Sterling Reports Fourth Quarter and Full Year 2022 Results
Sterling Check Corp. (NASDAQ: STER) announced record financial results for 2022, achieving a 19.5% revenue increase to $766.8 million, driven by organic growth from new clients and acquisitions. GAAP net income reached $19.4 million, a turnaround from a loss of ($18.5 million) in 2021. Adjusted EBITDA rose 10.8% to $198.5 million, despite a decrease in adjusted EBITDA margin to 25.9%. In Q4, revenues fell 2.1% to $169.9 million, impacted by macroeconomic factors. The company enhanced its capital structure with a $700 million credit facility and announced two acquisitions, Socrates and A-Check Global, boosting growth prospects.
- 2022 revenues increased 19.5% year-over-year to $766.8 million.
- GAAP net income improved to $19.4 million from a net loss of ($18.5 million) in 2021.
- Adjusted EBITDA rose 10.8% year-over-year to $198.5 million.
- Successful debt refinancing with a new $700 million credit facility.
- Two strategic acquisitions announced, expanding market reach.
- Q4 2022 revenues decreased 2.1% year-over-year to $169.9 million.
- GAAP net loss of ($7.7 million) in Q4 compared to net income of $2.7 million in the previous year.
- Adjusted EBITDA decreased 6.2% year-over-year to $41.3 million.
New company records for annual Revenue, GAAP Net Income, Adjusted EBITDA, and Adjusted Net Income
Enhanced capital structure through a debt refinancing with a new 5-year,
Announced two acquisitions since year end: Latin America-based Socrates and U.S.-based A-Check Global
NEW YORK, March 02, 2023 (GLOBE NEWSWIRE) -- 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, 2022.
Full Year 2022 Highlights
All results compared to prior-year period.
- New company records for annual Revenue, GAAP Net Income, Adjusted EBITDA, and Adjusted Net Income driven by all four organic revenue growth drivers including growth from new clients of
9% . - Revenues increased
19.5% year-over-year to$766.8 million . Organic constant currency revenue growth was14.4% and inorganic revenue growth was6.5% . - GAAP net income was
$19.4 million , or$0.20 per diluted share, compared to GAAP net loss of ($18.5 million ), or a net loss of ($0.21) per diluted share, for the prior year period. - Adjusted EBITDA increased
10.8% year-over-year to$198.5 million . Adjusted EBITDA Margin decreased 200 bps year-over-year to25.9% . - Adjusted Net Income increased
15.5% year-over-year to$106.5 million . Adjusted Earnings Per Diluted Share increased11.3% year-over-year to$1.08 per diluted share.
Fourth Quarter 2022 Highlights
All results compared to prior-year period.
- Revenues decreased
2.1% year-over-year to$169.9 million . Organic constant currency revenue decreased4.3% and inorganic revenue growth was3.8% . - GAAP net loss was (
$7.7 million ), or a net loss of ($0.08) per diluted share, compared to GAAP net income of$2.7 million , or$0.03 per diluted share, in the prior year period. - Adjusted EBITDA decreased
6.2% year-over-year to$41.3 million . Adjusted EBITDA margin decreased 110 bps year-over-year to24.3% . - Adjusted Net Income decreased
9.3% year-over-year to$20.5 million . Adjusted Earnings Per Diluted Share decreased8.7% year-over-year to$0.21 per diluted share. - Enhanced capital structure through a debt refinancing with a new 5-year,
$700 million credit facility providing an extended debt maturity profile, greater credit capacity, and a lower interest rate spread. Enhanced capital allocation flexibility through authorization of a$100 million share repurchase program.
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.
Josh Peirez, Sterling CEO, said, “I am proud of our company’s results for 2022, delivering a record year of revenue, Adjusted EBITDA, and Adjusted Net Income. We grew our revenues by
“Moreover, with the successful integration of EBI now complete ahead of schedule, we were pleased to announce thus far in 2023 two M&A deals which are highly complementary to our core strategy and represent attractive sources of value creation. The acquisition of Socrates expands our geographic presence in Latin America, allowing us to serve the rapidly growing regional hiring needs of both multi-national and local clients. The acquisition of A-Check Global represents a high-quality, U.S.-based tuck-in deal which grows our market share by adding a blue chip, enterprise-level client base that will further benefit from Sterling’s global solutions and unrivaled client service.
“I am very proud of our team for driving the Company’s strong results in 2022 despite a volatile macroeconomic environment, and I am excited about the direction of our company in 2023 and beyond.”
Full Year 2022 Results
| Year Ended December 31, | ||||||||||
| 2021 | 2022 | Change | ||||||||
| (in thousands, except per share data and percentages) | ||||||||||
| Revenues | $ | 641,884 | $ | 766,782 | 19.5 | % | ||||
| Net (loss) income | $ | (18,527 | ) | $ | 19,410 | 204.8 | % | |||
| Net (loss) income margin | (2.9 | )% | 2.5 | % | 540 bps | |||||
| Net (loss) income per share - diluted | $ | (0.21 | ) | $ | 0.20 | 195.2 | % | |||
| Adjusted EBITDA(1) | $ | 179,184 | $ | 198,503 | 10.8 | % | ||||
| Adjusted EBITDA Margin(1) | 27.9 | % | 25.9 | % | (200) bps | |||||
| Adjusted Net Income(1) | $ | 92,232 | $ | 106,545 | 15.5 | % | ||||
| Adjusted Earnings Per Share - diluted(1) | $ | 0.97 | $ | 1.08 | 11.3 | % | ||||
_________________________
(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 2022 was
Fourth Quarter 2022 Results
| Three Months Ended December 31, | ||||||||||
| 2021 | 2022 | Change | ||||||||
| (in thousands, except per share data and percentages) | ||||||||||
| Revenues | $ | 173,629 | $ | 169,920 | (2.1 | )% | ||||
| Net income (loss) | $ | 2,704 | $ | (7,700 | ) | (384.8 | )% | |||
| Net income (loss) margin | 1.6 | % | (4.5 | )% | (610) bps | |||||
| Net income (loss) per share - diluted | $ | 0.03 | $ | (0.08 | ) | (366.7 | )% | |||
| Adjusted EBITDA(1) | $ | 44,049 | $ | 41,297 | (6.2 | )% | ||||
| Adjusted EBITDA Margin(1) | 25.4 | % | 24.3 | % | (110) bps | |||||
| Adjusted Net Income(1) | $ | 22,584 | $ | 20,474 | (9.3 | )% | ||||
| Adjusted Earnings Per Share - diluted(1) | $ | 0.23 | $ | 0.21 | (8.7 | )% | ||||
_________________________
(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 2022 was
Balance Sheet and Cash Flow
On November 29, 2022, the Company refinanced its then existing credit agreement and entered into a new credit agreement, maturing on November 29, 2027, that provides for aggregate principal borrowings of
For the twelve months ended December 31, 2022, the Company generated net cash provided by operating activities of
Full Year 2023 Guidance
The Company is providing guidance for full year 2023 as detailed below. The following forward-looking statements reflect the Company’s expectations as of today’s date. Actual results may differ materially.
| (dollars in millions) | 2023 Guidance - March 2, 2023 | ||
| Amount | Year-over-year growth | ||
| Revenues | (1.0)% - | ||
| Adjusted EBITDA | |||
| Adjusted Net Income | |||
The Company’s full-year 2023 guidance ranges reflect expectations that existing macroeconomic conditions will continue through the year and the Company’s results improve through the year.
The Company has not presented a quantitative reconciliation of the forward-looking non-GAAP financial measures “organic constant currency revenue growth,” “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
The Company will hold a conference call to discuss the fourth quarter of 2022 financial results today, March 2, 2023 at 8:30 AM Eastern Time.
Participants may access the conference call by dialing 1-844-200-6205 (U.S.) or +1-929-526-1599 (outside the U.S.) and using conference code 673805 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 the Company’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 the Company’s investor relations website under “News & Events” or by dialing 1-866-813-9403 (U.S.) or +1-929-458-6194 (outside the U.S.), access code 144594. The telephone replay will be available through Thursday, March 16, 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 the Company’s expectations, beliefs, plans, strategies, objectives, prospects or assumptions, or future events or performance, contained in this release are forward-looking statements. The Company 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 the Company’s most recently filed Annual Report on Form 10-K, 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 the Company 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, the Company makes use of the non-GAAP financial measures “organic constant currency revenue growth”, “Adjusted EBITDA,” “Adjusted EBITDA Margin,” “Adjusted Net Income,” “Adjusted Earnings Per Share” and “Adjusted Free Cash Flow” to assess the performance of its business.
Organic constant currency revenue growth is calculated by adjusting for inorganic revenue growth, which is defined as the impact to revenue growth 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 years ended December 31, 2021 and 2022, we have provided the impact of revenue from the acquisition of EBI in November 2021. We present organic constant currency revenue growth 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 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 (benefit) provision for income taxes, interest expense, depreciation and amortization, stock-based compensation, transaction expenses related to the IPO and one-time public company transition expenses, 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 U.S. 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 and one-time public company transition expenses, 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 U.S. GAAP.
Adjusted 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. For the year ended December 31, 2021, Adjusted Free Cash Flow reflects adjustments for one-time, cash non-operating expenses related to the IPO. We present Adjusted Free Cash Flow because we believe it assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding certain material non-recurring, non-operating cash items that we do not expect to continue at the same level in the future. Adjusted 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 U.S. 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 110 million searches in the twelve months ended December 31, 2022.
Contacts
Investors
Judah Sokel
judah.sokel@sterlingcheck.com
Media
Angela Stelle
angela.stelle@sterlingcheck.com
CONSOLIDATED FINANCIAL STATEMENTS
STERLING CHECK CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
| (in thousands except share and per share data) | 2021 | 2022 | 2021 | 2022 | |||||||||||
| REVENUES | $ | 173,629 | $ | 169,920 | $ | 641,884 | $ | 766,782 | |||||||
| OPERATING EXPENSES: | |||||||||||||||
| Cost of revenues (exclusive of depreciation and amortization below) | 87,357 | 92,729 | 313,155 | 407,683 | |||||||||||
| Corporate technology and production systems | 11,888 | 11,681 | 44,323 | 50,487 | |||||||||||
| Selling, general and administrative | 45,506 | 48,829 | 198,700 | 175,459 | |||||||||||
| Depreciation and amortization | 20,871 | 16,542 | 82,064 | 73,140 | |||||||||||
| Impairments of long-lived assets | 334 | 203 | 3,274 | 1,008 | |||||||||||
| Total operating expenses | 165,956 | 169,984 | 641,516 | 707,777 | |||||||||||
| OPERATING INCOME (LOSS) | 7,673 | (64 | ) | 368 | 59,005 | ||||||||||
| OTHER EXPENSE (INCOME): | |||||||||||||||
| Interest expense, net | 8,016 | 8,828 | 30,857 | 29,547 | |||||||||||
| Gain (loss) on interest rate swaps | (168 | ) | — | 31 | (297 | ) | |||||||||
| Other income | (498 | ) | (612 | ) | (1,532 | ) | (2,034 | ) | |||||||
| Loss on extinguishment of debt | — | 3,673 | — | 3,673 | |||||||||||
| Total other expense, net | 7,350 | 11,889 | 29,356 | 30,889 | |||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | 323 | (11,953 | ) | (28,988 | ) | 28,116 | |||||||||
| Income tax (benefit) provision | (2,381 | ) | (4,253 | ) | (10,461 | ) | 8,706 | ||||||||
| NET INCOME (LOSS) | $ | 2,704 | $ | (7,700 | ) | $ | (18,527 | ) | $ | 19,410 | |||||
| Unrealized gain (loss) on hedged transactions, net of tax | 53 | — | (270 | ) | — | ||||||||||
| Foreign currency translation adjustments, net of tax | 277 | 2,985 | (694 | ) | (5,005 | ) | |||||||||
| Total other comprehensive income (loss) | 330 | 2,985 | (964 | ) | (5,005 | ) | |||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | 3,034 | $ | (4,715 | ) | $ | (19,491 | ) | $ | 14,405 | |||||
| Net income (loss) per share attributable to stockholders | |||||||||||||||
| Basic | $ | 0.03 | $ | (0.08 | ) | $ | (0.21 | ) | $ | 0.21 | |||||
| Diluted | $ | 0.03 | $ | (0.08 | ) | $ | (0.21 | ) | $ | 0.20 | |||||
| Weighted average number of shares outstanding | |||||||||||||||
| Basic | 93,963,227 | 94,080,123 | 90,218,386 | 94,052,435 | |||||||||||
| Diluted | 99,690,693 | 94,080,123 | 90,218,386 | 98,866,004 | |||||||||||
UNAUDITED CONSOLIDATED BALANCE SHEETS
| December 31, | |||||||
| (in thousands, except share and par value amounts) | 2021 | 2022 | |||||
| ASSETS | |||||||
| CURRENT ASSETS: | |||||||
| Cash and cash equivalents | $ | 47,998 | $ | 103,095 | |||
| Accounts receivable (net of allowance of | 127,927 | 139,579 | |||||
| Insurance receivable | — | 921 | |||||
| Prepaid expenses | 12,510 | 13,433 | |||||
| Other current assets | 11,563 | 13,654 | |||||
| Total current assets | 199,998 | 270,682 | |||||
| Property and equipment, net | 11,124 | 10,341 | |||||
| Goodwill | 852,536 | 849,609 | |||||
| Intangible assets, net | 297,146 | 241,036 | |||||
| Deferred income taxes | 4,770 | 4,452 | |||||
| Operating leases right-of-use asset | — | 20,084 | |||||
| Other noncurrent assets, net | 6,685 | 11,050 | |||||
| TOTAL ASSETS | $ | 1,372,259 | $ | 1,407,254 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| CURRENT LIABILITIES: | |||||||
| Accounts payable | $ | 31,127 | $ | 38,372 | |||
| Litigation settlement obligation | — | 4,165 | |||||
| Accrued expenses | 67,971 | 67,047 | |||||
| Current portion of long-term debt | 6,461 | 7,500 | |||||
| Operating leases liability, current portion | — | 3,717 | |||||
| Other current liabilities | 24,361 | 12,939 | |||||
| Total current liabilities | 129,920 | 133,740 | |||||
| Long-term debt, net | 499,107 | 493,990 | |||||
| Deferred income taxes | 28,584 | 23,707 | |||||
| Long-term operating leases liability, net of current portion | — | 16,835 | |||||
| Other liabilities | 5,024 | 2,336 | |||||
| Total liabilities | 662,635 | 670,608 | |||||
| COMMITMENTS AND CONTINGENCIES | |||||||
| STOCKHOLDERS' EQUITY: | |||||||
| Preferred stock ( | — | — | |||||
| Common stock ( | 68 | 76 | |||||
| Additional paid-in capital | 916,578 | 942,789 | |||||
| Common stock held in treasury (107,820 shares and 1,047,237 shares as of December 31, 2021 and 2022, respectively) | (897 | ) | (14,859 | ) | |||
| Accumulated deficit | (206,218 | ) | (186,448 | ) | |||
| Accumulated other comprehensive income (loss) | 93 | (4,912 | ) | ||||
| Total stockholders’ equity | 709,624 | 736,646 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,372,259 | $ | 1,407,254 | |||
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||
| (in thousands) | 2021 | 2022 | ||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net (loss) income | $ | (18,527 | ) | $ | 19,410 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operations | ||||||||
| Loss on extinguishment of debt | — | 3,673 | ||||||
| Depreciation and amortization | 82,064 | 73,140 | ||||||
| Deferred income taxes | (21,996 | ) | (3,344 | ) | ||||
| Stock-based compensation | 32,580 | 23,805 | ||||||
| Impairments of long-lived assets | 3,274 | 1,008 | ||||||
| Provision for bad debts | 1,169 | 877 | ||||||
| Amortization of financing fees | 471 | 453 | ||||||
| Amortization of debt discount | 3,262 | 1,675 | ||||||
| Deferred rent | (1,621 | ) | (226 | ) | ||||
| Unrealized translation gain on investment in foreign subsidiaries | (154 | ) | (2,345 | ) | ||||
| Changes in fair value of derivatives | (7,422 | ) | (4,102 | ) | ||||
| Excess payment on contingent consideration for acquisition | (1,159 | ) | — | |||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (40,086 | ) | (11,184 | ) | ||||
| Insurance receivable | 750 | 921 | ||||||
| Prepaid expenses | (4,975 | ) | (1,101 | ) | ||||
| Other assets | (3,181 | ) | (4,515 | ) | ||||
| Accounts payable | 12,950 | 7,885 | ||||||
| Litigation settlement obligation | (750 | ) | 4,165 | |||||
| Accrued expenses | 30,212 | 303 | ||||||
| Other liabilities | 1,744 | (6,235 | ) | |||||
| Net cash provided by operating activities | 68,605 | 104,263 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of property and equipment | (3,234 | ) | (4,498 | ) | ||||
| Purchases of intangible assets and capitalized software | (15,860 | ) | (15,689 | ) | ||||
| Acquisition of EBI, net of cash acquired | (66,323 | ) | — | |||||
| Proceeds from disposition of property and equipment | 41 | 51 | ||||||
| Net cash used in investing activities | (85,376 | ) | (20,136 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Issuance of common stock | 2,483 | 2,416 | ||||||
| Proceeds from issuance of common stock in IPO, net of underwriting discounts and commissions | 102,638 | — | ||||||
| Payments of initial public offering issuance costs | (7,890 | ) | (225 | ) | ||||
| Capital contribution from certain stockholders | 15,576 | — | ||||||
| Payments of long-term debt | (113,147 | ) | (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 | (738 | ) | (226 | ) | ||||
| Payments of finance lease obligations | (9 | ) | (3 | ) | ||||
| Repurchases of common stock | — | (13,962 | ) | |||||
| Net cash used in financing activities | (1,087 | ) | (25,939 | ) | ||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (777 | ) | (3,091 | ) | ||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | (18,635 | ) | 55,097 | |||||
| CASH AND CASH EQUIVALENTS | ||||||||
| Beginning of period | 66,633 | 47,998 | ||||||
| Cash and cash equivalents at end of period | $ | 47,998 | $ | 103,095 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for | ||||||||
| Interest, net of capitalized amounts of | $ | 30,782 | $ | 32,348 | ||||
| Income taxes | 5,574 | 18,532 | ||||||
| Offering costs included in accounts payable and accrued liabilities | 225 | — | ||||||
| Noncash investing activities | ||||||||
| Purchases of property and equipment in accounts payable and accrued expenses | 109 | 25 | ||||||
| Noncash purchase price of business combinations | 1,445 | — | ||||||
RECONCILIATION OF CONSOLIDATED NON-GAAP FINANCIAL MEASURES
The following table reconciles revenue growth, the most directly comparable GAAP measure, to organic constant currency revenue growth for the three months and year ended December 31, 2022. For the three months and year ended December 31, 2022, we have provided the impact of revenue from the acquisition of EBI.
| Three Months Ended December 31, | Year Ended December 31, | |||||
| 2022 | 2022 | |||||
| Reported revenue growth | (2.1 | )% | 19.5 | % | ||
| Inorganic revenue growth(1) | 3.8 | % | 6.5 | % | ||
| Impact from foreign currency exchange(2) | (1.6 | )% | (1.4 | )% | ||
| Organic Constant Currency Revenue Growth | (4.3 | )% | 14.4 | % | ||
________________
(1) Impact to revenue growth in the current period from M&A activity that has occurred over the past twelve months.
(2) Impact to revenue growth in the current period from fluctuations in foreign currency exchange rates.
The following table reconciles net income (loss), the most directly comparable GAAP measure, to Adjusted EBITDA for the three months and years ended December 31, 2021 and 2022.
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
| 2021 | 2022 | 2021 | 2022 | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| Net income (loss) | $ | 2,704 | $ | (7,700 | ) | $ | (18,527 | ) | $ | 19,410 | |||||
| Income tax (benefit) provision | (2,381 | ) | (4,252 | ) | (10,461 | ) | 8,706 | ||||||||
| Interest expense, net | 8,016 | 8,828 | 30,857 | 29,547 | |||||||||||
| Depreciation and amortization | 20,871 | 16,542 | 82,064 | 73,140 | |||||||||||
| Stock-based compensation | 5,344 | 6,381 | 32,580 | 23,805 | |||||||||||
| Loss on extinguishment of debt | — | 3,673 | — | 3,673 | |||||||||||
| Transaction expenses(1) | 4,292 | 4,902 | 43,046 | 11,493 | |||||||||||
| Restructuring(2) | 655 | 5,112 | 4,915 | 9,024 | |||||||||||
| Technology Transformation(3) | 3,950 | 3,728 | 13,088 | 16,794 | |||||||||||
| Settlements impacting comparability(4) | 468 | 3,106 | 468 | 3,319 | |||||||||||
| (Gain) loss on interest rate swaps(5) | (168 | ) | (1 | ) | 31 | (297 | ) | ||||||||
| Other(6) | 298 | 978 | 1,123 | (111 | ) | ||||||||||
| Adjusted EBITDA | $ | 44,049 | $ | 41,297 | $ | 179,184 | $ | 198,503 | |||||||
| Adjusted EBITDA Margin | 25.4 | % | 24.3 | % | 27.9 | % | 25.9 | % | |||||||
______________________
(1) Consists of transaction expenses related to M&A, associated earn-outs, investor management fees in connection with the Fourth Amended and Restated Management Services Agreement, dated December 3, 2019 (the “MSA”), 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 December 31, 2021, costs included IPO related expenses of
(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. During 2020, we executed an extensive restructuring program, significantly strengthening our management team and creating a client facing industry-specific Vertical organization. This program was completed by the end of 2020 and the final costs related to this program were incurred through the first quarter of 2021. 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. For the three months ended December 31, 2021, costs include approximately
(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 a cloud-native 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 substantially completed as of December 31, 2022. For the three months ended December 31, 2021, investment related to Project Ignite was
(4) Consists of non-recurring settlements and the related legal fees impacting comparability. For the three months ended December 31, 2021, costs included settlement related to sales tax of
(5) Consists of gain (loss) on interest rate swaps. See Form 10-K “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, 2022 for additional information on interest rate swaps.
(6) Consists of loss (gain) on foreign currency transactions, impairment of capitalized software and other costs outside of the ordinary course of business. The following table summarizes these costs for the periods presented:
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
| (in thousands) | 2021 | 2022 | 2021 | 2022 | |||||||||||
| Other | |||||||||||||||
| Loss (gain) on foreign currency transactions | $ | 109 | $ | 795 | $ | 1,425 | $ | (294 | ) | ||||||
| Impairment of capitalized software | $ | 189 | $ | 183 | $ | 219 | $ | 183 | |||||||
| Duplicate fulfillment charges | $ | — | $ | — | $ | (521 | ) | $ | — | ||||||
| Total | $ | 298 | $ | 978 | $ | 1,123 | $ | (111 | ) | ||||||
The following table presents the calculation of Net Income (Loss) Margin and Adjusted EBITDA Margin for the three months and years ended December 31, 2021 and 2022.
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
| 2021 | 2022 | 2021 | 2022 | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| Net income (loss) | $ | 2,704 | $ | (7,700 | ) | $ | (18,527 | ) | $ | 19,410 | |||||
| Adjusted EBITDA | $ | 44,049 | $ | 41,297 | $ | 179,184 | $ | 198,503 | |||||||
| Revenues | $ | 173,629 | $ | 169,920 | $ | 641,884 | $ | 766,782 | |||||||
| Net income (loss) margin | 1.6 | % | (4.5 | )% | (2.9 | )% | 2.5 | % | |||||||
| Adjusted EBITDA Margin | 25.4 | % | 24.3 | % | 27.9 | % | 25.9 | % | |||||||
The following tables reconcile net income (loss), the most directly comparable GAAP measure, to Adjusted Net Income and Adjusted Earnings Per Share for the three months and years ended December 31, 2021 and 2022.
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
| 2021 | 2022 | 2021 | 2022 | ||||||||||||
| (in thousands, except per share amounts) | |||||||||||||||
| Net income (loss) | $ | 2,704 | $ | (7,700 | ) | $ | (18,527 | ) | $ | 19,410 | |||||
| Income tax (benefit) provision | (2,381 | ) | (4,252 | ) | (10,461 | ) | 8,706 | ||||||||
| Income (loss) before income taxes | 323 | (11,952 | ) | (28,988 | ) | 28,116 | |||||||||
| Amortization of acquired intangible assets | 13,545 | 10,753 | 52,777 | 48,783 | |||||||||||
| Stock-based compensation | 5,344 | 6,381 | 32,580 | 23,805 | |||||||||||
| Loss on extinguishment of debt | — | 3,673 | — | 3,673 | |||||||||||
| Transaction expenses(1) | 4,292 | 4,902 | 43,046 | 11,493 | |||||||||||
| Restructuring(2) | 655 | 5,112 | 4,915 | 9,024 | |||||||||||
| Technology Transformation(3) | 3,950 | 3,728 | 13,088 | 16,794 | |||||||||||
| Settlements impacting comparability(4) | 468 | 3,106 | 468 | 3,319 | |||||||||||
| (Gain) loss on interest rate swaps(5) | (168 | ) | — | 31 | (297 | ) | |||||||||
| Other(6) | 298 | 978 | 1,123 | (111 | ) | ||||||||||
| Adjusted Net Income before income tax effect | 28,707 | 26,680 | 119,040 | 144,599 | |||||||||||
| Income tax effect(7) | 6,123 | 6,206 | 26,808 | 38,054 | |||||||||||
| Adjusted Net Income | $ | 22,584 | $ | 20,474 | $ | 92,232 | $ | 106,545 | |||||||
| Net income (loss) per share-basic | $ | 0.03 | $ | (0.08 | ) | $ | (0.21 | ) | $ | 0.21 | |||||
| Net income (loss) per share-diluted | 0.03 | (0.07 | ) | (0.21 | ) | 0.20 | |||||||||
| Adjusted Earnings Per Share-basic | 0.24 | 0.22 | 1.02 | 1.13 | |||||||||||
| Adjusted Earnings Per Share-diluted | 0.23 | 0.21 | 0.97 | 1.08 | |||||||||||
______________________
(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. During 2020, we executed an extensive restructuring program, significantly strengthening our management team and creating a client facing industry-specific Vertical organization. This program was completed by the end of 2020 and the final costs related to this program were incurred through the first quarter of 2021. 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.
(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 non-recurring settlements and the related legal fees impacting comparability.
(5) Consists of loss (gain) on 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, 2022 for additional information on interest rate swaps.
(6) Consists of costs related to a local government mandate in India, (gain) loss on foreign currency transactions, impairment of capitalized software and other costs outside of the ordinary course of business.
(7) Normalized effective tax rates of
The following table reconciles net income (loss) per share, the most directly comparable GAAP measure, to Adjusted Earnings Per Share for the three months and years ended December 31, 2021 and 2022.
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
| (in thousands, except share and per share amounts) | 2021 | 2022 | 2021 | 2022 | |||||||||||
| Net income (loss) | $ | 2,704 | $ | (7,700 | ) | $ | (18,527 | ) | $ | 19,410 | |||||
| Less: Undistributed amounts allocated to participating securities | — | — | — | — | |||||||||||
| Undistributed losses (income) allocated to stockholders | $ | 2,704 | $ | (7,700 | ) | $ | (18,527 | ) | $ | 19,410 | |||||
| Weighted average number of shares outstanding – basic | 93,963,227 | 94,080,123 | 90,218,386 | 94,052,435 | |||||||||||
| Weighted average number of shares outstanding – diluted | 99,690,693 | 94,080,123 | 90,218,386 | 98,866,004 | |||||||||||
| Net income (loss) per share – basic | $ | 0.03 | $ | (0.08 | ) | $ | (0.21 | ) | $ | 0.21 | |||||
| Net income (loss) per share – diluted | 0.03 | (0.08 | ) | (0.21 | ) | 0.20 | |||||||||
| Adjusted Net Income | $ | 22,584 | $ | 20,474 | $ | 92,232 | $ | 106,545 | |||||||
| Less: Undistributed amounts allocated to participating securities | — | — | — | — | |||||||||||
| Undistributed adjusted earnings allocated to stockholders | $ | 22,584 | $ | 20,474 | $ | 92,232 | $ | 106,545 | |||||||
| Weighted average number of shares outstanding – basic | 93,963,227 | 94,080,123 | 90,218,386 | 94,052,435 | |||||||||||
| Weighted average number of shares outstanding – diluted | 99,690,693 | 97,812,339 | 95,082,550 | 98,866,004 | |||||||||||
| Adjusted Earnings Per Share - basic | $ | 0.24 | $ | 0.22 | $ | 1.02 | $ | 1.13 | |||||||
| Adjusted Earnings Per Share - diluted | 0.23 | 0.21 | 0.97 | 1.08 | |||||||||||
The following table presents the calculation of Adjusted Diluted Earnings Per Share for the three months and years ended December 31, 2021 and 2022.
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
| 2021 | 2022 | 2021 | 2022 | ||||||||||||
| Net income (loss) per share – diluted | $ | 0.03 | $ | (0.08 | ) | $ | (0.21 | ) | $ | 0.20 | |||||
| Adjusted Net Income adjustments per share | |||||||||||||||
| Income tax (benefit) provision | (0.02 | ) | (0.04 | ) | (0.11 | ) | 0.09 | ||||||||
| Amortization of acquired intangible assets | 0.14 | 0.11 | 0.56 | 0.49 | |||||||||||
| Stock-based compensation | 0.05 | 0.06 | 0.34 | 0.24 | |||||||||||
| Loss on extinguishment of debt | — | 0.04 | — | 0.04 | |||||||||||
| Transaction expenses(1) | 0.04 | 0.05 | 0.46 | 0.12 | |||||||||||
| Restructuring(2) | 0.01 | 0.05 | 0.05 | 0.09 | |||||||||||
| Technology Transformation(3) | 0.04 | 0.04 | 0.14 | 0.17 | |||||||||||
| Settlements impacting comparability(4) | — | 0.03 | 0.01 | 0.03 | |||||||||||
| (Gain) loss on interest rate swaps(5) | — | — | — | (0.01 | ) | ||||||||||
| Other(6) | — | 0.01 | 0.01 | — | |||||||||||
| Income tax effect(7) | (0.06 | ) | (0.06 | ) | (0.28 | ) | (0.38 | ) | |||||||
| Adjusted Earnings Per Share - diluted | $ | 0.23 | $ | 0.21 | $ | 0.97 | $ | 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) | 99,690,693 | 94,080,123 | 90,218,386 | 98,866,004 | |||||||||||
| Options not included in weighted average number of shares outstanding – diluted (GAAP) (using treasury stock method) | — | 3,732,216 | 4,864,164 | — | |||||||||||
| Weighted average number of shares outstanding – diluted (non-GAAP) (using treasury stock method) | 99,690,693 | 97,812,339 | 95,082,550 | 98,866,004 | |||||||||||
______________________
(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. During 2020, we executed an extensive restructuring program, significantly strengthening our management team and creating a client facing industry-specific Vertical organization. This program was completed by the end of 2020 and the final costs related to this program were incurred through the first quarter of 2021. 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.
(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 non-recurring settlements and the related legal fees impacting comparability.
(5) Consists of gain (loss) on 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, 2022 for additional information on interest rate swaps.
(6) Consists of loss (gain) on foreign currency transactions, impairment of capitalized software and other costs outside of the ordinary course of business.
(7) Normalized effective tax rates of
For further detail, see the footnotes to Part II. Item 7. “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, 2022.
The following table reconciles net cash flow provided by operating activities, the most directly comparable GAAP measure, to Adjusted Free Cash Flow for the years ended December 31, 2021 and 2022. For the year ended December 31, 2021, Adjusted Free Cash Flow included adjustments for one-time, non-operating cash expenses related to the IPO.
| Year Ended December 31, | |||||||
| (in thousands) | 2021 | 2022 | |||||
| Net Cash provided by Operating Activities | $ | 68,605 | $ | 104,263 | |||
| Total IPO adjustments(1) | $ | 34,777 | $ | — | |||
| Purchases of intangible assets and capitalized software | $ | (15,860 | ) | $ | (15,689 | ) | |
| Purchases of property and equipment | $ | (3,234 | ) | $ | (4,498 | ) | |
| Adjusted Free Cash Flow | $ | 84,288 | $ | 84,076 | |||
______________________
(1) Includes one-time, non-operating cash expenses related to the IPO. Costs for the year ended December 31, 2021 include
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