FIRST ADVANTAGE CORPORATION The following discussion and analysis of First Advantage Corporations' financial condition and results of operations is provided as a supplement to the condensed consolidated financial statements for the three and nine months endedSeptember 30, 2021 , and should be read in conjunction with the audited consolidated financial statements for the year endedDecember 31, 2020 , our "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Registration Statement on Form S-1, originally filed with theSEC onMay 28, 2021 , as amended (Reg. No. 333-256622).
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. These forward-looking statements relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. In some cases, you can identify these forward-looking statements by the use of words such as "anticipate," "assume," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "future," "will," "seek," "foreseeable," the negative version of these words, or similar terms and phrases. These forward-looking statements are subject to various risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify. Such risks and uncertainties include, but are not limited to, the following: the impact of COVID-19 and related risks on our results of operations, financial position and/or liquidity; our operations in a highly regulated industry and the fact that we are subject to numerous and evolving laws and regulations, including with respect to personal data and data security; our reliance on third-party data providers; negative changes in external events beyond our control, including our customers' onboarding volumes, economic drivers which are sensitive to macroeconomic cycles, and the COVID-19 pandemic; potential harm to our business, brand and reputation as a result of security breaches, cyber-attacks or the mishandling of personal data; liability and litigation due to the sensitive and privacy-driven nature of our products and solutions, which could be costly and time-consuming to defend and may not be fully covered by insurance; the continued integration of our platforms and solutions with human resource providers such as applicant tracking systems and human capital management systems as well as our relationships with such human resource providers; risks relating to public opinion, which may be magnified by incidents or adverse publicity concerning our industry or operations; our contracts with our customers, which do not guarantee exclusivity or contracted volumes; our reliance on third-party vendors to carry out certain portions of our operations; disruptions, outages or other errors with our technology and network infrastructure, including our data centers, servers and third-party cloud and internet providers and our migration to the cloud; disruptions at our Global Operating Center and other operating centers; operating in a penetrated and competitive market; our ability to obtain, maintain, protect and enforce our intellectual property and other proprietary information; our indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, and prevent us from meeting our obligations; our Sponsor (Silver Lake Group, L.L.C. , together with its affiliates, successors and assignees) controls us and may have interests that conflict with ours or those of our stockholders; our ability to maintain, protect and enforce the confidentiality of our trade secrets; the use of open-source software in our applications; the indemnification provisions in our contracts with our customers and third-party data suppliers; our ability to identify attractive targets or successfully complete such transactions; our international business; our dependence on the service of our key executive and other employees, and our ability to find and retain qualified employees; seasonality in our operations from quarter to quarter; failure to comply with anti-corruption laws and regulations; and changing interpretations of tax laws. For additional information on these and other factors that could causeFirst Advantage's actual results to differ materially from expected results, please see our prospectus, datedJune 22, 2021 , filed with theSecurities and Exchange Commission (the "SEC") pursuant to Rule 424(b)(4) of the Securities Act of 1933, as such factors may be updated from time to time in our periodic filings with theSEC , which are accessible on theSEC'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. 26 --------------------------------------------------------------------------------
Glossary of Selected Terminology
The following terms are used in this Form 10-Q, unless otherwise noted or indicated by the context:
? "Enterprise customers" means our customerswho contribute$500,000 or more to our revenues in a calendar year; ? "First Advantage ," the "Company," "we," "us," and "our" mean the business ofFirst Advantage Corporation and its subsidiaries; ? "pro forma" or "pro forma basis" means giving effect to the Silver Lake Transaction and the related financing, which occurred onJanuary 31, 2020 and is further described below; and ? "Silver Lake" meansSilver Lake Group, L.L.C. , together with its affiliates, successors, and assignees.
Website and Social Media Disclosure
We use our websites (https://fadv.com/ and https://investors.fadv.com/) to distribute company information. 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 theSecurities and Exchange Commission ("SEC") and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information aboutFirst Advantage when you enroll your email address by visiting the "Email Alerts" section of our 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. OverviewFirst Advantage is a leading global provider of technology solutions for screening, verifications, safety, and compliance related to human capital. We deliver innovative solutions and insights that help our customers manage risk and hire the best talent. Enabled by our proprietary technology platform, our products and solutions 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 & 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. We perform screening in over 200 countries and territories, enabling us to serve as a one-stop-shop provider to both multinational companies and growth companies. Our more than 30,000 customers are global enterprises, mid-sized, and small companies, and our products and solutions are used by personnel in recruiting, human resources, risk, compliance, vendor management, safety, and/or security. Our products are sold both individually and bundled. TheFirst Advantage platform offers flexibility for customers to specify which products to include in their screening package, such asSocial Security numbers, criminal records, education and work verifications, sex offender registry, and global sanctions. Generally, our customers order a bundled background screening package or selected combination of screens related to a single individual before they onboard that individual. The type and mix of products and solutions we sell to a customer vary by customer size, their screening requirements and industry vertical. Therefore, order volumes are not comparable across both customers and periods. Pricing can also vary considerably by customer depending on the product mix in their screening packages, order volumes, screening requirements and preferences, pass-through and third-party out of pocket costs, and bundling of products. 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 do not include minimum order volumes or committed order volumes. Accordingly, contracts do not provide any guarantees of future revenues. Due to our contract terms and the nature of the background screening industry, we determined our contract terms for ASC 606 purposes are less than one year. Through our ongoing dialogue with our customers, we have some visibility into their expected future volumes, although these can be difficult to accurately forecast. We typically bill our customers at the end of each month and recognize revenues as completed orders are reported or otherwise made available to our customers. A substantial majority of customer orders are completed the same day they are submitted. 27 -------------------------------------------------------------------------------- We generated revenues of$192.9 million for the three months endedSeptember 30, 2021 (Successor), as compared to$136.8 million for the three months endedSeptember 30, 2020 (Successor). For the nine months endedSeptember 30, 2021 (Successor), we generated revenues of$499.8 million , as compared to$352.6 million for the nine months endedSeptember 30, 2020 , on a pro forma basis to give effect to the SilverLake Transaction . These increases were driven by the improvement in the overall economy and hiring market, as well as the addition of a number of large new customers, upselling and cross-selling existing customers, and strong, broad-based demand across our existing customer base. We have experienced additional increases as a result of theUK screening business acquisition which closed onMarch 31, 2021 . Approximately 84% of our 2021 revenues for the nine months endedSeptember 30, 2021 was generated inNorth America , predominantly in theU.S. , while the remaining 16% was generated internationally. Other thanthe United States , no single country accounted for 10% or more of our total revenues during the three and nine months endedSeptember 30, 2021 (Successor). Please refer to "Results of Operations" for further details.
Basis of Presentation
OnJanuary 31, 2020 , Silver Lake acquired substantially all of the equity interests of the Company fromSymphony Technology Group ("STG") pursuant to an Agreement and Plan of Merger, dated as ofNovember 19, 2019 (the "Silver Lake Transaction"). For the purposes of the consolidated financial data included in this Form 10-Q, periods on or prior toJanuary 31, 2020 reflect the financial position, results of operations, and cash flows of the Company and its consolidated subsidiaries prior to the SilverLake Transaction , referred to herein as the Predecessor, and periods beginning afterJanuary 31, 2020 reflect the financial position, results of operations and cash flows of the Company and its consolidated subsidiaries as a result of the SilverLake Transaction , referred to herein as the Successor. As a result of the SilverLake Transaction , the results of operations and financial position of the Predecessor and Successor are not directly comparable. To facilitate comparability across periods, we have presented in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" section certain financial information on a pro forma basis, giving pro forma effect to the SilverLake Transaction as if it had occurred onJanuary 1, 2020 . Please refer to "Results of Operations" for further details.
Numerical figures included in this Form 10-Q have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.
We have one operating segment.
Seasonality
We experience seasonality with respect to certain customer industries as a result of fluctuations in hiring volumes and other economic activity. For example, pre-onboarding revenues generated from our customers in the retail and transportation industries are historically highest during the September through November months leading up to the holiday season and lowest at the beginning of the first quarter following the holiday season. Certain customers across various industries also historically ramp up their hiring throughout the first half 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 declines 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 including the COVID-19 pandemic may impact seasonality, but we are unable to predict these potential shifts and how our business may be impacted.
Recent Developments
Initial Public Offering
OnJune 25, 2021 , the Company completed its IPO in which it sold 22,856,250 shares of its common stock, including 2,981,250 shares that were sold pursuant to the full exercise of the underwriters' option to purchase additional shares,$0.001 par value per share (the "Common Stock") at an offering price of$15.00 per share, resulting in net proceeds to us of$316.5 million , after deducting the underwriting discount of$22.3 million and offering expenses of$4.0 million ,$0.2 million of which was not paid as ofSeptember 30, 2021 . Additionally, certain existing stockholders sold an aggregate of 6,468,750 shares, including 843,750 shares that were sold pursuant to the full exercise of the underwriters' option to purchase additional shares. 28 --------------------------------------------------------------------------------
COVID-19
InMarch 2020 , theWorld Health Organization characterized COVID-19 as a pandemic. The COVID-19 pandemic and the ensuing actions that various governments have taken in response have created significant worldwide uncertainty, volatility, and economic disruption and has had significant and unpredictable impacts on global labor markets.U.S. total private hiring volumes declined significantly at the beginning of the COVID-19 pandemic as many companies quickly reduced hiring amid related uncertainty. TheU.S. unemployment rate spiked to 15% inApril 2020 , reflecting its highest rate since the Great Depression. Certain of our existing customers reduced headcount, furloughed employees, implemented hiring freezes, and reduced flexible workforces due to declining business conditions which decreased their spending on background screening. Certain sectors such as travel, dining, and non-essential retail, were especially impacted. We believe providers with large exposure to apparel, airline, hotel, in-person food & beverage, and SMB customers were heavily impacted during 2020 after COVID-19 driven lockdowns and other measures were taken. There were varying degrees of recovery across these sectors in 2020.First Advantage's revenues declined approximately 14% year-over-year in the second quarter of 2020 as customers reduced order volumes at the onset of the pandemic. In particular, we saw greater revenue declines among our international customers. In response, we enacted hiring reductions, reduced flexible labor, and took other precautionary cost actions. We quickly mobilized our global operations to transition to a work-from-home model and prioritized our order processing capacity to meet the volume demands of customers that still had strong hiring volume. For a short period of time at the onset of the pandemic, we experienced operational disruptions due to court closures and unavailability of certain data sources that resulted in longer turnaround times and depending on our customers' preferences, delayed or required modification of customer deliverables. We also incurred incremental costs of approximately$0.9 million in 2020 and$0.2 million in the nine months endedSeptember 30, 2021 in connection with the COVID-19 pandemic, including costs related to furloughs and severance, increased overtime, and personal protective equipment. Despite the pandemic and highU.S. unemployment rates, our business recovered in the third quarter of 2020. Our recovery and growth has been driven by our focus on and strength with Enterprise customers in diverse and durable sectors such as e-commerce, essential retail, transportation and home delivery, and new customer wins. We were also nimble in launching new products in response to COVID-19, such as virtual drug testing. We believe that a continued economic rebound will help drive strong hiring volumes and screening demand globally.
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 screening and adjacent products
that cover phases from pre-onboarding screening to post-onboarding screening
after the employees, contractors, contingent workers, tenants, and drivers have
been onboarded. 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 platform, proprietary databases, and data
analytics capabilities. Pre-onboarding products, which comprise the substantial
majority of our revenues, are comprised of an extensive array of products that
customers typically utilize to enhance their evaluation process and ensure
compliance with their onboarding criteria from the time a job or other
application is submitted to an applicant's successful onboarding.
Post-onboarding products are comprised of continuous monitoring and re-screening
solutions to help our customers keep their end customers, workforces, and other
stakeholders safe, productive, and compliant. Adjacent products include products
that complement our pre-onboarding and post-onboarding solutions such as fleet /
vehicle compliance, tax credits and incentives, resident / tenant screening, and
investigative screening.
Our suite of products is available individually or through bundled solutions
that can be configured and tailored according to our customers' needs. We
typically bill our customers at the end of each month and recognize revenues
after completed orders are reported or otherwise made available to our
customers. A substantial majority of customer orders are completed the same day
they are submitted. We similarly recognize revenues for other products as
customers receive and consume the benefits of the products and solutions
delivered.
29
--------------------------------------------------------------------------------Operating Expenses
We incur the following expenses related to our cost of revenues and operating expenses:
? Cost of Services: Consists of amounts paid to third parties for access to government records, other third-party data and services, and our internal processing fulfillment and customer care functions. In addition, cost of services include expenses from our drug screening lab and collection site network as well as our court runner network. Third-party cost of services are largely variable in nature and are typically invoiced to our customers as direct pass-through costs. Cost of services also includes our salaries and benefits expense for personnel involved in the processing and fulfilment of our screening products and solutions, as well as our customer care organization and robotics process automation implementation team. Other costs included in cost of services include an allocation of certain overhead costs for our revenue-generating products and solutions, primarily consisting of certain facility costs and administrative services allocated by headcount or another related metric. We do not allocate depreciation and amortization to cost of services. ? Product and Technology Expense: Consists of salaries and benefits of personnel involved in the maintenance of our technology platform and its integrations and APIs, product marketing, management of our network and infrastructure capabilities, and maintenance of our information security and business continuity functions. A portion of the personnel costs, are related to the development of new products and features that are primarily developed through Agile methodologies. These costs are partially capitalized, and therefore, are partially reflected as amortization expense within the depreciation and amortization cost line item. Product and technology expense also includes third-party costs related to our cloud computing services, software licensing and maintenance, telecommunications, and other data processing functions. We do not allocate depreciation and amortization to product and technology expense. ? Selling, General, and Administrative Expense: Consists of sales, customer success, marketing, and general and administrative expenses. Sales, customer success, and marketing consists primarily of employee compensation such as salaries, bonuses, sales commissions, stock-based compensation, and other employee benefits for our verticalized Sales and Customer Success teams. General and administrative expenses include travel expenses and various corporate functions including finance, human resources, legal, and other administrative roles, in addition to certain professional service fees and expenses incurred in connection with our IPO and now as a public company. We expect our selling, general, and administrative expenses to increase in the short-term, primarily as a result of additional public company related reporting and compliance costs. Over the long-term, we expect our selling, general, and administrative expenses to decrease as a percentage of revenues as we leverage our past investments. ? Depreciation and Amortization: Property and equipment consisting mainly of capitalized software costs, furniture, hardware, and leasehold improvements are depreciated or amortized and reflected as operating expenses. We also amortize the capitalized costs of finite-life intangible assets acquired in connection with the SilverLake Transaction and other business combinations. The comparability of our operating expenses over time is affected by the increased depreciation and amortization recorded as a result of applying purchase accounting at the time of the SilverLake Transaction . 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 revenue and mix of customers that contribute to our revenues for any given period. As revenues grow, we would generally expect cost of services to grow in a similar fashion, albeit influenced by the effects of automation, productivity, and other efficiency initiatives as well as customer and product mix shifts. We regularly review expenses and investments in the context of revenue growth and any shifts we see in cost of services in order to align with our overall financial objectives. While we expect operating expenses to increase in absolute dollars to support our continued growth, we believe that operating expenses will decline gradually as a percentage of total revenues in the future as our business grows and our operating efficiency continues to improve. 30 --------------------------------------------------------------------------------
Other Expense (Income)
Our other expense (income) consists of the following:
? Interest Expense: Relates primarily to our debt service costs and, to a lesser extent, the interest-related expenses of our interest rate swaps and the interest on our capital lease obligations. Additionally, interest expense includes the amortization of deferred financing costs. ? Interest Income: We earn interest income on our cash and cash equivalent balances held in interest-bearing accounts. We also earn interest income on our short-term investments which are fixed-time deposits having a maturity date within twelve months. ? Loss on Extinguishment of Debt: Reflects losses on the extinguishment of certain debt. ? Transaction Expenses, Change in Control: Includes transaction expenses related to the change of control resulting from the SilverLake Transaction as well as transaction costs related to other business combinations completed as part of our historic business combinations.
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 an increase in theU.S. corporate income tax rate from 21% to 28%, doubling the rate of tax on certain earnings of foreign subsidiaries, creation of a 10% penalty on certain imports, and a 15% minimum tax on worldwide book income. 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 comparability of our operating results for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 was impacted by our accounting for the SilverLake Transaction . The period fromJanuary 1, 2020 throughJanuary 31, 2020 relate to the Predecessor and the period fromFebruary 1, 2020 throughSeptember 30, 2020 relate to the Successor. To facilitate comparability of the nine months endedSeptember 30, 2021 to the nine months endedSeptember 30, 2020 , below we present the combination of consolidated results fromJanuary 1, 2020 toSeptember 30, 2020 , comprising the Successor consolidated results fromFebruary 1, 2020 toSeptember 30, 2020 , the Predecessor consolidated results for the period fromJanuary 1, 2020 toJanuary 31, 2020 and certain pro forma adjustments that give effect to the Silver Lake Transaction and the related refinancing as if it had occurred onJanuary 1, 2020 (pro forma results for the nine months endedSeptember 30, 2020 ). The pro forma information below has been prepared on a basis consistent with Article 11 of Regulation S-X, but does not constitute Article 11 pro forma information because it only presents the pro forma nine months endedSeptember 30, 2020 , reflecting the SilverLake Transaction and the related refinancing as if they had occurred as ofJanuary 1, 2020 . We present the pro forma nine months endedSeptember 30, 2020 , to facilitate comparability with the results for the Successor nine months endedSeptember 30, 2020 . The information contained below should be read in conjunction with our accompanying historical condensed consolidated financial statements and the related notes. 31 -------------------------------------------------------------------------------- Comparison of Results of Operations for the three months endedSeptember 30, 2021 (Successor) andSeptember 30, 2020 (Successor) and the nine months endedSeptember 30, 2021 (Successor) compared to the Period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and the Period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor) Three-Month Period Nine-Month Period Successor Predecessor Pro Forma Period from Period from Adjustments Three Three Nine February 1, January 1, for the Pro Forma Months Months Months 2020 2020 Nine Months Nine Months Ended Ended Ended through through Ended Ended September 30, September 30, September 30, September 30, January 31, September 30, September 30, (in thousands) 2021 2020 2021 2020 2020 2020 2020 Revenues$ 192,867 $ 136,778 $ 499,763 $ 315,825 $ 36,785 $ -$ 352,610 Operating Expenses: Cost of services (exclusive of depreciation and amortization below) 94,151 67,483 244,964 156,703 20,265 - 176,968 Product and technology expense 11,313 8,343 33,546 20,495 3,189 - 23,684 Selling, general, and administrative expense 27,203 18,907 76,256 46,206 11,235 - 57,441 Depreciation and amortization (a) 35,812 36,756 106,493 97,815 2,105 8,320 108,240 Total operating expenses 168,479 131,489 461,259 321,219 36,794 8,320 366,333 Income (loss) from operations 24,388 5,289 38,504 (5,394 ) (9 ) (8,320 ) (13,723 ) Other Expense: Interest expense (b) 4,734 11,706 22,015 38,405 4,514 (1,228 ) 41,691 Interest income (28 ) (76 ) (140 ) (282 ) (25 ) - (307 ) Loss on extinguishment of debt (c) - - 13,938 - 10,533 (10,533 ) - Transaction expenses, change in control (d) - - - 9,423 22,370 (22,370 ) 9,423 Total other expense 4,706 11,630 35,813 47,546 37,392 (34,131 ) 50,807 Income (loss) before provision for income taxes 19,682 (6,341 ) 2,691 (52,940 ) (37,401 ) 25,811 (64,530 ) Provision (benefit) for income taxes (e) 3,397 (2,889 ) 2,025 (11,308 ) (871 ) 6,634 (5,545 ) Net income (loss)$ 16,285 $ (3,452 ) $ 666$ (41,632 ) $ (36,530 ) $ 19,177 $ (58,985 ) Net income (loss) margin 8.4 % (2.5 )% 0.1 % (13.2 )% (99.3 )% - (16.7 )% (a) Refer to Note 2(a) in the Notes to the Unaudited Supplemental Pro Forma Financial Information Presented in Management's Discussion and Analysis of Financial Condition and Results of Operations (b) Refer to Note 2(c) in the Notes to the Unaudited Supplemental Pro Forma Financial Information Presented in Management's Discussion and Analysis of Financial Condition and Results of Operations (c) Refer to Note 2(d) in the Notes to the Unaudited Supplemental Pro Forma Financial Information Presented in Management's Discussion and Analysis of Financial Condition and Results of Operations (d) Refer to Note 2(b) in the Notes to the Unaudited Supplemental Pro Forma Financial Information Presented in Management's Discussion and Analysis of Financial Condition and Results of Operations (e) Refer to Note 2(e) in the Notes to the Unaudited Supplemental Pro Forma Financial Information Presented in Management's Discussion and Analysis of Financial Condition and Results of Operations 32 --------------------------------------------------------------------------------
Revenues
Three-Month Period Nine-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Nine February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Nine Months Nine Months
Ended Ended Ended through through Ended Ended
September 30, September 30, September 30, September 30, January 31, September 30, September 30,
(in thousands) 2021 2020 2021 2020 2020 2020 2020
Revenues $ 192,867 $ 136,778 $ 499,763 $ 315,825 $ 36,785 $ - $ 352,610
Revenues were $192.9 million for the three months ended September 30, 2021
(Successor), compared to $136.8 million for the three months ended September 30,
2020 (Successor). Revenue for the three months ended September 30, 2021
(Successor) increased by $56.1 million , or 41.0%, compared to the three months
ended September 30, 2020 (Successor).
The increase in revenues was primarily due to:
? a net increase of$39.9 million in existing customer revenues, primarily driven by a continued strong, broad-based recovery in demand as compared to the third quarter of 2020 which was negatively impacted by the COVID-19 pandemic, increased revenue growth in key verticals and geographies, and further strengthening in upsell and cross-sell. These existing customer increases were offset by the impact of lost accounts including a large customer re-screening project in 2020 that did not reoccur in 2021, ? increased revenues of$7.4 million attributable to new customers, and ? revenues of$8.8 million attributable to theUK screening business acquisition. Revenues were$499.8 million for the nine months endedSeptember 30, 2021 (Successor), compared to$315.8 million for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and$36.8 million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Revenue for the nine months endedSeptember 30, 2021 (Successor) increased by$147.2 million , or 41.7%, compared to the nine months endedSeptember 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction .
The increase in revenues was primarily driven by:
? a net increase of$99.9 million in existing customer revenues, primarily driven by a strong, broad-based recovery in demand as compared to the second and third quarters of 2020 which were negatively impacted by the COVID-19 pandemic, increased revenue growth in key verticals and geographies, and on-going strength in upsell and cross-sell. These existing customer increases were offset by the impact of lost accounts, ? increased revenues of$31.4 million attributable to new customers, and ? revenues of$15.9 million attributable to theUK screening business acquisition. The Company experienced high demand among customers in the essential retail, e-commerce, transportation and home delivery, technology and business services, and flexible workforce / staffing verticals through the first three quarters of 2021. Pricing was relatively stable across all periods. 33 --------------------------------------------------------------------------------
Cost of Services
Three-Month Period Nine-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Nine February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Nine Months Nine Months
Ended Ended Ended through through Ended Ended
(in thousands, September 30, September 30, September 30, September 30, January 31, September 30, September 30,
except percentages) 2021 2020 2021 2020 2020 2020 2020
Revenues $ 192,867 $ 136,778 $ 499,763 $ 315,825 $ 36,785 $ - $ 352,610
Cost of services 94,151 67,483 244,964 156,703 20,265 - 176,968
Cost of services as
a % of revenue 48.8 % 49.3 % 49.0 % 49.6 % 55.1 % - 50.2 %
Cost of services was $94.2 million for the three months ended September 30, 2021
(Successor), compared to $67.5 million for the three months ended September 30,
2020 (Successor). Cost of services for the three months ended September 30, 2021
(Successor) increased by $26.7 million , or 39.5%, compared to the three months
ended September 30, 2020 (Successor).
The increase in cost of services was primarily due to:
? an increase in variable third-party data expenses of$22.1 million as a direct result of increased revenues, and ? a$3.7 million increase in personnel related expenses in our operations and customer service functions as a result of additional operational support headcount to process and fulfill the Company's high levels of order volume growth. Cost of services as a percentage of revenues was 48.8% for the three months endedSeptember 30, 2021 (Successor), compared to 49.3% for the three months endedSeptember 30, 2020 (Successor). The Company was able to continue to improve cost of services leverage in the third quarter of 2021 as a result of operating efficiencies, leveraging of our proprietary data assets, and robotic process automation which helped control personnel expenses. Cost of services was$245.0 million for the nine months endedSeptember 30, 2021 (Successor), compared to$156.7 million for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and$20.3 million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Cost of services for the nine months endedSeptember 30, 2021 (Successor) increased by$68.0 million , or 38.4%, compared to the nine months endedSeptember 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction .
The increase in cost of services was primarily due to:
? an increase in variable third-party data expenses of$57.4 million as a direct result of increased revenues, ? an$8.1 million increase in personnel related expenses in our operations and customer service functions as a result of additional operational support headcount to process and fulfill the Company's high levels of order volume growth, particularly in the second and third quarters of 2021. This increase is further impacted by the COVID-19 related personnel and benefit expense reduction actions taken in the second and third quarters of 2020 that did not continue into 2021, ? foreign currency exchange losses of$0.8 million due to the impact of foreign exchange rate volatility, and ? a number of cost of services related operating expense increases attributable to the increased revenue volumes experienced in 2021.
The increase in cost of services was partially offset by:
?
a
Cost of services as a percentage of revenues was 49.0% for the nine months endedSeptember 30, 2021 (Successor), compared to 49.6% for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and 55.1% for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). The Company was able to continue to improve cost of services leverage in 2021 as a result of operating efficiencies, leveraging our proprietary data assets, and robotic process automation which helped control personnel expenses. We also had reduced travel costs as a result of COVID-19 related restrictions. 34 --------------------------------------------------------------------------------
Product and Technology Expense
Three-Month Period Nine-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Nine February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Nine Months Nine Months
Ended Ended Ended through through Ended Ended
September 30, September 30, September 30, September 30, January 31, September 30, September 30,
(in thousands) 2021 2020 2021 2020 2020 2020 2020
Product and
technology expense $ 11,313 $ 8,343 $ 33,546 $ 20,495 $ 3,189 $ - $ 23,684
Product and technology expense was $11.3 million for the three months ended
September 30, 2021 (Successor), compared to $8.3 million for the three months
ended September 30, 2020 (Successor). Product and technology expense for the
three months ended September 30, 2021 (Successor) increased by $3.0 million , or
35.6%, compared to the three months ended September 30, 2020 (Successor).
The increase in product and technology expense was primarily due to:
? a$1.3 million increase in personnel-related expenses as a result of additional investments made to enhance our product, solutions, and technology platform, ? a$1.1 million increase in software licensing related expenses, and ? a$0.6 million increase in professional service fees. Product and technology expense was$33.5 million for the nine months endedSeptember 30, 2021 (Successor), compared to$20.5 million period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and$3.2 million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Product and technology expense for the nine months endedSeptember 30, 2021 (Successor) increased by$9.9 million , or 41.6%, compared to the nine months endedSeptember 30, 2020 , on a pro forma basis after giving effect to the Silver Lake Transaction.
The increase in product and technology expense was primarily due to:
? a$5.7 million increase in personnel-related expenses as a result of additional investments made to enhance our product, solutions, and technology platform, ? a$3.2 million increase in software licensing related expenses, and ? a$1.1 million increase in professional service fees. 35 --------------------------------------------------------------------------------
Selling, General, and Administrative Expense
Three-Month Period Nine-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Nine February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Nine Months Nine Months
Ended Ended Ended through through Ended Ended
September 30, September 30, September 30, September 30, January 31, September 30, September 30,
(in thousands) 2021 2020 2021 2020 2020 2020 2020
Selling, general, and
administrative expense $ 27,203 $ 18,907 $ 76,256 $ 46,206 $ 11,235 $ - $ 57,441
Selling, general, and administrative expense was $27.2 million for the three
months ended September 30, 2021 (Successor), compared to $18.9 million for the
three months ended September 30, 2020 (Successor). Selling, general, and
administrative expense for the three months ended September 30, 2021 (Successor)
increased by $8.3 million , or 43.9%, compared to the three months ended
September 30, 2020 (Successor).
Selling, general, and administrative expense increased primarily due to:
? a$2.4 million increase in personnel related expenses primarily due to additional investments made in the Company's Sales and Customer Success functions, additional headcount related to operating as a public company and COVID-19 related personnel and benefit expense reduction actions taken in 2020 that did not continue into 2021, ? a$2.2 million increase in professional service fees and insurance expenses incurred related to the Company becoming a publicly traded company and other transactional activities, ? a$0.8 million increase in stock-based compensation expenses as a result of incremental awards granted in conjunction with the Company's IPO, ? a$0.8 million increase in legal expenses (see Note 12 to the condensed consolidated financial statements), ? a$0.6 million increase in commissions and bonus related expenses due to the Company's improved operating results in 2021, and ? a number of other corporate expenses that increased primarily as a result of the Company now being a publicly traded company and COVID-19 related expense reductions in 2020 that did not continue into 2021. Selling, general, and administrative expense was$76.3 million for the nine months endedSeptember 30, 2021 (Successor), compared to$46.2 million for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and$11.2 million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Selling, general, and administrative expense for the nine months endedSeptember 30, 2021 (Successor) increased by$18.8 million , or 32.8%, compared to the nine months endedSeptember 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction .
Selling, general, and administrative expense increased primarily due to:
? a$6.2 million increase in professional service fees incurred related to the Company's IPO, related readiness expenses, and insurance expenses incurred related to the Company becoming a publicly traded company, ? a$5.3 million increase in commissions and bonus related expenses due to the Company's improved operating results in 2021, ? a$4.6 million increase in personnel related expenses primarily due to additional investments made in the Company's Sales and Customer Success functions, additional headcount related to operating as a public company and COVID-19 related personnel and benefit expense reduction actions taken in 2020 that did not continue into 2021, ? a$1.9 million increase in legal expenses (see Note 12 to the condensed consolidated financial statements), and ? a number of other corporate expenses that increased primarily as a result of the Company now being a publicly traded company and COVID-19 related expense reductions in 2020 that did not continue into 2021. 36 --------------------------------------------------------------------------------
The increase in selling, general, and administrative expense was partially offset by:
? a$0.6 million decrease in stock-based compensation expenses primarily as a result of accelerated vesting related to the SilverLake Transaction that did not reoccur in 2021, offset by performance related vesting as a result of the IPO and incremental awards granted in conjunction with the Company's IPO.
Depreciation and Amortization
Three-Month Period Nine-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Nine February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Nine Months Nine Months
Ended Ended Ended through through Ended Ended
September 30, September 30, September30, September 30, January 31, September 30, September 30, (in thousands) 2021 2020 2021 2020 2020 2020 2020 Depreciation and amortization$ 35,812 $ 36,756 $ 106,493 $ 97,815 $ 2,105 $ 8,320$ 108,240 Depreciation and amortization was$35.8 million for the three months endedSeptember 30, 2021 (Successor), compared to$36.8 million for the three months endedSeptember 30, 2020 (Successor). Depreciation and amortization for the three months endedSeptember 30, 2021 (Successor) decreased by$0.9 million , or 2.6%, compared to the three months endedSeptember 30, 2020 (Successor). This decrease was primarily due to the impact of the step up in fair value of property and equipment and intangible assets as a result of the application of purchase accounting related to the SilverLake Transaction , of which the intangible asset amortization is accelerated based on the relative projected discounted cash flows. This decrease was partially offset by increases in depreciation related to assets placed in service during the three months endedSeptember 30, 2021 (Successor). Depreciation and amortization was$106.5 million for the nine months endedSeptember 30, 2021 (Successor), compared to$97.8 million for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and$2.1 million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Depreciation and amortization for the nine months endedSeptember 30, 2021 (Successor) decreased by$1.7 million , or 1.6%, compared to the nine months endedSeptember 30, 2020 , on a pro forma basis after giving effect to the Silver Lake Transaction. This decrease was primarily due to the impact of the step up in fair value of property and equipment and intangible assets as a result of the application of purchase accounting related to the SilverLake Transaction , of which the intangible asset amortization is accelerated based on the relative projected discounted cash flows. This decrease was partially offset by increases in depreciation related to assets placed in service during the nine months endedSeptember 30, 2021 (Successor). 37 -------------------------------------------------------------------------------- Interest Expense Three-Month Period Nine-Month Period Successor Predecessor Pro Forma Period from Period from Adjustments Three Three Nine February 1, January 1, for the Pro Forma Months Months Months 2020 2020 Nine Months Nine Months Ended Ended Ended through through Ended Ended September 30, September 30, September
30, September 30, January 31, September 30, September 30, (in thousands) 2021 2020 2021 2020 2020 2020 2020 Interest expense $ 4,734$ 11,706 $ 22,015 $ 38,405 $ 4,514 $ (1,228 ) $ 41,691 Interest expense was$4.7 million for the three months endedSeptember 30, 2021 (Successor), compared to$11.7 million for the three months endedSeptember 30, 2020 (Successor). Interest expense for the three months endedSeptember 30, 2021 (Successor) decreased by$7.0 million , or 59.6%, compared to the three months endedSeptember 30, 2020 (Successor). The decrease was primarily due to the impact of the Company'sFebruary 2021 refinancing of the Successor First Lien Credit Facility and early repayment of the Successor Second Lien Credit Facility, resulting in interest rate savings due to lower principal and more favorable interest rate margins. Interest expense was$22.0 million for the nine months endedSeptember 30, 2021 (Successor), compared to$38.4 million for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and$4.5 million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Interest expense for the nine months endedSeptember 30, 2021 (Successor) decreased by$19.7 million , or 47.2%, compared to the nine months endedSeptember 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction . This decrease in interest expense for the nine months endedSeptember 30, 2021 (Successor), compared to the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor) was primarily due to the impact of the Company'sFebruary 2021 refinancing of the Successor First Lien Credit Facility and early repayment of the Successor Second Lien Credit Facility, resulting in interest rate savings due to lower principal and more favorable interest rate margins. This decrease was partially offset by a one-time increase in interest expense associated with the repayment of$200.0 million of the Successor First Lien Credit Facility, in conjunction with the Company's IPO, resulting in accelerated amortization of the related deferred financing costs. 38 --------------------------------------------------------------------------------
Interest Income
Three-Month Period Nine-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Nine February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Nine Months Nine Months
Ended Ended Ended through through Ended Ended
September 30, September 30, September 30 , (in thousands) 2021 2020 2021 2020 2020 2020 2020 Interest income $ (28 ) $ (76 ) $ (140 ) $ (282 ) $ (25 ) $ - $ (307 ) Interest income was$0.0 million for the three months endedSeptember 30, 2021 (Successor), compared to$0.1 million for the three months endedSeptember 30, 2020 (Successor). Interest income for the three months endedSeptember 30, 2021 (Successor) decreased by a nominal amount, compared to the three months endedSeptember 30, 2020 (Successor). Interest income was$(0.1) million for the nine months endedSeptember 30, 2021 (Successor), compared to$(0.3) million for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and$0.0 million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Interest income for the nine months endedSeptember 30, 2021 (Successor) decreased by$0.2 million , or 54.4%, compared to the nine months endedSeptember 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction .
Interest income decreases were primarily due to general decreases in interest rates.
Loss on Extinguishment of Debt
Three-Month Period Nine-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Nine February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Nine Months Nine Months
Ended Ended Ended through through Ended Ended
September 30, September 30, September 30, September 30, January 31, September 30, September 30 , (in thousands) 2021 2020 2021 2020 2020 2020 2020 Loss on extinguishment of debt $ - $ -$ 13,938 $ -$ 10,533 $ (10,533 ) $ - Loss on extinguishment of debt for the nine months endedSeptember 30, 2021 (Successor) relates to expenses stemming from the write-off of debt issuance costs associated with theFebruary 2021 refinancing of the Successor First Lien Credit Facility and early repayment of the Successor SecondLien Credit Facility. Loss on extinguishment of debt for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor), relates to expenses stemming from the write-off of debt issuance costs as a result of prepayment of the Company's outstanding debt obligations in connection with the SilverLake Transaction .
Transaction Expenses, Change in Control
Three-Month Period Nine-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Nine February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Nine Months Nine Months
Ended Ended Ended through through Ended Ended
September 30, September 30, September 30, September 30, January 31, September 30, September 30 , (in thousands) 2021 2020 2021 2020 2020 2020 2020 Transaction expenses, change in control $ - $ - $ - $ 9,423$ 22,370 $ (22,370 ) $ 9,423 Transaction expenses, change in control relate solely to costs relating to the SilverLake Transaction that are recorded on our books and are therefore only included in our results of operations for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). 39 -------------------------------------------------------------------------------- Provision for Income Taxes Three-Month Period Nine-Month Period Successor Predecessor Pro Forma Period from Period from Adjustments Three Three Nine February 1, January 1, for the Pro Forma Months Months Months 2020 2020 Nine Months Nine Months Ended Ended Ended through through Ended Ended September 30, September 30, September
30, September 30, January 31, September 30, September 30, (in thousands) 2021 2020 2021 2020 2020 2020 2020 Provision (benefit) for income taxes $ 3,397$ (2,889 ) $ 2,025$ (11,308 ) $ (871 ) $ 6,634$ (5,545 ) Our provision for income taxes was$3.4 million for the three months endedSeptember 30, 2021 (Successor), compared to a (benefit) for income taxes of$(2.9) million for the three months endedSeptember 30, 2020 (Successor). Our provision for income taxes for the three months endedSeptember 30, 2021 (Successor) increased by$6.3 million , or 217.6%, compared to the three months endedSeptember 30, 2020 (Successor).
The increase in our provision for income taxes was primarily due to the increase
of the foreign tax expense during the three months ended
Our provision (benefit) for income taxes was$2.0 million for the nine months endedSeptember 30, 2021 (Successor), compared to$(11.3) million for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and$(0.9) million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Our provision for income taxes for the nine months endedSeptember 30, 2021 (Successor) increased by$7.6 million , or 136.5%, compared to the nine months endedSeptember 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction . The increase in our provision for income taxes was primarily due to the reversal of our valuation allowance after the SilverLake Transaction during the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor), the additional tax expense incurred associated with an increase toUK deferred tax liabilities due to an increase in theUK corporate tax rate and increased foreign tax expense incurred as a result of taxable income increase in certain jurisdictions during the nine months endedSeptember 30, 2021 (Successor). These increases were partially offset by benefits from research and development tax credits and a favorable discrete adjustment from the finalization of the 2020 income tax returns. 40 --------------------------------------------------------------------------------
Net Income (Loss) and Net Income (Loss) Margin
Three-Month Period Nine-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Nine February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Nine Months Nine Months
Ended Ended Ended through through Ended Ended
(in thousands, except September 30, September 30, September 30, September 30, January 31, September 30, September 30,
percentages) 2021 2020 2021 2020 2020 2020 2020
Net income (loss) $ 16,285 $ (3,452 ) $ 666 $ (41,632 ) $ (36,530 ) $ 19,177 $ (58,985 )
Net income (loss)
margin 8.4 % (2.5 )% 0.1 % (13.2 )% (99.3 )% - (16.7 )%
Net income was $16.3 million for the three months ended September 30, 2021
(Successor), compared to a net (loss) of $(3.5) million for the three months
ended September 30, 2020 (Successor). Net income for the three months ended
September 30, 2021 (Successor) increased by $19.7 million compared to the three
months ended September 30, 2020 (Successor).
Net income (loss) margin was 8.4% for the three months ended
The improvement in our net income (loss) margin is attributable to our ability
to leverage operating efficiencies to control our overall expenses while
increasing revenue and our reduction in interest expense as a result of the
Net income was$0.7 million for the nine months endedSeptember 30, 2021 (Successor), compared to a net (loss) of$(41.6) million for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and$(36.5) million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Net income for the nine months endedSeptember 30, 2021 (Successor) increased by$59.7 million , or 101.1%, compared to the nine months endedSeptember 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction , due to the factors described above. Net income (loss) margin was 0.1% for the nine months endedSeptember 30, 2021 (Successor), compared to (13.2)% for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and (99.3)% for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Net income (loss) margin for the nine months endedSeptember 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction , was (16.7)%.
The improvement in our net income (loss) margin is attributable to our ability
to leverage operating efficiencies to control our overall expenses while
increasing revenue and our reduction in interest expense as a result of the
41
--------------------------------------------------------------------------------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$63.9 million for the three months endedSeptember 30, 2021 (Successor) and represented an Adjusted EBITDA Margin of 33%. Adjusted EBITDA was$43.3 million for the three months endedSeptember 30, 2020 (Successor) and represented an Adjusted EBITDA Margin of 32%. Adjusted EBITDA for the three months endedSeptember 30, 2021 (Successor) increased by$20.7 million , or 48%, compared to the three months endedSeptember 30, 2020 (Successor). Adjusted EBITDA was$156.9 million for the nine months endedSeptember 30, 2021 (Successor) and represented an Adjusted EBITDA Margin of 31%. Adjusted EBITDA was$95.1 million and$7.0 million for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and the periodJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor), respectively. This represented an Adjusted EBITDA Margin of 30% and 19% for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and the periodJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor), respectively. On a pro forma basis after giving effect to the SilverLake Transaction , Adjusted EBITDA was$102.2 million for the nine months endedSeptember 30, 2020 and represented an Adjusted EBITDA Margin of 29%. Adjusted EBITDA for the nine months endedSeptember 30, 2021 (Successor) increased by$54.7 million , or 54%, compared to the nine months endedSeptember 30, 2020 , on a pro forma basis after giving effect to the Silver Lake Transaction.
Growth in Adjusted EBITDA was driven primarily from revenue growth attributed to new and existing customers and margin expansion attributed to increased automation, cost discipline, and operating leverage.
42
--------------------------------------------------------------------------------
The following table presents a reconciliation of Adjusted EBITDA for the periods
presented. For a discussion of pro forma adjustments, see "Notes to the
Unaudited Supplemental Pro Forma Financial Information Presented in Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Three-Month Period Nine-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Nine February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Nine Months Nine Months
Ended Ended Ended through through Ended Ended
September 30, September 30, September30, September 30, January 31, September 30, September 30, (in thousands) 2021 2020 2021 2020 2020 2020 2020 Net income (loss)$ 16,285 $ (3,452 ) $ 666$ (41,632 ) $ (36,530 ) $ 19,177 $ (58,985 ) Interest expense, net 4,706 11,630 21,875 38,123 4,489 (1,228 ) 41,384 Provision for income taxes 3,397 (2,889 ) 2,025 (11,308 ) (871 ) 6,634 (5,545 ) Depreciation and amortization 35,812 36,756 106,493 97,815 2,105 8,320 108,240 Loss on extinguishment of debt - - 13,938 - 10,533 (10,533 ) - Share-based compensation 1,343 530 4,569 1,331 3,976 - 5,307 Transaction and acquisition-related charges (a) 2,144 56 6,510 9,578 22,840 (22,370 ) 10,048 Integration and restructuring charges(b) 63 26 584 288 327 - 615 Other(c) 194 630 196 936 153 - 1,089 Adjusted EBITDA$ 63,944 $ 43,287 $ 156,856 $ 95,131 $ 7,022 $ -$ 102,153 (a) Represents charges incurred related to acquisitions and similar transactions, primarily consisting of change in control-related costs, professional service fees, and other third-party costs. Additionally, the three and nine months endedSeptember 30, 2021 (Successor) includes incremental professional service fees incurred related to the initial public offering. (b) Represents charges from organizational restructuring and integration activities outside of the ordinary course of business. (c) Represents non-cash and other charges primarily related to legal exposures inherited from legacy acquisitions, foreign currency (gains) losses, and (gains) losses on the sale of assets. 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-Month Period Nine-Month Period Successor Predecessor Pro Forma Period from Period from Adjustments Three Three Nine February 1, January 1, for the Pro Forma Months Months Months 2020 2020 Nine Months Nine Months Ended Ended Ended through through Ended Ended September 30, September 30, September 30, September 30, January 31, September 30, September 30, (in thousands) 2021 2020 2021 2020 2020 2020 2020 Adjusted EBITDA$ 63,944 $ 43,287 $ 156,856 $ 95,131 $ 7,022 $ -$ 102,153 Revenues 192,867 136,778 499,763 315,825 36,785 - 352,610 Adjusted EBITDA Margin 33 % 32 % 31 % 30 % 19 % - 29 % 43
--------------------------------------------------------------------------------
Adjusted Net Income and Adjusted Diluted Earnings Per Share
Similar to Adjusted EBITDA, management believes that Adjusted Net Income is a strong indicator of our overall operating performance and is useful to our management and investors as a measure 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$42.2 million for the three months endedSeptember 30, 2021 (Successor), compared to$22.3 million for the three months endedSeptember 30, 2020 (Successor). Adjusted Net Income for the three months endedSeptember 30, 2021 (Successor) increased by$19.9 million , or 89%, compared to the three months endedSeptember 30, 2020 (Successor).
Adjusted Diluted Earnings Per Share was
Adjusted Net Income was$95.9 million for the nine months endedSeptember 30, 2021 (Successor), compared to$39.1 million for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and$1.4 million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). On a pro forma basis giving effect to the SilverLake Transaction , Adjusted Net Income was$41.2 million for the nine months endedSeptember 30, 2020 . Adjusted Net Income for the nine months endedSeptember 30, 2021 (Successor) increased by$54.6 million , or 133%, compared to the nine months endedSeptember 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction . Adjusted Diluted Earnings Per Share was$0.69 for the nine months endedSeptember 30, 2021 (Successor), compared to$0.30 for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and$0.01 for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). On a pro forma basis giving effect to the SilverLake Transaction , Adjusted Diluted Earnings Per Share was$0.32 for the nine months endedSeptember 30, 2020 . Adjusted Diluted Earnings Per Share for the nine months endedSeptember 30, 2021 (Successor) increased by$0.37 , or 116%, compared to the nine months endedSeptember 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction . This growth was driven primarily by the same factors contributing to Adjusted EBITDA growth, though Adjusted Net Income and Adjusted Diluted Earnings Per Share are also impacted by changes in our capital structure that are captured in interest expense. The purchase accounting from the SilverLake Transaction and our debt refinancing at the beginning of 2020 and 2021 impacts the comparability of Adjusted Net Income and Adjusted Diluted Earnings Per Share across historical periods. The following tables present a reconciliation of Adjusted Net Income for the periods presented. For a discussion of pro forma adjustments, see "Notes to the Unaudited Supplemental Pro Forma Financial Information Presented in Management's Discussion and Analysis of Financial Condition and Results of Operations." Three-Month Period Nine-Month Period Successor Predecessor Pro Forma Period from Period from Adjustments Three Three Nine February 1, January 1, for the Pro Forma Months Months Months 2020 2020 Nine Months Nine Months Ended Ended Ended through through Ended Ended September 30, September 30, September
30, September 30, January 31, September 30, September 30, (in thousands) 2021 2020 2021 2020 2020 2020 2020 Net income (loss)$ 16,285 $ (3,452 ) $ 666$ (41,632 ) $ (36,530 ) $ 19,177 $ (58,985 ) Provision for income taxes 3,397 (2,889 ) 2,025 (11,308 ) (871 ) 6,634 (5,545 ) Income (loss) before provision for income taxes 19,682 (6,341 ) 2,691 (52,940 ) (37,401 ) 25,811 (64,530 ) Debt-related costs(a) 437 889 19,703 2,344 11,102 (10,803 ) 2,643 Acquisition-related depreciation and amortization(b) 31,749 34,223 95,047 91,149 848 8,320 100,317 Share-based compensation 1,343 530 4,569 1,331 3,976 - 5,307 Transaction and acquisition-related charges(c) 2,144 56 6,510 9,578 22,840 (22,370 ) 10,048 Integration and restructuring charges(d) 63 26 584 288 327 - 615 Other(e) 194 630 196 936 153 - 1,089 Adjusted Net Income before income tax effect 55,612 30,013 129,300 52,686 1,845 958 55,489 Less: Income tax effect(f) 13,443 7,713 33,431 13,540 474 246 14,260 Adjusted Net Income$ 42,169 $ 22,300 $ 95,869 $ 39,146 $ 1,371 $ 712$ 41,229 44
--------------------------------------------------------------------------------
The following table presents the calculation of Adjusted Diluted Earnings Per
Share for the periods presented. For a discussion of pro forma adjustments, see
"Notes to the Unaudited Supplemental Pro Forma Financial Information Presented
in Management's Discussion and Analysis of Financial Condition and Results of
Operations." Prior to the IPO, the equity awards under the Successor Plan were
issued by the Company's Parent. As a result, these awards are not considered
equity awards issued by the Company, and therefore not included in the
calculation of adjusted weighted average number of shares outstanding-diluted.
Three-Month Period Nine-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Nine February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Nine Months Nine Months
Ended Ended Ended through through Ended Ended
September 30, September 30, September 30, September 30, January 31, September 30, September 30,
2021 2020 2021 2020 2020 2020 2020
Diluted net income (loss) per share (GAAP) $ 0.11$ (0.03 ) $ 0.00$ (0.32 ) $ (0.24 ) $ 0.15$ (0.45 ) Adjusted Net Income adjustments per share Income taxes 0.02 (0.02 ) 0.01 (0.09 ) (0.01 ) 0.05 (0.04 ) Debt-related costs (a) 0.00 0.01 0.14 0.02 0.07 (0.08 )
0.02
Acquisition-related
depreciation and amortization (b) 0.21 0.26 0.69 0.70 0.01 0.06
0.77
Share-based compensation 0.01 0.00 0.03 0.01 0.03 -
0.04
Transaction and acquisition related charges (c) 0.01 0.00 0.05 0.07 0.15 (0.17 )
0.08
Integration and restructuring charges (d) 0.00 0.00 0.00 0.00 0.00 - 0.00 Other (e) 0.00 0.00 0.00 0.01 0.00 - 0.01 Adjusted income taxes (f) (0.09 ) (0.06 ) (0.24 ) (0.10 ) (0.00 ) (0.00 ) (0.11 ) Adjusted Diluted Earnings Per Share (Non-GAAP) $ 0.28 $ 0.17 $ 0.69 $ 0.30$ 0.01 $ 0.01 $ 0.32 Weighted average number of shares outstanding used in computation of Adjusted Diluted Earnings Per Share: Weighted average number of shares outstanding-diluted (GAAP) 152,400,419 130,000,000
138,170,488 130,000,000 149,686,460 130,000,000
130,000,000 Options and restricted stock not included in weighted average number of shares outstanding-diluted (GAAP) (using treasury stock method) - - - - - - - Adjusted weighted average number of shares outstanding-diluted (Non-GAAP) 152,400,419 130,000,000 138,170,488 130,000,000 149,686,460 130,000,000 130,000,000 (a) Represents the loss on extinguishment of debt and non-cash interest expense related to the amortization of debt issuance costs for the financing for the SilverLake Transaction . (b) Represents the depreciation and amortization expense related to intangible assets and developed technology assets recorded due to the application of ASC 805, Business Combinations. (c) Represents charges incurred related to acquisitions and similar transactions, primarily consisting of change in control-related costs, professional service fees, and other third-party costs. Additionally, the three and nine months endedSeptember 30, 2021 (Successor) includes incremental professional service fees incurred related to the initial public offering. (d) Represents charges from organizational restructuring and integration activities outside of the ordinary course of business. (e) Represents non-cash and other charges primarily related to legal exposures inherited from legacy acquisitions, foreign currency (gains) losses, and (gains) losses on the sale of assets. (f) Effective tax rates of 25.7%, 24.2%, and 25.9% have been used to compute Adjusted Net Income and Adjusted Diluted Earnings Per Share for the 2020 periods, the three months endedSeptember 30, 2021 , and the nine months endedSeptember 30, 2021 , respectively. As ofDecember 31, 2020 , we had net operating loss carryforwards of approximately$197.6 million ,$166.2 million , and$36.0 million for federal, state, and foreign income tax purposes, respectively, available to reduce future income subject to income taxes. As a result, the amount of actual cash taxes we pay for federal, state and foreign income taxes differs significantly from the effective income tax rate computed in accordance with GAAP, and from the normalized rate shown above. 45 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Liquidity
The Company's primary liquidity requirements are for working capital, continued investments in software development and other capital expenditures, and other strategic investments. Income taxes are currently not a significant use of funds but after the benefits of our net operating loss carryforwards are fully recognized, could become a material use of funds, depending on our future profitability and future tax rates. The Company's liquidity needs are met primarily through cash flows from operations, as well as funds available under our revolving credit facility and proceeds from our term loan borrowings. Our cash flows from operations include cash received from customers, less cash costs to provide services to our customers, which includes general and administrative costs and interest payments. As ofSeptember 30, 2021 , we had$275.5 million in cash and cash equivalents and$100.0 million available under our revolving credit facility. As ofSeptember 30, 2021 , 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 (used in) 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 beyond our control.
Long-Term Debt
OnJanuary 31, 2020 , our previously outstanding indebtedness was repaid in full as part of the SilverLake Transaction . As part of the SilverLake Transaction , a new financing structure was established consisting of a new FirstLien Credit Agreement ("Successor First Lien Agreement") and a new SecondLien Credit Agreement ("Successor Second Lien Agreement") (collectively, the "Successor Credit Agreements"). The Successor First Lien Agreement provided financing in the form of a$670.0 million term loan dueJanuary 31, 2027 ("Successor First Lien Credit Facility") and a$75.0 million new revolving credit facility dueJanuary 31, 2025 ("Successor Revolver"). The Successor Second Lien Agreement provided financing in the form of a$145.0 million term loan dueJanuary 31, 2028 ("Successor Second Lien Credit Facility"). OnFebruary 1, 2021 , we amended the Successor First Lien Agreement to fund$100.0 million of additional first lien term loans and reduce the applicable margins by 0.25%. The refinancing resulted in a loss on extinguishment of debt of$5.1 million , composed of the write-off of$4.5 million of unamortized deferred financing costs and$0.6 million of accrued interest and miscellaneous fees. In addition, we fully repaid the outstanding Successor Second Lien Agreement and recorded a loss on extinguishment of debt of$8.9 million , composed of the write-off of$7.3 million of unamortized deferred financing costs plus a$1.5 million prepayment premium, and$0.1 million of accrued interest and other miscellaneous fees. In connection with the IPO, the Company entered into an amendment to increase the borrowing capacity under the Successor Revolver from$75.0 million to$100.0 million and extend the maturity date fromJanuary 31, 2025 toJuly 31, 2026 . Borrowings under the Successor First Lien Agreement bear interest at a rate per annum equal to an applicable margin plus, at our option, either (a) a base rate or (b) LIBOR, which is subject to a floor of 0.00% per annum. The applicable margins under the Successor First Lien Agreement are subject to stepdowns based on our first lien net leverage ratio. In connection with the closing of the IPO, each applicable margin was reduced further by 0.25%. In addition, the borrower,First Advantage Holdings, LLC , which is an indirect wholly-owned subsidiary of the Company, is required to pay a commitment fee on any unutilized commitments under the revolving credit facility. The commitment fee rate ranges between 0.25% and 0.50% per annum based on our first lien net leverage ratio. The borrower is also required to pay customary letter of credit fees. The Successor First Lien Credit Facility amortizes in equal quarterly installments in aggregate annual amounts equal to 1.00% of the principal amount. The Successor Revolver has no amortization. The Successor FirstLien 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 toAugust 1, 2021 will be subject to a 1.00% prepayment premium. Otherwise, the borrower may voluntarily repay outstanding loans without premium or penalty, other than customary "breakage" costs. 46 -------------------------------------------------------------------------------- In connection with the closing of the IPO, onJune 30, 2021 the Company repaid$200.0 million of the Successor First Lien Credit Facility outstanding, of which$44.3 million was applied to the remaining quarterly amortizing principal payments due under the Successor First Lien Agreement. The remaining$564.7 million term loan is scheduled to mature onJanuary 31, 2027 . As a result of the prepayment, the Company recorded additional interest expense of$3.7 million associated with the accelerated amortization of the related deferred financing costs. The Successor First Lien Agreement is unconditionally guaranteed byFastball Parent, Inc. , a wholly-owned subsidiary of the Company and the direct parent of the borrower, and material wholly owned domestic restricted subsidiaries ofFastball Parent, Inc. The Successor First Lien Agreement and the guarantees of such obligations, are secured, subject to permitted liens and other exceptions, by (1) a first priority security interest in certain tangible and intangible assets of the borrower and the guarantors and (2) a first-priority pledge of 100% of the capital stock of the borrower and of each wholly-owned material restricted subsidiary of the borrower and the guarantors (which pledge, in the case of any non-U.S. subsidiary of aU.S. subsidiary, does include more than 65% of the voting stock of such non-U.S. subsidiary). The credit agreement contains customary affirmative covenants, negative covenants and events of default (including upon a change of control). The credit agreement also includes a "springing" first lien net leverage ratio test, applicable only to the revolving credit facility, that requires such ratio to be no greater than 7.75:1.00 on the last day of any fiscal quarter if more than 35.0% of the revolving credit facility is utilized on such date.
Cash Flow Analysis
Comparison of Cash Flows for the nine months endedSeptember 30, 2021 (Successor) compared to the Period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and for the Period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor) The following table is a summary of our cash flow activity for the periods presented: Successor Predecessor Period from Period from Nine February 1, January 1, Months 2020 2020 Ended through through September 30, September 30, January 31, (in thousands) 2021 2020 2020 Net cash provided by (used in) operating activities$ 83,860 $ 37,626 $ (19,216 ) Net cash used in investing activities (24,992 ) (10,798 ) (2,043 ) Net cash provided by (used in) financing activities 64,372 50,356 (11,122 )
Cash Flows from Operating Activities
For the nine months endedSeptember 30, 2021 (Successor), for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor), and for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor), net cash provided by (used in) operating activities was$83.9 million ,$37.6 million , and$(19.2) million , respectively. The cash flows from operating activities for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) and for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor) are impacted by$9.4 million and$22.4 million of transaction expenses from the Silver Lake Transaction, respectively. The remaining increase in cash flows from operating activities was driven primarily by increased profitability related to the Company's revenue growth from existing customers, new customer go-lives and theUK Acquisition. This was offset in part by an increase in cash used for working capital primarily due to the high level of third quarter revenue growth acceleration that remained in receivables atSeptember 30, 2021 , consistent with normal payment terms offered to our customers.
Cash Flows from Investing Activities
For the nine months endedSeptember 30, 2021 (Successor), for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor), and the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor), net cash used in investing activities was$(25.0) million ,$(10.8) million , and$(2.0) million , respectively. The cash flows used in investing activities for the nine months endedSeptember 30, 2021 (Successor) were impacted by the$7.6 million UK Acquisition inMarch 2021 . The remaining investing cash flows are driven primarily by capitalized software development costs and purchases of property and equipment, which increased in 2021 as we continue to make incremental investments in our technology platform. 47 --------------------------------------------------------------------------------
Cash Flows from Financing Activities
For the nine months endedSeptember 30, 2021 (Successor), for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor), and the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor), net cash provided by (used in) financing activities was$64.4 million ,$50.4 million , and$(11.1) million , respectively. Net cash provided by financing activities for the nine months endedSeptember 30, 2021 (Successor) was primarily driven by the Company's completion of its IPO onJune 25, 2021 . Cash inflows related to the IPO were$320.6 million , partially offset by the use of proceeds which consisted of a$200.0 million repayment of the Company's Successor FirstLien Credit Facility and$3.9 million of offering cost payments. Net cash provided by financing activities for the nine months endedSeptember 30, 2021 (Successor) was incrementally driven by the Company'sFebruary 2021 debt refinancing which consisted of a refinancing of the Successor First Lien Credit Facility and the full repayment of the Successor SecondLien Credit Facility. Cash outflows related to this refinancing were$308.5 million , partially offset by cash inflows of$261.4 million . As part of the refinancing, the Company paid$1.3 million related to new debt issuance costs. The remaining outflows primarily consisted of amortizing principal payments due under the first lien term loan facility. Net cash provided by financing activities for the period fromFebruary 1, 2020 throughSeptember 30, 2020 (Successor) was driven by a$50.0 million strategic investment in the Company's equity by Workday, Inc. and$9.4 million of capital contributions related to the transaction expenses from the Silver Lake Transaction. InMarch 2020 , we made a$25.0 million precautionary draw on our revolving credit facility in light of the COVID-19 pandemic, which we fully repaid inJune 2020 . These inflows were primarily offset by debt issuance costs paid, principal payments on the Successor First Lien Facility, and distributions to Predecessor's members and optionholders in connection with the Silver Lake Transaction. Net cash used in financing activities for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor) were driven by a$34.0 million repayment of our previous credit facility in place at the time of the Silver Lake Transaction and distributions of$18.0 million to Predecessor's members and optionholders in connection with the SilverLake Transaction . These were partially offset by additional capital contributions of$41.1 million related to payment and settlement of existing options issued by Predecessor and transaction expenses from the SilverLake Transaction .
Off Balance Sheet Arrangements
There were no material off-balance sheet arrangements as of
48
--------------------------------------------------------------------------------Notes to the Unaudited Supplemental Pro Forma Financial Information Presented in Management's Discussion and Analysis of Financial Condition and Results of Operations
Note 1. Basis of Presentation & Description of the Transactions
The unaudited pro forma consolidated statement of operations for the nine months endedSeptember 30, 2020 gives effect to the SilverLake Transaction and the Silver Lake Transaction Refinancing as if they had occurred onJanuary 1, 2020 . The unaudited pro forma condensed consolidated statement of operations for the nine months endedSeptember 30, 2021 does not give effect to either the SilverLake Transaction or the Silver Lake Transaction Refinancing as if they had occurred onJanuary 1, 2020 because these events are already reflected for the full period presented in the historical statement of operations of the Company.
The Silver
OnJanuary 31, 2020 , Silver Lake acquired substantially all of the Company's equity interests for approximately$1,576.0 million . A portion of the consideration was derived from members of the management team contributing an allocation of their SilverLake Transaction proceeds.The Silver Lake Transaction was accounted for under the acquisition method in accordance with ASC 805, Business Combinations.
The allocation of the purchase price is based on the fair value of assets acquired and liabilities assumed as of the acquisition date, less transaction expenses funded by transaction proceeds. The following table summarizes the consideration paid and the amounts recognized for the assets acquired and liabilities assumed (in thousands):
Consideration
Cash, net of cash acquired $
1,556,810
Rollover management equity interests
19,148
Total fair value of consideration transferred $
1,575,958
Current assets $
145,277
Property and equipment, including software developed for internal use 236,775 Trade name 95,000 Customer lists 500,000 Deferred tax asset 106,327 Other assets 1,429 Current liabilities (71,496 ) Deferred tax liability (198,535 ) Other liabilities (6,616 ) Total identifiable net assets$ 808,161 Goodwill$ 767,797 In connection with the SilverLake Transaction , onJanuary 31, 2020 , the existing credit facilities of the Predecessor were repaid in full with the proceeds of a new first lien term loan facility and a new second lien term loan facility. The first lien term loan facility provides financing in the form of a$670.0 million term loan dueJanuary 31, 2027 , carrying an interest rate of 3.25% to 3.50%, based on the first lien leverage ratio, plus LIBOR and a$75.0 million new revolving facility dueJanuary 31, 2025 . The first lien term loan facility requires mandatory quarterly repayments of 0.25% of the original loan balance commencingSeptember 30, 2020 . The second lien term loan facility provided financing in the form of a$145.0 million term loan dueJanuary 31, 2028 , carrying an interest rate of 8.50% plus LIBOR. InFebruary 2021 , the Company refinanced the Successor FirstLien Credit Facility term loan and fully repaid the outstanding balance on the Successor Second Lien Agreement term loan (the "2021 Debt Refinancing"). The effects of the 2021 Debt Refinancing are fully reflected in the historical statement of operations of the Company for the nine months endedSeptember 30, 2021 . Because the Company does not consider the effects of the 2021 Debt Refinancing to be material, no pro forma adjustments have been made to the unaudited pro forma statement of operations for the nine months endedSeptember 30, 2020 to reflect the 2021 Debt Refinancing as if it had occurred onJanuary 1, 2020 . 49 --------------------------------------------------------------------------------
Note 2. Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
The following adjustments were made related to the unaudited pro forma condensed consolidated statement of operations for the nine months endedSeptember 30, 2020 :
Silver Lake Transaction Accounting Adjustments
a)
Reflects the incremental amortization expense related to certain definite-lived intangible assets, reflected in the purchase price allocation at the date of the SilverLake Transaction , as if those certain definite-lived intangible assets were put into place onJanuary 1, 2020 . The following table shows the pro forma adjustment to estimated amortization expense for the nine months endedSeptember 30, 2020 : Estimated Fair Value at Estimated Nine Months Ended Description (in thousands) Acquisition Useful Life September 30, 2020 Capitalized software for internal use$ 220,000 5 $ 43,101 Trade name $ 95,000 20 6,145 Customer lists$ 500,000 14 53,501 Pro forma amortization expense 102,747 Less: historical amortization expense recorded (94,427 ) Pro forma adjustment for amortization expense $ 8,320 b) Reflects the adjustment to remove Predecessor transaction expenses related to the SilverLake Transaction which would have been incurred and recorded during the year endedDecember 31, 2019 if the SilverLake Transaction had occurred onJanuary 1, 2020 .
Silver Lake Transaction Refinancing Accounting Adjustments
c)
Reflects the adjustment to interest expense resulting from (i) the elimination of interest expense related to the debt financing in place during the Predecessor period, and (ii) the incremental interest expense and amortization of deferred financing costs associated with the Successor FirstLien Credit Agreement and Successor Second Lien Credit Agreement to give effect to the Silver Lake Transaction Refinancing as if it had occurred onJanuary 1, 2020 , calculated as follows: Nine Months Description (in thousands)September 30, 2020 Interest Expense on Successor First Lien Agreement $
23,505
Interest Expense on Successor Second Lien Agreement
10,526
Amortization of deferred financing costs
2,643
Pro forma interest expense
36,674
Less: historical interest expense recorded (37,902 ) Pro forma adjustment for interest expense $
(1,228 )
No adjustment has been made to the unaudited pro forma statement of operations for the nine months endedSeptember 30, 2020 to reflect changes in interest expense as a result of the 2021 Debt Refinancing because the Company does not consider the 2021 Debt Refinancing to be material.
d)
Reflects an adjustment to the historical loss on extinguishment of Predecessor debt for the unaudited pro forma condensed consolidated statements of operations for the nine months endedSeptember 30, 2020 as if the SilverLake Transaction Refinancing had been consummated onJanuary 1, 2020 .
Silver Lake Transactions Accounting Adjustments
e)
Reflects the adjustment to the provision for income taxes attributable to the tax impacts of the preceding SilverLake Transaction and Refinancing Accounting Adjustments, assuming an effective tax rate of 25.7%. 50
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