First Advantage Corporation Common Stock 2026 Q2 Earnings Call

Good morning, everyone. Welcome to First Advantage's Second Quarter 2026 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 2025 Form 10-K and our Form 10-Q for the second quarter of 2026 to be filed with the SEC.

Such factors may be updated from time to time in our periodic filings with the SEC. 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. I am joined on our call today by Scott Staples, our Chief Executive Officer, Joel Smith, our President, 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. Today, we have four key messages. First, we delivered outstanding results in the second quarter with revenue growth of 15% year-over-year, Adjusted EBITDA margins of 28.6%, and Adjusted Diluted EPS growth of 30% year-over-year, meaningfully outperforming our previously communicated expectations. These results reflect the strength of our go-to-market performance, our state-of-the-art AI-driven proprietary technology platform, and the durability of our diverse enterprise customer base and vertical mix. Second, we are making strong progress on our FA 5.0 growth strategy. Our focus on product innovation, platform capabilities, and go-to-market execution is translating into tangible results, including robust enterprise bookings, strong upsell and cross-sell activity, and continued customer adoption of our innovative products, such as Digital Identity.

As we expand the value we deliver to customers and further strengthen our capabilities, we believe we are well-positioned to drive sustainable growth over the long term. Third, our strong cash flow generation continues to provide flexibility to execute our balanced and disciplined capital allocation strategy. We are constantly evaluating opportunities to create shareholder value and remain focused on deploying capital where it can have the greatest impact. Deleveraging remains a top priority. In the second quarter, we made a previously announced $25 million voluntary debt prepayment, followed by an additional upsized $45 million voluntary prepayment this week, subsequent to quarter end. This brings our cumulative debt repayments since closing the Sterling acquisition to more than $165 million. We also continued to repurchase shares opportunistically, buying back nearly $19 million during the quarter, with total repurchases through July 31st of $38 million, or approximately 1.9% of total shares outstanding.

Finally, we are raising our full year 2026 guidance across all metrics to reflect our strong first-half performance, continuing go-to-market success, current labor market trends, and our confidence in our growth outlook for the remainder of the year. Now, turning to slide five. We delivered exceptional results in the second quarter with strong performance across revenue growth, Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Diluted Earnings per share. Our results in the quarter benefited from sustained momentum driven by our recent large contract wins and continued improvement in base revenue performance, reflecting our focus on controlling what we could control and executing consistently across our growth algorithm. At the same time, we are beginning to see encouraging signs of gradual improvement in the broader hiring market, which provided additional support to our results during the quarter.

We believe the strengths of our business, including our enterprise customer focus, diverse vertical mix, global footprint, and balance across blue-collar and white-collar hiring with a strong go-to-market focus on high-volume enterprise hirers, continue to provide stability and reinforce our confidence in delivering durable growth across a variety of macro environments. One of First Advantage's key differentiators is our position as a global HR tech and data platform company, which is purposely built to help customers navigate the increasingly complex dynamics of human capital risk. Our team of data scientists and engineers are focused on transforming our products through the application of cutting-edge technologies, including AI. Equally important, our customers trust us because of our deep domain expertise across verticals and a wide range of regulatory frameworks, including the Fair Credit Reporting Act, or FCRA.

In a rapidly evolving environment, this combination of AI-driven innovation and regulatory risk management and compliance leadership is what enables First Advantage to deliver high quality, highly automated, and high volume screening globally at scale. Building on that point, we have spoken extensively about our strategy of applying AI to help our customers manage risk while preserving the speed, efficiency, and user experience they expect. At the same time, we are also benefiting from AI across our own operations, leveraging our years of investment in automation, machine learning, and AI. We have embedded these capabilities throughout our platform and proprietary data assets. Doing so has enabled us to strengthen our solutions, such as Smart Hub AI and digital identity fraud mitigation products, improve operational efficiency, and support more scalable growth.

A recent example is our shift from using third-party AI for the chat feature within our Click.Chat.Call customer care platform to a proprietary native AI chat experience that has been purposely built on our own infrastructure, trained by our own data, and tailored to our needs. This transition, enabled by the depth and expertise of our engineering teams, creates a smoother handoff between AI and live agents, reduces our reliance on external platforms, and allows us to deliver a better experience at a lower total cost. Across our operations, customer care, fulfillment, product development, and engineering teams, AI is helping us enhance the customer experience, increase productivity, and drive operating leverage while further strengthening our competitive differentiation. Before turning the call over to Joel, I would like to highlight a few recent First Advantage recognitions and milestones.

First, in June, we celebrated the fifth anniversary of First Advantage's initial public offering. I'm extremely proud of what we have accomplished as a public company on behalf of our stakeholders. We have delivered growth and profitability, successfully executed and integrated the transformational Sterling acquisition, innovated and led with best-in-class solutions, launched our FA 5.0 strategy, and established long-term financial targets while making meaningful progress towards them. Second, we were added to the S&P SmallCap 600 Index on June 16th, a milestone that reflects our expanded scale, strong financial performance, and established track record as a public company. Third, we were ranked among TIME's Best Companies 2026 as the number one background screening and identity verification company. We also placed in the top 25 nationwide in the professional services category and in the top three professional services companies ranked by financial performance.

These recognitions reflect the excellence of our team as we continue competing and winning in our industry. With that, I will now turn the call over to Joel, who will share more on our go-to-market execution, vertical performance, product innovation, and customer engagement.

Thank you, Scott. Good morning, everyone. This morning, I will provide an update on our go-to-market performance and the underlying dynamics behind our strong results this quarter. I'll start with the drivers of our robust 15% year-over-year Q2 revenue growth, which well exceeded our previously stated expectations and long-term growth algorithm target of 7% to 9%. Combined upsell, cross-sell, and new logo revenues continue to deliver robust growth, achieving 12.5% growth in the quarter. Performance was driven by the continued growth from the three large go lives from the end of 2025 that we have discussed on previous calls, as well as the contribution from the many other enterprise deals we've won in Q4. Overall, our sales engine continues to hum. Base growth for the quarter came in exceptionally strong at 6.7%. We believe this reflects the breadth and scale of our business model.

Underlying base trends continue to improve. Notably, we supported meaningfully higher than expected volumes from several customer initiatives during the quarter, which contributed roughly half of the quarter's base growth. It's an excellent example of how our scale and AI-enabled platform enable us to absorb and deliver periodic volume surges from time to time across multiple industry verticals while maintaining top speed and service. Even without this benefit, our overall base growth this quarter was particularly strong, at the high end to above our long-term growth algorithm target range. Switching gears to our continued go-to-market success. Our sales teams delivered an impressive 20 enterprise bookings in Q2. This is up from 17 in Q1, with each deal having an expected annual contract value of at least $500,000.