Sterling Check Corp. (NASDAQ: STER) (“Sterling” or “the Company”) a
leading global provider of technology-enabled background and
identity verification services, today announced financial results
for the fourth quarter and full year ended December 31, 2023.
Fourth Quarter
2023 Highlights
All results compared to prior-year period.
- Revenues decreased
0.3% year-over-year to $169.4 million. Organic constant currency
revenue decreased 2.8% and inorganic revenue growth was 2.2%.
Organic revenue growth included a return to our long-term growth
target of 7% for new business and an acceleration in
up-sell/cross-sell to 8% alongside continued delivery on our
long-term target for gross revenue retention of 96%.
- GAAP net loss
decreased year-over-year to a loss of $3.4 million, or $(0.04) per
diluted share, compared to GAAP net loss of $7.7 million, or
$(0.08) per diluted share, for the prior year period.
- Adjusted EBITDA
increased 1.5% year-over-year to $41.9 million. Adjusted EBITDA
Margin increased 40 bps year-over-year to 24.7% due to continued
progress in our cost optimization programs and financial
discipline.
- Adjusted Net Income
decreased 3.8% year-over-year to $19.7 million. Adjusted Earnings
Per Share—diluted was flat year-over-year at $0.21 per diluted
share due to the benefit of our share repurchase program.
Full Year 2023
Highlights
All results compared to prior-year period.
- Revenues decreased
6.1% year-over-year to $719.6 million. Organic constant currency
revenue decreased 8.2% as base declines offset solid results in
other growth drivers in our control. Inorganic revenue growth was
2.3%.
- GAAP net loss was
$0.1 million, or $0.00 per diluted share, compared to net income of
$19.4 million, or $0.20 per diluted share, for the prior year
period.
- Adjusted EBITDA
decreased 6.8% year-over-year to $185.0 million. Adjusted EBITDA
Margin decreased 20 bps year-over-year to 25.7%.
- Adjusted Net Income
decreased 11.9% year-over-year to $93.9 million. Adjusted Earnings
Per Share—diluted decreased 7.4% year-over-year to $1.00 per
diluted share.
Organic constant currency revenue growth (decline), Adjusted
EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted
Earnings Per Share—diluted are non-GAAP measures. Please see the
schedules accompanying this earnings release for a reconciliation
of these measures to their most directly comparable GAAP measures,
as applicable.
Josh Peirez, Sterling CEO, said, “The fourth quarter of 2023
capped off a solid year in which we made continued progress on our
long-term strategy and near-term focus areas. Throughout the year,
we executed on the items within our control, both on the top line
and in our cost structure, and our focused efforts have enabled
early realization of our $25M annualized cost savings target as
well as an enhanced revenue exit velocity going into 2024.
The challenges created by the macro environment in 2023 lasted
longer than we had anticipated, leading to base declines in excess
of our initial expectations. Still, we saw strong results and
improvement through the year, including substantial acceleration in
our new business and up-sell/cross-sell during the fourth quarter.
During the quarter, we achieved or exceeded our long-term targets
for all revenue drivers in our control – new business,
up/cross-sell, and customer attrition – an exciting accomplishment
which provides us significant momentum for 2024 in addition to the
benefit of easier year-over-year comps in our base business.”
Mr. Peirez continued, “2023 was also a year of compelling
success in M&A. The integration of our two acquisitions,
Socrates and A-Check, continues to yield benefits, and we were
excited to announce the acquisition of Vault Workforce Screening in
early January 2024. Ownership of Vault extends Sterling’s drug and
health testing capabilities with a broader range of clinical
options, delivery channels, and service models. This acquisition
helps us strategically in-source a key component of our supply
chain and build scale within the attractive healthcare and
industrials verticals, enabling Sterling to better meet hiring
demands and drive growth, consistent with our long-term strategy to
expand through organic revenue growth and strategic M&A.”
Fourth Quarter
2023 Results
|
Three Months Ended December 31, |
|
|
(in thousands, except
per share data and percentages) |
|
2023 |
|
|
|
2022 |
|
|
Change |
Revenues |
$ |
169,416 |
|
|
$ |
169,920 |
|
|
(0.3) |
% |
Net loss |
$ |
(3,384) |
|
|
$ |
(7,700) |
|
|
(56.1) |
% |
Net loss margin |
|
(2.0) |
% |
|
|
(4.5) |
% |
|
250 bps |
Net
loss per share—diluted |
$ |
(0.04) |
|
|
$ |
(0.08) |
|
|
(50.0) |
% |
Adjusted EBITDA(1) |
$ |
41,916 |
|
|
$ |
41,297 |
|
|
1.5 |
% |
Adjusted EBITDA Margin(1) |
|
24.7 |
% |
|
|
24.3 |
% |
|
40 bps |
Adjusted Net Income(1) |
$ |
19,686 |
|
|
$ |
20,474 |
|
|
(3.8) |
% |
Adjusted Earnings Per
Share—diluted(1) |
$ |
0.21 |
|
|
$ |
0.21 |
|
|
— |
% |
_________________________
(1) Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net
Income, and Adjusted Earnings Per Share—diluted are non-GAAP
measures. Please see the schedules accompanying this earnings
release for a reconciliation of these measures to their most
directly comparable GAAP measures.
Revenue for the fourth quarter of 2023 was $169.4 million, a
decrease of $0.5 million, or 0.3%, compared to $169.9 million for
the fourth quarter of 2022. The revenue decrease for the fourth
quarter of 2023 included a 2.8% organic constant currency revenue
decrease, partially offset by 2.2% inorganic revenue growth from
the acquisitions of Socrates and A-Check and 0.3% benefit due to
the impact of fluctuations in foreign exchange currency rates. The
organic revenue decrease was driven by a 14% decrease in base
business with existing clients due to macro uncertainty, which
offset growth of 11% from the combination of new clients, up-sell /
cross-sell, and attrition.
Full Year 2023
Results
|
Year Ended December 31, |
|
|
(in thousands, except per share data and
percentages) |
|
2023 |
|
|
|
2022 |
|
|
Change |
Revenues |
$ |
719,640 |
|
|
$ |
766,782 |
|
|
(6.1)% |
Net (loss) income |
$ |
(116) |
|
|
$ |
19,410 |
|
|
(100.6)% |
Net (loss) income margin |
|
—% |
|
|
|
2.5% |
|
|
(250) bps |
Net
income per share—diluted |
$ |
0.00 |
|
|
$ |
0.20 |
|
|
N/M |
Adjusted EBITDA(1) |
$ |
185,024 |
|
|
$ |
198,503 |
|
|
(6.8)% |
Adjusted EBITDA Margin(1) |
|
25.7% |
|
|
|
25.9% |
|
|
(20) bps |
Adjusted Net Income(1) |
$ |
93,910 |
|
|
$ |
106,545 |
|
|
(11.9)% |
Adjusted Earnings Per
Share—diluted(1) |
$ |
1.00 |
|
|
$ |
1.08 |
|
|
(7.4)% |
_________________________
(1) Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net
Income, and Adjusted Earnings Per Share—diluted are non-GAAP
measures. Please see the schedules accompanying this earnings
release for a reconciliation of these measures to their most
directly comparable GAAP measures.
Revenue for full year 2023 was $719.6 million, a decrease of
$47.1 million, or 6.1%, as compared to $766.8 million for full year
2022. The revenue decline in full year 2023 included 8.2% organic
constant currency revenue decline and a 0.2% unfavorable impact of
fluctuations in foreign exchange currency rates partially offset by
2.3% inorganic revenue growth from the acquisitions of Socrates
Limited (“Socrates”) and A-Check Global (“A-Check”). The organic
revenue decrease was driven by a 15% decrease in base business with
existing clients due to macro uncertainty, which offset growth of
7% from the combination of new clients, up-sell / cross-sell, and
attrition.
Balance Sheet and Cash Flow
As of December 31, 2023, cash and cash equivalents were
$54.2 million and total debt was $498.0 million, compared to cash
and cash equivalents of $103.1 million and total debt of $505.5
million as of December 31, 2022. The decrease in cash since
December 31, 2022 was primarily driven by the acquisitions of
Socrates and A-Check (funded with $49.5 million of cash on hand)
and repurchases of Sterling’s common stock ($67.8 million) during
the year. Sterling ended the fourth quarter of 2023 with a net
leverage ratio of 2.4x net debt to Adjusted EBITDA. As of
December 31, 2023, available borrowings under Sterling’s
revolving credit facility, net of letters of credit outstanding,
were $193.8 million.
For the year ended December 31, 2023, Sterling generated
net cash provided by operating activities of $96.9 million,
compared to $104.3 million for the prior year period. Capital
expenditures for the year ended December 31, 2023 totaled
$20.4 million, compared to $20.2 million for the prior year period.
For the year ended December 31, 2023, Sterling had $76.5
million of Free Cash Flow, compared to $84.1 million of Free Cash
Flow for the prior year period. The decrease in Free Cash Flow
compared to the prior year period was primarily driven by lower
operating income and higher interest expense.
Sterling acquired Vault Workforce Screening for approximately
$70 million in January 2024. The purchase price was funded through
a combination of revolving credit facility drawdown (approximately
$65 million) and cash on hand (approximately $5 million).
Free Cash Flow is a non-GAAP measure. Please see the schedule
accompanying this earnings release for a reconciliation of Free
Cash Flow to net cash provided by operating activities, its most
directly comparable GAAP measure.
Transaction Conference Call Details
In a separate press release issued today,
Sterling announced it has entered into a definitive agreement to
combine with First Advantage Corporation (“First Advantage”). First
Advantage will host a conference call to review its fourth quarter
and full year 2023 results and discuss details of the transaction
today, February 29, 2024, at 8:30 a.m. ET. Details for such call
are available in the separate press release issued today. In light
of the transaction announcement, Sterling will forego its fourth
quarter and full year 2023 earnings conference call.
Forward-Looking Statements
This release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended
(the “Securities Act”), and Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and it is intended
that all forward-looking statements that we make will be subject to
the safe harbor protections created thereby. Forward-looking
statements can be identified by forward-looking terminology such as
“aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,”
“expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,”
“projection,” “seek,” “should,” “will” or “would,” or the negative
thereof or other variations thereon or comparable terminology. In
particular, statements that address market trends or projections
about the future, and statements regarding Sterling’s expectations,
beliefs, plans, strategies, objectives, prospects or assumptions,
or statements regarding future events or performance, contained in
this release are forward-looking statements. Sterling has based
these forward-looking statements on current expectations,
assumptions, estimates and projections. Such forward-looking
statements are only predictions and involve known and unknown risks
and uncertainties, many of which are beyond Sterling’s control.
Important factors relating to the proposed transaction with First
Advantage could also cause actual future events to differ
materially from the forward-looking statements in this release,
including but not limited to: (i) the risk that the proposed
transaction may not be completed in a timely manner or at all, (ii)
the failure to satisfy the conditions to the consummation of the
proposed transaction, including the receipt of certain governmental
and regulatory approvals, (iii) the occurrence of any event, change
or other circumstance that could give rise to the termination of
the Merger Agreement, (iv) the effect of the announcement or
pendency of the proposed transaction on Sterling’s business
relationships, operating results, and business generally, (v) risks
that the proposed transaction disrupts current plans and operations
of Sterling or First Advantage and potential difficulties in
Sterling employee retention as a result of the proposed
transaction, (vi) risks related to diverting management’s attention
from Sterling’s ongoing business operations, (vii) unexpected
costs, charges or expenses resulting from the proposed transaction,
(viii) certain restrictions during the pendency of the proposed
transaction that may impact Sterling’s ability to pursue certain
business opportunities or strategic transactions and (ix) the
outcome of any legal proceedings that may be instituted against
First Advantage or against Sterling related to the Merger Agreement
or the proposed transaction. These and other important factors,
including those discussed more fully elsewhere in this release and
in Sterling’s filings with the Securities and Exchange Commission,
particularly Sterling’s most recently filed Annual Report on Form
10-K and Sterling's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 2023, may cause actual results,
performance or achievements to differ materially from those
expressed or implied by these forward-looking statements, or could
affect Sterling’s share price. The forward-looking statements
contained in this release are not guarantees of future performance
and actual results of operations, financial condition, and
liquidity, and the development of the industry in which Sterling
operates, may differ materially from the forward-looking statements
contained in this release. Any forward-looking statement made in
this release speaks only as of the date of such statement. Except
as required by law, Sterling does not undertake any obligation to
update or revise, or to publicly announce any update or revision
to, any of the forward-looking statements, whether as a result of
new information, future events or otherwise, after the date of this
release.
Non-GAAP Financial Information
This release contains “non-GAAP financial measures,” which are
financial measures that are not calculated and presented in
accordance with GAAP.
Specifically, Sterling makes use of the non-GAAP financial
measures “organic constant currency revenue growth (decline)”,
“Adjusted EBITDA,” “Adjusted EBITDA Margin,” “Adjusted Net Income,”
“Adjusted Earnings Per Share” and “Free Cash Flow” to assess the
performance of its business.
Organic constant currency revenue growth (decline) is calculated
by adjusting for inorganic revenue growth (decline), which is
defined as the impact to revenue growth (decline) in the current
period from merger and acquisition (“M&A”) activity that has
occurred over the past twelve months, and converting the current
period revenue at foreign currency exchange rates consistent with
the prior period. For the year ended December 31, 2023, we
have provided the impact of revenue from the acquisitions of
Socrates and A-Check during the first quarter of 2023. We present
organic constant currency revenue growth (decline) because we
believe it assists investors and analysts in comparing our
operating performance across reporting periods on a consistent
basis by excluding items that we do not believe are indicative of
our core operating performance; however, it has limitations as an
analytical tool, and you should not consider such a measure either
in isolation or as a substitute for analyzing our results as
reported under GAAP. In particular, organic constant currency
revenue growth (decline) does not reflect M&A activity or the
impact of foreign currency exchange rate fluctuations.
Adjusted EBITDA is defined as net income (loss) adjusted for
provision (benefit) for income taxes, interest expense,
depreciation and amortization, stock-based compensation,
transaction expenses related to the IPO, one-time public company
transition expenses and costs associated with financing
transactions, M&A activity, optimization and restructuring,
technology transformation costs, foreign currency (gains) and
losses and other costs affecting comparability. Adjusted EBITDA
Margin is defined as Adjusted EBITDA divided by revenue for the
applicable period. We present Adjusted EBITDA and Adjusted EBITDA
Margin because we believe they assist investors and analysts in
comparing our operating performance across reporting periods on a
consistent basis by excluding items that we do not believe are
indicative of our core operating performance. Management and our
board of directors use Adjusted EBITDA and Adjusted EBITDA Margin
to evaluate the factors and trends affecting our business to assess
our financial performance and in preparing and approving our annual
budget and believe they are helpful in highlighting trends in our
core operating performance. Further, our executive incentive
compensation is based in part on components of Adjusted EBITDA.
Adjusted EBITDA and Adjusted EBITDA Margin have limitations as
analytical tools and should not be considered in isolation or as
substitutes for our results as reported under GAAP. Adjusted EBITDA
excludes items that can have a significant effect on our profit or
loss and should, therefore, be considered only in conjunction with
net income (loss) for the period. Because not all companies use
identical calculations, these measures may not be comparable to
other similarly titled measures of other companies.
Adjusted Net Income is a non-GAAP profitability measure.
Adjusted Net Income is defined as net income (loss) adjusted for
amortization of acquired intangible assets, stock-based
compensation, transaction expenses related to the IPO, one-time
public company transition expenses and costs associated with
financing transactions, M&A activity, optimization and
restructuring, technology transformation costs, and certain other
costs affecting comparability, adjusted for the applicable tax
rate. Adjusted Earnings Per Share is defined as Adjusted Net Income
divided by diluted weighted average shares for the applicable
period. We present Adjusted Net Income and Adjusted Earnings Per
Share because we believe they assist investors and analysts in
comparing our operating performance across reporting periods on a
consistent basis by excluding certain material non-cash items and
unusual items that we do not expect to continue at the same level
in the future. Our management believes that the inclusion of
supplementary adjustments to net income (loss) applied in
presenting Adjusted Net Income provide additional information to
investors about certain material non-cash items and about items
that we do not expect to continue at the same level in the future.
Adjusted Net Income and Adjusted Earnings Per Share have
limitations as analytical tools, and you should not consider such
measures either in isolation or as substitutes for analyzing our
results as reported under GAAP.
Free Cash Flow is defined as Net Cash provided by (used in)
Operating Activities minus purchases of property and equipment and
purchases of intangible assets and capitalized software. We present
Free Cash Flow because we believe it provides cash available for
strategic measures, after making necessary capital investments in
property and equipment to support ongoing business operations, and
provides investors with the same measures that management uses as
the basis for making resource allocation decisions. Free Cash Flow
has limitations as an analytical tool, and you should not consider
such measure either in isolation or as a substitute for analyzing
our results as reported under GAAP.
About Sterling
Sterling—a leading provider of background and identity
services—offers background and identity verification to help over
50,000 clients create people-first cultures built on foundations of
trust and safety. Sterling’s tech-enabled services help
organizations across all industries establish great environments
for their workers, partners, and customers. With operations around
the world, Sterling conducted more than 103 million searches in the
twelve months ended December 31, 2023.
ContactsInvestorsJudah
SokelIR@sterlingcheck.com
MediaAngela StelleAngela.Stelle@sterlingcheck.com
CONSOLIDATED FINANCIAL STATEMENTSSTERLING
CHECK CORP.UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS) |
|
|
Three Months EndedDecember
31, |
|
Year EndedDecember 31, |
(in thousands, except share and per share
data) |
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
REVENUES |
$ |
169,416 |
|
|
$ |
169,920 |
|
|
$ |
719,640 |
|
|
$ |
766,782 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
below) |
|
91,961 |
|
|
|
92,729 |
|
|
|
384,653 |
|
|
|
407,683 |
|
Corporate technology and production systems |
|
9,706 |
|
|
|
11,681 |
|
|
|
44,415 |
|
|
|
50,487 |
|
Selling, general and administrative |
|
39,012 |
|
|
|
48,829 |
|
|
|
173,755 |
|
|
|
175,459 |
|
Depreciation and amortization |
|
15,736 |
|
|
|
16,542 |
|
|
|
62,853 |
|
|
|
73,140 |
|
Impairments and disposals of long-lived assets |
|
178 |
|
|
|
203 |
|
|
|
7,371 |
|
|
|
1,008 |
|
Total operating expenses |
|
156,593 |
|
|
|
169,984 |
|
|
|
673,047 |
|
|
|
707,777 |
|
OPERATING INCOME (LOSS) |
|
12,823 |
|
|
|
(64) |
|
|
|
46,593 |
|
|
|
59,005 |
|
OTHER EXPENSE (INCOME): |
|
|
|
|
|
|
|
Interest expense, net |
|
9,330 |
|
|
|
8,828 |
|
|
|
36,233 |
|
|
|
29,547 |
|
Gain on interest rate swaps |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(297) |
|
Other income |
|
(521) |
|
|
|
(612) |
|
|
|
(1,891) |
|
|
|
(2,034) |
|
Loss on extinguishment of debt |
|
— |
|
|
|
3,673 |
|
|
|
— |
|
|
|
3,673 |
|
Total other expense, net |
|
8,809 |
|
|
|
11,889 |
|
|
|
34,342 |
|
|
|
30,889 |
|
INCOME (LOSS) BEFORE INCOME
TAXES |
|
4,014 |
|
|
|
(11,953) |
|
|
|
12,251 |
|
|
|
28,116 |
|
Income tax provision (benefit) |
|
7,398 |
|
|
|
(4,253) |
|
|
|
12,367 |
|
|
|
8,706 |
|
NET (LOSS) INCOME |
$ |
(3,384) |
|
|
$ |
(7,700) |
|
|
$ |
(116) |
|
|
$ |
19,410 |
|
Unrealized loss on hedged transactions, net of tax benefit of
$(1,746), $0, $(702) and $0, respectively |
|
(5,022) |
|
|
|
— |
|
|
|
(3,468) |
|
|
|
— |
|
Foreign currency translation adjustments, net of tax benefit of
$(138), $(288), $(138) and $(288), respectively |
|
2,694 |
|
|
|
2,985 |
|
|
|
2,425 |
|
|
|
(5,005) |
|
Total other comprehensive (loss) income |
|
(2,328) |
|
|
|
2,985 |
|
|
|
(1,043) |
|
|
|
(5,005) |
|
COMPREHENSIVE (LOSS)
INCOME |
$ |
(5,712) |
|
|
$ |
(4,715) |
|
|
$ |
(1,159) |
|
|
$ |
14,405 |
|
Net (loss) income per share
attributable to stockholders |
|
|
|
|
|
|
|
Basic |
$ |
(0.04) |
|
|
$ |
(0.08) |
|
|
$ |
0.00 |
|
|
$ |
0.21 |
|
Diluted |
$ |
(0.04) |
|
|
$ |
(0.08) |
|
|
$ |
0.00 |
|
|
$ |
0.20 |
|
Weighted average number of
shares outstanding |
|
|
|
|
|
|
|
Basic |
|
89,816,230 |
|
|
|
94,080,123 |
|
|
|
91,587,311 |
|
|
|
94,052,435 |
|
Diluted |
|
89,816,230 |
|
|
|
94,080,123 |
|
|
|
91,587,311 |
|
|
|
98,866,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STERLING CHECK CORP.UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS |
|
|
December 31, |
(in thousands, except share and par value
amounts) |
|
2023 |
|
|
|
2022 |
|
ASSETS |
|
|
|
CURRENT ASSETS: |
|
|
|
Cash and cash equivalents |
$ |
54,224 |
|
|
$ |
103,095 |
|
Accounts receivable (net of allowance for credit losses of $2,816
and $2,304 at December 31, 2023 and 2022, respectively) |
|
142,179 |
|
|
|
139,579 |
|
Insurance receivable |
|
2,937 |
|
|
|
921 |
|
Prepaid expenses |
|
9,651 |
|
|
|
13,433 |
|
Other current assets |
|
15,800 |
|
|
|
13,654 |
|
Total current assets |
|
224,791 |
|
|
|
270,682 |
|
Property and equipment,
net |
|
7,695 |
|
|
|
10,341 |
|
Goodwill |
|
879,408 |
|
|
|
849,609 |
|
Intangible assets, net |
|
230,212 |
|
|
|
241,036 |
|
Deferred tax assets |
|
4,818 |
|
|
|
4,452 |
|
Operating leases right-of-use
asset |
|
6,452 |
|
|
|
20,084 |
|
Other noncurrent assets,
net |
|
10,067 |
|
|
|
11,050 |
|
TOTAL ASSETS |
$ |
1,363,443 |
|
|
$ |
1,407,254 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
CURRENT LIABILITIES: |
|
|
|
Accounts payable |
$ |
38,879 |
|
|
$ |
38,372 |
|
Litigation settlement obligation |
|
5,279 |
|
|
|
4,165 |
|
Accrued expenses |
|
63,987 |
|
|
|
67,047 |
|
Current portion of long-term debt |
|
15,000 |
|
|
|
7,500 |
|
Operating leases liability, current portion |
|
4,219 |
|
|
|
3,717 |
|
Income tax payable, current portion |
|
8,933 |
|
|
|
278 |
|
Other current liabilities |
|
11,839 |
|
|
|
12,661 |
|
Total current liabilities |
|
148,136 |
|
|
|
133,740 |
|
Long-term debt, net |
|
479,788 |
|
|
|
493,990 |
|
Deferred tax liabilities |
|
14,239 |
|
|
|
23,707 |
|
Long-term operating leases
liability, net of current portion |
|
7,278 |
|
|
|
16,835 |
|
Other liabilities |
|
12,058 |
|
|
|
2,336 |
|
Total liabilities |
|
661,499 |
|
|
|
670,608 |
|
COMMITMENTS AND
CONTINGENCIES |
|
|
|
STOCKHOLDERS’ EQUITY: |
|
|
|
Preferred stock ($0.01 par value; 100,000,000 shares authorized; no
shares issued or outstanding) |
|
— |
|
|
|
— |
|
Common stock ($0.01 par value; 1,000,000,000 shares authorized;
99,966,158 shares issued and 93,194,403 shares outstanding at
December 31, 2023; 97,765,120 shares issued and 96,717,883
shares outstanding at December 31, 2022) |
|
98 |
|
|
|
76 |
|
Additional paid-in capital |
|
983,283 |
|
|
|
942,789 |
|
Common stock held in treasury (6,771,755 and 1,047,237 shares at
December 31, 2023 and 2022, respectively) |
|
(88,918) |
|
|
|
(14,859) |
|
Accumulated deficit |
|
(186,564) |
|
|
|
(186,448) |
|
Accumulated other comprehensive loss |
|
(5,955) |
|
|
|
(4,912) |
|
Total stockholders’ equity |
|
701,944 |
|
|
|
736,646 |
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ |
1,363,443 |
|
|
$ |
1,407,254 |
|
|
|
|
|
|
|
|
|
STERLING CHECK CORP.UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
Year EndedDecember 31, |
(in thousands) |
|
2023 |
|
|
|
2022 |
|
CASH FLOWS FROM OPERATING
ACTIVITIES |
|
|
|
Net (loss) income |
$ |
(116) |
|
|
$ |
19,410 |
|
Adjustments to reconcile net
(loss) income to net cash provided by operations |
|
|
|
Loss on extinguishment of debt |
|
— |
|
|
|
3,673 |
|
Depreciation and amortization |
|
62,853 |
|
|
|
73,140 |
|
Deferred income taxes |
|
(13,875) |
|
|
|
(3,344) |
|
Stock-based compensation |
|
34,650 |
|
|
|
23,805 |
|
Impairments and disposals of long-lived assets |
|
7,371 |
|
|
|
1,008 |
|
Provision for bad debts |
|
937 |
|
|
|
877 |
|
Amortization of financing fees |
|
1,078 |
|
|
|
453 |
|
Amortization of debt discount |
|
798 |
|
|
|
1,675 |
|
Deferred rent |
|
(158) |
|
|
|
(226) |
|
Unrealized translation gain (loss) on investment in foreign
subsidiaries |
|
183 |
|
|
|
(2,345) |
|
Changes in fair value of derivatives |
|
— |
|
|
|
(4,102) |
|
Change in fair value of contingent consideration, net |
|
(2,631) |
|
|
|
— |
|
Changes in operating assets and liabilities, net of
acquisitions |
|
|
|
Accounts receivable |
|
1,481 |
|
|
|
(11,184) |
|
Insurance receivable |
|
(2,015) |
|
|
|
921 |
|
Prepaid expenses |
|
4,852 |
|
|
|
(1,101) |
|
Other assets |
|
(94) |
|
|
|
(4,515) |
|
Accounts payable |
|
111 |
|
|
|
7,885 |
|
Litigation settlement obligation |
|
1,114 |
|
|
|
4,165 |
|
Accrued expenses |
|
(4,610) |
|
|
|
303 |
|
Other liabilities |
|
4,932 |
|
|
|
(6,235) |
|
Net cash provided by operations |
|
96,861 |
|
|
|
104,263 |
|
CASH FLOWS FROM INVESTING
ACTIVITIES |
|
|
|
Purchases of property and equipment |
|
(2,560) |
|
|
|
(4,498) |
|
Purchases of intangible assets and capitalized software |
|
(17,802) |
|
|
|
(15,689) |
|
Acquisitions, net of cash acquired |
|
(49,210) |
|
|
|
— |
|
Proceeds from disposition of property and equipment |
|
122 |
|
|
|
51 |
|
Net cash used in investing activities |
|
(69,450) |
|
|
|
(20,136) |
|
CASH FLOWS FROM FINANCING
ACTIVITIES |
|
|
|
Issuance of common stock |
|
5,361 |
|
|
|
2,416 |
|
Repurchases of common stock |
|
(67,762) |
|
|
|
(13,962) |
|
Payments of initial public offering issuance costs |
|
— |
|
|
|
(225) |
|
Cash paid for tax withholding on vesting of restricted shares |
|
(5,697) |
|
|
|
— |
|
Payments of long-term debt |
|
(7,500) |
|
|
|
(510,340) |
|
Proceeds from term loan borrowings |
|
— |
|
|
|
300,000 |
|
Repayments of revolving credit facility |
|
— |
|
|
|
(17,495) |
|
Borrowings on revolving credit facility |
|
— |
|
|
|
222,989 |
|
Payments of debt issuance costs |
|
— |
|
|
|
(9,093) |
|
Payment of contingent consideration for acquisition |
|
(305) |
|
|
|
(226) |
|
Payments of finance lease obligations |
|
— |
|
|
|
(3) |
|
Net cash used in financing activities |
|
(75,903) |
|
|
|
(25,939) |
|
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS |
|
(379) |
|
|
|
(3,091) |
|
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
(48,871) |
|
|
|
55,097 |
|
CASH AND CASH EQUIVALENTS |
|
|
|
Beginning of period |
|
103,095 |
|
|
|
47,998 |
|
Cash and cash equivalents at
end of period |
$ |
54,224 |
|
|
$ |
103,095 |
|
|
|
|
|
|
|
|
|
RECONCILIATION OF CONSOLIDATED NON-GAAP FINANCIAL
MEASURES
The following table reconciles revenue decline, the most
directly comparable GAAP measure, to organic constant currency
revenue decline for the three months and year ended
December 31, 2023. For the three months and year ended
December 31, 2023, we have provided the impact of revenue from
the acquisitions of Socrates and A-Check.
|
Three Months EndedDecember 31,
2023 |
|
Year EndedDecember 31, 2023 |
Reported revenue decline |
(0.3)% |
|
|
(6.1)% |
|
Inorganic revenue
growth(1) |
2.2% |
|
|
2.3% |
|
Impact from foreign currency
exchange(2) |
0.3% |
|
|
(0.2)% |
|
Organic constant currency
revenue decline |
(2.8)% |
|
|
(8.2)% |
|
|
|
|
|
|
|
_________________________
(1) Impact to revenue growth (decline) in the current period
from M&A activity that has occurred over the past twelve
months.
(2) Impact to revenue growth (decline) in the current period
from fluctuations in foreign currency exchange rates.
The following table reconciles net (loss) income, the most
directly comparable GAAP measure, to Adjusted EBITDA for the
periods presented:
|
Three Months EndedDecember
31, |
|
Year EndedDecember 31, |
(dollars in thousands) |
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net (loss) income |
$ |
(3,384) |
|
|
$ |
(7,700) |
|
|
$ |
(116) |
|
|
$ |
19,410 |
|
Income tax provision
(benefit) |
|
7,398 |
|
|
|
(4,253) |
|
|
|
12,367 |
|
|
|
8,706 |
|
Interest expense, net |
|
9,330 |
|
|
|
8,828 |
|
|
|
36,233 |
|
|
|
29,547 |
|
Depreciation and
amortization |
|
15,736 |
|
|
|
16,542 |
|
|
|
62,853 |
|
|
|
73,140 |
|
Stock-based compensation |
|
7,466 |
|
|
|
6,381 |
|
|
|
34,650 |
|
|
|
23,805 |
|
Loss on extinguishment of
debt |
|
— |
|
|
|
3,673 |
|
|
|
— |
|
|
|
3,673 |
|
Transaction expenses(1) |
|
2,381 |
|
|
|
4,902 |
|
|
|
12,878 |
|
|
|
11,493 |
|
Restructuring(2) |
|
2,574 |
|
|
|
5,112 |
|
|
|
21,355 |
|
|
|
9,024 |
|
Technology
transformation(3) |
|
254 |
|
|
|
3,728 |
|
|
|
3,922 |
|
|
|
16,794 |
|
Settlements impacting
comparability(4) |
|
131 |
|
|
|
3,106 |
|
|
|
131 |
|
|
|
3,319 |
|
Gain on interest rate
swaps(5) |
|
— |
|
|
|
(1) |
|
|
|
— |
|
|
|
(297) |
|
Other(6) |
|
30 |
|
|
|
978 |
|
|
|
751 |
|
|
|
(111) |
|
Adjusted EBITDA |
$ |
41,916 |
|
|
$ |
41,297 |
|
|
$ |
185,024 |
|
|
$ |
198,503 |
|
Adjusted EBITDA Margin |
|
24.7% |
|
|
|
24.3% |
|
|
|
25.7% |
|
|
|
25.9% |
|
_________________________
(1) Consists of transaction expenses related to M&A,
associated earn-outs, one-time public company transition expenses
and ancillary non-recurring public company expenses and fees
associated with financing transactions. For the three months ended
December 31, 2023, costs consisted of M&A related costs for the
acquisitions of Socrates, A-Check, and Vault. For the three months
ended December 31, 2022, costs included approximately $1.4 million
of one-time public company transition expenses and approximately
$3.4 million related to M&A activity for the acquisitions of
EBI and Socrates. For the year ended December 31, 2023, costs
consisted primarily of $8.8 million of M&A related costs for
the acquisitions of Socrates, A-Check and Vault, $1.2 million of
M&A costs for the EBI acquisition primarily due to the
acceleration of contract costs related to the completion of the EBI
platform migration, and $2.9 million of registration statement
costs, costs to support the secondary public offering in June 2023,
one-time public company transition expenses and expenses related to
executing our interest rate swap. For the year ended December 31,
2022, costs consisted primarily of $5.4 million of one-time public
company transition expenses and ancillary non-recurring public
company expenses and expenses related to our credit agreement
refinancing, and $6.1 million related to M&A activity for the
acquisitions of EBI and Socrates.
(2) Consists of restructuring-related costs, including executive
recruiting and severance charges, and lease termination costs and
disposal of fixed assets related to our real estate consolidation
efforts. Beginning in 2020, we began executing a virtual-first
strategy, closing offices and reducing office space globally. In
2022, we began executing on a restructuring program to realign
senior leadership and functions with the goal of elevating our
go-to-market strategy and accelerating our technology and product
innovation. At the end of 2022, we also launched Project Nucleus
which we expect to drive meaningful cost savings and efficiency
gains in our cost of revenues. For the three months ended December
31, 2023, costs consisted of $2.2 million of restructuring-related
charges and $0.4 million in connection with executing against our
real estate consolidation program. For the three months ended
December 31, 2022, costs include approximately $4.8 million of
restructuring-related severance charges as well as one-time
consulting and other costs and approximately $0.2 million in
expenses related to our real estate consolidation program,
primarily due to the exit of EBI’s office. For the three months
ended March 31, 2023, costs consisted of $2.9 million of
restructuring-related charges and $0.3 million of real estate
consolidation costs. For the year ended December 31, 2023, costs
consisted of $10.3 million in connection with executing against our
real estate consolidation program, which included a $5.3 million
impairment charge on ROU assets, $3.2 million of accelerated rent,
facilities costs and other charges in connection with office
closures, as well as $1.8 million of fixed asset disposals and
$11.1 million of restructuring-related charges. For the year ended
December 31, 2022, costs include approximately $6.9 million of
restructuring-related severance and other charges.
(3) Includes costs related to technology modernization, as well
as costs related to decommissioning of on-premise production
systems and redundant fulfillment systems of acquired companies and
the migration to our platform. We believe that these costs are
discrete and non-recurring in nature, as they relate to a one-time
restructuring and decommissioning of our on-premise production
systems and corporate technological infrastructure and the move to
a managed service provider, decommissioning redundant fulfillment
systems and modernizing internal functional systems. As such, they
are not normal, recurring operating expenses and are not reflective
of ongoing trends in the cost of doing business. The significant
majority of these are related to the last two phases of Project
Ignite, a three-phase strategic investment initiative launched in
2019 to create an enterprise-class global platform, with the
remainder related to an investment made to modernize internal
functional systems in preparation for our public company
infrastructure. Phase two of Project Ignite was completed in 2022
and phase three of Project Ignite was completed in the first
quarter of 2023. For the three months ended December 31, 2023, $0.3
million related to decommissioning of the redundant production and
fulfillment systems of A-Check and the redundant fulfillment
systems of Socrates. For the three months ended December 31, 2022,
investment related to Project Ignite was $3.2 million and $0.5
million for decommissioning of the on-premise production system and
decommissioning of the redundant fulfillment system of EBI and
migrating onto our platform. For the year ended December 31, 2023,
investment related to the conclusion of Project Ignite was $3.1
million and the remaining $0.8 million related to costs for
decommissioning of the on-premise production system and
decommissioning of the redundant fulfillment system of EBI and
migrating onto our platform and decommissioning costs of the
A-Check and Socrates systems. For the year ended December 31, 2022,
$2.4 million related primarily to decommissioning of the on-premise
production system and decommissioning of the redundant fulfillment
system of EBI and migrating onto our platform and the remaining
$14.4 million represented the investment in Project Ignite.
(4) Consists of non-recurring settlements and the related legal
fees impacting comparability. For the three months ended December
31, 2023, costs include $0.1 million, net of insurance recovery,
for a class action case settled during the period.For the three
months ended December 31, 2022, costs include $3.1 million, net of
insurance recovery, for certain class action cases settled during
the period. For the year ended December 31, 2023, costs include
$0.1 million, net of insurance recovery, for a class action case
settled during the period.For the year ended December 31, 2022,
costs include legal settlements totaling $3.3 million, net of
insurance recovery, for certain class action cases settled in the
year. These legal settlement related costs were discrete and
non-recurring in nature and we do not expect them to occur in
future periods.
(5) Consists of gains or losses on historical non-designated
derivative interest rate swaps. See Part II. Item 7A. "Quantitative
and Qualitative Disclosures about Market Risk—Interest Rate Risk"
in our Annual Report on Form 10-K for the year ended December 31,
2023 for additional information on interest rate swaps.
(6) Consists of gains or losses on foreign currency transactions
and impairment of capitalized software.
The following table presents the calculation of Net (loss)
income margin and Adjusted EBITDA Margin for the periods
presented:
|
Three Months EndedDecember
31, |
|
Year EndedDecember 31, |
(dollars in thousands) |
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net (loss) income |
$ |
(3,384) |
|
|
$ |
(7,700) |
|
|
$ |
(116) |
|
|
$ |
19,410 |
|
Adjusted EBITDA |
$ |
41,916 |
|
|
$ |
41,297 |
|
|
$ |
185,024 |
|
|
$ |
198,503 |
|
Revenues |
$ |
169,416 |
|
|
$ |
169,920 |
|
|
$ |
719,640 |
|
|
$ |
766,782 |
|
Net (loss) income margin |
|
(2.0)% |
|
|
|
(4.5)% |
|
|
|
—% |
|
|
|
2.5% |
|
Adjusted EBITDA Margin |
|
24.7% |
|
|
|
24.3% |
|
|
|
25.7% |
|
|
|
25.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles net income (loss), the most
directly comparable GAAP measure, to Adjusted Net Income and
Adjusted Earnings Per Share for the periods presented:
|
Three Months EndedDecember
31, |
|
Year EndedDecember 31, |
(in thousands, except per share amounts) |
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net (loss) income |
$ |
(3,384) |
|
|
$ |
(7,700) |
|
|
$ |
(116) |
|
|
$ |
19,410 |
|
Income tax provision
(benefit) |
|
7,398 |
|
|
|
(4,253) |
|
|
|
12,367 |
|
|
|
8,706 |
|
Income (loss) before income
taxes |
|
4,014 |
|
|
|
(11,953) |
|
|
|
12,251 |
|
|
|
28,116 |
|
Amortization of acquired
intangible assets |
|
10,451 |
|
|
|
10,753 |
|
|
|
41,758 |
|
|
|
48,783 |
|
Stock-based compensation |
|
7,466 |
|
|
|
6,381 |
|
|
|
34,650 |
|
|
|
23,805 |
|
Loss on extinguishment of
debt |
|
— |
|
|
|
3,673 |
|
|
|
— |
|
|
|
3,673 |
|
Transaction expenses(1) |
|
2,381 |
|
|
|
4,902 |
|
|
|
12,878 |
|
|
|
11,493 |
|
Restructuring(2) |
|
2,574 |
|
|
|
5,112 |
|
|
|
21,355 |
|
|
|
9,024 |
|
Technology
transformation(3) |
|
254 |
|
|
|
3,728 |
|
|
|
3,922 |
|
|
|
16,794 |
|
Settlements impacting
comparability(4) |
|
131 |
|
|
|
3,106 |
|
|
|
131 |
|
|
|
3,319 |
|
Gain on interest rate
swaps(5) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(297) |
|
Other(6) |
|
30 |
|
|
|
978 |
|
|
|
751 |
|
|
|
(111) |
|
Adjusted Net Income before
income tax effect |
|
27,301 |
|
|
|
26,680 |
|
|
|
127,696 |
|
|
|
144,599 |
|
Income tax effect(7) |
|
7,615 |
|
|
|
6,206 |
|
|
|
33,786 |
|
|
|
38,054 |
|
Adjusted Net Income |
$ |
19,686 |
|
|
$ |
20,474 |
|
|
$ |
93,910 |
|
|
$ |
106,545 |
|
Net (loss) income per
share—basic |
$ |
(0.04) |
|
|
$ |
(0.08) |
|
|
$ |
0.00 |
|
|
$ |
0.21 |
|
Net (loss) income per
share—diluted |
$ |
(0.04) |
|
|
$ |
(0.08) |
|
|
$ |
0.00 |
|
|
$ |
0.20 |
|
Adjusted Earnings Per
Share—basic |
$ |
0.22 |
|
|
$ |
0.22 |
|
|
$ |
1.03 |
|
|
$ |
1.13 |
|
Adjusted Earnings Per
Share—diluted |
$ |
0.21 |
|
|
$ |
0.21 |
|
|
$ |
1.00 |
|
|
$ |
1.08 |
|
_________________________
(1) Consists of transaction expenses related to M&A,
associated earn-outs, one-time public company transition expenses
and ancillary non-recurring public company expenses and fees
associated with financing transactions.
(2) Consists of restructuring-related costs, including executive
recruiting and severance charges, and lease termination costs and
disposal of fixed assets related to our real estate consolidation
efforts. Beginning in 2020, we began executing a virtual-first
strategy, closing offices and reducing office space globally. In
2022, we began executing on a restructuring program to realign
senior leadership and functions with the goal of elevating our
go-to-market strategy and accelerating our technology and product
innovation. At the end of 2022, we also launched Project Nucleus
which we expect to drive meaningful cost savings and efficiency
gains in our cost of revenues.
(3) Includes costs related to technology modernization, as well
as costs related to decommissioning of on-premise production
systems and redundant fulfillment systems of acquired companies and
the migration to our platform. We believe that these costs are
discrete and non-recurring in nature, as they relate to a one-time
restructuring and decommissioning of our on-premise production
systems and corporate technological infrastructure and the move to
a managed service provider, decommissioning redundant fulfillment
systems and modernizing internal functional systems. As such, they
are not normal, recurring operating expenses and are not reflective
of ongoing trends in the cost of doing business. The significant
majority of these are related to the last two phases of Project
Ignite, a three-phase strategic investment initiative launched in
2019 to create an enterprise-class global platform, with the
remainder related to an investment made to modernize internal
functional systems in preparation for our public company
infrastructure. Phase two of Project Ignite was completed in 2022
and phase three of Project Ignite was completed in the first
quarter of 2023.
(4) Consists of non-recurring settlements and the related legal
fees impacting comparability.
(5) Consists of gains or losses on historical non-designated
derivative interest rate swaps. See Part II. Item 7A. "Quantitative
and Qualitative Disclosures about Market Risk—Interest Rate Risk"
in our Annual Report on Form 10-K for the year ended December 31,
2023 for additional information on interest rate swaps.
(6) Consists of gains or losses on foreign currency transactions
and impairment of capitalized software.
(7) Normalized effective tax rates of 27.9% and 23.3% have been
used to compute Adjusted Net Income for the three months ended
December 31, 2023 and 2022, respectively. Normalized effective
tax rates of 26.5% and 26.3% have been used to compute Adjusted Net
Income for the year ended December 31, 2023 and 2022,
respectively. As of December 31, 2023, we had net operating loss
carryforwards of approximately $15.7 million for federal income tax
purposes and deferred tax assets of approximately $5.6 million
related to state and foreign income tax loss carryforwards
available to reduce future income subject to income taxes. The
amount of actual cash taxes we pay for federal, state, and foreign
income taxes differs significantly from the effective income tax
rate computed in accordance with GAAP, and from the normalized rate
shown above.
The following table reconciles net (loss) income per share, the
most directly comparable GAAP measure, to Adjusted Earnings Per
Share for the periods presented:
|
Three Months EndedDecember
31, |
|
Year EndedDecember 31, |
(in thousands, except share and per share
amounts) |
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
Net (loss) income |
$ |
(3,384) |
|
|
$ |
(7,700) |
|
|
$ |
(116) |
|
|
$ |
19,410 |
Weighted average number of
shares outstanding—basic |
|
89,816,230 |
|
|
|
94,080,123 |
|
|
|
91,587,311 |
|
|
|
94,052,435 |
Weighted average number of
shares outstanding—diluted |
|
89,816,230 |
|
|
|
94,080,123 |
|
|
|
91,587,311 |
|
|
|
98,866,004 |
Net (loss) income per
share—basic |
$ |
(0.04) |
|
|
$ |
(0.08) |
|
|
$ |
0.00 |
|
|
$ |
0.21 |
Net (loss) income per
share—diluted |
$ |
(0.04) |
|
|
$ |
(0.08) |
|
|
$ |
0.00 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
Adjusted Net Income |
$ |
19,686 |
|
|
$ |
20,474 |
|
|
$ |
93,910 |
|
|
$ |
106,545 |
Weighted average number of
shares outstanding—basic |
|
89,816,230 |
|
|
|
94,080,123 |
|
|
|
91,587,311 |
|
|
|
94,052,435 |
Weighted average number of
shares outstanding—diluted |
|
92,317,757 |
|
|
|
97,812,339 |
|
|
|
93,944,514 |
|
|
|
98,866,004 |
Adjusted Earnings Per
Share—basic |
$ |
0.22 |
|
|
$ |
0.22 |
|
|
$ |
1.03 |
|
|
$ |
1.13 |
Adjusted Earnings Per
Share—diluted |
$ |
0.21 |
|
|
$ |
0.21 |
|
|
$ |
1.00 |
|
|
$ |
1.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the calculation of Adjusted Diluted
Earnings Per Share for the periods presented:
|
Three Months EndedDecember
31, |
|
Year EndedDecember 31, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net (loss) income per
share—diluted |
$ |
(0.04) |
|
|
$ |
(0.08) |
|
|
$ |
0.00 |
|
|
$ |
0.20 |
|
Adjusted Net Income
adjustments per share |
|
|
|
|
|
|
|
Income tax provision (benefit) |
|
0.08 |
|
|
|
(0.04) |
|
|
|
0.13 |
|
|
|
0.09 |
|
Amortization of acquired intangible assets |
|
0.11 |
|
|
|
0.11 |
|
|
|
0.44 |
|
|
|
0.49 |
|
Stock-based compensation |
|
0.08 |
|
|
|
0.06 |
|
|
|
0.37 |
|
|
|
0.24 |
|
Loss on extinguishment of debt |
|
0.00 |
|
|
|
0.04 |
|
|
|
0.00 |
|
|
|
0.04 |
|
Transaction expenses(1) |
|
0.03 |
|
|
|
0.05 |
|
|
|
0.14 |
|
|
|
0.12 |
|
Restructuring(2) |
|
0.03 |
|
|
|
0.05 |
|
|
|
0.23 |
|
|
|
0.09 |
|
Technology transformation(3) |
|
0.00 |
|
|
|
0.04 |
|
|
|
0.04 |
|
|
|
0.17 |
|
Settlements impacting comparability(4) |
|
— |
|
|
|
0.03 |
|
|
|
— |
|
|
|
0.03 |
|
Gain on interest rate swaps(5) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.01) |
|
Other(6) |
|
0.00 |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.00 |
|
Income tax effect(7) |
|
(0.08) |
|
|
|
(0.06) |
|
|
|
(0.36) |
|
|
|
(0.38) |
|
Adjusted Earnings Per
Share—diluted |
$ |
0.21 |
|
|
$ |
0.21 |
|
|
$ |
1.00 |
|
|
$ |
1.08 |
|
Weighted average number of
shares outstanding used in computation of Adjusted Diluted Earnings
Per Share: |
|
|
|
|
|
|
|
Weighted average number of
shares outstanding—diluted (GAAP) |
|
89,816,230 |
|
|
|
94,080,123 |
|
|
|
91,587,311 |
|
|
|
98,866,004 |
|
Options not included in
weighted average number of shares outstanding—diluted (GAAP) (using
treasury stock method) |
|
2,501,527 |
|
|
|
3,732,216 |
|
|
|
2,357,203 |
|
|
|
— |
|
Weighted average number of
shares outstanding—diluted (non-GAAP) (using treasury stock
method) |
|
92,317,757 |
|
|
|
97,812,339 |
|
|
|
93,944,514 |
|
|
|
98,866,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_________________________
(1) Consists of transaction expenses related to M&A,
associated earn-outs, one-time public company transition expenses
and ancillary non-recurring public company expenses and fees
associated with financing transactions.
(2) Consists of restructuring-related costs, including executive
recruiting and severance charges, and lease termination costs and
disposal of fixed assets related to our real estate consolidation
efforts. Beginning in 2020, we began executing a virtual-first
strategy, closing offices and reducing office space globally. In
2022, we began executing on a restructuring program to realign
senior leadership and functions with the goal of elevating our
go-to-market strategy and accelerating our technology and product
innovation. At the end of 2022, we also launched Project Nucleus
which we expect to drive meaningful cost savings and efficiency
gains in our cost of revenues.
(3) Includes costs related to technology modernization, as well
as costs related to decommissioning of on-premise production
systems and redundant fulfillment systems of acquired companies and
the migration to our platform. We believe that these costs are
discrete and non-recurring in nature, as they relate to a one-time
restructuring and decommissioning of our on-premise production
systems and corporate technological infrastructure and the move to
a managed service provider, decommissioning redundant fulfillment
systems and modernizing internal functional systems. As such, they
are not normal, recurring operating expenses and are not reflective
of ongoing trends in the cost of doing business. The significant
majority of these are related to the last two phases of Project
Ignite, a three-phase strategic investment initiative launched in
2019 to create an enterprise-class global platform, with the
remainder related to an investment made to modernize internal
functional systems in preparation for our public company
infrastructure. Phase two of Project Ignite was completed in 2022
and phase three of Project Ignite was completed in the first
quarter of 2023.
(4) Consists of non-recurring settlements and the related legal
fees impacting comparability.
(5) Consists of gains or losses on historical non-designated
derivative interest rate swaps. See Part II. Item 7A. "Quantitative
and Qualitative Disclosures about Market Risk—Interest Rate Risk"
in our Annual Report on Form 10-K for the year ended December 31,
2023 for additional information on interest rate swaps.
(6) Consists of gains or losses on foreign currency transactions
and impairment of capitalized software.
(7) Normalized effective tax rates of 27.9% and 23.3% have been
used to compute Adjusted Net Income for the three months ended
December 31, 2023 and 2022, respectively. Normalized effective
tax rates of 26.5% and 26.3% have been used to compute Adjusted Net
Income for the year ended December 31, 2023 and 2022,
respectively. As of December 31, 2023, we had net operating loss
carryforwards of approximately $15.7 million for federal income tax
purposes and deferred tax assets of approximately $5.6 million
related to state and foreign income tax loss carryforwards
available to reduce future income subject to income taxes. The
amount of actual cash taxes we pay for federal, state, and foreign
income taxes differs significantly from the effective income tax
rate computed in accordance with GAAP, and from the normalized rate
shown above.
For further detail, see the footnotes to Part I. Item 2.
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Non-GAAP Financial Measures” in our Annual
Report on Form 10-K for the year ended December 31, 2023.
The following table reconciles net cash flow provided by
operating activities, the most directly comparable GAAP measure, to
Free Cash Flow for the periods presented:
|
Three Months EndedDecember 31,
2023 |
|
Year EndedDecember 31, |
(in thousands) |
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net cash provided by
operations |
$ |
31,185 |
|
|
$ |
30,665 |
|
|
$ |
96,861 |
|
|
$ |
104,263 |
|
Purchases of intangible assets
and capitalized software |
|
(4,438) |
|
|
|
(3,970) |
|
|
|
(17,802) |
|
|
|
(15,689) |
|
Purchases of property and
equipment |
|
(1,183) |
|
|
|
(520) |
|
|
|
(2,560) |
|
|
|
(4,498) |
|
Free Cash Flow |
$ |
25,564 |
|
|
$ |
26,175 |
|
|
$ |
76,499 |
|
|
$ |
84,076 |
|
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