First Advantage (FA) Q3 2024 earnings summary

Executive summary

• Closed $2.2 billion acquisition of Sterling Check Corp. on October 31, 2024, nearly doubling company size and expanding global reach, with integration and synergy plans underway.

• Combined LTM revenues as of Q3 2024 are $1.5 billion with adjusted EBITDA of $407 million, or $457–$477 million including targeted run rate synergies.

• Issued new combined company guidance for 2024, maintaining standalone guidance, and promoted Joelle Smith to President and Doug Nairne to COO.

• Focused on seamless integration, customer retention, and realizing $50–$70 million in run-rate cost synergies within two years, with over $10 million actioned on day one.

• Released new branding, organizational changes, and a 2023 Sustainability Report.

Financial highlights

• Q3 2024 revenues: $199.1 million, down 0.6% year-over-year; adjusted EBITDA: $64.0 million (32.2% margin); adjusted net income: $38.0 million; adjusted diluted EPS: $0.26.

• Sterling Q3 2024 revenues: $195.5 million, up 8.3% year-over-year; adjusted EBITDA: $45.3 million (23.2% margin); adjusted diluted EPS: $0.24.

• Combined adjusted EBITDA margin: ~27%, expected to return above 30% post-synergies.

• Q3 standalone adjusted operating cash flow: $45.3 million, up 31.9% year-over-year; cash at September 30, 2024: $307.4 million.

• Q3 net loss of $(8.9) million, driven by $13.2 million in Sterling acquisition costs.

Outlook and guidance

• Combined 2024 revenue guidance: $858–$918 million; adjusted EBITDA: $250–$274 million; adjusted diluted EPS: $0.83–$0.95.

• Standalone 2024 guidance: revenues $750–$800 million; adjusted EBITDA $228–$248 million; adjusted diluted EPS $0.88–$0.98.

• Sequential quarter-over-quarter growth in revenues and adjusted EBITDA expected in Q4.

• Achieving $60 million in run-rate synergies would add ~$0.26 to adjusted diluted EPS.

• Targeting net leverage reduction to ~3x run-rate adjusted EBITDA within 24 months post-closing.