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Share-Based Compensation | 12 Months Ended
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Dec. 31, 2022
Share-Based Payment Arrangement [Abstract] |
Share-based Compensation | Note 10. Share-based Compensation Share-based compensation expense is recognized in cost of services, product and technology expense, and selling, general, and administrative expense, in the accompanying consolidated statements of operations and comprehensive income (loss) as follows (in thousands):
|  | Successor |  |  |  | Predecessor |
|  | Year Ended December 31, 2022 |  |  | Year Ended December 31, 2021 |  |  | Period from February 1, 2020 through December 31, 2020 |  |  |  | Period from January 1, 2020 through January 31, 2020 |
Share-based compensation expense |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of services |  | $ | 1,103 |  |  | $ | 163 |  |  | $ | 100 |  |  |  | $ | 156 |
Product and technology expense |  |  | 1,351 |  |  |  | 459 |  |  |  | 179 |  |  |  |  | — |
Selling, general, and administrative expense |  |  | 5,402 |  |  |  | 8,908 |  |  |  | 1,597 |  |  |  |  | 3,820 |
Total share-based compensation expense |  | $ | 7,856 |  |  | $ | 9,530 |  |  | $ | 1,876 |  |  |  | $ | 3,976 |
Predecessor Plan Prior to the Silver Lake Transaction, all share-based awards were issued to employees under the Predecessor Plan. This plan was dissolved as of the closing date of the Silver Lake Transaction. 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. A summary of the option unit activity under the Predecessor Plan for the period from January 1, 2020 to January 31, 2020 (Predecessor) is as follows:
|  |  |  | Class B |  |  | Class C |
|  |  |  | Options |  |  | Weighted Average Exercise Price |  |  | Options |  |  | Weighted Average Exercise Price |
December 31, 2019 |  | Grants outstanding |  |  | 331,666 |  |  | $ | 1.45 |  |  |  | 3,788,768 |  |  | $ | 2.00 |
|  | Forfeited |  |  | — |  |  | $ | — |  |  |  | (72,500 | ) |  | $ | 2.00 |
January 31, 2020 |  | Grants outstanding |  |  | 331,666 |  |  | $ | 1.45 |  |  |  | 3,716,268 |  |  | $ | 2.00 |
January 31, 2020 |  | Grants vested |  |  | 271,666 |  |  | $ | 1.45 |  |  |  | 3,206,998 |  |  | $ | 2.00 |
January 31, 2020 |  | Grants unvested |  |  | 60,000 |  |  | $ | 1.45 |  |  |  | 509,270 |  |  | $ | 2.00 |
Successor Plan 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”). 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 December 31, 2021 (Successor). T he fair value for awards granted during the period from February 1, 2020 through December 31, 2020 (Successor) was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighed average assumptions:
|  | Period from February 1, 2020 through December 31, 2020 |
|  | Class B |  |  | Class C |
Expected stock price volatility |  |  | 30.90 | % |  |  | 30.08 | %
Risk-free interest rate |  |  | 1.28 | % |  |  | 1.47 | %
Expected term (in years) |  |  | 6.25 |  |  |  | 6.25 |
Estimated fair-value of the underlying unit |  | $ | 10.06 |  |  | $ | 10.00 |
A summary of the profits interest unit activity under the Successor Plan for the period from February 1, 2020 through December 31, 2020 (Successor) and the year ended December 31, 2021 (Successor) is as follows:
|  |  |  | Class C Units |
February 1, 2020 |  | Grants Outstanding |  |  | — |
|  | Issued |  |  | 4,501,056 |
|  | Forfeited |  |  | (643,008 | )
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 | )
December 31, 2021 |  | Grants outstanding |  |  | — |
A summary of the option unit activity under the Successor Plan for the period from February 1, 2020 through December 31, 2020 (Successor) and for the year ended December 31, 2021 (Successor) is as follows:
|  |  |  | Options |  |  | Weighted Average Exercise Price |
February 1, 2020 |  | Grants Outstanding |  |  | — |  |  | $ | — |
|  | Issued |  |  | 2,867,694 |  |  | $ | 10.06 |
|  | Forfeited |  |  | (133,960 | ) |  | $ | 10.00 |
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 |
December 31, 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 |  |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value
December 31, 2021 |  | Grants outstanding |  |  | 3,519,563 |  |  | $ | 6.66 |  |  |  |  |
|  | Grants exercised |  |  | (372,254 | ) |  | $ | 6.68 |  |  |  |  |
|  | Grants cancelled/forfeited |  |  | (303,967 | ) |  | $ | 6.61 |  |  |  |  |
December 31, 2022 |  | Grants outstanding |  |  | 2,843,342 |  |  | $ | 6.66 |  |  | 7.2 Years |  | $18.0 million
December 31, 2022 |  | Grants vested |  |  | 648,926 |  |  | $ | 6.65 |  |  | 7.0 Years |  | $4.1 million
December 31, 2022 |  | Grants unvested |  |  | 2,194,416 |  |  | $ | 6.67 |  |  |  |  |
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, restricted stock units, and other equity-based or cash-based awards as determined by the Company’s Compensation Committee. The 2021 Equity Plan initially had 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 December 31, 2022, 13,578,273 shares were available for issuance under the 2021 Equity Plan. Stock Options Stock options issued immediately prior to the IPO 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. Stock options issued after the IPO vest annually, generally over four or five years. Stock options generally expire ten years after the grant date. A summary of the option activity for the year ended December 31, 2022 (Successor) is as follows:
|  |  |  | Options |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value |
December 31, 2021 |  | Grants outstanding |  |  | 3,714,540 |  |  | $ | 15.33 |  |  |  |  |  |
|  | Grants issued |  |  | 608,122 |  |  | $ | 14.68 |  |  |  |  |  |
|  | Grants cancelled/forfeited |  |  | (11,000 | ) |  | $ | 17.52 |  |  |  |  |  |
December 31, 2022 |  | Grants outstanding |  |  | 4,311,662 |  |  | $ | 15.24 |  |  | 8.7 Years |  | $ | — |
December 31, 2022 |  | Grants vested |  |  | 1,054,302 |  |  | $ | 15.20 |  |  | 8.5 Years |  | $ | — |
December 31, 2022 |  | Grants unvested |  |  | 3,257,360 |  |  | $ | 15.25 |  |  |  |  |  |
The fair value for stock options granted for the year ended December 31, 2022 and 2021 (Successor) was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighed average assumptions:
|  | Successor |  |  | Successor |
|  | December 31, 2022 |  |  | December 31, 2021 |
Expected stock price volatility |  |  | 34.66 | % |  |  | 38.67 | %
Risk-free interest rate |  |  | 2.77 | % |  |  | 1.06 | %
Expected term (in years) |  |  | 6.23 |  |  |  | 5.91 |
Fair-value of the underlying unit |  | $ | 14.68 |  |  | $ | 15.33 |
Restricted Stock Units Restricted stock units (“RSU”) generally vest annually over three to five years. A summary of the RSU activity for the year ended December 31, 2022 (Successor) is as follows:
|  |  |  | Shares |  |  | Weighted Average Grant Date Fair Value |
December 31, 2021 |  | Nonvested RSUs |  |  | 340,875 |  |  | $ | 17.19 |
|  | Granted |  |  | 203,032 |  |  | $ | 14.36 |
|  | Vested |  |  | (67,175 | ) |  | $ | 16.96 |
|  | Forfeited |  |  | (4,400 | ) |  | $ | 17.52 |
December 31, 2022 |  | Nonvested RSUs |  |  | 472,332 |  |  | $ | 16.00 |
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 for the year ended December 31, 2022 (Successor) is as follows:
|  |  |  | Shares |  |  | Weighted Average Grant Date Fair Value |
December 31, 2021 |  | Nonvested restricted stock |  |  | 2,613,359 |  |  | $ | 3.85 |
|  | Granted |  |  | — |  |  | $ | — |
|  | Vested |  |  | (332,059 | ) |  | $ | 3.85 |
December 31, 2022 |  | Nonvested restricted stock |  |  | 2,281,300 |  |  | $ | 3.85 |
During the IPO and the November 2021 Follow-On, certain of the Company’s investors realized cash returns. As a result, a portion of the performance based vesting on various awards were considered to have vested during the year ended December 31, 2021 (Successor). This vesting resulted in the recognition of an incremental $3.9 million of share-based compensation expense for the year ended December 31, 2021 (Successor). As of December 31, 2022 (Successor), the Company had approximately $34.8 million of unrecognized pre-tax non-cash compensation expense, comprised of approximately $7.6 million related to restricted stock, $6.4 million related to RSUs, and approximately $20.8 million related to stock options, which the Company expects to recognize over a weighted average period of 2.9 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. The Company recorded an associated expense of approximately $0.4 million for the year ended December 31, 2022 (Successor). Excess Tax Benefits The Company recognized excess tax benefits of approximately $0.5 million and $0.2 million associated with equity award exercises and vesting in its income tax expense for the year ended December 31, 2022 and 2021 (Successor), respectively. The Company did no t recognize any excess tax benefits for the period from February 1, 2020 through December 31, 2020 (Successor) or for the period from January 1, 2020 through January 31, 2020 (Predecessor).

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