First Advantage Corporation

Good morning, everyone. My name is Beau, and I will be your conference operator today. I would like to welcome you to the First Advantage fourth quarter and full year 2025 earnings conference call and webcast. Hosting the call today from First Advantage is Ms. Stephanie Gorman, Vice President of Investor Relations. At this time, all participants have been placed in a 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. 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 any operator assistance, please press star 0. Please note today's event is being recorded. It is now my pleasure to turn the meeting over to Ms. Stephanie Gorman. Please go ahead, ma'am.

Thank you, Bill. Good morning, everyone, and welcome to First Advantage's fourth quarter and full year 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 2025 Form 10-K 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 website. To facilitate comparability, we will also discuss pro forma combined company results, consisting of first advantage and Sterling Checkport historical results and certain pro forma adjustments as if the acquisition of Sterling had occurred on January 1st, 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 Stephen 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. Today, we have five key messages. First, we delivered what we believe was our best quarter ever, with exceptional Q4 results capping off an impressive 2025. We exceeded our previously updated expectations on all guidance metrics with particularly notable adjusted diluted BPS growth of 67% in the fourth quarter. We continue to be a category leader supported by our go-to-market success with a robust 17% growth contribution from new logo and upsell cross-sell, resulting in 12% overall pro forma revenue growth in the quarter. When combined with our diverse vertical mix, consistently high customer retention, and focus on cost discipline, it is clear that we are driving outstanding results amid this dynamic macroeconomic environment. Second, we are pleased to share that we have completed our core integration activities for the Sterling acquisition, and we are seeing the strategic and financial benefits as promised. While we continue to action additional synergies, looking forward, we are turning the page from primarily an integration focus to one of innovation and are committed to accelerating our growth through our scaled, strengthened business. Which brings me to our third point. We are executing and, in fact, accelerating our FA 5.0 growth strategy. Through our best-of-breed product and platform approach, We are winning with our enhanced customer value proposition and expanded offerings and are poised to capture meaningful opportunities in growth areas such as digital identity, our differentiating co-selling relationships with Workday, ongoing new product releases, and international account expansions. Building upon our success in 2025, we are allocating additional resources in 2026 to further accelerate our go-to-market and product capabilities. We expect these actions will drive incremental organic revenue growth and sustainable long-term value creation. Fourth, today, we are announcing two strategic capital allocation actions, both of which are supported by the success of our business our strong cash flow generation, and our confidence in our continued growth. First, in February, we are voluntary prepaying $25 million of debt, maintaining our consistent trend and commitment to reducing net leverage. Second, we are announcing a new $100 million share repurchase authorization. Our strong position today gives us the ability to both pay down our debt and simultaneously buy back our shares, which we believe do not currently reflect the value of our business. And finally, we are introducing our full year 2026 guidance. We saw more stabilization across market conditions in the fourth quarter, and we are seeing our positive top-line momentum carrying into 2026. This strong performance is reflected in our bottom line earnings as well, with our two-year compound annual adjusted diluted EPS growth rate from 2024 to the 2026 guidance midpoint expected to be approximately 20%. While we are maintaining a modestly cautious outlook on base performance, Expecting it to remain slightly negative for the year, we are bullish on 2026 given our go-to-market and recent pipeline success. We remain confident in our positioning to create long-term shareholder value and deliver consistent progress toward our 2028 long-term targets. Turning to slide five and an updated view of first advantage at the end of 2025. We continue to be a category leader in our industry. Our customer value proposition offers differentiated technology platforms, proprietary data, and a broad collection of innovative solutions across a comprehensive and diversified range of verticals. In 2025, we delivered impressive full-year revenues, which grew from $1.57 billion with $441 million of adjusted EBITDA Our pro forma adjusted EBITDA growth of 11% with pro forma adjusted EBITDA margin expansion of 170 basis points and adjusted diluted EPS growth of 27% were enabled by the completion of the core integration activities for the Sterling acquisition, successfully delivering on our synergy plan and the execution of our FA 5.0 growth strategy. We completed over 200 million screens across more than 200 countries and territories on behalf of our 80,000 plus customers, with the average tenure of our top 100 customers increasing to 13 plus years. Our diverse customer base includes approximately two-thirds of Fortune 100 companies and more than one-half of Fortune 500 companies. Our gross retention remains high at approximately 96% for the year, having risen to 97% in the second half of the year. We have over 100 integrations with applicant tracking systems and human capital management partners, including our market-differentiating global co-selling relationship with Workday, giving us a unique competitive advantage in several of our key verticals. And speaking of competitive differentiation, this year we crossed the milestone of accumulating over 1 billion records in our two proprietary databases, a 10% plus increase year over year, providing our customers with a more comprehensive, powerful data foundation that enables the speed and efficiency we are known for. Our national criminal record file database now contains well over 900 million U.S. criminal history records, and our verified database contains approximately 135 million work history and education records. Our verticalized go-to-market approach remains a differentiator and a key driver of our growth strategy. We offer deep subject matter expertise in our industry segments, and we use industry-specific data to advise our customers on topics such as leading practices and product optimization. Our enterprise customers, diverse vertical mix, global reach, mix of hourly and salary-focused customers, and diligent focus on controlling the controllable make our business resilient and able to perform well through macroeconomic cycles. On this slide, we have provided an updated view of our vertical mix for 2025. We continue to feel confident in our strategic focus on healthcare, transportation, and retail and e-commerce, which represent our three largest verticals, all with near and long-term growth levers. We believe that each offers substantial runway for new upsell and cross-sell expansion supported by favorable underlying market trends. Now, turning to slide six and a closer look at our outstanding performance in the fourth quarter. We generated meaningful revenue, adjusted EBITDA, adjusted EBITDA margin, and adjusted diluted EPS growth, with results exceeding our updated expectations. Impressively, in Q4, our combined upsell, cross-sell, and new logo growth rate was 17%, significantly outperforming our long-term growth algorithm target. This was enabled by our robust go-to-market momentum, including material contribution for a number of key 2025 wins, and gives us momentum for stable yet elevated 2026 growth. Retention remained high at 97%. Base revenue performance again improved sequentially, remaining just below neutral and spot on with our expectations. Our go-to-market teams continue to deliver as further demonstrated by our 17 enterprise bookings in the fourth quarter, which brings us to a robust 66 for 2025. Each deal with $500,000 or more of expected annual contract value. These wins are some of the many reasons we have confidence in our ability to continue generating new logo, and upsell-cross-sell revenue and help support our outlook for expected strong growth in 2026. Additionally, we are encouraged by the continued strength and increase in our late-stage pipeline, measuring at near record highs, including a meaningful volume that are incorporating our digital identity product. Looking at our verticals in the fourth quarter, Our balanced and resilient vertical strategy supported our standout performance despite how headline economic data portrayed the higher environment. We saw strength in retail and e-commerce driven by new, upsell, and cross-sell along with a stable base. With the seasonal peak hiring duration and volumes improving compared to last year and more in line with historical trends, Healthcare showed nice year-over-year growth, driven by new logos, upsell, and cross-sell, despite notable base weakness in certain healthcare-related sub-verticals. Transportation and logistics saw growth in Q4, driven by positive base demand with strong traction during the peak season. General staffing, manufacturing and industrials, and technology also showed positive year-over-year growth in Q4. partially powered by the success in our new logo and upsell cross-sell programs. Business and professional services, gig economy, and financial services verticals experienced some pressure in the fourth quarter, but did not meaningfully inhibit our overall fourth quarter performance. January and initial February order volumes reflect trends generally consistent with what we saw in Q4. Our international business for Q4 continued to sustain strong year-over-year revenue growth in all regions, giving us confidence in our prospects for further international expansion. Although macro uncertainty persists in the fourth quarter, we saw many of our customers shifting to a more encouraging tone, and we are seeing this continue into 2026, regardless of deadlines you may be reading. we continue to remain 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 future growth opportunities. Additionally, we recently completed our annual trends report based on insights from thousands of enterprise-focused HR leaders and job seekers worldwide. The report will be published in the coming weeks. The data highlights strong demand for expanded screening services, risk mitigation as the number one new top priority, and rising identity-related challenges as the biggest trend. These trends reinforce our growth expectations and position as an identity provider. Now turning to slide seven and a summary of our key accomplishments in 2025 and focus areas for 2026. Our 2025 organizational performance exceeded our expectations. We closed on the transformational acquisition of Sterling in October 2024, and we are incredibly pleased with the results, particularly in regard to customer retention, which has actually improved over the past two quarters. Synergy capture and realization, cultural alignment, and our best of breed approach to technology and products, which has really resonated with our customers. In 2025, we executed and completed the core elements of our integration process while delivering a seamless customer experience throughout. As evidenced by our high retention levels of 96% to 97% during the year, the favorable feedback we received from customers. We also significantly advanced our synergy realization efforts, reaching $55 million in run rate synergies actions and made progress on deleveraging our balance sheet. We had a number of impressive new logo wins in 2025, providing us momentum as we exited the year and substantial revenues already booked as we entered 2026. One win in particular has the potential to be a top five customer and has already been driving significant growth. Adding to our success, we are seeing a very nice trend of winning back from customers who tried the competition and decided to return. due to our outstanding platform, proprietary data, speed, and service quality. As we have discussed before, we continue to take a proactive and strategic approach to AI. To be clear, we see AI as an enabler of our strategy, not a disruptor of our business model. We are executing from a foundation of longstanding technology leadership and deep tech experience across our management team. We have been building and deploying AI data and machine learning solutions since 2021, including Gen AI rollout since 2024. Some of these solutions are behind the scenes, helping us operate more efficiently, and some are customer-facing, such as our agentic AI and chatbots. We are also accelerating adoption of AI-powered development tools across the organization with hundreds of engineers leveraging AI capabilities to optimize our platform faster than we have ever been able to do. With our progress, scale, and strategy, we believe we are well-positioned in our industry to be a winner with regards to where we have deployed AI solutions across our products, technology, and operations, including the following. AI is fully embedded in our next-gen profile advantage applicant portal, increasing efficiency, improving the user experience, and reducing call center contact rates by approximately 50%. AI is also an essential element of our smart hub AI intelligent router, which is now available for all U.S. customers for use within the verification process, as well as our digital identity solutions supporting our competitive advantage. We also began deploying AI-enabled capabilities in our criminal records processing workflows to help streamline operational steps, manage volumes, and identify items for additional review, while maintaining a human-in-the-loop process for all record matching, authentication, and reportability determinations. Internally, we have also leveraged AI to enhance the productivity of our engineering staff, automate tasks, enhance our product capabilities, and help our go-to-market teams with customer acquisition activities. AI governance is also critical in our industry as we operate in a highly regulated, high-stakes environment where accuracy, auditability, and compliance are non-negotiable. Our customers rely on our solutions to make informed employment decisions that carry legal, regulatory, and human consequences. Trust is foundational to our brand. Our screens and verifications must be explainable, auditable, and compliant across jurisdictions and geographies and seamlessly integrated into customers' HCM and ATS workflows. What we offer is not simply a software problem or a data search exercise. What we offer requires deep domain expertise, regulatory infrastructure, and a consultative service model that is tailored to the specific regulatory and operational needs of the industries we serve. It also requires knowledge about the complexities of compliance with federal, state, and regional laws, like the FCRA in the U.S. and GDPR in Europe, along with many subject matter-specific regulations like DOT and BIPA, which makes operational scale well beyond software and data all that more important. We operate in a fragmented global landscape that often extends beyond the digital world. The data we use is not simply consumed off the Internet. Our platform is supported by thousands of direct relationships for criminal records access, both digitally and many jurisdictions physically. a proprietary third-party network of over 20,000 brick-and-mortar locations for drug testing and health screening, and a proprietary network of over 1,000 in-person physical fingerprinting collection kiosks that enable a number of our solutions. The combination of proprietary data assets with more than a billion proprietary records, large-scale proprietary physical fulfillment networks, long-standing compliance capabilities, consultative expertise, and deep system integration is difficult to replicate and positions us to continue to responsibly deploy AI, enhance efficiency, and create durable long-term shareholder value in a rapidly evolving technology landscape. Looking at 2026, we have multiple other initiatives in flight focusing on scaling in ways that continue to improve speed, consistency, and efficiency. Our focus is on redesigning key workflows with AI at the center. This includes expanding our use of AI agents, enhancing document classification and extraction capabilities, and applying AI-enabled automation in verification and fulfillment processes. all while maintaining disciplined governance to support and ensure responsible and compliant use of AI. We believe our focused, innovative approach to leveraging AI positions first advantage to create long-term value. Also in 2025 and into 2026, we continue to see strong and growing customer interest in our market differentiating digital identity products, which enable our customers to address the increasing concerns of identity fraud. Customers are seeing the benefits of our cohesive offering, and it is helping us win in the market, creating opportunities that were not there before. Digital identity is a key selling point for customers despite being a small component of overall contract value. In several recent large wins, we actually started with digital identity as the focus of an RFP. Then we were able to significantly expand our scope when our customers recognized the benefits of our integrated solution, driving pipeline momentum, During 2025, a number of Fortune 500 companies went live with our digital identity product, and we expect to see this momentum continue. We are building on the early successes of these products, and we expect penetration to accelerate meaningfully in 2026 as customers increasingly recognize the need for the benefits of our highly sophisticated, fully integrated solutions. As we progress in 2026, we are well positioned to maximize the benefits of our strength in business to continue to win in the market, drive synergy realization, and further accelerate our performance. Building upon the great success we have seen to date with our FA 5.0 growth strategy, in 2026, we are enhancing our product, sales, and marketing capabilities to continue to deliver meaningful, sustained value for our customers and stakeholders. These efforts include further leveraging AI across our product portfolio, increasing our identity fraud-related product penetration, creating brand-new products, and expanding our international business. We will keep you updated on our progress in the coming quarters. With that, I will now turn the call over to Stephen.