Good afternoon, everyone, and thank you for being with us today at our 24th Annual Global Financial Services Conference. I am Ronan Kennedy from Barclays U.S. Business Info and Professional Services Equity Research team. We are very pleased to have First Advantage's CFO, Steven Marks, on stage. In addition to SVP of Strategic Finance, John Damian, and IR head, Stephanie Gorman, joining us in our investor meetings. We are thrilled to have FA back at our GFSC after just having had them at our credit, data, and analytics day last week. But in case anybody is ramping on the name or did not have an opportunity to catch that, some quick background, pun intended. FA is the world's largest background screening company, performing over 200 million annual screens in over 200 countries and territories for over 80,000 customers.
This is through differentiated and industry-leading innovative tech products and leveraging 1 billion proprietary data points. Although it is absolutely still core to the business and a substantial majority of the business, we would be remiss in just calling them a background screener as it does so much more, including Digital Identity Services, credential verification, and continuous risk monitoring. Steven, if I may, that is where I would like to start. Obviously, we will dive into the growth of financial algo, operational financial trends and drivers. But if you can kind of, as we did last week, start off just providing an overview of the FA 5.0, and then very much in line with that and tied to that is your evolution as a company, right? And the execution from being basically a BPO company to a tech-enabled services company to a global data company today.
I will turn it over to you as a starting point there.
Yeah. Thanks, Ronan. Thanks for having us back. I know we must have done something right last week to have do it again. A lot there. We will kind of break it down. You are absolutely right. FA 5.0, which is kind of our latest strategy, we rolled that out at our investor day last year. To your point, it really continues an evolution that First Advantage has been helping lead the industry on from what was really seen 10, 20 years ago as just a pure BPO process outsourcer. I am trying to get information, go get the information, process the information, report it. I have a very legacy view.
When I joined First Advantage over a decade ago, we were just starting kind of the automation journey of converting from a manual process-run business to something that has robotic process automation and kind of AI 1.0, if you will. Very, very basic and rudimentary automation, that was very great first step. That allowed us to take a lot of those very manual labor-driven back-end resources and make it a little bit more tech forward. Obviously, with the advancements in things like machine learning and starting to build out some of the proprietary data that you were just talking about, we really started that evolution, again, roughly a decade ago, to really transforming it to a tech-enabled service and really have it being data-driven.
The latest in enhancements and really what FA 5.0 is all about is really revolutionizing and evolving the products to be more technology forward. So going from just pure background screening and drug testing, and to your earlier point, transitioning to more of the services to Digital Identity Services and some of the other peripheral services, right to work. We call that realm of services Know your people™ to where you're not just validating a background check, but you're really validating an individual, who they are, what they say they've done. Are they valid to work at your organization? Then being able to extend that into ongoing services like monitoring and rescreening, persistent identity. Is that the same worker who is continuing to work for you?
Because what's really happened is not just are we evolving the industry by technology advancements, a lot of those same items that we're leveraging for technology advancements, bad actors are leveraging for making their lives easier and infiltrating a company where they wouldn't otherwise be allowed to be in, doing things to that company that they don't want to be done. So being able to evolve the products to be able to keep up with, whether it's criminals faking identities to get access to companies, whether it's people using synthetic identities to get jobs they wouldn't otherwise be qualified for or right to work for. So being able to keep up with that evolution and then kind of set that industry leadership standpoint from the products that we're offering to be able to fulfill the full life cycle of risks that our customers are facing.
Because one of the biggest downsides of all of this is it's a riskier world than it ever was before. It's making sure that we've got the products and solutions to keep up with those risks and be industry-leading there to support our customers. That's what's driving a lot of that FA 5.0 mentality that obviously is resonating really well because we're seeing uptick in upsell and cross-sell and new logo and retention that comes along with having differentiated products that your customers need.
Excellent. All very helpful. Obviously a key element of that FA 5.0 strategy was the transformational acquisition of Sterling, and so far to date, a very successful integration. Can you just talk about that, the strategic rationale, the integration process to date, and the benefits you're seeing?
Yeah. So that acquisition was several years in the making. I think back then it probably even goes back to FA 4.0 even to an extent, just given how long we were working on it. It's crazy to think that it's been almost two years since we acquired them. The strategic rationale was, look, we had always kind of looked at the market. We had done some smaller deals that were also very individually good deals, accretive deals, but not needle movers, right? Not big enough to really change the dynamics. We had always, at First Advantage, looked at Sterling as our closest peer, our best-performing peer. We were very similarly structured, both verticalized in our go-to market, both very focused on their user experiences and product. Also the only two background screeners that were talking about Digital Identity at the time.
Correct.
Still really are the market leaders there. So anytime you can go out there and buy a large competitor at a reasonable valuation and someone that mirrors a lot of what you can do makes it, from a strategic rationale, an easy thing to rationalize. I think the other big thing that we had to be able to justify internally was how were we going to integrate that business. Anyone who's followed background screening for a while knows that the Achilles heel for large M&A is when you force migrate customers, you bring the platforms together, you force a customer and their integrations and their workflows off of what they've been used to onto something else, you're giving them an excuse to leave.
We've seen that in some of our own history and some of our competitors' histories, that your retention rates plummet when you go and do something like that. So part of our diligence was making sure that we could come up with an integration strategy that did not require for us to force migrate any of those customers. To date, we have not. We've come up with other ways to bring the platforms closer together to harmonize things on the back end, leave those front-end integrations and workflows the way they should be. What we've seen happen after the acquisition is the 95%, 96% retention rates that Sterling and First Advantage had leading up to the acquisition are now 96% and 97% consolidated. So we've actually seen retention stabilize, if not improve after the acquisition. So we feel really good about that.
From a CFO seat, you obviously want to make sure you get the right synergies to justify the purchase, and we are well along the way there. Originally thought we would get at least $50 million of synergies, have raised that. Our final target now is $65 million- $80 million. We are already at $63 million action through Q2. We will keep progressing that number forward a little bit as we get towards the end of the year, and we will see all that final value realization in 2027. So, essentially being able to buy a very similar but stronger peer, being able to do that in an integration approach that preserves your customer relationships, and then obviously the financial benefits of the synergies. Now that is on the aftermath for 24 months later.
To your point, we have got industry leadership position where we are able to make material annual investments in our product, our sales, our marketing, our cap software, our R&D. So we are able to continue accelerating that leadership position. Left us in a great position.
Very good. Can you just elaborate more on how and why First Advantage is competitively differentiated from that leading-edge innovative tech, but also that proprietary database, how that ties into the value proposition and how you win?
Yes, I think it first starts with how we are structured, which is we are very verticalized from a go-to-market, from a product, from a customer success and account management structure. That is so important in our industry now because the risk to a transportation company and the products they need versus a healthcare company versus a retailer versus gig and so on and so on are very different, right? So the fact that we have got our verticalized structure, but we are very deep in each of those verticals. So our transportation guys can go in there and talk DOT compliance, driver qualifications, FMCSA, and all of these other areas. Our healthcare understand all of the licensing and credentialing and verifications histories that you need to do when you get into healthcare. We are able not just to have our go-to-market proposition aligned to that, but our product proposition.
So take transportation, we have our RoadReady suite of services, roughly 12 unique products to a transportation, whether it's driver or vehicle or similar compliance network, and able to roll those out. We're very deep in the verticals that we operate in, which is how we start there. But to your point, universally, we've invested a ton of money in our applicant experience, in our company experience, so what our customer is directly and how they're tracking their cases, and that drives higher candidate satisfaction, higher customer satisfaction, faster turnaround times. All of that is enabled on the back end by all sorts of automation, but certainly the proprietary data. That proprietary data has two forms. We've got our National Criminal Records File, which in and of itself is 960 million records, so closing in on 1 billion records right there.
That we use to help give a broad scope search of the national search coverage to criminal history and help tell us where there could be risk and not, and sell that as a search. It's based on proprietary and bulk data that we've acquired over many years. So it's very much uniquely First Advantage, and selling a search of that is certainly differentiating. On the verification side, we have our Verified! database, which is 135 million unique records.
So add that up, we're well over 1 billion consolidated. But we've paired that Verified! network with our Smart Hub AI router. Instead of deferring to specific third parties to handle all of the data or initial data for a verification at a very high passthrough cost to our customer, we're able to use the Smart Hub infrastructure, our own proprietary data, along with that Smart Hub network of other data providers, to help provide our customers a lower total cost, however, create margin opportunity for First Advantage. So in that one, it's a win-win.
Right.
Our customers are happier because you've got a differentiated lower cost solution to a problem they want you to solve, and at the same time, we're creating margin for First Advantage. So you take that verticalized approach, our focus on our products, and our focus on our data, and you've got a very diversified approach. So you're not just a market leader by size, you're a market leader by how you're functioning in the verticals and the products that you're bringing to the market.
Excellent. Very well articulated. Can you also touch on, we had the likes of Equifax and Experian here, the nature of the data and how that allows you to not be first of waterfall, but to then go through the Smart Hub AI order router, in order to, as you touched on the benefits and obviously margin at the back end. Just to expand on that, perhaps even the deflection rate and the automation rate that you have.
Yeah. I mean, the drive for all of this, as I mentioned. When you have a top-of-waterfall contract structure from one of those names, and they drive a high price point, and they've got a very large database. So when you say, "Hey, do you have any records for Steven Marks?" They're going to probably have something. They might not have all of it you need because our customer says, "I need to know the last three places they worked at and verify them, or every place this person's worked at in the last seven or 10 years," or whatever that history may be. Some of that's actually mandated by the compliance requirements of their vertical. Customers start to see those bills get passed through, and it creates pain points.
We started investing in our Smart Hub AI tech on the front end of that verification fulfillment years ago, and First Advantage has never signed that top-of-waterfall contract. What we do is we take each and every order, we run them through that Smart Hub AI router, and figure out where is that data, what is the cheapest way to get to it, and then fulfill it through that network. It's got a network that includes the likes of the larger bulk providers, like you mentioned, Equifax and Experian. It also has some of the fintech players who can do instant verifications using payroll data or banking data, but it also has our own proprietary data.
Then for each and every candidate that rolls through there, a custom fulfillment route will be set just for that candidate based on where our system believes that data to be there, and it's constantly using AI and machine learning to optimize its algorithm. We talk about our deflection rate. We talk about it being very good, and we don't like giving out that number because obviously we could be priced into some sensitive areas. But certainly as the tech improves, this is one of those areas in our business we're certainly the beneficiary of leveraging AI. As that technology just gets better, the router gets smarter as it feeds more data sources, and those other data sources get more data-enriched, the network becomes broader. So we feel really good about the strategy.
The bigger point is not only is it creating margin for First Advantage, but when we can go into a competitive RFP, we obviously have a very unique solution to a problem that our customers in the market is asking for solutions on. It's helping us differentiate ourselves, create market activity, and then obviously hopefully increase our win rates.
Got it. Thank you. Then remind us, have you disclosed the percentage that's fully automated without human intervention from a screen standpoint?
Yeah. Mainly what we look at there is our U.S. criminal fulfillment, which is the bread and butter of our business. Certainly, several years ago, that was 70%, now it got up to 75%. Every time that there is opportunity to find more automated data and then do an end-to-end automation, we are certainly on that. It is still a very fractured criminal data environment, specifically here in the U.S., thousands and thousands of unique and disparate courthouses. Many of them don't have any automated records, and you still have to send a physical court runner into the court to go retrieve the records. But we're trending up, and certainly closing in on some metrics. Our long-term target there we've mentioned before is roughly 90%. We don't know if it goes too far north of that because the data has to get overhauled and modernized to get there.
But certainly we feel good about how we're accessing that data, the ability to tap into the courthouse data through automation, through API, and then also the back-end processes to automate those where the FCRA and other compliance regimes and regulatory oversight allows us to, and have that proper mix of human-in-the-loop technology that allows us to automate what is practical to be automated.
Very good. You touched on this to a certain extent, various aspects of it, and I think it was something that Scott began to articulate first on the 4Q 2025 call, then I heard you very well articulate it in investor meeting earlier today. Can you just give us a holistic reminder on how and why that data set cannot be replicated easily by agentic AI, and how and why you would not be disrupted or disintermediated in that regard?
Yeah. The reason the proprietary data, A, is so important, but B, is so hard to replicate, which is right along the lines of your question is, while courthouse data is technically government data, it is certainly not publicly available.
Right.
We are here in the great state of New York. This is the most expensive jurisdiction that we operate in. Any time you want to go search the New York Office of Court Administrator, the New York OCA, a name and date of birth in there for a court record, for a criminal record, it is $95 per name you search. If someone wanted to take an AI bot and go search every permutation of every name, you are billions and billions and billions and billions of dollars invested to build out that proprietary data. Then again, there is still a requirement under the FCRA to when you are going to report something, you have to go validate it back at the primary source, so you need that data to be refreshed real time. There is less of a reason to have that type of infrastructure. You could do it.
Well, I could not say you could do it. You could try to do it. You would spend a fortune. Not every courthouse would let you search it and acquire that bulk data to begin with. It is what makes acquiring the data so hard. We have built it up through years and years and years and decades of operational history, of working with certain jurisdictions on how to get that data. But it also does not alleviate all of the requirements of the FCRA to begin with. So for just someone to vibe code an AI search tool but then to have it be FCRA compliant, actually be able to be used in a consumer report that is a background check, is just unrealistic.
Right. And then also from a disruption aspect to it, I think you said you're not seeing disruption. In fact, you're seeing the opposite, where 2Q spoke to that from a base growth standpoint, but where you're seeing these bad actors now have tools at their disposal that they didn't previously have. Can you talk about that dynamic?
Yeah. Certainly the last number of quarters, everyone's kind of focus on AI has moved around. Certainly for a little while, the viewpoint was that AI is going to take out all jobs and job growth, and therefore our base volumes are going to plummet. Look, it's certainly disrupting pockets of the labor market, right? There are certain job types that are more ripe for that kind of disruption. We're not very bullish on BPO outsourcing, although those guys have actually done fairly well recently just because they're positioning themselves as the AI implementers right now. Obviously, we don't necessarily see long-term trajectory there. But look, at the end of the day, there's still a high demand for labor in this country and some of the other major markets we operate, the U.K., Australia, as an example.
Big demand for labor, and this is where being diversified in your vertical sets is really important. We've got a broad set of verticals. Our largest vertical is healthcare, transportation, and home delivery, logistics, retail, hospitality. Those we feel really good about because there's a large demand for hourly, blue-collar type labor, and even in the healthcare, which everyone assumes is all white collar, there's a lot of components of healthcare, nursing, janitorial, food services, that are part of the hospital network and big health services network that are very hourly and tactical that require in-person presence, and the demand for that labor has been incredibly strong. We've seen some little tidbits of disruption. I think the headlines have been making a bigger deal out of it than we've been seeing come through their numbers.
In fact, we've only seen base growth stabilize through all of this noise and actually start to accelerate, not go the other direction. Overall, we still feel very good about how we're positioned from a vertical focus. The other important focus is not just the verticals we're in, it's the segment of the market that we focus on, which for us is enterprise.
Right.
We define enterprise as accounts that do $500,000 of screening volume every year. Think about companies that are hiring thousands, tens of thousands, if not hundreds of thousands of people every year. These are large labor forces. Even at the higher cuts of mid-market, hundreds of thousands of dollars of revenue is still thousands of screens that you are thinking about. These are large companies that are more durable through a noise cycle like tariffs and some of these other things that have come around. We feel really, really good about how we are positioned and where we are positioned, and have not seen the. What the headlines would have told you is the disruption that was coming for us. We have seen a lot more stability and a lot more growth than we have anything.
Right. I think good segue into if you could just please provide a recap of the organic growth algo-
Yeah
from each component, and then in total as well, please.
Yeah. Overall, we break our revenue growth into four categories. Base growth, which is kind of what we were just talking about. A few things go into that, but that is kind of the macro impact on base. That is the change in our customers' ordering volumes year to year. Long-term, we think that is roughly a 2% contributor to growth. Price is also in there, and we do have the right to do a CPI-style price increase every year, and we generally are pretty on schedule with doing that. We took a little bit of time off from that last year in the shadows of the acquisition and making sure that we could prove the value of the combined First Advantage Sterling platform. But are back to business as usual there, so that is also supporting base. But we see that as roughly a 2% contributor to growth.
But what we can control and influence is new logo and upsell cross-sell, which on a combined basis contributes on a long-term 8%-10%. We've been running a little bit above that or well above that. The last couple of quarters, we've had several large deals that we won in 2025 that we get a full year run out of in terms of growth rate. New logo, which is roughly half that 8%-10%, is our ability to go into the market and win in a competitive environment. Upsell cross-sell has been a very consistent contributor of our growth algorithm for years. Upsell cross-sell is really three things inside of it. The first is the biggest. It's package density. It's customers adjusting their risk management dial, so doing a deeper search, a denser search.
Adding elements that maybe they weren't doing, or going deeper into the history. There's still a huge white space for that because no one is doing the perfect background check for their vertical yet. Or maybe not no one. Very few are. Also, an upsell is our ability to expand share of wallet, and most of that is global expansion. So maybe a U.S. customer doing their overseas subsidiaries, or maybe a company where we're doing certain subsidiaries, but not all, or certain divisions, but not all, and gaining wallet share there, which we've been able to grow very steadily out of. We're also able to cross-sell our other products. Not every customer is using our I-9, or our Digital Identity Services, or our WOTC tax, or our RoadReady services I talked about before.
Cross-selling those products to incremental new customers upsets upsell cross-sell, and that's been our biggest growth lever, to be honest, over the last number of years. Hitting really strong results now because we've had several big marquee upsell wins there over the last year or two. Retention. On a gross revenue basis, we retain 96+% of our revenue. We've been, as I mentioned before, coming out of the acquisition that we've been running 96% or 97% every quarter. So you start to add all of those items up, and you get to a very strong growth rate that is not dependent on that macro base impact. You saw that in Q4 and Q1, where base was effectively flat, and First Advantage was producing very strong growth results.
You get a quarter like in Q2 where you start to get some base acceleration, and it only gets better from there.
Yeah. Base growth 2Q accelerated 6.7%, approximately half of that was customer-specific initiatives. Can you talk about those and then the underlying demand? You touched on the verticals earlier, but just give us a reminder of where you're seeing strengths and/or stability.
Yeah. Look, we were pleasantly surprised too, I think, as many investors were, that base growth was roughly 7%, 6.7% to your exact number. And roughly half of that was kind of traditional base.
Just general increases in hiring volumes. And we saw a number of verticals perform really well. Transportation and home deliveries, still doing great. Yeah. The American consumer, present company included, still pretty lazy and likes to have things delivered to their house, and that's certainly a part of it. Retail and e-com also did very well on the back end of that. But we also saw a couple of other verticals that haven't been contributors over the past number of years. Industrials, which includes our aerospace and defense customers, net beneficiary of some of the news going on around the world, and hiring volumes there are doing incredibly strong year-on-year.
We're even starting to see some growth in staffing and some of these other verticals that have been a little bit more sluggish over the last couple of years, just given everything, all the noise going on. A good broad base growth, which we like to see, that's obviously beneficial for a lot of reasons. But you're right, that other half of base roughly was these customer initiatives. A few different factors there that we learned of as we started talking to customers who had very large increases in their volume in Q2. And some were doing rescreening programs, either whether it was for risk management reasons or because they had repurposed labor force and needed to make sure they screened them to a level that was appropriate for their new roles.
Right.
We also had a number of customers, for whatever the reason was, do some restructuring. Whenever you're creating these, where you're churning over workers and whether it's refining a workflow, where you're defining distribution network or hospital network or whatever it is, that disruption to your workforce that results in you exiting employees and bringing on new employees, that churn is very good for us. Our base growth churn's great. It doesn't all have to be contingent on net hiring and net employment growth. Anytime there's a churn, which is much more common in those hourly labor, hourly workforces that I was talking about earlier, that's net beneficial for our base growth.
We saw a number of customers and a number of different verticals for that matter, operate programs that were either that rescreening risk management concept, whether it was labor reshaping and what jobs they had or just more internal restructuring. But along those themes, run these programs that, for certainly over Q2, and we expect some of those programs have a little longer tail to them, but you can't underwrite these things forever, so it's hard to know how long that we'll get the benefit for. Certainly saw that benefit Q2. What we're also very proud of is we didn't know any of this was coming.
It's not like we staffed up in our fulfillment functions or made any product changes to account for it. We found out after the fact of all of it, but our turnaround times were still great, our quality was still great, our satisfaction was still there, and we operated all within the same workforce that we had planned for. It just shows the scalability of our platform and our fulfillment network and being able to ingest this extra volume and process it with no negative impacts.
Right. An important point, as is the one that you made, because I think it's something that investors, even though knowing you guys for a while, take some time. They tend to belabor, dwell on the JOLTS reports and otherwise the labor and employment data. But as you guys have been showing with your execution, even from a base growth standpoint, it's not necessarily dependent on that headcount growth.
Right.
It's churn and these initiatives.
It's not. A couple things. We obviously look at the JOLTS data and the BLS data.
Right.
It's informative, but it's also, obviously response rates are down a healthy amount since pre-pandemic.
Right.
But it's also, whenever you look at any data, you really have to make sure you separate SMB type businesses. Our focus, again, on those enterprise-sized accounts, much more stable, much more durable type of business strategies. If you rewind the clock maybe to last year, there was a lot more disruption in those JOLTS data when all the tariffs and Liberation Day type noise came around, because if you're an SMB and your supply chain just got messed up because of a tariff, you really only have one choice, and that's to cut back on labor costs. Whereas a Fortune 500 size retailer will just change their supply chain. They have strategic supply chain management. They just, instead of going east to west, they'll go west to east in their shipping routes when the Strait of Hormuz gets disrupted or something like that.
Having this verticalized enterprise customer approach makes you a little insulated from that. I think at times, whether you're looking at the JOLTS data or the ADP employment data, you have to keep in mind of the size of companies that are responding to that, not just the verticals that are responding to make sure that you piece that together to what our data is telling us. At the end of the day, we're most reliant on what our customers are telling us and what our own data is telling us. As you can tell by our base results in recent quarters, we feel really good about where our customers are taking us.
Just remind us how you would currently characterize the hiring environment. Obviously, that's informed by the macro to a certain degree, and what your outlook for the remainder of the year contemplates from a base growth standpoint. Obviously, a very dynamic environment. I think even since earnings, oil's up 37%, crossed $100 a barrel, yield's nearing 5%. We have a rate decision tomorrow. Just what you've contemplated and how you would characterize your outlook.
Yeah. At least where we're at today, we'll talk, then I'll talk about what our guidance has.
Yeah.
Where we're at today is, look, there's still a healthy demand for the hourly. In fact, I think there was a The Wall Street Journal article last weekend talking about how great of the job market is for that low-end labor. There's still a ton of demand for that hourly low-end worker, which is anytime that's happening, and you're also in an inflationary environment, there's a lot of job switching. People looking for higher pay, for supplemental pay. We call it job stacking, when people are taking on either multiple part-time employment or part-time employment on top of full-time or gig work on top of full-time, et cetera. We're seeing certainly more of that. Maybe not a great societal item, but certainly good for demand volumes for us, that people are changing jobs and seeking incremental jobs. That certainly drives growth.
We are seeing a really strong demand there. There is obviously certain verticals, like I highlighted before, that some of the reasons, exactly your reasons, you are talking about Strait of Hormuz. Our defense and aerospace inside industrials is doing really well. We feel really good about where we are positioned today, and obviously you saw that in our Q1 and Q2 results.
Earlier in the year when we gave out our originating guidance, we had modeled base as kind of 0% to - 2% for the year. We are a little bit more now, just given how the first half of the year has progressed and what we kind of saw for early Q3 and what our models tell us, that we are on the inverse of that. 0% to + 2% for the year is our outlook. We are mindful of the fact, to your exact point, oil is getting expensive.
At some point, does that start to weigh on the U.S. consumer when it comes time for holiday shopping and that seasonal peak? We got that coming around the corner here. Time will shortly tell us. Does it impact transportation companies in terms of their diesel costs, and how do they staff and handle some of what is coming around the corner? To date, it has not had an impact, and oil has been at that $90- $100 price point for a while now. Certainly something we are mindful of, and given the fact that we have got a nice range to our guidance, we have contemplated for. We will see how that plays out here over the next couple of months as that Black Friday season happens here.
Very good. Thank you. Can you talk about the role that Digital Identity Services has played in that strong upsell, cross-sell, and also new logos, if I am not mistaken, as tip of the spear, a key element of the value proposition?
Yeah. It has been great. I think a couple different aspects of it. One, it has got a direct contribution. Obviously, it is a hot-selling product. I think we mentioned this on our earnings call earlier this year, roughly 25% of our new logo implementations feature that product, where maybe at our investor day a year and a half ago, we thought this would be a very much a standalone search and service.
We are seeing it being, the uptick and uptake of it being really part of the background check, almost a fundamental piece. When we are actually solutioning our new programs, we are actually including it as the same we would a criminal check or a sex offender check, because we just believe it is that fundamental, and customers can tell us if they are not ready for it and remove it. A little bit of an opt-out approach.
But from a go-to-market impact, you are exactly right. It is differentiating, and any time you can differentiate, you create opportunity. And it is also that tip-of-spear impact is exactly what you say it is. There are opportunities that have come to us where the customer just wants to talk Digital Identity. Sometimes they are responding to a direct risk, a direct issue. We have had some customers who said, "Hey, we had this event happen. Our board told us we need a solution within a month or within weeks, and we hear you have a product, so pitch it." Then they see the value of doing it with the background check to help fill in the voids and prevent that handoff risk. So it certainly is driving differentiation and growth, but we also believe it is also helping our retention, right?
You have a differentiating product, it makes it much harder for a customer to leave you to a market that does not really offer it. So, it is still early days, so I think from a materiality impact, it is not driving a material part of our growth algorithm yet. But it is certainly directly impacting to an extent, and I think the peripheral benefits, to your point, whether it is helping increase our pipeline size, our win rate, our retention rates, certainly having an impact on all three of those.
Got it. And thank you. But obviously, strong momentum across the organic growth algo, especially the areas within the algo under your control. Very solid execution there. A key part of that solid 2Q was the guidance raise. Can you talk about just perhaps start with a reminder of that raise and what that contemplates and how we should think about perhaps extrapolation, not looking for guide, but how to think about into 2027, exit rate from 2026?
Yeah. So, A, when you have a good start to a year, it starts to become a natural thing. And obviously, the momentum, we saw continue into the early part of Q3 when we gave out that updated guidance a month and a half ago. So it really felt good about how the year was progressing, so we could not only raise the bottom end, but even raise the top end a little bit and have a little bit more confidence in the growth that we are going to generate during the year. And not just at revenue. Obviously, we felt good about how margin was flowing through. Obviously, being able to buy back some shares early in the year at a very favorable price gave us some more confidence at the EPS level as well.
Overall, felt really good about the trajectory in terms of the beats for the first half of the year, and then looking at the outlook. To your point, when we look at the back part of the year, we also had some go-to-market wins from 2025 that we knew would carry us through at least parts of Q3, and that momentum would carry forward. Q4 is a tougher comp quarter for us, as we've talked about. We had 17% new logo upsell, cross-sell in Q4 of 2025, so we're comping against that growth. Plus, there's some timing normalization that'll happen where we actually had some customers last year hold back volume from their incumbent and hand it to us and had us either screen them for the first time or re-screen that work because they were that in love with our quality and standards.
That obviously is a great market proposition, but has some modeling impacts year-on-year. So we'll have a slightly lower growth rate in the Q4. The flip side of that is we had 20 enterprise wins flat in Q2.
That's a higher number than the 17 we'd posted the number of quarters before that. We'll start to see the revenue benefit for those wins in 2027. Too early to give you specific guidance, but given, as Joel and Scott have mentioned the last couple of calls and conferences, pipelines at and above record highs. Feeling good about our win rates. Got a lot of deals to implement. Not all of those will get implemented by the time Q4 closes, so that does give us a good runway of deals to work on for 2027. Obviously, we'll give out more formal guidance as we get closer, but we feel good about where the business is taking us, obviously.
Then on the profitability levels, we've got synergy actioning that's going to keep happening through the end of the year that we'll realize the benefits of the next year, and feel really good about just our cash flow generation and the ability to be opportunistic when it comes to our capital allocation.
Right.
All of that sets up for a really nice trajectory 2027 or even hitting our 2028 targets that we gave out at our investor day last year.
Very good. Just to drill down on two aspects of that was the margin performance for 2Q. Could you talk about the drivers there, expected drivers out of in 2H 2026, and then long-term drivers to get to your long-term framework?
Yeah. So it was a lot of outperformance in Q2, and margin was certainly one of them. I think obviously, it's a very scalable P&L, so anytime you outperform on revenue, a lot of that flows through to the bottom line at a pretty good rate. But also having broad-based growth across a lot of verticals gets you better revenue mix in terms of when you have some of our verticals like transportation, where your third-party data and pass-through is a little bit higher percentage of revenue, which does bring down your margin percentages. Having more broad-based growth, so success in staffing, in industrial, stability in healthcare, et cetera, helps drive a more universal mixed level, which is better for overall margin profitability. When you think about the rest of the year and the trajectory forward, we'll get more and more synergy realization.
Now we've prioritized our engineering and product resources towards some growth initiatives. So we'll get those last synergies to get to that $65 million-$80 million target I mentioned earlier towards the back part of the year. So you'll see that P&L uplift into 2027. The revenue growth will continue to help knit that scale and that leverage down to bottom-line profitability. And then, look, we've got a corporate DNA where we've always invested in time and energy and efforts towards automation and cost savings. We were doing that before the acquisition. Obviously, we put all of our energy behind the synergy program and integration. But we'll get back to those business basics for us and put more into how do we leverage our data, how do we leverage automation, what else can we do to help yield more value and efficiencies?
We feel like we've got a really good path towards those long-term targets, and then we'll just keep scaling that growth.
Very good. To just end here in the last minute on capital allocation, you touched on it. Can you talk about the capital, just a reminder on the priorities and even potential optionality, given the strong free cash flow generation, the rapid deleveraging post the Sterling acquisition, now down to 3.7x , the buyback opportunity, et cetera.
Yeah. I mean, look, obviously coming out of an acquisition where you had to go and finance it, deleveraging certainly a top priority, and we've already made, to your point, really good headway into taking that number down. I think the benefit of being a strong cash flow generator is a lot of that happens naturally, and this business certainly is high quality of earnings, good margins, therefore good cash flow. Obviously, with all that cash flow allows us to be opportunistic. We did not have buying back almost $40 million of shares at under $12 on our bingo card at the beginning of the year, but having that flexibility and cash flow allowed us to do that and be opportunistic. Looking forward, we'll continue to be opportunistic with a strong eye towards deleveraging.
Very good. We're exactly at time, so if there's anything you'd like to close with, I'll leave it to you. Thank you very much for your participation.
No, I would just say, look, we appreciate, obviously, the time and on back-to-back weeks, and look forward to keeping the conversation going and hopefully can keep delivering that consistent growth.
Very good. Thank you so much.
Thanks, Herbert.
Thank you.