Q4 2023 HireQuest Inc Earnings Call
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Speaker Change: Good afternoon, everyone, and thank you for participating in today's conference call to discuss HireQuest's financial results for the fourth quarter and year-ended December 31st, 2023.
Speaker Change: 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 zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to John Nesbett of IMS Investor Relations. Please go ahead.
John Nesbett: Thank you.
John Nesbett: I'd like to welcome everybody to the call.
John Nesbett: Hosting the call today are HireQuest's Chief Executive Officer Rick Hermanns and Chief Financial Officer Steve Cran. 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 of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934.
John Nesbett: as amended.
John Nesbett: 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.
John Nesbett: These statements include statements regarding the intent, belief, or current expectations of HireQuest and members of its management, as well as the assumptions on which such statements are based.
John Nesbett: 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 high-request periodic reports filed with the Security and Exchange Commission.
John Nesbett: and that actual results may differ materially from those contemplated by such forward-looking statements.
John Nesbett: Except as required by federal securities law, Pyre Quest undertakes no obligation to update or revise forward-looking statements to reflect change conditions.
John Nesbett: I would now like to turn the call over to CEO of Hirequest, Rick Hermanns. Please go ahead, Rick.
Richard F. Hermanns: Thank you everyone for joining today's call. I'll begin by providing an overview of our financial and strategic highlights for the fourth quarter and full year of 2023 and then I'll turn the call over to Steve who will share more details around our fourth quarter and full year financial results.
Steve Cran: Both our fourth quarter and full year 2023 results were characterized by the continued execution of our growth strategy and demonstrated strength of our business model as we achieve revenue growth and profitability despite a challenging economic environment that continues to impact the staffing and recruiting industry.
Steve Cran: Our fourth quarter revenue increased 21.3% to $9.8 million, and franchise royalties increased 15.9% to $8.9 million.
Steve Cran: System-wide sales in the fourth quarter increased to $143.5 million, compared to $127.9 million in 2022.
Steve Cran: For the full year, total revenue increased 22.4% to $37.9 million, and franchise royalties grew 23.9% to $35.8 million. Full year system-wide sales were $605.1 million, compared to $472.2 million in 2022.
Steve Cran: While our top line grew in the fourth quarter and for the full year 2023, primarily as a result of the MRI network acquisition.
Steve Cran: The state of the staffing and recruitment industry hampered organic growth. We were encouraged by the resilience resiliency of our HireQuest Direct franchisees who were down for the year by only 2.7% and our Snelling franchisees who finished the year down 9%.
Steve Cran: These results compare very favorably to both our public and private competitors and really demonstrates the strength, not only of our franchise model, but also speaks to the customer and geographic diversification cultivated by our franchisees.
Steve Cran: Our recently launched skilled trades offering, TradeCore, really started to gain some traction this last year.
Steve Cran: though starting from a very small base and we're excited to continue to see its momentum into 2024.
Steve Cran: MRI Network wasn't immune to the headwinds of the professional staffing and executive recruiting markets either, but as we've said in the past MRI historically has had less standardized royalty model, so decreases in system-wide sales don't necessarily translate to decreases in royalty revenues.
Steve Cran: Our reported SG&A expenses continue to impact our bottom line. However, our core SG&A expenses were effectively flat.
Steve Cran: in Q4 2023 at $4.5 million, compared to $4.4 million in Q4 2022. We provide details in today's press release on core SG&A, which excludes workers' compensation expense, the MRI ad fund expenses, which are really just a pass-through with corresponding services revenue, and one-time charges.
Steve Cran: In fact, this core SG&A expense decreased in both absolute dollars and as a percentage of total revenue for each of the past three quarters.
Steve Cran: We believe the current level provides us with plenty of capacity to take advantage of increased system-wide sales either driven organically or through additional acquisitions without a linear increase in fixed costs.
Steve Cran: Over the past couple of quarters, I've spent a fair amount of time talking about our net workers' compensation expense.
Steve Cran: Total net workers' compensation expense for 2023 was $3.7 million, compared to a net benefit of $1.9 million in 2022. As I've mentioned on previous calls, there are two primary factors that impact this number.
Steve Cran: First is the difference between our net premium amounts collected and our expected losses for the policy year.
Steve Cran: And the second is any changes to the expected losses, up or down, for prior policy years.
Steve Cran: Unfortunately for us, last year our comp rates were below our expected loss rates, accounting for approximately two-thirds of the expense, and we had a particularly bad loss experience in a prior policy year, which accounted for the remaining third of the expense.
Steve Cran: While we can't predict future loss experiences, the 22-23 policy year was historically bad for us, but we haven't seen anything in the 23-24 policy year to date that would lead us to expect a repeat this year.
Steve Cran: Additionally, we've taken steps with our carrier to address the shortfall component of the expense and expect to see some relief on that side of the equation starting in Q2 2024.
Steve Cran: We believe these actions will help normalize our margins as we progress through the year and the changes take effect.
Steve Cran: We continue to believe that we are a leader in the staffing industry with regards to our ability to manage workers' compensation expense.
Steve Cran: and it continues to be a core competency and competitive advantage.
Steve Cran: M&A continues to be a key component of our growth strategy and we continued executing on it in 2023 while keeping our leverage low and maintaining a strong balance sheet.
Steve Cran: Most recently, we announced the acquisition of Tech Staffing Services in the fourth quarter of 2023. This acquisition is an excellent example of the accretive opportunities that we looked for in the market as it expanded our Snelling operations in northwest and central Arkansas, while restoring some of the operating leverage that we've lost due to the challenging economic environment.
Steve Cran: MRI Network has proven to be a solid acquisition for us as well. While revenues have been down as a result of industry headwinds, MRI has demonstrated healthy profitability this past year.
Steve Cran: Additionally, as it relates to M&A, I'd like to point out that we've been able to maintain a healthy balance sheet and low leverage throughout all these transactions.
Steve Cran: Since the beginning of 2021, we've increased system-wide sales by just shy of $400 million, we've invested over $75 million in acquisitions, and finished 2023 with net debt of $13.4 million.
Steve Cran: I'll also highlight that fully diluted shares over that time have increased from about $13.7 million to only $13.8 million at the end of 2023.
Steve Cran: That is, we financed our growth almost exclusively with cash flow from operations.
Steve Cran: We believe that as demand for staffing solutions recovers, HireQuest will be well positioned with premier staffing and executive search capabilities that we can leverage to enhance our offerings and operations, improve our bottom line, and drive increased value for our shareholders.
Steve Cran: I'll now pass the call over to our Chief Financial Officer, Steve Crane, who will provide a closer look to our fourth quarter and full year results. Steve?
Steve Crane: Thank you, Rick. Good afternoon, everyone. As Rick mentioned earlier, total revenue for the fourth quarter of 2023 was $9.8 million, compared to $8 million for the same quarter last year, an increase of 21.3%.
Steve Crane: Total revenue for the full year of 2023 increased 22.4% to $37.9 million compared to $31 million in 2022.
Steve Crane: Our total revenue is made up of two components.
Steve Crane: franchise royalties, which is our primary source of revenue, and service revenue, which is generated from certain services and interest charged to our franchisees, other miscellaneous revenue, and starting this past quarter, it also includes the pass-through revenue from MRI Network's advertising fund.
Steve Crane: Franchise royalties for the fourth quarter were $8.9 million compared to $7.7 million for the same quarter last year, an increase of 15.9%.
Steve Crane: For the full year of 2023, franchise royalties increased 23.9% to $35.8 million compared to $28.9 million in 2022.
Steve Crane: Underlying the growth in royalties are system-wide sales, which are not part of our revenue, but are a helpful contextual performance indicator.
Steve Crane: System-wide sales reflect sales at all offices, including those classified as discontinued.
Steve Crane: System-wide sales for the fourth quarter were $143.5 million compared to $127.9 million for the same period in 2022, which is an increase of 12.1%.
Steve Crane: Service revenue was $871,000 for the fourth quarter compared to $378,000 for the same quarter a year ago. Service revenue is composed of interest charged to our franchisees on overdue accounts receivable, service fees, other miscellaneous revenue, and MRI Network's advertising fund revenue.
Steve Crane: The ad fund revenue contributed $515,000 in Q4 of 2023 and is offset by corresponding expense in SG&A.
Steve Crane: Service revenue can fluctuate from quarter to quarter based on a number of factors, including growth in system-wide sales, changes in accounts receivable, insurance renewals, and similar dynamics.
Steve Crane: Selling general and administrative expenses for the fourth quarter were $6.6 million compared to $4.7 million in the prior year period.
Steve Crane: For the full year, SG&A expenses were $24.4 million compared to $12.9 million in 2022.
Steve Crane: The increase in SG&A for the year is attributable to three primary drivers. Increased workers' compensation expense, increased expenses to support the growth in system-wide sales and acquisition, integration expense, which we incurred during the first and second quarters,
Steve Crane: and the MRI Network Advertising Fund expense of $515,000 are included in our fourth quarter and full year SG&A.
Steve Crane: For the fourth quarter in 2023, workers' compensation expense was approximately $1.3 million compared to $166,000 in the fourth quarter of 2022.
Steve Crane: For the full year, workers' compensation expense was approximately $3.7 million compared to a net benefit of $1.9 million in the full year of 2022.
Steve Crane: Beyond workers' compensation, the largest component of SG&A is employee salaries and benefits.
Steve Crane: Salaries and benefits for the fourth quarter of 2023 were $3 million versus $3.2 million in the prior year period. For the full year of 2023, salaries and benefits were $13 million.
Steve Crane: versus $10.4 million in 2022.
Steve Crane: Also included in our full year SG&A were increased salaries and benefits related to personnel cost as we integrated MRI network as well as SG&A expenses from MRI, including marketing, IT, insurance, professional fees, and similar costs. We had largely completed MRI's integration by third quarter, and this most recent quarter reflects an expected level based upon current revenue volumes per executive recruiting services.
Steve Crane: We don't anticipate the need for additional increased expenses looking ahead to 2024.
Steve Crane: Net income includes income from operations adjusted for miscellaneous items, interest, income taxes, and discontinued operations.
Steve Crane: Net income for the quarter was $16,000 compared to $2.7 million in the prior year period.
Steve Crane: Net income from continuing operations for the quarter was $467,000, or $0.03 per diluted share, compared to net income from continuing operations of $2.6 million, or $0.19 per diluted share, in the fourth quarter last year.
Steve Crane: Besides increased SG&A, net income in the fourth quarter was negatively impacted by a $2.6 million charge related to the resale of the tech offices to franchisees.
Steve Crane: For the full year of 2023, net income was $6.1 million compared to $12.5 million in the prior year period.
Steve Crane: Net income for continuing operations for the full year 2023 was $6.4 million or $0.47 per diluted share combined with $12 million or $0.87 per diluted share in 2022.
Steve Crane: Adjusted EBITDA in the fourth quarter of 2023 was 4.3 million dollars compared to 4.4 million dollars in the fourth quarter of last year.
Steve Crane: For the full year, Adjusted EBITDA was $16.5 million compared to $22 million in 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 10-K, which will be filed shortly.
Steve Crane: Moving on now to the balance sheet.
Steve Crane: Our current assets at December 31st, 2023 were $51.5 million compared to $51.9 million at December 31st, 2022.
Steve Crane: Current assets, as of December 31, 2023, included $1.3 million of cash and $44.4 million of net accounts receivable, while current assets at December 31, 2022, included $3 million of cash and $45.7 million of net accounts receivable.
Steve Crane: Current assets exceeded current liabilities by $15.7 million at December 31st, 2023 versus year-end 2022 when working capital was $15.2 million.
Steve Crane: Current liabilities were 69.4% of current assets at December 31, 2023 versus 70.8% of current assets at December 31, 2022.
Steve Crane: At December 31, 2023, we had $14.1 million drawn on our credit facility and another $26.2 million in availability, assuming continued covenant compliance.
Steve Crane: We believe our credit facility provides us with flexibility and room for short-term working capital needs, as well as the capacity to capitalize on potential acquisitions.
Steve Crane: We have paid a regular quarterly dividend since the third quarter of 2020. Continuing that pattern, we paid a $0.06 per common share dividend on March 15, 2024 to shareholders of record as of March 1.
Steve Crane: For the full year 2023, we pay dividends in the amount of 24 cents per common share, and 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.
Richard F. Hermanns: Thank you, Steve. Our performance in both the fourth quarter and full year of 2023 demonstrates our ability to drive growth and profitability despite the challenging economic environment that is currently impacting
Richard F. Hermanns: the overall staffing and recruiting industry. Our focus right now is on controlling what we can control and reducing expenses to improve our bottom line. Looking long-term, insiders and board members own a substantial percentage of the company and we will manage the company with a view on allocating capital to its best and highest use and maximizing growth and earnings per share. As always, I would like to thank our employees and franchisees for their hard work and dedication this past quarter and throughout all of 2023.
Speaker Change: We're excited for 2024 and believe that we are well-positioned to continue driving long-term value to our shareholders. With that, we can now open the line to questions.
Speaker Change: Thank you. At this time we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your line from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please, while we poll for questions.
Speaker Change: Once again please press star 1 if you have a question or a comment. The first question comes from Kevin Stanky with Barrington Research. Please proceed.
Kevin Stanky: Good afternoon. I want to start off by asking about the
Kevin Stanky: March 1st insurance policy renewal and
Kevin Stanky: in terms of workers' compensation, and how much do you think you accomplished with that relative to what you maybe like to accomplish going forward?
Kevin Stanky: Thanks, Kevin. So I would say two things. One is if you, as far as what we accomplished, I do believe that
Kevin Stanky: you know we've I think that in the remaining 10 months of the year our policy as you stated renewed on March 1st is that the
Kevin Stanky: There'll be...
Kevin Stanky: It's structured in such a way that the rates will be...
Kevin Stanky: somewhat more adequate. Frankly, we've had rate inadequacy for really probably two years and it won't be as bad. So, I'm not saying that we're going to, you know, as we pointed out, there's about a 3.6 million dollar net expense.
Kevin Stanky: And obviously, you know, that's not something, you know, something we can obviously sustain or want to sustain. And so I think that the new structure will allow us to recover.
Kevin Stanky: somewhere around half of that.
Kevin Stanky: Now, part of what was in my remarks as well, is 2023 also had some just
Kevin Stanky: you know, had some bad development from the policy that ended on March 1st of 2023.
Kevin Stanky: that's
Kevin Stanky: the type of expense it's difficult to control for. For 30 years, we've done what I think is an excellent job in controlling our expenses. We close claims quickly. We work them very hard. We have incentives for our franchisees to make sure that we're working together to close claims quickly and at a reasonable amount. And at a reasonable amount, but at the end of the day,
Kevin Stanky: It's you can never completely can you know, you can never completely control what happens
Kevin Stanky: And as I stated, there is nothing that I've seen thus far in the 23-24 policy that just expired that comes anything close to what the 22-23 policy was. So, I don't know if that answers your question, but I would like to think that we will certainly narrow that gap in 24.
Kevin Stanky: you know, you know, will we will we achieve, you know, breakeven or profitability in the workers comp program? Probably not But again, that's you know, probably not
Kevin Stanky: and John Nesbett.
Kevin Stanky: but much more.
Speaker Change: Got it. No, thank you. That did answer my question. So I also wanted to ask about
Speaker Change: the core G&A expenses.
Speaker Change: $4.5 million in the quarter.
Speaker Change: I believe you mentioned...
Speaker Change: no need for additional expenses in 2024. So is that 4.5 million of core SG&A a good run rate or would you potentially look to reduce expenses if the demand environment continues to be soft?
Speaker Change: So...
Speaker Change: I think that the 4.5 million per quarter is a good number.
Speaker Change: Now, can it be reduced still? Frankly, we literally already have taken
Speaker Change: [inaudible]
Speaker Change: that by the end of this month, you know, we'll have reduced perm payroll by about another $550,000 which of course would hit SG&A. So, can we cut more? Well, yeah, we already, you know what I'm saying, we already have. That being said
Speaker Change: I think the more important way of looking at it is to the extent that we can grow, it's harder to cut at this point without cutting things that will impair our future.
Speaker Change: And, you know, so the answer to your question is, is if we had something that really started, you know, if our sales really dropped off a cliff, yes, there are things that we could cut. We could probably cut an additional...
Speaker Change: $500,000 to $800,000 a quarter
Speaker Change: if we needed to.
Speaker Change: The thing is is it's stuff like, you know, let's say software development. We could stop, you know, we can we can absolutely You know slow down or shut some of those programs off The problem is is you know and still run the business exactly the way we are the impact will be
Speaker Change: a year from now, three years from now. And so to the extent that we're able to maintain profitability, and that while the environment is absolutely weak, it is absolutely weak for demand.
Speaker Change: we're still profitable and we're still taking the viewpoint that
Speaker Change: that the economy will recover at some point, whether it's in the second half of 2024, or even if it's in 2025, we wanna be positioned to take advantage of.
Speaker Change: that uptick, and as alluded to in my remarks, well, not even alluded to, but stated,
Speaker Change: is, we're in a position to grow.
Speaker Change: Sort of like with the tech acquisition without adding any additional staff
Speaker Change: So, do we have, we're at a weird point.
Speaker Change: Do we have let's say slack capacity where we have five people doing what three people should be doing? No, we don't do we would never we would never ever do that on the other hand if you have something like
Speaker Change: franchise sales.
Speaker Change: It's like, okay, we're not selling franchise sale, you know, our franchise sales level isn't what we would expect in a really good environment
Speaker Change: But we only have one person selling franchises, so you literally go from a franchise sales effort to no effort. So it's like, do you do that when it's a little bit weak? And the answer is no.
Speaker Change: In my opinion, not at this point, but if you were truly getting to a point where your viability was being threatened, absolutely, then you get rid of it. I don't know if that answers your question, but that's how we see things.
Speaker Change: Yes, it does answer the question, thanks. I also wanted to just ask about.
Speaker Change: I know you gave the...
Speaker Change: the declines, organic declines for higher Quest, Direct, and Snelling for the full year. I don't know if you had an, you know, organic number, percentage number for
Speaker Change: either system-wide sales or franchise royalties in the fourth quarter.
Speaker Change: And, you know, the reason I ask, I'm just trying to gauge if things kind of stabilized or worsened or where the demand environment stands.
Speaker Change: So what I would say to you, and this is more anecdotal, I don't have the exact number, and I'd be happy to have.
Speaker Change: Steve, reach back out to you with, you know what I'm saying, with the exact number. I would say, anecdotally,
Speaker Change: We had a really decent, if you recall, and you cover a bunch of companies, so it's not like you should recall this, but our first quarter of last year was actually really strong.
Speaker Change: while a lot of our competitors were down 10% already from the first quarter of 2022.
Speaker Change: We were actually...
Speaker Change: last year. So we were way ahead. But then right around this time last year, you know, then we saw that 10, 12 percent drop. And so I would just simply say is that
Speaker Change: The fourth quarter was pretty much consistent with Q2 and Q3 as far as, you know, being down about, you know, about let's say 10% or so from, you know, overall from the prior, you know, from the prior period. Now, given that there were some tech sales mixed in into the fourth quarter,
Speaker Change: You certainly could take the approach that the fourth quarter was the weakest of the four.
Speaker Change: Okay, all right, understood. So lastly, you mentioned in the earnings release that you continue to monitor the market for accretive M&A opportunities.
Speaker Change: Just wondering what the pipeline of opportunities looks like.
Speaker Change: in the current economic environment.
Speaker Change: So I would say that
Speaker Change: There is...
Speaker Change: clearly
Speaker Change: I almost say this every quarter, there's always plenty of acquisition opportunities out there. It's always about price.
Speaker Change: There are, I would just simply say, there's probably a bit more...
Speaker Change: distressed properties available now.
Speaker Change: That doesn't mean they're going to sell for what they should sell, you know what I'm saying, for what they should sell. Because you still have people looking at, you know, a longer time frame.
Speaker Change: and thinking that they're worth what they were in 2022.
Speaker Change: But I believe that there will be, you know, there'll be no shortage of opportunities.
Speaker Change: you know, if the staffing and recruiting industry doesn't recover by the second half of this year, like I said, I suspect that there will be
Speaker Change: a fairly, you know, a pretty strong increase in opportunities.
Speaker Change: at realistic prices.
Speaker Change: Okay, great. That's helpful. Thanks for the commentary. I will turn it over.
Speaker Change: Once again, if you have a question or a comment, please indicate so by pressing star 1 on your touchtone phone. The next question comes from Peter Rebover from ARTCO Capital. Please proceed.
Peter Rebover: Hey Rick, I think my questions were sort of answered but I'll ask again. One is maybe if you could give some comments on you know how the year is progressing and how the economy you know is doing. You always get pretty good comments on that. And then you know you touched on capacity.
Peter Rebover: You know, maybe I can ask it another way, but, you know, where do you think...
Peter Rebover: You guys have about $600 million in system-wide revenue, $580 million. What do you think your capacity is in a good economy?
Richard F. Hermanns: any ballpark you can give us would be great. Thanks. Yeah, I appreciate it. And so to answer your questions, number one, you know, and again, what makes it a little more difficult...
Speaker Change: to make those comparisons is our first quarter of last year really was pretty good. It was, compared to the industry, it was great. And, um, and so therefore...
Speaker Change: In making comparisons, we're really almost comparing it to 2022 numbers. And so there is still weakness out there. There is absolutely weakness that's extended into the beginning of the year.
Speaker Change: the, you know...
Speaker Change: You know, I'm really loathe to say this. I mean, the last week or two I'd say, am I seeing a couple of green shoots? You know, yeah, I'm seeing a couple green shoots, but it could just as easily be a false positive.
Speaker Change: So, you know, but the way, you know, the way I view things, and admittedly, I could be completely wrong.
Speaker Change: Bye.
Speaker Change: you know, when you think about, let's say, during the, the staffing industry was obviously incredibly sensitive to the pandemic.
Speaker Change: And, you know, we had drop-offs of sales during the pandemic of 40, 45 percent. Certain jurisdictions, way more. And then 2021, especially the second half of 2021,
Speaker Change: You, you know, you had the most unbelievable market for staffing and recruiting, you know, really in my 34 years in the industry. I've never seen 35 years, I've never seen anything like it.
Speaker Change: and you know and so I think part of what 23 it's interesting you get a lot of companies that are out there 2023 was a decent year and then there are other ones where it's bad I was just reading a story this morning I was called
Speaker Change: Oh, shoot.
Speaker Change: It was in the Wall Street Journal. It was talking about a company that had its pandemic upswing and a pandemic downswing in how they handled their firm payroll. Or even, I guess a better example would be, let's just say Peloton, right? During the pandemic,
Speaker Change: All of a sudden, they couldn't make enough of them. And then all of a sudden, it's like, well, a lot of people bought these things.
Speaker Change: and then when life returned to more normal...
Speaker Change: Really it turned out it was just a, you know, 21 and 22 was really more of a cannibalization, you know, cannibal...
Speaker Change: was just a cannibalization of what maybe would have occurred in 2023.
Speaker Change: I would argue that that's what happened to the staffing and recruiting industry in 2023.
Speaker Change: is a lot of companies went out and, you know, brought in huge amounts of
Speaker Change: huge amounts of staffing and recruiting.
Speaker Change: because you couldn't find people.
Speaker Change: and now as things have eased off of it and normalized a bit more, it's become, you know, 23 for the staffing industry feels like a recession, even though the overall economy is certainly not in what could be described as a recession.
Speaker Change: So, all that being said, I do believe that as long as the economy, you know, writ large doesn't go into a recession.
Speaker Change: is that
Speaker Change: We'll get back to a more normal position, regardless of what happens, because then things will find their equilibrium.
Speaker Change: All that's an incredibly long way of saying,
Speaker Change: you know, has been no great shakes, although, you know, there might be a false positive or then again it might be green shoots really literally in the last week or two.
Speaker Change: As far as the, gosh dang, that was such a filibustering answer that I forgot the second part of your question. It was great. No, I love it. The second question was, you know, I'm just kind of curious.
Speaker Change: Oh, I remember. Never mind. Sorry, I don't mean to cut you off. I remember now. So as far as capacity, look, when we did the acquisition of MRI at the end of 2022, I just sat there and if you just added back what their system-wide sales were, what ours were kind of running at that point,
Speaker Change: If the economy would have stayed normal, I'd have sat there and said, well, shoot, I don't know how we'd have missed 700 million in system-wide sales in 2023. Well, obviously, that didn't happen. I mean, clearly, that didn't happen. Now, we've made...
Speaker Change: You know, we made certain cuts that, you know, had that not happened, we might have kept staffing levels a bit higher than what they than what they were. But, you know, I would argue that we could
Speaker Change: You know, so long as it's, let's say, like a tech staffing type deal where it's like right down the fairway for us.
Speaker Change: I could easily see us being able to, you know, to add...
Speaker Change: fifty to a hundred million dollars of sales without materially adding any, you know, without materially adding any staff.
Speaker Change: Realizing that probably a quarter of our staff is IT.
Speaker Change: You know, that's one of those things where that's where, like, you start getting into, you know, obviously a decline in sales.
Speaker Change: You know really hurts us from that perspective because you don't quickly let go of programmers You just don't you don't say you just don't do it. Yeah Because they're so hard to find and so you you and and again, obviously you're you're really fighting for your future
Speaker Change: But anyway, I would definitely argue that we could, like I said, 50 to 100 million without adding any significant amount of fixed costs.
Speaker Change: Okay, great. I mean, I appreciate all the colors. That was great. I'll let somebody else take a question.
Speaker Change: Next question comes from Mike Baker with D.A. Davidson. Please proceed.
Michael Allen Baker: Hey, thanks. Hey, since you brought it up, wondering if you.
Michael Allen Baker: care to talk about any of the green shoots you might be or potentially false positives that you're seeing, which business lines, et cetera. I'm just curious what you meant by that comment.
Speaker Change: Well, you know, we looked very carefully, obviously, at how our sales track with the prior year.
Speaker Change: You know, you know, clearly it's kind of funny we got spoiled because over, you know, mostly the last, most of the last 30 years, it's always up, up, up, up, and up, and all of a sudden it's like, wow.
Speaker Change: This kind of you know saying this it's not nearly as fun being on the downside of that
Speaker Change: and, you know, but that gap has...
Speaker Change: you know, that gap is closed.
Speaker Change: rapidly. And now, this is where it could be a false, you know...
Speaker Change: It could be a false positive because obviously I'm talking one or two weeks. I'm not talking, you know I'm saying I'm not talking the first quarter. So You know, maybe we finally crossed that Rubicon. Maybe the staffing industry is reaching more of its historic norm
Speaker Change: versus, you know, saying and people are, let's say, because I really do believe in 2023, a lot of what happened is that
Speaker Change: temporary employees were being replaced with perm staff.
Speaker Change: and, you know, driving down the staffing industries.
Speaker Change: Revenues, that's where I think at. And again, I could be a hundred percent wrong, you know, but
Speaker Change: There was, in fact, an article I read in the Wall Street Journal, I think it was in the Wall Street Journal again, but it was talking about two different measures of, you know, how the government accounts for the unemployment rate.
Speaker Change: Because you sit there and think 3.6%, 3.7% unemployment rate is amazing historically and you know and in almost by any definition you sit there and say well why you know why is it then that employment companies
Speaker Change: are down.
Speaker Change: And there are two different surveys that take place. There's a household survey and there's a business survey. And they really come up with a lot different internal dynamics. And one of them, I don't recall which one it is, one of them skews, you know, kind of lumps together.
Speaker Change: you know, I'll say gig, you know, gig works.
Speaker Change: and temporary work, you know, it treats it more like a
Speaker Change: traditional permanent job.
Speaker Change: But the results were a lot different when you looked at it differently. And I really think that is part of, once again, really what we experienced in 2023. But like I said, at least to me economically, things always manage to find their level. And I just think...
Speaker Change: Sooner or later we're going to hit that level again.
Speaker Change: And I'm just hoping it's in March of 2024 and not, you know what I'm saying, not six months from now.
Speaker Change: Right, understood. So, if I can clarify what you were saying.
Speaker Change: And your point of the two different measures of employment is that perhaps the employment situation isn't quite as strong as it looks like in the, you know, the 3.9 was the latest number for unemployment.
Speaker Change: Was that what you were saying?
Speaker Change: Well, or what happened is that the overall unemployment rate maybe went up a little bit.
Speaker Change: You know, but there are, actually, that there are more permanent jobs, you know, that basically there are more permanent employees than there are temporary employees now, or that some of the gig employees went away. It's just how you define it. And, like, the 3.9% may include a lot less temporary employees.
Speaker Change: than the other survey. And I wish I had the article in front of me. I probably shouldn't have brought it up, but I'm just simply saying, there are absolutely two different ways of looking at it. And I'm just saying, if you really, if you think about it, why in the world, and you can look at any staffing company's numbers, they're all down.
Speaker Change: Well, why are we all down when in reality, you know, the economy is still growing?
Speaker Change: That shouldn't happen.
Speaker Change: in absence of you know in a you know really in absence of either a shift
Speaker Change: away from temporary workers, which may be part, you know, again, which I would call it the Peloton effect.
Speaker Change: Or, you know, or it's just the way things have been, you know, again, it was just that surge in demand and unquestionably 2022 was
Speaker Change: You know was an incredible year for temporary staffing simply because nobody could find employees
Speaker Change: And so it's, you know, and maybe it's just a decrease off of a fall high, you know, that's a possibility. And like I said, it could be explained within how the numbers are, because again, because then you would go back and ask that question. But unemployment hasn't gone up that much. Why in the world are you down 10%?
Speaker Change: Yep.
Speaker Change: Got it. Makes sense. Appreciate the caller.
Speaker Change: Sure.
Speaker Change: Okay, we have no further questions in queue. I'd like to turn the floor back to management for any closing remarks.
Speaker Change: Well, again, I want to thank each of you for joining us today. The, you know, the economy remains.
Speaker Change: challenge for the staffing industry and as I alluded to in the first quarter isn't you know isn't shaping up significantly significantly better but
Speaker Change: I think that one of the important parts of my remarks, to just keep in perspective, is that
Speaker Change: since
Speaker Change: The beginning of 2021.
Speaker Change: We've done $76 million of acquisitions, $400 million increase in system-wide sales, and keeping in mind that $400 million into 2023, which was actually a relatively weak year,
Speaker Change: And yet we retain only a little more than 13 million bucks of debt on our balance sheet. And so we are generating nice amounts of cash flow. And while many of our peers have lost money in 2023,
Speaker Change: We remain profitable the same way we did during the pandemic.
Speaker Change: and you know we're set up great for the future and so we appreciate your continued interest in the company and your continued you know partnership with us and so with that I want to again thank you and look forward to speaking to you in another six or eight weeks. Thanks a lot.