First Advantage Corporation (Nasdaq: FA) — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Although the request references 2022 Q4, this filing reports annual results; standalone fourth-quarter financial results are not clearly provided in the supplied text.
Business context
First Advantage provides employment background screening, verification, monitoring, and related compliance services. In 2022, it screened individuals in more than 200 countries and territories for approximately 33,000 customers. About 85% of revenue came from the Americas. The company reported Americas and International segments.
Key financial metrics
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $810.0 million | $712.3 million |
| Income from operations | $94.3 million | $63.8 million |
| Net income | $64.6 million | $16.1 million |
| GAAP diluted EPS | $0.43 | $0.11 |
| Adjusted EBITDA (non-GAAP) | $248.9 million | $226.3 million |
| Adjusted EBITDA margin (non-GAAP) | 30.7% | 31.8% |
| Adjusted net income / adjusted diluted EPS (non-GAAP) | $156.5 million / $1.03 | $142.4 million / $1.01 |
| Cash from operating activities | $212.8 million | $148.7 million |
| Cash used in investing activities | $48.6 million | $72.4 million |
Cost of services was $408.9 million, or 50.5% of revenue, versus $352.2 million, or 49.4%, in 2021. Cash and cash equivalents were $391.7 million at year-end; an additional $100.0 million was available under the revolving facility. Total debt was $564.7 million, with the term loan due January 2027 and no revolver borrowings outstanding. Approximate net debt, based on reported cash and debt, was $173.0 million.
Changes versus the prior year
- Revenue increased 13.7% ($97.7 million). Growth included $37.0 million from acquisitions, $35.4 million from new customers, and a $25.3 million net increase from existing customers.
- Management cited strong hiring-related demand in the first half, followed by slower hiring in the second half, macroeconomic headwinds, and unfavorable foreign-exchange effects. Pricing was relatively stable.
- Operating income rose to $94.3 million from $63.8 million; net margin improved to 8.0% from 2.3%. Lower interest expense and higher operating income contributed to the improvement.
- Adjusted EBITDA rose 10.0%, but its margin declined by 1.1 percentage points. Higher third-party data costs, lower-margin acquisition mix, currency effects, and technology and sales investment offset revenue growth and cost actions.
- Operating cash flow increased by $64.1 million, supported in part by growth and improved customer collections.
- The company repurchased 4.7 million shares for approximately $60.5 million during 2022. The authorization was increased to $150 million and extended through December 31, 2023; in February 2023 it was increased to $200 million. Purchases through February 23, 2023 totaled $75.7 million.
Outlook, risks, and unusual items
- No quantified 2023 revenue or earnings guidance is provided in the supplied filing text. Management expressed confidence in the long-term business, while noting lengthening sales cycles and potential pressure on hiring, renewals, demand, and growth if economic uncertainty persists.
- The company expects income taxes to become a more material cash use in 2023 as federal net operating loss carryforwards are largely used. Management stated that NOL benefits were expected to be fully utilized in 2023.
- Key risks include sensitivity to customer hiring levels and economic conditions; extensive and changing privacy, consumer-reporting, and data-protection regulation; cybersecurity and data-breach exposure; reliance on third-party data providers and government records; competition; and foreign-exchange effects.
- Debt and liquidity risks include variable interest rates, restrictive covenants, and the need to generate cash for debt service. The company reported compliance with its debt covenants at year-end. A $100 million interest-rate swap at a fixed rate of 4.36% was entered into in February 2023.
- Recorded probable and estimable litigation liabilities were $4.4 million at year-end, down from $7.9 million in 2021. The filing describes ongoing ordinary-course litigation and potential consumer and class-action claims.
- Other notable items: the Form I-9 Compliance acquisition cost approximately $19.8 million; adoption of the lease accounting standard added operating lease assets and liabilities to the balance sheet; and foreign-currency translation reduced 2022 comprehensive income by $20.7 million.
- Silver Lake beneficially owned 60.4% of outstanding common stock at year-end and retains significant governance influence. The company has not paid cash dividends.
Important facts for investors to verify
- Review subsequent quarterly reports for hiring trends, customer demand, foreign-exchange impacts, and whether second-half softness continued.
- Track the drivers of adjusted EBITDA margin compression, especially third-party data costs, acquisition mix, and operating efficiencies; compare non-GAAP measures with GAAP results and their reconciliations.
- Assess debt service, variable-rate exposure, cash available after share repurchases, and the impact of the 2023 interest-rate swap and tax payments.
- Review the status and potential cost of litigation, privacy or regulatory matters, and cybersecurity incidents.
- Evaluate the integration and financial contribution of acquisitions, customer concentration (one customer generated approximately 10% of 2022 revenue), and Silver Lake’s control and governance rights.
The filing reports an unqualified audit opinion and effective internal control over financial reporting as of December 31, 2022.