First Advantage Corp: Form 10-Q for the period ended Sep 30, 2025

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, 2025, and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2024, 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, 2024. All discussions and information in this Quarterly Report on Form 10-Q regarding our business and financial results in 2024 relate solely to our operations prior to the acquisition of Sterling Check Corp. (“Sterling” and such acquisition, the “Sterling Acquisition”), unless otherwise indicated.

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: the failure to realize the expected benefits of the Sterling Acquisition; 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, global trade disputes, uncertainty in financial markets, and changes in tax laws; 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 (“AI”); 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; our sales to government entities and higher-tier contractors to governmental customers which involve unique competitive, procurement, budget, administrative and contractual risks; 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; 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 executives 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; 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, 2024, 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 (http://www.sec.gov). The forward-looking statements included in this Quarterly Report on Form 10-Q are made 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;
• “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;
• “Legacy First Advantage” refers to First Advantage Corporation and its subsidiaries, prior to the Sterling Acquisition, encompassing its core business operations, established workforce, existing processes, and the technology systems in place;
• “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 condensed 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 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 provider of global software and data in the HR technology industry. Enabled by its proprietary technology and AI, First Advantage’s platforms, data, and APIs power comprehensive employment background screening, digital identity solutions, and verification services.

Our comprehensive product suite includes criminal background checks, drug and health screening, extended workforce screening, biometrics and identity, education and work verifications, resident screening, fleet and driver compliance, executive screening, data analytics, continuous monitoring, social media monitoring, and hiring tax incentives.

On October 31, 2024, we completed our acquisition of Sterling, a global provider of technology-enabled background and identity verification services. This strategic acquisition enhances our capabilities and expands our service offerings, allowing us to deliver a comprehensive hiring and risk management solution that begins with identity verification and extends through criminal background screening, credential verification, drug and health screening, and ongoing risk monitoring.

Together, we derive a substantial majority of our revenues from pre-onboarding screening and perform services across over 200 countries and territories, enabling us to serve as a one-stop-shop provider to both multinational companies and growth companies. Our 80,000 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 platforms offer 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 customers or periods. Package 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. Additionally, a majority of Sterling’s enterprise customer contracts are exclusive to Sterling or require Sterling to be used as the primary provider. Due to our contract terms and the nature of the background screening industry, we determined our contract terms for ASC 606 purposes to be three years or less. 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.

We generated revenues of $409.2 million for the three months ended September 30, 2025, as compared to $199.1 million for the three months ended September 30, 2024 and generated revenues of $1,154.4 million for the nine months ended September 30, 2025, as compared to $553.1 million for the nine months ended September 30, 2024. Approximately 86% of our revenues for the nine months ended September 30, 2025 was generated in the United States, while the remaining 14% was generated abroad. 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, 2025. Please refer to “Results of Operations” for further details.

Segments

We manage our business and report our financial results in three reportable segments, First Advantage Americas, First Advantage International, and Sterling:

• First Advantage Americas. This segment pertains to our Legacy First Advantage business and 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 industry verticals in the United States, Canada, and Latin America.
• First Advantage International. The First Advantage International segment pertains to our Legacy First Advantage business and provides services similar to our Americas segment in regions outside of the Americas. We primarily deliver our solutions across multiple industry verticals in the Europe, India, and Asia Pacific.
• Sterling. This segment is comprised of the acquired entity, Sterling Check Corp., which was acquired on October 31, 2024. The Sterling segment provides similar services as compared to First Advantage’s Americas and International segments on a global basis.

Seasonality

We experience seasonality with respect to certain industries as a result of fluctuations in hiring volumes and other economic activities. 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 U.S. holiday season and lowest in December and at the beginning of the new year, following the U.S. holiday hiring season. Certain customers across various industries also historically increase their hiring throughout the second quarter of the year as winter concludes, and the school year ends, giving rise to student and graduate hiring, and increased commercial activity tied to outdoor activities. We anticipate that evolving consumer trends, labor market dynamics, technological advancements, and broader macroeconomic conditions may impact future seasonality, but we are unable to predict these potential shifts and how our business may be impacted.

Recent Developments

Current Economic Conditions

Our results are influenced by our customers’ underlying business performance and hiring trends, which drive demand for background screening and adjacent products. Our customers’ businesses can be affected by a variety of factors, including overall economic conditions, hiring velocity and turnover, and other industry-related trends. We are also exposed to macroeconomic cyclicality, as companies often scale back hiring and reduce reliance on contingent workforces during periods of economic slowdown, which can adversely affect demand for our products and solutions.

Current macroeconomic conditions—including elevated interest rates, persistent inflation, and fluctuations in job openings and hiring activity—continue to impact portions of the global economy. Geopolitical tensions—including ongoing conflicts in Ukraine and the Middle East—and recent trade policy actions, such as newly imposed tariffs between the U.S. and China, have further disrupted global supply chains and heightened market volatility. These factors have led to increased operating costs and reduced business confidence for companies, particularly in globally exposed sectors.

If this economic uncertainty continues or worsens, we may face pressure on new business generation, customer renewals, overall demand levels, sales and marketing effectiveness, revenue growth, customer onboarding, collection cycles, and product development initiatives. Our ability to sustain growth will also depend on the long-term stability, diversity, and resilience of the industry verticals we serve and rely upon to drive our revenues.

On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was enacted into law in the United States, introducing substantial changes to the U.S. Corporate tax regime. Key provisions of the OBBBA include the reinstatement of 100% bonus depreciation, restoration of immediate expensing for domestic research or experimental (“R&E”) expenditures, an elective acceleration of deduction for unamortized domestic R&E expenditures, revised limitations on the deductibility of business interest expense, and modifications to the Global Intangible Low-Tax Income (“GILTI”) and Foreign-Derived Intangible Income (“FDII”) regimes. The OBBBA includes multiple effective dates, with certain provisions effective for tax years beginning after December 31, 2024 and others phased in through 2027. In accordance with ASC 740, Income Taxes, the Company has reflected the impacts of OBBBA in the interim period that includes the enactment date. The resulting effects have been incorporated into the Company’s income tax provision for the nine months ended September 30, 2025, including adjustments to deferred tax assets and liabilities where applicable. The Company continues to evaluate the broader implications of the OBBBA, including potential impacts on future taxable income, the estimated annual effective tax rate, and potential effects of future regulatory guidance issued by the Internal Revenue Service or other relevant tax authorities. Additional impacts, if any, will be recognized in subsequent periods as appropriate.

Additionally, on October 1, 2025, the U.S. federal government entered a partial shutdown, resulting in widespread furloughs and delays in the release of key economic data. If prolonged, the shutdown may contribute to increased economic uncertainty, potentially affecting customer demand, hiring activity, regulatory timelines, and overall business sentiment. We continue to monitor the situation and assess any potential impacts on our operations and financial performance.

Despite these macroeconomic changes, we are confident in the overall long-term 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 continued focus on delivering innovative solutions that enhance workplace safety and address evolving compliance requirements as well as our diversified customer base have contributed to the stability of our business and long-term financial performance.

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, 2024 (the “2024 Annual Report”).

Components of our Results of Operations

Revenues

The Company derives revenues from a variety of background screening and adjacent products performed across 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 technologies, 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 candidate evaluation process and support compliance with their workforce onboarding criteria from the time an application is submitted to a candidate’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 and vehicle compliance, hiring tax credits and incentives, resident and 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. Certain of these costs are 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 the Sterling Acquisition. We do not allocate depreciation and amortization to selling, general, and administrative expenses.
• Depreciation and Amortization: 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 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 well as the progress of our integration of Sterling. 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 revenue growth and any shifts we identify in the business 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, in the long term, operating expenses as a percentage of total revenues will decline gradually 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 finance 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.
• Loss on Extinguishment of Debt: Represents non-operating expense incurred when we repay or refinance debt prior to maturity. This includes the write-off of unamortized debt issuance costs and early repayment penalties, if any.

Provision for Income Taxes

Provision for income taxes consists of domestic and foreign corporate income taxes related to earnings from our sale of products and services, with statutory tax rates that differ by jurisdiction. Our effective tax rate may be affected by various factors including changes in tax laws, regulations, credits 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, 2025 compared to the three and nine months ended September 30, 2024

(in thousands, except percentages)

27

Revenues

(in thousands)

Revenues were $409.2 million for the three months ended September 30, 2025, compared to $199.1 million for the three months ended September 30, 2024. Revenues for the three months ended September 30, 2025 increased by $210.0 million, or 105.5%, compared to the three months ended September 30, 2024.

The increase in revenues is due to:

• revenues of $199.4 million, or 100.1%, attributable to Sterling as a result of the Sterling Acquisition completed on October 31, 2024;
• revenues of $7.0 million, or 3.5%, from new customers, primarily attributable to our First Advantage Americas segment; and
• revenues of $3.6 million, or 1.8% from existing customers, primarily driven by continued strength from upselling and cross-selling initiatives. These increases were partially offset by declines in existing customer revenues across several verticals, largely due to macroeconomic pressures that contributed to reduced demand and the impact of lost customers.

Revenues were $1,154.4 million for the nine months ended September 30, 2025, compared to $553.1 million for the nine months ended September 30, 2024. Revenues for the nine months ended September 30, 2025 increased by $601.3 million, or 108.7%, compared to the nine months ended September 30, 2024.

The increase in revenues is due to:

• revenues of $590.6 million, or 106.8%, attributable to Sterling as a result of the Sterling Acquisition completed on October 31, 2024; and
• revenues of $15.7 million, or 2.8%, from new customers, primarily attributable to our First Advantage Americas segment.

These revenue increases were offset by a net decrease of $5.0 million, or 0.9%, in revenues from existing customers, primarily due to macroeconomic pressures across a number of our customer verticals that led to reduced overall existing customer demand, as well as the impact of lost customers. These decreases in existing customer revenues were partially mitigated by continued strength from upselling and cross-selling initiatives, which contributed an additional $27.0 million, or 4.9%, in revenue growth.

Pricing remained relatively stable across all periods.

Cost of Services

(in thousands, except percentages)

Cost of services was $222.0 million for the three months ended September 30, 2025, compared to $100.9 million for the three months ended September 30, 2024. Cost of services for the three months ended September 30, 2025 increased by $121.2 million, or 120.1%, compared to the three months ended September 30, 2024.

The increase in cost of services was primarily due to $113.1 million of Sterling costs of services recognized after the Sterling Acquisition.

Cost of services as a percentage of revenues was 54.3% for the three months ended September 30, 2025, compared to 50.7% for the three months ended September 30, 2024. The cost of services percentage of revenues for the third quarter of 2025 was impacted by Sterling’s higher relative cost of services due to the segment’s product and customer mix and other variations in customer ordering mix.

Cost of services was $622.4 million for the nine months ended September 30, 2025, compared to $280.4 million for the nine months ended September 30, 2024. Cost of services for the nine months ended September 30, 2025 increased by $342.0 million, or 122.0%, compared to the nine months ended September 30, 2024.

The increase in cost of services was primarily due to $332.0 million of Sterling costs of services recognized after the Sterling Acquisition.

Cost of services as a percentage of revenues was 53.9% for the nine months ended September 30, 2025, compared to 50.7% for the nine months ended September 30, 2024. The cost of services percentage of revenues for the third quarter of 2025 was impacted by Sterling’s higher relative cost of services due to the segment’s product and customer mix and other variations in customer ordering mix.

Product and Technology Expense

(in thousands)

Product and technology expense was $25.1 million for the three months ended September 30, 2025, compared to $12.9 million for the three months ended September 30, 2024. Product and technology expense for the three months ended September 30, 2025 increased by $12.2 million, or 94.7%, compared to the three months ended September 30, 2024.

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

• $5.3 million of Sterling personnel expenses recognized after the Sterling Acquisition
• $3.5 million increase in Legacy First Advantage personnel expenses as a result of additional investments made to enhance our products, solutions, and technology platforms; and
• $3.2 million increase in professional service fees related to continued investments in our technology platforms.

Product and technology expense was $78.0 million for the nine months ended September 30, 2025, compared to $39.1 million for the nine months ended September 30, 2024. Product and technology expense for the nine months ended September 30, 2025 increased by $38.9 million, or 99.6%, compared to the nine months ended September 30, 2024.

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

• $19.8 million of Sterling personnel expenses recognized after the Sterling Acquisition, of which approximately $1.2 million related to cash compensation expense due to the conversion of Sterling equity awards to cash awards as part of the transaction;
• $9.4 million increase in professional service fees related to continued investments in our technology platforms; and
• $7.7 million increase in Legacy First Advantage personnel expenses as a result of additional investments made to enhance our products, solutions, and technology platforms.

Selling, General, and Administrative Expense

(in thousands)

Selling, general, and administrative expense was $57.5 million for the three months ended September 30, 2025, compared to $46.1 million for the three months ended September 30, 2024. Selling, general, and administrative expense for the three months ended September 30, 2025 increased by $11.4 million, or 24.8%, compared to the three months ended September 30, 2024.

Selling, general, and administrative expense increased primarily due to $25.6 million of Sterling expenses recognized after the Sterling Acquisition, which include:

• $12.1 million of personnel expenses recognized after the Sterling Acquisition;
• $1.2 million increase in bad debt expense as certain groups of customers have experienced longer than normal payment cycles;
• $0.9 million related to share-based compensation expense due to the conversion of Sterling equity awards to First Advantage equity awards as part of the transaction; and
• $0.8 million related to cash compensation expense due to the conversion of Sterling equity awards to cash awards as part of the transaction.

These increases in selling, general, and administrative expense were partially offset by a $12.2 million decrease in transaction costs attributable to the Sterling Acquisition related to professional service, legal, and other fees, that did not reoccur as the acquisition was completed on October 31, 2024.

Selling, general, and administrative expense was $180.5 million for the nine months ended September 30, 2025, compared to $125.4 million for the nine months ended September 30, 2024. Selling, general, and administrative expense for the nine months ended September 30, 2025 increased by $55.2 million, or 44.0%, compared to the nine months ended September 30, 2024.

Selling, general, and administrative expense increased primarily due to $87.4 million of Sterling expenses recognized after the Sterling Acquisition, which include:

• $43.8 million of personnel expenses recognized after the Sterling Acquisition;
• $5.2 million related to share-based compensation expense due to the conversion of Sterling equity awards to First Advantage equity awards as part of the transaction; and
• $4.8 million related to cash compensation expense due to the conversion of Sterling equity awards to cash awards as part of the transaction.

These increases in selling, general, and administrative expense were partially offset by a $29.1 million decrease in transaction costs attributable to the Sterling Acquisition related to professional service, legal, and other fees, that did not reoccur as the acquisition was completed on October 31, 2024.

Depreciation and Amortization

(in thousands)

Depreciation and amortization was $62.3 million for the three months ended September 30, 2025, compared to $30.2 million for the three months ended September 30, 2024. Depreciation and amortization for the three months ended September 30, 2025 increased by $32.1 million, or 106.4%, compared to the three months ended September 30, 2024. 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 Sterling Acquisition.

Depreciation and amortization was $185.8 million for the nine months ended September 30, 2025, compared to $90.0 million for the nine months ended September 30, 2024. Depreciation and amortization for the nine months ended September 30, 2025 increased by $95.9 million, or 106.6%, compared to the nine months ended September 30, 2024. 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 Sterling Acquisition.

Interest Expense, Net

(in thousands)

Interest expense, net was $40.0 million for the three months ended September 30, 2025, compared to $17.2 million for the three months ended September 30, 2024. Interest expense, net for the three months ended September 30, 2025 increased by $22.9 million or 132.9%, compared to the three months ended September 30, 2024.

The increase in interest expense was primarily driven by higher borrowings under the term loan facility, which included an incremental principal amount of $1,620.3 million and an expanded revolver commitment of $150.0 million in connection with the Sterling Acquisition. Interest expense, net was further impacted by unrealized gains on the Company’s interest rate swaps.

Interest expense, net was $131.4 million for the nine months ended September 30, 2025, compared to $28.1 million for the nine months ended September 30, 2024. Interest expense, net for the nine months ended September 30, 2025 increased by $103.3 million or 367.4%, compared to the nine months ended September 30, 2024.

The increase in interest expense was primarily driven by higher borrowings under the term loan facility, which included an incremental principal amount of $1,620.3 million and an expanded revolver commitment of $150.0 million in connection with the Sterling Acquisition. Interest expense, net was further impacted by $5.6 million of unrealized losses on the Company’s interest rate swaps, reflecting heightened interest rate volatility during the period.

Loss on Extinguishment of Debt

(in thousands)

Loss on extinguishment of debt for the three and nine months ended September 30, 2025, relates to the write-off of unamortized deferred financing costs as a result of voluntary principal repayments of $40.0 million on the Company’s outstanding term loan facility.

Provision for Income Taxes

(in thousands)

Our (benefit) provision for income taxes was $(0.8) million for the three months ended September 30, 2025, compared to $0.8 million for the three months ended September 30, 2024. Our provision for income taxes for the three months ended September 30, 2025 decreased by $1.6 million, compared to the three months ended September 30, 2024.

The decrease in our provision for income taxes was primarily due to the jurisdictional mix of earnings, higher income taxes in the jurisdictions outside of the U.S., and U.S. state income taxes, during the three months ended September 30, 2025, as compared to the three months ended September 30, 2024.

Our (benefit) provision for income taxes was $(6.2) million for the nine months ended September 30, 2025, compared to $0.1 million for the nine months ended September 30, 2024. Our provision for income taxes for the nine months ended September 30, 2025 decreased by $6.3 million, compared to the nine months ended September 30, 2024.

The decrease in our provision for income taxes was primarily due to the increase of net book loss before income taxes, jurisdictional mix of earnings, higher income taxes in the jurisdictions outside of the U.S., and U.S. state income taxes, during the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024.

Net Income (Loss) and Net Income (Loss) Margin

(in thousands, except percentages)

Net income (loss) was $2.6 million for the three months ended September 30, 2025, compared to $(8.9) million for the three months ended September 30, 2024. Net income for the three months ended September 30, 2025 increased by $11.5 million compared to the three months ended September 30, 2024.

Net income (loss) margin was 0.6% for the three months ended September 30, 2025, compared to (4.4)% for the three months ended September 30, 2024. The improvement in our net income margin is attributable to our ability to leverage operational efficiencies to control overall expenses, while increasing revenues. These improvements were offset by increases in depreciation and amortization and interest costs, primarily as a result of the Sterling Acquisition.

Net loss was $(38.3) million for the nine months ended September 30, 2025, compared to $(9.9) million for the nine months ended September 30, 2024. Net loss for the nine months ended September 30, 2025 increased by $(28.4) million compared to the nine months ended September 30, 2024.

Net loss margin was (3.3)% for the nine months ended September 30, 2025, compared to (1.8)% for the nine months ended September 30, 2024, as increases in depreciation and amortization and interest costs, primarily as a result of the Company’s Sterling Acquisition and reduced demand from customers more impacted by macroeconomic factors, contributed to lower profitability.

Non-GAAP Financial Measures

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 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 (loss) 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 $118.5 million for the three months ended September 30, 2025 and represented an Adjusted EBITDA Margin of 29.0%. Adjusted EBITDA was $64.0 million for the three months ended September 30, 2024 and represented an Adjusted EBITDA Margin of 32.2%. Adjusted EBITDA for the three months ended September 30, 2025 increased by $54.5 million, or 85.0%, compared to the three months ended September 30, 2024, primarily due to the Sterling Acquisition and related synergies.

Adjusted EBITDA was $324.6 million for the nine months ended September 30, 2025 and represented an Adjusted EBITDA Margin of 28.1%. Adjusted EBITDA was $166.4 million for the nine months ended September 30, 2024 and represented an Adjusted EBITDA Margin of 30.1%. Adjusted EBITDA for the nine months ended September 30, 2025 increased by $158.2 million, or 95.1%, compared to the nine months ended September 30, 2024, primarily due to the Sterling Acquisition and related synergies.

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

(in thousands)

(a) Share-based compensation for the three and nine months ended September 30, 2025 includes approximately $1.9 million and $5.6 million, respectively, of incrementally recognized expense associated with the May 2023 modification of the vesting terms of outstanding unvested and unearned performance-based options, restricted stock units, and restricted stock awards. The three and nine months ended September 30, 2024 includes approximately $6.6 million and $11.7 million, respectively, of incrementally recognized expense associated with the May 2023 vesting modification and retirements of the Company's former Chief Financial Officer and President, Americas.

(b) 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. Transaction and acquisition related charges for the three and nine months ended September 30, 2025 include approximately $1.4 million and $7.5 million of expense, respectively, associated with the Sterling Acquisition. The three and nine months ended September 30, 2024 include approximately $13.2 million and $33.5 million of expense, respectively, associated with the Sterling Acquisition, primarily consisting of legal, regulatory, and diligence professional service fees. The three and nine months ended September 30, 2024 also include insurance costs incurred related to the Company's initial public offering.

(c) Represents charges from organizational restructuring and integration activities, non-cash, and other charges primarily related to nonrecurring legal exposures, foreign currency (gains) losses, impairment of capitalized software, (gains) losses on the sale of assets, and other non-recurring items. Integration, restructuring, and other charges for the three and nine months ended September 30, 2025 include approximately $3.8 million and $15.4 million of expense, respectively, associated with the integration of Sterling. The three and nine months ended September 30, 2025 also include approximately $1.5 million of expenses related to debt refinancing activities, as well as capitalized software impairment charges of approximately $1.2 million.

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)

33

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)

(1) See the reconciliation of net income (loss) 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 (loss) 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 $52.3 million for the three months ended September 30, 2025, compared to $38.0 million for the three months ended September 30, 2024. Adjusted Net Income for the three months ended September 30, 2025 increased by $14.3 million, or 37.7% compared to the three months ended September 30, 2024, primarily due to the Sterling Acquisition. This increase was offset by fluctuations in interest expense resulting from changes in our capital structure.

Adjusted Diluted Earnings Per Share was $0.30 for the three months ended September 30, 2025, compared to $0.26 for the three months ended September 30, 2024, as increases in Adjusted Net Income were offset in part by the incremental interest on the transaction financing and the dilutive impact of the new shares issued for the Sterling Acquisition.

Adjusted Net Income was $129.8 million for the nine months ended September 30, 2025, compared to $93.5 million for the nine months ended September 30, 2024. Adjusted Net Income for the nine months ended September 30, 2025 increased by $36.2 million, or 38.7% compared to the nine months ended September 30, 2024, primarily due to the Sterling Acquisition. This increase was offset by fluctuations in interest expense resulting from changes in our capital structure.

Adjusted Diluted Earnings Per Share was $0.74 for the nine months ended September 30, 2025, compared to $0.64 for the nine months ended September 30, 2024, as increases in Adjusted Net Income were offset by the incremental interest on the transaction financing and the dilutive impact of the new shares issued for the Sterling Acquisition.

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.

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

(in thousands)

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

(a) Represents the loss on extinguishment and non-cash interest expense related to the amortization of debt issuance costs. This adjustment also includes the impact of the change in fair value of interest rate swaps, which represents the difference between the fair value gains or losses and actual cash payments and receipts on the interest rate swaps.

(b) Represents the depreciation and amortization expense related to incremental intangible 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) Share-based compensation for the three and nine months ended September 30, 2025 includes approximately $1.9 million and $5.6 million, respectively, of incrementally recognized expense associated with the May 2023 modification of the vesting terms of outstanding unvested and unearned performance-based options, restricted stock units, and restricted stock awards. The three and nine months ended September 30, 2024 includes approximately $6.6 million and $11.7 million, respectively, of incrementally recognized expense associated with the May 2023 vesting modification and retirements of the Company's former Chief Financial Officer and President, Americas.

(d) 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. Transaction and acquisition related charges for the three and nine months ended September 30, 2025 include approximately $1.4 million and $7.5 million of expense, respectively, associated with the Sterling Acquisition. The three and nine months ended September 30, 2024 include approximately $13.2 million and $33.5 million of expense, respectively, associated with the Sterling Acquisition, primarily consisting of legal, regulatory, and diligence professional service fees. The three and nine months ended September 30, 2024 also include insurance costs incurred related to the Company's initial public offering.

(e) Represents charges from organizational restructuring and integration activities, non-cash, and other charges primarily related to nonrecurring legal exposures, foreign currency (gains) losses, impairment of capitalized software, (gains) losses on the sale of assets, and other non-recurring items. Integration, restructuring, and other charges for the three and nine months ended September 30, 2025 include approximately $3.8 million and $15.4 million of expense, respectively, associated with the integration of Sterling. The three and nine months ended September 30, 2025 also include approximately $1.5 million of expenses related to debt refinancing activities, as well as capitalized software impairment charges of approximately $1.2 million.

(f) Effective tax rates of approximately 25.1% and 25.3% have been used to compute Adjusted Net Income and Adjusted Diluted Earnings Per Share for the three and nine months ended September 30 2025, respectively. Effective tax rates of approximately 23.1% and 23.9% have been used to compute Adjusted Net Income and Adjusted Diluted Earnings Per Share for the three and nine months ended September 30 2024, respectively.

Liquidity and Capital Resources

Liquidity

The Company’s primary liquidity requirements are for working capital, debt service, continued investments in software development and other capital expenditures, and other strategic investments, including the Sterling Acquisition and related integration. In addition, income taxes are and will be 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, including incremental term loan borrowings incurred to fund the Sterling Acquisition. 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, 2025, we had $216.8 million in cash and cash equivalents and $250.0 million available under our revolving credit facility. As of September 30, 2025, we had $2,139.5 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 12 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 our 2024 Annual Report.

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. Any further determination to pay dividends on our capital stock will be at the discretion of our Board of Directors, subject to applicable laws, and will depend on our financial condition, operating results, capital requirements, general business conditions, and other factors that our Board of Directors considers relevant.

Credit Agreement

First Advantage Holdings, LLC, an indirect wholly-owned subsidiary of the Company, is a party to a First Lien Credit Agreement, which provides for a term loan of $2.185 billion due October 31, 2031 and a $250.0 million revolving credit facility due October 31, 2029.

On July 30, 2025, the Company amended the First Lien Credit Agreement (“2025 Amended First Lien Credit Agreement”) to reduce the interest rate on its term loan to a range of 2.50% to 2.75%, based on the first lien ratio, plus the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York (“SOFR”) and an applicable margin (“2025 Amended First Lien Credit Facility”). The amendment also reduced the interest rate on its revolving credit facility to a range of 2.25% to 2.75%, based on the first lien ratio, plus SOFR (“2025 Amended Revolver”).

Borrowings under the agreement bear interest at a rate per annum equal to an applicable margin plus, at our option, either (a) a base rate or (b) SOFR, which is subject to a floor of 0.00% per annum. The applicable margins under the agreement are subject to stepdowns based on our first lien net leverage ratio. In addition, the borrower, First Advantage Holdings, LLC 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 2025 Amended First Lien Credit Facility amortizes in equal quarterly installments in aggregate annual amounts equal to 1.00% of the principal amount. The 2025 Amended Revolver has no amortization.

The 2025 Amended First Lien Credit Agreement 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. Voluntary prepayments made in connection with certain repricing transactions on or before January 30, 2026, were subject to a 1.00% prepayment premium. Otherwise, the borrower may voluntarily prepay outstanding loans without premium or penalty, other than customary “breakage” costs. Voluntary prepayments reduce the remaining scheduled principal repayment obligations under the term loan.

The 2025 First Lien Credit Agreement contains customary affirmative covenants, negative covenants and events of default (including upon a change of control). The 2025 First Lien Credit Agreement also includes a “springing” first lien net leverage ratio test, applicable only to the 2025 Amended 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 40.0% of the 2025 Amended Revolver is utilized on such date. See Note 6, “Debt,” to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information.

Cash Flow Analysis

Comparison of Cash Flows for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024

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

(in thousands)

Cash Flows from Operating Activities

Net cash provided by operating activities was $129.2 million for the nine months ended September 30, 2025, compared to $113.9 million for the nine months ended September 30, 2024. Net cash provided by operating activities for the nine months ended September 30, 2025 increased by $15.3 million compared to the nine months ended September 30, 2024. Cash flows from operating activities were positively impacted by revenue growth from existing customers, new customer go-lives, and contributions from the Sterling Acquisition. These benefits were partially offset by interest payments on the Company’s term loan and revolving credit facility totaling approximately $123.8 million, the timing of professional service and legal fee payments related to the acquisition and integration of Sterling, and continued moderate hiring activity by customers in response to current macroeconomic conditions.

Cash Flows from Investing Activities

Net cash used in investing activities was $37.3 million for the nine months ended September 30, 2025, compared to $21.7 million for the nine months ended September 30, 2024. Net cash used in investing activities for the nine months ended September 30, 2025 increased by $15.6 million compared to the nine months ended September 30, 2024. The increase in cash flows used in investing activities was primarily due to increased spend on software development related to the Company’s screening platforms.

Cash Flows from Financing Activities

Net cash (used in) provided by financing activities was $(45.0) million for the nine months ended September 30, 2025, compared to $1.2 million for the nine months ended September 30, 2024. Net cash used in financing activities for the nine months ended September 30, 2025 was primarily driven by a $45.5 million increase in principal repayments on the Company’s term loan. Net cash provided by financing activities for the nine months ended September 30, 2024 was primarily driven by cash net inflows related to share-based compensation activity. These inflows were offset by cash outflows related to payments on the deferred purchase of a software platform.

Contractual Obligations and Commitments

During the three and nine months ended September 30, 2025, there have been no significant changes to our contractual obligations and commitments compared with those disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2024 Annual Report.

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.

Critical Accounting Policies and Estimates

During the nine months ended September 30, 2025, there have been no significant changes to our critical accounting policies and estimates compared with those disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2024 Annual Report.

As of September 30, 2025, no material change had occurred in our market risks, compared with the disclosure in our 2024 Annual Report.

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 design and operation 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 (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are currently in the process of integrating the Sterling operations, control processes and information systems into our systems and control environment. We believe that we have taken the necessary steps to monitor and maintain appropriate internal controls over financial reporting during this integration.