First Advantage Corporation Common Stock Barclays 24th Annual Global Financial Services Conference

Good afternoon, everyone, and thank you for being with us today at our 24th Annual Global Financial Services Conference. I am Ronan Kennedy from Barclays U.S. Business Info and Professional Services Equity Research team. We are very pleased to have First Advantage's CFO, Steven Marks, on stage. In addition to SVP of Strategic Finance, John Damian, and IR head, Stephanie Gorman, joining us in our investor meetings. We are thrilled to have FA back at our GFSC after just having had them at our credit, data, and analytics day last week. But in case anybody is ramping on the name or did not have an opportunity to catch that, some quick background, pun intended. FA is the world's largest background screening company, performing over 200 million annual screens in over 200 countries and territories for over 80,000 customers.

This is through differentiated and industry-leading innovative tech products and leveraging 1 billion proprietary data points. Although it is absolutely still core to the business and a substantial majority of the business, we would be remiss in just calling them a background screener as it does so much more, including Digital Identity Services, credential verification, and continuous risk monitoring. Steven, if I may, that is where I would like to start. Obviously, we will dive into the growth of financial algo, operational financial trends and drivers. But if you can kind of, as we did last week, start off just providing an overview of the FA 5.0, and then very much in line with that and tied to that is your evolution as a company, right? And the execution from being basically a BPO company to a tech-enabled services company to a global data company today.

I will turn it over to you as a starting point there.

Yeah. Thanks, Ronan. Thanks for having us back. I know we must have done something right last week to have do it again. A lot there. We will kind of break it down. You are absolutely right. FA 5.0, which is kind of our latest strategy, we rolled that out at our investor day last year. To your point, it really continues an evolution that First Advantage has been helping lead the industry on from what was really seen 10, 20 years ago as just a pure BPO process outsourcer. I am trying to get information, go get the information, process the information, report it. I have a very legacy view.

When I joined First Advantage over a decade ago, we were just starting kind of the automation journey of converting from a manual process-run business to something that has robotic process automation and kind of AI 1.0, if you will. Very, very basic and rudimentary automation, that was very great first step. That allowed us to take a lot of those very manual labor-driven back-end resources and make it a little bit more tech forward. Obviously, with the advancements in things like machine learning and starting to build out some of the proprietary data that you were just talking about, we really started that evolution, again, roughly a decade ago, to really transforming it to a tech-enabled service and really have it being data-driven.

The latest in enhancements and really what FA 5.0 is all about is really revolutionizing and evolving the products to be more technology forward. So going from just pure background screening and drug testing, and to your earlier point, transitioning to more of the services to Digital Identity Services and some of the other peripheral services, right to work. We call that realm of services Know your people™ to where you're not just validating a background check, but you're really validating an individual, who they are, what they say they've done. Are they valid to work at your organization? Then being able to extend that into ongoing services like monitoring and rescreening, persistent identity. Is that the same worker who is continuing to work for you?

Because what's really happened is not just are we evolving the industry by technology advancements, a lot of those same items that we're leveraging for technology advancements, bad actors are leveraging for making their lives easier and infiltrating a company where they wouldn't otherwise be allowed to be in, doing things to that company that they don't want to be done. So being able to evolve the products to be able to keep up with, whether it's criminals faking identities to get access to companies, whether it's people using synthetic identities to get jobs they wouldn't otherwise be qualified for or right to work for. So being able to keep up with that evolution and then kind of set that industry leadership standpoint from the products that we're offering to be able to fulfill the full life cycle of risks that our customers are facing.

Because one of the biggest downsides of all of this is it's a riskier world than it ever was before. It's making sure that we've got the products and solutions to keep up with those risks and be industry-leading there to support our customers. That's what's driving a lot of that FA 5.0 mentality that obviously is resonating really well because we're seeing uptick in upsell and cross-sell and new logo and retention that comes along with having differentiated products that your customers need.

Excellent. All very helpful. Obviously a key element of that FA 5.0 strategy was the transformational acquisition of Sterling, and so far to date, a very successful integration. Can you just talk about that, the strategic rationale, the integration process to date, and the benefits you're seeing?

Yeah. So that acquisition was several years in the making. I think back then it probably even goes back to FA 4.0 even to an extent, just given how long we were working on it. It's crazy to think that it's been almost two years since we acquired them. The strategic rationale was, look, we had always kind of looked at the market. We had done some smaller deals that were also very individually good deals, accretive deals, but not needle movers, right? Not big enough to really change the dynamics. We had always, at First Advantage, looked at Sterling as our closest peer, our best-performing peer. We were very similarly structured, both verticalized in our go-to market, both very focused on their user experiences and product. Also the only two background screeners that were talking about Digital Identity at the time.

Correct. Still really are the market leaders there.

So anytime you can go out there and buy a large competitor at a reasonable valuation and someone that mirrors a lot of what you can do makes it, from a strategic rationale, an easy thing to rationalize. I think the other big thing that we had to be able to justify internally was how were we going to integrate that business. Anyone who's followed background screening for a while knows that the Achilles heel for large M&A is when you force migrate customers, you bring the platforms together, you force a customer and their integrations and their workflows off of what they've been used to onto something else, you're giving them an excuse to leave.

We've seen that in some of our own history and some of our competitors' histories, that your retention rates plummet when you go and do something like that. So part of our diligence was making sure that we could come up with an integration strategy that did not require for us to force migrate any of those customers. To date, we have not. We've come up with other ways to bring the platforms closer together to harmonize things on the back end, leave those front-end integrations and workflows the way they should be. What we've seen happen after the acquisition is the 95%, 96% retention rates that Sterling and First Advantage had leading up to the acquisition are now 96% and 97% consolidated. So we've actually seen retention stabilize, if not improve after the acquisition. So we feel really good about that.

From a CFO seat, you obviously want to make sure you get the right synergies to justify the purchase, and we are well along the way there. Originally thought we would get at least $50 million of synergies, have raised that. Our final target now is $65 million to $80 million. We are already at $63 million action through Q2. We will keep progressing that number forward a little bit as we get towards the end of the year, and we will see all that final value realization in 2027. So, essentially being able to buy a very similar but stronger peer, being able to do that in an integration approach that preserves your customer relationships, and then obviously the financial benefits of the synergies. Now that is on the aftermath for 24 months later.