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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-40829
https://cdn.kscope.io/b9379130017446485f96cf1050736f41-ster-20220331_g1.jpg
Sterling Check Corp.
(Exact name of registrant as specified in its charter)
Delaware37-1784336
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1 State Street Plaza, 24th Floor
New York, New York
10004
(Address of principal executive offices)(Zip Code)
1 (800) 853-3228
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange
on which registered
Common stock, $0.01 par valueSTERThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated
1





filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒
The total number of outstanding shares of the registrant’s common stock, $0.01 par value per share, as of May 9, 2022 was 96,260,780 (excluding treasury shares of 107,820).

2


STERLING CHECK CORP. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2022
TABLE OF CONTENTS
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Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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 we intend that all forward-looking statements that we make will be subject to the safe harbor protections created thereby. You can generally identify forward-looking statements by our use of forward-looking terminology such as “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “projection,” “seek,” “should,” “will” or “would,” or the negative thereof or other variations thereon or comparable terminology. In particular, statements that address market trends, and statements regarding our expectations, beliefs, plans, strategies, objectives, prospects or assumptions, or future events or performance contained in this Quarterly Report on Form 10-Q under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements.
We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in this Quarterly Report on Form 10-Q under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” may cause our actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements, or could affect our share price. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:
changes in economic, political and market conditions and the impact of these changes on our clients’ hiring trends;
the sufficiency of our cash to meet our liquidity needs;
the possibility of cyber-attacks, security vulnerabilities and internet disruptions, including breaches of data security and privacy leaks, data loss and business interruptions;
our ability to comply with the extensive United States (“U.S.”) and foreign laws, regulations and policies applicable to our industry, and changes in such laws, regulations and policies;
our compliance with data privacy laws and regulations;
potential liability for failures to provide accurate information to our clients, which may not be covered, or may be only partially covered, by insurance;
the possible effects of negative publicity on our reputation and the value of our brand;
our failure to compete successfully;
our ability to keep pace with changes in technology and to provide timely enhancements to our products and services;
the continued impact of COVID-19 on global markets, economic conditions and the response by governments and third parties;
our ability to cost-effectively attract new clients and retain our existing clients;
our ability to grow our Identity-as-a-Service offerings;
our success in new product introductions and adjacent market penetrations;
our ability to expand into new geographies;
our ability to pursue strategic mergers and acquisitions;
design defects, errors, failures or delays with our products and services;
4

Table of Contents
systems failures, interruptions, delays in services, catastrophic events and resulting interruptions;
natural or man-made disasters including pandemics and other significant public health emergencies, outbreaks of hostilities or effects of climate change and our ability to deal effectively with damage or disruption caused by the foregoing;
our ability to implement our business strategies profitably;
our ability to retain the services of certain members of our management;
inadequate protection of our intellectual property;

our ability to implement, maintain and improve effective internal controls and remediate the material weakness described in Item 4. “Controls and Procedures” of this Quarterly Report on Form 10-Q;
our ability to comply with public company requirements in a timely and cost-effective manner, and expense strain on our resources and diversion of our management’s attention resulting from public company compliance requirements; and
the other risks described in Item 1A. “Risk Factors” in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2022.
Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance and our actual results of operations, financial condition, and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition, and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods.
Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as required by law, we do 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 Quarterly Report on Form 10-Q.
Investors and others should note that we announce material financial and operational information using our investor relations website, press releases, SEC filings and public conference calls and webcasts. Information about Sterling Check Corp. (“Sterling”), our business, and our results of operations may also be announced by posts on our accounts on the following social media channels: Instagram; Facebook; LinkedIn and Twitter. The information contained on, or that can be accessed through, our social media channels and on our website is deemed not to be incorporated in this Quarterly Report on Form 10-Q or to be a part of this Quarterly Report on Form 10-Q. The information that we post through these social media channels and on our website may be deemed material. As a result, we encourage investors, the media and others interested in Sterling to monitor these social media channels in addition to following our investor relations website, press releases, SEC filings and public conference calls and webcasts. The list of social media channels we use may be updated from time- to-time on our investor relations website.

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STERLING CHECK CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)December 31,
2021
March 31,
2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$47,998 $44,347 
Accounts receivable (net of allowance of $2,949 and $2,519 as of December 31, 2021 and March 31, 2022, respectively)
127,927 147,949 
Prepaid expenses12,510 13,366 
Operating leases right-of-use asset 3,435 
Other current assets11,563 12,654 
Total current assets199,998 221,751 
Property and equipment, net11,124 11,552 
Goodwill852,536 851,646 
Intangible assets, net297,146 282,053 
Deferred income taxes4,770 4,863 
Operating leases right-of-use asset 16,536 
Other noncurrent assets, net6,685 6,850 
TOTAL ASSETS$1,372,259 $1,395,251 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
CURRENT LIABILITIES:  
Accounts payable$31,127 $41,201 
Accrued expenses67,971 55,091 
Current portion of long-term debt6,461 6,461 
Operating leases liability, current portion 3,728 
Other current liabilities24,361 17,225 
Total current liabilities129,920 123,706 
Long-term debt, net499,107 497,969 
Deferred income taxes28,584 30,832 
Long-term operating leases liability, net of current portion 19,042 
Other liabilities5,024 2,577 
Total liabilities$662,635 $674,126 
COMMITMENTS AND CONTINGENCIES (NOTE 12)  
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, 95,854,795 shares issued and 95,746,975 shares outstanding as of December 31, 2021; 1,000,000,000 shares authorized, 96,397,488 shares issued and 96,289,668 shares outstanding as of March 31, 2022)
68 73 
Additional paid-in capital916,578 921,753 
Common stock held in treasury (107,820 shares as of December 31, 2021 and March 31, 2022)
(897)(897)
Accumulated deficit(206,218)(200,180)
Accumulated other comprehensive income93 376 
Total stockholders’ equity709,624 721,125 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$1,372,259 $1,395,251 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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STERLING CHECK CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME

 Three Months Ended
March 31,
(in thousands, except share and per share data)20212022
REVENUES$139,370 $191,972 
OPERATING EXPENSES:  
Cost of revenues (exclusive of depreciation and amortization below)67,579 100,956 
Corporate technology and production systems10,353 12,552 
Selling, general and administrative29,606 42,333 
Depreciation and amortization20,549 20,156 
Impairments of long-lived assets2,876  
Total operating expenses130,963 175,997 
OPERATING INCOME 8,407 15,975 
OTHER EXPENSE (INCOME):  
Interest expense, net7,570 6,336 
Gain on interest rate swaps(46)(328)
Other income(271)(354)
Total other expense, net7,253 5,654 
INCOME BEFORE INCOME TAXES1,154 10,321 
Income tax provision 526 4,085 
NET INCOME$628 $6,236 
Unrealized loss on hedged transactions, net of tax(134) 
Foreign currency translation adjustments, net of tax372 283 
Total other comprehensive income238 283 
COMPREHENSIVE INCOME $866 $6,519 
Net income per share attributable to stockholders  
Basic$0.01 $0.07 
Diluted$0.01 $0.06 
Weighted average number of shares outstanding  
Basic88,602,16793,967,819
Diluted92,165,16399,186,456
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


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STERLING CHECK CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)Shares Outstanding Par ValueAdditional Paid-In Capital
Common Stock Held in Treasury
Accumulated Deficit
Accumulated Other Comprehensive (Loss) Income
Total
BALANCE as of December 31, 2020
88,554,962$1 $770,714 $(897)$(187,691)$1,057 $583,184 
Common stock issued for exercise of employee-based stock options271,9462,427 — — — 2,427 
Stock-based compensation911 — — — 911 
Net income— — 628 — 628 
Unrealized loss on hedged transactions, net of tax— — — (134)(134)
Foreign currency translation adjustment, net of tax— — — 372 372 
BALANCE as of March 31, 202188,826,908$1 $774,052 $(897)$(187,063)$1,295 $587,388 
(in thousands, except share amounts)Shares OutstandingPar ValueAdditional Paid-In Capital
Common Stock Held in Treasury
Accumulated Deficit
Accumulated Other Comprehensive Income
Total
BALANCE as of December 31, 2021
95,746,975$68 $916,578 $(897)$(206,218)$93 $709,624 
Issuance of common stock1,112— — — — — — 
Common stock issued for exercise of employee-based stock options8,486— 80 — — — 80 
Issuance of restricted shares, net of forfeitures and vestings533,0955 (5)— — — — 
Stock-based compensation— 5,108 — — — 5,108 
Net income— — — 6,236 — 6,236 
Cumulative effect adjustment for adoption of CECL, net of tax of $56
— — — (198)— (198)
Foreign currency translation adjustment, net of tax— (8)— — 283 275 
BALANCE as of March 31, 202296,289,668$73 $921,753 $(897)$(200,180)$376 $721,125 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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STERLING CHECK CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 Three Months Ended March 31,
(in thousands)20212022
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income$628 $6,236 
Adjustments to reconcile net income to net cash provided by operations  
Depreciation and amortization20,549 20,156 
Deferred income taxes(2,438)3,412 
Stock-based compensation898 5,108 
Impairments of long-lived assets2,876  
Provision for bad debts79 308 
Amortization of financing fees124 109 
Amortization of debt discount576 478 
Deferred rent(1,120) 
Noncash impact of lease accounting under ASC 842 (55)
Unrealized translation loss (gain) on investment in foreign subsidiaries41 (393)
Changes in fair value of derivatives(1,527)(2,464)
Excess payment on contingent consideration for acquisition(166) 
Gain on disposition of property and equipment (4)
Changes in operating assets and liabilities
Accounts receivable(10,474)(20,006)
Insurance receivable750  
Prepaid expenses(926)(869)
Other assets(257)(1,736)
Accounts payable5,421 10,255 
Litigation settlement obligation(750) 
Accrued expenses5,634 (12,283)
Other liabilities2,065 (4,807)
Net cash provided by operating activities21,983 3,445 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment(346)(1,495)
Purchases of intangible assets and capitalized software(3,839)(3,742)
Proceeds from disposition of property and equipment 4 
Net cash used in investing activities(4,185)(5,233)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock2,227 70 
Payments of IPO issuance costs (225)
Payments of long-term debt(1,615)(1,615)
Payment of contingent consideration for acquisition(738) 
Payments of finance lease obligations(1)(1)
Net cash used in financing activities(127)(1,771)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS151 (92)
NET CHANGE IN CASH AND CASH EQUIVALENTS17,822 (3,651)
CASH AND CASH EQUIVALENTS  
Beginning of period66,633 47,998 
Cash and cash equivalents at end of period$84,455 $44,347 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION  
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Cash paid during the period for  
Interest, net of capitalized amounts of $65 and $73 for the three months ended March 31, 2021 and 2022, respectively
$3,182 $8,296 
Income taxes1,0754,222
Noncash investing activities
Purchases of property and equipment in accounts payable and
       accrued expenses
82245
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


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STERLING CHECK CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.Description of Business
Sterling Check Corp. (the “Company”), a Delaware corporation headquartered in New York City, New York, is a global provider of technology-enabled background and identity verification services. The Company provides the foundation of trust and safety its clients need to create effective environments for their most essential resource—people. The Company offers a comprehensive hiring and risk management solution that begins with identity verification, followed by criminal background screening, credential verification, drug and health screening, employee onboarding document processing and ongoing risk monitoring.
The Company’s final prospectus related to the initial public offering (“IPO”) of its common stock, $0.01 par value per share (“common stock”) was filed with the Securities and Exchange Commission (“SEC”) on September 24, 2021 pursuant to Rule 424(b) under the Securities Act (our “IPO Prospectus”) and the common stock began trading on the Nasdaq Global Select Market on September 23, 2021. On September 27, 2021, the Company completed its IPO of an aggregate of 16,427,750 shares of common stock at a public offering price of $23.00 per share, pursuant to the IPO Prospectus. The Company sold 4,760,000 shares and certain existing stockholders sold an aggregate of 11,667,750 shares, including 2,142,750 shares that were sold pursuant to the full exercise of the underwriters’ option to purchase additional shares. The Company received aggregate net proceeds of $94.5 million after deducting underwriting discounts and commissions of $6.8 million and other offering expenses of $8.1 million.
As of March 31, 2022, the Company is 62.3% owned by an investment group consisting of entities advised by or affiliated with The Goldman Sachs Group, Inc. (“Goldman Sachs”) and Caisse de dépôt et placement du Québec (“CDPQ”). CDPQ owns its equity interest in the Company indirectly through a limited partnership controlled by Goldman Sachs.

2.Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
These unaudited condensed consolidated financial statements are unaudited; however, in the opinion of management, they reflect all adjustments consisting only of normal recurring adjustments necessary to state fairly the financial position, results of operations and cash flows for the periods presented in conformity with US GAAP applicable to interim periods. The results of operations for the interim periods presented are not necessarily indicative of results for the full year or future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2021 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2022.
On September 10, 2021, the Company’s Board of Directors (the “Board of Directors”) authorized a stock split and the Company filed an amendment to its certificate of incorporation to effectuate a 1,198-for-1 split of its outstanding common stock. The stock split was effectuated such that (i) each then outstanding share of common stock was increased to 1,198 shares; (ii) the number of shares of common stock into which then-outstanding options to purchase common stock is exercisable was proportionately increased; and (iii) the exercise price of each then-outstanding option to purchase common stock was proportionately reduced. The accompanying unaudited condensed consolidated financial statements give retroactive effect as though the 1,198-for-1 stock split of the Company’s common stock occurred for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and judgments that can affect the reported amount of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Significant estimates include the impairment of long-lived assets, goodwill impairment, the determination of the fair value of acquired assets and liabilities, the valuation of stock-
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based awards and stock-based compensation and sales and income tax liabilities. The Company also applies an estimated useful life of three years to internally developed software. This is based on the historical observed pace of change in the Company’s delivery, technology, and product offerings as well as market competition. The Company believes that the estimates used in the preparation of these unaudited condensed consolidated financial statements are reasonable; however, actual results could differ materially from these estimates.
Segment Information
The Company has one operating and reportable segment. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.
Cash and Cash Equivalents
Cash and cash equivalents of $48.0 million and $44.3 million as of December 31, 2021 and March 31, 2022, respectively, include money market instruments with maturities of three months or less. The Company maintained cash outside the U.S as of December 31, 2021 of $34.2 million with the largest deposits being held in India and Canada, with balances of $15.0 million and $3.6 million, respectively. Cash outside the U.S. was $27.9 million as of March 31, 2022, with the largest deposits being held in India and Canada, with balances of $14.6 million and $4.1 million, respectively.
Foreign Currency
Assets and liabilities of operations having non-USD functional currencies are translated at period-end exchange rates, and income statement accounts are translated at weighted average exchange rates for the period. Gains or losses resulting from translating foreign currency financial statements, net of any related tax effects, are reflected in Accumulated other comprehensive income, a separate component of stockholders’ equity on the unaudited condensed consolidated balance sheets. Gains or losses resulting from foreign currency transactions incurred in currencies other than the local functional currency are included in Other income in the unaudited condensed consolidated statements of income and comprehensive income. The cumulative translation adjustment resulted in a loss of $0.6 million and a loss of $0.3 million as of December 31, 2021 and March 31, 2022, respectively.
Allowance for Credit Losses
Accounts receivable balances consist of trade receivables that are recorded at the invoiced amount, net of allowances for expected credit losses and for potential sales credits and reserves. Sales credits and reserves were $0.4 million and $0.7 million as of December 31, 2021 and March 31, 2022, respectively.

The Company adopted FASB ASC Topic 326, Financial Instruments - Credit Losses, (“CECL”) with an adoption date of January 1, 2022. As a result, the Company changed its accounting policy for allowance for credit losses and the policy pursuant to CECL is disclosed below. The adoption of CECL resulted in a $0.2 million cumulative effect adjustment, net of tax, recorded in retained earnings as of January 1, 2022.

CECL requires an entity to utilize an impairment model to estimate its lifetime expected credit losses and record an allowance that, when deducted from the amortized cost basis of a financial asset, presents the net amount expected to be collected on the financial asset.

The Company maintains an allowance for expected credit losses in order to record accounts receivable at their net realizable value. Inherent in the assessment of the allowance for expected credit losses are certain judgments and estimates relating to, among other things, the Company’s customers’ access to capital, customers’ willingness and ability to pay, general economic conditions and the ongoing relationship with customers. Allowances have been recorded for receivables believed to be uncollectible, including amounts for the resolution of potential credit and other collection issues such as disputed invoices. The allowance for expected credit losses is determined by analyzing the Company’s historical write-offs, the current aging of receivables, the financial condition of customers and the general economic climate. Adjustments to the allowance may be required in future periods depending on how such potential issues are resolved or if the financial condition of the Company’s customers were to deteriorate resulting in an impairment of their ability to make payments. The Company has not historically had material write-offs due to uncollectible accounts receivable.
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The following table summarizes changes in the allowance for expected credit losses for the quarters ended March 31, 2021 and 2022:

(in thousands)
Balance - December 31, 2020$1,861 
Additions79 
Write-offs, net of recoveries(156)
Foreign currency translation adjustment(6)
Balance - March 31, 2021$1,778 
Balance - December 31, 2021$2,949 
Cumulative effect of accounting change upon adoption of CECL254 
Additions308 
Write-offs, net of recoveries(1,669)
Foreign currency translation adjustment 
Balance - March 31, 2022$1,842 
Corporate Technology and Production Systems Expense
Corporate technology and production systems expense includes costs related to maintaining the Company’s corporate information technology infrastructure and non-capitalizable costs to develop and maintain its production systems.
The following table sets forth expenses included in each category of this line item:
 Three Months Ended
March 31,
(in thousands)20212022
Corporate information technology$4,552 $6,123 
Development of platform and product initiatives3,596 4,249 
Production support and maintenance2,205 2,180 
Total production systems5,801 6,429 
Corporate technology and production systems$10,353 $12,552 
Corporate information technology expenses consist of salaries and benefits of personnel (including stock-based compensation expense) supporting internal operations such as information technology support and the maintenance of information security and business continuity functions. Also included are third-party costs including cloud computing costs that support the Company’s corporate internal systems, software licensing and maintenance, telecommunications and other technology infrastructure costs.

Production systems costs consist of non-capitalizable personnel costs including contractor costs incurred for the development of platform and product initiatives and production support and maintenance. Platform and product initiatives facilitate the development of the Company’s technology platform and the launch of new screening products. Production support and maintenance includes costs to support and maintain the technology underlying the Company’s existing screening products and to enhance the ease of use of the Company’s cloud applications. Certain personnel costs related to new products and features are capitalized and amortized to depreciation and amortization.
Corporate technology and production systems expenses also include non-capitalizable production system and corporate information technology expenses related to Project Ignite, a three-phase strategic investment initiative. Phase one of Project Ignite modernized client and candidate experiences and is complete. Phase two of Project Ignite focused on decommissioning the Company’s on-premises data centers and migrating the Company’s production systems and corporate information technological infrastructure to a managed service provider in the cloud. During the first half of 2021, the Company completed phase two related to the migration of
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its production and fulfillment systems to the cloud, and as a result, over 95% of revenue is processed through platforms hosted in the cloud. The Company will continue to incur expenses related to phase two to complete the decommissioning of on-premises data centers for internal corporate technology infrastructure and migration to the cloud. This is expected to be substantially completed by June 30, 2022. Phase three of Project Ignite is decommissioning of the platforms purchased over the prior ten years and the migration of the clients to one global platform. This third and final phase, which the Company expects to substantially complete in 2022, will unify clients onto a single global platform. The future costs related to completing these initiatives will be included in corporate technology and production systems expense.


3.Recent Accounting Standards Updates
The Company qualifies as an emerging growth company under the Jumpstart Our Business Startups Act (the “JOBS Act”). The JOBS Act permits extended transition periods for complying with new or revised accounting standards affecting public companies. The Company has elected to use the extended transition periods and is adopting new or revised accounting standards on the FASB‘s non-public company timeline. As such, the Company’s financial statements may not be comparable to financial statements of public entities that comply with new or revised accounting standards on a non-delayed basis.
The Company will cease to be an emerging growth company upon the earliest of (a) the last day of the fiscal year in which it has total annual gross revenues of $1.07 billion or more; (b) the last day of its fiscal year following the fifth anniversary of the date of its IPO; (c) the date on which it has issued more than $1.0 billion in nonconvertible debt during the previous three years; or (d) the date on which it is deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur as of the last day of a fiscal year in which the market value of its common stock held by non-affiliates equals or exceeds $700 million as of the last business day of the second fiscal quarter of such fiscal year.
Accounting Pronouncements Adopted
In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (“ASC 842”), on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use (“ROU”) asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for in a manner similar to the accounting under previously issued guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to previously issued guidance for sales-type leases, direct financing leases and operating leases. ASC 842 supersedes the previous leases standard, ASC 840, Leases. The guidance is effective for the Company for annual periods beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022. Effective January 1, 2022, the Company adopted ASC 842 on a modified retrospective transition basis and recognized a ROU asset of $21.0 million and a lease liability of $23.8 million upon adoption. For additional information see Note 8, “Leases”.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” (“ASU No. 2016-13”). ASU No. 2016-13 requires an entity to utilize a CECL model to estimate its lifetime expected credit loss and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. ASU No. 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans, and available-for-sale debt securities. As per the latest ASU No. 2020-02, “Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842),” the FASB deferred the timelines for certain small public and private entities. The Company adopted the guidance for the annual reporting period beginning January 1, 2022, including interim periods within that annual reporting period. The adoption of CECL resulted in a $0.3 million cumulative effect adjustment recorded in retained earnings as of January 1, 2022.

Accounting Pronouncements Not Yet Adopted
In March 2020 and January 2021, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848)” (“ASU No. 2020-04”) and ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU No.
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2021-01”), respectively. These ASUs address concerns about the risk of cessation of the London Interbank Offered Rate (“LIBOR”) and the identification of alternative reference rates. The amendments in ASU No. 2020-04 and ASU No. 2021-01 provide optional expedients and exceptions for applying US GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The amendments in ASU No. 2020-04 and ASU No. 2021-01 are elective. The cessation of the one-week and two-month LIBOR rates in December 2021 did not have any impact on the Company as such rates are not used. The Company is evaluating the impact that adoption of any of the amendments within these ASUs will have on its financial statements ahead of the cessation date of the one-month LIBOR rate after June 2023 and will consider alternative reference rates as part of future amendments or modifications to its credit agreements.

4.Acquisitions

EBI Acquisition

On November 30, 2021, the Company acquired all of the outstanding shares of Employment Background Investigations, Inc. (“EBI”) for a purchase price of $67.8 million, consisting of $66.3 million of cash and $1.5 million of contingent consideration recorded at fair value. The contingent consideration is limited to a maximum of $8.5 million of additional payments, to be determined based on actual future results. As of December 31, 2021 and March 31, 2022, the fair value of this contingent consideration consists of $0.9 million for an earn-out payable two years after the acquisition based upon revenue retention and $0.6 million payable throughout the year following the acquisition based on customer collections on receivables acquired. The Company recorded a preliminary allocation of the purchase price to assets acquired and liabilities assumed based on their estimated fair values as of November 30, 2021. The Company incurred approximately $1.9 million of transaction expenses related to the acquisition of EBI during the year ended December 31, 2021.

The allocation of the purchase price is based on the fair value of assets acquired and liabilities assumed as of the acquisition date. The following table summarizes the consideration paid and the amounts recognized for the assets acquired and liabilities assumed:

November 30,
2021
(in thousands)
Consideration
Cash$ 
Other current assets
Accounts receivable8,861 
Prepaid expenses394 
Property and equipment1,290 
Intangible assets59,161 
Total assets acquired$69,706 
Accounts payable and accrued expenses5,614 
Other current liabilities1,182 
Deferred tax liability16,566 
Other liabilities298 
Total liabilities assumed$23,660 
Total identifiable net assets46,046 
Goodwill21,721 
Total consideration$67,767 

Goodwill recognized is primarily attributable to assembled workforce and expected synergies and is not tax deductible in future years. Intangible assets acquired consist largely of customer lists in the amount of $56.0 million to be amortized over 15 years. The remaining intangible assets include trade names and a non-compete agreement, which will be amortized over two years and five years, respectively.

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5.Property and Equipment, net
(in thousands)December 31,
2021
March 31,
2022
Furniture and fixtures$3,636 $3,746 
Computers and equipment37,767 38,975 
Leasehold improvements7,347 7,525 
 48,750 50,246 
Less: Accumulated depreciation(37,626)(38,694)
Total property and equipment, net$11,124 $11,552 
During the three months ended March 31, 2021 and 2022, depreciation expense on property and equipment was $1.3 million and $1.1 million, respectively. Write down of abandoned property and equipment no longer in use was $2.9 million for the three months ended March 31, 2021. There were no write downs of property and equipment during the three months ended March 31, 2022.
6.Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the three months ended March 31, 2022 were as follows:
(in thousands) 
Goodwill as of December 31, 2021
$852,536 
Foreign currency translation adjustment(890)
Goodwill as of March 31, 2022
$851,646 
Intangible Assets
Intangible assets, net consisted of the following for the periods presented:
 December 31, 2021March 31, 2022
(dollars in thousands)Estimated Useful LivesGross
Carrying
Amount
Accumulated
Amortization
NetGross
Carrying
Amount
Accumulated
Amortization
Net
Customer lists
7 - 17 years
$507,087 $(304,855)$202,232 $507,549 $(314,327)$193,222 
Trademarks
4 - 16 years
77,434 (31,685)45,749 77,550 (33,293)44,257 
Non-compete agreement
1 - 4 years
3,191 (2,462)729 3,197 (2,487)710 
Technology
3 - 7 years
231,165 (191,320)39,845 235,057 (199,533)35,524 
Domain names
3 - 15 years
10,118 (4,009)6,109 10,118 (4,177)5,941 
Favorable leases
4 - 14 years
4,940 (2,458)2,482 4,940 (2,541)2,399 
  $833,935 $(536,789)$297,146 $838,411 $(556,358)$282,053 
Included within technology is $30.7 million and $30.0 million of internal-use software, net of accumulated amortization, as of December 31, 2021 and March 31, 2022, respectively. As of March 31, 2022, $6.2 million of technology assets have not yet been put in service.
The Company capitalized $3.8 million of costs to develop internal-use software included in technology during the three months ended March 31, 2021 (consisting of internal costs of $2.9 million and external costs of $0.9 million). The Company capitalized $3.7 million of costs to develop internal-use software included in technology during the three months ended March 31, 2022 (consisting of internal costs of $3.0 million and external costs of $0.7 million).
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For the three months ended March 31, 2021, the Company recorded a write-down related to the impairment of capitalized software in the amount of $0.1 million. There was no write-down of capitalized software during the three months ended March 31, 2022.
Amortization expense was $19.3 million and $19.1 million for the three months ended March 31, 2021 and 2022, respectively.
Except for the customer lists, which are amortized utilizing an accelerated method, all other intangible assets are amortized on a straight-line basis, which approximates the pattern in which economic benefits are consumed. Estimated amortization expense as of March 31, 2022 is as follows for each of the next five years:
(in thousands) 
Year Ending December 31, 
2022$49,658 
202350,128 
202440,326 
202531,160 
202626,468 
Thereafter84,313 
 $282,053 
7.Accrued Expenses
Accrued expenses on the unaudited condensed consolidated balance sheets as of December 31, 2021 and March 31, 2022, consisted of the following:
(in thousands)December 31,
2021
March 31,
2022
Accrued compensation$28,851 $17,953 
Accrued cost of revenues18,270 17,041 
Accrued interest4,144 3,839 
Other accrued expenses16,706 16,258 
Total accrued expenses$67,971 $55,091 

8.Leases
Effective January 1, 2022, the Company adopted ASC 842, which requires the recognition of all leases, including operating leases on the unaudited condensed consolidated balance sheet by recording a ROU asset and related liability, and elected to exclude short-term leases from adoption. The lease liability and ROU asset will be remeasured when there is a change in the lease term (or upon the occurrence of another reassessment trigger).The Company elected to adopt ASC 842 using the effective date method, which required the Company to recognize and measure all leases that exist at the effective date using a modified transition approach. Under this approach, the Company will not restate financial information for any periods prior to January 1, 2022. ASC 842 includes certain practical expedients intended to ease the burden of adoption. Upon adoption, the Company elected the following package of practical expedients:

No change to the classification of existing operating leases under previous lease guidance;
All existing leases classified as capital leases under previous lease guidance will be classified as financing leases under ASC 842;
All existing lessor leases classified as operating leases under previous lease guidance will be classified as operating leases under ASC 842; and
All existing lessor leases classified as sales-type or direct financing leases under previous lease guidance will be classified as sales-type or direct financing leases under ASC 842.

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By electing this package of practical expedients, the Company will not be required to reassess whether an existing contract is or contains a lease, reassess lease classification, nor will the Company be required to reassess the accounting treatment for initial direct costs. These elections will apply to all leases, as lessee and sublessor.

The Company did not elect to use hindsight in determining its lease terms or whether a renewal, termination, or purchase option is reasonably certain to be exercised. Therefore, the lease term at transition for all leases will be the remaining lease term as determined under previous lease guidance.

In addition, the Company derecognized its intangible favorable and unfavorable lease balances at the transition date with a corresponding entry to the ROU asset, with no impact to the unaudited condensed consolidated statements of income and comprehensive income and the Company’s accumulated deficit.

Upon adoption on January 1, 2022, the Company recognized a ROU asset of $21.0 million and a lease liability of $23.8 million.

The Company determines if a contract is a lease or contains a lease at inception. Operating lease liabilities are measured, on each reporting date, based on the present value of the future minimum lease payments over the remaining lease term. The Company’s leases generally do not provide an implicit rate and, therefore, the Company uses the incremental borrowing rate in its credit agreement of 4.50%. The Company used the incremental borrowing rate on January 1, 2022 for all leases that commenced prior to that date. Operating lease assets are measured by adjusting the lease liability for lease incentives, initial direct costs incurred and asset impairments. Lease expense for minimum lease payments is recognized on a straight line basis over the lease term with the operating lease asset reduced by the amount of the expense. Lease terms may include options to extend or terminate a lease when they are reasonably certain to occur.
The Company leases real estate and equipment for use in its operations. The Company has 21 operating leases with remaining lease terms ranging from 2 months to 82 months.
The components of lease expense are as follows:
Three Months Ended
March 31,
(in thousands)20212022
Components of total lease costs
Operating lease expense$462 $1,299 
Sublease income (72)
Total net lease costs$462 $1,227 









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Information related to the Company’s ROU assets and lease liabilities is as follows:

(dollar amounts in thousands)March 31, 2022
Operating leases
Operating leases ROU asset - current$3,435 
Operating leases ROU asset - long-term16,536 
Operating leases ROU asset, net$19,971 
Operating leases liability - current$3,728 
Operating leases liability - long-term19,042 
Total operating leases liability$22,770 
Weighted average remaining lease term in years - operating leases5.5
Weighted average discount rate - operating leases4.50 %

Total remaining lease payments under the Company’s operating leases are as follows:

(in thousands)March 31, 2022
Remainder of fiscal year 2022$3,749 
20234,921 
20244,356 
20254,439 
20263,816 
20273,468 
Thereafter1,158 
Total future minimum lease payments$25,907 
Less: imputed interest(3,137)
Total$22,770 


9.Debt
The table below sets forth the Company’s long-term debt as presented in the unaudited condensed consolidated balance sheets for the periods presented:
(in thousands)December 31,
2021
March 31,
2022
Current portion of long-term debt  
First lien term loan$6,461 $6,461 
Long-term debt  
First lien term loan, due June 19, 2024 (4.50% for the three months ended March 31, 2021 and 2022)
503,879 502,264 
Unamortized discount and debt issuance costs on first lien term loan(4,772)(4,295)
Total long-term debt, net$499,107 $497,969 
The estimated fair value of the Company’s first lien term loan was $508.4 million and $505.5 million as of December 31, 2021 and March 31, 2022, respectively. These fair values were determined based on quoted prices in markets with similar instruments that are less active (Level 2 inputs as defined below) as an observable price of the First Lien Term Loan or similar liabilities is not readily available.
The Company was in compliance with all financial covenants under its credit agreement as of March 31, 2022.
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10.Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. An asset or liability’s level in the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The three levels of inputs used to measure fair value are as follows:
Level 1Quoted prices in active markets for identical assets and liabilities.
Level 2Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flows methodologies and similar techniques that use significant unobservable inputs.
The Company considers the recorded value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses to approximate the fair value of the respective assets and liabilities as of December 31, 2021 and March 31, 2022 based upon the short-term nature of such assets and liabilities (Level 1). See Note 9, “Debt” for discussion of the fair value of the Company’s debt.
Interest rate swaps and foreign currency forward contracts are measured at fair value on a recurring basis in the Company’s financial statements and are considered Level 2 financial instruments. Interest rate swaps are measured based on quoted prices for similar financial instruments and other observable inputs recognized. The currency forward agreements are typically cash settled in U.S. dollars for their fair value at or close to their settlement date.
Contingent consideration related to the acquisition of EBI consists of $0.9 million for an earn-out payable two years after the acquisition based upon revenue retention and $0.6 million payable throughout the year following the acquisition based on customer collections on receivables acquired and is considered a Level 3 financial instrument.
The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy as of December 31, 2021:
(in thousands)Level 1Level 2Level 3
Liabilities   
Interest rate swaps$4,102
Contingent consideration - acquisition of EBI$1,445
The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy as of March 31, 2022:
(in thousands)Level 1Level 2Level 3
Liabilities   
Interest rate swaps$1,639
Contingent consideration - acquisition of EBI$1,445
During the three months ended March 31, 2021 and 2022, we did not re-measure any financial assets or liabilities at fair value on a nonrecurring basis. There were no transfers between levels during the periods presented.
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11.Derivative Instruments and Hedging Activities
Cash Flow Hedges of Foreign Exchange Risk
The Company is exposed to fluctuations in various foreign currencies against its functional currency, the USD. Specifically, the Company is exposed to, and has historically hedged and plans to do so in the future, third-party expenses denominated in Indian Rupees (INR). These transactions expose the Company to exchange rate fluctuations between USD and INR and the Company has used foreign currency forward agreements to manage its exposure to fluctuations in the USD-INR exchange rate. This involves fixing the USD-INR exchange rate for delivery of a specified amount of INR on a specified date. The currency forward agreements are cash settled in USD for their fair value at or close to their settlement date.

For derivatives designated and that qualify as cash flow hedges of foreign exchange risk for accounting purposes, the gain or loss on the derivative is recorded in Accumulated other comprehensive income (“OCI”). The earnings recognition of excluded components is presented in the same income statement line item as the earnings effect of the hedged transaction. All contracts have historically had maturities of less than 12 months.
As of March 31, 2022, the Company did not have any outstanding foreign currency derivatives to hedge its foreign exchange risks.
Non-designated Derivatives
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting.
To reduce exposure to variability in expected future cash outflows on variable rate debt attributable to the changes in LIBOR, the Company has entered into interest rate swaps to economically offset a portion of this risk.
Additionally, the Company electively de-designates currency forward agreements previously designated as cash flow hedges prior to their maturity due to administrative constraints.
Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.
As of March 31, 2022, the Company had the following outstanding derivative that was not designated as a hedge in qualifying hedging relationships:
ProductNumber of instrumentsEffective DateMaturity DateNotional
Interest Rate Swap1June 30, 2021June 30, 2022
$306.1 million USD
All financial derivative instruments are carried at their fair value on the balance sheet. The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the unaudited condensed consolidated balance sheets as of December 31, 2021 and March 31, 2022.
 Liability Derivatives
(in thousands)
As of December 31, 2021
As of March 31, 2022
Derivatives not designated as hedging instruments:    
Interest rate swapsOther current liabilities$4,102 Other current liabilities$1,639 
Total interest rate swaps $4,102  $1,639 


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The tables below present the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income for the three months ended March 31, 2021 and 2022:
 Three Months Ended
March 31,
Three Months Ended
March 31,
(in thousands)2021202220212022
Derivatives in Hedging RelationshipsAmount of Loss Recognized in OCI on Derivative (Included Component)Location of Gain Reclassified from Accumulated OCI into IncomeAmount of Gain Reclassified from Accumulated OCI into Income (Included Component)
   Cost of revenues$32 $ 
Foreign exchange contracts$(32)$ Selling general and administrative57
Total$(32)$  $89 $ 
 Three Months Ended
March 31,
Three Months Ended
March 31,
(in thousands)2021202220212022
Derivatives in Hedging RelationshipsAmount of Gain Recognized in OCI on Derivative (Excluded Component)Location of Gain Reclassified from Accumulated OCI into IncomeAmount of Gain Reclassified from Accumulated OCI into Income (Excluded Component)
   Cost of revenues$44 $ 
Foreign exchange contracts$108 $ Selling general and administrative77
Total$108 $  $121 $ 

The tables below present the effect of the Company’s financial derivative instruments on the unaudited condensed consolidated statements of income and comprehensive income for the three months ended March 31, 2021 and 2022:
 Three Months Ended March 31,
(in thousands)20212022
Selling
General, and Administrative
Cost of RevenuesSelling
General, and Administrative
Cost of Revenues
Total amounts of income and expense line items in which the effects of fair value or cash flow hedges are recorded$29,606 $67,579 $42,333 $100,956 
Gain on cash flow hedging relationships    
Foreign exchange contracts:    
Amount of gain reclassified from accumulated other comprehensive income into income5732
Amount excluded from effectiveness testing recognized in earnings7744
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The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments in the unaudited condensed consolidated statements of income and comprehensive income for the three months ended March 31, 2021 and 2022:
  Three Months Ended
March 31,
(in thousands) 20212022
Derivatives Not Designated as Hedging Instruments
Interest rate swapsGain on interest rate swaps$(46)$(328)
Foreign exchange contractsSelling general and administrative41
Foreign exchange contractsCost of revenues23
Total $18 $(328)
12.    Income Taxes
The computation of the provision for or benefit from income taxes for interim periods is determined by applying the estimated annual effective tax rate to year-to-date income before tax and adjusting for discrete tax items recorded in the period, if any.
The Company recorded a tax provision of $0.5 million and $4.1 million for the three months ended March 31, 2021 and 2022, respectively, which resulted in an effective tax rate of 45.6% and 39.6%, respectively. For the three months ended March 31, 2021 and 2022, the effective rate differs from the statutory rate mainly due to a jurisdictional mix of earnings and permanent items.
13.    Commitments and Contingencies
NCC Acquisition
In conjunction with the 2018 acquisition of National Crime Check Pty Ltd. (“NCC”), the purchase agreement contained an earn-out provision whereby if NCC exceeded defined revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets for the fiscal years 2019 through 2021, the Company would pay the former stockholder of NCC an aggregate amount not to exceed approximately $9.1 million over three installments after the completion of each respective period. For fiscal year 2020, $0.9 million was earned and was paid to the former stockholder in March 2021. For fiscal year 2021, $1.0 million was earned and was paid to the former stockholder in September 2021. No further earn-out amounts are payable under the purchase agreement.
14.    Equity
Under the Company’s Amended and Restated Certificate of Incorporation, a total of 1,100,000,000 shares of all classes of stock are authorized, divided as follows:
(i)1,000,000,000 shares of common stock, par value $0.01 per share; and
(ii)100,000,000 shares of undesignated preferred stock, par value $0.01 per share (“preferred stock”).
Each share of common stock is entitled to one vote on all matters on which holders of common stock are entitled to vote generally. Holders of common stock are entitled to be paid ratably any dividends as may be declared by the Board of Directors (in its sole discretion), subject to any preferential dividend rights of outstanding preferred stock (if any). No dividends have been declared or paid on the Company’s common stock through March 31, 2022.
The Board of Directors is authorized to direct the issuance of the undesignated preferred stock in one or more series and to fix the designation of such series, the powers (including voting powers), preferences and relative, participating, optional and other special rights, and the qualifications, limitations or restrictions thereof, of such series of preferred stock and the number of shares of such series.
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15.    Stock-Based Compensation
Stock-based compensation expense is recognized in cost of revenues, corporate, technology and production systems, and selling, general, and administrative expense in the accompanying unaudited condensed consolidated statements of income and comprehensive income as follows:
 Three Months Ended
March 31,
 2021