Good day, everyone. My name is Ashley and I will be your conference operator today. I would like to welcome you to the First Advantage Third Quarter 2024 Earnings Conference Call and Webcast. Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. [Operator Instructions] Please note today's event is being recorded. It is now my pleasure to turn the call over to Stephanie Gorman. You may begin.

Thank you, Ashley. Good morning everyone, and welcome to First Advantage's third quarter 2024 earnings conference call. In the Investors section of our website, you will find the earnings press release and slide presentation to accompany today's discussion. This webcast is being recorded and will be available for replay on our Investor Relations website. Before we begin our prepared remarks, I would like to remind everyone that our discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the SEC, including our 2023 Form 10-K, our Form 10-Q for the third quarter of 2024 to be filed with the SEC. Such factors may be updated from time to time in our periodic filings with the SEC and we do not undertake any obligation to update forward-looking statements. Throughout this conference call, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to the most directly comparable GAAP financial measures, to the extent available without unreasonable effort, appear in today's earnings press release and presentation, which are available on our Investor Relations website. I am joined on our call today by Scott Staples, our Chief Executive Officer, and Steven Marks, our Chief Financial Officer and David Gamsey, Outgoing Chief Financial Officer. After our prepared remarks, we will take your questions. I will now hand the call over to Scott.

Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. This morning, I am pleased to provide you with an update on our business and our planned path forward with the addition of Sterling. We are thrilled to have closed our $2.2 billion acquisition of Sterling on October 31, what a tremendous opportunity for all of us. Now nearly twice as large, we have over 10,000 highly skilled, motivated and excited employees. On an LTM basis, as of September 30, 2024, we have combined revenues of approximately $1.5 billion and adjusted EBITDA of approximately $407 million or $457 million to $477 million, including our targeted run rate synergies of $50 million to $70 million, which we expect to action within two years post-closing. I would like thank our combined team for the great work they have done over the past several months to get us to this point. Since closing the acquisition, we have hit the ground running, focused on our products and customers while endeavoring to conduct a smooth integration, maintain customer continuity, action synergies and reduce net leverage. We have also unveiled our new logo and branding for our unified company, which you will see in our presentation materials today. We were pleased to deliver another quarter of strong financial performance. And today, we are maintaining our full year 2024 First Advantage stand-alone guidance ranges and providing new combined company guidance. David and Stephen will cover this in greater detail in the financial section. Turning to slide 5. I'm excited to show the strong profile of our combined company and reiterate why Sterling is such an outstanding strategic fit and benchmarks First Advantage well among our technology-based info services peers. Our combined capabilities position us as a leader offering differentiated technology platforms and a broad…

Thank you, Scott, and good morning, everyone. As Scott mentioned, this will be my last earnings call prior to my retirement, but I promise you that I will be carefully following First Advantage's future success going forward. It has been an honor to have been a part of the First Advantage management team. We have achieved much together, and there is still much more to be accomplished. This quarter, Steven and I will be providing color on First Advantage standalone results, Legacy Sterling results and a combined view to give you a clearer picture of our new profile, before concluding with thoughts around our full year guidance. Turning to our standalone third quarter results on Slide 12. In line with our previously communicated expectations, First Advantage's results for the third quarter improved sequentially over our second quarter results. Our third quarter revenues were $199.1 million, roughly in line with the prior year and $14.6 million or 8% greater than in Q2. For comparison purposes, note that Q3 of 2023 includes a one-time specific customer project, representing approximately $4 million. Our Americas segment was roughly flat as base growth was lower than anticipated, primarily due to a later start and normal holiday hiring. International performed better than anticipated, increasing 3.2% with green shoots across all regions. For the total standalone company, adjusted EBITDA was $64 million, also roughly the same as in the prior year, but sequentially up $8.2 million or 15% greater than Q2. Adjusted EBITDA margin improved sequentially 200 basis points to 32.2%, due to our highly variable, flexible cost structure and disciplined approach to managing costs. We continue to carefully manage our business to match the current demand environment. As a reminder, our cost structure is highly flexible and over 70% of our cost of sales are third-party…

Thank you, David, and good morning, everyone. I'd like to first take a moment to express my sincere gratitude to David. I have had the honor to work with him for over eight years and have been able to learn from his exceptional leadership and dedication. His contributions have laid a strong foundation for our success, and First Advantage is a far better company today, thanks to his contributions. I would also like to thank Scott and our Board of Directors for their trust as I step into this role. I'm excited about the opportunity to work alongside such a talented team and to continue driving our company's growth. And certainly to our investors, I look forward to continuing engage with you in the future as we work together to achieve our shared goals. Now, turning to cash flow and net leverage on slide 17. In Q3 2024, First Advantage stand-alone generated strong adjusted operating cash flows of $45.3 million, a robust 32% increase versus prior year, driven by expense management, cash tax planning and year-over-year decreases in our receivables. Sequentially, adjusted operating cash flow increased 11% from Q2. First advantage of cash balance at September 30, 2024, was $307.4 million as we're building cash to help fund the Sterling close. Over the last 12 months, we generated adjusted operating cash flows of $181.8 million a 3% increase on a year-over-year basis. During the quarter, First Advantage grew $7.9 million for purchases of property and equipment and capitalized software development costs. Legacy Sterling generated adjusted operating cash flows of $30.9 million in Q3 and at $75 million at September 30, having repaid $20 million of its outstanding debt in Q3. Year-over-year trends in cash flow exceeded the trend in adjusted EBITDA due to Sterling's working capital management, especially related to…

Thank you, Steve. We continue to deliver solid results and execute on our priorities. Most notably, we closed the Sterling acquisition and are moving ahead quickly to integrate and capture the benefits and synergies. We remain focused on delivering on our value creation playbook and shaping the future of First Advantage to better serve our customers. With that, we will open the line for questions.

Certainly. Thank you. We will now begin question-and-answer session. [Operator Instructions] Our first question is coming from Shlomo Rosenbaum with Stifel. Please go ahead.

Hi. Thank you very much for taking my questions. I just wanted to ask you a little bit about the comment that you made about on Sterling, some attrition of higher-margin customers, the biggest risk, you and I have discussed this is the retention or the potential churn of some of these customers. Maybe you can give us a little bit more clarity as to what happened over there? Are you expecting that to continue? Or is there -- was that kind of anomalous? And just how should we think about that? And after that, I have a follow-up.

Yes. Shlomo, I mean nothing, I would say, notable in terms of a change from historical trends. Sterling retention in the last few quarters has actually been high and historical destructive, 97%, 96%, was 96% in Q3. It was really just a mixed item. Lately, they've been having a lot of upsell success in that drug and health care space, which is bringing margins down. And the margin -- and the couple of attrition, which, again, I would categorize as normal course did happened to be more in that traditional screening space, which is higher margin relatively speaking, which just pulled down a handful of bps, if you will, margin.

So you're saying it's not -- there was not a change in the iteration, it's just the reading of where the attrition came from I just want to clarify that for over the next one?

Yes, exactly. The mix of the lost business versus the mix of the added business kind of had a little bit of a market headwind to it.

Okay. Thanks. And then if you don’t mind just -- you talked about some of the base business coming in lower than expected. And maybe you could just talk about the operating environment in general. How you changed over the last quarter? What are clients telling you about their hiring expectations? And importantly, does anything change -- changes in administration? In other words, are you thinking that, that increases the chance of more hiring, decreases or really doesn't make a difference in the way that you're thinking about things?

Yes, Shlomo. So everybody is obviously focused on the macro. And as you know, we are in constant communication with our customers. So, our data points are what we're seeing from government data, but more importantly, what we're hearing from customers. And I don't think we're seeing anything different. It's a lot of more of the same. So what we've been talking about maybe for the last couple of quarters, even maybe last year or so is sort of a continued stabilization and normalization, not only in this quarter, but in previous quarters as well. We do believe that now that the US election is behind us and the potential rate cuts are coming up that some of the uncertainty will go away. But it's clear that job openings continue to decline and things are sort of going back to what we see as prepandemic levels. But that sort of has a normal thing for us. And we -- and that sort of helps us with planning. And I think what we're hearing from customers is that [Technical Difficulty]

All right. We do have our speakers back with this. I do apologize, we will continue on with our question from Shlomo Rosenbaum.

Shlomo, where were we when I dropped off.

And Shlomo, you are still connected, and your line is open, if you can hear us. Okay. I do apologize. It seems he's not connected. We will go next to Andrew Steinerman with JPMorgan. Please go ahead. Andrew, your line is open. And we'll take our next question from Nicholas -- Andrew Nicholas with William Blair. Please go ahead. Andrew, your line is open. We'll take our next question from Manav Patnaik with Barclays. Please go ahead. [Operator Instructions] I'll take our next question from Scott Wurtzel with Wolfe Research. Your line is open. Please go ahead. [Technical Difficulty] Operator: All right. I do apologize that we had experience a technical difficulties. I do apologize for that. We are going to continue our question-and-answer queue with Shlomo Rosenbaum. Please go ahead. [Technical Difficulty] We’ll take our next question from Scott Wurtzel with Wolfe Research. Your line is open. Please go ahead. [Technical Difficulty] We do appreciate your patience. Please continue to stand-by. [Technical Difficulty]

All right. And I do apologies that we had experience a technical difficulty. I do apologies for that. We are going to continue our question-and-answer queue with Shlomo Rosenbaum. Please go ahead.

Scott. Are you there. Can you hear me?

Yes. Shlomo, we can hear you. Can we hear me?

Yes, I can hear you fine. I mean I have a pop-up question to whether some of the cost efficiencies came on the conference call hosting company over.

I'm not that expressive Shlomo, I'm sorry.

Okay. When you

…going forward here.

All right. I mean you were in the middle of just describing what customers are telling you, and that's where the audio went out.

Okay. Great. Yeah. So I won't go back over kind of the macro stuff. But customers are telling us the same thing they've been telling is almost all year. So almost no change. Again, I mentioned that we believe with the US election behind and some rate cuts coming that the macro will improve. But as of right now, we're still seeing what we've been talking about all year, stabilization and normalization. It just continued. So most of our customers are still hiring, albeit at modest levels. They're focused largely on backfills, which hasn't changed all year. They are still doing new hire -- hiring. But they're doing it. I think I've said this for the last couple of quarters, they really turned to a just-in-time hiring model. So they're not going to hire ahead of the curve and just-in-time hiring models rather are not an issue because, as you know, our technology and our market position is all around speed. So if our customers want to do just-in-time hiring, that's fine with us, we get a quick turnaround time. So that's...

Okay. I think the reason what I was trying to get at is just the midpoint of the guidance was where we reported to last quarter and this quarter, it seemed to come down a little bit, and you talked about the volumes coming in base a little bit lower. So I was just trying to gather whether that's an erosion of what's going on or just bouncing around the bottom. That's the gist that I was trying to get at the question.

Yeah. I think bouncing around a little bit on the bottom is probably the best way to view it. A couple of good data points for you in international is now back two quarter [Technical Difficulty] but this is really more a [Technical Difficulty] keep also in mind that we still are doing really good on the things we can control. [Indiscernible] great et cetera. So the base was a little lower than we thought it would be this quarter, and -- still doing well. But yes, a little bit of bouncing around the bottom. I really like that analogy.

Okay. Thanks. Just giving you a heads up the audio is still a little choppy.

Okay. Thank you.

Thank you. We'll take our next question from Andrew Steinerman with JPMorgan. Please go ahead.

Hi, it's Andrew. The comment about 2025 being more neutral in terms of EPS accretion. To me, that sounds like a change, I remember 2025 being accretive and given the size of the deals and the opportunity, I just wanted to confirm if that's a change and what drove that change to be more neutral in 2025 for the combined organizations?

Andrew, not really a change. When we're talking about that, we're talking about what will be realized and reported. And based on when we action the synergies and that obviously, when you action it, you don't realize it all upfront, it takes 12 months to have that fully become part of your reported results. We just wanted to make sure the interest expense is all there today. The dilution is all there today, and we just wanted to help start to build out some of those models. I wouldn't really call it a change at all. We haven't changed our synergy outlook. We really haven't changed really anything. In fact, we've got locked in a couple of swaps to help offset some of those interest expense items for next year, so really not a change. We really just wanted to make sure we're making the obvious point around when the synergies will hit our actual P&L.

Okay. And since you've mentioned 2025 here, I know it's in the context of EPS accretion; do you have an underlying assumption for base revenues, like if, for example, the Sterling side had lower base revenues or higher base revenues than in your model, wouldn't that affect be EPS accretion assumption?

We're little early to get into exact science on 2025, Andrew. I think again, we just wanted to make sure we got everyone's models oriented in the right direction. I mean, you're right, obviously, Sterling, the volume and quantum of Sterling results impact that accretion I think the biggest moving factors that we're trying to help models with today is just on the synergy pacing, obviously, some of the interest expense and dilution impacts.

Okay. Thank you very much.

Thank you. We will take our next question from Andrew Nicholas with William Blair. Please go ahead.

Hi. Thank you and good morning. I wanted to ask a question on upsell, cross-sell. The metrics there for both First Advantage and legacy Sterling are pretty impressive, accelerating sequentially. Is there anything that you can do to unpack that a little bit more for both entities? And maybe to the extent that there are growth drivers in there that can drive revenue synergies for the combined firm too, it would be great to hear on that.

Yeah. We're, obviously, very happy where both companies are in up-sell, cross-sell. And if you remember last quarter, we announced two very large deals that we won in the quarter that were both up-sell, cross-sell. So those are revenuing now. In fact, they both revenue within days of closing. So we're riding pretty nicely on those two wins from last quarter Sterling, we still need to get into more of the details. The deal is only 12 days old, but they've had some success with up-sell, cross-sell as well as you can tell from their results. So I think the highlight here, Andrew, is that customers are still prioritizing safety and compliance shareholder value and brand protection over cost cutting. And that is leading to deeper and deeper package density. And we think the up-sell, cross-sell numbers will not only continue to perform well in the future with just general package density on digital identity solutions, which we think will be hot sellers in the market. So this is a number that we are -- we think is going to be a strong number for the next couple of quarters for sure.

Great. Thank you. And I realize it's early to talk about specific 2025 numbers. But just as we think about kind of the integration here, how much distraction risk, do you feel that there is with the sales force, in particular, is it fair for us to assume some sort of haircut to new logo growth or upsell, cross-sell absent the tailwinds that you just described over the first couple of quarters of this combined company? Or how are you thinking about that holistically? Thanks.

Yes. I think we're doing a really good job of coordinating the front-end go-to-market teams. We've got daily standup calls in place. We're mapping joint R&P deals that we're on. We're talking to customers. I think what's really interesting is when the deal was closed, we obviously communicated to all Sterling customers. And then we actually spoke in person to all of their large customers. And there was just really good excitement about the deal and customers are feeling really good about it. So you're right in that when you put things together, it does bring in some potential distraction and risk. I don't think we will see a deterioration of any of those key metrics. They may stay stable for a while. But we actually think in the long run, some of these should improve. But I would say you could probably have a period of stabilization around that as we put the front end together.

Great. Thank you.

[Operator Instructions] We will take our next question from Manav Patnaik with Barclays. Please go ahead.

Thank you. Good morning. Scott, I just wanted to touch on your plans around the integration of the platforms. I'm guessing those are multiple platforms here. And so just what are your plans around that? And all this new innovation front-end integration, et cetera, I'm guessing that's not contingent on those back homes combining to one.

Hey, Manav, great to have you back. And great question. So obviously, this is probably the number one focus area of the company is to make sure that we get this right. And I think you've heard consistently from us, since we announced the deal that there -- our goal is to not disrupt the existing client base with their platform selections. And we've been out talking to customers, and we're not going to force migrate customers onto a given platform because we one don't need to. Our synergy numbers don't require that. We are also going to -- as we roll out new features and functionalities as we figure out, which products stays, which products go, we view that as keeping the better of the two. And so ultimately, what our customers -- what our combined customers should feel is an upgrade of service and an upgrade of products. And we're going to be very, very thoughtful and cautious about how we do this. There's no time line. It will take us many months to come up with what those strategies are because due to the HSR process, we could really get under the cover too much, and now we're starting to do that, and we're obviously looking at what we're seeing. But we'll be very thoughtful as to how we roll that out.

Okay. Fair enough. And then just you talked about -- I think you mentioned a few times about job trends getting back to pre-pandemic levels. Just wondering how -- like we don't really have the history pre-2021, so you or Sterling for that matter. So just wondering with the combined company, how you think you perform in that kind of a normal environment? Like do you long-term algorithms change a little bit?

Yes. I think the growth algorithm, which I'll cover again just real quickly, so everybody is on the same page. But our growth algorithms are typically where we see base growth of 2% to 4%, upsell, cross-sell of 4% to 5%, new logos of 5% 6% and then backing out attrition of 3% to 4%, put you -- put us in that 8% to 10% growth range. And really, we are firing on all cylinders except base right now. So for the last – literally for the last two-plus years, if you go back and look at the -- I think this is our 14th earnings call. If you go back and look at the data, it's been so consistent on upsell, cross-sell, new logo and attrition. And the only thing that fluctuates really is base. So as we look into future modeling, we don't think, as I mentioned just earlier, we don't think that there will be any change to our growth algorithm on upsell, cross-sell, new logo, attrition. And again, ultimately, there should be improvement there. Although it should remain stable, maybe for 2025 and then start to improve as we put things together. So it's just always coming down to base right now. And again, we're sort of seeing that stabilization and normalization, which has us in the -- still in the low single-digit declines in base right now.

Yes. Thank you, Scott.

Thank you. We will take our next question from Scott Wurtzel with Wolfe Research. Please go ahead. Q – Scott Wurtzel: Hi. Good morning, guys. Thank you for taking my question. I wanted to go back to some of the conversations that you're having with customers, specifically the ones that are coming over from Sterling. And maybe would love to just see your kind of -- maybe what they're most excited about being under the combined companies, whether that's products you're looking forward to or features or being able to rationalize costs? Anything there would be very helpful.

Yes. So again, this is fairly a nonevent for First Advantage customers. So we did obviously reach out to talk to all our First Advantage customers and follow of change service models aren't changing. So most of the focus has been on the Sterling customers. And again, we wanted be very proactive here introducing a new leadership team and reinforcing that there'll be no disruption in service and product. And I think some of the things that they're extremely excited to hear more about from First Advantage. One, on the automation. As you guys know, we've always felt we're the most automated in the industry and automation brings obviously speed. Speed is a big seller in a space. So they know they can lever our robotics and our API and our overall automation and we'll start mapping that as to how we can start bringing that One of the low-hanging fruits, which they all really want is our chat feature in service. So click chat call, we've been talking about for almost a year now. Sterling did not have a chat feature. So this is something that we will probably be on the number one rollout that we'll do. This is probably the first thing that will bring to Sterling customers is giving their candidates and applicants and the recruiters, a chance to just chat with customer care to find out that is or whatever it might be. So customers are super excited to hear that, that would be a feature that thing we put in their hands within maybe a four to six months at maximum time period. So stuff like that, we'll start rolling out, but there's overall, just general excitement about what this potentially can bring to that. Q – Scott Wurtzel: Got it. That's helpful. And just a reminder on the capital allocation side, how you guys are thinking about debt paydown and cadence of that following the closing of the deal?

Yes, Scott, we don't have a direct debt paydown schedule yet. I mean the new debt agreement does have 1% annual prepayment amortization to it. On a capital allocation approach, -- number one priority is finishing the integration. We just closed, as Scott mentioned a few minutes -- barely weeks ago. So integrating the two businesses we're going to go get all those synergies. We're going to retain the customers and then we're going to be bringing down that net leverage number to our target range, and that will be done through a combination of debt pay down, cash flow generation, et cetera.

I've got one more thing. This is not [indiscernible] Sterling customer base is also extremely excited to be to attend our collaborate event, which we have every April. The Sterling reps have been talking about it. There's Sterling never had an annual customer event. And the Sterling customers are just really excited about getting together with other clients in their industry to share best practices and talk about other learnings. So I think our annual customer event in April, in Miami this year is going to be extremely well at [indiscernible]

Awesome. Thank you, guys.

And I see that there are no further questions in the queue at this time. This will conclude today's First Advantage Third Quarter 2024 Earnings Conference Call and Webcast. Thank you all for your participation. At this time, you may disconnect your lines. And have a wonderful day.