Prospectus Summary
PROSPECTUS SUMMARY
This summary highlights selected information contained in greater detail elsewhere in this prospectus and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, especially the risks of investing in our common stock, which we discuss under "Risk Factors," and our consolidated financial statements and related notes. Except as otherwise indicated, the market data and industry statistics in this prospectus are based upon independent industry publications and other publicly available information.
Our Company
We are a leading provider of on-demand employment screening solutions. Our customers use our comprehensive screening services in conjunction with our web-based software applications to conduct and manage their employment screening programs efficiently and effectively, make more informed employment decisions, improve workplace safety and mitigate risk. We offer a comprehensive set of background screening services including criminal, motor vehicle and other public records searches, employment, education and professional license verifications and credit checks, as well as drug and health screening services. During 2006, we processed approximately 4.8 million distinct records searches, verifications, checks and screens for our customers.
Our screening solutions are comprised of a suite of software applications, a comprehensive set of screening services and a proprietary information processing engine. We believe our screening solutions deliver faster results, provide greater convenience and ease-of-use, and enable our customers to effectively manage complex screening programs, providing them with significant time and cost savings. We deliver fast results primarily through our extensive use of automation in executing screening requests and our integration with information sources. We offer convenience and ease-of-use by providing screening solutions that address a wide range of screening program needs, by automating many of the manual processes associated with screening and by offering solutions that are fully integrated with our customers' recruiting software applications. We enable our customers to effectively manage the complexities inherent in employment screening programs by providing subject matter and solution expertise and robust, configurable software applications that facilitate effective program management, monitoring and control.
We serve a diverse customer base in a variety of industries, such as business services, technology, healthcare, manufacturing, telecommunications and financial services. During 2006, we served more than 1,400 customers, which included 17 of the Fortune 100 companies and 53 of the Fortune 500 companies. In 2006, we also provided screening solutions to approximately 1,300 of our customers' third-party suppliers and contractors through our supplier screening solutions, including our Extended Workforce Screening Solution, which was named one of Human Resource Executive Magazine's 2006 Top HR Products of the Year.
Our Industry
The background screening market is highly fragmented and represents a large market opportunity. According to a 2004 presentation by the National Association of Professional Background Screeners, the background screening market at that time was estimated to be $4.0 billion in size and to consist of more than 1,000 screening firms.
We believe that demand for background screening solutions is growing as a result of several factors, including increased public awareness of potential security threats as well as the numerous highly publicized incidents of violence in the workplace. Additionally, governments and other regulatory bodies have established processes and procedures to identify and minimize potential threats, many of which include obtaining background information on individuals. Companies have also sought to establish new, or enhance their existing, screening programs to improve workplace safety and better protect themselves from negligent hiring claims.
Demand for employment screening solutions is also driven and influenced by trends in related markets. Leading human resource outsourcing, or HRO, providers have increasingly looked to collaborate with other service providers, including background screening providers, to offer a comprehensive solution to potential customers. Additionally, companies and HRO providers have increasingly sought to address the inefficiency and inconsistency associated with manual recruiting and hiring processes, contributing to the evolution and increasing adoption of human resource management systems and recruiting software applications. As adoption of these software applications continues to increase, we believe that an increasing number of customers will seek to integrate their employment screening solution with these applications, thereby driving increased volume of screening transactions towards those employment screening providers that provide integrated solutions.
Our Competitive Strengths
We consider the following to be our key competitive strengths:
Comprehensive Screening Solutions. We provide more than 50 screening services and a suite of software applications that our customers can use to screen their entire permanent and extended workforce across multiple, diverse geographies in a wide variety of industries.
Superior User Experience. Our web-based software applications enable our customers to efficiently and effectively manage the complexities inherent in employment screening programs. Our solutions enhance our customers' execution of their screening programs by eliminating duplicative steps in the process, seamlessly integrating with our customers' recruiting software applications, utilizing an intuitive, user-friendly interface and providing consolidated reports.
Scalable, Proprietary Information Processing Engine. Our proprietary information processing engine is a key component of our screening solution as it allows us to automate and manage a large number of complex screening requests concurrently and to deliver a wide range of screening services in a fast, accurate and cost-effective manner.
Extensive Network of Strategic Alliances with Industry Leaders. We have established strategic alliances with a network of recruiting software application and HRO providers, which provide valuable sales and marketing support and allow us to offer differentiated, pre-integrated screening solutions.
Proven Track Record of Success with Large Enterprises. We believe that our record of success in serving large, complex enterprises is a key competitive advantage. The size and diversity of these customers, combined with the longevity of our relationships with many of them, demonstrates our ability to handle complex screening program challenges.
Strong, Experienced Management Team. Our management team is led by Eric J. Boden, our President, Chief Executive Officer and Chairman, and Jeffrey A. Wahba, our Chief Financial Officer, who collectively possess over 50 years of leadership and financial management experience. We have expanded our management team significantly over the last three years in order to establish the management infrastructure necessary to pursue our growth objectives.
Our Growth Strategy
We intend to pursue the following strategies to capitalize on our position of leadership in the employment screening market:
Increase Penetration of the Large Enterprise Market. We believe that our employment screening solutions are highly effective in servicing the complex screening needs of large enterprises, as evidenced by the number of large enterprises that currently utilize our solutions. We intend to pursue additional large enterprise customers by continuing to invest in and expand our direct sales and marketing efforts, as well as by pursuing opportunities developed through our strategic alliances with leading recruiting software application and HRO providers.
Further Penetrate Our Existing Customer Base. We intend to continue to increase the array of employment screening solutions that we provide to our existing customers. Primarily through our Account Management team, we work closely with existing customers to identify opportunities to screen additional individuals and expand the breadth of screening services and software applications utilized, in order to improve the effectiveness of their screening programs.
Continue to Enhance Our Market Position in the Small and Midsize Business, or SMB, Market. Our screening solutions are designed to have the flexibility to effectively meet the screening needs of SMBs. We currently serve many SMB customers and intend to continue to pursue opportunities with SMBs through a dedicated SMB sales force, as well as through our strategic alliances.
Develop Offerings for Non-Employment Screening. We intend to leverage our expertise in providing effective employment screening solutions to develop and offer non-employment screening solutions. These solutions may include screening solutions designed to mitigate risk associated with the establishment of business relationships and other non-employment screening applications such as tenant screening for rental properties, student screening for admissions, and screening of consumer service providers.
Selectively Pursue Acquisition Opportunities. We intend to selectively consider acquisitions that enhance the breadth of our screening solutions by adding new screening services or additional functionality, that further establish our presence either domestically or internationally, or that allow us to add complementary products or services to our offerings.
Corporate Information
We were incorporated in California in 1990 and will reincorporate in Delaware prior to the completion of this offering. Our executive offices are located at 5151 California Avenue, Irvine, California 92617 and our telephone number is (949) 428-5800. Our corporate website is at www.hireright.com. The information contained in, or that can be accessed through, our website does not constitute a part of this prospectus. Unless the context requires otherwise, as used in this prospectus, the terms "HireRight," "we," "us" and "our" refer to HireRight, Inc. and its subsidiary, HireRight Estonia AS. HireRight®, HireRight Enterprise™, Extended Workforce Screening Solution™ and Employment Application Solution™ are our United States trademarks. All other trademarks and trade names appearing in this prospectus are the property of their respective owners.
THIS IS THE END OF A COMPOSITION COMPONENTThe Offering
User-specified TAGGED TABLE end of user-specified TAGGED TABLEThe number of shares of common stock outstanding after this offering is based on 36,469,706 shares outstanding as of September 30, 2006, which does not include:
- •
- 5,378,711
shares of common stock issuable upon the exercise of options outstanding as of September 30, 2006 at a weighted average exercise price of $0.64 per share;
- •
- 2,133,353
shares of common stock issuable upon the exercise of warrants outstanding as of September 30, 2006 at a weighted average exercise price of $0.71 per share;
- •
- 584,753
shares of common stock reserved for future grant or issuance as of September 30, 2006 under our 2000 Stock Option/Stock Issuance Plan; and
- •
- shares of common stock reserved for future grant or issuance under our 2007 Long-Term Incentive Plan and shares of common stock reserved for purchase under our 2007 Employee Stock Purchase Plan, both expected to be adopted prior to the completion of this offering.
Unless otherwise indicated, all information in this prospectus assumes:
- •
- the
conversion of all of our outstanding preferred stock into an aggregate of 27,905,187 shares of common stock upon the closing of this offering;
- •
- the
underwriters will not exercise their over-allotment option to purchase up to additional shares of common stock;
- •
- no
other person will exercise any outstanding options or warrants; and
- •
- our reincorporation as a Delaware corporation, upon the approval of our stockholders, prior to the completion of this offering.
Summary Consolidated Financial Data
The following tables set forth a summary of our consolidated financial data for the periods presented and should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes appearing elsewhere in this prospectus.
User-specified TAGGED TABLE end of user-specified TAGGED TABLE(footnotes on next page)
User-specified TAGGED TABLE end of user-specified TAGGED TABLE User-specified TAGGED TABLE end of user-specified TAGGED TABLE- (1)
- Reimbursed
fees consist primarily of fees paid to government entities, collection fees for drug and health screening and certain access fees that we incur during screening, all of
which are passed directly through to our customers. Subsequent to the issuance of the December 31, 2004 consolidated financial statements, we determined that reimbursed fees should be accounted
for in accordance with EITF 01-14, "Income Statement Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses
Incurred." EITF 01-14 requires that reimbursements received by us for out-of-pocket expenses (primarily governmental transaction fees)
be reported as revenue. Previously, we netted the out-of-pocket reimbursements from customers with the applicable out-of-pocket expenditures. Amounts
for the year ended December 31, 2003 and 2004 have been restated to comply with the requirements of EITF 01-14. This restatement did not have an impact on our gross profit or
our net income.
- (2)
- Includes $0.2 million of stock-based compensation expense recognized under SFAS 123(R) as follows:
- In
accordance with the prospective transition method provided under SFAS 123(R), our consolidated financial statements for prior periods have not
been restated to reflect, and do not include, the impact of SFAS 123(R).
- (3)
- Reflects
the reversal of the valuation allowance applied to net deferred tax assets for the nine months ended September 30, 2006.
- (4)
- See
discussion of pro forma basic and diluted net income per share in Note 16 of our consolidated financial statements.
- (5)
- See
discussion of the restatement of the 2004 balance sheet and statement of cash flows in Note 15 of our consolidated financial statements.
- (6)
- EBITDA is a supplemental non-GAAP financial measure. EBITDA consists of net income before interest expense, income taxes, and depreciation and amortization. See "Non-GAAP Financial Measure" for a
description of the reasons we use this financial measure, reconciliations of EBITDA to net income and net cash provided by (used in) operating activities, and limitations on the use of this financial measure.
- (7)
- Gives
effect to the conversion of all of our outstanding preferred stock into 27,905,187 shares of our common stock upon the closing of this offering and the receipt of the estimated
proceeds from the sale of the shares offered by us in this offering at the assumed initial offering price
of $ per share, which is the midpoint of the range set forth on
the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase in the assumed offering price of
$ per share would increase total assets and cash and cash equivalents by $ million, assuming the
number of shares offered by us, as set forth on the cover page of
this prospectus, remains the same. Each $1.00 decrease in the assumed offering price of $ per share would decrease total assets and cash and cash equivalents by
$
million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.
- (8)
- The unaudited consolidated pro forma as adjusted balance sheet data are presented for informational purposes only and do not purport to represent what our financial position actually would have been had the transactions so described occurred on the dates indicated or to project our financial position as of any future date.