First Advantage Corp. Stock

Okay, so we'll get started. Good afternoon, everyone, and thank you for being with us today at our 24th Annual Global Financial Services Conference. I'm Ronan Kennedy for Manav Patnaik's U.S. Business Info and Professional Services equity research team. We're very pleased to have First Advantage's CFO, Steven Marks, on stage, in addition to SVP of Strategic Finance, John Damian, and IR Head, Stephanie Gorman, joining us in our investor meetings.

We're thrilled to have FA back at our GFSC after just having had them at our Credit, Data and Analytics Forum last week. But in case anybody is ramping on the name or didn't have an opportunity to catch that, some quick background, pun intended.

FA is the world's largest background screening company, performing over 200 million annual screens in over 200 countries and territories for over 80,000 customers.

This is through differentiated and industry-leading innovative tech products and leveraging 1 billion proprietary data points. And although it's absolutely still core to the business and a substantial majority of the business, we'd be remiss in just calling them a background screener as it does so much more, including digital ID, credential verification, and continuous risk monitoring.

So, Steven, if I may, that's where I'd like to start. Obviously, we'll dive into the growth, the financial algo, operational, financial trends, and drivers. But if you can, kind of, as we did last week, start off, just providing an overview of the FA Strategy 5.0 and then very much in line with that and tied to that is your evolution as a company, right? And the execution from being basically a BPO company to a tech-enabled services company to a global data company today. So, I'll turn it over to you as a starting point there.

Yes. Thanks, Ronan, and thanks for having us back. I know we must have done something right last week to do it again. So, a lot there. So, let's -- we'll kind of break it down. So, you're absolutely right. So, FA 5.0, which is, kind of, our latest strategy, we rolled that out at our Investor Day last year. And to your point, it really continues an evolution that First Advantage has been helping lead the industry on from what was really seen 10, 20 years ago as just a pure BPO process outsourcer. I'm trying to get information, go get the information, process the information, report it. And I have a very legacy view.

When I joined First Advantage over a decade ago, and we were just starting, kind of, the automation journey of converting from a manual process run business to something that has robotic process automation and, kind of, kind of, AI 1.0, if you will, very, very basic and rudimentary automation. And that was very -- a great first step. That allowed us to take a lot of those very manual labor-driven back-end resources and make it a little bit more tech forward. Obviously, with the advancements in things like machine learning and starting to build out some of the proprietary data that you were just talking about, we really started that evolution, again, roughly a decade ago. It's really transforming it to a tech-enabled service and really have it being data-driven.

And obviously, the latest enhancements and really what FA 5.0 is all about is really revolutionizing and evolving the products to be more technology forward. So, going from just pure background screening and drug testing. And to your earlier point, transitioning more of the services to digital identity and some of the other peripheral services, right-to-work -- we call that realm of services, Know Your People, so where you're not just validating a background check, but you're really validating an individual who they are, what they say they've done, are they valid to work at your organization and then being able to extend that into ongoing services like monitoring and rescreening, persistent identity -- is that the same worker who is continuing to work for you?

Because what's really happened is not just are we evolving the industry by technology advancements, a lot of those same items that we're leveraging for technology advancements, bad actors are leveraging for making their lives easier and infiltrating a company where they wouldn't otherwise be allowed to be in, doing things with that company that they don't want to be done.

So, being able to evolve the products to be able to keep up with whether it's criminals faking identities to get access to companies, whether it's people using synthetic identities to get jobs they wouldn't otherwise be qualified for or right to work for. So, being able to keep up with that evolution and then, kind of, set that industry leadership standpoint from the products that we're offering to be able to fulfill the full life cycle of risk that our customers are facing because one of the biggest downsides of all of this is it's a riskier world than it ever was before.

And it's making sure that we've got the products and solutions to keep up with those risks and be industry-leading there to support our customers. And that's what's driving a lot of that FA 5.0 mentality that obviously is resonating really well because we're seeing an uptick in upsell and cross-sell and new logo and retention that comes along with having differentiated products that your customers need.

Excellent. All very helpful. And then obviously, a key element of that FA 5.0 strategy was the transformational acquisition of Sterling. And so far, to date, a very successful integration. Can you just talk about that, the strategic rationale, the integration process to date, and the benefits you're seeing?

Yes. So, that acquisition was several years in the making, I think, back then. It probably even goes back to FA 4.0 even to an extent, just given how long we were working on it. And it's crazy to think that it's been almost 2 years since we acquired them. But the strategic rationale was, look, we had always, kind of, looked at the market. We had done some smaller deals that were also very individually good deals, accretive deals, but not needle movers, right, not big enough to really change the dynamics.

And we had always, at First Advantage, looked at Sterling as our closest peer, our best-performing peer. We were very similarly structured, both verticalized in our go-to-market, both very focused on their user experiences and product, and also the only 2 background screeners that we're talking about digital identity at the time and still really are the market leaders there.

So, any time you can go out there and buy a large competitor at a reasonable valuation and someone that mirrors a lot of what you can do makes it, from a strategic rationale, an easy thing to rationalize. I think the other big thing that we had to be able to justify internally was how are we going to integrate that business. Anyone who's followed background screening for a while knows that the Achilles heel for large M&A is when you force migrate customers, you bring the platforms together, you force a customer and their integrations and their workflows off of what they've been used to onto something else, you're asking -- you're giving them an excuse to leave.

And we've seen that in some of our own history and some of our competitors' histories that your retention rates plummet when you go and do something like that. So, part of our diligence was making sure that we could come up with an integration strategy that did not require those customers for us to force migrate any of those customers. And to date, we have not. We've come up with other ways to bring the platforms closer together to harmonize things on the back end, leave those front-end integrations and workflows the way they should be.

And what we've seen happen after the acquisition is the 95%, 96% retention rates that Sterling and First Advantage had leading up to the acquisition are now 96% and 97% consolidated. So, we've actually seen retention stabilize, if not improve after the acquisition. So, we feel really good about that. And then, obviously, from a CFO seat, you obviously want to make sure you get the right synergies to justify the purchase, and we're well along the way there. We originally thought we would get at least $50 million of synergies, have raised that. Our final target now is $65 million to $80 million. We're already at $63 million actioned through Q2.

We'll keep progressing that number forward a little bit as we get towards here at the end of the year, and we'll see all that final value realization in 2027. So, essentially being able to buy a very similar, but your stronger peer, being able to do that in an integration approach that preserves your customer relationships and then, obviously, the financial benefits of the synergies. And now that's on the aftermath for 24 months later, to your point, we've got industry leadership position. We're able to make material annual investments in our product, our sales, our marketing, our cap software, R&D. So, we're able to continue accelerating that leadership position, which left us in a great position.

Very good. And then can you just elaborate more on how and why First Advantage is competitively differentiated from that leading-edge innovative tech, but also that proprietary database, how that ties into the value proposition and how you win it?

Yes. So, I think first, it starts with how we're structured, which is we are very verticalized from a go-to-market, from a product, from a customer success and account management structure. And that's so important in our industry now because the risk to a transportation company and the products they need versus a healthcare company versus a retailer versus gig, and so on and so on, are very different, right? So, the fact that we've got our verticalized structure, but we're very deep in each of those verticals. Our transportation guys can go in there and talk DOT compliance, driver qualifications, FMCSA, and all of these other areas.

Our healthcare understand all of the licensing and credentialing and verifications history that you need to do when you get into healthcare. And we're able not just to have our go-to-market proposition aligned to that, but our product proposition. So, take transportation, we have our RoadReady suite of services, roughly 12 unique products to a transportation, whether it's driver or vehicle or similar compliance network and able to roll those out. So, we're very deep in the verticals that we operate in, which is how we start there.

But then, to your point, universally, we've invested a ton of money in our applicant experience and our company experience, so what the -- our customer is directly and how they're tracking their cases. And that drives higher candidate satisfaction, higher customer satisfaction, faster turnaround times. And then all of that is enabled on the back end by all sorts of automation, but certainly the proprietary data. And that proprietary data has 2 forms. We've got our national criminal records file, which in and of itself is 960 million records, so closing on 1 billion records right there.

And that we use to help give a broad scope search of the national search coverage to criminal history and help tell us where there could be risk and not and sell that as a search. It's based on proprietary and bulk data that we've acquired over many years. So, it's very much uniquely First Advantage and selling a search of that is certainly differentiating. And then on the verification side, we have our verified database, which is 135 million unique records. So, add that up, we're well over 1 billion consolidated.

And then -- but we've paired that verified network with our SmartHub AI router. And instead of deferring to it to specific third parties to handle all of the data or initial data for a verification at a really high pass-through cost to our customer, we're able to use the SmartHub infrastructure, our own proprietary data along with that SmartHub network of other data providers to help provide our customers a lower total cost, however, create margin opportunity for First Advantage. So, you -- and that one, it's a win-win.

Our customers are happier because you've got a differentiated lower-cost solution to a problem they want you to solve. And at the same time, we're creating margin for First Advantage. So, you take that verticalized approach, our focus on our products and then our focus on our data, and you've got a very diversified approach. So, you're not just a market leader by size, you're a market leader by how you're functioning in the verticals and the products that you're bringing to the market.

Excellent. Very well articulated. Can you also touch on -- we had the likes of Equifax and Experian here, the nature of the data and how that allows you to do -- to not be first of waterfall, but to then go through the Smart Order Router in order to -- as you touched on the benefits and obviously, margin at the back end? But just to expand on that, perhaps even the deflection rate and the automation rate that you have.

Yes. So, I mean the drive for all of this, as I mentioned, right, when you have a top-of-waterfall contract structure from one of those names and they drive a high price point. And they've got a very large database. So, when you say, hey, you have any records for Steve Marks, they're going to probably have something. They might not have all of it you need because our customer says, I need to know the last 3 places they worked at and verify them or every place this person's worked at in the last 7 or 10 years or whatever that history may be. And some of that's actually mandated by the compliance requirements of their vertical, customers start to see those bills get passed through and it creates pain points.

So, we started investing in our SmartHub AI tech on the front end of that verification fulfillment years ago, and First Advantage has never signed that top-of-waterfall contract. And what we do is we take each and every order, we run them through that SmartHub AI router and figure out where is that data, what is the cheapest way to get to it and then fulfill it through that network. And it's got a network that includes the likes of the larger bulk providers, like you mentioned, Equifax and Experian. It also has some of the fintech players who can do instant verifications using payroll data or banking data, but it also has our own proprietary data. And then for each and every candidate that rolls through there, a custom fulfillment route will be set just for that candidate based on where our system believes that data to be there, and it's constantly using AI and machine learning to optimize its algorithm.

We talk about our deflection rate. We talk about it being very good. We don't like giving out that number because, obviously, we could be priced into some sensitive areas. But certainly, it's -- as the tech improves, this is one of those areas in our business we're certainly the beneficiary of leveraging AI. And as that technology just gets better, the router gets smarter as it feeds more data sources and those other data sources get more data enriched, the network becomes broader. So, we feel really good about the strategy. And the bigger point is not only is it creating margin for First Advantage, but when we can go into a competitive RFP, we obviously have a very unique solution to a problem that our customers and the market is asking for solutions on. And it's helping us differentiate ourselves, create market activity and then obviously, hopefully increase our win rates.

Got it. And then remind us, have you disclosed the percentage that's fully automated without human intervention from a screen standpoint?

So, yes. So, mainly what we look at there is our U.S. criminal fulfillment, which is the bread and butter of our business. And certainly, several years ago, that was 70%. Now it got up to 75%. Every time that there is opportunity to find more automated data and then do an end-to-end automation, we are certainly on that. It is still a very fractured criminal data environment, specifically here in the U.S., thousands and thousands of unique and disparate courthouses. Many of them don't have any automated records and you still have to send a physical court runner into the court to go retrieve the records.

But we're trending up and certainly closing in on some metrics. Our long-term target there, we mentioned before, is roughly 90%. We don't know if it goes too far north of that because the data has to get overhauled and modernized to get there. But certainly, we feel good about how we're accessing that data, the ability to tap into the courthouse data through automation, through API and then also the back-end processes to automate those where the FCRA and other compliance regimes and regulatory oversight allows us to and have that proper mix of human-in-the-loop technology that allows us to automate what is practical to be automated.

Very good. You touched on this to a certain extent, various aspects of it. And I think it was something that Scott began to articulate first on the 4Q '25 call. And then I heard you very well articulated it in an investor meeting earlier today. But can you just give us a holistic reminder on how and why you wouldn't be -- that data set can't be replicated easily by Agentic AI and how and why you wouldn't be disrupted or disintermediated in that regard?

Yes. So, the reason the proprietary data, a, is so important, but b, so hard to replicate, which is right along the lines of your question is while courthouse data is technically government data, it is certainly not publicly available. We're here in the great state of New York. This is the most expensive jurisdiction that we operate in. Any time you want to go search the New York Office of Court Administration or the New York OCA, a name and date of birth in there for a court record, for a criminal record, it's $95 per name you search.

So, if someone wanted to take an AI bot and go search every permutation of every name, there are billions and billions and billions and billions of dollars invested to build out that proprietary data.

And then again, there's still a requirement under the FCRA to when you're going to report something, you have to go validate it back at the primary source. So, you need that data to be refreshed real time. So, it's -- there's less of a reason to have that type of infrastructure. You could do it. Well, I couldn't say you could do it. You could try to do it. You would spend a fortune. Not every courthouse would let you search it and acquire that bulk data to begin with.

So, it's what makes acquiring the data so hard. We've built it up through years and years and years and decades of operational history of working with certain jurisdictions on how to get that data. But it also doesn't alleviate all of the requirements of the FCRA to begin with. So, for just someone to vibe code an AI search tool, but then to have it be FCRA compliant, actually be able to be used in a consumer report that is a background check is just unrealistic.

Right. And then also from a disruption aspect to it, I think you said you're not seeing disruption. In fact, you're seeing the opposite where 2Q spoke to that from a base growth standpoint, but where you're seeing these bad actors now have tools at their disposal that they didn't previously have. So, can you talk about that dynamic?

Yes, certainly, I mean, for the last number of quarters, everyone's kind of focus on AI has moved around. And certainly, for a little while, the viewpoint was AI is going to take out all jobs and job growth, and therefore, our base volumes are going to plummet. And look, it's certainly disrupting pockets of the labor market, right? And there are certain job types that are more ripe for that kind of disruption. We're not very bullish on BPO outsourcing, although those guys have actually done fairly well recently just because they're positioning themselves as the AI implementers right now. But obviously, we don't necessarily see long-term trajectory there.

But look, at the end of the day, there's still a high demand for labor in this country and some of the other major markets we operate, the U.K., Australia, as an example, big demand for labor. And this is where being diversified in your vertical sets is really important. We've got a broad set of verticals. Our largest vertical is healthcare, transportation and home delivery, logistics, retail, hospitality. Those are -- we feel really good about because there's a large demand for hourly blue-collar type labor. And even in the healthcare, which everyone assumes is all white collar, there's a lot of components of healthcare, nursing, janitorial, food services that are part of a hospital network and big health services network that are very hourly and tactical that require in-person presence and the demand for that labor has been incredibly strong.

We've seen some little tidbits of disruption. I think the headlines have been making a bigger deal out of it than we've been seeing come through their numbers. And in fact, we've only seen base growth stabilize through all of this noise and actually start to accelerate, not go the other direction. So overall, we still feel very good about how we're positioned from a vertical focus. And then the other important focus is not just the verticals we're in, it's the segment of the market that we focus on, which for us is enterprise. And we define enterprise as accounts that do $0.5 million of screening volume every year. So, think about companies that are hiring thousands, tens of thousands, if not hundreds of thousands of people every year. So, these are large, large labor forces.

And even at the higher cuts of mid-market, hundreds of thousands of dollars of revenue, it's still thousands of screens that you're thinking about. So, these are large companies that are more durable through a noise cycle like tariffs and some of these other things that have come around. So, we feel really, really good about how we're positioned and where we're positioned and haven't seen the -- what the headlines would have told you is the disruption that was coming for us. We've seen a lot more stability and a lot more growth than we have anything.

Great. I think a good segue into -- if you could just please provide a recap of the organic growth algo from each component and then in total as well, please.

Yes. So, overall, we break our revenue growth into 4 categories. So, base growth, which is kind of what we were just talking about. That's kind of a few things go into that, but that's kind of the macro impact on base. That's the change in our customers' ordering volumes year-to-year. And long term, we think that's roughly a 2% contributor to growth. Price is also in there, and we do have the right to do a CPI style price increase every year. And we generally are pretty on schedule with doing that. We took a little bit of time off from that last year in the shadows of the acquisition and making sure that we could prove the value of the combined First Advantage Sterling platform, but are back to business as usual there.

So, that's also supporting base. But we see that as roughly a 2% contributor to growth. But what we can control and influence is new logo and upsell, cross-sell, which on a combined basis contributes on a long-term 8% to 10%. We've been running a little bit above that or well above that the last couple of quarters. We've had some several large deals that we won in '25 that we get a full year run out of in terms of growth rate. But new logo, which is roughly half of that 8% to 10%, is our ability to go into the market and win in a competitive environment.

But upsell, cross-sell has been a very consistent contributor of our growth algorithm for years. And upsell, cross-sell is really 3 things inside of it.

The first is the biggest. It's package density. So, it's customers adjusting their risk management dial. So, doing a deeper search, a denser search. They're adding elements that maybe they weren't doing or going deeper into the history. And there's still a huge white space for that because no one is doing the perfect background check for their vertical yet or maybe not no one, very few are.

Also in upsell is our ability to expand share of wallet. Most of that is global expansion. So, maybe a U.S. customer doing their overseas subsidiaries or maybe a company where we're doing certain subsidiaries, but not all or certain divisions, but not all and gaining wallet share there, which we've been able to grow very steadily out of. And then we're also able to cross-sell our other products.

So, not every customer is using our I-9 or our digital identity or our WOTC Tax or our Road-Ready services I talked about before and cross-selling those products to incremental new customers. So, that's upsell, cross-sell. And that's been our biggest growth lever, to be honest, over the last number of years, hitting really strong results now because we've had several big marquee upsell wins there over the last year or 2. And then retention. So, on a gross revenue basis, we retained 96-plus percent of our revenue. We've been like, as I mentioned before, coming out of the acquisition that we've been running 96% or 97% every quarter.

So, you start to add all of those items up and you get to a very strong growth rate that is not dependent on that macro base impact. And you saw that in Q4 and Q1, where base was effectively flat and First Advantage was producing very strong growth results. And obviously, you get a quarter like in Q2 where you start to get some base acceleration and only gets better from there.

Yes. So, base growth 2Q accelerated 6.7%, approximately half of that was customer-specific initiatives. Can you talk about those and then the underlying demand? You touched on the verticals either earlier, but just give us a reminder of where you're seeing strength and/or stability.

Yes. So, look, we were pleasantly surprised, too, I think as many investors were that base growth is roughly 7%, 6.7% to your exact number. And roughly half of that was kind of traditional base. So, general increases in hiring volumes. And we saw a number of verticals perform really well. Transportation and home delivery is still doing great. The American consumer, present company included, still pretty lazy and likes to have things delivered to their house, and that's certainly a part of it. Retail and e-com also did very well on the back end of that.

But we also saw a couple of other verticals that haven't been contributors over the past number of years, industrials, which includes our aerospace and defense customers, net beneficiary of some of the news going on around the world and hiring volumes there are doing incredibly strong year-on-year. And we're even starting to see some growth in staffing in some of these other verticals that have been a little bit more sluggish over the last couple of years, just given everything, all the noise going on. So, good broad-based growth, which we like to see that's obviously beneficial for a lot of reasons.

But you're right, that other half of base roughly was these customer initiatives. So, a few different factors there that we kind of learned of as we started talking to customers who had very large increases in their volume in Q2. And some were doing kind of rescreening programs, either -- whether it was for risk management reasons or because they had repurposed labor force and needed to make sure they screened them to a level that was appropriate for their new roles. We also had a number of customers for whatever the key reason was do some restructuring.

And whenever you're creating these -- where you're turning over workers and whether it's refining a workflow where you're defining distribution network or hospital network or whatever it is, that disruption to your workforce that results in you exiting employees and bringing on new employees, that churn is very good for us. For our base growth, churn is great. It doesn't all have to be contingent on net hiring and net employment growth. Any time there's a churn, which is very -- much more common in those hourly workforces that I was talking about earlier, that's net beneficial for our base growth.

So, we saw a number of customers in a number of different verticals for that matter, operate programs that were either that rescreening risk management concept, whether it was labor reshaping and what jobs they had or just more internal restructuring. But along those themes, run these programs that for certainly over the Q2, and we expect some of those programs have a little longer tail to it, but it's hard -- you can't underwrite these things forever. So, it's hard to know how long that we'll get the benefit for.

Certainly saw that benefit Q2. What we're also very proud of is we didn't know any of this was coming. So, it's not like we staffed up in our fulfillment functions or made any product changes to account for it. We found out after the fact of all of it, but we didn't have to -- our turnaround times were still great. Our quality was still great. Our satisfaction was still there, and we operated all within the same workforce that we had planned for. So, it just shows the scalability of our platform and our fulfillment network and being able to ingest this extra volume and process it with no negative impacts.

Right, right. An important point, as is the one that you made because I think it's something that investors, even though known you guys for a while, take some time, they tend to belabor dwell on the JOLTS reports and otherwise, the labor and employment data. But as you guys have been showing with your execution, even from a base growth standpoint, it's not necessarily dependent on that headcount growth, right -- it's churn and these initiatives?

It's not. Now a couple of things. We obviously look at the JOLTS data and the BLS data. It's informative. But I mean, it's also -- obviously, response rates are down a healthy amount since pre-pandemic. But it's also -- whenever you look at any data, you really have to make sure you separate SMB type businesses. Our focus again on those enterprise-sized accounts, much more stable, much more durable type of business strategies. So, if you rewind the clock maybe the last year, there was a lot more disruption in those JOLTS data when all the tariffs and liberation day type noise came around because if you're an SMB and your supply chain just got messed up because of a tariff, you really only have one choice, and that's to cut back on labor costs, whereas a Fortune 500 size retailer will just change their supply chain.

They have strategic supply chain management. They just -- instead of going east to west, they'll go west to east in their shipping routes when the Strait of Hormuz gets disrupted or something like that. So, having this verticalized enterprise customer approach makes you a little insulated from that. And I think at times, whether you're looking at the JOLTS data or the ADP employment data, you have to keep in mind of the size of companies that are responding to that, not just the verticals that are responding to make sure that you kind of piece that together to what our data is telling us. But at the end of the day, we're most reliant on what our customers are telling us and what our own data is telling us. And as you can tell by our base results in recent quarters, we feel really good about where our customers are taking us.

And just remind us how you would currently characterize the hiring environment. Obviously, that's informed by the macro to a certain degree and what your outlook for the remainder of the year contemplates from a base growth standpoint. Obviously, a very dynamic environment. I think even since earnings, oil is up 37%, crossed $100 a barrel, yields nearing 5% -- we have a rate decision tomorrow. Just what you've contemplated and how you would characterize your outlook?

Yes. So, at least where we're at today, we'll talk and I'll talk about what our guidance has. Where we're at today, there's still a healthy demand for the hour. In fact, I think there was a Wall Street Journal article last weekend talking about how great of the job market is for that low-end labor. There's still a ton of demand for that hourly low-end worker, which is any time that's happening and you're also in an inflationary environment, there's a lot of job switching. People looking for higher pay for supplemental pay. So, we call it job stacking when people are taking on either multiple part-time employment or part-time employment on top of full-time or gig work on top of full-time, et cetera.

And we're seeing certainly more of that, maybe not a great societal item, but certainly good for demand volumes for us that people are -- they're changing jobs and seeking incremental jobs that certainly drives growth. So, we're seeing a really strong demand there. There's obviously certain verticals, like I highlighted before, that there's -- some of the reasons -- exact reasons you're talking about Strait of Hormuz -- our defense and aerospace inside industrial is doing really well. So, I feel really good about where we're positioned today. And obviously, you saw that in our Q1 and Q2 results.

Earlier in the year, when we gave out our originating guidance, we had modeled base as kind of 0 to negative 2% for the year. We're a little bit more now, just given how the first half of the year has progressed and what we kind of saw for early Q3 and what our models kind of tell us that we're kind of on the inverse of that, 0 to positive 2% for the year is kind of our outlook. We are mindful of the fact to your exact point, oil is getting expensive. At some point, does that start to weigh on the U.S. consumer when it comes time for holiday shopping and that seasonal peak.

We got that coming around the corner here. So, time will shortly tell us. Does it impact transportation companies in terms of their diesel costs and how do they staff and handle some of what's coming around the corner? To date, it hasn't had an impact and oil has been at that $90 to $100 price point for a while now, but certainly something we're mindful of. And given the fact that we've got a nice range to our guidance, we've contemplated for, but we'll see how that plays out here over the next couple of months as the -- that Black Friday season happens here.

Very good. And then can you talk about the role that digital ID has played in that strong upsell, cross-sell and also new logos, if I'm not mistaken as tip of the spear a key element of the value proposition?

Yes. It's been great. So, I think a couple of different aspects of it. One, it's got a direct contribution. Obviously, it's a hot selling product. I think we mentioned this on our earnings call earlier this year, roughly 25% of our new logo implements feature that product, where maybe at our Investor Day 1.5 years ago, we thought this would be a very much a stand-alone search and service. We're seeing it being the uptick and uptake of it being really part of the background check, almost a fundamental piece. And when we're actually solutioning our new programs, we're actually including it as the same we would a criminal check or a sex offender check because we just believe it's that fundamental and customers can tell us if they're not ready for it and remove it -- so a little bit of an opt-out approach.

But from a go-to-market impact, you're exactly right. It's differentiating. And any time you can differentiate, you create opportunity. And it's also -- that tip of spear impact is exactly what you say it is. I mean there's opportunities that have come to us where the customer just wants to talk digital identity. Sometimes they're responding to a direct risk, a direct issue. We've had some customers who said, "Hey, we had this event happen. Our Board told us we need a solution within a month or within weeks, and we hear you have a product, so pitch it." Then they see the value of doing it with the background check to help fill in the voids and prevent that handoff risk.

So, it certainly is driving differentiation and growth, but we also believe it's also helping our retention, right? You have a differentiating product. It makes it much harder for a customer to leave you to a market that doesn't really offer it. So, it's still early days. So, I think from a materiality impact, it's not driving a material part of our growth algorithm yet, but it's certainly directly impacting to an extent. And I think the peripheral benefits to your point, whether it's helping increase our pipeline size, our win rate, our retention rates, certainly having an impact on all 3 of those.

Got it. But obviously, strong momentum across the organic growth algo, especially the areas under -- within the algo under your control, very solid execution there. Key part of that solid 2Q was the guidance raise. Can you talk about just perhaps start with a reminder of that raise and what that contemplates and how we should think about perhaps extrapolation, not looking for guide, but how to think about into '27 exit rate from '26?

Yes. So, look, when you have a good start to the year, it starts to become a natural thing. And obviously, the momentum we saw continue into the early part of Q3 when we gave out that updated guidance 1.5 months ago. So, really felt good about how the year was progressing. So, we can not only raise the bottom end, but even raise the top end a little bit and have a little bit more confidence in the growth that we're going to generate during the year. And not just that revenue. Obviously, we felt good about how margin was flowing through.

Obviously, being able to buy back some shares earlier in the year at a very favorable price gave us some more confidence at the EPS level as well. So, overall, I felt really good about the trajectory in terms of kind of the beat for the first half of the year and then looking at the outlook. To your point, when we kind of look at the back part of the year, we also had some go-to-market wins from '25 that we knew would carry us through at least parts of Q3 and that momentum would carry forward. Q4 is a tougher comp quarter for us, as we've talked about. We had 17% new logo upsell, cross-sell in Q4 of 2025. So, we're comping against that growth.

Plus, there's some timing normalization that will happen where we actually had some customers last year hold back volume from their incumbent and hand it to us and had us either screen them for the first time or rescreen that work because they were that in love with our quality and standards. So, that obviously is a great market proposition, but has some modeling impacts year-on-year. So, we'll have a slightly lower growth rate in the Q4. The flip side of that is we had 20 enterprise wins flat in Q2. That's a higher number than the 17 we posted a number of quarters before that. We'll start to see the revenue benefit for those wins in 2027.

Too early to give you specific guidance. But given, as Joelle and Scott have mentioned in the last couple of calls and conferences, pipelines at and above record highs, feeling good about our win rates. We've got a lot of deals to implement. Not all of those will get implemented by the time Q4 closes. So, that does give us a good runway of deals to work on for 2027.

Obviously, we'll give out more formal guidance as we get closer, but we feel good about where the business is taking us, obviously, and then on the profitability levels, we've got synergy actioning that's going to keep happening through the end of the year that we'll realize the benefits of the next year and feel really good about just our cash flow generation and the ability to be opportunistic when it comes to our capital allocation. All of that sets up for a really nice trajectory '27 or even hitting our 2028 targets that we gave out at our Investor Day last year.

Very good. Just to drill down on 2 aspects of that was the margin performance for 2Q. Could you talk about the drivers there -- expected drivers out of in 2H '26 and then long-term drivers to get to your long-term framework?

Yes. So, it was a lot of outperformance in Q2 and margin was certainly one of them. I think, obviously, it's a very scalable P&L. So, any time you outperform on revenue, a lot of that flows through to the bottom line at a pretty good rate. But also having broad-based growth across a lot of verticals gets you better revenue mix in terms of -- when you have some of our verticals like transportation, where your third-party data and pass-through is a little bit higher percentage of revenue, which does bring down your margin percentages, having more broad-based growth, so success in staffing in industrial, stability in healthcare, et cetera, helps drive a more universal mix level, which is better for overall margin profitability.

When you think about the rest of the year and the trajectory forward, we'll get more and more synergy realization. Now we've prioritized our engineering and product resources towards some growth initiatives. So -- we'll get those last synergies to get to that $65 million to $80 million target I mentioned earlier towards the back part of the year. So, you'll see that P&L uplift into 2027. The revenue growth will continue to help that scale and that leverage down to bottom-line profitability.

And then look, we've got a corporate DNA where we've always invested in time and energy and efforts towards automation and cost savings. We were doing that before the acquisition. Obviously, we put all of our energy behind the synergy program and integration. But we'll get back to those business basics for us and put more into how do we leverage our data, how do we leverage automation, what else can we do to help yield more value and efficiencies. So, we feel like we've got a really good path towards those long-term targets, and then we'll just keep scaling that growth.

Very good. And then to just end here in the last minute on capital allocation, you touched on it. But can you talk about the capital just a reminder on the priorities and even potential optionality given the strong free cash flow generation, the rapid deleveraging post the Sterling acquisition now down to 3.7x, the buyback opportunity, et cetera.

Yes. So, I mean, look, obviously, coming on an acquisition where you had to go and finance it, deleveraging is certainly a top priority. And we've already made, to your point, really good headway into taking that number down. I think the benefit of being a strong cash flow generator is a lot of that happens naturally, and this business certainly is high quality of earnings, good margins, therefore, good cash flow. Obviously, with all that cash flow allows us to be opportunistic.

We did not have buying back almost $40 million of shares at under $12 on our bingo card at the beginning of the year. But having that flexibility and cash flow allowed us to do that and be opportunistic. And looking forward, we'll continue to be opportunistic with a strong eye towards delevering.

Very good. We're exactly at time. So, if there's anything you'd like to close with, I'll leave it to you. But thank you very much for your participation.

No, I would just say, look, I mean, we appreciate, obviously, the time and going back-to-back weeks and look forward to keeping the conversation going and hopefully can keep delivering that consistent growth.

Very good. Thank you so much.

Thanks, Ronan.

Thank you.

All right. Good morning, everybody, or at least good morning to our U.S. clients. Good afternoon to our U.K. clients. Thank you for joining us at day 2 of our 11th Annual Global Credit Data and Analytics Forum. We're glad to have First Advantage join us this year. And joining us is Joelle Smith, who's the President; Steven Marks, CFO; and then Stephanie Gorman, IR, is here with us as well.

So firstly, thank you -- thanks to the three of you for your time. Really appreciate it. I'm going to hand it over to my colleague, Ronan Kennedy, to run through some of the questions we've received from you guys as well as the ones that we've had. If you have anything in particular during the conversation or something you want us to address at the -- towards the end, you should see a Q&A box on your screen. Please do that so we can touch on them. And if you need another venue, we have our Bloomberg terminals open, if you want to ping us there as well, that should work.

So without wasting any more time, Ronan, I'm going to hand it over to you.

Thank you very much, Manav, and thank you, Steven and Joelle for joining us and everybody for participating in what has been a successful 11th Edition of our Annual Credit Data and Analytics Forum. So First Advantage, obviously, coming off a strong 2Q, I think, 15% revenue growth, 6.7% base growth, 12.5% combined combination for new logos, upsell and cross-sell. But before we dive into that recent strong performance, the trends and drivers there and also the updated guide, I think appropriate being at this Credit Data and Analytics Forum is to first start with the transformation.

And Steven, I'll leave it to you as to how you want to describe it, evolution, revolution of First Advantage from a technology-enabled screening provider to today a global software and data company and how First Advantage helps organizations manage the human capital risk, their proprietary databases of more than 1 billion records, AI-driven fulfillment and fraud detection capabilities and also the historical and key integrations across ATS and HCM platforms. So could you help us understand that transformation evolution, revolution about where FA sits in the value chain today and how that will continue to progress?

Yes. No, Ronan and Manav, thanks for having us, and good morning, good afternoon to everyone, and a lot to unpack in that question. So I'll certainly start off, and I'm sure I'll miss a few pieces, and I'll have Joelle fill in for you. But Ron, I think when you really think about that question, it's kind of like almost the 10-year-plus history of First Advantage is kind of the answer of that. Joelle and I have both been here for the better part of that decade and seen that evolution really happen from to your point, really a transformation from what was really kind of a BPO-looking company, which was really reflective of kind of where the "archaic" kind of fulfillment methodologies that this industry had.

And really, over the last, call it, 10 years, have been really putting in a lot of those core tenets of a company that is set to really transform into a data-enabled and a tech-based company. That started in the earlier days with automating things on the back end. So that would have been reflective of our RPA initiative a decade ago. That's evolved to machine learning and now AI, to your point, and embedding that in the product, internal process and the fulfillment.

And then as we march through that evolution, and certainly, this was a strong tenet on the First Advantage side of our history, really trying to be data first, right? And that's really reflected in the over 1 billion proprietary records that you mentioned. That's both on our criminal fulfillment side. That's also really seen in our employment and education data and our verified SmartHub technologies that we use to fill there.

And while all that's going on, so you're automating the back end, you're putting data on the platforms to enable that function. We really have spent a ton of time and obviously, annual investment, doubled down with that with our acquisition of Sterling in terms of putting that into our tech platform. And that's our user experiences through our core fulfillment platform, how they integrate with our customers and their HCM systems.

We have well over 100 of those integrations with all the leading platforms in the world to really transform this back to my earlier point from being a true just outsourced business process a true tech-enabled solution that our customers are able to really value. And then when you do that and you do that well, you're able to then add incremental value to the process through additional products and services, and we've seen that evolve over the years, most recently with our Digital Identity solutions, but we have our continuous monitoring, our compliance solutions, I-9, you name it.

And as you have this one cohesive modern-day tech platform, you're able to add those incremental value add to your customers, improve your value proposition to them and all while at the same time, thinking about our shareholders, making a much more valuable, robust and durable company. And then that's why if you look at our customer base, wide set of verticals, right, health care, great retail, transportation, gig, financial services, industrials all over the place, wide geographic mix. We're able to do these services all over the globe at high quality, high turnaround time.

And then look, we have an enterprise customer focus. So if you looked at the names of our customer database, it's the who's who of the Fortune 500, Fortune 1000, Global 1000. So you've really kind of seen over the last decade, I've been here for a little over 10 years. Joelle heard I started not too far apart. We've seen that evolution firsthand, and I think it's probably really admirable for our shareholders to be able to see the value come through our P&L and overall, just the quality of the company over that same period of time.

Yes. Ronan, I would say one -- just kind of like to simplify a lot of everything that Stephen just said, which was great. We've really kind of evolved from like a point in time onetime check, if you will, at a certain point throughout like the hiring life cycle and you kind of like zoom out. And we're really now kind of a broad-based kind of product and platform that delivers managing risk across the entire life cycle of someone in the workforce.

So whether it be from the initial start of an interview all the way through to, yes, of course, the background check, which is where we've done to an identity check. And then as Steven mentioned, even the post hire where right to work, I-9 and then continuous monitoring. So it's really taking it from just a onetime transaction truly to kind of an end-to-end solution across the workforce to manage risk.

And so it's been a really great ride for us. And as Steven mentioned, we kind of took those platforms and the data investments and we really tried to elevate the organization to allow us to deliver, again, those risk mitigation services from a compliance perspective across for all our verticals. And as Steven mentioned, the verticals is a key focus of ours, not something we were doing 10 years ago, something we've absolutely doubled down over the last probably 7, 8 years, and it's been really good for the business.

Very good. I appreciate all the insights there. It's an excellent way to start the discussion, especially at this conference and the nature of it. So with that technology and that AI proprietary data and moat, I mean, obviously, you guys have been investing in that for quite some time and applying AI across now customer care, fulfillment, software development, verification flows, fraud mitigation.

Can you talk about -- and Joelle, if you want to touch on some of the key product innovations even from a digital ID standpoint, where you are seeing the most meaningful benefits today? And where we expect to see the most meaningful benefits going forward?

Sure. Yes, absolutely. So what's really interesting and a dynamic change in this industry, in particular, but kind of across enterprises, and as Steven mentioned, that's our main focus. The buying pattern has kind of changed. So companies for really the first time over the last like 1.5 years, 2 years are prioritizing risk as the #1 requirement for them. And so when they buy, they're like, how are you going to help me manage risk? How are you going to do this? And if you kind of like reversed the conversation maybe like 5, 10 years ago, it was all about speed. I need to get people hired right away. I need to get people in the door.

So this dynamic change has been a complement to what you talked about with regards to kind of our product suite. So as we mentioned, we have a number of verticals. So we are vertically focused. We have a wide range of subverticals inside of there. And we're seeing kind of broad-based growth across all of those verticals. That's being driven by the innovation that we've done for those specific verticals inside of our platforms. So when you think about the kind of revolution of AI, which you kind of talked about, we'd like to consider ourselves using good AI to fight bad AI.

So the reason risk is so prevalent right now in the top buying pattern, it's because a lot of these organizations are struggling with identity fraud. And identity fraud is coming in all shapes and sizes. It's the only product we've really ever had that is being demand-driven across every vertical, every customer segment and every region. So the bad actors who are creating synthetic IDs, who are creating deep fakes, who are creating resumes with fake companies on them, who are creating just different facets of fraud are everywhere.

And so our customers are really looking for an end-to-end holistic solve for how they address that. And so that's coming in a lot of shapes and sizes. We're using AI to obviously help with identity fraud to be able to take a biometric ID across a face and liveness detection, using all of our proprietary data, as you just talked about, to validate just the physical biometric with the biographic data and pair that up to help people get a good view.

Obviously, the background screen itself to make sure that they are not a criminal to make sure that they have proper drug testing, that they have all the compliance services, their licenses are active from a nursing perspective, a driving perspective, all of those pieces.

So being able to stitch that all together, using AI is a great way to do that, a great way to synthesize a lot of data to get to a positive outcome is a great way to do that. So we take our good AI products, and we place some of that bad AI, and that's allowing us to evolve as we kind of move through the life cycle with these customers and their focus on managing risk.

Excellent. Thank you. And before diving deeper on digital ID, can we just -- a quick question had come in on just for your articulation of how that proprietary data is valuable and how that lends itself to the competitive differentiation that you guys have, whether it's the improvement in speed, reduction of third-party costs, increased accuracy, you could touch on those aspects of the proprietary data and the benefits? Please.

Sure. I feel like you just answered it. It's awesome. Yes. So it's all of those things. But the real thing -- so there's two big categories of searches that kind of people do to get people hired. Obviously, criminal check is the largest by far. And the other one is like a work employment verification, education verification as well. So that's where we focused our time. So we have proprietary criminal records that we have built over decades. So this is where history and size and scale, we do over 200 million screens a year. So being able to kind of build up that data asset really allows us to get the historical information that's necessary as well as direct access, as Steven talked about, the automation to be able to pull real-time activities that are happening as people are living and working and keeping pace with the arrests and crimes and things like that, that are happening.

The second side of that is around workforce and employment verification. So this is a critical aspect for people to be able to hire, especially in regulated industries. It is a requirement in the transportation industry, the health care industry and in some cases, financial services. And so we're seeing that. So being able to have a proprietary database of verification data, again, that we have been doing for years, allows us to deliver very quickly for our customers. It allows us to have high accuracy rates. And the verification records that we have is built specifically for the purposes of validating employment verification.

So that allows us to deliver faster, higher accuracy. And obviously, it doesn't -- we don't really have to touch it. So no humans are doing that. So it really allows us to deliver the speed that our customers are looking for because just as much as they're focused on risk, they very much also want things done very quickly. So that investment has done very well for ourselves. So that's on the front end with customers.

On the back end with our fulfillment teams, that allows them to work through these processes much faster. As I mentioned, 200 million screens. It's a huge volume. We actually just recently had a volume surge as we talked about in Q2. We did great with that. We didn't have any service degradation. We didn't have any speed slowdown and our accuracy rates stay exactly where we had hoped. So being able to leverage AI to be able to handle kind of the scale and growth that you mentioned that we've seen this year is a real differentiator for us as well.

And Joelle, I'll just add, Ronan, if you think about the proprietary data and the value of First Advantage. So although everything Joelle said is 100% accurate. But then from a P&L standpoint, right, any time you can leverage your own data versus having to go to third-party data, there's obviously big margin benefits. And look, we also acknowledge some of the trends in our industry. We're also -- at the same time of making our P&L look better, we're able to help our customers save money.

So from a competitive standpoint, that's a differentiator because to Joelle's point, in these verticals, you have to go do these things. And reality is that the cost of the data acquisition has gotten a little bit out of hand in some of those areas. So if we're able to provide alternative data sources to our customers that are also margin beneficial to First Advantage, it's a win-win of being able to create a better First Advantage and a differentiating customer experience at the same time.

Excellent. Can you remind us of the stat, I think you guys have previously mentioned the percentage of screens that are done automated versus with human intervention? And obviously, there's a margin benefit there. Just a reminder on that? Please.

Yes. Look, it breaks down a little bit, right? I mean the main thing we do to Joelle's point, almost the universal element kind of background check in the U.S., the criminal element. And that one, I think when we last updated the market, we were highly, highly touchless over 70% to 75%. That number is only going to climb up over time, and it probably has since we last updated it. That's something that we update every year in our annual stat.

The acquisition of more proprietary data. And then I think as you mentioned, I think, Ronan, even in your owns, one of the areas that we've traditionally used RPA and then machine learning and now we're evolving to AI and some of the criminal fulfillment to just fill some of those paths that we tried to automate, but the legacy automation tech wasn't quite good enough. That we can use AI to get to.

There's obviously -- we still need to stay compliant with all of the FCRA and related regulations in our industry, which is both an AI moat in terms of making sure that we're protecting First Advantage in the industry from some of that disruption, also from some of the risks in the hiring process, but at the same time, leveraging it to the extent we can to automate more. So we anticipate the next time we disclose that number, it will be north of the last time we did it, but it's obviously a majority of our cases continue to be highly, highly automated, incredibly touchless.

And then to Joelle's point, we talked about this, and I'm sure we'll get to it in some of your questions around the base growth that we saw in Q2. We didn't know that, that growth was coming. It was a pleasant surprise to us, but we weren't able to workforce manage to it either. But at the same -- to Joelle's point, our network and the technology, the level of automation made fulfilling all that excess volume possible. So we feel really good about where we're at and the trajectory we're on in terms of making sure things are either end-to-end touchless or as automated as they can be.

Very good, thank you. And then on -- back to Digital Identity. I think management had called it the tip of the spear. Can we just remind us again how to think about how that is increasingly appearing like a stand-alone product -- I mean -- sorry, less like a stand-alone product and more an extension of the broader screening and workforce risk workflow. And then can you remind us how to think about the TAM and the opportunity there, please? And then also the economics and impact potentially to margins?

I'll let Joelle talk about kind of the evolution of the product, and then I'll take some of the unit economics stuff.

That sounds perfect, Steven. Yes. So you're exactly right, Ronan. Digital Identity, it's not a feature or a stand-alone product. It's -- think of it more as a foundational element of how a background screen continues to evolve as this risk profile changes. So it works and it helps improve accuracy, compliance, and it's active and standard in almost every deal we quote right now. So we're really looking at it as a foundational element to any of the background screens that we do.

And it's really manifesting itself into a tip of the spear, as you mentioned, but it's really changing the conversation and it's changing the dynamic we have with existing customers and bringing new opportunities that we haven't actually had the opportunity to talk about before.

So it's changing how enterprises are thinking about their profile and thinking about how they manage their employee risk. And it's something that we're really excited about. The evolution of this has been really being able to connect the dots. And so there's technology out there that allows you to check the biometric facial features, the liveness, things like that. But where we bring that value is adding that plus all of our proprietary data about that individual to ensure that the primary source and the verification and all of that matches up directly with the identity.

And then the other thing that's really interesting is connecting it across all of the aspects of the hiring and post-hire cycle. So if you're interviewing a person, you want to make sure the person that you interviewed and answered all those questions really well and that you want to hire is also the same person that you're running that background screen on to make sure that there isn't a risk there. And then you also want to make sure that same person is the same person that either shows up on day 1 to do the I-9 or shows up day 1 virtually with their laptop and has the right to work in this country. And so identity is really spreading itself across.

And our platform is the only platform that can connect all of those dots. At every aspect of the cycle. And then there's even post-hire monitoring that some of our more advanced customers are talking about. So the evolution of the product has been really interesting, and it's rapidly changing. It's changing pretty much as quickly as AI is because we really need to create products that keep pace with all of the fraud activity.

But I'll tell you the fraud problem in this -- in the United States is significantly increasing. And it is something, again, we hadn't seen as so prevalent across every single vertical. It started with financial services. It started with probably a lot of the people that are on this call and the technology vendors, and it started with the North Korean bad actors.

But it really has evolved to a number of things where a nurse, for instance, is impersonating multiple people and working at 4 or 5 different hospitals and these things are real. This is happening. A retailer, somebody who works in the warehouse pulling up with a truck, they are not the person that was hired. They are not the person that they did the screen on and they pull up with a truck with a fake ID and they load the truck with all the merchandise and they drive away. These are real-world scenarios that are happening.

And so having a product that can handle all of those types of situations and then the immigration piece, this administration is very focused on immigration. So if you do not have the right to work in the United States, you need to prove that you are, in fact, the person that was hired and that you are the person eligible to work in the United States.

Otherwise, there are major fines. So it really is -- it's prevalent in many verticals, and it is something that is really driving pipeline. It's driving stickiness with our customers, and it truly is the first thing we really are talking about with all of our customers prospects.

Well, and it's a universal geographic, right? I mean, North Korean -- that Australian and U.K. and it's global, which I think is why the TAM is so large, right? I mean the prevalence of the risk, how deep they go, how widespread they are. When we looked at our data surveys as part of the prep work for Investor Day last year, we sized up the Digital Identity market roughly at $10 billion. Now that's inclusive of some areas that are maybe tangential to employment and other areas.

But it's a huge growing market opportunity because to Joelle's point, the risks are so prevalent. They're so real. And it's very much akin with cybersecurity. You have one issue in a company, and that is all you need to have a really, really bad day. You can hire an employee who might have had a questionable background, you can handle that via an HR action, remove them before something bad happens.

Once you let a threat actor in the exfiltration of data or the infiltration of something bad, things like that are so real. So that's why it's such a growing market. We believe it's roughly a $10 billion TAM. And obviously, it's very early days. So we're trying to figure out how much of that market we can really attach ourselves to and then really create our independent First Advantage white space. But there's tons of market opportunity, and we're really bullish about the outlook there. We're also bullish because it's a profitable product. You have far less third-party data acquisition. You don't have to go to a state or a county or a driving records or a drug testing lab or someone like that. It's truly a tech service. And so it's margin accretive as well.

And then we also think it's differentiating and creates a much stickier customer engagement once you have them to Joelle's point, that you have the entire envelope fueled and with the First Advantage stamp that creates something that's a really sticky, high retention driver. So we're really bullish on the product from a revenue growth, from a margin growth from a retention aspect.

Very good. And so what we've touched on thus far is actually two key pillars of the First Advantage 5.0 strategy, I think technology and AI innovation with that technology leadership across the AI automation, SmartHub, fulfillment, customer care, et cetera.

But there's also the element of the product strategy and the candidate experience, and you touched on that to a certain extent. Anything else to be particularly mindful of or perhaps worth highlighting for the successes and the execution on those aspects so that they are there before we move to others.

Yes, absolutely. And yes, the candidate experience is key. So we talked about 200 million screens a year. Obviously, millions and millions of candidates that we're talking to and getting through the system, which is great. But having a super frictionless experience is critical to all of the enterprises. This is the first touch point really that these people that they're hiring have with their new company.

And so that experience sets the tone for really how they're going to feel as they continue their work relationship with their new employer. It's also something we're seeing a lot of organizations use for rescreens. So that's something that we're seeing very popular as well. But having that frictionless experience and AI is also perfect for this.

So we have deployed AI across our candidate experience to be able to pinpoint exactly where the workflow is seamless and completely frictionless. And then we also have AI that tells us where you would happen to have a rage click or a challenge or something with the candidate. So we have great technology that allows us to respond in real time to these candidates to enable them.

And then we have, as you mentioned, the QuickChat call. So all of our chat features are across the candidate experience, and it's something we've invested heavily in. And it's really added to the stickiness and retention of our customers because when they have happy candidates, happy employees, an easy way to get through some of the stuff that can be a little tedious as you're trying to get a job.

It really brings a huge value to them and just creates higher retention, which you've seen in our numbers. Our retention held at the 96%, even ticked up to 97%, all throughout the integration. So most organizations don't have that level of success. through a large M&A transaction. So we're really proud of that, and we definitely know that the positive high-tech candidate experience really helps with that.

Excellent. And now on to another aspect that you guys have touched on, but key, I think, to FA strategy, certainly since coming public and before then and has also been very successfully executed upon is that targeted vertical go-to-market strategy. Can you talk about the approach there and the key to successful execution and also perhaps some context on international as well?

Sure. Yes, absolutely. So our vertical go-to-market strategy has been the bread and butter of this business for -- since I've been here, and Steven mentioned, it's been almost a full decade now, I think of it 9 years. And so yes, we have verticalized across the industry, and we have wage workers, blue-collar workers, and we have kind of professional services and white-collar workers. But the key to this is that diversification across the verticals.

So when we had First Advantage traditionally retail, transportation, they were kind of the large focus verticals that are plenty of others. Then we had the Sterling acquisition. Health care and industrials were kind of the bread and butter for the Sterling side. So when we brought those two organizations together, it allowed us to have a really nice diversification of verticals across the board.

And when you do that and you have a platform that is elastic like ours is and very configurable, you can build products that are specific to driving the needs of a transportation, for instance, and a DOT compliance. You can build products that are heavily focused on health care and health care workers and the nuances that have changed, right? Health care is exploding. It's a vertical that is growing. It's continuing to drive. It is our largest vertical at the moment. And it's something that is kind of keeping pace with a lot of these changes. We have an aging population across the world. So we do anticipate that, that is going to be something that continues to grow for us.

And then industrials, we've seen a huge surge in industrial activity. It was kind of a quiet one for us for a period of time. But over the last year or so, it's really taken off. We're seeing big surges in aerospace and defense. We're seeing lots of other activities around that industrial area. So being able to speak to our customers from a sales, a customer support and a product perspective, specific to their vertical, that matters.

It makes -- you have the power of a big company and all these millions of screens, but then you have dedicated teams that can talk to somebody who really only cares about DOT compliance or you can talk to somebody who really only cares about financial services and FINRA and all the things that are necessary for them to run their business. So that really matters.

And that kind of one-to-one specialty connection with our go-to-market strategy is what allows us to continue to win. And we've seen increased win rates. We've got a very large pipeline, one of the largest we've seen in a long time. So it really is helping our go-to-market strategy because we can talk to them.

We have product-specific solutions for their needs in their vertical, and we have the size and scale with the data that allow us to deliver the speed and risk. So we feel really good about this vertical strategy. It's worked for us, and it's going to continue, and it's part of our plan going forward as well. It's something that has just been a real winner for us.

Very helpful. And before getting into -- because obviously, we are going to get to new logos pipeline conversion, growth visibility. Package density and then obviously base growth. But on the verticals, can you confirm because there was that diversification benefit from the Sterling acquisition from an end market, but also, if I'm not mistaken, the nature of the employee type from a white collar to blue collar, the high churn that FA had a particular exposure to. And then also, if not mistaken, an international diversification benefit. Can you talk about that a little bit, please?

Yes, absolutely. So we have had -- you're right, we had a heavy kind of high-volume hire I would say that, that is continuing to grow and expand. It definitely was something that kind of the traditional First Advantage had focused on heavily. But actually, one of the pleasant surprises of the Sterling acquisition, they also had a lot of high-volume hire as well. So that is an area that continues to grow. It's great for our business.

Any churn in the market, in the employment job stacking is a big thing we're seeing now as well where people are working multiple jobs on purpose, especially the younger workforce is taking one or two jobs. So all of that works really well. But we still have our professional services. And that is the white collar, more traditional, but that's heavy compliance. So that actually works well for us because those packages are large. And there may not be a ton of turnover, but it does create a good amount of volume and revenue for us because if you're looking at hiring a DOT driver, for instance, that's something that costs a lot more expensive than somebody who's going to be kind of a retail worker or something like that. So that has been a really good mix for us.

Internationally, we have seen a lot of strength as well. So we've got complementing areas. We do searches in 200 countries and territories across the globe. So we -- there's really no place on the planet that we can't touch. We actually did searches last year for three in Antarctica. And so there are things that happen across the globe.

But the areas that we are seeing a big surge of volume in and interest is the U.K. for sure in EMEA, the European markets, Australia, India and then some other areas in APAC. And that diversification, that product mix being able to deliver those verticals, but then also the specifics for those countries really matter. So when you can apply compliance, that's, for instance, GDPR related on top of a product specific for the European region, they love that. They need that, obviously, for compliance purposes.

But then to have that sophistication and one-stop shop where your platform can serve all the European parts of your business, all the U.S. parts of your business and many of the APAC regions, that's a big differentiator for us. And so the vertical markets matter, but then being able to apply that geographic compliance is also a big win for us, and that's creating a lot of growth opportunity as well.

Excellent. Thank you. Is there any way to -- are you helping with how to think about where the potential greatest opportunity to win multinational customers is and what the drivers of that are, whether it's further consolidation, customers seeking to standardize screening or identity and compliance processes holistically? And just some further comment there, please?

Sure. Yes, absolutely. It is very much a consolidation play right now. We've seen a lot of organizations where they've had different vendors in different regions across the globe. And that creates a level of inconsistency and that also creates some gaps in the program. And that's where some of these risks are starting to bubble up where they're realizing they really do need one global provider on one platform that allows them to manage their risk consistently across all of the regions.

There's also a dynamic with kind of the folks that they're hiring because not one person comes from one region and has worked in one country. There is a big shift of people that move all around the world. And so you need a company that can hire somebody in the U.K. who went to school in Australia and who worked in France for a period of time. These are things that are more and more prevalent as the kind of workforce has been and continues to be more mobile.

So being able to deliver on that for our customers is -- it's necessary, especially as risk continues to grow. One of the other products that's helping to drive that international growth as well. So you have the consolidation, the one-stop shop phenomenon. And then you also have the identity fraud. So identity fraud is very active and popular and newsworthy in the United States right now, but it actually started first a number of years ago in the U.K. and Canada and Australia. This was something that governments kind of centralized.

So it's been an evolution, and now India is popping up and then there's a number of other countries that are doing this. So in addition to having that one-stop shop, which we offer, we also have products that are helping to address some of the really pressing needs that they have across the globe. So having a company that can deliver identity services across 90 countries that they operate in is really key because, again, it brings that consistency, the visibility and then manages risks.

And then as Steven mentioned, you now have a conversation where you can have the CHRO having a conversation with the Chief Information Security Officer, and they're talking about kind of consistency across the employee base of how they're managing that risk, how they bring them on and then how they continue them with employees.

Excellent. Thank you. Moving along to -- I guess, we'll talk about base growth after first touching on new logos package density. And I think you already covered the retention consistent at record levels, but very strong momentum from a new logo standpoint. I think enterprise bookings were up to 20 in 2Q '26 from 17. I think you have described the late-stage pipeline as the largest in company history. So what's primarily driving that, whether it's sales productivity, demand, the broader product suite, competitive win rates? If you can just touch on the key drivers there and outlook, please?

Sure. Yes. It's definitely the go-to-market verticalization. So that has been great because our pipeline is really strong. And yes, it is the largest we've seen, but it's strong across the verticals. So we don't have one or two verticals that are kind of carrying. We're really able because we have that diversification and we have the platform that can handle multiple verticals solutions, that's really helping us drive that swelled pipeline.

Also, our ACV is getting larger because of the consolidation that we just talked about. So people are looking for one company to handle multiple things at the same time. That's helping the size of our deals, which is obviously helping the pipeline growth. And then, of course, we talked about Digital Identity. That really is the tip of the spear, and that is driving a big portion of that pipeline growth as well. So it's kind of a few things where we've got the consolidation happening, the verticalization, the kind of all verticals firing on all cylinders.

And then you have this great product fit with our Digital Identity product suite and such a high demand coming off of that. We're also seeing a lot of our post-hire products driving a lot of this pipeline growth as well. So monitoring and some of the post-hire aspects of our business are really starting to grow as well as a continuation of this overall risk management posture that a lot of our customers are trying to help build across their organization. So making sure they have full visibility from hire to current employment to even a fire situation. So that is also helping with the pipeline growth.

Excellent. Thank you. And then if not mistaken, I think post consolidation with Sterling, does FA have -- is it approximately 25% of the core or what was the legacy historical core screening market? And what are the largest remaining potential share opportunities, whether that's -- I would imagine it would be primarily global enterprise, but are there specific regions, international markets or adjacent products to be mindful of?

Steven [indiscernible] Can take it.

Yes, we certainly feel that was right when we closed. Obviously, we've had really strong growth rates then. So we may be a little bit north of that 25%, but that's roughly the range that we think we represent. I think to your question, look, there's still a ton of opportunity. A, just inherently, if you've got 25% to 30% market share, let's say, that leaves 70% to 75% of the market to go via white space.

When we think about how do we win, the investments that we talked about at the onset, becoming this tech-enabled data company, that technological differentiation, the product differentiation, the user experience differentiation. So when you can change that whole value profile, you start to benchmark really, really well and even more so against the smaller end of our -- as you know, from following this industry for a while, there is a long tail of really small background screening providers, certainly in the U.S. but globally.

When you're doing $10 million, $20 million, $30 million, $40 million of revenue, you just can't make the investment. Think of all the tech areas that we talked about just in the last 40, 45 minutes, AI, Digital Identity, user experiences, cloud, data, all this stuff, these aren't cheap investments, and we've been making annual investments in our product and tech and R&D platforms for years.

So that technological differentiation versus the lower end of the market and even versus that mid-market cut, we think that, that differentiation just over time just widens that gap in terms of the value proposition we can bring to the market, the quality of our products, the speed, the data capabilities. So there's a huge white space. And I think just inherently, our continued focus on our products and customers will allow us to continue to execute at a high level versus that white space in terms of [indiscernible]

Very good. Thank You. And then with having described that large -- the largest late-stage pipeline in company history, is there a way to think about how much of that, say, is sufficiently advanced to provide visibility into '27 or even the end of 2H? I know we'll cover upsell, cross-sell. I think there's something to be particularly mindful of from a comp standpoint for up and across for the 4Q. But just on that visibility on that new for closing out '26 and '27, please?

Well, Ronan, I would answer that two different ways. One, obviously, with the pipeline success and the momentum we have, we feel good about it. Candidly, we like to talk about upsell, cross-sell, new logo almost together. There are very many times where you won incremental territory on an existing account, and it's all the same sales motion as new logo to -- you're displacing a competitor, you're adding new products, et cetera.

So if we zoom out for just a second and look at them together, right, there's incredibly healthy last 3 or 4 quarters of results. Q4 is going to be just a little bit of a modeling anomaly just because of -- we grew 17% new logo upsell, cross-sell last Q4, and there's some normalization of that. We had customers last year, as you recall, holding back screening volume from their incumbents, which obviously is a vote of confidence in the First Advantage platform, holding that volume back so they come online with us.

But that creates a little bit of, I would call it, a modeling void, if you will, just for a quarter. And a lot of the wins that Joelle has been talking about, the 20 wins we had in Q2, we'll see some of that revenue by the time we get to Q4, but that's -- by the time you implement these enterprise sized deals, get the integration done. And look, these are denser deals. Joelle mentioned it in one of our answers, ACVs are up, and that's because they're buying a few more products at that initiation point than they would have in the past. Those more complicated deals take a little bit longer to implement.

So we do feel good about the trajectory of new logo and upsell, cross-sell heading into next year. And look, we got a really good runway. And the other thing I always remind investors, every time we win a new logo, no one comes into First Advantage ever buying the entire portfolio, entire suite of services, a fully dense package. So every time we add something on the front end via new logo, we're also increasing our white space immediately with our customers on our upsell, cross-sell.

So they really do go hand in hand. We probably like to talk about them together. And look, the growth out of both the last 3 or 4 quarters has been phenomenal. We have a harder comp in Q4, but we still feel good about the long-term trajectory of the combined revenue growth there.

Excellent. And I think you guys had recently referenced your global workforce trends report and that 89% of respondents plan to add screening and identity verification solutions, which I think obviously speaks to the value prop of that product as we've discussed at length here. But how does that -- how do those findings align with current customer conversations, your pipeline activity, actual buying behavior and how to think about sustainability of growth in that package density and that upsell, cross-sell component of go?

Yes, absolutely. Package density is still by far the largest growth driver of our upsell and cross-sell. We are definitely seeing add-ons on the product side. But I mean, this is coming off of -- in that Global Trends report, we had 5,000 respondents, and it was really telling -- the 89% actually was a bit surprising for us. We knew a lot we're going to add, but that was, I think, just reflective of everybody's focus on risk mitigation these days. And so -- and that comes in all sorts and sizes, right? So there may be somebody who is looking at a 5-year work history and they want to change that to be 10 years now or they are looking at a criminal check that goes back 7 years and now they want to go back 10 years or they want to add federal criminal search instead of just the county criminal search.

And so these things are what drives our upsell and then the cross-sell is really product-driven. And so there's a lot of discussions that we have with customers on a regular basis on where they are because you have such great visibility into an overall like customer base. And so we've got a vertical strategy, as we talked about. So you're able to walk up to a hospital system and say, "Hey, this is what your package looks like. This is what you're screening for all of your employees. And this is what like the top 10 other hospital systems anonymized. But like this is what they're searching for. And you see that you have gaps in that.

It really helps people understand like where their risk profile sits or if they're fully compliant, they're very full and they have the full stack of certain searches, and they feel really good about themselves and like, okay, good, I'm managing risk the best way I know how. We're getting tons of questions like that with our customers. And we're also very proactive with it to say, "Hey, these are the things like, oh, by the way, Digital Identity, I know you want it. You're working on the procurement aspect of buying it. Here's where -- here's the other peer group of yours that is already using it.

And so being able to have those conversations is really great with our customers. That very much drives the pipeline for upsell and cross-sell. And we don't see that. As Steven said, he's spot on. There is no one customer that buys 100% of everything we offer.

And as we continue to add products to the platform, that just allows us to continue that upsell, cross-sell growth, which is why we've had such success with the consistency of that over the last several years. We really -- our upsell, cross-sell number and new logo combined has been like [indiscernible] for us because of that fact, because of product investments, because of the go-to-market motion and because of the verticalization.

Excellent. Thank you. And now shifting to base growth, which has understandably been referred as the potential wildcard of the organic growth component, our algo and perhaps the most susceptible to macroeconomic activity or the general hiring environment or dynamics. But it accelerated to, I think, 6.7% in 2Q with approximately half of that coming from customer-specific labor reshaping and screening initiatives.

But I think underlying base still performed at the high end and above the long-term framework. So is there anything to be particularly mindful of in those dynamics with those customer initiatives and what the underlying demand signals are? And then also, lastly, the normalization, I think, in second half to 4Q. So a few elements there, obviously, but I'll leave it to you as to what to discuss?

Yes. No. Look, it was -- as you mentioned earlier, it was a good pleasant surprise to us, certainly on that half of base growth roughly that we'd allocate to those customer initiatives. And you start to learn about those almost after the fact when you start talking to customers, like why is your volume so high? And Joelle can provide more color, too, but it's a variety of things that you mentioned. We have customers who are doing internal reorganization or restructuring or repurposing of roles.

Sometimes that's in certain customers, that's creating more than normal churn levels, right, just having to replace the type of workers they have or move workers around or change workers out. When that happens, even if they're not necessarily adding to their total employee count and therefore, net total economic employment, that churn over that short duration is the base catalyst for us.

Likewise, some of our customers were doing, to your point, job reshaping where they're changing the roles altogether, maybe to adapt to a tech for some of it to geographic, et cetera. But some of that resulted in rescreening because you're changing the roles of your workers. And when you brought someone in their role was something and you change it to something else and you have that or some are harmonizing screening criteria across segments of their business. So we saw -- we just happen to see a few of those, some larger ones, some smaller ones, but all hit in Q2. Some of those will have a little bit of a longer tail to them and could be beneficiaries in Q3.

But because individually, they're not long term and customers aren't saying, hey, we're going to be doing this over and over again. We're not going to change our long-term model guidance and long-term guidance say, it is now a part of it. Now what we also saw in the quarter, though, to your point is, look, if you take half of 7% and say it's related to those customer initiatives, that still leaves 3% to 3.5% just organic run rate base improvement, base growth. And that's a few things, right?

And we've talked about a number of times, the value of being -- representing a diversified set of verticals. We still have a core focus on the hourly worker, that blue-collar labor -- and you can -- there's a Wall Street Journal article over the weekend that talked about how strong the labor market is for that low-end labor right now. And there's still a good amount of churn in those workers. There's still a lot of demand for it.

Our retail and transportation verticals, which have been doing well in this type of market for years. But to Joelle's point, industrials which have some aerospace and defense in it doing really well. We've even seen the parts of health care around like nursing and staffing doing incredibly well and even staffing in general, which as those general staffers kind of evolve to that hourly worker approach too and that blue collar labor, those are all doing really well.

And I think the other storyline in Q2 is we didn't have many laggers, right? We've had some big detractors on base or bigger detractors on base that kind of offset any forward momentum with some backward momentum we've had health care having some sluggishness now for 12 months at least, but Medicare and Medicaid funding has been uncertain. We've now comped over that. You've got relative stability in that sluggishness and you're seeing those numbers improve.

When we had modeled the year wind the clock 6 months, we had thought base was going to be on the negative side of neutral. We're now thinking it will be slightly on the positive side of neutral, just given those tone changes in that hourly worker base. I don't know if 3%, still 3.5%, that's still above our long-term algo. I think it's still probably a little bit -- there's a little bit of kind of pent-up demand, if you will, in that number.

But that's one of the reasons we've always felt good about base long term, not being the primary catalyst growth, but getting back to that stable point where it's no longer this large headwind that we have to face and then overcome with go-to-market kind of that positive neutral state where it's kind of a slight tailwind. And then it allows kind of the true power of our upsell, cross-sell, new logo and retention pieces of the algorithm to really have those results shine through.

Very good. Thank You. And then any final thoughts on what you're seeing from an employee movement turnover versus net employment creation. I know you're often asked about what you're seeing versus the key federal jobs or state. No need to go into that because I understand that they in there?

Well, and I would say one of the reasons that we're seeing such positive base results versus maybe what you see in some of those other data studies, whether it's BLS or ADP or otherwise, is how diversified our verticals are, but the fact that we're also focused on the enterprise customers, these large Fortune 500, Fortune 1000, we define enterprise as $0.5 million or more of annual contract value. And you start to think about that, that's hiring thousands, tens of thousands, some of our customers, hundreds of thousands or more workers every year. These are the biggest companies. So they're less susceptible to these short-term storylines. We saw some of this unfold, whether it be tariffs or fuel prices now or et cetera, much more strategic in the long term.

So to have a diversified base of enterprise sized customers is really allowing us to feel good about where the hiring market is. Again, I think the hourly, that base level worker, the transportation driver delivery guy, your retail your manufacturing, industrial, construction, et cetera, there's still a lot of demand in hospitality for those labor forces and a lot of churn because these inflationary pressures that you see have caused workers to either change jobs more money, seek multiple employment, job stacking that we've talked about, where a worker may have a 9 to 5 and then either have to pick up the second shift or pick up a weekend shift somewhere else to pick up gig opportunities.

We're seeing more and more of those low-end workers having to do multiple jobs, which every time they see one of those alternate or supplemental employment, that's good for our screen volume. Even if it's not changing the calculus of total number of net employed and total unemployment in the country, that churn and those forces are certainly helpful to a stable and then growing base.

Very good. Thank you. Mindful of the time, A couple -- just one on margins and then one on capital allocation and then two very quick follow-ups that have come in from the audience. So the adjusted EBITDA margin, I think 28.6% in 2Q framework targets is 31% to 32%. Help us just think, Steven, if we may ask, please, for a bridge and the contribution, say, from Sterling synergies, revenue scale, package, digital monitoring, AI, a return of hiring volumes, et cetera, just a bridge to that margin and how to think about that, please?

Yes. Look, I mean even the 28.6% was ahead of our model for Q2, to be honest, we've seen that broad-based growth, which is what we're expecting over the long term to kind of get back to a more diversified vertical set, right? We added some major customer and upsell, cross-sell, new logo wins last year that were in the health care and transportation space, higher mix of out of pocket that did -- I don't want to say artificially, but certainly kind of drove down the net margin from a percentage standpoint.

Great wins, great revenue, great pricing on them, just the mix of out-of-pocket fees changed a little bit, but we're seeing that normalize out. To your point, to get from where we are today to get back to the -- not back to, but get to that long-term model range of 31% to 32%. We still have a lot of flow through and synergies in the P&L, right? We've actioned a lot, but haven't realized all of them yet, we're starting to action them.

And then -- the remainder of the synergies to get to our final kind of place by end of the year will be coming in Q3, but more likely Q4. So you'll see that final synergy benefit flow through in 2027. Also, we continue to grow, right? We've got growth expectations for the next 10 quarters to kind of get to the endpoint of those targets.

And as we grow, we've got an incredibly scalable P&L. We talked about how scalable our fulfillment functions were in terms of the excess volumes we saw in Q2. But our product and tech, our sales and marketing, our G&A, those stay very flat even as revenue grows, right? You have to maybe add a little bit of customer success and sales to make sure we can achieve the growth rate, but those are very modest in the growth of the revenue. And then we've just got a DNA of ordinary course cost savings.

So we've got a playbook of areas that we need to leverage, as I mentioned at the onset, moving away from RPA and machine learning to AI and getting more workflows automated -- that's core FA DNA like we talked about in the first question. Those will come through in further support. But the main two areas you're going to see is that synergy leverage finally fully realized P&L and leveraging our growth and then add on some savings and other opportunities we have. So we feel good about this.

Very good. Thank you. And then I think there's -- what was $166 million of post Sterling debt repayment, leverage 3.7x, nearly $40 million of repurchases under $100 million authorization. Just remind us on how to think about prioritization and balance deleveraging, buybacks, organic investment and even strategic flexibility?

Yes. Certainly, look, we are certainly focused on getting the leverage down. We know 3.5 is kind of a bright line to some investors. ultimately, our long-term target below 3 to get to that 2 to 3x range -- and we've got a really good glide path to get there. At the same time, we've got the fortune of being a high cash flow generator, generated almost $75 million of operating cash flow last quarter, really have a very efficient balance sheet.

So we have the ability to be a little opportunistic when it comes to capital allocation, right? We didn't have First Advantage stock at $9 in our bingo cards at the beginning of the year. But when that opportunity presented itself, we were able to kind of easily put some of that capital allocation towards share repurchases, create good shareholder value by buying back, to your point, almost $40 million of share at a below $12 price on average. So create a lot of good shareholder value as we were able to execute that plan.

But look, we were able to stay balanced and through that process, repaid debt, and we're paying down $25 million a quarter before last quarter. And we're able to buy back some shares in Q2 and then upsize that to $45 million last quarter. So -- but looking forward, we'll continue to be opportunistic and make sure that we drive capital in a way that's shareholder accretive.

Obviously, we want to get leverage into what is a market accepted range, and we have great line of sight to doing that. But as that journey progresses there, if there's opportunities to be opportunistic, to be honest, we will pass those off and make sure that we're able to ultimately drive a healthier First Advantage process.

Got it. And then anything to be -- just we have your assessment of competitive dynamics within the industry. And I know you have spoken to -- and this is obviously something we spend an entire call on, but not having seen any disruption a reduction in activity for -- from AI, but also not having seen -- and there being a very well-established moat to potential AI disintermediation. But any -- if we just have your assessment of competitive dynamics with some thoughts from an AI standpoint?

Yes. I mean I think the first thing that everyone should keep in mind is how regulated this industry ultimately is. So I think when we wind the clock 6 to 9 months ago, there was a question of what's to prevent someone from their own background screening bot and doing their own. But you need -- people are mindful of the fact that, in the U.S., we have FCRA, globally, there's all sorts of other regimes. In the U.S., you have supplemental laws in a number of states, I think it's over 30 now that either have laws or working on laws that limit or prohibit the use of AI in the hiring process.

So you can't just bot replace what we do with pure AI. And even when we implement automation technologies, there's proper protocol to make sure that there's human decision maker and that you're not running of those regulatory items. And then people have to remember the data landscape. It's so fractured, but not -- and also not free. You can't just say because the data is publicly available. It is available to the public, but at a cost. So in the state of New York, they charge $95 for every name. And you can't just go build a massive database overnight without spending billions and billions of billions of dollars, maybe for naught, but then you still have to verify things as the primary source for your FCRA compliance and other matters.

So we like to see ourselves as a leader in terms of implementing the automation technology in a thoughtful manner in a compliant manner in the screening business. But it's not one that you can just wholesale outsource to your AI agent and let them go do. Otherwise, you're going to run afoul of a whole host of legal and compliance issues that you operate.

And then any changes in competitive dynamics within the industry?

No. I mean, look, I think the biggest change in our industry in the last few years is First Advantage and acquiring Sterling and kind of building a clear market leader. We feel really good about how we're positioned about where we're putting our technology investments, making sure that we're staying at the front of the curve versus kind of being surprised by technological advancements in the industry. First Advantage and Sterling were the only two background screeners talking about Digital Identity a couple of years ago before we acquired them.

And obviously, we feel really good about where we're taking that product and how the market is moving there. So I think the short answer is no, I think like I alluded to earlier, just -- our view is it will be harder and harder for those smaller players to keep up with the technology advancements and all of the things that we're talking about. And over time, that just creates a more effective, more powerful go-to-market message from the market leader.

Very good. Thank you both for all of this. It's been incredibly insightful and very well done. We and obviously, the market, I think, have been impressed by the recent execution and momentum. But I'll just leave it to you guys if there's anything you would potentially like to close with.

No, look, I mean, thanks for having us, of course. We're looking forward to seeing you guys in New York again next week and meeting some of the investors, I'm sure on the call. Look, I think -- as you heard from us, we're incredibly proud of the First Advantage story, the results -- frankly, the results of all of our results, but certainly notably over the last 12 months or so, you look at our LTM results, the growth we've been able to drive and the consistency of those results despite what you might be reading in the news or seeing in some of those data sources to consistently deliver controllable growth, upsell, cross-sell, new logo, strong retention and now seeing obviously talked about strong base results and continuing to yield that through to bottom line profitability, EBITDA and per share earnings and EPS. We feel like we're well positioned and looking forward to keeping the discussion with you guys going next week.

Excellent. Thank you both so much. Very well done.

Thanks, Ron. Appreciate it.

Thanks everyone, have a great day.

Thank You.

Good afternoon. Welcome to Citi's TMT Conference. My name is Pete Christiansen, covering Tech Services for Citi Equity Research. For this session, I am joined by Joelle Smith, President of First Advantage Corp, along with Steven Marks, CFO. Welcome back, Steven. Great to have you, Joelle.

Thanks for having us.

Absolutely. So this is, I think, one of the better performing stocks and at least in our group in the last few weeks, certainly, Q2 results. But I do want to backtrack a little bit here. I think since we last spoke, Sterling synergies are nearly fully actioned at this point. Leverage is down to 3.7x base growth, positive again. FA joined the S&P SmallCap 600. What's the single business biggest change in the business that investors might be underappreciating, you think?

Well, it's hard to pick one. Those are all probably pretty good events that have all happened over the last 12 months or so. But I think the consistency of the business results is probably number one, right? I think you came out of the last number of years, and there's been wild swings and what's either perceived or actually happening in the macro. Obviously, we have an acquisition and leverage moved around and then a lot of other just noise in the system, whether that be from the markets themselves, whether that be big IPOs, big other events going on AI, the storylines that came out earlier this year.

But I think the consistency of the First Advantage results, certainly over the last 3 or 4 quarters, where -- to your point, base growth at the end of last year was effectively flat. Now it's turned positive. Our upsell, cross-sell and new logos, our go-to-market momentum really powering growth, 17% new logo upsell cross-sell last year in Q4. Double digits consistently in Q1 and Q2 this year, very consistent and very consistent for a number of years, our retention levels at 96-plus percent. So the fact that we've been able to perform that consistency through the noise, and then you have all of those other compounding effects of getting the synergy values flowing through our EBITDA and profitability, getting cash flow now rebalanced after the acquisition and getting leverage marched down.

So I think just that consistency of the results through the noise and then you're starting to see, I think, the markets reflect a little bit of that. Obviously, the S&P inclusion back in June was a nice little milestone event to cap that off. But I just think that overall consistency despite everything that everyone is sensing and hearing and the reliability of BLS data and all this other noise, our ability to perform very consistently and positively through all that has been the #1 driving factor.

So let's dig a little bit deeper into 2Q results. So roughly half of the 7-ish percent base growth that kind of came from episodic rescreening, reshaping initiatives that you expect to normalize somewhat, I guess, in Q4. Excluding that, what underlies some of the confidence that you have that you have a structurally healthier base versus what you had in 2025?

Yes. I think, look, we've been talking about this for a number of quarters. And over the last couple of years, there's always been a couple of really good verticals in our set and there's been a couple of laggards, and that's balanced out to the slightly negative number that we've had in the last number of years. I think a couple of big changes has been the good guys have gotten stronger and the laggards have started to just stabilize down. And then when you've got really good demand that we talked about this earlier upstairs from your blue collar verticals, like for us, that would be retail, transportation, which is a lot of home delivery and logistics.

Our industrials vertical has been doing phenomenally well. But you all reminded me how great our staffing was doing earlier today as well. So when you have your core base doing really well, and there's fewer laggards, International has been growing for 8 quarters in a row. You get to what compounds are really good. So if you break down our numbers, right, that 7% number that we posted on base growth in Q2, roughly 50% is related to those kind of customer-specific initiatives, but that also means you got roughly 3%, 3.5% growth coming from core base, which is a great number in long-term.

That's above your 2% to 3%, which you've talked about.

Correct. And that's like -- you get all those verticals stabilizing and growing all at the same time, and you get some good runway out of that. So I think it's being a diversified vertical base, having diversified geographies and then we talked about upstairs, an enterprise customer focus on these large enterprises that have much more stability, SMB wavers a lot more quarter-to-quarter, month-to-month. These large enterprises have much more strategic long-term mindset. So add up both of those kind of concepts and you get to good diversified stable growth.

To your point, those customer initiatives, hard to underwrite them being long term. And certainly, we don't know if base will be full 3% for the rest of the year, but we certainly feel better about where base is today than we did 6 months ago when we put out our original guidance for the year.

What's the benefits of the Sterling acquisition coming to life?

Look, we've seen that diversification play out in our hands over the last year or 2. There is quarters where retail and transportation were down right after we were talking about the tariff noise last year, that would have been not a death sentence, but that would have been really bad news for just the traditional First Advantage vertical set. Likewise, we've been talking about some sluggishness in health care, that would have been a big struggle for Sterling. We're much more balanced and consistent now, and that's why you're seeing that less quarter-to-quarter volatility and a more stable glide path.

A little bit more on the growth algorithm here. So the 12%, 13% combined upsell, cross-sell, new logo contribution leaned heavily on in 2025 go-lives that fully annualized by Q4. How deep is your late-stage pipeline once, I guess, that vintage starts rolling off?

Yes, absolutely. So we're feeling really good about pipeline in general. It's actually the largest it's really ever been. And the nice part about the pipeline is it's across all the verticals. So it's not being carried by one or another. The products that we currently have are resonating across all verticals and all regions. So when you look at kind of the go-forward plan, we feel really good about where we are with implementations, late stage and annual contract value, which is continuing to improve across the base because we just have more products to sell and more interest in those products because our customers are very focused on risk right now. That's kind of the #1 priority.

I'm going to get -- let's do a deep dive on digital identity in a second. But I guess, overall, package density is your top upsell driver here, global expansion, #2. As those mature, like what's the next leg of growth? Is it new screening types, monitoring post onboard, post-hire or is there something else?

Yes. Well, packaged density has been, and we don't see any reason why it won't continue to be our biggest growth driver. Customers are always trying to figure out better ways to manage their risk. So when you look at that package density, we are going deeper and broader across regions. And whether we like it or not, the world isn't getting nicer. And so as long as risk continues to be this top priority, which it is for all of our customers, we actually just put out our global trends report. And for the second year in a row, the top buying signal is risk. And then 89% of the 5,000 people that were interviewed say that they plan on increasing package density over the next 2 years.

So this is not something that's going away. You take that complemented by the global expansion, which you just talked about, which we absolutely are seeing a big driver in. That's U.S.-based organizations that have expansion into other regions globally and also organizations that are headquartered in countries outside of the U.S. that are expanding into the U.S. And they all want to centralize. They want everything consistent. They want a standard risk profile. And when you have a packaged suite as dense as ours, it just makes it really easy for them to come for a one-stop shop.

The only other thing I'd add too is every time we win a new logo, we create more white space for upsell cross-sell because generally speaking, we win a new customer, and they start off with a smaller set of our suite of services. And then that creates a path for our customer success and sales teams to be able to grow into those accounts and sell more of cross-sell into other products, expand geographically with global expansion. So it's kind of a little bit of a self-fulfilling prophecy. The more success we have with new logo, it creates more opportunity for upsell cross-sell.

It's perfect land and expand.

Exactly.

So back on risk, Joelle, digital identity is now a C-suite and a board-level conversation. How do you think about converting that access into greater wallet share? And what might be perhaps maybe like a stand-alone metric that you can perhaps maybe at some point later and talk about that specific area.

Yes. So digital identity is the hottest topic with all of our current customers as well as prospects. And the way we position it, it's really kind of the tip of the spear when you think about it from an opportunity and go-to-market perspective, we now include it as part of any and every background check. And so it's not a 'do you want this? And it's more, 'this comes with' because it really is necessary in order to conduct a thorough background check, you really do need to validate that the person is who they say they are. They don't have a deep fake, they don't have a synthetic identity.

And it really does become a complement to kind of what we're overall selling. And so when we package that up, it's included kind of in that package density number, and we really are seeing that customers really aren't differentiating between the two. It really is just kind of one package and really just an add-on to what they're already buying.

That's a great market point right there. I think if we were to think about your competitive tech set there on the identity side, and I think First Advantage has cited a $10 billion incremental TAM in this category of digital identity and fraud, is the competitive set or the know-how is that specific to First Advantage IP? Is there something special, I guess, about your offering maybe versus some of the other competitors? Or is it just a function of the scale that First Advantage has or maybe both.

Sure. Yes, scale certainly doesn't hurt, right? So that really helps kind of with the know-how, the benchmarking, education, all of that. And that was kind of the early stage. I mean this is something we've had out in the market for multiple years. And so -- but recent within the last 18, 24 months, headlines have really become a friend in the market, not that we planned it that way, but obviously not hiring a North Korean bad actor and some other things have really hit the market and have helped us kind of with that go-to-market conversation. But when it comes to the TAM itself, we really do see them kind of merging.

And so when you think about the differentiation that we have, we have all the data. We have over 1 billion proprietary records of data. We understand kind of the whole work life cycle of millions of people. And so when you take the tech, which we have a great partner network of technology and not all tech is created equal, some are better in some regions, some are better in certain industries. And so when you couple the technology, which is more of the biometric data so that's the facial recognition, that's the driver's license or passport information and then you couple that with the biographic data, which we have, which is all of the underpinning data on that individual. And you couple that together, that's what makes our product so valuable because it's really difficult to fake both of those things.

And when you have a platform like ours that can connect the dots across the life cycle so you can connect, is that person who is interviewing for that job, the same person that you are now running the background check on is the same person that starts on day 1 where you have to run an I-9 or a right-to-work check, you need to be able to validate at every stage of the cycle and that is really where our differentiation comes into play. We're the only platform that connects those dots, including that biometric and biographic data.

Steven, a lot of info services providers talk about value-added pricing all the time. Adding more features, functionality to drive pricing. A lot of it's nice-to-have. This seems like a must have. So it seems to me like there's a lot of runway here for pricing at some point? Or is it right now about land and expand a little bit.

Well, it's always about both. I mean, look, we feel good about the margins that digital identity has as a stand-alone product. So when you -- to Joelle's point, when you include it in a package, it just makes that package better so we certainly don't give it away, and we feel good about our pricing model. And obviously, we feel good about the margins it creates. You don't have to go buy third-party data like a criminal check or a verification. So it's margin accretive overall to the business. Overall, not only is it driving to Joelle's point, great go-to-market, competitive differentiation and growth, it's going to ultimately provide some margin accretion as it becomes a bigger mix of the business.

I do want to talk a little bit about AI in-house. You recently moved customer care chat all in-house rather than using a third-party model. Kind of what drove that decision? And where else, maybe fulfillments, smart hub routing, sales enablement, do you see the best near-term kind of ROI from proprietary AI?

Yes. So we have -- we're very excited about that. This has been an area of focus for us for years now, click, check call, as you mentioned, we rolled out a number of years ago. And really, that was moving people from more of a phone-based and e-mail base to a chat. And we rolled that out a few years ago. And then last year, we did it because Sterling actually did not have that. So the entire Sterling customer base also got chat. So that was like another kind of level up for us.

And then recently, as you pointed out, using kind of a third-party AI tool and intelligence tool, when you bring that in-house, one, obviously, you can control the experience much better. But two, you can use kind of your own internal data and knowledge base to create a much better experience for those folks calling in, and so that has allowed us to not only save money as Steven always really likes to do, but it really improves that experience. So we're getting higher satisfaction rates, we're deflecting more because we're able to use our own knowledge repository. We've been doing this for decades. So we know a lot about what our customers and candidates need and it just improves that conversion time for them to get the answer they need really quickly.

Well, I think, Joelle, besides saving money, I think to your point, it's not just customer care. It's starting to expand into other places and the fulfillment functions and the cost of sales part of the P&L, obviously, in product and tech and how we build our product and using it there and even down through SG&A of finding ways to get more yield, get more efficiency, get more scalability and look, we're kind of open-minded when it comes to vendor selections, we'll use things internally where it makes sense, we'll go to third parties where the tech is just better and more turnkey and they haven't gotten to overly aggressive pricing models, too.

When turned away, we luckily have the tech expertise in-house to build some of our own things. So we're kind of I would say, a hybrid model of using the best athlete, if you will, kind of the same approach we took for the synergies in terms of where we're using AI or whose tooling we're using for the AI, but it's throughout the P&L.

It seems like you're very methodical about this, taking your time, I mean you do have some implementations that are extending into '27. Walk me through some of that decisioning and I guess that discipline as you think about enabling more and more AI functionality throughout the firm.

Well, I think almost 2 different issues. One is how we're going to use AI and making sure it is methodical to an extent, especially on the fulfillment front, because of the FCRA and the compliance overhang in our industry of making sure we do it right, right, making sure that we don't overstep because there are some regulatory and compliance limitations of when the automation has to stop when a human and a decision maker has to pick it up because in some states, the law prohibits AI on the hiring process and we become brought into that, the FCRA in and of itself has rules and regulations that don't prohibit but certainly limit the application of automation technologies through its workflow.

So it obviously creates some insulation into the industry, and we actually like that, that was obviously helpful back in February and March when that was the storyline. But we're working to make sure that we can automate what is reasonable to be automated. Then on the other side, to your point, as Joelle has mentioned, we've got a great pipeline. The deals have just gotten a little bit more complicated. We're selling bigger deals with more features. And it's not -- really, it's separate from the AI concept, but it is taking just a little longer to implement those plus at certain verticals they kind of have this coding freeze and hiring freeze and change freeze in the back half of the year.

So a lot of those wins this year will start to see trickle into Q4, but we're more excited about that growth opportunity into early next year. But look, we've raised guidance and feel good about growth rates. So we don't think Q4 will be a slouch. Obviously, we've got some really big comps in Q4 that it will compare against when we grew to my earlier point, 17% new logo upsell, cross-sell, had a monster Q4 last year that we're benchmarking against. But overall business health is really good and setting us up -- get some good early year success next year.

We've heard from other info services providers, by the way, just -- and who are selling AI-enabled kind of solutions. The sales processes, the implementation process is taking longer. This is all new to everybody. Legal departments are taking deep hard looks into these things. So it is still -- it's great to see, though, yes, is stretching the implementation or the sales cycle a bit longer, but you still feel confident about closing some of these new enablements.

Yes. I mean I think, look, we talked about in the last earnings call, 20 enterprise new logo upsell, cross-sell bookings. That's up from 17 that we've run in the last few quarters. The market demand is there and the team is doing a really good job of selling it. Now we just -- there's some hard work of getting those -- getting the attention from the customers to get kind of the plumbing laid so we can start generating the revenue. But that revenue will come and we feel good about how it sets us up for the first part of that next year.

Again, a nice -- difference between nice to have and must have. Joelle, I do want to ask you a hot button question here. Scott talked about the AI impact on hiring as highly overblown. And I think everybody in this room will be interested to hear your perspective here. Are you seeing any early signs of AI compressing, white-collar hiring in specific verticals?

Yes. I mean there definitely was overblown for sure. There's even been a number of articles out there saying that it was AI washing a lot of that. And when you talk to our customers, that's our best indicator is our customers. We talk to our customers all the time, we do thousands of connects monthly, quarterly, whatever. And we're talking to the senior execs there. So the short answer is, it's still a very neutral, positive tone. We don't hear a lot of restrictions on hiring changes in philosophy, are they all using it? Absolutely. Do they -- are they experimenting? Yes, are they rolling it out like we have, yes.

So as far as contraction, we haven't seen that, we are seeing an uptick with some of the blue-collar hiring though. So we do -- but that's been our bread and butter for a really long time. The hourly worker, the low-wage worker roles has always been a high turnover, high movement industry. And that churn in the market is always very good for our business. We're also seeing a big trend with job stacking. That is changing pretty dramatically. And this is an intentional thing where people are working multiple jobs. And so they may be doing a 9 to 5 job, Monday through Friday, but then in the evenings or the weekends, they are doing some type of gig work or something else.

And when that happens, they need to get screened on the platform for the gig worker, they need to get screened for their day job. And so all of these trends are working really well for our business. And I think some of it is intentional with these workers because they aren't making as much money as they need to, there are increasing gas prices and consumer inflation and things like that, right? So like I'm not sure that this is something that we're going to see go away anytime soon. But the general sentiment across our enterprise customer base is business as usual. They have to run their business. They're not going to get caught up in week-to-week headlines. They're going to run their business they've been running for decades.

It's also ironic. I mean when those headlines are coming around, we service a lot of those customers and you'd read the headline and then you got to look at the revenue volumes and going, well, they're up -- the cuts are -- we've always told people don't read the headline, read the second and third paragraphs because they're cutting x number of jobs and then, oh, to fund investment in all these other areas. And to Joelle's point, that creates this bigger churn in that industry. So for us, that's a good customer that year because they're getting rid of some jobs replacing them with other jobs. That's all new screening population that wouldn't have been there before, which is great for base.

For the benefit of our audience solely, maybe myself included, what about specifically in financial services.

Yes. So financial services has been an interesting trend with what we're seeing is consolidation. So there's global consolidation kind of across the board where we've seen large global banks and some others that have had individual kind of vendors across regions or individual vendors for a specific product like one person would use a company for an I-9, they'd use one for like an interview tool, one for a background screen, and then one maybe for monitoring kind of longer term. We're seeing all of that consolidate right now. And so that trend is obviously helping us. We have a great product suite where we can sell all of that in kind of under one umbrella.

But we are seeing a little bit of flat to slightly positive with financial services, in particular, this quarter. But that ebbs and flows. And financial services is always kind of that tip of the spear. So when we saw a lot of the identity stuff start popping, it was all the banks and all the financial services started making all the phone calls to us. So I think as we see things normalize, we'll see you guys kind of have that tip of the spear.

I am going to ask you that question every quarter going forward. Okay. I do want to dig more into some other interesting verticals and dynamics going on. Health care showed only a minimal decline this quarter despite some uncertainty there in that vertical. How do you see that trending in '27? And then on the other end of that, you have aerospace and defense, obviously, benefiting from some tailwinds there. If you could just kind of juxtapose what you're seeing maybe in those 2 verticals, what you're hearing from clients?

Sure, yes. So Steven talked about it, but the fact that we have this like wide diversification of our vertical mix is so great right now. And we're -- our verticals now are large enough where we actually have like sub-verticals that are kind of starting to really show. And so I'll take health care first. We have definitely seen trends in health care, where, yes, it is slightly positive this past quarter here. But if you look at the sub verticals we have in there, we have acute care, post-acute care, pharma and then we also have health care staffing. The Medicare and Medicaid challenges that a lot of these hospital systems have started to see over the last several quarters is manifesting in lower hiring volumes. Where we've seen the volumes pick up is on the health care staffing side so where you would see more short-term nursing care, shorter-term positions being hired because they need staff.

You need doctors and nurses in these hospitals. The health care system is stressed right now because you have more people that need care than people that can give the care so when you look at that vertical, you're seeing, we may lose a little bit in the actual like hospital acute care side, but we pick it up on the deep inroads we have with health care staffing. And so that's kind of where we feel good about that. But we do watch it. And I think once Medicare and Medicaid come back a little bit, if it comes back, I'm not a crystal ball, I certainly don't know what's going to happen in government policy. But one would think we would need to get the hospital systems back up and running in a high efficiency way. We will probably see that normalize out, too.

And then very similar with industrials. It's been a high-growth area for us. Our pipeline is really strong there, too. We're excited about it. But when you saw some of the government funding get reduced and pulled back from like education, which is kind of a sub vertical inside of that group because it's industrial and gov, we saw a pick up in aerospace and defense. And so that's where a lot of the investment and funding went. So you've got the defense contractors and you've got a lot of that. So it's really interesting to see kind of the dynamics of where a policy changes in Washington and then you see the hiring dynamics kind of change. But because we have such a deep vertical depth, and breadth across, we can see it pop and normalize in the other. So we're managing through those ebbs and flows. And that's one of the greatest things I think we got out of the Sterling acquisition is just being able to have kind of that broad-based vertical depth.

And plus 3% base growth. Yes, absolutely. I do want to get -- Steven, I want to talk about operating leverage here a little bit, digital identity monitoring, reportedly carry better unit economics than legacy screening. How much of your path to 31%, 32% adjusted EBITDA margins by '28 depends on product mix versus synergy capture and automation you believe.

Yes. I mean how we get to that number is kind of a few different facets. So certainly, synergy capture, right? So we've actioned a healthy portion of the synergies. There's still a little bit more to go that we'll get through the rest of this year and into Q4, which obviously means you'll get that rollover benefit into your P&L in 2027. So that will certainly be a function of it. But being able to scale our revenue growth is obviously a big piece of it. And I think you've seen that the last couple of quarters, especially with more broad-based growth, instead of -- in Q4, certainly, a lot of the growth came from like transportation networks, where just the mix of services, you have to go buy more third-party data for the driver records in some of these other areas relative to the service fee revenue that mix has stabilized out.

And you saw our EBITDA margins in Q2 be well ahead of our expectations. So just being able to get that broad-based growth and scaled growth and as we continue to scale our revenue growth, the rest of our P&L is very fixed. We've automated a lot of those things to create scalability and cost of sales. Product and tech is already highly scalable, SG&A also highly scalable. So we can get a lot of leverage just out of the P&L and flow through. Product mix is a little bit of it, but I think it's more just getting back to broad-based growth that helps you even that out.

And then there's still a few other things if you kind of go back into First Advantage corporate DNA, there are some just savings opportunities we have that are unrelated to the synergies, such as things we need to do as a business whether it's leverage from AI, which continuation of our journey of RPA and machine learning and just making sure we automate what we can.

And we still have a few other cost savings areas to go and kind of take care of and address, unrelated to the acquisition. It's just kind of that P&L debt, if you will, that's kind of been sitting around for a while. So between scaling growth, getting synergies and kind of just getting back to good corporate governance, we'll -- that's kind of our path line to get into that 31% number.

I mean considering the growth, you haven't added any headcount, which I think is pretty interesting. Well, it's been limited. I mean does that change your -- do you think there's a chance that you may rethink incremental margin upside here?

It's a little bit mix dependent. So I think it really depends on where we think our long-term growth from a vertical standpoint. So certain verticals, when you're growing in a transportation vertical, which is a great vertical, we obviously are beneficiaries of it today. There are certain services you have to offer to that vertical and how you fulfill them and where you have to buy the data and how expensive that data is. There's a little bit of geographic mix too. The state of New York charges a lot for their data, whereas maybe the state of Missouri charges a lot less. So when we get this broader base growth, that becomes less of a factor, but it's really a matter of just growing and growing in the right areas.

And we call it our ideal customer profile and making sure that we're investing in those areas, and we're doing a good job of making sure our strategy aligns to that margin appreciation.

You're closing in on sub 3x leverage faster, I think, than most expected. There was also a nice $45 million debt prepayment, suggesting continued focus on deleveraging there. I guess once you cross it which the glide path kind of looks like at some point in '27, how does the capital allocation playbook change in your view? Is it faster buybacks? Is it dividend, maybe M&A? What's the calculus right now?

Yes, I think all of those will be on the table. I think we've proven that we're always going to focus on being opportunistic on creating value. Even if you just look at the last 6 months, I mean, we didn't have -- go back and look at our disclosure. We didn't have buybacks in that equation, but we're gifted with good cash flow. And to your point, leverage is flushing out. We always expected it to, but faster than I think outsiders might have thought it would so we've got the luxury of a high cash flow generating business and the ability to be flexible with that approach. So we'll be opportunistic from now until the end of time, at least as far as I'm concerned. As leverage comes down, it allows us to open up the playbook a little wider.

Certainly, there would be opportunity to fund organic growth, inorganic growth, obviously, finding ways to create incremental shareholder value and returns. Look, our focus right now is getting to that point where we have those luxuries. So for the next little bit of time, we're kind of heads down on how do we create value, how do we get the leverage down, are there -- and then just like we decided to buy back shares and look, I hope we don't have the opportunity to buy back shares at under $12 again. But certainly, if the market presents opportunities to create shareholder value that way, we'll certainly execute and look just because the price is higher, it doesn't mean we're not necessarily a buyer, but we'll focus on getting leverage to where it needs to go and then obviously creating value along the way.

I guess we'll see where our macro will go, right, who knows. But I mean, obviously, you're tracking ahead of your 2024 growth algorithm targets, 4% to 7% revenue, 9% to 12% adjusted EBITDA CAGR. Right now, we're kind of in -- I mean, I don't know -- at least the BLS data was really positive last month. Quits kind of seems flattish right now and unemployed -- job openings, at least the JOLTS data, which I know we can go back and forth on headlines and all that stuff, which I get. But is there anything in particular, macro-wise that you're focusing on that investors should appreciate.

Yes. I mean as Joelle mentioned, we care a lot less about that data than maybe you'd think. I mean, what our customers are telling us and what their views on the market and their planning is what's most important to us. We're certainly focused on making sure that we continue to have a diversified focus in verticals, larger businesses. So there's enterprise-size customers, large mid-market customers that are more stable. And then look, we can't control what they do, but then we certainly can control where we grow in putting our resources behind areas that provide long-term growth generation and then also providing more products because we could take customers and provide more value, more products.

Some of these products have a more recurring revenue nature to them as well. So we think all of that sets us up and then having that wide array of verticals allows you to be very diversified and very durable during all these kind of implied fluctuations. So feel good about where we're sitting.

To cap off, Joelle, next year's conference. What are you going to be most excited to talk about?

I think it's still going to be digital identity, I'm not going to lie. It's really an interesting dynamic change in how companies are managing and measuring risk, and we just want to be the company that brings the trust to them to help them manage it.

That's great. Thank you so much, Joelle Smith, Steven Marks. Always great to have you.

Appreciate it. Thank you, guys.

Thanks all.

Good morning, everyone. My name is Bo, and I will be your conference operator today. I would like to welcome you to the First Advantage Second Quarter 2026 Earnings Conference Call and Webcast. Hosting the call today from First Advantage is Ms. Stephanie Gorman, Vice President of Investor Relations. is being recorded. [Operator Instructions]

It is now my pleasure to turn the call over to Ms. Stephanie Gorman. Please go ahead, ma'am.

Thank you, Bo. Good morning, everyone, and welcome to First Advantage's Second 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 second 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 efforts appear in today's earnings press release and presentation, which are available on our Investor Relations website.

I am 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 turn the call over to Scott.

Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. Today, we have 4 key messages. First, we delivered outstanding results in the second quarter with revenue growth of 15% year-over-year, adjusted EBITDA margins of 28.6% and adjusted diluted EPS growth of 30% year-over-year, meaningfully outperforming our previously communicated expectations. These results reflect the strength of our go-to-market performance, our state-of-the-art AI-driven proprietary technology platform and the durability of our diverse enterprise customer base and vertical mix.

Second, we are making strong progress on our FA 5.0 growth strategy. Our focus on product innovation, platform capabilities and go-to-market execution is translating into tangible results, including robust enterprise bookings, strong upsell and cross-sell activity and continued customer adoption of our innovative products such as Digital Identity. As we expand the value we deliver to customers and further strengthen our capabilities, we believe we are well positioned to drive sustainable growth over the long term.

Third, our strong cash flow generation continues to provide flexibility to execute our balanced and disciplined capital allocation strategy. We are constantly evaluating opportunities to create shareholder value and remain focused on deploying capital where it can have the greatest impact. Deleveraging remains a top priority. And in the second quarter, we made a previously announced $25 million voluntary debt repayment followed by an additional upsized $45 million voluntary prepayment this week, subsequent to quarter end. This brings our cumulative debt repayment since closing the Sterling acquisition to more than $165 million.

We also continued to repurchase shares opportunistically, buying back nearly $19 million during the quarter with total repurchases through July 31 of $38 million or approximately 1.9% of total shares outstanding. And finally, we are raising our full year 2026 guidance across all metrics to reflect our strong first half performance, continuing go-to-market success, current labor market trends and our confidence in our growth outlook for the remainder of the year.

Now turning to Slide 5. We delivered exceptional results in the second quarter with strong performance across revenue growth, adjusted EBITDA, adjusted EBITDA margin and adjusted diluted earnings per share. Our results in the quarter benefited from sustained momentum driven by our recent large contract wins and continued improvement in base revenue performance, reflecting our focus on controlling what we can control and executing consistently across our growth algorithm. At the same time, we are beginning to see encouraging signs of gradual improvement in the broader hiring market, which provided additional support to our results during the quarter.

We believe the strength of our business, including our enterprise customer focus, diverse vertical mix, global footprint and balance across blue-collar and white-collar hiring with a strong go-to-market focus on high-volume enterprise hires continue to provide stability and reinforce our confidence in delivering durable growth across a variety of macro environments. One of First Advantage's key differentiators is our position as a global HR tech and data platform company, which is purposely built to help customers navigate the increasingly complex dynamics of human capital risk. Our team of data scientists and engineers are focused on transforming our products through the application of cutting-edge technologies, including AI.

Equally important, our customers trust us because of our deep domain expertise across verticals and a wide range of regulatory frameworks, including the Fair Credit Reporting Act, or FCRA. In a rapidly evolving environment, this combination of AI-driven innovation and regulatory risk management and compliance leadership is what enables First Advantage to deliver high-quality, highly automated and high-volume screening globally at scale. Building on that point, we have spoken extensively about our strategy of applying AI to help our customers manage risk while preserving the speed, efficiency and user experience they expect.

At the same time, we are also benefiting from AI across our own operations, leveraging our years of investment in automation, machine learning and AI. We have embedded these capabilities throughout our platform and proprietary data assets. Doing so has enabled us to strengthen our solutions such as SmartHub AI and Digital Identity fraud mitigation products, improve operational efficiency and support more scalable growth. A recent example is our shift from using third-party AI for the chat feature within our Click.Chat.Call customer care platform to a proprietary native AI chat experience that has been purposely built on our own infrastructure, trained by our own data and tailored to our needs.

This transition enabled by the depth and expertise of our engineering teams creates a smoother handoff between AI and live agents, reduces our reliance on external platforms and allows us to deliver a better experience at a lower total cost. Across our operations, customer care, fulfillment, product development and engineering teams, AI is helping us enhance the customer experience, increase productivity and drive operating leverage while further strengthening our competitive differentiation.

Before turning the call over to Joelle, I would like to highlight a few recent First Advantage recognitions and milestones. First, in June, we celebrated the fifth anniversary of First Advantage's initial public offering. I'm extremely proud of what we have accomplished as a public company on behalf of our stakeholders. We have delivered growth and profitability, successfully executed and integrated the transformational Sterling acquisition, innovated and led with best-in-class solutions, launched our FA 5.0 strategy and established long-term financial targets while making meaningful progress towards them.

Second, we were added to the S&P Small Cap 600 Index on June 16, a milestone that reflects our expanded scale, strong financial performance and established track record as a public company. And third, we were ranked among TIME's America's Best Companies 2026 as the #1 Background Screening and Identity Verification company. We also placed in the top 25 nationwide in the professional services category and in the top 3 professional services companies ranked by financial performance. These recognitions reflect the excellence of our team as we continue competing and winning in our industry.

With that, I will now turn the call over to Joelle, who will share more on our go-to-market execution, vertical performance, product innovation and customer engagement.

Thank you, Scott, and good morning, everyone. This morning, I will provide an update on our go-to-market performance and the underlying dynamics behind our strong results this quarter. I'll start with the drivers of our robust 15% year-over-year Q2 revenue growth, which well exceeded our previously stated expectations and long-term growth algorithm target of 7% to 9%.

Combined upsell, cross-sell and new logo revenues continued to deliver robust growth, achieving 12.5% growth in the quarter. Performance was driven by the continued growth from the 3 large go-lives from the end of 2025 that we have discussed on previous calls as well as the contribution from the many other enterprise deals we've won in prior quarters. Overall, our sales engine continues to help.

In addition, base growth for the quarter came in exceptionally strong at 6.7%. We believe this reflects the breadth and scale of our business model. Underlying base trends continue to improve. And notably, we supported meaningfully higher-than-expected volumes from several customer initiatives during the quarter, which contributed roughly half of the quarter's base growth. It's an excellent example of how our scale and AI-enabled platform enable us to absorb and deliver periodic volume surges from time to time across multiple industry verticals while maintaining top speed and service. Even without this benefit, our overall base growth this quarter was particularly strong at the high end to above our long-term growth algorithm target range.

Now switching gears to our continued go-to-market success. Our sales teams delivered an impressive 20 enterprise bookings in Q2. This is up from 17 in Q1 with each deal having an expected annual contract value of at least $500,000. These wins, combined with the continued strength and expansion in our late-stage pipeline, particularly within new logo opportunities, reinforce our confidence in the durability of our new logo and upsell, cross-sell growth and support our positive outlook for the balance of the year. Customer engagement also remains strong with retention of 96%, which is in line with our long-term model. This represents another quarter of excellent performance and demonstrates the success of our high-caliber go-to-market team and the market impact of our continued investment in our state-of-the-art platform.

Now looking at our verticals on Slide 8. Overall, we continue to hear a neutral to positive tone from our enterprise customers who generally expect current hiring activity to continue through the balance of the year. The diversity of our customer base continues to be a key differentiator, supporting the robust momentum we saw across many of our largest verticals in Q2 despite some of the mixed headlines around broader employment you may have read.

Transportation and logistics as well as retail and e-commerce all benefited from a combination of sustained base volumes, healthy consumer activity supporting labor demand and some workforce initiatives driving higher volumes. Industrial and manufacturing has also demonstrated notable growth as aerospace and defense customers expanded capacity and increased hiring. Trends in general staffing also remained positive, particularly within blue-collar staffing, indicative of the overall improvement we are seeing in the hiring environment, which is manifesting within our base momentum. Our remaining verticals showed minimal declines or were flat, including healthcare, where strong new upsell and cross-sell activity offset some remaining base softness as uncertainty of federal healthcare funding remains.

Turning to our international business. Q2 revenues were up 2.4% year-over-year. Our global scale and consistent delivery across regions uniquely position us to win, particularly as U.S. and European multinationals continue to centralize and globalize their hiring process. We continue to be a partner of choice for managing their expanded streaming needs across geographies, which supports our growth and reinforces our confidence in the long-term international opportunity. At the same time, we have seen softer volumes emerge in some of the markets, such as India as global conflicts have persisted longer than many initially expected and are driving impacts, including higher fuel prices and broader economic disruption.

Underlying much of this positive momentum across our business is the strength of our product portfolio, which continues to differentiate us in the market. As identity fraud continues to rise in both frequency and sophistication, customers are increasingly turning to fraud mitigation solutions like our Digital Identity products to help them mitigate risk and maintain shock throughout the screening and verification process. This trend is underscored by a recent Equifax survey of HR professionals, which found that nearly 3/4 of respondents encounter challenges with fabricated or misleading candidate information. Digital Identity continues to be the tip of the spear in our go-to-market strategy. As we have discussed, we believe it is not a feature, but an essential solution ahead of the screening process and customers continue to ask about it with increasing frequency as they navigate the challenging world they operate in.

While Digital Identity still represents a modest portion of overall contract value, it remains a key differentiator and decision driver and is standard in most of the deals we quote. In Q2, adoption continued to build with implementation trends in line with last quarter, reinforcing the importance of this product line. Digital identity is just one example of how our product innovation strategy is translating into differentiated solutions for customers and strengthening our competitive position. There are several additional promising initiatives in the works with focus areas such as new verification products and additional offerings leveraging our SmartHub AI routing technology. We believe initiatives like these help drive continued product leadership, support our go-to-market success and optimize our fulfillment cost structure. We look forward to providing further updates as these products come to market.

Beyond our innovation efforts, staying closely connected to our customers remains a top priority, and our global Collaborate User Conferences continue to be a powerful platform for engagement worldwide. Following our successful U.S. Collaborate User Conference in April, we held regional events in Singapore in June and India in July, with additional events planned in EMEA, Hong Kong and Australia later this fall. Across these conferences, we have connected with hundreds of customers and prospects, deepening relationships, gathering valuable market insight and reinforcing our confidence in the opportunities ahead.

With that, I will now turn the call over to Steven.

Thank you, Joelle, and good morning, everyone. I'll start with second quarter results on Slide 10. Our second quarter revenues were up an impressive 15% year-over-year, coming in at $449 million, marking our fifth consecutive quarter of positive year-over-year revenue growth. As Joelle discussed, the underlying business continued to perform very well in Q2. Excluding the benefits to base from Joelle's mentioned customer initiatives, we estimate Q2 total revenue growth was still a very robust 11% to 12%, above both our previously communicated expectations and long-term growth algorithm target range.

Adjusted EBITDA for the second quarter was $128.5 million, up 13% year-over-year. Our adjusted EBITDA margin of 28.6% came in above our stated expectations and reflects sequential quarterly improvement of 130 basis points, driven by strong operating leverage. Notably, we efficiently fulfilled the incremental Q2 volume within our existing cost structure without having to make structural changes to our operating model. Margins benefited from our strong execution on synergies and cost discipline while flexing to adapt to the product mix changes as a result of the large deals we have previously -- we have discussed previously, particularly as the positive base trends have provided more broad-based revenue distribution compared to what we saw in late 2025.

Our adjusted diluted EPS was $0.35 per share, a 30% increase year-over-year. Our per share earnings growth was supported by our overall outperformance in the quarter, share buybacks and synergy realization. Earnings growth also benefited from our disciplined expense and capital management, combined with lower interest expense as a result of our debt repricing and voluntary debt prepayment. We continue to action cost synergies from our Sterling acquisition, reflecting our disciplined execution and strong integration progress. We remain on track to achieve our synergy goal within 2 years post closing. And as of quarter end, we had actioned $63 million in run rate acquisition synergies, moving closer to our total synergy goal of $65 million to $80 million. Overall, our outstanding Q2 results were enabled by our go-to-market momentum and execution, combined with our ability to flex to meet our customers' demand.

Now turning to cash flow, net leverage and capital allocation on Slide 11. During the quarter, we generated operating cash flows of $73.6 million, a substantial increase of $36.3 million or 97% on a year-over-year basis. This impressive performance was driven by our revenue outperformance in the quarter, the larger scale of our business, our overall focus on cash flow and the curtailment of acquisition-related outflows. Our cash balance as of June 30, 2026, was $238 million. We are constantly evaluating our capital allocation options for driving shareholder value creation, remaining focused on opportunistic capital deployment across both deleveraging and share repurchasing. Achieving our target net leverage level of less than 3x remains a top priority and the pace of our debt paydown reflects that commitment.

In line with this, just this week, we prepaid $45 million of debt, well exceeding the voluntary prepayments we've made each quarter for the last year. This is in addition to the previously announced $25 million prepayment we made on May 6 and brings our total debt repayment to $165.5 million since closing on the Sterling acquisition. As a result, our synergized adjusted EBITDA net leverage ratio at quarter end was 3.7x and represents a 0.7x decrease from when we closed the Sterling acquisition. Additionally, during the quarter, we repurchased $18.7 million of our shares through the $100 million share repurchase authorization that we announced in February. Our repurchases through the end of July totaled approximately $38 million with an average purchase price of $11.78 per share. This represents 3.2 million shares in total or approximately 1.9% of total shares outstanding. $61.8 million remains on our authorization. Going forward, we will continue to analyze our capital allocation approach to ensure we are opportunistically actioning a plan that maximizes ROI and shareholder value.

Moving to Slide 12 and our 2026 guidance. Today, we are raising our previously announced full year guidance, supported by our exceptional performance in the first half of the year and our outlook for stability in the hiring market for the remainder of the year. We now expect 2026 total revenues in the range of $1.67 billion to $1.71 billion, adjusted EBITDA of $472 million to $486 million, adjusted net income of $214 million to $225 million and adjusted diluted EPS of $1.23 to $1.29 per share. At the midpoint, this represents approximately 7% year-over-year revenue growth, 9% year-over-year adjusted EBITDA growth and 21% year-over-year adjusted diluted EPS growth.

Our updated and tightened guidance range reflects a balanced posture on our short-term outlook that incorporates the healthy state of our underlying demand trends as well as the ongoing geopolitical and macro uncertainty. As a result, the continuation of current trends would support performance above the midpoint of our range. However, consistent with our historical approach towards guidance, we believe it is prudent to account for a broader range of outcomes given the factors outside of our control.

As we think about the second half of the year, please remember that our 2026 growth rates are being measured against an exceptionally strong second half of 2025, during which we grew a notable 12% year-over-year in Q4 2025. Notably, in Q3 of this year, we begin to lap the 12-month anniversary of the large 2025 go-lives we have discussed previously. And by Q4, those wins will be fully annualized. As we progress through the second half of the year, we expect that this will result in moderating growth rates compared to the exceptional start to this year. Zooming out, while growth rates may fluctuate from quarter-to-quarter, we expect to deliver full year results above our original expectations and in line with our long-term growth algorithm.

Looking specifically at Q3, we saw revenue momentum continuing from Q2 into July, and we expect base to be slightly positive for the full quarter. Taken together with the new logo and upsell cross-sell trends we've discussed, we expect total revenue growth rates for Q3 in the mid- to high single digits, consistent with the expectations we shared last quarter. Looking ahead at Q4, we expect base to be neutral with our overall base momentum continuing into Q4, but partially offset by prior year's Q4 new logo and upsell cross-sell revenue being more evenly distributed across 2026, the dynamic we've been discussing with you for several quarters. For Q4, we also have a more modest level of expected new logo and upsell cross-sell contribution models as we comp against the strong Q4 2025 17% growth and navigate some instances of recent win implementations now extending into early 2027. As a result, we expect Q4 total revenue growth rate in the low to mid-single digits.

Turning to adjusted EBITDA. Overall, we expect adjusted EBITDA margins to remain largely consistent with Q2 for the remainder of the year. And similarly, for adjusted diluted EPS, we expect meaningful year-over-year expansion, increasing versus prior year to the low to mid-$0.30 range in both Q3 and Q4. Having walked through our updated 2026 guidance, I want to close on Slide 13. This slide puts our 2026 guidance in the context of our longer-term growth trend in adjusted diluted EPS. The growth implied by our updated 2026 guidance midpoint is consistent with our track record of adjusted diluted EPS growth of 20% or more since 2024. This is also consistent with the longer-term adjusted diluted EPS growth rate implied by the midpoint of our 2028 target.

With that, let me turn it back to Scott for closing remarks before we open the line for your questions.

Thank you, Steven. In closing, Q2 was our strongest quarter yet, and we expect our solid momentum to continue in the second half of 2026. We are focused on winning by providing best-in-class differentiated solutions for our customers. We remain confident in our ability to deliver consistent financial performance, and we are progressing well toward the 2028 financial targets we established during our Investor Day in May 2025.

Thank you to the entire First Advantage team for the work you do to support our customers each day. With that, we will open the line for questions.

[Operator Instructions] We'll go first this morning to Shlomo Rosenbaum with Stifel.

I just want to make sure first that I'm understanding the tone on the overall environment. It sounds like the tone is better from your clients and you're seeing a better growth. And it sounds like it's more broad-based. I want to make sure I'm understanding that right. And then I also want to ask about the detail on those customer initiatives, where it's something that was a pull forward or it was an episodic project that kind of came out of the blue. Just trying to understand what that is. And maybe you could give us the nature of it. Is that something that's indicative of an improving environment? Or is it just something else?

Yes. Thanks, Shlomo. I'll take the first part of your question, and then I'll have Joelle answer the second part of your question. So basically, your first part of the question is on the macro. What are we hearing? What are we seeing? And obviously, 6.7% growth in the base is great, slightly unexpected, but obviously, we love it. I think there's a couple of things going on. One, if you just look at job data, where you're seeing a lot of stabilization. You're seeing hires and quits absolutely flat for the last 6 months, and that's fine, right? Job openings continue to be really strong. Pre-pandemic, it was about $7 million, and now you're looking at $7.4 million. So that's all really good for base and for our business. Unemployment remains steady at 4.2% and job openings to unemployment is also favorable.

So I think just pure labor statistics, you're seeing good numbers. And also, over the last couple of weeks, there's just been some really great articles in Wall Street Journal and other places around what's really going on in the labor market. And I think the impact of AI was highly overblown. And I think we're seeing -- as you used -- I'll use your exact term, we are seeing broad-based improvement. And I think it would go back to what we said over the last couple of quarters. We are continuing to hear, I would say, neutral to positive. The same comments I've given for the last 2 quarters, neutral to positive projections on hiring from our customers. And you know we talk to our customers all the time. So we are in front of literally hundreds and hundreds of our large customers and hearing a very consistent tone.

And I think when you say broad-based, it's true geographically, and it's also true vertical-wise. If you look at our vertical performance, we got really nice growth out of retail and e-com, transportation and logistics, industrials, general staffing, especially the blue-collar staffing. The blue-collar staffers are doing extremely well. But all the other verticals were basically flat or just barely negative. So we're not getting these wide swings in verticals. And I think the only place geographically, we're seeing some slowdown is actually in India, and that's a direct reflection of the Iran war. Oil prices, gas prices are definitely affecting India economy and our customers in India. But as you know, it's not a huge piece of our business. So we're definitely seeing a combination of vertical -- broad-based vertical, broad-based geographic, really nice stabilization and obviously, even improvement in base.

I'll turn it over to Joelle to talk about the customers.

Awesome. Thanks, Scott. Hey, Shlomo. Yes, so the customer initiatives that we saw, which is roughly half of the base growth that was created, it created elevating screening activity. And these are really enterprise-wide labor reshaping programs. These programs created churn in their labor force and labor churn is always good for our business. We're also seeing a continuation of job stacking, which, as a reminder, is someone who's working 2 or more jobs at the same time. And we're seeing this across verticals, which is also good for our business. So these are the things that we've really kind of seen from customers. They're doing a lot of this work because they're large enterprises and large enterprises do these types of changes from time to time.

Okay. So it was not something you were expecting. It was not -- it was kind of an episodic thing that just came up in the quarter is the way to understand, just to clarify that the customer initiatives.

Yes. It did accelerate through Q2. We do anticipate it continuing into Q3, but probably will normalize into Q4. But these programs do happen, and it wasn't just one group. It definitely happened across transportation, retail and e-com.

Okay. Great. And just to sneak in one other thing. Can you just talk a little bit more about what's going on with package density, how that might be helping the growth? And how much of a factor is Digital ID in terms of helping to improve the cross-sell and upsell? I don't know if you have metrics for that, and then I'll pass it off to someone else.

Yes. I'll take the package density, and then I'll again flip it back to Joelle to talk about Digital Identity and sort of our tip of spear go-to-market approach with Digital Identity. Package density continues to be strong. I mean if you look at the numbers, I'll give you sort of the color on it in a second. But I mean, if you look even back, go back and look at our results for even the last 5 years, and we've been public for 5 years. Upsell, cross-sell has been just a really good consistent driver of growth for us and package density is the #1 driver of that. So if you look at 2025, for example, upsell, cross-sell was 7% growth. And in Q1, it's 8%. And now in Q2, it's another 8%.

The key component of package density, which is driving a lot of this growth is this whole focus on risk, risk mitigation, fraud prevention, and again, just unfortunately, the challenging world that we live in. Customers are continuously looking for more protection, more types of screens, deeper searches. There's just -- as we've talked about before, AI, what we call bad AI is enabling fraudsters and basically all levels of fraud to enter into the recruiting process. And we're fighting that bad AI with good AI. But that's just a piece of it. It's also can you go deeper on county searches, state searches, federal. We're continuously hearing this from our customers, and this is a great thing for our business. It's driving a lot of our cross-sell growth for many years now, and we don't see an end to it. The world, again, keeps getting more and more challenged, not less and less challenged, which is really good for our business.

I'll flip it over to Joelle now to talk about Digital ID.

Yes, absolutely. We are definitely seeing a lot of activity around Digital ID for the same reasons that Scott talked about with regards to just kind of the state of the world that we live in. We do -- we are seeing a significant increase in fraud, especially in the hiring market in workforce within the interview stage, the hiring stage and then even day 1. So the Digital Identity offerings that we have that are embedded into our screening process are creating a lot of opportunity for us, which is naturally just making the ACV and the size of deals larger. So that's also contributing to the package density increase that we're seeing. But it's changing the game with regards to how we are going to market.

As Scott said, it really is the tip of the spear, and it's opening up all kinds of doors and conversations with people because it's reaching an elevated level within our customers. It's no longer just an HR conversation. The conversation is moving up to the other C-suite and even board levels because of the threat of some of these bad actors and the risk that it creates within these enterprise organizations. So we're definitely seeing a large attach rate with the Digital Identity, and it's obviously driving larger deal sizes for us.

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

Congrats on such a strong result. Maybe just a quick follow-up on the base growth. You mentioned the customer initiative, but the other half seems to be pretty broad-based across multiple industries. And it seems like that momentum continued in July. So should we expect that momentum going forward based on what you've seen so far and your conversations with your customers?

Steven, do you want to?

Yes. Ashish, it's a good question. I think certainly, it was broad-based growth in the second quarter, retail, e-com, transportation, logistics, but we also saw industrials and defense and those types of sectors that Scott mentioned before, staffing and certainly on the blue collar doing really well. July is obviously a good start, but there's still 2 more months in the quarter and a little bit of unknown, but we certainly think base will be positive for the quarter. Slightly positive that is. Before we were saying negative -- 0 to negative 2%, we're probably on the positive side of those numbers, which is a healthy step change in progression. And I think that reflects the customer sentiment and the volumes that we're seeing. So obviously, we've got a range of outcomes. And as Scott mentioned, a sustained kind of conflict in Iran and the Middle East could drag a little bit on consumer confidence and fuel prices. But overall, we're pretty confident in the base, and we like where the momentum started the quarter out in July.

That's great color. And just maybe on the margin front, obviously, really great progress on the cost takeout initiative. You expect -- you mentioned second half margins more in line with the first. As we think about the puts and takes going forward, can you highlight some of the investments that may be weighing on the margins?

Yes. I think a couple of things there, Ashish. I mean, a, we're somewhat expecting our vertical mix to stay constant for the rest of the year, which means you're not going to see that large fluctuation in gross margins that we saw last year where we kind of shifted a little bit heavier towards some of the transportation type verticals where you just have a different mix of services. So that's why you're seeing that consistency there. And then as I mentioned on the prepared remarks, we're making very good progress on the synergies. It's still a little back of the year weighted.

So you'll see more of that progression. If you looked in the slide deck, we've actioned $63 million, but we've only realized $51 million. So there's still $12 million that's going to flow through and a lot more of that is weighted towards the very end of the year or early next year when you kind of look at the pacing and flowing of that. So we're still very confident about overall getting leverage and accretion out of gross margins. We are making some targeted reinvestments in the business on sales and product as we talked about with you guys over the years, those are great investments for us and certainly return well. But overall, we think margins will be very consistent through the end of the year, which is still good year-on-year positive momentum, which we like in the model.

Ashish, Yes, I'll add one more thing. If you remember in last quarter's earnings call, we said that we would put a ribbon and bow on the synergy efforts and the integration efforts by December 31 of this year, and we are still on target to do that. So it doesn't mean we will fully realize everything by December 31, but we will fully action everything by December 31. So going into 2027, we will be done with all the integration and synergies for the Sterling acquisition, which is almost now approaching a 2-year anniversary. We will get some of the realization of those synergies, obviously, flowing into 2027, but we are definitely on target to wrapping it up December 31.

Congrats for that.

We'll go next now to Andrew Nicholas with William Blair.

First, I wanted to just kind of ask on share gains. Obviously, upsell, cross-sell, new logos all remain pretty impressive. Just curious from a vertical perspective or even a geographic perspective, if there are specific kind of markets where your momentum is pronounced and maybe any thoughts on why that would be if that's the case?

Hey, Andrew. We're seeing great momentum anywhere you can classify something regardless of vertical, can classify it as high-volume hiring. There's still a tremendous demand for blue-collar workers, even white-collar workers where there's high turnover. We don't -- it's hard for us to actually break down like what's a corporate job versus some other job. But we know what's a trucker, what's a warehouse worker, what's a store clerk worker. And those jobs are just still in tremendous demand. So it actually -- that lends to transportation, it lends to retail e-com. It certainly lends to -- we're seeing great growth out of the healthcare staffers. We're seeing great growth out of blue-collar staffers and even hospitality, things like that where it's high volume.

But even within things like industrials and manufacturing, there's tremendous growth in aerospace and defense right now. So our industrials business is doing extremely well. And you would obviously expect that given the results of the industrial companies, and we're benefiting from that as well. But even some of our financial services companies and things like that do have high-volume hiring components of them. And so we're getting just really nice growth across a lot of our large verticals. And the key is high-volume hiring, and that's our focus. As you know, for going on almost 10 years now, our focus vertically has been on the high-volume hires and the enterprise. And I think we're reaping the benefits of that.

Got it. And then for my follow-up, just a quick one on margins. Are there any kind of nuances to the custom initiatives from a margin perspective? Are there higher or lower pass-throughs? Are there bulk discounts? Anything for us to thinking about in terms of that impact on Q2, and it sounds like Q3 as well?

Andrew, no, I mean, those initiatives are really just running more volume through their existing programs. I think the only real gross margin impact would be if it changes kind of the vertical chemistry a little bit. And if there's more volume, obviously, from a vertical that's more transportation-oriented or healthcare-oriented, it could have to move the needle a little bit. But overall, they're running core packages at normal terms and conditions.

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

I just wanted to unpack this customer initiatives call out again. Maybe we can sort of cut through and I recognize there's certain things you can say about what your customers are doing and certain things you can't say. term enterprise reshaping was used. But just in plain English, what did your customers do? What segment was it in? Because as we look at the beat and the guide increase, obviously, there's a little gap there. I'm trying to understand that given you sound more positive. And then I have a follow-up on capital allocation.

Yes. [ Alex ], so think of it this way. First of all, it was multiple customers, and it was obviously great news. As Joelle mentioned, about half of the base increase in the quarter was attributed to these customers basically doing large-scale, whether it be rescreening or hiring. So it was a combination of both. We had some large customers across multiple verticals launched some large rescreening initiatives. And again, that goes back to the fact that we live in a challenging world and customers are very worried about what potentially existing employees have done since they've been hired. So doing some large rescreening on large employee bases is a great revenue lift for us. It doesn't mean they'll do it again next year. They may do it 2 years from now, but we're starting to see rescreening become a little bit more of a factor. We're starting to see monitoring become a little bit more of a factor. Again, it showcases the world that we're living in. And we also had some large customers doing some restructuring. So they were consolidating divisions or they were changing things and that led to actually more turnover and more hiring. So again, it's really hard to like say it was 1 or 2 things. It was a little bit across multiple customers, across multiple industries, but obviously, we're happy to take the business.

Understood. Then maybe peeling back the envelope on capital allocation. This is one for Steven. You mentioned that you guys are being very thoughtful around capital allocation going forward from here. Obviously, your stock price has done well. Obviously, you've deleveraged in a pretty orderly way. Are you planning to change at all how you're thinking about capital allocation at this juncture? Do the priorities change at all? Is there potential for more organic reinvestment, inorganic investments, thinking about other ways to return capital to shareholders? My ears perked up a bit when you said that, but I just wanted to dig in on the capital allocation thoughts that you guys are having with the team.

Yes. Alex, it's a good question. It's not really change of posture at all. I think we've been saying since we kind of announced the share repurchase program back in February that our plan was always to be opportunistic. Certainly, we're pleased with the upward momentum in the stock price and obviously, still bought back some shares during the quarter, and we still feel that there may be an option there. But certainly, as you could tell by the upsized debt paydown we made this week, deleveraging is certainly a top priority and remains the top priority. We've always organically invested in the business, and there's no step change in what our plans are there. We'll continue to put some money behind the product and sales and marketing and making sure that we're successful in continuing the momentum that we have.

So I think ultimately, we'll keep our eyes on the market. It's obviously very fluid these days and put our capital to where we believe the highest ROI for our shareholders are. Given where interest rates are heading and things like that, it could change just the composition from Q1 to Q2 and Q3 may look a little more different. But certainly, we feel good about where cash flow is, upsize the debt repayment, and that will remain a priority in terms of getting deleveraging down to have the right interest for our shareholders.

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

I wanted to go back to the updated guidance for the year. Maybe I'm misreading this a bit, but it seems to be that now the second half may be a little bit more tempered specifically at the top line compared to what you might have expected beforehand. I don't know if that's correct or not. Was there any front running maybe in the second quarter, some of these initiatives you thought might have come in the back half of the year came in the second quarter?

Yes, Jeff, good question. And no, none of it was a pull forward per se. I think we have a little bit maybe a touch more conservatism towards the second half, the prolonged geopolitical uncertainty and how that impacts consumer confidence. Our Retail and Transportation segment, we had an exceptional peak performance last year, and we have to comp against that. As this conflict drags on as fuel prices remain higher for longer and kind of drain the American consumer, we want to make sure that we can account for that range of outcomes in our base volumes and how we comp against last year. So I think that's the primary driver for, I would say, just a touch of conservatism maybe more than was there a quarter or 2 ago. But zoom out, we're still -- we've raised the bottom end of guidance by $45 million, raised the top end as well. I feel really good about where the year is heading.

Okay. That's great. And Joelle, in your remarks, when you were talking about international, you talked about some softer volume trends. Can we just get a little bit more color exactly what's going on there?

Sure. Yes. So that was really focused on India per se, and it's not really kind of across the broader international numbers. We're actually seeing some good growth in the other regions, EMEA and APAC. So India is really the one that's being heavily impacted, and that's mostly with the Iran conflict, fuel prices and just some of the general macro challenges that that region is seeing. We're not losing any large customers. There's not a major change. It's just really about kind of the macro effect with India.

Okay. Can you just remind us how large India is as a relative percentage of revenues?

When you look at overall international these days, Jeff, international is roughly 12%. India is probably in the neighborhood of 1/4 of that. It's -- the whole company, it's not a big piece of the picture.

We go next now to Manav Patnaik at Barclays.

This is Ronan Kennedy on for Manav. Combined new logo upsell, cross-sell contribution remained quite strong, I think, driven in part by the 3 large go-lives from late '25 and other enterprise wins. As these become fully annualized in 2H '26, how much of the growth rate is being supported by implementations reaching run rate versus your underlying sales productivity from new bookings, pipeline, ongoing share gains. So trying to understand the repeatable sales productivity versus run rate impact and those dynamics, please.

Ron, I'll take that. So as Joelle said in her prepared remarks, the sales engine is humming. There's no question about it. You are right in the fact that we had some really nice wins in 2025. So I think the only thing we're saying here is that, that creates some large grow-over challenges. It doesn't mean the sales engine is not performing well. In fact, it's performing the best it's probably ever performed. The number of go-lives that we have lined up for Q3 is an exceptional number. We're not prepared to give that number out. But we have a lot of deals that have been won that will be going live in Q3.

But I think the only thing that we're saying here is that 2025 was so exceptional with -- especially with those large wins. It just makes the comp a little bit more challenging. And we still expect to have really good performance in Q3 and Q4. It's just comps that we're talking about. And again, sales engine continues to hum. Go-lives for Q3 look amazing. And the pipeline is literally the largest it's ever been, especially with late-stage pipeline. Those are all very promising signs. So again, probably just more of a comp issue.

Got it. And then from a margin standpoint, I think Q2 demonstrated the ability to absorb that elevated customer volumes within the existing operating structure. Anything -- did you learn anything about the normalized incremental margin profile of the business when revenue growth accelerates? And as we move into '27 with integration winding down, can you remind us how we should think about margin expansion from, say, package density, Digital ID, fulfillment productivity, other initiatives that you're doing and that mix?

Yes. I think we've talked about this a lot over the years, how scalable our fulfillment structure is and how good our ops and our platform is of being able to account for volume increases and decreases and scale up and down. And I think we certainly put that to the test in Q2. And I think we're incredibly proud of how the platform responded, how our teams responded. And it's not like we had to go out there and hire a ton of people to handle the volume. As I mentioned in the prepared remarks, we're able to absorb it within the cost structure. Probably caused a little stress on some of our departments, but overall performed incredibly well.

So we're really excited about that. And I think you're right, we've talked about this too over time. Some of the newer products that we talked about, Digital Identity and monitoring do have a slightly different data cost model to them since it does generate net higher unit profitability percentages. As we get more momentum there, that will become a part of the story. I think today, obviously, we're mainly focused on getting those implemented and getting those customers live on those new tools, and then we'll talk about the upside to net dollar profitability down the road.

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

I wanted to maybe touch a little bit on some of the large contract wins that you've announced. Maybe just talk a little bit about what you view the TAM to be within that market, your overall share in that market as well? And then I think high level, what are you hearing from your clients as the key reason why they're choosing you to perform these services?

Stephanie, so there's a lot there. So I'll touch on a few things. And if I miss anything, Joelle, please jump in. If you look at our Investor Day deck from May of 2025, we've spelled out a pretty significant TAM within our core business, but we also spell out the additional TAM that Digital Identity and identity fraud represents, which is another $10 billion on top of our TAM. So the opportunity and the TAM is quite large. We still maintain about a 25% market share in the core business space. And that obviously is an encouraging thing for us because of all the sales momentum we have and our ability to take market share and even to add share of wallet within existing customers has been a big driver of growth for us.

So I think some of the key drivers of our success, a lot of it is the verticalization. We've always said that verticalization is the secret sauce in this business, and it continues to be. And why is verticalization so important? It's because every industry is different, especially in our regulated industries such as financial services, healthcare, transportation. I think that a lot of people don't understand how all these transportation and logistics companies need to adhere to Department of Transportation rules and regulations, and we're great at it. And a lot of it -- the compliance is built, is hard coded into our platform. so that when a large transportation company is hiring a driver, they can feel safe and secure that First Advantage is doing everything possible to protect them.

So I think verticalization is one. The proprietary data is also a big one. We have 1 billion proprietary records. We have 135 million in our verified database, which is prior work and education backgrounds. And we have $900 million in our national criminal record file, which is prior criminal data. And I think that gives us an advantage, the fact that we can leverage our own proprietary data on a very state-of-the-art user experience. We -- if you recall, over the last year plus, we've been launching a new candidate experience, and we're getting rave reviews on the user experience. So customers are very happy with our state-of-the-art tech platform. They're very happy with our proprietary data.

And I think another thing that's been driving a lot of growth, and we talked about it earlier around package density with the whole world being a very challenging environment, that really helps us sell more, and we've got -- as you know, the First Advantage story, we've been leading the charge in automation. So we're using automation, APIs, AI to help us get data, make a faster interpretation of data, get results back to our customers with fast turnaround times. And that's also really important. So all the investments we've literally made over the last 10 years are making a significant difference in our selling ability.

And then the last thing I'll add is that there's a pretty strong trend, and this started maybe 18 months ago, maybe 2 years ago in the industry around vendor consolidation and global expansion. So a lot of these multinationals, these big U.S. and European corporations who do business all over the world have been going under vendor consolidation programs and also looking for vendors like First Advantage who can do global screening. And there's very few of us. And that gives us a significant competitive advantage in the market. And if you look at our upsell, cross-sell, the biggest driver of our upsell cross-sell is definitely package density and the second biggest driver is global expansion. We have just done really well in winning more business, more share of wallet within existing customers. So for example, if we have their U.S. business or the EMEA business, we're now winning their APAC business. We're winning their business in Australia. We're winning their business in India or wherever it might be. That's been a big driver of upsell, cross-sell.

We'll go next now to Scott Wurtzel of Wolfe Research.

I just wanted to go back to the comments you made around implementations maybe kind of taking a little bit longer going into 2027. Just wondering if you can give a little bit more color on what might be driving that.

Well, I think the good news that's driving it is volume. There's lots of them. So it's a good problem to have, and we're obviously working on ways to accelerate that and speed that up. But I think that's the only driver of it is that we've got a lot of go-lives. We've won a lot of business. It's a good problem to have, and we'll figure out a way to revenue faster and automate as much as we can around the implementation and onboarding process.

Got it. That's helpful. And then just a quick follow-up going back to capital allocation around the debt prepayment levels. It's good to see the upsized prepayment that you guys announced. I'm just wondering if -- I know these things can be a little bit fluid, but if you talked about in your guidance commentary around if trends remain consistent, you would be towards the higher end of the guide, could that potentially be indicative of a continued elevated level of debt prepayment going forward?

Yes, Scott, I think the good news is we've got a lot of free cash flow, and we have the ability to be opportunistic and flexible with our approach. So certainly, if interest rates trend higher and stock price stays higher, we will obviously probably lean more towards debt repayment. But we'll keep our options open as it comes around. But we are generating really good free cash flow. And as revenue ramps up, it continues to stay strong, our margins stay strong. We've curtailed a lot of the acquisition expenses. So -- we've seen a lot of that cash flow right to the bank account. And then at the end of the quarter, we'll make sure that we have a balanced approach and what to do with it.

We'll go next now to Kyle Peterson of Needham.

Just one quick follow-up for me on the capital allocation discussion, particularly as it relates to M&A here. It sounds like you guys are getting towards the finish line of at least actioning out a lot of the synergies with Sterling, and that's been a really successful transaction for you guys. So I just wanted to see, would -- sometime like next year, would you guys be open to going back in the market with the balance sheet and the synergies actioned in a good spot? Or I guess, do you guys feel that you largely have everything you guys need from like a capability and platform perspective? Just any more color on how that could potentially fit in the strategy once all of the synergies have been actioned would be really helpful.

Yes. Kyle, good question. And I'll kind of go back to the last question, like we got the luxury of having good cash flow, and I'll let Scott provide some comment here in a second. But the good news is, for now, our focus is taking that cash flow and getting our leverage where it needs to be, being opportunistic if the market creates the right opportunity to buy back shares at a very appreciative amount for First Advantage. As we shared at our Investor Day last year, once our leverage range come down, we kind of have a little bit of a wider playbook. Certainly, over the short term, our focus is maximizing shareholder returns, getting leverage down to where it needs to be. I'll let Scott chime in a little bit, but on where he feels we are from a capability standpoint. But certainly on the short term, that's kind of our core focus is probably going to be on one of those 2 [ capital ].

Kyle, I would just add, and Steven is spot on. First, let's pivot back to the 2028 Investor Day financials that we put out there. And we put out there revenue ranges of $1.8 billion to $2.0 billion, $560 million to $630 million of EBITDA, 31% to 32% of EBITDA margin, $1.65 to $2 of EPS. Those are phenomenal numbers. And we feel we're on a path to achieve those numbers without any M&A. So that's the good news is that we don't need -- we don't feel like we need help M&A-wise to achieve anything that we want to achieve. And we love the results that we announced today and the guidance that we've given today puts us on the path to achieving those numbers. I will say, though, that we'll always be opportunistic about M&A. If something falls in our lap, if something that looks appealing, becomes available, I think it would -- giving -- knowing how good our sales team is and the 80,000 customers we have, if we could add on something that would give us more to sell to same buyer, and it's more of like a plug on or a plug-in, that makes a lot of sense for us. Now financially, we're not even looking because we're clearly focused on deleveraging. But as we get into 2027 and certainly into 2028, I think we'll be opportunistic. I'm not sure we'll be hunting for stuff, but if something becomes available, we'll take a look. We're just laser-focused on delivering those 2028 Investor Day numbers that we had given, and we don't need M&A to get there.

Thank you, ladies and gentlemen. That will bring us to the conclusion of our question-and-answer session and also bring us to the conclusion of today's conference call. We'd like to thank you all so much for joining the First Advantage Second Quarter 2026 Earnings Conference Call and Webcast. And again, thank you for joining us, and have a great day. Goodbye.

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. [Operator Instructions] 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.

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.

Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. Today, we have 4 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 continued 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 decisions and driving demand for deeper, more -- I'm sorry, 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, which credit bureaus and banks are both required to follow, Department of Transportation or DoT requirements, evolving state and local regulations governing data privacy, AI and biometrics, as well as international data feed 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 momentum or movement within the labor market and emergency 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 investment in AI, automation and positively impact 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.

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 5 years, launching Gen 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 1/4 of all quarter 1 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 1/4 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 and 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 9 industries and 5 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 2 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.

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 saw 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 have 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 share 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.

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

Scott, could you talk a little bit about which areas picked up in March? Like 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?

Yes. Thanks, Shlomo. So it's very interesting. As Steven mentioned, think of January and February as sort of like in line with planned month 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 like a single thing or 1 or 2 things that drove it.

There was really nice growth across majority of verticals and geographies. And so -- and as Steven also alluded to, we're continuing to see that nice momentum all through April as well. So we just -- it's not one thing to point to. It's just -- I think it's just a really healthy sign as to where the business is potentially going.

And then, Shlomo, on the margin front, right, when you have broad-based growth, we kind of have a little bit more of the return to normalized margins. If you recall, Q4 growth was heavily factored towards a couple of those major go-to-market wins, which was a little bit more with the transportation space and some health care services.

We had a much more normalized distribution just because as you saw in our results, base is now 0, just on the positive side of 0. So when you have those positive momentum and it's broad-based, it's just 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 that's all the way down to EBITDA and EPS as well.

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 4 quarters? Like what there anything -- 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 bit more into how you're thinking about that.

I'm sorry, you kind of answered it, 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. I mean, if you look at quits, openings, hires, unemployment, it's all flat across the board. And that's a great sign for us, right?

And so we're just kind of 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 little bit more clarity on the macro.

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

You talked about digital identity being like incorporated into almost 1/4 of your new contracts. I was wondering how important was that along with your AI capabilities in driving that strong 17 enterprise bookings in the first quarter?

Yes. I'll let Joelle jump in here as well, Ashish. But we are -- I think I mentioned this in the last quarter call, we are actually -- I mean, Digital Identity or let's call it what it is, 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 and things like that or it could actually be deep fake AI fraud in a video interview. We're seeing it all across the board. So we talked about last quarter about digital identity being really the tip of the spear for all our products and platform. So we tend to -- the conversations are tending now to lead with identity.

And this -- I would suggest you view digital identity more as like a package density upsell than a stand-alone product/revenue driver, even though it can be sold as a stand-alone product, we're typically seeing it as a bundled offering. So they want to lead with digital identity, but obviously do the other checks as well.

And the beauty of our platform is it's fully integrated. It's a seamless customer experience. It's a seamless user experience, and it's a fully integrated platform, so they can capture all the data and make sure all the high-quality checks are being done with the compliance on it. But it is the hottest topic in our industry right now. And I'll let Joelle give you a few more comments and a little more color as well.

Yes. Thanks, Scott. Yes, Ashish, we're seeing Digital Identity as standard really in nearly every deal we quote in every single industry and every customer segment. It's really -- it's showing up as both direct revenue as well as an enabler of our large wins. And so the 25% that we talked about in Q1 is a marker to show just how quickly and how much they're adding kind of to that package density, as Scott talked about.

And maybe just a follow-up question on that strong enterprise bookings in the quarter, 17 new clients -- 17 clients. Can you provide any color on where the strength is coming from? Is that particular verticals, geographies? Any incremental color on that front?

Yes, Ashish. So this is -- First Advantage has been a story of consistency for years and years and years. And we the reason I say that is the 17 wins really came across all the verticals and all the geographies. It's the same as it was in Q4, Q3, Q2, Q1 going back. So we obviously had really good performance from upsell, cross-sell and new logo.

These are -- we're at really nice numbers there. But what really makes us the happiest about that is the fact that it's really across the verticals and across the geographies and not being driven by a single vertical or a single geography. We're getting really great growth across the entire spectrum of verticals, products and geographies.

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

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?

Andrew, I think it's hard to quantify that because we don't know the intricacies of a competitive deal, like what are our competitors pitching versus us, why the client chose us versus someone else. And we certainly try to ask those questions, and we get it anecdotally, but we can't quantify it.

I would just say the way we look at it is our pipeline is growing and is at an historic high level. Our win rates are up. And I think the other way to look at it also is on the retention side. So as you've noticed, our retention keeps improving and now we're -- we've leveled out at 97%, which is a number we're very happy with.

But I think digital identity has a lot to do with that as well because it's extremely sticky. And by that, I mean, when you're doing digital identity, we're starting -- first of all, it gives you great stickiness. But we're also starting to see customers do it more than once in the hiring, recruiting, onboarding life cycle. So the easy way to think of digital identity is in recruiting. I'm recruiting somebody, and I'm using our digital identity product to make sure it's not a deepfake.

So it goes beyond that. We're starting to get a lot more maturity in our customers' buying where they're envisioning how they can try to detect and prevent fraud throughout the entire cycle. So you can do it digital identity during recruiting you can do it during background check to make sure the same person you were interviewing is the same person you're running a background check on.

You can then do it during onboarding, meaning you can do it during the I-9 process. So the same person that's filling out the I-9 is the same person that you did a background check on is the same person you recruited. And then you can do it on first day of work as well. So the person we just recruited background checks, onboarded actually, is it the same person that showed up for the job day 1?

And we literally have customers that have told us that, that's not the case in some of these things. The same person they're interviewing isn't the same person that fills out the I-9 isn't the same person that shows up for the job. So digital ID can provide that whole level of stickiness across those functional points.

Again, hard to quantify what percentage of wins it gives us or increases it gives us. But I can tell you, retention is up, pipeline is the highest it's ever been and win rates are up. So we think we're doing the right thing by being at the forefront of identity fraud and being a leader in the space.

We go next now to Andrew Nicholas with 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? Or is the commentary there simply to kind of reinforce the fact that that's an ongoing secular trend?

A good question and a little bit of both. So I'm going to take a little broader approach here, Andrew, because everybody is obviously influenced by what they read in the media. And there's headlines on the labor force, on the job market. But as we've discussed in previous quarters and previous earnings calls, it's not what we're seeing. So I'm going to talk to you about a couple of different things. So the first thing, as you know, we talk to our customers a lot.

We're in front of our customers on a daily, weekly, monthly, quarterly basis. We've got executive sponsors talking to customers. We do QBRs. And as Joelle just mentioned, we just had our large user conference. I would tell you that, our customers are definitely neutral to positive on the job market.

In my personal discussions with customers, I haven't had a single customer say that they're going to hire less people in '26 than they did in '25. In fact, they either say that they're going to hire the same or more. And -- so that's just pure numbers.

But one thing is the generational shift we're seeing in this market. So by that, I mean, I don't think people are aware that millennials are now the highest percentage of workers in the job market. 36% of the job market is millennials. And Gen Z is not far behind in catching up. So as boomers retire and Gen X gets older, you're seeing the millennials and Gen Z. And then within the next 4 or 5 years, you're going to have Gen Alpha in the market as well.

You're seeing them all approach work differently. They aren't approaching it the same way that previous generations have done it. So this is why job stacking has become so popular because even if they have a full-time job, a full-time traditional salaried job, a lot of these people are gig workers on the weekend. They want to make extra money. They've got time on their hand. They like to do it.

And a lot of these workers are becoming job stackers instead of traditional. So instead of just a traditional salary job, they're taking multiple part-time jobs as contractors or part-time employees. And this doesn't necessarily just mean gig. It's across all industries. I mean, we're seeing hospitals hire more contractors than salary workers than they've ever done in the past. So you could be a part-time nurse at a hospital and be a gig worker on the weekend or do something else.

So that's great for our industry because what -- the FCRA rules, which we keep bringing back to, don't forget that this is a highly regulated industry. The FCRA rules require that those have to be individually run background checks. You can't share a background check across companies. So those 2, 3, 4 jobs that, that person is working at, that's all 2, 3, 4 different background checks. This is great for our business, and this is a great trend.

So we are keeping a very close eye on it, and we love the question because we think this next generation of worker is going to work this way maybe forever. It's just -- they just approach the workforce differently. So this is a really good trend for our business.

And then for a follow-up, just a separate topic. Just on pricing. Can you talk about price realization for First Advantage? And maybe more importantly, from my vantage point, anything that you're seeing from competitors on the pricing front that gives you pause or you see as an opportunity, whether it be as a part of the RFP process or anecdotally? Just trying to figure out, given your really strong retention and success as you combine with Sterling, just whether or not any of your competitors are being aggressive on price?

Steve, why don't you take the first part of that, and I'll take the second.

Yes. Andrew, I mean, long story short is it's still very, very stable pricing industry. And I think you're seeing that come through where we're not seeing any new real major trends one way or the other. And yet we're still being able to produce, as Scott mentioned on the previous question, very consistent 17 enterprise bookings, tons of bookings, obviously below the enterprise level and driving the 12% new logo and upsell, cross-sell growth and good outlook there. So no real new trends. It's been very stable for a while and it continues to be. I mean -- so it's -- to us, it's kind of business as usual this year more so than anything.

Andrew, on the second part, I think what we are seeing, and this is a trend that we've talked to you probably for the last year or so, and it's good to bring it up again because it hasn't changed. Companies are still looking for cost savings. So you see our great up-sell, cross-sell and new logo win rates. A lot of that's coming from digital ID. A lot of it is coming from just really good selling and package density.

But another thing we're benefiting from is one RFP trend is really the consolidation of vendors. And this has actually led to a lot of our global wins. So you've seen international is 8 straight quarters of growth. A lot of that has come from U.S.-based RFPs where we're winning their global business away from local players in other markets. So that's driving a lot of that nice international growth.

And through the consolidation of partners, we're getting higher share of wallet, obviously. And in return for that higher share of wallet, we're keeping pricing stable, as Steven mentioned. So it's just not leading to discounts. It's leading more toward consolidation with us and sort of a guarantee of stable pricing for the contract terms, even though we have CPI increases and things like that. But it's really a nice trend that's favoring our growth is that we still see a little bit of consolidation of vendors.

Some of that is procurement led and is dealing with just controlling costs, but other it is risk-led. As Joelle mentioned, our trends report has showed risk is the #1 topic for our buyers. Our risk mitigation is the #1 topic for our buyers right now. And when they see midsized players in our space or even mom-and-pops our space, they get nervous. And so the derisking factor for them is to consolidate with a company like First Advantage.

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

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.

Yes, Steven, do you want to?

Yes, Jeff, I wouldn't say we're being overly conservative. I mean, obviously, really proud of the Q1 results. Great to see April off to a good start. But obviously, there's a healthy amount of volatility in the world, whether it's what's going on in Iran, which isn't a real direct impact to us, but we're certainly mindful of it how it may impact the APAC and India markets later in the year.

Obviously, as that trickles into the U.S. consumer for our peak. So I think it's -- certainly, it's derisked the second half for us a little bit from our guidance standpoint, but I don't view it as necessarily overly conservative. Obviously, we'll -- having a good 3 or 4 months in the belt obviously helps for the full year, but still a long way to go and a lot of things happening in the world these days.

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

Well, certainly, as I shared in the remarks, we're obviously focused on if we can generate opportunistic shareholder value, we will. So our focus is if the stock price is not reacting the way we would expect it to or hope it will, we can obviously lever back and forth.

And I think the great part of where we are in our life cycle is we've got the cash flow and flexibility to be able to do both and then just flex up or down based on the market dynamics. So obviously, we've repurchased $30-plus million already, depending on how the markets play out, we can obviously tailor that up or down. And then obviously, we'll counteract that with how we pace our debt payments. But over the last, what, 4 months, we paid down $50 million of debt and bought over $30 million of share. That's very balanced in our point of view.

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

Just one for me here. I appreciate all the color that you provide in terms of the investments that you've made on your tech stack and what you're doing from an AI standpoint. I wanted to maybe get your opinion in terms of what this can mean from a competitive standpoint. I think there's kind of a myopic view on just the threat of AI, but I actually think taking a glass half full view, it would, in my mind, maybe point to continued consolidation in your space and in theory, your ability to continue to take share just given your size and really the years of investments that have been made.

So maybe just as you think about the ability for AI to allow you to take share, kind of push out some smaller competitors and ultimately, what you view as what could be the competitive landscape within your space because of AI?

Yes. I'm going to let Joelle answer this because she's leading that effort for us. But I would say we're obviously very happy where we are with the tech stack and with our size and scale. We have a very large engineering team working on what you just talked about. We've got -- we've been doing AI for literally 5 years. We've got a number of really neat products already out there. We've got a lot of neat products in flight. We're transforming the tech stack with AI and anywhere and everywhere is actually our mission to doing it. But I'll turn it over to Joelle to give you a little bit more specifics.

Yes, absolutely. Thanks, Scott. Stephanie, yes. So we are definitely seeing interest, obviously, across new AI build work on the platform because of the changing landscape that's happening with all of the trends that we kind of discussed. So there's an acceleration of kind of new build work that has to happen on there. But which we're doing and AI is helping us, obviously.

But the thing with competitors, there's a lot still out there. There's a lot of mid-market players. There's a lot of small mom-and-pops. And so whereas we feel really good about the decisions we've made about how we've integrated the digital identity solution into the platform, all of the investments that we've made to make it nimble and to really improve the applicant experience, we definitely feel like we're in a great spot there's still a lot to go get.

There's still a lot out there, and there's definitely a lot of competition still out there trying to make names for themselves. We feel really good about our position, and we think we are well positioned to be able to do this with the investments that we have made and will continue to make. But that's kind of the long and short of it. There's still, unfortunately, a lot of folks out there still.

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

I guess first one would be just 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? And are there any potential kind of near, medium-term margin benefits as a result of that acceleration?

Yes. So Scott, when we created the FA 5.0 strategy, digital ID was really in its infancy. So one of the major accelerations on the strategy is everything we've talked about on identity fraud. We're pouring everything we've got into it because this is the #1 issue for our customers, and they see us as a thought leader. They love our technology.

We're helping them solve real-life issues. We've got documented success stories where we've caught fake people trying to get jobs. So it's a real good success story, and that's definitely a piece of the strategy that we're accelerating around the tech stack.

The other piece is the AI piece of it, which Joelle talked about. There's a lot of really neat -- if you think about AI and our tech platform, there's really 2 buckets. There's what I call the visible bucket, which is the stuff we're doing with the better candidate experience. There's stuff we're doing with AI chat. There's all that visible things that we can use AI to make things smoother on the front end.

But there's also a lot of what I call invisible AI on the back end of our business where we're using AI to just help improve quality, to help us with determining what data sources we go to, to pull what data to make things more efficient, that type of stuff. So I call that part of it our tech stack to plumbing. There's a lot of AI that's going on in our plumbing that's not visible to our customers, but they can feel it because it's higher quality, it's faster turnaround times. It's all the things that drive higher retention and sales.

And the other -- and then we go back to like one of the core things in the business and what we've always felt was the secret sauce of First Advantage, which is our vertical focus. So we are accelerating deeper and deeper into the verticals that we're in. There's a lot of sub verticals that are still have white space for us and are untapped.

We just feel that the vertical message has always been the best message in our business. So we're investing in deeper products and more products in those verticals and larger sales teams in those verticals. We're not necessarily expanding into new verticals. We're just going deeper into the ones we're in.

Got it. That makes sense. And then just a quick follow-up just on the go-to-market side. In the context of the enterprise bookings that you've had this quarter and the pipeline that you kind of have going forward, I mean, any color you can give just on sort of the split in that pipeline and bookings between new logos versus upsell, cross-sell opportunities?

Yes. I don't like to -- I'm sorry, I just -- I don't like to give too much detail on the pipeline because I know competitors are listening. So only thing I would say about the pipeline, again, is that it's the highest it's ever been.

Our late-stage pipeline is the largest it's ever been. We're feeling very good about not only the size of the pipeline, but I made this comment in the actual script that we just feel our sales engine is humming. And there's a lot of things that have come together to make that happen.

Obviously, this is a product-led sale. So having the right products, and we spent -- we're spending lots of money, obviously, on products, having the vertically focused sales engine. But we've also invested a lot in marketing this year. You might have noticed that we've rebranded the company to trust in a changing world. That's because of the identity fraud that's so prevalent in our industry that is really resonating with customers.

So it's a combination of the marketing, the vertically led sales, the vertically led product investments that are driving up-sell, cross-sell, new logo and just what I would call record numbers. But I don't really want to get down to how much is in one bucket versus another.

[Operator Instructions] We go next now to Kyle Peterson with Needham.

This is Ross Cole on for Kyle Peterson. So I wanted to dig a little bit more into a couple of the verticals that were talked about. First, within retail and e-commerce, it sounds like that continued growth acceleration is going to last through the remainder of 2026? Or is that going to kind of slow down a bit in the end of the year?

And then also some of the pressure within the business and financial verticals, are you expecting that to continue going forward? Or do you see any maybe upside there?

Yes. So let's go back a little bit. We had a really good, what we call peak season in 2025. So this is where retail e-com and transportation really had really nice growth for us in Q3 and Q4 of last year. We're seeing retail and e-commerce continue to perform well. I'd say about a year ago, there was a little blip in retail due to the understanding of what's happening with tariffs, but that obviously has disappeared.

So retail has been performing really well since then. I think the only issue that -- and I wouldn't call it an issue, it's a nice problem to have is that we've got a big grow over in Q4 in this space. We had a really large win last year in the late Q3 time frame. So the only thing that we see in retail e-com is the grow over from that really large win. Otherwise, we predict business to be very similar to 2025.

So as retail and e-com hum, I think financial services is a little bit what I would call it pause mode. I think what financial services is trying to figure out is their back offices and what's going to happen with their back office. So when we talked about our verticals with our top verticals performing very well, BFSI, as we call it, is about 12% of our business.

And I'd say, it's slightly negative, single-digit negative hiring right now. And I think that will probably remain for 2026 as they figure out what's going to happen with their back office how much will AI impact it, et cetera. So we do expect BingBiz or BFSI to remain either flat or negative for the rest of the year. But this is -- that was already factored into all of our guidance. So there's no change on expectations and numbers.

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.

[Audio Gap] and I'm part of the business and information services team here at BofA. This session will be on First Advantage, and I'm pleased to have the Chief Financial Officer, Steven Marks; and President, Joelle Smith with us. We're going to start the session with a brief overview of First Advantage. And then we'll jump into a quick fireside conversation. Following if time permits, we'll open the floor up for questions. So Steve and Joelle, thank you for standing by today.

Of course, thanks for having us.

Thank you.

So, overview of the business.

Yes. So First Advantage at its core, we are a leading global data and software company, and we focus on helping our customers fight the challenges of human capital risk. And where if you had talked to us at the time of the IPO, maybe 4, 5 years ago, we would have said we're the leading global background screener and we focus on background and drug. The risks that our customers face have evolved over the last 5 or 6 years, and we've really transformed from just a pure background screener to really a company that's helping our customers navigate all spectrums of human capital risk, which has grown into things like digital identity, right to work and using our global proprietary data and global proprietary platforms to help our customers, and we focus on large enterprise customers, so the largest hirers in the world, do this at scale with compliance all over the globe.

In 2025, we did 205 million screening checks for 80,000 customers and generated about $1.6 billion of revenue. So the scale that we operate, the focus that we have in leveraging our proprietary data, our unique platforms, our applicant experience, we're integrated into 105 or more of the leading HCM and ATSs or the major human capital software sets in the world, and have turned ourselves into an industry leader who just literally focuses on all spectrums of employee risk, onboarding risk and now extending into the full life cycle of the employee.

What I missed?

Not. Forget.

Let's touch on the topic we just talked about, proprietary data. AI proprietary data has been a debate across the space of investors, whether companies have a walled off proprietary data versus an ecosystem of workflow tools and partner networks. On the most recent earnings call, AI was brought up as an enabler, not a disruptor. In a world where AI can automate many white-collar tasks, how are you positioning your vertical strategy towards blue-collar resiliency like healthcare and transportation, where physical presence and compliance are nonnegotiables.

A lot of unpack that question. This might take a few minutes. So a few different kind of spectrums to that. So first off, we use our proprietary data, which is we have over 1 billion records in our 2 primary places we have data, both on the criminal record side and on the employment verification side. And when it really comes to AI and specifically there, a, that 1 billion records, 900-plus million criminal records, 135 million employment verification records, we use that as an enabler of our services, of course. But for AI, that is a great training ground. So the hardest part, and Joelle will get into it probably in a second, about getting AI right is doing it with the right control data and test data to train your models to work appropriately, which is really important for us because we operate in a very regulated industry.

And I think that's really the -- when we think about kind of the AI, whether it's a risk of a disintermediation or just competitive influence, things like that, first, people have to really understand what the industry is and how it's impacted. And because in the U.S., there's the FCRA, The Fair Credit Reporting Act, so we are a CRA or a Credit Reporting Agency under that. There's a lot of rules and regulations that you have to evolve. And that's just one of a spectrum of laws, whether there be state-level laws that limit the use of AI in the hiring process, international laws that kind of mirror the same, et cetera. So you can't just go out there and broad search the Internet for data and then report it with an AI tool and you're going to get it right.

The other big key aspect of our industry when it comes to AI is you have to get the data at the primary source. So the FCRA has a bunch of rules and regulations around a reasonable policy for maximum possible accuracy, which has been widely accepted to be -- if you want to report a criminal records, you have to have validated that at the source of that record of the courthouse. Those courthouses themselves are proprietary data networks, right? They don't just let anyone come and search them. There's often a paywall or a charge for it. You want to search a name here in the state of New York, it's $95 every time you want to search that name. There's no unlimited pass. They only let certain providers actually integrate into the system.

So there is this moat around our own proprietary data, which we certainly use the fulfillment and train our data on but also the data that you have to then access is also walled off in and of itself. And the people don't really understand about the U.S. is the U.S. is not -- doesn't have a single court system. It's about 4,000 disparate detached court systems. So New York State is one but there are some counties in the state of New York, how many counties around the country. There's upper courts and lower courts and state courts and regional courts. So all of those, you have to be able to access. And then in a number of those cases or a good portion of them, those court houses haven't even digitized their records. So we've got a network of over 2,000, what we would call court runners but providers that we can tap into who can go into a court house and retrieve the records. And then that's just -- we spent that whole few minutes just talking about criminal records.

In order to be a full spectrum provider in our industry, you need to be able to do drug testing. We have 20,000 physical locations that we've partnered with over the country to be able to say to any company, if you want to screen someone, there's a location nearby. That network is proprietary that we've built up. We have our own proprietary network of fingerprinting locations with digital kiosks that we placed there to do digital fingerprint acceptance and things like that. So we take AI very, very seriously, but we look at it as an enabler for our industry, and Joelle can talk about a couple of the great use cases that we've developed there.

But from a risk perspective, we have our own data. The data is not just publicly accessible. While it's owned by the government, it is not public data in the common regard. Employment verification data, you can't just go screen scrape LinkedIn. You have to go validate that with the employers, and there's either proprietary networks. We have our own database and proprietary fulfillment workflows that we've used. So it's a really complicated long story, as I mentioned at the onset, but it's not just go into Claude and search Steven Marks and know everything he's done.

Yes. It's not -- Steven, that was great. It's not a single data set. So as Steven talked about the criminal records, also the verification records and all of that. It is disparate across. But even if it was a single step, which again is not, gathering the data isn't the really hard part. It's once you get the data, you have to normalize it, you have to categorize it and then you have to be able to decision off of it. So in order to decision off it, AI is not allowed to do that. There are laws around that. So we have a really distinct workflow where we have a human in the loop and our agents help to those humans to make the decisions. And then once those decisions are made, and we can only do that because we have permissible purpose, which again, is another regulatory requirement for anybody who wants to hire an individual, then you have to be able to adjudicate it, which means make a decision on it.

And when you do that, it has to be legally allowable and it has to be legally defensible because these organizations are obviously hiring individuals and then it has to be auditable. And so there's a lot of like regtech that's built into the platform to enable our teams to help our customers hire those folks. And that's just again on the criminal record side, on the verification side, which is why we've made the investment in the proprietary data, which we have been building out for decades. And it's not something you can just kind of get today. This is historical information about past history of what people have done from a criminal perspective, where they've worked for the past 10 years. And so it takes time to build up all of this proprietary data that is usable, actionable and able to be able to decision on.

So that's just a high level of kind of where we've been. And the proprietary platform complemented by the data, the data does train the platform, and it informs kind of how to make some of those decisions, then you add the compliance layer on top of it. So it's not as straightforward as I think everybody would think it.

Right. Just a point you touched on, Steven, describe your AI strategy as building good AI to fight bad AI, particularly in the context of identity fraud. Given the rise in identity fraud, how much is the bad AI actually driving incremental demand for your higher-margin digital identity product?

I'm going to start off, and I'll let Joelle take most of this because this is her baby, if you will. But I mean that point is all around AI is creating new business opportunities for us. I think you going to realize. Fraud in the hiring process is an unfortunate byproduct of the AI technology getting better. It is easier to fake your background. It is easier to deep fake yourself in an interview. We've seen a number of kind of large publications around whether that be the one in the Wall Street Journal about a year ago, where 300 corporates had hired someone from North Korea hadn't known about it and who was using deep fakes and server farms and things like that to get into the of the companies. And I mean, all it takes is one for them to have a colossal disaster on their hands.

So the market has rapidly educated itself on these risks and customers are dying for a solution. So we've got our digital identity solutions out there, which helps the companies really validate the people that they're screening from not just -- all right, with Steven Marks, has he got the right credentials? Do he have a criminal history too? Is this Steven Marks I'm actually interfacing with, I'm actually hiring, I'm actually onboarding. And Joelle can talk about how the use cases have expanded. I'll tell you, Chris, just from a kind of capitalizing on the market opportunity, it is not only creating good opportunity from the product itself, and it's a good margin product. It's a tech service but it's creating incremental pipeline opportunities.

So customers are coming to us thinking they're only going to ask us, "Hey, we've heard about your digital identity solution, we want to hear about it." When they hear the value of linking that together with the full screening program, what was an opportunity that started in pipeline as just digital identity has now allowed us to bid and gives us a very good driver seat in that RFP to win the entire screening business, which is multiples of just that -- the identity revenue. But Joelle can talk about the risk use cases but it's just -- it's growing exponentially, which is obviously not a great societal problem but it's how our platforms can help companies navigate that risk. That's kind of the whole point of the company I kind of shared at the onset.

Yes. One of the interesting research reports that was sent out by Gartner, and they predicted by 2028, 1 in 4 job applicants were going to be fraudulent, which was an alarming stat. I can tell you, based on all the things that we've seen with our customers, it is 100% on track in a really, obviously, not great way but we feel really good about the investments we've made in our product to be able to tackle this. We were first to market. We bought Sterling, who was very close second to market. So we have best-in-class products out there. And again, linking the digital identity at multiple stages. So it's the person you're interviewing, the person who they say they are on that screen or in person. And then the person that you're checking at the background check, when you're doing all the really important checks from a criminal perspective, education verification, employment verification, is that the person. And then the start of the job, right, the day 1, the I-9 or the right to work, especially with all the immigration laws that are out there. Is that the same person that you interviewed who shows up or that you ship the laptop to? And once you get that person hired, they get credentials to the laptop, they have the keys to the kingdom.

And so that is where a lot of the issues that Steven just brought up in the Wall Street Journal headlines have hit where these various actors have gotten access to the system. They've either exfiltrated data, sold it on a dark web or they have dropped in some kind of malware that has just wreaked havoc on the organization. So there's this interesting intersection of the CHRO kind of buying cycle together with the CISO and in most cases, the CEO, all having discussion points about the risk profile at their organization and how the hiring structure of that workflow is now a critical like security and risk requirement for all the organizations.

So the fact that we made investments early and the fact that we have an architecture that embeds this across, you couple that together with the biometric data that we're taking from the individual, the biographical data that we collect as the individual from their past performance and then our proprietary data, it allows us to give a really great view into what the risk profile is for hiring this individual. And there's a really interesting use case that we have, which we call persistent identity, which is happening post hire.

So we really are kind of transcending across the full life cycle of the employee. So once they become an employee, are they still that person that they originally hired? And you would think, well, of course, they are. But there is a reason why organizations rescreen very regularly. They used to rescreen every 2, 3 years. Now they're rescreening every year. And now some of them are really trying to monitor because there is so much fraudulent activity. And these bad actors, they're good. They're getting to American citizens who have laptops or existing employees, and they're paying them off to provide that was the server that Steven was just talking about that created the risk inside those 300 Fortune 500 companies. That's the issue.

Then you couple that with some of the use cases in the gig industry or last mile drug. And this is really interesting where you have people who are working for a transportation company or a gig company, and they're farming out their rides or their deliveries to other people who may or may not have been screened for that platform. In many cases, they haven't because if they were screened, they probably wouldn't be allowed on the platform. And so that's creating a tremendous amount of risk as well. And one of the use cases that we have with our gig customer, in particular, started out at a point in time, did a screen, did an identity check, validated. And then once they were on the platform, they were good to go. Obviously, that created challenges for them.

And now we have a customer that is doing up to 24 million selfie checks in the morning, every time this person goes to make a delivery or goes to do a drive, they have to check in with their selfie and validate that they are the same person that was on that before they're allowed to even go and make a delivery or to do the drive. And that is really what we're seeing these trends transcend to. So the digital identity plus background check is a really interesting and also very good for our business kind of risk mitigation product line.

Very wild times we're in but happy to have you guys in the forefront.

It's risk that we didn't think we'd be dealing with 5 years ago, right?

I just want to step back a little bit and talk about the disconnect between media headlines about the labor market in general and your own booking numbers. Why is the enterprise hiring environment you serve so much more resilient than the macro headlines suggest?

Well, I've been telling investors for the last quarter or 2, it's like your mombies to tell you, don't believe everything you read in the news. I think there's a little bit of just headline first hysteria where people read the headline and it says ABC Co is losing 1,000 jobs. And they just assume that means broad scale labor market. What they don't read is the next 3 paragraphs that tell you, okay, well, they got 1 million employees. So 1,000 is a fraction of 1% or 10,000 is 1%, right? And b, like where those employees are coming from and then think about what creates demand on our -- so take of -- it doesn't matter, a healthcare network, right, our largest vertical. If they're cutting jobs, maybe they got more efficient in billing, right?

Most of our hiring comes from their core employees. That's janitorial, that's nursing, that's doctors, that's the staff that you're seeing and interacting with when you go to a hospital, their billing team is a low churn, low portion of their environment. So even if they get more efficient there, we're relatively -- or really pretty much not impacted because that wasn't where their hiring was. I use First Advantage as a common example we talk about that. If we get -- and we are, we're getting more efficient in our HR. If we cut down our HR department by 10%, we may hire like 3 less people this year. We'll hire 3,000 or 4,000 people this year as a company. So the impact is so immaterial, I think, because the headlines are focused on kind of the -- what is going to grab the reader's eyes.

But then I think it's gotten more challenging on investors and the markets to start reading those next few paragraphs, all right? What are they cutting? Why are they cutting it? And a lot of times, you'll even read it saying, okay, they're cutting that because they're divesting that, then they're investing somewhere else. And that also is actually a good thing for us because what drives our volume isn't necessarily total growth, it's churn, right? When a company is rotating employees, that's good for us because they have to go hire, maybe they had engineers in their product focused on one thing and whatever reasons, they've cut back there and their focus is here. When they do that and they start rotating their employee base, that's good for our numbers. That's investment hiring, that's growth hiring.

But I think people gravitate to the headlines. I also think the underlying data has gotten more challenging. So whether that be the BLS or even ADP, which is a little bit more down market from us, SMB is having a bigger impact on those numbers maybe than it used to be just because of how the response rates are pulling in. As you mentioned, our focus is enterprise. Enterprise is $0.5 million or more of annual contract value. You start putting your head in how many screens does that take and how what size employers are these. These aren't SMB. These are companies that are hiring thousands, tens of thousands, hundreds of thousands of people a year.

So these headlines, which are relatively modest actually when you read into them, gravitate people towards the negative and they just assume the worst, which is -- I mean, I know it sounds like a pun, but joke, but it's like literally, you can't have -- you really have to dig in and you can't just read the headlines. The headlines are what called the problems.

Yes. And there -- I mean, there is obviously that side of the business where there's churn and AI, and they don't talk about all the people they are hiring to build the agents to work the models and all of that but that's definitely happening. But the other side of it is that risk profile. So -- and nobody is kind of really talking about that. So we talked a little bit, obviously, earlier about digital identity but there's 2 sides to the story. So for us, our ACVs are getting larger. We are delivering that top line growth that we had in Q4 at 17%, 12% overall. So we have a lot of this happening because the risk profile of these organizations, especially at the enterprise level, is changing. They are prioritizing risk over hiring a bunch of people, and that's really good for our business because it means they're adding services. We just put out our trends report and came out this week, where we are seeing in the enterprise market that we have -- there's 89% of the 5,000 people interviewed in the enterprise market will be adding more services to their programs for their hires and their employees to manage risk at a more efficient level across the enterprise.

So there's a couple of things that play here in the macro, and it's not just about who are they hiring, who are they laying off and how are they kind of churning their labor force because we -- of course, the labor force is going to churn. But again, as Steven said, that is really good for our business. And so you couple that with the risk profile change of a lot of these enterprises, and that's required, right? North Korean bad actors are hitting and was just tech and financial services. It is every single industry right now. No if we see industrial, manufacturing, every single enterprise industry that we operate in has -- it needs to address this bad actor, bad AI conundrum.

Great. Let's talk a little bit about Sterling. Joelle, you talked about it earlier. FA has officially completed the core integration activities of Sterling and turned the page to innovation. For investors, what is the most tangible change we will see in the P&L now that management is shifting from internal merging to external growth and product releases?

Well, I'll start, and then Joelle can talk about some of the growth initiatives that we're really focused on. But yes, I mean, you're right. Look, we closed the deal, I think it's almost 14 months ago now, a little over and are really happy about kind of the core integration to your point, right? We've got through the major combination of all the business departments, combining a lot of the go-to-market approach, the marketing, the branding, all that kind of stuff. And I think the most resounding success that have all been, yes, the synergies are great. Yes, the efficiencies we have, yes, the go-to-market success. Our retention levels actually went up through the process. I think that's always the fear, certainly in our industry when you go into one of these large acquisitions is you're going to force migrate customers and you're going to anger customers, you're going to degradate service, things like that.

And we had it somewhat expected there to be actually an uptick in lost accounts because inevitably, you would scare customers off. I think the most resounding success of this whole thing is throughout the process, we maintained the 96% retention we have had and grew at the last half of the year to 97%. So I think that's a real positive impact of this whole thing. I think from -- what's given us now the confidence is we're exiting 2025 with some really strong growth rates. We had some great pipeline wins. We talked about throughout the year, 3 large wins, one of which is the potential to be effectively a top 5 customer. So just to add that overnight.

So I think we've got that evolution, the core integration is behind us. Our go-to-market team is hitting on all cylinders. And as Joelle was just was explaining, this changing risk landscape. there are certain verticals and there are certain products that we felt now is the time to accelerate the initiatives, fund the growth, like continue to put our foot on the accelerator when it comes to go-to-market momentum, capitalize on those market opportunities. We still have some synergies to get that we'll start executing on more towards the second half of the year, finalizing the combination of all of the fulfillment workflows and things like that. We've still got about $15 million plus or minus million in our synergy journey to get to, but we still feel really well about getting to those.

But our main priority is going to be growth. And where we hope you'll see on the P&L, yes, we have to do a little bit of investment in product and cap software. Those investments have paid off tremendously well over our history. But where we expect to see it is on sustained higher levels of new logo and upsell, cross-sell momentum as we're able to capitalize on the market opportunities.

And I just want to touch base on the retention comment just. I think I agree that during M&A, you see some attrition, but we didn't see that with First Advantage. So what would you attribute to help you with keeping clients during the transition process?

Well, I think the first things were very strategic, and I think the last a lot more tactical that came out of Joelle's go-to-market team. But we -- internally, when we underwrote the deal, we had to have a promise to ourselves that we would not force migrate the enterprise clients, right? We have seen -- and rewind First Advantage's history about 12, 15 years ago that predates us, but we made some migration mistakes and lost a lot of customers. We've seen it with some peers in the industry as well. And when we did the deal, we said we have to structure in a way where we can get from a valuation and financing other perspective, where the pressure doesn't become, hey, we have to force migrate all the clients, collapse the platforms, all those things because that's what triggers the attrition. When you take an enterprise customer who is happy with their integration and happy with their service and then you make a change it, you put that account at risk immediately.

So the fact that we -- from the day we announced the deal, we were as vocal as we could be in earnings calls and with all the announcements that we were not going to force migrate that, that message got through. So I think that took the initial pressure off. And then our product teams, our sales teams, our customer success teams, all of the worlds that Joelle's teams manage we're laser-focused on the customer, right? And making sure that not only were we focused on the customers but also providing them incremental value. So the way we've taken this approach with customers is regardless of if you came from First Advantage or if you came from Sterling, like you're going to see upgrades, not downgrades.

So we've taken what was best about the Sterling platforms and taken some of those functions and made it available for the FA platforms, taking some of the best of FA platforms, the proprietary data and some of those other things, made it available on the Sterling platforms. And we're getting all the synergies on the back end, on the fulfillment on the back end of the platforms, preserving those front ends and making them better for customers has driven not only retention levels but now we're starting to see the acceleration in upsell and cross-sell because now we have a broader suite of products to sell to the entire customer base.

We gave -- we promised our customers every month, they were going to get something cool and new kind of on the platform regardless of where they were. And our product teams did an amazing job to deliver that. So when typically, you'll see attrition when customers feel like they're being neglected because everybody is focused internally on all of the synergy creation and all of that. We actually purposely took the front lines and a significant part of our product organization said we're going to keep our customers really happy. And part of the thesis of the acquisition was that we needed to make sure the Sterling platform had enough nimbleness and modernness in it where we could deliver this. And so that's what works.

So that commitment to the customers and then delivering better user experience, more products, deeper risk profile, better analytics, all of those things kept our customers really happy and curious for more. I would say within like 6 months, we didn't even hear about the questions about the acquisition from our customers anymore. Like we were still doing it on the back end, and there was still a lot of discussions around that. But it was a nonevent for our customers. They just were like, okay, yes, this is over, your color has changed. We're moving on. And so that was a huge testament to our frontline team, to our product teams to really put their experience front and center. And because we have a sophisticated platform to be able to do that, we were able to execute it very well.

Got it. Let's switch a little bit to your investments for 2026. It's being seen as an investment year. Some investors may ask, why now? Why we invest during a period of increasing macro uncertainty? Can you talk about buying signals and late-stage pipeline that drove management to go this...

I'll give the why now and let Joelle take the rest. I think the why now is, let's frame the investments. These aren't monumental like P&L changes. This is a little bit of incremental product, a little bit of an incremental sales, a little bit of incremental marketing but it's not like they're going to open up our P&L tomorrow and it's going to look very different than it was today. It's just instead of the core focus being synergies and integration, we're putting some extra dollars towards accelerating growth.

I mean the why now is, I think to a couple of the points that we've been talking about, we feel like we are at a great point. Our customers aren't focused on integration and things like that. We've got a changing risk landscape and products that are like right to go ahead and help customers navigate those, and look, we've had a lot of success already. And we've had -- so we can make investments, whether that be some vertical focused, some product focused, geographic focused, right, some international investments. We announced on our earnings call a differentiating partnership with Workday, a co-selling and development relationship there, being able to maximize the output of those initiatives makes it a really important time.

Joelle will tell you, I mean, so for a number of these investments, the product we're building, we're not building into an unknown market. Our customers have told us what their needs. We know there is a pipeline of direct opportunities available to them. We've never been the kind of company that just overly aggressively invest into the unknown. We've got some very well-known markets, known customers that we know once we finish building the product, who exactly we're going to sell it to round 1. So I think the why now is because if you're not going to do it now, when would you do it?

Yes. We have a really unique market position. As Steven said, the risk landscape is changing for the enterprises. But we have been able to explain to customers really -- and we have solutions for them to address this changing risk profile and the product lines line up to it. So no one customer buys everything we have at this point. But we are getting inbound a lot to buy a lot more of what we have. And when you start to feel that and you have a customer base that needs more, wants more and is willing to buy more, and then you have a changing risk profile across the macro, it just makes a lot of sense for us to continue to do that. So we're seeing trends in vendor consolidation. We have an end-to-end solution. That's amazing for us.

So our ACVs are increasing because we're able to provide an end-to-end solution where they already are using us for a number of areas but then they want to come to us for I-9. They want to come to us for monitoring. They're adding digital identity. They're adding more enhanced solutions around that. So when you have an opportunity to continue that momentum, and we're seeing it in every vertical, which is also really great for our business. It just made a lot of sense to put the investments into those key areas that are going to help us maximize that for the enterprise needs because it is different than the SMB. These are real-world problems that they're trying to solve for. And we are in a very unique and opportunistic position to be able to deliver it. So it just makes sense.

Great. Now both of you today have been with the company through different stages of growth. if you get to describe First Advantage of 2028 in one sentence, how does that differ from the company you were speaking to today?

It should have been on our Investor Day 9 months ago, we told you the answer. No, look, I think in our -- if you look at our 2028 model, we would be getting very near to being a $2 billion company. So in our space, the level of support we're providing and risk management we're providing to our customers, the number of customers that we help over 80,000. So we should be obviously growing that number by then. I think just the scale of our operation and what we're capable of doing will be just incredibly impressive.

Yes. We want to be -- certainly, we want to hit the long-term target goals, of course, that we talked about at Investor Day. But I do think the transition of the industry itself and us being able to deliver a global system of trust across the full employee life cycle is really where we are going. And we have all of the fundamentals in place to allow us to get there, which is a key factor to us delivering on those long-term targets.

Got it. And before we close off the fireside conversation, we're asking company that presented to do a quick one word association. So tell me the first that comes to your mind, I want to say the following: First Advantage 5.0.

Growth. Innovation.

Digital identity.

Opportunity.

Pipeline is probably where I'm at but I'm the numbers guy.

Sterling.

I'd say success.

Yes. Agreed.

And the last one, Scott Staples.

[indiscernible] if he is listening? Yes, I would say innovative. I think we could sit here and talk a lot more about him than one word, not just because he signs our paychecks but I think just the transformation that he's powered in our company, which has obviously now led our industry is incredible.

Perfect. Amazing. So I appreciate you both joining us today.

Thanks, [ Matt. ]

Thank you.

Thank you all.

Good morning, everyone. My name is Bo, and I will be your conference operator today. I would like to welcome you to the First Advantage Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. Hosting the call today from First Advantage is Ms. Stephanie Gorman, Vice President of Investor Relations. [Operator Instructions] Please note today's event is being recorded. It is now my pleasure to turn the meeting over to Ms. Stephanie Gorman. Please go ahead, ma'am.

Thank you, Bo. Good morning, everyone, and welcome to First Advantage's Fourth Quarter and Full Year 2025 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 2024 Form 10-K and our 2025 Form 10-K 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.

To facilitate comparability, we will also discuss pro forma combined company results, consisting of First Advantage and Sterling Check Corp's historical results and certain pro forma adjustments as if the acquisition of Sterling had occurred on January 1, 2023. The pro forma information does not constitute Article 11 pro forma information. I'm joined on our call today by Scott Staples, our Chief Executive Officer; 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.

Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. Today, we have 5 key messages. First, we delivered what we believe was our best quarter ever with exceptional Q4 results capping off an impressive 2025.

We exceeded our previously updated expectations on all guidance metrics with particularly notable adjusted diluted EPS growth of 67% in the fourth quarter. We continue to be a category leader, supported by our go-to-market success with a robust 17% growth contribution from new logo and upsell, cross-sell, resulting in 12% overall pro forma revenue growth in the quarter. When combined with our diverse vertical mix, consistently high customer retention and focus on cost discipline, it is clear that we are driving outstanding results amid this dynamic macroeconomic environment.

Second, we are pleased to share that we have completed our core integration activities for the Sterling acquisition, and we are seeing the strategic and financial benefits as promised. While we continue to action additional synergies, looking forward, we are turning the page from primarily an integration focus to one of innovation and are committed to accelerating our growth through our scaled strengthened business, which brings me to our third point.

We are executing and in fact, accelerating our FA 5.0 growth strategy. Through our best-of-breed product and platform approach, we are winning with our enhanced customer value proposition and expanded offerings and are poised to capture meaningful opportunities in growth areas such as digital identity, our differentiating co-selling relationship with Workday, ongoing new product releases and international account expansion. Building upon our success in 2025, we are allocating additional resources in 2026 to further accelerate our go-to-market and product capabilities. We expect these actions will drive incremental organic revenue growth and sustainable long-term value creation.

Fourth, today, we are announcing 2 strategic capital allocation actions, both of which are supported by the success of our business, our strong cash flow generation and our confidence in our continued growth.

First, in February, we are voluntary prepaying $25 million of debt, maintaining our consistent trend and commitment to reducing net leverage. Second, we are announcing a new $100 million share repurchase authorization. Our strong position today gives us the ability to both pay down our debt and simultaneously buy back our shares, which we believe do not currently reflect the value of our business.

And finally, we are introducing our full year 2026 guidance. We saw more stabilization across market conditions in the fourth quarter, and we are seeing our positive top line momentum carrying into 2026. This strong performance is reflected in our bottom line earnings as well with our 2-year compound annual adjusted diluted EPS growth rate from 2024 to the 2026 guidance midpoint expected to be approximately 20%.

While we are maintaining a modestly cautious outlook on base performance, expecting it to remain slightly negative for the year, we are bullish on 2026 given our go-to-market and recent pipeline success. We remain confident in our positioning to create long-term shareholder value and deliver consistent progress toward our 2028 long-term targets.

Turning to Slide 5 and an updated view of First Advantage at the end of 2025. We continue to be a category leader in our industry. Our customer value proposition offers differentiated technology platforms, proprietary data and a broad collection of innovative solutions across a comprehensive and diversified range of verticals. In 2025, we delivered impressive full year revenues, which grew from $1.57 billion with $441 million of adjusted EBITDA. Our pro forma adjusted EBITDA growth of 11% with pro forma adjusted EBITDA margin expansion of 170 basis points and adjusted diluted EPS growth of 27% were enabled by the completion of the core integration activities for the Sterling acquisition, successfully delivering on our synergy plan and the execution of our FA 5.0 growth strategy.

We completed over 200 million screens across more than 200 countries and territories on behalf of our 80,000-plus customers with the average tenure of our top 100 customers increasing to 13-plus years. Our diverse customer base includes approximately 2/3 of Fortune 100 companies and more than 1/2 of Fortune 500 companies. Our gross retention remains high at approximately 96% for the year, having risen to 97% in the second half of the year.

We have over 100 integrations with applicant tracking systems and human capital management partners, including our market differentiating global co-selling relationship with Workday, giving us a unique competitive advantage in several of our key verticals.

And speaking of competitive differentiation, this year, we crossed the milestone of accumulating over 1 billion records in our 2 proprietary databases, a 10%-plus increase year-over-year, providing our customers with a more comprehensive, powerful data foundation that enables the speed and efficiency we are known for. Our national criminal record file database now contains well over 900 million U.S. criminal history records and our verified database contains approximately 135 million work history and education records.

Our verticalized go-to-market approach remains a differentiator and a key driver of our growth strategy. We offer deep subject matter expertise in our industry segments, and we use industry-specific data to advise our customers on topics such as leading practices and product optimization.

Our enterprise customers' diverse vertical mix, global reach, mix of hourly and salary focused customers and diligent focus on controlling the controllables make our business resilient and able to perform well through macroeconomic cycles.

On this slide, we have provided an updated view of our vertical mix for 2025. We continue to feel confident in our strategic focus on health care, transportation and retail and e-commerce, which represent our 3 largest verticals, all with near- and long-term growth levers. We believe that each offers substantial runway for new upsell and cross-sell expansion supported by favorable underlying market trends.

Now turning to Slide 6 and a closer look at our outstanding performance in the fourth quarter. We generated meaningful revenue, adjusted EBITDA, adjusted EBITDA margin and adjusted diluted EPS growth with results exceeding our updated expectations.

Impressively, in Q4, our combined upsell, cross-sell and new logo growth rate was 17%, significantly outperforming our long-term growth algorithm target. This was enabled by our robust go-to-market momentum, including material contribution for a number of key 2025 wins and gives us momentum for stable yet elevated 2026 growth.

Retention remained high at 97%. Base revenue performance again improved sequentially, remaining just below neutral and spot on with our expectations. Our go-to-market teams continue to deliver as further demonstrated by our 17 enterprise bookings in the fourth quarter, which brings us to a robust 66 for 2025. Each deal with $500,000 or more of expected annual contract value. These wins 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 expected strong growth in 2026.

Additionally, we are encouraged by the continued strength and increase in our late-stage pipeline, measuring at near record highs, including a meaningful volume that are incorporating our digital identity product. Looking at our verticals in the fourth quarter, our balanced and resilient vertical strategy supported our standout performance despite how headline economic data portrayed the higher environment.

We saw strength in retail and e-commerce, driven by new, upsell and cross-sell along with a stable base with the seasonal peak hiring duration and volumes improving compared to last year and more in line with historical trends. Health care showed nice year-over-year growth driven by new logos, upsell and cross-sell despite notable base weakness in certain health care-related subverticals.

Transportation and logistics saw growth in Q4, driven by positive base demand with strong traction during the peak season. General staffing, manufacturing and industrials and technology also showed positive year-over-year growth in Q4, partially powered by the success in our new logo and upsell cross-sell programs.

Business and professional services, gig economy and financial services verticals experienced some pressure in the fourth quarter, but did not meaningfully inhibit our overall fourth quarter performance. January and initial February order volumes reflect trends generally consistent with what we saw in Q4.

Our international business for Q4 continued to sustain strong year-over-year revenue growth in all regions, giving us confidence in our prospects for further international expansion.

Although macro uncertainty persists in the fourth quarter, we saw many of our customers shifting to a more encouraging tone, and we are seeing this continue into 2026, regardless of the headlines you may be reading.

We continue to remain confident that our diversified mix of verticals, customer segments and geographies provides a meaningful degree of resiliency to AI impacts and will allow us to capitalize on future growth opportunities.

Additionally, we recently completed our annual trends report based on insights from thousands of enterprise-focused HR leaders and job seekers worldwide. The report will be published in the coming weeks.

The data highlights strong demand for expanded screening services, risk mitigation as the #1 new top priority and rising identity-related challenges. as the biggest trend. These trends reinforce our growth expectations and positioning as an identity provider.

Now turning to Slide 7 and a summary of our key accomplishments in 2025 and focus areas for 2026. Our 2025 organizational performance exceeded our expectations. We closed on the transformational acquisition of Sterling in October 2024, and we are incredibly pleased with the results, particularly in regard to customer retention, which has actually improved over the past 2 quarters. Synergy capture and realization, cultural alignment and our best-of-breed approach to technology and products, which has really resonated with our customers.

In 2025, we executed and completed the core elements of our integration process while delivering a seamless customer experience throughout as evidenced by our high retention levels of 96% to 97% during the year, the favorable feedback we received from customers.

We also significantly advanced our synergy realization efforts, reaching $55 million in run rate synergies actions and made progress on deleveraging our balance sheet. We had a number of impressive new logo wins in 2025, providing us momentum as we exited the year and substantial revenues already booked as we enter 2026.

One win in particular, has the potential to be a top 5 customer and has already been driving significant growth.

Adding to our success, we are seeing a very nice trend of winning back some customers who tried the competition and decided to return due to our outstanding platform, proprietary data, speed and service quality.

As we have discussed before, we continue to take a proactive and strategic approach to AI. To be clear, we see AI as an enabler of our strategy, not a disruptor of our business model. We are executing from a foundation of long-standing technology leadership and deep tech experience across our management team.

We have been building and deploying AI data and machine learning solutions since 2021, including Gen AI rollout since 2024. Some of these solutions are behind the scenes, helping us operate more efficiently and some are customer-facing, such as our Agentic AI and chatbots.

We are also accelerating adoption of AI-powered development tools across the organization with hundreds of engineers leveraging AI capabilities to optimize our platform faster than we have ever been able to do. With our progress, scale and strategy, we believe we are well positioned in our industry to be a winner with regard to of where we have deployed AI solutions across our products, technology and operations include the following:

AI is fully embedded in our next-gen Profile Advantage applicant portal, increasing efficiency, improving the user experience and reducing call center contact rates by approximately 50%. AI is also an essential element of our SmartHub AI intelligent router, which is now available for all U.S. customers for use within the verification process. as well as our digital identity solutions supporting our competitive advantage.

We also began deploying AI-enabled capabilities in our criminal records processing workflows to help streamline operational steps, manage volumes and identify items for additional review while maintaining a human-in-the-loop process for all record matching, adjudication and reportability determinations.

Internally, we have also leveraged AI to enhance the productivity of our engineering staff, automate tasks, enhance our product capabilities and help our go-to-market teams with customer acquisition activities.

AI governance is also critical in our industry as we operate in a highly regulated high-stakes environment where accuracy, auditability and compliance are nonnegotiable. Our customers rely on our solutions to make informed employment decisions that carry legal, regulatory and human consequences.

Trust is foundational to our brand. Our screens and verifications must be explainable, auditable and compliant across jurisdictions and geographies and seamlessly integrated into customers' HCM and ATS workflows. What we offer is not simply a software problem or a data search exercise.

What we offer requires deep domain expertise, regulatory infrastructure and a consultative service model that is tailored to the specific regulatory and operational needs of the industries we serve. It also requires knowledge about the complexities of compliance with federal, state and regional laws like the FCRA in the U.S. and GDPR in Europe, along with many subject matter specific regulations like DOT and BIPA, which makes operational scale well beyond software and data, all that more important.

We operate in a fragmented global landscape that often extends beyond the digital world. The data we use is not simply consumed off the Internet. Our platform is supported by thousands of direct relationships for criminal records access, both digitally and many jurisdictions physically, a proprietary third-party network of over 20,000 brick-and-mortar locations for drug testing and health screening and a proprietary network of over 1,000 in-person physical fingerprinting collection kiosks that enable a number of our solutions.

The combination of proprietary data assets with more than 1 billion proprietary records, large-scale proprietary physical fulfillment networks, long-standing compliance capabilities, consultative expertise and deep system integration is difficult to replicate and positions us to continue to responsibly deploy AI, enhance efficiency and create durable long-term shareholder value in a rapidly evolving technology landscape.

Looking at 2026, we have multiple other initiatives in flight, focusing on scaling in ways that continue to improve speed, consistency and efficiency. Our focus is on redesigning key workflows with AI at the center. This includes expanding our use of AI agents, enhancing document classification and extraction capabilities and applying AI-enabled automation in verification and fulfillment processes. all while maintaining disciplined governance to support and ensure responsible and compliance use of AI.

We believe our focused innovative approach to leveraging AI positions First Advantage to create long-term value. Also in 2025 and into 2026, we continue to see strong and growing customer interest in our market differentiating digital identity products, which enable our customers to address the increasing concerns of identity fraud.

Customers are seeing the benefits of our cohesive offering, and it is helping us win in the market, creating opportunities that were not there before. Digital identity is a key selling point for customers despite being a small component of overall contract value. In several recent large wins, we actually started with digital identity as the focus of an RFP, then we were able to significantly expand our scope when our customers recognize the benefits of our integrated solution, driving pipeline momentum.

During 2025, a number of Fortune 500 companies went live with our digital identity product, and we expect to see this momentum continue. We are building on the early successes of these products, and we expect penetration to accelerate meaningfully in 2026 as customers increasingly recognize the need for the benefits of our highly sophisticated fully integrated solutions.

As we progress through 2026, we are well positioned to maximize the benefits of our strengthened business to continue to win in the market, drive synergy realization and further accelerate our performance. Building upon the great success we have seen to date with our FA 5.0 growth strategy, in 2026, we are enhancing our product, sales and marketing capabilities to continue to deliver meaningful, sustained value for our customers and stakeholders. These efforts include further leveraging AI across our product portfolio, increasing our identity fraud-related product penetration, creating brand-new products and expanding our international business.

We will keep you updated on our progress in the coming quarters.

With that, I will now turn the call over to Steven.

Thank you, Scott, and good morning, everyone. I'll start with fourth quarter results on Slide 9. As Scott mentioned, we believe Q4 was the best quarter in First Advantage's history. Our fourth quarter revenues were up 12% versus last year on a pro forma basis, coming in at $420 million, with our year-over-year revenue growth rate meaningfully increasing from Q3.

Our go-to-market success significantly exceeded our long-term growth algorithm as the combined contribution of new logo, upsell and cross-sell revenues delivered exceptional growth of 17% in the quarter, our highest in recent history.

Part of the uptick in Q4 new logo upsell and cross-sell relates to order volume in Q4 from our new wins, part of which would have otherwise been recognized in the third quarter as certain new customers deferred their screening until they were live on our platform.

Into 2026, as these customers ramp, we expect quarterly revenue to normalize and translate into steady, sustainable growth going forward.

Our retention remained extremely high at 97%. We saw more consistent customer demand during the peak hiring season than last year and closer to being in line with historical norms.

The trends in our base performance continued to improve on par with how we had forecast the fourth quarter with base remaining slightly negative.

Adjusted EBITDA for the fourth quarter was $117 million, up an impressive 17% versus last year on a pro forma basis. Our adjusted EBITDA margin of 27.8% exceeded our expectations, representing an improvement of 110 basis points versus the prior year on a pro forma basis, despite being slightly lower sequentially from Q3 due to mix. This mix shift was driven by the sizable incremental upsell, cross-sell and new logo revenue from our go-to-market wins in 2025, which had a larger mix of products with higher relative third-party data pass-through costs.

Overall, our robust revenues were enabled by our continued focus on accelerating synergies, our disciplined approach to cost management and the scalable nature of our business.

Adjusted diluted EPS was $0.30, a 67% increase year-over-year and also ahead of our expectations. The benefits of our greater scale, expense and capital management and lower interest expense as a result of our debt repricing and voluntary debt repayments to date have supported our per share earnings growth.

Turning to full year results on Slide 10. Not only do we believe Q4 was our best quarter ever, but we believe 2025 was our best year ever. Our full year 2025 performance exceeded our most recent guidance ranges for revenues, adjusted EBITDA, adjusted net income and adjusted diluted EPS. This is further evidence that we continue to be diligent and successful at controlling what can be controlled within our business and the resiliency of our diversified business model and our industry leadership position enable us to navigate the uncertain macro environment.

On Slide 11, you can see how we are continuing to make great progress on our synergy program. As of quarter end, we had actioned $55 million in acquisition synergies, moving closer to our total synergy goal. We realized $8 million of incremental synergies in the fourth quarter, bringing our total 2025 incremental realization to $38 million or $42 million realized over the transaction lifetime.

Now turning to cash flow, net leverage and capital allocation on Slide 12. We are incredibly pleased that for the year, we generated adjusted operating cash flows of $232 million, a substantial increase of $67 million or 41% on a year-over-year basis. This impressive performance was driven by the larger scale of our business, the benefit of the OBBBA tax law, which reduced our required cash tax payments and our overall focus on cash flow.

Our cash balance at December 31, 2025, was $240 million. Our synergized adjusted EBITDA net leverage ratio at year-end was 4x and represents a decrease of 0.4x from a year ago when we had closed the Sterling acquisition.

Additionally, as Scott mentioned, today, we are announcing 2 key capital allocation actions. First, continuing our commitment to consistently paying down debt. And subsequent to the end of quarter, this week, we are making an additional voluntary prepayment of $25 million, bringing our total debt repayment since closing to $95.5 million.

Second, today, we have announced a new $100 million share repurchase authorization, which we will opportunistically execute over the coming quarters. The success of our business strategy and the strength of our balance sheet and cash flow profile have allowed us to make the strategic decision to allocate a portion of our capital towards share repurchases.

The reality of our recent repurchases a strategic use of capital that maximizes shareholder value creation and is an opportunistic method to deploy capital in an environment where we believe the market is not reflecting the long-term prospects of our company. Said simply, at our current valuation, this is just prudent corporate finance.

Enabled by the strength of our financial position, we are able to pursue a balanced capital allocation strategy that includes both voluntary debt repayment and opportunistic share repurchases while maintaining our focus on deleveraging, liquidity and long-term value creation.

As we strategically balance our capital allocation priorities, our near-term deleveraging time line may change modestly. However, our long-term leverage objectives remain unchanged, and we expect to continue to reduce leverage towards our long-term target of 2 to 3x.

Moving to Slide 13 and our 2026 guidance. We expect 2026 total revenues in the range of $1.625 billion to $1.7 billion, adjusted EBITDA of $460 million to $485 million and adjusted diluted EPS to $1.25 per share. For revenue, this represents approximately 6% year-over-year growth at the midpoint, with upside potential driven by the success of our go-to-market initiatives.

We expect to expand full year adjusted EBITDA margin by approximately 40 basis points at the midpoint as we continue to leverage synergies and scale our growth. On top of this, we expect impressive adjusted diluted at the midpoint. When compared to our 2024 adjusted diluted EPS following the Sterling acquisition, this represents a robust 20% 2-year CAGR.

Our 2026 guidance builds off the success we had in 2025, including our outstanding go-to-market wins as we maximize the benefits of our stronger business and enhance our competitive strength.

Our guidance includes assumptions for synergies, go-to-market strength, investment in organic growth, shifting product mix and our current view of the macro environment. Specifically, it assumes action synergies within our full year target range of $65 million to $80 million by the end of the year.

We expect our exceptional go-to-market productivity to continue with robust upsell, cross-sell and new logo growth during the year coming in at the high end, if not slightly above our long-term growth algorithm.

As we have mentioned, in 2026, we expect order volumes from our newer win [Audio Gap] course of the year. We expect momentum in the first half of the year, continuing what we saw in Q3 and Q4, driven by the large deals that went live in 2025. We also expect customer retention to remain in line with our strong historical performance of around 96% to 97%

Factored into our 2026 guidance are the impacts of our strategic investments in organic growth, including enhancing our product, sales and marketing capabilities as well as expanding our international business opportunities. While also -- while we anticipate the near-term revenue and margin contributions to be more limited during -- more limited due to the offsetting effects of the investments themselves, we will establish a solid foundation for additional future growth.

We expect growth to accelerate in the second half and meaningfully by year-end, propelling revenue performance and margin expansion in the mid and long term. In addition to these factors, we also expect the more recent impacts of higher out-of-pocket pass-through fees in our current product mix to continue as the newer deals mentioned before roll over into 2026, providing a modest headwind to margin percentages, although dollar profitability of these deals is very attractive.

As it relates to the macro environment, the labor market we broadly serve looks to be more stable entering into 2026, continuing the trend of a relatively flat hiring environment we saw in 2025.

With this in mind, for 2026, we expect that base growth will remain modestly negative between 0 and negative 2% for the year.

Looking at quarterly phasing in 2026, with a more stable macro backdrop, strong rollover from upsell, cross-sell and new logo and our go-to-market growth initiatives driving second half growth, we expect all 4 quarters to have revenue growth rates in the mid- to high single digits.

We do expect base growth to be slightly higher in Q3 and then lower in Q4 as revenue smooths out to a more normalized quarterly distribution, which includes the impacts of the 2025 wins I just mentioned.

We expect Q1 adjusted EBITDA margins to be around 26%. While we have some incremental benefit from the more recent synergies, the impact of revenue mix and initial growth investments impact early year margin appreciation. As revenue scales up seasonally, we expect margins to improve meaningfully in Q2 towards 28% before reaching the 29% range in the second half of the year.

Similarly, for adjusted diluted EPS, we expect meaningful year-on-year expansion in all 4 quarters, with Q1 expected to be at or just above $0.20 per share with a ramp to the high $0.20 range in Q2 and improving to the mid- to upper $0.30 range in both Q3 and Q4.

We anticipate free cash flow for the year in the range of $160 million to $190 million. This notable year-over-year increase reflects our ability to generate incremental cash flow from better working capital management and a significant decline in integration-related costs while also investing in accelerating our growth.

We have provided additional assumptions in the appendix of our presentation. Overall, we enter 2026 in a position of strength with opportunity to continue to build on our success through our FA 5.0 growth strategy.

With that, let me turn it back to Scott for closing remarks before we open the line for questions.

Thank you, Steven. In closing, we delivered outstanding results in 2025 and are carrying our strong execution momentum into 2026. Looking ahead, as a clear leader in our space, we remain focused on consistently winning by delivering best-in-class solutions for our customers. We remain confident in our ability to achieve consistently strong results and are progressing well toward the 4-year financial targets we established during our Investor Day in May 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 Instructions] We'll go first this morning to Shlomo Rosenbaum of Stifel.

Really a strong quarter and the commentary seems like things are improving and getting better. The question I have is to start out with is what are your clients telling you about their own hiring plans? And in particular, how are they taking the AI evolution into consideration? And are you concerned at all that their plans might change on a dime because all of a sudden, they feel that they may not need the amount of people that they were thinking of doing -- having before? Because the business is subject to short-term changes and with the visibility not necessarily as great for when things all of a sudden change on a dime.

Yes, Shlomo, I think I'll start by how customer-focused we are. And I think you know we spend a lot of time with our customers. We are talking to them daily, weekly, monthly, quarterly. We are actively involved in their hiring process and in their planning.

So we have pretty good visibility and a lot of what I would call sample data to basically base our 2026 plans off of.

So what you're seeing in the media doesn't match what our customers are saying. And keep in mind, we primarily have an enterprise focus. So we're talking to the larger customers. I'd say if you look at the media, you'll hear a neutral to negative tone. But when you talk to our customers, we're hearing a neutral to positive tone.

I don't recall a single customer conversation that I've had going into 2026, where a customer has mentioned a decline in hiring. We are only hearing flat to positive. And we're actually also hearing that in certain verticals, which are surprising where you feel like there may be AI disruption. We are not hearing that at all. We are hearing that they're actually hiring more people or planning to hire more people in 2026. So we're hearing a neutral to positive tone from our customers, and that's encouraging.

Okay. And then there was a comment about there was a certain amount of delayed volumes in 3Q that ended up in 4Q because of the timing, I guess, of full implementation. Are you able to quantify what the impact of that was or at least estimate what that was in terms of the revenue growth, they contribute to the revenue growth in the fourth quarter?

Yes, Shlomo, it actually wasn't a delay. What ended up happening is that a couple of customers were waiting to go on board with us and held screening volume back from their previous provider. So it's not really a delay. It's more of a kind of a reflection of the value proposition we bring. And that's why I kind of mentioned in the prepared remarks that there'll be a small flip in base growth between Q3 and Q4 if you're just doing your quarterly pacing because when that normalizes out, we'll just have a shift. And it's not huge, but it's a couple of percentage points probably that shift between the 2 quarters.

We'll go next now to Ashish Sabadra of RBC Capital Markets.

Thanks for providing those detailed insights in the prepared remarks around the more around AI, the AI integration, implementation plans and efficiency. I was just wondering if it's possible to quantify or provide anecdotal example of the benefits from the AI adoption. Maybe if you could provide any insights into like software development, product rollout, customer service? And also if you've started to see any benefit from your AI adoption in terms of new wins and upsell, cross-sell. So any kind of benefits, both internal or external from AI?

Yes, Ashish, I will -- I'll give you a broad answer to that question because it's extremely hard to quantify because it's literally everywhere. And it's embedded in all of our products and in a lot of our new wins. So as I mentioned in the in the prepared script that we've got AI all throughout our product platform, whether it's our SmartHub technology, which has a very large impact on verifications. We actually have a number of wins in 2025 where they have specifically told us that they came to us because of our SmartHub verification product. So it's starting to catch on.

AI is embedded in our digital identity products. And we have a lot of wins in 2025 where a digital identity has been the tip of the spear. It's amazing, I will call it an absolute epidemic right now that customers are experiencing with identity fraud. And our products are really resonating with our customers. So yes, there's been cost savings from AI, whether it's in our customer care center where we don't need as many agents because we're doing things through chatbots. There's been wins because of AI and because of technology. But it's just so hard to quantify because I just think this is the new first advantage. This is -- all of what you're asking is embedded in everything we're talking about from a sales standpoint to an operational standpoint. So very hard to carve out, but I would say the impact is phenomenal.

That's great color. And obviously, it's reflected in the results as well. I also wanted on the solid cross-sell, upsell momentum of 12% in the quarter. quarter. I understand a lot of it is driven by this new win momentum. But I was wondering if you could provide incremental color around what's driving that cross-sell? Are we adding more business units, geographic expansion? And where are you winning these businesses from? So any more color on those fronts will be very helpful.

Yes. Again, keeping in mind that our focus is more on the enterprise side. So a lot of these deals are with the larger companies. But I'll make a couple of high-level comments. First of all, in general, our sales engine is humming. I mean this is the best I've ever seen it. The pipeline is the highest it's ever been. And if you look at our total enterprise new business across new logos, upsell and cross-sell, it's actually up 24% year-over-year. That's a massive increase. And what we're also seeing is our average deal size is increasing. So not only are we winning deals, we're winning larger deals. And I would say these larger deals are more bundled and they're more complex. And average deal double digits. So there's a lot of good momentum on the sales side.

So in general, what's driving it is package density. Package density is booming, I would tell you that right now. So I mentioned in the script that we -- again, we talk about how we're talking to customers every day. But I also mentioned in the script how we launched our annual trend survey just recently. And we talked to literally well over 2,000 HR professionals and very interesting what we're hearing from them. 89% of employers plan to add additional screening products in the next 1-year to 2 years. And a lot of that is driven by the challenging and even at sometimes dangerous world that we live in. And our customers are looking for more risk protection.

So what was also mentioned in the script was risk is now the #1, by far, top priority for our customers. If you ask me that question 3, 4, 5 years ago, it was always speed and then it was cost. Now it's risk, speed and then cost. And that's a dramatic shift. A lot of this has been driven by, again, the epidemic that we're seeing in identity fraud. Again, going back to that survey, which we will release over the next couple of weeks, 76% have experienced falified employment details and 45% have experienced candy identity misrepresentation.

These are huge openings for us, as I mentioned, digital identity as the tip of the spear. But what's beautiful about our product offerings is that we can integrate all of this for the customer. Just think about where we touch. We touch everywhere from recruiting through the background screening through onboarding all the way to I-9 and their first day of work and even beyond through monitoring.

So customers are really liking our product suite because it's not a point solution. It's an embedded workflow that touches all the things that they're worrying about.

We go next now to Andrew Steinerman of JPMorgan.

This is Alex Hess on for Andrew Steinerman. I wanted to just ask a quick question about the margin guide for 2026. Can you walk us through some of the puts and takes there, how to think about the degree to which you're reinvesting and sort of the why now behind reinvesting so much of the -- what seems to be the cost synergy benefit as well as can you highlight any of the mix headwinds from newer logos? Maybe unpack that a little more.

Yes, Alex, good question and obviously, kind of a core theme of the guidance that we talked about. So a few factors that are headwinds and tailwinds in terms of just margin percentages. But overall, really feel good about the net dollar productivity at a margin. So I think we've talked about margin mix for the last couple of quarters and especially with some of these newer deals and the verticals that they're in and the product suites that were sold, there is just a relatively higher mix of those out-of-pocket fees, which are all pass-throughs to the customer, but that do dilute you on a margin percentage basis. So that's certainly a factor in there. And we -- you saw that a little bit in Q4.

And obviously, as that rolls over through Q1, 2 and 3 next year, that will normalize out a little bit. obviously, spending some work, the initiatives Scott talked about automation and some of our data products to try and offset some of that, but that's certainly a factor. On the headwind or the tailwind side, we'll have some of the rollover from synergies and incremental synergies. But as you called out, we are prioritizing some incremental investment.

And I think the rationale there is really we see ourselves creating some really strong competitive differentiation. If you look at some of the HCM and ATS partner success that Scott highlighted in the prepared remarks, some of the product success and really just using the success of the integration, the stability in the customer base and looking at how we're positioned in the market right now. It's just an opportunistic time to invigorate incremental growth by putting some dollars towards product, sales, marketing, which are areas that we've invested in the past and always seen really strong returns out of.

And Alex, I'll just add on why now. As I mentioned, we're talking to our customers every day, and they're sending us really good buying signals. So it's -- why now has really become an easy decision for us. We've got actual pipeline that will -- that is backing up a lot of these investments that we're making. So we're not making these investments in a build it and they will come model. We're actually making these investments with already defined pipeline where our customers are saying, if you build this, we'll buy it. So these decisions actually became pretty easy, but that gives you a little more color on why now.

Got it. That's super helpful. And then as we think about those -- that pipeline of defined investments, can you walk us through internally how you think about the payback period that's required to make incremental investments back into the business? Is this something where in -- we see the momentum on the top line continue into '27 because of these investments? Or is this a '28, '29, 2030 type of payoff?

No, yes, you'll see impact in the second half of this year. There'll be some in-year impact because of these investments. And they certainly will carry into '27 and '28. And the good news about a lot of these investments is we don't think we need to actually do them again in '27 and '28. So that would -- that's going to help EBITDA in the future as well. But Steven, you might add a little more color.

Exactly right, Scott. I think, obviously, you invest early in the year. We expect good returns in the second half of the year. Like a lot of our go-to-market success, when you have that back half of the year success, you get the rollover impact into the future periods. And like Scott said, these aren't -- a lot of these aren't permanent additions. These are either onetime development exercises or rebranding and some other stuff like that of making sure that we can accelerate over the short term and then create long-term value.

We'll go next now to Andrew Nicholas of William Blair.

This is Daniel Maxwell on for Andrew today. I was wondering if you can give a little more detail on how you're thinking about the ROI from each of your capital allocation priorities heading into the new year. Definitely sounds like repurchases are incrementally attractive at this price. But is there a willingness to sacrifice some free cash flow that would go to deleveraging in favor of repurchases? Or are those truly not mutually exclusive?

No. As you heard in my prepared remarks, it's an and equation, not an or. I think we're very fortunate. We've got a -- you heard our free cash flow guide of $160 million to $190 million, finished the 2025 with $240 million of cash on the balance sheet. We generated $70 million of net cash flow last year in 2025. So we're able to -- as you heard us announce, pay down $25 million of debt this quarter and able to also announce $100 million of buyback authorization. With the buybacks, we'll obviously be a little bit opportunistic there at the current valuation levels. It's very accretive from an EPS and just any kind of corporate finance math you run, it makes sense to do share repurchases at this valuation, especially with our numbers and P/E ratios and things like that.

But we have the ability and flexibility of generating good cash flow the success of the integration, we talked about this on the prepared remarks, but to finish the integration with 96% to 97% customer retention, curtailing a lot of the onetime expenses and now having strong free cash flow into the future, it was an opportunistic time to look back and say, we don't think we're being valued correctly. And if the market doesn't correct, we'll happily buy back some of those shares. But it's not to the sacrifice of debt prepayment. We'll do both at the same time.

Great. That's helpful. And then as my follow-up, you guys had some good commentary on which verticals were doing well and which are still kind of lagging moving into the new year. I was curious if there's -- there were anything in the quarterly results that kind of came as a surprise, particularly on base growth front or if there was especially strong momentum in any given area on the sales front?

Yes. I mean just a couple of things there. One, what we were happily surprised about was the quarter resembled what our normal peak season would look like. So if you recall, we had back-to-back years of a sluggish peak. We had a great peak. It started when we thought it would start. It lasted well into -- well past Thanksgiving into December. We had a great December as well. So peak was very encouraging, and that's great for retail, e-commerce, transportation. They're all kind of aligned there. I don't think we had any surprises either negative or positive across any of the verticals. They all kind of came in line with what we thought. And I think geographically as well, as we mentioned, our international business was firing on all cylinders across all regions, not singling out a single one as a star performer or a laggard. They were all firing on all cylinders, which was great.

So I think the signaling to us that the peak season was back was great. It obviously made for our best quarter ever in Q4. It's just -- I think what's interesting maybe is it sort of goes against what you read in the media or you're seeing and hearing because this is not what our customers are feeling.

We'll go next now to Manav Patnaik at Barclays.

This is Ronan Kennedy on for Manav. Can you please talk at a high level to the puts and takes that would take you to the respective low and high end of the guided revenue range, whether it be the macro and your base or cross-sell new or other components, please?

Yes. Ronan, and you kind of hit on the 2 main ones. So certainly, as we talked about 6% growth at the midpoint, kind of assumes that flat hiring environment, as I shared, embedded in the range at the upper and lower end is we think base is still between 0 and negative 2%. It's that continuing flat environment.

Obviously, there's still all the policy uncertainty that comes out of Washington these days that could always move that towards that upper or lower end. But as Scott just mentioned, we're hearing very positive tones and very consistent tones across the enterprise customer portfolio. And then certainly, we've got good rollover momentum going into 2026. So we feel good about delivering higher end of our algorithm on the new logo and upsell, cross-sell front. But as we have our deals that are already in pipeline, how those ramp plus the investments we're making and the incremental growth that we can get there, that's what pushes us probably from that midpoint towards the upper parts of the guidance range would be the success of those as well. So -- those are really the 2 main factors.

We are very pleased with the consistency and stability within retention. And that part of the algorithm, we don't take it for granted, but it's such a core part of what we do here and our focus on our customers that, that 96% or 97% retention number can be modeled in very consistently.

Got it. And then on the synergies, can I confirm, I think you've actioned $55 million run rate as of '25, targeting the $65 million to $80 million. Can you reconfirm reported synergy benefit realized in '25 4Q and what the guide assumes for synergy realization benefit?

Yes. So you're right, Ronan. So as of the end of the year, we had actioned $55 million of the $65 million to $80 million target. $8 million was incrementally realized in Q4 of 2025. If you recall, when we closed the deal on October 31, '24, we did some day 1 synergies and realized $4 million in 2024. So that $8 million is incremental to that. So for the year, the incremental synergy realization was $38 million.

Okay. And what's assumed for the realization for '26?

Yes. I mean, obviously, we have some rollover from what we've already actioned. Our first priority for the year is growth. The synergies, we said we'll get to the targets by year-end. It's probably more second half of the year when we action those synergies just because as we've talked about on some of the last few questions, we're using 2026 and the momentum we have going into the year to help propel incremental growth.

We've got a great action plan on getting those synergies, which are primarily in cost of sales and optimizing data acquisition costs and things like that. But we know we'll get it. We'll just be a little later in the year. That's just kind of the balance of growth versus synergies.

We'll go next now to Jeff Silber of BMO Capital Markets.

I know it's late. I'll just ask one. You alluded a few times in your prepared remarks to the digital identity practice. Is it possible to quantify that for us either as a percentage of revenues or growth? And what's embedded in guidance for 2026?

Yes. I think it's becoming harder and harder to quantify because it's embedded in a bundled solution. We will try to give you some sort of quantification of the impact of Digital ID probably in another 6 months. We just let this pan out a little further. But there's really 2 aspects to it. There's one where it can be quantified as a stand-alone operation and two, where it's embedded in -- with a number of other products a little harder to quantify. But I can tell you anecdotally that it's having a tremendous impact on the pipeline and our -- and a number of go-lives in Q4 with very large customers.

So one, we're going to get a quantification of a revenue lift Two, we believe it also brings a lot of stickiness with it. So it should even help retention because now you're really embedded with a customer when you're handling their Digital ID all through their background check and onboarding. So we will give -- try to give you a little more quantification flavor of that in about another 6 months, but I can anecdotally tell you it's having a really nice impact.

We'll go next now to Scott Wurtzel of Wolfe Research.

I'll just ask one as well and actually on Identity too. Just in the context of like mix impact on margins, what sort of -- I guess, what sort of impact does identity have on margins, I guess, relative to some of the other products that you have?

Yes, go ahead, Steven. Yes.

No, it's certainly a higher-margin product because you don't have to go out and acquire court data or driver record data or drug screening costs, things like that. So it is a higher-margin product. It's really a core tech service in its heart. But as Scott mentioned, it's getting harder and harder to break apart the discrete impact of it because it's either embedded and bundled into other services. And to Scott's other point, it's driving and it's the reason a lot of customers are looking at and/or choosing First Advantage.

So you could argue it's tremendously benefit from a margin standpoint because you're winning opportunity, it's almost a marketing mechanism at this point.

We'll go next now to Kyle Peterson with Needham.

Nice results I'll just ask one as well. I wanted to ask a little bit on upsell, cross-sell, particularly package density. That's been a really nice tailwind for you guys for quite a while here. I guess if you guys had to guess what inning would you say that we're in here? Like is there still a lot of progress? Is this going to continue to support pretty sustained growth over the next couple of years? Or a lot of the packages kind of fully densified? Just any color as to where we are would be really helpful.

Yes. Staying with the sports analogy, Scott. I would say that actually, the game has started all over again. So where we were probably a year ago is maybe halfway through the game. But I'd say the game has completely started over. So it's first inning of the next generation of package density with digital identity being at the center. It's also -- I hate to say this, but turn your TV on it night and the world is very challenging right now. And as I mentioned with our trends report, risk and risk mitigation has leapfrogged to our customers, our buyers' #1 concern. And what that then means is package density because they're just looking for more and more protection. They want to protect their employees. They want to protect their brand. They want to protect their offices, their physical infrastructure. They want to protect their shareholder value. So any time we can come up with more data searches, better data searches, we can come up with new offerings, new product lines, new ways of doing verifications, new ways of doing identity, we seem to be catching a very welcoming ear at our customers because their C-suite and their boards are continuously asking them what else can we be doing.

So I'd say the game has started over with digital identity being the cleanup hitter in your metaphor, where it's really an epidemic right now and First Advantage is really in a good position.

And ladies and gentlemen, that is all the questions we have today. So that will bring us to the conclusion of today's conference call. We'd like to thank you all so much for joining the First Advantage Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. At this time, you may disconnect your line, and have a wonderful day. Goodbye.

Good morning. Thank you, and I'd like to welcome everybody to JPMorgan's Ultimate Services Investor Conference. I'm Alex Hess from Andrew Steinerman's Business and Information Services Equity Research team here at JPMorgan. We're super excited to kick off the day with Steven Marks, the EVP and CFO of First Advantage. Welcome back to Ultimate Services, Steven. Great to have you kicking this off with us.

Always good to be here.

Great. So let's start, Steven, First Advantage is 1 year into the Sterling acquisition, which in many ways, felt kind of more like a merger, I think sometimes we've accidentally slipped into using that term. As you assess what you've accomplished in year 1 and what's been pledged, what have you learned from your seat as CFO? What's gone better than expected? And what's proven a little harder than thought?

Well, it's all been a lot of work. It might look nice and pretty on the outside sometimes, but it's been a lot of work and a lot -- we've got 10,000 global employees and trying to get everyone oriented in the right direction and not losing customer-first focus has kind of been key. I think what's gone right, I think the best evidence of what's gone right is look at our retention numbers. When we -- what we liked about the Sterling deal was both businesses, First Advantage and Sterling, averaged roughly around 96% gross revenue retention. And in our M&A models, that our industry hasn't been great at it.

We assume there would be an incremental level of attrition. Inevitably, customers get scared of it, want to diversify their spend potentially or you're going to make some hiccups in the actual integration that's going to make them angry. And because our integration focus was so much on preserving the customer experiences, preserving the customer success team and actually trying to make their customer experience better, not worse, better, not cheaper. We've actually been able to take that 96%, sustain it and then just in this Q3, actually elevate it up now to 97%.

And I think what we learned from that is it's good to do an acquisition in our space where you have 2 big companies that you can bring together, and you don't have to force some of the old habits of this industry. So old habits would be taking all your customers off of one platform, forcing them to migrate to a new one. That means they have to redo their integrations, redo their implementation, change their workflows around. And when you make a customer go through all that pain and suffering, they're also just going to put their work out to bid saying, if I've got to redo an implementation, why don't I go to someone who's not going to make me change something I don't want.

So because our integration was built around not doing that, which is always fun to say how core not doing something is to your strategy, but how critical it was to not force those migrations and the fact that we were able to get all of the synergies, which I think is one of the other things that's gone really well, deduplicating 2 public companies never been done in our space. Deduplicating the 2 -- it's the largest deal ever in our space. So you have 2 5,000-person plus enterprises and a lot of overlap in the administrative functions and back office.

And then we've been able to get the rest of the synergies out of optimizing the back-end fulfillment and not modifying the front-end customer experience. I think when you focus on never losing track of the customer and not forcing the customer to make changes you know they don't want to make, that's what's been the biggest win for us. And obviously, yes, I mean, 12 months and 3 weeks later, customer retention is at all-time highs. Obviously, we're also seeing really good success on the go-to-market front. So future and prospective customers really buying into the story and the value proposition. And I think, obviously, as a CFO, the synergies and cash flow are now following suit.

And then maybe what's proven a little harder than expected?

Well, I think it's been a lot of work. A, I think not every synergy that we had modeled out has come perfectly. Obviously, not every vendor that we thought would want to reharmonize contracts and do things like that would work. And having to just make sure we get the right -- not -- the culture has been a fairly good match, but get the right communications and engagement with employees -- in fact, that's been one of my big shifts is focusing on employee engagement, not communication.

We spent a lot of time telling our employees things. Now we have to do a little bit more listening. I think it's just getting back to the basics then because we spent so much time in the adrenaline rush of post close, making sure that we can sustain a normal business operation.

Got it. That's really helpful. And then we're going to be a little cute here, but like you guys borrowed to fund the merger -- acquisition. See, I did it. And you're presently on your calculation, 4.2x net levered. Your target is getting that down to about 3x within 24 months of acquiring Sterling. So that's in -- let's call it a year, let's call it, by year-end '26, right?

5 quarters, yes.

Right, 5 quarters from -- since you last reported. So can you walk investors through what sort of the path is from here down to there? Is it going to be EBITDA growth, debt paydown? Just any sort of color you can provide on how we actually see that leverage ratio trend towards where you pointed it.

Yes. Well, a couple of really good things [ I know ]. One, and this is probably going to blend into one of your next topics. As we've seen the base volumes normalize, the rest of our growth algorithm takes over, and we can start growing again, right? We spent so much time over the last 3 years watching the hiring markets return back to normal, which reflected as negative base growth at a pretty meaningful level, and we weren't able to outgrow those numbers.

We've now seen as base growth has gone from negative 5.5% in Q1, 3.7% negative in Q2, now only 1.8% negative in Q3, we've been able to overcome that because we can generate around 9% upsell, cross-sell and new logo combined. And as we're at 96% or 97% retention, we're able to kind of start to turn that into growth numbers. So we grew by 4%. So incremental revenue has a really nice gross margin to it and falls through at a good pace.

So scaling the business as we action and achieve synergies and start to execute on those and start to realize not just the EBITDA gains, but the cash flow gains as well. And then cash flow is really the other big driver. You saw our numbers in Q3, $72 million of GAAP operating cash flow. Adjust that for the onetime spend related to the acquisition, it was $81 million. Those are really strong cash flow numbers. First Advantage has always been very cash flow oriented, very high quality of earnings oriented.

So as we scale the business, achieve the synergies and generate cash flow and whether we pay down the debt, which we've been doing every quarter or just -- or start to build up a little bit of cash just for seasonality, et cetera, either way on a net cash basis, you're bringing your leverage down. And we see us getting towards that 3x margin by the end of next year. It might not be all the way down to 3, but we should be getting really close to that. And I think we've started to see a big step improvement just from Q2 to Q3 because of the cash flow generation, because of the revenue growth expansion, because of the EBITDA.

We've been able to really start to put some work into the number. And then just like we talked about a long time ago, 2026 is the year where all of those things are -- you're out of the shadow of the acquisition. I don't know -- but you're out of the shadows of the acquisition. You've got all of the synergies starting to roll through your P&L. You should both see the cash flow expansion and the EPS expansion, which kind of go hand in hand.

Yes. So that's a great sort of way to pivot to our thoughts on our question on operating leverage. This year -- and keeping in mind this year, you're normalizing some of the base in the back half still. But your guidance points to, call it, $38 million, $39 million of year-on-year dollar EBITDA growth. And your realized synergy guidance, $33 million to $38 million. So most of that incremental EBITDA you're sort of pointing to being from synergies. As we move into next year, you'll have lapped a lot of the very lowest hanging fruit. How do you think about like what your operating leverage profile looks like going forward?

Yes. So if you look historically, we've always been able to scale revenue growth to the bottom line at a very accretive manner. This year, there's obviously a few unique challenges. We had a -- just had completed a large merger, right? We're bringing 2 customer bases together, had to prove our value to those customers. So some of the normal levers you would normally pull, whether it's a CPI-type increase or a few other things on price, we decided to be very, very cautious or kind of wave this year, just to make sure we didn't inflame a customer base.

We didn't say you never want to be the person who does an acquisition, tell them how great it's going to be and then immediately raise prices. So we wanted to make sure that we could prove our value, prove the stability of our platforms, start showing the upgrades that we've been bringing out, whether it's rolling out enhanced customer care functionality to one side of the business, new product propositions to the other, more -- better turnaround times because we're able to utilize proprietary data that one or both companies had.

So we wanted to prove out the model a little bit. We can start to flex some of those levers a little bit more next year, and that's kind of back to business as usual. And then I think also just being in a period where optimistically -- or realistically, to be honest, you have stabilized base.

We have really good go-to-market success, a really strong pipeline for incremental revenue generation out of that upsell, cross-sell and new logo and strong retention, you get to -- where our algorithm works out to revenue growth. And when you have consistent quarterly revenue growth versus -- Q1 was a little bit of a revenue decline, Q2 was really in almost a total revenue neutral state, you can actually start to accelerate the business and then get the accretive margins that you're talking about.

Complete the thought, Q3 was obviously revenue growth like on sort of hedged revenue growth that's...

Yes, correct.

Yes. So you are growing revenue. I think some people look at the base number and they forget that the total -- look, the business is growing.

Correct. We grew almost -- like I talked about, almost 4% in Q3. And then I think if you look at kind of what the guidance implies for Q4, there's some opportunity to accelerate that just because we've got so much coming into the revenue pipeline. We've got these 3 big deals we've been talking about all year, which was our largest international win in some time, a big financial services win in Australia, then 2 big wins in the U.S., one in the retail gig space, one in the health care space. All 3 in Q4 will be up and running and ramped, which when you have deals like that, the 2 latter in the U.S., top 15-ish customer size potential. So you have those coming into revenue. Our normal schedule, 9% new logo upsell, there's potential room to accelerate that in Q4. And obviously, that rolls over into next year.

Yes. So let's talk on those new wins real quick. As I think about it, it's 4 big contracts, but maybe looking out another quarter or so, you've got the $100 million ACV contract -- I'm sorry, it's $100 million total contract value.

That's a renewal, but yes.

Excuse me. Yes, renewals counts. And you've got these 3 large new wins that you've talked about. But explain maybe a little bit about why these customers picked First Advantage and what it is that they actually bought. Unpack for us like what you sold them? Is it the meat and potatoes? Is it the new bells and whistles?

Yes. I think in all 3 of those examples, it is our base -- it's the core services we offer. It's the background screening. Now a couple of those, just given the verticals they're in and some of the needs, have also bought some of the ongoing compliance services, whether that be a company that has a fleet and what we do around driver monitoring and records monitoring and compliance there.

And then in the health care space, also, there's a suite of services we offer that focuses on the annual compliance needs of a health care company. But in it's core, all 3 of those bought our core services. All 3 came from a completely different competitive situation, right, wins from all different spectrums of our competitive environment. And that's what we like about it. I think it's -- there's not a single thing working well for us. It's a lot of things working well for us. Retail gig, gig is not a place, as you know, First Advantage historically spent a lot of time. That was one of the nice things we learned from Sterling is that you can operate in gig at a good margin and win some good contracts.

Health care has been a strength of both companies for a long time. And then international, we are, if not the largest screener or the second largest screener I think in almost every major geographic region we operate in now. So I think it's -- our scale is very much noticed. Our product and the applicant experiences, the data underlying the products is resonating really well. I think that was one of our internal thesis for doing the acquisition is you really have an opportunity to create yourself as a market leader. And we're starting to be able to use that positioning in the market to really help accelerate growth.

And I think we talk about this on all of our earnings calls, the number of enterprise contracts we've won. Enterprise for us is $0.5 million or more in ACV. It was $17 million this past quarter. Q4 of last year was $25 million. That was the largest ever pro forma number or not that the companies have posted ever for the number of units. Q1, we then broke a record for the dollar amount, which is when we booked a lot of those larger deals.

So the pipeline is working really well. I think the market story is resonating, obviously, with the buyers in our market, which is, again, when you think about an acquisition of this scale, to have retention levels that are sustained, if not accelerating and then to have go-to-market success, your existing customers value the story you're selling and then also prospective customers are valuing the story. So we look at that as a home run.

So with that in mind, a core theme from your Investor Day was your ability to move -- and your opportunity to move upstream and downstream in the hiring cycle that is with identity at the very front of the process with I-9 and WOTC on the back end, post-hire compliance services you've touched on briefly. Can you sort of walk us through how penetrated these services are and some vague -- not vague, hopefully, but some sort of sense for that? And then what sort of your license to win is in those spaces?

So there's room to grow everywhere. I'll put it -- if you recall, pre-IPO, First Advantage used to regularly disclose a customer that was over 10% of revenue. If you look at a customer like that, there is white space on that customer because they are -- they were not and still aren't consuming every service we have to offer. So there is tons of room and certainly at the enterprise level in our managed accounts, we have customer-by-customer white spacing on which products they're consuming, which ones they're consuming elsewhere, which ones they need to be upgraded to.

And we see room to grow in all facets for all customers. And whether that be on the kind of the digital identity, and we'll come back to that in a second, whether that be on the post-employment. So whether that's, to your point, your I-9 services on your onboarding product, WOTC tax credits, which is doing really well just because of everyone wants to generate a little extra cash if you can.

And certainly on the post-employment compliance and transportation like we talked about, in health care, in financial services, those regulated and compliance-focused verticals love those products. And the reason, to your point, to your question why they like doing with First Advantage is it's all happening in the same user experience and the same applicant experience and the same dashboarding. So when you're onboarding a candidate, they're filling out information what they think is for the background check. They're getting prequalified for a WOTC tax credit. They're answering a couple of extra questions that get them set up to do their I-9.

You don't have to send them to 8 other websites to go do it. So your completion rate is very high, the customer experience, it's very quick to onboard, et cetera. So it creates for a really strong value proposition. And then frankly, there's white space to grow all the customers and package density, increasing the quality and the depth of the screening they're already doing.

But then if we want to go back to just digital identity, that's obviously the new frontier. Obviously, kind of rolled that out and announced it really at the Investor Day, have started to see the market interest continue to grow. People don't realize how rampant the fraud and risk of AI are -- what they're creating in the hiring markets, whether it's fake candidates, whether it's people using synthesized IDs or credentials.

So we see it, frankly, a lot. So we're optimistic about the future that creates. But I've been telling people a lot the last few weeks, there's a number of, I would call them, case studies internally where we never would have even been introduced to the company if they weren't considering buying digital identity, and that's opening up bigger opportunities for their whole screening program as well. So I can just think of an example that came through the office a couple of weeks ago and maybe about 10% of the program in rough terms is digital identity.

They wanted that. It started with that discussion, and it opened up the other 90%, which is their screening program. So now we have an opportunity at the whole thing on a logo that we've been hunting down for years. So it's creating not just the bespoke opportunity for digital identity, it's creating more opportunity to grow from an overall services standpoint.

Yes. I think that's sort of consistent with how we think about this is it's a hook.

Correct.

It's -- you guys have a business that's monetized well. It's got a good monetization model in the background in the preemployment background screening and this gets a customer to consider First Advantage, perhaps, maybe that matters a bit more so than the immediate or near-term revenue penetration rate.

It's certainly differentiating because there's just not really any other competitors in our space that have the solution fully baked and ready to go to the market. There's 1 or 2 that are starting to talk about it, but not at a level that it's ready to be consumed at today. I think we're obviously in a very unique demand cycle right now because, I mean, we just hired a new CMO actually the week of our investor conference. So she didn't have time to have Wall Street Journal put out the article talking about north -- the 300-plus corporates in the U.S. that hired from someone from North Korea and didn't know about it. But those types of stories are creating the incremental demand for us, which makes it easier to sell. You don't have to educate and market to the market. It's kind of wanting to consume the services quickly.

Yes. And I think you've talked on this before, how you can now create sort of -- AI has created new vectors for corporates to be worried about their impersonation and things like that. So we should talk on AI for a second. And just briefly, you guys speak to a lot of employers. AI is front of mind. The sort of interspersion of AI into the labor force is obviously in a lot of people's minds. What are you hearing about AI's impact on labor demand in your client conversations? Where is this coming up a lot? Or where is the total size of the show? And how does that differ across various client segments?

Well, I think every company is talking about it. I think how it impacts the verticals is very different. And we operate, as you know, in a wide spread of verticals. I would say the ones that are talking about it in earnest today are your BPO, your IT outsourcers and to a much smaller extent, some staffing because those are the ones that are seeing the immediate impacts, right?

If you run a company that does offshore call center work, the demand for those services has gone down. Just like we've rolled out our CLICK, CHAT, CALL and kind of used AI-enabled chat and voice to help optimize our call center and to the benefit of better customer experience. A bunch of other companies are doing it. It's not a unique proprietary idea at First Advantage.

We don't have a lot of customers in that space. So it's not materially impacting our results, but they're certainly hearing from those customers that demand is down, and they're actually trying to kind of reorient themselves to be the AI providers in call center space versus be the call center space guys. So I think those verticals will have a tough go of it. We're already seeing it. But again, it's not going to materially impact our results because it's a small piece of our business.

And I think if you look at it, I mean, all of our customers are talking about AI, but I think where it's really impactful and where they see it going is a lot more to do with their administrative functions than it is their core fulfillment model. So you read about in the news a lot. Obviously, we have a lot of customers in the space. Some of the articles you read our customers, some are not. But you start to look at the underlying story lines there, a lot of HR jobs, a lot of finance type jobs, a lot of administrative and back office are what is being impacted by the LLMs and the GAI today.

When you think about that and the scope of hiring, it's pretty limited. First Advantage, we're investing it internally. But if we use AI to optimize our total rewards and compliance department, that's 5 people. They're very long tenured. They're great people. So maybe there's a hire there every other year that AI takes that out, okay? So that's 1 hire or 2 hires every -- a couple -- in a decade. That's not going to impact our core revenue. So when you think about these larger companies in like transportation home delivery, and you read -- some of the customers you read about in ours and not, they're optimizing the back office.

That's -- we do some of that work, but it's not the core work. The core work is the drivers, the warehouse staff, nurses, the doctors, not the billing staff and the admin staff at a hospital as an example. So it's certainly impacting companies and how they think, but it hasn't really had any signs of impacting the core hiring in our core verticals.

And that's true in the white collar space as well because you did become a bit more white collar with the Sterling combination.

Yes and no, because if you think about what is white collar, a, health care. And I think that, again, you're seeing it in the back office, you're not seeing it in the nursing and janitorial and all the things that go into running a hospital and the clinical. You're probably seeing it a little bit in financial services. I mean the big banks, they're onboarding classes or the consulting firms are onboarding classes maybe a smidge smaller than they were before. But I think that those industries, I could tell you as a guy who does a lot of work as a CPA and working with the AI CPA on a few things, everyone can't go from being a college graduate to a partner either.

So these companies do have to build out pipelines of employee staff and you can't have 0 freshers and college grad hiring. Otherwise, you have no pipeline for the future generation of thought leaders. So I think all of those verticals are still struggling with what the new normal is. But we saw really strong early year results, really stable demand there. And I think we talked about this on our earnings call, AI will disrupt many jobs, right?

There's a World Economic Forum that came out. It's going to disrupt a fair number of jobs, roughly 90 million they estimate over a 5-year period. But it's also the technological advancements, human -- just where people live, how they live, just the demand for jobs is going to generate about 170 new. So net-net, they expect to add jobs to the markets, not remove overall.

So I know we've spent some time on this, but I do want to just sort of drill down a little more. How much of this and this discussion around AI is truly incremental versus how much is it -- look, companies are always automating. There's a little bit of a new vector for automation, but automating is a fact of life in your game. It's a fact of life for job seekers that -- how much is this really new news versus how much is this a nice wrapper around a mega trend that's gone on for decades?

I think it's a little bit of both. So if you look at First Advantage, we've been doing RPA for over 10 years. That evolved into machine learning. That's now evolving into AI. So it's a continuation of the -- to your point, the cycle that a lot of companies have been going through about using AI to run their businesses more efficiently, to scale, to grow, to generate new products, et cetera.

I think what's a little different of it is, and that's why I think we're seeing more of the impact on the administrative functions is it's a little quicker to implement. We've got tools now at First Advantage on our FA studio where you can kind of build your own agent, but it's being used more on the administrative functions because you can build your own small-scale finance bot or HR bot or legal bot to kind of review contracts.

So I think that's where the -- maybe the big megatrend difference between a machine learning algorithm where you're writing one algorithm to cover mass -- a large-scale mass, mass process versus AI can be used in a lot more discrete bespoke uses. But I think, again, when you relate that to the underlying demand, that's impacting the administrative hiring of companies, which is a fraction of what we do for most companies and not their core hiring, which is store clerks, warehouse workers, delivery drivers, nurses, et cetera, et cetera, et cetera.

Understood. Understood. So I want to maybe tie all this together with a question on the labor market and where we stand. I recall at Investor Day, you noted that you like to look at the ratio of unemployed people -- unemployed persons to job openings, which is sort of oscillated around the 1:1 for much of the year prior to the shutdown, we don't know in recent months, but presumably it hasn't deviated too much from that. What does that ratio tell you about the current state of the job market, the stability from here? Any sort of other insights about the supply/demand maybe being a little better matched?

Yes, I mean 1:1 is equilibrium, right? Where we left after the pandemic when we peaked at 2.2 openings per 1 unemployed, that's unsustainable, right? I mean it was great for about 24 months of base demand because there was this constant churn and hiring and movement of staff as you try to fill every seat that was out there. But it's not sustainable long term. I mean if you zoom out and look at the data, -- and yes, I mean, you'll get a little data on Thursday or Friday, we've already told you our Q3 was pretty good, as you know.

So I imagine that data will kind of mirror that a little bit. But when you zoom out and just look at that ratio over time, 1:1 has really been that balanced comfort level where you're able to have stable job demands in the U.S. You've got an opening for every person in theory seeking it. It creates enough churn that drives our base growth, which we like, but it's sustainable, right? Companies aren't lighting their hair on fire or worried and things like that.

So hard to tell you how the data is going to look, obviously, the response rates and things like that. So we like to look at that BLS data on a more zoomed out level these days and not look at any 1 month's results and let that change our strategy. But 1:1 is a very balanced level historically. And if you look at how we've been able to grow in environments where it's 1:1, that's -- ultimately, if you can get that stability over a period of time, our base growth stabilizes out. And then as we talked about, the new logo upsell, cross-sell engine keeps on humming and then our retention numbers are at record highs.

Excellent. That's super thoughtful. So Steven, I think we've touched on a lot of the topics that you guys have touched on in recent earnings calls in your Investor Day. But maybe just for some food for thought for people in the audience here or people listening in, I want to ask a big picture question, sort of wrap it up in the last 2 minutes we have. When we have this fireside chat again next year, what's something you think isn't fully on investors' radar that will be highly impactful to First Advantage at that time?

Well, I appreciate the invite because not normally scheduled, that's early. So it's good. I know we'll be next November. No, I think a couple of things. One, I mean, obviously, I think -- when I think about where we're positioned today and what the next 12 months should really look like, a, we talk about on our earnings call. We've got a lot of big wins that are hitting revenue. We've got a really strong pipeline. We got a lot of contracts that are going to start ramping up. So we should be celebrating a really strong LTM period of new logo and upsell, cross-sell growth.

Obviously, our retention numbers are at highs, and we don't intend to do anything to risk those. So you think about the controllable aspects of the business, we should be able to drive those growth vectors, whether that's new logo, upsell, cross-sell and the retention. And then we see this consistently flat hiring environment persisting into next year. Obviously, that's not a tailwind of base growth, but we don't see any new headwinds coming at us yet. Who knows how -- what comes out of Truth Social or Twitter in the next 12 months.

But I think between that, and we should be celebrating the 2-year anniversary and kind of the "completion of the integration." So we should have a lot of synergies, a lot of cash flow and a lot of go-to-market success to be talking about and then really talking about what the next phase of FA 5.0 is.

Any insight on what the next phase of FA 5.0 is?

I think it's going to have a lot to do with digital identity and kind of shifting the approach towards how do companies know your people better.

Great. Thank you so much for your time today, Steven. We're going to wrap it. Thank you, everybody, for joining us.

Thank you, Alex.

Good day, everyone. My name is Sabrina, and I will be your conference operator today. I would like to welcome you to the First Advantage Third Quarter 2025 Earnings Conference Call and Webcast. Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. [Operator Instructions] Please note, today's event is being recorded. It is now my pleasure to turn the call over to Stephanie Gorman. You may begin.

Thank you, Sabrina. Good morning, everyone, and welcome to First Advantage's Third Quarter 2025 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 2024 Form 10-K and our Form 10-Q for the third quarter of 2025 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. To facilitate comparability, we will also discuss pro forma combined company results consisting of First Advantage and Sterling Check Corp. historical results and certain pro forma adjustments as if the acquisition of Sterling had occurred on January 1, 2023. The pro forma information does not constitute Article 11 pro forma information.

I'm joined on our call today by Scott Staples, our Chief Executive Officer; 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.

Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. We have 4 key messages for today. First, we delivered another quarter of profitable growth, meeting and exceeding our expectations with revenues up approximately 4% year-over-year on a pro forma basis and achieving adjusted EBITDA margins of 29%. Our performance was driven by continued go-to-market success in new logo and upsell, cross-sell. This demonstrates our ability to generate solid results amid the current macroeconomic environment in which hiring growth has been consistently flat while maintaining our relentless focus on cost discipline.

Second, just last week, we celebrated the 1-year anniversary of closing on our Sterling acquisition. I am extremely pleased with the performance of our entire team as our integration is progressing ahead of schedule, and we are delivering strategic and financial benefits as promised.

Third, we are continuing to execute on our FA 5.0 strategy, actioning our best-of-breed product and platform approach to accelerate growth through new logos, upsell, cross-sell and improve client retention. Today, we will highlight how our technologies and products are enhancing our value proposition and solving customers' critical needs.

And fourth, today, we are narrowing our full year 2025 guidance ranges with refined midpoints at or above our original guidance midpoint.

Now turning to Slide 5 and a closer look at our performance in the third quarter. We generated solid results across revenue, adjusted EBITDA and margin, cash flow and EPS. For Q3, combined upsell, cross-sell and new logo rates continued to perform in line with our long-term growth algorithm targets. Retention improved to 97%, an increase from 96% in Q2, demonstrating the success of our customer-centric approach and that our best-of-breed technology and deep vertical expertise are resonating with the market. We are pleased to share that we recently signed an exclusive 5-year contract renewal with a top customer that is expected to generate over $100 million in total revenues, of which a significant portion is guaranteed through minimum annual commitments.

Base revenue performance again improved sequentially, remaining just below neutral and consistent with our expectations. In Q3, our large new logo win in health care went live and is the last of the 3 large wins we have discussed with you on past earnings calls to do so. Combined with the 2 wins that went live last quarter, one in the retail gig economy and the other in international win in Australia, all are now live and generating revenue, providing solid momentum going into Q4.

We are experiencing tremendous success with our go-to-market teams as further supported by our 17 enterprise bookings in the third quarter and 75 in the last 12 months, each with $500,000 or more of expected annual contract value. These wins give us confidence in our ability to generate new logo and upsell/cross-sell revenue and are an encouraging sign of our sustained go-to-market momentum since closing the Sterling acquisition 1 year ago. Additionally, we are encouraged by the strength of our late-stage pipeline with many large potential new contracts in the works, including several that are incorporating our digital identity product for the first time.

Looking at our verticals in the third quarter, our balanced and resilient vertical strategy supported our performance with nearly all of our verticals seeing revenue growth in the quarter on a pro forma year-over-year basis. We saw strength in retail and e-commerce, driven by upsell, cross-sell and fueled by a good start to the holiday season. Transportation and logistics also grew, driven by our upsell, cross-sell initiatives with particular demand from last mile and home delivery customers. In addition to serving onboarding needs for new hires within transportation, our broad range of solutions also supports our customers' ongoing compliance requirements, enhancing our results with balance and consistency across the solutions we provide.

Health care was slightly down, driven by uncertainty with Medicare and Medicaid funding, particularly with the nonprofit hospital networks, but this was offset, in part, as health care staffing companies stepped in to fill the hiring needs. We remain optimistic about the long-term industry dynamics and fundamentals in health care as the U.S. population ages and requires more health care services.

Our other verticals, including general staffing, manufacturing and industrial financial services showed positive growth in Q3, partially powered by the success in our new logo and upsell, cross-sell programs. October order volumes show similar directional trends to what we saw in Q3 continuing.

In international, for the sixth quarter in a row, we achieved year-over-year revenue growth with the U.K. as a bright spot and also improving trends in APAC.

Looking at the macro environment, we are still seeing a trend where hiring is remaining consistently flat. Macro uncertainty as well as policy changes, including the recent government shutdown, immigration, tariffs and tax policy have resulted in many of our customers remaining in a wait-and-see posture as it relates to their hiring plans. However, as you can see from our results, our customers are still hiring at consistent levels. Our expectation for the fourth quarter and likely into 2026 is for base growth to remain slightly negative as the overall labor market conditions persist. We continue to be confident in our ability to deliver overall revenue growth through upsell, cross-sell and new logos.

Our enterprise customers, diverse vertical mix, global reach, mix of hourly and salaried focused customers and diligent focus on controlling the controllables make our business resilient and able to perform well across a variety of macroeconomic scenarios.

With regards to the impact of the government shutdown, our view is that the hiring markets have remained stable and active with our core verticals continuing to perform well. The absence of BLS jobs and employment data has not impacted our ability to run our business.

I want to take a few minutes to touch on AI's potential impact on our business, building upon what we shared during our May Investor Day. We are taking a proactive and strategic approach to understanding both the benefits and the risks of AI, and we are optimizing our long-term strategy based on the future of work. We recognize the pace at which AI is evolving and can see how it is currently impacting and how some are expecting it to impact the way certain types of jobs and labor are performed. Of note, the World Economic Forum's 2025 Future of Jobs report predicts net positive growth through 2030, even after accounting for the impacts of AI. Specifically, the WEF notes that while AI and automation are leading factors expected to displace an estimated 92 million jobs, these technologies and other market conditions are also expected to create 170 million new roles as companies and economies adopt to technological change, resulting in an expected global increase of 78 million jobs over the next 5 years. Again, we are confident that our diversified mix of verticals, customer segments and geographies provides a meaningful degree of resiliency to AI impacts and will allow us to capitalize on the future growth opportunities.

We are also strategically reviewing where and how we invest in terms of our products and verticals to ensure we are well positioned to lead in a world increasingly influenced by AI with a focus on continuing to generate long-term shareholder value. For example, we are building tools such as our digital identity product, which enables our customers to address the increasing dangers of AI-driven identity fraud. At the same time, we are leveraging AI internally to enhance quality and customer experience. As we like to say, we are building good AI to fight bad AI.

Additionally, I want to address some of the recent news headlines on corporate headcount reductions as companies claim to gain efficiencies from AI. In some instances, the news you read happens to relate to customers of ours. And what we have observed is that while those companies are reportedly making job cuts motivated by AI, we are seeing stable, if not growing, overall screening volumes from them. This is because many of these news-making reductions are in administrative-type roles, which have a lesser impact on our business as typically a majority of our screening volume comes from normal churn and core hiring in our customers' operations. Additionally, as customers reinvest in their businesses to build out their internal AI and other capabilities, they should also be driving screening demand as they will require roles to manage these changes. This sentiment is further supported by feedback directly from our customers who have told us that while they are currently investing in and leveraging AI in their businesses, they do not expect to meaningfully change their approach to core hiring over the next several years.

Now turning to Slide 6. On October 31, we were thrilled to celebrate the 1-year anniversary of the closing on our Sterling acquisition. Over the past year, we have made significant progress on our integration of this strategic acquisition, which has been outperforming our expectations on customer retention, synergy capture and realization, cultural alignment and complementary technologies and products. Importantly, we have delivered a very seamless, nondisruptive customer experience throughout the integration process. This has enabled us to maintain excellent customer satisfaction as evidenced by our high retention levels and the feedback we are receiving from customers. We have also continued to deepen our customer relationships through our growing Collaborate International user conference series, which reflects our expansive global footprint.

In 2025, we've hosted events across the U.S., India, Singapore and EMEA with upcoming user conferences in Hong Kong and Australia. These events provide us with direct insight into our customers' needs and emerging industry risks, showcase our subject matter expertise, uncover upsell and cross-sell opportunities and help cement our position as a category leader. Recently, many of our European customers joined us at our London Collaborate to discuss key topics such as identity fraud, AI-driven screening and global compliance. The strong turnout, high-value content and customer engagement underscore the relevance of our solutions and the trust we are building across markets. Feedback confirms that our customers are looking to us for guidance as they plan for 2026, and we're proud to be a strategic partner in helping them navigate evolving workforce risk.

Our back-end automation strategy has also been a key driver of operational efficiency throughout the integration process. By consolidating fulfillment into a single global engine, we are leveraging years of investment, engineering and development in robotic process automation, APIs and AI. We have kept 2 front-end platforms for customer continuity, but behind the scenes, we have been able to streamline workflows, cut redundancies and drive efficiency. These efficiencies not only enhance speed and customer satisfaction, but are also expected to create meaningful margin improvement as we grow. Additionally, since announcing the Sterling acquisition, we have increased our synergy target from our original $50 million plus to a range of $65 million to $80 million. We have also made solid progress on deleveraging our balance sheet as we work towards our target net level range of 2 to 3x. Steven will provide additional details shortly on both our synergy progress and deleveraging.

Turning to Slide 7. Throughout the integration process, we have been focused on enhancing our customer value proposition to unlock new logo, upsell and cross-sell opportunities while continuing to drive innovation and foster the high-performance culture we are known for. We are consistently leveraging our best-of-breed approach to provide optimal solutions and technology to solve our customers' challenges. Last quarter, we discussed how the expansion of our award-winning Click.Chat.Call customer care solution and our high-margin First Advantage work opportunity tax credit product has benefited our customers. We have continued this progress, achieving a milestone in Q3 with the increased usage of the millions of records in our proprietary national criminal record fire database across both platforms, something we have been rolling out since Q1 of this year. With our proprietary data and in-house data science teams, we deliver faster insights and a superior experience for everyone from recruiters to HR teams to candidates. This powers our ability to reduce turnaround time while increasing the speed, coverage and effectiveness of our criminal screenings, facilitating comprehensive and timely results for our customers.

In October, we made available our criminal and motor vehicle records monitoring solutions to the entire customer base, offering another best-of-breed experience to all of our customers. We are also underway in leveraging our best-of-breed approach to enhance the user experience. Over the past 18 months, we have been rolling out a new applicant portal. Now approximately half of our order volume on the First Advantage front end runs through this portal with customer adoption continuing to grow. This represents the most secure and user-friendly experience we've ever built, featuring device-agnostic design for a seamless experience across devices, customer-specific branding for a familiar and consistent look and AI-powered features that continuously learn from the candidate interactions to deliver a best-in-class rageclick-free experience.

In November, we are extending the same modern look and feel to the Sterling front end, bringing the benefits to even more customers. This initiative reflects our commitment to delivering an outstanding user experience backed by rigorous data, feedback, sentiment analysis and continuous improvement. It's a win for our customers and their candidates and a key differentiator for First Advantage.

On top of this, we are continuing to see solid momentum and interest in our digital identity products. Negative use of AI and other technologies are creating new risks for companies and organizations and are driving rapid evolution in the digital identity space. Knowing who you're hiring and confirming who they actually are is critical. Our digital identity solution is fully linked in the hiring life cycle with some customers using it multiple times through the recruiting, screening and onboarding process, which is creating a competitive advantage for First Advantage.

As an early market leader with digital identity solutions, we are able to deepen our strategic dialogue with customers, strengthening our relationships and stickiness of our products. We are highly focused on this attractive opportunity, which has a total addressable market of over $10 billion and an expected growth rate in the mid- to high teens.

Our Digital Identity products is continuing to build a strong pipeline as customers navigate the early adoption and pilot phase. Digital Identity is a powerful competitive differentiator for First Advantage and indicative of the direction in which our industry is growing.

Overall, our customers continue to be excited about the benefits of our best-of-breed platforms, products, data and AI-enabled technologies. This is evident by our strong customer retention and consistent new logo and upsell, cross-sell performance. With that, I will now turn the call over to Steven.

Thank you, Scott, and good morning, everyone. Today, I will provide color on our third quarter results, synergy progress, deleveraging trends and our narrowed 2025 guidance. I'll start with third quarter results on Slide 9.

Our third quarter revenues were $409 million, up 3.8% versus last year on a pro forma basis, with our year-over-year revenue growth rate increasing sequentially from Q2 as expected. Our go-to-market success was in line with our long-term growth algorithm targets as the combined contribution of new logo and upsell and cross-sell revenues delivered 9% growth in the quarter, and our retention rate reached 97%.

The trends in our base performance continued to moderate on par with how we had forecast the quarter with base remaining negative on a year-over-year basis. Our solid results were supported by consistent execution on our integration and synergy plans, which remain ahead of schedule.

Adjusted EBITDA for the third quarter was $118.5 million. Our adjusted EBITDA margin of 29% exceeded our expectations, representing an improvement of 130 basis points versus the prior year on a pro forma basis despite being slightly lower sequentially from Q2 due to mix. Our results were enabled by our continued focus on accelerating synergies, our disciplined approach to cost management and the scalable nature of our business. As part of the integration process, we are applying best-of-breed fulfillment execution, which is helping improve the combined company's operating margins in line with our historical expectations of the business.

Adjusted diluted EPS was $0.30, a 15.4% increase of our expectations. The benefits of our greater scale, 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. These have more than offset the impact of the incremental interest on the transaction financing and the dilutive impact of the new shares issued for the Sterling acquisition.

On Slide 10, you can see how we are making great progress on our synergy program. This quarter, we crossed the original $50 million threshold of action synergies, now having actioned $52 million and exceeding our initial total synergy program goal within only 1 year. We benefited from the realization of $12 million of synergies in the third quarter, bringing our in-year realization to $30 million. We remain committed to and confident that we will achieve our goal of $65 million to $80 million of action synergies within 2 years and are pleased to see the consistent success of our integration and synergy execution. Looking forward, we are focused on scaling, automating and applying AI as we continue to execute on our integration priorities.

Moving to Slide 11. You can see our historical revenue growth algorithm results with combined company data beginning in 2025. As previously mentioned, in the third quarter, our results were driven by strong upsell, cross-sell as well as new logos, supported by consistent solid retention. Base results came in as expected with sequential improvement from Q2 despite remaining negative for Q3.

Now turning to cash flow, net leverage and our debt paydown progress on Slide 12. During the quarter, we generated adjusted operating cash flows of nearly $81 million, an increase of $35 million or 78% on a year-over-year basis. This was driven by the larger scale of our business, our tight management of our working capital, including collections on receivables, the benefit of the OBBBA, which has reduced our required cash tax payments and our overall focus on cash flow. Our cash balance at September 30, 2025, was $217 million. With this ample liquidity and cash flow, subsequent to the end of the quarter in November, we made a $25 million voluntary repayment on our debt principal, bringing our total year-to-date principal repayment to over $70 million, most of which has been voluntary using excess cash flow.

Our synergized pro forma adjusted EBITDA net leverage ratio at quarter end was 4.2x and represents about [ 0.25 ] of a turn decrease from a year ago when we closed the Sterling acquisition. We remain focused on reducing our net leverage towards approximately 3x synergized pro forma adjusted EBITDA within 24 months post close, and our long-term net leverage target remains 2x to 3x.

Moving to Slide 13 and our updated 2025 guidance. As a reminder, year-over-year comparisons are on a pro forma basis to allow for easier comparability. Today, we are narrowing our full year 2025 guidance ranges with refined midpoints at or above the midpoint from our original guidance. Our year-to-date results as well as the momentum we have seen heading into the fourth quarter give us confidence in our revised guidance ranges with revenues now in the range of $1.535 billion to $1.570 billion supported by strong synergy execution and our continued focus on efficiently managing our business, we now expect to achieve full year adjusted EBITDA margins of approximately 28%, a meaningful expansion from pro forma 2024.

Looking at the fourth quarter as implied in our updated full year guidance today, our revenue outlook for Q4 of around 6% year-over-year growth at the midpoint continues to assume a certain degree of macro stability while keeping in mind that our customers remain in a wait-and-see mode. The impacts of increased tariffs and other policies remain key areas of uncertainty across the global economy, but our customers continue to hire at consistent volumes. We expect Q4 base growth to remain slightly negative, consistent with Q3, with this trend likely to continue into 2026.

As Scott mentioned, we saw very consistent volumes in October, which aligns to our updated Q4 expectations. We anticipate continued productivity of combined upsell, cross-sell and new logo growth, consistent with, if not better than, historical trends. Additionally, the go-lives of our recent large wins and robust new contract pipeline support our expectations for the fourth quarter. We also expect customer retention to remain in line with our historical performance of at least 96%.

In the fourth quarter, we expect adjusted EBITDA margins to expand versus the prior year period by more than 100 basis points. This is similar to the expansion we saw in Q3 and results in fourth quarter adjusted EBITDA margins of approximately 28%. While this represents a small sequential decline from Q3 2025, it is in line with the historical trends in our business, reflecting the mix shifts driven by seasonally lower December revenues and some movements in verticals and some movements in volumes between our verticals and products. This year, we also anticipate the mix shifts we saw in Q3 towards products with relatively higher out-of-pocket fees will continue to impact adjusted EBITDA margins into Q4, though over time, we expect these impacts to normalize. Even with these trends in mind, we remain confident in our ability to drive year-over-year margin improvements in Q4.

We anticipate that our adjusted diluted EPS growth momentum will continue as revenue ramps and synergies are realized. Despite the mix trend previously mentioned, we expect that quarterly adjusted diluted EPS will remain in the mid-$0.20 range in the final quarter of the year, representing meaningful expansion on a year-over-year basis.

On a similar note, we now anticipate free cash flow for the year of $110 million to $120 million. This represents a notable increase from our previous commentary as we have been able to generate incremental cash flow from better working capital management and have successfully managed our integration-related costs. As previously noted, the passing of the OBBBA tax law in July doesn't notably impact our effective tax rate. However, we will be able to utilize certain provisions within the new law to materially reduce our 2025 required cash tax payments.

We have provided a full chart in the appendix to the earnings presentation with FX, CapEx, interest and other modeling assumptions. Additionally, we do not expect the government shutdown to materially impact our results. While the shutdown itself has affected some operational items such as the government run E-Verify platform resulting in some delayed I-9 verification, we expect any delays in processing I-9 will be resolved in the quarter as soon as the government shutdown concludes, and this is a very small component of our business.

Overall, and taking a step back, we are pleased with our refined 2025 guidance ranges we are providing today, particularly amid our ever-changing world. We are expecting to deliver full year revenue growth, a high single to low double-digit adjusted EBITDA growth rate and an even higher adjusted diluted EPS growth rate and meaningful free cash flow generation, all just 1 year after closing our strategic acquisition of Sterling.

With that, let me turn it back to Scott for closing remarks before we open the line for questions.

Thank you, Steven. In closing, I would like to reemphasize First Advantage's position as an investment of choice. We are a market leader offering proprietary technology and data in a large and growing market. We have significant organic revenue growth potential accelerated by the Sterling acquisition. We are resilient with a flexible cost structure and high revenue diversity that comes from our balanced vertical strategy. We have industry-leading operating margins, leading to strong and consistent free cash flow generation, and we have a track record of value-accretive capital deployment and balance sheet management. All of this supports our confidence in our ability to achieve consistently strong results, including delivering on the 4-year financial targets we established during our Investor Day in May.

Looking ahead, we remain focused on executing on our strategy to increase share across our target verticals, accelerate international growth and deliver on our best-of-breed product and platform strategy.

Thank you to the entire First Advantage team for the great work you do to support our customers every day. With that, we will open the line for questions.

[Operator Instructions] Our first question is coming from Ashish Sabadra with RBC Capital Markets.

So maybe a 2-part question. As we think about this strong new win momentum that you talked about and as you're ramping up these new clients, how should we think about the upsell, cross-sell as well as new logos going into fourth quarter, but also into 2026?

And then the second question would be just the pipeline for new logos. Have you seen any changes in the sales cycle? Any elongation in the sales cycle? Also any early conversations with your clients around new win momentum?

Yes, Ashish, I'll start with your comments on the new logo and kind of that impact going forward. I'll let Scott take the pipeline. I think you're right. As I mentioned in the prepared remarks, we're expecting our Q4, the contribution of new logo and upsell, cross-sell to be in line, if not better, than our historical. So we did 9% in Q3 with very consistent so far this year. Assuming those deals ramp according to schedule, there's some room to do a little better than our historical averages. We're seeing some good initial order demand from those bigger contracts. A little early to comment on '26 just overall. But I mean, obviously, the deals that are just going live in the second half would have some rollover, still have to fill out the rest of the pipeline funnel and still have to execute. But it gives us a lot of confidence, certainly in Q4 being able to achieve, if not exceed, the historical norms for upsell, cross-sell and new logo.

Yes, Ashish, on the pipeline, we are extremely happy where the pipeline is right now. It's at the highest value it's ever been at. The late-stage pipeline for large deals is the best we've really ever seen as a company. That doesn't mean it translates into whatever it translates into, but it's a great pipeline. We've obviously got very good win rates historically. So we're feeling pretty bullish heading into 2026 in terms of the things we can control and our ability to grow organically. So very happy with the pipeline.

And I think it all comes back to -- again, look at that increase in improvement in client retention, especially after doing a large merger. We are very happy with client retention actually going up. It means that clients have really resonated with the combination of the Sterling and the First Advantage technology platforms. And I think a big shout out to our tech teams who have done a great job of eloquently putting together the back end to the front ends of both the Sterling and First Advantage customer base.

And in this industry, it's very simple. Clients love to partner with a company who understands their vertical deeply, which we obviously do and have invested in the key verticals that we're in and have a great technology platform to back it up. That's clearly why the pipeline is growing, while the deal flow has been solid. We've got a great tech story, and we back it up with subject matter experts.

Our next question is coming from Andrew Steinerman with JPMorgan.

Obviously, I've observed over the years that FA is very tech forward, including AI. With that in mind, do you feel that traditional employment background checks has a risk of being disintermediated by AI innovation and how?

Yes. Thanks, Andrew. As you know, we have a very strong tech story. We've got a great team. And I thank you for your question because I don't think we get enough credit in the market for our tech prowess. I mean I feel that we're basically a Silicon Valley tech shop that just happens to be headquartered in Atlanta, Georgia. We've got great architects. We've got great engineering prowess. And I think when you look at where AI can help or influence or impact the industry, I only see it or we only see it in beneficial ways. We don't see it as a competitive threat because it's going to have to be so integrated into the many things that we do.

I think the big change is the dramatic rise of the risk of identity fraud in the recruiting process and how that maps into the traditional background screen. So when you think about running criminal checks or verifications or whatever it might be, the future of this industry is really going to be how that flows from a digital identity check. And that's where a lot of the AI is going to sit because you're going to be leveraging AI to make sure that our customers feel comfortable that they are onboarding the same person that they interviewed. So going from a recruitment to interview to onboarding and to finally I-9, all that has to be tied together with technology and consistent databases. And we are really the glue behind the scenes that can do that for our customers. And that's where a lot of our customer dialogue is going right now. And I think a lot of that's going to be AI-driven. There's going to be a lot of good AI that are used in that solution to offset the bad AI that people are using for deep fakes and other identity -- digital identity hacks.

So we want to make sure that we help our customers avoid hiring imposters which, as we told you on our last call, is an extremely increasing risk for them. So that's also driving client stickiness. It's driving upsell, cross-sell. And again, it goes back to the fact that our customers see us as a tech powerhouse that can pull this all together for them.

Our next question is coming from Andrew Nicholas with William Blair.

Scott, I think you mentioned as part of the comment on your 5-year contract renewal that a portion of that $100 million is guaranteed. So I was just hoping to kind of figure out maybe a little bit more background on that contract, what led to that particular structure? I think that's relatively unique within your broader business. And whether or not that's a one-off or something you'd expect to pursue more regularly going forward?

Andrew, I love the question because this has been a really big focus for us in 2025 and will continue in years to come. Now the caveat here is that this will be a little bit of a long road, but this is not a one-off. This was the first of what we think will be the future contract status in this industry where we do get more stickiness with contracts with guaranteed minimums in our contracts.

Again, the caveat is it will take a long time for this to kind of flow and run out because we're not going to go to existing customers and ask them to change existing contracts. We are trying to put this new clause into all new logo wins and renewals with existing customers. To date, we have had very little pushback on this concept. And I think it's -- there's other things that we're working on to put more teeth into the contracts, but this is clearly where the industry is now going. And we even think things like Digital Identity and some of our other solutions can actually lead to subscription revenue, and that would then also be included in contracts going forward. So I'm glad you picked up on it because it's definitely a change that we're seeing in the industry, and we're kind of leading the charge here.

Understood. And just for a follow-up, kind of back to the Digital Identity piece. Is that something -- I don't think you've sized it recently, but is that something that can move the needle on upsell, cross-sell next year? Or is it still too early to be adding percentages of growth to the algo?

Yes. First of all, it is the hottest, hottest, hottest topic with our customers right now. We've -- as you know, we've had Digital Identity products out in the market now for 2, almost 3 years. In the early stages, it was us educating our customers as to the risks associated with imposters and deep fakes and all the things that come with identity fraud.

But something has changed. Over the last, I'd say, roughly 6 months, our customers are now showing us actual instances of where they've either stopped a fraudster from entering their company or that they've actually hired an imposter and don't want it to happen ever again. So this is completely dominating the conversation right now, and we've got a fantastic product. And I would call it products because it literally is a series of 6, 7-plus offerings that are all under the umbrella of Digital Identity.

So the -- a couple of things then. One, at some point in 2026, we do plan on quantifying this for you. As soon as we get -- we're still in early sales stages, and we're doing pilots and customers are now ramping up on that product. So I think at some point in 2026, we'll be able to quantify it.

There's going to be 3 major impacts to Digital Identity. One, yes, it will drive upsell, cross-sell revenue. And again, we'll quantify that in the future. Two, it makes us really sticky with the customers because now we're actually in different workflows. When you do Digital Identity, you're now up in the front of their recruiting workflow and you're really then sticky throughout the whole process.

Three -- so the byproduct of that is increases in customer retention, which, as Steven said, we -- the bare minimum is 96%. But as you can see, we're now at 97% and hopefully stick there going forward and maybe even higher through the stickiness of this.

And the last thing is it also helps sell other products. For example, customers are worried about the person that they are interviewing is the same person that they actually run the background screen on is the same person they actually onboard and do the I-9 with. So Digital Identity is actually giving us a boost to our I-9 sales because we're sitting behind the scenes, and we can triangulate all that data for them if we're the service provider for them. If we're not the service provider for their I-9 product, they have to figure out if it's the same person that filled out the I-9. And the customers don't want to do this. They want us to do that. So this is real stickiness. This is driving multiple levels of upsell, cross-sell. And it's a huge issue with clients right now. This is, again, the hottest, hottest, hottest topic in this industry. That was a long answer, but great question.

Our next question is coming from Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. Can I just ask that you unpacked the commentary around October order volumes continuing the directional trends that you experienced for the quarter. It sounds like that reconciles to this week's ADP jobs report, which showed a swing into positive territory, I think, after some back-to-back months of job losses. But also had a question in relation to -- there was a report released earlier this morning that showed October had the highest increase in layoffs since '23. And I think year-to-date, layoffs are up 65%. Just wanted to know if you're seeing that as well. I think AI and the macro factors you referenced were given as drivers. But I know you said with your diversification and resiliency, you're not actually seeing AI impacts and highlighted specific clients as well. So I just want to understand those dynamics as you see them and potential impacts of that for base and the other components of your growth into '26.

Yes, Ronan. So obviously, the macro is on everyone's mind. And I'm going to answer your question, but I'm going to put in a couple of other things to give you the picture that we see. So a couple of things. Specifically to October, yes, we are -- we had a very good October. The order volume trends were similar to what we saw in Q3, meaning that they were above our expectations.

Now that doesn't mean November, December will be. It just is a snapshot that October was. We're still in a wait-and-see mode for November and December, but off to a great start in Q4 with the things that we mentioned. We're seeing a good holiday season. We're seeing our key customers driving a lot of volume growth. I think the world is starved for data right now or better data right now on this.

And I will remind people that -- I'll remind the market that we are enterprise focused. So a lot of what you hear maybe SMB focused, but we're not experiencing at the enterprise level what is being portrayed in the media. And I think we've got a unique advantage on the data side. And the fact that we can actually see our own order volume, so we know exactly who's being hired and when. And obviously, with the government shutdown, there's no BLS data being reported. And we've talked in the past about how unreliable the BLS data is anyway. It had gotten to a point where there was only about 35% participation rate from companies in the BLS data, and it was primarily from SMB. So it wasn't a very accurate depiction of what we see from the macro standpoint.

So one, we've got the ability and the uniqueness of seeing actual hiring data real time. We know exactly when -- what companies in what industries and what geographies are hiring people. And the BLS data was always a few months behind, and every 6 months did a major revision of the numbers because they didn't get it right. But I think our Q3 results and what we're saying on forward thinking about the pipeline and where we are with order volumes is actually showing a very consistent labor market, not a declining labor market. It doesn't mean that there's huge job growth or -- and it doesn't mean that there's huge job losses. It just means that it's consistent.

And as we get into 2026, and we'll talk more about this in our next earnings call next quarter, but we're basically thinking that 2026 is going to be very similar to 2025. Consistent hiring, not big decreases, not big increases, just more of the same.

And Ronen, one more point. So I gave you -- we obviously have the ability to do a qualitative analysis of order volumes and other data sources that we look at. But we also have -- we've also speak to our customers on a regular basis. And I think we've made this point many, many times. Just this year alone, we've had over 1,500 formal business reviews with our customers. Now that may be the same customer 2 or 3 times. But it just shows you that we are formally sitting down with our customers to review their programs, to optimize their screening, to talk about upsell, cross-sell opportunities and to get their views on their hiring. And what we're hearing doesn't necessarily jive with what is being reported in the media. So that's what we're basing our business on.

Got it. And then if I may, just to shift gears a little bit. Can you help with how we should think about the cadence of synergy realization in '26? And just a reminder on timing for Sterling EPS accretion and also deleveraging?

Yes, Ronan, great question. So as we mentioned, we're at $52 million. Our target is $65 million to $80 million. We obviously lapped the anniversary as of this week. That remaining, somewhere between $15 million and $25 million, will come fairly ratably over the next year. It's a lot of operational and fulfillment and then data projects that have some of a little bit just more plumbing, more prerequisites that need to be checked off. But we still are very confident that we'll achieve it. And it should hit fairly ratably over the next 12 months or so as we just complete one optimization, one efficiency project after another.

In terms of EPS accretion, I mean, you're starting to already see some of that flow through pretty strongly, right? We've got certainly relative to the pre-acquisition period, really strong EPS numbers in the second half of the year. Some of that is just the operational scale. The fact that we've got to consecutive quarters of revenue growth, we've got the synergies flowing through, and then we also have all the work we're doing on the cash flow and debt side of house. So the repricing, obviously, lower interest rates helps a little bit and just working capital management. So we're driving really strong cash flow. So that's going to obviously support your interest expense and help flow things down to EPS.

And then I think to your last point on deleveraging, I think we're seeing those trends already kick in. As I mentioned, strong free cash flow, strong EBITDA accretion. As we build more cash and -- which ultimately reduces net leverage, we'll continue to see that number start to accelerate. And we still feel like we'll be getting towards that 3x synergized net leverage ratio by the end of next year, effectively at the 2-year anniversary of the deal. So I think we're on schedule on all 3 fronts there, Ronan.

Our next question is coming from Scott Wurtzel with Wolfe Research.

I just wanted to go back to some of the commentary around base growth for 2026 and your expectations for it to continue to remain negative. Is that right now sort of an expectation that it will remain negative throughout 2026? Or given we are obviously comping a lot of years of negative growth, could we potentially see an inflection as we get sort of into the second half of the year?

Yes, Scott, it's a good question. I mean we're not -- we're not at the point yet where we can kind of give very specific 2026 commentary. I think really, our main focus now is kind of looking at the exit velocity, if you will, of our order volumes in '25 and what that implies for at least the start to '26.

I just wanted to make sure that people understand that, to Scott's point, it's been a consistently flat hiring environment now for a period of time. And we expect that dynamic to continue. I mean base has improved dramatically already through the year. It was negative 5.5% Q1, negative 3.7% last quarter, now only negative 1.8%. Negative 1.8% is that slightly negative that we've been talking about the last couple of quarters, and that's kind of that ballpark that our current expectation that persists for the next few quarters. We'll obviously give out a little bit more refined view as we get into our next earnings call for the '26 guide.

But you also have to remember at a slightly negative base with the new logo and upsell, cross-sell consistency and the momentum we have, and where we're hitting all cylinders on retention, even with a slightly negative base, you're set up for a pretty good overall growth. But we do see just kind of this macro environment persisting. There's not really any kind of formal outlook on where tariffs are going to take us on immigration policy and all these other things that are kind of impacting just that wait-and-see mode that customers are in. So a little too early to get specific, but certainly, for the foreseeable future, we kind of see that wait and see consistently flat overarching hiring environment.

Got it. Makes sense. And then just as a follow-up, going back to the kind of the identity market opportunity, and you mentioned mid- to high teens market growth rate. I mean, given your position in the screening market and everything, do you think you guys can outgrow that sort of market growth rate over the near to medium term as you sort of bring these solutions into your customer base?

Yes. Well, I mean, I think the short answer is we don't know because it's so new. I think we're really well positioned. Our customers can go out and buy point solutions to fix some of this. But we're in a really unique position about being -- we feel one of the only that can sit behind the scenes and help them triangulate all of these things into one solution.

So the discussions with customers have been phenomenal. And obviously, we're very happy about the wins and the pilots and the launches that we've done recently. But it's just so early. It's hard for us to sit back and quantify that it will be a certain number and a certain growth rate. But as I said, when we get into 2026 a little bit and these numbers become clearer and we start looking at win rates and pipeline and start doing some math behind the scenes, we will report that out to you because we know it's an important piece of our growth algorithm.

Our next question is coming from Jeff Silber with BMO.

You noted the retention improvement sequentially. I think you cited a few factors that are kind of buried in the Q&A. But if I had to focus on a few things, why do you think you saw that retention improve? And is that something you think is sustainable?

I think there's a lot that goes into it. I mean, first thing, we're a very, very, very customer-focused, customer-centric, customer-inspired company. We spend a lot of time with our customers, as I mentioned with our formal business reviews, and those are only the former ones. We're talking to our customers daily, weekly, monthly. The Collaborate sessions that we talked about in the script have been phenomenally attended. We've got lots, if not most of our large customers attending these Collaborate events around the world. So we're spending a lot of time with our customers. And I think there's a couple of things that are driving retention.

One is we are considered thought leaders in their industry. We pick certain industry verticals to focus on, and we go deep, deep, deep into those so that we know what they're dealing with from a compliance standpoint, from an onboarding standpoint, from a cost pressure standpoint, whatever it might be. We know their industry well. And in most cases, we have most of their peers as customers, so we can help them benchmark. So we can help them say, okay, here's what the industry is doing, and here's where you're best-in-class and here's where there's gaps. And those gaps are great to point out because what that means is upsell, cross-sell opportunity. And that's why package density has been such a great driver of growth for us. So vertical knowledge, industry expertise is clearly one of the drivers of retention.

The other one is tech. I mean, as I mentioned earlier, we're a great tech company. We've got agile pods all around the world. We've got solution engineers. I mean we're really good at tech. Our products demo really well, which leads to a lot of new logo wins. And customers are very happy with the products. And also, we've really nailed the Sterling integration from a product and platform standpoint.

Our vision, our theory from the very beginning of the acquisition was single back end, leveraging all of the great First Advantage automation that's been out there for literally 9, 10 years now. Single back end, but the front ends don't change for the customers. So that kept customers from attritting. Usually, when you do an M&A, that's the biggest thing that they worry about is, are you going to force migrate me onto a new platform? And the answer was no. And it was even better than no. It was like not only are we not going to force migrate you, but you're actually going to get a series of upgrades because we're taking best-of-breed from both platforms and giving it to the other platform. So there were some things that the Sterling platform did really well that are now becoming available to the First Advantage installed base. And there are some of the things that First Advantage did really well that are now becoming available to the Sterling installed base.

And those are things that are visible. So we're talking about functionality. We're talking about best-of-breed user experiences, et cetera. And the things that are invisible to them are the things that we're leveraging on that First Advantage back end. So it's the First Advantage back end with all that great automation, which is driving faster turnaround times.

If you look at our turnaround times, which is a key KPI for our customers, our turnaround times are coming down with customers because of the automation. So we're enabling them to onboard faster. And onboarding faster is critical for them, especially in high-volume hires because they need the people to do the job. So I think it's the combination of our vertical expertise and the fact that we actually nailed the technology and the future promises of technology, like how we're rolling out Digital ID, how you can integrate your I-9, all that stuff is being eloquently explained to our customers, and I think they like the story.

Our next question is coming from Harold Antor with Jefferies.

Harold Antor on for Stephanie Moore. I guess real quick one for me. Just in terms of international growth, I know international growth has seen several quarters of robust growth. If you could just provide any more color on, I guess, how that's shaping up. It seems as though the U.K. has been a bright spot even though we've heard that the U.K. still is -- in some areas is still weak. So just I guess, anything you're doing there?

And then I guess on your verticals, I think you called out weaker health care trends, but I believe you see some seasonal pickup in transportation. So is the seasonal pickup in transportation in line with what you saw historically or just anything there that would be helpful.

Steven...

On international, I mean, look, we're still seeing the momentum we've seen in the last few quarters sustained, if not accelerate a little bit. International was up a little over 11% in total. So again, like the trend we had last quarter, outpacing the consolidated business. And you're right, the U.K. market has been certainly a strong point there, and some of the underlying verticals are still -- some government regulation that's also helping us out. But honestly, we saw growth across all 3 of our international regions.

And you remember, we've had that larger financial services win in Australia. We've had some other go-to-market success over the course of the year as well. So really strong base, really strong upsell, cross-sell, new logo type winning there in international. I'll let Scott fill on the verticals, but I think international has been kind of ahead of the curve and continued showing that growth and that accelerate a little bit in the third quarter.

Yes, Harold, on the verticals, so you mentioned health care. I think it's important to note, health care for us is really 4 sub-businesses. So it's acute care, think of hospital networks; post-acute care; life sciences; and health care staffing. Post-acute care, life sciences and especially health care staffing really did well in the quarter. It was really just the hospital networks, and it's completely 100% tied to what's going on in Washington, D.C. with Medicare and Medicaid.

It's not like there's less demand for their services. In fact, there's more demand. You've got an aging U.S. population, and you probably know from your own experiences that there's a tremendous demand in health care. It's just that a lot of these smaller regional, even rural hospital networks are dependent upon Medicare and Medicaid funding. And there's a lot of uncertainty in that right now. So they've cut back their hiring just because they don't know where the funding is going to come from.

Now health care staffers have filled in the gap because they still need the services. So I think this is just an aberration. I think this is something that will play out over the next couple of quarters, will stabilize. We're very bullish on health care because of the aging population, the incredible need for services. And even though it's slightly down, I would say our strategy is actually to double down in this industry because it's going to be a tremendous growth industry long term. It's just having a little bit of an aberration right now, and it's completely tied to the smaller and midsized hospital networks. It doesn't really affect the larger hospital networks and affects mostly the nonprofits.

Our next question is coming from Pete Christiansen with Citi.

Nice execution here, some nice trends. Scott, a quick question. I want to double tap on the AI disruption kind of concern, which I think you laid out really well. I think there is a slight nuance to the argument though that at least on the fringe and maybe in certain pockets of your base with AI, then maybe those employers can actually in-house some of their onboarding or screening type of duties there. How would you respond to that? What's your opinion there?

And then as a quick follow-up, great to see that you combine the databases here and building up your proprietary database. Can you just talk us through how that's delivering on data cost savings? And is there a point where -- of mass criticality where you really could see an inflection in your data cost because of the years that you've built up your proprietary database?

Steven, I'll take the first part, if you take the second part. So on the AI disruption, Pete, I mean, my short answer is no chance. Customers do not want to do this. This is not where they want to spend their engineering dollars and resources, and it's extremely complicated. It's loaded with compliance. There's not a lot that they're going to do internally with AI through the screening process.

Now that's not true with recruiting. I think AI is fully in play with recruiting, and it's having great results. So using AI-driven recruiting tools in the front end of the recruiting process makes a lot of sense. But that only feeds then better information to us. We see AI as a real lift in quality because AI should improve the intake of data at the very front end of the recruiting process so that when it then comes to us to then run a Digital Identity to then kick off a background screen to then onboard an I-9, we have better data because AI has helped with the quality of that data. So whether it's a picture capture, whether it's a biometric capture that the AI is doing, whether AI is helping the candidate fill out the application to make sure that they're putting in their address correctly, their name is -- all instances of their name are captured, first name, middle initial or -- and last name and capturing maiden names, all that kind of stuff, it only helps us.

But it doesn't infringe any way on our business model. In fact, it's an improvement in quality, which actually also could help with an improvement in turnaround times because the better data we get from an ATS or from an AI-enhanced recruiting engine, it makes our job that much easier. But I think with all of the FCRA compliance laws, with all of the unique thousands and thousands of data sources that need to be hit, I don't see customers doing this themselves in any scenario.

Yes. And then, Pete, on your data question, I think 2 things there. One, I mean, leveraging the data assets and resources of the 2 combined companies has been a core part of our cost of sales component of our synergy program. And as you can see, where we're at on that time line, we're already above and beyond the original $50 million target. So we're doing well there and leveraging those in many places in the business.

But to Scott's earlier point on the Q&A, we're a tech company at heart and tech companies love data. And we'll continue to invest in ways to grow our databases. And when we give out the full year numbers at the end of the year on the Q4 call. You'll see growth in our NCRS, you'll see growth in our verified databases. And then it's not just growing the databases, it's leveraging them in as many ways as possible, but that will continue to be a storyline in a way that we improve the quality of our products, improve the quality of our P&L and cash flow, but it's always going to be a part of our story here.

Pete, yes, one other thing I'll add to it is -- and again, this kind of ties back to retention. I know I didn't mention this when I got the retention question earlier. But we have literally been automating internal processes and automating our APIs to data sources literally for 10 years now. And for some reason, over the last year or so, we are starting to get amazing accelerated payback on this. So clients are actually feeling our fast turnaround times. And we've also particularly solved some of the sticky data source -- known data source issues in our industry, certain counties or certain states or whatever it might be. And so when you sit down and do these business reviews with customers and you show them that their turnaround times are coming down and they feel that their turnaround times are coming down because of our investments in automation.

And again, that's all in the First Advantage back end that we talked about. And now Sterling customers, our legacy customers are starting to feel this now too because we're using our fulfillment engine on the back end for them. That helps with customer retention. And that is just -- the power of that is showing up in the retention numbers. And again, this is something that our competitors just don't have. We are light years ahead of them. And this is a big competitive moat for us.

Thank you. I see no further questions in the queue. Thank you all for joining us today and for your participation. This concludes the First Advantage Third Quarter 2025 Earnings Conference Call and Webcast. At this time, you may now disconnect your line. Have a wonderful day.

All right. Good morning, everybody. My name is Manav Patnaik. For those of you who don't know me, I cover Business and Information Services. But we're pleased to kick off our third day here at our financials conference here with First Advantage. And we have Scott Staples, who is the CEO, but we also have Steven Marks, who's the CFO. So thank you both for being here.

Thanks.

Thanks.

Maybe, Scott, just to start off high level since you guys have a really unique insight into what's going on in the employment markets and job churn and all those kinds of things. Maybe just your view on what's going on today. There's a lot of headline news with the job number revisions and the job data and rate cuts. So just how do you guys see the environment today?

Yes. I mean it's obviously top of mind. I think a couple of things is, we use kind of BLS JOLTS data as a data point, but we don't necessarily feel like it's the most accurate data point, and we like what our customers say and what our order volumes say, and they're telling a slightly different story than what you read in the press and what you see out of JOLTS data, whether it's revised or not.

We kind of find JOLTS BLS data to be very helpful on the veridical insights, like where are jobs being added that's helpful for our go-to-market strategies, but at the end of the day, I think we are seeing a very flat job market. We are not seeing many peaks and valleys. And in fact, if you look over the last couple of quarters, if you look at quits, hires, openings, unemployment rates, they're all actually very flat. So I think the country is living in a monthly up and down sort of narrative, and we're just not seeing that.

Our clients are still hiring. They're not doing any major layoffs. They're not growth hiring. They haven't been growth hiring in a long time, but they are just-in-time hiring and backfilling, and -- so I would say that from a job market standpoint, the view we have is a very flat job market.

And in those conversations that you have with your clients, I guess the view is something has to give either there's going to be a whole bunch of layoffs coming or they finally free up to hire, like are they leaning one way or the other?

I don't think you'll see a bunch of layoffs coming because earnings from companies is still really strong. There's still a very high demand for our customers' products and services. I think you're going to see more of the same. I think that companies are just going to hold hiring close to the vest. They're going to continue to do just-in-time hiring. They're not going to get out in front of their skis with any type of growth hiring. They're going to kind of wait and see what Washington policy is around and impact around tariffs, around -- will see with rate cuts and things like that.

But no, I don't think you're going to see peaks or valleys, I think you're going to see plateaus and plains, a lot of flatness going forward, which isn't bad for us. A flat macro is actually not a bad thing because we do really well on new logo, upsell, cross-sell and retention, so we can actually grow pretty nicely in a flat environment.

Got it. And we'll get to that in a second. Just one more big picture question. About half of your business is blue collar, half is white collar. So it's kind of the same question, but maybe if you could talk about within those 2 segments, some of these -- or is it the same in terms of plateauing in both sides?

It's interesting. I think, first of all, let's do a geographic slice because we're seeing pretty good demand internationally. Now granted internationally went down hard and early about 2 years ago, but has bounced back pretty nicely. So international for us has grown pretty well over the last 3 or 4 quarters.

So I think geographic -- the geographic slice is important. Now only about 14% of our business comes from international, so the most comes from what we call the Americas. So in the U.S., I think, again, it depends on vertical and even within verticals. So for example, health care is our largest vertical.

And what that -- you would primarily consider that a white collar industry, which is doing really well. But certain segments are sluggish in health care and one of them being the hospital networks because a lot of them are still trying to figure out what their funding is going to be from the Trump administration around Medicare and Medicaid.

But what's hot in health care is staffing, so the ability to find nurses and doctors and people that work in the hospital. So that part is doing really well. Transportation for us, which is, obviously, you would think more of a blue collar industry and what would be, what you would think, tied to retail and probably sluggish at this point, but it's actually doing really well for us. And I think that's because we've got a great diversity of products around compliance and the driver, which aren't related to hiring or onboarding.

So we're just seeing a little bit of a mix, and I think some of it offsets the other, and again, gets us back to that kind of flat story, where some are up, some are down. But I think what we've seen vertically over the last couple of quarters. And this is maybe even the last year, primarily since we did the Sterling acquisition, is that we no longer have big swings in our verticals.

They're all kind of like up a couple of points, down a couple of points or flat. And they're all within a tighter band. In the past, we used to have double-digit results, differences between certain verticals. Now we're into a much tighter band, which we like. It gives us a lot more consistency and ability to predict the business.

Got it. Steven, I guess, this whole discussion was basically the base growth component of your growth algo. So maybe you can just remind us what the assumptions for second half were? And then at your Investor Day, you kind of gave some targets, just what you're assuming there as well?

Yes. We always saw base growth being negative for the year in total and that obviously hasn't changed. I think where we've modified our expectations a little bit is we had it getting to this neutral state, but just on the positive side of neutral in the second half of the year.

I think a lot of what Scott just talked about, the uncertainty coming out of Washington, particularly the impact on the retail segment and tariffs and that we kind of see that more direct correlation between a policy action and the reaction in the labor market. We've seen a little bit of that already in retail in the first half of the year.

So when we put together our updated guidance, which we reaffirm the full year guidance, but just kind of the macro expectations within there, we did pull back a little bit on our base, just to give a nod to, hey, this continued tariffs, all this noise about the inflation print this morning was a surprise to people, and I'm sure that they'll be offsetting in different reactions or is it going to be a Supreme case course in November now apparently over tariffs.

So just with all of that uncertainty in mind, derisk the second half a little bit by just pulling to instead of to the plus side of neutral, just the negative side of neutral. But one of the things, to Scott's other point, we've got these a couple of several big deals hitting upsell, cross-sell and new logo productivity in the second half of the year.

So it really doesn't impact the full year projection, but we just see base being a minor headwind essentially as we exit the year and just that nod of uncertainty of how the different segments are going to react to it. But like Scott said, it's not as major pullback, it's just the minor modulation instead of being a tweak positive, it's a tweak negative.

And in terms of the longer-term targets, just again, on the base growth, can you just remind us of the assumptions you had made?

Yes, longer-term targets on base growth is roughly a 2% to 3% contributor to growth, and that's a combination of long-term hiring trends in the U.S., changing demographics, the ability to flex a little bit on price. But we don't see that happening obviously this year.

And frankly, when we put our 4-year model together, don't really see that happening at '26 either just because there's so much noise flowing out of Washington. So we kind of see the next 18 months more or less being this neutral state. You'll have a little bit of positive, a little bit of negative puts and takes between the verticals.

Obviously, like Scott said, international is a plus side of base, and I think that's kind of more indicative of our longer-term expectations of the whole business. As you get that stability, you're able to then get to business as usual.

International grew by over 7% last quarter, so that's a strong result, and we're kind of optimistic that we'll get there on the whole business before the end of that 4-year horizon. But certainly, in the next 18 months, so '25-'26, expecting more of a neutral base environment as all of the policy change, as kind of this just current status quo kind of sets in.

But once interest rates settle down, customers return to growth hiring, new stores, new warehouses, new hospitals, things like that, that will start all of this invest in America trends and things like that will start to take hold and ultimately power some of that base growth.

And then obviously, as we exit the integration and feel -- we've delivered the value to our customers, the ability to kind of return to normal core CPI-type price increases and things like that, will also start to take hold, which will power kind of that normalized 2-ish percent base growth.

Got it. Scott, one more high-level discussion, and you also have a unique experience in this, is around AI, right? I mean you used to run a BPO and now you've got this. So it's kind of a 2-part question. One, on a high level, just your thoughts on whether AI is going to destroy employment levels in the country like some of these AI bosses are predicting? And then I'll follow up with what you guys are doing internally?

Well, I think it's going to -- in the short term, I actually think it's going to create jobs because people are still figuring out like what is it that they want to do. I think inevitably, certain industries will definitely be affected by AI. BPO companies, I think, will be at the top of that list. IT service is not too far behind when AI starts writing proven industrial strength code on a large scale.

And then I think back offices of certain industries like banks, companies that have big call centers are certainly going to be affected by it. But I think we're a couple of years away from it. We're not seeing any degradation of order volumes from our BPO, IT services companies right now, because they're trying to be the players in that space.

They're actually investing a little bit to give other -- give their customers their AI type of offerings through instead of their traditional offerings. So nothing is happening right now. But we clearly will consider that future impact in our go-to-market strategies. We will build in some resiliency against that.

Today, there's a very small percentage of our revenue that comes from IT services and BPO, and I think you'll see us pivot to a little bit more back to that blue collar resiliency that we love so much, whether that's hospitality or mining or education or even white collar in health care. AI is not going to replace nurses and doctors and things like that.

So you'll see us build in some resiliency in our go-to-market strategies in the next couple of years, but we don't think there's a short-term impact of the trend toward AI, but we definitely feel within the next 2, 3 years, those industries will be affected.

Yes. I think to Scott's point, it's changing the way certain companies are working. Even look at First Advantage, right? We did our AI CLICK, CHAT, CALL customer care a couple of years ago, took out roughly 30% of our customer care headcount. Our total headcount actually hasn't gone down because we've taken those savings, reinvested in product, reinvested in sales, reinvested in go-to-market.

And there are stories of other companies like IBM in their earnings a couple of quarter or 2 ago talked about a big multi-hundred person HR savings from AI, but then they reinvested in more heads in sales and in products. So I think for now, it's changing the kind of the mix of employees at companies, but it's not a net total impacting that.

And I think to Scott's point, yes, it might impact certain verticals immediately. But, a, we're being mindful in our go-to-market strategy of making sure we've got just an eye of resiliency, and we like our current vertical diversity because of that. But I don't -- it will be a while before I think you see any wholesale changes in certain verticals just because companies are changing the way they invest in their human capital versus just getting rid of human capital.

Yes. I think, Manav, IBM is a good case study here because their net increase of -- their net from AI was an increase of 300 heads because, again, they're in the investment mode. Things will change in a couple of years, but it's not changing right now.

Got it. And maybe specific to First Advantage just this AI efficiency. Obviously, AI CLICK, CHAT, CALL, you do a lot of -- you used to talk about bots before. I'm sure that's supercharged with AI. To your point, Steven, you're reinvesting a lot of the savings, like I guess the investors broadly out there, obviously, they're willing to be a little bit more patient on if AI creates more revenue opportunities.

But the lazy question is, well, it should save -- they should be able to fire half the sales force or the data collection guys or whatever it is, like you kind of briefly talked about the reality of what's going on. So maybe from your perspective, Scott, how long before you think it becomes a net savings that we all identify and get excited by?

Yes. I think the areas that it will help us the most are in customer care, which you've already -- Steven mentioned a 30% reduction. We will probably see some further optimization there since we've rolled out CLICK, CHAT, CALL to the Sterling customer base, who didn't have that before. I also think that you'll see some savings on the processing side, probably not in sales and not in data collection, but in actual processing where AI can replace some human interventions.

But quite honestly, our initial strategy with AI is not cost savings, it's really more around quality and improving the customer experience. We know inherently, we will get cost savings from doing this stuff. But we've explicitly told our product teams and our ops teams that the AI strategy is to use AI to increase our quality, increase the speed and the velocity it takes us to process checks, reduce manual input that then potentially could have errors.

And the net result of that will be, yes, we will see some improvement. But today, as you mentioned, we're highly automated. 75% of our checks in the U.S. are touchless, so no human involvement. So it's a bot or an API hitting a data source, AI or some automation tool interpreting that, creating a report or creating something on the back end without any human interaction. We think that number will continue to rise through AI, through APIs and more automation.

I don't think it will ever get to 100% because this industry just doesn't have enough digitized data sources for that to happen, but we certainly can get to 90%, and we should be able to do that in the next couple of years. And a lot of that will be accelerated by AI and you'll start to see the results in margins.

We're pretty happy where we are with margins, especially after the Sterling acquisition, which was a much lower margin company than us. And we've been able to get back to almost First Advantage standard margins in a short period of time. So we're marching in the right direction.

Got it.

What I also think, on the revenue side, Manav, I think it's maybe not the products we offer necessarily, but the risks that are being created in the market by AI are creating demand for products. So that's -- the whole evolution of the digital identity concept is really a product of AI being used and creating more opportunities for fraud and the...

Negative...

Yes. So it's a negative side of AI. And of course, our digital identity solutions have AI built into them fighting AI with AI, but it's -- we talked about this a lot at the Investor Day and last week in the fire side. But I think if it wasn't for AI, those opportunities wouldn't be so massive and also wouldn't be so frequently discussed with our customers, right?

So the reason it's becoming so hot is you can go -- you want to create a fake resume, you just go into whatever your GPT engine is, it will create one for you. You can deepfake your interview, you can get through the process a whole lot simpler, where it used to take a lot more work to fake your persona than it was to actually build it up on your own.

So I think it's creating that opportunity, it's creating that new TAM, it's creating that growth and interest in that. So obviously, we're very early days in that product, but I think we'll start to see the revenue side of that not necessarily because the AI embedded in our product, but because of the risks created by AI in the market.

Got it. So just to focus on some of the growth areas that you can control, right? We talked about base growth and so forth and digital ID is part of that. But maybe let's start with the new logo component in your guide, which is you call for, I think, 4% to 5% growth from there. Can you just maybe frame why you're confident in 4% to 5% of growth from new logos every year? Like what's the advantage there, and who are you taking share from?

Yes, I'll jump in and Steven can follow up. I think we have a really sellable brand in the market for a couple of reasons. When we acquired First Advantage and Sterling, we feel were the best 2 companies in this space from a product standpoint, from a go-to-market standpoint, from a brand standpoint. When we put these 2 companies together, we've come up with this best-of-breed technology approach to the market. And the market has really loved it because inevitably, they're getting the ability to pull best-of-breed product and functionality from 2 big platforms.

So it's almost like they got the best of both worlds by going with First Advantage who actually get First Advantage and Sterling. The verticals also are super important, have always been the most important thing in this industry, and now we've just strengthened verticals.

It was a great -- one of the greatest things that we loved about the Sterling deal was the lack of overlap on the verticals. We really only had one vertical where we had overlap. Every other thing was very complementary. So we were big in transportation, they were not.

Health care was our third largest, it was their largest. So when you map it all together, when you go and do a new logo meeting, the 2 things that matter the most are the vertical story. Who else are you doing this for and what's your track record in that vertical and how have you customized your product to that vertical specific needs?

And the second thing is the platform itself. How does it demo? What's the candidate experience? What's the user experience? And we crush it in those areas. Our product demo really well. And our teams, because they're so vertically focused, are able to do consultative sellings, so we come in as subject matter experts.

And we say, "Hey, this is what's going on in the industry. Here's what your peers are doing." It just -- it plays really well. And obviously, we've announced some really large wins this year. And I think the sales engine is just humming. It was the very first functional group that we put together when we did the Sterling deal. We knew go-to-market was the most important, so we focused on that, that team has been working as one team since Q4 of last year, and it's got about 50-50 split of formerly Sterling versus formerly First Advantage leadership running that. I think we just really did a nice job on that, and the market is responding to it.

And it's not just a track record with our customers, I mean the 4%, 5% new logo in upsell, cross-sell both separately, we've been delivering that both First Advantage and Sterling. And one of the reasons we like the companies together is they got great sales track records, been delivering that for 6, 7, 8 years, very consistently because you're able to differentiate with your product and your tech and your applicant experiences, and the data story now combined and all of the new products, AI and being able to stay at the forefront of technology, to Scott's point, it's a very compelling marketing message and obviously continues to resonate.

And we've seen the momentum continue post acquisition with record bookings quantity for enterprise bookings in Q4 after we closed, record bookings dollars after we closed Q1. So we got the momentum, the pipeline to carry us through. So we're very confident in that being a key contributor.

Yes. And Manav, I really think as companies look for cost controls and they look for process improvement and vendor consolidation, they tend to then want to select the larger players who have scale, who have better deals with data providers and they can pass those savings on, so there's a lot of things that are favorable for us right now.

And just to round out the competitive question. So I think versus the traditional competitors, I think they've only gotten weaker or smaller, while you guys have gotten bigger, back to my -- just a time with AI, like is the risk -- like with AI, is the risk that they figure out how to use AI and pick themselves back up or is there someone in the garage that can do something more efficiently?

No. I think that's the nice thing about this industry. I don't think our main competitors have the technology chops and budgets that we have. And we're going to spend $130 million this year on technology. You can do a lot with AI. We've got dedicated AI pods, and they're mostly based out of Poland. That's our innovation center.

So we've got 5, 6 dedicated AI agile pods that are just building AI tools for us, whether it's proof of concepts or full-fledged products. I don't think a lot of our competitors have that skill set. They don't have that scale. I also don't think this is a space that could be easily disrupted by a start-up with some sort of AI solution. It doesn't work that way.

It is just too fractured.

Yes, it's just -- it's so fragmented. You've got to go to literally 900 to 1,000 different data sources just in the U.S. to do just a criminal check, but then what about drug and driver and I-9 and all that stuff. And I think the other thing is the global footprint.

We talk about international growth. But one thing that's really important is the ability for U.S. companies to be able to hire people with foreign backgrounds. Now when we think about international, we think about, okay, selling in those regions, and that's important, that's important to us.

But I mean, there's a high probability some company in New York today is hiring somebody with a foreign background. So you need a background screener that has a global footprint. But that also helps when we talk about new logos and keeping our customers happy with higher retention, is just our scale and size and footprint.

Got it. Maybe let's shift to the cross-sell, upsell side of the components, similar mid-single-digit type contribution. Can you just give us a typical example of what that cross-sell, upsell looks like? Because I guess on face of things, we think it's a background check and you're done. So what's after that?

Well, there's a couple of main themes driving upsell, cross-sell right now. And upsell, cross-sell has been phenomenal for us, as you know, for the last couple of years. The first theme is, you hate to say this, but the world is complicated. In some cases, it's actually dangerous and even in some cases, it's crazy.

And what that means is C-suites and Boards are sitting back and saying, "Wait a minute, how do we protect ourselves? And what are we doing to protect ourselves?" So we talked about the concept of package density many, many times because it's been the biggest driver of upsell, cross-sell for us for years.

So customers are looking for more risk management. They're looking for more safety and more security. And how they do that is by adding to their current checks. So they want to go deeper with those checks. So they instead of going back 7 years, now they want to do 10. Instead of doing a search in a state or a county, they want to do searches in all counties in that state.

And all counties where that person went to school or grew up, they want to do deeper and deeper searches. And any time you hit a database and add something, it adds to the price. And then -- so what we've seen is clients spend continues to increase because they're looking for safety and security.

So client spend is not decreasing, it's actually increasing. And it's increasing at companies that are publicly saying, "Hey, we're decreasing cost. But here's one area or not." And the greatest analogy that we think we have in that is what companies -- how companies view cybersecurity.

If you talk to boards and C-suites about cybersecurity, it's almost like an open checkbook. It's like, "Hey, we've got to protect our data, we got to protect our brand, whatever the best tools, the best providers we've got to go get." We're getting the same type of effect with background screening because companies just don't -- they need to protect their brand, they want to protect their employees, they want to protect their workforce.

So the constant adding and getting deeper and deeper of searches, whether it's going back a number of years, searching more counties, more states, more federal checks, searching a person's name in different -- adding middle initial, adding maiden name, adding aliases, all that adds to the check, and that's a good driver of upsell, cross-sell.

But the other theme is this whole thing that we're talking about the negative use of AI around fraud in the recruitment. Digital identity and fraud protection in recruitment is the hottest topic right now. Every company is petrified and worried about letting in people who are, one, unqualified for a job; or two, aren't who they say they are and potentially are threat actors from North Korea or somewhere, and it's happening all over the place.

So the hottest topic we have right now is -- with customers is how do we take or how do we derisk fraud in the recruitment process? And we've got great tools there. We can make sure the -- when they're doing a video interview that it's not a deepfake. We've got liveness detection to make sure how the light is hitting off skin.

We can do device detection and IP it, so we can say, "Hey, wait a minute, this person is coming in on a device, let's say, a mobile app, that was just purchased in the last 30 days, that's a red flag. Or this IP address is coming from outside of the United States, that's a red flag."

So we've got all these protection. And the other thing that's really -- I know this is a bit complicated, but what's really important is Washington and Trump policies with immigration has actually done us a huge favor on the I-9 side. Companies are really scared about getting audited by the U.S. government around their I-9s.

So you'd be shocked how many companies are out there still doing paper I-9 because it's a post onboarding thing and it's easy to do with paper, "Hey, come into the HR office, fill out your paperwork."

But ours is a digital offering. So if you get -- if a company gets audited by the federal government and they have an I-9 process that's paper, you just basically say, "Okay, the HR department is doing nothing but this for the next 3 months." But with us, you've got digital audit trials, you can do everything digital.

And the other thing we can do is we actually have an audit support service. So if they do get audited, they actually can hire us to support them. It's almost like you're doing TurboTax and the IRS -- TurboTax offers to help there.

And the last piece is that digital ID and I-9 are actually connected. Because if you think about the fraud in the recruitment and onboarding cycle, you've got someone coming in fraudulently to interview and maybe a different person actually shows up for the job, and we have customers tell us that a different person has then showed up to fill out the I-9 who is legal and they do it -- they're doing it legally, but someone illegally is actually doing the job.

So they want us to connect all those dots. So the digital ID product actually is connected to the I-9 product so that we can say, "Hey, the person that you are interviewing is the same person that took the job, is the same person that filled out the I-9 and showed up." And we're really in a unique space of being one of the only or maybe the only type of company that can connect all those dots and that is a home run right now.

I'll give you just a quick client -- I was with the client 2 weeks ago. They asked for the meeting, they came on to the meeting and said, "Okay, our Board has given us 2 weeks to launch a digital identity product, how can you help us?" I mean it's that top of mind because they just don't want to be in the press.

Got it. Okay. There's a lot to dig into that, but we have 2 minutes left. So I just want to go back to a broader question that we get a lot from clients, which is around capital allocation. You obviously did the Sterling acquisition, that's going well. You gave us a little bit of update earlier. But just how should we think about deleveraging, leverage levels, buybacks, more deals, those kind of things?

Well, the capital allocation strategy is pretty easy right now because, a, we're going to finish the integration. We've got a $65 million to $80 million synergy target. We're at $47 million in, so made really good progress. But like Scott mentioned, the last mile of this is going to come from automating fulfillment, combining fulfillment.

So we want to focus on doing that while always mindful of keeping our customers happy and keeping those retained that we didn't get to the last piece of the algorithm, but 96-plus percent retention is a key KPI that we live and breathe by at the company.

So finish the integration, get the synergies, keep the customers happy. While all that's going on, deleverage. So yes, we recognize that in order to get the deal done and finance the $1.2 billion of cash, we took on some debt. We've already started the deleveraging process. So we've prepaid $45 million already, very much free cash flow positive.

And we'll be -- we're using that free cash flow to further deleverage. We're able to reprice the debt and bring our borrowing rate down 50 basis points, about 5 or 6 weeks ago. So just keeping that trend of driving free cash flow. Obviously, the tax cuts will help further drive free cash flow, further pay down debt this year.

Once -- until we get that debt close to that -- our 2x to 3x target and long-term target on our net debt leverage, we'll keep that focus on the integration, on deleveraging, on getting the synergies. When we get closer to that 3x, we can obviously open up the playbook and kind of get to some probably more how we used to look very strategic focus on generating shareholder value.

But for the next, call it, 18 months, it's laser-focused on keeping our customers, getting the synergy targets done, building the best First Advantage through the integration and then obviously, throughout that process deleveraging.

Got it. And maybe just the last word from you, Scott. In that framework, you said you spent $130 million a year in technology. You bought Sterling with a lot of capabilities. So there's no, I guess, need or wish-list for you in terms of M&A that's imminent, I suppose?

No, I think we're in great shape. I would say we're pretty much -- unless something falls in our lap, we're out of the M&A game for a few years while we delever. I mean Steven literally wakes up every day and says, "How can I pay down more debt?" And that's we love that about them. So we're not going to do it. We don't need anything. If something comes to us and it's fire sale, of course, we would potentially look at it. But I think we're out of the game for a while.

Okay. That's good to hear. Well, we're right on time here. So thank you, both, Scott and Steven for your time. I appreciate it.

Thanks for having us.

Thank you.

Good morning. My name is Pete Christiansen. I'm on Citi's equity research team covering a number of different areas, info services, business services in addition to crypto and some LendTech names. Right now, we're excited to showcase First Advantage, certainly an interesting name in this space. dominant market position, and we're joined by Steven Marks, the CFO. Steven, thank you so much for coming. Great to have you.

Thanks for having us, Pete.

Now I think the name is certainly getting a bit more attention. So there has been, I think, maybe a renewed interest in the space. And it's been 4 years since you've gone public and you've undergone a significant transformation with the acquisition of Sterling. Why don't we take first a few minutes, walk through what the company is and what it does for those who might be less familiar and taking a first look.

Yes. It's actually 4 years since we went public and actually 4 years since Sterling went public in September of 2021...

That's right. I remember...

Yes. No. So the story is parallel, really nice. But at our core, First Advantage is a leader in the HR tech and in data space around managing our customers' risk around onboarding and human capital. So our core suite of services is obviously around background screening, making sure that we're helping our customers validate who they're hiring and really what's evolving to a new industry, what we call know your people.

So just as what a background check has evolved over the years and how you fulfill a background check has evolved over the years, what you're trying to now qualify about your candidates and your people is changing. Whereas before everyone was solely focused maybe on their criminal history. We live in a global world, so making sure that we have that global reach, making sure that you can do these searches efficiently using data, both in terms of margin, but also turnaround times and speed of hiring, even knowing that the labor market maybe has cooled off, it's still a highly competitive space and making sure you can onboard your people at the right time as you need them is great.

But like we were talking about in the hallway, it's an evolving landscape with all of the tech enhancements of the world and the advancement of the dark web, knowing who you're hiring and making sure they actually -- who they are, who they say they are. So the evolution into the digital identity space. So we really look at ourselves as a know your people organization and helping our customers manage risk, hire the best people, but also just overall operate human capital at the appropriate compliance level.

We really like complexity. We think complexity spells opportunity, and this is clearly an end market that is getting more complex, needing full suite solution, national coverage, so on and so forth and that regular R&D investment. Maybe you could talk about some of the key priorities of the company right now in terms of its product development road map. And then we'll talk a little bit about scaling and the integration of Sterling after that.

Yes. If you want complex, it is complex. I think people don't realize about background screening is how complicated it is to get the data. There's almost 4,000 unique court jurisdictions in the U.S., and they don't talk to each other. In fact, there's many states where the counties don't talk to the state, the state doesn't talk to the federal. I know we always joke when you kind of join this company, you just assume you go to the FBI, you run those.

FBI has got a nice database of major crimes, murders, major violent crimes, but very poor when it comes to the rest of the place, the pace that, that data gets reported up to. So the key to this to being able to operate a background screener is being able to get that data at speed, at quality, at scale. So we did over 190 million checks last year between First Advantage and Sterling but to be able to do that with turnaround times of a day or less and be able to do that almost at an unlimited scale.

So the reason that we've made that investment, we spend almost $130 million a year on product, tech and innovation is to be able to continuously automate, refine whether it's using our own databases, whether it's automating data flows, whether it's kind of creative ways to get to the data acquisition. And the net output of that, which makes this a really compelling story within our market to our customers, we have customers that need to onboard in certain times of the year thousands or tens of thousands of people at once. They'll do a hiring event around the country on a Saturday.

With First Advantage as their screening provider, they know they'll get most of those results by Monday morning. So then they can move to what's evolved to what we call just-in-time hiring. So corporations have gotten smarter about when they want to onboard people. They've gotten smarter about how much time they incur the cost before those employees are productive. So they want to hire essentially just-in-time shipping but just-in-time hiring, bring those employees on at the right moment, at the last moment.

And they can only do that if they can trust that the screening will get done efficiently in a way that supports that. So when we think about where we spent a lot of that, it is on automating the data flows, automating the processing, refining the reporting. And then a few of the newer realms. A, we talked about digital identity, and I'm sure we'll come back to that. But b, it's around things like the candidate experience.

So 10 years ago when I started at First Advantage, we didn't care about that. It wasn't a thing. But now with the evolution of the smartphone and just the way that the latest generation of workers work, they just want an instant gratification on their phone. So building the mobile experiences, building it where you can just click copies of documents on your phone, take selfies for digital identification. The vast majority of our screens are actually completed now on the phone, where before it was e-mail, fax, web interface, whatever. So it's just a totally evolving market between what the demands of the hirer is, what the demands of the applicant are and ultimately, getting to a speed, quality and global reach standpoint that is second to none.

I think I'm one of the few that's old enough to remember the fax days. Yes, I do remember faxing all my information all over the place. We've certainly come a long way. Maybe you could just chat a little bit on how you're staying organized internally, certainly from managing your data platforms. You have national criminal file, SmartHub, Verified! maybe if you could just walk through each one of those kind of components, how are you thinking about combining them? And what is kind of your go-forward data approach?

Yes. Like we talked about a few minutes ago, right? I mean the core IP is the platforms that can fulfill those searches globally, nationally, locally at scale, at speed, with quality, with the right experiences. Like I mentioned, we spent $130 million on that. So that's over 800 professionals around the globe who are -- whether it's data, whether it's platform, whether it's user experience, whether it's AI. So making sure that we're staying on the forefront of the technology side.

But then, yes, you're right, with leveraging data at the right point. So we've taken a unique approach relative to our industry where, hey, let's own our own data. It's not a very common thing in background screening. So we've got over 900 million records between our national criminal records file, which is over 700 million. And then our Verified! database, which has got mostly employment, but also some education verification in there. That's over 120 million records.

And that one is also compounded with our SmartHub intelligent AI router up on the front end. So leveraging those technologies, we're either to avoid going to a third party, so obviously create margin for ourselves, own the data and can use it in more creative ways. So that creates a competitive dynamic and also gives us some ability to make and build new product.

I'm sure the training capability, you could train a lot more products and features...

It is and also be able to leverage those into tangential products as well. So certainly having a data-forward approach versus relying on third parties where you don't own the cost, you don't own the fees. And then it's also helped us in the go-to-market because when you do have a real data story, it resonates with customers. They understand that. They see the value there. They obviously experience firsthand the turnaround time benefits. But then they also see that we're truly devoted to tech and to innovation and customers want to be a part of that.

Does owning the data make you more price competitive versus I'm thinking of one particular competitor that is known for a series of price increases over the last couple of years on workplace verification that kind of thing. Does owning the data give you a structural advantage to provide more value for money?

Well, they're actually a vendor of ours because we do their screening. So...

Okay. There you go...

I know exactly what you're talking about. No, it gives us a couple of things. One, certainly, it helps us from a margin standpoint. Rather than be solely reliant on a third party who does take liberties with pricing, we're able to control that and it obviously helps our margin percentages and overall cash flow and profitability. In those areas, especially where it becomes a pass-through to our customers, there's a huge go-to-market benefit when you could say, look, we can reduce your cost of ownership of your program by leveraging our data, by leveraging our fulfillment process, so specifically to the employment verification space.

We didn't sign a -- you must go to that one vendor first and primary source. That's where we've made investments 6, 7 years ago, building up our own data. But then I think almost more importantly, using our SmartHub technology, which builds a fulfillment route unique to each and every applicant based on years and millions of fulfillment history that it's got of where that data would be, and it's got a network of data providers that input to it.

So instead of just going to that single Work Number, that data source, it's got our own verified database. It's got fintech players who can do instant verification using payroll data or using banking data. It's got other large data providers in the network. And we have the ability to plug in new data as it comes along and pull out data. And the algorithms are consistently adjusting that dial of where it sends the data to ultimately to create the cheapest cost for our customer, which gives us a great go-to-market standpoint because then we can go out there saying, "Hey, this is a pain point for you. We can promise you savings." And we showcase it to them every quarter when we do our QBRs. But then also for us, rather than just have a straight pass-through, we can create margin out of those alternative data sources, certainly our own data, and it's net margin beneficial to us. So happier customer, more profitable company, it's a great balance.

Does that extend your capabilities or at least your potential in the post-onboarding opportunity set? Is that more -- we should think of that more separate?

It's a little separate. Now having all the innovation resources, certainly, it's beneficial and there's synergies there. The post onboarding is certainly an area that's evolving. The risks are changing. I think -- but look, it requires change management at companies to say, "Hey, we're now going to monitor our employees for criminal history." That piece has been more challenging. Where we've seen post-employment monitoring really be attractive is in transportation.

So we do a lot of continuous monitoring, whether it's on MVR records, but also ongoing compliance monitoring around both drivers and vehicles. So we have a suite of services we call RoadReady. It's got about a dozen products. A lot of them are post employment, more tied to sustained monitoring of drivers, of vehicles, things like that.

Certainly, in health care, there's a whole monitoring suite we have around, we call, HEAL, but it's around health care licensure, making sure that your employees are staying compliant with their health care. There's no board findings, things like that, that would make them noncompliant. And we're also seeing it in financial services around just some other areas where you want to make sure that you're more in the regulated spaces, but your employees are compliant. It's less around criminal, which is maybe where back at the time of the IPO, we thought the industry might be going. But there are plenty of other places where postemployment has taken a good foothold.

Plus in addition, on the financial services side, I'm just -- because I'm familiar, so in addition to things like broker check and like that, you're able to find incremental check opportunities. That's interesting. You did mention go-to-market a bit. Take -- certainly walk us through the current go-to-market strategy with Sterling 5.0. I'd like to hear about that.

Yes. Yes. So yes, with FA 5.0, I mean, honestly, one of -- we got the [ marketing cover over here ]. One of the first places we integrated was our go-to-market. And if there was ever a positive out of having a 6-month DOJ second request review is we had a lot of time to get the infrastructure in place and be ready to execute. So look, we couldn't work through names and we couldn't work through customer-specific items and things like that, but we got all the infrastructure. So we closed at 8:00 a.m. on the 31st. By 9:00 a.m., our executives were having outreach calls to major Sterling customers.

So we were, a, hyper focused on the customer retention aspect of this. So -- and we've been really proud between our messaging just through the public markets and in press releases, through our kind of executive engagement, but just through our overall integration approach to preserve 96-plus percent retention. It's been 18 months since we announced the acquisition back in February. So it's both a validation that our messaging was right, but also that in 10 months after we've closed, we haven't screwed anything up in terms of the integration that would cause customers to want to go elsewhere.

So that was mission number one. And then certainly, mission number two was getting just the go-to-market messaging and marketing aligned. So our marketing teams have been integrated, our vertical establishment, getting our general manager structure in place. All of that we did early in the process. It's resonating well. I think as you've kind of heard, Q4 right after we closed, a number of units of enterprise bookings was a record. Q1, the number of dollars of enterprise bookings was a record. We had several marquee deals that powered that. So we feel really good about...

I believe that sounded like a pro forma basis.

Yes. No, we went back into the history of FA, Sterling, added them together. I mean we had some really big deals signed. And look, if those customers were concerned about our integration approach about what we were doing and how we were doing, they wouldn't have signed. And it was from multiple verticals, different competitive dynamics, different geographic dynamics.

So we feel really good about where we are. And then the fact that things like digital identity that we're able to add to the pipeline with new product or even being able to now cross-sell products from one company to the other, we just announced back in July that now our First Advantage tax services credits, WOTC credit services that we've been offering, which is -- it's not the biggest product, but very good margin, but very impactful to customers because it's -- they make a lot of money on these things.

We're now able to cross-sell that into the Sterling base, now just getting that pipeline rolling. So we're really approaching the integration to our customers as how can we find things that are additive, so rolling them out as upgrades. So we launched our CLICK, CHAT, CALL customer care initiative. That's really seen as an upgrade to Sterling customers. There's also some really nice things that Sterling was doing on how they were acquiring some of that 4,000 different court data that will roll out to the First Advantage customers.

And they won't see a cost benefit to that. They will see a huge turnaround time. One of the largest cities in the country is still one of the most manual courthouses you'll ever see. It's not this one, but the other -- there's a couple of them. Sterling just had a better, a more creative way of acquiring that data. We're not able to leverage that to First Advantage customers. They'll see the benefit whether -- from turnaround time so they can now in that market know that their turnaround time speed will vastly improve. They can get to the just-in-time hiring in that core market.

You did touch upon a bunch of areas within upsell, cross-sell, and I do want to go through some of the growth algorithm components right now, but upsell, cross-sell is the largest component of the algo. Maybe talk about what you're seeing in overall trends, where you're seeing customers kind of gravitating to maybe what's not working, what is working? And what are you most excited about on that?

Yes. So upsell, cross-sell is really 3 kind of -- there's 3 kind of vectors of growth there. So the 2 easy ones to really understand are gaining share of wallet. So whether that's a U.S. customer where we're going to grow internationally. So we get their Europe business, we get their Asia business or a lot of companies in the U.S., we might have certain subsidiaries or certain regions or certain business groups, again, gaining that share of wallet.

And we've been very successful there. The international rollouts take a little longer because you're navigating a more complex web of integration of compliance complexity, et cetera. But that's been very successful cross-selling new products. So I think that's kind of the -- I think that gives us the bigger white space. That's the more of the evolving area, selling our I-9 product, selling the tax credit product. That's where the digital identity growth is most opportunistic.

What's been the most powerful piece though has been package density, which really is conceptually helping our customers dial up and dial in their risk management profile to the appropriate space. So oftentimes, a customer may start with a very basic package. Just going to check criminal records, do a social security number verification and that's really it. Not doing sex offender, not doing global sanctions, not going deep in the criminal history, not doing national or federal or anything like that.

So being verticalized in our go-to-market approach has really helped us showcase to our customers, hey, where are you weak? Where are you strong? Benchmark them against the top logos in their industry. And upsell, cross-sell has been the most powerful piece of that and consistent -- driver of upsell, cross-sell growth just through package density, package density, package density. And that trend is not changing, by the way. Because what we've seen happen is we had a client in the retail -- sorry, hospitality space a couple of years ago. Someone was recording something in their facilities they shouldn't have, it immediately hit Board level attention.

They called us saying, "Hey, what are we doing wrong?" We showed, "Hey, we've been telling you for years, you've been doing a weak search." 300% scope increase. They will never unwind that, right? So very powerful, very sticky. But then I think where the most opportunity comes from is certainly that the new products, the new innovation. So digital identity being the #1 opportunity there that we see, but also being able to cross-sell the products that were unique within First Advantage and Sterling to the other installed base is also a fair amount of white space.

I do want to talk about digital identity in a second, but back on package density. Obviously, it makes sense to increase the scope, get more data sources involved, even in the world that we're living in today. But are they also going deeper, maybe further back? Are they seeing any benefit from there? I think at point -- we're seeing some benefit from...

It's a combination. Like I said, a very simple search might be a 3-year criminal history, only county of residence or whatever. We can develop names and addresses. So go find out that, that person has been using Steven with a ph instead of a v in certain circumstances to help circumvent some of this or Marks with an x, not ks in certain circumstances, right? So we can develop additional names to make sure we have the coverage for that.

We can develop addresses. So Steven didn't tell you about that apartment he lived in, in wherever, New Orleans and got into trouble. We can also use our national criminal file to help expand the scope to a national level. So we can always go -- there's tons of avenues to go deeper. And we've got -- with 190 million annual screens, we've got a ton of operational data that we can build those cases on to help customers get there.

And it's not just on criminal, right? You can go deeper on education or employment. You can go deeper, whether on global sanctions and things like that. So they're certainly there. And then I think on the cross-sell side, the one area that this administration seems to be really enforcing from a regulatory standpoint is the right to work. So we've also seen a lot of interest in our I-9 product offering, which is the E-Verify U.S. being able to work legally in the U.S.

That's a great service because it's a super easy workflow when it integrates into our Profile Advantage applicant experience. Candidate doesn't even know why they're being asked the question, but they're being prequalified for their I-9. And then we're able to leverage that into our Digital Identity searches, I imagine we'll be talking about in a second and really have this very cohesive risk management profile.

Right. I want to talk about Digital Identity, where First Advantage's capabilities are now, where you want to take them. I've actually done some hiring this year, so -- and leveraging the First Advantage Sterling kind of platforms for sure, but it's funny now I have to -- every time I check off a portion of the hiring process, I have to verify a photo each time. It's pretty amazing. And I think COVID obviously saw this explosion of ID fraud and people having multiple jobs at the same time, that kind of thing.

What's the state of ID verification right now in the market, the pickup that you're seeing from your existing client base? And do you feel like you have the right capabilities in-house to really grow this portion of the business?

It's a great question. First, thanks for your business. But no, so you're absolutely right. I think the combination of our virtual environments that we all live in, right, interviewing, even remote work, hybrid work, has created new risks. I think the technological evolution, I think the negative side of AI, you can fake a resume, a CV. Now with the deep fake technology, you can just fake a whole persona and interview on someone else's behalf.

So I think the risks have rapidly evolved. And I think over the last 6, 8, 12 months, I think corporations have started to very quickly realize those risks. The same day we did our Investor Day, there happened to be an article out of the Wall Street Journal that highlighted 300 corporations in the U.S. that had hired someone from North Korea and didn't know it until after they onboarded them. In those companies, they were using fake IP addresses, fake resume, stolen identities, synthetic identities, all of those things to -- and in a lot of those cases, they weren't trying to do something nefarious, but they were trying to earn U.S. dollars and send them back home.

In some of those scenarios, it became an Infosec problem. So the risks are becoming very, very real. And I think, fortunately, for our marketing budget, I think companies are starting to get educated on those very rapidly on what those risks are. So the whole concept of the digital identity is really that KYP, know your people concept that I was talking about at the onset. And our product solution and where First Advantage can really fit in well with that is when you onboard someone, we're at the middle of a lot of what companies are trying to do, right?

You're trying to screen someone, you're trying to interview them, then you're trying to background check them, onboard them, write to work check them post onboard. At all of those points of time, there's opportunity to sell a digital identity solution. But where companies have -- and look, you can -- we've had partnerships, whether it's Sterling with ID.me, First Advantage with Yoti that we've talked about publicly before, those become point solutions if you go direct.

And then it becomes Citi's obligation to figure out, all right, was there a candidate persona identity swap out between those phases? Where we feel a unique point of the position is we can sit in the middle there and help make sure and do that validation for you. Hey, was this person the right person you interviewed? Does it validate to their identity? Was this the same person that we background checked? Is this the same person you onboarded? Is this the same person we submitted to the DHS for your I-9 E-Verify search. So we're starting to get a lot of traction on that.

We've seen use cases in terms of a financial services client, not Citi, that may want to use it 6 to 8x every time they onboard person at each and every one of those stages. At a retailer, it might be 1 to 2, but it is a quickly evolving market. We think we have all the resources we need in-house to do it, but very similar to kind of our employment verification space we've taken this open marketplace approach. So we don't just use one provider. We haven't built our own tech. We're leveraging a network of identity solutions provider because the provider networks are rapidly evolving, too.

The tech at the CLEARs, the ID.mes, a few of those guys are just rapidly evolving. So we want to be open to identify the right and best tech provider and solution there. We can plug them into our process. And then our customers leverage the benefit of that. We also obviously can leverage the margin side of having multiple providers. And at the same time, we don't have to build it. So we feel like we're positioned really, really well.

Obviously, the market is getting very rapidly educated on the risk. It's a huge TAM that we're trying to tap into. And then we're very optimistic. The pipeline is building rapidly. When you talk to our customer success teams as they do QBRs with their clients, roughly 50% of the time is being devoted to these types of risks and what our product solutions are. So we're demoing it up...

50%...

Yes. No, there was a story I was hearing -- Scott, our CEO, was out in the West Coast last week and was telling us that he was in a QBR. And that company had an issue, very similar to that Wall Street Journal article, and their Board mandated they have to have a solution in place in 10 days. So it's becoming very real. The pipeline is building very rapidly, and we're very optimistic that in 2026, we'll have a lot more good data to share in financials on it. But we're very optimistic on it. And I think this is an area that will evolve very rapidly just because the risk -- I mean the technology is making the risk evolve so rapidly.

More complexity. That's what we like. It's amazing how HR now is an attack vector for...

No offense, HR also tends to be one of the slower adopters of tech. So I think to your point on complexity and where we fit in, we can be the trusted adviser. We can make it -- hey, we have the full-scale solution instead of you having to figure out how to handle what we would call point solutions, right? Doing a single ID verification with an ID company becomes a point solution because then it's up to the company to link it all together to triangulate that person through the various processes. So we're optimistic about where we sit. We sit in a very opportunistic part of that onboarding process where we can help coordinate the linkage of that persona through those various phases. And that's certainly an area that we're hoping evolves very well for us over the next couple of years.

Do you believe that this area is the largest wallet share opportunity for First Advantage?

I don't know about that. I think it's certainly one of the best areas to grow through cross-sell and upsell for us, just given the...

The existing base, I mean...

Well, to be honest, our largest consumer right now of digital identity was new logo for the digital identity. We actually sold them digital identity first and then sold them background screening second. So it gives us just a lot more market opportunity, new things to sell. Our sales team loves having new toys. It's kind of best of all worlds there. And obviously, a lot still has to evolve to get to its kind of critical mass and start really realizing the financial benefits, but very optimistic about where it's taken us.

That's exciting. I do want to touch upon new logo growth and how you're seeing the market evolve especially now with Sterling, how has that changed your right to win on the new logo side and maybe talk about some of the trends that you're seeing.

Yes. I mean, look, what we liked about both companies' culture is sales were very productive in both, right? So when we did the diligence, both companies were producing 4%, 5%, 6% new logo growth every year, had a vertical focus, very sales forward. Now obviously, we've taken that best-of-breed, best athlete approach. So we feel like we've got a very, very capable go-to-market crew. Obviously, yielding early success from that, whether it's the number of bookings, the size of the bookings or our average booking size is going up, which we like. So we're selling more density earlier on, which certainly helps.

But we also feel, look, our size and scale gives us a very compelling competitive story when it comes to go-to-market. We've got best tech. We're spending obviously far more there, and we're able to invest in digital identity and AI and data and applicant experience. We don't have to prioritize one over the other. We're able to invest in all. Obviously, from a marketing standpoint, we've got very capable best-in-class resources. And look, at the end of the day, our brand name is going to be up there.

So I don't think there's a major RFP that we're excluded from by nature. So we feel really good about it. You power that the new logo growth with the ability to then bring in a client and then farm them through upsell, cross-sell into a bigger client, we feel really, really good about it. And at the same time, that we want to grow new clients, have not lost any focus on our existing clients. I go back to that 96% retention. That is a KPI that we talk about obsessively internally because that's really the measure of how we're doing.

I do want to -- we have 5 minutes left. I do want to certainly touch on 2 points here. Base growth. Base growth has had some puts and takes in the last 12 -- sorry, 8 quarters. And obviously, the employment market is going through some shifts and has been for some time. Can you just walk -- remind us some of the dynamics that you've seen on a combined basis, both on a pro forma basis. What's been some of the puts and takes on base growth? And how should we think about that exiting this year?

Well, I'd almost go back to the 4-year anniversary of our IPO and kind of put the last 4 years, right? We came out of the pandemic, great onboarding, great resignation, war for talent, whatever we want to call it. So base growth ballooned, right? A key economic point we always look at is the number of job openings to those unemployed. That was well over 2.2:1 back in 2020 -- early '22, late 2021. That is not sustainable.

So we had this ballooning effect essentially of just of churn in the market. And vertical by vertical, that's kind of steadied back out. Of course, when that steadies out, it comes through as negative base for us. But what we've really been seeing over the last 3, 4 quarters is that pace of change rapidly tempering down and seen a lot more sequential stability in the numbers in the last number of quarters. So yes, it comes through as negative base, but that pace of negative base has been feathering down and getting really to this neutral state.

So we're really getting into that now where we see most of the verticals have normalized out internationally, certainly normalized out far before the U.S. saw, good international momentum last quarter, up 7%. That includes base being positive. Look, things like tariffs have probably put a little bit of a sour on the retail vertical, but that's why we like our new vertical diversity from the Sterling acquisition, where we've got health care...

Not relying on holidays...

Right. It's still a factor in our year, but we're not reliant on it anymore. So I think, again, the stability is kind of where we see it at. It's certainly not back to the point where we were prepandemic, where there's kind of a consistent base growth. We still think we're a ways away from that because I haven't seen investment hiring return yet that does impact base. But certainly, what our customers are telling us is to expect more of the same hiring at a very similar pace that we've been hiring in the last number of quarters, which, again, we're fine with because even if base is neutral, we're still driving new logo, we're still driving upsell, cross-sell. We're still driving retention.

It's no longer holding you back anymore. [ It's not ] a detriment.

Correct.

Before the acquisition of Sterling, you certainly had a vertical over-indexation to transportation and retail, things like -- and tech in general. Now with Sterling, you had more health care, obviously, and then financial services for sure. How do you think about vertical diversification going forward? Are you making efforts to increase that? Or do you feel kind of happy where things are now?

We're certainly happy that we have more diversification. And obviously, we can drive some of that through product investment, making sure that we've got the products to serve those growth verticals. So RoadReady, the health care unique products, things like that because those verticals we're very bullish on long term. That said we want to grow everywhere. There's no real -- we're not trying to exclude any markets. We think we've got a very compelling product suite that can help us grow all over the place. But certainly, we like health care. We like transportation. They've been very resilient. There's a lot of density in those because of the regulatory environment that oversees them. But we'll continue to grow throughout the vertical pie chart.

I do you want to talk about where we are in terms of the integration and some of the efforts you've made on the capital allocation front. You're in Phase 1 right now or nearing the end of Phase 1. And you've had a clear focus on deleveraging post the acquisition and creating all these synergies. Phase 2 is at a new leverage level, but it sounds like you'll be in more of a position to lean more on perhaps inorganic growth strategies. Is that how we should think about the progression?

Yes. So really, the story for kind of 2025, 2026 more or less as we're completing the integration, getting the synergies through the program. We've already at $47 million through last quarter, we got a $65 million to $80 million target and getting that leverage back towards our target range of 2x to 3x, our focus is going to be organic growth integration, synergies, deleveraging. Once we get leverage into that target range, we can certainly open up the capital allocation playbook.

But it's hard to say what that's going to be because I don't know what the market is going to look like 2 years from now. But certainly, we'll have more flexibility in our capital allocation priorities when that time hits. Until then, core focus still integrate the businesses, get the synergies, keep customer retention where it is and then deleveraging, which we're already off to a really good start. We've already paid down $45 million of the debt, repriced the debt with a 50 basis point lower interest rate. So I feel like we're making really good progress there, but still have a good ways to go.

Certainly, it is progress on a number of fronts here. And it sounds like all engines could be firing at the same time pretty soon. So fingers crossed. But anyway, thank you. Steven Marks, CFO of First Advantage. Great to have you.

Thank you, Pete.

Thank you very much.

Late evening to everybody here who's joining us. Thank you for joining -- sticking around here for our Credit Bureau Day. And we're very pleased to have added this year to the lineup First Advantage, especially coming off the big merger that they're currently integrating with. And we have Scott Staples, the CEO; Steven Marks, the CFO; and then Stephanie Gorman as well IR is around, if needed. So thank you all for being here. .

For those that of you are dialing in, it's a regular kind of fireside chat format. Myself and Ronan will have a bunch of questions on -- to ask management team. You should see a Q&A box in your screen. If you have any specific questions you want to throw out now or during the conversation, I will do my best to incorporate them into the discussion. I also have my Bloomberg open, if that's helpful or easier for anybody.

So with that out of the way, again, thank you all for being here.

Scott, maybe I'll just kick it off with you. I know you're not new to the public markets, but let's just say first time at this Investor Day. So maybe we can start with just the value proposition of First Advantage, what they do? Because on a high level, I think everyone is probably oversimplifying by saying it just does my background check before I start a new job. So maybe you can just put some framework parameters around appreciating First Advantage to start with.

Yes. Thanks, Manav, and thanks for having us today. We're super excited to be part of this. I think just let's start with the First Advantage overview. We're a global software and data company. So I think, yes, ultimately, the software and the data is used to run background checks for clients that are onboarding new employees or if they're monitoring existing employees or drivers or contractors or whoever they are. But I think there's a couple of unique value propositions for First Advantage.

One is global. We're a global organization. We do background checks and sell our software and data in 200 countries and territories. We've got a really nice client base, 80,000 customers, a big focus on enterprise customers, which has been great for us. We diversified through vertical offerings. So our products are customized by vertical, and we'll obviously get into that probably a little later because I think that's the secret sauce to our success in this space, knowing industry segments, customizing our software to the buyers in our market. I think the other thing is the trust factor. We're in compliance. We're in safety and risk. And in today's world, that's really important. The world is an interesting and unique place.

So our ability to make customers feel comfortable about the safety of their brand, of their workforce, of their workplace is really important to us. But at the end of the day, the real backbone of First Advantage is our platforms. It's the technology, the software and the data that make it hum and that's what we're very proud of. We're the category leader in this space. That's also very important in terms of size and scale and spend and reach. So those are all things that kind of line up to put us in the nice position that we're in today.

And maybe just to put some numbers around it, and Steven, feel free to jump in, too. But maybe we can walk through your long-term growth algorithm and the different components of that? Because, again, I think the for a new investor, at least the oversimplification would be just based on the number of job churn, but it's clearly more than that. So maybe we can just talk through that.

Yes. Steven, why don't you take that one?

Yes. No, Manav, it's a great point. So we're able to drive our revenue growth, and it's got 4 real factors to it. And there's base growth, which is kind of easiest to call it same-store sales. And I'll come to that at the end because that's probably going to drive us into a little bit more of a macro topic. But the other 3 elements, we really have the ability to influence through, as Scott mentioned, our verticalized enterprise-focused go-to-market. So we've consistently been able to drive 4% or 5% new logo growth.

So like Scott mentioned, we work in attractive verticals globally around the world and have been able to drive that growth. And it was obviously a very consistent trend with the Sterling acquisition. So consistency through macro backdrops, huge white space and a lot of TAM to be able to continue to take market share, grow into some more emerging markets, whether that be APAC and India, so to have that global span and enterprise footprint and consistency to drive that growth.

And like Scott mentioned, we're able to drive that growth in the new logo by differentiating ourselves with our platforms, our tech experience and new product. And then using those new products, we're actually able to drive 4% or 5% additional incremental growth through upsell and cross-sell. And upsell and cross-sell is really 3 things. A, we can gain additional territory within clients.

So expanding from the U.S. globally or taking additional geography or regions or subsidiaries even domestically. We have a very wide portfolio of products around the onboarding and post-onboarding space, so we can cross-sell a customer who might start with background screening into drug testing, into I-9 services, into tax credit services and things like that. But almost most importantly and most powerfully, we can upsell into what we call package density, which is helping our clients increase the scope of their services, the density of their background screening packages to make sure that they're amply covering off the risk that match their verticals and their company's risk profile.

And that last piece has been the most powerful and consistent lever of upsell, cross-sell growth the last, boy, 5, 6, 7 years, and we see a ton of white space to continue doing that. That's part of why being verticalized enterprise focused really matters. So 4% to 5% new logo, add on 4% to 5% upsell, cross-sell, call that 8%, 9%, 10%. And then we're able to retain our customers at 96% plus. So that's a gross retention rate. So do the math, net-net, we're able to influence and drive 5% plus or minus mid-single-digit growth through upsell, cross-sell, through new logo, through strong retention.

And then it comes down to base. And base, as I mentioned, is same-store sales. So that's really impacted by more of the macro. There is a little controllable factor in there in pricing, but pricing has been a very stable factor in our industry. So we've seen base be all over the place, candidly, the last 5 years, just coming out of the pandemic, the war for talent. And now we've really found ourselves in this more stabilization cycle the last number of years. But even as the JOLTS data that got posted this morning shows you, it's been very consistent in the last kind of 14 months or so.

So we're really seeing base approach that net neutral state. And then so when you compound all that together, we're able to influence a lot of growth, upsell, cross-sell, new logo, retain our business at an incredibly high rate and then see that stabilization trend helping support our overall revenue growth.

Got it. Before we touch on TAM and share since you brought up base growth, Scott, in terms of your discussions with your clients, I know we just talked about how you've been busy meeting a lot of them. Obviously, we all see the JOLTS numbers. We see the BLS data. So we have some sense. But I guess what I'm looking for, what the clients are asking is more kind of anecdotal commentary around what you're hearing from them? Are they still in the pause and not making any changes more? Are they starting to pick up activity? Just anything you can add there would be helpful.

Yes. I think we've always relied for our own forecasting on client conversations. We use BLS and JOLTS data as a data point. It's become a little bit more unreliable over the last couple of years, certainly post-COVID. Where we really see a tighter correlation between BLS and JOLTS data is in the SMB space. They tend to align -- the SMB market tends to align pretty well with what JOLTS is saying. But enterprise tends to be a bit different.

So that's why client communications are so important. And we are constantly in front of our customers, especially our large customers. So I think it really aligns to maybe a bigger picture. If you look at JOLTS data, for example, and you're looking at quits and unemployment rate and hires and openings. And if you go back a couple of quarters and you look at it more at a high level versus a monthly, it tells a picture that's maybe different than what you're hearing in the press. It tells a picture of stability and what I would call flatness. I would say the job market is absolutely flat. And that's not necessarily a bad thing. We are not hearing from customers of decreasing their workforces.

We are hearing them sort of saying, hey, we're going to -- we're holding our forecasting and our planning close to the vest because there's still some uncertainty as to what's happening with tariffs and with the rate cuts and whatever is going to come out of Washington policy. So they're not -- definitely not hiring ahead of the curve. We've been using a term around the company for literally the last maybe 2 years, which is what we call just-in-time hiring.

Our customers are really doing just-in-time hiring. So they're still hiring. They're replacing -- they're doing backfill hiring. They're hiring for potentially peak season and that kind of stuff. They're certainly not doing any advanced hiring or what we call growth hiring. So our customers are really sending a signal to us that the job market is flat. It's more like replacement hiring versus growth hiring. And that's not necessarily a bad thing for us because as Steven just walked you through on the growth algorithm, if same-store sales are flat, we still can grow and grow pretty nicely. So we'll continue to talk to our customers and monitor situations.

Obviously, tariffs, rate cuts, other things coming out of Washington have kept the market sort of on a cautious level, and that's kind of where we see customers today.

I'd also add just-in-time hiring is actually also not a bad thing for us either because it allows us to flex some of our competitive differentiation. So the ability to do what we do at the scale we do it at and then almost more importantly to the just-in-time hiring is the speed we're able to do it at using the automation, using our data resources allows us to help our customers operate that way. Not everyone in our industry can take a weekend hiring event of tens of thousands of people, and our customers have faith that they know that they're going to get 90-plus percent of those done by Monday morning and be planned and ready to onboard that week. So the ability to go to market to work with our customers to have all of the infrastructure to operate at speed, at scale. So that just-in-time hiring really helps us differentiate in the market and helps us kind of either maintain that 96-plus percent retention rate or even help power that 4% or 5% new logo growth.

Okay. Two follow-ups to that flat comment. One, can you just remind us your base growth assumptions for the second half of the year and any comps or something to call out as we roll into 2026? And then, Scott, you talked about how the BLS data is more correlated to the SMB side of the business. And then you gave us some commentary on your enterprise. So maybe just that mix of SMB versus enterprise as a percentage of your revenues?

Yes. So, Manav, it's a great question. So when we think about the second half of the year and base growth, particularly, our original assumption for the year was base would just be on the ever so slight side of positive -- and then as Scott mentioned, just with a lot more of the uncertainty and just given some of the feedback, when we gave out our guidance a few weeks ago, just from a kind of a risk management standpoint, have just kind of tailored that to just the slight side of neutral on the negative side.

So effectively, it's just the negative side of flat. And that's kind of the flatness trend that Scott was talking about. But just wanted to make sure that we have an err of conservatism. The First Advantage historical customer base, our larger retail vertical, our larger transportation vertical, there's still a seasonal hiring trend for the U.S. holiday season. So there's not a reliance on that. We have a much more diverse vertical spread now. But certainly, we wanted to give a little oh to, hey, the tariffs and Washington policy creates a little uncertainty there.

So we've derisked that second half a little bit in terms of our base guidance. But effectively, from a modeling standpoint, it's the negative side of neutral, which is very close to neutral.

Yes. And SMB is really not a major focus for us. We certainly sell in the SMB space, but we don't focus on it. SMB customers can come to our website. They can order products on our website. They can pay for products on our website. It's a completely different service model, support model, sales model. So everything we do is really geared more toward enterprise.

Got it. Okay. And maybe just to wrap up the base growth assumptions. At Investor Day, I think you gave some framework on what you expected next year and the next couple of years, if you just wanted to reiterate that for the audience?

Yes. So when we modeled our long-term growth assumption through 2028, I mean, obviously, like we've talked about when we've given our guidance and update for the guidance, base will be negative -- ever so slightly negative, obviously, in the second half of the year, negative for the year. And that's just a concept around where base originally turned negative in 2022. It's been roughly a 3-year normalization cycle because we operate in a wide number of verticals, each kind of vertical has operated a little bit independently.

Some verticals have oriented back towards normalized hiring far earlier. Some have been far more resilient and just taken longer to get back to a normalized hiring pace. Like Scott talked about, now that we've been in this flat environment for a sustained period of time, we really feel like we're there.

Given what we're seeing out of Washington and hearing from customers, we don't see 2026 as the year where we get back to the full long-term growth assumptions in base. That's about a 2% to 3% positive. which aligns a lot to kind of a GDP or if you look at long-term hiring trends, we do have the ability to do some CPI pricing type increases that get you there as well. But we kind of see 2026 is still more of a transitory year. So again, hovering around that neutral state and then getting closer to our long-term model than the outer years of the 4-year model.

Got it. Maybe let's ask the vertical mix question in a different way. I think can you just remind us of your white collar versus blue collar mix? And then even within that, I think -- I mean, I know you're fairly diversified, but maybe just call out some of the key verticals that you're exposed to and some of the trends you're seeing there?

Yes. So white collar, blue collar mix is probably roughly about 50-50 First Advantage was historically like 70-30, blue collar to white collar and Sterling was about the opposite. So when we put 2 equal sized companies together, we ended up roughly around 50-50. But there's some good news there, though. Our health care vertical has now become our largest vertical. And with an aging population in the U.S., we really like our positioning in health care.

And I would say when you think of health care, it's really a number of sub-verticals within health care. So you've got hospital networks, you've got post-acute care, you've got home health care, you've got health care staffing. So there's a really nice diversity within health care. So one of the largest growing segments in the U.S., we're extremely well positioned. We're about 24% of our business is now health care and then diversified within it.

Our second largest vertical is transportation, and that's more of a blue-collar focus. So again, we kind of like one -- our largest being kind of white collar, our second largest being blue collar. And what we really -- I think what a lot of people don't understand about our transportation business. And if you look at our earnings announcements over the last couple of quarters, our transportation business has done extremely well.

And most people kind of think transportation is one of those things that as -- with retail goes down, transportation goes down because obviously, they're delivering product. And tariffs could affect retail, which then could affect transportation. But it's not happening to us because in transportation, we really have a large set of products. We sell over a dozen products in transportation and about half of them or more than half of them are not tied to the hiring or onboarding of an employee or a driver or a warehouse worker or whatever. They're more compliance related.

So you think about things like we do title and registration for the vehicles for companies. We keep driver files for companies. We do DOT compliance. We file gas tax with the federal government for these companies. So lots of things. We do MDR monitoring, which is massive because these companies can't have drivers out there with suspended licenses or whatever. So a lot of that transportation revenue comes more from compliance than the onboarding of a truck or a driver. So those 2 big verticals in health care and transportation have been really doing well for us.

Our third largest vertical is retail, which has also held up fairly well. It's been slightly down over the last couple of quarters, but not by a lot. And I think that's because our retail focus is not mainstreet brick-and-mortar. It's more large-scale essential retailers. It's e-commerce. It's -- people are still ordering online, having things delivered to their homes. That's a really good business for us. And then there's obviously lots of other verticals, and that gives us nice diversification between white collar, blue collar verticals that are more resilient than others. We really like the fact that we've got this really nice diversification. And I think that's one of the main reasons we did the Sterling deal was that it brought us vertical diversification that we felt like we could use and benefit from.

So as I mentioned earlier, when I introduced the company, vertical go-to-market is everything for us. So when we talk about verticals, we're talking about fully being aligned to an industry, and that's not just from a sales and marketing standpoint, but it's from a solution engineer standpoint, it's from a product standpoint. It's from a customer care and customer success standpoint. So we are aligned by these verticals so that when we go in to talk to these vertical buyers, we come in as subject matter experts, and that helps us do consultative selling.

So when Steven talked about package density and our ability to continue to drive great upsell, cross-sell numbers, it's because our buyers see us as experts and we're using data to show them how they can improve their program and what gaps they have and that ultimately leads to upsell and cross-sell.

Yes, I was going to ask you about that. So you touched on the upsell, cross-sell. Maybe to appreciate the new logo growth of, call it, mid-single digit plus a year, maybe we can step back and you can help us appreciate what the TAM of the market is, how you define it? How much of it is already vended versus maybe people who don't do it, which would be surprising, but just curious how you would frame that.

Yes. I mean the background screening TAM is about $14 billion by itself. With the evolution of AI and a few other things, we had the additional TAM that now we have service offerings in on digital identity, which is an additional $10 billion, sorry. But if you focus on that $14 billion background screening TAM for a minute, it's roughly 50% vended and 50% unvended.

And the way you really think about that is not 50% of companies aren't getting background screened. In the U.S., almost everyone is, but they're not doing all of the background screening. They're not doing all of the drug testing, which gives us plenty of white space in a very developed, very concentrated market like the U.S. to continue to upsell and cross-sell incremental services that the clients aren't ordering. And then when you look at some of our international markets, roughly half of our new logo wins within our APAC region, as an example, are never ever background screening companies before, never have screened, never have done anything before.

So it's growing both from getting attachment to background screening outside the U.S. and more deeply penetrating the existing market within the U.S. So it's roughly 50% vended and unvended. Then if you look at our $1.5 billion scale relative to that vended market, we've got roughly 25% market share. So a ton of green space to grow into, a ton of white space to continue to grow the industry into. So we feel really good about it. And then with the advent of risks that come from fraud in the hiring process, the downside of AI, much easier to fake resumes, CVs, deep stake interviews.

You don't even know if it's media. We didn't do a digital identity when I joined this call, could be anybody. But those risks have created a whole new market of products and solutions that help companies that help just organizations validate that -- we call it the know your people industry. It's kind of what banking did with KYC, companies are starting to do with their employees, contractors, volunteers, et cetera, but really validating do you know the people you're letting into your organization, whether that's physically in your warehouses and stores, virtually into your IT environment, IP, things like that.

So it's a whole new world of evolving risk, like Scott in kind of his intro, it has become a scarier world and this evolution of fraud and the hiring process and onboarding process has opened up this new TAM. And it's very early. So it's still a small contributor of revenue. But as Scott can tell you, it's becoming an ever more popular and more prominent conversation point with customers. Our new products on it are coming out almost in real time, and the interest is very real. So as that attachment rate picks up, we'll start having a lot more positive news around our revenue and how we're helping our customers navigate those risks.

Got it. Maybe this is a good time to just talk about the merger. Why now, why recently, I guess, as a push in? What was the thought process behind it and how we should all be appreciating that decision?

So it's funny. Manav, we've been working on this for so long. It feels like years. We'll have -- we will celebrate a 1-year anniversary of finalizing the deal on October 31. So we're actually coming up fairly quickly to that mark. And it's really been great. I mean when you go -- when you do M&A, obviously, you do all the due diligence in the world and everything. But as you get under the hood, you find out things, and there's been just pleasant surprises all along the way.

So let's start with why the deal. We really feel a couple of things. One is we felt that First Advantage and Sterling had the best technology stacks in the industry. And Sterling had a few things that we didn't have, and we had a few things that they didn't have. So putting those stacks together would create a really nice thing for our customers. Also, First Advantage was, as you know, by far the most automated player in the space. We've been investing in robotic process automation and APIs and even -- well that for about 9 years and AI for the last 4 years.

So really a highly automated high-tech back end, and we felt that we could really bring that to the Sterling customer base and help improve that customer experience and margins. So we felt like that was an opportunity. But as I mentioned a little earlier ago, we really like the vertical mix where Sterling was strong, First Advantage was okay and vice versa. So for example, before the merger, Sterling's largest vertical was health care and health care was our third or fourth largest vertical. Our largest vertical was transportation.

We did 24% of our business in transportation. Sterling was only doing 3%. So we're like, okay, there's a really good vertical mix here. And when we looked at it really deeply, there was really only one vertical area where we had any kind of overlap.

So we kept talking about the dovetailing of those verticals together to make us stronger in the verticals that we are in and kind of fill in the gaps with the verticals that we were good in but didn't have scale. And speaking of scale, I just think this space, scale means a lot. So the ability to do global background checks all around the world is really important. And it's not just important to be able to do a check in a country like the Philippines or wherever. It's being able to check people with that kind of background in the U.S. for U.S. jobs. So that kind of scale and global capacity really matter in this space.

So at the end of the day, I think buyers really like the vertical story and they like the technology story. And we put First Advantage and Sterling together, we really got the best of both worlds. And our strategy in the platform space has been best-of-breed strategy, and our customers are really starting to see the benefits of that.

So 2 follow-ups. Maybe in terms of the integration thus far, maybe, Steven, you can give us kind of the quantitative updates on how things are going, what you thought, what's going better? And then Scott, from your perspective, at least from the outside, when Ster was also a public company, I mean, we -- I think we all thought the 2 companies had different cultures. And we all know culture is usually the biggest hurdle in integration. So maybe you can comment on if that perception is not entirely accurate in terms of what you're doing right now.

Yes. Manav, So certainly, on the synergy story and just on the overall -- some of the financial KPIs, we are really happy about the progress we made, both from the quantity of savings we've been able to generate and almost more importantly, the speed that we've been able to do it.

So when we originally signed the deal and did our diligence exercise, we estimated $50 million plus of net cost synergies. And it was important for us to have a plan that was conservative, but also really attainable. We certainly didn't want to put pressure on the business to have to go find savings in areas that would impact the customer experience, our ability to have best-in-class and best-of-breed products. So to be able to go into the deal, it was a very accretive deal at $50 million plus.

And as we got deeper and deeper into the integration, like Scott was just talking about a little bit, finding the complementary products, finding that complementary verticals, the complementary geographic overlap, we've been able to steadily bring those target synergies up to where we settle that today, which is $65 million to $80 -- through the end of last quarter, we had already actioned $47 million of that. So that's within 8 months to close. We had already done well over half of that elevated goal, almost 100% of the original goal.

So I feel really, really good about it. And I think the big validation of that is the other big KPI we've been tracking is it's common when you have an M&A at this scale with this type of industry is you're going to anger some clients, you're going to do something that harms the experience. But we've been maintaining our historical levels of 96-plus percent retention. It was 96.3% last quarter.

From the day we signed the deal, which was over 18 months ago through this past quarter. And we feel that is a really good, strong signal that -- our customers are happy. Our shared customers are happy. We haven't harmed their experiences. And the fact that we've been able to maintain our booking success, our go-to-market success, our new logo and upsell, cross-sell revenue trends, the market has responded well to it. So from a cost perspective, from a revenue perspective, I feel really good about where we're at.

Obviously, we're at 47 or 65% to 80%. there's still a fair amount of work to go in terms of getting all the savings we can, bringing margin up to where we kind of would expect it to on a blended basis after the synergies. And obviously, additional benefit as we continue to deleverage the business, we pay down the debt. We've already repriced the debt. So we'll continue to take that cost savings leverage and cash flow generation and leverage that to an incremental EPS savings as well.

And Manav, to answer your second part of the question, when I mentioned earlier that from a technology standpoint, we took a best-of-breed approach, which is really paying off. We also took a very, I think, unique approach to putting these companies together from a people standpoint and from a culture standpoint. So one thing we were very smart about doing was realizing that these companies were of equal size.

So acquiring Sterling and putting them into an existing First Advantage structure probably would not have worked. So from day 1, we took what we call internally as a newCo approach. So ultimately, we were creating a new company by putting these 2 companies together, and we actually launched new branding, new comms, new org structures, everything. And that was a nice thing about having some time to close the deal. We had literally about 10 months or so to close the deal, and we spent that time really working with experts in the field, M&A field about how to structure this properly. So we came up with the right org structures. We came up with the right messaging like, hey, this is more of a best athlete type approach.

So if you -- for example, if you look at the consumer, I mean, the commercial aspects of our business, about 50% of the commercial leaders are from Sterling and 50% from First Advantage. So we went with, hey, whoever is the best athlete and it's going to help us for the next part of our journey is what we're going with here.

So I think that sets a great message. And you're right around culture being like the big potential curveball in any M&A. But as we got under the hood of Sterling, we found people that were just so like First Advantage. I mean it's actually been such a great cultural fit story. We joke all the time like we've only been working with some of these people for like 10 months, but we feel like we've been working with them for years. So I think that's the benefit of when you have 2 high-performing organizations coming together. We both were focused on customer. We both were focused on growth. both were focused on product innovation. And that's played really well on making this successful because we're culturally aligned.

Got it. I got to ask the AI question. And maybe I guess the debate is 2 parts. One is just a broader -- as some of these big AI bosses have been saying it could reduce employment by whatever, 30% or half. And so if that volume goes away, I guess there's not much you can do. But my question is more -- well, maybe you have a comment on that as well. But the question is also on -- do you see parts of your business that are disruptible? Are you seeing increased competition? Are you disrupting yourself? Just those kinds of comments?

So from the first part of it, it's interesting. common sense tells us that there are certain industries that should be affected by AI and would have, hence, less need for headcount. BPO, IT services, any type of back-office call center type stuff, it just makes sense that AI would have some impact there. We are not seeing it yet. In fact, when we talk to our customers in that space, they actually are investing because they want to be the AI providers of that.

So we are not seeing any slowdown in hiring in those industries that we think are more susceptible to AI. Inevitably, it may come. It should come. The good news for us is it's a small percentage of our business. So we're not that worried about it. We will also have some slight modifications to our go-to-market strategies to make sure we're focusing on industries that are not as disruptible from AI. But the good news is that we're not seeing that headcount reduction in those spaces.

And in fact, we've got some customers with articles out there where they actually have increased hiring because of AI because they are in the investment mode right now. Again, that may change and that should change over the next couple of years. We are not seeing it right now. On your second part of your question, we definitely are not seeing any new competitors because of this. And I think AI has been an accelerator for us in terms of our sales and marketing advantage because we've been investing in it literally for 4-plus years.

We've got some really good AI initiatives already in flight and some have been in production for years. So for example, we always feel that one of the areas that AI can help disrupt in our space in a positive way is verifications. -- verifications of employment, verifications of education. And we invested in what we call smart verification technology, our SmartHub technology, which is advanced AI. It's machine learning. It's proprietary algorithms that we update on a continuous basis that help us do verifications smarter, faster, cheaper. And so that has been in production for 4-plus years.

We also use AI in our customer care part of our business where we're interacting with our customers' candidates and applicants and our customers in general. And our customers love it because we have what's called human in the loop AI chat. So for basic questions like what's the status of my background check, an AI bot can handle all of that. But if there's any type of question that requires a human to be brought in, our human-in-the-loop technology brings in live agents on spot to help answer more complicated questions.

We also have literally dozens of AI initiatives that are behind the scenes in how we actually perform a background check, whether it's how we get data, whether it's how we interpret data, whether it's how we report that data back. We are using a lot of AI across the back end. and clearly seeing productivity improvements and really quality improvements as well. So we are all in on AI. And we've been, I think, the leader in the space in our industry in AI investments.

And keep in mind, we spend about $130 million a year on tech and innovation. That's a lot of money and way more than any of our competitors can spend. So this is enabling us to stay ahead of the curve on rolling out new products, modernizing products, bringing AI and bringing innovation in. So as of right now, AI has been really good for us, and it's leading to better candidate and customer interactions, productivity improvement and obviously, margin improvement.

Well, I think the other angle on AI that too, and I alluded to it before when we're talking about digital identity is because we're in the risk management space and AI is just creating new risk for companies, new risk for organizations, it's creating new opportunity to create new products, right? That's the whole reason the digital identity suite of services has become a real market size, almost equal to the background screening side and certainly poised to outgrow from a year-to-year basis. It's because AI is creating new risks, and we're having to come up with new products to respond to it.

So that's the whole digital identity suite, and it's kind of the old fight AI with AI. There's a ton of AI built into those digital identity products. And so that's allowed us to kind of launch new TAM, new market, a whole new product suite. So there's obviously pressures, obviously, opportunities, but we feel like we're, like Scott mentioned, very well positioned to capitalize on this wherever it's possible.

Got it. The other angle to this, Scott, is just the data component, right? And maybe this is a good segue into asking you to just maybe familiarize the audience with what and how much data do you currently own as part of your initiatives? How much of that is proprietary or at the moment, just a tool of efficiency?

Yes. So we have 2 large proprietary databases. And then we also go to publicly available data as needed. The 2 proprietary databases in total have about 900 million records. So there's about 120 million verification records. So that would be where we've done prior verifications for someone on prior employment or their education history. And then the larger database is our historical criminal data file database. So that is where we've done a background check on someone. We keep data for a long time.

So where it's legal in certain states to keep -- we keep it for that length of time. And that gives us, I think, an advantage in the market because we don't -- we have a historical file that we can tap into, and we sell that database as an upsell. So it helps us drive some of our upsell revenue. And it's really, I think, a great database in improving the quality of a background check because you're not just relying on public data, you can cross-reference it against our historical database, and that's an amazing sales advantage for us.

And just maybe to appreciate how proprietary some of your data is, I don't know if you could help with how much of it is available, just newer data set, those kinds of things.

Yes. So on a typical background search, let's just focus on criminal search only. We are always going to go out to a public source just to check something, and that could be a federal database, a state database, a county database, a municipal database. There's really hundreds and hundreds and hundreds of databases to potentially hit depending on what the client wants for that background check. And that usually depends on location, role, et cetera. In addition to that, we've got the proprietary databases that we can overlay.

So we don't always have to go on a verification, for example, we don't always have to go to a public or third-party data verifier because we have that data. So that means it's faster, it's cheaper, and it's also a higher margin, which is obviously a win-win for everybody. So the proprietary data consists of, again, employment records where someone has worked, education where they've got degrees from and historical criminal data. And that could be, again, federal state or county level.

Got it. Maybe just specifically on the employment records or the income verification employment records. you always get the question on the use of your data versus the use of third-party aka Equifax's Work Number database. So can you just help us appreciate -- I know you talked about in the past, so just how much of your background checks for sleep ten to those data sets, how widely used it is and just some of the nuances there?

Yes. And just a quick clarifier. We do not do income verification. So that's something that our clients never ask us for. What they do ask us for is verification of employment, verification of education. Now keep in mind that only 20% of our orders actually ask for verification because in some instances, like if you're doing a retail clerk hiring position, you don't really care where they went to high school or college or whatever.

So 20% of the orders do have verification. And typically, if you're verifying your employment, you're also verifying education. This goes back to that SmartHub technology that we talked about earlier. So every single verification order that comes to us goes first to our SmartHub technology. And you can -- probably the easiest way to think of that is that it's a really smart router. So that router, which is loaded with proprietary algorithms and state-of-the-art tech is discerning what is the best, fastest, cheapest source to verify that prior employment or that education. The first place that we obviously want to go is our own database, 120 million records, hit that first. The second place we're looking to go is cheapest third parties, -- and if they don't have it, then it ultimately could also click over to a manual, which if no database has it, we go to a manual effort where we're contacting employers or universities or whatever. But the technology has been improving dramatically.

So about 60% of verification orders that come in today are what we call avoiding higher cost third-party sources. So they're either being fulfilled by our own database, by a cheaper third-party database or by a manual effort. we are good partners with Equifax and the Work Number, and they do have a great database. So we do go there when needed. But it's expensive. And we're in business to help our customers keep their budgets down and get things as fast and as cheap as possible.

So that's why we've been focusing on so much innovation in the verification space so we can really, from a sales standpoint and a service standpoint, give our customers really what they're looking for and what no other competitor can offer.

Got it. I know we have about 10 minutes left, so let me run through a few other questions that have come in. So the first one is just broadly on the international strategy. You touched that on a little bit earlier. I think it's about 15% or so of revenues today. Is that an area where you will become bigger as a percentage of revenue via acquisitions? Because presumably U.S. will keep growing? Or what's the ambition, I guess, in terms of international? How should we think about that?

So let's define international first. So when you think about international business, it's really 3 main markets. It's Europe, it's Asia and it's India. And within Asia, it's primarily Australia. So we lump together Canada, U.S. and South America, Latin America into what we call the Americas business.

So our international business, as you mentioned, it's about 14% of our overall revenue. it's got a lot of growth potential. But let's remember that the U.S. is huge. It's advanced in terms of adoption of risk management technology. It's advanced in terms of compliance, adherence and things like that. So the U.S. is always going to be a large percentage of our revenue. Will 14% grow to a larger number? Yes. But will it ever, ever be more than 80-20? I doubt it, because I think the U.S. will continue to grow and grow and grow.

From an international standpoint, there's not a lot of M&A that's worthwhile. There's not a lot of big players internationally. And it doesn't make any sense to go out and buy a smaller regional player because we're just winning so nicely in international. And if you look at our international results over, let's say, even the last year, international has been real positive growth results over the last year. So I think a couple of things lead to that.

One is international was the first to go down when the economy started to struggle a bit, and they are now the first to come back. Second, comps got a lot easier. Third, we really have a nice offering. We've got really nice platforms for those regions. They're all built with hard-coded compliance. So like from a GDPR standpoint or whatever regional compliance laws are, they're built into that platform, make our customers feel really comfortable that they're doing compliant checks in those regions. And our growth strategies, our commercial teams, our go-to-market strategies have all really done well.

So we're seeing good growth out of, especially U.K., India and Australia. Those are the real drivers of the growth internationally. I think that good things will continue to happen internationally. Again, I don't expect it to be ever be more than an 80-20 type of situation, and I don't foresee M&A. I just see a lot of organic growth.

Got it. And then maybe to round this up, capital allocation priorities, how should we think about that over the next, let's just say, 2 to 3 years?

Well, I'll kind of break it into 2 pieces, right? Obviously, with the acquisition, we levered up a little bit just to be able to purchase Sterling. Until we get our leverage back towards our target range, our long-term target range is still 2 to 3x net leverage. Our focus from a capital allocation is continuing to integrate the business and get the synergies and then deleverage the business.

So we've already started that. We've already voluntarily prepaid $40 million of the debt over the last couple of quarters. As I mentioned before, repriced the debt already and brought that borrowing rate down by 50 basis points. So we feel like we're making really good strides. And obviously, as we continue to capitalize on those synergies, that will just help accelerate that deleveraging trend.

So we think it will take us roughly through the end of next year through the end of 2026 to get that leverage towards that 3x, that top end of our range. Beyond that, it's harder to say. Like Scott was mentioning, we'll be obviously strategic and opportunistic when that time comes. But until then, really, our focus is get the synergies, integrate the business, retain our customers, grow organically and then continue with that deleverage journey, which obviously will yield through EPS benefits like I talked about probably at the onset there.

Got it. Okay. Scott and Steven, we are out of time here. So maybe I'll leave by handing the floor over to you guys in terms of -- I think I tried to lead from the front and trying to help appreciate that the efforts you guys are making, the algorithm you guys have is more than just kind of a macro volume play. But I think the stock still trades like that. So maybe just over to you in terms of what you think investors are still missing in the story?

Yes, Steven and I will tag team on this one a little bit. But I think there's a couple of things. One, we really need to be seen as a software and data company. That's what we sell. And with that comes a lot of benefits of being sticky in our space.

So it's -- when you see our technology demo, you're like, wow, it's incredible. It's state-of-the-art technology that HR, compliance, legal, talent acquisition organizations across the world use on a daily basis. It's highly scalable in terms of -- it can handle large transactions. We do 190 million screens per year through our platform, so it can handle velocity and volume.

I think the numbers are great. Think about how many companies are out there with our top line, our EBITDA, free cash flow, place in the market in terms of being the category leader. There's a lot of good things going on here. And I'll throw it over to Steven to point out the things that I've missed.

Yes, I think Scott, the only thing I would add is I think one piece that's often overlooked in our story is, look, we've got a -- like we've talked about, a great resilient and stable long-term growth model, a real path to increase profitability through the synergy program. Gross margins are just under 50%.

So as we scale up revenue, it falls through incrementally to the bottom line as well and get more leverage there. And then certainly, as we -- this has been an industry and a business that you can generate a lot of free cash flow if you run your business right. And we've got a really strong history of doing that at First Advantage, high quality of earnings, high free cash flow conversion. And as we execute on that game plan over the next couple of years and deleverage our balance sheet, you get such an incremental benefit to your EPS line item.

So I think there's a lot of potential for real shareholder value creation. And our business model sets us out really well to capitalize on that. It's a 2-year or so journey to get us into those target ranges. And as we're doing that, the incremental benefits mathematically to its EPS is just great. So I think it's -- that's a piece that's just sometimes overlooked. It's just -- you got all the benefits of synergies of scale of revenue growth of the algorithm, things like that, compound that with the deleveraging trend and you have a really nice setup for a really positive story.

Got it. Super helpful. Well, thank you guys again for your time. I appreciate you joining us this year and hope to have you back next year. Otherwise, see you next week at the financials conference.

Looking forward to doing in person.

Yes. Thank you. Appreciate it.

Thank you, guys. Bye.

Yes. Take care. Bye.