Q4 2024 Summary
Published Feb 27, 2025, 11:19 PM UTC- The integration of the Sterling acquisition is proceeding smoothly, with a strong culture match and teams working well together. This is leading to enhanced customer value propositions and increased synergy targets to $60 million to $70 million, up from previous estimates, indicating greater cost savings and efficiencies than originally anticipated. This positive integration is expected to drive retention and client satisfaction.
- The company's sales engine is performing strongly, with a robust pipeline and recent wins in key verticals such as healthcare and retail, which are expected to drive revenue growth through upsell, cross-sell, and new logos. These efforts are anticipated to contribute to revenue growth, particularly in the latter half of the year as new business converts into base revenue.
- Signs of stabilization in hiring volumes and the anticipation of normal hiring levels by customers are expected to contribute to improved performance. The company expects base revenue declines to moderate and possibly turn slightly positive later in the year, aided by easier comparisons in the back half of the year.
- Declining Base Revenues Expected to Continue: The company acknowledges that base revenues will remain negative throughout 2025, marking the third year of compounded base declines. Hiring volumes have been declining for a couple of years, and the normalization and stabilization are only starting to play out. Base revenues will remain a headwind through the middle of the year.
- High Leverage with Delayed Deleveraging: The company's net leverage ratio stands at 4.4x, with significant deleveraging not expected until 2026, when synergy programs fully realize benefits. Only modest deleveraging is anticipated in 2025, raising concerns about the company's high leverage levels in the near term.
- Margin Pressure Due to Integration Challenges: The company acknowledges that margins are under pressure and will continue to drag due to integration challenges with the Sterling acquisition. Management notes this is a "big concern" and that margins are "still going to drag a bit", despite having a plan to address it.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +52% YoY increase (from $202.562 million in Q4 2023 to $307.124 million in Q4 2024) | Revenue nearly doubled due to new customer growth and contributions from recent acquisitions, contrasting with prior periods where revenue faced moderation due to challenges in existing customer segments. |
Operating Income (EBIT) | Turned from +$29.38 million in Q4 2023 to –$80.67 million in Q4 2024 | Operating losses emerged as significantly higher overall expenses—especially SG&A driven by acquisition-related charges and increased share-based compensation—more than offset the revenue gains, reflecting the impact of recent strategic transactions compared to the previous period. |
Net Income | Dropped from +$14.81 million in Q4 2023 to –$100.37 million in Q4 2024 | Net profitability deteriorated sharply due to substantial operating losses compounded by higher interest expenses and transaction costs associated with acquisitions, in contrast to the positive figures in Q4 2023. |
Earnings Per Share (EPS) | Fell from $0.10 in Q4 2023 to –$0.62 in Q4 2024 | EPS turned negative as the net loss and increased expenses, including acquisition-related costs and capital structure adjustments, led to a drastic erosion of per share earnings relative to the previous quarter. |
SG&A Expenses | Increased by approximately +397% YoY (from $27.85 million in Q4 2023 to $138.59 million in Q4 2024) | SG&A expenses skyrocketed due to a major surge in acquisition-related fees, including professional, legal costs and increased share-based compensation, a stark contrast to the prior period where these charges were relatively minimal. |
Segment Revenue Breakdown | Americas: $172.32 million; International: $24.01 million; Eliminations: –$2.33 million | Geographically, the Americas contributed the bulk of the revenue while International figures and eliminations reflect reallocation effects and challenges noted in previous periods (e.g., declines in certain international markets), indicating a shift in revenue emphasis and structural changes within segments. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Revenues | FY 2025 | $858M–$918M | $1.5 billion–$1.6 billion | raised |
Adjusted EBITDA | FY 2025 | $250M–$274M | $410M–$450M | raised |
Adjusted Diluted EPS | FY 2025 | $0.83–$0.95 | $0.86–$1.03 | raised |
In-Year Realized Synergies | FY 2025 | no prior guidance | $25M–$30M | no prior guidance |
Customer Retention | FY 2025 | no prior guidance | 96%–97% | no prior guidance |
Free Cash Flow | FY 2025 | no prior guidance | $55M–$85M | no prior guidance |
Net Leverage | FY 2025 | no prior guidance | Approximately 3x synergized pro forma adjusted EBITDA within 24 months post‑close; long‑term target 2–3x | no prior guidance |
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Synergy Acceleration
Q: Where are synergies from Sterling acquisition coming from?
A: Management accelerated synergy realization across the board, contributing from every line of the P&L. They've actioned over 50% of synergies by the six-month mark, ahead of the previously planned one-year mark. Synergies stem from deduping executive leadership, public company costs, and contributions from all workstreams. -
Margin Improvement Strategy
Q: How are you improving Sterling's margins?
A: First Advantage is applying its highly variable staffing model to Sterling, matching labor to volumes and using flexible shifts to modulate labor. Sterling previously had a more fixed cost mindset. They're also reducing headcount through automation, rolling out First Advantage's CLICK. CHAT. CALL. functionality and Agentic AI to Sterling customers, allowing for further synergies. -
Guidance and Base Growth Expectations
Q: Does guidance account for slower base growth recovery?
A: Management expects the base to remain negative for the year, with easier comps in the second half due to three years of compounded declines. Macro stabilization is observed, with hiring trends flattening. Strong pipeline conversion and new wins, including two large deals that could become top 10 customers, give confidence in the guidance. -
Customer Hiring Trends
Q: Any changes in client hiring behavior in 2025?
A: Customers are planning on normal hiring, similar to pre-pandemic levels. No significant impact from the new administration, as nothing has been rolled out yet. Management is engaging more with customers, focusing on retention and clear communication. -
Integration Progress and Culture Match
Q: Any surprises in Sterling integration progress?
A: The biggest pleasant surprise has been the culture match, with teams working exceptionally well together in go-to-market, product, and operations. They're leveraging best-of-breed products from both companies, enhancing client experience with faster turnaround times and higher quality. -
Upsell and Cross-Sell Acceleration
Q: What's driving Legacy Sterling upsell growth?
A: Sterling achieved larger upsells, including their largest ever in healthcare, providing full-year benefit in 2024. The combined sales force secured 25 enterprise bookings in Q4, outperforming the prior year's stand-alone First Advantage. The merger hasn't distracted teams but has enhanced productivity. -
Balance Sheet and Deleveraging Plans
Q: What's the plan for deleveraging the balance sheet?
A: The company will make mandatory prepayments of about $5 million each quarter, totaling $22 million. Free cash flow is expected to be positive, in the $55 million to $85 million range. Modest deleveraging will occur in 2025, with 2026 being the real year of deleveraging due to full run-rate synergy benefits. -
Vertical Performance Expectations
Q: Which verticals will perform strongly in 2025?
A: Stabilization trends are expected across all verticals. Notable strength anticipated in retail and healthcare due to recent large deals. International rebound is also expected to continue, showing encouraging performance in the last two quarters. -
Seasonal Hiring Impact
Q: How is seasonal hiring weakness affecting guidance?
A: Seasonal hiring shows less pronounced peaks and valleys, with hiring slowing mid-November through December and picking up in January. This pattern has been factored into the 2025 guidance, expecting similar trends later this year. -
Use of Both Platforms
Q: Will you continue supporting both First Advantage and Sterling platforms?
A: Yes, they're leveraging innovative technology solutions to allow customers to access the best of both platforms without migrations. They'll maintain both platforms but reduce headcount and overhead due to these solutions, driving synergies without impacting the original plan. -
Net Promoter Score Tracking
Q: Are you tracking Net Promoter Score pre- and post-merger?
A: Yes, they continue to measure Net Promoter Scores for both customers and candidates. Post-acquisition, they're engaging more with Sterling customers, who are excited to access best-of-breed offerings from both platforms. -
Verified Database Expansion
Q: How is the verified database impacting revenues or savings?
A: The proprietary database has grown to 900 million records, including 120 million in Verified and 780 million in National Criminal database. The increase doesn't include Sterling's data yet; adding Sterling's data will occur later after cleaning and formatting. -
Unified Growth Outlook
Q: Expectations for Legacy First Advantage growth in 2025?
A: Both legacy businesses are performing in line, with growth from upsell, cross-sell, new logos, and retention. They no longer operate separately but as one company, leveraging combined strengths.