First Advantage (FA) Q2 2024 earnings summary

Executive summary

• Q2 2024 revenues were $184.5 million, nearly flat year-over-year, with net income of $1.9 million, impacted by $9.2 million in Sterling acquisition expenses and macroeconomic headwinds.

• Adjusted EBITDA was $55.8 million, with a 30.2% margin, flat year-over-year and up 270 basis points sequentially.

• The Sterling acquisition, valued at $2.2 billion, is progressing with closing expected in Q4 2024, expanded synergy targets, and integration planning underway.

• AI-driven solutions and automation initiatives are enhancing operational efficiency, reducing call center headcount, and improving customer value.

• CFO David Gamsey will retire in December, with Steven Marks, who led Sterling integration finance, to succeed him.

Financial highlights

• Q2 2024 revenues were $184.5 million, down 0.4% year-over-year, and up $15.1 million sequentially from Q1.

• Adjusted EBITDA was $55.8 million, with a margin of 30.2%, and adjusted net income was $30.8 million; adjusted diluted EPS was $0.21, down from $0.24 in Q2 2023.

• Net income was $1.9 million, down 81% year-over-year, mainly due to acquisition-related expenses.

• Cash flows from operations were $32.0 million, or $40.7 million excluding Sterling acquisition costs, up 23% year-over-year.

• Cash and cash equivalents at June 30, 2024 were $269.6 million; total debt was $564.7 million.

Outlook and guidance

• Reaffirmed 2024 annual guidance: full-year revenues expected between $750 million–$800 million, adjusted EBITDA of $228 million–$248 million, adjusted net income of $127 million–$142 million, and adjusted diluted EPS of $0.88–$0.98.

• Guidance excludes Sterling acquisition contributions and reflects current macroeconomic and labor market trends.

• Sequential quarter-over-quarter growth expected for revenues, adjusted EBITDA, and margins through 2024.

• Q3 and Q4 expected to show modest positive revenue growth, with base declines improving to near flat by Q4.

• Anticipates double-digit adjusted EPS accretion post-Sterling acquisition and teens growth rate over time.