10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-31666

 

First Advantage Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

84-3884690

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

1 Concourse Parkway NE, Suite 200

Atlanta, GA

30328

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (888) 314-9761

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value per share

 

FA

 

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☐    No  ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

☒ 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  ☒ 

As of August 12, 2021, the registrant had 152,856,250 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

2

 

 

 

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity

5

 

Condensed Consolidated Statement of Changes in Members’ (Deficit) Equity

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4.

Controls and Procedures

49

 

 

 

PART II.

OTHER INFORMATION

49

 

 

 

Item 1.

Legal Proceedings

49

Item 1A.

Risk Factors

49

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3.

Defaults Upon Senior Securities

49

Item 4.

Mine Safety Disclosures

49

Item 5.

Other Information

50

Item 6.

Exhibits

50

Signatures

51

 

 

 

1


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

First Advantage Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

Successor

 

 

Successor

 

 

 

June 30,

 

 

December 31,

 

(in thousands, except share and per share amounts)

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

257,122

 

 

$

152,818

 

Restricted cash

 

 

156

 

 

 

152

 

Short-term investments

 

 

1,352

 

 

 

1,267

 

Accounts receivable (net of allowance for doubtful accounts of $666 and $967 at June 30, 2021 and December 31, 2020, respectively)

 

 

128,906

 

 

 

111,363

 

Prepaid expenses and other current assets

 

 

11,338

 

 

 

8,699

 

Income tax receivable

 

 

2,272

 

 

 

3,479

 

Total current assets

 

 

401,146

 

 

 

277,778

 

Property and equipment, net

 

 

172,239

 

 

 

190,282

 

Goodwill

 

 

774,562

 

 

 

770,089

 

Trade name, net

 

 

83,828

 

 

 

87,702

 

Customer lists, net

 

 

406,415

 

 

 

435,661

 

Deferred tax asset, net

 

 

1,592

 

 

 

807

 

Other assets

 

 

2,397

 

 

 

1,372

 

TOTAL ASSETS

 

$

1,842,179

 

 

$

1,763,691

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable

 

$

47,314

 

 

$

44,117

 

Accrued compensation

 

 

22,244

 

 

 

18,939

 

Accrued liabilities

 

 

27,346

 

 

 

25,200

 

Current portion of long-term debt

 

 

 

 

 

6,700

 

Income tax payable

 

 

1,922

 

 

 

2,451

 

Deferred revenue

 

 

540

 

 

 

431

 

Total current liabilities

 

 

99,366

 

 

 

97,838

 

Long-term debt (net of deferred financing costs of $10,756 and $26,345 at June 30, 2021 and December 31, 2020, respectively)

 

 

553,968

 

 

 

778,605

 

Deferred tax liability, net

 

 

81,744

 

 

 

86,770

 

Other liabilities

 

 

7,306

 

 

 

6,208

 

Total liabilities

 

 

742,384

 

 

 

969,421

 

COMMITMENTS AND CONTINGENCIES (Note 12)

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

Common stock - $0.001 par value; 1,000,000,000 shares authorized, 152,856,250 and 130,000,000 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

 

153

 

 

 

130

 

Additional paid-in-capital

 

 

1,158,804

 

 

 

839,148

 

Accumulated deficit

 

 

(63,111

)

 

 

(47,492

)

Accumulated other comprehensive income

 

 

3,949

 

 

 

2,484

 

Total equity

 

 

1,099,795

 

 

 

794,270

 

TOTAL LIABILITIES AND EQUITY

 

$

1,842,179

 

 

$

1,763,691

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2


 

First Advantage Corporation

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

 

 

 

Three-Month Period (1)

 

 

Six-Month Period (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Successor

 

 

 

Predecessor

 

(in thousands, except share and per share amounts)

 

Three Months
Ended
June 30, 2021

 

 

Three Months
Ended
June 30, 2020

 

 

Six Months
Ended
June 30, 2021

 

 

Period from
February 1, 2020
through June 30, 2020

 

 

 

Period from
January 1, 2020
through January 31, 2020

 

REVENUES

 

$

174,826

 

 

$

104,993

 

 

$

306,896

 

 

$

179,047

 

 

 

$

36,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services (exclusive of depreciation and amortization below)

 

 

84,868

 

 

 

52,404

 

 

 

150,813

 

 

 

89,220

 

 

 

 

20,265

 

Product and technology expense

 

 

11,680

 

 

 

7,205

 

 

 

22,233

 

 

 

12,152

 

 

 

 

3,189

 

Selling, general, and administrative expense

 

 

25,075

 

 

 

15,014

 

 

 

49,053

 

 

 

27,299

 

 

 

 

11,235

 

Depreciation and amortization

 

 

35,918

 

 

 

36,572

 

 

 

70,681

 

 

 

61,059

 

 

 

 

2,105

 

Total operating expenses

 

 

157,541

 

 

 

111,195

 

 

 

292,780

 

 

 

189,730

 

 

 

 

36,794

 

INCOME (LOSS) FROM OPERATIONS

 

 

17,285

 

 

 

(6,202

)

 

 

14,116

 

 

 

(10,683

)

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

10,467

 

 

 

13,816

 

 

 

17,281

 

 

 

26,699

 

 

 

 

4,514

 

Interest income

 

 

(15

)

 

 

(153

)

 

 

(112

)

 

 

(206

)

 

 

 

(25

)

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

13,938

 

 

 

 

 

 

 

10,533

 

Transaction expenses, change in control

 

 

 

 

 

 

 

 

 

 

 

9,423

 

 

 

 

22,370

 

Total other expense

 

 

10,452

 

 

 

13,663

 

 

 

31,107

 

 

 

35,916

 

 

 

 

37,392

 

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES

 

 

6,833

 

 

 

(19,865

)

 

 

(16,991

)

 

 

(46,599

)

 

 

 

(37,401

)

Provision (benefits) for income taxes

 

 

3,063

 

 

 

(3,499

)

 

 

(1,372

)

 

 

(8,419

)

 

 

 

(871

)

NET INCOME (LOSS)

 

$

3,770

 

 

$

(16,366

)

 

$

(15,619

)

 

$

(38,180

)

 

 

$

(36,530

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation (loss) income

 

 

(1,295

)

 

 

486

 

 

 

1,465

 

 

 

(8,173

)

 

 

 

(31

)

COMPREHENSIVE INCOME (LOSS)

 

$

2,475

 

 

$

(15,880

)

 

$

(14,154

)

 

$

(46,353

)

 

 

$

(36,561

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

3,770

 

 

$

(16,366

)

 

$

(15,619

)

 

$

(38,180

)

 

 

$

(36,530

)

Basic net income (loss) per share

 

$

0.03

 

 

$

(0.13

)

 

$

(0.12

)

 

$

(0.29

)

 

 

n/a

 

Diluted net income (loss) per share

 

$

0.03

 

 

$

(0.13

)

 

$

(0.12

)

 

$

(0.29

)

 

 

n/a

 

Weighted average number of shares outstanding - basic

 

 

131,507,005

 

 

 

130,000,000

 

 

 

130,757,666

 

 

 

130,000,000

 

 

 

 n/a

 

Weighted average number of shares outstanding - diluted

 

 

135,368,909

 

 

 

130,000,000

 

 

 

130,757,666

 

 

 

130,000,000

 

 

 

n/a

 

Basic net (loss) per unit

 

n/a

 

 

n/a

 

 

n/a

 

 

n/a

 

 

 

$

(0.24

)

Diluted net (loss) per unit

 

n/a

 

 

n/a

 

 

n/a

 

 

n/a

 

 

 

$

(0.24

)

Weighted average units outstanding - basic

 

n/a

 

 

n/a

 

 

n/a

 

 

n/a

 

 

 

 

149,686,460

 

Weighted average units outstanding - diluted

 

n/a

 

 

n/a

 

 

n/a

 

 

n/a

 

 

 

 

149,686,460

 

 

(1)
See Note 1 “Organization, Nature of Business, and Basis of Presentation” for further discussion.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

3


 

First Advantage Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Successor

 

 

 

Predecessor

 

(in thousands)

 

Six Months
Ended
June 30, 2021

 

 

Period from
February 1, 2020
through June 30, 2020

 

 

 

Period from
January 1, 2020
through January 31, 2020

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

Net (loss)

 

$

(15,619

)

 

$

(38,180

)

 

 

$

(36,530

)

Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

70,681

 

 

 

61,059

 

 

 

 

2,105

 

Loss on extinguishment of debt

 

 

13,938

 

 

 

 

 

 

 

10,533

 

Amortization of deferred financing costs

 

 

5,059

 

 

 

1,456

 

 

 

 

569

 

Bad debt (recovery) expense

 

 

(367

)

 

 

56

 

 

 

 

102

 

Deferred taxes

 

 

(5,975

)

 

 

(9,231

)

 

 

 

(997

)

Share-based compensation

 

 

3,226

 

 

 

801

 

 

 

 

3,976

 

(Gain) on foreign currency exchange rates

 

 

(319

)

 

 

(285

)

 

 

 

(82

)

Loss on disposal of fixed assets

 

 

81

 

 

 

63

 

 

 

 

8

 

Change in fair value of interest rate swaps

 

 

(953

)

 

 

5,156

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(16,895

)

 

 

7,058

 

 

 

 

9,384

 

Prepaid expenses and other current assets

 

 

(2,654

)

 

 

4,468

 

 

 

 

(4,604

)

Other assets

 

 

(1,032

)

 

 

(287

)

 

 

 

(62

)

Accounts payable

 

 

2,590

 

 

 

3,651

 

 

 

 

(8,871

)

Accrued compensation and accrued liabilities

 

 

2,780

 

 

 

(11,337

)

 

 

 

4,102

 

Deferred revenue

 

 

106

 

 

 

(16

)

 

 

 

11

 

Other liabilities

 

 

545

 

 

 

(389

)

 

 

 

767

 

Income taxes receivable and payable, net

 

 

906

 

 

 

(634

)

 

 

 

373

 

Net cash provided by (used in) operating activities

 

 

56,098

 

 

 

23,409

 

 

 

 

(19,216

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

Changes in short-term investments

 

 

(92

)

 

 

706

 

 

 

 

(163

)

Acquisition of business

 

 

(7,588

)

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(3,841

)

 

 

(2,724

)

 

 

 

(951

)

Capitalized software development costs

 

 

(7,482

)

 

 

(4,465

)

 

 

 

(929

)

Net cash used in investing activities

 

 

(19,003

)

 

 

(6,483

)

 

 

 

(2,043

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock in initial public offering, net of underwriting discounts and commissions

 

 

320,559

 

 

 

 

 

 

 

 

Payments of initial public offering issuance costs

 

 

(1,028

)

 

 

 

 

 

 

 

Shareholder distribution

 

 

(313

)

 

 

 

 

 

 

 

Capital contributions

 

 

241

 

 

 

59,423

 

 

 

 

41,143

 

Distributions to Predecessor Members and Optionholders

 

 

 

 

 

(4,087

)

 

 

 

(17,991

)

Borrowings from Successor First Lien Credit Facility

 

 

261,413

 

 

 

 

 

 

 

 

Repayments of Successor First Lien Credit Facility

 

 

(363,875

)

 

 

 

 

 

 

 

Repayment of Successor Second Lien Credit Facility

 

 

(146,584

)

 

 

 

 

 

 

 

Borrowings on Successor Revolver

 

 

 

 

 

25,000

 

 

 

 

 

Repayments on Successor Revolver

 

 

 

 

 

(25,000

)

 

 

 

 

Repayment of Predecessor First Lien Credit Facility

 

 

 

 

 

 

 

 

 

(34,000

)

Payments of debt issuance costs

 

 

(1,257

)

 

 

(1,397

)

 

 

 

 

Payments on capital lease obligations

 

 

(925

)

 

 

(977

)

 

 

 

(274

)

Payments on deferred purchase agreements

 

 

(362

)

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

 

67,869

 

 

 

52,962

 

 

 

 

(11,122

)

Effect of exchange rate on cash. cash equivalents, and restricted cash

 

 

(656

)

 

 

(1,141

)

 

 

 

(102

)

Increase (decrease) in cash, cash equivalents, and restricted cash

 

 

104,308

 

 

 

68,747

 

 

 

 

(32,483

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

152,970

 

 

 

48,263

 

 

 

 

80,746

 

Cash, cash equivalents, and restricted cash at end of period

 

$

257,278

 

 

$

117,010

 

 

 

$

48,263

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

Cash paid for income taxes, net of refunds received

 

$

3,736

 

 

$

1,915

 

 

 

$

279

 

Cash paid for interest

 

$

13,721

 

 

$

19,994

 

 

 

$

224

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Offering costs included in accounts payable and accrued liabilities

 

$

3,006

 

 

$

 

 

 

$

 

Non-cash property and equipment additions

 

$

2,797

 

 

$

274

 

 

 

$

289

 

Distributions declared to Optionholders but not paid

 

$

 

 

$

 

 

 

$

781

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

First Advantage Corporation

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)

 

(in thousands)

 

Common Stock

 

 

Additional
Paid-In-Capital

 

 

Accumulated
Deficit

 

 

Accumulated Other
Comprehensive
Income

 

 

Total Stockholders’
Equity

 

Successor:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the period from January 1, 2021 to June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE – December 31, 2020

 

$

130

 

 

$

839,148

 

 

$

(47,492

)

 

$

2,484

 

 

$

794,270

 

Share-based compensation

 

 

 

 

 

562

 

 

 

 

 

 

 

 

 

562

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

2,760

 

 

 

2,760

 

Net (loss)

 

 

 

 

 

 

 

 

(19,389

)

 

 

 

 

 

(19,389

)

BALANCE – March 31, 2021

 

$

130

 

 

$

839,710

 

 

$

(66,881

)

 

$

5,244

 

 

$

778,203

 

Share-based compensation

 

 

 

 

 

2,664

 

 

 

 

 

 

 

 

 

2,664

 

Capital contributions

 

 

 

 

 

241

 

 

 

 

 

 

 

 

 

241

 

Issuance of common stock in connection with initial public offering, net of offering costs, underwriting discounts and commissions