First Advantage Corporation earnings

Management highlights

• Delivered exceptional Q1 with 8.6% revenue growth and over 27% adjusted EBITDA margins, outpacing broader hiring market trends. • Executing and accelerating FA 5.0 growth strategy, with innovative product and platform approach strengthening customer value proposition. • Balanced capital allocation strategy: $100 million share repurchase program with $33.3 million repurchased through May 1st; made $25 million voluntary debt payment during the quarter and $25 million additional prepayment just this week, total cumulative debt prepayment $120.5 million. • Reaffirming full-year 2026 guidance based on strong Q1 customer demand and positive top-line momentum. • AI is an enabler of FA 5.0 strategy, integrated into platform like NextGen Profile Advantage, driving user experience improvements. • Released 2026 Global Workforce Trends Report highlighting risk mitigation as top hiring priority due to AI. • Held 10th Annual Collaborate User Conference, largest ever, driving pipeline contributions and customer engagement.

Guidance

• Reaffirming full-year 2026 guidance. • Expect revenue growth rates in mid to high single digits in Q2 and Q3, slightly lower in Q4 due to go-to-market timing. • Base growth expected to be modestly negative for the year, between 0% and negative 2%, below range in Q4. • Adjusted EBITDA margins expected to improve meaningfully in Q2 towards 28% and around 29% in second half. • Adjusted diluted EPS expected to increase to high $0.20 per share range in Q2, mid $0.30 range in Q3 and Q4.

Segment performance

In Q1, revenue grew 8.6% year-over-year to $385 million. Adjusted EBITDA was $105 million, up 14% year-over-year, with an adjusted EBITDA margin of 27.3%. Combined upsell, cross-sell, and new logo growth contribution was 12%. Retention remained high at 97%. Vertical performance: Retail and e-commerce saw continued growth acceleration; transportation and logistics had growth driven by sustained base volume and compliance focus; gig economy benefited from job stacking; healthcare had modest growth with upsell and cross-sell offsetting base softness; business professional and financial services had pressure but didn't inhibit overall performance; international business sustained strong year-over-year revenue growth with particular strengths in EMEA.

Risks & headwinds

• Macroeconomic uncertainty including layoffs, economic and policy uncertainty. • Geopolitical developments in the Middle East, though no significant direct exposure. • Highly regulated environment with evolving regulations. • Competition from other companies in the space, including smaller competitors potentially being pushed out by AI but also existing competition.

Analyst Q&A

• Q: Could you talk a little bit about which areas picked up in March and detail on mix impacting margins and sustainability?

  A: March was a blowout month with broad-based growth across majority of verticals and geographies. Broad-based growth led to more normalized margins as base is now near zero.

• Q: How important was digital identity and AI in driving 17 enterprise bookings?

  A: Digital identity is standard in nearly every deal, leading to package density upsell. AI is an enabler of FA 5.0 strategy, integrated into platform driving user experience improvements.

• Q: Why continue to expect base growth to be zero to negative 2%?

  A: Conservative approach due to macroeconomic and geopolitical uncertainties.

• Q: Can you quantify how often winning background check contracts is due to inclusion of identity services?

  A: Hard to quantify as can't know competitive deal intricacies, but pipeline is growing, win rates are up, and retention is improving.

• Q: Is job-stacking trend picking up or accelerating?

  A: Job-stacking is a secular trend due to generational shift in workforce approach, with millennials and Gen Z approaching work differently leading to more job stacking.

• Q: Thoughts on pricing and competitive landscape due to AI?

  A: Pricing is stable, companies are looking for cost savings leading to consolidation of vendors, with First Advantage benefiting from higher share of wallet and risk mitigation focus.

• Q: Are you being overly conservative with guidance?

  A: Not overly conservative, but mindful of world volatility.

• Q: Opinion on AI meaning for competitive landscape?

  A: AI is accelerating new build work, First Advantage is well positioned with investments in tech stack and vertical focus but competition still exists.

• Q: Details on FA 5.0 strategy acceleration?

  A: Accelerating on digital identity as top customer issue, AI integration in platform for better user experience and back-end efficiency, and deeper vertical focus.

• Q: Color on enterprise bookings pipeline split?

  A: Pipeline is at historic high, late stage pipeline is largest ever, sales engine is humming with marketing, vertical-led sales, and product investments driving growth but specific split not detailed.