Scholl continued: “Our results for the first half of 2021 were ahead of plan. Given our momentum coming out of the first half, and the expected acquisition of the Aon Retiree Health Exchange, we are raising our full-year 2021 outlook for both revenue and adjusted EBITDA.”
Second Quarter 2021 and Subsequent Highlights (all comparisons relative to second quarter 2020)
Total revenue increased 3.9% to $672 million, driven by a 5.4% increase in Employer Solutions revenue and a 3.4% increase in Professional Services Revenue
Business Process as a Service (“BPaaS”) revenue increased 19.0% to $94 million and represented 14.0% of total revenue
Operating income increased 211.1% to $56 million, net loss decreased to $4 million from $25 million and adjusted EBITDA increased to $145 million from $136 million
Total bookings increased 13.9% to $435 million and BPaaS bookings increased 287.1% to $240 million on a total contract value basis
Landed and expanded a number of new logos and existing clients, including Sartorius, ABN AMRO, Ledesma and GE Appliances (a Haier company)
Completed Business Combination Agreement with Foley Trasimene Acquisition Corp. and repaid more than 40% of total debt on July 2, 2021 and began trading on NYSE under ticker “ALIT” on July 6, 2021
Second Quarter 2021 Results
Consolidated Results
Total revenue increased 3.9% to $672 million for the three months ended June 30, 2021 from $647 million for the prior year period. The increase was driven by a 5.4% increase in Employer Solutions revenue and a 3.4% increase in Professional Services revenue, partially offset by a 38.9% decline in Hosted Business revenue.
In 2020, Alight began measuring revenue growth as it relates to the cloud-based products and solutions that are central to its Alight Worklife platform and next-generation product suite, BPaaS solutions. These products capitalize on the Company’s robust data combined with artificial intelligence (“AI”) and analytics to deliver greater employee engagement and employer outcomes. BPaaS products and services span across both the Employer Solutions and Professional Services segments of the business. For the three months ended June 30, 2021, BPaaS revenue increased 19.0% to $94 million from the prior year period and represented 14.0% of total revenue.
In addition, Alight also considers bookings, defined as total contract value for 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. For the three months ended June 30, 2021, total bookings increased 13.9% to $435 million and BPaaS bookings increased 287.1% to $240 million from the prior year period.
Gross profit, inclusive of depreciation and amortization, increased 16.0% to $217 million, or 32.3% of revenue, for the three months ended June 30, 2021 from $187 million, or 28.9% of revenue, in the prior year period. The increase in gross profit was primarily driven by revenue growth as discussed above and lower delivery expenses related to the Company’s cloud-based services and productivity initiatives, including the impact of lower restructuring and integration related costs, partially offset by increases in costs associated with the growth in current and future revenues.
Selling, general and administrative expenses decreased 6.3% to $105 million, or 15.6% of revenue, for the three months ended June 30, 2021 from $112 million, or 17.3% of revenue, in the prior year period. The decrease was primarily driven by lower expenses related to productivity initiatives, including the impact of lower restructuring and integration related costs, partially offset by non-recurring professional expenses related to costs incurred in relation to the Company’s Business Combination Agreement completed in the third quarter of 2021 and higher costs related to investments in commercial functions.
Interest expense increased 15.1% to $61 million for the three months ended June 30, 2021 as compared to the prior year period. The increase was primarily due to incremental interest associated with the additional unsecured and secured senior notes issued in the second half of 2020.
As a result of the above factors, loss before income tax benefit was $6 million for the three months ended June 30, 2021 compared to $30 million for the three months ended June 30, 2020.
Income tax benefit was $2 million for the three months ended June 30, 2021, as compared to $5 million in the prior year period. The effective tax rate for the three months ended June 30, 2021 was approximately (34)% and was primarily driven by foreign and state income taxes in jurisdictions where the Company had operations that generated operating income or losses.
Segment Results
Employer Solutions
Employer Solutions are driven by Alight’s digital, software and AI-led capabilities and spans total employee wellbeing and engagement, including integrated benefits administration, healthcare navigation, financial health, employee wellness and payroll.
Employer Solutions revenues increased 5.4% to $569 million for the three months ended June 30, 2021 as compared to $540 million for the prior year period. The increase was driven by a 5.5% increase in recurring revenues to $516 million as a result of net commercial activity and transitions from the Hosted Business to cloud-based services, and a 3.9% increase in project revenues to $53 million from the prior year period.
Employer Solutions Gross Profit increased 19.4% to $191 million, or 33.6% of Employer Solutions revenue, for the three months ended June 30, 2021 from $160 million, or 29.6% of Employer Solutions revenue, for the prior year period. The increase in gross profit was primarily due to revenue growth as discussed above and lower expenses related to productivity initiatives, including the impact of lower restructuring and integration related costs, partially offset by increases in costs associated with growth of current and future revenues.
Employer Solutions Adjusted EBITDA increased 8.7% to $138 million, or 24.3% of Employer Solutions revenue, for the three months ended June 30, 2021, as compared to $127 million, or 23.5% of Employer Solutions revenue, for the prior year period. The increase was primarily due to increased operating leverage and lower delivery expenses from productivity initiatives, partially offset by increased investments in the commercial functions and technology.
Professional Services
Professional Services includes project-based cloud deployment and advisory work on human capital and financial platforms such as Workday, SAP SuccessFactors, Oracle, and Cornerstone OnDemand.
Professional Services total revenues increased 3.4% to $92 million for the three months ended June 30, 2021 as compared to $89 million for the prior year period. The increase was primarily driven by a 19.2% increase of recurring revenues to $31 million as a result of increases in net commercial activity, partially offset by a 3.2% decrease in project revenues to $61 million from the prior year period.
Professional Services Gross Profit of $26 million for the three months ended June 30, 2021 was flat with the prior year period. The revenue growth discussed above was offset by increases in costs associated with growth of current and future revenues.
Professional Services Adjusted EBITDA decreased 22.2% to $7 million for the three months ended June 30, 2021, as compared to $9 million for the prior year period. The decrease was primarily due to increased investments in the Company’s commercial functions.
Hosted Business
The Hosted Business provides on-premise management of hosted human capital management platforms, including Oracle. In 2014, Alight stopped actively pursuing new clients in the Hosted Business and have since successfully migrated a significant number of its Hosted clients to cloud-based solutions. The remaining Hosted agreements are schedule to expire in 2023 and the Company does not intend to renew such agreements or enter into any new Hosted Business agreements.
Hosted Business revenues were $11 million for the three months ended June 30, 2021 as compared to $18 million for the prior year period. The decrease of $7 million was due to transitions from the Hosted Business to cloud-based services and the wind down of this segment.
Hosted Business Gross Profit and Adjusted EBITDA was immaterial for the three months ended June 30, 2021.
Successful Business Combination, Balance Sheet Highlights and Other Subsequent Events
The Company and Foley Trasimene Acquisition Corp. (“FTAC”), a publicly traded special purpose acquisition company, successfully completed their business combination on July 2, 2021. Proceeds from the business combination and the related PIPE transaction were used to repay certain existing borrowings of the Company.
As of June 30, 2021, the Company’s cash and cash equivalents balance was $460 million, total debt was $4,072 million and total debt net of cash and cash equivalents was $3,612 million. In connection with the closing of the merger with FTAC, the Company repaid $1,786 million of debt, consisting of $556 million of term loan debt and $1,230 million of unsecured notes. As a result, and in conjunction with the business combination, the Company reduced its total debt by more than 40% to $2,351 million.
On July 29, 2021, the Company entered into a definitive agreement to acquire the Aon Retiree Health Exchange business from Aon plc. The transaction is expected to be completed during the fourth quarter of 2021 and remains subject to regulatory approvals and other customary closing conditions.
Business Outlook
Given the momentum in the first half of the year along with the planned closing of the Aon Retiree Health Exchange acquisition early in the fourth quarter, the Company is raising its full-year 2021 revenue and adjusted EBITDA outlook as follows:
Revenue growth to a range of 3%-5%, or $2.81 billion to $2.86 billion, which is expected to be weighted toward the fourth quarter. This compares to the Company’s previous full-year 2021 revenue growth outlook of approximately 1%, or $2.76 billion.
Adjusted EBITDA growth to a range of 8%-10%, or $610 million to $620 million. This compares to the previous full-year 2021 adjusted EBITDA growth outlook of approximately 6%, or $600 million. In addition, the Company’s updated full-year adjusted EBITDA outlook now includes estimated public company costs, whereas the Company’s previous adjusted EBITDA outlook excluded any estimates for public company costs.
Earnings Conference Call and Webcast Information
A conference call to discuss the Company’s second-quarter 2021 financial results is scheduled for today, August 12, 2021, at 7:30 a.m. Central Time. Investors and analysts can participate on the conference call by dialing 1-877-407-0792 or 1-201-689-8263. Interested parties can also listen to a live webcast or replay of the conference call and access accompanying presentation materials by logging on to the Investor Relations section on the Company’s website at http://investor.alight.com. The replay of the conference call webcast and accompanying presentation materials will be available on the investor relations website for approximately 90 days.
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