Q4 2024 HireQuest Inc Earnings Call
Okay.
Speaker Change: Greetings and welcome to the higher Quest, Inc. Fourth quarter and year end 2024 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formula presentation, but what should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Unknown Executive: Greetings. Welcome to the Hirequest, Inc. fourth quarter and year end 2024 earnings call.
Operator: 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 Please note, this conference is being recorded.
Please note this conference is being recorded.
John Nesbett: I will now turn the conference over to your host, John Nesbett of IMS Investor Relations. You may begin. Thank you operator.
Speaker Change: I'll now turn the conference over to your host John Nesbit of IMS Investor Relations you may begin.
John Nesbit: Thank you operator, I'd like to welcome everyone to the call hosting the call today are our quest Chief Executive Officer recruitment and Chief Financial Officer, Steve created I'd like to take a moment to read the safe Harbor statement.
Unknown Executive: I'd like to welcome everyone to the call.
Unknown Executive: Hosting the call today are Hirequest Chief Executive Officer Rick Hermanns and Chief Financial Officer Steve Crane.
Unknown Executive: I'd like to take a moment to read the Safe Harbor Statement. This conference call contains forward-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 as amended. 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 independent of circumstances that will occur in the future. Those statements include statements regarding the intent, belief, or current expectations of Hirequest and members of its management team, as well as the assumptions on which such statements are based.
John Nesbit: This conference call contains forward looking statements as defined within section 27, a of the Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of 1934 as amended these forward looking statements in terms such as anticipate expect intend may will should or other comparable terms.
John Nesbit: [noise] involve risks and uncertainties, because they relate to events and depend on circumstances that will occur in the future.
John Nesbit: Those statements.
John Nesbit: Statements regarding the intent belief or current expectations of higher question members of its management team as well as the assumptions on which such statements are deaths 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 Chris.
Unknown Executive: Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involves risks and uncertainties, including those described in Hirequest periodic reports filed with the Securities and Exchange Commission, and that actual results may differ materially from those contemplated by such forward-looking statements. Except as required by federal securities law, Hirequest undertakes no obligation to update or revise forward-looking statements to reflect change conditions.
John Nesbit: And that actual results may differ materially from those contemplated by such forward looking statements.
John Nesbit: Except as required by Federal Securities Law higher Quest undertakes no obligation to update or revise forward looking statements to reflect changed conditions I would now like to turn the call over to the CEO of Markwest, Rick Hermann go ahead Rick.
Rick Hermanns: I would now like to turn the call over to the CEO of Hirequest, Rick Hermanns. Go ahead, Rick. Good afternoon, and thank you for joining our call today.
Rick Hermann: Good afternoon, and thank you for joining our call today, our fourth quarter and full year results are reflective of the challenging environment that impacted the entire staffing industry in 2024.
Rick Hermanns: Our fourth quarter and full year results are reflective of the challenging environment that impacted the entire staffing industry in 2024. While Hirequest was not immune to these market conditions, our flexible franchise model has allowed us to drive profitable results in both the fourth quarter and the full fiscal year. We achieved profitability in the fourth quarter of 2024, supported by total revenues of $8.1 million. The timing of the holiday season impacted the quarter as we saw less temporary staffing and day labor demand during the roughly two-week period that encompassed the holidays, which fell on a Wednesday.
Rick Hermann: While higher class was not immune to these market conditions. Our flexible franchise model has allowed us to drive profitable results in both the fourth quarter and the full fiscal year we.
Rick Hermann: We achieved profitability in the fourth quarter of 2024 supported by total revenues of $8 $1 million the timing of the holiday season impacted the quarter as we saw less temporary staffing and day labor demand during the roughly two week period that encompassed the holidays, which fell on a wednesday for the.
Rick Hermanns: For the full year, we recognized total revenue of $34.6 million and net income of $3.7 million. The market for permanent placement and executive search solutions has been weak and continue to impact the performance of MRI networks, which has fallen short of our internal expectations. A combination of staffing headwinds and an unpredictable economy have caused employers to slow down or even halt their hiring decisions entirely, which has had a particularly negative impact on permanent placement and executive search. During this market slowdown, we've taken the opportunity to evaluate, reorganize, and refine certain operations and processes within MRI.
Rick Hermann: Full year, we recognized total revenue of $34 6 million and net income of $3 $7 million.
Rick Hermann: The market for permanent placement in executive search solutions has been weak and continue to impact the performance of the MRI network, which has fallen short of our internal expectations, a combination of staffing headwinds and an unpredictable economy caused employers to slow down or even halt their hiring decisions entirely which has been which is.
Rick Hermann: Had a particularly negative impact on permanent placement in executive search.
Rick Hermann: During this market slowdown we've taken the opportunity to evaluate reorganize and refine certain operations and processes within MRI. We're controlling what we can control and believe that we are we've positioned to MRI to benefit when demand levels for permanent placement in executive search return.
Rick Hermanns: We're controlling what we can control and believe that we've positioned MRI to benefit when demand levels for permanent placement and executive search return. Our temporary staffing and day labor offerings have performed better relative to the MRI network, though this segment has not been immune to recent market conditions. Relaxed immigration policies and lessened enforcement throughout the previous administration has reduced the demand for temporary and day labor services, as some employers chose to exploit undocumented workers for cheaper labor. As an E-Verify employer, we believe that Hirequest could experience an increase in demand due to enhanced enforcement of immigration laws by ICE requiring employers to hire documented workers.
Rick Hermann: Our temporary staffing and day labor offerings have performed better relative to the MRI network. So this segment has not been immune to recent market conditions.
Speaker Change: Laxed immigration policies and lessened enforcement throughout the previous administration has reduced the demand for temporary and day labor services and <unk>.
Speaker Change: Some employers chose to exploit undocumented workers for cheaper labor as an E. Verify employer, we believe that higher quest could experience an increase in demand due to enhanced enforcement of immigration laws by ice requiring employers to hire documented workers operationally cost reduction remains a key priority.
Rick Hermanns: Operationally, cost reduction remains a key priority for us, and we made solid progress on this initiative in both the fourth quarter and the full fiscal year. Notably, we saw a 22.7% decline in SG&A compared to the fourth quarter of 2023, and a decline of 12.4% for the full year. This improvement was driven largely by a reduction in our workers' compensation expense, which, as many of you already know, had a significant impact on our business in 2023. Steve will provide a more detailed update in his prepared remarks, but we're pleased to report that this expense has meaningfully come down in 2024, and we're confident that it will go down further in 2025.
Speaker Change: For us and we made solid progress on this initiative in both the fourth quarter and the full fiscal year, notably we saw a 22, 7% decline in SG&A compared to the fourth quarter of 2023, and a decline of 12, 4% for the full year.
Speaker Change: This improvement was driven largely by a reduction in our workers' compensation expense, which as many as many of you already know had a significant impact on our business in 2023.
Speaker Change: Steve will provide a more detailed update in his prepared remarks, but we're pleased to report that this expenses meaningfully come down in 2024, and we're confident that it will go down further in 2025.
Rick Hermanns: We continue to stay active on the M&A front. Acquisitions are a key part of our broader strategy, and our franchise model allows us to identify and efficiently acquire businesses that expand our staffing footprint and enhance our scope of offering. We're monitoring the market for accretive opportunities, and we execute each transaction with capital preservation and value enhancement at the forefront of our decision-making process.
Speaker Change: We continue to stay active on the M&A front acquisitions are a key part of our broader strategy and our franchise model allows us to identify and efficiently acquire businesses that expand our staffing footprint and enhance our scope of offerings.
Speaker Change: We're monitoring the market for accretive opportunities and we execute each transaction with capital preservation and value enhancement at the forefront of our decision making process well this was a difficult quarter and year for both higher question. The industry overall I'm proud of the resilience and flexibility of our that our business has demonstrated to dry.
Rick Hermanns: While this was a difficult quarter and year for both Hirequest and the industry overall, I am proud of the resilience and flexibility that our business has demonstrated to drive positive results and profitability in the fourth quarter and fiscal year. As we all know, staffing markets won't recover overnight, but we are well-equipped with a demonstrated ability to drive profitable results in diverse markets, and we believe that we are ideally positioned to benefit when demand returns.
Speaker Change: Positive results and profitability in the fourth quarter and fiscal year as we all know staffing markets won't recover overnight, but we are well equipped with a demonstrated ability to drive profitable results in diverse markets and we believe that we are ideally positioned to benefit when demand returns with that I'll now turn it over.
Steve Crane: With that, I'll now turn over the call to Steve Crane, our Chief Financial Officer, to provide a closer look at our fourth quarter and full year results. Thank you, Rick, and good afternoon, everyone. Thanks for joining us today. Total revenue for the fourth quarter of 2024 was $8.1 million, compared with revenue of $9.8 million in the same quarter last year, a decrease of 17.2%. For the full year, total revenue was $34.6 million, compared with $37.9 million in 2023. Our total revenue is made up of two components, franchise royalties, which is our primary source of revenue, and service revenue, which is generated from certain services and interest charged to our franchisee, as well as other miscellaneous revenues.
Speaker Change: Call to Steve Crane, our Chief financial Officer to provide a closer look at our fourth quarter and full year results.
Steve Crane: Thank you Rick and good afternoon, everyone. Thanks for joining US today total revenue for the fourth quarter of 2024 was $8 1 million compared with revenue of $9 8 million in the same quarter last year, a decrease of 17, 2% for.
Steve Crane: For the full year total revenue was $34 $6 million compared with $37 9 million.
Steve Crane: In 2023 or.
Steve Crane: Our total revenues made up of two components franchise royalties, which is our primary source of revenue and service revenue, which is generated from certain service that interest charge to our franchisee as well as other miscellaneous revenue.
Steve Crane: Franchise royalties for the fourth quarter was seven $6 million compared to $8 $9 million for the same quarter last year for the full year franchise royalties were $32 $7 million compared with $35 8 million in 2023.
Steve Crane: Franchise royalties for the fourth quarter were $7.6 million, compared to $8.9 million for the same quarter last year. For the full year, franchise royalties were $32.7 million, compared with $35.8 million in 2023. Underlying franchise royalties are system-wide sales, which are not part of our revenue, but are a helpful contextual performance indicator. System-wide sales reflect sales at all offices, including those classified as discounted. System-wide sales for the fourth quarter were $134.8 million, compared to $143.5 million in the fourth quarter of 2023. Full year system-wide sales were $563.6 million, compared with $605.1 million in 2023. The decrease in our revenue on an annual basis is roughly consistent with the decrease in underlying system-wide sales and, as Rick pointed out, was driven by a softening of the overall staffing market throughout 2024.
Steve Crane: Underlying franchise royalties our system wide sales, which are not part of our revenue but are helpful. Contextual performance indicator system wide sales reflect sales at all offices, including those classified as discontinued.
Steve Crane: System wide sales for the fourth quarter were $134 $8 million compared to 143 $5 million in the fourth quarter of 2023.
Steve Crane: Full year system wide sales were $563 6 million.
Compared with $605 $1 million in 2023.
Steve Crane: The decrease in our revenue on an annual basis is roughly consistent with the decrease in underlying system wide sales and as Rick pointed out was driven by a softening of the overall staffing market throughout 2024. The impact of this was most acutely felt in our permanent placement and executive search business primed.
Steve Crane: The impact of this was most acutely felt in our permanent placement and executive search business, primarily MRI Network, which declined 18.6% when compared with 2023 results for the second. Service revenue was $439,000 for the fourth quarter compared to $871,000 in the year ago period. Service revenue for the fourth quarter of 2023 included pass-through revenue of $515,000 related to the MRI Network Advertising Fund, which was for the full year of 2023, while fourth quarter 2024 service revenue only included advertising fund revenue for the quarter. Full year 2024 service revenue was $1.9 million compared to $2.1 million in the prior year.
Steve Crane: Merrily MRI network, which declined 18, 6% when compared with 2020 to great results for the segment.
Steve Crane: Service revenue was $439000 for the fourth quarter compared to 871.
Steve Crane: In the year ago period.
Steve Crane: Service revenue for the fourth quarter of 2023 included pass through revenue of $515000 related to the MRI network advertising fund, which was for the full year of 2023, while fourth quarter 2020 for service revenue only included advertising fund revenue for the quarter.
Steve Crane: <unk>.
Steve Crane: Full year 2024 service revenue was $1 9 million compared to $2 $1 million in the prior year.
Steve Crane: Service revenue is composed of interest charged for a franchisee on overdue accounts receivable, service fees, other miscellaneous revenue, and MRI networked advertising fund revenue, and can fluctuate from quarter to quarter based on several factors including growth in system-wide sales, changes in accounts receivable, insurance, renewals, and similar dynamics. Selling General and Administrative Expenses, SG&A, for the fourth quarter were $5.1 million compared to $6.6 million in the prior year period, a decrease of 22.7%. Additionally, SG&A expenses for the fourth quarter of 2023 included $515,000 of expense related to the MRI Network Advertising Fund, which is for the full year of 2023, while the fourth quarter of 2024, SG&A only included expenses related to the advertising fund for the quarter.
Steve Crane: Service revenue is composed of interest charge for our franchisee on overdue accounts receivable service fees other miscellaneous revenue and MRI networks advertising fund revenue and can fluctuate from quarter to quarter based on several factors, including growth in system wide sales changes in accounts receivable insurance.
Steve Crane: Renewables and similar dynamics.
Steve Crane: Selling general and administrative expenses SG&A for the fourth quarter were $5 $1 million.
Steve Crane: Compared to $6 $6 million in the prior year period, a decrease of 22, 7%.
Steve Crane: Additionally, SG&A expenses for the fourth quarter of 2023 included $515000 of expense related to the MRI network advertising fund, which is for the full year of 2023 of fourth quarter of 2024 SG&A only included expenses related to the advertising fund for the quarter.
Steve Crane: SG&A expenses for the full year decreased 12.4% to $21.4 million compared with $24.4 million in 2023. As Rick stated, the reduction in our SG&A expenses was primarily driven by reduced workers' compensation expense, which decreased approximately 46% to $2 million in 2024, compared with $3.7 million in 2023. Workers' compensation expense will generally fluctuate based on a mix of classifications, the level of payroll, recent claim resolutions, and cumulative experience. While we cannot accurately predict the effects of workers' compensation in future periods, we believe we'll continue to see it go down further in 2025. Net income after tax was 2.2 million in the fourth quarter of 2024 or 16 cents per diluted share compared to a net income of $15,000 or zero earnings per share in the fourth quarter of 2023.
Steve Crane: SG&A expenses for the full year decreased 12, 4% to 21 4 million compared with $24 4 million in 2023.
Steve Crane: As Rick stated the reduction in our SG&A expenses was primarily driven by reduced workers' compensation expense, which decreased approximately 46% to $2 million in 2024, compared with $3 7 million.
Steve Crane: In 2023 Workers' compensation expense will general fluctuate based on a mix of classifications the level of payroll, reaching claim resolutions and cumulative experience, while we cannot accurately predict the effects of workers' compensation in future periods. We believe we'll continue to see it go down further.
Steve Crane: Other than 2025.
Steve Crane: Net income after tax was $2 2 million in the fourth quarter of 2024, or <unk> 16 per diluted share compared to a net income of $15000 or zero earnings per share in the fourth quarter of 2023.
Steve Crane: Net income for the full year is $3.7 million or $0.26 per diluted share compared with net income of $6.1 million or $0.45 per diluted share in 2023. As we stated last year, full year net income included a non, excuse me, last quarter, full year net income included a non-cash impairment charge of six million dollars in the third quarter related to the MRI network assets that we acquired in December 2022. This charge had a considerable impact on our profitability both in the quarter and year to date period and as such we determined that providing an adjusted net income figure would be a helpful metric to better showcase growth and progress that we've achieved.
Steve Crane: Net income for the full year was $3 7 million or 26 cents per diluted share compared with net income of $6 1 million or <unk> 45 per diluted share in 2023.
Steve Crane: As we stated last year full year net income included a not excuse me last quarter full year net income included a noncash impairment charge of $6 million.
Steve Crane: In the third quarter related to the MRI network assets, we acquired in December 2020 to discharge at a considerable impact on our profitability both in the quarter and year to date period and as such we determined that providing an adjusted net income figure would be a helpful metric to better showcase.
Steve Crane: And progress that we've achieved.
Steve Crane: With that said, adjusted net income for the fourth quarter of 2024, which excludes the non-cash impairment charge of $6 million, amortization of acquired intangibles and other non-recurring one-time expenses was $2.6 million or 19 cents per diluted share compared to adjusted net income of $2.5 million or $0.18 per diluted share in the fourth quarter of 2023. Adjusted net income for the full year was $9.9 million or $0.71 per diluted share compared to adjusted net income of $9.9 million or $0.72 per diluted share in the prior year period. We have provided a table in the press release issued earlier this afternoon with a detailed reconciliation of adjusted net income to net Adjusted EBITDA in the fourth quarter of 2024 was $3.8 million compared to $4.3 million in the prior year period.
Steve Crane: With that said adjusted net income for the fourth quarter of 2024, which excludes the noncash impairment charge of $6 million amortization.
Steve Crane: Amortization of acquired intangibles and other nonrecurring one time expenses was $2 6 million or 19 cents per diluted share compared to adjusted net income.
Steve Crane: Up to $5 million or <unk> 18 per diluted share in the fourth quarter of 2023 adjusted net income for the full year was $9 9 million or 71 cents per diluted share compared to adjusted net income of $9 9 million or <unk> 72 cents per diluted share in the prior.
Steve Crane: Year period.
Steve Crane: We have provided a table in the press release issued earlier this afternoon with a detailed reconciliation of adjusted net income to net income.
Steve Crane: Adjusted EBITDA in the fourth quarter of 2024 was $3 8 million compared to $4 3 million in the prior year period.
Steve Crane: Adjusted EBITDA margin for the quarter was 47% compared to 44% in the fourth quarter of 2023. For the full year, Adjusted EBITDA was $16.1 million compared to $16.5 million in the prior year. Adjusted EBITDA margin in 2024 was 47% compared to 44% in 2023. 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 we filed this afternoon, as well as our press release.
Steve Crane: Adjusted EBITDA margin for the quarter was 47% compared to 44% in the fourth quarter of 2023.
Steve Crane: For the full year, adjusted EBITDA was $16 1 million compared to $16 5 million and the.
Steve Crane: Higher year adjusted EBITDA margin in 2024 was 47%.
Steve Crane: <unk> to 44% in 2023.
Steve Crane: We believe adjusted EBITDA is a relevant metric for us due to the size of noncash operating expenses running through our P&L.
Steve Crane: Detailed reconciliations of adjusted EBITDA to net income is provided in our 10-K, which we filed this afternoon as well as our press release moving.
Steve Crane: Moving now to the balance sheet. Our current assets at December 31st, 2024 were $49.2 million compared to $51.5 million at December 31st, 2023. Current assets as of December 31, 2024 included $2.2 million in cash and $42.3 million of net accounts receivable, while current assets at December 31, 2023 included $1.3 million of cash and $44.4 million of net accounts receivable. Current assets exceeded current liabilities by $25.1 million at December 31, 2024, versus year-end 2023 when working capital was $15.7 million. Current liabilities were 49% of current assets at December 31, 2024, versus 69% of current assets at December 31, 2023.
Steve Crane: Moving now to the balance sheet.
Steve Crane: Our current assets at December 31, 2024 were $49 2 million compared to 51 $5 million at December 31, 2023.
Steve Crane: Current assets as of December 31, 2024 included $2 $2 million in cash and $42 3 million of net accounts receivable. While current assets at December 31, 2023 included one $3 million of cash and $44 4 million of.
Steve Crane: Net accounts receivable.
Steve Crane: Current assets exceeded current liabilities by $25 $1 million at December 31, 2024 versus year end 2023, when working capital was $15 7 million.
Steve Crane: Current liabilities were 49% of current assets at December 31, 2024 versus 69% of current assets at December 31 2023.
Steve Crane: at December 31st, 2024. We had $6.8 million drawn on our credit facility and another $33.4 million in availability, assuming continued covenant compliance. Importantly, our credit facility was not impacted by the non-cash impairment charge that we recognized in the quarter. 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: At December 31, 2024.
Steve Crane: We had $6 $8 million drawn on our credit facility and another $33 4 million and availability assuming continued covenant compliance.
Steve Crane: Our credit facility was not impacted by the noncash impairment charge that we recognized in the quarter. 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. Most recently, we paid a six cent per common share dividend on March 17, 2025, to shareholders of record as of March 3. We expect to continue to pay a dividend each quarter subject to the board's discretion.
Steve Crane: We have paid a regular quarterly dividend since the third quarter of 2020. Most recently, we paid a <unk> <unk> per common share dividend on March 17, 2025 to shareholders of record as of March 3rd we expect to continue to pay a dividend each quarter subject to the board's discretion with that I will turn the call.
Rick Hermanns: With that, I will turn the call back over to Rick for some closing comments.
Rick Hermann: Back over to Rick for some closing comments.
Speaker Change: Thank you Steve.
Rick Hermanns: Thank you, Steve. I'd like to thank our employees and franchisees for their hard work and commitment throughout this past year. We're encouraged by what's ahead for our business and look forward to driving an enhanced value to our shareholders in fiscal 2025.
Speaker Change: I'd like to thank our employees and franchisees for their hard work and commitment throughout this past year. We're encouraged by what's ahead for our business and look forward to driving enhanced value to our shareholders in fiscal 2025 with that we can now open the line to questions. Thank you.
Rick Hermanns: With that, we can now open the line to questions. Thank you.
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 one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset.
Operator: Next 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. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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. One moment please while we poll for questions. Once again, please press star one if you have a question or comment.
Speaker Change: Before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Once again, please press star one if you have a question or comment.
Speaker Change: Our first question is from Kevin Spanky with Barrington Research. Please proceed.
Kevin Steinke: Our first question is from Kevin Steinke with Barrington Research. Thanks, and good afternoon. Just wanted to start out by talking a little bit more about the demand environment. You know, going back to your third quarter 2024 conference call, of course, that's, you know, going back to the first half of November, just a couple of days after the election. At that time, it seemed like you know, there's a little more optimism around an improving demand environment for you in the industry. So, you know, if you could talk about maybe what, if anything has changed since that time, on the demand front, that, you know, is maybe making the demand outlook a little more muted or cautious here.
Kevin Spanky: Thanks, and good afternoon.
Speaker Change: Wanted to do.
Kevin Spanky: Start out by <unk>.
Kevin Spanky: Talking a little bit more about the demand environment.
Kevin Spanky: You know going back to your third quarter 2024 conference call of course Thats.
Kevin Spanky: Going back to the first half of November just a couple of days after the election.
Kevin Spanky: At that time it seemed like you.
Kevin Spanky: There was a little more optimism around an improving demand environment.
Kevin Spanky: For you and the industry so.
Kevin Spanky: If you could talk about maybe what if anything has changed since that time.
Kevin Spanky: On the demand front.
Kevin Spanky: Maybe like making the.
Kevin Spanky: Demand outlook, a little more muted or cautious here.
Kevin Spanky: Yeah. Thanks, Kevin.
Rick Hermanns: Yeah, thanks, Kevin. Um, I mean, at that time, the beginning of the beginning of the fourth quarter, our comparative numbers were really we're running pretty good. And then they really started to soften in December. And, you know, the other part is, and it's, it was alluded to in my remarks as well, is this seems like a silly thing. And it's, you know, it's, but having Christmas and New Year's on Wednesdays probably, you know, costs us the equivalent of at least two days worth of, you know, worth of sales. And, you know, so that drove our comparisons down a bit.
Kevin Spanky: I mean at that time sort of at the beginning of the fourth quarter or.
Kevin Spanky: Comparative numbers were really were running.
Kevin Spanky: Pretty good and then they they really started to soften.
Kevin Spanky: In December and the other part is.
Speaker Change: And as it was alluded to in my remarks, as well as this seems like a silly saying in it.
Speaker Change: But the having Christmas and new year's on Wednesdays, probably cost us the equivalent of at least two days worth of worth of sales and so that drove our comparisons down a bit.
Speaker Change: So.
Rick Hermanns: So, you know, I think that the, the You know, the between the tariff, you know, the tariff talk, you know, isn't really helping, you know, isn't helping demand much. And, you know, and so, like I said, demand kind of softened up, I will say that, you know, the first quarter hasn't, there hasn't really been much of an you know, it started to, you know, improve again, but it's still it's still a tricky environment for us. It's, it's kind of like a, you know, it's like three steps forward, three steps back, and it, you know, we, we hit some good spots, and then, you know, and then, and then we hit some bad.
Speaker Change: I think that the.
Speaker Change: The.
Speaker Change: Between the tariffs the tariff talks.
Speaker Change: Isn't really helping.
Speaker Change: Isn't helping demand much and.
Speaker Change: So like I said demand kind of softened up I will say.
Speaker Change: That the first.
Speaker Change: Quarter Hasnt, there hasnt really been much of an improvement from December.
Speaker Change: Although.
Speaker Change: And then just looking looking at the last few weeks it's.
Speaker Change: It started to improve again, but it's still it's still a tricky environment for us. It's it's kind of like a it's.
Speaker Change: It's like three steps forward three steps back in it.
Speaker Change: Hum.
We hit some good spots and then.
Speaker Change: And then and then we hit some bad so it's it's very much.
Rick Hermanns: So it's, it's very much, you know, of a meh, you know, market. And that's really backed up by and I know you cover a couple other companies in the staffing industry, it's really pretty common throughout the, you know, throughout the staffing industry, it's, it's pretty common. But again, you know, I'm, you know, I'm, I'm optimistic by nature. And I would just say that at, at least March is, you know, there again, I go back to it. But of course, it's easy to say, you know, it's easy to say, but I, it, you know, I do.
Speaker Change: A man.
Speaker Change: Market and that's really backed up by and I know you cover a couple of other companies in the staffing industry, it's really.
Speaker Change: Pretty common throughout the stack.
Speaker Change: Throughout the staffing industry, it's pretty common.
Speaker Change: But again.
Speaker Change:
Speaker Change: I'm optimistic by nature, and I would just say that had at least March is there.
Speaker Change: Again, I go back to it but of course, it's easy to say.
Speaker Change: It's easy to say, but it.
Speaker Change: I do.
Kevin Steinke: I am hopeful. But, you know, I think that our industry would benefit from a bit more, and really, you know, our clients would benefit from a bit more certainty, you know, with respect to where supply chains and tariffs are going to be. Okay, yeah, that's helpful. Appreciate that.
Speaker Change: I am hopeful.
Speaker Change: But I.
Speaker Change: I think that our industry would benefit from a bit more and really our.
Speaker Change: Our clients would benefit from a bit more certainty.
Speaker Change: With respect to where supply chains and tariffs are going to be.
Speaker Change: Okay. Yeah. That's helpful. I appreciate that.
Kevin Steinke: And you mentioned in making some changes at MRI, maybe could you... talk through that a little bit more, and you mentioned that, you know, positioning you for to benefit from an upturn, you know, when that occurs, so maybe just a little more color on that. Sure. So when we bought MRI back in the end of 2022, we we tried to keep as many departments separate that we could, you know, from, let's say you know, staffing versus recruiting. And so Again, we were running parallel departments and You know, we We had hoped that the market would recover a bit and that we would be rewarded for it.
Speaker Change: And you mentioned.
Speaker Change: Making some.
Speaker Change: Changes at MRI, maybe could you.
Speaker Change: Talk through that a little bit more.
Speaker Change: And you mentioned that.
Speaker Change: Positioning you for to benefit from.
Speaker Change: An upturn when that occurs so maybe just a little more color on that.
Speaker Change: Sure.
Speaker Change: So when we bought MRI back in the end of 2022 week, we tried to keep as many.
Speaker Change:
Speaker Change: Departments separate that we could you know from a let's say.
Speaker Change: Staffing versus.
Speaker Change: Recruiting and so.
Speaker Change: Again, we were running parallel.
Speaker Change: Apartments.
Speaker Change: And.
Speaker Change: We.
We are we had hoped.
Speaker Change: You know that the market would recover a bit and that we would be rewarded for it and so to give you an idea of like what we did is rather than having a training department for MRI and then the training department for selling higher quest direct.
Rick Hermanns: And so to give you an idea, like what we did is rather than having a training department for MRI and then a training department for spelling and Hirequest Direct, we basically we combined those. And so we've taken a couple, you know, we've taken a few steps like that to basically drive more, more efficiencies because it, it. You know, just given the you know, the slowness in demand.
Speaker Change: We basically we combine those and so we've taken a couple of you know we've taken a few steps like that to.
Speaker Change: To basically drive more.
Speaker Change: More efficiencies because it.
Speaker Change: Just given the.
Speaker Change: You know the slowness in demand.
Kevin Steinke: OK, thanks and. talking about You know, you've talked about in the past, obviously, one of the potential benefits of this, you know, uncertain demand environment is perhaps more acquisition opportunities becoming available. You mentioned you're still active on that front. So maybe, you know, what are you seeing in the pipeline and in terms of valuations and are more opportunities cropping up in this this type of environment? So there are. You know, I say the same thing every quarter, which is there's always plenty of opportunities and that's still so that's still the same. That said, I think that Pricing of deals is starting to definitely get more reasonable because in reality the staffing industry has been in a depressed state for literally, you know, nine quarters.
Speaker Change: Okay, Thanks and.
Speaker Change: Yeah talking about.
You've talked about in the past obviously one of the.
Speaker Change: Potential benefits of this you know them.
Certain demand environment.
Speaker Change: Perhaps more acquisition opportunities.
Speaker Change: Becoming available you mentioned youre still active on that front. So maybe what are you seeing in the pipeline in terms of valuations and are more opportunities cropping up.
Speaker Change: And this type of environment.
Speaker Change: So there are.
Speaker Change: No.
Speaker Change: You say the same thing every quarter, which is there's always plenty of opportunities and thats still so that's still the same.
Speaker Change: That said I think that pricing of deals is starting to definitely get more reasonable because in reality the staffing industry has been in a depressed.
Speaker Change: <unk> state for.
Speaker Change: Literally.
Speaker Change: Nine quarters.
Rick Hermanns: So the Ability to start. buying at reasonable prices is returning. As you'll note, we completed an acquisition right at the end of the year, as an example. And it's really turned out to be a very nice, small, but a nice small acquisition. And so, you know, we expect to continue to be able to find those. We're working on a couple that are larger. You know, it's just, but, you know, we're always, again, I don't want you to read more into that than what there really is. But other than to say that, you know, if, you know, typical staffing company being down 20-30% over the last two to three years, that is going to necessarily drive down their pricing expectations.
Speaker Change: So the.
Speaker Change: Our ability to start.
Speaker Change: Buying at reasonable prices is is returning.
Speaker Change: You'll note we completed an acquisition right at the end of the year as an example, and it's really turned out to be a very nice.
Speaker Change: Small, but a nice small acquisition and so.
Speaker Change: We expect to continue to be able to find those we're working on a couple that are larger.
Speaker Change: It's just but you know.
Speaker Change: We're always again I don't I don't want I don't want you to read more into that by then and what they're really is but other than to say that.
Speaker Change: <unk>.
Speaker Change: Joe.
Speaker Change: Yes.
Speaker Change: Typical staffing company being down 20%, 30% over the last two to three years.
Speaker Change: That is going to necessarily drive down their pricing expectations and where that really.
Rick Hermanns: And where that really, you know, can help us, and I'll use the example of the small acquisition we did at the end of the year, you know, it happened to be in a market where, you know, our sales were really lagging. And by combining those two entities, You know, it wasn't sort of just like. X plus Y equals Z, but it was really more like X plus Y equals, you know, Z plus Z, because, you know, especially at the branch level economics, the, you know, volume matters a lot. And so a branch, you know, it's not the same as saying, particularly for the franchisee, you know, two different markets.
Speaker Change: Can help us and I'll use. The example of the small acquisition, we get at the end of the year.
Speaker Change: It happened to be in a market, where our sales were really lagging.
Speaker Change: And by combining those two entities.
Speaker Change: It wasn't sort of just like.
Speaker Change: X plus y equals Z, but it was really more like X plus y equals.
Speaker Change: Z plus Z because.
Speaker Change: Especially at the branch level economics the.
Speaker Change: Volume matters, a lot and so a branch it's not the same as saying, particularly for the franchisee.
Speaker Change: To Brent to different markets.
Rick Hermanns: Billing a million and a half dollars. doesn't equal the same profit as one market billing $3 million. And so, like I said, these types of acquisitions tend to be very, very helpful, even if they're small.
Speaker Change: Building a million and a half dollars.
Speaker Change: It doesn't equal the same profit as one market billing 3 million and so like I said these types of acquisitions tend to be very very helpful. Even if they're small, but I realize you didn't quite ask that but.
Rick Hermanns: But I realize you didn't quite ask that. But long and short of it is, is that we are we are out there, we're engaged as we typically are at any given time with you know, three or four companies.
Speaker Change: Long and short of it is is that we are we are out there. We're engaged as we typically are at any given time with.
Speaker Change: You know three or four companies.
Kevin Steinke: Okay, yeah, that's helpful. Appreciate it.
Speaker Change: Okay. Yeah. That's helpful. I appreciate it and just lastly wanted to.
Kevin Steinke: Just lastly, I wanted to ask about workers' compensation. Obviously, a very significant reduction year-over-year in the fourth quarter. You think it can go down further in 2025, obviously not to the same magnitude, but Just, you know, any sense directionally how that might trend? Do you still think that can kind of get back to neutral at some point in 2025, or if not, you know, maybe, maybe beyond that?
Speaker Change: You asked about workers' compensation, obviously, a very significant reduction year over year in the fourth quarter you mentioned.
Speaker Change: Do you think it can go down further in 2025, obviously not to the same magnitude but.
Speaker Change: Just you know any sense directionally, how that might trend do you still think that can kind of get back to neutral at some point.
Speaker Change: In 2025, or if not maybe maybe beyond that.
Speaker Change: So.
Rick Hermanns: So if you go back pre-2021, it's really 2021 and before, workers' comp was always a positive. you know, had a positive effect on our income. And then it started turning, you know, it started turning decidedly negative, you know, in, you know, in 23 in particular. So, as we've described before, there are really, there are a couple of factors in it. One was, and again, we had a really, really bad experience in 22-23 policy year was bad. And so part of that had to work its way through and you know and so that was where 23 of course the numbers were really high 24 we were still absorbing certain loss you know certain losses from that and it's part of the reason why though we're pretty confident about 25 is those those claims have mostly closed now and we're you know we're moving on from that whereas our 23-24 policy year was sort of a normal year.
Speaker Change: If you go back pre 2021 early 2021 and before.
Speaker Change: Workers comp was always.
Speaker Change: A positive.
Speaker Change: <unk> had a positive effect on our income.
Speaker Change: And then.
Speaker Change: Started turning.
Speaker Change: It started turning decidedly negative.
He is in 'twenty three in particular, so as we've described before they're really there.
Speaker Change: There are a couple of factors one was and again, we had a really really bad.
Speaker Change:
Speaker Change: Experienced workers comp experience in 'twenty to 'twenty or 'twenty, two 'twenty three policy year.
Speaker Change: It was bad and so part of that had to work its way.
Speaker Change: Through and.
Speaker Change: And so that was where 'twenty three of course, the numbers were really high 24, we were still absorbing certain loss certain losses from that and it's part of the reason why they were pretty confident about 'twenty five as those.
Speaker Change: Those claims with mostly closed now and where we're moving on from that whereas our 'twenty three 'twenty four policy year was.
Speaker Change: Sort of a normal year and so again, that's so it's pretty predictable should be pretty good predictable, where we're at in our 'twenty four 'twenty five results were poor.
Rick Hermanns: And so again, that's, so it's pretty predictable, you know, should be pretty predictable where we're at. And our 24-25 results were, were, were bad for, you know, we're actually, we're actually good. And so I say all of that is, is that, you know, part of the reason for our optimism is just simply just based on the data, you know, the claims data. And that's consistent throughout the insurance industry, by the way, the, you know, if you look at, you know, you speak to any insurance executive of a multi-line carrier, they're going to tell you that workers comp is one of the best product lines they have right now, because accident trends are better for a variety of, for a variety of reasons.
Speaker Change: For a bathroom you know.
Speaker Change: We're actually we're actually good and so I say all of that is is that you know.
Speaker Change: The reason for our optimism is just simply.
Speaker Change: Just based on the data the claims data and that's consistent throughout the insurance industry. The other way, but if you look at you speak to any.
Speaker Change: Insurance executives.
Speaker Change: A multiline carrier, they're going to tell you that workers comp is one of the best product lines. They have right now because accident trends are better for a variety of for a variety of reasons accident trends workers' comp are good.
Rick Hermanns: Accident trends, workers comp are good. we're seeing. The other part is, though, is our, you know, our, you know, our rates are somewhat higher now as well. Our rates were inadequate in, you know, 22 and 23, and so that's part of what, and really in 24, they still weren't really adequate, but those rates have firmed up a bit. And so we are also, again, in a spot where we feel much better about 2025. So, you know, are we going to get all the way to where we break even on our workers' comp? Maybe. you know, but we do think it'll still be significantly better than 24.
Speaker Change: Where we're seeing that.
The other part is though is as our.
Speaker Change: Our.
Speaker Change: Our rates are somewhat higher now as well our rates were working inadequate.
Speaker Change: In 'twenty, two and 'twenty three and so that's part of what.
Speaker Change: And really in 'twenty four they still weren't really adequate but those rates have firmed up a bit and so we are also again in a spot where we feel much better about 2025. So are.
Speaker Change: Are we going to get all the way to where we breakeven on our workers' comp.
Speaker Change: Maybe.
Speaker Change: But we do think it'll still be significantly better than 'twenty four.
Kevin Steinke: Okay, yeah, great. Thanks for all the helpful commentary.
Speaker Change: Okay, Yeah, great. Thanks for all the helpful commentary.
Operator: I will turn it back over. Great. Thanks, Kevin. Once again, if you have a question or a comment, please indicate so by pressing star one on your touchtone phone.
Speaker Change: I will turn it back over.
Kevin Spanky: Great. Thanks, Kevin.
Speaker Change: Once again, if you have a question or a comment please indicate so by pressing star one on your Touchtone phone.
Egan Cox: The next question comes from Egan Cox with V.A.
Speaker Change: The next question comes from Egan Cox with D. A Davidson. Please proceed.
Rick Hermanns: Davidson, please proceed. Hello, I was just wondering, going to pick up on the demand topic again, I know the executive placement business was a little bit weak, or you've been seeing softness there. I was just wondering more on the temporary staffing and day labor side. Is there any industries or sectors that you're seeing weakness in particularly? The, that's a good question. So our We're sort of. getting, you know, construction is definitely if you Sorry, I'm not really want to line this up perfectly or back about two years ago. Construction was masking a relatively steep decline, let's say, in logistics.
Egan Cox: Hello, I was just wondering.
Speaker Change: Pick up on the demand topic again, I know the executive placement business was a little bit weak or you have been seeing softness there I was just wondering more on the temporary staffing and day labor side is there any industries or sectors that youre seeing weakness in particularly.
Speaker Change: The that's a good question so our.
Speaker Change: We were sort of.
Speaker Change: Getting.
Speaker Change: Construction is definitely if he does.
Speaker Change: Sorry, I'm not really one.
Speaker Change: Your line this up perfectly or back about two years ago.
Speaker Change: Construction was masking a relatively steep decline, let's say in logistics.
Speaker Change: Warehouse and manufacturing.
Rick Hermanns: Warehouse and Manufacturing and I would say that the construction part has more leveled off. And so while Manufacturing and warehousing still remains weak and is continuing to weaken somewhat. Nothing as bad as what it was, but it's still down some. And again, our actual declines in the staffing side aren't really that pronounced. So, you know, our real declines are more in the executive search are definitely, you know, is definitely more pronounced. But anyway, you know, I would just say, unfortunately, construction's not increasing the way it was to offset some of the decline on the industrial sectors.
Speaker Change: And.
Speaker Change: I would say that the.
Speaker Change: Construction part has more leveled off.
Speaker Change: And so while.
Speaker Change: Manufacturing and.
Speaker Change: Warehousing still remains weak and is continuing saying is continuing to weaken somewhat nothing as bad as you know nothing as bad as what it was but it's still.
Speaker Change: Down some and again, our actual declines in the staffing side.
Speaker Change: Arent really that.
Speaker Change: Pronounced so our real declines are more in the executive search are definitely is definitely more pronounced but anyway.
Speaker Change: I would just say unfortunately constructions not increasing the way it was to offset some of the decline on the industrial sectors.
Egan Cox: That makes sense.
Speaker Change: That makes sense and then just a follow up on your SG&A.
Egan Cox: And then just a follow up on your own SG&A, you guys been pretty prudent with expense management, lowering set or cutting expenses more than your revenues are falling, been able to hold in that margin. I was just wondering, how much room is left? Like how much more could sales fall? And how much SG&A could you cut to offset that, I guess? Well. That's, you know, that. Cutting it, we are careful when we cut expenses. We've tried to develop a great team that we try to keep, let's say, during a soft period like this, but realistically, let's say, when you have a pandemic.
Speaker Change: SG&A you guys been pretty prudent with expense management.
Speaker Change: Lowering or cutting expenses more than your revenues are falling.
Speaker Change: Able to hold in that margin I was just wondering how much room is left like how much more could sales fall and how much SG&A could you cut to offset that I guess.
Speaker Change: Yeah.
Speaker Change: Well.
Speaker Change: That's it.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Cutting it we we we are careful when we cut expenses, we've tried to develop a great team that we try to keep let's say during the soft period like this but realistically, let's say when you have a pandemic.
Rick Hermanns: Let's say like a pandemic level event. you know, we cut almost 40% of our staff within two weeks. And so if demand dropped off like that, we absolutely could do that. Now, that might not have been your question. But the point is, is that, you know, we always have abilities to drop, you know, to drop our costs significantly, which is why we retained, you know, we retained profitability, both in the second quarter of 2020, or even going back to like 2008, 2009, you know, we'll cut our costs to the extent that we need to. What you're probably asking more is, is, hey, can we keep cutting even where we're at now?
Speaker Change: Like let's say like a pandemic level event.
Speaker Change: You know, we cut almost 40% of our staff within two weeks and so if demand dropped off like that we absolutely could do that now that might not have been your question, but the point is is that we always have abilities to drop.
Speaker Change: To drop our costs significantly which is why we retained.
Speaker Change: You know, we we retained profitability both in the second quarter of 2020, or even going back to like 2008 2009.
Speaker Change: Well, we'll cut our costs to the extent that we need to.
Speaker Change: What you are probably asking more as is hey can we keep cutting even where we're at now and the answer is yes, we haven't.
Rick Hermanns: And the answer is yes, we haven't, you know, we haven't really made. any cuts. that I would say. help you in the current period, but then do damage in the future. And really, quite frankly, the single biggest. Area for that is IT. We haven't made any significant really haven't made any cuts in IT because we're really developing for the for the future. Now, if we went up in revenue by 40% next year. And I'm not predicting that, but let's just say we went up 40% next year. That doesn't mean our IT spend is going to go up 40%.
Speaker Change: We haven't really.
Speaker Change: Made.
Speaker Change: Any cuts.
Speaker Change: I would say.
Speaker Change: Help you in the current period, but then do damage in the future and.
Speaker Change: And really quite frankly, the single biggest.
Speaker Change: Area for that as the IP, we haven't made any significant really haven't made any cuts in it because we're really developing for the for the future.
Speaker Change: Now if we.
Speaker Change: Went up in revenue by 40% next year and I'm not predicting that but let's just say we went up 40% next year that doesn't mean, our it spend is going to go up 40%. It probably wouldn't even go up at all so my point is is that it is one area, where we could still cut a lot. If we wanted to it would just impair sort of strategically.
Rick Hermanns: It probably wouldn't even go up at all. So my point is, is that IT is one area where we, we could still cut a lot if we wanted to, it would just impair sort of strategically what we're trying to do, you know, a year and a half, two and a half years down, you know, down the, down the road. And the same thing, we've been spending more money on marketing, not, you know, not sales, but actually marketing. Again, those are easy cuts if we really feel that we, you know, we need to do them. And at this point, we're not, you know, as much as the market is, as much as the market is challenging.
What we're trying to do.
Speaker Change: A year and a half two and a half years down down the down the road and the same thing we've been spending more money on marketing not you know not sales, but actually marketing again those are easy cuts. If we really feel that we know we need to do them and at this point, we're not as much as the market as much as the market is.
Speaker Change: And Jane.
Rick Hermanns: It's not. Again, it's not great recession or pandemic type levels, where we feel that we should be, you know, basically Defunding things that really will have a lot of value in the future.
Jane: It's not.
Jane: But again, it's not a great recession or pandemic type levels, where we feel that we should be.
Jane: Basically.
Jane: B funding things that really will have a lot of value in the future.
Rick Hermanns: But, as you pointed out, more current things, we're certainly cutting, and have cut.
Jane: But as you pointed out more current things, we're certainly cutting in half God.
Unknown Executive: Thank you.
Jane: Thank you.
Speaker Change: Okay. We have no further questions in the queue I'd like to turn the floor back to management for any closing remarks.
Unknown Executive: Okay, we have no further questions in the queue.
Unknown Executive: I'd like to turn the floor back to management for any closing remarks. I want to thank everybody for joining us on this call, and This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
Speaker Change: I want to thank everybody for joining us on this call.
Speaker Change: And.
Speaker Change: Set and again appreciate your following the company and are investing in the company.
Speaker Change: Thank our employees, our franchisees and I would.
Speaker Change: Looking forward to 2025 I do.
Speaker Change: I do believe that you.
Speaker Change: You know there are a lot of good things that are going on out there and within the company and I'm looking forward to reporting back.
Speaker Change: In another couple of months. Thank you very much for joining us.
Speaker Change: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.