First Advantage Corporation

Good day, everyone. My name is Sabrina, and I will be your conference operator today. I would like to welcome you to the First Advantage third quarter 2025 earnings conference call and webcast. Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. At this time, all participants have been placed in listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Lastly, if you should require operator assistance, please press star 0. Please note, today's event is being recorded. It is now my pleasure to turn the call over to Stephanie Gorman. You may begin.

Thank you, Sabrina. Good morning, everyone, and welcome to First Advantage's third quarter 2025 earnings conference call. In the investors section of our website, you will find the earnings press release and slide presentation to accompany today's discussion. This webcast is being recorded and will be available for replay on our investor relations website. Before we begin our prepared remarks, I would like to remind everyone that our discussion today will include forward looking statements. Such forward looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the SEC, including our 2024 Form 10-K and our Form 10-Q for the third quarter of 2025 to be filed with the SEC. Such factors may be updated from time to time in our periodic filings with the SEC, and we do not undertake any obligation to update forward-looking statements. Throughout this conference call, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures to the extent available without unreasonable effort appear in today's earnings press release and presentation, which are available on our investor relations websites. To facilitate comparability, we will also discuss pro forma combined company results consisting of first advantage and Sterling Check Corp historical results and certain pro forma adjustments as if the acquisition of Sterling had occurred on January 1, 2023. The pro forma information does not constitute Article 11 pro forma information. I'm joined on our call today by Scott Staples, our Chief Executive Officer, and Steven Marks, our Chief Financial Officer. After our prepared remarks, we will take your questions. I will now hand the call over to Scott.

Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. We have four key messages for today. We delivered another quarter of profitable growth, meeting and exceeding our expectations with revenues up approximately 4% year-over-year on a pro forma basis and achieving adjusted EBITDA margins of 29%. Our performance was driven by continued go-to-market success in new logo and upsell cross-sell. This demonstrates our ability to generate solid results amid the current macroeconomic environment in which hiring growth has been consistently flat while maintaining our relentless focus on cost discipline. Second, just last week, we celebrated the one year anniversary of closing on our Sterling acquisition. I am extremely pleased with the performance of our entire team as our integration is progressing ahead of schedule and we are delivering strategic and financial benefits as promised. Third, we are continuing to execute on our FA 5.0 strategy, actioning our best-of-breed product and platform approach to accelerate growth through new logos, upsell-cross-sell, and improve client retention. Today, we will highlight how our technologies and products are enhancing our value proposition and solving customers' critical needs. And fourth, today we are narrowing our full year 2025 guidance ranges with refined midpoints at or above our original guidance midpoints. Now, turning to slide five and a closer look at our performance in the third quarter. We generated solid results across revenue, adjusted EBITDA and margin, cash flow, and EPS. For Q3, combined upsell, cross-sell, and new logo rates continued to perform in line with our long-term growth algorithm targets. Retention improved to 97% and increased from 96% in Q2, demonstrating the success of our customer-centric approach and that our best-of-breed technology and deep vertical expertise are resonating with the market. We are pleased to share that we recently signed an exclusive five-year contract renewal with a top customer that is expected to generate over $100 million in total revenues, of which a significant portion is guaranteed through minimum annual commitments. Base revenue performance again improved sequentially, remaining just below neutral and consistent with our expectations. In Q3, Our large new logo win in healthcare went live and is the last of the three large wins we have discussed with you on past earnings calls to do so. Combined with the two wins that went live last quarter, one in the retail gig economy and the other in international win in Australia, all are now live and generating revenue, providing solid momentum going into Q4. We are experiencing tremendous success with our go-to-market teams as further supported by our 17 enterprise bookings in the third quarter and 75 in the last 12 months, each with $500,000 or more of expected annual contract value. These wins give us confidence in our ability to generate new logo and upsell cross-sell revenue and are an encouraging sign of our sustained go-to-market momentum since closing the Sterling acquisition one year ago. Additionally, we are encouraged by the strength of our late-stage pipeline, with many large potential new contracts in the works, including several that are incorporating our digital identity product for the first time. Looking at our verticals in the third quarter, Our balanced and resilient vertical strategy supported our performance, with nearly all of our verticals seeing revenue growth in the quarter on a pro-former, year-over-year basis. We saw strength in retail and e-commerce, driven by upsell, cross-sell, and fueled by a good start to the holiday season. Transportation and logistics also grew, driven by our upsell, cross-sell initiatives, with particular demand from last mile and home delivery customers. In addition to serving onboarding needs for new hires within transportation, our broad range of solutions also supports our customers' ongoing compliance requirements, enhancing our results with balance and consistency across the solutions we provide. Healthcare was slightly down, driven by uncertainty with Medicare and Medicaid funding, particularly with the nonprofit hospital networks. But this was offset in part as healthcare staffing companies stepped in to fill the hiring needs. We remain optimistic about the long-term industry dynamics and fundamentals in healthcare as the U.S. population ages and requires more healthcare services. Our other verticals, including general staffing, manufacturing and industrials, business services, and financial services, showed positive growth in Q3. partially powered by the success in our new logo and upsell cross-sell programs. October order volumes show similar directional trends to what we saw in Q3 continuing. In international, for the sixth quarter in a row, we achieved year-over-year revenue growth, with the UK as a bright spot, and also improving trends in APAC. Looking at the macro environment, we are still seeing a trend where hiring is remaining consistently flat. Macro uncertainty, as well as policy changes, including the recent government shutdown, immigration, tariffs, and tax policy have resulted in many of our customers remaining in a wait and see posture as it relates to their hiring plans. However, as you can see from our results, our customers are still hiring at consistent levels. Our expectation for the fourth quarter and likely into 2026 is for base growth to remain slightly negative as the overall labor market conditions persist. We continue to be confident in our ability to deliver overall revenue growth through upsell, cross-sell, and new logos. Our enterprise customers, diverse vertical mix, global reach, mix of hourly and salaried-focused customers, and diligent focus on controlling the controllables make our business resilient and able to perform well across a variety of macroeconomic scenarios. With regards to the impact of the government shutdown, our view is that the hiring markets have remained stable and active, with our core verticals continuing to perform well. The absence of BLS jobs and employment data has not impacted our ability to run our businesses. I want to take a few minutes to touch on AI's potential impact on our business, building upon what we shared during our May Investor Day. We are taking a proactive and strategic approach to understanding both the benefits and the risks of AI, and we are optimizing our long-term strategy based on the future of work. We recognize the pace at which AI is evolving and can see how it is currently impacting and how some are expecting it to impact. the way certain types of jobs and labor are performed. Of note, the World Economic Forum's 2025 Future of Jobs Report predicts net positive growth through 2030, even after accounting for the impacts of AI. Specifically, the WEF notes that while AI and automation are leading factors expected to displace an estimated 92 million jobs, these technologies and other market conditions are also expected to create 170 million new roles as companies and economies adopt to technological change, resulting in an expected global increase of 78 million jobs over the next five years. Again, we are confident that our diversified mix of verticals, customer segments, and geographies provides a meaningful degree of resiliency to AI impacts and will allow us to capitalize on the future growth opportunities. We are also strategically reviewing where and how we invest in terms of our products and verticals to ensure we are well positioned to lead in a world increasingly influenced by AI. with a focus on continuing to generate long-term shareholder value. For example, we are building tools such as our digital identity product, which enables our customers to address the increasing dangers of AI-driven identity fraud. At the same time, we are leveraging AI internally to enhance quality and customer experience. As we like to say, we are building good AI to fight bad AI. Additionally, I want to address some of the recent news headlines on corporate headcount reductions as companies claim to gain efficiencies from AI. In some instances, the news you read happens to relate to customers of ours. And what we have observed is that while those companies are reportedly making job cuts motivated by AI, we are seeing stable, if not growing, overall screening volumes from them. This is because many of these newsmaking reductions are in administrative type roles, which have a lesser impact on our business, as typically a majority of our screening volume comes from normal churn and core hiring in our customers' operations. Additionally, as customers reinvest in their businesses to build out their internal AI and other capabilities, they should also be driving screening demand, as they will require roles to manage these changes. This sentiment is further supported by feedback directly from our customers who have told us that while they are currently investing in and leveraging AI in their businesses, they do not expect to meaningfully change their approach to core hiring over the next several years. Now turning to slide six. On October 31st, we were thrilled to celebrate the one year anniversary of the closing on our Sterling acquisition. Over the past year, we have made significant progress on our integration of this strategic acquisition, which has been outperforming our expectations on customer retention, synergy capture and realization, cultural alignment, and complementary technologies and products. Importantly, we have delivered a very seamless, non-disruptive customer experience throughout the integration process. This has enabled us to maintain excellent customer satisfaction as evidenced by our high retention levels and the feedback we're receiving from customers. We have also continued to deepen our customer relationships through our growing Collaborate International User Conference series, which reflects our expansive global footprint. In 2025, we've hosted events across the U.S., India, Singapore, and EMEA with upcoming user conferences in Hong Kong and Australia. These events provide us with direct insight into our customers' needs and emerging industry risks. showcase our subject matter expertise, uncover upsell and cross-sell opportunities, and help cement our position as a category leader. Recently, many of our European customers joined us at our London Collaborate to discuss key topics such as identity fraud, AI-driven screening, and global compliance. The strong turnout, high-value content, and customer engagement underscore the relevance of our solutions and the trust we are building across markets. Feedback confirms that our customers are looking to us for guidance as they plan for 2026, and we're proud to be a strategic partner in helping them navigate evolving workforce risk. Our back-end automation strategy has also been a key driver of operational efficiency throughout the integration process. By consolidating fulfillment into a single global engine, We are leveraging years of investment, engineering, and development in robotic process automation, APIs, and AI. We have kept two front-end platforms for customer continuity, but behind the scenes, we have been able to streamline workflows, cut redundancies, and drive efficiency. These efficiencies not only enhance speed and customer satisfaction, but are also expected to create meaningful margin improvement as we grow. Additionally, since announcing the Sterling acquisition, we have increased our synergy target from our original $50 million plus to a range of $65 to $80 million. We have also made solid progress on deleveraging our balance sheet as we work towards our target net level range of two to three times. Stephen will provide additional details shortly on both our synergy progress and deleveraging. Turning to slide seven. Throughout the integration process, we have been focused on enhancing our customer value proposition to unlock new logo, upsell, and cross-sell opportunities while continuing to drive innovation and foster the high-performance culture we are known for. We are consistently leveraging our best-of-breed approach to provide optimal solutions and technology to solve our customers' challenges. Last quarter, we discussed how the expansion of our award-winning click chat call customer care solution and our high margin first advantage work opportunity tax credit product have benefited our customers. We have continued this progress, achieving a milestone in Q3 with the increased usage of the millions of records in our proprietary national criminal record buyer database across both platforms, something we have been rolling out since Q1 of this year. With our proprietary data and in-house data science teams, we deliver faster insights and a superior experience for everyone from recruiters to HR teams to candidates. This powers our ability to reduce turnaround time while increasing the speed coverage and effectiveness of our criminal screenings, facilitating comprehensive and timely results for our customers. In October, We made available our criminal and motor vehicle records monitoring solutions to the entire customer base, offering another best-of-breed experience to all of our customers. We are also underway in leveraging our best-of-breed approach to enhance the user experience. Over the past 18 months, we have been rolling out a new applicant portal. Now, approximately half of our order volume on the First Advantage front end runs through this portal, with customer adoption continuing to grow. This represents the most secure and user-friendly experience we've ever built, featuring device-agnostic design for a seamless experience across devices, customer-specific branding for a familiar and consistent look, and AI-powered features that continuously learn from the candidate interactions to deliver a best-in-class, rage-click-free experience. In November, We are extending the same modern look and feel to the Sterling front end, bringing the benefits to even more customers. This initiative reflects our commitment to delivering an outstanding user experience backed by rigorous data, feedback, sentiment analysis, and continuous improvement. It's a win for our customers and their candidates and a key differentiator for First Advantage. On top of this, we are continuing to see solid momentum and interest in our digital identity products. Negative use of AI and other technologies are creating new risks for companies and organizations and are driving rapid evolution in the digital identity space. Knowing who you're hiring and confirming who they actually are is critical. Our digital identity solution is fully linked in the hiring lifecycle with some customers using it multiple times through the recruiting, screening, and onboarding process, which is creating a competitive advantage for first advantage. As an early market leader with digital identity solutions, we are able to deepen our strategic dialogue with customers, strengthening our relationships and stickiness of our products. We are highly focused on this attractive opportunity, which has a total addressable market of over $10 billion and an expected growth rate in the mid to high teens. Our digital identity products is continuing to build a strong pipeline as customers navigate the early adoption and pilot phase. Digital identity is a powerful competitive differentiator for first advantage and indicative of the direction in which our industry is growing. Overall, our customers continue to be excited about the benefits of our best of breed platforms, products, data, and AI enabled technologies. This is evident by our strong customer retention and consistent new logo and upsell cross-sell performance. With that, I will now turn the call over to Steven.