Alight, Inc. / Delaware (ALIT) FY 2021 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This discussion includes forward-looking statements. See ‘Disclaimer Regarding Forward-looking Statements’ for certain cautionary information regarding forward-looking statements and ‘Risk Factors’ in Item 1A of this Annual Report on Form 10-K for a list of factors that could cause actual results to differ materially from those predicted in those statements.

This discussion includes references to non-GAAP financial measures as defined in the rules of the SEC. We present such non-GAAP financial measures as we believe such information is of interest to the investment community because it provides additional meaningful methods of evaluating certain aspects of the Company’s operating performance from period to period on a basis that may not be otherwise apparent under U.S. generally accepted accounting principles (“U.S. GAAP”), and these provide a measure against which our businesses may be assessed in the future.

Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited. These financial measures should be viewed in addition to, not in lieu of, the consolidated financial statements for the year ended December 31, 2021. See ‘Non-GAAP Financial Measures’ below for further discussion.

BUSINESS

Overview

We are a leading cloud-based provider of integrated digital human capital and business solutions. We have an unwavering belief that a company’s success starts with its people, and our solutions connect human insights with technology. The Alight Worklife employee engagement platform provides a seamless customer experience by combining content, plus AI and data analytics to enable Alight's BPaaS model. Our mission-critical solutions enable employees to enrich their health, wealth and wellbeing, which helps global organizations achieve a high-performance culture.

On July 2, 2021 (the “Closing Date”), Foley Trasimene Acquisition Corp. ("FTAC") completed the business combination (the “Business Combination”) with Alight Holding Company, LLC (f/k/a Tempo Holding Company, LLC) (“Alight Holdings” or the “Predecessor”) contemplated by the Business Combination Agreement (as amended and restated as of April 29, 2021) between FTAC, Alight Holdings and other interested parties (the “Business Combination Agreement”). On the Closing Date, pursuant to the Business Combination Agreement, FTAC became a wholly owned subsidiary of Alight, Inc. (“Alight”, “the Company”, “we” “us” “our” or the “Successor”) and was renamed Alight Group, Inc. As a result of the Business Combination, and by virtue of such series of mergers and related transactions, the combined company is now organized in an “Up-C” structure, in which substantially all of the assets and business of Alight are held by Alight Holdings, of which Alight is the managing member pursuant to the terms of the Second Amended and Restated Limited Liability Company Agreement of Alight Holdings that went into effect upon the completion of the Business Combination. As a result of the Business Combination, Alight owns approximately 85% of the economic interest in Alight Holdings, but will have 100% of the voting power and will control the management of Alight Holdings. Immediately following the completion of the Business Combination, the non-voting ownership percentage held by noncontrolling interest was approximately 15%.

Principal Services and Segments

We currently report our results of operations in three segments: Employer Solutions, Professional Services and Hosted Business. Employer Solutions, Professional Services and Hosted Business accounted for approximately 87%, 12% and 1% and 85%, 14% and 1% of consolidated revenue for the Successor six months ended December 31, 2021 and the Predecessor six months ended June 30, 2021, respectively.

•
Employer Solutions: driven by our digital, software and AI-led capabilities powered by the Alight Worklife platform and spanning total employee wellbeing and engagement, including integrated benefits administration, healthcare navigation, financial health, employee wellbeing and payroll. We leverage data across all interactions and activities to improve the employee experience, reduce operational costs and better inform management processes and decision-making. In addition, employees benefit from an integrated platform and user experience, coupled with a full-service client care center, helping them manage the full life cycle of their health, wealth and careers.

•
Professional Services: includes our project-based cloud deployment and consulting offerings that provide expertise with both human capital and financial platforms. Specifically, this includes cloud advisory and deployment, and optimization services for cloud platforms such as Workday, SAP SuccessFactors, Oracle, and Cornerstone OnDemand.

Revenue and Compensation

Revenues are principally derived from fees paid by clients for services. Payment terms are consistent with current industry practice.

29

Technology

We deliver our solutions through a set of proprietary and partner technologies, a well-developed network of providers and a structured approach to instill and sustain enterprise-wide practices of excellence. With this in mind, there are four layers to our technology strategy, all reinforced with a critical security framework:

•
Omnichannel customer experience layer that drives a personalized approach for customers.

•
AI and analytics layer that uses data from our transactional systems, combined with client and third-party data to drive insights for clients.

•
Core transaction layer that powers our health, wealth and payroll systems.

•
Infrastructure layer to provide security, stability and performance across our application landscape.

Seasonality

Due to buying patterns and delivery of certain products in the markets we serve, particularly given the timing of annual benefits enrollment, our revenues tend to be higher in the third and fourth quarters of each year.

Licensing and Regulation

Our business activities are subject to licensing requirements and extensive regulation under the laws of countries in which we operate, including United States (“U.S.”) federal and state laws. See the discussion contained in "Risk Factors" in Item 1A of this Annual Report on Form 10-K, for information regarding how actions by regulatory authorities or changes in legislation and regulation in the jurisdictions in which we operate may have an adverse effect on our business.

Clients

We serve a broad range of clients, including Fortune 500 companies and mid-market businesses, and seek to establish high-quality, strong, long-term relationships with our clients. We proactively solicit client feedback through ongoing surveys and client councils held throughout the year, and we use this critical feedback to enhance our client services and correct course when necessary. Through these surveys, we have learned that clients value the strength and depth of our relationships, scale and breadth of our solutions and our commitment to innovation and continuous improvement.

Competition

The markets for our solutions are competitive, rapidly evolving and fragmented. Our business faces competition from other global and national companies. The market for our solutions is subject to change as a result of economic, regulatory and legislative changes, technological developments, shifting client needs and increased competition from established and new competitors.

We do not believe there is any single competitor with the breadth of our solutions, and thus our competitors vary for each of our solutions. Our primary competitors include Accenture, Accolade, ADP, Benefitfocus, bswift, Businessolver, Cognizant, Conduent, Deloitte, eHealth, Empower, Fidelity, GoHealth, Grand Rounds, HealthEquity, Mercer, OneSource Virtual, Quantum Health, SD Worx, Vanguard, Voya, WTW, and Workday.

We compete primarily on the basis of product and service quality, technology, breadth of offerings, ease of use and accessibility of technology, data protection, innovation, trust and reliability, price, and reputation.

FACTORS AFFECTING THE COMPARABILITY OF OUR RESULTS OF OPERATIONS

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

Impact of the Business Combination

Alight is subject to corporate level tax rates at the federal, state and local levels. The Predecessor was and is treated as a flow-through entity for U.S. federal income tax purposes, and as such, has generally not been subject to U.S. federal income tax at the entity level. Accordingly, other than for certain consolidated subsidiaries of the Predecessor that are structured as corporations and unless otherwise specified, the historical results of operations and other financial information presented does not include any provision for U.S. federal income tax.

30

Alight (together with certain corporate subsidiaries through which it owns its interest in the Predecessor) pays U.S. federal and state income taxes as a corporation on its share of our taxable income. The Business Combination was accounted for as a business combination using the acquisition method of accounting. Accordingly, the assets and liabilities, including any identified intangible assets, were recorded at their preliminary fair values at the date of completion of the Business Combination, with any excess of the purchase price over the preliminary fair value recorded as goodwill. The application of business combination accounting required the use of significant estimates and assumptions.

As a result of the application of accounting for the Business Combination, the historical Consolidated Financial Statements of the Predecessor are not necessarily indicative of the Successor’s future results of operations, financial position and cash flows. For example, increased tangible and intangible assets resulting from adjusting the basis of tangible and intangible assets to their fair value would result in increased depreciation and amortization expense in the periods following the consummation of the Business Combination.

In connection with the Business Combination, we entered into a Tax Receivable Agreement (“TRA”) with certain of our pre-Business Combination owners that provides for the payment by the 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 TRA.

Additionally, in connection with the Business Combination, we have accounted for the issuance of warrants and Seller Earnout contingent consideration as liabilities which require remeasurement to fair value at the end of each reporting period, as applicable and adopted the Alight 2021 Omnibus Incentive Plan which will result in higher share-based compensation expenses. Lastly, the redemption of our Unsecured Senior Notes and partial paydown of the Term Loan in conjunction with the Business Combination, will result in lower interest expense.

Impact of Becoming a Public Company

We expect to incur additional costs associated with operating as a public company. We expect that these costs will include additional human resources, legal, consulting, regulatory, insurance, accounting, investor relations and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act and rules adopted by the SEC require public companies to implement specified corporate governance practices that are not applicable to a private company. These additional rules and regulations increased our legal, regulatory and financial compliance costs and will make some activities more time-consuming and costly.

EXECUTIVE SUMMARY OF FINANCIAL RESULTS

While the Closing Date was July 2, 2021, we determined that as the impact of one day would be immaterial to the results of operations, we will utilize July 1, 2021 as the date of the Business Combination for accounting purposes. As a result of the Business Combination, the following tables present selected financial data for the Successor six months ended December 31, 2021, and the Predecessor six months ended June 30, 2021 and year ended December 31, 2020.

We prepared our discussion of the results of operations by comparing the results of the combined Successor six months ended December 31, 2021 and Predecessor six months ended June 30, 2021 to the Predecessor year ended December 31, 2020. The core business operations of the Predecessor and Successor were not significantly impacted by the consummation of the Business Combination. Therefore, we believe the combined results for the Successor six months ended December 31, 2021 and the Predecessor six months ended June 30, 2021 are comparable to the Predecessor year ended December 31, 2020 and provide enhanced comparability to the reader about the current year's results. We believe this approach provides the most meaningful basis of comparison and is useful in identifying current business trends for the periods presented. The combined results of operations included in our discussion below are not considered to be prepared in accordance with U.S. GAAP and have not been prepared as pro forma results under applicable regulations, may not reflect the actual results we would have achieved had the Business Combination occurred at the beginning of 2021, and should not be viewed as a substitute for the results of operations of the Predecessor and Successor periods presented in accordance with U.S. GAAP.

31

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

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.

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.

32

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.

Loss from Change in Fair Value of Financial Instruments

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 our warrants and the Seller Earnouts contingent consideration.

Gain from Change in Fair Value of Tax Receivable Agreement

Gain from change in fair value of Tax Receivable Agreement 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 Expense, net

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

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.

33

Adjusted Net Income and Adjusted Diluted Earnings Per Share

Adjusted Net Income, which is defined as net 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 noncontrolling interest units, the total amount of warrants that were exercised, and 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:

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

(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)
Represents the number of shares of Class A Common Stock issued in relation to the warrant exercises completed in December 2021, not fully included in the weighted average shares outstanding.

(4)
Includes non-vested time-based restricted stock units that were determined to be antidilutive for U.S. GAAP diluted earnings per share purposes.

(5)
Excludes two tranches of contingently issuable 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 20 consecutive trading days; (ii) 7.5 million share will be issued if the Company's Class A Common Stock VWAP is $15.00 for 20 consecutive trading days. Both tranches have a seven-year duration.

(6)
Excludes 16,036,220 performance-based units.

Adjusted EBITDA and Adjusted EBITDA less Capital Expenditures

Adjusted EBITDA, which is defined as earnings before interest, taxes, depreciation and intangible amortization adjusted for the impact of certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance, is a non-GAAP financial measure used by management and our stakeholders to provide useful supplemental information that enables a better

34

comparison of our performance across periods. Both Adjusted EBITDA and Adjusted EBITDA less Capital Expenditures are non-GAAP measures that are used by management and stakeholders to evaluate our core operating performance.

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

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

(1)
Transaction and integration expenses related to acquisitions in 2021.

(2)
Non-recurring professional expenses includes external advisor and legal costs related to the Company's Business Combination.

(3)
Transformation initiatives in fiscal years 2020 and 2019 includes expenses related to enhancing our data center for both periods, and severance expense for the first half of 2019.

(4)
Other primarily includes activity related to long-term incentives and expenses related to acquisitions in fiscal years 2020 and 2019.

A reconciliation of Adjusted EBITDA less Capital Expenditures to Cash provided by operating activities is as follows:

35

Results of Operations for the Combined Year Ended December 31, 2021 (Successor and Predecessor) Compared to the Year Ended December 31, 2020 (Predecessor)

Revenue

Revenues were $1,554 million for the Successor six months ended December 31, 2021, $1,361 million for the Predecessor six months ended June 30, 2021 and $2,728 million for the Predecessor year ended December 31, 2020. Revenues were $2,915 million for the combined year ended December 31, 2021, which reflects an increase of $187 million over the Predecessor prior year period, representing growth of 9% in our Employer Solutions segment and 1% in our Professional Services segment, partially offset by a decline of 42% in our Hosted Business segment. 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. These products capitalize on our robust data combined with AI & analytics to deliver greater employee engagement and employer outcomes. BPaaS products and services span across both the Employer Solutions and Professional Services segments. We recorded BPaaS revenue of $203 million and $187 million for the Successor six months ended December 31, 2021 and Predecessor six months ended June 30, 2021, respectively. For the combined year ended December 31, 2021, BPaaS revenue of $390 million represents growth of 17% compared to the Predecessor 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 used as a metric of commercial activity by management and investors. BPaaS bookings were $322 million and $280 million for the Successor six months ended December 31, 2021 and the Predecessor six months ended June 30, 2021, respectively. For the combined year ended December 31, 2021, BPaaS bookings of $602 million represents growth of 128%, compared to the Predecessor prior year period.

Recurring revenues were $1,299 million for the Successor six months ended December 31, 2021, $1,130 million for the Predecessor six months ended June 30, 2021 and $2,231 million for the Predecessor year ended December 31, 2020. Recurring revenues were $2,429 million for the combined year ended December 31, 2021, which reflects an increase of $198 million over the Predecessor prior year period, or 9%, related to growth in both Employer Solutions and Professional Services, partially offset by a decline in the Hosted Business. Growth in Employer Solutions is a result of higher revenues related to acquisition activity, increased volumes, increases in Net Commercial Activity and transitions from our Hosted Business to cloud-based services. Growth in Professional Services is a result of increases in Net Commercial Activity.

Project revenues were $255 million for the Successor six months ended December 31, 2021, $231 million for the Predecessor six months ended June 30, 2021 and $497 million for the Predecessor year ended December 31, 2020. Project revenues were $486 million for the combined year ended December 31, 2021, which reflects a decrease of $11 million over the Predecessor prior year period, or 2%, related to a decline in Professional Services, partially offset by growth in Employer Solutions.

In addition, a majority of our revenue is generated in the U.S., which reflected 93% of the total revenue increase for the combined year ended December 31, 2021 compared to the Predecessor prior year period.

Cost of Services, exclusive of Depreciation and Amortization

Cost of services, exclusive of depreciation and amortization were $1,001 million for the Successor six months ended December 31, 2021, $888 million for the Predecessor six months ended June 30, 2021 and $1,829 million for the Predecessor year ended December 31, 2020. Cost of services, exclusive of depreciation and amortization were $1,889 million for the combined year ended December 31, 2021, which reflects an increase of $60 million over the Predecessor prior year period, or 3%, primarily driven by higher costs related to growth in current and future revenues, including investments in key resources and increases related to our recent acquisitions in the fourth quarter of 2021, partially offset by lower expenses related to productivity initiatives, including the impact of lower restructuring related costs and $21 million of lower costs in the Hosted business as clients transition to cloud-based services.

Selling, General and Administrative

Selling, general and administrative expenses were $304 million for the Successor six months ended December 31, 2021, $222 million for the Predecessor six months ended June 30, 2021 and $461 million for the Predecessor year ended December 31, 2020. Selling, general and administrative expenses were $526 million for the combined year ended December 31, 2021, which reflects an increase of $65 million, or 14%, primarily driven by compensation expenses related to awards issued in the third quarter of 2021 and non-recurring professional expenses related to costs incurred in relation to the Business Combination completed in the third quarter of 2021, partially offset by lower expenses related to productivity initiatives, including the impact of lower restructuring related costs.

36

Depreciation and Intangible Amortization

Depreciation and intangible amortization expenses were $163 million for the Successor six months ended December 31, 2021, $111 million for the Predecessor six months ended June 30, 2021 and $226 million for the Predecessor year ended December 31, 2020. Depreciation and intangible amortization expenses were $274 million for the combined year ended December 31, 2021, which reflects an increase of $48 million, or 21%, primarily driven by amortization related to the identifiable intangible assets acquired in conjunction with the Business Combination completed in the third quarter of 2021 and acquisitions completed during the fourth quarter of 2021.

Loss from Change in Fair Value of Financial Instruments

A loss from a change in the fair value of financial instruments of $65 million was recorded for the Successor six months ended December 31, 2021. We are required to revalue 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. We did not have outstanding financial instruments in the Predecessor periods prior to the Business Combination.

Change in Tax Receivable Agreement

A gain from the change in the fair value of the tax receivable agreement of $37 million was recorded for the Successor six months ended December 31, 2021. The revaluation gain is due to changes in the discount rate and the Company's assumptions related to the timing of the utilization of the tax attributes during the term of the TRA, which we are required to revalue at the end of each reporting period. We did not have a tax receivable agreement in the Predecessor period prior to the Business Combination.

Interest Expense

Interest expenses were $57 million for the Successor six months ended December 31, 2021, $123 million for the Predecessor six months ended June 30, 2021 and $234 million for the Predecessor year ended December 31, 2020. Interest expenses were $180 million for the combined year ended December 31, 2021, which reflects a decrease of $54 million over the Predecessor prior year period, or 23%, primarily due to the redemption of our Unsecured Senior Notes and partial paydown of the Term Loan in conjunction with the Business Combination completed during the third quarter of 2021. See Note 8 “Debt” for further information.

Loss before Income Tax Expense (Benefit)

Loss before income tax expense (benefit) was $23 million for the Successor six months ended December 31, 2021, $30 million for the Predecessor six months ended June 30, 2021 and $94 million for the Predecessor year ended December 31, 2020. Loss before income tax expense (benefit) was $53 million for the combined year ended December 31, 2021, a decrease of $41 million compared to $94 million for the Predecessor year ended December 31, 2020, due to the drivers identified above.

Income Tax Expense (Benefit)

Income tax expense was $25 million for the Successor six months ended December 31, 2021, income tax benefit was $5 million for the Predecessor six months ended June 30, 2021, and income tax expense was $9 million for the Predecessor year ended December 31, 2020. The effective tax rate of (109%) for the Successor six months ended December 31, 2021 is lower than the 21% U.S. statutory corporate income tax rate primarily due to the Company's organizational structure and the noncontrolling interest associated with the portion of Alight Holdings income not allocable to the Company. The effective tax rate of 17% for the Predecessor six months ended June 30, 2021 was primarily driven by foreign and state income taxes payable in jurisdictions where the Company had operations that generated operating income. See Note 7 “Income Taxes” for further information.

Results of Operations for the Year Ended December 31, 2020 (Predecessor) Compared to the Year Ended December 31, 2019 (Predecessor)

Revenue

Revenues were $2,728 million for the Predecessor year ended December 31, 2020 as compared to $2,552 million for the Predecessor prior year period. The increase of $176 million reflects growth of 10% and 29% in our Employer Solutions and Professional Services segments, respectively, partially offset by a decline of 61% in our Hosted Business segment. 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. These products capitalize on our robust data combined with AI & analytics to deliver greater employee engagement and employer outcomes. BPaaS products and services span across both the Employer Solutions and

37

Professional Services segments. For the Predecessor year ended December 31, 2020, we recorded BPaaS revenue of $334 million, which represents growth of 111%.

Recurring revenues increased by $158 million over the Predecessor prior year period, or 8%, from $2,073 million to $2,231 million and are related to growth in both Employer Solutions and Professional Services, partially offset by a decline in the Hosted Business. Project revenues increased by $18 million, or 4%, from $479 million to $497 million and are related to growth in Professional Services, partially offset by a decline in Employer Solutions.

Cost of Services, exclusive of Depreciation and Amortization

Cost of services, exclusive of depreciation and amortization increased $210 million, or 13%, for the Predecessor year ended December 31, 2020 as compared to the Predecessor prior year period. The increase was primarily driven by $245 million of additional costs associated with the growth in revenues, including the impact of increases related to our recent acquisitions and $21 million of costs related to the restructuring plan initiated in 2019, partially offset by $53 million of lower costs in the Hosted business as clients transition to cloud-based services.

Selling, General and Administrative

Selling, general and administrative expenses increased $46 million, or 11%, for the Predecessor year ended December 31, 2020 as compared to the Predecessor prior year period. The increase was primarily driven by $56 million of costs related to the restructuring plan initiated in 2019, partially offset by $13 million non-recurring professional expenses related to costs incurred in respect of our postponed initial public offering in 2019.

Depreciation and Intangible Amortization

Depreciation and intangible amortization expenses increased $23 million, or 11%, for the Predecessor year ended December 31, 2020 as compared to the Predecessor prior year period. The increase was primarily driven by amortization related to the identifiable intangible assets acquired during the second half of 2019.

Interest Expense

Interest expense increased $10 million, or 4%, for the Predecessor year ended December 31, 2020 as compared to the Predecessor prior year period. The increase was primarily due to incremental interest associated with the additional unsecured and secured senior notes issued in 2020, partially offset by lower interest expense on our Term Loan due to movement in market rates. See Note 8 “Debt” for further information.

Loss before Income Tax Expense

Loss before income tax expense was a loss of $94 million for the Predecessor year ended December 31, 2020, a decrease of $132 million compared to income of $38 million for the Predecessor year ended December 31, 2019, due to the drivers identified above.

Income Tax Expense

Income tax expense decreased $7 million for the Predecessor year ended December 31, 2020 as compared to the Predecessor prior year period, from $16 million to $9 million. The effective tax rate for the Predecessor year ended December 31, 2020 was approximately (10)% and was primarily driven by foreign and state income taxes payable in jurisdictions where the Company had operations that generated operating income. See Note 7 “Income Taxes” for further information.

38

Segment Revenue and Adjusted EBITDA

Employer Solutions Segment Results

Employer Solutions Segment Results of Operations for the Combined Year Ended December 31, 2021 (Successor and Predecessor) Compared to the Year Ended December 31, 2020 (Predecessor)

Employer Solutions Revenue

Employer Solutions total revenues were $1,347 million for the Successor six months ended December 31, 2021, $1,156 million for the Predecessor six months ended June 30, 2021 and $2,288 million for the Predecessor year ended December 31, 2020. We experienced annual revenue retention rates of 97% and 96% in 2021 and 2020, respectively. Employer Solutions total revenues were $2,503 million for the combined year ended December 31, 2021, which reflects an overall increase of $215 million over the Predecessor prior year period due to an increase of recurring revenues of $211 million, or 10%, as a result of approximately $123 million of revenue primarily related to the Retiree acquisition, increased volumes, increases in Net Commercial Activity and transitions from our Hosted Business to cloud-based services, and an increase in project revenues of $4 million, or 2%.

Employer Solutions Gross Profit

Employer Solutions Gross Profit was $489 million for the Successor six months ended December 31, 2021, $392 million for the Predecessor six months ended June 30, 2021 and $725 million for the Predecessor year ended December 31, 2020. Employer Solutions Gross Profit was $881 million for the combined year ended December 31, 2021 which reflects an increase of $156 million over the Predecessor prior year period, or 22%, primarily due to revenue growth as discussed above and lower expenses related to productivity initiatives, including the impact of lower restructuring related costs, partially offset by increases in costs associated with growth of current and future revenues.

Employer Solutions Adjusted EBITDA

Employer Solutions Adjusted EBITDA was $344 million for the Successor six months ended December 31, 2021, $274 million for the Predecessor six months ended June 30, 2021 and $533 million for the Predecessor year ended December 31, 2020. Employer Solutions Adjusted EBITDA was $618 million for the combined year ended December 31, 2021, which reflects an increase of $85 million over the Predecessor prior year period, primarily due to revenue growth as discussed above, partially offset by increases in costs associated with growth of current and future revenues, including investments in our commercial functions and technology.

Employer Solutions Segment Results of Operations for the Year Ended December 31, 2020 (Predecessor) Compared to the Year Ended December 31, 2019 (Predecessor)

Employer Solutions Revenue

Employer Solutions total revenues were $2,288 million for the Predecessor year ended December 31, 2020 as compared to $2,084 million for the Predecessor prior year period. We experienced annual revenue retention rates of 96% and 98% in 2020 and 2019. The overall increase of $204 million was due to an increase of recurring revenues of $217 million over the Predecessor prior year period, or 12%, from $1,834 million to $2,051 million as a result of approximately $210 million of revenue related to material acquisitions, partially offset by a decrease in project revenues of $13 million, or 5%, from $250 million to $237 million primarily related to client project delays as a result of COVID-19.

39

Employer Solutions Gross Profit

Employer Solutions Gross Profit was $725 million for the Predecessor year ended December 31, 2020 as compared to $767 million for the Predecessor prior year period. The decrease of $42 million was due to primarily due to higher costs related to our recent acquisitions, which outpaced revenue growth as discussed.

Employer Solutions Adjusted EBITDA

Employer Solutions Adjusted EBITDA was $533 million for the Predecessor year ended December 31, 2020, as compared to $554 million for the Predecessor prior year period. The decrease of $21 million was primarily due to higher costs related to our recent acquisitions, which outpaced revenue growth as discussed above.

Professional Services Segment Results

Professional Services Segment Results of Operations for the Combined Year Ended December 31, 2021 (Successor and Predecessor) Compared to the Year Ended December 31, 2020 (Predecessor)

Professional Services Revenue

Professional Services total revenues were $186 million for the Successor six months ended December 31, 2021, $184 million for the Predecessor six months June 30, 2021 and $368 million for the Predecessor year ended December 31, 2020. Professional Services total revenues were $370 million for the combined year ended December 31, 2021, which reflects an overall increase of $2 million over the Predecessor prior year period, due to an increase of recurring revenues of $17 million, or 16%, as a result of increases in Net Commercial Activity, partially offset by a decrease in project revenues of $15 million, or 6%.

Professional Services Gross Profit

Professional Services Gross Profit was $44 million for the Successor six months ended December 31, 2021, $46 million for the Predecessor six months ended June 30, 2021 and $106 million for the Predecessor year ended December 31, 2020. Professional Services Gross Profit was $90 million for the combined year ended December 31, 2021, which reflects a decrease of $16 million over the Predecessor prior year period, or 15%, primarily due to increases in costs associated with growth of current and future revenues, including investments in key resources, partially offset by revenue growth as discussed above.

Professional Services Adjusted EBITDA

Professional Services Adjusted EBITDA was $1 million for the six months ended December 31, 2021, $7 million for the Predecessor six months ended June 30, 2021 and $31 million for the Predecessor year ended December 31, 2020. Professional Services Adjusted EBITDA was $8 million for the combined year ended December 31, 2021 which reflects a decrease of $23 million over the Predecessor prior year period, primarily due to increases in costs associated with growth of current and future revenues, including investments in our commercial functions, partially offset by revenue growth as discussed above.

40

Professional Services Segment Results of Operations for the Year Ended December 31, 2020 (Predecessor) Compared to the Year Ended December 31, 2019 (Predecessor)

Professional Services Revenue

Professional Services total revenues were $368 million for the Predecessor year ended December 31, 2020 as compared to $285 million for the Predecessor prior year period. The overall increase of $83 million was due to an increase of recurring revenues of $52 million over the Predecessor prior year period, or 93%, from $56 million to $108 million as a result of increases in Net Commercial Activity and approximately $43 million of revenue related to material acquisitions and an increase in project revenues of $31 million, or 14%, from $229 million to $260 million.

Professional Services Gross Profit

Professional Services Gross Profit was $106 million for the Predecessor year ended December 31, 2020 as compared to $68 million for the Predecessor prior year period. The increase of $38 million was primarily due revenue growth, partially offset by increases in costs associated with growth of revenues as discussed above.

Professional Services Adjusted EBITDA

Professional Services Adjusted EBITDA was $31 million for the Predecessor year ended December 31, 2020, as compared to $7 million for the Predecessor prior year period. The increase of $24 million was primarily due to revenue growth, partially offset by increases in costs associated with growth of revenues as discussed above.

Hosted Business Segment Results

Hosted Business Segment Results of Operations for the Combined Year Ended December 31, 2021 (Successor and Predecessor) Compared to the Year Ended December 31, 2020 (Predecessor)

Hosted Business Revenue

Hosted Business revenues were $21 million for the Successor six months ended December 31, 2021, $21 million for the Predecessor six months ended June 30, 2021 and $72 million for the Predecessor year ended December 31, 2020. Hosted Business revenues were $42 million for the combined year ended December 31, 2021, which reflects a decrease of $30 million over the Predecessor prior year period due to transitions from our Hosted Business to cloud-based services.

Hosted Business Gross Profit

Hosted Business Gross Profit was ($1) million for the Successor six months ended December 31, 2021, ($3) million for the Predecessor six months ended June 30, 2021 and $3 million for the Predecessor year ended December 31, 2020. Hosted Business Gross Profit was ($4) million for the combined year ended December 31, 2021, which reflects a decrease of $7 million over the Predecessor prior year period, primarily due to transitions from our Hosted Business to cloud-based services.

Hosted Business Adjusted EBITDA

Hosted Business Adjusted EBITDA was ($2) million for the Successor six months ended December 31, 2021, ($3) million for the Predecessor six months ended June 30, 2021 and immaterial for the Predecessor year ended December 31, 2020. Hosted Business Adjusted EBITDA was ($5) million for the combined year ended December 31, 2021, which reflects a decrease of $5 million over the

41

Predecessor prior year period, driven by a decrease in revenue during the period from the continued transition from our Hosted Business to cloud-based services, which outpaced a decrease in costs during the period.

Hosted Business Segment Results of Operations for the Year Ended December 31, 2020 (Predecessor) Compared to the Year Ended December 31, 2019 (Predecessor)

Hosted Business Revenue

Hosted Business revenues were $72 million for the Predecessor year ended December 31, 2020 as compared to $183 million for the Predecessor prior year period. The decrease of $111 million was due to transitions from our Hosted Business to cloud-based services and client losses.

Hosted Business Gross Profit

Hosted Business Gross Profit was $3 million for the Predecessor year ended December 31, 2020 as compared to $48 million for the Predecessor prior year period. The decrease of $45 million was primarily due to transitions from our Hosted Business to cloud-based services.

Hosted Business Adjusted EBITDA

Hosted Business Adjusted EBITDA was immaterial for the Predecessor year ended December 31, 2020 as compared to $35 million for the Predecessor prior year period. The decrease of $35 million was driven by a decrease in revenue during the period from the continued transition from our Hosted Business to cloud-based services and client losses, which outpaced a decrease in costs during the period.

LIQUIDITY, FINANCIAL CONDITION, 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 December 31, 2021 remains strong and as we continue to operate in a period of uncertain economic conditions related to COVID-19 we will continue to closely monitor and proactively manage our liquidity as economic conditions change.

Cash on our balance sheet includes funds available for general corporate purposes. Funds held on behalf of clients in a fiduciary capacity are segregated and shown in Fiduciary assets on the Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020, 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.

42

Operating Activities

Net cash for operating activities was $57 million cash provided for the Successor six months ended December 31, 2021 and $58 million provided for the Predecessor six months ended June 30, 2021. Net cash provided by operating activities decreased from $233 million during the Predecessor year ended December 31, 2020 to $115 million for the combined year ended December 31, 2021, driven by an increase in working capital requirements and non-cash items primarily related to the Business Combination, offset by a decrease in net loss.

Net cash provided by operating activities for the Predecessor year ended December 31, 2020 decreased $35 million to $233 million from the Predecessor prior year period, primarily driven by a net loss in the period compared to net income in the prior period, partially offset by an increase in non-cash items and a decrease in working capital requirements.

Investing Activities

Cash used for investing activities for the Successor six months ended December 31, 2021 and the Predecessor six months ended was $1,852 million and $55 million, respectively. The primary drivers of the cash used for investing activities for the Successor six months ended December 31, 2021 was $1,793 million related to the Business Combination and $59 million of capital expenditures. For the Predecessor six months ended June 30, 2021, $55 million was used for capital expenditures.

Cash used for investing activities for the Predecessor year ended December 31, 2020 was $142 million. The primary drivers of the cash used for investing activities was $90 million of capital expenditures and $52 million for the acquisition of a business.

Cash used for investing activities for the Predecessor year ended December 31, 2019 was $604 million. The primary drivers of the cash used for investing activities was $527 million for the acquisitions of three businesses and $77 million of capital expenditures.

Financing Activities

Cash provided by financing activities for the Successor six months ended December 31, 2021 was $2,400 million. The primary drivers of the cash provided by financing activities for the Successor six months ended December 31, 2021 were proceeds related to FTAC investors in connection with the Business Combination of $1,813 million and bank borrowings of $627 million, partially offset by FTAC share redemptions of $142 million, loan repayments of $120 million, finance lease payments of $14 million, financing fees related to new debt of $8 million, payments for settlements related to interest rate swaps of $8 million, and tax related distributions to equity-holders of $1 million. Net cash flows from financing activities also changed due to a net increase in the cash flow from client funds obligations of $266 million, primarily due to timing of client funding and subsequent disbursement of payments.

Cash used for financing activities for the Predecessor six months ended June 30, 2021 was $64 million. The primary drivers of the cash used for financing activities were loan repayments of $124 million, finance lease payments of $17 million, payments for settlements related to interest rate swaps of $14 million, unit repurchases of $2 million, and payments for contingent consideration of $1 million, partially offset by bank borrowings of $110 million. Net cash flows from financing activities also changed due to a net decrease in the cash flow from client funds obligations of $15 million, primarily due to timing of client funding and subsequent disbursement of payments.

Cash provided by financing activities for the Predecessor year ended December 31, 2020 was $463 million. The primary drivers of the cash provided by financing activities were bank borrowings of $779 million, partially offset by loan repayments of $495 million, finance lease payments of $24 million, financing fees of $23 million, payments for settlements related to interest rate swaps of $21 million, payments for contingent consideration of $9 million, tax related distributions to equity-holders of $3 million and unit repurchases $3 million. Net cash flows from financing activities also changed due to a net increase in the cash flow from client funds obligations of $263 million, primarily due to timing of client funding and subsequent disbursement of payments.

Cash provided by financing activities for the year ended December 31, 2019 was $420 million. The primary drivers of the cash provided by financing activities were bank borrowings of $483 million and settlements received related to interest rate swaps of $4 million, partially offset by loan repayments of $120 million, tax related distributions to equity-holders of $10 million, finance lease payments of $13 million, financing fees related to the borrowings of $5 million and unit repurchases of $4 million. Net cash flows from financing activities also changed due to a net increase in the cash flow from client funds obligations of $87 million, primarily due to timing of client funding and subsequent disbursement of payments.

Cash, Cash Equivalents and Fiduciary Assets

At December 31, 2021, our cash and cash equivalents were $372 million, a decrease of $134 million from December 31, 2020. Of the total balances of cash and cash equivalents as of December 31, 2021 and December 31, 2020, none of the balances were restricted as to its 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

43

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 $1,280 million and $1,030 million at December 31, 2021 and December 31, 2020, respectively.

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. As of December 31, 2021, we do not expect to make any material payments within the next two years, and anticipate payments to become more material beginning in 2024.

Contractual Obligations and Commitments

The Company has various obligations and commitments outstanding as of December 31, 2021 including debt of $2,858 million, operating leases of $210 million, finance leases of $65 million and purchase obligations of $95 million. Over the twelve months ended December 31, 2022, we expect to pay $38 million, $45 million, $23 million and $26 million for our debt, operating leases, finance leases and purchase obligations, respectively. For further information of each these obligations, refer to the Consolidated Financial Statements within Item 8 of this Annual Report on Form 10-K, Note 8 “Debt”, Note 18 “Lease Obligations” and Note 19 “Contractual Obligations”.

During 2018, the Company executed an agreement to form a strategic partnership with Wipro, a leading global information technology, consulting and business process services company, through 2028. As of December 31, 2021, the non-cancellable services obligation totaled $1,106 million, with $141 million expected to be paid over the twelve months ended December 31, 2022. We may terminate our arrangement with Wipro with cause or for our convenience. In the case of a termination for convenience, we would be required to pay a termination fee. If we had terminated the Wipro arrangement on December 31, 2021, we estimate that the termination charges would have been at least $377 million.

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 this Annual Report on Form 10-K.

Critical Accounting Estimates

These consolidated financial statements conform to U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. The areas that we believe include critical accounting policies are revenue recognition and accounting for the Tax Receivable Agreement. The critical accounting policies discussed below involve making difficult, subjective or complex accounting estimates that could have a material effect on our financial condition and results of operations. These critical accounting policies require us to make assumptions about matters that are highly uncertain at the time of the estimate or assumption. Different estimates that we could have used, or changes in estimates that are reasonably likely to occur, may have a material effect on our results of operations and financial condition.

Revenue Recognition

Revenues are recognized when control of the promised services is transferred to the customer in the amount that best reflects the consideration to which the Company expects to be entitled in exchange for those services. Substantially all of the Company’s revenue is recognized over time as the customer simultaneously receives and consumes the benefits of our services. On occasion, we may be entitled to a fee based on achieving certain performance criteria or contract milestones. To the extent that we cannot estimate with reasonable assurance the likelihood that we will achieve the performance target, we will constrain this portion of the transaction price

44

and recognize it when or as the uncertainty is resolved. Any taxes assessed on revenues relating to services provided to our clients are recorded on a net basis.

The Company capitalizes incremental costs to obtain and fulfill contracts with a customer that are expected to be recovered. Assets recognized for the costs to fulfill a contract are amortized on a systematic basis over the expected life of the underlying customer relationships.

For further discussion, see Note 3 “Revenue from Contracts with Customers” within the Consolidated Financial Statements.

Tax Receivable Agreement

The Company accounts for the TRA as a liability at fair value and is subject to remeasurement at each balance sheet date. Any change in fair value is recognized within the Condensed Consolidated Statements of Comprehensive Income (Loss).

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.

The Company’s TRA liability is measured at fair value on a recurring basis using significant unobservable inputs. The $581 million TRA liability balance at December 31, 2021 assumes: (i) a constant blended U.S. federal, state and local income tax rate of 26.04%, (ii) no material changes in tax law, (iii) the ability to utilize tax attributes based on current alternative tax forecasts, and (iv) future payments under the TRA are made when due under the TRA. The amount of the expected future payments under the TRA has been discounted to its present value using a discount rate of 6.9%, which was determined based on benchmark rates of a similar duration. A hypothetical increase or decrease of 75 bps in the discount rate assumptions used for fiscal year 2021, would result in a change of approximately $30 million.