First Advantage Corporation

Good day, everyone. My name is Todd, and I will be your conference operator today. I would like to welcome you to the First Advantage first quarter 2023 earnings conference call and webcast. Hosting the call from First Advantage is Stephanie Gorman, Vice President of Investor Relations. At this time, all participants have been placed in a listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session If you would like to ask a question during this time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Please note today's event is being recorded. Lastly, if you should require operator assistance, please press star 0. It is now my pleasure to turn the call over to Stephanie Gorman. You may begin.

Thank you, Todd. Good morning, everyone, and welcome to First Advantage's first quarter 2023 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 guaranteed 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 2022 Form 10-K and our Form 10-Q for the first quarter of 2023 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'm joined on our call today by Scott Staples, First Advantage's Chief Executive Officer, and David Gansey, 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 first quarter 2023 earnings conference call. I would like to start by thanking our First Advantage team members across the globe for their ongoing dedication to helping our customers truly put their applicants first. We have a great team who is constantly helping our clients hire smarter and onboard faster as they navigate these uncertain times. Since we became a public company, we've highlighted many aspects of our business that underpin the resilience of our operating model and the confidence we have in our ability to weather any economic environment and generate superior profitability. We had a solid first quarter delivering as expected. We successfully leveraged our flexible and efficient cost structure as we remain laser focused on operational excellence. Our approach to innovation and differentiated technology continue to win in the marketplace. Our customers value expertise in human capital, our focus on automation and quality, and our successful track record of innovation. This is a winning formula for First Advantage. Our gross retention rate of 97% remains near record levels, and our 13-year average tenure for our top 100 customers are impressive metrics we pride ourselves on. These are big reasons we have been able to deliver consistent results. Our customer base is strong, broad-based, and continues to expand. We booked seven new Logo Enterprise customers in the first quarter and 30 new Logo Enterprise customers in the past 12 months. As a reminder, We define new logo enterprise customers as those with $500,000 or greater in annual expected revenues. Turning to our first quarter results, revenues came in just above the upper end of our expectations and adjusted EBITDA was in line with our expectations despite the ongoing uncertainty from the economic environment that began to impact hiring demand in late November 2022. In the first quarter, we generated revenues of just over $175 million and adjusted EBITDA of approximately $49 million. You'll recall that we grew revenues by 44% and adjusted EBITDA by 46% in Q1 of 2022, making our Q1 2023 results more difficult on a comparative basis. Much of our first quarter moderation came from our international markets, driven primarily by a disproportionate decline in India, given the region's exposure to BPO and IT services, and APAC, given regional market dynamics. Verticals, including transportation and healthcare, continue to see stable hiring demand. while other verticals saw moderation primarily attributable to macro factors, which continue to impact hiring trends. Despite varying levels of demand across our verticals, we remain energized and focused on serving our customers and driving strong and sustainable outperformance in our markets over the long term. Our first quarter adjusted EBITDA margin performance was in line with our expectations and prior year trends, Remember that Q1 is historically our seasonally lowest quarter, as large retail and logistics companies annually reduce their holiday season staffing. We believe our profitability remains best in class in our industry, and we continue to expect that our adjusted EBITDA margins will return to above 30% levels in Q2 and for the balance of the year. These results speak to the adaptability of our operating model. our cost discipline, and the strong execution by our team members across our markets. I'd also like to remind you that we have a robust, very well capitalized balance sheet, which includes over $400 million in cash. We continue to generate significant free cash flow, and our leverage is a modest 0.7 times. This gives us significant flexibility during these difficult times. David will provide additional color on our financial performance and full-year outlook in a moment. Turning now to key highlights from the quarter, which are summarized on slide five. The overall U.S. labor market continues to show some pockets of resilience, and while activity has moderated relative to the extremely strong levels from a year ago, and the degree of uncertainty remains elevated, overall hiring remains generally stable. We are also encouraged by our monthly revenue progression through the first quarter, particularly in our America's business, where we observed modest month-over-month improvement throughout the quarter. However, the U.S. labor market continues to be broadly impacted by macro headwinds, which has forced companies to look at areas to reduce costs and prune headcount. These actions, along with current expectations for these headwinds to continue, are already reflected in our guidance. We continue to believe meaningful structural tailwinds remain in place to support a return to our long-term organic revenue growth target. We are excited about our long-term prospects given the systemic changes we are seeing in employment dynamics. Preferences toward greater flexibility, work-life balance, working multiple jobs and higher pay are expected to continue to drive increased churn and structural changes which result in increased hires and quits. Recent macro jobs data, specifically related to new hires and quits, while modestly down in March, has remained relatively stable, which supports the ongoing generational shift in how people work and apply for jobs. Additionally, We interact with our top enterprise clients on a frequent and ongoing basis. While they are monitoring the economic impact from inflation and rising interest rates, they tell us that the demand for their products and services remains robust, and they are looking to capitalize upon opportunities in the current market environment. Many of these clients have already put cost control measures in place, reduce headcount to appropriate levels, and do not anticipate additional changes to their adjusted hiring plans. As our customers continue to navigate the ongoing macroeconomic challenges, it has become even more imperative for them to invest in products that lead to higher productivity, improved accuracy, and faster results in the hiring process as they place an even greater emphasis on efficiency in hiring and attracting the best talent. At First Advantage, our success in meeting these needs is a result of our dynamic product offerings, which are enabled by our investments in differentiated technology, machine learning, and automation. We provide a compelling value proposition for 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. Even during these challenging times, we continue to selectively invest through the cycle and capitalize on opportunities to further strengthen our business. In April, we held our annual customer conference called Collaborate, which is the only background screening user conference of its kind, bringing together customers, partners, and thought leaders. We were pleased to have Johnny C. Taylor Jr., Join us as our keynote speaker, where he led a fantastic session on the future of the workforce. Mr. Taylor is the president and CEO of the Society for Human Resources Management, also known as SHRM, and is highly regarded as a leading industry expert in human resources. He is renowned global authority on the future of employment, culture, and leadership, and is nationally recognized bestselling author. During the conference, we also discussed some of our new and evolving products and solutions and engaged in very positive discussions with our customers. One offering we launched was our new product bundles and capabilities powered by our mobile-first, next-generation Profile Advantage technology. These product bundles are designed to align with industry best practices and vertical expertise and are delivered within Profile Advantage providing a seamless applicant experience. These offerings also provide additional opportunities for do business and upsell cross-sell growth. Additionally, we continue our commitment to providing our customers with the latest in market leading technology with the ongoing rollout of our digital identification product in the UK in partnership with Yoki. We are pleased to share that we have contracted with over 125 customers of which more than 75 are now live in the UK market with a strong pipeline of additional opportunity. This product provides an innovative and much needed solution in the UK market that allows applicants to use a seamless and fully digital process, replacing what was previously a manual procedure and reducing turnaround time from days to hours. We are well positioned as an early mover in this important and attractive space. particularly as other international markets adopt similar digital identity standards. Last quarter, we discussed the incredible traction we are getting in our employment and education verification space with our smart hub technology, which leverages machine learning and our proprietary algorithms to quickly search across multiple data sources to determine the optimal verification source based on speed, data quality and cost effectiveness. A key component of the success of SmartHub is leveraging our proprietary verified database, which now has over 80 million records. In aggregate, our proprietary databases have now surpassed 700 million records, including our national criminal record file database which maintains around 625 million records making it one of the most robust criminal date record databases in the industry at first advantage we continue to innovate and deliver new solutions which is a key differentiator to maintaining and growing our competitive advantage over time in the future we look forward to sharing updates on our progress and how we are helping our customers stay on the leading edge of hiring and providing the best applicant experience in the industry. Turning to slide six, I want to take a moment to talk about the progress we've made around our sustainability initiatives, which are detailed in our second annual sustainability report published yesterday. Our corporate culture and values drive our approach to sustainability, which is a fundamental part of our business. Our board and leadership team are firmly committed to our responsibility as a global corporate citizen and advancing even higher ethical standards. Our talented global workforce is inherently diverse, and each employee brings their unique strengths and experiences to bear, which is key to our long-term success as a company. We provide ourselves on fostering a culture of inclusion that helps our employees maximize their potential. We are excited about the collective progress we've made at First Advantage with our sustainability efforts. We believe embedding these considerations throughout our business is not only the right thing to do, but also drives stronger and more resilient performance and ultimately maximizes shareholder value. I'll now turn the call over to our Chief Financial Officer, David Gamze, for more details on our financial results. David?