The background screening industry is a massive battleground, with companies vying for a piece of the $13 billion market. First Advantage, having recently acquired Sterling Check Corp., is on the cusp of becoming the undisputed leader. While industry analysts are preoccupied with the usual suspects – cost synergies, vertical diversification, and deleveraging strategies – a subtle yet powerful theme emerges from their Q1 2024 earnings call transcript: Artificial Intelligence.

First Advantage has been strategically investing in AI for years, but recent statements indicate a shift from exploration to full-scale implementation. CEO Scott Staples, during the earnings call, remarked on "early signs [of] an increase in quality, but also an increase in efficiency," highlighting the potential of AI to not only streamline operations but also enhance the accuracy and reliability of their services.

The most fascinating development is "AI at Work," an internal AI tool designed to empower every department within First Advantage. Unlike public AI tools like ChatGPT, "AI at Work" protects proprietary data, ensuring First Advantage's innovative strategies remain shielded from competitors.

"Imagine a future where First Advantage's sales team leverages AI-driven insights to identify promising leads, crafting personalized pitches that resonate with each customer's unique needs. Picture their marketing team employing AI algorithms to optimize campaigns, targeting the right audience with laser precision. Envision their finance team utilizing AI for predictive modeling, anticipating future trends and optimizing financial strategies. And envision their HR team employing AI for talent acquisition and employee management, identifying the best candidates and fostering a thriving company culture."

This vision extends to the heart of First Advantage's operations: background screening itself. Staples hinted at the application of AI to U.S. criminal data, a complex and crucial component of their services. By applying AI to this domain, First Advantage could potentially achieve unprecedented levels of accuracy, speed, and consistency, setting a new standard for the industry.

The Potential Impact: A 10% Reduction in Operational Costs?

Here's a hypothesis worth exploring:

"**Hypothesis:** By aggressively integrating AI across all departments and leveraging their proprietary "AI at Work" platform, First Advantage can achieve a 10% reduction in operational costs within the next two years."

The Numbers:

Projected Cost Reduction: Based on their current operating expenses (approximately $759.5 million in 2022 - Reference), a 10% reduction would translate to $75.95 million in annual savings.

Incremental Margin Improvement: Assuming a 31% adjusted EBITDA margin, these savings could contribute to a margin expansion of approximately 3.2%.

Competitive Advantage: These cost savings would not only enhance profitability, but also give First Advantage a significant pricing advantage, allowing them to undercut competitors and capture greater market share.

While these are just projections, they offer a glimpse into the transformative potential of First Advantage's AI strategy. The company isn't just acquiring Sterling, they're acquiring a powerful arsenal of data and technology, providing fertile ground for AI-driven innovation.

First Advantage Revenue Growth Algorithm (LTM)

Beyond the financials, there's a human element to consider. First Advantage isn't just building a background screening powerhouse, they're building a company where technology empowers employees, enabling them to perform at their best and contribute to a shared vision of excellence. This human-centric approach to AI, combined with their strategic vision, makes First Advantage a company worth watching, a company that might just be on the verge of rewriting the rules of the game.

"Fun Fact: The background screening industry emerged in the 1970s due to increasing concerns about workplace violence and employee theft. Before that, hiring decisions were often based on limited information, making it easier for individuals with criminal histories to slip through the cracks."