Q1 2025 First Advantage Corp Earnings Call
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Please stand by, your program is about to begin.
Erica: Good day, everyone. My name is Erica, and I will be your conference operator today. I would like to welcome you to the first Advantage First Quarter 2025 earnings conference call and webcast. Hosting the calls today from First Advantage is Stephanie Gorman, Vice President of Investor Relations.
Erica: At this time, all participants have been placed in a list and only mode to prevent any background noise. After the speakers remarks, there will be a question and answer session.
Erica: If you would like to ask a question during this time, please press star one on your telephone keypad
Erica: Evan, at any point your question has been answered, you may remove yourself from the queue by pressing star two.
Erica: 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.
Stephanie Gorman: Thank you, Erica. Good morning, everyone, and welcome to First Advantage's First Quarter 2025 Ernie Conference Hall.
Erica: In the investor's section of our website, you will find the earnings press release and slide presentation to accompany today's discussion. This webcast is being reported and will be available for replays on our investor relations website.
Erica: Before we begin our prepared remarks, I would like to remind everyone that our discussion today will include forward-looking statements, but forward-looking statements are not guarantees a future performance. Absolute results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors.
Erica: These factors are discussed in more detail in our findings with the SEC, including our 2024 Form 10K and our Form 10Q for the first quarter of 2025 to be filed with the SEC.
Erica: Such factors may be updated from time to time, in our periodic filings with the SEC, and we do not undertake any obligation to update forward-looking statements.
Erica: Throughout this conference call, we will also present and discuss non-GAAP financial measures.
Erica: for conciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures, to the extent available without unreasonable efforts, appear in today's earnings press release and presentation, which are available on our investor relations website.
Erica: To facilitate comparability, we will also discuss Proforma Combined Company Results, consisting of First Advantage and Sterling Check Corp Historical Results, and certain Proforma adjustments as if the acquisition of Sterling had occurred on January 1st, 2023.
The Proforma Information does not constitute Article 11 Proforma Information.
Speaker Change: I'm joined on our call today by Scott Staples, or Chief Executive Officer, and Steven Marks, or Chief Financial Officer. After our prepared remarks, we will take your question. I will now hand the call over to Scott.
Thank you, Stephanie, and good morning, everyone.
Thank you for joining our call.
Speaker Change: We have four key messages for today. First, we are pleased to share our first quarter results which exceeded our expectations.
Speaker Change: Our revenue performance was supported by the strength of our sales engine and increased scale.
Speaker Change: We also saw the positive impact of our accelerated synergy realization efforts in our adjusted EBITDA and adjusted EBITDA margins for the quarter.
Speaker Change: This is all while we maintain our relentless focus on cost discipline, which supported our performance within the current uncertain macro environment.
Speaker Change: Second, we are continuing to successfully execute on our post-close priorities as we integrate our $2.2 billion sterling acquisition.
Speaker Change: This includes a non-stop emphasis on our products and customers while continuing the integration process, focusing on customer attention, actioning synergies, and reducing net leverage.
Speaker Change: Third, we are seeing the benefits of our combined business as we execute on our FA5.0 strategy.
Speaker Change: We are accelerating our new go-to-market approach, winning and retaining customers across verticals with our outstanding combined capabilities and well-aligned high-performance culture.
and Fourth, we are reaffirming our full-year 2025 guidance.
Speaker Change: We are executing effectively on things we can control within our business and, despite the ever evolving and uncertain macro environment, we have not yet observed sustained and broad changes in our fundamental demand drivers.
Thank you.
Speaker Change: We remain confident in our strategy and positioning in the market to create long-term shareholder value.
Speaker Change: On that note, and before moving on, I would like to briefly address the hot topics of tariffs and reduction in U.S. government spending. As a quick reminder, 87% of our 2024 pro-former revenues were generated in the U.S.
Speaker Change: We do have meaningful international operations, however, importing and exporting goods is not part of our business.
Speaker Change: While tariffs could impact our customers and their customers, we have not yet experienced any noticeable indirect impact.
Speaker Change: Additionally, we do not have meaningful direct exposure to US federal government hiring and therefore have not seen any material direct impact from efforts to streamline federal government spending.
Speaker Change: Despite this limited direct exposure, we remain vigilant in the current environment with frequent coordination across the businesses to ensure that we fully understand the latest market conditions.
Speaker Change: We have contingency plans in place if the economic slowdown incrementally impacts our business and we are prepared to take actions to reduce cost as needed.
Speaker Change: Now, turning to slide five and a closer look at our results in the first quarter.
Speaker Change: We were pleased with both our top line and bottom line first quarter results, which exceeded our expectations, reinforcing our confidence in our resilient business model.
Speaker Change: Looking forward, our early view of April results also gives us optimism for Q2.
Speaker Change: For the first quarter, combined upsell, crosssell, and new logo rates performed in line with our historical growth algorithm and retention remained high at 96%.
Speaker Change: We are particularly proud of the work our team is doing to maintain these high levels of retention while actioning and accelerating our integration playbook.
Speaker Change: Our sales pipeline momentum continues with 14 enterprise bookings in the first quarter and 78 in the last 12 months, each with $500,000 or more of expected annual contract value.
Speaker Change: It was not just a good quarter for the number of bookings, but also the total value of these deals represented a record quarter for us.
Speaker Change: This was driven by increasing average deal size, signaling strong package density and value selling, which we are seeing across most verticals and geographies.
Speaker Change: The three large deals we discussed during last quarter's earnings call have all been officially booked and we are moving forward swiftly to get these deals live and generating revenue.
Speaker Change: As a reminder, these deals include one with a significant retail customer in the retail gig economy.
Speaker Change: One in Australia representing our largest international contract in the past number of years, and one in healthcare leveraging our best and breed platform approach.
Speaker Change: We still expect this revenue to come in during the second half of the year as this progresses further supports our confidence in the robust pipeline.
Speaker Change: As a reminder, the two US deals have the potential to be top 10 customers.
Speaker Change: Our balance across a diverse range of global verticals, customer segments, and between hourly and salary-focused customers.
Enables us to weather a variety of macroeconomic scenarios.
Speaker Change: In Q1, we had healthy demand from our transportation vertical, where recurring compliance services supported continued demand in the industry.
Speaker Change: We also saw positive momentum in financial services with continued stability in healthcare and recovery in our international regions which have been more stable and predictable since the middle of last year.
Speaker Change: We have seen some macro indicators around job turnover start to normalize, as we expected, and as a result, our base declines have improved.
Speaker Change: While our value proposition is resonating with customers and prospects, there is a high degree of macroeconomic and policy uncertainty. This is causing our customers to take a wait and see approach which may cause stagnation in our business volumes.
Turning to Slide 6
Speaker Change: We remain laser focused on our post-close priorities. We are executing our integration plans smoothly without disruptions to customers and successfully delivering across all platforms while integrating
Speaker Change: We are leveraging the best solutions and technologies from each of the first advantage and sterling platforms and increasing back-end automation.
Speaker Change: While also launching new products, we believe our customers will value.
Speaker Change: For example, we have rolled out our AI-enabled Click Chat Call customer care platform to be Starling customers.
Speaker Change: Giving customers across our global platforms access to our award-winning customer service and allowing us to streamline operations.
Speaker Change: Since first deployed by First Advantage in 2023, Click Chat Call has delivered impressive improvements in customer satisfaction and service levels while also reducing our costs.
Speaker Change: Additionally, we continue to focus on innovation to support our customers' priorities of speed, cost, and efficiency while optimizing our internal operations.
Speaker Change: An example of this is our recent implementation of AI agents in the automation of criminal records processing.
Speaker Change: which in certain applications has increased our speed from minutes per task to nearly instantaneous and eliminate all of the manual touches, delivering the leading speed and quality our customers expect from us.
Speaker Change: Our digital identity products are another example of our innovation leadership and represent a growing market opportunity for a best-in-class technology and software capabilities.
Speaker Change: According to a recent Gartner report, the rise of AI-generated candidate profiles, including fake identities.
Fake Faces, and Fake Voices.
Speaker Change: means that by 2028, one in four job candidates globally could be a fake.
Speaker Change: We have had an increasing number of our customers using our digital identity products to help them manage this rapidly evolving challenge and we see strong future growth potential for these type of products.
Speaker Change: Additionally, we continue to keep our customers at the center of everything we do.
Speaker Change: We were thrilled to have hosted a record number of attendees, including both customers and prospect at our annual Collaborate User Conference in mid-April.
Speaker Change: Attendees, including a healthy number of sterling customers, were able to gain in-depth knowledge into our products, benchmark their programs against best practices, and gain insights into trends impacting the HR industry.
Speaker Change: We were pleased to hear directly from our customers about how our proprietary data and advanced technology capabilities solve the challenges they are facing in their pre and post onboarding programs, providing us with a clear competitive advantage.
Speaker Change: Our customers and team left the event energized and excited about what is coming next from First Advantage.
Steven Marks: With that, I will now turn the call over to Steven.
Steven Marks: Thank you Scott and good morning everyone. Today I will provide color on our Q1 results, give you an update on our energy progress and discuss our reaffirmed guidance.
Steven Marks: Please note that we plan to focus on our consolidated business going forward as we continue to swiftly execute our integration program and implement our FA5.0 strategy.
Starting with our first quarter results on Slide 8.
Steven Marks: As you heard, our first quarter revenues exceeded our expectations, coming in at $355 million, or nearly flat to last year on a pro-forma basis.
Steven Marks: Our go-to-market success continued to hit our historical rates with the combined contribution of new logo and upsell cross-sell revenues delivering 9.3% growth in the quarter, and our retention remained high at a level of 96%.
Steven Marks: Adjusted EBITDA for the first quarter also exceeded our expectations, coming in at $92 million with an adjusted EBITDA margin of 26% of approximately 200 basis points versus the prior year on a pro forma basis.
Steven Marks: These results were enabled by our focus on accelerating synergies, our disciplined approach to cost management and the scalable nature of our business.
Steven Marks: Additionally, we remain focused on improving the historical operating margins of the sterling business, as the mix and cost structure of sterling is a bit different than first advantages
Steven Marks: Adjusted to Looted EPS with 17 cents or flat year over year. The benefit of our greater scale, which now includes sterling results, was offset by the incremental interest on the transaction financing and the dilutive impact of the new shares issued for the acquisition.
Steven Marks: On Slide 9, you can see how we are making great progress on actioning our synergy program. In Q1, we actioned an incremental $17 million in run rate synergies, bringing us to a total of $37 million.
Steven Marks: This represents robust progress towards our synergy goals. And with the Q1 acceleration, we have exceeded our enhanced objective of actioning 50% of our target in the first six months post-closing.
Steven Marks: We remain confident in our ability to achieve our run rate synergy target range of $60-70 million within two years.
Steven Marks: Of our $37 million of action-run rate synergies, $12 million had been realized since we began our integration efforts, of which approximately $8 million contributed to our Q1 results.
Steven Marks: We are pleased to see the success of our integration and synergy execution come to fruition so quickly.
Steven Marks: On Slide 10, we are showing our revenue growth algorithm drivers.
Steven Marks: Note that while our historical data is broken out separately, we will be providing combined data going forward as our go-to-market organization is nearly fully integrated.
Steven Marks: In the first quarter, base came in just better than we had expected. This upside, combined with the sustained contribution from new logo and upsell cross sell, plus strong customer retention and powered RQ-1 results.
Steven Marks: Now turning to cash flow and net leverage on slide 11.
Steven Marks: During the quarter, we generated adjusted operating cash flows of $33.3 million, and we continue to closely manage our working capital and focus on cash flow generation.
Steven Marks: Our year-over-year decline in adjusted operating cash flows was driven by the increased debt service from our acquisition related debt and management incentive plan payments related to operating as a combined company.
Our cash balance at March 31st, 2025 was $172 million.
Steven Marks: With this ample liquidity and cash flow, subsequent to the end of the quarter, we made a voluntary principal debt payment of $15 million.
Steven Marks: This, combined with the March 31st Schedule Prepayment of $5.5 million, are the first steps of meeting to reduce our debt in line with our capital allocation priorities.
Steven Marks: Our synergized LTM Proforma-adjusted EBITDA and net leverage ratio at quarter-end was 4.4 times.
Steven Marks: Additionally in April , we entered into a $250 million interest rate swap, effective through April 2028, which locks in a 3.56% interest rate, accelerating the benefits of anticipated future interest rate cuts, and reducing our 2025 interest costs.
Relative to Current Spot Rates
Steven Marks: These actions demonstrate our capital allocation playbook, Coming to Life, and how we are committed to swiftly reducing net leverage towards approximately three-time, synergized, pro forma adjusted EBITDA within twenty-four months post-close.
Steven Marks: Our long term net leverage target range remains at 2-3 times
Moving to Slide 12 and our 2025 guidance.
Steven Marks: I'll start with a quick reminder that year-over-year comparisons are on a pro-forma basis to allow for easy comparability.
Steven Marks: Our modest outperforming Q1 and early Q2 trends are encouraging. As Scott mentioned, our customers remain in a wait-and-see mode, as among many things, the impacts of tariffs and other policies remain a key area of uncertainty across the global economy.
Steven Marks: With this in mind, we are reaffirming our full-year guidance today with our outlook for the remainder of the year, assuming a certain degree of macro stability.
Steven Marks: We expect that base revenues will remain a growth headwind in Q2 and for the full year, improving sequentially and turning to neutral and then slightly positive later in the year.
Steven Marks: We anticipate continued productivity of upsell cross sell and new logo growth consistent with historical trends and our robust deal pipeline supports our expectations for the full year.
Steven Marks: We also expect customer retention to remain in line with our historical performance of 96 percent, even as we continue to diligently integrate the sterling acquisition.
Steven Marks: FX typically doesn't play a large role in our business. However, we are currently forecasting it to be a mild headwind for the year.
Steven Marks: Looking at our quarterly phasing for the remainder of the year, we now expect Q2 revenues to come in between down 2% and up 2% year-over-year.
Steven Marks: As Scott mentioned, April was off to a good start which gives us some degree of confidence in our Q2 expectations in this period of macro uncertainty.
Steven Marks: Later in the year, we will begin to lap easier comps and we anticipate sequential year over year total revenue growth improvement from Q2 to Q3 with fourth quarter's growth rate about on part with a third.
Steven Marks: Starting with Q2, we expect adjusted EBITDA margins to be around or above 28%.
Steven Marks: We also anticipate that starting in Q2 we should see a considerable adjusted deluded EPS improvement as revenue ramps sequentially compared to Q1 and synergies are more fully realized.
Steven Marks: We expect that quarterly adjusted deluded EPS will be in the low to mid-20s and Q2, increasing to the mid-to-high-20s and the final two-quarters of the year.
Steven Marks: We now anticipate free cash flow of $65 to $95 million for 2025.
Steven Marks: Keep in mind that embedded in this assumptions are one-time costs related to synergy achievement, which we are focused on minimizing when we can.
Steven Marks: The payout of deferred transaction proceeds tied to equity vesting, as well as our assumption for required working capital based on our revenue guidance and integration status.
Steven Marks: We have provided a chart in the appendix to the earnings presentation with FX, CapEx, Interest, and other modeling assumptions.
Steven Marks: With that, let me turn it back to Scott for closing remarks before we open the line for your questions.
Thanks, Steven.
Speaker Change: In closing, I would like to emphasize our consistent focus at First Advantage, delivering on our value creation playbook and shaping the future of our company to better serve our customers.
Speaker Change: Our diversified exposure to verticals, customers, and geographies aligns us with exciting growth opportunities while also providing balance and resilience in an uncertain macroeconomic environment.
Speaker Change: As a reminder, we will be hosting our inaugural investor day on May 28th
Speaker Change: At that event, we plan to share more about our FA5.0 strategy and update on our integration program, as well as long-term targets that will guide our business over the coming years.
Speaker Change: We will also detail the strengths of our business model, including our unique combination of technology and data that helps our customers hire smarter and onboard faster.
Speaker Change: Lastly, I want to thank the entire First Advantage team for their hard work and consistent dedication to serving our customers. With that, we will open the line for questions.
Okay.
Speaker Change: Thank you. We will now begin the question and answer session. At this time, if you would like to ask 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.
Speaker Change: If you are using a speakerphone, we request that you pick up your handset while asking your question to provide optimal sound quality.
Speaker Change: Thank you. Our first question comes from Shlomo Rosenbaum with Steeple.
Thank you very much.
Speaker Change: Thought the results are surprisingly strong in the current uncertain environment and I want to ask you just to elaborate a little bit more about
Speaker Change: Some of the cross-currence you're talking about from the clients, from the one hand you said that you're encouraged about April .
Speaker Change: about what you're seeing, but on the other hand you're saying that you're seeing some we didn't see from the client so...
Speaker Change: Could you just reconcile those two comments and give us a view as to what exactly is it that you're seeing and then keeping the guidance the way that it is with this strong quarter, is that just giving yourself some room in case things do deteriorate?
Speaker Change: Yeah, Shlomo, great question. So I think I'm going to work backwards on that and the first answer is yes. Obviously, you know, we're in very unique macroeconomic times. And so we want to be a bit conservative with how we view the rest of the year. And I think
Speaker Change: One thing that we've always been very, very good at is…
Speaker Change: on going conversations with our customers. We are in front of our customers all the time.
Speaker Change: And so, yes, we are seeing strong order volumes and you obviously saw that in our Q and results and our commentary on April but our clients are you know, we asked them about forecasting the rest of the quarter, the rest of the year.
Speaker Change: They're just not really willing to do that yet because they're uncertain about what the macro will bring so that's why they're in a wait and see mode
Speaker Change: So we've really, I think I've mentioned this before, you know, we've really got most, a lot of our clients have got into this just in time hiring mode.
Speaker Change: where they trigger hiring, you know, quickly based on business needs or macroeconomic influences and that that's fine with us because speed is what we're known for but that's why we're in the wait and see mode because that's what our clients are telling us.
Speaker Change: Okay, thanks. And just want to follow up a little bit of a broken record on this son in terms of, you know, about that since that acquisition, but you focus a little bit more on retention.
Speaker Change: and talk about how retention, specifically in the sterling base, is trending vis-a-vis your original deal model. What I would say is probably the biggest concern that I had going into the deal, and it seems that it's holding up, so...
Speaker Change: Yeah, are there any areas that are holding up better than others? And it seems like 96% is pretty good for a combined company with this kind of integration.
Speaker Change: Yeah, and this was I think the result of you know laser focus on this exact topic and we've been planning this for over a year of how we're going to not only serve customers but how we're going to communicate the customers.
Speaker Change: So we've been over communicating, especially to this sterling base about, you know,
Speaker Change: What's coming with this best of breed technology approach? And quite honestly, they've been very excited.
Speaker Change: The sterling base is excited about what we essentially will be bringing in terms of upgrades and new features and functionality and the example that is what I gave in the script was...
Speaker Change: You know, one of the very first things we launched to the sterling install base was clickchat call.
Speaker Change: Sterling customers in the past did not have the availability to chat with customer care. They had a dial in 800 number. That is no longer the case. They can now chat and they are chatting. They're loving it.
Speaker Change: I think it was that as an example of other things that we're going to be rolling out across both the First Advantage install base when we find best of breed from the Sterling platform that we bring to First Advantage customers and vice versa.
Speaker Change: So I would use the word excitement for the Sterling customer base and obviously we're extremely happy with retention and we're also happy with how many Sterling customers came to our user conference collaborate they were very excited to attend an event like that
Speaker Change: and then the last thing I'll point you to Shlomo is the...
Performance in Q1 from the sales team.
standpoint.
Speaker Change: But numbers are just part of the story. What's also really important for us was that also signaled to us that the market was also excited about this acquisition.
Speaker Change: It's not slowing down new logo and upsell crossover. In some cases, it may be accelerating it. So all those things put together, we really have a good view and very enthusiastic about this integration.
Speaker Change: Thank you, and we will go next to the line of Ashish Sabadra with RBC Capital Markets. Please go ahead.
Will Cheon: Great, morning guys, this is Lil Chion for Shlomo, I appreciate you guys taking our question.
Speaker Change: Maybe just wanted to kind of drill down and follow up on the question kind of what you guys are seeing.
Speaker Change: I know you guys had previously mentioned expectations for base growth in that second half, shifting more to neutral than positive layer on with the general market and macrovolta. Does that shift your base assumptions at all or is it still similar to what you've expected next?
Speaker Change: So obviously, there's overhang from the macro we can't control what comes out of Washington, but based on what the trends were seeing today when you get to that back part of the year. There's an there is an inherent stability that comes out of base. It's really a neutral state is what I would call. It when it's when it's obviously flat it's flat, but even when it's slightly positive it's not a major.
Speaker Change: Growth engine.
Scott Staples: But you do also then have the sustained contribution of new logo and upsell cross sell to that the pipeline's success that Scott just talked about.
Speaker Change: Our expectation that we still have a strong focus on customer retention. So once we get to that base neutral state. We felt really good about the condition we're in.
Scott Staples: And prime to prime for for good results.
Speaker Change: And let me add to that that I think one thing to point out.
Scott Staples: Is that.
Scott Staples: New logos and upsell cross sell get tracked as new logo and upsell cross sell for 12 months and then after 12 months that converts to base and if you think about our consistent delivery on new logo upsell cross sell.
Scott Staples: All of the wins, we had a year ago and whatever they start converting to base. So the sales engine has really been humming and that's going to also help base. So not only is it easier comps, but we're you know we're pouring some new logo upsell cross sell revenue into the base.
Scott Staples: As they as they transition from one calculation to the other.
Scott Staples: Yeah.
Scott Staples: I appreciate it thank you guys.
Speaker Change: Thank you and we'll go next to the line of Andrew Steinman with J P. Morgan. Please go ahead.
Andrew Steinman: Hey, Scott.
Speaker Change: Tim just spoke about getting back based revenue to neutral I just wanted to do a maybe a quick review on base revenue growth.
Andrew Steinman: In the Algo for first advantage I'm sure you remember at the time of the IPO.
Andrew Steinman: The algo included 2% to 4% base growth.
Andrew Steinman: Obviously, there was upside now there's there's downside to base growth, but you know if we're going to look at base growth.
Andrew Steinman: Thinking about <unk> in particular.
Andrew Steinman: Level of quits currently and prospectively.
Andrew Steinman: Do you feel like base growth could grow 2% to 4% over the medium term after we get back to neutral here this year.
Andrew Steinman: Yeah I mean.
Speaker Change: We look at the same data you look at Andrew, but if you look at quits openings hires unemployment they've all been flat.
Speaker Change: So I think Steven may have used the term stability despite uncertainty.
Speaker Change: And I think that's an important term when it comes to the macro because we're seeing stability, but obviously there is an overhang of uncertainty.
Speaker Change: So.
Steven Marks: I think ultimately, yes, we believe that we can get back to two to 3% to 4% positive base growth, but it probably won't be until early 2026 are our model has us as Stephen mentioned getting to neutral base by the end of this year.
Steven Marks: But we're certainly expecting 2026 to start turning positive not that we want to get that far out.
Steven Marks: But the comps are getting easier and easier and as I mentioned earlier the sales engine keeps humming. So just for example.
Steven Marks: A record number of deals this quarter that that turns into base a year from now so that that should also help the growth.
Steven Marks: Well said thank you.
Steven Marks: Thank you.
Speaker Change: And we'll go next to Andrew Nichols with William Blair.
Speaker Change: Sorry, Andrew Nicholas with William Blair. Please go ahead.
Andrew Nicholas: Great. Thanks, Good morning, and I. Appreciate you taking my questions. Scott you touched on in an answer earlier, but I wanted to open up the conversation a little bit more on market structure and maybe the volume of Rfps that youre seeing both sterling.
Andrew Nicholas: Bookings numbers the pipeline commentary all really good are you also seeing.
Speaker Change: More rfps come your way is that a function of win rates being better just trying to kind of unpack if if you're also seeing more interest in.
Andrew Nicholas: And if theres anything to quantify that that'd be helpful too.
Andrew Nicholas: Yeah.
Andrew Nicholas: I don't think we can quantify it today, that's something we can certainly get into her investor day.
Andrew Nicholas: A little more in.
Andrew Nicholas: In depth into pipeline and stuff.
Andrew Nicholas: I would say you know keep in mind.
Andrew Nicholas: The first advantage in Sterling brands were excellent in.
Andrew Nicholas: In the market and we were already at pretty good RFP volumes and pretty good win rates. So the sales engine has been has been performing very well so rfps.
Andrew Nicholas: We're running about normal I would say, which is good because you take the combined company put together that's that's a good thing, but I think whats driving it more and we'll certainly get into more of this in Investor day is that Theres a lot of trends going on in the industry that I would say are fairly new and.
Andrew Nicholas: Digital identity being one of them we mentioned the Gartner report.
Andrew Nicholas: Of of.
Andrew Nicholas: Deep fakes and fraud in the recruiting.
Andrew Nicholas: And on boarding cycle, hitting pretty pretty significant marks by the by 2028 companies are actually dealing with that now.
Andrew Nicholas: And that's driving a lot of Rfps is driving a lot of upsell cross sell and I can guarantee you that not every provider in this space has technology solutions available for that.
Andrew Nicholas: So those things kind of trend in our favor as.
Andrew Nicholas: As our customers and prospects look too.
Andrew Nicholas: Find vendors and partners with with state of the art technologies and partners, who can combine data sources and technologies into a single views. That's also extremely important to them. So that is driving a lot of this nice volume and I think it was a big component of the Q1 record deals that we had but.
Andrew Nicholas: Again, I think we can dive a little bit more into that in investor day, but that is where we think a lot of growth will come from.
Speaker Change: Great. Thank you and then just for a quick follow up on the large deals can you refresh us or remind us on the typical timing for how long you expect it to take for those to onboard and then start generating revenue.
Speaker Change: Yeah, I mean, yeah.
Speaker Change: Every every prospect that we onboard has.
Speaker Change: Varying timeline of how long it takes to actually onboard them.
Speaker Change: Probably average about.
Speaker Change: 90 days or so for most customers, but when they're big and complicated like this typically takes about six months.
Speaker Change: So we are.
Speaker Change: Spectating.
Speaker Change: To start revenue in all three of them. This year all three of them probably late Q2 early Q3.
Speaker Change: Which would be sort of on schedule with that that six months that it takes to get them up and running.
Speaker Change: Great. Thank you.
Speaker Change: Thank you and we'll go next to Manav Patnaik from Barclays. Please go ahead.
Speaker Change: Hi, This is Thomas on for Manav.
Speaker Change: Wanted to go back to guidance and understand what gives you that confidence in the guide.
Speaker Change: It would take it to the top and bottom of the range respectively.
Speaker Change: Yes, it's a good question I mean, obviously.
Speaker Change: There is kind of an implied level are expected level of stability I think the stronger that that stability remains in the the better will perform.
Scott Staples: I'd like you just heard from Scott, we do have a good healthy amount of confidence in the things that we can influence and control around new logo generation and an up sell cross sell revenue generation.
Speaker Change: And we will remain focused to achieve those historical 96 plus percent retention levels.
Speaker Change: The real wildcard really comes down to kind of just the underlying base volumes.
Speaker Change: You know like Scott mentioned in the prepared remarks, you know.
Speaker Change: We had a good Q1 in that respect and in the the volatility sequentially has died down in recent months, which is obviously a healthy business trend.
Speaker Change: So as long as we can get our core verticals with that stable trend, we'll do well.
Speaker Change: But like Scott mentioned, a few a few questions ago, our approach towards guidance allows us to have a little bit of a conservative posture towards the rest of the year, which we think is the correct prudent approach given.
Speaker Change: Just the pace of news and kind of the various.
Speaker Change: Playing elements around here you know obviously every time you open up the Wall Street Journal webpage, its something new and different some are good things. Some are bad things and I think our guidance gives us enough flexibility to weather some of those storms.
Speaker Change: Got it and then in terms of your <unk>.
Speaker Change: Customer bookings.
Speaker Change: You said you had 78 in the last 12 months I just wanted to get an idea of the.
Speaker Change: The average contract rate like the contract timing for these.
Speaker Change: Yeah. So those are all enterprise bookings too I would add so those are all half a million dollars or more of ACB.
Speaker Change: The bookings come pretty ratably over the year. There is no one peak signing season, where we get those so we had 14 in the quarter. If you recall Q4 was a particularly strong bookings quarter coming out of the close of the acquisition. We had 25 in Q4.
Speaker Change: But as Scott mentioned at 14, it was actually a record dollar volume of bookings this quarter. So I think as I mentioned in your pipeline has got US really excited it's certainly de risks some of our second half of the year go get in terms of new logo upsell cross sell.
Speaker Change: And that part of the guidance, we have a lot of high degree of confidence in.
Speaker Change: Great. Thank you.
Speaker Change: Thank you and we will go next to Stephanie more with Jefferies. Please go ahead.
Speaker Change: Hey, Good morning. This is Heather Alonso office stuff anymore. So just piggybacking off of your loss.
Speaker Change: A question before.
Speaker Change: You did highlight that.
Speaker Change: Deal size increases.
Speaker Change: Can you just provide a little more color there on how many more products are you showing some decline how much of which is a benefit from sterling.
Speaker Change: Anything there would be helpful.
Speaker Change: Yeah, I don't think we.
Speaker Change: <unk>.
Speaker Change: Don't think we disclose product by product.
Speaker Change: Growth.
Speaker Change: But we do we did mention in the script.
Speaker Change: That a lot of this is driven by increased package density.
Speaker Change: And I'll spend just a little time there because.
Speaker Change: Oh, you know what we're seeing is is customers focusing heavily on risk and compliance and safety and security.
Speaker Change: And they're just spending more.
Speaker Change: With us in regards to getting deeper and deeper and broader protection.
Speaker Change: So it's you can't really.
Speaker Change: Say, it's one product or it's one service. It's a number of things are driving across it and we've also done a really good job of sort of bundling services like our <unk> solution.
Speaker Change: Across.
Speaker Change: You know the than what we'd call normal normal packages. So that's helped as well.
Speaker Change: Sterling.
Speaker Change:
Speaker Change: The Sterling I think the Sterling upside of.
Speaker Change: Driving more upsell cross sell.
Speaker Change: Either across the first advantage installed base or probably more importantly across the sterling installed install basis, just on the verge of really starting to happen. So we havent, even factored that stuff in yet so for example, selling.
Speaker Change: First advantages <unk> solution, our first advantages whatsapp solution to Sterling and skull install base customers is just starting to happen. So that's tip of iceberg, so that really didn't influence the.
Speaker Change: The Q1.
Speaker Change: Results, we had with the sales engine I think the Q1 results. We had with our sales engine is is really just more of a factor of.
Speaker Change: Of just how well we're doing with our our messaging around the acquisition.
Speaker Change: Our product Rollouts are our combined technology demos really really well.
Speaker Change: So I think that's also got prospects and customers very excited and that's kind of what drove it drove a lot of the growth.
Speaker Change: Great. Thank you for the color there and then just on the synergies I think you're.
Speaker Change: Run rate, though.
Speaker Change: Oh man.
Speaker Change: The original target was 50 to 70.
Speaker Change: You said the 16 to 17, so I guess given I assume.
Speaker Change: The character.
Speaker Change: Or do you think that you guys are well positioned to increases for there just help us.
Speaker Change: Think about what.
Speaker Change: Immigration continues.
Speaker Change: Great.
Speaker Change: As you continue the realized synergy capture thank you.
Speaker Change: Yeah, Great Great question, I mean, obviously that was a huge internal focus for us in Q1, we had established a healthy pipeline that allowed us to bring that that range up to that 60 to 70 like you mentioned, obviously, we used up a healthy amount of that pipeline and we're able to accelerate that into Q1, we had mentioned that last quarter that.
Speaker Change: One of the ways, we were trying to focus on protecting our profitability during the year with some of the uncertainty was controlling the things we can control and new logo and upsell cross sell is certainly one but synergies on the profitability side what was the other.
Speaker Change: And the whole management team had a healthy contribution towards that.
Speaker Change: We're now going back not to the drawing board, but we're going back to the pipeline, we've got to do a little bit more homework internally and kind of rebuild we obviously.
Speaker Change: <unk> a lot of what we had we had planned.
Speaker Change: Is there potential you know I would say potentially more potential.
Speaker Change: We've just got to get that pipeline, we've got to have confidence in the numbers before we feel confident to raise targets at all.
Speaker Change: But obviously just because we've action we've been so successful to date that doesn't make it any less of a priority for us the rest of the year will keep trying to find ways to enhance profitability, whether it's through synergies, whether it's through organic cost savings.
Speaker Change: We're constantly having a focus there as a management team.
Speaker Change: Okay.
Speaker Change: Thank you that's all for me.
Speaker Change: Thank you as a reminder, at this time if he would like to ask a question. It is the star and one on your Touchtone telephone.
Speaker Change: We'll go next to Scott Wurtzel with Wolfe Research. Please go ahead.
Scott Wurtzel: Hey, good morning, and thank you for taking my questions first one just wanted to touch on just the international side of the business and if youre seeing any changes there or.
Scott Wurtzel: Difference relative to U S trends, whether that's base growth or up sell cross sell new logos I'm. Just wondering if you can talk about any changing or differing trends between U S and international thanks.
Speaker Change: Yeah, I mean honestly, we're really happy with.
Scott Wurtzel: Results from from International International was up 8%.
Speaker Change: And keep in mind.
Speaker Change: That makes you know now three four straight quarters, where international has really delivered.
Speaker Change: And I think it's really more of a.
Speaker Change: More of a result of the fact that international actually went down earlier than the U S.
Speaker Change: So international was dragging on the business a bit for a couple of years and really.
Speaker Change: It hit bottom way way ahead of the rest of the world that now has come back pretty strong for us. So.
Speaker Change: Theres not any unique trends there because we're getting it across we're getting growth across all regions.
Speaker Change: So it's not just one single region. So it is EMEA.
Speaker Change: It's India APAC, it's Australia, all all showing good signs of growth.
Speaker Change: I would say that from a trend standpoint, nothing unique from a macro standpoint because.
Speaker Change: Not only is it across all regions, but it's really across all verticals as well so nothing really to call out.
Speaker Change: The thing I would call out is and this is maybe a.
Speaker Change: A little bit of a of a marketing shout out to go look at our global trends report that produced a couple of weeks ago.
Speaker Change: International does have a slightly slightly different drivers in the U S. There, it's a lot more focused on risk and compliance.
Speaker Change: And I think that helps us.
Speaker Change: Because of our global footprint.
Speaker Change: So I think that's driving a little bit of the ability for us to win deals like we just announced with this large deal in Australia, I mean, I think it's.
Speaker Change: We're seeing as a trusted source for global risk and compliance because of our compliance team because of our global operations actually being in region. I think gives us a little bit of a competitive advantage. So that's a little thing that slightly nuance to what the U S market sees but other than that there's no really major.
Speaker Change: <unk>.
Speaker Change: Thanks, that's helpful and just as a follow up on the implementation of AI agents on the criminal records processing. So I'm wondering if you could share a little bit more about that you know how widely available or implemented is that right now and any feedback you've received from customers.
Speaker Change: Given the sort of improved processing times there.
Speaker Change: Yeah, again, I'll give a kind of give a advertisement to come to our investor day, where we'll go into a little bit more detail on this.
Speaker Change: I don't want to give out too much information because of.
Speaker Change: Competitive protection here, but I will say that.
Speaker Change: When you do something like.
Speaker Change: AI agents on the on the criminal side.
Speaker Change: Kind of a behind the scenes type of thing so the visible impact to clients is Justin faster turnaround times and stuff like that but they can't see anything functionally different.
Speaker Change: But obviously it drives Turner faster turnaround times higher quality et cetera will go into more detail on this.
Speaker Change: In the Investor day.
Speaker Change: Great. Thanks, guys.
Speaker Change: Thank you and we'll take our next question from Jeff Silber with BMO capital markets.
Speaker Change: Thanks, So much wanted to go back to the Sterling integration you've owned the company for about six months now a little more than that.
Speaker Change: Is there anything you've learned from them or there's things that they were doing that maybe hey. This is a good idea we should be incorporated in our business as well.
Speaker Change: Yeah I think.
Speaker Change: So I think first of all I think we approached.
Speaker Change: This.
Speaker Change: And I would say a pretty unique way so although it was an acquisition on paper.
Speaker Change: We treated it as a merger.
Speaker Change: Internally.
Speaker Change: And by trading it as a merger.
Speaker Change: We went into it with a mindset of best in breed approach. So whoever had the best.
Speaker Change: Piece of functionality in.
Speaker Change: In the technology stack whoever had the best team, whether it's sales or customer support whoever had the best function whatever it might be.
Speaker Change: We came with the mindset that we would adopt that that's what our best of breed approaches. So it's not just across the technology stack, it's across the entire company.
Speaker Change: So I think we both learn from each other and we're taking a best of breed across everything so whether thats sales marketing or whether it's operational and fill them in or whether it's technology and there's literally lists long long list dozens and dozens and dozens of.
Speaker Change: Things, we bucket in okay, that's better this one's better than that one or that one is better than this one and that's exactly what we're doing.
Speaker Change: So there.
Speaker Change: There's a number of things that first advantage was doing better and there's a number of things that sterling being better and we're clearly going to take whichever one is better.
Speaker Change: I think that's been the secret sauce to the success of this integration and that's what customers are saying, we're not forcing them to.
Speaker Change: Something that was legacy first advantage is because we are walking through why we're why we're picking certain features and functionality in the tech stack in.
Speaker Change: On the data side as well.
Speaker Change: And there that's.
Speaker Change: That's why they are enthusiastic about it because they see these things as upgrades.
Speaker Change: These are all upgrades to what they were two a platform. They were already happy on whether it's first advantage side or our sterling side, and having said all of that.
Speaker Change: One of the things that made this extremely easy is what we've also found as an amazing culture fit.
Speaker Change: This is these are two high performing organizations that have come together, we talk the same language. We think the same way with culture and align that's what's made this integration happened so quickly and as Stephen said, we're even actually ahead of plan with synergies and integration because of the cultural alignment.
Speaker Change: Alright, Thats helpful and I think this question may have been asked but I just wanted to circle back on it is there any way to parse out how retention held up for legacy Sterling clients versus legacy first advantage clients.
Speaker Change: Yeah, they're kind of is I mean, it's the lines are really blurring because what we're also finding is hey, it may be at the legacy Sterling retail client there is a better fit for them on an FAA platforms. So there's some migration going on there, but I would tell you. If you really zoom in on all the data its a very consistent number across the entire company set and I think even.
Speaker Change: Even if you look domestic versus international the legacy entity. It came from that 96% per rate plus or minus is very consistent across across the company.
Speaker Change: Alright, I appreciate the color. Thanks, so much.
Speaker Change: Thank you and I see no further questions in queue.
Speaker Change: I'd like to thank you all for joining us today and for your participation. This concludes the first advantage first quarter 2025 earnings conference.
Speaker Change: Call and webcast at this time you may disconnect your line and have a wonderful day.
Speaker Change: Okay.
Speaker Change: Uh-huh.
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