HireRight Reports Third Quarter 2021 Results
HireRight reported a 57% increase in revenues for Q3 2021, totaling $205.0 million, up from $130.7 million in Q3 2020. The company achieved an operating income of $26.5 million, a turnaround from an operating loss of $7.2 million in the previous year. Additionally, net income reached $7.3 million, compared to a net loss of $27.0 million in Q3 2020. HireRight also enhanced its liquidity by utilizing IPO proceeds to pay off significant debt, bolstering its balance sheet. The full-year revenue outlook is set between $713.0 million and $716.0 million.
- Revenue increased 57% to $205.0 million compared to Q3 2020.
- Operating income improved to $26.5 million from an operating loss of $7.2 million.
- Net income rose to $7.3 million, reversing a loss of $27.0 million in Q3 2020.
- Adjusted EBITDA increased to $51.6 million from $28.0 million year-over-year.
- Significant reduction in debt with IPO proceeds, enhancing financial stability.
- Cost of services increased to 54.3% of revenue from 53.3% in Q3 2020.
– Revenues Grew
– Strengthened Balance Sheet with IPO Proceeds –
– Increased Revenue Outlook for 2021 –
Third Quarter 2021 Highlights:
-
Revenues of
$205.0 million 57% , from$130.7 million -
Operating income of
$26.5 million $7.2 million -
Net income of
$7.3 million $27.0 million -
Adjusted EBITDA of
$51.6 million $28.0 million
“We continued to see increasing strength and demand from our end markets as the global economy recovers from the pandemic. That strength combined with new wins has led us to the highest revenue quarter in the Company's history, demonstrating our attractive position in an industry with global secular growth drivers,” said
Revenues
Total revenues were
Cost of Services (exclusive of depreciation and amortization)
Cost of services was
Selling, General and Administrative
Selling, general and administrative expenses (“SG&A”) improved by
Liquidity and Capital Resources
Subsequent to
Unrestricted cash and cash equivalents as of
The Company generated
Full-Year Outlook
Based on current Company expectations and economic conditions,
Webcast and Conference Call
Management will discuss third quarter 2021 results on a webcast at
The webcast replay, along with the related presentation materials, can be accessed via
About
Non-GAAP Financial Measures
To supplement the financial results presented in accordance with generally accepted accounting principles in
We believe that our non-GAAP financial measures and key metrics provide information useful to investors in assessing our financial condition and results of operations. These measures should not be considered an alternative to net income or any other measure of financial performance or liquidity presented in accordance with GAAP. These measures have important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP measures. Additionally, our non-GAAP financial measures may be defined differently than similar measures used by other companies in our industry, thereby diminishing their utility for comparison purposes.
The non-GAAP financial measures presented in this earnings release are adjusted EBITDA, adjusted EBITDA service margin, and adjusted net income (loss). Reconciliations of these non-GAAP financial measures to the most directly comparable measures calculated and presented in accordance with GAAP are provided as schedules attached to this release.
Adjusted EBITDA
Adjusted EBITDA represents, as applicable for the period, net income (loss) before provision for income taxes, interest expense, depreciation and amortization expense, equity-based compensation, realized and unrealized gain (loss) on foreign exchange, merger integration expenses, legal settlement costs outside the normal course of business, and other items management believes are not representative of the Company’s core operations. Adjusted EBITDA is a supplemental financial measure that management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess our:
- Operating performance as compared to other publicly traded companies without regard to capital structure or historical cost basis;
- Ability to generate cash flow;
- Ability to incur and service debt and fund capital expenditures; and
- Viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
Adjusted EBITDA Service Margin
Adjusted EBITDA Service Margin is calculated as Adjusted EBITDA as a percentage of service revenue. Because we are able to charge our customers for direct access to certain data suppliers and we generally do not mark up those charges, we focus on the management of Adjusted EBITDA as a percentage of service revenue, as we believe this non-GAAP measure more accurately reflects the management of our controllable costs and profitability.
Adjusted Net Income (Loss)
In addition to Adjusted EBITDA and Adjusted EBITDA Service Margin, management believes that Adjusted Net Income (Loss) is a strong indicator of our overall operating performance and is useful to our management and investors as a measure of comparative operating performance from period to period. We define Adjusted Net Income (Loss) as net income (loss) adjusted for equity-based compensation, realized and unrealized gain (loss) on foreign exchange, merger integration expenses, legal settlement costs outside the normal course of business, and other items, to which we apply an adjusted effective tax rate. See the footnotes to the table below for a description of certain of these adjustments.
Safe Harbor Statement
This press release and management's comments on the third quarter results conference call mentioned above include forward-looking statements, including statements related to management's outlook for 2021 revenue and Adjusted EBITDA. The forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management's beliefs and assumptions. Forward-looking statements may be identified by the use of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," and similar expressions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted or implied in the forward-looking statements. Factors that may affect the outcome of the forward-looking statements include, among other things, the impacts, direct and indirect, of the COVID-19 pandemic on our business, our consultants and employees, and the overall economy; our ability to maintain our professional reputation and brand name; the fact that our net revenue may be affected by adverse economic conditions; the aggressive competition we face; our heavy reliance on information management systems; the significant risk of liability we face in the services we perform; the fact that data security, data privacy and data protection laws and other evolving regulations and cross-border data transfer restrictions may limit the use of our services and adversely affect our business; 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; 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 factors that could affect the outcome of forward-looking statements, refer to our Registration Statement on Form S-1 filed with the
Condensed Consolidated Balance Sheet (Unaudited) |
|||||||
|
|
|
|
||||
|
2021 |
|
2020 |
||||
|
(in thousands, except unit amounts) |
||||||
Assets |
|
|
|
||||
Current assets |
|
|
|
||||
Cash and cash equivalents |
$ |
19,656 |
|
|
$ |
19,077 |
|
Restricted cash |
4,982 |
|
|
4,982 |
|
||
Accounts receivable, net of allowance for doubtful accounts of |
151,801 |
|
|
107,800 |
|
||
Prepaid expenses and other current assets |
21,992 |
|
|
18,221 |
|
||
Total current assets |
198,431 |
|
|
150,080 |
|
||
Property and equipment, net |
14,457 |
|
|
17,486 |
|
||
Intangible assets, net |
403,862 |
|
|
448,816 |
|
||
|
819,639 |
|
|
820,032 |
|
||
Other non-current assets |
18,258 |
|
|
17,238 |
|
||
Total assets |
$ |
1,454,647 |
|
|
$ |
1,453,652 |
|
Liabilities and Members' Equity |
|
|
|
||||
Current liabilities |
|
|
|
||||
Accounts payable |
$ |
10,053 |
|
|
$ |
24,608 |
|
Accrued expenses and other current liabilities |
76,488 |
|
|
56,809 |
|
||
Accrued salaries and payroll |
29,319 |
|
|
23,125 |
|
||
Derivative instruments, current |
18,772 |
|
|
18,258 |
|
||
Debt, current portion |
8,350 |
|
|
8,350 |
|
||
Total current liabilities |
142,982 |
|
|
131,150 |
|
||
Debt, long-term portion |
1,009,936 |
|
|
1,013,397 |
|
||
Derivative instruments, long-term |
19,097 |
|
|
35,317 |
|
||
Deferred taxes |
15,164 |
|
|
13,567 |
|
||
Other non-current liabilities |
3,052 |
|
|
3,334 |
|
||
Total liabilities |
1,190,231 |
|
|
1,196,765 |
|
||
Commitments and contingencies |
|
|
|
||||
Class A Units - 57,168,291 units issued and outstanding at |
590,711 |
|
|
590,711 |
|
||
Additional paid-in capital |
17,853 |
|
|
15,360 |
|
||
Accumulated deficit |
(347,398 |
) |
|
(339,061 |
) |
||
Accumulated other comprehensive income (loss) |
3,250 |
|
|
(10,123 |
) |
||
Total members’ equity |
264,416 |
|
|
256,887 |
|
||
Total liabilities and members’ equity |
$ |
1,454,647 |
|
|
$ |
1,453,652 |
|
Condensed Consolidated Statements of Operations (Unaudited) |
|||||||
|
Three Months Ended
|
||||||
|
2021 |
|
2020 |
||||
|
(in thousands, except units and per unit amounts) |
||||||
Revenues |
$ |
204,981 |
|
|
$ |
130,674 |
|
|
|
|
|
||||
Expenses |
|
|
|
||||
Cost of services (exclusive of depreciation and amortization below) |
111,328 |
|
|
69,683 |
|
||
Selling, general and administrative |
47,652 |
|
|
48,347 |
|
||
Depreciation and amortization |
19,531 |
|
|
19,808 |
|
||
Total expenses |
178,511 |
|
|
137,838 |
|
||
Operating income (loss) |
26,470 |
|
|
(7,164 |
) |
||
|
|
|
|
||||
Other expenses |
|
|
|
||||
Interest expense |
18,518 |
|
|
18,597 |
|
||
Other expense (income), net |
22 |
|
|
(185 |
) |
||
Total other expense |
18,540 |
|
|
18,412 |
|
||
Income (loss) before income taxes |
7,930 |
|
|
(25,576 |
) |
||
Income tax expense |
649 |
|
|
1,466 |
|
||
Net income (loss) |
$ |
7,281 |
|
|
$ |
(27,042 |
) |
|
|
|
|
||||
Net income (loss) per unit: |
|
|
|
||||
Basic |
$ |
0.13 |
|
|
$ |
(0.47 |
) |
Diluted |
$ |
0.13 |
|
|
$ |
(0.47 |
) |
Weighted average units outstanding: |
|
|
|
||||
Basic |
57,168,291 |
|
57,168,291 |
||||
Diluted |
57,199,204 |
|
57,168,291 |
||||
Condensed Consolidated Statements of Cash Flows (Unaudited) |
|||||||
|
Nine Months Ended |
||||||
|
2021 |
|
2020 |
||||
|
(in thousands) |
||||||
Cash flows from operating activities |
|
|
|
||||
Net loss |
$ |
(8,337 |
) |
|
$ |
(72,936 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
||||
Depreciation and amortization |
56,013 |
|
|
58,283 |
|
||
Deferred income taxes |
1,933 |
|
|
2,601 |
|
||
Amortization of debt issuance costs |
3,139 |
|
|
3,012 |
|
||
Amortization of contract assets |
2,782 |
|
|
2,159 |
|
||
Equity-based compensation |
2,493 |
|
|
2,570 |
|
||
Other non-cash charges, net |
(541 |
) |
|
1,457 |
|
||
Changes in operating assets and liabilities: |
|
|
|
||||
Accounts receivable |
(44,715 |
) |
|
3,229 |
|
||
Prepaid expenses and other current assets |
(2,327 |
) |
|
2,471 |
|
||
Other non-current assets |
(4,157 |
) |
|
(3,275 |
) |
||
Accounts payable |
(13,736 |
) |
|
(7,932 |
) |
||
Accrued expenses and other current liabilities |
19,676 |
|
|
14,241 |
|
||
Accrued salaries and payroll |
6,194 |
|
|
1,504 |
|
||
Other non-current liabilities |
626 |
|
|
337 |
|
||
Net cash provided by operating activities |
19,043 |
|
|
7,721 |
|
||
Cash flows from investing activities |
|
|
|
||||
Purchases of property and equipment |
(5,092 |
) |
|
(4,156 |
) |
||
Capitalized software development |
(4,891 |
) |
|
(5,024 |
) |
||
Cash paid for acquisitions, net of cash acquired |
— |
|
|
(96 |
) |
||
Net cash used in investing activities |
(9,983 |
) |
|
(9,276 |
) |
||
Cash flows from financing activities |
|
|
|
||||
Repayments of debt |
(6,263 |
) |
|
(6,263 |
) |
||
Borrowings on line of credit |
30,000 |
|
|
50,000 |
|
||
Repayments on line of credit |
(30,000 |
) |
|
(40,000 |
) |
||
Payment of holdbacks |
— |
|
|
(1,000 |
) |
||
Payment of capital lease obligations |
— |
|
|
(402 |
) |
||
Other financing |
(1,240 |
) |
|
— |
|
||
Net cash (used in) provided by financing activities |
(7,503 |
) |
|
2,335 |
|
||
Net increase in cash, cash equivalents and restricted cash |
1,557 |
|
|
780 |
|
||
Effect of exchange rates |
(978 |
) |
|
(642 |
) |
||
Cash, cash equivalents and restricted cash |
|
|
|
||||
Beginning of period |
24,059 |
|
|
21,180 |
|
||
End of period |
$ |
24,638 |
|
|
$ |
21,318 |
|
Cash paid for |
|
|
|
||||
Interest |
$ |
51,355 |
|
|
$ |
36,279 |
|
Income taxes |
787 |
|
|
(21 |
) |
||
Supplemental schedule of non-cash operating activities |
|
|
|
||||
Unpaid deferred offering costs |
$ |
2,975 |
|
|
$ |
— |
|
Supplemental schedule of non-cash investing and financing activities |
|
|
|
||||
Unpaid property and equipment and capitalized software purchases |
$ |
468 |
|
|
$ |
433 |
|
Reconciliation of GAAP Measures to Non-GAAP Measures (Unaudited)
The following table reconciles our non-GAAP financial measure of Adjusted EBITDA and Adjusted EBITDA Service Margin to our most directly comparable financial measures calculated and presented in accordance with GAAP.
|
Three Months Ended
|
||||||
|
2021 |
|
2020 |
||||
|
(in thousands, except percent) |
||||||
Net income (loss) |
$ |
7,281 |
|
|
$ |
(27,042 |
) |
Income tax expense |
649 |
|
|
1,466 |
|
||
Interest expense |
18,518 |
|
|
18,597 |
|
||
Depreciation and amortization |
19,531 |
|
|
19,808 |
|
||
EBITDA |
45,979 |
|
|
12,829 |
|
||
Equity-based compensation |
841 |
|
|
880 |
|
||
Realized and unrealized gain (loss) on foreign exchange |
24 |
|
|
(185 |
) |
||
Merger integration expenses (1) |
193 |
|
|
2,138 |
|
||
Technology investments (2) |
1,690 |
|
|
— |
|
||
Other items (3) |
2,895 |
|
|
12,380 |
|
||
Adjusted EBITDA |
$ |
51,622 |
|
|
$ |
28,042 |
|
Service Revenue |
$ |
152,332 |
|
|
$ |
98,587 |
|
Net income (loss) service margin (4) |
4.8 |
% |
|
27.4 |
% |
||
Adjusted EBITDA service margin (5) |
33.9 |
% |
|
28.4 |
% |
||
(1) |
Merger integration expenses consist primarily of information technology ("IT") related costs including personnel expenses, professional and service fees associated with the integration of customers and operations of |
(2) |
Technology investments represent discovery phase costs associated with the build out and implementation of various technologies that will be used to achieve greater operational efficiencies. |
(3) |
Other items include (i) exit costs associated with one of our facilities during the three months ended |
(4) |
Net income (loss) service margin is calculated as net income (loss) as a percentage of service revenue. |
(5) |
Adjusted EBITDA service margin is calculated as Adjusted EBITDA as a percentage of service revenue. |
The following table sets forth a reconciliation of net loss to Adjusted Net Income (Loss) for the periods presented:
|
Three Months Ended
|
||||||
|
2021 |
|
2020 |
||||
|
(in thousands) |
||||||
Net income (loss) |
$ |
7,281 |
|
|
$ |
(27,042 |
) |
Income tax expense |
649 |
|
|
1,466 |
|
||
Income (loss) before income taxes |
7,930 |
|
|
(25,576 |
) |
||
Equity-based compensation |
841 |
|
|
880 |
|
||
Realized and unrealized gain (loss) on foreign exchange |
24 |
|
|
(185 |
) |
||
Merger integration expenses(1) |
193 |
|
|
2,138 |
|
||
Technology investments (2) |
1,690 |
|
|
— |
|
||
Other items (3) |
2,895 |
|
|
12,380 |
|
||
Adjusted income (loss) before income taxes |
13,573 |
|
|
(10,363 |
) |
||
Adjusted income taxes (4) |
360 |
|
|
732 |
|
||
Adjusted Net Income (Loss) |
$ |
13,213 |
|
|
$ |
(11,095 |
) |
(1) |
Merger integration expenses consist primarily of IT related costs including personnel expenses, professional and service fees associated with the integration of GIS, as discussed in footnote 1 to the immediately preceding table, which commenced in |
|
|
(2) |
Technology investments represent discovery phase costs associated with the build out and implementation of various technologies that will be used to achieve greater operational efficiencies. |
|
|
(3) |
Other items include (i) exit costs associated with one of our facilities during the quarter ended |
|
|
(4) |
An adjusted effective income tax rate has been determined for each period presented by applying the statutory income tax rates and the provision for deferred income taxes to the pre-tax adjustments, which was used to compute Adjusted Net Income (Loss) for the periods presented. |
Key Metrics
The key metrics used to help us evaluate our business, identify trends and formulate business plans and strategy are set forth in the table below and as described in the following text:
|
Three Months Ended |
|
||||||||
|
2021 |
|
2020 |
|
||||||
|
(in thousands, except percent) |
|||||||||
New business revenue |
$ |
10,873 |
|
|
$ |
9,354 |
|
|
||
We measure net revenue retention on a year-to-date basis. Net revenue retention for the nine months ended
Net Revenue Retention
We generally have long standing relationships with our customers as evidenced by the nine-year average tenure of our enterprise customers. The revenue from these customers is highly reoccurring in nature. In addition, our ability to cross sell and expand our services with our existing customers is an important component of our growth strategy. We measure the success of our customer retention and expansion through net revenue retention particularly among our top 1,250 customers who represent approximately
New Business Revenue
In addition to expanding revenue with our existing customer base, adding new customers to our portfolio is an important driver of growth. New business revenue is a measure of our ability to establish new sources of business from customers outside of our existing base of business. New business represents revenue recognized under a new customer contract during the first year of the contract term. We have a sales and sales support staff in nine countries focused on expanding our reach and penetration into new markets and regions. Although new contracts are typically three years in duration, new business revenue is determined over the first year of the contract. Continuing to grow this important metric is critical to the success of our business. New business revenue increased in the three months ended
View source version on businesswire.com: https://www.businesswire.com/news/home/20211118006293/en/
Investors:
InvestorRelations@HireRight.com
+1 949-528-1000
Media:
Monica.Soladay@HireRight.com
Source:
FAQ
What were HireRight's Q3 2021 revenue figures?
How did HireRight perform in terms of net income for Q3 2021?
What is HireRight's full-year revenue outlook for 2021?
How much did HireRight's operating income improve in Q3 2021?
What impact did the IPO proceeds have on HireRight's balance sheet?
