0001193125-25-175442
SEC filingFirst Advantage's Q2 2025 revenue surged 112% YoY to $390.6M, driven by the Sterling acquisition, but net income declined to $0.3M due to higher depreciation and interest expense.
First Advantage reported strong top-line growth in Q2 2025, with revenue of $390.6 million, more than doubling from $184.5 million in the prior-year quarter. The increase was largely driven by the October 2024 acquisition of Sterling Check Corp., which contributed $203.7 million in revenue. Legacy segments showed modest growth: First Advantage Americas revenue rose 0.7% to $163.5 million, while First Advantage International grew 7.2% to $25.9 million. New customer wins added $4.7 million, but existing customer revenue declined $2.3 million due to macroeconomic pressures.
Gross profit (revenue minus cost of services) was $182.8 million, compared to $92.2 million in Q2 2024, representing a margin of 46.8% versus 50.0% a year ago. The compression was attributed to Sterling's higher relative cost of services due to product and customer mix.
Operating income increased significantly to $37.7 million from $9.9 million, reflecting operating leverage from the larger revenue base, though depreciation and amortization ($61.9 million) and interest expense ($44.8 million) weighed heavily on net income. Net income was just $0.3 million, down from $1.9 million in Q2 2024. Basic EPS was $0.00, compared to $0.01 in the prior year.
Non-GAAP Adjusted EBITDA grew 104.3% to $113.9 million, with a margin of 29.2% (vs. 30.2% in Q2 2024). The slight margin decline was driven by mix shift toward Sterling and higher integration costs.
As of June 30, 2025, total assets were $3.87 billion, down from $3.92 billion at year-end 2024. Cash and cash equivalents increased to $184.3 million from $168.7 million. Total debt (net of deferred financing costs) stood at $2.10 billion, slightly lower than $2.12 billion at December 31, 2024, due to a $15 million voluntary principal repayment in May 2025. The company had no borrowings under its $250 million revolver.
Working capital (current assets minus current liabilities) was $249.5 million, compared to $225.3 million at year-end 2024. The current ratio remained healthy at 1.98x.
Goodwill increased to $2.14 billion from $2.12 billion, primarily from measurement period adjustments related to the Sterling acquisition. Intangible assets, net, decreased to $925.3 million from $987.9 million due to amortization.
Operating cash flow for the first six months of 2025 was $56.8 million, down from $70.4 million in the same period of 2024. The decline was driven by higher cash interest payments ($84.1 million vs. $23.9 million) due to the incremental debt from the Sterling acquisition. Investing activities used $23.8 million, including $22.2 million in capitalized software development and $1.7 million in property and equipment. Free cash flow (operating cash flow minus capex) was approximately $33.0 million, compared to $56.5 million in the prior year period. The company ended the period with $184.3 million in cash.
Financing activities used $21.1 million, primarily for debt repayment ($20.5 million). Dividend payments were minimal at $0.1 million.
Management noted that results are influenced by customers' hiring trends, which are sensitive to macroeconomic cycles. Current economic conditions—including elevated interest rates, persistent inflation, and geopolitical tensions—have led to cautious hiring among customers. The company also highlighted the impact of trade disputes and potential changes in U.S. trade policy under the current administration.
Despite these headwinds, management expressed confidence in long-term growth, citing the strength of product offerings, diversified customer base, and cross-selling opportunities from the Sterling acquisition. The company continues to invest in technology and platform enhancements.
No specific quantitative guidance was provided for future periods. The company expects cost of services as a percentage of revenue to remain influenced by Sterling's mix. SG&A is expected to increase in the short term due to integration costs but decline as a percentage of revenue over the long term.
Segment Performance:
Share-Based Compensation: Total share-based compensation was $5.7 million in Q2 2025, allocated across cost of services ($0.6M), product and technology ($1.8M), and SG&A ($3.4M).
Derivatives: The company holds six interest rate swaps with aggregate notional of $1.085 billion, hedging a portion of variable-rate debt exposure. Unrealized losses on swaps were $6.4 million for the six months ended June 30, 2025.
Income Taxes: The effective tax rate for Q2 2025 was 104.2% (benefit), driven by jurisdictional mix of earnings and nondeductible items. For the first six months, the rate was 11.6%.
Subsequent Events: On July 30, 2025, the company amended its credit agreement to reduce interest rates by 50 bps. On August 1, 2025, it made an additional $25 million voluntary principal repayment.