First Advantage Corp Q1 FY2025 Earnings Call

Good day, everyone. My name is Erica, and I will be your conference operator today. I would like to welcome you to the First Advantage First Quarter 2025 Earnings Conference Call and Webcast. Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. At this time, all participants have been placed in a listen-only mode to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. Please note today’s event is being recorded. It is now my pleasure to turn the call over to Stephanie Gorman. You may begin.

Thank you, Erica. Good morning, everyone. And welcome to First Advantage’s first quarter 2025 earnings conference call. In the Investors section of our website, you will find the earnings press release and slide presentation to accompany today’s discussion. This webcast is being recorded and will be available for replay on our Investor Relations website. Before we begin our prepared remarks, I would like to remind everyone that our discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the SEC, including our 2024 Form 10-K and our Form 10-Q for the first quarter of 2025 to be filed with the SEC. Such factors may be updated from time to time in our periodic filings with the SEC, and we do not undertake any obligation to update forward-looking statements. Throughout this conference call, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures, to the extent available without unreasonable effort, appear in today’s press release and presentation, which are available on our Investor Relations website. To facilitate comparability, we will also discuss pro forma combined company results, consisting of First Advantage and Sterling Check Corp. historical results, and certain pro forma adjustments, as if the acquisition of Sterling had occurred on January 1, 2023. The pro forma information does not constitute Article 11 pro forma information. I’m joined on our call today by Scott Staples, our Chief Executive Officer; and Steven Marks, our Chief Financial Officer. After our prepared remarks, we will take your questions. I will now hand the call over to Scott.

Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. We have four key messages for today. First, we are pleased to share our first quarter results, which exceeded our expectations. Our revenue performance was supported by the strength of our sales engine and increased scale. We also saw the positive impact of the acquisition efforts in our adjusted EBITDA and adjusted EBITDA margins for the quarter. This is all while we maintain our relentless focus on cost discipline, which supported our performance within the current uncertain macro environment. Second, we are continuing to successfully execute on our post-close priorities as we integrate our $2.2 billion Sterling acquisition. This includes a non-stop emphasis on our products and customers while continuing the integration process, focusing on customer retention, actioning synergies and reducing net leverage. Third, we are seeing the benefits of our combined business as we execute on our FA 5.0 strategy. We are accelerating our new go-to-market approach, winning and retaining customers across verticals with our outstanding combined capabilities and well-aligned high-performance culture. And fourth, we are reaffirming our full year 2025 guidance. We are executing effectively on things we can control within our business, and despite the ever-evolving and uncertain macro environment, we have not yet observed sustained and broad changes in our fundamental demand drivers. We remain confident in our strategy and positioning in the market to create long-term shareholder value. On that note, and before moving on, I would like to briefly address the hot topics of tariffs and reduction in U.S. Government spending. As a quick reminder, 87% of our 2024 pro forma revenues were generated in the U.S. We do have meaningful international operations. However, importing and exporting goods is not part of our business. While tariffs could impact our customers and their customers, we have not yet experienced any noticeable indirect impact. Additionally, we do not have meaningful direct exposure to U.S. federal government hiring, and therefore, have not seen any material direct impact from efforts to streamline federal government spending. Despite this limited direct exposure, we remain vigilant in the current environment with frequent coordination across the businesses to ensure that we fully understand the latest market conditions. We have contingency plans in place if the economic slowdown incrementally impacts our business, and we are prepared to take actions to reduce costs as needed. Now, turning to Slide 5 and a closer look at our results in the first quarter. We were pleased with both our topline and bottomline first quarter results, which exceeded our expectations, reinforcing our confidence in our resilient business model. Looking forward, our early view of April results also gives us optimism for Q2. For the first quarter, combined upsell, cross-sell and new logo rates performed in line with our historical growth algorithm, and retention remained high at 96%. We are particularly proud of the work our team is doing to maintain these high levels of retention while actioning and accelerating our integration playbook. Our sales pipeline momentum continues with 14 enterprise bookings in the first quarter and 78 in the last 12 months, each with $500,000 or more of expected annual contract value. It was not just a good quarter for the number of bookings, but also the total value of these deals represented a record quarter for us. This was driven by increasing average deal size. Signaling strong package density and value selling, which we are seeing across most verticals and geographies. The three large deals we discussed during last quarter’s earnings call have all been officially booked and we are moving forward swiftly to get these deals live and generating revenue. As a reminder, these deals include one with a significant retail customer in the retail Gig Economy. One in Australia, representing our largest international contract in the past number of years, and one in healthcare, leveraging our best-in-breed platform approach. We still expect this revenue to come in during the second half of the year, as this progresses further supports our confidence in the robust pipeline. As a reminder, the two U.S. deals have the potential to be top 10 customers. Our vertical strategy bolstered through the Sterling acquisition focuses on large and growing sectors. Our balance across a diverse range of segments and between hourly and salaried-focused customers enables us to weather a variety of macroeconomic scenarios. In Q1, we had healthy demand, where recurring Compliance Services supported continued demand in the industry. We also saw positive momentum in Financial Services, with continued stability in healthcare and recovery in our international regions, which have been more stable and predictable since the middle of last year. We have seen a slowdown in our order volumes within the retail and e-commerce vertical, though overall, our total business performed better than our original expectations for the quarter. We have seen some macro indicators around job turnover start to normalize, as we expected, and as a result, our base declines have improved. While our value proposition is resonating with customers and prospects, there is a high degree of macroeconomic and policy uncertainty. This is causing our customers to take a wait-and-see approach, which may cause stagnation in our business volumes. Turning to Slide 6, we remain laser focused on our post-close priorities. We are executing our integration plans smoothly, without disruptions to customers, and successfully delivering across all platforms while integrating our capabilities. We are leveraging the best solutions and technologies from each of the First Advantage and Sterling platforms and increasing back-end automation. While also launching new products, we believe our customers will value. For example, we have rolled out our AI-enabled Click.Chat.Call customer care platform to Sterling customers, giving customers across our global platforms access to our award-winning customer service and allowing us to streamline operations. Since first deployed by First Advantage in 2023, Click.Chat.Call has delivered impressive improvements in customer satisfaction and service levels while also reducing our costs. Additionally, we continue to focus on innovation to support our customers’ priorities of speed, cost, and efficiency while optimizing our internal operations. An example of this is our recent implementation of AI agents in the automation of criminal records processing, which in certain applications has increased our speed from minutes per task to nearly instantaneous and eliminated almost all of the manual touches, delivering the leading speed and quality our customers expect from us. Our Digital Identity products are another example of our innovation leadership and represent a growing market opportunity for our best-in-class technology and software capabilities. According to a recent Gartner report, the rise of AI-generated candidate profiles, including fake identities, fake faces, and fake voices, means that by 2028, one in four job candidates globally could be a fake. We have had an increasing number of our customers using our Digital Identity products to help them manage this rapidly evolving challenge, and we see strong future growth potential for these types of products. Additionally, we continue to keep our customers at the center of everything we do. We were thrilled to have hosted a record number of attendees, including both customers and prospects, at our annual Collaborate User Conference in mid-April. Attendees, including a healthy number of Sterling customers, were able to gain in-depth knowledge into our products, benchmark their programs against best practices, and gain insights into trends impacting the HR industry. We were pleased to hear directly from our customers about how our proprietary data and advanced technology capabilities solve the challenges they are facing in their pre- and post-onboarding programs, providing us with a clear competitive advantage. Our customers and team left the event energized and excited about what is coming next from First Advantage. With that, I will now turn the call over to Steven.

Thank you, Scott, and good morning, everyone. Today, I will provide color on our Q1 results, give you an update on our synergy progress and discuss our reaffirmed guidance. Please note that we plan to focus on our consolidated business going forward, as we continue to swiftly execute our integration program and implement our FA 5.0 strategy. Starting with our first quarter results on Slide 8. As you heard, our first quarter revenues exceeded our expectations, coming in at $355 million or nearly flat to last year on a pro forma basis. In Q1, the volatility in our base performance continued to moderate and we were pleased that it modestly outperformed our expectations for this quarter, despite remaining negative on a year-on-year basis. Our go-to-market success continued to hit our historical rates, with the combined contribution of new logo and upsell, cross-sell revenues delivering 9.3% growth in the quarter, and our retention remained high at a level of 96%. Adjusted EBITDA for the first quarter also exceeded our expectations, coming in at $92 million, with an adjusted EBITDA margin of 26%, up approximately 200 basis points versus the prior year on a pro forma basis. These results were enabled by our focus on accelerating synergies, our disciplined approach to cost management, and the scalable nature of our business. Additionally, we remained focused on improving the historical operating margins of the Sterling business, as the mix and cost structure of Sterling is a bit different than First Advantage’s historical model. Adjusted diluted EPS was $0.17 or flat year-over-year. The benefit of our greater scale, which now includes Sterling results, was offset by the incremental interest on the transaction financing and the diluted impact of the new shares issued for the acquisition. On Slide 9, you can see how we are making great progress on actioning our synergy program. In Q1, we actioned an incremental $17 million in run rate synergies, bringing us to a total of $37 million. This represents robust progress towards our synergy goals, and with the Q1 acceleration, we have exceeded our enhanced objective of actioning 50% of our target in the first six months post-closing. We remain confident in our ability to achieve our run rate synergy target range of $60 million to $70 million within two years. Of our $37 million of actioned run rate synergies, $12 million have been realized since we began our integration efforts, of which approximately $8 million contributed to our Q1 results. We are pleased to see the success of our integration and synergy execution come to fruition so quickly. On Slide 10, we are showing our revenue growth algorithm drivers. Note that while our historical data is broken out separately, we will be providing combined data going forward as our go-to-market organization is nearly fully integrated. In the first quarter, base came in just better than we had expected. This upside, combined with the sustained contribution from new logo and upsell, cross-sell, plus strong customer retention, powered our Q1 results. Now, turning to cash flow and net leverage on Slide 11. During the quarter, we generated adjusted operating cash flows of $33.3 million, and we continued to closely manage our working capital and focus on cash flow generation. Our year-over-year decline in adjusted operating cash flows was driven by the increased debt service from our acquisition-related debt and management incentive plan payments related to operating as a combined company. Our cash balance at March 31, 2025, was $172 million. With this ample liquidity and cash flow, subsequent to the end of the quarter, we made a voluntary principal debt payment of $15 million. This, combined with the March 31 scheduled prepayment of $5.5 million, are the first steps of many to reduce our debt in line with our capital allocation priorities. Our synergized LTM pro forma adjusted EBITDA net leverage ratio at quarter end was 4.4 times. Additionally, in April, we entered into a $250 million interest rate swap effective through April 2028, which locks in a 3.56% interest rate, accelerating the benefits of anticipated future interest rate cuts and reducing our 2025 interest costs relative to current spot rates. These actions demonstrate our capital allocation playbook coming to life and how we are committed to swiftly reducing net leverage towards approximately three times synergized pro forma adjusted EBITDA within 24 months post-close. Our long-term net leverage target range remains at 2 times to 3 times. Moving to Slide 12 in our 2025 guidance. I’ll start with a quick reminder that year-over-year comparisons are on a pro forma basis to allow for easy comparability. Our modest outperformance in Q1 and early Q2 trends are encouraging. As Scott mentioned, our customers remain in a wait-and-see mode as among many things, the impacts of tariffs and other policies remain a key area of uncertainty across the global economy. With this in mind, we are reaffirming our full year guidance today with our outlook for the remainder of the year assuming a certain degree of macro stability. We expect that base revenues will remain a growth headwind in Q2 and for the full year improving sequentially and turning to neutral and then slightly positive later in the year. We anticipate continued productivity of upsell, cross-sell and new logo growth consistent with historical trends and our robust deal pipeline supports our expectations for the full year. We also expect customer retention to remain in line with our historical performance of 96% even as we continue to diligently integrate the Sterling acquisition. FX typically doesn’t play a large role in our business. However, we are currently forecasting it to be a mild headwind for the year. Looking at our quarterly phasing for the remainder of the year, we now expect Q2 revenues to come in between down 2% and up 2% year-over-year. As Scott mentioned, April was off to a good start which gives us some degree of confidence in our Q2 expectations in this period of macro uncertainty. Later in the year, we will begin to lack easier comps and we anticipate sequential year-over-year total revenue growth improvement from Q2 to Q3 with fourth quarter’s growth rate about on par with a third quarter. Starting with Q2, we expect adjusted EBITDA margins to be around or above 28%. We also anticipate that starting in Q2, we should see a considerable adjusted diluted EPS improvement as revenue ramps sequentially compared to Q1 and synergies are more fully realized. We expect that quarterly adjusted diluted EPS will be in the low-to-mid 20s in Q2, increasing to the mid-to-high 20s in the final two quarters of the year. We now anticipate free cash flow of $65 million to $95 million for 2025. Keep in mind that embedded in this assumption are one-time costs related to synergy achievement which we are focused on minimizing when we can, the payout of deferred transaction proceeds tied to equity vesting, as well as our assumption for required working capital based on our revenue guidance and integration status. We have provided a chart in the appendix to the earnings presentation with FX, CapEx, interest and other modeling assumptions. With that, let me turn it back to Scott for closing remarks before we open the line for your questions.

Thanks, Steven. In closing, I would like to emphasize our consistent focus at First Advantage, delivering on our value creation playbook and shaping the future of our company to better serve our customers. Our diversified exposure to verticals, customers, and geographies aligns us with exciting growth opportunities while also providing balance and resilience in an uncertain macroeconomic environment. As a reminder, we will be hosting our Inaugural Investor Day on May 28th. At that event, we plan to share more about our FA 5.0 strategy and update on our integration program, as well as long-term targets that will guide our business over the coming years. We will also detail the strengths of our business model, including our unique combination of technology and data that helps our customers hire smarter and onboard faster. Lastly, I want to thank the entire First Advantage team for their hard work and consistent dedication to serving our customers. With that, we will open the line for questions.

Thank you. Our first question comes from Shlomo Rosenbaum with Stifel.

Thank you very much. Scott, the results are surprisingly strong in the current uncertain environment, and I want to ask you just to elaborate a little bit more about some of the cross-currents you’re talking about from the clients. On the one hand, you said that you’re encouraged about April, about what you’re seeing, but on the other hand, you’re saying that you’re seeing some wait-and-see from the clients. So could you just reconcile those two comments and give us a view as to what exactly is it that you’re seeing? And then keeping the guidance the way that it is with this strong quarter, is that just giving yourself some room in case things do deteriorate?

Yes, Shlomo, that's a great question. To start with the bottom line, yes, we are currently navigating very unique macroeconomic conditions which prompts us to be somewhat cautious in our outlook for the remainder of the year. One of our strengths has always been maintaining ongoing conversations with our customers, as we engage with them regularly. We are experiencing strong order volumes, which was evident in our Q1 results and commentary in April. However, when we discuss forecasts for the upcoming quarter and year with our clients, they are hesitant to commit due to uncertainties in the macro environment. This is why they are adopting a wait-and-see approach. What I’ve mentioned in the past is that many of our clients are in a just-in-time hiring mode, rapidly adjusting their hiring based on their business needs or economic factors. We are fine with this approach, as speed is one of our key attributes. But this is the reason for the wait-and-see stance, reflecting our clients' current sentiments.

Okay. Thanks. And just one follow-up. I’m a little bit of a broken record on this in terms of—since the acquisition. But can you focus a little bit more on retention and talk about how retention, specifically in the Sterling base, is trending vis-à-vis your original deal model? And that’s what I would say is probably the biggest concern that I had going into the deal and it seems like it’s holding up. So are there any areas that are holding up better than others and it seems like 96% is pretty good for a combined company with this kind of integration?

This has been a result of our intense focus on this topic and our planning over the past year regarding how to serve and communicate with our customers. We've been actively informing the Sterling customer base about the upcoming enhancements through our best-of-breed technology approach, and they have responded with enthusiasm. The Sterling customers are eager about the upgrades and new features we’re introducing. A prime example is Click.Chat.Call, which we launched for the Sterling install base. Previously, Sterling customers had to call an 800 number for customer care, but now they can chat and are enjoying this new option. This is just one of the many improvements we plan to roll out across both the First Advantage and Sterling platforms. The Sterling customer base is excited, and we're pleased with our retention rates. Furthermore, many Sterling customers attended our user conference, demonstrating their enthusiasm for collaboration. Lastly, I want to highlight the sales team’s performance in Q1. We not only achieved record numbers in terms of wins and bookings, but this also indicates that the market is responding positively to the acquisition. This momentum hasn’t slowed down in terms of acquiring new customers or upselling and cross-selling; it may actually be increasing. Overall, we feel very optimistic and excited about this integration.

Thank you. And we will go next to the line of Ashish Sabadra with RBC Capital Markets. Please go ahead.

Hey. Good morning, guys. This is Will Chi on for Ashish Sabadra. I appreciate you guys taking our question. Maybe just wanted to kind of drill down and follow up on the question, kind of what you guys are seeing. I know you guys had previously mentioned kind of expectations for base growth kind of in that second half, kind of shifting more to neutral and then positive later on. With the general kind of market and macro volatility, does that shift your base assumptions at all or is it still kind of similar to what you’ve expected? Thanks.

Steve, do you want to add?

Not. Not. Yeah. Not a major change. Base was negative 5.5% in Q1, a little ahead of our expectations and certainly towards the higher end of our expectations. There’s a little bit of just math in here of as we get to the middle of the year, the comps get easier, base first turned negative in the second half of 2022. So the second half of 2025 just has more compounded, easier comps in it. So there’s an element of that. And then what we’ve really seen coming in overall volumes is just period-to-period sequential stability. So obviously, there’s overhang from the macro. We can’t control what comes out of Washington. But based on what the trends we’re seeing today, when you get to that back part of the year, there’s an inherent stability that comes out of base. It’s really a neutral state is what I would call it, when it’s obviously flat, it’s flat. But even when it’s slightly positive, it’s not a major growth engine. But you do also then have the sustained contribution of new logo and upsell, cross-sell, the pipeline success that Scott just talked about, and our expectation that we still have a strong focus on customer retention. So once we get to that base neutral state, we feel really good about the condition we’re in and primed for good results.

Let me add to that, that I think one thing to point out is that, new logos and upsell, cross-sell get tracked as new logo and upsell, cross-sell for 12 months and then after 12 months, that converts to base. And if you think about our consistent delivery on new logo, upsell, cross-sell, all the wins we had a year ago and whatever, they start converting to base. So the sales engine has really been humming, and that’s going to also help base. So not only is it the easier comps, but we’re pouring some new logo, upsell, cross-sell revenue into the base as they transition from one calculation to the other.

I appreciate it. Thank you, guys.

Thank you. And we’ll go next to the line of Andrew Steinerman with JPMorgan. Please go ahead.

Hey, Scott. Your team just spoke about getting back base revenue to neutral. I just wanted to do maybe a quick review on base revenue growth in the algo for First Advantage. I’m sure you remember at the time of the IPO, the algo included 2% to 4% base growth. Obviously, there was upside. Now there’s downside to base growth. But if we’re going to look at base growth, thinking about quits in particular, level of quits currently and prospectively, do you feel like base growth could grow 2% to 4% over the medium term after we get back to neutral here this year?

Yeah. I mean, we look at the same data you look at, Andrew. But if you look at quits, openings, hires, unemployment, they’ve all been flat. So I think Steven may have used the term stability despite uncertainty. And I think that’s an important term when it comes to the macro because we’re seeing stability, but obviously, there’s an overhang of uncertainty. So I think ultimately, yes, we believe that we can get back to 2% to 3% to 4% positive base growth, but it probably won’t be until early 2026. Our model has us, as Steven mentioned, getting to neutral base by the end of this year. But we’re certainly expecting 2026 to start turning positive, not that we want to get that far out. But the comps are getting easier and easier, and as I mentioned earlier, the sales engine keeps humming. So just for example, a record number of deals this quarter, that turns into base a year from now. So that should also help the growth.

Well said. Thank you.

Thank you. And we’ll go next to Andrew Nicholas with William Blair. I’m sorry, Andrew Nicholas with William Blair. Please go ahead.

Great. Thanks. Good morning and appreciate you taking my questions. Scott, you touched on it in an answer earlier, but I wanted to open up the conversation a little bit more on market structure and maybe the volume of RFPs that you’re seeing post-Sterling. The bookings numbers, the pipeline commentary, all really good. Are you also seeing more RFPs come your way? Is that a function of win rates being better? Just trying to kind of unpack if you’re also seeing more interest and if there’s anything to quantify that, that would be helpful, too?

Yeah. I don’t think we can quantify it today. That’s something we can certainly get into for Investor Day, a little more in depth into the pipeline and stuff. I would say, keep in mind, the First Advantage and Sterling brands were excellent in the market, and we were already at pretty good RFP volumes and pretty good win rates. So the sales engine has been performing very well. So RFPs are running about normal, I would say, which is good because you take the combined company and put it together. That’s a good thing. But I think what’s driving it more, and we’ll certainly get into more of this in Investor Day, is that there’s a lot of trends going on in the industry that, I would say, are fairly new and Digital Identity being one of them. We mentioned the Gartner report of deep fakes and fraud in the recruiting and onboarding cycle, hitting pretty significant marks by 2028. Companies are actually dealing with that now and that’s driving a lot of RFPs, it’s driving a lot of upsell, cross-sell. And I can guarantee you that not every provider in this space has technology solutions available for that. So those things kind of trend in our favor as our customers and prospects look to find vendors and partners with state-of-the-art technologies and partners who can combine data sources and technologies into a single use. That’s also extremely important to them. So that is driving a lot of this nice volume and I think was a big component of the Q1 record deals that we had. But again, I think we can dive a little bit more into that in Investor Day, but that is where we think a lot of growth will come from.

Great. Thank you. And then just for a quick follow-up, on the large deals, can you refresh us or remind us on the typical timing for how long you expect it to take for those to onboard and then start generating revenue?

Yeah. I mean, every prospect that we onboard has a varying timeline of how long it takes to actually onboard them. We probably average about 90 days or so for most customers, but when they’re big and complicated like this, it typically takes about six months. So we are expecting to start revenueing all three of them this year, all three of them probably late Q2, early Q3, which would be sort of on schedule with that six months that it takes to get them up and running.

Great. Thank you.

Thank you. And we’ll go next to Manav Patnaik from Barclays. Please go ahead.

Hi. This is Princy Thomas on for Manav. I just wanted to go back to guidance and understand what gives you that confidence in the guide, what would take it to the top and bottom of the range respectively?

Yeah. It’s a good question. I mean, obviously, there is kind of an implied level or expected level of stability. I think the stronger that stability remains, the better we’ll perform. Like you just heard from, Scott, we do have a good, healthy amount of confidence in the things that we can influence and control around new logo generation and upsell, cross-sell revenue generation, and we’ll remain focused to achieve those historical 96%-plus retention levels. So, the real wild card really comes down to kind of just the underlying base volumes. Like Scott mentioned in the prepared remarks, we had a good Q1 in that respect and the volatility sequentially died down in recent months, which is obviously a healthy business trend. So, as long as we can get our core verticals, with that stable trend, we’ll do well. But like Scott mentioned a few questions ago, our approach towards guidance allows us to have a little bit of a conservative posture towards the rest of the year, which we think is the correct, prudent approach given just the pace of news and kind of the various playing elements around here. Obviously, every time you open up the Wall Street Journal webpage, it’s something new and different. Some are good things, some are bad things and I think our guidance gives us enough flexibility to weather some of those storms.

Got it. And then, in terms of your customer bookings, you said you had 78 in the last 12 months. I just wanted to get an idea of the average contract rate, like contract timing for these?

Yeah. I mean, so those are all enterprise bookings, too, I’d add. So, those are all $0.5 million or more of ACV. I mean, the bookings come pretty rapidly over the year. There’s no one peak signing season where we get those. So, we had 14 in the quarter. If you recall, Q4 was a particularly strong bookings quarter coming out of the close of the acquisition. We had 25 in Q4. But, as Scott mentioned, at 14, it was actually a record dollar volume of bookings this quarter. So, I think, as I mentioned, pipeline’s got us really excited. It certainly derisks some of our second half of the year go-get in terms of new logo, upsell, cross-sell, and that part of the guidance we have a high degree of confidence in.

Great. Thank you.

Thank you. And we will go next to Stephanie Moore with Jefferies. Please go ahead.

Hey. Good morning. This is Harold Antor on for Stephanie Moore. So, just piggybacking off of your last offer, the question before, you did highlight that the average deal size is increasing. So, can you just provide a little more color there? How many more products are you selling to the same clients? How much of this is a benefit from scaling? Just anything there would be helpful.

I don't think we disclose growth on a product-by-product basis. However, we did mention that a lot of this growth is driven by increased package density. Customers are really focusing on risk, compliance, safety, and security, and they are spending more for deeper and broader protection. It’s not just about one product or service; various factors are contributing to this growth. We've also bundled services like our I-9 solution with what we call normal packages, which has been beneficial. The potential for upselling and cross-selling, particularly between the First Advantage and Sterling install bases, is just beginning to materialize. For instance, selling First Advantage’s I-9 or WOTC solutions to Sterling customers is just starting, and that represents just the tip of the iceberg. This hasn’t significantly influenced our Q1 results. The strong performance of our sales engine in Q1 is primarily due to how effectively we are communicating about the acquisition, our product rollouts, and our combined technology demonstrations. This has really excited both prospects and customers, which contributed to a lot of the growth.

Great. Thank you for the color there. And then just on the synergies, I think you have now run rate of $37 million. The original target was $50 million to $70 million. You increased it to $60 million to $70 million. So, I guess, given the scene we captured now, do you think that you guys are well-positioned to increase this further and just help us think about what’s left on that integration front as you continue to realize synergy capture? Thank you.

Yeah. Great question. And I mean, obviously, that was a huge internal focus for us in Q1. We had established a healthy pipeline that allowed us to bring that range up to that $60 million to $70 million like you mentioned. Obviously, we used up a healthy amount of that pipeline and were able to accelerate that into Q1. We had mentioned that last quarter, that one of the ways we were trying to focus on protecting our profitability during the year with some of the uncertainty was controlling the things we can control. And new logo and upsell, cross-sell is certainly one, but synergies on the profitability side was the other. And the whole management team had a healthy contribution towards that. We’re now going back, not to the drawing board, but we’re going back to the pipeline. We’ve got to do a little bit more homework internally and kind of rebuild. We obviously actioned a lot of what we had planned. Is there potential? I would say potentially more potential. We’ve just got to get that pipeline. We’ve got to have confidence in the numbers before we feel confident to raise targets at all. But obviously, just because we’ve been so successful to-date, that doesn’t make it any less of a priority for us the rest of the year. We’ll keep trying to find ways to enhance profitability, whether it’s through synergies, whether it’s through organic cost savings. We’re constantly having a focus there as a management team.

Thank you. That’s all for me.

Thank you. We’ll go next to Scott Wurtzel with Wolfe Research. Please go ahead.

Hey. Good morning and thank you for taking my questions. First one, I just wanted to touch on just the international side of the business and if you’re seeing any changes or difference relative to U.S. trends, whether that’s in base growth or upsell, cross-sell and new logos. I’m just wondering if you can talk about any changing or differing trends between U.S. and international? Thanks.

I'm really pleased with the results coming from our international segment, which has experienced an 8% increase. This marks four consecutive quarters of robust performance in international markets. It's important to note that international revenues had started to decline before the U.S. market did, which affected our overall business for a couple of years. However, they've rebounded strongly and are now performing well. We are observing growth in all regions, including EMEA, India, APAC, and Australia, indicating that the positive trends are not limited to a single area. Furthermore, these trends are consistent across all verticals, with no significant macroeconomic factors distinguishing them. I'd like to highlight our recent global trends report, which outlines that international markets have unique drivers compared to the U.S., particularly revolving around risk and compliance. This focus benefits us given our global presence and enhances our reputation as a reliable partner for global risk and compliance solutions, as demonstrated by our recent large deal in Australia. This aspect of our operations provides us with a slight competitive edge. Overall, aside from this nuance with the U.S. market, there aren’t any major differences to note.

Thanks. That’s helpful. And just as a follow-up on the implementation of AI agents on the criminal records processing. So I’m wondering if you could share a little bit more about that, how widely available or implemented is that right now and any feedback you’ve received from customers, given the sort of improved processing times there?

Yeah. Again, I’m going to give an advertisement to come to our Investor Day where we’ll go into a little bit more detail on this. Don’t want to give out too much information because of competitive protection here. But I will say that when you do something like AI agents on the criminal side, it’s really kind of a behind the scenes type of thing. So the visible impact to clients is just in faster turnaround times and stuff like that. But they can’t see anything functionally different. But obviously, it drives faster turnaround times, higher quality, et cetera. But we’ll go into way more detail on this in the Investor Day.

Great. Thanks, guys.

Thanks so much. I wanted to go back to the Sterling integration. You’ve owned the company for about six months now, a little more than that. Is there anything you’ve learned from them? Were there things that they were doing that maybe, hey, this is a good idea. We should be incorporated in our business as well.

I believe we approached this in a unique way. Although it was an acquisition on paper, we treated it as a merger internally. By doing so, we adopted a best-in-breed mindset. We focused on identifying the best functionality across the technology stack and the best teams in sales or customer support, and we aimed to adopt those strengths. This approach extends beyond just technology; it encompasses the entire company. We’ve learned from each other and are integrating the best practices across various areas like sales, marketing, operations, and technology. We have extensive lists of aspects we've evaluated to determine which is superior. There are elements where First Advantage excels and other areas where Sterling shines, and we aim to choose the best from both. This selective integration has been key to our success, and customers are noticing it. They appreciate that we’re not rigidly adhering to any legacy systems and that they are seeing upgrades to a platform they were already satisfied with. Additionally, a strong cultural fit has facilitated this process. Both companies are high-performing and aligned in values and approaches, which has accelerated the integration. We're actually ahead of schedule with synergies and integration due to this cultural alignment.

Yeah. There kind of is, I mean, the lines are really blurring because maybe it’s a legacy Sterling retail client. There’s a better fit for them on an FA platform. So there’s some migration going on there. But I tell you, if you really zoom in on all the data, it’s a very consistent number across the entire company set. And I think even if you look domestic versus international, the legacy entity it came from, that 96% rate, plus or minus, is very consistent across the company.

Thank you. And I see no further questions in queue. I’d like to thank you all for joining us today and for your participation. This concludes the First Advantage first quarter 2025 earnings conference call and webcast. At this time, you may disconnect your line and have a wonderful day.