HireRight Holdings Corporation

Third-quarter revenue was $188.3 million, down $22 million year over year and down 10.5%. Adjusted EBITDA was $52.1 million, only $1.9 million lower than last year, and adjusted EBITDA margin improved 200 basis points to 27.7%. Gross margin, excluding restructuring charges and depreciation and amortization, was 50.3%, up more than 300 basis points year over year. Adjusted net income was $24.6 million versus $29.8 million last year, and adjusted diluted EPS was $0.36 versus $0.37. Cash flow from operations was more than $38 million in the quarter and $50.6 million year to date; unlevered free cash flow, excluding acquisitions and capitalized software development, was $95.8 million. The company reaffirmed full-year 2023 guidance for revenue of $720 million to $735 million, adjusted EBITDA of $172 million to $177 million, adjusted net income of $75 million to $80 million, and adjusted diluted EPS of $1.05 to $1.10.

Guy Abramo framed the quarter as solid execution in a difficult macro backdrop, emphasizing that HireRight is controlling what it can and improving profitability. He pointed to stabilizing tech demand, strong new business, and exclusive or preferred partnerships with Oracle and UKG as evidence that the company’s single global platform is a competitive advantage. His tone was cautiously optimistic: he repeatedly noted uncertainty in hiring and turnover, but said the business remains resilient and focused on long-term margin improvement.

Tom Spaeth emphasized that the company is converting revenue into cash and expanding margins even with lower volumes. He cited gross margin of 50.3%, adjusted EBITDA of $52.1 million, cash flow from operations of more than $38 million, total cash of $103 million, and total liquidity of about $262 million, while noting leverage ended at 3.7x. He said restructuring should deliver $50 million of total run-rate savings by the end of 2024, with additional savings expected through the first half of 2024 and a full run rate by year-end 2024. He also discussed the refinancing: the term loan maturity moved from 2027 to 2030, principal increased to $750 million, the spread rose 25 bps to 400 bps, and the revolver was increased to $160 million.

Analysts focused on package density, customer hiring plans, churn/turnover trends, the new Oracle and UKG deals, SMB softness, Brazil/Latin America, and capital allocation. Management said upsell activity is being driven mainly by geographic expansion, drug and health screening, and re-screening/employee monitoring, while noting concerns about the rising cost of employment verification and some pressure from slowing employee turnover. They said there is cautious optimism for next year but also significant uncertainty, that the Oracle and UKG partnerships should drive more deal flow, and that SMB weakness looked macro-driven rather than competitive. On capital allocation, management said buybacks are nearing diminishing returns and that the company may tilt more toward debt reduction going forward, while still evaluating M&A prudently.