complexity of the healthcare system requires additional advocacy tools and point solutions to provide individuals with personalized healthcare recommendations based on data and analytics. We seek to enhance our capabilities with innovative solutions, both organically-developed and through acquisitions. For example, Compass Professional Health Services (“Compass”), which we acquired in 2018, is a clinical advocacy business that enables our clients’ employees to compare



 

6


Table of Contents
 

treatment options and pricing, analyze healthcare bills and receive high-touch care and outreach from trained professionals. We help employees more cost-effectively manage their health, thereby enabling employees and employers to better manage their healthcare spend and make better decisions regarding the quality, effectiveness and cost of healthcare.

 

   

Wealth Solutions: Employees and retirees are increasingly expected to take charge of their own wealth decisions and, as a result, seek tools to help them make smart financial decisions. Our recently developed, consumer-centric WealthSpark solution, in partnership with Alliance Bernstein and Personal Capital, combines personalized investment portfolios with comprehensive digital wealth management tools to help employees plan, save and invest more intelligently.

 

   

HCM Solutions: We have developed deep domain expertise in navigating the shift to cloud-based HR solutions. We continue to leverage our capabilities to broaden our cloud services beyond benefits and HR into other areas such as Learning and Finance & Accounting through Cornerstone OnDemand and Workday, respectively.

We also continue to invest in innovative technologies such as artificial intelligence (“AI”) and RPA to streamline processes across our health, wealth and HCM solutions. These tools allow us to deliver our solutions more effectively by reducing time and expense for both Alight and for our clients, while simultaneously seeking to enhance service quality. For example, these technologies are instrumental in helping us to engage with and respond to employees and reduce average claim processing time.

Continue to Pursue Acquisitions and Strategic Partnerships

We plan to continue pursuing acquisitions opportunistically across the markets that we serve and forging new strategic partnerships to accelerate growth. We view acquisitions as an opportunity to enhance our capabilities and solutions portfolio and believe that we are well-positioned to capitalize on the fragmented industry landscape to make strategic, value-enhancing additions to our business that leverage scale, client relationships and deep domain expertise. We have a successful acquisition track record, as evidenced by our recent acquisitions of Compass and Future Knowledge, which are enhancing our healthcare navigation offerings for new and existing clients and expanding our cloud and Workday deployment capabilities in the Asia-Pacific region, respectively.

In addition, we continue to expand our strategic commercial partnerships to enhance and extend our capabilities. Our scale, market leadership and distribution to 22 million of our clients’ current and former employees and their 18 million family members make us a preferred partner to leading, next-generation technology and solution providers, including Alegeus, Workday, SAP, Oracle, Personal Capital and Ovia Health, among others. Our strategic partner ecosystem provides our clients and their employees with access to a more comprehensive solution set and enhanced technologies that empower them to make more informed decisions across their health, wealth and career.

Exit From Hosted Business

Our Hosted Business delivers core HR and payroll services on hosted Human Capital Management platforms, including SAP and Oracle. These services include ongoing application hosting and management of on-premise HCM software. Our Hosted client contracts typically have five to seven year terms that include a recurring revenue model primarily based on a contracted fee charged per participant per period (e.g., monthly or annually, as applicable).

In 2014, we stopped actively pursuing new clients in our Hosted Business and instead chose to focus our strategic efforts and resources on enhancing our suite of HCM solutions to help clients realize the benefits of



 

7


Table of Contents

cloud-based solutions. While we have successfully migrated a significant number of our Hosted clients to cloud-based solutions, we continue to support a number of active Hosted clients under agreements that are scheduled to expire by 2023. Accordingly, while we will continue to perform our existing Hosted Business agreements, we do not intend to renew such agreements or enter into any new Hosted Business agreements.

Our Sponsor

Blackstone (NYSE: BX) is one of the world’s leading investment firms. Blackstone’s alternative asset management businesses include the management of corporate private equity funds, real estate funds, hedge fund solutions, credit-oriented funds and closed-end mutual funds. Through its different businesses, Blackstone had total assets under management of over $472 billion as of December 31, 2018.

After the completion of this offering, our Sponsor and Co-Investors will be parties to a stockholders agreement described in “Certain Relationships and Related Person Transactions—Stockholders Agreement” and will beneficially own approximately     % of the combined voting power of our Class A and Class B common stock (or     % if the underwriters exercise in full their option to purchase additional shares of Class A common stock). As a result, we will be a “controlled company” within the meaning of the Nasdaq corporate governance standards. Under these corporate governance standards, a company of which more than 50% of the voting power is beneficially owned by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance standards, including the requirements (1) that a majority of our board of directors consist of independent directors, (2) that our board of directors have a compensation committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities and (3) that our director nominations be made, or recommended to our full board of directors, by our independent directors or by a nominations committee that is comprised entirely of independent directors and that we adopt a written charter or board resolution addressing the nominations process. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of these corporate governance requirements. In the event that we cease to be a “controlled company” and our Class A common stock continues to be listed on Nasdaq, we will be required to comply with these provisions within the applicable transition periods.

Investment Risks

An investment in shares of our Class A common stock involves substantial risks and uncertainties that may adversely affect our business, financial condition and results of operations and cash flows. Some of the more significant challenges and risks relating to an investment in our company include, among other things, the following:

 

   

An overall decline in economic activity could adversely affect the financial condition and results of operations of our business.

 

   

We face significant competition and our failure to compete successfully could have a material adverse effect on the financial condition and results of operations of our business.

 

   

We rely on complex information technology systems and networks to operate our business. Any significant system or network disruption due to a breach in the security of our information technology systems could expose us to legal liability, impair our reputation or have a negative impact on our operations, sales and operating results.

 

   

Improper access to, misappropriation, destruction or disclosure of confidential, personal or proprietary data as a result of employee or vendor malfeasance or cyber-attacks could result in financial loss, regulatory scrutiny, legal liability or harm to our reputation.



 

8


Table of Contents
   

Changes in regulation, including changes in regulations related to health and welfare plans, fiduciary rules, pension reform and data privacy and data usage, their application and interpretation could have an adverse effect on our business.

 

   

Our business performance and growth plans could be negatively affected if we are not able to effectively apply technology in driving value for our clients or gaining internal efficiencies. Conversely, investments in innovative product offerings may fail to yield sufficient return to cover their costs.

 

   

We are subject to professional liability claims against us as well as other contingencies and legal proceedings relating to our delivery of services, some of which, if determined unfavorably to us, could have an adverse effect on our financial condition or results of operations.

 

   

Our substantial indebtedness could adversely affect our financial condition, our ability to raise additional capital to fund our operations, our ability to operate our business, our ability to react to changes in the economy or our industry, our ability to meet our obligations under our outstanding indebtedness and could divert our cash flow from operations for debt payments.

 

   

Our Sponsor and Co-Investors control us and their interests may conflict with ours or yours in the future.

 

   

Upon the listing of our Class A common stock on Nasdaq, we will be a “controlled company” within the meaning of Nasdaq rules and, as a result, will qualify for exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

Please see “Risk Factors” for a discussion of these and other factors you should consider before making an investment in shares of our Class A common stock.

Organizational Structure

Immediately following this offering, Alight Inc. will be a holding company and its sole material asset will be a controlling equity interest in Alight OpCo. As the sole managing member of Alight OpCo, Alight Inc. will operate and control all of the business and affairs and consolidate the financial results of Alight OpCo and through Alight OpCo and its subsidiaries, conduct our business. Prior to the completion of this offering, (1) certain of our pre-IPO owners (the “Pre-IPO Shareholders”) will receive shares of Class A common stock of Alight Inc. pursuant to the Blocker Mergers as defined and described in “Organizational Structure—Blocker Mergers” and (2) the limited liability company agreement of Alight OpCo will be amended and restated to, among other things, modify its capital structure by reclassifying the interests held by our remaining pre-IPO owners (the “Pre-IPO Unitholders”) into a single new class of units that we refer to as “LLC Units.” We and the Pre-IPO Unitholders will also enter into an exchange agreement under which they (or certain permitted transferees) will have the right (subject to the terms of the exchange agreement) to exchange their LLC Units for shares of our Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. For a description of the amended and restated limited liability company agreement of Alight OpCo and the exchange agreement, please read “Certain Relationships and Related Person Transactions.”

The Pre-IPO Unitholders will hold all of the issued and outstanding shares of our Class B common stock. The shares of Class B common stock will have no economic rights but will entitle each holder, without regard to the number of shares of Class B common stock held by such holder, to a number of votes that is equal to the aggregate number of LLC Units of Alight OpCo held by such holder on all matters on which stockholders of Alight Inc. are entitled to vote generally. The voting power afforded to holders of LLC Units by their shares of



 

9


Table of Contents

Class B common stock will be automatically and correspondingly reduced as they exchange LLC Units for shares of Class A common stock of Alight Inc. pursuant to the exchange agreement. If at any time the ratio at which LLC Units are exchangeable for shares of our Class A common stock changes from one-for-one as described under “Certain Relationships and Related Person Transactions—Exchange Agreement,” the number of votes to which Class B common stockholders are entitled will be adjusted accordingly. Holders of shares of our Class B common stock will vote together with holders of our Class A common stock as a single class on all matters on which stockholders are entitled to vote generally, except as otherwise required by law.

Our post-offering organizational structure, as described above, is commonly referred to as an umbrella partnership-C-corporation (or UP-C) structure. This organizational structure will allow our Pre-IPO Unitholders to retain their equity ownership in Alight OpCo, an entity that is classified as a partnership for U.S. federal income tax purposes, in the form of LLC Units. Investors in this offering and the Pre-IPO Shareholders will, by contrast, hold their equity ownership in Alight Inc., a Delaware corporation that is a domestic corporation for U.S. federal income tax purposes, in the form of shares of Class A common stock. We believe that our Pre-IPO Unitholders generally find it advantageous to continue to hold their equity interests in an entity that is not taxable as a corporation for U.S. federal income tax purposes. We do not believe that our UP-C organizational structure will give rise to any significant business or strategic benefit or detriment to us.

The reorganization will be accounted for as a reorganization of entities under common control. As a result, the consolidated financial statements of Alight Inc. will recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical financial statements of Alight OpCo. Alight Inc. will consolidate Alight OpCo on its consolidated financial statements and record a noncontrolling interest related to the LLC Units held by our pre-IPO owners on its consolidated balance sheet and statement of operations.



 

10


Table of Contents

The simplified diagram below depicts our organizational structure immediately following this offering. For additional detail, see “Organizational Structure.”

 

 

LOGO

Pre-IPO Unitholders Pre-IPO Shareholders Public Shareholders Class B common, stock % of voting power Alight Inc. (1) No economic rights Class A common stock % of voting power in Alight Inc. 100% of economic interests in Alight Inc. Class A common stock % of voting power in Alight Inc. 100% of economic interests in Alight Inc. Alight Inc. LLC Units No voting rights Exchangeable on a 1-for-1 basis for shares of Class A common stock % of outstanding LLC Units Sole Managing Member and LLC Units 100%of voting power in Alight OpCo % of outstanding LLC Units Tempo Holding Company, LLC ("Alight OpCo") Tempo Acquisition, LLC (2) Operating Subsidiaries

 

(1)

The Class B common stock will provide each of the Pre-IPO Unitholders with a number of votes that is equal to the aggregate number of LLC Units held by such Pre-IPO Unitholder. Immediately following this offering, the Pre-IPO Unitholders will hold     % of the voting power in Alight Inc. For additional information, see “Organizational Structure—Organizational Structure Following this Offering” and “Description of Capital Stock—Common Stock—Class B Common Stock.”

(2)

Tempo Acquisition, LLC, together with certain wholly owned subsidiary co-obligors, serves as the borrower under our senior secured revolving credit facility and our senior secured term loan facility (together, the “senior secured credit facilities”) and as the issuer of our senior notes due 2025 (the “senior notes”). See “Description of Certain Indebtedness.”

 

 

Alight Inc. was incorporated in Delaware on September 12, 2018. Our principal executive offices are located at 4 Overlook Point, Lincolnshire, Illinois 60069 and our telephone number is (224) 737-7000.



 

11


Table of Contents

The Offering

 

Class A common stock offered by Alight Inc.

                 shares (plus up to an additional                  shares at the option of the underwriters).

 

Class A common stock outstanding after giving effect to this offering


                 shares (or                  shares if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

 

Class A common stock outstanding after this offering assuming exchange of all LLC Units held by the Pre-IPO Unitholders



                 shares (or                  shares if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

 

Voting power held by investors in this offering after giving effect to this offering


    % (or     % if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

 

Voting power held by our pre-IPO owners after giving effect to this offering


    % (or     % if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

 

Use of proceeds

We estimate that the net proceeds to Alight Inc. from this offering, after deducting estimated underwriting discounts, will be approximately $         (or $        if the underwriters exercise in full their option to purchase additional shares of Class A common stock). Alight OpCo will bear or reimburse Alight Inc. for all of the expenses payable by it in this offering. We estimate these offering expenses (excluding underwriting discounts and commissions) will be approximately $        .

 

  Alight Inc. intends to use all of the net proceeds from this offering (including from any exercise by the underwriters of their option to purchase additional shares of Class A common stock) to purchase a number of newly issued LLC Units from Alight OpCo that is equivalent to the number of shares of Class A common stock that we offer and sell in this offering, as described under “Organizational Structure—Offering Transactions.”

 

  Alight Inc. intends to cause Alight OpCo to use these proceeds to repay outstanding indebtedness. See “Use of Proceeds.”

 

Voting rights

Each share of our Class A common stock entitles its holder to one vote on all matters to be voted on by stockholders generally.


 

12


Table of Contents
  The Pre-IPO Unitholders will hold all of the outstanding shares of our Class B common stock. The shares of Class B common stock will have no economic rights but will entitle each holder, without regard to the number of shares of Class B common stock held by such holder, to a number of votes that is equal to the aggregate number of LLC Units held by such holder on all matters on which stockholders of Alight Inc. are entitled to vote generally. Holders of shares of our Class B common stock will vote together with holders of our Class A common stock as a single class on all matters on which stockholders are entitled to vote generally, except as otherwise required by law. See “Description of Capital Stock—Common Stock—Class B Common Stock.”

 

Dividend policy

The declaration, amount and payment of any future dividends will be at the sole discretion of our board of directors. Our board of directors may take into account general economic and business conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries (including Alight OpCo) to us, and such other factors as our board of directors may deem relevant.

 

  Alight Inc. is a holding company and has no material assets other than Alight OpCo. We intend to cause Alight OpCo to make distributions to us in an amount sufficient to cover cash dividends, if any, declared by us. If Alight OpCo makes such distributions to Alight Inc., the other holders of LLC Units will be entitled to receive equivalent distributions.

 

Exchange rights of holders of LLC Units

Prior to this offering, we will enter into an exchange agreement with the Pre-IPO Unitholders so that they may, after the completion of this offering (subject to the terms of the exchange agreement), exchange their LLC Units for shares of Class A common stock of Alight Inc. on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. See “Certain Relationships and Related Person Transactions—Exchange Agreement.”

 

Tax receivable agreement

Prior to the completion of this offering, we will enter into a tax receivable agreement with our pre-IPO owners that provides for the payment by Alight Inc. to such pre-IPO owners of 85% of the benefits, if any, that Alight Inc. is deemed to realize (calculated using certain assumptions) as a result of (i) Alight Inc.’s allocable share of existing tax basis acquired in this offering, (ii) increases in Alight Inc.’s allocable share of existing tax basis and tax basis adjustments that will increase the tax basis of the tangible and intangible assets of Alight Inc. as a result of sales or exchanges of LLC Units after this offering and (iii) Alight Inc.’s utilization of certain tax attributes of



 

13


Table of Contents

the Blocker Companies (as defined below) (including the Blocker Companies’ allocable share of existing tax basis) and certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. These increases in existing tax basis and the tax basis adjustments generated over time may increase (for tax purposes) depreciation and amortization deductions and therefore reduce the amount of tax that Alight Inc. would otherwise be required to pay in the future. Actual tax benefits realized by Alight Inc. may differ from tax benefits calculated under the tax receivable agreement as a result of the use of certain assumptions in the tax receivable agreement, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits. This payment obligation is an obligation of Alight Inc. and not of Alight OpCo. See “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.”

 

Risk factors

See “Risk Factors” for a discussion of risks you should carefully consider before deciding to invest in our Class A common stock.

 

Certain U.S. federal income and estate tax consequences to non-U.S. holders


For a discussion of certain U.S. federal income and estate tax consequences that may be relevant to non-U.S. stockholders, see “Certain U.S. Federal Income and Estate Tax Consequences to Non-U.S. Holders.”

 

Proposed trading symbol

“ALIT”

In this prospectus, unless otherwise indicated, the number of shares of Class A common stock outstanding and the other information based thereon does not reflect:

 

   

             shares of Class A common stock issuable upon exercise of the underwriters’ option to purchase additional shares of Class A common stock from us;

 

   

             shares of Class A common stock issuable upon exchange of                 LLC Units that will be held by the Pre-IPO Unitholders immediately following this offering; or

 

   

             shares of Class A common stock that may be granted under the Alight Inc. Omnibus Incentive Plan (the “Omnibus Incentive Plan”), including options to purchase up to              shares of Class A common stock which are expected to be granted under the Omnibus Incentive Plan at the time of this offering, assuming that the shares to be sold in this offering are sold at the midpoint of the range set forth on the cover page of this prospectus. A $1.00 increase in the assumed initial public offering price per share, assuming no change in the number of shares to be sold, would decrease the aggregate number of shares underlying the stock options to be granted at the time of this offering by        , and a $1.00 decrease in the assumed initial public offering price would increase the number of shares underlying the stock options by        . See “Management—Executive Compensation—Omnibus Incentive Plan.”



 

14


Table of Contents

Summary Historical and Pro Forma Financial and Other Data

The following table presents the summary historical condensed and consolidated financial and other data for Alight OpCo and its subsidiaries and the summary pro forma condensed combined and consolidated financial and other data for Alight Inc. for the periods and at the dates indicated. Immediately following this offering, Alight Inc. will be a holding company, and its sole material asset will be a controlling equity interest in Alight OpCo. As the sole managing member of Alight OpCo, Alight Inc. will operate and control all of the business and affairs of Alight OpCo and, through Alight OpCo and its subsidiaries, conduct our business. The reorganization will be accounted for as a reorganization of entities under common control. As a result, the consolidated financial statements of Alight Inc. will recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical financial statements of Alight OpCo. Alight Inc. will consolidate Alight OpCo on its consolidated financial statements and record a noncontrolling interest related to the LLC Units held by our pre-IPO owners on its consolidated balance sheet and statement of operations.

Periods prior to May 1, 2017 reflect our financial position, results of operations and changes in financial position prior to the Separation and periods on or after May 1, 2017 reflect our financial position, results of operations and changes in financial position after the Separation. Accordingly, the summary historical condensed and consolidated financial data presented below is presented for periods prior to the Separation labeled “Predecessor” and periods subsequent to the Separation labeled “Successor”. The summary condensed and consolidated statements of operations data and statements of cash flows data for the nine months ended September 30, 2018 (Successor), the eight months ended December 31, 2017 (Successor), the four months ended April 30, 2017 (Predecessor) and the year ended December 31, 2016 (Predecessor), and the summary condensed and consolidated balance sheet data as of September 30, 2018 are derived from the audited consolidated financial statements of Alight OpCo, included elsewhere in this prospectus. The period presented as the five months ended September 30, 2017 (Successor) is unaudited and supplemental in nature. The Company provides this period for enhanced comparability, and it is not meant to be considered in isolation, superior to, or as a substitute for the directly comparable audited financial periods.

The summary historical condensed and consolidated financial and other data of Alight Inc. has not been presented because Alight Inc. is a newly incorporated entity, has had no business transactions or activities to date and had no assets or liabilities during the periods presented in this section.

Historical results are not necessarily indicative of the results expected for any future period. You should read the summary historical condensed and consolidated financial data below, together with the consolidated financial statements and related notes thereto appearing elsewhere in this prospectus, as well as “Organizational Structure,” “Unaudited Pro Forma Condensed, Combined and Consolidated Financial Information,” “Selected Historical Condensed and Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Certain Indebtedness” and the other information included elsewhere in this prospectus.

The summary unaudited pro forma condensed, combined and consolidated financial data of Alight Inc. presented below has been derived from our unaudited pro forma condensed, combined and consolidated financial statements included elsewhere in this prospectus. The summary unaudited pro forma condensed combined and consolidated statement of operations data for the nine months ended September 30, 2018 gives effect to the Reorganization Transactions and the Offering Transactions (each as defined under “Organizational Structure”) as if they had occurred on January 1, 2017. The summary unaudited pro forma condensed and consolidated balance sheet data as of September 30, 2018 gives effect to the Reorganization Transactions and the Offering Transactions as if they had occurred on September 30, 2018. The following summary unaudited condensed combined and consolidated pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the relevant



 

15


Table of Contents

transactions had been consummated on the dates indicated, nor is it indicative of future operating results or financial position. See “Unaudited Pro Forma Condensed, Combined and Consolidated Financial Information.”

 

          Historical Alight OpCo  
    Pro Forma
Alight Inc.
    Successor     Predecessor  
(in millions, except per share data)   Nine Months
Ended
September 30,
2018
    Nine Months
Ended
September 30,
2018
    Eight Months
Ended
December 31,
2017
    Five Months
Ended
September 30,
2017
(Unaudited)
    Four Months
Ended
April 30,
2017
    Year Ended
December 31,
2016
 

Summary Statements of Operations Data:

             

Revenue

  $                   $ 1,727     $ 1,588     $ 934     $ 713     $ 2,260  

Total expenses

      1,599       1,425       884       686       2,057  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

      128       163       50       27       203  

Interest expense, net and other

      154       115       68       —         (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) Income Before Income Taxes

      (26     48       (18     27       204  

Income taxes

      13       24       18       10       78  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (Loss) income

  $       $ (39   $ 24     $ (36   $ 17     $ 126  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income attributable to non-controlling interests

             
 

 

 

             

Net income attributable to Alight Inc.

  $                
 

 

 

             
 

Summary Balance Sheet Data (at period end):

             

Total assets

  $       $ 5,700            

Long-term debt (including current portion)

      3,431            

Capital lease obligations

      54            
 

Summary Statements of Cash Flows Data:

             

Cash provided by operating activities

  $       $ 73     $ 224     $ 92     $ 79     $ 388  

Cash used for investing activities

      (82     (4,290     (4,224     (13     (75

Cash provided by (used for) financing activities

      (27     4,263       4,296       (69     (311
 

Solutions Segment Measures:(1)

             

Solutions Revenue

  $       $ 1,568     $ 1,421     $ 829     $ 632     $ 1,911  

Solutions Adjusted EBITDA

      371       345       178       78       319  

Summary Non-GAAP Data:

             

Adjusted EBITDA(2)

  $       $ 403     $ 388     $ 204     $ 91     $ 423  

 

(1)

As discussed in “Business—Hosted Business Services,” in 2014, we stopped actively pursuing new clients in our Hosted Business and instead chose to focus our strategic efforts and resources on enhancing our suite of HCM solutions to help clients realize the benefits of cloud-based solutions. While we have successfully migrated a significant number of our Hosted clients to cloud-based solutions, we continue to support a number of active Hosted clients under agreements that are scheduled to expire by 2023. Accordingly, we have presented Solutions Revenue and Solutions Adjusted EBITDA, which are segment measures that are required to be disclosed by GAAP in conformity with ASC 280, Segment Reporting, because we believe that it is useful to evaluate our business and results of operations excluding the impact of the Hosted Business segment. See Note 11 to the consolidated financial statements of Alight OpCo appearing elsewhere in this prospectus.

 

(2)

Adjusted EBITDA is a non-GAAP financial measure used by us and our investors and lenders to provide useful supplemental information that enables a better comparison of our performance across periods. Adjusted EBITDA provides visibility to the underlying operating performance by excluding the impact of certain items, including interest expense, income taxes, depreciation of fixed assets, amortization of intangible assets, share-based compensation, transaction expenses, separation expenses, expenses related to transformation initiatives, and other adjustments, because management does not believe these expenses are representative of our core earnings.



 

16


Table of Contents

Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure either in isolation or as a substitute for net income or other methods of analyzing our results as reported under GAAP. Some of the limitations are:

 

   

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs or contractual commitments;

 

   

Adjusted EBITDA does not reflect our interest expense or the cash requirements to service interest or principal payments on our indebtedness;

 

   

Adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes;

 

   

Adjusted EBITDA does not reflect the impact on earnings or changes resulting from matters that we consider not to be indicative of our future operations;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often need to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and

 

   

other companies may calculate Adjusted EBITDA differently, limiting its usefulness as a comparative measure.

Adjusted EBITDA is not a liquidity measure and should not be considered as discretionary cash available to us to reinvest in the growth of our business or to distribute to stockholders or as a measure of cash that will be available to us to meet our obligations.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for additional information regarding our use of non-GAAP financial metrics.

The following table provides a reconciliation of our net income to Adjusted EBITDA:

 

    Pro Forma
Alight Inc.
    Historical Alight OpCo  
    Successor     Predecessor  
(in millions)   Nine Months
Ended
September 30,
2018
    Nine Months
Ended
September 30,
2018
    Eight Months
Ended
December 31,
2017
    Five Months
Ended
September 30,
2017

(Unaudited)
    Four Months
Ended
April 30,
2017
    Year Ended
December 31,
2016
 

Net (Loss) Income

  $               $ (39   $ 24     $ (36   $ 17     $ 126  

Interest expense, net

      154       114       68       —         —    

Income taxes

      13       24       18       10       78  

Depreciation

      36       27       28       23       71  

Intangible amortization(a)

      135       108       53       34       119  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

      299       297       131       84       394  

Share-based compensation

      12       4       3       6       31  

Transaction-related expenses(b)

      1       36       36       —         —    

Separation from Aon expenses(c)

      39       16       11       —         —    

Transformation initiatives(d)

      35       27       18       1       2  

Other(e)

      17       8       5       —         (4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $       $ 403     $ 388     $ 204     $ 91     $ 423  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a)

Represents deal-related amortization of intangible assets acquired through the Separation for the nine months ended September 30, 2018, the eight months ended December 31, 2017 and the five months ended September 30, 2017, and other deal-related amortization for the Predecessor periods.

  (b)

Transaction-related expenses include investment banker fees, legal fees, due diligence costs, and other external advisor costs associated with the Separation.

  (c)

Separation from Aon expenses relate to costs incurred establishing Alight as a stand-alone company following the separation from Aon. These costs include external advisor costs, implementing stand-alone tax processes and branding costs.



 

17


Table of Contents
  (d)

Transformation initiatives include expenses incurred, primarily subsequent to the Separation, related to cost savings activities, including our strategic transaction with Wipro Limited (“Wipro”), severance, restructuring of certain property leases and IT and print and fulfillment functions.

  (e)

Other includes long-term incentive expenses, expenses related to acquisitions, income related to the early termination of customer contracts in fiscal year 2016, and purchase accounting adjustments recorded in respect of the Separation.



 

18


Table of Contents

RISK FACTORS

An investment in shares of our Class A common stock involves risks. You should carefully consider the following information about these risks, together with the other information contained in this prospectus, before investing in shares of our Class A common stock.

Risks Related to Our Business and Industry

An overall decline in economic activity could adversely affect the financial condition and results of operations of our business.

The results of our business are generally affected by the level of business activity of our clients, which in turn is affected by the level of economic activity in the industries and markets these clients serve. Additionally, substantial changes to trade, monetary and fiscal policies, and political conditions, and constriction and volatility in the credit markets may occur and would affect our business. Economic downturns in some markets may cause reductions in technology and discretionary spending by our clients, which may result in reductions in the growth of new business as well as reductions in existing business. If our clients become financially less stable, enter bankruptcy, liquidate their operations or consolidate, our revenues and/or collectability of receivables could be adversely affected. Our contracts also depend upon the number of our clients’ employees or the number of participants in our clients’ employee benefit plans. If our clients become financially less stable, change their staffing models, enter bankruptcy, liquidate their operations or consolidate, that could result in layoffs or other reductions in the number of participants in our clients’ employee benefit plans. We may also experience decreased demand for our services as a result of postponed or terminated outsourcing of HR functions. Reduced demand for our services could increase price competition and have an adverse effect on our financial condition or results of operations.

We face significant competition and our failure to compete successfully could have a material adverse effect on the financial condition and results of operations of our business.

Our competitors may have greater resources, larger customer bases, greater name recognition, stronger presence in certain geographies and more established relationships with their customers and suppliers than we have. In addition, new competitors, alliances among competitors or mergers of competitors could gain significant market share and some of our competitors may have or may develop a lower cost structure, adopt more aggressive pricing policies or provide services that gain greater market acceptance than the services that we offer or develop. Large and well-capitalized competitors may be able to respond to the need for technological changes and innovate faster, or price their services more aggressively. They may also compete for skilled professionals, finance acquisitions, fund internal growth and compete for market share more effectively than we do. Further, pursuant to certain commercial agreements we entered into with Aon, we and Aon generally have agreed not to compete with each other in certain health and retirement businesses for a period of two years following the Separation, in our case, and for a period of two to three years following the Separation, in Aon’s case. These restrictions may limit our ability to compete in certain markets, and Aon’s failure to comply with the restrictions in such commercial agreements could materially and adversely affect our business. If we are unable to compete successfully, we could lose market share and clients to competitors, which could materially adversely affect our results of operations. To respond to increased competition and pricing pressure, we may have to lower the cost of our solutions or decrease the level of service provided to clients, which could have an adverse effect on our financial condition or results of operations.

We rely on complex information technology systems and networks to operate our business. Any significant system or network disruption due to a breach in the security of our information technology systems could expose us to legal liability, impair our reputation or have a negative impact on our operations, sales and operating results.

We rely on the efficient, uninterrupted and secure operation of complex information technology systems and networks, some of which are within our business and some of which are outsourced to third party providers with

 

19


Table of Contents

the intent of protecting the physical security of our facilities and the data security of our customers’, clients’ and suppliers’ confidential information and information related to identifiable individuals (including financial and health information) against unauthorized access through our information technology systems or by other electronic transmission or through the misdirection, theft or loss of physical media. These include, for example, the appropriate encryption of information, the use of anti-virus, anti-malware and other protections. All information technology systems are potentially vulnerable to damage or interruption from a variety of sources, including but not limited to cyber-attacks, computer viruses, malware, hacking, fraudulent use attempts, phishing attacks and security breaches. Our systems are also subject to compromise from internal threats such as improper action by employees, vendors and other third parties with otherwise legitimate access to our systems. Despite our efforts, we periodically experience attacks to our systems and networks and have from time to time experienced cyber security incidents such as computer viruses, unauthorized parties gaining access to our information technology systems and similar matters, which to date have not had a material impact on our business. Because the techniques used to obtain unauthorized access are constantly changing and becoming increasingly more sophisticated and often are not recognized until launched against a target, we or our third-party providers may be unable to anticipate these techniques or implement sufficient preventative measures. If we are unable to efficiently and effectively maintain and upgrade our system safeguards, we may incur unexpected costs and certain of our systems may become more vulnerable to unauthorized access. In the future, these types of incidents could result in intellectual property or other confidential information being lost or stolen, including client, employee or business data. In addition, we may not be able to detect breaches in our information technology systems or assess the severity or impact of a breach in a timely manner.

We have implemented various measures to manage our risks related to system and network security and disruptions, but an actual or perceived security breach, a failure to make adequate disclosures to the public or law enforcement agencies following any such event or a significant and extended disruption in the functioning of our information technology systems could damage our reputation and cause us to lose clients, adversely impact our operations, sales and operating results and require us to incur significant expense to address and remediate or otherwise resolve such issues. Additionally, in order to maintain the level of security, service and reliability that our clients require, we may be required to make significant additional investments in our methods of delivering services.

Improper access to, misappropriation, destruction or disclosure of confidential, personal or proprietary data as a result of employee or vendor malfeasance or cyber-attacks could result in financial loss, regulatory scrutiny, legal liability or harm to our reputation.

One of our significant responsibilities is to maintain the security and privacy of our employees’ and clients’ confidential and proprietary information and the confidential information about clients’ employees’ compensation, medical information and other personally identifiable information. We maintain policies, procedures and technological safeguards designed to protect the security and privacy of this information. Nonetheless, we cannot eliminate the risk of human error or inadequate safeguards against employee or vendor malfeasance or cyber-attacks that could result in improper access to, misappropriation, destruction or disclosure of confidential, personal or proprietary information and we may not become aware in a timely manner of any such security breach. Such unauthorized access, misappropriation, destruction or disclosure could result in the loss of revenue, reputational damage, indemnity obligations, damages for contract breach, civil and criminal penalties for violation of applicable laws, regulations or contractual obligations, and significant costs, fees and other monetary payments for remediation. Furthermore, our clients may not be receptive to services delivered through our information technology systems and networks following an actual or perceived security breach due to concerns regarding transaction security, user privacy, the reliability and quality of internet service and other reasons. The release of confidential information as a result of a security breach could also lead to litigation or other proceedings against us by affected individuals or business partners, or by regulators, and the outcome of such proceedings, which could include penalties or fines, could have a significant negative impact on our business.

 

20


Table of Contents

In many jurisdictions, including the United States and the European Union, we are subject to laws and regulations relating to the collection, use, retention, security and transfer of this information including the Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) and the HIPAA regulations governing, among other things, the privacy, security and electronic transmission of individually identifiable protected health information and The European Union General Data Protection Regulation (“GDPR”). These laws and regulations are frequently changing and are becoming increasingly complex and sometimes conflict among the various jurisdictions and countries in which we provide services both in terms of substance and in terms of enforceability. This makes compliance challenging and expensive. Our failure to adhere to or successfully implement processes in response to changing regulatory requirements in this area could result in legal liability or impairment to our reputation in the marketplace. Further, regulatory initiatives in the area of data protection are more frequently including provisions allowing authorities to impose substantial fines and penalties, and therefore, failure to comply could also have a significant financial impact.

Changes in regulation, including changes in regulations related to health and welfare plans, fiduciary rules, pension reform and data privacy and data usage, their application and interpretation could have an adverse effect on our business.

In addition to the complexity of the laws and regulations themselves, the development of new laws and regulations, changes in application or interpretation of laws and regulations and our continued operational changes and development into new jurisdictions and new service offerings also increases our legal and regulatory compliance complexity as well as the type of governmental oversight to which we may be subject. These changes in laws and regulations could mandate significant and costly changes to the way we implement our services and solutions or could impose additional licensure requirements or costs to our operations and services. Furthermore, as we enter new jurisdictions or lines of businesses and other developments in our services, we may become subject to additional types of laws and policies and governmental oversight and supervision. In all jurisdictions, the applicable laws and regulations are subject to amendment or interpretation by regulatory authorities. In addition, new regulatory or industry developments could create an increase in competition that could adversely affect us. These potential developments include:

 

   

changes in regulations relating to health and welfare plans including potential changes to the Patient Protection and Affordable Care Act (the “ACA”), defined contribution and defined benefit plans;

 

   

changes in regulations relating to fiduciary rules;

 

   

pension reform that could decrease the attractiveness of certain of our retirement products and services to retirement plan sponsors and administrators or have an unfavorable effect on our ability to earn revenues from these products and services;

 

   

additional requirements respecting data privacy and data usage in jurisdictions in which we operate that may increase our costs of compliance and potentially reduce the manner in which data can be used by us to develop or further our product offerings; and

 

   

additional regulations promulgated by other regulatory bodies in jurisdictions in which we operate.

For example, there have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at addressing the availability of healthcare and containing or lowering the cost of healthcare. Although we cannot predict the ultimate content or timing of any healthcare reform legislation, potential changes resulting from any amendment, repeal or replacement of these programs, including any reduction in the future availability of healthcare insurance benefits, could adversely affect our business and future results of operations. Further, the federal government from time to time considers pension reform legislation, which could negatively impact our sales of defined benefit or defined contribution plan products and services and cause sponsors to discontinue existing plans for which we provide administrative or other services. Certain tax-favored savings initiatives that have been proposed could hinder sales and persistency of our products and services that support employment-based retirement plans.

 

21


Table of Contents

Our services are also the subject of ever-evolving government regulation, either because the services provided to or business conducted by our clients are regulated directly or because third parties upon whom we rely to provide services to our clients are regulated, thereby indirectly impacting the manner in which we provide services to those clients. Changes in laws, government regulations or the way those regulations are interpreted in the jurisdictions in which we operate could affect the viability, value, use or delivery of benefits and HR programs, including changes in regulations relating to health and welfare plans (such as medical), defined contribution plans (such as 401(k)), defined benefit plans (such as pension) or payroll delivery, may adversely affect the demand for, or profitability of, our services.

Our business performance and growth plans could be negatively affected if we are not able to effectively apply technology in driving value for our clients or gaining internal efficiencies. Conversely, investments in innovative product offerings may fail to yield sufficient return to cover their costs.

Our success depends, in part, on our ability to develop and implement new or revised solutions that anticipate and keep pace with rapid and continuing changes in technology, industry standards and client preferences. We may not be successful in anticipating or responding to these developments on a timely and cost-effective basis, and our ideas may not be accepted in the marketplace. Additionally, the effort to gain technological expertise and develop new technologies requires us to incur significant expenses.

If we cannot offer new technologies as quickly as our competitors or if our competitors develop more cost-effective technologies, it could have a material adverse effect on our ability to obtain and complete client engagements. Innovations in software, cloud computing or other technologies that alter how our services are delivered could significantly undermine our investments in our business if we are slow or unable to take advantage of these developments.

We are continually developing and investing in innovative and novel service offerings that we believe will address needs that we identify in the markets. Nevertheless, for those efforts to produce meaningful value, we are reliant on a number of other factors, some of which are outside of our control, to deem them suitable, and whether those parties will find them suitable will be subject to their own particular circumstances.

We are subject to professional liability claims against us as well as other contingencies and legal proceedings relating to our delivery of services, some of which, if determined unfavorably to us, could have an adverse effect on our financial condition or results of operations.

We assist our clients with outsourcing various HR functions. Third parties may allege our potential liability for damages arising from these services in professional liability claims against us. Such claims could include, for example, the failure of our employees or sub-agents, whether negligently or intentionally, to correctly execute transactions. It is not always possible to prevent and detect errors and omissions, and the precautions we take may not be effective in all cases. In addition, we are subject to other types of claims, litigation and proceedings in the ordinary course of business, which along with professional liability claims, may seek damages, including punitive damages, in amounts that could, if awarded, have a material adverse impact on our financial position, earnings, and cash flows. In addition to potential liability for monetary damages, such claims or outcomes could harm our reputation or divert management resources away from operating our business. While we maintain insurance to cover various aspects of such professional liability claims and other claims, such coverage may not be adequate or applicable for such claims, in which case we would be liable for damages in amounts that could have a material adverse impact on our business. In some cases, due to other business considerations, we may elect to pay or settle professional liability or similar claims even where we may not be contractually or legally obligated to do so.

Accruals for exposures, and related insurance receivables, when applicable to us, have been provided to the extent that losses are deemed probable and are reasonably estimable. These accruals and receivables are adjusted from time to time as developments warrant and may also be adversely affected by disputes we may have with our

 

22


Table of Contents

insurers over coverage. Amounts related to our settlement provisions are recorded in other general expenses in our statements of income.

The ultimate outcome of these claims, lawsuits and proceedings cannot be ascertained, and liabilities in indeterminate amounts may be imposed on us. It is possible that our future results of operations or cash flows for any particular quarterly or annual period could be materially affected by an unfavorable resolution of these matters.

We may become involved in litigation that could harm the value of our business.

We are subject to, and may become a party to, various lawsuits, claims, or other legal matters that arise in the ordinary course of our business. Our business is subject to the risk of litigation involving current and former employees, clients, partners, suppliers, shareholders, or others through various proceedings, actions or other litigation. For example, participants in our clients’ retirement plans could claim that we charged or received unreasonable fees. Regardless of the merits of the claims, the cost to defend litigation may be significant, and such matters can be time-consuming and divert management’s attention and resources. The outcome of such matters in the ordinary course of our business are inherently uncertain, and adverse judgments or settlements could have a material adverse impact on our financial position or results of operations. In addition, we may become subject to future lawsuits, claims, audits and investigations, or suits, any of which could result in substantial costs and divert our attention and resources. Any claims or litigation, even if fully indemnified or insured, could damage our reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future.

Our failure to protect our intellectual property rights, or allegations that we have infringed on the intellectual property rights of others, could harm our reputation, ability to compete effectively and financial condition.

To protect our intellectual property rights, we rely on a combination of trademark laws, copyright laws, patent laws, trade secret protection, confidentiality agreements and other contractual arrangements with our affiliates, employees, clients, strategic partners and others. However, the protective steps that we take may be inadequate to deter misappropriation of our proprietary information and technology. In addition, we may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Further, effective trademark, copyright, patent and trade secret protection may not be available in every country in which we offer our services or competitors may develop products similar to our products that do not conflict with our related intellectual property rights. Failure to protect our intellectual property adequately could harm our reputation and affect our ability to compete effectively.

In addition, to protect or enforce our intellectual property rights, we may initiate litigation against third parties, such as infringement suits or interference proceedings. Third parties may assert intellectual property rights claims against us, which may be costly to defend, could require the payment of damages and could limit our ability to use or offer certain technologies, products or other intellectual property. Any intellectual property claims, with or without merit, could be expensive, take significant time and divert management’s attention from other business concerns. Successful challenges against us could require us to modify or discontinue our use of technology or business processes where such use is found to infringe or violate the rights of others, or require us to purchase licenses from third parties (which may not be available on terms acceptable to us, or at all), any of which could adversely affect our business, financial condition and operating results.

We might not be successful at acquiring, investing in or integrating businesses, entering into joint ventures or divesting businesses.

We expect to continue pursuing strategic and targeted acquisitions, investments and joint ventures to enhance or add to our skills and capabilities or offerings of services and solutions, or to enable us to expand in certain geographic and other markets. For example, in 2018 we acquired Compass and Future Knowledge and,

 

23


Table of Contents

separately, we entered into a strategic transaction with Wipro in connection with the transfer of our internal operations in India. We may not successfully identify suitable investment opportunities. We also might not succeed in completing targeted transactions or achieve desired results of operations.

Furthermore, we face risks in successfully integrating any businesses we might acquire or create through a joint venture. Ongoing business may be disrupted, and our management’s attention may be diverted by acquisition, investment, transition or integration activities. In addition, we might need to dedicate additional management and other resources, and our organizational structure could make it difficult for us to efficiently integrate acquired businesses into our ongoing operations and assimilate and retain employees of those businesses into our culture and operations. The potential loss of key executives, employees, customers, suppliers, and other business partners of businesses we acquire may adversely impact the value of the assets, operations or businesses. Furthermore, acquisitions or joint ventures may result in significant costs and expenses, including those related to retention payments, equity compensation, severance pay, early retirement costs, intangible asset amortization and asset impairment charges, assumed litigation and other liabilities, and legal, accounting and financial advisory fees, which could negatively affect our profitability. We may have difficulties as a result of entering into new markets where we have limited or no direct prior experience or where competitors may have stronger market positions.

We might fail to realize the expected benefits or strategic objectives of any acquisition, investment or joint venture we undertake. We might not achieve our expected return on investment or may lose money. We may be adversely impacted by liabilities that we assume from a company we acquire or in which we invest, including from that company’s known and unknown obligations, intellectual property or other assets, terminated employees, current or former clients or other third parties. In addition, we may fail to identify or adequately assess the magnitude of certain liabilities, shortcomings or other circumstances prior to acquiring, investing in or partnering with a company, including potential exposure to regulatory sanctions or liabilities resulting from an acquisition target’s previous activities, internal controls and security environment. If any of these circumstances occurs, they could result in unexpected legal or regulatory exposure, unfavorable accounting treatment, unexpected increases in taxes or other adverse effects on our business. Litigation, indemnification claims and other unforeseen claims and liabilities may arise from the acquisition or operation of acquired businesses. If we are unable to complete the number and kind of investments for which we plan, or if we are inefficient or unsuccessful at integrating any acquired businesses into our operations, we may not be able to achieve our planned rates of growth or improve our market share, profitability or competitive position in specific markets or services.

We periodically evaluate, and have engaged in, the disposition of assets and businesses. Divestitures could involve difficulties in the separation of operations, services, products and personnel, the diversion of management’s attention, the disruption of our business and the potential loss of key employees. After reaching an agreement with a buyer for the disposition of a business, the transaction may be subject to the satisfaction of pre-closing conditions, including obtaining necessary regulatory and government approvals, which, if not satisfied or obtained, may prevent us from completing the transaction. Divestitures may also involve continued financial involvement in or liability with respect to the divested assets and businesses, such as indemnities or other financial obligations, in which the performance of the divested assets or businesses could impact our results of operations. Any divestiture we undertake could adversely affect our results of operations.

Our growth depends in part on the success of our strategic partnerships with third parties.

We enter into strategic partnerships with third parties to enhance and extend the capabilities of our solutions in the ordinary course of our business. For example, we maintain strategic partnerships with health and wealth benefits partners, such as Alegeus and Personal Capital, and cloud HCM platform providers, such as Workday. In order to continue to grow our business and enhance and extend our capabilities, we anticipate that we will continue to depend on the continuation and expansion of our strategic partnerships with third parties. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources.

 

24


Table of Contents

If we are unsuccessful in establishing or maintaining our relationships with third parties, if we fail to comply with material terms (such as maintaining any required certifications) or if our strategic partners fail to perform as expected, our ability to compete in the marketplace or to grow our revenues could be impaired, which could adversely affect our business, financial condition, and results of operations. Even if we are successful, we cannot assure you that these relationships will result in increased customer usage of our solutions or increased revenues.

We might not be successful in converting our Hosted Business clients to our cloud-based solutions.

In 2014, we stopped actively pursuing new clients in our Hosted Business and instead chose to focus our strategic efforts and resources on enhancing our suite of HCM solutions to help clients realize the benefits of cloud-based solutions. While we have successfully migrated a significant number of our Hosted clients to cloud-based solutions, we continue to support a number of active Hosted clients under agreements that are scheduled to expire by 2023. Accordingly, while we intend to continue to perform our existing Hosted Business agreements, we do not intend to renew such agreements or enter into any new Hosted Business agreements. Although we are attempting to convert our Hosted Business clients to a cloud-based platform supported by our HCM solutions, we may not be successful in doing so. Additionally, the exit from our Hosted Business segment could result in the diversion of management’s attention from other business concerns, the disruption of our business or the potential loss of employees. If we are unable to manage these risks, it could adversely affect our results of operations.

Our business is dependent on continued interest in outsourcing.

Our business and growth depend in large part on continued interest in outsourced services. Outsourcing means that an entity contracts with a third party, such as us, to provide services rather than perform such services in-house. There can be no assurance that this interest will continue, as organizations may elect to perform such services themselves and/or the business process outsourcing industry could move to an as-a-service model, thereby eliminating traditional outsourcing tasks. A significant change in this interest in outsourcing could materially adversely affect our results of operations and financial condition.

Our success depends on our ability to retain and attract experienced and qualified personnel, including our senior management team and other professional personnel.

We depend, in material part, upon the members of our senior management team who possess extensive knowledge and a deep understanding of our business and our strategy. The unexpected loss of any of our senior management team could have a disruptive effect adversely impacting our ability to manage our business effectively and execute our business strategy. For example, our senior employees may perceive uncertainty as a result of the exit from our Hosted Business segment, which may result in unexpected loss of senior employees. Competition for experienced professional personnel is intense, particularly for technology professionals in the areas in which we operate, and we are constantly working to retain and attract these professionals. If we cannot successfully do so, our business, operating results and financial condition could be adversely affected. We must develop our personnel to provide succession plans capable of maintaining continuity in the midst of the inevitable unpredictability of personnel retention. While we have plans for key management succession and long-term compensation plans designed to retain the senior employees, if our succession plans do not operate effectively, our business could be adversely affected.

Our inability to successfully recover should we experience a disaster or other business continuity problem could cause material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.

Our operations are dependent upon our ability to protect our personnel, offices and technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations. Should we or a key vendor or other third party experience a local or regional disaster or other business continuity

 

25


Table of Contents

problem, such as an earthquake, hurricane, terrorist attack, pandemic, security breach, power loss, telecommunications failure or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, office facilities and the proper functioning of existing, new or upgraded computer systems, telecommunications and other related systems and operations. In events like these, while our operational size, the multiple locations from which we operate and our existing back-up systems provide us with some degree of flexibility, we still can experience near-term operational challenges with regard to particular areas of our operations. We could potentially lose access to key executives and personnel, client data or experience material adverse interruptions to our operations or delivery of services to our clients in a disaster recovery scenario.

We regularly assess and take steps to improve upon our existing business continuity plans and key management succession. However, a disaster on a significant scale or affecting certain of our key operating areas within or across regions, or our inability to successfully recover should we experience a disaster or other business continuity problem, could materially interrupt our business operations and cause material financial loss, loss of human capital, regulatory actions, reputational harm, damaged client relationships or legal liability.

If our clients are not satisfied with our services, we may face additional cost, loss of profit opportunities and damage to our reputation or legal liability.

We depend, to a large extent, on our relationships with our clients and our reputation to understand the clients’ needs and deliver solutions and services that are tailored to satisfy those needs. If a client is not satisfied with our services, it may be damaging to our business and could cause us to incur additional costs and impair profitability. Many of our clients are businesses that band together in industry groups and/or trade associations and actively share information among themselves about the quality of service they receive from their vendors. Accordingly, poor service to one client may negatively impact our relationships with multiple other clients. Moreover, if we fail to meet our contractual obligations, we could be subject to legal liability or loss of client relationships.

Damage to our reputation could have a material adverse effect on our business.

Our reputation is a key asset of our business. Our ability to attract and retain clients is highly dependent upon the external perceptions of our level of service, trustworthiness, business practices, financial condition and other subjective qualities. Negative perceptions or publicity regarding these matters could erode trust and confidence and damage our reputation among existing and potential clients, which could make it difficult for us to attract new clients and maintain existing ones as mentioned above. Negative public opinion could also result from actual or alleged conduct by us or those currently or formerly associated with us in any number of activities or circumstances, including operations, regulatory compliance, and the use and protection of data and systems, satisfaction of client expectations, and from actions taken by regulators or others in response to such conduct. This damage to our reputation could further affect the confidence of our clients, rating agencies, regulators, stockholders and the other parties in a wide range of transactions that are important to our business having a material adverse effect on our business, financial condition and operating results.

We depend on licenses of third-party software to provide our services. The inability to maintain these licenses or errors in the software we license could result in increased costs, or reduced service levels, which would adversely affect our business.

Our applications incorporate certain third-party software obtained under licenses from other companies. We anticipate that we will continue to rely on such third-party software and development tools from third parties in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or it may be difficult or costly to replace. In addition, integration of the software used in our applications with new third-party software may require significant work and require substantial investment of our time and resources. To the extent that our applications depend upon the

 

26


Table of Contents

successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software could prevent the deployment or impair the functionality of our own applications, delay new application introductions, result in a failure of our applications and injure our reputation. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties.

We rely on third parties to perform key functions of our business operations and to provide services to our clients. These third parties may act in ways that could harm our business.

As we continue to focus on reducing the expense necessary to support our operations, we have increasingly used outsourcing strategies, such as our strategic transaction with Wipro, for a significant portion of our information technology and business functions. We rely on third parties, and in some cases subcontractors, to provide services, data and information such as technology, information security, funds transfers, data processing, and administration and support functions that are critical to the operations of our business. Recently, we substantially expanded such relationships in the areas of technology support, print and fulfillment service delivery and call center operations, and we expect to continue that trend in the future. As we do not fully control the actions of these third parties, we are subject to the risk that their decisions may adversely impact us and replacing these service providers could create significant delay and expense. A failure by the third parties to comply with service level agreements or regulatory or legal requirements, in a high quality and timely manner, particularly during periods of our peak demand for their services, could result in economic and reputational harm to us. In addition, these third parties face their own technology, operating, business and economic risks, and any significant failures by them, including the improper use or disclosure of our confidential client, employee, or business information, could cause harm to our reputation. An interruption in or the cessation of service by any service provider as a result of systems failures, capacity constraints, financial difficulties or for any other reason could disrupt our operations, impact our ability to offer certain products and services, and result in contractual or regulatory penalties, liability claims from clients and/or employees, damage to our reputation and harm to our business.

Our business is exposed to risks associated with the handling of client funds.

Our business handles payroll processing and retirement and pension plan administration for certain clients. Consequently, at any given time, we may be holding or directing funds of our clients and their employees, while payroll, retirement plan funds or pension payments are being processed. This function creates a risk of loss arising from, among other things, fraud by employees or third parties, execution of unauthorized transactions or errors relating to transaction processing. We are also potentially at risk in the event the financial institution in which we hold these funds suffers any kind of insolvency or liquidity event or fails, for any reason, to deliver their services in a timely manner. The occurrence of any of these types of events in connection with this function could cause us financial loss and reputational harm.

We are subject to extensive governmental regulation, which could reduce our profitability, limit our growth, or increase competition.

Our business is subject to extensive legal and regulatory oversight throughout the world including a variety of laws, rules, and regulations addressing, among other things, licensing, data privacy and protection, wage and hour standards, employment and labor relations, occupational health and safety, environmental matters, anti-competition, anti-corruption, economic sanctions, currency, reserves, and government contracting. This legal and regulatory oversight could reduce our profitability or limit our growth by increasing the costs of legal and regulatory compliance; by limiting or restricting the products or services we sell, the markets we enter, the methods by which we sell our services, the prices we can charge for our services, and the form of compensation we can accept from our clients and third parties; or by subjecting our business to the possibility of legal and regulatory actions or proceedings.

The global nature of our operations increases the complexity and cost of compliance with laws and regulations, including training and employee expenses, adding to our cost of doing business. In addition, many of

 

27


Table of Contents

these laws and regulations may have differing or conflicting legal standards across jurisdictions, increasing further the complexity and cost of compliance. In emerging markets and other jurisdictions with less developed legal systems, local laws and regulations may not be established with sufficiently clear and reliable guidance to provide us adequate assurance that we are operating our business in a compliant manner with all required licenses or that our rights are otherwise protected. In addition, certain laws and regulations, such as the Foreign Corrupt Practices Act and similar laws in other jurisdictions in which we operate, could impact our operations outside of the legislating country by imposing requirements for the conduct of overseas operations, and in a number of cases, requiring compliance by foreign subsidiaries. We are also subject to economic and trade sanctions programs, including those administered by the U.S. Treasury Department’s Office of Foreign Assets Control, which prohibit or restrict transactions or dealings with specified countries, their governments, and in certain circumstances, their nationals, and with individuals and entities that are specially designated, including narcotics traffickers and terrorists or terrorist organizations, among others.

We have implemented policies and procedures to monitor and address compliance with applicable anti-corruption, economic and trade sanctions and anti-money laundering laws and regulations, and we are continuously in the process of reviewing, upgrading and enhancing certain of our policies and procedures. However, our employees, consultants or agents may still take actions in violation of our policies for which we may be ultimately responsible, or our policies and procedures may be inadequate or may be determined to be inadequate by regulators. Any violations of applicable anti-corruption, economic and trade sanctions or anti-money laundering laws or regulations could limit certain of our business activities until they are satisfactorily remediated and could result in civil and criminal penalties, including fines, that could damage our reputation and have a materially adverse effect on our results of operation or financial condition.

Our global operations and growth strategy expose us to various international risks that could adversely affect our business.

Our operations are conducted globally. Additionally, one aspect of our growth strategy is to expand in key markets around the world. Accordingly, we are subject to legal, economic and market risks associated with operating in, and sourcing from, foreign countries, including:

 

   

difficulties in staffing and managing our foreign offices, such as unexpected wage inflation or job turnover, increased travel and infrastructure costs, as well as legal and compliance costs associated with multiple international locations;

 

   

imposition or increase of investment and other restrictions by foreign governments;

 

   

longer payment cycles;

 

   

greater difficulties in accounts receivable collection;

 

   

insufficient demand for our services in foreign jurisdictions;

 

   

our ability to execute effective and efficient cross-border sourcing of services on behalf of our clients;

 

   

restrictions on the import and export of technologies; and

 

   

trade barriers or sanctions laws.

If we are unable to manage the risks of our global operations and geographic expansion strategy, our results of operations and ability to grow could be materially adversely affected.

Our global delivery capability is concentrated in India and the Philippines, which may expose us to operational risks.

Our business model is dependent on our global delivery capability, which includes employees and third-party personnel based at various delivery centers around the world. While these delivery centers are located

 

28


Table of Contents

throughout the world, we have based large portions of our delivery capability in India, where we have a significant third-party relationship based in four delivery centers, and the Philippines, where a different third-party maintains locations for call center operations. Concentrating our global delivery capability in these locations presents operational risks, many of which are beyond our control. For example, natural disasters, some of which India and the Philippines have experienced and other countries may experience, could impair the ability of our people to safely travel to and work in our facilities and disrupt our ability to perform work through those delivery centers. Additionally, both India and the Philippines have experienced, and other countries may experience, political instability, worker strikes, civil unrest and hostilities with neighboring countries. If any of these circumstances occurs, we have a greater risk that interruptions in communications with our clients and other locations and personnel, and any down-time in important processes we operate for clients, could result in a material adverse effect on our results of operations and our reputation in the marketplace.

The profitability of our engagements with clients may not meet our expectations due to unexpected costs, cost overruns, early contract terminations, unrealized assumptions used in our contract bidding process or the inability to maintain our prices.

Our profitability is highly dependent upon our ability to control our costs and improve our efficiency. As we adapt to change in our business, adapt to the regulatory environment, enter into new engagements, acquire additional businesses and take on new employees in new locations, we may not be able to manage our large, diverse and changing workforce, control our costs or improve our efficiency. In addition, certain client contracts may include unique or heavily customized requirements that limit our ability to fully recognize economies of scale across our business units.

Most new outsourcing arrangements undergo an implementation process whereby our systems and processes are customized to match a client’s plans and programs. The cost of this process is estimated by us and often only partially funded (if at all) by our clients. If the actual implementation expense exceeds our estimate or if the ongoing service cost is greater than anticipated, the client contract may be less profitable than expected. Even though outsourcing clients typically sign long-term contracts, many of these contracts may be terminated at any time, with or without cause, by the client upon written notice, typically between 90 to 360 days before expiration.

In such cases, our clients are generally required to pay a termination fee; however, this amount may not be sufficient to offset the costs we incurred in connection with the implementation and system set-up or fully compensate us for the profit we would have received if the contract had not been cancelled. A client may choose to delay or terminate a current or anticipated project as a result of factors unrelated to our work product or progress, such as the business or financial condition of the client or general economic conditions. When any of our engagements are terminated, we may not be able to eliminate associated ongoing costs or redeploy the affected employees in a timely manner to minimize the impact on profitability. Any increased or unexpected costs or unanticipated delays in connection with the performance of these engagements, including delays caused by factors outside our control, could have an adverse effect on our profit margin.

Our profit margin, and therefore our profitability, is largely a function of the rates we are able to charge for our services and the staffing costs for our personnel. Accordingly, if we are not able to maintain the rates we charge for our services or appropriately manage the staffing costs of our personnel, we may not be able to sustain our profit margin and our profitability will suffer. The prices we are able to charge for our services are affected by a number of factors, including competitive factors, cost of living adjustment provisions, the extent of ongoing clients’ perception of our ability to add value through our services and general economic conditions. Our profitability is largely based on our ability to drive cost efficiencies during the term of our contracts for our services provided to customers. If we cannot drive suitable cost efficiencies, our profit margins will suffer.

 

29


Table of Contents

We might not be able to achieve the cost savings required to sustain and increase our profit margins.

We provide our outsourcing services over long-term periods for variable or fixed fees that generally are less than our clients’ historical costs to provide for themselves the services we contract to deliver. Clients’ demand for cost reductions may increase over the term of the agreement. As a result, we bear the risk of increases in the cost of delivering services to our clients, and our margins associated with particular contracts will depend on our ability to control our costs of performance under those contracts and meet our service commitments cost-effectively. Over time, some of our operating expenses will increase as we invest in additional infrastructure and implement new technologies to maintain our competitive position and meet our client service commitments. We must anticipate and respond to the dynamics of our industry and business by using quality systems, process management, improved asset utilization and effective supplier management tools. We must do this while continuing to grow our business so that our fixed costs are spread over an increasing revenue base. If we are not able to achieve this, our ability to sustain and increase profitability may be reduced.

Changes in our accounting estimates and assumptions could negatively affect our financial position and results of operations.

Our financial statements were prepared in conformity with GAAP which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of our financial statements. We are also required to make certain judgments that affect the reported amounts of revenues and expenses during each reporting period. We periodically evaluate our estimates and assumptions including, but not limited to, those relating to recoverability of assets including customer receivables, contingencies, income taxes and estimates and assumptions used for our long-term contracts. We base our estimates on historical experience and various assumptions that we believe to be reasonable based on specific circumstances. These assumptions and estimates involve the exercise of judgment and discretion, which may evolve over time in light of operational experience, regulatory direction, developments in accounting principles and other factors. Actual results could differ from these estimates, or changes in assumptions, estimates or policies or the developments in the business or the application of accounting principles related to long-term contracts may change our initial estimates of future contract results, which could materially affect our business and results of operations.

We may be required to record goodwill or other long-lived asset impairment charges, which could result in a significant charge to earnings.

Under GAAP, we review our long-lived assets, such as goodwill, intangible assets and fixed assets, for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is assessed for impairment at least annually. Factors that may be considered in assessing whether goodwill or other long-lived assets may not be recoverable include reduced estimates of future cash flows and slower growth rates in our industry. We may experience unforeseen circumstances that adversely affect the value of our goodwill or other long-lived assets and trigger an evaluation of the recoverability of the recorded goodwill and other long-lived assets. Future goodwill or other long-lived asset impairment charges could materially impact our financial statements.

Aon’s historical and future actions, or failure to comply with its indemnification obligations, may materially affect our business and operating results.

Although we became an independent company as a result of the Separation, Aon’s historical and future actions may still have a material impact on our business and operating results. In connection with the Separation, we entered into certain agreements with Aon, including a purchase agreement, transition services agreement, and certain other commercial agreements. Aon’s failure to comply with any portion of these agreements, including indemnities therein, for any reason could inhibit us from operating or expanding our business in the future and/or result in significant additional costs to it. For example, pursuant to the purchase agreement, Aon has agreed to

 

30


Table of Contents

indemnify us for certain liabilities. However, third parties could also seek to hold us directly responsible for any of the liabilities that Aon has agreed to retain, and there can be no assurance that the indemnity from Aon will be sufficient to protect us against the full amount of such liabilities, or that Aon will be able to fully satisfy our indemnification obligations. We could incur material additional costs if Aon fails to meet its obligations or if we otherwise are unable to recover costs associated with such liabilities.

Our work with government clients exposes us to additional risks inherent in the government contracting environment.

A portion of our revenues is derived from contracts with national, state and local governments and their agencies. Government contracts are subject to heightened contractual risks compared to contracts with non-governmental commercial clients. For example, government contracts often contain high or unlimited liability for breaches. Additionally, government contracts are generally subject to audits and investigations by government agencies. If the government discovers improper or illegal activities or contractual non-compliance (including improper billing), we may be subject to various civil and criminal penalties and administrative sanctions, which may include termination of contracts, forfeiture of profits, suspension of payments, fines and suspensions or debarment from doing business with the government. Also, the qui tam provisions of the federal and various state civil False Claims Acts authorize a private person to file civil actions under these statutes on behalf of the federal and state governments. Further, the negative publicity that could arise from any such penalties, sanctions or findings could have an adverse effect on our reputation and reduce our ability to compete for new contracts with both government and commercial clients. Moreover, government entities typically finance projects through appropriated funds. While these projects are often planned and executed as multi-year projects, government entities usually reserve the right to change the scope of or terminate these projects for lack of approved funding or at their convenience. Changes in government or political developments, including budget deficits, shortfalls or uncertainties, government spending reductions or other debt or funding constraints, could result in lower governmental sales and our projects being reduced in price or scope or terminated altogether, which also could limit our recovery of incurred costs, reimbursable expenses and profits on work completed prior to the termination. Any of the occurrences and conditions described above could have a material adverse effect on our business, financial condition and operating results.

Risks Related to Our Indebtedness

Our substantial indebtedness could adversely affect our financial condition, our ability to raise additional capital to fund our operations, our ability to operate our business, our ability to react to changes in the economy or our industry, our ability to meet our obligations under our outstanding indebtedness and could divert our cash flow from operations for debt payments.

We have a substantial amount of debt, which requires significant interest and principal payments. As of September 30, 2018, we had total indebtedness of $3.4 billion. In addition, as of September 30, 2018, we had $248 million of availability to incur additional indebtedness under our senior secured revolving credit facility. Subject to the limits contained in the credit agreement that governs the senior secured credit facilities and the indenture that governs our senior notes, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt could increase. Specifically, our high level of debt could have important consequences, including the following:

 

   

it may be difficult for us to satisfy our obligations, including debt service requirements under our outstanding debt;

 

   

our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions or other general corporate purposes may be impaired;

 

   

a substantial portion of cash flow from operations are required to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures, future business opportunities and other purposes;

 

31


Table of Contents
   

we could be more vulnerable to economic downturns and adverse industry conditions and our flexibility to plan for, or react to, changes in our business or industry is more limited;

 

   

our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, may be compromised due to our high level of debt and the restrictive covenants in the credit agreement that governs our senior secured credit facilities and the indenture that governs our senior notes;

 

   

our ability to borrow additional funds or to refinance debt may be limited; and

 

   

it may cause potential or existing customers to not contract with us due to concerns over our ability to meet our financial obligations under such contracts.

We are a holding company, and our consolidated assets are owned by, and our business is conducted through, our subsidiaries. Revenue from these subsidiaries is our primary source of funds for debt payments and operating expenses. If our subsidiaries are restricted from making distributions to us, our ability to meet our debt service obligations or otherwise fund our operations may be impaired. Moreover, there may be restrictions on payments by subsidiaries to their parent companies under applicable laws, including laws that require companies to maintain minimum amounts of capital and to make payments to stockholders only from profits. As a result, although a subsidiary of ours may have cash, we may not be able to obtain that cash to satisfy our obligation to service our outstanding debt or fund our operations.

Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors and reimbursement actions of governmental and commercial payors, all of which are beyond our control, including the availability of financing in the international banking and capital markets. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our debt, to refinance our debt or to fund our other liquidity needs. Any refinancing or restructuring of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations. Moreover, in the event of a default, the holders of our indebtedness could elect to declare such indebtedness be due and payable and/or elect to exercise other rights, such as the lenders under our senior secured revolving credit facility terminating their commitments thereunder and ceasing to make further loans or the lenders under our senior secured credit facilities instituting foreclosure proceedings against their collateral, any of which could materially adversely affect our results of operations and financial condition.

Furthermore, all of the debt under our senior secured credit facilities bears interest at variable rates. If interest rates increase, our debt service obligations on our senior secured credit facilities would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease. In addition, our variable rate indebtedness uses the London Interbank Offered Rate (“LIBOR”) as a benchmark for establishing the rate of interest and may be hedged with LIBOR-based interest rate derivatives. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to be replaced with a new benchmark or to perform differently than in the past. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate indebtedness.

Certain of our debt agreements impose significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.

The credit agreement that governs our senior secured credit facilities and the indenture that governs our senior notes each impose significant operating and financial restrictions on us. These restrictions will limit our ability and/or the ability of our subsidiaries to, among other things:

 

   

incur or guarantee additional debt or issue disqualified stock or preferred stock;

 

   

pay dividends and make other distributions on, or redeem or repurchase, capital stock;

 

32


Table of Contents
   

make certain investments;

 

   

incur certain liens;

 

   

enter into transactions with affiliates;

 

   

merge or consolidate;

 

   

enter into agreements that restrict the ability of restricted subsidiaries to make dividends or other payments to the issuers or the guarantors;

 

   

designate restricted subsidiaries as unrestricted subsidiaries; and

 

   

transfer or sell assets.

As a result of these restrictions, we are limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include similar or more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants. Our failure to comply with the restrictive covenants described above as well as the terms of any future indebtedness could result in an event of default, which, if not cured or waived, could result in us being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or are unable to refinance these borrowings, our results of operations and financial condition could be adversely affected.

Change in our credit ratings could adversely impact our operations and lower our profitability.

Credit rating agencies continually revise their ratings for the companies that they follow, including us. Credit rating agencies also evaluate our industry as a whole and may change their credit ratings for us based on their overall view of our industry. Failure to maintain our credit ratings on long-term and short-term debt could increase our cost of borrowing, reduce our ability to obtain intra-day borrowing, which we may need to operate our business, and adversely impact our results of operations.

Risks Related to Our Organizational Structure

Alight Inc. is a holding company and its only material asset after completion of this offering will be its interest in Alight OpCo, and it is accordingly dependent upon distributions from Alight OpCo to pay taxes, make payments under the tax receivable agreement and pay dividends.

Alight Inc. will be a holding company and after completion of this offering will have no material assets other than its ownership of LLC Units. Alight Inc. has no independent means of generating revenue. Alight Inc. intends to cause Alight OpCo to make distributions to its holders of LLC Units, including Alight Inc. and our pre-IPO owners, in an amount sufficient to cover all applicable taxes at assumed tax rates, payments under the tax receivable agreement and dividends, if any, declared by it. Deterioration in the financial condition, earnings or cash flow of Alight OpCo and its subsidiaries for any reason could limit or impair their ability to pay such distributions. Additionally, to the extent that Alight Inc. needs funds, and Alight OpCo is restricted from making such distributions under applicable law or regulation or under the terms of our financing arrangements, or is otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition.

We anticipate that Alight OpCo will continue to be treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax. Instead, taxable income will be allocated to holders of LLC Units. Accordingly, we will be required to pay income taxes on our allocable share of any net taxable income of Alight OpCo. Recently enacted legislation that is effective for taxable years beginning after December 31, 2017 may impute liability for adjustments to a partnership’s tax

 

33


Table of Contents

return on the partnership itself in certain circumstances, absent an election to the contrary. Alight OpCo may be subject to material liabilities pursuant to this legislation and related guidance if, for example, its calculations of taxable income are incorrect.

Under the terms of the amended and restated limited liability company agreement, Alight OpCo is obligated to make tax distributions to holders of LLC Units (including us) at certain assumed tax rates. These tax distributions may in certain periods exceed our tax liabilities and obligations to make payments under the tax receivable agreement. Our board of directors, in its sole discretion, will make any determination from time to time with respect to the use of any such excess cash so accumulated, which may include, among other uses, to acquire additional newly issued LLC Units from Alight OpCo at a per unit price determined by reference to the market value of the Class A common stock; to pay dividends, which may include special dividends, on its Class A common stock; to fund repurchases of its Class A common stock; or any combination of the foregoing. We will have no obligation to distribute such cash (or other available cash other than any declared dividend) to our stockholders. To the extent that Alight Inc. does not distribute such excess cash as dividends on our Class A common stock or otherwise undertake ameliorative actions between LLC Units and shares of Class A common stock and instead, for example, holds such cash balances, our pre-IPO owners may benefit from any value attributable to such cash balances as a result of their ownership of Class A common stock following a redemption or exchange of their LLC Units, notwithstanding that such pre-IPO owner may previously have participated as holders of LLC Units in distributions by Alight OpCo that resulted in such excess cash balances at Alight Inc. See “Certain Relationships and Related Person Transactions—Alight OpCo Limited Liability Company Agreement.”

Payments of dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our business, operating results and financial condition, current and anticipated cash needs, plans for expansion and any legal or contractual limitations on our ability to pay dividends. Our existing senior secured credit facilities and senior notes include and any financing arrangement that we enter into in the future may include restrictive covenants that limit our ability to pay dividends. In addition, Alight OpCo is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Alight OpCo (with certain exceptions) exceed the fair value of its assets. Subsidiaries of Alight OpCo are generally subject to similar legal limitations on their ability to make distributions to Alight OpCo.

Alight Inc. will be required to pay our pre-IPO owners for most of the benefits relating to any additional tax depreciation or amortization deductions that we may claim as a result of Alight Inc.’s allocable share of existing tax basis acquired in this offering, Alight Inc.’s increase in its allocable share of existing tax basis and anticipated tax basis adjustments we receive in connection with sales or exchanges of LLC Units after this offering and our utilization of certain tax attributes of the Blocker Companies.

Prior to the completion of this offering, we will enter into a tax receivable agreement with our pre-IPO owners that provides for the payment by Alight Inc. to such pre-IPO owners of 85% of the benefits, if any, that Alight Inc. is deemed to realize (calculated using certain assumptions) as a result of (i) Alight Inc.’s allocable share of existing tax basis acquired in this offering, (ii) increases in Alight Inc.’s allocable share of existing tax basis and tax basis adjustments that will increase the tax basis of the tangible and intangible assets of Alight Inc. as a result of sales or exchanges of LLC Units for shares of Class A common stock after this offering and (iii) Alight Inc.’s utilization of certain tax attributes of the Blocker Companies (including the Blocker Companies’ allocable share of existing tax basis), and of certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. These increases in existing tax basis and tax basis adjustments generated over time may increase (for tax purposes) depreciation and amortization deductions and, therefore, may reduce the amount of tax that Alight Inc. would otherwise be required to pay in the future, although the U.S. Internal Revenue Service (“IRS”) may challenge all or part of the validity of that tax basis, and a court could sustain such a challenge. Actual tax benefits realized by Alight Inc. may differ from tax benefits calculated under the tax receivable agreement as a result of the use of certain assumptions in the tax receivable agreement, including the

 

34


Table of Contents

use of an assumed weighted-average state and local income tax rate to calculate tax benefits. The payment obligation under the tax receivable agreement is an obligation of Alight Inc. and not of Alight OpCo. 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 tax receivable agreement, will vary depending upon a number of factors, including the timing of exchanges, the price of shares of our Class A common stock at the time of exchanges, the extent to which such exchanges are taxable and the amount and timing of our income, we expect that as a result of the size of the transfers and increases in the tax basis of the tangible and intangible assets of Alight OpCo and our possible utilization of tax attributes, including existing tax basis acquired at the time of this offering, the payments that Alight Inc. may make under the tax receivable agreement will be substantial. We estimate the amount of existing tax basis with respect to which our pre-IPO owners will be entitled to receive payments under the tax receivable agreement (assuming all Pre-IPO Unitholders exchange their LLC Units for shares of Class A common stock on the date of this offering) is approximately $        . The payments under the tax receivable agreement are not conditioned upon continued ownership of us by the exchanging holders of LLC Units or the prior owners of the Investors Entities. See “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.”

In certain cases, payments under the tax receivable agreement may be accelerated and/or significantly exceed the actual benefits Alight Inc. realizes in respect of the tax attributes subject to the tax receivable agreement.

Alight Inc.’s payment obligations under the tax receivable agreement will be accelerated in the event of certain changes of control or its election to terminate the tax receivable agreement early. The accelerated payments will relate to all relevant tax attributes then allocable to Alight Inc. in the case of an acceleration upon a change of control and to all relevant tax attributes allocable or that would be allocable to Alight Inc. assuming all LLC Units were then exchanged in the case of an election by Alight Inc. to terminate the tax receivable agreement early. The accelerated payments required in such circumstances will be calculated by reference to the present value (at a discount rate equal to one year LIBOR plus 100 basis points) of all future payments that holders of LLC Units or other recipients would have been entitled to receive under the tax receivable agreement, and such accelerated payments and any other future payments under the tax receivable agreement will utilize certain valuation assumptions, including that Alight Inc. will have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the tax receivable agreement and sufficient taxable income to fully utilize any remaining net operating losses subject to the tax receivable agreement on a straight line basis over the shorter of the statutory expiration period for such net operating losses or the five-year period after the early termination or change of control. In addition, recipients of payments under the tax receivable agreement will not reimburse us for any payments previously made under the tax receivable agreement if such tax basis and Alight Inc.’s utilization of certain tax attributes is successfully challenged by the IRS (although any such detriment would be taken into account in future payments under the tax receivable agreement). Alight Inc.’s ability to achieve benefits from any existing tax basis, tax basis adjustments or other tax attributes, and the payments to be made under the tax receivable agreement, will depend upon a number of factors, including the timing and amount of our future income. As a result, even in the absence of a change of control or an election to terminate the tax receivable agreement, payments under the tax receivable agreement could be in excess of 85% of Alight Inc.’s actual cash tax benefits.

Accordingly, it is possible that the actual cash tax benefits realized by Alight Inc. may be significantly less than the corresponding tax receivable agreement payments or that payments under the tax receivable agreement may be made years in advance of the actual realization, if any, of the anticipated future tax benefits. There may be a material negative effect on our liquidity if the payments under the tax receivable agreement exceed the actual cash tax benefits that Alight Inc. realizes in respect of the tax attributes subject to the tax receivable agreement and/or distributions to Alight Inc. by Alight OpCo are not sufficient to permit Alight Inc. to make payments under the tax receivable agreement after it has paid taxes and other expenses. Based upon certain assumptions described in greater detail below under “Certain Relationships and Related Person Transactions—Tax Receivable Agreement,” we estimate that if Alight Inc. were to exercise its termination right immediately following this offering, the aggregate amount of these termination payments would be approximately $        . The foregoing number is merely an estimate and the actual payments could differ materially. We may need to incur

 

35


Table of Contents

additional indebtedness to finance payments under the tax receivable agreement to the extent our cash resources are insufficient to meet our obligations under the tax receivable agreement as a result of timing discrepancies or otherwise, and these obligations could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control.

The acceleration of payments under the tax receivable agreement in the case of certain changes of control may impair our ability to consummate change of control transactions or negatively impact the value received by owners of our Class A common stock.

In the case of certain changes of control, payments under the tax receivable agreement will be accelerated and may significantly exceed the actual benefits Alight Inc. realizes in respect of the tax attributes subject to the tax receivable agreement. We expect that the payments that we may make under the tax receivable agreement in the event of a change of control will be substantial. As a result, our accelerated payment obligations and/or the assumptions adopted under the tax receivable agreement in the case of a change of control may impair our ability to consummate change of control transactions or negatively impact the value received by owners of our Class A common stock in a change of control transaction.

Risks Related to this Offering and Ownership of our Class A Common Stock

Our Sponsor and Co-Investors control us and their interests may conflict with ours or yours in the future.

Immediately following this offering and the application of net proceeds therefrom, our Sponsor and Co-Investors will beneficially own approximately     % of the combined voting power of our Class A and Class B common stock (or     % if the underwriters exercise in full their option to purchase additional shares of Class A common stock). Moreover, we will agree to nominate to our board individuals designated by our Sponsor and each of our Co-Investors in accordance with our stockholders agreement. Our Sponsor and each of our Co-Investors will each retain the right to designate directors for so long as they beneficially own at least 5% of the voting power of all shares of our outstanding capital stock entitled to vote generally in the election of our directors. See “Certain Relationships and Related Person Transactions—Stockholders Agreement.” Even when our Sponsor and Co-Investors cease to own shares of our stock representing a majority of the total voting power, for so long as our Sponsor and Co-Investors continue to own a significant percentage of our stock, they will still be able to significantly influence or effectively control the composition of our board of directors and the approval of actions requiring stockholder approval through their voting power. Accordingly, for such period of time, our Sponsor and Co-Investors will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers. In particular, for so long as our Sponsor and Co-Investors continue to own a significant percentage of our stock, our Sponsor and Co-Investors will be able to cause or prevent a change of control of our company or a change in the composition of our board of directors and could preclude any unsolicited acquisition of our company. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of Class A common stock as part of a sale of our company and ultimately might affect the market price of our Class A common stock.

In addition, immediately following this offering and the application of the net proceeds therefrom, the Pre-IPO Unitholders will own     % of the LLC Units (or     % if the underwriters exercise in full their option to purchase additional shares of Class A common stock). Because they hold their ownership interest in our business directly in Alight OpCo, rather than through Alight Inc., the Pre-IPO Unitholders may have conflicting interests with holders of shares of our Class A common stock. For example, if Alight OpCo makes distributions to Alight Inc., the non-managing members of Alight OpCo will also be entitled to receive such distributions pro rata in accordance with the percentages of their respective limited liability company interests in Alight OpCo and their preferences as to the timing and amount of any such distributions may differ from those of our public stockholders. Our pre-IPO owners may also have different tax positions from us which could influence their decisions regarding whether and when to dispose of assets, especially in light of the existence of the tax receivable agreement that we will enter in connection with this offering, whether and when to incur new or

 

36


Table of Contents

refinance existing indebtedness, and whether and when Alight Inc. should terminate the tax receivable agreement and accelerate its obligations thereunder. In addition, the structuring of future transactions may take into consideration our pre-IPO owners’ tax or other considerations even where no similar benefit would accrue to us. See “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.”

Our amended and restated certificate of incorporation will not limit the ability of our Sponsor and certain other pre-IPO investors to compete with us and they and certain of our executive officers may have investments in businesses whose interests conflict with ours.

Our Sponsor, the Co-Investors and other pre-IPO owners that hold 10% or more of our Class A common stock prior to completion of this offering (the “Other Investors”) and their respective affiliates engage in a broad spectrum of activities, including investments in businesses that may compete with us. In the ordinary course of their business activities, our Sponsor, the Co-Investors and the Other Investors and their respective affiliates may engage in activities where their interests conflict with our interests or those of our stockholders. Our amended and restated certificate of incorporation provides that none of our Sponsor, the Co-Investors or the Other Investors, or any of their respective affiliates or any of our directors who are not employed by us (including any non-employee director who serves as one of our officers in both his or her director and officer capacities) or his or her affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. See “Description of Capital Stock—Conflicts of Interest.” Our Sponsor, the Co-Investors and the Other Investors and their respective affiliates also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, our Sponsor, the Co-Investors and the Other Investors may have an interest in our pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their investment, even though such transactions might involve risks to us and our stockholders.

In addition, because of their former positions with Aon, certain of our executive officers own Aon common stock. Even though our executive officers who were employees of Aon ceased to be employees of Aon upon the Separation, continuing ownership of Aon common stock by certain of these executive officers could create, or appear to create, potential conflicts of interest if we and Aon pursue the same corporate opportunities or face decisions that could have different implications for us and Aon. Potential conflicts of interest could also arise if we enter into any new commercial arrangements with Aon in the future.

Upon the listing of our Class A common stock on Nasdaq, we will be a “controlled company” within the meaning of Nasdaq rules and, as a result, will qualify for exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

After the completion of this offering, our Sponsor and Co-Investors will be parties to a stockholders agreement described in “Certain Relationships and Related Person Transactions—Stockholders Agreement” and will beneficially own approximately     % of the combined voting power of our Class A and Class B common stock (or         % if the underwriters exercise in full their option to purchase additional shares of Class A common stock). As a result, we will be a “controlled company” within the meaning of the Nasdaq corporate governance standards. Under these corporate governance standards, a company of which more than 50% of the voting power in the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements. For example, controlled companies:

 

   

are not required to have a board that is composed of a majority of “independent directors,” as defined under the Nasdaq rules;

 

   

are not required to have a compensation committee that is composed entirely of independent directors; and

 

37


Table of Contents
   

are not required to have director nominations be made, or recommended to the full board of directors, by its independent directors or by a nominations committee that is composed entirely of independent directors.

Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

We will incur increased costs and become subject to additional regulations and requirements as a result of becoming a public company, which could lower our profits, make it more difficult to run our business or divert management’s attention from our business.

As a public company, we will be required to commit significant resources and management time and attention to the requirements of being a public company, which will cause us to incur significant legal, accounting and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. We also will incur costs associated with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and related rules implemented by the Securities and Exchange Commission (the “SEC”) and Nasdaq, and compliance with these requirements will place significant demands on our legal, accounting and finance staff and on our accounting, financial and information systems. In addition, we might not be successful in implementing these requirements. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Class A common stock, fines, sanctions and other regulatory action and potentially civil litigation.

Our internal controls over financial reporting currently do not meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and the market price of our Class A common stock.

As a public company, we will have significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that will require us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements and harm our operating results. Our internal controls over financial reporting currently do not meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act that eventually we will be required to meet. Because currently we do not have comprehensive documentation of our internal controls and have not yet tested our internal controls in accordance with Section 404, we cannot conclude in accordance with Section 404 that we do not have a material weakness in our internal controls or a combination of significant deficiencies that could result in the conclusion that we have a material weakness in our internal controls. Beginning with our second annual report on Form 10-K, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting on an annual basis. If we are not able to complete our initial assessment of our internal controls and otherwise implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may not be able to certify as to the adequacy of our internal controls over financial reporting.

 

38


Table of Contents

Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock exchange listing rules, which may result in a breach of the covenants under existing or future financing arrangements. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if we or our independent registered public accounting firm were to report a material weakness in our internal controls over financial reporting. This could materially adversely affect us and lead to a decline in the market price of our Class A common stock.

If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our Class A common stock, our stock price and trading volume could decline.

The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our Class A common stock price may decline. If analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our Class A common stock price or trading volume to decline and our Class A common stock to be less liquid.

There may not be an active trading market for shares of our Class A common stock, which may cause shares of our Class A common stock to trade at a discount from their initial offering price and make it difficult to sell the shares of Class A common stock you purchase.

Prior to this offering, there has not been a public trading market for shares of our Class A common stock. The initial public offering price per share of Class A common stock will be determined by agreement among us and the representatives of the underwriters, and may not be indicative of the price at which shares of our Class A common stock will trade in the public market after this offering. If you purchase shares of our Class A common stock, you may not be able to resell those shares at or above the initial public offering price. We cannot predict the extent to which investor interest in the Company will lead to the development of an active trading market on the Nasdaq or how liquid that market might become. An active public market for our Class A common stock may not develop or be sustained after the offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of Class A common stock at a price that is attractive to you, or at all. Additionally, our Class A common stock likely will not be eligible to be included in certain stock indices because of our dual class voting structure. For example, in July 2017, S&P Dow Jones stated that companies with multiple share classes will not be eligible for inclusion in the S&P Composite 1500 (composed of the S&P 500, S&P MidCap 400 and S&P SmallCap 600). The market price of our Class A common stock may decline below the initial public offering price.

The market price of shares of our Class A common stock may be volatile or may decline regardless of our operating performance, which could cause the value of your investment to decline.

Even if a trading market develops, the market price of our Class A common stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our Class A common stock regardless of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results or dividends, if any, to stockholders, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations

 

39


Table of Contents

of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industries we participate in or individual scandals, and in response the market price of shares of our Class A common stock could decrease significantly. You may be unable to resell your shares of Class A common stock at or above the initial public offering price.

Stock markets and the price of our Class A shares may experience extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

Investors in this offering will suffer immediate and substantial dilution.

The initial public offering price per share of Class A common stock will be substantially higher than our pro forma net tangible book value per share immediately after this offering. As a result, you will pay a price per share of Class A common stock that substantially exceeds the per share book value of our tangible assets after subtracting our liabilities. In addition, you will pay more for your shares of Class A common stock than the amounts paid for the LLC Units by the pre-IPO owners. See “Dilution.”

You may be diluted by the future issuance of additional Class A common stock or LLC Units in connection with our incentive plans, acquisitions or otherwise.

After this offering we will have approximately                  shares of Class A common stock authorized but unissued, including approximately                  shares of Class A common stock issuable upon exchange of LLC Units that will be held by the Pre-IPO Unitholders. Our certificate of incorporation authorizes us to issue these shares of Class A common stock and options, rights, warrants and appreciation rights relating to Class A common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. Similarly, the amended and restated limited liability company agreement of Alight OpCo permits Alight OpCo to issue an unlimited number of additional limited liability company interests of Alight OpCo with designations, preferences, rights, powers and duties that are different from, and may be senior to, those applicable to the LLC Units, and which may be exchangeable for shares of our Class A common stock. Additionally, we have reserved an aggregate of                  shares of Class A common stock and LLC Units for issuance under our Omnibus Incentive Plan. In connection with this offering, we expect to make a grant to certain employees of options to purchase up to                  shares of Class A common stock under the Omnibus Incentive Plan, assuming that the shares to be sold in this offering are sold at the midpoint of the price range set forth on the cover page of this prospectus. A $1.00 increase in the assumed initial public offering price per share, assuming no change in the number of shares to be sold, would decrease the aggregate number of shares underlying the stock options to be granted at the time of this offering by                 , and a $1.00 decrease in the assumed initial public offering price would increase the number of shares underlying the stock options by                 . Any Class A common stock that we issue, including under our Omnibus Incentive Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by the investors who purchase Class A common stock in this offering.

We may issue preferred stock whose terms could adversely affect the voting power or value of our Class A common stock.

Our amended and restated certificate of incorporation will authorize us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our Class A common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our Class A common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified

 

40


Table of Contents

events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the Class A common stock.

If we or our pre-IPO owners sell additional shares of our Class A common stock after this offering or are perceived by the public markets as intending to sell them, the market price of our Class A common stock could decline.

The sale of substantial amounts of shares of our Class A common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Class A common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell shares of our Class A common stock in the future at a time and at a price that we deem appropriate. Upon completion of this offering, we will have a total of                  shares of our Class A common stock outstanding, or                  shares if the underwriters exercise in full their option to purchase additional shares of our Class A common stock. All of the shares of our Class A common stock sold in this offering will be freely tradable without restriction or further registration under the Securities Act, by persons other than our “affiliates,” as that term is defined under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”). See “Shares Eligible for Future Sale.”

In addition, we and the Pre-IPO Unitholders will enter into an exchange agreement under which they (or certain permitted transferees) will have the right, after the completion of this offering (subject to the terms of the exchange agreement), to exchange their LLC Units for shares of our Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments. Upon completion of this offering (subject to the terms of the exchange agreement), an aggregate of                 LLC Units may be exchanged for shares of our Class A common stock. Any shares we issue upon exchange of LLC Units will be “restricted securities” as defined in Rule 144 and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemptions contained in Rule 144. Under applicable SEC guidance, we believe that for purposes of Rule 144 the holding period in such shares will generally include the holding period in the corresponding LLC Units exchanged. We, our directors, executive officers and holders of substantially all of our outstanding LLC Units immediately prior to this offering, including our Sponsor and each of the Co-Investors and the Other Investors, have agreed, subject to certain exceptions, not to dispose of or hedge any shares of our Class A common stock (including shares issued upon exchange of LLC Units) or securities convertible into or exchangeable for shares of our Class A common stock for 180 days from the date of this prospectus, except with the underwriters’ prior written consent. See “Underwriting.” As a result of the registration rights agreement, however, all of these shares of our Class A common stock (including shares issued upon exchange of LLC Units) may be eligible for future sale without restriction, subject to applicable lock-up arrangements. See “Shares Eligible for Future Sale—Registration Rights” and “Certain Relationships and Related Person Transactions—Registration Rights Agreement.”

Upon the expiration of the lock-up agreements described above, all of such shares will be eligible for resale in the public market, subject, in the case of shares held by our affiliates, to volume, manner of sale and other limitations under Rule 144. We expect that our Sponsor will continue to be considered an affiliate following the expiration of the lock-up period based on its expected share ownership and its board nomination rights. Certain other of our stockholders may also be considered affiliates at that time. However, subject to the expiration or waiver of the 180-day lock-up period, the holders of these shares of Class A common stock will have the right, subject to certain exceptions and conditions, to require us to register their shares of Class A common stock under the Securities Act, and they will have the right to participate in future registrations of securities by us. Registration of any of these outstanding shares of Class A common stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement. See “Shares Eligible for Future Sale.”

We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our Class A common stock or securities convertible into or exchangeable for shares of our Class A common

 

41


Table of Contents

stock issued pursuant to our Omnibus Incentive Plan. Any such Form S-8 registration statements will automatically become effective upon filing. Accordingly, shares registered under such registration statements will be available for sale in the open market. We expect that the initial registration statement on Form S-8 will cover                  shares of our Class A common stock.

In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our Class A common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of Class A common stock. As restrictions on resale end, the market price of our shares of common stock could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our Class A common stock or other securities or to use our Class A common stock as consideration for acquisitions of other businesses, investments or other corporate purposes.

Anti-takeover provisions in our organizational documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable.

Our amended and restated certificate of incorporation and amended and restated bylaws that will become effective immediately prior to the consummation of this offering will contain provisions that may make the merger or acquisition of our company more difficult without the approval of our board of directors. Among other things, these provisions:

 

   

provide that our board of directors will be divided into three classes, as nearly equal in size as possible, which directors in each class serving three-year terms and with terms of the directors of only one class expiring in any given year;

 

   

provide for the removal of directors only for cause and only upon the affirmative vote of the holders of at least 66 2/3% in voting power of the outstanding shares of our capital stock entitled to vote if the parties to our stockholders agreement beneficially own less than 30% of the total voting power of all then outstanding shares of our capital stock entitled to vote generally in the election of directors;

 

   

would allow us to authorize the issuance of shares of one or more series of preferred stock, including in connection with a stockholder rights plan, financing transactions or otherwise, the terms of which series may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of common stock;

 

   

prohibit stockholder action by written consent from and after the date on which the parties to our stockholders agreement cease to beneficially own at least 30% of the total voting power of all then outstanding shares of our capital stock entitled to vote generally in the election of directors unless such action is recommended by all directors then in office;

 

   

provide for certain limitations on convening special stockholder meetings;

 

   

provide (i) that the board of directors is expressly authorized to make, alter, or repeal our bylaws and (ii) that our stockholders may only amend our bylaws with the approval of 66 2/3% or more of all of the outstanding shares of our capital stock entitled to vote if the parties to our stockholders agreement beneficially own less than 30% of the total voting power of all then outstanding shares of our capital stock entitled to vote generally in the election of directors;

 

   

provide that certain provisions of our amended and restated certificate of incorporation may be amended only by the affirmative vote of the holders of at least 66 2/3% in voting power of the outstanding shares of our capital stock entitled to vote if the parties to our stockholders agreement beneficially own less than 30% of the total voting power of all then outstanding shares of our capital stock entitled to vote generally in the election of directors; and

 

42


Table of Contents
   

establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.

Further, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impede or discourage a takeover attempt that our stockholders may find beneficial. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, including actions that our stockholders may deem advantageous, or negatively affect the trading price of our Class A common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire. For further discussion of these and other such anti-takeover provisions, see “Description of Capital Stock—Anti-Takeover Effects of Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and Certain Provisions of Delaware Law.”

Our amended and restated certificate of incorporation will designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with the Company or the Company’s directors, officers or other employees.

Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, any (i) derivative action or proceeding brought on behalf of our Company, (ii) action asserting a claim of breach of a fiduciary duty owed by any director, officer, stockholder or employee of our Company to our Company or our Company’s stockholders, (iii) action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”) or our amended and restated certificate of incorporation or our amended and restated bylaws or (iv) action asserting a claim governed by the internal affairs doctrine, shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware. Any person or entity purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to the forum provision in our amended and restated certificate of incorporation. This choice-of-forum provision may limit a stockholder’s ability to bring a claim in a different judicial forum, including one that it may find favorable or convenient for a specified class of disputes with the Company or the Company’s directors, officers, other stockholders or employees, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our amended and restated certificate of incorporation inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors.

 

43


Table of Contents

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “predicts,” “intends,” “trends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors include but are not limited to those described under “Risk Factors.” These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

 

44


Table of Contents

MARKET AND INDUSTRY DATA

This prospectus includes market and industry data and forecasts that we have derived from independent consultant reports, publicly available information, various industry publications, other published industry sources, including International Data Corporation (“IDC”) and Gartner, Inc. (“Gartner”), and our internal data and estimates. Independent consultant reports, industry publications and other published industry sources generally indicate that the information contained therein was obtained from sources believed to be reliable.

The source of certain statistical data, estimates and forecasts contained in this prospectus are the following independent industry publications or reports:

 

   

IDC, Market Forecast: Worldwide and U.S. HR Management Services Forecast, 2017-2021—May 2017

 

   

Gartner, Forecast: Cloud Consulting and Implementation Services, Worldwide, 2017-2022—May 2018

The Gartner Report described herein (the “Gartner Report”) represents research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, and are not representations of fact. The Gartner Report speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Report are subject to change without notice.

Although we believe that these third-party sources are reliable, we do not guarantee the accuracy or completeness of this information, and neither we nor the underwriters have independently verified this information. Some market data and statistical information are also based on our good faith estimates, which are derived from management’s knowledge of our industry and such independent sources referred to above. Certain market, ranking and industry data included elsewhere in this prospectus, including the size of certain markets and our size or position and the positions of our competitors within these markets, including our services relative to our competitors, are based on estimates of our management. These estimates have been derived from our management’s knowledge and experience in the markets in which we operate, as well as information obtained from surveys, reports by market research firms, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate and have not been verified by independent sources. Unless otherwise noted, all of our market share and market position information presented in this prospectus is an approximation. Our market share and market position in each of our lines of business, unless otherwise noted, is based on our sales relative to the estimated sales in the markets we served. References herein to our being a leader in a market or product category refer to our belief that we have a leading market share position in each specified market, unless the context otherwise requires. As there are no publicly available sources supporting this belief, it is based solely on our internal analysis of our sales as compared to our estimates of sales of our competitors. In addition, the discussion herein regarding our various end markets is based on how we define the end markets for our products, which products may be either part of larger overall end markets or end markets that include other types of products and services.

Our internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and our management’s understanding of industry conditions. Although we believe that such information is reliable, we have not had this information verified by any independent sources.

 

45


Table of Contents

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our names, logos and domain names are our service marks or trademarks. We do not intend our use or display of other companies’ trademarks, service marks or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are used without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, and trade names. All trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners.

 

46


Table of Contents

ORGANIZATIONAL STRUCTURE

Existing Organizational Structure

The diagram below depicts our current organizational structure.

 

 

LOGO

Pro-IPO Owners Tempo Holding Company, LLC ("Alight OpCo") Tempo Acquisition, LLC (1) Operating Subsidiaries

 

(1)

Tempo Acquisition, LLC, together with certain wholly owned subsidiary co-obligors, serves as the borrower under the senior secured credit facilities and as the issuer of the senior notes.

Organizational Structure Following this Offering

Immediately following this offering, Alight Inc. will be a holding company, and its sole material asset will be a controlling equity interest in Alight OpCo. As the sole managing member of Alight OpCo, Alight Inc. will operate and control all of the business and affairs of Alight OpCo and, through Alight OpCo and its subsidiaries, conduct our business. The reorganization will be accounted for as a reorganization of entities under common control. As a result, the consolidated financial statements of Alight Inc. will recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical consolidated financial statements of Alight OpCo, the accounting predecessor. Alight Inc. will consolidate Alight OpCo in its consolidated financial statements and record a noncontrolling interest related to the LLC Units held by the Pre-IPO Unitholders on its consolidated balance sheet and statement of income.

The Pre-IPO Unitholders will hold all of the issued and outstanding shares of our Class B common stock. The shares of Class B common stock will have no economic rights but will entitle each holder, without regard to the number of shares of Class B common stock held by such holder, to a number of votes that is equal to the aggregate number of LLC Units of Alight OpCo held by such holder on all matters on which stockholders of Alight Inc. are entitled to vote generally. The voting power afforded to holders of LLC Units by their shares of

 

47


Table of Contents

Class B common stock is automatically and correspondingly reduced as they exchange LLC Units for shares of Class A common stock of Alight Inc. pursuant to the exchange agreement. If at any time the ratio at which LLC Units are exchangeable for shares of our Class A common stock changes from one-for-one as described under “Certain Relationships and Related Person Transactions—Exchange Agreement,” the number of votes to which Class B common stockholders are entitled will be adjusted accordingly. Holders of shares of our Class B common stock will vote together with holders of our Class A common stock as a single class on all matters on which stockholders are entitled to vote generally, except as otherwise required by law.

Our post-offering organizational structure, as described above, is commonly referred to as an umbrella partnership-C-corporation (or UP-C) structure. This organizational structure will allow our Pre-IPO Unitholders to retain their equity ownership in Alight OpCo, an entity that is classified as a partnership for U.S. federal income tax purposes, in the form of LLC Units. Investors in this offering and the Pre-IPO Shareholders will, by contrast, hold their equity ownership in Alight Inc., a Delaware corporation that is a domestic corporation for U.S. federal income tax purposes, in the form of shares of Class A common stock. We believe that our Pre-IPO Unitholders generally find it advantageous to continue to hold their equity interests in an entity that is not taxable as a corporation for U.S. federal income tax purposes. We do not believe that our UP-C organizational structure will give rise to any significant business or strategic benefit or detriment to us.

 

48


Table of Contents

The diagram below depicts our organizational structure immediately following this offering.

 

 

LOGO

Pre-IPO Unitholders Pre-IPO Shareholders Public Shareholders Class B common, stock % of voting power Alight Inc. (1) No economic rights Class A common stock % of voting power in Alight Inc. 100% of economic interests in Alight Inc. Class A common stock % of voting power in Alight Inc. 100% of economic interests in Alight Inc. Alight Inc. LLC Units No voting rights Exchangeable on a 1-for-1 basis for shares of Class A common stock % of outstanding LLC Units Sole Managing Member and LLC Units 100%of voting power in Alight OpCo % of outstanding LLC Units Tempo Holding Company, LLC ("Alight OpCo") Tempo Acquisition, LLC (2) Operating Subsidiaries

 

(1)

The Class B common stock will provide each of the Pre-IPO Unitholders with a number of votes that is equal to the aggregate number of LLC Units held by such Pre-IPO Unitholder. Immediately following this offering, the Pre-IPO Unitholders will hold     % of the voting power in Alight Inc. For additional information, see “Description of Capital Stock—Common Stock—Class B Common Stock.”

(2)

Tempo Acquisition, LLC, together with certain wholly owned subsidiary co-obligors, serves as the borrower under the senior secured credit facilities and as the issuer of the senior notes. See “Description of Certain Indebtedness.”

Incorporation of Alight Inc.

Alight Inc. was incorporated as a Delaware corporation on September 12, 2018. Alight Inc. has not engaged in any business or other activities except in connection with its formation. The amended and restated certificate of incorporation of Alight Inc. authorizes two classes of common stock, Class A common stock and Class B common stock, each having the terms described in “Description of Capital Stock.”

 

49


Table of Contents

Blocker Mergers

Immediately prior to the completion of this offering, certain entities that are taxable as corporations for U.S. federal income tax purposes in which the Pre-IPO Shareholders hold interests (the “Blocker Companies”) will merge with and into a newly formed subsidiary of Alight Inc. and the surviving entity will then be dissolved (such mergers, the “Blocker Mergers”). In the Blocker Mergers, the Pre-IPO Shareholders, as the 100% owners of the Blocker Companies, will acquire                  shares of newly issued Class A common stock and Alight Inc. will acquire an equal number of outstanding LLC Units.

Reclassification and Amendment and Restatement of Limited Liability Company Agreement of Alight OpCo

Prior to the completion of this offering, the limited liability company agreement of Alight OpCo will be amended and restated to, among other things, modify its capital structure by creating a single new class of units that we refer to as “LLC Units.” We refer to this reclassification, together with the transactions described under “—Blocker Mergers” as the “Reorganization Transactions.” Immediately following the Reorganization Transactions but prior to the other Offering Transactions described below, there will be                LLC Units issued and outstanding.

Pursuant to the amended and restated limited liability company agreement of Alight OpCo, Alight Inc. will be the sole managing member of Alight OpCo. Accordingly, Alight Inc. will have the right to determine when distributions will be made to the members of Alight OpCo and the amount of any such distributions. If Alight Inc., as managing member, authorizes a distribution, such distribution will be made to the members of Alight OpCo pro rata in accordance with the percentages of their respective limited liability company interests.

The holders of limited liability company interests in Alight OpCo, including Alight Inc., will incur United States federal, state and local income taxes on their proportionate share of any taxable income of Alight OpCo. Net profits and net losses of Alight OpCo will generally be allocated to its members (including Alight Inc.) pro rata in accordance with the percentages of their respective limited liability company interests, except as otherwise required by law. The amended and restated limited liability company agreement provides for cash distributions to the holders of limited liability company interests in Alight OpCo if Alight Inc. determines that the taxable income of Alight OpCo will give rise to taxable income for its members. In accordance with the amended and restated limited liability company agreement, we intend to cause Alight OpCo to make pro rata cash distributions to the holders of limited liability company interests in Alight OpCo for purposes of funding their tax obligations in respect of the income of Alight OpCo that is allocated to them. Generally, these tax distributions will be computed based on our estimate of the taxable income of Alight OpCo allocated to the holder of LLC Units that receives the greatest proportionate allocation of income multiplied by an assumed tax rate equal to the highest effective marginal combined United States federal, state and local income tax rate prescribed for an individual residing in California or New York, New York. See “Certain Relationships and Related Person Transactions—Alight OpCo Limited Liability Company Agreement.”

Exchange Agreement

We and the holders of outstanding LLC Units will enter into an exchange agreement at the time of this offering under which they (or certain permitted transferees thereof) will have the right on a quarterly basis (subject to the terms of the exchange agreement) to exchange their LLC Units for shares of our Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. In addition, subject to certain requirements, our Sponsor and the Co-Investors will generally be permitted to exchange LLC Units for our Class A common stock from and after the closing of this offering provided that the number of LLC Units surrendered in such exchanges during any 30 calendar day period represent, in the aggregate, greater than 2% of total interests in partnership capital or profits. Any Class A common stock received by our Sponsor or the Co-Investors in any such exchange during the applicable restricted periods described in “Shares Eligible for Future Sale—Lock-Up Agreements,” would be subject to the restrictions described in such section. The

 

50


Table of Contents

exchange agreement will also provide that a holder of LLC Units will not have the right to exchange LLC Units if Alight Inc. determines that such exchange would be prohibited by law or regulation or would violate other agreements with Alight Inc. to which the holder of LLC Units may be subject. Alight Inc. may impose additional restrictions on exchange that it determines to be necessary or advisable so that Alight OpCo is not treated as a “publicly traded partnership” for United States federal income tax purposes. As a holder exchanges LLC Units for shares of Class A common stock, the number of LLC Units held by Alight Inc. is correspondingly increased as it acquires the exchanged LLC Units. See “Certain Relationships and Related Person Transactions—Exchange Agreement.”

Offering Transactions

At the time of the consummation of this offering, Alight Inc. intends to consummate the purchase, for cash, of newly issued LLC Units from Alight OpCo at a purchase price per unit equal to the initial public offering price per share of Class A common stock in this offering net of underwriting discounts. Assuming that the shares of Class A common stock to be sold in this offering are sold at $        per share, which is the midpoint of the range on the front cover of this prospectus, at the time of this offering, Alight Inc. will purchase from Alight OpCo                newly issued LLC Units for an aggregate of $                (or                newly issued LLC Units for an aggregate of $        if the underwriters exercise in full their option to purchase additional shares of Class A common stock). The issuance and sale of such newly issued LLC Units by Alight OpCo to Alight Inc. will correspondingly dilute the ownership interests of our pre-IPO owners in Alight OpCo. See “Principal Stockholders” for more information regarding the proceeds from this offering that will be paid to our directors and named executive officers. Accordingly, following this offering Alight Inc. will hold a number of LLC Units that is equal to the number of shares of Class A common stock that it has issued, a relationship that we believe fosters transparency because it results in a single share of Class A common stock representing (albeit indirectly) the same percentage equity interest in Alight OpCo as a single LLC Unit.

Prior to the completion of this offering, we will enter into a tax receivable agreement with our pre-IPO owners that provides for the payment by Alight Inc. to such pre-IPO owners of 85% of the benefits, if any, that Alight Inc. is deemed to realize (calculated using certain assumptions) as a result of (i) Alight Inc.’s allocable share of existing tax basis acquired in this offering, (ii) increases in Alight Inc.’s allocable share of existing tax basis and tax basis adjustments that will increase the tax basis of the tangible and intangible assets of Alight Inc. as a result of sales or exchanges of LLC Units after this offering and (iii) Alight Inc.’s utilization of certain tax attributes of the Blocker Companies (including the Blocker Companies’ allocable share of existing tax basis) and certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. These increases in existing tax basis and the tax basis adjustments generated over time may increase (for tax purposes) depreciation and amortization deductions and therefore reduce the amount of tax that Alight Inc. would otherwise be required to pay in the future. Actual tax benefits realized by Alight Inc. may differ from tax benefits calculated under the tax receivable agreement as a result of the use of certain assumptions in the tax receivable agreement, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits. This payment obligation is an obligation of Alight Inc. and not of Alight OpCo. See “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.”

Alight Inc. intends to cause Alight OpCo to use the net proceeds from this offering to repay a portion of our senior secured credit facilities and senior notes. See “Use of Proceeds.”

We refer to the foregoing transactions as the “Offering Transactions.”

As a result of the transactions described above:

 

   

the investors in this offering will collectively own                  shares of our Class A common stock (or                  shares of Class A common stock if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and Alight Inc. will hold                LLC Units

 

51


Table of Contents
 

(or                LLC Units if the underwriters exercise in full their option to purchase additional shares of Class A common stock);

 

   

the Pre-IPO Unitholders will hold                LLC Units and the Pre-IPO Shareholders will hold                  shares of our Class A common stock;

 

   

the investors in this offering will collectively have     % of the voting power in Alight Inc. (or     % if the underwriters exercise in full their option to purchase additional shares of Class A common stock); and

 

   

the Pre-IPO Unitholders, as holders of all of the outstanding shares of Class B common stock, will have     % of the voting power in Alight Inc. (or     % if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and the Pre-IPO Shareholders will have     % of the voting power in Alight Inc. (or     % if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

 

52


Table of Contents

USE OF PROCEEDS

We estimate that the net proceeds to Alight Inc. from this offering at an assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions, will be approximately $        million (or $        million if the underwriters exercise in full their option to purchase additional shares of Class A common stock). A $1.00 increase or decrease in the assumed initial public offering price of $        per share would increase or decrease, as applicable, the net proceeds to Alight Inc. from this offering by approximately $        million, assuming the number of shares offered by us remains the same as set forth on the cover page of this prospectus and after deducting the estimated underwriting discounts and commissions. Alight OpCo will bear or reimburse Alight Inc. for all of the expenses payable by it in this offering. We estimate these offering expenses (excluding underwriting discounts and commissions) will be approximately $        million.

Alight Inc. intends to use all of the net proceeds from this offering (including from any exercise by the underwriters of their option to purchase additional shares of Class A common stock) to purchase a number of newly issued LLC Units from Alight OpCo that is equivalent to the number of shares of Class A common stock that we offer and sell in this offering, as described under “Organizational Structure—Offering Transactions.” We intend to cause Alight OpCo to use the net proceeds from this offering to repay a portion of our senior secured credit facilities and senior notes totaling approximately $         million and $         million in aggregate principal amount, respectively (or $        million and $        million in aggregate principal amount, respectively, if the underwriters exercise in full their option to purchase additional shares of Class A common stock) at an assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus. The senior notes mature on June 1, 2025 and bear interest at a rate of 6.75% per annum. The term loan facility and the revolving credit facility provided for by our senior secured credit facilities mature on May 1, 2024 and May 1, 2022, respectively. Borrowings under our senior secured credit facilities bear interest, at our option, at a rate per annum equal to an applicable margin over either (a) a base rate determined by reference to the highest of (1) the administrative agent’s prime lending rate, (2) the federal funds effective rate plus 1/2 of 1% and (3) the LIBOR rate for a one month interest period plus 1.00% or (b) a LIBOR rate determined by reference to the Reuters LIBOR rate for the interest period relevant to such borrowing, in each case, subject to interest rate floors. See “Description of Certain Indebtedness.” The proceeds of the senior notes and senior secured credit facilities were used to finance the consummation of the Separation, to make a distribution to our pre-IPO owners, for general corporate purposes and to pay related fees, costs and expenses.

 

53


Table of Contents

DIVIDEND POLICY

The declaration, amount and payment of any future dividends on shares of Class A common stock will be at the sole discretion of our board of directors and we may reduce or discontinue entirely the payment of such dividends at any time. Our board of directors may take into account general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant.

Alight Inc. is a holding company and has no material assets other than its ownership of LLC Units in Alight OpCo. We intend to cause Alight OpCo to make distributions to us in an amount sufficient to cover our taxes and obligations under the tax receivable agreement as well as any cash dividends declared by us. If Alight OpCo makes such distributions to Alight Inc., the other holders of LLC Units will also be entitled to receive distributions pro rata in accordance with the percentages of their respective limited liability company interests.

The amended and restated limited liability company agreement of Alight OpCo provides that pro rata cash distributions be made to holders of LLC Units (including Alight Inc.) at certain assumed tax rates, which we refer to as “tax distributions.” See “Certain Relationships and Related Person Transactions—Alight OpCo Limited Liability Company Agreement.” We anticipate that amounts received by Alight Inc. may, in certain periods, exceed Alight Inc.’s actual tax liabilities and obligations to make payments under the tax receivable agreement. We expect that Alight Inc. will use any such excess cash from time to time to acquire additional newly issued LLC Units from Alight OpCo at a per unit price determined by reference to the market value of the Class A common stock; to pay dividends, which may include special dividends, on its Class A common stock; to fund repurchases of its Class A common stock; or any combination of the foregoing. Our board of directors, in its sole discretion, will make any determination with respect to the use of any such excess cash. We also expect, if necessary, to undertake ameliorative actions, which may include pro rata or non-pro rata reclassifications, combinations, subdivisions or adjustments of outstanding LLC Units, to maintain 1:1 parity between LLC Units and shares of Class A common stock. See “Risk Factors—Risks Related to Our Organizational Structure—Alight Inc. is a holding company and its only material asset after completion of this offering will be its interest in Alight OpCo, and it is accordingly dependent upon distributions from Alight OpCo to pay taxes, make payments under the tax receivable agreement and pay dividends.”

The agreements governing our senior secured credit facilities and senior notes contain a number of covenants that restrict, subject to certain exceptions, certain of our subsidiaries’ ability to pay dividends to us. See “Description of Certain Indebtedness.” In addition, one of our subsidiaries, Alight Financial Solutions, LLC, is a broker dealer subject to certain net capital requirements, which could limit its ability to pay dividends to us. See “Business—Licensing and Regulation—Investment Advisers and Broker Dealers.”

Any financing arrangements that we enter into in the future may include restrictive covenants that limit our ability to pay dividends. In addition, Alight OpCo is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Alight OpCo (with certain exceptions) exceed the fair value of its assets. Subsidiaries of Alight OpCo are generally subject to similar legal limitations on their ability to make distributions to Alight OpCo.

Since its formation in September 2018, Alight Inc. has not paid any dividends to holders of its outstanding common stock. In the period from its formation in March 2017 through May 1, 2017, Alight OpCo did not make any distributions to our pre-IPO owners. During the period from May 1, 2017 through December 31, 2017, Alight OpCo made an aggregate of $399 million in cash distributions to our pre-IPO owners. During the nine months ended September 30, 2018, Alight OpCo made an aggregate of $2 million in cash distributions to our pre-IPO owners.

 

54


Table of Contents

CAPITALIZATION

The following table sets forth our consolidated cash and cash equivalents and capitalization as of September 30, 2018:

 

   

on a historical basis; and

 

   

on a pro forma basis giving effect to the transactions described under “Unaudited Pro Forma Condensed, Combined and Consolidated Financial Information,” including the sale by us of                  shares of Class A common stock in this offering at an assumed initial public offering price of $         per share (the midpoint of the range set forth on the cover page of this prospectus) and the application of the proceeds therefrom as described in “Use of Proceeds.”

Cash and cash equivalents are not components of our total capitalization. You should read this table together with the other information contained in this prospectus, including “Organizational Structure,” “Use of Proceeds,” “Unaudited Pro Forma Condensed, Combined and Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes thereto included elsewhere in this prospectus.

 

     September 30, 2018  
     Alight OpCo
Actual
     Alight Inc.
Pro Forma(1)
 
     (Dollars in millions, except per share
amounts)
 

Cash and cash equivalents

   $ 155      $                
  

 

 

    

 

 

 

Long term debt (including the current portion thereof and net of unamortized debt issuance costs) (2)

   $ 3,431      $    

Total members’ equity

     827     
  

 

 

    

 

 

 

Class A common stock, $0.01 par value per share, 1,000 shares authorized and no shares issued and outstanding, actual; and                  shares authorized and                  shares issued and outstanding on a pro forma basis

     —       

Class B common stock, $0.01 par value per share, 1,000 shares authorized and 100 shares issued and outstanding, actual; and                  shares authorized and                  shares issued and outstanding on a pro forma basis

     —       

Additional paid-in capital

     —       

Non-controlling interest

     —       
  

 

 

    

 

 

 

Total equity

     —       
  

 

 

    

 

 

 

Total capitalization

   $ 4,258      $    
  

 

 

    

 

 

 

 

(1)

To the extent we change the number of shares of Class A common stock sold by us in this offering from the shares we expect to sell or we change the initial public offering price from the $         per share assumed initial public offering price, representing the midpoint of the price range set forth on the cover page of this prospectus, or any combination of these events occurs, the net proceeds to us from this offering and each of as adjusted total stockholders’ equity and total capitalization may increase or decrease. A $1.00 increase (decrease) in the assumed initial public offering price per share, assuming no change in the number of shares to be sold, would increase (decrease) the net proceeds that we receive in this offering and each of as adjusted total stockholders’ equity and total capitalization by approximately $        . An increase (decrease) of 1,000,000 shares in the expected number of shares to be sold in the offering, assuming no change in the assumed initial offering price per share, would increase (decrease) our net proceeds from this offering and our as adjusted total stockholders’ equity and total capitalization by approximately $        . If the underwriters exercise in full their option to purchase additional shares of Class A common stock, the as adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity, total equity and total

 

55


Table of Contents
  capitalization would increase by approximately $        , after deducting underwriting discounts, and we would have                  shares of our Class A common stock issued and outstanding, as adjusted.
(2)

Long-term debt consists of borrowings under our senior secured credit facilities and the senior notes as described in “Description of Certain Indebtedness.”

 

56


Table of Contents

DILUTION

If you invest in shares of our Class A common stock in this offering, your investment will be immediately diluted to the extent of the difference between the initial public offering price per share of Class A common stock and the pro forma net tangible book value per share of Class A common stock after this offering. Dilution results from the fact that the per share offering price of the shares of Class A common stock is substantially in excess of the pro forma net tangible book value per share attributable to the Class A common stock held by our pre-IPO owners.

Our pro forma net tangible book value as of September 30, 2018 was approximately $        , or $        per share of Class A common stock. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities, and pro forma net tangible book value per share of Class A common stock represents pro forma net tangible book value divided by the number of shares of Class A common stock outstanding, after giving effect to the reclassification and assuming that all of the holders of LLC Units in Alight OpCo (other than Alight Inc.) exchanged their LLC Units for newly issued shares of Class A common stock on a one-for-one basis.

After giving effect to the transactions described under “Unaudited Pro Forma Condensed, Combined and Consolidated Financial Information,” including the application of the proceeds from this offering as described in “Use of Proceeds,” our pro forma net tangible book value as of September 30, 2018 would have been $        , or $        per share of Class A common stock. This represents an immediate increase in net tangible book value of $        per share of Class A common stock to our pre-IPO owners and an immediate dilution in net tangible book value of $        per share of Class A common stock to investors in this offering.

The following table illustrates this dilution on a per share of Class A common stock basis assuming the underwriters do not exercise their option to purchase additional shares of Class A common stock:

 

Assumed initial public offering price per share of Class A common stock

      $              

Pro forma net tangible book value per share of Class A common stock as of September 30, 2018

   $                   

Increase in pro forma net tangible book value per share of Class A common stock attributable to investors in this offering

   $       
  

 

 

    

Pro forma net tangible book value per share of Class A common stock after the offering

      $    
     

 

 

 

Dilution in pro forma net tangible book value per share of Class A common stock to investors in this offering

      $    
     

 

 

 

Because the Pre-IPO Unitholders do not own any Class A common stock or other economic interests in Alight Inc., we have presented dilution in pro forma net tangible book value per share of Class A common stock to investors in this offering assuming that all of the holders of LLC Units in Alight OpCo (other than Alight Inc.) exchanged their LLC Units for newly issued shares of Class A common stock on a one-for-one basis in order to more meaningfully present the dilutive impact on the investors in this offering.

A $1.00 increase in the assumed initial public offering price of $        per share of our Class A common stock would increase our pro forma net tangible book value after giving effect to this offering by $        million, or by $        per share of our Class A common stock, assuming the number of shares offered by us remains the same and after deducting estimated underwriting discounts and commissions. A $1.00 decrease in the assumed initial public offering price per share would result in equal changes in the opposite direction.

The following table summarizes, on the same pro forma basis as of September 30, 2018, the total number of shares of Class A common stock purchased from us, the total cash consideration paid to us, and the average price per share of Class A common stock paid by our pre-IPO owners and by new investors purchasing shares of Class A common stock in this offering, assuming that all of the holders of LLC Units in Alight OpCo (other than

 

57


Table of Contents

Alight Inc.) exchanged their LLC Units for newly issued shares of our Class A common stock on a one-for-one basis.

 

     Shares of Class A
common stock
Purchased
    Total
Consideration
    Average
Price Per
Share of Class A
common stock
 
     Number      Percent     Amount      Percent  
                  (in millions)               

Pre-IPO owners

                                $                             $                

Investors in this offering

               $                 $    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

               $                 $    
  

 

 

    

 

 

   

 

 

    

 

 

   

Each $1.00 increase in the assumed offering price of $        per share of our Class A common stock would increase total consideration paid by investors in this offering by $        million, assuming the number of shares offered by us remains the same and after deducting estimated underwriting discounts and commissions. A $1.00 decrease in the assumed initial public offering price per share of our Class A common stock would result in equal changes in the opposite direction.

If the underwriters’ option to purchase additional shares is exercised in full, the number of shares held by new investors will be increased to                 , or approximately     % of the total number of shares of Class A common stock.

The dilution information above is for illustrative purposes only. Our net tangible book value following the consummation of this offering is subject to adjustment based on the actual initial public offering price of our shares of Class A common stock and other terms of this offering determined at pricing.

 

58


Table of Contents

UNAUDITED PRO FORMA CONDENSED, COMBINED

AND CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed, combined and consolidated financial information presents Alight’s unaudited pro forma consolidated balance sheet as of September 30, 2018 and unaudited pro forma condensed, combined and consolidated statements of operations for the nine months ended September 30, 2018 and 2017 and for the year ended December 31, 2017, after giving effect to the following transactions (collectively, the “Transactions”):

 

   

the consummation of the Separation and the related financing under the senior secured credit facilities and the senior notes (the “Blackstone Transactions”);

 

   

the Reorganization Transactions; and

 

   

the Offering Transactions.

The unaudited pro forma condensed, combined and consolidated statement of operations for the nine months ended September 30, 2018 gives pro forma effect to the Reorganization Transactions and the Offering Transactions as if they had occurred on January 1, 2017. The unaudited pro forma condensed, combined and consolidated statements of operations for the nine months ended September 30, 2017 and for the year ended December 31, 2017 give pro forma effect to the Blackstone Transactions, the Reorganization Transactions and the Offering Transactions as if they had occurred on January 1, 2017. The unaudited pro forma consolidated balance sheet as of September 30, 2018 gives effect to the Reorganization Transactions and the Offering Transactions as if they had occurred on September 30, 2018.

Alight OpCo’s historical consolidated financial information has been derived from its consolidated financial statements and accompanying notes included elsewhere in this prospectus. Alight Inc. was formed on September 12, 2018 and will have no material assets or results of operations until the completion of this offering. Therefore, its historical financial information is not included in the unaudited pro forma condensed, combined and consolidated financial information.

The unaudited pro forma condensed, combined and consolidated financial information was prepared in accordance with Article 11 of Regulation S-X, using the assumptions set forth in the notes to the unaudited pro forma condensed, combined and consolidated financial information. The unaudited pro forma condensed, combined and consolidated financial information has been adjusted to give effect to events that are (i) directly attributable to the Transactions, (ii) factually supportable and (iii) expected to have a continuing impact on the statement of operations.

We currently estimate costs that we will incur during our transition to being a stand-alone public company will not be material. We have not adjusted the accompanying unaudited pro forma condensed, combined and consolidated statements of operations for these estimated costs as the costs are not expected to have an ongoing impact on our operating results; they are projected amounts based on subjective estimates and assumptions, and would not be factually supportable. Due to the scope and complexity of these activities, the amount of these costs could increase or decrease materially and the timing of incurrence could change.

In July 2018, we announced a strategic partnership with Wipro, which we expect will enable us to accelerate investment in consumer-facing technologies and services across our business and reduce our costs. However, we have not adjusted the accompanying unaudited pro forma condensed, combined and consolidated statements of operations for these estimated cost savings as they are projected amounts based on subjective estimates and assumptions, and would not be factually supportable.

For purposes of the unaudited pro forma financial information, we have assumed that shares of Class A common stock will be issued by us at a price per share equal to the midpoint of the estimated offering price range

 

59


Table of Contents

set forth on the cover page of this prospectus, and as a result, immediately following the completion of this offering, the ownership percentage represented by LLC Units not held by us will be     %, and the net income attributable to LLC Units not held by us will accordingly represent     % of our net income. If the underwriters’ option to purchase additional shares is exercised in full, the ownership percentage represented by LLC Units not held by us will be     %, and the net income attributable to LLC Units not held by us will accordingly represent     % of our net income.

The unaudited pro forma condensed, combined and consolidated financial information is provided for informational purposes only and is not necessarily indicative of the operating results that would have occurred if the Transactions had been completed as of the dates set forth above, nor is it indicative of the future results of the Company. The unaudited pro forma condensed, combined and consolidated financial information also does not give effect to the potential impact of any anticipated synergies, operating efficiencies or cost savings that may result from the Transactions or any integration costs that do not have a continuing impact.

The unaudited pro forma condensed, combined and consolidated financial information should be read together with “Organizational Structure,” “Capitalization,” “Selected Historical Condensed and Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes thereto included elsewhere in this prospectus.

 

60


Table of Contents

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of September 30, 2018

(in millions, except share amounts)

 

    Alight
OpCo As
Reported
    Reorganization
Transactions
Adjustments
        As Adjusted
Before
Offering
Transactions
Adjustments
     Offering
Transactions
Adjustments
        Alight Inc.
Pro Forma
 

Assets

              

Current Assets

              

Cash and cash equivalents

  $ 155     $                   $                    $                     $                

Receivables, net

    487               

Fiduciary assets

    717               

Other current assets

    122               
 

 

 

   

 

 

     

 

 

    

 

 

     

 

 

 

Total Current Assets

    1,481               

Goodwill

    1,881               

Intangible assets, net

    1,910               

Fixed assets, net

    231               

Deferred tax assets

    5       (a)(c)         

Other assets

    192              (e)  
 

 

 

   

 

 

     

 

 

    

 

 

     

 

 

 

Total Assets

  $ 5,700     $         $        $         $    
 

 

 

   

 

 

     

 

 

    

 

 

     

 

 

 

Liabilities and Equity

              

Liabilities

              

Current Liabilities

              

Accounts payable and accrued liabilities

  $ 308     $         $        $         $    

Fiduciary liabilities

    717               

Current portion of long term debt

    29              (d)  

Current portion of TRA liability

    —         (c)         

Other current liabilities

    181               
 

 

 

   

 

 

     

 

 

    

 

 

     

 

 

 

Total Current Liabilities

    1,235               

Deferred tax liabilities

    2       (a)         

TRA liability

    —         (c)         

Long term debt

    3,402              (d)  

Other liabilities

    234               
 

 

 

   

 

 

     

 

 

    

 

 

     

 

 

 

Total Liabilities

  $ 4,873     $         $        $         $    
 

 

 

   

 

 

     

 

 

    

 

 

     

 

 

 

Equity

              

Members’ equity

  $ 795     $         $        $       (f)   $    

Accumulated other comprehensive income

    32               

Noncontrolling interest

    —         (b)        (f)  

Class A common stock, $0.01 par value per share

    —                (d)(f)  

Class B common stock, $0.01 par value per share

    —                (d)(f)  

Additional paid-in capital

    —         (a)(c)        (d)(e)(f)  
 

 

 

   

 

 

     

 

 

    

 

 

     

 

 

 

Total Equity

  $ 827     $         $        $         $    
 

 

 

   

 

 

     

 

 

    

 

 

     

 

 

 

Total Liabilities and Equity

  $ 5,700     $         $        $         $    
 

 

 

   

 

 

     

 

 

    

 

 

     

 

 

 

See accompanying notes to unaudited pro forma consolidated balance sheet.

 

61


Table of Contents

UNAUDITED PRO FORMA CONDENSED, COMBINED AND CONSOLIDATED

STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2018

(in millions, except share amounts)

 

     Alight OpCo
Nine months
Ended
September 30,
2018
    Reorganization
Transactions
Adjustments
         As Adjusted
Before
Offering
Transactions
     Offering
Transactions
Adjustments
         Alight Inc.
Pro Forma
 

Revenue

   $ 1,727     $                      $                    $                      $                

Cost of services

     1,115                 
  

 

 

   

 

 

      

 

 

    

 

 

      

 

 

 

Gross Profit

     612                 

Operating Expenses

                 

Selling, general and administrative

     337                 

Depreciation and intangible amortization

     147                 
  

 

 

   

 

 

      

 

 

    

 

 

      

 

 

 

Total operating expenses (income)

     484                 
  

 

 

   

 

 

      

 

 

    

 

 

      

 

 

 

Operating Income

     128                 

Interest expense, net and other

     154               (n)   
  

 

 

   

 

 

      

 

 

    

 

 

      

 

 

 

Loss Before Income Taxes

     (26               

Income taxes

     13       (l)         (l)   
  

 

 

   

 

 

      

 

 

    

 

 

      

 

 

 

Net Loss

     (39               

Net Loss attributable to noncontrolling interests

     —         (m)         (m)   
  

 

 

   

 

 

      

 

 

    

 

 

      

 

 

 

Net Loss Attributable to Alight Inc.

   $ (39   $          $        $          $    
  

 

 

   

 

 

      

 

 

    

 

 

      

 

 

 

Earnings Per Unit:

                 

Basic

     (312.38               

Diluted

     (312.38               

Pro Forma Earnings Per Share (o):

                 

Basic

                 

Diluted

                 

Pro Forma Number of Shares Used in Computing Earnings Per Share (o):

                 

Basic

                 

Diluted

                 

See accompanying notes to unaudited pro forma condensed, combined and consolidated statement of operations.

 

62


Table of Contents

UNAUDITED PRO FORMA CONDENSED, COMBINED AND CONSOLIDATED

STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2017

(in millions, except share amounts)

 

    Alight OpCo
Four months
Ended
April 30,
2017
(Predecessor)
                Alight OpCo
Five months
Ended
September 30,
2017
(Successor)
    Blackstone
Transaction
Purchase
Accounting
Adjustments
          As Adjusted
Before
Reorganization
and Offering
Transactions
    Reorganization
Transactions
Adjustments
          As Adjusted
Before
Offering
Transactions
    Offering
Transactions
Adjustments
          Alight Inc.
Pro Forma
 

Revenue

  $ 713           $ 934     $ —         $ 1,647     $                     $                   $                     $                

Cost of services

    517             609       (11     (i     1,115              
 

 

 

         

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Gross Profit

    196             325       11         532              

Operating Expenses

                           

Selling, general and administrative

    130             214       (36     (g     308              

Depreciation and intangible amortization

    39             61       35       (h )(i)      135              
 

 

 

         

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total operating expenses (income)

    169             275       (1       443              
 

 

 

         

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Operating Income

    27             50       12         89              

Interest expense, net and other

    —               68       49       (j     117               (n  
 

 

 

         

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Income (Loss) Before Income Taxes

    27             (18     (37       (28            

Income taxes

    10             18       (10     (k     18         (l         (l  
 

 

 

         

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net Income (Loss)

    17             (36     (27       (46            

Net income (loss) attributable to noncontrolling interests

    —               —         —           —           (m         (m  
 

 

 

         

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net Income (Loss) Attributable to Alight Inc.

  $ 17           $ (36   $ (27     $ (46)     $         $       $         $    
 

 

 

         

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Earnings Per Unit:

                           

Basic

    N/A           $ (292.03                  

Diluted

    N/A           $ (292.03                  

Pro Forma Earnings Per Share (o):

                           

Basic

                           

Diluted

                           

Pro Forma Number of Shares Used in Computing Earnings Per Share (o):

                           

Basic

                           

Diluted

                           

See accompanying notes to unaudited pro forma condensed, combined and consolidated statement of operations.

 

63


Table of Contents

UNAUDITED PRO FORMA CONDENSED, COMBINED AND CONSOLIDATED

STATEMENT OF OPERATIONS

For the Year Ended December 31, 2017

(in millions, except share amounts)

 

    Alight OpCo
Four months
Ended
April 30,
2017
(Predecessor)
                Alight OpCo
Eight months
Ended
December 31,
2017
(Successor)
    Blackstone
Transaction
Purchase
Accounting
Adjustments
          As Adjusted
Before
Reorganization

and Offering
Transactions
    Reorganization
Transactions
Adjustments
          As Adjusted
Before
Offering
Transactions
    Offering
Transactions
Adjustments
          Alight Inc.
Pro Forma
 

Revenue

  $ 713           $ 1,588     $ —         $ 2,301     $                     $                   $                     $                

Cost of services

    517             981       (11     (i     1,487              
 

 

 

         

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Gross Profit

    196             607       11         814              

Operating Expenses

                           

Selling, general and administrative

    130             325       (36     (g     419              

Depreciation and intangible amortization

    39             119       23       (h )(i)      181              
 

 

 

         

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total operating expenses (income)

    169             444       (13       600              
 

 

 

         

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Operating Income

    27             163       24         214              

Interest expense, net and other

    —               115       49       (j     164               (n  
 

 

 

         

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Income (Loss) Before Income Taxes

    27             48       (25       50              

Income taxes

    10             24       (10     (k     24         (l         (l  
 

 

 

         

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net Income (Loss)

    17             24       (15       26              

Net income (loss) attributable to noncontrolling interests

    —               —         —           —           (m         (m  
 

 

 

         

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net Income (Loss) Attributable to Alight Inc.

  $ 17           $ 24     $ (15     $ 26     $         $       $         $    
 

 

 

         

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Earnings Per Unit:

                           

Basic

    N/A           $ 193.11                    

Diluted

    N/A           $ 192.86                    

Pro Forma Earnings Per Share (o):

                           

Basic

                           

Diluted

                           

Pro Forma Number of Shares Used in Computing Earnings Per Share (o):

                           

Basic

                           

Diluted

                           

See accompanying notes to unaudited pro forma condensed, combined and consolidated statement of operations.

 

64


Table of Contents

Notes to Unaudited Pro Forma Consolidated Balance Sheet

 

(a)

Following the Reorganization Transactions, we will be subject to U.S. federal income taxes, in addition to state, local and foreign taxes. As a result, the pro forma balance sheet reflects an adjustment to our taxes assuming the federal rates currently in effect and the highest statutory rates apportioned to each state, local and foreign jurisdiction.

 

(b)

Alight OpCo has been, and will continue to be, treated as a partnership for U.S. federal and state income tax purposes. As such, Alight OpCo’s profits and losses will flow through to its partners, including Alight, and are generally not subject to significant entity level taxes at the Alight OpCo level. As described in “Organizational Structure”, upon completion of the Reorganization Transactions, Alight Inc. will become the sole managing member of Alight OpCo. As a result of this offering, Alight will initially own approximately     % of the economic interest of Alight OpCo, but will have 100% of the voting power and will control the management of Alight OpCo. Immediately following the completion of this offering, the ownership percentage held by the non-controlling interest will be     %.

 

(c)

Prior to the completion of this offering, we will enter into a tax receivable agreement with our pre-IPO owners that provides for the payment by Alight Inc. to such pre-IPO owners of 85% of the benefits, if any, that Alight Inc. is deemed to realize (calculated using certain assumptions) as a result of (i) Alight Inc.’s allocable share of existing tax basis acquired in this offering, (ii) increases in Alight Inc.’s allocable share of existing tax basis and tax basis adjustments that will increase the tax basis of the tangible and intangible assets of Alight Inc. as a result of sales or exchanges of LLC Units after this offering and (iii) Alight Inc.’s utilization of certain tax attributes of the Blocker Companies (including the Blocker Companies’ allocable share of existing tax basis) and certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. See “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.” Although no exchanges of LLC Units are expected to occur as part of the Offering Transactions, we have recorded adjustments of the type described in clauses (i) and (iii) above, based on the following assumptions:

 

   

we will record an increase of $         million in deferred tax assets for the estimated income tax effects resulting from (i) Alight Inc.’s allocable share of existing tax basis acquired in this offering and (ii) Alight Inc.’s utilization of certain tax attributes of the Blocker Companies (including the Blocker Companies’ allocable share of existing tax basis) and certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. To the extent we determine it is more-likely-than-not that we will not realize the full benefit represented by the deferred tax asset, based on an analysis of expected future earnings, we will record an appropriate valuation allowance;

 

   

we will record a $         million liability based on the Company’s estimate of the aggregate amount that it would pay to the pre-IPO owners under the tax receivable agreement. The tax receivable agreement will be accounted for as a contingent liability, with amounts accrued when considered probable and reasonably estimable; and

 

   

we will record an increase to additional paid-in capital of $         million, which will be an amount equal to the any difference between the increase in deferred tax assets and the increase in liabilities due to existing owners under the tax receivable agreement.

Due to the uncertainty as to the amount and timing of future exchanges of the LLC Units by the Pre-IPO Unitholders and as to the price per share of our Class A common stock at the time of any such exchanges, the unaudited pro forma condensed, combined and consolidated financial information does not assume that exchanges of LLC Units have occurred. Therefore, no increases in tax basis in Alight Inc.’s assets or other tax benefits that may be realized as a result of any such future exchanges have been reflected in the unaudited pro forma consolidated financial information. However, if all of the Pre-IPO Unitholders were to exchange their LLC Units immediately following the completion of this offering, we would recognize an incremental deferred tax asset of approximately $         million and a

 

65


Table of Contents

non-current liability of approximately $         million, assuming: (i) a price of $         per share (the midpoint of the public offering price range set forth on the cover page of this prospectus); (ii) a constant corporate tax rate of 26%; (iii) we will have sufficient taxable income to fully utilize the tax benefits; and (iv) no material changes in tax law. Assuming no change in the other assumptions, a $1.00 increase (decrease) in the assumed price per share would increase (decrease) the incremental deferred tax asset and non-current liability that we would recognize if all of the Pre-IPO Unitholders were to exchange their LLC Units immediately following the completion of this offering by approximately $                     and $                    , respectively. Assuming no change in the other assumptions, if all of the Pre-IPO Unitholders were each to exchange only 50% (rather than all) of their LLC units immediately following the completion of this offering we would recognize only 50% of the incremental deferred tax asset and non-current liability that we would recognize if all the Pre-IPO Unitholders were each to exchange all of their LLC Units. These amounts are estimates and have been prepared for informational purposes only. The actual amount of deferred tax assets and related liabilities that we will recognize as a result of any such future exchanges will differ based on, among other things: (i) the amount and timing of future exchanges of LLC Units by LLC Unitholders, and the extent to which such exchanges are taxable; (ii) the price per share of our Class A common stock at the time of the exchanges; (iii) the amount and timing of future income against which to offset the tax benefits; and (iv) the tax rates then in effect.

 

(d)

We estimate that the proceeds to Alight from this offering will be approximately $         million (or $         million if the underwriters exercise in full their option to purchase additional shares of Class A common stock), based on an assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting assumed underwriting discounts and commissions and estimated offering expenses. We intend to cause Alight OpCo to use these proceeds to repay certain of our existing indebtedness, as will be determined prior to this offering, and for general corporate purposes. See “Use of Proceeds.”

 

(e)

We are deferring the direct costs associated with this offering. These costs primarily represent legal, accounting and other direct costs and are recorded in other assets in our consolidated balance sheet. Upon completion of this offering, these deferred costs will be charged against the proceeds from this offering as a reduction of additional paid-in capital.

 

(f)

Represents an adjustment to equity reflecting (i) par value for common stock, (ii) a decrease in $         million of members’ equity to allocate a portion of Alight OpCo’s equity to the non-controlling interests, and (iii) reclassification of members’ equity of $         million to additional paid-in capital.

Notes to Unaudited Pro Forma Condensed, Combined and Consolidated Statement of Operations

Adjustments related to the Blackstone Transactions

 

(g)

Reflects an adjustment of $36 million to reverse the non-recurring transaction related expenses associated with the Blackstone Transactions.

 

66


Table of Contents
(h)

Reflects incremental amortization expense of $42 million and $30 million for the nine months ended September 30, 2017 and for the year ended December 31, 2017, respectively, on finite-lived intangible assets established in connection with the Separation. Incremental amortization expense has been calculated as follows:

 

                          Amortization Expense  
Intangible assets with finite lives:    Fair Value      Estimated
Life (Years)
     Amortization
Method
     Nine Months
Ended
September 30,
2017
     Year Ended
December 31,
2017
 
($ in millions)               

Customer related and contract based intangibles

   $ 1,870        15        Straight line      $ 94      $ 125  

Technology related intangibles

     280        6        Straight line        35        47  
  

 

 

          

 

 

    

 

 

 

Subtotal

     2,150              129        172  
  

 

 

          

 

 

    

 

 

 

Less: Amortization expenses included in Alight OpCo’s historical consolidated financial statements

              (87      (142
           

 

 

    

 

 

 

Incremental amortization expenses

            $ 42      $ 30  
           

 

 

    

 

 

 

 

(i)

Reflects a reduction in depreciation expense of $18 million for the nine months ended September 30, 2017 and for the year ended December 31, 2017 related to the fair market value decrease and change in useful lives of fixed assets established in connection with the Separation.

 

                          Depreciation Expense  
($ in millions)    Fair Value      Estimated
Life (Years)
     Depreciation
Method
     Nine Months
Ended
September 30,
2017
     Year Ended
December 31,
2017
 

Capitalized software

   $ 9        5        Straight line      $ 2      $ 2  

Leasehold improvements

     38        5        Straight line        5        7  

Computer equipment

     12        4        Straight line        2        3  

Furniture, fixtures and equipment

     15        4        Straight line        3        4  

Construction in progress

     27        —             —          —    
  

 

 

          

 

 

    

 

 

 

Subtotal

   $ 101            $ 12      $ 16  
  

 

 

          

 

 

    

 

 

 

Less: Depreciation expenses included in Alight OpCo’s historical consolidated financial statements

              (30      (34
           

 

 

    

 

 

 

Reduction of depreciation expenses

            $ (18    $ (18
           

 

 

    

 

 

 

 

67


Table of Contents
(j)

Reflects four months of incremental interest expense and incremental amortization of deferred financing costs associated with the $2,670 million in senior secured term loans, the $500 million of 6.75% senior notes and the commitment fee on our undrawn senior secured revolving credit facility that were entered into on May 1, 2017, as it is assumed these instruments would have been entered into at the beginning of the year as a means of financing the Separation. Incremental interest expense for the $2,670 million senior secured term loans is calculated using a variable interest rate of 3.86%, which represents 0.86%, the average LIBOR rate taken over January 1, 2017 to April 30, 2017, plus a 3.0% spread. If the interest rates differed from the rates used in the pro forma interest expense by 0.125% for the fiscal year ended December 31, 2017, interest expense would have increased or decreased by approximately $1 million.

 

($ in millions)    Principal      Interest Rate     Incremental
Interest Expense
     Incremental
Deferred Financing
Amortization
     Total
Incremental
Expense
 

Senior Secured Term Loan

   $ 2,670        3.86   $ 34      $ 3      $ 37  

Senior Notes

     500        6.75     11        1        12  

Revolving Credit Facilities

     —            —          —          —    
  

 

 

      

 

 

    

 

 

    

 

 

 

Subtotal

   $ 3,170          45        4        49  
  

 

 

            

0.5% Commitment Fee on Revolving Credit Facilities

          —          —          —    
       

 

 

    

 

 

    

 

 

 

Incremental interest expenses and deferred financing amortization from new borrowings

        $ 45      $ 4      $ 49  
       

 

 

    

 

 

    

 

 

 

 

(k)

Reflects an adjustment to income tax expense assuming the Company was a pass-through entity for income tax purposes starting January 1, 2017. The income tax expense included in the unaudited combined pro forma financial statements relates to (i) U.S. federal and state income tax expense arising from the legal entity conversion of a subsidiary and (ii) foreign income taxes payable in jurisdictions where the Company had operations that generated operating income. Additionally, the tax expense (benefit) of the pro forma adjustments described in notes (g) through (j) to the unaudited combined pro forma statement of income above has been assumed to be $0 based on the pass-through entity structure resulting in an assumed statutory rate of 0%.

Adjustments related to the Reorganization and Offering Transactions

 

(l)

Following the Reorganization Transactions, we will be subject to U.S. federal income taxes, in addition to state, local and foreign taxes. As a result, the pro forma statement of operations reflects an adjustment to our provision for corporate income taxes to reflect an effective tax rate of     %, which includes a provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state, local and foreign jurisdiction. Alight OpCo has been, and will continue to be, treated as a partnership for U.S. federal and state income tax purposes. As such, Alight OpCo’s profits and losses will flow through to its partners, including Alight, and are generally not subject to tax at the Alight OpCo level.

 

(m)

As described in “Organizational Structure,” upon completion of the Reorganization Transactions, Alight will become the sole managing member of Alight OpCo. As a result of this offering, Alight will initially own approximately     % of the economic interest in Alight OpCo, but will have 100% of the voting power and control the management of Alight OpCo. Immediately following the completion of this offering, the ownership percentage held by the non-controlling interest will be     %. Net income attributable to the non-controlling interest will represent     % of loss before income taxes. These amounts have been determined based on an assumption that the underwriters’ option to purchase additional shares is not exercised. If the underwriters’ option to purchase additional shares is exercised in full, the ownership percentage held by the non-controlling interest would decrease to     %.

 

68


Table of Contents
(n)

Reflects reduction in interest expense of $        million as a result of the repayment of a portion of the senior secured credit facilities and the senior notes, as described in “Use of Proceeds,” as if such repayment occurred on January 1, 2017. The senior notes currently bear interest at a rate of 6.75% per annum.

 

(o)

The basic and diluted pro forma net income per share of Class A common stock represents net income attributable to Alight divided by the combination of the shares owned by existing owners and the Class A common shares sold in this offering, the proceeds of which are expected to equal the $         million (based on the midpoint of the price range shown on the cover of this prospectus, after deducting underwriting discounts). See “Use of Proceeds.” The table below presents the computation of pro forma basic and dilutive earnings per share (“EPS”) for Alight.

 

(in millions, except share-related amounts)    Nine Months
Ended
September 30, 2018
 

Earnings per share of Class A common stock

  

Numerator:

   $                

Net income attributable to Alight shareholders (basic and diluted earnings per share)

  
  

 

 

 

Denominator:

  

Weighted average of shares of Class A common stock outstanding (basic earnings per share)

  

Incremental common shares attributable to dilutive instruments

  
  

 

 

 

Weighted average of shares of Class A common stock outstanding (diluted earnings per share)

  
  

 

 

 

Basic earnings per share

   $    
  

 

 

 

Diluted earnings per share

   $    
  

 

 

 

 

69


Table of Contents

SELECTED HISTORICAL CONDENSED AND CONSOLIDATED FINANCIAL DATA

The following tables present the selected historical condensed and consolidated financial data for Alight OpCo and its subsidiaries for the periods and the dates indicated. Periods prior to May 1, 2017 reflect our financial position, results of operations and changes in financial position prior to the Separation and periods on or after May 1, 2017 reflect our financial position, results of operations and changes in financial position after the Separation. Accordingly, the selected historical condensed and consolidated financial data presented below is presented for periods prior to the Separation labeled “Predecessor” and periods subsequent to the Separation labeled “Successor”. The selected condensed and consolidated statements of operations data for the nine months ended September 30, 2018 (Successor), the eight months ended December 31, 2017 (Successor), the four months ended April 30, 2017 (Predecessor) and the year ended December 31, 2016 (Predecessor), and the selected condensed and consolidated balance sheet data as of September 30, 2018 and December 31, 2017 are derived from the audited consolidated financial statements of Alight OpCo, included elsewhere in this prospectus. The period presented as the five months ended September 30, 2017 (Successor) is unaudited and supplemental in nature. The Company provides this period for enhanced comparability, and it is not meant to be considered in isolation, superior to, or as a substitute for the directly comparable audited financial periods. The selected historical balance sheet data as of December 31, 2016 is derived from the audited consolidated financial statements of Alight OpCo not included in this prospectus. The selected historical statements of operations data for the years ended December 31, 2015 and 2014 and the selected balance sheet data as of December 31, 2015 and 2014 are derived from the unaudited carve-out financial statements of Alight OpCo not included in this prospectus.

The summary historical condensed and consolidated financial and other data of Alight Inc. has not been presented because Alight Inc. is a newly incorporated entity, has had no business transactions or activities to date and had no assets or liabilities during the periods presented in this section.

 

70


Table of Contents

Historical results are not necessarily indicative of the results expected for any future period. You should read the selected historical condensed and consolidated financial data below, together with the consolidated financial statements and related notes thereto appearing elsewhere in this prospectus, as well as “Summary—Summary Historical and Pro Forma Financial and Other Data,” “Organizational Structure,” “Unaudited Pro Forma Condensed, Combined and Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Certain Indebtedness” and the other financial information included elsewhere in this prospectus.

 

     Successor              Predecessor  
(in millions, except per unit data)    Nine Months
Ended
September 30,
2018
    Eight Months
Ended
December 31,

2017
    Five Months
Ended
September 30,
2017

(Unaudited)
             Four
Months
Ended

April 30,
2017
   

 

Year Ended December 31,

 
  2016     2015
(Unaudited)
    2014
(Unaudited)
 

Operations Data:

                    

Revenue

   $ 1,727     $ 1,588     $ 934           $ 713     $ 2,260     $ 2,242     $ 2,191  

Total expenses

     1,599       1,425       884             686       2,057       2,058       2,064  
  

 

 

   

 

 

   

 

 

         

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

     128       163       50             27       203       184       127  

Interest expense, net and other

     154       115       68             —         (1     —         (2
  

 

 

   

 

 

   

 

 

         

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) Income Before Income Taxes

     (26     48       (18           27       204       184       129  

Income taxes

     13       24       18             10       78       73       53  
  

 

 

   

 

 

   

 

 

         

 

 

   

 

 

   

 

 

   

 

 

 

Net (Loss) Income

   $ (39   $ 24     $ (36         $ 17     $ 126     $ 111     $ 76  
  

 

 

   

 

 

   

 

 

         

 

 

   

 

 

   

 

 

   

 

 

 

Net (Loss) Income per Class A unit: basic

   $ (312.38   $ 193.11     $ (292.03           N/A       N/A       N/A       N/A  

Net (Loss) Income per Class A unit: diluted

   $ (312.38   $ 192.86     $ (292.03           N/A       N/A       N/A       N/A  
 

Cash Flow Data

                    

Cash provided by operating activities

   $ 73     $ 224     $ 92           $ 79     $ 388     $ 357     $ 340  

Cash used for investing activities

     (82     (4,290     (4,224           (13     (75     (97     (89

Cash (used for) provided by financing activities

     (27     4,263       4,296             (69     (311     (256     (250

 

    Successor              Predecessor  
    As of
September 30,
2018
    As of
December 31,
2017
             As of
December 31,
2016

(Unaudited)
    As of
December 31,
2015

(Unaudited)
    As of
December 31,
2014

(Unaudited)
 

Balance Sheet Data:

               

Total assets

  $ 5,700     $ 6,257           $ 3,458     $ 3,576     $ 3,902  

Long-term debt (including current portion)

    3,431       3,439             —         —         —    

Capital lease obligations

    54       25             —         —         —    

 

71


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “Selected Historical Condensed and Consolidated Financial Data,” “Unaudited Pro Forma Condensed, Combined and Consolidated Financial Information” and the financial statements and related notes thereto included elsewhere in this prospectus. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in “Forward-Looking Statements” and “Risk Factors.”

Overview

We are a leading provider of integrated, cloud-based human capital solutions that empower our clients and their employees to manage their health, wealth and HR needs. We offer our clients innovative, consumer-focused solutions that engage and enable their employees to make better choices while controlling cost, managing risk, and driving better business results. Our technology-based solutions across health, wealth and Human Capital Management (“HCM”) address both the simple and complex needs of our clients. Powered by our proprietary, cloud-based core benefits platform, our health and wealth solutions serve both large enterprises and small and mid-market clients. We also provide a proprietary, front-end consumer portal called UPoint that serves as the critical integration point for users, clients, and partners, enabling a seamless consumer experience. We provide cloud advisory and deployment, application management services, and HR and payroll services with our HCM solutions for cloud platforms, such as Workday, Cornerstone OnDemand, Oracle and SAP SuccessFactors.

We provide solutions to nearly 3,000 employers, including 66 of the Fortune 100 and 240 of the Fortune 500, and serve 22 million of their current and former employees and their 18 million family members. We augment our solution set by bringing best-in-class consumer focused solutions from our network of partners to help broaden an employer’s offerings and solve the complex health, wealth and career needs of employees in an integrated manner.

Our clients’ demand for our services ultimately drives our revenues. We generate primarily all of our revenue from fees on services provided on outsourcing contracts across all Solutions, which is primarily based on a contracted fee charged per benefit plan participant per period (e.g., monthly or annually, as applicable). Our outsourcing contracts typically have three to five-year terms. Revenues from time-and-materials or cost-plus arrangements are recognized as services are performed. Revenues from fixed-fee contracts are recognized as services are provided using a proportional-performance model or at the completion of a project based on facts and circumstances. Payment terms are consistent with industry practice.

Cost of services are the direct costs we incur in delivering our services to customer. Substantially all cost of services relates to compensation-related and vendor costs directly attributable to client-related services, costs related to application development and client-related infrastructure, costs related to our hardware and software applications, and depreciation and amortization related to hardware, software and application development.

Our Separation from Aon

Alight OpCo is a holding company, formed in March 2017, whose primary asset is its 100% ownership of Tempo Acquisition, LLC.

Tempo Acquisition, LLC was formed under the laws of the State of Delaware on February 6, 2017. On February 9, 2017, Tempo Acquisition, LLC entered into a purchase agreement with Aon whereby Tempo Acquisition, LLC agreed to purchase all of the outstanding equity interest in the technology-enabled HR solutions of Aon, plus certain related assets, for a purchase price of $4.3 billion in cash payable at closing, subject to customary adjustments set forth in the purchase agreement plus the assumption of certain liabilities. The Separation was completed on May 1, 2017.

 

72


Table of Contents

Reorganization Transactions

Alight Inc. was incorporated in September 2018 and, pursuant to a reorganization into a holding corporation structure, will become a holding corporation the principal asset of which will be a controlling interest in Alight OpCo. As the sole managing member of Alight OpCo, Alight Inc. will operate and control the business and affairs of Alight OpCo and its subsidiaries. Alight Inc. will consolidate Alight OpCo in its consolidated financial statements and will report a non-controlling interest related to the LLC Units held by the Pre-IPO Unitholders in our consolidated financial statements.

Prior to the consummation of this offering, we will execute several reorganization transactions described under “Organizational Structure—Reclassification and Amendment and Restatement of Limited Liability Company Agreement of Alight OpCo,” as a result of which the limited liability company agreement of Alight OpCo will be amended and restated to, among other things, reclassify its outstanding limited liability company units into a single new class of units that we refer to as “LLC Units.” Pursuant to the amended and restated limited liability company agreement of Alight OpCo, Alight Inc. will be the sole managing member of Alight OpCo.

We and the Pre-IPO Unitholders will also enter into an exchange agreement under which they (or certain permitted transferees) will have the right (subject to the terms of the exchange agreement) to exchange their LLC Units for shares of our Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. See “Organizational Structure” and “Certain Relationships and Related Person Transactions.”

Following this offering, the Pre-IPO Unitholders that held voting units before the Offering Transactions and that continue to hold LLC Units will hold all of the issued and outstanding shares of our Class B common stock. The shares of Class B common stock will have no economic rights but will entitle each holder, without regard to the number of shares of Class B common stock held by such holder, to a number of votes that is equal to the aggregate number of LLC Units of Alight OpCo held by such holder on all matters on which stockholders of Alight Inc. are entitled to vote generally. Holders of shares of our Class B common stock will vote together with holders of our Class A common stock as a single class on all matters on which stockholders are entitled to vote generally, except as otherwise required by law.

Our Segments

We report our results of operations in two segments: Solutions and Hosted Business. Solutions and Hosted Business accounted for approximately 91% and 9% of consolidated revenue for the nine months ended September 30, 2018, respectively. We evaluate segment performance based upon segment profit, which is Adjusted EBITDA, which is defined as earnings before interest, taxes, depreciation and intangible amortization adjusted for the impact of certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance attributable to that segment.

Solutions

We use proprietary, cloud-based technology and strong channel partnerships to deliver the following solutions:

 

   

Health Solutions: Our Health Solutions provide value to clients by greatly reducing administrative burden while enabling flexibility and choice in plan design, insurance carriers and partners. Further, clients can expect significant value via automation, efficiency and scale, and a capability set that can accommodate and enable compliance with rapidly evolving regulatory requirements. Employees benefit from a consumer-centric, digital and seamless experience that helps them navigate an increasingly complex healthcare environment, with additional support from trained professionals who offer personalized, high-touch care. Our solutions help employees more cost-effectively manage their

 

73


Table of Contents
 

health, thereby enabling employees and employers to better manage their healthcare spend and make better decisions regarding the quality, effectiveness and cost of healthcare. Our Health Solutions generated 53% and 55% of our Solutions revenue during the nine months ended September 30, 2018 and during 2017, respectively.

 

   

Wealth Solutions: Our Wealth Solutions help clients navigate the growing complexity and risk of delivering defined contribution and defined benefit plans, while empowering employees and retirees to make smart decisions to plan for retirement and grow their wealth. Our solutions are agnostic to individual asset managers, which enables us to focus on the needs of employees and their families. Our Wealth Solutions generated 27% and 28% of our Solutions revenue during the nine months ended September 30, 2018 and during 2017, respectively.

 

   

HCM Solutions: Our HCM Solutions help clients take advantage of the growing trend of cloud-based solutions for corporate applications. 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 customer care center, helping them manage the full life cycle of their health, wealth and careers. Our HCM Solutions generated 19% and 15% of our Solutions revenue during the nine months ended September 30, 2018 and during 2017, respectively.

Hosted Business

 

Our Hosted Business delivers core HR and payroll services on hosted Human Capital Management platforms, including SAP and Oracle. These services include ongoing application hosting and management of on-premise HCM software. Our Hosted client contracts typically have five to seven year terms that include a recurring revenue model primarily based on a contracted fee charged per participant per period (e.g., monthly or annually, as applicable).

In 2014, we stopped actively pursuing new clients in our Hosted Business and instead chose to focus our strategic efforts and resources on enhancing our suite of HCM solutions to help clients realize the benefits of cloud-based solutions. While we have successfully migrated a significant number of our Hosted clients to cloud-based solutions, we continue to support a number of active Hosted clients under agreements that are scheduled to expire by 2023. Accordingly, while we will continue to perform our existing Hosted Business agreements, we do not intend to renew such agreements or enter into any new Hosted Business agreements.

Business Trends and Conditions

There are a number of key factors and trends affecting our results of operations. A summary of key factors impacting our revenue include:

 

   

employers continuing to shift responsibility for health and wealth decisions to their employees, including moving away from defined benefit plans in favor of defined contribution plans and providing added decision support tools and resources, such as participant advisory solutions;

 

   

the continued growth rate in an under penetrated middle market, leading to a greater opportunity to serve companies in this market;

 

   

the macro trend of organizations transitioning their HR and broader technology environments to the cloud; and

 

   

the opportunity for acquisitions and strategic partnerships to continue to augment our capabilities across the ecosystem.

Other factors that may affect our cost base include an increasing inflationary environment and additional competition for talent across our domains coupled with the impact of greater automation in the delivery of our services.

 

74


Table of Contents

Factors Affecting the Comparability of Our Results of Operations

As a result of a number of factors, our historical results of operations are not comparable from period to period and may not be comparable to our financial results of operations in future periods. Set forth below is a brief discussion of the key factors impacting the comparability of our results of operations.

Basis of Presentation

Prior to the Separation, our business operated as a business unit of Aon. The period ended April 30, 2017 is referred to as the Predecessor period and all periods after such date are referred to as the Successor period. Our financial statements for the Predecessor period were “carved-out” from Aon’s consolidated financial statements. Our financial statements for the Successor period are presented on a stand-alone basis. Accordingly, the financial statements for the Predecessor period may not be comparable to those of the Successor period. The period presented as the five months ended September 30, 2017 is unaudited and supplemental in nature. The Company provides this period for enhanced comparability, and it is not meant to be considered in isolation, superior to, or as a substitute for the directly comparable audited financial periods. In addition, we identify in the discussion where applicable the impact of the purchase accounting related to the Separation and the financing of the Separation. Significant differences in the Predecessor and Successor results of operations have been highlighted where appropriate.

Impact of the Separation from Aon

Prior to the Separation, costs associated with functions, services and facilities used by our business and performed or provided by Aon, including finance, legal, insurance, information technology, compliance and human resource activities, were charged to us by Aon and are reflected as allocated expenses in our results of operations. Subsequent to the Separation, certain operating expenses incurred as a stand-alone company may be higher than the allocated expenses.

In connection with the Separation, we agreed to enter into certain related transaction agreements (“TSAs”) with Aon at closing, including two commercial agreements, a transition services agreement, certain intellectual property license agreements, sub-leases and other customary agreements. Aon will continue to be a significant client of ours, and we have agreed to use Aon for its brokerage and other services. The monthly expenses under the TSAs (which totaled approximately $600,000 in October 2018) have decreased by over 90% since May 2017, the first month following the Separation, although some TSAs will continue through 2019. The remaining TSAs relate primarily to certain financial systems and information technology and real estate matters, that we do not believe are material to our business.

The Separation was accounted for as a business combination under ASC 805, Business Combinations. As such, the assets acquired and liabilities assumed were measured and reported in our financial statements at fair value. We recorded (i) customer related and contract based intangible assets of $1,870 million and (ii) technology related intangible assets of $280 million in connection with the Separation. As a result of the acquired customer related and contract based intangible assets and technology related intangible assets, as well as our increased capital expenditures, actual depreciation and intangible amortization expense increased significantly in the Successor periods.

In connection with the Separation, we entered into certain financing arrangements under the senior secured credit facilities and the senior notes. As a result of these incremental borrowings, actual interest expense increased significantly in the Successor periods.

Impact of the Reorganization Transactions

Alight Inc. is a corporation for U.S. federal and state income tax purposes. Our accounting predecessor, Alight OpCo, was and is treated as a flow-through entity for U.S. federal income tax purposes, and as such, has

 

75


Table of Contents

generally not been subject to U.S. federal income tax at the entity level. Accordingly, unless otherwise specified, the historical results of operations and other financial information set forth in this prospectus do not include any provision for U.S. federal income tax. Following this offering, Alight Inc. will pay U.S. federal and state income taxes as a corporation on its share of our taxable income.

The reorganization will be accounted for as a reorganization of entities under common control. As a result, the consolidated financial statements of Alight Inc. will recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical consolidated financial statements of Alight OpCo, the accounting predecessor.

In addition, in connection with the Reorganization Transactions and this offering we will enter into the Tax Receivable Agreement as described under “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.”

Impact of the Exit from our Hosted Business Operations

In recent years, employers have been shifting from hosted to cloud platforms to reduce operating costs and streamline HR processes. In 2014, we stopped actively pursuing new clients in our Hosted Business and instead chose to focus our strategic efforts and resources on enhancing our suite of HCM solutions to help clients realize the benefits of cloud-based solutions.

While we have successfully migrated a significant number of our Hosted clients to cloud-based solutions, we continue to support a number of active Hosted clients under agreements that are scheduled to expire by 2023. As of September 30, 2018, we supported 12 active Hosted clients. Five of these clients have agreements scheduled to expire by the end of 2019. The remaining agreements are scheduled to expire by 2023. Many of these Hosted clients have contractual rights for limited extensions. We expect several of these clients to transition to a cloud-based platform supported by our HCM Solutions business prior to their contract expiration or extension date.

Components of Our Results of Operations

Revenue

Our clients’ demand for our services ultimately drives our revenues. We generate primarily all of our revenue, which is highly recurring, from fees on services provided from contracts across all solutions, which is primarily based on a contracted fee charged per benefit plan participant per period (e.g., monthly or annually, as applicable). Our outsourcing contracts typically have three to five-year terms. Substantially all of the Company’s revenue is recognized over time when control of the promised services is transferred and the customers simultaneously receives and consumes the benefits of our services. Payment terms are consistent with industry practice. Two of the measures that we use to manage our business, specifically our Solutions segment, are annual revenue retention rates and revenue growth rates. We calculate annual revenue retention by identifying the clients from whom we generate revenue in the prior year and determining what percentage of that revenue is generated from those same clients for the same solutions in the subsequent year. We calculate growth rates for each of our solutions in relation to recurring revenues and revenues from project work. One of the components of our growth in recurring revenues is the increase in net commercial activity which reflects items such as client wins and losses (“Net Commercial Activity”). We define client wins as sales to new clients and sales of new solutions to existing clients. We define client losses as instances where clients do not renew or terminate their arrangements in relation to individual solutions or all of the solutions that we provide.

Costs and Operating Expenses

Cost of services

Cost of services are the direct costs we incur in delivering our services to customers. Substantially all cost of services relate to compensation-related and vendor costs directly attributable to client-related services, costs

 

76


Table of Contents

related to application development and client-related infrastructure, costs related to our hardware and software applications, and depreciation and amortization related to hardware, software and application development.

Selling, general and administrative

Selling, general and administrative expenses include compensation-related costs for administrative and management employees, system and facilities expenses, and costs for external professional and consulting services.

Depreciation and intangible amortization

Depreciation and intangible amortization expenses consist of charges relating to the depreciation of the property and equipment used in our business and the amortization of acquired customer related and contract based intangible assets and technology related intangible assets, particularly those resulting from the Separation. Depreciation and intangible amortization may increase or decrease in absolute dollars in future periods depending on the future level of capital investments in hardware and other equipment as well as amortization expense associated with future acquisitions.

Interest expense, net

Interest expense, net includes interest expense related to our outstanding debt obligations.

Other expense (income), net

Other expense (income), net includes non-operating expenses and income including realized currency translation.

Income Taxes

Alight OpCo is currently treated as a pass-through entity for U.S. federal income tax purposes as well as in most states. As a result, entity level taxes at Alight OpCo are not significant. Provision for income taxes consists of tax expense primarily related to certain local taxes as well as foreign taxes. See Note 2 “Accounting Policies and Practices” within the consolidated financial statements appearing elsewhere in this prospectus for additional information.

After consummation of this offering, except for the non-U.S. subsidiaries that file separate non-U.S. jurisdiction tax returns, we will become subject to U.S. federal income taxes with respect to our allocable share of any taxable income of Alight OpCo and we will be taxed at the prevailing corporate tax rates. We will be treated as a U.S. corporation for U.S. federal, state and local income tax purposes. Accordingly, a provision for income taxes will be recorded for the anticipated tax consequences of our reported results of operations for federal income taxes. In addition to tax expenses, we also will incur expenses related to our operations, as well as payments under the tax receivable agreement, which we expect to be significant. We intend to cause Alight OpCo to make distributions in an amount sufficient to allow us to pay our tax obligations and operating expenses, including distributions to fund any ordinary course payments due under the tax receivable agreement. See “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.” However, our ability to make such distributions may be limited due to, among other things, restrictive covenants in our senior secured credit facilities and senior notes. Alight Inc. is a holding company and its only material asset immediately after completion of this offering will be its interest in Alight OpCo, and it is accordingly dependent upon distributions from Alight OpCo to pay taxes, make payments under the tax receivable agreement and pay dividends. See “Risk Factors—Risks Related to Our Organizational Structure.”

 

77


Table of Contents

Results of Operations

The following table sets forth our historical results of operations for the periods indicated below:

 

    Successor                 Predecessor  
(in millions)   Nine Months
Ended
September 30,

2018
    Eight Months
Ended
December 31,
2017
    Five Months
Ended
September 30,

2017
                Four Months
Ended
April 30,
2017
    Year Ended
December 31,
2016
 
                (Unaudited)                          

Revenue

  $ 1,727     $ 1,588     $ 934           $ 713     $ 2,260  

Cost of services

    1,115       981       609             517       1,524  
 

 

 

   

 

 

   

 

 

         

 

 

   

 

 

 

Gross Profit

    612       607       325             196       736  
 

Operating Expenses

               

Selling, general and administrative

    337       325       214             130       396  

Depreciation and intangible amortization

    147       119       61             39       137  
 

 

 

   

 

 

   

 

 

         

 

 

   

 

 

 

Total operating expenses

    484       444       275             169       533  

Operating Income

    128       163       50             27       203  

Interest expense, net

    154       114       68             —         —    

Other expense (income), net

    —         1       —               —         (1
 

 

 

   

 

 

   

 

 

         

 

 

   

 

 

 

(Loss) Income Before Income Tax Expense

    (26     48       (18           27       204  

Income tax expense

    13       24       18             10       78  
 

 

 

   

 

 

   

 

 

         

 

 

   

 

 

 

Net (Loss) Income

  $ (39   $ 24     $ (36         $ 17     $ 126  
 

 

 

   

 

 

   

 

 

         

 

 

   

 

 

 

 

78


Table of Contents

Supplemental Pro Forma

To facilitate comparability, the following table below sets forth our unaudited pro forma condensed, combined and consolidated statements of operations for the nine months ended September 30, 2017 and for the year ended December 31, 2017. The pro forma financial information As Adjusted Before Reorganization and Offering Transactions gives pro forma effect to the Blackstone Transactions in accordance with Article 11 as if they had occurred on January 1, 2017 (“Pro Forma Basis”). The Pro Forma Basis includes adjustments for non-recurring transaction costs, amortization, depreciation, interest, and taxes. Please refer to “Unaudited Pro Forma Condensed, Combined and Consolidated Financial Information” including the accompanying notes for further details.

 

     Pro Forma     Pro Forma  
(in millions)    Nine Months
Ended
September 30,

2017
(Unaudited)
    Year Ended
December 31,

2017
(Unaudited)
 

Revenue

   $ 1,647     $ 2,301  

Cost of services

     1,115       1,487  
  

 

 

   

 

 

 

Gross Profit

     532       814  

Operating Expenses

    

Selling, general and administrative

     308       419  

Depreciation and intangible amortization

     135       181  
  

 

 

   

 

 

 

Total operating expenses

     443       600  

Operating Income

     89       214  

Interest expense, net

     117       163  

Other expense (income), net

     —         1  
  

 

 

   

 

 

 

(Loss) Income Before Income Tax Expense

     (28     50  

Income tax expense

     18       24  
  

 

 

   

 

 

 

Net (Loss) Income

   $ (46   $ 26  
  

 

 

   

 

 

 

Consolidated Results of Operations for the Nine Months Ended September 30, 2018 (Successor), the Five Months Ended September 30, 2017 (Successor) and the Four Months Ended April 30, 2017 (Predecessor)

Revenue

Revenues were $1,727 million for the nine months ended September 30, 2018, $934 million for the five months ended September 30, 2017 and $713 million for the four months ended April 30, 2017. Revenues were $1,727 million for the nine months ended September 30, 2018 as compared to $1,647 million for the nine months ended September 30, 2017 on a Pro Forma Basis. The increase of $80 million from the nine months ended September 30, 2017 on a Pro Forma Basis to the nine months ended September 30, 2018 reflects growth of 7% in our Solutions segment offset by a decline of 15% in our Hosted segment. The main drivers of the overall increase were increases from $230 million to $285 million, or 24%, from project revenues, all of which related to Solutions, from $1,406 million to $1,428 million, or 2%, from recurring revenues, of which a 4% increase related to Solutions offset by a 2% decrease related to the Hosted Business and from $11 million to $14 million from other revenues, all of which related to Solutions.

Cost of services

Cost of services were $1,115 million for the nine months ended September 30, 2018, $609 million for the five months ended September 30, 2017 and $517 million for the four months ended April 30, 2017. Cost of services were $1,115 million for the nine months ended September 30, 2018 as compared to $1,115 million for the nine months ended September 30, 2017 on a Pro Forma Basis. Costs of services were flat from the nine months ended September 30, 2017 on a Pro Forma Basis to the nine months ended September 30, 2018 due to $22 million of lower compensation expense mainly due to an overall net reduction in headcount in the Solutions

 

79


Table of Contents

business after including the impact of increases related to recent acquisitions and growth in the HCM business and lower costs in the Hosted business as clients transition to cloud-based services being offset by $14 million of data center stand-up expenses and additional costs associated with the growth in revenues.

Selling, general and administrative

Selling, general and administrative expenses were $337 million for the nine months ended September 30, 2018, $214 million for the five months ended September 30, 2017 and $130 million for the four months ended April 30, 2017. Selling, general and administrative expenses were $337 million for the nine months ended September 30, 2018 as compared to $308 million for the nine months ended September 30, 2017 on a Pro Forma Basis. The overall increase of $29 million from the nine months ended September 30, 2017 on a Pro Forma Basis to the nine months ended September 30, 2018 was primarily driven by an additional $16 million of expenses incurred in relation to a number of transformation initiatives undertaken in 2018 including the strategic transaction with Wipro, enhancements to our data center and an increase in the expenses related to the separation from Aon including costs of $13 million related to certain properties.

Depreciation and intangible amortization

Depreciation and intangible amortization expenses were $147 million for the nine months ended September 30, 2018, $61 million for the five months ended September 30, 2017 and $39 million for the four months ended April 30, 2017. Depreciation and intangible amortization expenses were $147 million for the nine months ended September 30, 2018 as compared to $135 million for the nine months ended September 30, 2017 on a Pro Forma Basis. The increase of $12 million from the nine months ended September 30, 2017 on a Pro Forma Basis to the nine months ended September 30, 2018 is driven by a $6 million increase in expense related to the finalization of the fair value of intangible assets acquired with the Separation, which occurred in the first quarter of 2018, and $6 million related to capital assets additions.

Interest expense, net

Interest expense, net was $154 million for the nine months ended September 30, 2018 and $68 million for the five months ended September 30, 2017. No interest expense was incurred during the four months ended April 30, 2017. Interest expense, net was $154 million for the nine months ended September 30, 2018 as compared to $117 million for the nine months ended September 30, 2017 on a Pro Forma Basis. The interest expense increase of $37 million from the nine months ended September 30, 2017 on a Pro Forma Basis to the nine months ended September 30, 2018 is primarily driven by $17 million of incremental interest and issuance cost amortization expenses associated with the $205 million incremental term loans that were entered into and $180 million of additional senior notes that were issued, both of which occurred in November 2017, coupled with an increase of $15 million due to higher LIBOR rates in 2018.

(Loss) Income before income taxes

(Loss) income before income taxes was a loss of $26 million for the nine months ended September 30, 2018, loss of $18 million for the five months ended September 30, 2017 and income of $27 million for the four months ended April 30, 2017. (Loss) income before income taxes was a loss of $26 million for the nine months ended September 30, 2018 as compared to a loss of $28 million for the nine months ended September 30, 2017 on a Pro Forma Basis. This is due to the increases in operating expenses and interest expenses from the nine months ended September 30, 2017 on a Pro Forma Basis to the nine months ended September 30, 2018, which more than offset the increase in revenues.

Income taxes

For the nine months ended September 30, 2018, we reported a loss before income tax expense. The effective tax rate for this period was (53.2)%, which was lower than the U.S. statutory corporate income tax rate of 21%

 

80


Table of Contents

due to the Company’s filing status as a partnership that reports no provision for federal income taxes and is liable for various foreign income taxes. See Note 8 “Income Taxes” within the consolidated financial statements appearing elsewhere in this prospectus for additional information.

Consolidated Results of Operations for the Eight Months Ended December 31, 2017 (Successor), the Four Months Ended April 30, 2017 (Predecessor) and the Year Ended December 31, 2016 (Predecessor)

Revenue

Revenues were $1,588 million for the eight months ended December 31, 2017 and $713 million for the four months ended April 30, 2017 and $2,260 million for the year ended December 31, 2016. Revenues were $2,301 million for the year ended December 31, 2017 on a Pro Forma Basis as compared to $2,260 for the year ended December 31, 2016. The increase of $41 million from the year ended December 31, 2016 to the year ended December 31, 2017 on a Pro Forma Basis reflected growth of 7% in our Solutions segment offset by a decline of 29% in our Hosted segment. The main drivers of the overall increase were increases from $362 million to $386 million, or 7%, from project revenues, all of which related to Solutions, from $0 million to $20 million from other revenues, all of which related to Solutions, partially offset by a decrease from $1,898 million to $1,895 million, or less than 1%, from recurring revenues, of which a 5% increase related to Solutions was offset by a 5% decrease related to the Hosted Business.

Cost of services

Cost of services were $981 million for the eight months ended December 31, 2017, $517 million for the four months ended April 30, 2017 and $1,524 million for the year ended December 31, 2016. Cost of services were $1,487 million for the year ended December 31, 2017 on a Pro Forma Basis as compared to $1,524 million for the year ended December 31, 2016. The decrease of $37 million from the year ended December 31, 2016 to the year ended December 31, 2017 on a Pro Forma Basis was primarily driven by lower depreciation expense of $20 million related to internally developed software, which has been reclassified as amortization for the technology related intangible assets, based on the Separation date preliminary fair value and lower compensation related expenses due to an overall reduction in headcount.

Selling, general and administrative

Selling, general and administrative expenses were $325 million for the eight months ended December 31, 2017, $130 million for the four months ended April 30, 2017 and $396 million for the year ended December 31, 2016. Selling, general and administrative expenses were $419 million for the year ended December 31, 2017 on a Pro Forma Basis as compared to $396 million for the year ended December 31, 2016. The increase of $23 million from the year ended December 31, 2016 to the year ended December 31, 2017 on a Pro Forma Basis was primarily driven by $43 million of expenses which were directly attributable to the Separation and transformation initiatives, $22 million of higher incentive expenses as a result of new incentive programs being established following the Separation and $21 million of higher compensation related costs due to an expansion of the HCM business. The increase was partially offset by $47 million in trade name royalty expenses, which we no longer incurred following the Separation and an $10 million reduction related to stock-based compensation and long-term incentive programs as new programs were established following the Separation.

Depreciation and intangible amortization

Depreciation and intangible amortization expenses were $119 million for the eight months ended December 31, 2017, $39 million for the four months ended April 30, 2017 and $137 million for the year ended December 31, 2016. Depreciation and intangible amortization were $181 million for the year ended December 31, 2017 on a Pro Forma Basis as compared to $137 million the year ended December 31, 2016. The increase of $44 million from the year ended December 31, 2016 to the year ended December 31, 2017 on a Pro Forma Basis was primarily driven by higher intangible amortization associated with the preliminary fair value of the identifiable intangible assets acquired with the Separation, including customer related and contract based intangible assets and technology related intangible assets.

 

81


Table of Contents

Interest expense, net

Interest expense, net was $114 million for the eight months ended December 31, 2017 and no interest expense was incurred during the four months ended April 30, 2017 or for the year ended December 31, 2016. Interest expense, net was $163 million for the year ended December 31, 2017 on a Pro Forma Basis. The interest expense increase from the year ended December 31, 2016 to the year ended December 31, 2017 on a Pro Forma Basis is due to the new term loans that were entered into in May 2017 and the new senior notes that were issued in May 2017 as part of the financing for the Separation. Interest expense also includes the amortization of issuance costs associated with the new debt.

Income before income taxes

Income before income taxes was $48 million for the eight months ended December 31, 2017, $27 million for the four months ended April 30, 2017 and $204 million for the year ended December 31, 2016. Income before taxes was $50 million for the year ended December 31, 2017 on a Pro Forma Basis as compared to $204 million the year ended December 31, 2016. The decrease from the year ended December 31, 2016 to the year ended December 31, 2017 on a Pro Forma Basis was due to the increases in operating expenses and other expenses following the Separation discussed above.

Income taxes

For the eight months ended December 31, 2017, we reported income before income tax expense. The effective tax rate for this period was 49.9%, primarily driven by the change in status of one of our U.S. subsidiaries to a disregarded entity. See Note 8 “Income Taxes” within the consolidated financial statements appearing elsewhere in this prospectus for additional information.

Solutions Results

 

     Successor                   Predecessor  
($ in millions)    Nine Months
Ended
September 30,
2018
    Eight Months
Ended
December 31,
2017
    Five Months
Ended
September 30,
2017
                  Four Months
Ended

April 30,
2017
    Year Ended
December 31,
2016
 
                 (Unaudited)                            

Solutions Revenue

                  

Health

   $ 836     $ 791     $ 449             $ 344     $ 1,073  

Wealth

     423       390       239               192       610  

HCM

     295       220       130               96       228  

Other

     14       20       11                      
  

 

 

   

 

 

   

 

 

           

 

 

   

 

 

 

Total Solutions Revenue

   $ 1,568     $ 1,421     $ 829             $ 632     $ 1,911  

Solutions Adjusted EBITDA(1)

   $ 371     $ 345     $ 178             $ 78     $ 319  

Solutions Adjusted EBITDA%

     24     24     21             12     17

 

(1)

We evaluate the performance of the Company based on segment profit, which is Adjusted EBITDA, as defined below under “—Non-GAAP Financial Measures.” The segment profit for the Solutions segment is referred to as “Solutions Adjusted EBITDA.” See Note 12 “Segment Reporting” within the consolidated financial statements of Alight OpCo appearing elsewhere in this prospectus.

 

82


Table of Contents

Solutions Segment Results of Operations for the Nine Months Ended September 30, 2018 (Successor), the Five Months Ended September 30, 2017 (Successor) and the Four Months Ended April 30, 2017 (Predecessor)

Solutions Revenue

Total Solutions revenues were $1,568 million for the nine months ended September 30, 2018, $829 million for the five months ended September 30, 2017 and $632 million for the four months ended April 30, 2017. The overall increase of $107 million was due to an increase in project revenues of $55 million, or 24%, from $230 million to $285 million, an increase in recurring revenues of $49 million, or 4%, from $1,220 million to $1,269 million and an increase in other revenues of $3 million, from $11 million to $14 million. Additional information regarding the revenue by solution is as follows:

Health Solutions revenues were $836 million for the nine months ended September 30, 2018, $449 million for the five months ended September 30, 2017 and $344 million for the four months ended April 30, 2017. The overall increase in Health Solutions revenue of $43 million was due to an increase in recurring revenues of $23 million, or 3%, from $681 million to $704 million as a result of increases in Net Commercial Activity, and an increase in project revenues of $20 million, or 18%, from $112 million to $132 million as clients continue to navigate changes in healthcare requirements.

Wealth Solutions revenues were $423 million for the nine months ended September 30, 2018, $239 million for the five months ended September 30, 2017 and $192 million for the four months ended April 30, 2017. The overall decrease in Wealth Solutions of $8 million was due to a decrease in recurring revenues of $4 million, or 1%, from $394 million to $390 million and a decrease in project revenues of $4 million, or 11%, from $37 million to $33 million. The decrease in recurring revenues was due to the $10 million, or 5%, decline in our Defined Benefit business as employers move away from traditional pension plans which more than offset the $6 million, or 3%, increase in our Defined Contribution business as a result of increases in Net Commercial Activity. The decrease in project revenues is wholly attributable to our Defined Benefit business.

HCM Solutions revenues were $295 million for the nine months ended September 30, 2018, $130 million for the five months ended September 30, 2017 and $96 million for the four months ended April 30, 2017. The overall increase in HCM Solutions revenue of $69 million was due to an increase in recurring revenues of $30 million, or 20%, from $145 million to $175 million and an increase in project revenues of $39 million, or 48% from $81 million to $120 million. $19 million of the increase in recurring revenues was related to the increase in Net Commercial Activity and $11 million was related to clients that transitioned from our Hosted business. The increase in project revenues was related to the deployment of cloud based solutions in the U.S., the U.K. and Europe.

Other revenues were $14 million for the nine months ended September 30, 2018, $11 million for the five months ended September 30, 2017 and $0 for the four months ended April 30, 2017. Other revenues were due to the various transition services arrangements with Aon following the Separation.

Solutions Adjusted EBITDA

Solutions Adjusted EBITDA was $371 million for the nine months ended September 30, 2018, $178 million for the five months ended September 30, 2017 and $78 million for the four months ended April 30, 2017. The increase of $115 million was primarily due to the revenue growth offset by increases in incentive and compensation expenses as discussed above. In addition, there was an increase of $24 million in the adjustments recorded to arrive at Solutions Adjusted EBITDA. This increase was primarily related to an increase of $28 million in expenses incurred subsequent to the Transaction related to the Separation, $16 million related to transformation initiatives subsequent to the Transaction and an increase of $12 million primarily related to new long-term incentive and stock-based compensation programs offset by a $36 million reduction related to Transaction expenses that were incurred in 2017.

 

83


Table of Contents

Solutions Segment Results of Operations for the Eight Months Ended December 31, 2017 (Successor), the Four Months Ended April 30, 2017 (Predecessor) and the Year Ended December 31, 2016 (Predecessor)

Solutions Revenue

Total Solutions revenues were $1,421 million for the eight months ended December 31, 2017, $632 million for the four months ended April 30, 2017 and $1,911 for the year ended December 31, 2016. We experienced annual revenue retention rates of 97% and 99% in 2017 and 2016, respectively for Solutions. The overall increase of $142 million was due to an increase in recurring revenues of $98 million, or 6%, from $1,549 million to $1,647 million, an increase in project revenues of $24 million, or 7%, from $362 million to $386 million, and an increase in other revenues of $20 million from $0 million to $20 million. Additional information regarding the revenue by Solution is as follows:

Health Solutions revenues were $791 million for the eight months ended December 31, 2017, $344 million for the four months ended April 30, 2017 and $1,073 million for the year ended December 31, 2016. The overall increase in Health Solutions revenue of $62 million was due to an increase in recurring revenues of $65 million, or 8%, from $860 million to $925 million as a result of increases in Net Commercial Activity partially offset by a decline in project revenues of $3 million, or 2%, from $213 million to $210 million.

Wealth Solutions revenues were $390 million for the eight months ended December 31, 2017, $192 million for the four months ended April 30, 2017 and $610 million for the year ended December 31, 2016. The overall decrease in Wealth Solutions revenue of $28 million was due to a decline in recurring revenues of $18 million, or 3%, from $543 million to $525 million and a decline in project revenues of $10 million, or 15%, from $67 million to $57 million. The decrease in recurring revenues is due to the $24 million, or 9%, decline in our Defined Benefit business as employers move away from traditional pension plans which more than offset the $6 million, or 2%, increase in our Defined Contribution business as a result of increases in Net Commercial Activity. The decrease in project revenues predominately related to our Defined Benefit business and is dependent on when employers decide to undertake activities such as lump-sum windows.

HCM Solutions revenues were $220 million for the eight months ended December 31, 2017, $96 million for the four months ended April 30, 2017 and $228 million for the year ended December 31, 2016. The overall increase in HCM Solutions revenue of $88 million was due to an increase in recurring revenues of $51 million, or 35%, from $146 million to $197 million and an increase in project revenues of $37 million, or 46%, from $82 million to $119 million. $35 million of the increase in recurring revenues is related to clients that transitioned from our Hosted business and $16 million is related to the increase in Net Commercial Activity. The increase in project revenues is related to the deployment of cloud based solutions in the U.S., the U.K. and Europe.

Other revenues were $20 million for the eight months ended December 31, 2017, which was due to the various transition services arrangements with Aon following the Separation and $0 for the four months ended April 30, 2017 and the year ended December 31, 2016.

Solutions Adjusted EBITDA

Solutions Adjusted EBITDA was $345 million for the eight months ended December 31, 2017, $78 million for the four months ended April 30, 2017 and $319 million for the year ended December 31, 2016. The increase of $104 million was primarily due to the revenue growth offset by increases in incentive and compensation expenses as discussed above. In addition, there was an increase of $68 million in the adjustments recorded to arrive at Solutions Adjusted EBITDA. This increase was primarily related to $36 million of Transaction related expenses, $27 million incurred subsequent to the Separation related to transformation initiatives, $16 million of expenses related to the Separation and $11 million related to new long-term incentive plans, partially offset by a reduction in the adjustment for stock based compensation of $21 million.

 

84


Table of Contents

Hosted Business Results

 

     Successor                   Predecessor  
($ in millions)    Nine Months
Ended
September 30,
2018
    Eight Months
Ended
September 30,
2017
    Five Months
Ended
September 30,

2017
                  Four Months
Ended

April 30,
2017
    Year Ended
December 31,
2016
 
                 (Unaudited)                            

Hosted Business Revenue

   $ 159     $ 167     $ 105             $ 81     $ 349  

Hosted Business Adjusted EBITDA(1)

   $ 32     $ 43     $ 26             $ 13     $ 104  

Hosted Business Adjusted EBITDA%

     20 %      26 %      25 %              16 %      30 % 

 

(1)

We evaluate the performance of the Company based on segment profit, which is Adjusted EBITDA, as defined below under “—Non-GAAP Financial Measures.” The segment profit for the Hosted Business segment is referred to as “Hosted Business Adjusted EBITDA.” See Note 12 “Segment Reporting” within the consolidated financial statements of Alight OpCo appearing elsewhere in this prospectus.

Hosted Business Segment Results of Operations for the Nine Months Ended September 30, 2018 (Successor), the Five Months Ended September 30, 2017 (Successor) and the Four Months Ended April 30, 2017 (Predecessor)

Hosted Business Revenue

Hosted Business revenues were $159 million for the nine months ended September 30, 2018, $105 million for the five months ended September 30, 2017 and $81 million for the four months ended April 30, 2017. The decrease of $27 million was due to client losses and transitions from our Hosted Business to cloud-based services.

Hosted Business Adjusted EBITDA

Hosted Business Adjusted EBITDA was $32 million for the nine months ended September 30, 2018, $26 million for the five months ended September 30, 2017 and $13 million for the four months ended April 30, 2017. The decrease of $7 million was driven by lost clients and transitions from our Hosted Business to cloud-based services, which lead to decreased revenues that were not offset by a proportionate decrease in costs.

Hosted Business Segment Results of Operations for the Eight Months Ended December 31, 2017 (Successor), the Four Months Ended April 30, 2017 (Predecessor) and the Year Ended December 31, 2016 (Predecessor)

Hosted Business Revenue

Hosted Business revenues were $167 million for the eight months ended December 31, 2017, $81 million for the four months ended April 30, 2017 and $349 million for the year ended December 31, 2016. The decrease of $101 million was due to client losses and transitions from our Hosted Business to cloud-based services.

Hosted Business Adjusted EBITDA

Hosted Business Adjusted EBITDA was $43 million for the eight months ended December 31, 2017, $13 million for the four months ended April 30, 2017 and $104 million for the year ended December 31, 2016. The decrease of $48 million was driven by lost clients and transitions from our Hosted Business to cloud-based services, which led to decreased revenues that were not offset by a proportionate decrease in cost.

 

85


Table of Contents

Non-GAAP Financial Measures

The presentation of non-GAAP financial measures is used to enhance the investors’ understanding of certain aspects of our financial performance. This discussion is not meant to be considered in isolation, superior to, or as a substitute for the directly comparable financial measures prepared in accordance with U.S. GAAP. Management also uses supplemental non-GAAP financial measures to manage and evaluate the business, make planning decisions, allocate resources and as performance measures for Company-wide bonus plans and executive compensation 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.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure used by us and our investors and lenders to provide useful supplemental information that enables a better comparison of our performance across periods. Adjusted EBITDA provides visibility to the underlying operating performance by excluding the impact of certain items, including interest expense, income taxes, depreciation of fixed assets, amortization of intangible assets, share-based compensation, transaction expenses, separation expenses, expenses related to transformation initiatives, and other adjustments, because management does not believe these expenses are representative of our core earnings.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure either in isolation or as a substitute for net income or other methods of analyzing our results as reported under U.S. GAAP. Some of the limitations are:

 

   

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs or contractual commitments;

 

   

Adjusted EBITDA does not reflect our interest expense or the cash requirements to service interest or principal payments on our indebtedness;

 

   

Adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes;

 

   

Adjusted EBITDA does not reflect the impact on earnings or changes resulting from matters that we consider not to be indicative of our future operations;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often need to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and

 

   

other companies may calculate Adjusted EBITDA differently, limiting its usefulness as a comparative measure.

Adjusted EBITDA is not a liquidity measure and should not be considered as discretionary cash available to us to reinvest in the growth of our business or to distribute to stockholders or as a measure of cash that will be available to us to meet our obligations.

 

86


Table of Contents

A reconciliation of Adjusted EBITDA to Net (Loss) Income is as follows:

 

     Successor                   Predecessor  
(in millions)    Nine Months
Ended
September 30,
2018
    Eight
Months
Ended
December 31,

2017
     Five Months
Ended
September 30,
2017
                  Four Months
Ended
April 30,
2017
     Year Ended
December 31,
2016
 
                  (Unaudited)                             

Net (Loss) Income

   $ (39   $ 24      $ (36           $ 17      $ 126  

Interest expense, net

     154       114        68               —          —    

Income taxes

     13       24        18               10        78  

Depreciation

     36       27        28               23        71  

Intangible amortization

     135       108        53               34        119  
  

 

 

   

 

 

    

 

 

           

 

 

    

 

 

 

EBITDA

     299       297        131               84        394  

Share-based compensation

     12       4        3               6        31  

Transaction-related expenses (1)

     1       36        36               —          —    

Separation from Aon expenses(2)

     39       16        11               —          —    

Transformation initiatives (3)

     35       27        18               1        2  

Other (4)

     17       8        5                      (4
  

 

 

   

 

 

    

 

 

           

 

 

    

 

 

 

Adjusted EBITDA

   $ 403     $ 388      $ 204             $ 91      $ 423  
  

 

 

   

 

 

    

 

 

           

 

 

    

 

 

 

 

(1)

Transaction-related expenses include investment banker fees, legal fees, due diligence costs, and other external advisor costs associated with the Separation.

(2)

Separation from Aon expenses relate to costs incurred establishing Alight as a stand-alone company following the Separation from Aon. These costs include external advisor costs, costs related to certain properties, costs to implement stand-alone tax processes and branding costs.

(3)

Transformation initiatives include expenses incurred, primarily subsequent to the Separation, related to cost savings activities, our strategic transaction with Wipro, enhancing our data center, severance, restructuring of certain property leases and outsourcing certain IT and print and fulfillment functions.

(4)

Other includes long-term incentive expenses, expenses related to acquisitions, income related to the early termination of customer contracts in fiscal year 2016, and purchase accounting adjustments recorded in respect of the Separation.

Liquidity and Capital Resources

During the Predecessor periods, Aon used a centralized approach for cash management and financing its operations. The majority of Alight OpCo’s cash was transferred to Aon daily, and Aon funded Alight OpCo’s operating and investing activities as needed. That arrangement is not reflective of the manner in which Alight OpCo would have been able to finance its operations had it been a stand-alone company separate from Aon during the Predecessor periods.

During the Successor period, we believe that our balance sheet and cash flow provide us with adequate liquidity. Our primary sources of liquidity are cash flows from operations, available cash reserves, and debt capacity available under our credit facility. Our primary uses of liquidity are operating expenses, funding of our debt requirements and capital expenditures. We believe that cash flows from operations and available credit facilities will be sufficient to meet our liquidity needs, including principal and interest payments on debt obligations, capital expenditures, and anticipated working capital requirements for the foreseeable future. We intend to retain sufficient liquidity throughout the capital expenditure cycle to maintain our financial flexibility. We do not anticipate any material long-term deterioration in our overall liquidity position in the foreseeable future. Management believes that the current level of working capital is sufficient for our present requirements.

Cash on our balance sheet includes funds available for general corporate purposes. Funds held on behalf of clients in a fiduciary capacity are segregated and shown in Fiduciary assets on the Consolidated Balance Sheets, with a corresponding amount in Fiduciary liabilities. Fiduciary funds generally cannot be used for general corporate purposes and are not a source of liquidity for us.

After completion of this offering, Alight Inc. will be a holding company and will have no material assets other than its ownership of LLC Units. Alight Inc. has no independent means of generating revenue. Alight Inc.

 

87


Table of Contents

intends to cause Alight OpCo to make distributions to its holders of LLC Units, including Alight Inc. and our pre-IPO owners, in an amount sufficient to cover all applicable taxes at assumed tax rates, payments under the tax receivable agreement and dividends, if any, declared by it. Deterioration in the financial condition, earnings or cash flow of Alight OpCo and its subsidiaries for any reason could limit or impair their ability to pay such distributions. Additionally, the terms of our financing arrangements, including the term loan facility, revolving credit facility and senior notes (in each case, as defined below), contain covenants that may restrict Alight OpCo and its subsidiaries from paying such distributions, subject to certain exceptions. In addition, one of our subsidiaries, Alight Financial Solutions, LLC, is a broker dealer subject to certain net capital requirements, which could limit its ability to pay dividends to us. See “Business—Licensing and Regulation—Investment Advisers and Broker Dealers.” Further, Alight OpCo is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Alight OpCo (with certain exceptions) exceed the fair value of its assets. Subsidiaries of Alight OpCo are generally subject to similar legal limitations on their ability to make distributions to Alight OpCo. See “Dividend Policy” and “Risk Factors—Risks Related to Our Organizational Structure—Alight Inc. is a holding company and its only material asset after completion of this offering will be its interest in Alight OpCo, and it is accordingly dependent upon distributions from Alight OpCo to pay taxes, make payments under the tax receivable agreement and pay dividends.”

Our cash flows from operations, borrowing availability and overall liquidity are subject to risks and uncertainties. We may not be able to obtain additional liquidity on reasonable terms, or at all. Additionally, our liquidity and our ability to meet our obligations and to fund our capital requirements are dependent on our future financial performance, which is subject to general economic, financial, and other factors that are beyond our control. Accordingly, our business may not generate sufficient cash flow from operations and future borrowings may not be available from additional indebtedness or otherwise to meet our liquidity needs. Although we have no specific current plans to do so, if we decide to pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions, which would result in additional expenses or dilution. See “Risk Factors.”

Historical Cash Flows

The following table provides a summary of cash flows from operating, investing, and financing activities for the periods presented.

 

     Successor                   Predecessor  
(in millions)    Nine Months
Ended
September 30,
2018
    Eight Months
Ended
December 31,
2017
    Five Months
Ended
September 30,
2017
                  Four months
Ended

April 30,
2017
    Year Ended
December 31,
2016
 
                 (Unaudited)                            

Cash provided by operating activities

   $ 73     $ 224     $ 92             $ 79     $ 388  

Cash used for investing activities

     (82     (4,290     (4,224             (13     (75

Cash (used for) provided by financing activities

     (27     4,263       4,296               (69     (311

Effect of exchange rate changes on cash and cash equivalents

     (5     (1     —                 —         —    
  

 

 

   

 

 

   

 

 

           

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (41     196       164               (3     2  

Cash and cash equivalents at end of period

   $ 155     $ 196     $ 164             $ 7     $ 10  
  

 

 

   

 

 

   

 

 

           

 

 

   

 

 

 

 

88


Table of Contents

Cash Flows from Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2018 was $73 million compared to $92 million for the five months ended September 30, 2017 and $79 million for the four months ended April 20, 2017. Net cash provided by operating activities decreased $98 million, which was driven by a $20 million increase in net loss for the period and a $111 million increase in working capital requirements, partially offset by a $33 million increase in non-cash items.

Net cash provided by operating activities was $224 million for the eight months ended December 31, 2017 and $79 million for the four months ended April 30, 2017 as compared to $388 million for the year ended December 31, 2016. Net cash provided by operating activities decreased $85 million, which was driven by a $129 million decrease in net income and non-cash items, partially offset by a $44 million decrease in working capital requirements.

Cash Flows from Investing Activities

Cash used for investing activities for the nine months ended September 30, 2018 was $82 million. The primary drivers of the cash flow used for investing activities was $63 million used to acquire two businesses and $53 million of capital expenditures, partially offset by $37 million of net proceeds from the disposition of assets.

Cash used for investing activities was $4.3 billion for the eight months ended December 31, 2017 and $13 million for the four months ended April 30, 2017. The driver of the cash flow used for investing activities was the separation from Aon coupled with $57 million of capital expenditures.

Cash flow used for investing activities was $75 million for the year ended December 31, 2016. The primary driver of the cash flow used for investing activities was $77 million of capital expenditures.

For the periods presented, Capital Expenditures related to the Hosted Business were not material.

Cash Flows from Financing Activities

Cash used for financing activities for the nine months ended September 30, 2018 was $27 million. The primary drivers of the cash flow