Q2 2024 First Advantage Corp Earnings Call

August 8, 2024

Good day, everyone. My name is Todd and I will be your conference operator today.

Todd: My name is Todd, and I will be your conference operator today.

Todd: I would like to welcome you to the First Advantage Second Quarter 2024 earnings conference call and webcast. Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. At this time, all participants have been placed in a listen-only mode to prevent any background noise.

Speaker Change: I'd like to welcome you to the first advantage second quarter 2024 earnings conference call and webcast.

Operator: Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. At this time, all participants have been placed in a listen-only mode to prevent any background noise; please press star zero. It is now my pleasure to turn the call over to Ms. Gorman. You may begin.

Operator: The call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. At this time, all participants have been placed in a listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Finally, if you should require operator assistance, please press star zero. Please note, today's event is being recorded. It is now my pleasure to turn the call over to Stephanie Gorman. You may begin.

Speaker Change: Hosting the call today from first advantage is Stephanie Gorman, Vice President of Investor Relations.

Speaker Change: At this time, all participants have been placed in a listen only mode to prevent any background noise.

Todd: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. Lastly, if you should require operator assistance, please press star zero. Please note today's event is being recorded.

Speaker Change: After the Speakers' remarks, there will be a question and answer session.

If you would like to ask a question. During this time. Please press star one on your telephone keypad.

Speaker Change: At any point. Your question has been answered you may remove yourself from the queue by pressing star two.

Lastly, if you should require operator assistance, please press star zero.

Please note today's event is being recorded.

Stephanie Gorman: It is now my pleasure to turn the call over to Stephanie Gorman. You may begin.

Speaker Change: It is now my pleasure to turn the call over to Stephanie Gorman you may begin.

Stephanie Gorman: Thank you, Todd. Good morning, everyone, and welcome to First Advantage's second quarter. In the Investor section of our website, you will find the earnings press release and slide presentation to accompany today's discussion.

Stephanie Gorman: Thank you, Todd. Good morning, everyone, and welcome to First Advantage's second quarter 2024 earnings conference call. In the Investor section of our website, you will find the earnings press release and slide presentation to accompany today's discussion. This webcast is being recorded and will be available for replay on our Investor Relations website.

Stephanie Gorman: Thank you Todd good morning, everyone and welcome to the first advantage is second quarter of 2024 earnings Conference call.

Speaker Change: In the investors section of our website, you'll find the earnings press release and slide presentation to accompany today's discussion is.

Stephanie 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 be for looking statement. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statement. This statement is 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 second quarter of 2024 to be filed with the FEC.

Speaker Change: This webcast is being recorded and will be available for replay on our Investor Relations website.

Stephanie Gorman: Before we begin our prepared remarks, I would like to remind everyone that our discussion today will include forward-looking statements, which are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the FEC, including our 2023 Form 10-K and our Form 10-Q for the second quarter of 2024, to be filed with the FEC.

Speaker Change: Before we begin our prepared remarks, I would like to remind everyone that our discussion today will include forward looking statements.

Speaker Change: Forward looking statements are not guarantees of future performance actual results may differ materially from those expressed or implied in the forward looking statements.

Speaker Change: Alrighty.

Speaker Change: These factors are discussed in more detail in our filings with the SEC, including our 2020 free Form 10-K, and our Form 10-Q for the second quarter of 2024 to be filed.

Speaker Change: Yeah.

Stephanie Gorman: 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 for looking state.

Stephanie Gorman: 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. 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.

Speaker Change: Such factors may be updated from time to time periodic filings with the SEC, we do not undertake any obligation to update.

Stephanie Gorman: Throughout this conference call, we will also present and discuss non-GAAP financial measures. Reconciliation of our non-GAAP financial measures to the most directly comparable GAAP financial measures, to the extent available without unreasonable efforts, appears in today's earnings press release and presentation, which are available on our Investor Relations website.

Stephanie Gorman: Throughout this conference call, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures, to the extent available without unreasonable effort, appear in today's earnings press release and presentation, which are available on our investor relations website.

Speaker Change: Throughout this conference call. We will also present and discuss non-GAAP financial measure 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 Gorman: I am joined on our call today by Scott Staples, our Chief Executive Officer, and David Dansey, our Chief Financial Officer.

Stephanie Gorman: I am 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 Scott.

Speaker Change: I am joined on our call today by Scott <unk>, Our Chief Executive Officer, and David <unk>, Our Chief Financial Officer. After prepared remarks, we will take your questions I will now turn the call over to Scott.

Stephanie Gorman: After our prepared remarks, we will take your question.

Scott Staples: I will now hand the call over to Scott. Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. We are proud to announce another quarter of solid results while continuing to progress toward the closing of the Sterling acquisition. Our team is executing well in a dynamic environment by leveraging our capabilities and innovations to deliver continued value for our customers and our shareholders. This morning, I will provide an overview of our second quarter results, along with updates on the Sterling acquisition and our strategic initiatives. David will then provide a deeper dive on our results and additional color on our expectations for the remainder of the year.

Scott Staples: Thank you, Stephanie, and good morning, everyone. Thank you for joining us on our call. Our team is executing well in a dynamic environment by leveraging our capabilities and innovations to deliver continued value for our customers and our shareholders. This morning, I will provide an overview of our second quarter results, along with updates on the Sterling acquisition and our strategic initiatives. We also had two very large upsell bookings worth a combined $13.5 million in the second quarter. In total, we had 15 bookings in the second quarter and 47 in the last 12 months, each with $500,000 or more of expected annual contract value.

Scott Staples: Thank you, Stephanie, and good morning, everyone. Thank you for joining us on our call. We are proud to announce another quarter of solid results while continuing to progress toward the closing of the Sterling acquisition. Our team is executing well in a dynamic environment by leveraging our capabilities and innovations to deliver continued value for our customers and our shareholders. This morning, I will provide an overview of our second quarter results along with updates on the Sterling acquisition and our strategic initiatives. David will then provide a deeper dive on our results and additional color on our expectations for the remainder of the year. Turning to slide five.

Scott: Thank you Stephanie and good morning, everyone. Thank you for joining our call.

Speaker Change: We are proud to announce another quarter of solid results, while continuing to progress toward the closing of the Sterling acquisition.

David: Our team is executing well in a dynamic environment by leveraging our capabilities and innovation to deliver continued value for our customers and our shareholders.

Scott Staples: In the second quarter, we delivered revenues of $185 million, adjusted EBITDA of $56 million, and an adjusted EBITDA margin of 30.2%, all of which were in line with what we communicated on our last earnings call and nearly flat on a year-over-year basis. This gives us additional confidence in achieving our full year 2024 guidance, which we are reaffirming today. Our upsell, cross-sell, new logos, and attrition rates continued to perform in line with our historical revenue growth algorithm; our base growth remained negative but improved from Q1.

Speaker Change: This morning, I will provide an overview of our second quarter results along with updates on the Sterling acquisition and our strategic initiatives.

Scott: David will then provide a deeper dive on our results and additional color on our expectations for the remainder of the year.

Scott Staples: Turning to slide five. In the second quarter, we delivered revenues of $185 million, adjusted EBITDA of $56 million, and adjusted EBITDA margin of 30.2%. All of which were in line with what we communicated on our last earnings call and nearly flat on a year-over-year basis. This gives us additional confidence in achieving our full year 2024 guidance, which we are reaffirming today. Our upsell, cross sell, new logos, and attrition rates continued to perform in line with our historical revenue growth algorithm. Our base growth remained negative but improved from Q1. We also had two very large upsell bookings worth a combined $13.5 million in the second quarter.

Scott Staples: We also had two very large upsell bookings worth a combined $13.5 million in the second quarter. In total, we had 15 bookings in the second quarter and 47 in the last 12 months, each with $500,000 or more of expected annual contract value.

David: Turning to slide five.

David: In the second quarter, we delivered revenues of $185 million adjusted EBITDA of $56 million and adjusted EBITDA margin of 32% all of which were in line with what we communicated on our last earnings call and nearly flat on a year over year basis.

David: This gives us additional confidence in achieving our full year 'twenty 'twenty four guidance, which we are reaffirming today.

David: Our upsell cross sell new logos and attrition rates continued to perform in line with our historical revenue growth algorithm.

David: Our base growth remained negative but improved from Q1.

David: We also had two very large upsell bookings worth a combined $13.5 million in the second quarter.

Scott Staples: In total, we had 15 bookings in the second quarter and 47 in the last 12 months, each with $500,000 or more of expected annual contract value. We are pleased that our sales engine continues to deliver consistent results. Second quarter results reflect a macroeconomic picture of normalization and stabilization within our business. From a vertical perspective, volatility has decreased, with no single vertical's revenue volumes up or down beyond single digits. We feel this narrowing of the gaps between verticals reflects an overall normalization of the business, which we welcome. In terms of the macro environment, we are seeing normalization and stabilization of key labor metrics, including quits, hires, and openings, as job trends stabilized from the pandemic years.

David: In total we had 15 bookings in the second quarter and 47 in the last 12 months, each with $500000 or more of expected annual contract value.

Scott Staples: We are pleased that our sales engine continues to deliver consistent results. Second quarter results reflect a macroeconomic picture of normalization and stabilization within our business. In terms of the macro environment, we are seeing normalization and stabilization of key labor metrics, including quits, hires, and openings, as job trends stabilize from the pandemic year.

Scott Staples: We are pleased that our sales engine continues to deliver consistent results. Second quarter results reflect a macroeconomic picture of normalization and stabilization within our business. From a vertical perspective, volatility has decreased with no single vertical revenue volumes up or down beyond single digits.

David: We are pleased that our sales engine continues to deliver consistent results.

David: Second quarter results reflect a macroeconomic picture of normalization and stabilization within our business from a vertical perspective volatility has decreased with no single verticals revenue volumes up or down beyond single digits.

Scott Staples: We feel this narrowing of the gaps between verticals reflects an overall normalization of the business, which we welcome. In terms of the macro environment, we are seeing normalization and stabilization of key labor metrics, including quits, hires, and openings, as job trends stabilize from the pandemic year. Additionally, our customers continue to hire, albeit at a more modest level. Our business continues to be propelled by the fundamental long-term drivers we have spoken about in the past, including the increasing importance of risk management, compliance, and turnaround times for our customers.

David: We feel this narrowing of the gaps between verticals reflects an overall normalization of the business, which we welcome.

David: In terms of the macro environment, we are seeing normalization and stable issuer stabilization of key labor metrics, including quits hires and openings as job trends stabilize from the pandemic years.

Scott Staples: Additionally, our customers continue to hire, albeit at a more modest level. Our business continues to be propelled by the fundamental long term drivers we have spoken about in the past, including the increasing importance of risk management, compliance, and turnaround times for our customers. We have made investments in specific products and geographies to strengthen our business, including highly automating our technology. We are also an early mover in our approach to verticals and proactively picked what we felt were going to be high volume turnover verticals. As such, we are skewed more toward the hourly worker who is still in very strong demand and tends to change jobs more frequently.

Scott Staples: Additionally, our customers continue to hire, albeit at a more modest level. We have made investments in specific products and geographies to strengthen our business, including highly automating our technology by offering vertical subject matter expertise, compliance, speed, and accuracy so that our customers can hire and onboard their new employees quickly. We have previously demonstrated our strong operating discipline and ability to act quickly, to control costs, and to preserve margins, and we will continue to do so in the future. Furthermore, over 70% of our cost of sales is third-party costs. Those costs are 100% variable.

David: Additionally, our customers continue to higher, albeit at a more modest level.

David: Our business continues to be propelled by the fundamental long term drivers we have spoken about in the past, including the increasing importance of risk management compliance and turnaround times for our customers.

Scott Staples: We have made investments in specific products and geographies to strengthen our business, including highly automating our technology. We were also an early mover in our approach to verticals and proactively picked what we felt were going to be high-volume turnover verticals. As such, we are skewed more toward the hourly worker, who is still in very strong demand and tends to change jobs more frequently.

David: We have made investments in specific products and geographies to strengthen our business, including highly automating our technology.

David: We were also an early mover in our approach to verticals and proactively picked what we felt were going to be high volume turnover verticals as such we are skewed more towards the hourly worker, who is still in very strong demand and tends to change jobs more frequently.

Scott Staples: This strategy enables us to win in the marketplace and deliver value for our customers by offering vertical subject matter expertise, compliance, speed, and accuracy so that our customers can hire and onboard their new employees quickly. In this environment, we also continue to successfully control the controllables. We have previously demonstrated our strong operating discipline and ability to act quickly to control costs, to preserve margins, and we will continue to do so in the future. As a reminder, we have a highly flexible cost structure that allows us to adjust to changing conditions. Over 70% of our cost of sales are third party costs, and those costs are 100% variable.

Scott Staples: This strategy enables us to win in the marketplace and deliver value for our customers by offering vertical subject matter expertise, compliance, speed, and accuracy so that our customers can hire and onboard their new employees quickly. In this environment, we also continue to successfully control the controllables. We have previously demonstrated our strong operating discipline and ability to act quickly, to control costs, and to preserve margins, and we will continue to do so in the future. As a reminder, we have a highly flexible cost structure that allows us to adjust to changing conditions. Over 70% of our cost of sales is third-party costs, and those costs are 100% variable.

David: This strategy enables us to win in the marketplace and deliver value for our customers by offering vertical subject matter expertise compliance speed and accuracy, so that our customers can hire and onboard their new employees quickly.

David: In this environment. We also continue to successfully control the controllable.

David: We have previously demonstrated our strong operating discipline and ability to act quickly to control costs to preserve margins and we will continue to do so in the future.

David: As a reminder, we have a highly flexible cost structure that allows us to adjust to changing conditions.

David: Over 70% of our cost of sales, our third party costs and those costs are 100% variable.

Scott Staples: The remainder of our cost of sales consists of operations and customer care, which is variable in the way we manage scheduling and backfill open positions. Turning to slide six, let me now provide an update on the Sterling acquisition. We are making good progress toward closing. As we announced in late May, we received a second request from the DOJ.

Scott Staples: The remainder of our cost of sales consists of operations and customer care, which are variable in the way we manage scheduling and backfill open positions. We also have the ability to modulate our investments. We evaluate all of these considerations on an ongoing basis to ensure that we are operating efficiently to match the demand of the current environment. Turning to slide six, let me now provide an update on the Sterling acquisition. We are making good progress toward closing. As we announced in late May, we received a second request from the DOJ.

David: The remainder of our cost of sales consist of operations and customer care, which are variable in the way, we manage scheduling and backfill open positions.

David: We also have the ability to modulate our investments if needed.

David: We evaluate all of these considerations on an ongoing basis to ensure that we are operating efficiently to match the demand of the current environment.

Scott Staples: Turning to slide six, let me now provide an update on the Sterling acquisition. We are making good progress toward closing. As we announced in late May, we received the second request from the DOJ. We are currently working through that process and continue to anticipate closing after we receive HSR clearance, which we currently expect in the fourth quarter of this year. In the meantime, we are continuing to advance our pre-closing integration planning efforts. Our Integration Management Committee is leading dedicated teams from First Advantage and Sterling, who are working daily to create plans that allow us to deliver a seamless post-close integration and achieve our synergies.

Scott Staples: We are currently working through that process and continue to anticipate closing after we receive HSR clearance, which we currently expect in the fourth quarter of this year. In the meantime, we are continuing to advance our pre-closing integration planning efforts. We also expect to benefit from complementary geographic reach and the ability to expand. While both parties have a global presence, Sterling is larger in Latin America and Australia, while we have a deeper presence in India, Hong Kong, and Singapore.

Scott Staples: We are currently working through that process and continue to anticipate closing after we receive HSR clearance, which we currently expect in the fourth quarter of this year. In the meantime, we are continuing to advance our pre-closing integration planning efforts. Our Integration Management Committee is leading dedicated teams from First Advantage and Sterling who are working daily to create plans that will allow us to deliver a seamless post-close integration and achieve our synergy.

Speaker Change: Turning to slide six let me now provide an update on the Sterling acquisition.

David: We are making good progress toward closing.

David: As we announced in late May we received a second request from the Doj. We are currently working through that process and continue to and anticipate closing after we received HSR clearance, which we currently expect in the fourth quarter of this year.

David: In the meantime, we are continuing to advance our pre closing integration planning efforts. Our integration management Committee is leading dedicated teams from first advantage and Sterling who are working daily to create plans that will allow us to deliver a seamless post close integration and achieve our synergies.

Scott Staples: The Sterling business is highly complimentary and will extend our high quality and cost-effective background screening, identity, and verification technology solutions for the benefit of both companies' customers. From a vertical perspective, Sterling focuses primarily on verticals that are salary, white color workers, while First Advantage focuses primarily on verticals serving blue-collar hourly employees. We also expect to benefit from complimentary geographic reach and the ability to expand. While both parties have a global presence, Sterling is larger in Latin America and Australia, while we have a deeper presence in India, Hong Kong, and Singapore. In terms of cost synergies, we have expanded our target to a range of $50 million to $70 million, as we have progressed our integration planning work and have identified additional synergy opportunities.

Scott Staples: The Sterling business is highly complementary and will extend our high-quality and cost-effective background screening, identity, and verification technology solutions for the benefit of both companies' customers. From a vertical perspective, Sterling focuses primarily on verticals that are salaried white-collar workers, while First Advantage focuses primarily on verticals serving blue-collar hourly workers. We also expect to benefit from complementary geographic reach and the ability to expand. While both parties have a global presence, Sterling is larger in Latin America and Australia, while we have a deeper presence in India, Hong Kong, and Singapore.

David: The Sterling business is highly complementary and will extend our high quality and cost effective background screening identity and verification technology solutions for the benefit of both companies' customers.

David: From a vertical perspective Sterling focuses primarily on verticals that are salaried white collar workers. While first advantage focuses primarily on vertical serving blue collar hourly employees.

David: We also expect to benefit from complementary geographic reach and the ability to expand.

David: While both parties have a global presence Sterling is larger in Latin America, and Australia, while we have deeper presence in India, Hong Kong and Singapore.

Scott Staples: In terms of cost synergies, we have expanded our target to a range of $50 million to $70 million as we have progressed our integration planning work and have identified additional synergy opportunities. We are confident in our ability to achieve this goal within the first 18 to 24 months post-closure. We see opportunities from combining back office functions and resources, eliminating overlapping public company costs, and rationalizing insurance programs. We also see the potential to reduce our cost of serving customers and bring our existing automation capabilities to Sterling's business to increase efficiencies and productivity.

David: In terms of cost synergies, we have expanded our target to a range of 50 million to $70 million as we have progressed, our integration planning work and have identified additional synergy opportunities.

Scott Staples: We are confident in our ability to action this goal within the first 18 to 24 months post-closing. We see opportunities from combining back office functions and resources, eliminating overlapping public company costs, and rationalizing insurance programs. We also see the potential to reduce our costs of serving customers and bring our existing automation capabilities to Sterling's business to increase efficiencies and productivity. We are focused on a seamless transition for Sterling customers, while also allowing us to unlock valuable operational and third-party efficiencies. As we have been delving deeper into our pre-closing integration planning work, we are uncovering opportunities that we expect will further enhance our customer value proposition, unlock upsell and cross-sell opportunities, and reduce certain third-party pass-through fees.

David: We are confident in our ability to action. This goal within the first 18 to 24 months post closing.

Scott Staples: We see opportunities from combining back office functions and resources, eliminating overlapping public company costs, and rationalizing insurance programs. We also see the potential to reduce our cost of serving customers and bring our existing automation capabilities to Sterling's business to increase efficiencies and productivity. We are focused on a seamless transition for Sterling customers while also allowing us to unlock valuable operational and third-party synergies. Additionally, culture is an important focus area for us, and both companies have high-performing cultures and motivated employees.

David: We see opportunities from combining back office functions and resources, eliminating overlapping public company costs and rationalizing insurance programs.

David: We also see the potential to reduce our cost of serving customers and bring our existing automation capabilities to sterling's business to increase efficiencies and productivity.

Scott Staples: We are focused on a seamless transition for Sterling customers, while also allowing us to unlock valuable operational and third-party synergies. As we have been delving deeper into our pre-closing integration planning work, we are uncovering opportunities that we expect will further enhance our customer value proposition, unlock upsell and cross-sell opportunities, and reduce certain third-party pass-through. As an example, we can bring to Sterling's customers our full suite of Sterling has a recovery management service and a further developed digital identity product in the U.S. which we could potentially sell to our installers.

David: We are focused on a seamless transition for sterling customers, while also allowing us to unlock valuable operational and third party efficiencies.

David: As we have been delving deeper into our pre closing integration planning work. We are uncovering opportunities that we expect will further enhance our customer value proposition unlock upsell and cross sell opportunities and reduce certain third party pass through fees.

Scott Staples: As an example, we can bring to Sterling's customers our full suite of i9, tax, and transportation products. Sterling has a recovery management service, and a further developed digital identity product in the U.S., which we could potentially sell to our install days. We believe opportunities such as these would benefit customers by providing more options. to meet their evolving needs and improved solutions to help manage risk, higher smarter and onboard faster. Additionally, culture is an important focus area for us, and both companies have high-performing cultures and motivated employees. We are being very thoughtful in how we approach this post-close integration workstream and have brought in leading third-party experts to assist.

David: As an example, we can bring to sterling's customers, our full suite of I nine tax and transportation products.

David: Sterling has a recovery management service and a further develop digital identity product in the U S, which we could potentially sell to our installed base.

Scott Staples: We believe opportunities such as these would benefit customers by providing more options to meet their evolving needs and improve solutions to help manage risk, hire smarter, and onboard faster. Additionally, culture is an important focus area for us, and both companies have high-performing cultures and motivated employees. We are being very thoughtful in how we approach this post-close integration work stream and have brought in leading third-party experts to assist. I am really excited about our opportunities and what our combined teams will be able to accomplish.

David: We believe opportunities such as these would benefit customers by providing more options to meet their evolving needs and improved solutions to help manage risk higher smarter and onboard faster.

David: Additionally, culture is an important focus area for us and both companies have high performing culture and motivated employees.

Scott Staples: We are being very thoughtful in how we approach this post-close integration work stream and have brought in leading third-party experts to assist. As we look ahead, our priorities after closing the transaction will be focused on our customers. 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. Turning to slide 7 and an update on our AIS. We have been early adopters of integrating responsible generative AI into our business, and we are continuing to leverage AI to deliver value to our customers. As a reminder, Smart Hub is our AI-driven, intelligent router that sits on top of our large verified database, which as of the end of 2023, is made up of nearly 110 million education and work history records, up from 36 million in 2021.

David: We are being very thoughtful in how we approach. This post close integration work stream and have brought in leading third party experts to assist.

Scott Staples: I am really excited about our opportunities and what our combined teams will be able to accomplish. Upon closing the transaction, we will immediately almost double our revenues to nearly $1.5 billion on a pro-forma basis. We expect to generate double-digit adjusted EPS accretion on a run-rate basis and to continue compounding adjusted EPS at a team's growth rate over time through the combination of top-line growth, ongoing synergy capture, and significant de-leveraging enabled by our strong free cash flow generation. As we look ahead, our priorities after closing the transaction will be focused on our customers, successful integration, achieving synergies, and de-leveraging our balance sheet.

Speaker Change: I am.

David: Really excited about our opportunities and what our combined teams will be able to accomplish.

Scott Staples: Upon closing the transaction, we will immediately almost double our revenues to nearly $1.5 billion on a pro forma basis. We expect to generate double-digit adjusted EPS accretion on a run rate basis and to continue compounding adjusted EPS at a teens 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.

David: Upon closing the transaction, we will immediately almost double our revenues to nearly one $5 billion on a pro forma basis.

Speaker Change: We expect to generate double digit adjusted EPS accretion on a run rate basis and to continue compounding.

David: Adjusted EPS at a teens growth rate over time through the combination of topline growth on.

David: 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, achieving synergies, and deleveraging our balance. 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. Turning to slide 7, and an update on our AIS. We have been early adopters of integrating responsible generative AI into our business, and we are continuing to leverage AI to deliver value to our customers. One way we are doing this is through the expanded use of our proprietary smart hub technology and verified data.

David: As we look ahead, our priorities after closing the transaction will be focused on our customers successful integration achieving synergies and deleveraging our balance sheet.

Scott Staples: Overall, we expect that this strategic and accretive acquisition will benefit customers and investors, accelerate in advance our strategic priorities, and drive long-term value creation.

David: 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: Turning to slide 7 in an update on our AI efforts. We have been early adopters of integrating responsible, generative AI into our business, and we are continuing to leverage AI to deliver value to our customers. One way we are doing this is through the expanded use of our proprietary smart hub technology and verified database. As a reminder, Smart Hub is our AI-driven, intelligent router that sits on top of our large verified database, which as of the end of 2023 is made up of nearly 110 million education and work history records, up from 36 million in 2021.

David: Turning to slide seven and an update on our AI efforts.

David: We have been early adopters of integrating responsible generative AI into our business and we are continuing to leverage AI to deliver value to our customers.

David: One way we are doing this is through the expanded use of our proprietary smart hub technology and verified database as a reminder, smart hub is our AI driven intelligent router that sits on top of our large verified database, which as of the end of 'twenty 'twenty. Three is made up of nearly 110.

Scott Staples: As a reminder, Smart Hub is our AI-driven, intelligent router that sits on top of our large verified database, which as of the end of 2023 is made up of nearly 110 million education and work history records, up from 36 million in 2021. It enables us to quickly search across multiple data sources to determine the optimal verification source based on speed, data quality, and cost-effectiveness. By optimizing verification sources, we have been able to provide our customers with alternative options and decrease the third-party costs they incur. We are currently diverting up to 60% of verifications away from the most expensive third-party sources.

David: Million education, and work history records up from $36 million in 2020 one.

Scott Staples: Smart hub enables us to quickly search across multiple data sources to determine the optimal verification source based on speed, data quality, and cost effectiveness. By optimizing verification sources, we have been able to provide our customers with alternative options and decrease the third-party cost they incur. We are currently diverting up to 60% of verification away from the most expensive third-party sources. Our customers love Smart Hub because in many cases, it generates results quickly and helps them save money. Additionally, we are continuing to expand our Next Gen Profile Advantage platform in the U.S. where we are going to get out to new customers each week.

David: Smart hub enables us to quickly search across multiple data sources to determine the optimal verification source based on speed data quality and cost effectiveness.

Scott Staples: By optimizing verification sources, we have been able to provide our customers with alternative options and decrease the third-party costs they incur. We are currently diverting up to 60% of verifications away from the most expensive third-party sources.

David: By optimizing verification sources, we have been able to provide our customers with alternative options and decrease the third party costs they incur.

David: We are currently diverting up to 60% of Verifications away from the most expensive third party sources.

Scott Staples: Our customers love Smart Hub because, in many cases, it generates results quickly and helps them save money. Additionally, we are continuing to expand our next-gen Profile Advantage platform in the U.S., rolling it out to new customers each week. With its embedded AI and machine learning, Profile Advantage drives significant time savings for both applicants and customers and enables fast time to hire. Our technology also complies with web content accessibility guidelines, and our user experience is receiving very favorable reviews.

Scott Staples: Our customers love Smart Hub because, in many cases, it generates results quickly and helps them save money. Additionally, we are continuing to expand our next-gen Profile Advantage platform in the U.S., rolling it out to new customers each week. This API-first technology interface is used by applicants through either a computer, tablet, or mobile device. With its embedded AI and machine learning, Profile Advantage drives significant time savings for both applicants and customers and enables fast time to hire. Our technology also complies with Web Content Accessibility Guidelines, and our user experience is receiving very favorable reviews.

David: Our customers love Smart hub because in many cases it generates results quickly and helps them save money.

David: Additionally, we are continuing to expand our nextgen profile advantage platform in the U S. Rolling it out to new customers each week.

Scott Staples: This API first technology interface is used by applicants through either a computer, tablet, or mobile device. With its embedded AI and machine learning, Profile Advantage drives significant time savings for both applicants and customers and enables fast time to hire. Our technology also complies with Web Content Accessibility Guidelines and our user experience is receiving very favorable reviews.

David: This API first technology interface is used by applicants through either a computer tablet or mobile device.

David: With its embedded AI and machine learning profile advantage drives significant time savings for both applicants and customers. It enables fast time to hire.

David: Our technology also comply campise with web content accessibility guidelines and our user experience is receiving very favorable reviews.

Scott Staples: News. We are also continuing to see success in utilizing AI for customer and applicant support with our click, chat, call initiative. This has brought increased speed and accuracy to our customer care program, improving overall customer satisfaction. It is also allowed for continued headcount leverage in our call center after having achieved an initial headcount reduction of approximately 20%. Overall, we are continuing to make advancements in our use of AI and are rolling out multiple new AI pilots within the organization to improve our processes and support our employees as they conduct business.

Scott Staples: We are also continuing to see success in utilizing AI for customer and applicant support with our click, chat, call, and. This has brought increased speed and accuracy to our customer care program, improving overall customer satisfaction. It has also allowed for continued headcount leverage in our call center after having achieved an initial headcount reduction of approximately 20%. Overall, we are continuing to make advancements in our use of AI and are rolling out multiple new AI pilots within the organization to improve our processes and support our employees as they conduct business.

David: We are also continuing to see success in utilizing AI for customer in Applegate support with our click chat call initiative. This has brought increased speed and accuracy to our customer care program, improving overall customer satisfaction.

Scott Staples: This has brought increased speed and accuracy to our customer care program, improving overall customer satisfaction. It has also allowed for continued headcount leverage in our call center after having achieved an initial headcount reduction of approximately 20%. Overall, we are continuing to make advancements in our use of AI and are rolling out multiple new AI pilots within the organization to improve our processes and support our employees as they conduct business.

David: It has also allowed for continued head count leverage and our call center after having achieved an initial head count reduction of approximately 20%.

David: Overall, we are continuing to make advancements in our use of AI and are rolling out multiple new AI pilots within the organization to improve our processes and support our employees as they conduct business.

Scott Staples: Before I turn the call over, David, to David, as you saw in our press release this morning, we announced that David has decided to retire later this year. On behalf of the entire Board of Directors, I want to express our sincere gratitude for David's many contributions to First Advantage over the past eight-plus years. He has been a critical member of our team, and we have substantially grown the business, executed our IPO and M&A strategies, and most recently, announced our acquisition of Sterling. David has been an outstanding leader and an exceptional colleague, and we all wish him well in his retirement.

Scott Staples: Before I turn the call over to David, as you saw in our press release this morning, we announced that David has decided to retire later this year. On behalf of the entire Board of Directors, I want to express our sincere gratitude for David's many contributions to First Advantage over the past eight-plus years. He has been a critical member of our team, and we have substantially grown the business, executed our IPO and M&A strategies, and most recently announced our acquisition of Sterling.

David: Before I turn the call over David David as you saw in our press release. This morning, we announced that David has decided to retire later this year.

Scott Staples: David has been an outstanding leader and an exceptional colleague, and we all wish him well in his retirement. Part of David's legacy is having created a high-performance finance team inside our organization. Accordingly, we're fortunate to announce that David will be succeeded by our Chief Accounting Officer, Stephen Marks. Stephen has been with First Advantage for over eight years. He has tremendous experience, he knows the company well, and he has worked closely with David during that time.

Speaker Change: On behalf of the entire board of directors I want to express our sincere gratitude for David many contributions to first advantage over the past eight plus years.

David David: He has been a critical member of our team and we have substantially grown the business executed our IPO and M&A strategies, and most recently announced our acquisition of Sterling.

Speaker Change: <unk> has been an outstanding leader and an exceptional colleague and we all wish him well in his retirement.

Scott Staples: Part of David's legacy is having created a high performing finance team inside our organization. Accordingly, we're fortunate to announce that David will be succeeded by our Chief Accounting Officer, Steven Marx. Steven has been with First Advantage for over eight years. He has tremendous experience; he knows the company well, and he has worked closely with David during that period. David and Steven will continue to work together to ensure a smooth transition through the beginning of December. But it's not time for us to say goodbye to David just yet. David will continue to lead our finance function for the next several months, and of course, he is here today to discuss our performance in the quarter.

Scott Staples: Part of David's legacy is having created a high-performance finance team inside our organization. But it's not time for us to say goodbye to David just yet. David will continue to lead our finance function for the next several months. And, of course, he is here today to discuss our performance in the quarter. And with that, I will now turn the call over to David.

Speaker Change: Part of Davids legacy is having created a high performing finance team inside our organization.

Speaker Change: Accordingly, we're fortunate to announce that David will be succeeded by our Chief Accounting Officer Steven marks.

Speaker Change: Stephen has been with first advantage for over eight years. He has tremendous experience. He knows the company well and he has worked closely with David during that period, David and Steven will continue to work together to ensure a smooth transition through the beginning of December.

Speaker Change: But it's not time for us to say goodbye to David just yet David.

Speaker Change: David will continue to lead our finance function for the next several months and of course. He is here today to discuss our performance in the quarter and with that I will now turn the call over to David.

Scott Staples: David and Stephen will continue to work together to ensure a smooth transition through the beginning of December. But it's not time for us to say goodbye to David just yet. David will continue to lead our finance function for the next several months. And, of course, he is here today to discuss our performance in the quarter. And with that, I will now turn the call over to David.

David Dansey: And with that, I will now turn the call over to David.

David Dansey: Thank you, Scott, and good morning, everyone.

David Papadogonas: Thank you, Scott. And good morning, everyone.

David Gamsey: Thank you, Scott. And good morning, everyone.

David: Thank you Scott and good.

David David: Everyone as Scott discussed after a 45 year career in accounting and finance and given the timing of the pending Sterling acquisition I've decided to retire later this year. It has been a privilege to have had the opportunity to work with our outstanding Board of directors the excellent professionals had.

David Dansey: As Scott discussed, after a 45-year career in accounting and finance, and given the timing of the pending Sterling acquisition, I have decided to retire later this year. It has been a privilege to have had the opportunity to work with their outstanding board of directors, the excellent professionals at Silver Lake, and to have been a part of the First Advantage team. Scott has developed a great culture and a tremendous team, and together we have built an outstanding company. I am very proud of what we have accomplished, but there is still a lot of exciting work yet to be done.

David Papadogonas: As Scott discussed, after a 45-year career in accounting and finance, and given the timing of the pending Sterling acquisition, I have decided to retire later this year. It has been a privilege to have had the opportunity to work with their outstanding board of directors, the excellent professionals at Silverlake, and to have been a part of the First Advantage team. Scott has developed a great culture and a tremendous team, and together, we have built an outstanding company. I am very proud of what we have accomplished, but there is still a lot of exciting work yet to be done. He has always demonstrated strong leadership skills and excellent business judgment.

David Gamsey: As Scott discussed, after a 45-year career in accounting and finance, and given the timing of the pending sterling acquisition, I have decided to retire later this year. It has been a privilege to have had the opportunity to work with our outstanding board of directors, the excellent professionals at Silverlake, and to have been a part of the First Advantage team. Scott has developed a great culture and a tremendous team, and together, we have built an outstanding company.

Speaker Change: Silverlake until I've been a part of the first advantage team.

Speaker Change: <unk> has developed a great culture, and a tremendous team and together we have built an outstanding company I am very proud of what we've accomplished but there's still a lot of exciting work yet to be done.

David Gamsey: I am very proud of what we have accomplished, but there is still a lot of exciting work yet to be done. I hired Steven in 2016, and he and I have worked together very closely over the past 8 years. He has always demonstrated strong leadership skills and excellent business judgment. Stephen has been an essential partner in executing our strategy and building the exceptional finance team we have today. I have no doubt that he will do an excellent job as Chief Financial Officer of First Advantage and the combined companies moving forward. Now, back to business.

David Dansey: I hired Steven in 2016, and he and I have worked together very closely over the past eight years. He has always demonstrated strong leadership skills and excellent business judgment. Steven has been an essential partner in executing air strategy and building the exceptional finance team we have today. I have no doubt that he will do an excellent job as Chief Financial Officer of First Advantage and the combined companies moving forward.

Speaker Change: I hired Stephen in 2016, and he and I have worked together very closely over the past eight years. He has always demonstrated strong leadership skills and excellent business judgment Steve.

Steve: Steve has been an essential partner in executing our strategy and building the exceptional finance team we have today.

Speaker Change: No doubt that he will do an excellent job as chief financial officer of first advantage.

Speaker Change: And the combined companies moving forward.

David Dansey: Now, back to business, turning to our second quarter results on slide 9. In line with our previously communicated expectations, our results for the second quarter improve sequentially over our first quarter results. Our second quarter revenues were $184.5 million, flat compared to the prior year, and $15.1 million greater than in Q1. Currency had nearly no impact on results. For the quarter, Infinite ID contributed approximately $3.3 million. In our America segment, revenues of $162.4 million, or 87% of consolidated revenues, were flat to the prior year. Similarly, our international segment revenues were also flat compared to the prior year at $24.2 million, or 13% of consolidated revenues.

Speaker Change: Now back to business turning to our second quarter results on slide nine.

David Papadogonas: Turning to our second quarter results, on slide 9, currency had nearly no impact on results. For the quarter, Infinite ID contributed approximately $3.3 million. Similarly, our international segment revenues were also flat compared to the prior year, at $24.2 million, or 13% of consolidated revenues. For the total company, Adjusted EBITDA was $55.8 million, also flat compared to the prior year. Our Adjusted EBITDA margin was 30.2%, a 270 basis point improvement over Q1. Our adjusted effective tax rate was 24.6%.

David Gamsey: Turning to our second quarter results on slide 9, in line with our previously communicated expectations, our results for the second quarter improved sequentially over our first quarter results. Our second quarter revenues were $184.5 million, flat compared to the prior year and $15.1 million greater than in Q1. Currency had nearly no impact on results.

Speaker Change: In line with our previously communicated expectations our results for the second quarter improved sequentially over our first quarter results. Our second quarter revenues were $184 $5 million flat compared to the prior year and 15.1 million.

Speaker Change: Greater than in Q1 Curran.

Speaker Change: Currency had nearly no impact on our results for the quarter infinite contributed approximately $3 $3 million.

David Gamsey: For the quarter, Infinite ID contributed approximately $3.3 million. In the Americas segment, revenues of $162.4 million, or 87% of consolidated revenues, were flat to the prior year. Similarly, our international segment revenues were also flat compared to the prior year, at $24.2 million, or 13% of consolidated revenues. We believe that our international operations have now stabilized, with India and APAC producing consistent sequential base revenue volume.

Speaker Change: In our Americas segment revenues of $162.4 million or 87% of consolidated revenues were flat to the prior year. Similarly, our international segment revenues were also flat compared to the prior year at $24 10.

Speaker Change: Dollars or 13% of consolidated revenues.

David Dansey: We believe that our international operations have now stabilized, with India and APAC producing consistent sequential-based revenue volumes. For the total company, adjusted EBITDA was $55.8 million, also flat compared to the prior year. Our adjusted EBITDA margin was 30.2%, a 270 basis point improvement over Q1. Our adjusted effective tax rate was 24.6%. Adjusted net income was $30.8 million for the quarter. Adjusted diluted earnings per share was 21 cents. This includes an approximately 2 cent negative impact from a 2023 one-time special dividend, sharing purchases and expired interest rate swaps. When taking these into account, adjusted diluted earnings per share would have also been nearly flat on a year-over-year basis.

Speaker Change: We believe that our international operations have now stabilized with India in APAC, producing consistent sequential base revenue volumes.

David Gamsey: For the total company, Adjusted EBITDA was $55.8 million, also flat compared to the prior year. Our Adjusted EBITDA margin was 30.2%, a 270 basis point improvement over Q1. Our adjusted effective tax rate was 24.6%.

Speaker Change: For the total company adjusted EBITDA was $55 $8 million also flat compared to the prior year. Our adjusted EBITDA margin was 32% a 270 basis point improvement over Q1.

Speaker Change: Our adjusted effective tax rate was 24, 6%.

David Gamsey: Adjusted net income was $30.8 million for the quarter, and adjusted diluted earnings per share was $0.21. This includes an approximately $0.02 negative impact from our 2023 one-time special dividend, share repurchases, and expired interest rate swap. When taking these into account, adjusted diluted earnings per share would also have been nearly flat on a year-over-year basis. On slide 10, 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. Base was still negative in Q2, but it did improve by 400 basis points from Q1.

David Papadogonas: Adjusted net income was $30.8 million for the quarter, and adjusted diluted earnings per share was $0.21. This includes an approximately $0.02 negative impact from our 2023 one-time special dividend, share repurchases, and expired interest rate swap. When taking these into account, adjusted diluted earnings per share would also have been nearly flat on a year-over-year basis. On slide 10, 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.

Speaker Change: Adjusted net income was $38 million for the quarter adjusted diluted earnings per share was 21 cents. This includes an approximately two cents negative impact from our 2023, one time special dividend share repurchases and expired interest rate swaps when taking the esim.

Speaker Change: Your account adjusted diluted earnings per share would have also been nearly flat on a year over year basis.

David Dansey: On slide 10, you can see that our historical performance for upsell cross-sell, new customer logos, and attrition has been largely consistent with their growth algorithm and demonstrates that we are managing and delivering on what we can control, with the variation being driven by the base. Base was still negative in Q2, but it did improve by 400 basis points from Q1. Revenues from upsell and cross sell partially offset are based decline for the quarter and contributed $8.6 million, or 4.7%, to our performance in Q2. New customer logos contributed an additional $7.8 million, or 4.2%, in Q2.

Speaker Change: On Slide 10, 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 demonstrates that we are managing and delivering on what we can control with the variation being.

Speaker Change: Driven by the base base was still negative in Q2, but it did improve by 400 basis points from Q1.

David Papadogonas: Base was still negative in Q2, but it did improve by 400 basis points from Q1. In the second quarter, we generated strong operating cash flows of $40.7 million after adjusting for the $8.7 million of cash costs paid directly related to the Sterling acquisition. During the quarter, we used $7.4 million for purchases of property and equipment and capitalized software development costs.

David Gamsey: Revenues from upsell and cross-sell partially offset our base decline for the quarter and contributed $8.6 million or 4.7% to our performance in Q2. New customer logos contributed an additional $7.8 million or 4.2% in Q2. Base revenue declined by $13 million or 7% in Q2, and attrition was 4%.

Speaker Change: Revenues from upsell and cross sell partially offset our base decline for the quarter and contributed $8 $6 million or four 7% to our performance in Q2.

Speaker Change: New customer logos contributed an additional $7.8 million or four 2% in Q2.

David Dansey: Base declined by $13 million, or 7% in Q2, and Nutrition was 4%.

Speaker Change: <unk> declined by $13 million or 7% in Q2 and attrition was 4%.

David Dansey: Turning now to our balance sheet and capital allocation summary on slide 11. In the second quarter, we generated strong operating cash flows of $40.7 million, after adjusting for the $8.7 million of cash cost paid directly related to the Sterling acquisition. During the quarter, we use $7.4 million for purchases of property and equipment and capitalized software development costs. As we mentioned previously, given the pending Sterling acquisition, we have suspended share repurchases as we continue to build cash. In addition to our existing $565 million of first-advantaged debt, we anticipate raising approximately $1.6 billion of new term debt to fund the Sterling acquisition.

David Gamsey: Turning now to our balance sheet and capital allocation summary on slide 11. In the second quarter, we generated strong operating cash flows of $40.7 million after adjusting for the $8.7 million of cash costs paid directly related to the Sterling acquisition. During the quarter, we used $7.4 million for purchases of property and equipment and capitalized software development costs. As we mentioned previously, given the pending Sterling acquisition, we have suspended share repurchases as we continue to build cash.

Speaker Change: Turning now to our balance sheet and capital allocation summary on slide 11.

Speaker Change: In the second quarter, we generated strong operating cash flows of $47 million after adjusting for the $8 $7 million of cash cost paid directly related to the Sterling acquisition.

Speaker Change: During the quarter, we used $7 $4 million for purchases of property and equipment and capitalized software development costs. As we mentioned previously given the pending Sterling acquisition, we have suspended share repurchases as we continue to build cash.

David Papadogonas: As we mentioned previously, given the pending Sterling acquisition, we have suspended share repurchases as we continue to build cash. 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. Additionally... 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 Gamsey: 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 our balance sheet cash expected at close. Additionally, we expect our net debt to adjusted EBITDA leverage at close to be within the range of 4.2 to 4.4 times. However, there are still a number of variables that could impact this, including timing, cash generation, synergy estimates, and any incremental actions taken before close to further improve margins.

Speaker Change: 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.

Todd: Good day everyone. My name is Todd and I will be your conference operator today. I would like to welcome you to the First Advantage Second Quarter 2024 earnings conference call and webcast hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations.

David Dansey: This results in approximately $2.15 billion of gross debt or approximately $2 billion of net debt when considering our balance sheet cash expected at close. Additionally, we expect our net debt to adjusted EBITL leverage at close to be within the range of 4.2 to 4.4 times. However, there are still a number of variables that could impact this, including timing, cash generation, synergy estimates, and any incremental actions taken before close to further improve margins. Additionally, 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.

Speaker Change: This results in approximately $2.15 billion of gross debt or approximately $2 billion of net debt when considering our balance sheet cash expected at close. Additionally.

Speaker Change: Additionally, we expect our net debt to adjusted EBITDA leverage at close to be within the range of 4.2 to 4.4 times. However, there are still a number of variables that could impact this including timing cash generation synergy estimates and any incremental.

Todd: At this time all participants have been placed in a listen only mode to prevent any background noise. After the speakers remarks there will be a question and answer session. If you would like to ask a question during this time please press star one on your telephone keypad. If at any point your question has been answered you may remove yourself from the queue by pressing star two. Lastly if you should require operator assistance please press star zero.

Speaker Change: Mental actions taken before close to further improve margins. Additionally.

David Gamsey: Additionally... 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 remain committed to our long-term net leverage target of two to three times and have a proven track record of bandaging leverage. Over the four years since Silver Lake invested in us, we deleveraged from six times as a private company to less than two times prior to the announced Sterling acquisition.

Speaker Change: Additionally.

Speaker Change: As part of our financing agreement, we will upsize, our revolver from $100 million to $250 million and extend the maturity date two five years. After the closing date of the transaction, which will provide additional liquidity for our business.

Todd: Please note today's event is being recorded.

Stephanie Gorman: It is now my pleasure to turn the call over to Stephanie Gorman. You may begin. Thank you Todd.

Stephanie Gorman: Good morning everyone and welcome to First Advantage's second quarter. In the Investor section of our website you will find the earnings press release and slide presentation to accompany today's discussion. This webcast is being recorded and will be available for replay on our Investor Relations website.

David Dansey: We remain committed to our long-term net leverage target of two to three times and have a proven track record of managing leverage. Over the four years since Silver Lake invested in us, we delivered from six times as a private company to less than two times prior to the announced Sterling acquisition. This is after repurchasing approximately 120 million dollars in shares, paying a $218 million one-time special dividend, and completing our acquisitions. Our goal within 24 months of closing is to reduce net leverage toward approximately three times run rate adjusted EBITL. Our path to D-level will be driven by high-margin top-line growth of the combined businesses, productivity efficiencies, cost synergies, and continued strong cash flow generation.

David Papadogonas: We remain committed to our long-term net leverage target of two to three times and have a proven track record of bandaging leverage. Our path to D leverage will be driven by high-margin top-line growth of the combined businesses, productivity efficiencies, cost synergies, and continued strong cash flow generation. Interest rate cuts would help us accomplish this goal even sooner.

Speaker Change: We remain committed to our long term net leverage target of two to three times and have a proven track record of managing leverage.

Speaker Change: Over the four years since silverlake invested in US we de Levered from six times as a private company to less than two times prior to the announced Sterling acquisition. This is after repurchasing approximately $120 million in shares paying a $218 million.

Stephanie Gorman: Before we begin our prepared remarks I would like to remind everyone that our discussion today will be for looking statement. Such for looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the for looking statement. This statement is due to a variety of factors. These factors are discussed in more detail in our filings with the FEC including our 2023 form 10K and our form 10Q for the second 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 for looking state.

David Gamsey: This is after repurchasing approximately $120 million in shares, paying a $218 million one-time special dividend, and completing our acquisition. Our goal within 24 months of closing is to reduce net leverage to approximately three times run rate adjusted EBITDA. Our path to the D lever will be driven by high-margin top-line growth of the combined businesses, productivity efficiencies, cost synergies, and continued strong cash flow generation. Interest rate cuts would help us accomplish this goal even sooner. Now moving to slide 12.

Speaker Change: One time special dividend and completing our acquisitions.

Speaker Change: Our goal within 24 months of closing is to reduce net leverage toward approximately three times run rate adjusted EBITDA.

Speaker Change: Our path to de lever will be driven by high margin top line growth of the combined businesses productivity productivity efficiencies cost synergies and continued strong cash flow generation.

Stephanie Gorman: Throughout this conference call we will also present and discuss non-gap financial measures. Reconciliation of our non-gap financial measures to the most directly comparable gap financial measures to the extent available without unreasonable efforts appear in today's earnings press release and presentation which are available on our Investor Relations website.

David Dansey: Interest rate cuts would help us accomplish this goal even sooner.

Speaker Change: Interest rate cuts would help us accomplish this goal even sooner.

David Dansey: Now moving to slide 12. Today, we are reaffirming our 2024 annual guidance. Our second quarter actual results positioned us well to achieve the midpoint of our full-year guidance. We still expect sequential quarter-over-quarter growth for revenues, adjusted EBITL, and adjusted EBITL 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. 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.

Speaker Change: Now moving to slide 12.

David Papadogonas: Today, we are reaffirming our 2024 Annual Guidance. Our second quarter actual results position us well to achieve the midpoint of our full year guidance. We still expect sequential quarter over quarter growth for revenues, adjusted EBITDA, and adjusted EBITDA margins similar to 2023. Based on the midpoint of $775 million, this results in slightly positive year-over-year organic revenue growth. We expect to maintain adjusted EBITDA margins approaching 31% at the midpoint and adjusted EBITDA in the range of $228 to $248 million.

David Gamsey: Today, we are reaffirming our 2024 Annual Guidance. Our second quarter actual results position us well to achieve the midpoint of our full year guidance. 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. 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.

Speaker Change: Today, we are reaffirming our 2024 annual guidance, our second quarter actual results position us well to achieve the midpoint of our full year guidance, we still expect sequential quarter over quarter growth for revenues adjusted EBITDA and adjusted EBITDA margins.

Stephanie Gorman: I am joined on our call today by Scott Staples, our Chief Executive Officer and David Dansey, our Chief Financial Officer. After our prepared remarks we will take your question.

Scott Staples: I will now hand the call over to Scott. Thank you Stephanie and good morning everyone. Thank you for joining our call.

Speaker Change: Similar to 2023.

Scott Staples: We are proud to announce another quarter of solid results while continuing to progress toward the closing of the Sterling acquisition. Our team is executing well in a dynamic environment by leveraging our capabilities and innovations to deliver continued value for our customers and our shareholders. This morning I will provide an overview of our second quarter results along with updates on the Sterling acquisition and our strategic initiatives.

Speaker Change: For 2024, we expect to generate full year revenues in the range of $750 million to $800 million.

Speaker Change: Based on the midpoint of $775 million. This resulted in slightly positive year over year organic revenue growth.

Speaker Change: 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.

Scott Staples: David will then provide a deeper dive on our results and additional color on our expectations for the remainder of the year. Turning to slide five. In the second quarter we delivered revenues of $185 million adjusted EBITDA of $56 million and adjusted EBITDA margin of 30.2%. All of which were in line with what we communicated on our last earnings call and nearly flat on a year-over-year basis. This gives us additional confidence in achieving our full year 2024 guidance which we are reaffirming today.

David Dansey: We expect customer retention, along with the continued execution of upsell, cross-sell, and new logo growth, to be consistent with historical trends and long-term targets. We expect to maintain adjusted EBITDA margins approaching 31% at the midpoint and adjusted EBITDA in the range of 228 to 248 million dollars. This reflects the strength of their flexible model, discipline, 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 capabilities of approximately $7 million.

David Gamsey: We expect customer retention, along with the continued execution of upsell-cross-sell and new logo growth, to be consistent with historical trends and long-term targets. We expect to maintain adjusted EBITDA margins approaching 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 capabilities of approximately $7 million.

Speaker Change: We expect customer retention along with the continued execution of upsell cross sell and new logo growth to be consistent with historical trends and long term targets we.

Speaker Change: We expect to maintain adjusted EBITDA margins approaching 31% estimate point and adjusted EBITA in the range of $228 million to $248 million.

Speaker Change: This reflects the strength of our flexible model disciplined cost management and investments in automation.

Speaker Change: As a reminder, our adjusted EBITDA guidance includes increases in annual employee wages normalization advantaged been incentive plans and increases in benefit costs totaling approximately $10 million. It also includes new investments and product technology and sales capabilities.

Scott Staples: Our upsell, cross sell, new logos and attrition rates continued to perform in line with our historical revenue growth algorithm. Our base growth remained negative but improved from Q1. We also had two very large upsell bookings worth a combined $13.5 million in the second quarter. In total, we had 15 bookings in the second quarter and 47 in the last 12 months, each with $500,000 or more of expected annual contract value. We are pleased that our sales engine continues to deliver consistent results.

Speaker Change: Of approximately $7 million.

David Dansey: Looking at the quarterly phasing, we expect sequential top line improvement as we move through the remainder of 2024. We expect third quarter revenues to reflect modest positive growth, with that trend continuing sequentially into Q4. The midpoint of our guidance range also assumes continued macro-driven based declines that will improve sequentially through the year and getting to essentially flat plus or minus in Q4. We continue to expect quarterly EBITDA adjusted EBITDA margins of at least 30% in the second half of the year, with upside potential.

David Gamsey: Looking at the quarterly phasing, we expect sequential top-line improvement as we move through the remainder of 2024. We expect third-quarter revenues to reflect modest positive growth, with that trend continuing sequentially into Q4. The midpoint of our guidance range also assumes continued macro-driven base declines, though improving sequentially through the year and getting to essentially flat plus or minus in Q4. We continue to expect quarterly adjusted EBITDA margins of at least 30% in the second half of the year with upside potential.

David Papadogonas: Looking at the quarterly phasing, we expect sequential top-line improvement as we move through the remainder of 2024. We expect third-quarter revenues to reflect modest positive growth, with that trend continuing sequentially into Q4. The midpoint of our guidance range also assumes continued macro-driven base declines, though improving sequentially through the year and getting to essentially flat plus or minus in Q4. We continue to expect quarterly adjusted EBITDA margins of at least 30% in the second half of the year with upside potential.

Speaker Change: Looking at the quarterly phasing, we expect sequential top line improvement as we move through the remainder of 2024, we expect third quarter revenues to reflect a modest positive growth with that trend continuing sequentially into Q4.

Speaker Change: The midpoint of our guidance range also assumes continued macro driven base declines, though improving sequentially through the year and getting to essentially flat plus or minus in Q4.

Scott Staples: Second quarter results reflect a macro economic picture of normalization and stabilization within our business. From a vertical perspective, volatility has decreased with no single verticals revenue volumes up or down beyond single digits. We feel this narrowing of the gaps between verticals reflects an overall normalization of the business which we welcome. In terms of the macro environment, we are seeing normalization and stabilization of key labor metrics including quits, hires and openings as job trends stabilized from the pandemic years.

Speaker Change: We continue to expect quarterly EBIT adjusted.

Speaker Change: Adjusted EBITDA margins of at least 30% in the second half of the year with upside potential.

David Dansey: Before I hand the call back to Scott, I would like to close by saying that it has been an honor to serve as the Chief Financial Officer of First Advantage, and I would like to thank everyone for their support and confidence over the past eight years. In the coming months, Stephen and I will collaborate even more closely to ensure a smooth transition and to continue to deliver the future results that we articulated today.

David Papadogonas: Before I hand the call back to Scott, I would like to close by saying that it has been an honor to serve as the Chief Financial Officer of First Advantage, and I would like to thank everyone for their support and confidence over the past eight years.

David Gamsey: Before I hand the call back to Scott, I would like to close by saying that it has been an honor to serve as the Chief Financial Officer of First Advantage, and I would like to thank everyone for their support and confidence over the past eight years. In the coming months, Stephen and I will collaborate even more closely to ensure a smooth transition and to continue to deliver the future results that we have articulated today. With that, let me turn it back to Scott for closing remarks before we open the line for questions.

Speaker Change: Before I hand, the call back to Scott I would like to close by saying that it's been an honor to serve as the Chief Financial Officer first advantage and I would like to thank everyone for their support and confidence over the past eight years.

Scott: In the coming months, Steven and I will collaborate even more closely to ensure a smooth transition and to continue to deliver the future results that we articulated today.

Scott Staples: Additionally, our customers continue to hire albeit at a more modest level. Our business continues to be propelled by the fundamental long term drivers we have spoken about in the past including the increasing importance of risk management compliance and turnaround times for our customers. We have made investments in specific products and geographies to strengthen our business including highly automating our technology. We are also an early mover in our approach to verticals and proactively picked what we felt were going to be high volume turnover verticals.

Scott Staples: With that, let me turn it back to Scott for closing remarks before we open the line for questions.

Speaker Change: With that let me turn it back to Scott for closing remarks before we open the line for questions.

Scott Staples: Thank you, David. We are delivering solid results and continuing to execute on our strategic initiatives. Most notably, we are progressing toward closing on the Sterling acquisition, expected in the fourth quarter, while also leading with innovation and driving productivity through our AI solutions. We remain focused on delivering on our value creation playbook and shaping the future of First Advantage to better serve our customers.

Scott: Thank you David.

Scott Staples: We are delivering solid results and continuing to execute on our strategic initiatives. Most notably, we are progressing toward closing on the Sterling acquisition expected in the fourth quarter, while also leading with innovation and driving productivity through our AI solutions. We remain focused on delivering on our value creation playbook and shaping the future of First Advantage to better serve our customers. With that, we will open the line for questions.

Scott: We are delivering solid results and continuing to execute on our strategic initiatives. Most notably we are progressing toward closing on the Sterling acquisition expected in the fourth quarter, while also leading with innovation and driving productivity through our AI solutions, we remain focused on delivering on our value creation play.

Speaker Change: Book and shaping the future of first advantage to better serve our customers.

Scott Staples: As such, we are skewed more toward the hourly worker who is still in very strong demand and tends to change jobs more frequently. This strategy enables us to win in the marketplace and deliver value for our customers by offering vertical subject matter expertise, compliance, speed and accuracy so that our customers can hire and onboard their new employees quickly. In this environment, we also continue to successfully control the controllables. We have previously demonstrated our strong operating discipline and ability to act quickly to control costs, to preserve margins and we will continue to do so in the future.

Todd: With that, we will open the line for questions. Thank you.

Operator: With that, we will open the line for questions.

Speaker Change: With that we will open the line for questions.

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. Our first question will come from Shlomo Rosenbaum on Stiefel. Your line is open. Please go ahead. Hi,

Speaker Change: Thank you we will now begin the question and answer session. At this time. If you have a question. Please press star one on your telephone keypad. If at any point. Your question has been answered you may remove yourself from the queue by pressing star two.

Todd: If you were using a speaker phone, we request that you pick up your handset while asking your question to provide optimal sound quality. Thank you.

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.

Speaker Change: Thank you.

Shlomo Rosenbaum: Our first question will come from Shlomo Rosenbaum with a beautiful. Your line is open. Please go ahead.

Speaker Change: Our first question will come from Shlomo Rosenbaum with Stifel. Your line is open. Please go ahead.

Shlomo Rosenbaum: Hi, thank you very much.

Shlomo Rosenbaum: Hi, thank you very much. I wanted to just ask you a little bit about the macro environment and what you're hearing from your customers in terms of hiring plans. It's just the commentary you had, Scott, about some stabilization in the context of what seems to be a little bit higher unemployment and a little bit lower, you know, higher levels of maybe lower levels of quits that we're seeing, at least in the JOLTS data. So I just wanted to ask you what you're hearing from your clients really on the ground, and then I'll have a follow-up.

Andrew Steinerman: Hi, thank you very much. I wanted to just ask you a little bit about the macro environment and what you're hearing from your customers in terms of hiring plans. It's just the commentary you had, Scott, about some stabilization in the context of what seems to be a little bit higher unemployment and a little bit lower, you know, higher levels of, maybe, say, lower levels of quits. So, we're seeing, at least in the JOLTS data. So, I just wanted to ask you what you're hearing from your clients really on the ground, and then I'll have a follow-up.

Shlomo Rosenbaum: Hi, Thank you very much.

Scott Staples: As a reminder, we have a highly flexible cost structure that allows us to adjust to changing conditions. Over 70% of our cost of sales are third party costs and those costs are 100% variable. The remainder of our cost of sales consists of operations and customer care, which are variable in the way we manage scheduling and backfill open positions. We also have the ability to modulate our investments if needed. We evaluate all of these considerations on an ongoing basis to ensure that we are operating efficiently to match the demand of the current environment.

Shlomo Rosenbaum: I wanted to just ask you a little bit about the macro environment to what you're hearing from the customers in terms of hiring plans. It's just the commentary you had got about some stabilization in the context of, it's used to be a little bit higher unemployment and a little bit lower, you know, higher levels of, maybe say at lower levels of quick. So we're seeing, at least in the Jolt's data. So I just want to ask you what you hear from your clients really on the ground, and then I'll have a follow-up. Yeah, obviously the macro is something, you know, we're focusing on, you know, and trying to see, you know, where things would be going on this.

Shlomo Rosenbaum: Just ask you a little bit about the macro environment to what you're hearing from your customers in terms of hiring plans.

Speaker Change: The commentary you heard Scott about some stabilization.

Speaker Change: In the context of what seems to be a little bit higher unemployment and a little bit lower you know see a higher levels of.

Scott: Maybe stay at lower levels of quit so we're seeing at least in the jolts data side.

Speaker Change: Just wanted to ask you what youre hearing from your clients really on the ground and then I'll have a follow up.

Speaker Change: Yeah.

Scott Staples: Obviously, the macro is something, you know, we're focusing on, you know, and trying to see where things would be going on this. But Shlomo, I think what we're hearing from customers is really unchanged for the last couple of quarters. We are still hearing that there's a strong demand for their products and services, but they are really not hiring ahead of the curve. It's more of just-in-time hiring and doing backfilling. So I think what we're hearing from them is cautious optimism and you know that's that's fine with us you know it's we really like you know that fact that we're seeing a little bit of normalization and stabilization in the space you know we're not getting those you know kind of like wild swings in base that we got during the pandemic years so this is actually you know a little easier for us to manage our business, You know, because again, I think one other thing to remember is, you know, we really focus primarily on enterprise customers and enterprise customers, you know, you know, are fairly resilient, especially in the verticals that we've got.

Speaker Change: Obviously, the macro is something we're focusing on.

Speaker Change: And in trying to trying.

Scott Staples: Turning to slide six, let me now provide an update on the sterling acquisition. We are making good progress toward closing. As we announced in late May, we received the second request from the DOJ. We are currently working through that process and continue to anticipate closing after we receive HSR clearance, which we currently expect in the fourth quarter of this year. In the meantime, we are continuing to advance our pre-closing integration planning efforts.

Speaker Change: Trying to trying to see.

Shlomo: You know where things would be going on this but shlomo.

Scott Staples: But Shlomo, I think you know, what we're hearing from customers is really unchanged for the last couple of quarters. We are still hearing that there's a strong demand for their products and services, but they are really not hiring ahead of the curve. It's more of just-in-time hiring and doing backfilling. So I think what we're hearing from them is cautious optimism, and, you know, that's fine with us. You know, we really like, you know, that fact that we're seeing a little bit of normalization and stabilization in the space. You know, we're not getting those, you know, kind of like wild swings in base that we got during the pandemic years.

Speaker Change: I think what we're hearing from customers is really unchanged.

Speaker Change: For the last couple of quarters.

Speaker Change: We are we are we are still hearing that there's a strong demand for their products and services, but they are really not hiring ahead of the curve. It's more of just in time hiring.

Speaker Change: Doing back filling.

Scott Staples: Our Integration Management Committee is leading dedicated teams from First Advantage and Sterling, who are working daily to create plans that allow us to deliver a seamless, post-close integration and achieve our synergies. The Sterling business is highly complimentary and will extend our high quality and cost-effective background screening, identity, and verification technology solutions for the benefit of both companies' customers. From a vertical perspective, Sterling focuses primarily on verticals that are salary, white color workers, while first advantage focuses primarily on vertical serving blue-collar hourly employees.

Speaker Change: So I think what we're hearing from them is cautious optimism.

Speaker Change: And you know that's that's fine with us.

Speaker Change: We really like the fact that we're seeing a little bit of normalization and stabilization in this space. You know, we're not getting those you know kind of like wild swings in base that we got during the pandemic years. So this is actually a little easier for us to manage our business.

Scott Staples: So this is actually, you know, a little easier for us to manage our business.

Scott Staples: You know, because again, I think one other thing to remember is, you know, we really focus primarily on enterprise customers, and enterprise customers, you know, are fairly resilient, especially in the verticals that we've got.

Scott Staples: Yeah. You know, because again, I think one other thing to remember is that we really focus primarily on enterprise customers, and enterprise customers, you know, are fairly resilient, especially in the verticals that we've got.

Speaker Change: Because again I think one other thing to remember is we really focus primarily on enterprise customers and enterprise customers.

Scott Staples: We also expect to benefit from complimentary geographic reach and the ability to expand. While both parties have a global presence, Sterling is larger in Latin America and Australia, while we have deeper presence in India, Hong Kong, and Singapore. In terms of cost synergies, we have expanded our target to a range of $50 million to $70 million, as we have progressed our integration planning work and have identified additional synergy opportunities. We are confident in our ability to action this goal within the first 18 to 24 months post-closing.

Speaker Change: You know are fairly resilient, especially in the verticals that we've got.

Shlomo Rosenbaum: And then it's just as a follow-up, can you talk a little bit about the breakdown maybe of some of the movements between verticals and others, which ones are doing better, which ones are doing maybe not so well. I know there were commentary that they were more similar and maybe just talk a little bit about that. And last quarter you had, you know, you talked a little about staffing, I think, when positive, which was a positive sign. I wanted to know if that had continued to be positive.

Scott Staples: And then, just as a follow-up, could you talk a little bit about the breakdown, maybe, of some of the movements between verticals? In other words, which ones are doing better, and which ones are maybe not doing so well? I know there was commentary that they were more similar, but maybe just talk a little bit about that. And last quarter, you had talked a little about staffing, which I think went positive, which was a positive sign. I wanted to know if that had continued to be positive. Yeah, this was really interesting.

Shlomo Rosenbaum: And then, just as a follow-up, could you talk a little bit about the breakdown, maybe, of some of the movements between verticals? In other words, which ones are doing better, which ones are maybe not doing so well? I know there was commentary that they were more similar.

Speaker Change: And then just as a follow up could you talk a little bit about.

Speaker Change: The breakdown maybe of some of the <unk>.

Speaker Change: Movements between verticals, and others, which ones are doing better or which ones are doing.

Speaker Change: Not so while I know there was commentary that there were more similar but maybe just talk a little bit about that and last quarter. You had you talked a lot about staffing I think wed positive which was a positive side I wanted to know if that had continued to be positive.

Scott Staples: Yeah, this was really interesting because, for the first time, and for a long time, what we saw from a vertical perspective was what we're saying is the return to normalization and stabilization. So in Q2, no single vertical revenue volumes were up or down beyond single digits. But I think S&B has always been more volatile to macro swings, either positive or negative, and our SMB business was down 25%.

Scott Staples: Yeah, this was really interesting because, you know, for the first time in a long time, what we saw from a vertical perspective was what we're saying is the return to normalization and stabilization. So in Q2, no single vertical revenue volumes were up or down beyond single digits. So we feel this narrowing of the gaps between the verticals really reflects an overall normalization of the business, which again we welcome.

Scott Staples: Yeah, this is this is really interesting because, you know, for the first time in, you know, in a long time, you know, what we saw from a vertical perspective was what we're saying is the return to normalization and stabilization. So in Q2, no single vertical's revenue volumes were up or down beyond single digits. So we feel this narrowing of the gaps between the verticals really reflects an overall normalization of the business, which again, we welcome. So you know, for us specifically just to give you a sense, you know, transportation is our largest vertical at 24% of our revenue, and it had a good quarter. Transportation was up 9%.

Scott Staples: Maybe just talk a little bit about that. And last quarter, you had talked a little about staffing, which was a positive sign. I wanted to know if that had continued to be positive. Yeah, this was really interesting.

Speaker Change: Yeah. This is this is really interesting.

Speaker Change: Because for the first time in.

Scott Staples: We see opportunities from combining back office functions and resources, eliminating overlapping public company costs, and rationalizing insurance programs. We also see the potential to reduce our costs of serving customers and bring our existing automation capabilities to Sterling's business to increase efficiencies and productivity. We are focused on a seamless transition for Sterling customers, while also allowing us to unlock valuable operational and third-party efficiencies. As we have been delving deeper into our pre-closing integration planning work, we are uncovering opportunities that we expect will further enhance our customer value proposition, unlock upsell and cross-sell opportunities, and reduce certain third-party pass-through fees.

Speaker Change: In a long time.

Speaker Change: What we saw from a vertical perspective was what we're saying is a return to normalization in stabilization. So in Q2, no single verticals revenue volumes were up or down beyond single digits.

Speaker Change: So we feel this narrowing of the gaps between the verticals.

Speaker Change: Really reflects an overall normalization of the business, which again, we welcome so.

Speaker Change: Cool.

Scott Staples: And for us, specifically, just to give you a sense, transportation is our largest vertical at 24% of our revenue, and it had a good quarter; transportation was up 9%. I think on the bottom of the spectrum were banking and financial services, which were down 7%. So everything else fell in between that. So you've got a lot of minus two, minus three, or plus two, or flat, or whatever it might be.

Speaker Change: For us specifically just to give you a sense transportation is our largest vertical at 24% of our revenue and it had a good quarter transportation was up 9%.

Scott Staples: I think our on the bottom of the spectrum was banking and financial services, which were down 7%. So everything else fell in between that. So you've got a lot of, you know, minus two, minus three, or plus two, or flat, or whatever it might be. So a lot more narrowing of the vertical staffing was still positive for us in the quarter. So we did have that; that was on the positive side, but we love the fact that this is all sort of narrowing.

Speaker Change: I think are on the bottom of the spectrum was banking and financial services, which were down 7%. So everything else fell in between that so you've got a lot of minus two minus three or plus two or flat or whatever it might be so.

Scott Staples: As an example, we can bring to Sterling's customers our full suite of i9, tax, and transportation products. Sterling has a recovery management service, and a further developed digital identity product in the U.S., which we could potentially sell to our install days. We believe opportunities such as these would benefit customers by providing more options, to meet their evolving needs and improved solutions to help manage risk, higher smarter and onboard faster. Additionally, culture is an important focus area for us and both companies have high performing cultures and motivated employees.

Scott Staples: A lot more narrowing of the vertical, but staffing was still positive for us in the quarter. So we did have that was on the positive side, but we love the fact that this is all sort of narrowing. I think what's probably the most reflective space that maps to the JOLTS data is what we're seeing in the SMB space. Again, we're an enterprise-focused company, so S&B for us is not a large business; it's about 4% of our revenue.

Speaker Change: Lot more narrowing of the vertical staffing was still positive for us.

Speaker Change: In the quarter.

Speaker Change: So we did have that was on the positive side, but we love. The fact that this is all sort of narrowing I think what's probably the most reflective a space that maps to the jolts data is what we're seeing in the SMB space.

Scott Staples: I think what's probably the most reflective space that maps to the Jolt's data is what we're seeing in the SMB space. Again, we're an enterprise-focused company, so SMB for us is not a large business; it's about 4% of our revenue. But I think SMB has always been more volatile to the macro swings, either positive or negative. And our SMB business was down 25%. So it's not really a vertical. But I think that's where we're seeing the business reflecting what's going on with Jolt's data. Again, it's not a huge impact to us because, as we've said over and over again, not only are we enterprise focused, but we're also more focused on the hourly worker.

Speaker Change: Again were enterprise focused company. So F&B for us is not a large business. It's about 4% of our revenue, but I think SMB has always been more volatile to the macro swings either positive or negative in our SMB business was down 25.

Scott Staples: We are being very thoughtful in how we approach this post-close integration workstream and have brought in leading third party experts to assist. I am really excited about our opportunities and what our combined teams will be able to accomplish. Upon closing the transaction, we will immediately almost double our revenues to nearly $1.5 billion on a pro-former basis. We expect to generate double digit adjusted EPS accretion on a run rate basis and to continue compounding adjusted EPS at a team's growth rate over time through the combination of top line growth, ongoing synergy capture, and significant de-leveraging enabled by our strong free cash flow generation. As we look ahead, our priorities after closing the transaction will be focused on our customers, successful integration, achieving synergies, and de-leveraging our balance sheet.

Scott Staples: But I think S&B has always been more volatile to macro swings, either positive or negative, and our SMB business was down 25%. So it's not really a vertical, but I think that's where we're seeing the business reflecting what's going on with Joel's data. Again, you know, it's not a huge impact on us because, as we've said, you know, over and over again, not only are we enterprise-focused, but we're also more focused on the hourly worker.

Scott Staples: Overall, we expect that this strategic and accretive acquisition will benefit customers and investors accelerate in advance our strategic priorities and drive long-term value creation.

Scott Staples: So, it's not really a vertical, but I think that's where we're seeing the business reflecting what's going on with JOLTS data. Again, it's not a huge impact to us because, as we've said over and over again, not only are we enterprise-focused, but we're also more focused on the hourly worker. And if you look at our vertical mix of transportation and retail, whatever it might be, 71% of our revenue falls into that space, and there's still a strong demand for that type of worker.

Speaker Change: So it's not really a vertical.

Speaker Change: But I think that's where we're seeing.

Speaker Change: The business, reflecting what's going on with jolts data again it.

Speaker Change: Not a huge impact to us because as we've said over and over again not only are we enterprise focus but were also more focused on the hourly worker and if you look at our vertical mix of transportation and retail or whatever it might be 71% of our revenue falls in.

Scott Staples: And if you look at our vertical mix of transportation and retail, whatever it might be, 71% of our revenue falls into that space, and there's still a strong demand for that type of worker.

Scott Staples: And if you look at our vertical mix of transportation and retail and whatever it might be, 71% of our revenue, you know, falls into that space. And there's still a strong demand for that type of worker.

Speaker Change: To that space and there is still a strong demand for that type of worker.

Speaker Change: Okay.

Andrew Steinerman: Thank you. Our next question will come from Andrew Steinerman with JP Morgan.

Andrew 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 Steinerman: Please go ahead.

Andrew Steinerman: Hi Scott. You might think this one a little premature, but I'm going to ask about that teens EPS growth that you highlighted again today. I was wondering, when you think about that overtime comment, post-merger, how many years do you feel like the combined company could grow teens EPS, and is the base year going to be 25?

Scott Staples: Hi Scott. You might think this one a little premature, but I'm going to ask about that teens EPS growth that you highlighted again today. I was wondering, when you think about that overtime comment, post-merger, how many years do you feel like the combined company could grow teens EPS, and is the base year going to be 25?

Andrew Steinerman: Hi, Scott. She might think this one a little premature, but I'm going to ask about that teen's EPS growth that you highlighted again today. I was wondering when you think about that over time comment post merger, how many years do you feel like the company combined could grow teens EPS and is the base year going to be 25? David, I'll throw that to you. So Andrew, based on all of our modeling, I think what you've seen and the results that we just released is that we've expanded the range of synergies that we think we can go get.

Andrew Steinman: Hi, Scott.

Andrew Steinman: You might think it's a little premature, but I'm going to ask about that teens EPS growth that you.

Andrew Steinman: You highlighted again today I was wondering when you think about that over time.

Scott Staples: Turning to slide 7 in an update on our AI efforts. We have been early adopters of integrating responsible, generative AI into our business and we are continuing to leverage AI to deliver value to our customers. One way we are doing this is through the expanded use of our proprietary smart hub technology and verified database.

Speaker Change: Comment post merger, how many years do you feel like the company combined could grow teens EPS and is the base you're going to be 25.

David Papadogonas: David, I'll throw that to you.

David Gamsey: David, I'll throw that to you. Thank you.

Andrew Steinman: David I'll throw that to you.

Andrew Steinman: Yes.

David Gamsey: So, Andrew, based on all of our modeling, I think what you've seen and the results that we just released is that we've expanded the range of synergies that we think we can get. We had previously said we thought we could get $50 million plus. We now, based on additional integration work that we've done, believe that could be $50 to $70 million. So, therefore, we think on a run rate adjusted basis, we can get that right away, and that can continue as we continue to de-lever and as interest rates go down.

David Papadogonas: So, Andrew, based on all of our modeling, I think what you've seen and the results that we just released is that we've expanded the range of synergies that we think we can get. We had previously said we thought we could get $50 million plus. We now, based on additional integration work that we've done, believe that could be $50 to $70 million. So, therefore, we think on a run rate adjusted basis, we can get that right away, and that can continue as we continue to de-lever and as interest rates go down.

David David: So Andrew based on all of our modeling I think what you've seen and the results that we just released is that we've expanded.

Scott Staples: As a reminder, smart hub is our AI-driven, intelligent router that sits on top of our large verified database, which as of the end of 2023 is made up of nearly 110 million education and work history records up from 36 million in 2021. Smart hub enables us to quickly search across multiple data sources to determine the optimal verification source based on speed, data quality, and cost effectiveness. By optimizing verification sources, we have been able to provide our customers with alternative options and decrease the third-party cost they incur. We are currently diverting up to 60% of verification away from the most expensive third-party sources. Our customers love smart hub because in many cases, it generates results quickly and helps them save money.

Speaker Change: A range of synergies that we think we can go get we had previously said we thought we could get 50 million plus we know based on additional integration work that we've done believe that what could be $50 million to $70 million. So therefore, we think on a run rate adjusted basis, we can go get that right.

David Dansey: We previously said we thought we could get 50 million plus. We now, based on additional integration work that we've done, believe that could be 50 to 70 million. So therefore, we think on a run rate adjusted basis, we can go get that right away and that that can continue as we continue to deliver and as interest rates go down. Did you want to give a timeframe of how many years do you think the teens' growth could be sustained for? You know, at least a couple of years, maybe longer.

Speaker Change: Way and that that can continue as we continue to delever and as interest rates go down.

David Papadogonas: Did you want to give a time frame of how many years you think the teen's growth could be sustained?

David Gamsey: Did you want to give a time frame of how many years you think the teen's growth could be sustained?

Speaker Change: Did you want to give a timeframe of how many years do you think the teens growth could be sustained for.

David Gamsey: You know, at least a couple of years, maybe longer. It's a little bit early and premature to be commenting on the future like that.

Speaker Change: You know at least a couple of years, maybe longer it's a little bit early and premature to be commenting on the future like that.

David Dansey: It's a little bit early and premature to be commenting on the future like that.

David Dansey: Thank you. Yeah, Andrew, just to clarify, I mean, you know, until we've got, you know, DOJ approval, we're just really doing a lot of planning. So we haven't really been able to get under the cover of under the hood and look at these things. You know, in more detail to give you a more detailed answer on exact years and that kind of stuff, but you know, we're pretty comfortable with these ballpark estimates that we're giving right now. Thanks, Scott.

Andrew Steinman: Yeah.

Scott Staples: Yeah, Andrew, just to clarify. I mean, until we get, you know, DOJ approval, we're just really doing a lot of planning. So we haven't really been able to get under the hood and look at these things in more detail to give you a more detailed answer on exact years and that kind of stuff, but we're pretty comfortable with these ballpark estimates that we're giving right now.

Andrew Steinman: Yes, Andrew just to clarify I mean.

Scott Staples: Additionally, we are continuing to expand our next Gen Profile Advantage platform in the U.S, where we are going to get out to new customers each week. This API first technology interface is used by applicants through either a computer, tablet, or mobile device. With its embedded AI and machine learning, Profile Advantage drives significant time savings for both applicants and customers and enables fast time to hire. Our technology also complies with web content accessibility guidelines and our user experience is receiving very favorable reviews.

Scott Staples: You know, until we get, you know, DOJ approval, we're just really doing a lot of planning. So we haven't really been able to get under the cover of, under the hood, and look at these things in more detail to give you a more... You know, detailed answer on exact years and that kind of stuff, but you know, we're pretty comfortable with these ballpark estimates that we're giving right now.

Andrew Steinman: Until we get Doj approval, we're just really doing a lot of planning. So we haven't really been able to get under the cover of under the Hood and look at these things.

Andrew Steinman: In more detail to give you a more.

Andrew Steinman: A detailed answer on exact years and that kind of stuff.

Andrew Steinman: Pretty comfortable with these ballpark estimates that we're giving right now.

Andrew Steinerman: That was good. Thanks, Scott.

Scott: Sounds good thanks Scott.

Andrew Nicholas: Thank you. Our next question will come from Andrew Nicholas with William Blair. Please go ahead.

Andrew Nicholas: Thank you. Our next question will come from Andrew Nicholas with William Blair. Please go ahead. Hi, good morning. Thanks for taking my questions, and congrats to David and Steven on the news from today. I wanted to ask on international growth. I think it was flat overall your year. Last quarter, you talked about stabilization there.

Speaker Change: Thank you. Our next question will come from Andrew Nicholas with William Blair. Please go ahead.

Andrew Nicholas: Hi, good morning. Thanks for taking my questions, and congrats to David and Stephen on the news from today. I wanted to ask about international growth. I think it was flat overall year-over-year. Last quarter, you talked about stabilization there. Scott, you gave a lot of great color on the vertical level. I'm just wondering if you could give similar commentary on what you're seeing in APAC and maybe in your IT services business in India.

Andrew Nicholas: Hi, Good morning, Thanks for taking my questions and congrats to David and Stephen on the.

Speaker Change: The news from today.

Andrew Nicholas: I wanted to ask on international growth.

Speaker Change: I think it was flat overall year over year.

Speaker Change: Last quarter, you talked about stabilization there.

Andrew Nicholas: Scott, he gave a bunch of great color on the vertical elements, wondering if you could give similar commentary in what you're seeing in a pack and maybe in your IT services business in India. Yeah, I mean, we were so happy to look at this data because, as you know, international has been a drag on the business for literally two years. And so now, you know, we had been sort of signaling this as you know, and so again, think when we think of our international business, it's three buckets. It's a Mia, it's India, and it's a pack.

Speaker Change: Scott you gave a bunch of great color on the vertical level I'm. Just wondering if you could give similar commentary and what youre seeing in APAC and maybe in your it services business in India.

Scott Staples: Yeah, I mean, we were so happy to, you know, look at this data, because, as you know, international has been a drag on the business for literally two years. And so now, you know, we have been sort of signaling this, as you know, and so again, when we think of our international... Three Buckets. It's EMEA, it's India, and it's APAC. So we lump Canada and LATAM in with North America, I mean, the US, to create the Americas business. So, if you look at those three regional businesses in our international sector,

Andrew Steinman: Yeah.

Scott Staples: I mean, we were so happy to, you know, look at this data, because, as you know, international has been a drag on the business for literally two years. And so now, you know, we had been sort of signaling this, as you know, and so again, when we think of our international business, three buckets.

Speaker Change: We were so happy to look at this data because as you know international has been a drag on the business for literally two years.

Andrew Steinman: And so now.

Scott Staples: Before I turn the call over, David, to David, as you saw in our press release this morning, we announced that David has decided to retire later this year. On behalf of the entire Board of Directors, I want to express our sincere gratitude for David's many contributions to First Advantage over the past eight plus years. He has been a critical member of our team and we have substantially grown the business, executed our IPO and M&A strategies, and most recently, announced our acquisition of Sterling.

Speaker Change: We had been sort of signaling in this as you know and so again, when we think of our international business. It's three buckets, it's EMEA, India and its APAC. So we lumped, Canada and Latam in North America, I mean, the U S to create the Americas business. So if you look at those three.

Scott Staples: It's EMEA, it's India, and it's APAC. So we lump Canada and LATAM in with North America, I mean, the US, to create the Americas business. So if you look at those three regional businesses in our international sector, India and AIPAC have been really the big drags over the last two years, while EMEA actually, you know, was sort of chugging along fairly nicely. So EMEA, you know, continues to do so. And it was always really just what was going on.

Scott Staples: So we lump Canada and Latin in with the North America. I mean, you asked to create the America's business. So if you look at those three regional businesses in our international sector, India and APAC had been really the big drag. Over the last two years while Amia actually, you know, was sort of chugging along fairly nicely. So Amia continues to do that, and it was always really just what's going on in India and a pack. And we had signals to you guys in Q4 of 2023 that we thought India had bottomed out and would start growing.

Andrew Steinman: Our regional businesses and our international sector.

Andrew Steinman: In India in APAC had been really the big drags over the last two years while EMEA.

Andrew Steinman: Actually you know it was sort of chugging along fairly nicely. So EMEA continues to do that and it was always really just what's going on in India in APAC.

Scott Staples: David has been an outstanding leader and an exceptional colleague and we all wish him well in his retirement. Part of David's legacy is having created a high performing finance team inside our organization.

Scott Staples: APEC, and we had signaled to you guys in Q4 of 2023 that we thought India had bottomed out and would start growing, and that's exactly what we saw in Q1 of this year. And in Q1 of this year, we kind of thought APEC had bottomed out and would start growing. What I would say is this is probably the bottoming out for APEC, and we now expect APEC to start growing. Really, the drag on APEC, particularly China, is what it is, but the rest of our APEC business is starting to show some green shoots of life, which is great.

Andrew Steinman: And we had we had signaled.

Andrew Steinman: To you guys in Q4 of 2023 that we thought India had bottomed out and would start growing and that's exactly what we saw in Q1 of this year.

Scott Staples: Accordingly, we're fortunate to announce that David will be succeeded by our chief accounting officer, Steven Marx. Steven has been with First Advantage for over eight years. He has tremendous experience, he knows the company well, and he has worked closely with David during that period. David and Steven will continue to work together to ensure a smooth transition through the beginning of December. But it's not time for us to say goodbye to David just yet. David will continue to lead our finance function for the next several months, and of course, he is here today to discuss our performance in the quarter.

Scott Staples: And that's exactly what we saw in Q1 of this year. And in Q1 of this year, we kind of thought APAC had bottomed out and would start growing. What I would say is this is probably the bottoming out for APAC, and we now expect APAC to, you know, to start growing. Really, APAC is the drag on APAC; particularly, it had been China. And you know, China, you know, is what it is. But the rest of our APAC businesses starting to show some green shoots of life, which is great. In the India business, we are seeing IT services and BPO customers starting to, you know, slowly hire again.

Andrew Steinman: And in Q1 of this year, we kind of thought APAC had bottomed out and would start growing.

Andrew Steinman: What I would say is this is probably the bottoming out for APAC and we now expect APAC to you know to start growing.

Andrew Steinman: Really APAC is the drag on APAC, particularly had been China.

Andrew Steinman: And you know China is what it is but the rest of our APAC business is starting to show some green shoots of life.

David Dansey: And with that, I will now turn the call over to David.

David Dansey: Thank you, Scott, and good morning, everyone. As Scott discussed, after a 45-year career in accounting and finance, and given the timing of the pending Sterling acquisition, I have decided to retire later this year. It has been a privilege to have had the opportunity to work with their outstanding board of directors, the excellent professionals at Silver Lake, and to have been a part of the First Advantage team. Scott has developed a great culture and a tremendous team, and together we have built an outstanding company.

Andrew Steinman: Which is which is great.

Scott Staples: In the India business, we are seeing IT services and BPO customers starting to slowly hire again. Again, I think cautious optimism is kind of what we're hearing out of that, but also remember that our comps are much better, so we're not talking about dramatic changes in the business. We are seeing some positive changes, but we're also now comping against much easier numbers.

Andrew Steinman: In the India business, we are seeing I T services in N V P O.

Andrew Steinman: Customers starting to slowly higher again.

Andrew Nicholas: Again, I think cautious optimism is kind of what we're hearing out of that, but also remember that our comps are much better. So we're not talking about dramatic changes in the business. We are seeing some positive changes, but we're also now comping against, you know, much easier numbers. Perfect. Thank you.

Andrew Steinman: Again, I think cautious optimism is is kind of what we're hearing out of that but also remember that our comps are much better. So we're not talking about dramatic changes in the business. We are seeing some positive changes, but we're also now comping against much easier numbers.

David Dansey: I am very proud of what we have accomplished, but there is still a lot of exciting work yet to be done. I hired Steven in 2016, and he and I have worked together very closely over the past eight years. He has always demonstrated strong leadership skills and excellent business judgment. Steven has been an essential partner in executing air strategy and building the exceptional finance team we have today. I have no doubt that he will do an excellent job as Chief Financial Officer of First Advantage and the combined companies moving forward.

Andrew Nicholas: And then, switching gears a little bit for my follow-up, the 60% number on employment verification that you cited, you know, maybe surprised me a bit in terms of how big that number was. I'm curious if that's up versus, you know, maybe this time last year or at any point in 2023. And then also, is there any way to quantify or maybe even qualitatively speak to how much of those employment verifications are hitting verified versus being directed to other providers? Just trying to get a sense for how much would be, you know, a direct margin or even profit benefit to you if it's going to be verified. Thank you. Yeah, and so the actual number six.

Andrew Steinman: Perfect.

Speaker Change: Thank you and then switching gears a little bit for my follow up the 60% number unemployment verification that you cited.

Andrew Nicholas: And then switching gears a little bit for my follow-up, the 60% number on employment gravitations that you cited, you know, maybe surprised me a bit in terms of how big that number was. I'm curious if that's up versus, you know, maybe this time last year or at any point in 23.

Andrew Steinman:

Speaker Change: Surprise me a bit in terms of how big that number was I'm curious if that's up versus maybe this time last year at any point in 'twenty. Three and then also is there any way to quantify or maybe even qualitatively speak to how much of those employment verifications are hitting.

Scott Staples: And then also, is there any way to quantify or maybe even qualitatively speak to how much of those employment gravitations are hitting verified versus being directed to other providers, just trying to get a sense for how much would be, you know, a direct margin or even profit benefit to you if it's going to verify. Thank you. Yeah, and so the actual number is 60% of verifications being diverted.

Andrew Steinman: Verified versus being directed to other providers, just trying to get a sense for how much would be.

David Dansey: Now, back to business, turning to our second quarter results on slide 9. In line with our previously communicated expectations, our results for the second quarter improves sequentially over our first quarter results. Our second quarter revenues were $184.5 million flat compared to the prior year and $15.1 million greater than in Q1. Currency had nearly no impact on results. For the quarter, infinite ID contributed approximately $3.3 million. In our America segment, revenues of $162.4 million or 87% of consolidated revenues were flat to the prior year.

Andrew Steinman: Direct.

Andrew Steinman: Margin or even profit benefit to you if it's going to verify thank you.

Scott Staples: Yeah, and so the actual number is 60% of verifications being diverted. This is the first time we've given a number like this.

Scott Staples: Yeah, and so the actual number is six.

Andrew Steinman: Yeah, and so the actual number 60% of.

Andrew Steinman: Verifications.

Andrew Steinman: Being diverted.

Scott Staples: So I know you're looking for trends and baselines, and we will continue to do this sort of going forward as we get more data on this. But I just think, without getting into specifics of numbers, which we're not really ready to do right now and will consider doing going forward, we're just basically seeing a much larger adoption of the concept of the Smart Hub. Clients really like it because, as we've said multiple times, we believe we're the only background screener out there that's offering these types of alternatives. And clients are looking for alternatives. One, they want faster turnaround times, but two, it's really driven by cost savings.

Scott Staples: This is the first time we've given a number like this, so I know you're looking for trends and baselines, and we will continue to do this sort of going forward as we get more data on this. But I just think, without getting into specifics of numbers, which we're not really ready to do right now and will consider doing going forward, we're just basically seeing a much larger adoption of the concept of Smart Hub. Clients really like it because, as we've said multiple times,

Andrew Steinman: Hum.

Scott Staples: This is the first time we've given a number like this. So I know you're looking for trends and baselines, and we will continue to do this sort of going forward as we get more data on this.

Speaker Change: This is the first time, we've given a number like this.

Andrew Steinman: So I know youre looking for trends and baselines and and we will continue to do this sort of going forward as we get more and more data on this.

Scott Staples: But I just think, you know, without getting into specifics of numbers, which, you know, we're not really ready to do right now and we'll consider doing going forward. We're just basically seeing a much larger adoption of the concept of smart hub. You know, clients really like it because, you know, as we've said, you know, multiple times, you know, we believe where the, you know, the only background screener out there with that's offering these type of alternatives, and clients are looking for alternatives. One, they want faster turnaround times, but two, it's really driven by cost savings.

Andrew Steinman: But I just think you know without getting into specifics of numbers, which you know, we're not really ready to do right now.

Andrew Steinman: And we'll consider doing going forward, we're just basically seeing a much larger adoption of the concept of smart hub clients really like it because as we've said multiple times.

David Dansey: Similarly, our international segment revenues were also flat compared to the prior year at $24.2 million or 13% of consolidated revenues. We believe that our international operations have now stabilized with India and APAC producing consistent sequential-based revenue volumes. For the total company, adjusted EBITDA was $55.8 million, also flat compared to the prior year. Our adjusted EBITDA margin was 30.2%, a 270 basis point improvement over Q1. Our adjusted effective tax rate was 24.6%.

Andrew Steinman:

Andrew Steinman: We believe we're the you know the only background screener out there that's offering these type of alternatives.

Andrew Steinman: And clients are looking for alternatives.

Andrew Steinman: One they want faster turnaround times, but two it's it's it's really driven by cost savings.

Scott Staples: This, you know, the verifications in general have become a heavy drag on the budgets of our customers, and it's got, you know, really it's getting to an untenable position in terms of cost. And so it's really more, I'd say, of a, you know, our ability to, you know, to sell this and to promote it and market it. So the uptake has definitely increased. And the technology gets better and better every quarter. You know, remember that this is probably our best piece of technology in the company. It's machine learning, and that means it gets better with every verification that it does.

Andrew Steinman: As you know.

Scott Staples: Verifications, in general, have become a heavy drag on the budgets of our customers, and it really is getting to an untenable position in terms of cost. And so it's really more of a... you know, our ability to sell this and promote it and market it. So the uptake has definitely increased.

Andrew Steinman: Verifications in general have become a heavy drag on the budgets of our customers and it.

Andrew Steinman: It really is getting to an untenable position in terms of costs and so it's really more of a I'd say of.

Andrew Steinman: Our ability to.

David Dansey: Adjusted net income was $30.8 million for the quarter. Adjusted diluted earnings per share was 21 cents. This includes an approximately 2 cent negative impact from a 2023 one-time special dividend sharing purchases and expired interest rate swaps. When taking these into account, adjusted diluted earnings per share would have also been nearly flat on a year-over-year basis.

Andrew Steinman: To sell this into and to promote it and market it and so the uptake has definitely increased.

Andrew Steinman: And the technology gets better and better every quarter.

Scott Staples: And the technology gets better and better every quarter. You know, remember that this is probably our best piece of technology in the company. It's machine learning, and that means it gets better with every verification that it does. It's all the AI that's built into it. It just gets smarter and more sophisticated. And that enables us to, you know, keep pointing it in different directions. And again, as we add more and more data records to our database, we expect that number to improve.

Andrew Steinman: Remember that this is probably our best piece of technology in the company.

Andrew Steinman: Its machine learning and that means it gets better with every verification that it does its all the AI that's built into it.

Scott Staples: It's all the AI that's built into it. It just gets smarter and more sophisticated, and that enables us to, you know, keep pointing it in different directions. And again, as we add more and more data records, you know, to our database, you know, we expect that number to improve. Appreciate it. Thank you.

David Dansey: On slide 10, you can see that our historical performance for upsell cross sell, new customer logos and attrition has been largely consistent with their growth algorithm and demonstrates that we are managing and delivering on what we can control, with the variation being driven by the base. Base was still negative in Q2, but it did improve by 400 basis points from Q1. Revenues from upsell and cross sell partially offset are based decline for the quarter and contributed $8.6 million, or 4.7% to our performance in Q2. New customer logos contributed an additional $7.8 million, or 4.2% in Q2. Base declined by $13 million, or 7% in Q2, and nutrition was 4%.

Andrew Steinman: Just get smarter and more sophisticated and that enables us to keep pointing in different directions and.

Andrew Steinman: Again, as we add more and more.

Andrew Steinman: Data records to our database, we expect that number to improve.

Speaker Change: I appreciate it.

Heather Balsky: Thank you. As a reminder, if you would like to ask a question, please press star 1 at this time. Our next question comes from Heather Balsky with Bank of America. Please go ahead.

Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star one at this time.

Todd: As a reminder, if you would like to ask a question, please press star one at this time.

Heather Balsky: Our next question comes from Heather Balsky with Bank of America. Please go ahead.

Heather Balsky: Hi. Thank you. I was curious.

Heather <unk>: Our next question comes from Heather <unk> with Bank of America. Please go ahead.

Heather Balsky: Hi, thank you. I was curious, it was interesting to see you expand the range of synergies, and then also you made a comment during the Q&A that you still haven't really gotten out of, I guess, under the hood as you wait for approvals. Can you talk a little bit about the work you have done to kind of address that?

Scott Staples: It was interesting to see you expand the range of synergies. And then also, you made a comment during the Q&A that you still haven't really gotten out of – I guess under the hood as you wait for approvals. I'm just curious, can you talk a little bit about the work you have done to kind of – has enabled you to expand the range and how much you've learned while you're waiting for the process to get approved? Thanks. Yeah,

Heather Balsky: Hi, thank you. I was curious. It was interesting to see you expand the range of synergies. And then also you made a comment during the Q&A that you, you subit really gotten out of, I guess, under the hood, because as you, as you wait for approval. I'm just curious.

Heather: Hi, Thank you.

Heather <unk>: I was curious it was interesting to see you expand the range of synergies.

Speaker Change: And then also you made a comment during the Q&A that E doesn't really gotten out of I guess under the Hood because as you as you wait for approval.

Speaker Change: Just curious can you talk a little bit about the work you have done to kind of that.

Scott Staples: Can you talk a little bit about the work you have done to kind of, that, that has enabled you to expand the range and, and, you know, how much you've learned while you're waiting for the, the process to get approved. Thanks. Yeah, so we've done an incredible amount of work.

Speaker Change: Has enabled you to expand the range and how much you've learned while you're waiting for that process to get approved.

Scott Staples: Yeah, so, um... We've done an incredible amount of work. So, let me sort of paint a bigger picture for you first, Heather, and then I'll get more specifically to your question.

Speaker Change: Yeah. So.

Scott Staples: We've done an incredible amount of work. So let me sort of paint a bigger picture for you first, Heather, and then I'll get more specifically to your question.

Speaker Change: We've done an incredible amount of work so let me sort of paint a bigger picture free for you first have there and then I'll get more specifically to your question.

Scott Staples: So let me sort of paint a bigger picture for you first, Heather, and then I'll get more specifically to your question. So I, you know, one, we're getting great advice from Silver Lake, who has done, you know, hundreds and hundreds of M&A deals, and from other third-party consultants as to, you know, how to structure things, how to, how to plan things. And what we've done is we've created dedicated teams that consist of both First Advantage and Sterling leaders. And those teams are literally meeting daily to go through, you know, data and do planning. We're not, we're not, you know, legally allowed to do any, you know, integration work, and there's certain, certain pieces of data we're not able to see at this point.

Scott Staples: So, one, we're getting great advice from Silver Lake, who has done hundreds and hundreds of M&A deals, and from other third-party consultants as to how to structure things, how to plan things. And what we've done is we've created dedicated teams that consist of both First Advantage and Sterling leaders, and those teams are literally meeting daily to go through data and do planning. We're not legally allowed to do any integration work, and there are certain pieces of data we're not able to see at this point.

Scott Staples: So, you know, one, we're getting great advice from Silver Lake, who has done, you know, hundreds and hundreds of M&A deals, and from other third-party consultants as to, you know, how to structure things, how to plan things. And what we've done is we've created dedicated teams that consist of both First Advantage and Sterling leaders. And those teams are literally meeting daily to go through, you know, data and do planning. But we're not, we're not, you know, legally allowed to do any integration work.

Speaker Change: So I you know.

Speaker Change: One we're getting great advice from from Silverlake, who has done.

Speaker Change: Hundreds and hundreds of of M&A deals and from other third party consultants as to.

David Dansey: As we mentioned previously, given the pending sterling acquisition, we have suspended share repurchases as we continue to build cash. In addition to our existing $565 million of first-advantaged 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 our balance sheet cash expected at close. Additionally, we expect our net debt to adjusted EBITL leverage at close to be within the range of 4.2 to 4.4 times.

Speaker Change: How to structure things how to how to plan things.

Speaker Change: And what we've done is we've created dedicated teams.

Speaker Change: That consists of both first advantage and Sterling leaders.

Speaker Change: And those teams are literally meeting daily to go through data and do planning, we're not we're not legally allowed to do any integration work and there are certain certain pieces of data, we're not able to see at this point.

Scott Staples: And there are certain Because basically they're equal-sized companies, and through those conversations and sort of mapping out what we would do in the first hundred days, in the first six months, in the first year, in the first 18 months, all that stuff is being planned. And as we map those things out, we're getting a better sense of the timing of synergies as well. And so while we don't have specific numbers, we get pretty good ballpark numbers of sort of like where we can move things either sooner or later.

Scott Staples: But from a planning standpoint and a conversation standpoint, we're getting a much better sense of how to put these two businesses together. Because basically, they're equal-sized companies, and through those conversations and sort of mapping out what we would do in the first hundred days, in the first six months, in the first year, in the first 18 months, all that stuff is being planned. And as we map those things out, we're getting a better sense of timing for synergies as well. And so while we don't have specific numbers, we've got a pretty good ballpark numbers of sort of like where we can move things either sooner or later.

Scott Staples: But for, you know, what we've done from a planning standpoint and a conversation standpoint, we're because basically they're equal size companies, and through those conversations and sort of mapping out what we would do in the first 100 days, in the first six months, in the first year, in the first 18 months, all that stuff is being planned. And as we map those things out, we're getting a better sense of timing of synergies as well. And so, while we don't have specific numbers, we've got pretty good ballpark numbers of sort of like where we can move things either sooner or later.

Speaker Change: But for what we've done from a planning standpoint, and a conversation standpoint, where but getting a much better sense of how to put these two businesses together.

David Dansey: However, there are still a number of variables that could impact this, including timing, cash generation, synergy estimates, and any incremental actions taken before close to further improved margins. Additionally, 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.

Speaker Change: Because basically they're equal sized companies and through.

Speaker Change: Through those conversations and sort of mapping out what we would do.

Speaker Change: In the first 100 days in the first six.

Speaker Change: Six months in the first year in the first 18 months all of that stuff is being planned and as we map those things out we're getting a better sense of timing of synergies as well.

Speaker Change: And so while we don't have specific numbers, we get a pretty good ballpark numbers of sort of like where we can move things either sooner or later.

David Dansey: We remain committed to our long-term net leverage target of two to three times and have a proven track record of managing leverage. Over the four years since Silver Lake invested in us, we delivered from six times as a private company to less than two times prior to the announced sterling acquisition. This is after repurchasing approximately 120 million dollars in shares, paying a $218 million one-time special dividend and completing our acquisitions. Our goal within 24 months of closing is to reduce net leverage toward approximately three times run rate adjusted EBITL. Our path to D-level will be driven by high margin top-line growth of the combined businesses, productivity efficiencies, cost synergies, and continued strong cash flow generation. Interest rate cuts would help us accomplish this goal even sooner.

Scott Staples: And so the process has been treated like it's its own workstream. And we've taken two really senior leaders in First Advantage, and this is their full-time job. And Sterling's done the same on their side. And we've got Sterling committees and functional teams meeting daily and in-person sessions. So a lot of stuff is going on. And that's why it's given us confidence that we could raise that synergy number up, not only from a total dollar value, but, as David mentioned, even probably moving some of it sooner versus later. That's really helpful. Thank you.

Speaker Change: And so the processes has been treated like its own work stream and we've taken.

Heather Balsky: And so the process has been treated like it's its own work stream. And we've taken two really senior leaders in First Advantage, and this is their full-time job. And Sterling's done the same on their side, and we've got steering committees and functional teams meeting daily for in-person sessions. So a lot of stuff is going on, and that's why it's given us confidence that we could raise that synergy number, not only from a total dollar value but, as David mentioned, even probably moving some of it sooner versus later. That's really helpful. Thank you.

Scott Staples: And so the process has been treated like it's its own work stream. And we've taken two really senior leaders in First Advantage, and this is their full-time job. And Sterling has done the same on their side, and we've got steering committees and functional teams meeting daily for in-person sessions. So a lot of stuff is going on, and that's why it's given us confidence that we could raise that synergy number, not only from a total dollar value but, as David mentioned, probably moving some of it sooner versus later.

Speaker Change: Two really senior leaders.

Speaker Change: In first advantage and this is their full time job.

Speaker Change: And Sterling done the same on their side, and we've got steering committees and and and functional teams meeting.

Speaker Change: Daily and in person sessions. So a lot of stuff is going on and that's why we it has given us confidence that we could raise that synergy number up not only from.

Speaker Change: Our total dollar value but.

Speaker Change: As David mentioned, even probably moving some of it sooner versus later.

Heather Balsky: That's really helpful. Thank you.

Speaker Change: That's really helpful. Thank you.

Speaker Change: Yeah.

Speaker Change: Good morning.

David Dansey: Now moving to slide 12. Today, we are reaffirming our 2024 annual guidance. Our second quarter actual results positioned us well to achieve the midpoint of our full-year guidance. We still expect sequential quarter over quarter growth for revenues, adjusted EBITL and adjusted EBITL 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.

Speaker Change: I'd like to ask a question we will take our next question from Kyle Peterson. Your line is now open.

Scott Staples: Great. Thanks, guys. Good morning.

Kyle Peterson: Great. Thanks, guys. Good morning. I wanted to start on the upsell cross-sell, which continues to remain pretty strong here. I just wanted to see if you guys could provide any more color on what is continuing to drive the better package density here.

Speaker Change: Great.

Kyle Peterson: Thanks, guys good morning.

Kyle Peterson: Wanted to start on the upsell cross sell.

Speaker Change: That continues to remain pretty strong here.

Heather Balsky: I just want to see if you guys could provide any more color on what is continuing to drive in the better package density here. Yeah, I mean, obviously, as we had just announced, you know, two really large deals, one in the quarter, you know, on the upsell cross-sell side, and also new logo continues to chug along. You know, we're really happy, as we said, with controlling the things that are controllable.

Kyle Peterson: I just wanted to see if you guys could provide any more color on what is is continuing to drive a better better package density here.

Scott Staples: Yeah, I mean, obviously, as we just announced, you know, two really large deals, one in the quarter. And I think, and we've mentioned this before, this whole, what I'd call additional awareness of risk management. Our customers are really in tune with what's going on in the world and sort of how crazy the world is and how they need to protect their business, their employees, and their facilities. And they just are continuing to ask us for more and more protection and services.

Speaker Change: Yeah, I mean I.

Speaker Change: Obviously as we just announced two really large deals won in the quarter.

Kyle Peterson: I wanted to start on the upsell cross-sell. You know, that continues to remain pretty strong here. I just wanted to see if you guys could provide any more color on what is continuing to drive the better package density here.

Speaker Change: On the up sell cross sell side.

Speaker Change: And also new logo continues to chug along.

David Dansey: 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, along with the continued execution of upsell crosssell and new logo growth to be consistent with historical trends and long-term targets. We expect to maintain adjusted EBITDA margins approaching 31% at the midpoint and adjusted EBITDA in the range of 228 to 248 million dollars.

Scott Staples: Yeah, I mean, obviously, as we just announced, you know, two really large deals, one in the quarter, on the upsell, cross-sell side, and also, the new logo continues to chug along. We're really happy, as we said, with controlling the things that are controllable. I'll get to the answer to your question in a second, but I think one other thing that we really like is the consistency of those things. If you look back, even going back to 2021, and map out what we've done with upsell, cross-sell, new logo, and attrition, they've all been just super consistent along those lines. Upsell, cross-sell, 4% to 6% almost every quarter. New logo, 4% to 5% almost every quarter. Retention, 96%, 97% almost every quarter. It's just sort of the base that's obviously fluctuated.

Speaker Change: We're really happy as we said with controlling the things that are controllable and I'll get off.

Scott Staples: And I'll get, I'll get to your, I'll get to the answer to your question in a second, but I think one other thing that we, you know, really like is the consistency of those things. So if you look back, even going back to 2021 in mapping what we've done with upsell, cross-sell, new logo, and nutrition, I mean, they've all been just super consistent along those lines. You know, upsell, cross-sell four to six percent almost every quarter. New logo four to five percent almost every quarter retention 96 97% almost every quarter. It's just sort of the base that's obviously fluctuated.

Speaker Change: I'll get to here.

Speaker Change: It gets to the answer in a to your question in a second but I think one other thing that we really like is the consistency of those things. So if you look back even going back to 2021 and.

Speaker Change: Mapping that we've done with upsell cross sell new logo and nutrition I mean, they've all been just super consistent along those lines upsell cross sell 4% to 6% almost every quarter, a new logo, a 4% to 5% almost every quarter retention 90, 697% almost every quarter, it's just sort of the base.

David Dansey: This reflects the strength of their flexible model, discipline 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 capabilities of approximately $7 million. Looking at the quarterly phasing, we expect sequential top line improvement as we move through the remainder of 2024.

Speaker Change: That's obviously fluctuated so.

Scott Staples: So what's driving so again, really happy with the consistency and how we're able to control the controllables. And I think we've mentioned this before. What's really driving a lot of upsell cross-sell for us. is just this whole, what I'd call additional awareness of risk management. Our customers are really in tune with what's going on in the world and sort of how crazy the world is and how they need to protect their business, their employees, and their facilities. And they services. And that's really what's driven upsell and cross-sell. Yes, there's always a new product launch that helps drive that and other things.

Speaker Change: What's driving so again really happy with the consistency in how we're able to control the controllable.

Scott Staples: Again, really happy with the consistency and how we're able to control the controllable. And I think, and we've mentioned this before, what's really driving a lot of upsell and cross-sell for us is just this whole, what I'd call, additional awareness of risk management. Our customers are really in tune with what's going on in the world and sort of how crazy the world is and how they need to protect their business, their employees, and their facilities. And they just are continuing to ask us for more and more protection and services.

Speaker Change: And I think we've mentioned this before what's really driving a lot of upsell cross sell for us.

Speaker Change: Is just this whole.

Speaker Change: What I would call additional awareness of risk management.

Speaker Change: Our customers are.

Speaker Change: Or really in tune with what's going on in the world.

Speaker Change: And sort of how crazy the world is and how they need to protect their business their employees in their facilities.

David Dansey: We expect third quarter revenues to reflect modest positive growth, with that trend continuing sequentially into Q4. The midpoint of our guidance range also assumes continued macro-driven based declines that will improve sequentially through the year and getting to essentially flat plus or minus in Q4. We continue to expect quarterly EBITDA adjusted EBITDA margins of at least 30% in the second half of the year with upside potential.

Speaker Change: And they just are continuing to ask us for more and more protection and services and that's really what's driven.

Scott Staples: And that's really what's driven upsell and cross-sell. Yes, there's always a new product launch that helps drive that and other things. But in general, it's just this pivot toward wanting more risk management offerings. Companies are willing to spend money to protect the brand, protect shareholders, protect their business, protect their employees, protect their facilities. And that's just been a great tailwind for us for the last couple of years.

Speaker Change: Upsell and cross sell yes, theres always a new product launch that helps drive that and and other things, but in general. It's just this pivot toward wanting more risk.

Scott Staples: But in general, it's just this pivot toward wanting more risk management offerings. And companies are willing to spend money to protect the brand, protect shareholders, protect their business, protect their employees, protect their facilities, and that's just been a great tailwind for us for now, last couple of years.

Speaker Change: Management offerings.

Speaker Change: And companies are willing to spend.

Speaker Change: <unk>.

Speaker Change: To protect the brand protect shareholders.

David Dansey: Before I hand the call back to Scott, I would like to close by saying that it has been an honor to serve as the chief financial officer first advantage, and I would like to thank everyone for their support and confidence over the past eight years. In the coming months, Stephen and I will collaborate even more closely to ensure a smooth transition and to continue to deliver the future results that we articulated today.

Speaker Change: Their business protect their employees protect their facilities.

Speaker Change: And that's just been a great.

Speaker Change: Tailwind for us for for now last couple of years.

Kyle Peterson: That's really helpful, Culler, and I appreciate you guys calling out, you know, some of the Transaction Costs Related to Sterling that you guys incurred this quarter. Is there anything else notable, or at least that you guys have visibility to, in terms of transaction costs between now and when you close that you guys... You are able to disclose or estimate at this time.

Speaker Change: Got it that's that's really helpful color and I appreciate you guys calling out.

Kyle Peterson: That's really helpful color, and I appreciate you guys calling out some of the transaction costs. Really disturbing that you hasn't heard this quarter. Is there anything else notable or at least that you have visibility to in terms of transaction costs between now and you'll close that you are able to disclose or estimate at this time? So Kyle, we continue to incur costs as we go through the DOJ HSR review. We're not going to share those numbers at this point in time, but it will be further professional fees associated with that until we get the transaction closed.

Speaker Change: Some of.

Speaker Change: The transaction costs related to Sterling that you guys incurred this quarter I guess.

Speaker Change: Is there anything else.

Speaker Change: Notable.

Scott Staples: With that, let me turn it back to Scott for closing remarks before we open the line for questions. Thank you, David. We are delivering solid results and continuing to execute on our strategic initiatives. Most notably, we are progressing toward closing on the sterling acquisition, expected in the fourth quarter, while also leading with innovation and driving productivity through our AI solutions. We remain focused on delivering on our value creation playbook and shaping the future of first advantage to better serve our customers.

Speaker Change: Or at least that you guys have visibility to in terms of transaction costs between now and and Gil closed that you guys.

Speaker Change: You are able to to disclose our estimate at this time.

David Gamsey: So, Kyle, you know, we continue to incur costs as we go through the DOJ HSR review. We're not going to share those numbers at this point in time, but there will be further professional fees associated with that until we get the transaction closed.

Speaker Change: So Kyle we continue to incur costs as we go through the Doj HSR review.

Speaker Change: We're not going to share those numbers at this point in time, but it will be further professional fees associated with that until we get the transaction closed.

Scott Staples: With that, we will open the line for questions. Thank you.

Kyle Peterson: Okay, thank you.

Operator: Okay, thank you.

David Gamsey: Okay, thank you.

Speaker Change: Okay.

Kyle Peterson: Thank you.

Kyle Peterson: Yeah.

Todd: Thank you.

Operator: Thank you. This does conclude the First Advantage second quarter 2024 earnings conference call and webcast. Thank you for your participation. At this time, you may disconnect your line and have a

Todd: 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. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. If you were using a speaker phone, we request that you pick up your handset while asking your question to provide optimal sound quality. Thank you.

Speaker Change: Thank you. This does conclude the first advantage second quarter 2024 earnings conference call and webcast. Thank you for your participation. At this time you may disconnect your line and have a wonderful day.

Todd: This does conclude the first advantage second quarter, 2024 earnings conference call in webcast. Thank you for your participation. At this time, you may disconnect your line and have a wonderful day.

Kyle Peterson: Yeah.

Kyle Peterson: Okay.

Shlomo Rosenbaum: Our first question will come from Shlomo Rosenbaum with a beautiful. Your line is open. Please go ahead. Hi, thank you very much. I wanted to just ask you a little bit about the macro environment to what you're hearing from the customers in terms of hiring plans. It's just the commentary you had got about some stabilization in the context of, it's used to be a little bit higher unemployment and a little bit lower, you know, higher levels of, maybe say at lower levels of quick.

Kyle Peterson: Yes.

Operator: [music]

Kyle Peterson: Uh-huh.

Speaker Change: [music].

Speaker Change: Hum.

Speaker Change: [music].

Speaker Change: Uh-huh.

Speaker Change: Hum.

Shlomo Rosenbaum: So we're seeing at least in the Jolt's data. So I just want to ask you what you hear from your clients really on the ground and then I'll have a follow-up. Yeah, obviously the macro is something, you know, we're focusing on, you know, and trying to see, you know, where things would be going on this. But Shlomo, I think, you know, what we're hearing from customers is really unchanged for the last couple of quarters.

Speaker Change: Hum.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Hum.

Speaker Change: Hmm.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Shlomo Rosenbaum: We are still hearing that there's a strong demand for their products and services, but they are really not hiring ahead of the curve. It's more of just in time hiring and doing backfilling. So I think what we're hearing from them is cautious optimism and, you know, that's fine with us. You know, we really like, you know, that fact that we're seeing a little bit of normalization and stabilization in the space, you know, we're not getting those, you know, kind of like wild swings in base that we got during the pandemic years.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Hum.

Speaker Change: [music].

Speaker Change: Hum.

Speaker Change: [music].

Todd: Andrew Steinerman,

Shlomo Rosenbaum: So this is actually, you know, a little easier for us to manage our business. You know, because again, I think one other thing to remember is, you know, we really focus primarily on enterprise customers and enterprise customers, you know, are fairly resilient, especially in the verticals that we've got. And then it's just as a follow up, can you talk a little bit about the breakdown maybe of some of the movements between verticals and others, which ones are doing better, which ones are doing maybe not so well.

Speaker Change: Hum.

Speaker Change: [music].

Shlomo Rosenbaum: I know there were commentary that they were more similar and maybe just talk a little bit about that. And last quarter you had, you know, you talked a little about staffing, I think, when positive, which was a positive sign I wanted to know if that had continued to be positive. Yeah, this is this is really interesting because, you know, for the first time in, you know, in a long time, you know, what we saw from a vertical perspective was what we're saying is the return to normalization and stabilization.

Shlomo Rosenbaum: So in Q2, no single verticals revenue volumes were up or down beyond single digits. So we feel this narrowing of the gaps between the verticals really reflects an overall normalization of the business, which again, we welcome. So you know, for us specifically just to give you a sense, you know, transportation is our largest vertical at 24% of our revenue and it had a good quarter transportation was up 9%. I think our on the bottom of the spectrum was banking and financial services, which were down 7%.

Shlomo Rosenbaum: So everything else fell in between that. So you've got a lot of, you know, minus two minus three or plus two or flat or whatever it might be. So a lot more narrowing of the vertical staffing was still positive for us in the quarter. So we did have that that was on the positive side, but we love the fact that this is all sort of narrowing. I think what's probably the most reflective space that maps to the Jolt's data is what we're seeing in the SMB space.

Shlomo Rosenbaum: Again, we're an enterprise focused company, so SMB for us is not a large business, it's about 4% of our revenue. But I think SMB has always been more volatile to the macro swings, either positive or negative. And our SMB business was down 25%. So it's not really a vertical. But I think that's where we're seeing the business reflecting what's going on with Jolt's data. Again, it's not a huge impact to us because as we've said, over and over again, not only are we enterprise focused, but we're also more focused on the hourly worker. And if you look at our vertical mix of transportation and retail, whatever it might be, 71% of our revenue falls into that space and there's still a strong demand for that type of worker. Thank you.

Scott Staples: Our next question will come from Andrew Steinerman with JP Morgan. Please go ahead. Hi, Scott. She might think this one a little premature, but I'm going to ask about that teens EPS growth that you highlighted again today. I was wondering when you think about that over time comment post merger, how many years do you feel like the company combined could grow teens EPS and is the base year going to be 25?

Scott Staples: David, I'll throw that to you. So Andrew, based on all of our modeling, I think what you've seen and the results that we just released is that we've expanded the range of synergies that we think we can go get. We previously said we thought we could get 50 million plus. We now based on additional integration work that we've done believe that could be 50 to 70 million. So therefore, we think on a run rate adjusted basis, we can go get that right away and that that can continue as we continue to deliver and as interest rates go down. Did you want to give a timeframe of how many years do you think the teens growth could be sustained for? You know, at least a couple of years maybe longer.

David Dansey: It's a little bit early and premature to be commenting on the future like that. Thank you. Yeah, Andrew, just to clarify, I mean, you know, until we've get, you know, DOJ approval, we're just really doing a lot of planning. So we haven't really been able to get under the cover of under the hood and look at these things. You know, in more detail to give you a more detailed answer on exact years and that kind of stuff, but you know, we're pretty comfortable with these ball party estimates that we're giving right now. Thanks Scott.

Andrew Steinerman: Thank you our next question will come from Andrew Nicholas with William Blair please go ahead. Hi good morning. Thanks for taking my questions and congrats to David and Steven on the news from today. I wanted to ask on international growth. I think it was flat overall your year. Last quarter you talked about stabilization there. Scott he gave a bunch of great color on the vertical elements wondering if you could give similar commentary in what you're seeing in a pack and maybe in your IT services business in India.

Andrew Steinerman: Yeah, I mean, we were so happy to look at this data because as you know, international has been a drag on the business for literally two years. And so now, you know, we had been sort of signaling this as you know, and so again, think when we think of our international business, it's three buckets. It's a Mia, it's India, and it's a pack. So we lump Canada and Latin in with the North America.

Andrew Steinerman: I mean, you asked to create the America's business. So if you look at those three regional businesses in our international sector, India and a pack had been really the big drag. Over the last two years while Amia actually, you know, was sort of chugging along fairly nicely. So Amia continues to do that, and it was always really just what's going on in India and a pack. And we had we had signals to you guys in Q4 of 2023 that we thought India had bottomed out and would start growing.

Andrew Steinerman: And that's exactly what we saw in Q1 of this year. And in Q1 of this year, we kind of thought APAC had bottomed out and would start growing. What I would say is this is probably the bottoming out for APAC, and we now expect APAC to, you know, to start growing. Really, APAC is the drag on APAC particularly had been China. And, you know, China, you know, is what it is. But the rest of our APAC businesses starting to show some green shoots of life, which is, which is great.

Andrew Steinerman: In the India business, we are seeing IT services and BPO customers starting to, you know, slowly higher again. Again, I think cautious optimism is kind of what we're hearing out of that, but also remember that our comps are much better. So we're not talking about dramatic changes in the business. We are seeing some positive changes, but we're also now comping against, you know, much easier numbers.

Scott Staples: Perfect. Thank you. And then switching gears a little bit for my follow-up, the 60% number on employment gravitations that you cited, you know, maybe surprised me a bit in terms of how big that number was. I'm curious if that's up versus, you know, maybe this time last year or at any point in 23. And then also, is there any way to quantify or maybe even qualitatively speak to how much of those employment gravitations are hitting verified versus being directed to other providers, just trying to get a sense for how much would be, you know, a direct margin or even profit benefit to you if it's going to verify.

Scott Staples: Thank you. Yeah, and so the actual number is 60% of verifications being diverted. This is the first time we've given a number like this. So I know you're looking for trends and baselines and we will continue to do this sort of going forward as we get more data on this. But I just think, you know, without getting into specifics of numbers, which, you know, we're not really ready to do right now and we'll consider doing going forward.

Scott Staples: We're just basically seeing a much larger adoption of the concept of smart hub. You know, clients really like it because, you know, as we've said, you know, multiple times, you know, we believe where the, you know, the only background screener out there with that's offering these type of alternatives and clients are looking for alternatives. One, they want faster turnaround times but two, it's really driven by cost savings. This, you know, the verifications in general have become a heavy drag on the budgets of our customers and it's got, you know, really it's getting to an untenable position in terms of cost.

Scott Staples: And so it's really more, I'd say, of a, you know, our ability to, you know, to sell this and to promote it and market it. So the uptake has definitely increased. And the technology gets better and better every quarter. You know, remember that this is probably our best piece of technology in the company. It's machine learning and that means it gets better with every verification that it does. It's all the AI that's built into it.

Scott Staples: It just gets smarter and more sophisticated and that enables us to, you know, keep pointing it in different directions. And again, as we add more and more data records, you know, to our database, you know, we expect that number to improve. Appreciate it. Thank you.

Todd: As a reminder, if you would like to ask a question, please press star one at this time.

Heather Balsky: Our next question comes from Heather Balsky with Bank of America. Please go ahead. Hi, thank you. I was curious. It was interesting to see you expand the range of synergies. And then also you made a comment during the Q&A that you, you subit really gotten out of, I guess, under the hood, because as you, as you wait for approval. I'm just curious.

Scott Staples: So let me sort of paint a bigger picture for you first, Heather, and then I'll get more specifically to your question. So, I, you know, one, we're getting great advice from, from Silver Lake, who has done, you know, hundreds and hundreds of, of M&A deals, and from other third-party consultants has to, you know, how to structure things, how to, how to plan things. And what we've done is we've created dedicated teams that consist of both first advantage and sterling leaders.

Scott Staples: And those teams are literally meeting daily to go through, you know, data and do planning. We're not, we're not, you know, legally allowed to do any, you know, integration work, and there's certain, certain pieces of data we're not able to see at this point. But for, you know, what we've done from a planning standpoint and a conversation standpoint, we're because basically they're equal size companies and through those conversations and sort of mapping out what we would do in the first 100 days, in the first six months, in the first year, in the first 18 months, all that stuff is being planned.

Scott Staples: And as we map those things out, we're getting a better sense of timing of synergies as well. And so, while we don't have specific numbers, we've got pretty good ballpark numbers of sort of like where we can move things either sooner or later. And so the process has been treated like it's its own workstream. And we've taken two really senior leaders in First Advantage, and this is their full time job. And Sterling's done the same on their side.

Scott Staples: And we've got Sterling committees and functional teams meeting daily and in-person sessions. So a lot of stuff is going on. And that's why it's given us confidence that we could raise that synergy number up, not only from a total dollar value, but as David mentioned, even probably moving some of it sooner versus later.

Heather Balsky: That's really helpful. Thank you.

Scott Staples: I just want to see if you guys could provide any more color on what is continuing to drive in the better package density here. Yeah, I mean, obviously as we had just announced, you know, two really large deals, one in the quarter, you know, on the upsell cross sell side, and also new logo continues to chug along. You know, we're really happy as we said with controlling the things that are controllable.

Scott Staples: And I'll get I'll get to your I'll get to the answer in a to your question in a second, but I think one other thing that we, you know, really like is the consistency of those things. So if you look back, even going back to 2021 in mapping what we've done with upsell cross sell new logo and nutrition, I mean, they've all been just super consistent along those lines, you know, upsell cross sell four to six percent almost every quarter.

Scott Staples: New logo four to five percent almost every quarter retention 96 97% almost every quarter. It's just sort of the base that's obviously fluctuated. So what's driving so again, really happy with the consistency and how we're able to control the controllables. And I think we've mentioned this before what's really driving a lot of upsell cross sell for us, is just this whole, what I'd call additional awareness of risk management. Our customers are really in tune with what's going on in the world and sort of how crazy the world is and how they need to protect their business, their employees and their facilities.

Scott Staples: And they services. And that's really what's driven upsell and cross sell. Yes, there's always a new product launch that helps drive that and other things. But in general, it's just this pivot toward wanting more risk management offerings. And companies are willing to spend money to protect the brand, protect shareholders, protect their business, protect their employees, protect their facilities, and that's just been a great tailwind for us for now, last couple of years.

David Dansey: That's really helpful color and appreciate you guys calling out some of the transaction costs really disturbing that you hasn't heard this quarter. Is there anything else notable or at least that you have visibility to in terms of transaction costs between now and you'll close that you are able to disclose or estimate at this time? So Kyle, we continue to incur costs as we go through the DOJ HSR review. We're not going to share those numbers at this point in time, but it will be further professional fees associated with that until we get the transaction closed. Okay, thank you. Thank you.

Todd: This does conclude the first advantage second quarter, 2024 earnings conference call in webcast.

Todd: Thank you for your participation. At this time, you may disconnect your line and have a wonderful day.

Todd: [inaudible]

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