Sterling Check Corp (STER) Faces Headwinds in Q3 2023 Earnings Amid Macroeconomic Challenges
Revenue decreased by 9.4% year-over-year to $180.6 million in Q3 2023.
GAAP net income fell sharply to $2.4 million, a 74.7% decrease from the previous year.
Adjusted EBITDA dropped 10.4% to $47.6 million, with margin contraction of 30 basis points.
Full-year 2023 guidance revised downwards in light of persistent macroeconomic conditions.
On November 8, 2023, Sterling Check Corp (NASDAQ:STER), a leading provider of technology-enabled background and identity verification services, reported its financial results for the third quarter ended September 30, 2023. The company experienced a downturn in revenue and profitability, attributing the decline to macroeconomic challenges that have affected client volumes and tempered expectations for the remainder of the year.
Financial Performance Overview
The company's revenue for Q3 2023 was $180.6 million, marking a 9.4% decrease compared to the $199.3 million reported in the same period last year. This decline included an 11.9% decrease in organic constant currency revenue, partially offset by a 2.4% increase from recent acquisitions. GAAP net income saw a significant year-over-year decrease to $2.4 million, or $0.03 per diluted share, compared to $9.3 million, or $0.09 per diluted share, in Q3 2022.
Adjusted EBITDA also fell by 10.4% to $47.6 million, with the Adjusted EBITDA Margin contracting slightly by 30 basis points to 26.3%. Adjusted Net Income decreased by 15.2% to $24.7 million, and Adjusted Earnings Per Sharediluted decreased by 10.3% to $0.26 per diluted share.
Balance Sheet and Cash Flow
As of September 30, 2023, Sterling Check Corp had $49.9 million in cash and cash equivalents, with total debt standing at $499.9 million. The decrease in cash since the end of 2022 was primarily due to acquisitions and stock repurchases, which were partially offset by Free Cash Flow. The company reported a net leverage ratio of 2.4x net debt to Adjusted EBITDA and generated $65.7 million in net cash from operating activities for the nine months ended September 30, 2023.
Management Commentary and Outlook
Josh Peirez, Sterling CEO, commented on the results, stating,
During the third quarter of 2023, we continued to make progress on our 2023 and long-term goals. We executed on the items within our control, both on the top line and in our cost structure, and we remained focused on optimizing the exit velocity and profitability of our business as we approach year-end."
He also acknowledged the challenging macro environment and its impact on base revenue volumes, while expressing confidence in the company's strategic initiatives and cost optimization program.
For the full year 2023, Sterling has updated its guidance, reflecting expectations that recent macroeconomic conditions will persist. The company now anticipates revenues to be in the range of $720 - $730 million, representing a year-over-year decline of 6.0% to 4.5%. Adjusted EBITDA is expected to be between $186 - $191 million, and Adjusted Net Income is projected to be $95 - $99 million.
Investors and analysts are encouraged to join Sterling's conference call to discuss the Q3 2023 financial results, with details available on the company's investor relations website.
Despite the headwinds faced in the third quarter, Sterling Check Corp remains committed to its strategic goals and is taking measures to navigate the challenging macroeconomic landscape while continuing to serve its clients effectively.
For a detailed reconciliation of non-GAAP financial measures to their most directly comparable GAAP measures, readers are directed to the schedules accompanying the earnings release.
Note: The information provided in this summary is for informational purposes only and is not intended as investment advice. Please refer to the full earnings release and consult with a financial advisor before making any investment decisions.
Explore the complete 8-K earnings release (here) from Sterling Check Corp for further details.
This article first appeared on GuruFocus.
