Good day, everyone. My name is Chelsea, and I will be your conference operator today. I would like to welcome you to the First Advantage Fourth Quarter and Full Year 2022 Earnings Conference Call and Webcast. Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. Please note, today's event is being recorded. It is now my pleasure to turn the call over to Stephanie Gorman. Please begin.

Thank you, Chelsea. Good morning, everyone, and welcome to First Advantage's Fourth Quarter and Full Year 2022 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 2021 Form 10-K and our 2022 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. I'm joined on our call today by Scott Staples, First Advantage's Chief Executive Officer; and David Gamsey, our Chief Financial Officer. After our prepared remarks, we will take your questions. I will now hand the call over to Scott.

Thank you, Stephanie, and good morning, everyone. Thank you for joining our fourth quarter and full year 2022 earnings conference call. We are pleased with our full year 2022 results in which we set a number of new revenue and profitability records. We grew revenues for the year by nearly 14% and increased adjusted EBITDA by 10% compared to last year when we saw exceptionally high 40% revenue and 54% adjusted EBITDA year-over-year growth. We also generated record operating cash flow of $212.8 million in 2022, growing an impressive 43% versus the prior year. Our record year came despite a soft end to the fourth quarter that resulted from a slowdown in hiring demand in the U.S. that began in late November as our customers became more cautious in their hiring approach driven primarily by the macroeconomic headwinds of ongoing inflation and higher interest rates. The slowdown happened earlier and to a greater extent than we expected. International markets, particularly India and APAC remained sluggish, consistent with what we shared in Q3. However, strong new customer growth, continued upsell and cross-sell momentum and high customer retention rates offset some of this weakness. Sequentially, fourth quarter revenues exceeded third quarter revenues. Revenues flattened out on a year-over-year comparative basis as we cycled over an extremely strong fourth quarter 2021 growth rate of 36%. Despite this, we grew Q4 adjusted EBITDA, further growing from our record quarter in Q4 2021 as we expanded our adjusted EBITDA margins by 40 basis points to over 33% and generated substantial operating cash flows. While job openings, quits, and low unemployment remained favorable, we have seen a slowdown in hiring activity that leads us to expect a lower demand environment in the near term. As we have demonstrated in the past, we have a highly variable cost structure, and we have acted quickly to adjust costs as we have seen demand shift. We also continue to proactively strengthen our mission-critical solutions and product offerings through our thoughtful strategic investments in technology, machine learning, and automation. These investments drive flexibility and agility in our operations, which in turn drives margin expansion and our ability to move quickly as labor markets change. Additionally, these actions have enhanced our capabilities to meet the needs of our customers by providing faster turnaround times, increased accuracy, and a better overall customer and applicant experience. These actions have also enabled us to add to our already robust and diverse customer base across the verticals we served. In 2022, we completed over 100 million screens on behalf of our approximately 33,000 active customers, which includes over half of the Fortune 100 companies and approximately 1/3 of the Fortune 500 companies. We ended the year with a total of 235 enterprise customers, up from 189 a year ago. In the fourth quarter, we booked 7 new enterprise customers, bringing us to a total of 27 new logo enterprise customer wins during 2022 compared to 20 in the prior year. Consistent with our strategic priorities, we are committed to continued investment in technology and automation to drive client satisfaction and new business, which will ultimately result in enhanced shareholder value. We remain highly confident in our ability to weather varying macroeconomic scenarios because of our focus on enterprise clients, our vertical strategy, and our highly variable and lean cost structure. Now turning to Slide 5. From a long-term perspective, we believe that fundamental changes in how people work and apply for jobs are here to stay and are expected to provide tailwinds for our business. These include more frequent job switching and higher churn, which we expect will continue to fuel our customers' hiring needs. These create long-term opportunities for our business and when combined with our product innovation and vertical strategy will continue to propel substantial, sustainable growth for First Advantage and support our long-term growth model. Our verticalized go-to-market approach is a competitive advantage and a key driver of our growth strategy. The majority of our revenues are derived from high-volume, high-velocity customer verticals where an increasingly greater importance is placed on speed and turnaround times, which we continue to deliver through our investments in automation. Our vertical approach and innovative technology offerings provide mission-critical solutions to align with these growing trends. Our vertical strategy further deepens our competitive advantage and differentiates us within our industry positioning First Advantage to meet the needs of the hiring market of the future. Our sales and product teams are also aligned to our key verticals, which drives new logo, upsell, cross-sell opportunities, new product development and geographic customer expansion. This enables us to be subject-matter experts in these industry segments and to use industry-specific data to advise our customers on topics such as leading practices and product optimization. Given the importance of verticalization to our business, we have provided you with our revenue breakdown by vertical on Slide 5 to help you better understand how each contributes to our business. As I mentioned, we grew revenues nearly 14% during the year with broad-based growth across most verticals. Looking at Q4, we saw growth continue in verticals such as transportation and health care, while other verticals saw declines attributable to the macro impact on hiring volumes. We continue to execute well against our new logo, upsell, cross-sell, and customer retention strategies and continue to deliver in line with our historical track record. Overall, we feel we are well positioned to weather a variety of macroeconomic scenarios, due to our large number of high-volume hiring customers across diverse verticals, which we believe continue to maintain favorable growth prospects. Before I turn the call over to our Chief Financial Officer, David Gamsey, for more details on our financial results, I'd like to reiterate that I'm excited about the opportunities ahead for First Advantage. We are well positioned in our industry and have effectively executed our cost savings playbook to address the near-term demand environment. We will continue to focus on driving operational efficiencies, expanding the use of our proprietary databases, and leveraging our G&A infrastructure. Our long-term focus remains on delivering outstanding service to our customers and long-term value to our shareholders. And with that, I will now turn the call over to David.

Thank you, Scott, and good morning, everyone. Let's begin on Slide 7. Our fourth quarter revenues were $212.6 million flat versus the prior year and up 1.8% to $216.3 million on a constant currency basis. This was compared to exceptionally strong revenue growth of approximately 36% in the fourth quarter of 2021. On a sequential basis, revenues grew approximately 3% compared to Q3 2022. In our Americas segment, revenues of $188 million were up 3% from Q4 2021 which is incremental to the strong Q4 of 2021, which was up 26.7%. We saw a slowdown in hiring begin in late November in the U.S. which was more pronounced and earlier than we anticipated. U.S.-based growth, which represents like-for-like hiring within our existing base went slightly negative though we were able to overcome and still achieve growth through our new logo and upsell performance. In total, Americas represented 88% of consolidated revenues in the quarter. In our International segment, revenues of $26.2 million were down 17.6% from Q4 2021 as we cycled over a strong Q4 of '21, which had 83.8% year-over-year organic growth. On a constant currency basis, our Q4 revenues would have been $3.5 million higher or down only 6.6% year-over-year. Demand in our EMEA region continued, offset by lower volumes and negative base growth in our APAC and India regions. Several countries within the APAC region continued to feel the impact of COVID-19 restrictions during the fourth quarter. Most of those restrictions have now been lifted, and as a result, we now expect to see some recovery in these regions, primarily Hong Kong and China in the next several months. In the fourth quarter, year-over-year revenue decline from existing customers was $13.7 million and can be attributed to both our Americas and International existing customer bases. Revenues from new customers contributed a positive $8.3 million or approximately 4% to our year-over-year growth. Upsell was also a positive contributor to our growth. Revenues from our acquisitions contributed $5.4 million during the quarter as we lapped our corporate screening and MultiLatin acquisitions from November 2021. Adjusted EBITDA for the quarter was $70.3 million, an increase of 1.2% compared to Q4 of 2021, during which we grew adjusted EBITDA by over 55%. FX also had an impact on profitability and on a constant currency basis, our adjusted EBITDA would have been approximately $1.2 million higher or $71.5 million. On a sequential basis, adjusted EBITDA grew approximately 10% compared to Q3 2022. Flat year-over-year revenues in a difficult FX environment impacted our adjusted EBITDA growth rate. However, despite these factors, we were still able to expand our adjusted EBITDA margin by 40 basis points year-over-year to 33.1% and an impressive 190 basis points on a sequential basis. As Scott mentioned, we have effectively executed our cost savings playbook to address the near-term demand environment, leveraging our flexible cost structure and removing costs from the business as we saw demand shift. Specifically, we began taking measures to reduce our overall cost structure including rationalization of facilities and selectively lowering headcount throughout the organization to match demand. Given our technology and automation efforts as well as our move to a hybrid working model for our employees, we do not anticipate these costs coming back into the business even as demand grows. Our cost savings approach enables us to continue to remain agile and responsive as the macroeconomic environment evolves in the coming months. Additional headwinds which we had identified and discussed last quarter and which we were able to grow over included year-over-year increases in insurance premiums and third-party verification costs and the mix impact of integrating acquisitions with historically lower margins. Adjusted net income decreased 3.4% to $45 million from $46.5 million in Q4 2021. This was primarily attributable to higher interest expense and an increase in depreciation and amortization associated with investments in the development of our proprietary platform, partially mitigated by our interest-bearing deposits and our interest rate hedge. Adjusted diluted EPS was $0.30 for the quarter. The adjusted effective tax rate for the quarter was approximately 24.3%, consistent with prior periods. Now, turning to Slide 8. Versus the prior year, our full year 2022 revenue increased 13.7% to $810 million or 15.2% to $820.3 million on a constant currency basis. This was in addition to cycling over exceptionally strong revenue growth of 39.9% in full year 2021. In our Americas segment, revenues of $695 million were up 15% from full year 2021 driven by acquisitions and new business growth. In total, Americas represented 85% of consolidated revenues for the year. In our International segment, revenues of $122.6 million were up 7.5% from full year 2021. On a constant currency basis, our International revenues would have been $9.8 million higher or 16.1% year-over-year. The increase in revenue was due to contributions from acquisitions and new customer growth offset by negative base growth in India and APAC in the second half of the year. In total, International represented 15% of consolidated revenues during the year. For full year 2022, year-over-year revenue from existing customers increased by $25.3 million and can be attributed to strength across our Americas business in the first half of the year, offset by the impact of slower hiring and the effects of changes in foreign currencies. Revenues from existing customers in our Americas segment remained positive for the year, but declined in the fourth quarter. Revenues from new customers contributed $35.4 million or approximately 5% to our year-over-year growth. Revenues from acquisitions contributed $37 million during the year. Adjusted EBITDA for full year 2022 was $248.9 million, an increase of 10% year-over-year. Overall revenue growth attributable to new and existing customers primarily during the first half of the year, selective price increases, cost reductions implemented primarily in the second half of the year, acquisitions and cost structure benefits due to increased automation, operational efficiencies and operating leverage were partially offset by those items previously discussed. On a constant currency basis, our adjusted EBITDA would have been approximately $3.4 million higher or $252.3 million. Our adjusted EBITDA margin was solid at 30.7% for the full year 2022. Adjusted net income increased 9.9% and to $156.5 million from $142.4 million in full year 2021. This was largely due to the drivers of our adjusted EBITDA growth offset in part by interest expense and an increase in depreciation and amortization. Adjusted diluted EPS was $1.03 for the year, an increase of 2% year-over-year. Excluded from the adjusted net income calculation is the $11.4 million gain associated with our interest rate swap, which represents the difference between the fair value gains or losses and actual cash payments and receipts. On a pretax basis, this represents $0.07 per share for the full year. We have excluded this positive gain from our adjusted net income from comparability purposes. The adjusted effective tax rate for the year was approximately 24.7%, consistent with prior periods. Slide 9 is included to demonstrate our track record of delivering growth across the business cycle. We are very pleased with our 3-year track record with a total compound annual revenue growth rate of 19%, illustrating the strength of our operating model. Turning to Slide 10. You can see our history of adjusted EBITDA growth and margin consistency. Over the last 3 years, our total compound annual adjusted EBITDA growth rate was 26% with a high quality of earnings. Despite the softening hiring environment in the fourth quarter of 2022 and flat revenues, we still expanded adjusted EBITDA margins 40 basis points to 33.1%, underscoring our ability to manage costs through our dynamic and flexible cost structure. Turning now to cash flow, leverage and capital allocation on Slide 11. We ended 2022 with a record level of cash and cash flow from operations as well as a healthy balance sheet with very low leverage. We continue to prioritize deploying our capital in ways that create the most value for our shareholders, including returning a portion of our cash through our share repurchase program. For full year 2022, cash flow from operations was a robust $212.8 million, up 43% year-over-year due to our strong cash flow conversion which we expect will continue going forward. During the year, we spent $28.5 million on purchases of property and equipment and capitalized software development costs and $60.5 million under our share repurchase program. In the fourth quarter, operating cash flows increased 8% to $70 million. We spent $6.2 million on purchases of property and equipment and capitalized software development costs and $58.3 million under our share repurchase program. We started and ended the year with total debt of $565 million and grew cash and cash equivalents to $392 million, up $99 million year-over-year after funding the Form I-9 Compliance acquisition and after repurchasing approximately $61 million in stock. We also have $100 million in untapped borrowing capacity under our revolving credit facility with no outstanding balances. Based on our full year 2022 adjusted EBITDA of $249 million, we had a net leverage ratio of 0.7x as of December 31. Over the last 12 months, net leverage has declined from 1.2x. Our debt structure has us well positioned for the rising interest rate environment. We have an interest rate collar with approximately 50% of the long-term debt capped at 1.5%, 1-month LIBOR rate through February 2024 and we have no principal payments due before 2027. We further hedged another approximately 20% of our long-term debt earlier this month. Our interest rate exposure on the unhedged amount of our debt is currently offset by our interest earnings on cash deposits. Our strong balance sheet, ample dry powder, low leverage and expectations for continued free cash flow generation enable us to flexibly deploy capital. We continue to evaluate M&A opportunities that align with our strategic priorities, which include adding or expanding vertical capabilities, expanding internationally and acquiring complementary solutions, data or technologies. Using a thoughtful and targeted approach, we will continue to selectively invest in technology, automation, product innovation and sales initiatives that drive organic growth. Additionally, today, we announced that our Board of Directors has increased our existing $150 million share buyback program by an additional $50 million. We believe that at the current stock valuation, share repurchases are an excellent use of our capital. As a reminder, we currently have $392 million of cash on our balance sheet and we generated operating cash flow of $213 million in 2022 and $70 million in Q4 alone. No shares under the existing plan will be purchased from Silver Lake or its affiliates. Through February 23, 2023, we have repurchased $75.7 million of common stock or approximately 5.8 million shares. Including the increased authorization, we have $124 million remaining under the program. Especially in today's environment, we believe it is important to maintain a healthy balance sheet, conservative capital structure and flexible leverage profile. With significant dry powder and consistently strong cash flow generation, we expect to fund future acquisitions from available cash on the balance sheet. We routinely evaluate our capital allocation priorities to achieve a balance between M&A, returning capital to our stockholders and investing in the continued growth of the company to maximize shareholder value.

Thank you, David. I will conclude our prepared remarks today by reiterating my belief that First Advantage is well positioned to not only weather the current macroeconomic environment, but to continue to serve our customers with excellence and to create long-term value. I would like to thank our First Advantage team members across the globe for your efforts in 2022 and for continuing to do an amazing job helping our customers hire smarter and onboard faster. I would also like to thank our investors for your ongoing support. At this time, we will ask the operator to open the call for your questions.

Our first question will come from Ashish Sabadra with RBC Capital Markets.

You highlighted certain areas of strength, but in terms of weakness, I was wondering, are there any verticals or job rules where you saw any significant slowdown in hiring? And how should we think about that continuing particularly in the first quarter and the first half of the year?

Yes, Ashish, thank you for your question. As mentioned in the script, we continue to experience a mix of results across our verticals. While we don’t want to provide specific projections for each vertical, we do expect sustained demand in sectors like transportation and health care, which performed well in Q4 and we anticipate will continue to do so in 2023. However, other verticals and certain regions are showing sluggishness. We prefer not to analyze each vertical individually to keep things straightforward.

Yes. No, understood. And that was very helpful color. And then, obviously, pretty good momentum on the new wins side, the new logos and upsells are helping offset a lot of the weakness, particularly in the fourth quarter. I was wondering if you could talk about the pipeline for new logos and upsell opportunities, particularly in 2023?

Yes, happy to do so. Our 2023 pipeline of new logos is the highest pipeline we've ever had in company history. So we expect new logo and upsell, cross-sell to continue to perform as they've done historically. We're especially bullish on the new logo pipeline in our EMEA markets, which is driven primarily by our new product offering, Digital Trust, which we announced last quarter is getting significant momentum. We have over 100 customers, with whom we have signed contracts, and 40 are now live on that product. So the pipeline in EMEA is extremely strong and the pipeline in the Americas, as I mentioned earlier, is the historically highest it's ever been.

Our next question will come from Kyle Peterson with Needham.

Just wanted to touch a little bit. I know you guys gave some really helpful color on kind of the year-to-date trends in 1Q expectations. But I guess just trying to parse out some of the seasonality versus what you guys kind of started seeing in November, December, as hiring and the macro gotten more challenging year-to-date? Or is what you guys are seeing so far at least when adjusting for seasonality, kind of similar to what you started to see later in 4Q?

We began to notice some weakening around Thanksgiving. Typically, our peak seasonality in Q4 extends to about mid-December, specifically from December 10 to December 15. This year, it ended a bit earlier. We have been continuously engaging with our customers, who have expressed two main points. First, they are adopting a short-term wait-and-see strategy, and second, they see this as a good chance for pruning. Both factors are impacting us somewhat in Q1. However, we maintain regular communication with our customers, and we all believe that conditions could improve in the spring.

Okay. That is helpful, and it makes sense. And just a follow-up on capital allocation. You guys gave some good color on the buyback and been pretty active on that front. But I want to follow up on the M&A pipeline. It seems like there might be kind of some interesting opportunities, and you guys obviously have a really strong cash position, but I guess, how have kind of some of those conversations been going and the valuations gotten even more attractive now that financing and the operating environment might be a little tougher for some of the smaller guys?

Our top priority for capital allocation continues to be mergers and acquisitions. We are eager to pursue deals and increase our activity in this space. However, we are currently observing a reduced number of opportunities. This doesn’t imply a complete absence of deals; there are still prospects available, but some companies are adopting a cautious approach as the situation develops. A significant concern we face in M&A is the issue of valuations, which have not decreased to what we consider realistic levels. We refuse to overpay just to engage in M&A. While there are undoubtedly deals we can pursue, our conversations with various companies are ongoing, and we remain actively searching for opportunities. Nevertheless, the valuations have yet to reach a point we find acceptable. We will monitor how the M&A landscape evolves this year, but it remains our foremost priority.

Our next question comes from Stephanie Moore with Jefferies.

Thank you for the question. I just wanted to focus on the 2023 guidance and kind of the underlying assumption that there's some improvement kind of midyear. Maybe if you could provide a little bit more color on what you're seeing or what kind of gives you confidence in that recovery? Is it kind of new logo expectations in your pipeline, conversations with customers? Any color would be great.

So there are several factors. Please proceed, David.

Okay. I'll start, and you can jump in, how about that? There are several factors that go into it. First of all, we're going to have a lot easier comps in the second half of the year, and we're still given very conservative guidance. So we do think there will be some modest improvement, and that's really going to come from International, we see that recovery taking place towards the end of Q2 and the beginning of Q3. We think most of the U.S. pruning, if you will, will be behind us. And we don't see any kind of hockey stick recovery, but we're not seeing, based on conversations with our clients, any kind of doom and gloom scenario in the second half either.

Yes. I would just add that we are still observing significant changes in the labor market. There are still 11 million job openings and about 4 million people quitting their jobs each month, which has been consistent for nearly 20 months. We have a solid process in place for engaging with our top customers, and we are continuously speaking with them about their businesses and hiring needs. Most of these discussions focus on short-term strategies. Our clients believe, as David mentioned, that it's a good time to make adjustments and adopt a wait-and-see approach for 60 to 90 days. However, their core businesses remain stable, and there is still strong demand for their products and services. Additionally, we are considering insights from economic analysts, which informed our guidance for the year.

Great, that's very helpful. As a follow-up, I apologize if I missed the number. I believe you mentioned some adjustments regarding facilities and a selective reduction in headcount, along with your expectation that these costs are unlikely to return. Could you provide more details on that to help us understand the future benefits?

So as you know, when COVID-19 had changed the way the world operated and did business, we still had a number of facility leases and empty space, we decided to terminate a number of those leases and vacate a number of those premises, and that will contribute about $1.6 million in 2023. So we feel very good about that. We also continue to match headcount with demand. We have a very flexible operating structure. As we've previously noted, we can operate 5 days a week, 6 days, 7 days a week, 2 shifts, 3 shifts. We have overtime available to us. So as demand moderated, we scaled back on our shifts, we eliminated over time, and we matched headcount with demand. So we will continue to do that to manage our margins.

And Stephanie, as you can see from the slides, we now have over 3,000 bots, and all this automation allows us to reduce headcount, which does not need to return once the automation is in place. There are many positive indicators in the business that suggest we can grow without proportionally increasing headcount.

Our next question will come from Andrew Steinerman with JPMorgan.

This is Alex Hess on for Andrew Steinerman. I wanted to maybe ask about pricing and base growth. You mentioned sort of some selective price increases. Was that just sort of passing through third-party verification costs? And then maybe what was your base revenue growth exiting 4Q? And what are you assuming for '23?

So from a pricing perspective, keep in mind that we always pass through our third-party costs. And we also have the right to pass through any increases in our third-party costs. So we've always done that historically. We will continue to do that. We have been able to pass through some moderate and selective price increases in addition to that as well. From a base perspective, we do expect negative base growth particularly in the first half of 2023. We hope to overcome that through our new logo and upsell, cross-sell. Our attrition has been very, very low. And so we think it will turn to slightly positive in the second half of the year.

Got it. That's very helpful. And then on the margin improvement that you're expecting year-on-year, how much of that for the full year is some sort of realignment of third-party verification policies and maybe using alternative vendors versus how much is those actions that you've already spoken to around cost controls?

The verification piece is a small portion of it. I mean, keep in mind, we have a very variable cost structure. About 37% of revenues are represented by third-party costs. So if we don't perform a search, we don't incur those costs. So those are 100% variable. Then we have the operations flexibility that I just talked about. Then we took out facilities. We've taken out some selective headcount. We're prioritizing investments. I mean we're basically running the entire cost savings playbook, and we're looking at everything.

Our next question will come from Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. As a follow-up to that question kind of on pricing and verification, et cetera. At a higher level, can you just confirm whether there have been changes to broader screening economics, such as the price per screen in the margins on the screen, et cetera? And then also your broader revenue mix in terms of pre higher screening post onboard monitoring, et cetera, what that is currently and how you expect that to trend?

So pre onboard screening has historically run about 90%. It will continue to run at about 90%. We feel pretty confident that, that will be maintained. From a pricing perspective, everything is pretty consistent. There have not been any fundamental changes in the cost of background screening relative to the criminal side, most of that is coming from government databases. We've not seen any significant changes in pricing relative to those government databases since the state of New York did it about 3 years ago. So the cost of the criminal element of the background screen has remained the same. As you alluded to, verifications have gone up. We passed through all of those costs. And there are certain other elements that do change, but we do pass through all of those third-party costs. So it's a fairly stable pricing environment.

Okay. And then could I just ask for your assessment of industry competitive dynamics in the current and expected environment for the remainder of '23, perhaps even few added years and highlight any emerging areas of differentiation between yourself and public peers. Obviously, there's a much greater distinction to the smaller players, the regionals and the mom and pops, but also how you think they will fare in a challenging macro environment and if that will kind of accelerate the pace of consolidation?

We haven't observed significant changes in competitive dynamics. As previously noted, competition falls into three categories: three public companies, midsized companies, and smaller local businesses. We continue to capture market share fairly evenly across these groups. The primary difference in our strategy is technology, which remains our key advantage. We're maintaining our investments in product development and sales, which has proven effective for us. Our recent advancements in verifications, particularly with the introduction of our Smart Hub technology last quarter, have provided us with unique verification options that our competitors do not offer yet, giving us a slight edge. Overall, the competitive landscape has remained stable, and success hinges on effective sales execution and ongoing investment in our products.

Our next question will come from Heather Balsky with Bank of America.

Can you remind us of your M&A priorities and what you are specifically looking for? Additionally, considering the challenging market conditions, how do you balance M&A activity with organic share growth?

Yes. For us, the top priority in M&A is strategic. Over the past 18 months, all four acquisitions we've made have been strategic and have exceeded our expectations. We've had great success with our M&A efforts. Our primary focus is on strategy, which can be categorized into three key areas. First, we are keen on international expansion and aim to increase our global presence. Currently, we conduct screenings in 200 countries and territories, covering much of the world, but we want to establish a stronger presence in high-growth regions. The second area is our vertical strategy, which we believe has been the main driver of our growth over the past five to six years. We will continue to seek acquisitions that enrich this strategy, deepen our engagement in existing verticals, or possibly open new verticals without having to build them from scratch. The third focus is on products that we can sell to the same buyers, which we find very appealing. An example of this is our acquisition of Form I-9 Compliance in January 2022, which has been a valuable addition to our sales team. We will maintain our M&A strategy with these priorities in mind. Additionally, there are also some straightforward M&A deals centered on synergy that we are considering, but those must have favorable valuations to be viable. While our preference is for strategic acquisitions, we are open to synergy plays as well. We believe we can pursue both M&A and share buybacks, thanks to our strong cash position, so we are not choosing one over the other.

Our next question will come from Peter Christiansen with Citi.

I really appreciate the vertical breakdown. Wondering if you can provide any commentary across firm size? I know you're high index to large enterprise, but curious to hear what you're seeing small business gig workers, that kind of activity there, that would be helpful?

Yes. So keep in mind that only 4% of our revenue comes from SMB. We really are an enterprise play. We feel we've built our company to be an enterprise provider and specifically targeting verticals with high-volume hires. We love high volume, high turnover hires. So that's really our main focus. It doesn't mean we don't play in the SMB space, but at 4%. Obviously, it's not a huge thing for us. And also on the gig side, which we would lump in with tech, that's only 3% of our business as well. So these are small percentages. It may be an opportunity for us in the future. But as of right now, our main focus is verticals that are high volume, high turnover in the Fortune 2000 type of market. Those are ideal targets for us.

And then I was just curious, if you look at nonfarm payroll the data that's been coming through lately. And it's pretty consistent certainly with your comments of what happened in 4Q, then we saw this nice bounce back in the January numbers, about $500,000. I'm just curious to what degree do you think your performance is aligning with some of the nonfarm payroll data that's been coming out?

Yes, we continue to analyze JOLTS data and other labor market indicators. However, I believe that the January nonfarm employment figures, specifically the reported gain of 517,000, might be somewhat misleading due to being seasonally adjusted. This increase was mainly driven by government hiring and the hospitality sector. If we exclude the seasonal adjustments, the U.S. actually experienced a loss of 2.5 million jobs in January. It's essential to thoroughly examine these numbers, which we do regularly, to understand the real sources of growth. This analysis aligns well with our vertical strategy. The primary area where we aim to improve is in the hospitality sector, which is currently contributing only about 4% to our revenue. This presents an opportunity for us to concentrate our efforts.

Our next question will come from Shlomo Rosenbaum with Stifel.

Adam Parrington for Shlomo. What should we expect for free cash flow in 2023? And is there a component to the working capital benefit this quarter that should reverse near term?

So we expect to continue to have significant free cash flow. If you think about it in terms of start with adjusted back off CapEx, which we're estimating to be around $30 million that includes captive software. We'll have cash taxes that we'll have to pay in 2023 of around $40 million and then working capital should remain pretty consistent and/or it should be slightly positive depending on where we end up the year in revenues. So we'll still be throwing off a tremendous amount of cash.

Thank you. At this time, we have no further questions in the queue. I would now like to turn the call back over to Mr. Staples for any additional or closing remarks.

Thank you, Chelsea, and thanks, everyone, for your participation. Have a great day.

Thank you, ladies and gentlemen. This does conclude the First Advantage Fourth Quarter and Full Year 2022 Earnings Conference Call and Webcast. Thank you for your participation. And at this time, you may disconnect your lines.