Sterling Check Corp.

Hello everyone and welcome to the Stirling fourth quarter 2021 earnings call. My name is Victoria and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad. If you wish to withdraw your question, please press star 2. When preparing to ask your question, please ensure that your line is unmuted locally. I will now pass over to your host, Judith Hochul, Vice President of Investor Relations to begin. Please go ahead.

Thank you, Operator. Welcome to Sterling's fourth quarter 2021 earnings call. Joining me today are Josh Perez, Chief Executive Officer of Sterling, and Peter Walker, Chief Financial Officer of Sterling. The slides we will reference during this presentation can be accessed on Sterling's Investor Relations website under News and Events. The slides will be posted at the conclusion of this call, and a replay will be made available on the website. After prepared remarks, we will open this call to questions. Before we discuss our results, I encourage all listeners to review the legal notice on slide two, which explains the risks of forward-looking statements and the use of non-GAAP financial measures. Additionally, please refer to our recently filed final perspectives for a discussion of risk factors that could cause actual results to differ materially from these forward-looking statements. Our slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measures are in the appendix to the presentation and in our earnings release issued this morning. I will now turn the call over to Josh Perez.

Thank you, Judah. Good morning, and thank you for joining us. Sterling's fourth quarter was exceptional and continued the momentum we saw through the first three quarters of 2021. We delivered record financial results, including 39% organic constant currency revenue growth, 57% adjusted EBITDA growth, and 114% adjusted EPS growth. We are also very excited about our performance thus far this year. For 2022, we expect to generate revenues of $740 to $755 million representing year-over-year growth of 15 to 17.5%. Adjusted EBITDA of 205 to $212 million, representing year-over-year growth of 14.5 to 18.5%. And adjusted net income of 112 to $118 million, representing year-over-year growth of 21.5 to 28%. Peter will discuss our 2022 guidance in greater detail, But first, I'm going to discuss our macro environment, 2021 accomplishments, and specific areas of focus for Sterling in 2022. Starting with slide four, Sterling is the world's most trusted provider of background and identity verification services. The slide provides some key stats on our business that we discussed on our third quarter earnings call. Rather than repeat them now, I will call out two stats. First, Our gross client retention rate was 96% for full year 2021. And second, we are now serving more than 50,000 clients, which speaks to the immense success we have had in winning new clients of all sizes and retaining them. This success has been driven by our company's strategic focus over the past few years on client service, technology, and product innovation. Turning to slide five, Sterling operates in a highly attractive global market with a total addressable market of $16 billion as of 2020, growing at a 12% CAGR to $29 billion by 2025. Importantly, the industry remains highly fragmented, and the majority of this opportunity is outside of the US, where we have a leading position and continue to grow share. I want to take a few moments now to touch on the macro environment and its effect in our market. In the fourth quarter of 2021 and thus far in the first quarter of 2022, our macroeconomic environment has remained strong, with the great resignation continuing and broad employee turnover remaining a key theme in the employment market. The number of U.S. job openings is at near record highs and the pace of labor separations remains high as well. Additionally, the secular demand drivers most relevant to Sterling continue to be robust and create strong tailwinds for comprehensive background screening solutions. These include the fast growth of the gig economy, the increasing use of contingent workforces and freelancers, and the increasing prevalence of remote work. We believe these trends existed before the pandemic and have accelerated over the past couple of years. They have led to a structural shift in the workforce with greater velocity and employee turnover persisting for years to come. While there is clearly a lot of uncertainty in the overall economy related to inflation, rising interest rates, and geopolitical tensions, these items have not impacted the demand for our services and our underlying fundamentals remain strong. As a result, we believe our growth algorithm is sustainable, and we will continue to outpace overall job growth. I'll now take you through some highlights of 2021, which was, by all accounts, an exceptional year for Sterling. Slide six lists some of the many accomplishments which our team delivered. Firstly, our organic constant currency revenue growth for the full year was 39%. and we expanded our adjusted EBITDA margins by approximately 600 basis points. I am particularly proud that every one of our verticals and regions grew by double digits during 2021. Peter will provide more details on our results, but I want to start off by thanking the Sterling team for executing on our strategy and driving this tremendous success. A second highlight from 2021 was the traction we gained in identity. Identity remains a crucial part of our overall growth strategy, and we feel it significantly distinguishes us from our background screening competitors. During 2021, we embarked on two key exclusive partnerships, one with ID.me and one with FINRA, which will be pillars of our strategy as we continue to expand our identity offerings. Another critical accomplishment in 2021 was the expansion of our global footprint, as we grew our international revenues by 55%. International revenues comprised 19% of our revenues during 2021, up from 17% in 2020. As I outlined earlier, over half of the global addressable market for our services sits outside the US, and we plan to further capitalize on this opportunity for years to come. The fourth item worth highlighting from 2021 was our successful IPO on the NASDAQ Global Select Market in September. Going public enabled us to enhance our capital structure while continuing to invest in the organic initiatives driving our strong growth. Our IPO was a proud moment for Sterling, and I would like to thank our team who supported that successful process, as well as our clients and partners for the continued support of our business. The final highlight I'll mention is our acquisition of EBI, a US-based background screening provider, which we expect to contribute over 30 million in revenues during 2022, with robust synergies expected as we integrate over the next 12 to 18 months. We view synergistic tuck-in M&A as a strategic lever to complement our organic revenue growth ambitions, and we are enthusiastic to make EBI our first acquisition since NCC in 2018. EBI is highly complementary to our core strategy and accretive to our financial results, and we continue to explore additional similar deals with a healthy and building pipeline. Turning now to 2022, we see a lot of opportunity for continued success. Slide seven lists four such areas, including expanding identity, accelerating growth in key U.S. verticals, continuing our international expansion, and complementing our strong organic growth with M&A. I'll start with identity on slide eight. Identity services represent a tremendous growth opportunity for us and creates significant differentiation as we are far ahead of our competition due to our strategic focus and innovation-based approach. To execute on this large opportunity, we have built a dedicated business unit called Sterling Identity. Let me frame the opportunity. The vast majority of existing background checks around the globe do not have identity verification included. This alone represents a significant opportunity for Sterling as we believe identity should be the first step of any background screening process and can thereby increase our package density. Beyond making identity verification the first step in every background check, we have a large opportunity to sell identity services on a standalone basis. Identity verification and digital identity services are fast growing and in high demand as governments and organizations struggle to keep up with the rise in identity fraud, increasing data breaches, and the shift to remote work. In 2021, we took two important steps towards capturing this opportunity. First, we're excited about our exclusive partnership with ID.me, a best-in-class identity verification and digital wallet provider with over 70 million verified users, by far the largest such network. Through this partnership, candidates need only verify their identities once, and they are then able to reuse it as part of the largest trusted digital identity network in the US. Sterling and ID.me have combined to offer robust and configurable identity services, including video chat and in-person verification options. This powerful platform is central to our go-forward strategy and includes many innovative solutions currently in development. Second, our partnership with FINRA solidifies us as a leading provider of biometric-based identity solutions with a specialization in the financial services space. We run the nation's only single source national fingerprinting network available in all 50 states. Our state of the art technology is custom built in house and provides a fully touch screen and modern fingerprinting experience. Through our relationship with FINRA, we now service over 3,800 financial services firms and 12 background check and fingerprinting providers. processing hundreds of thousands of annual transactions. Even more importantly, this deal is a testament to our leadership in the identity space and is serving as a strong lead generation tool within the financial services industry, which brings us to our next strategic priority for 2022, growing in key U.S. verticals. In 2021, we had several verticals and geographies which saw particularly outstanding results. and we are excited about the market opportunities in many of them going forward. One such vertical I'd like to spotlight today is financial and business services, shown on slide 10. In this vertical, we saw greater than 50% organic revenue growth in 2021, driven by robust base growth, cross-sell, up-sell, and new customer growth. We touched on the FINRA partnership earlier, which in just a few months since going live, is already driving increased penetration and pipeline in the financial services industry. Our FinBiz vertical has built a strong reputation for best in class regulatory expertise. Customers in industries such as financial services must navigate complex and evolving regulatory regimes and our FinBiz team is highly proficient in the rules to serve clients and maintain compliance. This is especially crucial during the ongoing war for talent when labor turnover often leads to gaps in client service and regulatory knowledge. Moreover, many multinational companies are looking to simplify processes and consolidate global spend with best in class service providers. Our ability to navigate cross border regulatory challenges creates a distinct competitive advantage that is helping us win and retain business. The FinBiz team exemplifies the success of our verticalized model and has built new solutions tailored to their clients. One such example is our liens, judgments, and bankruptcy solution. With the implementation of new standards for public records a few years ago, all civil judgments and most tax liens were removed from consumer credit reports, providing a challenge for financial institutions to obtain compliant information for risk assessment and reporting to FINRA. Using our solution, Sterling's clients can assess risk associated with new hires and existing employees, helping determine whether there is a need to disqualify them from performing securities-related functions or establish supervisory controls for safety and security. The FinBiz team's relentless commitment to identifying and covering gaps in clients' workflows has driven significant success in winning and retaining customers. Their customer retention rate is even higher than the 96% rate for Sterling as a whole. And the pipeline for new wins remains robust. Our FinBiz vertical is only one example of the success of our verticalized model, and we look forward to sharing spotlights on future calls about other US verticals displaying similarly great momentum. Our next 2022 strategic priority is expanding our global scale, which we show on slide 11. I pointed out earlier that the majority of our large and growing PAM sits outside the US. The international market is even more fragmented and less penetrated than in the US, making international expansion a compelling opportunity for us to pursue. A key driver of this opportunity is increasing adoption of background screening outside the U.S. Many international markets are only just beginning to view employment background checks as critical components of their hiring functions, which presents tremendous upside for our business. We believe we are already the leading global background screening provider. In 2021, we expanded to 19% of revenues outside the U.S. with 55% year-over-year revenue growth, including 44% organic constant currency revenue growth. We see opportunity to continue growing our market share outside the U.S. The secret to our success internationally is that we empower local leaders and teams to make decisions that serve local customers. In this way, we deliver the boutique feel of a local firm while also delivering the scale and capabilities of a leading global player. This duality underpins our ability to win both local deals overseas as well as large global deals serving multinational companies. The final strategic focus I'll discuss is M&A. Our priority remains organic revenue growth through share gains and market growth, but we see a compelling opportunity to complement our strong growth with M&A. We have the appetite and capacity for deals of varying size and type, but we are most focused on tuck-in deals that complement our core strategy with upside from synergistic integration. EBI is a great example of this approach and is highlighted on slide 13. EBI is a high-quality background screening provider with a strong reputation for client service and a commitment to compliance. And I can say that we are even more impressed with the team now that they have joined the Sterling family. The EBI deal grows our share in key U.S. verticals with a blue-chip, enterprise-focused client base. Moreover, EBI's client base is highly diversified with minimal single client or vertical concentration. From a financial perspective, we expect the acquisition to be accretive to our results as we paid a reasonable price well within our M&A tuck-in framework, and we see robust synergy potential for migrating clients to our platform and fulfillment. Integration will take 12 to 18 months. Once that process is complete, we expect EBI's revenues to flow through at a 45 to 50% rate, similar to our underlying incremental margins. Our pipeline for attractive tuck-ins is deep and growing, and we hope to announce additional similar deals during 2022. Additionally, we expect an accelerating pace of consolidation in our industry over the next couple of years as smaller competitors struggle to compete and are more macro sensitive compared to scaled providers. We plan to be a significant player in that consolidation. In conclusion, We enter 2022 with a lot of enthusiasm, confident in our ability to execute organically and to build for the future with great strategic opportunities, regardless of the direction in which the economy goes. And now, I will hand it over to Peter Walker, our CFO, to take you through our financial results and 2022 guidance. Peter?