Q1 2023 HireQuest Inc Earnings Call

Speaker 1: quarter 2023 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference please press star 0 on your phone keypad.

Speaker 1: Please note this conference is being recorded. I will now turn the conference over to your host Mr. John Nesbitt, Investor Relations. John , over to you.

Speaker 2: Thank you and good afternoon. I'd like to welcome everyone to the call. Hosting the call today are High Request Chief Executive Officer Rick Hermans and Chief Financial Officer David Burnett. I'd like to take a moment to read the Safe Harbor Statement. This conference call contains four looking statements as defined within section 27A.

Speaker 2: the Securities Act of 1933 as amended, and Section 21e of the Securities Exchange Act of 1934 as amended. These four 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 dependant circumstances that will occur in the future.

Speaker 2: 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 uncertainties, including those described in higher-quest periodic reports filed with the Securities and Exchange Commission, and that actual results may differ materially from those contemplated by such forward-looking statements.

Speaker 2: Except as required by federal securities law, HireQuest undertakes no obligation to update or revise forward-looking statements to reflect changed conditions. I would now like to turn the call over to CEO of HireQuest, Rick Hermans. Go ahead, Rick.

Speaker 3: Thank you for joining us for today's call. To begin with, I will provide an overview of the financial and strategic highlights for the quarter. And then David will share more details surrounding our first quarter results. Our first quarter results were driven by strong performance at our organic locations.

Speaker 3: $2.9 million with franchise royalties increasing $41.8% to $9.3 million. System-wide sales for the quarter increased to $153.5 million compared to $101 million in the first quarter of 2022. And net income from continuing operations increased to $1.5 million.

Speaker 3: 372.1% to $2.3 million or 17 cents per diluted share.

Speaker 3: Last quarter, we announced that we had completed our acquisition of MRI Network, a top permanent placement and executive search firm and professional staffing network based in the United States, and the third largest executive recruiting network in the world. This was a transformative acquisition for us, adding over 200 franchise offices both in the United States and in the United States.

Speaker 3: and international to our staffing network.

Speaker 3: Our acquisition of MRI network is a perfect example of our broader M&A strategy.

Speaker 3: We are intently focused on identifying, evaluating, and executing the creative acquisitions that we believe will further enhance the organic growth of our business.

Speaker 3: MRI network also allows us to add immediate scale in a brand new vertical focused on the executive search and professional staffing market, and in a way that supports our existing higher quest direct and selling offerings.

Speaker 3: As is the case with any acquisition, we also incurred certain expenses related to our purchase of MRI network that are reflected in this quarter's results, particularly in our SG&A.

Speaker 3: These are near-term one-off expenses that we planned for as part of the acquisition and we expect them to have

Speaker 3: expect them largely phased out by the end of the third quarter. We will note here that certain expenses related to MRI have been a bit more difficult to eliminate as quickly as we would have wished.

Speaker 3: That said, we are pleased with the progress we've made this quarter, particularly our ability to efficiently integrate large acquisitions into our business.

Speaker 3: to have a near-term, near immediate positive impact on our results. This is especially true in the current economic environment where many staff and companies have been reporting declining revenues year over year for their US and North American businesses. With the first quarter now closed and a little more visibility into 2023.

Speaker 3: and confident that we are well positioned to continue driving our growth strategy to deliver consistent, improved results as we move through the balance of the year. With that, I'll pass it along to our CFO , David Burnett, who will provide a closer look at our first quarter results. David?

Speaker 4: Thank you Rick. Good afternoon everyone. Thanks for joining us today.

Speaker 4: Expanding on some of the numbers Rick mentioned, let's start with total revenue, which for the first quarter of 2023 was 9.9 million compared to 7.0 million for the same quarter last year.

Speaker 4: Our total revenue is made up of two components.

Speaker 4: franchise royalties which is our primary source of revenue.

Speaker 4: and service revenue, which is generated from certain services and interest charge to our franchisees and other miscellaneous revenue. On occasion, we will report a third component, company-owned revenue, which would be related to company-owned locations that are not marketed as a potential franchise and are managed by us instead of a franchisee.

Speaker 4: At March 31st, 2023, we owned one location.

Speaker 4: But it did not meet this criteria and instead classified as Health for Sale and reported below the line as discontinued operations.

Speaker 4: Those operations are not included in the revenue I just mentioned, but it is important to keep in mind that we are still benefiting from this location, and once it is franchised out, we will retain a royalty stream.

Speaker 4: for continuing operations.

Speaker 4: franchise royalties for the quarter were 9.3 million compared to 6.6 million for the same quarter last year.

Speaker 4: and increase the 41.8%. Almost all of the increase in royalties relates to acquisitions. Although organic sales grew modestly, we are proud to be able to maintain organic sales in an uncertain and declining market. Underlying the growth in royalties are system wide sales, which for the quarter were 153.5 million, compared to 101 million for the same period in 2022. System wide sales reflect sales at all offices.

Speaker 4: including those classified as discontinued. Similar to the growth in royalties, growth in system-wide sales is primarily related to acquisitions completed in 2022.

Speaker 4: But unlike many of our competitors, we did not lose organic sales year-over-year. Service revenue, which is generated from interest, charged to our franchisees on overdue accounts receivable, service fees and other mislinious revenues such as license fees, was $534,000 for the quarter.

Speaker 4: compared to 468,000 for the same quarter a year ago. Changes in service revenue are generally related to growth and system items and the resulting increase in accounts receivable. Selling general and administrative expenses for the quarter were 5.8 million compared to 2.7 million in the prior year period. That is an increase of 120.1%.

Speaker 4: The increase was primarily driven by two large items. First, we had a tough comparable for our workers' compensation expense.

Speaker 4: For the first quarter in 2023, Worker's Compensation Expense was approximately 185,000 compared to a $613,000 benefit in networker compensation expense in the first quarter of 2022. That is a $798,000 swing in Worker's Compensation Expense from Q1-22 to Q1-23.

Speaker 4: This benefit in the prior year included a $365,000 reduction related to the smelling workers' compensation reserves assumed at the time of acquisition that had been winding down. There was no such adjustment in 2023. Generally workers' compensation expense will fluctuate quarter to quarter based on the mix of worker classification, the level of payroll, and claims resolution both recent and historical.

Speaker 4: The predominant item driving the increase in SG&A is compensation and benefits. Compensation-related expenses have always been the largest component of SG&A.

Speaker 4: There was a $1.6 million increase in compensation-related expenses from Q1'22 to Q1'23.

Speaker 4: When we acquired MRI Network in December 2022, we took on over 30 new corporate employees.

Speaker 4: During the first quarter we have absorbed significant costs as we integrate MRI network into our operations.

Speaker 4: We are handling the integration in a disciplined manner in the hopes of creating an annuity-like payback from cost savings for the foreseeable future.

Speaker 4: Because high costs often creep back in over the near term, it is critical for us to be patient and secure cost energy that will hold for several years.

Speaker 4: In addition to increased salaries and benefits, we have also absorbed other MRI network SG&A expenses including marketing, IT, insurance, professional fees and the like.

Speaker 4: As we communicated in our last earnings call, we expect to carry certain transition items and associated expenses through at least the first half of this year and into the third corner.

Speaker 4: The increase in SNA can be felt in income from operations, which is total revenue, less SNA depreciation and laborization.

Speaker 4: Income from operations was 3.3 million in the first three months of 2023, versus 3.9 million in the first three months of 2022, a decrease of 14.7%.

Speaker 4: That income includes income from operations adjusted for mislead-side-ums interest income taxes and discontinued operations. Interest in financing expense included a $318,000 loss on debt extinguishment related to the refinance of our line of credit.

Speaker 4: This was largely offset by a $340,000 gain on the conversion of our dental power business into a franchise, which is reflected net-up tax in discontinued operations. Net income for the first quarter of 2022 included $3.6 million of losses.

Speaker 4: All in that income for the quarter was 2.6 million or 19 cents per diluted share compared to net income of 603,000 or 4 cents per diluted share in the first quarter last year. Adjusted EBITDA in the first quarter of 2023 was 4.6 million compared to 5.3 million in the first quarter of 2022. We believe adjusted EBITDA is a relevant metric for us due to the size of non-cash operating expenses running through our P&L. A detailed reconciliation of adjusted EBITDA to net income is provided in our 10Q. Moving on now to the balance sheet.

Speaker 4: Our current asset to March 31st, 2023, were 59.6 million compared to 51.9 million.

Speaker 4: at March 31st, 2023, or 59.6 million compared to 51.9 million at December 31st, 2022.

Speaker 4: Current assets as of March 31st included 8.2 million of cash and 41, excuse me, 48.1 million of accounts receivable.

Speaker 4: While current assets at December 31, 2023 included 3 million of cash and 45.3 million of accounts receivable.

Speaker 4: The elevated cash balance reflects from cash management and efficiencies as we change banks from truest to Bank of America.

Speaker 4: Current asset succeeded current liabilities by 14.7 million at March 31st, versus year end when working capital was 15.2 million.

Speaker 4: The decrease in working capital reflects a larger balance on the credit line following the acquisition of MRI network.

Speaker 4: At year end, we had 21.2 million drawn in our credit facility.

Speaker 4: and another 19.1 million in availability, assuming continued covenant compliance.

Speaker 4: As I've referenced a couple times, in February of 23, we replaced a line of credit facility at Truist Bank, plus a term loan we had at Truist Bank, with a new $50 million line of credit from Bank of America.

Speaker 4: We believe that this new facility provides us with the flexibility and room for short-term working capital needs.

Speaker 4: as well as the capacity to capitalize on potential future acquisitions.

Speaker 4: We have paid a regular quarterly dividend since the third quarter of 2020. Continuing that pattern, we paid a six-cent per common share dividend on March 15, 2023 to shareholders of record as of March 1.

Speaker 4: We expect to continue to pay a dividend in each quarter, subject to the board's discretion.

Speaker 4: With that, I will turn the call back over to Rick for some closing comments.

Speaker 3: Thanks, David. As I said before, I am confident in HireQuest's ability to drive sustainable growth across our business and generate positive operational results in 2023 and beyond.

Speaker 3: As always, I would like to extend my sincerest thanks to our team, our franchisees, their workers for their excellent work and dedication. I'm very encouraged by the progress that we've made in expanding our franchising network and offerings to address a broad spectrum of staffing needs.

Speaker 3: And I look forward to leveraging our network to drive growth and value for our shareholders.

Speaker 3: With that, we'll now open the line for questions. Thank you. Thank you very much. We are now opening the floor up for questions.

Speaker 1: If you would like to ask a question, please press star one on your phone keypad. A confirmation terminal indicate your line is in the question queue.

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Speaker 1: Okay, your first question is coming from Evan Stank of Barrington. Evan, your line is live.

Speaker 2: Kevin, thank you very much for your research.

Speaker 4: I wanted to start off by asking about organic sales growth. You noted they grew modestly while other competitors were in reporting declines.

Speaker 4: What's your feel for organic growth outlook as we continue to progress your 2023, you know, in terms of the pipeline and overall demand, you know, is that stopening and what's labor supply availability. Just any comments on.

Speaker 3: that is we move forward in the year. Sure. So we are definitely...

Speaker 3: seeing a continued slight slowing in demand. It's noticeable without being appreciable. If that makes any sense. The...

Speaker 3: You know, it were definitely, you know, you can see it.

Speaker 3: the as far as You know throughout the year obviously look it depends on if the Fed keeps increasing You know interest rates that I will you know that may Accelerate even further as far as workforce supply

Speaker 3: as throughout the year, obviously look, it depends on if the Fed keeps increasing interest rates. That may accelerate even further as far as workforce supply. It's...

Speaker 3: And that's even true of the declines, oddly enough, is that there are anything that touches upon tech and that's particularly true let's say with the MRI network is you know, there's it's a full-on recession for those those offices that focus on IT, at least in our experience, as far as and there are certain geographic regions as well that are definitely performing.

Speaker 3: negatively impacted as certain others and are, you know, where we are experiencing the most offing are in certain, you know, again, are in certain, certain states. Okay. Let's, let's, uh, a hopeful commentary. Um, you know, this in terms of the, uh, the cost items, uh, really to the MRI and, um, you mentioned that, um,

Speaker 2: increase of 1.6 million of OVV said related to MRI. So can you just...

Speaker 4: maybe talk about a little bit more, what's maybe taking a little longer there and and did you actually or have you achieved all the synergies?

Speaker 3: out of the gate from MRI that you would have thought of or there's still more to come or I guess they're coming more slowly. So that's right there, right there's your finger on maybe why they're going down a bit slower than hoped for is

Speaker 3: Some of the synergies have been slower and and what I want to caution really

Speaker 3: anybody who's listening as far as who's an investor is, you know, this is this is a marathon and we, you know, in buying MRI, we took over a company that has in, let's say, systemwide sales more than 50% of what we had. So this is, you know, this is this was a very significant.

Speaker 3: acquisition. And while, you know, in my optimism had maybe hoped that we were going to be able to digest it faster than, let's say, then what it's turned out to be.

Speaker 3: you know, so some of the expenses are sticking around a little bit longer because we want to make sure we do gather all of those efficiencies, you know all the synergies that we really know that in the long run we'll have and so like I said, is it taking a little bit longer? Yeah, I I in

Speaker 3: That's why I helped out on it. You know, is that earlier, you know, we really had been hoping and thinking that by the end of the second quarter, all the expenses would be gone. They'll definitely drag a bit into the, you know, into the third quarter.

Speaker 3: own it. You know, as that, you know, earlier, you know, we really had been hoping and thinking that by the end of the second quarter, all the expenses would be gone. They'll definitely drag a bit into the, you know, into the third quarter. But...

Speaker 3: This is where obviously I mean I've only done the CEO of...

Speaker 3: sort of the public company since middle of 2019. Hopefully.

Speaker 3: I've developed a track record of where I'm not going to try to overpromise.

Speaker 3: I know when we're overstaffed, I know when we're overspending on something. On the other hand, we bought MRI with some very, very specific goals in mind. And yes, it's taking a little more patience. Of course, again, we're still only five months into this thing, five and a half months. So it's not like we've been screwing around with this for years. But there are just certain things that we absolutely know will generate those, again, those synergies. But ultimately, I know where we need to be to have this be a good investment. And we'll ultimately get to the point we need to get to.

Speaker 3: But I want to use a concrete example. Let's say franchise sales and I think even you asked the question back in maybe was September of last year or you know like third quarter last year maybe before that

Speaker 3: We had never up until the end, you know, the latter half of 2022, we meaning HireQuest, had never actually had a franchise sales program. Never had a franchise sales person, never hired brokers, never did anything. It was all purely organic.

Speaker 3: Well, now through the MRI acquisition, you know, we had two salespeople. Now, real franchise salespeople. Now, realistically, you know, there's, you know, it's easy to demonstrate and measure whether they're successful or not. And, you know, those are things where it requires patience. We can't expect that all of a sudden on day one, we're going to be cranking, you know, we're going to be cranking out for new franchises a month. It just doesn't, it just doesn't work that way.

Speaker 3: That being said, we can certainly again measure what's coming in or what's being produced. And if it's insufficient, there's all sorts of opportunities to just go back to the way we work.

Speaker 4: You enumerated a number of costs in the press release and your comments here and I think you said some of those coming off by the third quarter or maybe by the end of the third quarter. What costs should we think about rolling off there? You mentioned IT expenses and license fees, third-party services for contract staffing, obviously the salary and benefits costs and advertising marketing. So just wondering what kind of should be coming out.

Speaker 4: to that third quarter timeframe. Let me look back to what has started to come for you.

Speaker 3: make sure I clarify that statement and I'll go back to my, because part of it isn't

Speaker 3: It's not necessarily just reducing costs. It's making sure that the costs are in line with what the revenues are.

Speaker 3: So I want to go back to the franchise sales people. I'd hire 50 more.

Speaker 3: to the franchise salespeople. I'd hire 50 more franchise salespeople

Speaker 3: if they were producing enough new franchises to justify the cost, right? So I'm not saying to you, you know, that well, we're going to get rid of it because that'll reduce our costs so that our SG&A goes down. That's not really the point. The point is more, you know, we're going to make sure that we're selling enough franchisees to justify what is a...

Speaker 3: fairly heavy investment. Now, some instance, and so that's important to note. I mean, and again, it's sort of like we took on over 220 new franchises. Well, we want to make sure that they understand that we're committed to their success and to giving them good service.

Speaker 3: but it still ultimately has to flow through that those costs are in line with what the revenues are. Now, as far as some other costs that are identified to go away, there are certain softwares where we're running, we have

Speaker 3: two different copies of let's say of our accounting software. Well it takes a while. You know, what theirs was and ours was, those have to be integrated even though they're two copies of the exact same software.

Speaker 3: It's just, you know, frankly, things, you know, that's a good example. The other part is we had a holdover of their CFO , you know, their meaning MRI network CFO . Well, okay, he left in the middle of April . So that, you know, that's an expense that rolls, you know, I'm saying that's an expense that rolled off already that will then be partially captured in the second quarter.

Speaker 3: and obviously will be completely gone in the third quarter. And I do want to draw out two other points. I don't want it just to have it be buried as well. One is, keep in mind our effective tax rate.

Speaker 3: Just the effect of a higher effective tax rate was about $170,000 a net income. Not that that changes a lot, but it's still kind of one of those things obviously we get no benefit from paying taxes other than it keeps us alive as a company, but there's no more.

Speaker 3: You know, relatively speaking, we paid a lot higher tax rate. The, and it's described why, but the point is, is it does make the comparison not look as good as what I'd prefer. The other part is with the workers comp. At workers comp swing of 800 grand.

Speaker 3: was frankly not expected. You know, but it's...

Obviously, it had a major impact. But going back to the other point is that there are, like I said, certain softwares that the contract will come out, will be coming up, that both higher-class and MRI network might be using some form of...

obviously had a major impact. But going back to the other point is that there are, like I said, certain softwares that the contract will be coming up. You know, that both HireQuest and MRI network might be using some form of...

let's say, you know, where we store our data, you know, their software or their data storage isn't a completely separate than how we store ours. Well, obviously that's just not cost effective, but that takes three months, six months, nine months before that stuff goes away.

And so anyway, there's just, there are just certain things that we had hoped we could have gotten through faster than what we did and are. And part of it is, and again, it's like I still want to go back to like why we're focusing, and we're focusing on three to five years, not three to five months, is.

We spent a lot of time these last five months really working on relationships within the franchise community because really ultimately what we bought and I want to make sure this is made completely clear is we bought a series of 220 relationships.

and how well we do with this deal in the long run is going to be based on how well we do with building relationships with those 220 franchises. Because kind of a funny thing is if you look at, I don't know exactly what the data is, but if you went and looked...

For it, it probably, you know, franchise acquisition costs are probably at least $50,000 per franchise. And so, if you looked at the value of, you know, MRI just off of that, you know, just to replace it to get to 220 franchises, we'd probably have to pay $11 million with zero historical revenue. So, I want to keep that in perspective as is, again.

we're focused on those relationships as well because that's where the synergies will ultimately come from as they get comfortable with us. And so like I said we're being patient, we're trying to invest in the system in a way that benefits all of our franchises.

But again, we're also well aware that

You know, ultimately everything needs to be cost effective. And I've been in business for 33 years. That's never been a problem for me to make sure that ultimately we're in that position.

Thanks for all of the insight. That was helpful. I will turn it over.

Thank you, Kevin. Thank you. Thank you very much. Your next question is coming from Matthew Hayes from DA Davidson. Matthew, your line is live.

Hi, thank you for taking my question. Weekly jobless claims just came in at 264,000 hitting a one and a half year high last week. Could you comment on how this development impacts your business? I think that where it affects us most is, it sources

An indicator that demand is softening. It's just another indicator. It hasn't really impacted us from a job fill standpoint. Other than what I would say is clients are being a bit more selective. A year ago, a year and a half ago.

being choosy. So that's one aspect of it.

And, you know, as I said before, in response to one of Kevin's questions,

the detail of that $264,000 new jobless claims, my guess is that they fall in probably very much in certain industries.

declines of 14, 15, 16%.

And that would tend to accelerate that.

higher jobless claims obviously. That makes sense and a follow-up to you Rick.

You built this business from scratch and it seems like a real differentiator to this story is your deep understanding of both the franchise staffing model and incentivizing entrepreneurs to having been in this business for over 30 years.

I guess my question is how much longer do you plan on running the business? You know what, I have no, you know, I have no

I pretty much, I work out five days a week, even though I'm fat. I still work out five days a week. I feel great. So I have no, you know, I have no intention of going anywhere. Great. I'll jump back into here. Thank you very much. Your next question is coming from Mike Albanese of EF Hutton. Mike, your line is live.

Rick, David, how are you guys? David, how are you? I'm Mike. Yeah, hey, first off, glad to hear that you have no intentions of, I guess, leaving, continuing to build upon your previous successes here at HireQuest.

You pretty much answered my question in your responses to Kevin, but I'd like to just go back to his original question and maybe we can...

sense at all that you're stealing market share from them, and what that could be attributable to, is it the difference in business model, or is it just simply kind of what you're...

to sit there and say, we're just so much freaking better than everybody else that we're just crushing them, right? And that's why. Honestly though, if I said that I'd be lying. I mean, I do think generically we are better, right? I mean, I'd say that to any client because of our model, right? I would always take a franchisee.

on average over a corporate run store every time, right? So I believe in that. That being said though, that has been baked into our numbers for literally decades. So I can't really claim that is why we did so much, let's say better from a revenue standpoint this quarter.

I think it's 100% just based on where we are. And because even within our own numbers, there are a couple of places where we are off. And fortunately, those are in places where we have, those tend to be in places where we have less exposure. And look, I live in Florida. You would never.

you know, you would never confuse this place with someplace that's in a recession. It's booming. House prices are up, everything's up. Fortunately, like I said, we are heavy in Texas and, you know, Texas, Florida, Georgia, South Carolina, Tennessee. So, I just think that.

is really what it is. And so call that strategy, call it dumb luck, you know, it is just a fact.

call that strategy, call it dumb luck, you know, it is just a fact.

Yeah, no, I mean, well said, that's fair. I think I'd like to give you a little more credit than it's just dumb luck, right? I mean, where you're looking at it by design, you know? But my general thought is I wonder if the softening labor market and the weakening demand is really exposing.

a better business model. And if that's starting to show on the numbers, and yeah, I know it's hard to kind of dissect that. So I was just curious as to what your thoughts on that were. So yeah, thank you very much. That's really all I got. Even in the places where we're way down, right? Like there's one particular market I'm thinking, we're way down. It's related to one single client.

It's just, it's softer, you can tell. I mean, you can see it, you know, probably even where you look at real estate prices and it's almost a harbinger for us as well. I will say, you know, for a thought going forward is, obviously, you know, if interest rate increases ultimately choke off commercial real estate demand, you know, that's a, you know, that's sort of a longer term where it starts to create broad-based problems.

know, it's just it's softer. You can tell. I mean, you can see it, you know, probably even where you look at real estate prices and it's almost a harbinger for us as well. I will say, you know, for a thought going forward is obviously, you know, if interest rate increases ultimately choke off commercial real estate demand. You know, that's, you know, that's a, you know, that's sort of a longer term where it starts to create broad-based problems.

Okay thank you very much that's really all I got for you today. All right. Thank you very much. Your next question is coming from Aaron Edelheit of Mindset Capital.

That's really all I got for you today. All right. Thank you very much. Your next question is coming from Aaron Edelheight of Mindset Capital. Aaron, your line is live.

Thank you. Just for the record, Rick, you're not allowed to leave a higher class. That's a new shareholder rule, we're implementing. I don't know if you know about it. I just want to say in all seriousness, I really appreciate the candor.

I really appreciate you just sharing open and not glossing over any of the tougher things that you go through. I really appreciate it. My question just to clarify, and I really appreciate all the detail that you've shared in your commentary and answering the questions. It sounds like you believe.

the synergies are still there. It just may be an extra quarter. And that when we're looking in Q4, obviously no one can control or no one, well, if I could predict where the economy was going, I'd be sitting on a beach somewhere, but.

normalized to where you want them to be. Is that an accurate?

want them to be. Is that an accurate assessment?

No, I would say that's actually somewhat inaccurate, but maybe not in the way that you think. I would have never went in, we never went in thinking.

So no, I would say that's actually somewhat inaccurate, but maybe not in the way that you think. I would have never, I never went in, we never went in thinking that.

We were going to get all these synergies in the first quarter or the second quarter. A lot of these are literally, these are three to five year propositions in a lot of cases. For example, utilizing MRI has a great training program. Well we're co-opping that into also working with our snowing branches, for example. Now what's the payoff on that, right? In the current quarters.

It's nothing really, right? It's something that happens over time. And so I don't expect to get a benefit from that for two, three years, frankly. Now, there are other things, there are other synergies in particular, where I think that, you know, both the MRI network and HireQuest Direct.

when it's smelling, all three frequently sell to the exact same companies, but maybe different areas within those companies. Those synergies have been slower to develop than what I had really thought. And that those are the ones that definitely should be blooming by the third and fourth quarter.

But that's taken a little bit longer than what it is. That would be a faster one. And again, some of the synergies on just how we deliver our services. So whether that's

can't do anything and things like that. There are still synergies that, you know, that just...

We just have to plow through it. And already they started, but they need to, you know, but they have more to go.

costs that you specifically highlighted, it's like seven, $800,000 outside of the workers comp, which I understand fluctuates up and down. Are

I just want to clarify so that I fully understand. Are those some of the costs? Are those all of the costs? Are there even more synergies that you fully expect? Like how should I think about those specific extra costs that you highlighted in the press release versus kind of the, in terms of a more normalized where things should be queued for? So,

I'm a builder, not a burner, right? We didn't buy MRI network, you know what I'm saying? To strip out whatever we could, and then just, you know what I'm saying? Just feed off of a corpse. That makes no sense. There would be no purposes in us doing that. Rather, we looked at MRI network as being something that would be accreted to what we do. It would expand, it does expand our product offerings to a.

to a far broader segment of the overall staffing industry. It also brought in 220 franchisees, many of which have the, certainly have the talent to do more than what they're doing. And so by bringing those resources, it is absolutely our intention and goal and expectation that

You know that there are You know again within that group of 220 MRI franchises there are a fairly good sized number That you know I'm saying that we can help them double or triple their business That's what that's that's how we're going into that That requires and so I'm not saying because I wouldn't carry I want to make sure I'm clear

Unless it was something along the lines of, hey, we only have one person who knows how to run this software and we better not get rid of them even though they're a terrible expensive employee. There's nobody I want to. There's nobody and I tried to, you know, and I made a bad job with it when I was answering Kevin's question. So I'm a goal to, you know, saying, is not my goal to cut anything? My, my, my.

You know, our goal would be that those synergies would develop those incremental amounts of business would develop that those costs are just in line with what they, you know, I'm saying with what they need to be. And I go back to the, I don't want to beat a dead horse, but the franchise sales, again, becomes, it's very easily to demonstrate whether it's been successful or not.

And we've got a pretty heavy investment in it. Now, I believe it'll make a lot of sense. And we've started to, you know, we've got some green shoots that are starting. I think we opened, I don't know, you know, in the first through May, you know, I don't know, there's been, I think we got to, anyway, like four or five, something like, don't quote me on that. I'm not, you know, but it's, you know, they're starting to come, right? So it's kind of like, okay. And.

you know, that's, then that justifies it. As it does it for those results, even as you sell a new franchise, you don't really get jack when you sell one of those. It's over time that that starts becoming worth, you know, becoming worthwhile. So that was a really long way of answering your question, but it's just simply

I would not look at the synergies as just, hey, let's just gut what we can. It's not that at all. It's making sure that we use what we have to absolutely optimize what we're doing. So if I were to summarize what I heard.

This is really about, this acquisition is really about growth. When I just take some of the examples, you have people who will sell franchises for the first time, you have training programs, you've bought a new franchises who have the opportunity to expand what they're doing.

with higher risk offerings and that by next year it should be really clear that organically from the combined...

higher quest MRI that higher quest is growing organically. And if you're not, then you'll pull back on some of these investments.

Is that a right way to think about it? Yeah, that is exactly.

if that's a right way to think about it. Yeah, that's 100% exactly. You're spot on.

Okay, so speaking of growth, I would be remiss to, you have an expanded credit line, you've been a track record. Actually, it's reduced, by the way. It's reduced. Oh, okay. Well, I guess I'm more flexible. But what does your pipeline look like?

And I'm keenly interested because if my understanding is correct, the economy does weaken from here. You don't have this great account as a account receivable demands. Which means your cash balance goes up. You pay down your credit line along with just your normal free cash flow. Put you in even a better.

position to acquire more companies like MRI. What does your pipeline look like? And how do you think about where you are balance sheet wise towards taking advantage if you see another great opportunity like MRI? So, as far as on the pipeline, my answer is the same as what is almost every quarter, which is we have more than enough targets.

acquire more companies like MRI, what does your pipeline look like and how do you think about where you are balance sheet wise towards taking advantage if you see another great opportunity like MRI. So as far as on the pipeline my answer is the same as what is almost every quarter which is we have more than enough targets. I will...

fully admit we're being choosy because you're buying off of 2022 multiples or earnings rather versus maybe what's really going on now. So we're being careful because we need to see some people experience a little bit of pain. That's when we'll probably be more aggressive. You are right in saying that obviously to the extent that our revenues go down it also drives down our AR.

which then of course drives down our borrowings. Based on ordinary earnings and cash flow, obviously I would like to think of it as though we will have a relatively...

fairly consistently.

and yet significantly over the next three to four quarters. Realizing as well, and it was in the press release, I think, but it's, you know, we're really inefficient right now as far as on our cash.

you know, five million bucks versus what they probably normally should have been.

point being that, because that was kind of just now we've, anyway, very clients paying into old lockbox instead of new lockbox. And so anyway, like I said, it's just harder to keep those.

you know, keep the cash balances as low as we would normally like to. All that being said is that I don't see any actual lack of resources unless we were able to, you know, bag a whale.

there appear to be no further questions in the key.

The opportunities are in some ways bigger and therefore the investments are bigger. But anyway, I do want to thank you for joining us and look forward to...

continuing the success as we go through 2023. Thank you very much. Thank you everybody. This does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful rest of the day. Thank you for your participation.