First Advantage Corporation (FA) Q4 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the First Advantage Fourth Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Stephanie Gorman, Vice President of Investor Relations. Please go ahead.

Thank you, Norma. Good morning everyone, and welcome to First Advantage's fourth quarter 2021 earnings conference call. In the Investors section of our website, you will find the earnings press release and slide presentation to accompany today's discussion. This webcast is being recorded and will be available for replay on our Investor Relations website. Before we begin our prepared remarks, I need to remind everyone that our discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the SEC, including our prospectus dated November 10, 2021, and our 2021 Annual Report on Form 10-K to be filed with the SEC. Such factors may be updated from time to time in our periodic filings with the SEC, and we do not undertake any obligation to update forward-looking statements. Throughout this conference call, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures to the extent available without unreasonable efforts appear in today's earnings press release and presentation, which are available on our Investor Relations website at investors.fadv.com. In addition to facilitate comparability across periods we calculate year-over-year growth by comparing our 2021 results to our combined full year 2020 results which gives pro forma effects to the acquisition by Silver Lake of our company and the related refinancing as if they had occurred on January 1, 2020. I'm joined on our call today by Scott Staples, First Advantage's CEO; and David Gamsey, our CFO. We will take your questions after our prepared remarks. I will now hand the call over to Scott.

Thank you, Stephanie, and good morning, everyone. Welcome to our fourth quarter 2021 conference call. Before we begin, I'd like to express our concern over the tragedy unfolding in Ukraine. We continue to hope for a swift and peaceful resolution. We do not expect the current conflict to have a material impact on our business in the 2022 guidance we are providing today. I'd like to start with a summary of our fourth quarter highlights on Slide 4. In Q4, we continued our exceptional financial performance growing revenues 36% driven by strength across all our customer verticals, business units, and geographies. This marks our sixth consecutive quarter of double digit revenue and adjusted EBITDA growth. Our products and solutions, differentiated by speed, accuracy and focus on the applicant experience have helped customers find and onboard talent in today's dynamic and fast moving hiring environment. We saw strong growth from our existing customers and great performance from new customer additions and upsell, cross-sell wins, driven by our verticalized go to market strategy, differentiated technology and automation and global capabilities. Customers also continued to maintain the depth and breadth of their screening requirements, which we refer to as package density to provide even greater levels of risk management and security. We also expanded our adjusted EBITDA margin by 415 basis points to over 32% in Q4 as a result of our continued automation and operational efficiencies, proprietary databases, and operating leverage. We remain focused on these levers to deliver ongoing superior margins. We have experienced continuing macroeconomic tailwinds in the U.S. and internationally. This has been driven by many factors, including The Great Onboarding, which is a different way of looking at The Great Resignation as employees voluntarily resigned and applied for new jobs in increasing numbers. This has turned into a great opportunity for us. We expect and so far have seen this trend continuing into 2022, given the momentum behind the move to remote or hybrid work environments, which reduce the barriers to job entry. Additionally, we believe there has been a lasting fundamental shift in job trends and generational preferences, leading to increased turnover and quit rates as workers increasingly seek mobility, flexible work, multiple jobs, better work-life balance, and improved overall employee experience. On top of this, inflation is impacting wages, and contributing to increasing quit rates as employees are leaving jobs for increased pay elsewhere. These trends amplify the importance of our proprietary technology, automation initiatives, and focus on delivering an exceptional applicant experience to help our customers compete for talent and manage human capital related risk. And lastly, we completed the previously announced acquisitions of Corporate Screening and MultiLatin during Q4, and after the quarter close, we acquired Form I-9 Compliance, which adds new Form I-9 and E-Verify employment eligibility compliance solutions to our product suite. Through these acquisitions, and our UK Screening Business acquisition last March, all of which have performed ahead of expectations, we have demonstrated a capability and discipline around executing our M&A strategy, integrating and growing acquired businesses. We will continue to seek acquisitions that align with the needs of our customers, our M&A strategy, and that are accretive to our business. Next, on Slide 5, I would like to provide a company snapshot as of year-end 2021. Our technology -- our leading technology solutions for screening, verification, safety and compliance related to human capital, help our customers navigate the increasingly competitive, complex and high volume hiring market. Our technology, automation and proprietary databases differentiate First Advantage and helped us deliver 40% revenue growth and 54% adjusted EBITDA growth in 2021 versus 2020 a year in which we recorded 6% revenue and 19% adjusted EBITDA growth despite the impacts of the COVID pandemic. We accomplish this through our core global technology platform, automation, and growing in-house proprietary databases that now include more than 616 million records. Our integrations with more than 850 third party data providers, along with our proprietary data and algorithms, enable us to serve our key industry verticals with superior speed and accuracy. Automation, machine learning and artificial intelligence are central to our product strategy. We have been pioneers in using these technologies to do things better, faster and more cost effectively, resulting in improved customer experiences, faster turnaround times, and impressive growth and margin expansion. These product innovations resonate with our customers as they execute strategies to hire large volumes of applicants during The Great Onboarding. We serve a large total addressable market of more than $13 billion, which is growing and presents a tremendous amount of whitespace and market share expansion opportunity. Our more than 33,000 active customers include over half of the Fortune 100 companies, more than one third of the Fortune 500 companies, and a total of 189 enterprise customers, up from 141 a year ago. We enjoy long tenured relationships among our customer base, averaging 12 years across our top 100 customers, as well as a high growth retention rate of approximately 96%. In 2021, we completed approximately 93 million screens, up from 75 million a year ago, which demonstrates our scale and impressive growth. On our peak volume day in 2021 we completed over 450,000 screens globally. We are committed to environmental, social, and governance initiatives that align with our corporate culture, drive value for our stakeholders and further differentiate us as we are pleased to share that our inaugural ESG report will be published later this year. Moving on to Slide 6, and our sustainable competitive differentiators. Our verticalized go to market strategy enables durable growth through long-term customer relationships, diversified exposure to growing resilient industry sectors, and a new customer acquisition and upsell, cross-sell flywheel. Each vertical contains subject matter experts and designated new customer sales, customer success and solution engineering teams that together deliver consultative sales, drive vertical-specific innovation, and uncover cross-sell opportunities. We believe that our superior new logo and upsell, cross-sell sale sales engine can drive continuative share gains. Our differentiated and embedded technology provides mission-critical solutions in an increasingly complex market. Our investments in technology and automation drive faster turnaround times and increased accuracy, which are critical customer needs in high volume hiring operations. This strength is a key competitive advantage that can't be easily replicated and helps to extend our leadership position. We have long-standing deep customer relationships across a wide variety of highly attractive industry verticals and growing enterprise customers. This allowed us to grow during the challenging economic conditions of 2020 and we expect it will continue to position us for growth through future economic downturns. Additionally, as a result of these relationships, our base growth has fueled overall growth well in excess of our long-term targets. We believe our large customers are well positioned for durable long-term growth, have complex and diverse global operations, and as a result have the highest demand for our products and solutions. Our large and growing proprietary databases are keys to our fast and efficient screens, as well as product differentiation and coverage. These databases create cost efficiencies through the avoidance of third party cost and reuse of verifications. This results in higher margins, cost savings for our customers and a better experience for customers and applicants. We are an established global leader in a large, fragmented and growing market. Between our trusted global brand, scale and technology, we believe we are in a strong position to continue to outperform the market. And lastly, our superior balance sheet and adjusted EBITDA margins, as well as strong cash flow generation, are supported by our resilient and consistent financial model. This provides us the financial capacity and flexibility to invest in growth, innovation, and M&A. Turning to Slide 7 and our key strategic focus areas for 2022, we will continue to focus on driving organic growth within key verticals supported by deep customer relationships, our focus on enterprise customers and the success of our verticalized go to market strategy. In 2022, we expect to see continued momentum across both new and existing customers in all of our key verticals. We will also continue to invest in product innovation, technology and automation to fuel long-term organic growth and margin expansion. We will continue to grow our international business, which we expect will extend our position as an international market leader. The two international acquisitions we completed in 2021 have performed ahead of expectations and we see continued growth opportunities for them throughout 2022, including upsell and cross-sell from existing First Advantage customers as well as new customer additions in these regions. And finally, we have a very active M&A pipeline across regions, verticals and business lines and we will continue to evaluate acquisition opportunities that will be accretive and aligned with our strategic priorities. Turning to Slide 8, I'd like to discuss three important growth accelerators for our business. First, we are focused on product innovation to stay on the leading edge of technology and customer needs. We prioritize investments in product innovation, automation, and cloud native technologies that help us create an optimal customer and applicant experience. To help our customers succeed in The Great Onboarding, we focus on creating a quick and easy mobile first AI embedded applicant experience and apply machine learning, artificial intelligence and real time analytics to help customers hire smarter and onboard faster. Our design principles are centered around users, a diverse ever changing population of job applicants, and professional users who increasingly expect world class technology, ease of use, and speed at every step of the hiring process. We are excited about upcoming enhancements to the profile advantage applicant experience, which will further extend our lead in supporting customers with The Great Onboarding. Second, as you have seen, we seek selective acquisition opportunities to bolster our technology and vertical capabilities, expand into new markets and gain access to new customers. Our acquisition playbook is strategic, customer centric, and focused on accretive transactions and growth. Third, we pursue strategic partnerships to expand our market coverage, deliver product innovation, enhance our product offerings and/or strengthen our proprietary databases. These strategic partnerships allow us to respond quickly to the changing needs of our customers with solutions that benefit them immediately and without requiring substantial financial investments. A recent example of this is our digital identity services partnership with UK based Yoti, where we provide an integrated solution that offers customers leading edge digital identity technologies that meet the changing regulatory requirements, and job applicant identity needs. Additionally, our partnerships often include sharing a joint go to market strategy that enables cross promotion of our services and with certain selected partners, such as our recent Xref reference checking and identity verification solutions partnership, we can integrate a partner services directly through the First Advantage technology platform. Before taking a closer look at our product innovation, I'd like to highlight our Annual User Conference Collaborate, the industry's largest and longest running gathering of customers, partners and thought leaders. Collaborate 2022 navigating new horizons will take place in April in Las Vegas. Our invitation-only annual conference provides participants with an opportunity to benchmark against best practices and gain practical real world guidance on current HR, talent acquisition and risk compliance trends. The keynote speaker this year is Daymond John, the Founder and CEO of FUBU, and star of ABC's Shark Tank. Moving to Slide 9, I'd like to highlight one of our recent technology innovations. Our enhanced verified solution comprises our proprietary database of more than 36 million records, and our intelligent verification technology that together power our education and employment checks. Verified is transforming the way customers do any kind of verification through a combination of our API powered partner ecosystem. Rich internally developed proprietary data, machine learning technologies, innovative new data sources, and traditional sources when required. This differentiated solution allows employers to instantly verify their applicant's employment, education, and more optimizing verification for accuracy and speed, which are the highest priorities for our customers. By year end, we expect to expand our API ecosystem to enable instant verification in many regions of the world and to verify our applicants in near real time. We can apply our proprietary machine learning to search more sources, and increase the accuracy and speed of searches through our API ecosystem instantly accessing the latest and highest quality information available to us. This technology innovation is a testament to our ability to continue to evolve in ways that address the major trends impacting our customers and their applicants, driving our ability to enable our customers to hire smarter and onboard faster. Next, I will turn the call over to our CFO, David Gamsey, to give more detail on our results and discuss our 2022 guidance. David?

Thank you, Scott. Good morning, everyone. Now turning to Slide 11, fourth quarter revenues of $212.5 million represented 35.8% growth from the prior year quarter, of which 30.3% was organic growth. It is worth noting that this growth was on top of a strong Q4 2020 which was 24% higher than Q4 of 2019. As Scott mentioned, our financial performance remains strong throughout 2021 and thus far into 2022. Of our total year-over-year revenue growth in Q4 revenues from our existing customer base contributed $39.6 million, driven by robust hiring volumes, increased screening demand and continued upsell and cross-sell performance. Revenues from new customers contributed $7.7 million. Our acquisitions of Corporate Screening and MultiLatin, both completed at the end of November, as well as the UK Screening Business, which we acquired at the end of Q1 2021, contributed revenues of $8.7 million in total during the quarter. Also included in our Q4 revenues was a small foreign currency benefit of $80,000. Following the close of Q4, we completed the acquisition of Form I-9 Compliance in January, which generates annual revenues of approximately $5 million. Adjusted EBITDA for the quarter was $69.4 million, a 55.5% year-over-year increase, reflecting flow through from higher revenues as well as margin expansion that benefited from continued advancements in automation, increased use of proprietary databases, improved operating efficiencies, cost discipline and G&A leverage. This is after the absorption of incremental public company costs and new investments. Our adjusted EBITDA margin of 32.7% increased 415 basis points year-over-year. Currently, inflation is having only a marginal impact on our cost structure. We are seeing some wage inflation and that has been included in our financial guidance for 2022. Adjusted net income increased 88% from $24.7 million in Q4 2020 to $46.5 million in Q4 2021. Adjusted diluted EPS was $0.31 per diluted share in Q4 2021, increasing from $0.19 per diluted share in the fourth quarter of 2020 an impressive year-over-year increase of 63% even after considering the increase in shares outstanding attributable to our IPO. In addition to the growth factors just mentioned, results benefited from lower outstanding debt and interest rates, which together lowered interest expense to $3.1 million in the fourth quarter of 2021, including a favorable mark to market adjustment of $1.4 million related to our existing interest rate collar. Utilizing our interest rate collar, approximately 50% of our long-term debt is capped with a 1.5% one month LIBOR rate through February 2024, creating resiliency in the current rate environment. The adjusted effective tax rate for the quarter was approximately 25.3%, consistent with the 25.7% in the prior year quarter. Turning to Slide 12, revenues for the full year were $712.3 million, representing 39.9% growth from the prior year, of which 35.1% was organic growth. This followed approximately 6% year-over-year growth in 2020. We generated 84% of our revenues from the Americas, which includes the United States, Canada and Latin America, and 16% from international markets. Of our total year-over-year revenue growth, revenues from existing customers contributed $139.4 million, driven by a strong broad based recovery in demand as compared to 2020, which was negatively impacted by the COVID-19 pandemic, increased revenue growth in key verticals and geographies, and ongoing strength in upsell and cross-sell. Revenues from new customers contributed $39.1 million and acquisitions contributed $24.6 million. Also included in our full year revenues was a foreign currency benefit of $1.6 million. Adjusted EBITDA for the year was $226.3 million, a 54.2% year-over-year increase consistent with the Q4 drivers previously discussed, including flow through from higher revenues and margin expansion from continued advancements in automation, increased use of proprietary databases, improved operating efficiencies, cross discipline, and G&A leverage. This is after the absorption of a half years worth of public company costs and new investments. Our adjusted EBITDA margin of approximately 32% increased 294 basis points year-over-year. Adjusted net income for the year increased 117% to $142.4 million. Adjusted diluted EPS increased 102% to $1.01 per diluted share in 2021. In addition to the growth factors just mentioned, results benefited from lower outstanding debt and interest rates. The adjusted effective tax rate for both 2021 and 2020 was approximately 25.7%. We are very pleased that in our first year as a new public company, we have been able to beat and raise every quarter on revenues, adjusted EBITDA and adjusted net income. Next, on Slide 13, you will see our quarterly revenues going back to 2019. We have consistently grown revenue year-over-year, even in 2020, which saw the most extreme macroeconomic headwinds caused by the pandemic. As previously mentioned, we have now delivered six consecutive quarters of double digit revenue and adjusted EBITDA growth and we expect to continue to do so in Q1 2022. Slide 14 highlights our track record of expanding adjusted EBITDA and margins. Over time, our margins have improved as we continue to expand our automation and proprietary databases and drive greater operational efficiencies. These advancements help grow margins and just as importantly, improve turnaround times, quality and customer experience, which are critical requirements and buying criteria for customers. As their business further grows and scales, we continue to intensely focus on enhancing operational excellence and controlling operational costs while maintaining a variable cost structure that can accommodate demand fluctuations. We employ a disciplined balance between cost efficiencies, and strategic investments, as we continue to leverage our efficient G&A infrastructure while investing in product, technology, sales and customer experience. Turning now to cash flow, leverage and capital allocation on Slide 15. In Q4, operating cash flows increased 84% versus the prior year quarter to $64.8 million, driven by increased profitability related to the company's revenue growth. Operating cash flows for the full year more than doubled to a robust $148.7 million. During the quarter, we spent $6.1 million on purchases of property and equipment and capitalized software development costs. We ended the year with total debt of $564.7 million in cash of approximately $293 million. Based on full year 2021 adjusted EBITDA of $226.3 million, we had a net leverage ratio of 1.2 times at December 31, 2021. This was after funding approximately $49 million for our three acquisitions in 2021. We also have $100 million dollars of borrowing capacity under our revolving credit facility with no outstanding balances under this facility. Let me also remind you of our capital allocation priorities. First, we continue to evaluate additional acquisition opportunities that are expected to be accretive and align with our strategic priorities, including adding vertical capabilities, expanding internationally, or adding complementary services, data or technologies. Second, we also continue to pursue opportunities to drive long-term organic growth through our investments in technology, automation, and product innovation, as well as the sales, solution engineering and customer success functions. Third, we believe it is important to maintain a strong balance sheet, conservative capital structure, and a flexible leverage profile. We expect to continue to fund future acquisitions first from available cash on the balance sheet. And finally, this balance sheet strength and flexibility will enable us to evaluate possible new alternatives to maximizing shareholder value. We continue to review all such possibilities on an ongoing basis. Next, Slide 16 summarizes our guidance for the full year 2022. We expect to generate full year 2022 revenues in the range of $813 million to $828 million, resulting in approximately 14% to 16% year-over-year revenue growth with organic growth of 10% to 12%. Our 2022 revenue guidance assumes that overall macroeconomic conditions, including job turnover, new job additions and hires, which were accelerating over the course of 2021 will maintain at similar levels to those we are experiencing today. Specific to our business and customer base, our guidance also assumes ongoing strength in hiring and screening demand across our key verticals and large enterprise customers, given their diverse in-market exposure and attractive market positions. We expect excellent customer retention in line with our historical performance and successful execution of upsell and cross-sell strategies and robust new logo additions. We could experience even higher revenue growth rates if our customers accelerate their screening and hiring growth from recent levels and overall velocity across the job market exceeds our expectations. As we speak to you today, with only a week left in the first quarter, I am excited to share that we are generating top line year-over-year growth in the high 30% range for Q1 2022. We anticipate our 2022 adjusted EBITDA will be in the range of $250 million to $257 million, driven by continued strong flow through from incremental revenues, increased automation, additional efficiencies, and operating leverage, partially offset by additional growth investments and product innovation, technology, and go-to-market resources, as well as public company costs and a lower margin from acquisitions. These latter two items, which impact our adjusted EBITDA year-over-year growth rate by approximately 300 to 400 basis points are already included in our guidance. The margins of our acquisitions reflect their legacy business mix and cost structure. And while they're coming in at lower margins in 2022, keep in mind, this was also reflected in our purchase price. We are driving operating leverage in these businesses and over time we expect the margins to grow. As you know, we have a strong track record of driving operating leverage in our core business, and we expect to do the same with our acquisitions. We maintain ample flexibility and agility across our cost structure so that we can respond quickly to various scenarios, including the ability to ramp up capacity to meet higher than expected demand. This performance will further extend our superior adjusted EBITDA margins, high quality of earnings, and strong cash flow generation. We expect our 2022 adjusted net income to be in the range of $156 million to $161 million due to all the factors I just mentioned, in addition to the favorable year-over-year impact of lower outstanding debt. Additionally, to assist with several modeling inputs, in our guidance, we are assuming capital expenditures, which include purchases of property and equipment and capitalized software development costs in the range of $28 million to $30 million, stock compensation expense of approximately $7 million, interest expense of approximately $24 million, including amortization of financing fees, G&A net of intangible amortization of approximately $22 million, and adjusted effective tax rate in the range of 25% to 26%, and fully diluted shares outstanding of approximately $153 million. We had U.S. Federal net operating loss carryforwards of approximately $120 million as of December 31, 2021 and we expect our cash tax payments to be between $18 million and $22 million for the full year 2022. On foreign exchange rates, we have seen a further strengthening of the dollar in recent weeks and have reflected this in our guidance as a negative foreign currency impact of 55 to 70 basis points on revenues are in the range of $4 million to $5 million for 2022. Based on current trends in our business, ongoing dialogue with our customers, regarding their growth plans and hiring forecasts, and internal growth initiatives and outlooks, we maintain a high degree of confidence in our full year 2022 guidance ranges as presented. Finally, I'd like to provide additional color on the quarterly phasing of our 2022 guidance, given the timing of this earnings release. Based on January and February actual financial results to date, we expect Q1 year-over-year revenue and adjusted EBITDA percentage growth to be in the high 30% range. It's important to note that our Q1 2022 growth rate is particularly outsized compared to Q1 2021, during which our international businesses had not yet rebounded from the impacts of the pandemic and the overall rate of growth across the job market and our customer base was still accelerating. Our international business began to ramp back up beginning in March, 2021 and has sustained strong performance in growth rates ever since. We expect year-over-year revenue growth for Q2 in the range of 12% to 13% of which 9% to 10% is organic, keeping in mind that after Q1, we will have lapped our UK acquisition. In the second half of 2022, we expect our percentage growth rates to moderate somewhat as we cycle over very strong comps of 38% growth in the second half of 2021, particularly in the fourth quarter. Regarding the phasing of adjusted EBITDA margins, we expect Q2 adjusted EBITDA margins to be in the range of 30% to 31%. We expect our margins to increase in the second half as we grow revenues and lap public company costs putting our full year adjusted EBITDA margins at approximately 31%. That said, we could see upside if the current robust trends accelerate, exceeding our guidance assumptions, as well as our customer forecast. And with that Scott, I'll turn the call back over to you.

Thank you, David. For the key reasons we summarized on Slide 18, we are very excited about the bright future we see for First Advantage. We are a global leader in a large fragmented and growing market. We have built an impressive and loyal customer base across attractive industry verticals due in large part to our verticalized go-to-market strategy. Our investments in automation, artificial intelligence and machine learning are enabling our customers to hire smarter and onboard faster during The Great Onboarding. Our differentiated and embedded proprietary technology provides customers with mission-critical products and solutions. We continue to expand our proprietary databases, extending our competitive advantage through product differentiation, faster turnaround times and cost efficiencies. We expect screening market growth will continue to be fueled by macroeconomic tailwinds and job market trends. For investors, our bright future is reinforced by strong cash flow generation that is driven by revenue growth and margin expansion from our attractive and resilient financial model. At this time, we'll ask the operator to open the call for your questions.

Thank you. [Operator Instructions] Our first question comes from the line of Shlomo Rosenbaum with Stifel. Your line is now open.

Good morning. Thank you very much. I want to probe the, a little bit on the revenue growth, it looks like there was strength just all around the business, revenue growth, margin expansion, all the way to flow through to cash flow. I know, you mentioned that it was broad based, but are there any particular verticals of kind of notable strength where you had more strength in this vertical than some of the other ones, like I know you guys were strong in last mile transportation and anything to kind of call out over there?

Well shlomo, first of all thank you for your question. We're glad you're here this morning. As you said, we had broad based growth across all of our verticals, and we had a very strong bounce back in our international operations. So we're very fortunate that we weren't relying on any one particular vertical, but it was in fact very broad based.

Great, okay. And what of your competitors mentioned this week that they were seeing more of an adoption of monitoring services? So those are post-hire monitoring services. Is this something that you guys are noticing as well?

Go ahead, David. Yes, no, David, go ahead.

Yes, go ahead, Scott.

Shlomo, we're definitely seeing an uptick in our pipeline for monitoring solutions. And I think as we've discussed before, this is a product that requires a little bit of education and change management, and we’re definitely starting to see an uptick in deal flow.

Great. And how noticeable is that just to follow up on that, is this a potential to be like kind of a real growth driver over the next several years?

We've always believed that's to be the case. It's been a slower adoption rate than initially thought. But we really feel and we can definitely see an impact in the pipeline. So we believe it will be a strong growth driver for us in the future. It's just starting to get some decent traction.

Great, thank you very much.

Thank you. Our next question comes from Ashish Sabadra with RBC Capital Markets. Your line is open.

Thanks for taking my questions. Solid results and good guidance. My question is focused on the new customer. Looks like those contributed slightly over 5% of revenue growth in 2021. I was wondering if you can talk about how that's trended historically? And then if you can also talk about the pipeline for new wins in 2022 and how should we think about the new business wins in 2022 and going forward? Thanks.

David, you'll get that one?

Sure. So, as we've given long-term guidance relative of to a number of our revenue drivers that include our base growth, upsell and cross-sell and new logo. And our new acquisitions this year were right in line with their long-term targets. They'll fluctuate a little bit between upsell, cross-sell and new logo. The key driver this year, and in 2022 seems to be base growth. Everything else seems to be falling in line with the long-term targets, but our base growth has been substantially stronger than on a historical basis.

That's very helpful color and maybe just drilling down further on Verified, so thanks for providing that overview of the Verified solution. I was wondering if you can talk about the penetration of that solution among your existing customer base, but also if you can talk about some of the other products like RightID and XTDForce, the penetration for all these products among the customer base, also how that's helping you with the new customer win front as well? Thanks.

Yes. So it's hard to, we're not going to give product by product revenue guidance here. It's really hard to carve out on Verified because it's actually built in and embedded into the workflow. So you need to think of it as any time a customer is placing a verification order through us, it is going through Verified first. So it's really hard to say what revenue that generates and things like that, but the adoption of it is obviously pretty big because it's already embedded into the workflow.

Yes.

Yes, sorry?

Sorry. Again, that's what I was trying get to. So it looks like it is fully penetrated among all your customer base and similarly on the other products, so I just wanted to make sure that those are fully penetrated among your customer base. Sorry, didn't mean to interrupt you Scott.

Yes, no, that's fine. That's fine. And you asked about XTDForce. We're seeing some great penetration with that product is really, we're really pleased to see where that product has grown to. So I would say that product is now on a track toward maturity based off of the revenue and adoption there. On RightID, I mean, I think you can kind of lump all ID, verifications and identity products together. It's still early days for them. RightID has been out in the market now for actually, well over a year. It's a great product. We first launched it for our resident business. It's now being adopted across other sectors. But I think, when you look at our relationship and partnership with Yoti, the UK based digital identity product and RightID, I think you're talking about state-of-the-art technologies, great future potential impact. And we're certainly optimistic about growth prospects, but we are not expecting significant revenue contribution in 2022 from either one of those products.

That's very helpful color. Thanks once again and congrats on solid results.

Thank you. Our next question comes from Hamzah Mazari with Jefferies. Your line is open.

Hi, this is Mario Cortellacci filling in for Hamzah. Could you just maybe talk about the international opportunity, just how big that is for your business longer-term? And then also, could you just talk about any structural differences in that market that could impact its ability to grow even faster?

Could you just restate what the question was about international? I missed the very first the beginning of it.

Yes. Sorry, the phone broke up. Could you just talk about just how big the international opportunity is and or how big that could be for your business over time? I think it says in the presentation, 16% of revenue is international today. Could that be 50% one day or and then just kind of touching on like the structural differences between the U.S. and the international market, is there anything internationally that prevents that business from growing even faster or could have a different growth rate than the U.S. market?

Yes, okay, so got it. So we're certainly bullish on the international market. If you look at the $13 billion total addressable market and with that $7 billion of whitespace, a lot of that whitespace is in the international sectors. And the reason it's in the international sectors is really because of maturity. If you think about the maturity of the background screening industry, it's obviously very mature in North America and then still in maybe early stages in places like APAC and other areas. So we're definitely bullish on the growth potential in our international business and we're certainly looking to invest in that. But at the same time, the U.S. is the big revenue driver here. So even if international grows at a really nice rate, it's got a long way to go to get into the realm of what we're seeing out of North America. So, although we're bullish on it, I don't see those percentages dramatically changing in the future, but we do expect nice growth.

Great, thank you. And then just for my follow up and I'll turn it over, could you just remind us what percent of your data that you're pulling currently comes from your internal proprietary databases? And also where can that go over time? So for example, could that be 80% of the data that's pulled in the long-term, or is there any structural reason why that might not be feasible?

Yes. And that the, we certainly don't measure it that way. So we're not going to be able to give you an answer on that, because a lot of our, again a lot of our data is embedded in workflows and not able to carve out and say, okay this percentage is this, this percentage is that. The good news is, the databases continue to grow. We're up to 616 million records across the big two proprietary databases that we have, but there's really no way for us to tell you what percentage that is of total data.

Understood, thank you very much.

Thank you. Our next question comes from Heather Balsky with Bank of America. Your line is open.

Thank you for taking my question. I was hoping you could -- could you talk about your macro outlook for 2022 in particular, is the strong labor and I guess labor demand environment, and especially coming off what we saw in 2021, just your confidence level that it can persist? And you talked about upside to your numbers if demand accelerates further, I guess what could be a catalyst that might accelerate demand from here? Thanks.

David, do you want that?

Sure. So, I mean, so Heather first, we believe that there's been a fundamental shift in job trends and in generational preferences. We do look at the JOLTS data, with quits being 4.3 million over 11 million job openings, hires over 6 million. It's been running at those rates for the last several months. That is a good indicator relative to our base growth. That's really good for us. We like turnover. We like worker mobility. We like the fact that people are work, switching jobs more frequently, that they have multiple jobs and we're doing more screens per hire as a result of that. We're also very fortunate that we have some very resilient verticals, and all of that could help drive additional growth and upside to our guidance. But we think that's here to stay and that these are in fact fundamental shifts.

That's helpful. And one other question, we're hearing about the tight labor market and a potential risk of people not being able to even find people to hire, have you seen that your customer base, is that do you think that's a risk for your business or how are you thinking about that going into 2022?

What we've seen is most of our clients are on a constant hiring basis. So before where they would hire up for certain seasonality or certain times of the year, that has really smoothed out, because they're constantly hiring to backfill open positions and to make sure they don't get caught short on labor or to backfill where they are currently short.

That's really helpful.

Heather, yes, we're definitely seeing our customers bringing on people earlier than normal in anticipation of higher attrition on their end. So we're definitely seeing some different hiring practices and again, I think it's great for the business.

Great, thank you again. I appreciate it.

Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is open.

Yes, thank you. Good morning. I just, so competitively if you look at the big three all seem to be growing pretty nicely. If we were to, and you mentioned a lot of the growth revenues coming from the base growth, so if you were to go down to the mid tier players or even some of the tech players, I was just wondering if you had a sense of how the industry is doing versus in your growth rates, just to get a sense of how you're looking at the intensity of competition today?

Yes Manav. We really don't know. We can, obviously we know anecdotally, but there's not a real way to measure that. We are having a lot of success competitively against the small and midsized players, but it's really hard to judge their growth rates, given the size of their companies, lack of them, being public and things like that. We -- I will tell you the competitive landscape remains competitive, but we continue to grow organically and take additional share away from the competitors. We feel the demand for our solutions is growing. We've got the favorable macro tailwinds that we just talked about with the jobs and the quit rates and things like that. It's a, I think it's a, it's a pretty bullish picture.

Got it. And David, thank you so much for the quarterly cadence and color, just curious, if you could help us on the M&A side. So, the high 30s growth rate for the first quarter, how much of that is M&A and then kind of how it phases for the rest of the year as well would be helpful.

So relative to M&A in Q1, that will contribute roughly 5% of that growth. That will get smaller starting in Q2 once we lap the UK Screening acquisition, so not a tremendous amount. It's really organic that's driving the growth right there.

Okay. And then just last one, David, what was the base growth for the full year? And I apologize, I missed that in your prepared remarks.

It was well over 20%.

Got it, thank you.

Thank you. Our next question comes from David Togut with Evercore ISI. Your line is open.

Thank you. Good morning. Just taking a look at your 2022 guidance, you appear to be guiding for EBITDA margin contraction, although modest contraction. Can you walk through the puts and takes on your margins -- your margin assumptions for 2022, especially after posting over 400 basis points of EBITDA margin expansion in Q4? And in particular, could you also talk about the impacts of inflation on revenue, i.e, pricing power and what are your assumptions for inflation on the cost structure, especially your wage expenses? Thanks.

Sure. So let's start with margins. Our overall margin for 2021 was 31.8%, which by the way is far and away stronger than anyone else in our industry by far. Q4, which you honed in on at 32.7% is always their strongest quarter. So you can't just look at that. You have to look at it on a year-over-year basis. Now what we are growing over relative to 2022 is the acquisitions that we made, which were at lower margins and there's still synergies that will be realized from that. So that's upside to really 2023 and the second half of 2022, and public company costs, we'll begin to lap those in Q3. All of those will lead to higher margins in the second half of the year. So it's really from those acquisitions and those other factors.

Thanks for that. And then if you could just talk through your expectations for inflation impacts on revenue and your cost structure, do you have the ability to increase prices in this environment? If so, how much? And are you seeing significant wage inflation in your cost structure this year?

So we've seen some wage inflation in our cost structure. We've budgeted for that and we've included that in our guidance. We do expect to have to pay a little bit more this year than we have historically, and we will do so, because we want to maintain our stable employee base and we've had very modest turnover to date, so we feel very good about that. As far passing on prices, any kind of third party out of pocket costs, we have the right to pass those through and we do. We've not seen a lot of that outside of one particular vendor. Other than that, it's been pretty modest and pretty consistent. We also do have the right to pass on price increases to our clients, contractually relative to CPI increases. We will do that on a selective basis, but not on a broad based basis.

Understood, thank you very much.

Thank you. Our next question comes from Andrew Steinerman with JPMorgan. Your line is open.

Hi, this is Alex Hasson [ph] for Andrew Steinerman. I want to go back to the proprietary databases that you guys discussed earlier on the National Criminal Records File and on the Verified side. Can you maybe give us a little bit of color specifically as to what is in that and when you mean 36 million records, can we look at that maybe relative to the non-farm payrolls numbers? And then I'll have a follow up question as well.

Interesting question. So on Verified, what that database includes is previously verified employment and education. So we've got 36 million records. So when a customer asks us to verify someone's employment or education, we then do not need to go to a third party to do that if we have it in that database. The National Criminal Record File obviously extremely large database and that is going to be a database of prior criminal records. Again, this gives us a really nice database to leverage for really giving what we feel is a very comprehensive, data search on somebody. So we combine that with a public record search and we've got a very comprehensive high quality data search.

Yes. The second part of my question pertained to coverage versus say, non-farm payrolls. Can you give us a sense of what percentage maybe of U.S. employees you have in your database at present?

We really can't give you that sense, but we do have, interesting data around leading jobs indicators and things like that. So we do have a very good sense of being able to do some prediction on the macroeconomic environment. Maybe that's a discussion for the future, but it's -- we certainly do have good insights based on our ability to see hiring.

Got it. Thank you very much. And then on your pre-employment screening versus other services revenue split, can you maybe update us what that was for 4Q and for 2021 as a whole? And then I'll hop off. Thank you.

David?

We don't really break it out and look at it that way. Although I guess in total you could say pre-employment screening is roughly 90% of revenues as opposed to post-employment screening, and those are kind of rough numbers.

Got it. Thank you so much.

Thank you. And I'm currently showing no further questions in the queue at this time. I'd like to hand the conference back over to Mr. Scott Staples for closing comments.

Thank you operator, and thanks everyone for your questions. We are really proud of our accomplishments in 2021 and we are off to a very good start in 2022 and enthusiastic about the opportunities ahead. We believe First Advantage is very well positioned for future growth, and we will continue to focus on delivering value for our shareholders. Thank you for joining us today and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.