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HireRight Reports First Quarter 2024 Results

HireRight Holdings Corporation (NYSE: HRT) ("HireRight" or the "Company"), a leading provider of background screening services, today announced financial results for its first quarter ended March 31, 2024.

First Quarter 2024 Highlights:

  • Revenues of $173.2 million, compared to prior year period revenues of $175.4 million
  • Net loss attributable to HireRight of $3.3 million, compared to prior year period net loss of $7.9 million
  • Adjusted EBITDA of $40.3 million, compared to prior year period Adjusted EBITDA of $33.0 million
  • Diluted loss per share of $0.05, compared to prior year period diluted loss per share of $0.10
  • Adjusted diluted earnings per share of $0.22, compared to prior year period adjusted diluted earnings of $0.15 per share

“We’re pleased with our performance during the first quarter and our ongoing progress delivering on controllable initiatives focused on margin expansion and customer satisfaction,” said HireRight President and CEO Guy Abramo. "We remain the only provider in the industry that can deliver a compliance solution through a unified global platform, evidenced by our continued success winning new global customers. Regardless of our future ownership structure, we're confident in HireRight’s long-term ability to continue to grow margins, expand upsells and cross sells, and add new logos, expanding our market share and capitalizing on evolving industry dynamics including the changing competitive landscape."

Liquidity and Capital Resources

The Company had $236.0 million of capital available at March 31, 2024, consisting of $77.3 million of cash and $158.7 million of available borrowing capacity under its revolving credit facility. Cash used in operating activities was $9.2 million for the three months ended March 31, 2024, compared to $5.0 million for the same period in 2023, primarily due to the impact of expenses related to the Merger Agreement.

About HireRight

HireRight is a leading global provider of technology-driven workforce risk management and compliance solutions. We provide comprehensive background screening, verification, identification, monitoring, and drug and health screening services for approximately 37,000 customers across the globe. We offer our services via a unified global software and data platform that tightly integrates into our customers’ human capital management systems enabling highly effective and efficient workflows for workforce hiring, onboarding, and monitoring. In 2023, we screened over 26 million job applicants, employees and contractors for our customers and processed over 95 million screens. For more information, visit www.HireRight.com or contact InvestorRelations@HireRight.com.

Non-GAAP Financial Measures

To supplement the financial results presented in accordance with generally accepted accounting principles in the United States (“GAAP”), HireRight presents certain non-GAAP financial measures. A “non-GAAP financial measure” is a numerical measure of a company’s financial performance that excludes amounts that are included in the most directly comparable measure calculated and presented in accordance with GAAP, or that includes amounts that are excluded from the most directly comparable measure calculated and presented in accordance with GAAP in the statements of operations, balance sheets or statements of cash flow of the Company.

We believe that the presentation of our non-GAAP financial measures provides information useful to investors in assessing our financial condition and results of operations. These measures should not be considered an alternative to net income (loss) or any other measure of financial performance or liquidity presented in accordance with GAAP. These measures have important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP measures. Additionally, to the extent that other companies in our industry define similar non-GAAP measures differently than we do, the utility of those measures for comparison purposes may be limited.

The non-GAAP financial measures presented in this earnings release are Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted Diluted Earnings Per Share. Reconciliations of these non-GAAP financial measures to the most directly comparable measures calculated and presented in accordance with GAAP are provided as schedules attached to this release.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA represents, as applicable for the period, net income (loss) attributable to HireRight Holdings Corporation before income (loss) attributable to noncontrolling interest, interest expense, income taxes, depreciation and amortization expense, stock-based compensation, realized and unrealized gain (loss) on foreign exchange, restructuring charges, amortization of cloud computing software costs, legal settlement costs or insurance recoveries deemed by management to be outside the normal course of business, and other items management believes are not representative of the Company’s core operations. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by revenues for the period. Adjusted EBITDA and Adjusted EBITDA Margin are supplemental financial measures that management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess our:

  • Operating performance as compared to other publicly traded companies without regard to capital structure or historical cost basis;
  • Ability to generate cash flow;
  • Ability to incur and service debt and fund capital expenditures; and
  • Viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

Adjusted Net Income and Adjusted Diluted Earnings Per Share

In addition to Adjusted EBITDA, management believes that Adjusted Net Income is a strong indicator of our overall operating performance and is useful to our management and investors as a measure of comparative operating performance from period to period. We define Adjusted Net Income as net income (loss) attributable to HireRight Holdings Corporation adjusted for income (loss) attributable to noncontrolling interest, amortization of acquired intangible assets, loss on modification and extinguishment of debt, stock-based compensation, realized and unrealized gain (loss) on foreign exchange, restructuring charges, amortization of cloud computing software costs, legal settlement costs or insurance recoveries deemed by management to be outside the normal course of business, and other items management believes are not representative of the Company’s core operations, to which we apply a blended statutory tax rate. See the footnotes to the table below for a description of certain of these adjustments. We define Adjusted Diluted Earnings Per Share as Adjusted Net Income divided by the weighted average number of shares outstanding (diluted) for the applicable period. We believe Adjusted Diluted Earnings Per Share is useful to investors and analysts because it enables them to better evaluate per share operating performance across reporting periods and to compare our performance to that of our peer companies.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of the federal securities laws. You can often identify forward-looking statements by the fact that they do not relate strictly to historical or current facts, or to the timing or nature of future operating or financial performance or other events. Forward-looking statements may include, but are not limited to, statements concerning our anticipated financial performance, including, without limitation, revenue, profitability, net income (loss), adjusted EBITDA, adjusted EBITDA margin, adjusted net income, earnings per share ("EPS"), adjusted diluted earnings per share, and cash flow; strategic objectives; investments in our business, including development of our technology and introduction of new offerings; sales growth and customer relationships; our competitive differentiation; our market share and leadership position in the industry; market conditions, trends, and opportunities; future operational performance.

Forward-looking statements are not guarantees. They reflect our current expectations and projections with respect to future events and are based on assumptions and estimates and subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.

Factors that could cause actual results to differ from those anticipated by forward-looking statements include, among other things, our vulnerability to adverse economic conditions, including without limitation, inflation and recession, which could increase our costs and suppress labor market activity and our revenue; the aggressive competition we face; failure to implement successfully our ongoing technology improvement and cost reduction initiatives; our heavy reliance on information management systems, vendors, and information sources that may not perform as we expect; the significant risk of liability we face in the services we perform; the fact that data security, data privacy and data protection laws, emerging restrictions on background reporting due to alleged discriminatory impacts and adverse social consequences, and other evolving regulations and cross-border data transfer restrictions may increase our costs, limit the use or value of our services and adversely affect our business; our ability to maintain our professional reputation and brand name; the impacts, direct and indirect, of pandemics or other calamitous events on our business, our personnel and vendors, and the overall economy; social, political, regulatory and legal risks in markets where we operate; the impact of foreign currency exchange rate fluctuations; unfavorable tax law changes and tax authority rulings; any impairment of our goodwill, other intangible assets and other long-lived assets; our ability to execute and integrate future acquisitions; our ability to access additional credit or other sources of financing; and increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted cyber-related attacks that could pose a risk to our systems, networks, solutions, services and data. For more information on the business risks we face and factors that could affect the outcome of forward-looking statements, refer to our Annual Report on Form 10-K filed with the SEC on March 12, 2024, in particular the sections of that document entitled "Risk Factors," "Forward-Looking Statements," and "Management's Discussion and Analysis of Financial Condition and Results of Operations,” and other filings we make from time to time with the SEC. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

 

HireRight Holdings Corporation

Consolidated Balance Sheets (Unaudited)

 
 

March 31,

 

December 31,

 

 

2024

 

 

 

2023

 

 

(in thousands, except share and per share data)

Assets

 

 

 

Current assets

 

 

 

Cash and cash equivalents

$

77,285

 

 

$

123,416

 

Accounts receivable, net of allowance for credit losses of $5,182 and $5,422 at March 31, 2024 and December 31, 2023, respectively

 

131,037

 

 

 

120,724

 

Prepaid expenses and other current assets

 

21,472

 

 

 

19,556

 

Total current assets

 

229,794

 

 

 

263,696

 

Property and equipment, net

 

7,916

 

 

 

6,393

 

Right-of-use assets, net

 

5,608

 

 

 

6,150

 

Intangible assets, net

 

282,196

 

 

 

297,401

 

Goodwill

 

836,568

 

 

 

837,514

 

Cloud computing software, net

 

34,450

 

 

 

36,144

 

Deferred tax assets

 

83,491

 

 

 

76,736

 

Other non-current assets

 

24,887

 

 

 

24,256

 

Total assets

$

1,504,910

 

 

$

1,548,290

 

Liabilities and Stockholders' Equity

 

 

 

Current liabilities

 

 

 

Accounts payable

$

8,769

 

 

$

9,496

 

Accrued expenses and other current liabilities

 

94,194

 

 

 

100,963

 

Accrued salaries and payroll

 

20,285

 

 

 

29,392

 

Debt, current portion

 

7,500

 

 

 

7,500

 

Total current liabilities

 

130,748

 

 

 

147,351

 

Debt, long-term portion

 

723,455

 

 

 

726,767

 

Tax receivable agreement liability, long-term portion

 

162,669

 

 

 

183,835

 

Deferred tax liabilities

 

10,616

 

 

 

10,817

 

Other non-current liabilities

 

10,287

 

 

 

10,757

 

Total liabilities

 

1,037,775

 

 

 

1,079,527

 

Commitments and contingent liabilities

 

 

 

Stockholders' equity

 

 

 

Preferred stock, $0.001 par value, authorized 100,000,000 shares; none issued and outstanding as of March 31, 2024 and December 31, 2023

 

 

 

 

 

Common stock, $0.001 par value, authorized 1,000,000,000 shares; 80,201,053 and 80,199,299 shares issued, and 67,352,961 and 67,351,207 shares outstanding as of March 31, 2024 and December 31, 2023, respectively

 

80

 

 

 

80

 

Additional paid-in capital

 

827,173

 

 

 

823,621

 

Treasury stock, at cost; 12,848,092 and 12,848,092 shares repurchased at March 31, 2024 and December 31, 2023, respectively

 

(137,596

)

 

 

(137,596

)

Accumulated deficit

 

(230,621

)

 

 

(227,350

)

Accumulated other comprehensive loss

 

(9,225

)

 

 

(7,587

)

Total HireRight Holdings Corporation stockholders' equity

 

449,811

 

 

 

451,168

 

Noncontrolling interest

 

17,324

 

 

 

17,595

 

Total stockholders’ equity

 

467,135

 

 

 

468,763

 

Total liabilities and stockholders’ equity

$

1,504,910

 

 

$

1,548,290

 

 

HireRight Holdings Corporation

Consolidated Statements of Operations (Unaudited)

 
 

Three Months Ended

 

March 31,

 

 

2024

 

 

 

2023

 

 

(in thousands, except share and per share data)

Revenues

$

173,202

 

 

$

175,447

 

 

 

 

 

Expenses

 

 

 

Cost of services (exclusive of depreciation and amortization below)

 

91,638

 

 

 

98,451

 

Selling, general and administrative

 

54,734

 

 

 

59,726

 

Depreciation and amortization

 

19,173

 

 

 

18,417

 

Total expenses

 

165,545

 

 

 

176,594

 

Operating income (loss)

 

7,657

 

 

 

(1,147

)

 

 

 

 

Other expenses

 

 

 

Interest expense, net

 

17,726

 

 

 

12,402

 

Other expense, net

 

6

 

 

 

306

 

Total other expenses

 

17,732

 

 

 

12,708

 

Loss before income taxes

 

(10,075

)

 

 

(13,855

)

Income tax benefit

 

(6,533

)

 

 

(5,944

)

Net loss

$

(3,542

)

 

$

(7,911

)

Less: Net loss attributable to noncontrolling interest

 

(271

)

 

 

 

Net loss attributable to HireRight Holdings Corporation

$

(3,271

)

 

$

(7,911

)

 

 

 

 

Net loss per share attributable to HireRight Holdings Corporation:

 

 

 

Basic

$

(0.05

)

 

$

(0.10

)

Diluted

$

(0.05

)

 

$

(0.10

)

Weighted-average shares outstanding:

 

 

 

Basic

 

67,351,727

 

 

 

77,285,116

 

Diluted

 

67,351,727

 

 

 

77,285,116

 

 

HireRight Holdings Corporation

Consolidated Statements of Cash Flows (Unaudited)

 
 

Three Months Ended

March 31,

 

 

2024

 

 

 

2023

 

 

(in thousands)

Cash flows from operating activities

 

 

 

Net loss

$

(3,542

)

 

$

(7,911

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

Depreciation and amortization

 

19,173

 

 

 

18,417

 

Deferred income taxes

 

(6,488

)

 

 

(6,590

)

Amortization of debt issuance costs

 

474

 

 

 

803

 

Amortization of contract assets

 

1,314

 

 

 

1,212

 

Amortization of right-of-use assets

 

402

 

 

 

2,384

 

Amortization of unrealized gains on terminated interest rate swap agreements

 

 

 

 

(2,527

)

Amortization of cloud computing software costs

 

1,733

 

 

 

1,571

 

Stock-based compensation

 

3,552

 

 

 

3,828

 

Other non-cash charges, net

 

(87

)

 

 

(383

)

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

 

(10,085

)

 

 

2,838

 

Prepaid expenses and other current assets

 

(1,917

)

 

 

(1,465

)

Cloud computing software

 

(39

)

 

 

(6,125

)

Other non-current assets

 

(2,043

)

 

 

(1,893

)

Accounts payable

 

(737

)

 

 

(1,804

)

Accrued expenses and other current liabilities

 

(475

)

 

 

(771

)

Accrued salaries and payroll

 

(9,306

)

 

 

(5,140

)

Operating lease liabilities, net

 

(1,377

)

 

 

(1,284

)

Other non-current liabilities

 

219

 

 

 

(175

)

Net cash used in operating activities

 

(9,229

)

 

 

(5,015

)

Cash flows from investing activities

 

 

 

Purchases of property and equipment

 

(2,648

)

 

 

(693

)

Capitalized software development

 

(2,899

)

 

 

(2,918

)

Other investing

 

 

 

 

(1,000

)

Net cash used in investing activities

 

(5,547

)

 

 

(4,611

)

Cash flows from financing activities

 

 

 

Repayments of debt

 

(3,750

)

 

 

(2,088

)

Payment of tax receivable agreement liability

 

(27,169

)

 

 

 

Repurchases of common stock

 

 

 

 

(24,584

)

Net cash used in financing activities

 

(30,919

)

 

 

(26,672

)

Net decrease in cash, cash equivalents and restricted cash

 

(45,695

)

 

 

(36,298

)

Effect of exchange rates

 

(436

)

 

 

306

 

Cash, cash equivalents and restricted cash

 

 

 

Beginning of year

 

123,416

 

 

 

163,402

 

End of period

$

77,285

 

 

$

127,410

 

Cash paid for

 

 

 

Interest

$

17,467

 

 

$

15,221

 

Income taxes

$

2,416

 

 

$

639

 

Supplemental schedule of non-cash activities

 

 

 

Unpaid property and equipment and capitalized software purchases

$

648

 

 

$

821

 

 

Reconciliation of GAAP Measures to Non-GAAP Measures (Unaudited)

The following table reconciles our non-GAAP financial measure of Adjusted EBITDA to net income (loss), our most directly comparable financial measures calculated and presented in accordance with GAAP, for the periods presented.

 

Three Months Ended

 

March 31,

 

 

2024

 

 

 

2023

 

 

(in thousands, except percents)

Net loss

$

(3,542

)

 

$

(7,911

)

Loss attributable to noncontrolling interest

 

271

 

 

 

 

Net loss attributable to HireRight Holdings Corporation

 

(3,271

)

 

 

(7,911

)

Income tax benefit

 

(6,533

)

 

 

(5,944

)

Interest expense, net

 

17,726

 

 

 

12,402

 

Depreciation and amortization

 

19,173

 

 

 

18,417

 

EBITDA

 

27,095

 

 

 

16,964

 

Stock-based compensation

 

3,552

 

 

 

3,828

 

Realized and unrealized loss on foreign exchange

 

119

 

 

 

307

 

Restructuring charges (1)

 

2,140

 

 

 

9,874

 

Amortization of cloud computing software costs (2)

 

1,733

 

 

 

1,571

 

Other items (3)

 

5,673

 

 

 

497

 

Adjusted EBITDA

$

40,312

 

 

$

33,041

 

Net income (loss) margin attributable to HireRight Holdings Corporation(4)

 

(1.9

)%

 

 

(4.5

)%

Adjusted EBITDA margin

 

23.3

%

 

 

18.8

%

 
(1)

Restructuring charges represent costs incurred in connection with the Company’s global restructuring plan. Costs incurred in connection with the plan during the three months ended March 31, 2024 primarily include: (i) $1.0 million of severance and benefits related to impacted employees, (ii) $0.7 million of professional service fees related to the execution of our cost savings initiatives, and (iii) $0.3 million related to the abandonment of certain of our leased facilities. Restructuring charges incurred in connection with the plan during the three months ended March 31, 2023 include: (i) $4.4 million of severance and benefits related to impacted employees, (ii) $4.0 million of professional service fees related to the execution of our cost savings initiatives, and (iii) $1.4 million related to the abandonment of certain of our leased facilities.

 
(2)

Amortization of cloud computing software costs consists of expense recognized in selling, general and administrative expenses for capitalized implementation costs for cloud computing IT systems incurred in connection with our platform and fulfillment technology initiatives that are intended to achieve greater operational efficiencies. This expense is not included in depreciation and amortization above.

 
(3)

Other items for the three months ended March 31, 2024 consist primarily of (i) professional services fees of $5.3 million related to the pending take-private process, and (ii) $0.4 million of professional services fees not related to core operations. Other items for the three months ended March 31, 2023 consist of professional service fees not related to core operations.

 
(4)

Net income (loss) margin attributable to HireRight represents net income (loss) attributable to HireRight divided by revenues for the period.

 

The following table reconciles our non-GAAP financial measure of Adjusted Net Income to net income (loss), our most directly comparable financial measure calculated and presented in accordance with GAAP, for the periods presented:

 

Three Months Ended

 

March 31,

 

 

2024

 

 

 

2023

 

 

(in thousands)

Net loss

$

(3,542

)

 

$

(7,911

)

Loss attributable to noncontrolling interest

 

271

 

 

 

 

Net loss attributable to HireRight Holdings Corporation

 

(3,271

)

 

 

(7,911

)

Income tax benefit

 

(6,533

)

 

 

(5,944

)

Amortization of acquired intangible assets

 

15,883

 

 

 

15,394

 

Interest expense swap adjustments (1)

 

 

 

 

(2,527

)

Interest expense discounts (2)

 

473

 

 

 

803

 

Stock-based compensation

 

3,552

 

 

 

3,828

 

Realized and unrealized loss on foreign exchange

 

119

 

 

 

307

 

Restructuring charges (3)

 

2,140

 

 

 

9,874

 

Amortization of cloud computing software costs (4)

 

1,733

 

 

 

1,571

 

Other items (5)

 

5,673

 

 

 

497

 

Adjusted income before income taxes

 

19,769

 

 

 

15,892

 

Adjusted income taxes (6)

 

5,140

 

 

 

4,132

 

Adjusted Net Income

$

14,629

 

 

$

11,760

 

 

The following table sets forth the calculation of Adjusted Diluted Earnings Per Share for the periods presented.

 

Three Months Ended

 

March 31,

 

 

2024

 

 

 

2023

 

Diluted net loss per share

$

(0.05

)

 

$

(0.10

)

Loss attributable to noncontrolling interest

 

 

 

 

 

Diluted net loss per share attributable to HireRight Holdings Corporation

 

(0.05

)

 

 

(0.10

)

Income tax benefit

 

(0.10

)

 

 

(0.08

)

Amortization of acquired intangible assets

 

0.24

 

 

 

0.20

 

Interest expense swap adjustments (1)

 

 

 

 

(0.03

)

Interest expense discounts (2)

 

0.01

 

 

 

0.01

 

Stock-based compensation

 

0.05

 

 

 

0.05

 

Realized and unrealized loss on foreign exchange

 

 

 

 

 

Restructuring charges (3)

 

0.03

 

 

 

0.13

 

Amortization of cloud computing software costs (4)

 

0.03

 

 

 

0.02

 

Other items (5)

 

0.09

 

 

 

0.01

 

Adjusted income before income taxes

 

0.30

 

 

 

0.21

 

Adjusted income taxes (6)

 

(0.08

)

 

 

(0.06

)

Adjusted Diluted Earnings Per Share

$

0.22

 

 

$

0.15

 

 

 

 

 

Weighted average number of shares outstanding - diluted

 

67,351,727

 

 

 

77,285,116

 

(1)

Interest expense swap adjustments consist of amortization of unrealized gains on our terminated interest rate swap agreements, which were recognized through December 2023 as a reduction in interest expense.

 
(2)

Interest expense discounts consist of amortization of original issue discount and debt issuance costs.

 
(3)

Restructuring charges represent costs incurred in connection with the Company’s global restructuring plan. Costs incurred in connection with the plan during the three months ended March 31, 2024 primarily include: (i) $1.0 million of severance and benefits related to impacted employees, (ii) $0.7 million of professional service fees related to the execution of our cost savings initiatives, and (iii) $0.3 million related to the abandonment of certain of our leased facilities. Restructuring charges incurred in connection with the plan during the three months ended March 31, 2023 include: (i) $4.4 million of severance and benefits related to impacted employees, (ii) $4.0 million of professional service fees related to the execution of our cost savings initiatives, and (iii) $1.4 million related to the abandonment of certain of our leased facilities.

 
(4)

Amortization of cloud computing software costs consists of expense recognized in selling, general and administrative expenses for capitalized implementation costs for cloud computing IT systems incurred in connection with our platform and fulfillment technology initiatives that are intended to achieve greater operational efficiencies. This expense is not included in depreciation and amortization above.

 
(5)

Other items for the three months ended March 31, 2024 consist primarily of (i) professional services fees of $5.3 million related to the pending take-private process, and (ii) $0.4 million of professional services fees not related to core operations. Other items for the three months ended March 31, 2023 consist of professional service fees not related to core operations.

 
(6)

Adjusted income taxes are based on the tax laws in the jurisdictions in which the Company operates and exclude the impact of net operating losses and valuation allowances to calculate a non-GAAP blended statutory rate of 26% for the three months ended March 31, 2024 and 2023. Adjusted income taxes for the three months ended March 31, 2023 have been updated to conform to the current year methodology.

 

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