UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2004
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: 000-50285
FIRST ADVANTAGE CORPORATION
(Exact name of registrant as specified in its charter)
| Incorporated in Delaware | 61-1437565 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
One Progress Plaza, Suite 2400
St. Petersburg, Florida 33701
(Address of principal executive offices, including zip code)
(727) 214-3411
(Registrant’s telephone number, including area code)
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 x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
There were 5,420,250 shares of outstanding Class A Common Stock of the registrant as of May 5, 2004.
There were 16,027,286 shares of outstanding Class B Common Stock of the registrant as of May 5, 2004.
INDEX
| Part I. FINANCIAL INFORMATION |
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| Item 1. |
Financial Statements | |||
| Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003 | ||||
| Consolidated Statements of Income for the Three Months Ended March 31, 2004 and March 31, 2003 | ||||
| Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2004 | ||||
| Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and March 31, 2003 | ||||
| Notes to Consolidated Financial Statements | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | |||
| Item 4. |
Controls and Procedures | |||
| Part II. OTHER INFORMATION |
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| Item 1. |
Legal Proceedings | |||
| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities | |||
| Item 3. |
Defaults Upon Senior Securities | |||
| Item 4. |
Submission of Matters to a Vote of Security Holders | |||
| Item 5. |
Other Information | |||
| Item 6. |
Exhibits and Reports on Form 8-K | |||
2
| Item 1. | Financial Statements |
First Advantage Corporation
Consolidated Balance Sheets (Unaudited)
| March 31, 2004 |
December 31, 2003 | |||||
| Assets |
||||||
| Current assets: |
||||||
| Cash and cash equivalents |
$ | 7,480,000 | $ | 5,637,000 | ||
| Accounts receivable (less allowance for doubtful accounts of $1,559,000 and $1,327,000 in 2004 and 2003, respectively) |
31,306,000 | 23,672,000 | ||||
| Income taxes receivable |
1,310,000 | 1,282,000 | ||||
| Due from affiliates |
380,000 | — | ||||
| Prepaid expenses and other current assets |
2,106,000 | 2,512,000 | ||||
| Total current assets |
42,582,000 | 33,103,000 | ||||
| Property and equipment, net |
19,376,000 | 19,719,000 | ||||
| Goodwill |
223,797,000 | 204,710,000 | ||||
| Intangible assets, net |
22,254,000 | 18,528,000 | ||||
| Database development costs, net |
7,321,000 | 7,162,000 | ||||
| Other assets |
1,292,000 | 678,000 | ||||
| Total assets |
$ | 316,622,000 | $ | 283,900,000 | ||
| Liabilities and Stockholders’ Equity |
||||||
| Current liabilities: |
||||||
| Accounts payable |
$ | 6,120,000 | $ | 4,211,000 | ||
| Accrued compensation |
9,055,000 | 9,373,000 | ||||
| Accrued liabilities |
11,390,000 | 6,327,000 | ||||
| Due to affiliates |
— | 992,000 | ||||
| Current portion of long-term debt and capital leases |
9,295,000 | 7,231,000 | ||||
| Total current liabilities |
35,860,000 | 28,134,000 | ||||
| Long-term debt and capital leases, net of current portion |
26,548,000 | 13,473,000 | ||||
| Deferred income taxes |
1,582,000 | — | ||||
| Other liabilities |
1,863,000 | 1,957,000 | ||||
| Total liabilities |
65,853,000 | 43,564,000 | ||||
| Commitments and contingencies |
||||||
| Stockholders’ equity: |
||||||
| Preferred stock, $.001 par value; 1,000,000 shares authorized, no shares issued or outstanding |
— | — | ||||
| Class A common stock, $.001 par value; 75,000,000 shares authorized; 5,392,757 and 4,866,362 shares issued and outstanding as of March 31, 2004 and December 31, 2003, respectively |
5,000 | 5,000 | ||||
| Class B common stock, $.001 par value; 25,000,000 shares authorized; 16,027,286 shares issued and outstanding as of March 31, 2004 and December 31, 2003 |
16,000 | 16,000 | ||||
| Additional paid-in capital |
242,895,000 | 233,101,000 | ||||
| Retained earnings |
7,853,000 | 7,214,000 | ||||
| Total stockholders’ equity |
250,769,000 | 240,336,000 | ||||
| Total liabilities and stockholders’ equity |
$ | 316,622,000 | $ | 283,900,000 | ||
The accompanying notes are an integral part of these consolidated financial statements.
3
First Advantage Corporation
Consolidated Statements of Income
For the Three Months Ended March 31, 2004 and 2003 (Unaudited)
| For the Three Months Ended March 31, |
||||||||||||
| 2004 |
2003 |
|||||||||||
| Service revenue |
$ | 45,959,000 | $ | 24,184,000 | ||||||||
| Reimbursed government fee revenue |
11,474,000 | 7,357,000 | ||||||||||
| Total revenue |
57,433,000 | 31,541,000 | ||||||||||
| Cost of service revenue |
13,981,000 | 6,462,000 | ||||||||||
| Government fees paid |
11,474,000 | 7,357,000 | ||||||||||
| Total cost of service |
25,455,000 | 13,819,000 | ||||||||||
| Gross margin |
31,978,000 | 17,722,000 | ||||||||||
| Salaries and benefits |
17,712,000 | 10,525,000 | ||||||||||
| Other operating expenses |
10,304,000 | 4,716,000 | ||||||||||
| Depreciation and amortization |
2,640,000 | 1,779,000 | ||||||||||
| Total operating expenses |
30,656,000 | 17,020,000 | ||||||||||
| Income from operations |
1,322,000 | 702,000 | ||||||||||
| Other (expense) income: |
||||||||||||
| Interest expense |
(231,000 | ) | (19,000 | ) | ||||||||
| Interest income |
11,000 | 11,000 | ||||||||||
| Total other (expense), net |
(220,000 | ) | (8,000 | ) | ||||||||
| Income before income taxes |
1,102,000 | 694,000 | ||||||||||
| Provision for income taxes |
463,000 | 364,000 | ||||||||||
| Net income |
$ | 639,000 | $ | 330,000 | ||||||||
| Per share amounts: |
||||||||||||
| Basic |
$ | 0.03 | N/A | |||||||||
| Diluted |
$ | 0.03 | N/A | |||||||||
| Weighted-average common shares outstanding: |
||||||||||||
| Basic |
21,155,223 | N/A | ||||||||||
| Diluted |
21,346,133 | N/A | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
First Advantage Corporation
Consolidated Statements of Changes in Stockholders’ Equity
For the Three Months Ended March 31, 2004 (Unaudited)
| Common Shares |
Common Stock Amount |
Additional Capital |
Retained Earnings |
Total | ||||||||||||||
| Balance at December 31, 2003 |
20,893,648 | $ | 21,000 | $ | 233,101,000 | $ | 7,214,000 | $ | 240,336,000 | |||||||||
| Net income |
— | — | 639,000 | 639,000 | ||||||||||||||
| Class A Shares issued in connection with acquisitions |
522,825 | — | 9,704,000 | — | 9,704,000 | |||||||||||||
| Class A Shares issued in connection with stock option plan and employee stock purchase plan |
3,570 | — | 90,000 | — | 90,000 | |||||||||||||
| Balance at March 31, 2004 |
21,420,043 | $ | 21,000 | $ | 242,895,000 | $ | 7,853,000 | $ | 250,769,000 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
First Advantage Corporation
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2004 and 2003 (Unaudited)
| For the Three Months Ended March 31, |
||||||||||||||||
| 2004 |
2003 |
|||||||||||||||
| Cash flows from operating activities: |
||||||||||||||||
| Net income |
$ | 639,000 | $ | 330,000 | ||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||||||
| Depreciation and amortization |
2,640,000 | 1,779,000 | ||||||||||||||
| Change in operating assets and liabilities, net of acquisitions: |
||||||||||||||||
| Accounts receivable |
(4,978,000 | ) | (2,145,000 | ) | ||||||||||||
| Prepaid expenses and other current assets |
428,000 | 78,000 | ||||||||||||||
| Other assets |
(1,140,000 | ) | 178,000 | |||||||||||||
| Accounts payable |
1,344,000 | (640,000 | ) | |||||||||||||
| Accrued liabilities |
4,361,000 | 759,000 | ||||||||||||||
| Due to (from) affiliates |
(1,372,000 | ) | — | |||||||||||||
| Income taxes |
273,000 | 364,000 | ||||||||||||||
| Accrued compensation and other liabilities |
(480,000 | ) | 90,000 | |||||||||||||
| Net cash provided by operating activities |
1,715,000 | 793,000 | ||||||||||||||
| Cash flows from investing activities: |
||||||||||||||||
| Database development costs |
(543,000 | ) | (590,000 | ) | ||||||||||||
| Purchases of property and equipment |
(1,083,000 | ) | (632,000 | ) | ||||||||||||
| Cash paid for acquisitions |
(7,028,000 | ) | — | |||||||||||||
| Cash balance of companies acquired |
346,000 | — | ||||||||||||||
| Net cash used in investing activities |
(8,308,000 | ) | (1,222,000 | ) | ||||||||||||
| Cash flows from financing activities: |
||||||||||||||||
| Proceeds from long-term debt |
10,500,000 | — | ||||||||||||||
| Repayment of long-term debt |
(2,154,000 | ) | (227,000 | ) | ||||||||||||
| Cash contributions from First American |
— | 823,000 | ||||||||||||||
| Proceeds from class A shares issued in connection with stock option plan and employee stock purchase plan |
90,000 | — | ||||||||||||||
| Net cash provided by financing activities |
8,436,000 | 596,000 | ||||||||||||||
| Increase in cash and cash equivalents |
1,843,000 | 167,000 | ||||||||||||||
| Cash and cash equivalents at beginning of period |
5,637,000 | 6,514,000 | ||||||||||||||
| Cash and cash equivalents at end of period |
$ | 7,480,000 | $ | 6,681,000 | ||||||||||||
| Supplemental disclosures of cash flow information: |
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| Cash paid for interest |
$ | 229,000 | $ | 19,000 | ||||||||||||
| Non-cash investing and financing activities: |
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| Class A shares issued in connection with acquisitions |
$ | 9,704,000 | $ | — | ||||||||||||
| Debt issued in connection with acquisitions |
$ | 6,500,000 | $ | — | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
First Advantage Corporation
Notes to Consolidated Financial Statements
March 31, 2004 and 2003 (Unaudited)
| 1. | Organization and Nature of Business |
In June 2003, First Advantage Corporation (the “Company”), a holding company, acquired US SEARCH.com and six operating subsidiaries of The First American Corporation (“First American”) that formerly comprised its First American Screening Technologies (“FAST”) division. The operating subsidiaries included HireCheck, Inc., First American Registry, Inc., Substance Abuse Management, Inc., American Driving Records, Inc., Employee Health Programs, Inc., and SafeRent, Inc. First American owns approximately 75% of the shares of capital stock of the Company as of March 31, 2004. The Class B common stock owned by First American is entitled to ten votes per share on all matters presented to the stockholders for vote.
The Company operates in three primary business segments; Enterprise Screening, Risk Mitigation and Consumer Direct. The Enterprise Screening segment includes employment background screening, occupational health services and resident screening services. The Risk Mitigation segment includes motor vehicle records and investigative services. The Consumer Direct segment provides consumers with a single, comprehensive access point to a broad range of information to assist them in locating people and other public data searches.
| 2. | Summary of Significant Accounting Policies |
Basis of Presentation
The consolidated financial information included in this report has been prepared in accordance with the instructions to Form 10-Q and does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments are of a normal recurring nature and are considered necessary for a fair presentation of the results for the interim period. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission. The accompanying consolidat