Background screening provider First Advantage (NASDAQ:FA) reported Q1 CY2025 results exceeding the market’s revenue expectations , with sales up 109% year on year to $354.6 million. The company’s full-year revenue guidance of $1.55 billion at the midpoint came in 2.4% above analysts’ estimates. Its non-GAAP profit of $0.17 per share was 30.2% above analysts’ consensus estimates.
Revenue: $354.6 million vs analyst estimates of $344.4 million (109% year-on-year growth, 2.9% beat)
Adjusted EPS: $0.17 vs analyst estimates of $0.13 (30.2% beat)
Adjusted EBITDA: $92.11 million vs analyst estimates of $81.79 million (26% margin, 12.6% beat)
The company reconfirmed its revenue guidance for the full year of $1.55 billion at the midpoint
Management reiterated its full-year Adjusted EPS guidance of $0.95 at the midpoint
EBITDA guidance for the full year is $430 million at the midpoint, above analyst estimates of $416.5 million
Operating Margin: 2.1%, up from -0.4% in the same quarter last year
Free Cash Flow Margin: 2.4%, down from 18.8% in the same quarter last year
Market Capitalization: $2.60 billion
“We are pleased that First Advantage delivered solid financial performance in the first quarter, exceeding our expectations. We are continuing to see strong traction through upsell, cross-sell, and new logos, with sequential quarterly improvement in the base business and continued high customer retention levels. Our focused vertical strategy, with a depth of expertise across a broad range of industries, is delivering results and providing balance in the current environment,” said Scott Staples, Chief Executive Officer.
Processing approximately 100 million background checks annually across more than 200 countries and territories, First Advantage (NASDAQ:FA) provides employment background screening, identity verification, and compliance solutions to help companies manage hiring risks.
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.
With $1.05 billion in revenue over the past 12 months, First Advantage is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.
As you can see below, First Advantage’s 16.7% annualized revenue growth over the last five years was incredible. This shows it had high demand, a useful starting point for our analysis.
First Advantage Quarterly Revenue
We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. First Advantage’s annualized revenue growth of 14.6% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.
First Advantage Year-On-Year Revenue Growth
This quarter, First Advantage reported magnificent year-on-year revenue growth of 109%, and its $354.6 million of revenue beat Wall Street’s estimates by 2.9%.
Looking ahead, sell-side analysts expect revenue to grow 46.3% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and indicates its newer products and services will fuel better top-line performance.
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First Advantage was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.1% was weak for a business services business.
Looking at the trend in its profitability, First Advantage’s operating margin decreased by 7.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. First Advantage’s performance was poor no matter how you look at it – it shows that costs were rising and it couldn’t pass them onto its customers.
First Advantage Trailing 12-Month Operating Margin (GAAP)
In Q1, First Advantage generated an operating profit margin of 2.1%, up 2.6 percentage points year on year. This increase was a welcome development and shows it was more efficient.
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
First Advantage’s EPS grew at an astounding 19.5% compounded annual growth rate over the last five years, higher than its 16.7% annualized revenue growth. However, we take this with a grain of salt because its operating margin didn’t expand and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.
First Advantage Trailing 12-Month EPS (Non-GAAP)
In Q1, First Advantage reported EPS at $0.17, in line with the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects First Advantage’s full-year EPS of $0.83 to grow 15.4%.
We were impressed by how significantly First Advantage blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also excited its full-year EPS guidance outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock remained flat at $14.95 immediately after reporting.
