Q2 2022 HireRight Holdings Corp Earnings Call

August 4, 2022

All participants are in a listen only mode.

I'll remind everyone that management will refer to certain non-GAAP financial measures an explanation and reconciliation of these measures to the most comparable GAAP financial measures is included in the press release issued today, which is available in the Investor Relations section of higher rates website.

Also during this call managements remarks will include forward looking statements related to higher rates market opportunities customer retention competitive differentiation growth expectations operational improvements strategies to increase revenue and margins growth prospects for industry sectors and our international <unk>.

Business labor market and economic trends future cash flows and financial performance, including 2022 guidance.

Such improvements such.

Such statements are predictions and actual results may differ materially.

Additionally.

Information concerning factors that could cause actual results to materially differ from those in forward. Looking statement is contained in Form 10-K filed with Securities and Exchange Commission in particular in the sections of that document entitled risk factors forward looking statements and management discussion.

Analysis of financial condition and results of operations now it is my pleasure.

To turn the call over to Guy who Brahma.

Thank you operator, and good afternoon, everyone. We're pleased to have you with us today to discuss another set of strong quarterly results I'll hit the highlights and Tom will walk through the details as usual.

Second quarter revenue was up a robust 26% over the corresponding prior year period, reaching a record $222 million.

This strength reflects our continued high client retention and upsell rates, new logo wins and secular trends, resulting in continued strong demand for labor in our targeted end markets. Our strong performance over the last four quarters reflects our full recovery from the pandemic impacted periods of 2020, and early 2021, and we expect solid but.

Normalized growth over the medium to longer term.

We also continue to deliver on our commitment to improving profitability delivering more than a 240 basis point gain in adjusted EBITDA margin showing growth of 40% over the prior year period.

Good afternoon, ladies and gentlemen, and welcome to the higher right second quarter 2022 conference call joining today's call as the company's President and Chief Executive Officer.

The efficiency improvements and increasing automation that drove these gains flowed through to adjusted net income which more than doubled over the prior year, reaching $43 million for the quarter.

Gaia Bravo and Chief Financial Officer, Tom Space at this time, all participants are in a listen only mode.

Our results showed continued strong demand for our high quality solutions across all of our regions and verticals, while we certainly recognize the challenges of the macro environment with inflation at multi decade highs rising interest rates and recessionary concerns the demand for talent remains higher than historic norms and the churn in the labor market continues at elevated levels.

Yeah.

I remind everyone that management will refer to certain non-GAAP financial measures an explanation and reconciliation of these measures to the most comparable GAAP financial measures is included in the press release issued today, which is available in the Investor Relations section of higher rates website.

Compared to historical periods.

Quality and thoroughness remain key selling points and differentiators for us, particularly in our core markets.

Last quarter, we talked about our early success in our version of the Pepsi Challenge. If Youll recall. This is where we re screened candidates previously screened by a competitor only defined hundreds and hundreds of Mr felony convictions.

Just to increase revenue and margins growth prospects for industry sectors, and our international business labor market and economic trends future cash flows and financial performance, including 2022 guidance.

The key point here is that we are willing to stack up our solution against anyone in the market and show that not all background checks are created equal as.

Such improvements.

Such statements are predictions and actual results may differ materially.

As such we are continuing to offer this challenge up to key prospects and it is continuing to deliver the results we expect.

Additionally, information.

Concerning factors that could cause actual results to materially differ from those in forward looking statements as it contained in Form 10-K filed with Securities and Exchange Commission in particular in the sections of that document entitled risk factors forward looking statements and management discussion.

Most recently, we extended our major client relationship with a fortune 500 business services organization into the Latin America region. As a result of the client putting us to the challenge of going side by side with the incumbent to measure both quality and turnaround time, we demonstrated a turnaround time at nearly 50% lower than this top global <unk>.

Dallas is a financial condition and results of operations now it is my pleasure to turn the call over to Guy of Brahma.

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All while maintaining the high level of quality, we demonstrate to this client across all global regions.

We took over 100% of the Latam business immediately following that test. Additionally, our other key differentiator continues to be our global platform. This quarter. For example, we extended our global relationship with a fortune 100 technology company into India, replacing a top tier competitor and further solidifying our relationship with this client.

Second quarter revenue was up a robust 26% over the corresponding prior year period, reaching a record $222 million.

This strength reflects our continued high client retention and up sell rates, new logo wins and secular trends, resulting in continued strong demand for labor in our targeted end markets. Our strong performance over the last four quarters reflects our full recovery from the pandemic impacted periods of 2020, and early 2021, and we expect solid but.

Similar to last quarter, we have once again solidified our coverage with some of the largest technology companies in the world are rounding out our global footprint.

Reflecting on our go to market success, new customer bookings were strong at again during the quarter and our Onboarding pipeline of new customers continues to grow new clients continue to tell us that our unified platform are highly coordinated global account management structure, our quality service and geographic reach are clear differentiators that appeal to them.

Normalized growth over the medium to longer term.

We also continue to deliver on our commitment to improving profitability delivering more than a 240 basis point gain in adjusted EBITDA margin showing growth of 40% over the prior year period.

And a directly helping to drive these new wins.

Regarding our vertical and geographic success as has been the case for quite a few quarters now healthcare has led our vertical strength growing nearly 50% over the prior year. The remaining core verticals all delivered 20% plus growth rates. We are also excited to announce our first vertical oriented solution on our e-commerce platform background checks dot com.

The efficiency improvements and increasing automation that drove these gains flowed through to adjusted net income which more than doubled over the prior year, reaching $43 million for the quarter.

As a reminder, we're the only major background screening firm with a purpose built e-commerce platform targeting the small medium business market.

Now, we look to capitalize on our leadership in the transportation industry by building an easy to use e-commerce solution targeted specifically at small and mid sized trucking firms. There are over $1 2 million drivers in the U S. Working for companies that have fewer than 20 trucks, making this an exciting opportunity.

Compared to historical periods.

Quality and thoroughness remain key selling points and differentiators for us, particularly in our core markets.

Last quarter, we talked about our early success in our version of the Pepsi Challenge. If Youll recall. This is where we re screened candidates previously screened by a competitor only to find hundreds and hundreds of Mr. Felony convictions.

Our extensive experience with Dodd regulations combined with the fact that we are the only background screening service provider in the industry with connections to the motor vehicle Records sources in all 50 States makes this an ideal target market for background checks dot com.

Key point here is that we are willing to stack up our solution against anyone in the market and show that not all background checks are created equal.

Now, let me turn to our international markets, where growth continues to be quite strong.

As such we are continuing to offer this challenge up to key prospects and it is continuing to deliver the results we expect.

Second quarter performance in our non U S markets showed a growth rate of 30% over prior year, while we saw strength in every single region Latam in India had particularly impressive results.

Revenue derived from applicants outside the U S. Now represents 16% of our total and we expect this to further expand.

We will continue to make investments in these international markets to provide the best local support with the power of our global platform. Two notable examples of this are Mexico and India in the past nine months, we have ramped our Mexico operations from less than 10 team members to more than 100, and similarly in India, where we have strong BPL partnerships we've expanded.

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All while maintaining the high level of quality, we demonstrate to this client across all global regions with.

We took over 100% of their Latam business immediately following that test. Additionally, our other key differentiator continues to be our global platform. This quarter. For example, we extended our global relationship with a fortune 100 technology company into India, replacing a top tier competitor and further solidifying our relationship with this client.

Ended our own team from less than 100 employees to nearly 500.

And as I've said repeatedly our ability to service customers with our unified platform continues to be a strong competitive differentiator for us.

Similar to last quarter, we have once again solidified our coverage with some of the largest technology companies in the world are rounding out our global footprint.

Lastly.

I would like to provide an update on our platform and fulfillment technology initiatives. As a reminder, we have partnered with a leading global it services firm to streamline and automate the fulfillment process, while improving the customer and candidate experience.

Reflecting on our go to market success, new customer bookings were strong at again during the quarter and our Onboarding pipeline of new customers continues to grow.

This is a two year journey that we expect to complete at the end of 2023.

New clients continue to tell us that our unified platform are highly coordinated global account management structure, our quality service and geographic reach are clear differentiators that appeal to them in a directly helping to drive these new wins.

Our focus is on technology investments aimed specifically at automating more of our back office processes and maximizing the usage of our industry, leading data assets. Our emphasis is on driving automation and process improvement with a continued use of robotics processing automation natural language processing and other cloud delivery technologies that will reduce the cost and improve quality.

The efficiency of our researchers.

We believe this margin enhancement strategy, we will drive double digit profitability growth.

I am pleased to report we have moved the first module of the program into production. Since this is the first phase of the program. We are rolling volume in a measured manner and are pleased with the results. We're seeing and are excited about the opportunity to broaden the deployment and yield the long term improvements we're expecting.

As a reminder, we're the only major background screening firm with a purpose built e-commerce platform targeting the small medium business market.

Simultaneous to this rollout we are planning for the next modules to be delivered in the second half of the year.

As previously stated we expect only modest financial benefit this year with a ramping of savings beginning next year and fully yielding the benefits by the end of 2023.

So in closing we're very pleased with the results we've been able to deliver in the first half of the year and while there remains significant uncertainty around the broader macro environment underlying demand for talent and our ability to cross sell and add new customers gives us great confidence in the long term outlook for this business.

Now, let me turn to our international markets, where growth continues to be quite strong.

With that I'll turn the call over to Tom for a closer look at our second quarter financial performance and our outlook for the balance of the year Tom.

Second quarter performance in our non U S markets showed a growth rate of 30% over prior year, while we saw strength in every single region Latam in India had particularly impressive results.

Thank you guys. Good afternoon, everyone and thank you for joining our call today as Guy mentioned, we experienced another strong quarter in fact, a record quarter with revenues of $222 million, reflecting a 26% growth rate over the prior year period.

Revenue derived from Africans outside the U S. Now represents 16% of our total and we expect this to further expand.

We will continue to make investments in these international markets to provide the best local support with the power of our global platform. Two notable examples of this are Mexico and India in the past nine months, we've ramped our Mexico operations from less than 10 team members to more than 100, and similarly in India, where we have strong GPO partnerships we've expanded.

This growth rate reflects the strength in the overall hiring market, that's benefiting from secular trends our leadership position in the industry as well as a favorable comparison to a partially pandemic impacted quarter last year.

We continue to benefit from high retention rates and our ability to upsell existing customers, all while adding new customers at the same time.

Ended our own team from less than 100 employees to nearly 500.

Our implementation pipeline is the strongest it has been in some time after a very good bookings quarter.

As I've said repeatedly our ability to service customers with our unified platform continues to be a strong competitive differentiator for us.

I also note that our revenue growth is 100% organic while we are actively evaluating M&A opportunities in the market. We continue to be disciplined in our approach and as of this time they have not executed any transactions.

Lastly, I would like to provide an update on our platform and fulfillment technology initiatives. As a reminder, we have partnered with a leading global it services firm to streamline and automate the fulfillment process, while improving the customer and candidate experience.

Turning back to Q2 revenue, we continued to see strength across our core verticals, particularly healthcare, which grew nearly 50% during the quarter and now represents our second largest vertical next technology.

This is a two year journey that we expect to complete at the end of 2023.

Our focus is on technology investments aimed specifically at automating more of our back office processes and maximizing the usage of our industry leading data assets are.

Our core four verticals of technology health care transportation and financial services now comprise nearly 60% of our total revenue.

We will continue to focus on these core verticals as our quality solutions ideally suited to these highly demanding customers.

Our emphasis is on driving automation and process improvement with a continued use of robotics processing automation natural language processing and other cloud delivery technologies that will reduce the cost and improve quality and efficiency of our researchers.

Our international markets are growing even faster than our U S business with international driven screens now representing 16% of overall revenue.

We believe this margin enhancement strategy will drive double digit profitability growth I.

International strength continues to be widespread but was led this quarter by Canada, Latin America, and India, each of which grew in excess of 40%.

I am pleased to report we have moved the first module of the program into production. Since this is the first phase of the program. We are rolling volume in a measured manner are pleased with the results. We're seeing and are excited about the opportunity to broaden the deployment and yield the long term improvements we're expecting.

FX fluctuations had a minimal impact overall in the quarter.

The strength in our top line coupled with our continued focus on productivity improvements led our adjusted net income to more than double over the prior year period from $17 million to $43 million, which is also a sequential increase of more than 40% in Q1.

Simultaneous to this rollout we are planning for the next modules to be delivered in the second half of the year.

As previously stated we expect only modest financial benefit this year with a ramping of savings beginning next year and fully yielding the benefits by the end of 2023.

In addition, adjusted EBITDA increased 40% or more over the prior year period for the second quarter in a row, while adjusted EBITDA margin improved by more than 240 basis points to 24, 1%.

We are pleased with our margin improvement efforts, especially as we are now carrying over $3 million of incremental public company costs versus the prior year period.

With that I'll turn the call over to Tom for a closer look at our second quarter financial performance and our outlook for the balance of the year Tom.

The vast majority of our improvement is being driven at the gross profit for cost of service level.

While we have important technology automation project that guy touched on earlier there are many other initiatives underway are being completed that can continue to drive cost improvements on the cost of service line.

There are four primary categories of these improvements one smaller automation projects that focus on specific repeatable tasks to labor optimization, including offshoring, three general process improvement and for our focus on data cost acquisition reduction through vendor management and elimination.

We continue to benefit from high retention rates and our ability to upsell existing customers, all while adding new customers at the same time.

The combination of these efforts has already resulted in a reduction of cost of service as a percent of revenue from 55, 6% to 54% over the past year.

Our implementation pipeline is the strongest it has been in some time after a very good bookings quarter.

These four elements will continue to be a focus for us as the larger technology transformation continues.

And which guy as already mentioned won't provide material margin contribution until 2023.

The improvements in our cost of service more than overcame a rising cost of SG&A, which are largely driven by the addition of public company costs in 2022.

Our SG&A expense was higher by $11 million, but still generally flat as a percentage of revenue compared to the prior year exclude.

Our core four verticals of technology health care transportation and financial services now comprise nearly 60% of our total revenue.

Excluding stock comp increases SG&A would've reflected nearly 100 basis point improvement from 13% of revenue to 11, 9% this quarter.

We will continue to focus on these core verticals as our quality solutions are ideally suited to these highly demanding customers.

More than $3 million of the increase in SG&A was related to new public company costs, including accounting and legal fees as well as insurance.

Our international markets are growing even faster than our U S business with international Durbin screens, now representing 16% to overall revenue.

Lastly, like many companies, we are dealing with a tight labor market and increasing wages.

International strength continues to be widespread but was led this quarter by Canada, Latin America, and India, each of which grew in excess of 40%.

Now turning to adjusted net income, which increased by 152% from $17 million to more than $43 million in the quarter.

FX fluctuations had a minimal impact overall in the quarter.

In addition to the improvements we saw in our operating performance, we benefited from $13 million reduction in interest expense.

The strength in our top line, coupled with our continued focus on productivity improvements, let our adjusted net income to more than double over the prior year period from $17 million to $43 million, which is also a sequential increase of more than 40% in Q1.

Largely driven by our improved capital structure and as with previous quarters, we continue to see the benefit of our tax assets, reducing our income tax expense.

Please note with our improved financial performance, we are carefully reviewing our valuation allowance on our tax assets and we may reverse that allowance at some point in the future.

In addition, adjusted EBITDA increased 40% or more over the prior year period for the second quarter in a row, while adjusted EBITDA margin improved by more than 240 basis points to 24, 1%.

Next I would like to provide some color on our cash flow and balance sheet. This is another area. We have delivered exceptional results with year to date operating cash flow of nearly $36 million.

We are pleased with our margin improvement efforts, especially as we are now carrying over $3 million of incremental public company costs versus the prior year period.

From a usage of cash of $300000 a year earlier.

The vast majority of our improvement is being driven at the gross profit for cost of service level.

Excluding our technology transformation project operating cash flow year to date would be more than $52 million.

While we have important technology automation project that guide touched on earlier there are many other initiatives underway are being completed that can continue to drive cost improvements on the cost to service line.

Year to date free cash flow was approximately $28 million.

As of quarter end, we had no draws against our revolver and had approximately $704 million outstanding on our first lien loan.

Our leverage ratio now sits at three one times down from $9. One times last year at this time and down from three seven times at the end of 2021.

And we ended the quarter with more than $118 million of unrestricted cash on the balance sheet. Additionally, during the quarter, we amended and extended our revolver to move the maturity out to June of 2027, and increased the size from $100 million to $145 million.

The combination of these efforts has already resulted in a reduction of cost of service as a percent of revenue from 55, 6% to 54% over the past year.

These four elements will continue to be a focus for us as the larger technology transformation continues.

Turning to our updated outlook for full year 2022, while our year to date performance has been strong and the demand for talent remains robust we cannot ignore the macro signs around inflation rising interest rates and the potential impact of a recession. This.

And which guy as already mentioned won't provide material margin contribution until 2023.

The improvements in our cost of service more than overcame a rising cost of SG&A, which are largely driven by the addition of public company costs in 2022.

This is truly an unprecedented environment for labor markets I cannot think of a similar time when we had this type of demand for labor all while on the cusp or even in the midst of a recession.

Our SG&A expense was higher by $11 million, but still generally flat as a percentage of revenue compared to the prior year, excluding stock comp increases SG&A would've reflected nearly a 100 basis point improvement from 13% of revenue to 11, 9% this quarter.

The labor market dynamics are different than anything we've seen in the prior downturn and while we are well aware that this can impact the demand for our solutions and the growth rates, we have seen over the past year are likely not sustainable we do feel that the level of hiring and demand for our services will continue at levels higher than pre pandemic.

More than $3 million of the increase in SG&A was related to new public company costs, including accounting and legal fees as well as insurance.

With that backdrop, we are raising our full year revenue guidance from a range of $815 million to $825 million to a new range of $820 million to $830 million.

Lastly, like many companies, we are dealing with a tight labor market and increasing wages.

Now turning to adjusted net income, which increased by 152% from $17 million to more than $43 million in the quarter.

We are raising our adjusted net income guidance from a range of $120 million to $130 million to a new range of $130 million to $140 million.

In addition to the improvements we saw in our operating performance, we benefited from $13 million reduction in interest expense.

Largely driven by our improved capital structure and as with previous quarters, we continue to see the benefit of our tax assets, reducing our income tax expense.

We are raising our full year adjusted EBITDA guidance from a range of $188 million to $195 million to a new range of $190 million to $197 million.

Please note with our improved financial performance, we are carefully reviewing our valuation allowance on our tax assets and we may reverse that allowance at some point in the future.

We are also raising the corresponding adjusted diluted earnings per share from a range of $1 51 to $1 64 to a new range of $1 64 to $1 76 per share.

Next I would like to provide some color on our cash flow and balance sheet. This is another area. We have delivered exceptional results with year to date operating cash flow of nearly $36 million.

And finally, a comment about seasonality as previously indicated Q2, and Q3 are seasonally stronger quarters. This year Q2 was particularly robust and we would not expect Q3 to be our strongest Q2, given Q2 strength in the economic trends cited earlier.

Excluding our technology transformation project operating cash flow year to date would be more than $52 million.

Year to date free cash flow was approximately $28 million.

With that we look forward to continuing our momentum in the second half of the year and keeping you posted on our progress with that operator, we can open up the call to questions. Thank you.

As of quarter end, we had no draws against our revolver and had approximately $704 million outstanding on our first lien loan.

Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad Youll hear Antonio acknowledging your request if you're using a speakerphone. Please pick up your handset before pressing any keys.

Our leverage ratio now sits at three one times down from $9. One times last year at this time and down from three seven times at the end of 2021.

To withdraw your question. Please press Star then two we will pause for a moment as callers join the queue.

The first question comes from Manav Patnaik with Barclays. Please go ahead.

Thank you good evening I just wanted to inquire about the.

Kind of outperformance this quarter.

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You beat the $3 2 million, but you're only raising by five I think we're kind of a drag.

This is truly an unprecedented environment for labor markets I cannot think of a similar time and we had this type of demand for labor all while on the cusp or even in the midst of a recession.

Why we're doing that.

Just wanted to understand maybe relative to what you guys expected housing.

Sure Manav I'll start and then Tom you can finish it so some of some of it is related to a couple of things first some of it is just related to timing.

The labor market dynamics are different than anything we've seen in the prior downturn and while we are well aware that this can impacted demand for our solutions and the growth rates, we have seen over the past year are likely not sustainable we do feel that the level of hiring and demand for our services will continue at levels higher than pre pandemic.

Typically we anticipated some revenue in Q3.

The latter half of the summer, we often do re screenings for financial services clients and some of our healthcare clients.

With that backdrop, we are raising our full year revenue guidance from a range of $815 million to $825 million to a new range of $820 million to $830 million.

Just an interesting thing this year is some of that revenue got pushed into Q3. So we had a little bit more over performance in Q3 that won't.

I'm, sorry in Q2 that won't flow through to Q3.

Yes, I mean generally manav, yes, that's one of the primary reasons is certainly timing some of the revenue we had expected in Q3 came in a little bit earlier on some of our annual re screening.

We are raising our adjusted net income guidance from a range of $120 million to $130 million to a new range of $130 million to $140 million.

We are raising our full year adjusted EBITDA guidance from a range of $188 million to $195 million to a new range of $190 million to $197 million.

Programs and then generally again for my comments.

Hard to read anything in the news today and not have some.

Level of cautiousness in terms of the outlook. So that's what's reflected in the.

We are also raising the corresponding adjusted diluted earnings per share from a range of $1 51 to $1 64 to a new range of $1 64 to $1 76 per share and.

Yes, obviously, we've raised we raised guidance for the full year and we're very confident.

As we sit here today I think it's important to note that there's been nothing no fundamental change in need.

Demand levels that we're seeing over the last seven.

Seven months of the year, Yes, I think it's worth saying because I said that during the last call actually.

We survey our clients all the time and we're still continuing to see it.

With that we look forward to continuing our momentum in the second half of the year and keeping you posted on our progress with that operator, we can open up the call to questions. Thank you.

Very robust.

Hiring.

They're seeing the same thing we all are there quits are up.

Even if they are if they are out in the in the market, stating that there that they may be doing lapsing see some prominent companies where clients have us make those statements yet it's not reflected at all and what their hiring trends have been and what they expect them to be.

We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad Youll hear at Tijuana acknowledging your request for using a speakerphone. Please pick up your handset before pressing any keys to withdraw. Your question. Please press Star then two we will pause for a moment as callers join the queue.

Over the course of the next couple of quarters.

Okay got it yeah I was going to ask you about the surveys that you do.

Maybe just as a follow up.

The first question comes from Manav Patnaik with Barclays. Please go ahead.

Right.

Growth.

Our new customer growth.

Thank you good evening I, just wanted to inquire about the kind of outperformance this quarter.

And what your beginning in the second half.

Yes, I mean, we're not going to disaggregate the growth percentages, but I can tell you that the first half of the year, our new business adds were very strong as well.

Our expectation.

You beat the $3 EBIT marine, but you're only raising by five I think we're kind of a drag.

We're doing that given the uncertainty that I just wanted to understand maybe relative to what you guys expected how things will shake out.

As were our upsell sell throughs to our largest clients, who I think we've talked about this quarter over quarter. We've got a dedicated sales team that focuses on upsells to our top 1000 clients and they continue to outperform but generally it's broad based manav, we saw just general.

Sure Manav.

I'll start and then Tom you can finish it so some of it some of it is related to a couple of things first some of it is just related to timing tip.

Typically we anticipated some revenue in Q3.

<unk> growth as well as contributions solid contribution from new revenue as well as up sells and the last point.

The latter half of the summer, we often do re screenings for financial services clients in some of our healthcare clients.

Piece of the equation there is retention our retention for the last 18 months has just been phenomenal yeah, just adding to that real quick.

Just an interesting thing this year is some of that revenue got pushed into Q3. So we had a little bit more over performance in Q3 that won't.

I'm, sorry in Q2 that won't flow through to Q3.

On the back of what we're seeing with new business that was implemented in the first half of this year our pipeline of clients yet to be implemented is also very strong.

Yes, I mean generally manav, yes, that's one of the primary reasons is certainly timing some of the revenue we had expected in Q3 came in a little bit earlier on some of our annual re screening.

Okay. Thank you guys.

Okay.

Programs and then generally again per my comments, it's hard to read anything in the news today and not have some.

The next question is from Hamzah <unk> with Jefferies. Please go ahead.

Hi, this is <unk> filling in for Hamzah.

Level of cautiousness in terms of the outlook. So that's what's reflected in the.

Could you just talk a little bit how labor availability issues are impacting your business directly and maybe indirectly as well and then just what are your plans around headcount growth over the next 12 months.

Yes, obviously, we've raised we raised guidance for the full year and we're very confident.

As we sit here today I think it's important to note that there's been nothing no fundamental change in the current.

So we're finding the same so great question by the way we're finding the same.

<unk> that everyone in the world is finding on on getting talent, we've done a good job retaining talent, especially staying in front of <unk>.

Demand levels that we're seeing over the last seven.

Seven months of the year, Yes, I think it's worth saying because I said that during the last call actually.

Potential talent.

We've got a good mix of white collar talent and then a bunch in operations, we've beefed up our recruiting team.

We survey our clients all the time and we are still continuing to see it.

Very robust hiring.

Before the beginning of the year and keep a good pipeline of operations, researchers and customer service folks, which tend to be the higher turnover types of labor in our in our business.

They're seeing the same thing we all are there quits are up.

But we're keeping up with it pretty well for now, but it's a challenge there's no question and as Tom pointed out earlier.

Lead to some higher labor costs.

Over the course of the next couple of quarters.

To make sure we're dealing with retention and the lack of attrition from from our employees and one thing we're doing to combat that is kind of indicative and some of the numbers that guy quoted in his section as we are diversifying our geographies in terms of and again. This is a good thing for the overall industry and guide talks about this a lot about the ability for people to take jobs in different geographies.

Okay got it yes, it was going to ask you about the savings that you, perhaps maybe just as a follow up so can you talk about.

B Groh with D. A.

New customer growth perhaps.

And what your beginning the second half.

Yes, I mean, we're not going to disaggregate the growth percentages, but I can tell you that the first half of the year, our new business adds were very strong as well.

We're doing the exact same thing part of the ramp that we've seen in our India office as well as our Mexico City office part of it is operational in nature part of its back office support like I've got finance people in Mexico City in India now right didn't a year ago. So we're trying to offset some of the pressures we're seeing.

As were our upsell sell throughs to our largest clients, who I think we've talked about this quarter over quarter. We've got a dedicated sales team that focuses on up sells to our top 1000 clients and they continue to outperform but generally it is broad based manav, we saw just general.

Here from a retention perspective in the U S by diversifying our geographies with some of our support personnel.

Got it I appreciate the color there and then can you just talk about how youre thinking about capital allocation, specifically M&A in the pipeline there.

Ganic growth as well as contributions solid contributions from new revenue as well as up sells and the last point.

Piece of the equation there is retention our retention for the last 18 months has just been phenomenal yeah, just adding to that real quick.

Yes.

I've spoken a lot about our M&A strategy.

<unk> is very much oriented at companies that can add value to our business either in new products or new geographies.

On the back of what we're seeing with new business that was implemented in the first half of this year our pipeline of clients yet to be implemented is also very strong.

We've got a good pipeline of potential opportunities we passed on a few.

Our traditionally doing small tuck ins with peer background screening companies doesn't make a lot of sense to me given that we're continuing to take share from that part of the market. So I don't want to pay a multiple EBIT multiple.

Okay. Thank you guys.

Okay.

The next question is from Hamzah <unk> with Jefferies. Please go ahead.

Hi, this is <unk> filling in for Hamzah.

To get that business, if I can win it for free in the marketplace.

We will continue.

Continue to see some activity with us, but again it'll be companies that provide us either niche capabilities or geographic presence that we want to bolster up.

So we're finding this a great question by the way we're finding the same.

Got it thanks, and congrats on the strong quarter.

Thanks, Mike.

<unk> that everyone in the world is finding on on getting talent, we've done a good job retaining talent, especially staying in front of her.

The next question is from Ashish <unk> with RBC capital markets. Please go ahead.

High potential talent.

Thanks for taking my question I, just wanted to focus on the healthcare vertical obviously really strong good debt and it looks like pretty good momentum I was just wondering if you could come down further on the pipeline, particularly on the headcount side.

<unk> got a good mix of white collar talent and then a bunch in operations, we've beefed up our recruiting team.

Before the beginning of the year and keep a good pipeline of operations, researchers and customer service folks, which tend to be the higher turnover types of labor in our in our business.

And more opportunities out there.

Yes. So another good question. So one of the things that we're seeing especially with global health care providers as our global platform has become quite a competitive advantage that and the fact that we staff or our health care vertical teams with experts in and doing business with health care companies, we've had an emphasis in particular.

We're keeping up with it pretty well for now, but it's a challenge there's no question and as Tom pointed out earlier, it will lead to some higher labor costs.

To make sure we're dealing with the retention and the lack of attrition from from our employees and one thing we're doing to combat that is kind of indicative.

On pharma companies and have had some some great recent wins there.

And some of the numbers that guy quoted in his section as we are diversifying our geographies in terms of and again. This is a good thing for the overall industry guide talks about this a lot about the ability for people to take jobs in different geographies. We're doing the exact same thing part of the ramp that we've seen in our India office as well as our Mexico City.

A lot of that growth that youre seeing that in our reported numbers. Some of that is coming from our international markets, where we're showing out that portfolio, but the general comment would be there is good broad base of wins for us for all kinds of health care companies.

With particular emphasis on the company's manufacturing pharmaceuticals.

The office part of it is operational in nature part of its back office support like I've got finance people in Mexico City in India now right didn't a year ago. So we're trying to offset some of the pressures we're seeing here from a retention perspective in the U S by diversifying our geographies with some of our support personnel.

I think it's an important vertical for us I mean, you saw the jolts numbers come out the other day, while there was kind of a back up a little bit for me.

Job openings perspective, certainly one of the strongest if not the strongest onto the numbers right in front of me performing sectors in the overall U S economy was healthcare and Thats why its such an important vertical for us.

Got it I appreciate the color there and then can you just talk about how youre thinking about capital allocation, specifically M&A in the pipeline there.

While we're really pleased that we continue to grow and take share in that vertical.

So just.

Yes, no thats very helpful. And then maybe on the EBITDA margins pretty strong margin expansion back on yet on the pieces, but also sequentially and I was just wondering.

And a lot about our M&A strategy.

<unk> is very much oriented at companies that can add value to our business either in new products or new geographies.

As you continue to execute on the projects that you've talked about the automation projects that they've been on operational improvement how should we think about.

We've got a good pipeline of potential opportunities we passed on a few.

Our traditionally.

IPO you talked about margin expansion.

Doing small tuck ins with peer background screening companies doesn't make a lot of sense to me given that we're continuing to take share from that part of the market. So I don't want to pay a multiple EBIT multiple.

So how is that coming along it seems like you might be tracking ahead of that until I was just wondering if you.

As you've made some progress on that trend how are you thinking about the margin expansion opportunity.

To get that business, while I can win it for free in the marketplace.

We will continue.

Continue to see some activity with us, but again it'll be companies that should provide us either niche capabilities or geographic presence that we want to bolster up.

Yes, no problem, there and Thats why I really wanted to kind of.

Line item the different projects that we're working on that it's not just all about one big Bang project kind of the automation project that Guy talks about there's a lot of other projects ongoing from an operational improvement perspective that we're always looking to take advantage of and we will continue to focus on those and I don't want to call. It in the background, but we do have the major automation.

Got it thanks, and congrats on the strong quarter.

Okay.

The next question is from Ashish <unk> with RBC capital markets. Please go ahead.

<unk> project going on that we will start to provide material results in 2023, but in the meantime, we still think we can expand margins just from our day to day operating efficiency programs.

And that's where most of that came from yes.

And more opportunities out there.

Yes. So another good question. So one of the things that we're seeing especially with global health care providers as our global platform has become quite a competitive advantage that and the fact that we staff or our health care vertical teams with experts in and doing business with with health care companies. We've had an emphasis in particular.

And congrats once again.

Thank you Ashish.

Next question comes from Andrew Nicholas with William Blair. Please go ahead.

Hi, good afternoon. Thanks for taking my questions I wanted to follow up on margins a bit more obviously seems like business momentum is quite good but youre talking about the potential for an economic slowdown or a normalization in certain hiring trends. So I'm. Just wondering if you could talk to kind of protecting.

On on pharma companies and have had some some great recent wins there.

<unk> or even growing margins in a more challenging environment for hiring and how we should kind of think about profitability sensitivity to that type of slowdown.

With particular emphasis on the company's manufacturing pharmaceuticals.

Sure Andrew I'll answer the first part of that so a big part of the technology initiatives that we have is we call the back office automation project.

I think it's an important vertical for us I mean, you saw the jolts numbers come out the other day, while there was kind of a back up a little bit for me.

Job openings perspective, certainly one of the strongest if not the strongest I don't have the numbers right in front of me performing sectors in the overall U S economy was healthcare and that's why it's such an important vertical for us.

Is one of those insulating effects right.

That is going to work to take out good chunks of labor.

Going forward, regardless of the macro environment that we have as we start to implement that technology, our ability to remove labor from the system.

While we're really pleased that we continue to grow and take share in that vertical.

Yes, no thats very helpful. And then maybe on the EBITDA margins pretty strong margin expansion that you have on the pieces, but also sequentially and I was just wondering.

<unk> is very impressive so that will certainly continue to provide positive momentum on margin and then the other half is really has to do with the variable nature of the cost of our business, but I'll, let Tom talk about yet.

As you continue to execute on the projects that you talked about the automation projects that they've been on operational improvement how should we think about.

Exactly what I was going to say I mean, we've said this in the previous quarters that roughly 80% of our cost of services variable today.

IPO you talked about margin expansion.

Part of that is driven by the third party data costs and things of that nature, but it's also the mix of labor we have in our use of contract labor resources as well as our own labor and really optimizing that mix is what we continue to look at optimizing that mix between our own labor and contract labor as well as our geographic.

So.

Is that coming along it seems like you might be tracking ahead of it and so I just wondering if you.

As you've made some progress on that trend how are you thinking about the margin expansion opportunity.

Yes, no problem, there and Thats why I really wanted to kind of.

Line item the different projects that we're working on that it's not just all about one big Bang project. The automation project that Guy talks about there's a lot of other projects ongoing from an operational improvement perspective that we're always looking to take advantage of and we will continue to focus on those and I don't even want to call. It in the background, but we do have the major automation.

<unk> of labor and where we're allocating the work so we think.

Dialing all of those styles allows us some flexibility in terms of any fluctuations we may see in demand levels.

Great. Thank you and then for my follow up in the slide deck, you referenced incremental upsell I'm sure part of that is is a conversation about expanding relationships internationally with existing clients. But are you also seeing upsells in the form of kind of new products, whether it's post hire monitoring social.

<unk> project going on that we will start to provide material results in 2023, but in the meantime, we still think we can expand margins just from our day to day operating efficiency programs.

That's where most of that came from yes.

Media monitoring and that sort of thing any any momentum there to call out.

And congrats once again.

We are actually all across the board, it's not just a part of that is the international expansion, but most of what we see is continuing to sell some new products some of its drug and health screening.

Thank you Ashish.

Next question comes from Andrew Nicholas with William Blair. Please go ahead.

Social media monitoring is taking off at a pretty good at a pretty good clip, we're doing and implementing more monitoring products.

Which also fall through with our vertical strategy and.

Both transportation and health care is too.

Two good markets for us to be doing monitoring so it's been a good performance across the board.

<unk> or or even growing margins in a more challenging environment for hiring and how we should kind of think about profitability sensitivity to that type of slowdown.

Thank you.

The next question is from George Tong with open text. Please go ahead.

Hi, Thanks. Good afternoon, you mentioned some re screening revenue was pulled forward from <unk> to <unk> can you quantify approximately how much that was.

Sure Andrew I'll answer the first part of that so a big a big part of the technology initiatives that we have is what we call the back office automation project.

No we won't get that specific but it's just.

It is one of those insulating effect right, where that that is going to work to take out good chunks of labor.

Material before a single digit million is always say not get the specific ever.

Going forward, regardless of the macro environment that we have as we start to implement that technology, our ability to remove labor from the system.

Okay got it.

And maybe just stepping back at a more high level.

You mentioned that Youre, not really seeing any fundamental change in current demand levels.

Really over the past seven months.

Would you explain that is that just a function of the labor trends out there or is it a function of your mix or your internal initiatives.

Exactly what I was going to say I mean, we've said this in the previous quarters that roughly 80% of our cost of services variable today.

Or it's a function of churn versus new job creation and a net basis.

How would you explain that disconnect between what we're seeing more broadly and then the headlines versus what youre seeing at the business level, yes.

Yes.

Thankfully, Georgia, it's a little bit of everything right. If you just first of all if you just look at the numbers. If you look at jobs and quits even though they came the jobs came down a little bit in the June numbers from the May numbers, there's still huge I mean way bigger than they were pre pandemic second is if you look at the industry.

<unk> of labor and where we're allocating the work so we think.

Dialing all of those styles allows us some flexibility in terms of any fluctuations we may see in demand levels.

The drop came from retail so we're not very retail heavy.

The companies that we specialize in healthcare technology financial services transportation, they're all struggling still to hire people and that is supported by the conversations we have for planning for the remainder of the year with all with all of those clients.

Great. Thank you and then for my follow up in the slide deck, you referenced incremental upsell and I'm sure part of that is is a conversation about expanding relationships internationally with existing clients. But are you also seeing upsells in the form of kind of new products whether it's.

So that's a big part of it and then one of the things that we've talked about a lot before.

Post hire monitoring social media monitoring that sort of thing any any momentum there to call out.

Is the competition for Labor also continues to show the number of screens per job.

We are actually it's all across the board not just so part of that is the international expansion, but most of what we see is continuing to sell some new products some of its drug and health screening.

Being above one for sure.

More global hiring is continuing we continue to see that trend.

I can't speak to a major client of ours, who is.

Social media monitoring is taking off at a pretty good at a pretty good clip, we're doing and implementing more monitoring products.

Who says to us that okay, thankfully, now where sort of our hiring patterns or starting to slow down. Its just continues to heat up now cannot change a quarter of course account for all the reasons that we all know and can talk about.

Which also follow through with our vertical strategy.

In both transportation and health care is a there was a.

Two good markets for us to be doing monitoring so it's been a good performance across the board.

Okay very helpful. Thank you.

The next question is from Andrew Jeffrey with Trust Securities. Please go ahead.

Thank you.

The next question is from George Tong with open text. Please go ahead.

Hey, guys. This is stepping on for Andrew.

Hi, Thanks. Good afternoon, you mentioned some re screening revenue was pulled forward from <unk> to <unk> can you quantify approximately how much that was.

Just wanted to unpack the healthcare points, even a little more.

I want to understand was United Health care part of the lift in this quarter.

We were on boarded.

No we won't get that specific but it's just.

And if not I just want to understand what is driving that strength because of upsells and cross sells or new logos.

Material, but single digit million is always say not not give a specific number.

And understand the sustainability of that growth is likely to continue to grow.

Okay got it.

But we're in the double digits can we kind of peg it.

And maybe just stepping back at a more high level.

Yes, so first we won't obviously won't address any specific clients.

You mentioned that Youre, not really seeing any fundamental change in current demand levels.

And the revenue that we're getting but what I can tell you is that our performance does not it was not dependent on any single client. It is in particular new wins.

Really over the past seven months.

Would you explain that is that just a function of the labor trends out there or is it a function of your mix or your internal initiatives.

Commented on before some are.

Or it's a function of churn versus new job creation and a net basis.

New pharma companies.

We've been onboarding and being successful marketing too.

How would you explain that disconnect between what we're seeing more broadly and then the headlines versus what you're seeing at the business level, yes.

We.

Have a very good track record of Onboarding healthcare companies and then even completing upsells before we launch.

Yes.

The very first background screening so.

We find them very receptive to some of the products that we have that they do internally then they outsource to us a good example of that that we've used before as a lot of health care companies will manage their own immunization inoculation scheduling and they might outsource their drug testing to a background screener, but theyre doing their immunization alkylation checks in house.

Sort of drop came from retail so we're not very retail heavy.

We're finding that because we built <unk>.

Capabilities to do that and manage that for some clients. We are finding a good upsell rate on that so it is it is it is across the board. Its the momentum that will that will continue I mean, certainly winning a very large a very large client has an impact on the numbers, but it's broad it's very broad.

So that's a big part of it and then one of the things that we've talked about a lot before.

Is the competition for Labor also opinion continues to show the number of screens per job.

Being above one for sure.

Got it.

More global hiring is continuing we continue to see that trend.

Next question comes from Mark Marcon with Baird. Please go ahead.

I can't speak to a major client of ours, who is who says to us that okay, thankfully now where sort of our hiring patterns are starting to slow down. Its just continues to heat up now cannot change a quarter of course account for all the reasons that we all know and can talk about.

Hi, good afternoon.

Most of my questions have been answered, but I just wanted to delve a little bit more in terms of.

The opportunities to further expand.

What youre doing in terms of some of the challenges.

And to get the recognition for how strong.

Great very helpful. Thank you.

Youre screening capabilities are relative to the competition.

The next question is from Andrew Jeffrey with Trust Securities. Please go ahead.

What are some of the programs that you can put in place in order to accelerate that and get even more wins.

Yeah.

Hey, guys. This is stepping on for Andrew.

You mean in terms of the.

Just wanted to unpack the healthcare points, even a little more.

What I call the Pepsi Challenge, Mark where we head against yes.

I want understand was United Health care part of the lift in this quarter.

So that's been it's been a big part of our sales and marketing teams efforts is to get clients to see that because one of the challenges that we have in our industry is you don't know that youre background screener may have missed a lot of things unless until you have a problem alright, thats when you discover it.

We are on boarded.

And if not I just want to understand what is driving that trend because of Upsells and cross sells of the new logos.

And understand the sustainability of that growth and frankly.

The continued growing nearly 50%, but we're in the double digits can we kind of peg it.

Our pitch to them is don't wait to find out that you have a problem sitting in there.

Yes, so first we won't obviously won't addressed any specific clients.

We purchased a compliance teams as well as with the HR functions and security teams that depending on who owns the background screening program. So we're continuing to build materials on that were continuing to build comps.

And the revenue that we're getting but what I can tell you is that our performance does not.

It's not dependent on any single client.

It is in particular, new wins as I commented on before some are new pharma companies that that we've been onboarding and been successful marketing too.

We have and are continuing to push that and will be.

The vocal vocal about it so that's the best that we are doing is to do it right across the table from a prospect as we are sitting there and showing them the actual data.

We.

Have a very good track record of Onboarding healthcare companies and then even completing upsells before we launch the <unk>.

And then putting that as I said, our money where our mouth is.

We will pay for the screening absent any any.

First background screen so we.

We find them very receptive to some of the products that we have that they do internally then they outsource to us a good example of that that is before us.

Data costs that are that are required.

We're seeing pretty good acceptance rate of that but we also see skepticism right. I mean, you see I think part of it is some clients don't want to know.

Lot of health care companies will manage their own immunization inoculation scheduling and they might outsource their drug testing to a background screener, but theyre doing their immunization alkylation checks in house, while we're finding that because we've built K.

So.

Yes.

Makes sense and then with regards to.

The macro factors that you talked about.

How different are the conditions that youre seeing today relative to when you ended up reporting the first quarter and you were.

<unk> done a nice beat but.

Guiding.

Fairly conservatively.

Have you seen any sort of change at all in terms of the tone of business or on a monthly basis is there are there any verticals that are that are shifting at all.

Got it.

No Mark no no difference.

The next question comes from Mark Marcon with Baird. Please go ahead.

And as I said I think part of that is because of I like our mix we don't have.

Most of my questions have been answered, but I just wanted to delve a little bit more in terms of the.

Large dependency on any single client or a single industry, but the four target industries that we have are still struggling to keep up with labor demand.

The opportunities to further expand.

Despite even some very very large clients of ours publicly stating that they were going to be.

What youre doing in terms of some of the challenges.

And to get the recognition for how strong.

Cutting back on hiring.

Youre screening capabilities are relative to the competition.

That's not what they are on the ground recruiting teams are telling us.

That who are filling out of the pipeline of jobs. So it's it's a little bit mindboggling to be honest with you then.

What are some of the programs that you can put in place in order to accelerate that and get even more wins.

It's hard.

You mean in terms of the what I call. The Pepsi Challenge marketing, where we're head against yeah. So that's been it's been a big part of our sales and marketing teams efforts is to get clients to see that because one of the challenges that we have in our industry is you don't know that youre background screener may have.

To imagine that Thats, just going to continue the way it is but when you look at the openings and the <unk> just continue to do.

Push.

And then with regards to the.

With regards to the health care vertical you obviously had.

Tremendous success there how much of that was this due to that one big win that you ended up.

Missed a lot of things unless until you have a problem alright, thats when you discover it.

Taking on recently.

And our pitch to them is don't wait to find out that you have a problem sitting in there and we pitched to compliance teams.

Well some of it but not all of it is what I can what I can tell you.

Any any big client is helpful. But that was the combination of a bunch of a bunch of wins on the back of that as well.

Well, the HR functions and security teams that depending on who owns the background screening programs. So we're continuing to build materials on that were continuing to build comps.

That we have and are continuing to push that and will.

Okay and then the gross margin performance was nice what was the what was the.

The vocal vocal about it so.

The core driver of their end.

The best that we are doing is to do it right across the table from a prospect as we are sitting there and showing them the actual data.

How would you characterize pricing in the industry at this point.

Yeah again as I alluded to we're always looking at ways to improve margin and that does include price right and as we've talked about in the past we will be opportunistic in pushing price increases through in a very targeted basis, we don't do any kind of peanut butter spread price increases, but we are always.

And then putting that as I said, our money where our mouth is.

We will we will pay for the screening absent any any.

Data costs that are that are required.

We're seeing pretty good acceptance rate of that but we also see skepticism right I mean, you see.

Part of it is some clients don't want to know.

So.

Looking at that as a tool box tool in our toolbox.

Yes, that's right.

Makes sense and then with regards to.

The primary drivers I would say this this past quarter were really some of just operational efficiencies.

You know the macro factors that you talked about how different are the conditions that youre seeing today relative to when you ended up reporting the first quarter and you were.

And then minor automation projects that eliminate a repeatable task that maybe 30 people were doing onshore right or moving some of that labor offshore that can be moved offshore or just looking at different ways too.

<unk> got a nice beat but you know we're guiding.

Fairly conservatively.

Slow work through the.

Have you seen any sort of change at all in terms of the tone of business or on a monthly basis is there are there any verticals that are that are shifting at all.

The system and create efficiencies there. So we'll continue to make those tweak that.

Give us 100000 $500 million here and there but enough of those programs add up over quarter to drive some nice improvement.

No Mark no no no difference.

And as I said I think part of that is because of I like our mix we don't have.

Terrific great job.

Thanks Mark.

Large dependency on any single client or any single industry, but the four target industries that we have are still struggling to keep up with labor demand.

The next question, Kevin Mcveigh with Credit Suisse. Please go ahead.

Great. Thanks, So much hey are you sure any change at the margin.

Despite even some very very large clients of ours publicly stating that they were going to be.

Cutting back on hiring.

And the attrition rates of your clients. So said another way are you starting to see the churn move one way or the other its impact.

That's not what they are on the ground recruiting teams are telling us.

That who are filling up the pipeline of jobs. So it's it's a little bit mindboggling to be honest with you then.

The screens.

That theyre incurring.

It's hard.

I mean, there are employee their employee churn.

To imagine that Thats, just going to continue to way it is but when you look at the openings and the <unk> just continue to do.

Kevin you were talking about our customers.

Push.

That's right.

Yes.

And then with regards to the with regards to the health care vertical you obviously had tremendous success there how much of that was this due to that one big win that you ended up.

I have I haven't honestly.

Again, it goes to the overall kind of ordering patterns and with the exception of a little seasonality you get a little bit of a slowdown over the summer sometimes when people are on holidays generally the ordering patterns have been pretty consistent yes.

Taking on recently.

Well some of it but not all of it is what I said is what I can tell you.

Great and then I know that some.

Obviously any any big client is helpful. But that was the combination of a bunch of a bunch of wins on the back of that as well.

A lot of success recently with blending some clients back.

That kind of been at the same pace or just.

Okay and then the gross margin performance was nice what was the what was the.

Albert frame, Adam on that tomorrow on that recently.

Yes, so remember I think the last quarter I talked about some of the win backs came some international win backs came from US re implementing products that we had removed when we rolled out the global platform. We have seen a continuation of that trend I talked specifically about large technology client in India, India was the only business of theirs.

The core driver there and you know how would you characterize pricing in the industry at this point.

We don't have.

We still think that's true.

Again, because we rolled out these new products and now we have that global platform.

Looking at that as a tool box tool in our toolbox, but the primary drivers I would say this this past quarter were really some of just operational efficiencies again minor automation projects that eliminate a repeatable task that maybe 30 people were doing onshore right or moving some.

It came back to us.

So that's yet another win back.

In Q2, so I think I noted two of them in Q1, there was another two in Q2.

Okay.

Thanks, Kevin.

Of that labor offshore that can be moved offshore or just looking at different ways too.

The next question is from Shlomo Rosenbaum with Stifel. Please go ahead.

Hi, Thank you for taking my questions, Hey, Guy hopefully transition are you pulling your clients about plans in other words, how tight are these clients.

<unk> worked through the <unk>.

The system and create efficiencies there. So we'll continue to make those tweak that.

Give us 100 $500 million here and there but enough of those programs add up over quarter to drive some some nice improvement.

Talking to with the ultimate decision makers in terms of the hiring.

Right.

Good day.

Terrific great job.

Out.

What the managed starting to think back and forth or sell one day and just find that all of a sudden the C level suite came back complete change of plans and all of a sudden there was going to get some.

Thanks Mark.

The next question, Kevin Mcveigh with Credit Suisse. Please go ahead.

Great. Thanks, So much hey are you seeing any change at the margin.

Yes, great question Shlomo they absolutely can do that right I mean, the people that we're that we're talking to.

And the attrition rates have your clients. So said another way are you starting to see the churn move one way or the other its impact.

Depends on the client who runs the screening program.

More times than not it's the talent acquisition organization and they know the pipeline and demand they have for people. It doesn't mean the management can't just all of a sudden say that's it we're in a hiring freeze right. So we take.

The screens.

That theyre incurring.

I mean, there are employee their employee churn.

Kevin you were talking about.

Piece of that data one day at a time and we keep and continual conversation with them and I can tell you just the tone between the first quarter in the second quarter did not change much.

Our customers.

That's right.

Yes.

I have I haven't honestly.

Again, it goes to the overall kind of ordering patterns.

And I think it's also important to note I mean theres been a lot of high profile comments about hiring freezes and I think there are some semantics involved there with certain companies, saying they are in a hiring freeze, but does that mean, they're not expanding their workforce or are they literally not hiring anybody because that churn factor comes in there I can tell you.

And with the exception of a little seasonality you get a little bit of a slowdown over the summer sometimes when people are on holidays generally the ordering patterns have been pretty consistent.

Great and then I know.

A lot of success recently.

Blending some clients back does that kind of been at the same pace Sir.

The same thing applies to us right.

<unk> somebody on my accounting team I definitely have to go out and replace that person and that churn level remains high and so somebody may say, they have a hiring freeze but that.

Albert frame, Adam on that tomorrow on that spend more recently.

Yes.

Remember I think the last quarter I talked about some of the win backs came some international win backs came from US re implementing products that we had removed when we rolled out the global platform, we have seen a continuation of that trend.

More often than not it doesn't mean, there doesn't mean, they're not backfill.

Got it okay.

Talked specifically about large technology clients in India, India was the only business of theirs, we don't have.

And what tax rate are you, assuming you're assuming now for the EPS guidance and what were you assuming last quarter. It seems like there were almost no taxes paid this quarter and you guys using the actual tax rate versus kind of a structural tax rate. So I'm just trying to understand what might have changed between last quarter's guidance and this quarter's guidance.

We still think that's true.

Again, because we rolled out these new products and now we have that global platform.

Came back to us.

So that's yet another win back.

Yeah, our tax rate is always going to be at least for the foreseeable future is going to be driven by our.

In Q2, so I think I noted two of them in Q1, there was another two in Q2.

Foreign income right, we're generally not a U S. Taxpayer. So it's a much more complicated tax calculation, because youre doing a tax calculation across numerous different countries. So.

Great.

Thanks, Kevin.

The next question is from Shlomo Rosenbaum with Stifel. Please go ahead.

It is going to fluctuate based on our income by country, which we're obviously not going to breakout.

Hi, Thank you for taking my questions.

I hope for utilization are you pulling your clients about plans in other words, how tight are these clients.

So we are giving you an actual rate based on what we're seeing on our income at the country level and it's a blended rate and I made a comment on the call about the reversal of our tax allowance.

Talking to with the ultimate decision makers in terms of the hiring.

Right.

<unk> and <unk>.

<unk>.

Our tax assets have been we've had a full allowance against them for the last few years, but now that we've reached a point, where we're generating consistent profitability.

What the management, starting to think back and forth or al One day, and just find that all of a sudden you know the C level speed suite came back complete.

Complete change of plans and all of a sudden and what's going to get some.

Really to see that allowance reverse here in the next couple of quarters.

Yes, great question Shlomo they absolutely can do that right I mean, the people that we're talking to.

Was there a change in the tax rate, though other words was there a change in the assumption of the amount of taxes youre going to pay between last quarter and this quarter.

Depends on the client who runs the screening program.

More times than not it's the talent acquisition organization and they know the pipeline and demand they have for for people. It doesn't mean the management can't just all of a sudden say that's it we're an iron freeze right. So we take every piece of that data one day at a time and we keep and continual conversation with them and I can tell you just the tone.

It's recalculated every quarter based on our income by country, because it is not driven by the U S.

Yes, I do.

The blended rate, but it's going to be different by country.

Okay I'll follow up with you on that offline.

Okay.

Between the first quarter in the second quarter did not change much.

The next question is from Jason <unk> with Keybanc capital markets. Please go ahead.

And I think it's also important to note I mean theres been a lot of high profile comments about hiring freezes and I think there are some semantics involved there with certain companies, saying during a hiring freeze, but does that mean, they're not expanding their workforce or are they literally not hiring anybody because that churn factor comes in there I can tell you that.

Hey, guys, Hey, Tom This is actually Devin on for Jason today, Thanks for taking my questions.

First one I have is international business continues to post really Sean good to hear.

I just want to double click on Europe .

The exposure you have over the air Bud.

The key focus from investors just wanted to ask about if youre seeing any sort of changes in sales cycle in that region.

The same thing applies to us right.

Lose somebody on my accounting team definitely have to go out and replace that person and that churn level remains high and so somebody may say, they have a hiring freeze but.

Or any changes around customers' willingness to spend there.

No not at all.

EMEA business overall.

More often than not doesn't mean, there doesn't mean, they're not backfill.

It has done very well and continues to do well, it's growing it's growing well.

Broad based strength not just its UK its.

Got it okay.

And what tax rate are you, assuming you're assuming now for the EPS guidance and what were you assuming last quarter. It seems like there were almost no taxes paid this quarter and you guys using the actual tax rate versus kind of a structural tax rates. So I'm just trying to understand what might have changed between last quarter's guidance and this quarter's guidance.

The Continental Europe .

We've seen some good and.

And have good progress in the middle East.

We have not seen any slowdowns or.

Cautions at all.

Yes got it okay.

That's good to hear and then just quickly on the <unk>.

Yeah, our tax rate is always going to be at least for the foreseeable future is going to be driven by our.

Full year guide not sure if you mentioned it already but in terms of your assumptions around macro for a second half of the guide are you sort of baking in any deterioration in macro.

Foreign income right, we're generally not a U S. Taxpayer. So it's a much more complicated tax calculation, because youre doing a tax calculation across numerous different countries. So.

Yes.

Yes, well you can read you can go back and look at my comments basically.

We are very aware of what the macro challenges out there on what the headlines are.

It is going to fluctuate based on our income by country, which we're obviously not going to breakout.

I think we've been consistent in terms of what we've been saying in terms of what we're seeing at our ordering level.

So we are giving you an actual rate based on what we're seeing on our income at the country level and it's a blended rate and yes, I made a comment on the call about the reversal of our tax allowance.

And we factored that into our second half guidance.

And you can see relative to where the first half came out again, it's not that far off from where we work from a first half perspective, but you can definitely see that there is a little bit more.

Our tax assets have been we've had a full allowance against them for the last few years, but now that we've reached a point, where we're generating consistent profitability.

Caution in the second half.

Actually to see that allowance reverse here in the next couple of quarters.

Got it okay I appreciate it.

Thanks Deb.

But is there a change in the tax rate, though in other words was there a change in the assumption of the amount of taxes youre going to pay between last quarter and this quarter.

It appears we have no further questions I'll turn the call back to <unk> for closing remarks.

Thank you all follow up shortly take care bye.

It's recalculated every quarter based on our income by country, because it is not driven by the U S.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have Pleasant day.

But yes I.

I don't have the blended rate, but it's going to be different by country.

Okay I'll follow up with you on that offline.

Okay got it thanks.

The next question is from Jason <unk> with Keybanc capital markets. Please go ahead.

Hey, guys, Hey, Tom This is actually Devin on for Jason today, Thanks for taking my questions.

One I have is international business continues to post really Sean good to hear.

I just wanted double click on Europe .

All the exposure you have over there but.

That's been a key focus from investors just wanted to ask about if you're seeing any sort of changes in sales cycle in that region.

Or any changes around customers' willingness to spend there.

No not at all.

The EMEA business overall.

It's done very well and continues to do well, it's growing it's growing well and it's.

Broad based Reits not just its UK.

The Continental Europe .

We've seen some good and.

Have good progress in the Middle East.

Cautions at all.

Yes got it okay.

That's good to hear and then just quickly on <unk>.

Full year guide not sure if you mentioned it already but in terms of your assumptions around macro for a second half of the guide are you sort of baking in any deterioration in macro.

Yeah.

Yes, well you can read you can go back and look at my comments basically.

We are very aware of what the macro challenges out there on what the headlines are.

I think we've been consistent in terms of what we've been saying in terms of what we're seeing at our ordering level.

And we factored that into our second half guidance.

And you can see relative to where the first half came out again, it's not that far off from where we were from a first half perspective, but you can definitely see that there is a little bit more.

Caution in the second half.

Got it okay I appreciate it.

Thanks Deb.

It appears we have no further questions I'll turn the call back to Guy Brahmo for closing remarks.

Thank you all to follow up shortly take care bye.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

Okay.

Yes.

Okay.

Yeah.

Yes.

Hum.

Yes.

Yeah.

[music].

Yes.

Okay.

[music].

Q2 2022 HireRight Holdings Corp Earnings Call

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