First Advantage Corporation (NASDAQ:FA) Q3 2023 Earnings Call Transcript

First Advantage Corporation (NASDAQ:FA) Q3 2023 Earnings Call Transcript November 10, 2023

Operator: Good day, everyone. My name is Ashley, and I’ll be your conference operator today. I would like to welcome you to the First Advantage Third Quarter 2023 Earnings Conference Call and Webcast. Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. At this time, all participants have been placed in a listen-only mode to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [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.

Stephanie Gorman: Thank you, Ashley. Good morning, everyone. And welcome to First Advantage’s Third Quarter 2023 Earnings Conference Call. In the investor section of our website, you will find an 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. The 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 2022 form 10-K and our form 10-Q for the third quarter of 2023 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 calls, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures to the extent are available without unreasonable effort up here in today’s earnings press release and presentation, which are available on our Investor Relations website. I’m joined on our call today by Scott Staples, our Chief Executive Officer and David Gamsey, our Chief Financial Officer. After our prepared remarks, we will take your question. I will now turn the call over to Scott.

Scott Staples: Thank you, Stephanie, and good morning, everyone. Thank you for joining our Third Quarter 2023 Earnings Conference Call. Beginning on slide four, we had a very productive quarter. And I want to thank our team for their continuous dedication in delivering value to all our stakeholders. During the quarter, we achieved many financial objectives and strategic goals. Our third quarter results were in line with the expectations that we previously communicated with both revenue and adjusted EBITA improving sequentially. Our discipline cost management along with our flexible business model enabled us to maintain our industry leading adjusted EBITDA margins, and to continue to generate strong operating cash flows. Our robust cash flow and healthy balance sheet allow us to continue to execute our long-term growth strategy centered around value creation through further automation, data ownership and new products even in a challenging macroeconomic period.

We remain committed to our disciplined and balanced capital allocation strategy, as evidenced this quarter with our acquisition of infinite ID payment of our onetime special dividend and ongoing share repurchases under our existing program, which was recently extended through December 2024. Even after taking our capital deployment actions into consideration, our balance sheet remains strong with industry leading leverage of just 1.7 times and cash of $167 million. We continue to have ample liquidity to fund future investments in our business. I am proud of our team’s ongoing commitment to providing our customers with the latest in market leading technology and solutions, which has enabled us to maintain our strong customer retention rate of 97% across our diverse range of verticals.

We also continue to expand our network of strategic referral partners both domestically and internationally with more than 75 current integrations and partnerships. Our overall pipeline remains robust, including both new customer and upsell cross-sell opportunities. During Q3, we booked eight enterprise deals representing nearly $13 million in annual contract value, several of which already started to generate revenue. This momentum is further evidence of our customers continued competence and trusted us. Turning now to our business highlights on slide five. In the third quarter, we generated revenues of approximately $200 million down to modest 2.7% from last year, which is a significant improvement in the year over year trend from our first-half results.

We grew quarterly revenue dollars sequentially and saw month over month sequential improvement throughout the third quarter. Additionally, our three-year LTM organic revenue CAGR of 70% remains substantially higher than our long-term target of 8% to 10% growth. In our America segment, total revenues were flat compared to prior year and continue to benefit from positive growth and new customer upsell and cross-sell. In the U.S., consumer confidence continues to be above last year’s level, and consumer spending remains robust going into the holiday season. Job openings to unemployment numbers remain relatively high by historical standards. Hires have been stable. And quits, particularly as it relates to the salaried workforce have been slowly decreasing.

Higher interest rates and higher unemployment are also partially mitigating these trends. In our international segment, we experienced a revenue decline of over 18% driven by APAC in India. Our European operations, which experienced motive positive revenue growth in Q3 have shown more resiliency. It is also worth noting that our direct exposure to China at less than 1% of our total revenues has little impact on our business. David will elaborate on our segment performance shortly. From a vertical perspective, we are seeing increased hiring demand and transportation and healthcare and continued stable demand in retail and e-commerce. Similar to last quarter, technology, financial services and business service sectors have continued to experience a decline in hiring volumes.

Adjusted EBITDA was nearly $65 million. And our adjusted EBITDA margin was 32.3%, both outperforming Q3 of 2022 and significantly higher than our first two quarters of this year. We are very proud of these results and remain focused on managing our costs and flexing our operations with demand, while also expanding our industry leading automation efforts and driving further margin expansion. We continue to expect adjusted EBITDA margins above 31% for the full-year while maintaining a high quality of earnings. This quarter, we made great progress on our strategic priorities, including investing organically in our products, data and automation solutions, strengthening our portfolio with M&A and maintaining a balanced capital allocation strategy.

Collectively, these initiatives enhance our customer value proposition, drive our sustainable competitive advantage, and fuel our long-term growth objectives. Now, let me take a moment to discuss each of these three areas in greater detail. First, we continue to invest in our AI technology data and automation initiatives to grow our competitive advantage and drive adjusted EBITDA margin expansion. Our SmartHub, Click, Chat, Call, next gen Profile Advantage and Instant Employment Verification solutions are excellent examples of this. With SmartHub, we are seeing an acceleration in customer adoption. This technology is our proprietary AI driven intelligent router that essentially sits on top of our large and growing verified database. SmartHub enables us to quickly search across multiple data sources to determine the optimal verification source based on speed, data quality and cost effectiveness.

Through AI and machine learning this technology delivers a great experience and cost savings to our customers. Our AI efforts also continue to evolve and expand with customer care. In the third quarter, we rolled out our innovative Click, Chat, Call offering globally, which provides customers with one user friendly common portal and uses predictive intelligence for support. This initiative has driven operating leverage through process automation and headcount reductions while enabling higher customer satisfaction scores. Additionally, we are in the early stages of rolling out our next gen profile advantage platform in the U.S., which is our API first technology interface used by applicants through either a computer, tablet or mobile device.

With a redesigned user experience and interface built from the ground up, responsible generative AI, it provides a personalized applicant experience tailored to the specific jobs screening requirements. In addition to these solutions, we are constantly looking for innovative ways to enable our customers to hire smarter and onboard faster. For example, we recently launched an instant employment verification service in the U.K. and India markets. This digital first fully integrated solution reduces friction in the applicant process and reduces the time required to perform checks leading to quicker onboarding. Through our investments and upgrades in technology, automation, and AI, we are creating solutions that are faster and easier for our customers and their applicants.

These investments also enhance our customer value proposition, benefit how we operate and are a major driver of our long-term profitable growth. We see this as a win-win-win for customers, their applicants, and for First Advantage. Second, we continue to build on our solid foundation expand our portfolio through M&A. Over the past two years plus, we have successfully completed five acquisitions, including the latest and largest Infinite I.D. would be closed on September 1st. These acquisitions align with our strategic goals by expanding our product offerings, vertical exposure, geographic reach and technology capability. Each of our prior year acquisitions has outperformed our financial objectives and outpaced their growth plans by being part of first Vantage.

This is evidence that our M&A strategy is providing returns and creating value. Taking a closer look at Infinite I.D., this business is a U.S. based digital identity solutions provider that supports our product innovation and digital strategy. This addition allows us to better serve our enterprise customers in regulated markets like healthcare, financial services and not for profit. Infinite IDs take – technology complements our other identity verification and identity fraud solutions, including write I.D. and digital identity, enabling us to continuously rollout state of the art digital solutions to our customers. We are excited to add Infinite I.D. to our portfolio and welcome their team to First Advantage. And third, we remain committed to a balanced capital allocation strategy.

In the third quarter, we returned approximately $218 million to shareholders through our onetime special dividend, which represented a greater than 10% return of capital to shareholders. We also continued to repurchase shares with our board recently extending our existing share repurchase program to December 2024, reflecting confidence in executing against our long-term objectives. And we are extremely proud of our healthy balance sheet as we continue to generate strong operating cash flow and maintain a low net leverage ratio of 1.7 times. I will now turn the call over to David for more details on our financial results and outlook. David.

David Gamsey: Thank you, Scott, and good morning, everyone. Turning to slide seven, as Scott mentioned, we had a productive quarter. We closed the Infinite I.D. acquisition, executed at one time special dividend, continue to repurchase shares and expanded our industry leading adjusted EBITDA margins, all while navigating the uncertain macro environment and delivering results in line with the expectations we communicated last quarter. Our third quarter revenues were $200.4 million, a decrease of just 2.7% from the prior year. Currency had little impact on Q3 results with constant currency revenues of $199.9 million. Revenues have continued to grow sequentially each quarter this year and grew each month within the third quarter and heading into our October peak.

In the one month that we owned Infinite I.D. during the third quarter, it contributed approximately $850,000 to our revenues. In our America’s segment, revenues of $176 million or 87% of consolidated revenues were flat compared to the prior year. This segment held up well, which is primarily attributable to our broad based, resilient enterprise customer base. In our international segment, revenues of $26 million or 13% of consolidated revenues were down 18.4% from the prior year. On a constant currency basis, revenues were $25 million or down 20% year over year. The decrease was due primarily to base weakness in India and APAC. In the third quarter and year to date, India was down approximately 45% given our exposure to BPO and IT services related businesses.

And APAC was down over 25% driven by the financial services sector and other regional market dynamics. In response, we have lowered their cost structure in these regions to account for the shift in demand. We believe that these geographies have bottomed out and comps will certainly be easier in 2024. Our European operations, which experienced modest positive revenue growth in Q3 have proven more resilient in the face of macro headwinds with our digital identity products contributing to their results. Turning now to slides eight and nine, you will see our revenue growth algorithm. This algorithm is based on our historical poor performance and future expectations, which support our long-term revenue growth targets of eight to 10%. As you may recall, the four components of this algorithm include base, upsell, cross-sell, new customers and attrition.

In the presentation, we have provided a reference table of our results for each of these components over the last four quarters. As you can see, the results for upsell, cross-sell, new customers and attrition had been very consistent with their growth algorithm. This demonstrates that we are managing and delivering on what we can control with the variation being driven by the base component. Base results which represent contributions from existing customers before upsell, cross-sell and attrition are much more sensitive to the macroeconomic environment. While base improved in Q3, compared to the first two quarters of 2023, it was still negative in which we expected declining $17.6 million or 8.6%. We still believe that when the macro environment stabilizes, base growth will resume and as it hits – at its historical rates of 2% to 4%.

The Q3 base decline was partially offset from upsell and cross-sell, which contributed $7.7 million or nearly 4% to our performance. Revenues from new customers contributed an additional $9.8 million or approximately 5%. Across our business, we continue to see strong customer retention coming in at 97% for the third quarter. In total, when considering the resiliency of our America segment offset by the weakness from India and APAC, our overall growth declined by modest 2.7% in the quarter. Adjusted EBITDA for the third quarter was $64.8 million, an increase of approximately 1% over the prior year. Our three-year LTM adjusted EBITDA CAGR was 21.4%. It is worth noting that if you back out the declines in India and APAC, we would have seen year over year adjusted EBITDA growth for the company on a year-to-date basis and in Q3.

Our adjusted EBITDA margin of 32.3% continues to be industry leading and represented an improvement of 110 basis points over prior year and 210 basis points sequentially. Our business has proven to be very resilient in the face of top line headwinds. In the third quarter, our adjusted EBITDA margin expansion was supported by lower operations, customer care, product and tech and SG&A costs compared to last year. This was enabled by our highly variable usage-based cost structure and continued discipline around managing expenses. We continue to manage your controllable costs and recognize the benefits from our efforts over the last few quarters, including reducing our facility’s footprint, leveraging procurement savings and selectively adjusting headcount to align with demand.

For the third quarter, our adjusted effective tax rate was 24.5%. Adjusted net income was $40 million and adjusted diluted EPS was 28 cents. As a result of paying our onetime special dividend, both adjusted net income and adjusted EPS were reduced by approximately $800,000 and half a cent respectively in the third quarter because of lower interest income. Turning now to capital allocation and our balance sheet on slide 11, as Scott discussed, our capital allocation approach remains disciplined and balanced between internal investments to drive profitable organic growth, M&A, returning capital to shareholders, and maintaining our attractive net leverage profile. Our strong operating cash flow and low net leverage support our strategic initiatives.

During the quarter, we spent $7.5 million on purchases of property and equipment and capitalized software development costs, bringing our total for the year to $20.6 million and capital related investments. Additionally, on September 1st, we acquired Infinite I.D. for $41 million using cash from the balance sheet. Infinite I.D. brings valuable capabilities that we expect will enhance their growth and market position. This business is profitable and is expected to generate annual revenues of over $10 million. Taking into account the impact on interest income from funding the acquisition, this transaction is expected to be slightly creative on a net adjusted net income basis once integrated. It had no meaningful impact on adjusted EBITDA, adjusted net income or adjusted diluted EPS in the third quarter.

Our onetime special dividend along with their ongoing share buybacks reinforces our commitment to return value to shareholders. During the quarter, we used cash of approximately $280 million to pay a onetime special dividend of $1.50 per share, which represented a greater than 10% return of capital to shareholders. We also continue to repurchase shares using air cash to buy back approximately $3.6 million of common stock in Q3. Since the inception of our share buyback program in August 2022 and through November 6th of this year, we have repurchased approximately 9 million shares for approximately $118 million. We have approximately $82 million remaining on our authorization, which has been extended through December 2024. In the third quarter, we continue to maintain the largest cash position and lowest net leverage amongst their public peers.

We generated strong operating cash flows of $34.4 million in Q3, and approximately $106 million on a year-to-date basis. Cash flow from operations declined year over year in Q3, primarily due to higher cash taxes paid and a temporary increase in working capital that we expect will normalize in Q4. We ended the quarter with total debt of $565 million and a net leverage ratio of approximately 1.7 times. This is after the $218 million payout for the onetime special dividend and the $41 million Infinite I.D. acquisition. Further, we have no debt maturities due before 2027. Cash and short-term investments were approximately $167 million and we have $100 million and untapped borrowing capacity under a revolving credit facility. As you may recall, our debt structure positions us well for the current interest rate environment with approximately half of our long-term debt heads through February 2024.

Additionally, we strategically hedged another 100 million dollars of long-term debt in Q1 of this year. Now, moving to slide 12 and our outlook, today, we are reaffirming our previous guidance ranges expecting to perform at the low end of these ranges. To remind you, the low end of these ranges represent revenues of $770 million, adjusted EBITDA of $240 million, adjusted net income of $145 million and adjusted diluted EPS of $1. This reflects the current hiring environment and our expectations that existing macroeconomic conditions and similar labor market trends, including our seasonal increase and the duration of the seasonal peak will continue through the remainder of the year without significant changes. Based on typical seasonality, we expect customers and our retail, e-commerce and transportation verticals to ramp up hiring during the fourth quarter for the upcoming holiday season as compared to Q3.

We have seen this play out so far in October but at a more modest rate than we experienced last year as we anticipated. October revenues, as is typical or seasonal pattern are the highest of the year. All of this has already been captured in our guidance. We remain confident in our resilient business model and our ability to effectively manage those factors within our control. Accordingly, we continue to take measures to maintain our adjusted EBITDA margins above the 31% level on a full-year basis. For the fourth quarter, we expect sequential quarterly revenue and adjusted EBITDA growth the revenue will still slightly decline on a year over year basis due to our international segment performance. We anticipate base growth to remain negative but improving.

Additionally, we expect their Q4 adjusted EBITDA margins to be approximately 33%. Please note that our full-year guidance ranges have not been adjusted upward or downward for the impact of the onetime special dividend or the contribution from Infinite I.D. The one-time special dividend is expected to have a negative impact of approximately $2.7 million on adjusted net income and two cents on adjusted EPS resulting from lower interest income. Infinite I.D., which was acquired effective September 1, 2023 is expected to have a nominal impact on full-year results. Specifically, Q3 revenues from Infinite I.D. were approximately $850,000, and we expect the business to contribute over $3 million in total during 2023. The anticipated full-year Infinite I.D. adjusted EBITDA contribution will be substantially offset by the loss and interest income, resulting in no expected impact on adjusted net income or adjusted diluted EPS for the year.

While it’s too early for us to provide formal guidance on 2024, we wanted to share some preliminary thoughts around next year. Overall, we currently do not expect a meaningful change in the employment environment. We remain confident in the controllable parts of our revenue as where – well as our ability to manage costs on a disciplined basis, both of which you can see in the results of the metrics we have provided. These factors combined with easier year over year comps will be factored into our 2024 guidance. We look forward to sharing more about this on our Q4 results call early next year. To summarize, it has been a productive quarter for us here at First Advantage. We remain highly focused on executing and delivering our Q4 results, which is our biggest quarter of the year.

We will continue to invest for long term growth as well as manage the business to maintain our industry leading adjusted EBITDA margins. We continue to deliver on what we say while navigating in an increasingly dynamic environment. I’ll now turn the call back over to Scott.

Scott Staples: Thank you, David. I would like to conclude our prepared remarks today by reiterating our areas of strategic focus and value creation priorities. Our flexible business model enables us to manage costs and we continue to invest in automation for further optimization. We are an innovator with a first mover advantage in this space resulting in industry leading adjusted EBITDA margins, balance sheet metrics and cash flow generation. We remain focused on our long-term growth opportunities and building on our strong foundation organically and inorganically. We continue to leverage our verticalized go-to market strategy and enhance our long-term relationships with our resilient enterprise customers. Our customers want faster, more automated screening solutions and are increasingly becoming more focused on risk mitigation.

They look to us to provide solutions to help keep their brand employees and customers safe. We have the solutions, the team and the commitment to providing the best product offerings to meet our customer’s needs. We continue to invest in our technology and solutions to maintain our competitive advantage, enhance our customer value proposition and drive profitable long-term growth. Our investments positions as well to capture market share, particularly as the macro environment recovers. Our 97% growth retention rate and long-standing tenure with our top 100 customers is further evidence of our outstanding team and product offerings. Thank you very much for your time and for your ongoing support. At this time, we will ask the operator to open the call for your questions.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Thank you. Our first question is coming from David Togut with Evercore ISI. Please go ahead. Your line is open.

David Togut: Thank you. Good morning. Good morning, Scott and David. Good expense control overall. Just the one call out is on SG&A which was up 8% year over year versus revenue down 3%. Is there a currency mismatch between international revenue being incurred in foreign currencies and SG&A being incurred in USD?

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Q&A Session

David Gamsey: No, David. The real answer there is that change in stock cost, that’s really the driver.

David Togut: Got it. Okay. And how should we think about that going forward? Will SG&A be outgrowing revenue for a while?

David Gamsey: Only in stock cost which we had a modification to the program in May of 2023. That will be continuing.

David Togut: Got it. And then, just my final question, Scott, are you modifying the selling proposition at all for customers as the economy slows, as the jolts numbers come down a bit? Is there a bit more of a cost focus, you know, when you reach out to clients?

Scott Staples: I totally think there is. And yes, we – I think we’ve mentioned this before. We’re seeing a lot more procurement led deals. And procurement led deals are actually good for large players like us, because, you know, we’ve got scale and can help companies save money, but also our innovative offerings. You know, we talked about SmartHub and our verified solutions. We are actually saving companies a lot of money on verifications, you know, and through our automated solutions. You know. These are our very fast turnaround type of products. So, also, you know, improving the customer experience. So, I think, you know, there’s – when you look at our product development and our go-to market strategies, we’re clearly focusing on, you know, helping companies. You know, obviously, hire smarter and onboard faster as our tagline says, but you know, saving money also helps.

David Togut: Understood, thank you.

Operator: Thank you. We’ll take the next question from Ashish Sabadra with RBC Capital Markets. Please go ahead.

Ashish Sabadra: Thanks for taking my question. I just wanted to drill down further on the last question on – and your reference to SmartHub and the verified database, which now has 105 million records. My question there is, how do you plan to increase that? We’ve seen some pretty significant improvement there or increase in the number of databases? How do you plan to continue to increase the number of records? And have you seen any shift from your SmartHub in terms of how much of those verifications happen using verified and other lower cost providers versus the more traditional verification? Thanks.

Scott Staples: Yes, Ashish, thanks for the question. I don’t think I’m going to give away the secret sauce on that. But I will give you sort of a high-level answer is that our customers – and what I would think, you know, most companies or customers in this space are absolutely looking for alternatives in this – in the verification space. And you know, Fintechs and new companies and new offerings do provide, you know, some alternatives there. But in general, it’s – the strategy is a combination of many things. So, increasing the database, you know, through our own data acquisition efforts, partnerships, new tech providers, et cetera. So, it’s a very detailed strategy, which I don’t want to give away today. But this is high area of focus for us.

Ashish Sabadra: No, that’s very helpful, because I completely understand. And then, on the enterprise deals, you mentioned eight new wins there. How – can you provide any more color on the pipeline as we get into the next year? And also, on those wins, is it possible to provide color on how much of those were from your public peer versus the long tail? Thanks.

Scott Staples: Yes, I’ll take the question in reverse. You know, I think I’ve mentioned this before, and we think it’s very interesting data. And this is – this has been happening, you know, literally for well over a year or maybe even 18 months as we’ve been tracking it. But the wins continue to be divided equally between what we consider the three buckets of competition. So, you know, roughly a third of the wins are coming from the, you know, the many mom and pops in the space, and our third from sort of the mid-market players, and the third from the – come from the large peers. As you know, this is a very fragmented market. And it’s, you know, it’s a large competitive field with many players. And as you know, you know, the three large public companies probably only have maybe 30 – roughly 36% market share.

So, they’re – this trend, we expect to continue because of the fragmented nature of the industry. So, we think that’s healthy and a good sign for us. On the deals themselves, I mean, if you look at – you know, we’ve given this data before. But if you look at our revenue growth algorithm, you know, in – let’s say, in normal times, it’s – that – you know, the base typically grows 2% to 4%, upsell, cross-sell hits four to 5%, new logos are 5% to 6%. And then, you back out attrition of 3% to 4%. So, that gives you a long-term growth of, of 8% to 10%. If you look at our performance in Q3, were spot on, we’re right on it. You know, upsell, cross-sell at 4%, new logos at 5%, attrition, you know, at 3%. It’s just the base and it’s always been the base for, you know, the last year plus.

But you know, as David mentioned, you know, we’re starting to see some stabilization in that base. So, you know, base was only down 8.5% this quarter. That’s very promising sign for us.

Ashish Sabadra: That’s great color. Thanks, Scott.

Operator: We will take our next question from Scott Wurtzel with Wolfe Research. Please go ahead.

Scott Wurtzel: Hey, good morning, and thanks for taking my questions. Appreciate the preliminary thoughts a little bit on 2024. And I was just wondering if you could maybe expand a little bit on opening kind of any conversations with some of your clients and what you’re hearing from them about hiring plans its next year and how that is, you know, maybe to be trending relative to what we saw this year.

Scott Staples: Yes. So, you know, again, we’ve said this in the past. You know, we manage our large enterprise customers, you know, really well and you know, have dedicated account teams on them. And this means we’re having constant conversations with them. So, I think from a from a macro – and again, the conversation changes depending on what industry that customer is in, you know who that customer is, so there’s a wide variety of responses. But when you look at the macro in general, we’ve already seen customers in retail, e-comm and transportation verticals actually ramping up their hiring in October for the upcoming holiday season. David mentioned U.S. consumer confidence remaining high. And I think when you look at our verticals, you know, when you look at transportation, retail, e-commerce and healthcare, those are our top three verticals.

And those are the ones we’re actually seeing pretty good growth in those. Those macro numbers are pretty good in those verticals like if you if you map that to quick data, transportation quits are not down. Health care quits are, you know, are up, retail quits are down. So, you’ve got pretty good macro indicators for, you know, what’s happening in our largest verticals. I think from an individual customer standpoint, there’s still a lot of uncertainty. And they’re keeping things close to the vest because they themselves don’t know. But we are seeing for the first time in may be well over a year, that customers are starting to plan a little bit better. You know, for – certainly for most of this year and definitely Q4 of last year, there was a great deal of uncertainty where they couldn’t even predict their hiring demands.

Now, we’re starting to see a little bit of that changing where they’re starting to be able to plan a little bit better. Now, I’m not – we’re not expecting that they can plan a full-year of hiring. But maybe they can plan a quarter and go quarter by quarter. And that’s great for us because we get that visibility.

Scott Wurtzel: Got it.That’s super helpful. And then, just as a follow up on sort of near-term capital allocation, like obviously, like the leverage ratio at 1.7 times is still very strong but obviously above the sort of sub 1x that we have seen over the past few quarters. Just wondering how you’re sort of thinking about your near-term capital allocation? Are you looking to sort of get back to that sub 1x level or are you comfortable where you’re at right now?

David Gamsey: Well, first of all, 1.7x leverage is still very low. We’re very comfortable operating at that. But by definition, it’s going to continue to come down because we just generate so much cash flow from operations. We are going to continue our stock buyback program. We will continue to pursue M&A, but we’re very comfortable at 1.7. And again, we throw off a lot of cash every quarter.