FIRST ADVANTAGE CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Closed the $2.2 billion strategic acquisition of Sterling and is rolling out the FA 5.0 strategy.
• Synergy targets updated to a range of $60 million to $70 million, with $20 million already actioned by the end of 2024.
• Focus on deleveraging the balance sheet, executing the integration plan, and accelerating the go-to-market strategy.
• Verticalized go-to-market approach remains a differentiator, with largest verticals including healthcare, transportation, retail, and e-commerce.
• Leveraging technology and processes from both First Advantage and Sterling to enhance customer value proposition, with no disruptions to customers during integration.
• Innovation efforts ongoing, integrating AI capabilities into workflows to improve efficiency and customer service.

Segment Performance

• Fourth Quarter 2024:
  • Legacy First Advantage Americas: Revenues of $172 million, down 5.5% year-over-year.
  • Legacy First Advantage International: Revenues of $24 million, up 8.9% to $24 million, with a 7.0% increase on a constant currency basis.
  • Legacy Sterling: Pro forma revenues for Q4 were $181 million, up 7% year-over-year with a 6% contribution from the Vault acquisition.
• Full Year 2024:
  • Legacy First Advantage Americas: Revenues of $659 million, down 2.1% year-over-year.
  • Legacy First Advantage International: Revenues of $97 million, flat year-over-year (down 0.7% on constant currency basis).
  • Legacy Sterling: Pro forma revenues were $763 million, up 6% year-over-year with 6.9% growth from the Vault acquisition.

Guidance

• 2025 total revenues expected in the range of $1.5 billion to $1.6 billion, adjusted EBITDA $410 million to $450 million, and adjusted diluted EPS $0.86 to $1.03.
• Expect $25 million to $30 million in realized synergies in 2025.
• Q1 2025 revenues expected to decline 1% to 4% year-over-year, with sequential improvement in quarterly year-over-year revenue growth for the first three quarters and Q4 more on par with Q3.
• Q1 adjusted EBITDA margin expected in the mid-23% to mid-24% range, with Q2 and beyond expected to have adjusted EBITDA margins above 28%.

Risks

• No specific material risks discussed beyond general uncertainties related to the macro environment, which could impact business performance.

Q: Could you provide more detail about weakness in seasonal hiring in retail and transportation?

A: Hiring has been normalizing with a slow half of November and most of December, but picking up in January, which is factored into 2025 guidance.

Q: Comment on winning a big healthcare deal using the Sterling platform?

A: Tech and product teams have created an innovative way for clients to leverage best of both platforms without disruptions, maintaining both platforms but reducing overheads.

Q: Tracking Net Promoter Score and verified database revenue?

A: Net Promoter Scores are measured for customers and candidates, and the verified database has 900 million records, with plans to add Sterling data later.

Q: Acceleration of synergy realization and insights from customer conversations?

A: Synergies accelerated across all functions, and customer conversations show normal hiring plans with no significant impact from the new U.S. administration.

Q: Examples of changing Sterling's Legacy business to a variable model?

A: Adjusting staffing to be more variable, using flexible labor and automation to match volumes, and harmonizing wellness programs to improve margins.

Q: Pace of deleveraging and vertical performance expectations?

A: Plan to make mandatory prepayments and expect free cash flow to be positive, with international rebound continuing and vertical performance normalized due to stabilization trends.