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 2024 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 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. Lastly, if you should require operator assistance, please press star 0. 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 first quarter 2024 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 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 2023 Form 10-K and our Form 10-Q for the first quarter of 2024 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, our Chief Executive Officer, and David Gamsey, 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 call. It has been an exciting and productive few months since announcing our agreement to acquire Sterling. I am incredibly proud of what our team has accomplished thus far and for the dedication in keeping everything moving forward. This morning, I will provide an update on our first quarter results, our strategic initiatives and the Sterling acquisition. David will then provide a deeper dive into our results and additional color on our expectations for the year. Turning to an overview of our first quarter results on slide five. For the first quarter, we delivered financial results at or above what we communicated on our last earnings call, giving us additional confidence in achieving our full year 2024 guidance, which we are reaffirming today. From a vertical perspective, in the first quarter, we saw increased order volumes from five major verticals, including transportation, healthcare, industrials, staffing, and hospitality. with the remaining verticals down year over year. Importantly, we continue to maintain a strong customer retention rate of approximately 97%. In fact, our top five largest renewals for 2024 have already successfully renewed. Our upsell, cross-sell, new logos, and attrition rates continue to perform in line with our historical revenue growth algorithm while our base growth continues to be more sensitive to changes in the macro environment and our mix of clients. While most macro indicators that we track are still down year over year, they have shown signs of stabilizing in recent months. As a reminder, our long-term organic revenue growth target of 8% to 10% anticipates a normalized base growth rate of 2% to 4%. compared to the negative base performance we have been experiencing. Let me now update you on the significant progress our team continues to make on our strategic initiatives. We have long subscribed to the philosophy of building high-quality proprietary databases, data models, and algorithms, as well as innovative technology to drive our business. Now, with the insurgence of GenAI, we are poised to accelerate innovation across our portfolio and deliver even greater value for our customers. We are excited to have announced our proprietary next-generation RightID identity fraud solution, specifically designed for the U.S. market to help alert customers to potential applicant fraud in the pre-hire process. This complements the success we have seen with the expansion of our digital identity products in the UK, India, Australia, and Canada. Employers leverage RightID as an initial step to flag inconsistencies and recognize potential errors in identity information submitted before a background screen, thus moving our products upstream in the applicant onboarding cycle. Additionally, we continue to roll out our next-gen Profile Advantage applicant portal, featuring a new user interface and using API-first technology to deliver a consistent experience from screen to hire. By leveraging GenAI and human-in-the-loop processes, we have access to intelligence that allows us to enhance the applicant experience. Our customers can hire faster with several products in one place, including fraud prevention, tax credit information, and background screening details. These initiatives complement our other solutions. For example, we expect our investments in AI related to U.S. criminal data to increase the efficiency, turnaround times, and consistency of our criminal screening. We also continue to see increased customer adoption of Smart Hub, which can determine the optimal data source for each verification and help reduce certain third-party pass-through fees for our customers for employment verifications. And through our customer care click chat call program, we can scale our support up or down quickly in response to volume changes. All of our solutions help support our customers and their screening priorities, which are highlighted in our global trends report, just released in April. This annual report provides worldwide perspectives based on over 100 million anonymized screening data records and hundreds of survey responses from our customers. We have been publishing our annual global trends report for the past six years and have seen trends change and evolve alongside the global labor market. Notably, for the second year in a row, managing risk ranked as the most important factor in background screening programs over cost and speed. This indicates an increased interest in background screening results that support informed decision making as part of the overall hiring process and has consistently driven upsell and cross-sell opportunities for us across our customer base, ultimately increasing package density. Additionally, I want to highlight our annual background screening conference, Collaborate, which was held in April with record attendance. As the only background screening user conference of its kind, Collaborate brings together customers, new business prospects, partners, and thought leaders to discuss timely and relevant trends, technologies, and best practices. During the conference, we discussed our new and evolving products and solutions and had fantastic customer engagement. Additionally, we were pleased to have Johnny C. Taylor Jr. join us for a second year as our keynote speaker, where he led a dynamic session on embracing AI and HR. Mr. Taylor is the president and CEO of the Society for Human Resources Management and is highly regarded as a leading industry expert in human resources. Turning to slide seven. Let me now provide an update on the Sterling acquisition. Preparations for the transaction are progressing as planned. We have formed an integration management committee led by our product and operations leaders with dedicated teams that are developing plans across all functional departments in preparation for the post-closing integration process. At the end of April, we filed our S4 with the SEC, which has additional detailed information pertaining to the transaction. At this point, there have been no changes to our closing timing expectations. The transaction is still expected to close in approximately the third quarter of 2024, with the closing and timing thereof subject to required regulatory approvals, clearances, and other customary closing conditions. Strategically, the addition of Sterling further strengthens our high-quality and cost-effective background screening, identity, and verification solutions for the benefit of customers of all sizes across industry verticals and geographies. We view this as a win for our customers as they will benefit from having more options to meet their involving needs and improve solutions to help manage risk higher, smarter, and onboard faster. First advantages and Sterling's highly complimentary product offerings further enhance our customer value proposition and are expected to unlock upsell and cross-sell opportunities and reduce certain third-party pass-through fees. Collectively, we will diversify our vertical mix as there is limited overlap across our customer industries. Sterling's largest verticals are more focused on regulated industries, including healthcare, industrials, and financial services. This balances First Advantage's focus on verticals including transportation, retail, and e-commerce. We have complemented international businesses, which provide the opportunity for us to build a deeper local presence and expand in attractive markets. Based on our preliminary diligence, we have also found no significant overlap amongst the top customers of both First Advantage and Sterling. We believe that combined, we will have a more balanced revenue mix, less customer concentration, and more vertical diversification. This will help to de-risk the transaction with regard to potential attrition, improve resource planning and operational efficiency, reduce our seasonal exposure, and create a more resilient business model. The transaction will enable us to drive innovation in key development areas of our business, including AI, next-gen digital identification technology, and automation. This will enhance the applicant experience and, at the same time, reduce certain third-party pass-through costs contributing to long-term margin expansion. Looking at cost synergies, we remain confident in achieving at least $50 million in run rate synergies within 18 to 24 months post-closing of the transaction. We anticipate executing approximately half within the first 12 months post-closing, of which a portion will be actioned immediately upon closing. These synergies will come from removing duplicative public company costs, merging back office functions and resources, and ultimately merging our tech backends and fulfillment functions. We anticipate identifying further upside synergy opportunities upon closing this transaction as we work through the integration process. Additionally, We anticipate net leverage at close to be in the range of 4.2 to 4.4 times. We have line of sight to bring net leverage toward approximately three times run rate adjusted EBITDA within 24 months of closing on the transaction, and then ultimately returning to our long-term target net leverage range of two to three times. David will go into further detail on this shortly. Upon closing the transaction, we will immediately nearly double our revenue and adjusted EBITDA profile. We expect to generate double-digit EPS accretion on a run rate basis and to continue compounding EPS at a teens growth rate over time through the combination of top-line growth, ongoing synergy capture, and significant deleveraging enabled by our strong free cash flow generation. As we look ahead, our priorities after closing the transaction will be focused on our customers, successful integration, achieving synergies, and deleveraging our balance sheet. Overall, we expect that this strategic and accretive acquisition will benefit customers and investors, accelerate and advance our strategic priorities, and drive long-term value creation. I will now turn the call over to David for more details on our first quarter results.