First Advantage Corporation

Hi, everyone. My name is Jess, and I will be your conference operator today. I would like to welcome you to the First Advantage third quarter 2022 earnings conference call and webcast. Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. At this time, all participants have been placed in a listen-only mode to prevent any background noise. 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. It is now my pleasure to turn the conference over to Stephanie Gorman. You may begin.

Thank you, Jeff. Good morning, everyone, and welcome to First Advantage's third quarter 2022 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 begin our prepared remarks, I need to remind everyone that our discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the SEC, including our 2021 Form 10-K and our Form 10-Q for the third quarter of 2022 to be filed with the SEC. 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. Throughout this conference call, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures to the extent available without unreasonable effort appear in today's earnings press release and presentation, which are available on our investor relations website. I am joined on our call today by Scott Staples, First Advantage's Chief Executive Officer, and David Gamzee, our Chief Financial Officer. After our prepared remarks, we will take your questions. I will now hand the call over to Scott.

Thank you, Stephanie, and good morning, everyone. Thank you for joining our third quarter 2022 earnings conference call. We are pleased with our third quarter results marked by 6.8% year-over-year revenue growth. Please note foreign currency had a significant impact on our results this quarter. On a constant currency basis, our revenue would have been approximately $3.5 million higher, representing 8.6% year-over-year growth. Our performance was delivered by first advantage team members across the globe who are doing an incredible job helping our customers hire smarter and onboard faster, which is how we win in the marketplace. Our continued growth in the third quarter, albeit at more moderated levels, follows eight consecutive quarters of extremely robust double-digit revenue growth and was achieved despite the difficult macro environment, foreign currency headwinds, and cycling over the remarkable 41% revenue growth we experienced in the prior year period. We saw sustained resilience in our business in the face of broad macroeconomic pressures, including inflation, higher interest rates, and geopolitical volatility. Looking at results for the last 12 months through September 30th, we have grown revenues and adjusted EBITDA each by approximately 23% and achieved a very strong adjusted EBITDA margin of approximately 31%. This growth is in addition to the incredibly strong results we've had during the prior year period. We have accomplished this by leveraging our digital initiatives, including automation, bots, machine learning, and artificial intelligence, which allows us to do things better, faster, and more cost effectively. On top of this, our growing in-house databases, reaching 650 million records, continue to strengthen our value proposition to our customers who depend on the speed and quality of our solutions to help them succeed in today's dynamic and fast-moving hiring environment. Turning to slide five and a summary of our notable business achievements in the quarter. In prior calls, we have discussed the macro job trends and structural tailwinds supporting our long-term revenue growth outlook as well as the growth and resiliency of our industry. First Advantage's jobs market tailwinds are driven by factors including frequent job switching, low unemployment rates, high demand for workers, and elevated levels of job churn. These factors continue to fuel our customers' hiring needs, resulting in sustained demand for our products and solutions, particularly in North America. In the era of high velocity hiring, fundamental changes in how people work and apply for jobs are here to stay. In addition, human capital management, risk mitigation, and compliance are increasingly paramount and complex with heightened C-suite focus on workplace safety and reputation risk. The majority of our revenues are tied to customers whose hiring we consider high volume and high velocity, where turnover is often very high and fast turnaround times are critical. As employers are seeking to fill positions rapidly, even on the same day. Additionally, our differentiated go-to-market strategy and verticalized enterprise sales force have enabled us to win an impressive 11 new logo enterprise customers in the third quarter, and 29 new Logo Enterprise customers in the past 12 months. As a reminder, we define new Logo Enterprise customers as those with $500,000 or more of annual expected revenues. Additionally, our customer retention rates remain high at over 97% for the past 12 months. In September, We announced the opening of a new office in Krakow, Poland, which is emerging as a technology hub in Europe. This is a great opportunity to cost-effectively expand our global technology operations and customer care footprint in a region with an attractive talent pool. We view international as an important part of our long-term growth strategy. Additionally, we are excited to have launched our digital identity verification solution in the UK, enabling employers to offer job applicants remote digital identity verification services. Customers currently using this solution have provided very positive feedback, and we have seen an increasingly large number of inquiries from potential new customers. This product provides an innovative and much needed solution to the UK market following right to work and criminal records check regulation that allows applicants to use a fully digital process, replacing what was previously a manual document checking procedure and reducing turnaround time from days to hours. Our fast, seamless experience enables a full digital journey using a single application to complete the checks, which means our customers can onboard applicants faster. With our innovative new solution, we are an early mover in this important and attractive market and optimally positioned to provide the solution globally as other countries in Europe adopt similar digital identity standards. This technology solution provides us with opportunity to upsell existing customers as well as gain new customers, all while increasing margins to the digital and touchless rather than manual offering. When coupled with our background screen, in the future, we expect to be able to provide a full end-to-end digital verification suite of products. Developments like this help us deliver smarter, faster, and more innovative products and solutions and continue to differentiate First Advantage as an industry leader in the minds of our customers and partners. We have several new products in the pipeline for introduction in the first half of 2023, and we look forward to sharing more details about them in the future. We are also very proud of our award-winning technology and corporate culture supported by our significant focus on diversity, equity, and inclusion. This year, our efforts have been validated by multiple awards from respective industry publications. Now, turning to slide six and a summary of our financial highlights for the third quarter. I'll spend a few moments giving you an overview, then David will provide further color on our results. Continued resilience in our business helped us achieve year over year revenue growth of 6.8% or 8.6% on constant currency basis, marking our second highest revenue producing quarter in our history. These results were achieved on top of the impressive 41% revenue growth we experienced in Q3 2021. Our unique ability to deliver innovative products and solutions that address our customers' ever-increasing demands for faster turnaround times, quality, compliance, and applicant experience contributed to the durability of our financial results. Growth and resiliency in our Americas business remains strong. offset in part by significant foreign currency headwinds and macro-related softness in our international segment. Looking at our verticals this quarter, we saw continued strength in transportation and healthcare, with roughly flat performance in business services and retail, which were cycling over exceptionally strong comps. This was offset by declines in financial services and staffing verticals. We are pleased to have delivered superior adjusted EBITDA margins of more than 31% and overall adjusted EBITDA growth. Although adjusted EBITDA year-over-year growth was modest in Q3, as previously anticipated, this was against a prior year period that experienced 47.7% growth. We have been able to achieve our margins through our continued focus on driving operational efficiency and digital initiatives, expanding the use of our proprietary databases, and leveraging our G&A infrastructure. We continue to generate strong cash flow from operations driven by revenue growth and superior margins. Our strong cash position gives us flexibility around capital allocation priorities. We also continue to invest in digital technology, automation, proprietary databases, and our verticalized go-to-market strategy. On top of this, we have a flexible cost structure and strong operating discipline around managing in softer macroeconomic conditions. And finally, I'm pleased to share that our Board of Directors has increased and extended our share repurchase program by $100 million through December 31st, 2023. I will now turn the call over to our Chief Financial Officer, David Gamze, for more details on our financial results. David?