First Advantage Corp

NASDAQ:FA

Earnings Call Analysis

Solid Q2 Results and Strategic Acquisition Progress

First Advantage reported solid Q2 2024 results with $185 million in revenues and a 30.2% adjusted EBITDA margin. The company is on track with its annual guidance of $750-800 million in revenues and $228-248 million in adjusted EBITDA. The Sterling acquisition is progressing, anticipated to close in Q4 2024, supported by $1.6 billion in new term debt. The company foresees substantial synergies ($50-70 million) and plans to reduce net leverage to around 3x adjusted EBITDA within 24 months. There's cautious optimism in hiring trends, a strong upsell/cross-sell performance, and a focus on risk management and automation【4:0†source】【4:1†source】【4:2†source】.

Steady Performance Amid Challenges

In the second quarter of 2024, First Advantage reported revenues of $185 million and adjusted EBITDA of $56 million, reflecting a stable performance against a year-over-year backdrop. These figures have remained flat from the previous year, which instills confidence in meeting the previously set annual guidance. Adjusted EBITDA margin came in at 30.2%, consistent with past performance, indicating effective cost management as revenue remains steady despite challenges in base growth.

Improving Growth Metrics

Although base growth remained negative, there was a notable improvement of 400 basis points compared to the first quarter, indicating a potential turnaround. The company reported two major upsell bookings, totaling $13.5 million, contributing to revenue growth. Additionally, upsell and cross-sell initiatives yielded $8.6 million in revenues, while new customer acquisitions added $7.8 million, further reinforcing the sales engine's ability to deliver consistent results despite macroeconomic pressures.

Guidance Reaffirmed for 2024

First Advantage has reaffirmed its 2024 guidance, anticipating full-year revenues in the range of $750 million to $800 million, with a midpoint of $775 million indicating slightly positive year-over-year organic growth. They aim to achieve adjusted EBITDA of between $228 million and $248 million, maintaining adjusted EBITDA margins around 31%. This guidance reflects disciplined cost management and investments in automation despite expected increases in operational costs and changes in incentive plans.

Anticipated Growth from Sterling Acquisition

The pending acquisition of Sterling, expected to close in the fourth quarter of 2024, is pivotal for First Advantage. This strategic expansion is projected to nearly double the company’s revenues to almost $1.5 billion on a pro forma basis and is expected to deliver double-digit adjusted EPS accretion. Cost synergy estimates have been increased to the range of $50 million to $70 million, reflecting greater integration efficiencies and a focus on complementary offerings across both companies.

Adaptation to Market Norms

First Advantage is seeing a normalization in market trends that affect its operations. The company reports that no verticals experienced significant revenue fluctuations, indicative of stabilizing demand. Transportation, their largest vertical accounting for 24% of total revenue, showed a 9% increase, while banking saw a decrease of 7%. Their agile cost structure—over 70% variable—allows for flexibility in adapting to these changes without overwhelming financial risk.

AI and Technological Innovations Driving Efficiency

First Advantage has leveraged its innovative SmartHub technology, which optimizes verification processes. Currently, up to 60% of verifications have been redirected from costly third-party sources, leading to increased customer satisfaction and reduced operational expenses. This high-tech focus is a significant part of their strategy to remain competitive, while ongoing advancements in AI are expected to enhance customer engagement and operational efficiency.

Leadership Transition Amid Strategic Growth

As First Advantage progresses, it faces a transition within its leadership team, with David Gamsey retiring. His successor, Steven Marks, has been groomed internally, which sets a foundation for continuity during this critical growth phase, especially with the imminent integration of Sterling. This internal transition reflects a commitment to maintaining a high-performing culture while navigating the complexities of large-scale acquisitions.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, everyone. My name is Todd and I will be your conference operator today. I would like to welcome you to the First Advantage Second Quarter 2024 Earnings Conference Call and Webcast. Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. [Operator Instructions] Please note today's event is being recorded.

It is now my pleasure to turn the call over to Stephanie Gorman. You may begin.

[Stephanie Gorman, executive]

Thank you, Todd. Good morning everyone, and welcome to First Advantage's second quarter 2024 earnings conference call. In the Investors section of our website, you will find the earnings press release and slide presentation to accompany today's discussion. This webcast is being recorded and will be available for replay on our Investor Relations website.

Before we begin our prepared remarks, I would like to remind everyone that our discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the SEC, including our 2023 Form 10-K and our Form 10-Q for the second quarter of 2024 to be filed with the SEC. Such factors may be updated from time to time in our periodic filings with the SEC and we do not undertake any obligation to update forward-looking statements.

Throughout this conference call, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to the most directly comparable GAAP financial measures, to the extent available without unreasonable effort, appear in today's earnings press release and presentation, which are available on our Investor Relations website.

I am joined on our call today by Scott Staples, our Chief Executive Officer, and David Gamsey, our Chief Financial Officer. After our prepared remarks, we will take your questions.

I will now hand the call over to Scott.

[Scott Staples, executive]

Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. We are proud to announce another quarter of solid results while continuing to progress toward the closing of the Sterling acquisition. Our team is executing well in a dynamic environment by leveraging our capabilities and innovations to deliver continued value for our customers and our shareholders.

This morning, I will provide an overview of our second quarter results along with updates on the Sterling acquisition and our strategic initiatives. David will then provide a deeper dive on our results and additional color on our expectations for the remainder of the year.

Turning to Slide 5. In the second quarter, we delivered revenues of $185 million, adjusted EBITDA of $56 million and adjusted EBITDA margin of 30.2%, all of which were in line with what we communicated on our last earnings call and nearly flat on a year-over-year basis. This gives us additional confidence in achieving our full year 2024 guidance, which we are reaffirming today.

Our upsell, cross-sell, new logos and attrition rates continued to perform in line with our historical revenue growth algorithm. Our base growth remained negative but improved from Q1. We also had 2 very large upsell bookings worth a combined $13.5 million in the second quarter. In total, we had 15 bookings in the second quarter and 47 in the last 12 months, each with $500,000 or more of expected annual contract value. We are pleased that our sales engine continues to deliver consistent results.

Second quarter results reflect a macroeconomic picture of normalization and stabilization within our business. From a vertical perspective, volatility has decreased with no single verticals revenue volumes up or down beyond single digits. We feel this narrowing of the gaps between verticals reflects an overall normalization of the business, which we welcome. In terms of the macro environment, we are seeing normalization and stabilization of key labor metrics, including quits, hires, and openings, as job trends stabilize from the pandemic years. Additionally, our customers continue to hire, albeit at a more modest level.

Our business continues to be propelled by the fundamental long-term drivers we have spoken about in the past, including the increasing importance of risk management, compliance and turnaround times for our customers. We have made investments in specific products and geographies to strengthen our business, including highly automating our technology. We are also an early mover in our approach to verticals and proactively picked what we felt were going to be high volume turnover verticals. As such, we are skewed more toward the hourly worker who is still in very strong demand and tends to change jobs more frequently. This strategy enables us to win in the marketplace and deliver value for our customers by offering vertical subject matter expertise, compliance, speed and accuracy so that our customers can hire and onboard their new employees quickly.

In this environment, we also continue to successfully control the controllables. We have previously demonstrated our strong operating discipline and ability to act quickly to control cost to preserve margins and we will continue to do so in the future. As a reminder, we have a highly flexible cost structure that allows us to adjust to changing conditions. Over 70% of our cost of sales are third-party costs and those costs are 100% variable. The remainder of our cost of sales consists of operation and customer care, which are variable in the way we manage scheduling and backfill open positions.

We also have the ability to modulate our investments if needed. We evaluate all of these considerations on an ongoing basis to ensure that we are operating efficiently to match the demand of the current environment.

Turning to Slide 6, let me now provide an update on the Sterling acquisition. We are making good progress toward closing. As we announced in late May, we received a second request from the DOJ. We are currently working through that process and continue to anticipate closing after we receive HSR clearance, which we currently expect in the fourth quarter of this year. In the meantime, we are continuing to advance our pre-closing integration planning efforts. Our integration management committee is leading dedicated teams from First Advantage and Sterling, who are working daily to create plans that will allow us to deliver a seamless, post-close integration and achieve our synergies.

The Sterling business is highly complementary and will extend our high-quality and cost effective background screening, identity and verification technology solutions for the benefit of both company's customers. From a vertical perspective, Sterling focuses primarily on verticals that are salaried white-collar workers, while First Advantage focuses primarily on verticals serving blue-collar hourly employees. We also expect to benefit from complementary geographic reach and the ability to expand. While both parties have a global presence, Sterling is larger in Latin America and Australia, while we have deeper presence in India, Hong Kong and Singapore.

In terms of cost synergies, we have expanded our target to a range of $50 million to $70 million as we have progressed our integration planning work and have identified additional synergy opportunities. We are confident in our ability to action this goal within the first 18 to 24 months post-closing. We see opportunities from combining back office functions and resources, eliminating overlapping public company costs and rationalizing insurance programs.

We also see the potential to reduce our cost of serving customers and bring our existing automation capabilities to Sterling's business to increase efficiencies and productivity. We are focused on a seamless transition for Sterling customers, while also allowing us to unlock valuable operational and third-party efficiencies.

As we have been delving deeper into our pre-closing integration planning work, we are uncovering opportunities that we expect will further enhance our customer value proposition, unlock upsell and cross-sell opportunities, and reduce certain third-party pass through fees. As an example, we can bring to Sterling's customers our full suite of I-9 tax and transportation products. Sterling has a recovery management service and have further developed digital identity product in the U.S., which we could potentially sell to our install base. We believe opportunities such as these would benefit customers by providing more options to meet their evolving needs and improve solutions to help manage risk, hire smarter and onboard faster.

Additionally, culture is an important focus area for us and both companies have high-performing cultures and motivated employees. We are being very thoughtful in how we approach this post-close integration work stream and have brought in leading third-party experts to assist. I am really excited about our opportunities and what our combined teams will be able to accomplish. Upon closing the transaction, we will immediately almost double our revenues to nearly $1.5 billion on a pro forma basis. We expect to generate double-digit adjusted EPS accretion on a run rate basis and to continue compounding adjusted EPS at a teens growth rate over time through the combination of top line growth, ongoing synergy capture and significant deleveraging enabled by our strong free cash flow generation.

As we look ahead, our priorities after closing the transaction will be focused on our customers, successful integration, achieving synergies and deleveraging our balance sheet. Overall, we expect that this strategic and accretive acquisition will benefit customers and investors, accelerate and advance our strategic priorities and drive long-term value creation.

Turning to Slide 7 and an update on our AI efforts. We have been early adopters of integrating responsible generative AI into our business and we are continuing to leverage AI to deliver value to our customers. One way we are doing this is through the expanded use of our proprietary SmartHub technology and Verified! database. As a reminder, SmartHub is our AI-driven intelligent router that sits on top of our large Verified! database, which as of the end of 2023 is made up of nearly 110 million education and work history records, up from 36 million in 2021. SmartHub enables us to quickly search across multiple data sources to determine the optimal verification source based on speed, data quality and cost effectiveness.

By optimizing verification sources, we have been able to provide our customers with alternative options and decrease the third-party costs they incur. We are currently diverting up to 60% of verifications away from the most expensive third-party sources. Our customers love SmartHub because in many cases, it generates results quickly and helps them save money.

Additionally, we are continuing to expand our next gen Profile Advantage platform in the U.S., rolling it out to new customers each week. This API first technology interface is used by applicants through either a computer, tablet or mobile device. With its embedded AI and machine learning, Profile Advantage drives significant time savings for both applicants and customers and enables fast time to hire. Our technology also complies with web content accessibility guidelines and our user experience is receiving very favorable reviews.

We are also continuing to see success in utilizing AI for customer and applicant support with our Click. Chat. Call initiative. This has brought increased speed and accuracy to our customer care program, improving overall customer satisfaction. It has also allowed for continued headcount leverage in our call center after having achieved an additional headcount reduction of approximately 20%. Overall, we are continuing to make advancements in our use of AI and are rolling out multiple new AI pilots within the organization to improve our processes and support our employees as they conduct business.

Before I turn the call over to David, as you saw in our press release this morning, we announced that David has decided to retire later this year. On behalf of the entire board of directors, I want to express our sincere gratitude for David's many contributions to First Advantage over the past 8-plus years. He has been a critical member of our team and we have substantially grown the business, executed our IPO and M&A strategies, and most recently announced our acquisition of Sterling. David has been an outstanding leader and an exceptional colleague and we all wish him well in his retirement.

Part of David's legacy is having created a high-performing finance team inside our organization. Accordingly, we're fortunate to announce that David will be succeeded by our Chief Accounting Officer, Steven Marks. Steven has been with First Advantage for over 8 years. He has tremendous experience, he knows the company well and he has worked closely with David during that period. David and Steven will continue to work together to ensure a smooth transition through the beginning of December. But it's not time for us to say goodbye to David just yet. David will continue to lead our finance function for the next several months and of course, he is here today to discuss our performance in the quarter.

And with that, I will now turn the call over to David.

[David Gamsey, executive]

Thank you, Scott and good morning, everyone. As Scott discussed, after a 45-year career in accounting and finance and given the timing of the pending Sterling acquisition, I have decided to retire later this year. It has been a privilege to have had the opportunity to work with our outstanding board of directors, the excellent professionals at Silver Lake and to have been a part of the First Advantage team. Scott has developed a great culture and a tremendous team and together, we have built an outstanding company. I am very proud of what we have accomplished, but there is still a lot of exciting work yet to be done.

I hired Steven in 2016 and he and I have worked together very closely over the past 8 years. He has always demonstrated strong leadership skills and excellent business judgment. Steven has been an essential partner in executing our strategy and building the exceptional finance team we have today. I have no doubt that he will do an excellent job as Chief Financial Officer of First Advantage and the combined companies moving forward.

Now back to business. Turning to our second quarter results on Slide 9. In line with our previously communicated expectations, our results for the second quarter improved sequentially over our first quarter results. Our second quarter revenues were $184.5 million, flat compared to the prior year and $15.1 million greater than in Q1. Currency had nearly no impact on results. For the quarter, Infinite ID contributed approximately $3.3 million.

In our Americas segment, revenues of $162.4 million, or 87% of consolidated revenues were flat to the prior year. Similarly, our International segment revenues were also flat compared to the prior year at $24.2 million, or 13% of consolidated revenues. We believe that our international operations have now stabilized, with India and APAC producing consistent, sequential base revenue volumes. For the total company, adjusted EBITDA was $55.8 million, also flat compared to the prior year. Our adjusted EBITDA margin was 30.2%, a 270 basis point improvement over Q1. Our adjusted effective tax rate was 24.6%.

Adjusted net income was $30.8 million for the quarter, adjusted diluted earnings per share was $0.21. This includes an approximately $0.02 negative impact from our 2023 onetime special dividend, share repurchases and expired interest rate swaps. When taking these into account, adjusted diluted earnings per share would have also been nearly flat on a year-over-year basis.

On Slide 10, you can see that our historical performance for upsell, cross-sell, new customer logos and attrition has been largely consistent with our growth algorithm and demonstrates that we are managing and delivering on what we can control, with the variation being driven by the base. Base was still negative in Q2, but it did improve by 400 basis points from Q1.

Revenues from upsell and cross-sell partially offset our base decline for the quarter and contributed $8.6 million, or 4.7% to our performance in Q2. New customer logos contributed an additional $7.8 million, or 4.2% in Q2. Base declined by $13 million, or 7% in Q2 and attrition was 4%.

Turning now to our balance sheet and capital allocation summary on Slide 11, in the second quarter, we generated strong operating cash flows of $40.7 million after adjusting for the $8.7 million of cash costs paid directly related to the Sterling acquisition. During the quarter, we used $7.4 million for purchases of property and equipment and capitalized software development costs. As we mentioned previously, given the pending Sterling acquisition, we have suspended share repurchases as we continue to build cash.

In addition to our existing $565 million of First Advantage debt, we anticipate raising approximately $1.6 billion of new term debt to fund the Sterling acquisition. This results in approximately $2.15 billion of gross debt, or approximately $2 billion of net debt when considering our balance sheet cash expected at close. Additionally, we expect our net debt to adjusted EBITDA leverage at close to be within the range of 4.2 to 4.4x. However, there are still a number of variables that could impact us, including timing, cash generation, synergy estimates and any incremental actions taken before close to further improve margins. Additionally, as part of our financing agreement, we will upsize our revolver from $100 million to $250 million and extend the maturity date to 5 years after the closing date of the transaction, which will provide additional liquidity for our business.

We remain committed to our long-term net leverage target of 2 to 3x and have a proven track record of managing leverage. Over the 4 years since Silver Lake invested in us, we delevered from 6x as a private company to less than 2x prior to the announced Sterling acquisition. This is after repurchasing approximately $120 million in shares, paying a $218 million onetime special dividend and completing our acquisitions. Our goal within 24 months of closing is to reduce net leverage toward approximately 3x run rate adjusted EBITDA.

Our path to delever will be driven by high-margin top line growth of the combined businesses, productivity efficiencies, cost synergies and continued strong cash flow generation. Interest rate cuts would help us accomplish this goal even sooner.

Now moving to Slide 12. Today, we are reaffirming our 2024 annual guidance. Our second quarter actual results position us well to achieve the midpoint of our full year guidance. We still expect sequential quarter-over-quarter growth for revenues, adjusted EBITDA and adjusted EBITDA margins similar to 2023. For 2024, we expect to generate full year revenues in the range of $750 million to $800 million. Based on the midpoint of $775 million, this results in slightly positive year-over-year organic revenue growth. This includes revenues related to Infinite ID, which is expected to contribute approximately $7 million in the first 8 months of the year, as we cycle over the anniversary of that acquisition.

We expect customer retention along with the continued execution of upsell, cross-sell and new logo growth to be consistent with historical trends and long-term targets. We expect to maintain adjusted EBITDA margins approaching 31% at the midpoint and adjusted EBITDA in the range of $228 million to $248 million. This reflects the strength of our flexible model, disciplined cost management and investments in automation. As a reminder, our adjusted EBITDA guidance includes increases in annual employee wages, normalization of management incentive plans and increases in benefit costs totaling approximately $10 million. It also includes new investments in product, technology and sales capabilities of approximately $7 million.

Looking at the quarterly phasing, we expect sequential top line improvement as we move through the remainder of 2024. We expect third quarter revenues to reflect modest positive growth, with that trend continuing sequentially into Q4. The midpoint of our guidance range also assumes continued macro-driven base declines, though improving sequentially through the year and getting to essentially flat plus or minus in Q4. We continue to expect quarterly EBITDA -- adjusted EBITDA margins of at least 30% in the second half of the year with upside potential.

Before I hand the call back to Scott, I would like to close by saying that it has been an honor to serve as the Chief Financial Officer of First Advantage, and I would like to thank everyone for their support and confidence over the past 8 years. In the coming months, Steven and I will collaborate even more closely to ensure a smooth transition and to continue to deliver the future results that we articulated today.

With that, let me turn it back to Scott for closing remarks before we open the line for questions.

[Scott Staples, executive]

Thank you, David. We are delivering solid results and continuing to execute on our strategic initiatives. Most notably, we are progressing toward closing on the Sterling acquisition expected in the fourth quarter, while also leading with innovation and driving productivity through our AI solutions. We remain focused on delivering on our value creation playbook and shaping the future of First Advantage to better serve our customers.

With that, we will open the line for questions.

[Scott Staples, executive]

[Operator Instructions] Thank you. Our first question will come from Shlomo Rosenbaum with Stifel.

[Shlomo Rosenbaum, analyst]

I wanted to just ask you a little bit about the macro environment and what you're hearing from your customers in terms of hiring plans. Just the commentary you had, Scott, about some stabilization in the context of what seems to be a little bit higher unemployment and a little bit lower -- higher levels of maybe lower levels of quits that we're seeing at least in the JOLTS data. So I just want to ask you what you're hearing from your clients really on the ground, and then I'll have a follow-up.

[Scott Staples, executive]

Yes, obviously the macro is something we're focusing on and trying to see where things would be going on this. But Shlomo, I think what we're hearing from customers is really unchanged for the last couple of quarters. We are still hearing that there's a strong demand for their products and services, but they are really not hiring ahead of the curve. It's more of just-in-time hiring and doing backfilling. So I think what we're hearing from them is cautious optimism and that's fine with us. We really like the fact that we're seeing a little bit of normalization and stabilization in the space.

We're not getting those kind of wild swings in base that we got during the pandemic years. So this is actually a little easier for us to manage our business. Because again, I think one other thing to remember is, we really focused primarily on enterprise customers and enterprise customers are fairly resilient, especially in the verticals that we've got.

[Shlomo Rosenbaum, analyst]

And then just as a follow-up, can you talk a little bit about the breakdown maybe of some of the movements between verticals? In other words, which ones are doing better, which ones are doing, maybe not so well. I know there was commentary that they were more similar. And maybe just talk a little bit about that.

And last quarter you had -- you talked a little about staffing, I think went positive, which was a positive side. I wanted to know if that had continued to be positive.

[Scott Staples, executive]

Yes, this was really interesting, because for the first time in a long time, what we saw from a vertical perspective was what we're saying is the return to normalization and stabilization. So in Q2, no single vertical's revenue volumes were up or down beyond single digits. So we feel this narrowing of the gaps between the verticals really reflects an overall normalization of the business, which again, we welcome.

So for us specifically, just to give you a sense, transportation is our largest vertical at 24% of our revenue and it had a good quarter. Transportation was up 9%. I think on the bottom of the spectrum was banking and financial services, which were down 7%. So everything else fell in between that. So you've got a lot of minus 2, minus 3 or plus 2 or flat or whatever it might be. So a lot more narrowing of the vertical. Staffing was still positive for us in the quarter. So we did have -- that was on the positive side. But we love the fact that this is all sort of narrowing.

I think what's probably the most reflective space that maps to the JOLTS data is what we're seeing in the SMB space. Again, we're an enterprise focused company. So SMB for us is not a large business. It's about 4% of our revenue. But I think SMB has always been more volatile to the macro swings, either positive or negative and our SMB business was down 25%. So it's not really a vertical. But I think that's where we're seeing the business reflecting what's going on with JOLTS data. Again, it's not a huge impact to us because as we've said over and over again, not only are we enterprise focused, but we're also more focused on the hourly worker.

And if you look at our vertical mix of transportation and retail, whatever it might be, 71% of our revenue falls into that space and there's still a strong demand for that type of worker.

[Operator]

Our next question will come from Andrew Steinerman with JPMorgan.

[Andrew Steinerman, analyst]

Scott, you might think this one a little premature, but I'm going to ask about that teens EPS growth that you highlighted again today. I was wondering when you think about that over time comment post-merger, how many years do you feel like the company combined could grow teens EPS and is the base year going to be '25?

[Scott Staples, executive]

David, I'll throw that to you.

[David Gamsey, executive]

So Andrew, based on all of our modeling, I think what you've seen and the results that we just released is that we've expanded the range of synergies that we think we can go get. We had previously said we thought we could get $50 million plus. We now, based on additional integration work that we've done believe that could be $50 million to $70 million. So therefore, we think on a run rate adjusted basis, we can go get that right away and that can continue as we continue to delever and as interest rates go down.

[Andrew Steinerman, analyst]

Did you want to give a time frame of how many years you think the teens growth could be sustained for?

[David Gamsey, executive]

At least a couple of years, maybe longer. It's a little bit early and premature to be commenting on the future like that.

[Scott Staples, executive]

Yes, Andrew, just to clarify, I mean, until we get DOJ approval, we're just really doing a lot of planning. So we haven't really been able to get under the cover -- under the hood and look at these things in more detail to give you a more detailed answer on exact years and that kind of stuff. But we're pretty comfortable with these ballpark estimates that we're giving right now.

[Operator]

Our next question will come from Andrew Nicholas with William Blair.

[Andrew Nicholas, analyst]

Congrats to David and Steven on the news from today. I wanted to ask on international growth. I think it was flat overall year-over-year. Last quarter, you talked about stabilization there, Scott, you gave a bunch of great color on the vertical level. I'm just wondering if you could give similar commentary in what you're seeing in APAC and maybe in your IT services business in India.

[Scott Staples, executive]

Yes, I mean, we were so happy to look at this data because, as you know, international has been a drag on the business for literally 2 years. And so now, we had been sort of signaling this, as you know. And so, again, think -- when we think of our international business, it's 3 buckets. It's EMEA, it's India, and it's APAC. So we lumped Canada and LatAm in with North America, I mean, the U.S., to create the Americas business. So if you look at those 3 regional businesses in our international sector, India and APAC had been really the big drags over the last 2 years, while EMEA actually was sort of chugging along fairly nicely. So EMEA continues to do that. And it was always really just what's going on in India and APAC.

And we had signaled to you guys in Q4 of 2023 that we thought India had bottomed out and would start growing and that's exactly what we saw in Q1 of this year. And in Q1 of this year, we kind of thought APAC had bottomed out and would start growing. What I would say is this is probably the bottoming out for APAC and we now expect APAC to start growing. Really, APAC is -- the drag on APAC particularly had been China and China is what it is. But the rest of our APAC business is starting to show some green shoots of life, which is great.

In the India business, we are seeing IT services and BPO customers starting to slowly hire again. Again, I think cautious optimism is what we're hearing out of that. But also remember that our comps are much better. So we're not talking about dramatic changes in the business, we are seeing some positive changes, but we're also now comping against much easier numbers.

[Andrew Nicholas, analyst]

And then switching gears a little bit for my follow up. The 60% number on employment verifications that you cited maybe surprised me a bit in terms of how big that number was. I'm curious if that's up versus maybe this time last year or at any point in '23. And then also, is there any way to quantify or maybe even qualitatively speak to how much of those employment verifications are hitting Verified! versus being directed to other providers? Just trying to get a sense for how much would be a direct margin or even profit benefit to you if it's going to Verified!.

[Scott Staples, executive]

Yes. And so the actual number is 60% of verifications being diverted. This is the first time we've given a number like this. So I know you're looking for trends and baseline. And we will continue to do this sort of going forward as we get more data on this. But I just think without getting into specifics of numbers, which we're not really ready to do right now and we'll consider doing going forward, we're just basically seeing a much larger adoption of the concept of SmartHub.

Clients really like it, because as we've said multiple times, we believe where the only background screen are out there that's offering these type of alternatives. And clients are looking for alternatives. One, they want faster turnaround times; but two, it's really driven by cost savings. Verifications in general have become a heavy drag on the budgets of our customers and it really is getting to an untenable position in terms of cost. And so it's really more, I'd say, of our ability to sell this and to promote it and market it. So the uptake has definitely increased.

And the technology gets better and better every quarter. Remember that this is probably our best piece of technology in the company. It's machine learning, and that means it gets better with every verification that it does. It's called the AI that's built into it. It just gets smarter and more sophisticated and that enables us to keep pointing it in different directions. And again, as we add more and more data records to our database, we expect that number to improve.

[Operator]

[Operator Instructions] Our next question comes from Heather Balsky with Bank of America.

[Heather Balsky, analyst]

I was curious, it was interesting to see you expand the range of synergies and then also you made a comment during the Q&A that you still haven't really gotten out of, I guess, under the hood as you wait for approvals. I'm just curious, can you talk a little bit about the work you have done to kind of, that has enabled you to expand the range and how much you've learned while you're waiting for the process to get approved?

[Scott Staples, executive]

Yes. So we've done an incredible amount of work. So let me sort of paint a bigger picture for your first Heather, and then I'll get more specifically to your question. So one, we're getting great advice from Silver Lake who has done hundreds and hundreds of M&A deals and from other third-party consultants as to how to structure things, how to plan things. And what we've done is we've created dedicated teams that consist of both First Advantage and Sterling leaders. And those teams are literally meeting daily to go through data and do planning. We're not legally allowed to do any integration work and there are certain pieces of data we're not able to see at this point. But for what we've done from a planning standpoint and conversation standpoint, we're getting a much better sense of how to put these 2 businesses together, because basically, they're equal sized companies.

And through those conversations and sort of mapping out what we would do in the first 100 days in the first 6 months, in the first year, in the first 18 months, all that stuff is being planned. And as we map those things out, we're getting a better sense of timing of synergies as well. And so while we don't have specific numbers, we've got a pretty good ballpark numbers of like where we can move things either sooner or later. And so the process has been treated like its own work stream. And we've taken 2 really senior leaders in First Advantage and this is their full-time job. And Sterling has done the same on their side. And we've got steering committees and functional teams meeting daily and in-person sessions. So a lot of stuff is going on, and that's why we -- it's given us confidence that we could raise that synergy number up not only from a total dollar value, but as David mentioned, even probably moving some of it sooner versus later.

[Operator]

[Operator Instructions] We will take our next question from Kyle Peterson.

[Kyle Peterson, analyst]

I want to start on the upsell, cross-sell, that continues to remain pretty strong here. Just want to see if you guys could provide any more color on what is continuing to drive better package density here.

[Scott Staples, executive]

Yes. I mean, obviously, as we just announced 2 really large deals, 1 in the quarter on the upsell, cross-sell side. And also new logo continues to chug along. We're really happy, as we said, with controlling the things that are controllable. And I'll get to your -- I'll get to the answer to your question in a second. But I think one other thing that we really like is the consistency of those things. So if you look back, even going back to 2021 and mapping what we've done with upsell, cross-sell, new logo and attrition, I mean, they've all been just super consistent along those lines. Upsell cross-sell, 4% to 6%, almost every quarter, new logo 4% to 5%, almost every quarter, retention, 96%, 97%, almost every quarter. It's just sort of the base that's obviously fluctuated.

So what's driving -- so again, really happy with the consistency and how we're able to control the controllables. And I think -- and we've mentioned this before, what's really driving a lot of upsell, cross-sell for us is just this whole, what I'd call, additional awareness of risk management. Our customers are really in tune with what's going on in the world and sort of how crazy the world is and how they need to protect their business, their employees and their facilities. And they just are continuing to ask us for more and more protection and services. And that's really what's driven upsell and cross-sell.

Yes, there's always a new product launch that helps drive that and other things. But in general, it's just this pivot toward wanting more risk management offerings and companies are willing to spend money to protect the brand, protect shareholders, protect their business, protect their employees, protect their facilities. And that's just been a great tailwind for us for now the last couple of years.

[Kyle Peterson, analyst]

And I appreciate you guys calling out some of the transaction costs related to Sterling that you guys incurred this quarter. I guess, is there anything else notable or at least that you guys have visibility to in terms of transaction costs between now and [ deal close ] that you guys are able to disclose or estimate at this time?

[Scott Staples, executive]

So Kyle, we continue to incur costs as we go through the DOJ HSR review. We're not going to share those numbers at this point in time, but it will be further professional fees associated with that until we get the transaction closed.

[Operator]

This does conclude the First Advantage second quarter 2024 earnings conference call and webcast. Thank you for your participation. At this time, you may disconnect your lines, and have a wonderful day.