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Share-Based Compensation | 9 Months Ended
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Sep. 30, 2021
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] |
Share-Based Compensation | Note 10. Share-based Compensation Prior to the Silver Lake Transaction, all share-based awards were issued to employees under the STG-Fairway Holdings, LLC Equity Incentive Plan (“Predecessor Plan”). This plan was dissolved as of the closing date of the Silver Lake Transaction. After the Silver Lake Transaction and prior to the IPO, all share-based awards were issued by Fastball Holdco, L.P., the Company's previous parent company under individual grant agreements and the partnership agreement of such parent company (collectively the “Successor Plan”). Share-based compensation expense is recognized in cost of services, product and technology expense, and selling, general, and administrative expense, in the accompanying condensed consolidated statements of operations and comprehensive income (loss) as follows (in thousands):
|  | Three-Month Period |  |  | Nine-Month Period |
|  | Successor |  |  |  | Predecessor |
|  | Three Months Ended September 30, 2021 |  |  | Three Months Ended September 30, 2020 |  |  | Nine Months Ended September 30, 2021 |  |  | Period from February 1, 2020 through September 30, 2020 |  |  |  | Period from January 1, 2020 through January 31, 2020 |
Share-based compensation expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of services |  | $ | 3 |  |  | $ | 28 |  |  | $ | 76 |  |  | $ | 69 |  |  |  | $ | 156 |
Product and technology expense |  |  | 55 |  |  |  | 50 |  |  |  | 176 |  |  |  | 127 |  |  |  |  | — |
Selling, general, and administrative expense |  |  | 1,285 |  |  |  | 452 |  |  |  | 4,317 |  |  |  | 1,135 |  |  |  |  | 3,820 |
Total share-based compensation expense |  | $ | 1,343 |  |  | $ | 530 |  |  | $ | 4,569 |  |  | $ | 1,331 |  |  |  | $ | 3,976 |
Predecessor Plan Class B awards issued under the Predecessor Plan consisted of options and profits interests and generally vested over five years at a rate of 20% per year. The Class B options issued under the Predecessor Plan generally expired ten years after the grant date. Class C awards issued under the Predecessor Plan consisted of options and profits interests and generally vested based on two criteria (50% each): (1) Time — awards vested over five years at a rate of 20% per year; and (2) Performance — awards vested based on the Company achieving certain revenue growth and EBITDA targets or on achieving certain enterprise value targets upon the sale of the Company. The Class C options issued under the Predecessor Plan generally expired ten years after the grant date. There were 1,700,051 Class B profits interests and 12,621,955 Class C profits interests under the Predecessor Plan for the period from January 1, 2020 through January 31, 2020 (Predecessor). As of January 31, 2020, all profit interest grants were vested. As a result of the Silver Lake Transaction, certain awards issued under the Predecessor Plan were granted accelerated vesting upon the closing of the transaction. In accordance with ASC 718, Compensation – Stock Compensation, the Company recorded the additional associated expense of approximately $3.9 million in the period from January 1, 2020 through January 31, 2020 (Predecessor). All remaining unvested awards were forfeited. Successor Plan Awards issued under the Successor Plan consist of options and profits interests and vest based on two criteria (50% each): (1) Time — awards vest over five years at a rate of 20% per year; and (2) Performance — awards vest based upon a combination of the five year time vesting, subject to the Company’s investors receiving a targeted money-on-money return. Options issued under the Successor Plan generally expire ten years after the grant date. No awards were issued under the plan during the period from January 1, 2021 through September 30, 2021 (Successor). Prior to the IPO, the fair value for awards granted during the period from February 1, 2020 through September 30, 2020 (Successor) was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighed average assumptions:
|  | 2020 Class B |  |  | 2020 Class C |
Expected stock price volatility |  |  | 30.57 | % |  |  | 30.08 | %
Risk-free interest rate |  |  | 1.36 | % |  |  | 1.47 | %
Expected term (in years) |  |  | 6.25 |  |  |  | 6.25 |
Estimated fair-value of the underlying unit |  | $ | 10.00 |  |  | $ | 10.00 |
A summary of the profits interest unit activity under the Successor Plan for the period from January 1, 2021 to September 30, 2021 (Successor) is as follows:
|  |  | Class C Units |
December 31, 2020 | Grants outstanding |  |  | 3,858,048 |
| Exchanged for common stock in the Company |  |  | (411,720 | )
| Exchanged for restricted stock in the Company |  |  | (3,446,328 | )
September 30, 2021 | Grants outstanding |  |  | — |
A summary of the option unit activity under the Successor Plan for the period from January 1, 2021 to September 30, 2021 (Successor) is as follows:
|  |  | Options |  |  | Weighted Average Exercise Price |
December 31, 2020 | Grants outstanding |  |  | 2,733,734 |  |  | $ | 10.06 |
| Exercised |  |  | (24,112 | ) |  | $ | 10.00 |
| Forfeited |  |  | (107,168 | ) |  | $ | 10.00 |
| Exchanged for options in the Company |  |  | (2,602,454 | ) |  | $ | 10.07 |
September 30, 2021 | Grants outstanding |  |  | — |  |  |  |
In connection with the Company's IPO, the Company's parent was dissolved. Awards issued by the Company's parent were converted in accordance with non-discretionary anti-dilution provisions of the Successor grants as follows:  All vested outstanding profits interest grants issued by the Company’s parent were converted to common stock in the Company and all unvested outstanding profits interest grants issued by the Company’s parent were converted to restricted stock in the Company under the 2021 Omnibus Incentive Plan (the “2021 Equity Plan”). The number of common stock and restricted stock shares issued to each profits interest holder was ratably adjusted to preserve the fair value of the awards. Additionally, the vesting conditions and equity classification of the awards remained unchanged as a result of the conversion.  All outstanding stock option grants issued by the Company’s parent were converted into stock options issued by the Company under the terms of the individual grant agreements. The number of options granted and the strike price of the options was ratably adjusted using an exchange ratio calculated to preserve the fair value of the awards. Additionally, the vesting, vesting conditions, and equity classification of the awards remained unchanged as a result of the conversion.
|  |  | Options |  |  | Weighted Average Exercise Price |
December 31, 2020 | Grants outstanding |  |  | — |  |  | $ | — |
| Grants issued in exchange for options in the Company’s Parent |  |  | 3,938,491 |  |  | $ | 6.65 |
| Grants exercised |  |  | (28,262 | ) |  | $ | 6.61 |
| Grants cancelled/forfeited |  |  | (283,816 | ) |  | $ | 6.61 |
September 30, 2021 | Grants outstanding |  |  | 3,626,413 |  |  | $ | 6.63 |
September 30, 2021 | Grants vested |  |  | 349,018 |  |  | $ | 6.61 |
September 30, 2021 | Grants unvested |  |  | 3,277,395 |  |  | $ | 6.63 |
2021 Equity Plan In connection with the IPO, the Company adopted the 2021 Equity Plan. The 2021 Equity Plan is intended to provide a means through which to attract and retain key personnel and to provide a means whereby our directors, officers, employees, consultants and advisors can acquire and maintain an equity interest in us, or be paid incentive compensation, including incentive compensation measured by reference to the value of our common stock, thereby strengthening their commitment to our welfare and aligning their interests with those of our stockholders. The 2021 Equity Plan provides for the grant of awards of stock options, stock appreciation rights, restricted shares, and restricted stock units, and other equity-based or cash-based awards as determined by the Company’s Compensation Committee. The 2021 Equity Plan has a total of 17,525,000 shares of common stock reserved. The number of reserved shares automatically increases on the first day of each calendar year commencing on January 1, 2022 and ending on January 1, 2030 in an amount equal to the lesser of (x) 2.5% of the total number of shares of common stock outstanding on the last day of the immediately preceding calendar year and (y) a number of shares as determined by the Board of Directors. As of September 30, 2021, 11,339,126 shares were available for issuance under the 2021 Equity Plan. Stock Options Stock options issued immediately prior to the IPO under this 2021 Equity Plan vest based on two criteria (50% each): (1) Time — awards vest over five years at a rate of 20% per year; and (2) Performance — awards vest based upon a combination of the five year time vesting, subject to the Company’s investors receiving a targeted money-on-money return. Options issued under the 2021 Equity Plan generally expire ten years after the grant date. A summary of the option activity under the 2021 Equity Plan for the period from June 21, 2021 (the effective date of the 2021 Equity Plan) to September 30, 2021 (Successor) is as follows:
|  |  | Options |  |  | Weighted Average Exercise Price |
June 21, 2021 | Grants outstanding |  |  | — |  |  | $ | — |
| Grants issued |  |  | 3,222,790 |  |  | $ | 15.00 |
September 30, 2021 | Grants outstanding |  |  | 3,222,790 |  |  | $ | 15.00 |
September 30, 2021 | Grants vested |  |  | 343,926 |  |  | $ | 15.00 |
September 30, 2021 | Grants unvested |  |  | 2,878,864 |  |  | $ | 15.00 |
The fair value for options granted under the 2021 Equity Plan during the period from June 21, 2021 to September 30, 2021 (Successor) was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighed average assumptions:
|  | Options |
Expected stock price volatility |  |  | 38.60 | %
Risk-free interest rate |  |  | 1.02 | %
Expected term (in years) |  |  | 5.84 |
Estimated fair-value of the underlying unit |  | $ | 15.00 |
Restricted Stock Units Restricted stock units (“RSU”) issued under the 2021 Equity Plan generally vested over three years at a rate of one-third per year. A summary of the RSU activity under the 2021 Equity Plan for the period from June 21, 2021 to September 30, 2021 (Successor) is as follows:
|  |  | Shares |
June 21, 2021 | Nonvested RSUs |  |  | — |
| Granted |  |  | 45,000 |
| Vested |  |  | — |
September 30, 2021 | Nonvested RSUs |  |  | 45,000 |
Restricted Stock The following table summarizes the restricted stock issued by the Company. These include grants of unvested Successor profits interests grants that were converted into restricted stock as described above, as well as restricted stock issued to new recipients. The restricted stock granted as a result of the conversion of Successor profits interests retain the vesting attributes (including original service period vesting start date) of the original award. A summary of the restricted stock activity under the 2021 Equity Plan for the period from June 21, 2021 to September 30, 2021 (Successor) is as follows:
|  |  | Shares |
June 21, 2021 | Nonvested restricted stock |  |  | — |
| Grants issued in exchange for unvested profits interests in the Company’s Parent |  |  | 2,918,084 |
| Vested |  |  | — |
September 30, 2021 | Nonvested restricted stock |  |  | 2,918,084 |
As of September 30, 2021 (Successor), the Company had approximately $33.1 million of unrecognized pre-tax noncash compensation expense, comprised of approximately $10.4 million related to restricted stock agreements, $0.6 million related to restricted stock units, and approximately $22.1 million related to stock options, which the Company expects to recognize over a weighted average period of 3.3 years. 2021 Employee Stock Purchase Plan On June 25, 2021, in connection with the IPO, the Company adopted the First Advantage Corporation 2021 Employee Stock Purchase Plan (“ESPP”) that allows eligible employees to voluntarily make after-tax contributions of up to 15% of such employee’s cash compensation to acquire Company stock during designated offering periods. During each offering period, there will be one six-month purchase period, which will have the same duration and coincide with the length of the offering period. During the holding period, ESPP purchased shares are not eligible for sale or broker transfer. There were no stock employee purchase offerings during the three and nine months ended September 30, 2021 (Successor) and accordingly no eligible employees were enrolled in the ESPP during the three and nine months ended September 30, 2021 (Successor).

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