UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
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.
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).
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 |
|
☐ |
|
☒ |
|
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
Table of Contents
|
|
Page |
|
|
|
PART I. |
2 |
|
|
|
|
Item 1. |
2 |
|
|
2 |
|
|
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) |
3 |
|
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. |
44 |
|
Item 4. |
44 |
|
|
|
|
PART II. |
45 |
|
|
|
|
Item 1. |
45 |
|
Item 1A. |
45 |
|
Item 2. |
45 |
|
Item 3. |
45 |
|
Item 4. |
45 |
|
Item 5. |
45 |
|
Item 6. |
46 |
|
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 |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Short-term investments |
|
|
|
|
|
|
||
Accounts receivable (net of allowance for doubtful accounts of $ |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Income tax receivable |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Trade name, net |
|
|
|
|
|
|
||
Customer lists, net |
|
|
|
|
|
|
||
Deferred tax asset, net |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
TOTAL ASSETS |
|
$ |
|
|
$ |
|
||
LIABILITIES AND EQUITY |
|
|
|
|
|
|
||
CURRENT LIABILITIES |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued compensation |
|
|
|
|
|
|
||
Accrued liabilities |
|
|
|
|
|
|
||
Current portion of operating lease liability |
|
|
|
|
|
|
||
Income tax payable |
|
|
|
|
|
|
||
Deferred revenues |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Long-term debt (net of deferred financing costs of $ |
|
|
|
|
|
|
||
Deferred tax liability, net |
|
|
|
|
|
|
||
Operating lease liability, less current portion |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
EQUITY |
|
|
|
|
|
|
||
Common stock - $ |
|
|
|
|
|
|
||
Additional paid-in-capital |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive (loss) |
|
|
( |
) |
|
|
( |
) |
Total equity |
|
|
|
|
|
|
||
TOTAL LIABILITIES AND EQUITY |
|
$ |
|
|
$ |
|
||
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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of services (exclusive of depreciation and amortization below) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product and technology expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general, and administrative expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
INCOME FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
OTHER EXPENSE (INCOME): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Provision (benefit) for income taxes |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
NET INCOME (LOSS) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency translation (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
COMPREHENSIVE INCOME (LOSS) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
NET INCOME (LOSS) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Basic net income (loss) per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Diluted net income (loss) per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Weighted average number of shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
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) |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Loss on extinguishment of debt |
|
|
|
|
|
|
||
Amortization of deferred financing costs |
|
|
|
|
|
|
||
Bad debt (recovery) |
|
|
( |
) |
|
|
( |
) |
Deferred taxes |
|
|
|
|
|
( |
) |
|
Share-based compensation |
|
|
|
|
|
|
||
Loss (gain) on foreign currency exchange rates |
|
|
|
|
|
( |
) |
|
Loss on disposal of property and equipment |
|
|
|
|
|
|
||
Change in fair value of interest rate swaps |
|
|
( |
) |
|
|
( |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
( |
) |
|
Prepaid expenses and other assets |
|
|
|
|
|
( |
) |
|
Accounts payable |
|
|
( |
) |
|
|
|
|
Accrued compensation and accrued liabilities |
|
|
( |
) |
|
|
|
|
Deferred revenues |
|
|
( |
) |
|
|
|
|
Operating lease liabilities |
|
|
( |
) |
|
|
|
|
Other liabilities |
|
|
|
|
|
|
||
Income taxes receivable and payable, net |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Changes in short-term investments |
|
|
|
|
|
( |
) |
|
Acquisitions of businesses, net of cash acquired |
|
|
( |
) |
|
|
( |
) |
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Capitalized software development costs |
|
|
( |
) |
|
|
( |
) |
Proceeds from disposal of property and equipment |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Proceeds from issuance of common stock in initial public offering, net of underwriting discounts and commissions |
|
|
|
|
|
|
||
Payments of initial public offering issuance costs |
|
|
|
|
|
( |
) |
|
Shareholder distribution |
|
|
|
|
|
( |
) |
|
Capital contributions |
|
|
|
|
|
|
||
Borrowings from Successor First Lien Credit Facility |
|
|
|
|
|
|
||
Repayments of Successor First Lien Credit Facility |
|
|
|
|
|
( |
) |
|
Repayment of Successor Second Lien Credit Facility |
|
|
|
|
|
( |
) |
|
Payments of debt issuance costs |
|
|
|
|
|
( |
) |
|
Payments on capital and finance lease obligations |
|
|
( |
) |
|
|
( |
) |
Payments on deferred purchase agreements |
|
|
( |
) |
|
|
( |
) |
Proceeds from stock option exercises |
|
|
|
|
|
|
||
Taxes paid for net settlements of restricted stock units |
|
|
( |
) |
|
|
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
||
Effect of exchange rate on cash, cash equivalents, and restricted cash |
|
|
( |
) |
|
|
( |
) |
Increase in cash, cash equivalents, and restricted cash |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
||
Cash paid for income taxes, net of refunds received |
|
$ |
|
|
$ |
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Offering costs included in accounts payable and accrued liabilities |
|
$ |
|
|
$ |
|
||
Property and equipment acquired on account |
|
$ |
|
|
$ |
|
||
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 |
|
|
Accumulated |
|
|
Accumulated Other |
|
|
Total Stockholders’ |
|
|||||
BALANCE – December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Share-based compensation |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Exercise of stock options |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
BALANCE – March 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Share-based compensation |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Exercise of stock options |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Common stock withheld for tax obligations on restricted stock unit settlement |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
BALANCE – June 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
(in thousands) |
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated Other |
|
|
Total Stockholders’ |
|
|||||
BALANCE – December 31, 2020 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Share-based compensation |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Net (loss) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
BALANCE – March 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Share-based compensation |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Capital contributions |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Issuance of common stock in connection with initial public offering, net of offering costs, underwriting discounts and commissions |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Shareholder distribution |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
BALANCE – June 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
First Advantage Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Organization, Nature of Business, and Basis of Presentation
Fastball Intermediate, Inc., a Delaware corporation, was formed on November 15, 2019 and subsequently changed its name to First Advantage Corporation in March 2021. Hereafter, First Advantage Corporation and its subsidiaries will collectively be referred to as the “Company.”
The Company derives its revenues from a variety of background check and compliance services performed across all phases of the workforce lifecycle from pre-onboarding services to post-onboarding and ongoing monitoring services, covering employees, contractors, contingent and extended workers, drivers, tenants, and volunteers. We generally classify our service offerings into three categories: pre-onboarding, post-onboarding, and adjacent products.
Pre-onboarding services are comprised of an extensive array of products and solutions that customers typically utilize to enhance their evaluation process and support compliance from the time a job or other application is submitted to a successful applicant’s onboarding date. This includes searches such as criminal background checks, drug / health screenings, extended workforce screening, biometrics and identity checks, education / workforce verification, driver records and compliance, healthcare credentials, and executive screening.
Post-onboarding services are comprised of continuous monitoring and re-screening solutions which are important tools to help keep their end customers, workforces, and other stakeholders safer, productive, and compliant. Our post-monitoring solutions include criminal records, healthcare sanctions, motor vehicle records, social media, and global sanctions screening continuously or at regular intervals selected by our customers.
Adjacent products include products that complement our pre-onboarding and post-onboarding products and solutions. This includes fleet / vehicle compliance, hiring tax credits and incentives, resident / tenant screening, employment eligibility, and investigative research.
Basis of Presentation —The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated. The Company includes the results of operations of acquired companies prospectively from the date of acquisition.
The condensed consolidated financial statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company’s financial position, results of operations, and cash flows for the interim periods presented. The interim results reported in these condensed consolidated financial statements should not be taken as indicative of results that may be expected for future interim periods or the full year. For a more comprehensive understanding of the Company and its condensed consolidated financial statements, these interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The Company has historically experienced seasonality with respect to certain customer industries as a result of fluctuations in hiring volumes and other economic activities. Generally, the Company’s highest revenues have historically occurred between September and November of each year, driven by many customers’ pre-holiday season hiring initiatives.
Segments — Operating segments are businesses for which separate financial information is available and evaluated regularly by our chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance.
During the first quarter of 2022, the Company made organizational changes and modified information provided to its CODM to better align with how its CODM assesses performance and allocates resources. As a result, the Company now has two reportable segments, Americas and International:
Accordingly, prior period results have been recast to conform to the current presentation of segments. These changes do not impact the Company’s consolidated results.
The Company’s segment disclosure is intended to provide the users of its consolidated financial statements with a view of the business that is consistent with management of the Company. Details of segment results are discussed in Note 16, “Reportable Segments.”
6
Use of Estimates — The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Changes in these estimates and assumptions may have a material impact on the condensed consolidated financial statements and accompanying notes.
Significant estimates, judgments, and assumptions, include, but are not limited to, the determination of the fair value and useful lives of assets acquired and liabilities assumed through business combinations, the impairment of long-lived assets, goodwill impairment, collectability of receivables, revenue recognition, capitalized software, assumptions used for purposes of determining share-based compensation and income tax liabilities and assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.
Note 2. Summary of Significant Accounting Policies
Fair Value of Financial Instruments — Certain financial assets and liabilities are reported at fair value in the accompanying consolidated balance sheets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurement. ASC 820 establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation techniques required by ASC 820 are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 — Quoted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 — Significant inputs to the valuation model are unobservable (supported by little or no market activities). These inputs may be used with internally developed methodologies that reflect the Company’s best estimate of fair value from a market participant.
The fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, rather than the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.
The carrying amounts of cash and cash equivalents, short-term investments, receivables, short-term debt, and accounts payable approximate fair value due to the short-term maturities of these financial instruments (Level 1). The fair values and carrying values of the Company’s long-term debt are disclosed in Note 6.
The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy as of June 30, 2022 (in thousands):
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
Assets |
|
|
|
|
|
|
|
|
|
|||
Interest rate swaps |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Other intangible assets are subject to nonrecurring fair value measurement as the result of business acquisitions. The fair values of these assets were estimated using the present value of expected future cash flows through unobservable inputs (Level 3).
7
Business Combinations — The Company records business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method of accounting, identifiable assets acquired and liabilities assumed are recorded at their acquisition-date fair values. The excess of the purchase price over the estimated fair value is recorded as goodwill. Changes in the estimated fair values of net assets recorded for acquisitions prior to the finalization of more detailed analysis, but not to exceed one year from the date of acquisition, will adjust the amount of the purchase price allocable to goodwill. Measurement period adjustments are reflected in the period in which they occur.
In valuing the trade names, customer lists, and software developed for internal use, the Company utilizes variations of the income approach, which relies on historical financial and qualitative information, as well as assumptions and estimates for projected financial information. The Company considers the income approach the most appropriate valuation technique because the inherent value of these assets is their ability to generate current and future income. Projected financial information is subject to risk if estimates are incorrect. The most significant estimate relates to projected revenues and profitability. If the projected revenues and profitability used in the valuation calculations are not met, then the asset could be impaired.
Goodwill, Trade Name, and Customer Lists — The Company tests goodwill for impairment annually as of December 31 or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or indefinite-lived intangible asset below its carrying value. Goodwill is tested for impairment at the reporting unit level using a fair value approach. At December 31, 2021, the Company had
The Company’s trade name is amortized on an accelerated basis over its expected useful life of
Customer lists are amortized on an accelerated basis based upon their estimated useful life of to
The Company regularly evaluates the amortization period assigned to each intangible asset to determine whether there have been any events or circumstances that warrant revised estimates of useful lives. In December 2021, and since that time, the Company determined that there have been
Revenue Recognition — Revenues are recognized when control of the Company’s services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. In accordance with ASC 606, Revenue from Contracts with Customers, which was adopted as of January 1, 2019 using the modified retrospective method, revenues are recognized based on the following steps:
8
A substantial majority of the Company’s revenues are derived from pre-onboarding and related services to our customers on a transactional basis, in which an individual background screening package or selection of services is ordered by a customer related to a single individual. Substantially all of the Company’s customers are employers, staffing, or related businesses. The Company satisfies its performance obligations and recognizes revenues for services rendered as the orders are completed and the completed reports are transmitted, or otherwise made available. The Company’s remaining services, substantially consisting of tax consulting, fleet management, and driver qualification services, are delivered over time as the customer simultaneously receives and consumes the benefits of the services delivered. To measure the Company’s performance over time, the output method is utilized to measure the value to the customer based on the transfer to date of the services promised, with no rights of return once consumed. In these cases, revenues on transactional contracts with a defined price but an undefined quantity are recognized utilizing the right to invoice expedient resulting in revenues being recognized when the service is provided and becomes billable. Additionally, under this practical expedient, the Company is not required to estimate the transaction price.
The Company considers negotiated and anticipated incentives and estimated adjustments, including historical collections experience, when recording revenues.
The Company’s contracts with customers generally include standard commercial payment terms acceptable in each region, and do not include any financing components. The Company does not have any significant obligations for refunds, warranties, or similar obligations. The Company records revenues net of sales taxes. Due to the Company’s contract terms and the nature of the background screening industry, the Company determined its contract terms for ASC 606 purposes are less than one year. As a result, the Company uses the practical expedient which allows it to expense incremental costs of obtaining a contract, primarily consisting of sales commissions, as incurred.
The Company records third-party pass-through fees incurred as part of screening related services on a gross revenue basis, with the related expense recorded as a cost of services expense, as the Company has control over the transaction and is therefore considered to be acting as a principal. The Company records motor vehicle registration and other tax payments paid on behalf of the Company’s fleet management customers on a net revenue basis as the Company does not have control over the transaction and therefore is considered to be acting as an agent of the customer. Amounts received from fleet management customers are recorded in cash and cash equivalents in the accompanying consolidated balance sheets as the funds are not legally restricted.
Foreign Currency — The functional currency of all of the Company’s foreign subsidiaries is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenues and expense accounts using average exchange rates prevailing during the fiscal year. Adjustments resulting from the translation of foreign currency financial statements are accumulated net of tax in a separate component of equity. Currency translation (loss) income included in accumulated other comprehensive income (loss) was approximately $(
Gains or losses resulting from foreign currency transactions are included in the accompanying condensed consolidated statements of operations and comprehensive income (loss), except for those relating to intercompany transactions of a long-term investment nature, which are captured in a separate component of equity as accumulated other comprehensive income (loss). Currency transaction income included in the accompanying condensed consolidated statements of operations and comprehensive income (loss) was approximately $
Recent Accounting Pronouncements — The Company qualifies as an emerging growth company under the Jumpstart Our Business Startups (“JOBS”) Act. The JOBS Act permits the Company an extended transition period for complying with new or revised accounting standards affecting public companies. The Company has elected to use this extended transition period and adopt certain new accounting standards on the private company timeline, which means that the Company’s financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards on a non-delayed basis.
There were no accounting pronouncements issued during the six months ended June 30, 2022 that are expected to have a material impact on the condensed consolidated financial statements.
9
Recently Adopted Accounting Pronouncements — In February 2016, the FASB issued ASU 2016-02, Leases, and subsequently issued additional ASUs amending this ASU (collectively ASC 842, Leases). ASC 842 was issued to increase transparency and comparability among organizations by requiring the recognition of right of use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted the provisions of ASC 842 on January 1, 2022 using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption in line with the new transition method allowed under ASU 2018-11. ASC 842 provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients” which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs. The Company did not elect the use-of-hindsight and elected the practical expedient pertaining to land easements. The new standard also provides practical expedients for an entity’s ongoing accounting for leases. The Company elected the short-term lease exemption for all leases that qualify, meaning the Company will not recognize ROU assets or lease liabilities for leases with terms shorter than twelve months. The Company also elected the practical expedient to not separate lease and non-lease components for a majority of its asset classes, including real estate and most equipment.
The adoption of ASC 842 had a material impact on the Company’s condensed consolidated balance sheets but did not have a material impact on our condensed consolidated statements of operations or cash flow. The most significant impact was the recognition of ROU assets of $
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU removes specific exceptions to the general principles in Topic 740. Among other things it eliminates the need for an organization to analyze whether the following apply in a given period: exception to the incremental approach for intra-period tax allocation; exceptions to accounting for basis differences when there are ownership changes in foreign investments; and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. This amendment also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for: franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. Adoption of this standard on January 1, 2022 did not have a material impact on the condensed consolidated financial statements.
10
Note 3. Acquisitions
2021 Acquisitions
On March 31, 2021, the Company completed its acquisition of selected assets and specified liabilities comprising the United Kingdom background screening business unit of a United Kingdom based company for cash consideration of $
On November 30, 2021, the Company completed its acquisition of a background screening and verification provider based in Mexico. Goodwill recognized as result of this acquisition was not deductible for tax purposes. Results of operations have been included in the condensed consolidated financial statements of the Company’s Americas segment since the closing date.
On November 30, 2021, the Company, through one of its wholly-owned subsidiaries in the United States, entered into an agreement to acquire
2022 Acquisition
The Company completed its asset purchase of Form I-9 Compliance, a U.S.-based technology solution and consulting service provider for I-9 and E-Verify compliance, for cash consideration of approximately $
As of the date these condensed consolidated financial statements were issued, the purchase accounting related to the acquisition of Form I-9 Compliance was incomplete as the valuations of deferred taxes and purchase price were still in the process of being finalized, and certain customary transaction adjustments were not yet finalized. The Company has reflected the provisional amounts for goodwill and deferred taxes in these condensed consolidated financial statements. As such, the above balances may be adjusted in a future period as the valuation is finalized and these adjustments may be material to the consolidated financial statements.
The allocation of the purchase price is based on the fair value of assets acquired and liabilities assumed as of the acquisition date.
Consideration |
|
|
|
|
Cash, net of cash acquired |
|
$ |
|
|
Total fair value of consideration transferred |
|
$ |
|
|
Current assets |
|
$ |
|
|
Property and equipment, including software developed for internal use |
|
|
|
|
Customer lists |
|
|
|
|
Current liabilities |
|
|
( |
) |
Total identifiable net assets |
|
$ |
|
|
Goodwill |
|
$ |
|
|
Goodwill recognized in the acquisition of Form I-9 Compliance is deductible for tax purposes. Results of operations have been included in the condensed consolidated financial statements of the Company’s Americas segment since the effective date of the acquisition.
11
Note 4. Property and Equipment, net
Property and equipment, net as of June 30, 2022 and December 31, 2021 consisted of the following (in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Furniture and equipment |
|
$ |
|
|
$ |
|
||
Capitalized software for internal use, acquired by business combination |
|
|
|
|
|
|
||
Capitalized software for internal use, developed internally or otherwise purchased |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Total property and equipment |
|
|
|
|
|
|
||
Less: accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation and amortization expense of property and equipment was approximately $
Note 5. Goodwill, Trade Name, and Customer Lists
The changes in the carrying amount of goodwill for the six months ended June 30, 2022 by reportable segment were as follows (in thousands):
|
|
Americas |
|
|
International |
|
|
Total |
|
|||
Balance – December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Acquisitions |
|
|
|
|
|
|
|
|
|
|||
Adjustments to initial purchase price allocations |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Foreign currency translation |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance – June 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The following summarizes the gross carrying value and accumulated amortization for the Company’s trade name and customer lists as of June 30, 2022 and December 31, 2021 (in thousands):
|
|
June 30, 2022 |
||||||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Useful Life |
|||
Trade name |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|||
Customer lists |
|
|
|
|
|
( |
) |
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
||
|
|
December 31, 2021 |
||||||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Useful Life |
|||
Trade name |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|||
Customer lists |
|
|
|
|
|
( |
) |
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
||
Amortization expense of trade name and customer lists was approximately $
12
Note 6. Long-term Debt
The fair value of the Company’s long-term debt obligations approximated their book value as of June 30, 2022 and December 31, 2021 and consisted of the following (in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Successor First Lien Credit Facility |
|
$ |
|
|
$ |
|
||
Less: Deferred financing costs |
|
|
( |
) |
|
|
( |
) |
Long-term debt, net |
|
$ |
|
|
$ |
|
||
In February 2020, a new financing structure was established consisting of a new First Lien Credit Agreement (“Successor First Lien Agreement”) and a new Second Lien Credit Agreement (“Successor Second Lien Agreement”) (collectively, the “Successor Credit Agreements”). The Successor First Lien Agreement provided financing in the form of a $
In February 2021, the Company refinanced its Successor First Lien Credit Facility at an increased principal amount of $
In connection with the closing of the Company’s initial public offering (“IPO”), on June 30, 2021, the Company repaid $
Additionally, in connection with the closing of the IPO, the Company entered into an amendment that increased the borrowing capacity under the Successor Revolver from $
13
Note 7. Derivatives
In February 2020, the Company entered into an interest rate collar agreement with a counterparty bank in order to reduce its exposure to interest rate volatility. In this agreement, the Company and the counterparty bank agreed to a one-month USD LIBOR floor of
The following is a summary of location and fair value of the financial position recorded related to the derivative instruments (in thousands):
|
|
|
|
Fair Value |
|
|||||
Derivatives |
|
Balance Sheet |
|
As of |
|
|
As of |
|
||
Interest rate swaps |
|
Prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
||
The following is a summary of location and amount of gains and (losses) recorded related to the derivative instruments (in thousands):
|
|
|
|
Gain/(Loss) |
|
|||||||||||||
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
Derivatives |
|
Income Statement |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Interest rate swaps |
|
Interest expense, net |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Note 8. Income Taxes
The Company’s income tax expense and balance sheet accounts reflect the results of the Company and its subsidiaries.
For the three and six months ended June 30, 2022, the Company estimated the annual effective tax rate based on projected income for the full year and recorded a quarterly tax provision in accordance with the annual effective tax rate and adjusted for discrete tax items in the period.
The effective income tax rate for the three and six months ended June 30, 2022 was
The Company’s effective income tax rate for the three and six months ended June 30, 2021 was
14
Note 9. Revenues
Performance obligations
Substantially all of the Company’s revenues are recognized at a point in time when the orders are completed and the completed reports are reported, or otherwise made available. For revenues delivered over time, the output method is utilized to measure the value to the customer based on the transfer to date of the services promised, with no rights of return once consumed. In these cases, revenues on transactional contracts with a defined price but an undefined quantity is recognized utilizing the right to invoice expedient resulting in revenues being recognized when the service is provided and becomes billable. Additionally, under this practical expedient, the Company is not required to estimate the transaction price.
Accordingly, in any period, the Company does not recognize a significant amount of revenues from performance obligations satisfied or partially satisfied in prior periods and the amount of such revenues recognized during the three and six months ended June 30, 2022 and 2021 were immaterial.
Contract assets and liabilities
The contract asset balance was $
Concentrations
The Company did
For additional disclosures about the disaggregation of our revenues see Note 16, “Reportable Segments.”
15
Note 10. Share-based Compensation
Share-based compensation expense is recognized in cost of services, product and technology expense, and selling, general, and administrative expense, in the accompanying condensed consolidated statements of operations and comprehensive income (loss) as follows (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of services |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Product and technology expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general, and administrative expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total share-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Successor Plan
Prior to the IPO, all share-based awards were issued by Fastball Holdco, L.P., the Company’s previous parent company under individual grant agreements and the partnership agreement of such parent company (collectively the “Successor Plan”).
Awards issued under the Successor Plan consist of options and profits interests and vest based on two criteria (
In connection with the Company’s IPO, the Company’s parent was dissolved. Awards issued by the Company’s parent were converted in accordance with non-discretionary anti-dilution provisions of the Successor grants as follows:
|
|
|
Options |
|
|
Weighted Average |
|
|
Weighted Average Remaining Contractual Term |
|
Aggregate Intrinsic Value |
||
December 31, 2021 |
Grants outstanding |
|
|
|
|
$ |
|
|
|
|
|
||
|
Grants exercised |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
Grants cancelled/forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
June 30, 2022 |
Grants outstanding |
|
|
|
|
$ |
|
|
|
$ |
|||
June 30, 2022 |
Grants vested |
|
|
|
|
$ |
|
|
|
$ |
|||
June 30, 2022 |
Grants unvested |
|
|
|
|
$ |
|
|
|
|
|
||
16
2021 Equity Plan
In connection with the IPO, the Company adopted the 2021 Equity Plan. The 2021 Equity Plan is intended to provide a means through which to attract and retain key personnel and to provide a means whereby our directors, officers, employees, consultants, and advisors can acquire and maintain an equity interest in us, or be paid incentive compensation, including incentive compensation measured by reference to the value of our common stock, thereby strengthening their commitment to our welfare and aligning their interests with those of our stockholders. The 2021 Equity Plan provides for the grant of awards of stock options, stock appreciation rights, restricted shares, restricted stock units, and other equity-based or cash-based awards as determined by the Company’s Compensation Committee. The 2021 Equity Plan initially had a total of
Stock Options
Stock options issued immediately prior to the IPO vest based on two criteria (
A summary of the option activity for the six months ended June 30, 2022 is as follows:
|
|
|
Options |
|
|
Weighted Average |
|
|
Weighted Average Remaining Contractual Term |
|
Aggregate Intrinsic Value |
|
|||
December 31, 2021 |
Grants outstanding |
|
|
|
|
$ |
|
|
|
|
|
|
|||
|
Grants issued |
|
|
|
|
$ |
|
|
|
|
|
|
|||
|
Grants cancelled/forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
||
June 30, 2022 |
Grants outstanding |
|
|
|
|
$ |
|
|
|
|
|
||||
June 30, 2022 |
Grants vested |
|
|
|
|
$ |
|
|
|
|
|
||||
June 30, 2022 |
Grants unvested |
|
|
|
|
$ |
|
|
|
|
|
|
|||
The fair value for stock options granted for the six months ended June 30, 2022 was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighed average assumptions:
|
|
Options |
|
|
Expected stock price volatility |
|
|
% |
|
Risk-free interest rate |
|
|
% |
|
Expected term (in years) |
|
|
|
|
Estimated fair-value of the underlying unit |
|
$ |
|
|
Restricted Stock Units
Restricted stock units (“RSU”) vest annually, generally over three to five years.
A summary of the RSU activity for the six months ended June 30, 2022 is as follows:
|
|
|
Shares |
|
|
Weighted Average |
|
||
December 31, 2021 |
Nonvested RSUs |
|
|
|
|
$ |
|
||
|
Granted |
|
|
|
|
$ |
|
||
|
Vested |
|
|
( |
) |
|
$ |
|
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
June 30, 2022 |
Nonvested RSUs |
|
|
|
|
$ |
|
||
17
Restricted Stock
The following table summarizes the restricted stock issued by the Company. These include grants of unvested Successor profits interests grants that were converted into restricted stock as described above, as well as restricted stock issued to new recipients. The restricted stock granted as a result of the conversion of Successor profits interests retain the vesting attributes (including original service period vesting start date) of the original award. A summary of the restricted stock activity for the six months ended June 30, 2022 is as follows:
|
|
|
Shares |
|
|
Weighted Average |
|
||
December 31, 2021 |
Nonvested restricted stock |
|
|
|
|
$ |
|
||
|
Granted |
|
|
|
|
$ |
|
||
|
Vested |
|
|
( |
) |
|
$ |
|
|
June 30, 2022 |
Nonvested restricted stock |
|
|
|
|
$ |
|
||
As of June 30, 2022, the Company had approximately $
2021 Employee Stock Purchase Plan
On June 25, 2021, in connection with the IPO, the Company adopted the First Advantage Corporation 2021 Employee Stock Purchase Plan (“ESPP”) that allows eligible employees to voluntarily make after-tax contributions of up to
Note 11. Equity
The Company operates with one class of stock.
On June 11, 2021, the Company’s Board of Directors approved and made effective a
In connection with the IPO, Fastball Holdco, L.P., the Company’s parent, was dissolved and all outstanding Class A LP Units, Class B LP Units, and Class C LP Units of Fastball Holdco, L.P. were exchanged for
As of June 30, 2022,
18
Note 12. Commitments and Contingencies
Except for certain changes to our lease agreements discussed in Note 13, there have been no material changes to the Company’s contractual obligations as compared to December 31, 2021.
Litigation — The Company is involved in litigation from time to time in the ordinary course of business. At times, the Company, given the nature of its background screening business, could become subject to lawsuits, or potential class action lawsuits, in multiple jurisdictions, related to claims brought primarily by consumers or individuals who were the subject of its screening services.
For all pending matters, the Company believes it has meritorious defenses and intends to defend vigorously or otherwise seek indemnification from other parties as appropriate. However, the Company has recorded a liability of $
In February 2022, the Company settled and paid $
The Company will continue to evaluate information as it becomes known and will record an estimate for losses at the time when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable.
Note 13. Leases
Effective January 1, 2022 the Company adopted ASC 842, which requires recognition of right of use (“ROU”) assets and lease liabilities on the balance sheet, based on the present value of the future minimum rental payments for existing operating leases. The Company adopted the provisions of ASC 842 on January 1, 2022 using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption in line with the new transition method allowed under ASU 2018-11. ASC 842 provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients” which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs. The Company did not elect the use-of-hindsight and elected the practical expedient pertaining to land easements. The new standard also provides practical expedients for an entity’s ongoing accounting for leases. The Company elected the short-term lease exemption for all leases that qualify, meaning the Company will not recognize ROU assets or lease liabilities for leases with terms shorter than twelve months. The Company also elected the practical expedient to not separate lease and non-lease components for a majority of its asset classes, including real estate and most equipment.
The Company measures the ROU assets and liabilities based on the present value of the future minimum lease payments over the lease term at the commencement date. Minimum lease payments include the fixed lease and non-lease components of the agreement, as well as any variable rent payments that depend on an index, initially measured using the index at the lease commencement date. The ROU assets are adjusted for any initial direct costs incurred less any lease incentives received, in addition to payments made on or before the commencement date of the lease. The Company recognizes lease expense for leases on a straight-line basis over the lease term.
As the implicit rate is not readily determinable for most of the Company’s lease agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments.
The Company determines if a contract is or contains a lease at inception. The Company has operating and finance leases for office space, data centers, and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company enters into lease contracts ranging from
Some leases include one or more options to renew, with renewal terms that can extend the lease term from
Certain of our leases include rental payments that will adjust periodically for inflation or certain adjustments based on step increases. An insignificant number of our leases contain residual value guarantees and none of our agreements contain material restrictive covenants. Variable rent expenses consist primarily of maintenance, property taxes, and charges based on usage.
19
The components of lease costs are as follows (in thousands):
|
|
Three Months |
|
|
Six Months |
|
||
Operating lease costs |
|
|
|
|
|
|
||
Fixed |
|
$ |
|
|
$ |
|
||
Short-term |
|
|
|
|
|
|
||
Variable |
|
|
|
|
|
|
||
Sub-leases |
|
|
( |
) |
|
|
( |
) |
Total operating lease costs |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Finance lease costs |
|
|
|
|
|
|
||
Amortization of leased assets |
|
$ |
|
|
$ |
|
||
Interest on lease liabilities |
|
|
|
|
|
|
||
Total finance lease costs |
|
$ |
|
|
$ |
|
||
Total lease cost |
|
$ |
|
|
$ |
|
||
Supplemental balance sheet information related to leases is as follows (in thousands):
|
|
Classification |
|
June 30, 2022 |
|
|
Assets |
|
|
|
|
|
|
Operating leases |
|
|
|
|
|
|
Right of use operating lease assets |
|
Other assets |
|
$ |
|
|
Finance leases |
|
|
|
|
|
|
Property and equipment, gross |
|
Property and equipment, net |
|
|
|
|
Accumulated depreciation |
|
Property and equipment, net |
|
|
( |
) |
Property and equipment, net |
|
Property and equipment, net |
|
|
|
|
Total lease assets |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Operating leases |
|
|
|
|
|
|
Other current |
|
Current portion of operating lease liability |
|
$ |
|
|
Non-current |
|
Operating lease liability, less current portion |
|
|
|
|
Total operating liabilities |
|
|
|
|
|
|
Finance leases |
|
|
|
|
|
|
Other current |
|
Accrued liabilities |
|
|
|
|
Non-current |
|
Other liabilities |
|
|
|
|
Total finance liabilities |
|
|
|
|
|
|
Total lease liabilities |
|
|
|
$ |
|
|
Maturities of lease liabilities are as follows (in thousands):
Years Ending December 31, |
|
|
|
|
|
|
|
|
|
|||
|
|
Finance Leases |
|
|
Operating Leases |
|
|
Total |
|
|||
2022 (excluding the six months ended June 30, 2022) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
2023 |
|
|
|
|
|
|
|
|
|
|||
2024 |
|
|
— |
|
|
|
|
|
|
|
||
2025 |
|
|
— |
|
|
|
|
|
|
|
||
2026 |
|
|
— |
|
|
|
|
|
|
|
||
Thereafter |
|
|
— |
|
|
|
|
|
|
|
||
Total minimum lease payments |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Less: Imputed interest |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Present value of minimum lease payments |
|
$ |
|
|
$ |
|
|
|
|
|||
20
For additional information regarding the Company’s Commitments and Contingencies as of December 31, 2021 as disclosed for capital and operating leases, see Note 12 in its 2021 Annual Report filed on Form 10-K.
Lease term and discount rates are as follows:
|
|
June 30, 2022 |
|
|
Weighted average remaining lease term |
|
|
|
|
Operating leases |
|
|
||
Finance leases |
|
|
||
|
|
|
|
|
Weighted average discount rate |
|
|
|
|
Operating leases |
|
|
% |
|
Finance leases |
|
|
% |
|
Supplemental cash flow information related to leases was as follows (in thousands):
|
|
Six Months |
|
|
Cash paid for amounts included in measurement of lease liabilities: |
|
|
|
|
Operating cash flows from operating leases |
|
$ |
|
|
Operating cash flows from finance leases |
|
|
|
|
Financing cash flows from finance leases |
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
Operating leases |
|
$ |
|
|
Finance leases |
|
|
|
|
Amortization: |
|
|
|
|
Amortization of right-of-use operating lease assets (1) |
|
$ |
|
|
Note 14. Related Party Transactions
The Company has
Note 15. Net Income (Loss) Per Share
Basic weighted-average shares outstanding excludes nonvested restricted stock. Diluted weighted average shares outstanding is similar to basic weighted-average shares outstanding, except that the weighted-average number of shares is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common share had been issued, including the dilutive impact of nonvested restricted stock.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Basic net income (loss) per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Diluted net income (loss) per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) (in thousands) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Add stock options to purchase shares and restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the three and six months ended June 30, 2022,
21
Note 16. Reportable Segments
During the first quarter of 2022, the Company made organizational changes and modified additional information provided to its CODM to better align with how its CODM assesses performance and allocates resources. As a result, we have
We define Adjusted EBITDA as net income before interest, taxes, depreciation, and amortization, and as further adjusted for loss on extinguishment of debt, share-based compensation, transaction and acquisition-related charges, integration and restructuring charges, and other non-cash charges. We exclude the impact of share-based compensation because it is a non-cash expense and we believe that excluding this item provides meaningful supplemental information regarding performance and ongoing cash generation potential. We exclude loss on extinguishment of debt, transaction and acquisition related charges, integration and restructuring charges, and other charges because such expenses are episodic in nature and have no direct correlation to the cost of operating our business on an ongoing basis.
The segment financial information below aligns with how we report information to our CODM to assess operating performance and how the Company manages the business. Corporate costs are generally allocated to the segments based upon estimated revenues levels and other assumptions that management considers reasonable. The CODM does not review the Company’s assets by segment; therefore, such information is not presented. The accounting policies of the segments are the same as described in Note 2, “Significant Accounting and Reporting Policies” and Note 9, “Revenues.”
The following is a description of our two reportable segments:
Americas. This segment performs a variety of background check and compliance services across all phases of the workforce lifecycle from pre-onboarding services to post-onboarding and ongoing monitoring services, covering employees, contractors, contingent and extended workers, drivers, tenants, and volunteers. We generally classify our service offerings into three categories: pre-onboarding, post-onboarding, and adjacent products. We deliver our solutions across multiple vertical industries in the United States, Canada, and Latin America markets.
International. The International segment provides services similar to our Americas segment in regions outside of the Americas. We primarily deliver our solutions across multiple vertical industries in the Europe, India, and Asia Pacific markets.
A reconciliation of Segment Adjusted EBITDA to net income (loss) for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Americas |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Adjustments to reconcile to net income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Provision (benefit) for income taxes |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Transaction and acquisition-related charges (a) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Integration, restructuring, and other charges (b) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
22
Geographic Information
The Company bases revenues by geographic region in which the revenues and invoicing are recorded. Other than the United States,
The following summarizes revenues by geographical region for the three and six months ended June 30, 2022 and 2021 (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Americas |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Eliminations |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table sets forth net long-lived assets by geographic area as of June 30, 2022 and December 31, 2021 (in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Long-lived assets, net |
|
|
|
|
|
|
||
United States, country of domicile |
|
$ |
|
|
$ |
|
||
All other countries |
|
|
|
|
|
|
||
Total long-lived assets, net |
|
$ |
|
|
$ |
|
||
Note 17. Subsequent Events
On August 2, 2022, the Company’s Board of Directors authorized the repurchase of up to $
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of First Advantage Corporation’s financial condition and results of operations is provided as a supplement to the condensed consolidated financial statements for the three and six months ended June 30, 2022, and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021, our “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. These forward-looking statements relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. In some cases, you can identify these forward-looking statements by the use of words such as “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,” “will,” “seek,” “foreseeable,” the negative version of these words, or similar terms and phrases.
These forward-looking statements are subject to various risks, uncertainties, assumptions, or changes in circumstances that are difficult to predict or quantify. Such risks and uncertainties include, but are not limited to, the following: the impact of COVID-19 and related continuously evolving risks to our results of operations, financial position and/or liquidity; our operations in a highly regulated industry and the fact that we are subject to numerous and evolving laws and regulations, including with respect to personal data and data security; our reliance on third-party data providers; negative changes in external events beyond our control, including our customers’ onboarding volumes, economic drivers which are sensitive to macroeconomic cycles, such as interest rate volatility and inflation, geopolitical unrest, and the COVID-19 pandemic; potential harm to our business, brand, and reputation as a result of security breaches, cyber-attacks or the mishandling of personal data; liability and litigation due to the sensitive and privacy-driven nature of our products and solutions, which could be costly and time-consuming to defend and may not be fully covered by insurance; the continued integration of our platforms and solutions with human resource providers such as applicant tracking systems and human capital management systems as well as our relationships with such human resource providers; risks relating to public opinion, which may be magnified by incidents or adverse publicity concerning our industry or operations; our contracts with our customers, which do not guarantee exclusivity or contracted volumes; our reliance on third-party vendors to carry out certain portions of our operations; disruptions, outages, or other errors with our technology and network infrastructure, including our data centers, servers and third-party cloud and internet providers and our migration to the cloud; disruptions at our Global Operating Center and other operating centers; operating in a penetrated and competitive market; our ability to obtain, maintain, protect, and enforce our intellectual property and other proprietary information; our indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, and prevent us from meeting our obligations; Silver Lake’s control of us and the potential conflict of its interest with ours or those of our stockholders; our ability to maintain, protect, and enforce the confidentiality of our trade secrets; the use of open-source software in our applications; the indemnification provisions in our contracts with our customers and third-party data suppliers; our ability to identify attractive targets or successfully complete such transactions; our international business; our dependence on the service of our key executive and other employees, and our ability to find and retain qualified employees; seasonality in our operations from quarter to quarter; failure to comply with anti-corruption laws and regulations; and changing interpretations of tax laws.
For additional information on these and other factors that could cause First Advantage’s actual results to differ materially from expected results, please see our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”), as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. The forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date of this Form 10-Q, and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by law.
24
Glossary of Selected Terminology
The following terms are used in this Form 10-Q, unless otherwise noted or indicated by the context:
Corporation and its subsidiaries;
Certain monetary amounts, percentages, and other figures included in this Quarterly Report on Form 10-Q have been subject to rounding adjustments. Percentage amounts included in this Quarterly Report on Form 10-Q have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Quarterly Report on Form 10-Q may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Certain other amounts that appear in this Quarterly Report on Form 10-Q may not sum due to rounding.
Website and Social Media Disclosure
We use our websites (https://fadv.com/ and https://investors.fadv.com/) to distribute company information. We make available free of charge a variety of information for investors, including our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file that material with or furnish it to the Securities and Exchange Commission (“SEC”). The information we post on our websites may be deemed material. Accordingly, investors should monitor our websites, in addition to following our press releases, filings with the SEC, and public conference calls and webcasts. In addition, you may opt in to automatically receive email alerts and other information about First Advantage when you enroll your email address by visiting the “Email Alerts” section of our investor website at https://investors.fadv.com/. The contents of our websites and social media channels are not, however, a part of this Quarterly Report on Form 10-Q.
Overview
First Advantage is a leading global provider of HR technology solutions for screening, verifications, safety, and compliance. We deliver innovative solutions and insights that help our customers manage risk and hire the best talent. Enabled by our core proprietary technology, our products and solutions help companies protect their brands and provide safer environments for their customers and their most important resources: employees, contractors, contingent and extended workers, drivers, tenants, and volunteers.
Our comprehensive product suite includes criminal background checks, drug / health screening, extended workforce screening, biometrics and identity, education / work verifications, resident screening, fleet / driver compliance, executive screening, data analytics, continuous monitoring, social media monitoring, and hiring tax incentives. We derive a substantial majority of our revenues from pre-onboarding screening and perform screens in over 200 countries and territories, enabling us to serve as a one-stop-shop provider to both multinational companies and growth companies. Our more than 33,000 customers are global enterprises, mid-sized companies, and small companies, and our products and solutions are used by personnel in recruiting, human resources, risk, compliance, vendor management, safety, and/or security.
Our products are sold both individually and bundled. The First Advantage platform offers flexibility for customers to specify which products to include in their screening package, such as Social Security numbers, criminal records, education and work verifications, sex offender registry, and global sanctions. Generally, our customers order a bundled background screening package or selected combination of screens related to a single individual before they onboard that individual. The type and mix of products and solutions we sell to a customer vary by customer size, their screening requirements, and industry vertical. Therefore, order volumes are not comparable across both customers and periods. Pricing can also vary considerably by customer depending on the product mix in their screening packages, order volumes, screening requirements and preferences, pass-through and third-party out of pocket costs, and bundling of products.
25
We enter into contracts with our customers that are typically three years in length. These contracts set forth the general terms and pricing of our products and solutions but generally do not include minimum order volumes or committed order volumes. Accordingly, contracts do not provide guarantees of future revenues. Due to our contract terms and the nature of the background screening industry, we determined our contract terms for ASC 606 purposes are less than one year. Through our ongoing dialogue with our customers, we have some visibility into their expected future order volumes, although these can be difficult to accurately forecast. We typically bill our customers at the end of each month and recognize revenues as completed orders are reported or otherwise made available to our customers. Over 90% of the criminal searches performed in the United States are completed the same day they are submitted.
We generated revenues of $201.6 million for the three months ended June 30, 2022, as compared to $174.8 million for the three months ended June 30, 2021 and generated revenues of $391.4 million for the six months ended June 30, 2022, as compared to $306.9 million for the six months ended June 30, 2021.These increases were driven by continued strength across our business, favorable trends in the jobs market, as well as the addition of a number of large new customers, upselling and cross-selling existing customers, and continued demand across our existing customer base. We have experienced additional increases as a result of our recent acquisitions. Approximately 83% of our revenues for the six months ended June 30, 2022 was generated in the Americas, predominantly in the United States, while the remaining 17% was generated internationally. Other than the United States, no single country accounted for 10% or more of our total revenues for the three and six months ended June 30, 2022. Please refer to “Results of Operations” for further details.
Segments
During the first quarter of 2022, the Company made organizational changes and modified additional information provided to its chief operating decision maker (“CODM”) to better align with how its CODM assesses performance and allocates resources. As a result, the Company now has two reportable segments, Americas and International:
Seasonality
We experience seasonality with respect to certain industries due to fluctuations in hiring volumes and other economic activity. For example, pre-onboarding revenues generated from our customers in the retail and transportation industries are historically highest during the September through November months leading up to the holiday season and lowest at the beginning of the new year, following the holiday season. Certain customers across various industries also historically ramp up their hiring throughout the second quarter of the year as winter concludes, commercial activity tied to outdoor activities increases, and the school year ends, giving rise to student and graduate hiring. We expect that further growth in e-commerce, the continued digital transformation of the economy, and other economic forces may impact future seasonality, but we are unable to predict these potential shifts and how our business may be impacted.
Recent Developments
M&A
The Company completed its asset purchase of Form I-9 Compliance, a U.S.-based technology solution and consulting service provider for I-9 and E-Verify compliance. The acquisition is effective as of January 1, 2022 and strategically expands the Company’s product suite offerings through the addition of new I-9 and employment eligibility solutions. The results of Form I-9 Compliance, which were not material, have been included in our Americas segment from the effective date of the acquisition.
26
COVID-19 Update
The Company continues to monitor how COVID-19 is affecting its employees, customers, and business operations. In our continued response to the COVID-19 pandemic, we implemented operational changes to promote the safety of our workforce and to allow us to continue to serve our customers. In the markets in which we operate, we saw generally improving macroeconomic conditions and steady improvements in our results of operations in 2021 and into 2022.
In the United States, we saw positive macroeconomic and labor market conditions throughout 2021 and into 2022, including overall gross domestic product (“GDP”) growth and low unemployment rates. We saw similar improvements in our international markets, although in certain of these markets there are higher ongoing concerns about the impact of COVID-19. These overall positive economic conditions have helped support our 2022 results, with revenues for the six months ended June 30, 2022 growing 27.5% compared to the six months ended June 30, 2021. Further discussion regarding the impact of the pandemic on our operations for the three and six months ended June 30, 2022 and 2021 is provided within this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Given the ongoing uncertainty and unpredictable nature of the pandemic and related macroeconomic factors, including the impact of virus variants and the effectiveness of vaccines against those variants, COVID-19 may have a material and adverse impact on various aspects of our business in the future, including our results of operations. The Company will continue to monitor the associated impacts and take appropriate actions in an effort to mitigate the COVID-19 pandemic’s negative effects on the Company’s operations and financial results. For additional information, see our “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Recently Issued Accounting Standards
See Note 2 to the condensed consolidated financial statements for disclosure of the impact that recent accounting pronouncements may have on the condensed consolidated financial statements.
27
Components of our Results of Operations
Revenues
The Company derives revenues from a variety of background screening and adjacent products that cover all phases of the workforce lifecycle from pre-onboarding screening services to post-onboarding and ongoing monitoring services, covering employees, contractors, contingent and extended workers, drivers, tenants, and volunteers. We generally classify our products and solutions into three major categories: pre-onboarding, post-onboarding, and adjacent products, each of which is enabled by our technology, proprietary databases, and data analytics capabilities. Pre-onboarding products, which comprise the substantial majority of our revenues, span an extensive array of products that customers typically utilize to enhance their applicant evaluation process and ensure compliance with their workforce onboarding criteria from the time an application is submitted to an applicant’s successful onboarding. Post-onboarding products are comprised of continuous monitoring, re-screening, and other solutions to help our customers keep their end customers, workforces, and other stakeholders safer, productive, and compliant. Adjacent products include products that complement our pre-onboarding and post-onboarding solutions such as fleet / vehicle compliance, hiring tax credits and incentives, resident / tenant screening, employment eligibility, and investigative research.
Our suite of products is available individually or through bundled solutions that can be configured and tailored according to our customers’ needs. We typically bill our customers at the end of each month and recognize revenues after completed orders are reported or otherwise made available to our customers, with a substantial majority of our customers’ orders completed the same day they are submitted. We recognize revenues for other products over time as the customer simultaneously receives and consumes the benefits of the products and solutions delivered.
Operating Expenses
We incur the following expenses related to our cost of revenues and operating expenses:
28
We have a flexible cost structure that allows our business to adjust quickly to the impacts of macroeconomic events and scale to meet the needs of large new customers. Operating expenses are influenced by the amount of revenues and mix of customers that contribute to our revenues for any given period. As revenues grow, we would generally expect cost of services to grow in a similar fashion, albeit influenced by the effects of automation, productivity, and other efficiency initiatives as well as customer and product mix shifts. We regularly review expenses and investments in the context of revenues growth and any shifts we see in cost of services in order to align with our overall financial objectives. While we expect operating expenses to increase in absolute dollars to support our continued growth, we believe that operating expenses will decline gradually as a percentage of total revenues in the future as our business grows and our operating efficiency continues to improve.
Other Expense (Income)
Our other expense (income) consists of the following:
Provision for Income Taxes
Provision for income taxes consists of domestic and foreign corporate income taxes related to earnings from our sale of services, with statutory tax rates that differ by jurisdiction. Our effective tax rate may be affected by many other factors including changes in tax laws, regulations or rates, new interpretations of existing laws or regulations, shifts in the allocation of income earned throughout the world, and changes in overall levels of income before tax. For example, there are several proposals to change the current tax law, including changes in GILTI. If any or all of these (or similar) proposals are ultimately enacted into law, in whole or in part, they could increase our effective tax rate.
29
Results of Operations
The information contained below should be read in conjunction with our accompanying historical condensed consolidated financial statements and the related notes.
Comparison of Results of Operations for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands, except percentages) |
|
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 |
) |
Net income (loss) margin |
|
|
7.1 |
% |
|
|
2.2 |
% |
|
|
7.0 |
% |
|
|
(5.1 |
)% |
30
Revenues
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Americas |
|
$ |
170,591 |
|
|
$ |
146,300 |
|
|
$ |
330,679 |
|
|
$ |
262,823 |
|
International |
|
|
33,044 |
|
|
|
30,080 |
|
|
|
64,785 |
|
|
|
46,642 |
|
Eliminations |
|
|
(2,074 |
) |
|
|
(1,554 |
) |
|
|
(4,022 |
) |
|
|
(2,569 |
) |
Total revenues |
|
$ |
201,561 |
|
|
$ |
174,826 |
|
|
$ |
391,442 |
|
|
$ |
306,896 |
|
Revenues were $201.6 million for the three months ended June 30, 2022, compared to $174.8 million for the three months ended June 30, 2021. Revenues for the three months ended June 30, 2022 increased by $26.7 million, or 15.3%, compared to the three months ended June 30, 2021.
The increase in revenues was primarily due to:
Revenues were $391.4 million for the six months ended June 30, 2022, compared to $306.9 million for the six months ended June 30, 2021. Revenues for the six months ended June 30, 2022 increased by $84.5 million, or 27.5%, compared to the six months ended June 30, 2021.
The increase in revenues was primarily due to:
The Company experienced high demand among customers across numerous industry verticals and account sizes in both its Americas and International segments. Pricing remained relatively stable across all periods.
31
Cost of Services
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenues |
|
$ |
201,561 |
|
|
$ |
174,826 |
|
|
$ |
391,442 |
|
|
$ |
306,896 |
|
Cost of services |
|
|
100,292 |
|
|
|
84,868 |
|
|
|
196,723 |
|
|
|
150,813 |
|
Cost of services as a % of revenue |
|
|
49.8 |
% |
|
|
48.5 |
% |
|
|
50.3 |
% |
|
|
49.1 |
% |
Cost of services was $100.3 million for the three months ended June 30, 2022, compared to $84.9 million for the three months ended June 30, 2021. Cost of services for the three months ended June 30, 2022 increased by $15.4 million, or 18.2%, compared to the three months ended June 30, 2021.
The increase in cost of services was primarily due to:
Cost of services as a percentage of revenues was 49.8% for the three months ended June 30, 2022, compared to 48.5% for the three months ended June 30, 2021. The cost of services percentage of revenues in the second quarter 2022 was impacted by increases in certain third-party data costs, variation in customer ordering mix, and acquisitions having a larger mix of third-party data expenses. This increase was partially offset by cost savings from the Company’s continued internal operating efficiencies and automation.
Cost of services was $196.7 million for the six months ended June 30, 2022, compared to $150.8 million for the six months ended June 30, 2021. Cost of services for the six months ended June 30, 2022 increased by $45.9 million, or 30.4%, compared to the six months ended June 30, 2021.
The increase in cost of services was primarily due to:
The increase in cost of services was partially offset by:
Cost of services as a percentage of revenues was 50.3% for the six months ended June 30, 2022, compared to 49.1% for the six months ended June 30, 2021. The cost of services percentage of revenues for the six months ended June 30, 2022 was impacted by increases in certain third-party data costs, variation in customer ordering mix, and acquisitions having a larger mix of third-party data expenses. This increase was partially offset by cost savings from the Company’s continued internal operating efficiencies and automation.
32
Product and Technology Expense
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Product and technology expense |
|
$ |
12,946 |
|
|
$ |
11,680 |
|
|
$ |
26,719 |
|
|
$ |
22,233 |
|
Product and technology expense was $12.9 million for the three months ended June 30, 2022, compared to $11.7 million for the three months ended June 30, 2021. Product and technology expense for the three months ended June 30, 2022 increased by $1.3 million, or 10.8%, compared to the three months ended June 30, 2021.
The increase in product and technology expense was primarily due to:
Product and technology expense was $26.7 million for the six months ended June 30, 2022, compared to $22.2 million for the six months ended June 30, 2021. Product and technology expense for the six months ended June 30, 2022 increased by $4.5 million, or 20.2%, compared to the six months ended June 30, 2021.
The increase in product and technology expense was primarily due to:
33
Selling, General, and Administrative Expense
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Selling, general, and administrative expense |
|
$ |
31,136 |
|
|
$ |
25,075 |
|
|
$ |
59,681 |
|
|
$ |
49,053 |
|
Selling, general, and administrative expense was $31.1 million for the three months ended June 30, 2022, compared to $25.1 million for the three months ended June 30, 2021. Selling, general, and administrative expense for the three months ended June 30, 2022 increased by $6.1 million, or 24.2%, compared to the three months ended June 30, 2021.
Selling, general, and administrative expense increased primarily due to:
The increase in selling, general, and administrative expense was partially offset by:
Selling, general, and administrative expense was $59.7 million for the six months ended June 30, 2022, compared to $49.1 million for the six months ended June 30, 2021. Selling, general, and administrative expense for the six months ended June 30, 2022 increased by $10.6 million, or 21.7%, compared to the six months ended June 30, 2021.
Selling, general, and administrative expense increased primarily due to:
The increase in selling, general, and administrative expense was partially offset by:
34
Depreciation and Amortization
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Depreciation and amortization |
|
$ |
34,407 |
|
|
$ |
35,918 |
|
|
$ |
68,441 |
|
|
$ |
70,681 |
|
Depreciation and amortization was $34.4 million for the three months ended June 30, 2022, compared to $35.9 million for the three months ended June 30, 2021. Depreciation and amortization for the three months ended June 30, 2022 decreased by $1.5 million, or 4.2%, compared to the three months ended June 30, 2021. This decrease was partially offset by increases in depreciation related to assets placed in service during the three months ended June 30, 2022.
Depreciation and amortization was $68.4 million for the six months ended June 30, 2022, compared to $70.7 million for the six months ended June 30, 2021. Depreciation and amortization for the six months ended June 30, 2022 decreased by $2.2 million, or 3.2% compared to the six months ended June 30, 2021. This decrease was partially offset by increases in depreciation related to assets placed in service during the six months ended June 30, 2022.
Interest Expense, Net
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Interest expense, net |
|
$ |
3,112 |
|
|
$ |
10,452 |
|
|
$ |
2,262 |
|
|
$ |
17,169 |
|
Interest expense, net was $3.1 million for the three months ended June 30, 2022, compared to $10.5 million for the three months ended June 30, 2021. Interest expense for the three months ended June 30, 2022 decreased by $7.3 million, or 70.2%, compared to the three months ended June 30, 2021.
The decrease in interest cost was primarily attributable to $2.1 million of unrealized gains on the interest rate swap as a result of the increased interest rate volatility observed in the second quarter of 2022. This decrease was further impacted by the prepayment of $200.0 million of the Successor First Lien Credit Facility in June 2021, resulting in interest rate savings due to lower principal and more favorable interest rate margins. These decreases were partially offset by higher interest expense on the Successor First Lien Credit Facility as a result of rising interest rates.
Interest expense, net was $2.3 million for the six months ended June 30, 2022, compared to $17.2 million for the six months ended June 30, 2021. Interest expense for the six months ended June 30, 2022 decreased by $14.9 million, or 86.8%, compared to the six months ended June 30, 2021.
The decrease in interest cost was primarily attributable to $7.4 million of unrealized gains on the interest rate swap as a result of the increased interest rate volatility observed in 2022. This decrease was further impacted by the Company’s February 2021 refinancing of the Successor First Lien Credit Facility, early repayment of the Successor Second Lien Credit Facility, and the prepayment of $200.0 million of the Successor First Lien Credit Facility in June 2021, resulting in interest rate savings due to lower principal and more favorable interest rate margins. These decreases were partially offset by higher interest expense on the Successor First Lien Credit Facility as a result of rising interest rates in 2022.
Loss on Extinguishment of Debt
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Loss on extinguishment of debt |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
13,938 |
|
Loss on extinguishment of debt for the six months ended June 30, 2021 relates to expenses stemming from the write-off of debt issuance costs associated with the February 2021 refinancing of the Successor First Lien Credit Facility.
35
Provision for Income Taxes
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Provision (benefit) for income taxes |
|
$ |
5,432 |
|
|
$ |
3,063 |
|
|
$ |
10,367 |
|
|
$ |
(1,372 |
) |
Our provision for income taxes was $5.4 million for the three months ended June 30, 2022, compared to $3.1 million for the three months ended June 30, 2021. Our provision for income taxes for the three months ended June 30, 2022 increased by $2.4 million, compared to the three months ended June 30, 2021.
The increase in our provision for income taxes was primarily due to the increase of income before income taxes during the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, due to improved operating results.
Our provision for income taxes was $10.4 million for the six months ended June 30, 2022, compared to a (benefit) for income taxes of $(1.4) million for the six months ended June 30, 2021. Our provision for income taxes for the six months ended June 30, 2022 increased by $11.7 million, compared to the six months ended June 30, 2021.
The increase in our provision for income taxes was primarily due to the increase of income before income taxes during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, due to improved operating results.
Net Income (Loss) and Net Income (Loss) Margin
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income (loss) |
|
$ |
14,236 |
|
|
$ |
3,770 |
|
|
$ |
27,249 |
|
|
$ |
(15,619 |
) |
Net income (loss) margin |
|
|
7.1 |
% |
|
|
2.2 |
% |
|
|
7.0 |
% |
|
|
(5.1 |
)% |
Net income was $14.2 million for the three months ended June 30, 2022, compared to $3.8 million for the three months ended June 30, 2021. Net income for the three months ended June 30, 2022 increased by $10.5 million compared to the three months ended June 30, 2021.
Net income margin was 7.1% for the three months ended June 30, 2022, compared to 2.2% the three months ended June 30, 2021.
The improvement in our net income margin is attributable to our ability to leverage operating efficiencies to control our overall expenses while increasing revenues and our reduction in interest expense.
Net income was $27.2 million for the six months ended June 30, 2022, compared to a net (loss) of $(15.6) million for the six months ended June 30, 2021. Net income for the six months ended June 30, 2022 increased by $42.9 million compared to the six months ended June 30, 2021.
Net income (loss) margin was 7.0% for the six months ended June 30, 2022, compared to (5.1)% the six months ended June 30, 2021.
The improvement in our net income (loss) margin is attributable to our ability to leverage operating efficiencies to control our overall expenses while increasing revenues and our reduction in interest expense.
36
Key Operating and Financial Metrics
In addition to our results determined in accordance with GAAP, we believe certain measures are useful in evaluating our operating performance. Management believes these non-GAAP measures are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate, and capital investments. Management uses Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted Diluted Earnings Per Share to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation, and to compare our performance against that of other peer companies using similar measures. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.
The presentations of these measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, the presentations of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP.
Adjusted EBITDA and Adjusted EBITDA Margin
Management believes that Adjusted EBITDA is a strong indicator of our overall operating performance and is useful to management and investors as a measure of comparative operating performance from period to period. We define Adjusted EBITDA as net income before interest, taxes, depreciation, and amortization, and as further adjusted for loss on extinguishment of debt, share-based compensation, transaction and acquisition-related charges, integration and restructuring charges, and other non-cash charges. We exclude the impact of share-based compensation because it is a non-cash expense and we believe that excluding this item provides meaningful supplemental information regarding performance and ongoing cash generation potential. We exclude loss on extinguishment of debt, transaction and acquisition related charges, integration and restructuring charges, and other charges because such expenses are episodic in nature and have no direct correlation to the cost of operating our business on an ongoing basis.
Adjusted EBITDA was $60.8 million for the three months ended June 30, 2022 and represented an Adjusted EBITDA Margin of 30.2%. Adjusted EBITDA was $56.3 million for the three months ended June 30, 2021 and represented an Adjusted EBITDA Margin of 32.2%. Adjusted EBITDA for the three months ended June 30, 2022 increased by $4.5 million, or 8.0%, compared to the three months ended June 30, 2021.
Adjusted EBITDA was $114.4 million for the six months ended June 30, 2022 and represented an Adjusted EBITDA Margin of 29.2%. Adjusted EBITDA was $92.9 million for the six months ended June 30, 2021 and represented an Adjusted EBITDA Margin of 30.3%. Adjusted EBITDA for the six months ended June 30, 2022 increased by $21.5 million, or 23.2%, compared to the six months ended June 30, 2021.
Growth in Adjusted EBITDA was driven primarily from revenue growth attributed to new and existing customers and the cost structure benefits of increased automation, operational efficiencies, and operating leverage, but partially offset by higher third-party data costs, incremental public company costs, increased insurance premiums, additional investments in technology and sales, and lower margin results from our acquisitions.
The following table presents a reconciliation of Adjusted EBITDA for the periods presented.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income (loss) |
|
$ |
14,236 |
|
|
$ |
3,770 |
|
|
$ |
27,249 |
|
|
$ |
(15,619 |
) |
Interest expense, net |
|
|
3,112 |
|
|
|
10,452 |
|
|
|
2,262 |
|
|
|
17,169 |
|
Provision (benefit) for income taxes |
|
|
5,432 |
|
|
|
3,063 |
|
|
|
10,367 |
|
|
|
(1,372 |
) |
Depreciation and amortization |
|
|
34,407 |
|
|
|
35,918 |
|
|
|
68,441 |
|
|
|
70,681 |
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,938 |
|
Share-based compensation |
|
|
1,943 |
|
|
|
2,664 |
|
|
|
3,802 |
|
|
|
3,226 |
|
Transaction and acquisition-related charges (a) |
|
|
1,179 |
|
|
|
382 |
|
|
|
2,677 |
|
|
|
4,366 |
|
Integration, restructuring, and other charges (b) |
|
|
525 |
|
|
|
73 |
|
|
|
(364 |
) |
|
|
523 |
|
Adjusted EBITDA |
|
$ |
60,834 |
|
|
$ |
56,322 |
|
|
$ |
114,434 |
|
|
$ |
92,912 |
|
37
We define Adjusted EBITDA Margin as Adjusted EBITDA divided by total revenues. The following table presents the calculation of Adjusted EBITDA Margin for the periods presented.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Adjusted EBITDA |
|
$ |
60,834 |
|
|
$ |
56,322 |
|
|
$ |
114,434 |
|
|
$ |
92,912 |
|
Revenues |
|
|
201,561 |
|
|
|
174,826 |
|
|
|
391,442 |
|
|
|
306,896 |
|
Adjusted EBITDA Margin |
|
|
30.2 |
% |
|
|
32.2 |
% |
|
|
29.2 |
% |
|
|
30.3 |
% |
The following table presents a reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin by segment for the periods presented.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Adjusted EBITDA (1): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Americas |
|
$ |
52,954 |
|
|
$ |
49,208 |
|
|
$ |
99,773 |
|
|
$ |
83,055 |
|
International |
|
|
7,880 |
|
|
|
7,114 |
|
|
|
14,661 |
|
|
|
9,857 |
|
Adjusted EBITDA |
|
$ |
60,834 |
|
|
$ |
56,322 |
|
|
$ |
114,434 |
|
|
$ |
92,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Americas |
|
$ |
170,591 |
|
|
$ |
146,300 |
|
|
$ |
330,679 |
|
|
$ |
262,823 |
|
International |
|
|
33,044 |
|
|
|
30,080 |
|
|
|
64,785 |
|
|
|
46,642 |
|
Less: intersegment eliminations |
|
|
(2,074 |
) |
|
|
(1,554 |
) |
|
|
(4,022 |
) |
|
|
(2,569 |
) |
Total revenues |
|
$ |
201,561 |
|
|
$ |
174,826 |
|
|
$ |
391,442 |
|
|
$ |
306,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA Margin |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Americas |
|
|
31.0 |
% |
|
|
33.6 |
% |
|
|
30.2 |
% |
|
|
31.6 |
% |
International |
|
|
23.8 |
% |
|
|
23.7 |
% |
|
|
22.6 |
% |
|
|
21.1 |
% |
Adjusted EBITDA Margin |
|
|
30.2 |
% |
|
|
32.2 |
% |
|
|
29.2 |
% |
|
|
30.3 |
% |
38
Adjusted Net Income and Adjusted Diluted Earnings Per Share
Similar to Adjusted EBITDA, management believes that Adjusted Net Income and Adjusted Diluted Earnings Per Share are strong indicators of our overall operating performance and are useful to our management and investors as measures of comparative operating performance from period to period. We define Adjusted Net Income for a particular period as net income before taxes adjusted for debt-related costs, acquisition-related depreciation and amortization, share-based compensation, transaction and acquisition related charges, integration and restructuring charges, and other non-cash charges, to which we then apply the related effective tax rate. We define Adjusted Diluted Earnings Per Share as Adjusted Net Income divided by adjusted weighted average number of shares outstanding—diluted.
Adjusted Net Income was $38.0 million for the three months ended June 30, 2022, compared to $33.2 million for the three months ended June 30, 2021. Adjusted Net Income for the three months ended June 30, 2022 increased by $4.8 million, or 14.5%, compared to the three months ended June 30, 2021.
Adjusted Diluted Earnings Per Share was $0.25 for the three months ended June 30, 2022 consistent with the three months ended June 30, 2021.
Adjusted Net Income was $71.5 million for the six months ended June 30, 2022, compared to $53.7 million for the six months ended June 30, 2021. Adjusted Net Income for the six months ended June 30, 2022 increased by $17.8 million, or 33.2%, compared to the six months ended June 30, 2021.
Adjusted Diluted Earnings Per Share was $0.47 for the six months ended June 30, 2022, compared to $0.40 for the six months ended June 30, 2021. Adjusted Diluted Earnings Per Share for the six months ended June 30, 2022 increased by $0.07, or 17.5% compared to the six months ended June 30, 2021.
This growth was driven primarily by the same factors contributing to Adjusted EBITDA growth, though Adjusted Net Income and Adjusted Diluted Earnings Per Share are also impacted by changes in acquisition-related depreciation and amortization and changes in our capital structure that are captured in interest expense. The prepayment of the Company’s Successor First Lien and Successor Second Lien debt and gains or losses on the Company’s interest rate swaps impact the comparability of Adjusted Net Income and Adjusted Diluted Earnings Per Share across historical periods. The IPO issuance of shares impacts the comparability of Adjusted Diluted Earnings Per Share across historical periods.
The following tables present a reconciliation of Adjusted Net Income for the periods presented.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income (loss) |
|
$ |
14,236 |
|
|
$ |
3,770 |
|
|
$ |
27,249 |
|
|
$ |
(15,619 |
) |
Provision (benefit) for income taxes |
|
|
5,432 |
|
|
|
3,063 |
|
|
|
10,367 |
|
|
|
(1,372 |
) |
Income (loss) before provision for income taxes |
|
|
19,668 |
|
|
|
6,833 |
|
|
|
37,616 |
|
|
|
(16,991 |
) |
Debt-related charges(a) |
|
|
(1,669 |
) |
|
|
4,355 |
|
|
|
(6,484 |
) |
|
|
19,266 |
|
Acquisition-related depreciation and amortization(b) |
|
|
29,029 |
|
|
|
31,786 |
|
|
|
58,144 |
|
|
|
63,298 |
|
Share-based compensation |
|
|
1,943 |
|
|
|
2,664 |
|
|
|
3,802 |
|
|
|
3,226 |
|
Transaction and acquisition-related charges(c) |
|
|
1,179 |
|
|
|
382 |
|
|
|
2,677 |
|
|
|
4,366 |
|
Integration, restructuring, and other charges (d) |
|
|
525 |
|
|
|
73 |
|
|
|
(364 |
) |
|
|
523 |
|
Adjusted Net Income before income tax effect |
|
|
50,675 |
|
|
|
46,093 |
|
|
|
95,391 |
|
|
|
73,688 |
|
Less: Income tax effect(e) |
|
|
12,669 |
|
|
|
12,896 |
|
|
|
23,888 |
|
|
|
19,988 |
|
Adjusted Net Income |
|
$ |
38,006 |
|
|
$ |
33,197 |
|
|
$ |
71,503 |
|
|
$ |
53,700 |
|
39
The following table presents the calculation of Adjusted Diluted Earnings Per Share for the periods presented. Prior to the IPO, the equity awards under the Successor Plan were issued by the Company’s Parent. As a result, these awards are not considered equity awards issued by the Company, and therefore not included in the calculation of adjusted weighted average number of shares outstanding—diluted.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Diluted net income (loss) per share (GAAP) |
|
$ |
0.09 |
|
|
$ |
0.03 |
|
|
$ |
0.18 |
|
|
$ |
(0.12 |
) |
Adjusted Net Income adjustments per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income taxes |
|
|
0.04 |
|
|
|
0.02 |
|
|
|
0.07 |
|
|
|
(0.01 |
) |
Debt-related charges (a) |
|
|
(0.01 |
) |
|
|
0.03 |
|
|
|
(0.04 |
) |
|
|
0.14 |
|
Acquisition-related depreciation and amortization (b) |
|
|
0.19 |
|
|
|
0.25 |
|
|
|
0.38 |
|
|
|
0.49 |
|
Share-based compensation |
|
|
0.01 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.02 |
|
Transaction and acquisition related charges (c) |
|
|
0.01 |
|
|
|
0.00 |
|
|
|
0.02 |
|
|
|
0.03 |
|
Integration, restructuring, and other charges (d) |
|
|
0.00 |
|
|
|
0.00 |
|
|
|
(0.00 |
) |
|
|
0.00 |
|
Adjusted income taxes (e) |
|
|
(0.08 |
) |
|
|
(0.10 |
) |
|
|
(0.16 |
) |
|
|
(0.15 |
) |
Adjusted Diluted Earnings Per Share (Non-GAAP) |
|
$ |
0.25 |
|
|
$ |
0.25 |
|
|
$ |
0.47 |
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares outstanding used in computation of Adjusted Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares outstanding—diluted (GAAP) |
|
|
152,360,350 |
|
|
|
135,368,909 |
|
|
|
152,361,788 |
|
|
|
130,757,666 |
|
Options and restricted stock not included in weighted average number of shares outstanding—diluted (GAAP) (using treasury stock method) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,861,904 |
|
Adjusted weighted average number of shares outstanding—diluted (Non-GAAP) |
|
|
152,360,350 |
|
|
|
135,368,909 |
|
|
|
152,361,788 |
|
|
|
134,619,570 |
|
40
Liquidity and Capital Resources
Liquidity
The Company’s primary liquidity requirements are for working capital, continued investments in software development and other capital expenditures, and other strategic investments. Income taxes are currently not a significant use of funds but after the benefits of our net operating loss carryforwards are fully recognized, could become a material use of funds, depending on our future profitability and future tax rates. The Company’s liquidity needs are met primarily through cash flows from operations, as well as funds available under our revolving credit facility and proceeds from our term loan borrowings. Our cash flows from operations include cash received from customers, less cash costs to provide services to our customers, which includes general and administrative costs and interest payments.
As of June 30, 2022, we had $352.3 million in cash and cash equivalents and $100.0 million available under our revolving credit facility. As of June 30, 2022, we had $564.7 million of total debt outstanding. We believe our cash on hand, together with amounts available under our revolving credit facility, and cash provided by operating activities are and will continue to be adequate to meet our operational and business needs in the next twelve months. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings, or a combination of these potential sources of funds. In the event that we need access to additional cash, we may not be able to access the credit markets on commercially acceptable terms or at all. Our ability to fund future operating expenses and capital expenditures and our ability to meet future debt service obligations or refinance our indebtedness will depend on our future operating performance, which will be affected by general economic, financial, and other factors that may be beyond our control, including those described under our “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Share Repurchase Program
On August 2, 2022, the Company’s Board of Directors authorized the repurchase of up to $50.0 million of the Company’s common stock over the 12 month period ending August 2, 2023 (the “Repurchase Program”). Stock repurchases may be effected through open market repurchases at prevailing market prices, including through the use of block trades and trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, privately-negotiated transactions, through other transactions in accordance with applicable securities laws, or a combination of these methods on such terms and in such amounts as the Company deems appropriate. The Company is not obligated to repurchase any specific number of shares, and the timing, manner, value, and actual number of shares repurchased will depend on a variety of factors, including the Company’s stock price and liquidity requirements, other business considerations and general market and economic conditions. No shares will be purchased from SLP Fastball Aggregator, L.P. and its affiliates. The Company may discontinue or modify purchases without notice at any time. The Company plans to use its existing cash to fund repurchases made under the share repurchase program.
41
Long-Term Debt
In February 2020, a new financing structure was established consisting of a new First Lien Credit Agreement (“Successor First Lien Agreement”) and a new Second Lien Credit Agreement (“Successor Second Lien Agreement”) (collectively, the “Successor Credit Agreements”). The Successor First Lien Agreement provided financing in the form of a $670.0 million term loan due January 31, 2027 (“Successor First Lien Credit Facility”) and a $75.0 million new revolving credit facility due January 31, 2025 (“Successor Revolver”). The Successor Second Lien Agreement provided financing in the form of a $145.0 million term loan due January 31, 2028 (“Successor Second Lien Credit Facility”).
On February 1, 2021, we amended the Successor First Lien Agreement to fund $100.0 million of additional first lien term loans and reduce the applicable margins by 0.25%. The refinancing resulted in a loss on extinguishment of debt of $5.1 million, composed of the write-off of $4.5 million of unamortized deferred financing costs and $0.6 million of accrued interest and miscellaneous fees. In addition, we fully repaid the outstanding Successor Second Lien Agreement and recorded a loss on extinguishment of debt of $8.9 million, composed of the write-off of $7.3 million of unamortized deferred financing costs plus a $1.5 million prepayment premium, and $0.1 million of accrued interest and other miscellaneous fees.
In connection with the IPO, the Company entered into an amendment to increase the borrowing capacity under the Successor Revolver from $75.0 million to $100.0 million and extend the maturity date from January 31, 2025 to July 31, 2026.
Borrowings under the Successor First Lien Agreement bear interest at a rate per annum equal to an applicable margin plus, at our option, either (a) a base rate or (b) LIBOR, which is subject to a floor of 0.00% per annum. The applicable margins under the Successor First Lien Agreement are subject to stepdowns based on our first lien net leverage ratio. In connection with the closing of the IPO, each applicable margin was reduced further by 0.25%. In addition, the borrower, First Advantage Holdings, LLC, which is an indirect wholly-owned subsidiary of the Company, is required to pay a commitment fee on any unutilized commitments under the revolving credit facility. The commitment fee rate ranges between 0.25% and 0.50% per annum based on our first lien net leverage ratio. The borrower is also required to pay customary letter of credit fees.
The Successor First Lien Credit Facility amortizes in equal quarterly installments in aggregate annual amounts equal to 1.00% of the principal amount. The Successor Revolver has no amortization. The Successor First Lien Credit Facility requires the borrower to prepay outstanding term loans, subject to certain exceptions, with certain proceeds from non-ordinary course asset sales, issuance of debt not permitted by the credit agreement to be incurred and annual excess cash flows. In addition, any voluntary prepayment of term loans in connection with certain repricing transactions on or prior to August 1, 2021 were subject to a 1.00% prepayment premium. Otherwise, the borrower may voluntarily repay outstanding loans without premium or penalty, other than customary “breakage” costs.
In connection with the closing of the IPO, on June 30, 2021, the Company repaid $200.0 million of the Successor First Lien Credit Facility outstanding, of which $44.3 million was applied to all of the remaining quarterly amortizing principal payments due under the Successor First Lien Agreement. The remaining $564.7 million term loan is scheduled to mature on January 31, 2027. As a result of the prepayment, the Company recorded additional interest expense of $3.7 million associated with the accelerated amortization of the related deferred financing costs.
The Successor First Lien Agreement is unconditionally guaranteed by Fastball Parent, Inc., a wholly-owned subsidiary of the Company and the direct parent of the borrower, and material wholly owned domestic restricted subsidiaries of Fastball Parent, Inc. The Successor First Lien Agreement and the guarantees of such obligations, are secured, subject to permitted liens and other exceptions, by (1) a first priority security interest in certain tangible and intangible assets of the borrower and the guarantors and (2) a first-priority pledge of 100% of the capital stock of the borrower and of each wholly-owned material restricted subsidiary of the borrower and the guarantors (which pledge, in the case of any non-U.S. subsidiary of a U.S. subsidiary, does not include more than 65% of the voting stock of such non-U.S. subsidiary).
The credit agreement contains customary affirmative covenants, negative covenants, and events of default (including upon a change of control). The credit agreement also includes a “springing” first lien net leverage ratio test, applicable only to the revolving credit facility, that requires such ratio to be no greater than 7.75:1.00 on the last day of any fiscal quarter if more than 35.0% of the revolving credit facility is utilized on such date.
42
Cash Flow Analysis
Comparison of Cash Flows for the six months ended June 30, 2022 compared to the six months ended June 30, 2021
The following table is a summary of our cash flow activity for the periods presented:
|
|
Six Months Ended June 30, |
|
|||||
(in thousands) |
|
2022 |
|
|
2021 |
|
||
Net cash provided by operating activities |
|
$ |
96,412 |
|
|
$ |
56,098 |
|
Net cash used in investing activities |
|
|
(34,363 |
) |
|
|
(19,003 |
) |
Net cash provided by financing activities |
|
|
187 |
|
|
|
67,869 |
|
Cash Flows from Operating Activities
Net cash provided by operating activities was $96.4 million for the six months ended June 30, 20222, compared to $56.1 million for the six months ended June 30, 2021. Net cash provided by operating activities for the six months ended June 30, 2022 increased by $40.3 million compared to the six months ended June 30, 2021. Cash flows from operating activities was positively impacted by increased profitability related to the Company’s revenue growth from existing customers, new customer go-lives, and recent acquisitions and lower accounts receivable driven by increased cash collections.
Cash Flows from Investing Activities
Net cash used in investing activities was $34.4 million for the six months ended June 30, 2022, compared to $19.0 million for the six months ended June 30, 2021. Net cash used in investing activities for the six months ended June 30, 2022 increased by $15.4 million compared to the six months ended June 30, 2021. The cash flows used in investing activities for the six months ended June 30, 2022 were impacted by the $19.1 million acquisition of Form I-9 Compliance, net of cash acquired. The remaining investing cash flows are driven primarily by capitalized software development costs and purchases of property and equipment, which increased in 2022 as we continued to make incremental investments in our technology platform.
Cash Flows from Financing Activities
Net cash used in financing activities was $0.2 million for the six months ended June 30, 2022, compared to $67.9 million for the six months ended June 30, 2021. Net cash used in financing activities for the six months ended June 30, 2022 decreased by $67.7 million compared to the six months ended June 30, 2021. Cash flows from financing activities for the six months ended June 30, 2022 were primarily driven by share-based compensation activity. These inflows were offset by cash outflows related to payments on capital lease obligations and a deferred purchase of a software platform.
Net cash provided by financing activities for the six months ended June 30, 2021 was primarily driven by the Company's completion of its IPO on June 25, 2021. Cash inflows related to the IPO were $320.6 million, partially offset by the use of proceeds which consisted of a $200.0 million repayment of the Company’s Successor First Lien Credit Facility and $1.0 million of offering cost payments.
Net cash provided by financing activities for the six months ended June 30, 2021 was incrementally driven by the Company’s February 2021 debt refinancing which consisted of a refinancing of the Successor First Lien Credit Facility and the full repayment of the Successor Second Lien Credit Facility. Cash outflows related to this refinancing were $308.5 million, partially offset by cash inflows of $261.4 million. As part of the refinancing, the Company paid $1.3 million related to new debt issuance costs. The remaining outflows primarily consisted of amortizing principal payments due under the first lien term loan facility.
43
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of June 30, 2022, no material change had occurred in our market risks, compared with the disclosure in our Annual Report on Form 10-K filed with the SEC on March 23, 2022.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosures.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving their desired control objectives. Based on the evaluation of management’s disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, the disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control
During the quarter covered by this report, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
44
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
Information in response to this Item is included in “Part I — Item 1. — Note 12 — Commitments and Contingencies” and is incorporated by reference into Part II of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors.
As of June 30, 2022, no material changes had occurred in our risk factors, compared with the disclosure in our Annual Report on Form 10-K filed with the SEC on March 23, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On June 25, 2021, we completed our IPO. All shares sold were registered pursuant to a registration statement on Form S-1 (File No. 333-256622), declared effective by the SEC on June 22, 2021.
There has been no material change in the expected use of the net proceeds from our IPO as described in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 23, 2022.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not applicable
Item 5. Other Information.
None
45
Item 6. Exhibits.
Exhibit Number |
|
Description |
3.1 |
|
|
3.2 |
|
|
10.1 |
|
|
10.2 |
|
|
10.3 |
|
|
10.4 |
|
|
31.1 |
|
|
31.2 |
|
|
32.1 |
|
|
32.2 |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document). |
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
FIRST ADVANTAGE CORPORATION |
|
|
|
|
|
Date: August 4, 2022 |
|
By: |
/s/ Scott Staples |
|
|
|
Scott Staples |
|
|
|
Chief Executive Officer (principal executive officer) |
|
|
|
|
Date: August 4, 2022 |
|
By: |
/s/ David L. Gamsey |
|
|
|
David L. Gamsey |
|
|
|
Executive Vice President & Chief Financial Officer (principal financial officer) |
47
Exhibit 10.1
Grant ID:
RESTRICTED STOCK UNIT GRANT NOTICE
UNDER
FIRST ADVANTAGE CORPORATION
2021 OMNIBUS INCENTIVE PLAN
First Advantage Corporation (the “Company”), pursuant to its 2021 Omnibus Incentive Plan, as it may be amended and restated from time to time (the “Plan”), hereby grants to the Participant set forth below the number of Restricted Stock Units set forth below. The Restricted Stock Units are subject to all of the terms and conditions as set forth herein, in the Restricted Stock Unit Agreement (attached hereto or previously provided to the Participant in connection with a prior grant), and in the Plan, all of which are incorporated herein in their entirety. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.
|
|
Participant: |
|
Date of Grant: |
|
Number of Restricted Stock Units: |
|
Vesting Schedule: |
Subject to the Participant’s continued service with the Company on each applicable vesting date, 1/3rd of the Restricted Stock Units shall vest on each of the first three anniversaries of the Date of Grant; provided, that 100% of any unvested Restricted Stock Units shall vest in full upon a Change in Control, subject to the Participant’s continued service with the Company upon such Change in Control. |
* * *
FIRST ADVANTAGE CORPORATION
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
By:
Title:
THE UNDERSIGNED PARTICIPANT ACKNOWLEDGES RECEIPT OF THIS RESTRICTED STOCK UNIT GRANT NOTICE, THE RESTRICTED STOCK UNIT AGREEMENT AND THE PLAN, AND, AS AN EXPRESS CONDITION TO THE GRANT OF RESTRICTED STOCK UNITS HEREUNDER, AGREES TO BE BOUND BY THE TERMS OF THIS RESTRICTED STOCK UNIT GRANT NOTICE, THE RESTRICTED STOCK UNIT AGREEMENT AND THE PLAN.
PARTICIPANT1
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
By:
Date:
1 |
To the extent that the Company has established, either itself or through a third-party plan administrator, the ability to accept this award electronically, such acceptance shall constitute the Participant’s signature hereto. |
RESTRICTED STOCK UNIT AGREEMENT
UNDER
FIRST ADVANTAGE CORPORATION
2021 OMNIBUS INCENTIVE PLAN
Pursuant to the Restricted Stock Unit Grant Notice (the “Grant Notice”) delivered to the Participant (as defined in the Grant Notice), and subject to the terms of this Restricted Stock Unit Agreement (this “Restricted Stock Unit Agreement”) and First Advantage Corporation 2021 Omnibus Incentive Plan, as it may be amended and restated from time to time (the “Plan”), First Advantage Corporation (the “Company”) and the Participant agree as follows. Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Plan
Exhibit 10.2
Grant ID:
RESTRICTED STOCK UNIT GRANT NOTICE
UNDER
FIRST ADVANTAGE CORPORATION
2021 OMNIBUS INCENTIVE PLAN
First Advantage Corporation (the “Company”), pursuant to its 2021 Omnibus Incentive Plan, as it may be amended and restated from time to time (the “Plan”), hereby grants to the Participant set forth below the number of Restricted Stock Units set forth below. The Restricted Stock Units are subject to all of the terms and conditions as set forth herein, in the Restricted Stock Unit Agreement (attached hereto or previously provided to the Participant in connection with a prior grant), and in the Plan, all of which are incorporated herein in their entirety. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.
|
|
|
Participant: |
|
|
|
|
|
Date of Grant: |
|
|
|
|
|
Number of |
|
|
Restricted Stock Units: |
|
|
|
|
|
Vesting Schedule: |
|
Subject to the Participant’s continued service with the Company on each applicable vesting date, 100% of the Restricted Stock Units shall vest on the earlier of (i) the first anniversary of the Date of Grant, or, if earlier, the date which is the business day immediately preceding the date of the annual meeting of the Company’s stockholders in #GrantCustom1#, or (ii) a Change in Control. |
* * *
|
FIRST ADVANTAGE CORPORATION |
|
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
By:
Title:
THE UNDERSIGNED PARTICIPANT ACKNOWLEDGES RECEIPT OF THIS RESTRICTED STOCK UNIT GRANT NOTICE, THE RESTRICTED STOCK UNIT AGREEMENT AND THE PLAN, AND, AS AN EXPRESS CONDITION TO THE GRANT OF RESTRICTED STOCK UNITS HEREUNDER, AGREES TO BE BOUND BY THE TERMS OF THIS RESTRICTED STOCK UNIT GRANT NOTICE, THE RESTRICTED STOCK UNIT AGREEMENT AND THE PLAN.
PARTICIPANT1
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
By:
Date:
1 |
To the extent that the Company has established, either itself or through a third-party plan administrator, the ability to accept this award electronically, such acceptance shall constitute the Participant’s signature hereto. |
RESTRICTED STOCK UNIT AGREEMENT
UNDER
FIRST ADVANTAGE CORPORATION
2021 OMNIBUS INCENTIVE PLAN
Pursuant to the Restricted Stock Unit Grant Notice (the “Grant Notice”) delivered to the Participant (as defined in the Grant Notice), and subject to the terms of this Restricted Stock Unit Agreement (this “Restricted Stock Unit Agreement”) and First Advantage Corporation 2021 Omnibus Incentive Plan, as it may be amended and restated from time to time (the “Plan”), First Advantage Corporation (the “Company”) and the Participant agree as follows. Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Plan.
Exhibit 10.3
Grant ID:
OPTION GRANT NOTICE
UNDER
FIRST ADVANTAGE CORPORATION
2021 OMNIBUS INCENTIVE PLAN
First Advantage Corporation (the “Company”), pursuant to its 2021 Omnibus Incentive Plan, as it may be amended and restated from time to time (the “Plan”), hereby grants to the Participant set forth below the number of Options (each Option representing the right to purchase one share of Common Stock) set forth below, at an Exercise Price per share as set forth below. The Options are subject to all of the terms and conditions as set forth herein, in the Option Agreement (attached hereto or previously provided to the Participant in connection with a prior grant) and in the Plan, all of which are incorporated herein in their entirety. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.
Participant: |
|
Date of Grant: |
|
Number of Options: |
|
Exercise Price per Share: |
|
Option Period Expiration Date: |
10th anniversary of Date of Grant |
Type of Option: |
Nonqualified Stock Option |
Vesting Schedule: |
Subject to the Participant’s continued service with the Company and its Subsidiaries on each applicable vesting date, the Options shall vest as follows: |
Vesting Date |
Quantity |
|
|
|
|
|
|
|
|
|
|
|
Notwithstanding any of the foregoing, upon a Termination at any time by reason of death or Disability, any unvested Options that would have become vested and exercisable on the vesting date immediately following the date of such Termination, had the Participant remained in service with the Company and its Subsidiaries through such vesting date, will become vested and exercisable as of the Participant’s Termination. If a Change in Control occurs and during the 24 month period following such Change in Control, the Participant’s service is terminated by the Service Recipient without Cause or due to the Participant’s resignation for Good Reason (as defined below), all unvested Options shall become fully vested and exercisable upon the date of the Participant’s Termination. |
|
|
Definitions: |
“Good Reason” shall have the meaning given to such term in any employment or consulting agreement between the Participant and the Service Recipient in effect at the time of the Participant’s Termination. In the absence of any such employment or consulting agreement or the absence of any definition of “Good Reason” contained therein, “Good Reason” means the occurrence of one or more of the following events arising without the express written consent of the Participant, but only if the Participant notifies the Service Recipient in writing of the event within 60 days following the occurrence of the event, the event remains uncured after the expiration of 30 days from receipt of such notice, and the Participant resigns effective no later than 30 days following the Service Recipient’s failure to cure the event: (i) a material diminution in the Participant’s base salary or target bonus opportunity, (ii) the relocation of the Participant’s principal place of employment or service to a location more than 35 miles from the Participant’s then current principal place of employment or service, if a move to such other location materially increases the Participant’s commute, or (iii) any material breach by the Company or the Service Recipient of this Option Agreement or the Participant’s offer letter or employment agreement with the Service Recipient. |
* * *
FIRST ADVANTAGE CORPORATION
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
By:
Title:
THE UNDERSIGNED PARTICIPANT ACKNOWLEDGES RECEIPT OF THIS OPTION GRANT NOTICE, THE OPTION AGREEMENT AND THE PLAN, AND, AS AN EXPRESS CONDITION TO THE GRANT OF OPTIONS HEREUNDER, AGREES TO BE BOUND BY THE TERMS OF THIS OPTION GRANT NOTICE, THE OPTION AGREEMENT AND THE PLAN.
Participant1
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
By:
Date:
1 |
To the extent that the Company has established, either itself or through a third-party plan administrator, the ability to accept this award electronically, such acceptance shall constitute the Participant’s signature hereto. |
OPTION AGREEMENT
UNDER
FIRST ADVANTAGE CORPORATION
2021 OMNIBUS INCENTIVE PLAN
Pursuant to the Option Grant Notice (the “Grant Notice”) delivered to the Participant (as defined in the Grant Notice), and subject to the terms of this Option Agreement (this “Option Agreement”) and First Advantage Corporation 2021 Omnibus Incentive Plan, as it may be amended and restated from time to time (the “Plan”), First Advantage Corporation (the “Company”) and the Participant agree as follows. Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Plan.
Exhibit 10.4
Grant ID:
RESTRICTED STOCK UNIT GRANT NOTICE
UNDER
FIRST ADVANTAGE CORPORATION
2021 OMNIBUS INCENTIVE PLAN
First Advantage Corporation (the “Company”), pursuant to its 2021 Omnibus Incentive Plan, as it may be amended and restated from time to time (the “Plan”), hereby grants to the Participant set forth below the number of Restricted Stock Units set forth below. The Restricted Stock Units are subject to all of the terms and conditions as set forth herein, in the Restricted Stock Unit Agreement (attached hereto or previously provided to the Participant in connection with a prior grant), and in the Plan, all of which are incorporated herein in their entirety. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.
Participant: |
|
Date of Grant: |
|
Number of Restricted Stock Units: |
|
Vesting Schedule: |
Subject to the Participant’s continued employment or service with the Company Group on each applicable vesting date, the Restricted Stock Units shall vest as follows: |
Vesting Date |
Quantity |
|
|
|
|
|
|
|
|
|
|
|
Notwithstanding any of the foregoing, upon a Termination at any time by reason of death or Disability, any unvested Restricted Stock Units that would have become vested on the vesting date immediately following the date of such Termination, had the Participant remained in service with the Company Group through such vesting date, will become vested as of the Participant’s Termination. If a Change in Control occurs and during the 24 month period following such Change in Control, the Participant’s service is terminated by the Service Recipient without Cause or due to the Participant’s resignation for Good Reason (as defined below), all unvested Restricted Stock Units shall become fully vested upon the date of the Participant’s Termination. |
|
|
Definitions: |
“Good Reason” shall have the meaning given to such term in any employment or consulting agreement between the Participant and the Service Recipient in effect at the time of the Participant’s Termination. In the absence of any such employment or consulting agreement or the absence of any definition of “Good Reason” contained therein, “Good Reason” means the occurrence of one or more of the following events arising without the express written consent of the Participant, but only if the Participant notifies the Service Recipient in writing of the event within 60 days following the occurrence of the event, the event remains uncured after the expiration of 30 days from receipt of such notice, and the Participant resigns effective no later than 30 days following the Service Recipient’s failure to cure the event: (i) a material diminution in the Participant’s base salary or target bonus opportunity, (ii) the relocation of the Participant’s principal place of employment or service to a location more than 35 miles from the Participant’s then current principal place of employment or service, if a move to such other location materially increases the Participant’s commute, or (iii) any material breach by the Company or the Service Recipient of this Restricted Stock Unit Agreement or the Participant’s offer letter or employment agreement with the Service Recipient. |
* * *
FIRST ADVANTAGE CORPORATION
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
By:
Title:
THE UNDERSIGNED PARTICIPANT ACKNOWLEDGES RECEIPT OF THIS RESTRICTED STOCK UNIT GRANT NOTICE, THE RESTRICTED STOCK UNIT AGREEMENT AND THE PLAN, AND, AS AN EXPRESS CONDITION TO THE GRANT OF RESTRICTED STOCK UNITS HEREUNDER, AGREES TO BE BOUND BY THE TERMS OF THIS RESTRICTED STOCK UNIT GRANT NOTICE, THE RESTRICTED STOCK UNIT AGREEMENT AND THE PLAN.
Participant1
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
By:
Date:
1 |
To the extent that the Company has established, either itself or through a third-party plan administrator, the ability to accept this award electronically, such acceptance shall constitute the Participant’s signature hereto. |
RESTRICTED STOCK UNIT AGREEMENT
UNDER
FIRST ADVANTAGE CORPORATION
2021 OMNIBUS INCENTIVE PLAN
Pursuant to the Restricted Stock Unit Grant Notice (the “Grant Notice”) delivered to the Participant (as defined in the Grant Notice), and subject to the terms of this Restricted Stock Unit Agreement (this “Restricted Stock Unit Agreement”) and First Advantage Corporation 2021 Omnibus Incentive Plan, as it may be amended and restated from time to time (the “Plan”), First Advantage Corporation (the “Company”) and the Participant agree as follows. Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Plan.
Exhibit 31.1
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Scott Staples, certify that:
Date: August 4, 2022 |
|
By: |
/s/ Scott Staples |
|
|
|
Scott Staples |
|
|
|
Chief Executive Officer (principal executive officer) |
|
|
|
|
Exhibit 31.2
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David L. Gamsey, certify that:
Date: August 4, 2022 |
|
By: |
/s/ David L. Gamsey |
|
|
|
David L. Gamsey |
|
|
|
Executive Vice President & Chief Financial Officer (principal financial officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of First Advantage Corporation (the “Company”) for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
Date: August 4, 2022 |
|
By: |
/s/ Scott Staples |
|
|
|
Scott Staples |
|
|
|
Chief Executive Officer (principal executive officer) |
|
|
|
|
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of First Advantage Corporation (the “Company”) for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
Date: August 4, 2022 |
|
By: |
/s/ David L. Gamsey |
|
|
|
David L. Gamsey |
|
|
|
Executive Vice President & Chief Financial Officer (principal financial officer) |