First Advantage Corporation (FA) Earnings

Management highlights

### Overall Business Performance - Q2 2026 was the company's strongest quarter to date, with 7% year-over-year revenue growth, 9% year-over-year adjusted EBITDA growth, and 21% year-over-year adjusted diluted EPS growth, outperforming prior expectations. - The company remains on track to meet its 2028 long-term financial targets set at the May 2025 Investor Day ( $1.8 to $2.0 billion revenue, $560 to $630 million EBITDA, 31-32% EBITDA margin, $1.65 to $2.00 adjusted diluted EPS), which are achievable without any additional M&A. ### Key Operational Drivers - Base business growth reached 6.7% year-over-year in Q2, with roughly half of this increase driven by episodic enterprise-wide labor reshaping and rescreening initiatives across multiple verticals, which are expected to continue into Q3 before normalizing in Q4. Job stacking (workers holding multiple roles) also contributes to higher screening volume. - Upsell/cross-sell growth remains consistent at 8% quarter-over-quarter, driven primarily by package density: customers are adding more screening, risk mitigation, and fraud prevention services to counter rising fraud enabled by

Guidance

- Full-year 2026 guidance is tightened with an upward revision to the entire range: the bottom end of guidance was raised by $45 million, and full-year results are expected to come in above original expectations, consistent with the company's long-term growth algorithm. - The updated guidance range reflects a balanced outlook that incorporates healthy underlying demand while accounting for ongoing macro and geopolitical uncertainty, with performance poised to land above the midpoint of the range if current trends continue. - Q3 2026 total revenue growth is expected to land in the mid to high single digits, with slightly positive base business momentum, consistent with prior guidance. - Q4 2026 total revenue growth is expected to land in the low to mid single digits, as the quarter laps the exceptionally strong 17% year-over-year growth in Q4 2025, and some large recent win implementations are pushed out to early 2027; base momentum is expected to be neutral. - Adjusted EBITDA margins are expected to remain largely consistent with Q2 levels for the remainder of 2026, delivering year-over-year positive expansion. - Adjusted diluted EPS is expected to land in the low to mid $0.30 range for both Q3 and Q4 2026, with meaningful year-over-year expansion; the full-year 2026 midpoint guidance remains consistent with the company's track record of 20%+ adjusted diluted EPS growth since 2024. - Integration and synergy actioning for the Sterling acquisition remains on track to be completed by December 31, 2026, with full synergy realization flowing into 2027.

Segment performance

Segment performance data by product line is not provided in the transcript. Geographic and vertical segment performance is as follows: Geographically, international business accounts for ~12% of total company revenue, with India representing ~a quarter of international revenue (3% of total revenue) which is experiencing a slowdown; other APAC regions are seeing good growth. Vertically, strong broad-based growth is reported across high-volume hiring verticals: retail/e-commerce, transportation/logistics, industrials/aerospace and defense, blue-collar staffing, healthcare staffing, and hospitality. Financial services also sees solid high-volume hiring-related growth. The only vertical weakness is limited to India, with all other verticals performing at or near flat to positive growth.

Risks & headwinds

- Ongoing geopolitical conflict in Iran has pushed up global oil and fuel prices, which is negatively impacting consumer confidence and the Indian economy, causing a slowdown in First Advantage's India business. - Prolonged conflict in the Middle East and sustained higher fuel prices could further pressure consumer demand, particularly impacting the company's retail and transportation verticals. - Rising fraud enabled by bad AI increases hiring risk for customers, though this dynamic also drives demand for the company's additional screening and digital identity products. - Large implementation backlog from strong sales has pushed some go-lives into early 2027, creating a modest headwind for 2026 Q4 revenue.

Analyst Q&A

• Q: The macro tone appears improved with broad-based growth, and the transcript called out unexpected customer initiatives driving base growth. Are these initiatives episodic, and what is the current state of customer demand? /

  A: Management confirms broad-based improvement in demand, with stable labor market data (flat hires/quits, 7.4 million job openings, 4.2% unemployment) supporting stable, positive hiring trends across most geographies and verticals. The unexpected customer activity consisted of widespread enterprise labor reshaping and rescreening programs across transportation, retail, and e-commerce, which drove half of Q2 base growth, will continue into Q3, and should normalize by Q4. Job stacking across verticals also adds incremental volume.

• Q: If we separate the 2025 large win annualization impact from underlying sales performance, how strong is current core sales productivity? /

  A: Management confirms the sales engine is performing the best it ever has, with the largest late-stage pipeline in company history and strong expected go-live activity in H2 2026. The moderating expected growth rate in Q4 is purely a result of tough comparisons against the exceptionally strong Q4 2025, not weakening underlying sales performance. The pipeline and new booking momentum remain very strong.

• Q: Now that Sterling acquisition integration is nearly complete, what are the company's capital allocation priorities, and is M&A back on the table for 2027? /

  A: Deleveraging via debt paydown remains the top near-term capital allocation priority, with the company recently completing an upside debt prepayment. Organic reinvestment in product, sales, and marketing will continue at a steady pace, with no step change planned. The company can achieve its 2028 long-term targets without any M&A, but will be opportunistic for small plug-in acquisitions that add new products to sell to the existing customer base once deleveraging is complete.

• Q: Why are some implementations extending into 2027, and could continued strong free cash flow lead to more debt prepayment if performance stays above guidance? /

  A: The delayed implementations are caused by high volume from stronger than expected sales, which is a positive problem that the company is working to resolve by speeding up onboarding automation. The company generates strong free cash flow, and will maintain a flexible, opportunistic approach: if current trends hold, continued elevated debt prepayment will remain a core priority if interest rates stay high, with balanced capital allocation to maximize shareholder returns.