Daniel Maxwell

Daniel Maxwell asked about First Advantage's thinking on the ROI from its capital allocation priorities, specifically whether there's a willingness to sacrifice free cash flow for share repurchases over deleveraging, or if both are mutually exclusive. He also inquired about any surprises in the quarterly results, particularly regarding base growth or strong sales momentum in specific areas.

Answer

Steven Marks, Chief Financial Officer, clarified that the capital allocation strategy is "an and equation, not an or," emphasizing the company's strong free cash flow generation ($160M-$190M guide, $240M cash, $70M net cash flow in 2025) allows for both voluntary debt repayment ($25M this quarter) and opportunistic share repurchases ($100M authorization). He noted that buybacks are accretive at current valuation levels and not at the sacrifice of debt prepayment. Scott Staples, Chief Executive Officer, expressed pleasant surprise that Q4 resembled a normal peak season, unlike the previous two sluggish years, which was positive for retail, e-commerce, and transportation. He reported no significant negative or positive surprises across any verticals or geographies, with international business performing strongly across all regions.

Daniel Maxwell, on behalf of Andrew Nicholas, asked about the ROI from capital allocation priorities (debt repayment vs. share repurchases) and if there's a willingness to sacrifice free cash flow for repurchases. He also inquired about any surprises in Q4 results, particularly regarding base growth or vertical momentum.

Answer

Steven Marks, CFO, stated that the company's strong free cash flow and balance sheet allow for both debt repayment and opportunistic share repurchases, describing it as an 'and' equation. Scott Staples, CEO, noted that the Q4 peak season resembling normal trends was a pleasant surprise, with no significant negative or positive surprises across verticals or international regions.

Daniel Maxwell of William Blair & Company, L.L.C. inquired about shifts in client behavior due to tariffs, particularly regarding China, and asked for an update on lab capacity and future investment priorities.

Answer

President & CEO Jennifer Scanlon noted that uncertainty in 2025 led to some demand pull-forward but expects normalization as clarity increases. She also highlighted recent lab expansions in Europe, Mexico, Korea, and Japan, emphasizing a disciplined, growth-oriented approach to capital investment where customer demand is strong.

Daniel Maxwell inquired about the client preference between ASO and PEO models, the reasons for the lower Q4 PEO guidance, and whether the softness in client hiring was concentrated in specific areas.

Answer

Executive Robert Schrader confirmed the lower guidance is primarily due to challenges with the at-risk medical plan in Florida, which has no impact on earnings. CEO John Gibson elaborated that while overall PEO performance is strong, a reduction in participation in the high-value Florida plan, smaller deal sizes, and a trade-down to lower-cost plans created a revenue headwind. Gibson also noted that the hiring softness was broad-based but was impacted by events like the California fires and lower bonus check volume.