# First Advantage Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [First Advantage Corp](/companies/fa.md) (CIK 1210677)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 21:15 ET
- Period: 2023-09-30
- Accession: 0000950170-23-062076
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1210677/000095017023062076/fa-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1210677/000095017023062076/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $200.4m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $561.2m | us-gaap:Revenues |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $13.1m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $38.4m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $30.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $88.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $23.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $52.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $4.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $9.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $10.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $22.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.07 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.15 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.08 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.16 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 144,733,357 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 146,392,996 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $106.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $1.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2023-07-01 to 2023-09-30 | $3.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $164.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $349.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.63bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $94.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $741.4m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $558.0m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-09-30 | $888.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 68,093 characters.

The following discussion and analysis of First Advantage Corporation’s financial condition and results of operations is provided as a supplement to the condensed consolidated financial statements for the three and nine months ended September 30, 2023, and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022, our “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

### Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. These forward-looking statements relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. In some cases, you can identify these forward-looking statements by the use of words such as “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,” “will,” “seek,” “foreseeable,” the negative version of these words, or similar terms and phrases.

These forward-looking statements are subject to various risks, uncertainties, assumptions, or changes in circumstances that are difficult to predict or quantify. Such risks and uncertainties include, but are not limited to, the following: negative changes in external events beyond our control, including our customers’ onboarding volumes, economic drivers which are sensitive to macroeconomic cycles, such as interest rate volatility and inflation, geopolitical unrest, uncertainty in financial markets (including as a result of recent events affecting financial institutions), and the COVID-19 pandemic; 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, data security, and artificial intelligence; inability to identify and successfully implement our growth strategies on a timely basis or at all; potential harm to our business, brand, and reputation as a result of security breaches, cyber-attacks, or the mishandling of personal data; operating in a penetrated and competitive market; our reliance on third-party data providers; 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; our international business exposes us to a number of risks; real or perceived errors, failures, or bugs in our products could adversely affect our business, results of operations, financial condition, and growth prospects; our ability to identify attractive targets or successfully complete such transactions; the timing, manner and volume of repurchases of common stock pursuant to our share repurchase program; failure to comply with anti-corruption laws and regulations; disruptions at our Global Operating Center and other operating centers; our contracts with our customers, which do not guarantee exclusivity or contracted volumes; 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; 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 reliance on third-party vendors to carry out certain portions of our operations; our dependence on the service of our key executive and other employees, and our ability to find and retain qualified employees; our ability to obtain, maintain, protect and enforce our intellectual property and other proprietary information; 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; seasonality in our operations from quarter to quarter; our 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; Silver Lake’s control of us and the potential conflict of its interest with ours or those of our stockholders; and changing interpretations of tax laws.

For additional information on these and other factors that could cause First Advantage’s actual results to differ materially from expected results, please see our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”), as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. The forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date of this Form 10-Q, and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by law.

### Glossary of Selected Terminology

The following terms are used in this Form 10-Q, unless otherwise noted or indicated by the context:

- “Americas” in regards to our business, means the United States, Canada, and Latin America;
- “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;
- “International” in regards to our business, means all geographical regions outside of the United States, Canada, and Latin America;
- “Revenues attributable to the Company’s acquisitions” means revenues recognized in the first year following each acquisition; and
- “Silver Lake” means Silver Lake Group, L.L.C., together with its affiliates, successors, and assignees.

Certain monetary amounts, percentages, and other figures included in this Quarterly Report on Form 10-Q have been subject to rounding adjustments. Percentage amounts included in this Quarterly Report on Form 10-Q have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Quarterly Report on Form 10-Q may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Certain other amounts that appear in this Quarterly Report on Form 10-Q may not sum due to rounding.

### Website and Social Media Disclosure

We use our websites (https://fadv.com/ and https://investors.fadv.com/) to distribute company information. We make available free of charge a variety of information for investors, including our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file that material with or furnish it to the Securities and Exchange Commission (“SEC”). The information we post on our websites may be deemed material. Accordingly, investors should monitor our websites, in addition to following our press releases, filings with the SEC, and public conference calls and webcasts. In addition, you may opt in to automatically receive email alerts and other information about First Advantage when you enroll your email address by visiting the “Email Alerts” section of our investor website at https://investors.fadv.com/. The contents of our websites and social media channels are not, however, a part of this Quarterly Report on Form 10-Q.

### Overview

First Advantage is a leading global provider of employment background screening and verification solutions. We deliver innovative services and insights that help our customers manage risk and hire the best talent. Enabled by our proprietary technology, our products help companies protect their brands and provide safer environments for their customers and their most important resources: employees, contractors, contingent workers, tenants, and drivers.

Our comprehensive product suite includes criminal background checks, drug / health screening, extended workforce screening, biometrics and 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 screens in over 200 countries and territories, enabling us to serve as a one-stop-shop provider to both multinational companies and growth companies. Our approximately 33,000 customers are global enterprises, mid-sized companies, and small companies, and our products and solutions are used by personnel in recruiting, human resources, risk, compliance, vendor management, safety, and/or security.

Our products are sold both individually and packaged. 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 background screening package or selected combination of screens related to a single individual before they onboard that individual. The type and mix of products and solutions we sell to a customer vary by customer size, their screening requirements, and industry vertical. Therefore, order volumes are not comparable across both customers and periods. Pricing can also vary considerably by customer depending on the product mix in their screening packages, order volumes, screening requirements and preferences, pass-through and third-party out of pocket costs, and bundling of products.

We enter into contracts with our customers that are typically three years in length. These contracts set forth the general terms and pricing of our products and solutions but generally do not include minimum order volumes or committed order volumes. Accordingly, contracts do not provide guarantees of future revenues. Due to our contract terms and the nature of the background screening industry, we determined our contract terms for ASC 606 purposes are less than one year. We typically bill our customers at the end of each month and recognize revenues as completed orders are reported or otherwise made available to our customers. Over 92% of the criminal searches performed in the United States in 2022 were completed the same day they were submitted.

We generated revenues of $200.4 million for the three months ended September 30, 2023, as compared to $206.0 million for the three months ended September 30, 2022 and generated revenues of $561.2 million for the nine months ended September 30, 2023, as compared to $597.4 million for the nine months ended September 30, 2022. Approximately 87% of our revenues for the nine months ended September 30, 2023 was generated in the Americas, predominantly in the United States, while the remaining 13% was generated in our International segment. Other than the United States, no single country accounted for 10% or more of our total revenues for the three and nine months ended September 30, 2023. Please refer to “Results of Operations” for further details.

### Segments

We manage our business and report our financial results in two reportable segments, Americas and International:

- ***Americas.*** This segment performs a variety of background check and compliance services across all phases of the workforce lifecycle from pre-onboarding services to post-onboarding and ongoing monitoring services, covering employees, contractors, contingent workers, tenants, and drivers. We generally classify our service offerings into three categories: pre-onboarding, post-onboarding, and adjacent products. We deliver our solutions across multiple vertical industries in the United States, Canada, and Latin America markets.
- ***International.*** The International segment provides services similar to our Americas segment in regions outside of the Americas. We primarily deliver our solutions across multiple vertical industries in the Europe, India, and Asia Pacific markets.

### Seasonality

We experience seasonality with respect to certain industries 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 months of October and November, leading up to the holiday season and lowest at the beginning of the new year, following the holiday season. Certain customers across various industries also historically ramp up their hiring throughout the second quarter 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. We expect that further growth in e-commerce, the continued digital transformation of the economy, and other economic forces may impact future seasonality, but we are unable to predict these potential shifts and how our business may be impacted.

### Recent Developments

### M&A

On September 1, 2023, the Company acquired 100% of the equity interest of a U.S.-based digital identity solutions company. The acquired company operates under the trade name Infinite ID. The acquisition expands the Company’s network and portfolio of identity solutions in the United States. The results of this company, which are not material, have been included in our Americas segment from the date of the acquisition.

### Current Economic Conditions

Macroeconomic factors, including inflation, increased interest rates, instability in the global banking system, the prolonged COVID-19 pandemic, global supply chain constraints, and global economic and geopolitical developments, have negatively impacted significant portions of the global economy, and created volatility in the financial markets.

While our overall productivity has not been materially adversely impacted, we have experienced, and may continue to experience, the lengthening of certain sales cycles. If the economic uncertainty is sustained or increases, we may experience a negative impact on new business, customer renewals and demand levels, sales and marketing efforts, revenues growth rates, customer deployments, customer collections, product development, or other financial metrics. Any of these factors could harm our business, financial condition, and operating results.

Despite the continuing uncertainty associated with these events, we are confident in the long-term overall health of our business, the strength of our product offerings, and our ability to continue to execute on our strategy and help our customers hire smarter and onboard faster. Our ability to deliver innovative products and solutions that enhance workplace safety and address compliance risks has contributed to the durability of our financial results. For additional information, see our “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

### Recently Issued Accounting Standards

See Note 2 to the condensed consolidated financial statements for disclosure of the impact that recent accounting pronouncements may have on the condensed consolidated financial statements.

### Components of our Results of Operations

### Revenues

The Company derives revenues from a variety of background screening and adjacent products that cover all phases of the workforce lifecycle from pre-onboarding screening services to post-onboarding and ongoing monitoring services, covering employees, contractors, contingent workers, tenants, and drivers. 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, proprietary internal databases, and data analytics capabilities. Pre-onboarding products, which comprise the substantial majority of our revenues, span an extensive array of products that customers typically utilize to enhance their applicant evaluation process and ensure compliance with their workforce onboarding criteria from the time an application is submitted to an applicant’s successful onboarding. Post-onboarding products are comprised of continuous monitoring, re-screening, and other solutions to help our customers keep their end customers, workforces, and other stakeholders safer, more productive, and more compliant. Adjacent products include products that complement our pre-onboarding and post-onboarding solutions such as fleet / vehicle compliance, hiring tax credits and incentives, resident / tenant screening, employment eligibility, and investigative research.

Our suite of products is available individually or through packaged 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, with a substantial majority of our customers’ orders completed the same day they are submitted. We recognize revenues for other products over time as the customer simultaneously receives and consumes 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 (exclusive of depreciation and amortization below):* 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 includes expenses from our drug screening lab and collection site network as well as our court runner network. Third-party cost of services are largely variable in nature and are typically invoiced to our customers as direct pass-through costs. Cost of services also includes our salaries and benefits expense for personnel involved in the processing and fulfillment 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 relate to allocations of certain overhead costs for our revenue-generating products and solutions, primarily consisting of certain facility costs and administrative services allocated by headcount or another related metric. We do not allocate depreciation and amortization to cost of services.
- *Product and Technology Expense*: Consists of salaries and benefits of personnel involved in the maintenance of our technology and its integrations and APIs, product marketing, management of our network and infrastructure capabilities, and maintenance of our information security and business continuity functions. A portion of the personnel costs are related to the development of new products and features that are primarily developed through agile methodologies. These costs are partially capitalized, and therefore, are partially reflected as amortization expense within the depreciation and amortization cost line item. Product and technology expense also includes third-party costs related to our cloud computing services, software licensing and maintenance, telecommunications, and other data processing functions. We do not allocate depreciation and amortization to product and technology expense.
- *Selling, General, and Administrative Expense*: Consists of sales, customer success, marketing, and general and administrative expenses. Sales, customer success, and marketing expenses consist primarily of employee compensation such as salaries, bonuses, sales commissions, share-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 and expenses incurred in connection with our IPO and now as a public company. We expect our selling, general, and administrative expenses to increase in the short-term, primarily as a result of additional public company related reporting and compliance costs. Over the long-term, we expect our selling, general, and administrative expenses to decrease as a percentage of revenues as we leverage our past investments. We do not allocate depreciation and amortization to selling, general, and administrative expenses.
- *Depreciation and Amortizatio*n: Property and equipment consisting mainly of capitalized software costs, furniture, hardware, and leasehold improvements are depreciated or amortized and reflected as operating expenses. We also amortize the capitalized costs of finite-life intangible assets acquired in connection with business combinations.

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 revenues, customer mix, and product mix 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 and third-party pass-through costs. We regularly review expenses and investments in the context of revenues growth and any shifts we see in the business in order to align with our overall financial objectives. While we expect internal operating expenses to increase in absolute dollars to support our continued growth, we believe that, in the long term, operating expenses will decline gradually as a percentage of total revenues in the future as our business grows and our operating efficiency and automation initiatives continue to advance.

### Other Expense, Net

Our other expense, net consists of the following:

- *Interest Expense, Net*: Relates primarily to our debt service costs, the interest-related unrealized gains and losses of our interest rate derivative instruments and, to a lesser extent, the interest on our capital lease obligations and the amortization of deferred financing costs. Additionally, interest expense, net includes interest income earnings 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.

### Provision for Income Taxes

Provision for income taxes consists of domestic and foreign corporate income taxes related to earnings from our sale of services, with statutory tax rates that differ by jurisdiction. Our effective tax rate may be affected by many 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.

### Results of Operations

The information contained below should be read in conjunction with our accompanying historical condensed consolidated financial statements and the related notes.

***Comparison of Results of Operations for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022***

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Revenues** | $200,364 | $205,986 | $561,199 | $597,428 |
| Operating Expenses: |  |  |  |  |
| Cost of services (exclusive of depreciation and amortization below) | 101,410 | 104,300 | 285,468 | 301,023 |
| Product and technology expense | 13,107 | 13,250 | 38,374 | 39,969 |
| Selling, general, and administrative expense | 30,217 | 28,034 | 88,881 | 87,715 |
| Depreciation and amortization | 32,419 | 34,744 | 96,341 | 103,185 |
| Total operating expenses | 177,153 | 180,328 | 509,064 | 531,892 |
| **Income from operations** | 23,211 | 25,658 | 52,135 | 65,536 |
| Other Expense, Net: |  |  |  |  |
| Interest expense, net | 7,557 | 1,740 | 20,125 | 4,002 |
| Total other expense, net | 7,557 | 1,740 | 20,125 | 4,002 |
| Income before provision for income taxes | 15,654 | 23,918 | 32,010 | 61,534 |
| Provision for income taxes | 4,881 | 6,709 | 9,530 | 17,076 |
| **Net income** | $10,773 | $17,209 | $22,480 | $44,458 |
| Net income margin | 5.4% | 8.4% | 4.0% | 7.4% |

25

#### Revenues

*(in thousands)*

| Revenues | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Americas | $176,046 | $176,091 | $490,784 | $506,770 |
| International | 25,805 | $31,628 | 74,766 | $96,413 |
| Eliminations | (1,487) | $(1,733) | (4,351) | $(5,755) |
| Total revenues | $200,364 | $205,986 | $561,199 | $597,428 |

Revenues were $200.4 million for the three months ended September 30, 2023, compared to $206.0 million for the three months ended September 30, 2022. Revenues for the three months ended September 30, 2023 decreased by $5.6 million, or 2.7%, compared to the three months ended September 30, 2022.

The decrease in revenues was primarily due to:

- a net decrease of $16.2 million, or 7.9%, in existing customer revenues primarily driven by reduced demand from customers more impacted by macroeconomic events, the elevated levels of growth experienced in 2022 due to the post-pandemic recovery that did not sustain into 2023, and the impact of lost accounts. In the Americas segment, certain industry verticals were impacted by reduced hiring activity resulting in lower revenues. In the International segment, declines were more significantly experienced in the India and APAC markets, while the European market has remained more resilient. Together, these decreases were partially offset by ongoing contribution from upselling and cross-selling to existing customers, contributing $7.7 million, or 3.8%, of additional revenues, and increased revenues from certain existing customers not impacted by the macroeconomic declines.

The decrease in revenues was offset by:

- increased revenues of $9.8 million, or 4.7%, primarily attributable to new customers in our Americas segment; and
- revenues of $0.8 million, or 0.4%, attributable to the Infinite ID acquisition in the Americas segment.

Revenues were $561.2 million for the nine months ended September 30, 2023, compared to $597.4 million for the nine months ended September 30, 2022. Revenues for the nine months ended September 30, 2023 decreased by $36.2 million, or 6.1%, compared to the nine months ended September 30, 2022.

The decrease in revenues was primarily due to:

- a net decrease of $63.8 million, or 10.7%, in existing customer revenues primarily driven by reduced demand from customers more impacted by macroeconomic events, the elevated levels of growth experienced in 2022 due to the post-pandemic recovery that did not sustain into 2023, and the impact of lost accounts. In the Americas segment, certain industry verticals were impacted by reduced hiring activity resulting in lower revenues. In the International segment, declines were more significantly experienced in the India and APAC markets. Together, these decreases were partially offset by ongoing strength in upselling and cross-selling to existing customers, contributing $24.1 million, or 4.0%, of additional revenues, and increased revenues from certain existing customers not impacted by the macroeconomic declines.

The decrease in revenues was offset by:

- increased revenues of $26.8 million, or 4.5%, primarily attributable to new customers in our Americas segment; and
- revenues of $0.8 million, or 0.1%, attributable to the Infinite ID acquisition in the Americas segment.

Pricing remained relatively stable across the 2023 periods.

#### Cost of Services

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $200,364 | $205,986 | $561,199 | $597,428 |
| Cost of services | 101,410 | 104,300 | 285,468 | 301,023 |
| Cost of services as a % of revenue | 50.6% | 50.6% | 50.9% | 50.4% |

Cost of services was $101.4 million for the three months ended September 30, 2023, compared to $104.3 million for the three months ended September 30, 2022. Cost of services for the three months ended September 30, 2023 decreased by $2.9 million, or 2.8%, compared to the three months ended September 30, 2022.

The decrease in cost of services was primarily due to a $3.7 million decrease in personnel expenses in our operations and customer care functions as a result of cost savings actions taken by the Company, lower order volumes (particularly in the International segment), and productivity efficiencies from the implementation of additional automation programs.

The decrease in cost of services was offset by increased variable third-party data expenses of $1.2 million in the Americas segment as a result of variation in customer ordering mix.

Cost of services as a percentage of revenues was 50.6% for the three months ended September 30, 2023, consistent with the three months ended September 30, 2022.

Cost of services was $285.5 million for the nine months ended September 30, 2023, compared to $301.0 million for the nine months ended September 30, 2022. Cost of services for the nine months ended September 30, 2023 decreased by $15.6 million, or 5.2%, compared to the nine months ended September 30, 2022.

The decrease in cost of services was primarily due to:

- a $11.5 million decrease in personnel expenses in our operations and customer care functions as a result of cost savings actions taken by the Company, as well as productivity efficiencies from the implementation of additional automation programs; and
- a decrease in variable third-party data expenses of $4.6 million as a result of continued automation, decreased revenues, and variation in customer ordering mix.

The decrease in cost of services was partially offset by foreign currency exchange losses of $1.3 million due to the impact of foreign exchange rate volatility.

Cost of services as a percentage of revenues was 50.9% for the nine months ended September 30, 2023, compared to 50.4% for the nine months ended September 30, 2022. The cost of services percentage of revenues for the nine months ended September 30, 2023 was impacted by increases in certain third-party data costs due to variation in customer ordering mix. This increase was partially offset by cost savings from the Company’s continued implementation of automation and other process efficiencies, as well as certain cost savings actions taken by the Company.

#### Product and Technology Expense

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Product and technology expense | $13,107 | $13,250 | $38,374 | $39,969 |

Product and technology expense was $13.1 million for the three months ended September 30, 2023, compared to $13.3 million for the three months ended September 30, 2022. Product and technology expense for the three months ended September 30, 2023 decreased by a nominal amount compared to the three months ended September 30, 2022.

Product and technology expense was $38.4 million for the nine months ended September 30, 2023, compared to $40.0 million for the nine months ended September 30, 2022. Product and technology expense for the nine months ended September 30, 2023 decreased by $1.6 million, or 4.0%, compared to the nine months ended September 30, 2022.

The decrease in product and technology expense was primarily due to a $2.8 million decrease in personnel expenses primarily due to decreases in incentive compensation, partially offset by increased share-based compensation expense.

The decrease in product and technology expense was partially offset by a $1.9 million increase in software licensing related expenses.

#### Selling, General, and Administrative Expense

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Selling, general, and administrative expense | $30,217 | $28,034 | $88,881 | $87,715 |

Selling, general, and administrative expense was $30.2 million for the three months ended September 30, 2023, compared to $28.0 million for the three months ended September 30, 2022. Selling, general, and administrative expense for the three months ended September 30, 2023 increased by $2.2 million, or 7.8%, compared to the three months ended September 30, 2022.

Selling, general, and administrative expense increased primarily due to a $2.5 million increase in share-based compensation expense primarily as a result of a modification to the vesting terms of outstanding unvested and unearned performance-based equity awards in May 2023.

Selling, general, and administrative expense was $88.9 million for the nine months ended September 30, 2023, compared to $87.7 million for the nine months ended September 30, 2022. Selling, general, and administrative expense for the nine months ended September 30, 2023 increased by $1.2 million, or 1.3%, compared to the nine months ended September 30, 2022.

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

- a $3.8 million increase in share-based compensation expense primarily as a result of a modification to the vesting terms of outstanding unvested and unearned performance-based equity awards in May 2023;
- a $2.1 million increase in expenses related to litigation in the ordinary course of business;
- a $1.8 million increase in expenses related to the impairment of certain operating lease assets resulting from office space exited during the year; and
- foreign currency exchange losses of $1.3 million due to the impact of foreign exchange rate volatility.

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

- a $3.9 million decrease in commissions and bonus expenses due to lower performance against internal targets;
- a $1.7 million decrease in personnel expenses as well as certain other cost savings actions taken by the Company; and
- a number of other corporate expenses that decreased primarily as a result of cost savings actions taken by the Company.

#### Depreciation and Amortization

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Depreciation and amortization | $32,419 | $34,744 | $96,341 | $103,185 |

Depreciation and amortization was $32.4 million for the three months ended September 30, 2023, compared to $34.7 million for the three months ended September 30, 2022. Depreciation and amortization for the three months ended September 30, 2023 decreased by $2.3 million, or 6.7%, compared to the three months ended September 30, 2022. This decrease was partially offset by increases in depreciation related to assets placed in service during the three months ended September 30, 2023.

Depreciation and amortization was $96.3 million for the nine months ended September 30, 2023, compared to $103.2 million for the nine months ended September 30, 2022. Depreciation and amortization for the nine months ended September 30, 2023 decreased by $6.8 million, or 6.6%, compared to the nine months ended September 30, 2022. This decrease was partially offset by increases in depreciation related to assets placed in service during the nine months ended September 30, 2023.

#### Interest Expense, Net

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Interest expense, net | $7,557 | $1,740 | $20,125 | $4,002 |

Interest expense, net was $7.6 million for the three months ended September 30, 2023, compared to $1.7 million for the three months ended September 30, 2022. Interest expense, net for the three months ended September 30, 2023 increased by $5.8 million, compared to the three months ended September 30, 2022.

The increase in interest expense was primarily attributable to higher interest expense on the First Lien Credit Facility as a result of increasing interest rates. Increases in interest expense were offset by interest income of $3.6 million earned on cash held within interest bearing accounts and $1.0 million of unrealized gains on the Company’s interest rate collar and swap.

Interest expense, net was $20.1 million for the nine months ended September 30, 2023, compared to $4.0 million for the nine months ended September 30, 2022. Interest expense, net for the nine months ended September 30, 2023 increased by $16.1 million, compared to the nine months ended September 30, 2022.

The increase in interest expense was primarily attributable to higher interest expense on the First Lien Credit Facility as a result of increasing interest rates. Increases in interest expense were offset by interest income of $11.8 million earned on cash held within interest bearing accounts and $2.2 million of unrealized gains on the Company’s interest rate collar and swap.

#### Provision for Income Taxes

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Provision for income taxes | $4,881 | $6,709 | $9,530 | $17,076 |

Our provision for income taxes was $4.9 million for the three months ended September 30, 2023, compared to $6.7 million for the three months ended September 30, 2022. Our provision for income taxes for the three months ended September 30, 2023 decreased by $1.8 million, compared to the three months ended September 30, 2022.

The decrease in our provision for income taxes was primarily due to the decrease of income before income taxes during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022.

Our provision for income taxes was $9.5 million for the nine months ended September 30, 2023, compared to $17.1 million for the nine months ended September 30, 2022. Our provision for income taxes for the nine months ended September 30, 2023 decreased by $7.5 million, compared to the nine months ended September 30, 2022.

The decrease in our provision for income taxes was primarily due to the decrease of income before income taxes during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022.

#### Net Income and Net Income Margin

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income | $10,773 | $17,209 | $22,480 | $44,458 |
| Net income margin | 5.4% | 8.4% | 4.0% | 7.4% |

Net income was $10.8 million for the three months ended September 30, 2023, compared to $17.2 million for the three months ended September 30, 2022. Net income for the three months ended September 30, 2023 decreased by $6.4 million compared to the three months ended September 30, 2022.

Net income margin was 5.4% for the three months ended September 30, 2023 compared to 8.4% for the three months ended September 30, 2022, as reduced demand from customers more impacted by macroeconomic events contributed to lower revenues and profitability.

Net income was $22.5 million for the nine months ended September 30, 2023, compared to $44.5 million for the nine months ended September 30, 2022. Net income for the nine months ended September 30, 2023 decreased by $22.0 million compared to the nine months ended September 30, 2022.

Net income margin was 4.0% for the nine months ended September 30, 2023 compared to 7.4% for the nine months ended September 30, 2022, as reduced demand from customers more impacted by macroeconomic events contributed to lower revenues and profitability, particularly as the Company cycled over the growth experienced in 2022 due to the post-pandemic recovery.

### Key Operating and Financial Metrics

In addition to our results determined in accordance with GAAP, we believe certain measures are useful in evaluating our operating performance. Management believes these non-GAAP measures are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate, and capital investments. Management uses Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted Diluted Earnings Per Share to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation, and to compare our performance against that of other peer companies using similar measures. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.

The presentations of these measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, the presentations of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP.

### Adjusted EBITDA and Adjusted EBITDA Margin

Management believes that Adjusted EBITDA is a strong indicator of our overall operating performance and is useful to management and investors as a measure of comparative operating performance from period to period. We define Adjusted EBITDA as net income before interest, taxes, depreciation, and amortization, and as further adjusted for loss on extinguishment of debt, share-based compensation, transaction and acquisition-related charges, integration and restructuring charges, and other non-cash charges. We exclude the impact of share-based compensation because it is a non-cash expense and we believe that excluding this item provides meaningful supplemental information regarding performance and ongoing cash generation potential. We exclude loss on extinguishment of debt, transaction and acquisition related charges, integration and restructuring charges, and other charges because such expenses are episodic in nature and have no direct correlation to the cost of operating our business on an ongoing basis.

Adjusted EBITDA was $64.8 million for the three months ended September 30, 2023 and represented an Adjusted EBITDA Margin of 32.3%. Adjusted EBITDA was $64.2 million for the three months ended September 30, 2022 and represented an Adjusted EBITDA Margin of 31.2%. Adjusted EBITDA for the three months ended September 30, 2023 increased by $0.6 million, or 0.9%, compared to the three months ended September 30, 2022.

Adjusted EBITDA was $169.3 million for the nine months ended September 30, 2023 and represented an Adjusted EBITDA Margin of 30.2%. Adjusted EBITDA was $178.6 million for the nine months ended September 30, 2022 and represented an Adjusted EBITDA Margin of 29.9%. Adjusted EBITDA for the nine months ended September 30, 2023 decreased by $9.3 million, or 5.2%, compared to the nine months ended September 30, 2022.

Adjusted EBITDA declined during the nine months ended September 30, 2023, as macroeconomic events impacted our revenues attributed to existing customers. Decreases were further impacted by the effects of changes in foreign currencies. These decreases were partially offset by increased revenues from certain existing and new customers, including ongoing strength in upselling and cross-selling, cost structure benefits due to increased automation, operational efficiencies, and certain other cost savings actions taken by the Company in late 2022 and 2023.

The following table presents a reconciliation of Adjusted EBITDA for the periods presented.

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income | $10,773 | $17,209 | $22,480 | $44,458 |
| Interest expense, net | 7,557 | 1,740 | 20,125 | 4,002 |
| Provision for income taxes | 4,881 | 6,709 | 9,530 | 17,076 |
| Depreciation and amortization | 32,419 | 34,744 | 96,341 | 103,185 |
| Share-based compensation | 4,790 | 2,022 | 10,449 | 5,824 |
| Transaction and acquisition-related charges (a) | 1,571 | 1,908 | 3,832 | 4,585 |
| Integration, restructuring, and other charges (b) | 2,800 | (144) | 6,565 | (508) |
| **Adjusted EBITDA** | **$64,791** | **$64,188** | **$169,322** | **$178,622** |

(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. Also includes incremental professional service fees incurred related to the initial public offering and subsequent one-time compliance efforts. The three and nine months ended September 30, 2023 and 2022 include a transaction bonus expense related to one of the Company’s 2021 acquisitions.

(b) Represents charges from organizational restructuring and integration activities, non-cash, and other charges primarily related to nonrecurring legal exposures, foreign currency (gains) losses, and (gains) losses on the sale of assets.

We define Adjusted EBITDA Margin as Adjusted EBITDA divided by total revenues. The following table presents the calculation of Adjusted EBITDA Margin for the periods presented.

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Adjusted EBITDA | $64,791 | $64,188 | $169,322 | $178,622 |
| Revenues | 200,364 | 205,986 | 561,199 | 597,428 |
| **Adjusted EBITDA Margin** | **32.3%** | **31.2%** | **30.2%** | **29.9%** |

The following table presents a calculation of Adjusted EBITDA by segment for the periods presented. See Note 15, “Reportable Segments” to the condensed consolidated financial statements for a reconciliation of Adjusted EBITDA for the periods presented by segment.

*(in thousands, except percentages)*

| Adjusted EBITDA (1): | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Americas | $60,188 | $57,205 | $157,168 | $156,978 |
| International | 4,603 | 6,983 | 12,154 | 21,644 |
| **Adjusted EBITDA** | $64,791 | $64,188 | $169,322 | $178,622 |
| Revenues |  |  |  |  |
| Americas | $176,046 | $176,091 | $490,784 | $506,770 |
| International | 25,805 | 31,628 | 74,766 | 96,413 |
| Less: intersegment eliminations | (1,487) | (1,733) | (4,351) | (5,755) |
| Total revenues | $200,364 | $205,986 | $561,199 | $597,428 |
| Adjusted EBITDA Margin |  |  |  |  |
| Americas | 34.2% | 32.5% | 32.0% | 31.0% |
| International | 17.8% | 22.1% | 16.3% | 22.4% |
| **Adjusted EBITDA Margin** | **32.3%** | **31.2%** | **30.2%** | **29.9%** |

(1) See the reconciliation of net income to Adjusted EBITDA above. Segment Adjusted EBITDA margins are calculated using segment gross revenues and segment Adjusted EBITDA. Consolidated Adjusted EBITDA margin is calculated using consolidated revenues and consolidated Adjusted EBITDA.

### Adjusted Net Income and Adjusted Diluted Earnings Per Share

Similar to Adjusted EBITDA, management believes that Adjusted Net Income and Adjusted Diluted Earnings Per Share are strong indicators of our overall operating performance and are useful to our management and investors as measures of comparative operating performance from period to period. We define Adjusted Net Income for a particular period as net income before taxes adjusted for debt-related costs, acquisition-related depreciation and amortization, share-based compensation, transaction and acquisition related charges, integration and restructuring charges, and other non-cash charges, to which we then apply the related effective tax rate. We define Adjusted Diluted Earnings Per Share as Adjusted Net Income divided by adjusted weighted average number of shares outstanding—diluted.

Adjusted Net Income was $40.0 million for the three months ended September 30, 2023, consistent with the three months ended September 30, 2022.

Adjusted Diluted Earnings Per Share was $0.28 for the three months ended September 30, 2023 increased by $0.02, or 7.7% compared to the three months ended September 30, 2022.

Adjusted Net Income was $103.2 million for the nine months ended September 30, 2023, compared to $111.5 million for the nine months ended September 30, 2022. Adjusted Net Income for the nine months ended September 30, 2023 decreased by $8.3 million, or 7.4%, compared to the nine months ended September 30, 2022.

Adjusted Diluted Earnings Per Share was $0.71 for the nine months ended September 30, 2023 decreased by $0.02, or 2.7% compared to the nine months ended September 30, 2022.

Adjusted Net Income and Adjusted Diluted Earnings Per Share declined during the nine months ended September 30, 2023, as reduced demand from customers more impacted by macroeconomic events contributed to lower revenues and profitability. Adjusted Net Income and Adjusted Diluted Earnings Per Share were further impacted by changes in acquisition-related depreciation and amortization and changes in our capital structure that are captured in interest expense. Gains or losses and actual cash payments and receipts on the Company’s interest rate swaps impact the comparability of Adjusted Net Income and Adjusted Diluted Earnings Per Share across historical periods. Adjusted Diluted Earnings Per Share is further impacted by shares repurchased under the Company’s share Repurchase Program.

The following table presents a reconciliation of Adjusted Net Income for the periods presented.

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income | $10,773 | $17,209 | $22,480 | $44,458 |
| Provision for income taxes | 4,881 | 6,709 | 9,530 | 17,076 |
| Income before provision for income taxes | 15,654 | 23,918 | 32,010 | 61,534 |
| Debt-related charges(a) | 2,532 | (3,545) | 7,033 | (10,029) |
| Acquisition-related depreciation and amortization(b) | 25,660 | 28,927 | 76,615 | 87,071 |
| Share-based compensation | 4,790 | 2,022 | 10,449 | 5,824 |
| Transaction and acquisition-related charges(c) | 1,571 | 1,908 | 3,832 | 4,585 |
| Integration, restructuring, and other charges (d) | 2,800 | (144) | 6,565 | (508) |
| Adjusted Net Income before income tax effect | 53,007 | 53,086 | 136,504 | 148,477 |
| Less: Income tax effect(e) | 12,972 | 13,083 | 33,279 | 36,971 |
| **Adjusted Net Income** | **$40,035** | **$40,003** | **$103,225** | **$111,506** |

32

The following table presents the calculation of Adjusted Diluted Earnings Per Share for the periods presented.

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Diluted net income per share (GAAP) | $0.07 | $0.11 | $0.15 | $0.29 |
| Adjusted Net Income adjustments per share |  |  |  |  |
| Income taxes | 0.03 | 0.04 | 0.07 | 0.11 |
| Debt-related charges (a) | 0.02 | (0.02) | 0.05 | (0.07) |
| Acquisition-related depreciation and amortization (b) | 0.18 | 0.19 | 0.52 | 0.57 |
| Share-based compensation | 0.03 | 0.01 | 0.07 | 0.04 |
| Transaction and acquisition related charges (c) | 0.01 | 0.01 | 0.03 | 0.03 |
| Integration, restructuring, and other charges (d) | 0.02 | (0.00) | 0.04 | (0.00) |
| Adjusted income taxes (e) | (0.09) | (0.09) | (0.23) | (0.24) |
| **Adjusted Diluted Earnings Per Share (Non-GAAP)** | **$0.28** | **$0.26** | **$0.71** | **$0.73** |
| Weighted average number of shares outstanding used in computation of Adjusted Diluted Earnings Per Share: |  |  |  |  |
| Weighted average number of shares outstanding—diluted (GAAP and Non-GAAP) | 144,733,357 | 152,357,307 | 146,392,996 | 152,375,112 |

(a) Represents non-cash interest expense related to the amortization of debt issuance costs for the Company’s First Lien Credit Facility (as defined below). Beginning in 2022, this adjustment also includes the impact of the change in fair value of interest rate swaps. This adjustment, which represents the difference between the fair value gains or losses and actual cash payments and receipts on the interest rate swaps, was added as a result of the increased interest rate volatility observed in 2022.

(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*. As a result, the purchase accounting related depreciation and amortization expense will recur in future periods until the related assets are fully depreciated or amortized, and the related purchase accounting assets may contribute to revenue generation.

(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. Also includes incremental professional service fees incurred related to the initial public offering and subsequent one-time compliance efforts. The three and nine months ended September 30, 2023 and 2022 include a transaction bonus expense related to one of the Company’s 2021 acquisitions.

(d) Represents charges from organizational restructuring and integration activities, non-cash, and other charges primarily related to nonrecurring legal exposures, foreign currency (gains) losses, and (gains) losses on the sale of assets.

(e) Effective tax rates of approximately 24.5% and 24.4% have been used to compute Adjusted Net Income and Adjusted Diluted Earnings Per Share for the three and nine months ended September 30, 2023, respectively. Effective tax rates of approximately 24.6% and 24.9% have been used to compute Adjusted Net Income and Adjusted Diluted Earnings Per Share for the three and nine months ended September 30, 2022, respectively. As of December 31, 2022, we had net operating loss carryforwards of approximately $11.0 million for federal income tax purposes available to reduce future income subject to income taxes. As a result, the amount of actual cash taxes we may pay for federal income taxes differs significantly from the effective income tax rate computed in accordance with GAAP and from the normalized rates shown above.

### Liquidity and Capital Resources

### Liquidity

The Company’s primary liquidity requirements are for working capital, continued investments in software development and other capital expenditures, and other strategic investments. In the second quarter of 2023, the Company fully utilized its remaining U.S. Federal income tax net operating loss carryforwards. As a result, income taxes will become a material use of funds, depending on our future profitability and future tax rates. The Company’s liquidity needs are met primarily through existing balance sheet cash, cash flows from operations, as well as funds available under our revolving credit facility and proceeds from our term loan borrowings. Our cash flows from operations include cash received from customers, less cash costs to provide services to our customers, which includes general and administrative costs and interest payments.

As of September 30, 2023, we had $164.9 million in cash and cash equivalents and $100.0 million available under our revolving credit facility. As of September 30, 2023, we had $564.7 million of total debt outstanding. We believe our cash on hand, together with amounts available under our revolving credit facility, and cash provided by operating activities are and will continue to be adequate to meet our operational and business needs in the next twelve months. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds. In the event that we need access to additional cash, we may not be able to access the credit markets on commercially acceptable terms or at all. Our ability to fund future operating expenses and capital expenditures and our ability to meet future debt service obligations or refinance our indebtedness will depend on our future operating performance, which will be affected by general economic, financial, and other factors that may be beyond our control, including those described under our “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

### Share Repurchase Program

On August 2, 2022, the Company’s Board of Directors authorized the repurchase of up to $50.0 million of the Company’s common stock over the 12-month period ending August 2, 2023 (the “Repurchase Program”). Stock repurchases may be effected through open market repurchases at prevailing market prices, including through the use of block trades and trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, privately-negotiated transactions, through other transactions in accordance with applicable securities laws, or a combination of these methods on such terms and in such amounts as the Company deems appropriate and will be funded from available capital. The Company is not obligated to repurchase any specific number of shares, and the timing, manner, value, and actual number of shares repurchased will depend on a variety of factors, including the Company’s stock price and liquidity requirements, other business considerations and general market and economic conditions. No shares will be purchased from SLP Fastball Aggregator, L.P. and its affiliates. The Company may discontinue or modify purchases without notice at any time. The Company has used and plans to use its existing cash to fund repurchases made under the share repurchase program.

On November 8, 2022, the Company’s Board of Directors authorized an increase to the total available amount under its Repurchase Program to $150.0 million and extended the program through December 31, 2023. On February 28, 2023, the Company’s Board of Directors authorized an increase to the total available amount under its Repurchase Program to $200.0 million. On September 14, 2023, the Company announced that its Board of Directors approved a one-year extension of its share repurchase authorization, extending the previously authorized $200.0 million program through December 31, 2024. Through November 6, 2023, the Company repurchased approximately $118.4 million of shares under the Repurchase Program.

### Dividends

On August 8, 2023, the Company’s Board of Directors declared a one-time special cash dividend of $1.50 per share to stockholders of record at the close of business on August 21, 2023. The cash dividend was paid on August 31, 2023.

### Long-Term Debt

In February 2020, a new financing structure was established consisting of a new First Lien Credit Agreement (“First Lien Agreement”). The First Lien Agreement provided financing in the form of a $670.0 million term loan due January 31, 2027 (“First Lien Credit Facility”) and a $75.0 million new revolving credit facility due January 31, 2025 (“Revolver”).

On February 1, 2021, we amended the First Lien Agreement to fund $100.0 million of additional first lien term loans and reduce the applicable margins by 0.25%.

In connection with the IPO, the Company entered into an amendment to increase the borrowing capacity under the Revolver from $75.0 million to $100.0 million and extend the maturity date from January 31, 2025 to July 31, 2026.

Borrowings under the First Lien Agreement bear interest at a rate per annum equal to an applicable margin plus, at our option, either (a) a base rate or (b) LIBOR, which is subject to a floor of 0.00% per annum. In June 2023, the Credit Agreement was amended to transition the reference rate from LIBOR to SOFR (the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York), with the addition of an applicable margin. The applicable margins under the First Lien Agreement are subject to stepdowns based on our first lien net leverage ratio. In connection with the closing of the IPO, each applicable margin was reduced further by 0.25%. In addition, the borrower, First Advantage Holdings, LLC, which is an indirect wholly-owned subsidiary of the Company, is required to pay a commitment fee on any unutilized commitments under the revolving credit facility. The commitment fee rate ranges between 0.25% and 0.50% per annum based on our first lien net leverage ratio. The borrower is also required to pay customary letter of credit fees.

The First Lien Credit Facility amortizes in equal quarterly installments in aggregate annual amounts equal to 1.00% of the principal amount. The Revolver has no amortization. The First Lien Credit Facility requires the borrower to prepay outstanding term loans, subject to certain exceptions, with certain proceeds from non-ordinary course asset sales, issuance of debt not permitted by the credit agreement to be incurred and annual excess cash flows. In addition, any voluntary prepayment of term loans in connection with certain repricing transactions on or prior to August 1, 2021 were subject to a 1.00% prepayment premium. Otherwise, the borrower may voluntarily repay outstanding loans without premium or penalty, other than customary “breakage” costs.

In connection with the closing of the IPO, on June 30, 2021, the Company repaid $200.0 million of the First Lien Credit Facility outstanding, of which $44.3 million was applied to all of the remaining quarterly amortizing principal payments due under the First Lien Agreement. The remaining $564.7 million term loan is scheduled to mature on January 31, 2027.

The First Lien Agreement is unconditionally guaranteed by Fastball Parent, Inc., a wholly-owned subsidiary of the Company and the direct parent of the borrower, and material wholly owned domestic restricted subsidiaries of Fastball Parent, Inc. The First Lien Agreement and the guarantees of such obligations, are secured, subject to permitted liens and other exceptions, by (1) a first priority security interest in certain tangible and intangible assets of the borrower and the guarantors and (2) a first-priority pledge of 100% of the capital stock of the borrower and of each wholly-owned material restricted subsidiary of the borrower and the guarantors (which pledge, in the case of any non-U.S. subsidiary of a U.S. subsidiary, does not include more than 65% of the voting stock of such non-U.S. subsidiary).

The First Lien Agreement contains customary affirmative covenants, negative covenants, and events of default (including upon a change of control). The First Lien Agreement also includes a “springing” first lien net leverage ratio test, applicable only to the Revolver, that requires such ratio to be no greater than 7.75:1.00 on the last day of any fiscal quarter if more than 35.0% of the Revolver is utilized on such date.

### Cash Flow Analysis

### Comparison of Cash Flows for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

The following table is a summary of our cash flow activity for the periods presented:

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $106,080 | $142,842 |
| Net cash used in investing activities | (61,932) | (40,526) |
| Net cash used in financing activities | (270,565) | (827) |

#### Cash Flows from Operating Activities

Net cash provided by operating activities was $106.1 million for the nine months ended September 30, 2023, compared to $142.8 million for the nine months ended September 30, 2022. Net cash provided by operating activities for the nine months ended September 30, 2023 decreased by $36.8 million compared to the nine months ended September 30, 2022. Cash flows from operating activities were impacted by the continuation of more modest hiring activity in the Americas and softness internationally resulting from the ongoing uncertainty from the economic environment that began to impact hiring demand in late 2022. Additionally, cash flows from operating activities in 2023 were impacted by a $9.2 million outflow due to working capital.

#### Cash Flows from Investing Activities

Net cash used in investing activities was $61.9 million for the nine months ended September 30, 2023, compared to $40.5 million for the nine months ended September 30, 2022. Net cash used in investing activities for the nine months ended September 30, 2023 increased by $21.4 million compared to the nine months ended September 30, 2022. Cash flows used in investing activities were primarily impacted by the $41.1 million Infinite ID acquisition, net of cash acquired and other transaction adjustments, during the nine months ended September 30, 2023. Cash flows used in investing activities for the nine months ended September 30, 2022 were impacted by the $19.1 million acquisition of Form I-9 Compliance, net of cash acquired.

#### Cash Flows from Financing Activities

Net cash used in financing activities was $270.6 million for the nine months ended September 30, 2023, compared to $0.8 million for the nine months ended September 30, 2022. Net cash used in financing activities for the nine months ended September 30, 2023 were impacted by the Company’s one-time special cash dividend of $1.50 per share to stockholders of record at the close of business on August 21, 2023 and shares repurchased under the Company’s Repurchase Program. An aggregate cash dividend of $217.7 million was paid on August 31, 2023. During the nine months ended September 30, 2023, the Company repurchased 4,140,519 shares for a total cost of $55.9 million. These outflows were offset partially by cash inflows related to share-based compensation activity.

## Market risk

As filed, 182 characters.

As of September 30, 2023, no material change had occurred in our market risks, compared with the disclosure in our Annual Report on Form 10-K filed with the SEC on February 28, 2023.

## Controls and procedures

As filed, 1,826 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosures.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving their desired control objectives. Based on the evaluation of management’s disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, the disclosure controls and procedures were effective at a reasonable assurance level.

### Changes in Internal Control Over Financial Reporting

During the quarter covered by this report, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 183 characters.

As of September 30, 2023, no material changes had occurred in our risk factors, compared with the disclosure in our Annual Report on Form 10-K filed with the SEC on February 28, 2023.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-062076. Last ingested by Listed: Oct 24, 2026, 15:10 ET. No prices; not investment advice.