First Advantage Corporation Q1 2023 Earnings Call
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Speaker 2: Good day everyone. My name is Todd and I will be your conference operator today.
Good day, everyone my.
My name is Scott and I will be your conference operator today.
Speaker 2: I would like to welcome you to the first advantage, first quarter 2023 earnings conference call and webcast.
I'd like to welcome you to the first advantage first quarter 2023 earnings conference call and webcast.
Speaker 2: Hosting the call from first advantage is Stephanie Gorman, vice president of Investor Relations.
Hosting the call from first advantage is Stephanie Goldman Vice President of Investor Relations.
Speaker 2: At this time, all participants have been placed in their listen only mode to prevent any background noise.
At this time, all participants have been placed in a listen only mode to.
Prevent any background noise.
Speaker 2: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star 1 on your telephone keypad.
After the Speakers' remarks, there will be a question and answer session if.
If you would like to ask a question during this time.
Press Star one on your telephone keypad.
Speaker 2: If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Please note today's event is being recorded.
If at any point. Your question has been answered you may remove yourself from the queue by pressing star two.
Please note today's event is being recorded.
Speaker 2: Lastly, if you should require operator assistance, please press star zero.
Lastly, if you should require operator assistance, please press star zero.
Speaker 2: It is now my pleasure to turn the call over to Stephanie Gorman. You may begin.
It is now my pleasure to turn the call over to Stephanie Goldman you may begin.
Speaker 3: Thank you, Todd. Good morning, everyone, and welcome to First Advantage's first quarter 2023 earnings conference call. In the investor's session of our website, you will find the earnings press release and slide presentation to accompany today's discussion. This webcast is being recorded and will be available to replay on our investor relations website. Before we begin our prepared remarks, I need to remind everyone that our discussion today will include forward looking
Thank you Todd good morning, everyone and welcome to first advantage has first quarter 2023.
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And the investors section of our website you will find the earnings press release and slide presentation to accompany today's discussion.
<unk> is being recorded and will be available for replay on our Investor Relations website.
We begin our prepared remarks, I need to remind everybody that our discussion today.
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Speaker 3: such forward-looking statements are not guaranteed for future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the SEC, including our 2022 Form 10-K and our Form 10-Q for the first quarter of 2023 to be filed with the SEC.
Such forward looking statements are not guarantee the future performance actual results may differ materially from those expressed or implied in the forward looking statements.
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These factors are discussed in more detail in our filings with the SEC, including our 2021 okay.
Thank you for the first quarter, Tony Tony to be filed with the SEC such factors may be updated from time to time in our periodic filings with the SEC and we do not undertake any obligation to update forward looking statements.
Speaker 3: Such factors may be updated from time to time in our periodic filings with the FCC, and we do not undertake any obligation to update forward-looking states.
Speaker 3: Throughout this conference call, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures, to the extent available without unreasonable effort, appear in today's press release and presentation, which are available on our Investor Relations website.
Throughout this conference call. We will also present non-GAAP financial measures reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures today available without unreasonable effort appear in today's earnings press release and presentation, which are available on our Investor Relations website.
Speaker 3: I'm joined on our call today by Scott Staples, first Advantages Chief Executive Officer, and David Ganzi, our Chief Financial Officer. After our prepared remarks, we will take your questions. We will now hand the call over to Scott.
I'm joined on our call today by Scott April 1st advantages, Chief Executive Officer, and David Jaffe, Our Chief Financial Officer. After our prepared remarks, we will take your question.
Now I'll hand, the call over to Scott.
Speaker 2: Thank you, Stephanie, and good morning, everyone. Thank you for joining our first quarter 2023 earnings conference call.
Thank you Stephanie and good morning, everyone.
Thank you for joining our first quarter 2023 earnings conference call.
Speaker 2: I would like to start by thanking our First Advantage team members across the globe for their ongoing dedication to helping our customers truly put their applicants first.
I would like to start by thanking our first advantage team members across the globe for their ongoing dedication to helping our customers truly put their applicant first.
Speaker 2: We have a great team who is constantly helping our clients hire smarter and onboard faster as they navigate these uncertain times.
Have a great team, who is constantly helping our clients hire smarter and onboard faster.
Navigate these uncertain times.
Speaker 2: Since we became a public company, we've highlighted many aspects of our business that underpin the resilience of our operating model and the confidence we have in our ability to weather any economic environment and generate superior profitability.
Since we became a public company, we've highlighted many aspects of our business that underpins the resilience of our operating model and the confidence we have in our ability to weather any economic environment and generate superior profitability.
Speaker 2: We had a solid first quarter delivering as expected.
We had a solid first quarter delivering as expected.
Speaker 2: We successfully leveraged our flexible and efficient cost structure as we remain laser focused on operational excellence.
We successfully leveraged our flexible and efficient cost structure as we remain laser focused on operational excellence.
Speaker 2: Our approach to innovation and differentiated technology continue to win in the marketplace.
Our approach to innovation and differentiated technology continue to win in the marketplace.
Speaker 2: Our customers value expertise in human capital, our focus on automation and quality, and our successful track record of innovation.
Our customers value expertise and human capital, our focus on automation and quality and our successful track record of innovation.
Speaker 2: This is a winning formula for first advantage. Our gross retention rate of 97% remains near record levels, and our 13-year average tenure for our top 100 customers are impressive metrics we pride ourselves on.
This is a winning formula for first advantage.
Our gross retention rate of 97% remains near record levels and our 13 year average tenure for our top 100 customers are impressive metrics, we pride ourselves on.
Speaker 2: These are big reasons we have been able to deliver consistent results.
These are big reasons, we have been able to deliver consistent results.
Speaker 2: Our customer base is strong, broad-based, and continues to expand. We booked seven new logo Enterprise customers in the first quarter, and 30 new logo Enterprise customers in the past 12 months.
Our customer base is strong broad based and continues to expand we booked seven new logo enterprise customers in the first quarter and 30, new logo enterprise customers in the past 12 months.
Speaker 2: As a reminder, we define new logo enterprise customers as those with $500,000 or greater in annual expected revenues.
As a reminder, we define new logo enterprise customers as those with $500000 or greater in annual expected revenues.
Turning to our first quarter results.
Speaker 2: Revenues came in just above the upper end of our expectations and adjusted EBITDA was in line with our expectations despite the ongoing uncertainty from the economic environment that began to impact hiring demand in late November 2022.
Revenues came in just above the upper end of our expectations and adjusted EBIT was in line with our expectations. Despite the ongoing uncertainty from the economic environment that began to impact hiring demand in late November 2022.
Speaker 2: In the first quarter, we generated revenues of just over $175 million and adjusted EBITDA of approximately $49 million. You'll recall that we grew revenues by 44% and adjusted EBITDA by 46% in Q1 of 2022, making our Q1 2023 results more difficult on a comparative base.
In the first quarter, we generated revenues of just over $175 million and adjusted EBITDA of approximately $49 million.
Youll recall that we grew revenues by 44% and adjusted EBITDA by 46% in Q1 of 2022, making our Q1 2023 results more difficult on a comparative basis.
Speaker 2: Much of our first quarter moderation came from our international markets, driven primarily by a disproportionate decline in India, given the region's exposure to BPO and IT services, and APAC, given regional market dynamics.
Much of our first quarter moderation came from our international markets driven primarily by at this portion of the decline in India, given the region's exposure to <unk> and it services and APAC given regional market dynamics.
Speaker 2: Verticals, including transportation and health care, continue to see stable hiring demand, while other verticals saw moderation primarily attributable to macro factors.
Verticals, including transportation and healthcare continue to see stable hiring demand while other verticals saw moderation primarily attributable attributable to macro factors.
Which continue to impact hiring trends.
Speaker 2: Despite varying levels of demand across our verticals, we remain energized and focused on serving our customers and driving strong and sustainable outperformance in our markets over the long term.
Despite varying levels of demand across our verticals, we remain energized and focused on serving our customers and driving strong and sustainable outperformance in our markets over the long term.
Speaker 2: Our first quarter adjusted even a margin performance was in line with our expectations and prior year trends.
Our first quarter adjusted EBITDA margin performance was in line with our expectations and prior year trends remember that Q1 is historically, our seasonally lowest quarter.
Speaker 2: Remember that Q1 is historically our seasonally lowest quarter. As large retail and logistics companies annually reduce their holiday season stack.
As large retail and logistics companies annually reduce their holiday season staffing.
Speaker 2: We believe our profitability remains best in class in our industry, and we continue to expect that our adjusted EBITDA margins will return to above 30% levels in Q2 and for the balance of the year.
We believe our profitability remains best in class in our industry and we continue to expect that our adjusted EBIT margins will return to above 30% levels in Q2 and for the balance of the year.
Speaker 2: These results speak to the adaptability of our operating model, our cost discipline, and the strong execution by our team members across our market.
These results speak to the adaptability of our operating model, our cost discipline and strong execution by our team members across our markets.
Speaker 2: I'd also like to remind you that we have a robust, very well-capitalized balance sheet, which includes over 400 million in cash. We continue to generate significant free cash flow, and our leverage is a modest 0.7 times.
I'd also like to remind you that we have very robust very well capitalized balance sheet, which includes over $400 million in cash we continue to generate significant free cash flow and our leverage is a modest 0.7 times.
Speaker 2: This gives us significant flexibility during these difficult times.
This gives us significant flexibility during these difficult times.
Speaker 2: David will provide additional color on our financial performance and full year outlook in a moment.
David will provide additional color on our financial performance and full year outlook in a moment.
Speaker 2: Turning now to key highlights from the quarter, which are summarized on slide 5.
Turning now to key highlights from the quarter, which are summarized on slide five.
Speaker 2: The overall U.S. labor market continues to show some pockets of resilience, and while activity has moderated relative to the extremely strong levels from a year ago, and the degree of uncertainty remains elevated, overall hiring remains generally stable.
The overall U S labor market continued to show some pockets of resilience and while activity has moderated moderated relative to the extremely strong levels from a year ago.
And the degree of uncertainty remains elevated overall high and remains generally stable.
Speaker 2: We are also encouraged by our monthly revenue progression through the first quarter, particularly in our America's business, where we observed modest month-over-month improvement throughout the quarter.
We are also encouraged by our monthly revenue progression through the first quarter, particularly in our Americas business, where we observed modest month over month improvement throughout the quarter.
Speaker 2: However, the U.S. labor market continues to be broadly impacted by macro headwinds, which has forced companies to look at areas to reduce costs and prune headcount.
However, the U S labor market continues to be broadly impacted by macro headwinds, which has force companies to look at areas to reduce costs and pruned head count.
Speaker 2: These actions, along with current expectations for these headwinds to continue, are already reflected in our guidance.
These actions along with current expectations for the for these headwinds to continue are already reflected in our guidance.
Speaker 2: We continue to believe meaningful structural tailwinds remain in place to support a return to our long-term organic revenue growth target. We are excited about our long-term prospects, given the systemic changes we are seeing in employment dynamics.
We continue to believe meaningful structural tailwind remain in place to support a return to our long term organic revenue growth target we.
We are excited about our long term prospects given the systemic changes we are seeing in employment dynamics.
Speaker 2: Preferences toward greater flexibility, work-life balance, working multiple jobs, and higher pay are expected to continue to drive increased churn and structural changes which result in increased hires and quits.
Preferences toward greater flexibility work life balance working multiple jobs and higher pay are expected to continue to drive increased churn and structural changes, which result in increased higher hires and quits.
Speaker 2: Recent macro jobs data, specifically related to new hires and quits, while modestly down in March, has remained relatively stable, which supports the ongoing generational shift in how people work and apply for jobs.
Recent macro jobs data, specifically related to new hires and quits while modestly down in March has remained relatively stable, which supports the ongoing generational shift in how people work and apply for jobs.
Speaker 2: Additionally, we interact with our top enterprise clients on a frequent and ongoing base.
Additionally, we interact with our top enterprise clients on a frequent and ongoing basis.
Speaker 2: While they are monitoring the economic impact from inflation and rising interest rates, they tell us that the demand for their products and services remains robust, and they are looking to capitalize upon opportunities in the current market environment.
While they are monitoring the economic impact from inflation and rising interest rates. They tell us that the demand for their products and services remains robust and they are looking to capitalize upon opportunities in the current market environment.
Speaker 2: Many of these clients have already put cost control measures in place, reduced headcount to appropriate levels, and do not anticipate additional changes to their adjusted hiring plan.
Many of these clients have already put cost control measures in place reduced head count to appropriate levels and do not anticipate additional changes to their adjusted hiring plans.
Speaker 2: As our customers continue to navigate the ongoing macroeconomic challenges, it has become even more imperative for them to invest in products that lead to higher productivity, improved accuracy, and faster results in the hiring process as they place an even greater emphasis on efficiency in hiring and attracting the best talent.
As our customers continue to navigate the ongoing macroeconomic challenges it has become even more imperative for them to invest in products that lead to higher productivity improved accuracy and faster results in the hiring process as they place an even greater emphasis on efficiency and hiring and attracting that.
Best talent.
Speaker 2: At first advantage, our success in meeting these needs is the result of our dynamic product offerings, which are enabled by our investments in differentiated technology, machine learning and automation.
At first advantage our success in meeting these needs as a result of our dynamic product offerings, which are enabled by our investments in differentiated technology machine learning and automation.
Speaker 2: We provide a compelling value proposition for our customers who depend on the speed and quality of our solutions to help them succeed in today's dynamic and fast moving higher environment.
We provide a compelling value proposition for our customers, who depend on the speed and quality of our solutions to help them succeed in today's dynamic and fast moving higher environment.
Speaker 2: Even during these challenging times, we continue to selectively invest through the cycle and capitalize on opportunities to further strengthen our business.
Even during these challenging times, we continue to selectively invest through the cycle and capitalize on opportunities to further strengthen our business.
Speaker 2: In April , we held our annual customer conference called Calabrate, which is the only background screening user conference of its kind, bringing together customers, partners, and thought leaders.
In April we held our annual customer conference called collaborate which is the only background screening user conference of its time, bringing together customers partners and thought leaders we.
Speaker 2: We were pleased to have Johnny C. Taylor Jr. join us as our keynote speaker, where he led a fantastic session on the future of the workforce. Mr. Taylor is the president and CEO of the Society for Human Resources Management, also known as SHRM, and is highly regarded as a leading industry expert in human resource.
We are pleased to have John AC Taylor junior join Us as our keynote speaker, where he led a fantastic session on the future of the workforce. Mr. Taylor is the president and CEO of the society for Human Resources management also known as <unk> and is highly regarded as a leading industry expert.
And human resources.
Speaker 2: He is renowned global authority on the future of employment, culture, and leadership, and is a nationally recognized best-selling author.
His renowned global authority on the future of employment culture, and leadership and is nationally recognized best selling author.
Speaker 2: During the conference, we also discussed some of our new and evolving products and solutions and engaged in very positive discussions with our customers.
During the conference. We also discuss some of our new and evolving products and solutions and engaged and very positive discussions with our customers.
Speaker 2: One offering we launched was our new product bundles and capabilities powered by our mobile first next generation profile advantage technology.
One offering we launched was our new product bundles and capabilities powered by our mobile first next generation profile advantaged technology.
Speaker 2: These product bundles are designed to align with industry best practices and vertical expertise and are delivered within profile advantage, providing a seamless applicant experience.
These product bundles are designed to align with industry best practices and vertical expertise and are delivered within profile advantage, providing a seamless applicant experience.
Speaker 2: These offerings also provide additional opportunities for due business and upsell cross-sell growth.
These offerings also provide additional opportunities for new business and upsell cross sell growth.
Speaker 2: Additionally, we continue our commitment to providing our customers with the latest in market leading technology with the ongoing rollout of our digital identification product in the UK in partnership with Yoke. We are pleased to share that we have contracted with over 125 customers of which more than 75 are now live in the UK market with a strong pipeline of additional opportunity.
Additionally, we continue our commitment to providing our customers with the latest in market, leading technology with the ongoing rollout of our digital identification product in the U K in partnership with Yoki.
We are pleased to share that we have contracted with over 125 customers of which more than 75 are now live in the U K market with a strong pipeline of additional opportunity.
Speaker 2: This product provides an innovative and much needed solution in the UK market that allows applicants to use a seamless and fully digital process, replacing what was previously a manual procedure and reducing turnaround time from days to hours.
This product provides an innovative and much needed solution in the UK market that allows applicants to use a seamless and fully digital process.
Placing what was previously a manual procedure and reducing turnaround time from days to hours were.
Speaker 2: We are well positioned as an early mover in this important and attractive space, particularly as other international markets, adopt similar digital identity standards.
We are well positioned as an early mover in this important and attractive space, particularly as other international markets adopt similar digital identity standards.
Speaker 2: Last quarter, we discussed the incredible traction we are getting in our employment and education verification space with our smart hub technology, which leverages machine learning and our proprietary algorithms to quickly search across multiple data sources to determine the optimal verification source based on speed, data quality, and cost effect.
Last quarter, we discussed the incredible traction we're getting in our employment and education verification space with our smart hub technology, which Leverages machine learning and our proprietary algorithms to quickly search across multiple data sources to determine the optimal parakeet verification source.
Based on speed data quality and cost effectiveness.
Speaker 2: A key component of the success of SMART Hub is leveraging our proprietary verified database, which now has over 80 million records.
A key component of the success of smart hub is leveraging our proprietary verified database, which now has over 80 million records.
Speaker 2: In aggregate, our proprietary databases have now surpassed 700 million records, including our National Criminal Record File Database, which maintains around 625 million records, making it one of the most robust criminal record databases in the industry.
In aggregate our proprietary databases have now surpassed 700 million records, including our National Criminal record filed database, which maintains around 625 million records, making it one of the most robust criminal record databases in the industry.
Speaker 2: At first advantage, we continue to innovate and deliver new solutions, which is a key differentiator to maintaining and growing our competitive advantage over time. In the future, we look forward to sharing updates on our progress and how we are helping our customers stay on the leading edge of hiring and providing the best applicant experience in the industry.
At first advantage, we continue to innovate and deliver new solutions, which is a key differentiator to maintaining and growing our competitive advantage over time.
In the future, we look forward to sharing updates on our progress and how we are helping our customers stay on the leading edge of hiring and providing the best African experience in the industry.
Speaker 2: Turning to slide six, I want to take a moment to talk about the progress we've made around our sustainability initiatives, which are detailed in our second annual sustainability report published yesterday.
Turning to slide six.
Want to take a moment to talk about the progress we've made around our sustainability initiatives, which are detailed in our second annual sustainability report published yesterday.
Speaker 2: Our corporate culture and values drive our approach to sustainability, which is a fundamental part of our business.
Our corporate culture and values drive our approach to sustainability, which is a fundamental part of our business Our board and leadership team are firmly committed to our responsibility as a global corporate citizen and advancing even higher ethical standards are.
Speaker 2: Our board and leadership team are firmly committed to our responsibility as a global corporate citizen and advancing even higher ethical standards.
Speaker 2: Our talented global workforce is inherently diverse, and each employee brings their unique strengths and experiences to bear, which is key to our long-term success as a company. We provide ourselves on fostering a culture of inclusion that helps our employees maximize their potential.
Our talented global workforce is inherently diverse and each employee brings their unique strengths and experiences to bear which is key to our long term success as a company we provide ourselves on fostering a culture of inclusion that helps our employees maximize their potential.
Speaker 2: We are excited about the collective progress we've made at first advantage with our sustainability efforts. We believe embedding these considerations throughout our business is not only the right thing to do, but also drives stronger and more resilient performance and ultimately maximizes shareholder value.
We are excited about the collective progress we've made at first advantage with our sustainability efforts. We believe embedding. These considerations throughout our business is not only the right thing to do but also drive stronger and more resilient performance and ultimately maximize shareholder value.
Speaker 2: I'll now turn the call over to our chief financial officer David Ganze for more details on our financial results. David.
I will now turn the call over to our Chief Financial Officer, David <unk> for more details on our financial results David.
Speaker 4: Thank you Scott and good morning everyone. Let's begin our financial review on slide eight. Versus the prior year, our first quarter revenue decreased 7.6% to $175.5 million, or 6.4% to $178 million on a constant currency basis.
Thank you Scott and good morning, everyone.
Our financial review on slide eight.
Versus the prior year, our first quarter revenue decreased seven 6% to $175 5 million or six 4% to $178 million on a constant currency basis.
Speaker 4: It is important to note, this is versus very robust revenue growth of 44% and the comparable quarter of 2022, and was slightly better than we originally expected.
It is important to note this is versus very robust revenue growth of 44% and the comparable quarter of 2022 and was slightly better than we originally expected.
Speaker 4: This results in a three-year revenue CAGR of just over 18%, substantially higher than our long-term target.
This results in a three year revenue CAGR of just over 18% substantially higher than our long term targets.
Speaker 4: In our America segment, revenues of $152 million were down a modest 5% from Q1 2022. As our customers continue to hire, although at a slightly lower rate than Q1 of last year.
In our Americas segment revenues of $152 million were down a modest 5% from Q1 2022 as our customers continue to hire although at a slightly lower rate in Q1 of last year.
Speaker 4: Our America's segment held up relatively well, given overall market conditions, which is attributable to our broad-based, resilient enterprise customers. In total, our America's segment represented 86% of consolidated revenues in the quarter.
Our Americas segment held up relatively well given overall market conditions, which is attributable to our broad base resilient enterprise customers in total our Americas segment represented 86% of consolidated revenues in the quarter.
Speaker 4: In our international segment, revenues of $25 million were down 22% from 2-1-2022. On a constant currency basis, revenues would have been $27 million or down 15% year over year.
In our international segment revenues of $25 million were down 22% from Q1 2022 on a constant currency basis revenues would have been $27 million or down 15% year over year.
Speaker 4: The decrease in revenue is due primarily to weakness in India, given the region's exposure to BPO and IT services related businesses. In APAC, while still down, we are starting to see positive signs of trends moving in the right direction across China, Hong Kong and Singapore as lockdown restrictions have been lifted.
The decrease in revenue is due primarily to weakness in India, given the region's exposure to <unk> and it services related businesses and <unk>.
Tac, while still down we are starting to see positive signs of trends moving in the right direction across China, Hong Kong and Singapore as Lockdown restrictions have been lifted.
Speaker 4: Additionally, we are cycling over very strong double digit growth in the first quarter of 2022.
Additionally, we are cycling over a very strong double digit growth in the first quarter of 2022.
Speaker 4: Our EMEA operations have proven more resilient in the face of macro headwinds, with the new digital identity products contributing to their sustained success.
Our EMEA operations have proven more resilient in the face of macro headwinds with the new digital identity products contributing to their sustained success in.
Speaker 4: In total, International represented 14% of consolidated revenues in the quarter.
In total international represented 14% of consolidated revenues in the quarter.
Speaker 4: In the first quarter, the year-over-year revenue decline from existing customers was $22 million net of upsell cross sell, which contributed $9 million or 5% to our revenue.
In the first quarter the year over year revenue decline from existing customers was $22 million net of up sell cross sell which contributed $9 million or 5% to our revenues Rev.
Speaker 4: Revenues from new customers contributed an incremental $8 million, adding 4% to our results.
Revenues from new customers contributed an incremental $8 million, adding 4% to our results.
Speaker 4: contributions from new customer sales and upsell cross-sale are encouraging and remain consistent.
Contributions from new customer sales and up sell cross sell are encouraging and remain consistent.
Speaker 4: Adjusted EBITDAF for the quarter was $49 million. A decrease of 9% compared to Q1 of 2022, during which we grew adjusted EBITDAF by a very high 46%.
Adjusted EBITDA for the quarter was $49 million.
A decrease of 9% compared to Q1 of 2022 during which we grew adjusted EBITDA by a very high 46%.
Speaker 4: FX had a half million dollar negative impact on our adjusted EBITDA dollars.
FX had a half million dollars negative impact on our adjusted EBITDA dollars.
Speaker 4: Our adjusted EVA.Margin of 27.7% was in line with our expectations and was consistent with the prior two years.
Our adjusted EBITDA margin of 27, 7% was in line with our expectations and was consistent with the prior two years.
Speaker 4: And we continue to maintain a very high quality of earnings.
And we continue to maintain a very high quality of earnings.
Speaker 4: We expect adjusted EBITDA margins to return to over 30% starting in Q2. Also, just to note, our three-year adjusted EBITDA keger was nearly 25%.
We expect adjusted EBITDA margins to return to over 30% starting in Q2.
Also just to note our three year adjusted EBITDA CAGR was nearly 25%.
Speaker 4: Adjusted net income decreased 15% to $28 million in $33 million in 2-1 2022.
Adjusted net income decreased 15% to $28 million from $33 million in Q1 2022.
Speaker 4: This was primarily attributable to lower revenues, higher interest expense, and higher DNA associated with investments in our proprietary platform, partially offset by interest rate swaps and higher interest bearing deposits.
This was primarily attributable to lower revenues higher interest expense and higher DNA associated with investments in our proprietary platform.
Actually offset by interest rate swaps and higher interest bearing deposits.
Speaker 4: Adjusted diluted EPS was 19 cents for the quarter. Our adjusted tax rate of 25.3% was in line with the prior year period.
Adjusted diluted EPS was <unk> 19 for the quarter.
Our adjusted tax rate of 25, 3% was in line with the prior year period.
Speaker 4: I'd like to remind you that one of our most significant differentiators is our unique and highly flexible cost structure.
I'd like to remind you that one of our most significant differentiators is our unique and highly flexible cost structure.
Speaker 4: The majority of our costs to perform our core background screening services are variable. So we have a very high degree of confidence in our ability to successfully align our operations with the demand environment while meeting our customers' needs.
The majority of our cost to perform our core background screening services are variable so.
We have a very high degree of confidence in our ability to successfully align our operations with the demand environment, while meeting our customers' needs.
Speaker 4: Approximately 70% of our cost of sales are third party costs, which are essentially 100% variable and usage based.
Approximately 70% of our cost of sales, our third party costs, which are essentially 100% variable and usage base.
Speaker 4: This means we do not incur these third-party costs if we do not perform a start.
This means we do not incur these third party cost if we do not perform a starch.
Speaker 4: We can also flex their staffing levels by adding or removing shifts or over time.
We can also flex their staffing levels by adding or removing shifts or over time.
Speaker 4: Additionally, prior investments across geographies, technology, and automation have structurally reduced our cost base.
Additionally, prior investments across geographies technology, and automation has structurally reduced our cost base.
Speaker 4: We are laser focused on profitability and believe we are well positioned to successfully navigate future macroeconomic environments due to the efficiencies we have driven across the organization.
We are laser focused on profitability and believe we are well positioned to successfully navigate the future macro economic environment due to the efficiencies we have driven across the organization.
Speaker 4: In addition, we remain focused on productivity and reducing controllable costs, such as reducing our facilities footprint, lowering our overall insurance costs, and selectively lowering headcount throughout the organization to match demand.
In addition, we remained focus on productivity and reducing controllable costs, such as reducing our facilities footprint.
<unk>, our overall insurance cost and selectively lowering head count throughout the organization to match demand.
Speaker 4: We have demonstrated our ability to act quickly in the past to preserve margins, and we will continue to do so in the future if the situation dictates. Our rock solid balance sheet, strong cash position, free cash flow generation, and low leverage, give us the flexibility to continue to selectively invest in the business.
We have demonstrated our ability to act quickly in the past to preserve margins and we will continue to do so in the future if the situation dictates.
A rock solid balance sheet.
Strong cash position.
Free cash flow generation and low leverage give us the flexibility to continue to selectively invest in the business.
Speaker 4: Drilling now to capital allocation in her balance sheet on slide 9.
Turning now to capital allocation and our balance sheet on slide nine.
Speaker 4: We are committed to maintaining a strong balance sheet and conservative capital structure. Our low leverage and ample dry powder provide tremendous flexibility to further our strategic priorities. Our philosophy around capital allocation is to take a balanced approach between M&A, disciplined internal investments, returning capital to shareholders, and maintaining our attractive leverage profile.
We are committed to maintaining a strong balance sheet and conservative capital structure.
Our low leverage and ample dry powder or provide tremendous flexibility to further our strategic priorities.
Our philosophy around capital allocation is to take a balanced approach between M&A disciplined internal investment return of capital to shareholders and maintaining our attractive leverage profile.
Speaker 4: We continue to actively evaluate M&A opportunities and are starting to see more activity.
We continue to actively evaluate M&A opportunities and theyre starting to see more activity.
Speaker 4: Our available cash, cash flow and strong balance sheet provide us with substantial flexibility to pursue attractive opportunities.
Our available cash cash flow and strong balance sheet provide us with substantial flexibility to pursue attractive opportunities.
Speaker 4: Our internal investment priorities remain focused on technology, automation, product innovation and sales initiatives that drive highly profitable organic growth.
Our internal investment priorities remain focused on technology automation.
Innovation and sales initiatives that drive highly profitable organic growth.
Speaker 4: During 2-1, we repurchased $25 million of common stock or 1.9 million shares under our share repurchase program and we still ended the quarter with over $400 million of cash on our balance sheet.
During Q1, we repurchased $25 million of common stock or one 9 million shares under our share repurchase program and we still ended the quarter with over $400 million of cash on our balance sheet.
Speaker 4: Since its inception on August 2nd, 2022 through May 4th, 2023, we have repurchased 7.4 million shares for $97 million.
Since its inception in August 2022 through May four 2023, we have repurchased seven 4 million shares for $97 million.
Speaker 4: This consistent capital deployment approach allows us to drive sustainable, long-term value creation for our shareholders.
This consistent capital deployment approach allows us to drive sustainable long term value creation for our shareholders.
Speaker 4: In the first quarter, we continue to deliver strong and consistent cash flow generation with operating cash flows of approximately $30,000,000. Keep in mind, Q1 is historically our lowest cash generating quarter and we were still able to generate robust cash flow.
In the first quarter, we continued to deliver strong and consistent cash flow generation with operating cash flows of approximately 39 $39 million keep in mind Q1 is historically, our lowest cash generating quarter, and we were still able to Jan.
<unk> robust cash flow.
Speaker 4: During the quarter, we spent $16,000 on purchases of property and equipment and capitalized software development costs.
During the quarter, we spent $6 million on purchases of property and equipment and capitalized software development costs.
Speaker 4: We ended the quarter with totals at $565 million and cash on their balance sheet of over $400 million.
We ended the quarter with total debt of $565 million in cash on our balance sheet of over $400 million.
Speaker 4: We also have $100 million in untapped borrowing capacity under a revolving credit facility with no outstanding balance.
We also have a $100 million.
Untapped borrowing capacity under our revolving credit facility with no outstanding balances.
Speaker 4: They've done our last 12 months of justity the dock of $244 million. We had a met leverage ratio of just under 0.7 times as of March 31.
Based on our last 12 months adjusted EBITDA of $244 million, we had a net leverage ratio of just under 0.7 times as of March 31.
Speaker 4: Our debt structure has us well positioned for today's higher interest rate environment. We have an interest rate collar with approximately 50% of our long-term debt capped at 1.5% one month LIBOR rate through February of 2024 and we have no principal payments due before 2027.
Our debt structure has us well positioned for today is higher interest rate environment.
We have an interest rate collar with approximately 50% of our long term debt cap at one 5% one month LIBOR rate through February of 2024, and we have no principal payments due before 2027.
Speaker 4: Recall we strategically hedge another hundred million dollars of long-term debt in the first quarter. We now have 70% of our long-term debt hedge.
Recall, we strategically hedged another $100 million of long term debt in the first quarter. So we now have 70% of our long term debt hedged.
Speaker 4: Our interest rate exposure on the remaining unhedged portion of our debt is currently more than offset by our interest income on interest bearing cash deposits.
Our interest rate exposure on the remaining unhedged portion of our debt is currently more than offset by our interest income on interest bearing cash deposits.
Now moving to slide 10.
Speaker 4: Macrile economic conditions, including hires and quits, proceeded in line with their expectations during the first quarter.
Yes.
Macroeconomic conditions, including hires and quit proceeded in line with our expectations during the first quarter.
Speaker 4: This is outside of the regional bank failures, which had no direct impact on our business.
This is outside of the regional bank failures, which had no direct impact on our business.
Speaker 4: We expect the FAD to stay diligent on their fight against inflation and the unemployment rate to increase, which will temper near-term growth.
We expect the fed to stay diligent on their fight against inflation and the unemployment rate to increase which will temper our near term growth.
Speaker 4: This has already been factored into our guidance, including that the current environment continues.
This has already been factored into our guidance, including that the current environment continues.
Speaker 4: Given our current visibility, ongoing dialogue with customers, the diverse nature of our client base, and our strategic vertical coverage, we are reaffirming our full year guidance.
Given our current visibility ongoing dialogue with customers the diverse nature of our client base and our strategic vertical coverage.
We are reaffirming our full year guidance.
Speaker 4: As a reminder, we expect to generate full-year 2023 revenues in the range of $770 to $810 million, resulting in approximately flat to negative 5% year-over-year revenue growth.
As a reminder, we expect to generate full year 2023 revenues in the range of $770 million to $810 million.
<unk> and approximately flat to negative 5% year over year revenue growth.
Speaker 4: As a reminder, we have laughed all acquisitions to this guidance and the associated growth rates are organic figures.
As a reminder, we have lapped all acquisitions. So this guidance and the associated growth rates are organic figures.
Speaker 4: All assumptions, including our expectations for foreign currency and typical seasonality for the remainder of the year, are unchanged.
All assumptions, including our expectations for foreign currency and typical seasonality for the remainder of the year are unchanged.
Speaker 4: This includes our expectation shared last quarter that in Q2, we expect sequential revenue growth, though it will still be negative on a year-over-year basis.
This includes our expectation shared last quarter that in Q2, we expect sequential revenue growth.
So it will still be negative on a year over year basis, we.
Speaker 4: We will also still be cycling over double digit revenue growth in Q2.
We will also still be cycling over double digit revenue growth in Q2.
Speaker 4: Our outlook for adjusted EBITDA is also unchanged.
Our outlook for adjusted EBITDA is also unchanged.
Speaker 4: We anticipate organic adjusted EBITDA to be in a range of $240 million to $255 million, representing approximately negative 4% to positive 2% year-over-year growth.
We anticipate organic adjusted EBITDA.
<unk> be in a range of 240 million to $255 million, representing approximately negative 4% to positive 2% year over year growth.
Speaker 4: This represents margin expansion to around 31% for the year, with adjusted EBITDA margins above 30% starting in Q2, and improving in the second half of the year, following a similar pattern to 2022.
This represents margin expansion to around 31% for the year with adjusted EBITDA margins above 30%, starting in Q2 and improving in the second half of the year following a similar pattern to 2022.
Speaker 4: We continue to expect your 2023 adjusted net income to be between $145 and $155 million in adjusted diluted EPS of a dollar to a dollar seven.
We continue to expect our 2023 adjusted net income to be between 145, and $155 million and adjusted diluted EPS of $1 to $1 seven.
Speaker 4: Our adjusted diluted EPS guidance assumes we maintain a similar run rate of share repurchases for the remainder of the year.
Our adjusted diluted EPS guidance assumes we maintain a similar run rate of share repurchases for the remainder of the year.
Speaker 4: As we progress further into 2023, we remain focused on controlling what we can control and on our commitment to creating value for our customers and shareholders.
As we progress further into 2023, we remain focused on controlling what we can control and on our commitment to creating value for our customers and shareholders.
Speaker 4: We are in an incredibly strong financial position and a resilient operating model and track record of navigating challenging times underpins their confidence and ability to execute on our strategy in this dynamic environment. Scott, I'll now turn the call back.
We are in an incredibly strong financial position and a resilient operating model and track record of navigating challenging times underpins, our confidence and ability to execute on our strategy in this dynamic environment.
Scott I will now turn the call back over to you.
Thank you David.
Speaker 2: I will conclude our prepared remarks today by reiterating my confidence that the future of first advantages as bright as it has ever been. We have our playbook to navigate the challenges that are ahead. We are a global leader in a large market with significant long-term growth potential. And our employees continue to work powerously to enable us to better serve our customers.
I will conclude our prepared remarks today by reiterating my confidence that the future of purse advantages as bright as it has ever been.
We have our playbook to navigate the challenges that are ahead, we are a global leader in a large market with significant long term growth potential and our employees continue to work tirelessly to enable us to better serve our customers.
Speaker 2: Our strategic investments in technology, machine learning, proprietary databases, automation, and the actions we've taken to enable our customers
Our strategic investments in technology machine learning proprietary databases automation and the actions we've taken to enable our customers to higher smarter and onboard faster we will continue to drive our success in the future.
Thank you very much for your time and your ongoing support at this time, we will ask the operator to open the call for your questions.
Thank you.
Speaker 2: We will now begin the question-to-man third session. At this time, if you have a question, please press star one on your telephone keypad.
We will now begin the question and answer session. At this time if you have a question. Please press star one on your telephone keypad.
Speaker 2: If at any point your question has been answered, you may remove yourself from the cube by pressing star two.
Jamie point. Your question has been answered you may remove yourself from the queue by pressing star two.
Speaker 2: If you were using a speaker phone, we ask that you pick up your Le Hempfit while asking your question to provide optimal sound quality. Thank you. Our first question.
If you are using a speaker phone and we ask that you pick up your handset.
While asking your question to provide optimal sound quality.
Thank you our first question.
It comes from.
So MAU growth N-bomb with Stifel.
Speaker 2: and off for some of them. But, regardless of the 2023 guidance, we are expecting expectations for existing client of volumes, new client volumes, cross-o-upsell, and nutrition.
For Shlomo.
For the 2023 guidance, though we expect some expectations for existing client volumes, new claim volumes cross sell upsell and attrition.
Yeah.
Speaker 4: So, Shlomo, it's very consistent with what we've been saying all along. Upsell Crossell has averaged four to five percent. It was 4.9 percent and Q1. Our new logo sales.
So shlomo.
It's very consistent with what we've been saying all along.
Upsell cross sell has averaged 4% to 5% it was four 9% in Q1, our new logo sales.
Speaker 4: tend to run between 5 and 6%. It was slightly below that at 4% in Q1. Eratrition was at 3.1%, so that remains very positive. And our existing base, which was down slightly over 13%, excluding up cell cross cell, we expect that to get better throughout the year.
Tend to run between five and 6% it was slightly below that at 4% in Q1.
Our attrition was at three 1% so that remains very positive.
And our existing base.
It's down slightly over 13%, excluding upsell cross sell we expect that to get better throughout the year.
Okay. Thanks.
Speaker 2: And then how do you think about the high-cash balance given the current interest environment and the high-cash levels do the continued interest in M&A?
How are you thinking about the high cash balance given the current interest rate environment and a high cash levels.
Due to the continued interest in M&A.
Speaker 4: M&A is a very high priority of ours. We remain actively looking at transactions. There are a lot of quality opportunities that we have seen lately. Several that are not going through a process that have called us directly. It remains a very high priority, but we will continue to be selective and we are going to be very prudent from an evaluation perspective.
M&A is a very high priority of ours.
We remain actively looking at transactions.
There are a lot of quality opportunities that we have seen lately.
Several that are not going through a process that have called us directly.
It remains a very high priority, but we will continue to be selective and we're going to be very prudent from evaluation perspective.
Speaker 5: Thank you. Our next question comes from Ashish Subhadra with RBC.
Thank you. Our next question comes from Ashish <unk> with RBC.
Speaker 5: This is David on for a sheet. Just wanted to get a little bit more cultured. You mentioned the prepared remarks about control and what you could control. Is there anything on the cloth side that you're monitoring to help increase margin and throughout the year and maybe an early look into 20.4 or anything you should be thinking about there? Thank you.
Hi, This is David on for Ashish.
Just wanted to get a little bit more color your understanding.
The prepared remarks about controlling what we can control is there anything on the cost side.
We're monitoring to incur.
Increased marketing throughout the year and maybe an early look into 2024.
Yes.
Thank you.
Speaker 4: From a cost perspective, we do a lot of contingency modeling and we know which levers to pull. We've demonstrated that now pretty consistently over the past three years. We do have the highest margins in the industry. We have a very variable and flexible cost structure. As we said in the prepared remarks, substantial portion of our cost to sales or third party costs. If we don't do searches, we don't incur those costs.
From a cost perspective.
We do a lot of contingency modeling and we know which levers to Paul we've demonstrated that now pretty consistently over the past three years, we do have the highest margins in the industry. We have a very variable and flexible cost structure as we said in the prepared remarks, a substantial portion.
<unk> of our cost of sales our third party costs. If we don't do searches we don't incur those costs. We also have the opportunity to flex head count within our operations plus we can run two or three shifts and we can manage over time, we continue to automate we continue to rationalize facilities.
Speaker 4: We also have the opportunity to flex head count within our operations, plus we can run two or three shifts and we can manage overtime. We continue to automate. We continue to rationalize facilities. We will and have selectively reduced head count to keep it in line with demand.
And we will and have selectively reduced head count to keep it in line with demand.
Speaker 4: And we will continue to prioritize and selectively make new investments.
And we will continue to prioritize and selectively make new investments.
Speaker 4: We were fortunate in the fact that upon our insurance renewal on March 1, we were able to lower some of those costs. And in fact, on the other side of that, we have selectively been able to pass on some price increases. So there are a lot of levers and we're managing all of those.
We were fortunate in the fact that upon our insurance renewal on March one we were able to lower some of those costs and in fact on the other side of that we have selectively been able to pass on some price increases. So there are a lot of levers and we're managing all of this.
Speaker 5: Thank you. Our next question will come from David Toket with Evercore ISI.
Thank you. Our next question will come from David <unk> with Evercore ISI.
Speaker 6: Thank you. Good morning Scott. Could you dig into the India weakness in greater detail particularly given your background in India.
Thank you good morning, Scott could you dig into the idea of weakness.
And in greater detail, particularly given your background in India. It services.
Speaker 7: Yeah, hi, David, happy to. So yeah, think about our customer base in India. As we mentioned in the prepared statements, our large customer in India tends to be the large BPO and IT services companies.
Yeah, Hi, David happy to.
Yes.
Think about our or our customer base in India as we mentioned in the prepared statements our large customer in India, India tends to be the large PPO and it services companies.
Speaker 7: And our theory is that those companies, the demand for their services has been scaled back a bit. So they're hiring less people.
And our theory is that those companies the demand for their services has been scaled back a bit so they're hiring less people.
Speaker 7: In general, we feel the India market for us will lag the US recovery by a quarter or so.
In general we feel the India market for Us will lag the U S recovery by a quarter or so so as the U S recovers the India market will also recover.
Speaker 7: So as the US recovers, the India market will also recover.
Speaker 7: But keep in mind, you know, international revenue for us was only 14%. So it's not a huge exposure.
But keep in mind international.
Revenue for US was only 14% so it's not a huge exposure.
Speaker 7: India is about a third of that 14%.
India is about a third of that 14%.
Speaker 7: But that business obviously will come back when the demand for those services and products for those companies comes back. And again, those companies are primarily servicing the large M&T's around the world. And that's where the softness is in the Indian market.
But that business, obviously will come back when the demand for those.
Services and products for those companies comes back in and again those companies are primarily servicing the large EM and Ts around the world and that's where the softness is in the India market.
Speaker 6: Got it. Thanks for that. And then just as a follow up, you've long used robotics process automation in your business, over 3000 bots and Q1. I mean to what extent would incorporating artificial intelligence help you reduce the labor intensity even more and particularly lift margins going forward?
Got it thanks for that and then just as a follow up you've long used robotics process automation in your business over 3000 bots in Q1.
To what extent.
Wood wood, incorporating artificial intelligence help you reduce the labor intensity, even more and particularly lift margins going forward.
Speaker 7: Yeah, I think, you know, the AI can probably be used in multiple places. You know, we're actually seeing
Yes, I think.
The AI can probably be used in multiple places.
We're actually seeing the bigger impact more on the front end of our technology. So using AI when it comes to the Apple can experience.
Speaker 7: the bigger impact more on the front end of our technology. So using AI when it comes to the applicant experience.
Speaker 7: And we're starting now to research some generative AI opportunities in our customer success and customer care offerings, because that's where I think
And we're starting to now.
To.
Research some.
Some generated AI opportunities in our customer success and customer care offerings, because that's where I think the AI impact will be more on the applicant and the customer versus the back end, which is where RPI automation.
Speaker 7: the AI impact will be more on the applicant.
Speaker 7: and the customer versus the back end, which is where RPA automation.
Speaker 7: and ultimately APIs will dominate the landscape and that's obviously we've been investing in the back end automation and the APIs and robotics for years and years and years. We started that journey about seven years ago. So we continue to invest on that back end. So that's giving us the automation which leads to lower head count higher margin.
And ultimately Apis will dominate the landscape and Thats, obviously, we've been investing in and the backend automation into API and robotics floor for years and years and years, we started that journey about seven years ago.
So we continue to invest on that back end so.
So that's giving us.
The automation, which leads to lower head count higher margins faster turnaround times. So it's a little bit of both AI on the front end automation on the backend.
Speaker 7: you know, faster turnaround times. So it's a little bit of both, AI on the front end, automation on the back end.
Thank you very much.
Speaker 5: Thank you. Our next question comes from Stephanie Moore with Jeffries.
Thank you. Our next question comes from Stephanie <unk> with Jefferies.
Hi, good morning, and thank you.
Speaker 3: Maybe following up on the original earlier question, I'd love to get a sense of what you're hearing from your customers or what you're seeing in your channel that gives you confidence that the base business will start to turn around or get better throughout the year. Thanks.
Maybe following up on the original earlier question.
Just to get a sense of what you're hearing from your customers or what youre seeing in your channel that gives you confidence that the base business will start to turn around or get better throughout the year. Thanks.
Speaker 7: Yeah, I think first of all, you know, it's important to know that we're in constant dialogue, you know, with our large customers, you know, with our managed enterprise account.
Yes, I think first of all it's important to know that we're in constant dialogue with our large customers with our managed enterprise accounts.
Speaker 7: These are discussions we're having daily, weekly, monthly, formal QBRs. And so we're getting some good input from the field, directly from customers. And the general sense we're getting is that they've done all the actions that they had planned to do primarily in 2022. And they're kind of in a holding pattern.
These are discussions we're having daily weekly monthly formal qbr's and so we're getting.
Some good input from the field directly from customers and the general General sense. We're getting is that they've done all of the actions that they had planned to do primarily in in 2022, and theyre kind of in a holding pattern.
Speaker 7: And so I think what we're seeing from the macro standpoint is that, and certainly in regards to the labor market, in regards to what we're hearing from our customers, the word that we keep coming back to is stability.
And so I think what we're seeing from the macro standpoint is that certainly in regards to the labor market in regards to what we're hearing from our customers, but the word that we keep coming back to its stability.
Speaker 7: We're seeing a lot of stability in our customers ordering and in their hiring plans.
We're seeing a lot of stability in our customers ordering and in there and then the hiring plans.
Speaker 7: And I think that's a good thing for us because, you know, they're starting now to plan, you know, the rest of 2023 and there's some positive signs there. And so while I think, you know, the macro and certainly the labor market have, you know, shown signs of stability, I think what it means for us is that we've remained busy. So while that's a good thing.
And I think that's a good thing for us because.
They're starting now to plan the rest of 2023 and there are some positive signs there and so while I think the the.
The macro and certainly the labor market have shown signs of signs of stability I think what it means for US is that we remain busy so while the while that's stable we've been very busy with product innovation, new product launches and investments in sales. So I think we are.
Speaker 7: stable, we've been very busy with product innovation, new product launches and investments in sales. So I think we're hopefully timing it right where our clients start coming back in terms of higher ordering volumes and we're ready with new products and additional sales strength and etc.
Hopefully timing it right, where our clients are coming back in terms of higher order volumes, and we're ready with new products and additional sales strength and et cetera.
Speaker 3: Great note, that's certainly really help the color. And you know, maybe if you look at your new logo lens that incline what you're seeing there, where do you feel like you're shaking the lion chair of some of those lens? Is it from first time kind of outsource was here that are going more so I'm sorry, first.
Great.
Certainly.
Really helpful color and maybe as you look at your new logo win that and kind of what Youre seeing there where do you feel like you're taking.
Lions share some of those wins does that from first time outsourcers here that are going more so I'm sorry.
Speaker 3: timers that are moving from smaller regional players or you know, where do you think you're seeing the majority of those wins? Thank you. I love the question because we've been actually tracking this for you know quarters and quarters and
Time areas that are moving from smaller regional players or where do you think youre seeing the majority of those lens. Thank you.
I Love the question because we've been we've been actually tracking this for quarters and quarters and.
Speaker 7: And it's the exact same data that's been playing out for the last couple of years is when, as we've been announcing our quarterly wins, we analyze where those wins have come from. And it's really three equal...
And it's the exact same data that's been playing out for the last couple of years is when as we've been announcing our quarterly when we analyze where those wins have come from.
And it's really three equal buckets.
Speaker 7: It's, you know, a third from the mom and pops out there, it's a third from the mid-sized players, and it's a third from the large players.
It's a third from the mom and Pops out there. It's a third from the mid sized players and it's the third from the large players.
Speaker 7: And that trend has not changed over the last year plus, since we started really analyzing that and reporting that data. So we think that trend will continue and obviously if there's changes to it, we'll let you know, but it's really what I think is a good sign because it means that it's a healthy, competitive landscape and that our products and services and offerings are attractive and all three of those competitive buckets.
That trend has not changed over the last year plus since we started really analyzing that and reporting that data. So we think that trend will continue.
And obviously, if there's changes to it we'll let you know, but it's really what I think is a good sign because it means that.
Its a healthy competitive landscape in that and that our products and services and offerings.
Our attractive and all three of those competitive buckets.
Great. Thank you so much.
Speaker 5: Thank you. Our next question comes from Andrew Stonerman with JP Morgan.
Thank you. Our next question comes from Andrew Steinman with J P. Morgan.
Speaker 8: Yes, hi, this is Alex Hesson for Andrew. So I want to maybe return to the subject of base growth. My recollection is that you guys had indicated that base growth would be negative in the first half of 2023 on your previous call. Maybe can you tell us where the first quarter shook out versus your expectations?
Yes, Hi, this is Alex <unk> on for Andrew.
Wondering maybe return to the subject of base growth.
My recollection is that you guys had indicated the base growth would be negative in the first half of 2023.
On your previous call, maybe can you tell us where the first quarter shook out versus your expectations.
Speaker 4: I, yeah, Alex, it was very consistent with what we, with the guidance that we had previously provided. Based was down about 13%. That's what we had anticipated. It was actually not as bad as we had anticipated. And then again, as I mentioned earlier, we got positive contributions from up so cross, so a new logo of about 9% and attrition was 3%.
Yes, Alex.
It was very consistent with what we with the guidance that we had previously provided base was down about 13%. That's what we had anticipated it was actually not as bad as we had anticipated and then again as I mentioned earlier, we had positive contributions from upsell cross sell.
All our new logo of about 9% and attrition was 3%.
Speaker 6: got it that's very helpful and then maybe more in a strategic question. Um, you guys have leading, uh, margins in the background screening industry and you guys have a very, very strong balance sheet. I know there've been some questions about, you know, maybe some levers can pull on margins, but, but maybe, why not pull some levers to accelerate investments at this juncture given your, your financial position? Uh, so any thoughts around, you know, why maybe not accelerating or putting more foot to the, we get more
Got it that's very helpful. And then maybe more on a strategic question.
Do you guys have leading margins in the background screening industry and you guys have a very very strong balance sheet I know there've been some questions about maybe some levers you can pull on margins.
Why not pull some levers to accelerate investments at this juncture given your financial position.
Any thoughts around why maybe not accelerating or putting more foot.
Speaker 8: Pedal to the gas in this environment will be helpful.
Sure.
Pedals for gas in this environment would be helpful.
Speaker 4: We continue to invest back into the business, particularly in product development and automation.
We continue to invest back into the business, particularly in product development and automation.
Speaker 4: As Scott mentioned just a few minutes ago, we see this kind of wall in the business as a great opportunity to internally focus and get ready for the surge that we'll be coming back. So we are investing in our business, but we're also balancing margins and profitability at the same time. So we're being selective, but we are reinvesting. That would be great to get you. Thank you very much. Yeah.
As Scott mentioned, just a few minutes ago.
We see this kind of a lull in the business as a great opportunity to internally focused.
And get ready for the surge that we will be coming back. So we are investing in our business, but we're also balancing margins and profitability at the same time, so we're being selective but we are reinvesting.
Great. Thank you so much.
I would add just.
Speaker 7: You know, just keep in mind as we continue to drive, you know, the automation journey, we are getting, you know, increased margins and savings from that. And we actually are turning that and putting that back into product tech.
Just keep in mind is as we continue to drive the automation journey, we are getting increased margins and savings from that and we actually are turning that and putting that back into product Tech we are increasing our pod strength.
Speaker 7: you know we are increasing our pod strength uh... we're increasing our sales head count uh... it's just not visible to you uh... you know because we don't detail detail it out like that but we're able to do that and uh... produced numbers that we producing so we're actually doing both think
Creasing, our sales head count.
Its just not visible to you.
Because we don't detail detail it out like that but we're able to do that and.
Produced the numbers that we producing so we're actually doing both at the same time.
Thanks, so much for the color.
Speaker 5: Thank you. As a reminder, if you would like to ask a question, please press star one. Our next question comes from Kyle Peterson with Needham.
Thank you as a reminder, if you would like to ask a question. Please press star one.
Question comes from Kyle Peterson with Needham.
Speaker 5: Hey, good morning guys. Thanks for taking the questions.
Hey, good morning, guys. Thanks for taking the questions.
Speaker 5: You know, it does give them some pretty good color specifically on some Indian IT services headwinds, the user experiencing Seems like America is does is seem to be holding up better But wonder if you give some more color at least on the vertical side You know, maybe kind of what is you know coming in? You know as good or maybe even a little better than expected the soft settings some of these headwinds internationally
Doesn't given some pretty good color specifically on some of the Indian It services headwinds he is there.
Thing.
Seems like Americas is does it seem to be holding up better, but I wonder if you could give some more color at least on the vertical side.
Maybe kind of what is coming in.
As good or maybe even a little better than expected offsetting some of these headwinds internationally.
Speaker 7: And so I'd say no vertical is coming in better than expected, but certainly verticals are coming in as expected. As we mentioned in our prepared statements, transportation and healthcare continue to drive good volumes for us. We're not going to go into vertical by vertical breakdown, but at the end of the day, you've got...
Yes.
I'd say no vertical is coming in better than expected, but certainly verticals are coming in as expected.
As we mentioned in our prepared statements transportation and healthcare continue to.
Drive.
Good volumes for us.
We're not going to go into like vertical vertical by vertical breakdown, but at the end of the day you've got.
Speaker 7: A handful that are doing pretty well, you've got a handful that are sort of flat and you've got others that are negative. And the met result is exactly what we've put forward here in our earnings releases and our guidance. So it's a bit of a mixed bag and you've got some offsetting others, but it's actually exactly where we thought it would be.
You know a handful that are doing pretty well you've got a handful that are sort of flat and you've got others that are negative and the net result is exactly what we.
Put forward here in our earnings release and in our guidance. So it is a bit of a mixed bag and you got some offsetting others.
But it's actually exactly where we thought it would be.
Speaker 5: Got it. That makes sense. And maybe just to follow up, you know, on proprietary data, I mean, it seems like you guys have been making a lot of efforts to, you know, kind of the user and data and cut out the middle man per se and some different areas. But, you know, maybe if you could give some more color on where you're seeing, you know, some of the most progress and whether that's, you know, around, you know, verifications or on the criminal side or, you know, maybe some more else completely.
Got it.
That makes sense and maybe just a follow up.
Proprietary data.
It seems like you guys have been making a lot of efforts to kind of the user and data and cut out the middleman per se in some different areas, but maybe if you could give some more color on where you're seeing some of the most progress and whether thats around verifications or on the criminal side or.
Somewhere else completely.
Speaker 7: And now those are two big buckets. That's where we're seeing the most progress. But in regard, the criminal side is really not about margins. That's more about the quality of the check and being able to use that data to increase accuracy and turn around times and things like that.
And those are the two big buckets, that's where we're seeing the most progress.
But in regard, but the criminal side is really not about margins.
That's more about.
The quality of the check and being able to use use that data.
Two.
Increased accuracy and turnaround times and things like that the margin impact is really on the verification side.
Speaker 7: The margin impact is really on the verification side. So it's not just only using our proprietary data, which certainly helps. But we're starting to be seen in the market as the place to go for alternative verification sources.
So it's and it's not just only using our proprietary data, which certainly helps.
But it's we're starting to be seen in the market as the place to go for alternative verification sources, and Thats, where the smart hub technology shines.
Speaker 7: And that's where the smart hub tech technology shines. I mean, I would tell you right now, the smart hub is actually the best tech we have in the entire company. It is a phenomenal piece of technology.
I would tell you right now the smart hub is actually the best Tech we have in the entire company.
It is a phenomenal piece of technology, that's got proprietary algorithms in it that enable us to go to the market and say we are the place for alternative verification sourcing and it it doesn't mean that we're just using our database or using somebody else's database.
Speaker 7: that's got proprietary algorithms in it, that enable us to go to the market and say, we are the place for alternative verification sourcing. And it doesn't mean that we're just using our database or using somebody else's database. We're able to search multiple databases with that technology, and that's driving the total cost of ownership of doing a verification down at our customers, and it's helping us win business.
We're able to serve multiple databases with that technology and Thats driving the total cost of ownership of doing your verification down at our customers and it is helping us win business.
Okay.
Good color thanks, guys.
Speaker 6: Thank you. Our next question comes from Heather Balski with Bank of America.
Thank you. Our next question comes from Heather <unk> with Bank of America.
Speaker 9: Hi, thank you for the time. Just one question for you. Can you talk about the upsell cross sell, where you're kind of seeing the strength with driving that, and has it changed this year versus last year, this is the macro environment that shifted? Thanks.
Hi, Thank you for the time.
Just one question for you can you talk about the upsell cross sell where you're kind of seeing the strength, what's driving that and has it changed this year versus last year.
As the macro environment has shifted.
Speaker 7: And Heather, it's actually has changed a bit. And it's...
And Heather it's actually has changed a bit.
Hum.
Speaker 7: So you may have seen a press release from us recently where we released our annual trend data.
So you may have seen our press release for most recently when we released our annual trend data. So every year, we look at the previous year's ordering volume trends.
Speaker 7: So every year we look at the previous years ordering volume trends. What are customers thinking about? What are they ordering? So we did 100 million searches in 2022. So that's a lot of data. And what's come out of that data is that customers are now valuing risk or risk mitigation or risk aversion as their top priority or as one of their top priorities.
What are what are customers thinking about what are they ordering so we did 100 million searches in 2022, so that's a lot of data.
And whats come out of that data is is that customers are now.
Valuing risk or risk mitigation of risk aversion as their top priority or is one of their top priority and so what that and I think you could probably guess that if you just turn the news on at night.
Speaker 7: And so what that, and I think you could probably guess that if you just turn the news on at night. You know, we're clearly living in unprecedented times when it comes to, you know, violence and and customers are worried about that. So what's driven upsell, crosssell, probably the most is what we call packet density.
We are clearly living in unprecedented times when it comes to violence and and and customers are worried about that so whats driven up so.
So probably the most is what we call package density.
Speaker 7: So package density is where customers are buying more and more protection.
So package density is where customers are buying more and more protections. So this would go probably against what you would think about in a in a down macro or are in a challenging macro where you would think customers are looking to save costs and things like that but they are actually buying more from us.
Speaker 7: So this would go probably against what you would think about in a down macro or in a challenging macro where you would think customers are looking to save costs and things like that, but they're actually buying more from us. So a wallet share is increasing as customers look to protect themselves. So it's really driven a lot by risk.
So wallet share is increasing as customers look to protect themselves. So it's really driven a lot by risk.
That's very helpful. Thank you.
Speaker 6: Thank you. There are no further questions in queue at this time. I will now turn the call over to Scott Staples for closing comments.
Thank you there are no further questions in queue. At this time I will now turn the call over to Scott Staples for closing comments.
Speaker 7: Thank you, operator. And thanks, everyone, for your participation. Have a great day.
Thank you operator, and thanks, everyone for your participation have a great day.
Speaker 6: Thank you. This concludes the first advantage, first quarter 2023 earnings conference call and webcast. Thank you all for your participation. At this time, you may disconnect your mind and have a wonderful day.
Thank you. This concludes the first advantage first quarter 2023 earnings conference call and webcast.
You all for your participation at this time you may disconnect your lines and have a wonderful day.
Speaker 1: He's
[noise] [music].
Hum.
Hmm.