First Advantage Corporation Q4 FY2025 earnings call

1. Delivered best quarter ever in Q4 2025 with exceptional results, exceeding updated expectations on all guidance metrics, including 67% adjusted diluted BPS growth in Q4. 2. Completed core integration activities for Sterling acquisition, seeing strategic and financial benefits, and now shifting focus to innovation and growth through FA 5.0 strategy. 3. Executing FA 5.0 growth strategy with best - of - breed product and platform approach, winning with enhanced customer value proposition and expanded offerings, focusing on areas like digital identity, co - selling with Workday, new product releases, and international account expansions. 4. Announced two strategic capital allocation actions: voluntary prepaying $25 million of debt and a new $100 million share repurchase authorization. 5. 2025 organizational performance exceeded expectations with successful Sterling acquisition integration, high customer retention, synergy capture, new logo wins, and proactive AI approach. 6. In 2026, enhancing product, sales, and marketing capabilities, leveraging AI across product portfolio, increasing identity fraud - related product penetration, creating new products, and expanding international business.

In 2025, First Advantage delivered impressive full - year revenues of $1.57 billion with $441 million of adjusted EBITDA. Pro forma adjusted EBITDA growth was 11% with a 170 basis points expansion in adjusted EBITDA margin and a 27% growth in adjusted diluted EPS. For the fourth quarter, pro forma revenues were $420 million, up 12% year - over - year. Combined upsell, cross - sell, and new logo growth rate was 17%. Adjusted EBITDA was $117 million, up 17% year - over - year with an adjusted EBITDA margin of 27.8%. Adjusted diluted EPS was $0.30, a 67% increase year - over - year. Vertical mix in 2025 saw healthcare, transportation, and retail and e - commerce as the three largest verticals, each with growth levers for upsell and cross - sell expansion.

2026 guidance: Total revenues expected in the range of $1.625 to $1.7 billion, adjusted EBITDA of $460 to $485 million, and adjusted diluted EPS of $1.25 per share. Revenue expected to be approximately 6% year - over - year growth at midpoint with upside potential from go - to - market initiatives. Adjusted EBITDA margins expected to expand by approximately 40 basis points at midpoint. 20% two - year compound annual adjusted diluted EPS growth rate from 2024 to 2026 guidance midpoint. Base performance expected to remain slightly negative for 2026 but bullish on 2026 due to go - to - market and pipeline success. Quarterly revenue growth rates in mid - to - high single digits in 2026 with margins improving as revenue scales up, and free cash flow expected in the range of $160 to $190 million.

Q: What are your clients telling you about their own hiring plans, and in particular, how are they taking the AI evolution into consideration?

A: We spend a lot of time with our customers, and we're hearing a neutral to positive tone from them. We're not hearing customers mention a decline in hiring, and in certain verticals, we're hearing they're planning to hire more.

Q: Are you able to quantify what the impact of the timing of full implementation was on revenue growth?

A: A couple of customers were waiting to go on board with us and held screening volume back from their previous provider, causing a small shift in base growth between Q3 and Q4, likely a couple of percentage points.

Q: Can you provide an anecdotal example of the benefits from AI adoption?

A: AI is embedded in our product platform, like in our Smart Hub verification product which has led to wins, and in digital identity products which are resonating with customers. There are cost savings in customer care through chatbots.

Q: What's driving the cross - sell momentum?

A: Our sales engine is humming, pipeline is the highest it's ever been, enterprise new business across new logos, upsell, and cross - sell is up 24% year - over - year, average deal size is increasing, and package density is booming. Risk is now the number one priority for customers, driving demand for more screening products.

Q: Can you walk us through the puts and takes on the margin guide for 2026?

A: There are headwinds from a higher mix of out - of - pocket fees in newer deals diluting margin percentage, but tailwinds from rollover of synergies and incremental synergies. We're prioritizing incremental investment in product, sales, marketing as we see strong competitive differentiation and good buying signals from customers.

Q: Were there any surprises in the quarterly results?

A: The quarter resembled our normal peak season, which was encouraging as we had back - to - back sluggish peaks. Peak started when expected and lasted well into December, and our international business was firing on all cylinders across all regions.

Q: Can you quantify the digital identity practice?

A: It's becoming harder to quantify as it's embedded in bundled solutions, but it's having a tremendous impact on the pipeline and go - lives with large customers, and is expected to help retention.

Q: What's the impact of identity on margins?

A: Identity is a higher margin product as it doesn't require acquiring certain data, but it's harder to break apart the discrete impact as it's either embedded or a marketing mechanism for winning opportunities.

Q: Where are we in terms of upsell cross - sell package density?

A: The game has started over with digital identity being at the center, and risk and risk mitigation being the number one concern for customers, leading to more demand for package density and new offerings.