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FIRST ADVANTAGE CORP (FA)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $307.1M, up sharply year-over-year and sequentially, driven by two months of Sterling contribution; GAAP net loss was $(100.4)M due to $97.1M acquisition-related charges; Adjusted EBITDA was $82.9M with a 27.0% margin .
  • Management raised the run-rate cost synergy target to $60–$70M (from $50–$70M), with ~$20M already actioned by year-end; combined FY’24 pro forma revenue was ~$1.51B and adjusted EBITDA ~$397M .
  • Introduced FY 2025 guidance: revenue $1.5–$1.6B, adjusted EBITDA $410–$450M, adjusted net income $152–$182M, adjusted diluted EPS $0.86–$1.03; Q1 2025 expected to be seasonally soft with sequential margin/EPS ramp thereafter .
  • Near-term catalysts: Investor Day (May 28) to detail FA 5.0 strategy and integration updates; continued synergy execution and deleveraging path toward ~3x net leverage over ~24 months .

What Went Well and What Went Wrong

What Went Well

  • Raised synergy target and accelerated capture: “updated net cost synergy target range of $60 million to $70 million,” with ~50%+ actioned within six months post-close; ~$20M actioned by year-end .
  • Strong sales momentum: 25 enterprise bookings in Q4 and 88 LTM, including wins in healthcare and a significant retail gig-economy customer; retention ~96% .
  • Strategic platform flexibility and AI leverage: Best-of-breed approach deploying Sterling’s platform for certain wins; expanding automation and AI (e.g., Click.Chat.Call) to improve service and lower costs .

What Went Wrong

  • Seasonal hiring weakness compressed margins: Q4 seasonal peak ended earlier than normal (mid-November), pressuring retail and transportation volumes and Legacy Sterling margins .
  • GAAP profitability impacted by acquisition-related charges: Q4 GAAP diluted EPS $(0.62), including $(0.43) per share of Sterling transaction costs; net loss margin (32.7)% .
  • Mix shifts toward lower-margin services (Legacy Sterling), plus Vault acquisition impact, reduced combined pro forma adjusted EBITDA margin by ~220 bps YoY .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$202.6 $184.5 $199.1 $307.1
GAAP Diluted EPS ($)$0.10 $0.01 $(0.06) $(0.62)
Net (Loss) Income ($USD Millions)$14.8 $1.9 $(8.9) $(100.4)
Net (Loss) Income Margin (%)7.3% 1.0% (4.4)% (32.7)%
Adjusted EBITDA ($USD Millions)$68.2 $55.8 $64.0 $82.9
Adjusted EBITDA Margin (%)33.7% 30.2% 32.2% 27.0%
Adjusted Net Income ($USD Millions)$42.6 $30.8 $38.0 $30.2
Adjusted Diluted EPS ($)$0.29 $0.21 $0.26 $0.18

Segment revenue breakdown (Q4 2024):

SegmentRevenue ($USD Millions)
First Advantage Americas$172.3
First Advantage International$24.0
Sterling$113.1
Eliminations$(2.3)
Total$307.1

KPIs and operational metrics:

KPIQ2 2024Q3 2024Q4 2024
Enterprise bookings ≥$500k ACV (count)—16 25
LTM Enterprise bookings (count)—53 88
Gross retention (%)~96%~96% ~96%
Screens completed (LTM)——~190M
Verified database records (M)——120M (Sterling data not yet added)
National Criminal DB records (M)——780M

Notes:

  • Q4 GAAP loss includes ~$97.1M transaction-related costs (compensation for converted Sterling awards, debt refinancing, legal/integration, restructuring, banking fees) .
  • Combined FY’24 pro forma: revenue ~$1.5B; adjusted EBITDA ~$397M (or ~$458M on synergized basis) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025—$1.5B – $1.6B Introduced
Adjusted EBITDAFY 2025—$410M – $450M Introduced
Adjusted Net IncomeFY 2025—$152M – $182M Introduced
Adjusted Diluted EPSFY 2025—$0.86 – $1.03 Introduced
Adjusted EBITDA margin phasingQ1 2025—Mid-23% to mid-24% Introduced
Adjusted EBITDA margin phasingQ2 2025+—≥28% Introduced
Adjusted Diluted EPSQ1 2025—$0.12 – $0.15 Introduced
Run-rate cost synergiesWithin 2 years post-close$50M – $70M $60M – $70M Raised lower end

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
AI/technology initiativesEarly adoption of responsible GenAI; SmartHub verifications router; Click.Chat.Call program FA 5.0 strategy; automation; best-of-breed platforms; new branding; integration playbook Continued AI integration; Agentic AI; rollout of Click.Chat.Call to Sterling customers to reduce headcount and improve service Reinforcing and expanding
Seasonal hiring/macroNormalization in labor market noted Base declines lower than expected; stabilization/bouncing along the bottom; election and rate cuts could reduce uncertainty Seasonal peak ended early in mid-Nov; Q1 phasing weaker then sequential improvement; limited tariff exposure; 87% of pro forma revenue in U.S. Stabilizing with cautious outlook
Platform strategy—Best-of-breed deployment; no forced migrations; thoughtful upgrades Winning healthcare deal on Sterling platform; maintaining both platforms efficiently; customer continuity Best-of-breed approach affirmed
Vertical trends—Transportation/staffing up YoY; tech down slightly; international “green shoots” Healthcare, transportation resilient; retail/staffing headwinds; international up 8.9% YoY in Q4 Mixed; international improving
Regulatory/legal & dataHighly regulated industry, data security emphasis —Large proprietary datasets (900M+ records), expanding integrations; privacy/data security risk factors reiterated Ongoing focus
R&D/executionProduct/tech investment; CFO transition supporting Sterling integration FA 5.0 org changes; GM roles by vertical/region; COO overseeing operations Monthly product upgrades planned; integration management driving synergy execution Execution accelerating

Management Commentary

  • “We are pleased to be increasing the lower end of our targeted range with our updated net cost synergy target range of $60 million to $70 million.” — CEO Scott Staples .
  • “Our fourth quarter pro forma revenues were $375 million… pro forma adjusted EBITDA margin was 26.7%, down approximately 300 basis points versus the prior year.” — CFO Steven Marks .
  • “We expect Q1 adjusted EBITDA margin to be in the mid-23% to mid-24% range… Starting with Q2, we expect adjusted EBITDA margins to be above 28%.” — CFO Steven Marks .
  • “We… maintain our focus on innovation… We continue to integrate AI capabilities into our workflow… By streamlining workflows and automating processes, we can leverage technology to meet business needs without increasing headcount.” — CEO Scott Staples .
  • “We are focused on deleveraging our balance sheet… our synergized pro forma adjusted EBITDA net leverage ratio at year-end was 4.4x… target ~3x within 24 months post close.” — CFO Steven Marks .

Q&A Highlights

  • Seasonal hiring weakness: Q4 peak ended earlier (mid-November); no negative spillover into Q1 historically; modeled into 2025 guidance .
  • Platform integration: No forced migrations; customers to benefit from best-of-breed features; maintaining both platforms more efficiently to drive synergies .
  • Synergy acceleration: Contributions “almost from every line of the P&L”; focus on deduping corporate/public company costs and fulfillment/commercial redundancies .
  • Margin plan for Sterling: Shift workforce to a more variable model; harmonize overlapping wellness/drug programs; deploy automation (Click.Chat.Call; Agentic AI) to reduce headcount .
  • Pipeline strength: Two large U.S. wins with potential top-10 customer status; international largest recent contract in Australia; expected revenue conversion 2H’25 .
  • Deleveraging cadence: Mandatory $5M quarterly prepayments ($22M annually) and positive FCF ($55–$85M) in 2025; more substantial deleveraging expected in 2026 as synergies fully flow through .

Estimates Context

  • Wall Street consensus (S&P Global Capital IQ) for Q4 2024 was unavailable at time of analysis due to provider rate limits; therefore, beats/misses vs estimates cannot be assessed at this time. Values would ordinarily be retrieved from S&P Global.

Key Takeaways for Investors

  • The Sterling deal materially scaled FA’s revenue base and created near-term GAAP noise; adjusted metrics remain solid but margins compressed on mix and seasonal softness .
  • Synergy trajectory is improving (target $60–$70M run-rate, ~$20M actioned) and should lift margins over time; watch for quarterly updates and Investor Day detail .
  • Q1 2025 set-up is deliberately conservative (mid-23% to mid-24% adj. EBITDA margins; $0.12–$0.15 adj. EPS) with sequential improvement as synergies/seasonality normalize .
  • Platform strategy reduces integration risk (no forced migrations) and should enable faster customer-facing upgrades, including AI-enabled service tools to drive cost and experience gains .
  • Base hiring remains a modest headwind into mid-2025; upside depends on macro stabilization and pipeline conversion (healthcare, retail, international) .
  • Deleveraging plan is credible with positive FCF and mandatory amortization; expect more visible leverage reduction as synergies reach full run rate into 2026 .
  • Near-term narrative drivers: synergy execution pace, margin mix improvements (Legacy Sterling), vertical wins, international recovery, and clarity at Investor Day on FA 5.0 .