Q3 2025 HireQuest Inc Earnings Call

Speaker #4: Good afternoon and welcome to the HireQuest, Inc. . Third quarter , 2020 Earnings Conference call . At this time , all participants have been placed on a listen only mode , and we will open the floor for your questions and comments .

Speaker #4: After the presentation . It is now my pleasure to turn the floor over to your host , John Nesbitt of IMS investor Relations .

Speaker #4: John , the floor is yours .

Speaker #5: Thank you . Tom . I'd like to welcome everyone to the call . Hosting the call today are higher . Chief Executive Officer Rick Hermans and Chief financial Officer David Hartley .

Speaker #5: I'd like to take a moment to read the Safe Harbor statement . This conference call contains forward looking statements as defined within section 27 A of the Securities Act of 1933 , as amended , and section 21 of the Securities Exchange Act of 1934 , as amended .

Speaker #5: 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 of circumstances that will occur in the future .

Speaker #5: These statements include statements regarding the intent , belief or current expectations of HireQuest, Inc. and members of its management , as well as the assumptions on which such statements are based .

Speaker #5: Prospective investors are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties , including those described by HireQuest, Inc. periodic reports filed with the SEC and actual results may differ materially from those contemplated by such forward looking statements .

Speaker #5: Except as required by federal securities law , HireQuest, Inc. undertakes no obligation to update or revise forward looking statements to reflect change conditions .

Speaker #5: I would now like to turn the call over to the Chief Executive Officer of HireQuest, Inc. , Rick Hermans . Please go ahead .

Speaker #5: Rick .

Speaker #6: Good afternoon , and thank you for joining our call today . As you can see from our third quarter results , the staffing market is much the same as it's been for the past ten quarters .

Speaker #6: Now , in terms of staffing demand and broader market . Market sentiment . With that said , I'm pleased to report that we delivered another quarter of profitability highlighted by net income of $2.3 million , or $0.16 per share , and we continue to keep our expenses in check despite market uncertainties .

Speaker #6: Our results in this quarter underscore the flexibility and strength of our franchise model , which is consistently enabled us to remain profitable in soft markets when many others in our industry have struggled over the history of Higher Quest , our model has proven to perform well in importantly , be profitable in all cycles .

Speaker #6: Since its exceptional in inception over 20 years ago . HireQuest, Inc. has been profitable each year through all of the economic downturns and consistently provided valuable operational and financial support to our franchisees over the long term .

Speaker #6: We are confident that this is a winning formula for shareholders . The overall staffing market is provided some mixed signals throughout 2025 , which is impacted , which has been impacted by a variety of macroeconomic factors , including tariffs , immigration policies and impending interest rate cuts .

Speaker #6: Our temp staffing and day labor offerings are outperforming permanent placement and executive search , which can be less predictable by nature . While demand for temp and day labor staffing can fluctuate based on locations and seasonality , our franchisees have a keen understanding of the market and with our support and resources , they are able to provide the very best and temporary and day labor staffing services .

Speaker #6: This dependability and service quality is what keeps our customers coming back to HireQuest, Inc. in the many geographies that we operate in throughout the United States .

Speaker #6: Snelling , our nationwide , temporary and direct hiring , recruiting service , performed well in the third quarter . Relative to our other offerings , with some of these franchisees scoring big wins , indicating at least a slight increase in demand for longer term staffing .

Speaker #6: In the light industrial and administrative fields . Permanent placement and executive search continues to lag , which has been the case for well over a year now .

Speaker #6: As many of you know , in addition to macro uncertainties that have been amplified by . Amplified by tariffs and other uncertainties . The MRI network mostly saw the .

Speaker #6: One of the biggest problems was the several MRI network franchisees elected to not renew their franchise agreements over the last few quarters , which has negatively impacted year over year comparisons .

Speaker #6: While this is unfortunate , our current MRI network franchisees saw shrinking declines in their Perm placement business over the quarter , which is positive .

Speaker #6: I do want to emphasize that MRI franchises operate differently from the traditional franchise model that you see in our higher Quest Direct or Snelling offices .

Speaker #6: Our MRI offices are more of a network of somewhat related recruiting firms . In fact , many of them have their own names instead of a tight network of offices that share the same name , brand and operating standards like HireQuest, Inc. , for example .

Speaker #6: In other words, these are essentially independent recruiting offices operating under the MRI umbrella, making franchisee retention less of a sure thing than our traditional model, especially in a down market.

Speaker #6: As always, M&A remains a key part of our growth strategy. There are several opportunities that we are looking at that could be immediately accretive to the higher cost model, and we're keeping our ears close to the ground for any new deals.

Speaker #6: This is an especially interesting time for deals , given the status of the market or smaller firms or long term owners eyeing retirement may be planning their exit strategies .

Speaker #6: We're constantly scanning for new opportunities, and we're well-equipped with the proven strategy that has helped us to close in and successfully implement numerous acquisitions over the lifespan of the company.

Speaker #6: With that said , I'll now turn over the call to David to provide a closer look at our third quarter financial results . David .

Speaker #7: Thank you . Rick , and good afternoon , everyone . Appreciate you all joining us today . I'll now provide a summary of our third quarter results .

Speaker #7: Total revenue was $8.5 million compared with revenue of $9.4 million in the prior year or a decrease of 9.8% . Our total revenue was 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 franchisees , as well as other miscellaneous revenue .

Speaker #7: Franchise royalties were 8.1 million , compared to 9 million for the same quarter last year , and our service revenue for the quarter was 387,000 , compared to 428,000 last year .

Speaker #7: Underlying these franchise royalties are system wide sales , which are not a part of our revenue , but are helpful contextual performance indicator .

Speaker #7: System wide sales reflect sales at all offices , including those classified as discontinued . System wide sales in the third quarter were 133.6 million , compared with 148.6 million last year .

Speaker #7: Sequentially, system-wide sales increased about 6.1% this year over Q2, which was favorable compared to last year when the increase was only 1.7%.

Speaker #7: The third quarter is typically our best sales period for HireQuest, Inc. and to a lesser extent , Snelling . And this year , both offerings saw double digit double digit sequential growth compared to .

Speaker #7: Only mid-single digits last year . Selling , general and administrative expenses in the third quarter were 5.1 million , compared to 5.4 million in the third quarter of 2020 .

Speaker #7: For I'd also like to point out that we recognized a workers compensation benefit in the third quarter of just under $100,000 , compared to Q3 of last year , when we had a net expense of 500,000 .

Speaker #7: We are pleased with the results from the changes we've implemented to our work comp program . But just so you guys don't get the wrong idea about the other expenses , I think it would be helpful to break down SG&A .

Speaker #7: Just a bit more for SG&A , which excludes the impact of net workers comp insurance , MRI , ad fund related expenses , and any other non-recurring operating expenses .

Speaker #7: We reported $4.6 million for the quarter, which is flat with last year. We provide a table in the press release issued earlier this afternoon with the detailed reconciliation of core SG&A to SG&A, as well as tables for the non-GAAP profitability metrics: net income to adjusted net income and net income to adjusted EBITDA that I'm going to talk about shortly.

Speaker #7: Our net income after tax this quarter was 2.3 million , or $0.16 per diluted share , compared to a net loss of 2.2 million , or a loss of $0.16 per diluted share last year .

Speaker #7: Adjusted net income for this quarter was 3.4 million , or $0.24 per diluted share , compared to last year , when it was 2.8 million , or $0.20 per diluted share .

Speaker #7: Adjusted EBITDA was 4.7 million , compared to 4.9 million last year , and our adjusted EBITDA margin this quarter rose to 55% from 52% last year .

Speaker #7: For both adjusted net income and adjusted EBITDA, a large component of the favorable year-over-year results this quarter can be attributed to our controlling of network comp expense.

Speaker #7: And while there have been times over the past few years where it would have been nice to be able to include it as an adjustment , we're pleased that the changes we've implemented in recent years are moving us in the right direction .

Speaker #7: Moving on to the balance sheet , our total assets as of September 30th , 2025 were 94.9 million , compared to 94 million at December 31st , 2024 .

Speaker #7: For an assets included 1.1 million in cash and 46.9 million of net accounts receivable . Well , current assets at 2024 year end included 2.2 million of cash and 42.3 million of net accounts receivable , working capital was 31.5 million as of September 30th , compared with 25.1 million at 2024 year end .

Speaker #7: Current liabilities were 42% of current assets as of December . As of September 30th versus 49% at 1231 , 2024 . We had a $2.2 million draw on our credit facility .

Speaker #7: As of September 30th , 2025 , and that gives us about 42.5 million in availability . Assuming continued covenant compliance . So that puts our net debt at the end of this quarter at around 1.1 million , which is down about a million from the end of Q2 .

Speaker #7: And down about 11 million compared to 930 2024 . So as we stand today , we have a good amount of flexibility and room for short term working capital needs , as well as the capacity to capitalize on potential acquisitions .

Speaker #7: We've paid a regularly regular quarterly dividend since the third quarter of 2020 . Most recently , we paid a six cent per common share dividend on September 15th , 2025 to shareholders of record as of September 1st .

Speaker #7: 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 .

Speaker #6: Thank you . David . As always , I'd like to thank our employees and franchisees for their hard work and commitment , and we can .

Speaker #6: We look forward to speaking with you again when we report our year end results in March . With that , we can now open the line to Thanks .

Speaker #6: questions . So , Kevin , thanks for the question . Good to talk to you . I don't know if I would go as far as it it has been stabilizing .

Speaker #6: Thank you , ladies and gentlemen , the floor is .

Speaker #8: Now open for questions . If you wish to join the queue to ask a question at this time , please press Star One on your telephone keypad .

Speaker #8: Once again , you may press star one at this time . If you wish to join the queue to ask a question . And we do ask if on speakerphone today that you pick up your handset while asking your question to provide optimal sound quality .

Speaker #8: Once again , that'll be star one . To join queue . Ask a question . At this time , please hold a moment while we poll for questions .

Speaker #8: And the first question today is coming from Kevin Steinke from Barrington . Kevin , your line is live . Please go ahead .

Speaker #9: Hey great . Thank you . I wanted to start out by asking about the day labor business sounded . Sounds like a little more optimism around that business .

Speaker #9: This quarter . I think , you know , the second quarter call . You talked about some of the , you softness in the manufacturing environment impacting that business .

Speaker #9: So I'm just wondering if there was a , you know , kind of a meaningful improvement in

Speaker #9: that business that you saw in the third quarter compared to the second quarter .

Speaker #6: I think is the is the best way of is the best way of putting it . And it's been generally you know , it's been generally a reasonable market for the on demand labor in many markets .

Speaker #6: We have a couple that are still a bit more troublesome that are that are typically are related to 1 or 2 clients that have either stopped using temporary staffing or , you know , or .

Speaker #6: There's just not the same volume that's there . So anyway , that's a muddled way of saying we're approaching the bottom . We think .

Speaker #6: But I mean , we did we were still down a bit , you know , overall , obviously from where we want it to be .

Speaker #6: But again , there is room for optimism . And I would say the other part is in the fourth quarter , we've had , obviously we're we're what we're we're five weeks in and of the five weeks in half of those weeks , we beat our prior year , year over year comparisons for the Snelling and Higher Quest Direct division .

Speaker #6: And , you know , the other couple of weeks we've been down . But so there's room for optimism that we're , you know , that we've hit that , you know , we've hit that bottom .

Speaker #9: Okay , good . And then you called out there some some big wins for the Snelling franchisees in the quarter . I mean , should we think about those as competitive takeaways or I don't know .

Speaker #9: Again, a sign of, I guess, as you said, at least some stabilization or small improvement in the market.

Speaker #6: So I think it's obviously large . The , the large wins are more just the result of , you know , exceptional franchisees earning more business .

Speaker #6: That said , even throughout its in most markets , it's been it's it's been better . And so you know Snelling in particular performed pretty well .

Speaker #6: Now, again, obviously large accounts are great when you get them, and they're terrible when you lose them. But this past quarter, we've been fortunate in that, you know, we picked up a couple more than what we lost.

Speaker #6: And so . You know , again , but it's more as you said though , it's more competitive wins than it is . You know , overall improvement .

Speaker #6: But again , that said , it's pretty stable right now . It seems . You know , it feels pretty stable right now .

Speaker #6: And so I say feels that's I point back to the , you know , where we are so far in the fourth quarter with a couple of weeks exceeding the prior , the prior year period , similar period .

Speaker #9: Okay . Got it . And in the discussion about MRI , you know , you talked about some non-renewal of franchisee agreements . Were there any meaningful non-renewals specific to the third quarter or were you kind of talking about quarters previous to the third quarter ?

Speaker #6: Yeah , the and I think we I don't recall which quarter we addressed it , but , you know , there were a couple of especially in the first quarter , you know , there were there were a couple of good sized departures .

Speaker #6: And so we're obviously seeing those in the comparisons now . And what I , what I would say , what you know , what is a positive sign is during the quarter same , you know , sort of active ongoing MRI franchisees by by the end of the quarter , we're starting to run flat , almost flat anyway with the prior , with the prior year end period or not , I mean , the prior year , similar period .

Speaker #6: So again , while the , you know , the active offices were still declining , like I said , that leveled out by the end of the quarter , whereas most of the decline came from those closed or , you know , the basically people who had left the network .

Speaker #6: Now , look , I'm not going to sugarcoat it , people losing the network , you know , leaving the network is not is not good for us .

Speaker #6: But like I said , from a sentiment of where the market stands , you know , it again indicates that the market seems to have bottomed out or certainly stabilized .

Speaker #9: Okay . Yeah , I understood maybe just a couple more . I mean , you mentioned looking , you're looking at several accretive M&A opportunities .

Speaker #9: Just kind of wondering what the pipeline looks like in this market environment . You know , has it is it picked up a bit given , you know , maybe some of the stress on some of your smaller competitors ?

Speaker #6: It's been surprisingly stable , you know , and we're obviously always in the market to buy competitors . And there are always competitors that are available .

Speaker #6: I would have thought there would have been a bit more opportunities than maybe what there are , but there's plenty . So don't read that the wrong way .

Speaker #6: So , you know , there's there's certainly plenty . I think part of it we tend to it's towards this time of the year when we start seeing more activity .

Speaker #6: Anyway , people try to get through , you know , get through the year so that they have full year results to , you know what I'm saying , so that they can package it when they go to sell it .

Speaker #6: Whereas a lot of people are , you know , they're not going to optimize their , their exit multiple if they're working off of interim , you know , off of interim numbers .

Speaker #6: So I would expect a bit more opportunities over the next , let's say , 3 to 6 months . But there's plenty as they there are plenty of them as they are right now .

Speaker #6: I'd like to think that they would be better . But again , they are better than what they were . Certainly three years ago , which just reflects the state of the market .

Speaker #9: Okay , understood . And then lastly , I just wanted to ask about tighter immigration . Immigration enforcement , and you had talked on the last quarter's call about that driving some new business for you , given , you less competition from undocumented workers or , you know , companies that use undocumented workers , is that friend continued , or is that kind of helping your pipeline still ?

Speaker #10: So so here's .

Speaker #6: Here's the thing . There are absolutely a couple of decent sized business wins that we can point directly towards immigration enforcement without question , has to be honest with you , the a lot of the reports that I've seen , you know , state that more than 2 million people have self-reported .

Speaker #6: I really would have expected a much larger uptick in our demand if that were the case . So I'll admit , I don't know how they how they calculated , you know , the 2 million people self-reported .

Speaker #6: If they did . You know , it . Like I said , it just seems like our demand would be stronger . So I'm a bit skeptical .

Speaker #6: I'll admit , I'm skeptical about that . That said , a lot of this is cumulative as well . You know , we're we're in a situation where , you know , the number of people coming in has has been at a very low point now for , you know , 11 months , ten months and , you know , and so part of that takes a while for it to , to to roll through , I think that what's going to be important in combination with immigration enforcement is once some of these , let's say re-assured facilities actually start employing non-construction people , meaning , you know , you know , basically start staffing up the factories themselves .

Speaker #6: That also hopefully push up , push up demand . And so when you read , okay , you know , Japan has agreed to , you know , invest $500 billion in American plants .

Speaker #6: Well , it doesn't mean that , you know , you snap your fingers and those plants are built and and all of a sudden there's 150 , 200,000 new jobs .

Speaker #6: So those are will while to fit in . But again , if immigration remains at such a low point and that continues on , it's a very favorable , you know , it should be a very favorable trend for us or , you know , it should create a big tailwind for us .

Speaker #9: Okay , great . Well , thanks . Thanks for the insight . I will turn it back over .

Speaker #6: Thank you . Kevin .

Speaker #8: Thank you . And as a reminder , if you wish to join the queue to ask a question at this time , you may press Star one on your keypad .

Speaker #8: Once again , you may press star one if you wish to ask a question at this time . And there are no further questions in queue , I would now like to hand the floor back to management for closing remarks .

Speaker #6: I want to thank everybody for joining us today for our earnings call . Again , I want to thank our employees , our franchisees and our investors .

Speaker #6: It's been a challenging , really , 11 quarters now . But what is hopefully been demonstrated through all of this is we remain profitable despite the challenging environment .

Speaker #6: And when you look at our peer group , there are , you know , it is covered with red ink , whereas we've remained profitable , which is which is one of the main attractions of our model .

Speaker #6: And so and I think that this quarter is a great demonstration of that , that despite weak , you know , weak er demand than what we would prefer , you know , we remain solidly profitable and with good adjusted EBITDA despite the relatively challenging circumstances .

Speaker #6: And so again , thank you for joining us . And we look forward to talking to you again in March . Thank you .