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Good morning, everyone. My name is Bo, and I will be your conference operator today. I would like to welcome you to the First Advantage Second Quarter 2026 Earnings Conference Call and Webcast. Hosting the call today from First Advantage is Ms. Stephanie Gorman, Vice President of Investor Relations. This conference is being recorded. Operator instructions were provided. It is now my pleasure to turn the call over to Ms. Stephanie Gorman. Please go ahead, ma'am.
Thank you, Bo. Good morning, everyone, and welcome to First Advantage's Second 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 second 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 efforts, 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 turn the call over to Scott.
Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. Today, we have 4 key messages. First, we delivered outstanding results in the second quarter with revenue growth of 15% year-over-year, adjusted EBITDA margins of 28.6% and adjusted diluted EPS growth of 30% year-over-year, meaningfully outperforming our previously communicated expectations. These results reflect the strength of our go-to-market performance, our state-of-the-art AI-driven proprietary technology platform and the durability of our diverse enterprise customer base and vertical mix. Second, we are making strong progress on our FA 5.0 growth strategy. Our focus on product innovation, platform capabilities and go-to-market execution is translating into tangible results, including robust enterprise bookings, strong upsell and cross-sell activity and continued customer adoption of our innovative products such as Digital Identity. As we expand the value we deliver to customers and further strengthen our capabilities, we believe we are well positioned to drive sustainable growth over the long term. Third, our strong cash flow generation continues to provide flexibility to execute our balanced and disciplined capital allocation strategy. We are constantly evaluating opportunities to create shareholder value and remain focused on deploying capital where it can have the greatest impact. Deleveraging remains a top priority. And in the second quarter, we made a previously announced $25 million voluntary debt repayment followed by an additional upsized $45 million voluntary prepayment this week, subsequent to quarter end. This brings our cumulative debt repayment since closing the Sterling acquisition to more than $165 million. We also continued to repurchase shares opportunistically, buying back nearly $19 million during the quarter with total repurchases through July 31 of $38 million or approximately 1.9% of total shares outstanding. And finally, we are raising our full year 2026 guidance across all metrics to reflect our strong first half performance, continuing go-to-market success, current labor market trends and our confidence in our growth outlook for the remainder of the year. Now turning to Slide 5. We delivered exceptional results in the second quarter with strong performance across revenue growth, adjusted EBITDA, adjusted EBITDA margin and adjusted diluted earnings per share. Our results in the quarter benefited from sustained momentum driven by our recent large contract wins and continued improvement in base revenue performance, reflecting our focus on controlling what we can control and executing consistently across our growth algorithm. At the same time, we are beginning to see encouraging signs of gradual improvement in the broader hiring market, which provided additional support to our results during the quarter. We believe the strength of our business, including our enterprise customer focus, diverse vertical mix, global footprint and balance across blue-collar and white-collar hiring with a strong go-to-market focus on high-volume enterprise hires continue to provide stability and reinforce our confidence in delivering durable growth across a variety of macro environments. One of First Advantage's key differentiators is our position as a global HR tech and data platform company, which is purposely built to help customers navigate the increasingly complex dynamics of human capital risk. Our team of data scientists and engineers are focused on transforming our products through the application of cutting-edge technologies, including AI. Equally important, our customers trust us because of our deep domain expertise across verticals and a wide range of regulatory frameworks, including the Fair Credit Reporting Act, or FCRA. In a rapidly evolving environment, this combination of AI-driven innovation and regulatory risk management and compliance leadership is what enables First Advantage to deliver high-quality, highly automated and high-volume screening globally at scale. Building on that point, we have spoken extensively about our strategy of applying AI to help our customers manage risk while preserving the speed, efficiency and user experience they expect. At the same time, we are also benefiting from AI across our own operations, leveraging our years of investment in automation, machine learning and AI. We have embedded these capabilities throughout our platform and proprietary data assets. Doing so has enabled us to strengthen our solutions such as SmartHub AI and Digital Identity fraud mitigation products, improve operational efficiency and support more scalable growth. A recent example is our shift from using third-party AI for the chat feature within our Click.Chat.Call customer care platform to a proprietary native AI chat experience that has been purposely built on our own infrastructure, trained by our own data and tailored to our needs. This transition, enabled by the depth and expertise of our engineering teams, creates a smoother handoff between AI and live agents, reduces our reliance on external platforms and allows us to deliver a better experience at a lower total cost. Across our operations, customer care, fulfillment, product development and engineering teams, AI is helping us enhance the customer experience, increase productivity and drive operating leverage while further strengthening our competitive differentiation. Before turning the call over to Joelle, I would like to highlight a few recent First Advantage recognitions and milestones. First, in June, we celebrated the fifth anniversary of First Advantage's initial public offering. I'm extremely proud of what we have accomplished as a public company on behalf of our stakeholders. We have delivered growth and profitability, successfully executed and integrated the transformational Sterling acquisition, innovated and led with best-in-class solutions, launched our FA 5.0 strategy and established long-term financial targets while making meaningful progress towards them. Second, we were added to the S&P Small Cap 600 Index on June 16, a milestone that reflects our expanded scale, strong financial performance and established track record as a public company. And third, we were ranked among TIME's America's Best Companies 2026 as the #1 Background Screening and Identity Verification company. We also placed in the top 25 nationwide in the professional services category and in the top 3 professional services companies ranked by financial performance. These recognitions reflect the excellence of our team as we continue competing and winning in our industry. With that, I will now turn the call over to Joelle, who will share more on our go-to-market execution, vertical performance, product innovation and customer engagement.
Thank you, Scott, and good morning, everyone. This morning, I will provide an update on our go-to-market performance and the underlying dynamics behind our strong results this quarter. I'll start with the drivers of our robust 15% year-over-year Q2 revenue growth, which well exceeded our previously stated expectations and long-term growth algorithm target of 7% to 9%. Combined upsell, cross-sell and new logo revenues continued to deliver robust growth, achieving 12.5% growth in the quarter. Performance was driven by the continued growth from the 3 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've won in prior quarters. Overall, our sales engine continues to help. In addition, base growth for the quarter came in exceptionally strong at 6.7%. We believe this reflects the breadth and scale of our business model. Underlying base trends continue to improve. And notably, we supported meaningfully higher-than-expected volumes from several customer initiatives during the quarter, which contributed roughly half of the quarter's base growth. It's an excellent example of how our scale and AI-enabled platform enable us to absorb and deliver periodic volume surges from time to time across multiple industry verticals while maintaining top speed and service. Even without this benefit, our overall base growth this quarter was particularly strong at the high end to above our long-term growth algorithm target range. Now switching gears to our continued go-to-market success. Our sales teams delivered an impressive 20 enterprise bookings in Q2. This is up from 17 in Q1 with each deal having an expected annual contract value of at least $500,000. These wins, combined with the continued strength and expansion in our late-stage pipeline, particularly within new logo opportunities, reinforce our confidence in the durability of our new logo and upsell, cross-sell growth and support our positive outlook for the balance of the year. Customer engagement also remains strong with retention of 96%, which is in line with our long-term model. This represents another quarter of excellent performance and demonstrates the success of our high-caliber go-to-market team and the market impact of our continued investment in our state-of-the-art platform. Now looking at our verticals on Slide 8. Overall, we continue to hear a neutral to positive tone from our enterprise customers who generally expect current hiring activity to continue through the balance of the year. The diversity of our customer base continues to be a key differentiator, supporting the robust momentum we saw across many of our largest verticals in Q2 despite some of the mixed headlines around broader employment you may have read. Transportation and logistics as well as retail and e-commerce all benefited from a combination of sustained base volumes, healthy consumer activity supporting labor demand and some workforce initiatives driving higher volumes. Industrial and manufacturing has also demonstrated notable growth as aerospace and defense customers expanded capacity and increased hiring. Trends in general staffing also remained positive, particularly within blue-collar staffing, indicative of the overall improvement we are seeing in the hiring environment, which is manifesting within our base momentum. Our remaining verticals showed minimal declines or were flat, including healthcare, where strong new upsell and cross-sell activity offset some remaining base softness as uncertainty of federal healthcare funding remains. Turning to our international business. Q2 revenues were up 2.4% year-over-year. Our global scale and consistent delivery across regions uniquely position us to win, particularly as U.S. and European multinationals continue to centralize and globalize their hiring process. We continue to be a partner of choice for managing their expanded screening needs across geographies, which supports our growth and reinforces our confidence in the long-term international opportunity. At the same time, we have seen softer volumes emerge in some of the markets, such as India, as global conflicts have persisted longer than many initially expected and are driving impacts, including higher fuel prices and broader economic disruption. Underlying much of this positive momentum across our business is the strength of our product portfolio, which continues to differentiate us in the market. As identity fraud continues to rise in both frequency and sophistication, customers are increasingly turning to fraud mitigation solutions like our Digital Identity products to help them mitigate risk and maintain trust throughout the screening and verification process. This trend is underscored by a recent Equifax survey of HR professionals, which found that nearly three-quarters of respondents encounter challenges with fabricated or misleading candidate information. Digital Identity continues to be the tip of the spear in our go-to-market strategy. As we have discussed, we believe it is not a feature, but an essential solution ahead of the screening process and customers continue to ask about it with increasing frequency as they navigate the challenging world they operate in. While Digital Identity still represents a modest portion of overall contract value, it remains a key differentiator and decision driver and is standard in most of the deals we quote. In Q2, adoption continued to build with implementation trends in line with last quarter, reinforcing the importance of this product line. Digital identity is just one example of how our product innovation strategy is translating into differentiated solutions for customers and strengthening our competitive position. There are several additional promising initiatives in the works with focus areas such as new verification products and additional offerings leveraging our SmartHub AI routing technology. We believe initiatives like these help drive continued product leadership, support our go-to-market success and optimize our fulfillment cost structure. We look forward to providing further updates as these products come to market. Beyond our innovation efforts, staying closely connected to our customers remains a top priority, and our global Collaborate User Conferences continue to be a powerful platform for engagement worldwide. Following our successful U.S. Collaborate User Conference in April, we held regional events in Singapore in June and India in July, with additional events planned in EMEA, Hong Kong and Australia later this fall. Across these conferences, we have connected with hundreds of customers and prospects, deepening relationships, gathering valuable market insight and reinforcing our confidence in the opportunities ahead. With that, I will now turn the call over to Steven.
Thank you, Joelle, and good morning, everyone. I'll start with second quarter results on Slide 10. Our second quarter revenues were up an impressive 15% year-over-year, coming in at $449 million, marking our fifth consecutive quarter of positive year-over-year revenue growth. As Joelle discussed, the underlying business continued to perform very well in Q2. Excluding the benefits to base from Joelle's mentioned customer initiatives, we estimate Q2 total revenue growth was still a very robust 11% to 12%, above both our previously communicated expectations and long-term growth algorithm target range. Adjusted EBITDA for the second quarter was $128.5 million, up 13% year-over-year. Our adjusted EBITDA margin of 28.6% came in above our stated expectations and reflects sequential quarterly improvement of 130 basis points, driven by strong operating leverage. Notably, we efficiently fulfilled the incremental Q2 volume within our existing cost structure without having to make structural changes to our operating model. Margins benefited from our strong execution on synergies and cost discipline while flexing to adapt to the product mix changes as a result of the large deals we have previously discussed, particularly as the positive base trends have provided more broad-based revenue distribution compared to what we saw in late 2025. Our adjusted diluted EPS was $0.35 per share, a 30% increase year-over-year. Our per share earnings growth was supported by our overall outperformance in the quarter, share buybacks and synergy realization. Earnings growth also benefited from our disciplined expense and capital management, combined with lower interest expense as a result of our debt repricing and voluntary debt prepayment. We continue to action cost synergies from our Sterling acquisition, reflecting our disciplined execution and strong integration progress. We remain on track to achieve our synergy goal within 2 years post closing. And as of quarter end, we had actioned $63 million in run rate acquisition synergies, moving closer to our total synergy goal of $65 million to $80 million. Overall, our outstanding Q2 results were enabled by our go-to-market momentum and execution, combined with our ability to flex to meet our customers' demand. Now turning to cash flow, net leverage and capital allocation on Slide 11. During the quarter, we generated operating cash flows of $73.6 million, a substantial increase of $36.3 million or 97% on a year-over-year basis. This impressive performance was driven by our revenue outperformance in the quarter, the larger scale of our business, our overall focus on cash flow and the curtailment of acquisition-related outflows. Our cash balance as of June 30, 2026, was $238 million. We are constantly evaluating our capital allocation options for driving shareholder value creation, remaining focused on opportunistic capital deployment across both deleveraging and share repurchasing. Achieving our target net leverage level of less than 3x remains a top priority and the pace of our debt paydown reflects that commitment. In line with this, just this week, we prepaid $45 million of debt, well exceeding the voluntary prepayments we've made each quarter for the last year. This is in addition to the previously announced $25 million prepayment we made on May 6 and brings our total debt repayment to $165.5 million since closing on the Sterling acquisition. As a result, our synergized adjusted EBITDA net leverage ratio at quarter end was 3.7x and represents a 0.7x decrease from when we closed the Sterling acquisition. Additionally, during the quarter, we repurchased $18.7 million of our shares through the $100 million share repurchase authorization that we announced in February. Our repurchases through the end of July totaled approximately $38 million with an average purchase price of $11.78 per share. This represents 3.2 million shares in total or approximately 1.9% of total shares outstanding. $61.8 million remains on our authorization. Going forward, we will continue to analyze our capital allocation approach to ensure we are opportunistically actioning a plan that maximizes ROI and shareholder value. Moving to Slide 12 and our 2026 guidance. Today, we are raising our previously announced full year guidance, supported by our exceptional performance in the first half of the year and our outlook for stability in the hiring market for the remainder of the year. We now expect 2026 total revenues in the range of $1.67 billion to $1.71 billion, adjusted EBITDA of $472 million to $486 million, adjusted net income of $214 million to $225 million and adjusted diluted EPS of $1.23 to $1.29 per share. At the midpoint, this represents approximately 7% year-over-year revenue growth, 9% year-over-year adjusted EBITDA growth and 21% year-over-year adjusted diluted EPS growth. Our updated and tightened guidance range reflects a balanced posture on our short-term outlook that incorporates the healthy state of our underlying demand trends 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 historical approach towards guidance, we believe it is prudent to account for a broader range of outcomes given the factors outside of our control. As we think about the second half of the year, please remember that our 2026 growth rates are being measured against an exceptionally strong second half of 2025, during which we grew a notable 12% year-over-year in Q4 2025. Notably, in Q3 of this year, we begin to lap the 12-month anniversary of the large 2025 go-lives we have discussed previously. And by Q4, those wins will be fully annualized. As we progress through the second half of the year, we expect that this will result in moderating growth rates compared to the exceptional start to this year. Zooming out, while growth rates may fluctuate from quarter-to-quarter, we expect to deliver full year results above our original expectations and in line with our long-term growth algorithm. Looking specifically at Q3, we saw revenue momentum continuing from Q2 into July, and we expect base to be slightly positive for the full quarter. Taken together with the new logo and upsell cross-sell trends we've discussed, we expect total revenue growth rates for Q3 in the mid- to high single digits, consistent with the expectations we shared last quarter. Looking ahead at Q4, we expect base to be neutral with our overall base momentum continuing into Q4, but partially offset by prior year's Q4 new logo and upsell cross-sell revenue being more evenly distributed across 2026, the dynamic we've been discussing with you for several quarters. For Q4, we also have a more modest level of expected new logo and upsell cross-sell contribution as we comp against the strong Q4 2025 17% growth and navigate some instances of recent win implementations now extending into early 2027. As a result, we expect Q4 total revenue growth rate in the low to mid-single digits. Turning to adjusted EBITDA. Overall, we expect adjusted EBITDA margins to remain largely consistent with Q2 for the remainder of the year. And similarly, for adjusted diluted EPS, we expect meaningful year-over-year expansion, increasing versus prior year to the low to mid-$0.30 range in both Q3 and Q4. Having walked through our updated 2026 guidance, I want to close on Slide 13. This slide puts our 2026 guidance in the context of our longer-term growth trend in adjusted diluted EPS. The growth implied by our updated 2026 guidance midpoint is consistent with our track record of adjusted diluted EPS growth of 20% or more since 2024. This is also consistent with the longer-term adjusted diluted EPS growth rate implied by the midpoint of our 2028 target. With that, let me turn it back to Scott for closing remarks before we open the line for your questions.
Thank you, Steven. In closing, Q2 was our strongest quarter yet, and we expect our solid momentum to continue in the second half of 2026. We are focused on winning by providing best-in-class differentiated solutions for our customers. We remain confident in our ability to deliver consistent financial performance, and we are progressing well toward the 2028 financial targets we established during our Investor Day in May 2025. Thank you to the entire First Advantage team for the work you do to support our customers each day. With that, we will open the line for questions.
分析師問答
Operator instructions were provided. We'll go first this morning to Shlomo Rosenbaum with Stifel.
I just want to make sure first that I'm understanding the tone on the overall environment. It sounds like the tone is better from your clients and you're seeing better growth. And it sounds like it's more broad-based. I want to make sure I'm understanding that right. And then I also want to ask about the detail on those customer initiatives, where it's something that was a pull forward or it was an episodic project that kind of came out of the blue. Just trying to understand what that is. Maybe you could give us the nature of it. Is that something that's indicative of an improving environment? Or is it just something else?
Yes, thanks, Shlomo. I'll take the first part of your question, and then I'll have Joelle answer the second part of your question. So basically, your first part of the question is on the macro. What are we hearing? What are we seeing? And obviously, 6.7% growth in the base is great, slightly unexpected, but obviously, we love it. I think there's a couple of things going on. One, if you just look at job data, you're seeing a lot of stabilization. Hires and quits have been flat for the last 6 months, and that's fine. Job openings continue to be really strong. Pre-pandemic, it was about 7 million, and now you're looking at 7.4 million. So that's all really good for base and for our business. Unemployment remains steady at 4.2% and job openings to unemployment is also favorable. So I think just pure labor statistics, you're seeing good numbers. Also, over the last couple of weeks, there have been some informative articles around what's really going on in the labor market. And I think the impact of AI was highly overblown. We are seeing broad-based improvement. And I think it would go back to what we said over the last couple of quarters. We are continuing to hear, I would say, neutral to positive. The same comments I've given for the last 2 quarters, neutral to positive projections on hiring from our customers. And you know we talk to our customers all the time. So we are in front of literally hundreds of our large customers and hearing a very consistent tone. And I think when you say broad-based, it's true geographically, and it's also true vertical-wise. If you look at our vertical performance, we got really nice growth out of retail and e-commerce, transportation and logistics, industrials, general staffing, especially the blue-collar staffing. The blue-collar staffers are doing extremely well. But all the other verticals were basically flat or just barely negative. So we're not getting these wide swings in verticals. And I think the only place geographically we're seeing some slowdown is actually in India, and that's a direct reflection of the Iran war. Oil prices and fuel prices are affecting India's economy and our customers in India. But as you know, it's not a huge piece of our business. So we're definitely seeing a combination of vertical—broad-based vertical, broad-based geographic, really nice stabilization and obviously, even improvement in base. I'll turn it over to Joelle to talk about the customers.
Awesome. Thanks, Scott. Hey, Shlomo. Yes, so the customer initiatives that we saw, which is roughly half of the base growth that was created, elevated screening activity. These are really enterprise-wide labor reshaping programs. These programs created churn in their labor force and labor churn is always good for our business. We're also seeing a continuation of job stacking, which, as a reminder, is someone who's working two or more jobs at the same time. We're seeing this across verticals, which is also good for our business. These are the things we've seen from customers. They're doing a lot of this work because they're large enterprises and large enterprises do these types of changes from time to time.
Okay. So it was not something you were expecting. It was kind of an episodic thing that just came up in the quarter — is that the way to understand the customer initiatives?
Yes. It did accelerate through Q2. We do anticipate it continuing into Q3, but it will probably normalize into Q4. These programs do happen, and it wasn't just one group. It definitely happened across transportation, retail and e-commerce.
Okay. Great. And just to sneak in one other thing. Can you talk a little bit more about what's going on with package density, how that might be helping the growth? And how much of a factor is Digital ID in terms of helping to improve the cross-sell and upsell? I don't know if you have metrics for that, and then I'll pass it off to someone else.
Yes. I'll take the package density, and then I'll flip it back to Joelle to talk about Digital Identity and our tip-of-spear go-to-market approach with Digital Identity. Package density continues to be strong. If you look at the numbers over the last several years, upsell and cross-sell have been a consistent driver of growth for us, and package density is the number one driver of that. In 2025, upsell and cross-sell was 7% growth. In Q1 this year, it was 8%, and in Q2, it's another 8%. The key component of package density driving much of this growth is the focus on risk mitigation and fraud prevention. Unfortunately, the challenging world we live in is enabling more sophisticated fraud. Customers are continuously looking for more protection, more types of screens, deeper searches. Bad actors are leveraging technologies like AI to perpetrate fraud, and we're fighting that bad AI with good AI. It's also about being able to go deeper on county searches, state searches and federal checks. We continuously hear this from our customers, and it's driving a lot of our cross-sell growth. We don't see an end to it. The environment is getting more challenging, which supports our business.
Yes, absolutely. We are definitely seeing a lot of activity around Digital ID for the same reasons Scott mentioned. We are seeing a significant increase in fraud in the hiring market — through the interview stage, the hiring stage and even day one. The Digital Identity offerings embedded into our screening process are creating a lot of opportunity, which naturally makes ACV and deal sizes larger. So that's contributing to the increase in package density. It's changing the game for how we go to market. As Scott said, Digital Identity is the tip of the spear, and it's opening doors and conversations because it's reaching elevated levels within our customers. It's no longer just an HR conversation; it's moving up to other C-suite executives and board levels because of the threat these bad actors pose. We're seeing a large attach rate with Digital Identity, and it's clearly driving larger deal sizes for us.
We'll go next now to Ashish Sabadra with RBC Capital Markets.
Congrats on such a strong result. Maybe just a quick follow-up on the base growth. You mentioned the customer initiative, but the other half seems to be pretty broad-based across multiple industries. It seems like that momentum continued in July. Should we expect that momentum going forward based on what you've seen so far and your conversations with your customers?
Ashish, it's a good question. It was certainly broad-based growth in the second quarter — retail, e-commerce, transportation and logistics — but we also saw industrials and defense and sectors Scott mentioned before, staffing and particularly blue-collar doing really well. July is a good start to the quarter, but there are still two more months with some unknowns. We expect the base will be positive for the quarter, slightly positive. Before, we were thinking 0 to negative 2%; we're probably on the positive side of those numbers, which is a healthy step change. That reflects customer sentiment and the volumes we're seeing. Of course, there are ranges of outcomes. A sustained conflict in the Middle East could affect consumer confidence and fuel prices. But overall, we're confident in the base and like where momentum started in July.
That's great color. And just maybe on the margin front, obviously, really great progress on the cost takeout initiative. You expect second half margins more in line with the first. As we think about the puts and takes going forward, can you highlight some of the investments that may be weighing on the margins?
A couple of things, Ashish. First, we expect our vertical mix to stay relatively constant for the rest of the year, so you shouldn't see the large gross margin fluctuations we saw last year when mix shifted toward transportation-type verticals. That's why you're seeing margin consistency. We're making very good progress on synergies; it's still a bit back-end weighted. If you look in the slide deck, we've actioned $63 million but only realized $51 million, so there's $12 million left to flow through. Much of that is weighted toward the end of the year or early next year. We're confident about getting leverage and accretion out of gross margins. We're also making targeted reinvestments in sales and product, which are high-return investments for us. Overall, we think margins will be very consistent through the end of the year, which is positive year-over-year momentum.
Ashish, I'll add one more thing. Last quarter we said we'd put a ribbon and bow on the synergy and integration efforts by December 31 of this year, and we are still on target to do that. That doesn't mean we will fully realize every dollar by December 31, but we will fully action everything by that date. Going into 2027, we will be done with all the integration and synergies for the Sterling acquisition. We'll get more realization flowing into 2027, but we are definitely on target to wrap it up by December 31.
Congrats on that.
We'll go next now to Andrew Nicholas with William Blair.
First, I wanted to ask on share gains. Obviously, upsell, cross-sell, new logos all remain pretty impressive. Just curious from a vertical perspective or even a geographic perspective, if there are specific markets where your momentum is pronounced and maybe any thoughts on why that would be if that's the case?
Hey, Andrew. We're seeing great momentum wherever there is high-volume hiring. There's tremendous demand for blue-collar workers, and for white-collar roles that involve high turnover. That lends to transportation, retail, e-commerce; it's also present in healthcare staffing, hospitality and even certain industrial and manufacturing roles. We're seeing strong growth in aerospace and defense hiring that benefits our industrial vertical. Financial services and other sectors with high-volume hiring components also contribute. Our focus for almost a decade has been on high-volume enterprise hires, and we're reaping the benefits of that approach. The short answer is momentum is pronounced in high-volume hiring segments across multiple verticals and geographies.
Got it. And then for my follow-up, just a quick one on margins. Are there any nuances to the customer initiatives from a margin perspective? Are there higher or lower pass-throughs? Are there bulk discounts? Anything for us to think about in terms of that impact on Q2 and Q3 as well?
Andrew, no — those initiatives are really just running more volume through customers' existing programs. The only real gross margin impact would be if it changes the vertical mix a bit. If more volume comes from a vertical with different service mix, it could move the needle slightly. But overall, they're running core packages at normal terms and conditions.
We'll go next now to Andrew Steinerman of JPMorgan.
I just wanted to unpack this customer initiatives callout again. Maybe we can cut through, and I recognize there's certain things you can say about what your customers are doing and certain things you can't say. 'Enterprise reshaping' was used. But in plain English, what did your customers do? What segment was it in? Because as we look at the beat and the guide increase, there's a little gap there. I'm trying to understand that given you sound more positive. And then I have a follow-up on capital allocation.
Yes, Andrew, so think of it this way. First of all, it was multiple customers and obviously great news. As Joelle mentioned, about half of the base increase in the quarter was attributed to these customers launching large-scale rescreening or hiring initiatives. We had some large customers across multiple verticals launch rescreening initiatives, which is a reflection of customers' concern about employee risk since initial hire. Large rescreening on big employee bases drives revenue lift; it may recur, but not necessarily every year. We're also seeing monitoring become more of a factor. Additionally, some large customers were restructuring or consolidating divisions, which led to more turnover and hiring. So it was a mix across multiple customers and industries, and we're pleased to take the business.
Understood. Then maybe peeling back the envelope on capital allocation. This is one for Steven. You mentioned that you guys are being very thoughtful around capital allocation going forward. Obviously, your stock price has done well. You've deleveraged in a pretty orderly way. Are you planning to change at all how you're thinking about capital allocation at this juncture? Do the priorities change at all? Is there potential for more organic reinvestment, inorganic investments, other ways to return capital to shareholders? My ears perked up a bit when you said that, but I just wanted to dig in on the capital allocation thoughts you have with the team.
Alex — excuse me, Andrew — it's a good question. There's no change in posture. Since we announced the share repurchase program in February, our plan was always to be opportunistic. We're pleased with the stock price momentum and we did repurchases during the quarter. But the upsized debt paydown this week shows deleveraging remains a top priority. We'll continue to invest organically in the business, particularly product, sales and marketing, where returns are strong. Ultimately, we'll keep eyes on the market, which is fluid, and put capital where we believe it yields the highest ROI for our shareholders. Interest rate moves and other macro factors could change the composition of allocation across quarters, but deleveraging and opportunistic share buybacks remain top priorities.
We'll go next now to Jeff Silber with BMO Capital Markets.
I wanted to go back to the updated guidance for the year. Maybe I'm misreading this a bit, but it seems the second half may be a little more tempered specifically at the top line compared to what you might have expected beforehand. Is that correct? Was there any front-running in the second quarter, some of these initiatives you thought might have come in the back half of the year that came in the second quarter?
Yes, Jeff, good question. No, none of it was a pull forward per se. We have a bit more conservatism toward the second half driven by prolonged geopolitical uncertainty and potential impacts on consumer confidence. Our retail and transportation segments had exceptional peak performance last year, and we're comping against that. As the conflict continues and fuel prices remain higher, that could drain consumer spending, so we want to account for that range of outcomes. That's the primary driver of some conservatism. But we've raised the bottom end of guidance by $45 million and raised the top end as well. I feel very good about the year.
Okay. That's great. Joelle, in your remarks when you were talking about international, you mentioned some softer volume trends. Can we get a little more color on that?
Sure. That was really focused on India specifically. We're actually seeing some good growth in other international regions like EMEA and APAC. India is being impacted by the Iran conflict, higher fuel prices and general macro challenges. We're not losing any large customers there; it's more about macro effects in that region.
Okay. Can you remind us how large India is as a relative percentage of revenues?
When you look at overall international these days, international is roughly 12% of revenue. India is probably around one-quarter of that, so it's a relatively small piece of the overall company.
We go next now to Manav Patnaik at Barclays.
This is Ronan Kennedy on for Manav. Combined new logo, upsell and cross-sell contribution remained quite strong, driven in part by the three large go-lives from late 2025 and other enterprise wins. As these become fully annualized in 2H '26, how much of the growth rate is being supported by implementations reaching run rate versus your underlying sales productivity from new bookings, pipeline and ongoing share gains? I'm trying to understand the repeatable sales productivity versus run-rate impact.
Ronan, I'll take that. As Joelle said in her prepared remarks, the sales engine is humming. We did have some strong wins in 2025, which creates tough comps. That said, the sales engine is probably performing the best it's ever performed. The number of go-lives lined up for Q3 is an exceptional number, though we aren't disclosing the exact count. We have many deals won that will go live in Q3. The main point is the comp effect from 2025's big wins makes growth comparisons more challenging, but our sales productivity, pipeline and go-lives are very strong. In short, it's a mix: run-rate from implementations helps near-term growth, but the underlying sales performance and pipeline are very healthy and repeatable.
Got it. From a margin standpoint, Q2 demonstrated the ability to absorb elevated customer volumes within the existing operating structure. Did you learn anything about the normalized incremental margin profile of the business when revenue growth accelerates? As we move into 2027 with integration winding down, how should we think about margin expansion from package density, Digital ID, fulfillment productivity and other initiatives?
We've discussed the scalability of our fulfillment structure and the platform's ability to scale up and down with volume. Q2 tested that and the platform and our teams performed very well. We were able to absorb incremental volume without major new hires or structural changes, which demonstrates operating leverage. Newer products like Digital Identity and monitoring have a slightly different data cost model and can result in higher unit profitability. As we get more momentum in those products, they'll become part of the margin story. Today, we're focused on implementations and getting customers live; we'll share more on profitability upside over time as adoption grows.
We'll go next now to Stephanie Moore of Jefferies.
I wanted to touch on some of the large contract wins you've announced. Can you talk about what you view the TAM to be within that market, your overall share in that market, and at a high level, what you're hearing from clients as the key reason they're choosing First Advantage to perform these services?
Stephanie, there's a lot there. At our Investor Day in May 2025 we outlined a significant core TAM, and we also identified additional TAM for Digital Identity and identity fraud of around $10 billion. The opportunity is large. We maintain roughly a 25% market share in the core background screening space, which is encouraging. Key drivers of our success include verticalization — understanding industry-specific needs and compliance requirements, particularly in regulated industries like financial services, healthcare and transportation. Our proprietary data is another advantage: we have over a billion proprietary records, 135 million in our verified database for prior work and education, and $900 million in our national criminal record file. That gives us a competitive edge along with a modern user experience. Over the past year we've launched a new candidate experience and have received very positive feedback. Our investments in automation, APIs and AI help us get data faster and provide quick turnarounds. Finally, there's an industry trend of vendor consolidation among multinationals, and our global screening capability positions us well to capture more share of wallet and global expansions, which drives upsell and cross-sell.
We'll go next now to Scott Wurtzel of Wolfe Research.
I wanted to go back to comments around implementations taking a bit longer into 2027. Can you give a little more color on what's driving that?
It's primarily a volume-driven issue. We've won a lot of business and have many go-lives scheduled. It's a good problem to have, and we're working on ways to accelerate onboarding and implementation through automation and process improvements. But the root cause is simply that we have many implementations in the queue.
Got it. That's helpful. Quick follow-up on capital allocation around the debt prepayment levels. It's good to see the upsized prepayment announced. If trends remain consistent and you are towards the higher end of the guide, could that indicate a continued elevated level of debt prepayment going forward?
We have a lot of free cash flow and the ability to be opportunistic and flexible. If interest rates trend higher and the stock price remains elevated, we may lean more toward debt repayment. We'll keep options open. We're generating strong free cash flow; as revenue and margins remain strong and acquisition expenses are curtailed, more cash is flowing to the balance sheet. We'll continue to use a balanced approach to deploy that cash.
We'll go next now to Kyle Peterson of Needham.
One quick follow-up on capital allocation as it relates to M&A. It sounds like you're getting toward the finish line on synergies with Sterling, which has been a successful transaction. Would you be open to returning to the market with the balance sheet once synergies are actioned? Or do you feel you largely have everything you need from a capability and platform perspective? Any color on how M&A could fit in once synergies are actioned would be helpful.
Kyle, good question. Our immediate focus is getting leverage where it needs to be and being opportunistic. Once our leverage comes down, we'll have a wider playbook. Short-term, the focus will likely remain on deleveraging and opportunistic share repurchases. We'll continue to assess opportunities as they arise.
I'll add that our Investor Day 2028 targets — $1.8 billion to $2.0 billion of revenue, $560 million to $630 million of EBITDA, 31% to 32% EBITDA margin, and $1.65 to $2.00 of EPS — are achievable without M&A. We don't need acquisitions to hit those targets, which is good. That said, we'll always be opportunistic. If an acquisition becomes available that plugs into our customer base and platform and adds to our sellable catalog, we'll consider it. Right now, we're laser-focused on delivering our 2028 targets, and M&A is not required to get there.
Thank you, ladies and gentlemen. That will bring us to the conclusion of our question-and-answer session and also bring us to the conclusion of today's conference call. We'd like to thank you all for joining the First Advantage Second Quarter 2026 Earnings Conference Call and Webcast. Again, thank you for joining us, and have a great day. Goodbye.