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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2021

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

These unaudited condensed consolidated financial statements are unaudited; however, in the opinion of management, they reflect all adjustments consisting only of normal recurring adjustments necessary to state fairly the financial position, results of operations and cash flows for the periods presented in conformity with US GAAP applicable to interim periods. The results of operations for the interim periods presented are not necessarily indicative of results for the full year or future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2020 and notes thereto included in the IPO Prospectus

On September 10, 2021, the Board of Directors authorized a stock split and the Company filed an amendment to its certificate of incorporation to effectuate a

1,198-for-1

split of its outstanding common stock. The stock split was effectuated such that (i) each then outstanding share of common stock was increased to 1,198 shares; (ii) the number of shares of common stock into which then-outstanding options to purchase common stock is exercisable was proportionately increased; and (iii) the exercise price of each then-outstanding option to purchase common stock was proportionately reduced. The accompanying unaudited condensed consolidated financial statements give retroactive effect as though the

1,198-for-1

stock split of the Company’s common stock occurred for all periods presented.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and judgements that can affect the reported amount of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Some of the significant estimates include the impairment of long-lived assets, goodwill impairment, the determination of the fair value of acquired assets and liabilities, collectability of receivables, the valuation of stock-based awards and stock-based compensation and sales and income tax liabilities. The Company also applies an estimated useful life of three years to internally developed software assets. This is based on the historical observed pace of change in the Company’s delivery, technology, and product offerings as well as market competition. The Company believes that the estimates used in the preparation of these unaudited condensed consolidated financial statements are reasonable; however, actual results could differ materially from these estimates.

Segment Information

The Company has one operating and reportable segment. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.

Cash and Cash Equivalents

Cash and cash equivalents of $66.6 million and $192.4 million as of December 31, 2020 and September 30, 2021, respectively, include money market instruments with maturities of three months or less. The Company maintained cash outside the United States (the “U.S.”) as of December 31, 2020 of $29.4

million with the largest deposits being held in India and Canada, with balances of

$10.3 million and $7.0 million, respectively. Cash outside the U.S. was approximately $42.8

million as of September 30, 2021, with the largest deposits being held in India and Canada, with balances of

$12.8 million and $14.1 million, respectively.

Deferred transaction costs

The Company capitalized certain legal, professional, accounting and other third-party fees directly related to the IPO as deferred transaction costs until the IPO was completed. Upon completion of the IPO, these costs were recorded as a reduction to additional paid-in capital generated from the offering within stockholders’ equity.

Foreign Currency

Assets and liabilities of operations having

non-USD

functional currencies are translated at

period-end

exchange rates, and income statement accounts are translated at weighted average exchange rates for the period. Gains or losses resulting from translating foreign currency financial statements, net of any related tax effects, are reflected in Accumulated other comprehensive income (loss), a separate component of stockholders’ equity on the balance sheet. Gains or losses resulting from foreign currency transactions incurred in currencies other than the local functional currency are included in Other income in the statements of operations and comprehensive loss. The cumulative translation adjustment resulted in a gain of $0.1 million and a loss of $0.9 million as of December 31, 2020 and September 30, 2021, respectively.

Revenue Recognition

Revenue is recognized in accordance with the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) when a performance obligation has been satisfied by transferring a promised good or service to a customer and the customer obtains control of the good or service. To recognize revenue, two parties must have an agreement that creates enforceable rights and obligations, the performance obligations must be identifiable and the transaction price

must

be determinable. The agreement must also have commercial substance and collection must be probable.

The Company contracts with customers to provide technology-enabled background and identity verification services. The Company offers a comprehensive hiring and risk management solution that begins with identity verification, followed by criminal background screening, credential verification, drug and health screening, employee onboarding document processing and ongoing risk monitoring. Results from services are provided through a screening report and the customer takes control of the product when the report is completed. Accordingly, revenue is generally recognized at the point in time when the customer receives and can use the report. Background and identity verification services comprised a substantial portion of the total revenues for the three and nine months ended September 30, 2020 and 2021. As such, significant changes in background and identity verification services could affect the nature, amount, timing, and uncertainty of revenue and related cash flows. Payment for background and identity verification services generally occurs once the reports have been received by the customer. The Company records third-party pass-through fees incurred as part of screening related products on a gross revenue basis, with the related expense recorded as third-party cost of revenue, as the Company has control over the transaction and is therefore considered to be acting as a principal.

The Company’s contracts generally do not include any obligations for returns, refunds, or similar obligations, nor does the Company have a practice of granting significant concessions. Payment terms and conditions vary by contract and customer, although terms generally include a requirement of payment within 30 to 60 days of the invoice date. Any advanced payments received from customers are initially deferred and subsequently recognized as revenue as the related performance obligations are satisfied. There is typically no variable consideration related to the Company’s contracts, nor do they include a significant financing component,

non-cash

consideration or consideration payable to a customer.

For revenue arrangements containing multiple products or

services, the Company accounts for the individual products or services as separate performance obligations if they are distinct, the product or service is separately identifiable from other terms in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer. If these criteria are not met, the promised products or services are accounted for as a combined performance obligation. The Company allocates the contract price to each performance obligation based on the standalone selling prices of each distinct product or service in the contract.

Sales taxes collected from customers are remitted to governmental authorities and are therefore excluded from revenues in the statements of operations and comprehensive loss.

Corporate Technology and Production Systems Expense

Corporate technology and production systems expense includes costs related to maintaining the Company’s corporate information technology infrastructure and

non-capitalizable

costs to develop and maintain its production systems.

The following table sets forth expenses included in each category of this line item:

	Three Months Ended September 30,				Nine Months Ended September 30,

(in thousands)	2020		2021		2020		2021
Corporate information technology	$	4,696	$	6,122	$	14,902	$	15,611

Development of platform and product initiatives		4,150		3,906		12,170		11,242
Production support and maintenance		1,996		2,056		5,850		5,582

Total production systems		6,146		5,962		18,020		16,824

Corporate technology and production systems	$	10,842	$	12,084	$	32,922	$	32,435

Corporate information technology expenses consist of personnel costs supporting internal operations such as information technology support and the maintenance of information security and business continuity functions. Also included are third-party costs including cloud computing costs that support the Company’s corporate internal systems, software licensing and maintenance, telecommunications and other technology infrastructure

costs

Production systems costs consist of

non-capitalizable

personnel costs including contractor costs incurred for the development of platform and product initiatives and production support and maintenance. Platform and product initiatives facilitate the development of the Company’s technology platform and the launch of new screening products. Production support and maintenance includes costs to support and maintain the technology underlying the Company’s existing screening products and to enhance the ease of use of the Company’s cloud applications. Certain personnel costs related to new products and features are capitalized and amortized to depreciation and amortization.

Corporate technology and production systems expenses also include

non-capitalizable

production system and corporate information technology expenses related to Project Ignite, a three-phase strategic investment initiative. Phase one of Project Ignite modernized client and candidate experiences and is complete. Phase two of Project Ignite focused on decommissioning the Company’s

on-premises

data centers and migrating the Company’s production systems and corporate information technological infrastructure to a managed service provider in the cloud. As of June 30, 2021, the Company completed phase two related to the migration of its production and fulfillment systems to the cloud, and as a result, 95% of revenue was processed through platforms hosted in the cloud. The Company will continue to incur expenses related to phase two to complete the decommissioning of

on-premises

data centers for internal corporate technology infrastructure and migration to the cloud. This is expected to be completed by June 30, 2022. Phase three of Project Ignite is decommissioning of the platforms purchased over the prior ten years and the migration of the clients to one global platform. This third and final phase, which the Company expects to complete in 2022, will unify clients onto a single global platform. The future costs related to completing these initiatives will be included in corporate technology and production systems expense.