HireRight Reports Fourth Quarter 2021 Results

– Revenues Grew 32% over Prior Year –

– Raised More than $390 Million in Net Proceeds from Initial Public Offering –

– Announces Full-year Guidance for 2022 –

HireRight Holdings Corporation (the "Company") (NYSE: HRT) ("HireRight" or the "Company"), a leading provider of background screening services, today announced financial results for its fourth quarter and year ended December 31, 2021. The Company completed its IPO in November 2021.

Fourth Quarter 2021 Highlights Compared to Fourth Quarter 2020:

• Revenues of $198.5 million increased 32.3% from $150.1 million
• Operating income of $7.3 million improved from operating loss of $0.2 million
• Net loss of $13.0 million improved from net loss of $19.1 million
• Adjusted net income of $22.7 million improved from adjusted net loss of $3.2 million
• Earnings (loss) per share ("EPS") of $(0.18) improved compared to loss per share of $(0.33)
• Adjusted Diluted EPS of $0.32, up from Adjusted Diluted EPS of $(0.06)

Full Year 2021 Highlights Compared to Full Year 2020:

• Revenues of $730.1 million increased 35.1% from $540.2 million
• Operating income of $56.7 million improved from operating loss of $12.1 million
• Net loss of $21.3 million improved from net loss of $92.1 million
• Adjusted net income of $75.3 million improved from adjusted net loss of $0.9 million
• Earnings (loss) per share ("EPS") of $(0.35) compared to EPS of $(1.61)
• Adjusted Diluted EPS of $1.24, up from Adjusted Diluted EPS of $(0.02)

“We completed a transformational year on a high note with record results and growing demand for our services following our initial public offering,” said HireRight President and CEO Guy Abramo. “We grew fourth quarter revenues 32% over the prior year period, and both Adjusted EBITDA and Adjusted EPS more than doubled. The strength of our leadership in this industry continues to be evidenced through our marquee customer base in the healthcare, technology, financial services and transportation industries. We are trusted by the leading companies in each of those industries to deliver the highest quality, timely and compliant background solutions to protect their businesses.

Additionally, we are pleased to expand our leadership abroad with more than 15% of our background screens completed on employees and applicants based outside the U.S. Our internationally driven revenue reached more than $100 million during 2021 and is growing at double digit rates. Our focus for 2022 is on automation and related margin expansion, and I am pleased with our progress to date and look forward to the initial deployments this year. Our guidance for the new year demonstrates the earnings power of our business and the sharp focus of our entire team on creating meaningful long-term shareholder value."

Liquidity and Capital Resources

In connection with our initial public offering, the Company received net proceeds of $393.5 million, after deducting underwriting discounts and commissions and other offering costs payable by the Company. The Company used $215.0 million of the net proceeds for repayment, in full, of its second lien term loan facility and $100.0 million of the net proceeds to repay, in part, its first lien term loan facility. As of December 31, 2021, the Company had approximately $98.2 million in available borrowing capacity under the Revolving Credit Facility, after utilizing approximately $1.8 million for letters of credit.

Unrestricted cash and cash equivalents as of December 31, 2021, totaled $111.0 million.

The Company generated $47.5 million of cash from operations for the year ended December 31, 2021, compared to cash from operations of $16.4 million for the year ended December 31, 2020.

Full-Year Outlook

Based on current expectations, HireRight is providing the Company's initial full-year 2022 outlook as set forth in the table below:

Webcast and Conference Call

Management will discuss fourth quarter 2021 results on a webcast at 2 p.m. (PT) / 5 p.m. (ET) today, Monday, March 21, 2022. The webcast, along with the related presentation materials, may be accessed via HireRight's investor relations website page at ir.hireright.com under "News and Events." To listen by phone, please dial 1-855-327-6837 or 1-631-891-4304.

The webcast replay, along with the related presentation materials, can be accessed via HireRight's investor relations website page at ir.hireright.com under "News and Events," and will be available for 90 days. A replay of the call will also be available until midnight on June 20, 2022 by dialing 1-844-512-2921 or 1-412-317-6671 and entering passcode 10016015.

About HireRight

HireRight provides comprehensive background screening, verification, identification, monitoring, and drug and health screening services for more than 40,000 customers across the globe. HireRight offers services via a unified global software and data platform that tightly integrates into its customers’ human capital management systems enabling highly effective and efficient workflows for workforce hiring, onboarding, and monitoring. In 2021, HireRight screened over 29 million job applicants, employees and contractors for its customers. For more information, visit www.HireRight.com or contact InvestorRelations@HireRight.com.

Non-GAAP Financial Measures

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

We believe that 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 Net Income (Loss), and Adjusted Diluted Earnings (Loss) Per Share. Reconciliations of these non-GAAP financial measures to the most directly comparable measures calculated and presented in accordance with GAAP are provided as schedules attached to this release.

Adjusted EBITDA

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 Net Income (Loss) and Adjusted Diluted Earnings (Loss) Per Share

In addition to Adjusted EBITDA, 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 amortization of acquired intangible assets, 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, to which we apply an adjusted effective tax rate. Beginning with the fourth quarter of the year ended December 31, 2021, we have incorporated the amortization of acquired intangibles in our definition of Adjusted Net Income (Loss), as it provides for a more direct comparison to our peers. See the footnotes to the table below for a description of certain of these adjustments. We define Adjusted Diluted Earnings (Loss) Per Share as Adjusted Net Income (Loss) divided by the weighted average number of shares outstanding (diluted) for the applicable period. We believe Adjusted Diluted Earnings (Loss) Per Share is useful in helping investors and analysts to better evaluate our per share operating performance across reporting periods and to compare our performance to that of our peer companies.

Safe Harbor Statement

This press release and management's comments on the fourth quarter results conference call mentioned above include forward-looking statements, including statements related to management's outlook for 2022. 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 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 Form 10-K filed with the SEC on March 21, 2022, in particular the sections of that document entitled "Risk Factors," "Forward-Looking Statements," and "Management's Discussion and Analysis of Financial Condition and Results of Operations." We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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

The following table reconciles our non-GAAP financial measure of Adjusted EBITDA to our most directly comparable financial measures calculated and presented in accordance with GAAP.

The following table sets forth a reconciliation of net loss to Adjusted Net Income (Loss) for the periods presented:

The following table sets forth the calculation of Adjusted Diluted Earnings Per Share 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 described below.

Net Revenue Retention

We measure net revenue retention on a year-to-date basis. Net revenue retention for the year ended December 31, 2021 and 2020 was 136.3% and 83.4%, respectively.

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 78% of our total revenue. It is calculated as the total revenue derived in the current fiscal period from our top 1,250 customers, as defined by the revenue composition of the period immediately preceding the presented fiscal year, divided by the total revenue derived in the prior fiscal period from the same 1,250 customers. The 1,250 customers used for this metric may vary from period to period, as defined by the revenue composition of the period immediately preceding the presented fiscal year. Net revenue retention increased in the three months ended December 31, 2021 as general client ordering patterns showed a significant volume and product mix improvement over the COVID impacted prior year quarter.

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 December 31, 2021 compared to the prior year period due to volume and product mix improvement over the COVID impacted prior year quarter.

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