Sterling Check Corp.

Hello and welcome to Sterling second quarter 2022 earnings call. My name is Harry and I'll be coordinating your call today. If you'd like to ask a question during the Q&A, you may do so by pressing star followed by one on your telephone keypad. I'd now like to hand you over to Judah from Sterling. Judah, please go ahead. Thank you, operator.

Welcome to Sterling second 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 have been posted to our website, 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 following statements and the use of non-GAAP financial measures. Additionally, please refer to our Form 10-K filed with the Securities and Exchange Commission 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, reconciliations 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. Before beginning our prepared remarks, I'd like to congratulate Judah on his expanded role as Head of Treasury and Investor Relations. Turning to slide four, Sterling's second quarter of 2022 was exceptional and continues the momentum we saw throughout our record 2021 and first quarter of 2022. We achieved new company records for revenue and adjusted EBITDA, driven by continued excellence in new business growth, client service, and innovation. During Q2, we surpassed $200 million of quarterly revenues for the first time, with year-over-year revenue growth of 29%, including 23% organic constant currency revenue growth, even as we lapped last year's second quarter growth of 80%. We also saw approximately 8% growth from our EBI acquisition, which continues to outperform our initial expectations from when we closed the deal at the end of November. We are very encouraged that our quarter's strong results were driven by all four of our revenue drivers performing above the target range. Our product innovation and technology excellence continue to resonate with prospective and existing clients. In the second quarter, our growth from new business was once again a stellar 10% as we continue to win new logos from competitors of all sizes and in all regions due to our competitive differentiators such as innovative product offerings, client service excellence, and cloud-based technology. And clients are deepening their spend with us through our upsell-cross-sell strategy as we expand package density and sell innovative and unique new products such as identity verification. In the second quarter, our identity offerings continued to gain traction with enterprise clients increasingly appreciating the differentiated offerings Sterling can provide. The second quarter was another great example of our strategy to invest for the long term while also driving profitable revenue growth. our adjusted EBITDA and adjusted net income grew by 20% and 44% respectively, both of which exceeded our expectations. Looking ahead, we continue to diligently watch the macro environment for any changes in the labor market, and we have a comprehensive playbook ready for different market conditions. We are cognizant of the near-term recessionary risk and the impacts an economic slowdown could have on the overall economy and our industry. Still, our client conversations continue to be encouraging and we have not seen signs of material cyclical slowdown within our business. We have increased our full year guidance across the board as our outlook for the balance of 2022 is strong. For 2022, We now expect to generate revenues of $785 to $795 million, adjusted EBITDA of $214 to $220 million, and adjusted net income of $115 to $118 million. We feel great about our playbook and execution, and we expect to achieve our raised guidance because of the quality of our business and resiliency of our company through different cycles. Turning to slide five, the second quarter of 2022 marks our sixth consecutive quarter of double-digit year-over-year organic revenue growth and our eighth consecutive quarter of sequential revenue growth, achievements we are very proud of. We believe our strong results are sustainable. I want to provide some color on the drivers of our long-term revenue targets. As shown on slide six, we plan to deliver 9 to 11% organic revenue growth per year over the next three to five years. Included in the 9 to 11% are four drivers. First is 2 to 3% base growth, comprised of volume increases from existing clients driven by secular tailwinds, economic cycles, and client-specific factors. Next is 4 to 5% growth from upsell and cross-sell, comprised of increasing wallet share by selling additional products, more comprehensive screen packages, and serving more divisions or regions of a client. The third source of organic revenue growth is 7 to 8% from new business, which includes revenue from brand new logos in their first 12 months. These three drivers add 13 to 16 points of growth. We target a 95 to 96% gross retention rate implying client attrition of four to five points. This adds up to our nine to 11% organic revenue growth target with any potential M&A driving the growth even higher. Turning to slide seven. Since launching our strategy in 2019, our focus has been around accelerating growth in the drivers we control. We have deployed strategies and tactics focused on new business, driving cross-sell upsell, and increasing our gross retention rate. Our vertical teams have targets around these metrics, and we believe the accountability has served us well. From the combination of these three drivers, our organic revenue growth has averaged 16% since the first quarter of 2021, more than double our combined 7% to 8% target for those items. Even during the 2020 COVID downturn, we still achieved our upsell, cross-sell, and new business targets, and our retention improved by 300 basis points year over year. This demonstrates that our solid strategy and execution have enabled us to perform well in the areas most within our control, even during challenging economic times. With respect to base growth, industry volumes should grow over the long term due to secular tailwinds such as remote work, millennial churn, and continued growth of the gig economy, though periodically, base growth will slow down due to cyclical factors. Our target for base growth is just two to three percent, the smallest component of our overall organic revenue growth targets. We believe we will continue to perform well in the areas in our control, which should offset possible softness in base growth if we see a macro downturn sometime in the future. Our outperformance is particularly strong within the category of new business, where we have been winning new clients at an accelerated pace. Following new business growth within our 7% to 8% target range in 2020, we've over delivered against that range in 2021 and thus far in 2022. Our growth from new customers in the first half of 2022 has been 10%, and second quarter 2022 marks the seventh consecutive quarter of double-digit growth from new clients, with many sizable deals that will begin driving revenue over coming quarters. Due to the ongoing growth of our pipeline and ACV signed, we expect to continue achieving our new business growth target over the long term and see the potential to continue overperforming that target. Slide eight gives some of the key drivers of our new business growth. As part of our strategic transformation over the past few years, we have invested in enhancing our sales and go-to-market strategies to be well positioned to take market share in the fragmented background screening market, and those investments continue to deliver returns. Key drivers of new wins include our global scale, deep market expertise, seamless workflows, cloud-based technology, and fulfillment automation at scale. Of course, the foundation of our competitive strength is our world-class team, which drives a culture of client service excellence built on vertical expertise, speed, accuracy, and compliance. In conclusion, the second quarter of 2022 was another record for our company. Our results were stellar, Our outlook for the full year has increased, and we believe we are prepared to operate through a range of market conditions going forward. With that, I will hand it over to Peter Walker, our CFO, to take you through our financial results and updated 2022 guidance. Peter?