Peterson, one of the research analysts here, do a lot of the business and info services space. We are going to do a fireside chat here with First Advantage. In the background screening space here, we have Joelle Smith, president, and Stephen Marks, CFO, joining us here today. So first of all, Joelle and Stephen, thank you for joining us. Glad to have you. And maybe if you kick things off, just for those that might be a little less familiar with First Advantage, if you could give us a quick overview of the company, a little bit of background and history, kind of key offerings and scale and such. I think that would be really helpful.

And good morning. And thanks for having us, as always. And I'll start and Joelle will fill in where I missed a few of the details. But, sir, yes, and as you mentioned, you know, First Advantage, certainly known as being the leading, the global leading screener, background screening company. We've been doing this for a long time. In fact, if you kind of follow all of the various corporate histories, Sterling, a company we acquired a little over a year and a half ago, was founded over 45 years ago. So we've got an immense history of kind of leading the space and building up the greatest solutions to operate for our customers. But, you know, where first advantage is today is we've got over 80,000 customers around the globe across 12 of our primary verticals. And we're able to offer through our really robust tech solutions and platforms leading screening services, not just in background screening, but obviously in the adjacent services like drug testing, I-9 and right to work, which has become an incredibly hot topic these days as the Trump administration enforces immigration law, tax services, investigation services, and most notably over the last couple of years as the risks have evolved, digital identity and trust services around making sure you actually know who your people are, who you're hiring and interviewing and bringing into your facilities and into your data. First advantage has always prided itself by building its solutions with automation and building off of its proprietary data. And in fact, we've got two major proprietary databases that house over a billion proprietary records. We use that both on the criminal side and on the verification side. And when we fulfill our background screens, it's got a huge value to first advantage and allows us to create some differentiated market solutions. As I mentioned, we operate in kind of 12 primary verticals. Our largest three verticals are healthcare, which is a great vertical to be in. we think that's got a ton of long-term growth opportunities as you have an aging population and almost an endless demand cycle, as it seems, for healthcare services. Transportation, which is mostly home delivery, logistics, a lot of what powers the e-commerce world that we live in today, and then also retail and e-commerce, which is a lot of the high-volume discount retailers, e-commerce guys, a lot of brand names that everyone would be familiar with. But, But, you know, again, that's spread over almost 80,000 customers. We operate, obviously, you know, primary market here is the Americas and the U.S., but have an incredibly strong market in the international, EMEA, APAC, India, have market-leading positions in a number of those countries. So it's obviously a name that maybe people aren't always familiar with, but we are, you know, certainly with the Sterling acquisition we closed 18 months ago, where we roughly doubled the size of the business and truly kind of set ourselves up in an industry-leading position. We've got, in our industry, unmatched scale and unmatched tech resources and really a great growth model that we've been able to execute on, despite what maybe the news is telling everyone of what's going on in the labor market, being able to now post five consecutive quarters of growth and really happy with the progress that we've made.

Great. That's really helpful. And you mentioned a couple of times in the overview here about that Sterling acquisition. I mean, that really seems to be kind of a transformative, you know, plant your flag type of moment here for the company. I guess, you know, could you walk through, you know, how, you know, this is performed versus expectations, you know, strategically, culturally, you know, as well as, you know, kind of financially, how is everything fitting together versus, you know, original expectations? I think on the synergy front, for example, you guys have raised the targets and seem to be tracking ahead. But I guess just how has everything matched as an organization and how has it changed if all have how you guys go to market?

Yeah, incredibly well. And I'll just answer it in two words. No, look, it's been it's been really M&A in this industry has got a little bit of a bad rap because it typically has followed with forced platform migrations and large scale attrition. And what was really critical for FirstAdvantage, you know, when we were reviewing the concept of doing a larger roll up was being able to internally underwrite that deal without having to force migrate our larger, you know, larger customers off of one platform onto another, because that just gives them a reason to leave. And, you know, when we've typically seen in some larger acquisitions in our space, you know, attrition rates, you know, that go over 20%. So you lose 20% of your base customers when you do a deal. Our retention rates have actually gone up. So when we think about what the biggest measure of success is before we get into the financials and the culture and the sales momentum that I'll let Joel tell you about, I think the biggest resounding success is, you know, it's been a profitable deal. And, yeah, the centers have gone up, but we've done that with increasing customer retention. So we were able to navigate the issues, come up with some really creative solutions to how do you buy one big platform set, bring it, bring it, you know, alongside our, you know, another and actually make customers happier and stickier after the fact. To your point, yeah, financially, it's been great. We've obviously raised our synergy targets. We started with a $50 million or more kind of target. Our latest number is 65 to 80, and we're well on our way to hitting those numbers. And by the end of this year, to steal your plant the flag, we'll plant the finish line flag down by the end of the year and have achieved that number and really moved on. But I'll let Joel take the culture and the sales side, because I think that's the other, when you think about it internally, like what are the benefits we're getting out of it beyond just more scale and better financials? You know, we're seeing that momentum in the team culture, but also in our go-to-market momentum.

Yeah, thanks, Stephen. One of the great things about the acquisition was the complement we had on the verticalization. So the verticals where Sterling was traditionally focused versus where First Advantage was focused were highly complementary. so it's almost kind of like two lego blocks kind of coming together um so when you have that momentum where you know you kind of have this all ships rise uh program where cultures can kind of come together um it actually worked out really well and these were we were fierce competitors uh for a very long time um but really proud of kind of how the teams came together and it really was a best of kind of all as we you know brought the teams together and the customers felt that so as Stephen said our retention rate is 97 percent through the year through the transition year and that was up from 96 percent so very proud of the 96 but super excited that we were rounding up to 97 now and the customers felt a benefit with this and we were purposeful in how we built that out. We wanted to make sure that each experience they had on their platform with their candidates was an improvement month on month. So we rolled out a series of upgrades on the platform. The customer success teams were able to bring good news to customers during a year that could be a lot of uncertainty. And that really helped to bring a lot of wind in the customer teams that we have, as well as our customers.

So we're really pleased and happy with how all this has has come out great um you know really appreciate all the color there and then we wanted to pivot over to some of the recent results you guys reported uh i believe a week ago today um and it really kind of a a nice quarter here um you know appreciated by the market but um i think in particular the the base growth um you know kind of return to being flat. And I think, Stephen, I'm sure you have that on the tip of your tongue when the last time that was, but I guess, what are you guys seeing in terms of client conversations? I think a lot of people look at the macro data and there's a lot of noise and moving pieces there, but you guys are getting a lot more kind of real time granular stuff. So what are you guys seeing? how are those client conversations going and how are they changing, if at all, you know, to start the year?

Well, it's been 15 quarters. It's certainly at the tip of our tongue, right? I think, you know, base really kind of started to normalize and turn negative in the second half of 2022. And, you know, I think we had seen in through different verticals over time, some got back, you know, post pandemic, there was a hiring boom and elevated hiring levels across the board. Some verticals got back to what is a more long-term, sustainable hiring level quicker. So they got back to a normalized base almost overnight. There was a lot of momentum in some other verticals that just took it longer to kind of settle out into what is the long-term run rate. And you've seen that normalized out not just in our base, but in a lot of the jolts-type data that comes out. The ratio of job openings to those unemployed was 2.2 to 1 back in 2022. So for every job opening, you know, for every unemployed person, there was 2.2 openings for them to go find. So that created a lot of excess churn, if you will. We're back to one to one, which is a very historically comfortable number. And you've seen that now that we've had that stability in our eyes and in the labor market and that consistency and that flatness. you know we saw it really hit its stride in the middle part of last year base last year in the second half was negative two and q3 negative one and q4 and now zero and q1 but and why that's so important and what i didn't cover maybe in my intro is you know the strength of the rest of our revenue algorithm takes over and i'll let joel talk about what the customer is saying today but if you think about negative two negative one zero base we've been able to post some really good mid to upper single digit growth numbers or even you know last quarter double digit you know growth numbers because we're able to drive so much growth out of new logo that runs four or five percent every quarter, upsell, cross-sell, which has been a huge hot area now that we've got some very, very interesting products to sell, whether that be digital identity or i9 and some of those others that I talked about earlier, global expansion, expanding share of wallet, introducing new products, the risk management theme has always been there. So you can get, you know, we've seen that number tick up. It was eight percent last quarter. And to Joel's earlier point, retention rates at 97%, so you're retaining a ton of that revenue. So as base hits that flat, neutral state, you can really drive a lot of really positive results. And we've seen revenue now be positive for a full LTM period. So we're able to build off of that stabilizing and consistent base and turn that into long-term sustainable growth, which is kind of in the strength of our business model. And then to that point, I'll let Joel tell you, but we're hearing really that consistency see trend and flat trend probably coming out of our customers now too. And that's really, you know, you're seeing that in action in terms of our base numbers.

Yeah, it's really interesting, Kyle, because what we're hearing from our enterprise customers, that's primarily where we play as enterprise customers, large organizations, they are neutral to positive on the market in the hiring environment. And obviously, we're seeing that in the base numbers. Despite what the headlines are saying, I think there's a portion of the story that's being untold or unhighlighted, if you will, because there is a lot of activity within the enterprise customer base where they're really trying to figure out what their labor strategy is in the world of AI. And as much as the headlines say they're all cutting, there is a pretty significant amount of hiring also happening on the back end of that that we're seeing in our data. So every customer that we speak with, and we meet with a lot of them, thousands of them, and we talk to them regularly on what their plan is, and they are all stating a neutral to positive outlook for 2026. And, And, you know, as the numbers show, we're seeing that improvement quarter on quarter in the base numbers. So despite what a lot of the headlines are saying, we are seeing a lot of momentum with the enterprise customers.

You know, really appreciate Yael color and insights there. Maybe switching over to upsell cross-sell. It seems like that has really, you know, taken off, you know, the last few quarters here and quite a bit of all the expectations and it's been really good to see. What is driving that? And I guess, like, what inning do you think we're in in terms of this? Like, I think there's a lot of questions on, like, how much runway is left here, obviously. It's great to see, but, you know, sustainability comes into question. But I guess what's driving it and how much, like, where do you think we are in that evolution?

Yeah, well, Kyle, maybe first I'll just take a second and maybe explain what is in upsell, cross-sell, and then I'll let Joel tell you why we've got so much momentum. But really, you've got three key drivers of upsell, cross-sell. So, one, you know, two are kind of simple, right? You know, the cross-sell, so we can take a customer and cross-sell into our portfolio of products. So a customer who's only doing background screening, sell them digital identity, sell them drug testing, sell them I-9 and cross sell to a different product. Part of upsell is geographic expansion or expansion of wallets. So a customer, we only have their U.S. business and we grow them into EMEA or vice versa. They're an international customer and we can get their U.S. business or we only have certain subsidiaries. And frankly, that piece of it's actually been stronger recently than maybe it was in years past, just as companies start to consolidate spend, give us opportunity for their global programs. They're acquisitive as well and give us shots of things that they bought. And then the other one that's a little unique to background screening is the concept of package density, but it's that risk management concept. And over the years, this has really been the strongest tenet of upsell cross-sell. And it's customers, as they increase the amount of screening they're doing per applicant, the depth of those screens, adding new features and functions to those screens, as they turn up that risk management dial and want to avoid being in the headlines, obviously our pricing goes up, our revenue goes up, and that's been the number one driver over time. But I think more recently, there's been this trend of consolidation and giving us a shot pieces of the business or displacing other providers. But you're right. I mean, it's been a huge contributor. It's actually almost always in First Advantage's history been on par or ahead of new logo, as crazy as it seems, because a lot of times customers will come on with kind of the standard package, and then that gives us opportunities over time to enhance, enhance, enhance, and use that verticalized approach to do it. I'll let Joelle talk to you about some of the more recent momentum we have and why some of the new products are really starting to pay off, though.

Yeah, thanks, Stephen. So we have, we're really kind of hitting our stride with the FA 5.0 strategy, which we talked about, and that's dovetailing directly into the benefits we're seeing with cross-sell upsell. One of the, there's kind of four key foundations for how we're driving growth with the strategy. Stephen covered a few there, but just to kind of break it down, it's really number one is uh all the changes with ai um and so the way we look at this is there's a lot of great things that happen with ai but there's also a bad side of ai in that applicants can create uh deep fakes they can create synthetic identities they can create a fake company to put on the resume to try to embellish a credential there um so there's a lot of things that can happen. And so digital identity and a lot of that fraud reduction that we are rolling out to market is driving a lot of the cross-sell upsell. But there's other aspects of AI that we're also driving, which are embedded into our applicant experience, which really helps with onboarding. It accelerates speed. It makes it a great experience. And it simplifies a lot of the process to get time to hire faster because that still is a driving demand. So the AI bucket is kind of one area where we're really focused to upsell and cross-sell that. The second bucket is global expansion. And this is really, it's a combination of two pieces. One is where customers are headquartered in the U.S. and they want to expand into regions in Mexico, Brazil, Europe, Asia you know any of those areas and they just want to bring consistency to a global program or it's organizations headquartered in Europe or Asia Asia and they want to expand to the US so we're actually seeing both sides of the coin right now the third area that we're really focused on is our partner network so last quarter we announced that our Workday Platinum partnership So there's a lot of momentum with that. But we have over 100 partner network integration systems that we are really trying to accelerate. But the Workday partnership in particular has been great for our cross-sell, up-sell. They have a verticalized go-to-market. We have a verticalized go-to-market. So it's very complementary. We're co-selling together to close deals. So that's also helping to accelerate. and that's really kind of driving a lot of that 12% kind of cross-sell, up-sell, and new logo growth that we saw last quarter. And then the last piece is our bread and butter that we've always done, which is our verticalized go-to-market. So there's specific products that we are rolling out to enhance healthcare, for instance, to enhance transportation, to enhance our gig vertical solutions. So they're very specific to these verticals and they're embedded into our platform And they're leveraging a lot of the speed and AI logic that we have built in there. And that's getting us deeper into the verticals that we are already in and allowing us to capitalize on the growth that we're seeing in some of those top verticals like health care and transportation.

Yeah. And I think the last point right on sustainability. Right. I think, look, we had a great bookings and win year last year. I think you heard us highlight throughout the year three marquee wins. Some of those were new logos. Some of those were upsell, cross-sell. So we knew we would have a pretty strong start to the year on upsell, cross-sell, new logo combined. You heard, Joel, the 12% we had this quarter. We talked about on the call last week, we expect to be at or above our long-term guidance pretty much this year because we've got that strong rollover. But at the same point in time, the sales team's done a tremendous job of refilling the pipeline funnel. So you take some big deals out, rebuilding the pipeline. You know, you heard us talk about it on the call, record high still. So we've got an incredibly strong, you know, inbound pipeline. And then, you know, as well as kind of executing the deals quickly and maybe even above where we estimated ACV at. So you have that rollover and you have that strong start to the year and then you've got a great pipeline. So we think there's a ton of momentum to keep the party going.

And there's a lot of white space still in the existing customer base. And so truly from a sustainability perspective, the risk is still a top priority for every single enterprise out there. And as long as that remains the top priority, package density is going to be a play. So as long as we can continue to get products out there that customers need to help manage their risk within their organization, white space will continue to prevail.

Awesome. Yeah, that's great to hear. Maybe we could pivot over and expand. You guys have touched kind of briefly about identity verification so far. That really seems to be something that we're hearing a lot more about from you guys over the last couple quarters. Seems to be a really nice kind of bright spot here. I think you guys disclosed roughly 25% of the implementations this quarter. and go lives had digital identity. So I guess like he gives an update on, you know, what exactly that product is, what differentiates you guys versus competitors and what is driving, you know, the big uptick, um, you know, in adoption with, with some of these implementations right now.

Sure. Yeah, absolutely. Um, so with identity, we're seeing, um, it in every single, um, customer conversation. So it's really the first time that a product that this industry has, but really that we have and we're excited about, has every single customer segment, every single vertical, and every single geo are demanding it. And so this is definitely an outcome of what the rise of AI has done. Like I had said previously, it's creating bad actors and the ability for people to create synthetic IDs to be able to apply for jobs with the goal to either get multiple jobs so that they can pass the salaries back or they can just make more money. They are doing it because they want to, they're being paid by somebody, by a nefarious actor that says, hey, just give me the credentials. You know, they can drop in malware and they can exfiltrate data. Or something as a little bit different use case, but still very real, they are not legally able to work in the country they're applying for, like not able to work in the United States and they need a job. So they are getting someone who is legally available to fill out the I-9 for them. And then they, you know, obviously, you know, try to keep the job. And so whether it's an immigration issue or whether it's a cybersecurity issue or whether it's just dual employment there are a number of reasons why people are trying to do this so the digital identity product attacks this fraud epidemic that we're seeing across again every single industry and the thing that's unique to first advantage is that we have a platform that allows organizations to connect the dots at every single place throughout the employee hiring cycle or candidate hiring cycle and post hire. So if you have someone who is interviewing, and let's say they're not a great interviewer, they don't know the content, they can hire somebody to do that for them. And that is a real person with a real identity. And then when you go to do a background check, you actually background check the person who wants the job who didn't interview. And that is a real person. And that is somebody who is actually getting the background screen. But being able to connect that they were not the same person that did this, did the interview, is really important. And more importantly is once they get onboarded and they do the I-9 or the right to work in another country, is that also still the same person that interviewed, that did the background check, and then who showed up day one? If they're driving uh you know for a warehouse worker or they're a retailer um is that driver who pulls up to pull all the merchandise out of the warehouse to make the deliveries the same person that we did the background check on to make sure they're not a criminal that they are not um a you know a fraudulent person uh so these are all the things and again the uniqueness is us being able to connect the dots across our platform to verify it every single place from a biometric and biographic uh data perspective that's the sophistication of our our product suite and that is what is really driving a lot of the momentum with cross sell upsell right now great um you know that's

really helpful um when we move over to uh gig work that seems to be another area that you know you guys are are getting some really nice growth in um i i think you know combination of you know job stacking and and maybe some regulatory tailwinds and certain markets seem to be um contributing to this but i guess um what yeah are you guys seeing is kind of driving some of this growth could you give any more color on on kind of what is is driving that i think obviously there's some secular tailwinds too so i guess could you help us unpack what the

strength you guys are seeing in in gig is is being driven by here yeah gigs are really interesting uh vertical for us because we're seeing um a significant level of maturity in this in this industry um a lot of the times it's been focused on speed and speed is always important uh to kind of get as many people onto the platform as possible but there's a heavy focus on compliance uh these days and risk mitigation um far more than we have seen in the past part of that is regulatory driven uh to your point kyle um but part of that is also i think just a maturing of the industry um and understanding that there is a need here so we're seeing gig growth um across the board from that perspective we're also seeing it from a job stacking trend so there's always been um organ or people who want to work you know obviously in gig but with the rise of kind of the new generations coming into the workplace uh gen z in particular and then also you know even some of the millennials um i think they want a lot more flexibility and and in how they work and so we're seeing some of them stack you know three four or five gig jobs together and and not actually have a kind of more professional service job. They want the flexibility. And so there's a lot of activity around that, which is good for us. Every time they get checked onto the platform, that's a search, you know, for us. The other thing that they're doing, and this is really kind of a generational thing as well, is they'll work weekends, nights, and just try to make extra cash. Everybody's trying to pay more for gas these days and people are trying to cover more for groceries. So a lot of that is helping obviously the gig providers to expand their platform, but it's obviously helping us from a demand perspective. Some of the regulatory changes that have happened is really around digital identity. So there has been a lot of evidence around folks who are on the platform but they are farming out the delivery if it's a you know last mile delivery type of thing um or they're just trying to make obviously more money um and so what we've seen some of the countries in europe in particular have put programs in place uh that have required gig workers to basically check in um and do an identity check before they make a home delivery um so if you've got somebody on a moped making a delivery of a pizza or a grocery bag or something like that they have to check in and do a selfie uh before they make that delivery whereas before they were using identity with us and they would do it before they got onto the platform and then they could deliver anything that they wanted um but now it's changed like i said where it's daily and sometimes multiple times a day uh before they make that delivery or before they go in in a home to do to do some type of work um so this is a trend that we're seeing drive pretty high demand on identity and again the key part isn't about just checking that selfie to the id it's about is this the person that i background checked is this person legally able to work in this country is this person not a criminal um and they're the things that make our product so compelling um so it's taken you know a hundred thousand searches we used to do for some of the gig customers in in europe to millions uh because of the frequency of these identity checks that have to be done um so it's a really interesting trend that we're seeing um and it's obviously building very well for our product and our growth strategy awesome well really appreciate this um and we have a few minutes left here but um i did definitely want to move over you know to the balance sheet i know Stephen, that's kind of been your pride and joy and project here, especially since the Sterling deal closed.

So I guess I wanted to kind of ask if you could give us an update on where the balance sheet was immediately post-transaction, how much you guys have been able to delever so far, and how you guys are kind of approaching capital allocation. at this point. I know you guys now are able to buy back some stock, still paying down debt. So I guess like, how are you guys kind of threading the needle on the balance sheet front here? It's been really nice to see progress.

Yeah, no, it's certainly a major area, me and my team's focus, right? And first advantage, we've always been, you know, hyper focused on quality of earnings and converting profitability to cash flow. Because that's, I mean, that's just the underpinnings of a really healthy business. Obviously, you know, when you go and do a transformative acquisition, $2.2 billion purchase price, you know, we had to take on some debt. You know, our leverage right after the acquisition was about 4.4 times. We've got that down to about 3.9 now, so a healthy half-turn reduction. The business, you know, we're really through the core parts of the integration, so the quality of earnings, the add-backs, the integration costs are, you know, almost 100% gone now, you know, we're, you know, down to, you know, very small amounts of integration spend in the first quarter. Operating cash flow, you know, just pure gap cash flow for operations was almost $50 million in Q1. And, you know, to your point, building off of the health of our balance sheet and the productivity of our cash flow model. And look, I mean, the markets, you know, in our view, got a little irrational in how they priced our stock, obviously, when you got into that February timeframe. And we certainly did not have share repurchases on our roadmap, but we always look at the most valuable ways to return value to shareholders and capital shareholders. And just given how the market we thought was reflecting the right values of first advantage, we both opportunistically set up a share repurchase program with our board, but opportunistic is the key word there. When the stock price is at low or more rational values in our minds, we'll buy a little bit more, and that creates a very strong lever of EPS growth and long-term value growth for our shareholders. And at the same time, as our stock price has gotten a little bit more in line with our expectations over the last few weeks, we're certainly a little less active in the market, and then we'll preserve that capital and pay down a little bit more debt. But we've been paying down over $25 million, or at least $25 million of debt now for a number of quarters in a row. I've already repaid about $120 million of the term loan, and we'll keep that balanced yet opportunistic approach towards capital allocation for the foreseeable future. Our long-term leverage targets are two to three times, so we certainly have a plan in mind and a focus in mind of getting down to that three times leverage range. We know that once we get below three and a half, it changes a lot of market perception over the stock. So certainly that's a core focus of ours to be a little opportunistic, but certainly heavily focused on getting the deleveraging trend taken care of.

Awesome. Well, I think we've covered a lot around here and really appreciate you guys joining. I think we'll leave it there. So appreciate you guys joining us and to everyone on the line and hope you guys enjoy the rest of the conference.

Thanks, Kyle. Great conversation as always.

Thank you.

Thanks, everyone.