First Advantage(FA) - 2025 Q2 - Quarterly Results

Financial Performance Overview Second Quarter 2025 Financial Highlights First Advantage reported significant revenue growth in Q2 2025, primarily driven by the acquisition of Sterling Check Corp, with revenues more than doubling to $390.6 million, while GAAP Net Income was minimal at $0.3 million due to substantial acquisition-related expenses, Adjusted EBITDA and Adjusted Diluted EPS showed strong year-over-year growth, reaching $113.9 million and $0.27, respectively Q2 2025 Key Financial Metrics (vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Revenues | $390.6 M | $184.5 M | +111.7% | | Net Income | $0.3 M | $1.9 M | -84.2% | | Adjusted EBITDA | $113.9 M | $55.8 M | +104.1% | | Adjusted Diluted EPS | $0.27 | $0.21 | +28.6% | - GAAP Net Income was significantly impacted by $7.3 million in expenses and $41.3 million in depreciation and amortization related to the Sterling acquisition and integration[5] - The company generated $37.3 million in Cash Flows from Operations, or $47.7 million on an adjusted basis after excluding cash costs associated with the Sterling acquisition[5] Full Year 2025 Guidance The company reaffirmed its full-year 2025 guidance, signaling confidence in its business outlook and the expected benefits from realized synergies following the Sterling acquisition, with management expecting revenues to be between $1.5 billion and $1.6 billion for the full year Full Year 2025 Guidance | Metric | Guidance Range | | :--- | :--- | | Revenues | $1.5 billion – $1.6 billion | | Adjusted EBITDA | $410 million – $450 million | | Adjusted Net Income | $152 million – $182 million | | Adjusted Diluted EPS | $0.86 – $1.03 | Management Commentary Management expressed satisfaction with the solid Q2 financial performance, achieved despite macroeconomic uncertainties, highlighting the seamless integration of the Sterling acquisition, advancement of the FA 5.0 strategy, and strong momentum in international markets and Digital Identity solutions, alongside improvements to capital structure through credit facility repricing and voluntary debt repayments - CEO Scott Staples highlighted the company's resilient business model, consistent go-to-market execution, and progress on the FA 5.0 strategic priorities, including the Sterling integration[6] - The company is experiencing strong customer interest in its Digital Identity solutions and continued momentum in international markets[6] - At its recent Investor Day, the company introduced a long-term projected Adjusted Diluted EPS compound annual growth rate (CAGR) of 19% to 25%[7] - CFO Steven Marks noted that the company repriced its credit facility in July, reducing the borrowing rate by 50 basis points, and has made over $45 million in voluntary principal debt repayments year-to-date[8] Condensed Financial Statements Condensed Consolidated Balance Sheets As of June 30, 2025, the company's balance sheet showed total assets of $3.87 billion, a slight decrease from year-end 2024, with Goodwill and Intangible Assets remaining significant components at $2.14 billion and $0.93 billion, respectively, while total liabilities stood at $2.57 billion, with long-term debt being the largest component Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $502,846 | $475,993 | | Goodwill & Intangibles, net | $3,068,686 | $3,112,476 | | Total Assets | $3,871,212 | $3,922,893 | | Total Current Liabilities | $253,391 | $250,688 | | Long-term Debt, net | $2,104,285 | $2,121,289 | | Total Liabilities | $2,572,049 | $2,615,854 | | Total Equity | $1,299,163 | $1,307,039 | Condensed Consolidated Statements of Operations For the second quarter of 2025, revenues more than doubled to $390.6 million from $184.5 million in the prior-year period, offset by a corresponding increase in operating expenses, particularly Cost of Services and Depreciation & Amortization, with higher interest expense contributing to a near break-even Net Income of $0.3 million, compared to $1.9 million in Q2 2024 Q2 Statement of Operations Summary (in thousands) | Account | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Revenues | $390,633 | $184,546 | | Total Operating Expenses | $352,896 | $174,643 | | Income from Operations | $37,737 | $9,903 | | Interest Expense, net | $44,785 | $7,353 | | Net Income | $308 | $1,861 | | Diluted Net Income Per Share | $0.00 | $0.01 | Condensed Consolidated Statements of Cash Flows For the first six months of 2025, the company generated $56.8 million in net cash from operating activities, a decrease from $70.4 million in the same period of 2024, while net cash used in investing activities increased to $23.8 million, primarily for capitalized software, and financing activities used $21.1 million, driven by debt repayments Six Months Ended June 30 Cash Flow Summary (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $56,816 | $70,372 | | Net Cash used in Investing Activities | ($23,816) | ($13,812) | | Net Cash (used in) provided by Financing Activities | ($21,107) | $213 | | Increase in Cash | $14,862 | $55,737 | Reconciliation of Non-GAAP Financial Measures Reconciliation of Net Income to Adjusted EBITDA The company reconciled its Q2 2025 GAAP Net Income of $0.3 million to a non-GAAP Adjusted EBITDA of $113.9 million, with major adjustments including adding back $61.9 million in depreciation and amortization, $44.8 million in net interest expense, $5.7 million in share-based compensation, and a combined $8.6 million in transaction, integration, and restructuring charges Q2 2025 Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Description | Amount | | :--- | :--- | | Net Income | $308 | | Interest expense, net | $44,785 | | (Benefit) for income taxes | ($7,610) | | Depreciation and amortization | $61,906 | | Share-based compensation | $5,742 | | Transaction & integration charges | $8,561 | | Other adjustments | $254 | | Adjusted EBITDA | $113,946 | - Transaction and integration charges for Q2 2025 included approximately $2.3 million and $3.7 million, respectively, related to the Sterling acquisition[34][35] Reconciliation of Net Income to Adjusted Net Income and EPS To arrive at non-GAAP Adjusted Net Income of $47.0 million for Q2 2025, the company adjusted its pre-tax loss by excluding items such as $50.9 million in acquisition-related D&A, share-based compensation, and other charges, then applied an effective tax rate of 25.6%, resulting in an Adjusted Diluted EPS of $0.27, compared to a GAAP Diluted EPS of $0.00 Q2 2025 Reconciliation of GAAP EPS to Adjusted Diluted EPS | Description | Per Share Amount | | :--- | :--- | | Diluted net income per share (GAAP) | $0.00 | | Adjustments (net of tax) | $0.27 | | Adjusted Diluted Earnings Per Share (Non-GAAP) | $0.27 | - The most significant adjustment was for acquisition-related depreciation and amortization, which added $50.9 million to pre-tax income, or $0.29 per share before tax effects[36][37] Reconciliation of Operating Cash Flow The company presented an Adjusted Operating Cash Flow metric to provide insight into liquidity from core operations, where for Q2 2025, GAAP cash flow from operating activities of $37.3 million was adjusted by adding back $10.3 million in cash costs related to the Sterling acquisition and integration, resulting in an Adjusted Operating Cash Flow of $47.7 million Q2 2025 Reconciliation of Operating Cash Flow (in thousands) | Description | Amount | | :--- | :--- | | Cash flows from operating activities (GAAP) | $37,345 | | Add: Cost paid related to Sterling acquisition | $10,345 | | Adjusted Operating Cash Flow | $47,690 | Other Information Conference Call and Webcast Information First Advantage scheduled a conference call and webcast for 8:30 a.m. ET on August 7, 2025, to discuss the second quarter 2025 financial results with investors and analysts - The company will host a conference call to review its Q2 2025 results on August 7, 2025, at 8:30 a.m. ET[11][12] Forward-Looking Statements and Risk Factors The press release includes forward-looking statements concerning the company's operations and financial performance, cautioning that these statements are subject to numerous risks and uncertainties, including macroeconomic conditions, regulatory changes, data security breaches, and the ability to successfully integrate the Sterling acquisition and realize its expected benefits - The report contains forward-looking statements that are not historical facts and are subject to various risks and uncertainties[14][15] - Key identified risks include negative macroeconomic changes, operating in a highly regulated industry, potential data security breaches, and failure to realize the expected benefits of the Sterling acquisition[15][20] About First Advantage First Advantage is a leading global provider of HR technology software and data, with platforms powered by proprietary technology and AI, offering comprehensive employment background screening, digital identity solutions, and verification services to 80,000 organizations in over 200 countries and territories - First Advantage is a leading provider of global software and data in the HR technology industry, serving 80,000 organizations[25] - Core services include employment background screening, digital identity solutions, and verification services, enabled by proprietary technology and AI[25]