First Advantage Corporation

Good day, everyone. My name is Ashley, and I will be your conference operator today. I would like to welcome you to the First Advantage third 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 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. Lastly, if you 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, Ashley. Good morning, everyone, and welcome to First Advantage's third quarter 2024 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 2023 Form 10-K and our Form 10-Q for the third 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 the most directly comparable GAAP financial measures, who they've been 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, Stephen Marks, our Chief Financial Officer, and David Gamzee, our outgoing Chief Financial Officer. After our prepared remarks, we will take your questions. I will now hand this call over to Scott.

Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. This morning, I'm pleased to provide you with an update on our business and our planned path forward with the addition of Sterling. We are thrilled to have closed our $2.2 billion acquisition of Sterling on October 31st. What a tremendous opportunity for all of us. Now nearly twice as large, we have over 10,000 highly skilled, motivated, and excited employees. On an LTM basis, as of September 30th, 2024, we have combined revenues of approximately $1.5 billion and adjusted EBITDA of approximately $407 million or $457 to $477 million, including our targeted run rate synergies of $50 to $70 million, which we expect to action within two years post-closing. I would like to thank our combined team for the great work they have done over the past several months to get us to this point. Since closing the acquisition, we have hit the ground running, focused on our products and customers while endeavoring to conduct a smooth integration, maintain customer continuity, action synergies, and reduce net leverage. We have also unveiled our new logo and branding for our unified company, which you will see in our presentation materials today. We were pleased to deliver another quarter of strong financial performance, and today we are maintaining our full year 2024 First Advantage standalone guidance ranges and providing new combined company guidance. David and Stephen will cover this in greater detail in the financial section. Turning to slide five, I'm excited to show the strong profile of our combined company and reiterate why Sterling is such an outstanding strategic fit and benchmarks First Advantage well among our technology-based info services peers. Our combined capabilities position us as a leader, offering differentiated technology platforms and a broad range of innovative solutions. With the Sterling acquisition completed, we have essentially doubled in size by most measures, including the size of our combined sales forces and customer success organizations. Combined, we conduct over 200 million background screens annually for customers across more than 200 countries and territories, and we have a robust average retention rate of over 96%. We have been an early adopter of AI and utilize this strong tool throughout multiple areas of our organization. We believe that our large proprietary data sets and AI driven intelligent routing allow us to reduce our reliance on third party vendors and deliver cost effective solutions to our customers. We expect that our now larger and more extensive network of automated and integrated third-party data providers will continue to enable us to address each customer's unique requirements with leading solutions. With additional customers and capabilities from Sterling, we have increased the diversification of our verticals and geographies, reducing customer concentration and seasonality, and increasing resilience. This helps to support our extremely diversified yet focused vertical go-to-market strategy centered around enterprise clients and specific industries, all supported by exceptional technology. Going forward, with increased resources dedicated to our targeted verticals, we believe that we will be able to provide deeper and more comprehensive industry-level expertise to customers across the globe. Leveraging our complementary footprints, we have expanded both our U.S. and international presence and see tremendous opportunities to advance our growth outside the U.S. in attractive geographies like EMEA, APAC, LATAM, and India. Our enhanced reach and diversification set us up to deliver a stronger, more comprehensive value proposition to customers in a large, growing, and highly fragmented $13 billion total addressable market. On top of this, with greater capacity for investment, we anticipate that the go-forward company will further accelerate innovation focused on artificial intelligence and machine learning, robotic process automation, and next generation digital identification technologies, building on our already robust foundation. All of these factors enable FirstAdvantage's position as a leading provider of critical, high-technology, digitally-enabled info services. Turning to slide six. Now that we are post-close, our focus is on delivering the strategic and financial benefits we have been discussing with you since we announced the planned acquisition. We have begun executing our detailed integration plan focused on a seamless process for our customers and employees. Actioning our synergy targets and deleveraging our balance sheet while retaining customers and ensuring that they do not experience disruptions remain our top priorities. We are also uncovering ways to enhance our customer value proposition and unlock cross-sell and up-sell opportunities. At the same time, we will continue to drive innovation and foster the high-performing culture we are known for. In tandem with our work on the transaction, we have been developing an updated strategy that incorporates the Sterling acquisition and is heavily focused on rapidly growing and innovating our business through new technology, AI, and product initiatives. We are calling this FA5.0, and I'm excited to share the organizational part of this strategy with you today. On slide seven, you will see the senior management team who is responsible for executing our FA5.0 strategy. As recently announced, Joel Smith has been promoted to the role of president. Joel knows our company very well, having held leadership roles within First Advantage since 2017, most recently as president data, technology, and experience. In this new role, Joel will continue to strategically lead the product, data, and technology organizations and will also take on responsibility for our go-to-market teams, including sales, customer success, and marketing. Our new structure, which aligns product and technology organizations globally, includes the introduction of general manager positions strategically aligned to verticals or regions reporting to Joelle. We have combined the capabilities of our go-to-market teams, including our direct sales and customer success functions under our GMs. This organization is a blend of First Advantage and Sterling's incredible talent and is focused on customer attention and satisfaction, along with new business sales and upsell cross-sell. Additionally, Doug Narn, who joined First Advantage in 2021 as International Chief Operations Officer, following his time as CEO of an international screening company, has been named to the expanded role of Chief Operating Officer, in which he is overseeing all of our U.S. and international operations, customer care, and customer onboarding teams. As we noted last quarter, this will be David's last earnings call as he is retiring, with Stephen Marks taking over the role of CFO. Stephen is an accomplished finance professional and respected leader. He joined First Advantage eight and a half years ago and has served as our chief accounting officer since February 2022. Our board composition is unchanged post-acquisition. Overall, we believe that our new organizational structure will improve the applicant and customer experience through enhanced operational efficiency, improve how we partner with and sell to our customers, and set us up for success as we commence our FA 5.0 journey. We will share more about the FA 5.0 strategy as we move into 2025. Turning to slide 8. The closing of our acquisition of Sterling not only provides a great opportunity to update our strategy, but to also rebrand the company. This is an excellent example of our pre-integration planning work coming to life, as it represents a joint effort between the Sterling and First Advantage teams over many months. Our new logo gives us a clean, modern look and feel that represents our commitment to leading-edge technology and the use of responsible AI and also symbolizes the joining of the two companies. The racetrack logo represents the interconnectivity of speed and quality, which is what separates us in the market. The continuous line that makes up the abstract FA of the logo reinforces the strength of the two companies coming together as one. We are very excited to time the launch of our new branding with the close of this transaction. Turning to slide nine. As part of the Sterling acquisition, we are committed to delivering $50 to $70 million of run rate cost synergies. We have already made significant progress for this target with over $10 million of run rate cost synergies actioned on day one. These savings consist primarily of reductions from combining executive teams, removing duplicative public company costs, and combining insurance programs. We have also already identified additional synergy opportunities that are expected to approximately double the action synergies within the next 100 days. We have a detailed plan in place to capture the full extent of synergies available. Key categories that we plan to address over time include international operations, fulfillment, product development, and commercial costs, with the objective of actioning our targeted run rate within 24 months. In addition to these cost synergies, we believe there is also opportunity to uncover potential revenue synergies. We will continue to execute and plan to update you on our synergy progress on future earnings costs. Finally, to summarize our position post-closing on the Sterling acquisition, we have a go-forward organization with outstanding leadership, a fresh new brand identity that exemplifies the future of First Advantage, a tremendous combination of growth-related resources and product offerings, strong customer relationships diversified across verticals and geographies resulting in lower customer concentration, ambitious and achievable synergy targets, and detailed integration plans which are in place and being executed. We have a lot of work to do in the coming months and years, and we are energized by our opportunity to accelerate growth and deliver value. Turning to slide 10. Before I turn the call over to David, I'd like to briefly comment on our standalone third quarter results and the progress we have made on sustainability. We are very pleased to report that First Advantage's combined upsell, cross-sell, and new logo rates, as well as retention rates, again performed in line with our historical revenue growth algorithm. First Advantage had 16 total enterprise bookings in the third quarter and 53 in the last 12 months, each with $500,000 or more of expected annual contract value. our sales engine continues to deliver consistent results. From a vertical perspective, FirstAdvantage's transportation and staffing verticals saw positive growth versus the prior year, while financial services was flat. Our other verticals were down in the single digits year over year, except for technology, which, while down slightly more, only represents 2% of our standalone business. Third quarter standalone results reflect a macroeconomic picture of continued normalization and stabilization within our business. We are also seeing this play out with key labor metrics, including quits, hires, and openings as job trends return to pre-pandemic levels. Overall, our customers continue to hire, albeit at a more modest level. Before switching gears, I want to call attention to the recent release of First Advantage's third annual sustainability report. This report reiterates our commitment to our core values and demonstrates the progress we are making across ethical governance, climate, employee engagement and inclusion, and bolstering the resilience of our company. I encourage you to review the full report on our website. As this is David's last earnings call, I would like to sincerely thank him for his distinguished service to First Advantage and for his partnership over the past eight-plus years. We wish you the very best in this next chapter, David. And with David's well-earned retirement, we are very excited to welcome Stephen, who has now taken over as our CFO. And with that, I will now turn the call over to David.