10-Q 1 hrt-20230930.htm 10-Q hrt-20230930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission file number 001-40982
HireRight Holdings Corporation
(Exact name of registrant as specified in its charter)
Prospectus_coverA2.jpg
Delaware
83-1092072
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
100 Centerview Drive, Suite 300
NashvilleTennessee
37214
(Address of Principal Executive Offices)
(Zip Code)
(615) 320-9800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.001 per shareHRTNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes   ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☒ Yes   ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company
                
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   ☒ No

The registrant had outstanding 67,644,747 shares of common stock as of October 31, 2023.



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)













Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
HireRight Holdings Corporation
Condensed Consolidated Balance Sheets (Unaudited)
September 30,
2023
December 31, 2022
(in thousands, except share, and per share data)
Assets
Current assets
Cash and cash equivalents$103,218 $162,092 
Restricted cash 1,310 
Accounts receivable, net of allowance for credit losses of $5,421 and $5,812 at September 30, 2023 and December 31, 2022, respectively
139,557 136,656 
Prepaid expenses and other current assets26,118 18,745 
Total current assets268,893 318,803 
Property and equipment, net7,190 9,045 
Right-of-use assets, net6,352 8,423 
Intangible assets, net312,542 331,598 
Goodwill833,264 809,463 
Cloud computing software, net37,736 35,230 
Deferred tax assets74,110 74,236 
Other non-current assets20,975 18,949 
Total assets$1,561,062 $1,605,747 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable$11,740 $11,571 
Accrued expenses and other current liabilities102,189 75,208 
Accrued salaries and payroll30,801 31,075 
Debt, current portion7,500 8,350 
Total current liabilities152,230 126,204 
Debt, long-term portion726,338 683,206 
Tax receivable agreement liability, long-term portion183,504 210,543 
Deferred taxes liabilities11,269 5,748 
Other non-current liabilities10,844 11,728 
Total liabilities1,084,185 1,037,429 
Commitments and contingent liabilities (Note 14)
Stockholders' equity
Preferred stock, $0.001 par value, authorized 100,000,000 shares; none issued and outstanding as of September 30, 2023 and December 31, 2022
  
Common stock, $0.001 par value, authorized 1,000,000,000 shares; 79,884,225 and 79,660,397 shares issued, and 68,138,638 and 78,131,568 shares outstanding as of September 30, 2023 and December 31, 2022, respectively
80 80 
Additional paid-in capital820,090 805,799 
Treasury stock, at cost; 11,745,587 and 1,528,829 shares repurchased at September 30, 2023 and December 31, 2022, respectively
(126,742)(16,827)
Accumulated deficit(222,844)(215,790)
Accumulated other comprehensive loss(11,420)(4,944)
Total HireRight Holdings Corporation stockholders' equity459,164 568,318 
Noncontrolling interest17,713  
Total stockholders’ equity 476,877 568,318 
Total liabilities and stockholders’ equity$1,561,062 $1,605,747 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1


HireRight Holdings Corporation
Condensed Consolidated Statements of Operations (Unaudited)


Three Months Ended September 30,Nine Months Ended
September 30,
2023202220232022
(in thousands, except share, and per share data)
Revenues$188,262 $210,303 $555,833 $631,306 
Expenses
Cost of services (exclusive of depreciation and amortization below)94,422 110,848 291,449 343,241 
Selling, general and administrative48,588 49,378 164,442 152,032 
Depreciation and amortization19,063 17,946 56,246 54,056 
Total expenses162,073 178,172 512,137 549,329 
Operating income26,189 32,131 43,696 81,977 
Other expenses
Interest expense, net22,447 8,457 48,392 20,971 
Other expense, net881 89 1,429 163 
Total other expenses23,328 8,546 49,821 21,134 
Income (loss) before income taxes2,861 23,585 (6,125)60,843 
Income tax expense (benefit)4,450 (69,704)863 (68,456)
Net income (loss)$(1,589)$93,289 $(6,988)$129,299 
Less: Net income attributable to noncontrolling interest (1)
66  66  
Net income (loss) attributable to HireRight Holdings Corporation$(1,655)$93,289 $(7,054)$129,299 
Net income (loss) per share attributable to HireRight Holdings Corporation:
Basic$(0.02)$1.17 $(0.10)$1.63 
Diluted$(0.02)$1.17 $(0.10)$1.63 
Weighted average shares outstanding:
Basic69,090,88279,459,63373,080,85179,419,725
Diluted69,090,88279,542,71573,080,85179,476,574

(1) See Note 1 — Organization, Basis of Presentation and Consolidation, and Significant Accounting Policies for a description of noncontrolling interest.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


2


HireRight Holdings Corporation
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three Months Ended September 30,Nine Months Ended
September 30,
2023202220232022
(in thousands)
Net income (loss)$(1,589)$93,289 $(6,988)$129,299 
Other comprehensive income (loss), net of tax
Unrealized (loss) gain on derivatives qualified for hedge accounting:
Unrealized gain on interest rate swaps   7,981 
Reclassification adjustments included in earnings (1)
(2,088)(3,413)(6,890)(7,997)
Total unrealized loss(2,088)(3,413)(6,890)(16)
Currency translation adjustment, net of tax expense of $16 and $64 for the three months ended September 30, 2023 and 2022, respectively, and $102 and $210 for the nine months ended September 30, 2023 and 2022, respectively
(4,318)(12,565)414 (26,400)
Other comprehensive loss(6,406)(15,978)(6,476)(26,416)
Comprehensive income (loss)$(7,995)$77,311 $(13,464)$102,883 
Less: comprehensive income attributable to noncontrolling interest, net of tax66  66  
Comprehensive income (loss) attributable to HireRight Holdings Corporation$(8,061)$77,311 $(13,530)$102,883 

(1)    Represents the reclassification of the effective portion of the gain on the Company's interest rate swaps into interest expense. Includes reclassification to earnings as a reduction to interest expense of unrealized gains included in accumulated other comprehensive loss on the condensed consolidated balance sheet related to the interest rate swap agreements terminated on February 18, 2022. See Note 12 for additional information.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


3


HireRight Holdings Corporation
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
Three Months Ended September 30, 2023
Common StockTreasury Stock
SharesAmountSharesAmountAdditional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive Loss
Noncontrolling Interest
Total Stockholders’ Equity
(in thousands, except share data)
Balances at June 30, 202370,326,266 $80 9,524,029 $(102,889)$815,411 $(221,189)$(5,014)$ $486,399 
Issuance of common stock under stock-based compensation plans, net of shares withheld for employee taxes33,930 — — — (139)— — — (139)
Net loss attributable to HireRight Holdings Corporation — — — — — (1,655)— — (1,655)
Acquisition date fair value of noncontrolling interest (Note 3)— — — — — — — 17,647 17,647 
Net income attributable to noncontrolling interest— — — — — — — 66 66 
Stock-based compensation— — — — 4,818 — — — 4,818 
Repurchase of common stock(2,221,558)— 2,221,558 (23,853)— — — — (23,853)
Other comprehensive loss— — — — — — (6,406)— (6,406)
Balances at September 30, 202368,138,638 $80 11,745,587 $(126,742)$820,090 $(222,844)$(11,420)$17,713 $476,877 

Three Months Ended September 30, 2022
Common StockTreasury Stock
SharesAmountSharesAmountAdditional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
(in thousands, except unit data)
Balances at June 30, 202279,432,321 $79  $ $800,566 $(324,354)$2,182 $478,473 
Issuance of common stock in connection with stock-based compensation50,291 — — — 803 — — 803 
Net income— — — — — 93,289 — 93,289 
Stock-based compensation— — — — 1,115 — — 1,115 
Other comprehensive loss— — — — — — (15,978)(15,978)
Balances at September 30, 202279,482,612 $79  $ $802,484 $(231,065)$(13,796)$557,702 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4


HireRight Holdings Corporation
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
Nine Months Ended September 30, 2023
Common StockTreasury Stock
SharesAmountSharesAmountAdditional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive Loss
Noncontrolling Interest
Total Stockholders’ Equity
(in thousands, except share data)
Balances at December 31, 202278,131,568 $80 1,528,829 $(16,827)$805,799 $(215,790)$(4,944)$ $568,318 
Issuance of common stock under stock-based compensation plans, net of shares withheld for employee taxes223,828 — — — 402 — — — 402 
Net loss attributable to HireRight Holdings Corporation
— — — — — (7,054)— — (7,054)
Acquisition date fair value of noncontrolling interest (Note 3)— — — — — — — 17,647 17,647 
Net income attributable to noncontrolling interest— — — — — — — 66 66 
Stock-based compensation— — — — 13,889 — — — 13,889 
Repurchase of common stock(10,216,758)— 10,216,758 (109,915)— — — — (109,915)
Other comprehensive loss— — — — — — (6,476)— (6,476)
Balances at September 30, 202368,138,638 $80 11,745,587 $(126,742)$820,090 $(222,844)$(11,420)$17,713 $476,877 

Nine Months Ended September 30, 2022
Common StockTreasury Stock
SharesAmountSharesAmountAdditional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
(in thousands, except unit data)
Balances at December 31, 202179,392,937 $79  $ $793,382 $(360,364)$12,620 $445,717 
Issuance of common stock in connection with stock-based compensation89,675 — — — 803 — — 803 
Net income— — — — — 129,299 — 129,299 
Stock-based compensation— — — — 8,299 — — 8,299 
Other comprehensive loss— — — — — — (26,416)(26,416)
Balances at September 30, 202279,482,612 $79  $ $802,484 $(231,065)$(13,796)$557,702 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


HireRight Holdings Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
20232022
(in thousands)
Cash flows from operating activities
Net income (loss)$(6,988)$129,299 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization56,246 54,056 
Deferred income taxes(1,021)(70,954)
Amortization of debt issuance costs2,404 2,549 
Amortization of contract assets3,742 3,312 
Amortization of right-of-use assets3,715 2,094 
Amortization of unrealized gains on terminated interest rate swap agreements(6,890)(9,676)
Amortization of cloud computing software costs5,012 1,446 
Stock-based compensation13,889 8,587 
Change in tax receivable agreement liability 800 
Loss on modification and extinguishment of debt7,745  
Other non-cash charges, net1,010 524 
Changes in operating assets and liabilities (net of acquisitions):
Accounts receivable(1,546)(24,521)
Prepaid expenses and other current assets(6,850)1,516 
Cloud computing software(8,465)(23,158)
Other non-current assets(4,960)(3,934)
Accounts payable 156 (5,212)
Accrued expenses and other current liabilities259 5,498 
Accrued salaries and payroll(661)3,631 
Operating lease liabilities, net(3,759)(4,125)
Other non-current liabilities(2,410)(805)
Net cash provided by operating activities50,628 70,927 
Cash flows from investing activities
Purchases of property and equipment(2,049)(3,973)
Capitalized software development(8,829)(9,149)
Cash paid for acquisitions, net of cash acquired(21,653) 
 Other investing(2,000) 
Net cash used in investing activities(34,531)(13,122)
Cash flows from financing activities
Repayments of debt(638,653)(6,263)
Proceeds from Second Amended First Lien Term Loan Facility, net of debt discount677,890  
Payments for termination of interest rate swap agreements (18,445)
Payment of issuance costs(6,252)(342)
Repurchases of common stock(109,642) 
Proceeds from issuance of common stock in connection with stock-based compensation plans613  
Taxes paid related to net share settlement of equity awards(211) 
Net cash used in financing activities(76,255)(25,050)
Net increase (decrease) in cash, cash equivalents and restricted cash(60,158)32,755 
Effect of exchange rates(26)(1,155)
Cash, cash equivalents and restricted cash
Beginning of year163,402 116,214 
End of period$103,218 $147,814 
Cash paid for
Interest$47,234 $27,890 
Income taxes$1,804 $2,718 
Supplemental schedule of non-cash activities
Unpaid property and equipment and capitalized software purchases$654 $1,102 
Acquisition cash holdback$2,250  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Organization, Basis of Presentation and Consolidation, and Significant Accounting Policies

Organization

Description of Business

HireRight Holdings Corporation (“HireRight” or the “Company”) is incorporated in Delaware.
The Company is a leading global provider of technology-driven workforce risk management and compliance solutions, providing comprehensive background screening, verification, identification, monitoring, and drug and health screening services for customers across the globe, predominantly under the HireRight brand.
Income Tax Receivable Agreement

In connection with the Company’s initial public offering (“IPO”), the Company entered into an income tax receivable agreement (“TRA”), which provides for the payment by the Company over a period of approximately 12 years to pre-IPO equityholders or their permitted transferees of 85% of the benefits, if any, that the Company and its subsidiaries realize, or are deemed to realize (calculated using certain assumptions) in U.S. federal, state, and local income tax savings as a result of the utilization (or deemed utilization) of certain existing tax attributes. As of September 30, 2023 and December 31, 2022, the Company had a total liability of $210.5 million in connection with the projected obligations under the TRA, for which annual payments will begin in the first quarter of 2024. TRA related liabilities are classified as current or non-current based on the expected date of payment and are included on the Company’s condensed consolidated balance sheets under the captions accrued expenses and other current liabilities and tax receivable agreement liability, long-term portion, respectively. See Note 7 — Accrued Expenses and Other Current Liabilities for further details related to the current portion of the TRA liability.
Basis of Presentation and Principles of Consolidation

The unaudited condensed consolidated financial statements include the Company’s accounts and those of its wholly and majority-owned subsidiaries for which the Company has a controlling interest. The Company accounts for investments in unconsolidated entities where it exercises significant influence, but does not have control, using the equity method. The unaudited condensed consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting.
Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 10, 2023 (“Annual Report”). The December 31, 2022 condensed consolidated balance sheet data included herein was derived from audited financial statements but does not include all disclosures required by GAAP.
In the opinion of management, all adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements have been included. All intercompany balances and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements have been prepared on a consistent basis with the accounting policies described in Note 1 of the notes to the audited consolidated financial statements for the year ended December 31, 2022, included in the Annual Report.
Significant Accounting Policies

The Company’s significant accounting policies are discussed in “Note 1 Organization, Basis of Presentation and Consolidation, and Significant Accounting Policies” of the notes to the audited consolidated financial
7



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
statements for the year ended December 31, 2022, included in the Annual Report. There have been no significant changes to these policies which have had a material impact on the Company’s unaudited condensed consolidated financial statements during the nine months ended September 30, 2023, except as noted below.
Business Combinations
On July 3, 2023, the Company completed the acquisition of a controlling equity interest in a privately-held company. See Note 3 Business Combinations for additional information. Business combinations are accounted for under Accounting Standards Codification (“ASC”) 805—Business Combinations, using the acquisition method of accounting under which all acquired tangible and identifiable intangible assets and assumed liabilities and applicable noncontrolling interests are recognized at fair value as of the respective acquisition date, while the costs associated with the acquisition of a business are expensed as incurred.
The allocation of purchase consideration requires management to make significant estimates and assumptions, especially with respect to identifiable intangible assets. These estimates can include, but are not limited to, a market participant’s expectation of future cash flows from acquired platforms, acquired trade names, useful lives of acquired assets, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. As a result, actual results may differ from such estimates.
Noncontrolling Interest
As a result of the Company’s acquisition of a majority interest in a privately-held company on July 3, 2023, the Company’s condensed consolidated financial statements present noncontrolling interest. Noncontrolling interest represents the portion of profit or loss, comprehensive profit or loss, and net assets of the acquired company that are not allocable to the Company. See Note 3 — Business Combinations for additional information.
Use of Estimates

Preparation of the Company’s unaudited condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates, judgments, and assumptions that affect the amounts reported and disclosed in the financial statements. The Company believes that the estimates, judgments, and assumptions used to determine certain amounts that affect the financial statements are reasonable based upon information available at the time they are made. The Company uses such estimates, judgments, and assumptions when accounting for items and matters such as, but not limited to, the allowance for credit losses, customer rebates, impairment assessments and charges, recoverability of long-lived assets, deferred tax assets, lease accounting, uncertain tax positions, income tax expense, liabilities under the TRA, derivative instruments, fair value of debt, stock-based compensation expense, useful lives assigned to long-lived assets, the allocation of purchase consideration, and the stand-alone selling price of performance obligations for revenue recognition purposes. Results and outcomes could differ materially from these estimates, judgments, and assumptions due to risks and uncertainties.
2. Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements Adopted

Accounting Pronouncements Adopted in 2023

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which delayed the effective date for this guidance until the fiscal year beginning after December 15, 2022 including interim periods within those fiscal years. Early adoption is
8



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
permitted. The Company adopted ASU 2016-13 effective January 1, 2023, using the modified retrospective transition method. The adoption of this ASU did not have a material impact on the condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which aims to improve the accounting for acquired revenue contracts with customers in a business combination. The ASU requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The new guidance is effective for the Company for annual periods beginning after December 15, 2023 and interim periods within those fiscal years. The Company adopted ASU 2021-08 effective January 1, 2023. The adoption of this ASU did not have a material impact on the condensed consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848),” which provides temporary, optional practical expedients and exceptions to enable a smoother transition to the new reference rates which will replace the London Interbank Offered Rate (“LIBOR”) and other reference rates expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope,” which expanded the scope of Topic 848 to include derivative instruments impacted by the discounting transition. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,” which extended the temporary accounting rules under Topic 848 from December 31, 2022 to December 31, 2024. The Company does not expect the adoption of this guidance to have a material impact on the condensed consolidated financial statements.
3. Business Combinations

On December 31, 2022, and February 16, 2023, the Company entered into definitive agreements to purchase 60% of the equity interests in Digital Technology Identity Services, LLC (“DTIS”), a privately held company that specializes in collecting and processing biometric and biographical data, for a total purchase price of $26.5 million, including a one-year $2.3 million cash holdback, which, subject to claims by the Company under the purchase agreement, is due no later than 15 days following the first anniversary of the closing date (the “DTIS Acquisition”). The purchase of 60% of the equity interests represents a controlling interest in DTIS. The purchase was completed on July 3, 2023 and was funded with available cash. The remaining 40% of the equity interest in DTIS is retained by a leading professional organization representing individuals who work at public-use commercial and general aviation airports. The DTIS Acquisition expands the Company’s biometric-based screening capabilities as a critical component for customers in both regulated and non-regulated industries.
Acquisition-related costs incurred by the Company during the three and nine months ended September 30, 2023 related to the DTIS Acquisition were $0.1 million and $0.4 million, respectively, and are included in selling, general and administrative expenses in the condensed consolidated statements of operations.
The acquisition constitutes a business combination and therefore was accounted for as an acquisition of a business under the applicable guidance. The Company fully consolidated the assets and liabilities of DTIS, with a corresponding noncontrolling interest classified as equity in the Company’s condensed consolidated balance sheets. The following table summarizes the purchase consideration.
As of
July 3, 2023
(in thousands)
Consideration transferred, net of cash acquired (1)
$23,903 
Estimated fair value of noncontrolling interest
17,647 
Total consideration
$41,550 
(1)Consideration transferred includes a one-year $2.3 million cash holdback.
9



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

The total purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values on the date of acquisition. The following table presents the preliminary allocation of the fair value of consideration transferred:
As of
July 3, 2023
(in thousands)
Current assets$1,742 
Other non-current assets470 
Intangible assets24,100 
Goodwill22,669 
Total assets acquired48,981 
Accounts payable and accrued liabilities814 
Long-term deferred tax liabilities6,333 
Other non-current liabilities284 
Total liabilities assumed7,431 
Net assets acquired
$41,550 
Identifiable intangible assets acquired in the DTIS Acquisition and their useful lives consist of the following:
Useful lives
As of
July 3, 2023
(in thousands)
Biometric screening platform
12.5 years$23,700 
Trade names
8.5 years400 
Total
$24,100 

The Company used a third-party valuation specialist to determine the acquisition-date fair value of the intangible assets using various methods. The biometric screening platform was valued using the income method, specifically the Greenfield Method, which estimates the present value of future cash flows associated with developing an operating business assuming an entity holds only the identified intangible asset. Key assumptions in valuing the biometric screening platform included significant judgments and assumptions relating to (i) forecasted revenue attributable to the platform, (ii) costs incurred, and (iii) a discount rate of 19%. Trade names were valued using the relief from royalty method. Key assumptions in valuing the acquired trade names included (i) a royalty rate of 1%, (ii) forecasted revenue attributable to the trade names, and (iii) a discount rate of 19%. The results of the valuation are preliminary and may change as the Company continues to evaluate key assumptions.

The goodwill represents the excess of the purchase price over the fair value of the assets acquired less liabilities assumed. The Company expects to realize strategic benefits by offering enhanced biometric-based screening from the DTIS Acquisition, which can be integrated into the Company’s current service offerings. None of the goodwill is deductible for tax purposes.
Revenue and earnings of the entity acquired were not presented as they were not material to the condensed consolidated financial statements.
10



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
4. Prepaid Expenses and Other Current Assets, and Other Non-Current Assets

The components of prepaid expenses and other current assets were as follows:
September 30, 2023December 31, 2022
(in thousands)
Prepaid software licenses, maintenance and insurance$13,381 $9,237 
Other prepaid expenses and current assets12,737 9,508 
Total prepaid expenses and other current assets$26,118 $18,745 

The components of other non-current assets were as follows:
September 30, 2023December 31, 2022
(in thousands)
Contract implementation assets$18,838 $17,983 
Other non-current assets2,137 966 
Total other non-current assets$20,975 $18,949 
See Note 16 — Revenues for further discussion on contract implementation costs and related amortization included in cost of services in the Company’s condensed consolidated statements of operations.

5. Right-of-Use Assets and Lease Liabilities

The Company leases office facilities under operating leases in various domestic and foreign locations with initial terms ranging from 1 to 12 years. Some leases include one or more options to extend the term of the lease, generally at the Company’s sole discretion, with renewal terms that can extend the lease term up to 5 years.
The Company’s operating leases were as follows:
September 30, 2023December 31, 2022
(in thousands)
Right-of-use assets, net (1)
$6,352 $8,423 
Current operating lease liabilities (2)
$4,316 $5,509 
Operating lease liabilities, long-term (2)
9,313 10,055 
Total operating lease liabilities$13,629 $15,564 

(1)Includes impact of accelerated expense on abandoned right-of-use assets related to the global restructuring plan, see Note 21 — Restructuring and Related Charges for additional information.
(2)Current and long-term operating lease liabilities are recorded in accrued expenses and other current liabilities, and other non-current liabilities, respectively, on the Company’s condensed consolidated balance sheets.
11



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Supplemental cash flow information related to leases was as follows:
Nine Months Ended
September 30,
20232022
(in thousands)
Cash paid for amounts included in measurement of operating lease liabilities$4,641 $4,193 
ROU assets obtained in exchange for operating lease liabilities$897 $10,896 
The weighted average remaining lease term and weighted average discount rate for the Company’s operating leases were as follows:
September 30,
20232022
Weighted average remaining lease term (in years)4.124.22
Weighted average discount rate 5.3 %4.6 %
6. Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 30, 2023, were as follows:
(in thousands)
Balance at December 31, 2022$809,463 
Foreign currency translation585 
Acquired goodwill (1)
23,216 
Balance as of September 30, 2023$833,264 
(1)Acquired goodwill includes $0.5 million of acquired goodwill related to immaterial acquisitions.
7. Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities were as follows:
September 30, 2023December 31, 2022
(in thousands)
Accrued data costs$38,509 $34,080 
Tax receivable agreement liability, current portion27,039  
Other36,641 41,128 
Total accrued expenses and other current liabilities$102,189 $75,208 

12



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
8. Accrued Salaries and Payroll

The components of accrued salaries and payroll were as follows:
September 30, 2023December 31, 2022
(in thousands)
Wages, benefits and taxes (1)
$18,418 $15,198 
Accrued bonus12,383 15,877 
Total accrued salaries and payroll$30,801 $31,075 
(1)Accrued wages, benefits and taxes at September 30, 2023 includes $1.9 million in accrued employee severance and benefits related to the workforce reduction. See Note 21 — Restructuring and Related Charges for additional information.

9. Debt

The components of debt were as follows:
September 30, 2023December 31, 2022
(in thousands)
Second Amended First Lien Term Loan Facility$750,000 $699,513 
Second Amended Revolving Credit Facility  
Total debt750,000 699,513 
Less: Unamortized original issue discount(11,852)(1,464)
Less: Unamortized debt issuance costs(4,310)(6,493)
Less: Current portion of long-term debt(7,500)(8,350)
Long-term debt, less current portion$726,338 $683,206 

On July 12, 2018, the Company entered into the following credit arrangements with the lenders party thereto and Bank of America, N.A. as administrative agent, collateral agent and a letter of credit issuer:

a first lien senior secured term loan facility, in an aggregate principal amount of $835.0 million, maturing on July 12, 2025 (“First Lien Term Loan Facility”);
a first lien senior secured revolving credit facility, in an aggregate principal amount of up to $100.0 million, including a $40.0 million letter of credit sub-facility, maturing on July 12, 2023 (“Revolving Credit Facility” and, together with the First Lien Term Loan Facility, the “First Lien Facilities”).
The following discussion summarizes historical amendments to the First Lien Facilities and various terms thereunder.
Amended First Lien Facilities
On June 3, 2022, the Company entered into an amendment to the First Lien Facilities under which, (i) the aggregate commitments under the Company’s Revolving Credit Facility were increased from $100.0 million to $145.0 million; (ii) the maturity date of the Revolving Credit Facility was extended from July 12, 2023 to June 3, 2027 or, if earlier, 91 days prior to the maturity of the Company’s term loans under the Amended First Lien Facilities, subject to extension or refinancing; and (iii) the interest rate benchmark applicable to the Revolving Credit Facility was converted from LIBOR to term Secured Overnight Financing Rate (“SOFR”). The First Lien Term Loan Facility as amended is hereinafter referred to as the “Amended First Lien Term Loan Facility” and the
13



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Revolving Credit Facility as amended is herein after referred to as the “Amended Revolving Credit Facility” (and together with the Amended First Lien Term Loan Facility, the “Amended First Lien Facilities”). The Company’s existing term loans under the Amended First Lien Facilities remained in effect. Upon the effectiveness of the Amended First Lien Facilities, the Company did not have any outstanding principal balance on the Amended Revolving Credit Facility. The Amended First Lien Facilities did not modify the financial covenants, negative covenants, mandatory prepayment events or security provisions or arrangements under the First Lien Facilities.
Second Amended First Lien Facilities
On September 28, 2023, the Company entered into a second amendment to the Amended First Lien Facilities by which, (i) the aggregate commitments under the Company’s Amended Revolving Credit Facility were increased from $145.0 million to $160.0 million; (ii) the maturity date of the Amended First Lien Term Loan Facility was extended from July 12, 2025 to September 30, 2030 by providing for the refinancing and replacement in full of the term loan outstanding thereunder with a new term loan in an aggregate initial principal amount of $750.0 million, subject to an original issue discount of 1.5%; and (iii) the interest rate benchmark applicable to the First Amended First Lien Term Loan Facility was converted from LIBOR to term SOFR. As so amended, the First Lien Term Loan Facility is hereinafter referred to as the “Second Amended First Lien Term Loan Facility” and the Amended Revolving Credit Facility is hereinafter referred to as the “Second Amended Revolving Credit Facility” (and together with the Second Amended First Lien Term Loan Facility, the “Second Amended First Lien Facilities”). Upon the effectiveness of the Second Amended First Lien Facilities, no revolving loans were outstanding under the Second Amended Revolving Credit Facility. The Second Amended First Lien Facilities did not modify the financial covenants, negative covenants, mandatory prepayment events or security provisions or arrangements under the Amended First Lien Facilities.

The Company is required to make scheduled quarterly payments equal to 0.25% of the aggregate initial outstanding principal amount of the Second Amended First Lien Term Loan Facility, or approximately $1.9 million per quarter, with the remaining balance payable at maturity. The Company may make voluntary prepayments on the Second Amended First Lien Term Loan Facility at any time prior to maturity at par. Voluntary prepayments of the term loan within six months after the effectiveness of the Second Amended First Lien Term Loan Facility in connection with certain repricing transactions will require payment of a 1.00% prepayment premium.
The Company is required to make prepayments on the Second Amended First Lien Term Loan Facility with the net cash proceeds of certain asset sales, debt incurrences, casualty events and sale-leaseback transactions, subject to certain specified limitations, thresholds and reinvestment rights. Additionally, the Company is required to make annual prepayments on the Second Amended First Lien Term Loan Facility with a percentage (subject to leverage-based reductions) of the Company’s excess cash flow, as defined therein, if the excess cash flow exceeds a certain specified threshold. For the three and nine months ended September 30, 2023 and 2022, the Company was not required to make a prepayment under the Amended First Lien Term Loan Facility or the Second Amended First Lien Term Loan Facility based on the Company’s excess cash flow.
The Second Amended First Lien Term Loan Facility was accounted for as a modification, extinguishment, or new loan for certain lenders in accordance with the applicable accounting guidance. Accordingly, original issue discount and debt issuance costs of $11.9 million and $4.3 million, respectively, will be amortized to interest expense over the remaining term of the Second Amended First Lien Term Loan Facility. The Company recognized $7.8 million for the loss on debt extinguishment and write-off of third-party costs of the debt modification within interest expense during the three and nine months ended September 30, 2023.
The Second Amended First Lien Term Loan Facility has an interest rate calculated at a per annum rate of, at the Company’s option, either (a) a SOFR rate, plus 4.00% or (b) an alternative base rate, plus 3.00%, with the alternative base rate (“ABR”) determined by reference to the highest of (i) the federal funds effective rate plus 0.50%, (ii) the rate the Administrative Agent announces from time to time as its prime lending rate in New York City, (iii) one-month SOFR plus 1.00%, and (iv) zero%. The applicable margin for borrowings under the Second Amended Revolving Credit Facility is 3.00% for SOFR loans and 2.00% for ABR loans, in each case, subject to adjustment pursuant to a leverage-based pricing grid. As of September 30, 2023, the Second Amended First Lien
14



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Term Loan Facility accrued interest at one-month SOFR plus 4.00%, and the Second Amended Revolving Credit Facility accrued interest at one-month SOFR plus 2.50% based upon the current pricing grid.
The Borrower from time to time may elect to convert all or a portion of its SOFR loans under the Second Amended Revolving Credit Facility into ABR loans, and may elect to convert all or a portion of its SOFR loans under the Second Amended First Lien Term Loan Facility into ABR loans, in each case, subject to a minimum conversion amount of $2.5 million.
The Company’s obligations under the Second Amended First Lien Facilities are guaranteed, jointly and severally, on a senior secured first-priority basis, by substantially all of the Company’s domestic wholly-owned material subsidiaries, as defined in the agreement, and are secured by first-priority security interests in substantially all of the assets of the Company and its domestic wholly-owned material subsidiaries, subject to certain permitted liens and exceptions. Collateral includes all outstanding equity interests in whatever form of the borrower and each restricted subsidiary that is owned by any credit party.
As of September 30, 2023, the Company had $158.7 million in available borrowing under the Second Amended Revolving Credit Facility, after utilizing $1.3 million for letters of credit. The Company is required to pay a quarterly fee of 0.38% on unutilized commitments under the Second Amended Revolving Credit Facility, subject to adjustment pursuant to a leverage-based pricing grid. As of both September 30, 2023 and December 31, 2022, the quarterly fee on unutilized commitments under the Second Amended Revolving Credit Facility and the Amended Revolving Credit Facility, respectively, was 0.38%.
Debt Covenants
The Second Amended First Lien Facilities contain certain covenants and restrictions that limit the Company’s ability to, among other things: (a) incur additional debt or issue certain preferred equity interests; (b) create or permit the existence of certain liens; (c) make certain loans or investments (including acquisitions); (d) pay dividends on or make distributions in respect of the capital stock or make other restricted payments; (e) consolidate, merge, sell, or otherwise dispose of all or substantially all of the Company’s assets; (f) sell assets; (g) enter into certain transactions with affiliates; (h) enter into sale-leaseback transactions; (i) restrict dividends from the Company’s subsidiaries or restrict liens; (j) change the Company’s fiscal year; and (k) modify the terms of certain debt agreements. In addition, the Second Amended First Lien Facilities also provide for customary events of default. The Company was in compliance with the covenants through the three and nine months ended September 30, 2023.
The Company is also subject to a springing financial maintenance covenant under the Second Amended Revolving Credit Facility, which requires the Company to not exceed a specified first lien leverage ratio at the end of each fiscal quarter if the outstanding loans and letters of credit under the Second Amended Revolving Credit Facility, subject to certain exceptions, exceed 35% of the total commitments under the Second Amended Revolving Credit Facility at the end of such fiscal quarter. The Company was not subject to this covenant as of September 30, 2023 and December 31, 2022, as outstanding loans and letters of credit did not exceed 35% of the total commitments under the facility.
Other
Amortization of debt discount and debt issuance costs related to the Second Amended First Lien Term Loan Facility are included in interest expense in the condensed consolidated statements of operations and were as follows:

15



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three Months Ended September 30,Nine Months Ended
September 30,
2023202220232022
(in thousands)
Debt discount amortization$139 $133 $413 $395 
Debt issuance costs amortization609 588 1,812 1,750 
Total debt discount and issuance costs$748 $721 $2,225 $2,145 

Interest expense also includes the amortization of debt issuance costs for the Second Amended Revolving Credit Facility of $0.1 million for each of the three months ended September 30, 2023 and 2022 and $0.2 million and $0.4 million, for the nine months ended September 30, 2023 and 2022, respectively. Unamortized debt issuance costs for the Second Amended Revolving Credit Facility are recorded in other non-current assets on the Company’s condensed consolidated balance sheets.
The weighted average interest rate on outstanding borrowings during the nine months ended September 30, 2023 and the year ended December 31, 2022 was 8.8% and 5.5%, respectively.

10. Fair Value Measurements

The accounting standard for fair value measurements defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and requires disclosures about fair value measurements. The standard is applicable whenever assets and liabilities are measured at fair value.
The fair value hierarchy established in the standard prioritizes the inputs used in valuation techniques into three levels as follows:
Level 1Quoted prices in active markets for identical assets and liabilities;
Level 2Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in inactive markets, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data; or
Level 3Amounts derived from valuation models in which unobservable inputs reflect the reporting entity’s own assumptions about the assumptions of market participants that would be used in pricing the asset or liability, such as discounted cash flow models or valuations.
The Company’s outstanding debt instruments are recorded at their carrying values in the condensed consolidated balance sheets, which may differ from their respective fair values. The estimated fair value of the Company’s debt, which is Level 2 of the fair value hierarchy, is based on quoted prices for similar instruments in active markets or identical instruments in markets that are not active.
The fair value of the Company’s Second Amended First Lien Term Loan Facility is calculated based upon market price quotes obtained for the Company’s debt agreements (Level 2 fair value inputs). The fair value of the
16



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Second Amended Revolving Credit Facility approximates carrying value, based upon the short-term duration of the interest rate periods currently available to the Company. The estimated fair values were as follows:
September 30, 2023December 31, 2022
Carrying ValueFair ValueCarrying ValueFair Value
(in thousands)
Second Amended First Lien Term Loan Facility$738,148 $739,070 $698,049 $673,617 
Second Amended Revolving Credit Facility    
Total debt$738,148 $739,070 $698,049 $673,617 


11. Derivative Instruments

The Company entered into interest rate swap agreements with a total notional amount of $700 million with an effective date of December 31, 2018 (“Interest Rate Swap Agreements”) with a scheduled expiration date of December 31, 2023.
Prior to termination discussed herein, the Interest Rate Swap Agreements were determined to be effective hedging agreements. Effective February 18, 2022, the Company terminated the Interest Rate Swap Agreements. In connection with the termination of the Interest Rate Swap Agreements, the Company made a payment of $18.4 million to the swap counterparties. Following these terminations, $21.5 million of unrealized gains related to the terminated Interest Rate Swap Agreements included in accumulated other comprehensive income (loss) will be reclassified to earnings as reductions to interest expense through December 31, 2023.
The Company reclassified interest expense related to hedges of these transactions into earnings as follows:
Three Months Ended September 30,Nine Months Ended
September 30,
2023202220232022
(in thousands)
Reclassification of the effective portion of the gain on the Interest Rate Swap Agreements into interest expense$ $ $ $1,679 
Reclassification of unrealized gains related to terminated Interest Rate Swap Agreements into interest expense(2,088)(3,413)(6,890)(9,676)
Total reclassification adjustments included in earnings$(2,088)$(3,413)$(6,890)$(7,997)
The results of derivative activities are recorded in cash flows from operating activities on the condensed consolidated statements of cash flows.
12. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) consists primarily of unrealized gains related to the terminated Interest Rate Swap Agreements and cumulative foreign currency translation adjustments.
The components of accumulated other comprehensive income (loss) as of September 30, 2023 and December 31, 2022 were as follows:
17



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Derivative
Instruments
Currency
Translation
Adjustment
Total
(in thousands)
Balance at December 31, 2022$8,849 $(13,793)$(4,944)
Other comprehensive loss
(6,890)414 (6,476)
Balance at September 30, 2023$1,959 $(13,379)$(11,420)

As of September 30, 2023, the remaining $2.0 million of the accumulated other comprehensive income related to terminated Interest Rate Swap Agreements is expected to be reclassified into earnings as a reduction to interest expense through December 31, 2023.

13. Segments and Geographic Information

The Company operates in one reportable segment.
Revenues are attributed to each geographic region based on the location of the HireRight entity that has contracted for the services that result in the revenues. The following table summarizes the Company’s revenues by region:


Three Months Ended September 30,Nine Months Ended
September 30,
2023202220232022
(in thousands, except percent)
Revenues:
United States$174,632 92.8 %$194,081 92.3 %$513,592 92.4 %$582,817 92.3 %
International 13,630 7.2 %16,222 7.7 %42,241 7.6 %48,489 7.7 %
Total revenues$188,262 100.0 %$210,303 100.0 %$555,833 100.0 %$631,306 100.0 %

The following table summarizes the Company’s long-lived assets, which consist of property and equipment, net, and operating lease ROU assets, net, by geographic region:
September 30, 2023December 31, 2022
(in thousands)
Long-lived assets:
United States $7,739 $10,811 
International 5,803 6,657 
Total long-lived assets$13,542 $17,468 

18



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

14. Commitments and Contingent Liabilities

Indemnification

In the ordinary course of business, the Company enters into agreements with customers, providers of services and data that the Company uses in its business operations, and other third parties pursuant to which the Company agrees to indemnify and defend them and their affiliates for losses resulting from claims of intellectual property infringement, damages to property or persons, business losses, and other costs and liabilities. Generally, these indemnity and defense obligations relate to claims and losses that result from the Company’s acts or omissions, including actual or alleged process errors, inclusion of erroneous or impermissible information, or omission of includable information in background screening reports that the Company prepares. In addition, under some circumstances, the Company agrees to indemnify and defend contract counterparties against losses resulting from their own business operations, obligations, and acts or omissions, or the business operations, obligations, and acts or omissions of third parties. For example, its business interposes the Company between suppliers of information that the Company includes in its background screening reports and customers that use those reports; the Company generally agrees to indemnify and defend its customers against claims and losses that result from erroneous information provided by its suppliers, and also to indemnify and defend its suppliers against claims and losses that result from misuse of their information by its customers.
The Company’s agreements with customers, suppliers, and other third parties typically include provisions limiting its liability to the counterparty, and the counterparty’s liability to the Company. However, these limits often do not apply to indemnity obligations. The Company’s rights to recover from one party for its acts or omissions may be capped below the Company’s obligation to another party for those same acts or omissions, and the Company’s obligation to provide indemnity and defense for its own acts or omissions in any particular situation may be uncapped.
The Company has entered into indemnification agreements with the members of its board of directors and executive officers that require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service. In addition, customers of the Company may seek indemnity for negligent hiring claims that result from the Company’s alleged failure to identify or report adverse background information about an individual. The Company is not aware of any pending demands to provide indemnity or defense under such agreements that would reasonably be expected to have a material adverse effect on its condensed consolidated financial statements.
15. Legal Proceedings

The Company is subject to claims, investigations, audits, and enforcement proceedings by private plaintiffs, third parties the Company does business with, and governmental and regulatory authorities charged with overseeing the enforcement of laws and regulations that govern the Company’s business. In the U.S., most of these matters arise under the federal Fair Credit Reporting Act and various state and local laws focused on privacy and the conduct and content of background reports. These claims are typically brought by individuals alleging process errors, inclusion of erroneous or impermissible information, or failure to include appropriate information in background reports prepared about them by the Company. Proceedings related to the Company’s U.S. operations may also be brought under the same laws by the Consumer Financial Protection Bureau or Federal Trade Commission, or by state authorities. Claims or proceedings may also arise under the European Union (“E.U.”) and U.K. General Data Protection Regulations and other laws around the world addressing privacy and the use of background information such as criminal and credit histories and may be brought by individuals about whom the Company has prepared background reports or by the Data Protection Authorities of E.U. member states and other governmental authorities.
19



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
In addition, customers of the Company may seek indemnity for negligent hiring claims that result from the Company’s alleged failure to identify or report adverse background information about an individual.
In addition to claims related to privacy and background checks, the Company is also subject to other claims and proceedings arising in the ordinary course of its business, including without limitation claims for indemnity by customers and vendors, employment-related claims, and claims for alleged taxes owed, infringement of intellectual property rights, and breach of contract.
The Company accrues for contingent liabilities if it is probable that a liability has been incurred and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. The Company does not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote.
Although the Company and its subsidiaries are subject to various claims and proceedings from time to time in the ordinary course of business, the Company and its subsidiaries are not party to any pending legal proceedings that the Company believes to be material.
On November 6, 2020, the Company entered into a settlement agreement related to 24 lawsuits that had been filed in 2009 and 2010 against HireRight Solutions, Inc. (“Old HireRight”), which is the predecessor to the Company’s subsidiary HireRight, LLC, by approximately 1,400 individuals alleging violation of the California Investigative Consumer Reporting Agencies Act by Old HireRight and one of its customers (“Customer”) related to background reports that Old HireRight prepared for the Customer about those individuals.
Pursuant to the settlement agreement, the Company paid $11.2 million on November 15, 2021, and the remaining balance of $0.3 million on March 31, 2022. The Company subsequently sued Old HireRight’s insurer to recover the costs of the settlement. The litigation involved substantial issues of law, and in order to avoid the risks of litigation, the Company and the insurer reached a settlement on September 14, 2023, pursuant to which the Company and the insurer agreed to release each other and the insurer agreed to pay the Company $7.0 million. Upon completion of the definitive settlement agreement, the Company’s recovery will be approximately $5.9 million, net of fees payable to the Company’s outside counsel in connection with the litigation. The settlement has been recorded within prepaid expenses and other current assets in the condensed consolidated balance sheets and within selling, general and administrative expenses in the condensed consolidated statements of operations.

16. Revenues

Revenues consist of service revenue and surcharge revenue. Service revenue consists of fees charged to customers for services provided by the Company. Surcharge revenue consists of fees charged to customers for the Company’s acquisition of data from federal, state and local jurisdictions and certain services from commercial data providers required to fulfill the Company’s performance obligations. Revenue is recognized when the Company satisfies its obligation to complete the service and delivers the screening report to the customer.
Disaggregated revenues were as follows:
Three Months Ended September 30,Nine Months Ended
September 30,
2023202220232022
(in thousands)
Revenues:
Service revenues$135,922 $151,256 $396,794 $451,184 
Surcharge revenues52,340 59,047 159,039 180,122 
Total revenues$188,262 $210,303 $555,833 $631,306 
20



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

Contract Implementation Costs

Contract implementation costs represent incremental set up costs to fulfill contracts with customers, including, for example, salaries and wages incurred to onboard customers onto the Company’s platform to enable the customers to request and access completed background screening reports. Contract implementation costs, net of accumulated amortization are recorded in other non-current assets on the Company’s condensed consolidated balance sheets and amortization expense is recorded in cost of services (exclusive of depreciation and amortization) in the Company’s condensed consolidated statements of operations. Amortization of contract implementation costs included in cost of services (exclusive of depreciation and amortization) was $1.3 million and $3.7 million for the three and nine months ended September 30, 2023, respectively, and $1.1 million and $3.3 million for the three and nine months ended September 30, 2022, respectively. See Note 4 — Prepaid Expenses and Other Current Assets, and Other Non-Current Assets for contract implementation costs included in the Company’s condensed consolidated balance sheets.
17. Income Taxes

Income tax expense (benefit) and effective tax rates were as follows:
Three Months Ended September 30,Nine Months Ended
September 30,
2023202220232022
(in thousands, except effective tax rate)
Income (loss) before income taxes$2,861 $23,585 $(6,125)$60,843 
Income tax expense (benefit)4,450 (69,704)863 (68,456)
Effective tax rate 155.5 %(295.5)%(14.1)%(112.5)%

The effective tax rate for the three and nine months ended September 30, 2023, differs from the federal statutory rate of 21% primarily due to state taxes, non-deductible stock-based compensation expense, and U.S. tax on foreign operations partially offset by the recognition of stranded deferred taxes in accumulated comprehensive loss. The effective tax rate for the three and nine months ended September 30, 2022 differs from the federal statutory rate of 21% primarily due to the release of federal and state valuation allowances during the three months ended September 30, 2022 as discussed below, state taxes, and U.S. tax on foreign operations.
Prior to September 2022, the Company’s net U.S. federal and state deferred tax assets were fully offset by a valuation allowance, excluding a portion of its deferred tax liabilities for tax deductible goodwill, primarily as a result of the Company’s lack of U.S. earnings history and cumulative loss position. The Company prepares a quarterly analysis of its deferred tax assets which considers positive and negative evidence, including its cumulative income (loss) position, revenue growth, continuing and improved profitability, and expectations regarding future profitability. Although the Company believes its estimates are reasonable, the ultimate determination of the appropriate amount of valuation allowance involves significant judgment.
During the three months ended September 30, 2022, the Company determined sufficient positive evidence existed to conclude that the U.S. deferred tax assets are more likely than not realizable. As a result, the Company released the valuation allowance attributed to the deferred tax assets associated with the Company’s operations in the U.S. during the third quarter of 2022. There is no change in assessment as of September 30, 2023.
On August 16, 2022, the “Inflation Reduction Act” (H.R. 5376) was signed into law in the United States. Among other things, the Act imposes a 15% corporate alternative minimum tax for tax years beginning after December 31, 2022, levies a 1% excise tax on net stock repurchases after December 31, 2022, and provides tax incentives to promote clean energy. During the nine months ended September 30, 2023, the Company recorded $1.1 million of excise tax related to share repurchases, which are recorded in Treasury stock on the Company’s
21



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
condensed consolidated balance sheets. The Company does not currently expect the Inflation Reduction Act to have a material impact on the condensed consolidated financial statements.

18. Stock-Based Compensation
Equity Incentive Plans
The Company issues stock-based compensation awards under the 2021 Omnibus Incentive Plan (“Omnibus Incentive Plan”), and prior to the IPO the Company issued stock-based compensation under the HireRight GIS Group Holdings LLC Equity Incentive Plan (“Equity Plan”). At September 30, 2023, the total number of shares authorized for issuance under the Omnibus Incentive Plan was 14.2 million shares and 7.9 million shares remain available for issuance.
Stock-Based Compensation Expense
Stock-based compensation expense recognized in the condensed consolidated statements of operations was as follows:
Three Months Ended September 30,Nine Months Ended
September 30,
2023202220232022
(in thousands)
Selling, general and administrative$4,691 $1,089 $12,844 $8,083 
Cost of services (exclusive of depreciation and amortization)
127 193 1,045 504 
Total stock-based compensation expense$4,818 $1,282 $13,889 $8,587 
Stock Options under the Equity Plan
For stock options issued under the Equity Plan that were outstanding and unvested as of September 30, 2023, the Company expects to recognize future compensation expense of $4.9 million over a weighted average remaining vesting period of 2.2 years.
Awards under the Omnibus Incentive Plan
The Company granted 46,081 options during the nine months ended September 30, 2023 under the Omnibus Incentive Plan, with a weighted average grant date fair value of $3.96 calculated using the Black-Scholes option pricing model. For options under the Omnibus Incentive Plan outstanding and unvested as of September 30, 2023, the Company expects to recognize future compensation expense of $4.9 million over a weighted average remaining vesting period of 2.2 years.
The Company granted 3,389,064 restricted stock units (“RSU”), including the performance RSUs discussed below, with a weighted average grant date fair value of $9.11 per share during the nine months ended September 30, 2023 under the Omnibus Incentive Plan. For RSUs outstanding and unvested as of September 30, 2023, the Company expects to recognize future compensation expense of $31.2 million over a weighted average remaining vesting period of 2.4 years.
On March 20, 2023, the Company approved a grant of a total of 2,561,275 performance RSUs. A total of 1,116,323 of these performance RSUs had a grant-date fair value of $5.67 per unit based on a Monte Carlo valuation model and may vest based upon the achievement of a market condition related to achievement of stock price targets of the Company's common stock, and are subject to continued service. The expected stock-based compensation expense for the market condition performance RSUs is $6.3 million and is expected to be recognized over the period
22



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
from grant date through March 2026. The remaining portion, 1,444,952 units, of these performance RSUs granted on March 20, 2023, had a grant date fair value of $10.90 per unit and may vest upon the achievement of AEBITDA performance targets and are subject to continued service. The total expected stock-based compensation expense for the AEBITDA performance RSUs is $15.8 million and is expected to be recognized over the period from grant date through March 2026.
19. Stockholders' Equity

Repurchase of Common Stock
On November 14, 2022, the Company announced that its Board of Directors authorized a $100.0 million share repurchase program that was completed on June 21, 2023 (the “Initial Program”). Pursuant to the Initial Program, the Company repurchased a total of approximately 9.3 million shares of the Company’s common stock at an average price paid of $10.79 per share, including commissions paid and excise taxes.
On June 22, 2023, the Company announced that its Board of Directors authorized an additional share repurchase program for repurchase of up to an additional $25.0 million of the Company's common stock (the “Second Program”). The Second Program was completed on August 28, 2023. Pursuant to the Second Program, the Company repurchased a total of approximately 2.4 million shares of the Company’s common stock at an average price paid of $10.82 per share, including commissions paid and excise taxes.
On September 12, 2023, the Company announced a third share repurchase program for repurchase of up to an additional $25.0 million of the Company’s common stock (the “Third Program”). As of September 30, 2023, the Company purchased approximately 0.1 million shares of the Company’s common stock at an average price paid of $9.57 per share, including commissions paid and excise taxes. Approximately $24.3 million remained available for future purchases under the Third Program. Repurchases under the Third Program continued at similar rates through the date of filing of this report, and the Board of Directors has not yet determined whether to implement any further stock repurchase program after termination of the Third Program.
The repurchased shares under the Initial program, the Second Program, and the Third Program are recorded as Treasury stock on the Company's condensed consolidated balance sheets.
The Initial Program and the Second Program authorized, and the Third Program authorizes, repurchases in the open market in accordance with the requirements of Rule 10b-18, in privately negotiated transactions or otherwise, including through Rule 10b5-1 trading plans, with the amount and timing of repurchases depending on stock price, trading volume, market conditions and other general business considerations. The Initial Program and the Second Program did not obligate the Company to acquire any particular amount of common stock and could be extended, modified, suspended, or discontinued at any time at the Company's discretion. The Third Program has the same characteristics.
20. Earnings Per Share

Basic net income (loss) per share (“EPS”) is computed by dividing net income (loss) attributable to HireRight Holdings Corporation stockholders by the weighted average number of outstanding shares during the period.
The weighted average outstanding shares may include potentially dilutive equity awards. Diluted net income (loss) per share includes the effects of potentially dilutive equity awards, which include stock options, restricted stock units, and other potentially dilutive equity awards outstanding during the year. For the three and nine months ended September 30, 2023, there were 6,274,784, and 9,136,703 potentially dilutive equity awards, respectively, which were excluded from the calculations of diluted EPS because including them would have had an anti-dilutive effect. For the three and nine months ended September 30, 2022, there were 6,630,588 and 6,799,424 potentially dilutive awards, which were excluded from the calculation of diluted EPS because including them would have had an anti-dilutive effect.
23



HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Basic and diluted EPS for the three and nine months ended September 30, 2023 and 2022 were:
Three Months Ended September 30,Nine Months Ended
September 30,
2023202220232022
(in thousands, except share and per share data)
Numerator:
Net income (loss) attributable to HireRight Holdings Corporation$(1,655)$93,289 $(7,054)$129,299 
Denominator:
Weighted average shares outstanding - basic69,090,88279,459,63373,080,85179,419,725
Effect of dilutive equity awards 83,082  56,849 
Weighted average shares outstanding - diluted69,090,88279,542,71573,080,85179,476,574
Net income (loss) per share attributable to HireRight Holdings Corporation:
Basic$(0.02)$1.17 $(0.10)$1.63 
Diluted$(0.02)$1.17 $(0.10)$1.63 

21. Restructuring and Related Charges

Global Restructuring Plan
In the first quarter of 2023, the Company began a global restructuring plan intended to improve the Company’s cost structure, operating efficiency, and profitability as part of its ongoing margin improvement initiatives. The plan involves reduction in force, offshoring certain functions, and other measures designed to reduce costs to achieve the Company’s long term margin goals. The plan was approved and initiated in the first quarter of 2023 and is expected to continue throughout 2023 and the first half of 2024.
During the three and nine months ended September 30, 2023, the Company recognized restructuring charges of $4.6 million and $15.3 million respectively, primarily for employee severance and benefits in connection with the workforce reduction, accelerated expense on abandoned right-of-use assets, and other restructuring charges. In addition, the Company incurred professional service fees of $1.4 million and $8.6 million during the three and nine months ended September 30, 2023, respectively, for consulting costs related to the execution of the Company’s global restructuring plan. All charges were recorded as selling, general and administrative expenses and cost of services (exclusive of depreciation and amortization) in the condensed consolidated statements of operations.
The Company expects to recognize additional restructuring charges in 2023 through the first half of 2024 of $6.0 million to $8.0 million, primarily for severance and benefits, professional service fees, and transition costs. The Company is continuing to evaluate operating costs and outsourcing opportunities and the expected charges related to our global restructuring plan may be greater than expected, including charges for additional severance and professional service fees.
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HireRight Holdings Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
The components of the restructuring charges (including professional service fees) are as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2023
(in thousands)
Severance and benefits (1)
$3,325 $11,152 
Accelerated expense on abandoned right-of-use assets (2)
350 2,560 
Professional fees (3)
1,373 8,628 
Other (4)
927 1,624 
Total restructuring charges$5,975 $23,964 
(1)Charges of $1.0 million and $4.2 million recorded in cost of services (exclusive of depreciation and amortization) for the three and nine months ended September 30, 2023. Charges of $2.4 million and $7.0 million recorded in selling, general and administrative expenses for the three and nine months ended September 30, 2023.
(2)Charges for accelerated expense and additional costs associated with abandoned right-of-use assets recorded in selling, general and administrative expenses.
(3)Professional service fees consist of consulting costs related to the execution of the Company’s global restructuring plan to improve the Company’s cost structure, operating efficiency, and redesign and right size the organization. These charges are recorded in selling, general and administrative expenses.
(4)Other charges recorded in selling, general and administrative expenses.
The following table provides the components of and changes in the Company’s restructuring and related charges, included in accrued salaries and payroll and accrued expenses and other current liabilities on the condensed consolidated balance sheets:
September 30, 2023
(in thousands)
Balance at December 31, 2022
$ 
Charges incurred (1)
21,404 
Payments(18,176)
Balance at September 30, 2023
$3,228 
(1)Includes $11.2 million in charges for employee severance and benefits related to the workforce reduction, $1.9 million of which remains unpaid as of September 30, 2023.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations together with our condensed consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements for the fiscal year ended December 31, 2022, as disclosed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 10, 2023 (“Annual Report”). The statements in the following discussion and analysis regarding expectations about our future performance, liquidity and capital resources and any other non-historical statements in this discussion and analysis are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those described immediately below.
Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q and related statements by the Company 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, 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 market uncertainty and potential disruption resulting from geopolitical tensions and armed conflicts of potentially significant scope; the aggressive competition we face; 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; 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, in particular the sections of that document entitled “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements and Risk Factors Summary,” 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.
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Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed or will file with the SEC completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Business Overview

HireRight Holdings Corporation (“HireRight” or the “Company”) 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 (“HCM”) 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.
Factors Affecting Our Results of Operations

Economic Conditions
Our business is impacted by the overall economic environment and total employment and hiring. The rapidly changing dynamics of the global workforce are increasing complexity and regulatory scrutiny for employers, bolstering the importance of the solutions we deliver. We have benefited from key demand drivers, which increase the need for more flexible, comprehensive screening and hiring solutions in the current environment. Our customers are a diverse set of organizations, from large-scale multinational businesses to small and medium businesses across a broad range of industries, including transportation, healthcare, technology, financial services, business and consumer services, manufacturing, education, retail, gig economy, and not-for-profit. Hiring requirements and regulatory considerations can vary significantly across the different types of customers, geographies and industry sectors we serve, creating demand for the extensive institutional knowledge we have developed from our decades of experience.
While we have benefited in the past from the changing dynamics of the labor market, including strength in hiring as the economy recovered from the effects of the COVID pandemic, our business has been adversely affected by recent and continuing uncertainty around near-term macroeconomic conditions. This uncertainty stems from elevated inflation, declining customer confidence, volatile energy prices, rising interest rates, and geopolitical concerns including armed conflicts of potentially significant scope. Each of these drivers has its own adverse impact and the near-term outlook for our business remains uncertain, with order volumes and revenue anticipated to fall below 2022 levels. In 2022, the annual inflation rate in the United States reached nearly the highest rate in more than three decades, as measured by the Consumer Price Index, and while it has recently been falling by some measures, inflation remains elevated. Inflation puts pressure on our suppliers, resulting in increased data costs, and also increases our employment and other expenses. A sustained recession would have an adverse impact on the global hiring market and therefore the demand for our services. Slowing demand for our services will adversely affect our future results. Additionally, rising interest rates will lead directly to higher interest expense. See “Item 3. Quantitative and Qualitative Disclosures about Market Risk” for additional information on the impact of interest rates and inflation on our business. Although the majority of our cost of services is variable in nature and will move in tandem with revenue increases or decreases, there can be no assurance that we can reduce our cost of services in proportion to changes in revenue.
2023 Developments
On September 28, 2023, the Company entered into a second amendment to the First Lien Term Loan Facility (“Second Amended First Lien Term Loan Facility”) with the lenders party thereto and Bank of America, N.A. as administrative agent, collateral agent and a letter of credit issuer. The Second Amended First Lien Term Loan Facility amends the Company’s First Lien Facilities, (as amended through the Second Amended First Lien Term Loan Facility, the “Second Amended First Lien Facilities”). See Note 9 — Debt for additional information. Also see
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Results of Operations for additional information on the impacts of the second amendment to certain line items of our condensed consolidated statements of operations.
On September 14, 2023, the Company reached a settlement to recover a portion of the costs associated with a litigation settlement related to 24 lawsuits that had been filed in 2009 and 2010 against HireRight Solutions, Inc., which is the predecessor to the Company’s subsidiary HireRight, LLC (“Old HireRight”). Recovery was sought from Old HireRight’s insurer. The settlement has been recorded within prepaid expenses and other current assets in the condensed consolidated balance sheets and within selling, general and administrative expenses in the condensed consolidated statements of operations. See Note 15 — Legal Proceedings for additional information.
On July 3, 2023, the Company completed the acquisition of 60% of the equity interests of Digital Trusted Identity Services, LLC (“DTIS”), an FBI-approved channeler (which submits fingerprints to the FBI and receives FBI criminal history record information) specializing in collecting and processing biometric and biographical data. See Note 3 — Business Combinations for additional information.
On November 14, 2022, the Company announced a $100.0 million share repurchase program that was completed on June 21, 2023 (the “Initial Program”). On June 22, 2023, the Company announced and implemented an additional share repurchase program for repurchase of up to an additional $25.0 million of the Company's common stock (the “Second Program”). The Second Program was completed on August 28, 2023. On September 12, 2023, the Company announced a third share repurchase program for repurchase of up to an additional $25.0 million of the Company’s common stock (the “Third Program”).
The Initial Program and the Second Program did not obligate the Company to acquire any particular amount of common stock and could be extended, modified, suspended, or discontinued at any time at the Company's discretion. The Third Program has the same characteristics. The repurchased shares under the Initial Program, the Second Program, and the Third Program are recorded as “Treasury stock” on the Company's condensed consolidated balance sheets. See “— Liquidity and Capital Resources — Share Repurchase Program” for additional information.
In the first quarter of 2023, the Company began a global restructuring plan intended to improve the Company’s cost structure, operating efficiency, and profitability in response to ongoing uncertain macroeconomic conditions. The plan, which involves a reduction in force, offshoring of certain functions, and other measures designed to reduce cost and compensate for reduced order volumes, was initiated in the first quarter of 2023 and is expected to continue throughout 2023 through 2024 as the Company implements existing plans and evaluates further opportunities. During the three and nine months ended September 30, 2023, the Company recognized restructuring charges of $4.6 million and $15.3 million, respectively, primarily for employee severance and benefits in connection with the workforce reduction, accelerated rent expense on abandoned right-of-use assets, and other restructuring charges. In addition, the Company incurred professional service fees during the three and nine months ended September 30, 2023, of $1.4 million and $8.6 million, respectively, for consulting costs related to the execution of the Company’s global restructuring plan.
The Company expects to recognize additional restructuring charges in 2023 through the first half 2024 of $6.0 million to $8.0 million, primarily for severance and benefits, professional service fees, and transition costs. Once completed we estimate annualized gross savings of approximately $50.0 million under the global restructuring plan. Additionally, we may not be able to fully realize the cost savings and benefits initially anticipated from the global restructuring plan, and the expected charges may be greater than expected, including charges for additional severance and professional service fees.
Key Components of Our Results from Operations

Revenues
The Company generates revenues from background screening and related compliance services delivered in online reports. Our customers place orders for our services and reports either individually or through batch ordering. Each report is accounted for as a single order which is then typically consolidated and billed to our customers on a
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monthly basis. Approximately 25% of revenues for each of the three and nine months ended September 30, 2023 and 28% of revenues for each of the three and nine months ended September 30, 2022 were generated from the Company’s top 50 customers, which consist of large U.S. and multinational companies across diversified industries such as transportation, healthcare, technology, business and consumer services, financial services, manufacturing, education, retail, gig economy, and not-for-profit. None of the Company’s customers individually accounted for greater than 3% of revenues for each of the three and nine months ended September 30, 2023, and 2022, respectively. Healthcare, technology, financial services, and transportation customers represent the largest contributors to revenues. Revenues from these customers for the three and nine months ended September 30, 2023, decreased 14% and 15%, respectively, from the prior year periods, led by reductions in order volumes from technology and financial services companies.
Expenses
Cost of services (excluding depreciation and amortization) consists of data acquisition costs, medical laboratory and collection fees, personnel-related costs for operations, customer service and customer onboarding functions, as well as other direct costs incurred to fulfill our services. Approximately 80% of cost of services is variable in nature.
Selling, general and administrative expenses consist of personnel-related costs for sales, technology, administrative and corporate management functions in addition to costs for third-party technology, professional and consulting services, advertising, and facilities expenses. Selling, general and administrative expenses also include amortization of capitalized cloud computing software costs.
Depreciation and amortization expenses consist of depreciation of property and equipment, as well as amortization of purchased and developed software and other intangible assets.
Other expenses consist of interest expense relating to our credit facilities and interest rate swap agreements, foreign exchange gains and losses, as well as other expenses. On our condensed consolidated statements of operations, interest expense is netted with interest income, which is derived primarily from cash and cash equivalent balances held in interest-bearing accounts. The majority of our receivables and payables are denominated in U.S. dollars, but we also earn revenue, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar, including the Euro, the British pound, the Polish zloty, the Australian dollar, the Canadian dollar, the Singapore dollar, the Mexican peso, the Japanese yen, and the Indian rupee, among others. Therefore, increases or decreases in the value of the U.S. dollar against these currencies could result in realized and unrealized gains and losses in foreign exchange. However, to the extent we earn revenues in currencies other than the U.S. dollar, we generally pay a corresponding amount of expenses in such currency and therefore the cumulative impact of these foreign exchange fluctuations is not generally deemed material to our financial performance.
Income tax expense (benefit) consists of international, U.S. federal, state and local income taxes based on income in multiple jurisdictions for our subsidiaries.












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Results of Operations

Comparison of Results of Operations for the three and nine months ended September 30, 2023 and 2022

The following tables present operating results for the three and nine months ended September 30, 2023 and 2022.
Three Months Ended September 30,
20232022
(in thousands, except percent of revenues)
Revenues$188,262 100.0 %$210,303 100.0 %
Expenses
Cost of services (exclusive of depreciation and amortization below)94,422 50.2 %110,848 52.7 %
Selling, general and administrative48,588 25.8 %49,378 23.5 %
Depreciation and amortization19,063 10.1 %17,946 8.5 %
Total expenses162,073 86.1 %178,172 84.7 %
Operating income26,189 13.9 %32,131 15.3 %
Other expenses
Interest expense, net22,447 11.9 %8,457 4.0 %
Other expense, net881 0.5 %89 — %
Total other expenses23,328 12.4 %8,546 4.1 %
Income before income taxes
2,861 1.5 %23,585 11.2 %
Income tax expense (benefit)4,450 2.4 %(69,704)(33.1)%
Net income (loss)
$(1,589)(0.8)%$93,289 44.4 %
Less: Net income attributable to noncontrolling interest66 — %— — %
Net income (loss) attributable to HireRight Holdings Corporation
$(1,655)(0.9)%$93,289 44.4 %
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Nine Months Ended September 30,
20232022
(in thousands, except percent of revenues)
Revenues$555,833 100.0 %$631,306 100.0 %
Expenses
Cost of services (exclusive of depreciation and amortization below)291,449 52.4 %343,241 54.4 %
Selling, general and administrative164,442 29.6 %152,032 24.1 %
Depreciation and amortization56,246 10.1 %54,056 8.6 %
Total expenses512,137 92.1 %549,329 87.0 %
Operating income43,696 7.9 %81,977 13.0 %
Other expenses
Interest expense, net48,392 8.7 %20,971 3.3 %
Other expense, net1,429 0.3 %163 — %
Total other expenses