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spk00: Good afternoon, ladies and gentlemen, and welcome to the HireRight first quarter 2022 conference call. Joining today's call is the company's President and Chief Executive Officer, Guy Abramo, and Chief Financial Officer, Tom Spaeth. At this time, all participants are in a listen-only mode. I remind everyone that management will refer to certain non-GAAP financial measures. An explanation and reconciliation of these measures to the most comparable GAAP financial measures is included in the press release issued today, which is available in the Investor Relations section of Higher Rights website. Also during this call, management's remarks will include forward-looking statements related to Higher Rights market opportunity, customer retention, competitive differentiation, pandemic recovery, strategies including technology investment to increase revenue and margins, growth potential for specific customers and industry sectors in our international business, future cash flows, operational improvements, and guidance for 2022 revenue, adjusted EBITDA, and adjusted EBITDA margin improvement. Such statements are predictions, and actual results may differ materially. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statement is contained in Form 10-K, filed with the Securities and Exchange Commission, in particular in the sections of that document entitled Risk Factors, forward-looking statements, and management's discussion and analysis of financial condition and results of operations. Now it's my pleasure to turn the call over to Guy Abramo.
spk07: Thank you, Operator, and good afternoon, everyone. We're pleased to have you with us today to discuss our strong first quarter results. While there is plenty of turbulence in the global economy these days, one thing that has remained consistent is demand for talent and the increasing options of employment for candidates. With more than 11 million job openings in the U.S. alone, the competition for people has never been higher. This demand, coupled with an ever-increasing mobile workforce, continues to drive the need for efficient and effective talent acquisition and management solutions. We feel HiRite provides the best partnership and solution to the global market through our united global platform, proprietary databases, compliance-centric approach, and industry-leading customer support. Our customers rely on us to deliver for them with speed, precision, and innovation, and this industry leadership is reflected in our strong financial performance. During the first quarter, we generated total revenues of $199 million, up a robust 33% over the corresponding prior year period. We continue to see strong demand for our high-quality solutions across all of our regions and verticals. During the quarter, we not only retained and expanded relationships with our existing customer base, but also had a strong quarter for new customer revenue and new customer contract signings as well. In terms of profitability, we generated adjusted diluted earnings per share of 37 cents. Adjusted EBITDA was 41.7 million, up 55% relative to the prior year and reflecting a 21% margin, up more than 300 basis points. We see strong potential for further upside as we'll discuss in a moment. Taking a look at our go-to-market success, New customer bookings were strong during the quarter, benefiting from the continued investments we've made in technology and our customer and applicant-facing unified global platform. New clients tell us that our single platform, along with our unified global account management, are clear differentiators that appeal to them and are directly helping to drive these new wins. In addition, our customer retention rates remain very strong, both on a gross basis and net basis for the quarter, reflecting the organic growth of our customers, the strength of our offering, and our ability to expand wallet share with our existing enterprise customer base. Additionally, we have even seen some former customers return this past quarter. We had a Fortune 100 customer in technology and one in financial services, among others, returned to us after spending some time with a few other global players. One of the reasons we are maintaining such high retention rates and see more and more customers coming back to HireRight is our clear leadership in quality and compliance. In multiple customer case studies with either new or returning customers, we have offered our version of the Pepsi Challenge. We offer to rescreen customers' employees who had been previously screened by another provider. In each case where our customers have accepted this challenge, we have found extensive missed hits by the prior background screening firm. In one case, we found more than 500 felonies missed by the previous globally recognized provider. In another, it was more than 1,200. As I have said before, at our heart, we are investigators, and it is incumbent upon us to provide the most thorough background screen possible. We do this through a combination of our extensive databases, quality, our compliance programs, extensive training, and ever-increasing levels of automation, which I will address in a moment. Now turning back to our success during the quarter. While we have seen strength across the globe and across all industries, It is particularly true in some of our key target industries, such as healthcare and technology, which both grew more than 40% over the prior year. We focus on these and other industries like transportation and financial services because they tend to have highly complex screening needs driven by the diversity of the jobs in their employee bases, the need to source candidates from across the globe, the complexity and reach of regulations that govern their businesses and associated hiring practices. and the need to deploy screening solutions that are very broad in scope and depth. These challenging criteria are where we excel, hence making us a leader in these demanding markets. As testimony to our success in satisfying these needs, we continue to add new large global enterprise customers in these industries during the quarter. Another area of focus is to accelerate our international expansion. High-rate is truly a global player, serving customers in over 200 countries and territories. Our investments in Europe, Asia Pacific, India, and Latin America are driving strong growth. Our international revenue continues to grow significantly faster than the U.S., as revenue derived from international applicants exceeded 15% for the quarter. We are seeing growth in these international markets driven by both large multinational companies as well as large local companies in these countries. We have made investments in Mexico, Brazil, Malaysia, the Philippines, India, and other countries to provide the best local support with the power of our global platform behind it. Our ability to service customers with one unified platform creates what is a strong competitive differentiator for us. Now turning back to automation and technology initiatives. Our investments are designed to expand our reputation as the industry benchmark in terms of precision and innovation. To recap from our previous call, we have partnered with a leading global IT services firm to streamline and automate the fulfillment process while improving the customer and candidate experience. As we have discussed, this is a two-year journey that we expect to complete at the end of 2023. Our focus is on technology investments and specifically automating more of our back office processes and maximizing the usage of our industry-leading data assets. Our emphasis is on driving automation and process improvement with the continued use of robotics process automation, natural language processing, and other cloud-delivered technologies that will reduce the cost and improve quality and efficiency of our back office researchers. We believe these margin enhancement strategies will drive double-digit profitability growth. I am pleased to report we are testing the first modules of this program as we speak and are very happy with the results. It is also important to note that the program will be delivered in phases that will add incremental benefits along the way, rather than waiting for the completion of the program. To that end, we are looking forward to realizing some of these initial benefits in the second half of this year and building on that success through 2023. In closing, we're excited about the positive momentum now building for our business and the progress we are making in technology and with our expanding customer base. We're an attractive growth industry with the broadest suite of services and operational expertise and a strong financial foundation that allows us to execute on our strategic business plan and create meaningful long-term shareholder value. With that, I'll turn the call over to Tom for a closer look at our first quarter financial performance and our outlook for the balance of the year. Tom?
spk06: Thank you, Guy. Good afternoon, everyone, and thank you for joining our call today. I will echo Guy's remarks that we are excited to be reporting such strong results and appreciate you being with us today. Starting with an overview of first quarter results, revenue was up 33% year over year as strength in the hiring market continues and we continue to win new customers while expanding wallet share with existing customers. I also note that our revenue growth is 100% organic. The strength in our top line coupled with our continued focus on productivity improvements led to our adjusted net income and corresponding diluted earnings per share to more than triple over the prior period. In addition, adjusted EBITDA increased 55% over the prior year period, while adjusted EBITDA margin improved by more than 300 basis points to 21%. I'll now walk through some of the drivers of this strong financial performance. From a revenue perspective, we continue to see strength in our largest industries, such as healthcare and technology, which grew more than 40% over the prior year. And while technology and healthcare continue to stand out, each of our tracked markets grew in excess of 20% versus the prior year. As is typical for us, international markets outpaced the U.S. with a 47% growth rate. Strength in international markets was widespread, but led by India, Latin America, and Canada. All of this momentum contributed to our overall top line, which again grew organically 33% over the prior year. This outperformance helps demonstrate the leverage in our operating model as we saw significant margin expansion. In addition to the inherent leverage in our model, we made progress in our productivity and offshoring initiatives that further contribute to our strong bottom line. As Guy mentioned earlier, we are still in the early stages of our margin improvement plans and look to continue to outperform the industry in terms of earnings growth. Part of this improvement was delivered through reductions in our cost of service, excluding depreciation and amortization, which at 56.6% was 100 basis points better than the prior year period, primarily driven by increased productivity and international mix. Our SG&A expense was higher by $9 million, which reflects a 200 basis point improvement as a percent of revenue. Excluding stock comp increases, SG&A would have reflected nearly a 300 basis point improvement from 26% of revenue to 23% this quarter. And more than $3 million of the increase in SG&A was related to new public company costs, including accounting and legal fees, as well as insurance. Now turning to adjusted net income, which increased by 320% from $7 million to nearly $30 million in the quarter. In addition to the improvements we saw in our operating performance, we benefited from a $10 million reduction in interest expense, largely driven by our improved capital structure, and as with previous quarters, we continue to see the benefit of our tax assets reducing our income tax expense. Next, I would like to provide some color on our cash flow and balance sheet. One notable item that we mentioned on our previous call is that we terminate our swap agreement on our interest rate hedge. The swap agreement had been put in place back in 2018 and amended in 2019, which fixed our LIBOR base rate at 2.874% on $700 million of our borrowings. The cost to unwind that swap was approximately $18 million in the use of cash during the quarter. Even in this rising rate environment, we expect to benefit from this termination over what would have been the remainder of the swap term through the end of 2023. As of the end of the quarter, we had no draws against our revolver and had approximately $706 million outstanding on our first-year loan. Our leverage ratio now sits at 3.5 times down from 7.9 times last year and down from 3.7 times at the end of 2021. And we ended the quarter with more than $87 million of cash on the balance sheet. Turning to our updated outlook for full year 2022, while global markets remain choppy and geopolitical concerns continue, we see strength in the demand for talent and expect our strong operational and financial performance to continue. And I would like to note that while we do not have operations based in Russia or the Ukraine, we have operations in Eastern Europe and are watching the situation there carefully. But to date, there has been no material impact on our business. Therefore, based on current expectations and current market conditions, we are raising our full-year revenue guidance from $805 to $820 million to $815 to $825 million. We are raising our full-year adjusted EBITDA guidance from $180 to $190 million to $188 to $195 million. We are raising our adjusted net income guidance from 105 to 115 million to 120 to 130 million. And we are raising the corresponding adjusted diluted earnings per share range from $1.32 to $1.45 to a range of $1.51 to $1.64 per share. And just to reiterate my comments from last quarter, we would expect to see Q2 and Q3 as our slightly stronger seasonal quarters compared to Q1 and Q4. We look forward to finishing the year strong and keeping you posted on our progress. With that, operator, we can open the call for questions.
spk00: Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then 2. In the interest of time, we ask you to please limit yourself to one question and one follow-up. We will now pause for a moment as callers join the queue. The first question comes from Andrew Nicholas with William Blair. Please go ahead.
spk04: Hi, good afternoon. Thank you for taking my questions. I just wanted to first touch on kind of quarter-to-date activity. Obviously, given the choppiness in the market and the market environment, I think a lot of investors are interested in kind of what you've seen so far in Q2. So I was hoping you could speak to that and then Relatedly, how much, if any, slowdown you're baking into your full year guide with kind of the strong first quarter results already in the numbers?
spk07: Andrew, thanks for the question. Appreciate it very much. We're very comfortable with the guidance that we gave for the year, and that's about all we'll discuss in terms of where we are. We were happy with the momentum coming into this year. and continued to see that, which is reflected in the increase in guidance.
spk04: Is there anything else you could kind of say specific to April or even the start of May or slow down over the past couple of weeks even?
spk07: No. We can't comment on anything other than to say that we're very comfortable with the guidance that we gave for the full year.
spk06: Yeah. We finalized that guidance last night, so that's reflected. reflected in our numbers, our current thinking.
spk04: Perfect. And then in terms of international strength, you know, 47% growth, I think you mentioned, I think you highlighted a few regions that are particularly strong. Are there any types of verticals where you're seeing excess strength there? Any new customers that have an outsized kind of international presence that's driving that strength, just trying to get a better sense for what's in there because it's obviously a really nice result. Thank you.
spk07: Yeah, I'm glad you asked that question, Andrew. I just want to make a couple of comments related to some of the things that we said in our remarks. First, the strength is across the board and in every country. We highlighted, you know, a few of the markets in particular, but we're also seeing, you know, strength and growth in EMEA and APAC as well as, you know, India, Latin America, and Canada, which we called out. Second is it is across all industries, but is targeted and centered in our focus industry. So we've had a lot of success with technology companies, both on the ground and international companies. We've had a lot of success with healthcare, including our strategy to go attack pharma. There's a lot of pharma industry in a lot of the other regions of the world, and we've had great success in winning a lot of new business there. And third, I made a comment in the remarks about winning back some old higher-right customers in international markets, and that had a lot to do with one of the reasons why we lost those clients a few years back was we didn't have a lot of investment. Several years ago, we had some product gaps in our international markets, and then we built the global unified platform, and then we closed those product gaps, the clients that left us saw huge advantages of coming back to us again because of the unified global platform. And frankly, the only reason why they left us is they needed a couple of products that we did not have built on that platform. The moment we launched those products, we took back two very sizable, well-known Fortune 100 companies as clients. So you will continue to see us emphasize growth in international markets for all the reasons that we talked about in terms of our strength, but in particular that single global platform that we have is an appealing message, not just to multinationals, but also to large local companies who might have an operation in just one other country, right, but don't want to have multiple different types of screening programs because they have to go to another provider that doesn't have a single platform. It's been good.
spk09: Great. Thank you.
spk00: The next question comes from George Tong with Goldman Sachs. Please go ahead.
spk10: Hi, thanks. Good afternoon. As you think about 1Q performance, can you elaborate on the factors that drove outperformance relative to your expectations and perhaps clarify how much the increase in the full-year guide reflects 1Q performance versus improved performance over the rest of the year?
spk06: Sure, sure, George. How are you doing? So I'll take that. You know, you can see in our revised guidance that while we have moved the ranges up, you know, both on the revenue and the adjusted EBITDA side, the move up isn't significantly more than the overperformance in Q1, right? So we're still staying – I don't want to say conservative, but we're still saying – positive, but not getting too aggressive on our, you know, rest of the year forecast and the guidance. So, I mean, you can see where we were, what the outperformance was in Q1, and that's reflected in the rest of the year guidance.
spk07: Yeah, just to build on the first part of the question, I was just going to address. The performance is, again, across the board, seeing, continue to see strong, very strong demand. All the macroeconomic conditions around hiring and employee turnover clearly benefit the industry. We're clearly taking share with a single global platform. We are having success in upselling and cross-selling our clients, and then the ability to have some win-backs that I talked about, as well as also helping to drive some of that growth. So I would just call it good across-the-board performance, buoyed by continued growth. positive tailwinds in macroeconomic conditions around hiring and the talent movement.
spk10: Got it. That's helpful. As you know, we're experiencing elevated levels of macro and geopolitical uncertainty. Can you provide an update on what you're hearing from customers, how order trends and the pipeline look like and, and what macro scenario you're including in your full year guide?
spk07: Yeah. So it's interesting because we, um, obviously on a continued basis, one of the advantages of our strong account management relationships is we have a very continued ongoing dialogue in particular with our top 1,200 enterprise customers. We just did another survey with them a couple of weeks ago, a couple of weeks back on their view of their current hiring trends that they see. They continue to see the strength that was evidenced by the performance in the first quarter. Everyone has a heightened concern about what's going on in the world, but none of them have yet applied any of those factors as being damaging to their business in the near-term outlook. That's why we're reflecting both the performance that we had and the guidance that we provided.
spk06: That's why you see 11.5 million job openings still. Every company that we talk to is dealing with the same thing, trying to fill seats.
spk10: Got it. Very helpful. Thank you. You bet, George.
spk00: The next question comes from Kevin McVey with Credit Suisse. Please go ahead.
spk05: Congratulations on the results. You know, the EBITDA leverage that you're kind of flowing through the bottom line, really, really impressive. I mean, the revenue being raised was awesome, but the EBITDA really stood out to us. Can you help us understand some of the puts and takes that drove that? And then did that allow you to accelerate any of the tech transformation? It seems like you're well on schedule on that, but just any thoughts around the outperformance and that allowed you to maybe accelerate some spend around that in the quarter?
spk06: Yeah, so there's really two parts to that. Yes, we're really happy with the margin flow through that we're seeing. And as we publicly came out on our last call, You know, we recognize, you know, the gap we're trying to close, and we're public gaffers saying that we're working on closing that gap. Part of it's through the tech transformation. That's a very deliberate, extensive, complicated program that's very well planned out and running really well and on schedule, and we're in UAT and one of our first deliverables right there that we're very excited about. But that's not even reflected in the numbers. I mean, as we said on the last call, we weren't just gonna sit back and wait for this technology project to help deliver better results to the bottom line for investors. So there's a number of operational improvements, geographic optimization, a little bit more offshoring, process improvement, quality improvements. There's a dozen programs going on besides the technology program behind the scenes that our operational teams are focused on and driving better margins And we continue to expect to deliver on those, you know, above and beyond what we expect to get out of the technology innovation program.
spk05: That's great. That's great. And then on the international side, is it the same competitive dynamics in terms of the traditional, you know, and to your other competitors? Or, you know, when you see the partnership, is that common? Are the dynamics similar? Because, again, it seems like there's really, really –
spk07: nice recovery clients and that's a incremental share shift as well yeah so great question kevin the interesting part about the international markets obviously is it depends on where internationally but for the most part i would say the general rule they're very fragmented there's a lot of others you know still some small local regional players that have you know years long relationships with their with their clients who are just now running out of room and capability as, you know, there's an increasing demand for compliance and technology investment. So it looks a little bit like the US in that, but it's even more fragmented. Certainly the three, you know, our two chief competitors and us, you know, play in a lot of these areas. But one of the areas that we have had a good amount of success in, and I think it's one of the reasons why our growth rates are what they are there, is we're winning a lot of good mid-market clients. in the international markets. And it's difficult to do that because you need the sales infrastructure, you need account management infrastructure, you need to have a platform that can service small mid-market clients and be flexible. That's an advantage for us relative to the other two guys in the local markets, and certainly an advantage relative to the other fragmented players. I think we'll continue to see that level of success increase. We're certainly bullish about our presence there. We've put more investment in technologies. We've put more product into the markets. We've made some good investments in some small companies in those regions, as I talked about before. So it is way more fragmented, and I think to a large extent that has played as an advantage to us.
spk05: Makes sense. Congratulations again.
spk07: Thanks, Kevin.
spk00: The next question comes from Ashish Sabhadra with RBC Capital Markets. Please go ahead.
spk01: Thanks for taking my question and congrats on winning those two new customers. I was wondering if you could comment, are there other companies in the pipeline which are similarly where they are either taking the challenge or those could be potential targets and potential for winning those and any color on the pipeline generally for new customers? Thanks.
spk07: Thanks, Ashish. Good question. So, yes, there are. We're certainly taking advantage of, you know, the fact that we've now made investments to close some of the product gaps that we had in the previous past to go back and go after some clients that we lost, you know, several years ago. In particular, you know, our version of what we call the Pepsi Challenge is in a lot of our pitch docs now where, you know, the message is what have you got to lose? You know, when you find, when you think about it, when you find 500 felony convictions, you know, for one company and 1,200 in another, one felony conviction is bad, right? I mean, just think about you let an employee, and you're paid to do a background screen. You're supposed to check on those things. So when you find 500 of them, it's shocking to a client to be able to, you know, to see that kind of result. So you can definitely expect that to be part of our pitch book. as we continue to take advantage of our own proprietary data and our emphasis on quality and compliance, because it matters a lot to clients, and we're continuing to sing that from the rooftops as much as we can. So it's been a good reason why we've been winning some new business, and the pipeline has several opportunities in it because of that.
spk01: That's very helpful, Kalar. And maybe just following up on the comment I think you made that we might start to see some of the benefit from automation in the second half of 22 itself. I was wondering if you could drill down further on that. And just on the second part there, I was just wondering if you could also comment for modeling purposes. How should we think about tax rate? Tax rate came in much below what we were expecting in the first quarter. So how should we think about tax rate? Thanks.
spk06: Yeah, sure, Ashish. Yeah, so two parts to that. Regarding the automation and starting to see some of the benefit of that in the second half of the year, we've been pretty consistent that, you know, over this summer, and in fact, as I just alluded to a couple minutes ago, we've started user acceptance testing, the first major module of the program that we expect to go live here over the next 45 days or so, plus or minus a week or two. Really excited about it. We've seen the demos. We've seen the early acceptance testing. The operational teams are really excited about it. Some incredible process improvement, additional automation that we, frankly, had never had before. So should start to see some of that. Frankly, we've been conservative in our models and how we've baked that in. Really haven't counted much of that in Q2 or even maybe a little bit in Q3. really have held back most of that for Q4, but certainly expect to see it in Q4 and then really ramping into next year. But, again, really excited about the early results we're seeing there. The second part of your question, I'm sorry, I didn't write it down.
spk01: Sorry, just the tax rate.
spk06: Tax, oh, yeah. Yeah, I mean, the good news is we're not much of a taxpayer at all, cash taxpayer in the U.S., So it really depends on our international operations what's going to drive that number. But I can tell you the entire annual income tax forecast for the business is less than $10 million. So if you will, it's the minimum, right?
spk01: Congrats once again on solid results. Thank you. Thanks, Ashish. No problem. Thanks.
spk00: The next question comes from Mark Marcon with Baird. Please go ahead.
spk08: Good afternoon, and thanks for taking my questions. Strong quarter, obviously. Can you just disaggregate a little bit more on the revenue outperformance? What did you end up seeing in terms of client retention relative to new logos, relative to upsells in terms of packages? or just increased hiring activity among your client base? How would you describe that?
spk06: Yeah, Mark, so that's why we, I don't know if you saw it in the presentation, but we continue to quote what we call the net revenue retention number, which is really kind of an amalgamation of those factors that you just talked about. It captures same-store sales. It captures churn, if there's churn, and there's always a little bit of churn in the number. And it also captures upsells, right? So that 130% number that we posted, you know, we're really excited about. But part of that, you know, is going to be volume growth of those existing top enterprise customers. We really like to focus on the enterprise customers. They drive, you know, 80% of the business. So part of it's going to be volume growth. It's going to be offset by the churn. I can tell you on a gross retention basis, we – If you look at it on a year-to-date basis, I mean, it depends on how different people measure it. On a year-to-date basis, it's extremely high. We had very few losses in Q1. If you look at it on a trailing 12-month basis, it trends in that 95%, 96% range, which is where we want to see it. Maybe we can push it up to 97%. There's always going to be some inherent natural attrition. Companies get acquired, they go bankrupt, whatever the case may be, and every once in a while you do lose one competitively. But really happy about our growth and net revenue retention, really excited about our upsells, the upsell team. I don't know if we've ever talked about this, Guy, but, you know, we have a dedicated what we call strategic growth director position and team that really partners with our account management. So our account management team is really there to focus and service the needs of our clients and be strategic and tactical both at the same time with their clients. And then we can bring in what we call our strategic growth directors who are really salespeople dedicated to our account management team to really go in and try to upsell our customers. And it's been very successful over the last couple of years. And that team continues to, continues to outperform.
spk08: That's great. Yeah. I was, I was trying to get disaggregation with regards to net revenue retention and, but also just a sense with regards to new logos. I mean, you mentioned the two, but how would you characterize it relative to, you know, your expectations relative to prior quarters and, kind of the momentum building up from that perspective, particularly when you've got these success stories like your Pepsi challenge. I'm wondering to what extent you can leverage that to an even greater extent to gain more wins.
spk07: Yeah, great. You should have been part of our strategy team because that's exactly why we're doing it. We've had But in those numbers, the reason why I highlighted the two Fortune 100 win-backs was to demonstrate the power of our single global platform and our ability to take customers back when we had some product gaps. But our pipeline is as strong as it's ever been. Our new wins were a good part of the reason why the quarter was so good, and they're a good reason why we're bullish on the guidance that we gave. We think that being able to go head-to-head with anyone in the industry on quality and compliance is important because we also think it's our job as investigators to find the things that our clients hire us to find. And we think a lot of people in this industry take shortcuts, and we're not one of them. So that's why that will continue to be a strong part of our pitch. And we'll continue to highlight that to clients, and any client that will take us up on it, any prospect that will take us up on it, we'll do that screening and show them what's been missed. We've done a few other small ones. We've yet to find an incident where we didn't find a substantial number of convictions that were missed by a competitor. That's great.
spk08: And then can you just elaborate on what those product gaps were that you filled?
spk07: There are a few in particular in Asia that are unique to Asia. To be honest with you, I can't recall off the top of my head. There were about a half a dozen of them that are very country-specific, unique types of products that we had not implemented, that we have since implemented, filled out the portfolio sufficiently enough to bring back some clients who missed. Frankly, the best thing to do is once they left us, They may have been able to get certain products fulfilled that we couldn't do back then, but they missed our account management, they missed our accuracy, they missed our timeliness, and it was actually fairly easy to win back two large Fortune 100 companies in a region of the world that we only lost because of a product gap. So it's been a good story, Mark.
spk08: That's great. Look forward to following up. Same here. Thanks, Mark.
spk00: The next question comes from Shlomo Rosenbaum with Stifel. Please go ahead.
spk02: Hi, thank you for taking my questions. Could you comment a little bit on where you are in terms of your proprietary database builds, usage internally, you know, how that's helping, you know, kind of incrementally drive your business both from, you know, top line and margins?
spk07: Sure, Shlomo. We've talked about this before. We have several proprietary databases, some that exist solely for the purpose of driving a more comprehensive background screen, some that are proprietary and unique to specific industries. We've talked about our DAC database. We've talked about the RED database that we've built for Uber and Lyft. We've talked about the custom database that we have in Japan that allows us to do criminal checks that other people can't do. We are working on several others that we will launch and release at different points during this year. To be blunt, we will not share when we do that because we don't want our competitors to know about it. But it's part of the quality effort and initiatives that we have, and it's part of, you know, I think the most important part of our differentiation strategy is recognizing that the value that we add to our proprietary data continues to drive quality in the searches that we do. So, but that, you know, that's about all I really want to say in the public light.
spk02: Okay. And then maybe a housekeeping one. Receivable days climbed like 13 days sequentially. And you talk a little bit about that in terms of higher sales, mix of international, slower seasonal. But if I look at the seasonal build, like historically, maybe it goes up, you know, a little bit, doesn't go up 13 days. And, Maybe you can disaggregate some of this and, you know, were there a big surge at the end of the quarter that just, you know, your collections come in after that? Maybe it's just an unusual climb on a sequential basis.
spk06: Yeah. As you can imagine, we weren't happy with the number. And I can tell you very specifically, you know, one of the drivers of that is we went live on a new ERP system January 1st. And frankly, you know, Things like collection letters needed to be configured and reconfigured a couple times. So we think it's a short-term anomaly. We certainly expect DSOs to get back under 70 days throughout the rest of the year. We certainly never modeled in kind of mid-70s. That is not part of the plan and don't think that is really where the business is. We did have an impact from the large ERP migration that we think is short-term in nature that should revert back to normal trends.
spk02: Get back to normal now, or is it another quarter or two to work it out?
spk06: I would say a good chunk of it will get worked out this quarter, and Q2 we're in now, if not all of it, and then the rest will be worked out by Q3.
spk02: Okay, thank you.
spk00: The next question comes from Andrew Jeffrey with Truist Securities. Please go ahead.
spk09: Hi, guys. It's Gus jumping on for Andrew. you talked about expanding wallet share. It sounds like improved upsell and cross-sell. Could you drill down on what is working there, what is in terms of solutions? And it sounds like win-backs might be a vector you'll be pursuing more heavily in the future. Can you discuss a little bit more in depth about that as well?
spk07: Yeah. So, Gus, nice to hear from you. So, on the win-back side, it's an important part of our strategy, and it led to us taking back Some clients, we analyze very, very specifically why we lost a client. We have an extensive list that goes back 10 plus years of who's left us for what reasons, and oftentimes we don't, and oftentimes they leave us because they go out of business, but we've put a very specific plan together to go after, in particular on the enterprise side, clients that have left with the story that we've been telling. Some left us before we had a single global platform, so You know, our pipeline has several of those ex-clients on it, so our story is resonating. And in addition to the two I talked about, we hope to close more of them. On the upsell, cross-sell side, it's the same story we've been telling, you know, for the last several quarters. High level of success in geographic expansion, high level of success in continuing to do things like drug testing, monitoring, and, you know, other – Tom, off the top of your head, would you say the top?
spk06: Yeah, I would say by far the two biggest would be international expansion and drug and health screening, both the drug screening and the occupational health services. Those are two big upsells. And then the third would probably be monitoring activities as well.
spk09: Gotcha. That's really helpful. And I guess just on the monitoring, could you talk about progress in the post-hire screening space? I mean, anything from the continuous to maybe ID verification, and what's the outlook for the opportunity, as well as the competitive dynamics you're seeing as the years played out so far?
spk07: Yeah, so on the monitoring side, so interestingly, one of the reasons why, you know, we do the, what we call the Pepsi challenge, sorry to keep using that phrase, is to point out to clients that having a continuous monitoring program in place is always important. In particular, criteria might change on what they want in an employee base and not. So that has been, you know, a successful message for us to put continuous monitoring, especially on the criminal side, sometimes on the arrest record side for specific job classes. Again, one of the reasons why we like healthcare and financial services and transportation is is it allows us to do monitoring across various different databases, including driving records, everything from license verifications and monitoring. So it's a pretty long and robust list that appeals to the target clients we're going after. Tom, did I miss anything?
spk06: No, that's spot on.
spk07: Thanks, Gus.
spk00: The next question comes from Jason Salino with KeyBank Capital Markets. Please go ahead.
spk03: Hey, Guy. Hey, Guy. Hey, Tom. How are you?
spk06: Hey, Jason.
spk00: Hey, Jason.
spk03: So when we think about the first phases of the automation initiatives, I'm just trying to conceptualize if we should think about maybe some of these early ones as maybe some more of the low-hanging fruit, back-end infrastructure, business processes, or is maybe not the right way to think about it.
spk07: Yeah, no, there's no low-hanging fruit in this one, Jason. So the way to think about it is the first step was to build out the platform itself. And then the second step, so when you think about the major components we've talked about, so we replatformed the whole, you know, back-end fulfillment systems. And then on top of that, we have a verifications module that a public records module or the work that gets done for CRIM, drug and health screening, and then case management, which is how work flows throughout each of the systems themselves. And then all the other things we do hang on to one or more of those components. As we said before, the first module that we're building and releasing is the verifications module. What Tom talked about is user acceptance testing right now that we're seeing pretty positive feedback from our teams on. but a lot of the heavy lifting that's been done in the last, hell, almost close to a year, at least not nine months, has been in building out that core-based platform because without that, no other work gets done. So the good news for us is it's being proven out now, right? So it's no longer a question of whether or not it works or can work or can deliver what we've said it can deliver. Everything that we've seen that we've released into production, into that environment, is working. We've had bumps and bruises along the way. I've never been involved in a big project like that where you didn't, but in each case, the teams have been able to close ranks, fix what needed to be fixed, and move forward. These are fairly complex systems, which is why I say there's really no low-hanging fruit, but I would tell you that Tom and I and the rest of the management team are pleased with where we are at this point, you know, with another 18 months to go.
spk03: Okay. Perfect. No, that's very helpful. Thanks for that. And then I apologize for maybe revisiting this question, but, you know, some companies have been implementing, you know, cost control measures or laying off employees. So far it seems the headlines are limited to maybe the technology sector, but, Are you hearing at all this from any of your customers or not really? Thank you.
spk07: No, including from the technology guys. I mean, I saw the Yahoo Finance piece too as well. So we're not hearing any changes to hiring plans. The big headline continues to be the difficulty in getting the talent that they need to just fill the jobs they have. And then attrition continues to go. One of the things that I think everyone has to understand is it's much easier for people to change jobs today because of the lack of geographic location as a factor into someone's job search. So all of our clients are having a difficult time just maintaining their employee base and continuing recruiting, and competition just continues to be very, very high. Now, whether or not that changes... You know, because of some large macroeconomic shock, I don't know. But, you know, we've done pretty extensive ongoing conversations with clients, including, you know, a fairly substantial survey just the last couple of weeks. And, you know, people are concerned about what's going on around the world, but it has yet to impact their hiring patterns, which is why, you know, we've guided the way we've guided for the rest of the year.
spk03: Great. Sounds good. Thanks for addressing that.
spk00: This concludes the question and answer session. I would like to turn the conference back over to Guy Abramo for any closing remarks.
spk07: Thanks, operator, and thanks all. We appreciate your attention, and we're looking forward to doing the follow-ups over the course of the next few days. Y'all have a great day.
spk00: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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