First Advantage (FA) Q3 2026 earnings review
First Advantage raises its 2026 outlook, but debt stays high
First Advantage, which runs background checks for employers, kept growing at a double-digit pace while cost cuts lifted profit margins. Revenue rose 14% from a year ago and profit per share excluding one-offs jumped 27%, both above what the company's own plan pointed to. Finance chief Steven Marks lifted the full-year outlook so the new bottom sits above the old top, though by our math the plan still has sales growth slowing to 3% in the fourth quarter.
| Revenue | $465.8M +13.8% from a year ago |
|---|---|
| EBITDA margin, excluding one-offs | 29.3% +0.3 percentage points from a year ago |
| Profit per share, excluding one-offs | $0.38 +26.7% from a year ago |
| Full-year revenue outlook | Raised $42.5M middle of the range: 10.0% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because third-quarter sales cleared tougher late-2025 comparisons without slowing and Sterling cost savings widened profit margins again. Marks also expects annual cost savings from the Sterling buyout to finish near the top of the $65 million to $80 million target. One caution: at the two-year mark of the Sterling deal, net debt still sits around 3.5 times annual profit by our math, above the original 3-times goal, while cash is also going toward buying Data Diver Technologies.
The question now is whether the implied fourth-quarter slowdown to 3% growth is just another cautious outlook or a real cooling as one-off re-screening projects fade. Bulls point to a long streak of beating the plan, while sceptics point to tough fourth-quarter comparisons and delayed customer launches. Fourth-quarter results and the 2027 outlook will settle it.
🐂 Bull Case
Sales Grew 14% Across Tougher Comparisons
First Advantage runs background checks and identity screening for employers. Revenue rose 13.8% from a year ago to $465.8 million in the third quarter, following 14.9% growth in the second quarter. Chief executive Scott Staples credited "continued excellent base growth, solid new logo contribution, successful upsell and cross-sell activity, and consistently high retention", along with "strong performance from nearly every vertical in our Americas business".
The result matters because third-quarter comparisons began lapping large customer launches from late 2025. Instead of stalling, sales beat the prior second-half pace by 8.8% by our math. Finance chief Steven Marks raised the full-year outlook across the board, "with the low end of our updated guidance ranges now exceeding the high end of our prior guidance ranges across every metric".
What to watch: the exact percentage breakdown of existing-customer volume versus new customer deals in the third-quarter presentation slides. A positive reading for existing customers after stripping out one-off re-screening projects would show that hiring demand is growing on its own.
Sterling Cost Savings Lifted Profit Margins
Two years after buying rival Sterling, cost cuts are lifting the bottom line. Earnings before interest, taxes, depreciation, and amortization (EBITDA), excluding one-offs, grew 15.2% to $136.5 million, and the margin widened by 0.3 percentage points from a year ago to 29.3%. That reverses the second quarter, when the same margin shrank by 0.6 percentage points.
Overhead carried the improvement. Selling, general, and administrative expense stayed nearly unchanged in dollars and fell by 1.7 percentage points of revenue to 12.4%, while cost of services rose 0.25 percentage points to 54.5%. Marks said First Advantage now expects "to finish the year near or at the top end of our run rate synergy target range" of $65 million to $80 million.
What to watch: cumulative realized cost savings in the fourth quarter. Capturing the remaining savings near the $80 million top end is what must happen to reach the 31% to 32% margin target set for 2028.
Debt Prepayments Cut Interest Bills by 24%
Paying down Sterling acquisition debt is turning moderate operating profit growth into fast per-share earnings growth. First Advantage paid back $45 million of debt during the third quarter, bringing nine-month repayments to $95 million. Net interest expense fell 24.0% from a year ago to $30.4 million, so profit per share excluding one-offs rose 26.7% to $0.38.
What to watch: fourth-quarter voluntary debt repayments after the November purchase of Data Diver Technologies. Another prepayment would keep interest expense falling into 2027.
🐻 Bear Case
Two-Year Debt Goal Missed as Cash Splits
First Advantage closed the Sterling buyout on October 31, 2024 and originally aimed to push net debt down to about 3 times annual EBITDA within 24 months, while bulls view debt paydown as the main driver of per-share earnings. Marks said "deleveraging remains a high priority for capital allocation, as evidenced by our $45 million debt prepayment during the quarter".
- Carrying long-term debt: $1.99 billion ($2.02 billion before financing fees)
- Cash and restricted cash: $241.0 million, leaving $1.78 billion of principal net debt by our math
- Ratio of net debt to updated full-year EBITDA: about 3.5 to 3.6 times by our math
- Cash spent on share buybacks over nine months: $38.4 million (about $0.2 million in Q3)
Those figures cut against management's framing because the two-year anniversary has arrived and net debt still sits half a turn above the 3-times goal. Meanwhile, cash is now also going to buy Data Diver Technologies.
What to watch: the purchase price paid for Data Diver Technologies in the quarterly filing and any updated timeline for reaching 3 times net debt. A large cash outlay would push the debt goal further into 2027.
The Outlook Still Points to a Slow Fourth Quarter
Even after a $42.5 million raise at the middle of the range, the full-year revenue outlook of $1.720 billion to $1.745 billion points to a sharp fourth-quarter slowdown. Subtracting the first nine months leaves $420.3 million to $445.3 million for the fourth quarter by our math, or 0.1% to 6.0% growth from a year ago (3.0% at the middle of the range).
That happens because the fourth quarter laps a 12% jump a year ago when major customer wins went live, while one-off customer re-screening projects from mid-2026 fade. By our math, the outlook also puts the fourth-quarter EBITDA margin excluding one-offs at 28.4%, down from 29.3% in the third quarter.
What to watch: fourth-quarter revenue against the $445.3 million top end of the implied range. A finish near the middle of the range would show that underlying growth is cooling toward single digits as the 2025 customer launches turn a year old.
Risks this quarter didn't answer
Several standing risks in the business could not be tested from the earnings release alone because the detailed tables and call remarks were not included.
- Digital Identity revenue: Staples said "Our AI-enabled products continue to be key differentiators as we help our customers mitigate human capital risks and prevent fraud", but gave no dollar revenue figure; a disclosed contract value or growth rate on the call is needed to size it.
- International profit and soft industries: Staples highlighted the Americas, leaving International margins and Healthcare and Financial Services volumes unread until the quarterly filing's segment tables.
- AI replacing human hires: whether automation trims customer hiring volumes awaits the call question-and-answer session.
- Silver Lake ownership and screening lawsuits: both remain standard risk disclosures with no new third-quarter events.
👓 Other Themes
First Advantage Buys Data Diver for Court Records
On November 5, the background screener bought Data Diver Technologies, which Staples called "a data platform leveraging AI and automation that collects, aggregates, retains, and delivers high-volume criminal and court records". Owning more court records directly can reduce fees paid to outside data vendors and speed up background checks. The company did not disclose the price or how much revenue Data Diver brings into the raised 2026 outlook.
💲 Other KPIs
Cash generated from operations fell 11.8% from a year ago in the third quarter by our math, down from $73.6 million in the second quarter, even as profit rose. Rapid sales growth tied up cash in unpaid customer bills: accounts receivable climbed to $350.3 million, up 17.8% since December. Nine-month operating cash flow still rose 44.6% to $186.8 million.
Spending on computer equipment and internal software development reached $23.1 million in the third quarter by our math, or 5.0% of revenue. Over the first nine months, this spending rose 57.2% from a year ago to $58.6 million ($47.6 million for software development and $11.1 million for equipment). That leaves $40.7 million of third-quarter free cash flow by our math.
The diluted share count rose 1.3% from the second quarter (down 0.1% from a year ago) and now sits slightly above the company's earlier full-year indication of about 174 million shares. First Advantage paused its buyback programme during the third quarter, spending about $0.2 million by our math after spending $38.2 million in the first half.
🔮 Guidance
Raised. The middle of the range moved up $42.5 million to $1,732.5 million, or 10.0% growth for the year. By our math, that leaves $420.3 million to $445.3 million for the fourth quarter, or 3.0% growth from a year ago at the middle of the range versus 13.8% in the third quarter. This is the second raise this year: unchanged in Q1, +$27.5M in Q2, and +$42.5M in Q3.
Raised. The middle of the range rose $14.0 million to $493.0 million, or 11.7% growth and a 28.5% full-year margin. By our math, that leaves $122.7 million for the fourth quarter (up 5.0% from a year ago, with a 28.4% margin). It is the second raise of the year (+$6.5M in Q2, +$14.0M in Q3), helped by Sterling cost savings finishing near the top of the $65–80 million target.
Raised. The middle of the range moved up $10.0 million to $229.5 million, or 26.3% growth for the year. By our math, the plan leaves $55.7 million for the fourth quarter, up 7.3% from a year ago against 28.6% growth in the third quarter. Lower interest payments from the $95 million of nine-month debt prepayments carry the full-year increase.
Raised. The middle of the range increased by $0.055 to $1.315 per share, or 26.4% growth for 2026. By our math, after earning $0.99 across the first three quarters, the outlook leaves $0.31 to $0.34 for the fourth quarter (+8.3% from a year ago at the middle of the range, down from +26.7% in Q3). Previous moves this year: unchanged in Q1, +$0.06 in Q2, +$0.055 in Q3.
❓ Key Questions
What did Data Diver cost, and what revenue does it add?
First Advantage announced the Data Diver Technologies buyout alongside a $42.5 million full-year revenue raise. Investors need to know the purchase price, how it was funded, and whether Data Diver contributes any revenue or profit to the fourth-quarter outlook.
How much did existing customers grow without one-off projects?
In the second quarter, existing-customer volume grew 6.7%, with roughly half coming from temporary re-screening projects. Because the press release did not print the third-quarter percentage, the call needs to clarify how much of the 13.8% revenue growth came from everyday hiring.
When will First Advantage quantify Digital Identity revenue?
Management previously talked about giving more numbers on Digital Identity in 2026. The release again called AI-enabled fraud products a key differentiator without giving a dollar figure or growth rate.
Did International profit margins recover in the third quarter?
Last quarter's filing showed International segment EBITDA margin dropping to 5.5% from 16.7% a year earlier. The release highlighted Americas verticals; the quarterly filing will show whether International costs stabilised.