Hi, I'm Ashish Sabadra. I cover business and information services companies at RBC Capital Markets. We are excited to host Scott, CEO of First Advantage, and David, the CFO. Scott, David, thanks again for giving us this opportunity. Thanks for having us here. Appreciate it. Thank you. I'll kick off with the question that we're asking all the companies at the conference, the question on the macro. How do you see macro, and in your case, hiring trends trending? Are you seeing, like, things stabilizing, improving? Yeah, I think it depends on where you are in the world, and I think it depends on what industry we're talking about. So let's start with you know, global first. I mean, we're still seeing very challenging macro in APAC and in India. We're seeing a decent macro in EMEA. And I think you actually said the word, and I'll use that word to describe the U.S. We're seeing you know, a lot of stability in the hiring world. But I think, again, it goes to industries, because we're certainly seeing some industries you know, doing quite well. So for us, transportation and healthcare are definitely positive. Retail and e-commerce are also positive, but you know, just you know, sort of barely positive. And then the industries that are down are the ones you'd expect to be down. We're seeing business and professional services down, we're seeing manufacturing down, we're seeing staffing down, technology is down. But overall, we're fairly happy where things have come, because stability is great. It helps you with planning, and it. We clearly delivered great results in the quarter, and I think a lot of that's coming from that stability in the customer base. That's, that's great color. On the last earnings call, you also provided the details on the new wins, upsells, cross-sells, and the base growth, and not only for the quarter, for the last four quarters. I was just wondering if you could highlight some of the key takeaways from that particular table. Yep. So let's go through that table real quickly Yeah. And then I'll give you what I think is the biggest takeaway. So if you look at our, what we would call our normal growth algorithm, it, it has four components. The first is, is what we call base or same-store sales, if you want to think of it that way. And in a, a normal, typical year, that is usually a positive 2%-4% growth, and we'll come back to that 'cause that's not what's happening now. And we can't control that, so that is essentially the macro. The other three components are, upsell, cross-sell, which is typically 4%-5% positive, new logo, which is typically 5%-6% positive, and then then you back out the negative, which is whatever attrition you get, and that typically runs 3%-4%. Although we've been, you know, running pretty steady at 3% for quite a while now. So if you roll up that growth algorithm, in a normal year, you're coming to 8%-10% growth. But obviously, the base and the macro, you know, have been affected and have been negative. And we can't control that, but what we, what we are really happy about is that the things we can control, we have been controlling, and also they've been super consistent. So if you look back at that four-quarter period, and you could literally actually look back the last four years, those numbers have been so consistent. We've been delivering upsell, cross-sell, new logo, and controlling attrition really well, and that's helped us weather the storm of the challenging macro because, you know, the macro is what swings the base. That's great color. So maybe just drilling down further on the new logos, can you help explain how the market is structured? Like, what% of the share is owned by the bigger, midsize, or regional players, and then the small tail, and what's driving this strong momentum in the new logos? Yeah. Let's look at a big picture first. This is what we love about the space, and this is what our investors love about the space. It's about a $13 billion TAM, so it's a big industry. And that's, you know, you know, let's say roughly half of that is US and half of that is international. And let's just focus on the US piece when it comes to market share, because that's the piece we think we can measure a little bit better than internationally, which we're, you know, we're not sure. But on the US piece, the competitive market really falls into three buckets. So you've got three large, publicly traded companies, and between the three of us, we roughly have about 36% market share, give or take a point. And, you know, we're in the $750 million-$800 million revenue range. And then the next bucket would be what we call midsize. Midsize companies in our space, or midsize competitors in our space, range somewhere between, let's say, $400 million revenue top line to $100 million top line. And there's literally maybe six, seven, eight companies that fall into that. And then 100 million sub is the third bucket, and there's literally dozens and dozens and dozens, and maybe even hundreds and hundreds of mom-and-pops or smaller players. And they actually, You know, we're calling it sub-$100 million, but they actually probably more realistically are $20 million, $30 million, you know, $40 million in size. And so what we've seen competitively happening over the, you know, the last couple years is, we've been taking market share pretty equally. We've been measuring it for the last couple of years. It's, you know, 1/3 from the other two big players, 1/3 from the mid-size, and 1/3 from the mom-and-pops. And we think that's really healthy, 'cause it's a large, fragmented market from a competitive standpoint. And we love the fact that we're sort of taking equal share from all three of those buckets, which, again, we think is a real healthy sign. What's kind of driving that are two things. One is, Again, I'm gonna start with big, and then big picture, then work down to smaller. If you look at this industry, and you look back historically at this industry, let's go back 20 years or even longer. This industry was 100% BPO. And what does that mean? If you were going to do a background check on somebody, it meant you were sending a human to a courthouse to pull a record, and most likely, fax it somewhere. That's how this industry started 20, 30 years ago. And then, let's say, roughly 10 years ago, we started to see a transformation where it went from BPO to what we call tech-enabled services. So technology was creeping in. You still had some BPO components, but there was a lot of things starting to change. Then, let's say, five years ago, I'm just, you know, picking a time, but it was roughly about that, there was a flip switched in this space, and this became a tech industry. This is what I would call 100% tech industry now. So what I think what's happened in our space over the last couple years is, you know, which this is an HR tech play, and our buyer is typically an HR department or a talent acquisition department, occasionally a risk management department. HR tech and HR departments are a little slow to come around to new technologies, but I think over the last couple years, they've realized how great the technology is with a company like First Advantage. And when you do demos with them, and you see their jaws drop, literally, and they say, "Oh, my God, we had no idea this type of tech has been out there," because they're dealing with a mid-size or a mom-and-pop, that's starting to drive some of that new logo stuff. So that's kind of trend number one. And then trend number two, we started creeping in last Q4 of 2022, and definitely Q1 of 2023, is we started to see more procurement-led deals. And this is because companies are looking to save money. I mean, they're out there looking under every rock to try to save money. And normally, when you say, procurement-led deals, you say, "Oh, that's, that's bad. They're, You know, they're gonna drive costs down and margins down." But it really hasn't. What's happened is, these procurement departments are really looking for consolidation. And, it's very rare that a company has a single-source strategy when it comes to background checks. So they might be using some partner in the U.S., and some partner in Europe, and some partner in Asia, and somebody else might be doing their I-9, and somebody else might be doing their WOTC tax credits, and somebody else might be doing their drug testing. And so we've been able to get some vendor consolidation wins. So yeah, maybe we give a discount or a rebate of some sort in return for more market share. And so those kind of trends have been driving a lot of these new logo, and even upsell, cross-sell wins. So that's why we're kind of really bullish about where we are right now in the space. I'm sorry that was a long answer, but I wanted to cover a lot. No, that's very helpful color, and I have multiple follow-up questions on that. Sure. I'll ask them one at a time. But, first one on technology. Mm-hmm. As you said, the industry is now tech-enabled- Yep but I would add, it's tech-enabled plus data-driven. Sure. Can you just talk about how your technology's differentiated and how you're using the data? What kind of data sets that you have Sure and how is that differentiated compared to your competitors? So I think there's really two ways to look at technology in our space. One is the front-end technology that a company's applicant would be dealing with. So, you know, what you're looking for there is a great candidate experience. So most of it's done, you know, in a mobile app. So we're talking about bringing AI into the front end with state-of-the-art technology that just makes for a great experience. So, you know, what does the AI do? The biggest issue for an HR department when they're hiring somebody is missing information. So the candidate hasn't given everything, and they gotta go back and forth, or they've answered something incorrectly, or they or whatever it might be, left something out. Well, AI can stop that. You know, it can help by pre-populating fields. It can help by conversational UI, UX, to help you through the process, and it just makes for a great candidate experience, plus, it makes it faster. You know, we're talking about a couple of minutes of transaction time, tops, to get all the data input. So that's a big differentiator for us. But I think what's even probably more impactful is the back-end technology. And the back-end technology, and we've been leading the, you know, the industry here for years, is really all around automation. So it's how do you, how are you automating to get that data? And once you get that data, how are you automating the curating and the processing of that data, and then the repurposing of that data back to the applicant and to the customer? You know, so this means a lot of robotic process or automation, so RPA, or let's just call it bots, and a lot of APIs. And we started our bot and API journey probably about seven years ago, so way ahead of the competition. So I think you can see this in our P&L and in our balance sheet when you look at our margins. Our margins are by far leading the industry, because we started the automation journey way ahead of our competitors, and we keep staying way ahead of our competitors. So this is what I'd call a pretty big moat, certainly against, you know, the midsize and the mom-and-pops, and somewhat against the other two. So, so you've got that part of it happening. And again, so from a financial standpoint, you can see the impact of that. But what's more important is the impact to the customer. So again, this, this goes back to, I think, why are we doing so well. So about when we were a new management team, but it's been a while. So it's been, let's say, six years, or even almost seven, actually seven years. The very first thing we did when we came in was we changed the go-to-market strategy, and we were the very first company in this space to verticalize. We all came from tech and other areas where we saw, you know, the success of verticalization, and we couldn't believe no company was verticalized in this space. So we purposely verticalized, and we purposely picked, verticals that we felt were high-volume hirers, high turnover, and more of what I would call an hourly worker focus. So if you're a company that hires a lot of hourly workers and a lot of turnover, we're the destination of choice. This is what we're built for. So, about 70% of our verticals are focused on high-volume hiring. So that means we definitely still do regulatory hiring, like banks and healthcare and we, you know, doctors and nurses and all that stuff. But our sweet spot is in that high-volume, high-turnover space. So again, let's go back to, technology. What's important to the high-volume hirers isn't our P&Ls and our balance sheets. What's important to them is our speed. Because they want to do hiring fairs, where they can bring in, you know, 100, 200 people to a distribution center and hire those people same day, or worst-case scenario, "Can you come back tomorrow and start?" You know? So we have to be talking minutes and hours, and our competitors are talking days and weeks. So our automation has really moved the needle in terms of the impact at our clients, and I think that's why we've got such great retention rates, and that's what's helped us with new logo, especially in high-volume hiring. That's great color. And maybe I want Again, I'm sorry, another long answer. No, that's great. This is very helpful color. And so I want to drill down further on the technology piece. Mm-hmm and the data piece. Yep if you can talk about your SmartHub product and the Verified database, and how that also, in addition to automation, is driving? Yeah. Yeah. So, when you think about AI, our biggest, best, state-of-the-art technology using AI is our SmartHub. And what SmartHub is, it's a way of taking in data and using proprietary algorithms with AI to see what that order is and determine where is the fastest, best, high quality, lowest cost data source to fulfill that order. And that's typically what we see in our verifications. That's where we use it the most. So this is where we're verifying prior employment, we're verifying education, those kind of things. Yeah. So what we love about SmartHub is, one, it's a great piece of technology, and it just makes us look good in the market. Two, it enables us to find data sources where we can actually add margins to it. Actually, I'll say all of our competitors, their very first step in a verifications process is to go to The Work Number. We may go to The Work Number, but that's not our very first step, because no one's making margin on The Work Number, because their prices are so high now. It's really just what a pass-through. So again, we might go to The Work Number, but we're gonna try alternative data sources first, including our own database. So we have a database of 110 million prior verifications of education and/or employment. If we don't have it, then we can go to alternatives, like the FinTechs, like the Truework and the Plaid of the world. If they don't have, we can also go to Experian, who's cheaper than The Work Number. If they don't have, then we can go to The Work Number, or we can do it internally. We've got manual processes as well. So what we've been able to use this for is, one, it helps margins, two, it's super fast, but three, it enables us, from a sales standpoint, to stand in front of a customer and say, "We are the only background check company in the world that has alternatives. You're locked in contractually with these other competitors to go to The Work Number. We're not. We like The Work Number. We think The Work Number is a great database, but we don't want that to be the only source. We want it to be one of many. So that's, It's really been a sales differentiator for us as well. That, that's very helpful color. You mentioned AI a couple of times- Mm-hmm. both on the front end and the back end. Yep. Obviously, there's a lot more focus on GenAI now. Yeah. Do you see applications of GenAI in your industry and for your products as well? Yeah. And we see that's starting to emerge. You know, there's two areas where, you know, we see it happening. One is we're releasing an updated version of our mobile app, which we call Profile Advantage, which will have some of that embedded. We're also, I'm gonna just use this word, piggybacking on some of the great AI work that large tech companies in the U.S., like Salesforce and Amazon, are building that we use their products. So we don't actually have to build it. Yeah. They're building it, and we're using it. So a great example of that is in our call center. We did a large call center transformation initiative going back well over a year. We launched it early this quarter. It's called Click.Chat.Call. When a customer contacts us, the first thing we want them to do is click. You know, "Don't contact us. There's things available to you by clicking." If they can't find it there, then chat. And this is AI chat, and it's been super effective. Then last resort, yes, they can call. But we're finding that turnaround times, or let's call them wait times, wait times on our chat is so much lower than our phone- Yeah that clients are really happy using the chat, and that's great for us because it's enabled us to really take out head count. So literally by rolling out Click, Chat, Call, we've literally been able to take out hundreds of heads in our call center, which we just don't need anymore. The phones aren't ringing as much. And we always measure customer satisfaction in our call center. And actually, since we've launched Click, Chat, Call, our customer sat has gone up. Yeah. We're getting some great feedback on it. That's a good segue to a question for David around margins. So you've talked about how you've been able to take out cost, multiple times, and so David, despite the revenues declining last quarter, you drove margin expansion. So can you just talk about how you've been able to drive margin expansion in such a challenging macro environment? Well, a lot of the items that Scott just discussed are those margin drivers, and they will be in the future as well. So it's the automation associated with the bots and the API integrations. It's Click.Chat.Call., where we were able to take out almost 200 FTEs. It's the SmartHub, where we can drive more verifications to our own database at a very high margin, as opposed to the Work Number at no margin. So all of those help drive margin expansion, and they will going forward as well. There's, there's still a lot of runway relative to that. In addition to that, we manage SG&A very tightly. We manage headcount very tightly. We've looked at all of our software license and all of those costs associated with it. We had a very favorable, renewal on our insurance policies. That helped drive some savings. We rationalized our facilities, and most of that's done now. We'll get some of the run rate impact in 2024, but it- it's done. It's already been actioned. That's great. Actually, on the... One thing on the automation, I think it's a good data point for folks, is that we release a piece of automation, whether it's a bot or an API, every single day of the week. Yeah. So Monday through Friday, we're releasing some piece of automation. So this is a constant thing that we're doing that's just getting us better and faster, and it's obviously gonna improve margins. That's great. So a child development. Just from an M&A perspective, you recently made a tuck-in acquisition in U.K. I was wondering if you can talk about the technology, and how is that applicable for rest of the business? You wanna take that, M&A? Well, so we just closed on our fifth acquisition in the past two and a half years, Infinite ID. It's really in the digital identity space, which is the future of background screening. This gives us a much expanded network. It gives us technology that we can merge into our existing technology. We're already in that space, so we wanna get in front of it. We wanna have a national network, and this allows us to get there faster. That's great. Are there certain verticals or certain areas where it's more applicable? Any particular use allowed anecdotally? Well, from a digital identity perspective and biometrics, financial institutions are all using it, and they have been for years. And so they want more and more convenient locations around where they're located and their employees are, and that's part of why we want to build out that physical network as well, and we will continue to expand that network. Healthcare, same thing. Education, same thing. So you're gonna see more and more applications relative to biometrics and digital identity going forward. Yeah, if you think about it, I mean, one of the big issues that our customers face today is fraud. It's really rampant, whether it's, you know, whether it's someone, you know, not telling the truth on a resume or as extreme as someone who's interviewing isn't the same person who shows up for the job, which actually happens. And so this is a way of eliminating some of that, especially with remote hiring. So, you know, if you're a corporation in New York and you're hiring somebody out, I'm just gonna pick Topeka, Kansas, for some reason, and you just wanna vet that that is that right person, if they can go into an actual facility and do biometrics. And I think even in the future... It could, it could even be just part of their onboarding process. Like, you can do the I-9 right there. You can get, you know, you can get- you could even maybe do a, print a badge for that person if they need a badge, if, if they're ever gonna come to HQ or whatever. So I think as we, as companies do more work from home and, and more remote hiring, and, and that's just one use case. I mean, it could, you know, it certainly doesn't have to be that. But I just think these technologies are gonna be more and more in demand. The best visual for that is, think of a CLEAR kiosk at an airport. That's what we're kinda talking about. Yep, that's what it is. That's great. That, that's very helpful color. And maybe just shifting gears, talking about free cash flow, you've been a very good free cash flow generation. Can you just remind us where the leverage is? How should we think about the use of cash going forward? So we have the lowest leverage in the industry at 1.7 x. At September 30, we had over $167 million of cash still on the balance sheet. That was after funding the acquisition, after funding our one-time special dividend. We generated $34 million of cash flow from operations in the quarter. That was a little bit low, 'cause we had some money tied up in receivables. That came in three days later in October. It's just timing on a payment. We generally generate $40 million-$50 million of cash flow from operations each quarter. So we're in a great shape to be able to do all of these things from a capital allocation perspective. We have a stock buyback program in place. We extended that through 2024. We're buying shares under a 10b5-1 program, so we are active relative to that program. We're gonna keep looking at alternatives to maximize shareholder value. Yeah. In terms of alternatives, can you... As you mentioned also, you've closed five acquisitions so far. You've got a good track record on that front. How do you think about the M&A pipeline, and what are the areas of focus for you? So I think because, I mean, Infinite ID, it's still too early to call it a home run Yeah but the other four are complete home runs, grand slams actually. They were just phenomenal buys. They, they are performing, you know, way, way, way above expectations, and I think that just reaffirms our strategy. So our strategy on M&A hasn't changed. It's really three things. You know, one, we're gonna look for international expansion. We do checks all around the world in 200 countries and territories. But it'd be great to be able to have more feet on the ground in certain countries and certain regions, one, to help us operationally, but two, to sell to those regional and local companies in those areas. The second thing would be, in the U.S., can we find verticals? Can we find companies that'll help us, you know, even more within the verticals that we're in, or potentially buy our way into a vertical that we're not in or not, don't have a big presence in? And then the third area is data and tech. We're always looking for data and tech. We think those are differentiators. Yeah, they come at higher multiples, but if, you know, if they move the needle competitively or from a EBITDA standpoint, we would, of course, we would of course do that. Yeah. Everything we've bought falls into those buckets. Exactly. You know, and we continue to look along those same lines. That's great. Two questions that we've been asking all the companies at the conference. One, first one I'll kick it off with is, as a management team, what is the biggest decisions that you think you have to make over the next three years? Well, David, David, David would tell you that, "What are we gonna do with all this cash?" But you, you know what we'll do with it. But I, I really, I really think, you know, as we continue to, you know, outperform the industry, as we continue to roll out new tech. And then at some point when the macro comes back, I mean, we're just gonna have a lot of growth on our hands. And so it's, you know, where do you prioritize your investments, and, you know, where do you focus on your growth? And right now, you know, the US has been actually really good for us. So, you know, do we double down on the US and sort of tread water internationally? We have those kind of things to think about as we look across the company and across the region, but there is, Those are all good problems to have. Yeah. And so we look forward to those times. No, that's absolutely right. Deploying free cash is always a great problem to have. Yeah. Yeah. Maybe the last one, in the closing, what is one thing that you're most excited about for the company? Yeah, and David started talking about this, but and as, again, I gave you the historical view of where we are from a technology standpoint. We're in the early days of, you know, digital and digital ID and digital verifications and still automation. Yeah. So I just think, I mean, just watching this digital explosion, which we think is gonna happen, is gonna lead to more sales, more upsell, cross-sell, and better products for our customers. I mean, this is all good news for our customers. Yeah, better customer experience, for sure. Yep. Thanks again. Thank you very much, Scott. Thank you. Thank you, David. Thanks for having us. Thank you.