Q2 2024 First Advantage Corp Earnings Call

August 8, 2024

good day everyone my name is tod and i will be your conference operator today i would like to welcome you to the first advantage second quarter two thousand and twenty four earnings conference call and webcast

Operator: Today, I would like to welcome you to the first Advantage Second Quarter 2024 Earnings Conference Call and Web Caps.

Operator: 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.

Stephanie Gorman: Posting 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 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.

Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations.

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

Speaker Change: 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.

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

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

Speaker Change: Please note, today's event is being recorded. It is now my pleasure to turn the call over to Stephanie Gorman. You may begin.

Operator: You may begin. Thank you, Todd.

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: 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. Before we take in, I prepared remarks.

Stephanie Gorman: Before we begin our prepared remarks, I would like to remind everyone that our discussion today will be forward-looking. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in 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.

Stephanie Gorman: I would like to remind everyone that our discussion today will be for looking states. Such four are looking statements are not there in these of future performance. Actual results may differ materially from those expressed or implied in four are 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. Such factors may be updated from time to time in our period of filings with the FECs. Are waiting not under case any obligations to update four is looking states.

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

Speaker Change: such forward-looking statements are not guarantees of future performance

Speaker Change: 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.

Stephanie Gorman: Such factors may be updated from time to time in our periodic filings with the FDC, and we do not undertake any obligation to update for the looking state. Throughout this conference call, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to the 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 Vector Relations website.

Speaker Change: such factors may be updated time to time in our periodic filings with the sec or we do not undertainate any obligation to update forward-looking spates

Stephanie Gorman: Throughout this conference call, we will also present and discuss non-GAAP financial measures. Recommendations of our non-GAAP financial measures to the most directly comparable GAAP financial measures to the extent available without unreasonable efforts. Appearing 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 measures.

Speaker Change: reconciliations of our non-gaap financial measures to themmost directly comparable gaap financial measures to the excentent available without unraceable effor appearin today's earnings press release and presentation which are available on our investor relation bightite

Scott Wurtzel: I am joined on our call today. 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 innovation. 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, in the second quarter we delivered revenues of $185 million and adjusted EBITDA of $56 million and adjusted EBITDA margin of 30.2%.

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 turn the call over to Scott.

Speaker Change: i am joined on our call today by st bles for chief excessive officer to david dany for chief financial officer at our prepayer remarks we will be your question i will now turn the call over cust

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.

David: 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

Speaker Change: 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.

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.

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

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 30.2 percent.

Scott Wurtzel: 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: All of which were in line with what we communicated on our last earnings call and nearly flat on a year-over-year basis.

Scott Wurtzel: Justice. It gives us additional confidence in achieving our full year 2024 guidance, which we are reaffirming today. Our upsell, crosssell, 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.

David: This gives us additional confidence in achieving our full year 2024 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.

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: we also had two very large upsell bookings worth a combined thirteen point five million dollars in the second quarter

David: 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: 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.

Scott Wurtzel: Second 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 stabilize from the pandemic years. 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: second quarter results reflect a macroeconomic picture of normalization and stabilization within our business

David: 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 stabilization of key labor metrics, including quits, hires, and openings as job trends stabilize from the pandemic years.

David: additionally our customers continue to hire i'albe it 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 Wurtzel: 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. 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.

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.

David: as such we are skewed more toward the hourly worker who was still in very strong demand and tend 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 controllable. 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.

Scott Wurtzel: 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 deserve 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 percent of our cost of sales are third-party costs, and those costs are 100 percent 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.

David: 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.

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

David: over seventy percent of our cost of sales our third-party costs and those costs are one hundred percent variable

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 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. 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

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

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

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

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

Scott Wurtzel: 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 will allow us to deliver 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. 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.

David: 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 anticipate closing after we receive HSR clearance, which we currently expect in the fourth quarter of this year.

Operator: Today, I would like to welcome you to the first Advantage Second Quarter, 2024 Earnings Conference Call and Web Caps.

David: In the meantime, we are continuing to advance our pre-closing integration planning efforts.

Stephanie Gorman: Posting 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.

David: 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 Wurtzel: 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 to white color workers, while First Advantage focuses primarily on vertical 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 dollars 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 employees. 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.

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

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 verticals serving blue-collar hourly employees.

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

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

Stephanie Gorman: 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.

Speaker Change: 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.

Stephanie Gorman: Before we take in, I prepared remarks. I would like to remind everyone that our discussion today will be for looking states. Such four are looking statements are not there in these of future performance. Actual results may differ materially, from those expressed or implied in four are 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 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 period of filings with the FECs are waiting not under case any obligations to update four is looking states.

Scott Wurtzel: 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 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 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.

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 efficiency. 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. As an example, we can bring our full suite of I-9, TACS, and transportation products to Sterling's customers.

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

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.

Scott Wurtzel: I am joined on our call today.

David: unlock upsell and cross-sell opportunities, and reduce certain third-party pass-through fees. As an example, we can bring to Sterling's customers our full suite of I-9, tax, and transportation products.

Scott Wurtzel: 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 US, which we could potentially sell to our installment. 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 on-board better.

Scott Wurtzel: [inaudible] 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, in the second quarter we delivered revenues of $185 million and 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.

Scott Staples: Sterling has a recovery management service and a further developed digital identity product in the U.S. which we could potentially sell to our installed base. 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-performance 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: 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 base.

David: 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.

Scott Wurtzel: Author. 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. Upon closing the transaction, we will immediately almost double our revenues to nearly $1.5 billion on a performance 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 pre-cash flow generation.

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

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.

Speaker Change: i am 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 team's growth rate over time through the combination of top-line growth, ongoing synergy capture, and significant deleveraging enabled by our strong free cash flow generation. As we look ahead, our priorities after closing the transaction will be focused on our customers, successful integration, achieving synergies, and deleveraging our balance sheet. Overall, we expect that this strategic and accretive acquisition will benefit customers and investors, accelerate and advance our strategic priorities, and drive long-term value creation. Turning to slide seven and an update on our AI effort.

Speaker Change: Upon closing the transaction, we will immediately almost double our revenues to nearly $1.5 billion on a pro forma basis.

Scott Wurtzel: Justice. It gives us additional confidence in achieving our full year 2024 guidance, which we are reaffirming today. Our upsell, crosssell, 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: 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

Speaker Change: ongoing synergy capture and significant deleveraging enabled by our strong free cash flow generation.

Scott Wurtzel: 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: 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 Wurtzel: 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.

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

Scott Wurtzel: 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.

Speaker Change: Turning to slide 7, and an update on our AI efforts.

Scott Staples: 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.

Speaker Change: 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.

Scott Wurtzel: Second 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 stabilize from the pandemic years. Additionally, our customers continue to hire albeit at a more modest level.

Speaker Change: One way we are doing this is through the expanded use of our proprietary Smart Hub technology and verified database.

Speaker Change: 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.

Scott Wurtzel: 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 haven't 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 US, where we will link it out to new customers each week.

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 costs they incur. We are currently diverting up to 60% of verifications away from the most expensive third-party sources.

Speaker Change: smarthave enables us to quickly search across multiple data sources to determine the optimal verification source based on speed data quality and cost effectiveness

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

Scott Wurtzel: 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.

Speaker Change: We are currently diverting up to 60% of verifications away from the most expensive third-party sources. Our customers love SmartHub because, in many cases, it generates results quickly and helps them save money.

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.

Speaker Change: additionally we are continuing to expand our next gen profile vantage platform in the u s rolling it out to new customers each week this api first technology interface is used by applicant through either a computer tablet or mobile device

Scott Wurtzel: 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. 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%.

Speaker Change: With its embedded AI and machine learning, Profile Advantage drives significant time savings for both applicants and customers and enables fast time-to-hire.

Scott Wurtzel: 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 deserve margins, and we will continue to do so in the future.

Speaker Change: Our technology also complies with Web Content Accessibility Guidelines and our user experience is receiving very favorable reviews.

Scott Staples: We are also continuing to see success in utilizing AI for customer and applicant support with our Click, Chat, and Call initiative. 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.

Speaker Change: 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.

Scott Wurtzel: As a reminder, we have a highly flexible cost structure that allows us to adjust to changing conditions. Over 70 percent of our cost of sales are third-party costs, and those costs are 100 percent 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 to the man of the current environment.

Speaker Change: It has also allowed for continued headcount leverage in our call center, after having achieved an initial headcount reduction of approximately 20%.

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

Speaker Change: 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 Wurtzel: Before I turn the call over, David, to David, as you saw in our press releases 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.

Speaker Change: 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

Speaker Change: 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.

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.

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: David has been an outstanding leader and an exceptional colleague, and we all wish him well in his retirement.

Scott Wurtzel: 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.

Speaker Change: part of davids legacy is having created a high-performing finance teem inside our organization accordingly we're fortunate to announce that david will be succeed by our chief accounting officers stephen marks

Scott Wurtzel: 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 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 to white color workers, while first advantage focuses primarily on vertical serving blue collar hourly employees.

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 Stephen 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 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 Gamsey: And with that, I will now turn the call over to David. Thank you, Scott. Good morning, everyone.

David Gamsey: 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 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.

David Gamsey: 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 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's still a lot of exciting work yet to be done.

David: 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.

Scott Wurtzel: 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 dollars 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: 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.

Speaker Change: 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 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 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.

David Gamsey: 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, First Advantage, and the combined companies moving forward.

Scott: i hired stephen in two thousand and sixteen 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

Scott Wurtzel: 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 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 Gamsey: 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, turning to our second quarter results on slide nine. 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: 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.

David Gamsey: Now, back to business. Turning to our second quarter results on slide nine. In line with their 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.

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 AIPAC producing consistent, sequential, base revenue volumes.

Speaker Change: Now, back to business, turning to our second quarter results on slide 9.

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%.

David: in line with our previously communicated expectations our results for the second quarter improves sequentially over our first quarter results

David: Our second quarter revenues were $184.5 million flat compared to the prior year and $15.1 million greater than in Q1.

David: Currency had nearly no impact on results. For the quarter, Infinite ID contributed approximately 3.3 million dollars.

David: 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.

Scott Wurtzel: 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. Upon closing the transaction, we will immediately almost double our revenues to nearly $1.5 billion on a performance basis.

David: compared to the prior year at $24.2 million, or 13% of consolidated revenues.

David Gamsey: We believe that our international operations have now stabilized, with India and APEC 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 cents negative impact from a 2023 one-time special dividend, cherry 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.

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

David: 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.

Scott Wurtzel: 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 pre-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. 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: Our adjusted effective tax rate was 24.6 percent.

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 swaps. 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: Adjusted net income was $30.8 million for the quarter. 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 swaps.

David: When taking these into account, adjusted diluted earnings per share would have also been nearly flat on a year-over-year basis.

David Gamsey: On slide 10, you can see that our historical performance for upsell cross-sell, new customer logos, and nutrition 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 in additional $7.8 million, or 4.2%, in Q2.

David: On slide 10...

Speaker Change: 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

Speaker Change: base was still negative in q two but it did improve by four hundred basis points from q one

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%.

Scott Wurtzel: 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 haven't 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.

David: 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.

Speaker Change: New customer logos contributed an additional $7.8 million, or 4.2% in Q2. Base declined by $13 million, or 7% in Q2, and attrition was 4%.

David Gamsey: Based decline by $13 million or 7% in Q2, and nutrition was 4%.

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 cost 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. In addition to our existing $565 million of First Advantage debt, we anticipate raising approximately $1.6 billion of new term debt to fund a 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 forty point seven million dollars after adjusting for the eight point seven million dollars 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.

Scott Wurtzel: Additionally, we are continuing to expand our next Gen Profile Advantage platform in the US where we will link 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 Accessibly Guidelines and our user experience is receiving very favorable reviews.

Speaker Change: As we mentioned previously, given the pending sterling acquisition, we have suspended share repurchases as we continue to build cash.

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 debt, we anticipate raising approximately $1.6 billion of new term debt to fund the Sterling acquisition.

David Gamsey: 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. Additionally, as part of our financing agreement, we will upsize our revolver from $100 to $250 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 two point one five billion dollars of gross debt or approximately two billion dollars of met debt when considering our balance sheet cash expected at close

Scott Wurtzel: 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%.

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.

Speaker Change: 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.

David Gamsey: 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. We remain committed to our long-term net leverage target of 2 to 3 times and have a proven track record of vanishing 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 to five years after the closing date of the transaction, which will provide additional liquidity for our business.

Scott Wurtzel: Before I turn the call over, David, to David, as you saw in our press releases 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. Part of David's legacy is having created a high-performing finance team inside our organization.

David Gamsey: 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 and 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 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 EBITDA. Our passive delivery will be driven by high margin top line growth of the combined businesses, productivity efficiencies, cost synergies, and continued strong cash flow generation.

David Gamsey: 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.

Speaker Change: we remain committed to our long-term net leverage target of two to three times and have a proven track record of advantaging leverage

Speaker Change: 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. This is after repurchasing approximately $120 million in shares, paying a $218 million one-time special dividend, and completing our acquisitions.

David Gamsey: This is after repurchasing approximately $120 million 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 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: 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 delever will be driven by high-margin top-line growth of the combined businesses, productivity efficiencies, cost synergies, and continued strong cash flow generation.

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

Speaker Change: Interest rate cuts would help us accomplish this goal even sooner. Now, moving to slide 12.

David Gamsey: Now moving to slide 12. Today, we are reaffirming our 2024 Annual guidance. Our second quarter ACT results positioned 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.

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.

David Gamsey: And with that, I will now turn the call over to David. Thank you, Scott. Good morning, everyone.

Speaker Change: We still expect sequential quarter-over-quarter growth for revenues, adjusted EBITDA, and adjusted EBITDA margins similar to 2023.

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

Speaker Change: Based on the midpoint of $775 million, this results in slightly positive year-over-year organic revenue growth.

Speaker Change: this includes revenues related to infinite id which is expected to contribute approximately seven million dollars in the first eight months of the year as we cycle over the anniversary of that acquisition

David Gamsey: 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, First Advantage, and the combined companies moving forward.

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 their flexible model, discipline, cost management, and investments in automation. As a reminder, our JustADebit.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.

Speaker Change: We expect to maintain adjusted EBITDA margins approaching 31% at the midpoint and adjusted EBITDA in the range of 228 to 248 million dollars.

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

David Gamsey: Now, back to business.

David Gamsey: Turning to our second quarter results on slide nine. In line with their 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.

Speaker Change: 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.

Speaker Change: It also includes new investments in product, technology, and sales capabilities of approximately $7 million.

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, post declines. They'll improving sequentially through the year, and getting to essentially flat, closer-minus in Q4. We continue to expect quarterly, even 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 Gamsey: 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. We believe that our international operations have now stabilized with India and APEC producing consistent sequential based revenue volumes.

Speaker Change: Looking at the quarterly phasing, we expect sequential top-line improvement as we move through the remainder of 2024.

Speaker Change: We expect third quarter revenues to reflect modest positive growth.

Speaker Change: 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.

Speaker Change: We continue to expect quarterly adjusted EBITDA margins of at least 30% in the second half of the year with upside potential.

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, First Advantage. I would like to thank everyone for their support and confidence over the past eight years. 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.

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.

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%. Adjusted net income was $30.8 million for the quarter. Adjusted diluted earnings per share was 21 cents. This includes an approximately 2 cents negative impact from a 2023 one-time special dividend, cherry 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.

Scot: before i hand the call back to scot i would like to close by saying that it has been an honor to serve as the chief financial officer versus advantage and i would like to thank everyone for their support confidence over the past eight years

Scot: in the coming months se 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 Wurtzel: 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 initiative. 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 keeping the future of First Advantage to better serve our customers.

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

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 solution. 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: 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.

David Gamsey: On slide 10, you can see that our historical performance for upsell cross sell, new customer logos and nutrition 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 in additional $7.8 million or 4.2% in Q2. Based decline by $13 million or 7% in Q2, and nutrition was 4%.

Scott: 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.

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

Operator: With that, we will open the line for questions. Thank you. We will now begin the question and answer session. At this time, if you have a question, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. If you are 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. 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.

Operator: If you are using a speaker phone, 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 with Stiefel. Your line is open. Please go ahead. Hi, thank you very much.

Scott: If you are using a speakerphone, we request that you pick up your handset while asking your question to provide optimal sound quality.

Shlomo Rosenbaum: Our first question will come from Shnomo Rosenbaum with a steeple. Your line is open. Please go ahead. Thank you very much. I want to just ask you a little bit about the macro environment and what your parents and their customers in terms of current plans. It's just the commentary that has got about some stabilization. The context of it seems to be a little bit higher unemployment and a little bit lower, you know, higher levels of maybe say at lower levels of quits. So we're seeing, at least in the Joel state. I just want to ask you what you're hearing from your clients really on the ground, and then I'll have a follow-up.

Scott: Thank you.

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

Shlomo Rosenbaum: 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 this, at least in the JOLTS data. So I just want to ask you what you're hearing from your clients, really, on the ground.

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.

Scott: The commentary you had, Scott, about some stabilization...

Speaker Change: In the context of, it seems to be a little bit higher unemployment and a little bit lower, you know, higher levels of maybe say lower levels of quits that we're seeing at least in the JOLTS data. So I just wanted to ask you what you were hearing from your clients really on the ground and then I'll have a follow-up.

Shlomo Rosenbaum: on the ground, and then I'll have a follow-up.

Scott Staples: Yeah, obviously, the macro is something we're focusing on, you know, and trying to see where things are 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.

Scott Wurtzel: Yeah, obviously the macro is something we're focusing on 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 that's fine with us. We really like the fact that we're seeing a little bit of normalization and stabilization in the space.

Speaker Change: Yeah, obviously the macro is something you know we're focusing on, you know,

David Gamsey: 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 a 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.

Scott: 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.

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.

Scott Staples: So, I think what we're hearing from them is cautious optimism, and that's fine with us. We really like the 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 population that we got during the pandemic years.

Shlomo Rosenbaum: So I think what we're hearing from them is cautious optimism.

Scott: And, you know, that's...

Speaker Change: that's fine with us you know it's we really like you know that fact that we're seeing a little bit of ommalization and stabilization in the space you know we're not getting thoseknow kind of like wild swings in base that we got during the pandemic years

David Gamsey: 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 and extend the maturity date to five years after the closing date of the transaction, which will provide additional liquidity for our business.

Scott Wurtzel: We're not getting those wild swings and base that we got during the pandemic years, so this is actually a little easier for us to manage our business. Because again, I think one other thing to remember is we really focus primarily on enterprise customers, and enterprise customers are fairly resilient, especially in the verticals that we've got. And then, as just as a follow-up, can you talk a little bit about the breakdown maybe of some of the movements between verticals? In other words, which ones are doing better or 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.

Scott Staples: 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 that we really focus primarily on enterprise customers, and enterprise customers are fairly resilient, especially in the verticals that we've got. And then, 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 was commentary that they were more similar, and maybe just talk a little bit about that.

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

Scott: because again i think one ofother thing to remember is know we really focus primarily on enterprise customers and enterprise customers know you are fairly resilient especially in the verticals that we've got

Scott Staples: And last quarter, you had, you know, you 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: And then, just as a follow-up, can you talk a little bit about...

Speaker Change: the breakdown maybe of some of the movements between verticals in other words which ones are doing better which ones are doing

Speaker Change: maybe not so well. I know there was commentary that they were more similar. Maybe just talk a little bit about that. And last quarter you had, you know, you talked a little about staffing, I think went positive, which was a positive sign. I wanted to know if that had continued to be positive.

Scott Wurtzel: And last quarter, you talked a little about staffing, I think, when positive, which was a positive side. I wanted to know if that had continued to be positive. Yeah, this was really interesting, because 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's revenue volumes were up or down beyond single digits. So we feel this gnawing of the gaps between the verticals really reflects an overall normalization of the business, which again, we welcome. So 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.

Scott Staples: 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. 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.

Speaker Change: Yeah, this was really interesting because, you know, for the first time in, you know, in a long time.

David Gamsey: Our goal within 24 months of closing is to reduce net leverage toward approximately three times run rate adjusted EBITDA. Our passive delivery 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: 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.

Speaker Change: so we feel this narrowing of the gaps between the verticals really reflects an overall normalization of the business which again we welcome so

Speaker Change: 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%.

David Gamsey: Now moving to slide 12. Today, we are reaffirming our 2024 annual guidance. Our second quarter act results positioned 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.

Scott Staples: 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 2, minus 3, or plus 2, or flat, or whatever it might be.

Scott Wurtzel: Transportation was up 9%. I think 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 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.

Speaker Change: i think the bottom of the spectrum was

Speaker Change: 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 2, minus 3, or plus 2, or flat, or whatever it might be.

Scott Staples: So a lot more narrowing of the vertical. 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.

Speaker Change: a lot more narring of the vertical staffing was still positive for us in the quarter

Speaker Change: 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 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 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. 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 that's not really a vertical.

David Gamsey: This includes revenues related to infinite ID, which is expected to contribute approximately $7 million in the first eight months of the year as we cycle over the anniversary of that acquisition. We expect customer retention, 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.

Scott Wurtzel: Again, we're an enterprise-focused company. So, S&B for us is not a large business. It's about 4% of our revenue. But I think S&B has always been more volatile to the macro swings, either positive or negative. And our S&B business was down 25%. So, it's not really a vertical. But I think that's where we're seeing, you know, the business reflecting what is going on with Joel'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.

Speaker Change: again we're a enterprise-focused company so ssmb for us is not a large business it's about four percent of our revenue

Speaker Change: But I think SMB has always been more volatile to the macro swings, either positive or negative.

Speaker Change: And our S&B business was down 25%.

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

Scott Staples: But I think that's where we're seeing, you know, the business reflecting what's going on with JOLTS data. Again, 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. And if you look at our vertical mix of transportation and retail, 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 work. Thank you. The next question will come from Andrew Steinerman with J.P. Morgan. Please go ahead.

Speaker Change: But I think that's where we're seeing, you know, the business reflecting what's going on with Joel's data. Again, you know, it's not a huge impact to us because, as we've said, you know, over and over again, not only are we enterprise focused, but we're also...

David Gamsey: This reflects the strength of their flexible model, discipline cost management, and investments in automation. As a reminder, our JustADebit.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 approximate approximately $7 million. 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.

Speaker Change: 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, you know, falls into that space, and there's still a strong demand for that type of worker.

Operator: Thank you.

Andrew Steinerman: Our next question will come from Andrew Steinerman with JP Morgan. Please go ahead. Hi, Scott. You might think that's 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, you know, 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? Thank you, but I'll throw that to you. 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.

Speaker Change: Thank you. Our next question will come from Andrew Steinerman with J.P. Morgan. 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, you know, 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, you might think this one a little premature but I'm going to ask about that teen DPS growth that you

Andrew Steinerman: You highlighted it again today. I was wondering, when you think about that overtime comment, post-merger, how many years do you feel like the company combined could grow

David Gamsey: The midpoint of our guidance range also assumes continued macro-driven, based declines. They'll improving sequentially through the year, and getting to essentially flat, closer-minus in Q4. We continue to expect quarterly, even adjusted EBITDA margins of at least 30% in the second half of the year with upside potential.

Speaker Change: Teens EPS, and is the base year going to be 25?

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

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 it can continue as we continue to de-lever and as interest rates go down.

Speaker Change: payment i felt that ke

Speaker Change: yes

Speaker Change: 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 had previously said we thought we could get $50 million plus.

Scott Wurtzel: 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 go get that right away and that that can continue as we continue to deliver and as interest rates go down.

Speaker Change: we now based on additional integration work that we've done believe that would could be fifty to seventy 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 delever and as interest rates go now

Andrew Steinerman: Do you want to give a timeframe of how many years do you think the teens' growth could be sustained for? At least a couple of years; maybe longer. It's a little bit early and premature to be commenting on the future like that. Thank you.

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

Scott Wurtzel: 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 initiative. 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 keeping the future of First Advantage to better serve our customers.

Speaker Change: Did you want to give a time frame of how many years you think the team's 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.

Scott Wurtzel: Andrew, just to clarify, 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 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. That's good. Thanks, Scott. Thank you.

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, you know, we're pretty comfortable with these ballpark estimates that we're giving right now.

Speaker Change: Yeah, Andrew, just to clarify, I mean...

Speaker Change: 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, under the hood, and look at these things in more detail to give you a more

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

Speaker Change: 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.

Operator: 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.

Scott Staples: Sounds good. Thanks, Scott. You our next question will come from Andrew Nicholas with William Blair. Please go ahead. Hi, good morning.

Andrew Nicholas: 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 even on the news from today. I wanted to ask on international growth. I think it's flat overall year over year. Last quarter, you talked about stable and nation there. Scott, you do a bunch of great color on the vertical level. I'm just wondering if you could do a similar commentary on what you're seeing in APAC and maybe in the IT services business in India. 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.

Speaker Change: timess get thankscap

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

Andrew Nicholas: 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's flat overall year over year. Last quarter, you talked about stabilization there.

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

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

Andrew Nicholas: I wanted to ask on international growth, I think it's flat overall year-over-year.

Andrew Nicholas: Last quarter you talked about stabilization there. Scott, you gave a bunch of great color on the vertical level. I'm just wondering if you could give similar commentary in what you're seeing in APAC and maybe in your IT services business in India.

Scott Staples: Scott, you gave a bunch of great color on the vertical level. I'm just wondering if you could give similar comments.

Scott Staples: I think you could give similar commentary on what you're seeing in APAC and maybe in your IT services business in India. 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've been sort of signaling this, as you know, and so again, when we think of our international business, it's three buckets. It's EMEA, it's India, and it's AIPAC. So we lump Canada and Latin America, I mean, the US, together to create the Americas business.

Speaker Change: 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.

Scott Staples: 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 has actually, you know, been sort of chugging along fairly nicely. So EMEA, you know, continues to do that, and it was always really just what's going on in India and AIPAC. And we had signaled to you guys in Q4 of 2023 that we thought India had bottomed out and would start growing again, and that's exactly what we saw in Q1 of this year.

Scott Wurtzel: 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, it's three buckets. It's a Mia, it's India, and it's APEC. So we lump Canada and Latin with North America. I mean, the US to create the America's business. So if you look at those three regional businesses in our international sector, India and APEC had been really the big drags over the last two years, while AMIA actually, you know, was sort of chugging along fairly nicely. So Amia, you know, continues to do that, and it was always really just what's going on in India and APEC.

Speaker Change: 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, it's three buckets. It's EMEA, it's India, and it's APAC.

Shlomo Rosenbaum: So we're seeing at least in the Joel state. I just want to ask you what you're hearing from your clients really on the ground and then I'll have a follow up. Yeah, obviously the macro is something we're focusing on 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.

Speaker Change: so we lump canada and lat hand with the north america i mean to the u s to create the americas's business soif you look at those three regional businesses in our international set sector

Speaker Change: um

Speaker Change: india and apac had been really the big drags over the last two years while letmeia was sort of huugging along fairly nicely

Speaker Change: So AMIA, you know, continues to do that, and it was always really just what's going on in ADR and APAC.

Scott Wurtzel: And we had, 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, you know, to start growing. Really, APEC is the drag on APEC; particularly, it had been China. And, you know, China is what it is, but the rest of our APEC businesses starting to show some green shoots of life, which is great.

Speaker Change: 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.

Shlomo Rosenbaum: It's more of just in time hiring and doing backfilling. So I think what we're hearing from them is cautious optimism, and that's fine with us. We really like that fact that we're seeing a little bit of normalization and stabilization in the space. We're not getting those wild swings and base that we got during the pandemic years, so this is actually a little easier for us to manage our business. Because again, I think one other thing to remember is we really focus primarily on enterprise customers and enterprise customers are fairly resilient, especially in the verticals that we've got.

Scott Staples: And in Q1 of this year, we kind of thought AIPAC had bottomed out and would start growing. What I would say is, this is probably the bottoming out for AIPAC, and we now expect AIPAC to, you know, start growing. Really, the drag on AIPAC, particularly has been China.

Speaker Change: 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 start growing.

Speaker Change: 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.

Scott Staples: And, you know, China is what it is, but the rest of our AIPAC business is 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. Again, I think cautious optimism is kind of what we're hearing out of that. But also remember that our comps are much better.

Scott Wurtzel: In the India business, we are seeing Ikea services and VPO customers starting to, you know, 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, you know, much easier numbers.

Speaker Change: In the India business, we are seeing IT services and BPO customers.

Scott Wurtzel: And then as just as a follow-up, can you talk a little bit about the breakdown maybe of some of the movements between verticals, in other words, which ones are doing better or 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 talked a little about staffing, I think, when positive, which was an positive side, I wanted to know if that had continued to be positive.

Speaker Change: Starting to, you know, slowly higher again. 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.

Scott Staples: 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.

Speaker Change: We are seeing some positive changes, but we're also now competing against, you know, much easier numbers.

Scott Wurtzel: Perfect. Thank you. And then, 15 years, a little bit from my follow-up, the 60% number on employment gravitation that he cited, you know, maybe surprised me a bit in terms of how big that number was. I'm 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 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 verify.

Scott Staples: And then switching gears a little bit for my follow-up, the 60% number on employment verifications 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 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 verify.

Scott Wurtzel: Yeah, this was really interesting, because 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 verticals revenue volumes were up or down beyond single digits. So we feel this gnawing of the gaps between the verticals really reflects an overall normalization of the business, which again, we welcome. So 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.

Speaker Change: Perfect, thank you. And then switching gears a little bit for my follow-up, the 60% number.

Speaker Change: Unemployment Verifications that you cited.

Speaker Change: 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

Speaker Change: 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 verified. Thank you.

Scott Wurtzel: Thank you. Yeah. And so the actual number is 60% of verifications, you know, 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, you know, 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. 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 we are the only background screener out there that's offering these type of alternatives.

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, 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.

Speaker Change: Yeah, and so the actual number is 60% of verifications, you know, being diverted.

Speaker Change: 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: 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 Wurtzel: 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, S&B for us is not a large business. It's about 4% of our revenue. But I think S&B has always been more volatile to the macro swings, either positive or negative. And our S&B business was down 25%. So, it's not really a vertical. But I think that's where we're seeing, you know, the business reflecting what is going on with Joel's data.

Scott Staples: 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.

Speaker Change: 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.

Speaker Change: you know

Speaker Change: You know, we believe we're the, you know, the only background screener out there that's offering these type of alternatives.

Scott Wurtzel: 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. 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 it; this is probably our best piece of technology in the company.

Speaker Change: And clients are looking for alternatives. One, they want faster turnaround times, but two, it's really just driven by cost savings.

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

Speaker Change: Verifications, in general, have become a heavy drag on the budgets of our customers, and it's really getting to an untenable position in terms of cost. And so it's really more, I'd say, of a...

Scott Wurtzel: 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.

Speaker Change: our ability to

Speaker Change: You know, to sell this and to and to promote it and market it. So the uptake has definitely increased.

Scott Staples: 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.

Speaker Change: And as 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.

Scott Wurtzel: It's machine learning. And that means it gets better with every verification that it does. It's called 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 be on purpose. Thank you.

Scott Staples: It just gets smarter and more sophisticated, and that enables us to 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. I appreciate it. 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.

Scott Wurtzel: I was wondering, when you think about that over time, comment, you know, 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? Thank you, but I'll throw that to you. 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.

Speaker Change: 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

Speaker Change: Again, as we add more and more data records, you know, to our database, you know, we expect that number to improve.

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

Speaker Change: appreciate

Speaker Change: 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.

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 energy.

Heather Balsky: Hi, thank you. I was curious, and 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 that 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.

Heather Balsky: I was curious, it was interesting to see you expand the range of synergies.

Scott Wurtzel: And then also you made a comment during the Q&A that you haven't really gotten out of, I guess, under the hood because, as you wait for approvals, I'm just curious, can you talk a little bit about the work you have done to kind of that has enabled you to expand the range and how much you've learned while you're waiting for the process to get perfect. Thanks. Yeah, so we've done an incredible amount of work.

Speaker Change: 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 approval. I'm just curious, can you talk a little bit about the work you have done to kind of...

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

Scott Staples: Yeah, so... 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.

Scott Wurtzel: Do you want to give a timeframe of how many years do you think the teens growth could be sustained for? At least a couple of years may be longer.

Speaker Change: Yeah, so...

Scott Wurtzel: So let me sort of paint a bigger picture for you first, Heather, and then I'll get more specifically to your question. 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's certain pieces of data we're not able to see at this point.

Speaker Change: 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.

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 Wurtzel: It's a little bit early and premature to be commenting on the future like that. Thank you. Andrew, just to clarify, 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 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.

Heather Balsky: So, I, you know...

Andrew Steinerman: That's good. Thanks, Scott.

Heather Balsky: One, we're getting great advice from Silverlake, who has done hundreds and hundreds of M&A deals and from other third-party consultants as to...

Operator: Thank you.

Heather Balsky: 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.

Heather Balsky: And those teams are literally meeting daily to go through, you know, data and do planning. We're not, you know, legally allowed to do any, you know, integration work, and there's certain...

Andrew Nicholas: Our next question will come from Andrew Nicholas with William Blair. Please go ahead. Hi. Good morning. Thanks for taking my questions and in congrats to David and even on the news from today. I wanted to ask on international growth. I think it's flat overall year over year. Last quarter, you talked about stable and nation there. Scott, you do a bunch of great color on the vertical level. I'm just wondering if you could do a similar commentary in what you're seeing in APAC and maybe in the IT services business in India.

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 the 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.

Scott Wurtzel: But for what we've done 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 size companies. 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 get pretty good ballpark numbers of sort of like where we can move things either sooner or later.

Heather Balsky: For what we've done from a planning standpoint and a conversation standpoint, we're getting a much better sense of how to put these two businesses together.

Heather Balsky: because basically they're equal-sized companies and

Heather Balsky: through those conversations and you know sort of mapping out what we would do in the first you know hundred days in the first

Andrew Nicholas: 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 had been sort of signaling this, as you know, and so again, when we think of our international business, it's three buckets. It's a Mia, it's India, and it's APEC. So we lump Canada and Latin with North America.

Heather Balsky: six months in the first you know year in the first 18 months all that stuff is being planned.

Heather Balsky: And as we map those things out, we're getting a better sense of timing of synergies as well. And so, you know, 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.

Scott Wurtzel: 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 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.

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, even probably moving some of it sooner versus later. That's really helpful. Thank you.

Heather Balsky: sooner or later.

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

Heather Balsky: And so the process has been treated like it's its own work stream.

Heather Balsky: And we've taken two really senior leaders in First Advantage, and this is their full-time job.

Heather Balsky: And Sterling's done the same on their side. And we've got steering 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.

Heather Balsky: As David mentioned, even probably moving some of it sooner versus later.

Andrew Nicholas: 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, you know, to start growing. Really, APEC is the drag on APEC particularly had been China. And, you know, China is what it is, but the rest of our APEC businesses starting to show some green shoots of life, which is great.

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

Kyle Peterson: Thank you for your question, Kyle Peterson.

Scott Wurtzel: Your line is now open. Great. Thanks, guys. Good morning. Want to start on the upsell cross-sell, you know, that continues to remain strong here. I just want to see if you guys could provide any more color on, you know, what is continuing to drive better, better package density here. Yeah, I mean, obviously, as we just the now, 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, and I'll get I'll get here.

Speaker Change: He would like to ask a question.

Heather Balsky: We'll take our next question from Kyle Peterson, your line is now open.

Scott Staples: Great. Thanks, guys. Good morning. 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 better, better package density here.

Kyle Peterson: Thanks, guys. Good morning. I wanted to start on the upsell-cross-sell. You know, that continues to remain pretty strong here.

Andrew Nicholas: In the India business, we are seeing Ikea services and VPO 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.

Kyle Peterson: I just wanted to see if you guys could provide any more color on, you know, 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. New Logo continues to chug along.

Speaker Change: Yeah, I mean, obviously, as we had just announced, you know, two really large deals, one in the quarter.

Scott Staples: 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. So if you look back, even going back to 2021 and mapping what we've done with upsell, cross-sell, New Logo, and attrition, 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 percent almost every quarter. It's just sort of the base that's obviously fluctuated.

Speaker Change: You know on the upsell cross sell side And and also new logo continues to chug along You know, we're really happy as we said with controlling the things that are controllable and I'll get I'll get to your

Scott Wurtzel: I'll get through the answer in a, in a, 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 and you know, in 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, you know, upsell cross-sell four to six percent almost every quarter. Yeah, new logo, four to five percent almost every quarter retention 96 97 percent almost every quarter. It's just sort of the base that's obviously fluctuated.

Scott Wurtzel: Perfect. Thank you. And then 15 years, a little bit from my follow-up, the 60% number on employment gravitation that he cited, you know, maybe surprised me a bit in terms of how big that number was. I'm 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 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 verify.

Speaker Change: I'll get to the answer to your question in a second, but...

Kyle Peterson: I think one other thing that we, you know, really like is the consistency.

Speaker Change: of those things. So if you look back, even going back to 2021 and mapping what we've done with

Speaker Change: upsell, cross-sell, new logo, and attrition.

Speaker Change: I mean, they've all been just super consistent along those lines. You know, upsell, cross-sell, 4 to 6 percent almost every quarter. New logo, 4 to 5 percent almost every quarter. Retention, 96, 97 percent almost every quarter. It's just sort of the base that's obviously fluctuated.

Scott Staples: So again, really happy with the consistency and how we're able to control the controllables. 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.

Scott Wurtzel: So what's driving so again, really happy with the consistency and how we're able to control the controllables. And I think when 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, you know, 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. And that's really what's driven upsell and cross-sell.

Speaker Change: So, what's driving, so again, really happy with the consistency and how we're able to control the controllables. And I think, and we've mentioned this before, what's really driving a lot of upsell, cross-sell for us.

Scott Wurtzel: Thank you. Yeah. And so the actual number is 60% of of verifications, you know, 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, you know, 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.

Speaker Change: It's just this whole, what I'd call, additional awareness of risk management.

Speaker Change: Our customers are...

Speaker Change: 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 just are continuing to ask us for more and more protection and services. And that's really what's driven Upsell and CrossSell. 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 the last couple of years.

Speaker Change: And they just are continuing to ask us for more and more.

Scott Wurtzel: 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 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.

Speaker Change: Protection and Services.

Scott Wurtzel: 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, you know, protect their business, protect their employees, protect their facilities. And that's just been a great, you know, tailwind for us for the last couple of years.

Speaker Change: and that's really what's driven.

Speaker Change: Upsell and Crossell. Yes, there's always a new product launch that helps drive that and other things, but in general...

Speaker Change: It's just this pivot toward wanting more risk management offerings.

Speaker Change: And companies are willing to spend money to protect the brand, protect shareholders, you know, protect their business, protect their employees, protect their facilities, and that's just been a great, you know, tailwind for us for now, last couple of years.

Scott Staples: 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'll close that you guys... You are able to disclose or estimate at this time.

David Gamsey: That's that's really helpful color and appreciate you guys calling out, you know, some of the transaction costs really disturbing you hasn't heard this quarter. I guess, you know, is there anything else notable or at least that you have visibility to and in terms of transaction costs between now and you'll close that that you guys. You are able to disclose or estimate at the start. 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.

Collar: That's really helpful, Collar, and I appreciate you guys calling out, you know, some of the

Scott Wurtzel: 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 it, this is probably our best piece of technology in the company. It's machine learning.

Speaker Change: The transaction costs related to Sterling you guys have heard this quarter, I guess

Speaker Change: Is there anything else notable, or at least that you guys have visibility to, in terms of transaction costs between now and deal close that you guys

Speaker Change: You are able to disclose or 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.

Scott Wurtzel: And that means it gets better with every verification that it does. It's called 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 be on purpose. Thank you.

Speaker Change: 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 it will be further professional fees associated with that until we get the transaction closed.

David Gamsey: Okay, thank you.

Kyle Peterson: Okay, thank you.

Operator: Thank you.

Kyle Peterson: Okay, thank you.

Operator: This starts to include the First Advantage second quarter 2024 earnings conference call and webcast. Thank you for your participation.

Operator: At this time, you may disconnect your line and have a wonderful day.

Operator: 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 energy.

Scott Wurtzel: And then also you made a comment during the Q&A that you haven't really gotten out of I guess under the hood because as you wait for approvals, I'm just curious, can you talk a little bit about the work you have done to kind of that has enabled you to expand the range and how much you've learned while you're waiting for the process to get perfect. Thanks. Yeah, so we've done an incredible amount of work.

Scott Wurtzel: So let me sort of paint a bigger picture for you first, Heather, and then I'll get more specifically to your question. 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.

Scott Wurtzel: We're not legally allowed to do any integration work and there's certain pieces of data we're not able to see at this point. But for what we've done 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 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 Wurtzel: 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 get 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 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.

Scott Wurtzel: And we've got steering 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.

David Gamsey: [inaudible] You are able to disclose or estimate at the start. 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.

Operator: This starts to include the First Advantage second quarter, 2024, earnings conference call, and webcast. Thank you for your participation.

Operator: At this time, you may disconnect your line and have a wonderful day.

Q2 2024 First Advantage Corp Earnings Call

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