QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
th Floor |
||
(Address of principal executive offices) |
(Zip Code) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Large accelerated filer |
☐ |
Accelerated filer |
☐ | |||
|
☒ |
Smaller reporting company |
| |||
Emerging growth company |
• | changes in economic, political and market conditions and the impact of these changes on our clients’ hiring trends; |
• | the sufficiency of our cash to meet our liquidity needs; |
• | the possibility of cyberattacks, security vulnerabilities and internet disruptions, including breaches of data security and privacy leaks, data loss and business interruptions; |
• | our ability to comply with the extensive U.S. and foreign laws, regulations and policies applicable to our industry, and changes in such laws, regulations and policies; |
• | our compliance with data privacy laws and regulations; |
• | potential liability for failures to provide accurate information to our clients, which may not be covered, or may be only partially covered, by insurance; |
• | the possible effects of negative publicity on our reputation and the value of our brand; |
• | our failure to compete successfully; |
• | our ability to keep pace with changes in technology and to provide timely enhancements to our products and services; |
• | the impact of COVID-19 on global markets, economic conditions and the response by governments and third parties; |
• | our ability to cost-effectively attract new clients and retain our existing clients; |
• | our ability to grow our Identity-as-a-service |
• | our success in new product introductions and adjacent market penetrations; |
• | our ability to expand into new geographies; |
• | our ability to pursue strategic mergers and acquisitions; |
• | design defects, errors, failures or delays with our products and services; |
• | systems failures, interruptions, delays in services, catastrophic events and resulting interruptions; |
• | natural or man-made disasters including pandemics and other significant public health emergencies, outbreaks of hostilities or effects of climate change and our ability to deal effectively with damage or disruption caused by the foregoing; |
• | our ability to implement our business strategies profitably; |
• | our ability to retain the services of certain members of our management; |
• | inadequate protection of our intellectual property; |
• | our ability to implement, maintain and improve effective internal controls and remediate the material weakness described under “Risk Factors” in our final prospectus, filed with the SEC on September 24, 2021 pursuant to Rule 424(b) under the Securities Act (our “IPO Prospectus”), and elsewhere in this report; |
• | our ability to comply with public company requirements in a timely and cost-effective manner, and expense strain on our resources and diversion of our management’s attention resulting from public company compliance requirements; and |
• | the other risks described under “Risk Factors” in our IPO Prospectus. |
(in thousands, except share amounts) |
December 31, 2020 |
September 30, 2021 |
||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | $ | ||||||
Accounts receivable (net of allowance for doubtful accounts of $ as of December 31, 2020 and September 30, 2021, respectively) |
||||||||
Insurance receivable |
— | |||||||
Prepaid expenses |
||||||||
Other current assets |
||||||||
|
|
|
|
|||||
Total current assets |
||||||||
Property and equipment, net |
||||||||
Goodwill |
||||||||
Intangible assets, net |
||||||||
Other noncurrent assets, net |
||||||||
|
|
|
|
|||||
TOTAL ASSETS |
$ | $ | ||||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | $ | ||||||
Litigation settlement obligation |
— | |||||||
Accrued expenses |
||||||||
Current portion of long-term debt |
||||||||
Other current liabilities |
||||||||
|
|
|
|
|||||
Total current liabilities |
||||||||
Long-term debt, net |
||||||||
Deferred income taxes |
||||||||
Other liabilities |
||||||||
|
|
|
|
|||||
Total liabilities |
$ | $ | ||||||
|
|
|
|
|||||
COMMITMENTS AND CONTINGENCIES (NOTE 11) |
||||||||
STOCKHOLDERS’ EQUITY: |
||||||||
Preferred stock ($ |
||||||||
Common stock ($ , , |
||||||||
Additional paid-in capital |
||||||||
Common stock held in treasury ( shares as of December 31, 2020 and September 30, 2021) |
( |
) | ( |
) | ||||
Accumulated deficit |
( |
) | ( |
) | ||||
Accumulated other comprehensive income (loss) |
( |
) | ||||||
|
|
|
|
|||||
Total stockholders’ equity |
||||||||
|
|
|
|
|||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | $ | ||||||
|
|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
(in thousands except share and per share data) |
2020 |
2021 |
2020 |
2021 |
||||||||||||
REVENUES |
$ | $ | $ | $ | ||||||||||||
OPERATING EXPENSES: |
||||||||||||||||
Cost of revenues (exclusive of depreciation and amortization below) |
||||||||||||||||
Corporate technology and production systems |
||||||||||||||||
Selling, general and administrative |
||||||||||||||||
Depreciation and amortization |
||||||||||||||||
Impairments of long-lived assets |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
OPERATING INCOME (LOSS) |
( |
) | ( |
) | ( |
) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
OTHER EXPENSE (INCOME): |
||||||||||||||||
Interest expense, net |
||||||||||||||||
(Gain) loss on interest rate swaps |
( |
) | ||||||||||||||
Other income |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other expense, net |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
LOSS BEFORE INCOME TAXES |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Income tax provision (benefit) |
( |
) | ( |
) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
NET LOSS |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
|
|
|
|
|
|
|
|
|||||||||
Unrealized gain (loss) on hedged transactions, net of tax |
( |
) | ( |
) | ||||||||||||
Foreign currency translation adjustments, net of tax |
( |
) | ( |
) | ( |
) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other comprehensive income (loss) |
( |
) | ( |
) | ( |
) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
COMPREHENSIVE LOSS |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per share attributable to stockholders |
||||||||||||||||
Basic |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Weighted average number of shares outstanding |
||||||||||||||||
Basic |
||||||||||||||||
Diluted |
Accumulated |
||||||||||||||||||||||||||||
Additional |
Common Stock |
Other |
||||||||||||||||||||||||||
Shares |
Par |
Paid-in |
Held in |
Accumulated |
Comprehensive |
|||||||||||||||||||||||
(in thousands, except share amounts) |
Outstanding |
Value |
Capital |
Treasury |
Deficit |
(Loss) Income |
Total |
|||||||||||||||||||||
BALANCE as of December 31, 2019 |
$ |
$ |
$ |
( |
) | $ |
( |
) | $ |
( |
) | $ | ||||||||||||||||
Common stock issued for exercise of employee-based stock options |
— | — | — | — | ||||||||||||||||||||||||
Stock-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
Net loss |
— | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||
Foreign currency translation adjustment |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE as of March 31, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Stock-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
Net loss |
— | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||
Foreign currency translation adjustment |
— | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE as of June 30, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Stock-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
Net loss |
— | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||
Unrealized gain on hedge transactions |
— | — | — | — | — | |||||||||||||||||||||||
Foreign currency translation adjustment |
— | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE as of September 30, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
||||||||||||||||||||||||||||
Additional |
Common Stock |
Other |
||||||||||||||||||||||||||
Shares |
Par |
Paid-in |
Held in |
Accumulated |
Comprehensive |
|||||||||||||||||||||||
(in thousands, except share amounts) |
Outstanding |
Value |
Capital |
Treasury |
Deficit |
(Loss) Income |
Total |
|||||||||||||||||||||
BALANCE as of December 31, 2020 |
$ |
$ |
$ |
( |
) | $ |
( |
) | $ |
$ | ||||||||||||||||||
Issuance of common stock |
— | — | — | — | ||||||||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Unrealized loss on hedged transactions |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Foreign currency translation adjustment |
— | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE as of March 31, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Stock-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Unrealized loss on hedged transactions |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Foreign currency translation adjustment |
— | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE as of June 30, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Common stock issued for exercise of employee-based stock options |
— | — | — | — | ||||||||||||||||||||||||
Issuance of common stock in connection with IPO , net of offering costs, underwriting discounts and commissions |
— | — | — | |||||||||||||||||||||||||
Issuance of common stock in connection with forgiveness of promissory notes |
— | — | — | — | ||||||||||||||||||||||||
Capital contribution from Stockholder |
— | — | — | — | — | |||||||||||||||||||||||
Issuance of restricted shares |
( |
) | — | — | — | — | ||||||||||||||||||||||
Stock-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
Net loss |
— | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||
Unrealized loss on hedged transactions |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Foreign currency translation adjustment |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE as of September 30, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
||||||||
(in thousands) |
2020 |
2021 |
||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net loss |
$ | ( |
) | $ | ( |
) | ||
Adjustments to reconcile net loss to net cash provided by operations |
||||||||
Depreciation and amortization |
||||||||
Deferred income taxes |
( |
) | ( |
) | ||||
Stock-based compensation |
||||||||
Impairments of long-lived assets |
||||||||
Provision for bad debts |
||||||||
Amortization of financing fees |
||||||||
Amortization of debt discount |
||||||||
Deferred rent |
( |
) | ( |
) | ||||
Unrealized translation gain on investment in foreign subsidiaries |
( |
) | ( |
) | ||||
Changes in fair value of derivatives |
( |
) | ||||||
Excess payment on contingent consideration for acquisition |
— | ( |
) | |||||
Changes in operating assets and liabilities |
| |||||||
Accounts receivable |
( |
) | ||||||
Insurance receivable |
— | |||||||
Prepaid expenses |
( |
) | ( |
) | ||||
Other assets |
||||||||
Accounts payable |
||||||||
Litigation settlement obligation |
— | ( |
) | |||||
Accrued expenses |
( |
) | ||||||
Other liabilities |
( |
) | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
||||||||
|
|
|
|
|||||
CASH FLOWS FROM INVESTING ACTIVITIES |
| |||||||
Purchases of property and equipment |
( |
) | ( |
) | ||||
Purchases of intangible assets and capitalized software |
( |
) | ( |
) | ||||
Proceeds from disposition of property and equipment |
||||||||
|
|
|
|
|||||
Net cash used in investing activities |
( |
) | ( |
) | ||||
|
|
|
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES |
| |||||||
Issuance of common stock |
||||||||
Proceeds from issuance of common stock in IPO net of underwriting discounts and commissions |
— | |||||||
Payments of IPO issuance costs |
— | ( |
) | |||||
Capital contribution from certain stockholders |
— | |||||||
Payments of long-term debt |
( |
) | ( |
) | ||||
Repayments of revolving credit facility |
( |
) | — | |||||
Borrowings on revolving credit facility |
— | |||||||
Payment of contingent consideration for acquisition |
— | ( |
) | |||||
Payments on equipment capital lease obligations |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Net cash (used in) provided by financing activities |
( |
) | ||||||
|
|
|
|
|||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
( |
) | ( |
) | ||||
|
|
|
|
|||||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
||||||||
CASH AND CASH EQUIVALENTS |
||||||||
Beginning of period |
||||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | $ | ||||||
|
|
|
|
|||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
||||||||
Cash paid during the period for |
||||||||
Interest, net of capitalized amounts of $ |
$ | $ | ||||||
Income taxes |
||||||||
Offering costs included in accounts payable and accrued liabilities |
— |
1. |
Description of Business |
2. |
Summary of Significant Accounting Policies |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
(in thousands) |
2020 |
2021 |
2020 |
2021 |
||||||||||||
Corporate information technology |
$ | $ | $ | $ | ||||||||||||
Development of platform and product initiatives |
||||||||||||||||
Production support and maintenance |
||||||||||||||||
Total production systems |
||||||||||||||||
Corporate technology and production systems |
$ | $ | $ | $ | ||||||||||||
3. |
Recent Accounting Standards Updates |
4. |
Property and Equipment, net |
(in thousands) |
December 31, 2020 |
September 30, 2021 |
||||||
Furniture and fixtures |
$ | $ | ||||||
Computers and equipment |
||||||||
Leasehold improvements |
||||||||
|
|
|
|
|||||
Less: Accumulated depreciation |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Total property and equipment, net |
$ | $ | ||||||
|
|
|
|
5. |
Goodwill and Intangible Assets |
(in thousands) |
||||
Goodwill as of December 31, 2020 |
$ | |||
Foreign currency translation adjustment |
( |
) | ||
|
|
|||
Goodwill as of September 30, 2021 |
$ | |||
|
|
December 31, 2020 |
September 30, 2021 |
|||||||||||||||||||||||||||
(dollars in thousands) |
Estimated Useful Lives |
Gross Carrying Amount |
Accumulated Amortization |
Net |
Gross Carrying Amount |
Accumulated Amortization |
Net |
|||||||||||||||||||||
Customer lists |
$ | $ |
( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
Trademarks |
( |
) | ( |
) | ||||||||||||||||||||||||
Technology |
( |
) | ( |
) | ||||||||||||||||||||||||
Domain names |
( |
) | ( |
) | ||||||||||||||||||||||||
Favorable leases |
( |
) | ( |
) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
||||
Year Ending December 31, |
||||
2021 |
$ |
|||
2022 |
||||
2023 |
||||
2024 |
||||
2025 |
||||
Thereafter |
||||
|
|
|||
$ |
||||
|
|
6. |
Accrued Expenses |
December 31, |
September 30, |
|||||||
(in thousands) |
2020 |
2021 |
||||||
Accrued compensation |
$ | $ | ||||||
Accrued cost of revenues |
||||||||
Accrued interest |
||||||||
Accrued IPO offering expenses |
— | |||||||
Other accrued expenses |
||||||||
Total accrued expenses |
$ | $ | ||||||
7. |
Debt |
(in thousands) |
December 31, 2020 |
September 30, 2021 |
||||||
Current portion of long-term debt |
||||||||
First lien term loan |
$ | $ | ||||||
Long-term debt |
||||||||
First (months ended September 30, 2020 and 2021, respectively ) |
||||||||
Unamortized discount and debt issuance costs on first lien term loan |
( |
) | ( |
) | ||||
Total long-term debt, net |
$ | $ | ||||||
8. |
Fair Value of Financial Instruments |
Level 1 | Quoted prices in active markets for identical assets and liabilities. |
Level 2 |
Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
Level 3 |
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flows methodologies and similar techniques that use significant unobservable inputs. |
(in thousands) |
Level 1 |
Level 2 |
Level 3 |
|||||||||
Assets |
||||||||||||
Foreign exchange contracts |
$ |
|||||||||||
Liabilities |
||||||||||||
Interest rate swaps |
$ |
(in thousands) |
Level 1 |
Level 2 |
Level 3 |
|||||||||
Assets |
||||||||||||
Foreign exchange contracts |
$ | |||||||||||
Liabilities |
||||||||||||
Interest rate swaps |
$ |
9. |
Derivative Instruments and Hedging Activities |
Foreign Currency Derivative |
Number of Instruments |
Notional Sold |
Notional Purchased |
|||||||||
Currency forward agreements |
Product |
Number of Instruments |
Effective Date |
Maturity Date |
Notional |
||||||||||||
Interest Rate Swap |
$ |
Asset Derivatives |
||||||||||||
As of December 31, 2020 |
As of September 30, 2021 |
|||||||||||
(in thousands) |
Balance Sheet Location |
Fair Value |
Balance Sheet Location |
Fair Value |
||||||||
Derivatives designated as hedging instruments: |
||||||||||||
Foreign exchange contracts |
Other current assets | $ | Other current assets | $ | ||||||||
|
|
|
|
|||||||||
Total foreign exchange contracts |
$ | $ | ||||||||||
|
|
|
|
Liability Derivatives |
||||||||||||
(in thousands) |
As of December 31, 2020 |
As of September 30, 2021 |
||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||
Interest rate swaps |
Other current liabilities | $ | Other current liabilities | $ | ||||||||
Interest rate swaps |
Other liabilities | Other liabilities | — | |||||||||
|
|
|
|
|||||||||
Total interest rate swaps |
$ | $ | ||||||||||
|
|
|
|
Three Months Ended September 30, |
Three Months Ended September 30, |
|||||||||||||||||
(in thousands) |
2020 |
2021 |
2020 |
2021 |
||||||||||||||
Derivatives in Hedging Relationships |
Amount of Gain or (Loss) Recognized in OCI on Derivative (Included Component) |
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income |
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Included Component) |
|||||||||||||||
Cost of revenues | $ | $ | ||||||||||||||||
Foreign exchange contracts |
$ | $ | Selling general and administrative | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | $ | $ | $ | ||||||||||||||
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||
(in thousands) |
2020 |
2021 |
2020 |
2021 |
||||||||||||||
Derivatives in Hedging Relationships |
Amount of Gain or (Loss) Recognized in OCI on Derivative (Included Component) |
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income |
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Included Component) |
|||||||||||||||
Cost of revenues | $ | $ | ||||||||||||||||
Foreign exchange contracts |
$ | $ | ( |
) | Selling general and administrative | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | $ | ( |
) | $ | $ | ||||||||||||
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
Three Months Ended September 30, |
|||||||||||||||||
(in thousands) |
2020 |
2021 |
2020 |
2021 |
||||||||||||||
Derivatives in Hedging Relationships |
Amount of Gain or (Loss) Recognized in OCI on Derivative (Excluded Component) |
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income |
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Excluded Component) |
|||||||||||||||
Cost of revenues | $ | $ | ||||||||||||||||
Foreign exchange contracts |
$ | $ | Selling general and administrative | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | $ | $ | $ | ||||||||||||||
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||
(in thousands) |
2020 |
2021 |
2020 |
2021 |
||||||||||||||
Derivatives in Hedging Relationships |
Amount of Gain or (Loss) Recognized in OCI on Derivative (Excluded Component) |
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income |
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Excluded Component) |
|||||||||||||||
Cost of revenues | $ | $ | ||||||||||||||||
Foreign exchange contracts |
$ | $ | Selling general and administrative | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | $ | $ | $ | ||||||||||||||
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
||||||||||||||||
2020 |
2021 |
|||||||||||||||
(in thousands) |
Selling General, and Administrative |
Cost of Revenues |
Selling General, and Administrative |
Cost of Revenues |
||||||||||||
Total amounts of income and expense line items in which the effects of fair value or cash flow hedges are recorded |
$ | $ | $ | $ | ||||||||||||
Gain or (loss) on cash flow hedging relationships |
||||||||||||||||
Foreign exchange contracts: |
||||||||||||||||
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income |
||||||||||||||||
Amount excluded from effectiveness testing recognized in earnings |
Nine Months Ended September 30, |
||||||||||||||||
2020 |
2021 |
|||||||||||||||
(in thousands) |
Selling General, and Administrative |
Cost of Revenues |
Selling General, and Administrative |
Cost of Revenues |
||||||||||||
Total amounts of income and expense line items in which the effects of fair value or cash flow hedges are recorded |
$ | $ | $ | $ | ||||||||||||
Gain or (loss) on cash flow hedging relationships |
||||||||||||||||
Foreign exchange contracts: |
||||||||||||||||
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income |
||||||||||||||||
Amount excluded from effectiveness testing recognized in earnings |
Three Months Ended September 30, |
||||||||||
(in thousands) |
2020 |
2021 |
||||||||
Derivatives Not Designated as Hedging Instruments |
Location of (Gain) or Loss Recognized in Income on Derivative |
Amount of (Gain) or Loss Recognized in Income on Derivative |
||||||||
Interest rate swaps |
(Gain) loss on interest rate swaps | $ | ( |
) | $ | |||||
Foreign exchange contracts |
Selling general and administrative | ( |
) | |||||||
Foreign exchange contracts |
Cost of revenues | ( |
) | |||||||
|
|
|
|
|||||||
Total |
$ | ( |
) | $ |
Nine Months Ended September 30, |
||||||||||
(in thousands) |
2020 |
2021 |
||||||||
Derivatives Not Designated as Hedging Instruments |
Location of (Gain) or Loss Recognized in Income on Derivative |
Amount of (Gain) or Loss Recognized in Income on Derivative |
||||||||
Interest rate swaps |
(Gain) loss on interest rate swaps | $ | $ | |||||||
Foreign exchange contracts |
Selling general and administrative | ( |
) | ( |
) | |||||
Foreign exchange contracts |
Cost of revenues | ( |
) | ( |
) | |||||
|
|
|
|
|||||||
Total |
$ | $ | ||||||||
|
|
|
|
10. |
Income Taxes |
11. |
Commitments and Contingencies |
12. |
Equity |
(i) | |
(ii) | |
13. |
Stock-Based Compensation |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2020 |
2021 |
2020 |
2021 |
|||||||||||||
Stock-based compensation expense |
||||||||||||||||
Cost of revenues |
$ | — | $ | $ | — | $ | ||||||||||
Corporate technology and production systems |
— | — | ||||||||||||||
Selling, general and administrative |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stock-based compensation expense |
$ | $ | $ | $ | ||||||||||||
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2020 |
2021 |
2020 |
2021 |
|||||||||||||
Expected volatility |
% | % | % | % | ||||||||||||
Risk-free interest rate |
% | % | % | % | ||||||||||||
Dividend rate |
% | % | % | % | ||||||||||||
Expected term, in years |
Outstanding SVOs |
Outstanding PSOs |
|||||||||||||||||||||||||||||||
Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (years) |
Aggregate Intrinsic Value |
Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (years) |
Aggregate Intrinsic Value |
|||||||||||||||||||||||||
Balances as of December 31, 2019 |
$ | $ | $ | $ | ||||||||||||||||||||||||||||
Granted |
— | |||||||||||||||||||||||||||||||
Forfeited / Cancelled |
( |
) | ( |
) | — | |||||||||||||||||||||||||||
Exercised |
( |
) | — | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balances as of September 30, 2020 |
$ |
$ | $ | $ | ||||||||||||||||||||||||||||
Balances as of December 31, 2020 |
$ |
$ | $ | $ | — | |||||||||||||||||||||||||||
Granted |
— | — | ||||||||||||||||||||||||||||||
Forfeited / Cancelled |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Exercised |
( |
) | — | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balances as of September 30, 2021 |
$ |
$ | $ | $ |
Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (years) |
Aggregate Intrinsic Value |
|||||||||||||
Exercisable as of September 30, 2020 |
$ | $ | ||||||||||||||
Exercisable as of September 30, 2021 |
Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (years) |
Aggregate Intrinsic Value |
|||||||||||||
Exercisable as of September 30, 2020 |
— | $ | — | — | $ | — | ||||||||||
Exercisable as of September 30, 2021 |
Expected volatility |
% | |||
Risk-free interest rate |
% | |||
Dividend rate |
% | |||
Expected term, in years |
14. |
Net Loss per Share |
(in thousands, except per share amounts) |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||
2020 |
2021 |
2020 |
2021 |
|||||||||||||
Numerator: |
||||||||||||||||
Net loss attributable to stockholders |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Less: Undistributed amounts allocated to participating securities |
— | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Undistributed losses allocated to stockholders |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Denominator: |
||||||||||||||||
Weighted average number of shares outstanding, basic |
||||||||||||||||
Weighted average additional shares assuming conversion of potential common shares |
— | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares outstanding - diluted |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per share attributable to stockholders, basic |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per share attributable to stockholders, diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
|
|
|
|
|
|
|
|
Three and Nine Months Ended September 30, |
||||||||
2020 |
2021 |
|||||||
Stock options |
||||||||
Restricted Stock Awards |
— | |||||||
Restricted Stock Units |
— |
15. |
Defined Contribution Plans |
16. |
Related Party Transactions |
17. |
Litigation |
18. |
Revenue |
Three Months Ended September 30, |
||||||||
(in thousands) |
2020 |
2021 |
||||||
Screening services |
$ | $ | ||||||
Other services |
||||||||
|
|
|
|
|||||
Total revenue |
$ | $ | ||||||
|
|
|
|
Nine Months Ended September 30, |
||||||||
(in thousands) |
2020 |
2021 |
||||||
Screening services |
$ | $ | ||||||
Other services |
||||||||
|
|
|
|
|||||
Total revenue |
$ | $ | ||||||
|
|
|
|
Three Months Ended September 30, |
||||||||
(in thousands) |
2020 |
2021 |
||||||
United States |
$ | $ | ||||||
All other countries |
||||||||
|
|
|
|
|||||
Total revenue |
$ | $ | ||||||
|
|
|
|
Nine Months Ended September 30, |
||||||||
(in thousands) |
2020 |
2021 |
||||||
United States |
$ | $ | ||||||
All other countries |
||||||||
|
|
|
|
|||||
Total revenue |
$ | $ | ||||||
|
|
|
|
19. |
Subsequent Events |
• | Identity Verification—Leveraging innovative technologies in fingerprinting, facial recognition and ID validation to verify that candidates are who they say they are. |
• | Background Checks—County, state and federal criminal checks fulfilled through proprietary automation technology enabling global criminal screening capabilities in over 240 countries and territories. Other services include credit checks, civil checks, motor vehicle registration confirmation and social media checks. |
• | Credential Verification—Thorough employment and education verification services and licensing certification backed by a powerful fulfillment engine. |
• | Drug and Health Screening—Comprehensive, accurate and fast drug and health screening services through a network of over 15,000 U.S. Department of Transportation-compliant collection sites. |
• | Onboarding—Custom forms including I-9 and eVerify employment eligibility, tax withholding forms and Equal Employment Opportunity disclosure forms, with built-in compliance and dynamic validation. |
• | Post-hire Monitoring—Continuous screening allowing for greater mobility and safety for remote, onsite and contingent jobs and also ensuring prompt risk warnings on any changes to an employee’s profile. |
Three Months Ended September 30, |
Increase/ (Decrease) |
|||||||||||||||
2020 |
2021 |
$ |
% |
|||||||||||||
(dollars in thousands, except per share amounts) |
||||||||||||||||
Revenues |
$ | 117,602 | $ | 169,557 | $ | 51,955 | 44.2 | % | ||||||||
Cost of revenues (exclusive of depreciation and amortization below) |
55,112 | 82,638 | 27,526 | 49.9 | % | |||||||||||
Corporate technology and production systems |
10,842 | 12,084 | 1,241 | 11.5 | % | |||||||||||
Selling, general and administrative |
25,391 | 84,983 | 59,592 | 234.7 | % | |||||||||||
Depreciation and amortization |
22,863 | 20,346 | (2,517 | ) | (11.0 | )% | ||||||||||
Impairments of long-lived assets |
621 | 15 | (606 | ) | (97.6 | )% | ||||||||||
Total operating expenses |
114,829 | 200,066 | 85,237 | 74.2 | % | |||||||||||
Operating income (loss) |
2,773 | (30,509 | ) | (33,282 | ) | (1200.2 | )% | |||||||||
Interest expense, net |
7,817 | 7,668 | (148 | ) | (1.9 | )% | ||||||||||
(Gain) loss on interest rate swaps |
(49 | ) | 112 | 161 | (327.5 | )% | ||||||||||
Other income |
(336 | ) | (400 | ) | (64 | ) | 19.0 | % | ||||||||
Total other expense, net |
7,432 | 7,380 | (52 | ) | (0.7 | )% | ||||||||||
Loss before income taxes |
(4,659 | ) | (37,889 | ) | (33,230 | ) | 713.2 | % | ||||||||
Income tax provision (benefit) |
5,727 | (12,633 | ) | (18,360 | ) | (320.6 | )% | |||||||||
Net loss |
$ | (10,386 | ) | $ | (25,256 | ) | $ | (14,870 | ) | 143.2 | % | |||||
Net loss margin |
(8.8 | )% | (14.9 | )% | (6.1 | )% | ||||||||||
Net loss per share |
$ | (0.12 | ) | $ | (0.28 | ) | $ | (0.16 | ) | 140.2 | % |
Nine Months Ended September 30, |
Increase/ (Decrease) |
|||||||||||||||
2020 |
2021 |
$ |
% |
|||||||||||||
(dollars in thousands, except per share amounts) |
||||||||||||||||
Revenues |
$ | 325,550 | $ | 468,255 | $ | 142,705 | 43.8 | % | ||||||||
Cost of revenues (exclusive of depreciation and amortization below) |
153,458 | 225,798 | 72,340 | 47.1 | % | |||||||||||
Corporate technology and production systems |
32,922 | 32,435 | (488 | ) | (1.5 | )% | ||||||||||
Selling, general and administrative |
86,848 | 153,194 | 66,346 | 76.4 | % | |||||||||||
Depreciation and amortization |
68,441 | 61,193 | (7,247 | ) | (10.6 | )% | ||||||||||
Impairments of long-lived assets |
680 | 2,940 | 2,260 | 332.4 | % | |||||||||||
Total operating expenses |
342,349 | 475,560 | 133,211 | 38.9 | % | |||||||||||
Operating income (loss) |
(16,799 | ) | (7,305 | ) | 9,494 | (56.5 | )% | |||||||||
Interest expense, net |
25,110 | 22,841 | (2,269 | ) | (9.0 | )% | ||||||||||
(Gain) loss on interest rate swaps |
9,604 | 199 | (9,405 | ) | (97.9 | )% | ||||||||||
Other income |
(998 | ) | (1,034 | ) | (36 | ) | 3.6 | % | ||||||||
Total other expense, net |
33,716 | 22,006 | (11,710 | ) | (34.7 | )% | ||||||||||
Loss before income taxes |
(50,515 | ) | (29,311 | ) | 21,204 | (42.0 | )% | |||||||||
Income tax provision (benefit) |
718 | (8,080 | ) | (8,798 | ) | (1225.6 | )% | |||||||||
Net loss |
$ | (51,233 | ) | $ | (21,231 | ) | $ | 30,002 | (58.6 | )% | ||||||
Net loss margin |
(15.7 | )% | (4.5 | )% | 11.2 | % | ||||||||||
Net loss per share |
$ | (0.58 | ) | $ | (0.24 | ) | $ | 0.34 | (58.9 | )% |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||
2021 |
2021 |
|||||||
Reported revenue growth |
44.2 | % | 43.8 | % | ||||
Impact from M&A activity(1) |
0.0 | % | 0.0 | % | ||||
Impact from foreign currency exchange(2) |
1.0 | % | 2.2 | % | ||||
|
|
|
|
|||||
Organic constant currency revenue growth |
43.2 | % | 41.6 | % | ||||
|
|
|
|
(1) | Impact to revenue growth in the current period from acquisitions and dispositions that have occurred over the past twelve months. |
(2) | Impact to revenue growth in the current period from fluctuations in foreign currency exchange rates. |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2020 |
2021 |
2020 |
2021 |
|||||||||||||
(dollars in thousands) |
||||||||||||||||
Net loss |
$ | (10,386 | ) | $ | (25,256 | ) | $ | (51,233 | ) | $ | (21,231 | ) | ||||
Income tax provision (benefit) |
5,727 | (12,633 | ) | 718 | (8,080 | ) | ||||||||||
Interest expense, net |
7,817 | 7,668 | 25,110 | 22,841 | ||||||||||||
Depreciation and amortization |
22,863 | 20,346 | 68,441 | 61,193 | ||||||||||||
Stock-based compensation |
570 | 25,582 | 1,756 | 27,236 | ||||||||||||
Transaction expenses(1) |
539 | 31,513 | 1,624 | 38,771 | ||||||||||||
Restructuring(2) |
1,060 | 634 | 7,070 | 4,243 | ||||||||||||
Technology Transformation(3) |
2,581 | 3,137 | 8,048 | 9,138 | ||||||||||||
Settlements impacting comparability(4) |
120 | — | 260 | — | ||||||||||||
(Gain) loss on interest rate swaps(5) |
(49 | ) | 112 | 9,604 | 199 | |||||||||||
Other(6) |
(439 | ) | 196 | 535 | 826 | |||||||||||
Adjusted EBITDA |
$ | 30,403 | $ | 51,300 | $ | 71,933 | $ | 135,136 | ||||||||
Adjusted EBITDA Margin |
25.9 | % | 30.3 | % | 22.1 | % | 28.9 | % |
(1) | Consists of transaction expenses related to mergers and acquisitions, associated earn-outs, investor management fees in connection with the Fourth Amended and Restated Management Services Agreement and costs related to preparation of the IPO. For the three months ended September 30, 2020, the costs consisted primarily of $0.5 million of investor management fees. For the three months ended September 30, 2021, costs consisted primarily of IPO related expenses of $30.5 million, including $16.8 million of contractual compensation payments to former executives (of which, $15.6 million was funded by certain stockholders), $7.5 million in final settlement of investor management fees, and $6.2 million of professional fees and other related expenses. The period also included $0.6 million of earn-out and performance-based incentive payments associated with an acquisition in 2018 and $0.3 million of investor management fees in connection with the Fourth Amended and Restated Management Services Agreement, associated with the terms prior to the final settlement. For the nine months ended September 30, 2020, the costs consisted primarily of $1.5 million of investor management fees. For the nine months ended September 30, 2021, the costs consisted primarily of IPO related expenses of $35.9 million, including $16.8 million of contractual compensation payments to former executives (of which, $15.6 million was funded by certain stockholders), $7.5 million of investor management fees, including the final settlement of fees in connection with the Fourth Amended and Restated Management Services Agreement, and $11.6 million of professional fees and related expenses. The period also included $1.4 million of earn-out and performance-based incentive payments associated with an acquisition in 2018 and $1.4 million of investor management fees in connection with the Fourth Amended and Restated Management Services Agreement, associated with the terms prior to the final settlement. |
(2) | Consists of restructuring-related costs, including executive recruiting and severance charges, and lease termination costs and disposal of fixed assets related to our real estate consolidation efforts. During 2019 and 2020, we executed an extensive restructuring program, significantly strengthening our management team and creating a client-facing industry-specific Vertical organization. This program was completed by the end of 2020 and the final costs related to this program were incurred through the first quarter of 2021. Beginning in 2020, we began executing a virtual-first strategy, closing offices and reducing office space globally. We expect this real estate consolidation effort to be completed by the end of 2021. For the three months ended September 30, 2020, the costs primarily comprised of $0.5 million of restructuring-related executive recruiting and severance charges, and $0.6 million related to our real estate consolidation program. For the three months ended September 30, 2021, the costs comprised $0.6 million related to our real estate consolidation program. For the nine months ended September 30, 2020, these costs include approximately $5.8 million of restructuring-related executive recruiting and severance charges, including the elimination of the vice-chairman position, and approximately $1.3 million of expenses related to our real estate consolidation program. For the nine months ended September 30, 2021, the costs primarily comprised $3.7 million related to the real estate consolidation program, due largely to the write-off on disposal of fixed assets for our exited facility in Bellevue, Washington. |
(3) | Includes costs related to technology modernization efforts. We believe that these costs are discrete and non-recurring in nature, as they relate to a one-time restructuring and decommissioning of our on-premise production systems and corporate technological infrastructure and the move to a managed service provider, decommissioning redundant fulfillment systems and modernizing internal functional systems. As such, they are not normal, recurring operating expenses and are not reflective of ongoing trends in the cost of doing business. The significant majority of these are related to the last two phases of Project Ignite, with the remainder related to an investment made to modernize internal functional systems in preparation for our public company infrastructure. For the three months ended September 30, 2020, investment related to Project Ignite was $2.4 million, and additional investment made to modernize internal functional systems was $0.2 million. For the three months ended September 30, 2021, investment related to Project Ignite was $3.1 million. For the nine months ended September 30, 2020, investment related to Project Ignite was $6.6 million, and additional investment made to modernize internal functional systems was $1.4 million. For the nine months ended September 30, 2021, investment related to Project Ignite was $9.1 million. |
(4) | Consists of non-recurring settlements impacting comparability. For the three months ended September 30, 2020, the cost of $0.1 million was primarily related to the 2019 settlement with the Consumer Financial Protection Bureau (“CFPB”). For the nine months ended September 30, 2020, the cost of $0.3 million primarily related to the 2019 settlement with the CFPB. |
(5) | Consists of (gain) loss on interest rate swaps. See “—Part I. Item 3. Quantitative and Qualitative Disclosures about Market Risk—Interest Rate Risk” for additional information on interest rate swaps. |
(6) | Consists of costs related to a local government mandate in India, (gain) loss on foreign currency transactions, impairment of capitalized software and other costs outside of the ordinary course of business. |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2020 |
2021 |
2020 |
2021 |
|||||||||||||
(in thousands) |
||||||||||||||||
Other |
||||||||||||||||
Government mandate |
$ | — | $ | — | $ | 1,291 | $ | — | ||||||||
(Gain) Loss on foreign currency transactions |
(439 | ) | 196 | (120 | ) | 1,316 | ||||||||||
Impairment of capitalized software |
— | — | 73 | 30 | ||||||||||||
Duplicate fulfillment charges |
— | — | (709 | ) | (521 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | (439 | ) | $ | 196 | $ | 535 | $ | 825 | |||||||
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2020 |
2021 |
2020 |
2021 |
|||||||||||||
(dollars in thousands) |
||||||||||||||||
Net loss |
$ | (10,386 | ) | $ | (25,256 | ) | $ | (51,233 | ) | $ | (21,231 | ) | ||||
Adjusted EBITDA |
30,403 | 51,300 | 71,933 | 135,136 | ||||||||||||
Revenues |
117,602 | 169,557 | 325,550 | 468,255 | ||||||||||||
Net loss margin |
(8.8 | )% | (14.9 | )% | (15.7 | )% | (4.5 | )% | ||||||||
Adjusted EBITDA margin |
25.9 | % | 30.3 | % | 22.1 | % | 28.9 | % |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2020 |
2021 |
2020 |
2021 |
|||||||||||||
(in thousands, except per share amounts) |
||||||||||||||||
Net (loss) income |
$ | (10,386 | ) | $ | (25,256 | ) | $ | (51,233 | ) | $ | (21,231 | ) | ||||
Income tax (benefit) expense |
5,727 | (12,633 | ) | 718 | (8,080 | ) | ||||||||||
(Loss) income before income taxes |
(4,659 | ) | (37,889 | ) | (50,515 | ) | (29,311 | ) | ||||||||
Amortization of acquired intangible assets |
15,119 | 12,962 | 45,289 | 39,232 | ||||||||||||
Stock-based compensation |
570 | 25,582 | 1,756 | 27,236 | ||||||||||||
Transaction expenses(1) |
539 | 31,513 | 1,624 | 38,771 | ||||||||||||
Restructuring(2) |
1,060 | 634 | 7,070 | 4,194 | ||||||||||||
Technology Transformation(3) |
2,581 | 3,137 | 8,048 | 9,138 | ||||||||||||
Settlements impacting comparability(4) |
120 | — | 260 | — | ||||||||||||
(Gain) loss on interest rate swaps(5) |
(49 | ) | 112 | 9,604 | 199 | |||||||||||
Other(6) |
(439 | ) | 196 | 535 | 826 | |||||||||||
Adjusted Net Income before income tax effect |
14,842 | 36,248 | 23,671 | 90,333 | ||||||||||||
Income tax effect(7) |
3,859 | 4,672 | 6,154 | 20,686 | ||||||||||||
Adjusted Net Income |
10,983 | 31,575 | 17,517 | 69,646 | ||||||||||||
Net Loss per share—diluted |
(0.12 | ) | (0.28 | ) | (0.58 | ) | (0.24 | ) | ||||||||
Adjusted Earnings Per Share—basic |
0.12 | 0.35 | 0.20 | 0.78 | ||||||||||||
Adjusted Earnings Per Share—diluted |
0.12 | 0.33 | 0.20 | 0.74 |
(1) | Consists of transaction expenses related to mergers and acquisitions, associated earn-outs, investor management fees, and costs related to preparation of the IPO. |
(2) | Consists of restructuring-related costs, including executive recruiting and severance charges, and lease termination costs and disposal of fixed assets related to our real estate consolidation efforts. During 2019 and 2020, we executed an extensive restructuring program, significantly strengthening our management team and creating a client-facing industry-specific Vertical organization. This program was completed by the end of 2020 and the final costs related to this program were incurred through the first quarter of 2021. Beginning in 2020, we began executing a virtual-first strategy, closing offices and reducing office space globally. We expect this real estate consolidation effort to be completed by the end of 2021. |
(3) | Includes costs related to technology modernization efforts. We believe that these costs are discrete and non-recurring in nature, as they relate to a one-time restructuring and decommissioning of our on-premise production systems and corporate technological infrastructure and the move to a managed service provider, decommissioning redundant fulfillment systems and modernizing internal functional systems. As such, they are not normal, recurring operating expenses and are not reflective of ongoing trends in the cost of doing business. The significant majority of these are related to the last two phases of Project Ignite, with the remainder related to an investment made to modernize internal functional systems in preparation for our public company infrastructure. |
(4) | Consists of non-recurring settlements impacting comparability. |
(5) | Consists of (gain) loss on interest rate swaps. See “—Quantitative and Qualitative Disclosures about Market Risk—Interest Rate Risk” for additional information on interest rate swaps. |
(6) | Consists of costs related to a local government mandate in India, (gain) loss on foreign currency transactions, impairment of capitalized software and other costs outside of the ordinary course of business. |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2020 |
2021 |
2020 |
2021 |
|||||||||||||
(in thousands) |
||||||||||||||||
Other |
||||||||||||||||
Government mandate |
$ | — | $ | — | $ | 1,291 | $ | — | ||||||||
(Gain) Loss on foreign currency transactions |
(439 | ) | 196 | (120 | ) | 1,316 | ||||||||||
Impairment of capitalized software |
— | — | 73 | 30 | ||||||||||||
Duplicate fulfillment charges |
— | — | (709 | ) | (521 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | (439 | ) | $ | 196 | $ | 535 | $ | 825 | |||||||
|
|
|
|
|
|
|
|
(7) | Effective tax rates of 26%, 13%, and 23% have been used to compute Adjusted Net Income for the 2020 periods, the three months ended September 30, 2021 and the nine months ended September 30, 2021, respectively. As of December 31, 2020, we had net operating loss carryforwards of approximately $120.6 million for federal, state, and foreign income tax purposes available to reduce future income subject to income taxes. 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. |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2020 |
2021 |
2020 |
2021 |
|||||||||||||
(in thousands, except share and per share amounts) |
||||||||||||||||
Net income (loss) |
$ | (10,386 | ) | $ | (25,256 | ) | $ | (51,233 | ) | $ | (21,231 | ) | ||||
Less: Undistributed amounts allocated to participating securities |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Undistributed (losses) earnings allocated to stockholders |
$ | (10,386 | ) | $ | (25,256 | ) | $ | (51,233 | ) | $ | (21,231 | ) | ||||
Weighted average number of shares outstanding – basic |
88,332,134 | 89,431,022 | 88,325,838 | 88,956,388 | ||||||||||||
Weighted average number of shares outstanding – diluted |
88,332,134 | 89,431,022 | 88,325,838 | 88,956,388 | ||||||||||||
Net income (loss) per share – basic |
$ | (0.12 | ) | $ | (0.28 | ) | $ | (0.58 | ) | $ | (0.24 | ) | ||||
Net income (loss) per share – diluted |
(0.12 | ) | (0.28 | ) | (0.58 | ) | (0.24 | ) | ||||||||
Adjusted Net Income |
$ | 10,983 | $ | 31,575 | $ | 17,517 | $ | 69,646 | ||||||||
Less: Undistributed amounts allocated to participating securities |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Undistributed (losses) earnings allocated to stockholders |
$ | 10,983 | $ | 31,575 | $ | 17,517 | $ | 69,646 | ||||||||
Weighted average number of shares outstanding – basic |
88,332,134 | 89,431,022 | 88,325,838 | 88,956,388 | ||||||||||||
Weighted average number of shares outstanding – diluted |
88,410,918 | 95,008, 310 | 88,377,154 | 93,532,785 | ||||||||||||
Adjusted earnings per share – basic |
$ | 0.12 | $ | 0.35 | $ | 0.20 | $ | 0.78 | ||||||||
Adjusted earnings per share – diluted |
0.12 | 0.33 | 0.20 | 0.74 |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2020 |
2021 |
2020 |
2021 |
|||||||||||||
Net income (loss) per share – diluted |
$ | (0.12 | ) | $ | (0.28 | ) | $ | (0.58 | ) | $ | (0.24 | ) | ||||
Adjusted Net Income adjustments per share |
||||||||||||||||
Income tax (benefit) expense |
0.06 | (0.12 | ) | 0.01 | (0.08 | ) | ||||||||||
Amortization of acquired intangible assets |
0.17 | 0.14 | 0.51 | 0.42 | ||||||||||||
Stock-based compensation |
0.01 | 0.27 | 0.02 | 0.29 | ||||||||||||
Transaction expenses(1) |
0.01 | 0.33 | 0.02 | 0.41 | ||||||||||||
Restructuring(2) |
0.01 | 0.01 | 0.08 | 0.05 | ||||||||||||
Technology Transformation(3) |
0.03 | 0.03 | 0.09 | 0.10 | ||||||||||||
Settlements impacting comparability(4) |
— | — | — | — | ||||||||||||
Loss/Gain on interest Swap(5) |
— | — | 0.11 | — | ||||||||||||
Other(6) |
— | — | 0.01 | 0.01 | ||||||||||||
Income tax effect(7) |
(0.04 | ) | (0.05 | ) | (0.07 | ) | (0.22 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted earnings per share – diluted |
$ | 0.12 | $ | 0.33 | $ | 0.20 | $ | 0.74 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average number of shares outstanding used in computation of Adjusted Diluted Earnings Per Share: |
||||||||||||||||
Weighted average number of shares outstanding – diluted (GAAP) |
88,332,134 | 89,431,022 | 88,325,838 | 88,956,388 | ||||||||||||
Options not included in weighted average number of shares outstanding – diluted (GAAP) (using treasury stock method) |
78,784 | 5,577,288 | 51,316 | 4,576,397 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average number of shares outstanding – diluted (non-GAAP) (using treasury stock method) |
88,410,918 | 95,008,310 | 88,377,154 | 93,532,785 | ||||||||||||
|
|
|
|
|
|
|
|
(1) | Consists of transaction expenses related to mergers and acquisitions, associated earn-outs, investor management fees, and costs related to preparation of the IPO. |
(2) | Consists of restructuring-related costs, including executive recruiting and severance charges, and lease termination costs and disposal of fixed assets related to our real estate consolidation efforts. During 2019 and 2020, we executed an extensive restructuring program, significantly strengthening our management team and creating a client-facing industry-specific Vertical organization. This program was completed by the end of 2020 and the final costs related to this program were incurred through the first quarter of 2021. Beginning in 2020, we began executing a virtual-first strategy, closing offices and reducing office space globally. We expect this real estate consolidation effort to be completed by the end of 2021. |
(3) | Includes costs related to technology modernization efforts. We believe that these costs are discrete and non-recurring in nature, as they relate to a one-time restructuring and decommissioning of our on-premise production systems and corporate technological infrastructure and the move to a managed service provider, decommissioning redundant fulfillment systems and modernizing internal functional systems. As such, they are not normal, recurring operating expenses and are not reflective of ongoing trends in the cost of doing business. The significant majority of these are related to the last two phases of Project Ignite, with the remainder related to an investment made to modernize internal functional systems in preparation for our public company infrastructure. |
(4) | Consists of non-recurring settlements impacting comparability. |
(5) | Consists of (gain) loss on interest rate swaps. See “—Quantitative and Qualitative Disclosures about Market Risk—Interest Rate Risk” for additional information on interest rate swaps. |
(6) | Consists of costs related to a local government mandate in India, (gain) loss on foreign currency transactions, impairment of capitalized software and other costs outside of the ordinary course of business. |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2020 |
2021 |
2020 |
2021 |
|||||||||||||
(in thousands) |
||||||||||||||||
Other |
||||||||||||||||
Government mandate |
$ | — | $ | — | $ | 1,291 | $ | — | ||||||||
(Gain) Loss on foreign currency transactions |
(439 | ) | 196 | (120 | ) | 1,316 | ||||||||||
Impairment of capitalized software |
— | — | 73 | 30 | ||||||||||||
Duplicate fulfillment charges |
— | — | (709 | ) | (521 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | (439 | ) | $ | 196 | $ | 535 | $ | 825 | |||||||
|
|
|
|
|
|
|
|
(7) | Effective tax rates of 26%, 13%, and 23% have been used to compute Adjusted Net Income for the 2020 periods, the three months ended September 30, 2021 and the nine months ended September 30, 2021, respectively. As of December 31, 2020, we had net operating loss carryforwards of approximately $120.6 million for federal, state, and foreign income tax purposes available to reduce future income subject to income taxes. 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. |
Nine Months Ended September 30, |
||||||||
2020 |
2021 |
|||||||
(in thousands) |
||||||||
Net cash provided by operating activities |
$ | 25,853 | $ | 38,926 | ||||
Net cash used in investing activities |
(12,849 | ) | (14,599 | ) | ||||
Net cash (used in) provided by financing activities |
(3,651 | ) | 102,300 | |||||
Increase in cash and cash equivalents |
9,353 | 126,627 | ||||||
Effect of exchange rate changes on cash |
(2,194 | ) | (863 | ) | ||||
Cash and cash equivalents at beginning of the period |
50,299 | 66,633 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of the period |
$ | 57,458 | $ | 192,397 | ||||
|
|
|
|
Nine Months Ended September 30, |
||||||||
(in thousands) |
2020 |
2021 |
||||||
Net Cash provided by Operating Activities |
$ | 25,853 | $ | 38,926 | ||||
|
|
|
|
|||||
Total IPO adjustments (1) |
— | 34,003 | ||||||
|
|
|
|
|||||
Purchases of intangible assets and capitalized software |
(11,250 | ) | (11,987 | ) | ||||
Purchases of property and equipment |
(1,835 | ) | (2,619 | ) | ||||
|
|
|
|
|||||
Adjusted Free Cash Flow |
$ | 12,768 | $ | 58,323 | ||||
|
|
|
|
(1) | Includes one-time, cash, non-operating charges related to the IPO. Costs included are $16.8 million of contractual compensation payments to former executives, of which, $15.6 million was funded by certain stockholders, $9.3 million final settlement of investor management fees in connection with the Fourth Amended and Restated Management Services Agreement, and $7.9 million related primarily to professional fees and other expenses. |
Exhibit No. |
Exhibit Description | |
32.1** | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2** | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS* | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the XBRL document. | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
* | Filed herewith. |
** | Furnished herewith. |
+ | Indicates a management contract or compensatory plan or arrangement. |
STERLING CHECK CORP. | ||
By: | /s/ Joshua Peirez | |
Joshua Peirez | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: November 10, 2021 | ||
By: | /s/ Peter Walker | |
Peter Walker | ||
Executive Vice President and Chief Financial Officer | ||
(Principal Financial Officer) | ||
Date: November 10, 2021 |