10-Q
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a

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2023

OR

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

For the transition period from to

Commission File Number: 001-31666

 

First Advantage Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

84-3884690

(State or other jurisdiction of

incorporation or organization)

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

1 Concourse Parkway NE, Suite 200

Atlanta, GA

30328

(Address of principal executive offices)

(Zip Code)

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

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value per share

 

FA

 

The Nasdaq Stock Market LLC

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

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

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

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

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

As of November 6, 2023, the registrant had 145,120,007 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

2

 

 

 

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations and Comprehensive Income

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

 

 

 

PART II.

OTHER INFORMATION

38

 

 

 

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

38

Item 3.

Defaults Upon Senior Securities

39

Item 4.

Mine Safety Disclosures

39

Item 5.

Other Information

39

Item 6.

Exhibits

40

Signatures

41

 

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)

 

September 30, 2023

 

 

December 31, 2022

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

164,874

 

 

$

391,655

 

Restricted cash

 

 

133

 

 

 

141

 

Short-term investments

 

 

2,167

 

 

 

1,956

 

Accounts receivable (net of allowance for doubtful accounts of $1,571 and $1,348 at September 30, 2023 and December 31, 2022, respectively)

 

 

156,912

 

 

 

143,811

 

Prepaid expenses and other current assets

 

 

19,335

 

 

 

25,407

 

Income tax receivable

 

 

5,893

 

 

 

3,225

 

Total current assets

 

 

349,314

 

 

 

566,195

 

Property and equipment, net

 

 

89,673

 

 

 

113,529

 

Goodwill

 

 

820,970

 

 

 

793,080

 

Trade name, net

 

 

65,690

 

 

 

71,162

 

Customer lists, net

 

 

291,559

 

 

 

326,014

 

Deferred tax asset, net

 

 

3,188

 

 

 

2,422

 

Other assets

 

 

9,053

 

 

 

13,423

 

TOTAL ASSETS

 

$

1,629,447

 

 

$

1,885,825

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable

 

$

55,954

 

 

$

54,947

 

Accrued compensation

 

 

15,954

 

 

 

22,702

 

Accrued liabilities

 

 

16,502

 

 

 

16,400

 

Current portion of operating lease liability

 

 

4,733

 

 

 

4,957

 

Income tax payable

 

 

480

 

 

 

724

 

Deferred revenues

 

 

1,159

 

 

 

1,056

 

Total current liabilities

 

 

94,782

 

 

 

100,786

 

Long-term debt (net of deferred financing costs of $6,712 and $8,075 at September 30, 2023 and December 31, 2022, respectively)

 

 

558,012

 

 

 

556,649

 

Deferred tax liability, net

 

 

82,215

 

 

 

90,556

 

Operating lease liability, less current portion

 

 

3,847

 

 

 

7,879

 

Other liabilities

 

 

2,591

 

 

 

3,337

 

Total liabilities

 

 

741,447

 

 

 

759,207

 

COMMITMENTS AND CONTINGENCIES (Note 12)

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

Common stock - $0.001 par value; 1,000,000,000 shares authorized, 145,217,657 and 148,732,603 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

 

 

145

 

 

 

149

 

Additional paid-in-capital

 

 

972,063

 

 

 

1,176,163

 

Accumulated deficit

 

 

(61,354

)

 

 

(27,363

)

Accumulated other comprehensive loss

 

 

(22,854

)

 

 

(22,331

)

Total equity

 

 

888,000

 

 

 

1,126,618

 

TOTAL LIABILITIES AND EQUITY

 

$

1,629,447

 

 

$

1,885,825

 

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

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands, except share and per share amounts)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

REVENUES

 

$

200,364

 

 

$

205,986

 

 

$

561,199

 

 

$

597,428

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services (exclusive of depreciation and amortization below)

 

 

101,410

 

 

 

104,300

 

 

 

285,468

 

 

 

301,023

 

Product and technology expense

 

 

13,107

 

 

 

13,250

 

 

 

38,374

 

 

 

39,969

 

Selling, general, and administrative expense

 

 

30,217

 

 

 

28,034

 

 

 

88,881

 

 

 

87,715

 

Depreciation and amortization

 

 

32,419

 

 

 

34,744

 

 

 

96,341

 

 

 

103,185

 

Total operating expenses

 

 

177,153

 

 

 

180,328

 

 

 

509,064

 

 

 

531,892

 

INCOME FROM OPERATIONS

 

 

23,211

 

 

 

25,658

 

 

 

52,135

 

 

 

65,536

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER EXPENSE, NET:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

7,557

 

 

 

1,740

 

 

 

20,125

 

 

 

4,002

 

Total other expense, net

 

 

7,557

 

 

 

1,740

 

 

 

20,125

 

 

 

4,002

 

INCOME BEFORE PROVISION FOR INCOME TAXES

 

 

15,654

 

 

 

23,918

 

 

 

32,010

 

 

 

61,534

 

Provision for income taxes

 

 

4,881

 

 

 

6,709

 

 

 

9,530

 

 

 

17,076

 

NET INCOME

 

$

10,773

 

 

$

17,209

 

 

$

22,480

 

 

$

44,458

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation loss

 

 

(1,610

)

 

 

(10,253

)

 

 

(523

)

 

 

(23,089

)

COMPREHENSIVE INCOME

 

$

9,163

 

 

$

6,956

 

 

$

21,957

 

 

$

21,369

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

10,773

 

 

$

17,209

 

 

$

22,480

 

 

$

44,458

 

Basic net income per share

 

$

0.08

 

 

$

0.11

 

 

$

0.16

 

 

$

0.29

 

Diluted net income per share

 

$

0.07

 

 

$

0.11

 

 

$

0.15

 

 

$

0.29

 

Weighted average number of shares outstanding - basic

 

 

143,231,707

 

 

 

150,930,340

 

 

 

144,392,463

 

 

 

150,740,418

 

Weighted average number of shares outstanding - diluted

 

 

144,733,357

 

 

 

152,357,307

 

 

 

146,392,996

 

 

 

152,375,112

 

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

3


 

First Advantage Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

22,480

 

 

$

44,458

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

96,341

 

 

 

103,185

 

Amortization of deferred financing costs

 

 

1,362

 

 

 

1,347

 

Bad debt expense (recovery)

 

 

134

 

 

 

(6

)

Deferred taxes

 

 

(8,723

)

 

 

5,536

 

Share-based compensation

 

 

10,449

 

 

 

5,824

 

Loss on foreign currency exchange rates

 

 

26

 

 

 

115

 

Loss on disposal of fixed assets and impairment of ROU assets

 

 

1,724

 

 

 

197

 

Change in fair value of interest rate swaps

 

 

(2,201

)

 

 

(11,376

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(12,162

)

 

 

3,063

 

Prepaid expenses and other assets

 

 

8,661

 

 

 

700

 

Accounts payable

 

 

531

 

 

 

165

 

Accrued compensation and accrued liabilities

 

 

(8,389

)

 

 

(9,337

)

Deferred revenues

 

 

87

 

 

 

(116

)

Operating lease liabilities

 

 

(1,134

)

 

 

(773

)

Other liabilities

 

 

(198

)

 

 

1,055

 

Income taxes receivable and payable, net

 

 

(2,908

)

 

 

(1,195

)

Net cash provided by operating activities

 

 

106,080

 

 

 

142,842

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Acquisitions of businesses, net of cash acquired

 

 

(41,122

)

 

 

(19,044

)

Purchases of property and equipment

 

 

(1,798

)

 

 

(6,034

)

Capitalized software development costs

 

 

(18,781

)

 

 

(16,320

)

Other investing activities

 

 

(231

)

 

 

872

 

Net cash used in investing activities

 

 

(61,932

)

 

 

(40,526

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Cash dividends paid

 

 

(217,683

)

 

 

 

Share repurchases

 

 

(55,917

)

 

 

(2,248

)

Payments on finance lease obligations

 

 

(97

)

 

 

(673

)

Payments on deferred purchase agreements

 

 

(703

)

 

 

(704

)

Proceeds from issuance of common stock under share-based compensation plans

 

 

4,089

 

 

 

3,090

 

Net settlement of share-based compensation plan awards

 

 

(254

)

 

 

(292

)

Net cash used in financing activities

 

 

(270,565

)

 

 

(827

)

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

 

 

(372

)

 

 

(3,879

)

(Decrease) increase in cash, cash equivalents, and restricted cash

 

 

(226,789

)

 

 

97,610

 

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

 

 

391,796

 

 

 

292,790

 

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

 

$

165,007

 

 

$

390,400

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid for income taxes, net of refunds received

 

$

21,006

 

 

$

11,321

 

Cash paid for interest

 

$

33,787

 

 

$

17,640

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

Property and equipment acquired on account

 

$

25

 

 

$

105

 

Excise taxes on share repurchases incurred but not paid

 

$

558

 

 

$

 

Dividends declared but not paid

 

$

701

 

 

$

 

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

4


 

First Advantage Corporation

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

 

(in thousands)

 

Common Stock

 

 

Additional
Paid-In-Capital

 

 

Accumulated
Deficit

 

 

Accumulated Other
Comprehensive
Loss

 

 

Total Stockholders’
Equity

 

BALANCE – December 31, 2022

 

$

149

 

 

$

1,176,163

 

 

$

(27,363

)

 

$

(22,331

)

 

$

1,126,618

 

Share-based compensation

 

 

 

 

 

2,058

 

 

 

 

 

 

 

 

 

2,058

 

Repurchases of common stock

 

 

(2

)

 

 

 

 

 

(25,515

)

 

 

 

 

 

(25,517

)

Proceeds from issuance of common stock under share-based compensation plans

 

 

0

 

 

 

1,399

 

 

 

 

 

 

 

 

 

1,399

 

Common stock withheld for tax obligations on restricted stock unit and option settlement

 

 

0

 

 

 

(25

)

 

 

 

 

 

 

 

 

(25

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

869

 

 

 

869

 

Net income

 

 

 

 

 

 

 

 

1,925

 

 

 

 

 

 

1,925

 

BALANCE – March 31, 2023

 

$

147

 

 

$

1,179,595

 

 

$

(50,953

)

 

$

(21,462

)

 

$

1,107,327

 

Share-based compensation

 

 

 

 

 

3,601

 

 

 

 

 

 

 

 

 

3,601

 

Repurchases of common stock

 

 

(2

)

 

 

 

 

 

(27,337

)

 

 

 

 

 

(27,339

)

Proceeds from issuance of common stock under share-based compensation plans

 

 

0

 

 

 

705

 

 

 

 

 

 

 

 

 

705

 

Common stock withheld for tax obligations on restricted stock unit and option settlement

 

 

0

 

 

 

(186

)

 

 

 

 

 

 

 

 

(186

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

218

 

 

 

218

 

Net income

 

 

 

 

 

 

 

 

9,782

 

 

 

 

 

 

9,782

 

BALANCE – June 30, 2023

 

$

145

 

 

$

1,183,715

 

 

$

(68,508

)

 

$

(21,244

)

 

$

1,094,108

 

Share-based compensation

 

 

 

 

 

4,790

 

 

 

 

 

 

 

 

 

4,790

 

Repurchases of common stock

 

 

0

 

 

 

 

 

 

(3,619

)

 

 

 

 

 

(3,619

)

Cash dividends declared, $1.50 per share

 

 

 

 

 

(218,384

)

 

 

 

 

 

 

 

 

(218,384

)

Proceeds from issuance of common stock under share-based compensation plans

 

 

0

 

 

 

1,985

 

 

 

 

 

 

 

 

 

1,985

 

Common stock withheld for tax obligations on restricted stock unit and option settlement

 

 

0

 

 

 

(43

)

 

 

 

 

 

 

 

 

(43

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(1,610

)

 

 

(1,610

)

Net income

 

 

 

 

 

 

 

 

10,773

 

 

 

 

 

 

10,773

 

BALANCE – September 30, 2023

 

$

145

 

 

$

972,063

 

 

$

(61,354

)

 

$

(22,854

)

 

$

888,000

 

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

5


 

First Advantage Corporation

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Continued)

(Unaudited)

 

(in thousands)

 

Common Stock

 

 

Additional
Paid-In-Capital

 

 

Accumulated
Deficit

 

 

Accumulated Other
Comprehensive
Loss

 

 

Total Stockholders’
Equity

 

BALANCE – December 31, 2021

 

$

153

 

 

$

1,165,163

 

 

$

(31,441

)

 

$

(1,637

)

 

$

1,132,238

 

Share-based compensation

 

 

 

 

 

1,859

 

 

 

 

 

 

 

 

 

1,859

 

Proceeds from issuance of common stock under share-based compensation plans

 

 

0

 

 

 

547

 

 

 

 

 

 

 

 

 

547

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(1,517

)

 

 

(1,517

)

Net income

 

 

 

 

 

 

 

 

13,013

 

 

 

 

 

 

13,013

 

BALANCE – March 31, 2022

 

$

153

 

 

$

1,167,569

 

 

$

(18,428

)

 

$

(3,154

)

 

$

1,146,140

 

Share-based compensation

 

 

 

 

 

1,943

 

 

 

 

 

 

 

 

 

1,943

 

Proceeds from issuance of common stock under share-based compensation plans

 

 

0

 

 

 

723

 

 

 

 

 

 

 

 

 

723

 

Common stock withheld for tax obligations on restricted stock unit and option settlement

 

 

 

 

 

(98

)

 

 

 

 

 

 

 

 

(98

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(11,319

)