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 six months endedJune 30, 2021 , and should be read in conjunction with the audited consolidated financial statements for the year endedDecember 31, 2020 , the condensed consolidated financial statements for the three months endedMarch 31, 2021 , 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; 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; 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; our ability to obtain, maintain, protect and enforce our intellectual property and other proprietary information; our substantial 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; and 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. 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.
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" meanSilver 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 website may be deemed material. Accordingly, investors should monitor our website, 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. 25
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Overview
First 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. We generated revenues of$174.8 million for the three months endedJune 30, 2021 (Successor), as compared to$105.0 million for the three months endedJune 30, 2020 (Successor). For the six months endedJune 30, 2021 (Successor), we generated revenues of$306.9 million , as compared to$215.8 million for the six months endedJune 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. Approximately 85% of our 2021 revenues for the six months endedJune 30, 2021 , was generated inNorth America , predominantly in theU.S. , with the remaining 15% generated in EMEA, APAC, andIndia . Our revenue contribution outside ofNorth America increased as a result of theUK screening business acquisition which closed onMarch 31, 2021 . Other thanthe United States , no single country accounted for 10% or more of our total revenues during the three and six months endedJune 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 Results of Operations and Financial Condition" 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.
26
--------------------------------------------------------------------------------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 ,$3.0 million of which was not paid as ofJune 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.
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$0.1 million in the six months endedJune 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 performance was 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 demand globally in 2021 and that we will continue to experience strong demand from our existing customers. We also expect that over time as the COVID-19 pandemic abates, demand from our international customers and our customers in heavily impacted sectors will return to more normalized levels. However, the duration and severity of the COVID-19 pandemic and the long-term effects the pandemic will have on our customers and general economic conditions remains uncertain and difficult to predict. 27 --------------------------------------------------------------------------------
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 employee, extended worker, driver, or volunteer has 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.
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 incurred while preparing
for our IPO. 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.
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?
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 Silver Lake 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 Silver Lake 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 improves.
Other Expense
Our other expense 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
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 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. Specifically, the results of the 2020 U.S. presidential election could lead to changes in tax laws that could negatively impact our effective tax rate.President Biden has proposed an increase in theU.S. corporate income tax rate from 21% to 28%, doubling the rate of tax on certain earnings of foreign subsidiaries, and a 15% minimum tax on worldwide book income, which together would increase our effective tax rate.
Results of Operations
The comparability of our operating results for the six months endedJune 30, 2021 compared to the six months endedJune 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 throughJune 30, 2020 relate to the Successor. To facilitate comparability of the six months endedJune 30, 2021 to the six months endedJune 30, 2020 , below we present the combination of consolidated results fromJanuary 1, 2020 toJune 30, 2020 , comprising the Successor consolidated results fromFebruary 1, 2020 toJune 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 SilverLake Transaction and the related refinancing as if it had occurred onJanuary 1, 2020 (pro forma results for the six months endedJune 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 six months endedJune 30, 2020 , reflecting the SilverLake Transaction and the related refinancing as if they had occurred as ofJanuary 1, 2020 . We present the pro forma six months endedJune 30, 2020 , to facilitate comparability with the results for the Successor six months endedJune 30, 2020 . The information contained below should be read in conjunction with our accompanying historical condensed consolidated financial statements and the related notes. 29 -------------------------------------------------------------------------------- Comparison of Results of Operations for the three months endedJune 30, 2021 (Successor) andJune 30, 2020 (Successor) and the six months endedJune 30, 2021 (Successor) compared to the Period fromFebruary 1, 2020 throughJune 30, 2020 (Successor) and the Period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor) Three-Month Period Six-Month Period Successor Predecessor Pro Forma Period from Period from Adjustments Three Three Six February 1, January 1, for the Pro Forma Months Months Months 2020 2020 Six Months Six Months Ended Ended Ended through through Ended Ended June 30, June 30, June 30, June 30, January 31, June 30, June 30,
(in thousands) 2021 2020 2021 2020 2020 2020 2020 Revenues$ 174,826 $ 104,993 $ 306,896 $ 179,047 $ 36,785 $ -$ 215,832 Operating Expenses: Cost of services (exclusive of depreciation and amortization below) 84,868 52,404 150,813 89,220 20,265 - 109,485 Product and technology expense 11,680 7,205 22,233 12,152 3,189 - 15,341 Selling, general, and administrative expense 25,075 15,014 49,053 27,299 11,235 - 38,534 Depreciation and amortization (a) 35,918 36,572 70,681 61,059 2,105 9,083 72,247 Total operating expenses 157,541 111,195 292,780 189,730 36,794 9,083 235,607 Income (loss) from operations 17,285 (6,202 ) 14,116 (10,683 ) (9 ) (9,083 ) (19,775 ) Other Expense: Interest expense (b) 10,467 13,816 17,281 26,699 4,514 394 31,607 Interest income (15 ) (153 ) (112 ) (206 ) (25 ) - (231 ) 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 10,452 13,663 31,107 35,916 37,392 (32,509 ) 40,799 Income (loss) before provision for income taxes 6,833 (19,865 ) (16,991 ) (46,599 ) (37,401 ) 23,426 (60,574 )
Provision (benefit) for income taxes (e) 3,063 (3,499 ) (1,372 ) (8,419 )
(871 ) 6,021 (3,269 )
Net income (loss)
2.2 % (15.6 )% (5.1 )% (21.3 )% (99.3 )% - (26.6 )%
(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
30
--------------------------------------------------------------------------------Revenues
Three-Month Period Six-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Six
Months Months Months 2020 2020 Six Months Six Months
Ended Ended Ended through through Ended Ended
June 30, June 30, June 30, June 30, January 31, June 30, June 30,
(in thousands) 2021 2020 2021 2020 2020 2020 2020
Revenues $ 174,826 $ 104,993 $ 306,896 $ 179,047 $ 36,785 $ - $ 215,832 Revenues were
The increase in revenues was primarily due to:
? a net increase of$49.3 million in existing customer revenues, primarily driven by a strong, broad-based recovery in demand as compared to the second quarter of 2020 which was the most impacted period as a result of the COVID-19 pandemic, increased revenue growth in key verticals and geographies, and on-going strength in upselling and cross-selling. These existing customer increases were minimally offset by the impact of lost accounts, ? increased revenues of$13.4 million attributable to new customers, and ? increased revenues of$7.1 million attributable to our acquisition. Revenues were$306.9 million for the six months endedJune 30, 2021 (Successor), compared to$179.0 million for the period fromFebruary 1, 2020 throughJune 30, 2020 (Successor) and$36.8 million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Revenue for the six months endedJune 30, 2021 (Successor) increased by$91.1 million , or 42.2%, compared to the six months endedJune 30, 2020 , on a pro forma basis after giving effect to the Silver Lake Transaction.
The increase in revenues was primarily driven by:
? a net increase of$60.0 million in existing customer revenues, primarily driven by a strong, broad-based recovery in demand as compared to the second quarter of 2020 which was the most impacted period as a result of the COVID-19 pandemic, increased revenue growth in key verticals and geographies, and on-going strength in upselling and cross-selling. These existing customer increases were minimally offset by the impact of lost accounts, ? increased revenues of$24.0 million attributable to new customers, and ? increased revenues of$7.1 million attributable to our acquisition. The Company experienced high demand among certain Enterprise customers in the essential retail, e-commerce, and transportation and home delivery verticals, particularly in the second half of 2020 and first half of 2021. Pricing was relatively stable across the periods. 31 --------------------------------------------------------------------------------
Cost of Services
Three-Month Period Six-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Six February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Six Months Six Months
Ended Ended Ended through through Ended Ended
(in thousands, except June 30, June 30, June 30, June 30, January 31, June 30, June 30,
percentages) 2021 2020 2021 2020 2020 2020 2020
Revenues $ 174,826 $ 104,993 $ 306,896 $ 179,047 $ 36,785 $ - $ 215,832
Cost of services 84,868 52,404 150,813 89,220 20,265 - 109,485
Cost of services as a %
of revenue 48.5 % 49.9 % 49.1 % 49.8 % 55.1 % - 50.7 %
Cost of services was $84.9 million for the three months ended June 30, 2021
(Successor), compared to $52.4 million for the three months ended June 30, 2020
(Successor). Cost of services for the three months ended June 30, 2021
(Successor) increased by $32.5 million , or 61.9%, compared to the three months
ended June 30, 2020 (Successor).
The increase in cost of services was primarily due to:
? an increase in variable third-party data expenses of$27.4 million as a direct result of increased revenues, and ? a$4.7 million increase in personnel related expenses in our operations and customer service functions as a result of additional operational support headcount to enable the Company's high levels of revenue growth. This increase is further impacted by the COVID-19 related staffing and benefit expense reduction actions taken in the second quarter of 2020 that did not continue into 2021. Cost of services as a percentage of revenues was 48.5% for the three months endedJune 30, 2021 (Successor), compared to 49.9% for the three months endedJune 30, 2020 (Successor). The Company was able to continue to improve cost of services leverage in the second quarter of 2021 as a result of operating efficiencies and robotic process automation which helped control personnel expenses. We also had reduced travel costs as a result of COVID-19 related restrictions. Cost of services was$150.8 million for the six months endedJune 30, 2021 (Successor), compared to$89.2 million for the period fromFebruary 1, 2020 throughJune 30, 2020 (Successor) and$20.3 million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Cost of services for the six months endedJune 30, 2021 (Successor) increased by$41.3 million , or 37.7%, compared to the six months endedJune 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$35.2 million as a direct result of increased revenues, ? a$4.5 million increase in personnel related expenses in our operations and customer service functions as a result of additional operational support headcount to enable the Company's high levels of revenue growth, particularly in the second quarter of 2021. This increase is further impacted by the COVID-19 related staffing and benefit expense reduction actions taken in the second quarter of 2020 that did not continue into 2021, and ? foreign currency exchange losses of$1.0 million due to the impact of foreign exchange rate volatility.
The increase in cost of services was partially offset by:
?
a
Cost of services as a percentage of revenues was 49.1% for the six months endedJune 30, 2021 (Successor), compared to 49.8% for the period fromFebruary 1, 2020 throughJune 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 the first half of 2021 as a result of operating efficiencies and robotic process automation which helped control personnel expenses. We also had reduced travel costs as a result of COVID-19 related restrictions. 32
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Product and Technology Expense
Three-Month Period Six-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Six February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Six Months Six Months
Ended Ended Ended through through Ended Ended
June 30, June 30, June 30, June 30, January 31, June 30, June 30,
(in thousands) 2021 2020 2021 2020 2020 2020 2020
Product and technology
expense $ 11,680 $ 7,205 $ 22,233 $ 12,152 $ 3,189 $ - $ 15,341
Product and technology expense was $11.7 million for the three months ended
June 30, 2021 (Successor), compared to $7.2 million for the three months ended
June 30, 2020 (Successor). Product and technology expense for the three months
ended June 30, 2021 (Successor) increased by $4.5 million , or 62.1%, compared to
the three months ended June 30, 2020 (Successor).
The increase in product and technology expense was primarily due to:
? a$3.3 million increase in personnel-related expenses as a result of additional investments made to enhance our product, solutions, and technology platform, and ? a$0.8 million increase in software licensing related expenses. Product and technology expense was$22.2 million for the six months endedJune 30, 2021 (Successor), compared to$12.2 million period fromFebruary 1, 2020 throughJune 30, 2020 (Successor) and$3.2 million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Product and technology expense for the six months endedJune 30, 2021 (Successor) increased by$6.9 million , or 44.9%, compared to the six months endedJune 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction .
The increase in product and technology expense was primarily due to:
? a$4.8 million increase in personnel-related expenses as a result of additional investments made to enhance our product, solutions, and technology platform, and ? a$2.0 million increase in software licensing expenses. 33 --------------------------------------------------------------------------------
Selling, General, and Administrative Expense
Three-Month Period Six-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Six February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Six Months Six Months
Ended Ended Ended through through Ended Ended
June 30, June 30, June 30, June 30, January 31, June 30, June 30,
(in thousands) 2021 2020 2021 2020 2020 2020 2020
Selling, general, and
administrative expense $ 25,075 $ 15,014 $ 49,053 $ 27,299 $ 11,235 $ - $ 38,534
Selling, general, and administrative expense was $25.1 million for the three
months ended June 30, 2021 (Successor), compared to $15.0 million for the three
months ended June 30, 2020 (Successor). Selling, general, and administrative
expense for the three months ended June 30, 2021 (Successor) increased by $10.1
million , or 67.0%, compared to the three months ended June 30, 2020 (Successor).
Selling, general, and administrative expense increased primarily due to:
? a$3.1 million increase in commissions and bonus related expenses due to the Company's improved operating results in 2021, ? a$2.1 million increase in stock-based compensation expenses as a result of performance related vesting as a result of the IPO and incremental awards granted in conjunction with the Company's IPO, ? a$1.8 million increase in personnel related expenses primarily due to COVID-19 related staffing and benefit expense reduction actions taken in the second quarter of 2020 that did not continue into 2021, ? a$0.6 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 IPO and COVID-19 related expense reductions in the second quarter of 2020 that did not continue into 2021. Selling, general, and administrative expense was$49.1 million for the six months endedJune 30, 2021 (Successor), compared to$27.3 million for the period fromFebruary 1, 2020 throughJune 30, 2020 (Successor) and$11.2 million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Selling, general, and administrative expense for the six months endedJune 30, 2021 (Successor) increased by$10.5 million , or 27.3%, compared to the six months endedJune 30, 2020 , on a pro forma basis after giving effect to the Silver Lake Transaction.
Selling, general, and administrative expense increased primarily due to:
? a$4.1 million increase in commissions and bonus related expenses due to the Company's improved operating results in 2021, ? a$4.0 million increase in professional service fees incurred related to the Company's IPO, ? a$1.6 million increase in personnel related expenses primarily due to COVID-19 related staffing and benefit expense reduction actions taken in the second quarter of 2020 that did not continue into 2021, ? a$1.1 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 IPO and COVID-19 related expense reductions in the second quarter of 2020 that did not continue into 2021.
The increase in selling, general, and administrative expense was partially offset by:
? a$1.5 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 an increase in stock-based compensation expenses as a result of performance related vesting as a result of the IPO and incremental awards granted in conjunction with the Company's IPO. 34 --------------------------------------------------------------------------------
Depreciation and Amortization
Three-Month Period Six-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Six February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Six Months Six Months
Ended Ended Ended through through Ended Ended
June 30, June 30, June 30, June 30, January 31, June 30, June 30,
(in thousands) 2021 2020 2021 2020 2020 2020 2020
Depreciation and amortization
Depreciation and amortization was$35.9 million for the three months endedJune 30, 2021 (Successor), compared to$36.6 million for the three months endedJune 30, 2020 (Successor). Depreciation and amortization for the three months endedJune 30, 2021 (Successor) decreased by$0.7 million , or 1.8%, compared to the three months endedJune 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 endedJune 30, 2021 (Successor). Depreciation and amortization was$70.7 million for the six months endedJune 30, 2021 (Successor), compared to$61.1 million for the period fromFebruary 1, 2020 throughJune 30, 2020 (Successor) and$2.1 million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Depreciation and amortization for the six months endedJune 30, 2021 (Successor) decreased by$1.6 million , or 2.2%, compared to the six months endedJune 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction . This decrease was primarily due to the impact of the step up in fair value of property and equipment and intangible assets as a result of the application of purchase accounting related to the SilverLake Transaction , of which the intangible asset amortization is accelerated based on the relative projected discounted cash flows. This decrease was partially offset by increases in depreciation related to assets placed in service during the six months endedJune 30, 2021 (Successor). 35 --------------------------------------------------------------------------------
Interest Expense
Three-Month Period Six-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Six February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Six Months Six Months
Ended Ended Ended through through Ended Ended
June 30, June 30, June 30, June 30, January 31, June 30, June 30,(in thousands) 2021 2020 2021 2020 2020 2020 2020 Interest expense$ 10,467 $ 13,816 $ 17,281 $ 26,699 $ 4,514 $ 394$ 31,607 Interest expense was$10.5 million for the three months endedJune 30, 2021 (Successor), compared to$13.8 million for the three months endedJune 30, 2020 (Successor). Interest expense for the three months endedJune 30, 2021 (Successor) decreased by$3.3 million , or 24.2%, compared to the three months endedJune 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. 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. Interest expense was$17.3 million for the six months endedJune 30, 2021 (Successor), compared to$26.7 million for the period fromFebruary 1, 2020 throughJune 30, 2020 (Successor) and$4.5 million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Interest expense for the six months endedJune 30, 2021 (Successor) decreased by$14.3 million , or 45.3%, compared to the six months endedJune 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction . This decrease in interest expense for the six months endedJune 30, 2021 (Successor), compared to the period fromFebruary 1, 2020 throughJune 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. 36 --------------------------------------------------------------------------------
Interest Income
Three-Month Period Six-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Six February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Six Months Six Months
Ended Ended Ended through through Ended Ended
June 30, June 30, June 30, June 30, January 31, June 30, June 30,
(in thousands) 2021 2020 2021 2020 2020 2020 2020
Interest income $ (15 ) $ (153 ) $ (112 ) $ (206 ) $ (25 ) $ - $ (231 )
Interest income was $0.0 million for the three months ended June 30, 2021
(Successor), compared to $0.2 million for the three months ended June 30, 2020
(Successor). Interest income for the three months ended June 30, 2021
(Successor) decreased by $0.1 million , or 90.2%, compared to the three months
ended June 30, 2020 (Successor).
Interest income was $0.1 million for the six months ended June 30, 2021
(Successor), compared to $0.2 million for the period from February 1, 2020
through June 30, 2020 (Successor) and $0.0 million for the period from
January 1, 2020 through January 31, 2020 (Predecessor). Interest income for the
six months ended June 30, 2021 (Successor) decreased by $0.1 million , or 51.5%,
compared to the six months ended June 30, 2020 , on a pro forma basis after
giving effect to the Silver Lake Transaction .
Interest income decreases were primarily due to general decreases in interest rates.
Loss on Extinguishment of Debt
Three-Month Period Six-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Six February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Six Months Six Months
Ended Ended Ended through through Ended Ended
June 30, June 30, June 30, June 30, January 31, June 30, June 30,
(in thousands) 2021 2020 2021 2020 2020 2020 2020
Loss on extinguishment of debt $ - $ -
- $ 10,533 $ (10,533 ) $ -
Loss on extinguishment of debt for the six months ended June 30, 2021
(Successor) relates to expenses stemming from the write-off of debt issuance
costs associated with the February 2021 refinancing of the Successor First Lien
Credit Facility and early repayment of the Successor Second Lien Credit
Facility.
Loss on extinguishment of debt for the period from January 1, 2020 through
January 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 Silver Lake Transaction .
Transaction Expenses, Change in Control
Three-Month Period Six-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Six February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Six Months Six Months
Ended Ended Ended through through Ended Ended
June 30, June 30, June 30, June 30, January 31, June 30, June 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
Silver Lake Transaction that are recorded on our books and are therefore only
included in our results of operations for the period from February 1, 2020
through June 30, 2020 (Successor) and for the period from January 1, 2020
through January 31, 2020 (Predecessor).
37
--------------------------------------------------------------------------------Provision for Income Taxes
Three-Month Period Six-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Six February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Six Months Six Months
Ended Ended Ended through through Ended Ended
June 30, June 30, June 30, June 30, January 31, June 30, June 30,
(in thousands) 2021 2020 2021 2020 2020 2020 2020
Provision (benefit)
for income taxes $ 3,063 $ (3,499 ) $ (1,372 ) $ (8,419 ) $ (871 ) $ 6,021 $ (3,269 )
Our provision for income taxes was $3.1 million for the three months ended
June 30, 2021 (Successor), compared to a (benefit) for income taxes of $(3.5)
million for the three months ended June 30, 2020 (Successor). Our provision for
income taxes for the three months ended June 30, 2021 (Successor) increased by
$6.6 million , or (187.5)%, compared to the three months ended June 30, 2020
(Successor).
The increase in our provision for income taxes was primarily due to the
additional income tax expense incurred associated with the
Our (benefit) for income taxes was$(1.4) million for the six months endedJune 30, 2021 (Successor), compared to$(8.4) million for the period fromFebruary 1, 2020 throughJune 30, 2020 (Successor) and$(0.9) million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Our (benefit) for income taxes for the six months endedJune 30, 2021 (Successor) decreased by$1.9 million , or (58.0)%, compared to the six months endedJune 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction . The decrease of the (benefit) for income taxes was primarily due to the reversal of our valuation allowance after the SilverLake Transaction during the period fromFebruary 1, 2020 throughJune 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 six months endedJune 30, 2021 (Successor). 38 --------------------------------------------------------------------------------
Net Income (Loss) and Net Income (Loss) Margin
Three-Month Period Six-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Six February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Six Months Six Months
Ended Ended Ended through through Ended Ended
(in thousands, except
January 31, June 30, June 30,
percentages) 2021 2020 2021 2020 2020 2020 2020
Net income (loss) $ 3,770 $ (16,366 ) $ (15,619 ) $ (38,180 ) $ (36,530 ) $ 17,405 $ (57,305 )
Net income (loss) margin 2.2 % (15.6 )% (5.1 )% (21.3 )% (99.3 )% - (26.6 )%
Net income was $3.8 million for the three months ended June 30, 2021
(Successor), compared to a net (loss) of $(16.4) million for the three months
ended June 30, 2020 (Successor). Net income for the three months ended June 30,
2021 (Successor) increased by $20.1 million , or 123.0%, compared to the three
months ended June 30, 2020 (Successor).
Net income (loss) margin was 2.2% for the three months ended
The improvement in our net income (loss) margin is attributable to our ability to leverage operating efficiencies to control our overall expenses while increasing revenue and reduction in interest expense as a result of theFebruary 2021 refinancing. Net (loss) was$(15.6) million for the six months endedJune 30, 2021 (Successor), compared to$(38.2) million for the period fromFebruary 1, 2020 throughJune 30, 2020 (Successor) and$(36.5) million for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Net (loss) for the six months endedJune 30, 2021 (Successor) decreased by$41.7 million , or 72.7%, compared to the six months endedJune 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 (5.1)% for the six months endedJune 30, 2021 (Successor), compared to (21.3)% for the period fromFebruary 1, 2020 throughJune 30, 2020 (Successor) and (99.3)% for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor). Net income (loss) margin for the six months endedJune 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction , was (26.6)%. 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 reduction in interest expense as a result of theFebruary 2021 refinancing. 39
--------------------------------------------------------------------------------
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
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
Adjusted EBITDA was$31.7 million for the three months endedJune 30, 2020 (Successor) and represented an Adjusted EBITDA Margin of 30%. Adjusted EBITDA was$51.8 million and$7.0 million for the period fromFebruary 1, 2020 throughJune 30, 2020 (Successor) and the periodJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor), respectively. This represented an Adjusted EBITDA Margin of 29% and 19% for the period fromFebruary 1, 2020 throughJune 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$58.9 million for the six months endedJune 30, 2020 and represented an Adjusted EBITDA Margin of 27%. Adjusted EBITDA for the six months endedJune 30, 2021 (Successor) increased by$34.0 million , or 58%, compared to the six months endedJune 30, 2020 , on a pro forma basis after giving effect to the SilverLake 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.
40
--------------------------------------------------------------------------------
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 Six-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Six February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Six Months Six Months
Ended Ended Ended through through Ended Ended
June 30, June 30, June 30, June 30, January 31, June 30, June 30,
(in thousands) 2021 2020 2021 2020 2020 2020 2020
Net income (loss) $ 3,770 $ (16,366 ) $ (15,619 ) $
(38,180 )
10,452 13,663 17,169 26,493 4,489 394 31,376
Provision for income taxes 3,063 (3,499 ) (1,372 )
(8,419 ) (871 ) 6,021 (3,269 )
Depreciation and
amortization 35,918 36,572 70,681 61,059 2,105 9,083 72,247
Loss on extinguishment of
debt - - 13,938 - 10,533 (10,533 ) -
Share-based compensation 2,664 520 3,226 801 3,976 - 4,777
Transaction and
acquisition-related charges
(a) 382 76 4,366 9,522 22,840 (22,370 ) 9,992
Integration and
restructuring charges(b) 73 262 521 262 327 - 589
Other(c) - 427 2 306 153 - 459
Adjusted EBITDA $ 56,322 $ 31,655 $ 92,912 $
51,844 $ 7,022 $ - $ 58,866
(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 six months ended
June 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. Additionally, the period from February 1, 2020
through June 30, 2020 (Successor) includes the incremental costs incurred due to
COVID-19.
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 Six-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Six February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Six Months Six Months
Ended Ended Ended through through Ended Ended
June 30, June 30, June 30, June 30, January 31, June 30, June 30,
(in thousands) 2021 2020 2021 2020 2020 2020 2020
Adjusted EBITDA $ 56,322 $ 31,655 $ 92,912 $ 51,844 $ 7,022 $ - $ 58,866
Revenues 174,826 104,993 306,896 179,047 36,785 - 215,832
Adjusted EBITDA Margin 32 % 30 % 30 % 29 % 19 % - 27 %
41
--------------------------------------------------------------------------------
Adjusted Net Income and Adjusted Diluted Earnings Per Share
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$33.2 million for the three months endedJune 30, 2021 (Successor), compared to$12.2 million for the three months endedJune 30, 2020 (Successor). Adjusted Net Income for the three months endedJune 30, 2021 (Successor) increased by$21.0 million , or 172%, compared to the three months endedJune 30, 2020 (Successor). Adjusted Diluted Earnings Per Share was$0.25 for the three months endedJune 30, 2021 (Successor), compared to$0.09 for three months endedJune 30, 2020 (Successor). Adjusted Diluted Earnings Per Share for the three months endedJune 30, 2021 (Successor) increased by$0.16 , or 178%, compared to the three months endedJune 30, 2020 (Successor). Adjusted Net Income was$53.7 million for the six months endedJune 30, 2021 (Successor), compared to$16.8 million for the period fromFebruary 1, 2020 throughJune 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$17.7 million for the six months endedJune 30, 2020 . Adjusted Net Income for the six months endedJune 30, 2021 (Successor) increased by$36.0 million , or 203%, compared to the six months endedJune 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction . Adjusted Diluted Earnings Per Share was$0.40 for the six months endedJune 30, 2021 (Successor), compared to$0.13 for the period fromFebruary 1, 2020 throughJune 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$0.14 for the six months endedJune 30, 2020 . Adjusted Diluted Earnings Per Share for the six months endedJune 30, 2021 (Successor) increased by$0.26 , or 186%, compared to the six months endedJune 30, 2020 , on a pro forma basis after giving effect to the SilverLake Transaction . This growth was driven primarily by the same factors contributing to Adjusted EBITDA growth, though Adjusted Net Income and Adjusted Diluted Earnings Per Share are also impacted by changes in our capital structure that are captured in interest expense. The purchase accounting from the SilverLake Transaction and our debt refinancing at the beginning of 2020 and 2021 impacts the comparability of Adjusted Net Income and Adjusted Diluted Earnings Per Share across historical periods. The following tables present a reconciliation of Adjusted Net Income for the periods presented. For a discussion of pro forma adjustments, see "Notes to the Unaudited Supplemental Pro Forma Financial Information Presented in Management's Discussion and Analysis of Financial Condition and Results of Operations." Three-Month Period Six-Month Period Successor Predecessor Pro Forma Period from Period from Adjustments Three Three Six February 1, January 1, for the Pro Forma Months Months Months 2020 2020 Six Months Six Months Ended Ended Ended through through Ended Ended June 30, June 30, June 30, June 30, January 31, June 30, June 30, (in thousands) 2021 2020 2021 2020 2020 2020 2020 Net income (loss)$ 3,770 $ (16,366 ) $ (15,619 ) $
(38,180 )
(8,419 ) (871 ) 6,021 (3,269 )
Income (loss) before
provision for income taxes 6,833 (19,865 ) (16,991 ) (46,599 ) (37,401 ) 23,426 (60,574 )
Debt-related costs(a) 4,355 877 19,266 1,455 11,102 (10,807 ) 1,750
Acquisition-related
depreciation and
amortization(b) 31,786 34,135 63,298 56,926 848 9,083 66,857
Share-based compensation 2,664 520 3,226 801 3,976 - 4,777
Transaction and
acquisition-related
charges(c) 382 76 4,366 9,522 22,840 (22,370 ) 9,992
Integration and
restructuring charges(d) 73 262 521 262 327 - 589
Other(e) - 427 2 306 153 - 459
Adjusted Net Income before
income tax effect 46,093 16,432 73,688 22,673 1,845 (668 ) 23,850
Less: Income tax effect(f) 12,896 4,223 19,988
5,827 474 (172 ) 6,129
Adjusted Net Income $ 33,197 $ 12,209 $ 53,700 $ 16,846 $ 1,371 $ (496 ) $ 17,721
42
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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 Six-Month Period
Successor Predecessor
Pro Forma
Period from Period from Adjustments
Three Three Six February 1, January 1, for the Pro Forma
Months Months Months 2020 2020 Six Months Six Months
Ended Ended Ended through through Ended Ended
June 30, June 30, June 30, June 30, January 31, June 30, June 30,
2021 2020 2021 2020 2020 2020 2020
Diluted net income (loss) per share
(GAAP) $ 0.03 $ (0.13 ) $ (0.12 ) $ (0.29 ) $ (0.24 ) $ 0.13 $ (0.44 )
Adjusted Net Income adjustments per
share
Income taxes 0.02 (0.03 ) (0.01 ) (0.06 ) (0.01 ) 0.05 (0.03 )
Debt-related costs (a) 0.03 0.01 0.14 0.01 0.07 (0.08 ) 0.01
Acquisition-related depreciation
and amortization (b) 0.25 0.27 0.49 0.43 0.01 0.07 0.53
Share-based compensation 0.02 0.00 0.02 0.01 0.03 - 0.04
Transaction and acquisition related
charges (c) 0.00 0.00 0.03 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 0.00 - 0.00 Adjusted income taxes (f) (0.10 ) (0.03 ) (0.15 ) (0.04 ) (0.00 ) 0.00 (0.05 ) Adjusted Diluted Earnings Per Share (Non-GAAP)$ 0.25 $ 0.09 $
0.40
0.14
Weighted average number of shares outstanding used in computation of Adjusted Diluted Earnings Per Share: Weighted average number of shares outstanding-diluted (GAAP) 135,368,909 130,000,000 130,757,666 130,000,000 149,686,460 130,000,000 130,000,000 Options and restricted stock not included in weighted average number of shares outstanding-diluted (GAAP) (using treasury stock method) - - 3,861,904 - - - - Adjusted weighted average number of shares outstanding-diluted (Non-GAAP) 135,368,909 130,000,000 134,619,570 130,000,000 149,686,460 130,000,000 130,000,000 (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 six months endedJune 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. Additionally, the period fromFebruary 1, 2020 throughJune 30, 2020 (Successor) includes incremental costs incurred due to COVID-19. (f) Effective tax rates of 25.7%, 25.7%, 28.0%, and 27.1% have been used to compute Adjusted Net Income for the 2020 periods, the three months endedMarch 31, 2021 , the three months endedJune 30, 2021 , and the six months endedJune 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. 43
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Liquidity and Capital Resources
Liquidity
The Company's primary liquidity requirements are for working capital, continued investments in software development and other capital expenditures, and other strategic investments. Income taxes are currently not a significant use of funds but after the benefits of our net operating loss carryforwards are fully recognized, 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 ofJune 30, 2021 , we had$257.1 million in cash and cash equivalents and$100.0 million available under our revolving credit facility. As ofJune 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. 44 -------------------------------------------------------------------------------- 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 six months ended
The following table is a summary of our cash flow activity for the periods
presented:
Successor Predecessor
Period from Period from
Six February 1, January 1,
Months 2020 2020
Ended through through
June 30, June 30, January 31,
(in thousands) 2021 2020 2020
Net cash provided by (used in) operating
activities $ 56,098 $ 23,409 $ (19,216 )
Net cash used in investing activities (19,003 ) (6,483 ) (2,043 )
Net cash provided by (used in) financing
activities 67,869 52,962 (11,122 )
Cash Flows from Operating Activities
For the six months endedJune 30, 2021 (Successor), for the period fromFebruary 1, 2020 throughJune 30, 2020 (Successor), and for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor), net cash provided by (used in) operating activities was$56.1 million ,$23.4 million , and$(19.2) million , respectively. The cash flows from operating activities for the period fromFebruary 1, 2020 throughJune 30, 2020 (Successor) and for the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor) are impacted by$9.4 million and$22.4 million of transaction expenses from the Silver Lake Transaction, respectively. The remaining increase in cash flows from operating activities was driven primarily by increased profitability related to the Company's revenue growth from existing customers, new customer go-lives and theUK Acquisition. This was offset in part by an increase in cash used for working capital primarily due to the high level of second quarter revenue growth acceleration that remained in receivables atJune 30, 2021 , consistent with normal payment terms offered to our customers.
Cash Flows from Investing Activities
For the six months endedJune 30, 2021 (Successor), for the period fromFebruary 1, 2020 throughJune 30, 2020 (Successor), and the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor), net cash used in investing activities was$(19.0) million ,$(6.5) million , and$(2.0) million , respectively. The cash flows used in investing activities for the six months endedJune 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. 45 --------------------------------------------------------------------------------
Cash Flows from Financing Activities
For the six months endedJune 30, 2021 (Successor), for the period fromFebruary 1, 2020 throughJune 30, 2020 (Successor), and the period fromJanuary 1, 2020 throughJanuary 31, 2020 (Predecessor), net cash provided by (used in) financing activities was$67.9 million ,$53.0 million , and$(11.1) million , respectively. Net cash provided by financing activities for the six months endedJune 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 First Lien Credit Facility and$1.0 million of offering cost payments. Net cash provided by financing activities for the six months endedJune 30, 2021 (Successor) was incrementally driven by the Company'sFebruary 2021 debt refinancing which consisted of a refinancing of the Successor FirstLien Credit Facility and the full repayment of the Successor Second Lien Credit Facility. Cash outflows related to this refinancing were$308.5 million , partially offset by cash inflows of$261.4 million . As part of the refinancing, the Company paid$1.3 million related to new debt issuance costs. The remaining outflows primarily consisted of amortizing principal payments due under the first lien term loan facility. Net cash provided by financing activities for the period fromFebruary 1, 2020 throughJune 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 and distributions to Predecessor's members and optionholders in connection with the SilverLake 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
46
--------------------------------------------------------------------------------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 six months endedJune 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 six months endedJune 30, 2021 does not give effect to either the Silver Lake 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$145.0 million term loan dueJanuary 31, 2028 , carrying an interest rate of 8.50% plus LIBOR. InFebruary 2021 , the Company refinanced the Successor FirstLien Credit Facility term loan and fully repaid the outstanding balance on the Successor Second Lien Agreement term loan (the "2021 Debt Refinancing"). The effects of the 2021 Debt Refinancing are fully reflected in the historical statement of operations of the Company for the six months endedJune 30, 2021 . Because the Company does not consider the effects of the 2021 Debt Refinancing to be material, no pro forma adjustments have been made to the unaudited pro forma statement of operations for the six months endedJune 30, 2020 to reflect the 2021 Debt Refinancing as if it had occurred onJanuary 1, 2020 . 47 --------------------------------------------------------------------------------
Note 2. Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
The following adjustments were made related to the unaudited pro forma condensed
consolidated statement of operations for the six months ended
Silver Lake Transaction Accounting Adjustments
a)
Reflects the incremental amortization expense related to certain definite-lived intangible assets, reflected in the purchase price allocation at the date of the SilverLake Transaction , as if those certain definite-lived intangible assets were put into place onJanuary 1, 2020 . The following table shows the pro forma adjustment to estimated amortization expense for the six months endedJune 30, 2020 : Estimated Fair Value at Estimated Six Months Ended Description (in thousands) Acquisition Useful Life June 30, 2020 Capitalized software for internal use$ 220,000 5 $ 28,734 Trade name $ 95,000 20 4,096 Customer lists$ 500,000 14 35,668 Pro forma amortization expense 68,498 Less: historical amortization expense recorded (59,415 ) Pro forma adjustment for amortization expense $ 9,083
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: Six Months Ended Description (in thousands)June 30, 2020 Interest Expense on Successor First Lien Agreement $
17,135
Interest Expense on Successor Second Lien Agreement
7,333
Amortization of deferred financing costs
1,751
Pro forma interest expense
26,219
Less: historical interest expense recorded (25,825 ) Pro forma adjustment for interest expense $
394
No adjustment has been made to the unaudited pro forma statement of operations for the six months endedJune 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 six months endedJune 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%.
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