The preparation of financial statements in conformity with US GAAP requires management to make estimates and judgments that can affect the reported amount of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. 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 consolidated financial statements are reasonable; however, actual results could differ materially from these estimates.

Cash and cash equivalents of $66.6 million and $48.0 million at December 31, 2020 and 2021, respectively, include money market instruments with maturities of three months or less. The Company maintained cash outside the United States of approximately $29.4 million as of December 31, 2020, with the largest deposits being held in India and Canada, with balances of $10.3 million and $7.0 million, respectively.

Cash is deposited with major financial institutions and, at times, such balances with each financial institution may be in excess of insured limits. The Company has not experienced, and does not anticipate any losses with respect to its cash deposits. The Company performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on accounts receivable. For the years ended December 31, 2020 and 2021, no single customer comprised more than 10% of the Company’s revenue. No single customer had an accounts receivable balance greater than 10% of total accounts receivable at December 31, 2020 or 2021. The Company performs a risk assessment of all new vendors. For the years ended December 31, 2020 and 2021, New York State Office of Court Administration (“NYOCA”) comprised 13.9% and 12.6% of third-party vendor spend, respectively, and was the only vendor to account for more than 10%. As a government entity, NYOCA is considered low risk of service disruption.

Accounts receivable balances are comprised of trade receivables that are recorded at the invoiced amount, net of allowances for estimated doubtful accounts and for potential sales credits and reserves. Sales credits and reserves were $1.7 million and $0.4 million as of December 31, 2020 and 2021, respectively. Allowances for doubtful accounts were $1.9 million and $2.9 million as of December 31, 2020 and 2021, respectively. The allowance for doubtful accounts is determined by analyzing the Company’s historical write-offs, the current aging of receivables, the financial condition of customers and the general economic climate.


(in thousands)
Balance - December 31, 2018	$	1,014
Additions	709
Write-offs, net of recoveries	(297)
Foreign currency translation adjustment	9
Balance - December 31, 2019	$	1,435
Additions	432
Write-offs, net of recoveries	(101)
Foreign currency translation adjustment	95
Balance - December 31, 2020	1,861
Additions	1,169
Write-offs, net of recoveries	(210)
Foreign currency translation adjustment	129
Balance - December 31, 2021	$	2,949

Property and equipment are recorded at cost and depreciated on the straight-line method over their estimated useful lives. Furniture and fixtures are generally depreciated over a life of five to seven years and computers and equipment are generally depreciated over a life of three years. Leasehold improvements are amortized over the shorter of the useful life of the asset or the expected lease term. Maintenance and repairs that do not extend the useful life of an asset are charged to expense as incurred and improvements that extend the useful life of the related asset are capitalized.

The Company records business combinations using the acquisition method of accounting in accordance with the FASB’s Accounting Standards Codification Topic 805, “Business Combinations” (“ASC 805”). Under the acquisition method of accounting, identifiable assets acquired and liabilities assumed are recorded at their acquisition-date fair value. The excess of the purchase price over the estimated fair value is recorded as goodwill. Changes in the estimated fair values of net assets recorded for acquisitions based on management’s best estimates may result in adjustments to the amount of purchase price allocable to goodwill. Measurement period adjustments are reflected in the period in which they occur and may be made up to one year subsequent to the acquisition date should new information become available.

Goodwill represents the excess of purchase price over fair value of net assets of acquired entities and is tested for impairment annually or when certain triggering events require additional testing. Goodwill is predominantly a result of the acquisition of the Company by Goldman Sachs and CDPQ in June 2015. During the year ended December 31, 2021, the Company recorded $21.7 million of goodwill related to the acquisition of Employment Background Investigations, Inc. (“EBI”) on November 30, 2021 based on the preliminary purchase price allocation (see Note 4, “Acquisitions” for additional information). The Company performs a qualitative impairment test in November of each year using data as of October 31 to determine whether it is more likely than not that the fair value of the reporting unit exceeds its carrying value. If necessary, after the qualitative assessment, the Company will perform a quantitative goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment loss is recognized if the carrying amount of the reporting unit exceeds its fair value. Based on the results of the qualitative assessments, no impairment loss was recognized for the years ended December 31, 2019, 2020 and 2021.

Definite-lived intangible assets consist of intangibles acquired through acquisition and the costs of developing internal-use software. They are reported net of amortization and are amortized on a straight-line basis over their estimated useful lives. Customer lists are amortized using an accelerated method of amortization, using a pattern that reflects when the economic benefits are expected to be realized. Cost of acquisition, renewal and extension of intangible assets are capitalized. There are no significant renewal or

Long-lived assets consist of property and equipment and definite-lived intangible assets. The Company regularly evaluates whether events and circumstances have occurred that indicate that the carrying amount of property and equipment and definite-lived intangible assets may not be recoverable. Conditions that could indicate that an impairment assessment is needed include a significant decline in the observable market value of an asset or asset group, a significant change in the extent or manner in which an asset or asset group is used, or a significant adverse change that would indicate that the carrying amount of an asset or asset group is not recoverable. When factors indicate that a long-lived asset or asset group should be evaluated for possible impairment, the Company assesses the potential impairment by determining whether the carrying value of such long-lived asset or asset group will be recovered through the future undiscounted cash flows expected from use of the asset or asset group and its eventual disposition. If the carrying amount of the asset or asset group is determined not to be recoverable, an impairment charge is recorded based on the excess, if any, of the carrying amount over fair value. Fair values are determined based on quoted market values or discounted cash flows analyses as applicable. The Company regularly evaluates whether events and circumstances have occurred that indicate the useful lives of property and equipment and definite-life intangible assets may warrant revision to reflect that the period of economic benefit has changed. Based on a quantitative assessment of the carrying values, the Company recorded an impairment loss related to abandonment of capitalized software costs and property and equipment no longer in use due to office closures, in the amount of $3.2 million, $1.8 million and $3.3 million during the years ended December 31, 2019, 2020 and 2021, respectively.

Deferred financing costs consist of costs associated with borrowing funds under the Company’s revolving credit agreement. Such costs are capitalized as other non-current assets on the Consolidated Balance Sheets and amortized over the expected life of the related debt using the straight-line method to Interest expense, net in the Consolidated Statements of Operations and Comprehensive Loss. Upon discharge of the related indebtedness, any unamortized deferred financing costs are fully expensed to interest expense. Refer to Note 8, “Debt” for further discussion of the Company’s credit facilities and debt obligations.

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and with the use of financial derivative instruments.

Specifically, certain of the Company’s foreign operations expose the Company to fluctuations of foreign exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The Company enters into financial derivative instruments to protect the value or fix the amount of certain expenses in terms of its functional currency, the USD.

The Company also enters into financial derivative instruments to manage exposures that arise from business activities that result in payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s financial derivative instruments are used to manage differences in the amount, timing and duration of the Company’s expected cash payments principally related to the Company’s borrowings.

Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

Debt issuance costs consist of fees paid directly to lenders from whom funds are borrowed and third-party costs incurred to obtain the Company’s long-term debt. These fees are amortized over the life of the related debt using the effective interest rate method. The amounts of unamortized issuance costs are netted against the outstanding balance of the Company’s debt obligations on the Company’s Consolidated Balance Sheets. Upon discharge of the indebtedness, any unamortized debt discounts are expensed. Refer to Note 8, “Debt,” for further discussion of the Company’s credit facilities and debt obligations.

Assets and liabilities of operations having non-USD functional currencies are translated at year-end exchange rates, and income statement accounts are translated at weighted average exchange rates for the year. Gains or losses resulting from translating foreign currency financial statements, net of any related tax effects, are reflected in Accumulated other comprehensive (loss) income, a separate component of stockholders’ equity. Gains or losses resulting from foreign currency transactions incurred in currencies other than the local functional currency are included in Other income on the Consolidated Statements of Operations and Comprehensive Loss. The cumulative translation adjustment was $0.1 million and $(0.6) million as of December 31, 2020 and 2021, respectively.

The Company adopted the revenue standard set forth under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”) as of January 1, 2019 using the modified retrospective approach and as such, applied the new revenue standard only to contracts that were not completed at the January 1, 2019 adoption date and did not adjust prior reporting periods. The adoption of ASC 606 did not materially change the Company’s revenue recognition as substantially all of its revenue is transaction based and delivered at a point in time. An adjustment to accumulated deficit of $5.5 million, net of tax, was recorded within the Consolidated Balance Sheets at January 1, 2019 to reflect changes in revenue recognition related to the adoption of ASC 606 under the modified retrospective approach. In accordance with ASC 606, revenue is recognized 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 can be determined. 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 report and the customer takes control of the product when the screening 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 years ended December 31, 2019, 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. 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

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.

Incremental costs of obtaining a contract with a customer are recognized as an asset if the benefit of such costs is expected to be longer than one year, with a majority of contracts being multi-year. Incremental costs include commissions to the sales force and are amortized over three years, as management estimates that this corresponds to the period over which a customer benefits from the contract.

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. During the first half of 2021, the Company completed phase two related to the migration of its production and fulfillment systems to the cloud, and as a result, over 95% of revenue is 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 substantially 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 substantially 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.

Accumulated other comprehensive (loss) income includes Net income (loss) and Other comprehensive (loss) income. Other comprehensive (loss) income refers to revenue, expenses, gains, and losses that, under US GAAP, are recorded as an element of stockholders’ equity but are excluded from net income (loss). Other comprehensive (loss) income consists of unrealized gains and losses on foreign currency forward contracts that qualify for hedge accounting and foreign currency translation adjustments, net of taxes.

Stock-based compensation is measured at the grant date, based on the fair value of the awards, and is generally expensed over the requisite service period of the award using the “graded-vesting method,” which recognizes compensation costs over the requisite service period for each separately vesting tranche of an award as though the award was, in substance, multiple awards unless the award qualifies as a performance-based award which is only expensed at the time the defined performance obligation is met (see Note 14, “Stock-Based Compensation” for additional information). The Company’s 2021 Omnibus Incentive Plan generally provides for stock options, restricted stock awards and restricted stock units to vest over a 4-year period, unless otherwise stated in an individual award agreement. Continued employment is a prerequisite for vesting. Stock-based compensation expense is recorded for each tranche of an award and is recorded over the defined vesting period in selling, general and administrative expense in the statements of operations and comprehensive income (loss).

The Company estimates the fair value of stock-based compensation awards at grant date using the Black-Scholes pricing model for stock options. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive equity awards. The determination of the grant date fair value of stock option awards issued is affected by a number of variables, including the fair value of the Company’s common stock, the expected common stock price volatility over the expected life of the options, the expected term of the options, risk-free interest rates, and the expected dividend yield of the Company’s shares. The Company estimates the fair value of stock-based compensation awards at grant date using the prior day’s closing stock price for restricted stock awards and restricted stock units.

At December 31, 2020 and 2021, liabilities for estimated state sales taxes in the U.S. totaling $6.5 million and $7.3 million, respectively, were included in Other current liabilities on the balance sheet. These estimates include the liability for both uncollected sales tax and interest. The calculation of these estimates involves judgment and uncertainty regarding various state sales tax laws and there is a possibility that a particular state in which the Company has estimated a liability will disagree with the Company’s assessment. It is also possible that a state in which the Company has determined it does not have a liability will disagree with such evaluation and assess a retroactive liability for uncollected sales tax. Based on the Company’s assessment, it does not expect the resolution of these liabilities to have a material effect on its results of operations or cash flows.

Deferred income tax assets and liabilities are recorded with respect to temporary differences between financial reporting and income taxes using enacted tax rates. These amounts are recognized when there is a more likely than not position that the deferred income tax assets will be realized. A valuation allowance is established when it is more likely than not that all or some portion of the deferred income tax assets will not be realized. Significant judgment is required to evaluate the current tax positions and adjustments are considered when there are changes in tax laws, regulations and interpretations. Recognized tax positions are measured at

the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement. Evaluations are consistently performed regarding the likelihood and amount of potential adjustments that impact the Company’s tax positions. The income tax provision will be adjusted accordingly in the period in which the facts that give rise to the change in estimate become known. See Note 11, “Income Taxes” for more information about the Company’s income taxes.

The Company applies the two-class method for calculating net loss per share. The two-class method is an allocation of earnings between the holders of common stock and a company’s participating securities. The Company’s participating securities include shares of common stock granted to employees in exchange for a non-recourse promissory note. The shares of common stock granted were treated as fully vested outstanding stock options until the promissory notes were forgiven in August of 2021 (see Note 14, “Stock-Based Compensation” for additional information). These awards contain the same rights to distributions declared on the Company’s common stock but do not have a contractual obligation to share in the Company’s losses, and as a result, the Company’s net losses were not allocated to these participating securities in periods with net losses. Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted weighted-average shares outstanding and diluted net income are adjusted based on the potential impact of dilutive securities. For periods in which the Company has reported net losses, diluted net loss per share is the same as basic net loss per share because dilutive shares of common stock are not assumed to have been issued if their effect is anti-dilutive.

Certain financial assets and liabilities are reported at fair value in the accompanying consolidated balance sheets in accordance with ASC 820, “Fair Value Measurements and Disclosures,” which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2020 and 2021. The carrying values of the Company’s financial instruments, including, cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values due to the short-term maturities of these financial instruments.