First Advantage at Baird Conference: Expanding in Digital Identity

On Thursday, 05 June 2025, First Advantage (NASDAQ:FA) presented at the Baird Global Consumer, Technology & Services Conference. The company, led by CEO Scott Staples and CFO Steven Marks, outlined its strategic growth in the pre-employment screening and digital identity sectors. While emphasizing technological strengths and financial goals, the firm also addressed challenges like debt reduction and integration of acquired assets.

Key Takeaways

• First Advantage is expanding into the $10 billion digital identity market.
• Successful integration of Sterling, a major acquisition, is ahead of schedule.
• Long-term financial targets for 2028 include $2 billion in revenue and EPS of $1.65-$2.
• The company aims to reduce its leverage ratio to 2-3 times by the end of next year.
• The FA 5.0 strategy focuses on technology, key verticals, and financial discipline.

Financial Results

• 2023 EPS was reported at $0.82.
• Long-term EPS target for 2028 is set between $1.65 and $2.
• Revenue growth strategy includes 4-5% from new logos and upselling, with a 96%+ client retention rate.
• Gross margin remains in the high 40% range, approximately 47-48%.
• The company has prepaid $15 million in voluntary debt, aiming for a leverage ratio of 2-3x by next year.

Operational Updates

• Sterling’s integration is progressing well, with synergy targets increased to $65-$80 million.
• The FA 5.0 strategy emphasizes key verticals such as healthcare and digital identity.
• Technology integration focuses on maintaining customer familiarity while consolidating backend systems.

Future Outlook

• First Advantage aims for $2 billion in revenue and $600 million in EBITDA by 2028.
• Capital allocation will prioritize debt reduction, followed by potential acquisitions and investor returns in 2027.
• The company is leveraging its enterprise client base to withstand macroeconomic challenges.

Q&A Highlights

• The company is confident in its resilience against macroeconomic volatility due to its focus on essential sectors.
• The digital identity market offers significant growth opportunities, with First Advantage providing integrated solutions.
• The integration of Sterling is expected to enhance client offerings and operational efficiencies.

For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Baird Global Consumer, Technology & Services Conference 2025:

Mark Marcon, Analyst, Baird: Morning, everybody. We’re going to go ahead and get started. My name is Mark Marcon. I follow human capital technology and solutions for Baird. Our next presenting company is First Advantage.

First Advantage is the leading provider of pre employment screening and increasingly a leader in digital identity and identification. With us today, we’re very pleased to have Scott Staples, the CEO. Scott first joined, First Advantage in 2017 as CEO and has led the company to be literally the largest by at least 2x in the space. And Steven Marks is also here with us. He’s the CFO.

Stephen was named the CFO in 2024 and first joined First Advantage in 2016. I’m going to turn it over to Scott and Stephen. They’re going to go through a short presentation, and then we’ll have time for some follow-up questions. Scott, thank you for joining us. Stephen, thanks a lot.

For having having

Scott Staples, CEO, First Advantage: Like Mark said, we’re going to just go through some slides quickly just to give you a general background of the company and then have time for questions. So I’m going to dive in. And I’ve got nine slides to cover here. I’ll do it pretty quickly. But I think we’ll start with, you know, what we sell and how we sell.

You know, we we see ourselves as a as a global software, data, and services company. We sell our our technology, our platforms, and our software to, in the HR space. So our buyer is typically a head of talent acquisition, head of HR, head of security, head of compliance. We lead with a very technical sell. As you can see here, it’s all about the platforms and the data.

And we have spent literally the last eight, nine years building up our automation frameworks, either through robotic process automation, APIs, and now using AI as well to provide the products that you see here on the slide on the platform to our buyers. At a glance, we are pretty happy with our positioning in the market. Mark did a great job of talking about our size and our scale, 1,500,000,000.0 in revenue, $457,000,000 in EBITDA, great numbers. We throw off a lot of free cash, and Stephen will walk you through that. But we’ve we’re a big company

We provide our services across multiple verticals in all literally all geographies across the world. So our specialty, I feel, is the enterprise space. We like big customers that hire a lot with lots of turnover and global reach. So if you think about let’s talk about the market in terms of TAM. So basically, the background screening market itself is about a $14,000,000,000 TAM, about half of that being vended today and half of it being white space.

A lot of that white space is actually in the international markets, especially in places like Asia, which are way behind U. S. And Europe in terms of big companies that screen there. Over 50% of our new logos that we win in the APAC region are companies that are first time screeners. So what basically is the HR departments from the large multinationals have left the large multinationals and now work for regional companies and say, Wait, why are we not background screening?

But it’s a growing market. I think what’s potentially what’s really driving the growth is that we live in a very complicated world. Just turn on the news at night. Companies are looking at their risk portfolio now more than ever, and they’re coming to us, you know, asking for more and more, protection of their brand, of their workplace, of their workforce, and of their shareholders. What’s been very nice about that $14,000,000,000 TAM is that it’s got a recent addition of a $10,000,000,000 TAM that has emerged in sort of a newer space in the digital identity market.

What digital identity is is basically there is a large scale fraud, identity fraud that is entering the workforce. And our products can help companies combat that. So that is anything from customers who are are recruiting people over Zoom or Teams, and that person on their side is is using a deepfake to do that interview. So a different person that interviews is not the same person that shows up for the job, and maybe not even the same person that fills out the I-nine. And this is a huge risk for companies right now.

This is a real risk. There was an article in The Wall Street Journal last week which says North Korean threat actors have penetrated over 300 U. S. Companies by getting jobs fraudulently. And so our products can help protect that.

Also, Gartner says by 2028, ’1 in four job candidates will be using fraud in some way, whether it’s a deepfake, whether it’s AI enhanced documents, whether it’s Deep Voice, which is also being used. It’s incredible what’s happening right now. And this is a very, very hot topic. So where do we sit in the market? The competitive landscape is, you know, us at the top as the category leader.

And then there’s really two buckets. There’s and these dots are actually fairly accurate. There’s about eight, nine or 10 mid market players that are in the 100,000,000 to $700,000,000 revenue range and then literally dozens and dozens of mom and pops that are in the $100,000,000 and sub range. So we like the fact that, you know, we’re only sitting here with 25% market share. That’s why when we look at that $14,000,000,000 TAM, we feel really good about our ability to do upsell, cross sell and our ability to land new logos.

What basically, how we position ourselves for winning, there’s lots that go into it. But I think the two key things are technology. Our technology demos really well. And I’m gonna get to a slide here in a second which shows you the power of our tech team. And our vertical story.

So vertical story is really important in our space. So our technology is customized for each vertical that we sell in. So, for example, when you’re when we’re selling our platform into the transportation space, it’s loaded with everything that a transportation company would need from a product standpoint, but also a compliance standpoint. So it’s got all the DOT compliance built into it, and that’s a big differentiator for us. So it’s the combination of tech and vertical that really makes a difference.

Talk quickly about our platforms. And I think this slide’s important because for those of you that know our story, we actually bought our largest competitor last fall, a company called Sterling. Sterling and First Advantage, we feel were the two best companies in the space, and now we’ve merged into one. The beauty of, the story is that we’re able to offer, our clients, the best of both worlds in that if there’s a piece of functionality that were on the Sterling platform that was better than the First Advantage platform, we now make that available across the entire, customer, portfolio. And one of the things that we also can benefit from is our ability to use our automation.

We were by far the most automated company in this space. We can use our automation, to the Sterling’s install base, which can now help us improve margins on the Sterling legacy business and also improve the customer experience there. Data is important for us. We have our own data. We also go out and get data from third parties.

We also go out and get data from publicly available data sources like federal databases, state databases, local databases. So this is a differentiator in the space for us. No other background screener has proprietary data. So we can use this, one, to improve our margins because we already have data. And two, as a sales advantage to say, hey, this is faster.

It can help us be more price competitive by leveraging our own data. I talk about our tech prowess. We are a tech company. We’ve got eight fifty product and tech experts around the world. We have 90 agile pods around the world.

Eight of those pods are dedicated just to product innovation, and that’s primarily AI. So we’re developing AI POCs, AI products. A lot of those all of those eight pods actually sit in Poland, where we found great AI tech resources added good price points. And we spend $130,000,000 on R and D every year. So, again, if you think about that competitive landscape slide that I showed, all those mom and pops aren’t even that size in terms of revenue.

So we can really blow them away from a sales standpoint when we get in front of them with our tech and vertical story. Last slide, before I turn it over to Steven, is AI is important. We have AI throughout many of our services and products. We’ve been launching AI products for over four years. One example is where we have our call center capability of click chat call.

So instead of calling an 800 number, clients can now chat with us through AI bots. And if the question is too hard, there’s human in the loop where a human can jump in. But this chat has really improved our customer satisfaction, and it’s enabled us to improve our margins because we’ve been able to reduce headcount there as well. I’ll throw it over to Stephen, who can quickly walk us through some financials.

Steven Marks, CFO, First Advantage: Yeah. And thanks and good morning everyone. We’ll take a quick drive of where we’ve come from, where we’re at, and where we’re going from financing or financial model. And a couple of key things here, right? First Advantage IPO’d almost four years ago to the day in June of twenty twenty one.

And kind of that journey has been obviously with a number of different macro backdrops. In 2021 exiting the pandemic, there was mass hiring expansion. So a great metric that we look at internally is the ratio of job openings to those unemployed. A healthy comfortable level for that’s about one to one. Exiting the pandemic, number exploded to 2.2 to one that peaked in early twenty twenty two.

So what that means is for every unemployed person, there’s 2.5 jobs waiting for them. So that created excess churn in the hiring market. That reflects within our base revenues or same customer sales as employees are migrating from job to job for higher paychecks. So through a combination of this and our ability to expand revenues with new logo, upsell, cross sell and a very consistent retention level of 96% plus, we were able to grow revenue through that pandemic boom. And then as we’ve normalized back down through base revenues continuing to drive offsetting growth.

But more importantly to us, all that going on and able to use the tech, the data and the automation that Scott just talked about to drive consistent cost growth. And you can see we’ve been able to outpace our revenue growth with expansion of EBITDA margins, which has been a core tenet of our past. Obviously, a current focus of ours with the synergy program coming off of the heels of the Sterling acquisition and then well into the future. If you kind of speaking of the synergies, we closed on the Sterling deal about seven months ago. When we announced that deal, we were thinking synergies would be north of $50,000,000 and have expanded and refined that range over time.

Last week, we were here in New York with our Investor Day, and we’re happy to announce that now expanded that again to a 65,000,000 to $80,000,000 number of total net cost synergies. And in fact, we’ve been focused on accelerating that number and have already actioned $37,000,000 by March 31 to the end of Q1 and continue to focus on that on a day to day basis as we run the business. Another as I mentioned, our ability to scale our margins. A key component of our financial model is the scalability of our P and L and specifically our cost of sales. So right now, gross margins run about right around high 40% range, 47%, forty eight %.

And when you break down that, we’ll call it 50% of revenue that is cost of sales. You’ll see on the screen about three quarters of that is third party data costs. So what Scott was talking about, public data, the private data. The good news about that from our P and L standpoint, that’s virtually 100% volume variable. So if we don’t do the search, we don’t incur the cost, we don’t pay the expense.

We’re also able to leverage our proprietary data more and more over time to both offset our usage of that and use that in a better perspective. So that remaining quarter, that remaining 25% of our cost of sales is really our internal fulfillment costs. And a key tenet of the historical First Advantage business is looking at that as almost entirely volume variable. So the way we workforce manage, the way we staff to inbound volumes, the way we monitor inbound volumes and then use things like overtime shift differential and weekends, we’re able to actually dial that workforce to match that inbound volume. We’ve lived in a really volatile macro environment for the last five years.

And but what you’ve seen quarter after quarter and year after year is First Advantage’s ability to consistently deliver gross margins that remain in line. And those are key tenets of that. Flip to the balance sheet for a second. A, because I’m proud of this because the way my team owns this, but B, the outlook here is really strong. Obviously, with the Sterling acquisition, we financed that.

We now have a combined facility that runs about $2,200,000,000 We’ve already started to pay that down with a $15,000,000 voluntary prepayment we made just about a month ago, and we’ll continue to take excess free cash flow and turn it there. But a couple of key things on this slide. One, our company and our management team has been here before, and we’re prepared to do it again. When we were acquired about five years ago, as you can see, leverage jumped up to about six times. But very, very quickly, we were able to get the costs in line, focus on networking capital management, limit our cost investment and get leverage back into it to an ordinary place.

We’re at 4.4 times today and between the synergy production that we have, the focus on cost containment and free cash flow generation and a very flexible financing model, we’ve got a great horizon to get that back into our target range of two to three times really by the end of next year. So let’s talk about capital allocation for a quick second and think of this as two phases. Phase one is what we’re in right now, which is deleveraging. Our core focus today is completing our acquisition, going and getting that full 65,000,000 to $80,000,000 synergies and really focusing on reducing the amount of onetime costs and net reinvestment back into the business. And while that’s going on, bringing that leverage to that two to three time mark.

When we get to that future state, which again, that’s you’re looking out in the horizon about 2027, we’ll open up the playbook a little farther. So that includes some inorganic growth, that includes looking at opportunistic and strategic return of capital to investors. But that’s a journey, that’s not going to happen overnight. So, I would focus you on the left side of this page for now and note that we’re really committed to and obviously with our voluntary prepayments and mandatory prepayments already started the journey. I have the joy of being here just a week after we had our Investor Day last Wednesday.

So, these are our new long term financial targets for 2028, and you can see the scale that we plan to be operating at in about three and a half years’ time. Almost a $2,000,000,000 revenue business, call it $600,000,000 of EBITDA converting that to cash at an incredibly high rate. Long term, we think we convert adjusted net income to free cash flow at about a 90% metric. But if you look at the most important metric here to me is $1.65 to $2 of EPS adjusted. We were at $0.82 last year.

So that’s more than a 2x expansion at all points of our range as we leverage our synergies, leverage the revenue growth, continue to focus on cost savings, but also more importantly to that number, deleverage and watch that flow to EPS. And then real quick, as we kind of talked about, this is our how we grow revenues top line. Things that we can control so that aren’t influenced by macro is a very consistent growth, 4% to 5% new logo, which is new customers, 4% to 5% upsellcross sell. So that’s more penetration into our clients, more products, more risk management, more geographies. And as I mentioned, being able to retain clients at a 96% plus rate.

So that gets us to a long term target growth rate of 7% to 9%, a healthy number that outpaces our vended market. And I’m just rushing a little bit because I know I want to make sure we get time. So when you pull this all together, as Scott mentioned, we’re a market leader. In a few years’ time, we’ll be operating at a $2,000,000,000 scale with above 30% margins. And like and as I added, dollars 1.65 to $2 of EPS generation.

So Mark, I want to make sure we get it to you back. So I believe this as the backdrop for questions.

Mark Marcon, Analyst, Baird: So I really appreciate that. So one of the questions I’m asking every company that I’ve been hosting is a macro question. You obviously have a number of areas that are not particularly cyclically sensitive. You have some areas that are cyclically sensitive that you ended up doing a great job during COVID with. I mean, the retail side, if you’ve got companies like Walmart and Amazon, that those are constantly hiring.

But you do have some areas that are cyclically sensitive. And so one question I have is, we had a lot of optimism post election, then we had Liberation Day, a lot of pessimism following that. What are you currently seeing from from your clients?

Steven Marks, CFO, First Advantage: Well well, there’s a couple key key tenants. Right? Scott mentioned enterprise as our focus. Enterprise for us is half a million dollars or more screening volume. First advantage is 10,000 employees.

We barely break the low end to mid market. So you’ve to think about the scale of these companies. So when an event comes out, or a truth social tweet, or whatever they’re called, post, I guess, Our companies are so big that they’re able to absorb those and act more strategically. I think small business is a lot more levered into those and has to react a lot faster. So, we’re fortunate to operate A, in some really key verticals like you mentioned.

In fact, number one vertical now has nothing to do with retail, it’s healthcare. Right. Which is a really resilient place to be. And where we operate in retail and transportation, you know, we would call it, you know, essential retail in 2020, right? So, toilet paper, toothbrush, things like that, that are essentials to life.

So we feel really good, not just about the verticals, but the size of customers that we have, who are able to have a news come out on Monday and be able to wait and react to it and set strategy and that doesn’t change their overnight and their business strategy. So I think that’s what’s given us a little bit of insulation from the volatility of the news cycle. And I think that it’s the separation from the news cycle to Main Street to I’d almost call it Big Street because the size of our clients are just so different from these mom and pop sized small business companies.

Mark Marcon, Analyst, Baird: Great. And now I want to shift over to very specific questions. So during the Investor Day, you discussed the evolution of First Advantage over time and specifically the FA five point zero strategy. For people who aren’t familiar or didn’t go through that, the full Investor Day, can you discuss some of the tenets of that?

Scott Staples, CEO, First Advantage: Yes. So FAA five point zero is a new strategy for us starting January 1. It was We like to do three year strategies. They make sense for us. And given the fact that we had just acquired Sterling, the timing was right for a new strategy.

Being an FA five point zero means that there was a four point zero, three point zero, two point zero, etcetera. And we’ve done really well with those strategies. They’ve all triggered. We actually when the new management team came on in 2017, we actually created FA three point zero, and that’s where we went forward. And two point zero, one point zero are just historical.

So the strategy is really a combination of a bunch of things. One is the integration of Sterling. We’ve got to nail that. And we’re way ahead of schedule. We raised our synergies.

Things are going really well. We’ve got an incredible culture fit between those two organizations, which has really helped us with the acceleration. Two is doubling down on these verticals that we like so much. So it’s not take health care, for example. So it’s not just you know, being in the space and attacking the, you know, the hospital networks.

It’s getting down deeper into sub verticals that we love, like home health care, which is high turnover, health care staffing nursing schools, all that stuff. High volume, high turnover, lots of different types of products to be sold to them. So it’s all about sort of the penetration of the verticals. The tech story, which I talked about, bringing the best of both worlds together so that you know, we feel we’ve got the best technology in the industry today. But when you put these two together, I mean, it’s incredible how great it is.

And the last thing is the financials. We’re totally committed to paying down the debt, increasing the margins, growing the company.

Mark Marcon, Analyst, Baird: That’s great. One thing that you’ve done a tremendous job with is the integration of Sterling. I was pleasantly surprised to see the lack of turnover among the existing Sterling clients. Can you talk a little bit about what you did to manage that? Because sometimes when you’ve got these situations, you do see a number of clients leave, and you’ve done a phenomenal job there.

Scott Staples, CEO, First Advantage: Well, this was our biggest fear when we did the deal. So we’ve been so focused on that. And if you look at the messaging and the communication we’ve done since we’ve announced this deal, we’ve been very purposeful and repetitive in our communication about the technology story. Because what drives retention or attrition in a merger is forcing those acquired customers onto a platform that they’re unfamiliar with, didn’t want to go on. And we’re not having to do that.

So huge shout out to our tech teams for coming up with this elegant architecture where we can take the best of both worlds and everybody actually gets it’s even better than just saying, hey, you don’t have to migrate. It’s, hey, you’re going get a number of upgrades. And they were already happy on the platform, so now they’re like, wait, it’s going to get better? So that’s really helped. And the last thing is, you know, we went because it was two publicly traded companies that came together.

We had to go through a lengthy, you know, DOJ process. And this may sound weird, but the DOJ actually did us a favor by doing a second request. It gave us more time to plan. And we have just planned well. We got a lot of help from Silver Lake, who’s been through hundreds and hundreds of M and As.

They gave us good advice, some templates. We even have a Silver Lake consulting team helping us through the process. But we’ve got dedicated teams. We’ve got program managers, project managers. We’ve got comms experts.

We’re just focused on this because we know that’s the most important thing.

Steven Marks, CFO, First Advantage: Well, Mark, it was also important for us to start with a realistic synergy number that didn’t force us to go, you know, put pressure on any of those areas Scott just talked about. So that’s that’s what’s given us both the ability to raise that over time is because we started with a very conservative number that allowed us to be flexible with the strategy and make sure we could preserve that client experience throughout the process.

Mark Marcon, Analyst, Baird: And you’ve already achieved 37,000,000. Correct. And you’re you’re targeting 65 to 80. What What was done for that first thirty seven and what still needs to be done?

Steven Marks, CFO, First Advantage: Yeah. The first chunk is a lot of it is bringing two big organizations together. It’s like Scott talked about two public companies. So getting that infrastructure unwound, getting a lot of the back office merged together, getting the functions brought together is a lot of the core focus. And the journey to come is a lot more about the fulfillment side.

So that cost of sales pie chart, getting the data and providers and automation pulled together, getting the workforces pulled together. And a lot of that’s happening, but because it’s such a broad structure, it’s going to take a while to go to work its way through the full the cost of sales structure. But that’s really kind of Phase two, if you will. But we accelerated whatever we could. We wanted to get as much 2025 uplift into the numbers and get that as early in the year as possible.

So the management team did a phenomenal job getting to that $37,000,000 numbers, which far exceeded our expectations.

Mark Marcon, Analyst, Baird: Will you still continue to run two platforms? Or is that part of that remainder?

Scott Staples, CEO, First Advantage: We’ll two front end platforms. The back end will be one consolidated platform on mostly the First Advantage automation that I talked about that we’ve built. That’s where all the cost savings comes. So the client experience doesn’t get disrupted. From what they visibly see, there’s hardly any change.

But what’s happening kind of the plumbing underneath, that all rides on one platform.

Mark Marcon, Analyst, Baird: Great. Unfortunately, we only have three minutes left and I had way more questions. But I to ask about this, the digital identity market because that is really topical. First of all, how do you get to a $10,000,000,000 TAM? Like, what’s the do you break that down?

Scott Staples, CEO, First Advantage: Yeah. So we got to it actually with the help of a lot of external sources. So the $10,000,000,000 TAM was a number that was actually came up with four independent sources that came up with the exact same number. And the footnotes are in our deck on our website as to what those sources are, like IBIS and We actually came up with a very similar number on our own. So we’re pretty comfortable with it.

But technically, what it means is that it brings the whole concept of identity fraud verification up the workflow, up the funnel, to the recruiting part. So this no longer becomes just embedded in a background screen. It now becomes part of recruitment and onboarding. And that’s why it’s grown so big, because companies recruit a lot more than they onboard. So it’s just a larger funnel which has created that TAM.

Mark Marcon, Analyst, Baird: And can you describe, you know, what you do

Scott Staples, CEO, First Advantage: in terms of that market? And I think we’re in a unique position. That’s why we love our space here because there’s lots of point solutions in digital identity. A company can go out and partner with somebody for a single point solution. But we’re one of the only few companies out there that actually can bring all those things together under one user workflow, one user experience, and one single source of truth.

So if a company goes out and tries to get point solutions to help with all the different parts of digital identity validating was it a deepfake, looking at social security number verifications, validating a driver’s license, a passport, all that stuff, That’s a lot of work on their end. They’re the ones that have to connect all the dots. But we’re going in and saying we can do all that for you. Plus, we can also validate that the person who you interviewed is the same person that you onboarded is the same person that filled out the i9. And i9s become very important in today’s world to make sure that you’re going to survive an audit from the federal government and now that and that’s all digital.

Mark Marcon, Analyst, Baird: Who else could play? And what are the unique advantages that you have?

Scott Staples, CEO, First Advantage: Yeah. There’s companies that can play in different parts, right? But you can go out to a facial recognition digital ID company, but that’s the only piece they can do. And we’re partnering with them anyway. And the price points aren’t that different.

So why do it? And it’s embedded in our workflow and on our platform.

Mark Marcon, Analyst, Baird: That’s terrific. Unfortunately, we’re out of time. Please join me in thanking Scott and Steven for a terrific discussion.

Steven Marks, CFO, First Advantage: Thanks for having us. Thanks for

Scott Staples, CEO, First Advantage: having us.

Mark Marcon, Analyst, Baird: We we really appreciate it.

Scott Staples, CEO, First Advantage: Yeah. No problem. This is great.

Mark Marcon, Analyst, Baird: And I look forward to taking

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