Executive Summary

Q1 2024 revenue was $169.4M and GAAP diluted EPS was $(0.02), with Adjusted EBITDA of $46.6M (27.5% margin) and Adjusted diluted EPS of $0.17; GAAP loss reflects ~$11.1M transaction costs tied to the pending Sterling acquisition .
Americas revenue decline was modest (down ~2% YoY), International remained a headwind (down ~11% YoY), but management cited stabilization in India/APAC and overall macro stabilization; customer retention remained ~97% .
Full-year 2024 guidance was reaffirmed: Revenue $750–$800M, Adjusted EBITDA $228–$248M, Adjusted Net Income $127–$142M, Adjusted EPS $0.88–$0.98; CFO reiterated expectation for ~31% Adjusted EBITDA margin at the midpoint and sequential improvement through the year .
Strategic catalysts: continued AI-enabled product rollouts (RightID, Profile Advantage, SmartHub) and progress toward closing Sterling (expected ~Q3 2024), with targeted ≥$50M run-rate synergies within 18–24 months post-close and deleveraging to ~3x within ~24 months .

What Went Well and What Went Wrong

What Went Well
- Resilient performance vs internal expectations; CEO: “delivered first quarter financial results at-or-above what we communicated” and reaffirmed FY24 guidance .
- Commercial execution: upsell/cross-sell ($7.7M; 4.4%), new logos ($8.9M; 5.1%), and ~97% retention underpin the revenue algorithm despite base pressure .
- Product and AI momentum: launched next-gen RightID in the U.S.; ongoing AI-enabled Profile Advantage and SmartHub verifications routing, with pilots showing quality and efficiency gains; “AI at work” private tool deployed across functions .
What Went Wrong
- Top-line softness: Q1 revenue down 3.5% YoY; International revenue down 11% YoY; consolidated base declined by $19.6M (11%) .
- Profitability compressed vs Q4 seasonality: Adjusted EBITDA margin 27.5% (typically the lowest quarter), Net (loss) income margin −1.7% due to $11.1M Sterling costs .
- Macro caution persists across select verticals (e.g., financial services) and International remains below prior-year levels despite signs of stabilization .

Financial Results

Metric	Q1 2023	Q4 2023	Q1 2024
Revenue ($USD Millions)	$175.5	$202.6	$169.4
GAAP Diluted EPS ($)	$0.01	$0.10	$(0.02)
Adjusted Diluted EPS ($)	$0.19	$0.29	$0.17
Adjusted EBITDA ($USD Millions)	$48.6	$68.2	$46.6
Adjusted EBITDA Margin (%)	27.7%	33.7%	27.5%
Net (Loss) Income Margin (%)	1.1%	7.3%	−1.7%

Segment Revenue

Segment	Q4 2023 ($USD Millions)	Q1 2024 ($USD Millions)
Americas	$182.290	$149.127
International	$22.065	$22.023
Eliminations	$(1.793)	$(1.734)
Total	$202.562	$169.416

Note: In Q1 2024, Americas represented ~87% of consolidated revenue and International ~13% .

KPIs (Q1 2024)

KPI	Value
Customer Retention	~97%
Upsell/Cross-sell Contribution	$7.7M (4.4%)
New Logos Contribution	$8.9M (5.1%)
Base YoY Change	−$19.6M (−11%)
Adjusted Effective Tax Rate	24.4%
Cash from Operations	$38.3M
Capex + Capitalized Software	$6.5M (incl. $6.1M capitalized software)
Cash & Equivalents	$245.4M
Total Debt	$564.7M

Consensus vs Actuals

Metric	Consensus	Actual Q1 2024
Revenue ($USD Millions)	N/A*	$169.4
GAAP Diluted EPS ($)	N/A*	$(0.02)
Adjusted Diluted EPS ($)	N/A*	$0.17

*Estimates unavailable via S&P Global due to request limits at this time. Values would ordinarily be retrieved from S&P Global.

Guidance Changes

Metric	Period	Previous Guidance (Feb 29, 2024)	Current Guidance (May 9, 2024)	Change
Revenue	FY 2024	$750M – $800M	$750M – $800M	Maintained
Adjusted EBITDA	FY 2024	$228M – $248M	$228M – $248M	Maintained
Adjusted Net Income	FY 2024	$127M – $142M	$127M – $142M	Maintained
Adjusted Diluted EPS	FY 2024	$0.88 – $0.98	$0.88 – $0.98	Maintained

Management expects sequential quarter-over-quarter improvements, ~30% Adjusted EBITDA margin in Q2, ~31% for FY at midpoint, and base growth turning positive in Q4 .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3’23 and Q4’23)	Current Period (Q1’24)	Trend
AI/Technology Initiatives	Infinite ID acquisition to deepen digital identity; cost discipline with automation; record Adjusted EBITDA margin in Q4’23 .	Launch of next-gen RightID (U.S.), AI-enabled Profile Advantage, SmartHub; “AI at work” private tool; pilots showing quality and efficiency gains .	Accelerating productization and operational adoption.
Macro/Labor Market	Navigating uncertain macro; 2023 results expected at low end of guidance .	Macro stabilizing; 5 verticals up (transportation, healthcare, industrials, staffing, hospitality); financials and others still down but less so; April tracking as planned .	Gradual stabilization; mix-dependent recovery.
International Trends	Ongoing international pressure in 2023 .	International down 11% YoY but improving; India/APAC stabilizing, EMEA resilient .	Improving from prior trough.
Sterling Acquisition	Announced in Q4’23; ≥$50M synergies; double-digit EPS accretion on run-rate .	Integration planning underway; close expected ~Q3’24; ≥$50M run-rate synergies in 18–24 months, half in first 12 months; deleverage to ~3x in ~24 months .	On track; synergy confidence reiterated.
Capital Allocation/Leverage	Special dividend in 2023; buybacks extended; healthy balance sheet .	Building cash ahead of Sterling; ~$2.15B gross debt at close; net leverage 4.2–4.4x, path to ~3x in ~24 months .	Temporary leverage increase, planned deleveraging.

Management Commentary

CEO: “We delivered first quarter financial results at-or-above what we communicated... upsell, cross-sell, new logos, and retention rates continued to perform in line with our historical revenue growth algorithm” .
CEO on AI: “We continue to make significant progress... leverage generative AI and machine learning... announced the next generation of our proprietary RightID identity fraud solution in the U.S.” .
CFO: “GAAP net loss was $2.9 million and is after $11.1 million in Sterling acquisition-related costs... Adjusted diluted EPS was $0.17” .
CEO on Sterling: “We remain confident in achieving at least $50 million in run rate synergies within 18 to 24 months post closing...” .
CFO on FY’24 phasing: “We expect sequential top line improvement... base remaining negative in Q2... turning positive in Q4... Adjusted EBITDA margins ~30% in Q2, with further improvement in the second half” .

Q&A Highlights

Macro visibility: Hiring environment is “exactly where we thought it would be” with cautious customers; April trends in line with plan .
Sterling integration and synergies: ≥$50M run-rate synergies targeted from corporate overhead removal, back-office consolidation, tech/fulfillment integration, procurement benefits; timeline depends on access post-close .
International recovery: India/APAC stabilizing; International declines moderating vs prior quarters .
AI and efficiency: Near-term investments within budget; longer-term gains expected in quality/efficiency and potential headcount reductions in certain areas; business-case approach for each project .
Customer reception: FA customers largely view Sterling deal as a nonevent operationally; potential for enhanced product suite and cross-sell .

Estimates Context

S&P Global consensus EPS and revenue estimates for Q1 2024 were unavailable due to request limits today; no beat/miss determination can be provided at this time. We will update when access is restored.
Reaffirmed FY’24 guidance and call commentary on sequential improvement suggest potential intra-year model adjustments: base trend improving into H2 and margins rising from ~30% in Q2 to ~31% for the year at midpoint .

Key Takeaways for Investors

Q1 printed in line with internal expectations but below prior year, with GAAP loss driven by $11.1M Sterling-related costs; Adjusted EPS $0.17 and Adjusted EBITDA margin 27.5% reflect typical seasonal trough .
Commercial engine healthy (retention ~97%, upsell/cross-sell and new logos contributions); macro sensitivity remains concentrated in base volumes and certain verticals .
FY’24 guidance maintained across all metrics; phasing implies sequential improvements and base turning positive in Q4, supporting margin expansion trajectory into H2 .
Strategic upside from Sterling: ≥$50M run-rate synergies, double-digit EPS accretion on run-rate, and deleveraging to ~3x within ~24 months; near-term leverage step-up is a watch item .
AI productization is a differentiator (RightID, Profile Advantage, SmartHub) with early signs of operational efficiency and quality gains; potential to reduce third-party pass-through fees and improve turnaround times .
Trading implications: Near-term catalysts include regulatory progress on Sterling closing, Q2 margin stabilization around ~30%, and signs of base improvement; H2 setup hinges on macro stability and execution on AI and sales motions .
Risk checks: International recovery durability, vertical mix exposure (financial services), and integration execution pace post-close are key sensitivities to monitor .

FIRST ADVANTAGE CORP (FA)·Q1 2024 Earnings Summary