Earnings Call Transcript - FA Q1 2026

Operator, Operator

Good morning, everyone. My name is Bo, and I will be your conference operator today. I would like to welcome everyone to the First Advantage First Quarter 2026 Earnings Conference Call and Webcast. Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. Please note today's event is being recorded. And it is now my pleasure to turn the meeting over to Stephanie Gorman. Please go ahead, ma'am.

Stephanie Gorman, Vice President, Investor Relations

Thank you, Bo. Good morning, everyone, and welcome to First Advantage's First Quarter 2026 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 2025 Form 10-K and our Form 10-Q for the first quarter of 2026 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 earnings press release and presentation, which are available on our Investor Relations website. I'm joined on our call today by Scott Staples, our Chief Executive Officer; Joelle Smith, our President; 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.

Scott Staples, Chief Executive Officer

Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. Today, we have four key messages. First, we delivered an exceptional first quarter, growing revenue 8.6% year-over-year and achieving adjusted EBITDA margins of over 27%, both favorable versus our previously communicated expectations. When combined with our diverse vertical mix, consistently high customer retention and focus on cost discipline, we continue to drive excellent results amid this dynamic macroeconomic environment and consistently outpace broader hiring market trends. Second, we are executing and accelerating our FA 5.0 growth strategy. Our innovative product and platform approach is strengthening our customer value proposition and expanding our offerings, which is helping us win across the business. At the same time, our sales engine is humming, as we drive growth through go-to-market execution and continued investment in our product capabilities. These actions position us well to capture incremental meaningful growth opportunities, and Joelle will share more detail on what is driving our success in this area. Third, we continue to execute our balanced capital allocation strategy, supported by the success of our business, our strong cash flow generation and our confidence in our continued growth. Through our $100 million share repurchase program announced last quarter, we made disciplined purchases at attractive valuations, repurchasing $19.5 million in shares through March 31, with total repurchases of $33.3 million through May 1. In addition, we continue to make meaningful progress on reducing net leverage. During the quarter, as previously announced, we made a $25 million voluntary debt payment. And just this week, we prepaid an additional $25 million of debt, bringing our total cumulative debt repayments since closing the Sterling acquisition to $120.5 million. And finally, we are reaffirming our full year 2026 guidance based on strong first quarter customer demand and our outlook for positive top line momentum continuing during the year. We remain confident in our positioning to create long-term shareholder value and deliver consistent progress toward our 2028 targets. Now turning to Slide 5. We generated exceptional Q1 revenue growth, adjusted EBITDA, adjusted EBITDA margin and adjusted diluted EPS. Impressively, in Q1, our combined upsell, cross-sell and new logo growth contribution was 12%, enabled by our strong go-to-market momentum and outperforming our long-term revenue algorithm target. Retention remained high at 97%. Looking at the macro hiring environment in the first quarter, conditions remained relatively consistent. We continue to hear a neutral to positive tone from our enterprise customers even as news headlines regarding layoffs and economic and policy uncertainty persist. We also continue to see workforce churn among both blue collar and knowledge workers, which has helped drive steady improvement in our base revenue over the last several quarters, resulting in flat performance in the base in Q1. While broad acceleration has yet to emerge in macro hiring trends, our enterprise customer base, diverse vertical mix, global footprint and balance across hourly and salaried hiring continue to provide stability and support our confidence in driving growth through new logos, upsell and cross-sell. We do not have any significant direct exposure to the Middle East, which limits our sensitivity to recent geopolitical developments in the region. It's also important to note that we operate in a highly regulated environment where accuracy, auditability and trust are critical. AI is raising the stakes for employment decisions and driving demand for deeper, more comprehensive searches and greater package density. This is where our business model and competitive moat matter. What we provide goes far beyond a software solution or a data search. It is a highly differentiated platform built on deep regulatory expertise, significant compliance infrastructure, proprietary data assets and a consultative service model tailored to the industries we serve. Importantly, employers trust us to help them navigate the growing complexity of modern hiring decisions. This includes determining where and how AI can be used responsibly in the screening process, with the appropriate human-in-the-loop oversight to help ensure accuracy, fairness and compliance in high-stakes employment decisions. That trust is grounded in our deep domain expertise across a wide range of regulatory frameworks, including the Fair Credit Reporting Act, Department of Transportation requirements, evolving state and local regulations governing data privacy, AI and biometrics, as well as international data privacy laws such as GDPR in Europe and similar laws globally. Together, our combination of advanced technology, human judgment and regulatory expertise allows our customers to rely on us as a trusted partner to manage human capital risk while confidently scaling their hiring processes. Against the current macro backdrop, it's also crucial to consider how AI is reshaping the future of work and to understand how our resilient business model and strong competitive and differentiated position set us up to be a beneficiary of that change. AI will likely drive disruption in certain parts of the labor market, resulting in workforce churn as companies redesign jobs and organizational structures. At the same time, as AI adoption accelerates, companies are not only investing in new technologies, but also creating new roles to manage, govern and deploy those technologies responsibly. Additionally, there are other roles that should see resilience during this shift. For example, ones that require physical presence, regulated decision-making or high-trust human interaction. Many of the customers and roles we support fall squarely into those categories. While there are differing views on how AI will reshape the workforce, some research firms like the Boston Consulting Group and the World Economic Forum reinforce what we are seeing, which is that AI is reshaping how work gets done rather than just broadly eliminating jobs, as well as driving greater movement within the labor market and emergence in new roles and increased hiring complexity over time. In addition, we are seeing other supportive labor market trends, including the rise of job stacking, particularly among younger workers who are increasingly choosing to take on multiple part-time roles for greater flexibility, resulting in higher screening frequency per individual. With these trends reinforcing the durability of demand for our solutions and increasing the stakes in employment decisions, we are well positioned to benefit. As I wrap up, I'd like to reiterate that our numbers and performance speak for themselves. Our sales engine is executing at a high level. Our product offerings are resonating. Our go-to-market focus on specific verticals and large enterprise customers is paying off. Our early-to-market positioning of our broader identity solutions is getting us in front of more buyers and driving our pipeline. Our investments in AI and automation are positively impacting our clients' user experience and bottom-line profitability. And our increasing usage of proprietary data is showing up in our results. All of this, combined with our winning culture, creates tangible market differentiators and helps us gain market share. As a category leader, we are extremely proud of what we have built and where we sit in the market. Now, I'm pleased to introduce Joelle Smith, who will provide an update on our FA 5.0 strategy, which includes what we are doing with AI. Joelle joined First Advantage in 2017 and has been in her current role as President since 2024. She leads our product, data and technology organizations as well as our go-to-market teams, including sales, customer success and marketing. Joelle has been instrumental in creating our industry-leading platform and AI strategies as well as expanding customer relationships and generating growth across the company. With that, I will now turn the call over to Joelle.

Joelle Smith, President

Thank you, Scott, and good morning, everyone. It's great to be here with you today. With the context that Scott just shared on how we're thinking about AI strategically, let me expand on how we're using AI in practice across our platform and delivering tangible results. We view AI as an enabler of our FA 5.0 strategy. We were one of the earliest adopters of automation technologies, like robotic process automation in our industry. We have built on that foundation, deploying AI and machine learning for more than five years, launching generative AI capabilities in 2024 and embedding AI logic across our platform where it delivers meaningful customer and operational impact. AI is already fully integrated into our applicant platform, which we call NextGen Profile Advantage, providing a leading user experience and resulting in call center contacts being reduced by half. It also powers key solutions, like our intelligent fulfillment router called SmartHub AI for verification and our Digital Identity offerings. Digital Identity has become the tip of the spear in our go-to-market strategy. It's not a feature, but a foundational element of accurate compliance screening embedded within our broader cohesive offering, and customers are increasingly recognizing the risk of excluding it. While it represents a modest portion of contract value currently, it is a key differentiator and decision driver for prospects and customers and is now standard in most deals we quote. Roughly one quarter of all first quarter implementations included Digital Identity with go-lives accelerating versus Q4 as customers increasingly see the benefits of our comprehensive fully integrated solutions, helping us win new opportunities and positioning us for meaningfully higher penetration in 2026. Within our customer care organization, we're seeing clear productivity, efficiency and quality gains from AI. We're driving a shift towards self-service to better scale volumes while deploying agent assist capabilities that reduce average handle time and improve first contact resolution. For example, our AI customer care agents enabled nearly one quarter of candidates to get help without ever needing to speak with a live agent, and our new agent assist tools have driven people productivity improvements of nearly 20%. We are also using AI to better understand customer sentiment, expand multilingual support across chat and our help portal and improve workforce scheduling. Together, all of these initiatives are improving service quality, speed and scalability and will ultimately create a more cost-efficient organization. Behind the scenes, we are also using AI to accelerate development and productivity across our engineering teams as well as to streamline criminal records workflows with a disciplined governance approach. Additionally, we're deploying agentic AI in targeted proof of concept and pilots to drive faster innovation. Internally and externally, AI is strengthening our differentiation, improving efficiency and scalability and supporting long-term growth across our business. Importantly, that differentiation is translating into strong go-to-market momentum. Our sales teams continue to deliver as demonstrated by our 17 enterprise bookings in the first quarter, each deal with $500,000 or more of expected annual contract value. These wins, along with the continued strength and increase in our late-stage pipeline are some of the many reasons we have confidence in our ability to continue generating new logo and upsell, cross-sell revenue and help support our outlook for the year. Our diversified vertical strategy remains a key driver of our sustained growth and together with our sales engine helped to deliver strong results in the quarter. In Q1, on a year-over-year basis, we saw continued growth acceleration in retail and e-commerce, driven by our large wins from 2025 and continued go-to-market momentum. Transportation and logistics also saw growth in Q1, driven by sustained base volumes and increased focus on compliance and risk mitigation in the industry. In our gig economy vertical, we saw strong labor market demand reinforced by the rise of job stacking, as Scott just described. Health care also grew modestly in Q1 as a result of strong new upsell and cross-sell, offsetting some remaining base softness that vertical navigates in a challenging funding landscape. Business, professional and financial services verticals experienced some pressure in the first quarter but did not meaningfully inhibit our overall performance. Our international business for Q1 continued to sustain strong year-over-year revenue growth with particular strength in EMEA, giving us confidence in our prospects for future further integration with international expansion. Now turning to Slide 8 to discuss some of our exciting recent announcements and events. In March, we released our 2026 Global Workforce Trends Report based on insights by more than 5,000 CHROs, HR leaders and job seekers across nine industries and five global regions and conducted in partnership with a third party. The report highlights that risk mitigation is now a top hiring priority as AI drives both innovation and new human capital vulnerabilities. Employers are prioritizing stronger, streamlined and more secure screening and identity verification across the employee life cycle. Additionally, fraud risk is rising, particularly due to the impact of AI, with 89% of HR leaders planning to add more screening and identity verification solutions over the next two years to help mitigate risks like this. On top of this, the importance of identity is clear, with 76% of hiring professionals reporting they have experienced falsified employment details. AI is accelerating changes in hiring dynamics, while raising the bar for identity trust, driving greater adoption of advanced verification and AI-enabled tools. In this environment, risk mitigation and speed have become dual mandates, prompting increased automation to improve efficiency without sacrificing security. At the same time, global and more flexible workforces are adding complexity to company screening strategies with over 60% of employers seeing growth in candidates with multi-country or multi-location work histories, driving demand for streamlined consolidated screening solutions. These trends reinforce our growth outlook and underscore First Advantage's role as a trusted partner, delivering the technology, automation and insights employers need to manage risk globally and build trust in a changing world. We also recently held our 10th Annual Collaborate User Conference in Florida, our largest ever event, welcoming a record number of attendees, including both customers and prospects. Collaborate continues to be an opportunity for strategic engagement, driving deeper product education and adoption, enabling peer benchmarking and providing insights into the HR and hiring trends shaping our customers' priorities. The event also delivers tangible pipeline contribution, supporting both potential new logos and deeper engagement with existing customers. This year, our customers shared how our proprietary data, global scale and AI-enabled technology are helping them manage rising complexity and risk across the entire employee life cycle, supporting both retention and expansion opportunities. The strong engagement and feedback coming out of the event reinforces our competitive differentiation and left both our customers and teams energized about what's next for First Advantage. And with that, I'll turn the call over to Steven.

Steven Marks, Chief Financial Officer

Thank you, Joelle, and good morning, everyone. I'll start with first quarter results on Slide 9. Our first quarter revenues were up 8.6% year-over-year, coming in at $385 million, marking our fourth consecutive quarter of positive year-over-year revenue growth. Our go-to-market success exceeded our long-term growth algorithm targets as the combined contribution of new logo, upsell and cross-sell revenues delivered growth of 12% in the quarter. Our retention remained extremely high at 97%. Base performance was flat in Q1, continuing to improve on par with how we had forecast the first quarter of this year. January and February order volumes reflected trends generally consistent with what we had seen in Q4, followed by stronger-than-anticipated momentum in March, which drove our outperformance versus our expectations for the quarter. We saw this trend continue into early April as well. Adjusted EBITDA for the first quarter was $105 million, up 14% year-over-year. Our adjusted EBITDA margin of 27.3% represents an improvement of 130 basis points versus the prior year quarter. Year-over-year margin expansion was driven by strong execution on synergies, cost discipline and favorable mix versus expectations in the quarter, particularly in March. Our adjusted diluted EPS was $0.26, a 53% increase year-over-year. The benefits of our greater scale, synergy realization, expense and capital management and lower interest expense as a result of our debt repricing and voluntary debt payments to date have supported our per share earnings growth. We have continued to action cost synergies from our Sterling acquisition, reflecting our disciplined execution and strong integration progress. As of quarter end, we have actioned $58 million in run rate acquisition synergies, moving closer to our total synergy goal. Additionally, we have realized $47 million of aggregate synergies over the last 12 months. Overall, our exceptional results were enabled by our go-to-market execution, continued focus on delivering synergies, our disciplined approach to cost management and the scalable nature of our business. Now turning to cash flow, net leverage and capital allocation on Slide 11. During the quarter, we generated operating cash flows of $49.4 million, a substantial increase of $30 million or 154% on a year-over-year basis. This impressive performance was driven by the larger scale of our business, the curtailment of acquisition-related costs and our overall focus on cash flow despite Q1 having some larger working capital outflows. Our cash balance at March 31, 2026, was $226 million. Our synergized adjusted EBITDA net leverage ratio at quarter end was 3.9x and represents a full half turn decrease from October 2024 when we closed the Sterling acquisition. Additionally, as Scott mentioned, we are executing on our balanced capital allocation strategy. First, during the quarter, we repurchased $19.5 million of our shares as part of the $100 million share repurchase authorization that we announced in February. Our repurchases through May 1 totaled $33.3 million, leaving approximately $67 million remaining in our authorization. Over the coming quarters, we expect to continue to opportunistically buy back shares to maximize value creation for our shareholders. Second, continuing our commitment to disciplined deleveraging, at the end of February, we prepaid $25 million of debt and subsequent to the end of Q1 in May, we made an additional voluntary prepayment of $25 million. This represents another quarter of voluntary debt reduction, extending our track record of quarterly prepayments since the second quarter of 2025 and brings our total debt repayments to $120.5 million since closing on the Sterling acquisition. Moving to Slide 12 and our 2026 guidance. Today, we are reaffirming our previously announced full year guidance, supported by our exceptional performance in Q1 and our macro outlook that the labor market we broadly serve will continue to be relatively flat as we saw exiting 2025, while balancing the possible impact of current macro uncertainty. With strong rollover from upsell, cross-sell and new logo and our go-to-market growth initiatives driving second half momentum, we expect revenue growth rates in the mid- to high-single digits in Q2 and Q3 and then slightly lower in Q4 due to the go-to-market timing dynamics described last quarter. We continue to expect that base growth will be modestly negative for the year between 0% and negative 2%, though below this range in Q4 as revenue smooths out to a more normalized quarterly distribution compared to last year as we lap Q4 go-lives. As revenue scales up seasonally, we continue to expect adjusted EBITDA margins to improve meaningfully in Q2 towards 28% before reaching around 29% in the second half of the year. Similarly, for adjusted diluted EPS, we continue to expect meaningful year-over-year expansion increasing to the high $0.20 per share range in Q2, then improving to the mid-$0.30 range in both Q3 and Q4. We have provided assumptions to our guidance in the appendix of the presentation. With that, let me turn it back to Scott for closing remarks before we open the line for your questions.

Scott Staples, Chief Executive Officer

Thank you, Steven. In closing, we delivered exceptional results in the quarter, and we expect the strong execution momentum to continue throughout the remainder of 2026. Looking ahead, as a clear leader in our space, we remain focused on winning by delivering best-in-class solutions for our customers. We remain confident in our ability to achieve consistently healthy results and are progressing well towards the 2028 financial targets we established during our Investor Day back in May of 2025. I would like to thank the First Advantage team for your continued dedication to supporting our customers. With that we will open the line for questions.

Operator, Operator

We'll go first this morning to Shlomo Rosenbaum with Stifel.

Shlomo Rosenbaum, Analyst

Scott, could you talk a little bit about which areas picked up in March? What happened that led to the outperformance in revenue? And maybe a little bit more detail on the mix impacting margins? And was this something that was an anomaly? Or do you feel like there's some part of the economy or some kind of area within your client base that's more sustainably improving?

Scott Staples, Chief Executive Officer

Thanks, Shlomo. So it's very interesting. As Steven mentioned, think of January and February as sort of in line with plan and then March was a blowout month. And the nice thing about it being a blowout month is when we analyze where all the order volumes were coming from, it was really coming from everywhere. It wasn't a single thing or one or two things that drove it. There was really nice growth across a majority of verticals and geographies. And as Steven also alluded to, we're continuing to see that nice momentum all through April as well. So it's not one thing to point to. I think it's just a really healthy sign as to where the business is potentially going.

Steven Marks, Chief Financial Officer

And then, Shlomo, on the margin front, when you have broad-based growth, you tend to see a return to normalized margins. If you recall, Q4 growth was heavily weighted towards a couple of major go-to-market wins, which was a bit more concentrated in transportation and some health care services. We had a much more normalized distribution in Q1 because base is now essentially flat. So when you have positive momentum and it's broad-based, it's a more normalized historical distribution of revenue, which helped us see some of that upside in margins, and you saw that flow not just at the gross margin line item, but all the way down to EBITDA and EPS as well.

Shlomo Rosenbaum, Analyst

And then why are you continuing to expect base growth to be 0 to negative 2% where we've seen consistent improvement in that metric over the last four quarters? Is this kind of just a posture because of what's going on in macro? Or is there something that's sticking out to you that's really saying, hey, let's really account for something that might go wrong over here? Maybe just give us a little more into how you're thinking about that.

Scott Staples, Chief Executive Officer

You're right, Shlomo. It's certainly a conservative approach, and it's more of a posture to what's going on in the geopolitical and macro environment. Obviously, we're feeling very good about the business and our macro interpretations don't necessarily align with what you see in the media. If you look at quits, openings, hires, unemployment, it's all flat across the board. And that's a great sign for us. So we're taking that into our base assumptions — flat, flat, flat, maybe a little bit negative here and there, a little bit positive here and there — but generally taking a flat approach to base until there's a bit more clarity on the macro.

Operator, Operator

We'll go next now to Ashish Sabadra with RBC.

Ashish Sabadra, Analyst

You talked about digital identity being incorporated into almost one quarter of your new contracts. How important was that, along with your AI capabilities, in driving the strong 17 enterprise bookings in the first quarter?

Scott Staples, Chief Executive Officer

Yes. I'll let Joelle jump in as well, Ashish. Digital identity — or put differently, identity fraud in recruitment — is really at an epidemic level. It's hard to have a customer conversation with somebody that doesn't have a live example of where they encountered fraud. It could be simple AI fraud in documents, meaning resumes and work history, or it could be deep fake AI fraud in a video interview. We're seeing it across the board. We talked last quarter about digital identity being the tip of the spear for our products and platform. The conversations now tend to lead with identity. I would suggest you view digital identity more as package density upsell than as a stand-alone revenue driver, even though it can be sold stand-alone. We're typically seeing it as a bundled offering. Customers want to lead with digital identity, but also do the other checks. The beauty of our platform is it's fully integrated. It's a seamless customer experience and user experience, and it's a fully integrated platform so they can capture all the data and make sure high-quality checks are being done with compliance. It is the hottest topic in our industry right now. I'll let Joelle give a few more comments and more color.

Joelle Smith, President

Yes, Ashish. We're seeing Digital Identity as standard in nearly every deal we quote across industries and customer segments. It's showing up both as direct revenue and as an enabler of our large wins. The 25% figure in Q1 indicates how quickly it is adding to package density, as Scott discussed.

Operator, Operator

We'll go next now to Andrew Steinerman with JPMorgan.

Andrew Steinerman, Analyst

This one might not be possible, but I was wondering, as we think about pre-hiring identity services as part of a bundle, are you able to quantify? Do you track how often you feel like you're winning background check contracts because of the inclusion of your identity services?

Scott Staples, Chief Executive Officer

Andrew, I think it's hard to quantify because we don't always know the intricacies of a competitive deal — what our competitors are pitching versus us, why a client chose us versus someone else. We try to ask those questions and get anecdotal feedback, but we can't precisely quantify it. What we can tell you is our pipeline is growing and is at a historic high level. Our win rates are up. Another way to look at it is retention: it keeps improving and has leveled at 97%, which we're very happy with. Digital identity contributes to that because it is extremely sticky. Customers are using it multiple times in the hiring, recruiting and onboarding lifecycle. For example, digital identity can be used during recruiting to detect deepfakes, during the background check to ensure the same person is being checked, during onboarding for I-9 verification, and again on the first day of work to confirm the person who showed up is the same person. We have customers that told us that isn't always the case, so digital ID provides stickiness across those touchpoints. It's hard to quantify what percentage of wins it accounts for, but retention is up, the pipeline is the highest it's ever been, and win rates are up, so we think being at the forefront of identity fraud is the right strategy.

Operator, Operator

We go next now to Andrew Nicholas with William Blair.

Andrew Nicholas, Analyst

I wanted to go back to the job stacking trend. Is that something you saw specifically pick up in Q1 or has that accelerated over the past couple of quarters? Or is the commentary simply to reinforce that it's an ongoing secular trend?

Scott Staples, Chief Executive Officer

A little bit of both. We talk to our customers frequently through QBRs, executive sponsorships and our user conference. Our customers are generally neutral to positive on the job market. In my discussions, I haven't had a single customer say they'll hire fewer people in 2026 than in 2025. Many say they will hire the same or more. There's a generational shift: millennials now represent the largest percentage of workers (about 36%), and Gen Z is catching up. As boomers retire and Gen X ages, millennials and Gen Z approach work differently. Job stacking has become more popular because even workers with traditional full-time roles are taking on part-time or gig work for flexibility. This isn't limited to gig platforms; it's across industries. For example, hospitals increasingly hire more contractors and part-time workers. From a regulatory perspective, FCRA rules require background checks to be run individually for each employer, which means multiple jobs per individual result in multiple background checks. That dynamic is positive for our business and is something we will continue to monitor closely. We believe this next generation of workers may continue to prefer this approach.

Andrew Nicholas, Analyst

And then a follow-up on pricing. Can you talk about price realization for First Advantage? And importantly, are you seeing competitors being aggressive on price in RFPs or anecdotally? Given your strong retention and success integrating Sterling, are competitors discounting in a way that gives you pause or creates opportunity?

Scott Staples, Chief Executive Officer

Steve, why don't you take the first part, and I'll take the second?

Steven Marks, Chief Financial Officer

Andrew, long story short, it's still a very stable pricing industry. We're not seeing new major trends either way. Despite that stability, we're producing consistent enterprise bookings and the combined new logo, upsell and cross-sell growth we discussed. So no real new pricing trends — it's business as usual this year.

Scott Staples, Chief Executive Officer

On the competitive dynamic, companies are looking for cost savings, which contributes to some vendor consolidation. That trend has favored us in global wins where U.S.-based RFPs consolidate global business away from local players. Consolidation increases our share of wallet, and in return, pricing has generally stayed stable — it's not leading to broad discounts. Instead, it's leading to consolidation with us and often a guarantee of stable pricing for contract terms, even though inflation adjustments such as CPI increases may still apply. This consolidation is being driven partly by procurement looking to control costs and partly by buyers seeking to de-risk their supplier base. Our risk mitigation capabilities and scale are resonating with buyers who prefer larger, proven partners over smaller vendors.

Operator, Operator

We go next now to Jeff Silber with BMO Capital Markets.

Jeffrey Silber, Analyst

Post the very strong results in the first quarter, you still maintained your guidance for the year. Are you being overly conservative? And maybe you can talk about the puts and takes to hit the high end and the low end of the guidance.

Scott Staples, Chief Executive Officer

Steven, do you want to take that?

Steven Marks, Chief Financial Officer

Jeff, I wouldn't say we're being overly conservative. We're proud of Q1 results and encouraged by April's start, but there is a healthy amount of volatility in the world — for example, the situation in Iran, which doesn't directly impact us but could influence APAC and India markets later in the year, and could trickle into the U.S. consumer and affect peak season. That dynamic derisks the second half somewhat from our guidance perspective, but I wouldn't call our outlook overly conservative. A good first few months help the full year, but there's still a lot to play out globally.

Jeffrey Silber, Analyst

Great. And Steve, maybe another one for you on capital allocation. You're both repaying debt and buying back stock. Can you talk about the rationale behind those decisions and how you decide to pick one or the other or pursue both?

Steven Marks, Chief Financial Officer

As I shared, we're focused on generating shareholder value opportunistically. We have the cash flow and flexibility to do both debt repayment and share repurchases and can flex between them based on market dynamics. Over the last several months, we've paid down $50 million of debt and repurchased over $30 million of shares. That balanced approach allows us to tailor capital allocation to market conditions and maximize value for shareholders.

Operator, Operator

We'll go next now to Stephanie Moore with Jefferies.

Stephanie Benjamin Moore, Analyst

I appreciate the color on the tech stack and AI work. I'd love your view on what this could mean from a competitive standpoint. There's a myopic view on AI as a threat, but taking a glass-half-full view it could drive consolidation and allow you to take share given your size and years of investment. Can you comment on how AI might let you take share, push out smaller competitors, and how you view the competitive landscape because of AI?

Scott Staples, Chief Executive Officer

I'm going to let Joelle answer because she's leading the effort, but we are pleased with our tech stack and scale. We have a large engineering team working on these initiatives, we've been doing AI for years, and we have products in market and in development. Joelle can give more specifics.

Joelle Smith, President

Stephanie, we are seeing strong interest in AI-enabled builds on the platform because of these changing dynamics. AI helps accelerate development, but competition remains — there are many mid-market and small players still active. We feel very good about how we've integrated Digital Identity into the platform, the investments we've made to improve the applicant experience, and our ability to scale. We are well positioned given our investments, but there is still plenty of opportunity in the market and competition remains.

Operator, Operator

We'll go next now to Scott Wurtzel with Wolfe.

Scott Wurtzel, Analyst

First, can you talk about what you've been accelerating in the FA 5.0 strategy relative to your original plan? Are there any potential near- or medium-term margin benefits from that acceleration? And as a follow-up, any color on the split in your pipeline and bookings between new logos versus upsell and cross-sell?

Scott Staples, Chief Executive Officer

When we created the FA 5.0 strategy, digital ID was in its infancy. One major acceleration is our focus on identity fraud — we're pouring investment into it because it's the number-one issue for customers and it's leading to documented success stories where we've caught fake applicants. The AI piece is also accelerating. There are two buckets of AI work: the visible front-end improvements that enhance candidate experience and customer-facing tools, and the invisible back-end AI that improves quality, data sourcing decisions and efficiency — what I call plumbing. That invisible work produces higher quality and faster turnaround times which drives retention and sales. Another core element that hasn't changed is our vertical focus. We're investing deeper in the verticals where we already compete and have white space. We're not necessarily entering new verticals; we're going deeper into the ones we have.

Scott Wurtzel, Analyst

Got it. And on the go-to-market side, any color on the split in pipeline and bookings between new logos versus upsell and cross-sell?

Scott Staples, Chief Executive Officer

I don't want to provide too much pipeline granularity because competitors listen. What I will say is that the pipeline is the largest it's ever been and the late-stage pipeline is at historic highs. Our sales engine is humming due to product investments, vertically focused sales teams and increased marketing. We've rebranded around 'trust in a changing world' because identity fraud resonates strongly with customers. The combination of marketing, vertical sales and product investments is driving record results across new logos, upsell and cross-sell.

Operator, Operator

We go next now to Ross Cole on for Kyle Peterson with Needham.

Ross Cole, Analyst

I wanted to dig a little more into a couple of verticals. First, within retail and e-commerce, does the continued growth acceleration persist through the remainder of 2026? Or will it slow down at the end of the year? And for the business and financial verticals that are under pressure, do you expect that to continue or is there upside there?

Scott Staples, Chief Executive Officer

We had a really strong peak season in 2025, which drove solid growth in retail, e-commerce and transportation in Q3 and Q4. Retail and e-commerce continue to perform well. About a year ago there was a small blip related to tariffs, which has since disappeared. The only issue is lapping a very large Q4 win last year, so there's a grow-over to consider. Otherwise, we expect business to be similar to 2025. Regarding business and financial services (BFSI), that's about 12% of our business and is currently modestly negative, and that may remain the case through 2026 as those customers evaluate back-office changes and the impact of AI. That was already factored into our guidance, so there's no change in expectations.

Operator, Operator

Thank you. And ladies and gentlemen, it appears we have no further questions in queue. Thank you all for joining us today and for your participation. This will conclude the First Advantage First Quarter 2026 Earnings Conference Call and Webcast. At this time, you may disconnect your line, and have a wonderful day. Goodbye, everyone.