Q1 2024 First Advantage Corp Earnings Call
Stephanie D. Gorman: forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the FEC, including our 2023 Form 10-K and our Form 10-Q for the first quarter of 2024, to be filed with the FEC. Such factors may be updated from time to time in our periodic filings with the FEC, and we do not undertake any obligation to update forward-looking statements. Throughout this conference call, we will also present and discuss non-GAAP financial measures.
We use 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.
Factors may be updated from time to time in our periodic filings with the SEC and we do not undertake any obligation to update forward looking statements.
Throughout this conference call. We will also present and discuss non-GAAP financial measures reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures to this front available without unreasonable effort appear in today's earnings press release and presentation, which are available on our Investor Relations website.
Stephanie D. Gorman: 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. I'm joined on our call today by Scott Staples, our Chief Executive Officer, and David Gamsey, our Chief Financial Officer. After our prepared remarks, we will take your questions. I will now hand the call over to
I am joined on our call today by Scott Staples, 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.
Scott Staples: Thank you Stephanie and good morning, everyone. Thank you for joining our call.
Scott Staples: Thank you for joining our call. It has been an exciting and productive few months since announcing our agreement to acquire Sterling. I am credibly proud of what our team has accomplished thus far and for the dedication to keeping everything moving forward.
Scott Staples: It has been exciting and productive few months since announcing our agreement to acquire Sterling.
Scott Staples: Hi, I'm credibly proud of what our team has accomplished thus far and for the dedication and keeping everything moving forward.
Scott Staples: This morning, I will provide an update on our first quarter results, our strategic initiatives, and the Sterling acquisition. David will then provide a deeper dive into our results and additional color on our expectations for the year. Turning to an overview of our first quarter results, on slide five. 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. From a vertical perspective, in the first quarter, we saw increased order volumes from five major verticals, including transportation, health care, industrials, staffing, and hospitality, with the remaining verticals down year over year.
Scott Staples: 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.
Scott Staples: 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.
Scott Staples: 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.
Scott Staples: Importantly, we continue to maintain a strong customer retention rate of approximately 97%. In fact, our top five largest renewals for 2024 have already successfully renewed. Our upsell, cross-sell, new logos, and attrition rates continue 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. While most macro indicators that we track are still down year over year, they have shown signs of stabilizing in recent months.
Scott Staples: Importantly, we continue to maintain a strong customer retention rate of approximately 97%.
Scott Staples: In fact, our top five largest renewals for 2024 have already successfully renewed.
Scott Staples: Our up sell 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.
Scott Staples: 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>.
Scott Staples: 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 negative base performance we have been experiencing. Let me now update you on the significant progress our team continues to make on our strategic initiative. We have long subscribed to the philosophy of building high-quality proprietary databases, data models, and algorithms, as well as innovative technology to drive our business.
Scott Staples: 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.
Scott Staples: 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.
Scott Staples: Now with the insurgence of Gen AI, we are poised to accelerate innovation across our portfolio and deliver even greater value for our customers. We are excited to have announced our proprietary next-generation RightID identity fraud solution specifically designed for the U.S. market to help alert customers to potential applicant fraud in the pre-hire process. This complements the success we have seen with the expansion of our digital identity products in the UK, India, Australia, and Canada. Employers leverage RightID as an initial step to flag inconsistencies and recognize potential errors in identity information submitted before a background screen, thus moving our products upstream in the applicant onboarding cycle.
Scott Staples: Now with the insurgents of Gen. AI, we are poised to accelerate innovation across our portfolio and deliver even greater value for our customers.
Scott Staples: We are excited to have announced our proprietary next generation right.
Scott Staples: Identity fraud solution, specifically designed for the U S market to help alert customers to potential applicant fraud in the pre hire process.
Scott Staples: This complements complements the success, we have seen with the expansion of our digital identity products in the U K, India, Australia and Canada.
Scott Staples: Employers leverage rate 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.
Scott Staples: Additionally, we continue to roll out our next-gen Profile Advantage applicant portal, featuring a new user interface and using API-first technology to deliver a consistent experience from screen to hire. By leveraging Gen AI and human-in-the-loop processes, we have access to intelligence that allows us to enhance the applicant experience. Our customers can hire faster with several products in one place, including fraud prevention, tax credit information, and background screening details. 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.
Scott Staples: 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.
Scott Staples: By leveraging <unk> AI and human in the loop processes, we have access to intelligence that allows us to enhance the apple can experience.
Scott Staples: Our customers can hire faster with several products in one place, including fraud prevention tax credit information and background screening details.
Scott Staples: 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.
Scott Staples: 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 verification. And through our customer care click, chat, call program, we can scale our support up or down quickly in response to volume changes. All of our solutions help support our customers and their screening priorities, which are highlighted in our Global Trends Report, just released in April.
Scott Staples: 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.
Scott Staples: And through our customer care click chat call program, we can scale, our support up or down quickly in response to volume changes.
Scott Staples: All of our solutions help support our customers and their screening priorities, which are highlighted in our global trends report.
Scott Staples: Just released in April this.
Scott Staples: This annual report provides worldwide perspectives based on over 100 million anonymized screening data records and hundreds of survey responses from our customers. 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. Notably, for the second year in a row, managing risk ranked as the most important factor in background screening programs over cost and speed.
Scott Staples: This annual report provides worldwide perspective based on over $100 million Anonymised screening data records and hundreds of survey responses from our customers.
Scott Staples: 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.
Scott Staples: Notably for the second year in a row managing risk ranked as the most important factor and background screening programs over cost and speed.
Scott Staples: This indicates an increased interest in 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. Additionally, I want to highlight our annual background screening conference, 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 trends, technologies, and best practices.
Scott Staples: 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.
Scott Staples: 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.
Scott Staples: Trends technologies and best practices.
Scott Staples: During the conference, we discussed our new and evolving products and solutions and had fantastic customer engagement. Additionally, we were pleased to have Johnny C. Taylor, Jr., join us for a second year as our keynote speaker, where he led a dynamic session on embracing AI and HR. Mr. Taylor is the president and CEO of the Society for Human Resources Management and is highly regarded as a leading industry expert in human resources.
Scott Staples: During the conference, we discussed our new and evolving products and solutions and had fantastic customer engagement.
Scott Staples: Additionally, we were pleased to have John <unk> Taylor junior join Us for our second year as our keynote speaker, where he led a dynamic session on embracing AI HR missed.
Scott Staples: Mr. Taylor is the president and CEO of the society for Human resources management and is highly regarded as a leading industry experts and human resources.
Scott Staples: Turning to slide seven, let me now provide an update on the Sterling acquisition. Preparations for the transaction are progressing as planned. 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. At the end of April, we filed our S4 with the SEC, which includes additional detailed information pertaining to the transaction. At this point, there have been no changes to our closing timing expectations.
Scott Staples: Turning to slide seven let me now provide an update on the Sterling acquisition.
Scott Staples: Preparations for the transaction are progressing as planned.
Scott Staples: 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.
Scott Staples: At the end of April we filed our S. Four with the SEC, which has additional detailed information pertaining to the transaction.
Scott Staples: 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 2024 with the closing and timing thereof subject to required regulatory approvals clearances and other customer customary closing conditions.
Scott Staples: The transaction is still expected to close in approximately the third quarter of 2024, with the closing and timing thereof subject to required regulatory approvals, clearances, and other customary closing conditions. 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. We view this as a win for our customers, as they will benefit from having more options to meet their evolving needs and improve solutions to help manage risk, hire smarter, and onboard faster.
Scott Staples: <unk>.
Scott Staples: 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.
Scott Staples: 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.
Scott Staples: First Advantages and Sterling's 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. Collectively, we will diversify our vertical mix as there is limited overlap across our customer industries. Sterling's largest verticals are more focused on regulated industries, including health care, industrials, and financial services.
Scott Staples: First advantages in sterling's highly complementary product offerings and further enhance our customer value proposition and are expected to unlock upsell and cross sell opportunities and reduce certain third party pass through fees.
Scott Staples: Collectively we will diversify our vertical mix as there is limited overlap across our customer industries.
Scott Staples: Sterling is largest verticals are more focused on regulated industries, including health care industrials and financial services.
Scott Staples: This balance is First Advantage's focus on verticals including transportation, retail, and e-commerce. We have complemented international businesses, which provide the opportunity for us to build a deeper local presence and expand an attractive market. Based on our preliminary diligence, we have also found no significant overlap amongst the top customers of both First Advantage and Sterling.
Scott Staples: This balances first advantages focused on verticals, including transportation retail and e-commerce.
Scott Staples: We have complemented international businesses, which provide the opportunity for us to build a deeper local presence and expand in attractive markets.
Scott Staples: Based on our preliminary diligence we have also found no significant overlap amongst the top customers of both first advantage and Sterling.
Scott Staples: We believe that combined, we will have a more balanced revenue mix, less customer concentration, and more vertical diversification. This will help to de-risk the transaction with regard to potential attrition, improve resource planning and operational efficiency, reduce our seasonal exposure, and create a more resilient business model. The transaction will enable us to drive innovation in key development areas of our business, including AI, next-gen digital identification technology, and automation. This will enhance the applicant experience and, at the same time, reduce certain third-party pass-through costs, contributing to long-term margin expansion.
Scott Staples: We believe that combined we will have a more balanced revenue mix less customer concentration and more vertical diversification.
Scott Staples: This will help to derisk the transaction with regard to potential attrition improve resource planning and operational efficiency reduce our seasonal exposure and create a more resilient business model.
Scott Staples: The transaction will enable us to drive innovation in key developing areas of our business, including AI Nextgen digital identification technology and automation.
Scott Staples: This will enhance the applegate experience and at the same time reduce certain third party pass through costs contributing to long term margin expansion.
Scott Staples: 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. We anticipate executing approximately half within the first 12 months post-closing, of which a portion will be achieved immediately upon closing.
Scott Staples: Looking at cost synergies, we remain confident in achieving at least $50 million and run rate synergies within 18 to 24 months post closing of the transaction.
Scott Staples: We anticipate executing approximately half within the first 12 months post closing of which a portion will be actions immediately upon closing.
David L. Gamsey: These synergies will come from removing duplicated public company costs, merging back office functions and resources, and ultimately merging our tech back ends and fulfillment functions. We anticipate identifying further synergies opportunities upon closing this transaction as we work through the integration process. Additionally, we anticipate net leverage at close to be in the range of 4.2 to 4.4 times. We have a 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 return to our long-term target net leverage range of two to three times.
Scott Staples: 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 function.
Scott Staples: We anticipate identifying further upside synergy opportunities upon closing this transaction as we worked through the integration process.
Scott Staples: Additionally, we anticipate net leverage at close to be in the range of four 2% to four four times.
Scott Staples: 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.
David L. Gamsey: David will go into further detail on this shortly. 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 teen's growth rate over time through the combination of top-line growth, ongoing synergy capture, and significant deleveraging enabled by our strong free cash flow generation. As we look ahead, our priorities after closing the transaction will be focused on our customers.
Scott Staples: David will go into further detail on this shortly.
Scott Staples: 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.
Scott Staples: Ongoing synergy capture and significant deleveraging enabled by our strong free cash flow generation.
Scott Staples: As we look ahead, our priorities after closing the transaction will be focused on our customers successful integration.
David L. Gamsey: Successive integration, achieving synergies, and deleveraging our balance sheet. 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. I will now turn the call over to David for more details on our first quarter results.
Scott Staples: <unk> synergies and deleveraging our balance sheet.
Scott Staples: 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.
Scott Staples: I'll now turn the call over to David for more details on our first quarter results.
David L. Gamsey: Thank you, Scott, and good morning, everyone. Turning to our first quarter results, on slide nine, our first quarter revenues were $169.4 million, a decrease of 3.5% from the prior year. Currency had nearly no impact on results. For the quarter, Infinite ID contributed approximately $2.8 million. In our America segment, 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. In our international segment, revenues of $22 million, or 13% of consolidated revenues, were down 11% from the prior year; macro factors impacting international base growth continue to be a headwind.
David: Thank you Scott and good morning, everyone turning to our first quarter results on slide nine 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 <unk>.
David: <unk> infinite <unk> contributed approximately $2 $8 million.
David: In our Americas segment 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.
David: 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 for.
David L. Gamsey: 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 trend. As a reminder, our first quarter adjusted EBITDA margin is typically the lowest quarter of the year. Adjusted EBITDA on an LTM basis has grown at a compounded annual growth rate of 14.7% over the last three years. Our adjusted effective tax rate was 24.4%. Gap's net loss was $2.9 million, and it's after $11.1 million in sterling acquisition-related costs that we have added back on an adjusted basis. Adjusted net income was approximately $25 million. Adjusted Diluted EPS was $0.17 for the quarter.
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 and 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 L. Gamsey: 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. 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 8-10%. On slide 11, you can see that our historical performance for upsell, cross-sell, new customer logos, and attrition has been largely consistent with our growth algorithm and demonstrates that we are managing and delivering on what we can control, with the variation being driven by the base.
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 upsell 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 the.
David: <unk> being driven by the base.
David L. Gamsey: Revenues from upsell and cross-sell contributed $7.7 million, or 4.4% to our performance in Q1. New customer logos contributed an additional $8.9 million, or 5.1% in Q1. The base declined by $19.6 billion, or 11% on a consolidated basis in Q1.
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: <unk> declined by $19 6 million or 11% on a consolidated basis in Q1.
David L. Gamsey: We anticipate base revenues improving throughout the remainder of the year. Turning now to our balance sheet and capital allocation on slide 12. For the first quarter, we generated strong operating cash flows of $38 million. During the quarter, we used cash of $6 million for purchases of property and equipment and capitalized software development costs. As we mentioned last quarter, given the pending sterling acquisition, we have suspended share repurchases as we continue to build cash.
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 L. Gamsey: Our primary areas of focus upon closing the transaction will be on our customers, on integration, on achieving synergies, and on deleveraging. In addition to our existing $565 million of First Advantage debt, we anticipate raising approximately $1.6 billion of new term debt to fund the Sterling acquisition. This results in approximately $2.15 billion of gross debt or approximately $2 billion of net debt when considering the approximately $125 million of balance sheet cash expected at close.
David: Our primary areas of focus upon closing the transaction will be on our customers.
David: On integration.
David: On achieving synergies and on deleveraging.
David: In addition to our existing $565 million of first advantage that we anticipate raising approximately one $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 L. Gamsey: Additionally, at close, we expect net debt to adjust at EBITDA leverage in the range of 4.2 to 4.4 times. As part of our financing agreement, we will upsize our revolver from $100 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. 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. Over the four years since Silver Lake invested in us, we've deleveraged from six times as a private company to less than two times prior to the announced Sterling acquisition.
David: Additionally, at close we expect net debt to adjusted EBITDA leverage in the range of four 2% to four four 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 L. Gamsey: This is also after repurchasing approximately $120 million in shares, paying a $218 million one-time special dividend, and acquiring five businesses. Our goal within 24 months of closing is to reduce net leverage toward approximately three times run rate adjusted EBITDA. Our path to de-lever 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: 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.
David L. Gamsey: Today, we are reaffirming our 2024 annual guidance. Our first quarter results, coming in at or above our expectations, position us well to achieve our full year midpoint guidance target. We still expect sequential quarter over quarter growth for revenues, adjusted EBITDA, and adjusted EBITDA margins similar to 2023. For 2024, we expect to generate full-year revenues in the range of $750 to $800 million. Based on the midpoint of $775 million, this results in slightly positive year-over-year organic revenue growth.
David: Today, we are reaffirming our 2024 annual guidance, our first quarter results coming in at or above our expectations 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: But based on the midpoint of $775 million. This result in slightly positive year over year organic revenue growth.
David L. Gamsey: This includes revenues related to Infinite ID, 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. We expect customer retention to remain in line with their strong historical performance of around 97%.
David: This includes revenues related to infinite, which.
David: 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 L. Gamsey: We also expect continued execution of upsell, cross-sell, and new logo growth consistent with historical trends and long-term targets. We expect to maintain full-year adjusted EBITDA margins of approximately 31% at the midpoint and adjusted EBITDA in the range of $228 to $248 million. This reflects the strength of our flexible model, disciplined cost management, and investments in automation. As a reminder, our adjusted EBITDA guidance includes increases in annual employee wages, normalization of management incentive plans, and increases in benefit costs totaling approximately $10 million. It also includes new investments in product, technology, and sales of approximately $7 million.
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 L. Gamsey: At the midpoint, we expect 2024 adjusted net income of approximately $134 million and adjusted EPS of 93 cents. Looking at the quarterly phasing, we expect sequential top-line improvement as we move through 2024. We expect second quarter revenues to trend from negative toward relatively flat year over year, with positive overall growth in the second half of the year, more heavily weighted toward Q4. The midpoint of our guidance range also assumes continued macro-driven base declines, with base remaining negative in Q2, down in the mid to high single digits, though improving from Q1, which was down 11%.
David: And half of the year more heavily weighted towards Q4.
David: The midpoint of our guidance range also assumes continued macro driven base declines with base remaining negative in Q2 down in the mid to high single digits, though improving from Q1, which was down 11%.
David L. Gamsey: We still expect base growth to improve sequentially through the year, turning positive in Q4. We continue to expect adjusted EBITDA margins of approximately 30% in the second quarter, with further improvement in the second half of the year. In closing, I would like to share Scott's sentiment and thank our team for the progress we continue to make in achieving our objectives and for their resilience and dedication as we work through the Sterling transaction. With that, I will turn it back to Scott for closing remarks before we open the line for questions. Thank you, David.
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 the 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 Staples: Thank you David.
Scott Staples: We have made significant progress on our strategic initiatives over the last several years, as evidenced by our verticalized go-to-market approach: Tech Enablement, Investments in Automation, AI, and Machine Learning, Strategic Partnerships, and Tuck-in Acquisitions. We are seeing the return on our investments flow through our impressive adjusted EBITDA margin and cash flow generation. 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. With that, we will open the line for questions.
Scott Staples: We have made significant progress on our strategic initiatives over the last several years as evidenced by our vertical go to market approach.
Scott Staples: Tech enablement.
Scott Staples: <unk> and automation AI and machine learning strategic partnerships and tuck in acquisitions.
Scott Staples: We are seeing the return on our investments flow through our impressive adjusted EBITDA margin and cash flow generation.
Scott Staples: 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.
Scott Staples: Yeah.
Operator: Thank you. We will now begin the question and answer session. At this time, if you have a question, please press Star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing Star 2. If you are using a speakerphone, we request that you pick up your handset while asking your question to provide optimal sound quality. Again, that's star one to ask a question. Our first question will come from Shlomo Rosenbaum with Stiefel. Please go ahead.
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.
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Speaker Change: 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. First, I just want to start out with, Scott, would you say that the environment is improving along the lines that you expected, you know, a little bit faster, a little bit slower, and then I have one follow-up after that.
Shlomo H. Rosenbaum: Hi, Thank you for taking my questions.
Shlomo H. Rosenbaum: Especially if you want to start out 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 Staples: Yes Shlomo, 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's it's still a a choppy macro we are seeing our customers higher obviously you know look at you know 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 and I think this is a you know exactly as we sort of planned it would go and you know we're pretty happy where it is
Speaker Change: Yes I.
Scott Staples: 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.
Scott Staples: It's still a a choppy macro.
Scott Staples: We are seeing our customers higher obviously look at our.
Scott Staples: Our results for the quarter, but we're still.
Scott Staples: Seeing some cautiousness out of them. So they're not hiring ahead of time, they're not over hiring but they certainly are hiring.
Scott Staples: And I think this is exactly as we sort of planned it would go and.
Scott Staples: We're pretty happy where it is.
Speaker Change: Okay. Thank you and then the other one is just.
Scott Staples: Sterling put out their results. This morning, obviously, the same time as you guys and.
Shlomo H. Rosenbaum: This morning, obviously, at the same time as you guys, and very good revenue, but the EBITDA was clearly below what the street was expecting. Now, obviously, Sterling didn't give out any guidance or anything like that.
Scott Staples: Very good revenue, but the EBITDA was clearly below what the street was expecting obviously has joined didn't give out any guidance or anything like that but wanted to ask you. Once you acquire the company how long does it take you to really cut them over onto your own.
Shlomo H. Rosenbaum: But I want to ask you, once you acquire the company, how long does it take you to really cut them over to your own kind of cost structure? In other words, migrating things over, you know, operationally, you know, quickly cutting over to your own sources of information and being able to leverage kind of the scale that you have. You can talk a little bit about that, and then also just kind of merge the cultures. How do you think about that? Do you agree?
Scott Staples: Kind of cost structure in other words migrating things over.
Scott Staples: Operationally no quickly cutting over to your own.
Scott Staples: Sources of information and being able to leverage the scale that you have you could talk a little bit about that and then also just kind of merging the cultures. How do you think about that.
Scott Staples: Yeah, so we're doing a lot of planning. But we, you know, we're, we can't really get under the hood for, you know, to post close.
Scott Staples: Yes.
Scott Staples: We're doing a lot of planning.
Scott Staples: But we we.
Scott Staples: Can't really get under under the Hood for post close.
Scott Staples: We did mentioned in the earnings script.
Scott Staples: Yeah.
Scott Staples: We did mention in the earnings grip, you know, how fast we expect to get synergies. And as part of those synergies, that's obviously, you know, eliminating duplicative corporate overhead and public company expenses, but also, you know, starting to leverage our automation. It's really hard for me to sit here today and give you a specific timeline because we're not at that point yet where we can get into detailed, you know, planning and stuff like that.
Scott Staples: How fast we expect to get synergies and as part of those synergies that's obviously.
Scott Staples: Eliminating.
Scott Staples: 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.
Scott Staples: And give you a specific timeline because were not.
Scott Staples: But, you know, we will continue to provide updates as we get closer and closer to the close date. But again, we're feeling very confident about the synergies, you know, the number and the strategy and approach that we've taken to overall post merger integration. Hey, thank you.
Scott Staples: At that point, yet, where we can get into detail.
Scott Staples: Planning and stuff like that but.
Scott Staples: We will continue to provide updates as we get closer and closer to close date.
Scott Staples: But again, we're feeling very confident about the synergies number and the strategy and approach that we've taken to overall.
Scott Staples: Post merger integration.
Scott Staples: Oh, Shlomo, I'm sorry, I did not answer the last part of your question, which was about the culture. Yeah, we're pretty excited about the two companies, you know, their cultures coming together. Because, you know, even though there's obviously going to be some differences, you know, both companies are high-performance organizations. So I think it's a lot easier when you're merging two high-performance cultures together. We don't have any concerns at this point.
Speaker Change: Okay. Thank you.
Speaker Change: Alright, sorry.
Speaker Change: Sorry, I did not answer the last part of your question, which was on the culture.
Scott Staples: Yes, we're pretty excited about.
Scott Staples: The two companies.
Scott Staples: She was coming together because each.
Scott Staples: Even though that there's obviously going to be some differences both companies are high performing organization. So.
Scott Staples: I think it's a lot easier when you're merging two high performance cultures together.
Scott Staples: Obviously there'll be some subtle differences and.
Scott Staples: And we will have a special track.
Scott Staples: Our PMI.
Scott Staples: Gration plan just on culture.
Scott Staples: To make sure that we nail it we communicate it.
Scott Staples: We treat it.
Scott Staples: Like it's just as important as anything else.
Speaker Change: So I think we don't have any concerns at this point.
Speaker Change: And I.
Speaker Change: I think the other thing that.
Scott Staples: And I think the other thing that, you know, as you've probably seen from both companies, we're very much aligned on the go-to-market and the product strategies. I think we're the two companies that are out there talking about digital identification the most. And we really are sort of, I think, at the forefront of the technological changes in this market. So that makes it a bit easier as well.
Speaker Change: As you could you've probably seen from both companies.
Speaker Change: We're very much aligned on on the go to market and the and the product strategy that 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.
Speaker Change: Changes in this in this market so that makes it a bit easier as well.
Speaker Change: Thank you.
Ashish Sabadra: Thank you. The next question will come from Ashish Sabadra with RBC Capital Markets.
Speaker Change: Thank you. Our next question will come from Ashish <unk> with RBC capital markets.
Ashish Sabadra: Thanks for taking my question. So the sequential growth in the base that you've mentioned, I was wondering what's, how much visibility do you have there? What have you seen in April? Any early indications on that front? You obviously mentioned five verticals that have been growing, but I was just wondering about the verticals that have been declining, have you seen any progress on those fronts? And then even on the international front, that 11% decline, I was just wondering if you could comment on what we are seeing on that front. Thanks. Yeah.
ashish: Thanks for taking my question, so the sequential growth in the base.
ashish: Mentioned I was wondering.
ashish: How much visibility you have there what have you seen in April.
ashish: The early indications on that trend he.
ashish: You 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 front.
ashish: That 11% decline I was just wondering if you could comment on what we're seeing on that thanks.
Speaker Change: Yes, thanks, Ashish a lot there so hopefully a catch it all.
Scott Staples: Let me work backwards on your question. So yeah, obviously, you know, international is still down, but it's not down as much. You know, we were in previous quarters talking about, you know, year-on-year declines of 20 plus percent. We're not there anymore.
Speaker Change: Backwards on your question. So yeah, obviously international is still down but.
Speaker Change: But it's not down as much.
Speaker Change: We were in previous quarters.
ashish: We're talking about.
ashish: Year on year declines of 20%, we're not we're not there anymore were half of that.
Scott Staples: We're half of that. So we are starting to see some stability in India and AIPAC. AMIA, as you recall, has always been, you know, performing.
ashish: So we are starting to see some stability.
ashish: In India in APAC.
ashish: EMEA is as if you recall as has always been.
ashish: Performing but.
ashish: 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.
Scott Staples: But India and AIPAC were our concerns over the last 18 months or so. And we really felt, and I think we mentioned this in our earnings call for Q4 of 2023, we kind of felt that India was bottoming out, and we're starting to realize that. So we're starting to see some improvement in both India and AIPAC.
ashish: And we're starting to.
ashish: Realize that.
ashish: So we're starting to see some improvement in both India and APAC.
ashish: I think also.
ashish: What gives us.
Scott Staples: I think also what gives us some enthusiasm is that the U.S. was only down 2 percent this quarter. So we're starting to see a little bit of stability there as well. And you asked about April. And April, I would say, is exactly in line with what we thought it would be. So there are no surprises from April.
ashish: Some enthusiasm is the U S was only down 2%.
ashish: This quarter, so we're starting to see a little bit of stability there as well.
ashish: And you.
ashish: You asked about April in April I would say is exactly in line with what we thought it would be so no surprises from April.
Scott Staples: And then your first part of the question was about the verticals. So we mentioned the five verticals that were up. Obviously, there are still some verticals that are down, you know, most notably financial services and a few others, but they're not down as much. They certainly are still down, but they're 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.
ashish: And then your first part of the question was around the verticals.
ashish: So we mentioned the five verticals that were up.
ashish: Honestly that there is still some verticals that are down.
ashish:
ashish: Most notably financial services, and a few others, but they're not down as much.
ashish: They certainly are still down, but theyre, just not down as much so.
ashish: All of that kind of paints a little bit of a brighter picture for us, but obviously theres still a lot of caution in the background.
Ashish Sabadra: That's great color. And if I could ask a quick follow-up on the technology front, thanks for providing those details on the new initiatives on the Gen AI front. I was wondering if you think about the midterm, the next three to five years, how do you think about the efficiencies that these newer technologies can bring? Thanks.
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 as you think about the midterm in the next three to five years do you think about the efficiencies that these newer technologies can bring in.
Scott Staples: Yeah, no; we are very bullish on the efficiencies that new technologies can bring. And I would add that it's not only efficiencies, but it's also quality improvement. And so we, I think I mentioned in this last earnings call, we are, you know, in the process of running multiple AI pilots across multiple components of our operations. And, you know, early signs are, you know, an increase in quality, but also an increase in efficiency. And it's not only, you know, in the actual fulfillment of a background check.
Speaker Change: Yes, no we are.
Speaker Change: 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 across multiple multiple components of our operations.
Speaker Change: And early signs are increase in quality, but also an increase.
Speaker Change: Inefficiency.
Speaker Change: And it's not only.
Speaker Change: In the actual fulfillment of a background check we actually just launched AI at work.
Scott Staples: We actually have just launched AI at Work, which is, you know, our internal AI tool for helping all functional organizations use AI to improve their efficiency and their quality. As you know, when you use a public AI, you know, a product like Chef TPT or whatever, whatever you put into that is available for all the public to see. So we've created our own private AI tool.
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 AI.
Speaker Change: A product like <unk> or whatever whatever you put into that is is available for all public to see so we've created our own private.
Speaker Change:
Speaker Change: AI.
Scott Staples: And it's basically AI at Work. And we're in the process now of educating our marketing teams, our sales teams, even our finance teams, and HR teams on how to use this internally to find ways to do work, you know, better, faster, cheaper. So we think, you know, that the effect of AI across our internal functions and the processing of a background check over the next five years will have a pretty dramatic effect.
Speaker Change: Tool and.
Speaker Change: It's basically AI at work and we're in the process now of educating our marketing teams our sales teams, even our finance teams onto HR teams onto how to use this.
Speaker Change: Internally to find ways to do work better faster cheaper so we think that.
Speaker Change: The the effect of AI across our internal functions and the processing of a background that over the next two plus years, we will have a pretty dramatic effect.
Ashish Sabadra: That's very helpful. Thank you.
Speaker Change: That's very helpful color. Thank you.
Andrew Charles Steinerman: Thank you. Our next question will come from Andrew Steinerman with J.P. Morgan. Please go ahead.
Speaker Change: Thank you. Our next question will come from Andrew Steinman with J P. Morgan. Please go ahead.
Andrew Charles Steinerman: All right, I wanted to get a sense for, you know, kind of how your team is doing market sizing for the U.S. screening market. If you can mention, you know, like what solutions are included in your market sizing, like drug testing and ID and stuff, but besides for criminal, you know, how are you approaching market sizing and, you know, what market share do you think First Advantage has?
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 screening market.
Andrew Charles Steinerman: Can mentioned like what solutions are included in your market size things like such as drug testing and Dean and Scott Besides for criminal.
Andrew Charles Steinerman: How are you approaching market sizing.
Andrew Charles Steinerman: What market share do you think first advantage will have post merger with Sterling.
Scott Staples: You know, we have been leveraging third parties. We haven't been doing the market sizing ourselves, Andrew, so we've been, you know, leveraging third parties who have been doing that. And we're really seeing sort of consistent results in terms of numbers.
Speaker Change: We have been we have been leveraging third parties, we haven't been doing the market sizing ourselves Andrew.
Andrew Charles Steinerman: So we've been leveraging third parties, who have been doing that.
Andrew Charles Steinerman: And we're really seeing sort of consistent results and numbers I mean, there's multiple sources have.
Scott Staples: I mean, multiple sources have pegged this industry as a $13 billion TAM, you know, so it's a large space. And, as you know, it's a very fragmented space with so many competitors. So, you know, we haven't looked at the market sizing ourselves, but the third-party data is so consistent that we're, you know, pretty confident that it's, you know, fairly accurate.
Andrew Charles Steinerman: Have pegged this industry is a $13 billion.
Andrew Charles Steinerman: Ma'am.
Andrew Charles Steinerman: So it's a large space and as you know, it's a very fragmented space with so many competitors.
Andrew Charles Steinerman: So 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 <unk>.
Speaker Change: Fairly accurate.
Scott Staples: 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 creation of a new revenue stream and a new space, and it's very hard to measure that. But what we are really talking about is customer discussions, like the person they hired is the same person that shows up to do the work. And so digital identity can, you know, really take that fraud, you know, out of the equation for them.
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.
Andrew Charles Steinerman: The accretion, it's really the creation of a new revenue stream and a new space.
Andrew Charles Steinerman: And it's very hard to measure that but what we are really going on is customer discussion.
Andrew Charles Steinerman: Customers are really loving.
Andrew Charles Steinerman: Digital identity solution, because they're seeing so much fraud.
Andrew Charles Steinerman: The recruiting cycle.
Andrew Charles Steinerman: <unk> that they are hiring for let's say homebase jobs and they're interviewing.
Andrew Charles Steinerman: Or zoom or something like that in.
Andrew Charles Steinerman: 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.
Andrew Charles Steinerman: And so digital identity can can really take that fraud.
Andrew Charles Steinerman: Out of the equation for them and we are hearing.
Scott Staples: And we're hearing those stories, almost nightmare stories, from so many customers. So there's not an official market sizing going on, but that sector is really driven by customer conversations and customer demand, and we're seeing very good demand in that sector.
Andrew Charles Steinerman: Those stories almost nightmare stories from so many customers.
Andrew Charles Steinerman: Theres not a not an official market sizing going on but that that sector is really driven by customer conversations and end customer demand and we're seeing very good demand.
Andrew Charles Steinerman: In that sector.
Speaker Change: Okay. Thank you.
Heather Nicole Balsky: Thank you. Once again, if you would like to ask a question, please press star 1 at this time. Our next question will come from Heather Balsky with Bank of America.
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 <unk> with Bank of America.
Heather Nicole Balsky: Hi, good morning. Thank you for taking my question. I wanted to ask you about your opportunity once you closed the deal with Sterling about your ability to reduce some of the 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 using kind of your own internal resources once you're a larger organization.
Heather: Please go ahead.
Heather: Hi, Good morning, Thank you for taking my question.
Heather: I wanted to ask.
Heather: You mentioned your opportunity once you close the deal with Sterling.
Heather: About your ability to Turkey. Some of the 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 is there anything kind of your own internal resources.
Heather: For a larger organization.
David L. Gamsey: David, do you want that one? Sure. Heather, they're really...
Heather: David do you want that one sure Heather there really.
David L. Gamsey: Sure. Heather, they're really, it's a multifaceted approach to that. So, yes, there are third-party costs. However, we will be able to leverage volume from a procurement perspective to get more favorable pricing. We will be able to run more verifications through our own proprietary database. 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. As we said, we think we can get $50 million. We're highly confident in that number and think it can be greater than that, and we're going to go get it as quickly as we can.
David: It's a multifaceted approach to that so yes. There are third party costs, we will be able to leverage volume from a procurement perspective to get more favorable pricing, we will be able to run more verification store 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 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 going to go get it as quickly.
David: As we can.
Heather Nicole Balsky: Thank you, I appreciate that. And then, just a follow-up question, you also talked about Sterling's international business. Can you just lay out for us what their business is focused on internationally in their key markets? And then, I mean, your international business, but kind of where maybe there might be similarities or where they're providing some new opportunities? Thanks.
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 what what Airbus is focused on internationally in their key markets and then.
David: Our international business.
David: Where maybe there might be similarity there or where they're providing some new.
David: Opportunities.
David: Yeah.
Scott Staples: Yeah, so from a footprint standpoint, their international business is, you know, almost identical to ours, which makes it, you know, very easy to work through synergies and combine the organizations. You know, obviously, each party will have, you know, strengths and weaknesses.
David: Yes, so from a from a footprint standpoint, they are international businesses.
David: Almost identical to ours, which.
David: It makes it makes it.
David: Very easy to.
David: Worked through.
David: Synergies and combining the organizations.
David: Obviously.
David: Each party will have strengths and weaknesses and what we like about.
David: Sterling as they seem to have done very well in the gig space internationally.
Scott Staples: And what we like about, you know, Sterling is that they seem to have done very well in the gig space, internationally, which is not a business that we've focused on too much. And they've also done extremely well in certain markets like Australia, you know, so we'll have to look at where we're basically going to take the best-in-class approach. So whoever's got the best product or offering is what we're going to go with.
David: Which is not a business that we've focused on too much.
David: And they've also done extremely well in.
David: Certain markets like Australia.
David: So we'll have to look at.
David: Where are the strengths and weaknesses of each organization.
David: But from a product standpoint, there's really not a lot of differences.
David: And it's really just a matter of go to market in certain regions, but we'll start again planning that as we get.
David: Closer to close and post close as to.
David: Well.
David: Basically going to basically take the.
David: The best.
David: Best in class approach so.
David: Whoever's got the best product or offering that's what we're going to go away.
Speaker Change: Thank you.
Heather Nicole Balsky: Thank you. Again, if you do have a question at this time, please press star 1. Our next question comes from Andrew Nicholas with William Blair. Please go ahead.
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. I wanted to follow up on the earlier question around the kind of AI efforts and efficiency gains. One of the other things that seems to be a theme as people adopt innovative AI or build products internally is cost. So just kind of curious if those efforts around bringing AI into your work or even that private AI tool have any... And then negative impact on incremental margins, or is the net net of all that you're doing on that front expected to improve incremental margins over time?
Andrew Nicholas: Hi, good morning.
Andrew Nicholas: Wanted 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 entering that AI or build products internally as the cost so just kind of curious.
Andrew Nicholas: That.
Andrew Nicholas: Those efforts around <unk>.
Andrew Nicholas: Bringing AI into your work or even the private AI tool have any.
Andrew Nicholas: Kind of negative impact incremental margins or is the net net of all that youre doing on that front I expect it to improve incremental margins over time.
David L. Gamsey: The near-term answer is that everything we're doing is on budget, so we're not going to be incurring any additional costs to do what we've got planned for 2024. I think you've answered the question as to the long term, which is that we definitely feel that, yeah, there will certainly be a cost of developing a solution, but the benefit and the business case behind it will be higher quality, more efficiency, probably the ability to essentially reduce headcount in certain areas and things like that.
Speaker Change: Yes so.
Speaker Change: The near term answer is that everything we're doing is it budget.
Speaker Change: So we're not.
Speaker Change: We're not going to be incurring any additional costs.
Speaker Change: Two.
Speaker Change: Two what we've got planned for 2024.
Speaker Change: And I think you've answered the question as to long term, which is.
Speaker Change: We definitely feel that yeah, there will certainly be a cost of developing.
Speaker Change: <unk> solution.
Speaker Change: But the benefit.
Speaker Change: And the business case behind it.
Speaker Change: Will be higher quality more efficiency probably.
Speaker Change: The ability to essentially reduce head count in certain areas and things like that so it certainly will offset but.
David L. Gamsey: So it certainly will offset, but we're taking each... product and each project as like a separate business case. So everything that we're doing has to be business case driven and have some sort of defined benefit that we can track and milestones that we can measure. So that's the approach we're taking. And again, we think there'll be a positive impact on the business over the next couple of years.
Speaker Change: But we're taking each.
Speaker Change: And each project.
Speaker Change: As like a separate business case.
Speaker Change: So everything that we're doing.
Speaker Change: It has to be business case, driven and have some sort of defined benefit that we can track and milestones that we can measure so.
Speaker Change: That's the approach we're taking and.
Speaker Change: Again, we think there'll be a positive impact.
Speaker Change: Through the business over the next couple of years.
Speaker Change: Yes.
Speaker Change: That's very helpful. And then maybe for my follow up just curious what the customer reception has been like to the Sterling announced thus far I don't know if you've had a chance to.
Speaker Change: To speak to any of their customers.
Speaker Change: But just curious if your customers have come to you with any concerns.
Speaker Change: Things of that sort that would be helpful. Thank you.
Scott Staples: Yeah, I mean, we can't speak to any of their customers. That's not allowed.
David L. Gamsey: Thank you. Yeah, I mean, we can't speak to any of their customers.
Speaker Change: Yes, I mean, we can't speak to any of their customers that's not allowed but.
Speaker Change: Our customers are pretty excited about it.
Scott Staples: But our customers are pretty excited about it. In some ways, it's also a non-event for them. So when we announced it, we proactively reached out to all of our large customers and walked them through, you know, obviously, they want to, you know, you know, see, you know, what the sterling products are like, and things like that, which we would show them. But that would benefit them, which also opens up upsell and cross-sell opportunities for us.
Speaker Change: In some in some ways. It it's also a non event for them.
Speaker Change: So when we announced it we proactively reached out to all of our large customers.
Speaker Change: And walk them through it and talked about and they were very excited.
Speaker Change: Obviously, they want to.
Speaker Change: C.
Speaker Change: What the Sterling products are like and things like that which will show.
Speaker Change: But the.
Speaker Change: Yeah.
Speaker Change: As I mentioned, it there's really no impact to them.
Speaker Change: So although they're excited for us they don't they don't really feel like that's going to change it's going to be the.
Speaker Change: First advantage customer success team.
Speaker Change: <unk> is not changing there.
Speaker Change: <unk> product suites aren't changing.
Speaker Change: Their platforms aren't changing and potentially there could be additions to them that would benefit them.
Scott Staples: But when we had our customer collaboration event in April, it was almost not even mentioned by any customers. It was, you know, they were excited about it, obviously, when we first reached out, but, you know, it's really business as usual.
Speaker Change: And which also opens up sell cross sell for us.
Speaker Change: But when we.
Speaker Change: When we had our customer collaboration event in April it was almost not even mentioned by any customers. It was there.
Speaker Change: We're excited about it obviously when we first reach out, but it's really business as usual.
Speaker Change: Thank you.
Speaker Change: Thank you at this time, we have no further questions in queue.
Operator: At this time, we have no further questions in queue, and today's First Advantage first quarter 2024 earnings conference call and webcast. Thank you all for your participation. At this time, you may disconnect your line.
Speaker Change: This will conclude today's first advantage first quarter 2024 earnings conference call and webcast.
Speaker Change: Thank you all for your participation.
Speaker Change: At this time you may disconnect. Your line have a wonderful day.
Speaker Change: Hmm.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: Yeah.
Speaker Change: Hello.
Speaker Change: Yeah.