First Advantage Corporation

Good day, everyone. My name is Chelsea, and I will be your conference operator today. I would like to welcome you to the First Advantage fourth quarter and full year 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 that 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 call over to Stephanie Gorman. Please begin.

Thank you, Chelsea. Good morning, everyone, and welcome to First Advantage's fourth quarter and full year 2022 earnings conference call. In the Investors 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 2022 Form 10-K to be filed with the SEC. 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 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'm joined on our call today by Scott Staples, First Advantages 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 fourth quarter and full year 2022 earnings conference call. We are pleased with our full year 2022 results in which we set a number of new revenue and profitability records. We grew revenues for the year by nearly 14% and increased adjusted EBITDA by 10% compared to last year when we saw exceptionally high 40% revenue and 54% adjusted EBITDA year-over-year growth. We also generated record operating cash flow of $212.8 million in 2022, growing an impressive 43% versus the prior year. Our record year came despite a soft end to the fourth quarter that resulted from a slowdown in hiring demand in the US that began in late November as our customers became more cautious in their hiring approach driven primarily by the macroeconomic headwinds of ongoing inflation and higher interest rates. The slowdown happened earlier and to a greater extent than we expected. International markets, particularly India and APEC, remained sluggish, consistent with what we shared in Q3. However, strong new customer growth, continued upsell and cross-sell momentum, and high customer retention rates offset some of this weakness. Sequentially, fourth quarter revenues exceeded third quarter revenues. Revenues flattened out on a year-over-year comparative basis as we cycled over an extremely strong fourth quarter 2021 growth rate of 36%. Despite this, we grew Q4 adjusted EBITDA further growing from our record quarter in Q4 2021 as we expanded our adjusted EBITDA margins by 40 basis points to over 33%. And we generated substantial operating cash flows. While job openings, quits, and low unemployment remained favorable, we have seen a slowdown in hiring activity that leads us to expect a lower demand environment in the near term. As we have demonstrated in the past, we have a highly variable cost structure and we have acted quickly to adjust costs. As we have seen demand shift, we also continue to proactively strengthen our mission critical solutions and product offerings through our thoughtful strategic investments in technology, machine learning, and automation. These investments drive flexibility and agility in our operations, which in turn drives margin expansion and our ability to move quickly as labor markets change. Additionally, these actions have enhanced our capabilities to meet the needs of our customers by providing faster turnaround times, increased accuracy, and a better overall customer and applicant experience. These actions have also enabled us to add to our already robust and diverse customer base across the verticals we serve. In 2022, we completed over 100 million screens on behalf of our approximately 33,000 active customers, which includes over half of the Fortune 100 companies and approximately one-third of the Fortune 500 companies. We ended the year with a total of 235 enterprise customers, up from 189 a year ago in the fourth quarter we booked seven new enterprise customers bringing us to a total of 27 new logo enterprise customer wins during 2022 compared to 20 in the prior year consistent with our strategic priorities we are committed to continued investment in technology and automation to drive client satisfaction and new business, which will ultimately result in enhanced shareholder value. We remain highly confident in our ability to weather varying macroeconomic scenarios because of our focus on enterprise clients, our vertical strategy, and our highly variable and lean cost structure. Now turning to slide five. From a long-term perspective, we believe that fundamental changes in how people work and apply for jobs are here to stay and are expected to provide tailwinds for our business. These include more frequent job switching and higher churn, which we expect will continue to fuel our customers' hiring needs. These create long-term opportunities for our business, and when combined with our product innovation and vertical strategy, will continue to propel substantial sustainable growth for first advantage and support our long-term growth model. Our verticalized go-to-market approach is a competitive advantage and a key driver of our growth strategy. The majority of our revenues are derived from high-volume, high-velocity customer verticals where an increasingly greater importance is placed on speed and turnaround times, which we continue to deliver through our investments in automation. Our vertical approach and innovative technology offerings provide mission critical solutions to align with these growing trends. Our vertical strategy further deepens our competitive advantage and differentiates us within our industry, positioning first advantage to meet the needs of the hiring market of the future. Our sales and product teams are also aligned to our key verticals, which drives new logo upsell cross-sell opportunities, new product development and geographic customer expansion. This enables us to be subject matter experts in these industry segments and to use industry specific data to advise our customers on topics such as leading practices and product optimization. Given the importance of verticalization to our business, We have provided you with our revenue breakdown by vertical on slide five to help you better understand how each contributes to our business. As I mentioned, we grew revenues nearly 14% during the year with broad-based growth across most verticals. Looking at Q4, we saw growth continue in verticals such as transportation and healthcare, while other verticals saw declines attributable to the macro impact on hiring volumes. We continue to execute well against our new logo, upsell, cross-sell, and customer retention strategies, and continue to deliver in line with our historical track record. Overall, we feel we are well positioned to weather a variety of macroeconomic scenarios due to our large number of high-volume hiring customers across diverse verticals, which we believe continue to maintain favorable growth prospects. Before I turn the call over to our Chief Financial Officer, David Gamze, for more details on our financial results, I'd like to reiterate that I am excited about the opportunities ahead for First Advantage. We are well positioned on our industry and have effectively executed our cost savings playbook to address the near-term demand environment. We will continue to focus on driving operational efficiencies, expanding the use of our proprietary databases, and leveraging our G&A infrastructure. our long-term focus remains on delivering outstanding service to our customers and long-term value to our shareholders. And with that, I will now turn the call over to David.