0001193125-26-211985
SEC filingFirst Advantage delivered strong revenue growth and a return to profitability in Q1 2026, driven by cross-selling and new customer wins.
First Advantage Corporation reported total revenues of $385.2 million for the three months ended March 31, 2026, an increase of 8.6% compared to $354.6 million in the same period last year. Revenue growth was balanced between net expansion from existing customers (+$15.4 million) and contributions from new customers (+$15.2 million). Pricing remained stable across the period.
Gross profit (revenue less cost of services) was $173.8 million, yielding a gross margin of 45.1%, down 60 basis points from 45.7% in the prior year. The margin contraction was driven by product and customer mix changes and increases in third-party data costs.
Operating income surged to $33.5 million from $7.6 million, primarily due to revenue growth and a significant reduction in selling, general, and administrative expenses (down 18.5% to $53.5 million). The SG&A decline reflected lower personnel costs, decreased share-based compensation (down from $7.0 million to $4.4 million), and lower bonus expense, partially offset by a $5.2 million loss on the sale of assets related to an adjacent product.
Net income improved to $2.2 million from a net loss of $41.2 million in the prior year, aided by a 35.9% reduction in net interest expense (to $29.8 million) driven by voluntary debt prepayments and lower interest rates following the July 2025 credit agreement amendment. Basic and diluted EPS were $0.01, compared to a loss of $0.24 per share in Q1 2025.
As of March 31, 2026, the company held $225.9 million in cash and cash equivalents (down from $240.0 million at December 31, 2025), plus $0.1 million in restricted cash. Total assets decreased to $3.75 billion from $3.83 billion, primarily due to reductions in goodwill ($5.0 million derecognition from an asset sale) and intangible assets (amortization).
Total debt stood at $2.09 billion (net of deferred financing costs $2.06 billion), down from $2.11 billion at year-end, reflecting a $25.0 million voluntary principal prepayment during the quarter. The company had no borrowings under its $250.0 million revolver and was not subject to the springing leverage covenant. Equity decreased to $1.29 billion from $1.31 billion, driven by share repurchases ($19.5 million) and foreign currency translation losses ($6.9 million), partially offset by net income.
Operating cash flow was $49.4 million, up from $19.5 million in the prior year, benefiting from increased net income and lower interest payments. Cash flow from operations exceeded net income by a wide margin due to non-cash charges including depreciation and amortization ($62.2 million), deferred taxes, and share-based compensation.
Investing activities used $14.0 million, primarily for capitalized software development ($13.2 million) and property and equipment ($2.8 million), partially offset by $2.0 million in proceeds from asset sales. Free cash flow (operating cash flow less capex) was $33.4 million, a significant improvement from $8.4 million in the prior year.
Financing activities used $44.3 million, including $25.0 million for debt repayment, $19.5 million for share repurchases (1,734,778 shares at an average price of $11.24), and $0.9 million for net settlement of share-based awards. The company’s $100.0 million repurchase program had $80.5 million remaining at quarter end.
Management highlighted that macroeconomic conditions remain volatile, with elevated interest rates, inflationary pressure, and geopolitical uncertainties affecting customer hiring plans. The company experienced slower decision-making and increased cost scrutiny from customers. Despite these headwinds, management expressed confidence in the long-term health of the business, citing its diversified customer base and innovative product offerings.
Seasonality typically results in highest revenues in October-November, with a pickup in the second quarter from student and graduate hiring. The company continues to integrate Sterling, incurring $1.4 million in integration costs during Q1. No specific forward guidance was provided.
Segment performance: First Advantage Americas generated $172.7 million in total revenue (external $172.3 million) with an adjusted EBITDA margin of 28.8%. First Advantage International contributed $23.6 million (external $22.4 million) with a 6.2% margin. Sterling reported $190.4 million in total revenue (external $190.5 million) with a 28.4% margin. Consolidated adjusted EBITDA was $105.3 million (27.3% margin).
Share-based compensation totaled $4.4 million, allocated to cost of services ($0.6 million), product and technology ($1.4 million), and SG&A ($2.4 million). During the quarter, the company granted 2,579,979 stock options and 1,755,287 RSUs. Unrecognized pre-tax compensation expense was $54.5 million, expected to be recognized over a weighted-average period of 2.0 years.
The company sold certain customer relationships related to an adjacent product for cash, resulting in derecognition of $5.0 million in goodwill and $2.5 million in customer lists. The transaction did not represent a strategic shift.
Interest rate derivatives not designated as hedges had a net liability fair value of $1.6 million (down from $6.5 million at year-end), with a $4.9 million gain recognized in interest expense. The company had six interest rate swaps with maturities through 2028, covering notional amounts totaling $1.085 billion.
Goodwill decreased by $5.2 million to $2.14 billion, primarily due to the asset disposition. Intangible assets, net declined to $820.7 million from $857.1 million, driven by $34.4 million in amortization.
Legal contingencies: The company recorded a liability of $8.1 million for matters where loss is probable and estimable, down from $8.7 million at year-end.