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 ~~June 30, 2022~~March 31, 2023


☐			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)


Delaware									~~82-1092072~~83-1092072
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)


100 Centerview Drive, Suite 300	Nashville	Tennessee	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 class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share

HRT

New 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 ~~79,432,321~~73,837,499 shares of common stock as of ~~July 28, 2022.~~

~~EXPLANATORY NOTE~~

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to “we,” “us,” “our,” the “Company,” and similar references refer: (1) following the consummation of our conversion to a Delaware corporation on October 15, 2021 in connection with our initial public offering, to HireRight Holdings Corporation, and (2) prior to the completion of such conversion, to HireRight GIS Group Holdings, LLC. See “~~Part I, Item 1. Financial Statements (Unaudited) - Note 1 — Organization, Basis of Presentation and Consolidation, and Significant Accounting Policies” in this Quarterly Report on Form 10-Q for further information.~~

For convenience, we often refer to the individuals about whom we prepare screening reports as “applicants” because the majority of our screening reports are ordered by our customers to assist in their evaluation of applicants for employment or engagement as contractors. However, we also prepare screening reports on our customers’ existing employees, vendor personnel, volunteers, and others, and our references to “applicants” refer to all subjects of our screening reports.May 2, 2023.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)


			Page
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Operations			2
Condensed Consolidated Statements of Comprehensive Income ~~(Loss~~)			3
Condensed Consolidated Statements of Stockholders’ Equity			4
Condensed Consolidated Statements of Cash Flows			65
Notes to Condensed Consolidated Financial Statements			76

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Item 4. Controls and Procedures

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

I t em 2 . Unregistered Sales of Equity Securities and Use of Proceeds

Item 6. Exhibits

Signatures

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

HireRight Holdings Corporation

Condensed Consolidated Balance Sheets (Unaudited)


		June 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(in thousands, except share and per share data)					(in thousands, except share and per share data)
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	118,440	$	111,032	Cash and cash equivalents	$	127,410	$	162,092
Restricted cash	Restricted cash	1,101		5,182		Restricted cash	—		1,310
Accounts receivable, net of allowance for doubtful accounts of $5,277 and $4,284 at June 30, 2022 and December 31, 2021, respectively		176,371		142,473
Accounts receivable, net of allowance for credit losses of $5,365 and $5,812 at March 31, 2023 and December 31, 2022, respectively						Accounts receivable, net of allowance for credit losses of $5,365 and $5,812 at March 31, 2023 and December 31, 2022, respectively	134,306		136,656
Prepaid expenses and other current assets	Prepaid expenses and other current assets	16,660		18,583		Prepaid expenses and other current assets	20,208		18,745
Total current assets	Total current assets	312,572		277,270		Total current assets	281,924		318,803
Property and equipment, net	Property and equipment, net	10,399		11,127		Property and equipment, net	8,374		9,045
Right-of-use assets, net	Right-of-use assets, net	9,794		—		Right-of-use assets, net	6,921		8,423
Intangible assets, net	Intangible assets, net	358,913		389,483		Intangible assets, net	318,057		331,598
Goodwill	Goodwill	810,040		819,538		Goodwill	811,338		809,463
Cloud computing software, net	Cloud computing software, net	24,142		8,133		Cloud computing software, net	39,785		35,230
Deferred tax assets						Deferred tax assets	80,612		74,236
Other non-current assets	Other non-current assets	18,829		18,211		Other non-current assets	20,583		18,949
Total assets	Total assets	$	1,544,689	$	1,523,762	Total assets	$	1,567,594	$	1,605,747
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	7,117	$	13,688	Accounts payable	$	9,442	$	11,571
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	97,519		75,294		Accrued expenses and other current liabilities	102,923		75,208
Accrued salaries and payroll	Accrued salaries and payroll	27,476		29,280		Accrued salaries and payroll	26,085		31,075
Derivative instruments, short-term		—		16,662

Debt, current portion	Debt, current portion	8,350		8,350		Debt, current portion	8,350		8,350
Total current liabilities	Total current liabilities	140,462		143,274		Total current liabilities	146,800		126,204
Debt, long-term portion	Debt, long-term portion	685,931		688,683		Debt, long-term portion	681,853		683,206
Derivative instruments, long-term		—		11,444
Tax receivable agreement liability		210,639		210,639
Deferred taxes		14,415		14,765
Operating lease liabilities, long-term		12,572		—

Tax receivable agreement liability, long-term portion						Tax receivable agreement liability, long-term portion	183,504		210,543
Deferred tax liabilities						Deferred tax liabilities	5,617		5,748
Other non-current liabilities	Other non-current liabilities	2,197		9,240		Other non-current liabilities	10,845		11,728
Total liabilities	Total liabilities	1,066,216		1,078,045		Total liabilities	1,028,619		1,037,429
Commitments and contingent liabilities (Note 12)	Commitments and contingent liabilities (Note 12)	0		0		Commitments and contingent liabilities (Note 12)
Preferred stock, $0.001 par value, authorized 100,000,000 shares; none issued and outstanding as of June 30, 2022 and December 31, 2021		—		—
Common stock, $0.001 par value, authorized 1,000,000,000 shares; 79,432,321 and 79,392,937 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		79		79
Preferred stock, $0.001 par value, authorized 100,000,000 shares; none issued and outstanding as of March 31, 2023 and December 31, 2022						Preferred stock, $0.001 par value, authorized 100,000,000 shares; none issued and outstanding as of March 31, 2023 and December 31, 2022	—		—
Common stock, $0.001 par value, authorized 1,000,000,000 shares; 79,665,328 and 79,660,397 shares issued, and 75,874,099 and 78,131,568 shares outstanding as of March 31, 2023 and December 31, 2022, respectively						Common stock, $0.001 par value, authorized 1,000,000,000 shares; 79,665,328 and 79,660,397 shares issued, and 75,874,099 and 78,131,568 shares outstanding as of March 31, 2023 and December 31, 2022, respectively	80		80
Additional paid-in capital	Additional paid-in capital	800,566		793,382		Additional paid-in capital	809,627		805,799
Treasury stock, at cost; 3,791,229 and 1,528,829 shares repurchased at March 31, 2023 and December 31, 2022, respectively						Treasury stock, at cost; 3,791,229 and 1,528,829 shares repurchased at March 31, 2023 and December 31, 2022, respectively	(42,337)		(16,827)
Accumulated deficit	Accumulated deficit	(324,354)		(360,364)		Accumulated deficit	(223,701)		(215,790)
Accumulated other comprehensive income		2,182		12,620
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(4,694)		(4,944)
Total stockholders’ equity	Total stockholders’ equity	478,473		445,717		Total stockholders’ equity	538,975		568,318
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,544,689	$	1,523,762	Total liabilities and stockholders’ equity	$	1,567,594	$	1,605,747

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

HireRight Holdings Corporation

Condensed Consolidated Statements of Operations (Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(in thousands, except share and per share data)									(in thousands, except share and per share data)
Revenues	Revenues	$	222,292	$	176,984	$	421,003	$	326,541	Revenues	$	175,447	$	198,711

Expenses	Expenses									Expenses
Cost of services (exclusive of depreciation and amortization below)	Cost of services (exclusive of depreciation and amortization below)	119,990		98,317		232,393		184,504		Cost of services (exclusive of depreciation and amortization below)	98,451		112,403
Selling, general and administrative	Selling, general and administrative	54,387		43,215		102,654		82,609		Selling, general and administrative	59,726		48,267
Depreciation and amortization	Depreciation and amortization	18,049		18,239		36,110		36,482		Depreciation and amortization	18,417		18,061
Total expenses	Total expenses	192,426		159,771		371,157		303,595		Total expenses	176,594		178,731
Operating income		29,866		17,213		49,846		22,946
Operating income (loss)										Operating income (loss)	(1,147)		19,980

Other expenses	Other expenses									Other expenses
Interest expense		4,957		18,207		12,514		36,156
Interest expense, net										Interest expense, net	12,402		7,557
Other expense, net	Other expense, net	33		912		74		103		Other expense, net	306		41
Total other expenses, net		4,990		19,119		12,588		36,259
Total other expenses										Total other expenses	12,708		7,598
Income (loss) before income taxes	Income (loss) before income taxes	24,876		(1,906)		37,258		(13,313)		Income (loss) before income taxes	(13,855)		12,382
Income tax expense		430		1,733		1,248		2,305
Income tax expense (benefit)										Income tax expense (benefit)	(5,944)		818
Net income (loss)	Net income (loss)	$	24,446	$	(3,639)	$	36,010	$	(15,618)	Net income (loss)	$	(7,911)	$	11,564

Net income (loss) per share:	Net income (loss) per share:									Net income (loss) per share:
Basic	Basic	$	0.31	$	(0.06)	$	0.45	$	(0.27)	Basic	$	(0.10)	$	0.15
Diluted	Diluted	$	0.31	$	(0.06)	$	0.45	$	(0.27)	Diluted	$	(0.10)	$	0.15
Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:
Basic	Basic	79,405,872		57,168,291		79,399,440		57,168,291		Basic	77,285,116		79,392,937
Diluted	Diluted	79,478,094		57,168,291		79,443,173		57,168,291		Diluted	77,285,116		79,392,937

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

HireRight Holdings Corporation

Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ (Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(in thousands)									(in thousands)
Net income (loss)	Net income (loss)	$	24,446	$	(3,639)	$	36,010	$	(15,618)	Net income (loss)	$	(7,911)	$	11,564

Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax									Other comprehensive income (loss), net of tax
Unrealized gain (loss) on derivatives qualified for hedge accounting:	Unrealized gain (loss) on derivatives qualified for hedge accounting:									Unrealized gain (loss) on derivatives qualified for hedge accounting:
Unrealized gain (loss) on interest rate swaps		—		(609)		7,981		1,964
Unrealized gain on interest rate swaps										Unrealized gain on interest rate swaps	—		7,981
Reclassification adjustments included in earnings (1)	Reclassification adjustments included in earnings (1)	(4,082)		4,904		(4,584)		9,715		Reclassification adjustments included in earnings (1)	(2,527)		(502)
Total unrealized gain (loss)	Total unrealized gain (loss)	(4,082)		4,295		3,397		11,679		Total unrealized gain (loss)	(2,527)		7,479
Currency translation adjustment, net of tax benefit (expense) of ($83) and $3 for the three months ended June 30, 2022 and 2021, respectively, and ($146) and $15 for the six months ended June 30, 2022, and 2021, respectively		(10,042)		1,283		(13,835)		1,262
Currency translation adjustment, net of tax expense of $20 and $63 for the three months ended March 31, 2023 and 2022, respectively										Currency translation adjustment, net of tax expense of $20 and $63 for the three months ended March 31, 2023 and 2022, respectively	2,777		(3,793)

Other comprehensive income (loss)		(14,124)		5,578		(10,438)		12,941
Other comprehensive income										Other comprehensive income	250		3,686
Comprehensive income (loss)	Comprehensive income (loss)	$	10,322	$	1,939	$	25,572	$	(2,677)	Comprehensive income (loss)	$	(7,661)	$	15,250

(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 ~~income~~loss on the condensed consolidated balance sheet related to the interest rate swap agreements terminated on February 18, 2022. See Note 910 for additional information.

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

HireRight Holdings Corporation

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

Three Months Ended June 30, 2022
Common Stock
Shares Amount Additional Paid in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders’ Equity
(in thousands, except share data)
Balances at March 31, 2022 79,392,937 $ 79 $ 796,176 $ (348,800) $ 16,306 $ 463,761
Issuance of common stock upon vesting of restricted stock units 39,384 — — — — —
Net income — — — 24,446 — 24,446
Stock-based compensation — — 4,390 — — 4,390
Other comprehensive loss — — — — (14,124) (14,124)
Balances at June 30, 2022 79,432,321 $ 79 $ 800,566 $ (324,354) $ 2,182 $ 478,473


	Three Months Ended March 31, 2023
	Common Stock			Treasury Stock
	Shares	Amount		Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	(in thousands, except share data)
Balances at December 31, 2022	78,131,568	$	80	1,528,829	$	(16,827)	$	805,799	$	(215,790)	$	(4,944)	$	568,318
Issuance of common stock under stock-based compensation plans	4,931	—		—	—		—		—		—		—
Net loss	—	—		—	—		—		(7,911)		—		(7,911)
Stock-based compensation	—	—		—	—		3,828		—		—		3,828
Repurchase of common stock	(2,262,400)	—		2,262,400	(25,510)		—		—		—		(25,510)
Other comprehensive income	—	—		—	—		—		—		250		250
Balances at March 31, 2023	75,874,099	$	80	3,791,229	$	(42,337)	$	809,627	$	(223,701)	$	(4,694)	$	538,975

Three Months Ended June 30, 2021
Class A Member Units
Units Amount Additional Paid in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity
(in thousands, except unit data)
Balances at March 31, 2021 57,168,291 $ 590,711 $ 16,183 $ (351,040) $ (2,760) $ 253,094
Net loss — — — (3,639) �� (3,639)
Stock-based compensation — — 829 — — 829
Other comprehensive income — — — — 5,578 5,578
Balances at June 30, 2021 57,168,291 $ 590,711 $ 17,012 $ (354,679) $ 2,818 $ 255,862


	Three Months Ended March 31, 2022
	Common Stock			Treasury Stock
	Shares	Amount		Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	(in thousands, except unit data)
Balances at December 31, 2021	79,392,937	$	79	—	$	—	$	793,382	$	(360,364)	$	12,620	$	445,717
Net income	—	—		—	—		—		11,564		—		11,564
Stock-based compensation	—	—		—	—		2,794		—		—		2,794

Other comprehensive income	—	—		—	—		—		—		3,686		3,686
Balances at March 31, 2022	79,392,937	$	79	—	$	—	$	796,176	$	(348,800)	$	16,306	$	463,761

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

~~HireRight Holdings Corporation~~

~~Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)~~

Six Months Ended June 30, 2022
Common Stock
Shares Amount Additional Paid in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders’ Equity
(in thousands, except share data)
Balances at December 31, 2021 79,392,937 $ 79 $ 793,382 $ (360,364) $ 12,620 $ 445,717
Issuance of common stock upon vesting of restricted stock units 39,384 — — — — —
Net income — — — 36,010 — 36,010
Stock-based compensation — — 7,184 — — 7,184
Other comprehensive loss — — — — (10,438) (10,438)
Balances at June 30, 2022 79,432,321 $ 79 $ 800,566 $ (324,354) $ 2,182 $ 478,473

Six Months Ended June 30, 2021
Class A Member Units
Units Amount Additional Paid in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity
(in thousands, except unit data)
Balances at December 31, 2020 57,168,291 $ 590,711 $ 15,360 $ (339,061) $ (10,123) $ 256,887
Net loss — — — (15,618) — (15,618)
Stock-based compensation — — 1,652 — — 1,652
Other comprehensive income — — — — 12,941 12,941
Balances at June 30, 2021 57,168,291 $ 590,711 $ 17,012 $ (354,679) $ 2,818 $ 255,862

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

HireRight Holdings Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)


		Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021			2023		2022
		(in thousands)					(in thousands)
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income (loss)	Net income (loss)	$	36,010	$	(15,618)	Net income (loss)	$	(7,911)	$	11,564
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Adjustments to reconcile net income (loss) to net cash used in operating activities:						Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	36,110		36,482		Depreciation and amortization	18,417		18,061
Deferred income taxes	Deferred income taxes	243		1,765		Deferred income taxes	(6,590)		205
Amortization of debt issuance costs	Amortization of debt issuance costs	1,759		2,082		Amortization of debt issuance costs	803		821
Amortization of contract assets	Amortization of contract assets	2,166		1,809		Amortization of contract assets	1,212		1,091
Amortization of right-of-use assets	Amortization of right-of-use assets	1,355		—		Amortization of right-of-use assets	2,384		686
Amortization of unrealized gains on terminated interest rate swap agreements	Amortization of unrealized gains on terminated interest rate swap agreements	(6,263)		—		Amortization of unrealized gains on terminated interest rate swap agreements	(2,527)		(2,181)
Amortization of cloud computing software costs	Amortization of cloud computing software costs	466		—		Amortization of cloud computing software costs	1,571		151
Stock-based compensation	Stock-based compensation	7,305		1,652		Stock-based compensation	3,828		2,794

Other non-cash charges, net	Other non-cash charges, net	1,473		633		Other non-cash charges, net	(383)		496
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(34,969)		(24,035)		Accounts receivable	2,838		(29,852)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,924		(644)		Prepaid expenses and other current assets	(1,465)		4,115
Cloud computing software	Cloud computing software	(16,475)		—		Cloud computing software	(6,125)		(8,548)
Other non-current assets	Other non-current assets	(2,732)		(3,162)		Other non-current assets	(1,893)		(1,411)
Accounts payable	Accounts payable	(10,154)		(11,839)		Accounts payable	(1,804)		(7,095)
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	23,158		10,765		Accrued expenses and other current liabilities	(771)		14,920
Accrued salaries and payroll	Accrued salaries and payroll	(2,136)		(391)		Accrued salaries and payroll	(5,140)		(6,240)

Operating lease liabilities, net	Operating lease liabilities, net	(2,604)		—		Operating lease liabilities, net	(1,284)		(1,068)
Other non-current liabilities	Other non-current liabilities	(770)		154		Other non-current liabilities	(175)		(524)
Net cash provided by (used in) operating activities		35,866		(347)
Net cash used in operating activities						Net cash used in operating activities	(5,015)		(2,015)
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Purchases of property and equipment	Purchases of property and equipment	(2,763)		(3,753)		Purchases of property and equipment	(693)		(1,867)
Capitalized software development	Capitalized software development	(5,417)		(3,005)		Capitalized software development	(2,918)		(2,662)

Other investing						Other investing	(1,000)		—
Net cash used in investing activities	Net cash used in investing activities	(8,180)		(6,758)		Net cash used in investing activities	(4,611)		(4,529)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities

Repayments of debt	Repayments of debt	(4,175)		(4,175)		Repayments of debt	(2,088)		(2,088)
Borrowings on line of credit		—		20,000
Repayments on line of credit		—		(20,000)

Payments for termination of interest rate swap agreements	Payments for termination of interest rate swap agreements	(18,445)		—		Payments for termination of interest rate swap agreements	—		(18,445)
Payment of issuance costs - revolving credit facility		(342)		—
Repurchase of common stock						Repurchase of common stock	(24,584)		—

Net cash used in financing activities	Net cash used in financing activities	(22,962)		(4,175)		Net cash used in financing activities	(26,672)		(20,533)
Net increase (decrease) in cash, cash equivalents and restricted cash		4,724		(11,280)
Net decrease in cash, cash equivalents and restricted cash						Net decrease in cash, cash equivalents and restricted cash	(36,298)		(27,077)
Effect of exchange rates	Effect of exchange rates	(1,397)		(727)		Effect of exchange rates	306		(420)
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash					Cash, cash equivalents and restricted cash
Beginning of period		116,214		24,059
Beginning of year						Beginning of year	163,402		116,214
End of period	End of period	$	119,541	$	12,052	End of period	$	127,410	$	88,717
Cash paid for	Cash paid for					Cash paid for
Interest	Interest	$	16,945	$	33,928	Interest	$	15,221	$	8,772
Income taxes paid		1,529		10
Income taxes						Income taxes	$	639	$	902
Supplemental schedule of non-cash activities						Supplemental schedule of non-cash activities

Supplemental schedule of non-cash investing and financing activities
Unpaid property and equipment and capitalized software purchases	Unpaid property and equipment and capitalized software purchases	$	1,939	$	—	Unpaid property and equipment and capitalized software purchases	$	821	$	561

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

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 GIS Group Holdings LLC (“HGGH”), was formed in July 2018 in connection with the combination of two groups of companies: the HireRight Group and the General Information Services (“GIS”) Group, each of which includes a number of wholly-owned subsidiaries that conduct the Company’s business in the United States, as well as other countries. Since July 2018, the combined group of companies and their subsidiaries have operated as a unified operating company providing screening and compliance services, predominantly under the HireRight brand.

~~Corporate Conversion and Stock Split~~

~~On October 15, 2021, HGGH converted into a Delaware corporation and changed its name to HireRight~~ Holdings Corporation (“HireRight” or the “Company”)~~. In conjunction with~~ is incorporated in Delaware.

The Company is a leading global provider of technology-driven workforce risk management and compliance solutions. The Company provides comprehensive background screening, verification, identification, monitoring, and drug and health screening services for customers across the conversion, all of HGGH’s outstanding equity interests were converted into shares of common stock of HireRight Holdings Corporation. The conversion and related transactions are referred to herein as the “Corporate Conversion.” The Corporate Conversion did not affect the assets and liabilities of HGGH, which became the assets and liabilities of HireRight Holdings Corporation.

On October 18, 2021, HireRight Holdings Corporation effected a one-for-15.969236 reverse stock split (“Stock Split”). All shares of the Company’s common stock, stock-based instruments, and per-share data included in the condensed consolidated financial statements give retroactive effect to the Stock Split.

~~Initial Public Offering~~

On November 2, 2021, the Company completed its initial public offering (“IPO”), in which the Company issued 22,222,222 shares of its common stock. The shares began trading on the New York Stock Exchange on October 29, 2021globe, predominantly under the symbol “HRT.” The shares were sold at an IPO price of $19.00 per share for net proceeds of $393.5 million, after deducting underwriting discounts and commissions of $23.2 million and other offering costs payable by the Company of $5.5 million. On November 30, 2021, the Company issued an additional 2,424 shares pursuant to the partial exercise of the underwriters’ option to purchase additional shares for net proceeds of an immaterial amount.

HireRight brand.

Income Tax Receivable Agreement

In connection with the Company’s ~~IPO,~~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 ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company ~~recorded~~had a total liability of ~~$210.6~~$210.5 million in connection with the projected obligations under the TRA. TRA related liabilities are classified as current or non-current based on ~~its~~the expected date of payment and are included on the Company’s condensed consolidated balance ~~sheets.~~

sheets under the captions accrued expenses and other current liabilities and tax receivable agreement liability, long-term portion, respectively. See Note 5 —
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-owned subsidiaries. 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.

~~HireRight Holdings Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

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, ~~2021,~~2022, as filed with the SEC on March ~~21, 2022~~9, 2023 (“Annual Report”). The December 31, ~~2021~~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, ~~2021,~~2022, included in the Annual Report. Certain reclassifications have been made to prior year presentation to conform to current year presentation.

HireRight Holdings Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 statements for the year ended December 31, ~~2021,~~2022, included in the Annual Report. ~~Except as noted below and in Note 2 —~~ ~~Recently Issued Accounting Pronouncements~~ ~~regarding leases, there~~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 ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023.

~~Implementation Costs Incurred in Cloud Computing Arrangements~~

For cloud computing arrangements that are a service contract, the Company capitalizes certain implementation costs incurred, including employee costs and third-party costs, during the application development stage, and expenses costs as incurred during the preliminary project and post-implementation stages. Capitalized implementation costs are expensed on a straight-line basis over the estimated useful life. Capitalized amounts related to such arrangements are recorded within prepaid expenses and other current assets and within cloud computing software in the condensed consolidated balance sheets and amortized to selling, general and administrative expenses in the condensed consolidated statement of operations.

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 ~~doubtful accounts,~~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, 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.

Goodwill

The change in goodwill during the three months ended March 31, 2023 was driven by foreign currency translation, as the U.S. dollar strengthened against the British pound and other currencies.

~~HireRight Holdings Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

2. Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements Adopted

Accounting Pronouncements Adopted in ~~2022~~2023

In ~~February~~June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2016-02,~~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),”~~” (“Topic 842”) to increase transparency and comparability among organizations related to their leasing arrangements. The update requires lessees to recognize most leases, with~~ which delayed the ~~exception of short-term leases if a policy election~~effective date for this guidance until the fiscal year beginning after December 15, 2022 including interim periods within those fiscal years. Early adoption is made, on their balance sheets as a right-of-use (“ROU”) asset representing the right to use an underlying asset and a lease liability representing the obligation to make lease payments over the lease term, measured on a discounted basis, while recognizing lease expense on their income statements in a manner similar to current GAAP. The guidance also requires an entity to disclose key quantitative and qualitative information about its leasing arrangements.

~~The Company leases office facilities under operating lease agreements. All of the Company’s leases are operating leases.~~permitted. The Company adopted ~~Topic 842 on~~ASU 2016-13 effective January 1, ~~2022~~2023, using the modified retrospective transition approach. Under this transition provision, results for the reporting period beginning on January 1, 2022 are presented under Topic 842 while prior period amounts continue to be reported and disclosed in accordance with the Company’s historical accounting treatment under ASC Topic 840, ~~Leases~~.

The Company elected the “package of practical expedients” permitted under the transition guidance, which among other things, does not require reassessment of whether contracts entered into prior to adoption are or contain leases, and allows carryforward of the historical lease classification for existing leases. The Company did not elect the “hindsight” practical expedient, and therefore measured the ROU asset and lease liability using the remaining portion of the lease term at adoption on January 1, 2022.

The Company made an accounting policy election not to recognize ROU assets and lease liabilities for leases with a term of twelve months or less. For all other leases, the Company recognizes ROU assets and lease liabilities based on the present value of lease payments over the lease term at the commencement date of the lease (or January 1, 2022 for existing leases upon the adoption of Topic 842). Lease payments may include fixed rent escalation clauses or payments that depend on an index (such as the consumer price index). Subsequent changes to an index and any other periodic market-rate adjustments to base rent are recorded in variable lease expense in the period incurred. The ROU assets also include any initial direct costs incurred and lease payments made at or before the commencement date and are reduced by any lease incentives.

The Company has made an accounting policy election to account for lease and non-lease components in its contracts as single lease components. The non-lease components typically represent additional services transferred to the Company, such as common area maintenance for real estate, which are variable in nature and recorded in variable lease expense in the period incurred.

The Company uses its incremental borrowing rate which is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term and amount in a similar economic environment to determine the present value of lease payments as the Company’s leases do not have a readily determinable implicit discount rate. Judgment is applied in assessing factors such as Company specific credit risk, lease term, nature and quality of the underlying collateral, currency, and economic environment in determining the incremental borrowing rate to apply to each lease.

Upon adoption, the Company recorded ROU assets and operating lease liabilities of $9.9 million and $18.9 million, respectively, related to the Company’s operating leases. The adoption of the new lease standard did not materially impact the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2022, or condensed consolidated statements of cash flows for the six months ended June 30, 2022.

~~HireRight Holdings Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.~~” The ASU requires additional disclosures for transactions with a government accounted for by applying a grant or contribution accounting model by analogy, including: (i) information about the nature of the transactions and related accounting policy used to account for the transactions; (ii) the line items on the balance sheet and income statement affected by these transactions including amounts applicable to each line; and (iii) significant terms and conditions of the transactions, including commitments and contingencies. The Company adopted this ASU effective January 1, 2022.method. 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 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

HireRight Holdings Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

and interim periods within those fiscal years. ~~Early adoption is permitted.~~ The Company ~~is currently evaluating the impact~~adopted ASU 2021-08 effective January 1, 2023. The adoption of this ~~standard~~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 ~~No.~~ 2021-01, “Reference Rate Reform (Topic 848): Scope,” which expanded the scope of Topic 848 to include derivative instruments impacted by the discounting transition. ~~This collective guidance is effective at any time after March 12, 2020 but no later than~~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.~~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.

~~In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,”~~ to provide financial statement users with more decision-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 permitted. The Company is currently evaluating the impact of ASU 2016-13 on the condensed consolidated financial statements.

3. Prepaid Expenses and Other Current Assets, and Other Non-Current Assets

The components of prepaid expenses and other current assets were as follows:

June 30,
2022 December 31,
2021
(in thousands)
Prepaid software licenses, maintenance, and insurance $ 10,291 $ 11,668
Other prepaid expenses and current assets 6,369 6,915
Total prepaid expenses and other current assets $ 16,660 $ 18,583

~~HireRight Holdings Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~


	March 31, 2023		December 31, 2022
	(in thousands)
Prepaid software licenses, maintenance and insurance	$	11,570	$	9,237
Other prepaid expenses and current assets	8,638		9,508
Total prepaid expenses and other current assets	$	20,208	$	18,745

The components of other non-current assets were as follows:


		June 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(in thousands)					(in thousands)
Contract implementation costs		$	17,673	$	17,242
Contract implementation assets						Contract implementation assets	$	18,237	$	17,983
Other non-current assets	Other non-current assets	1,156		969		Other non-current assets	2,346		966
Total other non-current assets	Total other non-current assets	$	18,829	$	18,211	Total other non-current assets	$	20,583	$	18,949

See Note 14 — 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.

4. Right-of-Use Assets and Lease Liabilities

The Company determines if an arrangement is or contains a lease at inception, which is the date on which the terms of the contract are agreed, and if the arrangement creates enforceable rights and obligations. Under Topic 842, a contract is or contains a lease when (i) explicitly or implicitly identified assets have been deployed in the contract and (ii) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract. See Note 2 — ~~Recently Issued Accounting Pronouncements~~ ~~for more information on the Company’s accounting policies for leases.~~

The Company leases office facilities under operating ~~lease agreements that have~~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. In addition, certain leases give the Company, the lessor, or both parties the right to terminate. Options to extend a lease are included in the lease term when it is reasonably certain that the Company will exercise the option. Options to terminate a lease are excluded from the lease term when it is reasonably certain that the Company will not exercise the option. The Company’s leases generally do not contain any material restrictive covenants or residual value guarantees.

~~The Company’s operating leases were as follows:~~


	~~June 30, 2022~~
	~~(in thousands)~~
~~Right-of-use assets, net~~	$	~~9,794~~

~~Current operating lease liabilities~~ ~~(1)~~	$	~~5,358~~
~~Operating lease liabilities, long-term~~	~~12,572~~
~~Total operating lease liabilities~~	$	~~17,930~~

~~(1)~~ ~~Current lease liabilities are recorded in other current liabilities on the Company’s condensed consolidated balance sheets.~~

~~The components of lease cost are recorded in selling, general, and administrative expenses for the three and six months ended June 30, 2022 and were as follows:~~

118

HireRight Holdings Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022
(in thousands)
Operating lease cost $ 884 $ 1,783
Short-term lease cost 165 333
Variable lease cost 12 24
Total lease cost $ 1,061 $ 2,140
The Company’s operating leases were as follows:

~~Operating~~


	March 31, 2023		December 31, 2022
	(in thousands)
Right-of-use assets, net (1)	$	6,921	$	8,423

Current operating lease liabilities (2)	$	5,752	$	5,509
Operating lease liabilities, long-term (2)	9,357		10,055
Total operating lease liabilities	$	15,109	$	15,564

(1)Includes impact of accelerated expense on abandoned right-of-use assets related to the global restructuring plan, see Note 18 — Restructuring and Related Charges for additional information.

(2)Current and long-term operating lease ~~cost is recognized~~liabilities are recorded in accrued expenses and other current liabilities, and other non-current liabilities, respectively, on ~~a straight-line basis over~~ the ~~lease term.~~Company’s condensed consolidated balance sheets.

Supplemental cash flow information related to leases was as follows:


	~~Six Months Ended June 30, 2022~~
	~~(in thousands)~~
~~Cash paid for amounts included in measurement of operating lease liabilities~~	$	~~2,697~~
~~ROU assets obtained in exchange for operating lease liabilities~~	$	~~11,150~~


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Cash paid for amounts included in measurement of operating lease liabilities	$	1,549	$	1,301
ROU assets obtained in exchange for operating lease liabilities	$	824	$	10,445

The ~~weighted-average~~weighted average remaining lease term and ~~weighted-average~~weighted average discount rate for the Company’s operating leases were as follows:


	~~June 30, 2022~~
~~Weighted-average remaining lease term (in years)~~	~~4.34~~
~~Weighted-average discount rate~~	~~4.6~~	%


	Three Months Ended March 31,
	2023		2022
Weighted average remaining lease term (in years)	3.92		4.60
Weighted average discount rate	4.9	%	4.6	%

~~Maturities of the Company’s operating lease liabilities were as follows:~~
June 30, 2022
(in thousands)
2022 (excluding the six months ended June 30, 2022) $ 2,999
2023 6,091
2024 3,758
2025 2,274
2026 1,388
Thereafter 3,392
Total lease payments 19,902
Less amount representing interest (1,972)
Total present value of lease liabilities $ 17,930

~~Cease-use Liabilities~~

The Company periodically identifies opportunities for cost savings through office consolidations or by exit from certain underutilized facilities. Cease-use costs represent lease obligation charges and executory costs for exited facilities. The Company accounts for cease-use costs pursuant to guidance under ASC 420, ~~Costs Related to Exit or Disposal Activities~~. Charges related to these cease-use costs are estimated based on the discounted future cash flows of rent expense and executory costs that the Company is obligated to pay under the lease agreements, partially offset by projected sublease income, which is calculated based on certain sublease assumptions.

~~HireRight Holdings Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

As a result of the exit from certain facilities, the Company recorded a cease-use liability in 2021. The cease-use liability of $9.0 million was reclassified and treated as a reduction to the beginning ROU asset recorded upon adoption of ASC 842, ~~Leases~~, on January 1, 2022. Cease-use costs were $0.2 million during the six months ended June 30, 2022, and are included as a component of selling, general and administrative expenses in the condensed consolidated statements of operations. NaN cease-use costs were incurred during the three months ended June 30, 2022 or during the three and six months ended June 30, 2021.

Cease-use costs are included in other non-current liabilities and accrued expenses and other current liabilities on the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021. The following table summarizes the activity for the liability for cease-use costs for the periods presented:


	~~Cease-use Liability~~
	~~(in thousands)~~
~~Balance at December 31, 2021~~	$	~~11,588~~
~~Cease-use costs~~	~~160~~
~~Reclassified as a reduction to the beginning ROU asset upon adoption of ASC 842~~	~~(9,001)~~
~~Accretion of liability~~	~~(101)~~
~~Payments~~	~~(653)~~
~~Foreign currency translation~~	~~(214)~~
~~Balance at June 30, 2022~~	$	~~1,779~~

5. Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities were as follows:

June 30,
2022 December 31,
2021
(in thousands)
Accrued data costs $ 51,586 $ 34,632
Litigation settlements (Note 13) 586 3,310
Other (1)
45,347 37,352
Total accrued expenses and other current liabilities $ 97,519 $ 75,294

~~________________~~

~~(1)~~During the six months ended June 30, 2022, the Company paid $3.9 million, which was previously held in escrow as of December 31, 2021, as unsecured creditors’ funds pursuant to plans of liquidation and restructurings of predecessor entities.

~~6. Accrued Salaries and Payroll~~

~~The components of accrued salaries and payroll were as follows:~~

June 30,
2022 December 31,
2021
(in thousands)
Wages, benefits and taxes $ 16,605 $ 12,017
Accrued bonus 10,871 17,263
Total accrued salaries and payroll $ 27,476 $ 29,280


	March 31, 2023		December 31, 2022
	(in thousands)
Accrued data costs	$	35,084	$	34,080
Tax receivable agreement liability, current portion	27,039		—
Accrued contract labor	8,235		5,554
Other	32,565		35,574
Total accrued expenses and other current liabilities	$	102,923	$	75,208

139

HireRight Holdings Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

6. Accrued Salaries and Payroll

The components of accrued salaries and payroll were as follows:


	March 31, 2023		December 31, 2022
	(in thousands)
Wages, benefits and taxes (1)	$	20,921	$	15,198
Accrued bonus	5,164		15,877
Total accrued salaries and payroll	$	26,085	$	31,075

(1)Accrued wages, benefits and taxes for the three months ended March 31, 2023 includes $4.4 million in accrued employee severance and benefits related to the workforce reduction. See Note 18 — Restructuring and Related Charges for additional information.

7. Debt

The components of debt were as follows:


		June 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(in thousands)					(in thousands)
Amended First Lien Term Loan Facility	Amended First Lien Term Loan Facility	$	703,688	$	707,863	Amended First Lien Term Loan Facility	$	697,425	$	699,513
Amended Revolving Credit Facility	Amended Revolving Credit Facility	—		—		Amended Revolving Credit Facility	—		—
Total debt	Total debt	703,688		707,863		Total debt	697,425		699,513
Less: Original issue discount		(1,731)		(1,993)
Less: Unamortized original issue discount						Less: Unamortized original issue discount	(1,328)		(1,464)
Less: Unamortized debt issuance costs	Less: Unamortized debt issuance costs	(7,676)		(8,837)		Less: Unamortized debt issuance costs	(5,894)		(6,493)
Less: Current portion of long-term debt	Less: Current portion of long-term debt	(8,350)		(8,350)		Less: Current portion of long-term debt	(8,350)		(8,350)
Long-term debt, less current portion	Long-term debt, less current portion	$	685,931	$	688,683	Long-term debt, less current portion	$	681,853	$	683,206

On July 12, 2018, the Company entered into the following credit arrangements:

•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”).

On June 3, 2022, the Company entered into an amendment to the First Lien Term Loan Facility (“Amended First Lien Term Loan Facility”) with the lenders party thereto and Bank of America, N.A. as administrative agent. The Amended First Lien Term Loan Facility amends the Company’s First Lien Facilities, by and among the Company, the lending institutions from time to time party thereto and Bank of America, N.A. as administrative agent, collateral agent and a letter of credit issuer (as amended through the Amended First Lien Term Loan Facility, the “Amended First Lien Facilities”).

Under the Amended First Lien Facilities, (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, as may be extended or refinanced; and (iii) the interest rate benchmark applicable to the Revolving Credit Facility was converted from LIBOR to term Secured Overnight

HireRight Holdings Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Financing Rate (“SOFR”). The Revolving Credit Facility as amended is herein after referred to as the “Amended Revolving Credit Facility.” The Company’s existing term loans under the Amended First Lien Facilities remained in effect. Upon the effectiveness of the Amended First Lien Term Loan Facilities, the Company did not have any outstanding principal balance on the Revolving Credit Facility. The Amended First Lien Term Loan Facilities did not modify the financial covenants, negative covenants, mandatory prepayment events or security provisions or arrangements under the Amended First Lien Facilities.

The Amended First Lien Term Loan Facility was accounted for as a modification for certain lenders and an extinguishment for other lenders and debt issuance costs and lender fees were accounted for in proportion to whether the related borrowing commitment was considered modified or extinguished. Accordingly, newly incurred and existing deferred debt issuance costs of $0.4 million and $0.4 million, respectively, will be amortized to interest expense over the new remaining term of the Amended Revolving Credit Facility. Additionally, the Company wrote off unamortized debt issuance costs of $0.1 million related to the modification of the Revolving Credit Facility. The write-off of unamortized debt issuance costs are recorded in interest expense in the condensed consolidated statements of operations.

~~HireRight Holdings Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

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 Amended First Lien Term Loan Facility, or approximately $2.1 million per quarter, with the remaining balance payable at maturity. The Company may make voluntary prepayments on the Amended First Lien Term Loan Facility at any time prior to maturity at par.

The Company is required to make prepayments on the 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 ~~outstanding~~ 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 six~~ months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Company was not required to make a prepayment under the Amended First Lien Term Loan Facility based on the Company’s excess cash flow.

The Amended First Lien Term Loan Facility has an interest rate calculated as, at the Company’s option, either (a) LIBOR determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs (“LIBOR Reference Rate”) with a floor of 0.00% or (b) a base rate determined by reference to the highest of (i) the federal funds effective rate plus 0.50% per annum, (ii) the rate the Administrative Agent announces from time to time as its prime lending rate in New York City, and (iii) one-month adjusted LIBOR plus 1.00% per annum (“ABR”), in each case, plus the applicable margin of 3.75% for LIBOR loans and 2.75% for ABR loans, and is payable on each interest payment date, at least quarterly, in arrears. The applicable margin for borrowings under the 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 ~~June 30, 2022,~~March 31, 2023, the Amended First Lien Term Loan Facility accrued interest at one-month LIBOR plus 3.75%, and the Amended Revolving Credit Facility accrued interest at one-month SOFR plus 2.50% based upon the current pricing grid.

Unlike the Amended Revolving Credit Facility, the interest rates for the Amended First Lien Term Loan Facility are calculated using LIBOR, which is scheduled to become unavailable in June 2023. The credit agreement underlying the Amended First Lien Term Loan Facility contemplates that, if the administrative agent determines that LIBOR is unavailable or is replaced by a new benchmark interest rate to replace LIBOR for syndicated loans, then, the administrative agent and the Borrower may amend the Amended First Lien Term Loan Facility to replace LIBOR with an alternate benchmark rate (“LIBOR Successor Rate”) unless lenders holding more than 50% in value of the loans or commitments under the credit agreement do not accept such amendment. If no LIBOR Successor Rate has been determined, the obligation of lenders to make or maintain LIBOR loans will be suspended (to the extent of the affected LIBOR rate loans or interest periods), and the LIBOR component will no longer be utilized in determining an alternative benchmark rate. Under such circumstances, the Borrower can revoke any pending request for a new borrowing, conversion to, or continuation of LIBOR loans or such loans will be deemed to be ABR loans of the same amount.

The Borrower ~~also has the ability~~from time to time may elect to convert all or a portion ~~equal to at least $2.5 million~~ of ~~LIBOR loans to ABR~~its SOFR loans under the ~~credit agreement.~~

Revolving Credit Facility into ABR loans, and may elect to convert all or a portion of its LIBOR loans under the 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 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

HireRight Holdings Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 ~~June 30, 2022,~~March 31, 2023, the Company had $143.7 million in available borrowing under the Amended Revolving Credit Facility, after utilizing $1.3 million for letters of credit. The Company is required to pay a quarterly fee of ~~0.50%~~0.38% on unutilized commitments under the Amended Revolving Credit Facility, subject to adjustment pursuant to a leverage-based pricing grid. As of ~~June 30, 2022~~both March 31, 2023 and December 31, ~~2021,~~2022, the quarterly fee on unutilized commitments under the Amended Revolving Credit Facility was 0.38% ~~and 0.50%, respectively.~~

~~HireRight Holdings Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

Debt Covenants

The 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 Amended First Lien Facilities also provide for customary events of default. The Company was in compliance with the covenants under the Amended First Lien Facilities ~~for~~through the three ~~and six~~ months ended ~~June 30, 2022.~~

March 31, 2023.

The Company is also subject to a springing financial maintenance covenant under the 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 Amended Revolving Credit Facility, subject to certain exceptions, exceed 35% of the total commitments under the Amended Revolving Credit Facility at the end of such fiscal quarter. The Company was not subject to this covenant as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, as outstanding loans and letters of credit under the Amended Revolving Credit Facility did not exceed 35% of the total commitments under the facility.

Other

Amortization of debt discount and debt issuance costs related to the Amended First Lien Term Loan Facility are included into interest expense in the condensed consolidated statements of operations and were as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(in thousands)									(in thousands)
Debt discount amortization	Debt discount amortization	$	132	$	143	$	262	$	285	Debt discount amortization	$	136	$	130
Debt issuance costs amortization	Debt issuance costs amortization	584		651		1,162		1,297		Debt issuance costs amortization	599		578
Total debt discount and issuance cost amortization		$	716	$	794	$	1,424	$	1,582
Total debt discount and issuance costs										Total debt discount and issuance costs	$	735	$	708

~~In addition, interest~~Interest expense also includes the amortization of debt issuance costs for the Amended Revolving Credit Facility of ~~$0.2 million and~~ $0.1 million for each of the three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021, respectively, and $0.3 million and $0.2 million, for the six months ended June 30, 2022 and 2021, respectively,.~~2022. Unamortized debt issuance costs for the Amended Revolving Credit Facility are recorded in other non-current assets on the Company’s condensed consolidated balance sheets. Interest expense for the three and six months ended June 30, 2021 includes $4.1 million and $8.2 million, respectively, related to a second lien senior secured term loan facility which was repaid on November 3, 2021 using proceeds from the IPO.

The weighted average interest rate on outstanding borrowings ~~as of June 30, 2022~~during the three months ended March 31, 2023 and the year ended December 31, ~~2021~~2022 was ~~4.2%~~8.5% and ~~4.5%~~5.5%, respectively.

HireRight Holdings Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

8. 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.

~~HireRight Holdings Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

The fair value hierarchy established in the standard prioritizes the inputs used in valuation techniques into three levels as follows:


Level 1			Quoted prices in active markets for identical assets and liabilities;

Level 2			Quoted 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 3			Amounts 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.

~~Recurring Fair Value Measurements~~

~~The carrying amounts of the Company’s cash, cash equivalents, and restricted cash approximate their fair value due to the short-term maturity of these instruments.~~

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 Company’s derivative instruments, all of which the Company terminated during the quarter ended March 31, 2022, consisted of interest rate swap contracts which were Level 2 of the fair value hierarchy and reported in the condensed consolidated balance sheet as of December 31, 2021 as derivative liabilities current and derivative liabilities long-term. See Note 9 — ~~Derivative Instrumentsfor more information.~~

The fair value of the Company’s 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 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:


		June 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		Carrying Value		Fair Value		Carrying Value		Fair Value			Carrying Value		Fair Value		Carrying Value		Fair Value
		(in thousands)									(in thousands)
Amended First Lien Term Loan Facility	Amended First Lien Term Loan Facility	$	701,957	$	675,203	$	705,870	$	704,550	Amended First Lien Term Loan Facility	$	696,097	$	693,055	$	698,049	$	673,617
Amended Revolving Credit Facility	Amended Revolving Credit Facility	—		—		—		—		Amended Revolving Credit Facility	—		—		—		—
Total	Total	$	701,957	$	675,203	$	705,870	$	704,550	Total	$	696,097	$	693,055	$	698,049	$	673,617

9. 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”)~~. The Interest Rate Swap Agreements were designed to provide predictability against changes in the interest rates on the Company’s debt, as the Interest Rate Swap Agreements converted~~ with a ~~portion~~scheduled expiration date of ~~the variable interest rate on the Company’s debt to a fixed rate. The Interest Rate Swap Agreements were originally scheduled to expire on~~ December 31, 2023.

~~HireRight Holdings Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

On September 26, 2019, the Company modified the terms of the Interest Rate Swap Agreements with the then existing counterparties to change the LIBOR reference period to one month. The notional amount and maturities of the Interest Rate Swap Agreements remained unchanged. The Company elected hedge accounting treatment at that time. To ensure the effectiveness of the Interest Rate Swap Agreements, the Company elected the one-month LIBOR rate option for its variable rate interest payments on term balances equal to or in excess of the applicable notional amount of the Interest Rate Swap Agreements as of each reset date. The reset dates and other critical terms on the term loans perfectly matched with the interest rate cap reset dates and other critical terms through February 18, 2022, the date the Interest Rate Swap Agreements were terminated, and during the three and six months ended June 30, 2021. At June 30, 2022 and December 31, 2021, the effective portion of the Interest Rate Swap Agreements was included on the condensed consolidated balance sheets in accumulated other comprehensive income.

For derivative instruments that qualify for hedge accounting treatment, the fair value is recognized on the Company’s condensed consolidated balance sheets as derivative assets or liabilities with offsetting changes in fair value, to the extent effective, recognized in accumulated other comprehensive income until reclassified into earnings when the related transaction occurs. The portion of a cash flow hedge that does not offset the change in the fair value of the transaction being hedged, which is commonly referred to as the ineffective portion, is immediately recognized in earnings. Prior to termination discussed ~~below,~~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
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
(in thousands)
Reclassification of the effective portion of the gain on the Interest Rate Swap Agreements into interest expense $ — $ 4,904 $ 1,679 $ 9,715
Reclassification of unrealized gains related to terminated Interest Rate Swap Agreements into interest expense (4,082) — (6,263) —
Total reclassification adjustments included in earnings $ (4,082) $ 4,904 $ (4,584) $ 9,715

~~The fair value of the Interest Rate Swap Agreements was as follows:~~

December 31, 2021
Markets for Identical
Assets
(Level 1) Observable Inputs
(Level 2) Unobservable Inputs
(Level 3) Total
(in thousands)
Derivative instruments, current $ — $ 16,662 $ — $ 16,662
Derivative instruments, long-term — 11,444 — 11,444
Total liabilities measured at fair value $ — $ 28,106 $ — $ 28,106

1813

HireRight Holdings Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~There were no amounts excluded from the measurement~~The Company reclassified interest expense related to hedges of ~~hedge effectiveness at February 18, 2022, the date of termination, and December 31, 2021. See Note 10~~— ~~Accumulated Other Comprehensive Income (Loss)~~ ~~for further information.~~these transactions into earnings as follows:


	Three Months Ended March 31,
	2023		2022
	(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	(2,527)		(2,181)
Total reclassification adjustments included in earnings	$	(2,527)	$	(502)

The results of derivative activities are recorded in cash flows from operating activities on the condensed consolidated statements of cash flows.

10. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) consists primarily of unrealized ~~changes in fair value of derivative instruments that qualified for hedge accounting prior~~gains related to ~~termination~~the terminated Interest Rate Swap Agreements and cumulative foreign currency translation adjustments.

The components of accumulated other comprehensive income (loss) as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were as follows:

Derivative
Instruments Currency
Translation
Adjustment Total
(in thousands)
Balance at December 31, 2021 $ 11,823 $ 797 $ 12,620
Other comprehensive income (loss) 3,397 (13,835) (10,438)
Balance at June 30, 2022 $ 15,220 $ (13,038) $ 2,182


	Derivative Instruments		Currency Translation Adjustment		Total
	(in thousands)
Balance at December 31, 2022	$	8,849	$	(13,793)	$	(4,944)
Other comprehensive income (loss)	(2,527)		2,777		250
Balance at March 31, 2023	$	6,322	$	(11,016)	$	(4,694)

The ~~Company terminated~~accumulated net loss in foreign currency translation adjustment primarily reflects the ~~Interest Rate Swap Agreements effective February 18, 2022.~~ strengthening of the U.S. dollar against the British pound and the Japanese yen.

As of ~~June 30, 2022, $11.2~~March 31, 2023, the remaining $6.3 million of the ~~remaining~~ accumulated other comprehensive income related to ~~hedge accounting~~terminated Interest Rate Swap Agreements is expected to be reclassified into earnings ~~over the next 12 months.~~as a reduction to interest expense through December 31, 2023.

HireRight Holdings Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

11. Segments and Geographic Information

The Company operates in 1one 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 June 30,								Six Months Ended June 30,									Three Months Ended March 31,
		2022				2021				2022				2021					2023				2022
		(in thousands, except percent)																	(in thousands, except percent)
Revenues
Revenues:																		Revenues:
United States	United States	$	205,359	92.4	%	$	163,520	92.4	%	$	388,736	92.3	%	$	302,393	92.6	%	United States	$	161,694	92.2	%	$	183,377	92.3	%
International	International	16,933		7.6	%	13,464		7.6	%	32,267		7.7	%	24,148		7.4	%	International	13,753		7.8	%	15,334		7.7	%
Total revenues	Total revenues	$	222,292	100.0	%	$	176,984	100.0	%	$	421,003	100.0	%	$	326,541	100.0	%	Total revenues	$	175,447	100.0	%	$	198,711	100.0	%

~~HireRight Holdings Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

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:


		June 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(in thousands)					(in thousands)
Long-lived assets:	Long-lived assets:					Long-lived assets:
United States	United States	$	13,184	$	7,154	United States	$	9,208	$	10,811
International	International	7,009		3,973		International	6,087		6,657
Total long-lived assets	Total long-lived assets	$	20,193	$	11,127	Total long-lived assets	$	15,295	$	17,468

12. 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.

HireRight Holdings Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 ~~its~~the Company’s obligation to another party for those same acts or omissions, and ~~its~~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.

As of December 31, 2021, the Company included $1.4 million in accrued expenses and other current liabilities in the condensed consolidated balance sheets as a result of the Company agreeing to indemnify a customer from a negligent hiring claim. While the Company did not believe it had legal responsibility, the Company chose to indemnify the customer against the negligent hiring claim in the interests of customer relations and to limit risk. On January 11, 2022, the Company paid the $1.4 million to the customer. The Company is not aware of any ~~other~~ 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.

On December 31, 2022 and February 16, 2023, the Company entered into definitive agreements to purchase 60% of the equity interests in a privately held company for a total purchase price of approximately $26.5 million, subject to closing conditions that have not yet been satisfied.

~~HireRight Holdings Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

13. 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. 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 reached a settlement related~~

HireRight Holdings Corporation

Notes 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.Condensed Consolidated Financial Statements (Unaudited)

Based upon the foregoing, the Company accrued $12.1 million pursuant to the settlement agreement and potential separate individual settlements with plaintiffs who did not subscribe to the settlement agreement. On November 15, 2021, the Company paid $11.2 million of the legal settlement accrual, and on March 31, 2022, paid the remaining balance of $0.3 million related to the settlement agreement. NaN amounts related to the settlement agreement are accrued at June 30, 2022.

While Old HireRight’s insurer has denied coverage, the Company believes it has valid claims against the carrier and intends to pursue them. Any insurance recovery would defray the cost of the settlement to HireRight LLC, but at this time the Company is not able to assess the likelihood or amount of any potential insurance recovery.

14. 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 obtaining data from federal, state and local jurisdictions, and certain commercial data providers required to fulfill the Company’s performance obligations. ~~These fees are generally charged to the Company’s customers at cost.~~ Revenue

~~HireRight Holdings Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

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 June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(in thousands)									(in thousands)
Revenues
Revenues:										Revenues:
Service revenues	Service revenues	$	158,425	$	131,724	$	299,928	$	243,292	Service revenues	$	123,696	$	141,503
Surcharge revenues	Surcharge revenues	63,867		45,260		121,075		83,249		Surcharge revenues	51,751		57,208
Total revenues	Total revenues	$	222,292	$	176,984	$	421,003	$	326,541	Total revenues	$	175,447	$	198,711

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, ~~and the related~~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, respectively.~~operations. Amortization of contract implementation costs included in cost of services (exclusive of depreciation and amortization) was ~~$1.1~~$1.2 million and ~~$2.2~~$1.1 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023, and 2022, ~~respectively, and $0.9 million and $1.8 million for the three and six months ended June 30, 2021,~~ respectively. See Note 3 — Prepaid Expenses and Other Current Assets, and Other Non-Current Assets for contract implementation costs included in the Company’s condensed consolidated balance sheets.

15. Income Taxes

Income tax expense (benefit) and effective tax rates were as follows:

Three Months Ended June 30, Six Months Ended
June 30,
2022 2021 2022 2021
(in thousands, except effective tax rate)
Income (loss) before income taxes $ 24,876 $ (1,906) $ 37,258 $ (13,313)
Income tax expense 430 1,733 1,248 2,305
Effective tax rate 1.7 % 90.9 % 3.3 % 17.3 %

~~In general, with certain exceptions, ASC 740-270,~~ ~~Income Taxes,~~ requires the use of an estimated annual effective tax rate to compute the tax provision during an interim period. For the three and six months ended June 30, 2022, the Company has net income before income taxes and used an estimated annual effective tax rate to compute the income tax provision. However, due to operating losses for the three and six months ended June 30, 2021, the Company determined that it was unable to reliably estimate its annual effective tax rate. As such, for the three and six months ended June 30, 2021, the Company used a discrete method, which reflected the actual tax attributable to year-to-date earnings and losses for the period.

~~Income tax expense for the three months ended June 30, 2022 and 2021 was $0.4 million and $1.7 million, respectively.The effective tax rate for the three months ended June 30, 2022 was 1.7% compared to 90.9% for the~~


	Three Months Ended March 31,
	2023			2022
	(in thousands, except effective tax rate)
Income (loss) before income taxes	$	(13,855)		$	12,382
Income tax expense (benefit)	(5,944)			818
Effective tax rate	42.9		%	6.6		%

2217

HireRight Holdings Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company recorded income tax benefit of $5.9 million and income tax expense of $0.8 million for the three months ended ~~June 30, 2021.~~March 31, 2023, and 2022, respectively. The effective tax rate for the three months ended ~~June 30,~~March 31, 2023 was 42.9% compared to 6.6% for the three months ended March 31, 2022. The effective tax rate for the three months ended March 31, 2023, differs from the federal statutory rate of 21% primarily due to state taxes and non-deductible stock-based compensation expense. The effective tax rate for the three months ended March 31, 2022 differs from the ~~Federal~~federal statutory rate of 21% primarily due to valuation allowances, state taxes, and U.S. tax on foreign operations. ~~The effective tax rate for the three months ended June 30, 2021 differs from the Federal statutory rate of 21% primarily due~~

Prior to ~~the revaluation of deferred taxes in the United Kingdom, valuation allowances and state taxes.~~

~~Income tax expense for the six months ended June 30,~~September 2022, and 2021 was $1.2 million and $2.3 million, respectively. The effective tax rate for the six months ended June 30, 2022 was 3.3% compared to 17.3% for the six months ended June 30, 2021. The effective tax rate for the six months ended June 30, 2022 differs from the Federal statutory rate of 21% primarily due to valuation allowances, state taxes, and U.S. tax on foreign operations. The effective tax rate for the six months ended June 30, 2021 differs from the Federal statutory rate of 21% primarily due to the revaluation of deferred taxes in the United Kingdom, valuation allowances and state taxes.

Realization of the Company’s deferred tax assets is dependent upon future earnings, if any. The timing and amount of future earnings are uncertain. Because of the Company’s lack of U.S. earnings history, the Company’s net U.S. federal and state deferred tax assets ~~have been~~were fully offset by a valuation allowance, excluding a portion of its deferred tax liabilities for tax deductible ~~goodwill. As~~goodwill, primarily as a result of ~~June 30, 2022,~~ the Company’s lack of U.S. earnings history and cumulative loss position. The Company ~~intends to continue maintaining~~prepares a ~~valuation allowance on~~quarterly analysis of its deferred tax assets ~~until there is~~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.

The Company determined sufficient positive evidence existed to ~~support~~conclude that the ~~reversal of all or some portion of~~U.S. deferred tax assets are more likely than not realizable. As a result, the ~~valuation allowance. A reduction in~~Company released the valuation allowance ~~would result~~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 March 31, 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. The Company does not currently expect the Inflation Reduction Act to have a material ~~decrease to income tax expense in~~impact on the period the release is recorded. Although the exact timing and reversal amount are unknown at this time, the Company may conclude that a significant portion of the valuation allowance be released contingent upon the earnings level it achieves in 2022 as well as its projected income levels in future periods.condensed consolidated financial statements.

16. Stock-Based Compensation

Equity Incentive Plans

~~On October 22, 2018,~~The Company issues stock-based compensation awards under the ~~Company implemented~~2021 Omnibus Incentive Plan (“Omnibus Incentive Plan”), and prior to the IPO under the HireRight GIS Group Holdings LLC Equity Incentive Plan (“Equity Plan”) ~~providing for~~. At March 31, 2023, the ~~issuance~~total number of up to 4,573,463 of its Class A Units (“Units”) pursuant to awards made under the Equity Plan to members of the board of managers, officers and employees as determined by the Company’s compensation committee. Following the adoption of the Omnibus Incentive Plan (as defined below), the Company did not grant further awards under the Equity Plan. However, any outstanding awards granted under the Equity Plan remain subject to the Equity Plan and applicable award agreement. In connection with the Corporate Conversion, each option to purchase units of HireRight GIS Group Holdings LLC was converted into an option to purchase shares ~~of common stock of HireRight Holdings Corporation.~~

On October 18, 2021, the Company’s stockholders adopted the Company’s 2021 Omnibus Incentive Plan (“Omnibus Incentive Plan”), which became effective on October 28, 2021. The Omnibus Incentive Plan provides for the grant of awards of non-qualified stock options, incentive (qualified) stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSU”), other stock-based awards, other cash-based awards or any combination of the foregoing to eligible employees, consultants, directors, and officers. At June 30, 2022, 6,360,173 shares were availableauthorized for issuance under the Omnibus Incentive ~~Plan.~~Plan was 14.2 million shares and 7.3 million shares remain available for issuance.

~~Equity Plan Awards (Pre-IPO)~~Stock-Based Compensation Expense

The stock option awards issued prior to the Company’s IPO pursuant to the Equity Plan had vesting schedules based either upon continued service (“Time-Vesting Options”), or upon attainment of specified levels of cash-on-cash return to the Company’s pre-IPO investors as a multiple of invested capital (“MOIC”) on their investmentsStock-based compensation expense recognized in the ~~Company (“Performance-Vesting Options”). On March 19, 2022, the compensation committee~~condensed consolidated statements of the Company’s Board of Directors approved a modification of outstanding Performance-Vesting Options to vest based solely on continued service rather than MOIC attainment. Under the modified vesting terms, the amendedoperations was as follows:


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Selling, general and administrative	$	3,181	$	2,627
Cost of services (exclusive of depreciation and amortization)	647		167
Total stock-based compensation expense	$	3,828	$	2,794

2318

HireRight Holdings Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Performance-Vesting~~Stock Options ~~vest quarterly starting March 31, 2022 and ending December 31, 2024 based solely on continued service.~~

~~Stock-based compensation expense recognized in~~under the ~~condensed consolidated statements of operations was as follows:~~

Three Months Ended June 30, Six Months Ended
June 30,
2022 2021 2022 2021
(in thousands)
Selling, general and administrative $ 4,367 $ 829 $ 6,994 $ 1,652
Cost of services (exclusive of depreciation and amortization) 144 — 311 —
Total stock-based compensation expense $ 4,511 $ 829 $ 7,305 $ 1,652

~~Stock Options~~Equity Plan

For ~~Time-Vesting Options and Performance-Vesting Options~~stock options issued under the Equity Plan that were outstanding and unvested as of ~~June 30, 2022,~~March 31, 2023, the Company expects to recognize future compensation expense of ~~$6.8~~$4.1 million over a weighted average remaining vesting period of ~~2.40~~1.8 years.

Awards under the Omnibus Incentive Plan

The Company granted ~~1,015,303~~46,081 options during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 under the Omnibus Incentive Plan, with a ~~weighted-average~~weighted average grant date fair value of ~~$5.06~~$3.96 calculated using the Black-Scholes option valuation model. For options under the Omnibus Incentive Plan outstanding and unvested as of ~~June 30, 2022,~~March 31, 2023, the Company expects to recognize future compensation expense of ~~$13.6~~$7.2 million over a weighted average remaining vesting period of ~~2.98~~2.7 years.

~~Restricted Stock Units~~

The Company granted ~~813,287~~3,171,925 restricted stock units (“RSU”), including the performance RSUs discussed below, with a ~~weighted-average~~weighted average grant date fair value of ~~$15.47~~$9.06 per share during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 under the Omnibus Incentive Plan. For RSUs outstanding and unvested as of ~~June 30, 2022,~~March 31, 2023, the Company expects to recognize future compensation expense of ~~$21.6~~$41.4 million over a weighted average remaining vesting period of ~~2.55~~2.9 years.

On ~~June 1, 2022,~~March 20, 2023, the Company approved a grant of a total of ~~422,143~~2,561,275 performance RSUs. A total of 1,116,323 of these performance RSUs ~~with~~had a grant-date fair value of ~~$14.45~~$5.67 per ~~unit. A portion of these RSUs~~unit based on a Monte Carlo valuation model and may vest upon the achievement of a ~~series of goal-based performance milestones, and the balance of these RSUs may vest based upon~~market condition related to total shareholder return, achievement of ~~all aggregated milestones by a final target date, followed by subsequent~~stock price targets of the Company's common stock, and subject to continued ~~service for a specified period of time.~~service. The fair value of these awards, until vested, are included in accrued expenses and other current liabilities and other non-current liabilities in the condensed consolidated balance sheets. The Company measuresexpected stock-based compensation ~~cost~~expense for ~~liability classified awards based on~~ the ~~fair value of the award at each quarterly reporting date and recognizes the expense over the vesting period. The maximum cash value of all approved~~market condition performance RSUs is ~~$6.1~~$6.3 million ~~which~~and is expected to be recognized ~~as compensation expense~~ over the period from grant date through ~~April 2024.~~

~~For the three and six months ended June 30, 2022, compensation expense associated with~~March 2026. The remaining portion, 1,444,952 units, of these ~~awards totaled $0.1 million.~~

~~Employee Stock Purchase Plan~~

~~The first offering period for the Company’s Employee Stock Purchase Plan (“ESPP”) began~~performance RSUs granted on ~~May~~March 20, ~~2022 and will continue for six months until the purchase~~2023, had a grant date on November 18, 2022. Thereafter, offerings will begin on November 20 and May 20 and will end on the following May 19 and November 19, respectively. Such shares may be purchased at an amount equal to 85% of the fair ~~market~~ value of ~~a share on (i)~~$10.90 per unit and may vest upon the ~~purchase date or (ii) the~~

~~HireRight Holdings Corporation~~

~~Notes~~achievement of AEBITDA performance targets and are subject to ~~Condensed Consolidated Financial Statements (Unaudited)~~

~~offering date, whichever amount is lower; provided, that the purchase price will in no event be less than the par value of a share.~~

continued service. The ~~Company recognized $0.1 million of~~expected stock-based compensation expense ~~related~~for the AEBITDA performance RSUs is $15.8 million and is expected to ~~the ESPP during the three and six months ended June 30, 2022. As of June 30, 2022, total unrecognized compensation expense related to the ESPP was $0.2 million, which will~~ be recognized ~~on a straight-line basis~~ over ~~a weighted-average remaining~~the period ~~of 0.39 years.~~

from grant date through March 2026.

17. Earnings Per Share

Basic net income (loss) per share (“EPS”) is computed by dividing net income (loss) by the ~~weighted-average~~weighted average number of outstanding shares during the period.

The weighted average outstanding shares may include potentially dilutive ~~options.~~equity awards. Diluted net income (loss) per share includes the effects of potentially dilutive ~~awards.~~equity awards, which include stock options, restricted stock units, and other potentially dilutive equity awards outstanding during the year. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2023, and 2022 there were ~~7,266,364,~~8,338,300, and ~~6,883,842~~8,039,980 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 six months ended June 30, 2021, there were 3,871,610 potentially dilutive awards, which were excluded from the calculation of diluted EPS because including them would have had an anti-dilutive effect.

HireRight Holdings Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Basic and diluted EPS for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ were:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(in thousands, except share and per share data)									(in thousands, except share and per share data)
Numerator:	Numerator:									Numerator:
Net income (loss)	Net income (loss)	$	24,446	$	(3,639)	$	36,010	$	(15,618)	Net income (loss)	$	(7,911)	$	11,564
Denominator:	Denominator:									Denominator:
Weighted average shares outstanding - basic	Weighted average shares outstanding - basic	79,405,872		57,168,291		79,399,440		57,168,291		Weighted average shares outstanding - basic	77,285,116		79,392,937
Effect of dilutive options		72,222		—		43,733		—
Effect of dilutive equity awards										Effect of dilutive equity awards	—		—
Weighted average shares outstanding - diluted	Weighted average shares outstanding - diluted	79,478,094		57,168,291		79,443,173		57,168,291		Weighted average shares outstanding - diluted	77,285,116		79,392,937

Net income (loss) per share:	Net income (loss) per share:									Net income (loss) per share:
Basic	Basic	$	0.31	$	(0.06)	$	0.45	$	(0.27)	Basic	$	(0.10)	$	0.15
Diluted	Diluted	$	0.31	$	(0.06)	$	0.45	$	(0.27)	Diluted	$	(0.10)	$	0.15

18. 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 early 2024.

During the three months ended March 31, 2023, the Company recognized restructuring charges of $5.9 million, primarily for employee severance and benefits in connection with the workforce reduction and accelerated expense on abandoned right-of-use assets. In addition, the Company incurred professional service fees of $4.0 million 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 and early 2024 of approximately $15.0 million to $20.0 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.

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 March 31,
	2023
	(in thousands)
Severance and benefits (1)	$	4,386
Accelerated expense on abandoned right-of-use assets (2)	1,482
Professional fees (3)	4,006
Total restructuring charges	$	9,874

(1)Charges of $1.7 million recorded in cost of services (exclusive of depreciation and amortization) and charges of $2.7 million recorded in selling, general and administrative expenses.

(2)Charges for accelerated expense on 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.

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:


	March 31, 2023
	(in thousands)
Balance at December 31, 2022	$	—
Charges incurred (1)	8,392
Payments	(971)
Balance at March 31, 2023	$	7,421

(1)Includes $4.4 million in charges for employee severance and benefits related to the workforce reduction, all of which remains unpaid as of March 31, 2023.

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

You should read the following discussion of ~~the~~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 ~~for the fiscal year ended December 31, 2021,~~ filed with the Securities and Exchange Commission (“SEC”) on March ~~21, 2022~~9, 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 under “Cautionary Note Regarding Forward-Looking Statements.”~~

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, ~~the impacts, direct and indirect, of the COVID‐19 pandemic on our business, our personnel and vendors, and the overall economy; our ability to maintain our professional reputation and brand name;~~ our vulnerability to adverse economic conditions, including without limitation inflation and recession, which could increase our costs and suppress labor market ~~activity;~~activity and our revenue; 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 on Form 10-K filed with the SEC on March ~~21, 2022,~~9, 2023, in particular the sections of that document entitled "Risk Factors," ~~"Forward-Looking~~"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.

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 ~~more than 40,000~~approximately 38,000 customers across the globe. We offer our services via a unified global software and data platform that tightly integrates into our customers’ human capital management (“HCM”) systems enabling highly effective and efficient workflows for workforce hiring, onboarding, and monitoring. In ~~2021,~~2022, we screened over 2924 million job applicants, employees and contractors for our customers and processed over ~~110~~107 million screens.

On October 15, 2021, HGGH converted into a Delaware corporation and changed its name to HireRight Holdings Corporation (“HireRight” or the “Company”). In conjunction with the conversion, all of HGGH’s outstanding equity interests were converted into shares of common stock of HireRight Holdings Corporation. The foregoing conversion and related transactions are referred to herein as the “Corporate Conversion.” The Corporate Conversion did not affect the assets and liabilities of HGGH, which became the assets and liabilities of HireRight Holdings Corporation.

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 creating increased complexity and regulatory scrutiny for employers, bolstering the importance of the solutions we deliver. We have ~~recently~~ 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 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.

~~Multiple shifts~~While we have benefited in ~~social norms~~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 high inflation, declining customer confidence, volatile energy prices, rising interest rates, geopolitical concerns, supply chain disruptions and labor ~~force dynamics are currently underway, including increasingly mobile~~shortages. Each of these drivers has its own adverse impact and ~~globalized workforces~~the outlook for our business in 2023 remains uncertain, with order volumes and ~~growing~~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 remains elevated. Inflation puts pressure on our suppliers, resulting in increased data costs, and also increases our employment and other expenses. A sustained recession will have an adverse impact on the global hiring market and therefore the demand for ~~remote working arrangements.~~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 November 13, 2022, the Company's Board of Directors authorized a share repurchase program (“Program”). The ~~growth~~Program authorizes the Company to repurchase up to $100.0 million of the ~~gig economy has been a major force driving increasing contributions from temporary, flexible~~Company’s common stock, par value $0.001, and ~~on-demand labor. Pandemic dynamics~~will expire on November 14, 2024, or earlier if the repurchases reach $100.0 million before that date. Through March 31, 2023, the Company repurchased 3,791,229 shares of common stock for $42.3 million, including commissions paid and ~~remote work technology have enabled~~excise taxes, at an ~~expansion~~average price paid of ~~job opportunities~~$11.17 per share. The repurchased shares are recorded as “Treasury stock” on the Company's consolidated balance sheets. As of March 31, 2023, approximately $57.7 million remained available for ~~workers and a broader candidate pool for employers. Employment dynamics in~~future purchases under the ~~remote work and gig economy result in high rates of~~Program. Repurchases under the

2723

~~workforce churn~~Program continued at similar rates through the date of filing of this report, and ~~a distinctive, loosely associated labor force which generates new and increased demands for background screening and compliance services.~~the Board of Directors has not yet determined whether to renew the Program following its termination.

Background screening is also gaining broader adoption outside the U.S. Our international orders are growing, and we expect the trend to continue as we expand with our large multinational customer base. We are seeing growth in international markets driven by both large multinational companies as well as large local companies in Europe, Asia Pacific, India and Latin America.

~~Despite the revenue growth we have experienced during~~In the first ~~half~~quarter of ~~2022, less favorable economic conditions, such as an actual or anticipated recession~~2023, the Company began a global restructuring plan intended to improve the Company’s cost structure, operating efficiency, and ~~its effects on labor markets, could prevent this growth trend from continuing in the second half of the year.~~

~~Additionally,~~profitability in response to ~~high inflation rates,~~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 ~~Federal Reserve has begun raising interest rates~~first quarter of 2023 and ~~has indicated that it foresees~~is expected to continue throughout 2023 and early 2024 as the Company implements existing plans and evaluates further ~~interest rate increases throughout~~opportunities. During the ~~year~~three months ended March 31, 2023, the Company recognized restructuring charges of $5.9 million, primarily for employee severance and ~~into next year. Higher interest rates imposed by~~benefits in connection with the ~~Federal Reserve~~workforce reduction and accelerated rent expense on abandoned right-of-use assets. In addition, the Company incurred professional service fees of $4.0 million for consulting costs related to ~~address inflation will increase our interest expense.~~the execution of the Company’s global restructuring plan.

The Company ~~has benefited from its tax assets which reduce income tax expense. The Company is reviewing the valuation allowance~~expects to recognize additional restructuring charges in 2023 and early 2024 of ~~its deferred tax assets due~~approximately $15.0 million to continued improvement in financial performance. A reduction in the valuation allowance would result in a material decrease to income tax expense in the period the release is recorded. Although the exact timing$20.0 million, primarily for severance and ~~reversal amount are unknown at this time, the Company may conclude that a significant portion~~benefits, professional service fees, and transition costs. Once completed we estimate annualized gross savings of ~~the valuation allowance be released contingent upon the earning level it achieves in 2022 as well as its projected income in future periods.~~

~~2022 Developments~~

On June 3, 2022, the Company entered into an amendment to its First Lien Term Loan Facility, as defined below under “Liquidity and Capital Resources”, (“Amended First Lien Term Loan Facility”) with the lenders party thereto and Bank of America, N.A. as administrative agent. The Amended First Lien Term Loan Facility amended the Company’s revolving credit facility (“Amended Revolving Credit Facility”) to increase the aggregate commitmentsapproximately $50.0 million under the ~~facility from $100.0 million~~global restructuring plan. Additionally, we may not be able to ~~$145.0 million~~fully realize the cost savings and extend the maturity date from July 12, 2023 to the earlier of June 3, 2027 or 91 days prior to the maturity of the First Lien Term Loan Facility. The interest rate benchmark applicable to the Amended Revolving Credit Facility was convertedbenefits initially anticipated from the ~~London Interbank Offered Rate (“LIBOR”) to~~global restructuring plan, and the ~~Secured Overnight Financing Rate (“SOFR”).~~

Effective February 18, 2022, the Company terminated the Interest Rate Swap Agreements, as defined below, prior to their stated termination dates. 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 on the condensed consolidated balance sheet willexpected charges may be ~~reclassified to earnings as reductions to interest expense through December 31, 2023. See “Liquidity and Capital Resources — Interest Rate Swaps” below~~greater than expected, including charges for additional ~~information.~~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 monthly basis. Approximately 27% and 29% of revenues for ~~both~~each of the three ~~and six~~ months ended ~~June 30,~~March 31, 2023, and 2022, ~~and 28% of revenues for both the three and six months ended June 30, 2021~~respectively, 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, ~~financial services,~~ business and consumer services, financial services, manufacturing, education, retail and not-for-profit. None of the Company’s customers individually accounted for greater than 3% ~~and 4%~~ of

~~revenue during~~ revenues for each of the three ~~and six~~ months ended ~~June 30,~~March 31, 2023, and 2022, ~~and 2021,~~ respectively. ~~Technology, healthcare, and~~Healthcare, technology, financial services, and transportation customers represent the largest contributors to ~~revenue.~~revenues. Revenues for the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, from these customers ~~increased 30% and 34%, respectively, over~~decreased 15% from the prior year ~~periods.~~period, led by reductions in order volumes from technology 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, principally resulting from the acquisition of GIS in 2018.~~assets.

Other expenses consist of interest expense relating to our credit facilities and interest rate swap agreements, gains and losses on asset disposal, ~~and~~ foreign exchange gains and ~~losses.~~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 ~~other~~these currencies could result in realized and unrealized gains and losses in foreign exchange. However, to the extent we earn ~~revenue~~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.

Results of Operations

Comparison of Results of Operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~

The following tables present operating results for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 and ~~2021.~~2022.


	Three Months Ended March 31,
	2023				2022
	(in thousands, except percent of revenues)
Revenues	$	175,447	100.0	%	$	198,711	100.0	%

Expenses
Cost of services (exclusive of depreciation and amortization below)	98,451		56.1	%	112,403		56.6	%
Selling, general and administrative	59,726		34.0	%	48,267		24.3	%
Depreciation and amortization	18,417		10.5	%	18,061		9.1	%
Total expenses	176,594		100.7	%	178,731		89.9	%
Operating income (loss)	(1,147)		(0.7)	%	19,980		10.1	%

Other expenses
Interest expense, net	12,402		7.1	%	7,557		3.8	%
Other expense, net	306		0.2	%	41		—	%
Total other expenses	12,708		7.2	%	7,598		3.8	%
Income (loss) before income taxes	(13,855)		(7.9)	%	12,382		6.2	%
Income tax expense (benefit)	(5,944)		(3.4)	%	818		0.4	%
Net income (loss)	$	(7,911)	(4.5)	%	$	11,564	5.8	%

Revenues

Revenues for the three months ended March 31, 2023 decreased to $175.4 million, a decrease of $23.3 million, or 11.7%, from the prior-year period, primarily driven by lower order volume from existing customers. Of the total $23.3 million decrease, $19.0 million was related to volume reductions associated with our technology and services customers, as both have recently undertaken efforts to rightsize their workforce in response to macroeconomic

2925

Three Months Ended June 30,
2022 2021
(in thousands, except percent of revenues)
Revenues $ 222,292 100.0 % $ 176,984 100.0 %
Expenses
Cost of services (exclusive of depreciation and amortization below) 119,990 54.0 % 98,317 55.6 %
Selling, general and administrative 54,387 24.5 % 43,215 24.4 %
Depreciation and amortization 18,049 8.1 % 18,239 10.3 %
Total expenses 192,426 86.6 % 159,771 90.3 %
Operating income 29,866 13.4 % 17,213 9.7 %
Other expenses
Interest expense 4,957 2.2 % 18,207 10.3 %
Other expense, net 33 — % 912 0.5 %
Total other expenses, net 4,990 2.2 % 19,119 10.8 %
Income (loss) before income taxes 24,876 11.2 % (1,906) (1.1) %
Income tax expense 430 0.2 % 1,733 1.0 %
Net income (loss) $ 24,446 11.0 % $ (3,639) (2.1) %
pressures. Revenues from our remaining customer groups represented a net decrease of $4.3 million due to lower volumes.

Six Months Ended June 30,
2022 2021
(in thousands, except percent of revenues)
Revenues $ 421,003 100.0 % $ 326,541 100.0 %
Expenses
Cost of services (exclusive of depreciation and amortization below) 232,393 55.2 % 184,504 56.5 %
Selling, general and administrative 102,654 24.4 % 82,609 25.3 %
Depreciation and amortization 36,110 8.6 % 36,482 11.2 %
Total expenses 371,157 88.2 % 303,595 93.0 %
Operating income 49,846 11.8 % 22,946 7.0 %
Other expenses
Interest expense 12,514 3.0 % 36,156 11.1 %
Other expense, net 74 — % 103 — %
Total other expenses, net 12,588 3.0 % 36,259 11.1 %
Income (loss) before income taxes 37,258 8.8 % (13,313) (4.1) %
Income tax expense 1,248 0.3 % 2,305 0.7 %
Net income (loss) $ 36,010 8.6 % $ (15,618) (4.8) %

~~Revenues~~

~~Revenues for the three months ended June 30, 2022 increased to $222.3 million, an increase of $45.3~~From a geographical perspective, revenues from international regions decreased by $1.6 million, or ~~25.6%~~10.3%, and revenues from the ~~prior-year period, primarily driven by higher order volume and higher average order values~~

~~associated with existing customers and sales to new customers.. Revenues from international and~~ United States ~~regions increased~~decreased by ~~$3.5~~$21.7 million, or ~~25.8%~~11.8%, ~~and by $41.8 million, or 25.6%, respectively,~~ during the three months ended ~~June 30, 2022,~~March 31, 2023, compared to the three months ended ~~June 30, 2021.~~

~~For~~March 31, 2022. The strengthening of the ~~same reasons noted above, revenues for~~U.S. dollar against the ~~six~~British pound in the three months ended June 30, 2022 increased to $421.0 million, an increase of $94.5 million, or 28.9%, from prior-year period. Revenues from international and United States regions increased by $8.1 million, or 33.6%, and by $86.3 million, or 28.6%, respectively, during the six months ended June 30, 2022,March 31, 2023, compared to the ~~six months ended June 30, 2021.~~same period in 2022 had an unfavorable impact on revenue from international regions. On a constant currency basis, United Kingdom revenues would have been $1.1 million higher than actual revenues. Constant currency represents current period results that have been retranslated using exchange rates in effect in the prior comparable period.

Cost of Services (exclusive of depreciation and amortization)

Cost of services for the three months ended ~~June 30, 2022 increased~~March 31, 2023 decreased to ~~$120.0~~$98.5 million, ~~an increase~~a decrease of ~~$21.7~~$14.0 million, or ~~22.0%~~12.4%, from the prior-year period, primarily due to lower order volumes, decreased use of contract labor, and lower average labor costs per background screen. The decreases in costs of services were partially offset by higher ~~volumes~~data costs, increases in severance expenses, and increased incentive compensation and fringe benefit programs to keep up with market conditions. Cost of services as a percent of revenues decreased to ~~54.0%~~56.1% for the three months ended ~~June 30, 2022,~~March 31, 2023, compared to ~~55.6%~~56.6% for the three months ended ~~June 30, 2021,~~March 31, 2022, primarily driven by lower average labor costs per background screen as a result of process improvements associated with our ~~ongoing~~ technology initiatives as well as ~~an increase~~a decrease in the use of ~~offshore~~contract labor.

For the same reasons noted above, cost of services for the six months ended June 30, 2022 increased to $232.4 million, an increase of $47.9 million, or 26.0%, from the prior-year period, and cost of services as a percent of revenues decreased to 55.2% for the six months ended June 30, 2022, compared to 56.5% for the six months ended June 30, 2021.

Selling, General and Administrative

Selling, general and administrative expenses (“SG&A”) for the three months ended ~~June 30, 2022~~March 31, 2023 increased ~~$11.2~~$11.5 million to ~~$54.4~~$59.7 million primarily due to increases in personnel costs of ~~$8.9 million.~~$4.6 million and increases in professional service fees of $4.6 million primarily due to consulting costs related to our global restructuring plan. Other increases were technology expenses increased by $2.9 million partly due to ongoing operating system improvements and increasing software maintenance costs, as well as increases in facility related expenses of $1.1 million, driven by acceleration of expense associated with cessation of use of certain office facilities. Of the ~~$8.9~~$4.6 million increase in personnel costs, ~~$3.6~~$1.3 million was driven in part by hiring in technology and go to market positions as well as increases in healthcare costs, and $2.7 million was related to ~~stock-based compensation~~employee severance and ~~$2.9 million was related to increased incentive compensation and fringe benefit programs.~~benefits in connection with the workforce reduction. SG&A as a percent of revenues for the three months ended ~~June 30, 2022~~March 31, 2023 increased ~~slightly~~ to ~~24.5%~~34.0% from ~~24.4%~~24.3% for the three months ended ~~June 30, 2021.~~

SG&A expenses for the six months ended June 30, 2022 increased $20.0 million to $102.7 million primarily due to increases in personnel costs of $15.7 million, and the addition of public company costs of $3.1 million. Of the $15.7 million increase in personnel costs, $5.4 million was related to stock-based compensation and $5.1 million was related to increased incentive compensation and fringe benefit programs. SG&A as a percent of revenues for the six months ended June 30, 2022 declined to 24.4% from 25.3% for the six months ended June 30, 2021.March 31, 2022.

The increases in personnel costs ~~in both periods~~ were attributable to ~~responses~~employee severance and employee benefits related to our global restructuring plan, increases in market compensation rates, ~~the~~and increased use of stock-based compensation following our initial public offering in November 2021, and staffing to support growth. Our initial public offering also drove the addition of public company costs including incremental audit, accounting and legal fees as well premiums for increased insurance coverage, which were not present in the 2021 periods but which will continue.compensation. The increases in SG&A expenses were partially offset ~~in each period~~ by decreases in various other costs, including a reduction of ~~facility~~insurance and audit expenses ~~resulting~~ from ~~exiting unused office space during 2021.~~the prior year period.

Interest Expense, net

Interest expense, ~~decreased by $13.3 million to $5.0 million~~net for the three months ended ~~June 30, 2022, and by $23.6~~March 31, 2023 increased to $12.4 million, ~~to $12.5~~an increase of $4.8 million, ~~for~~or 64.1%, from the ~~six months ended June 30, 2022.~~prior year period. The ~~decreases in both periods were~~increase was primarily due to ~~a reduction in outstanding indebtedness~~increased interest expense under our credit facilities as a result of voluntary principal prepayments using IPO proceeds during the fourth quarter of 2021, and scheduled principal repayments. Interest expense for the three and six months ended June 30, 2021 includes $4.1 million and $8.2 million, respectively, related to a second lien senior securedvariable rate term loan facility ~~which~~of $8.0 million associated with rising interest rates over the prior year period. The increase in interest expense was ~~repaid on November 3, 2021. Additionally,~~partially offset by reclassifications from accumulated other comprehensive income (loss) on the condensed consolidated balance sheet of unrealized gains related our terminated interest rate swap agreements, which reduced interest expense by $2.5 million during the three months ended March 31, 2023 and is expected to reduce interest expense by $6.3 million for the remainder of 2023. Additionally, interest income, which

3126

~~unrealized gains related to~~is derived primarily from cash and cash equivalent balances held in interest-bearing accounts, increased $0.9 million over the terminated Interest Rate Swap Agreements, reduced interest expense by $4.1 million and $6.3 million during the three and six months ended June 30, 2022, respectively. The decreases for both the three and six months ended June 30, 2022 were partially offset by increased interest expense of $1.2 million associated with rising interest rates during those periods.prior year period.

Income Tax Expense (Benefit)

The effective tax rate for the three months ended ~~June 30, 2022,~~March 31, 2023, was ~~1.7%~~42.9% compared to ~~90.9%~~6.6% for the three months ended ~~June 30, 2021. The effective tax rate for the six months ended June 30, 2022, was 3.3% compared to 17.3% for the six months ended June 30, 2021.~~March 31, 2022. The effective tax rate for the three ~~and six month periods~~months ended ~~June 30, 2022,~~March 31, 2023, compared to the prior year ~~periods,~~period, changed primarily due to ~~the revaluation of deferred taxes in the United Kingdom in 2021.~~federal and state valuation allowances and non-deductible stock compensation expense.

The effective tax rate for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023, differs from the federal statutory rate of 21% primarily due to state taxes and non-deductible stock-based compensation expense. The effective tax rate for the three months ended March 31, 2022, differs from the ~~Federal~~federal statutory rate of 21% primarily due to valuation allowances, state taxes, and U.S. tax on foreign operations. The effective tax rate for the three months ended June 30, 2021, differs from the Federal statutory rate of 21% primarily due to valuation allowances, state taxes, and U.S. tax on foreign operations. The effective tax rate for the six months ended June 30, 2021, differs from the Federal statutory rate of 21% primarily due to the revaluation of deferred taxes in the United Kingdom.

Non-GAAP Financial Measures

We believe that the presentation of our non-GAAP financial measures provides information useful to investors in assessing our financial condition and results of operations. These measures should not be considered an alternative to net income (loss) or any other measure of financial performance or liquidity presented in accordance with accounting principles generally accepted in the United States (“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, ~~because they may be defined differently by~~to the extent that other companies in our industry ~~our definitions~~define similar non-GAAP measures differently than we do, the utility of those measures for comparison purposes may ~~not~~ be ~~comparable to similarly titled measures of other companies, thereby diminishing their utility.~~limited.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA represents, as applicable for the period, net income (loss) before interest expense, income taxes, depreciation and amortization expense, stock-based compensation, realized and unrealized gain (loss) on foreign exchange, ~~merger integration expenses,~~restructuring charges, amortization of cloud computing software costs, legal settlement costs deemed by management to be outside the normal course of business, and other items management believes are not representative of the Company’s core operations. Adjusted EBITDA Margin is adefined as Adjusted EBITDA divided by revenues for the period. Adjusted EBITDA and Adjusted EBITDA margin are supplemental financial ~~measure~~measures that management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess our:

•Operating performance as compared to other publicly traded companies without regard to capital structure or historical cost basis;

•Ability to generate cash flow;

•Ability to incur and service debt and fund capital expenditures; and

•Viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

The following table reconciles our non-GAAP financial measure of Adjusted EBITDA to net income (loss), our most directly comparable financial measures calculated and presented in accordance with GAAP, for the periods presented.

3227


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023			2022
		(in thousands)									(in thousands, except percents)
Net income (loss)	Net income (loss)	$	24,446	$	(3,639)	$	36,010	$	(15,618)	Net income (loss)	$	(7,911)		$	11,564
Income tax expense		430		1,733		1,248		2,305
Interest expense		4,957		18,207		12,514		36,156
Income tax (benefit) expense										Income tax (benefit) expense	(5,944)			818
Interest expense, net										Interest expense, net	12,402			7,557
Depreciation and amortization	Depreciation and amortization	18,049		18,239		36,110		36,482		Depreciation and amortization	18,417			18,061
EBITDA	EBITDA	47,882		34,540		85,882		59,325		EBITDA	16,964			38,000
Stock-based compensation	Stock-based compensation	4,511		829		7,305		1,652		Stock-based compensation	3,828			2,794
Realized and unrealized loss on foreign exchange		64		910		(15)		101
Merger integration expenses (1)		—		169		205		981

Realized and unrealized gain (loss) on foreign exchange										Realized and unrealized gain (loss) on foreign exchange	307			(79)
Restructuring charges (1)										Restructuring charges (1)	9,874			—
Amortization of cloud computing software costs (2)	Amortization of cloud computing software costs (2)	315		—		466		—		Amortization of cloud computing software costs (2)	1,571			151
Other items (3)	Other items (3)	903		1,978		1,558		3,224		Other items (3)	497			860
Adjusted EBITDA	Adjusted EBITDA	$	53,675	$	38,426	$	95,401	$	65,283	Adjusted EBITDA	$	33,041		$	41,726
Net income (loss) margin (4)										Net income (loss) margin (4)	(4.5)		%	5.8		%
Adjusted EBITDA margin										Adjusted EBITDA margin	18.8		%	21.0		%

(1)~~Merger integration expenses consist primarily~~Restructuring charges represent costs incurred in connection with the Company’s global restructuring plan. Costs incurred in connection with the plan include: (i) $4.4 million of ~~information technology (“IT”)~~severance and benefits related ~~costs including personnel expenses,~~to impacted employees, (ii) $4.0 million of professional ~~and~~ service fees ~~associated with~~related to the ~~integration~~execution of ~~customers~~our cost savings initiatives, and ~~operations~~(iii) $1.4 million related to the abandonment of ~~GIS, which commenced in July 2018 and was substantially completed by the end~~certain of ~~2020.~~our leased facilities,

(2)Amortization of cloud computing software costs consists of expense recognized in selling, general and administrative expenses for capitalized implementation costs for cloud computing IT ~~systems.~~systems incurred in connection with our platform and fulfillment technology initiatives that are intended to achieve greater operational efficiencies. This expense is not included in depreciation and amortization above.

(3)Other items for the three months ended March 31, 2023 comprise professional services fees not related to core operations. Other items for the three months ended March 31, 2022 include (i) costs of ~~$0.4 million and $1.3~~$0.9 million associated with the implementation of a company-wide ~~enterprise resource planning (“ERP”)~~ERP system, ~~during the three and six months ended June 30, 2022, respectively,~~ (ii) ~~$0.6 million of severance costs during the three and six months ended June 30, 2022, and (iii)~~ $0.3 million related to loss on disposal of assets and exit costs associated with one of our short-term leased facilities, ~~during~~(iii) $0.2 million of information technology related costs including personnel expenses and professional service fees associated with the ~~six months ended June 30, 2022, partially~~integration of customers and operations of an entity with which the Company merged, and (iv) a partial offset of these costs by a reduction in previously accrued legal settlement expense of $0.6 million during the ~~six~~three months ended ~~June 30,~~March 31, 2022 due to a more favorable outcome than originally anticipated in a claim outside the ordinary course of business. ~~Other items~~

(4)Net income (loss) margin represents net income (loss) divided by revenues for the ~~three and six months ended June 30, 2021 are related to the preparation of the Company’s initial public offering during 2021.~~

period.

Adjusted Net Income and Adjusted Diluted Earnings Per Share

In addition to Adjusted EBITDA, management believes that Adjusted Net Income is a strong indicator of our overall operating performance and is useful to our management and investors as a measure of comparative operating performance from period to period. We define Adjusted Net Income as net income (loss) adjusted for amortization of acquired intangible assets, stock-based compensation, realized and unrealized gain (loss) on foreign exchange, ~~merger integration expenses,~~restructuring charges, amortization of cloud computing software costs, legal settlement costs deemed by management to be outside the normal course of business, and other items management believes are not representative of the Company’s core operations, to which we apply an adjusted effective tax rate. See the footnotes to the table below for a description of certain of these adjustments. We define Adjusted Diluted Earnings Per Share as Adjusted Net Income divided by the ~~adjusted~~ weighted average number of shares outstanding (diluted) for the applicable period. We believe Adjusted Diluted Earnings Per Share is useful to investors and analysts because it enables them

to better evaluate per share operating performance across reporting periods and to compare our performance to that of our peer companies.

The following table reconciles our non-GAAP financial measure of Adjusted Net Income to net income (loss), our most directly comparable financial measure calculated and presented in accordance with GAAP, for the periods presented:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(in thousands)									(in thousands)
Net income (loss)	Net income (loss)	$	24,446	$	(3,639)	$	36,010	$	(15,618)	Net income (loss)	$	(7,911)	$	11,564
Income tax expense		430		1,733		1,248		2,305
Income tax (benefit) expense										Income tax (benefit) expense	(5,944)		818
Income (loss) before income taxes	Income (loss) before income taxes	24,876		(1,906)		37,258		(13,313)		Income (loss) before income taxes	(13,855)		12,382
Amortization of acquired intangible assets	Amortization of acquired intangible assets	15,477		15,645		30,982		31,292		Amortization of acquired intangible assets	15,394		15,505

Interest expense swap adjustments (1)	Interest expense swap adjustments (1)	(4,082)		—		(6,263)		—		Interest expense swap adjustments (1)	(2,527)		(2,181)
Interest expense discounts (2)	Interest expense discounts (2)	938		1,047		1,759		2,082		Interest expense discounts (2)	803		821
Stock-based compensation	Stock-based compensation	4,511		829		7,305		1,652		Stock-based compensation	3,828		2,794
Realized and unrealized loss on foreign exchange		64		910		(15)		101
Merger integration expenses (3)		—		169		205		981

Realized and unrealized gain (loss) on foreign exchange										Realized and unrealized gain (loss) on foreign exchange	307		(79)
Restructuring charges (3)										Restructuring charges (3)	9,874		—
Amortization of cloud computing software costs (4)	Amortization of cloud computing software costs (4)	315		—		466		—		Amortization of cloud computing software costs (4)	1,571		151
Other items (5)	Other items (5)	903		1,978		1,558		3,224		Other items (5)	497		860
Adjusted income before income taxes	Adjusted income before income taxes	43,002		18,672		73,255		26,019		Adjusted income before income taxes	15,892		30,253
Adjusted income taxes (6)	Adjusted income taxes (6)	(174)		1,569		265		1,870		Adjusted income taxes (6)	2,346		439
Adjusted Net Income	Adjusted Net Income	$	43,176	$	17,103	$	72,990	$	24,149	Adjusted Net Income	$13,546		$29,814

The following table sets forth the calculation of Adjusted Diluted Earnings Per Share for the periods presented:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022

Diluted net income (loss) per share	Diluted net income (loss) per share	$	0.31	$	(0.06)	$	0.45	$	(0.27)	Diluted net income (loss) per share	$	(0.10)	$	0.15
Income tax expense		0.01		0.03		0.02		0.04
Income tax (benefit) expense										Income tax (benefit) expense	(0.08)		0.01
Amortization of acquired intangible assets	Amortization of acquired intangible assets	0.19		0.28		0.39		0.55		Amortization of acquired intangible assets	0.20		0.19

Interest expense swap adjustments (1)	Interest expense swap adjustments (1)	(0.05)		—		(0.08)		—		Interest expense swap adjustments (1)	(0.03)		(0.03)
Interest expense discounts (2)	Interest expense discounts (2)	0.01		0.02		0.02		0.03		Interest expense discounts (2)	0.01		0.01
Stock-based compensation	Stock-based compensation	0.06		0.01		0.09		0.03		Stock-based compensation	0.05		0.04
Realized and unrealized loss on foreign exchange		—		0.02		—		—
Merger integration expenses (3)		—		—		—		0.02

Realized and unrealized gain (loss) on foreign exchange										Realized and unrealized gain (loss) on foreign exchange	—		—
Restructuring charges (3)										Restructuring charges (3)	0.13		—
Amortization of cloud computing software costs (4)	Amortization of cloud computing software costs (4)	—		—		0.01		—		Amortization of cloud computing software costs (4)	0.02		—
Other items (5)	Other items (5)	0.01		0.03		0.02		0.05		Other items (5)	0.01		0.01
Adjusted income taxes (6)	Adjusted income taxes (6)	—		(0.03)		—		(0.03)		Adjusted income taxes (6)	(0.03)		(0.01)
Adjusted Diluted Earnings Per Share	Adjusted Diluted Earnings Per Share	$	0.54	$	0.30	$	0.92	$	0.42	Adjusted Diluted Earnings Per Share	$	0.18	$	0.37

Weighted average number of shares outstanding - diluted	Weighted average number of shares outstanding - diluted	79,478,094		57,168,291		79,443,173		57,168,291		Weighted average number of shares outstanding - diluted	77,285,116		79,392,937

(1)Interest expense swap adjustments consist of amortization of unrealized gains on ~~the~~our terminated ~~Interest Rate Swap Agreements,~~interest rate swap agreements, which will be recognized through December ~~2023.~~2023 as a reduction in interest expense.

(2)Interest expense discounts consist of amortization of original issue discount and debt issuance costs.

(3)~~Merger integration expenses consist primarily~~Restructuring charges represent costs incurred in connection with the Company’s global restructuring plan. Costs incurred in connection with the plan include: (i) $4.4 million of ~~information technology (“IT”)~~severance and benefits related ~~costs including personnel expenses,~~to impacted employees, (ii) $4.0 million of professional ~~and~~ service fees ~~associated with~~related to the ~~integration~~execution of ~~customers~~our cost savings initiatives, and ~~operations~~(iii) $1.4 million related to the abandonment of ~~GIS, which commenced in July 2018 and was substantially completed by the end~~certain of ~~2020.~~our leased facilities,

(4)Amortization of cloud computing software costs consists of expense recognized in selling, general and administrative expenses for capitalized implementation costs for cloud computing IT ~~systems.~~systems incurred in connection with our platform and fulfillment technology initiatives that are intended to achieve greater operational efficiencies. This expense is not included in depreciation and amortization above.

(5)Other items for the three months ended March 31, 2023 comprise professional services fees not related to core operations. Other items for the three months ended March 31, 2022 include (i) costs of ~~$0.4 million and $1.3~~$0.9 million associated with the implementation of a company-wide ERP system, ~~during the three and six months ended June 30, 2022, respectively,~~ (ii) ~~$0.6 million of severance costs during the three and six months ended June 30, 2022, and (iii)~~ $0.3 million related to loss on disposal of assets and exit costs associated with one of our short-term leased facilities, ~~during~~(iii) $0.2 million of information technology related costs including personnel expenses and professional service fees associated with the ~~six months ended June 30, 2022, partially~~integration of customers and operations of an entity with which the Company merged, and (iv) a partial offset of these costs by a reduction in previously accrued legal settlement expense of $0.6 million during the ~~six~~three months ended ~~June 30,~~March 31, 2022 due to a more favorable outcome than originally anticipated in a claim outside the ordinary course of business. ~~Other items for the three and six months ended June 30, 2021 are related to the preparation of the Company’s initial public offering during 2021.~~

(6)The tax effect of each adjustment is determined based on the tax laws and valuation allowance status of the jurisdiction to which the adjustment relates. An adjusted effective income tax rate has been determined for each period presented by applying the statutory income tax rate, ~~and the provision~~net of applicable adjustments for ~~deferred income taxes to the pre-tax adjustments,~~valuation allowances, which was used to compute Adjusted Net Income for the periods presented.

Due to the existence of a U.S. tax valuation allowance, the tax impact of the pre-tax adjustments for the three months ended March 31, 2022 is immaterial. During the year ended December 31, 2022, the Company determined sufficient positive evidence existed to reverse the Company’s valuation allowance attributable to the deferred tax assets associated with the Company’s operations in the U.S. There is no change to the manner by which the tax effect of each adjustment is determined as a result of the reversal of the valuation allowance.

Liquidity and Capital Resources

General

Our primary sources of liquidity and capital resources are cash generated from our operating activities, cash on hand, and borrowings under our long-term debt arrangements. Income taxes have historically not been a significant use of funds but after the benefits of our net operating loss (“NOL”) carryforwards are fully recognized, could become a material use of funds, depending on our future profitability and future tax rate. Additionally, as a result of the income tax receivable agreement (“TRA”) we entered into in connection with the IPO, we will be required to pay certain pre-IPO equityholders or their transferees 85% of the benefits, if any, that the Company and its subsidiaries realize, or are deemed to realize in income tax savings due to our utilization of the NOLs and other tax attributes, for which the Company recognized an estimated total liability of ~~$210.6 million.~~$210.5 million, including a current portion of $27.0 million, as of March 31, 2023. Based on our current taxable income estimates, we expect to repay the majority of this obligation by the end of 2030. These payments will result in cash outflows of amounts we would otherwise have retained in the form of tax savings from the application of the NOLs and other tax attributes.

Unrestricted cash and cash equivalents as of ~~June 30, 2022~~March 31, 2023 was ~~$118.4~~$127.4 million. As of ~~June 30, 2022,~~March 31, 2023, cash held in foreign jurisdictions was approximately ~~$15.9~~$16.1 million and is primarily related to international operations.

~~Restricted cash as of June~~

30 ~~2022 consists of $1.1 million held in escrow for the benefit of former investors in a subsidiary of the Company pursuant to the terms of its divestiture of a former affiliate in April 2018.~~

Debt

The Company currently has two long-term debt ~~arrangements as described below.~~arrangements:

•The Amended First Lien Term Loan Facility, a first lien senior secured term loan facility, bearing interest payable monthly at a LIBOR variable rate (4.84% at March 31, 2023) + 3.75%, maturing on July 12, 2025. Total principal outstanding balance on our debt was ~~$703.7~~$697.4 million as of ~~June 30, 2022~~March 31, 2023 and ~~$707.9~~$699.5 million as of December 31, ~~2021. Collateral includes all outstanding equity interests~~2022.

•The Amended Revolver Credit Facility, a first lien senior secured revolving credit facility in ~~whatever form~~an aggregate principal amount of up to $145.0 million, including a $40.0 million letter of credit sub-facility, bearing interest monthly at a Secured Overnight Financing Rate (“SOFR”) variable rate (4.63% at March 31, 2023) + 2.5% (subject to adjustment pursuant to a leverage-based pricing grid) and maturing on June 3, 2027 or, if earlier, 91 days prior to the maturity of the ~~borrower and each restricted subsidiary that is directly owned by any~~Company’s term loans under the Amended First Lien Term Loan Facility. The Company had $143.7 million in available borrowing capacity under the Amended Revolving Credit Facility, after utilizing $1.3 million for letters of credit ~~party.~~ as of March 31, 2023.

The Amended First Lien Term Loan Facility includes a springing financial maintenance covenant for the benefit of the revolving lenders thereunder, which requires us to maintain a maximum first lien leverage ratio as of the last day of any fiscal quarter on which greater than 35% of the revolving commitments are drawn

~~(excluding~~ (excluding for this purpose up to $15.0 million of undrawn letters of credit). The Company was ~~in compliance with~~not subject to this covenant as of March 31, 2023, as outstanding loans and letters of credit under the ~~covenants~~Amended Revolving Credit Facility did not exceed 35% of the total commitments under the facility.

The Company’s obligations under the Amended First Lien Facilities ~~for the three~~are guaranteed, jointly and ~~six months ended June 30, 2022.~~

~~At June 30, 2022, the Company had the following long-term debt arrangements:~~

•~~The Amended First Lien Term Loan Facility,~~severally, on a ~~first lien~~ senior secured ~~term loan facility, bearing interest payable monthly at a LIBOR variable rate (1.67% at June 30, 2022) + 3.75%, maturing on July 12, 2025.~~

•The Amended Revolver Credit Facility, a first lien senior secured revolving credit facility in an aggregate principal amount of up to $145.0 million, including a $40.0 million letter of credit sub-facility, bearing interest monthly at a SOFR variable rate (1.67% at June 30, 2022) + 2.5% (subject to adjustment pursuant to a leverage-based pricing grid) and maturing on June 3, 2027 or, if earlier, 91 days prior to the maturityfirst-priority basis, by substantially all of the Company’s ~~term loans under~~domestic wholly-owned material subsidiaries, as defined in the ~~Amended First Lien Term Loan Facility. As~~agreement, and are secured by first-priority security interests in substantially all of ~~June 30, 2022,~~ the ~~Amended Revolving Credit Facility accrued interest at one-month SOFR plus 2.50% based on~~assets of the ~~current leverage-based pricing grid. The~~ Company ~~had $143.7 million~~and its domestic wholly-owned material subsidiaries, subject to certain permitted liens and exceptions. Collateral includes all outstanding equity interests in ~~available borrowing capacity under~~whatever form of the ~~Amended Revolving Credit Facility, after utilizing $1.3 million for letters of~~borrower and each restricted subsidiary that is owned by any credit ~~as of June 30, 2022.~~party.

Operating Commitments

As of ~~June 30, 2022,~~March 31, 2023, the Company had purchase obligations ~~of approximately $44.8 million with~~to various parties of ~~which~~ approximately ~~$38.5~~$49.7 million ~~is expected to be paid within one year. Our obligations as of June 30, 2022, have increased from $21.7 million as of December 31, 2021, due to~~in the ~~extension of a service agreement with one of the Company’s current vendors. These purchase commitments are associated with agreements that are enforceable and legally binding. They are~~aggregate, primarily ~~commitments~~ to purchase data and other screening services in the ordinary course of ~~business with~~business. These purchase obligations have varying expiration terms through ~~2023.~~2023, and approximately $47.9 million of the total is expected to be paid within one year.

~~In addition~~On December 31, 2022 and February 16, 2023, the Company entered into definitive agreements to ~~our regular capital expenditures, we plan to invest approximately $45 to $50 million~~purchase 60% of the equity interests in a ~~capital expenditure program through the end~~privately held company for a total purchase price of ~~fiscal year 2023~~approximately $26.5 million, subject to ~~continue to enhance our operating systems and technologies to improve operational efficiency.~~ closing conditions that have not yet been satisfied.

We expect that cash flow from operations and current cash balances, together with available borrowings under the Amended Revolving Credit Facility, will be sufficient to meet operating requirements as well as the obligations under the TRA through the next twelve months. Although we believe we have adequate sources of liquidity over the long term, cash available from operations could be affected by any general economic downturn or any decline or adverse changes in our business such as a loss of customers, market and or competitive pressures, unanticipated liabilities, or other significant changes in business environment. Additional future financing may be necessary to fund our operations, and there can be no assurance that, if needed, we will be able to secure additional debt or equity financing on terms acceptable to us or at all.

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Cash Flow Analysis

~~Comparison of Cash Flows for the six months ended June 30, 2022 versus the six months ended June 30, 2021.~~

The following table ~~sets forth a summary of~~summarizes our condensed consolidated cash flows for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021			2023		2022
		(in thousands)					(in thousands)
Net cash provided by (used in) operating activities		$	35,866	$	(347)
Net cash used in operating activities						Net cash used in operating activities	$	(5,015)	$	(2,015)
Net cash used in investing activities	Net cash used in investing activities	(8,180)		(6,758)		Net cash used in investing activities	(4,611)		(4,529)
Net cash used in financing activities	Net cash used in financing activities	(22,962)		(4,175)		Net cash used in financing activities	(26,672)		(20,533)
Net increase (decrease) in cash, cash equivalents and restricted cash		$	4,724	$	(11,280)
Net decrease in cash, cash equivalents and restricted cash						Net decrease in cash, cash equivalents and restricted cash	$	(36,298)	$	(27,077)

Operating Activities

Cash provided by ~~(used in)~~ operating activities reflects net income (loss) adjusted for certain non-cash items and changes in operating assets and liabilities. Cash ~~provided by~~used in operating activities was ~~$35.9~~$5.0 million for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 compared to cash used in operating activities of ~~$0.3~~$2.0 million for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. The increase in cash ~~provided by~~used in operating activities was due primarily to net ~~income~~loss of $7.9 million for the current period compared to a net ~~loss~~income of $11.6 million for the prior year period, partly offset by ~~higher~~lower use of cash for working capital ~~as well as our expenditures related~~in the current period compared to ~~our cloud computing platform modernization and automation efforts.~~the prior year period.

Investing Activities

Cash used in investing activities was approximately ~~$8.2~~$4.6 million during the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, compared to approximately ~~$6.8~~$4.5 million during the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. The increase was due primarily to increases in other investing and increases in capitalized software development costs under our program to enhance operational efficiencies compared to the prior period, partly offset by a decrease of purchases of property and equipment.

Financing Activities

Cash used in financing activities was approximately ~~$23.0~~$26.7 million for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 compared to cash used in financing activities of approximately ~~$4.2~~$20.5 million during the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. The increase was due primarily to the $24.6 million of cash used for repurchases of our common stock made under the Program during the three months ended March 31, 2023, partly offset by $18.4 million payment ~~related to the~~for termination of interest rate swap agreements during the ~~Interest Rate Swap Agreements, as defined below; mandatory~~prior year period. Mandatory repayments on our debt facilities ~~was $4.2~~were $2.1 million in in each of the ~~six~~three months ended ~~June 30,~~March 31, 2023 and 2022.

Share Repurchase Program

On November 13, 2022, the Company's Board of Directors authorized the Program. The Program authorizes the Company to repurchase up to $100.0 million of the Company’s common stock and will expire on November 14, 2024, or earlier if repurchases reach $100.0 million before that date. Repurchases under the Program may be made in the ~~six months ended June 30, 2021.~~

~~Interest Rate Swaps~~

~~Effective December 31, 2018,~~open market, 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. This Program does not obligate the Company ~~had entered into interest rate swap agreements with a total notional~~to acquire any particular amount of ~~$700.0 million (“Interest Rate Swap Agreements”). The Interest Rate Swap Agreements were designed to provide predictability against changes in~~common stock and the ~~interest rates on~~Program may be extended, modified, suspended or discontinued at any time at the Company’s debt, as the Interest Rate Swap Agreements converted a portion of the variable interest rate on the Company’s debt to a fixed rate. The Interest Rate Swap Agreements were originally scheduled to expire on December 31, 2023.

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~~LIBOR rate option~~Through March 31, 2023, the Company repurchased 3,791,229 shares of Common stock for ~~its variable rate interest payments on term balances equal to or in excess~~$42.3 million, including commissions paid, at an average price paid of $11.17 per share. As of March 31, 2023, approximately $57.7 million remained available for future purchases under the ~~applicable notional amount of~~Program. Repurchases under the ~~Interest Rate Swap Agreement as of each reset date. The reset dates and other critical terms on the term loans perfectly matched with the interest rate cap reset dates and other critical terms~~Program continued at similar rates through ~~February 18, 2022,~~ the date of filing of this report, and the ~~Interest Rate Swap Agreements were terminated, and during~~Board of Directors has not yet determined whether to renew the three and six months ended June 30, 2021. At June 30, 2022 and December 31, 2021, the effective portion of the Interest Rate Swap Agreements was included on the condensed consolidated balance sheets in accumulated other comprehensive income.

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 will be reclassified to earnings as reductions to interest expense through December 31, 2023.Program following its termination.

Off-Balance Sheet Arrangements

As of ~~June 30, 2022,~~March 31, 2023, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Recently Issued Accounting Pronouncements

See Note 2 — Recently Issued Accounting Pronouncements for further information on recently adopted accounting pronouncements and those not yet adopted.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk ~~of loss that may impact~~to our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily due to potential interest rate risk, potential foreign exchange risk and potential increases in inflation. We do not hold financial instruments for trading purposes.

Interest Rate Risk

We are exposed to changes in interest rates as a result of the outstanding balance under the Amended First Lien Term Loan Facility, as well as any ~~financing~~borrowings under the Amended Revolving Credit ~~Facility used to fund business operations or investments.~~Facility. Primary exposures include movements in LIBOR and SOFR. The nature and amount of our long-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness.

As of ~~June 30, 2022,~~March 31, 2023, the outstanding principal balance of ~~$703.7~~$697.4 million on the Amended First Lien Term Loan Facility was subject to variable interest rates. Based upon a sensitivity analysis, a hypothetical 1% change in interest rates on our debt outstanding would change our annual interest expense by approximately $7.0 million.

The last publication date of LIBOR rates against various currencies by the Financial Conduct Authority in the United Kingdom was December 31, 2021, with the publication of certain United States dollar rates being phased out after June 30, 2023. We have negotiated terms in consideration of this discontinuation and do not expect that the discontinuation of the LIBOR rate, including any legal or regulatory changes made in response to its future phase out, will have a material impact on our liquidity or results of operations.

Foreign Exchange Risk

The majority of our revenue is denominated in U.S. dollars; however, we do 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. Because our consolidated financial statements are presented in U.S. dollars,

we must translate revenue, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against other currencies will affect our statements of operations and the value of balance sheet items denominated in foreign currencies. We generally do not mitigate the risks associated with fluctuating exchange rates because we typically incur expenses and generate revenue in these currencies and the cumulative impact of these foreign exchange fluctuations are not deemed material to our financial performance.

Inflation Risk

~~Based on our analysis of the periods presented, we believe that inflation has not had a material effect on our operating results. However, recent~~Recent growth in inflation has increased and may continue to increase our operating costs. In response to high inflation rates, the Federal Reserve has ~~begun~~been raising interest rates and has indicated that ~~it foresees further~~a decision on pausing the interest rate increases ~~throughout~~has not been made but instead the ~~year and into next year.~~Federal Reserve will continue to monitor economic data. Higher interest rates imposed by the Federal Reserve to address inflation will increase our interest expense. We also expect our labor costs to continue to increase asdue to the growing competition for labor ~~has a greater impact~~and the effect of inflation on ~~our business.~~wage rates. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. However, we may not be able to raise our pricing sufficiently to offset our increased costs, for competitive reasons or because some of our customer agreements fix the prices we may charge for some period of time and/or limit permissible price increases. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as ~~amended)~~amended (the “Exchange Act”)) as of ~~June 30, 2022.~~March 31, 2023. Based on the evaluation, ~~of the design and operation of our disclosure controls and procedures,~~ our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ~~not~~ effective at the reasonable assurance level as of ~~June 30, 2022 due to the material weaknesses in our internal control over financial reporting as described below.~~March 31, 2023.

(b) ~~Material weaknesses in internal control over financial reporting~~Limitations on effectiveness of controls and procedures

In ~~preparing~~designing and evaluating our ~~financial statements,~~disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the ~~Company identified material weaknesses in our internal~~desired control ~~over financial reporting as~~objectives. In addition, the design of December 31, 2020. These material weaknesses continued to exist as of June 30, 2022. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting suchdisclosure controls and procedures must reflect the fact that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses we identified were as follows:

•We did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we lacked a sufficient number of professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately. This material weakness further contributed to the material weaknesses described below.

•We did not design and maintain sufficient formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over the preparation and review of journal entries and account reconciliations. Additionally, the Company did not design and maintain sufficient controls to assess the reliability of reports and spreadsheets used in controls.

These material weaknesses did not result in a material misstatement to the consolidated financial statements included herein, however, they did result in adjustments to substantially all accounts and disclosures for the year ended December 31, 2020 and prior. Additionally, these material weaknesses resulted in immaterial adjustments to

goodwill, prepaid expenses, accrued expenses and other current liabilities, and selling, general and administrative expenses for the quarters ended March 31, 2021, June 30, 2021 and September 30, 2021. Furthermore, these material weaknesses could result in a misstatement of substantially all of our financial statement accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

•~~We did not design and maintain effective controls over certain information technology (“IT”) general controls for information systems that~~ are relevant to the preparation of the financial statements. Specifically, we did not design and maintain: (i) program change management controls for certain financial systems to ensure that information technology program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately, (ii) user access controls to ensure appropriate segregation of dutiesresource constraints and that ~~adequately restrict user and privileged access~~management is required to financial applications, programs, and data to appropriate Company personnel and (iii) computer operations controls to ensure that data backups are authorized and monitored. These IT deficiencies did not resultapply judgment in ~~a material misstatement to~~evaluating the ~~financial statements, however, the deficiencies, when aggregated, could impact maintaining effective segregation~~benefits of ~~duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT~~possible controls and ~~underlying data that support the effectiveness~~procedures relative to their costs. The design of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Accordingly, management has determined these deficiencies in the aggregate constitute a material weakness.

~~(c) Remediation plan for the previously identified material weaknesses~~

We have implemented or are in the process of implementing measures designed to improve our internal control over financial reporting and remediate the control deficiencies that led to the material weaknesses. Specifically, we have undertaken the following remedial actions:

•~~We have hired several additional accounting and finance personnel with the appropriate level of public accounting knowledge and experience.~~

•~~We have engaged a nationally recognized public accounting firm to assist us in creating comprehensive process narratives and Company policies and procedures.~~

•Our Internal Audit team, along with a third-party consultant, are assisting us to evaluate our current internal control over financial reporting (“ICFR”) and make recommendations for findings noted. We have been enhancing ourany disclosure controls and ~~documentation support as issues are identified.~~procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

•~~We are in the process of implementing new systems to assist us in processing transactions more efficiently and effectively, providing enhanced internal control and documentation support.~~

•We are working to design and implement controls related to user provisioning and maintenance to ensure access is restricted to appropriate personnel, and to enhance program change management, and computer operations.

While we believe that these efforts have improved and will continue to improve our internal control over financial reporting, remediation of the material weaknesses will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. Therefore, these material weaknesses have not been remediated as of June 30, 2022.

~~(d)~~(c) Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended ~~June 30, 2022,~~March 31, 2023, as defined under Rule 13a-15(f) under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject to claims, investigations, audits, and enforcement proceedings by private plaintiffs, third parties the Company does business with, and federal, state and foreign 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. 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 and its subsidiaries are not party to any pending legal proceedings that the Company believes to be material.

See “Part I, Item 1. Financial Statements (unaudited) - Note 13 — Legal Proceedings” of this Quarterly Report on Form 10-Q for additional information on legal proceedings.

Item 1A. Risk Factors

Current macroeconomic conditions are volatile and the near-term macroeconomic outlook is uncertain due to high inflation, rising interest rates, geopolitical concerns, supply chain disruptions and labor shortages. These factors have led to reduction in order volumes, and consequently we expect 2023 revenue below 2022 levels. We do not know how long these conditions will persist.

Inflation puts pressure on our suppliers, resulting in increased data costs, and also increases our employment and other expenses. We may not be able to raise our pricing sufficiently to offset increased costs, for competitive reasons or because some of our customer agreements limit price increases. Further, portions of our costs are relatively fixed so it may not be possible for us to cut costs quickly or deeply enough to keep cost increases from adversely affecting our margins.

In response to high inflation, the Federal Reserve has been raising interest rates and has indicated that a decision on pausing the interest rate increases has not been made but instead the Federal Reserve will continue to monitor economic data. Higher interest rates increase our interest expense on variable-rate borrowings under our credit facilities. Further, interest rate hikes or other factors could lead to recessionary conditions, which could adversely affect the global hiring market and therefore the demand for our services.

Customers have been reacting to these uncertainties by reducing hiring, which in turn causes uncertainty in our near-term revenue outlook.

In addition to the other information contained in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A. Risk Factors in our Annual ~~Report on Form 10-K for the year ended December 31, 2021.~~Report. The risks discussed in our Annual Report ~~on Form 10-K~~ could materially affect our business, financial condition, and future results. The risks described in our Annual Report ~~on Form 10-K~~ may change over time, and additional risks and uncertainties that we are not aware of, or that we do not consider to be material, may emerge.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of Common Stock

The following table summarizes the Company’s share repurchase program during the three months ended March 31, 2023:



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs (1)	Approximate dollar value of shares that may yet be purchased under the plans or programs
					(in millions)
January 1 — January 31, 2023	577,300	$	11.79	577,300	$	76.4
February 1 — February 28, 2023	463,166	11.65		463,166	71.0
March 1 — March 31, 2023	1,221,934	10.89		1,221,934	57.7
Total	2,262,400	$	11.28	2,262,400	$	57.7

(1)On November 13, 2022, the Company's Board of Directors authorized a share repurchase program. The share repurchase program authorizes the Company to repurchase up to $100.0 million of the Company’s common stock, par value $0.001 and will expire on November 14, 2024, or earlier if repurchases reach $100.0 million before that date. Repurchases under the program may be made in the open market, 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. Open market repurchases will be structured to occur within the pricing and volume requirements of Rule 10b-18. This program does not obligate the Company to acquire any particular amount of common stock and the program may be extended, modified, suspended or discontinued at any time at the Company’s discretion. Repurchases under the Program continued at similar rates through the date of filing of this report, and the Board of Directors has not yet determined whether to renew the Program following its termination.

Item 6. Exhibits


Exhibit Number						Exhibit Description
31.1						Certification of Principal Executive Officer pursuant to Exchange Act Rules 13(a)-14(a) and 15(d)-14(a), as adopted
31.2						Certification of Principal Financial Officer pursuant to Exchange Act Rules 13(a)-14(a) and 15(d)-14(a), as adopted
32.1						Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

4236

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HireRight Holdings Corporation

Date: ~~August 4, 2022~~May 9, 2023


By:			/s/ Thomas M. Spaeth
Name:			Thomas M. Spaeth
Title:			Chief Financial Officer
			(Principal Financial Officer)

Date: ~~August 4, 2022~~May 9, 2023


By:			/s/ Laurie Blanton
Name:			Laurie Blanton
Title:			Chief Accounting Officer
			(Principal Accounting Officer)

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	Three Months Ended June 30, 2022
	Common Stock
	Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	(in thousands, except share data)
Balances at March 31, 2022	79,392,937	$	79	$	796,176	$	(348,800)	$	16,306	$	463,761
Issuance of common stock upon vesting of restricted stock units	39,384	—		—		—		—		—
Net income	—	—		—		24,446		—		24,446
Stock-based compensation	—	—		4,390		—		—		4,390
Other comprehensive loss	—	—		—		—		(14,124)		(14,124)
Balances at June 30, 2022	79,432,321	$	79	$	800,566	$	(324,354)	$	2,182	$	478,473


	Three Months Ended June 30, 2021
	Class A Member Units
	Units	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	(in thousands, except unit data)
Balances at March 31, 2021	57,168,291	$	590,711	$	16,183	$	(351,040)	$	(2,760)	$	253,094
Net loss	—	—		—		(3,639)		��		(3,639)
Stock-based compensation	—	—		829		—		—		829
Other comprehensive income	—	—		—		—		5,578		5,578
Balances at June 30, 2021	57,168,291	$	590,711	$	17,012	$	(354,679)	$	2,818	$	255,862


	Six Months Ended June 30, 2022
	Common Stock
	Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	(in thousands, except share data)
Balances at December 31, 2021	79,392,937	$	79	$	793,382	$	(360,364)	$	12,620	$	445,717
Issuance of common stock upon vesting of restricted stock units	39,384	—		—		—		—		—
Net income	—	—		—		36,010		—		36,010
Stock-based compensation	—	—		7,184		—		—		7,184
Other comprehensive loss	—	—		—		—		(10,438)		(10,438)
Balances at June 30, 2022	79,432,321	$	79	$	800,566	$	(324,354)	$	2,182	$	478,473


	Six Months Ended June 30, 2021
	Class A Member Units
	Units	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	(in thousands, except unit data)
Balances at December 31, 2020	57,168,291	$	590,711	$	15,360	$	(339,061)	$	(10,123)	$	256,887
Net loss	—	—		—		(15,618)		—		(15,618)
Stock-based compensation	—	—		1,652		—		—		1,652
Other comprehensive income	—	—		—		—		12,941		12,941
Balances at June 30, 2021	57,168,291	$	590,711	$	17,012	$	(354,679)	$	2,818	$	255,862


	June 30, 2022
	(in thousands)
2022 (excluding the six months ended June 30, 2022)	$	2,999
2023	6,091
2024	3,758
2025	2,274
2026	1,388
Thereafter	3,392
Total lease payments	19,902
Less amount representing interest	(1,972)
Total present value of lease liabilities	$	17,930


	December 31, 2021
	Markets for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total
	(in thousands)
Derivative instruments, current	$	—	$	16,662	$	—	$	16,662
Derivative instruments, long-term	—		11,444		—		11,444
Total liabilities measured at fair value	$	—	$	28,106	$	—	$	28,106