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 second quarter ended June 30, 2023.
Second Quarter
2023 Highlights
All results compared to prior-year period.
- Revenues decreased 7.4% year-over-year
to $190.4 million, in line with our prior expectations. Organic
constant currency revenue decreased 10.1% and inorganic revenue
growth was 3.2%.
- GAAP net income decreased
year-over-year to $0.3 million, or $0.00 (as rounded) per diluted
share, compared to GAAP net income of $11.6 million, or $0.12 per
diluted share, for the prior year period.
- Adjusted EBITDA decreased 11.5%
year-over-year to $50.0 million. Adjusted EBITDA Margin decreased
120 bps year-over-year to 26.3% yet exceeded our prior
expectations.
- Adjusted Net Income decreased 19.4%
year-over-year to $26.2 million. Adjusted Earnings Per Share -
diluted decreased 15.2% year-over-year to $0.28 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 second
quarter of 2023 was an encouraging continuation of the first
quarter with execution against our goals and solid results at or
above our previous expectations. We made further progress on our
key focus areas for 2023 and long-term strategy, including driving
organic revenues, optimizing our cost profile, and integrating
M&A. On the top line, we saw continued success in the revenue
drivers within our control with positive trends in growth from new
client wins, up-sell / cross-sell, and customer retention. Our full
year expectations have been narrowed to reflect our updated
expectations for full year base volumes given recent trends. Still,
we are excited by our strong tailwinds for the second half of 2023
stemming from ramping new clients, product up-sells, and
strengthening win rates. We also continue to expand our
industry-leading global capabilities in Identity with the recent
extension of our exclusive agreement with ID.me in the U.S. through
2028 and the roll-out of digital identity verification services
overseas with Yoti.
“On profitability, we are very pleased with our
continued progress, delivering on our cost optimization program
during the second quarter and driving margins ahead of our
expectations. We expect our ongoing execution in the cost
optimization program to drive margin expansion in 2023 even in the
absence of full-year revenue growth. Even more importantly, we
expect these strategic initiatives centered around focused
automation, efficiency, and process re-engineering to result in a
stronger, more scalable, and more profitable company for the
long-term.”
Second Quarter
2023 Results
|
Three Months Ended June 30, |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
Change |
|
(in thousands, except per share data and percentages) |
|
Revenues |
$ |
205,591 |
|
|
$ |
190,384 |
|
|
|
(7.4) |
% |
Net income |
$ |
11,571 |
|
|
$ |
323 |
|
|
|
(97.2) |
% |
Net income margin |
|
5.6 |
% |
|
|
0.2 |
% |
|
|
(540) |
bps |
Net income per share - diluted |
$ |
0.12 |
|
|
$ |
0.00 |
|
|
|
N/M |
|
Adjusted EBITDA(1) |
$ |
56,472 |
|
|
$ |
49,997 |
|
|
|
(11.5) |
% |
Adjusted EBITDA Margin(1) |
|
27.5 |
% |
|
|
26.3 |
% |
|
|
(120) |
bps |
Adjusted Net Income(1) |
$ |
32,499 |
|
|
$ |
26,204 |
|
|
|
(19.4) |
% |
Adjusted Earnings Per Share - diluted |
$ |
0.33 |
|
|
$ |
0.28 |
|
|
|
(15.2) |
% |
_______________________
N/M—Not meaningful.
(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 second quarter of 2023 was $190.4
million, a decrease of $15.2 million, or 7.4%, compared to $205.6
million for the second quarter of 2022, which was a Company record
for quarterly revenue. The revenue decrease for the second quarter
of 2023 included a 10.1% organic constant currency revenue decrease
and 0.5% drag due to the impact of fluctuations in foreign exchange
currency rates, partially offset by 3.2% inorganic revenue growth
from the acquisitions of Socrates and A-Check. The organic constant
currency decrease in revenue was driven by an expected decrease in
base business with existing clients due to macro uncertainty, which
offset growth of 10% from the combination of new clients and
up-sell / cross-sell.
Balance Sheet and Cash Flow
As of June 30, 2023, cash and cash equivalents
were $48.8 million and total debt was $501.7 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 (net purchase price of $48.6 million) and
repurchases of Sterling’s common stock ($25.3 million) during the
first six months of 2023, which offset growth in free cash flow.
Sterling ended the second quarter of 2023 with a net leverage ratio
of 2.4x net debt to Adjusted EBITDA. As of June 30, 2023,
available borrowings under Sterling’s revolving credit facility,
net of letters of credit outstanding, were $193.8 million.
For the six months ended June 30, 2023,
Sterling generated net cash provided by operating activities of
$32.9 million, compared to $33.3 million for the prior year period.
Capital expenditures for the six months ended June 30, 2023
totaled $9.2 million, compared to $10.9 million for the prior year
period. For the six months ended June 30, 2023, Sterling had
$23.7 million of Free Cash Flow, compared to $22.4 million of Free
Cash Flow for the prior year period. The increase in Free Cash Flow
compared to the prior year period was primarily driven by an
improvement in cash flow from our interest rate hedging program and
a decrease in capital expenditures, partially offset by an increase
in interest expense.
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.
Full Year 2023
Guidance
Sterling is providing updated guidance for full
year 2023 as detailed below. The following forward-looking
statements reflect Sterling’s expectations as of today’s date.
Actual results may differ materially.
|
|
Previous Guidance - May 9, 2023 |
|
Updated Guidance - August 8, 2023 |
(dollars in millions) |
|
Amount |
Year-over-year growth |
|
Amount |
Year-over-year growth |
|
|
|
|
|
|
|
Revenues |
|
$760 - $800 |
(1.0)% - 4.0% |
|
$760 - $780 |
(1.0)% - 1.0% |
Adjusted EBITDA |
|
$198 - $218 |
0.0% - 10.0% |
|
$198 - $208 |
0.0% - 5.0% |
Adjusted Net Income |
|
$106 - $121 |
0.0% - 14.0% |
|
$106 - $114 |
0.0% - 7.0% |
Sterling’s full-year 2023 guidance ranges reflect
expectations that recent macroeconomic conditions will continue
through the year and the Company’s results improve through the
year.
Sterling has not presented a quantitative
reconciliation of the forward-looking non-GAAP financial measures
“Adjusted EBITDA” and “Adjusted Net Income” to their most directly
comparable GAAP financial measure because it is impractical to
forecast certain items without unreasonable efforts due to the
uncertainty and inherent difficulty of predicting the occurrence
and financial impact of and the periods in which such items may be
recognized.
Conference Call Details
Sterling will hold a conference call to discuss the
second quarter of 2023 financial results today, August 8, 2023
at 8:30 AM Eastern Time.
To register for the conference call, please visit
Sterling’s investor relations website at
https://investor.sterlingcheck.com under “News & Events”.
Participants may also access the conference call by dialing
1-833-470-1428 (U.S.) or 1-929-526-1599 (outside the U.S.) and
using conference code 402363 approximately ten minutes before the
start of the call. A live audio webcast of the conference call,
together with related presentation materials, will also be
available on Sterling’s investor relations website at
https://investor.sterlingcheck.com under “News & Events”.
A replay, along with the related presentation
materials, will be available after the conclusion of the call on
Sterling’s investor relations website under “News & Events” or
by dialing 1-866-813-9403, access code 698314. The telephone replay
will be available through Tuesday, August 22, 2023.
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
guidance, outlook, targets, 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.
These and other important factors, including those discussed more
fully elsewhere in this release and in the Company’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 March
31, 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 report 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 three and six months
ended June 30, 2022 and 2023, we have provided the impact of
revenue from the acquisitions of Employment Background
Investigations, Inc. (“EBI”) in November 2021 and 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.
Historically, we presented Adjusted Free Cash Flow, defined as Net
Cash provided by (used in) Operating Activities minus purchases of
property and equipment and purchases of intangible assets and
capitalized software and reflecting adjustments for one-time, cash,
non-operating expenses related to the IPO. As there are no
adjustments related to the IPO for the three and six months ended
June 30, 2022 and 2023, nor in the subsequent periods from such
dates, management believes that Free Cash Flow is a more relevant
measure.
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 110
million searches in the twelve months ended December 31, 2022.
Contacts
InvestorsJudah SokelIR@sterlingcheck.com
MediaAngela
StelleAngela.Stelle@sterlingcheck.com
CONSOLIDATED FINANCIAL STATEMENTS |
STERLING CHECK CORP. |
|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME |
|
|
Three Months Ended |
|
Six Months Ended |
|
June 30, |
|
June 30, |
(in thousands, except share and per share
data) |
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
|
|
|
|
|
|
REVENUES |
$ |
205,591 |
|
|
$ |
190,384 |
|
|
$ |
397,563 |
|
|
$ |
369,658 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
below) |
|
107,576 |
|
|
|
102,056 |
|
|
|
208,532 |
|
|
|
196,810 |
|
Corporate technology and production systems |
|
12,539 |
|
|
|
11,428 |
|
|
|
25,091 |
|
|
|
23,380 |
|
Selling, general and administrative |
|
41,886 |
|
|
|
44,910 |
|
|
|
84,219 |
|
|
|
92,361 |
|
Depreciation and amortization |
|
19,872 |
|
|
|
16,120 |
|
|
|
40,028 |
|
|
|
31,242 |
|
Impairments and disposals of long-lived assets |
|
612 |
|
|
|
7,039 |
|
|
|
612 |
|
|
|
7,145 |
|
Total operating expenses |
|
182,485 |
|
|
|
181,553 |
|
|
|
358,482 |
|
|
|
350,938 |
|
OPERATING INCOME |
|
23,106 |
|
|
|
8,831 |
|
|
|
39,081 |
|
|
|
18,720 |
|
OTHER EXPENSE (INCOME): |
|
|
|
|
|
|
|
Interest expense, net |
|
6,619 |
|
|
|
8,990 |
|
|
|
12,955 |
|
|
|
17,598 |
|
Loss (gain) on interest rate swaps |
|
32 |
|
|
|
— |
|
|
|
(296 |
) |
|
|
— |
|
Other income |
|
(508 |
) |
|
|
(397 |
) |
|
|
(862 |
) |
|
|
(809 |
) |
Total other expense, net |
|
6,143 |
|
|
|
8,593 |
|
|
|
11,797 |
|
|
|
16,789 |
|
INCOME BEFORE INCOME TAXES |
|
16,963 |
|
|
|
238 |
|
|
|
27,284 |
|
|
|
1,931 |
|
Income tax provision (benefit) |
|
5,392 |
|
|
|
(85 |
) |
|
|
9,477 |
|
|
|
1,017 |
|
NET INCOME |
$ |
11,571 |
|
|
$ |
323 |
|
|
$ |
17,807 |
|
|
$ |
914 |
|
Unrealized gain (loss) on hedged transactions, net of tax (benefit)
expense of $0, $(1,671), $0 and $144, respectively |
|
— |
|
|
|
4,751 |
|
|
|
— |
|
|
|
(408 |
) |
Foreign currency translation adjustments, net of tax of $0, $0, $0
and $0, respectively |
|
(3,483 |
) |
|
|
955 |
|
|
|
(3,200 |
) |
|
|
1,637 |
|
Total other comprehensive (loss) income |
|
(3,483 |
) |
|
|
5,706 |
|
|
|
(3,200 |
) |
|
|
1,229 |
|
COMPREHENSIVE INCOME |
$ |
8,088 |
|
|
$ |
6,029 |
|
|
$ |
14,607 |
|
|
$ |
2,143 |
|
|
|
|
|
|
|
|
|
Net income per share attributable to stockholders |
|
|
|
|
|
|
|
Basic |
$ |
0.12 |
|
|
$ |
0.00 |
|
|
$ |
0.19 |
|
|
$ |
0.01 |
|
Diluted |
$ |
0.12 |
|
|
$ |
0.00 |
|
|
$ |
0.18 |
|
|
$ |
0.01 |
|
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
Basic |
|
94,024,970 |
|
|
|
92,723,901 |
|
|
|
93,996,553 |
|
|
|
92,800,279 |
|
Diluted |
|
99,344,563 |
|
|
|
94,498,666 |
|
|
|
99,265,668 |
|
|
|
94,924,080 |
|
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS |
|
|
December 31, |
|
June 30, |
(in thousands, except share and per share
amounts) |
2022 |
|
2023 |
|
|
|
|
ASSETS |
|
|
|
CURRENT ASSETS: |
|
|
|
Cash and cash equivalents |
$ |
103,095 |
|
|
$ |
48,817 |
|
Accounts receivable (net of allowance of $3,200 and $3,194 as of
December 31, 2022 and June 30, 2023, respectively) |
|
139,579 |
|
|
|
151,274 |
|
Insurance receivable |
|
921 |
|
|
|
3,421 |
|
Prepaid expenses |
|
13,433 |
|
|
|
11,795 |
|
Other current assets |
|
13,654 |
|
|
|
24,847 |
|
Total current assets |
|
270,682 |
|
|
|
240,154 |
|
Property and equipment, net |
|
10,341 |
|
|
|
7,354 |
|
Goodwill |
|
849,609 |
|
|
|
878,696 |
|
Intangible assets, net |
|
241,036 |
|
|
|
251,031 |
|
Deferred income taxes |
|
4,452 |
|
|
|
4,642 |
|
Operating leases right-of-use asset |
|
20,084 |
|
|
|
7,514 |
|
Other noncurrent assets, net |
|
11,050 |
|
|
|
11,212 |
|
TOTAL ASSETS |
$ |
1,407,254 |
|
|
$ |
1,400,603 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
CURRENT LIABILITIES: |
|
|
|
Accounts payable |
$ |
38,372 |
|
|
$ |
40,017 |
|
Litigation settlement obligation |
|
4,165 |
|
|
|
6,013 |
|
Accrued expenses |
|
67,047 |
|
|
|
58,118 |
|
Current portion of long-term debt |
|
7,500 |
|
|
|
11,250 |
|
Operating leases liability, current portion |
|
3,717 |
|
|
|
4,069 |
|
Other current liabilities |
|
12,939 |
|
|
|
13,712 |
|
Total current liabilities |
|
133,740 |
|
|
|
133,179 |
|
Long-term debt, net |
|
493,990 |
|
|
|
486,882 |
|
Deferred income taxes |
|
23,707 |
|
|
|
31,531 |
|
Long-term operating leases liability, net of current portion |
|
16,835 |
|
|
|
10,182 |
|
Other liabilities |
|
2,336 |
|
|
|
7,942 |
|
Total liabilities |
$ |
670,608 |
|
|
$ |
669,716 |
|
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;
97,765,120 shares issued and 96,717,883 shares outstanding as of
December 31, 2022; 99,810,027 shares issued and 96,758,662
shares outstanding as of June 30, 2023) |
|
76 |
|
|
|
96 |
|
Additional paid-in capital |
|
942,789 |
|
|
|
960,781 |
|
Common stock held in treasury (1,047,237 and 3,051,365 shares as of
December 31, 2022 and June 30, 2023, respectively) |
|
(14,859 |
) |
|
|
(40,773 |
) |
Accumulated deficit |
|
(186,448 |
) |
|
|
(185,534 |
) |
Accumulated other comprehensive loss |
|
(4,912 |
) |
|
|
(3,683 |
) |
Total stockholders’ equity |
|
736,646 |
|
|
|
730,887 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
1,407,254 |
|
|
$ |
1,400,603 |
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
Six Months Ended |
|
|
June 30, |
(in thousands) |
|
|
2022 |
|
|
|
2023 |
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
Net income |
|
$ |
17,807 |
|
|
$ |
914 |
|
Adjustments to reconcile net income to net cash provided by
operations |
|
|
|
|
Depreciation and amortization |
|
|
40,028 |
|
|
|
31,242 |
|
Deferred income taxes |
|
|
3,409 |
|
|
|
188 |
|
Stock-based compensation |
|
|
11,131 |
|
|
|
17,401 |
|
Impairments and disposals of long-lived assets |
|
|
612 |
|
|
|
7,145 |
|
Provision for bad debts |
|
|
659 |
|
|
|
459 |
|
Amortization of financing fees |
|
|
218 |
|
|
|
539 |
|
Amortization of debt discount |
|
|
959 |
|
|
|
392 |
|
Deferred rent |
|
|
(146 |
) |
|
|
1,023 |
|
Unrealized translation (gain) loss on investment in foreign
subsidiaries |
|
|
(1,220 |
) |
|
|
108 |
|
Changes in fair value of derivatives |
|
|
(4,102 |
) |
|
|
— |
|
Interest rate swap settlements |
|
|
— |
|
|
|
585 |
|
Changes in operating assets and liabilities |
|
|
|
|
Accounts receivable |
|
|
(36,451 |
) |
|
|
(7,399 |
) |
Insurance receivable |
|
|
— |
|
|
|
(2,500 |
) |
Prepaid expenses |
|
|
(702 |
) |
|
|
2,251 |
|
Other assets |
|
|
(3,180 |
) |
|
|
(8,650 |
) |
Accounts payable |
|
|
14,249 |
|
|
|
1,314 |
|
Litigation settlement obligation |
|
|
— |
|
|
|
1,848 |
|
Accrued expenses |
|
|
(8,610 |
) |
|
|
(10,515 |
) |
Other liabilities |
|
|
(1,382 |
) |
|
|
(3,447 |
) |
Net cash provided by operating activities |
|
|
33,279 |
|
|
|
32,898 |
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
Purchases of property and equipment |
|
|
(3,266 |
) |
|
|
(593 |
) |
Purchases of intangible assets and capitalized software |
|
|
(7,616 |
) |
|
|
(8,589 |
) |
Acquisitions, net of cash acquired |
|
|
— |
|
|
|
(48,641 |
) |
Proceeds from disposition of property and equipment |
|
|
9 |
|
|
|
125 |
|
Net cash used in investing activities |
|
|
(10,873 |
) |
|
|
(57,698 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
Issuance of common stock |
|
|
814 |
|
|
|
611 |
|
Repurchases of common stock |
|
|
— |
|
|
|
(25,342 |
) |
Payments of initial public offering issuance costs |
|
|
(225 |
) |
|
|
— |
|
Cash paid for tax withholding on vesting of restricted shares |
|
|
— |
|
|
|
(572 |
) |
Payments of long-term debt |
|
|
(3,231 |
) |
|
|
(3,750 |
) |
Payment of contingent consideration for acquisition |
|
|
(215 |
) |
|
|
(305 |
) |
Payments of finance lease obligations |
|
|
(1 |
) |
|
|
— |
|
Net cash used in financing activities |
|
|
(2,858 |
) |
|
|
(29,358 |
) |
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
|
|
(1,735 |
) |
|
|
(120 |
) |
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
|
17,813 |
|
|
|
(54,278 |
) |
CASH AND CASH EQUIVALENTS |
|
|
|
|
Beginning of period |
|
|
47,998 |
|
|
|
103,095 |
|
Cash and cash equivalents at end of period |
|
$ |
65,811 |
|
|
$ |
48,817 |
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
Cash paid during the period for |
|
|
|
|
Interest, net of capitalized amounts of $150 and $189 for the six
months ended June 30, 2022 and
2023, respectively |
|
$ |
17,225 |
|
|
$ |
20,239 |
|
Income taxes |
|
|
9,531 |
|
|
|
9,703 |
|
Noncash investing activities |
|
|
|
|
Purchases of property and equipment in accounts payable and accrued
expenses |
|
|
222 |
|
|
|
165 |
|
Noncash purchase price of business combinations |
|
|
— |
|
|
|
4,706 |
|
RECONCILIATION OF CONSOLIDATED NON-GAAP
FINANCIAL MEASURES
The following table reconciles revenue growth
(decline), the most directly comparable GAAP measure, to organic
constant currency revenue growth (decline) for the three and six
months ended June 30, 2023. For the three and six months ended
June 30, 2023, we have provided the impact of revenue from the
acquisitions of Socrates and A-Check.
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, 2023 |
|
June 30, 2023 |
Reported revenue decline |
|
(7.4) |
% |
|
(7.0) |
% |
Inorganic revenue growth(1) |
|
3.2 |
% |
|
2.4 |
% |
Impact from foreign currency exchange(2) |
|
(0.5) |
% |
|
(0.7) |
% |
Organic constant currency revenue decline |
|
(10.1) |
% |
|
(8.7) |
% |
_______________
(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 income, the most
directly comparable GAAP measure, to Adjusted EBITDA for the three
and six months ended June 30, 2022 and 2023.
|
Three Months Ended |
|
Six Months Ended |
|
June 30, |
|
June 30, |
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
(dollars in thousands) |
|
|
|
|
|
|
|
Net income |
$ |
11,571 |
|
|
$ |
323 |
|
|
$ |
17,807 |
|
|
$ |
914 |
|
Income tax provision (benefit) |
|
5,392 |
|
|
|
(85 |
) |
|
|
9,477 |
|
|
|
1,017 |
|
Interest expense, net |
|
6,619 |
|
|
|
8,990 |
|
|
|
12,955 |
|
|
|
17,598 |
|
Depreciation and amortization |
|
19,872 |
|
|
|
16,120 |
|
|
|
40,028 |
|
|
|
31,242 |
|
Stock-based compensation |
|
6,023 |
|
|
|
9,358 |
|
|
|
11,131 |
|
|
|
17,401 |
|
Transaction expenses(1) |
|
1,894 |
|
|
|
3,133 |
|
|
|
3,782 |
|
|
|
8,259 |
|
Restructuring(2) |
|
836 |
|
|
|
11,490 |
|
|
|
1,182 |
|
|
|
14,763 |
|
Technology transformation(3) |
|
4,537 |
|
|
|
179 |
|
|
|
8,299 |
|
|
|
3,412 |
|
Loss (gain) on interest rate swaps(4) |
|
32 |
|
|
|
— |
|
|
|
(296 |
) |
|
|
— |
|
Other(5) |
|
(304 |
) |
|
|
489 |
|
|
|
(257 |
) |
|
|
946 |
|
Adjusted EBITDA |
$ |
56,472 |
|
|
$ |
49,997 |
|
|
$ |
104,108 |
|
|
$ |
95,552 |
|
Adjusted EBITDA Margin |
|
27.5 |
% |
|
|
26.3 |
% |
|
|
26.2 |
% |
|
|
25.8 |
% |
_______________
(1) Consists of
transaction expenses related to M&A, associated earn-outs,
costs related to the preparation of the IPO, one-time public
company transition expenses and fees associated with financing
transactions. For the three months ended June 30, 2022, costs
consisted primarily of $1.1 million of one-time public company
transition expenses and $0.8 million in costs related to M&A.
For the three months ended June 30, 2023, costs consisted
primarily of $1.9 million of M&A related costs for the
acquisitions of Socrates and A-Check and $1.2 million of costs to
support the secondary public offering in June 2023. For the six
months ended June 30, 2022, costs consisted primarily of $2.6
million of one-time public company transition expenses and $1.1
million in costs related to M&A. For the six months ended
June 30, 2023, costs consisted primarily of $4.6 million of
M&A related costs for the acquisitions of Socrates and A-Check,
$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 $2.5 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. (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
June 30, 2022, costs consisted of $0.8 million in expenses
related to our real estate consolidation program primarily related
to the exit of EBI’s office. For the three months ended
June 30, 2023, costs consisted of $8.9 million in connection
with executing against our real estate consolidation program which
included a $5.3 million impairment charge on right-of-use assets,
$1.9 million of accelerated rent and facilities costs, and $1.7
million of fixed asset disposals. The remaining $2.6 million
consists of restructuring-related charges to support our strategy
refresh and the execution of Project Nucleus. For the six months
ended June 30, 2022, costs consisted of $1.2 million in
expenses related to our real estate consolidation program,
primarily due to the exit of EBI’s office. For the six months ended
June 30, 2023, costs consisted of $9.2 million of real estate
consolidation costs and $5.5 million of restructuring-related
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 June 30, 2022,
investment related to Project Ignite was $3.7 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. For the
three months ended June 30, 2023, $0.2 million related to
decommissioning of the redundant production and fulfillment systems
of A-Check and the redundant fulfillment systems of Socrates. For
the six months ended June 30, 2022, investment related to
Project Ignite was $6.9 million and the remaining $1.3 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. For the six months ended
June 30, 2023, investment related to the conclusion of Project
Ignite was $3.1 million and the remaining $0.3 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. (4) Consists of gains or losses on
historical non-designated derivative interest rate swaps. See Part
I. Item 3. “Quantitative and Qualitative Disclosures about Market
Risk— Interest Rate Risk” in our Form 10-Q for the quarterly period
ended June 30, 2023 for additional information on interest
rate swaps.(5) Consists of gains or losses on foreign currency
transactions and impairment of capitalized software.
The following table presents the calculation of Net
income margin and Adjusted EBITDA Margin for the three and six
months ended June 30, 2022 and 2023.
|
Three Months Ended |
|
Six Months Ended |
|
June 30, |
|
June 30, |
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
(dollars in thousands) |
|
|
|
|
|
|
|
Net income |
$ |
11,571 |
|
|
$ |
323 |
|
|
$ |
17,807 |
|
|
$ |
914 |
|
Adjusted EBITDA |
|
56,472 |
|
|
|
49,997 |
|
|
|
104,108 |
|
|
|
95,552 |
|
Revenues |
|
205,591 |
|
|
|
190,384 |
|
|
|
397,563 |
|
|
|
369,658 |
|
Net income margin |
|
5.6 |
% |
|
|
0.2 |
% |
|
|
4.5 |
% |
|
|
0.2 |
% |
Adjusted EBITDA Margin |
|
27.5 |
% |
|
|
26.3 |
% |
|
|
26.2 |
% |
|
|
25.8 |
% |
The following table reconciles net income, the most
directly comparable GAAP measure, to Adjusted Net Income and
Adjusted Earnings Per Share for the three and six months ended
June 30, 2022 and 2023.
|
Three Months Ended |
|
Six Months Ended |
|
June 30, |
|
June 30, |
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
(in thousands, except per share amounts) |
|
|
|
|
|
|
|
Net income |
$ |
11,571 |
|
|
$ |
323 |
|
|
$ |
17,807 |
|
|
$ |
914 |
|
Income tax provision (benefit) |
|
5,392 |
|
|
|
(85 |
) |
|
|
9,477 |
|
|
|
1,017 |
|
Income before income taxes |
|
16,963 |
|
|
|
238 |
|
|
|
27,284 |
|
|
|
1,931 |
|
Amortization of acquired intangible assets |
|
13,363 |
|
|
|
10,625 |
|
|
|
27,127 |
|
|
|
20,686 |
|
Stock-based compensation |
|
6,023 |
|
|
|
9,358 |
|
|
|
11,131 |
|
|
|
17,401 |
|
Transaction expenses(1) |
|
1,894 |
|
|
|
3,133 |
|
|
|
3,782 |
|
|
|
8,259 |
|
Restructuring(2) |
|
836 |
|
|
|
11,490 |
|
|
|
1,182 |
|
|
|
14,763 |
|
Technology transformation(3) |
|
4,537 |
|
|
|
179 |
|
|
|
8,299 |
|
|
|
3,412 |
|
Loss (gain) on interest rate swaps(4) |
|
32 |
|
|
|
— |
|
|
|
(296 |
) |
|
|
— |
|
Other(5) |
|
(304 |
) |
|
|
489 |
|
|
|
(257 |
) |
|
|
946 |
|
Adjusted Net Income before income tax effect |
|
43,344 |
|
|
|
35,512 |
|
|
|
78,252 |
|
|
|
67,398 |
|
Income tax effect(6) |
|
10,845 |
|
|
|
9,308 |
|
|
|
21,352 |
|
|
|
17,908 |
|
Adjusted Net Income |
$ |
32,499 |
|
|
|
26,204 |
|
|
$ |
56,900 |
|
|
|
49,490 |
|
Net Income per share – basic |
$ |
0.12 |
|
|
$ |
0.00 |
|
|
$ |
0.19 |
|
|
$ |
0.01 |
|
Net Income per share – diluted |
$ |
0.12 |
|
|
$ |
0.00 |
|
|
$ |
0.18 |
|
|
$ |
0.01 |
|
Adjusted Earnings Per Share – basic |
|
0.35 |
|
|
|
0.28 |
|
|
|
0.61 |
|
|
|
0.53 |
|
Adjusted Earnings Per Share – diluted |
|
0.33 |
|
|
|
0.28 |
|
|
|
0.57 |
|
|
|
0.52 |
|
_______________
(1) Consists of
transaction expenses related to M&A, associated earn-outs,
investor management fees, costs related to the preparation of the
IPO, one-time public company transition 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 and acquisition-related technology
integration and migration efforts. 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, with the remainder related to an investment made to
modernize internal functional systems in preparation for our public
company infrastructure. (4) Consists of gains or losses on
historical non-designated derivative interest rate swaps. See Part
I. Item 3. “Quantitative and Qualitative Disclosures about Market
Risk—Interest Rate Risk” in our Form 10-Q for the quarterly period
ended June 30, 2023 for additional information on interest
rate swaps. (5) Consists of gains or losses on foreign currency
transactions and impairment of capitalized software. (6) Normalized
effective tax rates of 25.0% and 26.2% have been used to compute
Adjusted Net Income for the three months ended June 30, 2022
and 2023, respectively. Normalized effective tax rates of 27.3% and
26.6% have been used to compute Adjusted Net Income for the six
months ended June 30, 2022 and 2023, respectively. As of
December 31, 2022, we had net operating loss carryforwards of
approximately $16.3 million for federal income tax purposes and
deferred tax assets of approximately $6.3 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 income per
share, the most directly comparable GAAP measure, to Adjusted
Earnings Per Share for the three and six months ended June 30,
2022 and 2023.
|
Three Months Ended |
|
Six Months Ended |
|
June 30, |
|
June 30, |
(in thousands, except share and per share
amounts) |
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
Net income |
$ |
11,571 |
|
|
$ |
323 |
|
|
$ |
17,807 |
|
|
$ |
914 |
|
Less: Undistributed amounts allocated to participating
securities |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Undistributed income allocated to stockholders |
$ |
11,571 |
|
|
$ |
323 |
|
|
$ |
17,807 |
|
|
$ |
914 |
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding – basic |
|
94,024,970 |
|
|
|
92,723,901 |
|
|
|
93,996,553 |
|
|
|
92,800,279 |
|
Weighted average number of shares outstanding – diluted |
|
99,344,563 |
|
|
|
94,498,666 |
|
|
|
99,265,668 |
|
|
|
94,924,080 |
|
Net income per share – basic |
$ |
0.12 |
|
|
$ |
0.00 |
|
|
$ |
0.19 |
|
|
$ |
0.01 |
|
Net income per share – diluted |
$ |
0.12 |
|
|
$ |
0.00 |
|
|
$ |
0.18 |
|
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
Adjusted Net Income |
$ |
32,499 |
|
|
$ |
26,204 |
|
|
$ |
56,900 |
|
|
$ |
49,490 |
|
Less: Undistributed amounts allocated to participating
securities |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Undistributed income allocated to stockholders |
$ |
32,499 |
|
|
$ |
26,204 |
|
|
$ |
56,900 |
|
|
$ |
49,490 |
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding – basic |
|
94,024,970 |
|
|
|
92,723,901 |
|
|
|
93,996,553 |
|
|
|
92,800,279 |
|
Weighted average number of shares outstanding – diluted |
|
99,344,563 |
|
|
|
94,498,666 |
|
|
|
99,265,668 |
|
|
|
94,924,080 |
|
Adjusted Earnings Per Share - basic |
$ |
0.35 |
|
|
$ |
0.28 |
|
|
$ |
0.61 |
|
|
$ |
0.53 |
|
Adjusted Earnings Per Share - diluted |
$ |
0.33 |
|
|
$ |
0.28 |
|
|
$ |
0.57 |
|
|
$ |
0.52 |
|
The following table presents the calculation of
Adjusted Diluted Earnings Per Share for the three and six months
ended June 30, 2022 and 2023.
|
Three Months Ended |
|
Six Months Ended |
|
June 30, |
|
June 30, |
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
Net income per share – diluted |
$ |
0.12 |
|
|
$ |
0.00 |
|
|
$ |
0.18 |
|
|
$ |
0.01 |
|
Adjusted Net Income adjustments per share |
|
|
|
|
|
|
|
Income tax expense |
|
0.05 |
|
|
$ |
0.00 |
|
|
|
0.09 |
|
|
|
0.01 |
|
Amortization of acquired intangible assets |
|
0.13 |
|
|
|
0.11 |
|
|
|
0.27 |
|
|
|
0.22 |
|
Stock-based compensation |
|
0.06 |
|
|
|
0.10 |
|
|
|
0.11 |
|
|
|
0.18 |
|
Transaction expenses(1) |
|
0.02 |
|
|
|
0.04 |
|
|
|
0.04 |
|
|
|
0.09 |
|
Restructuring(2) |
|
0.01 |
|
|
|
0.12 |
|
|
|
0.01 |
|
|
|
0.16 |
|
Technology transformation(3) |
|
0.05 |
|
|
|
0.00 |
|
|
|
0.09 |
|
|
|
0.03 |
|
Loss (gain) on interest rate swaps(4) |
|
0.00 |
|
|
|
— |
|
|
|
0.00 |
|
|
|
— |
|
Other(5) |
|
0.00 |
|
|
|
0.01 |
|
|
|
0.00 |
|
|
|
0.01 |
|
Income tax effect(6) |
|
(0.11 |
) |
|
|
(0.10 |
) |
|
|
(0.22 |
) |
|
|
(0.19 |
) |
Adjusted Earnings Per Share – diluted |
$ |
0.33 |
|
|
$ |
0.28 |
|
|
$ |
0.57 |
|
|
$ |
0.52 |
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding used in computation
of Adjusted Diluted Earnings Per Share: |
|
|
|
|
|
|
|
Weighted average number of shares outstanding – diluted (GAAP) |
|
99,344,563 |
|
|
|
94,498,666 |
|
|
|
99,265,668 |
|
|
|
94,924,080 |
|
Options not included in weighted average number of shares
outstanding – diluted (GAAP) (using treasury stock method) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Weighted average number of shares outstanding – diluted (non-GAAP)
(using treasury stock method) |
|
99,344,563 |
|
|
|
94,498,666 |
|
|
|
99,265,668 |
|
|
|
94,924,080 |
|
_______________
(1) Consists of
transaction expenses related to M&A, associated earn-outs,
investor management fees, costs related to the preparation of the
IPO, one-time public company transition 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 and acquisition-related technology
integration and migration efforts. 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, with the remainder related to an investment made to
modernize internal functional systems in preparation for our public
company infrastructure.(4) Consists of gains or losses on
historical non-designated derivative interest rate swaps. See Part
I. Item 3. “Quantitative and Qualitative Disclosures about Market
Risk— Interest Rate Risk” in our Form 10-Q for the quarterly period
ended June 30, 2023 for additional information on interest
rate swaps.(5) Consists of gains or losses on foreign currency
transactions and impairment of capitalized software.(6) Normalized
effective tax rates of 25.0% and 26.2% have been used to compute
Adjusted Net Income for the three months ended June 30, 2022
and 2023, respectively. Normalized effective tax rates of 27.3% and
26.6% have been used to compute Adjusted Net Income for the six
months ended June 30, 2022 and 2023, respectively. As of
December 31, 2022, we had net operating loss carryforwards of
approximately $16.3 million for federal income tax purposes and
deferred tax assets of approximately $6.3 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 Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2023.
The following table reconciles net cash flow
provided by operating activities, the most directly comparable GAAP
measure, to Free Cash Flow for the three and six months ended
June 30, 2022 and 2023.
|
Three Months Ended |
|
Six Months Ended |
|
June 30, |
|
June 30, |
(in thousands) |
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
Net cash provided by operating activities |
$ |
29,834 |
|
|
$ |
21,616 |
|
|
$ |
33,279 |
|
|
$ |
32,898 |
|
Purchases of intangible assets and capitalized software |
|
(3,874 |
) |
|
|
(4,469 |
) |
|
|
(7,616 |
) |
|
|
(8,589 |
) |
Purchases of property and equipment |
|
(1,771 |
) |
|
|
(453 |
) |
|
|
(3,266 |
) |
|
|
(593 |
) |
Free Cash Flow |
$ |
24,189 |
|
|
$ |
16,694 |
|
|
$ |
22,397 |
|
|
$ |
23,716 |
|
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