Alight(US:ALIT)2025-05-08 20:44markdown [PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's comprehensive financial information, including statements and detailed notes [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, revenue recognition, discontinued operations, and other financial data [Condensed Consolidated Balance Sheets (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) This section presents the company's financial position at specific dates, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheets (in millions) | Item | March 31, 2025 | December 31, 2024 | Change (M) | | :-------------------------------- | :------------- | :---------------- | :--------- | | Cash and cash equivalents | $223 | $343 | $(120) | | Receivables, net | $438 | $471 | $(33) | | Total Current Assets | $1,062 | $1,267 | $(205) | | Goodwill | $3,212 | $3,212 | $0 | | Intangible assets, net | $2,784 | $2,855 | $(71) | | Total Assets | $7,913 | $8,193 | $(280) | | Accounts payable and accrued liabilities | $296 | $355 | $(59) | | Other current liabilities | $358 | $273 | $85 | | Total Current Liabilities | $901 | $892 | $9 | | Long-term debt, net | $1,999 | $2,000 | $(1) | | Long-term tax receivable agreement | $578 | $757 | $(179) | | Total Liabilities | $3,680 | $3,880 | $(200) | | Total Stockholders' Equity | $4,233 | $4,313 | $(80) | [Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20(Unaudited)) This section details the company's financial performance over a period, including revenues, expenses, and net income or loss Condensed Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended March 31, in millions, except per share amounts) | Item | 2025 | 2024 | Change (M) | Change (%) | | :-------------------------------------------------- | :--- | :--- | :--------- | :--------- | | Revenue | $548 | $559 | $(11) | -2.0% | | Gross Profit | $171 | $182 | $(11) | -6.0% | | Operating Income (Loss) From Continuing Operations | $(8) | $(40) | $32 | 80.0% | | Income (Loss) From Continuing Operations Before Taxes | $(20) | $(148) | $128 | 86.5% | | Net Income (Loss) From Continuing Operations | $(17) | $(121) | $104 | 86.0% | | Net Income (Loss) From Discontinued Operations, Net of Tax | $(8) | $5 | $(13) | -260.0% | | Net Income (Loss) Attributable to Alight, Inc. | $(25) | $(114) | $89 | 78.1% | | Basic and Diluted EPS (Continuing operations) | $(0.03) | $(0.22) | $0.19 | 86.4% | | Basic and Diluted Net Income (Loss) EPS | $(0.05) | $(0.21) | $0.16 | 76.2% | [Condensed Consolidated Statements of Stockholders' Equity (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) This section outlines changes in the company's equity, including net income, share-based compensation, and dividends Changes in Stockholders' Equity (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | | :----------------------------------- | :--- | :--- | | Balance at December 31, | $4,313 | $4,742 | | Net income (loss) | $(25) | $(116) | | Other comprehensive income (loss), net | $(8) | $4 | | Share-based compensation expense | $6 | $28 | | Shares withheld in lieu of taxes | $(11) | $(57) | | Share repurchases | $(20) | — | | Dividends | $(21) | — | | Conversion of noncontrolling interest | — | $(65) | | Balance at March 31, | $4,233 | $4,528 | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) This section reports on the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, in millions) | Activity | 2025 | 2024 | Change (M) | | :------------------------------------------ | :--- | :--- | :--------- | | Net cash provided by operating activities | $73 | $100 | $(27) | | Net cash provided by (used in) investing activities | $(29) | $(36) | $7 | | Net Cash provided by (used in) financing activities | $(176) | $(74) | $(102) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(132) | $(12) | $(120) | | Cash, cash equivalents and restricted cash (end of period) | $450 | $506 | $(56) | - Key financing outflows in Q1 2025 included **$100 million** for Tax Receivable Agreement payments, **$21 million** for dividend payments, and **$20 million** for share repurchases[21](index=21&type=chunk)[221](index=221&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements [Note 1. Basis of Presentation and Nature of Business](index=9&type=section&id=Note%201.%20Basis%20of%20Presentation%20and%20Nature%20of%20Business) This section describes the company's business, its services, and the basis for preparing the financial statements - The company is a technology-enabled services provider delivering human capital management solutions, including employee benefits, healthcare navigation, financial wellbeing, and retiree healthcare, primarily through its Alight Worklife® platform[26](index=26&type=chunk)[27](index=27&type=chunk) - The sale of Alight's Professional Services segment and Payroll & HCM Outsourcing business (Divested Business) was completed on **July 12, 2024**, and its results are reported as discontinued operations for all periods presented[25](index=25&type=chunk) [Note 2. Significant Accounting Policies](index=9&type=section&id=Note%202.%20Significant%20Accounting%20Policies) This section outlines the key accounting principles and methods used in preparing the financial statements - There have been no material changes to the company's significant accounting policies from its Annual Report on Form 10-K for the fiscal year ended **December 31, 2024**[28](index=28&type=chunk) - The company is evaluating new accounting pronouncements: ASU No. **2023-09** (Income Taxes) effective **December 31, 2025**, and ASU No. **2024-03** (Expense Disaggregation Disclosures) effective **December 31, 2027**[32](index=32&type=chunk)[33](index=33&type=chunk) [Note 3. Revenue from Contracts with Customers](index=10&type=section&id=Note%203.%20Revenue%20from%20Contracts%20with%20Customers) This section details the company's revenue recognition policies and disaggregation of revenue from customer contracts - The majority of the company's revenue is highly recurring and derived from contracts to provide integrated, cloud-based human capital solutions, primarily recognized over time as services are consumed[34](index=34&type=chunk)[35](index=35&type=chunk) - Revenue is disaggregated into recurring and project revenues within the Employer Solutions segment, with fees typically based on a contracted fee per participant per period over three to five-year terms[34](index=34&type=chunk)[39](index=39&type=chunk) [Note 4. Discontinued Operations](index=12&type=section&id=Note%204.%20Discontinued%20Operations) This section reports on the financial results and details of business segments that have been divested or are held for sale - The sale of the Divested Business (Professional Services and Payroll & HCM Outsourcing) was completed on **July 12, 2024**, for total consideration of up to **$1.2 billion**, including **$1.0 billion** cash, a **$50 million** Seller Note, and a contingent Additional Seller Note of up to **$150 million**[50](index=50&type=chunk) - A loss on sale of the Divested Business of **$7 million**, net of tax, was recorded for the three months ended **March 31, 2025**[54](index=54&type=chunk) Results from Discontinued Operations (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | | :------------------------------------------ | :--- | :--- | | Revenue | $24 | $257 | | Gross Profit | — | $67 | | Income (loss) from Discontinued Operations | — | $22 | | Net Income (Loss) from Discontinued Operations, Net of Tax | $(8) | $5 | [Note 5. Other Financial Data](index=13&type=section&id=Note%205.%20Other%20Financial%20Data) This section provides additional financial data and selected balance sheet components for further analysis Selected Balance Sheet Components (in millions) | Item | March 31, 2025 | December 31, 2024 | | :-------------------------------- | :------------- | :---------------- | | Receivables, net | $438 | $471 | | Other current assets | $174 | $214 | | Other assets | $411 | $422 | | Other current liabilities | $358 | $273 | | Other liabilities | $151 | $158 | - Other current liabilities as of **March 31, 2025**, included a current portion of tax receivable agreement liability of **$188 million**, up from **$100 million** at **December 31, 2024**[63](index=63&type=chunk) [Note 6. Goodwill and Intangible assets, net](index=15&type=section&id=Note%206.%20Goodwill%20and%20Intangible%20assets,%20net) This section details the company's goodwill and intangible assets, including their carrying values and amortization expenses Goodwill and Intangible Assets (in millions) | Item | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Goodwill | $3,212 | $3,212 | | Intangible assets, net | $2,784 | $2,855 | | Amortization expense (Q1) | $71 | $71 | Expected Annual Amortization Expense (in millions) | Year | Customer-Related and Contract Based Intangibles | Technology Related Intangibles | Trade Name Intangibles | Total | | :------------------------ | :------------------------------------ | :--------------------------- | :--------------------- | :---- | | 2025 (April - December) | $160 | $29 | $21 | $210 | | 2026 | $214 | $38 | $27 | $279 | | 2027 | $214 | $19 | $27 | $260 | | 2028 | $214 | $1 | $27 | $242 | | 2029 | $214 | — | $27 | $241 | | Thereafter | $1,380 | — | $172 | $1,552 | | Total amortization expense | $2,396 | $87 | $301 | $2,784 | [Note 7. Income Taxes](index=16&type=section&id=Note%207.%20Income%20Taxes) This section explains the company's income tax expense, effective tax rates, and related tax assets and liabilities Effective Tax Rates (Three Months Ended March 31) | Period | Effective Tax Rate | | :----- | :----------------- | | 2025 | 15% | | 2024 | 18% | - The effective tax rates were lower than the **21%** U.S. statutory corporate income tax rate primarily due to non-deductible expenses, tax credits, and changes in valuation allowance[67](index=67&type=chunk) [Note 8. Debt](index=16&type=section&id=Note%208.%20Debt) This section provides details on the company's outstanding debt, interest expense, and contractual payment obligations Debt Outstanding (in millions) | Item | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Total debt, net | $2,019 | $2,025 | | Less: current portion | $(20) | $(25) | | Total long-term debt, net | $1,999 | $2,000 | - In **January 2025**, the company repriced its Sixth Incremental Term Loans to Seventh Incremental Term Loans, reducing the applicable interest rate from SOFR + **2.25%** to SOFR + **1.75%**[70](index=70&type=chunk) Interest Expense (Three Months Ended March 31, in millions) | Period | Interest Expense | | :----- | :--------------- | | 2025 | $32 | | 2024 | $55 | Aggregate Remaining Contractual Principal Payments (as of March 31, 2025, in millions) | Year | Amount | | :---------------------- | :----- | | 2025 (April - December) | $15 | | 2026 | $20 | | 2027 | $20 | | 2028 | $1,970 | | Total payments | $2,025 | [Note 9. Stockholders' Equity](index=17&type=section&id=Note%209.%20Stockholders'%20Equity) This section outlines the components of stockholders' equity, including common stock, share repurchases, and dividends - As of **March 31, 2025**, **531,870,154** shares of Class A Common Stock were outstanding[78](index=78&type=chunk) - Class B-1 and Class B-2 Common Stock are earnouts that convert to Class A Common Stock if the VWAP of Class A shares reaches **$12.50** and **$15.00**, respectively[82](index=82&type=chunk)[85](index=85&type=chunk) - On **February 13, 2025**, the Board authorized an additional **$200 million** for the share repurchase program, bringing the total authorized to **$281 million**. As of **March 31, 2025**, **$261 million** remained authorized[98](index=98&type=chunk) Quarterly Dividends on Common Stock (Three Months Ended March 31, 2025) | Declaration Date | Dividends Per Share | Total Payment (in millions) | Record Date | Payable Date | | :--------------- | :------------------ | :-------------------------- | :---------- | :----------- | | February 13, 2025 | $0.04 | $21 | March 3, 2025 | March 17, 2025 | [Note 10. Share-Based Compensation](index=22&type=section&id=Note%2010.%20Share-Based%20Compensation) This section details the company's share-based compensation plans and the associated expenses recognized Total Share-Based Compensation Expense (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | | :------------------------------------------ | :--- | :--- | | Cost of services, exclusive of depreciation and amortization | $3 | $5 | | Selling, general and administrative | $3 | $23 | | Total share-based compensation expense | $6 | $28 | - As of **March 31, 2025**, total future compensation expense for unvested RSUs was **$57 million** (**2.33 years** remaining amortization) and for unvested PRSUs was **$50 million** (**1.97 years** remaining amortization)[112](index=112&type=chunk) [Note 11. Earnings Per Share](index=24&type=section&id=Note%2011.%20Earnings%20Per%20Share) This section presents the basic and diluted earnings per share calculations for continuing and discontinued operations Basic and Diluted Earnings Per Share (Three Months Ended March 31, in millions, except per share amounts) | Item | 2025 | 2024 | | :-------------------------------------------------- | :--- | :--- | | Net Income (Loss) from continuing operations attributable to Alight, Inc. | $(17) | $(119) | | Net Income (Loss) Attributable to Alight, Inc. - basic | $(25) | $(114) | | Weighted-average shares outstanding - basic | 532,297,681 | 540,780,315 | | Basic and Diluted (net loss) earnings per share (Continuing operations) | $(0.03) | $(0.22) | | Basic and Diluted (net loss) earnings per share (Net Income (Loss)) | $(0.05) | $(0.21) | - For Q1 2025, **510,115** noncontrolling interest units, **8,464,404** unvested RSUs, **14,999,998** Seller Earnouts, and **9,969,087** unvested PRSUs were excluded from diluted EPS calculations due to anti-dilutive impact or unmet market/performance conditions[117](index=117&type=chunk) [Note 12. Segment Reporting](index=25&type=section&id=Note%2012.%20Segment%20Reporting) This section provides financial information for the company's reportable segments, including revenue and net income - The company operates under one reportable segment, Employer Solutions, which provides integrated benefits administration, healthcare navigation, financial wellbeing, leave of absence management, and retiree healthcare[119](index=119&type=chunk) Employer Solutions Segment Revenue (Three Months Ended March 31, in millions) | Revenue Type | 2025 | 2024 | | :------------- | :--- | :--- | | Recurring | $520 | $521 | | Project | $28 | $38 | | Total Revenue | $548 | $559 | Employer Solutions Segment Net Income (Loss) From Continuing Operations (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | | :------------------------------------------ | :--- | :--- | | Net Income (Loss) From Continuing Operations | $(17) | $(121) | [Note 13. Derivative Financial Instruments](index=25&type=section&id=Note%2013.%20Derivative%20Financial%20Instruments) This section describes the company's use of derivative instruments for hedging and their fair value measurements - The company uses interest rate swap agreements, designated as cash flow hedges, to fix floating interest rates associated with its Term Loan[127](index=127&type=chunk) Fair Values of Outstanding Derivative Instruments (in millions) | Item | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Assets (Interest rate swaps) | $21 | $31 | | Liabilities (Interest rate swaps) | $1 | — | - Approximately **$17 million** of derivative gains included in Accumulated other comprehensive income as of **March 31, 2025**, are expected to be reclassified into earnings over the next twelve months[128](index=128&type=chunk) [Note 14. Financial Instruments](index=26&type=section&id=Note%2014.%20Financial%20Instruments) This section details the fair value measurement of various financial instruments, including contingent consideration liabilities - Seller Earnouts (Class B-1 and B-2 Common Stock) are accounted for as contingent consideration liabilities at fair value, subject to remeasurement each period[131](index=131&type=chunk) Fair Value of Seller Earnouts and Additional Seller Note (in millions) | Item | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Seller Earnouts | $29 | $51 | | Additional Seller Note | $36 | $50 | - For Q1 2025, a **$22 million** gain was recorded from the fair value remeasurement of Seller Earnouts, compared to a **$19 million** loss in Q1 2024. A **$14 million** loss was recorded for the Additional Seller Note in Q1 2025[131](index=131&type=chunk)[135](index=135&type=chunk) [Note 15. Tax Receivable Agreement](index=27&type=section&id=Note%2015.%20Tax%20Receivable%20Agreement) This section explains the company's obligations under the Tax Receivable Agreement and changes in its related liability - The company will pay certain sellers **85%** of realized tax savings from tax basis adjustments and attribute utilization under the Tax Receivable Agreement (TRA)[137](index=137&type=chunk) Changes in TRA Liabilities (in millions) | Item | Amount | | :------------------------------------------ | :----- | | Beginning balance as of December 31, 2024 | $857 | | Fair value remeasurement | $9 | | Payments | $(100) | | Ending balance as of March 31, 2025 | $766 | | Less: current portion in other current liabilities | $(188) | | Total long-term tax receivable agreement liability | $578 | - The TRA liability balance at **March 31, 2025**, assumes a blended U.S. federal, state, and local income tax rate of **26.3%** and a discount rate of **7.9%**[139](index=139&type=chunk) [Note 16. Fair Value Measurement](index=28&type=section&id=Note%2016.%20Fair%20Value%20Measurement) This section provides disclosures on the fair value measurements of financial assets and liabilities Financial Assets and Liabilities Measured at Fair Value (in millions) | Item | March 31, 2025 | December 31, 2024 | | :-------------------------------- | :------------- | :---------------- | | Total assets recorded at fair value | $57 | $81 | | Total liabilities recorded at fair value | $563 | $677 | - The fair value of the company's debt is classified as Level 2, with a carrying value of **$2,019 million** and a fair value of **$2,004 million** as of **March 31, 2025**[146](index=146&type=chunk) [Note 17. Restructuring](index=30&type=section&id=Note%2017.%20Restructuring) This section details the costs and progress of the company's restructuring initiatives and related liabilities - The two-year 'Transformation Program' initiated in **February 2023**, aimed at optimizing back-office infrastructure and operating model, was substantially complete as of **March 31, 2025**, incurring total expenses of **$140 million**[150](index=150&type=chunk) Total Restructuring Costs (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | | :---------------------- | :--- | :--- | | Total Restructuring Costs | $4 | $15 | - As of **March 31, 2025**, approximately **$11 million** of the total restructuring liability remained unpaid[151](index=151&type=chunk)[152](index=152&type=chunk) [Note 18. Employee Benefits](index=30&type=section&id=Note%2018.%20Employee%20Benefits) This section outlines the expenses related to the company's defined contribution savings plans for employees Defined Contribution Savings Plan Expenses (Three Months Ended March 31, in millions) | Period | Expenses | | :----- | :------- | | 2025 | $7 | | 2024 | $9 | [Note 19. Commitments and Contingencies](index=30&type=section&id=Note%2019.%20Commitments%20and%20Contingencies) This section discloses the company's material contractual obligations, purchase commitments, and potential liabilities - The company is committed to purchasing cloud services totaling **$250 million** over a **5-year** term, with total expected cash outflow for non-cancellable purchase obligations of **$262 million** through **2029**[158](index=158&type=chunk) - Expected remaining cash outflow for non-cancellable service obligations related to its strategic partnership with Wipro is **$456 million** through **2028**[159](index=159&type=chunk) [Note 20. Subsequent Event](index=31&type=section&id=Note%2020.%20Subsequent%20Event) This section reports on significant events that occurred after the balance sheet date but before the financial statements were issued - On **May 6, 2025**, the Audit Committee approved a fifteen-month 'Post-Separation Plan' (PSP) to further optimize operations post-divestiture, with expected pre-tax restructuring costs of approximately **$65 million** and estimated annual savings of over **$75 million**[161](index=161&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, a summary of financial results, a detailed review of continuing operations, and an analysis of liquidity and capital resources [BUSINESS](index=32&type=section&id=BUSINESS) This section provides an overview of the company's operations, services, and strategic initiatives [Overview](index=32&type=section&id=Overview) This section describes the company's core business, its technology platform, and value proposition to clients - Alight is a technology-enabled services company delivering human capital management solutions, including integrated benefits administration, healthcare navigation, financial wellbeing, and retiree healthcare, powered by its Alight Worklife® platform[163](index=163&type=chunk) - The company leverages data, analytics, and AI to provide personalized employee experiences and drive measurable outcomes for organizations[163](index=163&type=chunk) [Business Combination](index=32&type=section&id=Business%20Combination) This section details the historical business combination that led to the current corporate structure - The business combination with a special purpose acquisition company was completed on **July 2, 2021**, with Alight, Inc. becoming the successor entity and owning approximately **99%** of the economic interest in the Predecessor as of **March 31, 2025**[164](index=164&type=chunk) [Divestiture](index=32&type=section&id=Divestiture) This section provides information on the sale of business segments, including consideration and financial impact - The sale of the Divested Business was completed on **July 12, 2024**, for total consideration of up to **$1.2 billion**, consisting of **$1.0 billion** in cash, a **$50 million** Seller Note (fair value **$35 million**), and a contingent Additional Seller Note of up to **$150 million** (initial fair value **$43 million**)[165](index=165&type=chunk) [EXECUTIVE SUMMARY OF FINANCIAL RESULTS](index=33&type=section&id=EXECUTIVE%20SUMMARY%20OF%20FINANCIAL%20RESULTS) This section offers a high-level overview of the company's key financial performance indicators for the period Executive Summary of Financial Results (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | Change (%) | | :-------------------------------------------------- | :--- | :--- | :--------- | :--------- | | Revenue | $548 | $559 | $(11) | -2.0% | | Gross Profit | $171 | $182 | $(11) | -6.0% | | Operating Income (Loss) From Continuing Operations | $(8) | $(40) | $32 | 80.0% | | Net Income (Loss) Attributable to Alight, Inc. | $(25) | $(114) | $89 | 78.1% | [REVIEW OF RESULTS](index=33&type=section&id=REVIEW%20OF%20RESULTS) This section provides a detailed analysis of the company's financial performance from continuing operations [Key Components of Our Continuing Operations](index=33&type=section&id=Key%20Components%20of%20Our%20Continuing%20Operations) This section describes the primary revenue and expense drivers within the company's ongoing business activities - Revenue is primarily recurring, driven by fees for services based on a contracted fee per participant per period, with contracts typically having three to five-year terms[167](index=167&type=chunk) - Cost of services includes compensation-related and vendor costs directly attributable to client services, application development, and client-related infrastructure[168](index=168&type=chunk) - Selling, general and administrative expenses cover compensation for administrative and management employees, system and facilities expenses, and external professional and consulting services[170](index=170&type=chunk) [Results of Continuing Operations for the Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024](index=34&type=section&id=Results%20of%20Continuing%20Operations%20for%20the%20Three%20Months%20Ended%20March%2031,%202025%20Compared%20to%20the%20Three%20Months%20Ended%20March%2031,%202024) This section compares the financial performance of continuing operations for the current and prior year's three-month periods [Revenue](index=34&type=section&id=Revenue) This section analyzes the company's revenue performance, including changes in recurring and project revenues Revenue (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | Change (%) | | :---------------- | :--- | :--- | :--------- | :--------- | | Total Revenue | $548 | $559 | $(11) | -2.0% | | Recurring revenues | $520 | $521 | $(1) | -0.2% | - The decrease in total revenue was driven by lower project revenue and Net Commercial Activity[176](index=176&type=chunk) [Cost of Services, exclusive of Depreciation and Amortization](index=34&type=section&id=Cost%20of%20Services,%20exclusive%20of%20Depreciation%20and%20Amortization) This section details the costs directly associated with providing services, excluding non-cash depreciation and amortization Cost of Services, exclusive of Depreciation and Amortization (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | Change (%) | | :------------------------------------------ | :--- | :--- | :--------- | :--------- | | Cost of services, exclusive of depreciation and amortization | $351 | $356 | $(5) | -1.4% | - The decrease was primarily driven by lower revenues and savings realized in conjunction with productivity initiatives[178](index=178&type=chunk) [Depreciation and Amortization](index=34&type=section&id=Depreciation%20and%20Amortization) This section reports on the depreciation and amortization expenses recognized during the period Depreciation and Amortization (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | Change (%) | | :-------------------------- | :--- | :--- | :--------- | :--------- | | Depreciation and amortization | $26 | $21 | $5 | 23.8% | - The increase was primarily driven by capitalized software[179](index=179&type=chunk) [Selling, General and Administrative](index=34&type=section&id=Selling,%20General%20and%20Administrative) This section covers the company's administrative, sales, and marketing expenses, including compensation and professional fees Selling, General and Administrative Expenses (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | Change (%) | | :-------------------------------- | :--- | :--- | :--------- | :--------- | | Selling, general and administrative | $104 | $146 | $(42) | -28.8% | - The decrease was driven by a reduction in compensation expenses (primarily non-cash share-based awards), lower restructuring charges, and reduced professional fees related to the Divested Business sale and separation[180](index=180&type=chunk)[181](index=181&type=chunk) [Depreciation and Intangible Amortization](index=36&type=section&id=Depreciation%20and%20Intangible%20Amortization) This section details the combined depreciation and intangible asset amortization expenses Depreciation and Intangible Amortization (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | Change (%) | | :-------------------------------- | :--- | :--- | :--------- | :--------- | | Depreciation and intangible amortization | $75 | $76 | $(1) | -1.3% | [Change in Fair Value of Financial Instruments](index=36&type=section&id=Change%20in%20Fair%20Value%20of%20Financial%20Instruments) This section reports on gains or losses resulting from the remeasurement of financial instruments at fair value (Gain) Loss from Change in Fair Value of Financial Instruments (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | | :------------------------------------------------ | :--- | :--- | :--------- | | (Gain) Loss from change in fair value of financial instruments | $(8) | $21 | $(29) | - The **$8 million** gain in Q1 2025 (compared to a **$21 million** loss in Q1 2024) was primarily due to changes in underlying assumptions for the Seller Earnout and Additional Seller Note[183](index=183&type=chunk) [Change in Fair Value of Tax Receivable Agreement](index=36&type=section&id=Change%20in%20Fair%20Value%20of%20Tax%20Receivable%20Agreement) This section details the gains or losses from changes in the fair value of the Tax Receivable Agreement liability (Gain) Loss from Change in Fair Value of Tax Receivable Agreement (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | | :------------------------------------------------ | :--- | :--- | :--------- | | (Gain) Loss from change in fair value of tax receivable agreement | $9 | $55 | $(46) | - The decrease in loss was due to changes in assumptions related to the timing of tax attribute utilization, changes in the discount rate, and the passage of time[184](index=184&type=chunk) [Interest Expense](index=36&type=section&id=Interest%20Expense) This section analyzes the company's interest expenses, including factors influencing changes year-over-year Interest Expense (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | | :------------- | :--- | :--- | :--------- | | Interest expense | $22 | $31 | $(9) | - The decrease was primarily due to partial debt repayment, opportunistic repricing of the **2028** term loan, and higher interest income, partially offset by the company's hedges[185](index=185&type=chunk) [Other (Income) Expense, net](index=36&type=section&id=Other%20(Income)%20Expense,%20net) This section reports on miscellaneous non-operating income and expenses, including TSA income Other (Income) Expense, net (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | | :-------------------------- | :--- | :--- | :--------- | | Other (income) expense, net | $(11) | $1 | $(12) | - The company recorded **$10 million** in Transition Services Agreement (TSA) income for services provided to the Divested Business in Q1 2025[186](index=186&type=chunk) [Income (Loss) From Continuing Operations Before Taxes](index=36&type=section&id=Income%20(Loss)%20From%20Continuing%20Operations%20Before%20Taxes) This section presents the company's pre-tax income or loss from its ongoing business activities Income (Loss) From Continuing Operations Before Taxes (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | | :------------------------------------------ | :--- | :--- | :--------- | | Income (Loss) From Continuing Operations Before Taxes | $(20) | $(148) | $128 | - The significant decrease in loss was primarily attributable to improved non-operating fair value remeasurements of financial instruments and the tax receivable agreement, lower selling, general and administrative expenses, reduced interest expense, and income from the TSA[187](index=187&type=chunk) [Income Tax Expense (Benefit)](index=36&type=section&id=Income%20Tax%20Expense%20(Benefit)) This section details the income tax expense or benefit recognized and the effective tax rate Income Tax Expense (Benefit) (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | | :-------------------------- | :--- | :--- | :--------- | | Income tax expense (benefit) | $(3) | $(27) | $24 | - The effective tax rates were **15%** for Q1 2025 and **18%** for Q1 2024, both lower than the **21%** U.S. statutory rate due to non-deductible expenses, tax credits, and changes in valuation allowance[188](index=188&type=chunk) [Non-GAAP Financial Measures](index=36&type=section&id=Non-GAAP%20Financial%20Measures) This section provides reconciliations and explanations for non-GAAP financial measures used by management - Non-GAAP financial measures, such as Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA, and Adjusted EBITDA Margin, are used by management and stakeholders to understand financial performance and evaluate core operating performance, despite their limitations[189](index=189&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk)[195](index=195&type=chunk) [Adjusted Net Income From Continuing Operations and Adjusted Diluted Earnings Per Share From Continuing Operations](index=37&type=section&id=Adjusted%20Net%20Income%20From%20Continuing%20Operations%20and%20Adjusted%20Diluted%20Earnings%20Per%20Share%20From%20Continuing%20Operations) This section presents adjusted net income and diluted EPS from continuing operations, excluding certain non-recurring items Adjusted Net Income and Adjusted Diluted EPS (Three Months Ended March 31, in millions, except per share amounts) | Item | 2025 | 2024 | | :-------------------------------------------------- | :--- | :--- | | Adjusted Net Income From Continuing Operations | $52 | $57 | | Adjusted Diluted Earnings Per Share From Continuing Operations | $0.10 | $0.10 | - Adjustments include intangible amortization, share-based compensation, transaction and integration expenses, restructuring, and fair value changes of financial instruments and the tax receivable agreement[194](index=194&type=chunk) [Adjusted EBITDA From Continuing Operations and Adjusted EBITDA Margin From Continuing Operations](index=38&type=section&id=Adjusted%20EBITDA%20From%20Continuing%20Operations%20and%20Adjusted%20EBITDA%20Margin%20From%20Continuing%20Operations) This section details the adjusted EBITDA and its margin for continuing operations, providing a view of core profitability Adjusted EBITDA and Margin (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | Change (%) | | :------------------------------------------ | :--- | :--- | :--------- | :--------- | | Adjusted EBITDA From Continuing Operations | $118 | $116 | $2 | 1.7% | | Adjusted EBITDA Margin From Continuing Operations | 21.5% | 20.8% | 0.7% | 3.4% | [Employer Solutions Results of Operations for the Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024](index=39&type=section&id=Employer%20Solutions%20Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20March%2031,%202025%20Compared%20to%20the%20Three%20Months%20Ended%20March%2031,%202024) This section analyzes the financial performance of the Employer Solutions segment for the current and prior year's three-month periods [Revenue Disaggregation](index=39&type=section&id=Revenue%20Disaggregation) This section breaks down the Employer Solutions segment revenue into recurring and project components Employer Solutions Revenue (Three Months Ended March 31, in millions) | Revenue Type | 2025 | 2024 | Change (M) | | :------------- | :--- | :--- | :--------- | | Recurring | $520 | $521 | $(1) | | Project | $28 | $38 | $(10) | | Total | $548 | $559 | $(11) | - The overall decrease in Employer Solutions revenue was primarily driven by decreases in recurring revenues from lower project revenue and Net Commercial Activity[199](index=199&type=chunk) [Gross Profit to Adjusted Gross Profit Reconciliation](index=39&type=section&id=Gross%20Profit%20to%20Adjusted%20Gross%20Profit%20Reconciliation) This section reconciles gross profit to adjusted gross profit, highlighting adjustments for non-GAAP measures Gross Profit and Adjusted Gross Profit (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | | :-------------------------- | :--- | :--- | :--------- | | Gross Profit | $171 | $182 | $(11) | | Adjusted Gross Profit | $200 | $208 | $(8) | | Gross Profit Margin | 31.2% | 32.6% | -1.4% | | Adjusted Gross Profit Margin | 36.5% | 37.2% | -0.7% | - The decrease in gross profit and adjusted gross profit was driven by lower revenue and increased costs associated with funding growth, partially offset by productivity initiatives[202](index=202&type=chunk) [Free Cash Flow Reconciliation](index=40&type=section&id=Free%20Cash%20Flow%20Reconciliation) This section reconciles cash flow from operations to non-GAAP free cash flow, detailing capital expenditures Free Cash Flow Reconciliation (Three Months Ended March 31, in millions) | Item | 2025 | 2024 | Change (M) | | :------------------------------------------ | :--- | :--- | :--------- | | Cash provided by operating activities - continuing operations | $73 | $92 | $(19) | | Capital expenditures | $(29) | $(31) | $2 | | Non-GAAP free cash flow | $44 | $61 | $(17) | - The decrease in free cash flow was primarily due to a decrease in cash provided from operations, partially offset by lower capital expenditures[205](index=205&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=40&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's ability to generate and manage cash, including debt, share repurchases, and dividends [Executive Summary](index=40&type=section&id=Executive%20Summary) This section provides a high-level overview of the company's liquidity position and capital management strategy - The company's primary liquidity sources are existing cash and cash equivalents, cash flows from operations, and availability under its revolving credit facility[206](index=206&type=chunk) - Management believes these sources will be sufficient to meet liquidity needs, including debt obligations, capital expenditures, dividends, TRA payments, and working capital, for the foreseeable future[207](index=207&type=chunk) [Indebtedness](index=40&type=section&id=Indebtedness) This section details the company's debt structure, repayment activities, and interest rate adjustments - In **July 2024**, the company paid down **$440 million** of the Sixth Incremental Term Loans and fully repaid **$300 million** Secured Senior Notes with proceeds from the Divestiture[208](index=208&type=chunk) - In **January 2025**, the company repriced the Sixth Incremental Term Loans to Seventh Incremental Term Loans, reducing the applicable rate from SOFR + **2.25%** to SOFR + **1.75%**[209](index=209&type=chunk) [Share Repurchases](index=41&type=section&id=Share%20Repurchases) This section reports on the company's share repurchase program, including authorized amounts and shares bought back - On **February 13, 2025**, the Board authorized an additional **$200 million** for the share repurchase program, bringing the total authorized to **$281 million**[211](index=211&type=chunk) - During Q1 2025, **3,245,932** Class A Common Stock shares were repurchased under the program, leaving **$261 million** authorized as of **March 31, 2025**[212](index=212&type=chunk) [Cash Dividends](index=41&type=section&id=Cash%20Dividends) This section outlines the company's dividend policy and payments made to shareholders - The company maintains a quarterly dividend program, with a **$0.04** per share dividend paid in Q1 2025 (**$21 million** total payment) and another **$0.04** per share dividend approved for **June 16, 2025**[213](index=213&type=chunk)[215](index=215&type=chunk) [Cash, Cash Equivalents and Fiduciary Assets](index=41&type=section&id=Cash,%20Cash%20Equivalents%20and%20Fiduciary%20Assets) This section details the company's cash holdings, cash equivalents, and fiduciary assets held on behalf of clients - Continuing operations cash and cash equivalents were **$223 million** at **March 31, 2025**, a decrease of **$120 million** from **December 31, 2024**[222](index=222&type=chunk) - Fiduciary assets, held on behalf of clients and not available for corporate use, were **$227 million** at **March 31, 2025**, down from **$239 million** at **December 31, 2024**[223](index=223&type=chunk) [Other Liquidity Matters](index=42&type=section&id=Other%20Liquidity%20Matters) This section addresses additional factors affecting the company's liquidity and financial stability - The company's cash flows and overall liquidity are subject to risks and uncertainties, as detailed in the 'Risk Factors' section of its Annual Report[224](index=224&type=chunk) - The company has no business, operations, or assets in Russia, Belarus, or Ukraine and has not been materially impacted by related events[224](index=224&type=chunk) [Tax Receivable Agreement](index=42&type=section&id=Tax%20Receivable%20Agreement) This section discusses the company's obligations and expected payments under the Tax Receivable Agreement - The company paid **$100 million** related to the Tax Receivable Agreement (TRA) during Q1 2025, with no further payments expected for the remainder of **2025**[226](index=226&type=chunk) - As of **March 31, 2025**, the company expects to make payments of approximately **$188 million** under the TRA in **2026**[226](index=226&type=chunk) [Contractual Obligations and Commitments](index=42&type=section&id=Contractual%20Obligations%20and%20Commitments) This section outlines the company's significant contractual obligations and future cash commitments - Material contractual obligations include debt, non-cancellable contractual service, and purchase obligations[227](index=227&type=chunk) - Expected remaining cash outflow for non-cancellable service obligations related to the strategic partnership with Wipro is **$456 million** for the remainder of **2025** through **2028**[229](index=229&type=chunk) [OFF BALANCE SHEET ARRANGEMENTS](index=43&type=section&id=OFF%20BALANCE%20SHEET%20ARRANGEMENTS) This section discloses any off-balance sheet arrangements that could impact the company's financial position - The company does not have any off-balance sheet arrangements[231](index=231&type=chunk) [CRITICAL ACCOUNTING ESTIMATES](index=43&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) This section highlights the accounting estimates that require significant judgment and could materially affect financial results - 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, 2024**[232](index=232&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the Annual Report for detailed disclosures on market risk, stating that there have been no material changes since its filing - The company's exposures to market risk have not changed materially since the filing of the Annual Report[233](index=233&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures and any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=43&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section assesses the effectiveness of the company's controls designed to ensure timely and accurate financial disclosures - Management concluded that the company's disclosure controls and procedures were effective as of **March 31, 2025**[234](index=234&type=chunk) [Changes in Internal Control Over Financial Reporting](index=43&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports on any material changes to the company's internal control over financial reporting - There has been no change in internal control over financial reporting that materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting during the period[235](index=235&type=chunk) [PART II. OTHER INFORMATION](index=44&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity transactions, and other disclosures [Item 1. Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) This section addresses the company's involvement in legal proceedings, stating that their outcome is not expected to have a material adverse effect - The company is a party to various legal proceedings in the ordinary course of business, but believes their final outcome will not have a material adverse effect on its results of operations or financial condition[237](index=237&type=chunk) [Item 1A. Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the Annual Report for a comprehensive discussion of risk factors, noting no material changes since its previous filing - There have been no material changes from the risk factors previously disclosed in the company's Annual Report filed on **February 27, 2025**[239](index=239&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section provides information on the company's share repurchase activities during the quarter [Issuer Purchases of Equity Securities](index=44&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) This section provides details on the company's share repurchase activities during the reporting period Issuer Purchases of Equity Securities (Three Months Ended March 31, 2025) | Period | Total shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) | | :--------------------------------------- | :--------------------- | :--------------------------- | :----------------------------------------------------------------- | :------------------------------------------------------------------------------------------------- | | March 1, 2025 through March 31, 2025 | 3,245,932 | $6.17 | 3,245,932 | $261 | | Balance as of March 31, 2025 | 3,245,932 | $6.17 | 3,245,932 | $261 | [Item 5. Other Information](index=44&type=section&id=Item%205.%20Other%20Information) This section includes disclosures on trading arrangements of directors and officers [Trading Arrangements](index=44&type=section&id=Trading%20Arrangements) This section reports on any Rule 10b5-1 trading arrangements or other trading plans by company insiders - None of the company's directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended **March 31, 2025**[242](index=242&type=chunk) [Item 6. Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists all documents filed as exhibits to the report, including agreements and certifications - Exhibits include Amendment No. **11** to Credit Agreement (dated **January 29, 2025**) and certifications of the Principal Executive Officer and Principal Financial Officer[243](index=243&type=chunk) [Signatures](index=46&type=section&id=Signatures) This section contains the formal attestations and signatures of the company's authorized officers for the report - The report was signed on **May 8, 2025**, by Jeremy Heaton, Chief Financial Officer[248](index=248&type=chunk)