Q2 2023 First Advantage Corporation Earnings Call
Good day everyone.
My name is Todd and I will be your conference operator today.
I would like to welcome each of the first advantage second quarter 2023 earnings conference call and webcast.
Hosting the call today from first advantage is.
It's definitely Gorman Vice president of Investor Relations.
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It is now my pleasure to turn the call over to Stephanie government you may begin.
Thank you Todd good morning, everyone and welcome to <unk> Financial's second quarter 2023 earnings Conference call.
In the investors section 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 for replay on our investor.
Right.
Before we begin our prepared remarks, I would like to remind everyone that our discussion today will include forward looking statements.
Such forward looking statements are not guarantees of 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 to our filings with the SEC, including our 2022 Form 10-K, and our Form 10-Q for the second quarter of 'twenty to 'twenty three to be filed with the SEC such.
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.
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 measure to the extent available without unreasonable effort appear in today's earnings press release and presentation, which are available on our Investor Relations website.
I am joined on our call today by Scott <unk>, Our Chief Executive Officer, and David <unk>, Our Chief Financial Officer.
Our prepared remarks, we will take your questions I will now hand, the call over to Scott.
Thank you Stephanie and good morning, everyone.
Thank you for joining our second quarter 2023 earnings conference call.
There are several highlights and updates that hey, I'm looking forward to sharing with you today.
To start.
We are very proud of our second quarter performance.
Both revenue and adjusted EBIT results were in line with the expectations, we communicated during our first quarter earnings call with our industry, leading adjusted EBITDA margin exceeding 30%.
We achieved these impressive results despite the challenging macro environment, particularly within our international operations.
We have once again demonstrated the financial discipline that we have built into the business and our ability to match expenditures with fluctuating volumes, while maintaining impressive margins.
In the second quarter, we again generated strong cash flow from operations. This along with our current cash position enables us to continue to selectively reinvest in our business pursue acquisitions buy back shares and consider other uses of capital that maximize shareholder value.
As a result of our current cash position sustainable and stable operating cash flow and commitment to a balanced capital allocation strategy. Today. We are pleased to announce that our board has declared a one time special dividend of $1.50 per share.
<unk>, which represents a greater than 10% return of capital to our shareholders.
This is in addition to our ongoing share buyback efforts.
Even after taking the one time special dividend into consideration, we are still able to maintain a strong balance sheet and modest net leverage position of approximately 1.6 times on a pro forma basis.
Additionally, we will still have ample cash and liquidity, which will continue to give us flexibility to invest in our business.
We pride ourselves in providing a compelling value proposition to our customers.
I'm proud of our team's ongoing dedication as we all continue to operate in an uncertain macro environment.
In the U S consumer confidence remains high and the inflation outlook is improving however, fears of ongoing economic weakness and the likelihood of additional interest rate hikes continue to impact corporate spending.
That being said.
Our customer base remains strong and continues to grow across our diverse range of verticals.
For the last 12 months, we booked 31, new logo enterprise customers with seven of them booked in the second quarter.
As a reminder, we define new logo enterprise customers as those with $500000 or greater in annual expected revenues.
Additionally, we continue we continue to see solid new logo growth opportunities and in fact, our RFP volume is extremely high.
Turning now to our second quarter highlights on slide five in our earnings presentation.
David will provide additional color on our financial performance and full year outlook in a few minutes.
In the second quarter, we generated purely organic revenue was up $185 million down 8% year over year, while cycling over double digit growth from prior year quarter.
We also grew sequentially compared to Q1 and sequentially month over month every month in the second quarter.
Additionally, our three year organic revenue CAGR of 18% remains substantially higher than our long term target.
In our Americas segment demand remains tempered, but continues to be augmented by our positive new logo upsell and cross sell achievements.
Our international markets continue to face challenges that have resulted in significant year over year revenue and adjusted EBITDA declines.
Given primarily by India, and APAC, while our European operations, which are still down year over year have proven more resilient.
From a vertical perspective, we continue to see stable hiring demand across transportation health care and retail and E Commerce.
While technology financial services and business services continue to experience a decline in hiring volumes.
Adjusted EBITDA was $56 million and adjusted EBITDA margin was 32% both improvement sequentially from Q1.
Our flexible cost structure, along with investments in automation and Digitization continue to drive our industry, leading adjusted EBITDA margins, despite lower year over year revenues in the quarter.
We remain focused on our solid execution track record and operational excellence initiatives and continue to expect our adjusted EBITDA margins to remain over 30% in the second half of the year.
Let me now take a moment to discuss some of our strategic highlights in greater detail.
First we continue to maintain a balanced and disciplined approach to capital allocation to return value to our shareholders. While also investing in growth.
As I mentioned in my opening remarks, our board of Directors has declared a one time special dividend of $1.50 per share, which reflects our strong cash position and low net leverage as well as our commitment to shareholders.
This return of capital to shareholders is in addition to our ongoing share buyback program.
We are also committed to driving long term profitable growth through investments in our technology and solutions, such as AI, which I will speak to in a moment and through M&A, which remains a high priority for us.
Over the last two years, plus we have successfully executed four strategic acquisitions.
Each has exceeded our expectations and resulted in an accelerated profitable growth.
We continue to seek to optimize our portfolio and actively evaluate evaluating M&A opportunities.
Our balance sheet remains strong and continues to provide flexibility to support future strategic growth initiatives.
Second.
With respect to the macro environment overall.
Overall higher remains generally stable despite the elevated degree of uncertainty.
Recent macro jobs data, specifically related to new hires and quits while down from prior year remained relatively consistent.
Additionally, we meet with our enterprise customers on a regular basis.
While they continue to monitor the impact of the macro environment on their businesses. We are not hearing any reported major changes upward or downward in their hiring trends.
Many have had measures in place since early in the year to best offset the impacts of inflation and interest rates hikes and do not anticipate material changes to their already adjusted hiring plans.
Our clients like ourselves continue to closely monitor and control their costs.
And third I would like to highlight how we are leveraging AI in our business.
A notable example of this is within our customer care organization.
Over the last two years, we have made investments in tools from leading checkout technology partners with powerful AI capabilities to enable our agents to pre.
A higher level of service and improved efficiency.
From a reporting enhancements to data analysis optimization to a chat bot and knowledge base that continues to learn and improve with every transaction. We can leverage not only the innovation offered by our technology partners, but also easily plug in new vendors and technologies directly into our platform.
As the AI market matures.
These advancements have transformed the way, we work with our customers and them with us.
It has allowed us to do more at a lower cost provide a better applegate experience and without sacrificing our high standard of customer service.
Our AI efforts will continue to evolve and expand and I look forward to updating you on our efforts in the future.
I'll now turn the call over to David for more details on our financial results and outlook David.
Thank you Scott and good morning, everyone turning to slide seven our second quarter revenues were $185 $3 million, a decrease of 8% from the prior year or on a constant currency basis $186 $4 million a decrease of seven point.
<unk>, 5% from the prior year as a reminder, these results are against strong double digit revenue growth of 15% in the prior year quarter.
Revenue grew sequentially and in line with our expectations for the quarter.
In our Americas segment revenues of $163 million were down just 4.6% from prior year as our customers continue to hire although at a slightly lower rate than in Q2 of last year.
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 87% of consolidated revenues in the quarter.
In our international segment revenues of $24 million were down 27% from Q2 2022.
On a constant currency basis revenues were $25 million or down 24% year over year.
The decrease was due primarily to weakness in India, given the region's exposure to be P. O N I T services related businesses and in APAC, given the tepid recovery in China, and other regional market dynamics, our European operations, while still down on a compare.
Sort of basis have proven more resilient in the face of macro headwinds with the new digital identity products contributing to their results.
In total international represented 13% of consolidated revenues in the quarter.
In the second quarter of year over year revenue decline from existing customers was $25 $6 million net of up sell cross sell which contributed $7.1 million or three 5% to our revenues we are anticipating an increase.
And up sell cross sell in the second half of the year based on our current pipeline.
We continue to see strong customer retention coming in at approximately 97% for the second quarter.
Revenues from new customers contributed an incremental $9.4 million, adding 4.7% to our results.
Americas, New logo sales outpaced international in both dollars and percentage.
Contributions from new customer sales and up sell cross sell remain encouraging.
Our operating expenses decreased year over year, which was possible because of our highly variable usage based cost structure and disciplined approach to managing expenses. We also continue to focus on improving productivity leveraging our historical.
Organic investments in technology, and managing controllable costs.
We are recognizing the benefits from our efforts, which include reducing our facilities footprint, leveraging procurement savings and selectively adjusting headcount to align with demand.
Adjusted EBITDA for the second quarter was $56 million, a decrease of 8% compared to Q2 2022 or three year adjusted EBITDA CAGR was 24.4%.
Our adjusted EBITDA margin of 32% was in line with our expectations and we continue to expect this to remain above 30% in the second half of this year.
For Q2, our adjusted effective tax rate was 23, 5% adjusted net income was $35 million and adjusted diluted EPS was <unk> 24 cents.
Turning now to capital allocation and our balance sheet on slide eight.
Our capital allocation approach remains disciplined and balanced between M&A internal investments to drive profitable growth returning capital to shareholders and maintaining our attractive net leverage profile.
Our excess cash and low net leverage provided flexibility enacted as catalysts for our recent strategic capital allocation initiatives.
Our one time special dividend of $1 50 per share, which equates to a greater than 10% return of capital to our shareholders along with our ongoing share buybacks reinforces our commitment to return value to shareholders.
Even after the one time special dividend announced today and the share buybacks through the end of the second quarter we.
We maintain the largest cash position and lowest net leverage amongst our public peers.
In the second quarter, we continue to deliver strong and consistent cash flow generation with operating cash flows of $33 million.
It is worth noting that this strong cash flow generation is after an incremental approximately $7 million of cash taxes paid in Q2 as we have now fully utilized our U S federal tax Nols.
During the quarter, we used cash to repurchase approximately $27 million of common stock or approximately 2 million shares.
Since the inception of air share authorization program last August and through August 3rd of this year, we have repurchased approximately eight 7 million shares for approximately $114 million.
During the quarter, we also spent $7 million on purchases of property and equipment and capitalized software development costs.
We ended the quarter with total debt of $565 million in cash and short term investments of approximately $401 million.
We also have $100 million and untapped borrowing capacity under our revolving credit facility with no outstanding balances.
Based on our last 12 months adjusted EBITDA of $239 million, we had a net leverage ratio of approximately 0.7 times as of June 30th.
Taking the approximately $218 million pay out for the one time special dividend into consideration our pro forma net leverage ratio remains industry, leading at approximately one six times and our pro forma cash position will still be.
A robust $183 million.
As we have discussed in the past our debt structure has us well positioned for the current interest rate environment.
As you may recall, approximately 50% of our long term debt is hedged utilizing an interest rate collar capped at a 147% one month, so far right through February of 2024, and we strategically hedged another $100 million of long term.
That in the first quarter of this year.
We also have no principal payments due before 2027.
Even after the one time special dividend our interest rate exposure on the remaining unhedged portion of our debt will still be substantially offset by our interest income on interest bearing cash deposits.
Now moving to slide nine.
Today, we are reaffirming our guidance however at the lower end of our guidance ranges. This reflects the current hiring environment and our expectations that existing macroeconomic conditions and similar labor market trends will continue through the.
<unk> of the year without significant changes.
As a reminder, our guidance anticipated modest improvement in the second half of the year, which now does not appear to be materializing.
We remain confident in our resilient business model and our ability to effectively manage those factors within our control.
Accordingly, we have already taken measures to reduce our costs to stay in line with previous guidance and to maintain our adjusted EBITDA margins above the 30% level on a full year basis.
For Q3, we expect sequential quarterly revenue and adjusted EBITDA growth.
Though revenue will still slightly decline on a year over year basis.
It is also important to note that even after taking into account. The one time special dividend, which is expected to impact adjusted net income and adjusted diluted EPS by approximately $2 $7 million.02, respectively. As a result of lower inter.
First income these metrics are still expected to be within the lower end of the guidance ranges.
Yeah.
We are confident that the investments, we're making in our business will allow us to grow and operate more efficiently in the future. While also positioning us to improve margins and continue to generate strong cash flow.
At the same time, our ability to further enhance our innovative technology and product solutions supports our commitment to our customers, especially in this dynamic environment.
I will now turn the call back over to Scott.
Thank you David.
I would like to conclude our prepared remarks today by reiterating our areas of strategic focus and priority to drive long term profitable growth.
We are a global leader in a large market with significant growth potential and I am confident in our team's ability to execute to capture more of this market.
While there are some near term obstacles, we remain focused on our long term growth opportunities and our continued strong cash flow, which allows us to invest and create value for our shareholders.
We continue to focus on accelerating organic growth with investments in our products and solutions, including investments in machine learning and AI.
We will continue to drive purposeful growth with acquisitions that expand our vertical capabilities geographical footprint and innovative solutions when available.
We also continue to focus on our vertical go to market strategy and leverage our flexible cost structure to enhance margins.
And finally.
Everything we do centers around our corporate culture and values sustainability is fundamental to how we operate and this is not only the right thing to maximize value for our business, but for all of our stakeholders, including customers employees partners communities and shareholders. Thank.
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 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.
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Thank you.
We will take our first question from Shlomo Rosenbaum with Stifel. Please go ahead. Your line is open.
Hi, Thank you for taking my questions.
You are talking about the strength of the pipeline and new logo activity in it.
Just to show up a lot in the second half of the year.
Hearing that similarly, with some of the competitors as well and I was wondering what's driving this I mean, we're having kind of a tepid existing car you know volume levels.
Levels and are you seeing clients that are looking for more vendor consolidation like what's driving the pipeline the strengthen in the rfps.
Gaslog.
Great question, and and and it's correct. Yeah. We are we are seeing historic highs and our total pipeline and in our.
Late stage pipeline I'm. So obviously those are very encouraging sign.
And we also I think your theory is correct.
And it's probably two areas one is.
We are seeing your procurement led.
Deals, which are looking for vendor consolidation optimized pricing et cetera. So that's obviously good for all three of the big guys.
But we're also seeing a lot of deals just driven by the need for more automation and better African experience and better technology and I think that is really just the maturity of the of the space. That's also obviously good for us and all.
All three of the public companies.
So.
If there is spot on but I would add in the second piece of it where people are really looking for a better tech experience.
Great. Thanks, if I could just squeeze in one other one Sterling announced an exclusive agreement D. O D for somebody services I know you guys also have a D. A.
Relationship.
There can you talk about what you do with your Ot and do you feel like it was gonna be Clint at all by their exclusive arrangement.
No I don't believe there arrangement is exclusive by the way and Jody would tell you that so if you talk to Jody directly they would say that we were actually the first background screen or to sign up with Yoda and others have followed I think Yogi is Ah is an amazing tech and it's you know.
Primarily for the UK market.
So this would be the digital identity.
Services within the U K.
And it is a great check engine that we have built into our workflow and our tech experience.
But youll D as a as a as an open technology that that that you know that.
They obviously have to approve it but other background screeners are also partnered with Vod. So this is not exclusive arrangement, but this is a great opportunity for the entire space.
For company.
Company background screeners with good tech to provide digital identity to the U K market and then ultimately that should expand to Europe and other countries as well.
Okay. Thank you.
Yeah.
Thank you we'll take our next question from David <unk> with Evercore ISI.
Oh. Thank you good morning, just bridging to Oh Shlomo question can you talk a bit about sales.
Sales pipelines are you seeing right.
Not just the pipeline, but closing time. So are you seeing any change in sales cycles versus prior quarters.
Sales cycles seem to be about the same.
As we mentioned clearly more deals in the pipeline.
Sales cycles typically run about six months in this space and there hasn't been too much change to that what we're seeing.
Which is very encouraging is the post close integration and Onboarding cycles have dramatically decreased so you know once that that means once you get the contract in place. We're finding our customers are going live much faster than they have in the <unk>.
Past and Theres Theres, probably a a financial reason for them to do that.
If the deal is saving them money, it's in their best interest to get it up and running as fast as possible and start saving that money.
So that's the only place that we've seen cycle times improve but sales cycle times themselves are relatively unchanged.
I appreciate that just as a quick follow up.
Given your extensive experience with offshoring prior to leading first advantage do you see additional opportunities to offshore some of your own head count.
Yeah, absolutely and we will continue to do that.
So.
As you know most of our initial offshoring.
Strategies focused around India.
But we have branched out we announced a few quarters back I think maybe Q4 of last year opening up a tech center in Poland.
We've had a great experience with our Tech center in Poland, So not only getting cost savings, but we're getting access to our incredible talent.
And then and not only are we using Poland for tech, but we're also using it for customer care and in some operations.
And as you are.
Remember, we acquired a company in Latin America called multi Latin and multi Latin has been extremely helpful and helping US you know.
Come up with strategies around.
What what jobs and what roles can be based in Mexico and other other components of Latam.
So our our outsourcing strategy has really become sort of a right shoring strategy, where we're finding replacing roles where they make sense.
Both from a customer standpoint, and from a company standpoint, and that has expanded then our footprint outside of India to the places I mentioned and we're and we're considering other areas as well we do a we're expanding our footprint in the Philippines. For example for primarily for our APAC customers. So I think.
I mean, India, Philippines, Mexico, and Poland were coming up with a very comprehensive you know right shoring strategy.
Understood. Thank you.
Thank you we'll take our next question from Ashish <unk> with RBC capital markets.
Hi, Good morning, this is actually David page on for Ashish.
I was wondering if you could just probably a little bit more color on how your sustaining a 30% plus EBITDA margin given some of the macro headwinds and maybe a little bit slower year over year sales growth.
And to the extent if AI is playing a role in that I know, it's early days for AI, but maybe some of the cost savings.
Benefits from pay I think thank you.
Well as you know, we invested early and heavily into technology and automation, we continue to do so.
We also have a very variable cost structure, particularly from an operational perspective.
We can Ryan five days six days seven days, we can run multiple shifts we manage a lot of volume through over time.
And we are very disciplined about matching head count with volume and so that's number one number two in todays Mack.
Macroeconomic environment, we are continuing to look at cost we have been able to reduce some costs relative to software licenses and.
Insurance costs, we've taken out select of SG&A head count costs.
So we're committed to maintaining a 30% plus EBITDA margin, we've proven that now time and time again over the past three years and we're very confident that we can continue that.
And let me give you a little more color I mentioned in my prepared remarks, you know the AI that we use in our customer care.
Centers and operations.
Just to give you an example of of that and how it helped us maintain the 30% is.
We've launched a new.
New program within our customer care called click chat call. So quick chat call is our strategy and in customer care, where as you can you can see from the order in which I gave them a call is the last option.
So we are.
Giving AI driven tools to our customers and their applicants on how to leverage click and chat through AI tools. Instead of call. This has been received.
Received so well by our customers and applicants are our customer satisfaction scores are are are great.
Through this launch of this of this strategic change and in customer care.
And it has again not only driven higher C sat scores, but it's allowed us to do more with less people and hence reducing head count in our customer care centers and that's helped us with the 30% as well so we get a best of both worked there with leveraging AI tools.
And saving money.
Yeah.
Thank you we'll go to our next question from Andrew Steinman with J P. Morgan Hi.
Hi, It's Andrew could you just talk about cross sell upsell again, I think the percentage in the quarter was about 3% and I think you said that you expect second half and that cross sell upsell revenue contribution to get better could you just discuss your confidence in that dynamic.
Yeah.
So Andrew just to give you the numbers it was three 5% it was $7 $1 million.
In Q2, we have some.
Upsell cross sell in our pipeline that got.
Deferred by a quarter or two.
But it's from a major existing.
Existing customer obviously.
And they have plans to move forward with it it just got pushed back a quarter.
Okay. Thank you.
Thank you we'll take our next question from Stephanie Moore with Jefferies.
Hi, good morning, Thank you.
I wanted to touch on your new business wins that you saw in the quarter.
To see nice growth there can you talk a little bit about the competitive landscape and where you think you're seeing the majority of those new wins. Thank you.
So.
It's interesting we've been actually are tracking this data for a while now and I think I've reported this on prior calls.
We're getting we're getting we're getting the enterprise wins pretty evenly across what we call as the three competitive buckets, one being you know the large public peers to being mid size and three being a mom and pops, it's really a pretty equal.
Percentage across all three buckets you when you.
If I look at sort of number of units.
And in that we feel is a very healthy sign because you know.
As you know this is still a very fragmented market. It's a $13 billion Tam with you know with still lots of players. So the fact that we're taking an equally across all three buckets.
You know is a trend that we want to see continue in and it's been happening that way for a good year or so.
We are where we're seeing it also fairly evenly across verticals.
We there theres nothing that really stands out is as you know a lot of wins coming from a vertical or two verticals, they're still pretty evenly across.
Verticals, although we we continue to have real good success in our transportation and retail ecommerce, which are you know.
Two real real strong vertical for us but not.
Not nothing nothing really different.
Different about any of those trends other than what I. What we mentioned to you know Shlomo question, which is we are seeing more procurement led deals and with vendor consolidation. So we do expect you know.
You know the new logo pipeline to continue to remain strong.
Great. Thank you so much.
Thank you we'll take our next question from Manav Patnaik with Barclays.
Yeah.
Hi, Good morning. This is roni Kennedy off from an off thank you for taking my questions.
The reference to hit historic highs in total pipeline, but I think the responses to the previous questions on new Biz Cross and up sell.
Coupled with guiding to low end of the range to comments that the initially anticipated improvement to age doesn't appear to be materializing can I confirm that this implies further deceleration.
Or what has been referred to as the wildcard of pure base growth.
What are the drivers.
It's a region specific verticals or because it sounds like the macro seems to be consistent with your expectations.
So rum and what that implies is base growth will remain negative in the second half of the year. We do believe that but base growth was also slightly negative in the second half of 2022. So you now have a negative and a negative.
Sequentially, we are seeing quarter over quarter growth and seeing improvement but.
But we are being dragged down right now by our international operations, and we need India in APAC to bounce back, but we feel good about the U S and we think base growth will be improving while still being negative.
Okay. Thank you and then can I just reconfirm the rationale around the special dividend I know you had said you know the expectation is for capital allocation to remain balanced and consistent but are there any implications for this is the type of thing that can happen in such a dynamic or obviously.
A function of share price with regards to the buyback, but how if there's any implications for long term capital allocation and then also on on M&A. Just if you can comment on the pipeline and what you're seeing from evaluation standpoint.
Well first of all from a special yeah from a special dividend perspective.
We just had a lot of cash sitting on our balance sheet and very low leverage.
This special dividend isn't going to preclude us from doing anything else, it's not going to preclude us from pursuing M&A opportunities. In fact, we are actively pursuing M&A opportunities and Scott will comment on that momentarily, but even after this dividend our leverage is only going to be one six.
Times, we're still going to have a $183 million of cash on the balance sheet, we're not borrowing any money to fund that we're still going to have the strongest balance sheet by far of any of our public peers. So we just felt it was the right thing to do the other point was worth continuing to buyback shares.
But we didn't want to move this more into the share buyback program because the float is starting to get a little difficult. We've already bought back eight 7 million shares.
It's becoming a little more difficult to accumulate a big position and we didn't want to do that to our existing investors. So we thought this was the right allocation.
Yeah and on the M&A side just to answer your question there and I think we've been talking about this for the last couple of quarters, because we certainly started to see a change in the pipeline, maybe six months back or so.
So the overall you know high level is that there are certainly less deals in the pipeline, but those deals tend now for some reason, which we can't explain but the deals maybe tend to be a little higher quality companies that we're seeing now but.
<unk> are still high.
So.
Our M&A strategy has not changed.
And we as we mentioned in the prepared remarks, we've done.
All four deals in the last two years and they've all been home runs because we stick to our strategy.
And we're looking for good strategic fits that could be growth accelerators.
And as.
As I mentioned in the prepared remarks, either enhancing our vertical story.
Expanding our geographical footprint are giving us.
Our product our tech you know that will help us grow we will continue to look for that and we certainly are talking to companies and we certainly are looking at things, but overall pipeline is definitely lower but there are still some high quality companies out there, but valuations are still a challenge.
Thank you appreciate it.
Okay.
Thank you as a reminder, if you would like to ask a question. Please press star one at this time.
Our next question comes from Karl Peterson with Needham.
Great. Thanks, Good morning, guys I wanted to start off as kind of a piggyback on <unk> question on special dividend.
Obviously, you guys have this business seems to generate quite a bit of cash you guys have a strong balance sheet.
Would something maybe or more recurring regular dividend be something that you guys would consider you know as a you know another way to deploy capital and potentially open up their investor base, a little bit down the road or do you think that given kind of the more volume sensitivity.
Of the business the special dividends or some other way to go at least for the foreseeable future.
Okay.
Well, what we can tell you right now Kyle is this was a one time special dividend, we always look for ways to maximize shareholder value, which you are asking in regard to an ongoing dividend is really a board level kind of conversation.
We consider all ways to maximize shareholder value, but it's you know nothing imminent.
Okay.
Understood that's clear and then just a follow up on the revision to the guidance.
You asked a little bit more towards kind of at the lower end I guess is the.
The directional kind of change in the outlook you know is that mostly due to some of the softness I know you guys called out the Indian It services a M. P. P. O providers is it mostly hiring in that arena or is this a little more broad base that just makes you guys kind of direct us a little bit more towards.
The low end of the guide.
Well keep in mind, we didnt change the guidance right. We are directing you towards the lower end, but part of the factoring in that original guidance was the fact that we could have some softness in certain areas.
At the upper end of the guidance, we anticipated improvement in the second half of the year keep in mind. This was given back in February right and there are a lot of uncertainties now they have continued to evolve we have seen sluggishness internationally Americas hanging in there, but we are still experiencing some <unk>.
Base growth, so we feel pretty good that we're still staying within our original guidance ranges, even though we are pointing you towards that lower end.
All right fair enough. Thanks, guys.
Thank you. Our next question comes from Pete Christiansen with Citigroup.
Good morning, Thanks for the question Scott I wanted to dig a little bit into the comments on <unk> services in India.
That space at least it has been.
Hampered a little bit by the AI seen just curious if theres any read through there.
For regenerative AI, perhaps taking over more and more task is.
Do you see that as an input to the slower hiring growth coming from that specific vertical. Thank you.
Yes, Pete I don't think so yet obviously that is something to keep an eye on for that space, especially the PPO space.
You know, where where where many many many years away from you know.
You know.
Writing code and things like that.
But certainly it should and could impact the B P. O space, just as we've proven with our own call Center Rollouts.
But I still think way early days and I think what's what's dragging the I T services and PPO companies down is not AI.
But it's the macro.
You know that they're still doing okay. Because just think about you know.
Who their customers are there primarily the big M and sees from the U S and Europe .
And those companies are still giving we're sending work there.
Because that's obviously low cost for them, but what's really you know hitting them is that the those.
Those companies are their customers aren't aren't actually they're delaying new projects and they're doing ramp ups. So if you. If you if you talk to the I T services, and PPO companies, especially out of India, a lot of them have delayed their annual hiring of Freshers out.
Out of out of college.
And most of them have pushed them to late fall. So that's good indicator that their customers. The big M. N. CS are delaying projects and ramp ups, but business is still pretty good for them.
Because existing projects arent being cancelled, but it's the new projects that arent being ramped up and that's where you know then it comes downstream to us where they're just not bringing on as many people as they had in the past, but I think you know once the macro swings back you know their business will swing back pretty quickly.
I would expect that to be a delay to the U S macro because the U S. Macro has to come back first for India, IP services and be able to come back.
So there should be a quarter or so delay in that but again their businesses are still pretty good. It's just the new projects that are being delayed.
I appreciate it that's really helpful color.
I know, it's way off but.
I'm just curious how you think strategically about your client mix and their exposure to AI in the future and if you're.
I'm thinking about strategically altering.
Your your client mix.
Oh, Thank you love the love the question.
And actually we are feeling really good about this because if you think about our customer base and our are our go to market.
We're really we're really sort of positioned for high volume hires.
And high volume hires primarily in the hourly workers space and things like that and I think AI is the impact on you know the hourly work or are you know Oh, you know what a distribution center work or a forklift driver truck driver is show is is going to be many.
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You know AI is certainly going to affect you know tech and other you know fulltime employment sectors.
Which isn't as big of a footprint for us. So we actually are in the you know yeah, we're actually in a double down strategy on our existing strategy, because we love it because you know high volume hires in our space with a lot of turnover.
A lot of volume and they love, our automation and our speed and that's that's that's why we win.
And I don't think AI will have a huge impact on our customer base. Obviously, we've got lots of customers. So it will affect some down the road, but are the majority of our go to market.
You know is spot on where AI won't have an impact.
No that's super helpful. Thank you Scott.
Thank you at this time, we have no further questions in queue I will now turn the call back to Scott Staples for closing comments.
Thank you operator.
And thanks, everyone for your participation today have a great day.
This does conclude today's call. We thank you for your participation you may disconnect at anytime.
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