Q4 2022 Hirequest Inc Earnings Call
Okay.
Greetings and welcome to the Hyatt.
Corner and year end 2022 earnings conference call.
All participants are in a listen only mode.
And answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note that this conference is being recorded I would now like to.
Turn the conference over to your host Jennifer.
You may begin.
A moment to read the Safe Harbor statement. This conference call contains forward looking statements as defined in section 27, a of the Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of matching 34. These forward looking statements in terms such as anticipate expect intend may will should or other comparable terms involve risks.
And uncertainties, because they relate to events and depend on circumstances that will occur in the future. These statements include statements regarding the intent belief or current expectations of higher question members of its management as well as the assumptions on which such statements are based prospective investors are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and.
Including those described in heart with periodic reports filed with the SEC and actual results or results may differ materially from those contemplated by such forward looking statements, except as required by federal Securities Law <unk> undertakes no obligation to update or revise forward looking statements to reflect changed conditions. Let me now turn the call over to the CEO .
If higher quest requirements go ahead Rick.
Thank you for joining us for today's call to begin I will provide an overview of the financial and strategic highlights for the quarter and then David will share more details surrounding our fourth quarter results.
We delivered strong topline growth in the fourth quarter, driven primarily by our franchise royalties, which increased by 26, 4% to $7.7 million.
Total revenue also increased 23, 1% to $8 million income from operations increased 68, 4%.
$2 $8 million and net income from continuing operations increased 21% to $2 $6 million or <unk> 19 per basic and diluted share.
Adjusted EBITDA for the fourth quarter was $4.4 million compared to $3 $4 million in the fourth quarter of 2021, showcasing our ability to drive sustained profitability across our business for.
For the full year, we saw an increase in franchise royalties of 35, 6% to $28 9 million compared to $21 $3 million in 2021.
Income from operations increased 109.6% to $16 million compared to $7 $7 million in 2021.
Net income from continuing operations increased modestly to $12 million or <unk> 87 per basic and diluted share compared to 811 $8 million or <unk> 88 cents a share per basic and 87 cents per diluted share in 2021, primarily related to acquisition costs.
That we incurred throughout 2022.
Adjusting for these acquisition related charges and other noncash expenses that we expect to recruit recouped as we integrate and scale our acquisitions, we actually saw an increase in adjusted EBITDA of 78, 9% to $22 million compared to $12 $3 million in.
<unk> 2021, so as you can see we believe we are well positioned to drive continued profitability in tandem with our strategy of making accretive acquisitions that complement the organic growth of our business.
Speaking more on our acquisition strategy in the fourth quarter, we announced and closed our acquisition of certain assets of MRI network. The third largest recruiting network in the world, adding over 200 offices to our franchise network across the United States and internationally MRI provides us with immediate scale in the executive recruiting.
Professional staffing segments of the market and is highly complementary to our existing higher quest direct and smelling offerings. We've made great progress in integrating MRI into our operations. However, there are certain transition items and associated expenses that we will be carrying through the first half of this year.
In addition to MRI, we successfully grew our franchise base for three other acquisitions over the course of 2021.
These transactions fall under our more common category, where we acquire businesses with one or more offices, and then resell them as franchises as I've mentioned on previous calls we've become quite efficient in executing and integrating acquisitions like these into our business and expect that they will continue.
To make up a majority of the transactions, we complete going forward.
Overall, we're very pleased with our fourth quarter fourth quarter and annual results and are encouraged by the progress we've made both organically and through our acquisition strategy throughout fiscal 2022, we remain intently focused on identifying accretive opportunities in the market that allow us to continue expanding our frame.
<unk> network and brand offerings and complement the organic growth of our business.
As we move through 2023, we believe we are well positioned for continued growth.
In the current uncertain economic environment as many businesses and organization as nations may opt to fill their staffing needs with temporary rather than permanent employees. Additionally, an uncertain economy could result in consolidation in our industry, providing acquisition opportunities that said nobody likes a recession.
And we will remain watchful as the year unfolds.
With that I'll pass along to our CFO , David Burnett, who will take who will provide a closer look at our fourth quarter and full year results David.
Okay.
Thank you Rick and good afternoon, everyone. Thanks for joining us today.
At the risk of repeating some of the numbers Rick mentioned, let's let's start with total revenue, which for the fourth quarter of 2022 was $8 million compared to $6 5 million for the same quarter in 2021, an increase of 23, 1%.
Total revenue for all of 2022 was $31 million an increase of 37, 4% over 2021, when total revenue was $22 5 million.
Our total revenue is made up of two components franchise royalties, our primary source of revenue, which makes up roughly 95% of our total revenue and service revenue, which is generated from service fees interest charged on overdue accounts and other miscellaneous franchise related revenue.
On occasion, we will report a third component company owned revenue, which would be related to operations that are not marketed as a potential franchise and are managed by us instead of a franchisee.
At December 31, 2022, we operated two such locations, but they did not meet this criteria and it said were classified as held for sale and reported below the line as discontinued operations, even though we previously have reported one of these as company owned revenue we've reclassified in the fourth quarter and retroactively as we began.
The process of franchising it out.
I won't refer to those operations, specifically and they are not included in the revenue I just mentioned, but it is important to keep in mind that we are still benefiting from them and once they are a franchise that we will retain a royalty stream.
For our continuing operations franchise royalties for the quarter were $7 7 million compared to $6 1 million for the fourth quarter of 2021, an increase of 26, 4%.
For the full year 2022 royalties were $28 9 million compared to $21 3 million in the full year 2021, an increase of 35, 6%.
Underlying the growth in royalties our system wide sales, which for the quarter were $127 9 million compared to $106 8 million for the same period in 2021.
System wide sales for the full year, 2022, or $472 2 million compared to $354 5 million in the full year of 2021.
An increase of 33, 2% primarily related to acquisitions completed in 2022 and organic growth related to the rebound from the economic downturn lingering in 2021 due to COVID-19.
System wide sales include sales offices, including those classified as discontinued.
Selling general and administrative expenses for the quarter were $4 7 million compared to $4 4 million in the fourth quarter of 2021.
For the year SG&A decreased from $13 3 million in 2021% to $12 9 billion in 2022.
The decrease was primarily driven by a $2 million benefit and networkers compensation.
$1 2 million of which is attributable to the snelling workers' compensation reserves that were assumed at the time of the acquisition.
And are currently in runoff mode.
This decrease was offset by a net increase in compensation expense of approximately 800000.
Which includes additional head count to keep pace with our growth compensation related expenses remain by far the largest component of SG&A and most of the costs. We took on from the MRI acquisition are related to human capital.
Income from operations, which is total revenue less SG&A depreciation and amortization was $16 million in 2022 versus $7 7 million in 2021, an increase of 109, 6%.
Most of the $8 $5 million increase in total revenue fell straight to income from operations, reflecting our ability to leverage incremental revenue without rapid increases in core operating expenses.
Income.
<unk> expense for the quarter was approximately $1 9 million and effective tax rate of 13, 7%.
This was over double the effective tax rate for 2021, which was five 1% the lower rate for 2021 was the result of a large non taxable bargain purchase gain.
<unk> is part of the smelling acquisition, our normal effective tax rate is expected to be in the teens and will fluctuate based on significant permanent items like the work opportunity tax credit.
All in net income for the quarter was $2 7 million or <unk> 20 per diluted share compared to net income of $2 2 million or 16 cents per diluted share in the fourth quarter last year.
For the year net income was $12 5 million or <unk> 91 per diluted share compared to net income of $11 9 million in 2021, or <unk> 87 per diluted share.
Adjusted EBITDA in the fourth quarter of 2022 was $4 4 million compared to $3 4 million in the fourth quarter of 2021 and as Rick highlighted earlier, our adjusted EBITDA for the year was 22 million compared to $12 3 million last year.
We believe adjusted EBITDA is a relevant metric for us going forward.
Due to the size of noncash operating expenses running through our P&L.
A detailed reconciliation of adjusted EBITDA to net income will be provided in our 10-K.
Moving on now to the balance sheet. Our current assets at December 31, 2022 were $51 9 million compared to $42 million at December 31, 2021.
Current assets at <unk>.
As of December 31 included $3 million of cash and $45 $3 million of accounts receivable. While current assets at December 31, 2021 included $1 3 million of cash and $38 $2 million of accounts receivable.
Current assets exceeded current liabilities by $15 2 million at December 31 <unk>.
<unk> was a year earlier, when working capital was $25 million.
The decrease in working capital reflects a larger balance on the credit line. Following the acquisition of the MRI network assets late in the fourth quarter.
At yearend, we had $12 $5 million drawn on our credit facility.
And another $12 2 million in availability after accounting for certain reserves and letters of credit.
In February 2023, we replace this truth Bank facility plus a term loan we had a trust bank with a new $50 million credit line from Bank of America. We.
We believe this new facility provides us with the flexibility and room for both organic growth as well as the capacity to capitalize on potential future acquisitions.
We have paid a regular quarterly dividend since the third quarter of 2020, continuing that pattern yesterday, we paid a <unk> <unk> per common share dividend to shareholders of record as of March one.
We expect to continue to pay a dividend each quarter subject to the board's discretion.
With that I will turn the call back over to Rick for some closing comments.
Thanks, Thanks, David our fourth quarter and full year results demonstrate our ability to drive sustainable growth across our business, both organically and through acquisitions that broaden the scope of our franchise operations and expand our geographic presence.
As always I would like to take the time to acknowledge our team our franchisees and their workers for their continued excellence and dedication to the success of our business.
This is an exciting time for our business and we believe that that.
With our significantly expanded franchise network and dynamic offerings for a variety of staffing and other talent related needs.
We're well positioned to continue driving improved results and value for our franchise for our shareholders as we move through 2023 with that we can now open the line to questions. Thank you.
Certainly the floor is now open for questions.
Like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Please hold just one moment, while we poll for questions.
Your first question is coming from Michael Baker with D. A Davidson. Please pose your question your line is live.
Okay. Thanks.
So I could ask but I guess I'll ask this you guys.
Are in a pretty interesting and unique position to have an opinion on.
The job market, which is obviously a huge topic right now.
And wages and all those kinds of things. So I guess I'll just ask you a bigger picture, what's your view of the job market right here of where wages are going is it easier or harder to find temporary staffing.
And how does your business typically react in a recession and would that be different this time around just because of the diversification that you guys now have through your acquisitions.
Thanks.
Mike So.
Number one is.
I would say that there is no question that there has been a.
Noticeable.
Ah.
Slackening of demand.
There's no question that the.
At the margins the amount of openings have declined and therefore, it is easier to find people.
That said.
Wages are still continuing to go up and so for us.
The increasing wages.
Tends to soften the blow of.
Let's say reduced demand.
So.
But it's but it's noticeable now as far as how our business.
Generally relax reacts to a recession because it is not good.
Patients are never are never good typically for any company and certainly not for a SaaS company.
That said there is still such a while.
Everybody is rightfully concerned about the <unk>.
Economy, we're still sitting with incredibly low.
Unemployment rates and therefore.
Hi.
Maybe I'm.
Whistling past the graveyard, but it seems to me that this is very much different than usual.
In that there is just a shortage of talent and so again, while I completely acknowledged that there is a slowing down of.
Overall demand the demand in most instances still exceeds our capacity to actually even sell it.
So.
It will take quite a bit more slippage before it will really start to.
Before it would really start to impact our numbers.
Thanks for the question.
Sure.
So I guess as a follow up to that.
So understanding that you don't really give forward guidance and I appreciate that but I.
How should we think about in the past we've sort of thought of.
Our system wide sales growing at GDP or something along those lines does that is that still a fair way.
To think about the system wide sales.
So.
Let's see.
Set aside MRI for a second because that creates a new that's created a new dynamic for us in our core smelling.
Snelling and higher quest direct.
Yes, I mean, GDP GDP really does represent.
A good gauge as to which way our sale our system wide sales are going to go and so if you assume a recession I think that it's fair to say that.
For us to lose two to three times whatever the percent decline in GDP is is a reasonable assumption.
And.
Whereas growing.
<unk> tends to be not that much of a factor unless were coming directly out of a trough in other words.
Obviously, if you go back to 2017 2018, we had been in a growth period already for five six years, so I'm not suggesting that a 3% growth.
GDP would necessarily yielded 9%.
Increase in our system wide sales.
But coming off of a trough then that same way that I was saying going into it.
Recession would drop at two to three times the GDP decline.
In the immediate couple of quarters coming out of a recession would also be that factor of two to three times.
A.
Two to three times sort of that increase.
Really just typically recovering what was lost during the recession.
Does that make any sense of what I'm, saying, yes, yes, yes no.
Oh I got it I'm with you if I'm following you.
Okay. So that's.
That's how does MRI impact part going back to that the MRI part.
The and this was in our sort of updated investor presentation that was put out in this I think it was December may be early January but probably late December .
The.
The system wide sales. Once you include MRI are going to be a lot more jumpy than what they have been in the past and so.
But MRI had a lot it does have a lot of franchisees that.
Hey.
Franchise royalties that are significant basically aren't necessarily tied to there.
Sales volume and so it's I just want to make sure that.
System wide sales, we're not going to be nearly as predictive in the future as they were in the past and so I just want to caveat. All of that is is that that will that will definitely make a big difference now obviously that will be segment information.
That will be.
Split out going forward, but I just wanted to I, just want to clarify that as well.
Okay.
So using the old math and other words of <unk>.
Net income should equal of 3% to 4% of system wide sales, you're saying that that that doesn't really hold anymore.
Yeah, that's pretty much it frankly, that's out the window, except for except for our traditional state you know, our selling and our higher quest direct offices.
But so with the MRI, it's it's significantly different and so.
As we put out in December .
We're looking more now towards a percentage of.
Fortunately with the MRI acquisition, our royalty revenues are now higher if you go back five eight calls ago, one of the things we shied away from.
We shied away from utilizing.
Revenue GAAP revenue, mostly because it was so it was relatively small and therefore it was so it.
It would be very jumpy, and so we didn't want to unnecessarily.
As you know.
We didn't want to create this yo yo effect on margins and things like that the good news is now we are you know we're headed towards 40 plus million dollars' worth of franchise royalties and therefore, there's more stability. So our real peg going forward is more.
Sort of.
Particularly like.
Operating.
Income.
As a percentage of royalties.
At least as of revenues is going to be more appropriate and really <unk>.
More of what we're gonna target simply because of the.
Because of the at least until the MRI sort of settles into a pattern.
You know settles into an appropriate pattern. It just it just makes it.
Really kind of meaningless compared to what it was in the past because there again there are certain franchisees that paid us really a fraction.
A fraction of what we would've expected in the past.
Okay.
Okay.
Thanks for that help I will turn it over to someone else.
Your next question is coming from Aaron Edelheit with mindset capital. Please pose your question your line is live.
Hi, Rick how are you doing.
Good how are you.
Doing fine.
I wanted to ask.
Specifically about.
The pipeline.
You put out an 8-K.
That was <unk>.
Pretty amazing to kind of dive through about what MRI could mean to you.
In terms of how accretive it can be.
And I guess, we're going to see that absent some charges and transition stuff in the first half.
I understand it's going to be jumpy and everything.
But you know as a shareholder watching you acquire these companies like Snelling and MRI and watching you build this cash flow.
I'm really fascinated just to hear about Ken you keep doing this and what does the pipeline look like.
And should we get more.
As the economy weakens does it increase the odds that you could.
Even acquire more how should we think about just your pipeline.
Thanks for the question, so I'm going to split that.
Into three answers first answer is as far as our pipeline.
And I've said this on multiple occasions as our pipeline is always <unk>.
Frankly, it's as full as we want it to be and it's maintaining for us it's a matter of maintaining discipline.
And but it's always there now.
With the uncertainty in the economy I'm not so sure that.
We can frankly, we can be particularly picky now.
<unk>.
The chances of a recession.
And the reality is is that a bad economy, while it certainly does not help us I mean again I just want to reiterate that a recession does not help us but.
Except to the extent that it creates.
Opportunities are.
And very few companies in the staffing industry, especially smaller private companies are particularly well capitalized and so a downturn creates a lot of opportunities and so I would definitely say, yes that creates a.
A recession creates a lot more opportunities, especially at a at a good price.
And so you know.
Vas.
For us has always been the silver lining.
Any recession and generally our best deals has always been with distressed companies and normally obviously, he's Warren Buffett, who said something I'd rather.
It might ruin this quote, but I would rather pay a fair price for a good company than a good price for a fair company, however, because of our franchise model.
Paying a low price for a fair companies still works because we liberate that fair company from bad management and put it into the hands of franchisees.
So.
That's a long answer to.
We get a lot of opportunities during a recession.
Now the hour.
Second part of the answer is then.
Pipeline.
For what I'd say is related to MRI and really I could probably put points two and three into this one answer is that.
The MRI acquisition stands on its own as far as as a franchise opportunity for us meaning.
They have a great contract.
Contract staffing division, which you could think of is very high paid.
Temporary staff and so that's a nice solid business that we're happy to have.
And then with there.
They've been a long time franchise or of executive search franchises, that's great and those are those are items that we are.
Hope to.
Stabilize into improve.
Going forward as it relate you know is as long as economic conditions.
Allow for it.
But one of the things that drew us.
Two MRI and still does.
Is the opportunity and I don't want to make sure I caution anybody who's listening to this as I say it.
This acquisition was priced and <unk>.
Priced in a way that we don't need any of these things to occur to make it a solid deal that being said they are opportunities that might not have.
That wouldn't have existed and so.
We now have a network of another 200, plus franchisees, which means we have 200 plus entrepreneurs around the globe.
That we can expand their horizons with some of the other offerings that we have and probably a good example.
Of that.
For example, we are starting to incentivize MRI franchisees to supply.
Leads for our Snelling and higher quest direct to patients were giving our incentives that we've always given to our smelling in France higher quest direct franchises to expand into into contract staffing and so.
These are things that we can grow.
Already you know sort of what already existed simply because we have more opportunities there are.
You know there are other.
Things that we're working with as well that are similar to that.
Our entire internal strategy, but the point is there are a lot of ways that we believe that we can squeeze a lot more.
Efficiency out of the MRI network and most importantly that.
You know that is really good for the franchise network both snelling.
Quest and MRI and just create more opportunities for all three of our major all three of our major offerings and again more opportunities for our franchisees means more system wide sales, which means more royalties to higher quest it's truly.
It's truly a win win win.
And in fact, I got I guess, one example is one of our franchisees one of our MRI franchisees has a good client a good friend who has a.
Manufacturing facility in Georgia that utilizes about $2 million a year of temporary staffing.
There's going to be a need I think they might have a meeting might have already taken place point is if we get this business the referring MRI franchisee will receive a commission.
Smelling franchisee will.
Great 2 million dollar account and we will get some extra royalties. It is it is a perfect example of if this deal goes great.
Those are the types of wins that will have you know those are the types of wins that will have which like I said will be great for the network great for us great for our shareholders.
Okay. So I guess, what I hear and thank you for all of that but I hear is the pipeline is still fall.
There's lots of opportunity you're staying disciplined there may be more opportunity.
If things weaken from here.
And that you're seeing a bunch of cross selling opportunities. In addition to the accretive nature of MRI, just cross selling and incentivizing MRI to sell some of your existing offerings.
Is a big opportunity as well is that a fair summary.
No that's a fair summary.
Okay, and so I want to go too just to your comments about the economy.
As you are seeing things right now.
Like right now in the ground here with latest from what Youre seeing your franchisees are saying.
When I think about a slowing of the economy or just more.
Openings et cetera, but you have been suffering from not having enough labor.
And yet also your labor the wage rates are going up so you're just from wages going up.
I believe your system wide revenue again, excluding MRI for the year was about $470 million.
And and.
In terms of where we are now and I'm not asking.
I'm asking a hypothetical if things just kind of stayed.
Economically and wage the way it was.
Do you see excluding MRI.
That that $4 70 is flattish going up a little bit.
You know how.
How would you see it.
I'm not asking you to predict the economy I'm more and more.
More looking for how things are going so far through Q1, just in the balancing of well.
You now have more access to labor to fill more orders, but there maybe less orders.
Wages are also going up can you give some color to just those dynamics.
So I.
I would definitely say.
We're obviously almost halfway through or have Cooper practically through the first quarter.
And I would simply.
We say that the market is.
Flat.
And so it's hard to tell in some instances.
Have.
The increase in wages offset an actual decline in demand is.
It's hard to tell we've also had and I literally had a conversation this afternoon with a franchisee who has experienced.
A relatively difficult first quarter.
But.
His first response in essence was.
Weather has been really bad.
And.
No I I, you've probably.
We never heard me once say on any call.
That weather I don't like clothing weather as being an issue.
Simply because people tend to forget that back and create a favorable.
People like to sit there say touch arent week rate because theyre comparing it to a crappy quarter from the prior year that contained.
15, blizzards in the space of six weeks right. So it's easy to do that so I don't like to do that but clearly there's been some really bad weather and so it's.
Very very difficult to draw.
Strong conclusions from what we're seeing right now and I realize that's not a very satisfying answer but it's no no I think that that's very helpful. I know and I. Appreciate just the Kansas. So when I think about like that and again I want to exclude MRI.
Just for a second and I don't know in this transition year, because MRI at such a big kind of acquisition and it's going to be.
You know, there's going to be some kind of messiness to it.
If there's a way to just be like hey, here's our original kind of system wide revenue.
And here as you know kind of plus or just some way for this year just to simplify but when I think about that $4 74.
Or so.
And I take your traditional again, I'm, excluding MRI and I'm, just making sure that.
The business because it because theres going to be some messaging. That's just so I understand that I've always thought that that's like.
Three and a half.
No, 4% net margins on.
And that 470 or so.
And is that.
Is that the right because that gets the depending on what your system wide revenue, it's like 4%. It's like around $1 25 kind of earnings power is how I have.
How I personally I've thought about it now obviously theres going to be.
The economy or the weather just youre acquiring companies, but excluding MRI is that still the right kind of.
Way to think about kind of a normalized earnings power for.
Let's just I don't know what to call it the legacy business the existing business.
I do think that that's.
A reasonable way of looking at it.
Perhaps.
Maybe now its 3.25% to 4% because we've got.
More amortization than we have historically so.
So it's possible that amortization really harder to keep up at that level, just because of the amount of amortization we have.
But the amortization is that it's not a cash expense right.
Correct, Yeah, that's right that's correct.
I'd, just say on the clinical where 70 and I would say on the 470.
Is that.
You know clearly now mind you had that 470 includes two weeks' worth of it does include two weeks of MRI. So it's not that I'm.
So it's not a clean it's not a clean comparison realized you can get it back out a certain amount of money certain amount of for MRI, let's just play per ton that is $4 50, and I'm not I'm not saying, it's 450 I'm just let's just say it was for 15.
In fact, this for 60 days.
Seated by my number because I was expecting 243 so.
There you go so we did we did that so let's just say it was 460.
I would say that.
It should.
Again, realizing the economy is clearly in a fraught position you know a lot of things could happen.
It would generally if the economy were flat it should go up.
Just based on.
When certain of our acquisitions took place in 2022.
Right. So there should be growth simply from acquisitions, not even including MRI.
Gotcha No no that's really helpful and then and and so.
No what I'm, so fascinated by it as flat.
Shifting amortization and it's why it's well I love that you break out EBIT got normally when you look at adjusted EBITDA, you kind of get really scared, but you can tie into your cash flows what youre building.
And so that's really helpful. Now in terms of.
MRI.
Do you see the timeline of the integration of that in terms of you know youre going to see obviously, we're going to see a big jump in revenue, but you are flowing through.
Making sure that you're acquiring that you're fixing them.
The system in the branches and cross selling and maybe closing down some like how do you think about that.
In terms of how the year will progress when do you think it all kind of shake out so to speak.
So I.
I think that by and.
And this was in the press release I think for the earnings.
That the.
The first half of the year will contain.
<unk>.
Costs still related to the transition.
And there was a couple of people who as an example were or are.
Of holdovers to you know to make sure that the financial systems integrate in and so there are some more savings to come in there are let's say lingering contracts that we.
That we are on still that will not be.
Renewed and I'm not talking about human capital now I'm talking about just you.
There was give you. An example, there was one software that was purchased that frankly.
Didn't like it all but it runs through April so we're still stuck with that for another six weeks from now right, but then that's going to go away, but by the end.
By the end of.
By the end of April our NDA by the end of June I would expect that most of.
Most of the transition costs will have will be pretty much.
We're where we should be.
And so you would expect maybe like Q3, we're seeing kind of a clean.
Kind of integrated fully integrated quarter.
Sure unless we do another acquisition.
And where can I hope so Rick that's exactly right so but.
But yes at least from MRI.
But yes, all things being equal by the third quarter, we should be at a relatively normal.
The pace and of course, that's one of the difficulties in looking at our track record over the last four years is every quarter or three out of four quarters tends to have an acquisition at it or.
Thing for a pandemic.
And it clearly makes things.
Ethical primarily to look at it you've got to really pay attention. Unfortunately.
But if you look through it.
You can.
I think most people can look at it and say Wow, there's a lot of theres still a lot of improvements in here and a lot of good things to grab.
Thank you so much.
Sure.
Once again, if there are any remaining questions or comments. Please press star one on your phone at this time.
You have a question from Stanford Wyatt at August partners. Please pose your question you're minus five.
Hey, Eric how are you doing.
Sounds good.
I just had a quick question I know you noted in the press release that you put the dental power up for sale.
Excluding it looks like that cost you about a million three <unk>.
Of revenue, so I guess I'm, adding that back your revenue grew over 40% and I know you had a more difficult comparison.
In the fourth quarter versus third quarter, but that's I mean, that's.
That's showing accelerated growth to last quarter I guess is that.
On a normalized basis is that is that the right way to think about it.
I'm not quite sure I understand the question.
Okay, Yeah, just I mean looking at the at the press release.
It said you put dental power businesses is listed for sale and.
Total revenue would have been.
So without that so which yeah. That's I mean, that's 40 over 40% growth to last year.
On a normalized take that out it's certainly alters things right. So.
Comparing third quarter to fourth quarter is nearly impossible unless you back out the dental power revenues from Yep.
From the third quarter, and so I would simply say that there wasn't really all that much appreciably different in the real world between the third quarter and the fourth quarter.
Just the reclassification of dental power.
As discontinued operations just change that so I.
I wouldn't I wouldn't read anything into that part.
Okay got it yeah, just looking at the year over year growth rates, because I know you had more.
The more difficult compare in <unk> without any any COVID-19 hit last year, and then obviously two weeks of MRI and <unk>, which.
Maybe offset that but nonetheless, that's a that's a really high growth rates relative to.
To your peers.
So good to see that continuing and then.
One other question just on the kind of on the EBITDA margins or just the margin profile overall I've always looked at it kind of the adjusted EBITDA relative to system wide sales to kind of take out some of the noncash.
Some of the.
Transition acquisition costs and all that.
And I know that it looks like the MRI deal will be a lower margin.
Deal, but over time do you think you'd get back kind of in line does the margin profile get back in line with the core.
With the core <unk> business.
That's good.
Clear 13 million dollar question right I I am certainly.
The deal wasn't priced.
On margins it was just priced.
Therefore, the profiled waste may always be different.
And I don't think that we'll ever get to.
Think we'll ever get to what we have.
Let's say for the Sterling and higher quest direct on it.
Certainly not.
Relative to system wide sales will never get to it for that never come close to it.
As far as revenues.
I believe that we can get.
Saying, we can get within.
A reasonable distance of it.
Yeah.
But again part of that.
And I was literally speaking to our VP of ops today on about about that almost specifically using the example of the Georgia manufacturer that I was talking about well realistically.
That if that comes through to fruition.
That's the type of you know kind of like a soft <unk>.
<unk> that.
No I'm, saying that it doesn't get priced and do it right. So it's like yeah, we might not get to that point that doesn't mean, it's not really adding even more.
Sort of more value.
And so.
Your question is really apt it's just.
Too early to tell how close we'll be able to get to our traditional margins.
Okay got it well I know in the deck you highlight the $4 million of EBITDA.
MRI could do on a normalized basis, just as you as you get some cost efficiencies there.
You know with the core business doing.
<unk> in them.
In the low to mid twenties of EBITDA This year plus before you picked up.
You know maybe that's.
A reasonable way to think about it and then hopefully there's more upside to the to the formula from MRI as yield but to your point right is that if we had $22 million of EBIT adjusted EBITDA.
<unk> two.
$31 million worth of.
Revenues, you can sit there and say, okay, you're pushing saying you're pushing 65, 70%.
And you can sit there and say well, okay now we get $4 million for what was roughly let's say $11 million of revenues.
Sox, you've got you know I'm, saying, what a terrible deal right down in the down below your sub 40%, but then you sit there and say well, but that's still.
You know less than four times since less than four times.
You paid less than you know about 3.4 times EBITDA, which is yep.
A good deal right. So that's where like I said, it's unfortunate it from the standpoint from an analyst standpoint, or investor standpoint, kind of Bollixed, our numbers up a bit right. It's not it's just not as clean as it used to be that being said.
It's.
It goes back to my first sentence, which was the first thing first.
Part of my response is the deal was priced based off of EBITDA not based off of margins yes.
Yeah, No I totally I guess, Mike My question was just around I mean, there's obviously just a ton of upside if you do get your margins back to normalize I mean, it seemed like a great deal for the $4 million that you got right now and then.
If you're talking about.
I guess I got to set the expectation.
But I I understand what you said I mean, it's great that you have.
We won't.
Okay, Yeah great.
Great deal as it was then.
More to go as you get more efficient with it.
Yeah that was it for me I appreciate the time and keep up the good work. Thank you.
Thank you.
There are no additional questions in queue at this time I would now like to turn the floor back over to Vic comments for any closing remarks.
Well. Thank you everybody for joining us I think you will agree that it was a very good quarter for us and a good year and we look forward to the.
The opportunities that will present themselves in 2023, I can assure you that the management team at high request is always working hard and is always looking for opportunities to continue the growth of this company.
Thank you for being a part of the company and for your interest in <unk>.
Have a good night thank you.
This does conclude today's conference call and you may disconnect. Your phone lines at this time. Thank you for your participation and have a wonderful day.