Alight, Inc. / Delaware: Form 10-Q for the period ended Sep 30, 2023

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes which are included elsewhere in this Quarterly Report on Form 10-Q and with the Annual Report. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in "Item 1A. Risk Factors" in our Annual Report and in this Quarterly Report on Form 10-Q, particularly under the caption "Forward-Looking Statements."

BUSINESS

Overview

Alight is defining the future of employee wellbeing through the power of our integrated health, wealth, wellbeing and payroll solutions powered by Alight Worklife®. Alight Worklife® is a high-tech employee engagement platform with a human touch – that brings together our mission-critical wellbeing solutions to our clients to drive better outcomes for organizations and individuals.

Against the current macro environment, both employers and employees face considerable challenges that impact their ability to succeed and thrive now and in the future. Employees are shouldering more and more responsibility for healthcare costs, while struggling with short-and-long-term financial needs in an inflationary environment, among other daily challenges. These trends have driven the need for integrated, personalized tools to help employees make more informed decisions around all aspects of their health, finances and wellbeing. For their part, employers are facing increasing cost pressures, ever-changing workforce regulations and evolving dynamics across the employer/employee relationship, driving the need for flexibility, engagement and effective solutions for compliance. We believe Alight is uniquely positioned between the employer and employee to address these factors and drive better outcomes for both.

We aim to be the pre-eminent employee experience partner by providing personalized experiences that help employees make the best decisions for themselves and their families about their health, wealth and wellbeing. At the same time, we help employers tackle their biggest people and business challenges by helping them understand prevalence, trends and risks to generate better outcomes for the future and realize a return on their people investment. Our data, analytics and Artificial Intelligence ("AI") allow us to deliver actionable insights that drive measurable outcomes for companies and their people. We provide solutions to manage health and retirement benefits, tools for payroll and HR management, as well as solutions to manage the workforce from the cloud.

On July 2, 2021 (the “Closing Date”), Alight Holding Company, LLC (the "Predecessor" or "Alight Holdings") completed a business combination (the "Business Combination") with a special purpose acquisition company. On the Closing Date, pursuant to the Business Combination Agreement, the special purpose acquisition company became a wholly owned subsidiary of Alight, Inc. (“Alight”, “the Company”, “we” “us” “our” or the “Successor”). As of September 30, 2023, Alight owned 93% of the economic interest in the Predecessor, had 100% of the voting power and controlled the management of the Predecessor. The non-voting ownership percentage held by noncontrolling interest was approximately 7% as of September 30, 2023.

As a result of the Business Combination, for accounting purposes, the Company is the acquirer and Alight Holdings is the acquiree and accounting predecessor. Within this Quarterly Report on Form 10-Q, there are some instances where we reference activity that relates to this Predecessor period or accounting as a result of the Business Combination.

Segment Reporting

Effective January 1, 2023, the Company's former Hosted business revenues and gross margin are reported in Other as the business is no longer core to the Company’s operations. There is no change in composition among the Employer Solutions and Professional Services segments.

EXECUTIVE SUMMARY OF FINANCIAL RESULTS

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

(in millions)

REVIEW OF RESULTS

Key Components of Our Operations

Revenue

Our clients’ demand for our services ultimately drives our revenues. We generate primarily all of our revenue, which is highly recurring, from fees for services provided from contracts across all solutions, which is primarily based on a contracted fee charged per participant per period (e.g., monthly or annually, as applicable). Our contracts typically have three to five-year terms for ongoing services with mutual renewal options. The majority of the Company’s revenue is recognized over time when control of the promised services is transferred, and the customers simultaneously receive and consume the benefits of our services. Payment terms are consistent with industry practice. We calculate growth rates for each of our solutions in relation to recurring revenues and revenues from project work. One of the components of our growth in recurring revenues is the increase in net commercial activity which reflects items such as client wins and losses (“Net Commercial Activity”). We define client wins as sales to new clients and sales of new solutions to existing clients. We define client losses as instances where clients do not renew or terminate their arrangements in relation to individual solutions or all of the solutions that we provide. We measure revenue growth as it relates to the cloud-based products and solutions that are central to our Alight Worklife® platform and next generation product suite, BPaaS Solutions.

Cost of Services, exclusive of Depreciation and Amortization

Cost of services, exclusive of depreciation and amortization includes compensation-related and vendor costs directly attributable to client-related services and costs related to application development and client-related infrastructure.

Depreciation and Amortization

Depreciation and amortization expenses include the depreciation and amortization related to our hardware, software and application development. Depreciation and amortization may increase or decrease in absolute dollars in future periods depending on the future level of capital investments in hardware, software and application development.

Selling, General and Administrative

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

Depreciation and Intangible Amortization

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

(Gain) Loss from Change in Fair Value of Financial Instruments

(Gain) loss from change in fair value of financial instruments includes the impact of the revaluation to fair value at the end of each reporting period for the Seller Earnouts contingent consideration.

(Gain) Loss from Change in Fair Value of Tax Receivable Agreement

(Gain) loss from charge in fair value of Tax Receivable Agreement ("TRA") includes the impact of the revaluation to fair value at the end of each reporting period.

Interest Expense

Interest expense primarily includes interest expense related to our outstanding debt.

Other (Income) Expense, net

Other (income) expense, net includes non-operating expenses and income, including realized (gains) and losses from remeasurement of foreign currency transactions.

Results of Operations for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Revenue

Revenues were $813 million for the three months ended September 30, 2023 as compared to $750 million for the prior year period. The increase of $63 million reflects growth of 8.7% in our Employer Solutions segment and 10.5% in our Professional Services segment. We also measure revenue growth as it relates to our cloud-based products and solutions that are central to our Alight Worklife® platform and our next generation product suite, BPaaS Solutions. For the three months ended September 30, 2023, we recorded BPaaS revenue of $184 million, which represented growth of 21.9% compared to the prior year period.

In addition, we also consider BPaaS bookings, defined as total contract value ("TCV") for BPaaS customer agreements executed in the period, to be a key indicator of future revenue growth and is used as a metric of commercial activity by management and investors. For the three months ended September 30, 2023, BPaaS bookings of $262 million represents an increase of 26.0% compared to the prior year period. Since the start of 2021, we have delivered BPaaS TCV bookings of nearly $2.0 billion, ahead of our three-year goal of $1.5 billion by the end of 2023.

Recurring revenues increased by $52 million, or 8.3%, from $625 million to $677 million and are related to growth in both the Employer Solutions and Professional Services segments. Growth in Employer Solutions is a result of higher revenues related to increased volumes, Net Commercial Activity and our 2022 acquisition. Growth in Professional Services is primarily a result of higher project revenues.

Cost of Services, exclusive of Depreciation and Amortization

Cost of services, exclusive of depreciation and amortization, increased $12 million, or 2.3%, for the three months ended September 30, 2023 as compared to the prior year period. The increase was primarily driven by growth in revenues, including investments in key resources and our 2022 acquisition, partially offset by productivity initiatives.

Selling, General and Administrative

Selling, general and administrative expenses decreased $1 million, or 0.6%, for the three months ended September 30, 2023 as compared to the prior year period. The decrease was primarily driven by compensation expenses related to share-based awards, partially offset by the inclusion of expenses from our 2022 acquisition and costs incurred from our previously announced restructuring program.

Depreciation and Intangible Amortization

Depreciation and intangible amortization expenses remained consistent when comparing the three months ended September 30, 2023 to the prior year period.

Change in Fair Value of Financial Instruments

There was a $36 million gain related to the change in the fair value of financial instruments for the three months ended September 30, 2023 compared to a loss of $10 million for the prior year period. We are required to remeasure the financial instruments at the end of each reporting period and reflect a gain or loss for the change in fair value of the financial instruments in the period the change occurred. Changes in the fair value are due to changes in the underlying assumptions, including changes in the risk free interest rate, volatility, and the closing stock price for the period. See Note 14 "Financial Instruments" for additional information.

Change in Fair Value of Tax Receivable Agreement

The change in the fair value of the TRA resulted in a loss of $11 million for the three months ended September 30, 2023, a decrease of $31 million compared to a gain of $20 million for the prior year period. This revaluation loss is due to changes in the discount rate, passage of time, and changes in the Company's assumptions related to the timing of the utilization of tax attributes during the term of the TRA, which we are required to revalue at the end of each reporting period.

Interest Expense

Interest expense increased $3 million for the three months ended September 30, 2023 as compared to the prior year period. The increase was primarily due to higher interest expense on our Term Loan due to movement in market interest rates. See Note 8 “Debt” for additional information.

Income (Loss) Before Income Taxes

Loss before income taxes was $15 million for the three months ended September 30, 2023 as compared to loss before taxes of $65 million for the three months ended September 30, 2022. The decrease in loss before income taxes was primarily due to non-operating fair value remeasurements associated with financial instruments and the TRA, as well as an increase in revenue and benefits from productivity initiatives, offset by increases in costs associated with investment in key resources and the 2022 acquisition.

Income Tax Expense (Benefit)

Income tax expense was $31 million for the three months ended September 30, 2023, as compared to an income tax benefit of $20 million for the prior year period. The effective tax rate of (207%) for the three months ended September 30, 2023 is lower than the 21% U.S. statutory corporate income tax rate primarily due to lower realization of certain anticipated tax attributes in the U.S., as well as losses in certain non-U.S. jurisdictions for which tax benefits have not been recorded. The effective tax rate of 31% for the three months ended September 30, 2022 is higher than the 21% U.S. statutory corporate income tax rate primarily due to the recognition of a benefit for an uncertain tax position for which the statute of limitations has lapsed, and partially offset by losses in certain non-U.S. jurisdictions for which tax benefits have not been recorded. See Note 7 “Income Taxes” for additional information.

Results of Operations for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Revenue

Revenues were $2,450 million for the nine months ended September 30, 2023 as compared to $2,190 million for the prior year period. The increase of $260 million reflects growth of 12.7% in our Employer Solutions segment and 9.8% in our Professional Services segment. We measure revenue growth as it relates to the cloud-based products and solutions that are central to our Alight Worklife® platform and our next generation product suite, BPaaS Solutions. For the nine months ended September 30, 2023, we recorded BPaaS revenue of $534 million, which represented growth of 35.9% compared to the prior year period.

In addition, we also consider BPaaS bookings, defined as total contract value for BPaaS customer agreements executed in the period, to be a key indicator of future revenue growth and is used as a metric of commercial activity by management and investors. For the nine months ended September 30, 2023, BPaaS bookings of $486 million represented a decline of 13.8% compared to the prior year period, however, since the start of 2021, we have delivered BPaaS TCV bookings of nearly $2.0 billion, ahead of our goal of $1.5 billion by the end of 2023.

Recurring revenues increased by $234 million, or 12.7%, from $1,838 million to $2,072 million and are related to growth in both the Employer Solutions and Professional Services segments. Growth in Employer Solutions is a result of higher revenues related to increased volumes, Net Commercial Activity and our 2022 acquisition. Growth in Professional Services is primarily a result of higher project revenues.

Cost of Services, exclusive of Depreciation and Amortization

Cost of services, exclusive of depreciation and amortization, increased $121 million, or 8.1%, for the nine months ended September 30, 2023 as compared to the prior year period. The increase was primarily driven by growth in revenues, including investments in key resources and our 2022 acquisition, partially offset by productivity initiatives.

Selling, General and Administrative

Selling, general and administrative expenses increased $80 million, or 16.8%, for the nine months ended September 30, 2023 as compared to the prior year period. The increase was primarily driven by costs incurred from our previously announced restructuring program as well as the inclusion of expenses from our 2022 acquisition, partially offset by lower compensation expenses related to share-based awards.

Depreciation and Intangible Amortization

Depreciation and intangible amortization expenses was consistent compared to the nine months ended September 30, 2023 to the prior year period.

Change in Fair Value of Financial Instruments

The change in the fair value of financial instruments resulted in a gain of $11 million for the nine months ended September 30, 2023, a decrease of $42 million compared to a gain of $53 million for the prior year period. We are required to remeasure the financial instruments at the end of each reporting period and reflect a gain or loss for the change in fair value of the financial instruments in the period the change occurred. The change in the fair value was due to changes in the underlying assumptions, including the decrease at September 30, 2023 in the risk free interest rate, volatility, and the closing stock price for the period ended. See Note 14 "Financial Instruments" for additional information.

Change in Fair Value of Tax Receivable Agreement

The change in the fair value of the Tax Receivable Agreement resulted in a loss of $30 million for the nine months ended September 30, 2023, a decrease of $93 million compared to a gain of $63 million for the prior year period. This revaluation loss is due to changes in the discount rate, passage of time, and changes in the Company's assumptions related to the timing of the utilization of tax attributes during the term of the TRA, which we are required to revalue at the end of each reporting period.

Interest Expense

Interest expense increased $11 million for the nine months ended September 30, 2023 as compared to the prior year period. The increase was primarily due to higher interest expense on our Term Loan due to movement in market interest rates. See Note 8 “Debt” for additional information.

Income (Loss) Before Income Taxes

Loss before income taxes was $166 million for the nine months ended September 30, 2023. Loss before tax benefit was $34 million for the nine months ended September 30, 2022. The increase in loss before income taxes was primarily due to non-operating fair value remeasurements associated with financial instruments and the TRA, and restructuring costs.

Income Tax Expense (Benefit)

Income tax expense was $26 million for the nine months ended September 30, 2023, as compared to tax benefit of $28 million for the prior year period. The effective tax rate of (16%) for the nine months ended September 30, 2023 is lower than the 21% U.S. statutory corporate income tax rate primarily due to lower realization of certain anticipated tax attributes in the U.S., as well as losses in certain non-U.S. jurisdictions for which tax benefits have not been recorded. The effective tax rate of 82% for the nine months ended September 30, 2022 is higher than the 21% U.S. statutory corporate income tax rate primarily due to the recognition of a benefit for an uncertain tax position for which the statute of limitations has lapsed, and partially offset by losses in certain non-U.S. jurisdictions for which a tax benefit has not been recorded. See Note 7 “Income Taxes” for additional information.

Non-GAAP Financial Measures

The presentation of non-GAAP financial measures is used to enhance our management and stakeholders understanding of certain aspects of our financial performance. This discussion is not meant to be considered in isolation, superior to, or as a substitute for the directly comparable financial measures prepared in accordance with U.S. GAAP. Management also uses supplemental non-GAAP financial measures to manage and evaluate the business, make planning decisions, allocate resources and as performance measures for Company-wide bonus plans. These key financial measures provide an additional view of our operational performance over the long-term and provide useful information that we use in order to maintain and grow our business.

The measures referred to as “adjusted”, have limitations as analytical tools, and such measures should not be considered either in isolation or as a substitute for net income or other methods of analyzing our results as reported under U.S. GAAP. Some of the limitations are:

• Measure does not reflect changes in, or cash requirements for, our working capital needs or contractual commitments;
• Measure does not reflect our interest expense or the cash requirements to service interest or principal payments on our indebtedness;
• Measure does not reflect our tax expense or the cash requirements to pay our taxes, including payments related to the Tax Receivable Agreement;
• Measure does not reflect the impact on earnings or changes resulting from matters that we consider not to be indicative of our future operations;
• Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often need to be replaced in the future, and the adjusted measure does not reflect any cash requirements for such replacements; and
• Other companies may calculate adjusted measures differently, limiting its usefulness as a comparative measure.

Adjusted Net Income and Adjusted Diluted Earnings Per Share

Adjusted Net Income, which is defined as net income (loss) attributable to Alight, Inc. adjusted for intangible amortization and the impact of certain non-cash items that we do not consider in the evaluation of ongoing operational performance, is a non-GAAP financial measure used solely for the purpose of calculating Adjusted Diluted Earnings Per Share.

Adjusted Diluted Earnings Per Share is defined as Adjusted Net Income divided by the adjusted weighted-average number of shares of common stock, diluted. The adjusted weighted shares calculation assumes the full exchange of the non-controlling interest units and the full amount of non-vested time-based restricted units that were determined to be antidilutive and therefore excluded from the U.S. GAAP diluted earnings per share. Adjusted Diluted Earnings Per Share, including the adjusted weighted-average number of shares, is used by us and our investors to evaluate our core operating performance and to benchmark our operating performance against our competitors.

A reconciliation of Adjusted Net Income to Net Loss Attributable to Alight, Inc. and the computation of Adjusted Diluted Earnings Per Share is as follows:

(in millions, except share and per share amounts)

(1) Income tax effects have been calculated based on statutory tax rates for both U.S. and foreign jurisdictions based on the Company's mix of income and adjusted for significant changes in fair value measurement.

(2) Assumes the full exchange of the units held by noncontrolling interests for shares of Class A Common Stock of Alight, Inc. pursuant to the exchange agreement.

(3) Includes non-vested time-based restricted stock units that were determined to be antidilutive for U.S. GAAP diluted earnings per share purposes.

(4) Excludes two tranches of contingently issuable seller earnout shares: (i) 7.5 million shares will be issued if the volume-weighted average price ("VWAP") of the Company's Class A Common Stock is >$12.50 for 20 consecutive trading days; and (ii) 7.5 million shares will be issued if the VWAP of the Company's Class A Common Stock is >$15.00 for 20 consecutive trading days. Both tranches have a seven-year duration.

(5) Excludes 28,547,275 and 33,148,917 performance-based units, which represents the gross number of shares expected to vest based on achievement of the respective performance conditions as of September 30, 2023 and September 30, 2022, respectively.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and intangible amortization adjusted for the impact of certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by revenue. Adjusted EBITDA And Adjusted EBITDA Margin are non-GAAP financial measures used by management and our stakeholders to provide useful supplemental information that enables a better comparison of our performance across periods as well as to evaluate our core operating performance. A reconciliation of Adjusted EBITDA to Net Loss is as follows:

(in millions)

(1) Transaction and integration expenses primarily relate to acquisition activity.

(2) Other primarily includes expenses related to debt financing.

(3) Adjusted EBITDA Margin is defined as Adjusted EBITDA as a percentage of revenue.

Segment Revenue and Adjusted Gross Profit

Adjusted gross profit is defined as revenue less cost of services adjusted for depreciation, amortization and share-based compensation. Adjusted gross profit margin percent is defined as adjusted gross profit divided by revenue. Management uses adjusted gross profit and adjusted gross profit margin percent as key measures in making financial, operating and planning decisions and in evaluating our performance. We believe that presenting adjusted gross profit and adjusted gross profit margin percent is useful to investors as it eliminates the impact of certain non-cash expenses and allows a direct comparison between periods.

Employer Solutions Results

($ in millions)

36

Employer Solutions Segment Results of Operations for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Employer Solutions Revenue

Employer Solutions revenue was $701 million for the three months ended September 30, 2023 as compared to $645 million for the prior year period. The overall increase of $56 million was primarily driven by recurring revenues from increases in Net Commercial Activity, project revenue and volumes as well as the impact from our 2022 acquisition.

Employer Solutions Gross Profit and Adjusted Gross Profit

Employer Solutions gross profit was $231 million for the three months ended September 30, 2023 compared to $189 million for the prior year period. The increase of $42 million was driven by revenue growth and lower expenses related to productivity initiatives, partially offset by employee compensation costs and increases in costs associated with funding growth of current and future revenues. Employer Solutions adjusted gross profit for the three months ended September 30, 2023 increased $46 million to $260 million from $214 million in the prior year period primarily due to revenue growth and lower expenses related to productivity initiatives, partially offset by employee compensation costs and increases in costs associated with funding growth of current and future revenues.

Employer Solutions Segment Results of Operations for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Employer Solutions Revenue

Employer Solutions revenue was $2,121 million for the nine months ended September 30, 2023 as compared to $1,882 million for the prior year period. The overall increase of $239 million was driven by recurring revenues from increases in Net Commercial Activity, project revenue and volumes as well as the impact from our 2022 acquisition.

Employer Solutions Gross Profit and Adjusted Gross Profit

Employer Solutions gross profit was $709 million for the nine months ended September 30, 2023 compared to $593 million for the prior year period. The increase of $116 million was driven by revenue growth and lower expenses related to productivity initiatives, partially offset by employee compensation costs and increases in costs associated with funding growth of current and future revenues. Employer Solutions adjusted gross profit for the nine months ended September 30, 2023 increased $136 million to $792 million from $656 million in the prior year period primarily due to revenue growth and lower expenses related to productivity initiatives, partially offset by employee compensation costs and increases in costs associated with funding growth of current and future revenues.

Professional Services Results

($ in millions)

Professional Services Segment Results of Operations for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Professional Services Revenue

Professional Services revenue was $105 million for the three months ended September 30, 2023 as compared to $95 million for the prior year period. The increase of $10 million was due to an increase of project revenue of $6 million, coupled with an increase of recurring revenue of $4 million.

Professional Services Gross Profit and Adjusted Gross Profit

Professional Services gross profit and adjusted gross profit both increased by $3 million and $2 million, respectively, when compared to the prior period.

Professional Services Segment Results of Operations for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Professional Services Revenue

Professional Services revenue was $303 million for the nine months ended September 30, 2023 as compared to $276 million for the prior year period. The increase of $27 million was due to an increase in project revenue of $17 million and $10 million, respectively.

Professional Services Gross Profit and Adjusted Gross Profit

Professional Services gross profit and adjusted gross profit increased by $2 million and $2 million, respectively, when compared to the prior year period.

Gross Profit to Adjusted Gross Profit Reconciliation by Segment

($ in millions)

38

LIQUIDITY AND FINANCIAL CONDITION

Liquidity

Executive Summary

Our primary sources of liquidity include our existing cash and cash equivalents, cash flows from operations and availability under our revolving credit facility. Our primary uses of liquidity are operating expenses, funding of our debt requirements and capital expenditures.

We believe that our available cash and cash equivalents, cash flows from operations and availability under our revolving credit facility will be sufficient to meet our liquidity needs, including principal and interest payments on debt obligations, capital expenditures, payments on our Tax Receivable Agreement and anticipated working capital requirements for the foreseeable future. We believe our liquidity position at September 30, 2023 remains strong. We will continue to closely monitor and proactively manage our liquidity position in light of changing economic conditions and the volatility of interest rates.

In August 2022, we established a repurchase program allowing for up to $100 million in authorized share repurchases. As of September 30, 2023, approximately $48 million remained available for share repurchases under our share repurchase program.

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 Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, with a corresponding amount in Fiduciary liabilities. Fiduciary funds are not used for general corporate purposes and are not a source of liquidity for us.

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

(in millions)

Operating Activities

Net cash provided by operating activities was $251 million for the nine months ended September 30, 2023 compared to $201 million for the nine months ended September 30, 2022. The increase in cash provided by operating activities was primarily due to a decrease in our net working capital requirements.

Investing Activities

Cash used for investing activities increased $12 million to $127 million for the nine months ended September 30, 2023 from $115 million for the prior year period, driven by capital expenditures.

Financing Activities

Cash used for financing activities for the nine months ended September 30, 2023 was $289 million as compared to cash used for financing activities of $73 million in the prior year. The primary drivers of cash used for financing activities were due to a $190 million net decrease in fiduciary liabilities, $40 million of share repurchases, $19 million of debt repayments, $17 million of finance lease payments, $9 million of deferred and contingent consideration payments, $7 million of TRA payments, and $8 million of shares/units withheld in lieu of taxes. The decrease in fiduciary cash is primarily due to timing of client funding and subsequent disbursement of payments.

Cash, Cash Equivalents and Fiduciary Assets

At September 30, 2023, our cash and cash equivalents were $276 million, an increase of $26 million from December 31, 2022. Of the total balances of cash and cash equivalents as of September 30, 2023 and December 31, 2022, none of the balances were restricted as to use.

Some of our client agreements require us to hold funds on behalf of clients to pay obligations on their behalf. The levels of Fiduciary assets and liabilities can fluctuate significantly, depending on when we collect the amounts from clients and make payments on their behalf. Such funds are not available to service our debt or for other corporate purposes. There is typically a short period of time between when the Company receives funds and when it pays obligations on behalf of clients. We are entitled to retain investment income earned on fiduciary funds, when investment strategies are deployed, in accordance with industry custom and practice, which has historically been immaterial. In our Consolidated Balance Sheets, the amount we report for Fiduciary assets and Fiduciary liabilities are equal. Our Fiduciary assets included cash of $1,319 million and $1,509 million at September 30, 2023 and December 31, 2022, respectively.

Other Liquidity Matters

Our cash flows from operations, borrowing availability and overall liquidity are subject to risks and uncertainties. For further information, see the “Risk Factors” section within Item 1A of our Annual Report.

We do not have any material business, operations or assets in Russia, Belarus or Ukraine and we have not been materially impacted by the actions of the Russian government. Our total revenues from these three countries are de minimis for all periods presented.

Tax Receivable Agreement

In connection with the Business Combination, we entered into the TRA with certain of our pre-Business Combination owners that provides for the payment by Alight to such owners of 85% of the benefits that Alight is deemed to realize as a result of the Company’s share of existing tax basis acquired in the Business Combination and other tax benefits related to entering into the Tax Receivable Agreement.

Actual tax benefits realized by Alight may differ from tax benefits calculated under the TRA as a result of the use of certain assumptions in the TRA, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits. While the amount of existing tax basis, the anticipated tax basis adjustments and the actual amount and utilization of tax attributes, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, we expect that the payments that Alight may make under the TRA will be substantial. For the nine months ended September 30, 2023, we paid $7 million related to the TRA and no further payments are expected to be made during the remainder of 2023. As of September 30, 2023, we expect to make payments of approximately $50 million in 2024.

Contractual Obligations and Commitments

There have been no material changes to our obligations and commitments during the nine months ended September 30, 2023.

Our material contractual obligations include debt, non-cancellable contractual service and purchase obligations and lease obligations. For additional information regarding debt and non-cancellable contractual service and purchases obligations, see the Condensed Consolidated Financial Statements within Item 1 of this Quarterly Report on Form 10-Q, Note 8 “Debt”, and Note 19 “Commitments and Contingencies”.

OFF BALANCE SHEET ARRANGEMENTS

We do not have any off balance sheet arrangements.

Critical Accounting Estimates

There were no material changes from the Critical Accounting Estimates disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022. Please refer to "Critical Accounting Estimates" described in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our Annual Report.

For quantitative and qualitative disclosures about market risk, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report. Our exposures to market risk have not changed materially since the filing of the Annual Report.

Evaluation of disclosure controls and procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures. Based on the aforementioned evaluation, our principal executive officer and principal financial officer concluded that, due to the material weaknesses in our internal control over financial reporting related to our income tax accounting as further described below, our disclosure controls and procedures were not effective as of September 30, 2023.

Notwithstanding, the conclusion by management that our disclosure controls and procedures as of September 30, 2023 were not effective, and notwithstanding the material weaknesses in our internal control over financial reporting described below, management believes that the condensed consolidated financial statements and related financial information included in this Quarterly Report on Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with U.S. GAAP.

Remediation of Material Weakness in Internal Control Over Financial Reporting

In connection with the preparation and audit of the consolidated financial statements as of and for the year ended December 31, 2022, a material weakness over financial reporting was identified. This material weakness related to internal controls over the accounting for the income tax provision in accordance with GAAP.

Specifically, the Company did not have the appropriate complement of resources within its tax department commensurate with the nature and complexity associated with the Company’s income tax provision process. As a result, the design and operation of our internal controls associated with the accounting for the Company’s income tax provision was not designed to operate at a level of precision necessary to provide reasonable assurance that a material misstatement of the Company’s annual or interim financial statements would be detected or prevented.

Management does not believe that these control deficiencies materially affected the results and accuracy of any of its annual or interim financial statements. Further, management believes and has concluded that the consolidated financial statements for the prior periods and included in this report fairly present, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

We are committed to maintaining a strong internal control environment. As of September 30, 2023, we have implemented remediation activities for the material weakness in internal control over financial reporting described above, with appropriate oversight from the Audit Committee. The remediation actions were multi-phased and included the following:

(i) conducting a complete assessment of the organizational structure of the Company’s tax team to identify any gaps or weaknesses, including necessary subject matter expertise, and make necessary changes to the personnel;

(ii) engaging and working with an independent, third-party review team to conduct a review of tax department processes and procedures with a particular emphasis on roles, responsibilities and accountabilities;

(iii) enhancing the level of precision in management’s review controls related to the review of significant tax balances to ensure transactions are recorded accurately and completely in accordance with GAAP, and

(iv) strengthening our income tax internal controls with enhanced documentation, technical oversight and training.

Management believes it has substantially completed the implementation of its remediation efforts outlined above. However, until the operational effectiveness of related internal controls is validated through testing, the material weakness described above will continue to exist. Management believes the remediation measures implemented will strengthen the Company’s internal control over financial reporting and remediate the material weakness.

Changes in Internal Control over Financial Reporting

Except as noted above, there have been no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Factors that could cause our actual results to differ materially from those in this Quarterly Report on Form 10-Q are any of the risks described in our Annual Report filed with the SEC on March 1, 2023. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

There have been no material changes from the risk factors previously disclosed under "Part I, Item IA. Factors" in the Company’s filing mentioned in the aforementioned paragraph.