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spk05: Good afternoon, ladies and gentlemen, and welcome to HireRite's second quarter 2023 conference call. Joining today's call is the company's President and Chief Executive Officer, Guy Abramo, Chief Financial Officer, Tom Speight, and VP of Treasury and Investor Relations, Andrew Hay. At this time, all participants are in 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 Ed's website. Also, during this call, management's remarks will include forward-looking statements, including related to macroeconomic conditions, demand for the company's services, and the company's technology improvement and cost reduction initiatives. as well as our updated guidance. 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 statements is contained in Form 10-K, Files for the Securities and Exchange Commission, in the sections of the documents entitled Risk Factors, Forward-Looking Statements, and management's discussion and analysis of financial condition and results of operations. Now it is my pleasure to turn the call over to Guy Abramo. Please go ahead, sir.
spk08: Thank you, operator, and good afternoon. I appreciate everyone taking the time with us as we share our second quarter 2023 results. In the current global economic environment, as much as things change, they seem to stay the same. In spite of inconsistent, conflicting economic signals, hiring reports, and projections, our customers' seasonal hiring patterns were consistent with prior years, albeit at a lower volume. For the quarter, we generated revenues of $192.1 million. While revenues were down 13.6% compared to the same period in 2022, our adjusted EBITDA margin grew over 300 basis points to 27.4%. As I've discussed many times, since our IPO, we have invested in developing a more automated back office fulfillment system, leveraging various AI technologies. The result is that this increases our degree of automation in completing a search. For example, automatically matching our customer search guidelines with our databases and public records. Our platform is now operational and being implemented across our global footprint. We've maintained our precision while improving speed. Our improved workflow and cost savings are already increasing productivity and improving margins on search results. And we've recently expanded our development team in India to drive additional cloud-based functionality and enhancements, working side by side with our engineering teams in Estonia. Increased automation has enabled us to streamline our domestic workforce and transition to more cost-effective offshore markets. In addition, we've significantly reduced onboarding and training time for these new associates, improving productivity and operating leverage. In other words, more output with fewer resources. Even though we have made great progress to date, we will continue to invest in software development driving additional margin improvement beyond the 300 basis points achieved over the past year. We continue to have success with new business, concentrating on what we can control, such as upsells, package expansion, and new logos. Our go-to-market teams and account executives added nine new enterprise logos in the quarter with combined projected annual revenue of $8 million. Our strong pipeline conversion in the quarter was across all of our verticals. Existing customer retention of our enterprise accounts remained very strong at 97.4%. In the quarter, we saw upsells increase over 7% sequentially from Q1 2023, demonstrating our team's growing ability to increase our average order size and services provided. This in turn allows our customers to consolidate their pre and post hiring activities with one provider. Additionally, our pipeline remains robust across all verticals. We implemented approximately $13 million worth of new business during the quarter and have more than $20 million of annual contract value in late stage pipeline that we expect to close by the end of the year. We've discussed our discipline approach to M&A aimed at expanding our geographic reach as well as adding complementary services and products to our comprehensive offerings. In July, we announced the acquisition of a majority share of Digital Trusted Identity Services, or DTIS, an FBI-approved channeler specializing in collecting and processing biometric and biographical data. This investment expands our commitment to biometric-based screening as a critical component for customers in highly regulated industries, such as healthcare, financial services, and transportation. This acquisition improves our native fingerprinting capabilities to use in connection with background screening services that require this component. DTIS also opens up a new revenue stream for us as it operates the Transportation Security Clearinghouse On behalf of the American Association of Airport Executives to fulfill their obligations as a TSA designated aviation channeler, facilitating fingerprint and other security services for more than 300 airports and 75 air carriers. Another important area of investment for us has been Latin America. Our ongoing investment in Mexico has enabled us to improve margins through the offshoring of many of our back office functions with exceptional local talent and leadership. In April, we announced the acquisition of Incurovite in Argentina and the establishment of operations in Brazil, which provides direct access to local data, reducing costs in addition to increasing our ability to service our global enterprise customers in their local operating markets. Our all-inclusive presence in Latin American markets continues to set us apart, opening the door for new global business expansions. Turning to profitability, to further enhance margins, we continue our effort to streamline costs, including reducing global headcount, shrinking our real estate footprint, and managing discretionary expenses. We are reviewing and will implement options to further reduce costs and outsource nonessential corporate functions throughout the remainder of the year and into 2024. These self-help actions are within our control. designed to improve operating leverage with a smaller operating footprint regardless of the economic environment. Looking at current market trends, I want to remind everyone that many of the market hiring indicators are backward-looking and have limited predictive value on future hiring trends. Even though the recent BLS and quits data are weaker, they are still stronger than pre-pandemic levels, and there remains more open positions than available candidates. From our standpoint, there is still strong demand for talent, and hiring continues across all verticals. We continue to see hiring patterns during Q2 which were consistent with our previous commentary, and our core verticals continue to show seasonal improvement. In closing, we're pleased with our results, especially given the backdrop of the broader macro environment. More importantly, we believe that the favorable fundamental changes in hiring and employment practices are here to stay, and discretionary hiring will increase as the economic outlook improves. Our business has been resilient for the last 25 plus years, regardless of the cycles that are often pronounced for one particular sector. We recognize it's a marathon, not a sprint, and we are positioning ourselves to further expand margins while continuing to be a global leader in providing reliable, cost-effective, technology-driven verification services. With that, I'll turn the call over to Tom for a closer look at our second quarter financial performance and our outlook for 2023. Tom?
spk09: Thank you, Guy. Good afternoon, everyone, and thank you for joining our call today. As Guy mentioned, our second quarter revenue was $192.1 million, down 13.6% versus the prior year, primarily related to uncertainty in the hiring environment. The results are consistent with our prior commentary on headwinds impacting nonessential hiring. The results were also consistent with our historical seasonal patterns as we saw our customary Q2 uplift in demand. Our high retention rate of 97.4% and the steady conversion of our pipeline to revenue-generating customers supported our positive results. In other words, even during a slower hiring environment, our retention remained strong and we continued to add new customers. Specifically, while revenue from existing customers was down approximately 16%, Revenue from new customers was up more than 36% from the prior year. Our core verticals accounted for 55% of the revenue this quarter, fairly consistent with prior periods. Technology and services are primarily responsible for the decline versus Q2 2022. However, both verticals showed sequential seasonal improvement versus Q1 of this year. Our remaining verticals were down 7% when compared to Q2 2022. Looking at our geographic split, international revenue based on applicant location was approximately 14% of revenue. EMEA posted a 14% decline, while APAC and India continue to be impacted by the softness in technology and services. We're down a combined 32% from the prior year. Turning to expenses and profitability for the quarter, we continue to improve our delivery cost to service, helping to drive gross margins, which were up more than 260 basis points year over year, excluding depreciation and amortization, to 49%. Our sequential margin growth was consistent with our historical quarterly patterns and our target of 200 basis point improvement over last year. We reported $52.7 million of adjusted EBITDA, just $1 million lower than last year despite reduced revenues. Our adjusted EBITDA margin grew over 300 basis points to 27.4%. This growth is indicative of improved operating efficiency driven by our technology investments, as well as optimizing our geographic footprint. In the quarter, we continued to execute on a restructuring plan, which was primarily targeted on our global SG&A positions and expenses, including our real estate portfolio. As Guy mentioned, we are evaluating and finalizing implementation plans to further increase our offshoring teams and outsource non-essential corporate functions. We have recently visited and toured our new facility in India and are very pleased with the impressive teams and the rapid adoption of our operating platform and our technology roadmap. These targeted margin expansion initiatives began to show benefit in the current quarter and will have a positive impact on overall 2023 results and beyond. We remain focused on delivering long-term adjusted EBITDA margins of 30%, and even though we have made great progress, we have more work to do. we will monitor performance and take timely actions to further expand our margins through the reduction of unwarranted costs in streamlining our operational footprint. Digging deeper into SG&A expenses in the quarter, excluding stock-based compensation and restructuring charges, employee costs decreased 3.8% to $27.5 million, driven largely by a reduction in variable compensation. Additionally, non-employee related expenses, excluding restructuring and other one-time items, decreased by $3.4 million compared to the prior year, including a $1 million reduction in bad debt expense. Adjusted net income for the quarter was $25.5 million compared to $31.8 million in Q2 2022. The reduction is a result of higher adjusted net interest expense of $6.8 million driven by our floating rate debt and lower operating income from lower volumes. I will also note that we have changed our methodology on adjusted net income tax rate presentation. In order to provide more consistency and comparability across periods, we have begun using an estimated blended statutory rate of 26%. To be clear, though, both our estimated statutory rate and our GAAP effective rate will differ from our actual cash taxes paid, which are primarily based on revenue generated outside of the U.S. due to our tax assets in the U.S. We expect to continue to be a nominal cash taxpayer through 2025. However, with our improving profitability, we'll now be reporting a higher effective tax rate on our GAAP results, as well as our adjusted net income. For comparison purposes, we have provided a slide in the presentation that illustrates the change of the tax rate for adjusted net income and adjusted diluted EPS purposes. Finally, adjusted diluted EPS for the quarter was 34 cents, compared to 40 cents in the prior year period. The weighted average share count for the quarter was 74 million, reflecting the shares purchased through the share buyback program versus 79.5 million in Q2 2022. Outstanding shares at the end of the quarter were 70.3 million. Turning to cash flow, we generated 12.6 million of cash flow from operations in the first half of the year and expect to continue to generate operating cash the remainder of the year. Historically, the second half of our year generates the majority of our operating cash flow. Total cash decrease for the quarter was $50 million, reflecting $61 million in cash used in our share repurchase program. At the end of the quarter, we had no draws against the revolver and had just over $695 million outstanding on our first lien loan. Our leverage ratio ended the quarter at 3.5 times, and we also ended the quarter with $77.5 million of unrestricted cash on the balance sheet. compared to 127.4 million as of March 31st, 2023. The decrease in cash was primarily related to our share repurchase program. During the second quarter, we exhausted the original $100 million program, and in June, the board authorized an additional $25 million. As we've previously stated, we are confident in High-Rite's ability to generate cash flow, enabling us to invest in the long-term future of the business. investing in geographic expansion, acquiring complementary assets, and repurchasing shares. The intermediate and long-term strategic decisions we are making today will generate increased shareholder value over time. Looking ahead, we do not assume a significant change in the economic outlook. We have operated in this softer labor market for the better part of the last year, and we have continued to deliver improved gross and adjusted EBITDA margins and positive free cash flow. In the near term, certain of our verticals may continue to defer some hiring decisions, yet our plans and efforts are aimed at producing sustainable long-term growth and profitability. Our 2023 guidance reflects our unchanged economic outlook, vertical performance to date, and conversations with our key customers. Additionally, we have updated our adjusted net income and EPS guidance to reflect our share repurchases and a blended statutory tax rate based on the tax methodology I mentioned earlier. Again, while we expect to be a nominal cash taxpayer through at least 2025 for consistency and comparability purposes, we will now provide our guidance with this adjusted blended statutory rate of 26%. With this in mind, we are updating our guidance as follows. Narrowing the revenue forecast to a range of $720 million to $735 million, Raising our adjusted EBITDA guidance to a range of $172 to $177 million. Updating our adjusted tax rate such that adjusted net income moves to a range of $75 million to $80 million, and therefore adjusting diluted earnings per share to a range of $1.05 to $1.10 based on a weighted average fully diluted share count of $73 million. All economic cycles impact industry segments differently. Performance in our core verticals will vary, and down cycles will always be replaced by periods of growth. As a management team, we monitor both short and long-term trends and will implement actions to capitalize, regardless of where we are in the economic cycle. We remain focused on growing revenues through our key strategic initiatives while maintaining strict financial discipline. With that operator, we can open the call for questions.
spk05: Thank you, sir. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
spk03: again if you would like to ask a question please press star and then one now the first question we have comes from andrew nicholas from william blair please go ahead hi good afternoon thanks for taking my questions i wanted to start on some of the the positive pipeline commentary i think guy you mentioned eight million dollars of revenue um from from new clients or enterprise logos and then I think it was $20 million in late stage pipeline. I'm just kind of curious, is that something that once it is one, layers in over time? Is that something that comes in pretty quickly? Obviously not the full year amount, but just trying to think of the kind of cadence of how it layers into revenue once it's one.
spk08: Yeah.
spk03: Hey, Andrew, how are you?
spk08: It's sort of difficult to predict because it largely depends on the client the size of the client and where they are sort of in the complexity of the changeover to a new provider. So it's hard to just give you that number and, you know, be able to give you sort of a smooth, rateable sense of how much revenue would flow through for a given period of time.
spk09: But generally speaking, that's an ACV, annual contract value number that we would expect to achieve within the next, no later than the next 12 months, typically sooner.
spk03: Okay, so if you close 20 million tomorrow, I'm not saying that's what you're saying, but if you close 20 million tomorrow, that's a 24 contribution, you know, barring anything unforeseen.
spk08: Typically, again, depending on the size of the client, there are deals that go right to contract, right to implementation if it's not that complex.
spk09: Yeah, anywhere from literally days to months, if it's a large global implementation.
spk03: That's helpful. Thank you. And then for my follow-up, you talked, I think, on several occasions in your prepared remarks about potentially outsourcing certain non-essential corporate actions, streamlining certain operational efforts. Is that all... included in kind of the $50 million cost savings plan you talked about last quarter, or is any of that incremental to that target? Thank you. No, it's included in that, Andrew. Got it. Thank you very much. Yeah, you bet.
spk05: Thank you. The next question we have comes from Kyle Peterson from Needham & Co. Please go ahead.
spk10: Hey, guys. It's actually Sam on for Kyle today. Thanks for taking the questions here, and good quarter. Could you guys give us a little bit more color into how we should think about both growth and margins in both the third and fourth quarters, maybe relative to how the second quarter went? Hey, Sam, sure.
spk09: Yeah, sure. We talked about our seasonality. We got a little bit more prescriptive on it last quarter on our call. And what we've always said is Q2 and Q3 are stronger two quarters from a revenue and a profitability perspective. And depending on the year, they are kind of plus or minus, you know, a percent or two away from each other. Certainly, sometimes it falls, how the calendar falls during a given year and how many production days we have. But Q2 and Q3 are typically, you know, in around each other. Q1 and Q4 tend to be more aligned. And we would expect that same seasonal pattern that we've seen historically to hold out this year. As you saw by the results in Q2, we were pretty pleased with the way the results came in. We would expect the second half of the year to follow suit as to what we saw in the first half of the year. Got it. Okay.
spk10: Yeah, that's helpful. And then just a quick follow-up on the competitive landscape. Have you guys noticed any changes you know, changes in terms of win rates or any changes in the competitive landscape given this kind of prolonged period of softness we've been in?
spk08: No, you know, not really, Sam. You saw we had a pretty, you know, significant increase in new business quarter over, you know, year over year. We continue to, I think, do a good job winning the business opportunities that are in front of us. I would say, you know, anecdotally, I don't see the dynamics changing that much, even though, again, one reason we're calling it softness, but a lot of the deals that we're winning are larger global deals, some international deals, and there's a limited number of competitors that can provide what we do in a lot of those markets. All right. Thanks, guys.
spk05: Thank you. Ladies and gentlemen, just a reminder, if you would like to ask a question, Please press star and then one now. The next question we have comes from George Tong from Goldman Sachs. Please go ahead.
spk02: Hi, thanks. Good afternoon. Revenues from existing clients declined 16% in the quarter. Can you talk about trends on revenue from existing customers over the course of the quarter? Did it find stabilization? Were the trends worsening over the course of the quarter? Any color there would be helpful. And then can you also confirm your full year guidance, does that assume stable trends from the exit rates being in 2Q?
spk08: Hey, George. Yeah, thanks for the question. So, yeah, I mean, we're seeing what we would call normal seasonal trends. So even though we're talking about revenue being down from existing clients, quarter over quarter it was up. We've spoken a lot about our tech sector. Tech and services are down most significantly of all clients, yet both of those sectors were up quarter over quarter. So those trends, what we would call normal seasonal trends, are holding despite them being muted relative to year over year.
spk09: Yeah, just to add on to that, you know, the guidance reflects what we've seen up through today, obviously, right? So we are updating the script as of last night. So we feel comfortable in the stability. A lot of noise in the market about, you know, changing environments and when the recession is going to come. The fact of the matter is that the hiring market's been soft for a year now, right? And in certain sectors, like we've said in technology, you know, volume's down, you know, 40%. So while we think there could still be some choppiness in the rest of the year, we do think our diversified nature of our revenue base and our diversified customer base is, you know, going to hold from a kind of stability perspective in the second half of the year. And that's what our guidance is reflective of.
spk02: Got it. That's helpful. And just to follow up on a point you mentioned earlier on the tech sector, could you remind us what your latest tech vertical mix is? And then you noticed that on a quarter-by-quarter basis, the tech vertical improved. Can you talk a little bit about sort of customer spending patterns and overall budget in the selling environment in the tech vertical specifically?
spk08: Yeah, Jordan. When we say tech vertical, what we're largely talking about are the largest big tech brand names that are out there. They comprise the bulk of the vertical. We, of course, don't talk about them individually, but you know all the names and you've seen those logos before. The second part of your question, I'm not sure I quite understood.
spk02: Just the overall selling environment for the tech vertical. Is it getting better? Is it? It sounds like it's getting better.
spk08: So it's getting better quarter over quarter, but that's normal seasonal behavior. So that's, you know, it's still down year over year, but Q2 was better than Q1. Right.
spk02: As we expected. It sounds like we're at the point where normal seasonal patterns apply in the tech vertical, and we're not at this point trying to find the bottom.
spk08: That's correct. That is absolutely correct. That's a great way to put it.
spk02: Perfect. Thanks very much.
spk08: Very helpful. Operator, next question.
spk05: Thank you, Sal. The next question we have comes from Shalom Rosenbaum from Stifle.
spk06: Again, just first, just a little bit of just clarification of what changed in the guidance. You obviously talked about the tax rate and the share count, but is there some kind of acquisition contribution now in the revenue and even out with some, you know, acquisition announcement? And also, is there a change in the interest expense in that what you were assuming from last quarter? And then I'd like to ask you more about kind of what's going on in the industry a little and, you know, What are you assuming a little bit more in terms of your guidance in terms of wiggle room if anything steps down again?
spk09: Okay. A couple parts to that question. The first one is regarding, you know, acquisitions. And obviously, we announced the DTIS acquisition after the quarter ended. We expect some, you know, modest contributions from that in the second half of the year, low single-digit millions of dollars. So not very material. Your second part of your question, I think, around interest expense, and obviously, yes. And you can see that in the investor deck, we've updated Shlomo the modeling assumptions for interest rate expense. You can see it's higher than it was, you know, two quarters ago when we originally gave guidance. I don't have the number right in front of me, but it's circa $10 million. It's pretty meaningful from an interest rate, interest cost perspective on the outlook. And then what was the last one?
spk06: It was wiggle room. Like, well, if we see another step down in hiring, is that going to result in, you know, your guidance having to come down, you know, on the low end and on the revenue side? Or did you have enough in your pipeline and the wins? You know, it seems like you're pretty enthusiastic about the cross sell upsell and the new wins. Would that be able to absorb? If there were another kind of like June, July type of step down in hiring, you know, would you have to adjust the guidance again?
spk08: Yeah, I mean, Shlomo, we really don't know. I mean, we have no reason to think. that that's the case as we sit here, you know, what is today, August 8th?
spk09: Six weeks into the quarter or whatever we are, yeah.
spk08: Everything, you know, we're very comfortable with the guidance we provided. We're very comfortable with the pipeline that we have. Now, you saw what happened last year, sort of, you know, in one month, the entire world just sort of stopped hiring for a little bit. And we saw that downturn. But there's nothing that we see in either the macro environment, conversations with clients, current trends and momentum that we have in the business that would make us think that that's the case.
spk06: Okay, great. And just can you comment on vendor consolidation, then I'll give it up. Like, are you seeing more vendor consolidation as clients are trying to get like kind of discounts from volume discounts?
spk08: We definitely are seeing a good uptick in RFPs for more global RFPs, frankly, which generally points to a general consolidation of companies wanting to pick a single provider rather than have multiple providers, even in multiple countries. From our standpoint, we love those RFPs because we're the only one in the industry with a single global platform. So we think it gives us a competitive advantage in that case. So I would say anecdotally, yes, we are seeing trends like that.
spk09: And I think those are often driven by larger HCM implementations, whether somebody's going through an Oracle implementation or SAP or UKG or Workday or whoever it may be. When we tend to see those large global HCM implementations, it creates an opportunity for us.
spk06: Thank you so much. Thanks, Shlomo.
spk05: Thank you. The next question we have is from . Please go ahead.
spk07: Hey, good afternoon, and thanks for taking my questions. So just as the quarter unfolded, did you see any variance with regards to, you know, either a pickup or slowdown with regards to a level of hiring? Obviously, you're aware that you had a large competitor that talked this morning. And so I was just wondering whether or not you're seeing any of the same sort of dynamics there.
spk08: We're seeing what I would characterize as normal, again, normal quarterly behavior, normal seasonal behavior. So obviously Q2 is a nice uptick relative to Q1. We generally expect that level of uptick year over year, given our mix of both verticals and geographies. So I would say that this year is definitely behaving like a normal year from a seasonal pattern standpoint.
spk09: Yeah, we haven't seen any, again, the commentary, Mark specifically is, you know, kind of consistent trends and patterns we've seen now for three, four months. Yeah. Yeah. And even six weeks into the quarter.
spk07: Right. And this within that tech vertical is the is the percentage decline within that tech vertical less than what it was during the first quarter?
spk09: No, no, it was pretty consistent. Yeah, it was consistent or maybe even a hair higher. You got to remember Q2 22 was our peak quarter, the peak of the hiring frenzy last year, you know, 222 million of revenue for us and technology was by far our biggest, um, vertical in that quarter of last year. So while the decline as a percentage might have been a little bit higher, that what was more important for us is that we saw Q2 of this year improve over Q1 of this year, showing that it feels like we've kind of hit, you know, at least some firmness from a bottom perspective. Yeah. In tech specifically.
spk07: Yeah. And then can you talk a little bit more about, I mean, it sounds like you've got some impressive wins coming along. First of all, with the ones that you did close, can you talk about like what the incumbents were like, whether it was some of the bigger players that everybody knows about or whether it was, you know, similar to, you know, a couple of quarters ago where you ended up winning a really large client, but the incumbent was a regional player. Can you just talk a little bit about that and some of the drivers behind those wins? And then you mentioned, you know, what it sounds like you're close to winning as opposed to have won some of those. You mentioned the $20 million. I just want to make sure I'm interpreting those comments correctly.
spk08: Yeah, that $20 million is late stage. But just overall, Mark, we saw with a lot of the wins that we have, again, we've seen them come from multiple competitors, including one of the big other two. So it's sort of across the board. I can tell you the main reasons why, the stated reasons why we've won some of them. One is, again, accuracy. We talk about this all the time, but we know that we find more more hits and felony convictions than our competitors do because of the way we do searches. We've been told that specifically by clients and we've been told that by at least two of the large enterprise wins that we've had have come from clients who've experienced missed hits from their incumbent provider. We also are seeing good traction again on the, Tom pointed out, the HCM providers. So in particular, we have pretty unique relationships with UKG, with Oracle Recruiting Cloud, and with Workday. And we've seen some of the wins come from clients that are implementing those solutions. And because we've got so many integrations and feature functionality within those integrations that they've become an advantage for us. So I can't give you the names of the specific competitors, but I can tell you this last several wins have come from both smaller players and a few of the bigger players.
spk07: Great. Just with regards to, you know, the pace of the buybacks and, you know, thinking about that vis-a-vis your interest expense, you know, how should we think about this capital allocation on a go-forward basis? And what is the assumed interest rate behind the interest expense assumption?
spk09: Well, we're sitting here right now at LIBOR plus 375. Correct me if I'm wrong on that one, Andrew. And so the rate's gone up quite a bit over the last six months, needless to say. When we think about the capital allocation process, obviously we and the board felt strongly about the value of our shares and the return on investment. We could get there. Obviously, as the interest cost gets higher, that equation changes a bit. As we mentioned, we've already gone through, you know, $100 million of the original authorization. The board has authorized an incremental $25 million, so much smaller, you know, repurchase program. So, at this point, I would think that over the next few quarters we'll revisit it with the board, whether or not we want to continue to extend the share repurchase program. But I think we've made our investment there and we'll continue to look at other alternatives at this point.
spk07: Great. And then if I could squeeze one last one in, you know, it sounds like DTIS is going well. Can you talk a little bit more about, you know, some of the newer initiatives that you have in place and, you know, and some of the promising elements that you're seeing there?
spk08: Yeah, DTIS is a very unique asset in that it was, you know, the relationship with AAAE, the Airport Employees Association. I always screw up the actual definition of that. And their, you know, biometrics type searches and having the FBI channeler status sort of cemented two things for us. One is, you know, we're the clear leader in transportation sectors, including aviation. And we loved that, you know, a large part of their basing capability is run through TSA-approved employees at airports, which provides us strong background screening opportunities within all of those air carriers and employees that are around the major airports around the U.S. We, for a long time, have talked about the need to have our own solution through the FBI channeling network. So DTIS checks that box for us. So we're looking forward to the opportunities and growth that that provides us over the course of the next year.
spk07: Great. Thank you very much. Thanks, Mark.
spk05: Thank you. The next question we have comes from Manav Putnik from Barclays. Please go ahead.
spk01: Hi, this is Ronan Kennedy. I'm from Manav. You had referred to the back office automation being operational across the footprint. Can you confirm the role that implementation played in driving the 300 basis points of margin expansion? And is there further upside from optimization? And then can you talk about, you also alluded to further software development, investment opportunities to further expand margins. Can you talk about what those are? and also where your new product pipeline and the recent launch of the screening analytics solution?
spk08: Yeah, so there's a lot there. So we haven't really deconstructed which parts of which initiative has contributed to the margin improvement, but what I can tell you is the investments that we've made in the new platform are bearing fruit in that the platform is live. A couple of major modules on that platform are live, and we're seeing – without question, improved productivity, as we said during the call, which has definitely had a sizable contribution on margin improvement. The additional opportunities that we talked about continue to be our efforts in just driving automation in all parts of our business. So it's a combination of using AI proprietary algorithms that complete the searches that we do, that we know adds to our accuracy, all the way to just doing, you know, robotic process automation, RPA work in some discrete processes across the entire business. So that is just an ongoing, never, you know, we'll never stop those types of improvement initiatives. And I know you had a couple of parts to that.
spk09: I think we've increased our investment in software development, both at the product level as well as the automation level. And that is the reference we made to part of our new operation in India where we've diversified our engineering talent and stood up another engineering group in India over the last six months or so.
spk01: Thank you. That's helpful. And then could I reconfirm your framework for acquisitions from, you know, economics and financial standpoint and then also potential areas to add?
spk08: Yeah, so our strategy very much looks like what we announced in the last couple of quarters. So DTIS provided us specific product capabilities and value in a target vertical of ours, transportation via aviation. And Corovitae gave us valuable assets in Argentina, which also allowed us to put an entity in Brazil to, again, strengthen that part. of Latin America, and those are the types of M&A opportunities that we look at. We're not particularly interested in, you know, paying a multiple of EBITDA for revenue when we know we're taking share in the market as it is. So if it brings us unique capability or unique geographic location, that's the stuff that's on, you know, our existing M&A pipeline as evidenced by the things that we've executed.
spk01: Thank you. Appreciate it.
spk05: Thanks. Thank you. The next question we have comes from Stephanie Moore from Jefferies. Please go ahead.
spk04: Hi, good afternoon. Thank you. One clarification question on the guidance, and I apologize if I missed this, but on the revenue guidance, the kind of, you know, adjustment, you know, maybe whether you look at the midpoint or lowered the high end, what was the primary driver of just kind of the adjustment to the guidance from a revenue standpoint?
spk09: It really is reflective of what we're seeing, again, as I mentioned, up to date as recently as this week. It's consistent with what we saw in Q2. We talked about our seasonal revenue ordering patterns that we typically see in a more normalized environment. We've really started to see those come through this year, and we've started to see those even into Q3 here. So, we felt, you know, positive about our ability to forecast the second half of the year based on what we've seen in the first half of the year, even through, like I said, the first five or six weeks of the quarter. So, it's really reflective of the ordering patterns that we're seeing, you know, up to date.
spk04: Got it. Okay, no, that's very helpful. And then, you know, on the flip side, you know, really strong adjusted EBITDA, you know, margin performance and improvement in the quarter. You know, we're obviously flowing through to the full year guidance. So, you know, you made a comment about, you know, clearly, you know, the 30% EBITDA margin target is still on track and looking to hit that over time. So could you talk a little bit about what is needed over time to get to that 30% target? I would assume, you know, at some level, there needs to be kind of a return or some improvement at the top line. So and then, you know, further, you know, what's next from a margin enhancement beyond just, you know, the leverage improved top line. Thank you.
spk08: Stephanie, thanks for the thanks for the question. The, you know, largely, you know, a good source of the improvement has been a combination of us as we talked about offshoring labor. It's been investments in software and automation. It's continuing to do those things, continuing to, you know, light up more of the automation that we have. in the pipeline in addition to continuing to do whatever we can to make operational improvements to the business. We have a clear path to get to 30. I think the 300 basis point improvement hopefully allows our investors to have confidence in our ability to achieve those numbers. It's certainly doing a lot of the same things that we've been doing in now proven work. that will lead to that 30%, and it certainly bolsters our confidence in achieving it.
spk04: Got it. Very clear. Thank you so much.
spk05: Thank you. A final question we have comes from Jason Salino from KeyBank Capital Markets. Please go ahead.
spk00: Great. This is actually Devin on for Jason today. Thanks for fitting us in. Maybe just one question from us. I know you mentioned macro is still uncertain, but it seems like new business in the quarter, but also the pipeline is still looking pretty good. Maybe just from your recent RFPs, you have engaged and curious if you've seen any uptake from customers who have decided to sort of stick with their existing vendors and sort of delay the upgrades to down the road and any noticeable changes to sales cycle and close rates versus prior year in the quarter. Thanks.
spk08: No, good question. We see continued strength in the pipeline, continued strength in not just the RFPs. We don't just sit back here and wait for RFPs to come across the table. There's certainly a lot of activity. And our sales teams also continue to be effective at unseating competitors because of the differences between us and the rest of the industry in particular. on on accuracy and you know finding finding more hits it's been a good it's a it's a strong competitive advantage for us and we we like the active level of activity that we're that we're seeing and we also like the level of activity that we're generating from you know just being present in front of large enterprise clients
spk05: Thank you, sir. Ladies and gentlemen, there are no further questions at this time. I would now like to turn the floor back over to Guy Abramo for closing comments.
spk08: Thanks, operator. We continue to be proud of the results delivered by our team, especially on the margin front. We're encouraged by the normal pattern of orders that we're seeing. seasonally and continue to be very, very comfortable with the guidance that we provided and very much looking forward to the follow-up calls that we have scheduled with each of you as we go out through the rest of the day. With that, thanks everybody. Have a great rest of your day.
spk05: Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
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