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 second quarter 2023 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 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 call over to Stephanie Gorman. You may begin.

Thank you, Todd. Good morning, everyone, and welcome to First Advantage's second 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 would like 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 2022 Form 10-K and our Form 10-Q for the second 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 am joined on our call today by Scott Staples, our 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 second quarter 2023 earnings conference call. There are several highlights and updates that I am looking forward to sharing with you today. To start, We are very proud of our second quarter performance. Both revenue and adjusted EBITDA results were in line with the expectations we communicated during our first quarter earnings call, with our industry-leading adjusted EBITDA margin exceeding 30%. We achieved these impressive results despite the challenging macro environment, particularly within our international operations. we have once again demonstrated the financial discipline that we have built into the business and our ability to match expenditures with fluctuating volumes while maintaining impressive margins. In the second quarter, we again generated strong cash flow from operations. This, along with our current cash position, enables us to continue to selectively reinvest in our business, pursue acquisitions, buy back shares, and consider other uses of capital that maximize shareholder value. As a result of our current cash position, sustainable and stable operating cash flow, and commitment to a balanced capital allocation strategy, today we are pleased to announce that our Board has declared a one-time special dividend of $1.50 per share which represents a greater than 10% return of capital to our shareholders. This is in addition to our ongoing share buyback efforts. Even after taking the one-time special dividend into consideration, we are still able to maintain a strong balance sheet and modest net leverage position of approximately 1.6 times on a pro forma basis. Additionally, we will still have ample cash and liquidity, which will continue to give us flexibility to invest in our business. We pride ourselves in providing a compelling value proposition to our customers. I am proud of our team's ongoing dedication as we all continue to operate in an uncertain macro environment. In the U.S., consumer confidence remains high and the inflation outlook is improving. However, fears of ongoing economic weakness, and the likelihood of additional interest rate hikes continue to impact corporate spending. That being said, our customer base remains strong and continues to grow across our diverse range of verticals. Over the last 12 months, we booked 31 new logo enterprise customers, with seven of them booked in the second quarter. As a reminder, we define new logo enterprise customers as those with $500,000 or greater in annual expected revenues. Additionally, we continue to see solid new logo growth opportunities, and in fact, our RFP volume is extremely high. Turning now to our second quarter highlights on slide five in our earnings presentation, David will provide additional color on our financial performance and full year outlook in a few minutes. In the second quarter, we generated purely organic revenues of $185 million, down 8% year-over-year, while cycling over double-digit growth from prior year quarter. We also grew sequentially compared to Q1 and sequentially month-over-month every month in the second quarter. Additionally, our three-year organic revenue CAGR of 18% remains substantially higher than our long-term target. In our America segment, demand remains tempered but continues to be augmented by our positive new logo, upsell, and cross-sell achievements. Our international markets continue to face challenges that have resulted in significant year-over-year revenue and adjusted EBITDA declines, driven primarily by India and APAC, while our European operations, which are still down year over year, have proven more resilient. From a vertical perspective, we continue to see stable hiring demand across transportation, healthcare, and retail and e-commerce, while technology, financial services, and business services continue to experience a decline in hiring volumes. Adjusted EBITDA was $56 million, and adjusted EBITDA margin was 30.2%, both improvements sequentially from Q1. Our flexible cost structure, along with investments in automation and digitization, continue to drive our industry-leading adjusted EBITDA margins, despite lower year-over-year revenues in the quarter. we remain focused on our solid execution track record and operational excellence initiatives and continue to expect our adjusted EBITDA margins to remain over 30% in the second half of the year. Let me now take a moment to discuss some of our strategic highlights in greater detail. First, we continue to maintain a balanced and disciplined approach to capital allocation to return value to our shareholders while also investing in growth. As I mentioned in my opening remarks, our Board of Directors has declared a one-time special dividend of $1.50 per share, which reflects our strong cash position and low net leverage, as well as our commitment to shareholders. This return of capital to shareholders is in addition to our ongoing share buyback program. We are also committed to driving long-term profitable growth through investments in our technology and solutions such as AI, which I will speak to in a moment, and through M&A, which remains a high priority for us. Over the last two years plus, we have successfully executed four strategic acquisitions. Each has exceeded our expectations and resulted in accelerated profitable growth. We continue to seek to optimize our portfolio and actively evaluating M&A opportunities. Our balance sheet remains strong and continues to provide flexibility to support future strategic growth initiatives. Second, with respect to the macro environment, overall hiring remains generally stable despite the elevated degree of uncertainty. Recent macro jobs data specifically related to new hires and quits, while down from prior year, remain relatively consistent. Additionally, we meet with our enterprise customers on a regular basis. While they continue to monitor the impact of the macro environment on their businesses, we are not hearing any reported major changes, upward or downward, in their hiring trends. Many have had measures in place since early in the year to best offset the impacts of inflation and interest rate hikes and do not anticipate material changes to their already adjusted hiring plans. Our clients, like ourselves, continue to closely monitor and control their costs. And third, I would like to highlight how we are leveraging AI in our business. A notable example of this is within our customer care organization. Over the last two years, we have made investments in tools from leading technology partners with powerful AI capabilities to enable our agents to provide a higher level of service and improve efficiency. From reporting enhancements to data analysis optimization to a chatbot and knowledge base that continues to learn and improve with every transaction, we can leverage not only the innovation offered by our technology partners, but also easily plug in new vendors and technologies directly into our platform as the AI market matures. These advancements have transformed the way we work with our customers and them with us. It has allowed us to do more at a lower cost, provide a better applicant experience, and without sacrificing our high standard of customer service. Our AI efforts will continue to evolve and expand, and I look forward to updating you on our efforts in the future. I will now turn the call over to David for more details on our financial results and outlook.