Sterling Reports Second Quarter 2024 Results
Sterling Check Corp (NASDAQ: STER) reported Q2 2024 results with revenues increasing 5.3% year-over-year to $200.5 million. Organic constant currency revenue decreased 0.9%, while inorganic revenue grew 6.2%. The company saw accelerated growth in new business (7% YoY), up-sell/cross-sell (9% YoY), and strong customer retention (97%). However, GAAP net income decreased to a loss of $6.2 million, or $(0.07) per diluted share. Adjusted EBITDA decreased 7.4% to $46.3 million, with margin contracting 320 bps to 23.1%. The company ended Q2 with a net leverage ratio of 2.8x net debt to Adjusted EBITDA. Sterling's pending merger with First Advantage is expected to close in Q4 2024, promising greater innovation and shareholder value creation.
Sterling Check Corp (NASDAQ: STER) ha riportato i risultati del Q2 2024, con un aumento delle entrate del 5,3% anno su anno, raggiungendo 200,5 milioni di dollari. Le entrate organiche a valuta costante sono diminuite dello 0,9%, mentre le entrate non organiche sono cresciute del 6,2%. L'azienda ha registrato una crescita accelerata nel nuovo business (7% anno su anno), upsell/cross-sell (9% anno su anno) e una forte fidelizzazione dei clienti (97%). Tuttavia, il reddito netto GAAP è diminuito, registrando una perdita di 6,2 milioni di dollari, pari a $(0,07) per azione diluita. L'EBITDA rettificato è diminuito del 7,4% a 46,3 milioni di dollari, con un margine contratto di 320 punti base al 23,1%. L'azienda ha chiuso il Q2 con un rapporto di leva netta di 2,8x debito netto rispetto all'EBITDA rettificato. La fusione in sospeso con First Advantage è prevista per la chiusura nel Q4 2024, promettendo maggiore innovazione e creazione di valore per gli azionisti.
Sterling Check Corp (NASDAQ: STER) reportó resultados del Q2 2024 con un aumento de ingresos del 5.3% interanual, alcanzando 200.5 millones de dólares. Los ingresos orgánicos a moneda constante disminuyeron un 0.9%, mientras que los ingresos inorgánicos crecieron un 6.2%. La compañía experimentó un crecimiento acelerado en nuevos negocios (7% interanual), ventas adicionales/ventajas cruzadas (9% interanual) y una fuerte retención de clientes (97%). Sin embargo, la ganancia neta GAAP disminuyó a una pérdida de 6.2 millones de dólares, es decir, $(0.07) por acción diluida. El EBITDA ajustado disminuyó un 7.4% a 46.3 millones de dólares, con un margen que se contrajo 320 puntos básicos al 23.1%. La compañía finalizó el Q2 con un ratio de apalancamiento neto de 2.8x deuda neta respecto al EBITDA ajustado. La fusión pendiente con First Advantage se espera que se cierre en el Q4 de 2024, prometiendo mayor innovación y creación de valor para los accionistas.
Sterling Check Corp (NASDAQ: STER)는 2024년 2분기 실적을 발표했으며, 년 대비 매출이 5.3% 증가하여 2억 5백만 달러에 달했습니다. 유기적인 상수 통화 수익은 0.9% 감소했지만, 비유기적으로는 6.2% 성장했습니다. 회사는 신규 사업에서 가속 성장(연 7%), 추가 판매/교차 판매(연 9%), 그리고 높은 고객 유지율(97%)을 보았습니다. 그러나 GAAP 순이익은 620만 달러의 손실로 감소했으며, 희석 주당 $(0.07)입니다. 조정된 EBITDA는 7.4% 감소하여 4,630만 달러로, 마진은 320bp 축소되어 23.1%입니다. 회사는 Q2를 조정된 EBITDA 대비 순차입금 비율 2.8배로 마감했습니다. Sterling의 First Advantage와의 합병은 2024년 4분기에 마무리될 것으로 예상되며, 더 큰 혁신과 주주 가치를 창출할 것으로 기대됩니다.
Sterling Check Corp (NASDAQ: STER) a annoncé ses résultats pour le Q2 2024 avec une augmentation des revenus de 5,3% d'une année sur l'autre, atteignant 200,5 millions de dollars. Les revenus organiques en monnaie constante ont diminué de 0,9%, tandis que les revenus inorganiques ont augmenté de 6,2%. L'entreprise a connu une croissance accélérée dans les nouveaux services (7% d'une année sur l'autre), les ventes additionnelles/ventes croisées (9% d'une année sur l'autre) et un fort taux de fidélisation des clients (97%). Cependant, le revenu net GAAP a chuté à une perte de 6,2 millions de dollars, soit $(0,07) par action diluée. L'EBITDA ajusté a diminué de 7,4% pour atteindre 46,3 millions de dollars, avec une marge contractée de 320 points de base à 23,1%. L'entreprise a terminé le Q2 avec un ratio d'endettement net de 2,8x dette nette par rapport à l'EBITDA ajusté. La fusion en attente avec First Advantage devrait se conclure au Q4 2024, promettant une plus grande innovation et une création de valeur pour les actionnaires.
Sterling Check Corp (NASDAQ: STER) hat die Ergebnisse des Q2 2024 veröffentlicht, mit einem Anstieg der Einnahmen von 5,3% im Jahresvergleich auf 200,5 Millionen US-Dollar. Die organischen Einnahmen in konstanten Währungen sind um 0,9% gesunken, während die anorganischen Einnahmen um 6,2% gestiegen sind. Das Unternehmen verzeichnete ein beschleunigtes Wachstum im Neugeschäft (7% im Vergleich zum Vorjahr), Upselling/Cross-Selling (9% im Vergleich zum Vorjahr) und eine hohe Kundenbindung (97%). Die GAAP-Nettoeinnahmen hingegen verringerten sich auf einen Verlust von 6,2 Millionen US-Dollar, also $(0,07) pro verwässerter Aktie. Das bereinigte EBITDA ging um 7,4% auf 46,3 Millionen US-Dollar zurück, wobei die Marge um 320 Basispunkte auf 23,1% schrumpfte. Das Unternehmen schloss Q2 mit einem Nettoverschuldungsgrad von 2,8x Nettverschuldung zum bereinigten EBITDA ab. Die bevorstehende Fusion mit First Advantage wird voraussichtlich im Q4 2024 abgeschlossen, was größere Innovationen und die Schaffung von Aktionärswerten verspricht.
- Revenue increased 5.3% year-over-year to $200.5 million
- Accelerated growth in new business (7% YoY) and up-sell/cross-sell (9% YoY)
- Strong customer retention at 97%
- Inorganic revenue grew 6.2% year-over-year
- Adjusted EBITDA Margin expanded by 240 bps from Q1 2024
- GAAP net income decreased to a loss of $6.2 million, or $(0.07) per diluted share
- Organic constant currency revenue decreased 0.9% year-over-year
- Adjusted EBITDA decreased 7.4% year-over-year to $46.3 million
- Adjusted EBITDA Margin decreased 320 bps year-over-year to 23.1%
- Base business declined 14% year-over-year
- Free Cash Flow decreased to $8.8 million from $23.7 million in the prior year period
Insights
Sterling's Q2 2024 results show mixed signals. While revenue increased by
Positively, there's acceleration in growth from new business (
The
Sterling's Q2 results reflect the current challenging macro-economic environment, particularly in hiring trends. The
The acquisition of Vault Workforce Screening contributed to
The pending merger with First Advantage could significantly alter the competitive landscape in the background and identity verification services market. Investors should monitor integration progress and potential synergies post-merger.
Sterling's emphasis on technology-enabled services and product innovation appears to be paying off, as evidenced by the strong growth in new business and up-sell/cross-sell revenue. The company's focus on user experiences and technological excellence is likely contributing to its high customer retention rate.
However, the increased volume from M&A activity at lower margins and higher third-party vendor costs suggest potential integration challenges and the need for further technological optimization. The pending merger with First Advantage could potentially accelerate innovation and improve technological capabilities, but successful integration will be crucial.
Investors should keep an eye on Sterling's ability to leverage technology for margin improvement and competitive differentiation in the evolving background and identity verification market.
Accelerated revenue growth including improvement in Organic Growth from New Business, Up/Cross-Sell, and Client Retention
INDEPENDENCE, Ohio, Aug. 08, 2024 (GLOBE NEWSWIRE) -- Sterling Check Corp. (NASDAQ: STER) (“Sterling” or “the Company”) a leading global provider of technology-enabled background and identity verification services, today announced financial results for the second quarter ended June 30, 2024.
Second Quarter 2024 Highlights
All results compared to prior-year period, except where otherwise noted.
- Revenues increased
5.3% year-over-year to$200.5 million . Organic constant currency revenue decreased0.9% from the prior year period and inorganic revenue grew6.2% from the prior year period. Year-over-year organic revenue trends in the second quarter of 2024 improved from the first quarter of 2024, including an acceleration in growth from new business to7% year-over-year, an acceleration in growth from up-sell/cross-sell to9% year-over-year, and continued strong trends in customer retention of97% . Base business declined14% year-over-year, reflecting an improvement from the first quarter as well. - GAAP net (loss) income decreased from the prior year period to a loss of
$6.2 million , or$(0.07) per diluted share, compared to GAAP net income of$0.3 million , or$0.00 per diluted share for the prior year period. - Adjusted EBITDA decreased
7.4% year-over-year to$46.3 million . Adjusted EBITDA Margin decreased 320 bps year-over-year to23.1% , but expanded by 240 bps from the first quarter due to improved revenue trends combined with continued expense discipline. Year-over-year margin contraction was driven by increased volume from M&A activity at lower margins and higher third-party vendor costs as a percentage of revenue due to organic revenue mix, partially offset by lower costs driven by our cost optimization efforts. - Adjusted Net Income decreased
16.8% year-over-year to$21.8 million . Adjusted Earnings Per Share—diluted decreased17.9% year-over-year to$0.23 per diluted share.
Organic constant currency revenue growth (decline), Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted Earnings Per Share—diluted are non-GAAP measures. Please see the schedules accompanying this earnings release for a reconciliation of these measures to their most directly comparable GAAP measures, as applicable.
Josh Peirez, Sterling CEO, said, “The second quarter was another period of solid business momentum and encouraging financial results as we continued to execute on our 2024 plans and long-term strategy. During the quarter, we accelerated our revenue growth to
Second Quarter 2024 Results
| Three Months Ended June 30, | ||||||||||
| (in thousands, except per share data and percentages) | 2024 | 2023 | Change | |||||||
| Revenues | $ | 200,528 | $ | 190,384 | 5.3 | % | ||||
| Net (loss) income | $ | (6,232) | $ | 323 | N/M | |||||
| Net (loss) income margin | (3.1) | % | 0.2 | % | (330) bps | |||||
| Net (loss) income per share—diluted | $ | (0.07) | $ | 0.00 | N/M | |||||
| Adjusted EBITDA(1) | $ | 46,284 | $ | 49,997 | (7.4) | % | ||||
| Adjusted EBITDA Margin(1) | 23.1 | % | 26.3 | % | (320) bps | |||||
| Adjusted Net Income(1) | $ | 21,792 | $ | 26,204 | (16.8) | % | ||||
| Adjusted Earnings Per Share—diluted(1) | $ | 0.23 | $ | 0.28 | (17.9) | % | ||||
___________________
N/M—Not meaningful.
(1) Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted Earnings Per Share—diluted are non-GAAP measures. Please see the schedules accompanying this earnings release for a reconciliation of these measures to their most directly comparable GAAP measures.
Revenue for the second quarter of 2024 was
Balance Sheet and Cash Flow
As of June 30, 2024, cash and cash equivalents were
Following the quarter end, we used available cash on hand to repay
For the six months ended June 30, 2024, Sterling generated net cash provided by operations of
Free Cash Flow is a non-GAAP measure. Please see the schedule accompanying this earnings release for a reconciliation of Free Cash Flow to net cash provided by operations, its most directly comparable GAAP measure.
Conference Call
On February 28, 2024, the Company entered into a definitive agreement to combine with First Advantage Corporation, a Delaware corporation (“First Advantage”). In light of the pending merger with First Advantage, Sterling will not be hosting an earnings conference call to review its second quarter ended June 30, 2024.
Forward-Looking Statements
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and it is intended that all forward-looking statements that we make will be subject to the safe harbor protections created thereby. Forward-looking statements can be identified by forward-looking terminology such as “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “projection,” “seek,” “should,” “will” or “would,” or the negative thereof or other variations thereon or comparable terminology. In particular, statements that address market trends or projections about the future, and statements regarding Sterling’s expectations, beliefs, plans, strategies, objectives, prospects or assumptions, or statements regarding future events or performance, including those related to our pending merger with First Advantage, contained in this release are forward-looking statements. Sterling has based these forward-looking statements on current expectations, assumptions, estimates and projections. Such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond Sterling’s control. Important factors relating to the proposed merger with First Advantage could also cause actual future events to differ materially from the forward-looking statements in this release, including but not limited to: (i) the risk that the proposed merger may not be completed in a timely manner or at all, (ii) the failure to satisfy the conditions to the consummation of the proposed merger, including the receipt of certain governmental and regulatory approvals and clearances, (iii) the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement, (iv) the effect of the announcement or pendency of the proposed merger on Sterling’s business relationships, operating results, and business generally, (v) risks that the proposed merger disrupts current plans and operations of Sterling or First Advantage and creates potential difficulties in Sterling employee retention as a result of the proposed merger, (vi) risks related to diverting management’s attention from Sterling’s ongoing business operations, (vii) unexpected costs, charges or expenses resulting from the proposed merger, (viii) certain restrictions during the pendency of the proposed merger that may impact Sterling’s ability to pursue certain business opportunities or strategic transactions and (ix) the outcome of any legal proceedings that may be instituted against First Advantage or against Sterling related to the Merger Agreement or the proposed merger. These and other important factors, including those discussed more fully elsewhere in this release and in Sterling’s filings with the Securities and Exchange Commission, particularly Sterling’s most recently filed Annual Report on Form 10-K, may cause actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements, or could affect Sterling’s share price. The forward-looking statements contained in this release are not guarantees of future performance and actual results of operations, financial condition, and liquidity, and the development of the industry in which Sterling operates, may differ materially from the forward-looking statements contained in this release. Any forward-looking statement made in this release speaks only as of the date of such statement. Except as required by law, Sterling does not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this release.
Non-GAAP Financial Information
This release contains “non-GAAP financial measures,” which are financial measures that are not calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Specifically, Sterling makes use of the non-GAAP financial measures “organic constant currency revenue growth (decline)”, “Adjusted EBITDA,” “Adjusted EBITDA Margin,” “Adjusted Net Income,” “Adjusted Earnings Per Share” and “Free Cash Flow” to assess the performance of its business.
Organic constant currency revenue growth (decline) is calculated by adjusting for inorganic revenue growth (decline), which is defined as the impact to revenue growth (decline) in the current period from merger and acquisition (“M&A”) activity that has occurred over the past twelve months, and converting the current period revenue at foreign currency exchange rates consistent with the prior period. For the three months ended June 30, 2024, we have provided the impact of revenue from the acquisition of Vault (acquired in January 2024) and for the six months ended June 30, 2024, we have provided the impact of revenue from the acquisitions of Vault as well as A-Check (acquired in March 2023). We present organic constant currency revenue growth (decline) because we believe it assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance; however, it has limitations as an analytical tool, and you should not consider such a measure either in isolation or as a substitute for analyzing our results as reported under GAAP. In particular, organic constant currency revenue growth (decline) does not reflect M&A activity or the impact of foreign currency exchange rate fluctuations.
Adjusted EBITDA is defined as net income (loss) adjusted for provision (benefit) for income taxes, interest expense, depreciation and amortization, stock-based compensation, transaction expenses related to the IPO, one-time public company transition expenses and costs associated with financing transactions, M&A activity, optimization and restructuring, technology transformation costs, foreign currency (gains) and losses and other costs affecting comparability. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by revenue for the applicable period. We present Adjusted EBITDA and Adjusted EBITDA Margin because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management and our board of directors use Adjusted EBITDA and Adjusted EBITDA Margin to evaluate the factors and trends affecting our business to assess our financial performance and in preparing and approving our annual budget and believe they are helpful in highlighting trends in our core operating performance. Further, our executive incentive compensation is based in part on components of Adjusted EBITDA. Adjusted EBITDA and Adjusted EBITDA Margin have limitations as analytical tools and should not be considered in isolation or as substitutes for our results as reported under GAAP. Adjusted EBITDA excludes items that can have a significant effect on our profit or loss and should, therefore, be considered only in conjunction with net income (loss) for the period. Because not all companies use identical calculations, these measures may not be comparable to other similarly titled measures of other companies.
Adjusted Net Income is a non-GAAP profitability measure. Adjusted Net Income is defined as net income (loss) adjusted for amortization of acquired intangible assets, stock-based compensation, transaction expenses related to the IPO, one-time public company transition expenses and costs associated with financing transactions, M&A activity, optimization and restructuring, technology transformation costs, and certain other costs affecting comparability, adjusted for the applicable tax rate. Adjusted Earnings Per Share is defined as Adjusted Net Income divided by diluted weighted average shares for the applicable period. We present Adjusted Net Income and Adjusted Earnings Per Share because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding certain material non-cash items and unusual items that we do not expect to continue at the same level in the future. Our management believes that the inclusion of supplementary adjustments to net income (loss) applied in presenting Adjusted Net Income provide additional information to investors about certain material non-cash items and about items that we do not expect to continue at the same level in the future. Adjusted Net Income and Adjusted Earnings Per Share have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP.
Free Cash Flow is defined as Net Cash provided by (used in) Operating Activities minus purchases of property and equipment and purchases of intangible assets and capitalized software. We present Free Cash Flow because we believe it provides cash available for strategic measures, after making necessary capital investments in property and equipment to support ongoing business operations, and provides investors with the same measures that management uses as the basis for making resource allocation decisions. Free Cash Flow has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under GAAP.
About Sterling
Sterling—a leading provider of background and identity services—offers background and identity verification to help over 50,000 clients create people-first cultures built on foundations of trust and safety. Sterling’s tech-enabled services help organizations across all industries establish great environments for their workers, partners, and customers. With operations around the world, Sterling conducted more than 103 million searches in the twelve months ended December 31, 2023.
Contacts
Investors
Judah Sokel
IR@sterlingcheck.com
Media
Angela Stelle
Angela.Stelle@sterlingcheck.com
| CONSOLIDATED FINANCIAL STATEMENTS | |||||||||||||||
| STERLING CHECK CORP. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME | |||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| (in thousands, except share and per share data) | 2024 | 2023 | 2024 | 2023 | |||||||||||
| REVENUES | $ | 200,528 | $ | 190,384 | $ | 386,527 | $ | 369,658 | |||||||
| OPERATING EXPENSES: | |||||||||||||||
| Cost of revenues (exclusive of depreciation and amortization below) | 110,859 | 102,056 | 214,900 | 196,810 | |||||||||||
| Corporate technology and production systems | 12,755 | 11,428 | 25,969 | 23,380 | |||||||||||
| Selling, general and administrative | 50,379 | 44,910 | 110,269 | 92,361 | |||||||||||
| Depreciation and amortization | 15,820 | 16,120 | 31,590 | 31,242 | |||||||||||
| Impairments and disposals of long-lived assets | 32 | 7,039 | 200 | 7,145 | |||||||||||
| Total operating expenses | 189,845 | 181,553 | 382,928 | 350,938 | |||||||||||
| OPERATING INCOME | 10,683 | 8,831 | 3,599 | 18,720 | |||||||||||
| OTHER EXPENSE (INCOME): | |||||||||||||||
| Interest expense, net | 10,143 | 8,990 | 20,455 | 17,598 | |||||||||||
| Other income | (322 | ) | (397 | ) | (745 | ) | (809 | ) | |||||||
| Total other expense, net | 9,821 | 8,593 | 19,710 | 16,789 | |||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | 862 | 238 | (16,111 | ) | 1,931 | ||||||||||
| Income tax provision (benefit) | 7,094 | (85 | ) | (1,924 | ) | 1,017 | |||||||||
| NET (LOSS) INCOME | $ | (6,232 | ) | $ | 323 | $ | (14,187 | ) | $ | 914 | |||||
| Unrealized gain (loss) on hedged transactions, net of tax expense (benefit) of | 514 | 4,751 | 3,534 | (408 | ) | ||||||||||
| Foreign currency translation adjustments, net of tax expense of | (16 | ) | 955 | (2,267 | ) | 1,637 | |||||||||
| Total other comprehensive income | 498 | 5,706 | 1,267 | 1,229 | |||||||||||
| COMPREHENSIVE (LOSS) INCOME | $ | (5,734 | ) | $ | 6,029 | $ | (12,920 | ) | $ | 2,143 | |||||
| Net (loss) income per share attributable to stockholders | |||||||||||||||
| Basic | $ | (0.07 | ) | $ | 0.00 | $ | (0.16 | ) | $ | 0.01 | |||||
| Diluted | $ | (0.07 | ) | $ | 0.00 | $ | (0.16 | ) | $ | 0.01 | |||||
| Weighted average number of shares outstanding | |||||||||||||||
| Basic | 92,778,209 | 92,723,901 | 91,526,151 | 92,800,279 | |||||||||||
| Diluted | 92,778,209 | 94,498,666 | 91,526,151 | 94,924,080 | |||||||||||
| STERLING CHECK CORP. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
| (in thousands, except share and par value amounts) | June 30, 2024 | December 31, 2023 | |||||
| ASSETS | |||||||
| CURRENT ASSETS: | |||||||
| Cash and cash equivalents | $ | 74,182 | $ | 54,224 | |||
| Accounts receivable (net of allowance for credit losses of | 172,050 | 142,179 | |||||
| Insurance receivable | 2,895 | 2,937 | |||||
| Prepaid expenses | 8,678 | 9,651 | |||||
| Other current assets | 21,472 | 15,800 | |||||
| Total current assets | 279,277 | 224,791 | |||||
| Property and equipment, net | 6,772 | 7,695 | |||||
| Goodwill | 902,564 | 879,408 | |||||
| Intangible assets, net | 255,049 | 230,212 | |||||
| Deferred tax assets | 4,943 | 4,818 | |||||
| Operating leases right-of-use asset | 5,386 | 6,452 | |||||
| Other noncurrent assets, net | 9,248 | 10,067 | |||||
| TOTAL ASSETS | $ | 1,463,239 | $ | 1,363,443 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
| CURRENT LIABILITIES: | |||||||
| Accounts payable | $ | 52,892 | $ | 38,879 | |||
| Litigation settlement obligation | 6,222 | 5,279 | |||||
| Accrued expenses | 79,100 | 63,987 | |||||
| Current portion of long-term debt | 15,000 | 15,000 | |||||
| Operating leases liability, current portion | 3,490 | 4,219 | |||||
| Income tax payable, current portion | 163 | 8,933 | |||||
| Other current liabilities | 15,458 | 11,839 | |||||
| Total current liabilities | 172,325 | 148,136 | |||||
| Long-term debt, net | 537,696 | 479,788 | |||||
| Deferred tax liabilities | 6,114 | 14,239 | |||||
| Long-term operating leases liability, net of current portion | 6,054 | 7,278 | |||||
| Other liabilities | 6,924 | 12,058 | |||||
| Total liabilities | $ | 729,113 | $ | 661,499 | |||
| COMMITMENTS AND CONTINGENCIES (NOTE 13) | |||||||
| STOCKHOLDERS’ EQUITY: | |||||||
| Preferred stock ( | — | — | |||||
| Common stock ( | 157 | 98 | |||||
| Additional paid-in capital | 1,039,337 | 983,283 | |||||
| Common stock held in treasury (7,527,471 and 6,771,755 shares at June 30, 2024 and December 31, 2023, respectively) | (99,929 | ) | (88,918 | ) | |||
| Accumulated deficit | (200,751 | ) | (186,564 | ) | |||
| Accumulated other comprehensive loss | (4,688 | ) | (5,955 | ) | |||
| Total stockholders’ equity | 734,126 | 701,944 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,463,239 | $ | 1,363,443 | |||
| STERLING CHECK CORP. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
| Six Months Ended June 30, | |||||||
| (in thousands) | 2024 | 2023 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
| Net (Loss) Income | $ | (14,187 | ) | $ | 914 | ||
| Adjustments to reconcile net (loss) income to net cash provided by operations | |||||||
| Depreciation and amortization | 31,590 | 31,242 | |||||
| Deferred income taxes | (9,488 | ) | 188 | ||||
| Stock-based compensation | 21,045 | 17,401 | |||||
| Impairments and disposals of long-lived assets | 200 | 7,145 | |||||
| Provision for bad debts | 1,212 | 459 | |||||
| Amortization of financing fees | 539 | 539 | |||||
| Amortization of debt discount | 408 | 392 | |||||
| Deferred rent | (862 | ) | 1,023 | ||||
| Unrealized translation loss on investment in foreign subsidiaries | 7 | 108 | |||||
| Change in fair value of contingent consideration, net | 1,290 | — | |||||
| Interest rate swap settlements | — | 585 | |||||
| Changes in operating assets and liabilities, net of acquisitions | |||||||
| Accounts receivable | (22,857 | ) | (7,399 | ) | |||
| Insurance receivable | 41 | (2,500 | ) | ||||
| Prepaid expenses | 1,419 | 2,251 | |||||
| Other assets | (5,375 | ) | (8,650 | ) | |||
| Accounts payable | 12,530 | 1,314 | |||||
| Litigation settlement obligation | 943 | 1,848 | |||||
| Accrued expenses | 12,296 | (10,515 | ) | ||||
| Other liabilities | (10,584 | ) | (3,447 | ) | |||
| Net cash provided by operations | 20,167 | 32,898 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
| Purchases of property and equipment | (993 | ) | (593 | ) | |||
| Purchases of intangible assets and capitalized software | (10,355 | ) | (8,589 | ) | |||
| Acquisitions, net of cash acquired | (70,437 | ) | (48,641 | ) | |||
| Proceeds from disposition of property and equipment | 3 | 125 | |||||
| Net cash used in investing activities | (81,782 | ) | (57,698 | ) | |||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
| Issuance of common stock | — | 611 | |||||
| Proceeds from exercise of employee stock options | 42,555 | — | |||||
| Cash paid for tax withholding on exercise of employee stock options | (7,676 | ) | — | ||||
| Proceeds from employee stock purchase plan | 695 | — | |||||
| Repurchases of common stock | (6,832 | ) | (25,342 | ) | |||
| Cash paid for tax withholding on vesting of restricted shares | (4,179 | ) | (572 | ) | |||
| Payments of long-term debt | (7,500 | ) | (3,750 | ) | |||
| Borrowings on revolving credit facility | 65,000 | — | |||||
| Payment of contingent consideration for acquisition | — | (305 | ) | ||||
| Net cash provided by (used in) financing activities | 82,063 | (29,358 | ) | ||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (490 | ) | (120 | ) | |||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 19,958 | (54,278 | ) | ||||
| CASH AND CASH EQUIVALENTS | |||||||
| Beginning of period | 54,224 | 103,095 | |||||
| Cash and cash equivalents at end of period | $ | 74,182 | $ | 48,817 | |||
RECONCILIATION OF CONSOLIDATED NON-GAAP FINANCIAL MEASURES
The following table reconciles revenue growth, the most directly comparable GAAP measure, to organic constant currency revenue decline for the periods presented. For the three months ended June 30, 2024, we have provided the impact of revenue from the acquisition of Vault. For the six months ended June 30, 2024, we have provided the impact of revenue from the acquisitions of Vault and A-Check.
| Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | ||||
| Reported revenue growth | 5.3 | % | 4.6 | % | |
| Inorganic revenue growth(1) | 6.2 | % | 7.4 | % | |
| Impact from foreign currency exchange(2) | — | % | — | % | |
| Organic constant currency revenue decline | (0.9) | % | (2.8) | % | |
_________________________
(1) Impact to revenue growth in the current period from M&A activity that has occurred over the past twelve months.
(2) Impact to revenue growth in the current period from fluctuations in foreign currency exchange rates.
The following table reconciles net (loss) income, the most directly comparable GAAP measure, to Adjusted EBITDA for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||
| Net (loss) income | $ | (6,232 | ) | $ | 323 | $ | (14,187 | ) | $ | 914 | |||||
| Income tax provision (benefit) | 7,094 | (85 | ) | (1,924 | ) | 1,017 | |||||||||
| Interest expense, net | 10,143 | 8,990 | 20,455 | 17,598 | |||||||||||
| Depreciation and amortization | 15,820 | 16,120 | 31,590 | 31,242 | |||||||||||
| Stock-based compensation | 11,703 | 9,358 | 21,045 | 17,401 | |||||||||||
| Transaction expenses(1) | 4,120 | 3,133 | 21,108 | 8,259 | |||||||||||
| Restructuring(2) | 1,566 | 11,490 | 4,767 | 14,763 | |||||||||||
| Technology transformation(3) | 455 | 179 | 830 | 3,412 | |||||||||||
| Settlements impacting comparability(4) | 1,000 | — | 1,000 | — | |||||||||||
| Other(5) | 615 | 489 | 110 | 946 | |||||||||||
| Adjusted EBITDA | $ | 46,284 | $ | 49,997 | $ | 84,794 | $ | 95,552 | |||||||
| Adjusted EBITDA Margin | 23.1 | % | 26.3 | % | 21.9 | % | 25.8 | % | |||||||
_______________________
(1) Consists of transaction expenses related to M&A, associated earn-outs, one-time public company transition expenses and ancillary non-recurring public company expenses and fees associated with financing transactions. For the three months ended June 30, 2024, costs consisted of
(2) Consists of restructuring-related costs, including executive recruiting and severance charges, and lease termination costs and disposal of fixed assets related to our real estate consolidation efforts. Beginning in 2020, we began executing a virtual-first strategy, closing offices and reducing office space globally. In 2022, we began executing on a restructuring program to realign senior leadership and functions with the goal of elevating our go-to-market strategy and accelerating our technology and product innovation. At the end of 2022, we also launched Project Nucleus which we expect to drive meaningful cost savings and efficiency gains in our cost of revenues. For the three months ended June 30, 2024, costs include
(3) Includes costs related to technology modernization, as well as costs related to decommissioning of on-premise production systems and redundant fulfillment systems of acquired companies and the migration to our platform. We believe that these costs are discrete and non-recurring in nature, as they relate to a one-time restructuring and decommissioning of our on-premise production systems and corporate technological infrastructure and the move to a managed service provider, decommissioning redundant fulfillment systems and modernizing internal functional systems. As such, they are not normal, recurring operating expenses and are not reflective of ongoing trends in the cost of doing business. The significant majority of these are related to the last two phases of Project Ignite, a three-phase strategic investment initiative launched in 2019 to create an enterprise-class global platform, with the remainder related to an investment made to modernize internal functional systems in preparation for our public company infrastructure. Phase two of Project Ignite was completed in 2022 and phase three of Project Ignite was completed in the first quarter of 2023. For the three months ended June 30, 2024,
(4) Consists of non-recurring settlements and the related legal fees impacting comparability. For the three and six months ended June 30, 2024, costs include legal settlements totaling
(5) Consists of gains or losses on foreign currency transactions and impairment of capitalized software.
The following table presents the calculation of net (loss) income margin and Adjusted EBITDA Margin for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||
| Net (loss) income | $ | (6,232) | $ | 323 | $ | (14,187) | $ | 914 | |||||||
| Adjusted EBITDA | $ | 46,284 | $ | 49,997 | $ | 84,794 | $ | 95,552 | |||||||
| Revenues | $ | 200,528 | $ | 190,384 | $ | 386,527 | $ | 369,658 | |||||||
| Net (loss) income margin | (3.1) | % | 0.2 | % | (3.7) | % | 0.2 | % | |||||||
| Adjusted EBITDA Margin | 23.1 | % | 26.3 | % | 21.9 | % | 25.8 | % | |||||||
The following table reconciles net (loss) income, the most directly comparable GAAP measure, to Adjusted Net Income and Adjusted Earnings Per Share for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| (in thousands, except per share amounts) | 2024 | 2023 | 2024 | 2023 | ||||||||||
| Net (loss) income | $ | (6,232 | ) | $ | 323 | $ | (14,187 | ) | $ | 914 | ||||
| Income tax provision (benefit) | 7,094 | (85 | ) | (1,924 | ) | 1,017 | ||||||||
| Income (Loss) before income taxes | 862 | 238 | (16,111 | ) | 1,931 | |||||||||
| Amortization of acquired intangible assets | 10,687 | 10,625 | 21,318 | 20,686 | ||||||||||
| Stock-based compensation | 11,703 | 9,358 | 21,045 | 17,401 | ||||||||||
| Transaction expenses(1) | 4,120 | 3,133 | 21,108 | 8,259 | ||||||||||
| Restructuring(2) | 1,566 | 11,490 | 4,767 | 14,763 | ||||||||||
| Technology transformation(3) | 455 | 179 | 830 | 3,412 | ||||||||||
| Settlements impacting comparability(4) | 1,000 | — | 1,000 | — | ||||||||||
| Other(5) | 615 | 489 | 110 | 946 | ||||||||||
| Adjusted Net Income before income tax effect | 31,008 | 35,512 | 54,067 | 67,398 | ||||||||||
| Income tax effect(6) | 9,216 | 9,308 | 14,864 | 17,908 | ||||||||||
| Adjusted Net Income | $ | 21,792 | $ | 26,204 | $ | 39,203 | $ | 49,490 | ||||||
| Net (loss) income per share—basic | $ | (0.07 | ) | $ | 0.00 | $ | (0.16 | ) | $ | 0.01 | ||||
| Net (loss) income per share—diluted | $ | (0.07 | ) | $ | 0.00 | $ | (0.16 | ) | $ | 0.01 | ||||
| Adjusted Earnings Per Share—basic | $ | 0.23 | $ | 0.28 | $ | 0.43 | $ | 0.53 | ||||||
| Adjusted Earnings Per Share—diluted | $ | 0.23 | $ | 0.28 | $ | 0.42 | $ | 0.52 | ||||||
_________________________
(1) Consists of transaction expenses related to M&A, associated earn-outs, one-time public company transition expenses and ancillary non-recurring public company expenses and fees associated with financing transactions.
(2) Consists of restructuring-related costs, including executive recruiting and severance charges, and lease termination costs and disposal of fixed assets related to our real estate consolidation efforts. Beginning in 2020, we began executing a virtual-first strategy, closing offices and reducing office space globally. In 2022, we began executing on a restructuring program to realign senior leadership and functions with the goal of elevating our go-to-market strategy and accelerating our technology and product innovation. At the end of 2022, we also launched Project Nucleus which we expect to drive meaningful cost savings and efficiency gains in our cost of revenues.
(3) Includes costs related to technology modernization, as well as costs related to decommissioning of on-premise production systems and redundant fulfillment systems of acquired companies and the migration to our platform. We believe that these costs are discrete and non-recurring in nature, as they relate to a one-time restructuring and decommissioning of our on-premise production systems and corporate technological infrastructure and the move to a managed service provider, decommissioning redundant fulfillment systems and modernizing internal functional systems. As such, they are not normal, recurring operating expenses and are not reflective of ongoing trends in the cost of doing business. The significant majority of these are related to the last two phases of Project Ignite, a three-phase strategic investment initiative launched in 2019 to create an enterprise-class global platform, with the remainder related to an investment made to modernize internal functional systems in preparation for our public company infrastructure. Phase two of Project Ignite was completed in 2022 and phase three of Project Ignite was completed in the first quarter of 2023.
(4) Consists of non-recurring settlements and the related legal fees impacting comparability.
(5) Consists of gains or losses on foreign currency transactions and impairment of capitalized software.
(6) Normalized effective tax rates of
The following table reconciles net (loss) income per share, the most directly comparable GAAP measure, to Adjusted Earnings Per Share for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
| (in thousands, except share and per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||
| Net (loss) income | $ | (6,232 | ) | $ | 323 | $ | (14,187 | ) | $ | 914 | |||
| Less: Undistributed amounts allocated to participating securities | — | — | — | — | |||||||||
| Undistributed losses allocated to stockholders | $ | (6,232 | ) | $ | 323 | $ | (14,187 | ) | $ | 914 | |||
| Weighted average number of shares outstanding—basic | 92,778,209 | 92,723,901 | 91,526,151 | 92,800,279 | |||||||||
| Weighted average number of shares outstanding—diluted | 92,778,209 | 94,498,666 | 91,526,151 | 94,924,080 | |||||||||
| Net (loss) income per share—basic | $ | (0.07 | ) | $ | 0.00 | $ | (0.16 | ) | $ | 0.01 | |||
| Net (loss) income per share—diluted | $ | (0.07 | ) | $ | 0.00 | $ | (0.16 | ) | $ | 0.01 | |||
| Adjusted Net Income | $ | 21,792 | $ | 26,204 | $ | 39,203 | $ | 49,490 | |||||
| Less: Undistributed amounts allocated to participating securities | — | — | — | — | |||||||||
| Undistributed earnings allocated to stockholders | $ | 21,792 | $ | 26,204 | $ | 39,203 | $ | 49,490 | |||||
| Weighted average number of shares outstanding—basic | 92,778,209 | 92,723,901 | 91,526,151 | 92,800,279 | |||||||||
| Weighted average number of shares outstanding—diluted | 95,361,511 | 94,498,666 | 94,380,452 | 94,924,080 | |||||||||
| Adjusted Earnings Per Share—basic | $ | 0.23 | $ | 0.28 | $ | 0.43 | $ | 0.53 | |||||
| Adjusted Earnings Per Share—diluted | $ | 0.23 | $ | 0.28 | $ | 0.42 | $ | 0.52 | |||||
The following table presents the calculation of Adjusted Diluted Earnings Per Share for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Net (loss) income per share—diluted | $ | (0.07 | ) | $ | 0.00 | $ | (0.16 | ) | $ | 0.01 | |||||
| Adjusted Net Income adjustments per share | |||||||||||||||
| Income tax provision (benefit) | 0.07 | 0.00 | (0.02 | ) | 0.01 | ||||||||||
| Amortization of acquired intangible assets | 0.11 | 0.11 | 0.23 | 0.22 | |||||||||||
| Stock-based compensation | 0.12 | 0.10 | 0.22 | 0.18 | |||||||||||
| Transaction expenses(1) | 0.04 | 0.04 | 0.22 | 0.09 | |||||||||||
| Restructuring(2) | 0.02 | 0.12 | 0.05 | 0.16 | |||||||||||
| Technology transformation(3) | 0.01 | 0.00 | 0.01 | 0.03 | |||||||||||
| Settlements impacting comparability(4) | 0.01 | 0.00 | 0.01 | 0.00 | |||||||||||
| Other(5) | 0.01 | 0.01 | 0.01 | 0.01 | |||||||||||
| Income tax effect(6) | (0.09 | ) | (0.10 | ) | (0.15 | ) | (0.19 | ) | |||||||
| Adjusted Earnings Per Share—diluted | $ | 0.23 | $ | 0.28 | $ | 0.42 | $ | 0.52 | |||||||
| Weighted average number of shares outstanding used in computation of Adjusted Diluted Earnings Per Share: | |||||||||||||||
| Weighted average number of shares outstanding—diluted (GAAP) | 92,778,209 | 94,498,666 | 91,526,151 | 94,924,080 | |||||||||||
| Options not included in weighted average number of shares outstanding—diluted (GAAP) (using treasury stock method) | 2,583,302 | — | 2,854,301 | — | |||||||||||
| Weighted average number of shares outstanding—diluted (non-GAAP) (using treasury stock method) | 95,361,511 | 94,498,666 | 94,380,452 | 94,924,080 | |||||||||||
_________________________
(1) Consists of transaction expenses related to M&A, associated earn-outs, one-time public company transition expenses and ancillary non-recurring public company expenses and fees associated with financing transactions.
(2) Consists of restructuring-related costs, including executive recruiting and severance charges, and lease termination costs and disposal of fixed assets related to our real estate consolidation efforts. Beginning in 2020, we began executing a virtual-first strategy, closing offices and reducing office space globally. In 2022, we began executing on a restructuring program to realign senior leadership and functions with the goal of elevating our go-to-market strategy and accelerating our technology and product innovation. At the end of 2022, we also launched Project Nucleus which we expect to drive meaningful cost savings and efficiency gains in our cost of revenues.
(3) Includes costs related to technology modernization, as well as costs related to decommissioning of on-premise production systems and redundant fulfillment systems of acquired companies and the migration to our platform. We believe that these costs are discrete and non-recurring in nature, as they relate to a one-time restructuring and decommissioning of our on-premise production systems and corporate technological infrastructure and the move to a managed service provider, decommissioning redundant fulfillment systems and modernizing internal functional systems. As such, they are not normal, recurring operating expenses and are not reflective of ongoing trends in the cost of doing business. The significant majority of these are related to the last two phases of Project Ignite, a three-phase strategic investment initiative launched in 2019 to create an enterprise-class global platform, with the remainder related to an investment made to modernize internal functional systems in preparation for our public company infrastructure. Phase two of Project Ignite was completed in 2022 and phase three of Project Ignite was completed in the first quarter of 2023.
(4) Consists of non-recurring settlements and the related legal fees impacting comparability.
(5) Consists of gains or losses on foreign currency transactions and impairment of capitalized software.
(6) Normalized effective tax rates of
For further detail, see the footnotes to Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024.
The following table reconciles net cash flow provided by operations, the most directly comparable GAAP measure, to Free Cash Flow for the periods presented:
| Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | ||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||
| Net cash provided by operations | $ | 16,493 | $ | 21,616 | $ | 20,167 | $ | 32,898 | |||||||
| Purchases of intangible assets and capitalized software | (5,408 | ) | (4,469 | ) | (10,355 | ) | (8,589 | ) | |||||||
| Purchases of property and equipment | (320 | ) | (453 | ) | (993 | ) | (593 | ) | |||||||
| Free Cash Flow | $ | 10,765 | $ | 16,694 | $ | 8,819 | $ | 23,716 | |||||||
FAQ
What was Sterling Check Corp's (STER) revenue growth in Q2 2024?
How did Sterling's (STER) organic constant currency revenue perform in Q2 2024?
What was Sterling's (STER) customer retention rate in Q2 2024?
How did Sterling's (STER) Adjusted EBITDA perform in Q2 2024?
What is the status of Sterling's (STER) merger with First Advantage?
