Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• First Advantage Corp (NASDAQ:FA) successfully closed a $2.2 billion acquisition of Sterling, doubling its size and enhancing its market position.
• The company reported strong financial performance with combined revenues of approximately $1.5 billion and adjusted EBITDA of $407 million.
• First Advantage Corp (NASDAQ:FA) has a robust average retention rate of over 96%, indicating strong customer loyalty.
• The company is an early adopter of AI, utilizing it to reduce reliance on third-party vendors and deliver cost-effective solutions.
• First Advantage Corp (NASDAQ:FA) has expanded its international presence, seeing growth opportunities in EMEA, APAC, Latam, and India.

Negative Points

• The company experienced a decline in base growth, particularly in the Americas segment, due to macroeconomic uncertainties.
• Legacy Sterling's adjusted EBITDA margins were impacted by attrition of higher-margin customers and sales of lower-margin products.
• The integration of Sterling may pose potential distraction risks, which could affect new logo growth or upsell/cross-sell opportunities.
• First Advantage Corp (NASDAQ:FA) faces challenges in achieving its synergy targets within the expected timeframe.
• The company has a high net leverage ratio of approximately 4.4 times, which it aims to reduce over the next 24 months.

Q & A Highlights

• Warning! GuruFocus has detected 8 Warning Signs with KULR.

Q: Can you provide more clarity on the attrition of higher margin customers at Sterling? Is this expected to continue? A: (CFO) The attrition was not a change from historical trends. Sterling's retention has been high, around 96%. The attrition was more of a mix issue, with recent success in lower-margin areas like drug and healthcare testing, while the attrition occurred in higher-margin traditional screening areas.

Q: How has the operating environment changed over the last quarter, and what are clients saying about their hiring expectations? A: (CEO) The macro environment remains stable with continued normalization. Customers are still hiring, albeit modestly, focusing on backfills and just-in-time hiring. We expect some uncertainty to dissipate with the U.S. election behind us and potential rate cuts.

Q: Is there a change in the EPS accretion expectation for 2025? A: (CFO) There is no change in our synergy outlook or EPS accretion expectation. The comment about 2025 being more neutral was to clarify the timing of synergy realization and its impact on reported results.

Q: Can you elaborate on the strong Upsell and Cross Sell metrics for both First Advantage and Sterling? A: (CEO) Both companies are performing well in Upsell and Cross Sell, driven by customer priorities on safety and compliance. We expect this trend to continue, supported by digital identity solutions and increased package density.

Q: What are Sterling customers most excited about with the acquisition? A: (CEO) Sterling customers are excited about First Advantage's automation capabilities, speed, and the introduction of features like the chat service. They are also looking forward to participating in our annual customer event, Collaborate.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.