Background screening provider First Advantage (NASDAQ: FA) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 105% year on year to $409.2 million. The company’s full-year revenue guidance of $1.55 billion at the midpoint came in 1.1% above analysts’ estimates. Its non-GAAP profit of $0.30 per share was 7.2% above analysts’ consensus estimates.

Is now the time to buy FA? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

First Advantage’s third quarter results were well received by the market, reflecting continued momentum despite a persistently flat hiring environment. Management attributed the company’s outperformance to strong execution in upsell, cross-sell, and new customer wins, particularly within retail and logistics segments, supported by the successful integration of Sterling. CEO Scott Staples emphasized that retention improved to 97% as the company’s technology and vertical expertise resonated with clients, while operational efficiencies and automation contributed to higher margins.

Looking ahead, First Advantage’s updated outlook is anchored by robust new contract pipelines, continued synergy realization from the Sterling acquisition, and the expanding adoption of its Digital Identity product. Management highlighted the growing urgency among customers to address identity fraud risks, with Staples noting, “Digital Identity is the hottest topic with our customers right now.” The company expects ongoing investments in technology, combined with a resilient business mix, to support margin expansion even as macroeconomic uncertainty and fluctuating hiring trends persist into next year.

Key Insights from Management’s Remarks

Management cited strong go-to-market execution, successful Sterling integration, and new product traction as primary drivers of recent results, while highlighting Digital Identity as an emerging growth catalyst.

• Sterling integration ahead of plan: The acquisition’s integration has exceeded targets, with accelerated synergy capture, seamless customer experience, and cross-platform technology enhancements. This has led to increased customer retention and improved operational efficiency.
• Digital Identity adoption accelerating: Concerns over AI-driven identity fraud have made First Advantage’s Digital Identity suite a key differentiator. Management reported that customer demand for these solutions is rapidly increasing, driving both upsell opportunities and deeper client relationships across hiring workflows.
• Enterprise contract renewal innovation: The company secured an exclusive five-year renewal with a major customer, featuring guaranteed minimums—a structure management sees as the future for the industry. This approach aims to boost revenue visibility and customer stickiness over time.
• Product and platform investments: Enhanced applicant portals and expanded criminal record monitoring solutions were rolled out, improving customer experience and turnaround times while benefiting from AI-enabled automation and proprietary data assets.
• International and vertical momentum: International regions, notably the UK and APAC, outpaced consolidated growth, while retail, logistics, and staffing segments performed strongly. Health care remained mixed due to funding uncertainties, but management remains optimistic about long-term prospects.

Drivers of Future Performance

Management’s outlook emphasizes continued synergy realization, expanding Digital Identity adoption, and stable hiring volumes as core drivers of growth and profitability.

• Synergy capture and margin expansion: Additional integration synergies from the Sterling acquisition are expected to be realized steadily over the next year, supporting operating leverage and freeing up capital for further investment in technology. Management aims to reduce net leverage to the 2x–3x range by the end of next year.
• Digital Identity as growth catalyst: The Digital Identity product suite is still in early adoption, but customer demand is intensifying due to increased fraud risks and regulatory scrutiny. Management believes this could materially impact upsell and cross-sell revenue, customer retention, and future contract structures.
• Macro and hiring trends remain stable: Despite ongoing macro uncertainty and policy changes affecting sectors like health care, management expects hiring volumes to remain consistent. The company’s diversified vertical mix and enterprise focus are seen as buffers against wider economic volatility.

Catalysts in Upcoming Quarters

In the coming quarters, our team will closely monitor (1) the pace at which Digital Identity adoption translates into tangible upsell and retention gains, (2) the realization and impact of remaining Sterling integration synergies on margins and leverage, and (3) the consistency of hiring volumes across key verticals amid macro uncertainty. Additionally, how new contract structures with guaranteed minimums spread to other major clients will be an important signpost for business stability.

First Advantage currently trades at $13.31, up from $12.91 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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