Q3 2021 Sterling Check Corp Earnings Call

November 10, 2021

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Hello, and welcome to the Sterling third quarter 2021 earnings call. My name is <unk> and I'll be your operator today.

If you'd like to ask a question at the end of the presentation. You can do so by pressing star followed by the number one on your telephone keypad. If you wish to retract your question for any reason please press star followed by the number too.

It is now my pleasure to turn the call over to Judith cycle, Vice President Investor Relations to begin. Please go ahead Judah.

Thank you operator, and welcome to Sterling third quarter 2021 earnings call. Joining me today are Josh correct, Chief Executive Officer of Sterling and Peter Walker, Chief Financial Officer of Sterling. The slides, we will reference during this presentation can be accessed on Sterling's Investor Relations website under news.

And events.

Slides will be posted at the conclusion of this call and a replay will be made available on the website.

After prepared remarks, we will open this call for questions.

Before we discuss our results I encourage all listeners to review the legal notice on slide two which explains the risks of forward looking statements and the use of non-GAAP financial measures. Additionally, please refer to our recently filed final prospectus for a discussion of risk factors that could cause actual results to differ materially from these forward looking statements.

Slide presentation and discussions on this call will include certain non-GAAP financial measures for such measures reconciliation to the most directly comparable GAAP measures are in the appendix to the presentation and in our earnings release issued this morning, I will now turn the call over to Jos Peres.

Thank you Judah good morning, and thank you for joining us on our first quarterly earnings call as a public company.

Sterling third quarter was exceptional we successfully completed our IPO, while delivering record financial results, including 43% organic constant currency revenue growth, 69% adjusted EBIT growth and 168% adjusted EPS growth in addition to <unk>.

Reviewing these results with you today, we will also provide you with 2021 guidance and spend some time discussing the people products and technology that make sterling unique and differentiated.

Before turning to the core of my presentation I am proud to note that on September 23, we completed our IPO of nearly $16 4 million shares approximately 17% of our diluted shares outstanding and we began trading on the NASDAQ global select market under the symbol <unk>.

The offering priced above our range of $23 per share and ended the first day of trading with a market cap of $2 6 billion.

Providing net primary proceeds of approximately $94 $5 million.

Our IPO was a proud moment for Sterling and I would like to thank our team who supported our successful process as well as our clients and partners for the continued support of our business.

I also want to take this opportunity to welcome Judah Socal as our vice President of Investor Relations.

<unk> joins us from Jpmorgan, where he covered the business and information services sector for nearly a decade and we're thrilled to have him join as we embark on this next stage as a public company.

Our hiring of a talent like Judeh demonstrates the value we place in partnering with the investing community I'm sure. Many of you know Judah and he is excited to work with you in his new role.

For those of you who are newer to the Sterling story I would like to share some information about our company and industry, let's start on slide five Sterling is a world class global provider of technology enabled background and identity verification services, we offer a comprehensive suite of tech enabled services.

As in the human capital management or HCM lifecycle area.

We participate in four critical areas of the HCM value chain.

Pre hire identity verification pre hire screening onboarding and post hire monitoring areas.

We are deeply integrated into our clients' HR risk management and compliance functions and our services are mission critical to them.

Clients rely on Sterling to protect their brand and reputation to create great first impressions with candidates through our branded tools that can be white labeled and to be compliant with rules around the world through our compliance by design approach to product development.

Our solutions also enhance clients' organizational efficiency by substituting for their manual processes.

This is essential in the current market, where there is a war for talent and companies need to move with speed and reduce their time to hire.

This has allowed us to serve a highly diversified blue chip global client base.

We have over 47000 clients around the world, including over 50% of the Fortune 100 as clients for whom we have performed over 89 million screens in the last 12 months.

Over the first two and a half years since launching our new corporate strategy at the beginning of 2019, we signed over $150 million in new customer annualized contract value and our momentum and new client wins has notably continued in the months since.

We have also increased our gross client retention rate to 96% a testament to our focus on exceptional client service and a demonstration of our predictable recurring revenue profile.

Our top 100 clients have an average tenure of nine years, and we have very low client concentration risk with our largest client representing less than 5% of revenues and our top 25 clients less than 30% of revenues. Additionally.

Additionally, we have low concentration of clients in any one industry vertical, allowing us to have a balanced portfolio across many sectors in which we operate.

Furthermore, we operate in the cloud and we've invested significantly into technology in order to build a best in class scalable cloud based technology platform over 95% of our revenue is already in the cloud yielding multiple client benefits, including superior availability improved security.

<unk> rapid product launches and the ability to customize and localized service offerings.

We have over 75 platform integrations in addition to our World class API.

Over half of our revenue is integrated today and the percentage continues to increase I will provide additional color on our cloud based technology platform shortly when I discuss our competitive advantages.

Turning to slide six Sterling operates in a highly attractive global market the global background and identity verification industry is large and highly fragmented with a total addressable market of $16 billion as of 2020 and it is growing with the Tam expected to increase at a 12% CAGR.

<unk> to $29 billion by 2025.

Importantly, the majority of this opportunity is outside of the U S, where we have a leading position and are uniquely able to continue capturing that opportunity in the future.

We believe that there are several secular demand drivers that are increasing the need for comprehensive screening and hiring solutions.

The gig economy continues to grow quickly, enabling people to have more than one job at the same time.

With each of those gig relationships involving a background check.

Similarly, the use of contingent Workforces and freelancers continues to increase driving greater needs for background checks.

The ongoing increase in employee churn is also an important driver of growth for us. We've all heard about the great resignation and prevalence of remote work and increased desire for flexibility.

We believe this has led to a structural shift in the workforce, increasing voluntary employee turnover, particularly with millennials and Gen Z.

Another key driver is the greater adoption of background screening outside the U S. Historically international markets have been slower adopters of hiring technology compared to the U S. Many international markets are only just beginning to view employment background checks as critical components of their hiring fun.

Actions, which presents tremendous upside for our business.

The value placed on identity verification is another important secular trend, we see increasing around the world.

Given the rising risk of fraud and identity theft in an increasingly digital world. The market is ready and hungry for digital identity services as a critical step in the pre hire screening process and finally continuous post higher screening processes are increasing as employers look to manage risk in the work.

Place, we are seeing an increased demand for continuous screening and monitoring.

We see an opportunity to capitalize on this growing market and continue to enhance our post hire monitoring solutions, including screening for healthcare sanctions medical licenses motor vehicle registration monitoring and social media monitoring.

All of these dynamics underpin the critical need for employers to access sensitive information through safe and effective background screening capabilities and they support the clear demand, we're seeing for Sterling has deep expertise and tailored solutions.

So what makes sterling unique slide seven summarizes several ways in which we have differentiated ourselves from the competition.

First is our global scale, our international revenue increased 52% year over year on an organic constant currency basis during the third quarter and we see opportunity to continue to grow outside the U S.

The secret to our success internationally is that we empower local leaders and teams to make decisions that serve local customers.

In particular global gig and enterprise clients are driving our international growth.

The next area of differentiation is our Verticalizing business model Sterling go to market strategy is organized around geographies and verticals through which we deliver deep market expertise and thought leadership and exceptional client service.

These are critical elements of our success in both winning new clients and retaining current clients in.

And some organizations verticals or just a way to organize the sales function, but it's sterling. Our vertical teams are fully functional each vertical team is accountable for delivering and their clients that they are empowered to create and drive retention and growth strategies based on their deep understanding of the industry strong relationships with.

Clients and clear view of the white space opportunities. This allows us to have the personal touch of our boutique firm, while also providing the global reach scale and resources of an industry leader.

Technology is another key area of differentiation Sterling is constantly modernizing and we see ourselves as best in class in all elements of the user experience.

We've invested in our technology through a three phased initiative called project ignite.

We are already two thirds of the way complete.

Phase one involve modernizing the experience for our clients and their candidates with state of the art mobile enabled products.

Phase two was our migration to the cloud where we are now running over 95% of our revenue.

Phase III involved the consolidation and decommissioning of our older platforms project.

Project Ignite has transformed our business, particularly around our cloud based technology and product delivery by eliminating.

<unk> on premises infrastructure and the related complexity, we've been able to achieve the highest levels of availability for our clients and provide offerings that are both reliable and scalable.

This shift to the cloud has also resulted in our ability to shift resources to building next gen capabilities and solutions for our clients.

Our advantage in technology extends to how we fulfill orders.

We have been investing for more than a decade with the goal of having the most automated systems in the business delivering the fastest turnaround times with the highest quality and lowest dispute rate among the industry.

In particular, we have over 3000 automation leveraging API as an RPI bought representing over 90% of our U S criminal searches, but for us it's not the number of automation. It's the results it drives for our clients 70% of U S. Criminal screens are completed within the first hour.

Sure and 90% are completed within the first day.

To demonstrate how we put our clients first and delivering results last year at the height of the pandemic, we were able to fulfill searches in at least 98% of U S jurisdictions, even though most courthouses in the country were closed.

Our turnaround times and ability to service clients, even during challenging times are attributes that set us apart and are critical reasons, why we win and retain business.

And finally, we are very differentiated in our approach to identity verification, we do not view identity verification as a product, but rather as a service and a strategic pillar equal to background checking in terms of our growth opportunities. We believe identity should be the first step of any background screening.

<unk> with.

With increasing data breaches and the growth of remote work identity verification as a more powerful tool for employers than ever before especially in the pre hiring process.

We're excited about our exclusive partnership with IDB are best in class identity verification provider with over 60 million verified users.

Through this partnership we will give employers access to candidate data faster and more accurately which in turn speeds up the hiring process identity as a service presents a huge opportunity for us identity verification is not widely adopted today and has a small but growing percentage of our revenues.

And we believe this will become the first step in the majority of all screens over time.

Now, let me comment briefly on our third quarter looking at slide eight we saw strong performance across all regions and industry verticals. Our U S business grew by 41% and our international business grew by 52% on an organic constant currency basis.

We also continued to experience strong client retention of 96% for the trailing 12 month period, ending September 2021 up 300 basis points from the prior year period.

<unk> of our exceptional client service and proactive approach to retention.

And finally, we strengthened our position in the financial services vertical by expanding our identity verification offering through an exclusive partnership with FINRA and exciting opportunity, which we announced yesterday.

In the third quarter, the macroeconomic environment remain positive with the great resignation, continuing and employee turnover broadly remaining a key theme in the employment market our business significantly outpaced U S job growth in the third quarter.

And now I will hand, it over to Peter Walker, our CFO to take you through our financial results for the quarter and full year 2021 guidance Peter.

Thank you, Josh and good morning, everyone before diving into our Q3 results I want to review the key attributes of our financial model on Slide 10, our financial model strength and resilience drives our ability to deliver strong organic growth and continued margin expansion.

We have high predictability in revenue generation as the majority of contracts and revenues are multi year with auto renewal and have exclusivity are primary designation.

We have fixed pricing for the period of the contract with the ability to increase prices annually and there is no termination clause for convenience in our contracts.

We also have a very strong recurring revenue base as Josh mentioned earlier.

All of this results in strong free cash flow generation for the business are highly scalable cloud based technology platform allows us to add new clients and books of business with minimal incremental cost we have high incremental adjusted EBITDA margins with 45% to 50 cents of every.

<unk> revenue dollar dropping to adjusted EBITDA.

Capital requirements in this business are minimal comprising mostly of capitalized software and last we had favorable working capital dynamics with days sales outstanding of approximately 60 days and days payable outstanding of approximately 50 days.

Turning to an overview of our most recent quarterly performance on slide 11, the dynamics of our industry are attractive and we continued to benefit from the trends that Josh mentioned as well as the execution of our growth strategy during the third quarter.

We reported revenues of $169 6 million for the quarter a company record for quarterly revenues. This was a 44% increase compared to the third quarter of 2020, including 43% organic constant currency revenue growth and 1% due to foreign currency.

There was no impact to results from acquisitions in the quarter to $52 million revenue increase included 33% of base growth, including cross sell upsell net of attrition and 11% of new customer growth.

Revenues in our U S business grew 41% compared to the third quarter of 2020, we saw double digit revenue growth in all our industry verticals with particularly exceptional results in our health care and financial and business services vertical as we executed our growth playbook in the U S economy.

<unk> continued its recovery from the impact of the COVID-19 pandemic.

Approximately 18% of revenue was generated outside of the U S. In the third quarter of 2021 compared to approximately 16% of revenue generated outside the U S. In the third quarter of the prior year.

Year over year International revenue grew by 52% on an organic constant currency basis, demonstrating our growing international presence.

All of our international businesses saw strong growth in the third quarter in large part driven by our market leading position in gig in the UK and Asia Pacific.

As a result of our strong topline results and attractive incremental margins third quarter. Adjusted EBITDA was $51 3 million a company record for quarterly adjusted EBITDA. This represents a year over year increase of 69% compared to the third quarter of 2020 and.

Adjusted EBIT margin for the third quarter of 2021 was 33% or 440 basis point expansion from 25, 9% in the prior year period, reflecting incremental adjusted EBITDA margins of 40% in the third quarter and 44 per.

<unk> September year to date. This was the company's second consecutive quarter with record adjusted EBIT margins proving that our net profitability scales as revenues scale.

Looking ahead, our model should continue to drive adjusted EBIT margin expansion as our revenues grow and we take advantage of automation and other cost optimization initiatives to further streamline our cost base.

We had adjusted net income of $31 6 million or <unk> 33 per diluted share in the third quarter of 2021 compared to adjusted net income of $11 million or <unk> 12 per diluted share in the third quarter of 2020. This represents year over year growth in adjusted earnings per share of 100.

<unk>, 68%. This growth was primarily driven by strong year over year revenue growth and improved operating leverage the COO.

Q3 effective tax rate was low due to a change in estimate triggered by tax elections related to global transfer pricing policies I expect the rate to return to 26% for Q4 2021 and full year 2002.

Now I'd like to touch on historical performance and the resilience of our financial model.

As seen on slide 12 from Q1 2020 to Q3 2021, our average year over year organic revenue growth has been 16%, including the drag from COVID-19, which impacted our business most significantly during Q2 and Q3 2020.

Our revenues reflect the broad based macroeconomic slowdown during that period, but performance bounce back very quickly in Q4 2020 as the economy opening back up.

The return to growth in Q4, 2020 set us up well for strong performance, resulting in September 2021, LTM revenue of $597 million.

Looking at our profitability trends on slide 13, you can see adjusted EBITDA has followed a similar path to revenues since Q1, 'twenty, our average year over year growth in adjusted EBIT has been 42%.

We had strong momentum in 2019 that was interrupted by COVID-19, followed by a strong recovery, resulting in September 2021, LTM adjusted EBITDA of $163 million.

Turning to slide 14 year to date, we've generated free cash flow of $58 3 million normalized for onetime cash non operating charges related to the IPO.

This was an increase of $46 million over the prior period and was due to strong revenue growth as well as permanent expense reductions implemented during 2020.

Our Q3 2021 net leverage was two six times net debt to adjusted EBITDA squarely inside our two to three times net leverage target. We ended the third quarter with total debt of $612 million in cash and cash equivalents of $192 4 million or.

Our cash balance is inclusive of $94 5 million of net primary proceeds we received in connection with our IPO.

On November one we used IPO proceeds together with cash on hand to pay down a $100 million.

Of our first lien credit facility.

With this prepayment we had gross debt of $512 million and we've reduced our interest expense by at least $4 5 million annually.

Also in connection with the IPO, we increased the borrowing capacity under our revolving credit facility to $140 million from $85 million and extended the maturity date from June 2022 to August 2026 at Q3 2021 available borrowings under the revolving credit facility.

Net of letters of credit outstanding was $139 3 million.

Let's now turn to slide 15 to touch on our capital allocation priorities first we remain focused on internal investment opportunities new product development and other projects that would increase organic growth and continued improvement in operating leverage through robotics process automation and vendor network optimization.

Second we have a robust pipeline of acquisition opportunities. We are focused on targets that are either small U S. Tuck ins provide us with increased scale in existing international markets or expand into new geographies.

And finally, we are committed to maintaining a strong balance sheet with a targeted long term leverage ratio of two to three times net debt to adjusted EBITDA absent any temporary variations as a result of potential future acquisitions.

On slide 16, we provide our guidance for full year 2021, which is now three quarters complete with continued strong momentum so far in the fourth quarter.

For 2021, we expect to generate revenues of $617 million to $622 million representing year over year growth of 36%, 37% and adjusted EBITDA of $171 million to $175 million representing year over year growth of 71% to 75%.

This guidance assumes a benefit of 100 to 150 basis points from fluctuation in foreign currency and no contribution from acquisition.

Thus, our implied organic constant currency revenue growth for full year 2021 is 35% to 36%.

As you will notice the guidance implies that Q4 'twenty. One we will continue the notable strength we have displayed through the first nine months of 2021.

Albeit at a more moderated pace given that we will be growing over a stronger Q4 'twenty.

Q4, 'twenty, one revenue growth will be driven by favorable macroeconomic tailwind strong base growth robust new client wins industry, leading client retention and continued upsell cross sell.

Our guidance implies an adjusted EBIT margin of 28%, which would be a 600 basis point expansion from 2020 Q4, 'twenty one should continue to benefit from our strong operating leverage and cost discipline and we continue to look for additional ways to optimize our cost base through savings and cost optimization.

<unk> initiatives, including the consolidation of our real estate footprint.

Finally to help with your modeling, we're assuming 2021 capex of approximately $20 million stock based compensation expense at approximately $33 million interest expense of approximately $29 million and a share count of $90 1 million.

And now I will hand, it back to Josh to close with a review of our long term targets.

Thanks Peter.

Slide 18 summarizes our many compelling growth opportunities to continue thriving in the growing background and identity markets. We've already touched on some of these including our momentum in winning new clients geographic expansion.

And exploring strategic M&A in.

In addition to these we see a significant opportunity to increase adoption of new services within our large base of existing clients.

We have a flexible operating model that allows us to increase package density by cross selling and up selling our products with minimal added cost. In fact, we are very successful in cross selling to our clients with over 55% of new clients in the U S purchasing more than one product line and we see the opportunity to further.

Increased package density with products, such as identity and fingerprinting.

We also continue to introduce innovative new products to the market. One such example is a new COVID-19 vaccination verification solution, we launched in the third quarter.

We are also expanding our identity verification offering with our identity wallet and by recently securing an exclusive partnership with FINRA to serve as the agencies designated fingerprint provider.

This is an exciting opportunity for us as FINRA has outsourced both their fingerprint collection and FBI channeling work to US. The partnership has not yet contributed to our strong results and is in transition to go live soon.

Let's turn to slide 19 to close our prepared remarks with a discussion of our long term targets longer term beyond 2021, we are confident in our targeted annual organic revenue growth rate of 9% to 11% with adjusted EBIT margins ultimately expanding to 29% to 32%.

Or more over that period the.

The 9% to 11% target includes 2% to 3% base growth, 4% to 5% upsell cross sell and 7% to 8% from new business offset by 4% to 5% from attrition.

We plan to provide guidance for 2022, when we report our fourth quarter results in February, but we feel very good about our momentum heading into next year as we close out what has been a record year of revenue and profitability thus far in 2021.

To close my comments, we are thrilled with the trajectory of our company and our Q3 results. We have further runway for growth as we continue to execute on our strategy and drive new client wins expand our business with existing clients and enhance client retention.

We will continue to lead the industry with our people first approach global scale geographic and vertical lies delivery model and comprehensive and differentiated solutions.

And finally I want to thank the entire Sterling team for your incredible focus can do attitude and care for our clients the qualities, which truly make sterling such a special place that concludes our prepared remarks at this time operator, please open up the line for questions.

Thank you if you'd like to ask a question today. Please press star followed by the number one on your telephone keypad.

Our first question comes from George Tong from Goldman Sachs. Please go ahead George Your line is now open.

Hi, Thanks, Good morning, and congrats on your first earnings release as a public company.

Sure.

So our revenue grew 44% in the quarter year over year can you deconstruct that into how much of the growth came from new customer wins.

<unk> growth cross sell up sell among existing customers and what customer attrition was and then if you do report that separately how much growth came from APAC.

Sure. So good morning, George Peter It's nice to talk to you. This morning.

I'm going to address this consolidated so APAC will be included in the numbers I cover. So if we think about the base growth of 33% that we disclosed.

The call that's net of attrition.

And you should think about attrition at the low end of our target range to 4% to 5%. So, let's say base growth of 37% and then <unk>.

<unk> in there that you should think about one is volume growth and the other is cross sell upsell our target for cross sell upsell is 4% to 5% and for the quarter, we well outperform that target our target for base growth volume is 2% to 3% and we significantly outperformed that target.

<unk>.

Driven a lot by the rebound post COVID-19.

Okay got it.

Gig economy.

Significant tailwind to results in the third quarter can you remind me or remind us how much gig revenues contributed to revenues outside of the U S. And then within the U S and what trends you're seeing broadly in the gig vertical.

Sure. So we do not disclose that information publicly but what I can share with you is is some additional information from prior discussions we talk internationally that you should think of our three regions EMEA.

EMEA, Canada, and APAC as a third a third and a third I would say with our <unk> results printed EMEA analysis at 40%, Canada at 30% and APAC at 30%, So youre seeing the growth in EMEA.

Being driven by gig along within APAC in Georgia, It's Josh I'll just add we're very excited about what we're seeing in our global gig business, particularly continuing in Europe and in Asia Pacific with focuses throughout the Asia Pacific region, and we're just now starting to move into Continental Europe. So if you think of our international growth.

It's really driven by the combination of gig and enterprise clients, both growing significantly across our regions.

And in the U S. We don't disclose the specific number but we are seeing good growth in gig and expect that to continue going into the future.

Great. Thank you.

Thank you. Thank you. Our next question today comes from Andrew Nicholas from William Blair. Please go ahead, Andrew Your line is now open.

Thanks, Jen and good morning, I appreciate you taking my questions My first one.

Was hoping you could expand a little bit more on the FINRA contract in that relationship I think.

Two questions within that one if you could size the ink.

Incremental revenue or the impact from a financial perspective that you would expect from that relationship and maybe more importantly number two.

Follow on effects are of this relationship in terms of your go to market strategy your ability to pitch I believe financial services companies in particular, and what the impact to new client logos or new client growth could be from this relationship relative to pre contract.

Thanks, Andrew Good morning, it's Josh and thanks for the question. So we're very excited about this FINRA partnership it's been in the works for quite some time and we do expect it to go live soon as were in the implementation phase right now and I think Youre nailing exactly the two parts. So first the way the relationship works is that every single.

<unk> fingerprint that is going to be processed for FINRA and channel to the FBI will go through Sterling, regardless of whether we directly collect that fingerprint or if it is collected by another provider, including all of our competitors. So in that sense, we're like a toll booth.

From a revenue perspective for all.

All things prints that has to be processed for FINRA and channel to the FBI, we haven't disclosed and wont is irregular practice disclosed the financial impact from any single deal, but you should expect this to be into the seven figures for sure.

And then the second part is since all financial institutions will be processing their FINRA fingerprints through us that does in our mind give great reason for them to think about sterling as their background screening provider and we've already seen our pipeline grow.

From.

From financial institutions in our financial services.

<unk> is seeing great growth and has a really strong pipeline going into next year.

Great. That's very helpful. And then for my follow up I was just hoping you could spend a little bit more time on the M&A environment right now what the opportunity set looks like I know you disclosed are included in your slides and in your prepared remarks.

Got some potential.

Areas of interest might be.

But didn't know if you could provide some color on kind of the competitiveness of those processes right now how good or excuse me how easy it is to get a reasonable price in this market.

Any other color you could you can provide on the M&A outlook. Thank you.

Great. Thanks, Thanks for the follow up so we're excited about the M&A prospects, we expect the industry to continue to consolidate both organically and Inorganically as we continue to win organic deals from smaller midsized players as well as larger but also from.

The other large players and again the three large players are only probably less than 25% of the U S market, let alone globally. So that is exciting to us in terms of inorganic we actually have a strong pipeline of things. We're looking at obviously nothing that we can share today or we would have but our focus is going to be on those tuck ins.

In the U S, where we see in another markets, where we have a significant scaled presence already we see that as a great opportunity for us to have synergies and to improve the profitability of those smaller players and there are a number of those out there in terms of competitiveness again for us it's much more about fit I think where we see the fit we think.

We can win those deals at prices that make sense for us we haven't seen those prices really changed much in the last four five years.

And then in terms of other areas that we would look at if there is a chance to gain a foothold in a market, where we don't have scale and buy a scaled asset we would certainly look to do that and thats something that would be exciting for us and then in other markets around the world, where we have already a scaled presence.

That we could tuck in there to continue to grow given the outpaced growth to 52% that we shared outside the U S. Organically, we think we can service those providers.

Better. So we're really excited about the opportunities and hope to have things to share with you in the future.

Great. Thank you.

Thanks, Andrew.

Thank you. Our next question today comes from Toni Kaplan from Morgan Stanley. Please go ahead, Tony Your line is now open.

Thank you so much.

That's on the strong quarter.

You mentioned, the three to five year target for revenue of 9% to 11% and you talked about the drivers that get you there.

Where do you see the most upside to those drivers just where do you see the most risk.

I started the innovations you're most excited about to drive that growth. Thank you.

Thanks, Tony and good morning, and thanks for the question. So it's Josh a couple of thoughts and then maybe Peter has more to add but I think first of all we over performed on all of those drivers.

In the third quarter and also for the year to date. So we do think there is potential on all of them to do better in any given period I think for us when we look at the things. We most control, it's the cross sell upsell and new business generation and continuing to improve.

On our retention so I think when we think about new business.

That's a metric we're winning more than our fair share growing faster than the market in our view and Thats an area, we think theres potential.

Potential to continue to outpace.

Secondly on cross sell upsell, particularly when we think about solutions in the identity space, adding those identity check upfront in background screens as well as.

Adding other services on the post hire monitoring so.

Increasing that package density is something that we see is in our control again, whether our clients grow in their base is not in our control right that's up to their own decision. So we think the two where we control are the areas that we are most focused on being able to improve those numbers into the future I will remind you.

We have shared previously that roughly 90% of our revenue is in the pre hire.

Screening space with the other 10% split between the post hire monitoring and the identity space and that our going forward long term targets that I provided really do not reflect a shift in that mix. Although we do expect over time to see the post hire monitoring.

And the identity grow faster and when we hit those inflection points those would provide upside and you would see it both in the cross sell up sell through package density and in the acquiring new customers.

Where we have capabilities that others don't have in those spaces.

And I think Tony the only thing that I would add to that is for George we unpacked the base growth for the quarter. So if you think if base growth at 37% in the two components being volume cross sell up sell significant over performance on both of those but what's really interesting there is a cross sell Todd.

We gave you of 4% to 5% that we're significantly over performing that and then new clients. We gave you the 7% to eight is a target and the quarter delivered 11, so just proof points behind with Josh shared.

Terrific and then just for my follow up I was hoping you could talk about sector exposure and where you think you might be over or underexposed versus peers.

<unk> being a potential tailwind for you.

And also I imagine e-commerce as well so.

Do you feel like you're exposed to either of those two particular areas or others as well.

Wherever you think might be helpful for investors.

Stan.

You versus peers.

Great. Thanks, Tony and I will say one of our things as we focus on US. We think we're the best provider. We think we're winning our fair share and we've chosen our verticals in our geographies based on where we think we've got a proposition that's a winning formula and so we think in all of our verticals, we have that chance to win we arent discussing exam.

Exposures in verticals, but as we shared in our opening remarks, we don't believe we're overexposed in any individual vertical and we're not as concentrated.

As others are in the space, which we think is actually one of our benefits in terms of being well balanced to take advantage of different cycles, and maybe I'll have Peter to share a little bit about where we saw some oversized performance.

Sure. So really pleased with performance for the quarter over the prior year quarter as we share double digit growth across all our verticals in the U S. But we did note exceptional performance in healthcare and financial and business services, because those were areas. When we launched the strategy at the beginning of two.

2019 that we were focused in growing and so really pleased to see the execution against that strategy.

Terrific. Thank you.

Thanks, so much Tony.

Just as a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.

Next question comes from Jason <unk> from Keybanc capital markets. Please go ahead, Jason Your line is now open.

Great. Thanks for taking my question and good morning.

Maybe building off that previous question. It looks like we're seeing some very nice recovery here, but as we think of further potential upside from more recovery what areas, maybe have you not seen or industry not seen fully recover yet.

Okay.

Hey, Jason It's Josh maybe I'll go.

So first and see if Peter wants to add I think our view is that part of this is recovery, but a lot of this is trends that we were seeing in 2019 and the first two months of 2020 before we entered Covid. So when you look at our.

At our overall growth rate by quarter as Peter shared I think you said, 16%.

For the period starting.

In the beginning of 2020, so for US this is really.

Where we kind of expect it to be and so in terms of full recovery I think where we're seeing things like hospitality begin to ramp up. So we have a number of clients in the restaurant hotel type businesses. We're just seeing that coming back online theres, probably more there I think again, even in the areas that <unk>.

<unk> shared like financial and business services, we think theres good tailwind there as those entities were pretty slow to hire throughout the period and are kind of still poised to ramp back up but I think in our view, there's plenty of tailwind whether you call it from recovery or from our general business momentum.

Hmm across all our verticals and all of our regions and Thats. What we are seeing in the quarter. It is what we have seen year to date and is what it is what is embedded in our strong guidance for.

For the year as well as the.

The assumed Q4 guidance that underlies it.

Perfect.

And then maybe one on identity verification when we think about the industries that can find solutions to the most compelling set.

Said another way how should we think about the industries that can be the early adopters here.

So I think it's both geographies and industries to think about so first of all.

Aware, where remote work.

As a key element of the strategy going forward and we think that that is going to be increasingly true in all service sectors, obviously restaurants need to have you in person.

And perhaps other hospitality sectors do but when you think about other sectors anytime you can have remote work, where youre not even may be meeting the person in person when you hire them, we think that identity verification plays a very key role.

Also in markets outside of the U S. If you think about right to work for example in the UK. If you think about our B to C model that we have in Australia. These are areas, where identity has a very strong play and we're starting to see this come up in high volume hiring areas, whether it would be warehouse.

Seeing our delivery type services and those are both gig and non gig industries. So in those places where you're trying to hire so many people quickly having that identity verification happen upfront can save you a lot of time and money is youre trying to onboard people. So we really see this as broad based and then even on the industries that are going to be face to face if you.

Think about the United States you are required to do a nine nine after somebody starts.

The regulatory requirement that we expect to continue but honestly you've already spent all the time and money on a background check for that person, where you could have done that confirmation upfront. So our view is it makes sense everywhere, but hopefully my answer gives you a little bit of color on the places that we think might adopt it sooner and where we're seeing the pipeline build earlier.

Excellent no that was actually quite helpful. Thank you.

Our next question today comes from Mark Mccrumb from Baird. Please go ahead Mark Your line is now open.

Hey, good morning, and congratulations on the.

Strong quarter I'm wondering if you could talk a little bit about.

The source of new logos.

You had really impressive contribution in terms of.

New sales.

Did you see most of those come from some of the smaller players that would be naturally disadvantaged or how would you characterize that and what was the split in terms of international versus domestic in terms of the new logos.

Yeah, Hey, Mark Great to hear from you. This morning, So we don't provide the split.

Nationally or by verticals, but I would say that.

Growth in new revenue, we saw across the business.

So really contributed to growth through the verticals and in all the regions. So really healthy performance across the globe there.

The market's Josh I think I'll just jump in rate Thats by design. So when we established our vertical and geographic go to market approach and we have our general managers in managing directors managing their business. They have targets around each of our growth metrics. They have targets around new business. They have targets around base growth they have targets around cross sell.

So so it is very much required for them to beat and in <unk>.

Hit these targets that we've given them, which add up to what we provide and it's part of what gives us confidence in the long term.

The numbers that we've provided to you so as Peter said it was broad based there's not a particular thing that stands out in the quarter, which is great because it's good to see that happening across the business.

Okay and then.

One follow up just on that is.

When we were going through the IPO process. There is a lot of discussion about how.

Outside of the Big three most of the competitors are fairly disadvantaged in terms of lacking scale or browser technology.

Wondering did a lot of the new logos.

From from those incumbents or were some of the incumbents the other.

Quote unquote peers.

So it was both Mark we did take logos from.

Large peers are mid sized peers.

Smaller competitors as well.

So for us.

We are not only focusing on one competitor or another we're focusing on the clients. We think we can serve well and we strongly believe that we can serve.

Every client better than their current provider or if they are not with us and so we just try to get the opportunity to show that to them. So it really does come from all of the competitors and the one other point I would make some of the wins come from Greenfield from white spaces, where they're not currently using someone and we're able to go in and replace on us work.

<unk>.

The client is doing particularly outside the U S. We see that a lot.

Great and then.

You, obviously had a tremendous quarter in the.

In the international markets, particularly EMEA and <unk>.

K U.

Highlighted in the past how well the UK was doing in the.

<unk> approach I'm wondering if you can give us an update in terms of what other markets are.

Kind of approaching.

At the same level of infrastructure.

And scale ability that the UK did.

So I would say Mark we've got.

The same level of infrastructure in the three markets that we're in today and we believe that what we have we can scale the business from so we can do that without adding additional cost. So I would say that in our Asia Pac business two things that were pretty exciting was expansion into New Zealand.

And expansion into India.

An example for you of where we are leveraging our current footprint.

To win new business and expand.

Great and then your target leverage is already at two to three times.

Which is.

So you are ready there.

How should we think about capital allocation.

Should we expect you to pay down even more debt or.

From a from <unk>.

Acquisition perspective, which markets seem like the most interesting.

Yes. So we did we are at $2 six X leverage ratio, which is well within the target of two to three times and our plan is to really sit there right. When I think about capital allocation strategy first priority will be investing in organic growth rate, we still a lot of opportunity to <unk>.

<unk> and new product and drive the organic growth of the business and second we will be focused on M&A.

As we covered during the call really three areas.

There that would be focused in one would be U S. Tuck ins the other would be.

Things that provide us increased scale in existing international markets and a third would be expanding into new geographies.

And then lastly, making sure that we maintain that leverage ratio of two to three times, we do have quite a bit of dry powder available to us right now at about $100 million on the balance sheet, plus the $140 million revolver.

And that puts us in a place where we can continue to evaluate and make the right investments for the company going forward to drive the growth.

That's great. Thank you.

And probably the other thing worth mentioning as well is S&P did upgrade us. This morning, so not sure. If you saw that come across the newswire, but they took us from a credit.

<unk> positive b to B plus stable, so really thrilled to see the recognition from the rating agencies at the strength of our balance sheet and expect maybe other rating agencies will follow.

Our final question today comes from Shlomo Rosenbaum from Stifel. Please go ahead. Your line is now open.

Hi, This is Adam on for Shlomo.

And that's again EBIT margin expansion in the quarter is this all from incremental revenue drop through or were there other significant items that play as well like increased automation and data cost sourcing.

Yes, I would say this is purely from flow through and the ability for us to grow revenues without growing Opex Neely.

Nearly the same level.

So we had a 40% flow through for the quarter compared to the prior quarter last year and Adam It's Josh I would say, we also do have the opportunity through initiatives to continue to expand margins and improve the drop through over time based on investments. We think we can make an additional automation.

And some other tactics that we have and we've started making those and we expect to see that and we look forward to sharing that with you in future calls I would say, we're thrilled at a 30% adjusted EBIT margin for the quarter. So as we mentioned it is a record for the company.

Thanks.

We have no further questions today. So this concludes the Q&A session and also today's call. Thank you all for joining Sterling's third quarter 2021 earnings call, Ladies and joined the rest of your day you may now disconnect your lines.

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Hello, and welcome to the Sterling third quarter 2021 earnings call My name is Emma.

And I'll be your operator today.

I'd like to ask a question at the end of the presentation. You can do so by pressing star followed by the number one on your telephone keypad.

We wish to retract your question for any reason please press star followed by the number today.

It is now my pleasure to turn the call over to Judy cycle, Vice President of Investor Relations to begin. Please go ahead Judah.

Thank you operator, welcome to Sterling third quarter 2021 earnings call. Joining me today are Josh <unk>, Chief Executive Officer of Sterling, and Peter Walker, Chief Financial Officer of Sterling.

The slides we will reference during this presentation can be accessed on Sterling's Investor Relations website under news and events.

Slides will be posted at the conclusion of this call and a replay will be made available on the website.

After prepared remarks, we will open this call for questions.

Our slide presentation and discussions on this call will include certain non-GAAP financial measures for such measures reconciliation to the most directly comparable GAAP measures are in the appendix to the presentation and in our earnings release issued this morning, I will now turn the call over to Jos Peres.

Thank you Judah good morning, and thank you for joining us on our first quarterly earnings call as a public company.

In reviewing these results with you today, we will also provide you with 2021 guidance and spend some time discussing the people products and technology that make sterling unique and differentiated.

The offering priced above our range of $23 per share and ended the first day of trading with a market cap of $2 6 billion.

Providing net primary proceeds of approximately $94 5 million.

Our IPO was a proud moment for Sterling and I would like to thank our team who supported the successful process as well as our clients and partners for the continued support of our business.

I also want to take this opportunity to welcome Judah Socal as our vice President of Investor Relations Judah joins us from Jpmorgan, where he covered the business and information services sector for nearly a decade and we're thrilled to have him join as we embark on this next stage as a public company.

Our hiring of talent like Judeh demonstrates the value we place in partnering with the investing community I'm sure. Many of you know Judah and he is excited to work with you in his new role.

In the human capital management or HCM lifecycle area.

We participate in four critical areas of the HCM value chain.

The pre hire identity verification pre hire screening onboarding and post hire monitoring areas.

We are deeply integrated into our clients' HR risk management and compliance functions and our services are mission critical to them.

Our solutions also enhance clients' organizational efficiency by substituting for their manual processes.

This is essential in the current market, where there is a war for talent and companies need to move with speed and reduce their time to hire.

This has allowed us to serve a highly diversified blue chip global client base.

We have over 47000 clients around the world, including over 50% of the Fortune 100 as clients for whom we have performed over 89 million screens in the last 12 months.

We have also increased our gross client retention rate to 96%.

Testament to our focus on exceptional client service and a demonstration of our predictable recurring revenue profile.

Additionally, we have low concentration of clients in any one industry vertical, allowing us to have a balanced portfolio across many sectors in which we operate.

<unk> rapid product launches and the ability to customize and localized service offerings.

We have over 75 platform integrations in addition to our World class API.

Over half of our revenue is integrated today and the percentage continues to increase I will provide.

Good additional color on our cloud based technology platform shortly when I discuss our competitive advantages.

And it is growing with the Tam expected to increase at a 12% CAGR to $29 billion by 2025.

Importantly, the majority of this opportunity is outside of the U S, where we have a leading position and are uniquely able to continue capturing that opportunity in the future.

We believe that there are several secular demand drivers that are increasing the need for comprehensive screening and hiring solutions.

The gig economy continues to grow quickly, enabling people to have more than one job at the same time.

With each of those gig relationships involving a background check.

Similarly, the use of contingent Workforces and freelancers continues to increase driving greater needs for background checks.

The ongoing increase in employee churn is also an important driver of growth for us. We've all heard about the great resignation and prevalence of remote work and increased desire for flexibility.

We believe this has led to a structural shift in the workforce, increasing voluntary employee turnover, particularly with millennials and Gen Z.

Which presents tremendous upside for our business the.

The value placed on identity verification is another important secular trend, we see increasing around the world.

We are seeing an increased demand for continuous screening and monitoring.

So what makes sterling unique slide seven summarizes several ways in which we have differentiated ourselves from the competition.

The secret to our success internationally is that we empower local leaders and teams to make decisions that serve local customers in particular global gig and enterprise clients are driving our international growth.

The next area of differentiation is our Verticalizing business model.

<unk> go to market strategy is organized around geographies and verticals through which we deliver deep market expertise thought leadership and exceptional client service.

These are critical elements of our success in both winning new clients and retaining current clients.

With clients and clear view of the white space opportunities. This allows us to have the personal touch of our boutique firm, while also providing the global reach scale and resources of an industry leader.

Technology is another key area of differentiation.

Sterling is constantly modernizing and we see ourselves as best in class in all elements of the user experience. We have invested in our technology through a three phased initiative called project ignite.

We are already two thirds of the way complete.

Phase one involve modernizing the experience for our clients and their candidates with state of the art mobile enabled products phase.

Phase two was our migration to the cloud where we are now running over 95% of our revenue.

Phase III involve the consolidation and decommissioning of our older platforms project.

Project Ignite has transformed our business, particularly around our cloud based technology and product delivery.

By eliminating on premises infrastructure and the related complexity, we've been able to achieve the highest levels of availability for our clients and provide offerings that are both reliable and scalable.

This shift to the cloud has also resulted in our ability to shift resources to building next gen capabilities and solutions for our clients.

Our advantage in technology extends to how we fulfill orders.

Percent of U S. Criminal screens are completed within the first hour and 90% are completed within the first day.

Our turnaround times and ability to service clients, even during challenging times are attributes that set us apart and are critical reasons, why we win and retain business.

Finally, we are very differentiated in our approach to identity verification, we do not view identity verification as a product, but rather as a service and a strategic pillar equal to background checking in terms of our growth opportunities we.

We believe identity should be the first step of any background screening process.

With increasing data breaches and the growth of remote work identity verification as a more powerful tool for employers than ever before especially in the pre hiring process.

We're excited about our exclusive partnership with IDB are best in class identity verification provider with over 60 million verified users.

And we believe this will become the first step in the majority of all screens over time.

We also continued to experience strong client retention of 96% for the trailing 12 month period, ending September 2021 up 300 basis points from the prior year period.

Demonstrating our exceptional client service and proactive approach to retention.

In the third quarter, the macroeconomic environment remains positive with the great resignation, continuing and employee turnover broadly remaining a key theme in the employment market our business significantly outpaced U S job growth in the third quarter.

And now I will hand, it over to Peter Walker, our CFO to take you through our financial results for the quarter and full year 2021 guidance Peter.

We have high predictability in revenue generation as the majority of contracts and revenues are multi year with auto renewal and have exclusivity are primary designation, we have fixed pricing for the period of the contract with the ability to increase prices annually and there is no termination clause for convenience in our contract.

We also have a very strong recurring revenue base as Josh mentioned earlier.

<unk> revenue dollar dropping to adjusted EBITDA.

There was no impact to results from acquisitions in the quarter that $52 million revenue increase included 33% of base growth, including cross sell upsell net of attrition and 11% of new customer growth.

Revenues in our U S business grew 41% compared to the third quarter of 2020, we saw double digit revenue growth in all our industry verticals with particularly exceptional results in our healthcare and financial and business services vertical as we executed our growth playbook in the U S economy.

<unk> continued its recovery from the impact of the COVID-19 pandemic.

Approximately 18% of revenue was generated outside of the U S. In the third quarter of 2021 compared to approximately 16% of revenue generated outside the U S. In the third quarter of the prior year.

Year over year International revenue grew by 52% on an organic constant currency basis, demonstrating our growing international presence.

All of our international businesses saw strong growth in the third quarter in large part driven by our market leading position in gig in the UK and Asia Pacific.

<unk> September year to date. This was the company's second consecutive quarter with record adjusted EBIT margins proving that our net profitability scales as revenues scale.

We had adjusted net income of $31 6 million or <unk> 33 per diluted share in the third quarter of 2021 compared to adjusted net income of 11 million or <unk> 12 per diluted share in the third quarter of 2020. This represents year over year growth in adjusted earnings per share of a 100.

<unk> hundred 68%. This growth was primarily driven by strong year over year revenue growth and improved operating leverage.

Q3 effective tax rate was low due to a change in estimate triggered by tax elections related to global transfer pricing policies I expect the rate to return to 26% for Q4 2021 and full year 2002.

Now I'd like to touch on historical performance and the resilience of our financial model.

Our revenues reflect the broad based macroeconomic slowdown during that period, but performance bounce back very quickly in Q4 2020 as the economy opening back up.

The return to growth in Q4, 2020 set us up well for strong performance, resulting in September 2021, LTM revenue of $597 million.

<unk> had strong momentum in 2019 that was interrupted by COVID-19, followed by a strong recovery, resulting in September 2021, LTM adjusted EBITDA of $163 million.

Turning to slide 14 year to date, we've generated free cash flow of $58 3 million normalized for onetime cash non operating charges related to the IPO.

This was an increase of $46 million over the prior period and was due to strong revenue growth as well as permanent expense reductions implemented during 2020.

Our cash balance is inclusive of $94 5 million of net primary proceeds we received in connection with our IPO.

On November one we used IPO proceeds together with cash on hand to pay down $100 million.

Of our first lien credit facility.

With this prepayment we have gross debt of $512 million and we've reduced our interest expense by at least $4 5 million annually.

Net of letters of credit outstanding was $139 3 million.

On slide 16, we provide our guidance for full year 2021, which is now three quarters complete with continued strong momentum so far in the fourth quarter.

This guidance assumes a benefit of 100 to 150 basis points from fluctuations in foreign currency and no contribution from acquisition.

Thus, our implied organic constant currency revenue growth for full year 2021 is 35% to 36%.

As you will notice the guidance implies that Q4 'twenty. One we will continue the notable strength we have displayed through the first nine months of 2021.

Albeit at a more moderated pace given that we will be growing over a stronger Q4 'twenty.

Q4, 'twenty, one revenue growth will be driven by favorable macroeconomic tailwind strong base growth robust new client wins industry, leading client retention and continued upsell cross sell.

<unk> initiatives, including the consolidation of our real estate footprint.

Finally to help with your modeling we are assuming 2021 capex of approximately $20 million stock based compensation expense of approximately $33 million interest expense of approximately $29 million and a share count of $90 1 million.

And now I will hand, it back to Josh to close with a review of our long term targets.

Thanks Peter.

Slide 18 summarizes our many compelling growth opportunities to continue thriving in the growing background and identity markets.

We've already touched on some of these including our momentum in winning new clients geographic expansion.

And exploring strategic M&A in.

In addition to these we see a significant opportunity to increase adoption of new services within our large base of existing clients.

Increased package density with products, such as identity and fingerprinting.

We also continue to introduce innovative new products to the market. One such example is a new COVID-19 vaccination verification solution, we launched in the third quarter.

We are also expanding our identity verification offering with our identity wallet.

And by recently, securing an exclusive partnership with FINRA to serve as the agencies designated fingerprint provider. This is an exciting opportunity for us as FINRA has outsourced both their fingerprint collection and FBI channeling work to US the partnership has not yet contributed to our strong rig.

<unk> and is in transition to go live soon.

Or more over that period the.

The 9% to 11% target includes 2% to 3% base growth, 4% to 5% upsell cross sell and 7% to 8% from new business offset by 4% to 5% from attrition.

We will continue to lead the industry with our people first approach global scale geographic and vertical lies delivery model and comprehensive and differentiated solutions.

Thank you if you'd like to ask a question today. Please press star followed by the number one on your telephone keypad.

Our first question comes from George Tong from Goldman Sachs. Please go ahead George Your line is now open.

Hi, Thanks, Good morning, and congrats on your first earnings release as a public company.

Yeah.

So our revenue grew 44% in the quarter year over year can you deconstruct that into how much of the growth came from new customer wins.

<unk> growth cross sell up sell among existing customers and what customer attrition was and then if you do report that separately how much growth came from APAC.

Sure. So good morning, George Peter It's nice to talk to you. This morning.

I'm going to address this consolidated so APAC will be included in the numbers I cover. So if we think about the base growth of 33% that we disclosed.

The call that's net of attrition.

And you should think about attrition at the low end of our target range to 4% to 5%. So, let's say base growth of 37% and then <unk>.

Ponant in there that you should think about one is volume growth and the other is cross sell upsell our target for cross sell upsell is 4% to 5% and for the quarter, we well outperform that target our target for base growth volume is 2% to 3% and we significantly outperformed that target.

<unk>.

Driven a lot by the rebound post COVID-19.

Okay got it.

Gig economy.

Sure. So we do not disclose that information publicly but what I can share with you is is some additional information from prior discussions we talked internationally that you should think of our three regions EMEA.

EMEA, Canada, and APAC as a third a third and a third I would say with our <unk> results printed EMEA analysis at 40%, Canada at 30% and APAC at 30%, So youre seeing the growth in EMEA.

It's really driven by the combination of gig and enterprise clients, both growing significantly across our regions.

And in the U S. We don't disclose the specific number but we are seeing good growth in gig and expect that to continue going into the future.

Great. Thank you.

Thank you. Thank you. Our next question today comes from Andrew Nicholas from William Blair. Please go ahead, Andrew Your line is now open.

Thanks, and good morning, I appreciate you taking my questions My first one.

Was hoping you could expand a little bit more on the FINRA contract in that relationship I think.

Two questions within that one if you could size the.

The incremental revenue or the impact from a financial perspective that you would expect from that relationship and maybe more importantly number two.

B from this relationship relative to pre contract.

<unk> that is going to be processed for FINRA and channel to the FBI will go through Sterling, regardless of whether we directly collect that fingerprint or if it's collected by another provider, including all of our competitors. So in that sense, we're like a toll booths.

From a revenue perspective for all.

All things that has to be processed for FINRA and channel to the FBI, we haven't disclosed and wont is irregular practice disclose the financial impact from any single deal, but you should expect this to be into the seven figures for sure.

From.

From financial institutions in our financial services.

Vertical is seeing great growth and has a really strong pipeline going into next year.

Got some potential areas of interest might be.

But didn't know.

If you could provide some color on kind of the competitiveness of those processes right now how good or excuse me how easy it is to get a reasonable price in this market or any other color you could you could provide on the M&A outlook. Thank you.

The other large players and again the three large players are only probably less than 25% of the U S market, let alone globally so that.

It is exciting to us in terms of inorganic we actually have a strong pipeline of things. We're looking at obviously nothing that we can share today or we would have but our focus is going to be on those tuck ins in the U S where we see in another markets, where we have a significant scaled presence already we see that as a great opportunity for us to have <unk>.

<unk> and to improve the profitability of those smaller players and there are a number of those out there in terms of competitiveness again for us it's much more about fit I think where we see the fit we think we can win those deals at prices that make sense for us we haven't seen those prices really changed much in the last four five years.

Grow given the outpaced growth to 52% that we shared outside the US organically. We think we can service those providers.

Even better so we're really excited about the opportunities and hope to have things to share with you in the future.

Great. Thank you.

Thanks, Andrew.

Thank you. Our next question today comes from Toni Kaplan from Morgan Stanley. Please go ahead, Tony Your line is now open.

Thank you so much and congrats on the strong quarter.

Mentioned, the three to five year target for revenue of 9% to 11% and you talked about the drivers that get you there.

Or do you see the most upside to those drivers where do you see the most risk what are sort of the innovations you're most excited about to drive that growth. Thank you.

Thanks, Tony and good morning, and thanks for the question. So it's Josh a couple of thoughts and then maybe Peter has more to add but I think first of all we over performed on all of those drivers in the third quarter and also for the year to date. So we do think there is potential on all of them to do better in any given period.

I think for us when we look at the things we most control it's the cross sell upsell and new business generation and continuing to improve on our retention. So I think when we think about new business.

Metric, where we're winning more than our fair share growing faster than the market in our view and Thats an area. We think there is.

Potential to continue to outpace.

Secondly on cross sell upsell, particularly when we think about solutions in the identity space, adding those identity checks upfront in background screens as well as.

Adding other services on the post hire monitoring so the increasing that package density is something that we see is in our control again, whether our clients grow in their base is not in our control right that's up to their own decision. So we think the two where we control are the areas that we are most focused on.

Being able to improve those numbers into the future I will remind you we have shared previously that roughly 90% of our revenue is in the pre hire.

Screening space with the other 10% split between the post hire monitoring and the identity space and that are going forward long term targets that I provided really do not reflect a shift in that mix. Although we do expect over time to see the post hire monitoring.

Where we have capabilities that others don't have in those spaces.

And I think Tony the only thing that I would add to that is for George we unpack the base growth for the quarter. So if you think if base growth at 37% in the two components being volume cross sell up sell significant over performance on both of those but what's really interesting there is a cross sell Todd.

Terrific and then just for my follow up I was hoping you could talk about sector exposure and where you think you might be over or underexposed versus peers.

The gig economy being a potential tailwind for you.

And also I imagine e-commerce as well so how do you feel like youre exposed to either those two particular areas or others as well wherever you think might be helpful for investors.

Understand.

You versus peers.

Great. Thanks, Tony and I will say one of our things as we focus on US. We think we're the best provider. We think we're winning our fair share and we've chosen our verticals NR geographies based on where we think we've got a proposition that's a winning formula and so we think in all of our verticals, we have that chance to win we arent discussing <unk>.

<unk> exposures in verticals, but as we shared in our opening remarks, we don't believe we're overexposed in any individual vertical and we're not as concentrated as others are in the space, which we think is actually one of our benefits in terms of being well balanced to take advantage of different cycles and.

Maybe I'll have Peter to share a little bit about where we saw some oversized performance.

<unk> thousand 19 that we were focused in growing and so really pleased to see the execution against that strategy.

Terrific. Thank you.

Thanks, so much Tony.

Just as a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad. Our next question comes from Jason <unk> from Keybanc Capital markets. Please go ahead, Jason Your line is now open.

Great. Thanks for taking my question and good morning.

Maybe building off that previous question it looks like we're seeing some very nice recovery here.

As we think of further potential upside from more recovery what areas, maybe have you not seen or industry not seen fully recovered yet.

Good.

Hey, Jason This is Josh maybe I'll.

At our overall growth rate by quarter as Peter shared I think you said, 16%.

For the period starting.

In the beginning of 2020, so for US this is really.

Hmm across all our verticals and all of our regions and Thats. What we are seeing in the quarter. It is what we have seen year to date and is what it is what is embedded in our strong guidance for.

For the year as well as the.

The assumed Q4 guidance that underlies it.

Perfect.

And then maybe one on identity verification when we think about the industries that can find these solutions to be most compelling set.

Said another way how should we think about the industries that can be the early adopters here.

So I think it's both geographies and industries to think about so first of all.

Where where remote work.

As a key element of the strategy going forward and we think that that is going to be increasingly true in all service sectors, obviously restaurants need to have you in person.

Seeing our delivery type services and those are both gig and non gig industries. So in those places where youre trying to hire so many people quickly having that identity verification happen upfront can save you a lot of time and money is youre trying to onboard people. So we really see this as broad based and then even on the industries that are going to be face to face if you.

Think about the United States you are required to do a 99 after somebody starts.

Excellent well that is actually quite helpful. Thank you.

Our next question today comes from Mark Mccollum from Baird. Please go ahead Mark Your line is now open.

Hey, good morning, and congratulations on the strong quarter I'm wondering if you could talk a little bit about.

The source of new logos.

You had really impressive contribution in terms of.

New sales.

Yeah, Hey, Mark Great to hear from you. This morning, So we don't provide the split.

Nationally or by verticals, but I would say that.

Growth in new revenue, we saw across the business.

So really contributed to growth through the verticals and in all the regions. So really healthy performance across the globe there.

The market's Josh I think I'll just jump in rate that's by design. So when we established our vertical and geographic go to market approach and we have our general managers in managing directors managing their business. They have targets around each of our growth metrics. They have targets around new business. They have targets around base growth they have targets around cross sell.

So so it is very much required for them to be in and hit these targets that we've given them, which add up to what we provide and it's part of what gives us confidence in the long term.

Numbers that we've provided to you so as Peter said it was broad based there's not a particular thing that stands out in the quarter, which is great because it's good to see that happening across the business.

Great and then.

One follow up just on that is.

When we were going through.

Oh process, there is a lot of discussion about how.

Outside of the Big three most of the competitors are fairly disadvantaged in terms of lacking scale or browser technology I'm wondering did a lot of the new logos.

From from those incumbents or were some of the incumbents the other.

Quote unquote peers.

So it was both Mark we did take logos from our large peers are mid sized peers and are smaller.

Smaller competitors as well.

So for us.

We are not only focusing on one competitor or another we're focusing on the clients. We think we can serve well and we strongly believe that we can serve.

Every client better than their current provider if they are not with us and so we just try to get the opportunity to show that to them. So it really does come from all of the competitors and the one other point I would make some of the wins come from Greenfield from white spaces, where they're not currently using someone and we're able to go in and replace on us.

<unk>.

The client is doing particularly outside the U S. We see that a lot.

Great and then.

You, obviously had a tremendous quarter.

In the international markets, particularly EMEA and <unk>.

You highlighted in the past how well the UK was doing and localized approach I'm wondering if you can give us an update in terms of what other markets are.

Kind of approaching.

The same level of infrastructure and scale ability that the U K did.

So I would say Mark we've got.

And at the same level of infrastructure in the three markets that we're in today and we believe that what we have we can scale the business from so we can do that without adding additional cost. So I would say that in our Asia Pac business two things that were pretty exciting was expansion into New Zealand.

And expansion into India. So just an example for you of where we're leveraging our current footprint to.

To win new business and expand.

Great and then your target leverage is already at two to three times.

Which is.

So you are ready there.

<unk>.

How should we think about capital allocation.

Should we expect you to pay down even more debt or.

From a from a acquisition perspective, which markets seem like the most interesting.

Yes. So we did we are at two six X leverage ratio, which is well within the target of two to three times and our plan is to.

Really sit there right when I think about capital allocation strategy first priority will be investing in organic growth rate, we still have a lot of opportunity to invest in new product and drive the organic growth of the business and second we will be focused on M&A.

As we covered during the call really three areas.

There that would be focused in one would be U S. Tuck ins the other would be.

Things that provide us increased scale in existing international markets and a third would be expanding into new geographies.

And that puts us in a place where we can continue to evaluate and make the right investments for the company going forward to drive the growth.

That's great. Thank you.

And probably the other thing worth mentioning as well is S&P did upgrade us. This morning, so not sure. If you saw that come across the newswire, but they took us from a credit watch positive b to B plus stable, so really thrilled to see the recognition for.

The rating agencies at the strength of our balance sheet and expect maybe other rating agencies will follow.

Our final question today comes from Shlomo Rosenbaum from Stifel. Please go ahead. Your line is now open.

Hi, This is Adam on for Shlomo, there's significant EBIT margin expansion in the quarter is this all from incremental revenue drop through or were there other significant items that play as well like increased automation data cost sourcing.

Yes, I would say this is purely from flow through and the ability for us to grow revenues without growing opex.

Nearly the same level.

Okay. Thanks.

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