Date of Call: May 7, 2026

Financials Results

  • Revenue: $385 million, up 8.6% year-over-year
  • EPS: Adjusted diluted EPS of $0.26, a 53% increase year-over-year
  • Gross Margin: Not explicitly provided; overall adjusted EBITDA margin of 27.3%, up 130 basis points year-over-year
  • Operating Margin: Adjusted EBITDA margin of 27.3%, up 130 basis points year-over-year

Guidance:

  • Reaffirmed full-year 2026 guidance.
  • Expect revenue growth rates in the mid-to-high single digits in Q2 and Q3, slightly lower in Q4.
  • Base growth expected to be modestly negative for the year (0% to -2%), below this range in Q4.
  • Adjusted EBITDA margins expected to improve meaningfully in Q2 towards 28%, reaching around 29% in the second half.
  • Adjusted diluted EPS expected to increase to the high $0.20 range in Q2, then to the mid $0.30 range in Q3 and Q4.

Business Commentary:

Revenue Growth and Margin Expansion:

  • First Advantage reported revenue of $385 million for Q1 2026, up 8.6% year-over-year, marking the fourth consecutive quarter of positive year-over-year revenue growth.
  • Adjusted EBITDA rose to $105 million, up 14% year-over-year, with adjusted EBITDA margins expanding by 130 basis points to 27.3%.
  • The growth was driven by strong go-to-market execution, cost discipline, favorable mix, and synergies from the Sterling acquisition.

Digital Identity and AI Integration:

  • Digital identity was included in roughly a quarter of all Q1 implementations, contributing to new contract value.
  • AI capabilities were embedded across the platform, enhancing user experience, reducing call center contacts by half, and improving operational efficiencies.
  • The inclusion of digital identity as a standard feature in most deals and the integration of AI are key drivers in winning new opportunities and increasing penetration.

Enterprise Bookings and Sales Momentum:

  • The company reported 17 enterprise bookings in Q1, each with $500,000 or more in expected annual contract value.
  • Growth was supported by a diversified vertical strategy and strong sales execution, with wins distributed across various verticals and geographies.
  • The sales engine's performance was bolstered by product-led strategies and targeted vertical investments.

Macroeconomic Outlook and Base Performance:

  • Despite a neutral to positive tone from enterprise customers, the base performance remained flat in Q1, aligning with expectations of a relatively flat labor market.
  • The macroeconomic environment, including geopolitical developments and policy uncertainties, was factored into the conservative outlook for base growth between 0% and -2%.
  • The company's resilient business model and diverse vertical mix provided stability amid market uncertainties.

Capital Allocation and Debt Management:

  • First Advantage repurchased $19.5 million of shares in Q1, with total repurchases reaching $33.3 million through May 1st, and made voluntary debt prepayments totaling $50 million.
  • The balanced capital allocation strategy reflects the company's strong cash flow generation and confidence in future growth prospects.
  • The actions are part of a broader strategy to maximize shareholder value and reduce net leverage.

Sentiment Analysis:

Overall Tone: Positive

First Advantage's 2026 Q1 Earnings Call: Hiring Outlook, Digital Identity Impact, and Revenue Growth Guidance Clash
  • Management described Q1 as "exceptional," with revenue growing 8.6% YOY and adjusted EBITDA margins exceeding 27%. They noted "strong executional synergies," "high customer retention (97%)," and "record" late-stage pipeline. Leadership expressed confidence in the growth strategy, AI integration, and continued progress toward 2028 targets.

Q&A:

  • Question from Shlomo Rosenbaum (Stifel): Could you talk a little bit about which areas picked up in March? Like, what happened that led to the outperformance in revenue? Maybe a little bit more detail on the mix impacting margins.
    Response: March revenue blowout was broad-based across most verticals and geographies, not driven by a single factor, indicating healthy momentum.

  • Question from Shlomo Rosenbaum (Stifel): Why are you continuing to expect base growth to be 0% to -2% when we’ve seen consistent improvement in that metric over the last four quarters?
    Response: The outlook is a conservative posture due to geopolitical and macroeconomic uncertainties, despite flat labor market indicators being positive for the business.

  • Question from Ashish Sabadra (RBC): How important was digital identity along with AI capabilities in driving the strong 17 enterprise bookings in the first quarter?
    Response: Digital identity is a key differentiator and standard in most deals, acting as a package density upsell and driving customer wins, though it's hard to quantify its exact impact on bookings.

  • Question from Ashish Sabadra (RBC): Can you provide any color on where the strength in enterprise bookings is coming from? Is that particular verticals, geographies?
    Response: Strength is broad-based across all verticals and geographies, consistent with previous quarters, not driven by a single segment.

  • Question from Andrew Steinerman (JPMorgan): As we think about pre-hiring identity services as part of a bundle, are you able to quantify how often you feel like you’re winning background check contracts because of the inclusion of your identity services?
    Response: It's hard to quantify, but digital identity contributes to higher win rates, improved retention (now 97%), and increased pipeline, making it a sticky, valuable part of the offering.

  • Question from Andrew Nicholas (William Blair): I wanted to go back to the job stacking trend. Is that something that you saw specifically pick up in Q1 or that’s accelerated over the past couple of quarters?
    Response: Job stacking is an ongoing secular trend driven by generational shifts, with millennials and Gen Z approaching work differently, leading to more part-time roles and benefiting the business through increased screening frequency.

  • Question from Andrew Nicholas (William Blair): On pricing, can you talk about price realization for First Advantage? Anything that you’re seeing from competitors on the pricing front?
    Response: Pricing remains very stable with no major trends; competitor activity includes vendor consolidation, which drives higher share of wallet without leading to discounts, favoring First Advantage's growth.

  • Question from Jeff Silber (BMO Capital Markets): Post the very strong results in the first quarter, you still maintain your guidance for the year. Are you being overly conservative?
    Response: Guidance is not viewed as overly conservative; it accounts for macro volatility and potential impacts on the second half, but strong Q1 and April momentum support the outlook.

  • Question from Jeff Silber (BMO Capital Markets): On capital allocation, you’re both repaying your debt and buying back stock. Can you talk about the issues behind those decisions?
    Response: The balanced approach leverages strong cash flow to opportunistically repurchase shares and make voluntary debt payments, adjusting based on market dynamics and valuations.

  • Question from Stephanie Moore (Jefferies): What can AI mean from a competitive standpoint? Could it lead to continued consolidation and share gains for First Advantage?
    Response: AI accelerates new build work on the platform; while competition remains, First Advantage's early AI investments, integrated digital identity, and scale position it well to gain share, especially as smaller players struggle.

  • Question from Scott Wurtzel (Wolfe Research): If you can talk a little bit more about what exactly you’ve been accelerating in the FA 5.0 strategy, maybe relative to your original plan.
    Response: Acceleration focuses on digital identity (identity fraud) and AI integration across the tech stack (both visible improvements for users and invisible efficiency gains), along with deeper vertical focus and product investments.

  • Question from Scott Wurtzel (Wolfe Research): Any color you can give just on sort of the split in that pipeline and bookings between new logos versus upsell, cross-sell opportunities?
    Response: Pipeline is the highest ever, with a large late-stage portion, but specific split between new logos and upsell/cross-sell is not disclosed to avoid giving competitors insight.

  • Question from Ross Cole (Needham): Within retail and e-commerce, will continued growth acceleration last through the remainder of 2026? Also, pressure within business and financial verticals, do you see any upside there?
    Response: Retail/e-commerce growth is strong, with some seasonality from large wins, expected to perform similarly to 2025. BFS