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FIRST ADVANTAGE CORP (FA)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 revenue was $199.1M (-0.6% y/y) with Adjusted EBITDA of $64.0M and 32.2% margin; GAAP net loss of $(8.9)M reflected $13.2M of Sterling acquisition-related expenses, while adjusted diluted EPS was $0.26 .
  • Stand-alone FY2024 guidance was maintained (Revenue $750–$800M; Adj. EBITDA $228–$248M; Adj. diluted EPS $0.88–$0.98), and new FY2024 combined-company guidance including Sterling (Nov–Dec) was introduced (Revenue $858–$918M; Adj. EBITDA $250–$274M; Adj. diluted EPS $0.83–$0.95) .
  • Acquisition of Sterling closed on Oct 31 (enterprise value ~$2.2B); management has already actioned >$10M of run-rate cost synergies with line of sight to $50–$70M within two years; deleveraging to ~3x within ~24 months remains the target .
  • Q3 cash from operations was $43.5M (would have been $45.3M excluding $1.8M of Sterling cash costs), and the company highlighted sequential improvement in revenue and margins with Q4 stand-alone expected to grow again q/q; base hiring volumes remained softer than expected but stabilizing .

What Went Well and What Went Wrong

What Went Well

  • Early synergy capture: “We have already actioned over $10 million in run rate cost synergies, with line of sight to actioning $50–$70 million within 2 years post-close.” (CEO) .
  • Margin resilience and sequential improvement: Adjusted EBITDA margin was 32.2% in Q3 (up from 30.2% in Q2 and 27.5% in Q1), with management reiterating sequential q/q growth into Q4 .
  • Sales engine consistency and bookings: 16 enterprise bookings (≥$500K ACV) in Q3; 53 in the last 12 months; upsell/cross-sell/new logo rates performing in line with the historical growth algorithm (CEO) .

What Went Wrong

  • GAAP loss on higher non-recurring costs: Net loss $(8.9)M with net loss margin (4.4)%, driven by $13.2M of Sterling transaction costs and higher y/y interest expense ($17.2M vs. $7.6M) .
  • Base demand modest: Management cited base revenue coming in lower than anticipated; macro hiring remains “stabilizing/normalizing” vs. robust, and stand-alone FY2024 is now seen above the low end but below the midpoint of prior guidance .
  • 2025 accretion cadence: EPS accretion expected to be more neutral in 2025 due to timing of synergy realization versus immediate interest expense and dilution; accretion ramps as synergies are achieved (Mgmt in Q&A) .

Financial Results

Consolidated P&L and EPS (oldest → newest)

MetricQ1 2024Q2 2024Q3 2024
Revenue ($M)$169.4 $184.5 $199.1
Net (Loss) Income ($M)$(2.9) $1.9 $(8.9)
Net (Loss) Income Margin (%)(1.7)% 1.0% (4.4)%
Adjusted EBITDA ($M)$46.6 $55.8 $64.0
Adjusted EBITDA Margin (%)27.5% 30.2% 32.2%
GAAP Diluted EPS ($)$(0.02) $0.01 $(0.06)
Adjusted Diluted EPS ($)$0.17 $0.21 $0.26
Cash from Operations ($M)$38.3 $32.0 $43.5

Geography/Segment Revenue (oldest → newest)

Segment ($M)Q1 2024Q2 2024Q3 2024
Americas$149.127 $162.378 $174.905
International$22.023 $24.187 $26.624
Eliminations$(1.734) $(2.019) $(2.410)
Total Revenue$169.416 $184.546 $199.119

Selected KPIs (oldest → newest)

KPIQ1 2024Q2 2024Q3 2024
Cash from Ops (Adj. for Sterling cash costs) ($M)N/A$40.7 $45.3
Enterprise bookings ≥$500K (count)N/A15 16
LTM Enterprise bookings ≥$500K (count)N/A47 53
Retention (qualitative)~97% retention emphasized Consistent with historical Robust retention; combined avg >96% (CEO)

Notes: Q3 GAAP net loss includes $13.2M Sterling-related transaction costs . Q3 CFO would have been $45.3M adjusting for $1.8M Sterling acquisition cash costs .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue (Stand-alone)FY 2024$750M–$800M (Aug 8) $750M–$800M (Nov 12) Maintained
Adjusted EBITDA (Stand-alone)FY 2024$228M–$248M (Aug 8) $228M–$248M (Nov 12) Maintained
Adjusted Net Income (Stand-alone)FY 2024$127M–$142M (Aug 8) $127M–$142M (Nov 12) Maintained
Adjusted Diluted EPS (Stand-alone)FY 2024$0.88–$0.98 (Aug 8) $0.88–$0.98 (Nov 12) Maintained
Revenue (Combined Company)FY 2024N/A$858M–$918M New
Adjusted EBITDA (Combined Company)FY 2024N/A$250M–$274M New
Adjusted Net Income (Combined Company)FY 2024N/A$122M–$140M New
Adjusted Diluted EPS (Combined Company)FY 2024N/A$0.83–$0.95 New
Q4 Stand-alone TrendQ4 2024N/AExpect sequential q/q growth in revenue and Adj. EBITDA Directional
Sterling Revenue (Full Q4)Q4 2024N/A$170M–$185M New
Sterling Revenue (Nov–Dec)Nov–Dec 2024N/A$108M–$118M New
Sterling Adj. EBITDA (Nov–Dec)Nov–Dec 2024N/A$2.2M–$26M New
Sterling Adj. Diluted EPS (Nov–Dec)Nov–Dec 2024N/A$0.05–$0.07 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2024)Current Period (Q3 2024)Trend
AI/Tech initiativesSmartHub diverting verifications; expanding Profile Advantage; RightID launched; internal “AI at Work” pilots Emphasis on accelerating AI/ML, RPA, next-gen digital ID as part of “FA 5.0” Increasing focus/scale
Macro and base hiringStabilization/normalization; customers hiring “just-in-time”; base negative but improving Base came in lower than expected; stabilization continues; q/q improvement expected into Q4 Stabilizing, still muted
International/RegionalIndia/APAC bottoming; EMEA steady; international drag easing Transportation and staffing up y/y; financial services flat; others down low single digits; tech only 2% of mix Mixed but balanced
M&A/Integration (Sterling)Targeted $50–$70M cost synergies; DOJ process; delever plan Deal closed Oct 31; >$10M synergies actioned; platform approach avoids forced migrations; daily sales standups Execution underway
Deleveraging/Capital structurePro forma net leverage 4.2–4.4x at close; path to ~3x in ~24 months Net debt ~ $2B; swaps fix ~40% of debt; maintain ratings; delever to ~3x in ~24 months Plan reiterated
2025 EPS accretion cadenceTeens EPS growth over time (run-rate) with synergies/deleveraging 2025 reported accretion “more neutral” given timing of synergies vs interest/dilution Timing clarified

Management Commentary

  • “We are thrilled to have closed our $2.2 billion acquisition of Sterling on October 31… [with] combined revenues of approximately $1.5 billion and adjusted EBITDA of approximately $407 million… including our targeted run rate synergies of $50 million to $70 million” (CEO) .
  • “We have already made significant progress towards this target with over $10 million of run rate cost synergies actioned on day 1… and have identified additional synergy opportunities [to] approximately double the actioned synergies within the next 100 days” (CEO) .
  • “In Q3 2024, First Advantage stand-alone generated strong adjusted operating cash flows of $45.3 million, a robust 32% increase versus prior year… [and] sequentially… increased 11% from Q2” (CFO) .
  • “We expect total [combined] revenues in the range of $858 million to $918 million and adjusted EBITDA of $250 million to $274 million… adjusted diluted EPS… $0.83 to $0.95 for 2024” (CFO) .
  • On integration approach: “We’re not going to force migrate customers onto a given platform… our synergy numbers don’t require that… customers should feel an upgrade of service and products” (CEO) .

Q&A Highlights

  • Base volumes and macro: Management characterized the stand-alone guidance skew as “bouncing around the bottom,” with stabilization but modest hiring/backfill dynamics persisting (CEO) .
  • Sterling mix/retention: Sterling retention ~96–97% with some mix headwind (upsell skew to drug/healthcare lowered margins; attrition occurred more in higher-margin traditional screening) (CEO) .
  • 2025 accretion cadence: Not a change to synergy outlook; neutral reported EPS accretion in 2025 due to timing of synergy capture versus immediate interest/dilution, with accretion achieved as synergies ramp (Mgmt) .
  • Upsell/cross-sell momentum: Customers prioritizing safety/compliance and brand protection over cost cutting; package density and digital identity solutions expected to support continued upsell/cross-sell strength (Mgmt) .
  • Integration discipline: No forced platform migrations; first quick-win feature for Sterling customers likely Click.Chat.Call service chat within ~4–6 months; daily GTM standups to minimize distraction (CEO) .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 2024 EPS/Revenue/EBITDA was unavailable at this time due to data access limits; therefore, we cannot quantify beat/miss versus consensus for Q3 2024. Management did not provide explicit vs-consensus commentary in the press release/8-K or call .
  • We will update beat/miss analysis when S&P Global consensus becomes available.

Key Takeaways for Investors

  • Margin durability: Despite flat y/y revenue, FA expanded adjusted EBITDA margins sequentially to 32.2% and delivered $64.0M Adjusted EBITDA; GAAP loss was driven by non-recurring deal costs and higher interest expense .
  • Integration execution as catalyst: >$10M synergies actioned at close, with a clear line of sight to $50–$70M within two years, no forced platform migrations, and early product upgrade opportunities for Sterling customers (e.g., chat) .
  • Deleveraging path: Pro forma net leverage ~4.4x with a stated path to ~3x within ~24 months, aided by swaps fixing ~40% of post-acquisition debt and anticipated rate cuts (Mgmt) .
  • Guidance steady; combined guide introduced: Stand-alone FY2024 maintained; combined FY2024 guide sets a new baseline (Revenue $858–$918M; Adj. EBITDA $250–$274M; Adj. EPS $0.83–$0.95) .
  • Demand backdrop: Macro hiring remains stable/normalized at modest levels; base came in lower than anticipated, but q/q growth into Q4 is expected on a stand-alone basis (Mgmt) .
  • 2025 framing: Expect a more “neutral” reported EPS accretion in 2025 due to the timing of synergy realization versus interest/dilution; accretion should materialize as synergies scale (Mgmt) .
  • Watch-list catalysts: Quarterly synergy cadence updates, Q4 sequential performance, integration milestones (feature rollouts to Sterling base), deleveraging progress, and macro hiring traction—these are likely to drive stock narrative (Mgmt commentary) .

Appendix: Additional Relevant Disclosures

  • Q3 highlights from press release: “Revenues of $199.1 million… Adjusted EBITDA $64.0 million (32.2% margin)… GAAP Diluted Net Loss Per Share of $(0.06), includes $0.07 per share of Sterling costs; Adjusted Diluted EPS $0.26” .
  • Sterling close: “Valued at $2.2 billion… expected $50–$70 million run-rate synergies” .
  • Stand-alone vs Combined guidance tables in 8-K/press release (Nov 12) .