Q3 2022 HireRight Holdings Corp Earnings Call
Please standby the conference will begin momentarily to register for a question. Please press the one followed by the four on your telephone at any time during the presentation. We thank you for your patience and I say you. Please remain on the line.
[music].
Good afternoon, ladies and gentlemen, and welcome to Hi, REIT third quarter 2022 conference calls.
Joining today's call as the company's President and Chief Executive Officer, Scott <unk> Bravo.
And Chief Financial Officer, Tom Space.
This time, all participants are in a listen only mode.
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.
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 margin growth prospects for industry sectors, and our international business labor market and economic trends.
The effects of macroeconomic uncertainty future cash flows and financial performance, including 2022 guidance such statements are predictions and actual results may differ materially.
Additional information concerning factors that could cause actual results to materially differ from those in forward. Looking statements is contained in Form 10-K filed with the Securities and Exchange Commission in particular in the sections of that document entitled risk factors forward looking statements and management's discussion and analysis of financial condition.
And results of operations now, it's my pleasure to turn the call over to Guy <unk>. Please go ahead.
You operator, and good afternoon, everyone. We're pleased to have you with US today as we celebrate one year as a public company and report another solid quarter of results in an increasingly uncertain environment.
For this fiscal third quarter revenue was $210 million, an increase of $5 million over last year's solid results imports.
Importantly, our strength reflects continued high client retention of 97% increased.
Increased upsells and package expansion to existing customers new logo wins in our targeted end markets and our teams commitment to growing our core verticals.
Our account management and go to market teams are focused on developing new global client relationships, while expanding existing relationships across all of our regions.
I indicated on our last call, we expected to see more normalized trends as the year progressed in Q3 reflects just that.
It is our first year over year normalized results following the impact of the pandemic on prior quarterly results and demonstrates the demand for our high quality solutions across all of our regions and verticals.
We are pleased with the growth we were able to deliver notwithstanding the well known macro headwinds for example.
Even though order volumes in the UK were up 15% the dramatic fall of the British pound had a nearly $2 million negative impact on revenue during the quarter, resulting in EMEA revenue being flat year over year.
Also in the U S. One of our largest customers discontinued their verification products due to a substantial price increase from one of our suppliers. This impact was approximately $6 million in the quarter.
Although the first half of the quarter saw continued strong order volumes, we began to experience a noticeable decline in volumes for many of our enterprise customers during the back half.
The account reviews and ongoing dialogue with many of them are starting to reflect a genuine nervousness about the macro environment and its impact on their own business outlooks.
This uncertainty is causing some of our customers to slow the pace of hiring.
To be clear, we are not observing a cessation in hiring nor have we seen a significant drop off in new business and our pipeline remains very strong.
Rather the pace of hiring with existing customers has slowed and we expect that pressure to be felt until such time companies have a more confident economic outlook.
This macro slowdown will have an impact on the fourth quarter, and therefore, our guidance, which Tom will review in a minute.
However, make no mistake, our important initiatives to optimize long term growth and enhance our margins are continuing at the same rapid pace.
This includes upselling to existing customers, bringing on new logos and growing our core verticals through new global client relationships and expanded business with existing clients.
It also includes continued strong execution on our platform and fulfillment technology initiatives that I'll discuss in a moment.
Turning to profitability in the quarter, we delivered a 5% increase in adjusted EBITDA versus the prior year period with a 50 basis point increase in adjusted EBITDA margin are.
Our efficiency improvements increased automation and strict fiscal discipline drove these gains and improvement in adjusted margin.
Quality and thoroughness and our investigations remain key selling points for us, particularly in our core markets that tend to be more demanding and our single global platform and automation initiatives continue to be key differentiators.
This focus on speed precision and innovation played a significant role in adding 44 new logos.
Most importantly, new logos in the quarter were distributed across all of our key focus verticals.
As I have said repeatedly in previous calls we are willing to prove to clients and prospects that our solutions will outperform any one of the market.
Key is to show that not all background checks and background screening companies are created equal and none are more thorough than we are.
Regarding our vertical and geographic success healthcare continue to be one of our strongest performers growing nearly 11% over the prior year period.
Transportation also showed strength during the quarter growing more than 14% year over year.
Turning to our international markets, where revenue growth was impacted by foreign currency fluctuations, particularly the weakness in the British pound as I said earlier, despite foreign currency headwinds UK volumes grew 15% over the prior year.
Canada also continues its strong year with 34% growth.
While international growth has slowed similar to the U S. Our investments in our international operations positions us to be the global leader in this space, where we continue to support our customers by leveraging our unified global platform.
Lastly, I would like to provide an update on our platform and fulfillment technology initiatives. As a reminder, we partnered with a leading global it services firm to streamline and automate our back office fulfillment processes through the continued and expanded use of our full suite of automation technologies that will improve how we conduct our background screening.
Leveraging smart technology to identify learn and map all the variations of a specific search term with our industry leading data assets.
<unk> the number of manual data reconciliations, enabling us to continue to drive improvements in both quality and profitability.
We're nearly a year into this competitively differentiating journey and as I have said previously we expect only modest financial benefit this year with a ramping of savings beginning next year and benefits throughout 2023 and 2024.
In closing we're pleased with today's results given the backdrop of significant uncertainty around the broader future macro environment.
The underlying demand for talent and our ability to cross sell and add new customers gives us confidence in the long term outlook and our ability to create significant shareholder value over time.
With that I'll turn the call over to Tom for a closer look at our third quarter financial performance and our outlook for the balance of the year Tom.
Thank you Guy and good afternoon, everyone and thank you for joining our call today I am pleased to report we have delivered our sixth consecutive quarter of growth with revenues of $210 million in spite of macroeconomic headwinds, which started to impact ordering patterns towards the tail end of the quarter.
Part of this impact included a nearly $2 million decrease in our international revenues, resulting from the weakened pound.
As Guy also mentioned, we had a $6 million negative impact from one of our customers' gift discontinuing their verification program due to pricing increases from the leading employment verification vendor list.
This was a very isolated cases, we have not seen other customers take similar action.
We continue to benefit from high retention rates and our ability to upsell existing customers, while continuing to build a strong pipeline.
Gross retention year to date is 97%, while net retention sits at 117% year to date.
As in previous quarters, our revenue growth is 100% organic.
And while we are actively evaluating M&A opportunities in the market, we continue to be disciplined in our approach.
Diving deeper into Q3 revenue. Despite some early signs of the macroeconomic slowdown our healthcare vertical continued to outperform both industry and company averages and achieved double digit year on year growth.
Transportation, which had been the slowest of our core core vertical to recover from the pandemic was our leading growth vertical during the quarter growing 14%.
And while manufacturing and distribution is not a core focus for us that vertical also grew in excess of 13% during the quarter.
Financial services showed modest growth. However, it had particular exposure to the weakened pound as.
As we have tremendous market share among the large U K based banks.
Technology was the first vertical to demonstrate hiring softness declining a few points year over year rare.
Revenue from all core verticals of technology healthcare transportation and financial services as a percentage of our total revenue dipped slightly during the quarter to 57%.
Services and manufacturing and distribution each represented approximately 10% of revenue during the quarter.
International markets began to show impacts from the macro changes sooner than the U S did.
Particularly in markets, such as India, where many of our technology clients have a significant presence.
This coupled with the FX headwinds led our international markets to slightly underperformed the U S.
One continued bright spot in international markets, with Canada, which continued to grow at double digit rates.
One of the clear highlights of the quarter was our continued improvement in margin.
Our focus on productivity improvements and cost control resulted in an adjusted EBITDA margin of 25, 7%, a 50 basis point improvement over last year, and 150 basis point improvement over Q2.
The vast majority of our improvement is being driven at the gross profit or cost of service level. We continue to focus on delivering the important technology automation projects that guy touched on earlier in addition to driving cost improvements through the optimization of our onshore and offshore labor mix and increased focus on managing data cost.
Gross margin, excluding depreciation and amortization was a multiyear high of 47, 3% an increase of 160 basis points over the prior year period.
Year to date gross margin now sits at 45, 6% and year to date adjusted EBITDA margin is 23, 7%.
An increase of 160 basis points versus the same period in 2021.
It is important to note that gross margin improvements from the technology transformation are not tied to revenue growth the streamlining of our fulfillment processes will drive future profitability and cash flow.
So our variable cost structure enables us to flex our labor in response to any slowing market demand.
As we demonstrated in the early days of the pandemic, we quickly reduced our direct cost in response to slowing demand, allowing us to minimize the impact on gross margin.
Turning to SG&A.
<unk>, excluding stock based compensation were down by $2 million from Q2, however were higher by $1 $5 million versus Q3 2021.
This increase is largely due to higher personnel costs and higher public company expenses, such as D&O insurance and accounting fees.
Personnel related cost for SG&A were relatively flat to Q2, however, up $3 million over the prior year period, reflecting our investments in technology and our go to market team.
Adjusted net income increased to $112 million largely driven by the reversal of our tax alone.
This reversal is a noncash transaction that resulted in a one time benefit to income tax expense of $70 million.
We do not anticipate a meaningful change in the effective current cash tax rate is the allowance will offset future U S cash taxes.
Further this release will not impact our TRA calculations and the timing of those projected payment.
In addition to the improvements we saw in our operating performance we benefited from a reduction in interest expense largely driven by our improved capital structure compared to a year ago.
I would also like to provide some color on our cash flow and balance sheet.
This is another area, where we had delivered exceptional results with year to date operating cash flow of nearly $71 million up from $19 million a year earlier.
Excluding our technology transformation project operating cash flow year to date, we'd be more than $94 million.
Year to date free cash flow was approximately $58 million.
As of quarter end, we had no draws against our revolver and had approximately $702 million outstanding on our first lien loan our leverage ratio now sits at two nine times and we ended the quarter with $147 million of unrestricted cash on the balance sheet.
Turning to our updated outlook for full year 2022, while our year to date performance has been strong the macro environment has certainly softened in recent months and there remains uncertainty around the length and depth of any potential recession.
While we continue to hold to our long term growth objectives for this industry and believe the secular changes we have discussed in labor markets will continue over the long term there is clear softness uncertainty as we stand here today with that in mind, we are updating our full year revenue guidance from a range of $820 million to $830 million to a new range.
<unk> of 798% to $805 million.
We are updating our adjusted net income guidance from a range of $130 million to $140 million to a new range of $200 million to $204 million inclusive of the tax adjustment.
We are updating our full year adjusted EBITDA guidance from a range of $190 million to $197 million to a new range of $178 million to $185 million.
And we are updating the corresponding adjusted diluted earnings per share guidance from a range of $1 64 to $1 76.
To a new range of $2 52 to $2 57 per share.
Both adjusted net income and adjusted diluted earnings per share include the impact of the $70 million reversal of our tax allowance made this quarter.
I also want to note that the implied Q4 guidance reflects approximately another $6 million headwind from the aforementioned customer who discontinued verifications.
As well as another roughly $2 million from FX headwinds with the remaining year over year decline attributed to lower volumes, resulting from the changes in the macro environment.
Finally, with respect to 2023 guidance, we're finalizing our 2023 operating budget taken into consideration the headwinds of potential recessionary macro operating environment domestically and internationally incremental interest actions by the federal reserve quit rates available job openings and the <unk>.
Up demand for talent and we will provide full year 2023 guidance when we release our year end results.
However, I will comment that our commitment and focus on margin improvement will continue regardless of the demand environment and much of the margin improvement actions. We are taking through technology with our vendor and operations are not volume dependent with that operator, we can open up the call for questions.
Okay.
Thank you.
Ladies and gentlemen, if you'd like to register for a question. Please press the one followed by the four on your telephone.
<unk> pumped to acknowledge your request.
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Once again to read just a quick question. Please Mr. One followed by the floor.
Our first question comes from the line of George Tong with Goldman Sachs.
Please proceed with your question Hi, Thanks.
Hi, Thanks, good afternoon.
Hi, you mentioned that the.
The business is progressing well and you're not really seeing any meaningful signs of slowdown I guess, if you look at the business and look at past downturns, where would you see it first what are the leading indicators what are the kpis that you would watch for.
And are there any such inflection is that youre seeing in the business that might point to perhaps early signs of a moderation.
George.
Two.
We werent, even though there were reports in the media the technology is going to slow hiring I mean, we're not seeing that in our volumes in the second quarter.
But in the third and this quarter reported we started to see.
Slowdown in ordering patterns again across the board I would tell you every.
All the major technology players are clients of ours and every single one of them had dips in their volumes.
Great. Thank you.
Our next question comes from the line of Ashish <unk> with RBC capital markets.
Please proceed with your question.
Thanks for taking my question I, just wanted to focus on that $6 million impact what I wanted to understand is that a quarterly or annual impact and is the right way to think about Daniel impact would that be like a multiplying it by four.
Yes that was a quarterly impact Ashish you can't necessarily annualize it multiyear multiplying it by four because this particular customer.
Has a little bit more volume weighted towards the second half of the year, including the third quarter. So their peak tends to be.
Q3, Q4, so while you can't necessarily multiply by four you could probably multiplied by three in terms of an overall impact and there is some uncertainty involved in this as well ashish and that they could start ordering verifications, given where we are clearly working with them on alternative solutions.
Not that that business is going to someplace else. They just decided to stop right. So.
So that's why it would be difficult to project that.
Moving forward, but we do believe that that will be the case in the fourth quarter.
Okay. Thanks for that color and if I back and even if I take the high end of your guidance range, both for revenue and EBITDA on the revenue and even if I add back that $6 million.
One time impacting 2 million MAU and thanks, again like revenues being down 8%.
And I understand you talked about some of the slowdown at the end of the quarter and slowdown in volume, but is my math right.
Is that the right way to think about it well under 1% or 8% excluding okay. And then maybe just on the margin sorry, one more on margins <unk> margins of 25%, which is down 100 basis point year on year, I would think that that $6 million would be mostly pass through revenues, we shouldnt have impacted.
Margins as much as that because of the revenue weakness.
We are seeing.
The impact on margins as well.
Yes, so there's really two things going on there one historically Q4 margins tend to be a little bit softer based on just the way the holidays, our staffing levels work and the volumes flow through so thats clearly a driver of what Youre seeing there and the second impact is just the overall volume decline that we are.
Forecasting for Q4 based on the implied based on the guidance and the implied guidance for Q4.
Okay. That's helpful. Thanks, Thanks for the color.
Our next question comes from the line of Kevin Mcveigh with Credit Suisse. Please proceed with your question.
Yeah.
Okay great.
Thanks, so much.
As we think about I know, you're not giving formal 2023 guidance.
But is it fair to maybe annualize what the Q4 is kind of implied for 2023, and I know theres some seasonality in there things like that but if we wanted to think about a potential range.
Or are there other things to just call out obviously, you've got the one client some FX in there I imagine the FX, probably is a little bit more of a headwind beyond the $2 million, but just.
And I know, it's not kind of formal guidance, but is there any way to think about other puts and takes and.
<unk>.
Just to follow up with that client.
How are they doing it now so is it.
How are they.
During those screens now so.
So theyre doing so it's a full package that we have with this client Kevin. Thanks for the question and so what they just decided to just stop doing verification. We are still doing background screening and all the other things that we do but verifying.
<unk> specifically has been stopped.
Because of the.
Significant price increase by a very well known vendor.
But what.
What they are doing is we're stopping it and then looking for an alternative solution that would likely run through us anyway.
Your question on long term guidance.
This is the reason why we're not giving long term guidance right and the reason why what you see reflected in our rest of year guidance.
As us trying to trend line a phenomenon thats only existed for about five or six weeks alright, so as I characterize it as a.
It's a half inch deep and a mile wide.
And it's just difficult to say what that trend will be.
Going out even going out the next several months.
Great and is there risk that other clients like are there any other client obviously with this particular vendor is there any other risk potentially any other maybe $6 million clients out there or anything like that or an azure that Martin.
You talked about the margin okay.
Thanks for clarification question.
Okay. Thank you.
Thank you Kevin.
Our next question comes from the line of Kyle Peterson with Needham. Please proceed with your question.
Hey, good afternoon, guys. Thanks for taking the questions.
Just wanted to get some clarity on.
The implied <unk> guide it seems like at least in <unk> and a lot of the.
Weakness was kind of in the technology vertical is that where a lot of the kind of fallout in.
In the guide it between topline is concentrated for <unk> or have you guys forecasted.
Our broad base headwind in areas like health care transportation, where they seem to be holding in pretty well right now.
Hi, Kyle I appreciate I appreciate the question. So if you look at all of our verticals and I mean, everyone everything from energy manufacturing distribution financial services technology.
And why I characterize this as an and.
<unk> deep and a mile wide as we're seeing drops modest drops in volume from almost everybody right and obviously there are some clients that are up and some that are down but as industries go. It's a very small number but because it's across every industry is obviously going to be an impact there.
There is no trend in a specific industry other than of course.
Quarter over quarter for the third quarter, some industries outperformed others, but that was the third quarter you don't know what we're going to see.
In the fourth quarter and is generally broad based geographically as well.
Seeing it overseas.
Okay.
That's helpful and that makes sense and just a quick follow up I know you guys called out the one client on the verification side are you guys seeing really any other signs of kind of trading down in screens, whether it's going shorter duration or less comprehensive outside of that one.
One instance, kind of a lower <unk> or is this purely.
Our base growth volumes type of headwind.
It's purely that is purely base growth.
Alright, that's helpful. Thanks, guys. Thanks Scott.
Our next question comes from the line of Mark Marcon with Baird. Please proceed with your question.
Hey, this is Andre Childress on for Mark Mark Com. Thank you for taking our questions. So my first question is you've said several times that you saw a modest drop that was pretty broad I just want to clarify I assume that sequentially, but there's a year over year rate is obviously exacerbated given the incredible comps as we rebounded from Covid last year and is there.
Any way to quantify that by either order volume or hiring trends whatever it may be throughout the quarter and into October thus far.
Yeah. So I'll answer the first part of the question so that modest drop I talked about is sequentially. So think of it ending the third quarter coming into or coming into the fourth quarter, yes.
And certainly the guidance that we have indicated.
Earlier on the call reflects our latest thinking obviously through October results right. So that is certainly baked into our guidance.
So its reflected on a sequential basis from what we saw in Q3 going into Q4.
Great. Thank you and so my other question I know this is kind of a tough question, because it's going to be around historical recessions and each one varies dramatically, but you gave some perspective in terms of how youre going to manage our expenses, but we only have the financials in terms of what happened over COVID-19 and that was obviously a very unique risk.
So assuming this environment continues and we do go into recession.
Should we expect the revenue to trend, whether it be kind of maybe less deep, but but longer lasting than we experienced during COVID-19 or is there any way.
We should think about that.
Yeah.
I think when we get asked that question quite a bit Andre and I think what one of the answers we say to people is when you've seen one recession, you've seen one recession right. So it's certainly can't correlate this to something that we saw on Covid, we think thats an extreme.
We certainly look back at the great financial crisis, but there was a very different business back in 2008 and 2009.
So.
We're looking at when we go through our forecasting and budgeting for 2023, we're going to certainly do some sensitivity planning, we certainly think by the time that we provide guidance.
Some time around the March framework, we'll have much better insight into how the year is going to shape up.
Thank you that's great contacts and actually just one more on top of that.
So you talked about it from an expense perspective, but how should we think about the go to market and sales environment. I know you said that you haven't seen a slowdown in terms of your bookings or the pipeline, but assuming that happens among your enterprise clients and prospects would you lean more heavily on cross sell up sell or what kind of is the go to market in a more challenged Mac.
CRO environment.
So interesting the one.
One proxy we have is a pandemic and pandemic.
Very very strong sales pipeline.
New wins, even during during that time, we're not seeing a slowdown certainly and the opportunities are in front of US was no slowdowns in the Rfps, There's no slowdowns in the wins that we have we've got it.
A very very robust pipeline is adding.
Almost literally weekly.
And when I say pipeline I mean, both new logos cross sells upsells.
We continue to have good strong performance and we've made some investments.
<unk> teams over the last year to grow grow their numbers.
And we don't see that necessarily will be will be an impact.
Great. Thank you so much for all the answers.
Sure.
Our next question comes from the line of Andrew Nicholas with William Blair.
Two questions.
Hi, good afternoon.
Wanted to hone in a bit further on fourth quarter guidance.
I understand that there were some modest decline sequentially as you moved through the quarter and Youre embedding.
October results into that number is there anything you could say about kind of what youre assuming.
For the remaining two months of this quarter are you expecting continued deterioration or just trying to get a sense for maybe the conservatism of Av.
What's what's in the outlook for fourth quarter are things.
Could kind of accelerate to the downside.
If conditions don't improve.
Yeah.
Thanks, Andrew we typically see some real seasonal impact in November and December anyway, So thats reflected clearly in the guidance, particularly because of the holiday season coming up and year end activities people tend to slow down hiring so that's certainly reflected in that but historically what we've done.
<unk> taken a look at kind of the month over month seasonal trending that we typically see year over year from our customers and really are taking a look at that and basing it off of what we've seen in October so far and kind of extrapolating that into November December is generally the way we are coming up with the guidance.
And the other the other side of that Andrew what I would tell you that in our conversations with our clients.
The decisions to slow the pace of hiring.
Seem to be more associated with just general uncertainty and nervousness about their business not necessarily the actual performance of their business.
So I would just classify the markets.
For our clients to just the uncertainty.
That uncertainty as it might with most companies generally the first thing people do is maybe pause or slow down the pace of hiring because it's the ultimate controllable expense, but doesn't necessarily have to be long lasting so I guess.
About wafer us both to say, we don't know, but we used.
The trends that we have to make.
The best estimate we could.
Absolutely that's helpful and then.
For my follow up I, just wanted to ask about capital allocation.
Given the interest rate environment and the debt.
Scheduled debt balances just wondering if that has evolved at all.
Recognizing you also want to probably keep some cushion given the macro headwinds just if you could update us on how youre thinking about.
Leverage at this point in time that would be helpful. Thanks.
No problem no no real change there we continue to be very cost conscious when it comes to investing capital in terms of acquisitions, obviously, we haven't been terribly acquisitive.
We will continue to keep that type of discipline. There maybe we do certainly have a pipeline of opportunities. We're looking at but we are going to be very mindful of the overall leverage ratio.
We were under three now and I would expect it to keep it in that level.
Our under that level for the time being and don't foresee that changing so really no change in our kind of focus in terms of capital allocation.
Our single biggest.
Capital priority right now relates to our technology automation program and that is going full steam ahead.
Thank you.
Our next question comes from the line of Andrew Jeffrey with the Truest Securities. Please proceed with your question.
Hey, guys, it's Scott on for Andrew I Appreciate you taking our question.
This question's for Guy I appreciate the great color on margin and expense control.
On the top line would it be fair to say that we can revisit that long term goal of 10% growth.
I appreciate there is likely an industry thing, but how do you think about this internally.
Are we starting to realize the elevated employment velocity.
Like the check for African liquid levels that will normalize to pre pandemic levels or just I want to parse out some of the drivers there.
Yes.
Let me talk about it from two two points of view one is just the fundamentals of our industry. None of that has changed right because you still see the job openings and the quit rates and long in the long term those will continue.
To drive we think good healthy growth.
Beyond what traditional grocery industry used to be the big unknown clearly for forward growth rates is just this recession and what impact that's going to have.
Yes, I think long term, we don't change our view at all in terms of fundamental changes in the labor market, certainly theyre going to be disrupted for a period of time if people are uncertain about the outlook over the next number of quarters in that.
That one quarter by quarter, we don't know, but we still feel really good about the long term growth prospects. We know historically that this industry and this business grew at a nice solid 7% clip and that was before all of the fundamental secular changes that we've seen in the labor market that we think are only going to be added.
And the next cycle.
Great I appreciate it and then on the.
It seems there's some share taking in health care and transportation, which is great to hear.
Is any of that coming from larger competitors or where you got just mostly coming from European peer group.
So we don't talk about where we take business from but it's generally coming from the whole industry.
Got it thank you.
Our next question comes from the line of Stephanie <unk> with Jefferies. Please proceed with your question.
Hi, good afternoon. Thank you.
I guess touching on the fourth quarter guidance I appreciate that I think the puts and takes particularly with the one customer and kind of that expected $6 million headwind, but it had a coke.
Maybe the midpoint of the guidance and the implied let's say high single digit.
Hotline decline can you kind of break out.
All you got to that number in terms of banking in new logos cross sell.
Yes.
Thanks, Matt.
I'm curious just given the macro environment.
And some of the other offset.
Cross selling and new logo.
I think pretty good.
Yes.
Yeah sure Stephanie we are we're not going to deconstruct our guidance quarter by quarter in terms of kind of the.
The growth algorithm, but we get Guy remarked, we are very comfortable and actually pretty excited about how our pipeline looks going into 2023. Some of that will close and go live in Q4, but 2023 is shaping up a pretty strong year from a new logo perspective so.
Cited about that I don't think from a new logo, but also from an upsell opportunity.
Great and then switching gears you noted continue to look at to the M&A market as opportunity.
In your opinion and I know you said, one recessions when recession, but would you view that a potential slowdown might actually be a favorable opportunity or maybe you can acquire a business, that's smaller and struggling a bit more but has still good assets and good customer contracts is that something that we could think of it.
It can actually be a positive from M&A standpoint, I think you had that slowdown.
I don't know that its positive or negative in terms of our approach at M&A, Stephanie as we continue to look for businesses that fit either our product capability that we think is better to buy than build.
Or a geographic market, where we want to expand some presence for.
<unk> unique adjacency.
Then just do the math on whether or not.
It's the right is the right purchase for us.
But I don't know that you could you would expect any more or less M&A activity out of us because of the moderate slowdown.
Understood. Thank you.
Our next question comes from the line of Kevin <unk> with Keybanc capital markets. Please proceed with your question.
Great. Thanks for taking my question here.
Curious to hear about that contract is dot com and what youre seeing in the S&P market. How is that platform performance last quarter and are you seeing the same type of nervousness from that F&B.
Customer segment.
The SMB market as we had mentioned on previous quarters had been one of the slower ones to recover and frankly, we're still kind of in recovery mode. So.
I would say is that nothing's really changed there we still are slightly up on that sector of our business, but it's definitely been a lagging sector for us frankly for the last 18 months, it's been the slowest to recover from the pandemic and that Hasnt changed.
Okay.
That's helpful and maybe just one more I wanted to ask about the pipeline that Youre seeing I know you said that it is still shaping up really nicely for 2023 and you expect some to go live in <unk> are there certain industries are you seeing maybe stronger pipeline development and other verticals.
At this point.
So for the most part it's well within our wheelhouse the core verticals that we focus on between Tech transfer transportation financial services and healthcare.
Pretty pretty spread across.
Yeah pretty pretty evenly evened out.
Okay got it thanks for the color.
Once again as a reminder to register for a question. Please special one followed by the score. Our next question comes from the line of Manav Patnaik with Barclays.
Please proceed with your question.
Hi, This is actually Ryan Kennedy on for Manav I confirm it.
Field fundamentals.
It hasn't changed.
What's happened.
I'm, sorry, you're breaking up again and get a chance to Andrea.
Okay.
How is that better.
Yes, much better thank you.
Apologies thank you.
You had said with based on what you've seen you don't think fundamentals within the industry have changed with regards to the secular drivers has it changed your view on your visibility.
And what you see from our leading indicators and how does that kind of reconcile that what we have been seeing from the jobs, the jolts data et cetera.
Yes, it's a good.
It's a good question, but I think as.
As I said earlier.
Our view of the long term fundamentals on the employment market are very bullish for the reasons we discussed.
What we're seeing right now which is really a <unk>.
Six week trend right.
And it is a lumpy one right. So it's not necessarily just pursue.
This decline by any stretch.
The imagination.
But the softness seems to be reflected in general nervousness about our clients' businesses and Prudence and then managing costs. They are slowing down their pace of iron. It doesn't mean that the demand for jobs for those businesses is still there. It just means they're not filling those jobs.
For for some period of time here and it may be temporary and maybe a few quarters, who knows but right now the visibility that we have is only born in the last six weeks in the conversations we've had with our top 100 enterprise clients, who were all reflecting just that sense of uncertainty.
Okay. Thank you and then as a follow up if I may.
What about in terms of the different products, whether I know you had commented on the one client 6 million no longer doing verifications, but what about say in terms of <unk>.
Annual re screens or the continuous monitoring or other things that there was good trends behind such as inoculation management immunization management.
Are you seeing differ.
Different.
Rates of use of certain products and services and it hasnt been any change to the economics of pricing of those.
Yes, no not not.
Not at all in fact, all of the products you just mentioned or.
Part of the reason why our pipeline is as robust as it is.
And no no impact on.
Pricing that we've seen.
The situation we described.
Very very isolated.
And the only reason why we mentioned it because with the larger customers that had an impact.
Got it thank you very much.
Okay.
Mr. <unk> there are no further questions at this time I will now turn the call back to you.
Alright. So thanks, operator, we appreciate everyone joining the call. Please don't hesitate to reach out with any additional questions and we look forward to keeping you posted on our progress in the coming months. So thanks again, everybody stay safe and have a great night.
That does conclude the conference call for today. Thank you for your participation and ask you. Please disconnect your lines. Thank you enough.
Great. Thanks.
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