Q4 2021 HireRight Holdings Corp Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the higher rate fourth quarter at 2021 and conference call joining.
Joining today's call as the company's President and Chief Executive Officer, Guy Abramo, and Chief Financial Officer, Tom Space.
At this time all participants are in a listen only mode I remind everyone that management will refer to certain non-GAAP financial measures and.
An explanation and reconciliation of these measures to the most comparable GAAP financial measures is included in the press release issued today, which is available in the Investor Relations section of higher rates website.
Also during this call managements remarks will include forward looking statements related to higher rates market opportunity custom.
Customer retention competitive differentiation pandemic recovery strategies, including technology investment to increase revenue and margins and growth potential for specific customers and industry sectors and our international business future.
Future cash flows operational improvements and guidance for 2022 revenue adjusted net income adjusted EBITDA and adjusted EPS.
Such statements are predictions and actual results may differ materially.
Additional information concerning factors that could cause actual results to materially differ from those in the forward looking statements is contained in the Form 10-K filed with the Securities and Exchange Commission on March 21st 2022 in particular in the sections of that document entitled risk factors forward looking statements and management's discussion and analysis of financial condition.
And our results of operations now.
Now, it's my pleasure to turn the call over to Guy at Bravo.
Thank you operator, and good afternoon, everyone. We're.
We're pleased to have you with us today as we discuss high rates strong finish to a record breaking year.
During the fourth quarter, we delivered 32% organic revenue growth and 113% adjusted EBITDA growth compared to the fourth quarter of 2020. Additionally.
Additionally, we grew our annual free cash flow and adjusted net income by 29 and $76 million respectively.
Also key is that the momentum we saw in the second half of 2021 has continued into this year.
For this fiscal year 2022, we're expecting revenues to grow between 10% to 12%.
Adjusted EBITDA to grow between 12, and 19% and adjusted earnings per share to grow between seven and 17%.
Now, let's have a look at some of our key accomplishments for 2021 and our key priorities for 2022.
I'll start off with some key highlights presented in the deck, we posted to our website today.
It's important to remember that we are the only global player in this industry that can service multinational customers from a unified global platform.
Our scale and scope enables us to conduct global screens compete worldwide against small local players and invested in our comprehensive solutions supported by account management demanded by enterprise customers.
We achieved revenues of $730 million in 2021, representing growth of 35% over 2020.
Our adjusted EBITDA of $160 million was a 72% increase over 2020.
On the customer front, we added $43 million in revenues from new logos during the year and achieved both outstanding gross and net retention rates of 95 and 136% respectively.
Our vertical market expertise as well as our geographic expansion continued to drive our success.
I am pleased to report that revenue derived from international background screens on employees and applicants based outside the U S exceeded $100 million in 2021.
A real milestone for our global management team.
Our strong revenue performance was also reflective of our leadership in the health care financial services and technology verticals, which combined grew at 48% during 2021.
Now, let me turn my attention to our vision for the future our specific growth and margin enhancement strategies and how our goals are aligned with the secular trends and the opportunities that had been building over the past year.
Although higher rate has a diverse international customer base spanning every major industry. Our key target industries continued to be the three verticals I mentioned previously in addition to transportation.
These are all industries that tend to have highly complex screening needs driven by the diversity of the roles.
The need to source candidates from across the globe.
The complexity and reach of regulations that govern their businesses and associated hiring practices and the need to deploy screening solutions that are very broad in both scope and depth. These.
These challenging criteria or where we excel, hence, making us a leader in these demanding markets.
For example, during the fourth quarter, we continued to ramp one of the world's leading health care service providers as well as several global pharmaceutical firms. These.
These new customers reflect our continued growth in serving the broader health care community, whether in support of hiring related to patient care research development or vaccine distribution.
We are pleased to add these marquee customers and have begun to see meaningful incremental order volumes that already contributed to our outstanding fourth quarter results.
Another area of focus is to further accelerate our international expansion pyrite.
Pyrite is truly a global player serving customers in over 200 countries and territories.
Our investments in Europe .
Pacific, India, and Latin America are driving strong growth in these regions in fact, our international orders are growing more than twice as fast as U S orders and we expect that to continue as we expand with our large and growing multinational customer base.
As I mentioned earlier, our international business for background screens on employees and applicants based outside the U S has now surpassed the 100 million dollar Mark and represents approximately 15% of our total business up from 13% in 2019.
I also want to provide an update on our plans to significantly improve gross margins over the next two years through continued investment in technology solutions that streamline and automate the fulfillment process, while improving the customer and candidate experience.
As previously mentioned, we have partnered with a leading global it services firm to assist us with our focus on automating our back office processes and maximizing the usage of our industry leading data assets.
Our emphasis is on driving automation and process improvement with the continued use of robotic process automation natural language processing and other cloud delivery technologies that will reduce our cost of fulfilling screens combined with our growth strategies. We believe these margin enhancements will allow profitability growth north of 15% annually.
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We're looking forward to seeing the positive impact of these efforts beginning in the second half of this year.
Also important to note is that we continue to see healthy tailwind and positive secular trends in our business hi.
High demand for labor rising wages remote work and increasing contracting gig employment continues to drive strong demand.
We expect many of these tailwind to be long term favorable changes to the implant market.
While geopolitical tensions rising interest rates and inflation are causing macro uncertainty demand for our services continues to be strong.
Absent global crises, such as the 2008 financial crisis and the recent pandemic high rate has delivered consistent growth for more than a decade and is only gaining momentum in closing I'll reiterate how excited we are to be capitalizing on the positive momentum now building for our business. We're in an attractive growth industry with the broadest suite of services.
Operational expertise global reach and a strong financial foundation that allows us to execute on our strategic business plan.
And create meaningful long term shareholder value.
With that I'll turn the call over to Tom for a closer look at our fourth quarter financial performance and our outlook for 2022 Tom.
Thank you guys. Good afternoon, everyone and thank you for joining our call today I will echo guys remarks that we're excited to be reporting such strong year end results and we appreciate you being with us today.
Turning with an overview of fourth quarter results revenue was up a robust 32% year over year to $199 million from $150 million in Q4 2020 as demand continues to be strong for our products and services from an industry perspective, we continue to see the strength in our largest industries, such as healthcare, which grew 49% over Q.
For 2020, and technology, which grew 46%.
And we saw improvements in financial services up 34% in retail and hospitality, which grew 26%.
International markets saw the biggest gains with growth rates in all our international markets exceeding 60%.
India, APAC and Latin America, nearly doubled their business over the prior year.
A quick note on our geographical split as you will see in our filings are GAAP based international revenue represents approximately 8% of total revenue. However, when viewed at the applicant or employee level. Our international revenue is more than 15% of total revenue and in fact exceeded $100 million for the first time in the company's history and we continue to expect.
Strong double digit growth in our international markets.
These markets are an important investment area for the company as we look to provide the highest level of support for our multinational customers.
We will continue to focus on getting closer to the source of data rather than relying on vendors, which also helped to improve margins that is and will continue to be a key element of our strategy.
Our new business bookings for contract signings were strong throughout 2021, and the associated new revenue demonstrated that after a strong $10 million quarter in Q3, new business revenue exceeded $12 million during Q4 <unk>.
New business revenue for the year was $43 million and this momentum has continued into the new year.
Adjusted EBITDA of $43 million was up 113% in comparison to the fourth quarter of 2020. This strong performance largely stems from the significant recovery in volumes, coupled with improving leverage in our cost of services.
Adjusted EBITDA for the year reached $160 million, an increase of 72% over 2020.
Adjusted net income and EPS for the year were $75 million and $1.24 respectively.
<unk> net income reflects among other things the add back of amortization associated with acquired intangible assets. Please.
Please note in our prior earnings release immediately following the IPO, we did not adjust for purchased intangible asset amortization and.
In order to be comparable to our peers, we have reflected that adjustment in this quarter's results.
Now turning to our balance sheet, which is now a source of strength, allowing us to grow the business and capitalize on attractive opportunities as they arise.
With the IPO proceeds we have reduced our net debt position from 1 billion to <unk>.
Just under $600 million.
During the quarter, we repaid our $215 million second lien loan in full and $100 million of our first lien debt and there were no outstanding borrowings on the revolver at the end of the quarter.
Our net leverage is now approximately three seven times <unk>.
Additionally, as we reported in February we retired our outstanding interest rate swap agreements, which had a fixed labor cost at $2 87 for that.
Cost of that during Q1 was $18 $4 million.
Lastly, our free cash flow for the year was up nearly 30 million to $33 million and again, we expect significant improvement to this number this year, even with our technology investments.
Turning to our outlook for 2022, while recovery from the global pandemic remains fluid as does the impact of the conflict in Ukraine, We expect our strong operational and financial performance to continue.
With most of the first quarter behind us we've seen a continuation of favorable trends with strength across the markets we serve.
This includes robust strength in our international markets, which we expect to continue.
Based on our current expectations and current market conditions, we expect 2022 revenues to be in the range of $805 million to $820 million.
Adjusted net income to be in the range of $105 million to $115 million.
Full year adjusted EBITDA to be in the range of $180 million to $190 million.
And adjusted fully diluted EPS to be in the range of $1 32 to $1 45.
And while seasonality has become less pronounced as the diversity of our customers within our target verticals have grown historically Q2, and Q3 tend to be peak quarters, well Q1, and Q4 had a slight seasonal effect from the holidays.
Also similar to our reported results our guidance for adjusted net income and adjusted EPS reflects the add back of amortization associated with acquired intangible assets in order to provide comparability to our peers.
In closing over the next few years, we expect to deliver high single digit to low double digit organic growth augmented with our strategic and accretive M&A efforts.
And given our margin enhancement strategies detailed by Guy, we expect our adjusted EBITDA to grow 15% or more annually over the next three to five years, we look forward to updating you on our progress throughout the year and with that operator, if you could please open the line for questions.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
You'll hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any fees.
To withdraw your question. Please press Star then two we will pause for a moment as callers join the queue.
The first question comes from Kevin Mcveigh with Credit Suisse. Please.
Please go ahead.
Great. Thanks, so much and and really just Super Super results I want to accept extend my congratulations he.
The revenue guidance speaks for itself in terms of 2022.
But have you factored in anything for geopolitical or is it just the the acceleration on the international side, that's helping to offset some of that weakness because again, just a super Super outcome. In addition to really nice outperformance.
Relative to the 'twenty, one guide as well so just maybe any thoughts around there if we could start there.
Sure Kevin Thanks.
For our business.
We don't have much exposure to Russia or eastern Europe itself.
In terms of revenues in fact, I think as you know.
Our largest international market as the U K and the U K is about 10% of our total revenues. We did one time three years ago, We had a tech center in St. Petersburg, Russia, and close that three years ago. So there's very little exposure to our business for what's going on right now, but having said that I mean.
Everyone's cautious about geopolitical tensions but.
Our guidance is based on.
The best information, we have at the moment and the momentum we have coming into obviously the first quarter is only a couple of weeks from being completed.
That's Super Super Helpful. And then just wanted to can we talk a little bit about some of the initiatives I know you've committed to about 40 $45 million of Opex investment. There's I think there was about $2 million in the third quarter.
How much was done in the fourth quarter and then just how should how we should think about that over the course of 'twenty two.
Yeah, so for us in the in the Tech investments that we talked about extensively well, we'll see some benefits of that in the second half of this year.
And then benefits will accrue sort of quarter by quarter, we will realize the full benefit of those investments.
Exiting 2023 and for the full calendar year fiscal year 2024, and just to be clear. The operating expense you saw $3 million and change in Q3 was really the early phase of the project that was focused on <unk>.
Scoping and.
It really didn't get into actually to build yet now that we're into the build phase of the project. This is all going to be capitalized.
Very helpful and congrats again awesome. Thank you thanks, Kevin.
The next question comes from George Tong with Goldman Sachs.
Please go ahead.
Hi, Thanks, good afternoon.
You mentioned that despite the macro uncertainty out there demand for services remains strong can you elaborate on new business trends to start the year and how organic revenue growth should progress as we move through the year.
Yeah, So I can comment on on new logos.
A great year in 2021 for new logos and I can tell you our pipeline.
<unk> to reflect our performance this year, we're seeing a whole host of factors about why we're winning business and we're the only global player that can service multinational customers.
We get very high marks on and Tom mentioned this in his recordings.
Very high marks for how we service clients with our Consultative account management.
One of the things that we talked a lot about during the road show that we're seeing some ground on new revenue is our emphasis on comprehensive screening.
And finding more with the proprietary databases that we have that is resonating.
Strongly with new clients in fact to new clients.
<unk> re screen their existing employee base to see if their previous provider Miss anything and for both of those companies. We found in the neighborhood of close to 1000 screens. Each were the incumbent had missed serious convictions. In addition to that we frequently find hits that were reported that should not have been reported sometimes someone as conviction.
On the record.
It's not per client guidelines to reported or it could be noncompliant or it might be the wrong. The wrong identity. The reason why I'm mentioning all of this is the momentum that we have with new business.
In large part due to that single global platform and our ability to be more comprehensive than than others in the market. So with the pipeline that we're sitting here with right now George.
Zinc reflects a good year for us.
Great and then the second part of the question around how you expect organic growth to progress or trend.
As you move through the year would you expect the growth to be better than the first half.
Because the comps are easier and then more.
Lower in the second half.
Yeah, Yeah of course, right, so well, we're not giving quarterly guidance Thats why I made the remarks about kind of the seasonal impact and I will say that legacy high rate you know years ago had a little bit more seasonal impact with the combination of the businesses back in 2018 that it's been much more muted over the last couple of years and obviously we have in hand.
Exactly a normal cycle for a couple of years, but what we expect this year is a more normal seasonal curve to our revenue, which would show Q1, and Q4 slightly off Q2, and Q3 from a seasonal perspective strictly driven by holiday hiring.
Lack thereof during the holidays.
So from a year over year growth perspective of course, Q1 is going to be an easier comp than Q2, Q3, and Q4, so but from a seasonal ramp perspective, we would expect Q2 and Q3 to be the strongest quarters.
Great and just as a follow up you mentioned earlier, you're investing in technology to streamline and automate the business in order to drive efficiencies and improve the overall margin profile as well as the the client experience can you talk about what steps you've accomplished so far.
And you're in your plan to streamline and automate and what remains to be done.
Sure. Good question George So as we said this is a two year project.
The initial parts of the project or building the base foundation of the platform.
How workflow works case management Corp.
Our core platform itself.
Don't comment specifically on what part of the business. We're focused on because I don't want my competitors to know that but the way. We broke the project up you can think about it is us working on the Verifications work that we do criminal work that we do drug and health screening work that we do.
We're anticipating the launch of the first new module will be June to July .
Of this year.
But a lot of that work is also going on in parallel, but there's been significant work done on the program is on track.
The core based platform is built to work on the first modules very very far along.
Great. Thanks very much.
The next question comes from Hamzah <unk> with Jefferies.
Please go ahead.
Hi, This is Mario <unk> on for Hamzah.
Could you just talk about how you're thinking about that the international opportunity, obviously, it's going to be a little bigger than you said, 15% of our revenue.
Now I guess, how big could that be over time and are there any structural differences in the international market that impact your ability to grow even faster or is it also is there a margin difference between those two businesses.
Yeah.
Thanks, Mario good good to hear from you So I will.
A couple of a couple of parts of that so first the difficult thing is to define with international means right.
Very big differences between Europe , Asia, India, Latin America, Canada.
But for the most part in general.
The.
We think that the growth rate that we're seeing now is again reflective of the investments that we made in our single global platform. So structurally speaking I think we're in the best position to capture market share in different regions of the world than any of our competitors I think that's first and foremost second is you do see and again it depends on the.
Our region of the world that we're talking about but those hires and background screens tend to be a little bit more complex as applicant grow in the diversity of the countries that they're in.
Some of it dependent on the job types that we're doing and that will tend to lead in some cases and higher revenue per order higher margin per.
Per order and then there's some some regions of the world, where it's lower margin lower revenue, but much higher applicant counts countries like India that come to mind.
We expect and we continue to make investments in those regions of the world.
The new platform that we're building takes into account the complexities of doing business in those regions. So we feel good.
About it continuing to grow at double the pace of the U S business for some for some time to come.
If I leave anything out Tom.
Thank you hit the nail on the head I mean really getting down to revenue quarter in profitability.
Customer industry and country specific right and a lot of that a lot of that growth that we're seeing is coming from.
Some large multinational companies that we have business with in other countries by the way not just the U S right and.
Because of our single global platform and they find it easier consolidating their background screening into somebody that can just use one platform.
We think that will continue to take share for the for those types of clients.
Great and then just for my follow up.
I believe in your prepared remarks, you mentioned your growth rates by verticals, which is helpful. But maybe you can help us understand in the fastest growing verticals how much of that growth is coming from from new clients versus maybe package density.
Well I would say generally speaking yes. This package density concept as we can.
Become a new concept everyone's talked about but it definitely has improved our average value per order number of components per order.
Continued to improve generally across the board I would say.
From a vertical specific you know when you look at something like health care that had unbelievably tremendous year for us.
Part of that was organic but part of that also results from us ramping up quite a few new clients that we've talked about one of the largest health care providers out there as well as the number of pharmaceutical companies. So.
Pretty pretty well spread about between recovery natural organic growth as well as new logos.
Great. Thank you so much.
The next question comes from Mark Marcon with Baird.
Please go ahead.
Hey, good afternoon, and let me add my congratulations on the stellar results I'm wondering can you give us a breakout with regards to service versus surcharge as it relates to the quarter and also how youre thinking about that that breakout as it relates to the 22 guidance.
Yeah, So mark.
We will have that in the K, which will be filed here in the next half an hour. So if you don't mind I'll refer to the case it'll be in the revenue footnote.
That'll be in there and we decided not to give guidance split.
By the service and surcharge, yes, mark to be honest with you. We've found the number of questions. We've gotten since we were the third guy out and the only one reporting the difference between surcharges service revenue. We found that that actually became confusing we have lots of investors thinking our total revenue with service revenue and that service revenue was comparable to our to our peers.
It just created a ton of confusion. So we just decided not to not to split those out.
But there'll be in the K footnote in the K.
Okay, and just as it relates to the way we've modeled it I mean should we expect the ratio to stay roughly the same in 'twenty two relative to 'twenty one.
Yes, roughly within a margin of error, yes.
Okay, Great and then going to the you know to the to the growth that Youre seeing like in technology. For example, I mean, you ended up with 46% year over year growth. Obviously, that's a very demanding vertical can you talk a little bit about some of the drivers there was it how much when we look at technology.
You mentioned on health care. It was it was clearly a there was a benefit in terms of some of the new logos, but on tech what were you seeing there.
So it's interesting our tech clients are.
Tend to be early adopters for a lot of the new products and services, we build in geographic expansion. So some of that growth was coming from some of the largest tech logos that we have.
Selling new new and different services too.
There is some new logo, obviously new logo growth in that but it's one of reasons why we love our position in tech spaces.
Our ability to continue to upsell and cross sell those clients is substantial in fact, a lot of the new products that we develop first tend to be driven by a need from those specific client so.
And as you know most of those large logos, we had for a long long period of time, so but some of that some of that large number also was some new logo wins.
As well.
Okay.
Right and in terms of the established logos.
There are obviously, the bluest of the Blue chips, what what sort of new packages were they taking on that are that are kind of setting the pace and yeah a lot of it online.
<unk> been monitoring oriented.
Sorry, Mark I thought you were done.
No.
I am.
But we overstepped so I didn't hear your answer.
Apologies, so a lot of it where some of our new monitoring products.
Some of it was also geographic expansion.
And part of it with technology in particular technology companies were early adopters of.
Of hiring people because of the pandemic impact hiring people in other geographies in the office. They would generally have normally been assigned to.
And that has helped.
Increase the average revenue per background screening for those guys as well so combination of new monitoring.
A change in the practices for which theyre hiring which changes the components of our background screening.
Great.
Then what do you you know.
Wage inflation inflation in general is a big topic. What are you seeing in terms of your ability to change prices over the coming year.
In order to reflect some of the inflationary factors that are occurring.
You know obviously, you've got these three year contracts, but when they come up for renewal.
Should we think about that yes.
So like any other business I mean, we have we have rights to increase prices as they are in certain periods of time of course, there are some very very large clients with some specific terms and conditions, but.
We are.
We are able to continue to get an increasing amount for the things that we do in part reflected by the average revenue per order continuing continuing.
Clearly in this environment, it's something that we're continually evaluating and youre right. Because we have 40000 clients, it's not something you've peanut butter right. It's something you really need to segment the markets and customers and be thoughtful about how you put those increases through.
Great and then on the international obviously that stands out.
In particular, some large markets like India.
And the growth that youre seeing there.
What.
What inning are you win.
And when we think about the 22 guide how should we think about.
The international growth relative to you you did say double digits, but is there any more specificity in terms of like how you're modeling things out for 'twenty. Two in terms of your plan in terms of the international contribution.
Yes, I think I think what guy.
Said just to be clear double the rate of the growth that we're seeing in the U S. So not necessarily double digits it could be higher than teens growth right. So we expect that growth internationally to be.
North of the teens lets put it that way.
Okay.
Right and then one one last one.
You know you mentioned with a couple of the new logos. When you did the re screens you ended up finding.
All of these things that had been missed or misclassified.
How are you able to translate that into new pitches and what what are your expected how does the pipeline look for new pitches over the coming say six months.
Yes.
That's a great question Mark So we're finding again the market for opportunities robust the pipeline that we're sitting at as we speak is strong and certainly reflective of the great New revenue results, we had last year.
Continue to pitch.
Our proprietary databases and our ability to be the best investigators in the business and find things that others simply missed there are lots of players in this industry, who will skip steps and emphasize turnaround time speed over comprehensiveness, we simply will not do that and we tell clients and prospects as we are doing pitches.
Let us do a screen on your existing employee base and we will inevitably find things that you are incumbent missed and that message has been resonating with some of these recent wins and I gave you two examples I can't tell you who the clients are but we continue to pitch that and more and more companies in our in our pitches were listening to that very carefully.
And following it up and I do believe some of the success, we had last year, which was absolutely because of that and we think that will that will continue to resonate well with the clients that are in our current pipeline.
Terrific. Thank you.
Thanks Mark.
The next question comes from Ashish <unk> with RBC capital markets.
Please go ahead. Thanks.
Thanks for taking my question. So the revenue growth for 'twenty two guidance 10 to 12 is strong much stronger than you are.
Mcdonald group a lot of them I was wondering obviously you've provided a lot of good color around new wins as well as cross sell.
But I was just wondering if you could help quantify but where are you tracking ahead of your midterm growth.
And.
How should we think about that momentum going forward. Thanks.
Yeah.
Yes sure.
So I think you're referring to kind of the growth long term growth rates that we talked about we're kind of like high single digit low double digits. I think is what we talked about you know kind of on the roadshow.
8% to 10% range, so, we're a little bit higher than that in our guidance and 10% to 12%.
I think.
George maybe hit on some of that I mean, we definitely have a better favorable comparison in Q1. This year over last Q1 from 'twenty to 'twenty, one because of the the.
The recovery cycle, but generally we're seeing.
Sure.
Positive higher than outpaced growth that we've seen historically internationally, which is some of the reason why we can get a little bit more.
Optimistic on the overall growth rate I think thats a driver of it and we feel really good about our pipeline right now in our new business.
Our ability to close new business.
Okay, that's great.
And then even on the road show.
I've mentioned like if you look at the cohorts.
<unk> new business is maturing two to three years and they have a potential for delivering somebody in the two to two five times revenues compared to when they first start off is that right that you should think about the 'twenty to 'twenty, one cohort as well as we think about that $43 million of revenue Delta.
The opportunity to almost double or triple that in the next two to three years from those new wins.
Yes, that's generally when we look at it from a cohort perspective, what we close what we closed and generate in a given year.
As it matures should be able to drive two to three X that overtime.
Okay.
And maybe one final question.
Maybe going back to the road show again, but the.
<unk> innovation and the investment there the expectation was.
But can you do to save more than 500 basis points of cost.
One you'll get that benefit.
2024.
Is that the right expectation as <unk> gone through the project.
How is your confidence level on <unk>.
Gaining that kind of.
Cost savings.
But over the next few years. Thanks.
Very high we feel every bit as good today as we did a few months back when we talked about.
The progress that the team is making is substantial.
We're in a good place.
Thank you.
The next question comes from Andrew Nicholas with William Blair.
Please go ahead.
Hi, good afternoon, and thanks for taking my questions. The first one I wanted to ask was just on the margin guidance and maybe the implied expense growth in there.
Are there any puts and takes you can kind of add or qualitative factors that that you could speak to that would push you to the higher low end of the range on margins are or am I right to assume that that's primarily a function of revenue growth. Just curious if there are other kind of.
Cost items that are driving the width of that range.
Yeah.
They generally.
We've taken a conservative view on how we're going to look at the guidance here.
Think there's opportunity and certainly we're going to drive towards the high end of the range, we're always going to be shooting for that just as we would in any given year with a budget trying to exceed our plans part of it has to do with the timing of the savings from the project that we've been spending a lot of time talking about it as guy alluded to we are.
Shifting to go live with the first module in the <unk>.
Summer timeframe, and how that module ramps and the savings associated with that we're certainly very comfortable with the end state and what we can achieve there. The ramp is an estimate at this point. So if that ramp turns out to be more accelerated than we planned for that as an opportunity for us.
Makes sense. Thank you for that and then for my follow up I just wanted to ask you about M&A and I know it's still a.
Within your capital allocation priorities that you list in the slide deck, just kind of wondering.
What kind of assets are out there right now and maybe more broadly your openness to doing deals realizing that you have.
A lot of organic opportunities in front of you and an investment in your technology platform as well. So just kind of curious on an appetite for M&A in the near term. Thank you.
Yeah. So that's it.
A great question I mean, we do have an active pipeline.
And and targets, obviously for competitive reasons, we won't share specifically, who they are but I can tell you that.
The traditional roll up of the same types of businesses that we're currently taking share from doesn't really serve our shareholder interest. So we focus on targets that add to the value proposition new products or new geographies and are a handful of deals that.
Where we're looking at again to enhance the portfolio enhance our scale and enhance our scope.
But we will continue to look at ways of investing capital.
To shareholders benefits so.
Long long story short as I am.
I'm not keen on doing roll ups, when we're taking share at the rate we're taking share.
That's helpful. Thank you.
The next question comes from Shlomo Rosenbaum with Stifel.
Please go ahead.
Hi, Thank you very much for taking my questions I wanted to focus a little bit on.
The trajectory of the ear.
EBITDA expansion in the margin expansion versus the revenue.
You guys really killed it on the revenue and.
But I'd say, what's the EBITDA absolute came in kind of where we were expecting on lower revenue and so we're seeing.
Like an EBITDA margin by 20 basis points lower than it was in <unk> 'twenty, one where you had.
Despite the fact that you had so much more revenue and I was wondering if there is certain things you could point us to if they're public company costs or other things that we should be.
Just thinking about as we look at this why there wasn't what I would say like a little bit more leverage.
In that revenue.
Yes, I mean, you hit the nail on the head on some of it's Shlomo.
Part of it is a big chunk of it is driven by public company costs I mean, our D&O insurance costs alone went up.
More than $5 million for the year right. So absorbing those public company costs that come in the range of $7 million to $10 million is reflected in the guidance as well and despite that and despite the fact that we really won't see the full fruits of the automation initiatives until the end of 2023.
We still are driving from our margin expansion this year.
Okay.
Then.
You guys are starting to.
Separate and add back intangible amortization can you discuss how much you're expecting in 2022, what was the comp for intangible in 2021, and maybe give us the total DNA so that we can.
Kind of put the whole picture together.
Yeah sure I can give you the approximate numbers and everything will be disclosed in the K.
It's roughly $63 $64 million.
And add back and Youll see the reconcile the actually the reconciliation should be in the press release and it's in the K as well.
So you should be able to see where that's added back specifically.
The number should be roughly the same for 2022 and the guidance.
Okay.
Okay. So 63 to 64 in 'twenty, one and 22 and what about depreciation in terms of thinking about where that's going quite for the full year of program take a total DNA.
I don't have that number off top my head I'll have to get back to you on that one and a follow up call, but yes.
Yes, the amortization add back specifically as you know.
63 ish million.
Change.
Got it and then how should that track when I look at your EBITDA, how should I track it down to free cash flow for 'twenty two.
Because one of the one of the pitches again on your road show was the ability for these companies are really generate cash.
Mhm.
Yeah. So when you look at it from a capex perspective historically.
Historically, the company has trended in that kind of $12 million to $15 million range roughly split between capitalized software development and other.
Fixed assets.
Split roughly 50, 50, obviously with our investment in the technology.
Transformation that we're going through right now we've indicated that that's going to be roughly $40 million to $50 million over a two year time horizon.
Split roughly equally between 2022 and 2023.
Okay. So think of that 12 to 15 kind of being double over the next years.
Would I be.
If I'm doing a walk down from EBITDA should be EBITDA minus capex minus.
No.
Some kind of tax rate that you would expect how how should I think of that I just wanted to kind of illustrate the free cash flow per share.
So if you if you look at EBITDA.
EBITDA minus Capex is the easiest way to do it and if you look at it from a capex perspective, we haven't given guidance on that so.
I can't share that right now, but you can see the numbers that we just discussed are in the ballpark right historical numbers.
$12 million to $15 million going to $20 million to $25 million this year.
Okay, and then something that was very interesting.
They're not a cash taxpayer right and for for anything.
Are any of any note.
Okay.
One thing you mentioned very was very interesting is the uptake on monitoring products and that's one of the things that it seems like there's a lot of.
Potential in the industry, but hasn't really taken awful lot and can you talk to talk about where you're seeing that.
Celebrating why who's adopting it why now maybe just talk about that.
Yes, so it depends on the on the industry Shlomo.
I mentioned in particular as it relates to the technology companies.
Adopting things more at scale like social media monitoring.
And then we've got because of our emphasis on the healthcare practice, you've got health care companies doing more employee monitoring more annualized drug testing is also.
Need for sanctions.
Sanctions monitoring in particular for health care workers.
It's coming across the board and of course, we're pitching it more often which is which is why we're seeing some of that some of that uptake.
Got it.
Okay, how are we going to get out and get back into queue.
The next question comes from Andrew Jeffrey with Truest Securities.
Please go ahead.
Hey, Scott stepping on for Andrew So our first question is just any call out.
In terms of like background checks per job opening.
<unk> went out last year is that carrying into this year and how much of that is being baked into the guide.
Yes, that's a great question as we noted a few times during the road show and continually we continued to see because of the volume and demand and just the difficulty in getting.
People to fill jobs that more screens per opening are indeed, incurring I can't give you the exact number and I can also tell you that that trend has not slowed down.
Got it and following up.
So then.
Just trying to understand the net revenue retention, a little better what would be like a normalized.
Level and I'm, not a 136% what portion was price.
And I guess I'm not sure that how has attrition.
Doing it sounds like the overall growth I'll go.
Yeah, I would say.
Our normalized net revenue retention for us.
Should be in that 100% to 110% range is what we would target really probably closer to 105%.
That's from a normal period of time from a overall attrition that's why we track the gross retention you know we use the inverse of that is an attrition factor so roughly 5%.
Got it thanks for taking my questions.
The next question comes from Jason <unk> with Keybanc capital markets. Please.
Please go ahead.
Hey, guys. Thanks for taking my question just one for me.
Inc.
At one point you mentioned hospitality was one of the I think this quarter hospitality was one of the stronger industries. The amount you called out but I think in prior periods. Maybe it was one of the areas that had been slower to recover.
As it relates maybe sub segment of industries that may have not fully recovered yet.
Where are we in terms of getting those back to normal in <unk>.
Should we be thinking about progression.
From here.
Yes, thanks for the question Jason So.
We don't mentioned hospitality as a as a target industry, but it's one we've been fairly successful with so what we what you see in that growth number is a combination of two things one is some new new logo wins in the hospitality.
Market second is the general recovery of the hotel and tourism industries.
And the struggle by Crazy to just to find talent. So they could fill so they can fill rooms that that continues to be the <unk>.
Watchword for them. So we've got some pretty large clients in that industry.
We are continuing to experience.
<unk> from just trying to find talent to fill the roles in their hotels restaurants things things like that so good good performance from them. There we emphasize them because we have a good chunk of revenue coming from them.
So we've had some good good new wins in that industry, but it.
There is clearly some some substantial recovery thats occurring.
Great. Thank you.
The next question comes once again from Shlomo Rosenbaum with Stifel.
Please go ahead.
So just wanted to sneak one more in.
Really at the end of the first quarter and I was just wondering if you know you don't give quarterly guidance, but maybe given the fact that we're pretty much at the end of the first quarter or if there's some way that we should be.
Maybe something more specific that you could share about the quarter given.
<unk> been through the vast majority of that already.
Yes, Shlomo I'll, just repeat what I said I mean.
As we sit here, we've talked about the great momentum that we're seeing this year following last year, we're very comfortable with the guidance that we've.
Given the guidance we've given here annually reflects what we see in Q1 and I also commented on on our other pipeline that we have is robust.
Robust.
Yeah.
Great. Thank you very much.
Yeah.
The next question comes from Manav Patnaik with Barclays.
Please go ahead.
Yeah.
Hi, guys. How are you. This is roni Kennedy on for Manav. Thank you for taking my question. Just wanted you spoke on this I think in response to a question too from.
From Andrew with regards to M&A in the pipeline et cetera, and I know you said.
Traditional roll ups don't necessarily serve the.
Shareholders' best interest, particularly well just wondering if you could comment on overall.
Competitive dynamics within the industry from a consolidation standpoint, but also what youre seeing from disruption.
From the likes to say checker and a good hire just high level commentary in that regard.
Yeah. So just high level I know I've said this before on the road show.
Hi.
You may call them Disruptors, we've never lost a client to so called disruptor.
What we do for background screening is far different than what the two companies you mentioned due for screening.
And one of the things is always sort of surprised me is the technology that we used to do what we would do is fairly incident screens is faster and no different than what they do so there is no substantial difference between us other than the fact that we do way more than just the initial hit search.
So we're not seeing any disruption.
Some so called Disruptors.
<unk>.
The business is competitive as it's been for the last 25 years, we've been we've been doing this.
We continue to see clients, especially large companies continue to to harbor quality.
One of the things that we didn't talk about here, but.
Our adherence to compliance I mean, the fact that we're more comprehensive and we find things that people Miss is evidenced by us going back and re screening employees.
Emphasis that we have with our compliance workbench product, where we're continuing to look for changes in laws and regulations to us to ensure that our clients can continue to maintain compliance background screening.
Programs.
Matters to a large.
Large companies and in fact, it matters to everybody right.
So that's why I think we're seeing success I think youll continue to see success.
Because of that because of those differentiating points.
Thank you that's very helpful. And then a follow up if I may please.
Are you have you disclosed or are you disclosing the percentage that was say continuous monitoring and then also.
Can you speak about the background checks dot com and SMB opportunity, what the results were and the outlook.
Yeah, So we don't disclose those.
The specifics of that at that level, but what I can tell you.
Is that part of the success that we saw in the fourth quarter with some recovery from background checks dot com, we've talked openly about how small medium businesses were negatively impacted by the pandemic background.
Background checks dot com.
As you saw a pretty good fourth quarter.
Okay. Thank you and then one man just confirm on the tech transformation. So youre not at this time committing to.
Actual time timeframe commitment et cetera.
It's exactly what we've said what we've said it's been our what we've said is that we from a tech transformation itself. We plan to deliver 500 basis point improvement in margin that will be realized by the full year 2024, but it will start to see some of that improvement in the second half of this year and then subsequent quarters.
Through 'twenty three and then the full effect in 2024, yeah. It would be very clear it's not a you know it's not a big Bang implementation right. We're rolling out modules over the course of two years and with each module, we will start to see incremental benefit.
Thank you I appreciate it.
You bet.
This concludes the question answer session and today's conference call you may disconnect your lines.
Thank you for participating and have a pleasant day.
Okay.
Okay.
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