Q1 2024 First Advantage Corp Earnings Call
Good day, everyone. My name is Todd and I will be your conference operator today.
Todd: I would like to welcome you to the first advantage first quarter 2024 earnings conference call and webcast.
Todd: Hosting the call today from first advantage is Stephanie Gorman, Vice President of Investor Relations.
Todd: At this time, all participants have been placed in listen only mode to prevent any background noise.
Todd: After the Speakers' remarks, there will be a question and answer session.
Speaker Change: If you would like to ask a question during this time.
Speaker Change: Press Star one on your telephone keypad.
Speaker Change: If at any point. Your question has been answered you may remove yourself from the queue by pressing star two.
Speaker Change: Lastly, if you should require operator assistance, please press star zero.
Speaker Change: Please note today's event is being recorded.
Speaker Change: It is now my pleasure to turn the call over to Stephanie Gorman you may begin.
Stephanie D. Gorman: Thank you Todd good morning, everyone and welcome to first advantages first quarter 'twenty four earnings conference call and.
Stephanie D. Gorman: In the investors section of our website you will find the earnings press release and slide presentation to accompany today's discussion.
Stephanie D. Gorman: This webcast is being recorded and will be available for replay on our Investor Relations website 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.
Stephanie D. Gorman: Actual results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the SEC, including our 2023 Form 10-K, and our Form 10-Q for the first quarter of 2024 to be filed with the SEC.
Stephanie D. Gorman: 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.
Stephanie D. Gorman: This conference call. We will also present and discuss non-GAAP financial measures reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures to the extent available without unreasonable effort appear in today's earnings press release and presentation, which are available on our Investor Relations website.
Stephanie D. Gorman: I'm joined on our call today by Scott staple, our Chief Executive Officer, and David <unk>, Our Chief Financial Officer. After our prepared remarks, we will take your questions I will now hand, the call over to Scott.
Scott Staples: Thank you Stephanie and good morning, everyone. Thank you for joining our call.
Scott Staples: It has been exciting and productive few months since announcing our agreement to acquire Sterling.
Scott Staples: I'm credibly proud of what our team has accomplished thus far and for the dedication and keeping everything moving forward.
Scott: This morning, I will provide an update on our first quarter results, our strategic initiatives and the Sterling acquisition.
Scott Staples: David will then provide a deeper dive into our results and additional color on our expectations for the year.
David: Turning to an overview of our first quarter results on slide five.
David: For the first quarter, we delivered financial results at or above what we communicated on our last earnings call, giving us additional confidence in achieving our full year 2024 guidance, which we are reaffirming today.
David: From a vertical perspective in the first quarter, we saw increased order volumes from five major verticals, including transportation healthcare industrials staffing and hospitality with the remaining verticals down year over year in.
David: Importantly, we continue to maintain a strong customer retention rate of approximately 97%.
David: In fact, our top five largest renewals for 2024 have already successfully renewed.
David: Our upsell cross sell new logos and attrition rates continued to perform in line with our historical revenue growth algorithm, while our base growth continues to be more sensitive to changes in the macro environment and our mix of clients.
David: While most macro indicators that we track are still down year over year. They have shown signs of stabilizing in recent months as a reminder, our long term organic revenue growth target of 8% to 10% anticipates, a normalized base growth rate of 2% to 4% compared to the <unk>.
David: Negative base performance, we have been experiencing.
Speaker Change: Let me now update you on the significant progress our team continues to make on our strategic initiatives.
Speaker Change: We have long subscribe to the philosophy of building high quality proprietary databases data models and algorithms as well as innovative technology to drive our business now with the insurgents of Gen. AI, we are poised to accelerate innovation across our portfolio and deliver <unk>.
Speaker Change: Even greater value for our customers.
Speaker Change: We are excited to have announced our proprietary next generation right I D identity fraud solution, specifically designed for the U S market to help alert customers to potential applicant fraud in the pre hire process.
Speaker Change: This complements complements the success, we have seen with the expansion of our digital identity products in the U K, India, Australia and Canada.
Speaker Change: Employers leverage right I D. As an initial step to flag inconsistency and recognize potential errors and identity information submitted before a background screen, thus moving our products upstream in the applicant onboarding cycle.
Speaker Change: Additionally, we continue to rollout our nextgen profile advantage applicant portal, featuring featuring a new user interface and using API first technology to deliver a consistent experience from screen to hire.
Speaker Change: By leveraging Gen AI and human in the loop processes, we have access to intelligence that allows us to enhance the apple can experience.
Speaker Change: Our customers can hire faster with several products in one place, including fraud prevention tax credit information and background screening details.
Speaker Change: These initiatives complement our other solutions for example, we expect our investments in AI related to U S criminal data to increase the efficiency turnaround times and consistency of our criminal screening.
Speaker Change: We also continue to see increased customer adoption of smart hub, which can determine the optimal data source for each verification and help reduce certain third party pass through fees for our customers for employment Verifications.
Speaker Change: And through our customer care click chat call program, we can scale, our support up or down quickly in response to volume changes.
Speaker Change: All of our solutions help support our customers and their screening priorities, which are highlighted in our global trends report.
Speaker Change: Just released in April.
Speaker Change: This annual report provides worldwide perspectives based on over 100 million Anonymised screening data records and hundreds of survey responses from our customers.
Speaker Change: We have been publishing our annual global trends report for the past six years and have seen trends change and evolve alongside the global labor market.
Speaker Change: Notably for the second year in a row managing risk ranked as the most important factor and background screening programs over cost and speed.
Speaker Change: This indicates an increased interest and background screening results that support informed decision, making as part of the overall hiring process and has consistently driven upsell and cross sell opportunities for us across our customer base ultimately increasing package density.
Speaker Change: Additionally, I want to highlight our annual background screening comprehensive collaborate which was held in April with record attendance as the only background screening user conference of its kind collaborate brings together customers new business prospects partners and thought leaders to discuss timely and relevant.
Speaker Change: Trends technologies and best practices.
Speaker Change: During the conference, we discussed our new and evolving products and solutions and had fantastic customer engagement.
Speaker Change: Additionally, we were pleased to have Johnny C tailored junior join us for our second year as our keynote speaker, where he led a dynamic session on embracing AI and HR.
Speaker Change: Mr. Taylor is the president and CEO of the society for Human resources management and is highly regarded as a leading industry expert and human resources.
Speaker Change: Turning to slide seven let me now provide an update on the Sterling acquisition.
Speaker Change: Preparations for the transaction are progressing as planned we.
Speaker Change: We have formed an integration management committee led by our product and operations leaders with dedicated teams that are developing plans across all functional departments in preparation for the post closing integration process.
Speaker Change: At the end of April we filed our S. Four with the SEC, which has additional detailed information pertaining to the transaction.
Speaker Change: At this point there have been no changes to our closing timing expectations that transaction is still expected to close in approximately the third quarter of 'twenty 'twenty four with the closing and timing thereof subject to required regulatory approvals clearances and other customary customary closing conditions.
Speaker Change: Strategically. The addition of Sterling further strengthens our high quality and cost effective background screening identity and verification solutions for the benefit of customers of all sizes across industry verticals and geographies.
Speaker Change: We view this as a win for our customers as they will benefit from having more options to meet their evolving needs and improved solutions to help manage risk higher smarter and onboard faster.
Speaker Change: First advantages in Sterling as highly complementary product offerings further enhance our customer value proposition and are expected to unlock upsell and cross sell opportunities and reduce certain third party pass through fees.
Speaker Change: Collectively we will diversify our vertical mix as there is limited overlap across our customer industries.
Speaker Change: Sterling largest verticals are more focused on regulated industries, including health care industrials and financial services.
Speaker Change: This balances first advantages focus on verticals, including transportation retail and E Commerce.
Speaker Change: We have complementary international businesses, which provide the opportunity for us to build a deeper local presence and expand in attractive markets.
Speaker Change: Based on our preliminary diligence we have also found no significant overlap amongst the top customers of both first advantage and Sterling.
Speaker Change: We believe that combined we will have a more balanced revenue mix less customer concentration and more vertical diversification.
Speaker Change: This will help to derisk the transaction with regard to potential attrition improved resource planning and operational efficiency reduce our seasonal exposure and create a more resilient business model.
Speaker Change: The transaction will enable us to drive innovation in key developing areas of our business, including AI Nextgen digital identification technology and automation.
Speaker Change: This will enhance the applicant experience and at the same time reduce certain third party pass through costs contributing to long term margin expansion.
Speaker Change: Looking at cost synergies, we remain confident in achieving at least $50 million in run rate synergies within 18 to 24 months post closing of the transaction.
Speaker Change: We anticipate executing approximately half within the first 12 months post closing of which a portion will be actions immediately upon closing.
Speaker Change: These synergies will come from removing duplicative public company costs merging back office functions and resources and ultimately emerging our tech back end and fulfillment functions.
Speaker Change: We anticipate identifying further upside synergy opportunities upon closing this transaction as we worked through the integration process.
Speaker Change: Additionally, we anticipate net leverage at close to be in the range of 4.2 to four four times.
Speaker Change: We have line of sight to bring net leverage toward approximately three times run rate adjusted EBITDA within 24 months of closing on the transaction and then ultimately returning to our long term target net leverage range of two to three times.
Speaker Change: David will go into further detail on this shortly.
Speaker Change: Upon closing the transaction, we will immediately nearly double our revenue and adjusted EBITDA profile, we expect to generate double digit EPS accretion on a run rate basis and to continue compounding EPS at a teens growth rate over time through the combination of topline growth.
Speaker Change: Ongoing synergy capture and significant deleveraging enabled by our strong free cash flow generation.
Speaker Change: As we look ahead, our priorities after closing the transaction will be focused on our customers successful integration of <unk>.
Speaker Change: Heaving synergies and deleveraging our balance sheet.
Speaker Change: Overall, we expect that this strategic and accretive acquisition will benefit customers and investors accelerate and advance our strategic priorities and drive long term value creation.
Speaker Change: I will now turn the call over to David for more details on our first quarter results.
David: Thank you Scott and good morning, everyone turning to our first quarter results on slide nine our.
David: Our first quarter revenues were $169 $4 million a decrease of three 5% from the prior year currency had nearly no impact on our results for the quarter infinite contributed approximately $2.8 million in our Americas segment.
David: Revenues of $149 million or 87% of consolidated revenues were down just 2% from the prior year, driven primarily by base weakness and substantially offset by strength in new business revenues and upsell cross sell.
David: In our international segment revenues of $22 million or 13% of consolidated revenues were down 11% from the prior year.
David: Macro factors impacting international base growth continue to be a headwind.
David: For the total company adjusted EBITDA was nearly $47 million and our adjusted EBITDA margin was 27, 5%, which aligns with our historical first quarter performance trends as a reminder, our first quarter adjusted EBITDA margin is typically the lowest.
David: Order of the year.
David: Adjusted EBITDA on an LTM basis has grown at a compounded annual growth rate of 14, 7% over the last three years.
David: Our adjusted effective tax rate was 24.4%.
David: GAAP net loss was $2.9 million and is after $11.1 million in Sterling acquisition related cost that we have added back on an adjusted basis.
David: Adjusted net income was approximately $25 million adjusted diluted EPS was <unk> 17 for the quarter.
David: On Slide 10, you will see our revenue growth algorithm, which is based on our historical performance and future expectations and supports our long term revenue growth target.
David: Revenue on an LTM basis has grown at a compounded annual growth rate of 12, 6% over the last three years and remains above our long term growth target of 8% to 10%.
David: On Slide 11, you can see that our historical performance for up sell cross sell new customer logos and attrition has been largely consistent with our growth algorithm and demonstrate that we are managing and delivering on what we can control with a very a.
David: <unk> being driven by the base.
David: Revenues from upsell and cross sell contributed $7 $7 million or four 4% to our performance in Q1.
David: New customer logos contributed an additional $8.9 million or five 1% in Q1.
David: Base declined by $19 $6 million or 11% on a consolidated basis in Q1.
David: We anticipate base revenues improving throughout the remainder of the year.
David: Turning now to our balance sheet and capital allocation on slide 12 for.
David: For the first quarter, we generated strong operating cash flows of $38 million.
David: During the quarter, we used cash of $6 million for purchases of property and equipment and capitalized software development costs.
David: As we mentioned last quarter, given the pending Sterling acquisition, we have suspended share repurchases as we continue to build cash.
David: Our primary areas of focus upon closing the transaction will be on our customers on.
David: On integration on achieving synergies and on deleveraging.
David: In addition to our existing $565 million of first advantage that we anticipate raising approximately $1 $6 billion of new term debt to fund the Sterling acquisition.
David: This results in approximately $2.15 billion of gross stat, our approximately $2 billion of net debt when considering the approximately $125 million of balance sheet cash expected at close.
David: Additionally, at close we expect net debt to adjusted EBITDA leverage in the range of 4.2 to 4.4 times.
David: As part of our financing agreement, we will upsize, our revolver from $100 million to $250 million and extend the maturity date to five years. After the closing date of the transaction, which will provide additional liquidity for our business.
David: We have a proven track record of managing leverage and we remain committed to our long term net leverage target of two to three times.
David: Over the four years since silverlake invested in us we delever from six times as a private company to less than two times prior to the announced Sterling acquisition.
David: This is also after repurchasing approximately $120 million in shares paying a $218 million, one time special dividend and acquiring five businesses.
David: Our goal within 24 months of closing is to reduce net leverage toward approximately three times run rate adjusted EBITDA.
David: Our path to Delever will be driven by high margin top line growth of the combined businesses productivity efficiencies cost synergies and the continued strong cash flow generation.
David: Now moving to slide 13 today, we are reaffirming our 2020 for annual guidance.
David: Our first quarter results coming in at or above our expectations and positions us well to achieve our full year midpoint guidance targets.
David: We still expect sequential quarter over quarter growth for revenues adjusted EBITDA and adjusted EBITDA margins similar to 2023.
David: For 2024, we expect to generate full year revenues in the range of $750 million to $800 million.
David: Based on the midpoint of $775 million. This resulted in slightly positive year over year organic revenue growth.
David: This includes revenues related to infinite I D, which is expected to contribute approximately $7 million in the first eight months of the year as we cycle over the anniversary of that acquisition.
David: We expect customer retention to remain in line with our strong historical performance of around 97%.
David: We also expect continued execution of upsell cross sell and new logo growth consistent with historical trends and long term targets.
David: We expect to maintain full year adjusted EBITDA margins of approximately 31% at the midpoint and adjusted EBITDA in the range of $228 million to $248 million.
David: This reflects the strength of our flexible model disciplined cost management and investments in automation.
David: With base remaining negative in Q2 down in the mid to high single digits, though improving from Q1, which was down 11%.
David: We still expect base growth to improve sequentially through the year turning positive in Q4.
David: We continue to expect adjusted EBITDA margins of approximately 30% in the second quarter with further improvement in the second half of the year.
David: In closing I would like to share Scott sentiment and thank our team for their progress we continue to make in achieving our objectives and for their resilience and dedication as we work through the Sterling transaction.
David: With that let me turn it back to Scott for closing remarks before we open the line for questions.
Scott: Thank you David.
Scott: We have made significant progress on our strategic initiatives over the last several years as evidenced by our vertical is go to market approach Tech.
David: Tech enablement investments in automation, AI and machine learning strategic partnerships and tuck in acquisitions.
Scott: We are seeing the return on our investments flow through our impressive adjusted EBITDA margin and cash flow generation.
David: The acquisition of Sterling is another significant step forward in our value creation playbook and we are excited to continue to shape the future of first advantage and to better serve our customers.
Speaker Change: With that we will open the line for questions.
Speaker Change: Thank you.
Speaker Change: We will now begin the question and answer session. At this time if you have a question. Please press star one on your telephone keypad.
Speaker Change: If at any point. Your question has been answered you may remove yourself from the queue by pressing star two.
Speaker Change: If you were using a speaker phone, we request that you pick up your handset while asking your question to provide optimal sound quality.
David: Again, Thats star one to ask a question. Our first question will come from Shlomo Rosenbaum with Stifel. Please go ahead.
Shlomo H. Rosenbaum: Hi, Thank you for taking my questions.
Shlomo H. Rosenbaum: First I just wanted to start out with Scott would you say that the environment is improving along the lines that you expected a little bit faster a little bit slower and then I have one follow up after that.
Scott: Yes, Shlomo I'd.
Scott: I'd say from a macro standpoint, it's exactly where we thought it would be so I wouldn't say, it's faster or slower I would say, it's you know it.
Shlomo H. Rosenbaum: It's still a a choppy macro.
Speaker Change: We are seeing our customers higher obviously, you know look at you know our our our results for the quarter, but we're still seeing some cautiousness out of them. So they're not hiring ahead of time, they're not over hiring but they certainly are hiring.
Speaker Change: And I think this is exactly as we sort of planned it would go and we're pretty happy where it is.
Speaker Change: Okay. Thank you and then the other one is just.
Speaker Change: Sterling put out their results. This morning, obviously, the same time as you guys and a very good revenue, but the EBITA was clearly below what the street was expecting no. Obviously sterling didn't give out any guidance or anything like that but I want to ask you. Once you acquire the company how long does it take you to.
Speaker Change: You really cut them over onto your own.
Speaker Change: <unk> kind of cost structure or in other words migrating things over.
Speaker Change: Operationally quickly cutting over to your own.
Speaker Change: Sources of information and being able to leverage the scale that you have if you could talk a little bit about that and then also just kind of merging the cultures. How do you think about that.
Speaker Change: Yeah, So I see where we're doing a lot of planning.
Speaker Change: But we we.
Speaker Change: Can't really get under the under the Hood for until post close.
Speaker Change: We did mentioned in the earnings script.
Speaker Change: How fast we expect to get synergies and as part of those synergies. That's obviously you know.
Speaker Change: Eliminating.
Speaker Change: The duplicative corporate overhead and public company expenses, but also starting to leverage our automation, it's really hard for me to sit here today and give you a specific timeline because were not.
Speaker Change: At that point, yet, where we can get into detail.
Speaker Change: Planning and stuff like that but we will continue to provide updates as we get closer and closer to close date.
Speaker Change: But again, we're feeling very confident about the synergies.
Speaker Change: And the strategy and approach that we've taken to overall post merger integration.
Speaker Change: Okay. Thank you.
Speaker Change: So I'm sorry.
Speaker Change: Sorry, I did not answer the last part of your question, which was on the culture.
Speaker Change: Yeah, we're pretty excited about the the two companies' cultures coming together because.
Speaker Change: Even though that that there's obviously going to be some differences. Both companies are high performing organization. So I think it's a lot easier when you're merging two high performance cultures together.
Speaker Change: Obviously there'll be some subtle differences in and we will have.
Speaker Change: A special track in our PMI integration plan just on culture.
Speaker Change: To make sure that you know, we we nail it we communicated we treat it.
Speaker Change: Like it's just as important as anything else.
Speaker Change: So I think you know we don't have any concerns at this point.
Speaker Change: And I think the other thing that you know as you could you've probably seen from both companies you know where we're very much aligned on on the go to market and the and the product strategies, I think where the where the two companies that are out there talking about digital identification the most.
Speaker Change: And we really are sort of I think at the forefront of the technology change.
Speaker Change: Changes in this in this market so that makes it a bit easier as well.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question will come from Ashish <unk> with RBC capital markets.
ashish: Thanks for taking my question, so the sequential growth in the base.
ashish: Mentioned I was wondering.
ashish: How much visibility do you have there what have you seen in April.
ashish: Early indications on that trend you, obviously mentioned five verticals, which have been growing but I was just wondering the verticals, which have been declining have you seen any.
ashish: Progress on those fronts and then even on the international strength.
ashish: That 11% decline I was just wondering if you could comment on what we are seeing on background. Thanks.
Speaker Change: Yeah. Thanks, Ashish a lot there so hopefully I catch it all.
Speaker Change: Work backwards on your question. So yeah, obviously international is still down but.
Speaker Change: But it's not down as much.
Speaker Change: You know we were in previous quarters.
Speaker Change: We're talking about you know year on year declines of 20 plus percent, we're not we're not there anymore, where where half of that.
Speaker Change: So we are starting to see some stability.
Speaker Change: In India and APAC EMEA.
Speaker Change: EMEA is as if you recall as has always been a performing.
Speaker Change: Performing Ah.
Speaker Change: But India in APAC, where the concerns over the last 18 months or so and we really felt and I think we mentioned this on our earnings call for Q4 of 2023, and we kind of felt that India was bottoming out and we're starting to realize that so we're starting to see some.
Speaker Change: Improvement in both India and APAC.
Speaker Change:
Speaker Change: I think also what what gives US you know some enthusiasm is the U S was only down 2%. This quarter. So we're starting to see a little bit of stability there as well and you are you asked about April in April I would say is exactly in line with.
Speaker Change: What we thought it would be so no surprises from April.
Speaker Change: And then your first part of the question was around the verticals.
Speaker Change: So we mentioned the five verticals that were up obviously that there is still some verticals that are down.
Speaker Change: Most notably financial services, and a few others, but they're they're not down as much. They certainly are still down but theyre just not down as much. So you know all of that kind of paints a little bit of a brighter picture for us, but obviously, there's still a lot of caution in the background.
Speaker Change: That's great color and if I could ask a quick follow up on the technology front.
Speaker Change: Thanks for providing those details on the new initiatives on the Ginnie Iframe I was wondering if you think about over the midterm. The next three to five years, let me think about the efficiencies that these newer technologies can bring in thanks.
Speaker Change: Yeah, No. We are we're very bullish on the efficiencies that the new technologies can bring and I would add that it's not only efficiencies, but it's also quality improvement.
Speaker Change: And so we I think I mentioned this last earnings call. We are in the process of running multiple AI pilots are across multiple multiple components of our operations and you know early signs are you know an increase in quality, but also.
Speaker Change: So an increase in.
Speaker Change: Inefficiency.
Speaker Change: And it's not only you know in the actual fulfillment of a background check we actually have just launched AI at work.
Speaker Change: And AI at work is.
Speaker Change: Our internal AI tool for helping all functional organizations use AI to improve.
Speaker Change: Their efficiency and their quality as you know when you use a.
Speaker Change: Public you know AI.
Speaker Change: Product like Jackie P T or whatever whatever you put into that is is available for all all public to see so we've created our own private AI a tool and it's it's it's basically AI at work and we're in the process now of educating our marketing teams or sales.
Speaker Change: Teams, even our finance teams onto HR teams onto how to use this.
Speaker Change: This internally to find ways to do work better faster cheaper. So we think that you know that the effect of AI across our internal functions and the processing of a background over the next three plus years, we'll have a pretty dramatic effect.
Speaker Change: That's very helpful color. Thank you.
Speaker Change: Thank you. Our next question will come from Andrew Steinman with J P. Morgan. Please go ahead.
Andrew Charles Steinerman: Hi, I wanted to get a sense for kind of how your team is doing a market sizing of the U S. A screening market. If you can mention to you don't like what solutions are included in your market side of things like such as drug testing and I D N stuff besides for criminal.
Andrew Charles Steinerman:
Andrew Charles Steinerman: How are you approaching market sizing and what market share do you think first advantage will have post merger with Sterling.
Andrew Charles Steinerman: Yes.
Speaker Change: We we have been we have been leveraging third parties, we haven't been doing the market sizing ourselves Andrew.
Speaker Change: So we've been leveraging third parties, who have been doing that and we're really seeing sort of consistent results and numbers I mean, there's multiple sources have.
Speaker Change: As you know have pegged you know this industry is a $13 billion Tam.
Speaker Change: So it's a large space and as you know, it's a very fragmented space with with so many competitors.
Speaker Change: So yeah, we haven't looked at the market sizing ourselves, but the third party data is so consistent that we're pretty confident that it's fairly accurate.
Speaker Change: The one thing that we have not been able to do really any market sizing on is digital identity, because it's really a new space. The accretion it's really the creation of a new revenue stream and a new space.
Speaker Change: And it's very hard to measure that but what we are really going on is customer discussions.
Speaker Change:
Speaker Change: Customers are really loving the digital.
Speaker Change: Identity solution, because they're seeing so much fraud and the recruiting cycle people that you know they are hiring for let's say homebase jobs and they're interviewing.
Speaker Change: Or zoom or something like that in.
Speaker Change: They're claiming that they're camera doesn't work and then it doesn't seem like the person they hired as the same person that shows up to do the work and so digital identity can can really take that fraud, you know out of the equation for them and we're hearing.
Speaker Change: Those stories almost nightmare stories from so many customers. So there's not a not an official market sizing going on but that that sector is really driven by customer conversations and and and customer demand and we're seeing very good demand.
Speaker Change: In that sector.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you once again, if you would like to ask a question. Please press star one at this time.
Speaker Change: Our next question will come from Heather Bosky with Bank of America.
Heather Nicole Balsky: Please go ahead.
Heather Nicole Balsky: Hi, Good morning, Thank you for taking my question I.
Heather Nicole Balsky: I wanted to ask.
Heather Nicole Balsky: You mentioned your opportunity once you close the deal with Sterling.
Heather Nicole Balsky: And about your ability to recoup some of that third party pass through costs and I'm. Just curious if you can talk about your thoughts around the opportunity you have on the expense side as well as or do you think kind of your own internal resources lunch or a larger organization.
Heather Nicole Balsky: David do you want that one sure Heather there really a it's a multifaceted approach to that so yes. There are third party costs, we will be able to leverage.
David: Volume from a procurement perspective to get more favorable pricing, we will be able to run more verification through our own proprietary database.
David: We will also be looking at other third party costs like insurance and public company costs. So we're going to look at everything top to bottom every single expense.
David: As we said we think we can go get $50 million, we're highly confident in that number and think it can be greater than that and we're gonna go get it as quickly as we can.
Speaker Change: Thank you I appreciate that and then just a follow up you also talked about Sterling International business can you just lay out for us.
Speaker Change: But their business is focused on internationally in their key markets and then I mean, we know their international business, but kind of where maybe there might be similarities or or where they're providing some new opportunities.
Speaker Change: <unk>.
Speaker Change: Yeah, so from a from a footprint standpoint, there are international businesses.
Speaker Change: Almost identical to ours.
Speaker Change: Which makes it makes it very easy to.
Speaker Change: Worked through.
Speaker Change: Synergies and combining the organizations you know obviously each party will have strengths and weaknesses and what we like about our sterling as they they seem to have done very well.
Speaker Change: In the gig space internationally.
Speaker Change: Which is not a business that we've focused on too much and they've also done extremely well in.
Speaker Change: In certain markets like Australia.
Speaker Change:
Speaker Change: So we'll have to look at you know.
Speaker Change: Where are the strengths and weaknesses of each organization.
Speaker Change: But from a product standpoint, there's really not a lot of differences and it's really just a matter of go to market in certain regions, but we will start you know again, you know planning that as we get you know.
Speaker Change: Closer to close and post close as to you know.
Speaker Change: Uh huh.
Speaker Change: We're basically going to basically take the you know the best.
Speaker Change: You know best in class approach so whoever.
Speaker Change: Whoever's got the best product or offering that's what we're going to go with.
Speaker Change: Thank you.
Speaker Change: Thank you again, if you do have a question at this time, Please press star one.
Speaker Change: Our next question comes from Andrew Nicholas with William Blair. Please go ahead.
Andrew Nicholas: Hi, good morning.
Andrew Nicholas: To follow up on the earlier question around kind of AI efforts and efficiency gains are one of the other things that seems to be a theme.
Andrew Nicholas: As people adopt generative AI or build products internally as is the cost. So I'm just kind of curious if that kind of goes efforts around bringing AI into your work or even the private AI tool have any.
Andrew Nicholas: Kind of a negative impact to incremental margins or is the net net of all that youre doing on that front I expect it to improve incremental margins overtime.
Andrew Nicholas: Yeah. So the.
Andrew Nicholas: But the near term answer is that everything we're doing is it budget.
Andrew Nicholas: So we're not a.
Andrew Nicholas: We're not gonna be incurring any additional costs.
Andrew Nicholas: Two.
Andrew Nicholas: Two what we've got planned for 2024.
Andrew Nicholas: And I think you've answered the question as to long term, which is we definitely feel that yeah. There will certainly be a cost of developing a solution.
Andrew Nicholas: But the benefit and.
Andrew Nicholas: And the business case behind it.
Andrew Nicholas: Will be higher quality more efficiency probably.
Andrew Nicholas: The ability to essentially reduce head count in certain areas and things like that so it certainly will offset but.
Andrew Nicholas: But we're taking each.
Andrew Nicholas: And each project as like a separate business case.
Andrew Nicholas: So everything that we're doing has to be business case, driven and have some sort of a defined benefit that we can track and milestones that we can measure.
Andrew Nicholas: So.
Andrew Nicholas: That's the approach we're taking and.
Andrew Nicholas: Again, we think there'll be a positive impact.
Andrew Nicholas: To the business over the next couple of years.
Andrew Nicholas: Yes.
Speaker Change: That's very helpful. And then maybe for my follow up I'm, just curious what the customer reception has been like to the Sterling announcement, thus far I don't know if you've had a chance to speak to any of their customers, but just curious if your customers have come to you with any concerns excitement and things of that sort.
Speaker Change: Or that'd be helpful. Thank you.
Speaker Change: Yeah, I mean, we can't speak to any of their customers that's not allowed but.
Andrew Nicholas: Our customers are are pretty excited about it.
Andrew Nicholas: In some in some ways. It's it's also a non event for them.
Andrew Nicholas: So when we announced it we proactively reached out to all of our large customers in and walk them through it and talked about it and they were very excited.
Andrew Nicholas: You know obviously they want to.
Andrew Nicholas: See you know what the Sterling products are like and things like that which will will show but the.
Andrew Nicholas: You know it is as I mentioned, it there's really no impact to them. So although they're excited for US you know they don't they don't really feel like it's going to change is going to be the you know the.
Andrew Nicholas: First advantage you know customer success team you know their customer care is not changing there their product suites aren't changing in.
Andrew Nicholas: Their platforms aren't changing and potentially there could be additions to them that would benefit them and which also opens up sell cross sell for us but was when we.
Andrew Nicholas: When we had our customer collaboration event in April it was almost not even mentioned by any customers. It was you know that.
Andrew Nicholas: They're excited about it obviously when we first reach out but you know, it's really business as usual.
Speaker Change: Thank you.
Speaker Change: Thank you at this time, we have no further questions in queue.
Speaker Change: This will conclude today's first advantage first quarter 'twenty 'twenty four earnings conference call and webcast.
Andrew Nicholas: Thank you all for your participation.
Speaker Change: At this time you may disconnect. Your line have a wonderful day.
Andrew Nicholas: Okay.
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Andrew Nicholas: Yeah.
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Andrew Nicholas: Uh huh.
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Andrew Nicholas: Okay.
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Andrew Nicholas: Okay.