S-1/A 1 d147929ds1a.htm S-1/A S-1/A
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As filed with the Securities and Exchange Commission on June 14, 2021

Registration No. 333-256622

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

First Advantage Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   7374   84-3884690

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

 

 

1 Concourse Parkway NE, Suite 200

Atlanta, Georgia 30328

(888) 314-9761

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Bret T. Jardine

Executive Vice President, General Counsel

First Advantage Corporation

1 Concourse Parkway NE, Suite 200

Atlanta, Georgia 30328

(888) 314-9761

(Name, address, including zip code, and telephone number, including area code, of registrant’s agent for service)

 

 

With copies to:

 

Kenneth B. Wallach, Esq.

Xiaohui (Hui) Lin, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

(212) 455-2000

 

Alan F. Denenberg, Esq.

Davis Polk & Wardwell LLP

1600 El Camino Real

Menlo Park, California 94025

(650) 752-2000

 

John G. Crowley, Esq.

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, New York 10017

(212) 450-4000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of
Securities to be Registered
 

Amount to

be Registered(1)

  Proposed Maximum
Aggregate Offering
Price Per Share(2)
 

Proposed

Maximum

Aggregate

Offering Price(1)(2)

  Amount of
Registration Fee(3)

Common Stock, $0.001 par value per share

  24,437,500   $15.00(2)   $366,562,500   $39,991.97

 

 

 

(1)

Includes 3,187,500 shares of common stock that the underwriters have the option to purchase. See “Underwriting (Conflicts of Interest).”

(2)

Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) promulgated under the Securities Act of 1933, as amended.

(3)

The Registrant previously paid $10,910 of the registration fee, with respect to $100,000,000 of the proposed maximum aggregate offering price, in connection with the initial filing of this registration statement.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor a solicitation of an offer to buy these securities in any jurisdiction where the offer and sale is not permitted.

 

Subject to completion, dated June 14, 2021

Preliminary Prospectus

21,250,000 Shares

 

LOGO

FIRST ADVANTAGE CORPORATION

Common Stock

 

 

This is the initial public offering of common stock of First Advantage Corporation. We are offering 17,750,000 shares of common stock and the selling stockholders named in this prospectus, including members of management, are offering 3,500,000 shares of common stock. We will not receive any proceeds from the sale of our common stock by the selling stockholders.

Prior to this offering, there has been no public market for our common stock. We expect that the initial public offering price of our common stock will be between $13.00 and $15.00 per share. We have applied to list our common stock on the Nasdaq Global Select Market under the symbol “FA.”

We are an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, or the Securities Act, and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. Following this offering, Silver Lake, as we refer to these investors in this prospectus, will control 76.9% (or 75.3% if the underwriters exercise in full their option to purchase additional shares of our common stock) of the voting power of our shares eligible to vote in the election of our directors. As a result, we will qualify as a “controlled company” within the meaning of the corporate governance standards of Nasdaq Global Select Market but do not currently intend to avail ourselves of the related exemptions from certain corporate governance requirements. See “Management—Controlled Company Exemption.”

 

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 19 to read about factors you should consider before buying shares of our common stock.

 

 

Neither the Securities and Exchange Commission, or the SEC, nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

     Per share      Total  

Initial public offering price

   $        $    

Underwriting discounts and commissions(1)

   $        $    

Proceeds, before expenses, to us

   $        $    

Proceeds, before expenses, to the selling stockholders

   $                    $                

 

(1)

See “Underwriting (Conflicts of Interest)” for additional information regarding underwriting compensation.

To the extent that the underwriters sell more than 21,250,000 shares of our common stock, the underwriters have the option, for a period of 30 days from the date of this prospectus, to purchase up to 2,662,500 additional shares of common stock from us and 525,000 additional shares of common stock from the selling stockholders. We will not receive any proceeds from the sale of our common stock by the selling stockholders pursuant to any exercise of the underwriters’ option to purchase additional shares.

The underwriters expect to deliver the shares against payment in New York, New York on or about                 , 2021.

 

 

 

  (in alphabetical order)                                                 
Barclays   BofA Securities   J.P. Morgan

 

Citigroup

  Evercore ISI   Jefferies   RBC Capital Markets   Stifel   HSBC

 

Citizens Capital Markets   KKR   MUFG  

Loop

Capital Markets

  R. Seelaus & Co., LLC  

Ramirez &

Co., Inc.

  Roberts & Ryan

            , 2021


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LOGO

First Advantage


Table of Contents

LOGO

30K Customers in 2020 75M Screens in 2020 600+ Integrated and/or Automated Data Providers 480M+ Records in Proprietary Databases Human Capital Management Software Integrations


Table of Contents

TABLE OF CONTENTS

 

     Page  

Industry and Market Data

     ii  

Trademarks, Service Marks, and Tradenames

     ii  

Basis of Presentation

     ii  

Non-GAAP Financial Measures

     iii  

Summary

     1  

Risk Factors

     19  

Forward-Looking Statements

     47  

Use of Proceeds

     49  

Dividend Policy

     50  

Capitalization

     51  

Unaudited Pro Forma Consolidated Financial Information

     53  

Dilution

     65  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     67  

Business

     103  

Management

     120  

Executive Compensation

     126  

Certain Relationships and Related Party Transactions

     145  

Principal and Selling Stockholders

     147  

Description of Capital Stock

     149  

Shares Eligible for Future Sale

     157  

Certain United States Federal Income Tax Consequences to Non-U.S. Holders

     159  

Underwriting (Conflicts of Interest)

     162  

Legal Matters

     171  

Experts

     171  

Where You Can Find More Information

     171  

Index to Financial Statements

     F-1  

 

 

You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. Neither we nor the underwriters have authorized anyone to provide you with different information. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus, or any free writing prospectus, as the case may be, or any sale of shares of our common stock.

For investors outside the United States: we are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.

 

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INDUSTRY AND MARKET DATA

This prospectus contains information and statistics that we have obtained from various independent third-party sources, including independent industry publications, reports by market research firms, and other independent sources. This prospectus also contains information from a survey commissioned by us and conducted by Stax Inc., or Stax, a global management consulting firm, in March 2021 to provide information on our market. Certain data and other information contained in this prospectus, including information with respect to our market position, are also based on management’s estimates and calculations, which are derived from our review and interpretation of internal surveys and third-party sources. Data regarding the industries in which we compete and our market position and market share within these industries are inherently imprecise, require the making of certain assumptions and are subject to significant business, economic and competitive uncertainties beyond our control, but we believe they generally indicate size, position and market share within these industries. Statements regarding the Company’s leading position are based on market share as calculated by revenue. While we believe such information is reliable, we have not independently verified any third-party information and our internal data has not been verified by any independent source. While we believe our internal company research and estimates are reliable, such research and estimates have not been verified by any independent source. In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Forward-Looking Statements.” As a result, you should be aware that market, ranking, and other similar industry data included in this prospectus, and estimates and beliefs based on that data may not be reliable. Neither we nor the underwriters can guarantee the accuracy or completeness of any such information contained in this prospectus.

TRADEMARKS, SERVICE MARKS, AND TRADENAMES

We own a number of registered and common law trademarks and pending applications for trademark registrations in the United States and other countries, including, for example: First Advantage, Profile Advantage, Enterprise Advantage, Insight Advantage, Verified!, HEAL, Roadready, and Residential Advantage, among others. Unless otherwise indicated, all trademarks, tradenames, and service marks appearing in this prospectus are proprietary to us, our affiliates, and/or licensors. This prospectus also contains trademarks, tradenames, and service marks of other companies, which are the property of their respective owners. Solely for convenience, the trademarks, tradenames, and service marks referred to in this prospectus may appear without the ® and symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, tradenames, and service marks. We do not intend our use or display of other parties’ trademarks, tradenames, or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

BASIS OF PRESENTATION

The following terms are used in this prospectus unless otherwise noted or indicated by the context:

 

   

“Enterprise customers” means our customers who contribute $500,000 or more to our revenues in a calendar year;

 

   

“First Advantage,” the “Company,” “we,” “us,” and “our” mean the business of First Advantage Corporation and its subsidiaries;

 

   

“gross retention rate” for the current year is a percentage, where the numerator is prior year revenues less the revenue impact of lost accounts; the denominator is prior year revenues. We calculate the revenue impact of lost accounts as the difference between the customer’s current year and prior year revenues for the months after which they are identified as lost. Therefore, the attrition impact of customers lost in the current year may be partially captured in both the current and following years’ retention rates depending on what point during the year they are lost. Our retention rate does not factor in revenue impact, whether growth or decline, attributable to existing customers or the incremental revenue impact of new customers;

 

   

“pro forma” or “pro forma basis” means giving effect to this offering and the Silver Lake Transaction and the related financing, which occurred on January 31, 2020 and is further described below; and

 

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“Silver Lake” or “Sponsor” mean Silver Lake Group, L.L.C., together with its affiliates, successors and assignees.

On January 31, 2020, the Sponsor acquired substantially all of the equity interests of the Company from Symphony Technology Group (“STG”) pursuant to an Agreement and Plan of Merger, dated as of November 19, 2019 (the “Silver Lake Transaction”). For the purposes of the consolidated financial data included in this prospectus, periods on or prior to January 31, 2020 reflect the financial position, results of operations, and cash flows of the Company and its consolidated subsidiaries prior to the Silver Lake Transaction, referred to herein as the Predecessor, and periods beginning after January 31, 2020 reflect the financial position, results of operations and cash flows of the Company and its consolidated subsidiaries as a result of the Silver Lake Transaction, referred to herein as the Successor. As a result of the Silver Lake Transaction, the results of operations and financial position of the Predecessor and Successor are not directly comparable.

Numerical figures included in this prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.

NON-GAAP FINANCIAL MEASURES

This prospectus contains “non-GAAP financial measures” that are financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measures calculated and presented in accordance with accounting principles generally accepted in the United States, or GAAP. Specifically, we make use of the non-GAAP financial measures “Adjusted EBITDA,” “Adjusted EBITDA Margin,” and “Adjusted Net Income.”

Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Net Income have been presented in this prospectus as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Net Income are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate, and capital investments. Management uses Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Net Income to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation, and to compare our performance against that of other peer companies using similar measures. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.

Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Net Income are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) as a measure of financial performance or cash provided by (used in) operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. Additionally, these measures are not intended to be a measure of free cash flow available for management’s discretionary use as they do not consider certain cash requirements such as interest payments, tax payments, and debt service requirements. The presentations of these measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, the presentations of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company. For a discussion of the use of these measures and a reconciliation of the most directly comparable GAAP measures, see “Summary—Summary Historical and Pro Forma Consolidated Financial and Other Data.”

 

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SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. You should read the entire prospectus carefully, including “Risk Factors” and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties.

Our Company

First Advantage is a leading global provider of technology solutions for screening, verifications, safety, and compliance related to human capital. We deliver innovative solutions and insights that help our customers manage risk and hire the best talent. Enabled by our proprietary technology platform, our products and solutions help companies protect their brands and provide safe environments for their customers and their most important resources: employees, contractors, contingent workers, tenants, and drivers.

We manage one of the earliest and most important interactions between an applicant and our customer. Indeed, most applicants view their screening experience as a reflection of the hiring organization and its overall onboarding process. Our comprehensive product suite includes Criminal Background Checks, Drug / Health Screening, Extended Workforce Screening, Biometrics & Identity, Education / Work Verifications, Resident Screening, Fleet / Driver Compliance, Executive Screening, Data Analytics, Continuous Monitoring, Social Media Monitoring, and Hiring Tax Incentives. We derive a substantial majority of our revenues from pre-onboarding screening and perform screening in over 200 countries and territories, enabling us to serve as a one-stop-shop provider to both multinational companies and growth companies. In 2020, we performed over 75 million screens on behalf of more than 30,000 customers spanning the globe and all major industry verticals. We often have multiple constituents within our customers, including Executive Management, Human Resources, Talent Acquisition, Compliance, Risk, Legal, Safety, and Vendor Management, who rely on our products and solutions.

Our long-standing, blue-chip customer relationships include five of the U.S.’s top ten private sector employers, 55% of the Fortune 100, and approximately one-third of the Fortune 500. We have successfully gained market share by focusing on fast-growing industries and companies, increasing our share with existing customers, upselling and cross-selling new products and solutions, and winning new customers.

Our verticalized go-to-market strategy delivers highly relevant solutions for various industry sectors. This approach enables us to build a diversified customer portfolio and effectively serve many of the largest, most sophisticated, and fastest-growing companies in the world. We have built a powerful and efficient customer-centric sales model fueled by frequent engagement with our customers and deep subject matter expertise in industry-specific compliance and regulatory requirements, which allows us to create tailored solutions and drive consistent upsell and cross-sell opportunities. Our sales engine is powered by over 100 dedicated Sales and Solutions Engineering professionals working alongside over 200 dedicated Customer Success team members who have successfully maintained high customer satisfaction, retention, and growth, as evidenced by our industry-leading net promoter score (“NPS”), average 12-year tenure of our top 100 customers, and gross retention rate of approximately 95%, before factoring in growth or decline from existing or new customers. Our go-to-market strategy continues to drive particular strength with Enterprise customers in sectors with attractive secular trends such as e-commerce, essential retail, transportation and home delivery, warehousing, healthcare, technology, and staffing.

We have designed our technology platform to be highly configurable, scalable, and extensible. Our platform is embedded in our customers’ core enterprise workflows and interfaces with more than 65 third-party Human



 

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Capital Management (“HCM”) software platforms, including Applicant Tracking Systems (“ATS”), providing us with real-time visibility and input into our customers’ human resources processes. We leverage our proprietary databases—which include more than 480 million criminal and work history observations—and an extensive and highly curated network of more than 600 automated and/or integrated third-party data providers. These data providers include federal, state, and local government entities; court runners; drug and health testing labs and collection sites; credit bureaus; and education and work history verification providers. Our platform efficiently and intelligently integrates data from these proprietary internal databases as well as external data sources using automation, APIs, and machine learning. Our investments in robotic process automation (“RPA”), including 2,200 bots currently deployed, enable our rapid turnaround times. For example, in 2020 alone, our technology innovations drove a 10% improvement in average turnaround time for our criminal searches in the United States. Our platform prioritizes data privacy and compliance and is powered by a rigorous, automated compliance rules engine. This enables us to address each customer’s unique requirements in an efficient and automated manner while also ensuring compliance with complex data usage guidelines and regulatory requirements across global jurisdictions, industry-specific regulatory frameworks, and use cases.

Our focus on innovative products and technologies has been critical to our growth. Using agile software development methodologies, we have consistently enhanced existing products and been early to market with new and innovative products, including offerings for biometrics and identity, continuous criminal monitoring, driver onboarding, extended workforce screening, instant oral drug testing, and virtual drug testing. In addition, we continue to expand our proprietary databases that extend our competitive advantage, enhance turnaround times for customers, and offer potential future monetization upside opportunities. Our proprietary databases consist of hundreds of millions of criminal, education, and work history records. These strategic assets amassed and curated over the course of many years improve screening turnaround times and significantly reduce costs by using our internal data sources before accessing third-party data sources.

We have a strong track record of increasing market share, growing revenues, and expanding profit margins in recent years:

 

   

Our large, Enterprise customers have increased from 122 companies at the beginning of 2018 to 141 at the end of 2020.

 

   

From 2018 to 2020 and despite the impact of COVID-19 on the macroeconomic environment, our revenues grew at a compound annual growth rate (“CAGR”) of 7%, all of which was organic growth from new customer wins or growth within our existing customer base. Our gross retention rate averaged approximately 95% over those three years.

 

   

We generated net income of $34 million for the year ended December 31, 2019, and a net loss of $(60) million for the year ended December 31, 2020, on a pro forma basis to give effect to this offering and the Silver Lake Transaction. We generated a net loss of $(45) million for the three months ended March 31, 2020 on a pro forma basis to give effect to this offering and the Silver Lake Transaction, and a net loss of $(19) million for the three months ended March 31, 2021.

 

   

Our Adjusted EBITDA was $124 million for the year ended December 31, 2019. Our Adjusted EBITDA for the year ended December 31, 2020, on a pro forma basis to give effect to this offering and the Silver Lake Transaction, was $147 million. Our Adjusted EBITDA was $27 million for the three months ended March 31, 2020 on a pro forma basis to give effect to this offering and the Silver Lake Transaction, and $37 million for the three months ended March 31, 2021.

 

   

Driven by scale, automation, and operational discipline, our Adjusted EBITDA Margins expanded, resulting in an Adjusted EBITDA CAGR of 21% from 2018 to 2020, on a pro forma basis to give effect to this offering and the Silver Lake Transaction.



 

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For more information about how we calculate Adjusted EBITDA, please see footnote (1) in “—Summary Historical and Pro Forma Consolidated Financial and Other Data—Adjusted EBITDA.”

Our Market Opportunity

The importance of human capital and its associated risks to brand, reputation, safety, and compliance are ever-increasing in today’s interconnected, fast-paced world. Along with broader environmental, social, and governance (“ESG”) considerations, these issues increasingly have become priorities at the highest executive and oversight levels of our customers worldwide. Key constituents, including C-Suite executives, boards of directors, external auditors, business owners, property managers, educators, volunteer organizations, and franchisors all face a heightened level of public scrutiny and accountability. Significant technological and societal trends include fraud and cyber-attacks; sexual harassment and workplace violence; and the prevalence of social media impacting companies’ brands. These have driven a significant increase in the need for screening, verifications, and ongoing monitoring. Our products and solutions have become critical tools that companies depend on to provide safe environments for their customers and workers, maintain regulatory compliance, and protect their property, reputation, and brands.

According to Stax, a global management consulting firm, the global Total Addressable Market (“TAM”) for our current products and solutions is approximately $13 billion. This includes $6 billion of current market spend and $7 billion of whitespace attributable to products and solutions may ultimately be adopted across geographies. The estimated TAM includes a $5 billion market opportunity for U.S. pre-onboarding screening; a $4 billion market for U.S. post-onboarding monitoring, resident screening, hiring tax credits, and fleet / vehicle solutions; and a $4 billion market for international pre-onboarding screening and post-onboarding monitoring. In addition, according to Stax, current market spend will grow at a long-term CAGR of 6%, fueled by increases in hiring and job churn, growing attachment rates for existing products, accelerating adoption of post-onboarding and adjacent products in the U.S., and growing overall adoption in underpenetrated international markets. Our market is also fragmented, with the top three background screening providers constituting only one-third of the market according to Stax, providing ample opportunities for us to continue to increase market share.

We believe several key trends are generating significant growth opportunities in our markets and increasing demand for our products and solutions:

 

   

Increased Workforce Mobility and Job Turnover: Millennials represented over one-third of the U.S. workforce in 2020 and are three times as likely to change jobs as other generations in pursuit of earning higher wages, faster career development, and better workplace culture fit. In addition, as the economy evolves and resource needs differ significantly by sector, geography, and skill set, this is driving dynamism in the hiring environment.

 

   

Increasing Use of Contingent and Flexible Workforces: Approximately 25-30% of the U.S. workforce are contingent workers, including freelancers, independent contractors, consultants, or other outsourced and non-permanent workers, and a majority of large corporations plan to substantially increase their use of a flexible workforce. When independent contractors, external consultants, and temporary workers have access to sensitive information, company facilities, or directly interact with customers, it is important for companies to screen such flexible workforce personnel diligently.

 

   

C-Suite Focus on Safety and Reputational Risks: Screening, verifications, and compliance are mission-critical and are becoming boardroom priorities for many companies due to the brand risks and potential legal liability of hiring high-risk workers. A number of high-profile human capital-related issues have led to significant brand damage, diversion of management attention, litigation, and negative news and social media coverage for enterprises in recent years. These events reinforced the importance of our products and solutions. According to a fact sheet from the Occupational Safety and Health



 

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Administration, approximately two million American workers are victims of workplace violence each year. Companies are increasingly expanding human resources and compliance budgets on products and solutions that help manage their potential risks and improve safety. By enhancing workplace safety, we address important social factors affecting our customers.

 

   

Heightened Regulatory and Compliance Scrutiny: Businesses today are under intense scrutiny to comply with an ever-expanding and evolving set of global regulatory requirements that can vary by geography, industry vertical, and use case. Examples include the Foreign Corrupt Practices Act (“FCPA”), the United Kingdom Bribery Act, Fair Credit Reporting Act (“FCRA”), California Consumer Privacy Act (“CCPA”), E.U. General Data Protection Regulation (“GDPR”), the United Kingdom General Data Protection Regulation (“U.K. GDPR”), Illinois Biometric Information Privacy Act (“IBIPA”), in addition to other anti-corruption requirements with respect to anti-money laundering and politically exposed persons. These requirements are driving many companies to perform more extensive and exhaustive checks and to partner with screening providers that have the scale, scope, heightened compliance standards, and auditability that they require. Our products and solutions help strengthen companies’ corporate governance through bolstering their compliance and risk management practices.

 

   

Growth in Post-Onboarding Monitoring: Companies are increasingly expanding their screening programs beyond a “one-and-done” pre-onboarding measure, which has historically been the norm in markets like the U.S. and U.K. We have invested in and continue to innovate our post-onboarding products and solutions and believe we are well-positioned to capture share in this growing market.

 

   

Development of International Markets: Background screening penetration remains low in most international geographies, with a large portion of screens conducted by unsophisticated, local providers. Multinational companies are increasingly focused on systematizing and elevating their human resources policies, screening procedures, and providers globally, driving greater demand and a shift towards high-quality, compliant, and global screening providers. In addition, many non-U.S.-based companies are initiating screening programs for the first time and are seeking reliable, compliant, and high quality providers.

 

   

Investment in Enterprise Software: Companies are increasingly investing in enterprise software to manage their businesses, including next-generation software-as-a-service solutions for Human Capital Management (“HCM”). As companies implement these systems, we believe there will be an increase in demand for screening, verification, and compliance solutions that can interface with these systems in an automated fashion to provide a seamless applicant and user experience and insights based on data analytics.

 

   

Proliferation of Relevant Data Sources: U.S. government agencies, third-party vendors, and professional organizations are increasingly tracking and improving the quality and digitization of data in areas such as criminal, education, income history, healthcare credentials, and motor vehicle records (“MVRs”). In many other countries with limited quality and availability of reliable data, the collection, and organization of higher quality datasets has been increasing. This increasing availability of data is driving customers to rely on large-scale, sophisticated providers that can efficiently access and create insights from data sourced, aggregated, and integrated from myriad disparate sources.

 

   

Advances in Analytics to Increase Value of Data: The increasing accessibility of robust datasets supplemented by machine learning technologies is driving heightened focus on integrating screening insights and dashboards with human resources, compliance, and security workflows. Customers often lack internal resources to develop such analytical and visualization tools, increasing demand for providers that offer these cutting-edge integrated data analytics capabilities.



 

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Our Competitive Strengths

We believe the following competitive strengths have been instrumental in our success and position us for future growth:

 

   

Market Leadership Built on Outstanding Customer Experience. We believe our relentless customer focus, comprehensive end-to-end product suite, advanced technology platform, proprietary databases, and intuitive consumer feel of our applications allow us to provide a differentiated value proposition and have been instrumental in establishing our market leadership. The strength of our value proposition and customer relationships are evidenced by our approximately 95% average gross retention rate from 2018 to 2020, our industry-leading NPS, and the average 12-year tenure of our top 100 customers.

 

   

Verticalized Go-to-Market Engine and Products. Our Sales and Customer Success teams are organized by industry vertical with extensive subject-matter expertise. A deep understanding of industry-specific issues enables our Sales and Customer Success teams to upsell and cross-sell relevant products and drives rapid development of value-added, industry-specific solutions. Customer Advisory Boards, standardized customer reviews, product showcases, and continuous feedback loops across Sales, Customer Success, Product, and other functional areas, enable us to identify quickly, develop, and launch new products and solutions. We have intentionally designed our technology platform to be highly flexible, allowing our customers to configure our solutions to meet their unique requirements. For example, our home delivery companies can draw upon a tailored suite of products, including motor vehicle records monitoring, Department of Transportation (“DOT”) compliance checks, and fleet management products. We have deliberately built competencies around industry verticals that we believe are well-positioned for long-term growth, including e-commerce, essential retail, transportation and home delivery, warehousing, healthcare, technology, and staffing.

 

   

Leading Technology & Analytics Drive Customer Value Proposition. Our strategic investments in technologies such as robotic process automation, artificial intelligence, facial recognition, and machine learning enable us to deliver superior risk management solutions with exceptional speed, accuracy, and value to our customers. Our full product suite is available on our core platform, Enterprise Advantage, which can handle large-scale order volumes with an average of 99.9% uptime. Our AI-powered applicant experience, Profile Advantage, offers an intuitive user interface with chatbots, digital camera-enabled document uploads, and embedded machine learning to reduce missing information dramatically and compress the timeframe of the entire application process. Since Profile Advantage manages a critical interaction between our customers and their applicants, we offer our customers the option to white-label the product as an extension of their own brand, enhancing applicant engagement and satisfaction during the onboarding process. We also deliver value to customers through robust analytics solutions that allow them to aggregate, analyze, and act on recruitment and screening data in real-time. This allows our customers to derive actionable insights and make critical and informed decisions to improve the performance of their organization’s recruitment, onboarding, safety, and screening programs.

 

   

Product and Compliance Strength Across Geographies. Our global presence allows us to meet the demands of multinational customers that operate in a variety of complex regulatory and compliance regimes, such as FCRA, GDPR, DOT, data privacy regulatory changes, country-specific labor laws, and right-to-work laws. The highly fragmented international screening market historically has resulted in companies relying on multiple providers across geographies, making it difficult for them to ensure consistent and compliant global workforce standards. We have built differentiated product depth, compliance expertise, and geographic coverage, which allow our customers to unify screening programs across 200 countries and territories. In addition, we are also one of the best-suited partners to help U.S. businesses screen candidates with international backgrounds, given our access to data and



 

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ability to perform verifications internationally. Our customers turn to us as an important partner in ensuring strong corporate governance across their geographies.

 

   

Technology-Driven Operational Excellence and Profitability. Our technology drives significant operating efficiencies by leveraging automation and end-to-end integrations that enable us to achieve the highest customer satisfaction for quality, accuracy, and turnaround time performance, which are customers’ top provider selection criteria, while maintaining strong margins. Our user-facing front-end technology creates a superior applicant experience. Our back-end technology drives operational excellence, with 2,200 active intelligent bots yielding significant improvements in speed, accuracy, and cost savings. The intelligent bots have enabled us to improve the average turnaround time for criminal searches in the U.S. by over 10% from 2019 to 2020. Driven by these efficiency gains, we achieved more than 600 basis points of Adjusted EBITDA Margin expansion from 2018 to 2020. We expect our investments in technology and automation will help drive further improvement in our long-term margin profile.

 

   

Experienced and Visionary Management Team with Complementary Skills. Our entrepreneurial and cohesive executive team is the driving force behind our success. Our management team has driven our recent success with extensive leadership experience in risk, compliance, software, technology, and information services and outstanding cross-functional coordination abilities through both operational discipline and executing on its strategic vision. Our current management team has led our company since 2017 and in that time has driven strategic and transformational initiatives across operations, product, engineering, and sales to accelerate growth and product development. We believe our team has the strategic vision, leadership qualities, technological expertise, and operational capabilities to continue to successfully drive our growth.

Our Growth Strategy

We intend to continue to grow our business profitably by pursuing the following strategies:

 

   

Continue to Win New Customers. We are focused on winning new customers across industry verticals, particularly those with attractive, long-term hiring outlooks such as e-commerce, essential retail, and transportation and home delivery, and sectors that are increasingly requiring deeper, more frequent checks with high compliance standards such as healthcare and technology. We are also prioritizing new verticals that align with positive secular macroeconomic trends. We focus on large Enterprise customers, which we believe are well-positioned for durable, long-term growth, have complex and diverse global operations, and, as a result, have the highest demand for our products and solutions. We believe our innovative and differentiated solutions, high-performing Sales and Customer Success teams, operational excellence, and industry-leading reputation and brand will enable us to expand our customer base successfully.

 

   

Growth within Our Existing Customer Base through Upselling and Cross-selling. Our customers frequently begin their relationship with us by implementing a few core products and subsequently expanding their usage of our solutions platform over time to build a more comprehensive approach to screening and risk management. We drive upsell as customers extend our products and solutions to new divisions and geographies, perform more extensive screens, and purchase additional complementary pre-onboarding products. We also cross-sell additional risk mitigation and compliance solutions such as post-onboarding screening, hiring tax credits, and fleet solutions. Our Sales and Customer Success teams frequently engage with our existing customers and identify areas where we can provide additional value and products. Our deeply entrenched, dedicated Customer Success teams work closely with our customers to develop robust and rigorous compliance and risk management programs within their organizations. We believe that our total revenue opportunity with current customers is twice the size of our current revenue base when taking into account cross-selling and upselling opportunities. Revenues from cross-sell and upsell added approximately 5 and 4 percentage



 

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points to our revenue growth rate in 2019 and 2020, respectively. We will continue to hone our sales and marketing engine to increase product penetration within our existing customer base.

 

   

Continue to Innovate Our Product Offerings. We plan to continue to expand our post-onboarding and adjacent product revenues. For example, we are currently investing in sources of recurring and subscription-based revenues such as post-onboarding monitoring solutions, software licensing, and data analytics. In addition, we are developing innovative solutions that align with our capabilities in areas such as biometric and identity verification, fraud mitigation, driver and vehicle compliance, franchise screening programs, virtual drug testing, and contingent worker screening. We will continue to invest significantly in our technology to sustain and advance our product leadership.

 

   

Expand Internationally. We believe we are well-positioned to continue to expand into underpenetrated, high-growth international geographies. As multinational corporations increasingly systematize and elevate their human resources policies and screening providers across the globe while at the same time dealing with a growing set of local requirements, we believe we are uniquely positioned to address their global risk management and compliance requirements. The substantial majority of Enterprise customers do not currently have a single, global provider but are actively evaluating opportunities to consolidate their screening programs. We plan to continue to invest in international Sales and Customer Success to win these expansion opportunities and drive broader industry adoption.

 

   

Selectively Pursue Complementary Acquisitions and Strategic Partnerships. Our acquisition and partnership strategy centers on delivering additional value to our customers through expanded product capabilities and industry or geographic expertise and scale. For example, in March 2021 we acquired GB Group’s screening business in the U.K., which established First Advantage as one of the largest screening providers for U.K.-based companies and organizations. As an example of one of our partnerships, Workday, Inc. is a strategic investor in our company, which provides an opportunity for additional technology and product collaboration. We intend to augment our organic growth by continuing to take a disciplined approach in identifying and evaluating potential strategic acquisition, investment, and partnership opportunities that strengthen our market positions, enhance our product offerings, strengthen our data capabilities, and/or allow us to enter new markets.

Risks Related to Our Business and this Offering

Investing in our stock involves a high degree of risk. You should carefully consider the risks described in “Risk Factors” before making a decision to invest in our common stock. If any of these risks actually occurs, our business, results of operations, and financial condition may be materially adversely affected. In such case, the trading price of our common stock may decline and you may lose part or all of your investment. Below is a summary of some of the principal risks we face:

 

   

The impact of COVID-19 and related risks could materially affect our results of operations, financial position, and/or liquidity.

 

   

We operate in a highly regulated industry and are subject to numerous and evolving laws and regulations, including those relating to consumer protection, intellectual property, cybersecurity, and data privacy, among others.

 

   

We rely on a variety of third-party data providers, and if our relationships with any of them deteriorate, or if they are unable to deliver or perform as expected, our ability to operate effectively may be impaired, and our business may be materially and adversely affected.

 

   

Negative changes in external events beyond our control, including our customers’ onboarding volumes, economic drivers which are sensitive to macroeconomic cycles, and the COVID-19 pandemic, could adversely affect us.



 

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Our business, brand, and reputation may be harmed as a result of security breaches, cyber-attacks, or the mishandling of personal data.

 

   

Our business depends on the continued integration of our platforms and solutions with human resource providers such as applicant tracking systems and human capital management systems, as well as our relationships with such human resource providers.

 

   

Disruptions, outages, or other errors with our technology and network infrastructure, including our data centers, servers, and third-party cloud and internet providers, and our migration to the cloud, could have a materially adverse effect on our business.

 

   

If we are unable to obtain, maintain, protect, and enforce our intellectual property and other proprietary information, or if we infringe, misappropriate, or otherwise violate the intellectual property rights of others, the value of our brands and other intangible assets may be diminished, and our business may be adversely affected.

 

   

Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, and prevent us from meeting our obligations. As of March 31, 2021, prior to giving effect to this offering and the use of proceeds therefrom, we had approximately $764.7 million of aggregate principal amount of secured indebtedness outstanding and an additional $75.0 million of availability under our revolving credit facility. We have entered into an amendment to increase the borrowing capacity under our revolving credit facility to $100.0 million, which will become effective upon the closing of this offering.

 

   

Our Sponsor controls us and its interests may conflict with yours in the future.

Implications of being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are applicable to other companies that are not emerging growth companies. Accordingly, in this prospectus, we have (i) presented only two years of audited consolidated financial statements and only two years of selected financial data; and (ii) have not included a compensation discussion and analysis of our executive compensation programs. In addition, for so long as we are an emerging growth company, among other exemptions, we will not be required to:

 

   

engage an independent registered public accounting firm to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;

 

   

disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation; or

 

   

submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency” and “say-on-golden parachutes.”

We will remain an emerging growth company until the earliest to occur of:

 

   

our reporting of $1.07 billion or more in annual gross revenue;

 

   

our becoming a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates;

 

   

our issuance, in any three year period, of more than $1.0 billion in non-convertible debt; and

 

   

the fiscal year-end following the fifth anniversary of the completion of this initial public offering.



 

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The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, also permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period under the JOBS Act, and as a result, our financial statements may not be comparable with similarly situated public companies.

Our Sponsor

Silver Lake is a global technology investment firm, with more than $79 billion in combined assets under management and committed capital and a team of professionals based in North America, Europe and Asia. Silver Lake devotes its full scope of talent and intellectual capital to the singular mission of investing in the world’s leading technology companies and tech-enabled businesses. Founded in 1999, Silver Lake leverages the deep knowledge and expertise of a global team based in Menlo Park, Cupertino, New York, London, and Hong Kong.

Conflicts of Interest

The offering is being conducted in accordance with the applicable provisions of Rule 5121 of the Conduct Rules of the Financial Industry Regulatory Authority, Inc., or FINRA, because certain of the underwriters will have a “conflict of interest” pursuant to Rule 5121(f)(5)(C)(ii) by virtue of their role as lenders in the first lien term loan facility since part of the proceeds of this offering will be used to pay off a portion of the first lien term loan facility. Rule 5121 requires that a “qualified independent underwriter” as defined in Rule 5121 must participate in the preparation of the prospectus and perform its usual standard of diligence with respect to the registration statement and this prospectus. Accordingly, Barclays Capital Inc. is assuming the responsibilities of acting as the qualified independent underwriter in the offering. See “Underwriting (Conflicts of Interest)—Conflicts of Interest.”

Our Corporate Information

We began our operations in 2003. First Advantage Corporation was incorporated in Delaware on November 15, 2019 in connection with the Silver Lake Transaction. Our principal offices are located at 1 Concourse Parkway NE, Suite 200, Atlanta, Georgia 30328. Our telephone number is (888)-314-9761. We maintain a website at fadv.com. The reference to our website is intended to be an inactive textual reference only. The information contained on, or that can be accessed through, our website is not part of this prospectus.



 

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The Offering

 

Issuer

First Advantage Corporation

 

Common stock offered by us

17,750,000 shares

 

Common stock offered by the selling stockholders

3,500,000 shares

 

Option to purchase additional shares of common stock

We and the selling stockholders have granted the underwriters a 30-day option from the date of this prospectus to purchase up to 2,662,500 and 525,000 additional shares, respectively, of our common stock at the initial public offering price, less underwriting discounts and commissions.

 

Common stock to be outstanding immediately after this offering

147,750,000 shares (or 150,412,500 shares if the underwriters exercise in full their option to purchase additional shares).

 

Use of proceeds

We estimate that the net proceeds to us from this offering will be approximately $227.6 million (or approximately $262.4 million, if the underwriters exercise in full their option to purchase additional shares), assuming an initial public offering price of $14.00 per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. For a sensitivity analysis as to the offering price and other information, see “Use of Proceeds.”

 

  We intend to use the net proceeds to us from this offering (i) to repay $200.0 million in aggregate principal amount of outstanding indebtedness under our first lien term loan facility and (ii) for general corporate purposes. See “Use of Proceeds.”

 

  We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders in this offering, including from any exercise by the underwriters of their option to purchase additional shares from the selling stockholders. The selling stockholders will receive all of the net proceeds and bear all commissions and discounts, if any, from the sale of our common stock by the selling stockholders. See “Principal and Selling Stockholders.”

 

Dividend policy

We have no current plans to pay dividends on our common stock. Any decision to declare and pay dividends in the future will be made at the sole discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, including restrictions in the agreements governing our indebtedness, and other factors that our board of directors may deem relevant. See “Dividend Policy.”


 

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Conflicts of interest

Certain of the underwriters will be deemed to have a “conflict of interest” under Rule 5121 of the Conduct Rules of FINRA. See “Underwriting (Conflicts of Interest)–Conflicts of Interest.”

 

Risk factors

Investing in shares of our common stock involves a high degree of risk. See “Risk Factors” for a discussion of factors you should carefully consider before investing in shares of our common stock.

 

Trading symbol

“FA”

Unless we indicate otherwise or the context otherwise requires, this prospectus:

 

   

reflects and assumes:

 

   

no exercise of the underwriters’ option to purchase additional shares of our common stock;

 

   

an initial public offering price of $14.00 per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus;

 

   

the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the consummation of this offering;

 

   

a 1,300,000-for-one forward stock split of our common stock, which occurred on June 11, 2021;

 

   

certain redemptions, exchanges and conversions (collectively, the “Equity Conversion”) to be made prior to the dissolution of Fastball Holdco, L.P., our current parent, which will occur immediately prior to the consummation of this offering, including the following assuming an initial public offering price of $14.00 per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus:

 

   

the distribution of 130,000,000 shares of our common stock, in exchange for all outstanding Class A LP Units, Class B LP Units and Class C LP Units of Fastball Holdco, L.P.;

 

   

the conversion of all outstanding stock options issued by Fastball Holdco, L.P. into 3,870,897 stock options issued by us; and

 

   

the issuance of 3,452,872 stock options to holders of Class C LP units; and

 

   

reflects 339,357 shares of common stock that may be issued upon the exercise of vested stock options to be issued in the Equity Conversion, with an average weighted exercise price of $6.60;

 

   

does not reflect (i) 350,769 shares of common stock that may be issued upon the exercise of vested options to be issued in the Equity Conversion, with an average weighted exercise price of $14.00 or (ii) 6,633,643 shares of common stock that may be issued upon the exercise of unvested stock options to be issued in the Equity Conversion, with an average weighted exercise price of $10.09; and

 

   

does not reflect 19,050,000 shares of common stock reserved for future issuance pursuant to our new First Advantage Corporation 2021 Omnibus Incentive Plan (the “2021 Equity Plan”) and First Advantage Corporation 2021 Employee Stock Purchase Plan (the “ESPP”), each of which we intend to adopt in connection with this offering. See “Management—Executive Compensation—Long-Term Equity Incentive Compensation.”



 

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SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA

Set forth below is our summary historical consolidated financial and other data as of the dates and for the periods indicated. The summary historical financial data as of December 31, 2019 (Predecessor) and December 31, 2020 (Successor) and for the year ended December 31, 2019 (Predecessor), for the period from January 1 through January 31, 2020 (Predecessor), and for the period from February 1 through December 31, 2020 (Successor) has been derived from our audited historical consolidated financial statements included elsewhere in this prospectus. The summary historical financial data as of March 31, 2021 (Successor) and for the period from February 1, 2020 through March 31, 2020 (Successor) and for the three months ended March 31, 2021 (Successor) has been derived from our unaudited historical consolidated financial statements included elsewhere in this prospectus. The unaudited historical consolidated financial statements were prepared on a basis consistent with our audited historical consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of the financial information. The results for any interim period are not necessarily indicative of the results that may be expected for the full year. In addition, the results of operations for any period are not necessarily indicative of the results to be expected for any future period.

On January 31, 2020, the Sponsor acquired substantially all of the equity interests in the Company from STG, pursuant to the Silver Lake Transaction. For the purposes of the consolidated financial data included in this prospectus, periods on or prior to January 31, 2020 reflect the financial position, results of operations, and cash flows of the Company and its consolidated subsidiaries prior to the Silver Lake Transaction, referred to herein as the Predecessor, and periods beginning after January 31, 2020 reflect the financial position, results of operations and cash flows of the Company and its consolidated subsidiaries as a result of the Silver Lake Transaction, referred to herein as the Successor. As a result of the Silver Lake Transaction, the results of operations and financial position of the Predecessor and Successor are not directly comparable.

The summary unaudited pro forma consolidated financial data presented below has been derived from our unaudited pro forma consolidated financial statements included elsewhere in this prospectus. The summary unaudited pro forma consolidated statement of operations data for the year ended December 31, 2020 and the three months ended March 31, 2020 give effect to the Silver Lake Transaction, the related refinancing, and the Offering Transactions as if they had occurred on January 1, 2020. The unaudited pro forma consolidated statements of operations for the three months ended March 31, 2021 gives effect to the Offering Transactions as if they had occurred on January 1, 2020. The unaudited pro forma consolidated statement of operations for the three months ended March 31, 2021 does not give effect to either the Silver Lake Transaction or the related refinancing as if they had occurred on January 1, 2020 because these events are already reflected for the full period presented in the historical statement of operations of the Company. The unaudited pro forma financial information includes various estimates which are subject to material change and may not be indicative of what our operations would have been had such transactions taken place on the dates indicated, or that may be expected to occur in the future. See “Unaudited Pro Forma Consolidated Financial Information” for a complete description of the adjustments and assumptions underlying the summary unaudited pro forma consolidated financial data. The unaudited pro forma consolidated financial data is included for information purposes only.

You should read the following summary financial and other data below together with the information under “Unaudited Pro Forma Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes thereto and our unaudited consolidated financial statements and related notes thereto, each included elsewhere in this prospectus.

 



 

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    Annual Periods     Interim Periods        
    Predecessor          Successor     Predecessor           Successor     Pro Forma  
    Year Ended
December 31,
    Period from
January 1
through
January 31,
         Period from
February 1
through
December 31,
    Period from
January 1
through
January 31,
          Period from
February 1,
2020
through
March 31,
    Three
Months
Ended
March 31,
    Year Ended
December 31,
    Three
Months
Ended
March 31,
    Three
Months
Ended
March 31,
 
    2019     2020          2020     2020           2020     2021     2020     2020     2021  
(In thousands, except share and per share
amounts)
                                                                

Statement of Operations Data

                         

Revenues

  $ 481,767     $ 36,785         $ 472,369     $ 36,785         $ 74,054     $ 132,070     $ 509,154     $ 110,839     $ 132,070  
   

Operating expenses

                         

Cost of services

    245,324       20,265           240,287       20,265           36,816       65,945       260,552       57,081       65,945  

Product and technology expense

    33,239       3,189           32,201       3,189           4,947       10,553       35,390       8,136       10,553  

Selling, general, and administrative expense

    85,084       11,235           66,864       11,235           12,285       23,978       78,099       23,520       23,978  

Depreciation and amortization

    25,953       2,105           135,057       2,105           24,487       34,763       143,286       36,130       34,763  

Total operating expenses

    389,600       36,794           474,409       36,794           78,535       135,239       517,327       124,867       135,239  

Income (loss) from operations

    92,167       (9         (2,040     (9         (4,481     (3,169     (8,173     (14,028     (3,169
   

Other expense (income)

                         

Interest expense

    51,964       4,514           47,914       4,514           12,883       6,814       46,697       22,151       4,525  

Interest income

    (945     (25         (530     (25         (53     (97     (555     (78     (97

Loss on extinguishment of debt

    —         10,533           —         10,533           —         13,938       —         —         13,938  

Transaction expenses, change in control

    —         22,370           9,423       22,370           9,423       —         9,423       9,423       —    

Total other expense

    51,019       37,392           56,807       37,392           22,253       20,655       55,565       31,496       18,366  

Income (loss) before provision for income taxes

    41,148       (37,401         (58,847     (37,401         (26,734     (23,824     (63,738     (45,524     (21,535

Provision for income taxes

    6,898       (871         (11,355     (871         (4,920     (4,435     (3,871     (1,007     (3,847

Net income (loss)

  $ 34,250     $ (36,530       $ (47,492   $ (36,530       $ (21,814   $ (19,389   $ (59,867   $ (44,517   $ (17,688
   

Net income (loss)

  $ 34,250     $ (36,530       $ (47,492   $ (36,530       $ (21,814   $ (19,389      

Foreign currency translation adjustments

    (341     (31         2,484       (31         (8,659     2,760        

Comprehensive income (loss)

  $ 33,909     $ (36,561       $ (45,008   $ (36,561       $ (30,473   $ (16,629      
   

Per Share Data (unaudited)

                         

Earnings (loss) per share:

                         

Basic

  $ 0.23     $ (0.24       $ (0.37   $ (0.24       $ (0.17   $ (0.15   $ (0.41   $ (0.30   $ (0.12

Diluted

  $ 0.21     $ (0.24       $ (0.37   $ (0.24       $ (0.17   $ (0.15   $ (0.41   $ (0.30   $ (0.12

Weighted average shares outstanding:

                         

Basic

    149,686,460       149,686,460           130,000,000       149,686,460           130,000,000       130,000,000       147,750,00       147,750,00       147,750,00  

Diluted

    163,879,766       149,686,460           130,000,000       149,686,460           130,000,000       130,000,000       147,750,00       147,750,00       147,750,00  

 


 

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    Annual Periods     Interim Periods        
    Predecessor          Successor     Predecessor           Successor     Pro Forma  
    Year Ended
December 31,
    Period
from
January 1
through
January 31,
         Period from
February 1
through
December 31,
    Period
from
January 1
through
January 31,
          Period
from
February 1,
2020
through
March 31,
    Three
Months
Ended
March 31,
    Year Ended
December 31,
    Three
Months
Ended
March 31,
    Three
Months
Ended
March 31,
 
    2019     2020          2020     2020           2020     2021     2020     2020     2021  
(In thousands, except share and per share
amounts)
                                                                
   

Balance Sheet Data (end of period)

                         

Cash, cash equivalents and restricted cash

  $ 80,746           $ 152,970           $ 129,777     $ 113,484         $ 141,082  

Total assets

  $ 544,733           $ 1,763,691           $ 1,820,939     $ 1,703,049         $ 1,730,647  

Total liabilities

  $ 638,950           $ 969,421           $ 1,011,982     $ 924,846         $ 728,838  

Total (deficit) equity

  $ (94,217         $ 794,270           $ 808,957     $ 778,203         $ 1,001,809  
   

Cash Flow Data

                         

Cash flows from operating activities

  $ 71,583     $ (19,216       $ 72,851     $ (19,216       $ 1,698     $ 23,713        

Cash flows from investing activities

  $ (17,789   $ (2,043       $ (15,569   $ (2,043       $ (1,861   $ (12,127      

Cash flows from financing activities

  $ (3,176   $ (11,122       $ 46,404     $ (11,122       $ 81,757     $ (50,762      

Capital expenditures

  $ 16,703     $ 1,880         $ 15,826     $ 1,880         $ 2,567     $ 4,979        

Purchases of property and equipment

  $ 6,578     $ 951         $ 5,304     $ 951         $ 826     $ 1,443        

Capitalized software development costs

  $ 10,125     $ 929         $ 10,522     $ 929         $ 1,741     $ 3,536        
   

Other Financial Data

                         

Adjusted EBITDA(1)

  $ 123,773     $ 7,022         $ 139,776     $ 7,022         $ 20,189     $ 36,590     $ 146,798     $ 27,211     $ 36,590  

Net Income (Loss) Margin (2)

    7.1     (99.3 )%          (10.1 )%      (99.3 )%          (29.5 )%      (14.7 )%      (11.8 )%      (40.2 )%      (13.4 )% 

Adjusted EBITDA Margin (3)

    25.7     19.1         29.6     19.1         27.3     27.7     28.8     24.6     27.7

Adjusted Net Income(4)

  $ 44,932     $ 1,371         $ 63,895     $ 1,371         $ 4,637     $ 20,503     $ 73,533     $ 6,911     $ 22,083  

 

  (1)

We define Adjusted EBITDA as net income before interest, taxes, depreciation, and amortization, and as further adjusted for loss on extinguishment of debt, share-based compensation, transaction and acquisition-related charges, integration and restructuring charges, and other and non-cash charges. We describe these adjustments reconciling net income (loss) to Adjusted EBITDA in the table below.

 

We present Adjusted EBITDA because we believe it is a useful indicator of our operating performance. Our management uses Adjusted EBITDA principally as a measure of our operating performance and believes that Adjusted EBITDA is useful to investors because it is frequently used by analysts, investors, and other interested parties to evaluate companies in our industry. We also believe Adjusted EBITDA is useful to our management and investors as a measure of comparative operating performance from period to period.

Adjusted EBITDA is a non-GAAP financial measures and should not be considered as an alternative to net income (loss) as a measure of financial performance or cash provided by (used in) operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In evaluating Adjusted EBITDA, you should be aware that in the future, we may incur expenses that are the same as or similar to some of


 

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the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by primarily relying on our GAAP results in addition to using Adjusted EBITDA supplementally.

Our Adjusted EBITDA measure has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

   

it does not reflect costs or cash outlays for capital expenditures or contractual commitments;

 

   

it does not reflect changes in, or cash requirements for, our working capital needs;

 

   

it does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

 

   

it does not reflect period to period changes in taxes, income tax expense, or the cash necessary to pay income taxes;

 

   

it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and they do not reflect cash requirements for such replacements; and

 

   

other companies in our industry may calculate this measure differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to invest in business growth or to reduce indebtedness.

The following table provides a reconciliation of net income (loss) to Adjusted EBITDA for the periods presented:

 

    Annual Periods     Interim Periods        
    Predecessor           Successor     Predecessor    

 

     Successor     Pro Forma  
    Year Ended
December 31,
    Period
from
January 1
through
January 31,
          Period from
February 1
through
December 31,
    Period
from
January 1
through
January 31,
   

 

     Period
from
February 1,
2020
through
March 31,
    Three
Months
Ended
March 31,
    Year Ended
December 31,
    Three
Months
Ended
March 31,
    Three
Months
Ended
March 31,
 
    2019     2020           2020     2020    

 

     2020     2021     2020     2020     2021  
(In thousands)                                                                   

Net income (loss)

  $ 34,250     $ (36,530        $ (47,492   $ (36,530        $ (21,814   $ (19,389   $ (59,867   $ (44,517   $ (17,688

Interest expense, net

    51,019       4,489            47,384       4,489            12,830       6,717       46,142       22,073       4,428  

Income taxes

    6,898       (871          (11,355     (871          (4,920     (4,435     (3,871     (1,007     (3,847

Depreciation and amortization

    25,953       2,105            135,057       2,105            24,487       34,763       143,286       36,130       34,763  

Loss on extinguishment of debt

    —         10,533            —         10,533            —         13,938       —         —         13,938  

Share-based compensation

    1,216       3,976            1,876       3,976            281       562       5,852       4,257       562  

 


 

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Table of Contents
    Annual Periods     Interim Periods        
    Predecessor           Successor     Predecessor     

 

     Successor     Pro Forma  
    Year Ended
December 31,
    Period
from
January 1
through
January 31,
          Period from
February 1
through
December 31,
    Period
from
January 1
through
January 31,
    

 

     Period
from
February 1,
2020
through
March 31,
    Three
Months
Ended
March 31,
    Year Ended
December 31,
    Three
Months
Ended
March 31,
    Three
Months
Ended
March 31,
 
    2019     2020           2020     2020     

 

     2020     2021     2020     2020     2021  

(In thousands)

(continued)

                                                                   

Transaction and acquisition related charges(a)

  $ 1,198     $ 22,840          $ 10,146     $ 22,840           $ 9,446     $ 3,984     $ 10,616     $ 9,916     $ 3,984  

Integration and restructuring charges(b)

    —         327            3,413       327             —         448       3,740       327       448  

Other(c)

    3,239       153            747       153             (121     2       900       32       2  

Adjusted EBITDA

  $ 123,773     $ 7,022          $ 139,776     $ 7,022           $ 20,189     $ 36,590     $ 146,798     $ 27,211     $ 36,590  

 

  (a)

Represents charges incurred related to acquisitions and similar transactions, primarily consisting of change in control-related costs, professional service fees, and other third-party costs. Additionally, the three months ended March 31, 2021 includes incremental professional service fees incurred related to this offering.

  (b)

Represents charges from organizational restructuring and integration activities outside the ordinary course of business.

 
  (c)

Represents non-cash and other charges primarily related to litigation-related expenses related to legal exposures inherited from legacy acquisitions, foreign currency (gains) losses, and (gains) losses on the sale of assets. Additionally, the periods from February 1, 2020 through December 31, 2020 (Successor) and February 1, 2020 through March 31, 2020 (Successor) include incremental costs incurred due to COVID-19.

 

 

  (2)

Represents net income (loss) divided by total revenues.

 

  (3)

We define Adjusted EBITDA Margin as Adjusted EBITDA divided by total revenues.

 

  (4)

We define Adjusted Net Income as net income before taxes adjusted for debt-related costs, acquisition-related depreciation and amortization, share-based compensation, transaction and acquisition-related charges, integration and restructuring charges, and other and non-cash charges, to which we then apply an effective tax rate of 26.4%, 25.7%, and 25.7% for the 2019, 2020, and 2021 periods, respectively. We describe these adjustments reconciling net income (loss) to Adjusted Net Income in the table below.

 

We present Adjusted Net Income because we believe it is a useful indicator of our operating performance. Our management uses Adjusted Net Income principally as a measure of our operating performance and believes that Adjusted Net Income is useful to investors because it is frequently used by analysts, investors, and other interested parties to evaluate companies in our industry. We also believe Adjusted Net Income is useful to our management and investors as a measure of comparative operating performance from period to period.

Adjusted Net Income is a non-GAAP financial measures and should not be considered as an alternative to net income (loss) as a measure of financial performance or cash provided by (used in) operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring


 

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items. In evaluating Adjusted Net Income, you should be aware that in the future, we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted Net Income should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by primarily relying on our GAAP results in addition to using Adjusted Net Income supplementally.

Our Adjusted Net Income measure has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

   

it does not reflect costs or cash outlays for capital expenditures or contractual commitments;

 

   

it does not reflect changes in, or cash requirements for, our working capital needs;

 

 

   

it does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

 

 

   

it does not reflect period to period changes in taxes, income tax expense, or the cash necessary to pay income taxes;

 

 

   

it does not reflect the impact of earnings or charges resulting from certain matters we consider not to be indicative of our ongoing operations; and

 

 

   

other companies in our industry may calculate this measure differently than we do, limiting their usefulness as comparative measures.

 

Because of these limitations, Adjusted Net Income should not be considered as a measure of discretionary cash available to invest in business growth or to reduce indebtedness.

The following table provides a reconciliation of net income (loss) to Adjusted Net Income for the periods presented:

 

    Annual Periods     Interim Periods        
    Predecessor           Successor     Predecessor    

 

     Successor     Pro Forma  
    Year Ended
December 31,
    Period
from
January 1
through
January 31,
          Period from
February 1
through
December 31,
    Period
from
January 1
through
January 31,
   

 

     Period
from
February 1,
2020
through
March 31,
    Three
Months
Ended
March 31,
    Year Ended
December 31,
    Three
Months
Ended
March 31,
    Three
Months
Ended
March 31,
 
    2019     2020           2020     2020    

 

     2020     2021     2020     2020     2021  
(In thousands)                                                                   

Net income (loss)

  $ 34,250     $ (36,530        $ (47,492   $ (36,530        $ (21,814   $ (19,389   $ (59,867   $ (44,517   $ (17,688

Income taxes

    6,898       (871          (11,355     (871          (4,920     (4,435     (3,871     (1,007     (3,847

Income (loss) before income taxes

    41,148       (37,401          (58,847     (37,401          (26,734     (23,824     (63,738     (45,524     (21,535
   

Debt-related costs(a)

    3,174       11,102            3,242       11,102            578       14,911       9,207       7,116       14,749  

Acquisition-related depreciation and amortization(b)

    11,074       848            125,419       848            22,791       31,512       132,391       33,177       31,512  

Share-based compensation

    1,216       3,976            1,876       3,976            281       562       5,852       4,257       562  

 

17


Table of Contents
    Annual Periods     Interim Periods        
    Predecessor           Successor     Predecessor     

 

     Successor     Pro Forma  
    Year Ended
December 31,
    Period
from
January 1
through
January 31,
          Period from
February 1
through
December 31,
    Period
from
January 1
through
January 31,
    

 

     Period
from
February 1,
2020
through
March 31,
    Three
Months
Ended
March 31,
    Year Ended
December 31,
    Three
Months
Ended
March 31,
    Three
Months
Ended
March 31,
 
    2019     2020           2020     2020     

 

     2020     2021     2020     2020     2021  
(In thousands)                                                                    
(continued)                                                                   

Transaction and acquisition related charges(c)

    1,198       22,840            10,146       22,840             9,446       3,984       10,616       9,916       3,984  

Integration and restructuring charges(d)

    —         327            3,413       327             —         448       3,740       327       448  

Other(e)

    3,239       153            747       153             (121     2       900       32       2  

Adjusted income before income taxes

    61,049       1,845            85,996       1,845             6,241       27,595       98,968       9,301       29,722  
   

Adjusted income taxes(f)

    16,117       474            22,101       474             1,604       7,092       25,435       2,390       7,639  

Adjusted Net Income

  $ 44,932     $ 1,371          $ 63,895     $ 1,371           $ 4,637     $ 20,503     $ 73,533     $ 6,911     $ 22,083  

 

  (a)

Represents the loss on extinguishment of debt and non-cash interest expense related to the amortization of debt issuance costs for the financing for the Silver Lake Transaction.

 
  (b)

Represents the depreciation and amortization expense related to intangible assets and developed technology assets recorded due to the application of ASC 805, Business Combinations.

 
  (c)

Represents charges incurred related to acquisitions and similar transactions, primarily consisting of change in control-related costs, professional service fees, and other third-party costs. Additionally, the three months ended March 31, 2021 includes incremental professional service fees incurred related to this offering.

 
  (d)

Represents charges from organizational restructuring and integration activities outside the ordinary course of business.

 
  (e)

Represents non-cash and other charges primarily related to legal exposures inherited from legacy acquisitions, foreign currency (gains) losses, and (gains) losses on the sale of assets. Additionally, the periods from February 1, 2020 through December 31, 2020 (Successor) and the period from February 1, 2020 through March 31, 2020 (Successor) include incremental costs incurred due to COVID-19.

 
  (f)

Effective tax rates of 26.4%, 25.7%, and 25.7% have been used to compute Adjusted Net Income for the 2019, 2020, and 2021 periods, respectively. As of December 31, 2020, we had net operating loss carryforwards of approximately $197,607, $166,196, and $35,992 for federal, state, and foreign income tax purposes, respectively, available to reduce future income subject to income taxes. As a result, the amount of actual cash taxes we pay for federal, state, and foreign income taxes differs significantly from the effective income tax rate computed in accordance with GAAP and from the normalized rate shown above.

 

 

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RISK FACTORS

You should carefully consider the following risks before you decide to purchase our common stock. If any of the following risks actually occur, our business, results of operations, and financial condition could be materially adversely affected, the value of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business

The impact of COVID-19 and related risks have affected and may continue to materially affect our business, results of operations, financial position, and/or liquidity.

The COVID-19 pandemic and the ensuing actions that various governments have taken in response have created significant worldwide uncertainty, volatility, and economic disruption. The COVID-19 pandemic has adversely impacted certain aspects of our business. The extent to which it will continue to do so will depend on a number of factors, many of which are highly uncertain, evolving, and beyond our control. These factors include, but are not limited to: (i) the duration and scope of the pandemic; (ii) governmental, business, and individual actions that have been and will continue to be taken in response to the pandemic, including travel restrictions, quarantines, social distancing, work-from-home and shelter-in-place orders, regulatory oversight and developments, and government shutdowns; (iii) the impact on the U.S. and global economies and the timing and rate of economic recovery, including the extent and duration of such impact on hiring and jobs; and (iv) impacts on the operations of our customers’ industries and individual businesses.

As the COVID-19 pandemic continues and any associated protective or preventative measures and related legislation continue to be put in place or modified and adjusted in the United States and around the world, we may experience disruptions to our business. Risks presented by the ongoing effects of COVID-19 include the following:

 

   

Operational Disruptions. Due to the closure of courthouses and public record information sources at the onset of the COVID-19 outbreak, many data sources were not available or current as workers were unable to access and update them. In some instances, where public record information was not digitized or available through electronic means, certain information and reports were inaccessible as they had to be retrieved in person. In certain courthouses around the country and other instances where public record information was only available through manual retrieval, and those data sources were closed due to COVID-19 measures, information could not be retrieved or was delayed in being retrieved in order to fulfill background screening orders. This resulted in longer turnaround times, and depending on our customers’ preferences, delayed or required modification of customer deliverables.

In addition, while our experience with remote work thus far has not produced significant obstacles, our operations could be disrupted if key members of our senior management or a significant percentage of our workforce or the workforce of our vendors are unable to continue to work because of illness or otherwise.

 

   

Customers. Certain of our existing customers reduced hiring, implemented hiring freezes, and/or modified their background screening programs due to declining business conditions, which has resulted in decreased demand and spending on our products. Our customers may continue to take such actions and, depending on the duration of the COVID-19 pandemic, could also cease their business operations on a temporary or permanent basis. Certain sectors such as travel, live entertainment, dining, and non-essential retail, have been especially impacted by the pandemic. While the decrease in demand from customers in such sectors has been offset by increased demand from our customers in other sectors such as e-commerce, essential retail, and transportation and home delivery, such other industries may experience downturns in the future. In addition, demand for our products and solutions from our international customers has generally been more impacted by the ongoing effects of the COVID-19 pandemic than demand from our U.S. customers. In addition, because many of our existing and potential customers are also operating from a similar remote environment, we may face difficulties maintaining relationships with our current customers and winning new customers in the same manner

 

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as we would have operated before the outbreak of COVID-19. For example, we have been unable to attend or present at various tradeshows and conferences as we did before the outbreak of the pandemic, and the limitations of travel have impacted our ability to visit customer locations.

 

   

Increased Expenses. We have incurred incremental costs in connection with the COVID-19 pandemic, including costs related to furloughs and severance, increased overtime, and personal protective equipment. Additionally, certain of our expenses, such as office space leases and software, are not variable with revenues and will continue regardless of the level of our activity or employee base.

 

   

Heightened Operational Risks. Because our remote working arrangements are necessarily more reliant on our employees’ internet and telecommunications access and capabilities, if our employees or we experience difficulties with technology and data and/or network security (including as a result of cyber-attacks), our operations could be disrupted and our ability to conduct our business could be negatively impacted.

These and other disruptions related to COVID-19 could continue to materially and adversely affect our business, financial condition, results of operations, and cash flows. In addition, COVID-19 may exacerbate the other risks described below, including being restricted in the use of certain data for screening purposes or the completion of certain screens, as a result of customer or other external mandates.

We operate in a highly regulated industry and are subject to numerous and evolving laws and regulations.

As a global provider of technology solutions for screening and verifications, we are subject to numerous and evolving international, federal, state, and local laws and regulations, including, without limitation, in the areas of consumer protection, privacy, and data protection. See “Business—Government Regulations”. We expect that these laws and regulations will continue to evolve, change, and expand and, in most instances, become more stringent and complex with time. Compliance with these laws and regulations requires significant expense and resources, which could increase significantly as these laws and regulations evolve. Further, regulations are often the product of administrative interpretation and judicial construction, which could result in inconsistent implementation across jurisdictions. We must reconcile the many potential differences between the laws and regulations among the various domestic and international jurisdictions that may be involved in the provision of our solutions. A failure to identify, comply, and reconcile the many laws and regulations we are subject to could result in the imposition of penalties and fines, restrictions on our operations, breach of contract or indemnification claims against us, loss of revenues, and could otherwise adversely affect our business, results of operations, and financial condition. Further, we acquired a company in 2013 that was subject to multiple FTC consent decrees that had been imposed on it in the years prior to our acquisition and to which we now remain subject. The consent decrees require us to comply with the Fair Credit Reporting Act (“FCRA”) and to maintain a comprehensive information security program to be audited biennially. Under these circumstances, failure to comply with the decrees and/or relevant law or regulations may subject us to increased risk.

Changes in laws, regulations, and the interpretation of such laws and regulations on both the state and federal level could also affect certain of our businesses and result in restrictions on our ability to offer certain products and solutions. For example, numerous states have implemented fair chance hiring laws that prohibit employers from inquiring or using an applicant’s criminal history to make employment decisions. Many states have in recent years amended their fair chance laws to increase the restrictions on the use of such data. In addition, under the FCRA in the United States, both our customers and we are required to comply with many requirements under the FCRA as well as state-level laws regarding the use and delivery of consumer reports. The enactment of new restrictive legislation and the requirements, restrictions, and limitations imposed by changing interpretations and court decisions on such laws and regulations could prevent our customers from using the full functionality of our products, which may reduce demand for our products and solutions. We could also be required to adapt our products to meet these evolving and complex requirements, such as adding or changing disclosures, authorizations, or forms provided to applicants. In addition, we believe it is critical for us to keep abreast of evolving laws and interpretations in applicable jurisdictions and inform our customers of changes to their ability to use our products and solutions and their and our obligations. These efforts require time, expense, and resources, and in some instances, reliance on third parties such as law firms and trade associations.

 

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If regulatory regimes continue to heighten their scrutiny over personal data and data security, it could lead to increased restrictions, loss of revenue opportunity, greater costs of compliance, and lost efficiency.

Our products and solutions are subject to various complex laws and regulations governing cybersecurity, privacy, and data protection on the federal, state, and local levels, and in foreign jurisdictions. The regulatory framework for privacy issues is rapidly evolving and is likely to remain uncertain and inconsistently enforced for the foreseeable future. Many federal, state, and foreign governmental bodies and agencies have adopted or are considering adopting laws and regulations regarding collecting, processing, handling, maintenance, storage, use, disclosure, and transmission of personal and other sensitive information. A growing trend of regulation in this area provides for mandatory consumer notification should the unauthorized access of consumer information occur, and further expansion of requirements is possible. It is possible that these restrictions could limit our service offerings, reduce our profitability, or otherwise materially and adversely affect our ability to conduct our business or to do so economically. Further, if our practices or products are perceived to constitute an invasion of privacy, we may be subject to increased scrutiny and public criticism, litigation, and reputational harm, which could disrupt our business and expose us to liability. Given the nature of our business and the volume of our operations, it is possible for breaches to occur, whether intentionally from hackers or unintentionally, if we inadvertently send or otherwise make available information to an unauthorized recipient.

We are subject to many cybersecurity, privacy, and data protection laws in the United States and around the world. In the United States, we are subject to numerous federal and state laws governing the collection, processing, use, transmission, disclosure, and sale of personal data (which may also be referred to as personal information, personally identifiable information, and/or non-public personal information). For example, the California Consumer Privacy Act (“CCPA”) went into effect on January 1, 2020, and established a new privacy framework for covered businesses such as ours. Further, in November 2020, California voters passed the California Privacy Rights and Enforcement Act of 2020 (“CPRA”), which further expands the CCPA with additional data privacy compliance requirements that may impact our business, and establishes a regulatory agency dedicated to enforcing those requirements. It remains unclear how various provisions of the CCPA and CPRA will be interpreted and enforced. In addition, on March 2, 2021, Virginia enacted the Virginia Consumer Data Protection Act (“CDPA”), a comprehensive privacy statute that shares similarities with the CCPA, CPRA, and legislation proposed in other states. The CDPA may require us to incur additional costs and expenses in an effort to comply with it before it becomes effective on January 1, 2023. Other states also have or are in the process of imposing similar privacy obligations. Recent laws such as the Biometric Information Privacy Act in Illinois have also restricted the use of biometric information. Such laws and regulations require us to continuously review our data processing practices and policies, may cause us to incur substantial costs with respect to compliance, and could require us to adapt our products and solutions, which may reduce their utility to our customers.

In addition, outside the United States, we are subject to foreign rules and regulations. For example, we are subject to enhanced compliance and operational requirements under the General Data Protection Regulation (“GDPR”), which expanded the scope of data protection in the European Union (“E.U.”) to foreign companies who process the personal data of E.U. residents, imposed a strict data protection compliance regime with stringent penalties for noncompliance and included new rights for data subjects such as the “portability” of personal data. In particular, under the GDPR, fines of up to 20 million euros, or up to 4% of the annual global revenue of the noncompliant company, whichever is greater, could be imposed for violations of certain of the GDPR’s requirements. If we were found to be in breach of the GDPR, the potential penalties we might face could have a material adverse impact on our business, financial condition, results of operations, and cash flows. Compliance with the GDPR requires time and expense and may require us to make changes to our business operations.

While the GDPR applies uniformly across the E.U., each E.U. member state is permitted to issue nation-specific data protection legislation, which has created inconsistencies on a country-by-country basis. The decision by the U.K. to leave the E.U. (“Brexit”) has created further uncertainty and could result in the

 

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application of new data privacy and protection laws and standards to our operations in the U.K., our handling of personal data of users located in the U.K., and transfers of personal data between the E.U. and U.K. While the United Kingdom General Data Protection Regulation (“U.K. GDPR”) largely mirrors the GDPR, it has yet to be determined which legal mechanisms will be required to transfer personal data from the E.U. to the U.K. under the GDPR. In addition, Brexit and the subsequent implementation of the U.K. GDPR will expose us to two parallel data protection regimes, each of which potentially authorizes similar significant fines and other potentially divergent enforcement actions for certain violations. On December 24, 2020, the U.K. and E.U. entered into a Trade and Cooperation Agreement. The Trade and Cooperation Agreement provides for a transitional period during which the U.K. will be treated as an E.U. member state in relation to processing and transfers of personal data for four months from January 1, 2021. This may be extended by two further months. After such period, the U.K. will be a “third country” under the GDPR unless the European Commission adopts an adequacy decision in respect of transfers of personal data to the U.K. In addition, on July 16, 2020, the European Court of Justice invalidated the E.U.-U.S. Privacy Shield Framework, a mechanism under which personal data could be transferred from the European Economic Area (“EEA”) to U.S. entities that had self-certified under the Privacy Shield Framework. The Court also called into question the Standard Contractual Clauses (“SCCs”), noting adequate safeguards must be met for SCCs to be valid. European regulatory guidance regarding these issues continues to evolve, and E.U. regulators across the E.U. Member States have taken different positions regarding continued data transfers to the United States. In the future, SCCs and other data transfer mechanisms will face additional challenges. Given that we had self-certified under the Privacy Shield Framework, these recent developments require us to review and amend the legal mechanisms by which we make and/or receive certain personal data transfers to the United States and other jurisdictions.

The effects of U.S. state, U.S. federal, local, and international laws and regulations that are currently in effect or that may go into effect in the future are significant and may require us to modify our data processing practices and policies, cease offering certain products and solutions, and incur substantial costs and potential liability in an effort to comply with such laws and regulations. Any actual or perceived failure to comply with these and other cybersecurity, privacy, and data protection laws and regulations could result in regulatory scrutiny and increased exposure to the risk of litigation or the imposition of consent orders, resolution agreements, requirements to take particular actions with respect to training, policies or other activities, and civil and criminal penalties, including fines, which could have an adverse effect on our business, results of operations, and financial condition. Moreover, allegations of non-compliance, whether or not true, could be costly, time-consuming, and distracting to management and cause reputational harm.

Failure to comply with anti-corruption laws and regulations could have an adverse effect on our business.

We are subject to evolving anti-corruption laws, economic and trade sanctions, and anti-money laundering rules in several jurisdictions in which we operate, including the United States Foreign Corrupt Practices Act and the U.K. Bribery Act. The evolution of this regulatory regime has generally brought about more aggressive investigations and enforcement, which, if targeted towards us, could materially adversely impact our business. We have policies and procedures in place to assist us with monitoring the evolution of these laws and ensuring our ongoing compliance. We are continuously in the process of reviewing, upgrading, and enhancing these protocols. However, we cannot guarantee that our employees, consultants, or agents will not take actions that amount to a violation of these laws and regulations for which we may be ultimately responsible or that our policies and procedures will be adequate in protecting us from liability. Further, our services agreements with several customers contain contractual provisions mandating our ongoing compliance with applicable anti-corruption, economic, and trade sanctions or anti-money laundering laws or regulations. If we are deemed to be in violation of any such rules, our business activities could be restricted or terminated. In addition, we could face civil and criminal penalties, including fines, which could damage our reputation and customer relationships and materially impact our results of operation or financial condition.

 

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Macroeconomic factors beyond our control, including the state of the economy, impact demand for our products and solutions.

Our results of operations are materially affected by the U.S. and global economic conditions, including the economic downturn following the recent and ongoing COVID-19 pandemic. Global credit and capital markets have experienced unprecedented volatility and disruption. Consumer confidence and spending have decreased while rates of unemployment and underemployment have increased. A substantial majority of our revenues are derived from pre-onboarding screening products, which is heavily influenced by hiring volumes. The businesses of some of our largest customers and their decision to hire depend in part on favorable macroeconomic conditions, including consumer spending, the general availability of credit, the level and volatility of interest rates, and inflation levels. To the extent these macroeconomic factors are at suboptimal levels, our existing and potential customers could delay or defer onboarding new or replacement workers, lay off existing workers to reduce headcount, or seek to decrease spending on their screening programs. As a result, our products could face reduced demand and our business, results of operations, and financial condition could be harmed. Similarly, demand for our tenant screening products is subject to trends in real estate rental markets, which may be affected by macroeconomic factors beyond our control, including housing markets, stock market volatility, recession, job losses and unemployment levels, debt levels, and uncertainty about the future.

We may not be able to identify and successfully implement our growth strategies on a timely basis or at all.

We cannot guarantee that we will succeed in appropriately identifying and successfully executing our strategic plans to grow our businesses, and our inability to do so may be the result of external factors beyond our control. Our ability to grow our business will depend, in large part, on our ability to further penetrate our existing markets, attract new customers, and identify and effectively invest in growing industry verticals. The success of any enhancement of our current products and solutions or any new product or solution depends on several factors, including the timely completion, introduction, and market acceptance of enhanced or new products and solutions, adaptation to new industry standards and technological changes, the ability to maintain and to develop relationships with third parties, and the ability to attract, retain, and effectively train sales and marketing personnel. Our growth could be limited if we fail to innovate or adapt to market trends and product innovations adequately. Any new products and solutions we develop or acquire may not be introduced in a timely or cost-effective manner and may not achieve the market acceptance necessary to generate significant revenues, and any new markets in which we attempt to sell our products and solutions, including new countries or regions, may not be receptive or implementation may be delayed. Our future growth will be adversely affected if we do not identify and invest in faster-growing industry verticals. In addition, any expansion into new markets will require an investment in the continuous monitoring of local laws and regulations, which increases our costs and the risk of the products or service failing to comply with such local laws or regulations. We may also incur costs associated with such plans that are above anticipated amounts.

To successfully manage our growth, we will also need to maintain appropriate staffing levels and update our operating, financial and other systems, procedures, and controls accordingly. Our efforts to grow our business and execute our business strategy may place significant demands on and strain our personnel and organizational structure, including our management, staff, and information systems. If we fail to effectively manage our growth, our business, results of operations, and financial condition could be materially adversely affected.

Disruptions at our Global Operating Center and other operational sites could adversely impact our business.

Our Global Operating Center in Bangalore, India provides critical support for our operations by processing screening requests, undertaking a manual review of records and verifications work, handling certain customer calls and interactions, and completing certain internal shared service support functions. We also have other important operational sites, including Fishers, Indiana; Bolingbrook, Illinois; Atlanta, Georgia; Manila, Philippines; and Mumbai, India. If our operations at our Global Operating Center or such other sites are disrupted, even for a brief period of time, whether due to malevolent acts, defects, computer viruses, climate

 

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change, natural disasters such as earthquakes, fires, hurricanes or floods, power telecommunications failures, or other external events beyond our control, it could result in interruptions in service to our customers, damage to our reputation, harm our customer relationships, and reduced revenues and profitability. In addition, strikes, wars, terrorism, and other geopolitical unrest could cause disruptions in our business and lead to interruptions, delays, or loss of critical data. We may not have sufficient protection on recovery plans in certain circumstances, such as a significant natural disaster, and our business interruption insurance may be insufficient to compensate us for losses that occur. In the case of such an event, customers could elect to terminate our relationship, delay or withhold payment to us, or even make claims against us.

Any damage to our reputation or our brand could adversely affect our business, financial condition, and results of operations.

Developing, protecting, and maintaining our strong reputation among customers, applicants, and third-party partners and vendors is critical to our success. The importance of our brand may increase if competitors offer more products similar to ours or if more competitors enter the market. Our brand may suffer if our service quality declines or if our customer initiatives are not successful. Additionally, the successful protection and maintenance of our brand will depend on our ability to obtain, maintain, protect, and enforce trademark and other intellectual property protection for our brand. If we fail to successfully promote, protect, and maintain our brand, we may lose our existing customers to our competitors or be unable to attract new customers.

The value of our intellectual property and other proprietary rights associated with our brand could diminish if others assert rights in or ownership of trademarks or service marks that are similar to our trademarks or service marks. Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. Opposition or cancellation proceedings may be filed against our trademarks, which may not survive such proceedings. We may be unable to prevent competitors or other third parties from acquiring or using trademarks or service marks that are similar to, infringe upon, misappropriate, dilute, or otherwise violate or diminish the value of our trademarks and service marks, thereby impeding our ability to build brand identity and possibly leading to market confusion. Damage to our reputation or our brand or loss of confidence in our products and solutions could result in decreased demand for our products and solutions, and our business, financial condition, and results of operations may be materially adversely affected.

To the extent our customers reduce their operations, downsize their screening programs, or otherwise demand fewer of our products and solutions, our business could be adversely impacted.

Demand for our products and solutions is subject to our customers’ continual evaluation of their need for our products and solutions and is impacted by several factors, including their budget availability, hiring, and workforce needs, and a changing regulatory landscape. Demand for our offerings is also dependent on the size of our customers’ operations. Our customers could reduce their operations for a variety of reasons, including general economic slowdown, divestitures and spin-offs, business model disruption, poor financial performance, or as a result of increasing workforce automation. Demand for drug screenings may decline as a result of evolving U.S. drug laws. For example, the legalization of cannabis in several U.S. states has led to a decrease in orders for marijuana screenings. Our revenues may be significantly reduced should our customers decide to downsize their screening programs or take such programs in-house.

We operate in a penetrated and competitive market.

The global market for our screening, verifications, and adjacent products is fragmented and competitive. Our competitors vary based on customer size, industry vertical, geography, and product focus. We compete with large players with broad capabilities and product suites, vertical-focused specialist firms that target customers operating in select industries, mid-size players, competitors that serve small and medium-sized business (“SMB”) customers as well as smaller companies serving primarily local businesses. Some competitors are aligned to a

 

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specific product in certain pre-onboarding product lines, such as drug / health screening and executive screening. In our adjacent products market, we compete with certain companies specializing in fleet / vehicle compliance, resident / tenant screening, hiring tax credit screening, and pre-investment screening.

New entrants to the market have in the past emerged, both as start-ups as well as participants in adjacent sectors such as applicant tracking systems and payroll processing companies that seek to integrate background screening into their onboarding products and solutions, and may emerge in the future, which would further increase competition. Additionally, our customers may also decide to insource work that has been traditionally outsourced to us.

In our competitive market environment, we primarily compete on the basis of brand and awareness, accuracy, turnaround time, and price. We must continue to innovate and ensure market acceptance of our products and solutions in order to maintain and grow our business and market share. We are continually subject to the risk that our competitors may develop products and technologies that are superior to ours or achieve greater market acceptance than ours. Continuing strong competition could result in pricing pressure, increased sales and marketing expenses, loss of customers, and greater investments in research and development, each of which could negatively impact our results of operations. The revenues of our competitors and the resources they have available vary depending on size, specialty, and geographic footprint. Some competitors may be able to allocate resources more efficiently than we can or anticipate and respond to existing and emerging market trends, customer preferences, and technologies due to their size and resources. If we fail to compete successfully, our business, financial position, and results of operations could be materially and adversely affected.

We are not guaranteed exclusivity or volumes in our contracts with our customers.

We enjoy long-standing relationships with many of our customers, but our customer contracts and services agreements do not typically require our customers to use our products exclusively or commit to minimum engagement or order volumes. As a result, we rely on our customers’ continuing demand for our products and solutions, our technology, our value proposition, and our brand and reputation to compete. Our customers can stop doing business with us for any reason at any time with minimal notice and without penalty, which they may leverage to renegotiate our arrangements on terms less favorable to us. The loss of a significant customer or any reduced demand for our products and solutions by our customers, especially our large customers, would have a negative impact on our business. For the year ended December 31, 2020, on a pro forma basis to give effect to this offering and the Silver Lake Transaction, we had one customer who accounted for approximately 12% of our revenues. For the three months ended March 31, 2021, there were no customers who accounted for more than 10% of our revenues. We cannot guarantee that we will maintain relationships with any of our customers on acceptable terms or at all or retain, renew or expand upon our existing agreements. The failure to do so could negatively affect our business, financial condition, and results of operations.

We rely on third-party data and service providers. If they are unable to deliver or perform as expected, our ability to operate effectively may be impaired, and our business may be materially and adversely affected.

We rely extensively on data, information, and services provided by or derived from a variety of external sources, including our suppliers, customers, strategic partners, various public filings, credit bureaus, publicly available information, and government authorities. Our suppliers could at any point decline to continue providing data, provide untimely or inaccurate data or increase the costs for their services. It may not be possible for us to recover any or all of the costs of any increases in fees by passing such costs along to our customers. If we try to do so, it could have a negative impact on customer relationships. Our suppliers could also request or require us to enter into minimum order contracts with clawback enforcement provisions. Some suppliers, such as certain criminal data suppliers and drug testing laboratories and collection sites we use, are also owned or may in the future be acquired by one or more of our competitors, which could make us especially vulnerable to unforeseen price increases or outright declinations to continue our relationships. Because our agreements with third-party data providers are generally non-exclusive, we are subject to the risk they may choose to enter into an exclusive

 

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arrangement with one of our competitors or maintain an exclusive proprietary database that is not shared with us. These risks could be exacerbated if our customers request we engage with a particular provider for their orders. We cannot guarantee that we will be able to identify and engage replacement providers on acceptable terms or obtain data from alternative sources in the event our suppliers are no longer able or are unwilling to provide us with certain data or services. If we were to lose access to external data or if our access or use were restricted or were to become less economical or desirable, our ability to timely complete requested services and products at a level of quality acceptable to our customers could be negatively impacted, which could adversely affect our business, results of operations and financial condition.

Data collection and verification by screening providers is dependent on access to databases run by government and law enforcement agencies, including the Federal Bureau of Investigation, state, and federal courthouses, and records systems. If we were to lose or face diminished access to one or more of these data sources, or if government personnel were unable or unwilling to access these data sources on our behalf, our operations could be negatively impacted, and our sales could suffer. Such interruptions result from government shutdowns or slowdowns, such as those that recently occurred during the COVID-19 pandemic, changing laws and regulations, or natural disasters such as earthquakes, hurricanes, or floods. For example, after Hurricane Maria in 2017, certain government and court records in Puerto Rico were unavailable or not updated for an extended period of time. The inability to access or a delay in accessing essential information could result in lengthened and unsatisfactory turnaround times or our inability to offer certain of our products and solutions.

Due to the sensitive and privacy-driven nature of our products and solutions, we could face liability and legal or regulatory proceedings, which could be costly and time-consuming to defend and may not be fully covered by insurance.

The nature of the products and solutions we provide and the information and data collected, processed, transmitted, disclosed, used, and reported by us (including personal information, confidential information, and other sensitive and/or regulated information) subjects us to potential liability from customers, consumers, data subjects, third parties, and government authorities relating to claims of legal or regulatory non-compliance, defamation, invasion of privacy, false light, negligence, intellectual property infringement, misappropriation or other violation and/or other related causes of action. Such liability may depend on actions or events beyond our control, such as how our customers use the information we provide or the veracity of the data we are provided by third parties. For example, we may from time to time be subject to legal claims by applicants for allegedly failing to comply with the FCRA in relation to issues regarding the accuracy of our reports. Likewise, our customers may seek indemnification for losses allegedly caused by negligent hiring or retention by asserting our reports failed to disclose information that would have resulted in an adverse employment decision had it been reported. Such lawsuits and other proceedings could divert resources from our management and potentially subject us to equitable remedies. In addition, punitive damages are available as a remedy under the FCRA, which we are subject to and are generally not covered by insurance. We may also face adverse publicity in connection with such incidents, which could have a negative effect on our reputation and business.

Disruptions with our technology and network infrastructure, including our data centers, servers, and third-party cloud and internet providers, and our migration to the cloud, could have an adverse impact on our business.

Our operating model depends on the efficient and unimpeded operation of our global technology platform and data processing systems. We currently operate data centers and servers around the world. We also rely on our third-party cloud providers to host our websites, databases, and web-based services. Our property and business interruption insurance coverage may not be adequate to fully compensate us for losses that may occur. Severe impairment or total destruction of our data centers could occur, and recovery could be difficult and may not be possible at all. In the event of an accessibility outage or other incident at our data centers or with respect to our third-party cloud providers, our operations could be disrupted, data could be lost, our systems or the quality of our products and solutions could be compromised, and we could suffer financial loss, reputation damage,

 

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potential liability, or customer loss, any of which could have an adverse impact on our business, results of operations, and financial condition. Such outages may be impossible to predict, plan for, or avoid.

Because we rely on such third-party cloud providers, we are subject to risks that we can neither control nor mitigate, including their vulnerability to damage from climate change, earthquakes, hurricanes, floods, acts of terrorism, power loss, telecommunications and other service failures, break-ins, human error, and similar events. Our current or future third-party cloud providers could decide to close their facilities without adequate notice or otherwise cease doing business with us. We cannot guarantee that our current or future third-party cloud providers will keep up with our increasing capacity needs or customer demand. In addition, our users depend on internet service providers, online service providers, and other website operators for access to our systems. These providers could experience outages, delays, and other difficulties due to system failures unrelated to our systems, events which are beyond our control, or mitigation. Any changes in service levels by our current or future third-party cloud providers could result in loss or damage to our stored information and result in operational delays. Any of these events could seriously harm our business, results of operations, and financial condition.

We are currently transitioning towards hosting certain of our technology platform on cloud-based technology. This transition is complex and will require significant changes to our platforms. Scaling and adapting our technology will require a significant lead time and investment in financial and human capital. We cannot guarantee that this transition will be without operational interruptions or other forms of disruption, including loss of information, delayed turnaround times, and deficiencies in our design, implementation, or maintenance of the system. If we experience outages or interruptions in the products and solutions we provide for extended periods of time, our customers could face accessibility issues which would have an adverse impact on our business, results of operations, and financial condition.

Our business, brand, and reputation may be harmed as a result of security breaches, cyber-attacks, employee or other internal misconduct, computer viruses, or the mishandling of personal data.

Our products entail the collection, use, processing, disclosure, storage, and transmission of personal information, confidential information, and other sensitive and/or regulated information of individuals, including personal data.

In general, we utilize encryption and other technologies designed to provide system security for the transmission of confidential or personal data. There is no assurance that our use of applications and other technologies designed for data security, or that of our third-party vendors and service providers, will effectively counter security risks from hackers, computer viruses, and/or other intrusions or incidents. If one of more of our or our vendors’ facilities, computer networks, or databases were to experience a security breach, we could face a risk of loss of, or unauthorized access to and use of, personal data, confidential information, and other sensitive and/or regulated data, which could harm our business and reputation and result in a loss of customers or the imposition of fines or other penalties by governmental agencies, in addition to potential legal claims by our customers and their applicants and employees. Although we have put in place a number of controls and automated redundancies, our protocols and processes can also be violated due to human error, including as a result of phishing and other attempts by others to fraudulently induce the improper disclosure of sensitive information.

The techniques utilized and planned by hackers, bad actors, and other unauthorized entrants are varied and constantly evolving and may not be detected until a breach has occurred. As a result, despite our efforts, it may be difficult or impossible for us to implement measures that fully prevent such attacks or react in a timely manner. Unauthorized parties may in the future attempt to gain access to our systems or facilities through various means, including, among others, hacking into our or our consumers’ systems or facilities, or attempting to fraudulently induce our employees, consumers or others into disclosing usernames, passwords, or other sensitive information, which may, in turn, be used to access our information technology systems and gain access to our data or other confidential, proprietary, or sensitive information. Such efforts may be state-sponsored and

 

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supported by significant financial and technological resources, making them even more difficult to detect and prevent.

Further, certain of our employees have access to sensitive information about the applicants whom we perform background screenings and verifications on. In addition, certain of our third-party service providers and vendors have access to limited portions of our IT systems and may also be subject to such attempts, which then can be used to attempt to infiltrate our systems. Because we do not control our vendors or the processing of data by our vendors, other than through our contractual relationships, our ability to monitor our vendors’ data security may be very limited such that we cannot ensure the integrity or security of measures they take to protect and prevent the loss of our or our consumers’ data. As a result, we are subject to the risk that cyber-attacks on, or other security incidents affecting, our vendors may adversely affect our business even if an attack or breach does not directly impact our systems. It is also possible that security breaches sustained by, or other security incidents affecting, our competitors could result in negative publicity for our entire industry that indirectly harms our reputation and diminishes demand for our products and solutions.

Furthermore, federal and state regulators and many federal and state laws and regulations require notice of certain data security breaches that involve personal information, which, if applicable, could lead to widespread negative publicity, which may cause our customers to lose confidence in the effectiveness of our data security measures. In addition, we may incur significant costs and operational consequences in connection with investigating, mitigating, remediating, eliminating, and putting in place additional measures designed to prevent future actual or perceived security incidents, as well as in connection with complying with any notification or other obligations resulting from any security incidents.

Our insurance policies may not be adequate to reimburse us for losses caused by security breaches, and we may not be able to collect fully, if at all, under these insurance policies. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our business. Furthermore, we cannot be certain that insurance coverage will continue to be available on acceptable terms or at all, or that the insurer will not deny coverage as to any future claim.

If we are unable to fully protect the security and privacy of our data and electronic transactions, or if we or our third-party service providers are unable to prevent any data security breach, incident, unauthorized access, and/or misuse of our information by our customers, employees, vendors, or hackers, it could result in significant liability (including litigation and regulatory actions and fines), cause lasting harm to our brand and reputation, and cause us to lose existing customers and fail to win new customers.

If we fail to continue to integrate our platforms and solutions with that of human resource software providers or if our relationships with human resource software providers deteriorate, our business could be adversely affected.

We partner with many third-party human resource software providers, including applicant tracking systems and human capital management systems, to ensure that customers benefit from an integrated solution that allows them to easily perform both human resource functions and screenings and verifications through a single platform. This depends on our ability to seamlessly integrate our platforms and systems with those of the human resource software providers. If our partnership or arrangements with such providers are terminated for any reason, we risk losing the opportunity for continued integration with the software applications of these companies, which could jeopardize our ability to provide a seamless interface for our customers, result in service disruptions, increase costs and reduce the quality of our products, and ultimately put us at a competitive disadvantage in maintaining our customer relationships and obtaining new ones. Further, if a provider updates its products without providing sufficient notice to us, there could be disruptions to the integration, which could result in errors, delays, and interruptions.

 

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In addition, these third-party human resource software providers are often sources of positive references when a customer is looking to make a purchase or contract renewal decision and may also be a source of new business referrals. If our relationships with these third parties were to deteriorate or if our arrangements with them were to expire, our business and our ability to win new customers and retain existing customers may be adversely affected.

We are subject to risks relating to public opinion, which may be magnified by incidents or adverse publicity concerning our industry or operations.

We operate in an industry that involves the risk of negative publicity, especially relating to cybersecurity, privacy, and data protection, and adverse developments with respect to our industry may also, by association, negatively impact our reputation. For example, when information services companies are involved in high-profile events involving data theft, these events could result in increased legal and regulatory scrutiny, adverse publicity, and potential litigation concerning the commercial use of such information for our industry in general. If there is a perception that the practices of our business or our industry constitute an invasion of privacy, our business and results of operations may be negatively impacted. There have been and may continue to be perception issues, social stigmas, and negative media attention regarding the collection, use, accuracy, correction, and sharing of personal data, which could materially adversely affect our business, results of operations, and financial condition.

We rely on third-party vendors to carry out certain portions of our operations. If they cannot deliver or perform as expected or if our relationships with them are terminated or otherwise change, our business operations and results of operations could be materially and adversely affected.

Our ability to deliver products to our customers effectively requires us to work with certain third-party vendors and service providers. For example, we engage third-party vendors to maintain and upgrade portions of our software and technology platforms. In addition, from time to time, we engage third-party support service providers depending on-demand requirements on our operations and customer service call centers. Our business, therefore, depends on such third parties meeting our expectations and the expectations of our customers in timeliness, quality, and volume. We cannot guarantee our third-party providers will be able to do so on a cost-effective basis or at all due to a number of factors, including those attributable to the COVID-19 pandemic. Some of the third-party vendors that we rely on conduct operations outside the United States, which subjects us to the risk that economic, political, and military events in foreign jurisdictions might cause an interruption to our operations. We may not be able to ensure that our third-party vendors perform in accordance with agreed-upon, regulated, and expected standards. We could be held accountable for their failure to do so, which may subject us to fines or other sanctions. If our third-party vendors do not meet our expectations and those of our customers, it could negatively affect our reputation, harm our relationships with existing customers, and hamper our ability to win new customers.

While we have entered into agreements with some of these third-party service providers, they have no obligation to renew their agreements with us on commercially reasonable terms or at all. If any one of our third-party service provider’s ability to perform their obligations was impaired, we may not be able to find an alternative supplier in a timely manner or on acceptable financial terms, which could result in operational interruptions.

In addition, any shift in business strategy, corporate reorganization, or financial difficulties, such as bankruptcy faced by our third-party providers, may have negative effects on our ability to implement our business strategy.

Any termination of our agreements with, or disruption in the performance of, one or more of these third-party providers could result in operational disruptions and delayed turnaround times. This could adversely impact our relationships with our existing customers, reduce our ability to attract new customers, impact our ability to innovate and introduce new products and solutions, and result in an inability to meet our obligations or require us

 

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to seek alternative service providers on less favorable terms, any of which can adversely affect our business, results of operations, and financial condition.

Our international business exposes us to a number of risks.

We perform screenings and verifications internationally, including helping businesses screen their applicants with backgrounds that include international jurisdictions outside of the business’ domestic base of operations. In 2020, we performed screenings for our customers on individuals from more than 200 countries and territories, and we continue to expand our international operations. The laws and regulations governing our international operations are numerous, varied, and evolving. It may be difficult to correctly identify, interpret, and ensure compliance with these laws and regulations, and we cannot be certain we will avoid liability for noncompliance or improper compliance with such laws and regulations. Any such cost or liability could have a material adverse effect on our business, financial condition, and results of operations. See “—We operate in a highly regulated industry and are subject to numerous and evolving laws and regulations” and “—If regulatory regimes continue to heighten their scrutiny over personal data and data security, it could lead to increased restrictions, loss of revenue opportunity, greater costs of compliance, and lost efficiency.”

Because we generate a portion of our revenues and operating income outside of the United States, we are exposed to market risk from changes in foreign currency exchange rates that could impact our results of operations, financial position, and cash flows. Such fluctuations could have a negative or positive impact on our revenues and results of operations in any given period, which may make it difficult to compare our operating results across different periods. Foreign currency exchange rate fluctuations may also adversely impact third-party vendors we rely on for services, which may be passed along to us in the form of price increases.

In addition, as a result of our international footprint, our business, financial condition, and results of operations could be subject to factors beyond our control, including, but not limited to:

 

   

our ability to oversee and staff our international operations;

 

   

foreign exchange controls that might prevent us from repatriating cash to the United States;

 

   

unfavorable foreign tax rules;

 

   

language and cultural differences;

 

   

trade relations, political and economic instability, and international conflicts;

 

   

non-compliance with applicable currency exchange control regulations, transfer pricing regulations, or other similar regulations;

 

   

violations of the Foreign Corrupt Practices Act or similar anticorruption laws by acts of agents and other intermediaries whom we have limited or no ability to control; and

 

   

violations of regulations enforced by the U.S. Department of The Treasury’s Office of Foreign Asset Control.

Our continued success depends in large part on the service of our key executives and our ability to find and retain qualified employees.

We depend to a large degree on the personal efforts, abilities, and performance of the members of our senior leadership team and other key personnel. Our current management team has led our company since 2017 and in that time has driven strategic and transformational initiatives across operations, product, engineering, and sales to accelerate growth and product development. Although we maintain employment contracts with certain of our officers, the possibility remains they may terminate their employment relationship with us at any time. If any of our key personnel were unable or unwilling to continue in their present positions, it may be difficult to replace them, and their departure could adversely affect our business, financial condition, and results of operations.

 

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Our ability to grow our business and provide our customers with the products and solutions they have grown to expect from us is also dependent on our ability to attract and retain highly motivated and qualified people. Competition for skilled employees in our industry is intense and, if we are unable to attract and retain an able workforce, our business, results of operations, and financial condition may suffer.

If we are unable to obtain, maintain, protect and enforce our intellectual property and other proprietary information, or if we infringe, misappropriate or violate the intellectual property rights of others, the value of our brands and other intangible assets may be diminished, and our business may be adversely affected.

Our intellectual property rights and other proprietary rights are important to our business, and our ability to compete and our success depend, in part, on obtaining, maintaining, protecting, and enforcing such rights. In particular, the technology solutions we have created to deliver screening solutions, automate and integrate our platforms with third-party human capital management and applicant tracking systems, and gather and process information from various data sources and suppliers are critical to the success of our business. We rely on a combination of patent, copyright, trademark, and trade secret laws, as well as licensing agreements, intellectual property assignment agreements, third-party nondisclosure agreements, and other confidentiality agreements with our employees, customers, vendors, partners, and others to protect our intellectual property rights. These protections may not be adequate to prevent our competitors from copying our products and solutions or otherwise infringing on, misappropriating, or violating our intellectual property rights, and we may need to devote significant additional resources and time to ensure our intellectual property rights are adequately protected, including by bringing litigation against third parties to enforce our intellectual property rights. We cannot guarantee that we will be successful in prevailing in any such matters, regardless of our expenditures and efforts. Our efforts to enforce our intellectual property and other proprietary rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property and other proprietary rights, and if such defenses, counterclaims, or countersuits are successful, it could diminish or we could otherwise lose valuable intellectual property and other proprietary rights. In addition, some of the laws in foreign markets in which we operate do not protect intellectual property and other proprietary rights to the same level of protection as do the laws of the United States, and the mechanisms for enforcement of intellectual property and other proprietary rights in such countries may be inadequate.

In addition, our competitors and other third parties may also design around or independently develop similar technology or otherwise duplicate or mimic our products such that we would not be able to successfully assert our intellectual property or other proprietary rights against them. We cannot assure that any future patent, trademark, or service mark registrations will be issued for our pending or future applications or that any of our current or future patents, copyrights, trademarks, or service marks (whether registered or unregistered) will be valid, enforceable, sufficiently broad in scope, provide adequate protection of our intellectual property or other proprietary rights, or provide us with any competitive advantage.

Furthermore, we may also be subject to claims of intellectual property infringement, misappropriation, or violation by third parties, including our competitors. Even if we are unaware of such rights, we may be found by courts to be infringing upon, misappropriating, or violating them. If successfully asserted against us or if we decide to settle such matters, we could be required to pay substantial damages or ongoing royalty payments, obtain licenses, which may not be available on commercially reasonable terms, or at all, modify our products and solutions (including our applications), or discontinue certain products. We may also be obligated to indemnify applicants, customers, vendors, or partners in connection with any such claim or litigation. Even if we prevail in a dispute, any litigation regarding intellectual property could be costly, time-consuming, and require the deployment of significant resources, and could result in lasting harm being done to our brand and reputation, results of operations or financial condition, or have other adverse consequences.

 

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If we are unable to maintain, protect and enforce the confidentiality of our trade secrets, our business and competitive position would be harmed.

In order to safeguard our innovations and competitive advantages, we partially rely on trade secrets. We cannot guarantee that we will be successful in maintaining, protecting, or enforcing the confidentiality of our trade secrets or that our non-disclosure agreements will provide sufficient protection of our trade secrets, know-how, or other proprietary information in the event of any unauthorized use, misappropriation, or other disclosure. Although we have taken steps to protect our trade secrets, including entering into confidentiality agreements with third parties and confidential information and inventions agreements with employees, consultants, and advisors, we cannot provide any assurances that any of these parties may not breach the agreements and disclose our proprietary information, including our trade secrets. For example, if a party to one of our non-disclosure agreements were to breach said agreement, we cannot guarantee that adequate remedies will be available to rectify any subsequent damages or losses of confidential and proprietary information. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. It is also possible that our trade secrets will become known by some other mechanism or independently developed by our competitors, and we would have no right to prevent them from using that technology or information to compete with us. For example, a significant portion of our proprietary databases is assembled from publicly available information sources, and third parties, including our competitors, could compile similar or competing databases by accessing the same publicly available information sources.

The use of open-source software in our applications may expose us to additional risks and harm our intellectual property rights.

We have in the past and may in the future continue to incorporate certain “open source” software into our codebase and our products and solutions. Open-source software is generally licensed by its authors or other third parties under open source licenses, which typically do not provide any representations, warranties, or indemnity coverage by the licensor. Some of these licenses provide that combinations of open source software with a licensee’s proprietary software are subject to the open source license and require that the combination be made available to third parties in source code form, at no cost, or subject to other unfavorable conditions. Some open-source licenses may also require the licensee to grant licenses under certain of its own intellectual property to third parties. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate such software into their products or applications. The terms of various open-source licenses have not been interpreted by courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our use of open-source software or our proprietary rights. In addition, if we were to combine our applications with open source software in a certain manner, we could, under certain of the open-source licenses, be required to publicly release or license, at no cost, our products that incorporate the open source software or the affected portions of our source code, which could allow our competitors or other third parties to create similar products and solutions with lower development effort, time, and costs, and could ultimately result in a loss of transaction volume for us. If we inappropriately use open-source software, we may be required to redesign our applications, seek licenses from third parties in order to continue offering our products, which may not be available on commercially reasonable terms, or at all, discontinue the sale of our products or solutions, or take other remedial actions, each of which could reduce or eliminate the value of our technologies and could adversely impact our business, operating results, or financial condition.

We cannot ensure that we have not incorporated open source software in our software in a manner that is inconsistent with the terms of the applicable license or our current policies, and we may inadvertently use open source in a manner that we do not intend, or that could expose us to claims for breach of contract or intellectual property infringement, misappropriation, or other violation. If we fail to comply, or are alleged to have failed to comply, with the terms and conditions of our open source licenses, we could be required to incur significant legal

 

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expenses defending such allegations, be subject to significant damages, be enjoined from the sale of our products and solutions, and be required to comply with onerous conditions or restrictions on our products and solutions, any of which could be materially disruptive to our business. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition, or require us to devote additional development resources to change our applications.

Real or perceived errors, failures, or bugs in our products could adversely affect our business, results of operations, financial condition, and growth prospects.

Our products are complex, and therefore undetected errors, failures, bugs, or defects may be present in our products or occur in the future in our products, our technology or software or technology or software we license in from third parties, including open source software, especially when updates or new products are released. Such software and technology are used in IT environments with different operating systems, system management software, devices, databases, servers, storage, middleware, custom, and third-party applications and equipment and networking configurations, which may cause errors, failures, bugs, or defects in the IT environment into which such software and technology are deployed. This diversity increases the likelihood of errors, failures, bugs, or defects in those IT environments. Despite testing by us, real or perceived errors, failures, bugs, or defects may not be found until our customers use our products. Real or perceived errors, failures, bugs or defects in our products could result in negative publicity, loss of or delay in market acceptance of our products and harm to our brand, weakening of our competitive position, claims by customers for losses sustained by them or failure to meet the stated service level commitments in our customer agreements. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend significant additional resources in order to help correct the problem. Any real or perceived errors, failures, bugs, or defects in our products could also impair our ability to attract new customers, retain existing customers or expand their use of our products, which would adversely affect our business, results of operations, and financial condition.

Additionally, if customers fail to adequately deploy protection measures or update our products, customers and the public may erroneously believe that our products are especially susceptible to cyber-attacks. Real or perceived security breaches against our products could cause disruption or damage to our customers’ networks or other negative consequences and could result in negative publicity to us, damage to our reputation, lead to other customer relations issues and adversely affect our revenue and results of operations. We may also be subject to liability claims for damages related to real or perceived errors, failures, bugs, or defects in our products. A material liability claim or other occurrence that harms our reputation or decreases market acceptance of our products may harm our business and results of operations. Finally, since some of our customers use our products for compliance reasons, any errors, failures, bugs, defects, disruptions in service, or other performance problems with our products may damage our customers’ business and could hurt our reputation.

Our estimates of the total addressable market, current market, market opportunity, and potential for market growth may prove to be inaccurate, which could impact our predicted operations.

We cannot guarantee that estimates and forecasts we rely upon in this prospectus relating to the size, composition, and expected growth of our target market will prove to be accurate, particularly as it relates to international markets where there is less information about hiring volumes and trends, as well as greater prevalence of smaller local players. Any market opportunity estimates or growth forecasts are based on assumptions and estimates that may not come to fruition or prove to be accurate, subjecting such predictions to uncertainty. For more information regarding the estimates of market opportunity and the forecasts of market growth included in this prospectus, see “Business—Our Market Opportunity.”

We may not be able to identify attractive acquisition targets and strategic partnerships or successfully complete such transactions.

Part of our strategy is to selectively pursue complementary acquisitions and strategic partnerships. Opportunities to grow our business through acquisitions, joint ventures, and other alliances may not be available

 

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to us in the future. We cannot guarantee that we will be able to identify attractive targets that are a strategic fit with our business or that we will be able to agree upon acceptable terms. Our ability to successfully identify and complete future acquisitions with reasonable valuations may also be affected by factors out of our control, including general market conditions, volatility in the capital and debt markets, and other macroeconomic and geopolitical risks. Furthermore, a number of our competitors expand and diversify through acquisitions, and we likely will experience competition in our effort to execute our acquisition strategy. As a result, we may be unable to continue to make acquisitions or may be forced to pay more for the companies we are able to acquire.

We may not be able to integrate or manage acquired businesses and strategic partnerships so as to produce returns that justify the investment. Integrating acquisitions or other business relationships may result in unforeseen operating difficulties and expenditures, disrupt our ongoing business, divert our resources, and require significant management attention that would otherwise be available for the ongoing development of our business. In particular, it may prove difficult to integrate the personnel, operations, intellectual property, and/or technology systems of any acquired organizations, and to maintain uniform standards, policies, and procedures across multiple platforms and locations, including for those located outside the United States. This may result in a greater than anticipated increase in the transaction, remediation, and integration costs and could discourage us from entering into acquisitions where the potential for such costs outweigh the perceived benefit. Further, although we conduct due diligence with respect to the business and operations of each of the companies we acquire, we may not have identified all material facts concerning these companies, which could result in unanticipated events or liabilities. We cannot guarantee that any acquisitions we seek to enter into will be carried out on favorable terms or that the anticipated benefits of any acquisition, investment, or business relationship will materialize as intended or that no unanticipated liabilities will arise.

Seasonality may cause our operating results to fluctuate from quarter to quarter.

We experience seasonality with respect to certain industries we service due to fluctuations in hiring volumes and other economic activity. For example, pre-onboarding revenues generated from our customers in the retail and transportation industries are historically highest during the September through November months leading up to the holiday season and lowest at the beginning of the first quarter following the holiday season. Certain customers across various industries also historically ramp up their hiring throughout the first half of the year as winter concludes, commercial activity tied to outdoor activities increases, and the school year ends, giving rise to student and graduate hiring. In addition, apartment rental activity and associated screening activity typically decline in the fourth quarter heading into the holiday season.

In addition, customers may elect to complete post-onboarding screening such as workforce re-screens and other products at different periods and intervals during any given year. It is not always possible to accurately forecast the timing and magnitude of these projects.

Further, digital transformation, growth in e-commerce, and other economic shifts can impact seasonality trends, making it difficult for us to predict how our seasonality may evolve in the future. As a result, it may be difficult to forecast our results of operations accurately, and there can be no assurance that the results of any particular quarter or other period will serve as an indication of our future performance.

Our implementation cycles can be lengthy and variable, depend upon factors outside our control, and could cause us unexpected delays in generating revenues or result in lower than anticipated revenues.

Unexpected delays and difficulties can occur as customers implement and test our products and solutions. Implementation typically involves integration with our customers’ and third-party systems and internal processes, as well as adding customer and third-party data to our platform. This can be complex and time-consuming for our customers and can result in delays. We provide our customers with upfront estimates regarding the duration and resources associated with the implementation of our products and solutions. However, delays may occur due to discoveries made during the implementation process, such as unique or unusual

 

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customer requirements or our internal limitations. If we are unable to resolve these issues and we fail to meet the upfront estimates and the expectations of our customers, it could result in customer dissatisfaction, loss of customers, delays in generating revenues, or negative brand perception about us and our products and solutions. Our implementation cycles could also be disrupted by factors outside of our control, such as deficiencies in the platform of our customers or third-party ATS or HCM systems, which could adversely affect our business, results of operations, and financial condition.

The interpretation of tax laws may have a material adverse effect on our business.

Tax laws and related interpretations with respect to income taxation are frequently reviewed and amended by governmental bodies, officials, and regulatory agencies in the United States and other jurisdictions in which we do business. Our provision for income taxes may be adversely affected by changes to our operating model, changes in the mix of income and expenses in countries with differing tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws, regulations, or administrative interpretations. For example, the results of the United States presidential election in 2020 could lead to changes in tax laws that could negatively impact our effective tax rate. Prior to this presidential election, President Joseph Biden proposed an increase in the U.S. corporate income tax rate from 21% to 28%, doubling the rate of tax on certain earnings of foreign subsidiaries, creation of a 10% penalty on certain imports and a 15% minimum tax on worldwide book income. If any or all of these (or similar) proposals are ultimately enacted into law, in whole or in part, they could have a negative impact on our effective tax rate. It cannot be predicted whether or when tax laws, regulations, and rulings may be enacted, issued, or amended that could materially and adversely impact our financial position, results of operations, or cash flows.

Risks Related to Our Indebtedness

Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, and prevent us from meeting our obligations.

We have a significant amount of indebtedness. As of March 31, 2021, prior to giving effect to this offering and the use of proceeds therefrom, we had approximately $764.7 million of aggregate principal amount of secured indebtedness outstanding and an additional $75.0 million of availability under our revolving credit facility. We have entered into an amendment to increase the borrowing capacity under our revolving credit facility to $100.0 million, which will become effective upon the closing of this offering.

Our substantial level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. Our substantial indebtedness could have other important consequences to us, including:

 

   

increase our vulnerability to adverse changes in the general economic, industry, and competitive conditions;

 

   

require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, and other general corporate purposes;

 

   

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

 

   

require us to repatriate cash from our foreign subsidiaries to accommodate debt service payments;

 

   

expose us to the risk of increased interest rates as certain of our borrowings, including borrowings under our term loan facility and revolving credit facility, are at variable rates, and we may not be able to enter into interest rate swaps, and any swaps we enter into may not fully mitigate our interest rate risk;

 

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restrict us from capitalizing on business opportunities;

 

   

make it more difficult to satisfy our financial obligations, including payments on our indebtedness;

 

   

place us at a competitive disadvantage compared to our competitors that have less debt; and

 

   

limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy, or other general corporate purposes.

In addition, the credit agreement governing our term loan facility and revolving credit facility contains, and the agreements governing future indebtedness may contain, restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all of our indebtedness.

We may be able to incur significant additional indebtedness in the future. Although the credit agreement governing our term loan facility and revolving credit facility contain restrictions on the incurrence of additional indebtedness by us, such restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. Also, these restrictions do not prohibit us from incurring obligations that do not constitute indebtedness as defined therein. To the extent that we incur additional indebtedness or such other obligations, the risk associated with our substantial indebtedness described above will increase. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Long-Term Debt.”

We will require a significant amount of cash to service our debt, and our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations could materially adversely affect our business, results of operations, and financial condition.

Our ability to make payments on and to refinance our indebtedness and to fund working capital needs and planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory, and other factors that are beyond our control.

If our business does not generate sufficient cash flow from operations or if future borrowings are not available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness on or before the maturity thereof, sell assets, reduce or delay capital investments or seek to raise additional capital, any of which could have a material adverse effect on our operations. In addition, we may not be able to effect any of these actions, if necessary, on commercially reasonable terms or at all. Our ability to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments, including the credit agreement governing our term loan facility and revolving credit facility, may limit or prevent us from taking any of these actions. In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on commercially reasonable terms or at all. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would have an adverse effect, which could be material, on our business, results of operations, and financial condition, as well as on our ability to satisfy our obligations in respect of our term loan facility and revolving credit facility.

 

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Our debt instruments restrict our current and future operations, particularly our ability to respond to changes or take certain actions.

The credit agreement governing our term loan facility and revolving credit facility impose significant operating and financial restrictions and limit our ability to:

 

   

incur additional indebtedness and guarantee indebtedness;

 

   

pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock;

 

   

prepay, redeem or repurchase certain debt;

 

   

make acquisitions, investments, loans, and advances;

 

   

sell or otherwise dispose of assets;

 

   

incur liens;

 

   

enter into transactions with affiliates;

 

   

enter into agreements restricting our subsidiaries’ ability to pay dividends;

 

   

consolidate, merge or sell all or substantially all of our assets; and

 

   

engage in certain fundamental changes, including changes in the nature of our business.

As a result of these covenants and restrictions, we are and will be limited in how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. In addition, we are required to maintain specified financial ratios and satisfy other financial condition tests. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot guarantee that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.

Our failure to comply with the restrictive covenants described above as well as others contained in our future debt instruments from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected.

Our failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events beyond our control, could result in an event of default that could materially adversely affect our business, results of operations, and financial condition.

If there were an event of default under any of the agreements relating to our outstanding debt, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. Our assets or cash flow may not be sufficient to fully repay borrowing under our outstanding debt instruments if accelerated upon an event of default. Further, if we are unable to repay, refinance or restructure our secured debt, the holders of such debt could proceed against the collateral securing such debt. In addition, any event of default or declaration of acceleration under one debt instrument could also result in an event of default under one or more of our other debt instruments. As a result, any default by us on our debt could have a materially adverse effect on our business, results of operations, and financial condition.

The phase-out of LIBOR could affect interest rates under our credit facilities.

On July 27, 2017, the United Kingdom’s Financial Conduct Authority announced it intends to stop compelling banks to submit rates for the calculation of the London Interbank Offered Rate (“LIBOR”) after 2021. It is unclear if LIBOR will cease to exist at that time, if a new method of calculating LIBOR will be established, or if an alternative reference rate will be established. The Federal Reserve Board and the Federal

 

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Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to U.S. dollar LIBOR in derivatives and other financial contracts. We are not able to predict when LIBOR will cease to be available or if SOFR, or another alternative reference rate, attains market traction as a LIBOR replacement. LIBOR is used as the reference rate for Eurocurrency borrowings under our credit facilities. If LIBOR ceases to exist, we and the administration agent for our credit facilities may amend our credit agreement to replace LIBOR with a different benchmark index and make certain other conforming changes to our credit agreement. As such, the interest rate on Eurocurrency borrowings under our credit facilities may change. The new rate may not be as favorable as those in effect prior to any LIBOR phase-out. Furthermore, the transition process may result in delays in funding, higher interest expense, additional expenses, and increased volatility in markets for instruments that currently rely on LIBOR, all of which could negatively impact our interest expense, results of operations, and cash flow.

Risks Related to this Offering and Ownership of Our Common Stock

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act, and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging growth company”, among other exemptions:

 

   

we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act,

 

   

we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and

 

   

we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, meaning that the company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period, and as a result, our financial statements may not be comparable with similarly situated public companies.

We may remain an “emerging growth company” until the fiscal year-end following the fifth anniversary of the completion of this initial public offering, though we may cease to be an “emerging growth company” earlier under certain circumstances, including (1) if our gross revenues exceed $1.07 billion in any fiscal year, (2) if we become a large accelerated filer, with at least $700 million of equity securities held by non-affiliates, or (3) if we issue more than $1.0 billion in non-convertible notes in any three year period.

We cannot predict if investors may find our common stock less attractive if we rely on the exemptions and relief granted by the JOBS Act. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may decline and/or become more volatile.

We may be a “controlled company” within the meaning of the Nasdaq rules and the rules of the SEC and, as a result, qualify for exemptions from certain corporate governance requirements.

After completion of this offering, our Sponsor will continue to control a majority of the voting power of our outstanding common stock. As a result, we may be a “controlled company” within the meaning of the corporate

 

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governance standards of Nasdaq. Under these rules, a company of which more than 50% of the voting power is held by an individual, group, or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that:

 

   

a majority of our board of directors consist of “independent directors” as defined under the Nasdaq rules;

 

   

our director nominees be selected, or recommended for our board of directors’ selection by a nominating/governance committee comprised solely of independent directors; and

 

   

the compensation of our executive officers be determined, or recommended to our board of directors for determination, by a compensation committee comprised solely of independent directors.

Although we do not intend to rely on the exemptions from these corporate governance requirements, if we do rely on such exemptions in the future, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

Our Sponsor controls us and its interests may conflict with yours in the future.

Immediately following this offering, our Sponsor will beneficially own 76.9% of our common stock, or 75.3% if the underwriters exercise in full their option to purchase additional shares. Our Sponsor will be able to control the election and removal of our directors and thereby determine our corporate and management policies, including potential mergers or acquisitions, payment of dividends, asset sales, amendment of our certificate of incorporation or bylaws and other significant corporate transactions for so long as our Sponsor and its affiliates retain significant ownership of us. This concentration of our ownership may delay or deter possible changes in control of the Company, which may reduce the value of an investment in our common stock. So long as our Sponsor continues to own a significant amount of our combined voting power, even if such amount is less than 50%, our Sponsor will continue to be able to strongly influence or effectively control our decisions and, so long as our Sponsor and its affiliates collectively own at least 5% of all outstanding shares of our stock entitled to vote generally in the election of directors, our Sponsor will be able to nominate individuals to our board of directors under the stockholders’ agreement that we expect to enter into in connection with this offering. In addition, the stockholders’ agreement will grant to our Sponsor and its affiliates and certain of their transferees certain governance rights for as long as our Sponsor and its affiliates and certain of their transferees maintain ownership of at least 25% of our outstanding common stock, including rights of approval over the entry into joint ventures or similar business alliance having a fair market value of more than $100 million, incurrence of debt for borrowed money in excess of $100 million, the increase or reduction in the size of our board of directors, initiation of any liquidation, dissolution, bankruptcy or other insolvency proceeding, the appointment or termination of our chief executive officer, or any material change in the nature of our business. See “Certain Relationships and Related Party Transactions—Stockholders’ Agreement.” The interests of our Sponsor may not coincide with the interests of other holders of our common stock.

In the ordinary course of their business activities, our Sponsor and its affiliates may engage in activities where their interests conflict with our interests or those of our stockholders. Our certificate of incorporation will provide that our Sponsor, any of its affiliates or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his or her director and officer capacities) or his or her affiliates will not have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Our Sponsor also may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. In addition, our Sponsor may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance its investment, even though such transactions might involve risks to you.

In addition, the Sponsor and its affiliates will be able to determine the outcome of all matters requiring stockholder approval and will be able to cause or prevent a change of control of the Company or a change in the composition of our board of directors and could preclude any acquisition of the Company. Further, under the stockholders’ agreement, so long as our Sponsor and its affiliates and certain of their transferees maintain ownership of at least 25% of our outstanding common stock, they will have approval rights of any change of

 

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control transaction, which could preclude any unsolicited acquisition of our shares. This concentration of voting control could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of the Company and ultimately might affect the market price of our common stock.

We will incur increased costs and become subject to additional regulations and requirements as a result of becoming a public company, and our management will be required to devote substantial time to new compliance matters, which could lower our profits or make it more difficult to run our business.

As a public company, we will incur significant legal, regulatory, finance, accounting, investor relations, and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements and costs of recruiting and retaining non-executive directors. We also have incurred and will incur costs associated with the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and related rules implemented by the SEC, and Nasdaq. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. Our management will need to devote a substantial amount of time to ensure that we comply with all of these requirements, diverting the attention of management away from revenue-producing activities. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

Failure to comply with requirements to design, implement and maintain effective internal controls could have a material adverse effect on our business and stock price.

As a privately-held company, we were not required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act, or Section 404.

As a public company, we will have significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements, and harm our operating results. In addition, we will be required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the second annual report following the completion of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business. If we are no longer an “emerging growth company,” our auditors will be required to issue an attestation report on the effectiveness of our internal controls on an annual basis.

In connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the remediation of any deficiencies identified by our independent registered public accounting firm in connection with the issuance of their attestation report. Our testing, or the subsequent testing (if required) by our independent registered public accounting firm, may reveal

 

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deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Any material weaknesses could result in a material misstatement of our annual or quarterly consolidated financial statements or disclosures that may not be prevented or detected.

We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not issue an unqualified opinion. If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report (to the extent it is required to issue a report), investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our common stock.

There may not be an active, liquid trading market for shares of our common stock, which may cause shares of our common stock to trade at a discount from the initial offering price and make it difficult to sell the shares of common stock you purchase.

Prior to this offering, there has not been a public trading market for shares of our common stock. We cannot predict the extent to which investor interest in us will lead to the development of a trading market or how active and liquid that market may become. If an active and liquid trading market does not develop or continue, you may have difficulty selling your shares of our common stock at an attractive price or at all. The initial public offering price per share of common stock will be determined by agreement among us, the selling stockholders and the representatives of the underwriters, and may not be indicative of the price at which shares of our common stock will trade in the public market after this offering. The market price of our common stock may decline below the initial offering price and you may not be able to sell your shares of our common stock at or above the price you paid in this offering, or at all.

Our stock price may change significantly following this offering, and you may not be able to resell shares of our common stock at or above the price you paid or at all, and you could lose all or part of your investment as a result.

Even if a trading market develops, the market price of our common stock may be highly volatile and could be subject to wide fluctuations. You may not be able to resell your shares at or above the initial public offering price due to a number of factors such as those listed in “—Risks Related to Our Business” and the following:

 

   

results of operations that vary from the expectations of securities analysts and investors;

 

   

results of operations that vary from those of our competitors;

 

   

changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors;

 

   

changes in economic conditions for companies in our industry;

 

   

changes in market valuations of, or earnings and other announcements by, companies in our industry;

 

   

declines in the market prices of stocks generally;

 

   

additions or departures of key management personnel;

 

   

strategic actions by us or our competitors;

 

   

announcements by us, our competitors, our suppliers or our distributors of significant contracts, price reductions, new products or technologies, acquisitions, dispositions, joint marketing relationships, joint ventures, other strategic relationships or capital commitments;

 

   

changes in preference of our customers and our market share;

 

   

changes in general economic or market conditions or trends in our industry or the economy as a whole;

 

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changes in business or regulatory conditions;

 

   

future sales of our common stock or other securities;

 

   

investor perceptions of or the investment opportunity associated with our common stock relative to other investment alternatives;

 

   

the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;

 

   

changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business;

 

   

announcements relating to litigation or governmental investigations;

 

   

guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;

 

   

the development and sustainability of an active trading market for our stock;

 

   

changes in accounting principles; and

 

   

other events or factors, including those resulting from informational technology system failures and disruptions, natural disasters, war, acts of terrorism or responses to these events.

Furthermore, the stock market may experience extreme volatility that, in some cases, may be unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low.

In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were to become involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.

Investors in this offering will suffer immediate and substantial dilution.

The initial public offering price per share of common stock will be substantially higher than our as adjusted net tangible book value (deficit) per share immediately after this offering. As a result, you will pay a price per share of common stock that substantially exceeds the per share book value of our tangible assets after subtracting our liabilities. In addition, you will pay more for your shares of common stock than the amounts paid by our existing stockholders. Assuming an initial public offering price of $14.00 per share of common stock, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, you will incur immediate and substantial dilution in an amount of $15.91 per share of common stock. If the underwriters exercise their option to purchase additional shares, you will experience additional dilution. See “Dilution.”

You may be diluted by the future issuance of additional common stock in connection with our incentive plans, acquisitions or otherwise.

After this offering we will have approximately 852,250,000 shares of common stock authorized but unissued. Our amended and restated certificate of incorporation to become effective immediately prior to the consummation of this offering will authorize us to issue these shares of common stock and options relating to common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. We have reserved shares for issuance under the 2021 Equity Plan and the ESPP. See “Management—Executive Compensation—Long-Term Equity Incentive

 

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Compensation.” Any common stock that we issue, including under the 2021 Equity Plan or the ESPP or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by the investors who purchase common stock in this offering. In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.

Because we have no plans to pay cash dividends on our common stock, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.

We have no plans to pay cash dividends on our common stock. The declaration, amount and payment of any future dividends will be at the sole discretion of our board of directors, and will depend on, among other things, general and economic conditions, our results of operations and financial condition, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, including restrictions under our credit agreement and other indebtedness we may incur, and such other factors as our board of directors may deem relevant. See “Dividend Policy.”

As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than your purchase price.

First Advantage Corporation is a holding company with no operations of its own and, as such, it depends on its subsidiaries for cash to fund all of its operations and expenses, including future dividend payments, if any.

Our operations are conducted entirely through our subsidiaries and our ability to generate cash to meet our debt service obligations or to make future dividend payments, if any, is highly dependent on the earnings and the receipt of funds from our subsidiaries via dividends or intercompany loans. We do not currently expect to declare or pay dividends on our common stock for the foreseeable future; however, to the extent that we determine in the future to pay dividends on our common stock, the agreements governing our indebtedness may restrict the ability of our subsidiaries to pay dividends or otherwise transfer assets to us. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of our common stock.

Future sales, or the perception of future sales, by us or our existing stockholders in the public market following this offering could cause the market price for our common stock to decline.

The sale of substantial amounts of shares of our common stock in the public market, or the perception that such sales could occur, including sales by our Sponsor, could harm the prevailing market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Upon completion of this offering we will have a total of 147,750,000 shares of our common stock outstanding. Of the outstanding shares, the 21,250,000 shares sold in this offering (or 24,437,500 shares if the underwriters exercise their option to purchase additional shares) will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act, or Rule 144, including our directors, executive officers and other affiliates (including our Sponsor), may be sold only in compliance with the limitations described in “Shares Eligible for Future Sale.”

The remaining outstanding 126,500,000 shares of common stock held by our existing stockholders after this offering will be subject to certain restrictions on resale. We, the selling stockholders, our executive officers, directors and pre-offering holders of substantially all of our common stock and securities convertible into or exchangeable for our common stock will sign lock-up agreements with the underwriters that will, subject to certain customary exceptions, restrict the sale of the shares of our common stock and certain other securities held

 

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by them for 180 days following the date of this prospectus. Two of three of Barclays Capital Inc., BofA Securities, Inc., and J.P. Morgan Securities LLC may, in their sole discretion and at any time without notice, release all or any portion of the shares or securities subject to any such lock-up agreements. See “Underwriting (Conflicts of Interest)” for a description of these lock-up agreements.

Upon the expiration of the lock-up agreements described above, all of such 126,500,000 shares (or 125,975,000 shares if the underwriters exercise in full their option to purchase additional shares) will be eligible for resale in a public market, subject to vesting in some cases and, in the case of shares held by our affiliates, to volume, manner of sale and other limitations under Rule 144. However, 5,472,908 of such shares are held by certain past and current employees who are subject to certain transfer restrictions for 18 months following the consummation of this offering, and generally may only transfer or sell such number of shares on a pro rata basis with any transfer or sale of shares by our Sponsor, as set forth in the stockholders’ agreement. See “Certain Relationships and Related Party Transactions—Stockholders’ Agreement.” We expect that our Sponsor will be considered an affiliate upon the expiration of the lock-up period based on its expected share ownership (consisting of 113,647,391 shares), as well as its board nomination rights. Certain other of our stockholders may also be considered affiliates at that time.

In addition, pursuant to a stockholders’ agreement, certain of our existing stockholders, including our Sponsor, will have the right, subject to certain conditions, to require us to register the sale of their shares of our common stock under the Securities Act. See “Certain Relationships and Related Party Transactions—Stockholders’ Agreement.” By exercising their registration rights and selling a large number of shares, such existing stockholders could cause the prevailing market price of our common stock to decline. Certain of our stockholders will also have “piggyback” registration rights with respect to future registered offerings of our common stock. Following completion of this offering, the shares covered by registration rights would represent approximately 84.7% of our total common stock outstanding (or 82.8% if the underwriters exercise in full their option to purchase additional shares). Registration of any of these outstanding shares of common stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement. See “Shares Eligible for Future Sale.”

We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our common stock or securities convertible into or exchangeable for shares of our common stock issuable in connection with outstanding options to purchase Class A units or pursuant to 2021 Equity Plan and the ESPP. Any such Form S-8 registration statements will automatically become effective upon filing. Accordingly, shares registered under such registration statements will be available for sale in the open market. We expect that the initial registration statement on Form S-8 will cover 20,129,707 shares of our common stock.

As restrictions on resale end, or if the existing stockholders exercise their registration rights, the market price of our shares of common stock could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities.

Our management may spend the proceeds of this offering in ways with which you may disagree or that may not be profitable.

Although we anticipate using the net proceeds from the offering as described under “Use of Proceeds,” we will have broad discretion as to the application of the net proceeds and could use them for purposes other than those contemplated by this offering. You may not agree with the manner in which our management chooses to allocate and spend the net proceeds. Our management may use the proceeds for corporate purposes that may not increase our profitability or otherwise result in the creation of stockholder value. In addition, pending our use of the proceeds, we may invest the proceeds primarily in instruments that do not produce significant income or that may lose value.

 

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If securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline.

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, or if we fail to meet their expectations for our financial results, the price of our stock could decline. If one or more of these analysts ceases coverage of the Company or fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

Anti-takeover provisions in our organizational documents could delay or prevent a change of control.

Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt, or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders.

These provisions will provide for, among other things:

 

   

a classified board of directors, as a result of which our board of directors will be divided into three classes, with each class serving for staggered three-year terms;

 

   

the ability of our board of directors to issue one or more series of preferred stock;

 

   

advance notice requirements for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings;

 

   

certain limitations on convening special stockholder meetings;

 

   

the removal of directors only for cause and only upon the affirmative vote of the holders of at least 6623% of the shares of common stock entitled to vote generally in the election of directors if the Sponsor and its affiliates cease to beneficially own at least 50% of shares of common stock entitled to vote generally in the election of directors; and

 

   

that certain provisions may be amended only by the affirmative vote of at least 662/3% of shares of common stock entitled to vote generally in the election of directors if the Sponsor and its affiliates cease to beneficially own at least 50% of shares of common stock entitled to vote generally in the election of directors.

These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares. See “Description of Capital Stock.”

Our board of directors will be authorized to issue and designate shares of our preferred stock in additional series without stockholder approval.

Our amended and restated certificate of incorporation will authorize our board of directors, without the approval of our stockholders, to issue 250,000,000 shares of our preferred stock, subject to limitations prescribed by applicable law, rules and regulations and the provisions of our amended and restated certificate of incorporation, as shares of preferred stock in series, to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The powers, preferences and rights of these additional series of preferred stock may be senior to or on parity with our common stock, which may reduce its value.

 

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Our amended and restated certificate of incorporation will provide, subject to limited exceptions, that state and federal courts (as appropriate) located within the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

Our amended and restated certificate of incorporation will provide, subject to limited exceptions, that unless we consent to the selection of an alternative forum, the state or federal courts (as appropriate) located within the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of our company, (ii) action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee or stockholder of our company to the Company or our stockholders, creditors or other constituents, (iii) action asserting a claim against the Company or any director or officer of the Company arising pursuant to any provision of the Delaware General Corporation Law, or the DGCL, or our amended and restated certificate of incorporation or our amended and restated bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) action asserting a claim against the Company or any director or officer of the Company governed by the internal affairs doctrine. The choice of forum provision described in the preceding sentence does not apply to claims brought under the Securities Act or the Exchange Act, meaning that nothing in our amended and restated certificate of incorporation or amended and restated by-laws will preclude stockholders that assert claims under the Securities Act or the Exchange Act, from bringing such claims in state or federal court, subject to applicable law. Our exclusive forum provision shall not relieve the Company of its duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations. Further, stockholders may not waive their rights under the Exchange Act, including their right to bring suit.

Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results, and financial condition.

 

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FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements that reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. These forward-looking statements are included throughout this prospectus, including in the sections entitled “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business” and relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. We have used the words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,” “will,” “seek,” “foreseeable,” the negative version of these words, or similar terms and phrases to identify forward-looking statements in this prospectus.

The forward-looking statements contained in this prospectus are based on management’s current expectations and are not guarantees of future performance. The forward-looking statements are subject to various risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will result or be achieved. Actual results may differ materially from these expectations due to changes in global, regional or local economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. We believe that these factors include but are not limited to those described under “Risk Factors” and the following:

 

   

the impact of COVID-19 and related risks on our results of operations, financial position and/or liquidity;

 

   

our operations in a highly regulated industry and the fact that we are subject to numerous and evolving laws and regulations, including with respect to personal data and data security;

 

   

our reliance on third-party data providers;

 

   

negative changes in external events beyond our control, including our customers’ onboarding volumes, economic drivers which are sensitive to macroeconomic cycles, and the COVID-19 pandemic;

 

   

potential harm to our business, brand and reputation as a result of security breaches, cyber-attacks or the mishandling of personal data;

 

   

liability and litigation due to the sensitive and privacy-driven nature of our products and solutions, which could be costly and time-consuming to defend and may not be fully covered by insurance;

 

   

the continued integration of our platforms and solutions with human resource providers such as applicant tracking systems and human capital management systems as well as our relationships with such human resource providers;

 

   

risks relating to public opinion, which may be magnified by incidents or adverse publicity concerning our industry or operations;

 

   

our contracts with our customers, which do not guarantee exclusivity or contracted volumes;

 

   

our reliance on third-party vendors to carry out certain portions of our operations;

 

   

disruptions, outages or other errors with our technology and network infrastructure, including our data centers, servers and third-party cloud and internet providers and our migration to the cloud;

 

   

disruptions at our Global Operating Center and other operating centers;

 

   

operating in a penetrated and competitive market;

 

   

our ability to obtain, maintain, protect and enforce our intellectual property and other proprietary information;

 

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our ability to maintain, protect and enforce the confidentiality of our trade secrets;

 

   

the use of open-source software in our applications;

 

   

the indemnification provisions in our contracts with our customers and third-party data suppliers;

 

   

our ability to identify attractive targets or successfully complete such transactions;

 

   

our international business;

 

   

our dependence on the service of our key executive and other employees, and our ability to find and retain qualified employees;

 

   

seasonality in our operations from quarter to quarter;

 

   

failure to comply with anti-corruption laws and regulations; and

 

   

changing interpretations of tax laws.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements.

Any forward-looking statement made by us in this prospectus speaks only as of the date of this prospectus and are expressly qualified in their entirety by the cautionary statements included in this prospectus. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, investments or other strategic transactions we may make. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $227.6 million from the sale of                  shares of our common stock by us in this offering, assuming an initial public offering price of $14.00 per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise in full their option to purchase additional shares, the net proceeds to us will be approximately $262.4 million.

We will not receive any proceeds from the sale of shares of our common stock in this offering by the selling stockholders, including from any exercise by the underwriters of their option to purchase additional shares from the selling stockholders. The selling stockholders will bear the underwriting commissions and discounts, if any, attributable to their sale of our common stock, and we will bear the remaining expenses.

We intend to use the net proceeds to us from this offering (i) to repay $200.0 million in aggregate principal amount of the outstanding indebtedness under our first lien term loan facility and (ii) for general corporate purposes. We do not currently have agreements or commitments for any acquisitions or other strategic transactions. At this time, we have not specifically identified a large single use for which we intend to use the net proceeds and, accordingly, we are not able to allocate the net proceeds among any of these potential uses in light of the variety of factors that will impact how such net proceeds are ultimately utilized by us. Pending use of the proceeds from this offering, we intend to invest the proceeds in a variety of capital preservation investments, including short-term, investment-grade, and interest-bearing instruments.

Borrowings under our senior secured credit facilities bear interest at a rate per annum equal to an applicable margin plus, at our option, either (a) a base rate or (b) LIBOR, which is subject to stepdowns based on our first lien leverage ratio. After the consummation of this offering, each applicable margin will be reduced further by 0.25%. As of March 31, 2021 the interest rate on our first lien term loan facility was 3.12%. The first lien term loan facility has a maturity date of January 31, 2027.

The first lien term loan facility was initially entered into in connection with, and to fund, the Silver Lake Transaction. On February 1, 2021, we amended the first lien credit agreement to increase the first lien term loan facility by $100 million and reduce the applicable margins. The net proceeds from increased borrowings under the first lien term loan facility were used to fully repay all outstanding second lien term loans that were entered into in connection with the Silver Lake Transaction. For a further description of our senior secured credit facilities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Long-Term Debt.”

An increase (decrease) of 1,000,000 shares from the expected number of shares to be sold by us in this offering, assuming no change in the assumed initial offering price per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) our net proceeds from this offering by $13.1 million. A $1.00 increase (decrease) in the assumed initial offering price of $14.00 per share, based on the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $16.6 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

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DIVIDEND POLICY

We expect to retain all future earnings for use in the operation and expansion of our business and have no current plans to pay dividends on our common stock. The declaration, amount and payment of any future dividends will be at the sole discretion of our board of directors, and will depend on, among other things, general and economic conditions, our results of operations and financial condition, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, including restrictions under our credit agreement and other indebtedness we may incur, and such other factors as our board of directors may deem relevant. If we elect to pay such dividends in the future, we may reduce or discontinue entirely the payment of such dividends at any time.

Because we are a holding company, our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their jurisdiction of organization, agreements of our subsidiaries or covenants under any existing and future outstanding indebtedness we or our subsidiaries incur. Certain of our subsidiaries are subject to our credit agreement, which contain covenants that limit such subsidiaries’ ability to make restricted payments, including dividends, and take on additional indebtedness. See “Risk Factors—Risks Related to Our Indebtedness—Our debt instruments restrict our current and future operations, particularly our ability to respond to changes or take certain actions.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2021:

 

   

on an actual basis; and

 

   

on an as adjusted basis to give effect to the 1,300,000-for-one forward stock split, the Equity Conversion, and the issuance of 17,750,000 shares of our common stock offered by us in this offering at an assumed initial public offering price of $14.00 per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds to us therefrom as described under “Use of Proceeds.”

You should read this table in conjunction with the information contained in “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Unaudited Pro Forma Consolidated Financial Information” as well as our audited consolidated financial statements and related notes thereto and our unaudited consolidated financial statements and related notes thereto, each included elsewhere in this prospectus.

 

     As of March 31, 2021  
(In thousands, except share and par value)    Actual     As Adjusted(1)  

Cash and cash equivalents

   $ 113,328     $ 140,926  
  

 

 

   

 

 

 

Debt:

    

Term loan facility(2)

     764,724       564,724  

Revolving credit facility(3)

     —         —    
  

 

 

   

 

 

 

Total debt

   $ 764,724     $ 564,724  
  

 

 

   

 

 

 

Stockholders’ equity:

    

Common stock, $0.001 par value per share, 1,000,000,000 shares authorized and as adjusted; 130,000,000 shares issued and outstanding, actual; 147,750,000 shares issued and outstanding, as adjusted

     130       148  

Additional paid-in capital

     839,710       1,067,290  

Accumulated deficit

     (66,881     (70,873

Accumulated other comprehensive income

     5,244       5,244  
  

 

 

   

 

 

 

Total stockholders’ equity

   $ 778,203     $ 1,001,809  
  

 

 

   

 

 

 

Total capitalization

   $ 1,542,927     $ 1,566,533  
  

 

 

   

 

 

 

 

(1)

To the extent we change the number of shares of common stock sold by us in this offering from the shares we expect to sell or we change the initial public offering price from the assumed initial public offering price of $14.00 per share, the mid-point of the estimated price range set forth on the cover page of this prospectus, or any combination of these events occurs, the net proceeds to us from this offering and each of additional paid-in capital, total stockholders’ equity and total capitalization may increase or decrease. A $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds that we receive in this offering and each of additional paid-in capital, total stockholders’ equity and total capitalization by approximately $16.6 million, assuming the number of shares offered by us remains the same as set forth on the cover page of this prospectus and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the expected number of shares to be sold by us in this offering, assuming no change in the assumed initial public offering price of $14.00 per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) our net proceeds from this offering and each of additional paid-in capital, total stockholders’ equity and total capitalization by approximately $13.1 million after deducting the underwriting discount and commissions and estimated offering expenses payable by us.

 

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(2)

For a further description of our term loan facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Long-Term Debt.”

(3)

For a further description of our revolving credit facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Long-Term Debt.”

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma consolidated financial information reflects (i) the Silver Lake Transaction, as described and defined in “Basis of Presentation,” (ii) the related financing as described in Note 2 thereto (the “Silver Lake Transaction Refinancing”), and (iii) the sale by the Company of 17,750,000 shares of common stock pursuant to this offering and the application of the proceeds from this offering as described in “Use of Proceeds,” at an initial public offering price of $14.00 per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company in connection with this offering (the transactions described in clause (iii), the “Offering Transactions” and together with the Silver Lake Transaction and the Silver Lake Transaction Refinancing, the “Transactions”).

The unaudited pro forma consolidated balance sheet as of March 31, 2021 gives effect to the Offering Transactions as if they had occurred as of March 31, 2021. The unaudited pro forma consolidated balance sheet does not give effect to either the Silver Lake Transaction or the Silver Lake Transaction Refinancing as if they had occurred on March 31, 2021 because these events are already reflected in the historical balance sheet of the Company. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2020 and for the three months ended March 31, 2020 give effect to the Silver Lake Transaction, the Silver Lake Transaction Refinancing, and the Offering Transactions as if they had occurred on January 1, 2020. The unaudited pro forma consolidated statements of operations for the three months ended March 31, 2021 gives effect to the Offering Transactions as if they had occurred on January 1, 2020. The unaudited pro forma consolidated statement of operations for the three months ended March 31, 2021 does not give effect to either the Silver Lake Transaction or the Silver Lake Transaction Refinancing as if they had occurred on January 1, 2020 because these events are already reflected for the full period presented in the historical statement of operations of the Company.

We have derived the unaudited pro forma consolidated balance sheet and the unaudited pro forma consolidated statements of operations from the consolidated financial statements of First Advantage Corporation and its subsidiaries as of March 31, 2021 (Successor), for the period from January 1 through January 31, 2020 (Predecessor), for the period from February 1, 2020 through December 31, 2020 (Successor), for the period from February 1, 2020 through March 31, 2020 (Successor), and for the three months ended March 31, 2021 (Successor) included elsewhere in this prospectus. The unaudited pro forma consolidated financial information was prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” using the assumptions set forth in the notes to the unaudited pro forma consolidated financial information. Release No. 33-10786 replaces the previously existing pro forma adjustment criteria with simplified requirements to depict transaction accounting adjustments and an option to present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). The Company has elected not to present Management’s Adjustments in the following unaudited pro forma consolidated financial information.

The pro forma adjustments are based on available information and upon assumptions that management believes are reasonable in order to reflect, on a pro forma basis, the effect of these transactions on the historical financial information of First Advantage Corporation. The adjustments are described in the notes to the unaudited pro forma consolidated balance sheet and the unaudited pro forma consolidated statements of operations.

The adjustments related to this offering, which we refer to as the “Offering Adjustments”, are described in the notes to the unaudited pro forma consolidated financial information, and principally include the following:

 

   

the issuance of 17,750,000 shares of our common stock to the investors in this offering in exchange for net proceeds of approximately $227.6 million (based on an assumed initial public offering price of $14.00 per share, the midpoint of the estimated price range set forth on the cover page of this prospectus), after deducting the underwriting discount but before estimated offering expenses payable by us;

 

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the payment of fees and expenses related to this offering; and,

 

   

the use of proceeds from this offering as described in the section entitled “Use of Proceeds.”

Except as otherwise indicated, the unaudited pro forma consolidated financial information presented assumes no exercise by the underwriters of their over-allotment option.

As a public company, we will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to incur additional annual expenses related to these additional procedures and processes and, among other things, additional directors’ and officers’ liability insurance, director fees, additional expenses associated with complying with the reporting requirements of the SEC, transfer agent fees, costs relating to additional accounting, legal, and administrative personnel, increased auditing, tax, and legal fees, stock exchange listing fees, and other public company expenses. We have not included any pro forma adjustments relating to these costs in the information below.

The unaudited pro forma consolidated financial information is included for informational purposes only. The unaudited pro forma consolidated financial information should not be relied upon as being indicative of our results of operations or financial condition had the Transactions occurred on the dates assumed. The unaudited pro forma consolidated financial information also does not project our results of operations or financial position for any future period or date. The unaudited pro forma consolidated statement of operations and balance sheet should be read in conjunction with the “Risk Factors,” “Prospectus Summary—Summary Historical Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

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FIRST ADVANTAGE CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 2021

(in thousands)

 

     First
Advantage
Corporation

(Successor)
     Offering
Adjustments
           Pro Forma
Total
 

Assets

          

Cash and cash equivalents

   $ 113,328      $ 27,598       (2a    $ 140,926  

Restricted cash

     156        —            156  

Short-term investments

     844        —            844  

Accounts receivable, net

     104,694        —            104,694  

Prepaid expenses and other current assets

     13,865        —            13,865  

Income tax receivable

     2,150        —            2,150  
  

 

 

    

 

 

      

 

 

 

Total current assets

     235,037        27,598          262,635  

Property and equipment, net

     180,602        —            180,602  

Goodwill

     775,093        —            775,093  

Trade name, net

     85,877        —            85,877  

Customer lists, net

     423,117        —            423,117  

Deferred tax asset, net

     953        —            953  

Other assets

     2,370        —            2,370  
  

 

 

    

 

 

      

 

 

 

Total assets

   $ 1,703,049      $ 27,598        $ 1,730,647  
  

 

 

    

 

 

      

 

 

 

Liabilities and Equity

          

Accounts payable

   $ 36,008      $ —          $ 36,008  

Accrued compensation

     23,334        —            23,334  

Accrued liabilities

     25,893        —            25,893  

Current portion of long-term debt

     7,705        —            7,705  

Income tax payable

     2,742        —            2,742  

Deferred income

     462        —            462  
  

 

 

    

 

 

      

 

 

 

Total current liabilities

     96,144        —            96,144  

Long-term debt, net

     741,908        (196,008     (2b      545,900  

Deferred tax liability, net

     80,969        —            80,969  

Other liabilities

     5,825        —            5,825  
  

 

 

    

 

 

      

 

 

 

Total liabilities

     924,846        (196,008        728,838  

Commitments and contingencies

          

Equity:

          

Common stock

     130        18       (2c      148  

Additional paid-in-capital

     839,710        227,580       (2c      1,067,290  

Accumulated deficit

     (66,881      (3,992        (70,873

Accumulated other comprehensive loss

     5,244        —            5,244  
  

 

 

    

 

 

      

 

 

 

Total equity

     778,203        223,606          1,001,809  
  

 

 

    

 

 

      

 

 

 

Total liabilities and equity

   $ 1,703,049      $ 27,598        $ 1,730,647  
  

 

 

    

 

 

      

 

 

 

 

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FIRST ADVANTAGE CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2020

(in thousands, except share and per share amounts)

 

    First
Advantage
Corporation

Period from
January 1,
2020 through

January 31,
2020

(Predecessor)
                First
Advantage
Corporation

Period from
February 1,
2020 through
December 31,
2020

(Successor)
    Silver Lake
Transaction
Accounting
Adjustments
          Silver Lake
Transaction

Refinancing
Accounting
Adjustments
          Pro Forma
for the
Silver Lake
Transaction
    Offering
Adjustments
          Pro Forma
Total
 

Revenues

  $ 36,785         $ 472,369     $ —         $ —         $ 509,154     $ —         $ 509,154  

Operating expenses:

                       

Cost of services (exclusive of depreciation and amortization below)

    20,265           240,287       —           —           260,552       —           260,552  

Product and technology expense

    3,189           32,201       —           —           35,390       —           35,390  

Selling, general, and administrative expense

    11,235           66,864       —           —           78,099       —           78,099  

Depreciation and amortization

    2,105           135,057       6,124       (3a     —           143,286       —           143,286  
 

 

 

       

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total operating expenses

    36,794           474,409       6,124         —           517,327       —           517,327  
 

 

 

       

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

(Loss) from operations

    (9         (2,040     (6,124       —           (8,173     —           (8,173
 

 

 

       

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Other expense (income):

                       

Interest expense

    4,514           47,914       —           (741     (3d     51,687       (4,990     (3g     46,697  

Interest income

    (25         (530     —           —           (555     —           (555

Loss on extinguishment of debt

    10,533           —         —           (10,533     (3e     —         —           —    

Transaction expenses, change in control

    22,370           9,423       (22,370     (3b     —           9,423       —           9,423  
 

 

 

       

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total other expense

    37,392           56,807       (22,370       (11,274       60,555       (4,990       55,565  
 

 

 

       

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

(Loss) before provision for income taxes

    (37,401         (58,847     16,246         11,274         (68,728     4,990         (63,738

Provision for income taxes

    (871         (11,355     4,175       (3c     2,898       (3f     (5,153     1,282       (3h     (3,871
 

 

 

       

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Net (loss)

  $ (36,530       $ (47,492   $ 12,071       $ 8,376       $ (63,575   $ 3,708       $ (59,867
 

 

 

       

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Net (loss) per share—basic and diluted

  $ (0.24)         $ (0.37                 $ (0.41

Weighted average number of shares outstanding—basic and diluted

    149,686,460           130,000,000                     147,750,000  

 

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FIRST ADVANTAGE CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2020

(in thousands, except share and per share amounts)

 

    First
Advantage
Corporation
Period from
January 1,
2020 through
January 31,
2020
(Predecessor)
                First
Advantage
Corporation
Period from
February 1,
2020
through
March 31,
2020
(Successor)
    Silver Lake
Transaction
Accounting
Adjustments
          Silver Lake
Transaction
Refinancing
Accounting
Adjustments
          Pro Forma
for the
Silver Lake
Transaction
    Offering
Adjustments
          Pro Forma
Total
 

Revenues

  $ 36,785         $ 74,054     $ —         $ —         $ 110,839     $ —         $ 110,839  

Operating expenses:

                       

Cost of services (exclusive of depreciation and amortization below)

    20,265           36,816       —         —         57,081       —         57,081

Product and technology expense

    3,189           4,947       —         —         8,136       —         8,136

Selling, general, and administrative expense

    11,235           12,285       —         —         23,520       —         23,520

Depreciation and amortization

    2,105           24,487       9,538       (3a     —         36,130       —         36,130
 

 

 

       

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total operating expenses

    36,794           78,535       9,538         —         124,867       —         124,867
 

 

 

       

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

(Loss) from operations

    (9         (4,481     (9,538       —         (14,028     —         (14,028 )
 

 

 

       

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Other expense (income):

                       

Interest expense

    4,514           12,883       —         2,130       (3d     19,527       2,624     (3g     22,151

Interest income

    (25         (53     —         —         (78     —         (78 )

Loss on extinguishment of debt

    10,533           —       —         (10,533     (3e     —       —         —  

Transaction expenses, change in control

    22,370           9,423       (22,370     (3b     —         9,423       —         9,423
 

 

 

       

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total other expense

    37,392           22,253       (22,370       (8,403       28,872       2,624       31,496
 

 

 

       

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

(Loss) before provision for income taxes

    (37,401         (26,734     12,832         8,403         (42,900     (2,624 )       (45,524 )

Provision for income taxes

    (871         (4,920     3,298       (3c     2,160       (3f     (333     (674 )     (3h     (1,007 )
 

 

 

       

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Net (loss)

  $ (36,530       $ (21,814   $ 9,534       $ 6,243       $ (42,567   $ (1,950     $ (44,517
 

 

 

       

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Net (loss) per share—basic and diluted

  $ (0.24)         $ (0.17                 $ (0.30

Weighted average number of shares outstanding—basic and diluted

    149,686,460           130,000,000                     147,750,000

 

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FIRST ADVANTAGE CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(in thousands, except share and per share amounts

 

     First
Advantage
Corporation
(Successor)
    Offering
Adjustments
          Pro Forma
Total
 

Revenues

   $ 132,070     $ —         $ 132,070

Operating expenses:

        

Cost of services (exclusive of depreciation and amortization below)

     65,945       —           65,945  

Product and technology expense

     10,553       —           10,553  

Selling, general, and administrative expense

     23,978       —           23,978  

Depreciation and amortization

     34,763       —           34,763  
  

 

 

   

 

 

     

 

 

 

Total operating expenses

     135,239       —           135,239  
  

 

 

   

 

 

     

 

 

 

(Loss) from operations

     (3,169     —           (3,169
  

 

 

   

 

 

     

 

 

 

Other expense (income):

        

Interest expense

     6,814       (2,289     (3g     4,525  

Interest income

     (97     —           (97

Loss on extinguishment of debt

     13,938       —           13,938  

Transaction expenses, change in control

     —         —           —    
  

 

 

   

 

 

     

 

 

 

Total other expense

     20,655       (2,289       18,366  
  

 

 

   

 

 

     

 

 

 

(Loss) before provision for income taxes

     (23,824     2,289         (21,535

Provision for income taxes

     (4,435     588       (3h     (3,847
  

 

 

   

 

 

     

 

 

 

Net (loss)

   $ (19,389   $ 1,701       $ (17,688
  

 

 

   

 

 

     

 

 

 

Net (loss) per share—basic and diluted

   $ (0.15 )       $ (0.12

Weighted average number of shares outstanding—basic and diluted

     130,000,000           147,750,000  

 

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NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

 

1.

Basis of Presentation & Description of the Transactions

The unaudited pro forma consolidated financial information was prepared in accordance with Article 11 of Regulation S-X, as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” and presents the pro forma financial condition and results of operations of the Company based upon the historical financial information after giving effect to the Transactions and related adjustments set forth in the notes to the unaudited pro forma consolidated financial information.

The unaudited pro forma consolidated financial information presented assumes no exercise by the underwriters of their over-allotment option. In addition, the unaudited pro forma consolidated financial information does not reflect any Management Adjustments for expected effects of the Transactions, including any additional costs associated with operating as a public company after the Offering Transactions.

The unaudited pro forma consolidated balance sheet as of March 31, 2021, gives effect to the Offering Transactions as if they had occurred on March 31, 2021. The unaudited pro forma consolidated balance sheet does not give effect to either the Silver Lake Transaction or the Silver Lake Transaction Refinancing as if they had occurred as of March 31, 2021 because these events are already reflected in the historical balance sheet of the Company. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2020, and for the three months ended March 31, 2020 give effect to the Transactions as if they had occurred on January 1, 2020. The unaudited pro forma consolidated statement of operations for the three months ended March 31, 2021 gives effect to the Offering Transactions as if they had occurred on January 1, 2020. The unaudited pro forma consolidated statement of operations for the three months ended March 31, 2021 does not give effect to either the Silver Lake Transaction or the Silver Lake Transaction Refinancing as if they had occurred on January 1, 2020 because these events are already reflected for the full period presented in the historical statement of operations of the Company.

The Silver Lake Transaction and Silver Lake Transaction Refinancing

On January 31, 2020, Silver Lake acquired substantially all of the Company’s equity interests for approximately $1,576.0 million. A portion of the consideration was derived from members of the management team contributing an allocation of their Silver Lake Transaction proceeds. The Silver Lake Transaction was accounted for under the acquisition method in accordance with ASC 805, Business Combinations.

 

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The allocation of the purchase price is based on the fair value of assets acquired and liabilities assumed as of the acquisition date, less transaction expenses funded by transaction proceeds. The following table summarizes the consideration paid and the amounts recognized for the assets acquired and liabilities assumed (in thousands):

 

Consideration

  

Cash, net of cash acquired

   $ 1,556,810  

Rollover management equity interests

     19,148  
  

 

 

 

Total fair value of consideration transferred

   $ 1,575,958  
  

 

 

 

Current assets

   $ 145,277  

Property and equipment, including software developed for internal use

     236,775  

Trade name

     95,000  

Customer lists

     500,000  

Deferred tax asset

     106,327  

Other assets

     1,429  

Current liabilities

     (71,496

Deferred tax liability

     (198,535

Other liabilities

     (6,616
  

 

 

 

Total identifiable net assets

   $ 808,161  
  

 

 

 

Goodwill

   $ 767,797  
  

 

 

 

In connection with the Silver Lake Transaction, on January 31, 2020, the existing credit facilities of the Predecessor were repaid in full with the proceeds of a new first lien term loan facility and a new second lien term loan facility. The first lien term loan facility provides financing in the form of a $670.0 million term loan due January 31, 2027, carrying an interest rate of 3.25% to 3.50%, based on the first lien leverage ratio, plus LIBOR and a $75.0 million new revolving facility due January 31, 2025. The first lien term loan facility requires mandatory quarterly repayments of 0.25% of the original loan balance commencing September 30, 2020. The second lien term loan facility provided financing in the form of a $145.0 million term loan due January 31, 2028, carrying an interest rate of 8.50% plus LIBOR.

In February 2021, the Company refinanced the first lien term loan facility and fully repaid the outstanding balance on the second lien term loan facility (the “2021 Debt Refinancing”). The effects of the 2021 Debt Refinancing are fully reflected in the historical balance sheet of the Company as of March 31, 2021 and the historical statement of operations of the Company for the three months ended March 31, 2021. Because the Company does not consider the effects of the 2021 Debt Refinancing to be material, no pro forma adjustments have been made to the unaudited pro forma statements of operations for the year ended December 31, 2020 or for the three months ended March 31, 2020 to reflect the 2021 Debt Refinancing as if it had occurred on January 1, 2020.

Offering Transactions

The Company is offering 17,750,000 shares of Class A common stock in this offering at an assumed initial public offering price of $14.00 per share, which is equal to the midpoint of the estimated offering price range set forth on the cover page of this prospectus. The Company intends to use the estimated net proceeds from this offering of $227.6 million (net of underwriting discounts and commissions) (i) to repay $200.0 million in aggregate principal amount of the outstanding indebtedness under our first lien term loan facility and (ii) for general corporate purposes.

 

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2.

Notes to Unaudited Pro Forma Consolidated Balance Sheet

The following adjustments were made related to the unaudited pro forma consolidated balance sheet as of March 31, 2021:

Silver Lake Transaction Accounting Adjustments

No adjustments were made for the unaudited pro forma consolidated balance sheet as of March 31, 2021, because the effects of the Silver Lake Transaction are fully reflected in the historical balance sheet of the Company as of March 31, 2021.

Silver Lake Transaction Refinancing Accounting Adjustments

No adjustments were made for the unaudited pro forma consolidated balance sheet as of March 31, 2021 because the effects of the Silver Lake Transaction Refinancing are fully reflected in the historical balance sheet of the Company as of March 31, 2021.

Offering Adjustments

 

  a)

Reflects the net effect on cash of the receipt of offering proceeds to us of $27.6 million, based on the sale by the Company of 17,750,000 million shares of Class A common stock at an assumed initial public offering price of $14.00 per share of Class A common stock (the midpoint of the price range set forth on the cover of this prospectus), after deducting the estimated underwriting discounts and commissions and offering expenses, and after using $200.0 million to repay outstanding indebtedness.

 

  b)

Reflects the repayment of $200.0 million of outstanding first lien indebtedness using the proceeds from this offering as well as the resulting accelerated amortization of $4.0 million of deferred financing costs associated with the repaid debt.

 

  c)

Reflects the pro forma net adjustments of $0.02 million to common stock and $227.6 million to additional paid-in capital (net of the estimated underwriting discounts and commissions, and estimated offering expenses of $4.8 million, including certain legal, accounting, and other related costs) to reflect the issuance of 17,750,000 shares of common stock in this offering.

 

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3.

Notes to Unaudited Pro Forma Consolidated Statements of Operations

The following adjustments were made related to the unaudited pro forma consolidated statements of operations for the year ended December 31, 2020 and for the three months ended March 31, 2020:

Silver Lake Transaction Accounting Adjustments

 

  a)

Reflects the incremental amortization expense related to certain definite-lived intangible assets, reflected in the purchase price allocation at the date of the Silver Lake Transaction, as if those certain definite-lived intangible assets were put into place on January 1, 2020. The following table shows the pro forma adjustment to estimated amortization expense for the year ended December 31, 2020 and for the three months ended March 31, 2020:

 

Description (in thousands)

   Estimated
Fair Value
at Silver
Lake
Transaction
     Estimated
Useful
Life
     Year Ended
December 31,
2020
     Three Months
Ended March 31,
2020
 

Capitalized software for internal use

   $ 220,000        5 years      $ 57,081      $ 14,367  

Trade name

     95,000        20 years        8,171        2,048  

Customer lists

     500,000        14 years        70,807        17,834  
        

 

 

    

 

 

 

Pro forma amortization expense

         $ 136,059        34,249  

Less historical amortization expense recorded

           (129,935      (24,711
        

 

 

    

 

 

 

Pro forma adjustment for amortization expense

         $ 6,124      9,538  
        

 

 

    

 

 

 

 

  b)

Reflects the adjustment to remove Predecessor transaction expenses related to the Silver Lake Transaction which would have been incurred and recorded during the year ended December 31, 2019 if the Silver Lake Transaction had occurred on January 1, 2020.

 

  c)

Reflects the adjustment to the provision for income taxes attributable to the tax impacts of the preceding Silver Lake Transaction Accounting Adjustment for amortization, assuming an effective tax rate of 25.7%.

Silver Lake Transaction Refinancing Accounting Adjustments

 

  d)

Reflects the adjustment to interest expense resulting from (i) the elimination of interest expense related to the debt financing in place during the Predecessor period, and (ii) the incremental interest expense and amortization of deferred financing costs associated with the first lien term loan facility and second lien term loan facility to give effect to the Silver Lake Transaction Refinancing as if it had occurred on January 1, 2020, calculated as follows:

 

Description (in thousands)

   Year Ended
December 31,
2020
     Three Months
Ended March 31,
2020
 

Interest expense on first lien term loan facility

   $ 29,835      $ 10,519  

Interest expense on second lien term loan facility

     13,713        4,089  

Amortization of deferred financing costs

     3,543        870  
  

 

 

    

 

 

 

Pro forma interest expense

   $ 47,091        15,478  

Less historical interest expense recorded

     (47,832      (13,348
  

 

 

    

 

 

 

Pro forma adjustment for interest expense

   $ (741      2,130  
  

 

 

    

 

 

 

 

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No adjustment has been made to the unaudited pro forma statements of operations for the year ended December 31, 2020, or for the three months ended March 31, 2020 to reflect changes in interest expense as a result of the 2021 Debt Refinancing because the Company does not consider the 2021 Debt Refinancing to be material.

 

  e)

Reflects an adjustment to the historical loss on extinguishment of Predecessor debt for the unaudited pro forma consolidated statements of operations for the year ended December 31, 2020 and for the three months ended March 31, 2020 if the Silver Lake Transaction Refinancing had been consummated on January 1, 2020.

 

  f)

Reflects the adjustment to the provision for income taxes attributable to the tax impacts of the preceding Silver Lake Transaction Refinancing Accounting Adjustments, assuming an effective tax rate of 25.7%.

The following adjustments were made related to the unaudited pro forma consolidated statements of operations for the year ended December 31, 2020, for the three months ended March 31, 2020, and for the three months ended March 31, 2021, as follows:

Offering Adjustments

 

  g)

Reflects the decrease in interest expense of $11.4 million, $3.7 million, and $2.3 million for the year ended December 31, 2020, for the three months ended March 31, 2020, and for the three months ended March 31, 2021, respectively, as well as the accelerated amortization of deferred financing costs of $6.4 million and $6.4 million for the year ended December 31, 2020 and the three months ended March 31, 2020, respectively, associated with the repayment of $200.0 million of outstanding first lien indebtedness using the net proceeds from this offering and a 0.25% interest rate reduction that goes into effect after consummation of this offering.

A 1/8% increase or decrease in interest rates would result in a change in interest expense of approximately $0.8 million, $0.2 million, and $0.2 million for the year ended December 31, 2020, the three months ended March 31, 2020, and the three months ended March 31, 2021, respectively.

 

  h)

Reflects the adjustment to the provision for income taxes attributable to the tax impacts of the preceding Offering Adjustments, assuming an effective tax rate of 25.7%.

 

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4.

Unaudited Pro Forma Net (Loss) Per Share

Unaudited basic pro forma net (loss) per share is computed by dividing pro forma net (loss) attributable to common shares by the pro forma weighted average number of common shares outstanding during the period. Unaudited diluted pro forma net (loss) per share is computed by dividing pro forma net (loss) attributable to common shares by the weighted average number of common shares outstanding during the period after adjusting for the impact of securities that would have a dilutive effect on net (loss) per share. Potentially dilutive securities for the pro forma year ended December 31, 2020, the three months ended March 31, 2020, and the three months ended March 31, 2021 included restricted stock awards and stock options in the Company’s common stock after our historical share-based compensation arrangements issued by the Company’s parent were modified to be issued directly by the Company in conjunction with the Offering. The potentially dilutive securities had an anti-dilutive effect in all periods and were therefore not included in the calculation of unaudited pro forma net (loss) per share.

 

Pro forma net (loss) per share—basic and
diluted

(in thousands, except share and per share amounts)

   Year Ended
December 31,
2020
     Three Months
Ended
March 31, 2020
     Three Months
Ended
March 31, 2021
 

Numerator:

        

Pro forma net (loss)—basic and diluted

     (59,867      (44,517      (17,688

Denominator:

        

Weighted average number of shares outstanding—basic and diluted(1)

     147,750,000        147,750,000        147,750,000  

Pro forma net (loss) per share—basic and diluted

   $ (0.41    $ (0.30    $ (0.12

 

                                             

        

(1)     Consists of the following:

        

Common stock issued as a result of this offering

     17,750,000        17,750,000        17,750,000  

Common stock previously issued and outstanding

     130,000,000        130,000,000        130,000,000  
  

 

 

    

 

 

    

 

 

 

Weighted average number of shares outstanding—basic and diluted

     147,750,000        147,750,000        147,750,000  
  

 

 

    

 

 

    

 

 

 

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest in us will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the as adjusted net tangible book value (deficit) per share of our common stock after giving effect to this offering. Dilution results from the fact that the per share offering price of the common stock is substantially in excess of the book value per share attributable to the shares of common stock held by existing stockholders.

Our net tangible book value (deficit) as of March 31, 2021 was approximately $(505.9) million, or $(3.89) per share of our common stock. We calculate net tangible book value (deficit) per share by taking the amount of our total tangible assets, reduced by the amount of our total liabilities, and then dividing that amount by the total number of shares of common stock outstanding.

After giving effect to (i) our sale of 17,750,000 shares in this offering at an assumed initial public offering price of $14.00 per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the application of the net proceeds to us from this offering as set forth under “Use of Proceeds,” our as adjusted net tangible book value (deficit) as of March 31, 2021 would have been $(282.3) million, or $(1.91) per share of our common stock. This amount represents an immediate increase in net tangible book value (or a decrease in net tangible book deficit) of $1.98 per share to existing stockholders and an immediate and substantial dilution in net tangible book value (deficit) of $15.91 per share to new investors purchasing shares in this offering at the assumed initial public offering price.

The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

  $ 14.00  

Net tangible book value (deficit) per share as of March 31, 2021

    (3.89

Increase in tangible book value per share attributable to new investors

    1.98  

As adjusted net tangible book value (deficit) per share after giving effect to this offering

    (1.91
 

 

 

 

Dilution per share to new investors

  $ 15.91  
 

 

 

 

Dilution is determined by subtracting as adjusted net tangible book value (deficit) per share of common stock after the offering from the initial public offering price per share of common stock.

If the underwriters exercise in full their option to purchase additional shares, the as adjusted net tangible book value (deficit) per share after giving effect to the offering and the use of proceeds therefrom would be $(1.64) per share. This represents an increase in as adjusted net tangible book value (or a decrease in as adjusted net tangible book deficit) of $2.25 per share to the existing stockholders and results in dilution in as adjusted net tangible book value (deficit) of $15.64 per share to new investors.

Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, a $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the tangible book value attributable to new investors purchasing shares in this offering by $2.09 per share and the dilution to new investors by $0.89 per share and increase (decrease) the as adjusted net tangible book value (deficit) per share after giving effect to this offering by $0.l1 per share.

The following table summarizes, as of March 31, 2021, the differences between the number of shares purchased from us, the total consideration paid to us, and the average price per share paid by existing stockholders and by new investors. As the table shows, new investors purchasing shares in this offering will pay

 

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an average price per share substantially higher than our existing stockholders paid. The table below assumes an initial public offering price of $14.00 per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, for shares purchased in this offering and excludes underwriting discounts and commissions and estimated offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
   Number      Percent     Amount      Percent  
                  (in thousands)               

Existing stockholders

     130,000,000        88.0   $ 837,414        77.1   $ 6.44  

New investors

     17,750,000        12.0       248,500        22.9       14.00  

Total

     147,750,000        100   $ 1,085,914        100     7.35  

If the underwriters were to exercise in full their option to purchase 2,662,500 additional shares of our common stock from us and 525,000 additional shares of our common stock from the selling stockholders, the percentage of shares of our common stock held by existing stockholders who are directors, officers or affiliated persons as of March 31, 2021 would be 78.8% and the percentage of shares of our common stock held by new investors would be 16.2%.

Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, a $1.00 increase (decrease) in the assumed initial offering price of $14.00 per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and average price per share paid by all stockholders by $17.8 million, $17.8 million, and $0.12 per share, respectively.

To the extent that we grant options to our employees in the future and those options are exercised or other issuances of common stock are made, there will be further dilution to new investors.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Summary—Summary Historical and Pro Forma Consolidated Financial and Other Data” and the consolidated financial statements of First Advantage Corporation and related notes included elsewhere in this prospectus. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and that are subject to significant risks and uncertainties, including, but not limited to, those described in the “Risk Factors” and “Forward-Looking Statements” sections of this prospectus. Our actual results may differ materially from those expressed or implied in any forward-looking statements.

Overview

First Advantage is a leading global provider of technology solutions for screening, verifications, safety, and compliance related to human capital. We deliver innovative solutions and insights that help our customers manage risk and hire the best talent. Enabled by our proprietary technology platform, our products and solutions help companies protect their brands and provide safe environments for their customers and their most important resources: employees, contractors, contingent workers, tenants, and drivers.

Our comprehensive product suite includes Criminal Background Checks, Drug / Health Screening, Extended Workforce Screening, Biometrics & Identity, Education / Work Verifications, Resident Screening, Fleet / Driver Compliance, Executive Screening, Data Analytics, Continuous Monitoring, Social Media Monitoring, and Hiring Tax Incentives. We derive a substantial majority of our revenues from pre-onboarding screening.

We perform screening in over 200 countries and territories, enabling us to serve as a one-stop-shop provider to both multinational companies and growth companies. Our customers are global enterprises, mid-sized, and small companies, and our products and solutions are used by personnel in recruiting, human resources, risk, compliance, vendor management, safety, and/or security. In 2020, we performed over 75 million screens on behalf of more than 30,000 customers spanning the globe and all major industry verticals. During the year ended December 31, 2020 on a pro forma basis after giving effect to this offering and the Silver Lake Transaction, our largest customer accounted for approximately 12% of total revenues. No other customer accounted for 10% or more of our total revenues during such period. For the three months ended March 31, 2021, there were no customers who accounted for more than 10% of our revenues. Our gross retention rate was 95.5%, 94.7%, and 95.9% for the years ended December 31, 2018, 2019, and 2020, respectively.

Our products are sold both individually and bundled. The First Advantage platform offers flexibility for customers to specify which products to include in their screening package, such as Social Security numbers, criminal records, education and work verifications, sex offender registry, and global sanctions. Generally, our customers order a bundled background screening package or selected combination of screens related to a single individual before they onboard that individual. The type and mix of products and solutions we sell to a customer vary by customer size, their screening requirements and industry vertical. Therefore, order volumes are not comparable across both customers and periods. Pricing can also vary considerably by customer depending on the product mix in their screening packages, order volumes, screening requirements and preferences, and bundling of products.

We enter into contracts with our customers that are typically three years in length. These contracts set forth the general terms and pricing of our products and solutions but do not include minimum order volumes or committed order volumes. Accordingly, contracts do not provide any guarantees of future revenues. Through our ongoing dialogue with our customers, we have some visibility into their expected future volumes, although these can be difficult to accurately forecast. We typically bill our customers at the end of each month and recognize

 

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revenues as completed orders are reported or otherwise made available to our customers. A substantial majority of customer orders are completed the same day they are submitted.

We have experienced consistent organic revenue growth, including in 2020 and 2021 despite the impact of COVID-19 on the overall economy. We generated revenues of $509 million for the year ended December 31, 2020 on a pro forma basis giving effect to this offering and the Silver Lake Transaction, which represents 6% growth as compared to $482 million in 2019. Our revenue growth accelerated to 17% year-over-year in the second half of 2020, driven by the addition of a number of large new customers, upselling and cross-selling existing customers, and strong demand among Enterprise customers in the essential retail, e-commerce, and transportation and home delivery verticals that experienced significant hiring increases as a result of COVID-19. Our revenues have continued to grow in 2021, increasing 19% for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, on a pro forma basis after giving effect to this offering and the Silver Lake Transaction, primarily driven by the continued addition of new customers and upselling and cross-selling existing customers, and to a lesser extent due to declines in customer demand as a result of COVID-19 in the second half of March 2020 which we did not experience in the first quarter of 2021. Approximately 90% of our 2020 revenues was generated in North America, predominantly in the U.S., with the remaining 10% generated in EMEA, APAC, and India. Other than the United States, no single country accounted for 10% or more of our total revenues during these periods.

We generated a net loss of $(60) million for the year ended December 31, 2020, on a pro forma basis to give effect to this offering and the Silver Lake Transaction, as compared to net income of $34 million in 2019. For the three months ended March 31, 2021, we generated a net loss of $(19) million, as compared to $(45) million for the three months ended March 31, 2020, on a pro forma basis to give effect to this offering and the Silver Lake Transaction. We generated Adjusted EBITDA of $147 million for the year ended December 31, 2020 on a pro forma basis giving effect to this offering and the Silver Lake Transaction, as compared to $124 million in 2019. For the three months ended March 31, 2021, we generated Adjusted EBITDA of $37 million, as compared to $27 million for the three months ended March 31, 2020, on a pro forma basis to give effect to this offering and the Silver Lake Transaction. Our Adjusted Net Income was $74 million for the year ended December 31, 2020 on a pro forma basis giving effect to this offering and the Silver Lake Transaction, as compared to $45 million in 2019. For the three months ended March 31, 2021, our Adjusted Net Income was $21 million, as compared to $7 million for the three months ended March 31, 2020, on a pro forma basis to give effect to this offering and the Silver Lake Transaction. Please refer to “Unaudited Pro Forma Consolidated Financial Information” for further details.

Basis of Presentation

On January 31, 2020, funds affiliated with Silver Lake acquired substantially all of the equity interests in the Company from STG pursuant to the Silver Lake Transaction. For the purposes of the consolidated financial data included in this prospectus, periods on or prior to January 31, 2020 reflect the financial position, results of operations and cash flows of the Company and its consolidated subsidiaries prior to the Silver Lake Transaction, referred to herein as the Predecessor, and periods beginning after January 31, 2020 reflect the financial position, results of operations and cash flows of the Company and its consolidated subsidiaries after the Silver Lake Transaction, referred to herein as the Successor. As a result of the Silver Lake Transaction, the results of operations and financial position of the Predecessor and Successor are not directly comparable because of the application of the acquisition method during purchase accounting which required a step up in basis of our assets and liabilities from their historical carrying values to fair value on the date of the Silver Lake Transaction.

To facilitate comparability across periods, we have presented in this “Management’s Discussion and Analysis of Results of Operations and Financial Condition” section certain financial information on a pro forma basis, giving pro forma effect to this offering and the Silver Lake Transaction as if it had occurred on January 1, 2020. Please refer to “Unaudited Pro Forma Consolidated Financial Information” for further details.

We have one operating segment.

 

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Factors Affecting Operating Results

We believe that the future growth and profitability of our business depend on numerous factors, including the following:

Acquiring New Customers

We are focused on continuing to grow our customer base, particularly with respect to high-growth Enterprise customers in attractive industry verticals. Our large, Enterprise customers have increased from 122 companies at the beginning of 2018 to 141 at the end of 2020, and we have over 30,000 total customers. Our customer acquisition strategy depends on our ability to continue to cost-effectively offer innovative and comprehensive products and solutions, maintain our reputation and brand, and continued investment in our verticalized sales strategy. New customers typically begin generating revenues within two to four months of executing a contract and ramp up order volumes over the subsequent three to five month period. We believe there is opportunity to continue to increase our market share globally and grow our international customer base as non-U.S. companies begin adopting or expanding their screening practices.

Expanding Wallet Share with Existing Customers

Our growth in revenues depends on our ability to sell more products and solutions to existing customers. We typically grow our revenues over time with customers as their underlying screening volumes grow and as they roll out our products and solutions to new divisions or geographies, increase our wallet share in multi-provider programs, perform more extensive screens, and purchase additional products and solutions such as continuous screening, hiring tax credits, and fleet solutions. Our Customer Success teams work closely with our customers to further develop their screening, compliance, and risk management programs within their organization and in doing so, frequently identify opportunities to expand their relationship with First Advantage. Our revenue growth with existing customers is also dependent upon our ability to retain customers. In the past three years, we have achieved an average 95% gross retention rate from 2018 to 2020.

Maintaining Performance Through Macroeconomic Environments

Our results are also impacted by our customers’ underlying business performance and hiring trends, which drive their demand and budgets for background screening and adjacent products. Our customers’ business can be affected by a variety of factors, including general economic conditions and industry-related trends. We are also exposed to hiring cyclicality, as companies typically reduce employee hiring and flexible workforces in weaker economic environments, which can impact demand for our products and solutions. Our ability to grow our business will also depend on the long-term strength, diversity, and durability of the verticals that we invest in and rely upon to drive our revenues.

Developing New Products to Expand Our Revenue Opportunity with Existing Customers

We plan to continue to diversify our product suite beyond pre-onboarding screening by growing our post-onboarding screening and adjacent risk and compliance products. For example, we are currently investing in sources of recurring revenues such as post-onboarding criminal monitoring solutions and re-screening programs. We see opportunities to develop risk management solutions that align with our capabilities, such as franchise screening programs, DOT compliance, and Right to Work checks.

Profitably Managing our Growth

Our ability to grow profitably depends on our ability to manage our cost structure. Our costs are affected by third-party costs including government fees and data vendors, as these third-parties have discretion to adjust pricing, although these third-party fees are typically invoiced to our customers as direct pass-through costs.

 

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Our historical margin expansion has been largely driven by increased automation and deployment of RPA technologies in the background screening process, which has increased our efficiency, quality, and operating leverage. Additionally, we have gained operating leverage from efficiencies and control in managing general and administrative costs. In order to grow profitably, we must make strategic investments that generate incremental revenues and enable us to deliver our products and solutions and support our customers in a cost-effective manner. However, our ability to innovate and drive future reductions of operating costs through automation and digitization requires upfront investment that is not guaranteed to drive the desired outcomes.

COVID-19

In March 2020, the World Health Organization characterized COVID-19 as a pandemic. The COVID-19 pandemic and the ensuing actions that various governments have taken in response have created significant worldwide uncertainty, volatility, and economic disruption and has had significant and unpredictable impacts on global labor markets. U.S. total private hiring volumes declined significantly at the beginning of the COVID-19 pandemic as many companies quickly reduced hiring amid related uncertainty. The U.S. unemployment rate spiked to 15% in April 2020, reflecting its highest rate since the Great Depression. Certain of our existing customers reduced headcount, furloughed employees, implemented hiring freezes, and reduced flexible workforces due to declining business conditions which decreased their spending on background screening. Certain sectors such as travel, dining, and non-essential retail, were especially impacted.

We believe providers with large exposure to apparel, airline, hotel, in-person food & beverage and SMB customers were heavily impacted during 2020 after COVID-19 driven lockdowns and other measures were taken. There were varying degrees of recovery across these sectors in 2020. First Advantage’s revenues declined approximately 14% year-over-year in the second quarter of 2020 as customers dramatically reduced order volumes at the onset of the pandemic. In particular, we saw greater revenue declines among our international customers. In response, we enacted hiring reductions, reduced flexible labor, and took other precautionary cost actions. We quickly mobilized our global operations to transition to a work-from-home model and prioritized our order processing capacity to meet the volume demands of customers that still had strong hiring volume. For a short period of time at the onset of the pandemic, we experienced operational disruptions due to court closures and unavailability of certain data sources that resulted in longer turnaround times and depending on our customers’ preferences, delayed or required modification of customer deliverables. We also incurred incremental costs of approximately $0.9 million in 2020 and $0.1 million in the three months ended March 31, 2021 in connection with the COVID-19 pandemic, including costs related to furloughs and severance, increased overtime, and personal protective equipment.

Despite the pandemic and high U.S. unemployment rates, our business recovered in the third quarter of 2020, with revenues growing 11% year-over-year. Our performance was driven in part due to our focus on and strength with Enterprise customers in diverse and durable sectors such as e-commerce, essential retail, transportation and home delivery, warehousing, healthcare, technology, and staffing. We were also nimble in launching new products in response to COVID-19, such as virtual drug testing.

We believe that a continued economic rebound will help drive strong hiring volumes and demand globally in 2021 and that we will continue to experience strong demand from our existing customers. We also expect that as the COVID-19 pandemic abates, demand from our international customers and our customers in heavily impacted sectors will return to more normalized levels, a trend we have started to experience in the three months ended March 31, 2021. However, the duration and severity of the COVID-19 pandemic and the long-term effects the pandemic will have on our customers and general economic conditions remains uncertain and difficult to predict. Our business and financial performance may be unfavorably impacted in future periods if a significant number of our customers reduce headcount and hiring or are unable to continue as viable businesses, the macro-economic environment continues to experience worsening labor market conditions, there is a reduction in business confidence and activity, or a decrease in demand for background screening products and solutions. See “Risk Factors—Risks Related to Our Business—The impact of COVID-19 and related risks could materially affect our results of operations, financial position, and/or liquidity.”

 

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Components of our Results of Operations

Revenues

The Company derives its revenues from a variety of screening and adjacent products that cover phases from pre-onboarding screening to post-onboarding screening after the employee, extended worker, driver, or volunteer has been onboarded. We generally classify our products and solutions into three major categories: pre-onboarding, post-onboarding, and adjacent products, each of which is enabled by our technology platform, proprietary databases, and data analytics capabilities. Pre-onboarding products are comprised of an extensive array of products that customers typically utilize to enhance their evaluation process and ensure compliance with their onboarding criteria from the time a job or other application is submitted to an applicant’s successful onboarding. Post-onboarding products are comprised of continuous monitoring and re-screening solutions to help our customers keep their end customers, workforces, and other stakeholders safe, productive, and compliant. Adjacent products include products that complement our pre-onboarding and post-onboarding solutions such as fleet / vehicle compliance, tax credits and incentives, resident/tenant screening, and investigative screening. We expect revenues from post-onboarding products to increase in the long-term.

Our suite of products is available individually or through bundled solutions that can be configured and tailored according to our customers’ needs. We typically bill our customers at the end of each month and recognize revenues after completed orders are reported or otherwise made available to our customers. A substantial majority of customer orders are completed the same day they are submitted. We similarly recognize revenues for other products as customers receive and consume the benefits of the products and solutions delivered.

Operating Expenses

We incur the following expenses related to our cost of revenues and operating expenses:

 

   

Cost of Services: Consists of amounts paid to third parties for access to government records, other third-party data and services, and our internal processing fulfillment and customer care functions. In addition, cost of services include expenses from our proprietary drug screening lab and collection site network as well as our proprietary court runner network. Third-party cost of services are largely variable in nature and are typically invoiced to our customers as direct pass-through costs. Cost of services also includes our salaries and benefits expense for personnel involved in the processing and fulfilment of our screening products and solutions, as well as our customer care organization and robotics process automation implementation team. Other costs included in cost of services include an allocation of certain overhead costs for our revenue-generating products and solutions, primarily consisting of certain facility costs and administrative services allocated by headcount or another related metric. We do not allocate depreciation and amortization to cost of services.

 

   

Product and Technology Expense: Consists of salaries and benefits for personnel involved in the maintenance of our technology platform and its integrations and APIs, product marketing, management of our network and infrastructure capabilities, and maintenance of our information security and business continuity functions. A portion of the personnel costs, including stock-based compensation costs, are related to the development of new products and features that are all developed through Agile methodologies. These costs are partially capitalized, and therefore, are partially reflected as amortization expense within the depreciation and amortization cost line item. Product and technology expense also includes third-party costs related to our cloud computing services, software licensing and maintenance, telecommunications, and other data processing functions. We do not allocate depreciation and amortization to product and technology expense.

 

   

Selling, General, and Administrative Expense: Consists of sales, customer success, marketing, and general and administrative expenses. Sales, customer success, and marketing consists primarily of employee compensation such as salaries, bonuses, sales commissions, stock-based compensation, and other employee benefits for our verticalized Sales and Customer Success teams. General and administrative expenses include travel expenses and various corporate functions including finance, human resources, legal, and other administrative roles, in addition to certain professional service fees associated

 

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with preparing for our initial public offering. We expect our selling, general, and administrative expenses to increase in the future, primarily as a result of additional public company related reporting and compliance costs. Over the long-term, we expect our selling, general, and administrative expenses to decrease as a percentage of our revenues as we leverage our past investments.

 

   

Depreciation and Amortization: Property and equipment consisting mainly of capitalized software costs, furniture, hardware, and leasehold improvements are depreciated and reflected as operating expenses. We also amortize the capitalized costs of finite-life intangible assets acquired in connection with the Silver Lake Transaction and other business combinations. The comparability of our operating expenses over time is affected by the increased depreciation and amortization recorded as a result of applying purchase accounting at the time of the Silver Lake Transaction.

We have a flexible cost structure that allows our business to adjust quickly to the impacts of macroeconomic events and scale to meet the needs of large new customers. Operating expenses are influenced by the amount of revenue and mix of customers that contribute to our revenues for any given period. As revenues grow, we would generally expect cost of services to grow in a similar fashion, albeit influenced by the effects of automation, productivity, and other efficiency initiatives as well as customer and product mix shifts. We regularly review expenses and investments in the context of revenue growth and any shifts we see in cost of services in order to align with our overall financial objectives. While we expect operating expenses to increase in absolute dollars to support our continued growth, we believe that operating expenses will decline gradually as a percentage of total revenues in the future as our business grows and our operating efficiency improves.

Other Expense (Income)

Our other expense (income) consists of the following:

 

   

Interest Expense: Relates primarily to our debt service costs and, to a lesser extent, the interest-related expenses of our interest rate swaps and the interest on our capital lease obligations. Additionally, interest expense includes the amortization of deferred financing costs.

 

   

Interest Income: We earn interest income on our cash and cash equivalent balances held in interest-bearing accounts. We also earn interest income on our short term investments which are fixed-time deposits having a maturity date within twelve months.

 

   

Loss on Extinguishment of Debt: Reflects losses on the extinguishment of certain debt.

 

   

Transaction Expenses, Change in Control: Includes transaction expenses related to the change of control resulting from the Silver Lake Transaction as well as transaction costs related to other business combinations completed as part of our historic business combinations.

Provision for Income Taxes

Consists of domestic and foreign corporate income taxes related to earnings from our sale of services, with statutory tax rates that differ by jurisdiction. We expect the income earned by our international entities to grow over time as a percentage of total income, which may impact our effective income tax rate. However, our effective tax rate will be affected by many other factors including changes in tax laws, regulations or rates, new interpretations of existing laws or regulations, shifts in the allocation of income earned throughout the world, and changes in overall levels of income before tax. Specifically, the results of the 2020 U.S. presidential election could lead to changes in tax laws that could negatively impact our effective tax rate. President Biden has proposed an increase in the U.S. corporate income tax rate from 21% to 28%, doubling the rate of tax on certain earnings of foreign subsidiaries, and a 15% minimum tax on worldwide book income, which would increase our effective tax rate.

Results of Operations

The comparability of our operating results in the year ended December 31, 2020 compared to the year ended December 31, 2019 and the three months ended March 31, 2021 compared to the three months ended March 31,

 

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2020 was impacted by our accounting for the Silver Lake Transaction. The period from January 1, 2020 through January 31, 2020 relate to the Predecessor and the period from February 1, 2020 through March 31, 2020 and the period from February 1, 2020 through December 31, 2020 relate to the Successor. To assist with period-to-period comparisons, we have included the unaudited pro forma consolidated financial information for the three months ended March 31, 2020 and the year ended December 31, 2020 that gives effect to this offering and the Silver Lake Transaction and the related refinancing as if they had occurred at January 1, 2020. For a discussion of pro forma adjustments, see “Unaudited Pro Forma Consolidated Financial Information.” These pro forma adjustments are prepared in accordance with Article 11 of Regulation S-X to include additional amortization related to the intangible assets recognized at fair value in the Silver Lake Transaction and differences in interest expense associated with the related refinancing. We compare results for the year ended December 31, 2019 (Predecessor) to the pro forma results for the twelve months ended December 31, 2020, after giving effect to this offering and the Silver Lake Transaction and the related refinancing, and the pro forma results for the three months ended March 31, 2020, after giving effect to this offering and the Silver Lake Transaction and the related refinancing, and the three months ended March 31, 2021. We present the information for the three-month period ended March 31, 2020 and the twelve-month period ended December 31, 2020 in this format to assist readers in understanding and assessing the trends and significant changes in our results of operations on a comparable basis. We believe this presentation is appropriate because it provides a meaningful comparison and relevant analysis of our results of operations for the relevant periods.

Comparison of Results of Operations for the Year ended December 31, 2019 (Predecessor) compared to the Period from January 1, 2020 through January 31, 2020 (Predecessor) and the Period from February 1, 2020 through December 31, 2020 (Successor)

 

    Predecessor     Predecessor           Successor     Pro Forma
Adjustments
for the year
ended
December 31,
2020
    Pro Forma
Twelve
Months Ended
December 31,
2020
 
    For the Year
Ended
December 31,
2019
    Period from
January 1, 2020
through
January 31,
2020
          Period from
February 1,
2020 through
December 31,
2020
 

(In thousands)

             

Revenues

  $ 481,767     $ 36,785         $ 472,369     $ —       $ 509,154  
 

Operating expenses:

             

Cost of services (exclusive of depreciation and amortization below)

    245,324       20,265           240,287       —         260,552  

Product and technology expense

    33,239       3,189           32,201       —         35,390  

Selling, general, and administrative expense

    85,084       11,235           66,864       —         78,099  

Depreciation and amortization

    25,953       2,105           135,057       6,124       143,286  
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Total operating expenses

    389,600       36,794           474,409       6,124       517,327  
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    92,167       (9         (2,040     (6,124     (8,173
 

Other expense (income)

             

Interest expense

    51,964       4,514           47,914       (5,731)       46,697  

Interest income

    (945     (25         (530           (555

Loss on extinguishment of debt

          10,533                 (10,533      

Transaction expenses change in control

          22,370           9,423       (22,370     9,423  
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Total other expense

    51,019       37,392           56,807       (38,634     55,565  
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Income (loss) before provision for income taxes

    41,148       (37,401         (58,847     32,510       (63,738

Provision for income taxes

    6,898       (871         (11,355     8,355       (3,871
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

 

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    Predecessor     Predecessor           Successor     Pro Forma
Adjustments
for the year
ended
December 31,
2020
    Pro Forma
Twelve
Months Ended
December 31,
2020
 
(in thousands) (continued)   For the Year
Ended
December 31,
2019
    Period from
January 1, 2020
through
January 31,
2020
          Period from
February 1,
2020 through
December 31,
2020
 

Net income (loss)

  $ 34,250     $ (36,530       $ (47,492   $ 24,155     $ (59,867
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) margin.

    7.1     (99.3 )%          (10.1 )%      —         (11.8 )% 
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Revenues

 

     Predecessor      Predecessor            Successor      Pro Forma
Adjustments
for the year
ended
December 31,
2020
     Combined
Pro Forma
Twelve
Months
Ended
December 31,
2020
 
(in thousands)    For the Year
Ended
December 31,
2019
     Period from
January 1,
2020 through
January 31,
2020
           Period from
February 1,
2020 through
December 31,
2020
 

Revenues

   $ 481,767      $ 36,785          $ 472,369      $ —        $ 509,154  

Revenues were $472.4 million for the period from February 1, 2020 through December 31, 2020 (Successor) and $36.8 million for the period from January 1, 2020 through January 31, 2020 (Predecessor), compared to $481.8 million for the year ended December 31, 2019 (Predecessor). On a pro forma basis after giving effect to this offering and the Silver Lake Transaction, revenues were $509.2 million for the year ended December 31, 2020, an increase of $27.4 million, or 5.7%, compared to the year ended December 31, 2019. This represents a deceleration in growth relative to prior years due to the impact of COVID-19.

The increase in revenues was primarily driven by:

 

   

increased revenues of $44.6 million from new customers.

The increase in revenues was partially offset by:

 

   

a $17.2 million net decrease in existing customer revenue, primarily driven by reduced demand from certain customers more impacted by COVID-19 and the impact of lost accounts. These decreases were partially offset by increased revenue from certain existing customers, including ongoing strength in demand, upselling and cross-selling.

We experienced high demand among certain Enterprise customers in the essential retail, e-commerce, and transportation and home delivery verticals, particularly in the second half of 2020. Pricing was relatively stable across the periods.

Cost of Services

 

     Predecessor     Predecessor            Successor     Pro Forma
Adjustments
for the year
ended
December 31,
2020
     Combined
Pro Forma
Twelve
Months
Ended
December 31,
2020
 
(in thousands)    For the Year
Ended
December 31,
2019
    Period from
January 1,
2020 through
January 31,
2020
           Period from
February 1,
2020 through
December 31,
2020
 

Revenues

   $ 481,767     $ 36,785          $ 472,369     $ —        $ 509,154  

Cost of services

     245,324       20,265            240,287       —          260,552  

Cost of services as a % of revenue

     50.9     55.1          50.9     —          51.2

Cost of services was $240.3 million for the period from February 1, 2020 through December 31, 2020 (Successor) and $20.3 million for the period from January 1, 2020 through January 31, 2020 (Predecessor),

 

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compared to $245.3 million for the year ended December 31, 2019 (Predecessor). On a pro forma basis after giving effect to this offering and the Silver Lake Transaction, cost of services was $260.6 million for the year ended December 31, 2020, an increase of $15.2 million, or 6.2%, compared to the year ended December 31, 2019.

The increase in cost of services was primarily due to:

 

   

an increase in variable third-party data expenses of $23.2 million as a direct result of the increased revenues.

The increase in cost of services was partially offset by:

 

   

a $6.0 million decrease in personnel related expenses in our operations and customer service functions as a result of our continued investment in robotics process automation and productivity efficiencies, and

 

   

a $1.7 million decrease in travel-related expenses due to COVID-19 related restrictions

Cost of services as a percentage of revenues was 50.9% for the period from February 1, 2020 through December 31, 2020 (Successor) and 55.1% for the period from January 1, 2020 through January 31, 2020 (Predecessor), which was relatively flat compared to 50.9% for the year ended December 31, 2019 (Predecessor). We were able to maintain this percentage in 2020 by leveraging our operating efficiencies to control our personnel expenses and also as a result of reduced travel costs as a result of COVID-19 related restrictions.

Product and Technology Expense

 

     Predecessor      Predecessor            Successor      Pro Forma
Adjustments
for the year
ended
December 31,
2020
     Combined
Pro Forma
Twelve
Months
Ended
December 31,
2020
 
(in thousands)    For the Year
Ended
December 31,
2019
     Period from
January 1,
2020 through
January 31,
2020
           Period from
February 1,
2020 through
December 31,
2020
 

Product and technology expense

   $ 33,239      $ 3,189          $ 32,201      $ —        $ 35,390  

Product and technology expense was $32.2 million for the period from February 1, 2020 through December 31, 2020 (Successor) and $3.2 million for the period from January 1, 2020 through January 31, 2020 (Predecessor), compared to $33.2 million for the year ended December 31, 2019 (Predecessor). On a pro forma basis after giving effect to this offering and the Silver Lake Transaction, product and technology expense was $35.4 million for the year ended December 31, 2020, an increase of $2.2 million, or 6.5%, compared to the year ended December 31, 2019.

The increase in product and technology expense was primarily due to:

 

   

a $1.7 million increase in personnel-related expenses as a result of additional investments made to enhance our product and technology capabilities, and

 

   

an increase in software licensing expenses.

Selling, General, and Administrative Expense

 

     Predecessor      Predecessor            Successor      Pro Forma
Adjustments
for the year
ended
December 31,
2020
     Combined
Pro Forma
Twelve
Months
Ended
December 31,
2020
 
(in thousands)    For the Year
Ended
December 31,
2019
     Period from
January 1,
2020 through
January 31,
2020
           Period from
February 1,
2020 through
December 31,
2020
 

Selling, general, and administrative expense

   $ 85,084      $ 11,235          $ 66,864      $ —        $ 78,099  

 

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Selling, general, and administrative expense was $66.9 million for the period from February 1, 2020 through December 31, 2020 (Successor) and $11.2 million for the period from January 1, 2020 through January 31, 2020 (Predecessor), compared to $85.1 million for the year ended December 31, 2019 (Predecessor). On a pro forma basis after giving effect to this offering and the Silver Lake Transaction, selling, general, and administrative expense was $78.1 million for the year ended December 31, 2020, a decrease of $7.0 million, or 8.2%, compared to the year ended December 31, 2019.

Selling, general, and administrative expense decreased primarily due to:

 

   

a $4.5 million reduction in travel and marketing related expenses as a result of COVID-19 related restrictions,

 

   

a $3.4 million decrease in legal expenses (see Note 13 to the consolidated financial statements included elsewhere in this prospectus), and

 

   

decreases in various other expenses primarily related to COVID-19 cost saving measures.

The decrease in selling, general, and administrative expense was partially offset by:

 

   

a $4.5 million increase in stock-based compensation expenses primarily as a result of accelerated vesting related to the Silver Lake Transaction.

Depreciation and Amortization

 

     Predecessor      Predecessor            Successor      Pro Forma
Adjustments
for the year
ended
December 31,
2020
     Combined
Pro Forma
Twelve
Months
Ended
December 31,
2020
 
(in thousands)    For the Year
Ended
December 31,
2019
     Period from
January 1,
2020 through
January 31,
2020
           Period from
February 1,
2020 through
December 31,
2020
 

Depreciation and amortization

   $ 25,953      $ 2,105          $ 135,057      $ 6,124      $ 143,286  

Depreciation and amortization was $135.1 million for the period from February 1, 2020 through December 31, 2020 (Successor) and $2.1 million for the period from January 1, 2020 through January 31, 2020 (Predecessor), compared to $26.0 million for the year ended December 31, 2019 (Predecessor). On a pro forma basis after giving effect to this offering and the Silver Lake Transaction, depreciation and amortization was $143.3 million for the year ended December 31, 2020, an increase of $117.3 million, or 452.1%, compared to the year ended December 31, 2019.

This increase was primarily due to the impact of the step up in fair value of property and equipment and intangible assets as a result of the application of purchase accounting related to the Silver Lake Transaction.

Interest Expense

 

     Predecessor      Predecessor            Successor      Pro Forma
Adjustments
for the year
ended
December 31,
2020
    Combined
Pro Forma
Twelve
Months
Ended
December 31,
2020
 
(in thousands)    For the Year
Ended
December 31,
2019
     Period from
January 1,
2020 through
January 31,
2020
           Period from
February 1,
2020 through
December 31,
2020
 

Interest expense

   $ 51,964      $ 4,514          $ 47,914      $ (5,731   $ 46,697  

Interest expense was $47.9 million for the period from February 1, 2020 through December 31, 2020 (Successor) and $4.5 million for the period from January 1, 2020 through January 31, 2020 (Predecessor), compared to $52.0 million for the year ended December 31, 2019 (Predecessor). On a pro forma basis after giving effect to this offering and the Silver Lake Transaction, interest expense was $46.7 million for the year ended December 31, 2020, a decrease of $5.3 million, or 10.1%, compared to the year ended December 31, 2019.

 

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This increase in interest expense from the period from February 1, 2020 through December 31, 2020 (Successor) and for the period from January 1, 2020 through January 31, 2020 (Predecessor), compared to the year ended December 31, 2019 (Predecessor) was primarily due to the impact of the increase in outstanding debt related to the refinancing of our credit facilities in 2020 and the fair value measurement of our interest rate swaps. As part of the Silver Lake Transaction, we repaid our existing debt obligations and established a new $670.0 million first lien credit facility and $145.0 million second lien credit facility. The increase in interest rates as a result of increased borrowings was partially offset by interest rate savings due to more favorable interest rate margins under the new credit facilities and lower LIBOR rates.

Interest Income

 

     Predecessor     Predecessor            Successor     Pro Forma
Adjustments
for the year
ended
December 31,
2020
     Combined
Pro Forma
Twelve
Months
Ended
December 31,
2020
 
(in thousands)    For the Year
Ended
December 31,
2019
    Period from
January 1,
2020 through
January 31,
2020
        &