– Maintaining Full-Year Outlook –
– Repurchased 2.3 Million Shares of Common
Stock –
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, 2023.
First Quarter 2023 Highlights:
- Revenues of $175.4 million
- Net loss of $7.9 million
- Adjusted EBITDA of $33.0 million
- Net loss per share of $0.10
- Adjusted diluted earnings per share of $0.18
“Our first quarter demonstrated continued progress on our
technology and margin initiatives, placing us ahead of schedule in
achieving our 2023 margin target despite the soft demand
environment” said HireRight President and CEO Guy Abramo. “I am
also pleased to highlight we have made two recent strategic
investments; one to deliver leading I-9 solutions for our customers
and another to bolster our presence in the very important Latin
American market. Lastly, we continue to express confidence in the
opportunities ahead through ongoing share repurchases as part of
our strategic plan to enhance long-term shareholder value.”
Liquidity and Capital Resources
The Company had over $270 million of capital available at March
31, 2023, consisting of $127.4 million of cash and $143.7 million
of available borrowing capacity under its Revolving Credit
Facility. Through May 2, 2023, the Company has repurchased 5.8
million shares of common stock for approximately $63.5 million
under the share repurchase program announced on November 13,
2022.
Cash used in operating activities was $5.0 million for first
quarter 2023, compared to cash used of $2.0 million for the same
period in 2022.
Full-Year Outlook
Based on current expectations, HireRight is maintaining 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 EBITDA, Adjusted Net Income, 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 first quarter results on a webcast at 2
p.m. (PT) / 5 p.m. (ET) today, Tuesday, May 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 Tuesday, May 16, 2023 by dialing 1-844-512-2921 or
1-412-317-6671 and entering passcode 13737147.
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 and/or included in management’s commentary on the earnings
call described above, 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, restructuring charges,
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, restructuring charges, 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 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 first
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 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 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
Condensed Consolidated Balance Sheets (Unaudited)
March 31,
December 31,
2023
2022
(in thousands, except share, and
per share data)
Assets
Current assets
Cash and cash equivalents
$
127,410
$
162,092
Restricted cash
—
1,310
Accounts receivable, net of allowance for
credit losses of $5,365 and $5,812 at March 31, 2023 and December
31, 2022, respectively
134,306
136,656
Prepaid expenses and other current
assets
20,208
18,745
Total current assets
281,924
318,803
Property and equipment, net
8,374
9,045
Right-of-use assets, net
6,921
8,423
Intangible assets, net
318,057
331,598
Goodwill
811,338
809,463
Cloud computing software, net
39,785
35,230
Deferred tax assets
80,612
74,236
Other non-current assets
20,583
18,949
Total assets
$
1,567,594
$
1,605,747
Liabilities and Stockholders’
Equity
Current liabilities
Accounts payable
$
9,442
$
11,571
Accrued expenses and other current
liabilities
102,923
75,208
Accrued salaries and payroll
26,085
31,075
Debt, current portion
8,350
8,350
Total current liabilities
146,800
126,204
Debt, long-term portion
681,853
683,206
Tax receivable agreement liability,
long-term portion
183,504
210,543
Deferred tax liabilities
5,617
5,748
Other non-current liabilities
10,845
11,728
Total liabilities
1,028,619
1,037,429
Commitments and contingent liabilities
(Note 12)
Preferred stock, $0.001 par value,
authorized 100,000,000 shares; none issued and outstanding as of
March 31, 2023 and December 31, 2022
—
—
Common stock, $0.001 par value, authorized
1,000,000,000 shares; 79,665,328 and 79,660,397 shares issued, and
75,874,099 and 78,131,568 shares outstanding as of March 31, 2023
and December 31, 2022, respectively
80
80
Additional paid-in capital
809,627
805,799
Treasury stock, at cost; 3,791,229 and
1,528,829 shares repurchased at March 31, 2023 and December 31,
2022, respectively
(42,337
)
(16,827
)
Accumulated deficit
(223,701
)
(215,790
)
Accumulated other comprehensive loss
(4,694
)
(4,944
)
Total stockholders’ equity
538,975
568,318
Total liabilities and stockholders’
equity
$
1,567,594
$
1,605,747
HireRight Holdings Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
2023
2022
(in thousands, except share and
per share data)
Revenues
$
175,447
$
198,711
Expenses
Cost of services (exclusive of
depreciation and amortization below)
98,451
112,403
Selling, general and administrative
59,726
48,267
Depreciation and amortization
18,417
18,061
Total expenses
176,594
178,731
Operating income (loss)
(1,147
)
19,980
Other expenses
Interest expense, net
12,402
7,557
Other expense, net
306
41
Total other expenses
12,708
7,598
Income (loss) before income taxes
(13,855
)
12,382
Income tax expense (benefit)
(5,944
)
818
Net income (loss)
$
(7,911
)
$
11,564
Net income (loss) per share:
Basic
$
(0.10
)
$
0.15
Diluted
$
(0.10
)
$
0.15
Weighted average shares
outstanding:
Basic
77,285,116
79,392,937
Diluted
77,285,116
79,392,937
HireRight Holdings Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March
31,
2023
2022
(in thousands)
Cash flows from operating
activities
Net income (loss)
$
(7,911
)
$
11,564
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization
18,417
18,061
Deferred income taxes
(6,590
)
205
Amortization of debt issuance costs
803
821
Amortization of contract assets
1,212
1,091
Amortization of right-of-use assets
2,384
686
Amortization of unrealized gains on
terminated interest rate swap agreements
(2,527
)
(2,181
)
Amortization of cloud computing software
costs
1,571
151
Stock-based compensation
3,828
2,794
Other non-cash charges, net
(383
)
496
Changes in operating assets and
liabilities:
Accounts receivable
2,838
(29,852
)
Prepaid expenses and other current
assets
(1,465
)
4,115
Cloud computing software
(6,125
)
(8,548
)
Other non-current assets
(1,893
)
(1,411
)
Accounts payable
(1,804
)
(7,095
)
Accrued expenses and other current
liabilities
(771
)
14,920
Accrued salaries and payroll
(5,140
)
(6,240
)
Operating lease liabilities, net
(1,284
)
(1,068
)
Other non-current liabilities
(175
)
(524
)
Net cash used in operating activities
(5,015
)
(2,015
)
Cash flows from investing
activities
Purchases of property and equipment
(693
)
(1,867
)
Capitalized software development
(2,918
)
(2,662
)
Other investing
(1,000
)
—
Net cash used in investing activities
(4,611
)
(4,529
)
Cash flows from financing
activities
Repayments of debt
(2,088
)
(2,088
)
Payments for termination of interest rate
swap agreements
—
(18,445
)
Repurchase of common stock
(24,584
)
—
Net cash used in financing activities
(26,672
)
(20,533
)
Net decrease in cash, cash equivalents and
restricted cash
(36,298
)
(27,077
)
Effect of exchange rates
306
(420
)
Cash, cash equivalents and restricted
cash
Beginning of year
163,402
116,214
End of period
$
127,410
$
88,717
Cash paid for
Interest
$
15,221
$
8,772
Income taxes
$
639
$
902
Supplemental schedule of non-cash
activities
Unpaid property and equipment and
capitalized software purchases
$
821
$
561
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,
2023
2022
(in thousands, except
percents)
Net income (loss)
$
(7,911
)
$
11,564
Income tax (benefit) expense
(5,944
)
818
Interest expense, net
12,402
7,557
Depreciation and amortization
18,417
18,061
EBITDA
16,964
38,000
Stock-based compensation
3,828
2,794
Realized and unrealized gain (loss) on
foreign exchange
307
(79
)
Restructuring charges (1)
9,874
—
Amortization of cloud computing software
costs (2)
1,571
151
Other items (3)
497
860
Adjusted EBITDA
$
33,041
$
41,726
Net income (loss) margin (4)
(4.5
)%
5.8
%
Adjusted EBITDA margin
18.8
%
21.0
%
(1)
Restructuring charges represent costs
incurred in connection with the Company’s global restructuring
plan. Costs incurred in connection with the plan 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, 2023 comprise professional services fees not related to
core operations. Other items for the three months ended March 31,
2022 include (i) costs of $0.9 million associated with the
implementation of a company-wide ERP system, (ii) $0.3 million
related to loss on disposal of assets and exit costs associated
with one of our short-term leased facilities, (iii) $0.2 million of
information technology related costs including personnel expenses
and professional service fees associated with the integration of
customers and operations of an entity with which the Company
merged, and (iv) a partial offset of these costs by a reduction in
previously accrued legal settlement expense of $0.6 million during
the three months ended March 31, 2022 due to a more favorable
outcome than originally anticipated in a claim outside the ordinary
course of business.
(4)
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
March 31,
2023
2022
(in thousands)
Net income (loss)
$
(7,911
)
$
11,564
Income tax (benefit) expense
(5,944
)
818
Income (loss) before income
taxes
(13,855
)
12,382
Amortization of acquired intangible
assets
15,394
15,505
Interest expense swap adjustments (1)
(2,527
)
(2,181
)
Interest expense discounts (2)
803
821
Stock-based compensation
3,828
2,794
Realized and unrealized gain (loss) on
foreign exchange
307
(79
)
Restructuring charges (3)
9,874
—
Amortization of cloud computing software
costs (4)
1,571
151
Other items (5)
497
860
Adjusted income before income taxes
15,892
30,253
Adjusted income taxes (6)
2,346
439
Adjusted Net Income
$
13,546
$
29,814
The following table sets forth the calculation of Adjusted
Diluted Earnings Per Share for the periods presented.
Three Months Ended
March 31,
2023
2022
Diluted net income (loss) per
share
$
(0.10
)
$
0.15
Income tax (benefit) expense
(0.08
)
0.01
Amortization of acquired intangible
assets
0.20
0.19
Interest expense swap adjustments (1)
(0.03
)
(0.03
)
Interest expense discounts (2)
0.01
0.01
Stock-based compensation
0.05
0.04
Realized and unrealized gain (loss) on
foreign exchange
—
—
Restructuring charges (3)
0.13
—
Amortization of cloud computing software
costs (4)
0.02
—
Other items (5)
0.01
0.01
Adjusted income taxes (6)
(0.03
)
(0.01
)
Adjusted Diluted Earnings Per
Share
$
0.18
$
0.37
Weighted average number of shares
outstanding - diluted
77,285,116
79,392,937
(1)
Interest expense swap adjustments consist
of amortization of unrealized gains on our terminated interest rate
swap agreements, which will be 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 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, 2023 comprise professional services fees not related to
core operations. Other items for the three months ended March 31,
2022 include (i) costs of $0.9 million associated with the
implementation of a company-wide ERP system, (ii) $0.3 million
related to loss on disposal of assets and exit costs associated
with one of our short-term leased facilities, (iii) $0.2 million of
information technology related costs including personnel expenses
and professional service fees associated with the integration of
customers and operations of an entity with which the Company
merged, and (iv) a partial offset of these costs by a reduction in
previously accrued legal settlement expense of $0.6 million during
the three months ended March 31, 2022 due to a more favorable
outcome than originally anticipated in a claim outside the ordinary
course of business.
(6)
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, the tax impact of the
pre-tax adjustments for the three months ended March 31, 2022 is
immaterial. 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. There
is no change to the manner by which the tax effect of each
adjustment is determined as a result of the reversal of the
valuation allowance.
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Investors: InvestorRelations@HireRight.com +1
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