Q2 2021 Hirequest Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to the higher cost Inc. Second quarter 2021earnings call. All lines have been placed on a listen only mode and the floor will be opened for questions and comments following the presentation.
You should require assistance throughout the conference. Please press star zero on your telephone keypad to reach a large operator at this time. It is my pleasure to turn the floor over to your host Brett Maas, Sir the floor is yours. Thank.
Thank you operator, I would like to dwell on them everybody on the call hosting the call today are hard quest CEO, Rick Hermanns and CFO Cory Smith, please be aware some of the comments made during our call may include forward looking statements within the meaning of the federal Securities laws.
It's about on beliefs and expectations containing words, such as May could would will should believe expect anticipate and similar expressions constitute forward looking statements. These statements involve risks and uncertainties regarding our operations and our future results that could cause higher question art.
Hi, a question results to differ materially from management's current expectations. We encourage you to review the safe Harbor statements and risk factors contained in the company's earnings release, and its filings with SEC, including without limitation. The most recent annual report on form 10-K, and other periodic reports, which identify specific risk factors that may also cause actual results or events to differ materially from those described in the forward looking statements copies.
On the company's most recent reports on form 10-K, and 10-Q may be obtained on the company's website at <unk> dot com or at the SEC's website at SEC Gov somebody does not undertake to publicly update or revise any forward looking statements. After the call or data on this call I'd also like to remind everyone that this call will be available for replay through August 23rd I went to the website replay of the call will also be provide.
On the earnings release and is available on the company's website at higher price Dot com.
Now I'll turn the call of the CEO of higher question, Rick Hermanns, Rick floor is yours.
Thank you for joining us I'd like to congratulate our franchisees for a successful quarter. This time last year, none of US knew what the next day would bring but our franchisees have adapted to the evolving business environment every day, our franchisees across the country services their service their clients and provides thousands of people to opt.
Turning to work our organic system wide sales were up 30% for the second quarter and when you include the acquisitions of smelling Enlink, we were up over 100%. Despite some lingering headwinds from Covid.
Second quarter was notable due to the fact that it is the first period with significantly reduced impact from external factors. The second half of 2019 was impacted by significant costs related to the merger with command center and in 2020, we like the rest of the world we're managing through the pandemic as this past quarter develops we were long.
Free from all of that noise. The second quarter results are beginning to demonstrate the amount of operating leverage our franchise model can generate.
The acquisitions of Snelling Enlink are important factors in getting us back to a level of system wide sales, where we can hit our stated target of 3 and a half to 4.5% net income on.
So the additional amortization expense from these transactions may require an adjustment in our targets.
On wide sales are still lagging a bit behind what we would expect non pandemic levels to be but that provides an opportunity for further organic growth as the economy continues to rebound in the second half of 2021.
1 of the benefits of our geographic footprint is that our franchisees are spread across 35 states with a good number in economically dynamic states like Florida, and Texas, who have largely resisted mass business shutdowns.
We also launched a new franchise offering drive request.
Just on staffing for transportation and logistics industry long haul on last mile trucking have become a growing industry segment for a number of years in conjunction with the growth of E. Commerce. The pandemic accelerated further adoption and growth in this area and it's exacerbated the supply and demand issues for companies trying to find dry.
Rivers. This is a specialized industry with specific needs and we wanted to make sure that we were able to structure, an offering that benefits the employees clients and franchisees. We're excited about the growth opportunities drivers dry request offers to new and existing franchisees.
We believe that our franchise model can be applied across a broad arrange of service industries and we continue to evaluate the best Avenue to enter these new verticals internal development acquisitions or a combination.
Before I turn over the call to Cory to discuss the financial results further I wanted to mention that the board of July Board of Directors has declared a regular quarterly dividend, we will pay a 6 cent per share dividend on September 15th 2021 to shareholders of record on September <unk>. Our expectation is we will continue.
To pay a 6% dividend quarterly going forward with that I'll turn the call over to Corey Corey.
Thank you Rick and good afternoon, everyone. Thank you for joining us.
Total revenue for the second quarter of 2021 was $5.7 million compared to $2.9 million for the second quarter of last year, an increase of 96, 7% while the acquisitions. It's snowing in linked contributed to this growth. We also experienced organic growth of approximately 40% for the quarter.
Our total revenue was made up of 2 components franchise royalties, our primary source of revenue, which typically accounts for over 90% of our total revenue and service revenue free.
<unk> royalties for the second quarter were $5.5 million compared to $2.6 million last year, an increase of 106, 5%.
Service revenue, which is generated from interest charge to our franchisees on overdue accounts receivable license fees and fees for various optional services, we offer our franchisees with $256000 compared to $262000 last year, a nominal decrease selling.
Selling general and administrative expenses were $2 million in the second quarter of this year compared to $1.9 million in the second quarter of last year. This increase was due to nonrecurring acquisition related expenses of approximately $168000 increased compensation cost of approximately $212000 increase.
Student subscriptions of approximately $92000 and increased stock based compensation costs of approximately $58000.
These increases were partially offset by a decrease in workers compensation cost of approximately $190000 and a decrease in bad debt expense of approximately $263000, adding.
Adding to what Rick said as demonstrated by our results. This past quarter, where we saw on net income in system wide sales double while only having a modest impact on our cost strong cost structure demonstrates the scalability that we can leverage in our business model.
Net income in the second quarter was $2.7 million or <unk> 20 per diluted share compared to net income of $1.2 million.
We're 99 cents per diluted share for the second quarter last year.
Net income this quarter was approximately $168000 in nonrecurring acquisition related expenses.
Adjusted EBITDA in the second quarter of 2021 was $4.4 million compared to $1.2 million in the second quarter of last year. We believe adjusted EBITDA is a relevant and important metric for us going forward due to the magnitude of noncash and nonrecurring items running through our income statement and is thus useful when analyzing our results of operations.
Moving on to the balance sheet.
Our current assets at June 32021 were $41.2 million compared to $39 million at December 31, 2020.
Significant components of current assets at June 30th 2021 included $2.2 million of cash and $35.1 million of accounts receivable. While current assets at December 31, 2020 included $13.7 million of cash and $21.3 million of accounts receivable.
The decrease in cash is directly related to the acquisitions of Snelling and link and the associated increase in working capital needs.
Our notes receivable balance net of reserves at June 32021 was $4.8 million compared to $8.1 million at December 31, 2020.
During the second quarter, we closed on a new $6$3.2 million credit facility comprised of a $60 million revolving credit facility and a $3.2 million dollar term loans.
We believe that this new facility provides us with flexibility and access to working capital to facilitate organic growth as well as the capacity to capitalize on potential future acquisitions.
Beginning in the third quarter of 2020, our board approved and the company paid its first quarterly dividend of 5 cents per common share.
Since then we have paid a regular cash dividend each quarter recently, our board approved an increase in our dividend from 5 to 6 cents per common share with our first 6 cent dividend being paid in June of this year.
We will pay our next 6 cent dividend on September 15th to shareholders of record as of September <unk>, and we expect to continue to pay this increased dividend each quarter for the rest of the year subject to board approval.
And with that I will turn the call back over to the operator for Q&A.
Thank you the floor is now open for questions. If you do have a question. Please press star 1 on your telephone keypad at this time.
It will be taken in the order. They were received if at any time. Your question has been answered you can remove yourself from the queue by pressing 1 again, ladies and gentlemen, if you do have a question. Please press star 1 on your telephone keypad at this time, our first question comes from Aaron at.
Eat high please state your question.
Yeah.
Hey, Rick Congratulations to you on your team on a just a great quarter I wanted to ask you.
Big picture Wise.
The announcement of drive request.
And I wanted to.
Just.
Like how big do you think that could be.
And more importantly, if I think about higher quest as kind of a platform of what you're doing.
I can think of many other verticals that I believe we discussed security guards et cetera, where you could do similar things and I'm. Just wondering if you could give just some thoughts on the opportunity in a.
Trucking and logistics and using higher quest as a platform for organic growth going forward.
Sure.
Good to talk to yet Erin so dry request is.
Very is a very nice add on to our existing product offering in part because it fits within a lot of what we were already doing but due to the specialized nature of the liability related to it.
We stayed away from.
Trucking, but they over the beginning of the year, we developed a sort of risk procedures to be able to make that offering. So we're very excited about it if only because we've been turning away a lot of.
Trucking related business for years, and so we think that we will be able to capitalize on it.
As far as the extent of it.
It's a really large.
Industry and growing and so there's no reason why you know Theres no reason why it couldn't rival the size of our other divisions.
Theres no theres nothing really restraining it it is a large it is a large market.
And we're out there always looking for as far as going on to security guards et cetera. We are always looking for those other opportunities as we've said in the past our model is.
A very scalable not just within the temporary staffing.
Not just within the staffing industry per se, but also.
As it relates to you know we have.
Very similar characteristics and so we're excited about the opportunities because.
You know the are there really isn't a cap on.
On our growth.
That debt, we would end up having to go into bad.
On the jurisdictions or chase after low margin business, so really the sky's the limit.
And so is it accurate to say that your when you announced your on 35 franchise ease debt that are launching with this then your franchisees are already <unk>.
Biting these services today and there is.
Franchise now on a system wide revenue, but royalties coming in now from trucking or is that an accurate statement to me yesterday that said that that's accurate, but I will have to I do have to caution 1 thing is obviously it's.
We don't we have wells, we have 1 franchisee that trucking is their primary.
Right right. So I don't want to oversell this and say that we have 35 people signed 35, new people signed up that.
Just want to devote their time to trucking. This has a lot of those 35.
People, who were turning down business in the past and are now.
And are now able to fill those orders. So the answer is yes. We are currently already doing business generating royalty revenue from drive request that said it's.
Just a tempered a bit as well, though it's also from people who.
This is business we left on the table in the past Gotcha. So this is business, but you see it as an opportunity long term debt.
That it's starting small and that people have to grow this but you were turning away but now.
Now youre not and over time this could be a significant driver.
Our system wide revenue and therefore franchise royalties grants and absolutely and look truck drivers are well compensated on.
Well compensated individuals and so you know it.
It doesn't take it you know it doesn't take a lot of.
People placed in order to generate.
You know to generate significant revenues and so we are we're very excited about the opportunities.
Great. My next question is just about.
Potential acquisitions going forward more I know you can I know you won't evolve the announce something when you close but like could you.
Describe just the pipeline of opportunities are you still excited about what you're seeing.
Beyond just like organic opportunities.
And acquisition pipeline.
So.
That's that's that's a question I have to be careful in answering we are always out there looking there are certain ones, where if you'd have asked me 3 weeks ago with the pipeline is it would be different than what I would say today and what it was 3 months ago.
Would say that the.
And and sometimes you think you have a deal and you spend weeks getting it to the point of the deal.
And then it falls apart but.
I think the fact is is that we are.
Actively engaged in seeking out opportunities and so.
There will be I do believe there will be consistent opportunities. The really the bigger question is is do they fit our parameters.
From a profitability standpoint.
You know on basically that properly priced that.
We want to actually execute on it and that's that's really the bigger issue. There is all sorts of stuff, we could overpay for but that's not that's not that's not our that's not our goal.
Great. Thanks, very much question, but no no no absolutely.
Big country, it's a big country and there's a lot of you know.
And Theres a lot of verticals, there's so there's a lot of opportunities.
No no. That's that's all I want to and I know that you're going to be very disciplined with your approach and treat it like it's your capital so on.
Very confident thank you and great quarter again.
Thank you.
Yeah.
Again, ladies and gentlemen, if you would like to ask a question. Please press star 1 on your telephone keypad at this time, please hold while we poll for question.
Okay and it doesn't look like we have any further questions coming in I'll turn it back over to you for closing remarks.
Well again I want to thank everybody for joining us today I appreciate your interest in the company hopefully your share holder then I really appreciate you being on again I hope that as you take the time to look through the 10-Q that what you'll see is really the Prague.
Dress that we've made in quickly assimilating, the snelling and link acquisitions and I think 1 of the key.
Points debt as we develop that it's important to stress is.
Our ability to quickly assimilate acquisitions.
And which gives us the opportunity to grow because of our franchise model, we don't assume nearly as many of the operational.
You know issues too.
To integrate and that allows us to make more acquisitions in a shorter period of time.
And I think that if nothing else the second quarter of this year really demonstrates how quickly that we can we can integrate even even if 50% uptick in our business.
That we can do that.
Really with relatively minimal cost.
And in a very short period of time, and so again I want to thank you and have a good day. Thank you.
Thank you. This concludes today's conference call. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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