Q3 2023 HireRight Holdings Corp Earnings Call
Speaker 1: Good morning, ladies and gentlemen, and welcome to Higher Rights Third Quarter 2023 conference call.
Good morning, ladies and gentlemen, and welcome to higher Reits third quarter 2023 conference call.
Speaker 1: Joining today's call are the company's president and chief executive officer, Gaya Brahmo, chief financial officer, Tom Speight, and VP of Treasury and Investor Relations, Andrew Hay. At this time, all participants are on a-
Joining today's call are the company's president and Chief Executive Officer, Guy, a Bravo Chief Financial Officer, Tom status, and VP of Treasury and Investor Relations, Andrew Hey.
At this time all participants are in a listen only mode.
Speaker 1: I remind everyone that management will refer to certain non-GAAP financial measures. An explanation and reconciliation of these measures to the most comparable GAAP financial measures is included in the press release issued today, which is available on the Investor Relations section of Higher Rights website.
I remind everyone that management will refer to certain non-GAAP financial measures an explanation and reconciliation of these measures to the most comparable GAAP financial measures is included in the press release issued today, which is available on the Investor Relations section of higher rates website.
Also during this call managements remarks will include forward looking statements, including related to macroeconomic conditions, new business and customer retention partnerships with HCM providers biometric screening capabilities cost reduction initiatives and improving profitability cash flow and updated outlook.
Speaker 1: Also during this call, management remarks will include forward looking statements including related to macroeconomic conditions, new business and customer retention, partnerships with HCM providers, biometric screening capabilities, cost reduction initiatives, and improving profitability, cash flow and updated outlook.
Speaker 1: Such statements are predictions and actual results may differ materially. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in annual report on Form 10-K filed with the SEC, in particular, the sections of that document entitled Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary.
Such statements are predictions and actual results may differ materially additional information concerning factors that could cause actual results to materially differ from those in the forward looking statements is contained in <unk> annual report on Form 10-K filed with the SEC in particular, the section of that document entitled cautionary.
Note regarding forward looking statements and risks risk factor summary, in the 10-K and management's discussion and analysis of financial condition and results of operations. It is now my pleasure to turn the call over to Guy a promo.
Speaker 1: in the 10K and management's discussion and analysis of financial condition and results of operations.
Speaker 2: Thank you operator and good morning. I appreciate everyone taking the time with us as we share our third quarter 2023 results.
Thank you operator, and good morning, I appreciate everyone, taking the time with us as we share our third quarter 2023 results.
Speaker 2: For the past four quarters, we have successfully executed in a challenging macro environment with inconsistent economic data, geopolitical turmoil, and an ever-evolving employment market.
For the past four quarters, we have successfully executed in a challenging macro environment with inconsistent economic data geopolitical turmoil in an ever evolving employment market.
Speaker 2: With this as a backdrop, we remain focused on what we can control, and we are pleased with our execution to date.
With this as a backdrop, we remain focused on what we can control and we are pleased with our execution to date for.
For the third quarter revenue was $188 $3 million down $22 million year over year.
Speaker 2: Base hiring volumes remain significantly lower than this time last year, and Tom will provide a breakdown by our growth algorithm later in the call. To refresh your memory, when we say base hiring volumes, that is analogous to same-store sales and does not indicate client losses.
Based hiring volumes remained significantly lower than this time last year and Tom will provide a breakdown, but our growth algorithm later in the call.
To refresh your memory, when we say base hiring volumes that is analogous to same store sales and does not indicate client losses.
Speaker 2: For the quarter, we generated adjusted EBITDA of $52.1 million. Despite lower revenues while improving margins more than 200 bases.
For the quarter, we generated adjusted EBITDA of $52 $1 million, despite lower revenues, while improving margins more than 200 basis points, demonstrating our ability to improve profitability in a challenging environment.
Speaker 2: demonstrating our ability to improve profitability in a challenging environment.
Speaker 2: During the quarter, our gross margin excluding depreciation and amortization exceeded 50%, driving the adjusted EBITDA margin to 27.7%.
During the quarter, our gross margin, excluding depreciation and amortization exceeded 50% driving the adjusted EBITDA margin to 27, 7%.
Speaker 2: labor markets in general remain in flux with plenty of conflicting data.
Labor markets in general remain influx with plenty of conflicting data.
Speaker 2: While job openings remain higher than pre-pandemic levels, there has been a clear slowing of employee turnoff.
While job openings remained higher than pre pandemic levels. There has been a clear showing of employee turnover.
Speaker 2: uncertainty in the macro outlook coupled with geopolitical concerns have certainly slowed the recovery.
Uncertainty in the macro outlook, coupled with geopolitical concerns have certainly slowed the recovery.
Speaker 2: The quarter was, however, in line with our typical seasonal patterns similar to the first two quarters of the year.
Quarter was however in line with our typical seasonal patterns similar to the first two quarters of the year.
Speaker 2: We spent a lot of time discussing our technology and services verticals last quarter, and I am pleased to report that our technology customer base has stabilized as the vertical was essentially flat to Q2 after showing a bit of a rebound in that quarter.
We spent a lot of time discussing our technology and services verticals last quarter and I am pleased to report that our technology customer base has stabilized as the vertical was essentially flat to Q2 after showing a bit of a rebound in that quarter.
Speaker 2: Part of that improved performance was driven by some significant upsells and expansion, which I will get to in a minute.
Part of that improved performance was driven by some significant upsells and expansion, which I'll get to in a minute.
Speaker 2: Our transportation and healthcare businesses were down slightly from Q2, but remained in line with our expectations.
Our transportation and health care businesses were down slightly from Q2, but remained in line with our expectations.
Speaker 2: Lastly, a remaining core vertical of financial services declined 14% compared to Q2, primarily driven by our European-based banking customers. Those customers have indicated that volumes have softened, mainly due to slowing employee turnover and not necessarily from job cuts.
Lastly, our remaining core vertical of financial services declined 14% compared to Q2, primarily driven by our European based banking customers. Those customers have indicated that volumes have softened mainly due to slowing employee turnover and not necessarily from job cuts.
Speaker 2: During the quarter, revenue from new business increased more than 30% versus the second quarter this year. Year to date, new business revenue has driven more than $36 million in growth and our pipeline remains as strong as it has ever been.
During the quarter revenue from new business increased more than 30% versus the second quarter of this year year to date, new business revenue has driven more than $36 million in growth in our pipeline remains as strong as it has ever been.
Speaker 2: During the quarter, we added five new enterprise customers with combined estimated annual contract value of $11 million.
During the quarter, we added five new enterprise customers with combined estimated annual contract value of $11 million.
Speaker 2: Our go-to-market and onboarding teams are fully engaged, working to transition these wins and converting our strong pipeline into revenue.
Our go to market and Onboarding teams are fully engaged working to transition these wins and converting our strong pipeline into revenue.
Speaker 2: Retention of our top customers remains strong as well at just under 97%. And as I mentioned earlier, we had some major upsell success, particularly in healthcare and in technology, but we have expanded our presence with a very large ride sharing company.
Retention of our top customers remains strong as well I, just under 97% and as I mentioned earlier, we had some major upsell success, particularly in health care and in technology, where we've expanded our presence with a very large ridesharing company.
Speaker 2: In addition to the high customer satisfaction that drives our impressive retention, we are very pleased to announce we have enrolled in the Oracle Independent Software Vender ISV Accelerator Program, expanding beyond our Gold-Level Oracle Partnerships.
In addition to the high customer satisfaction that drives our impressive retention. We are very pleased to announce we have enrolled in the Oracle independent software vendor I S V accelerated program expanding beyond our gold level Oracle partnership.
Speaker 2: This program highlights the integration of higher rates comprehensive background screening products, such as verifications, drug testing, form I9, and e-verify services into Oracle Talent Management Solutions.
This program highlights the integration of higher rates comprehensive background screening products, such as Verifications drug testing form I nine and E verify services into Oracle talent management solutions.
Speaker 2: Our seamless integrations improve and streamline a company's background screening process by automatically pre-populating recruiting forms, reducing redundant data entry, automating background request accuracy, and providing timely tracker updates.
Our seamless integrations improve and streamline the company's background screening process by automatically pre populating recruiting forms reducing redundant data entry automating background request accuracy and providing timely tracker updates.
Speaker 2: In addition, customs benefit from increasing administrative efficiency through our integrated support and ongoing platform up.
In addition customers benefit from increasing administrative efficiency through our integrated support and ongoing platform updates.
Speaker 2: Hireite is now the exclusive background screening provider in Oracle's ISV Accelerator program, and we look forward to providing the best experience possible through closer alignment at Oracle.
Alright is now the exclusive background screening provider and oracles I S V accelerator program and we look forward to providing the best experience possible through closer alignment with Oracle.
Speaker 2: Further demonstrating that strength in partnering with leading HCM players after an extensive evaluation process, HyRite was selected by UKG, otherwise known as the ultimate chronos group, to be their sole go-to-market partner for their newly branded employment screening solution called UKG Screen by HyRite.
Further demonstrating that strength and partnering with leading HCM players. After an extensive evaluation process alright was selected by U K G. Otherwise known as the ultimate Kronos group to be their sole go to market partner for their newly branded employment screening solution called U K G screened by higher right.
Speaker 2: UKG is a leading global provider of human capital management, payroll, HR service delivery, and workforce management solution.
U K G as a leading global provider of human capital management payroll HR service delivery and workforce management solutions hiring.
Speaker 2: Higherite and UKG have been strategic partners for 10 years. And under this new partnership agreement, UKG will market, promote and co-sell higherite's global solutions to their customers and prospects worldwide under the UKG screen product name.
Pyrite in U K G have been strategic partners for 10 years.
Under this new partnership agreement U K G will market promote and co sell higher rates global solutions to their customers and prospects worldwide under the U K G screen product name.
Speaker 2: UKG screen by high right is being externally launched at the UKG Aspire customer conference just this week.
You can't G screen by higher right is being externally launched at the U K G Aspire customer conference just this week.
Speaker 2: These premier global partnerships further exhibit the value of our single global integrated platform, which simplifies global implementations of human capital management and applicant tracking systems.
These premier global partnerships further exhibit the value of our single global integrated platform, which simplifies global implementations of human capital management and applicant tracking systems.
Speaker 2: Also during the quarter, we began integrating our acquisition of DTIS and are excited about the opportunities to leverage our FBI approved channeler capability.
Also during the quarter, we began integrating our acquisition of D. T. I S and are excited about the opportunities to leverage our F. B I approved channel or capabilities the.
Speaker 2: The growth of our biometric-based screening capabilities will enable future product, service, and revenue opportunities as we expand solutions supporting our complex, highly regulated customer.
The growth of our biometric based screening capabilities will enable future product service and revenue opportunities as we expand solutions supporting our complex highly regulated customers.
Speaker 2: During our first quarter call, we announced plans to streamline costs including rebalancing and reducing our global headcount, shrinking our real estate footprint, and managing discretionary expense.
During our first quarter call, we announced plans to streamline costs, including rebalancing and reducing our global head count shrinking our real estate footprint and managing discretionary expenses.
Speaker 2: We are nearing the completion of our labor force rebalancing enabled by our improved technology staff.
We are nearing the completion of our Labor force rebalancing enabled by our improved technology stack we.
Speaker 2: We will continue to implement our plans throughout the remainder of this year and into 2024.
We will continue to implement our plans throughout the remainder of this year and into 2024.
Speaker 2: These self-help actions are well within our control and are designed to improve operating leverage regardless of the economic environment.
These self help actions are well within our control and are designed to improve operating leverage regardless of the economic environment.
Looking at current market trends and the murky macroeconomic outlook, we firmly believe that over the long term our markets will benefit from the favorable secular changes in the employment market such as growth in the freelance economy and increasing turnover rates.
Speaker 2: Looking at current market trends and the murky macroeconomic outlook, we firmly believe that over the long term, our markets will benefit from the favorable secular changes in the employment market, such as growth in the freelance economy and increasing turnover rates.
Speaker 2: These changes result in more churn and higher velocity in labor markets.
These changes result in more churn and higher velocity and labor markets.
Speaker 2: However, while recent labor reports indicate there is still a strong demand for talent, there has been a noticeable slowing of turnover as recessionary concerns ling-
However, while recent labor reports indicate there was still a strong demand for talent.
There's been a noticeable slowing of turnover as recessionary concerns linger.
Speaker 2: As we are now in the middle of our seasonally slow recorder, we expect inbound volumes to moderate, but remain confident in our previously provided outlook which Tom will discuss shortly.
As we are now in the middle of our seasonally slower quarter, we expect inbound volumes to moderate but remain confident in our previously provided outlook, which Tom will discuss shortly.
Speaker 2: In closing, we are pleased with our results, especially given the backdrop of the broader macro headwind.
In closing we are pleased with our results, especially given the backdrop of the broader macro headwinds our business remains resilient and we've demonstrated our ability to expand margins regardless of the economic environment.
Speaker 2: Our business remains resilient and we have demonstrated our ability to expand margins regardless of the economic environment.
Speaker 2: We are managing the business for the long term. However, we will be proactive in our near-term decision making to maintain our positive momentum.
We are managing the business for the long term. However, we will be proactive in our near term decision, making to maintain our positive momentum.
Speaker 2: Our relationships with our key customers provide us with a front row view of hiring patterns prior to the reported numbers and surveys, which enables us to provide updated outlooks based on near real-time hiring.
Our relationships with our key customers provide us with a front row view of hiring patterns prior to the reported numbers and surveys which enables us to provide an updated outlook based on near real time hiring estimates.
Speaker 2: And we continue to be laser focused on our margin improvement initiatives while maintaining industry leading quality and service for our customers. And that focus is clearly reflected in our results.
And we continue to be laser focused on our margin improvement initiatives, while maintaining industry, leading quality and service for our customers and that focus is clearly reflected in our results.
Speaker 2: With that, I'll turn the call over to Tom for a closer look at our third quarter financial performance and our outlooks to 2023. Tom?
With that I'll turn the call over to Tom for a closer look at our third quarter financial performance and our outlook for 2023 Tom.
Speaker 2: Thank you guys. Good morning everyone and thank you for joining our call today.
Thank you Guy good morning, everyone and thank you for joining our call today.
Speaker 2: If Guy mentioned our third quarter revenue was $188.3 million down 10.5% versus the prior year due to reduced hiring volumes tuned by economic headwinds.
I mentioned, our third quarter revenue was $188 $3 million down 10.5% versus the prior year due to reduced hiring volumes driven by economic headwinds.
Speaker 2: Deconstructing our results based on our growth algorithm provides the following breakdown.
Constructing our results based on our growth algorithm provides the following breakdown.
Speaker 2: Base growth from our top roughly 1800 customers would represent approximately 55% of total revenue was negative 16% year over year.
Base growth from our top roughly 800 customers, which represent approximately 75% of total revenue was negative 16% year over year.
Speaker 2: Upsells into these customers offset that decline by approximately two percent.
Upsells each of these customers offset that decline by approximately 2%.
Speaker 2: Customer term represented a 3% decline year over year.
Customer churn represented a 3% decline year over year.
Speaker 2: New logos contributed 7% year over year with more than $15 million added during the quarter.
New logos contributed 7% year over year with more than $15 million added during the quarter.
Speaker 2: Growth relating to our recent acquisition contributed 1%. And finally, our long tail SMB business consisting of more than 30,000 customers represented a 2% decline year over year.
Growth relating to our recent acquisition contributed 1% and finally, our long tail SMB business consisting of more than 30000 customers represented a 2% decline year over year.
Looking at our verticals as Guy mentioned, our technology customers orders has stabilized after a material declines earlier in the year and while still down 24% year over year. It was consistent with last quarter, and which we saw a rebound from Q4 and Q1 level.
Speaker 2: Looking at our verticals, as Guy mentioned, our technology customers, orders has stabilized. After a material declines earlier in the year, and while still bound 24% year over year, it was consistent with last quarter in which we saw a rebound from Q4 and Q1 level.
Speaker 2: Layoff data related to this vertical appears to have peaked during Q4 2022 and the first half of 2023. And we are slowly beginning to see some green shoots.
Layoff data related to this vertical appears to have peaked during Q4 2022 and the first half of 2023.
And we are slowly beginning to see some green shoots.
Speaker 2: Retail and hospitality grew year over year in this quarter, largely driven by new businesses.
Tell him hospitality grew year over year in this quarter, largely driven by new business wins.
Speaker 2: I also mentioned the softness in financial services, which declined nearly 19% year-over-year, largely driven by a slowdown in turnover at our large European base banking cost.
I also mentioned the softness in financial services, which declined nearly 19% year over year, largely driven by a slowdown in turnover at our large European based banking customers.
Speaker 2: Health care was down nearly 7% year over year, nearly exclusively driven by our largest customers who had completed a number of rescreening projects in the year prior.
Health care was down nearly 7% year over year nearly exclusively driven by our largest customer who had completed a number of re screening projects in the year prior.
Speaker 2: Absent that change, our healthcare vertical would have been flat year over year.
Absent that change our health care vertical would have been flat year over year.
Speaker 2: Overall, our core verticals accounted for 55% of the revenue this quarter, fairly consistent with prior periods.
Overall, our core verticals accounted for 55% of the revenue this quarter fairly consistent with prior periods.
Speaker 2: Curricord Geographic Split, non-US revenue based on applicant location was approximately 14% of total revenue.
Turning to our geographic split.
Non U S revenue based on Apple Kink location was approximately 14% of total revenue.
Speaker 2: A media posted a 15% decline versus the prior year to consistent with our financial services.
Immediate posted a 15% decline versus the prior year consistent with our financial services decline.
Speaker 2: APAC in India continue to be impacted by the softness in technology and services and we're down a combined 20% from the prior year.
APAC and India continued to be impacted by the softness in technology and services and were down a combined 20% from the prior year.
Speaker 2: Currency fluctuations had minimal impact on recorded revenues.
Currency fluctuations had minimal impact on reported revenue.
Speaker 2: Turning to expenses and our improved profitability. During the quarter, we continue to improve our delivery cost of service, helping to drive gross margins, excluding restructuring charges in depreciation and amortization, to 50.3%, which is up more than 300 basis points a year over year in its consistent with our previous common.
Turning to expenses and our improved profitability during the quarter, we continued to improve our delivery cost of service, helping to drive gross margins, excluding restructuring charges and depreciation and amortization to 53%, which is up more than 300 basis points year over year and is consistent with our previous commentary.
Speaker 2: We reported 52.1 million of adjusted EBITAD, just 1.9 million lower than last year despite reduced revenue.
We reported $52 1 million of adjusted EBITDA, just $1 9 million lower than last year, despite reduced revenues.
Speaker 2: are adjusted even a margin grew 200 basis points to 27.7.
Our adjusted EBITDA margin grew 200 basis points to 27, 7%.
Speaker 2: This growth is indicative of our focus on improving operating efficiency in implementing our restructuring program.
This growth is indicative of our focus on improving operating efficiency and implementing our restructuring program.
Speaker 2: Even though we have made great progress today, we are still implementing some of our initiatives and will continue activities through the first half of 2024.
Even though we have made great progress to date, we are still implementing some of our initiatives and will continue these activities through the first half of 2024.
Speaker 2: We expect to see additional savings throughout this implementation period and a full run rate savings by the end of 2024.
We expect to see additional savings throughout this implementation period and a full run rate savings by the end of 2024.
Speaker 2: Digging deeper into SGNA expenses in the quarter on a gap basis, total SGNA declined from 49.4 million in Q3 2022 to $48.6 million. This...
Digging deeper into SG&A expenses in the quarter on a GAAP basis total SG&A declined from $49 4 million in Q3, 2020 to $48 $6 million this quarter.
Speaker 2: including stock-based compensation and restructuring charges, employee costs decreased 15% to 20.7 million, driven by our restructuring actions and lower variable compensation.
Excluding stock based compensation and restructuring charges employee costs decreased 15% to $20 7 million driven by our restructuring actions and lower variable compensation.
Speaker 2: During the quarter, we had a one-time insurance recovery of approximately $6 million.
During the quarter, we had a one time insurance recovery of approximately $6 million. Excluding this recovery and other one time items, such as restructuring or other indirect expenses increased from $18 $7 million in Q3, 2020 to $22 $7 million.
Speaker 2: including this recovery and other one-time items such as restructuring, are other indirect expenses increased from $18.7 million in 2023 to $22.7 million?
Speaker 2: The increase was driven primarily by increasing technology maintenance costs, recurring legal expenses, partnership royalties, and indirect taxes, all of which were partly offset by lower facility expenses, professional fees, and markets.
Increase was driven primarily by increasing technology maintenance cost recurring legal expenses partnership royalties and indirect taxes, all of which were partly offset by lower facility expenses professional fees and marketing costs.
Adjusted net income for the quarter was $24 $6 million compared to $29 8 million in Q3 2022.
Speaker 2: Just that income for the quarter was $24.6 million compared to $29.8 million in Q3 2022.
The reduction is a result of lower operating income on lower revenues, coupled with higher cash interest expense of $5 $4 million due to higher rates on our floating rate debt.
Speaker 2: The reduction is a result of lower operating income on lower revenues coupled with higher cash interest expense of $5.4 million due to higher rates on our floating rate debt.
Speaker 2: As a reminder, we are using an estimated blended statutory tax rate of 26%.
As a reminder, we are using an estimated blended statutory tax rate of 26%.
Speaker 2: Also note, our estimated statutory rate and our gap effective rate will differ from our actual cash tax paid, which are primarily based on revenue generated outside of the US due to our domestic tax assets in the US.
Also note our estimated statutory rate and our GAAP effective rate with different from our actual cash taxes paid which are primarily based on revenue generated outside of the U S. Due to our domestic tax assets in the U S.
Speaker 2: We expect it to continue to be a nominal cash tax payer through 2025.
We expect to continue to be a nominal cash taxpayer through 2025.
Speaker 2: Finally, adjusted diluted EPS for the quarter was 36 cents, compared to 37 cents the prior year period.
Finally, adjusted diluted EPS for the quarter was 36 cents compared to 37 <unk> the prior year period.
Speaker 2: The diluted weighted average share count for the quarter was 69.1 million. Reflecting the shares purchased through the share buyback program versus 79.5 million in 2023-2022.
The diluted weighted average share count for the quarter was $69 1 million, reflecting the shares purchased through the share buyback program versus $79 5 million in Q3 2022.
Speaker 2: Outstanding shares at the end of the court were 68.1 million. Reflecting our continued share report's program.
Outstanding shares at the end of the quarter were $68 1 million, reflecting our continued share repurchase program.
Speaker 2: Turning to cash flow, we generated more than $38 million in cash flow from operations during the quarter, and year to date have generated 50.6 million.
Turning to cash flow, we generated more than $38 million in cash flow from operations during the quarter and year to date have generated $56 million.
Speaker 2: unlevered free cash flow, excluding acquisitions and capitalized software development with $95.8 million.
Unlevered free cash flow, excluding acquisitions and capitalized software development was $95 $8 million.
Speaker 2: Our leverage ratio ended the quarter at 3.7 times up from 2.9 times in 2.3 last year and is expected to remain in a range of three to four times.
Our leverage ratio ended the quarter at three seven times up from two nine times in Q3 last year and is expected to remain in a range of three to four times.
Speaker 2: Total cash increased to $103 million, resulting from improved cash collection, and approximately $32 million net proceeds from our refinancing on the term loan.
Total cash increased to $103 million, resulting from improved cash collection and approximately $32 million net proceeds from our refinancing on the term loan.
Speaker 2: In the quarter, we use $24 million of cash to repurchase shares under the authorized share repurchase.
In the quarter, we used $24 million of cash to repurchase shares under the authorized share repurchase program.
Speaker 2: In September , we refinanced our existing term loan, extending the maturity from 2027 to 2030.
In September we refinanced our existing term loan extending the maturity from 2027% to 2030.
Speaker 2: We increased the outstanding principles to $750 million in converting the borrowing index from liboard to soap.
We increased the outstanding principle to $750 million and converting the borrowing index from LIBOR to sofa.
Speaker 2: increasing the bottling spread 25 basis points to 400 basis points.
Increasing the borrowing spread 25 basis points to 400 basis points in.
Speaker 2: In addition, we increased our revolver to $160 million from $145 million.
In addition, we increased our revolver to $160 million from $145 million at the end of the quarter, we had no draws against our revolver and about $262 million of total liquidity.
Speaker 2: At the end of the quarter, we had no draws against our revolver, and about $262 million of total liquidity.
Speaker 2: We remain confident in higher rights balance sheet and ability to generate cash flow enabling us to invest in the long-term future of the business.
We remain confident in high rates balance sheet and ability to generate cash flow, enabling us to invest in the long term future of the business and opportunistically repurchase shares as well as reducing our debt.
Speaker 2: And opportunistically, you purchase shares as well as reducing our debt.
Speaker 2: Our restructuring program is beginning to generate improved profitability as exhibited by our 200 basis point improvement and adjusted EBITDA market.
Our restructuring program is beginning to generate improved profitability as exhibited by our 200 basis point improvement in adjusted EBITDA margin.
Speaker 2: Looking ahead, we continue to operate in a challenging environment driven by both geopolitical concerns as well as an uncertain economic out.
Looking ahead, we continue to operate in a challenging environment driven by both geopolitical concerns as well as an uncertain economic outlook.
Speaker 2: While we cannot predict short-term hiring patterns or changes, we have generated improved margins and converted revenue to free cash flow in this unique operating environment.
While we cannot predict short term hiring patterns or changes, we have generated improved margins and converting revenue to free cash flow in this unique operating environment.
Speaker 2: With this in mind, we are maintaining our previously provided outlook, which was
With this in mind, we are maintaining our previously provided outlook which was.
Revenue forecast in a range of $720 million to $735 million.
Speaker 2: Revenue forecast in a range of $720,000,000 to $735,000,000.
Speaker 2: adjusted EBITDA in a range of 172 million to $177 million, adjusted net income in a range of $75 million to $80 million, and adjusted diluted earnings per share in a range of $1.05 to $1.10.
Adjusted EBITDA in a range of 172 million to $177 million.
Just the net income in a range of $75 million to $80 million and adjusted diluted earnings per share in a range of $1.05 to $1 10.
And as a management team, we monitor both short and long term trends and will implement actions to capitalize regardless of where we are in the economic cycle.
Speaker 2: As management team, we monitor both short and long-term trends and will implement actions decapalized, regardless of where we are in the economic cycle.
Speaker 2: We remain focused on growing revenues through our key strategic initiatives while maintaining strict financial discipline. With that operator, we can open.
Remained focused on growing revenue through our key strategic initiatives, while maintaining strict financial discipline.
With that operator, we can open the call for questions.
Speaker 1: Thank you. The floor is now open for questions. If you would like to register a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, that's star 1 to register a question at this time. Today's first question is coming from Andrew Nicholas of William Blair. Please go ahead.
Thank you the floor is now open for questions. If you would like to register a question. Please press star one on your telephone keypad at this time a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up the handset.
Pressing the star Keys again, Thats Star one to register a question at this time today's first question is coming from Andrew Nicholas of William Blair. Please go ahead.
Hi, good morning, Thanks for taking my questions.
Speaker 3: Wanted to ask on package density first. I think you called out some upsell success in tech and healthcare, but any more color you can provide on just what clients are looking to add to the typical order? Is there any increased frequency of...
Wanted to ask on package density first I think you called out some upsell success in tech and in health care, but any more color you can provide on just what clients are looking to add to the typical order is there any increased frequency of social.
Speaker 3: social media screening or any other kind of auxiliary or supplemental screens that they're asking for more today than they were maybe a year or two ago.
Social media screening or any other kind of auxiliary or supplemental screens that they're asking for more today than they were maybe a year or two ago.
Speaker 4: Yeah, thanks Andrew, much, much appreciated. I would say that we still have a very good momentum from the team and our upsells and cross-cells. The...
Yeah, Thanks, Andrew much much appreciated.
I'd say that we still have a a very good momentum from the team and our Upsells and cross sells a V.
Speaker 4: A lot of it is driven by several things that have been changed. One is geographic expansion, two is drug and health screening. Three is increases in rescreening and employee monitoring, especially in the more regulated industries.
A lot of it is driven by several things that are sort of haven't changed one is geographic expansion to as drug and health screening.
Three as increases in re screening and employee monitoring, especially in the more regulated industries.
Speaker 4: I wouldn't say we see a lot of uptick in other areas, only because the value that we get from those kinds of upsells are pretty substantial. I haven't seen much of a change. I would tell you that, you know, we see concerns from clients over the increasing costs of doing...
I wouldn't say, we see a lot of uptick in other areas.
Only because the value that we get from those kinds of Upsells are pretty substantial.
<unk> seen much of a change I would tell you that we see concerns from clients over the increasing cost of doing.
Speaker 4: employment verifications, especially because of the vendor, you know, the vendor pass-through cost.
Employment, verifications, especially because of the vendor the vendor pass through costs.
Speaker 4: And that's one of the things that we're just keeping an eye on is we try to shift the amount of business we do through third parties and employment verifications to our own employment verification solutions. But nothing to report on that yet, just some noise in the machine.
And that's one of the things that we're sort of just keeping an eye on as we try to shift the amount of business, we do through third parties and employment verifications to our own employment verification solutions, but nothing to report on that yet just some just some noise in the machine.
Speaker 3: That's helpful. Thank you. And then for my second question, my follow up, I just wanted to ask the question more broadly on customer conversations right now. Any sense from them how next year is looking as they go through their own budgeting processes or any color outside of what you already provided in your prepared remarks as a relate to, near term or even medium term hiring plans, realizing that there's not a ton that you can quantify would they be afraid?
That's helpful. Thank you and then for my My second question. My follow up just wanted to ask the question more broadly on customer conversations right now any sense from.
Then how next year is looking as they go through their own budgeting processes or any any color outside of what you've already provided in your in your prepared remarks as it relates to.
Near term or even medium term hiring plans are realizing that.
Yeah, there's not a ton that you can quantify or specified at this point. Thank you Andrew.
Speaker 4: Thank you. Yeah, Andrew, I just, in fact, I've been on the road visiting customers, especially in some of our international markets, some of our large global clients. I would say the the
In fact, I've been I've been on the road visiting visiting customers, especially in some of our international markets some of our large global clients.
I would say the the.
Speaker 4: Almost to a company, there is a little bit of cautious optimism in this year or the next year versus this year. But having said that, I would say that the main word that we continue to hear is uncertainty.
Almost to a company there is a little bit of cautious optimism in this year or next year versus this year, but having said that I would say the main I'm worried that we continue to hear is uncertainty.
Speaker 4: in that they're not quite sure what hiring will look like next year. And a lot of that uncertainty is mainly driven by them trying to figure out what turnover employee turnover will be like. That's the one thing that we've seen hit in the second half of this year is employee turnover slowing. And that's the one thing that employers really can't predict.
That you know, they're not quite sure what hiring will look like next year and a lot of that uncertainty is mainly driven by them trying to figure out what turnover employee turnover will be like that's that's the that's the one thing that we've seen here in the second half of this year is employee turnover slowing.
And that's the one thing that employers really can't predict.
Speaker 4: even though it's been for most companies, it's a fairly consistent rate. So that level of uncertainty is just kind of making it a little bit muddy in terms of us really making a call on what next year looks like. But again, just to reiterate, cautious optimism, but uncertainty around what turnover will look like, especially at our very large enterprise clients.
Even though it's been for most companies, it's a fairly consistent rate. So that level of uncertainty is just kind of making it a little bit muddy in terms of us really making a call on what next year looks like but.
But you know again, just to reiterate cautious optimism, but uncertainty around what turnover will look like especially at our very large enterprise clients.
That's helpful. Thank you. Thanks.
Thanks, Andrew.
Speaker 1: Thank you. The next question is coming from Kyle Peterson of Needham and Co. Please go ahead.
Thank you. The next question is coming from Kyle Peterson of Needham <unk> co. Please go ahead.
Kyle I want to make sure your phone on mute.
Speaker 1: Did we lose Kyle? No, he's still there. We'll move on to the next question and come back if he recues. The next question is coming from Mark Marcon of Baird. Please go ahead.
Did we lose call.
No. He's still there we'll move on to the next question will come back if he <unk>. The next question is coming from Mark <unk> of Baird. Please go ahead.
Speaker 2: Hey, good morning and thanks for taking my questions. First question is just a follow up from the prior question. Can you just discuss a little bit about you know, if
Good morning, and thanks for taking my questions.
First question is just a follow up from the prior question.
Can you just discuss a little bit about.
You know.
If.
If if employee churn ends up being you know materially slower how how much of an impact could that have on next year in terms of like you mentioned the you know the European banks are seeing a little bit of a slowdown.
Speaker 2: If employee churn ends up being materially slower, how much of an impact could that have on next year? And in terms of like you mentioned the European banks are seeing a little bit of a slowdown. Other companies are uncertain.
Other companies are uncertain.
Speaker 5: How would you like how do they frame like, you know, what their level of churn currently is and what it's been at its lowest points in the past how how much further degradation could we end up seeing in terms of pre employment screening within that base group of clients if churn were to go down to really low level?
How would you like how did they frame like.
You know what their level of churn currently is and what it's been the of its lowest points in the past how how much further degradation could we ended up seeing in terms of pre employment screening within that base group of clients. If churn were to go down to really low levels.
Speaker 4: Mark, it's a good question, right? And I wish I could be offer you, you know, more detailed than I did, because we, you know, we just don't know what I, you know, my first part of my comment was
Yeah, Mark it's a good question and I wish I could be offer you more detailed than I did because we just don't know what.
My first part of my comment was.
Speaker 4: you know, cautious optimism in the hiring environment that they're talking about in terms of potentially increasing the number of hires, but just general uncertainty in what the turnover would be like. It's hard for us to say. I mean, we're building our budgets, we're in budget season, we're looking at various scenarios and how we'll manage the business.
You know cautious optimism in the hiring environment that we're that they're talking about in terms of potentially increasing the number of hires but just general uncertainty in what the turnover would be like so it's hard for us to say I mean, we're obviously as we're building our budgets. We are in budget season, where we're looking at various scenarios and how we'll manage the business.
Speaker 2: in terms of what we'll see from existing clients, but I really can't offer you more detail than we did. But I think what you can look at Mark is, obviously we look at a lot of different metrics, but that quits rate in the JOLTS report is an indicator for us too, that we do look at. And you see that that number has pulled down to much closer to pre-pandemic levels.
In terms of what we'll see from existing clients, but I really can't offer you more detail than than we did but.
But I think what you can look at Mark as you know obviously, we look at a lot of different metrics, but that quick right in the jolts report as an indicator for us too that we do look at and you you see that that number has pulled down to much closer to pre pandemic levels.
Speaker 2: So I think that's kind of an indication of where we are in the cycle from a turnover perspective.
So I think that's kind of an indication of where we are in the cycle for me from a turnover perspective.
Yeah, I mean, I don't I've heard it.
Speaker 4: I've heard of some clients mark as simple as we expect it to be increased to our next year over this year, but again, I don't know.
From some from some clients Mark is as simple as you know we expect it to be increased churn next year over this year, but again I don't know right Yep.
Great and then congratulations on some of those deals that you ended up signing can you give us a little bit more of a feel both in terms of the deals and then also dimension with regards to drivers records and obviously there is a potentially large clients.
Speaker 5: Great. And then congratulations on some of those deals that you ended up signing, can you give us a little bit more of a feel, both in terms of the deals and then also, you know, dimension with regards to
Speaker 5: drivers records and obviously there's a potentially large client you know that could tap into that.
Could tap into that.
Speaker 5: a large one or two clients that could, or three that could end up tapping into that. Can you just give us a little bit more of a feel in terms of the UKG, the Oracle, and then drivers records and what the potential uplift could end up.
Large one or two clients that could or three that could end up tapping into that can you just give us a little bit more of a feel in terms of the U K G. The Oracle and then drivers records and what the potential uplift could end up being.
Speaker 4: Sure, thanks. I'm glad you picked that up Mark. So we talk a lot about our single global platform as being a competitive differentiator for us. And it absolutely is. It's why Oracle and UKG gave us an example.
Sure. Thanks.
Glad you picked that up Mark So we we talk a lot about our single global platform as being a competitive differentiator for us and it absolutely is it's why Oracle in U K G.
Gave us an exclusive deal to be the partner of choice in providing background screening.
Speaker 4: to be the partner of choice in providing background screening. It's, you know, we think we have, and we're proving that we have better technology to service global clients who want to consolidate screening. We're seeing some of those, some of that deal action is now flowing into our pipeline. We're, you know, they're openly recommending high right and the UKG, the deal, as I mentioned to here, is kicking off this week at their, at their major conference. We are, you know,
We think we have an improving that we have better technology to service global clients, who want to consolidate screening were seeing some of those some of that deal action is now flowing into our pipeline, where you know they are openly recommending high rate in the U K G deal as I mentioned it here is kicking off this week.
They're at their major conference.
We are.
Speaker 4: very good at partnering in the HCM space and it's sort of been a proven differentiator for us and we fully expect that that will will provide increased deal wins going into going into next year. The mention that we made on the you know increased position on the ride sharing company we continue to expand our presence.
Very good at partnering in the HCM space, and it's sort of been a proven differentiator for us and we fully expect that that will will provide increased deal wins going into going into next year.
Pete mentioned that we made on the increased position of the Ridesharing company. We continue to expand our presence with what I would call the largest player in that industry as we.
Speaker 4: with what I would call the largest player in that industry.
Speaker 4: as we continue to prove that we provide a superior solution to other providers. And you hear me talk about it all the time. It's they've tested us against other providers. We find more, you know, we get more hits when we...
We continue to prove that we provide a superior solution to other to other providers and you hear me talking about it all the time, it's they've tested us against other providers, we find more we get more hits when we when they do background screening with us and that makes them more confident in our solution and they are pretty sizable company and so we're seeing.
Speaker 4: when they do background screening with us and that makes them more confident in our solution and they're pretty sizable company. And so we're seeing.
Speaker 4: good increased transaction flow through them as well.
Good increase transaction flow through through them as well. So we're you know we're very optimistic about our technology stack or ability to continue to win on partnerships like this are.
Speaker 4: You know, we're very optimistic about, you know, our technology stack or ability to continue to win, you know, on partnerships like this, our ability to prove.
Ability to prove our differentiated offering in the marketplace and that's showing in some of these results.
Speaker 4: are differentiated offering in the marketplace and that's showing in some of these results.
Speaker 5: It's very encouraging. Can I squeeze one more in? You mentioned five new logo wins or five big enterprise wins. Were those takeaways from the other two members of the big three or are those wins relative to some of the regionals and mid-market?
That's very encouraging can I squeeze one more in you mentioned five new logo wins or five big enterprise wins.
Were those takeaways from the other two members of the big three or are those.
Wins relative to some of the regionals.
Mid market players.
Speaker 4: Yeah, so we just highlighted five, right? I mean, because we call them enterprise deals in the quarter, and we highlighted those five because they totaled up to 11 million. Two of the five were from one of the major competitors.
So we just highlighted five right I mean, because we call them enterprise deals in the quarter and we highlighted those five because they totaled up to 11 11 million two of the five were from one of the major competitors.
Great. Thank you.
You bet Mark.
Speaker 1: Thank you. The next question is coming from Kyle Peterson of Needham & Co. Please go ahead.
Thank you. The next question is coming from Kyle Peterson of Needham <unk> co. Please go ahead.
Speaker 3: Hey, good morning, thanks. That's a start of the technical difficulties earlier. I wanted to touch on capital allocation. You guys have really done a great job attacking the buyback here. I'm going to see the debt get refinanced. How are you guys thinking about use of cash in between buybacks or potential different line of money throughout the rest of the year and in the 24?
Hey, good morning, Thanks, guys, sorry for the technical difficulties earlier I wanted to touch on capital allocation you guys have really done a great job attacking the buyback here I'm going to see the debt get refinanced yeah. How are you guys thinking about use of cash.
Between buybacks or potential additional M&A.
Throughout the rest of the year and into 'twenty four.
Speaker 2: Yeah, thanks, Kyle. Appreciate it. What I would say is, you know, we've been in, we're in our third
Yeah. Thanks, Scott appreciate it what I would say as you know we've been we're in our third tranche of our share repurchase program now.
Speaker 2: of our share repurchase program now.
Speaker 4: and we've made a pretty significant dent, obviously, and pretty successful in on that program.
And we've made a pretty significant dent, obviously pretty successful in on that program I think you get to a point, though where you get.
Speaker 2: I think you get to a point though where you get to a point of diminishing returns and one of the things that
To a point of diminishing returns and one of the things that you know the feedback we get from investors too as you know being mindful of the liquidity and the share. So I think we're very close to that level. So I don't anticipate.
Speaker 2: you know, the feedback we get from investors too is, you know, being mindful of the liquidity in the share. So I think we're very close to that level. So I don't anticipate.
Speaker 2: You know, an extension of the program further, but obviously it's something we'll discuss with the board on a quarterly basis. From an M&A perspective, you know, we were a little bit more active this year than we have historically been. We'll continue to be very prudent in the way we look at deals. I can tell you there's a couple that were in the market.
An extension of the program further, but obviously, it's something we'll discuss with the board on a quarterly basis from an M&A perspective, you know we were a little bit more active this year than we have historically been will continue to be very prudent in the way. We look at deals I can tell you. There's a couple that were in the market.
Speaker 2: over the last quarter or so that we passed on just because of excessive valuations that we didn't think was a pretty use of capital. And then clearly we feel really good about our ability to continue to generate cash. You can see the cash flow that we generated this quarter was pretty significant. And as we continue to do that into 2024, we'll consider...
Over the last quarter or so that we passed on just because of excessive.
Excessive valuations that we didn't think was a prudent use of capital and then you know clearly we feel really good about our ability to continue to generate cash you can see the capital that we generated this quarter was pretty significant and as we continue to do that into 2024, we'll consider you know.
Speaker 2: addressing the debt levels as well as we go through. So we'll continue a balanced approach like we've done, for the last three or four years. But I would say that if we had to wait things towards continued equity investment versus addressing the debt, we're probably getting to the point where we're starting to swing more.
Addressing the debt levels as well as we go through so it will continue a balanced approach like we've done.
For the last three or four years.
But I would say that you know in if we had to wait things towards continued equity investment versus.
Addressing the debt, we're probably getting to the point, where we're starting to swing more towards the debt.
Speaker 3: got it. It's really helpful. And maybe just a follow up on the SMB space through background checks.com offering. You mentioned it dipped a little bit this quarter. Is your sense, was that more macro driven? Has there been more competition in the space? Is it just kind of high-quiance? Hiring less just want to see if you any more color that you could offer us on that.
Got it that's.
That's really helpful and maybe just a follow up on the SMB space through you know my background checks dotcom offering pretty much that dipped a little bit this quarter and it is is there a sense was that more macro driven there've been more competition in the space. You know is it just.
You know kind of hot clients hiring last just wanted to give you any more color you could offer us on that.
Yes, we believe it's more macro driven we haven't seen any substantial.
Speaker 4: Yeah, we believe it's more macro driven. We haven't seen any substantial losses. We still track order volumes in that space. Down 2% relative to last year is actually pretty decent for small medium businesses. But it's not due to losses to competitors. It's lower order volume from that sector.
Losses, we still track order order volumes in that space down 2% relative to last year is actually pretty decent for small medium businesses, but it's not due to.
Losses to competitors, it's lower order volume from that sector and not the.
Speaker 4: The other side of it, Kyle, to be honest with you, it's 30,000 customers, right? So it's not easy for us. We can look at order trends and that's sort of how we look at it as a bulk. And then we do segment it into other pieces. But with 30,000 clients that are relatively small in size, it's not always easy to identify what is exactly going on. But what we can see is it just looks like order volume soft.
The other side of a Kyle to be honest with you. Its 30000 customers right. So it's not it's not easy for US we can look at order trends and that's sort of how we look at it as a as a bulk and then we do segmented into other other pieces, but with 30000 clients that are relatively small in size, it's not always easy to identify what is exactly going on but what we.
Can see as it just looks like order volume softening.
Speaker 6: make sense and it's really helpful. Thanks guys.
It makes sense and that's really helpful. Thanks, guys.
Oh.
Speaker 1: Thank you. The next question is coming from the Nav Patnack of Parklands. Please go ahead.
Thank you. The next question is coming from Manav Patnaik of Barclays. Please go ahead.
Speaker 7: Hi, good morning, Mr. Ronan Kennedy, I'm from a lot. Thank you for taking my question. Can I just see you guys can help us with how to think about the opportunity in Brazil and I guess Latin America as a whole off the back of the launch of the Brazilian entity and it was the Enclero Vita.
Hi, Good morning. This is roni Kennedy off for them and I. Thank you for taking my question.
Uh huh.
Can help us with how to think about the opportunity in Brazil, and I guess Latin America as a whole off the back of the launch of the Brazilian equity.
Okay.
Speaker 8: acquisition in Argentina, just in terms of, you know, if you're able to give a percentage of revenue or the growth rate margin profile and kind of the competitive environment in Brazil and Latin America.
Acquisition in Argentina, just in time.
Yeah.
If you're able to give a percentage of revenue or the growth rate margin profile and kind of the competitive environment in Brazil, and Latin America.
Speaker 4: Yeah, sure, I can comment a little bit broadly than that so we don't get into those levels of specifics. But Latin America is an important growth market for us.
Yeah sure I can just I can comment a little bit more broadly than that so we don't get into those levels of specifics, but Latin America is an important growth market for us I mean, we.
Speaker 4: The reason why we established an entity in Brazil, did the Encorovate acquisition was mainly
The reason why we established an entity in Brazil did the <unk> acquisition was mainly.
Speaker 4: because we were expanding our presence with existing global clients. Right. It's sort of been our playbook in the past is we launch into new geographies on the backs of a large global client. We establish a presence in that market and then build a sales, a sales engine to go to market engine that then goes out and secures additional volume. So we see good growth in Latin America, again, through our existing clients. And we see good opportunities for the team on the ground. We're starting to get some wins that we see.
Because we were expanding our presence with existing global clients right, it's sort of been our playbook in the past as we launch into new geographies on the backs of a large global client we establish a presence in that market and then build a sales our sales engine and go to market engine that then goes out and and secures additional volume so we see.
Good growth in Latin America, again through our existing clients and we see good opportunities for the team on the ground, we're starting to get some wins that we that we seen from local from local competitors.
Speaker 4: you know, from local competitors. Markets like Latin America and some parts of Asia are fairly fragmented, meaning that can be served by a lot of different companies. So it's important to us to establish your presence with our enterprise clients first and then go on the ground and improve our metals, so to speak. So that's why we made those moves and made the enough.
Markets like Latin America, and some parts of Asia are fairly fragmented, meaning that can be served by a lot of different a lot of different companies. So it is important to us to establish a presence with our enterprise clients first and then go on the ground and improve our metal so to speak. So that's that's why we made those those moves and made the announcement.
Speaker 8: Thank you. That's helpful. And then I just, I know obviously it was discussed in the prepared remarks, but can I reconfirm the run rate saving from restructuring and the list of margins? And then also, could you just give us an update on the these large back office automation initiative with regards to modules rolled out, get to be rolled out, and then also the list of margin and timing of impacts there?
Got it. Thank you that's helpful and then.
I know obviously it was discussed in the prepared remarks, but can I reconfirm the run rate savings from restructuring.
And the lift to margins and then also could you just give us an update on the large back office automation initiative with regards to modules rolled out yet to be rolled out and then also the lift to margin and timing of impacts there.
Yeah.
Speaker 2: Yeah, they're somewhat related, right? So our overall restructuring program includes some of the lifts we're getting from our technology.
They're somewhat related right. So our overall restructuring program include some of the lift we're getting from our technology.
Automation projects as well so what we've said publicly is that you know the target is $50 million of total run rate savings by the end of 2024.
Speaker 2: automation projects as well. So what we've said publicly is that you know the target is $50 million of total run rate savings by the end of 2024 from the restructuring activities but that does include the lift on some of our back office automation so that is part of the overall program. Continue to feel good about the actions we've taken and the track retract.
From the restructuring activities, but that does include the lift on some of our back office automation. So that is part of the overall program.
Continue to feel good about the actions, we've taken and the track we're tracking to.
Speaker 4: Do you want to address the automation? Yeah, I mean, we're on track, and you can see it in the results. I mean, we've got lots of programs that are still underweight implemented. I mean, the big change that we made is we took over the project ourselves.
Do you want to address the automation yeah. I mean, we're we're on we're on track and you can see it in the you see it in the results I mean, we've got lots of programs that are still underway and implemented I mean, the big the big change that we made is we took over the project ourselves.
Speaker 9: We're no longer, you know, we had brought in a third party to help us build out the platform. That side of it was completed and now it's sort of become a normal part of our technology stack. And we continue to roll out modules and functionality, you know, almost on a biweekly basis. Yeah, I would say it's become more part of normal course of business than a special program at this point. Good way to describe it.
We're no longer.
<unk>.
Brought in a third party to help us build out the platform that side of it was completed and now it's sort of become a normal part of our technology stack and we continue to rollout modules and functionality.
Almost on a biweekly basis, yeah, I would say it's become more part of normal course of business than a special program at this point because we describe it.
That's helpful. Thank you.
You bet.
Speaker 1: Thank you. The next question is coming from Scott. What's a little helpful for research? Please go ahead. Okay. Thank you. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay.
Thank you. The next question is coming from Scott muscle of Wolfe Research. Please go ahead.
Speaker 10: Hey, good morning guys and thanks for taking my questions. Just wanted to go back to a couple of questions on density and enterprise wins. I mean just looking relative to last quarter, it looks like the enterprise wins kind of dipped a little bit but the ACV actually looks like it rose relative to the wins you had last quarter. So just kind of wondering if clients are one, sort of asking for maybe more during your conversations with them and two, is that maybe leading to a little bit of change in sort of decision making pace and sales cycle.
Hey, good morning, guys and thanks for taking my questions. Just wanted to go back to a couple of questions on density in our enterprise wins, I mean, just looking relative to last quarter. It looks like the enterprise wins kind of dipped a little bit, but the HCV actually it looks like it rose relative to the wins you had last quarter. So just kind of wondering if clients are one sort of asking for maybe.
More during your conversations with them and to us that maybe leading to a little bit of change in sort of decision, making pace in sales cycles.
Speaker 9: Yeah, well, just to be clear that what Guy quoted in his prepared marks, the five wins totaling $11 million, that was just a subset of our total wins that we're highlighting. We certainly had more than five enterprise wins during the quarter. We're just highlighting some of the largest wins that we had during the quarter. So we have not seen any material, you know, drop off. In fact, it's the opposite. We're seeing momentum on the new business side. So
Yeah, well just to be clear that what what guy quoted in his prepared remarks, the five wins totaling $11 million that was just a subset of our total wins that we're highlighting we certainly had more than five enterprise wins during the quarter. We were just highlighting some of the largest wins that we had during the quarter. So we have not seen any material drop off in <unk>.
Fact, it's the opposite we're seeing momentum on the new business side. So.
Speaker 9: Maybe just didn't phrase it exactly clearly, but yeah, the five wins totaling $11 million of ACV.
Maybe just didn't phrase it exactly clearly, but yet the five wins totaling $11 million of HCV.
Speaker 4: What we did in the quarter. Yeah, I mean we literally there was hundreds of clients wins, you know in the quarter We wanted a highlight five that happened to you know amount because there were larger enterprise deals But there were way more enterprise wins and just those fives We're also as you know, Scott. We're you know We don't disclose that level of the detail, but we do like to highlight
A subset of what we did in the quarter, Yes, I mean, we literally there was hundreds of client wins.
In the quarter, we wanted to highlight five that happened to amount because they were larger enterprise deals, but they were way more enterprise wins in just those fives.
Also as you know Scott, we don't disclose that level of detail, but we do like to highlight that the particular point. There is we see good momentum on new business, we don't see the sell cycle slowing if anything it's been picking up our pipeline.
Speaker 4: that, you know, at the particular point there is we see good momentum on new business. We don't see the sales cycle slowing if anything is picking up. Our pipeline continues, of opportunities continues to grow when we continue to feel very, very good. The two partnership deals that I talked about with Oracle and UKG, UKG is just launching. Like, we, that isn't even the way to produce deals yet, but we're starting to see deal flow from the Oracle partnership.
Use of opportunities continues to grow and we continue to feel very very good. The two partnership deals that I that I talked about with Oracle and U K G. You could use just launching like where that isn't even.
To produce deals yet, but we're starting to see deal flow from the Oracle partnership.
Speaker 4: as companies find the Oracle solution to be a good fit for their businesses, Oracle's recommending Hireite as the background screening provider of choice, regardless of the platform, the Oracle platform that the client is using. So we feel really good about deal.
As companies find the Oracle solution.
To be a good fit for their businesses oracle's recommending higher rate as the background screening provider of choice.
Regardless of the platform the Oracle platform that the client is using so we feel really good about deal flow.
Speaker 10: kind of this helpful. And then just as a quick follow up kind of going back to geography, I mean understand that Europe was sort of, you know, saw some headwinds related to some banking customers, but maybe just wondering if maybe X, the sort of financial services sector, could you speak to some of the demanding growth trends that you saw in Europe during the quarter?
Got it got it that's helpful. And then just as a quick follow up kind of going back to geography, I mean understand that Europe with sort of saw some headwinds related to some banking customers, but maybe just wondering if maybe ex the sort of financial services sector could you speak to some of the demand and growth trends that you saw in Europe during the quarter.
Speaker 9: Consistent with the rest of the verticals in the US. We've got a pretty significant presence with some of the European pharma companies in our healthcare group. And so I would say that pharma business has been consistent with what we saw on the rest of our healthcare group in the US. The next big is...
Consistent with the rest of the verticals in the U S. We've got a pretty significant presence with some of the European pharma companies in our health care group and so I would say that that pharma business has been consistent with what we saw in the rest of our health care group you know in the U S.
The next biggest industry in Europe after financial services pharma would be tech yeah. Obviously in tech is following the same trends in Europe as they are in the U S.
Speaker 9: industry in Europe after financial service second farm would be tech. Yeah, obviously and tech is following the same trends in Europe as they are in the US. Those are the top probably three verticals in Europe .
Those are the top probably three verticals in Europe. They are.
Got it thanks guys.
Desktop.
Speaker 1: Thank you. The next question is coming from Stephanie Moore of Jeffries. Please go ahead.
Thank you. The next question is coming from Stephanie more of Jefferies. Please go ahead.
Hi, good morning, Thank you.
Speaker 11: I was wondering if you, I was wondering if you could maybe provide a little bit of color of how trends for your existing customers hand out throughout the quarter and kind of what you were seeing early and for Q. There was been any kind of sequential changes just from that existing base.
I was wondering if you.
I was wondering if you could maybe provide a little bit of color of how trends for your existing customers handout throughout the quarter and kind of what you were seeing early in <unk>, but any kind of sequential changes.
Just from that existing base.
Yeah. So as you can see in our prepared remarks, we did breakout the existing base trend being down 16% year over year in the quarter I would say that the trend in the quarter, probably showed a little bit more softness in September than in the summer months.
Speaker 9: Yeah, so as you can see in our prepared remarks, we did break out the existing base trend being down 16% year over year in the quarter. I would say that the trend in the quarter probably showed a little bit more softness in September than in the summer months.
Speaker 9: Our guidance, you know, reaffirmation is really indicative of what we're currently seeing. You have to remember, we're in our...
Our guidance reaffirmation is really indicative of what we're currently seeing you have to remember we're in our <unk>.
Speaker 9: seasonally slow quarter now anyway. So we always expect Q4 volumes really beginning in October to drop from September levels. And then obviously get into the November and December months that are very holiday impacted, particularly for the types of customers we have, because we don't have a lot of.
Seasonally slow quarter now any way. So we always expect Q4 volumes really beginning in October to drop from September levels, and then obviously you get into the November and December.
Months that are very holiday impacted particularly for the types of customers. We have because we don't have a lot of.
Speaker 9: seasonal hiring customers in our customer base. So we don't expect to see an uptick there. So I would say, the guidance that we've given and reaffirmed is consistent with what we're seeing up until today and up to what we saw through October . As Guy mentioned in his remarks, people are cautiously optimistic as they start to look into 2024. I do expect people to be kind of...
Seasonal hiring customers are in our in our customer base. So we don't expect to see an uptick there. So I would say you know the guidance that we've given and reaffirmed is consistent with what we're seeing you know up until today and up to what we saw through October.
As Guy mentioned in his remarks.
People are cautiously optimistic as they start to look into 2024, I do expect people to be kind of <unk>.
Speaker 9: waiting and see, you know, as the calendar turns before we see a material change in the direction. So I expect normal seasonal patterns for the rest of the year.
Waiting and see you know as the calendar turns out before we see a material change in the direction. So I expect normal seasonal patterns for the rest of the year.
Great. That's that's very helpful. And then you'll continue to see really nice new customer win this.
Speaker 11: Great, that's very helpful. And then if you'll continue to see really nice new customer wins, this would kind of be any color that you can give on, you know, who you're winning some of these business from. Is it from, you know, smaller players in the space, you know, larger competitors, you know, any color there would be helpful. Thank you.
This would kind of see any color that you can give on you know who you're winning some of these business from is it from smaller players in the space you know larger competitors you know any color there would be helpful. Thank you.
Speaker 4: Yeah, sure Stephanie, I mean I highlighted that you know two of the five that I think based on Mark Mark Holmes question two of the five were from one of the major competitors of ours. And we're still seeing most of the wins coming from
Sure Stephanie I mean, I highlighted that two of the five that I think based on Mark Mark more cones question two of the five were from one of our major competitors of ours.
Hum.
We're still seeing most of the wins coming from you know other other players there are two players who just can't service, especially in the enterprise space you just cannot service clients like we can I mean, one of the comments I think we've made before is we spend we spend more on technology and New Orleans and a lot of these customers. There's a lot of these competitors.
Speaker 4: you know other players, third tier players who just can't serve us especially on the enterprise space who just
Speaker 4: cannot serve as clients like we can. I mean, one of the comments I think we've made before is we spend more on technology annually than a lot of these competitors have been revenue, right? So it's getting increasingly difficult. I mean, the...
In revenue right, so it's getting increasingly difficult.
Speaker 4: Oracle deal, the UKG deal, again, deals like that would never happen with a smaller player, because it could never make the investments and don't have a scalene scope that we have. So I would say that it's still, as it's always been, occasionally we will take business from a major competitor. I would tell you most of the deals we win come from the other tier.
The Oracle deal the U K G deal again deals like that would never happen with a smaller player because it could never make the investments that don't have the scale and scope that we have so I would say that it's still as as it's always been occasionally we will take business from a major competitor I would tell you most of the deals we win come from the other tier.
Speaker 9: the other tier players. Yeah. And I think the one thing that's just really just being hammered lately from our customers is just our global capabilities. Right?
Other tier players, yeah, and I think the one thing Thats, just really just being hammer lately from our customers is just our global capabilities right.
Speaker 9: And a lot of our upsells are being driven by those global capabilities as well. So a lot of our expansion with existing customers is expanding into new regions.
And a lot of our upsells are being driven by those global capabilities as well so a lot of our expansion with existing customers is expanding into new regions and to you know.
Speaker 4: into Latin America, into APAC, into Europe , and so forth and so on. So that's just another example of, you know, and frankly, even the big three, of the big three, we have the best global capabilities. I mean, I just visited an example I use. I just visited.
Into Latin America into APAC into Europe, and so forth and so on so that's.
That's just another example of you know and frankly, even the big three of the Big three we have the best global capabilities I. Just visited the example, I'll use I just visited two of the largest technology companies in the world who are clients of ours.
Speaker 4: two of the largest technology companies in the world were clients of ours that were under RFP and we retain the business. And their comments to us have been consistent. No one can handle.
That were under RFP, and we retain the business and their comments to US had been consistent it's no one can handle a global a global program better than higher right because of our single global platform. So it's you know that that's sort of advantage is difficult to compete against.
Speaker 4: global, you know, a global program better than HireRight because of our single global platform. So it's, you know, that sort of advantage is difficult to compete against.
Speaker 4: when you've got large enterprises wanting to do more consolidated screening programs throughout the different regions of the world.
When you've got the large enterprises wanting to do.
More consolidated screening programs throughout the different regions of the world, which.
Speaker 4: which is why I think we continue to grow, grow share on global deals more than anybody. But again, a lot of deal flows still coming from the smaller tier players.
Which is why I think we continue to grow grow share on global deals.
Anybody but again.
A lot of deal flow still coming from the smaller tier players.
Oh really helpful. Thank you so much.
Hmm.
Speaker 12: Thank you. The next question is coming from George Tong, of Goldman Sachs. Please go ahead. Hi, thanks. Good morning. You mentioned SMB performance fell slightly a year over year in the quarter. Can you elaborate a little bit more on SMB trends and where you're seeing pockets of strength and weakness?
Thank you. The next question is coming from George Tong of Goldman Sachs. Please go ahead.
Alright. Thanks. Good morning, you mentioned SMB performance fell slightly year over year in the quarter can you elaborate a little bit more on SMB trends and where you're seeing.
Pockets of strength and weakness.
Speaker 2: Yeah, let me make a clarification on that, and I was gonna jump in later and do it, but I'll do it now since you have to question George. So...
Yeah, well, let me make a clarification on that and that was going to jump in later and do it but I'll do it now since you asked the question George So when we when we talk about the growth algorithm and that's probably.
Speaker 9: When we talk about the growth algorithm, and that's probably a two-on, that we haven't historically done broken out that SMB for our growth algorithm. I think it's relevant because, you know, we look at those top 1800 enterprise.
That we havent historically done broken out that SMB portion of our growth I mean, I think it's relevant.
You know we look at those top 1800 enterprises.
Speaker 9: You know, 75% of our revenue and we have account management team. Steadicates to that team and then you've got 30,000 accounts that are being honest. Aren't, you know, they're managed through more a e-commerce type panel and have less customer interaction. We can get less of that to our customers directly on those. And as it relates to your growth algorithm, their contribution to the overall
You know 75% of our revenue we have account management team is dedicated to that.
And then you've got 30000 accounts that.
I'll be honest arent you know there are managed through more a e-commerce type channel.
That's a customer interactions.
Our customers directly in those and that's really year over year growth algorithm their contribution to the overall.
Speaker 2: 10% decline we saw quarter over quarter was 2%.
10% decline, we saw quarter over quarter was 2%.
Speaker 9: But when you look at just within our SMB customer base quarter to quarter, it was down much more in line with the broader.
But when you look at just within our SMB customer base quarter to quarter. It was down much more in line with the broader about them.
Speaker 9: I want to make sure people are in there because I don't think everybody kind of grasped that, right? So the SMB business itself was down about 10 to 11 percent. Similar with the rest.
So I want to make sure viewpoint, because I don't I don't think everybody kind of graph that right. So the SMB business itself was down about 10% to 11% similar with the rest of the business.
Speaker 9: at the contribution to the overall growth algorithm it represents to our decline year over year. Does that make sense?
As a contribution to the overall growth algorithm. It represented a decline year over year that makes sense, yes.
Speaker 12: Yes, that's helpful. And how would you say the trends progressed over the course of the quarter with S&B? Was there any noticeable separation from Enterprise? No, very, very, very.
Yes, that's helpful and how would you say that the trend has progressed over the course of the quarter with F&B was there any noticeable.
Separate from enterprise.
No very very very consistent.
Speaker 9: very consistent assignment. We look at it more in macro chunks sectors.
Consistent and assignment we look at it more in macro chunk sector can't analyze you know 30000 customers indefinitely.
Speaker 12: can't analyze you know thirty thousand customers in right okay got it that that's helpful and then with with with margins you talked about initiatives to improve automation and efficiencies as you think about the roadmap ahead what are your top one or two priorities to further that journey of automation which ending would you say you're in
Okay got it that's helpful and then with with with margins you talked about initiatives to improve automation and efficiencies as you think about the roadmap ahead.
What are your top one or two priorities to further that journey of automation and which inning would you say you're in.
Speaker 12: in terms of realizing your targeted efficiency levels.
And in terms of realizing your targeted efficiency levels.
Speaker 4: Sure George, good question. As a baseball fan, I'd say we're in the third inning. Okay. It's a long game, but primarily, I would tell you that our AI work is really bearing some fruit. And a lot of that is so, I don't want to just lay in the buzz phrase of AI. A lot of that.
Sure George Good good question.
As a baseball fan I'd say, we're in the third inning.
It's a long game.
But primarily.
I would tell you that our AI work is really bearing some fruit.
And a lot of that is so I don't want to just.
Late in the but the buzz phrase of AI a lot of that is our data matching algorithms that assist researchers with ensuring that a specific element of data can be attributed to a specific candidate and in fact, especially on criminal work right. One of things you've always heard me talk about is there.
Speaker 4: is our data matching algorithms that assist researchers with ensuring that a specific element of data can be attributed to a specific candidate and then in fact, especially on criminal work, right? And one of the things you've always heard me talk about is there, you have to take driving into the influence, there's 400 different classifications for DUI.
If you take driving under the influence Theres 400 different classifications for DUI.
Speaker 4: um in criminal jurisdictions all around the world multiplied by 25 different languages that you're using so starting to see success.
And criminal jurisdictions, all around the world multiplied by 25 different languages that you're that you're using so starting to see success.
Speaker 4: specifically with some natural language processing.
Specifically with some natural language processing.
Ensuring that a data match occurs for specific candidate and that is the labor savings from two different places one is it allows eliminate labor from the.
Speaker 4: ensuring that a data match occurs for a specific candidate. And that is the labor savings from two different places. What does it allow to eliminate labor from the...
Speaker 4: But the second thing it also does is it's also a good opportunity to be both more productive and more accurate in the results, which is our goal mainly is to improve performance for clients, improve actors seem to improve turnaround time. The benefit of that work is it also happens to reduce cost.
But the second thing it also does.
It can be both more productive.
And more accurate and in.
And the results, which are a gold mainly is to improve performance for clients improve accuracy improved turnaround time the benefit of that work is it also happens to reduce cost.
Well, we'll continue that forever I would tell you there will always be always be something else to do in that in that area.
Speaker 4: Well, we'll continue that forever. I would tell you there'll always be always be something else to do in that in that area.
Got it very helpful. Thank you.
Speaker 1: Thank you at this time. I'd like to turn the floor back over to Mr. Abramow for closing comments.
Thank you at this time I'd like to turn the floor back over to Mr. A promo for closing comments.
Speaker 4: All right, thank you operator. And you know, I just want to thank everyone for joining call this morning. We look forward to finishing out the year and keeping you posted on our progress as we continue to execute, specifically against these uncertain times. So enjoy the rest of your day. And please do not hesitate to reach out with any question. Thanks again, everybody. Thank you.
Alright, Thank you operator, and I just want to thank everyone for joining the call. This morning, we look forward to finishing out the year.
Keeping you posted on our progress as we continue to execute specifically against these uncertain times. So enjoy the rest of your day and please do not hesitate to reach out with any questions. Thanks again, everybody. Thank you.
Speaker 1: Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time or walk off the webcast and enjoy the rest of your day.
Ladies and gentlemen. This concludes today's event you may disconnect. Your lines at this time or log off the webcast and enjoy the rest of your day.
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