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, 2009
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to Section 13 or 15(d)
Commission File Number: 001-31666
First Advantage Corporation
(Exact Name of the Securities Exchange Act of 1934
Delaware | 84-3884690 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer |
1 Concourse Parkway NE, Suite 200 Atlanta, GA | 30328 |
(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 | ||
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 [X] ☒ No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] ☒ No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” “large accelerated filer”“smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act Rule 12-b)Act). Yes [ ]☐ No [X]
As of May 4, 2023, the registrant had 146,259,519 shares of outstanding Class A Common Stock of the registrant as of October 26, 2009.
Page | |||||||||||
PART I. | 2 | ||||||||||
Item 1. | 2 | ||||||||||
Condensed Consolidated Balance Sheets | 2 | ||||||||||
Condensed Consolidated Statements of | 3 | ||||||||||
4 | |||||||||||
Condensed Consolidated Statements of Changes in Stockholders’ Equity | 5 | ||||||||||
6 | |||||||||||
Item 2. |
| 18 | |||||||||
Item 3. | 34 | ||||||||||
Item 4. |
34 | |||||||
PART II. | 35 | ||||||
Item 1. | 35 | ||||||
Item 1A. | 35 | ||||||
Item 2. | 35 | ||||||
Item 3. | 35 | ||||||
Item 4. | 35 | ||||||
5. | 36 | ||||||
Item 6. | 38 | ||||||
39 |
PART I. I—FINANCIAL INFORMATION
Item
1.(in thousands) | September 30, | December 31, | ||||||
2009 | 2008 | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 57,784 | $ | 52,361 | ||||
Accounts receivable (less allowance for doubtful accounts | ||||||||
of $11,520 and $8,345, respectively) | 115,870 | 121,531 | ||||||
Prepaid expenses and other current assets | 8,929 | 9,032 | ||||||
Income tax receivable | 11,968 | - | ||||||
Due from affiliates | 3,180 | - | ||||||
Deferred income tax asset | 18,929 | 16,695 | ||||||
Total current assets | 216,660 | 199,619 | ||||||
Property and equipment, net | 76,638 | 81,807 | ||||||
Goodwill | 753,547 | 731,369 | ||||||
Customer lists, net | 45,820 | 53,813 | ||||||
Other intangible assets, net | 14,375 | 17,245 | ||||||
Database development costs, net | 12,406 | 11,837 | ||||||
Marketable equity securities | 48,293 | 30,365 | ||||||
Other assets | 5,994 | 3,684 | ||||||
Total assets | $ | 1,173,733 | $ | 1,129,739 | ||||
Liabilities and Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 35,382 | $ | 38,404 | ||||
Accrued compensation | 27,605 | 32,423 | ||||||
Accrued liabilities | 14,462 | 11,379 | ||||||
Deferred income | 5,704 | 7,381 | ||||||
Income tax payable | - | 2,609 | ||||||
Due to affiliates | - | 714 | ||||||
Current portion of long-term debt and capital leases | 20,446 | 9,891 | ||||||
Total current liabilities | 103,599 | 102,801 | ||||||
Long-term debt and capital leases, net of current portion | 1,028 | 22,938 | ||||||
Deferred income tax liability | 76,826 | 61,652 | ||||||
Other liabilities | 4,897 | 5,300 | ||||||
Total liabilities | 186,350 | 192,691 | ||||||
Equity: | ||||||||
First Advantage Corporation's stockholders' equity: | ||||||||
Preferred stock, $.001 par value; 1,000 shares authorized, | ||||||||
no shares issued or outstanding | - | - | ||||||
Class A common stock, $.001 par value; 125,000 shares | ||||||||
authorized; 12,095 and 11,772 shares issued and outstanding | ||||||||
as of September 30, 2009 and December 31, 2008, respectively | 12 | 12 | ||||||
Class B common stock, $.001 par value; 75,000 shares | ||||||||
authorized; 47,727 shares issued and outstanding | ||||||||
as of September 30, 2009 and December 31, 2008, respectively | 48 | 48 | ||||||
Additional paid-in capital | 502,411 | 502,600 | ||||||
Retained earnings | 425,637 | 390,602 | ||||||
Accumulated other comprehensive income (loss) | 14,414 | (412 | ) | |||||
Total First Advantage Corporation's stockholders' equity | 942,522 | 892,850 | ||||||
Noncontrolling interests | 44,861 | 44,198 | ||||||
Total equity | 987,383 | 937,048 | ||||||
Total liabilities and equity | $ | 1,173,733 | $ | 1,129,739 |
(in thousands, except share and per share amounts) |
| March 31, 2023 |
|
| December 31, 2022 |
| ||
ASSETS |
|
|
|
|
|
| ||
CURRENT ASSETS |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 400,156 |
|
| $ | 391,655 |
|
Restricted cash |
|
| 140 |
|
|
| 141 |
|
Short-term investments |
|
| 1,954 |
|
|
| 1,956 |
|
Accounts receivable (net of allowance for doubtful accounts of $1,344 and $1,348 at March 31, 2023 and December 31, 2022, respectively) |
|
| 127,962 |
|
|
| 143,811 |
|
Prepaid expenses and other current assets |
|
| 22,780 |
|
|
| 25,407 |
|
Income tax receivable |
|
| 2,482 |
|
|
| 3,225 |
|
Total current assets |
|
| 555,474 |
|
|
| 566,195 |
|
Property and equipment, net |
|
| 103,301 |
|
|
| 113,529 |
|
Goodwill |
|
| 793,293 |
|
|
| 793,080 |
|
Trade name, net |
|
| 69,387 |
|
|
| 71,162 |
|
Customer lists, net |
|
| 312,568 |
|
|
| 326,014 |
|
Deferred tax asset, net |
|
| 2,405 |
|
|
| 2,422 |
|
Other assets |
|
| 11,235 |
|
|
| 13,423 |
|
TOTAL ASSETS |
| $ | 1,847,663 |
|
| $ | 1,885,825 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
| ||
CURRENT LIABILITIES |
|
|
|
|
|
| ||
Accounts payable |
| $ | 47,484 |
|
| $ | 54,947 |
|
Accrued compensation |
|
| 12,990 |
|
|
| 22,702 |
|
Accrued liabilities |
|
| 16,782 |
|
|
| 16,400 |
|
Current portion of operating lease liability |
|
| 5,640 |
|
|
| 4,957 |
|
Income tax payable |
|
| 808 |
|
|
| 724 |
|
Deferred revenues |
|
| 1,256 |
|
|
| 1,056 |
|
Total current liabilities |
|
| 84,960 |
|
|
| 100,786 |
|
Long-term debt (net of deferred financing costs of $7,613 and $8,075 at March 31, 2023 and December 31, 2022, respectively) |
|
| 557,111 |
|
|
| 556,649 |
|
Deferred tax liability, net |
|
| 88,422 |
|
|
| 90,556 |
|
Operating lease liability, less current portion |
|
| 6,673 |
|
|
| 7,879 |
|
Other liabilities |
|
| 3,170 |
|
|
| 3,337 |
|
Total liabilities |
|
| 740,336 |
|
|
| 759,207 |
|
COMMITMENTS AND CONTINGENCIES (Note 11) |
|
|
|
|
|
| ||
EQUITY |
|
|
|
|
|
| ||
Common stock - $0.001 par value; 1,000,000,000 shares authorized, 147,026,264 and 148,732,603 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively |
|
| 147 |
|
|
| 149 |
|
Additional paid-in-capital |
|
| 1,179,595 |
|
|
| 1,176,163 |
|
Accumulated deficit |
|
| (50,953 | ) |
|
| (27,363 | ) |
Accumulated other comprehensive loss |
|
| (21,462 | ) |
|
| (22,331 | ) |
Total equity |
|
| 1,107,327 |
|
|
| 1,126,618 |
|
TOTAL LIABILITIES AND EQUITY |
| $ | 1,847,663 |
|
| $ | 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)
(in thousands, except per share amounts) | For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Service revenue | $ | 155,980 | $ | 174,664 | $ | 510,688 | $ | 545,341 | ||||||||
Reimbursed government fee revenue | 13,586 | 13,633 | 39,905 | 40,780 | ||||||||||||
Total revenue | 169,566 | 188,297 | 550,593 | 586,121 | ||||||||||||
Cost of service revenue | 51,429 | 53,520 | 191,030 | 160,723 | ||||||||||||
Government fees paid | 13,586 | 13,633 | 39,905 | 40,780 | ||||||||||||
Total cost of service | 65,015 | 67,153 | 230,935 | 201,503 | ||||||||||||
Gross margin | 104,551 | 121,144 | 319,658 | 384,618 | ||||||||||||
Salaries and benefits | 49,920 | 59,113 | 151,217 | 188,489 | ||||||||||||
Facilities and telecommunications | 6,741 | 7,789 | 20,265 | 24,073 | ||||||||||||
Other operating expenses | 18,453 | 19,899 | 56,397 | 65,642 | ||||||||||||
Depreciation and amortization | 10,993 | 10,898 | 32,574 | 31,520 | ||||||||||||
Impairment loss | - | 1,720 | - | 2,017 | ||||||||||||
Total operating expenses | 86,107 | 99,419 | 260,453 | 311,741 | ||||||||||||
Income from operations | 18,444 | 21,725 | 59,205 | 72,877 | ||||||||||||
Other (expense) income: | ||||||||||||||||
Interest expense | (234 | ) | (640 | ) | (903 | ) | (2,140 | ) | ||||||||
Interest income | 103 | 155 | 387 | 746 | ||||||||||||
Total other (expense), net | (131 | ) | (485 | ) | (516 | ) | (1,394 | ) | ||||||||
Income from continuing operations before income taxes | 18,313 | 21,240 | 58,689 | 71,483 | ||||||||||||
Provision for income taxes | 6,898 | 8,932 | 23,856 | 29,582 | ||||||||||||
Income from continuing operations | 11,415 | 12,308 | 34,833 | 41,901 | ||||||||||||
Loss from discontinued operations, net of tax | - | - | - | (4,241 | ) | |||||||||||
Net income | 11,415 | 12,308 | 34,833 | 37,660 | ||||||||||||
Less: Net loss attributable to noncontrolling interest | (35 | ) | (323 | ) | (202 | ) | (648 | ) | ||||||||
Net income attributable to First Advantage Corporation ("FADV") | $ | 11,450 | $ | 12,631 | $ | 35,035 | $ | 38,308 | ||||||||
Basic income per share: | ||||||||||||||||
Income from continuing operations attributable to FADV shareholders | $ | 0.19 | $ | 0.21 | $ | 0.59 | $ | 0.72 | ||||||||
Loss from discontinued operations attributable to FADV shareholders, net of tax | - | - | - | (0.07 | ) | |||||||||||
Net income attributable to FADV shareholders | $ | 0.19 | $ | 0.21 | $ | 0.59 | $ | 0.65 | ||||||||
Diluted income per share: | ||||||||||||||||
Income from continuing operations attributable to FADV shareholders | $ | 0.19 | $ | 0.21 | $ | 0.59 | $ | 0.72 | ||||||||
Loss from discontinued operations attributable to FADV shareholders, net of tax | - | - | - | (0.08 | ) | |||||||||||
Net income attributable to FADV shareholders | $ | 0.19 | $ | 0.21 | $ | 0.59 | $ | 0.64 | ||||||||
Weighted-average common shares outstanding: | ||||||||||||||||
Basic | 59,803 | 59,478 | 59,722 | 59,358 | ||||||||||||
Diluted | 60,086 | 59,529 | 59,867 | 59,446 | ||||||||||||
Amounts attributable to FADV shareholders: | ||||||||||||||||
Income from continuing operations | $ | 11,450 | $ | 12,631 | $ | 35,035 | $ | 42,549 | ||||||||
Loss from discontinued operations, net of tax | - | - | - | (4,241 | ) | |||||||||||
Net income | $ | 11,450 | $ | 12,631 | $ | 35,035 | $ | 38,308 |
|
| Three Months Ended March 31, |
| |||||
(in thousands, except share and per share amounts) |
| 2023 |
|
| 2022 |
| ||
REVENUES |
| $ | 175,520 |
|
| $ | 189,881 |
|
|
|
|
|
|
| |||
OPERATING EXPENSES: |
|
|
|
|
|
| ||
Cost of services (exclusive of depreciation and amortization below) |
|
| 91,061 |
|
|
| 96,431 |
|
Product and technology expense |
|
| 12,624 |
|
|
| 13,773 |
|
Selling, general, and administrative expense |
|
| 28,682 |
|
|
| 28,545 |
|
Depreciation and amortization |
|
| 31,866 |
|
|
| 34,034 |
|
Total operating expenses |
|
| 164,233 |
|
|
| 172,783 |
|
INCOME FROM OPERATIONS |
|
| 11,287 |
|
|
| 17,098 |
|
|
|
|
|
|
| |||
OTHER EXPENSE, NET: |
|
|
|
|
|
| ||
Interest expense, net |
|
| 8,681 |
|
|
| (850 | ) |
Total other expense, net |
|
| 8,681 |
|
|
| (850 | ) |
INCOME BEFORE PROVISION FOR INCOME TAXES |
|
| 2,606 |
|
|
| 17,948 |
|
Provision for income taxes |
|
| 681 |
|
|
| 4,935 |
|
NET INCOME |
| $ | 1,925 |
|
| $ | 13,013 |
|
|
|
|
|
|
| |||
Foreign currency translation income (loss) |
|
| 869 |
|
|
| (1,517 | ) |
COMPREHENSIVE INCOME |
| $ | 2,794 |
|
| $ | 11,496 |
|
|
|
|
|
|
| |||
NET INCOME |
| $ | 1,925 |
|
| $ | 13,013 |
|
Basic net income per share |
| $ | 0.01 |
|
| $ | 0.09 |
|
Diluted net income per share |
| $ | 0.01 |
|
| $ | 0.09 |
|
Weighted average number of shares outstanding - basic |
|
| 145,862,562 |
| |
| 150,538,700 |
|
Weighted average number of shares outstanding - diluted |
|
| 147,031,866 |
|
|
| 152,348,806 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
First Advantage Corporation
Condensed Consolidated Statements of Comprehensive Income Cash Flows
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
(in thousands) | September 30, | September 30, | ||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net income | $ | 11,415 | $ | 12,308 | $ | 34,833 | $ | 37,660 | ||||||||
Other comprehensive income (loss) , net of tax: | ||||||||||||||||
Foreign currency translation adjustments | 1,495 | (4,515 | ) | 4,298 | (2,435 | ) | ||||||||||
Unrealized gain (loss) on investment, net of tax | 2,795 | 4,174 | 10,528 | (25,483 | ) | |||||||||||
Total other comprehensive income (loss) , net of tax | 4,290 | (341 | ) | 14,826 | (27,918 | ) | ||||||||||
Comprehensive income | 15,705 | 11,967 | 49,659 | 9,742 | ||||||||||||
Less: Comprehensive loss attributable to the noncontrolling interest | (35 | ) | (323 | ) | (202 | ) | (648 | ) | ||||||||
Comprehensive income attributable to FADV | $ | 15,740 | $ | 12,290 | $ | 49,861 | $ | 10,390 |
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| ||
Net income |
| $ | 1,925 |
|
| $ | 13,013 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 31,866 |
|
|
| 34,034 |
|
Amortization of deferred financing costs |
|
| 461 |
|
|
| 445 |
|
Bad debt recovery |
|
| (40 | ) |
|
| (184 | ) |
Deferred taxes |
|
| (2,144 | ) |
|
| 1,698 |
|
Share-based compensation |
|
| 2,058 |
|
|
| 1,859 |
|
Gain on foreign currency exchange rates |
|
| (10 | ) |
|
| (411 | ) |
Loss on disposal of fixed assets and impairment of ROU assets |
|
| 1,222 |
|
|
| 163 |
|
Change in fair value of interest rate swaps |
|
| 1,879 |
|
|
| (5,260 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| 15,980 |
|
|
| 8,862 |
|
Prepaid expenses and other assets |
|
| 2,933 |
|
|
| 1,151 |
|
Accounts payable |
|
| (7,618 | ) |
|
| (1,329 | ) |
Accrued compensation and accrued liabilities |
|
| (11,828 | ) |
|
| (13,215 | ) |
Deferred revenues |
|
| 209 |
|
|
| (254 | ) |
Operating lease liabilities |
|
| (110 | ) |
|
| (405 | ) |
Other liabilities |
|
| 980 |
|
|
| (26 | ) |
Income taxes receivable and payable, net |
|
| 836 |
|
|
| 1,442 |
|
Net cash provided by operating activities |
|
| 38,599 |
|
|
| 41,583 |
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
| ||
Acquisitions of businesses, net of cash acquired |
|
| — |
|
|
| (18,920 | ) |
Purchases of property and equipment |
|
| (42 | ) |
|
| (2,909 | ) |
Capitalized software development costs |
|
| (6,056 | ) |
|
| (4,643 | ) |
Other investing activities |
|
| 15 |
|
|
| — |
|
Net cash used in investing activities |
|
| (6,083 | ) |
|
| (26,472 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
| ||
Share repurchases |
|
| (25,266 | ) |
|
| — |
|
Payments on finance lease obligations |
|
| (37 | ) |
|
| (238 | ) |
Payments on deferred purchase agreements |
|
| (234 | ) |
|
| (349 | ) |
Proceeds from issuance of common stock under share-based compensation plans |
|
| 1,399 |
|
|
| 547 |
|
Net settlement of share-based compensation plan awards |
|
| (25 | ) |
|
| — |
|
Net cash used in financing activities |
|
| (24,163 | ) |
|
| (40 | ) |
Effect of exchange rate on cash, cash equivalents, and restricted cash |
|
| 147 |
|
|
| 58 |
|
Increase in cash, cash equivalents, and restricted cash |
|
| 8,500 |
|
|
| 15,129 |
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 391,796 |
|
|
| 292,790 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 400,296 |
|
| $ | 307,919 |
|
|
|
|
|
|
|
| ||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
| ||
Cash paid for income taxes, net of refunds received |
| $ | 2,049 |
|
| $ | 1,713 |
|
Cash paid for interest |
| $ | 10,625 |
|
| $ | 4,774 |
|
NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
| ||
Property and equipment acquired on account |
| $ | 275 |
|
| $ | 206 |
|
Excise taxes on share repurchases incurred but not paid |
| $ | 252 |
|
| $ | — |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
First Advantage Corporation
Condensed Consolidated StatementStatements of Changes in Stockholders’ Equity
(Unaudited)
Accumulated | ||||||||||||||||||||||||||||
(in thousands) | Common | Common | Additional | Other | ||||||||||||||||||||||||
Stock | Stock | Paid-in | Retained | Comprehensive | Noncontrolling | |||||||||||||||||||||||
Shares | Amount | Capital | Earnings | (Loss) Income | Interests | Total | ||||||||||||||||||||||
Balance at December 31, 2008 | 59,499 | $ | 60 | $ | 502,600 | $ | 390,602 | $ | (412 | ) | $ | 44,198 | $ | 937,048 | ||||||||||||||
Net income | - | - | - | 35,035 | - | (202 | ) | 34,833 | ||||||||||||||||||||
Purchase of subsidiary shares from | ||||||||||||||||||||||||||||
noncontrolling interest | - | - | (6,779 | ) | - | - | 865 | (5,914 | ) | |||||||||||||||||||
Class A Shares issued in connection | ||||||||||||||||||||||||||||
with share based compensation | 323 | - | 830 | - | - | - | 830 | |||||||||||||||||||||
Share based compensation | - | - | 5,760 | - | - | - | 5,760 | |||||||||||||||||||||
Foreign currency translation | - | - | - | - | 4,298 | - | 4,298 | |||||||||||||||||||||
Unrealized gain on investment, net of tax | - | - | - | - | 10,528 | - | 10,528 | |||||||||||||||||||||
Balance at September 30, 2009 | 59,822 | $ | 60 | $ | 502,411 | $ | 425,637 | $ | 14,414 | $ | 44,861 | $ | 987,383 |
(in thousands) |
| Common Stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated Other |
|
| Total Stockholders’ |
| |||||
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 |
|
(in thousands) |
| Common Stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated Other |
|
| Total Stockholders’ |
| |||||
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 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
First Advantage Corporation
(in thousands) | For the Nine Months Ended | |||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 34,833 | $ | 37,660 | ||||
Loss from discontinued operations | - | (4,241 | ) | |||||
Income from continuing operations | $ | 34,833 | $ | 41,901 | ||||
Adjustments to reconcile income from continuing operations to net | ||||||||
cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 32,574 | 31,520 | ||||||
Impairment loss | - | 2,017 | ||||||
Bad debt expense | 7,013 | 5,867 | ||||||
Share based compensation | 5,760 | 7,344 | ||||||
Deferred income tax | 3,132 | 4,288 | ||||||
Change in operating assets and liabilities, net of acquisitions: | ||||||||
Accounts receivable | (2,220 | ) | 13,206 | |||||
Prepaid expenses and other current assets | 9 | 541 | ||||||
Other assets | (2,597 | ) | (790 | ) | ||||
Accounts payable | (2,908 | ) | (5,433 | ) | ||||
Accrued liabilities | 4,069 | (1,478 | ) | |||||
Deferred income | (1,630 | ) | (938 | ) | ||||
Due from affiliates | (3,894 | ) | (5,825 | ) | ||||
Income tax accounts | (12,072 | ) | (52,452 | ) | ||||
Accrued compensation and other liabilities | (5,050 | ) | (6,739 | ) | ||||
Net cash provided by operating activities - continuing operations | 57,019 | 33,029 | ||||||
Net cash provided by operating activities - discontinued operations | - | 754 | ||||||
Cash flows from investing activities: | ||||||||
Database development costs | (2,955 | ) | (3,203 | ) | ||||
Purchases of property and equipment | (14,517 | ) | (24,337 | ) | ||||
Cash paid for acquisitions | (19,465 | ) | (51,191 | ) | ||||
Proceeds from sale of assets | 900 | - | ||||||
Cash balance of companies acquired | - | 331 | ||||||
Net cash used in investing activities - continuing operations | (36,037 | ) | (78,400 | ) | ||||
Net cash provided by investing activities - discontinued operations | - | 1,721 | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from long-term debt | 50,860 | 100,260 | ||||||
Repayment of long-term debt | (62,260 | ) | (85,455 | ) | ||||
Cash contributions from First American to LeadClick Holdings, LLC | - | 2,402 | ||||||
Proceeds from class A shares issued in connection with stock option | ||||||||
plan and employee stock purchase plan | 830 | 4,566 | ||||||
Cash paid for acquisition of noncontrolling interests | (5,914 | ) | (8,008 | ) | ||||
Distribution to noncontrolling interests | - | (1,127 | ) | |||||
Tax expense related to stock options | - | (204 | ) | |||||
Net cash (used in) provided by financing activities | (16,484 | ) | 12,434 | |||||
Effect of exchange rates on cash | 925 | (648 | ) | |||||
Increase (decrease) in cash and cash equivalents | 5,423 | (31,110 | ) | |||||
Cash and cash equivalents at beginning of period | 52,361 | 76,060 | ||||||
Change in cash and cash equivalents of discontinued operations | - | 540 | ||||||
Cash and cash equivalents at end of period | $ | 57,784 | $ | 45,490 |
For the Nine Months Ended | ||||||||
(in thousands) | September 30, | |||||||
2009 | 2008 | |||||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 684 | $ | 2,106 | ||||
Cash received for income tax refunds | $ | 1,081 | $ | 1,248 | ||||
Cash paid for income taxes | $ | 33,996 | $ | 75,661 | ||||
Non-cash investing and financing activities: | ||||||||
Notes issued in connection with acquisitions | $ | - | $ | 3,026 | ||||
Class A shares issued for compensation | $ | 4,997 | $ | 2,788 | ||||
Unrealized gain (loss) on investment, net of tax | $ | 10,528 | $ | (25,483 | ) |
Notes to Unaudited Condensed Consolidated Financial Statements
First Advantage Corporation, (the “Company” or “First Advantage” or “FADV”) is a global risk mitigation and business solutions provider and operates in five primary business segments: Credit Services, Data Services, Employer Services, Multifamily Services, and Investigative and Litigation Support Services. In the first quarter of 2009, the Company consolidated the previous Lender Services and Dealer Services segments and moved the consumer credit business from the Data Services segment to create the Credit Services segment. The prior periods have been recast to reflect the changed segments.
The Company derives its revenues from a variety of background check and compliance services performed across all phases of the Company's Class B shares of common stock, which represents approximately 80% of equity interests of the Companyworkforce lifecycle from pre-onboarding services to post-onboarding and approximately 98% of the voting power of the Company as of September 30, 2009. The Class B common stock owned by First American is entitled to ten votes per share on all matters presented to the stockholders for vote.
Pre-onboarding services are comprised of an exchange offer (the “Offer”)extensive array of products and solutions that customers typically utilize to acquire allenhance 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 the outstanding shares of the Company’s Class A common stock (“Class A Shares”) not ownedcontinuous monitoring and re-screening solutions which are important tools to help keep their end customers, workforces, and other stakeholders safer, more productive, and more compliant. Our post-monitoring solutions include criminal records, healthcare sanctions, motor vehicle records, social media, and global sanctions screening continuously or controlledat regular intervals selected by First American at an exchange ratio of 0.58 of a First American common share per Class A Share (See Note 11 – Subsequent Event). On October 9, 2009, First American filed a Registration Statement on Form S-4 with the Securitiesour customers.
Adjacent products include products that complement our pre-onboarding and Exchange Commission (the “SEC”), which contains the Offer to Exchangepost-onboarding products and related materials. On that same day, the Company filed with the SEC a Solicitation/Recommendation on Schedule 14D-9 pursuant to which the Special Committee of the Board of Directors of the Company recommended on behalf of the Board of Directors of the Company, that the stockholders of the Company accept the Offersolutions. This includes fleet / vehicle compliance, hiring tax credits and tender their shares pursuant to the Offer. The Offer is described in further detail in Note 11 – Subsequent Event.
Basis of Presentation
The condensed consolidated financial statements. Instatements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, areconsisting of a normal recurring natureadjustments, necessary to summarize fairly the Company’s financial position, results of operations, and are considered necessary for a fair statement of the resultscash flows for the interim period.periods presented. The year-end balance sheet data was derived from auditedinterim results reported in these condensed consolidated financial statements but doesshould not include all disclosures required by generally accepted accounting principles. This reportbe 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, 20082022.
The Company has historically experienced seasonality with respect to certain customer industries as a result of fluctuations in hiring volumes and as amendedother economic activities. Generally, the Company’s highest revenues have historically occurred between October and November of each year, driven by many customers’ pre-holiday season hiring initiatives.
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 Current Form 8-K filedcondensed 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, revenue recognition, capitalized software, and income tax liabilities and assets. The Company bases its estimates on October 8, 2009historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.
6
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 Securitiescreditor. Assets and Exchange Commission.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 5.
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 March 31, 2023 (in thousands):
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Assets |
|
|
|
|
|
|
|
|
| |||
Interest rate collars |
| $ | — |
|
| $ | 9,007 |
|
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
| |||
Interest rate swap |
| $ | — |
|
| $ | 1,444 |
|
| $ | — |
|
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).
Impairment of Long-Lived Assets — The Company regularly evaluates whether events and circumstances have occurred that indicate the carrying amount of property and equipment, ROU assets, and finite-life intangible assets may not be recoverable or that indicate useful lives warrant revision. The Company determined that triggering events occurred for certain leases exited during the three months ended March 31, 2023 which required an impairment review of certain ROU assets. Based on the results of the analysis, the Company recorded non-cash impairment charges of $1.1 million for the three and nine months ended September 30, 2008March 31, 2023, primarily related to office space exited during the year. Write down of abandoned property and at December 31, 2008 have been reclassified to conform with the 2009 presentation.
Concentrations of Credit Risk — Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and 2008cash equivalents and accounts receivable. Cash is deposited with major financial institutions and, at times, such balances with each financial institution may be in excess of insured limits. The Company has not experienced, and does not anticipate, any losses with respect to its cash deposits. Accounts receivable represent credit granted to customers for services provided. The Company performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on accounts receivable. The Company did not have any customers which represented 10% or more of consolidated revenues for the three months ended March 31, 2023 and 2022. Additionally, the Company did not have any customers which represented 10% or more of consolidated accounts receivable, net for any period presented.
7
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 $0.9 million and $(1.5) million for the three months ended March 31, 2023 and 2022, respectively.
Gains or losses resulting from foreign currency transactions are included in the accompanying condensed consolidated statements of operations and comprehensive income, 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 (loss) income included in the accompanying condensed consolidated statements of operations and comprehensive income was approximately $(0.5) million and $1.0 million for the three months ended March 31, 2023 and 2022, respectively.
Recent Accounting Pronouncements — There were no accounting pronouncements issued during the three months ended March 31, 2023 that are expected to have a material impact on the condensed consolidated financial statements.
Recently Adopted Accounting Pronouncements — In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. Prior to the issuance of this guidance, contract assets and contract liabilities were recognized by the acquirer at fair value on the acquisition date. This guidance is effective for annual reporting periods beginning after December 15, 2022 including interim periods therein. Adoption of this standard on January 1, 2023 did not have a material impact on the condensed consolidated financial statements. However, if the Company acquires material customer contracts in the future, this standard will impact the accounting for those arrangements which may have a material effect on future results.
Note 3. Property and Equipment, net
Property and equipment, net as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Furniture and equipment |
| $ | 23,189 |
|
| $ | 23,422 |
|
Capitalized software for internal use, acquired by business combination |
|
| 227,405 |
|
|
| 227,405 |
|
Capitalized software for internal use, developed internally or otherwise purchased |
|
| 66,369 |
|
|
| 60,187 |
|
Leasehold improvements |
|
| 2,802 |
|
|
| 2,957 |
|
Total property and equipment |
|
| 319,765 |
|
|
| 313,971 |
|
Less: accumulated depreciation and amortization |
|
| (216,464 | ) |
|
| (200,442 | ) |
Property and equipment, net |
| $ | 103,301 |
|
| $ | 113,529 |
|
Depreciation and amortization expense of property and equipment was approximately $16.4 million and $16.8 million for the three months ended March 31, 2023 and 2022, respectively.
8
Note 4. Goodwill, Trade Name, and Customer Lists
The changes in the carrying amount of goodwill for the three months ended March 31, 2023 by reportable segment were as follows (in thousands):
|
| Americas |
|
| International |
|
| Total |
| |||
Balance – December 31, 2022 |
| $ | 677,171 |
|
| $ | 115,909 |
|
| $ | 793,080 |
|
Foreign currency translation |
|
| 37 |
|
|
| 176 |
|
|
| 213 |
|
Balance – March 31, 2023 |
| $ | 677,208 |
|
| $ | 116,085 |
|
| $ | 793,293 |
|
The following summarizes the gross carrying value and accumulated amortization for the Company’s trade name and customer lists as of March 31, 2023 and December 31, 2022 (in thousands):
|
| March 31, 2023 | ||||||||||||
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Useful Life | |||
Trade name |
| $ | 94,000 |
|
| $ | (24,613 | ) |
| $ | 69,387 |
|
| 20 years |
Customer lists |
|
| 516,009 |
|
|
| (203,441 | ) |
|
| 312,568 |
|
| 13-14 years |
Total |
| $ | 610,009 |
|
| $ | (228,054 | ) |
| $ | 381,955 |
|
|
|
|
| December 31, 2022 | ||||||||||||
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Useful Life | |||
Trade name |
| $ | 93,959 |
|
| $ | (22,797 | ) |
| $ | 71,162 |
|
| 20 years |
Customer lists |
|
| 515,762 |
|
|
| (189,748 | ) |
|
| 326,014 |
|
| 13-14 years |
Total |
| $ | 609,721 |
|
| $ | (212,545 | ) |
| $ | 397,176 |
|
|
|
Amortization expense of trade name and customer lists was approximately $15.4 million and $17.2 million for the three months ended March 31, 2023 and 2022, respectively. Trade name and customer lists are amortized on an accelerated basis based upon their estimated useful life.
Note 5. Long-term Debt
The fair value of the Company’s long-term debt obligations approximated their book value as of March 31, 2023 and December 31, 2022 and consisted of the following (in thousands):
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||
First Lien Credit Facility |
| $ | 564,724 |
|
| $ | 564,724 |
|
Less: Deferred financing costs |
|
| (7,613 | ) |
|
| (8,075 | ) |
Long-term debt, net |
| $ | 557,111 |
|
| $ | 556,649 |
|
The Company is a party to a Second Amended First Lien Credit Agreement with its banking group (“Credit Agreement”), which provides for a term loan of $766.6 million due January 31, 2027 carrying an interest rate of 2.75% to 3.00%, based on the first lien ratio, plus LIBOR (“First Lien Credit Facility”) and a $100.0 million revolving credit facility due July 31, 2026 (“Revolver”). The Credit Agreement is collateralized by substantially all assets and capital stock owned by direct and indirect domestic subsidiaries and are governed by certain restrictive covenants including limitations on indebtedness, liens, and other corporate actions such as investments and acquisitions. In the event the Company’s outstanding indebtedness under the Revolver exceeds 35% of the aggregate principal amount of the revolving commitments then in effect, it is required to maintain a consolidated first lien leverage ratio no greater than 7.75 to 1.00. As of March 31, 2023, there were no outstanding borrowings under the Revolver and $564.7 million outstanding under the First Lien Credit Facility. As the Company had no outstanding amounts under the Revolver, it was not subject to the consolidated first lien leverage ratio covenant and was compliant with all other covenants under the agreement as of March 31, 2023.
9
Note 6. Derivatives
To reduce exposure to variability in expected future cash outflows on variable rate debt attributable to the changes in one-month LIBOR, the Company has historically entered into interest rate derivative instruments to economically offset a portion of this risk and may do so in the future.
As of March 31, 2023, the Company had the following outstanding derivatives that were not designated as a hedge in qualifying hedging relationships:
Product | Effective Date | Maturity Date | Notional | Rate | ||||
Interest rate collars | February 29, 2020 | February 29, 2024 | $300.0 million | 0.48% floor/1.50% cap | ||||
Interest rate swap | February 28, 2023 | February 28, 2026 | $100.0 million | 4.36% |
Derivatives not designated as hedges are not necessarilyspeculative and are used to manage the Company’s exposure to interest rate movements; however, the Company has not elected to apply hedge accounting for these instruments.
The following is a summary of location and fair value of the financial positions recorded related to the derivative instruments (in thousands):
|
|
|
| Fair Value |
| |||||
Derivatives not designated |
| Balance Sheet Location |
| As of |
|
| As of |
| ||
Interest rate collars |
| Prepaid expenses and other current assets |
| $ | 9,007 |
|
| $ | 11,570 |
|
Interest rate swap |
| Accrued liabilities |
| $ | 1,444 |
|
| $ | — |
|
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 March 31, |
| |||||
Derivatives not designated |
| Income Statement Location |
| 2023 |
|
| 2022 |
| ||
Interest rate collars |
| Interest expense, net |
| $ | (435 | ) |
| $ | 5,260 |
|
Interest rate swap |
| Interest expense, net |
| $ | (1,444 | ) |
| $ | — |
|
Note 7. Income Taxes
The Company’s income tax expense and balance sheet accounts reflect the results of the Company and its subsidiaries.
For the three months ended March 31, 2023, 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 months ended March 31, 2023 was 26.1%. The Company’s effective income tax rate for the three months ended March 31, 2023 was higher than the U.S. federal statutory rate of 21% primarily due to the Global Intangible Low-Taxed Income (“GILTI”) inclusion, nondeductible share-based compensation, and U.S. state income taxes.
The effective income tax rate for the three months ended March 31, 2022 was 27.5%. The Company’s effective income tax rate for the three months ended March 31, 2022 was higher than the U.S. federal statutory rate of 21%, primarily due to GILTI inclusion, nondeductible share-based compensation, and U.S. state income taxes.
10
Note 8. Revenues
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.
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.
Contract balances are generated when the revenues recognized in a given period varies from billing. A contract asset is created when the Company performs a service for a customer and recognizes more revenues than what has been billed. The contract asset balance was $7.2 million and $6.5 million as of March 31, 2023 and December 31, 2022, respectively, and is included in accounts receivable, net in the accompanying condensed consolidated balance sheets.
A contract liability is created when the Company transfers a good or service to a customer and recognizes less than what has been billed. The Company recognizes these contract liabilities as deferred revenues when the Company has an obligation to perform services for a customer in the future and has already received consideration from the customer. The contract liability balance was $1.3 million and $1.1 million as of March 31, 2023 and December 31, 2022, respectively, and is included in deferred revenues in the accompanying condensed consolidated balance sheets. An immaterial amount of revenues was recognized in the current period related to the beginning balance of deferred revenues.
For additional disclosures about the disaggregation of our revenues see Note 14, “Reportable Segments.”
11
Note 9. 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 as follows (in thousands):
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Share-based compensation expense |
|
|
|
|
|
| ||
Cost of services |
| $ | 275 |
|
| $ | 274 |
|
Product and technology expense |
|
| 457 |
|
|
| 204 |
|
Selling, general, and administrative expense |
|
| 1,326 |
|
|
| 1,381 |
|
Total share-based compensation expense |
| $ | 2,058 |
|
| $ | 1,859 |
|
2020 Equity Plan
Prior to the Company’s Initial Public Offering (“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 “2020 Equity Plan”). Awards issued under the 2020 Equity Plan consist of options. No awards were issued under the plan during the period from January 1, 2023 through March 31, 2023.
A summary of the option and profits interests activity for the three months ended March 31, 2023 is as follows
|
|
|
| Options |
|
| Weighted Average |
|
| Weighted Average Remaining Contractual Term |
| Aggregate Intrinsic Value | ||
December 31, 2022 |
| Grants outstanding |
|
| 2,843,342 |
|
| $ | 6.66 |
|
|
|
|
|
|
| Grants exercised |
|
| (85,760 | ) |
| $ | 6.68 |
|
|
|
|
|
|
| Grants cancelled/forfeited |
|
| (250,856 | ) |
| $ | 6.69 |
|
|
|
|
|
March 31, 2023 |
| Grants outstanding |
|
| 2,506,726 |
|
| $ | 6.66 |
|
| 6.8 Years |
| $18.3 million |
March 31, 2023 |
| Grants vested |
|
| 806,379 |
|
| $ | 6.64 |
|
| 6.6 Years |
| $5.9 million |
March 31, 2023 |
| Grants unvested |
|
| 1,700,347 |
|
| $ | 6.67 |
|
|
|
|
|
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 17,525,000 shares of common stock reserved. The number of reserved shares automatically increases on the first day of each calendar year commencing on January 1, 2022 and ending on January 1, 2030, in an amount equal to the lesser of (x) 2.5% of the total number of shares of common stock outstanding on the last day of the immediately preceding calendar year and (y) a number of shares as determined by the Board of Directors. As of March 31, 2023, 17,204,287 shares were available for issuance under the 2021 Equity Plan.
Stock Options
A summary of the option activity for the three months ended March 31, 2023 is as follows:
|
|
|
| Options |
|
| Weighted Average |
|
| Weighted Average Remaining Contractual Term |
| Aggregate Intrinsic Value |
| |||
December 31, 2022 |
| Grants outstanding |
|
| 4,311,662 |
|
| $ | 15.24 |
|
|
|
|
|
| |
|
| Grants issued |
|
| 71,099 |
|
| $ | 13.70 |
|
|
|
|
|
| |
March 31, 2023 |
| Grants outstanding |
|
| 4,382,761 |
|
| $ | 15.21 |
|
| 8.4 Years |
| $0.0 million |
| |
March 31, 2023 |
| Grants vested |
|
| 1,392,123 |
|
| $ | 15.16 |
|
| 8.3 Years |
|
| — |
|
March 31, 2023 |
| Grants unvested |
|
| 2,990,638 |
|
| $ | 15.23 |
|
|
|
|
|
|
12
The fair value for stock options granted for the three months ended March 31, 2023 was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
| Options |
| |
Expected stock price volatility |
|
| 35.48 | % |
Risk-free interest rate |
|
| 4.22 | % |
Expected term (in years) |
|
| 6.25 |
|
Fair-value of the underlying unit |
| $ | 13.70 |
|
Restricted Stock Units
A summary of the restricted stock units (“RSU”) activity for the three months ended March 31, 2023 is as follows:
|
|
|
| Shares |
|
| Weighted Average |
| ||
December 31, 2022 |
| Nonvested RSUs |
|
| 472,332 |
|
| $ | 16.00 |
|
|
| Granted |
|
| 21,202 |
|
| $ | 13.70 |
|
|
| Vested |
|
| (5,077 | ) |
| $ | 16.33 |
|
March 31, 2023 |
| Nonvested RSUs |
|
| 488,457 |
|
| $ | 15.90 |
|
Restricted Stock
A summary of the restricted stock activity for the three months ended March 31, 2023 is as follows:
|
|
|
| Shares |
|
| Weighted Average |
| ||
December 31, 2022 |
| Nonvested restricted stock |
|
| 2,281,300 |
|
| $ | 3.85 |
|
|
| Vested |
|
| (326,670 | ) |
| $ | 3.85 |
|
March 31, 2023 |
| Nonvested restricted stock |
|
| 1,954,630 |
|
| $ | 3.85 |
|
As of March 31, 2023, the Company had approximately $33.2 million of unrecognized pre-tax non-cash compensation expense, comprised of approximately $7.3 million related to restricted stock, $6.1 million related to RSUs, and approximately $19.8 million related to stock options, which the Company expects to recognize over a weighted average period of 2.7 years.
2021 Employee Stock Purchase Plan
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 15% of such employee’s cash compensation to acquire Company stock during designated offering periods. During each offering period, there is one six-month purchase period. During the holding period, ESPP purchased shares are not eligible for sale or broker transfer. The Company recorded an associated expense of approximately $0.2 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively.
13
Note 10. Equity
Stock 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”). On November 8, 2022, the Company’s Board of Directors authorized an increase to the total available amount under its Repurchase Program to $150.0 million and extended the program through December 31, 2023. In February 2023, the Company’s Board of Directors further increased the total available amount under the Repurchase Program to $200.0 million effective February 28, 2023.
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 and will be funded from available capital. 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.
A summary of the stock repurchase activity under the Repurchase Program, is summarized as follows (in thousands, except share and per share amounts):
|
| Three Months Ended |
| |
Shares repurchased |
|
| 1,871,691 |
|
Average price per share |
| $ | 13.50 |
|
Costs recorded to accumulated deficit |
|
|
| |
Total repurchase costs |
| $ | 25,228 |
|
Additional associated costs |
|
| 289 |
|
Total costs recorded to accumulated deficit |
| $ | 25,517 |
|
As of March 31, 2023, the remaining authorized value of shares available to be repurchased under this program was approximately $114.2 million.
Repurchased shares of common stock are retired. The par value of repurchased shares is deducted from common stock and the excess repurchase price over par value is reflected as a reduction to accumulated deficit. Additional associated costs include the related brokerage commissions and excise taxes on share repurchases.
Preferred Stock
As of March 31, 2023 and December 31, 2022, 250,000,000 shares of Preferred Stock were authorized, and no Preferred Stock was issued or outstanding.
Note 11. Commitments and Contingencies
There have been no material changes to the Company’s contractual obligations as compared to December 31, 2022.
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 $4.1 million and $4.4 million at March 31, 2023 and December 31, 2022, respectively, for matters that it believes a loss is both probable and estimable. This is included in accrued liabilities in the accompanying condensed consolidated balance sheets.
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 12. Related Party Transactions
The Company had no material related party transactions.
14
Note 13. Net Income 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. Basic and diluted net income per share was calculated as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Basic net income per share |
| $ | 0.01 |
|
| $ | 0.09 |
|
Diluted net income per share |
| $ | 0.01 |
|
| $ | 0.09 |
|
Numerator: |
| |
| | |
| ||
Net income (in thousands) |
| $ | 1,925 |
|
| $ | 13,013 |
|
Denominator: |
| |
| | |
| ||
Weighted average number of shares outstanding - basic |
|
| 145,862,562 |
| |
| 150,538,700 |
|
Add stock options to purchase shares and restricted stock units |
|
| 1,169,304 |
|
|
| 1,810,106 |
|
Weighted average number of shares outstanding - diluted |
|
| 147,031,866 |
|
|
| 152,348,806 |
|
For the three months ended March 31, 2023 and 2022, 2,913,298 and 2,099,781 stock options were excluded from the calculation of diluted net income per share, respectively, because their effects were anti-dilutive.
15
Note 14. Reportable Segments
We have two reportable segments, Americas and International. Our chief operating decision maker (“CODM”) uses the profit measure of Adjusted EBITDA, on both a consolidated and a segment basis, to allocate resources and assess performance of our businesses. We use Adjusted EBITDA as our profit measure because it eliminates the impact of certain items that we do not consider indicative of operating performance, which is useful to compare operating results between periods. Our Board of Directors and executive management team also use Adjusted EBITDA as a compensation measure for both segment and corporate management under our incentive compensation plans. Adjusted EBITDA is also a measure frequently used by securities analysts, investors, and other interested parties in their evaluation of the resultsoperating performance of companies similar to ours.
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 may be expectedexcluding 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 revenue 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, “Summary of Significant Accounting Policies” and Note 8, “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 workers, tenants, and drivers. 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 for the entire fiscal year.three months ended March 31, 2023 and 2022 is as follows (in thousands):
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Adjusted EBITDA |
|
|
|
|
|
| ||
Americas |
| $ | 44,656 |
|
| $ | 46,819 |
|
International |
|
| 3,904 |
|
|
| 6,781 |
|
Total |
| $ | 48,560 |
|
| $ | 53,600 |
|
Adjustments to reconcile to net income: |
|
|
|
|
|
| ||
Interest expense, net |
|
| 8,681 |
|
|
| (850 | ) |
Provision for income taxes |
|
| 681 |
|
|
| 4,935 |
|
Depreciation and amortization |
|
| 31,866 |
|
|
| 34,034 |
|
Share-based compensation |
|
| 2,058 |
|
|
| 1,859 |
|
Transaction and acquisition-related charges (a) |
|
| 1,071 |
|
|
| 1,498 |
|
Integration, restructuring, and other charges (b) |
|
| 2,278 |
|
|
| (889 | ) |
Net income |
| $ | 1,925 |
|
| $ | 13,013 |
|
16
Geographic Information
The Company bases revenues by geographic region in which the revenues and invoicing are recorded. Other than the United States, no single country accounted for 10% or more of our total revenues during these periods.
The following summarizes revenues by geographical region (in thousands):
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Revenues |
|
|
|
|
|
| ||
Americas |
| $ | 152,056 |
|
| $ | 160,088 |
|
International |
|
| 24,848 |
|
|
| 31,741 |
|
Eliminations |
|
| (1,384 | ) |
|
| (1,948 | ) |
Total revenues |
| $ | 175,520 |
|
| $ | 189,881 |
|
The following table sets forth net long-lived assets by geographic area (in thousands):
| March 31, 2023 |
|
| December 31, 2022 |
| |||
Long-lived assets, net |
|
|
|
|
|
| ||
United States, country of domicile |
| $ | 1,110,915 |
|
| $ | 1,134,201 |
|
All other countries |
|
| 176,848 |
|
|
| 180,258 |
|
Total long-lived assets, net |
| $ | 1,287,763 |
|
| $ | 1,314,459 |
|
Note 15. Subsequent events have been evaluated through October 29, 2009, Events
Effective as of May 10, 2023, the date theseCompany’s Board of Directors approved a modification of the vesting terms of outstanding unvested and unearned performance-based options, RSUs, and restricted stock. The modification offers eligible employees incremental vesting criteria which allows the currently unvested and unearned performance-based options, RSUs, and restricted stock to vest based on time on the fourth, fifth, and sixth anniversaries of the Vesting Commencement Date, as defined in each grant agreement, subject to continued service. The related accounting will be recorded prospectively on a straight-line basis beginning in the second quarter of 2023.
17
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 were issued.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the adoptionmeaning of the Financial Accounting Standards Board's (“FASB”) GAAP updates relatedPrivate Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, business combinations, noncontrolling interest in consolidatedamong other things, our operations and financial performance. Forward-looking statements subsequent events,
These forward-looking statements are subject to recognizevarious 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 assets acquiredfollowing: 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 liabilities assumed, 3) changesinflation, geopolitical unrest, uncertainty in financial markets (including as a result of recent bank failures and events affecting financial institutions), and the accounting for acquisition related fees and restructuring costs incurred in connection with an acquisition, and 4) increases required disclosures. The Company will apply the provisions of this update prospectively to business combinations for which the acquisition date is on or after January 1, 2009.
For additional information on these and other factors that similar instruments could be negotiated at September 30, 2009 and December 31, 2008.
September 30, 2009 | December 31, 2008 | |||||||||||||||
(in thousands) | Carrying | Estimated | Carrying | Estimated | ||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
Cash and cash equivalents | $ | 57,784 | $ | 57,784 | $ | 52,361 | $ | 52,361 | ||||||||
Accounts receivable | 115,870 | 115,870 | 121,531 | 121,531 | ||||||||||||
Marketable equity securities | 48,293 | 48,293 | 30,365 | 30,365 | ||||||||||||
Long-term debt and capital leases | (21,474 | ) | (21,508 | ) | (32,829 | ) | (32,699 | ) |
Acquisitions, | Adjustments | |||||||||||||||
Balance at | (Disposals) | to net assets | Balance at | |||||||||||||
(in thousands) | December 31, 2008 | and Earnouts | acquired | September 30, 2009 | ||||||||||||
Credit Services | $ | 107,578 | $ | - | $ | - | $ | 107,578 | ||||||||
Data Services | 218,505 | (611 | ) | - | 217,894 | |||||||||||
Employer Services | 272,461 | 2,266 | 3,308 | 278,035 | ||||||||||||
Multifamily Services | 49,174 | - | - | 49,174 | ||||||||||||
Investigative and Litigation Support Services | 83,651 | 17,199 | 16 | 100,866 | ||||||||||||
Consolidated | $ | 731,369 | $ | 18,854 | $ | 3,324 | $ | 753,547 |
Nine months ended | ||||
September 30, | ||||
(in thousands, except per share amounts) | 2008 | |||
Total revenue | $ | 7,671 | ||
Loss from discontinued operations before income taxes | $ | (7,155 | ) | |
Income tax benefit | (2,914 | ) | ||
Loss from discontinued operations, net of tax | $ | (4,241 | ) | |
Loss per share: | ||||
Basic | $ | (0.07 | ) | |
Diluted | $ | (0.08 | ) | |
Weighted-average common shares outstanding: | ||||
Basic | 59,358 | |||
Diluted | 59,446 |
(in thousands) | September 30, 2009 | December 31, 2008 | ||||||
Goodwill | $ | 753,547 | $ | 731,369 | ||||
Customer lists | $ | 93,757 | $ | 95,446 | ||||
Less accumulated amortization | (47,937 | ) | (41,633 | ) | ||||
Customer lists, net | $ | 45,820 | $ | 53,813 | ||||
Other identifiable intangible assets: | ||||||||
Noncompete agreements | $ | 9,097 | $ | 11,783 | ||||
Trade names | 20,468 | 21,631 | ||||||
29,565 | 33,414 | |||||||
Less accumulated amortization | (15,190 | ) | (16,169 | ) | ||||
Other identifiable intangible assets, net | $ | 14,375 | $ | 17,245 |
(in thousands) | ||||
Remainder of 2009 | $ | 3,609 | ||
2010 | 13,956 | |||
2011 | 11,323 | |||
2012 | 10,231 | |||
2013 | 8,831 | |||
Thereafter | 12,245 | |||
$ | 60,195 |
Other | ||||||||
Identifiable | ||||||||
Intangible | Customer | |||||||
(in thousands) | Assets | Lists | ||||||
Balance, at December 31, 2008 | $ | 17,245 | $ | 53,813 | ||||
Adjustments | 37 | 57 | ||||||
Amortization | (2,907 | ) | (8,050 | ) | ||||
Balance, at September 30, 2009 | $ | 14,375 | $ | 45,820 |
(in thousands, except percentages) | ||||
Acquisition notes: Weighted average interest rate of 3.64% with maturities | ||||
through 2011 | $ | 9,657 | ||
Bank notes: $225 million Secured Credit Facility, interest at 30-day LIBOR | ||||
plus 1.13% (1.37% at September 30, 2009) matures September 2010 | 10,000 | |||
Capital leases and other debt: Various interest rates with maturities through 2011 | 1,817 | |||
Total long-term debt and capital leases | $ | 21,474 | ||
Less current portion of long-term debt and capital leases | 20,446 | |||
Long-term debt and capital leases, net of current portion | $ | 1,028 |
Three Months Ended | Nine Months Ended | |||||||||||||||
(in thousands, except per share amounts) | September 30, | September 30, | ||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Income from continuing operations attributable to FADV shareholders | $ | 11,450 | $ | 12,631 | $ | 35,035 | $ | 42,549 | ||||||||
Loss from discontinued operations attributable to FADV shareholders, net of tax | - | - | - | (4,241 | ) | |||||||||||
Net income attributable to FADV shareholders | $ | 11,450 | $ | 12,631 | $ | 35,035 | $ | 38,308 | ||||||||
Denominator: | ||||||||||||||||
Weighted-average shares for basic earnings per share | 59,803 | 59,478 | 59,722 | 59,358 | ||||||||||||
Effect of restricted stock | 255 | 42 | 135 | 72 | ||||||||||||
Effect of dilutive securities - employee stock options and warrants | 28 | 9 | 10 | 16 | ||||||||||||
Denominator for diluted earnings per share | 60,086 | 59,529 | 59,867 | 59,446 | ||||||||||||
Earnings per share: | ||||||||||||||||
Basic | ||||||||||||||||
Income from continuing operations attributable to FADV shareholders | $ | 0.19 | $ | 0.21 | $ | 0.59 | $ | 0.72 | ||||||||
Loss from discontinued operations attributable to FADV shareholders, net of tax | - | - | - | (0.07 | ) | |||||||||||
Net income attributable to FADV shareholders | $ | 0.19 | $ | 0.21 | $ | 0.59 | $ | 0.65 | ||||||||
Diluted | ||||||||||||||||
Income from continuing operations attributable to FADV shareholders | $ | 0.19 | $ | 0.21 | $ | 0.59 | $ | 0.72 | ||||||||
Loss from discontinued operations attributable to FADV shareholders, net of tax | - | - | - | (0.08 | ) | |||||||||||
Net income attributable to FADV shareholders | $ | 0.19 | $ | 0.21 | $ | 0.59 | $ | 0.64 |
Weighted | ||||||||
(in thousands, except weighted average fair value prices) | Average | |||||||
Number of | Grant-Date | |||||||
Shares | Fair Value | |||||||
Nonvested restricted stock outstanding at December 31, 2008 | 632 | $ | 21.93 | |||||
Restricted stock granted | 423 | $ | 10.89 | |||||
Restricted stock forfeited | (30 | ) | $ | 17.99 | ||||
Restricted stock vested | (253 | ) | $ | 23.06 | ||||
Nonvested restricted stock outstanding at September 30, 2009 | 772 | $ | 15.66 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Stock options | $ | 457 | $ | 1,165 | $ | 1,578 | $ | 3,875 | ||||||||
Restricted stock | 1,363 | 1,169 | 4,109 | 3,357 | ||||||||||||
Employee stock purchase plan | 20 | 26 | 73 | 112 | ||||||||||||
$ | 1,840 | $ | 2,360 | $ | 5,760 | $ | 7,344 |
Weighted | Aggregate | |||||||||||
(in thousands, except exercise prices) | Number of | Average | Intrinsic | |||||||||
Shares | Exercise Price | Value | ||||||||||
Options outstanding at December 31, 2008 | 3,492 | $ | 23.06 | $ | 863 | |||||||
Options exercised | (26 | ) | $ | 15.51 | ||||||||
Options forfeited | (294 | ) | $ | 24.66 | ||||||||
Options outstanding at September 30, 2009 | 3,172 | $ | 22.98 | $ | 697 | |||||||
Options exercisable, end of the quarter | 2,956 | $ | 22.83 | $ | 692 |
(in thousands, except for exercise prices, years and weighted average amounts) | ||||||||||||||||||||||
Options Outstanding | Options Exercisable | |||||||||||||||||||||
Weighted Avg | Weighted | Weighted | ||||||||||||||||||||
Remaining Contractual | Average | Average | ||||||||||||||||||||
Range of Exercise Prices | Shares | Life in Years | Exercise Price | Shares | Exercise Price | |||||||||||||||||
$ | 7.00 - $ 12.50 | 9 | 1.9 | $ | 11.13 | 9 | $ | 11.13 | ||||||||||||||
$ | 12.51 - $ 25.00 | 2,075 | 4.6 | $ | 20.90 | 2,018 | $ | 20.91 | ||||||||||||||
$ | 25.01 - $ 50.00 | 1,084 | 6.1 | $ | 26.97 | 925 | $ | 27.01 | ||||||||||||||
$ | 50.01 - $242.25 | 4 | 1.8 | $ | 50.25 | 4 | $ | 50.25 | ||||||||||||||
3,172 | 2,956 |
(in thousands) | Service | Depreciation | Income (Loss) | |||||||||||||
Three Months Ended September 30, 2009 | Revenue | and Amortization | From Operations | Assets | ||||||||||||
Credit Services | $ | 59,443 | $ | 1,533 | $ | 12,489 | $ | 202,380 | ||||||||
Data Services | 25,514 | 2,435 | 3,590 | 298,524 | ||||||||||||
Employer Services | 41,731 | 3,771 | 3,929 | 388,095 | ||||||||||||
Multifamily Services | 19,879 | 1,542 | 7,268 | 84,458 | ||||||||||||
Investigative and Litigation Support Services | 9,804 | 724 | 1,337 | 120,971 | ||||||||||||
Corporate and Eliminations | (391 | ) | 988 | (10,169 | ) | 79,305 | ||||||||||
Consolidated | $ | 155,980 | $ | 10,993 | $ | 18,444 | $ | 1,173,733 | ||||||||
Three Months Ended September 30, 2008 | ||||||||||||||||
Credit Services | $ | 60,837 | $ | 1,728 | $ | 7,063 | $ | 196,406 | ||||||||
Data Services | 21,922 | 2,570 | 3,680 | 312,606 | ||||||||||||
Employer Services | 54,199 | 3,255 | 6,644 | 408,139 | ||||||||||||
Multifamily Services | 19,702 | 1,444 | 6,654 | 87,782 | ||||||||||||
Investigative and Litigation Support Services | 18,600 | 837 | 6,347 | 111,259 | ||||||||||||
Corporate and Eliminations | (596 | ) | 1,064 | (8,663 | ) | 64,606 | ||||||||||
Consolidated | $ | 174,664 | $ | 10,898 | $ | 21,725 | $ | 1,180,798 | ||||||||
Nine Months Ended September 30, 2009 | ||||||||||||||||
Credit Services | $ | 191,567 | $ | 4,470 | $ | 44,820 | $ | 202,380 | ||||||||
Data Services | 113,456 | 7,367 | 11,389 | 298,524 | ||||||||||||
Employer Services | 119,350 | 11,058 | 6,110 | 388,095 | ||||||||||||
Multifamily Services | 57,467 | 4,553 | 20,521 | 84,458 | ||||||||||||
Investigative and Litigation Support Services | 30,224 | 2,176 | 2,753 | 120,971 | ||||||||||||
Corporate and Eliminations | (1,376 | ) | 2,950 | (26,388 | ) | 79,305 | ||||||||||
Consolidated | $ | 510,688 | $ | 32,574 | $ | 59,205 | $ | 1,173,733 | ||||||||
Nine Months Ended September 30, 2008 | ||||||||||||||||
Credit Services | $ | 202,723 | $ | 4,480 | $ | 35,371 | $ | 196,406 | ||||||||
Data Services | 60,422 | 7,601 | 11,214 | 312,606 | ||||||||||||
Employer Services | 163,397 | 9,629 | 13,119 | 408,139 | ||||||||||||
Multifamily Services | 58,037 | 4,242 | 17,995 | 87,782 | ||||||||||||
Investigative and Litigation Support Services | 63,281 | 2,460 | 23,407 | 111,259 | ||||||||||||
Corporate and Eliminations | (2,519 | ) | 3,108 | (28,229 | ) | 64,606 | ||||||||||
Consolidated | $ | 545,341 | $ | 31,520 | $ | 72,877 | $ | 1,180,798 |
18
Glossary of Selected Terminology
The following terms are used in this Form 10-Q, unless otherwise noted or indicated by the context:
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, the Solicitation/Recommendation Statement, as well as the Company’s other public SEC filings, can be obtained at www.fadv.com. Stockholdersyou may also read and copy any reports, statementsopt in to automatically receive email alerts and other information filedabout 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.
19
Overview
First American Advantage is a leading global provider of employment background screening and verification solutions. We deliver innovative services and insights that help our customers manage risk and hire the best talent. Enabled by our proprietary technology, our products help companies protect their brands and provide safer environments for their customers and their most important resources: employees, contractors, contingent workers, tenants, and drivers.
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 approximately 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 packaged. 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 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.
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 visibility into their expected future order volumes, although these can be difficult to accurately forecast due to the dynamic nature of forecasting hiring and business needs. 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 92% of the criminal searches performed in the United States are completed the same day they are submitted.
We generated revenues of $175.5 million for the three months ended March 31, 2023, as compared to $189.9 million for the three months ended March 31, 2022. Approximately 86% of our revenues for the three months ended March 31, 2023 was generated in the Americas, predominantly in the United States, while the remaining 14% was generated in our International segment. Other than the United States, no single country accounted for 10% or more of our total revenues for the three months ended March 31, 2023. 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 SECCompany has two reportable segments, Americas and International:
20
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 months of October and November, leading up to the holiday season and lowest at the SEC public reference room at 100 F Street N.E.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. In addition, apartment rental activity and associated screening activity typically decline in the fourth quarter heading into the holiday season. 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
Current Economic Conditions
Macroeconomic factors, including inflation, increased interest rates, significant capital market volatility, uncertainty in financial markets (including as a result of recent bank failures and events affecting financial institutions), Washington, D.C. 20549. Please call the SEC at (800) 732-0330prolonged COVID-19 pandemic, global supply chain constraints, and global economic and geopolitical developments, have negatively impacted significant portions of the global economy, and created volatility in the financial markets.
While our overall productivity has not been materially adversely impacted, recently, we have started to experience, and may continue to experience, the lengthening of certain sales cycles as cyclical concerns begin to factor into customer hiring plans. If the economic uncertainty is sustained or visitincreases, we may experience a negative impact on new business, customer renewals and demand levels, sales and marketing efforts, revenues growth rates, customer deployments, customer collections, product development, or other financial metrics. Any of these factors could harm our business, financial condition, and operating results.
Despite the SEC’s website for furthercontinuing uncertainty associated with these events, we are confident in the long-term overall health of our business, the strength of our product offerings, and our ability to continue to execute on our strategy and help our customers hire smarter and onboard faster. Our ability to deliver innovative products and solutions that enhance workplace safety and address compliance risks has contributed to the durability of our financial results. For additional information, on its public reference room.
(in thousands, except percentages) | ||||||||||||||||||||||||||||
Credit | Data | Employer | Multifamily | Invest/Litigation | Corporate | |||||||||||||||||||||||
Three Months Ended September 30, 2009 | Services | Services | Services | Services | Support Services | and Eliminations | Total | |||||||||||||||||||||
Service revenue | $ | 59,443 | $ | 25,514 | $ | 41,731 | $ | 19,879 | $ | 9,804 | $ | (391 | ) | $ | 155,980 | |||||||||||||
Reimbursed government fee revenue | 223 | 11,987 | 2,138 | - | - | (762 | ) | 13,586 | ||||||||||||||||||||
Total revenue | 59,666 | 37,501 | 43,869 | 19,879 | 9,804 | (1,153 | ) | 169,566 | ||||||||||||||||||||
Cost of service revenue | 26,691 | 12,419 | 10,651 | 1,790 | 495 | (617 | ) | 51,429 | ||||||||||||||||||||
Government fees paid | 223 | 11,987 | 2,138 | - | - | (762 | ) | 13,586 | ||||||||||||||||||||
Total cost of service | 26,914 | 24,406 | 12,789 | 1,790 | 495 | (1,379 | ) | 65,015 | ||||||||||||||||||||
Gross margin | 32,752 | 13,095 | 31,080 | 18,089 | 9,309 | 226 | 104,551 | |||||||||||||||||||||
Salaries and benefits | 12,238 | 4,839 | 16,142 | 6,110 | 5,303 | 5,288 | 49,920 | |||||||||||||||||||||
Facilities and telecommunications | 1,771 | 551 | 2,036 | 754 | 675 | 954 | 6,741 | |||||||||||||||||||||
Other operating expenses | 4,721 | 1,680 | 5,202 | 2,415 | 1,270 | 3,165 | 18,453 | |||||||||||||||||||||
Depreciation and amortization | 1,533 | 2,435 | 3,771 | 1,542 | 724 | 988 | 10,993 | |||||||||||||||||||||
Income (loss) from operations | $ | 12,489 | $ | 3,590 | $ | 3,929 | $ | 7,268 | $ | 1,337 | $ | (10,169 | ) | $ | 18,444 | |||||||||||||
Operating margin percentage | 21.0 | % | 14.1 | % | 9.4 | % | 36.6 | % | 13.6 | % | N/A | 11.8 | % | |||||||||||||||
Credit | Data | Employer | Multifamily | Invest/Litigation | Corporate | |||||||||||||||||||||||
Three Months Ended September 30, 2008 | Services | Services | Services | Services | Support Services | and Eliminations | Total | |||||||||||||||||||||
Service revenue | $ | 60,837 | $ | 21,922 | $ | 54,199 | $ | 19,702 | $ | 18,600 | $ | (596 | ) | $ | 174,664 | |||||||||||||
Reimbursed government fee revenue | - | 11,743 | 2,828 | - | - | (938 | ) | 13,633 | ||||||||||||||||||||
Total revenue | 60,837 | 33,665 | 57,027 | 19,702 | 18,600 | (1,534 | ) | 188,297 | ||||||||||||||||||||
Cost of service revenue | 28,985 | 8,628 | 14,234 | 1,915 | 503 | (745 | ) | 53,520 | ||||||||||||||||||||
Government fees paid | - | 11,743 | 2,828 | - | - | (938 | ) | 13,633 | ||||||||||||||||||||
Total cost of service | 28,985 | 20,371 | 17,062 | 1,915 | 503 | (1,683 | ) | 67,153 | ||||||||||||||||||||
Gross margin | 31,852 | 13,294 | 39,965 | 17,787 | 18,097 | 149 | 121,144 | |||||||||||||||||||||
Salaries and benefits | 14,294 | 4,755 | 18,511 | 6,320 | 7,622 | 7,611 | 59,113 | |||||||||||||||||||||
Facilities and telecommunications | 2,203 | 643 | 2,280 | 836 | 722 | 1,105 | 7,789 | |||||||||||||||||||||
Other operating expenses | 4,844 | 1,646 | 9,275 | 2,533 | 2,569 | (968 | ) | 19,899 | ||||||||||||||||||||
Depreciation and amortization | 1,728 | 2,570 | 3,255 | 1,444 | 837 | 1,064 | 10,898 | |||||||||||||||||||||
Impairment loss | 1,720 | - | - | - | - | - | 1,720 | |||||||||||||||||||||
Income (loss) from operations | $ | 7,063 | $ | 3,680 | $ | 6,644 | $ | 6,654 | $ | 6,347 | $ | (8,663 | ) | $ | 21,725 | |||||||||||||
Operating margin percentage | 11.6 | % | 16.8 | % | 12.3 | % | 33.8 | % | 34.1 | % | N/A | 12.4 | % |
Credit | Data | Employer | Multifamily | Invest/Litigation | Corporate | |||||||||||||||||||||||
Nine Months Ended September 30, 2009 | Services | Services | Services | Services | Support Services | and Eliminations | Total | |||||||||||||||||||||
Service revenue | $ | 191,567 | $ | 113,456 | $ | 119,350 | $ | 57,467 | $ | 30,224 | $ | (1,376 | ) | $ | 510,688 | |||||||||||||
Reimbursed government fee revenue | 614 | 35,305 | 6,483 | - | - | (2,497 | ) | 39,905 | ||||||||||||||||||||
Total revenue | 192,181 | 148,761 | 125,833 | 57,467 | 30,224 | (3,873 | ) | 550,593 | ||||||||||||||||||||
Cost of service revenue | 86,292 | 68,806 | 31,367 | 5,029 | 1,366 | (1,830 | ) | 191,030 | ||||||||||||||||||||
Government fees paid | 614 | 35,305 | 6,483 | - | - | (2,497 | ) | 39,905 | ||||||||||||||||||||
Total cost of service | 86,906 | 104,111 | 37,850 | 5,029 | 1,366 | (4,327 | ) | 230,935 | ||||||||||||||||||||
Gross margin | 105,275 | 44,650 | 87,983 | 52,438 | 28,858 | 454 | 319,658 | |||||||||||||||||||||
Salaries and benefits | 36,477 | 14,584 | 48,875 | 18,218 | 17,008 | 16,055 | 151,217 | |||||||||||||||||||||
Facilities and telecommunications | 5,153 | 1,758 | 6,248 | 2,247 | 1,985 | 2,874 | 20,265 | |||||||||||||||||||||
Other operating expenses | 14,355 | 9,552 | 15,692 | 6,899 | 4,936 | 4,963 | 56,397 | |||||||||||||||||||||
Depreciation and amortization | 4,470 | 7,367 | 11,058 | 4,553 | 2,176 | 2,950 | 32,574 | |||||||||||||||||||||
Income (loss) from operations | $ | 44,820 | $ | 11,389 | $ | 6,110 | $ | 20,521 | $ | 2,753 | $ | (26,388 | ) | $ | 59,205 | |||||||||||||
Operating margin percentage | 23.4 | % | 10.0 | % | 5.1 | % | 35.7 | % | 9.1 | % | N/A | 11.6 | % | |||||||||||||||
Credit | Data | Employer | Multifamily | Invest/Litigation | Corporate | |||||||||||||||||||||||
Nine Months Ended September 30, 2008 | Services | Services | Services | Services | Support Services | and Eliminations | Total | |||||||||||||||||||||
Service revenue | $ | 202,723 | $ | 60,422 | $ | 163,397 | $ | 58,037 | $ | 63,281 | $ | (2,519 | ) | $ | 545,341 | |||||||||||||
Reimbursed government fee revenue | - | 35,958 | 7,859 | - | - | (3,037 | ) | 40,780 | ||||||||||||||||||||
Total revenue | 202,723 | 96,380 | 171,256 | 58,037 | 63,281 | (5,556 | ) | 586,121 | ||||||||||||||||||||
Cost of service revenue | 92,135 | 19,458 | 45,041 | 5,229 | 1,524 | (2,664 | ) | 160,723 | ||||||||||||||||||||
Government fees paid | - | 35,958 | 7,859 | - | - | (3,037 | ) | 40,780 | ||||||||||||||||||||
Total cost of service | 92,135 | 55,416 | 52,900 | 5,229 | 1,524 | (5,701 | ) | 201,503 | ||||||||||||||||||||
Gross margin | 110,588 | 40,964 | 118,356 | 52,808 | 61,757 | 145 | 384,618 | |||||||||||||||||||||
Salaries and benefits | 45,004 | 14,874 | 59,082 | 19,958 | 25,317 | 24,254 | 188,489 | |||||||||||||||||||||
Facilities and telecommunications | 6,544 | 1,922 | 7,330 | 2,666 | 2,217 | 3,394 | 24,073 | |||||||||||||||||||||
Other operating expenses | 17,469 | 5,353 | 28,899 | 7,947 | 8,356 | (2,382 | ) | 65,642 | ||||||||||||||||||||
Depreciation and amortization | 4,480 | 7,601 | 9,629 | 4,242 | 2,460 | 3,108 | 31,520 | |||||||||||||||||||||
Impairment loss | 1,720 | - | 297 | - | - | - | 2,017 | |||||||||||||||||||||
Income (loss) from operations | $ | 35,371 | $ | 11,214 | $ | 13,119 | $ | 17,995 | $ | 23,407 | $ | (28,229 | ) | $ | 72,877 | |||||||||||||
Operating margin percentage | 17.4 | % | 18.6 | % | 8.0 | % | 31.0 | % | 37.0 | % | N/A | 13.4 | % |
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.
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 workers, tenants, and drivers. 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 internal 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, more productive, and more 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 packaged 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.
21
Operating Expenses
We incur the following expenses related to our cost of revenues and operating expenses:
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, customer mix, and product mix 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 and third-party pass-through costs. We regularly review expenses and investments in the context of revenues growth and any shifts we see in the business in order to align with our overall financial objectives. While we expect internal operating expenses to increase in absolute dollars to support our continued growth, we believe that, in the long term, operating expenses will decline gradually as a percentage of total revenues in the future as our business grows and our operating efficiency and automation initiatives continue to advance.
Other Expense, Net
Our other expense, net consists of the following:
22
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.
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 months ended March 31, 2023 compared to the three months ended March 31, 2022
|
| Three Months Ended March 31, |
| |||||
(in thousands, except percentages) |
| 2023 |
|
| 2022 |
| ||
Revenues |
| $ | 175,520 |
|
| $ | 189,881 |
|
|
|
|
|
|
| |||
Operating Expenses: |
|
|
|
|
|
| ||
Cost of services (exclusive of depreciation and amortization below) |
|
| 91,061 |
|
|
| 96,431 |
|
Product and technology expense |
|
| 12,624 |
|
|
| 13,773 |
|
Selling, general, and administrative expense |
|
| 28,682 |
|
|
| 28,545 |
|
Depreciation and amortization |
|
| 31,866 |
|
|
| 34,034 |
|
Total operating expenses |
|
| 164,233 |
|
|
| 172,783 |
|
Income from operations |
|
| 11,287 |
|
|
| 17,098 |
|
|
|
|
|
|
| |||
Other Expense, Net: |
|
|
|
|
|
| ||
Interest expense, net |
|
| 8,681 |
|
|
| (850 | ) |
Total other expense, net |
|
| 8,681 |
|
|
| (850 | ) |
Income before provision for income taxes |
|
| 2,606 |
|
|
| 17,948 |
|
Provision for income taxes |
|
| 681 |
|
|
| 4,935 |
|
Net income |
| $ | 1,925 |
|
| $ | 13,013 |
|
Net income margin |
|
| 1.1 | % |
|
| 6.9 | % |
23
Revenues
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Revenues |
|
|
|
|
|
| ||
Americas |
| $ | 152,056 |
|
| $ | 160,088 |
|
International |
|
| 24,848 |
|
| $ | 31,741 |
|
Eliminations |
|
| (1,384 | ) |
| $ | (1,948 | ) |
Total revenues |
| $ | 175,520 |
|
| $ | 189,881 |
|
Revenues were $175.5 million for the three months ended March 31, 2023, compared to $189.9 million for the three months ended March 31, 2022. Revenues for the three months ended March 31, 2023 decreased by $14.4 million, or 7.6%, compared to the three months ended March 31, 2022.
The decrease in revenues was primarily due to:
The decrease in revenues was offset by:
Pricing remained relatively stable across all periods.
Cost of Services
|
| Three Months Ended March 31, |
| |||||
(in thousands, except percentages) |
| 2023 |
|
| 2022 |
| ||
Revenues |
| $ | 175,520 |
|
| $ | 189,881 |
|
Cost of services |
|
| 91,061 |
|
|
| 96,431 |
|
Cost of services as a % of revenue |
|
| 51.9 | % |
|
| 50.8 | % |
Cost of services was $91.1 million for the three months ended March 31, 2023, compared to $96.4 million for the three months ended March 31, 2022. Cost of services for the three months ended March 31, 2023 decreased by $5.4 million, or 5.6%, compared to the three months ended March 31, 2022.
The decrease in cost of services was primarily due to:
Cost of services as a percentage of revenues was 51.9% for the three months ended March 31, 2023, compared to 50.8% for the three months ended March 31, 2022. The cost of services percentage of revenues in the first quarter of 2023 was impacted by increases in certain third-party data costs due to variation in customer ordering mix. This increase was partially offset by cost savings from the Company’s continued implementation of automation and other process efficiencies, as well as certain cost savings actions taken by the Company in late 2022 and 2023.
24
Product and Technology Expense
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Product and technology expense |
| $ | 12,624 |
|
| $ | 13,773 |
|
Product and technology expense was $12.6 million for the three months ended March 31, 2023, compared to $13.8 million for the three months ended March 31, 2022. Product and technology expense for the three months ended March 31, 2023 decreased by $1.1 million, or 8.3%, compared to the three months ended March 31, 2022.
The decrease in product and technology expense was primarily due to:
The decrease in cost of services was partially offset by:
Selling, General, and Administrative Expense
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Selling, general, and administrative expense |
| $ | 28,682 |
|
| $ | 28,545 |
|
Selling, general, and administrative expense was $28.7 million for the three months ended March 31, 2023, compared to $28.5 million for the three months ended March 31, 2022. Selling, general, and administrative expense for the three months ended March 31, 2023 increased by $0.1 million, or 0.5%, compared to the three months ended March 31, 2022.
Selling, general, and administrative expense increased primarily due to:
The increase in selling, general, and administrative expense was partially offset by:
Depreciation and Amortization
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Depreciation and amortization |
| $ | 31,866 |
|
| $ | 34,034 |
|
Depreciation and amortization was $31.9 million for the three months ended March 31, 2023, compared to $34.0 million for the three months ended March 31, 2022. Depreciation and amortization for the three months ended March 31, 2023 decreased by $2.2 million, or 6.4%, compared to the three months ended March 31, 2022. This decrease was partially offset by increases in depreciation related to assets placed in service during the three months ended March 31, 2023.
25
Interest Expense, Net
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Interest expense, net |
| $ | 8,681 |
|
| $ | (850 | ) |
Interest expense, net was $8.7 million for the three months ended March 31, 2023, compared to $(0.9) million for the three months ended March 31, 2022. Interest expense for the three months ended March 31, 2023 increased by $9.5 million, compared to the three months ended March 31, 2022.
The increase in interest expense was primarily attributable to higher interest expense on the First Lien Credit Facility and $1.9 million of unrealized losses on the interest rate swaps as a result of rising interest rates. Increases in interest expense were offset by interest income of $3.8 million earned on cash held within interest bearing accounts.
Provision for Income Taxes
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Provision for income taxes |
| $ | 681 |
|
| $ | 4,935 |
|
Our provision for income taxes was $0.7 million for the three months ended March 31, 2023, compared to $4.9 million for the three months ended March 31, 2022. Our provision for income taxes for the three months ended March 31, 2023 decreased by $4.3 million, compared to the three months ended March 31, 2022.
The decrease in our provision for income taxes was primarily due to the decrease of income before income taxes during the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.
Net Income and Net Income Margin
|
| Three Months Ended March 31, |
| |||||
(in thousands, except percentages) |
| 2023 |
|
| 2022 |
| ||
Net income |
| $ | 1,925 |
|
| $ | 13,013 |
|
Net income margin |
|
| 1.1 | % |
|
| 6.9 | % |
Net income was $1.9 million for the three months ended March 31, 2023, compared to $13.0 million for the three months ended March 31, 2022. Net income for the three months ended March 31, 2023 decreased by $11.1 million compared to the three months ended March 31, 2022.
Net income margin was 1.1% for the three months ended March 31, 2023 compared to 6.9% for three months ended March 31, 2022, as reduced demand from customers more impacted by macro-economic events contributed to lower revenues and profitability, particularly as the Company cycled over the growth experienced in 2022 due to the post-pandemic recovery.
26
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 $48.6 million for the three months ended March 31, 2023 and represented an Adjusted EBITDA Margin of 27.7%. Adjusted EBITDA was $53.6 million for the three months ended March 31, 2022 and represented an Adjusted EBITDA Margin of 28.2%. Adjusted EBITDA for the three months ended March 31, 2023 decreased by $5.0 million, or 9.4%, compared to the three months ended March 31, 2022.
Adjusted EBITDA declined as macro-economic events impacted our revenues attributed to existing customers. Decreases were further impacted by the effects of changes in foreign currencies. These decreases were partially offset by increased revenues from certain existing and new customers, including ongoing strength in upselling and cross-selling, cost structure benefits due to increased automation, operational efficiencies, and certain other cost savings actions taken by the Company in late 2022 and 2023.
The following table presents a reconciliation of Adjusted EBITDA for the periods presented.
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Net income |
| $ | 1,925 |
|
| $ | 13,013 |
|
Interest expense, net |
|
| 8,681 |
|
|
| (850 | ) |
Provision for income taxes |
|
| 681 |
|
|
| 4,935 |
|
Depreciation and amortization |
|
| 31,866 |
|
|
| 34,034 |
|
Share-based compensation |
|
| 2,058 |
|
|
| 1,859 |
|
Transaction and acquisition-related charges (a) |
|
| 1,071 |
|
|
| 1,498 |
|
Integration, restructuring, and other charges (b) |
|
| 2,278 |
|
|
| (889 | ) |
Adjusted EBITDA |
| $ | 48,560 |
|
| $ | 53,600 |
|
27
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 March 31, |
| |||||
(in thousands, except percentages) |
| 2023 |
|
| 2022 |
| ||
Adjusted EBITDA |
| $ | 48,560 |
|
| $ | 53,600 |
|
Revenues |
|
| 175,520 |
|
|
| 189,881 |
|
Adjusted EBITDA Margin |
|
| 27.7 | % |
|
| 28.2 | % |
The following table presents a calculation of Adjusted EBITDA by segment for the periods presented. Refer to Note 14 to the condensed consolidated financial statements for a reconciliation of Adjusted EBITDA for the periods presented by segment.
|
| Three Months Ended March 31, |
| |||||
(in thousands, except percentages) |
| 2023 |
|
| 2022 |
| ||
Adjusted EBITDA (1): |
|
|
|
|
|
| ||
Americas |
| $ | 44,656 |
|
| $ | 46,819 |
|
International |
|
| 3,904 |
|
|
| 6,781 |
|
Adjusted EBITDA |
| $ | 48,560 |
|
| $ | 53,600 |
|
|
|
|
|
|
|
| ||
Revenues |
|
|
|
|
|
| ||
Americas |
| $ | 152,056 |
|
| $ | 160,088 |
|
International |
|
| 24,848 |
|
|
| 31,741 |
|
Less: intersegment eliminations |
|
| (1,384 | ) |
|
| (1,948 | ) |
Total revenues |
| $ | 175,520 |
|
| $ | 189,881 |
|
|
|
|
|
|
|
| ||
Adjusted EBITDA Margin |
|
|
|
|
|
| ||
Americas |
|
| 29.4 | % |
|
| 29.2 | % |
International |
|
| 15.7 | % |
|
| 21.4 | % |
Adjusted EBITDA Margin |
|
| 27.7 | % |
|
| 28.2 | % |
28
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 $28.4 million for the three months ended March 31, 2023, compared to $33.5 million for the three months ended March 31, 2022. Adjusted Net Income for the three months ended March 31, 2023 decreased by $5.1 million, or 15.3%, compared to the three months ended March 31, 2022.
Adjusted Diluted Earnings Per Share was $0.19 for the three months ended March 31, 2023 decreased by $0.03, or 13.6% compared to the three months ended March 31, 2022.
Adjusted Net Income and Adjusted Diluted Earnings Per Share declined as reduced demand from customers more impacted by macro-economic events contributed to lower revenues and profitability. Adjusted Net Income and Adjusted Diluted Earnings Per Share were further impacted by changes in acquisition-related depreciation and amortization and changes in our capital structure that are captured in interest expense. Gains or losses and actual cash payments and receipts on the Company’s interest rate swaps impact the comparability of Adjusted Net Income and 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 March 31, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Net income |
| $ | 1,925 |
|
| $ | 13,013 |
|
Provision for income taxes |
|
| 681 |
|
|
| 4,935 |
|
Income before provision for income taxes |
|
| 2,606 |
|
|
| 17,948 |
|
Debt-related charges(a) |
|
| 4,468 |
|
|
| (4,815 | ) |
Acquisition-related depreciation and amortization(b) |
|
| 25,485 |
|
|
| 29,115 |
|
Share-based compensation |
|
| 2,058 |
|
|
| 1,859 |
|
Transaction and acquisition-related charges(c) |
|
| 1,071 |
|
|
| 1,498 |
|
Integration, restructuring, and other charges (d) |
|
| 2,278 |
|
|
| (889 | ) |
Adjusted Net Income before income tax effect |
|
| 37,966 |
|
|
| 44,716 |
|
Less: Income tax effect(e) |
|
| 9,602 |
|
|
| 11,219 |
|
Adjusted Net Income |
| $ | 28,364 |
|
| $ | 33,497 |
|
29
The following table presents the calculation of Adjusted Diluted Earnings Per Share for the periods presented.
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Diluted net income per share (GAAP) |
| $ | 0.01 |
|
| $ | 0.09 |
|
Adjusted Net Income adjustments per share |
|
|
|
|
|
| ||
Income taxes |
|
| 0.00 |
|
|
| 0.03 |
|
Debt-related charges (a) |
|
| 0.03 |
|
|
| (0.03 | ) |
Acquisition-related depreciation and amortization (b) |
|
| 0.17 |
|
|
| 0.19 |
|
Share-based compensation |
|
| 0.01 |
|
|
| 0.01 |
|
Transaction and acquisition related charges (c) |
|
| 0.01 |
|
|
| 0.01 |
|
Integration, restructuring, and other charges (d) |
|
| 0.02 |
|
|
| (0.01 | ) |
Adjusted income taxes (e) |
|
| (0.07 | ) |
|
| (0.07 | ) |
Adjusted Diluted Earnings Per Share (Non-GAAP) |
| $ | 0.19 |
|
| $ | 0.22 |
|
|
|
|
|
|
|
| ||
Weighted average number of shares outstanding used in computation of Adjusted Diluted Earnings Per Share: |
|
|
|
|
|
| ||
Weighted average number of shares outstanding—diluted (GAAP and Non-GAAP) |
|
| 147,031,866 |
|
|
| 152,348,806 |
|
30
Liquidity and Capital Resources
Liquidity
The Company’s principal sources of capital include, butprimary liquidity requirements are not limited to, existing cash balances, operating cash flows and borrowing under its Secured Credit Facility (see Note 6 to the Consolidated Financial Statements). The Company’s short-term and long-term liquidity depends primarily upon its level of net income,for working capital, management (accounts receivable, accounts payablecontinued investments in software development and accrued expenses),other capital expenditures, and bankother 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, in early 2023, will become a material use of funds, depending on our future profitability and future tax rates. The Company’s liquidity needs are met primarily through existing balance sheet cash, cash flows from operations, as well as funds available under our revolving credit facility and proceeds from our term loan borrowings. The Company believes that, basedOur 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 March 31, 2023, we had $400.2 million in cash and cash equivalents and $100.0 million available under our revolving credit facility. As of March 31, 2023, we had $564.7 million of total debt outstanding. We believe our cash on current forecastshand, together with amounts available under our revolving credit facility, and anticipated market conditions, sufficientcash provided by operating cash flowactivities are and will continue to be generatedadequate to meet all operatingour operational and business needs to make planned capital expenditures, scheduled debt payments, and tax obligations forin the next twelve months. Any material varianceTo 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 results could require usexpenses and capital expenditures and our ability to seekmeet 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 funding alternatives including raising additional capital, whichfactors that may be difficultbeyond our control, including those described under our “Risk Factors” included in the currentCompany’s Annual Report on Form 10-K for the year ended December 31, 2022.
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 and will be funded from available capital. 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.
On November 8, 2022, the Company’s industry exist, management is not awareBoard of any trends or events likelyDirectors authorized an increase to havethe total available amount under its Repurchase Program to $150.0 million and extended the program through December 31, 2023. On February 28, 2023, the Company’s Board of Directors authorized an increase to the total available amount under its Repurchase Program to $200.0 million. Through May 4, 2023, the Company repurchased $97.4 million of shares under the Repurchase Program.
31
Long-Term Debt
In February 2020, a material adverse effect on liquidity or the accompanying financial statements. Management expects continued weaknessnew financing structure was established consisting of a new First Lien Credit Agreement (“First Lien Agreement”). The First Lien Agreement provided financing in the real estateform of a $670.0 million term loan due January 31, 2027 (“First Lien Credit Facility”) and mortgage marketsa $75.0 million new revolving credit facility due January 31, 2025 (“Revolver”).
On February 1, 2021, we amended the First Lien Agreement to continue impactingfund $100.0 million of additional first lien term loans and reduce the Company’s Credit Services segmentapplicable margins by 0.25%.
In connection with the IPO, the Company entered into an amendment to increase the borrowing capacity under the Revolver from $75.0 million to $100.0 million and extend the transportation and specialty credit businesses inmaturity date from January 31, 2025 to July 31, 2026.
Borrowings under the Data Services segment.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 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 effectborrower, First Advantage Holdings, LLC, which is an indirect wholly-owned subsidiary of the issuesCompany, 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 First Lien Credit Facility amortizes in equal quarterly installments in aggregate annual amounts equal to 1.00% of the principal amount. The Revolver has no amortization. The 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 First Lien Credit Facility outstanding, of which $44.3 million was applied to all of the remaining quarterly amortizing principal payments due under the First Lien Agreement. The remaining $564.7 million term loan is scheduled to mature on January 31, 2027.
The 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 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 real estatecase 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 First Lien Agreement contains customary affirmative covenants, negative covenants, and related credit markets and other macroeconomic matters has resulted in higher unemployment rates negatively impactingevents of default (including upon a change of control). The First Lien Agreement also includes a “springing” first lien net leverage ratio test, applicable only to the volumes inRevolver, that requires such ratio to be no greater than 7.75:1.00 on the Employer Services segment. Given this outlook, managementlast day of any fiscal quarter if more than 35.0% of the Revolver is focusingutilized on expense reductions, operating efficiencies, and increasing market share throughout the Company.
32
Cash Flow Analysis
Comparison of Cash Flows
The Company’s primary sourcefollowing table is a summary of liquidity isour cash flow activity for the periods presented:
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Net cash provided by operating activities |
| $ | 38,599 |
|
| $ | 41,583 |
|
Net cash used in investing activities |
|
| (6,083 | ) |
|
| (26,472 | ) |
Net cash used in financing activities |
|
| (24,163 | ) |
|
| (40 | ) |
Cash Flows from operations and amounts available under credit lines the Company has established with a bank. As of September 30, 2009, cash and cash equivalents were $57.8 million.
Net cash provided by operating activities of continuing operations was $57.0 million and $33.0 million in the nine months ended September 30, 2009 and 2008, respectively. Cash provided by operating activities of continuing operations increased by $24.0 million when comparing the nine months ended September 30, 2009 and the same period in 2008. Income from continuing operations was $34.8 million in the nine months ended September 30, 2009 compared to $41.9$38.6 million for the same period in 2008. The increase inthree months ended March 31, 2023, compared to $41.6 million for the three months ended March 31, 2022. Net cash provided by operating activities was primarily duefor the three months ended March 31, 2023 decreased by $3.0 million compared to the first quarter 2008 income tax paymentsthree months ended March 31, 2022. Cash flows from operating activities was impacted by the continuation of $56.9 million relatedmore modest hiring activity in the Americas and softness internationally resulting from the ongoing uncertainty from the economic environment that began to the sale of DealerTrack shares.
Cash Flows from Investing Activities
Net cash used in investing activities of continuing operations was $36.1 million and $78.4$6.1 million for the ninethree months ended September 30, 2009 and 2008, respectively. InMarch 31, 2023, compared to $26.5 million for the ninethree months ended September 30, 2009, netMarch 31, 2022. Net cash used in investing activities for the amount of $19.5three months ended March 31, 2023 decreased by $20.4 million was used for earnout provisions from prior year acquisitions, compared to $51.2 million in the same period of 2008. Purchases of property and equipment were $14.5 million in the ninethree months ended September 30, 2009 comparedMarch 31, 2022. The cash flows used in investing activities for the three months ended March 31, 2023 were driven primarily by capitalized software development costs, which increased in 2023 as the Company continued to $24.3make incremental investments in its technology platform. Cash flows used in investing activities for the three months ended March 31, 2022 were impacted by the $19.1 million in the same periodacquisition of 2008.
Cash Flows from Financing Activities
Net cash used in financing activities of continuing operations was $16.5$24.2 million for the ninethree months ended September 30, 2009,March 31, 2023, compared to cash provided by financing activities of continuing operations of $12.4$0.0 million for the ninethree months ended September 30, 2008. InMarch 31, 2022. Cash flows from financing activities for the ninethree months ended September 30, 2009, proceeds from existing credit facilitiesMarch 31, 2023 were $50.9 million comparedprimarily driven by share-based compensation activity. These inflows were offset by cash outflows related to $100.3 million inpayments on finance lease obligations, deferred purchase of a software platform, and shares repurchased under the same period of 2008. Repayment of debt was $62.3 million inCompany’s Repurchase Program. During the ninethree months ended September 30, 2009 and $85.5 million in the same period of 2008. Cash used to acquire noncontrolling interest in a consolidated subsidiary was $5.9 million and $8.0 million for the nine months ended September 30, 2009 and 2008, respectively. In addition, $1.1 million was distributed to noncontrolling interests in the nine months ended September 30, 2008.
(In thousands) | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | |||||||||||||||||||||
Minimum contract purchase commitments | $ | 1,019 | $ | 2,653 | $ | 897 | $ | 41 | $ | 41 | $ | 26 | $ | 4,677 | ||||||||||||||
Advertising commitments | 105 | - | - | - | - | - | 105 | |||||||||||||||||||||
Operating leases | 3,670 | 12,576 | 8,931 | 7,024 | 6,958 | 14,907 | 54,066 | |||||||||||||||||||||
Debt and capital leases | 2,359 | 18,420 | 492 | 72 | 78 | 53 | 21,474 | |||||||||||||||||||||
Interest payments related to debt (1) | 197 | 231 | 4 | - | - | - | 432 | |||||||||||||||||||||
Total (2) | $ | 7,350 | $ | 33,880 | $ | 10,324 | $ | 7,137 | $ | 7,077 | $ | 14,986 | $ | 80,754 | ||||||||||||||
(1) Estimated interest payments are calculated assuming current interest rates over minimum maturity periods specified in debt agreements.
(2) Excludes tax liability of $4.9 million due to uncertainty of payment period.
Item
3. Quantitative and Qualitative Disclosures About Market RiskAs of March 31, 2023, no material changeschange had occurred in our market risks, compared with the Company’s risk since filing itsdisclosure in our Annual Report on Form 10-K forfiled with the year ended December 31, 2008.
Item
4. Controls and Procedures.Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”)(principal executive officer) and Chief Financial Officer (“CFO”)(principal financial officer), after evaluatinghas 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 RuleRules 13a-15(e) ofand 15d-15(e) under the Securities Exchange Act of 1934, as amended have concluded that, as of the end of the fiscal quarter covered by this report on Form 10-Q, the Company’s disclosure(the “Exchange Act”) means controls and other procedures were effectiveof a company that are designed to provide reasonable
Management recognizes that any controls and procedures, no changematter 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 Over Financial Reporting
During the Company’squarter covered by this report, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2009 that has materially affected, or isare reasonably likely to materially affect, the Company’sour internal control over financial reporting.
34
PART II. II—OTHER INFORMATION
Item 1. Legal Proceedings.
Information in response to this Item is included in “Part I — Item 1. — Note 11 — 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 March 31, 2023, 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 February 28, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Use of Proceeds
On July 2, 2009, Norfolk County Retirement System filedJune 25, 2021, we completed our IPO. All shares sold were registered pursuant to a Verified Class Action Complaint inregistration statement on Form S-1 (File No. 333-256622), declared effective by the Court of Chancery of the State of Delaware against First American, First Advantage and Parker S. Kennedy. Norfolk County Retirement System contends that as a result of theSEC on June 26, 2009 offer, the defendants breached their fiduciary duties to the minority public stockholders of First Advantage. The plaintiff seeks, among other things, to enjoin the consummation or closing of the Offer.
There havehas been no material changes from the risk factors previously disclosedchange in the Company’sexpected use of the net proceeds from our IPO as described in our Annual Report on Form 10-K filed with the SEC on February 28, 2023.
Issuer Purchases of Equity Securities
The following information relates to the Company’s purchase of its common stock during each month within the first quarter of 2023:
Period |
| Total Number of Shares Purchased |
|
| Average Price |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
| ||||
1/1/2023 - 1/31/2023 |
|
| 641,061 |
|
| $ | 13.15 |
|
|
| 641,061 |
|
| $ | 131,039,602 |
|
2/1/2023 - 2/28/2023 |
|
| 525,603 |
|
| $ | 13.71 |
|
|
| 525,603 |
|
| $ | 123,833,318 |
|
3/1/2023 - 3/31/2023 |
|
| 705,027 |
|
| $ | 13.66 |
|
|
| 705,027 |
|
| $ | 114,202,781 |
|
Total |
|
| 1,871,691 |
|
| $ | 13.50 |
|
|
| 1,871,691 |
|
| $ | 114,202,781 |
|
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not applicable
35
Item 5. Other Information.
Performance-Based Vesting Modification
Effective as of May 10, 2023, the Company’s Board of Directors approved a modification of the vesting terms of unvested and unearned performance-based options, restricted stock units (“RSUs”), and restricted stock (collectively, “Performance Awards”). The modification offers eligible employees incremental vesting criteria which allows the currently unvested and unearned Performance Awards to vest based on time on the fourth, fifth, and sixth anniversaries of the relevant vesting commencement date, as set forth in each grant agreement (the “Vesting Commencement Date”), while preserving the eligibility to vest upon future “Realization Events” (as that term is defined in the award agreement(s) pursuant to which the relevant Performance Award was granted).
The below table summarizes the impact of the modification (assuming performance conditions are not realized) on each of our named executive officers, as identified in our definitive proxy statement, dated April 26, 2023, filed with the SEC. Through the applicable vesting dates set forth in the table below, a number of additional Performance Awards, if any, shall vest on each such vesting date as is necessary to ensure that the number of Performance Awards that is vested on such vesting date is equal to the number set forth in the table below, such that 100% of the Performance Awards will be vested on the sixth anniversary of the Vesting Commencement Date (as set forth in the applicable award) even if no performance conditions are satisfied (i.e., no “Realization Event” occurs) prior to the sixth anniversary of such Vesting Commencement Date.
Name Award |
| Grant |
| Grant |
|
| Number of Unearned |
|
| Fourth Anniversary |
| Number of |
|
| Fifth Anniversary |
| Number of |
|
| Sixth Anniversary |
| Number of |
| |||||
Scott Staples |
| |
|
|
|
| |
|
| |
|
|
|
| |
|
|
|
| |
|
|
| |||||
Nonqualified stock options |
| 6/22/2021 |
| $ | 15.00 |
|
|
| 854,861 |
|
| 1/31/2024 |
|
| 170,972 |
|
| 1/31/2025 |
|
| 341,944 |
|
| 1/31/2026 |
|
| 341,945 |
|
Restricted stock |
| 2/9/2020 |
| $ | — |
|
|
| 867,526 |
|
| 1/31/2024 |
|
| 173,505 |
|
| 1/31/2025 |
|
| 347,010 |
|
| 1/31/2026 |
|
| 347,011 |
|
David L. Gamsey |
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
| |||||
Nonqualified stock options |
| 6/22/2021 |
| $ | 15.00 |
|
|
| 178,473 |
|
| 1/31/2024 |
|
| 35,694 |
|
| 1/31/2025 |
|
| 71,389 |
|
| 1/31/2026 |
|
| 71,390 |
|
Restricted stock |
| 2/9/2020 |
| $ | — |
|
|
| 180,736 |
|
| 1/31/2024 |
|
| 36,147 |
|
| 1/31/2025 |
|
| 72,294 |
|
| 1/31/2026 |
|
| 72,295 |
|
Joseph Jaeger |
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
| |||||
Nonqualified stock options |
| 6/22/2021 |
| $ | 15.00 |
|
|
| 250,466 |
|
| 1/31/2024 |
|
| 50,093 |
|
| 1/31/2025 |
|
| 100,186 |
|
| 1/31/2026 |
|
| 100,187 |
|
Restricted stock |
| 2/9/2020 |
| $ | — |
|
|
| 253,028 |
|
| 1/31/2024 |
|
| 50,605 |
|
| 1/31/2025 |
|
| 101,211 |
|
| 1/31/2026 |
|
| 101,212 |
|
Restricted stock units |
| 12/22/2021 |
| $ | — |
|
|
| 19,918 |
|
| 6/23/2025 |
|
| 3,983 |
|
| 6/23/2026 |
|
| 7,967 |
|
| 6/23/2027 |
|
| 7,968 |
|
Joelle M. Smith |
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
| |||||
Nonqualified stock options |
| 8/24/2020 |
| $ | 6.61 |
|
|
| 8,590 |
|
| 8/15/2024 |
|
| 1,718 |
|
| 8/15/2025 |
|
| 3,436 |
|
| 8/15/2026 |
|
| 3,436 |
|
Nonqualified stock options |
| 2/9/2020 |
| $ | 6.61 |
|
|
| 96,911 |
|
| 1/31/2024 |
|
| 19,382 |
|
| 1/31/2025 |
|
| 38,764 |
|
| 1/31/2026 |
|
| 38,765 |
|
Bret T. Jardine |
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
| |||||
Nonqualified stock options |
| 2/9/2020 |
| $ | 6.61 |
|
|
| 64,608 |
|
| 1/31/2024 |
|
| 12,921 |
|
| 1/31/2025 |
|
| 25,843 |
|
| 1/31/2026 |
|
| 25,844 |
|
36
Grant of Equity Award
Effective as of May 10, 2023, the Board of Directors authorized an equity grant to Mr. Bret T. Jardine, our executive Vice President, General Counsel and Corporate Secretary, having a fair value equal to $150,000, comprised of approximately two-thirds stock options and approximately one-third RSUs, with each grant vesting annually in four equal installments based on a grant date of May 11, 2023. The exact number of stock options and RSUs comprising the grant will be determined on May 11, 2023, based on the prior twenty day average closing price of the Company’s common stock in the case of the RSUs and using a Black-Scholes valuation for the stock options. The per share exercise price of the stock options will be the closing price on May 11, 2023.
37
Item 6. Exhibits.
Exhibit Number | Description | |
3.1 | ||
3.2 | ||
10.1† | ||
10.2† | Employment Offer Letter, dated May 31, 2017, between First Advantage Corporation and Joelle Smith. | |
10.3 | Form of Restrictive Covenant Agreement for Named Executive Officers. | |
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 (formatted as inline XBRL and contained in the Exhibit 101 attachments). |
38
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: May 10, 2023 | By: | /s/ Scott Staples | ||
Scott Staples | ||||
Chief Executive Officer | (principal executive officer) | |||
Date: May 10, 2023 | By: | /s/ David L. Gamsey | |
David L. Gamsey | |||
Executive Vice President & Chief Financial Officer | |||
(principal financial officer) |