Alight, Inc. / Delaware: Form 10-Q for the period ended Mar 31, 2024

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 delivers human capital management solutions to many of the world’s largest and most complex companies. This includes the implementation and administration of both employee wellbeing (e.g. health, wealth and leaves benefits). In addition, the Company implements and runs human capital management software platforms on behalf of third-party providers. Alight’s numerous solutions and services are utilized year-round by employees and their family members in support of their overall health, wealth and wellbeing goals. Participants can access their solutions digitally, including through a mobile application on Alight Worklife®, our intuitive, cloud-based employee engagement platform. Through Alight Worklife, the Company believes it is defining the future of employee wellbeing by providing an enterprise level, integrated offering designed to drive better outcomes for organizations and individuals.

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, such as improved employee productivity and retention, while also realizing a return on their people investment. Our data, analytics and AI allow us to deliver actionable insights that drive measurable outcomes, such as healthcare claims savings, for companies and their people. We provide solutions to manage health and retirement benefits, tools for 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 March 31, 2024, Alight owned approximately 99% 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 less than 1% as of March 31, 2024.

On March 20, 2024, the Company announced that it has signed a definitive agreement to sell its Professional Services segment and its Payroll & HCM Outsourcing businesses within the Employer Solutions segment (“Payroll & Professional Services business”) to an affiliate of H.I.G. Capital for up to $1.2 billion, subject to certain adjustments and regulatory approvals. Pursuant to the terms of the agreement, an affiliate of H.I.G. Capital will acquire the Payroll & Professional Services business for a transaction value of up to $1.2 billion, in the form of $1 billion in cash and up to $200 million in a seller note, of which $150 million is contingent upon the Payroll & Professional Services business' 2025 financial performance. The transaction is expected to close by mid-year 2024, subject to customary closing conditions, including regulatory approvals. The Company has incurred, and expects to continue to incur, higher operating expenses in 2024 as a result of professional fees incurred in conjunction with the transaction.

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 Continuing 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 change 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 Continuing Operations for the Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Revenue

Revenues were $559 million for the three months ended March 31, 2024 as compared to $586 million for the prior year period. The decrease of $27 million or 4.6% was driven by lower volumes, net commercial activity and project revenue within our Employer Solutions segment and the wind-down of our Hosted business operations. We expect short term impacts in the first half of 2024 when compared to the prior year period as a result of large deal go-live timing and previous softness in BPaaS bookings in the first half of 2023. 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 March 31, 2024, we recorded BPaaS revenue of $117 million, which represented growth of 20.6% compared to the prior year period.

Recurring revenues decreased by $22 million, or 4.1%, from $543 million in the prior year period to $521 million and are related to decreases in our Employer Solutions segment driven by lower volumes and Net Commercial Activity.

Cost of Services, exclusive of Depreciation and Amortization

Cost of services, exclusive of depreciation and amortization, decreased $26 million, or 6.8%, for the three months ended March 31, 2024 as compared to the prior year period. The decrease was primarily driven by lower revenues and productivity initiatives, partially offset by continued investments in key resources.

Selling, General and Administrative

Selling, general and administrative expenses decreased $5 million, or 3.3%, for the three months ended March 31, 2024 as compared to the prior year period. The decrease was driven by lower compensation expenses primarily related to share-based awards and lower costs incurred from our restructuring program, partially offset by professional fees related to the planned sale of our Payroll and Professional Services businesses.

Depreciation and Intangible Amortization

Depreciation and intangible amortization expenses remained consistent when comparing the three months ended March 31, 2024 to the prior year period.

Change in Fair Value of Financial Instruments

There was a $21 million loss related to the change in the fair value of financial instruments for the three months ended March 31, 2024 compared to a loss of $25 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 $55 million for the three months ended March 31, 2024, an increase of $47 million compared to a loss of $8 million for the prior year period. This revaluation loss is due to conversion of non-controlling interest during the three months ended March 31, 2024, changes in the Company's assumptions related to the timing of the utilization of tax attributes during the term of the TRA, changes in the discount rate, and passage of time.

Interest Expense

Interest expense decreased $2 million for the three months ended March 31, 2024 as compared to the prior year period. The decrease was primarily due to increased hedging activity at favorable market rates, the opportunistic repricing of our 2028 term loan and higher interest income. See Note 8 “Debt” for additional information.

Income (Loss) Before Taxes From Continuing Operations

Loss before taxes from continuing operations was $148 million for the three months ended March 31, 2024 as compared to loss before taxes from continuing operations of $107 million for the three months ended March 31, 2023. The increase was primarily due to non-operating fair value remeasurements associated with financial instruments and the TRA.

Income Tax Expense (Benefit)

Income tax benefit was $27 million for the three months ended March 31, 2024, as compared to an income tax benefit of $23 million for the prior year period. The effective tax rate of 18% for the three months ended March 31, 2024 was lower than the 21% U.S. statutory corporate income tax rate primarily due to non-deductible portion of stock compensation expense. The effective tax rate of 21% for the three months ended March 31, 2023 was equal to 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.

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 From Continuing Operations and Adjusted Diluted Earnings Per Share From Continuing Operations

Adjusted Net Income From Continuing Operations, which is defined as net income (loss) from continuing operations, 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 From Continuing Operations.

Adjusted Diluted Earnings Per Share From Continuing Operations is defined as Adjusted Net Income From Continuing Operations 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 From Continuing Operations, 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 (Loss) From Continuing Operations and the computation of Adjusted Diluted Earnings Per Share From Continuing Operations is as follows:

(in millions, except share and per share amounts)

(1) Adjusted EBITDA excludes the impact of discontinued operations. Comparable periods have been recast to exclude these impacts.

(2) Transaction and integration expenses primarily relate to acquisitions and divestiture activities.

(3) 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.

(4) 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.

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

(6) Excludes two tranches of contingently issuable seller earnout shares: (i) 7.5 million shares will be issued if the Company's Class A Common Stock's volume-weighted average price ("VWAP") is >$12.50 for any 20 trading days within a consecutive period of 30 trading days; (ii) 7.5 million shares will be issued if the Company's Class A Common Stock VWAP is >$15.00 for any 20 trading days within a consecutive period of 30 trading days. Both tranches have a seven-year duration.

(7) Excludes approximately 14.4 million and 31.0 million performance-based units, which represents the gross number of shares expected to vest based on achievement of the respective performance conditions as of March 31, 2024 and 2023, respectively.

Adjusted EBITDA From Continuing Operations and Adjusted EBITDA Margin From Continuing Operations

Adjusted EBITDA From Continuing Operations 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 From Continuing Operations is defined as Adjusted EBITDA From Continuing Operations divided by revenue. Adjusted EBITDA and Adjusted EBITDA Margin From Continuing Operations 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 From Continuing Operations to Net Income (Loss) From Continuing Operations is as follows:

(in millions)

(1) Adjusted EBITDA excludes the impact of discontinued operations. Comparable periods have been recast to exclude these impacts.

(2) Transaction and integration expenses primarily relate to acquisition and divestiture activities.

(3) Adjusted EBITDA Margin From Continuing Operations is defined as Adjusted EBITDA From Continuing Operations 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)

Employer Solutions Segment Results of Operations for the Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Employer Solutions Revenue

Employer Solutions revenue was $559 million for the three months ended March 31, 2024 as compared to $576 million for the prior year period. The overall decrease of $17 million was primarily driven by decreases in recurring revenues from lower volumes, net commercial activity and project revenue.

Employer Solutions Gross Profit and Adjusted Gross Profit

Employer Solutions gross profit was $182 million for the three months ended March 31, 2024 compared to $187 million for the prior year period. The decrease of $5 million was driven by a decrease in revenue and lower expenses related to productivity initiatives, partially offset by increases in costs associated with funding growth of current and future revenues. Employer Solutions adjusted gross profit for the three months ended March 31, 2024 decreased $2 million to $208 million from $210 million in the prior year period primarily driven by a decrease in revenue and lower expenses related to productivity initiatives, partially offset by increases in costs associated with funding growth of current and future revenues.

LIQUIDITY AND CAPITAL RESOURCES

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 March 31, 2024 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. The Company expects to use the net after-tax cash proceeds from the expected sale of its Payroll & Professional Services business to reduce debt, return capital and for general corporate purposes, including reinvestment into growth opportunities.

In August 2022, we established a repurchase program allowing for up to $100 million in authorized share repurchases. In March 2024, the Company’s Board of Directors authorized the repurchase of up to an additional $200 million of the Company’s Class A common stock. As of March 31, 2024, approximately $248 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 March 31, 2024 and December 31, 2023, 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 Company's cash flows are presented inclusive of discontinued operations on the condensed consolidated statement of cash flows for all periods presented. 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 $100 million for the three months ended March 31, 2024 compared to $72 million for the three months ended March 31, 2023. 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 decreased $9 million to $36 million for the three months ended March 31, 2024 from $45 million for the prior year period, driven by capital expenditures.

Financing Activities

Cash used for financing activities for the three months ended March 31, 2024 was $74 million as compared to cash used for financing activities of $160 million in the prior year. The primary drivers of cash used for financing activities were $62 million of TRA payments, $57 million of shares/units withheld in lieu of taxes, $9 million of finance lease payments, $6 million of debt repayments, partially offset by a $60 million net increase in fiduciary liabilities. The increase in fiduciary cash is primarily due to timing of client funding and subsequent disbursement of payments.

Cash, Cash Equivalents and Fiduciary Assets

At March 31, 2024, our continuing operations cash and cash equivalents were $256 million, a decrease of $68 million from December 31, 2023. Of the total balances of cash and cash equivalents as of March 31, 2024 and December 31, 2023, 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 Condensed Consolidated Balance Sheets, the amount we report for Fiduciary assets and Fiduciary liabilities are equal. Our continuing operations Fiduciary assets included cash of $250 million and $234 million at March 31, 2024 and December 31, 2023, 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 three months ended March 31, 2024, we paid $62 million related to the TRA and no further payments are expected to be made during the remainder of 2024. As of March 31, 2024, we expect to make payments of approximately $89 million in 2025.

Contractual Obligations and Commitments

In March 2024, the Company entered into an agreement with a third-party provider in the ordinary course of business for the use of certain cloud services. Under this agreement, the Company is committed to purchase services totaling $250 million over a 5-year term. There have been no other material changes to our obligations and commitments during the three months ended March 31, 2024.

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, 2023. 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, as of March 31, 2024, the Company's disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There has been no change 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 February 29, 2024. 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.

In addition to the risk factors previously disclosed under "Part I, Item IA. Factors" in the Company’s Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating our Company and our business. Any of the following risks could materially and adversely affect our business financial condition and results of operations.

Risks Related to the Disposition

Our business and financial results could be adversely impacted during the pending sale of our Payroll and Professional Services Businesses, particularly if there is a delay in the completion of the Disposition.

On March 20, 2024, the Company entered into an asset purchase agreement to sell its Payroll and Professional Services Businesses (the “Disposition”) to an affiliate of H.I.G. Capital (“HIG”). The pending Disposition may cause disruptions to the Company’s business or business relationships, and may create uncertainty surrounding the Company’s ongoing business operations, which could materially and adversely affect our financial condition or results of operations, regardless of whether the Disposition is completed, including as a result of the attention of Company’s management being directed to transaction-related considerations and being diverted from the day-to-day operations of the Company’s business, seeking alternative relationships with third parties or seeking to terminate or renegotiated their relationships with the Company, and preparing for the post-closing separation of the businesses. Following the closing of the Disposition, we will enter into an agreement with HIG, whereby we and HIG will provide various transition services for specified periods beginning on the closing date. In the course of performing our obligations under such agreement, we will allocate certain of our resources, including assets, facilities, equipment and the time and attention of our management and other teammates, for the benefit of the Payroll and Professional Services Business and not ours, which may negatively impact our financial condition or results of operations.

If the Disposition is not completed for any reason, investor confidence could decline. A failed transaction may result in negative publicity, protracted litigation, and may affect our relationships with our clients and other business partners. In addition, in the event of a failed transaction, we will have expended significant management resources in an effort to complete the sale, and we will have incurred significant transaction costs, including legal fees, financial advisor fees and other related costs, without any commensurate benefit. Accordingly, if the proposed Disposition is not completed on the terms set forth in the operative agreement or at all, our business, results of operations, financial condition, cash flows and stock price may be materially adversely affected.

The Company has incurred, and will continue to incur, transaction costs in connection with the pending Disposition, and many of these fees and costs are payable regardless of whether or not the sale is completed.

If the proposed sale of the Payroll and Professional Services Businesses is completed, the Company may not achieve the operational and financial results that it anticipates in the future.

If the proposed sale of the Payroll and Professional Services Businesses is completed, the Company’s operational and financial profile will change upon the Disposition. As a result, the Company’s diversification of revenue sources will diminish, and the Company’s results of operations, cash flows, working capital and financing requirements may be subject to increased volatility and greater risk as a result of the concentration of its business. Moreover, shares of our Class A Common Stock will represent an investment in a smaller company than in existence today and our exposure to the risks inherent in our remaining businesses will increase. Additionally, our ability to return to the payroll and professional services business line is restricted by the terms of the non-competition commitments made pursuant to the terms of the agreement governing the Disposition.

The price of our Class A Common Stock may be volatile during the pending Disposition, and stockholders could lose all or part of their investment.

The trading price of our Class A Common Stock may at times be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond the Company’s control. In addition to other factors, these factors may include the timing and process for completion of the Disposition, including potential delays which may cause significant fluctuations in the price of our Class A Common Stock.

The occurrence of any event, change or other circumstances that could give rise to the termination of the agreement governing the sale of our Payroll and Professional Services Businesses could adversely affect our future business.

There are significant risks and uncertainties associated with the pending Disposition. The occurrence of certain events, changes or any other circumstances could give rise to the termination of the agreement governing the Disposition and cause the sale not to be completed. For instance, there is no assurance that the parties to the agreement will receive the necessary regulatory approvals required to close the transaction. If the parties fail to obtain such approvals or to meet other conditions necessary to complete the sale as set forth in the operative agreement, the Company may not be able to close the transaction and the Company may not realize the anticipated benefits to its business and financial condition.

Our liquidity following the close of our pending sale of the Payroll and Professional Services Businesses and our planned used of proceeds may not be actualized, and we may use the proceeds from the Disposition and other available funds in ways that may not improve our results of operations, financial condition, cash flows or enhance the value of our Class A Common Stock.

Following the closing of the pending sale of our Payroll and Professional Services Businesses, we plan to use sale proceeds and other available funds in a variety of potential ways, including to repay debt, make stock repurchases and/or for general corporate purposes. A number of factors may impact our ability to repurchase stock and the timing of any such stock repurchases, including market conditions, the price of our common stock, our results of operations, financial condition, cash flows, available financing, leverage ratios, and legal, regulatory and contractual requirements and restrictions. Accordingly, the actual amount of common stock we repurchase may be less, perhaps substantially, and the period of time over which we make any stock repurchases may be substantially longer, than we currently anticipate.