Sterling Check Corp.

Good morning or good afternoon all and welcome to the Sterling First Quarter 2022 Earnings Call. My name is Adam and I'll be your operator today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star 1 on your telephone keypad. I will now hand you over to Judah Sokol to begin. Judah, please go ahead when you are ready.

Thank you, Operator. Welcome to Sterling's First Quarter 2022 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 Form 10-K 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 for 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 first quarter of 2022 was exceptional and continued the momentum we saw throughout our record 2021. Starting with slide four, our results this quarter were stellar. We reported approximately 38% revenue growth, including organic constant currency revenue growth of 30%, even as we lapped a strong 17% revenue growth in the first quarter of 2021. We also saw 8% growth from our EBI acquisition, which has been outperforming our expectations thus far. We saw double-digit organic revenue growth in almost all of Sterling's regions and verticals, and we are particularly proud of the 10% growth we saw from new business in the quarter. The U.S. saw particularly strong results at 46% growth, and international grew low double digits on a constant currency basis in line with our long-term expectations, and 24% when normalized for one-time revenues in the U.K. during the first quarter of 2021. Importantly, we are not solely relying on cyclical trends to drive our strong results. We are executing on our playbook and winning new logos at a fast pace and outperforming our cross-sell, up-sell targets due to our innovative product offerings and reputation for customer service excellence. Base growth also continues to be a contributor to our strong results. These first quarter results are excellent but are not new for us. As shown on slide five, this was Sterling's fifth consecutive quarter of double-digit revenue growth and our seventh consecutive quarter of sequential revenue growth in dollars. It's been just a few years since we launched our strategy at the end of 2018 and we have hit our stride with consistency and momentum that we expect to continue. As a result of our strong first quarter and confidence in our outlook for the full year, we have increased our full year revenue and adjusted EBITDA guidance while also being mindful of the macro environment. For 2022, we now expect to generate revenues of $770 to $780 million, representing year-over-year growth of 20 to 21.5%, adjusted EBITDA of $210 to $216 million, representing year-over-year growth of 17 to 20.5%, and adjusted net income of 112 to $115 million, representing year-over-year growth of 21 to 25%. We continue to feel great about our playbook and execution. At the same time, we are cognizant of the near-term recessionary risks and the impacts an economic slowdown could have on the overall economy and our industry. We are not seeing these cyclical pressures on client orders and revenue at this time, but our outlook accounts for a potential slowdown from inflationary or recessionary pressures. We believe that our continued success in new business, upsell from new products such as identity, and client retention make us a resilient company through different cycles. Moving to slide six, we continue to refine our corporate strategy and are committed to delivering shareholder value by executing on the growth opportunities in front of us. We are focused on our aspiration to be the world's most trusted background and identity services company and have a number of key execution elements to help us achieve our goals. These include increasing our revenues with existing clients, acquiring new clients, growing market share internationally, and utilizing M&A to supplement our organic revenue growth among the other focus areas on slide six. We believe we are well positioned and differentiated from competitors due to our deep market expertise, unrivaled client service, best in class data, and seamless workflows. Turning now to slide seven, during the first quarter we executed against our growth strategy through a continued focus on innovation, and execution. Today I will discuss two areas of innovation, seamless workflows and our identity offerings. Peter will speak about our new business growth and M&A execution in the course of his financial discussion of the quarter and guidance. Let's start with innovation. Innovation has always been a part of our DNA. We pioneered criminal fulfillment technology, arrest record and incarceration alert products, post-hire monitoring capabilities, AI enhanced record review and validation processes, the industry's only proprietary technology in a single source US nationwide fingerprint network, and identity verification combined with background checks. Sterling's dynamic culture of improvement and innovation is as strong as ever. We are constantly modernizing our platforms and tools and we believe we are best in class across our candidate and client experiences. Sterling's candidate hub and client hub remain a big reason for our growth since 2019. These simplified and streamlined experiences help us win new business and enable us to have strong retention of our existing client base. The Sterling hubs are mobile optimized and designed to allow Sterling to collect the information necessary to process any combination of criminal checks, identity verifications, drug and health screening, and education and employee verifications. Moreover, the hubs are scalable to serve our global client base and flexible to adapt to changing dynamics across industries. Looking at slide eight, we offer a modern and mobile-friendly candidate experience. Over the last few years, we have focused on optimizing the interface of the hub to be intuitive and easy to use, creating a modern, streamlined experience that helps candidates manage their background screening tasks with ease and while on the go. In fact, 68% of candidates use their mobile device throughout the screening process, and candidates can complete the process in around six minutes. Candidates can provide new information necessary to complete screening and upload documents with ease from any device. As part of our culture to constantly modernize, we have made several recent feature enhancements to the candidate experience. In the first quarter, we added new self-service Check My Status tool, which provides candidates with a quick, streamlined way to check the current status of their background check, including target dates for completion by email notification. We have also continued adding new preferred languages to help more candidates complete screening tasks with ease. With the recent additions of Brazilian, Portuguese, Bulgarian, Dutch, Italian, and Turkish, we now fully support 15 languages in our core global platform while supporting 35 languages globally. We will continue to add more languages to our candidate experience as it is integral to our international expansion strategy and distinguishes us from competitors. Finally, we are continuously striving to meet web content accessibility guidelines with feature enhancements to our candidate experience that help improve inclusion by serving a wider audience. We are proud to offer a candidate experience that's accessible to all people, regardless of technology or ability. Moving to slide nine, our modern Client Hub is designed to help clients manage screening tasks with ease through an intuitive order dashboard and front and center real time order status and results. Client Hub is designed with our clients' screening workflows in mind, and we believe we do this more effectively than anyone. Clients can monitor the progress, distribute work across their teams, view reports, and most importantly, review candidates and get them into their roles all while remaining compliant. This is important to all our clients but especially important to our high volume clients. Recently we have made several innovative enhancements to our client experience which have received positive reviews from clients. We introduced a new data comparison feature that offers a quick easy way for clients to detect candidate data differences between information provided to our clients and what candidates provide to us. Clients can easily confirm the most accurate and up-to-date candidate data, accelerating time to hire. Clients are thrilled that a previously manual process is now simplified, saving them valuable time. We also introduced an easy to read overview tab that streamlines how searches appear in the client hub. With this enhancement, clients can view a high level summary of all services associated with an order, including completed searches, searches currently out for fulfillment by Sterling, and searches that are still in a draft status. This streamlines the client experience by making it easier to locate search details and manage as the candidate moves through the hiring process. Turning to slide 10, identity verification is another great example of our innovation-led approach and first-to-market solutions, so I thought I would share some updates on our traction to date. As we discussed in our last earnings call, we view Sterling Identity as a strategic pillar on equal footing to background screening, and we are very excited about our early traction. Our exclusive partnerships with FINRA and ID.me are significant competitive differentiators, and we only started capitalizing on these opportunities at the end of 2021. Several secular trends continue to drive demand for identity verification services, including the increasing number of fraud and identity thefts globally and the rise in remote or hybrid work models. In order to capitalize on these macro trends, we are focused on innovative product development and strategic alliances. As FINRA's designated fingerprint provider, all financial services industry fingerprints must now flow through Sterling. Clients can continue to use their existing provider for collection, in which case we still process and channel the fingerprints on FINRA's behalf. Those that switch and come to Sterling directly benefit from the modern consolidated experience, gaining access to our convenient nationwide biometrics network and streamlining their candidate's experience through a single application process to launch a background check and biometric validation. The benefits of switching are resonating with prospective clients as around 30% of FINRA's 3,800 member firms have voluntarily chosen to move their fingerprinting services to Sterling. We are thrilled at the initial adoption rate and expect this trend to continue. Even more importantly, the FINRA 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. When prospects switch to fingerprinting directly with Sterling, there's an opportunity to upsell Sterling's background screening offerings. We are just getting started on this front and expect to have exciting updates to share with you in coming quarters. We've also had some exciting early traction with identity verification and our ID.me partnership where we can increase our package density through the adoption of identity services. After running pilots with a few key enterprise clients during the summer and fall, we recently went live with our first handful of enterprise clients. The number of clients choosing to add identity verification to their background screen packages is growing, and we made great strides during the first quarter in optimizing our identity workflows, designing the support models, and creating automated, customizable reporting to lay the groundwork for growth over coming quarters and years. We also increased our focus on educating the market in recent months. There is a common misconception among most of our clients and prospects that identity verification is already happening as part of a background check. When clients are made aware that it is not, the interest in adopting identity services is significant. As an example, One large financial services client recently had instances of bad actors purposefully throwing off social security numbers and other key data screens in an attempt to evade the background check. Several other clients have reported cases of one person going through a Zoom interview and a completely different person showing up for work. We are partnering with clients like these and more to implement IDMe, and early results have been very positive. During the first quarter, we saw significant momentum in identity verification. We went live with several new enterprise clients, won deals with several new enterprise clients, which will go live over coming months, and have a deep pipeline of other firms with whom we are in serious discussion. In terms of the economics, the addition of identity services to existing packages is currently driving a greater than 10% increase in package price with increasing margins. Given that we are in the very nation stages of adding identity to our background packages, we are very excited about the opportunity this presents for our business. In conclusion, we entered 2022 with a lot of enthusiasm and thus far we have been executing ahead of plan. We are confident in our ability to execute organically and to build for the future. with our belief that a focus on innovation and new business wins will pave a path towards continued sustainable and profitable organic revenue growth for years to come. And now I will hand it over to Peter Walker, our CFO, to take you through our financial results and updated 2022 guidance.