First Advantage Corp Q4 FY2021 Earnings Call

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. 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 want 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'll start with a summary of our fourth quarter highlights. In Q4, we maintained our exceptional financial performance, growing revenues by 36%, supported 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, characterized by speed, accuracy, and a focus on the applicant experience, have enabled customers to effectively find and onboard talent in the rapidly evolving hiring landscape. We experienced strong growth from our existing customers and impressive performance from new customers through upsells and cross-sells, which were driven by our verticalized go-to-market strategy and advanced technology. Customers also sustained the depth and breadth of their screening requirements, enhancing their levels of risk management and security. Additionally, we improved our adjusted EBITDA margin by 415 basis points to over 32% in Q4, thanks to our automation, operational efficiencies, proprietary databases, and operating leverage. We are committed to these strategies to ensure ongoing superior margins. We are seeing favorable macroeconomic conditions both in the U.S. and internationally, driven by various factors, including The Great Onboarding, a new perspective on The Great Resignation, where employees are resigning to seek new opportunities in greater numbers. This trend has presented a significant opportunity for us, and we expect it to continue into 2022 given the momentum towards remote or hybrid work, which lowers barriers to job entry. Furthermore, we believe there is a fundamental shift in job trends and generational preferences leading to increased turnover and higher quit rates, as workers seek flexibility, mobility, and better work-life balance. Additionally, inflation is affecting wages, contributing to these rising quit rates as employees move for better pay. These dynamics emphasize the value of our proprietary technology and automation initiatives, which help customers attract talent and manage human capital risk. Lastly, we completed the acquisitions of Corporate Screening and MultiLatin during Q4, and post-quarter, we acquired Form I-9 Compliance, adding new employment eligibility compliance solutions to our product suite. These acquisitions, along with our UK Screening Business acquisition from last March, have exceeded our expectations and demonstrate our effectiveness in executing our M&A strategy. We will continue to pursue acquisitions that align with our customers' needs, our M&A strategy, and enhance our business. Now, I will provide a company snapshot as of year-end 2021. Our leading technology solutions for screening, verification, safety, and compliance related to human capital assist our customers in navigating the increasingly competitive and complex hiring marketplace. Our technology, automation, and proprietary databases have set First Advantage apart, enabling us to achieve 40% revenue growth and 54% adjusted EBITDA growth in 2021 compared to 2020, a year in which we recorded 6% revenue and 19% adjusted EBITDA growth despite the impacts of the COVID pandemic. We accomplished this through our global technology platform, automation, and growing in-house proprietary databases, which now contain over 616 million records. Our integrations with more than 850 third-party data providers, combined with our proprietary data and algorithms, allow us to serve key industry verticals with unmatched speed and precision. Automation, machine learning, and artificial intelligence are integral to our product strategy. We have been at the forefront of leveraging these technologies to improve efficiency, resulting in enhanced customer experiences, quicker turnaround times, and significant growth in margins. These innovations resonate with our customers, especially as they navigate high applicant volumes during The Great Onboarding. We service a total addressable market exceeding $13 billion, which is expanding and presents substantial growth and market share opportunities. More than 33,000 active customers include over half of the Fortune 100 firms, over a third of the Fortune 500 companies, and a total of 189 enterprise customers, up from 141 last year. We have built long-term relationships with our customers, averaging 12 years across our top 100 clients, and we enjoy a strong retention rate of about 96%. In 2021, we completed roughly 93 million screenings, an increase from 75 million the prior year, highlighting our growth. On our busiest day in 2021, we conducted over 450,000 screenings worldwide. We are dedicated to environmental, social, and governance initiatives that align with our corporate values, create value for our stakeholders, and enhance our differentiation in the market. We are pleased to announce that our inaugural ESG report will be published later this year. Moving on to our sustainable competitive advantages, our verticalized go-to-market strategy fosters growth through long-term customer relationships, diversified exposure to resilient industry sectors, and a flywheel effect of acquiring new customers and upsells. Each vertical is staffed by subject matter experts and dedicated teams for sales, customer success, and solutions engineering that provide consultative sales, encourage vertical-specific innovation, and discover cross-sell opportunities. We believe our strong sales engine can drive continual market share gains. Our unique technology offers mission-critical solutions within a complex market. Our investments in technology and automation enable faster turnaround times and improved accuracy, which are essential for high-volume hiring operations. This strength is a key competitive edge that is difficult for others to replicate and bolsters our market leadership. We have established long-term relationships with customers across various attractive industry verticals, which helped us grow during the challenging economic environment of 2020 and will continue to support our growth during future downturns. Moreover, these relationships have fueled growth significantly beyond our long-term targets. Our significant customers are well-positioned for lasting growth and have diverse global operations, leading to the highest demand for our offerings. Our extensive proprietary databases are crucial for efficient screenings, product differentiation, and coverage. These databases help reduce costs by avoiding third-party expenses and reusing verifications, resulting in better margins and savings for our customers while enhancing their experience. We are a leading player in a large, fragmented, and growing market. With our trusted global brand, scale, and technology, we are confident in our ability to outperform the market. Finally, our healthy balance sheet, adjusted EBITDA margins, and strong cash flow generation are backed by our resilient financial model, which gives us the financial capability and flexibility to invest in growth, innovation, and acquisition opportunities. Turning to our key strategic focus areas for 2022, we will maintain our emphasis on driving organic growth in key verticals, leveraging deep customer relationships, focusing on enterprise customers, and building on our verticalized go-to-market strategy. In 2022, we anticipate continued momentum among both new and existing customers across our key verticals. We will also persist in investing in product innovation, technology, and automation to support long-term organic growth and margin expansion. We aim to enhance our international presence, which we expect will strengthen our status as an international market leader. The two international acquisitions we completed in 2021 have performed beyond our expectations, and we see continued growth prospects, including upselling and cross-selling to existing First Advantage customers as well as new customer acquisitions in these regions. Lastly, we have a robust M&A pipeline covering various regions, verticals, and business lines, and we will keep assessing acquisition opportunities that align with our strategic priorities. Now, I'll discuss three key growth drivers for our business. First, we are dedicated to product innovation to remain at the forefront of technology and meet customer needs. We prioritize investments in product innovation, automation, and cloud-native technologies that optimize the customer and applicant experience. To support our customers through The Great Onboarding, we focus on developing a quick and seamless mobile-first, AI-integrated applicant experience, using machine learning, artificial intelligence, and real-time analytics to help customers improve hiring and onboarding efficiency. Our design principles prioritize user experience for a diverse and evolving applicant population and professional users who expect top-tier technology, usability, and speed at every step of the hiring journey. We are eager to introduce upcoming improvements to the profile advantage applicant experience, which will further bolster our support for customers during The Great Onboarding. Second, we actively pursue selective acquisition opportunities to enhance our technology and vertical capabilities, expand into new markets, and reach new customers. Our acquisition strategy is strategic, customer-focused, and emphasizes accretive growth. Third, we seek strategic partnerships to broaden our market reach, drive product innovation, enhance our offerings, and strengthen our proprietary databases. These partnerships allow us to respond swiftly to customer needs with immediate solutions that don't necessitate substantial financial outlays. A recent example is our digital identity services collaboration with Yoti, a UK firm, where we provide an integrated offering that delivers advanced digital identity technologies, complying with changing regulatory requirements and job applicant identity needs. Additionally, some partnerships include joint go-to-market strategies, enabling cross-promotion of our services; with specific partners, like our recent collaboration with Xref for reference checking and identity verification, we can integrate their offerings directly into the First Advantage technology platform. Before delving deeper into our product innovations, I want to highlight our Annual User Conference, Collaborate, which is 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. This invitation-only conference provides participants an opportunity to benchmark against best practices and gain insights on current HR, talent acquisition, and risk compliance trends. This year’s keynote speaker is Daymond John, Founder and CEO of FUBU and a star of ABC's Shark Tank. Moving on, I’d like to highlight one of our latest technological innovations. Our enhanced Verified solution combines our proprietary database of over 36 million records and our intelligent verification technology, transforming how customers perform verifications through our API-powered partner ecosystem. This differentiated solution enables employers to quickly and accurately verify applicants' employment, education, and more, addressing the top priorities of our customers. By year-end, we expect to broaden our API ecosystem for instant verification across many regions globally, allowing near real-time applicant verification. We will leverage our proprietary machine learning to access more sources and improve verification speed and accuracy using the latest and highest quality information available. This technology innovation exemplifies our ability to adapt to the major trends affecting our customers and their applicants, enhancing our customers' ability to hire smarter and onboard faster. Now, I will turn the call over to our CFO, David Gamsey, for more details on our results and to discuss our 2022 guidance.

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, cost discipline, and G&A leverage. This is after the absorption of a half year's 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 an 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.

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. 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 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 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. 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 to the 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 to 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. 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, 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. Could you discuss your macro outlook for 2022, particularly regarding the strong labor demand environment? Given what we experienced in 2021, how confident are you that this trend will continue? You mentioned the potential for upside in your numbers if demand increases further. What factors could trigger an acceleration in demand from this point? Thank you.

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. 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 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%.

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

Thank you. Good morning. Looking at your guidance for 2022, it seems you are expecting a slight contraction in EBITDA margins. Can you explain the factors influencing your margin assumptions for this year, particularly after achieving over 400 basis points of EBITDA margin expansion in the fourth quarter? Additionally, could you discuss the effects of inflation on revenue, including your pricing power, and what your views are on how inflation will affect your cost structure, especially regarding wage expenses? Thank you.

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 as 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 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 cannot provide a precise sense, but we do have interesting data on leading job indicators. Therefore, we can make predictions about the macroeconomic environment based on our insights into hiring trends. This might be a topic for future discussion, but we do have valuable insights from our observations.

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.

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.

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.