HireRight - Q4 2021
March 21, 2022
Transcript
Operator (participant)
Good afternoon, ladies and gentlemen, and welcome to the HireRight fourth quarter 2021 conference call. Joining today's call is the company's President and Chief Executive Officer, Guy Abramo, and Chief Financial Officer, Tom Spaeth. At this time, all participants are in a listen-only mode. I remind everyone that management will refer to certain non-GAAP financial measures. 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 HireRight's website.
Also, during this call, management's remarks will include forward-looking statements related to HireRight's market opportunity, customer retention, competitive differentiation, pandemic recovery, strategies including technology investment to increase revenue and margins, growth potential for specific customers and industry sectors in our international business, 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 Conditions and Results of Operations. Now it's my pleasure to turn the call over to Guy Abramo.
Guy Abramo (President and CEO)
Thank you operator, and good afternoon, everyone. We're pleased to have you with us today as we discuss HireRight's 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, we grew our annual free cash flow and adjusted net income by $29 million 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 are expecting revenues to grow between 10%-12%, adjusted EBITDA to grow between 12% and 19%, and adjusted earnings per share to grow between 7% 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 invest in the 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 healthcare, 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 align with the secular trends and the opportunities that have been building over the past year. Although HireRight has a diverse international customer base spanning every major industry, our key target industries continue 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 challenging criteria are 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 healthcare service providers as well as several global pharmaceutical firms. These new customers reflect our continued growth in serving the broader healthcare 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. HireRight is truly a global player, serving customers in over 200 countries and territories. Our investments in Europe, Asia 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 mark and represents approximately 15% of our total business, up from 13% in 2019. I also wanna 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-delivered 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. We are 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 tailwinds and positive secular trends in our business. High demand for labor, rising wages, remote work, and increasing contract and gig employment continues to drive strong demand. We expect many of these tailwinds to be long-term favorable changes to the employment 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, HireRight 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?
Tom Spaeth (CFO)
Thank you, Guy. Good afternoon, everyone, and thank you for joining our call today. I will echo Guy's remarks that we're excited to be reporting such strong year-end results, and we appreciate you being with us today. Starting 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 Q4 2020, and technology, which grew 46%. We saw improvements in financial services, up 34%, and 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, our 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. 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 help to improve margins. That is and will continue to be a key element of our strategy.
Our new business bookings or 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. New business revenue for the year was $43 million, and this momentum has continued into the new year. Our 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.
Adjusted net income reflects, among other things, the add back of amortization associated with acquired intangible assets. Please note that in our prior earnings release, immediately following the IPO, we did not adjust for purchased intangible asset amortization. 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 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 3.7x. Additionally, as we reported in February, we retired our outstanding interest rate swap agreements, which had a fixed LIBOR cost at 2.874. That cost during Q1 was $18.4 million. Lastly, our free cash flow for the year was up nearly $30 million-$33 million. 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-$820 million. Adjusted net income to be in the range of $105 million-$115 million. Full year adjusted EBITDA to be in the range of $180 million-$190 million. Adjusted fully diluted EPS to be in the range of $1.32-$1.45.
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, while Q1 and Q4 have 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 digits to low double-digit organic growth, augmented with our strategic and accretive M&A efforts. 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.
With that, operator, if you could please open the line for questions.
Operator (participant)
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 will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. 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 go ahead.
Kevin McVeigh (Managing Director)
Great. Thanks so much and really just super results. I extend my congratulations. Hey, just the revenue guidance speaks for itself in terms of 2022. Have you factored in anything for geopolitical, or is it just the acceleration on the international side that's helping offset some of that weakness? 'Cause again, just a super outcome in addition to really nice outperformance relative to the 2021 guide as well. Just maybe any thoughts around there, if we could start there.
Guy Abramo (President and CEO)
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 is the U.K., and the U.K. is about 10% of our total revenues. We did it one time three years ago, we had a tech center in St. Petersburg, in Russia and closed that three years ago. So there's very little exposure to our business for what's going on right now. Having said that, I mean, everyone's you know cautious about geopolitical tensions, but our guidance is based on you know the best information we have at the moment and the momentum we have you know coming into the obviously the first quarter's only a couple of weeks from being completed.
Kevin McVeigh (Managing Director)
That's super helpful. Then just want to talk a little bit about some of the initiatives. I know you'd committed to about $40 million-$45 million of OpEx investment. I think there was about $2 million in the third quarter. Remind us how much was done in the fourth quarter, and then just how we should think about that over the course of 2022.
Guy Abramo (President and CEO)
Yeah. For us in the tech investments that we talked about, you know, extensively, we'll see some benefits of that in the second half of this year. Benefits will accrue sort of quarter by quarter. We'll realize the full benefit of those investments, exiting 2023 and for the full calendar year, fiscal year of 2024.
Tom Spaeth (CFO)
Just to be clear, the operating expense you saw, $3 million increase in Q3, was really the early phase of the project that was focused on scoping and, you know, really didn't get into the actual build yet. Now that we're into the build phase of the project, this is all gonna be capitalized.
Kevin McVeigh (Managing Director)
Very helpful. Congrats again. Awesome.
Tom Spaeth (CFO)
Thank you.
Guy Abramo (President and CEO)
Thanks, Kevin.
Operator (participant)
The next question comes from George Tong with Goldman Sachs. Please go ahead.
George Tong (Senior Research Analyst)
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?
Guy Abramo (President and CEO)
Yes, I can comment on new logos. We had, you know, a great year in 2021 for new logos, and I can tell you our pipeline continues to reflect that performance this year. We're seeing a whole host of factors about why we're winning business. I mean, we're the only global player that can service multinational customers. We get very high marks, and Tom mentioned this in his remarks. We get very high marks for how we service clients with our consultants and account management. One of the things that we talked a lot about during the roadshow that we're seeing some growth 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, two new clients had us rescreen their existing employee base to see if their previous provider missed anything. You know, for both of those companies, we found in the neighborhood of close to 1,000 screens each where 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 has, you know, a conviction on their record, but it's not, you know, per client guidelines to report it or it could be, you know, non-compliant or it might be the wrong identity. The reason why I'm mentioning all of this is the momentum that we have with new business is in large part due to that single global platform and our ability to be more comprehensive than others in the market.
You know, with the pipeline that we're sitting here with right now, George, I think reflects a you know a good year for us.
George Tong (Senior Research Analyst)
Great. 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 in the first half, because the comps are easier and then more lower in the second half?
Guy Abramo (President and CEO)
Yeah, of course, right. You know, while we're not giving quarterly guidance, that's why I made the remarks about kind of the seasonal impact. I will say that, you know, legacy HireRight, you know, years ago had a little bit more seasonal impact with the combination of the businesses back in 2018. That has been much more muted over the last couple years, and obviously we haven't had exactly a normal cycle for a couple of years. What we expect this year is a more normal seasonal curve to our revenue, which would show Q1 and Q4 slightly off, you know, Q2 and Q3 from a seasonal perspective, strictly driven by holiday hiring or lack thereof during the holidays. From a year-over-year growth perspective, of course, Q1 is gonna be an easier comp than Q2, Q3, and Q4.
From a seasonal ramp perspective, we would expect Q2 and Q3 to be the strongest quarters.
George Tong (Senior Research Analyst)
Great. 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 client experience. Can you talk about what steps you've accomplished so far in your plan to streamline and automate and what remains to be done?
Guy Abramo (President and CEO)
Sure. Good question, George. This, you know, as we said, this is a two-year project. The initial parts of the project are building the base foundation of the platform. You know, how workflow works, case management, the core platform itself. I won't comment specifically on what part of the business we're focused on because I don't want my competitors to know that. The way we broke the project up, you can think about it as 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. A lot of that work is also going on in parallel. There's been significant work done.
The program is on track, you know, the core base platform is built and the work on the first module is very far along.
George Tong (Senior Research Analyst)
Great. Thanks very much.
Operator (participant)
The next question comes from Hamzah Mazari with Jefferies. Please go ahead.
Mario Cortellacci (VP and Senior Equity Research Analyst)
Hi, this is Mario Cortellacci on for Hamzah Mazari. Could you just talk about how you're thinking about that international opportunity? Obviously, it's going to be a little bigger because it's 15% of 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?
Guy Abramo (President and CEO)
Thanks, Mario. Good to hear from you. I'll take a couple of parts of that. First, the difficult thing is to define what international means, right? I mean, there's very big differences between Europe, Asia, India, Latin America, Canada. For the most part, in general, 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. 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 know, you do see, and again, it depends on the region of the world that we're talking about, but those hires and background screens tend to be a little bit more complex as applicants grow in the diversity of the countries that they're in. Some of it, you know, dependent on the job types that we're doing, and that will tend to lead, in some cases, in higher revenue per order, higher margin per order. There's some, you know, some regions of the world where it's, you know, lower margin, you know, lower revenue, but much higher applicant counts, you know, countries like India that come to mind. We expect and, you know, 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. We feel good about it continuing to grow at, you know, double the pace of the U.S. business for some time to come. Did I leave anything out, Tom?
Mario Cortellacci (VP and Senior Equity Research Analyst)
No, I think you hit the nail on the head. I mean, really getting down to, you know, revenue per order and profitability. It's customer, industry, and country specific, right?
Guy Abramo (President and CEO)
A lot of that growth that we're seeing is coming from large multinational companies that we have business with in other countries. By the way, not just the U.S., right? Because of our single global platform, and they find it easier consolidating their background screening into somebody that can just, you know, use one platform. We think that we'll continue to take share for those types of clients. Great. Then just for my follow-up, I believe in your prepared remarks, you mentioned your growth rate by verticals, which is helpful. But maybe you could help us understand, in those fastest-growing verticals, how much of that growth is coming from new clients versus maybe package density?
Well, I would say, you know, generally speaking, you know, this package density concept has become a new concept everyone's talked about, but it definitely has improved. Our average value per order, number of components per order, continues to improve generally across the board, I would say. From a vertical specific, you know, when you look at something like healthcare that had an 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 healthcare providers out there, as well as a number of pharmaceutical companies. Pretty well spread about, you know, between recovery and natural organic growth as well as new logos.
Mario Cortellacci (VP and Senior Equity Research Analyst)
Great. Thank you so much.
Operator (participant)
The next question comes from Mark Marcon with Baird. Please go ahead.
Mark Marcon (Senior Research Analyst)
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 you're thinking about that breakout as it relates to the 2022 guidance?
Guy Abramo (President and CEO)
Yeah. Mark, we will have that in the K, which will be filed here in the next half an hour. If you don't mind, I'll refer to the K. It'll be in the revenue footnote. That'll be in there. We decided not to give guidance split by the service and surcharge. Mark, to be honest with you, we've found the number of questions we got, and since we were the third guy out and the only one reporting the difference between surcharge and service revenue, we found that that actually became confusing. We had lots of investors thinking our total revenue was service revenue, and that service revenue was comparable to our peers. It just created a ton of confusion.
We just decided not to split those out, you know, openly, but they'll be, you know, available in the K, in the footnote in the K.
Mark Marcon (Senior Research Analyst)
Okay. I mean, just as it relates to the way we've modeled it, I mean, should we expect the ratio to stay roughly the same in 2022 relative to 2021?
Guy Abramo (President and CEO)
Yeah. Roughly within a margin of error. Yes.
Mark Marcon (Senior Research Analyst)
Okay. Great. Then in going to the, you know, to the growth that you're 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? When we look at technology, you mentioned on healthcare it was clearly there was a benefit in terms of some of the new logos. But on tech, what were you seeing there?
Guy Abramo (President and CEO)
It's interesting. Our tech clients are, you know, tend to be early adopters for a lot of the new products and services we build and geographic expansion. Some of that growth is coming from some of the largest tech logos that we have, selling new and different services to. There's some new logo, obviously new logo growth in that. It's one of the reasons why we love our position in the tech space is, you know, our ability to continue to upsell and cross-sell those clients is substantial. In fact, you know, a lot of the new products that we develop first tend to be driven by need from those specific clients. As you know, most of those large logos we've had for a long period of time.
Some of that large number also was some new logo wins as well.
Mark Marcon (Senior Research Analyst)
Great. In terms of the established logos that you know are obviously the bluest of the blue chips, what sort of new packages were they taking on that are kind of setting the pace?
Guy Abramo (President and CEO)
Yeah. A lot of it monitoring oriented. Oh, sorry, Mark. I thought you were done.
Mark Marcon (Senior Research Analyst)
No. I am. We overstepped, so I didn't hear your answer.
Guy Abramo (President and CEO)
Apologies. A lot of it were some of our new monitoring products. Some of it was also geographic expansion. Part of it, you know, with technology in particular, companies were early adopters of hiring people, you know, because of the pandemic impact, hiring people in other geographies than the office they would generally have normally been assigned to. That has helped, you know, increase the average revenue per background screen for those guys as well. Combination of new monitoring, you know, a change in the practices for which they're hiring, which changes the components of a background screen.
Mark Marcon (Senior Research Analyst)
Right. You know, wage 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, you know, 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, how should we think about that?
Guy Abramo (President and CEO)
Yeah. Like any other business, I mean, we have, you know, we have rights to increase prices during certain periods of time. Of course, there's some very, very large clients with, you know, some specific terms and conditions. You know, we are able to continue to get an increasing amount for the things that we do and as part reflected by the average revenue per order continuing. Yeah. It is clear in this environment it's something that we're continually evaluating. You're right, because we have 40,000 clients, it's not something you peanut butter, right? Yeah. It's something you really need to segment the markets and customers and be thoughtful about how you put those increases through.
Mark Marcon (Senior Research Analyst)
Great. Then on the international, obviously that stands out, you know, in particular some large markets like say India, and the growth that you're seeing there. What inning are you in, and when we think about the 2022 guide, how should we think about, you know, the international growth relative to. You did say double digits, but is there any more specificity in terms of like how you're modeling things out for 2022 in terms of your plan, in terms of the international contribution?
Tom Spaeth (CFO)
Yeah, I think what Guy said, just to be clear, double the rate of the growth that we're seeing in the U.S. Not necessarily double digits, it could be, you know, higher than, you know, teens growth, right? We expect that growth internationally to be north of the teens, let's put it that way.
Mark Marcon (Senior Research Analyst)
Great. One last one. You know, you mentioned, you know, with a couple of the new logos, when you did the rescreens, you ended up finding, you know, all these things that had been missed or misclassified. How were you able to translate that into, you know, new pitches and how's the pipeline look for new pitches over the coming, say, six months?
Guy Abramo (President and CEO)
Yeah. That's, you know, that's a great question, Mark. We were finding, again, the market opportunity is robust. The pipeline that we're sitting at, you know, as we speak, is strong and certainly reflective of the great, you know, new revenue results we had last year. We continue to pitch our proprietary databases and our ability to be the best investigators in the business and find things that others simply miss. 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. We tell clients and prospects as we're doing pitches is, "Let us do a screen on your existing employee base, and we will inevitably find things that your incumbent missed." That message has been resonating with some of these recent wins.
I gave you two examples. I can't tell you who the clients are, but we continue to pitch that and more and more, you know, companies in our pitches are listening to that very carefully, and following it up. I do believe some of the success we had last year was absolutely because of that. We think that we'll, you know, that will continue to resonate well with the clients that are in our current pipeline.
Mark Marcon (Senior Research Analyst)
Terrific. Thank you.
Guy Abramo (President and CEO)
Thanks, Mark.
Operator (participant)
The next question comes from Ashish Sabadra with RBC Capital Markets. Please go ahead.
Ashish Sabadra (VP of Equity Research)
Thanks for taking my question. The revenue growth for 2022 guidance 10%-12% is strong, much stronger than your midterm growth algorithm. I was wondering, obviously, you provided a lot of good color around new wins as well as cross-sell. I was just wondering if you could help quantify where are you tracking ahead of your midterm growth and how should we think about that momentum going forward? Thanks.
Tom Spaeth (CFO)
Yeah, sure. I think you're referring to the growth, long-term growth rates that we talked about were kinda like high single digits, low double digits, I think is what we talked about, you know, kind of on the roadshow at, you know, 8%-10% range. We're a little bit higher than that in our guidance in 10%-12%. I think, you know, George maybe hit on some of that. I mean, we definitely have a better favorable comparison in Q1 this year over last Q1 from 2020 to 2021 because of the recovery cycle.
Generally we're seeing, you know, positive, you know, higher than outpaced growth that we've seen historically internationally, which is some of the reason why we can, you know, get a little bit more optimistic on the overall growth rate. I think that's a driver of it. We feel really good about our pipeline right now and our new business, our ability to close new business.
Ashish Sabadra (VP of Equity Research)
That's great. Even on the roadshow, you had mentioned, like, if you look at the prior cohorts, these new businesses mature in two to three years, and they have a potential for delivering somewhere in the 2.3x to 2.5x revenues, compared to when they first start off. Is that the right way that we should think about the 2021 cohort as well, as we think about that $43 million of revenue, the opportunity to almost double or triple it in the next two to three years from those new wins?
Tom Spaeth (CFO)
Yeah, that's generally the way we look at it from a cohort perspective. What we close and generate in a given year, you know, as it matures, should be able to drive, you know, 2x to 3x that over time.
Ashish Sabadra (VP of Equity Research)
That's very helpful color. Maybe one final question. Maybe, sorry, going back to the roadshow again, the technology innovation and the investment there, the expectation was an opportunity to save more than 500 basis points of cost, once you get that benefit, in 2024. Is that the right expectation as you've gone through the project? How's your confidence level on gaining that kind of cost savings over the next few years? Thanks.
Tom Spaeth (CFO)
Very high. We feel, you know, every bit as good today as we did, you know, a few months back when we talked about it. The progress that the team is making is substantial, and we're in a good place.
Ashish Sabadra (VP of Equity Research)
Thank you.
Operator (participant)
The next question comes from Andrew Nicholas with William Blair. Please go ahead.
Andrew Nicholas (Research Analyst)
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 kinda add or qualitative factors that you could speak to that would push you to the high or low end of the range on margins? 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.
Tom Spaeth (CFO)
Yeah. I mean, it's. I'd say generally, we've taken a conservative view on how we're gonna look at the guidance here. We think there's opportunity, and certainly we're gonna drive towards the high end of the range. We're always gonna be shooting for that, just as we would in any given year with a budget, trying to exceed our plans. You know, 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. As Guy alluded to, we are expecting to go live with the first module in the 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, you know, an estimate at this point. If that ramp turns out to be more accelerated than we'd planned for, that's an opportunity for us.
Andrew Nicholas (Research Analyst)
Makes sense. Thank you for that. For my follow-up, just wanted to ask about M&A. I know it's still within your capital allocation priorities that you list in the slide deck. Just kinda wondering, you know, what kind of assets are out there right now, and maybe more broadly, your openness to doing deals, realizing that, you know, you have a lot of organic opportunities in front of you and an investment in your technology platform as well. Just kinda curious on appetite for M&A in the near term. Thank you.
Guy Abramo (President and CEO)
Yeah. That's a great question. I mean, we do have an active pipeline and targets. Obviously for competitive reasons, we won't share, you know, specifically who they are. I can tell you that, you know, the traditional roll-up of the same types of businesses that we're currently taking share from doesn't really serve our shareholder interests. We focus on targets that add to the value proposition, new products or new geographies. There are a handful of deals that we're looking at, again, to enhance the portfolio, enhance our scale, and enhance our scope. You know, we'll continue to look at ways of investing capital, you know, to shareholder benefits.
You know, long story short is, I'm not keen on doing roll-ups when we're taking share at the rate we're taking share.
Andrew Nicholas (Research Analyst)
That's helpful. Thank you.
Operator (participant)
The next question comes from Shlomo Rosenbaum with Stifel. Please go ahead.
Shlomo Rosenbaum (Managing Director)
Hi. Thank you very much for taking my questions. I want to focus a little bit on the trajectory of the EBITDA expansion, the margin expansion versus the revenue. You guys really killed it on the revenue and but I would say like the EBITDA on absolute came in kind of where we were expecting on lower revenue. We're seeing you know like an EBITDA margin, it's like 20 basis points lower than it was in 2Q 2021, where you had.
Despite the fact that you had so much more revenue, I was wondering if there's certain things you could point us to, if in public company costs or other things that we should be just thinking about as we look at this, you know, why there wasn't I would say like a little bit more leverage in that revenue.
Tom Spaeth (CFO)
Yeah, I mean, you hit the nail on the head on some of it, Shlomo. It's part of it is a big chunk of it's driven by public company costs. I mean, our D&O insurance costs alone went up, you know, more than $5 million for the year, right? So absorbing those public company costs that come in the range of, you know, $7 million-$10 million is reflected in the guidance as well. Despite that, and despite the fact that we really won't see the full fruits of the automation initiative until the end of 2023, we still are driving for a margin expansion this year.
Shlomo Rosenbaum (Managing Director)
Okay. You guys are starting to separate and add back the intangible amortization. Can you discuss how much you're expecting in 2022? What was the comp for intangible in 2021? Maybe give us the total D&A so that we can you know kind of put the whole picture together.
Tom Spaeth (CFO)
Yeah, sure. I can give you the approximate numbers, and everything will be disclosed in the K. It's roughly $63 million-$64 million. That's an add back, and you'll see the reconciliation. Actually, the reconciliation should be in the press release, and it's in the K as well. You should be able to see where that's added back specifically. The number should be roughly the same for 2022 in the guidance.
Shlomo Rosenbaum (Managing Director)
Okay. $63 million-$64 million in 2021, same in 2022. What about depreciation in terms of thinking about where that's going, like for the full year, if we're gonna take a total D&A?
Tom Spaeth (CFO)
I don't have that number off the top of my head. I'll have to get back to you on that one in our follow-up call. Yeah, the amortization add back specifically is, you know, $63 million and change.
Shlomo Rosenbaum (Managing Director)
Got it. Then how should that track? When I look at your EBITDA, how should I track it down to free cash flow for 2022? Because one of the pitches again on your roadshow was the ability for this company to really generate cash.
Tom Spaeth (CFO)
When you look at it from a CapEx perspective, you know, historically the company's trended in that kind of $12 million-$15 million range, roughly split between capitalized software development and, you know, 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 gonna be roughly, you know, $40 million-$50 million over a two-year time horizon, split roughly equally between 2022 and 2023.
Shlomo Rosenbaum (Managing Director)
Okay. Think of that $12 million-$15 million kind of being double over the next years. Should I be? If I'm doing a walk down from EBITDA, should be EBITDA minus CapEx minus with some kind of tax rate that you would expect? How should I think of that? I just wanted to kind of illustrate the free cash flow per share.
Tom Spaeth (CFO)
Yeah. If you look at EBITDA minus CapEx is the easiest way to do it. If you look at from a CapEx perspective, we haven't given guidance on that, so I can't share that right now. You can see the numbers that we just discussed are in the ballpark, right? Historical numbers of, you know, $12 million-$15 million, you know, going to $20 million-$25 million this year.
Shlomo Rosenbaum (Managing Director)
Okay. Something that was really interesting that you mentioned.
Tom Spaeth (CFO)
We're not a cash taxpayer, right, for anything of any note.
Shlomo Rosenbaum (Managing Director)
Okay. Again, one thing you mentioned was very interesting is the uptake on monitoring products, and that's one of the things that seems like there's a lot of potential in the industry but hasn't really taken off a lot. Can you talk about where you're seeing that accelerating? Why? Who's adopting it? Why now? You know, maybe just talk about that.
Guy Abramo (President and CEO)
Yes. It depends on the industry, Shlomo. You know, I mentioned in particular as it relates to the technology companies adopting, you know, things more at scale like social media monitoring. You know, we've got that because of our emphasis on healthcare practice. You've got healthcare companies doing more employee monitoring, more annualized drug testing. There's also a need for sanctions monitoring in particular for healthcare workers. It's coming across the board, and of course we're pitching it more often, which is why we're seeing some of that uptake.
Shlomo Rosenbaum (Managing Director)
Got it. Okay. I'm gonna get back in the queue.
Operator (participant)
The next question comes from Andrew Jeffrey with Truist Securities. Please go ahead.
Speaker 12
Hey, it's Scott stepping on for Andrew. Our first question is, just any call out in terms of like background checks per job opening. I mean, there was strength in that last year. Is that carrying into this year? How much of that is being baked into the guide?
Guy Abramo (President and CEO)
Yes, that's a great question. As we noted, you know, a few times, you know, during the roadshow and continually, we continue 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 occurring. I can't give you the exact number, and I can also tell you that trend has not slowed down.
Speaker 12
Got it. Following up, just trying to understand the net revenue retention a little better. What would be like a normalized level, and on that 136%, what portion was price? I guess attached to all that, how is attrition doing in terms of like the overall growth algo?
Guy Abramo (President and CEO)
Yeah, I would say, you know, a normalized net revenue retention for us, you know, should be in that 100%-110% range is what we would target. Really probably closer to 105%. That's from a normal period of time. From an overall attrition, that's why we track the gross retention. You know, we use the inverse of that as an attrition factor, so roughly 5%.
Speaker 12
Got it. Thanks for taking my questions.
Operator (participant)
The next question comes from Jason Celino with KeyBanc Capital Markets. Please go ahead.
Jason Celino (Managing Director)
Hey, guys. Thanks for taking my question. Maybe just one for me. You know, I think at one point you mentioned hospitality was one of the or I think this quarter hospitality was one of the stronger industries you called out. I think in prior periods, maybe it was one of the areas that had been slower to recover. As it relates to maybe a subsegment of industries that may not have fully recovered yet, you know, where are we in terms of, you know, getting those back to normal, and how should we be thinking about progression from here?
Guy Abramo (President and CEO)
Yeah. Thanks for the question, Jason. We don't mention hospitality as a target industry, but it's one we've been fairly successful with. What you see in that growth number is a combination of two things. One is some new logo wins in the hospitality market. The second is the general recovery of the hotel and tourism industries, and you know, they've struggled like crazy to find talent so they can fill rooms. That continues to be, you know, the watchword for them. We've got some pretty large clients in that industry that are continuing to experience growth from just trying to find talent to fill the roles in their hotels, restaurants, things like that. Good performance from them.
They're, you know, we emphasize them because we have a good chunk of revenue coming from them. We've had some good new wins in that industry, but there's clearly some substantial recovery that's occurring.
Jason Celino (Managing Director)
Great. Thank you.
Operator (participant)
The next question comes once again from Shlomo Rosenbaum with Stifel. Please go ahead.
Shlomo Rosenbaum (Managing Director)
Thanks. I just wanted to sneak one more in. We're 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, if there's some way that we should be, you know, more, maybe something more specific that you can share about the quarter, given, you know, you've been through the vast majority of it already.
Guy Abramo (President and CEO)
Yeah. Shlomo, I'll just repeat what I said. I mean, you know, as we sit here, we've talked about great momentum that we're seeing, you know, this year following last year. We're very comfortable with the guidance that we've given.
Yeah. The guidance we've given here annually reflects what we see in Q1.
You know, I also commented on our, you know, on the pipeline that we have is robust.
Shlomo Rosenbaum (Managing Director)
Great. Thank you very much.
Guy Abramo (President and CEO)
You bet.
Operator (participant)
The next question comes from Manav Patnaik with Barclays. Please go ahead.
Ronan Kennedy (VP)
Hi, guys. How are you? This is Ronan Kennedy on for Manav Patnaik. Thank you for taking my question. You spoke on this, I think in response to a question from Andrew with regards to M&A in the pipeline, et cetera. I know you said, you know, the traditional roll-ups don't necessarily serve the shareholders' best interests particularly well. Just wondering if you could comment on overall competitive dynamics within the industry from a consolidation standpoint, but also what you're seeing from disruption from the likes of, say, a Checkr and a GoodHire. Just high-level commentary in that regard.
Guy Abramo (President and CEO)
Yeah. Just high level, and I've said this before on the roadshow. You may call them disruptors. We've never lost a client to a so-called disruptor. I mean, what we do for background screening is far different than what the two companies you mentioned do for screening. And one of the things that has always sort of surprised me is, you know, the technology that we use to do what we would do is fairly instant screens, is faster and, you know, no different than what they do. There's no substantial difference between us other than the fact that we do way more than just the, you know, the initial hit search. We're not seeing any disruption from so-called disruptors.
The business is competitive as it's been, you know, for the last 25 years we've been doing this. We continue to see that clients, especially large companies, continue to value 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 as evidenced by us going back and rescreening employees. The emphasis that we have with our Compliance Workbench product, where we're continuing to look for changes in laws and regulations to ensure that our clients continue to maintain compliant background screening programs, that matters to large, you know, to large companies. In fact, it matters to everybody, right? I mean, so that's why I think we're seeing success.
I think you'll continue to see success, you know, because of those differentiating points.
Ronan Kennedy (VP)
Thank you. That's very helpful. A follow-up, if I may, please. Have you disclosed or are you disclosing the percentage that was, say, continuous monitoring? Can you speak about the backgroundchecks.com and SMB opportunity, what the results were in the outlook?
Guy Abramo (President and CEO)
Yeah. We don't disclose the specifics at that level. What I can tell you is that part of the success that we saw in the fourth quarter was some recovery from backgroundchecks.com. We've talked openly about how small, medium businesses were negatively impacted by the pandemic. Backgroundchecks.com saw a pretty good fourth quarter.
Ronan Kennedy (VP)
Okay. Thank you. May I just confirm on the tech transformation? You're not at this time committing to actual time, timeframe commitments, et cetera?
Guy Abramo (President and CEO)
It's exactly what we said. It's what we said it's been. You know what we've said is that from the tech transformation itself, we plan to deliver a 500 basis points improvement in margin that will be realized by full year 2024, but that we'll start to see some of that improvement in the second half of this year and then subsequent quarters through 2023 and then the full effect in 2024.
Tom Spaeth (CFO)
Yeah. To 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'll start to see incremental benefit.
Ronan Kennedy (VP)
Thank you. I appreciate it.
Guy Abramo (President and CEO)
You bet.
Operator (participant)
This concludes the question and answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.