Sterling Reports Third Quarter 2021 Results
Sterling Check Corp. (NASDAQ: STER) reports a significant revenue growth of 44.2% in Q3 2021, reaching $169.6 million. Organic constant currency revenue growth was 43.2%. Despite this, the company faced a GAAP net loss of $25.3 million per share, attributed to IPO-related costs. Adjusted EBITDA rose 68.7% to $51.3 million, with adjusted net income increasing 187.5% to $31.6 million. The company has set a 2021 revenue guidance of $617 to $622 million and adjusted EBITDA of $171 to $175 million.
- Revenue increased by 44.2% year-over-year, reaching $169.6 million.
- Organic constant currency revenue growth was 43.2%.
- Adjusted EBITDA rose 68.7% to $51.3 million.
- Adjusted net income increased 187.5% to $31.6 million.
- Successful IPO generated net proceeds of approximately $94.5 million.
- GAAP net loss of $25.3 million, higher than the previous year's loss of $10.4 million.
- IPO-related transaction costs impacted overall financial results.
Delivers Revenue Growth of
Company Provides Guidance for Full Year 2021
NEW YORK, Nov. 10, 2021 (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 third quarter ended September 30, 2021.
Third Quarter 2021 Highlights
All results compared to prior-year period
- Revenues increased
44.2% year-over-year to$169.6 million . Organic constant currency revenue growth was43.2% .
- GAAP net loss was
$25.3 million , or$0.28 per share, compared to a net loss of$10.4 million , or$0.12 per share, in the prior year period.
- Adjusted EBITDA increased
68.7% year-over-year to$51.3 million , compared to$30.4 million in the prior year period. Adjusted net income increased187.5% year-over-year to$31.6 million from$11.0 million in the prior year period. Adjusted earnings per share increased167.5% to$0.33 per diluted share from$0.12 per diluted share in the prior year period.
- Initial public offering completed, with trading commenced on the Nasdaq Global Select Market on September 23, 2021 and net proceeds to the Company of
$94.5 million , used, together with cash on hand, to prepay$100 million of term loan.
- Expanded Identity offering through an exclusive partnership with FINRA to serve as the agency’s designated FBI channeler for all financial institutions in the United States.
- Providing 2021 guidance ranges for revenue of
$617 million to$622 million and Adjusted EBITDA of$171 million to$175 million .
Josh Peirez, Sterling CEO, said, “I am very proud of our team for completing the company’s successful IPO and for all their hard work in support of that process. Even while completing the IPO, our team delivered record results in the third quarter with organic constant currency revenue growth in all our industry verticals and geographies plus robust adjusted EBITDA margin expansion. These results are a testament to our people-first approach, global scale, geographic and verticalized delivery model, and differentiated technology. I am thrilled with our year to date results and our momentum heading into next year as we close out what has been a record year of revenue and profitability thus far in 2021.”
Third Quarter 2021 Results
Revenue for the third quarter of 2021 increased by
GAAP net loss was
Adjusted EBITDA for the third quarter of 2021 was
Adjusted net income for the third quarter of 2021 was
Balance Sheet and Cash Flow
Sterling’s shares of common stock commenced trading on the Nasdaq Global Select Market on September 23, 2021. The initial public offering of 16,427,750 shares consisted of 4,760,000 newly issued shares sold by the Company, 9,525,000 secondary shares sold by existing stockholders, and 2,142,750 additional secondary shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares of common stock. The IPO was priced at
For the nine months ended September 30, 2021, the Company generated Net Cash provided by Operating Activities of
Full Year 2021 Guidance
Sterling is providing guidance for full year 2021 as detailed below. The following forward-looking statements reflect Sterling’s expectations as of today’s date. Actual results may differ materially.
- Revenues of
$617 million to$622 million
- Adjusted EBITDA of
$171 million to$175 million
The Company has not presented a quantitative reconciliation of the forward-looking non-GAAP financial measure “Adjusted EBITDA” to its 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 third quarter of 2021 financial results today, November 10, 2021 at 8:30 AM Eastern Time.
Participants may access the conference call by dialing 1-844-200-6205 or 1-929-526-1599 and using conference code 174981 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 or 1-929-458-6194, access code 018413. The telephone replay will be available through Wednesday, November 24, 2021.
Forward-Looking Statements
This press release contains forward-looking statements. All statements that address expectations, guidance, outlook, targets, or projections about the future, including statement’s regarding the Company’s expectations, beliefs, plans, strategies, objectives, prospects, assumptions, or future events or performance, are forward-looking statements. 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. 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 in the final prospectus filed with the SEC on September 24, 2021 and the latest quarterly report on Form 10-Q, 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 “Adjusted EBITDA,” “Adjusted EBITDA Margin,” “Free cash flow,” “Adjusted Net Income,” “Adjusted Earnings Per Share,” and “Organic constant currency revenue growth” to assess the performance of the Company’s business.
Adjusted EBITDA is a non-GAAP financial measure and defined as net income adjusted for provision for income taxes, interest expense, depreciation and amortization, stock-based compensation, costs related to merger and acquisition activity (“M&A”), IPO costs, 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. Adjusted Free Cash Flow is a non-GAAP financial measure and 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 nine months ended September 30, 2021, the Company has adjusted Free Cash Flow for one-time, cash, non-operating charges related to the completed IPO. The Company presents Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Free Cash Flow because the Company believes that these measures assist investors and analysts in comparing the Company’s operating performance across reporting periods on a consistent basis by excluding items that the Company does not believe are indicative of the Company’s core operating performance. Management and the Company’s Board of Directors use Adjusted EBITDA to evaluate the factors and trends affecting the Company’s business to assess the Company’s financial performance and in preparing and approving the Company’s annual budget and believe it is helpful in highlighting trends in the Company’s core operating performance. Further, the Company’s 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 the Company’s results as reported under GAAP. Adjusted EBITDA excludes items that can have a significant effect on the Company’s profit or loss and should, therefore, be considered only in conjunction with net income (loss) for the period. The Company’s management uses Adjusted EBITDA to supplement GAAP results to evaluate the factors and trends affecting the business to assess the Company’s financial performance and in preparing and approving the Company’s annual budget and believes it is helpful in highlighting trends in the Company’s core operating performance. 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, costs related to acquisition, IPO costs, optimization and restructuring, technology transformation costs, and certain other costs affecting comparability, adjusted for an applicable tax rate. Adjusted Earnings Per Share is defined as Adjusted Net Income divided by diluted weighted average shares for the applicable period. The Company has presented Adjusted Net Income and Adjusted Earnings Per Share because the Company believes that these measures assist investors and analysts in comparing the Company’s operating performance across reporting periods on a consistent basis by excluding certain material non-cash items and unusual items that the Company does not expect to continue at the same level in the future. The Company’s 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 the Company does 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 the Company’s results as reported under GAAP.
Organic constant currency revenue growth is a “non-GAAP financial measure,” which is a financial measure that is not calculated and presented in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company calculates organic constant currency revenue growth by adjusting for any acquisition activity that contributed revenue in the current period, which was not present in the prior period, and converting the current period revenue at foreign currency exchange rates consistent with the prior period. There was no impact of acquisition activity on the Company’s revenue in the three and nine months ended September 30, 2021 or in the three and nine months ended September 30, 2020. Organic constant currency revenue growth has limitations as an analytical tool, and you should not consider such a measure either in isolation or as substitutes for analyzing the Company’s results as reported under GAAP. In particular, organic constant currency revenue growth does not reflect acquisition activity or the impact of foreign currency exchange rate fluctuations.
About Sterling
Sterling—a leading provider of background and identity services—offers background and identity verification to help over 47,000 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 89 million background checks in the twelve months ended September 30, 2021.
Contacts
Investors
Judah Sokel
IR@sterlingcheck.com
Media
Jamie Serino
Jamie.Serino@sterlingcheck.com
CONSOLIDATED FINANCIAL STATEMENTS STERLING CHECK CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Three and Nine Months Ended September 30, 2020 and 2021
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | September 30, | September 30, | ||||||||||||
| (in thousands except share and per share data) | 2020 | 2021 | 2020 | 2021 | |||||||||||
| REVENUES | $ | 117,602 | $ | 169,557 | $ | 325,550 | $ | 468,255 | |||||||
| OPERATING EXPENSES: | |||||||||||||||
| Cost of revenues (exclusive of depreciation and amortization below) | 55,112 | 82,638 | 153,458 | 225,798 | |||||||||||
| Corporate technology and production systems | 10,842 | 12,084 | 32,922 | 32,435 | |||||||||||
| Selling, general and administrative | 25,391 | 84,983 | 86,848 | 153,194 | |||||||||||
| Depreciation and amortization | 22,863 | 20,346 | 68,441 | 61,193 | |||||||||||
| Impairments of long-lived assets | 621 | 15 | 680 | 2,940 | |||||||||||
| Total operating expenses | 114,829 | 200,066 | 342,349 | 475,560 | |||||||||||
| OPERATING INCOME (LOSS) | 2,773 | (30,509) | (16,799) | (7,305) | |||||||||||
| OTHER EXPENSE (INCOME): | |||||||||||||||
| Interest expense, net | 7,817 | 7,668 | 25,110 | 22,841 | |||||||||||
| (Gain) loss on interest rate swaps | (49) | 112 | 9,604 | 199 | |||||||||||
| Other income | (336) | (400) | (998) | (1,034) | |||||||||||
| Total other expense, net | 7,432 | 7,380 | 33,716 | 22,006 | |||||||||||
| LOSS BEFORE INCOME TAXES | (4,659) | (37,889) | (50,515) | (29,311) | |||||||||||
| Income tax provision (benefit) | 5,727 | (12,633) | 718 | (8,080) | |||||||||||
| NET LOSS | $ | (10,386) | $ | (25,256) | $ | (51,233) | $ | (21,231) | |||||||
| Unrealized loss on hedged transactions, net of tax | 231 | (1) | 231 | (323) | |||||||||||
| Foreign currency translation adjustments, net of tax | 1,000 | (1,565) | (955) | (971) | |||||||||||
| Total other comprehensive income (loss) | 1,231 | (1,566) | (724) | (1,294) | |||||||||||
| COMPREHENSIVE LOSS | $ | (9,155) | $ | (26,822) | $ | (51,957) | $ | (22,525) | |||||||
| Net loss per share attributable to stockholders | |||||||||||||||
| Basic | $ | (0.12) | $ | (0.28) | $ | (0.58) | $ | (0.24) | |||||||
| Diluted | $ | (0.12) | $ | (0.28) | $ | (0.58) | $ | (0.24) | |||||||
| Weighted average number of shares outstanding | |||||||||||||||
| Basic | 88,332,134 | 89,431,022 | 88,325,838 | 88,956,388 | |||||||||||
| Diluted | 88,332,134 | 89,431,022 | 88,325,838 | 88,956,388 | |||||||||||
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2020 and September 30, 2021
| December 31, | September 30, | ||||||||||
| (in thousands, except share amounts) | 2020 | 2021 | |||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | $ | 66,633 | $ | 192,397 | |||||||
| Accounts receivable (net of allowance for doubtful accounts of | 80,381 | 119,812 | |||||||||
| December 31, 2020 and September 30, 2021, respectively) | |||||||||||
| Insurance receivable | 750 | - | |||||||||
| Prepaid expenses | 7,273 | 8,658 | |||||||||
| Other current assets | 7,845 | 6,701 | |||||||||
| Total current assets | 162,882 | 327,568 | |||||||||
| Property and equipment, net | 14,130 | 10,414 | |||||||||
| Goodwill | 831,800 | 830,679 | |||||||||
| Intangible assets, net | 300,544 | 254,101 | |||||||||
| Other noncurrent assets, net | 6,762 | 7,032 | |||||||||
| TOTAL ASSETS | $ | 1,316,118 | $ | 1,429,794 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Accounts payable | $ | 14,708 | $ | 27,192 | |||||||
| Litigation settlement obligation | 750 | - | |||||||||
| Accrued expenses | 35,899 | 52,837 | |||||||||
| Current portion of long-term debt | 13,147 | 6,461 | |||||||||
| Other current liabilities | 21,488 | 19,791 | |||||||||
| Total current liabilities | 85,992 | 106,281 | |||||||||
| Long-term debt, net | 602,306 | 599,202 | |||||||||
| Deferred income taxes | 29,400 | 15,895 | |||||||||
| Other liabilities | 15,236 | 7,171 | |||||||||
| Total liabilities | 732,934 | 728,549 | |||||||||
| COMMITMENTS AND CONTINGENCIES | |||||||||||
| STOCKHOLDERS' EQUITY: | |||||||||||
| Preferred stock ( | - | - | |||||||||
| Common stock ( | |||||||||||
| outstanding as of December 31, 2020; and 1,000,000,000 shares authorized; 95,787,780 shares issued and outstanding as of September 30, 2021) | 1 | 68 | |||||||||
| Additional paid-in capital | 770,714 | 911,233 | |||||||||
| Common stock held in treasury (107,820 shares as of December 31,2020 and September 30,2021) | (897) | (897) | |||||||||
| Accumulated deficit | (187,691) | (208,922) | |||||||||
| Accumulated other comprehensive income (loss) | 1,057 | (237) | |||||||||
| Total stockholders’ equity | 583,184 | 701,245 | |||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,316,118 | $ | 1,429,794 | |||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2020 and 2021
| Nine Months Ended | ||||||||||||||
| September 30, | September 30, | |||||||||||||
| (in thousands) | 2020 | 2021 | ||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||
| Net loss | $ | (51,233 | ) | $ | (21,231 | ) | ||||||||
| Adjustments to reconcile net loss | ||||||||||||||
| to net cash provided by operations | ||||||||||||||
| Depreciation and amortization | 68,441 | 61,193 | ||||||||||||
| Deferred income taxes | (4,117 | ) | (13,349 | ) | ||||||||||
| Stock-based compensation | 1,756 | 27,236 | ||||||||||||
| Impairments of long-lived assets | 680 | 2,940 | ||||||||||||
| Provision for bad debts | 623 | 604 | ||||||||||||
| Amortization of financing fees | 373 | 362 | ||||||||||||
| Amortization of debt discount | 1,767 | 1,741 | ||||||||||||
| Deferred rent | (76 | ) | (1,334 | ) | ||||||||||
| Unrealized translation gain on investment in foreign subsidiaries | (514 | ) | (100 | ) | ||||||||||
| Changes in fair value of derivatives | 7,406 | (5,024 | ) | |||||||||||
| Excess payment on contingent consideration for acquisition | - | (1,159 | ) | |||||||||||
| Changes in operating assets and liabilities | ||||||||||||||
| Accounts receivable | 552 | (40,383 | ) | |||||||||||
| Insurance receivable | - | 750 | ||||||||||||
| Prepaid expenses | (2,802 | ) | (1,421 | ) | ||||||||||
| Other assets | 2,380 | 1,464 | ||||||||||||
| Accounts payable | 563 | 12,116 | ||||||||||||
| Litigation settlement obligation | - | (750 | ) | |||||||||||
| Accrued expenses | (7,995 | ) | 15,609 | |||||||||||
| Other liabilities | 8,049 | (338 | ) | |||||||||||
| Net cash provided by operating activities | 25,853 | 38,926 | ||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||
| Purchases of property and equipment | (1,835 | ) | (2,619 | ) | ||||||||||
| Purchases of intangible assets and capitalized software | (11,250 | ) | (11,987 | ) | ||||||||||
| Investment in minority interest | - | - | ||||||||||||
| Proceeds from disposition of property and equipment | 236 | 7 | ||||||||||||
| Net cash used in investing activities | (12,849 | ) | (14,599 | ) | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||
| Issuance of common stock | 1,200 | 2,483 | ||||||||||||
| Proceeds from issuance of common stock in initial public offering, net of underwriting discounts and commissions | - | 102,638 | ||||||||||||
| Payments of initial public offering issuance costs | - | (6,120 | ) | |||||||||||
| Capital contribution from certain stockholders | - | 15,576 | ||||||||||||
| Payments of long-term debt | (4,846 | ) | (11,531 | ) | ||||||||||
| Repayments of revolving credit facility | (83,800 | ) | - | |||||||||||
| Borrowings on revolving credit facility | 83,800 | - | ||||||||||||
| Payment of contingent consideration for acquisition | - | (738 | ) | |||||||||||
| Payments on equipment capital lease obligations | (5 | ) | (8 | ) | ||||||||||
| Net cash (used in) provided by financing activities | (3,651 | ) | 102,300 | |||||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (2,194 | ) | (863 | ) | ||||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 7,159 | 125,764 | ||||||||||||
| CASH AND CASH EQUIVALENTS | ||||||||||||||
| Beginning of period | 50,299 | 66,633 | ||||||||||||
| Cash and cash equivalents at end of period | $ | 57,458 | $ | 192,397 | ||||||||||
| SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION | ||||||||||||||
| Cash paid during the period for | ||||||||||||||
| Interest, net of capitalized amounts of | $ | 20,502 | $ | 21,494 | ||||||||||
| for the nine months ended September 30, 2020 and 2021, respectively | ||||||||||||||
| Income taxes | 3,702 | 4,663 | ||||||||||||
| Offering costs included in accounts payable and accrued liabilities | - | 1,996 | ||||||||||||
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 and nine months ended September 30, 2021.
| Three Months Ended | Nine Months Ended | ||||
| September 30, | September 30, | ||||
| 2021 | 2021 | ||||
| Reported revenue growth | |||||
| Impact from M&A activity (1) | |||||
| Impact from foreign currency exchange (2) | |||||
| Organic constant currency revenue growth | |||||
(1) Impact to revenue growth in the current period from acquisitions and dispositions that have 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 loss, the most directly comparable GAAP measure, to Adjusted EBITDA for the three and nine months ended September 30, 2020 and 2021.
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| (in thousands) | 2020 | 2021 | 2020 | 2021 | |||||||||
| Net loss | $ | (10,386) | $ | (25,256) | $ | (51,233) | $ | (21,231) | |||||
| Income tax provision (benefit) | 5,727 | (12,633) | 718 | (8,080) | |||||||||
| Interest expense, net | 7,817 | 7,668 | 25,110 | 22,841 | |||||||||
| Depreciation and amortization | 22,863 | 20,346 | 68,441 | 61,193 | |||||||||
| Stock-based compensation | 570 | 25,582 | 1,756 | 27,236 | |||||||||
| Transaction expenses(1) | 539 | 31,513 | 1,624 | 38,771 | |||||||||
| Restructuring(2) | 1,060 | 634 | 7,070 | 4,243 | |||||||||
| Technology Transformation(3) | 2,581 | 3,137 | 8,048 | 9,138 | |||||||||
| Settlements impacting comparability(4) | 120 | - | 260 | - | |||||||||
| (Gain) loss on interest rate swaps(5) | (49) | 112 | 9,604 | 199 | |||||||||
| Other(6) | (439) | 196 | 535 | 826 | |||||||||
| Adjusted EBITDA | $ | 30,403 | $ | 51,300 | $ | 71,933 | $ | 135,136 | |||||
| Adjusted EBITDA Margin | |||||||||||||
| (1) | Consists of transaction expenses related to mergers and acquisitions, associated earn-outs, investor management fees in connection with the Fourth Amended and Restated Management Services Agreement and costs related to preparation of the IPO. For the three months ended September 30, 2020, the costs consisted primarily 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 2019 and 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. We expect this real estate consolidation effort to be completed by the end of 2021. For the three months ended September 30, 2020, the costs primarily comprised of |
| (3) | Includes costs related to technology modernization 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. For the three months ended September 30, 2020, investment related to Project Ignite was |
| (4) | Consists of non-recurring settlements impacting comparability. For the three months ended September 30, 2020, the cost of |
| (5) | Consists of (gain) loss on interest rate swaps. See Form 10-Q “—Part I. Item 3. Quantitative and Qualitative Disclosures about Market Risk— Interest Rate Risk” 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 |
The following table summarizes these costs for the three and nine months ended September 30, 2020 and 2021.
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||
| Other | |||||||||||||
| Government mandate | $ | - | $ | - | $ | 1,291 | $ | - | |||||
| (Gain) Loss on foreign currency transactions | (439) | 196 | (120) | 1,316 | |||||||||
| Impairment of capitalized software | - | - | 73 | 30 | |||||||||
| Duplicate fulfillment charges | - | - | (709) | (521) | |||||||||
| Total | $ | (439) | $ | 196 | $ | 535 | $ | 825 | |||||
The following table presents the calculation of Net Loss Margin and Adjusted EBITDA Margin for the three and nine months ended September 30, 2020 and 2021.
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||
| Net (loss) income | $ | (10,386) | $ | (25,256) | $ | (51,233) | $ | (21,231) | |||||
| Adjusted EBITDA | 30,403 | 51,300 | 71,933 | 135,136 | |||||||||
| Revenues | 117,602 | 169,557 | 325,550 | 468,255 | |||||||||
| Net (Loss) Income Margin | (8.8)% | (14.9)% | (15.7)% | (4.5)% | |||||||||
| Adjusted EBITDA margin | |||||||||||||
The following tables reconcile net loss, the most directly comparable GAAP measure, to Adjusted Net Income and Adjusted Earnings Per Share for the three and nine months ended September 30, 2020 and 2021.
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||
| Net (loss) income | $ | (10,386) | $ | (25,256) | $ | (51,233) | $ | (21,231) | |||||
| Income tax (benefit) expense | 5,727 | (12,633) | 718 | (8,080) | |||||||||
| (Loss) income before income taxes | (4,659) | (37,889) | (50,515) | (29,311) | |||||||||
| Amortization of acquired intangible assets | 15,119 | 12,962 | 45,289 | 39,232 | |||||||||
| Stock-based compensation | 570 | 25,582 | 1,756 | 27,236 | |||||||||
| Transaction expenses(1) | 539 | 31,513 | 1,624 | 38,771 | |||||||||
| Restructuring(2) | 1,060 | 634 | 7,070 | 4,243 | |||||||||
| Technology Transformation(3) | 2,581 | 3,137 | 8,048 | 9,138 | |||||||||
| Settlements impacting comparability(4) | 120 | - | 260 | - | |||||||||
| (Gain) loss on interest rate swaps(5) | (49) | 112 | 9,604 | 199 | |||||||||
| Other(6) | (439) | 196 | 535 | 826 | |||||||||
| Adjusted Net Income before income tax effect | 14,842 | 36,248 | 23,671 | 90,333 | |||||||||
| Income tax effect(7) | 3,859 | 4,672 | 6,154 | 20,686 | |||||||||
| Adjusted Net Income | 10,983 | 31,575 | 17,517 | 69,646 | |||||||||
| Net (Loss) Income per share-diluted | (0.12) | (0.28) | (0.58) | (0.24) | |||||||||
| Adjusted Earnings Per Share-basic | 0.12 | 0.35 | 0.20 | 0.78 | |||||||||
| Adjusted Earnings Per Share-diluted | 0.12 | 0.33 | 0.20 | 0.74 | |||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||
| Net income (loss) | $ | (10,386) | $ | (25,256) | $ | (51,233) | $ | (21,231) | |||||
| Less: Undistributed amounts allocated to participating securities | - | - | - | - | |||||||||
| Undistributed (losses) earnings allocated to stockholders | $ | (10,386) | $ | (25,256) | $ | (51,233) | $ | (21,231) | |||||
| Weighted average number of shares outstanding – basic | 88,332,134 | 89,431,022 | 88,325,838 | 88,956,388 | |||||||||
| Weighted average number of shares outstanding – diluted | 88,332,134 | 89,431,022 | 88,325,838 | 88,956,388 | |||||||||
| Net income (loss) per share – basic | (0.12) | (0.28) | (0.58) | (0.24) | |||||||||
| Net income (loss) per share – diluted | (0.12) | (0.28) | (0.58) | (0.24) | |||||||||
| Adjusted Net Income | $ | 10,983 | $ | 31,575 | $ | 17,517 | $ | 69,646 | |||||
| Less: Undistributed amounts allocated to participating securities | - | - | |||||||||||
| Undistributed (losses) earnings allocated to stockholders | $ | 10,983 | $ | 31,575 | $ | 17,517 | $ | 69,646 | |||||
| Weighted average number of shares outstanding – basic | 88,332,134 | 89,431,022 | 88,325,838 | 88,956,388 | |||||||||
| Weighted average number of shares outstanding – diluted | 88,410,918 | 95,008,310 | 88,377,154 | 93,532,785 | |||||||||
| Adjusted earnings per share - basic | 0.12 | 0.35 | 0.20 | 0.78 | |||||||||
| Adjusted earnings per share - diluted | 0.12 | 0.33 | 0.20 | 0.74 | |||||||||
The following table presents the calculation of Adjusted Diluted Earnings Per Share for the periods presented.
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||
| Net income (loss) per share – diluted | (0.12) | (0.28) | (0.58) | (0.24) | |||||||||
| Adjusted Net Income adjustments per share | |||||||||||||
| Income tax (benefit) expense | 0.06 | (0.12) | 0.01 | (0.08) | |||||||||
| Amortization of acquired intangible assets | 0.17 | 0.14 | 0.51 | 0.42 | |||||||||
| Stock-based compensation | 0.01 | 0.27 | 0.02 | 0.29 | |||||||||
| Transaction expenses(1) | 0.01 | 0.33 | 0.02 | 0.41 | |||||||||
| Restructuring(2) | 0.01 | 0.01 | 0.08 | 0.05 | |||||||||
| Technology Transformation(3) | 0.03 | 0.03 | 0.09 | 0.10 | |||||||||
| Settlements impacting comparability(4) | 0.00 | - | 0.00 | - | |||||||||
| (Gain) loss on interest rate swaps(5) | (0.00) | 0.00 | 0.11 | 0.00 | |||||||||
| Other(6) | (0.00) | 0.00 | 0.01 | 0.01 | |||||||||
| Income tax effect(7) | (0.04) | (0.05) | (0.07) | (0.22) | |||||||||
| Adjusted earnings per share - diluted | $ | 0.12 | $ | 0.33 | $ | 0.20 | $ | 0.74 | |||||
| Weighted average number of shares outstanding used in computation of Adjusted Diluted Earnings Per Share: | |||||||||||||
| Weighted average number of shares outstanding – diluted (GAAP) | 88,332,134 | 89,431,022 | 88,325,838 | 88,956,388 | |||||||||
| Options not included in weighted average number of shares outstanding – diluted (GAAP) (using treasury stock method) | 78,784 | 5,577,288 | 51,316 | 4,576,397 | |||||||||
| Weighted average number of shares outstanding – diluted (non-GAAP) (using treasury stock method) | 88,410,918 | 95,008,310 | 88,377,154 | 93,532,785 | |||||||||
| (1) | Consists of transaction expenses related to mergers and acquisitions, associated earn-outs, investor management fees, and costs related to preparation of the IPO. |
| (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 2019 and 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. We expect this real estate consolidation effort to be completed by the end of 2021. |
| (3) | Includes costs related to technology modernization 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. Project Ignite is expected to be completed by the fourth quarter of 2022. |
| (4) | Consists of non-recurring settlements impacting comparability. |
| (5) | Consists of (gain) loss on interest rate swaps. See Form 10-Q “—Quantitative and Qualitative Disclosures about Market Risk—Interest Rate Risk” 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. |
The following table summarizes these costs for the three and nine months ended September 30, 2021.
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||
| Other | |||||||||||||
| Government mandate | $ | - | $ | - | $ | 1,291 | $ | - | |||||
| (Gain) Loss on foreign currency transactions | (439) | 196 | (120) | 1,316 | |||||||||
| Impairment of capitalized software | - | - | 73 | 30 | |||||||||
| Duplicate fulfillment charges | - | - | (709) | (521) | |||||||||
| Total | $ | (439) | $ | 196 | $ | 535 | $ | 825 | |||||
| (7) | Effective tax rates of |
| For further detail, see footnotes of Form 10-Q in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. |
The following table reconciles net cash flow provided by operating activities, the most directly comparable GAAP measure, to adjusted free cash flow for the nine months ended September 30, 2020 and 2021.
| Nine Months Ended | |||||||
| September 30, | |||||||
| 2020 | 2021 | ||||||
| Net Cash provided by Operating Activities | $ | 25,853 | $ | 38,926 | |||
| Total IPO adjustments (1) | - | 34,003 | |||||
| Purchases of intangible assets and capitalized software | (11,250) | (11,987) | |||||
| Purchases of property and equipment | (1,835) | (2,619) | |||||
| Adjusted Free Cash Flow | $ | 12,768 | $ | 58,323 | |||
| (1) | Includes one-time, cash, non-operating charges related to the completed IPO. Costs included are |
FAQ
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