Sterling Check Corp.

Q3 2023 revenue was approximately $181 million, down 9.4% year over year on a reported basis and down 11.9% organic constant currency. Adjusted EBITDA was $47.6 million, down 10.4% year over year, with adjusted EBITDA margin of 26.3%. Adjusted net income was $25 million, or $0.26 per diluted share, down 10% year over year. Free cash flow year-to-date was approximately $51 million, down 12% from the prior-year period; net leverage was 2.4x net debt to adjusted EBITDA, with $500 million of total debt, $50 million of cash and cash equivalents, and about $200 million available under the credit facility. For 2023, Sterling expects revenue of $720 million to $730 million, adjusted EBITDA of $186 million to $191 million, and adjusted net income of $95 million to $99 million. That implies a full-year organic constant-currency revenue decline of 7% to 8.5%. For Q4, management guided to revenue growth of flat to positive 6% year over year, with 3% growth at the midpoint, and expects Q4 adjusted EBITDA margin around 26%, about 170 basis points of expansion versus prior periods.

Josh Peirez said the quarter showed execution against Sterling’s long-term strategy even with a tougher macro backdrop. He emphasized that the company is gaining share through identity verification, pre-hire screening, and post-hire monitoring, while also expanding deal sizes and winning more enterprise logos. He was upbeat about the pipeline, the Konfir partnership, and AI-driven automation, but acknowledged that the base hiring environment was weaker than expected in the second half of Q3.

Peter Walker highlighted that revenue softness came from base-volume declines, while the revenue drivers within Sterling’s control performed well. He cited 2.4% inorganic growth from Socrates and A-Check, new client growth of about 5%, up-sell/cross-sell growth in the 4% to 5% range, and 95% LTM retention / 96% Q3 retention. He also pointed to adjusted EBITDA margin of 26.3%, $51 million of year-to-date free cash flow, leverage at 2.4x, and capital returns through $46 million of share repurchases and $49 million of net cash spent on acquisitions year to date; the company has fixed about 60% of its floating-rate debt through hedging.

Analysts focused on the deterioration in base hiring volumes, with management saying the back half of Q3 got worse than expected and that volumes had not improved in October or early November, even though year-over-year comparisons should ease in Q4. Management said the Q4 outlook is being helped by comps and stronger new business, not by a true pickup in hiring volumes. Questions also covered M&A valuations, buybacks, AI automation, and the Konfir verification partnership; management said U.S. private-target valuations remain elevated, international opportunities look more attractive, and buybacks remain part of a balanced capital allocation approach alongside organic investment and M&A.