First Advantage Corporation Q3 FY2025 earnings call

• Delivered profitable growth with 4% revenue growth pro forma and 29% adjusted EBITDA margin. - Celebrated 1-year anniversary of Sterling acquisition with smooth integration, exceeding synergy targets. - Executing FA 5.0 strategy with best-of-breed products/platforms. - AI being leveraged for both customer value and internal efficiency, with Digital Identity product addressing identity fraud risks. - Synergy program exceeded $50M threshold, with $65M-$80M target by 2 years.

In the third quarter, First Advantage generated revenues of $409 million. Adjusted EBITDA was $118.5 million with a margin of 29%. Verticals like retail and e-commerce showed strength from upsell, cross-sell, and holiday season. Transportation and logistics grew due to upsell/cross-sell initiatives. Health care was slightly down due to Medicare/Medicaid funding uncertainty but other sub-segments like post-acute care, life sciences, and health care staffing did well. International had year-over-year revenue growth with the UK as a bright spot and APAC improving.

• Narrowed 2025 guidance ranges with midpoints at or above original. Revenue expected $1.535B-$1.570B. Adjusted EBITDA margin ~28%. Q4 revenue ~6% y-o-y growth, base growth slightly negative. Adjusted EBITDA margins in Q4 ~28%. Free cash flow $110M-$120M for the year.

• Macroeconomic uncertainty including flat hiring growth, policy changes like government shutdown affecting BLS data but not business. - AI-related risks such as potential identity fraud and impact on job roles, though enterprise focus mitigates some effects. - Dependence on verticals and market conditions, especially for health care due to Medicare/Medicaid funding uncertainty.

Q: How to think about upsell, cross-sell, new logos into Q4 and 2026?

A: Q4 contribution expected in line or better than historical, with pipeline at high value.

Q: Changes in sales cycle for new logos?

A: Late-stage pipeline for large deals is best ever, with good win rates historically.

Q: Background checks disintermediation by AI?

A: AI helps with identity fraud risk, enhancing digital identity checks and client stickiness.

Q: $100M contract renewal structure?

A: New clause with guaranteed minimums in new logos/renewals, leading industry change.

Q: Digital identity impact on growth?

A: Dominating customer conversation, pilots ramping, driving upsell, cross-sell, retention.

Q: October order volumes and layoffs impact?

A: October order volumes positive, enterprise focus not seeing media-reported layoff impacts.

Q: Synergy realization, EPS accretion, deleveraging?

A: Synergies at $52M, on track for $65M-$80M by 2 years, EPS strong, deleveraging on track.

Q: Base growth 2026?

A: Wait-and-see hiring environment expected to persist, base growth slightly negative.

Q: Identity market growth outpacing?

A: Well-positioned but early to quantify, unique in triangulating solutions.

Q: Retention improvement drivers?

A: Customer focus, vertical expertise, tech integration, Sterling integration.

Q: International growth and verticals?

A: International growth sustained, health care aberration tied to Medicare/Medicaid uncertainty.

Q: AI disruption and in-house onboarding?

A: AI improves data quality for screening, not infringing on business model.

Q: Data cost savings from proprietary database?

A: Leveraging combined data assets, investing in databases for growth and P&L improvement.