First Advantage Q3 2026 Earnings Call Transcript

First Advantage (NASDAQ:FA) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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View the webcast at https://event.on24.com/wcc/r/5508610/155836F5FA3B3D924EF9669941EDE522

Summary

First Advantage reported strong financial results for Q3 2026, with a 14% year-over-year revenue growth, an adjusted EBITDA margin of 29.3%, and a 27% increase in adjusted diluted EPS.

The company is progressing with its FA 5.0 growth strategy, emphasizing AI-driven technology, product innovation, and strategic acquisitions, such as the recent acquisition of Data Diver Technologies.

First Advantage raised its full-year 2026 guidance for revenue, adjusted EBITDA, and EPS due to robust performance and positive market trends, expecting revenue between $1.72 billion and $1.745 billion.

Operational highlights include strong performance across various verticals, particularly transportation, logistics, retail, and e-commerce, and significant contributions from new enterprise contracts.

The management expressed confidence in the company’s strategic direction and financial health, highlighting successful integration of past acquisitions and ongoing investments in technology and data.

Full Transcript

Bo (Operator)

Good morning everyone. My name is Bo and I will be your conference operator for today. I would like to welcome you to the First Advantage third quarter 2026 earnings conference call and webcast. Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. At this time, all participants have been placed in a listen-only mode to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. And lastly, if you should require any operator assistance today, please press star zero.

And please note, today’s event is being recorded. It is now my pleasure to turn the call over to Ms. Stephanie Gorman. Please go ahead.

Stephanie Gorman (Vice President of Investor Relations)

Thank you, Bo. Good morning everyone and welcome to First Advantage’s third quarter 2026 earnings conference call. In the Investors section of our website you will find the earnings press release and slide presentation to accompany today’s discussion. This webcast is being recorded and will be available for replay on our investor relations website. Before we begin our prepared remarks, I would like to remind everyone that our discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the SEC, including our 2025 Form 10-K and our Form 10-Q for the third quarter of 2026 to be filed with the SEC.

Such factors may be updated from time to time in our periodic filings with the SEC and we do not undertake any obligation to update forward-looking statements. Throughout this conference call, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures, to the extent available without unreasonable effort, appear in today’s earnings press release and presentation which are available on our investor relations website.

I am joined on our call today by Scott Staples, our Chief Executive Officer, Joelle Smith, our President and Steven Marks, our Chief Financial Officer. After our prepared remarks, we will take your questions. I will now hand the call over to Scott.

Scott Staples (Chief Executive Officer)

Thank you, Stephanie, and good morning everyone. Thank you for joining our call today. We have four key messages. First, we delivered yet another quarter of outstanding results in the third quarter with revenue growth of 14% year-over-year, adjusted EBITDA margins of 29.3% and year-over-year adjusted diluted EPS growth of 27%. We continue to demonstrate consistent go-to-market performance, the strength of our leading AI-driven technology platform and proprietary data, sustained operating efficiency and the durability of our diverse enterprise customer base vertical mix.

Second, we are making strong progress on our FA 5.0 growth strategy. Our focus on product innovation, platform capabilities, AI and automation and go-to-market execution is translating into tangible results. Just a few days ago we were very proud to have celebrated the two-year anniversary of closing the Sterling acquisition which has been a critical element supporting and accelerating our growth. Third, our strong cash flow generation continues to provide flexibility to execute our balanced and disciplined capital allocation strategy. As we have previously mentioned, we are constantly evaluating opportunities to create shareholder value and remain focused on deploying capital where it can have the greatest impact. Along with our earnings release today, we are excited to announce that we have further invested in our proprietary data and technology strategy with the tuck-in acquisition of Data Diver Technologies, a data platform leveraging AI and automation, which Joelle and I will discuss shortly.

And finally, we are again raising our full year 2026 guidance across all key metrics to reflect our strong year-to-date performance, continuing go-to-market success, stable labor market trends and our confidence in our growth outlook for the remainder of the year. In fact, the low end of our revised full-year guidance ranges now exceeds the high end of our previous guidance ranges across every metric. Now turning to Slide 5, we delivered outstanding results in the third quarter across the board, continuing our strong performance from the second quarter. Our results exceeded our stated expectations, benefiting from sustained broad-based momentum across our Americas business, continued contribution from our recent large contract wins, peak holiday hiring progressing earlier than expected and modest carryover from Q2 customer initiatives. We are also encouraged by the healthy pace of order volumes in October and the continued stability within the broader hiring environment.

We believe the strengths of our business including our focus on high-volume enterprise customers, diverse vertical mix, global footprint and balance across blue-collar and white-collar hiring continue to position us well in the market. These attributes provide stability and reinforce our confidence in delivering durable growth across a variety of macro environments. In this rapidly evolving environment, our customers continue to place a high value on our AI-driven product innovation, leadership in identity fraud detection and our combination of regulatory expertise, risk management and focus on compliance. This enables First Advantage to deliver high quality, highly automated and high-volume screening globally at scale. One recent milestone I would like to highlight is the two-year anniversary of closing the Sterling acquisition on October 31st; we are executing well and realizing benefits well ahead of our original expectations. Today we are a larger, stronger and more diversified company offering customers a broader portfolio of best-of-breed technologies and products backed by greater scale and innovation capabilities. As a result, we have strengthened our market position, expanded our growth opportunities and enhanced our ability to create long-term value for shareholders. With Sterling, we demonstrated our capability and discipline in executing our M&A strategy, successfully integrating the business and delivering growth and synergies.

As we announced today, we are applying our M&A playbook again with the tuck-in acquisition of Data Diver. Turning to Slide 6, Data Diver is a company we know very well and have worked with for a number of years as a key third-party data provider to First Advantage. Over the past couple of decades, Data Diver has built a proprietary data platform powered by an automated fulfillment engine that collects, aggregates, retains and delivers high-volume criminal and court records.

As a reminder, First Advantage has been a product innovator in this space for years, investing in data and automation such as our National Criminal Records File and our Verified proprietary databases. Data Diver builds on that foundation by adding incremental proprietary data, proven technology and an experienced data team, creating a unique opportunity to accelerate our data and technology strategy. With over 1 billion data records already in our proprietary databases, the combination will expand our existing databases, grow our automated fulfillment coverage across U.S. jurisdictions, enhance our existing solutions and accelerate development of new capabilities. The Data Diver acquisition also adds resources and capabilities that support faster turnaround times, high quality results for our customers and further differentiate First Advantage in the market.

The acquisition is centered on Data Diver’s proprietary data assets and technology and also includes a small employment background screening component. The acquisition adds annual revenues of approximately $20 million and adjusted EBITDA margins in line with our existing profile with upside synergy opportunities. Overall, this $125 million acquisition represents an important investment in our strategic data asset. With that, I will now turn the call over to Joelle, our President, who will share more on our outstanding third quarter including our go-to-market execution, vertical performance, product innovation and further details on our acquisition of Data Diver.

Joelle Smith

Thank you, Scott, and good morning, everyone. Turning to slide 8 and an update on our go-to-market performance and the underlying dynamics behind our outstanding results this quarter. Our robust 14% year-over-year revenue growth for Q3 exceeded our previously stated expectations and our long-term growth algorithm target. Combined Upsell, Cross-Sell, and New Logo revenues again delivered robust growth, achieving 12.5% growth in the quarter. We continued to benefit from the large go-lives from the end of 2025 that we have discussed on previous calls as well as the contribution from the many other enterprise deals we have won in prior quarters.

We had excellent base growth in the quarter, coming in at 5%. Underlying base trends remained strong and broad-based, and we saw some continuing benefits from customer initiatives started during the second quarter which contributed a little more than 1% to this quarter’s base growth. Retention remained solid at 96%, in line with our long-term model. Our sales teams delivered a solid 14 enterprise bookings in Q3 with each deal having an expected annual contract value of at least $500,000.

These wins, combined with the continued strength and expansion of our late-stage pipeline, reinforce our confidence in the durability of our new logo and upsell/cross-sell execution and support our positive outlook for the fourth quarter. Turning to our verticals on slide 9, we yet again outperformed broader labor market headlines and data trends in Q3, reflecting our strong market position and our strategic execution throughout the quarter. The tones from our enterprise customers regarding their hiring plans remain neutral to positive, which you can see reflected in our Q3 base performance. Our balanced and resilient customer mix, focus on high-volume hires, and verticalized go-to-market strategy drove broad-based revenue growth across almost every vertical in our Americas business.

We saw sustained strength in transportation and logistics as well as retail and e-commerce. This was supported by ongoing healthy consumer activity driving labor demand along with an earlier-than-expected start to the peak holiday season hiring. Toward the end of the quarter we saw standout performance in industrials and manufacturing, resulting in increased screening activity for this vertical driven by strong demand for their products and services and increased economic activity in aerospace and defense.

We also saw positive momentum in general staffing, health care, PMT and hospitality, and the gig economy. As you can tell, the outstanding performance in the quarter was truly broad-based across most verticals. Turning to our international business, which represented approximately 11% of our total sales in the quarter, Q3 were down 4% year over year, following nine consecutive quarters of growth. With performance in APAC and India having been impacted by disruptions in the Middle East and the related broader macroeconomic uncertainty, our EMEA business performance remained more stable despite the near-term headwinds in certain countries. We continue to be a partner of choice for managing our multinational customers’ expanded screening needs across the geographies.

We remain confident in our long-term international opportunities. Turning now to our product update, identity fraud remains a critical topic with our customers and prospects, with 45% of hiring professionals having experienced candidate identity misrepresentation as reported in our 2026 Global Workforce Trends Report earlier this year. In fact, the subject continues to be the tip of the spear in our discussions as customers and prospects fight growing recruitment and onboarding fraud in the workplace. Our “trust in a changing world” message has landed right on point as we help our customers answer an increasingly important question: Are my candidates who they say they are?

As employers face growing risks from hiring fraud, synthetic identities, fraudulent or AI-generated documents, and other emerging threats, demand for identity fraud detection products like our digital identity solution continues to grow and drive meaningful differentiation in the market. We believe it is helping to expand our pipeline, improve win rates, and support retention. As customers and prospects increasingly view identity fraud detection products as key components of a modern screening program, we continue to use our “Good AI fight the bad AI.”

Building on that momentum, we recently announced an exclusive strategic partnership with ID.me to launch a purpose-built, FCRA-compliant digital identity verification product specifically designed for making employment decisions. Historically, digital identity verification has been outside the scope of the Fair Credit Reporting Act, or FCRA, which is the federal framework that governs background screening. Our new product brings digital identity within that framework, allowing us to incorporate the identity fraud results into the background screening report.

This means customers can now make critical employment decisions based on the combined results of the digital identity verification and the traditional background screening report, enabling their screening program to be more comprehensive and compliant. Customers have told us that this increases both their willingness to adopt digital identity and expand its use within their screening programs. As the only large-scale background screener providing this level of compliance, it’s a meaningful differentiator that can help support retention, strengthen our pipeline, and help us win new business.

Turning to slide 10, our Smart Hub AI routing technology has been a game changer in our employment and education verifications businesses, and now we are extending that same technology to how we source criminal records data. We have officially launched Criminal Smart Hub, which was developed entirely in-house by our data science and engineering team. Criminal Smart Hub uses proprietary AI to evaluate thousands of potential data sources to fulfill customer orders in seconds.

Criminal Smart Hub scans our proprietary criminal records, public data sources, and third-party data sources to intelligently identify the fastest, highest quality, and most efficient way to fulfill the order. The result is faster turnaround times and greater efficiency for our customers. We believe Criminal Smart Hub is another great example of our technology leadership in the industry: the scalability of our proprietary AI, the value of our proprietary data, and our continued commitment to delivering best-in-class products to our customers.

The value of technology like Criminal Smart Hub is amplified by the quality, breadth, and accessibility of the data it consumes. As we continue to invest in automation and AI-driven fulfillment, expanding our proprietary data assets remains a strategic priority. That is why we are so excited to announce our acquisition of DataDiver. A meaningful benefit to our customers will be accelerated screening turnaround times as expectations continue to shift from days to hours and increasingly toward near real-time results.

By expanding our data and fulfillment capabilities, we can deliver faster, more efficient screening outcomes for one of our highest-volume product lines while enhancing our existing solutions and creating new opportunities for product innovation. Ownership of these proprietary data assets also gives us greater control over an important part of our fulfillment ecosystem, further enhancing our differentiation in the market. With that, I’ll now turn the call over to Steven.

Steven Marks (Chief Financial Officer)

Thank you, Joelle, and good morning, everyone. I’ll start with our third quarter results on slide 12. Our third quarter revenues were up an impressive 14% year over year, coming in at $466 million. This exceptional performance exceeded our stated expectations and our long-term growth algorithm target range. Results were driven by broad-based volume acceleration in our Americas business, an earlier-than-expected start to peak holiday season hiring, and the continuation of some customer initiatives from Q2, which alone contributed slightly more than 1% to base growth this quarter.

Adjusted EBITDA for the third quarter was $136.5 million, up 15% year over year. Our adjusted EBITDA margin of 29.3% came in above our stated expectations and reflects sequential quarterly improvement of 70 basis points, driven by our broad-based revenue growth and our strong operating leverage, as we were able to keep sales and marketing and G&A flat year over year even as revenue grew. Margins also benefited from data cost savings driven by the increased use of incremental data partners and algorithm updates to our Smart Hub for verifications product, as well as our strong execution on synergies and cost discipline, all while flexing to adapt to the product mix changes as a result of the large deals we have previously discussed. Our adjusted diluted EPS was $0.38, a 27% increase year over year. Our per-share earnings growth was supported by our overall performance in the quarter, year-to-date share buybacks, and synergy realization.

Earnings growth also benefited from our disciplined expense and capital management and our interest expense as a result of our voluntary debt repayments to date and our July 2025 debt repricing. We have continued actioning cost synergies from our Sterling acquisition, reflecting our disciplined execution and strong integration process. At two years post-closing, we are proud to say that we have meaningfully exceeded our initial synergy thesis. By year end, when we formally conclude our integration process, we expect to finish near, if not at the top of, our synergy target range. We are also proud that we have achieved these synergies very thoughtfully and have had essentially no impact on customer retention.

Our best-of-breed product, technology, and customer service approach was received very favorably across our customer base and enabled us to achieve our goals. Now turning to cash flow, net leverage, and capital allocation on slide 13. During the quarter we generated operating cash flows of $63.8 million. Year to date, this brings our operating cash flows to $186.8 million, a substantial increase of $57.6 million, or 45% on a year-over-year basis. Q3 operating cash flows were driven by the larger scale of our business, our overall focus on cash flow, and the natural working capital impact of our revenue growth outperformance.

Our cash balance as of September 30, 2026 was $241 million. Our synergized adjusted EBITDA net leverage ratio at quarter end was 3.5 times and represents a 0.9 times decrease from when we closed the Sterling acquisition two years ago. Regarding acquisitions, given the strategic importance of Data Diver, we view this tuck-in as a highly compelling use of capital that preserves our flexibility to execute our long-term capital allocation strategies.

We funded the $125 million acquisition using mostly cash from our balance sheet and, to a much lesser extent, our revolver. We expect to pay off the acquisition borrowings in the near term using free cash flow. The acquisition does not change our overall deleveraging strategy and provides incremental tax benefits to the company. We remain fully committed to our 2028 leverage targets. Our use of capital for share repurchases during the quarter was not material, and going forward we will continue to be disciplined with our capital allocation approach to ensure we are executing a plan that maximizes ROI and shareholder value.

Moving to slide 14 and our updated 2026 guidance. Today we are again raising our previously announced full-year guidance, supported by our outstanding performance in the first three quarters of the year and our outlook for stability in the hiring markets for the remainder of the year. We now expect 2026 total revenues in the range of $1.72 billion to $1.745 billion, adjusted EBITDA of $488 million to $498 million, adjusted net income of $227 million to $232 million, and adjusted diluted EPS of $1.30 to $1.33 per share at the midpoint.

On a year-over-year basis, this represents approximately 10% revenue growth, 12% adjusted EBITDA growth, and 26% adjusted diluted EPS growth. Our raised guidance range reflects a balanced posture on our Q4 outlook that incorporates the healthy state of our underlying demand trends, specifically those impacting U.S. seasonal hiring, as well as the ongoing geopolitical and macro uncertainty. As a result, the continuation of current trends would support performance above the midpoint of our range.

However, consistent with our approach towards guidance, we believe it is prudent to account for a broader range of outcomes given the factors outside of our control. It is also important to remind you that our fourth quarter 2026 growth rates are being measured against an exceptionally strong fourth quarter last year, during which we grew a notable 12% year over year. More specifically, in Q3 of this year we started to lap the 12-month anniversaries of the large 2025 go-lives we previously discussed, and for Q4 these wins will now be fully annualized.

As we have shared in the past, for Q4 we expect a more modest level of growth, with revenues being more evenly distributed this year as we grow over last year’s strong 17% new logo and upsell/cross-sell growth. We also expect base to be neutral to slightly positive for Q4, supported by the strong demand trends from Q3 which continued into October. Q4 adjusted EBITDA margins are expected to remain in line with our mid-28% year-to-date performance.

For adjusted diluted EPS, we expect year-over-year expansion in Q4, reaching the low $0.30 range. Please note that our updated guidance includes the very modest impact of the Data Diver acquisition in the last two months of the year. We have provided additional full-year 2026 guidance assumptions in the appendix of our presentation, which again are not meaningfully impacted by the acquisition. With that, let me turn it back to Scott for closing remarks before we open the line for your questions.

Scott Staples (Chief Executive Officer)

Thank you, Stephen. In closing, Q3 was another quarter of outstanding execution and performance, and we are pleased with the solid momentum we are seeing in the fourth quarter so far. We remain focused on driving long-term value creation by providing best-in-class, differentiated products that address our customers’ evolving needs. The acquisition of Data Diver is another example of how we are investing to enhance our data and technology offerings to continue to position First Advantage for profitable growth over the long term.

We remain confident in our ability to deliver consistent financial performance and continue to progress well toward the 2028 financial targets we established during our May 2025 investor day. I would like to recognize and thank the entire First Advantage team for their hard work and dedication to supporting our customers every day. With that, we will open the line for questions.

Bo (Operator)

Thank you very much, Mr. Staples. Ladies and gentlemen, at this time we will now begin the question-and-answer session. If you do have a question, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. Also, if you are using a speakerphone, we request that you please pick up your handset while asking your question to provide optimal sound quality.

Additionally, we ask that you please limit yourself to one question and one follow-up. We’ll go first this morning to Andrew Nicholas with William Blair.

Daniel Maxwell (Analyst at William Blair)

Hi, guys, good morning. This is Daniel Maxwell on for Andrew this morning. Maybe just start off on the synergy front. If you can, maybe frame what’s left to go on synergies on the Sterling side as we think through what to layer on top of core incremental margins for next year, as well as any color you can give on expected synergies from the Data Diver acquisition.

Steven Marks (Chief Financial Officer)

Yeah, good morning. I think, look, there’s really not a whole lot left to do. I would say on the Sterling acquisition front, as we shared on the call, we’re kind of effectively weeks away from really saying that the acquisition is done. We’ve shared kind of throughout the year that a lot of the remaining 2026 synergy capture is going to come from more of the cost of sales lines, as you know. We just work through and finalize the alignment of fulfillment practices and workflows.

So I think, A, that’s where the synergies are coming from. I think, B, you’re really seeing the value of that come through. You know, we saw the revenue outperformance and broad-based growth that we talked about in Q3, and our ability to fulfill that volume—and we shared this kind of last quarter—within the workforce management structure that we already had in place is one of the key drivers for the margin outperformance in Q3. So I think it’s really not a whole lot left to do.

We just have a few more programs to finalize and action, and as we shared in the remarks, we think we’ll end the year at effectively the top end of our range. Most of that’s in cost of sales. In terms of Data Diver, I think there are some real synergies there. It’s a combination of being able to, very similar to kind of a Sterling mindset, balance out our data acquisition methodologies between the new tech that we’re buying—which is really good tech—and at the same time, you know, leverage those resources for new product capabilities and the product enhancements that Joelle was talking about in her remarks.

Scott Staples (Chief Executive Officer)

Stephen, the only thing I would add is, on the Sterling side, like, as Stephen was saying, we’re basically done. You know, we actually, as we head into 2027, don’t really plan on talking about this going forward because it’s been a huge success. In fact, you know, we’re kind of taking a victory lap here and saying, you know, we integrated it perfectly. We had no impact really to attrition. Actually helped our growth engine. We’re at the top, if not, you know, potentially exceeding our synergy targets.

You know, everything that we need to action is already in flight. So there’s no, like, new things to do. So I think we’re really closing a chapter on a really nice, you know, part of our journey here and pretty proud of what the team has accomplished.

Daniel Maxwell (Analyst at William Blair)

Great, that’s helpful. Sticking with the Data Diver side of things, maybe you guys can talk to the kind of the build versus buy decision and how difficult it would be for a competitor to replace this technology. And then if you could also sort of rank the attractive aspects of the deal between the technology, the data asset, and assuming the small and medium business screening component was kind of third in that list. But correct me if I’m wrong there.

Scott Staples (Chief Executive Officer)

Yeah. So I’ll tag-team with Joelle on this one a little bit. You’re absolutely right in the fact that when you look at these things, you look at build versus buy. In our prepared remarks, we mentioned that Data Diver has been at this for decades, so they’ve done a really nice job of building out their tech platform, their automation, their algorithms. There’s a little bit of overlap, obviously, with what we do, but this actually fills a lot of gaps for us.

They covered some jurisdictions that we hadn’t yet automated, and in some of their jurisdictions we like their automation better than ours. This gives us access to bulk data. There are some really nice things here. It also gives us a really nice data team. The entire team is coming over to help us drive future endeavors as to what we can do with this. So this will again drive faster turnaround times for our customers, better automation, and even new product ideas. Now that we’ve got a larger team here and access to more data, we can launch more products and really help our customers with this critical element of their screening. I will let Joelle fill in a little more color here.

Joelle Smith

Yeah, thanks, Kat. It’s not really a build versus buy; it’s build and buy. We’ve been building this, and it just goes to the complexity and size and scale of just how wide, big all of the jurisdictions are across the United States. There’s state, there’s county — you know, there’s a lot of complexities to it. So the combination of these two things, and as Scott said, we’ve been working with them for a really long time, it really amplifies our ability to have a more complete product offering, and it accelerates the speed for us to be able to do it.

So it’s a force multiplier. We are very happy with it. The technology that they have and the data that they have is a great complement to what we do, and we’re excited to see where this goes.

Kat

Thanks a lot.

Bo (Operator)

Thank you. We’ll go next now to Shlomo Rosenbaum with Stifel.

Ada Shrestha (Analyst at Stifel)

Hi, thanks for taking my questions. I’m actually covering for Shlomo Rosenbaum. This is Ada Shrestha. Just in terms of revenue raise, revenue, EBITDA raise — I think revenue is up 42.5 million, I think EBITDA 14 million. Could you just kind of break it out between what was the 3Q beat versus Data Diver addition, and then maybe what you sort of expect the outperformance in 4Q to be?

Steven Marks (Chief Financial Officer)

Yeah, really good question. So certainly, we had an amazing Q3, and that’s obviously a material component of how we did the computation to raise guidance. When you think about the impact of Data Diver, it’s very modest. That deal closed this week, so you get 60 days’ contribution on a business that’s running roughly $20 million, so it’s roughly a 1% lift to Q4 if you’re kind of just doing really simple math. We really did not make a major computation into the guidance raise at all.

So when you think about what gave us confidence to raise by that much: an incredibly strong Q4, as we shared on the call; good momentum into October; and if the current trends continue, we feel good about ending above the midpoint, as we shared on the call in the prepared remarks. But obviously we have a little bit of a wider range. We’ve seen the last couple of seasonal peaks go long or go short, and obviously a lot of fast-moving, major geopolitical and macro-oriented items in the market these days.

So we feel like we’ve got a very appropriately sized range, and then obviously if the current trends continue, as we shared, we expect to be at the upper end of that metric.

Ada Shrestha (Analyst at Stifel)

Great, thank you. And just in terms of Data Diver, does the $20 million annual revenue that you’re expecting include any sort of revenue that may be going away since you were using them as a vendor — and maybe just background?

Steven Marks (Chief Financial Officer)

Yes, sorry, it’s a small component. I mean you’re talking fractions of that revenue, so it goes away. Obviously that also means part of our cost of sales goes away, and it’s a very immaterial wash on the P&L.

Ada Shrestha (Analyst at Stifel)

Great. And just in terms of background per day diagnostic, how is the growth trend in that business? And I guess, of course, we can see the strategy behind it, and we would expect a stronger lift in that growth would be our guess.

Steven Marks (Chief Financial Officer)

Yeah, I mean, look, obviously we’re very bullish on the business — we wouldn’t have bought it if we weren’t. They’ve had some good growth trends. Again, when you compare that to the size of First Advantage, it gets washed out very quickly just because of the materiality of the difference between First Advantage, that’s running at a $1.7 billion pace based on our latest guidance. But we do feel very good about the business we acquired and obviously, as Scott and Joelle shared in their remarks, we’re strong believers in data and having strategies around data.

And that’s really the core reason for getting into the business: great tech, great data, and great ability to build incrementally on top of that.

Scott Staples (Chief Executive Officer)

And Steven, I’ll add, we also have a really good track record of doing M&A. We think we have a great process of finding the right companies, integrating them, and getting greater growth out of them than they would as a standalone. And obviously you can look at the success we’ve had with Sterling, but even before that we’ve had multiple tuck-ins which we’ve exponentially accelerated, their growth and gotten value out of it. So we feel like this asset under our umbrella — we can do a lot with it.

Ada Shrestha (Analyst at Stifel)

Great, thanks for taking our questions.

Bo (Operator)

Thank you. We’ll go next now to Jeff Silver with BMO Capital Markets.

Ryan (Analyst at BMO Capital Markets)

Hey, thank you so much. This is Ryan on for Jeff. Just wondering how we should be interpreting the implied 4Q guide versus what was embedded in there previously for 4Q. I think the refined outlook suggests maybe a softer view, though I know you’re thinking you end up near the higher end of the range if things continue as is.

Steven Marks (Chief Financial Officer)

Yes, good question. If we think about where we started the year and the originating guidance we gave out in February, the commentary that we shared there was we kind of expected base to be maybe neutral to slightly below neutral. We’re obviously feeling a little better about base given the trends the last couple of quarters, the strength within the verticals that Joelle shared within her remarks, and obviously a good October. So I would say the real evolution there is probably just feeling a little better about base today than we did eight months ago when we started the year.

Now, with all that said, obviously we still feel really good about the parts of our algorithm that we control and influence — so our new logo and upsell/cross-sell being within our long-term guidance range there. Retention’s been delivering at that 96% rate, and there’s no reason to think that doesn’t continue. So certainly I think there’s a little bit of just better feeling towards base, and obviously a lot of demand for talent out there right now.

So if you think about that evolution, certainly that’s a key component of it. In terms of Q4 growth rate, with the only caveat being, as I shared on one of the previous answers, a lot of moving factors impacting macro, and we want to make sure that we’ve got a little bit of coverage, if you will, in the range. But again, as I shared in the remarks, if things continue the way they are, we expect to be at that upper half of the guidance range.

Ryan (Analyst at BMO Capital Markets)

I appreciate it. And then on the continuous re-screening that was stronger than in the quarter — do you think that’s becoming more of a durable trend in how companies have their risk mitigation framework?

Joelle Smith

I think that’s a bit hard to predict. The broader picture is that we’re definitely seeing a major trend toward risk mitigation, and companies are very in tune, and their antennas are up big time, to fraud detection. So I think in general the overall trend is to utilize more and more of our products, and I think it’s a combination of seeing more re-screening and also seeing ongoing monitoring. We’re seeing nice uplift in our monitoring business as well, which I think I mentioned last quarter is starting to really become meaningful revenue for us.

So I think, in general, the risk profile of companies has changed with all the stuff that’s going on in the world. It’s possible that that becomes more of a durable trend, but I think we’ve seen really like two quarters of it, so we’re kind of wait and see. But certainly conversations with customers have changed over the last 12 months.

Bo (Operator)

Thank you. And just a quick reminder, ladies and gentlemen, star one for questions this morning. We’ll go next now to Monavie Patnaik with Barclays.

Ronan Kennedy (Analyst at Barclays)

Hi, good morning. This is Ronan Kennedy from Barclays. Thank you for taking our questions. I think you had 14 enterprise bookings in 3Q versus 20 in 2Q. You described the late-stage pipeline as continuing to strengthen and expand. Is there an element of normal quarter variability there, or anything to note with regards to change in conversion rates, sales cycles, or customer decision making?

Scott Staples (Chief Executive Officer)

Yeah, I’m going to let Joelle give you some details here, but just to look at the bigger picture: we had 14 bookings this quarter, which we’re pretty happy with — 20 last quarter, but then we had like three quarters in a row of 17, so we’re kind of just within our range. We are seeing a little bit of change when it comes to deal sizes, go-lives, things like that. But I’ll give you the color.

Joelle Smith

Sure. Thanks, Scott. Yeah, so a little bit — 20 last quarter, 14 this quarter — it’s a little bit of a timing thing, but it’s also, as Scott alluded to, we have larger and a little bit more complex deals that we’re closing. The revenue for the enterprise deal is $500,000 annually or more, and so we’re seeing that expand and grow as we continue to expand all of the growth opportunities that we have. Upsell, cross-sell, and new logos still continue to hum and outperform.

But I think the 14 and the 20, respectively, is just a timing thing. We still feel really good about Q4. We still feel really good about the pipeline — late stage is large and growing — and we have larger deals. So all in all, we’re still feeling really good.

Scott Staples (Chief Executive Officer)

Yeah, I think, Ronan, if you go back like a year or two in our business, most of our contracts started sort of like, you know, single product line. You know, we start with background screening and then we add drug testing and all these other things on as we engage with the customer. That drives a lot of upsell, cross-sell. But what we’re seeing is customers are actually buying multiple products right out of the gate. So it takes a little longer to contract that, integrate that, go live with that. But at the end of the day, the benefit is that those are larger ACV deals. So Joelle’s right in that we’re seeing larger contract values, win rates continue to remain strong and even improve. Pipeline is phenomenal, and a lot of it’s driven by this whole trend, as you heard us talk about for the last couple of years, of identity fraud detection and all these other things that companies are worrying about.

It’s just leading to better contracts for us in terms of more products right out of the gate versus having to upsell and cross-sell those things downstream.

Ronan Kennedy (Analyst at Barclays)

Very good. Thank you both for that. And as a follow-up, if base growth was 5% in 3Q and a little more than 1% from the customer initiatives as those roll off, given the healthy trends, what’s the best way to think about underlying base growth entering 27? And then, Scott, given the comments in response to my first question, how should we think about the composition of growth—new logo, upsell, cross-sell—given all those factors you discussed, the composition of the 27 growth, without looking for a formal guide?

Just how to, if you can, contextualize how to think about the composition of growth for 27, please.

Scott Staples (Chief Executive Officer)

Stephen, why don’t you take the first part and I’ll take the second part.

Steven Marks (Chief Financial Officer)

Yeah, you know, I think certainly, obviously, we have a healthy base environment. I think you’re seeing that commentary from all over the place. I was even listening to the Visa CEO a couple days ago talking about how that’s contributing to their success. I think the hiring velocity right now, which is broad market, is really good. Obviously the comps start getting much more difficult. Ronan, I know you’ve been following for a while— the beginning part of the year, even 3Q, had some easier comps.

We had a phenomenal Q4 last year, so we’re benchmarking, and then when we get into 27 we’ll obviously have higher comps. But, you know, the pace of the market right now feels really good. We’ll give out more color on 2027. Obviously need to account for some recent events and make sure that we have a good point of view on the updated macro and get some latest customer feedback and make sure that hasn’t modified plans. But certainly over the short duration we feel good about how our customers have been responding to the macro and the needs of the market right now.

Scott Staples (Chief Executive Officer)

Ronan, on the second part of your question, we don’t really see a lot of change in the algorithm. So if you look back at the company, even over the last couple of years, we’ve been super consistent on the three things that we control: upsell cross-sell, new logo, and retention. Obviously the wildcard has been base, but you’ve seen that not only stabilize but come into the positives in the last two quarters—flat in Q1, 7% Q2, 5% Q3. But if you look at upsell cross-sell, we’ve always been so steady in the cross-sell ranges.

New logo—I mean, I can’t remember a quarter where it wasn’t 4 or 5%—and retention, I can’t remember a quarter where it wasn’t 96 or 97%. So I think we don’t think that algorithm changes too much going to 2027. Even though customers might be buying more up front, there’s still a tremendous amount of upsell opportunities because of all the changes that you see in identity fraud detection, because of the potential opportunities we have with more data-based services now that we have Data Diver and our proprietary data records, and we just keep adding to product innovation and customers are still wanting deeper and deeper searches to protect themselves.

So we don’t see any slowing down of those algorithms and no major changes to those algorithms.

Bo (Operator)

Excellent. Thank you very much. We’ll go next now to Stephanie Moore with Jefferies.

Harold (Analyst at Jefferies)

This is Harold on for Stephanie Moore. So just wanted to double click on the AI capabilities. You know, you spoke about it, honestly, and you’ve spoken about it a lot on the call today. So just wanted to get a sense for, I guess if you look at the revenue growth and, you know, how—from the AI products—how fast have you seen the revenue growth from those products? And then, like, are these products—you know, you talk about them being a differentiator, helping with retention—are these helping with you winning new business, or is it a little bit of both?

Just anything to get a sense for how the revenue profile growing from AI has been over the last 12 months?

Scott Staples (Chief Executive Officer)

Yeah, I’ll answer that, and Joelle, if I’ve missed anything, please jump in at the end. I think it’s actually getting more difficult for us to talk about AI individually or singularly because there’s so much of it in the company right now and there’s so much of it embedded across almost all of our products. So whether it’s the AI we’re using to enhance the candidate experience, or whether it’s the AI we’re using for the routers that we use in our verifications products or in our criminal search products, there’s just so much AI that we’ve got deployed in the company it’s hard to say that, like, yeah, there’s a specific revenue that’s been driven from this given AI, because it’s so embedded.

But I think what you are seeing is basically a holistic lift from all the AI. You’re seeing higher customer satisfaction, you’re seeing strong retention. We do feel it’s a factor in our win rates because when you demo these kind of things and you show what the AI is doing, customers and prospects really like what they’re seeing and really like the investments that we’ve made in AI. And then obviously there’s a margin benefit as well. But again, it’s hard to just carve out and say that that’s just because of AI because it’s so embedded.

But we’ve talked to you in the past about using AI in our customer care with chatbots and our customers and candidates interacting with us through AI chatbots and how that’s enabled us to use fewer heads in our call centers and things like that. So really hard question to answer, but I would say the whole sea has risen for us because of all the AI that we’ve deployed and we’re certainly seeing great benefits from it. But I also think it’s just part of the story. As Joelle and Steven have both mentioned, the sales team continues to crush it. I mean, they’re just really humming. Let’s—the big picture here is that we just had the best quarter in company history. So there’s not one thing that points to that. It’s everything sort of coming together. It’s the products we’ve rolled out, the sales team humming, the AI efficiencies that we’ve gained, the impact that has on pipeline and customer wins and retention.

We’re seeing, as we mentioned in the script, broad-based growth across virtually all of our verticals, leading to the best quarter in company history. There’s a lot of reasons that go into that.

Harold (Analyst at Jefferies)

Thank you. That was helpful. And then I guess my last question just would be on capital allocation—between share repurchase, debt, and tuck-in acquisitions, how would you rank those initiatives? Given the Data Diver acquisition today, should we expect you to get a little bit more aggressive on the acquisition front, or just anything that would be helpful? Thank you.

Steven Marks (Chief Financial Officer)

Yeah. And, Harold, look, I think we don’t look at it as a deviation. We’ve always said, you know, from the get-go after Sterling, that we were going to be obviously focused on deleveraging but also disciplined and opportunistic—if there are times to be able to go, you know, when the stock price was at a good valuation, start to hit on some share repurchases, create shareholder value. Obviously we had a very unique opportunity to buy a data asset that’s very, very key and we can create a lot of value out of.

So I think nothing’s changed in the playbook. We haven’t changed the priorities. We’ll keep a very disciplined approach, review the market. But obviously we borrowed a little bit of cash to make sure we could fund the acquisition. We feel like we’ll be able to easily repay that debt, and by the time we talk to you guys on our next earnings call in February, we don’t think that’ll be on our balance sheet anymore, kind of thing. So, you know, I think our approach remains unchanged, and obviously we’ll deleverage and then also make sure that we can create value and keep First Advantage hitting on all cylinders.

Harold (Analyst at Jefferies)

Thank you.

Bo (Operator)

Thank you. We’ll go next now to Kyle Peterson with Needham.

Kyle Peterson (Analyst at Needham)

Great, good morning, and nice results. Wanted to start out particularly on upsell cross-sell. You guys continue to have a lot of success there, so what are some of the drivers of that, and what inning are we in roughly in terms of how long that can continue to supplement and be a big part of the growth story?

Scott Staples (Chief Executive Officer)

Yeah, Kyle, it’s interesting, and if you look at the last three quarters—8%, 8%, 9%—so pretty steady. Again, if you go back three or four or five years, it’s always been a really good number, upsell cross-sell. And it goes back to what I kind of said a little earlier. Customers are looking for more protection. You know, risk has become their number one priority. And if you look at things that have been in the press over the last couple of weeks, especially with companies like finance and things like that, companies are very worried about identity fraud.

And so our identity fraud detection products are in high demand. But it’s not just identity fraud. It’s also customers doing deeper and deeper searches. So they really want to be protected. They don’t want to let bad actors in their companies. They need to protect their brand or shareholder values. Obviously, we’re talking about large amounts of money when something bad happens to them. So they’re turning to us for help. And that is driving literally most of the upsell cross-sell.

Steven Marks (Chief Financial Officer)

Yeah. And Kyle, just from a modeling perspective, I’d just add in—right—obviously we had some big wins last year. You’re seeing that flow through. We’ve shared this the last couple of quarters: there are trends that sometimes we’ll see outperformance on our algorithm on new logos, sometimes on upsell cross-sell. To Scott’s point, a lot of trends driving our 80,000 existing customers to want to consume some more incremental services. So we feel really bullish about that and obviously our long-term algorithm and being able to deliver that controllable growth.

Scott Staples (Chief Executive Officer)

And Kyle, just to expand on your baseball analogy, I really think the game just sort of changed and restarted. Identity fraud detection is actually a whole new ballpark. So I think we’re in sort of first pitch now. We’ve been doing this for a number of years, but I think the stakes are higher now and the visibility is higher now. So I see a nice multi-year run rate for us here on upsell cross-sell because of all the things that are happening in the world.

We’ll let Joelle take this one. And I think it’s not only gig, but we’re also seeing, we mentioned this new concept to you a quarter or two ago about job stacking. I’ll let Joelle take that question and explain it all.

Joelle Smith

Yeah, absolutely. Thanks, Scott. Yeah, so gig, and it’s not just specific to gig, as Scott said, but, you know, there’s a couple of factors that are driving a lot of this cross-sell, upsell, and activity in gig. One is certainly job stacking. You’ve got people working on multiple gig platforms at the same time, so that triggers a screen every single time they enter or exit the platform. You also have gig being hit very hard with fraud detection. And so we’re seeing a lot of demand from that use case coming through with our gig customers in particular.

You know, you think about, you have a delivery driver that’s, you know, dropping off some type of package or groceries or anything like that. You have people that are, you know, going into people’s homes from a, you know, a care or dog walker, or, you know, any of those types of things. And so you have to make sure that you have a fully comprehensive risk profile. And that’s expanding the cross-sell, upsell opportunity that we have had across, you know, many of our verticals for a long time.

But I think gig is maturing and they’re really looking at this risk mitigation strategy as a key component. They really look at this as trust and safety. So when we are able to talk to them about the different product lines that we offer and being able to add to that density of their package to protect their end users that are using the platform services, it really, really helps them feel better about, you know, a lot of the challenges that Scott talked about in this world right now.

So it’s a maturing of the industry. It definitely is growing. We’re seeing a lot of demand across our product portfolio, and it’s really being driven by the fraud issues that we’re seeing and then also just wanting better risk coverage.

Bo (Operator)

Thank you. Go next now to Scott Wurtzel with Wolfe Research.

Scott Wurtzel (Analyst at Wolfe Research)

Hey, good morning, guys. Thanks for taking my questions. Just wanted to ask a follow-up on the base trends and more around, you know, kind of what you’re seeing in the hiring environment right now. I understand the business has obviously become a lot more diverse over the last couple of years, but just as we sort of approach the holiday season, you know, maybe on the retail side of things, what you’re hearing from your customers.

Scott Staples (Chief Executive Officer)

Yeah, Scott. So our customers still remain neutral to positive even as they look into 2027. We haven’t had all those discussions with them yet, but their outlooks really haven’t changed the entire year. I mean, we told everybody in Q1 that our customers were neutral to positive, where in the media it was probably neutral to negative. So, you know, definitely a difference. I think one big reminder is that, you know, we really focus on enterprise. So we talk about, you know, big customers that hire a lot of people with, you know, high volumes and high turnover. And I think, you know, there, what happens in the SMB space may be very different than what happens in the enterprise space. And I think our base results are really the result of our strategy around the verticals that we’re in and around the size of company that we’re in.

If you look at Q3, and this is just, I think, the only thing you really need to know about the state of the economy and the labor market is, you know, the verticals that absolutely crushed it the most were transportation, logistics, retail, and e-commerce. Absolutely crushed it. So that kind of shows you, like, you know, what’s going on in the economy. And we had really strong growth out of industrials and manufacturing. So if you talk about really strong growth and crushed it, you’re talking about double-digit growth.

But at the same time we had good single-digit growth in just about all the other verticals. So staffing, health care, hospitality, professional services, gig, all had really nice growth in the quarter. And as Steven mentioned in his remarks, you know, we had a really good October as well. So what we saw in Q3 continued into October. Obviously we can’t predict November and December, but, you know, signs are strong that, you know, the American economy is doing well, the American consumer is spending, their consumer is traveling.

We’re seeing this such broad-based growth across all verticals that it really just, in our minds, is a great indicator of the strength of our business.

Scott Wurtzel (Analyst at Wolfe Research)

That’s helpful. And just a quick follow-up on the data driver. It seems like, based on some of your remarks, that it is sort of both a data and a fulfillment play. Just wondering if you can talk about maybe some of the data gaps that you may be closing with the acquisition.

Scott Staples (Chief Exec