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, 2022

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 1, 2022, the registrant had 153,236,293 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

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

Controls and Procedures

44

 

 

 

PART II.

OTHER INFORMATION

45

 

 

 

Item 1.

Legal Proceedings

45

Item 1A.

Risk Factors

45

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

Item 3.

Defaults Upon Senior Securities

45

Item 4.

Mine Safety Disclosures

45

Item 5.

Other Information

45

Item 6.

Exhibits

46

Signatures

47

 

1


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

First Advantage Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

 

(in thousands, except share and per share amounts)

 

June 30, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

352,251

 

 

$

292,642

 

Restricted cash

 

 

229

 

 

 

148

 

Short-term investments

 

 

904

 

 

 

941

 

Accounts receivable (net of allowance for doubtful accounts of $1,128 and $1,258 at June 30, 2022 and December 31, 2021, respectively)

 

 

144,376

 

 

 

155,772

 

Prepaid expenses and other current assets

 

 

23,368

 

 

 

14,365

 

Income tax receivable

 

 

1,608

 

 

 

2,292

 

Total current assets

 

 

522,736

 

 

 

466,160

 

Property and equipment, net

 

 

136,536

 

 

 

154,309

 

Goodwill

 

 

796,556

 

 

 

793,892

 

Trade name, net

 

 

75,235

 

 

 

79,585

 

Customer lists, net

 

 

357,697

 

 

 

384,766

 

Deferred tax asset, net

 

 

1,719

 

 

 

1,413

 

Other assets

 

 

20,698

 

 

 

6,456

 

TOTAL ASSETS

 

$

1,911,177

 

 

$

1,886,581

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable

 

$

49,534

 

 

$

53,977

 

Accrued compensation

 

 

24,750

 

 

 

30,054

 

Accrued liabilities

 

 

17,779

 

 

 

21,829

 

Current portion of operating lease liability

 

 

6,070

 

 

 

 

Income tax payable

 

 

2,608

 

 

 

2,573

 

Deferred revenues

 

 

697

 

 

 

873

 

Total current liabilities

 

 

101,438

 

 

 

109,306

 

Long-term debt (net of deferred financing costs of $8,985 and $9,879 at June 30, 2022 and December 31, 2021, respectively)

 

 

555,739

 

 

 

554,845

 

Deferred tax liability, net

 

 

87,757

 

 

 

84,653

 

Operating lease liability, less current portion

 

 

11,514

 

 

 

 

Other liabilities

 

 

3,104

 

 

 

5,539

 

Total liabilities

 

 

759,552

 

 

 

754,343

 

COMMITMENTS AND CONTINGENCIES (Note 12)

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

Common stock - $0.001 par value; 1,000,000,000 shares authorized, 153,125,085 and 152,901,040 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

 

 

153

 

 

 

153

 

Additional paid-in-capital

 

 

1,170,137

 

 

 

1,165,163

 

Accumulated deficit

 

 

(4,192

)

 

 

(31,441

)

Accumulated other comprehensive (loss)

 

 

(14,473

)

 

 

(1,637

)

Total equity

 

 

1,151,625

 

 

 

1,132,238

 

TOTAL LIABILITIES AND EQUITY

 

$

1,911,177

 

 

$

1,886,581

 

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 Months Ended June 30,

 

 

Six Months Ended June 30,

 

(in thousands, except share and per share amounts)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

REVENUES

 

$

201,561

 

 

$

174,826

 

 

$

391,442

 

 

$

306,896

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services (exclusive of depreciation and amortization below)

 

 

100,292

 

 

 

84,868

 

 

 

196,723

 

 

 

150,813

 

Product and technology expense

 

 

12,946

 

 

 

11,680

 

 

 

26,719

 

 

 

22,233

 

Selling, general, and administrative expense

 

 

31,136

 

 

 

25,075

 

 

 

59,681

 

 

 

49,053

 

Depreciation and amortization

 

 

34,407

 

 

 

35,918

 

 

 

68,441

 

 

 

70,681

 

Total operating expenses

 

 

178,781

 

 

 

157,541

 

 

 

351,564

 

 

 

292,780

 

INCOME FROM OPERATIONS

 

 

22,780

 

 

 

17,285

 

 

 

39,878

 

 

 

14,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER EXPENSE (INCOME):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

3,112

 

 

 

10,452

 

 

 

2,262

 

 

 

17,169

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

13,938

 

Total other expense (income)

 

 

3,112

 

 

 

10,452

 

 

 

2,262

 

 

 

31,107

 

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES

 

 

19,668

 

 

 

6,833

 

 

 

37,616

 

 

 

(16,991

)

Provision (benefit) for income taxes

 

 

5,432

 

 

 

3,063

 

 

 

10,367

 

 

 

(1,372

)

NET INCOME (LOSS)

 

$

14,236

 

 

$

3,770

 

 

$

27,249

 

 

$

(15,619

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation (loss) income

 

 

(11,319

)

 

 

(1,295

)

 

 

(12,836

)

 

 

1,465

 

COMPREHENSIVE INCOME (LOSS)

 

$

2,917

 

 

$

2,475

 

 

$

14,413

 

 

$

(14,154

)

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

14,236

 

 

$

3,770

 

 

$

27,249

 

 

$

(15,619

)

Basic net income (loss) per share

 

$

0.09

 

 

$

0.03

 

 

$

0.18

 

 

$

(0.12

)

Diluted net income (loss) per share

 

$

0.09

 

 

$

0.03

 

 

$

0.18

 

 

$

(0.12

)

Weighted average number of shares outstanding - basic

 

 

150,748,211

 

 

 

131,507,005

 

 

 

150,644,034

 



 

130,757,666

 

Weighted average number of shares outstanding - diluted

 

 

152,360,350

 

 

 

135,368,909

 

 

 

152,361,788

 

 

 

130,757,666

 

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

3


 

First Advantage Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Six Months Ended June 30,

 

(in thousands)

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income (loss)

 

$

27,249

 

 

$

(15,619

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

68,441

 

 

 

70,681

 

Loss on extinguishment of debt

 

 

 

 

 

13,938

 

Amortization of deferred financing costs

 

 

894

 

 

 

5,059

 

Bad debt (recovery)

 

 

(120

)

 

 

(367

)

Deferred taxes

 

 

3,773

 

 

 

(5,975

)

Share-based compensation

 

 

3,802

 

 

 

3,226

 

Loss (gain) on foreign currency exchange rates

 

 

37

 

 

 

(319

)

Loss on disposal of property and equipment

 

 

162

 

 

 

81

 

Change in fair value of interest rate swaps

 

 

(7,378

)

 

 

(953

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

11,199

 

 

 

(16,895

)

Prepaid expenses and other assets

 

 

38

 

 

 

(3,686

)

Accounts payable

 

 

(2,748

)

 

 

2,590

 

Accrued compensation and accrued liabilities

 

 

(8,780

)

 

 

2,780

 

Deferred revenues

 

 

(272

)

 

 

106

 

Operating lease liabilities

 

 

(596

)

 

 

 

Other liabilities

 

 

557

 

 

 

545

 

Income taxes receivable and payable, net

 

 

154

 

 

 

906

 

Net cash provided by operating activities

 

 

96,412

 

 

 

56,098

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Changes in short-term investments

 

 

 

 

 

(92

)

Acquisitions of businesses, net of cash acquired

 

 

(19,044

)

 

 

(7,588

)

Purchases of property and equipment

 

 

(5,165

)

 

 

(3,841

)

Capitalized software development costs

 

 

(10,236

)

 

 

(7,482

)

Proceeds from disposal of property and equipment

 

 

82

 

 

 

 

Net cash used in investing activities

 

 

(34,363

)

 

 

(19,003

)

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

 

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

)

Payments of debt issuance costs

 

 

 

 

 

(1,257

)

Payments on capital and finance lease obligations

 

 

(459

)

 

 

(925

)

Payments on deferred purchase agreements

 

 

(526

)

 

 

(362

)

Proceeds from stock option exercises

 

 

1,270

 

 

 

 

Taxes paid for net settlements of restricted stock units

 

 

(98

)

 

 

 

Net cash provided by financing activities

 

 

187

 

 

 

67,869

 

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

 

 

(2,546

)

 

 

(656

)

Increase in cash, cash equivalents, and restricted cash

 

 

59,690

 

 

 

104,308

 

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

 

 

292,790

 

 

 

152,970

 

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

 

$

352,480

 

 

$

257,278

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid for income taxes, net of refunds received

 

$

6,181

 

 

$

3,736

 

Cash paid for interest

 

$

10,191

 

 

$

13,721

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

Offering costs included in accounts payable and accrued liabilities

 

$

 

 

$

3,006

 

Property and equipment acquired on account

 

$

23

 

 

$

2,797

 

 

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
(Loss)

 

 

Total Stockholders’
Equity

 

BALANCE – December 31, 2021

 

$

153

 

 

$

1,165,163

 

 

$

(31,441

)

 

$

(1,637

)

 

$

1,132,238

 

Share-based compensation

 

 

 

 

 

1,859

 

 

 

 

 

 

 

 

 

1,859

 

Exercise of stock options

 

 

0

 

 

 

547

 

 

 

 

 

 

 

 

 

547

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(1,517

)

 

 

(1,517

)

Net income

 

 

 

 

 

 

 

 

13,013

 

 

 

 

 

 

13,013

 

BALANCE – March 31, 2022

 

$

153

 

 

$

1,167,569

 

 

$

(18,428

)

 

$

(3,154

)

 

$

1,146,140

 

Share-based compensation

 

 

 

 

 

1,943

 

 

 

 

 

 

 

 

 

1,943

 

Exercise of stock options

 

 

0

 

 

 

723

 

 

 

 

 

 

 

 

 

723

 

Common stock withheld for tax obligations on restricted stock unit settlement

 

 

 

 

 

(98

)

 

 

 

 

 

 

 

 

(98

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(11,319

)

 

 

(11,319

)

Net income

 

 

 

 

 

 

 

 

14,236

 

 

 

 

 

 

14,236

 

BALANCE – June 30, 2022

 

$

153

 

 

$

1,170,137

 

 

$

(4,192

)

 

$

(14,473

)

 

$

1,151,625

 

 

(in thousands)

 

Common Stock

 

 

Additional
Paid-In-Capital

 

 

Accumulated
Deficit

 

 

Accumulated Other
Comprehensive
Income

 

 

Total Stockholders’
Equity

 

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

 

 

 

 

 

 

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