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 March 31, 2023

OR

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

For the transition period from to

Commission File Number: 001-31666

 

First Advantage Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware	84-3884690
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1 Concourse Parkway NE, Suite 200 Atlanta, GA	30328
(Address of principal executive offices)	(Zip Code)

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

 

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

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.001 par value per share		FA		The Nasdaq Stock Market LLC

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

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

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

 

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
Emerging growth company		☐

 

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

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

As of May 4, 2023, the registrant had 146,259,519 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 

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Table of Contents

 

		Page
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations and Comprehensive Income	3
	Condensed Consolidated Statements of Cash Flows	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	36
Item 6.	Exhibits	38
Signatures		39

 

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PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

First Advantage Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

 

(in thousands, except share and per share amounts)		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.

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First Advantage Corporation

Condensed Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

 

		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.

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First Advantage Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

		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.

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First Advantage Corporation

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

 

(in thousands)		Common Stock				Additional Paid-In-Capital				Accumulated Deficit				Accumulated Other Comprehensive Loss				Total Stockholders’ Equity
BALANCE – December 31, 2022		$	149			$	1,176,163			$	(27,363	)		$	(22,331	)		$	1,126,618
Share-based compensation			—				2,058				—				—				2,058
Repurchases of common stock			(2	)			—				(25,515	)			—				(25,517	)
Proceeds from issuance of common stock under share-based compensation plans			0				1,399				—				—				1,399
Common stock withheld for tax obligations on restricted stock unit and option settlement			0				(25	)			—				—				(25	)
Foreign currency translation			—				—				—				869				869
Net income			—				—				1,925				—				1,925
BALANCE – March 31, 2023		$	147			$	1,179,595			$	(50,953	)		$	(21,462	)		$	1,107,327

 

(in thousands)		Common Stock				Additional Paid-In-Capital				Accumulated Deficit				Accumulated Other Comprehensive Loss				Total Stockholders’ Equity
BALANCE – December 31, 2021		$	153			$	1,165,163			$	(31,441	)		$	(1,637	)		$	1,132,238
Share-based compensation			—				1,859				—				—				1,859
Proceeds from issuance of common stock under share-based compensation plans			0				547				—				—				547
Foreign currency translation			—				—				—				(1,517	)			(1,517	)
Net income			—				—				13,013				—				13,013
BALANCE – March 31, 2022		$	153			$	1,167,569			$	(18,428	)		$	(3,154	)		$	1,146,140

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

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First Advantage Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of First Advantage Corporation’s financial condition and results of operations is provided as a supplement to the condensed consolidated financial statements for the three months ended March 31, 2023, and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022, our “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. These forward-looking statements relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. In some cases, you can identify these forward-looking statements by the use of words such as “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,” “will,” “seek,” “foreseeable,” the negative version of these words, or similar terms and phrases.

These forward-looking statements are subject to various risks, uncertainties, assumptions, or changes in circumstances that are difficult to predict or quantify. Such risks and uncertainties include, but are not limited to, the following: negative changes in external events beyond our control, including our customers’ onboarding volumes, economic drivers which are sensitive to macroeconomic cycles, such as interest rate volatility and inflation, geopolitical unrest, uncertainty in financial markets (including as a result of recent bank failures and events affecting financial institutions), and the COVID-19 pandemic; our operations in a highly regulated industry and the fact that we are subject to numerous and evolving laws and regulations, including with respect to personal data and data security; inability to identify and successfully implement our growth strategies on a timely basis or at all; potential harm to our business, brand, and reputation as a result of security breaches, cyber-attacks, or the mishandling of personal data; operating in a penetrated and competitive market; our reliance on third-party data providers; due to the sensitive and privacy-driven nature of our products and solutions, we could face liability and legal or regulatory proceedings, which could be costly and time-consuming to defend and may not be fully covered by insurance; our international business exposes us to a number of risks; real or perceived errors, failures, or bugs in our products could adversely affect our business, results of operations, financial condition, and growth prospects; our ability to identify attractive targets or successfully complete such transactions; the timing, manner and volume of repurchases of common stock pursuant to our share repurchase program; failure to comply with anti-corruption laws and regulations; disruptions at our Global Operating Center and other operating centers; our contracts with our customers, which do not guarantee exclusivity or contracted volumes; disruptions, outages, or other errors with our technology and network infrastructure, including our data centers, servers, and third-party cloud and internet providers and our migration to the cloud; the continued integration of our platforms and solutions with human resource providers such as applicant tracking systems and human capital management systems as well as our relationships with such human resource providers; risks relating to public opinion, which may be magnified by incidents or adverse publicity concerning our industry or operations; our reliance on third-party vendors to carry out certain portions of our operations; our dependence on the service of our key executive and other employees, and our ability to find and retain qualified employees; our ability to obtain, maintain, protect and enforce our intellectual property and other proprietary information; our ability to maintain, protect, and enforce the confidentiality of our trade secrets; the use of open-source software in our applications; the indemnification provisions in our contracts with our customers and third-party data suppliers; seasonality in our operations from quarter to quarter; our indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, and prevent us from meeting our obligations; Silver Lake’s control of us and the potential conflict of its interest with ours or those of our stockholders; and changing interpretations of tax laws.

For additional information on these and other factors that could cause First Advantage’s actual results to differ materially from expected results, please see our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”), as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. The forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date of this Form 10-Q, and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by law.

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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, you may opt in to automatically receive email alerts and other information about First Advantage when you enroll your email address by visiting the “Email Alerts” section of our investor website at https://investors.fadv.com/. The contents of our websites and social media channels are not, however, a part of this Quarterly Report on Form 10-Q.

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Overview

First 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 Company has two reportable segments, Americas and International:

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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 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), the prolonged 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 increases, 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 continuing 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, see our “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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.

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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:

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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	%

 

 

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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.

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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.

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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.

 

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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

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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	%

 

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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

 

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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

 

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Liquidity and Capital Resources

Liquidity

The Company’s primary liquidity requirements are for working capital, continued investments in software development and other capital expenditures, and other strategic investments. Income taxes are currently not a significant use of funds but after the benefits of our net operating loss carryforwards are fully recognized, 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. Our cash flows from operations include cash received from customers, less cash costs to provide services to our customers, which includes general and administrative costs and interest payments.

As of 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 hand, together with amounts available under our revolving credit facility, and cash provided by operating activities are and will continue to be adequate to meet our operational and business needs in the next twelve months. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds. In the event that we need access to additional cash, we may not be able to access the credit markets on commercially acceptable terms or at all. Our ability to fund future operating expenses and capital expenditures and our ability to meet future debt service obligations or refinance our indebtedness will depend on our future operating performance, which will be affected by general economic, financial, and other factors that may be beyond our control, including those described under our “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 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. No shares will be purchased from SLP Fastball Aggregator, L.P. and its affiliates. The Company may discontinue or modify purchases without notice at any time. The Company has used and plans to use its existing cash to fund repurchases made under the share 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. 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.

 

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Long-Term Debt

In February 2020, a new financing structure was established consisting of a new First Lien Credit Agreement (“First Lien Agreement”). The First Lien Agreement provided financing in the form of a $670.0 million term loan due January 31, 2027 (“First Lien Credit Facility”) and a $75.0 million new revolving credit facility due January 31, 2025 (“Revolver”).

On February 1, 2021, we amended the First Lien Agreement to fund $100.0 million of additional first lien term loans and reduce the applicable 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 maturity date from January 31, 2025 to July 31, 2026.

Borrowings under the 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 borrower, First Advantage Holdings, LLC, which is an indirect wholly-owned subsidiary of the Company, is required to pay a commitment fee on any unutilized commitments under the revolving credit facility. The commitment fee rate ranges between 0.25% and 0.50% per annum based on our first lien net leverage ratio. The borrower is also required to pay customary letter of credit fees.

The 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 case of any non-U.S. subsidiary of a U.S. subsidiary, does not include more than 65% of the voting stock of such non-U.S. subsidiary).

The First Lien Agreement contains customary affirmative covenants, negative covenants, and events 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 Revolver, that requires such ratio to be no greater than 7.75:1.00 on the last day of any fiscal quarter if more than 35.0% of the Revolver is utilized on such date.

 

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Cash Flow Analysis

Comparison of Cash Flows for the three months ended March 31, 2023 compared to the three months ended March 31, 2022

The following table is a summary of our 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 Operating Activities

Net cash provided by operating activities was $38.6 million for the three months ended March 31, 2023, compared to $41.6 million for the three months ended March 31, 2022. Net cash provided by operating activities for the three months ended March 31, 2023 decreased by $3.0 million compared to the three months ended March 31, 2022. Cash flows from operating activities was impacted by the continuation of more modest hiring activity in the Americas and softness internationally resulting from the ongoing uncertainty from the economic environment that began to impact hiring demand in late 2022. This was offset in part by lower accounts receivable driven by increased cash collections from customers.

Cash Flows from Investing Activities

Net cash used in investing activities was $6.1 million for the three months ended March 31, 2023, compared to $26.5 million for the three months ended March 31, 2022. Net cash used in investing activities for the three months ended March 31, 2023 decreased by $20.4 million compared to the three months ended March 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 make 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 acquisition of Form I-9 Compliance, net of cash acquired.

Cash Flows from Financing Activities

Net cash used in financing activities was $24.2 million for the three months ended March 31, 2023, compared to $0.0 million for the three months ended March 31, 2022. Cash flows from financing activities for the three months ended March 31, 2023 were primarily driven by share-based compensation activity. These inflows were offset by cash outflows related to payments on finance lease obligations, deferred purchase of a software platform, and shares repurchased under the Company’s Repurchase Program. During the three months ended March 31, 2023, 1,871,691 shares were repurchased under the program at a total cost of $25.3 million.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of March 31, 2023, no material change had occurred in our market risks, compared with the disclosure in our Annual Report on Form 10-K filed with the SEC on February 28, 2023.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosures.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving their desired control objectives. Based on the evaluation of management’s disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, the disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

During the quarter covered by this report, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART 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 June 25, 2021, we completed our IPO. All shares sold were registered pursuant to a registration statement on Form S-1 (File No. 333-256622), declared effective by the SEC on June 22, 2021.

There has been no material change in the expected use of the net proceeds from our IPO as described in our Annual Report on Form 10-K 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 Paid Per Share (1)				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

 

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.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not applicable

 

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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 Date		Grant Price				Number of Unearned Performance-Based Options, Shares, Units or Other Rights That Have Not Vested				Fourth Anniversary of Vesting Commencement Date		Number of Awards to Vest				Fifth Anniversary of Vesting Commencement Date		Number of Awards to Vest				Sixth Anniversary of Vesting Commencement Date		Number of Awards to Vest
Scott Staples Chief Executive Officer																								
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 Executive Vice President and Chief Financial Officer																										
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 President, Americas																										
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 President, Data, Technology, and Experience																										
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 Executive Vice President, General Counsel and Corporate Secretary																										
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

 

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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.

 

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Item 6. Exhibits.

Exhibit Number		Description
3.1		Amended and Restated Certificate of Incorporation of First Advantage Corporation (incorporated herein by reference to Exhibit 3.1 of First Advantage’s Form 8-K filed on June 25, 2021).
3.2		Amended and Restated Bylaws of First Advantage Corporation (incorporated herein by reference to Exhibit 3.2 of First Advantage’s Form 8-K filed on June 25, 2021).
10.1†		Employment Offer Letter, dated March 30, 2011, between STG-Fairway Holdings, Inc. (a predecessor to First Advantage Corporation) and Bret Jardine.
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		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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).

 

† Compensatory arrangements for director(s) and/or executive officer(s).

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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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)

 

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