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…

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…

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.