– Full-year revenues increased by $76.6
million to $806.7 million –
– Full-year net income of $144.6 million
improved from a net loss of $21.3 million –
– Full-year Adjusted EBITDA increased by 18%
to $188.3 million –
HireRight Holdings Corporation (NYSE: HRT) ("HireRight" or the
"Company"), a leading provider of background screening services,
today announced financial results for its fourth quarter and year
ended December 31, 2022.
Fourth Quarter 2022 Highlights Compared to Fourth Quarter
2021:
- Revenues of $175.4 million compared to $198.5 million in prior
year quarter
- Operating income of $16.1 million more than doubled from $7.3
million
- Net income of $15.3 million increased from a net loss of $13.0
million
- Adjusted EBITDA of $38.9 million down from $42.8 million
- Adjusted net income of $26.8 million grew from $23.3
million
- Earnings per share of $0.19 increased from a net loss per share
of $0.18
- Adjusted diluted earnings per share of $0.34 was up from $0.33
per share
Full-Year 2022 Highlights Compared to Full-Year 2021:
- Revenues of $806.7 million increased 11% from $730.1
million
- Operating income of $98.1 million increased 73% from $56.7
million
- Net income of $144.6 million improved from a net loss of $21.3
million
- Adjusted EBITDA of $188.3 million grew from $160.2 million
- Adjusted net income of $193.7 million increased from $78.2
million
- Earnings per share of $1.82 increased from a net loss per share
of $0.35
- Adjusted diluted earnings per share of $2.44 was up from $1.29
per share
“Despite clear nervousness around the macro-economic outlook, I
am proud of the continued growth and margin improvement we
delivered in 2022,” said HireRight President and CEO Guy Abramo.
“Compared to 2021 we grew gross margins by 169 basis points and
Adjusted EBITDA margins by 140 basis points. Additionally, as a
result of these margin improvements, cash flow from operations was
up more than $60 million over the prior year to $107.7 million.
Finally, net income was $144.6 million compared to a net loss of
$21.3 million. Much of our financial performance improvement
continues to be driven by increasing productivity and automation of
our operations teams around the world. While we remain confident
about our financial and competitive position as well as the
long-term outlook for our industry, the current macro uncertainty
warrants caution even as we continue to improve our margin
profile.”
Liquidity and Capital Resources
As of December 31, 2022, unrestricted cash and cash equivalents
totaled $162.1 million and the Company had $143.7 million in
available borrowing capacity under its Revolving Credit
Facility.
The Company generated $107.7 million of cash from operations for
the year ended December 31, 2022, compared to $47.5 million for the
year ended December 31, 2021.
Full-Year Outlook
Based on current expectations, HireRight is providing the
Company's initial full-year 2023 outlook as set forth in the table
below:
Estimated Low
Estimated High
(in thousands, except per share
data)
Revenues
$
720,000
$
745,000
Adjusted EBITDA (1)
$
165,000
$
175,000
Adjusted Net Income (1)
$
100,000
$
110,000
Adjusted Diluted EPS (1)
$
1.30
$
1.43
(1) A reconciliation of the guidance for the Non-GAAP financial
measures of Adjusted Net Income, Adjusted EBITDA, and Adjusted
Diluted EPS in the table above cannot be provided without
unreasonable effort because of the inherent difficulty of
accurately forecasting the occurrence and financial impact of the
various adjusting items necessary for such reconciliation that have
not yet occurred, are out of our control, or cannot be reasonably
predicted. For the same reasons, the Company is unable to assess
the probable significance of the unavailable information, which
could have a material impact on the Company's future Non-GAAP
financial measures.
Webcast and Conference Call
Management will discuss fourth quarter and full-year 2022
results on a webcast at 2 p.m. (PT) / 5 p.m. (ET) today, Thursday,
March 9, 2023. The webcast, along with the related presentation
materials, may be accessed via HireRight's investor relations
website page at ir.hireright.com under "News and Events." To listen
by phone, please dial 1-877-704-4453 or 1-201-389-0920.
The webcast replay, along with the related presentation
materials, can be accessed via HireRight's investor relations
website page at ir.hireright.com under "News and Events," and will
be available for 90 days. A replay of the call will also be
available until Friday, March 17, 2023 by dialing 1-844-512-2921 or
1-412-317-6671 and entering passcode 13735040.
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 38,000 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 2022, we screened
over 24 million job applicants, employees and contractors for our
customers and processed over 107 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) before interest expense, income taxes, depreciation
and amortization expense, stock-based compensation, realized and
unrealized gain (loss) on foreign exchange, merger integration
expenses, amortization of cloud computing software costs, legal
settlement costs 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) adjusted for
amortization of acquired intangible assets, stock-based
compensation, realized and unrealized gain (loss) on foreign
exchange, merger integration expenses, amortization of cloud
computing software costs, legal settlement costs 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 an adjusted effective 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 adjusted 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 and management's comments on the fourth
quarter earnings call mentioned above contain 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 by their
use of words such as “anticipate,” “estimate,” “expect,” “project,”
“forecast,” “plan,” “intend,” “believe,” “seek,” “could,”
“targets,” “potential,” “may,” “will,” “should,” “can have,”
“likely,” “continue,” and other terms of similar meaning in
connection with any discussion of 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; pending or threatened claims or regulatory
proceedings; and factors that could affect these and other aspects
of our business.
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 affect the outcome of the 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 the COVID-19 pandemic 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 the 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 9, 2023,
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)
December 31,
2022
2021
(in thousands, except share, and
per share data)
Assets
Current assets
Cash and cash equivalents
$
162,092
$
111,032
Restricted cash
1,310
5,182
Accounts receivable, net of allowance for
doubtful accounts of $5,812 and $4,284 at December 31, 2022 and
2021, respectively
136,656
142,473
Prepaid expenses and other current
assets
18,745
18,583
Total current assets
318,803
277,270
Property and equipment, net
9,045
11,127
Right-of-use assets, net
8,423
—
Intangible assets, net
331,598
389,483
Goodwill
809,463
819,538
Cloud computing software, net
35,230
8,133
Deferred tax assets
74,236
—
Other non-current assets
18,949
18,211
Total assets
$
1,605,747
$
1,523,762
Liabilities and Stockholders’
Equity
Current liabilities
Accounts payable
$
11,571
$
13,688
Accrued expenses and other current
liabilities
75,208
75,294
Accrued salaries and payroll
31,075
29,280
Derivative instruments, short-term
—
16,662
Debt, current portion
8,350
8,350
Total current liabilities
126,204
143,274
Debt, long-term portion
683,206
688,683
Derivative instruments, long-term
—
11,444
Tax receivable agreement liability
210,543
210,639
Deferred taxes liabilities
5,748
14,765
Operating lease liabilities, long-
term
10,055
—
Other non-current liabilities
1,673
9,240
Total liabilities
1,037,429
1,078,045
Commitments and contingent liabilities
(Note 14)
Preferred stock, $0.001 par value,
authorized 100,000,000 shares; none issued and outstanding as of
December 31, 2022 and 2021
—
—
Common stock, $0.001 par value, authorized
1,000,000,000 shares; 79,660,397 and 79,392,937 shares issued, and
78,131,568 and 79,392,937 shares outstanding as of December 31,
2022 and 2021, respectively
80
79
Additional paid-in capital
805,799
793,382
Treasury stock, at cost; 1,528,829 shares
and no shares repurchased at December 31, 2022 and 2021,
respectively
(16,827
)
—
Accumulated deficit
(215,790
)
(360,364
)
Accumulated other comprehensive income
(loss)
(4,944
)
12,620
Total stockholders’ equity
568,318
445,717
Total liabilities and stockholders’
equity
$
1,605,747
$
1,523,762
HireRight Holdings Corporation
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
2022
2021
2022
2021
(in thousands, except share and
per share data)
Revenues
$
175,362
$
198,534
$
806,668
$
730,056
Expenses
Cost of services (exclusive of
depreciation and amortization below)
92,499
110,839
435,740
406,671
Selling, general and administrative
48,821
58,037
200,853
188,298
Depreciation and amortization
17,903
22,344
71,959
78,357
Total expenses
159,223
191,220
708,552
673,326
Operating income
16,139
7,314
98,116
56,730
Other expenses
Interest expense
11,151
20,141
32,122
74,815
Other expense, net
309
407
472
532
Total other expenses
11,460
20,548
32,594
75,347
Income (loss) before income taxes
4,679
(13,234
)
65,522
(18,617
)
Income tax (benefit) expense
(10,596
)
(268
)
(79,052
)
2,686
Net income (loss)
$
15,275
$
(12,966
)
$
144,574
$
(21,303
)
Net income (loss) per share:
Basic
$
0.19
$
(0.18
)
$
1.82
$
(0.35
)
Diluted
$
0.19
$
(0.18
)
$
1.82
$
(0.35
)
Weighted average shares
outstanding:
Basic
79,121,465
71,661,888
79,344,547
60,821,472
Diluted
79,345,781
71,661,888
79,443,263
60,821,472
HireRight Holdings Corporation
Consolidated Statements of Cash Flows
(Unaudited)
Year Ended December
31,
2022
2021
(in thousands)
Cash flows from operating
activities
Net income (loss)
$
144,574
$
(21,303
)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization
71,959
78,357
Deferred income taxes
(82,658
)
1,485
Amortization of debt issuance costs
3,345
4,080
Amortization of contract assets
4,505
3,796
Amortization of right-of-use assets
2,973
—
Amortization of unrealized gains on
terminated interest rate swap agreements
(12,634
)
—
Amortization of cloud computing software
costs
2,690
21
Stock-based compensation
11,474
4,528
Change in tax receivable agreement
liability
(96
)
—
Loss on extinguishment of debt
—
5,006
Other non-cash charges, net
2,927
(311
)
Changes in operating assets and
liabilities:
Accounts receivable
3,887
(35,745
)
Prepaid expenses and other current
assets
(160
)
240
Cloud computing software
(29,788
)
(8,154
)
Other non-current assets
(5,309
)
(5,242
)
Accounts payable
(4,953
)
(10,994
)
Accrued expenses and other current
liabilities
(567
)
18,487
Accrued salaries and payroll
1,678
6,156
Operating lease liabilities, net
(4,659
)
—
Other non-current liabilities
(1,460
)
7,067
Net cash provided by operating
activities
107,728
47,474
Cash flows from investing
activities
Purchases of property and equipment
(4,456
)
(6,228
)
Capitalized software development
(12,475
)
(7,809
)
Net cash used in investing activities
(16,931
)
(14,037
)
Cash flows from financing
activities
Proceeds from issuance of common stock in
initial public offering, net of underwriting discounts and
commissions
—
399,044
Payment of initial public offering
issuance costs
—
(5,543
)
Repayments of debt
(8,350
)
(323,350
)
Borrowings on line of credit
—
30,000
Repayments on line of credit
—
(40,000
)
Payments for termination of interest rate
swap agreements
(18,445
)
—
Repurchase of common stock
(15,671
)
—
Proceeds from issuance of common stock in
connection with stock-based compensation plans
1,506
—
Taxes paid related to net share settlement
of equity awards
(562
)
—
Other financing
(399
)
(164
)
Net cash provided by (used in) financing
activities
(41,921
)
59,987
Net increase in cash, cash equivalents and
restricted cash
48,876
93,424
Effect of exchange rates
(1,688
)
(1,269
)
Cash, cash equivalents and restricted
cash
Beginning of year
116,214
24,059
End of year
$
163,402
$
116,214
Cash paid for
Interest
$
41,142
$
65,530
Income taxes
$
4,395
$
1,019
Supplemental schedule of non-cash
activities
Recognition of liability under tax
receivable agreement
$
—
$
210,639
Unpaid property and equipment and
capitalized software purchases
$
740
$
1,526
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
Year Ended
December 31,
December 31,
2022
2021
2022
2021
(in thousands, except
percents)
Net income (loss)
$
15,275
$
(12,966
)
$
144,574
$
(21,303
)
Income tax (benefit) expense (1)
(10,596
)
(268
)
(79,052
)
2,686
Interest expense
11,151
20,141
32,122
74,815
Depreciation and amortization
17,903
22,344
71,959
78,357
EBITDA
33,733
29,251
169,603
134,555
Stock-based compensation
2,887
2,035
11,474
4,528
Realized and unrealized loss on foreign
exchange
1,118
299
323
424
Merger integration expenses (2)
—
(623
)
205
551
Technology investments (3)
4
1,877
563
3,567
Amortization of cloud computing software
costs (4)
1,244
—
2,690
21
Other items (5)
(49
)
9,913
3,452
16,572
Adjusted EBITDA
$
38,937
$
42,752
$
188,310
$
160,218
Net income (loss) margin (6)
8.7
%
6.5
%
17.9
%
2.9
%
Adjusted EBITDA margin
22.2
%
21.5
%
23.3
%
21.9
%
(1)
During the year ended December 31, 2022,
the Company determined sufficient positive evidence existed to
reverse the Company’s valuation allowance attributable to the
deferred tax assets associated with the Company’s operations in the
U.S. This reversal resulted in a non-cash deferred tax benefit of
$96.6 million, which materially decreased the Company’s income tax
expense for the year ended December 31, 2022.
(2)
Merger integration expenses consist
primarily of information technology (“IT”) related costs including
personnel expenses, professional and service fees associated with
the integration of customers and operations of GIS, which commenced
in July 2018 and was substantially completed by the end of
2020.
(3)
Technology investments represent discovery
phase costs associated with various platform and fulfillment
technology initiatives that are intended to achieve greater
operational efficiencies.
(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 and year
ended December 31, 2022 include (i) costs of a nominal amount and
$1.8 million, respectively, associated with the implementation of a
company-wide enterprise resource planning (“ERP”) system, (ii) a
reduction of $0.2 million and costs of $1.4 million related to
severance charges during the three months and year ended December
31, 2022, respectively, (iii) $0.7 million and $1.1 million
associated with professional services fees not related to core
operations for the three months and year ended December 31, 2022,
respectively, (iv) $0.2 million related to exit costs associated
with one of our short-term leased facilities during the year ended
December 31, 2022, with no such costs occurring during the three
months then ended, and (v) various other costs of $0.3 million for
the year ended December 31, 2022. These costs were partially offset
by (i) a reduction in previously accrued legal settlement expense
of $0.6 million during the year ended December 31, 2022 due to a
more favorable outcome than originally anticipated in a claim
outside the ordinary course of business, with no such expense
incurred during the three months ended December 31, 2022, and (ii)
a cost reduction of $0.7 million related to a change in the
estimate of exit costs associated with certain of our leased
facilities for both the three months and year ended December 31,
2022. Other items for the year ended December 31, 2021 include (v)
exit costs of $10.2 million associated with certain of our leased
facilities, and (vi) costs of $5.0 million related to the
preparation of the Company’s initial public offering during
2021.
(6)
Net income (loss) margin represents net
income (loss) 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
Year Ended
December 31,
December 31,
2022
2021
2022
2021
(in thousands)
Net income (loss)
$
15,275
$
(12,966
)
$
144,574
$
(21,303
)
Income tax (benefit) expense (1)
(10,596
)
(268
)
(79,052
)
2,686
Income (loss) before income
taxes
4,679
(13,234
)
65,522
(18,617
)
Amortization of acquired intangible
assets
15,347
15,541
61,682
63,059
Loss on extinguishment of debt (2)
—
5,170
—
5,170
Interest expense swap adjustments (3)
(2,958
)
—
(12,634
)
—
Interest expense discounts (4)
796
941
3,345
4,080
Stock-based compensation
2,887
2,035
11,474
4,528
Realized and unrealized loss on foreign
exchange
1,118
299
323
424
Merger integration expenses (5)
—
(623
)
205
551
Technology investments (6)
4
1,877
563
3,567
Amortization of cloud computing software
costs (7)
1,244
21
2,690
21
Other items (8)
(49
)
10,370
3,452
17,029
Adjusted income before income taxes
23,068
22,397
136,622
79,812
Adjusted income taxes (9)
(3,694
)
(923
)
(57,040
)
1,610
Adjusted Net Income
$
26,762
$
23,320
$
193,662
$
78,202
The following table sets forth the calculation of Adjusted
Diluted Earnings Per Share for the periods presented.
Three Months Ended
Year Ended
December 31,
December 31,
2022
2021
2022
2021
Diluted net income (loss) per
share
$
0.19
$
(0.18
)
$
1.82
$
(0.35
)
Income tax (benefit) expense (1)
(0.13
)
—
(1.00
)
0.04
Amortization of acquired intangible
assets
0.19
0.22
0.78
1.04
Loss on extinguishment of debt (2)
—
0.07
—
0.09
Interest expense swap adjustments (3)
(0.04
)
—
(0.16
)
—
Interest expense discounts (4)
0.01
0.01
0.04
0.07
Stock-based compensation
0.04
0.03
0.15
0.07
Realized and unrealized loss on foreign
exchange
0.01
—
—
0.01
Merger integration expenses (5)
—
(0.01
)
—
0.01
Technology investments (6)
—
0.03
0.01
0.06
Amortization of cloud computing software
costs (7)
0.02
—
0.04
—
Other items (8)
—
0.14
0.04
0.28
Adjusted income taxes (9)
0.05
0.02
0.72
(0.03
)
Adjusted Diluted Earnings Per
Share
$
0.34
$
0.33
$
2.44
$
1.29
Weighted average number of shares
outstanding - diluted
79,345,781
71,661,888
79,443,263
60,821,472
(1)
During the year ended December 31, 2022,
the Company determined sufficient positive evidence existed to
reverse the Company’s valuation allowance attributable to the
deferred tax assets associated with the Company’s operations in the
U.S. This reversal resulted in a non-cash deferred tax benefit of
$96.6 million, which materially decreased the Company’s income tax
expense for the year ended December 31, 2022.
(2)
Loss on extinguishment of debt is related
to the write-off of unamortized deferred financing fees and
unamortized original issue discounts in conjunction with the
repayment of the principal on our second lien term loan facility
and partial repayment of our first lien term loan facility during
the year ended December 31, 2021.
(3)
Interest expense swap adjustments consist
of amortization of unrealized gains on the terminated Interest Rate
Swap Agreements, which will be recognized through December 2023 as
a reduction to interest expense.
(4)
Interest expense discounts consist of
amortization of original issue discount and debt issuance
costs.
(5)
Merger integration expenses consist
primarily of information technology (“IT”) related costs including
personnel expenses, professional and service fees associated with
the integration of customers and operations of GIS, which commenced
in July 2018 and was substantially completed by the end of
2020.
(6)
Technology investments represent discovery
phase costs associated with various platform and fulfillment
technology initiatives that are intended to achieve greater
operational efficiencies.
(7)
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.
(8)
Other items for the three months and year
ended December 31, 2022 include (i) costs of a nominal amount and
$1.8 million, respectively, associated with the implementation of a
company-wide enterprise resource planning (“ERP”) system, (ii) a
reduction of $0.2 million and costs of $1.4 million related to
severance charges during the three months and year ended December
31, 2022, respectively, (iii) $0.7 million and $1.1 million
associated with professional services fees not related to core
operations for the three months and year ended December 31, 2022,
respectively, (iv) $0.2 million related to exit costs associated
with one of our short-term leased facilities during the year ended
December 31, 2022, with no such costs occurring during the three
months then ended, and (v) various other costs of $0.3 million for
the year ended December 31, 2022. These costs were partially offset
by (i) a reduction in previously accrued legal settlement expense
of $0.6 million during the year ended December 31, 2022 due to a
more favorable outcome than originally anticipated in a claim
outside the ordinary course of business, with no such expense
incurred during the three months ended December 31, 2022, and (ii)
a cost reduction of $0.7 million related to a change in the
estimate of exit costs associated with certain of our leased
facilities for both the three months and year ended December 31,
2022. Other items for the year ended December 31, 2021 include (v)
exit costs of $10.2 million associated with certain of our leased
facilities, and (vi) costs of $5.0 million related to the
preparation of the Company’s initial public offering during
2021.
(9)
The tax effect of each adjustment is
determined based on the tax laws and valuation allowance status of
the jurisdiction to which the adjustment relates. An adjusted
effective income tax rate has been determined for each period
presented by applying the statutory income tax rate, net of
applicable adjustments for valuation allowances, which was used to
compute Adjusted Net Income for the periods presented. Due to the
existence of a U.S. tax valuation allowance prior to its release in
2022, the tax impact of the pre-tax adjustments for the year ended
December 31, 2021 is immaterial.
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