HireQuest Reports Financial Results for Fourth Quarter and Year End 2023
- Franchise royalties and total revenue increased in Q4 and full year 2023.
- SG&A expenses rose significantly due to workers' compensation costs and acquisitions.
- Net income from continuing operations decreased in both Q4 and full year 2023.
- Adjusted EBITDA declined slightly in Q4 2023.
- CEO emphasized growth strategies, acquisitions, and cost control efforts for future profitability.
- Net income from continuing operations decreased significantly in Q4 and full year 2023.
- SG&A expenses surged due to workers' compensation costs and acquisitions.
- Adjusted EBITDA declined slightly in Q4 2023.
Insights
The reported financial results from HireQuest indicate a mixed performance, with significant revenue growth but a notable decline in net income and adjusted EBITDA. This divergence is primarily attributed to increased SG&A expenses, particularly workers' compensation costs. The company's strategy to manage these expenses going forward will be critical to their financial health. Additionally, the impact of recent acquisitions, such as MRINetwork and TEC Staffing Services, on the company's financials highlights the importance of effective integration and cost control in M&A activities.
Investors should pay attention to the company's efforts to mitigate the increased workers' compensation expense, as it has a direct impact on profitability. The company's commitment to a dividend, despite the decreased net income, suggests confidence in future cash flows. However, the sustainability of this policy should be monitored in light of the company's financial performance.
The staffing industry is sensitive to economic cycles and HireQuest's ability to grow revenue in a challenging economic climate reflects resilience and effective execution of its growth strategy. The company's focus on diversification through acquisitions could bolster its position in the market. However, the general decline in system-wide sales from existing operations suggests underlying industry headwinds that may persist.
Investors should consider the long-term viability of HireQuest's growth strategy, particularly how the company adapts to industry trends and economic conditions. The emphasis on earnings per share over absolute earnings is a strategic focus that could appeal to investors looking for efficiency and profitability.
Workers' compensation is a significant risk factor for staffing companies and HireQuest's increased expenses in this area have adversely affected their bottom line. Their proactive steps to manage this risk could be a critical factor in improving future profitability. The increase in SG&A expenses, even after excluding non-recurring costs, warrants a closer look at the company's operational efficiency and cost management practices.
From a risk perspective, the company's liquidity and capital structure remain important. The available line of credit and the reduced total liabilities from the previous year provide some financial flexibility. However, the decrease in cash reserves could be a concern if the company faces unexpected expenses or a downturn in the staffing industry.
GOOSE CREEK, SC / ACCESSWIRE / March 21, 2024 / HireQuest, Inc. (Nasdaq:HQI), a national franchisor of direct dispatch, executive search, and commercial staffing services, today reported financial results for the fourth quarter and year ended December 31, 2023.
Fourth Quarter 2023 Summary
- Franchise royalties increased
15.9% to$8.9 million compared to$7.7 million in the prior year period. - Total revenue increased
21.3% to$9.8 million compared to$8.0 million in the prior year period. Total revenue in Q4 2023 includes$515,000 of advertising fund revenue for MRINetwork. - Selling, general and administrative ("SG&A") expenses increased
40.2% to$6.6 million compared to$4.7 million in the prior year period. The increase in SG&A is primarily due to a$1.2 million net increase in workers' compensation expense, the inclusion of MRINetwork's advertising fund expenses of$515,000 , as well as increased expenses to support growth in system-wide sales as a result of organic growth and acquisitions. Excluding workers' compensation, impairment of notes receivable, and MRINetwork's advertising fund, SG&A for the quarter would have increased2.1% to$4.5 million compared to$4.4 million in the prior year period. - Income from operations decreased
12.2% to$2.4 million compared to$2.8 million in the prior year period. - Net income from continuing operations was
$467,000 , or$0.03 per diluted share, a decrease of82.3% compared to net income from continuing operations of$2.6 million , or$0.19 per diluted share in the prior year period, primarily related to increased SG&A expenses and other miscellaneous expenses related to the resale of TEC Staffing Services' offices to franchisees in the quarter. Net income was$16,000 compared to$2.7 million in the prior year period. - Adjusted EBITDA was
$4.3 million compared to$4.4 million in the prior year period.
Full Year 2023 Summary
- Franchise royalties increased
23.9% to$35.8 million compared to$28.9 million in the prior year period. - Total revenue increased
22.4% to$37.9 million compared to$31.0 million in the prior year period. Total revenue in 2023 includes$515,000 of advertising fund revenue for MRINetwork. - SG&A increased
89.9% to$24.4 million compared to$12.9 million in the prior year period. The increase in SG&A expenses is primarily related to the$5.6 million net increase in workers' compensation expense, the inclusion of MRINetwork's advertising fund expenses of$515,000 , as well as increased expenses to support growth in system-wide sales and integration expenses related to acquisitions. Excluding workers' compensation, impairment of notes receivable, and MRINetwork's advertising fund, SG&A would have increased36.3% to$19.7 million compared to$14.5 million in the prior year period. - Income from operations decreased
33.7% to$10.6 million compared to$16.0 million in the prior year period. - Net income from continuing operations was
$6.4 million , or$0.47 per diluted share, compared to net income of$12.0 million , or$0.87 per diluted share in the prior year period. Net income was$6.1 million compared to$12.5 million in the prior year period. - Adjusted EBITDA was
$16.5 million compared to$22.0 million in the prior year period.
System-wide sales for the fourth quarter of 2023 increased to
Rick Hermanns, HireQuest's President and Chief Executive Officer, commented, "Our fourth quarter and full year 2023 results were characterized by the continued execution of our growth strategy and the strength of our business model as we achieved revenue growth and profitability despite the ongoing challenging economic environment for the staffing industry.
"Our bottom line was again impacted by increased workers' compensation expense in the quarter which increased our SG&A on both a quarterly and full year basis. As a provider of temporary labor and commercial staffing services, workers compensation insurance is an essential component of our business. While this expense increased in 2023, we have taken steps to reduce its potential impact going forward and expect to see those efforts manifest in 2024."
"We continued our acquisition strategy in 2023 while maintaining our strong balance sheet. The acquisition of TEC Staffing Services in the fourth quarter expanded our Snelling operations in northwest and central Arkansas. As previously mentioned, TEC has been fully integrated and required de minimis additional overhead. We believe TEC royalties will be highly accretive to our results in 2024 and restore some of the operating leverage lost in a challenging staffing economy. Moreover, the integration of MRINetwork is largely complete and the business is demonstrating healthy profitability despite lower revenues as a result of industry headwinds. Overall, we're pleased with the performance of our acquisition strategy, and we continue to monitor the market for accretive M&A opportunities. We are a more diversified company than five years ago, and we will continue on this path to build resilience into the business."
Mr. Hermanns concluded, "Our performance in both the fourth quarter and full year of 2023 is a validation of our ability to drive growth and profitability in nearly any economic environment. We're working diligently to grow our business, controlling what we can control, and reducing our expenses to improve our bottom line. Our focus is on increasing earnings per share, over absolute earnings, and we're committed to allocating capital to the highest and best risk adjusted return. We believe that HireQuest is well positioned to continue driving long-term value for our shareholders in 2024 and beyond."
Fourth Quarter 2023 Financial Results
Franchise royalties in the fourth quarter of 2023 were
SG&A expenses in the fourth quarter of 2023 were
Excluding workers' compensation, impairment of notes receivable, and MRINetwork's advertising fund, SG&A expenses in the fourth quarter of 2023 would have increased
Depreciation and amortization in the fourth quarter of 2023 was approximately
Other miscellaneous expense for the fourth quarter of 2023 was approximately
Interest and other financing expense in the fourth quarter of 2023 was approximately
Net income from continuing operations in the fourth quarter of 2023 decreased
Adjusted EBITDA for the fourth quarter of 2023 was
Full Year 2023 Financial Results
Franchise royalties for the full year of fiscal 2023 were
SG&A expenses for the full year 2023 were
Excluding workers' compensation, impairment of notes receivable, and MRINetwork's advertising fund, SG&A expenses would have increased
For the full year of 2023, other miscellaneous expense was approximately
Income tax expense was approximately
Net income from continuing operations in the year-to-date period for 2023 was
Adjusted EBITDA for the full year of 2023 was
Balance Sheet and Capital Structure
Cash was
Working capital as of December 31, 2023, was
At December 31, 2023, assuming continued covenant compliance, availability under the line of credit was approximately
On March 15, 2024, the Company paid a quarterly cash dividend of
Conference Call
HireQuest will hold a conference call to discuss its financial results.
Date: Thursday, March 21, 2024
Time: 4:30 p.m. Eastern time
Toll-free dial-in number: 888-506-0062
International dial-in number: 973-528-0011
Entry Code: 576293
Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization.
The conference call will be broadcast live and available for replay at https://www.webcaster4.com/Webcast/Page/2359/50086 and via the investor relations section of HireQuest's website at www.hirequest.com.
A replay of the conference call will be available through Thursday, April 4, 2024.
Toll Free: 877-481-4010
International: 919-882-2331
Replay Passcode: 50086
About HireQuest
HireQuest, Inc. is a nationwide franchisor of direct dispatch, executive search, and commercial staffing solutions for HireQuest Direct, HireQuest, Snelling, HireQuest Health, DriverQuest, TradeCorp, MRINetwork, SearchPath Global, and Northbound Executive Search franchised offices across the United States. Through its national network of over 400 franchisee-owned offices across the United States, HireQuest provides employment for approximately 73,000 individuals annually that work for thousands of customers in numerous industries including construction, light industrial, manufacturing, hospitality, clerical, medical, travel, financial services, and event services. For more information, visit www.hirequest.com.
Important Cautions Regarding Forward-Looking Statements
This news release includes, and the company's officers and other representatives may sometimes make or provide certain estimates and other forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act, including, among others, statements with respect to future economic conditions, future revenue or sales and the growth thereof; the results achieved by our workers' compensation programs; operating results; anticipated benefits of acquisitions, or the status of integration of those entities; the declaration, or not, of future dividends; returns on our capital allocation strategy; and other similar statements. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will," and similar references to future periods.
While the company believes these statements are accurate, forward-looking statements are not historical facts and are inherently uncertain. They are based only on the company's current beliefs, expectations, and assumptions regarding the future of its business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. The company cannot assure you that these expectations will occur, and its actual results may be significantly different. Therefore, you should not place undue reliance on these forward-looking statements. Important factors that may cause actual results to differ materially from those contemplated in any forward-looking statements made by the company include the following: the level of demand and financial performance of the temporary staffing industry; the financial performance of the company's franchisees; changes in customer demand; economic uncertainty caused by macroeconomic trends including potential inflation or a recessionary environment; uncertainty in the supply chain or economy caused by Russia's invasion of Ukraine, the war between Israel and Palestine, or other global conflict; the relative success or failure of acquisitions and new franchised offerings; our success in reducing workers' compensation expenses; the extent to which the company is successful in gaining new long-term relationships with customers or retaining existing ones, and the level of service failures that could lead customers to use competitors' services; significant investigative or legal proceedings including, without limitation, those brought about by the existing regulatory environment or changes in the regulations governing the temporary staffing industry and those arising from the action or inaction of the company's franchisees and temporary employees; strategic actions, including acquisitions and dispositions and the company's success in integrating acquired businesses including, without limitation, successful integration following any of our various acquisitions; success or failure in determining how to allocate capital; disruptions to the company's technology network including computer systems and software; natural events such as severe weather, fires, floods, and earthquakes, or man-made or other disruptions of the company's operating systems; and the factors discussed in the "Risk Factors" section and elsewhere in the company's most recent Annual Report on Form 10-K and the quarterly reports on Form 10-Q filed thereafter.
Any forward-looking statement made by the company or its management in this news release is based only on information currently available to the company and speaks only as of the date on which it is made. The company and its management disclaim any obligation to update or revise any forward-looking statement, whether written or oral, that may be made from time to time, based on the occurrence of future events, the receipt of new information, or otherwise, except as required by law.
Non-U.S. GAAP Financial Measures
This document contains supplemental financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Management uses these non-U.S. GAAP measures in its analysis of the Company's performance. These measures should not be considered a substitute for U.S. GAAP basis measures nor should they be viewed as a substitute for operating results determined in accordance with U.S. GAAP. Management believes the presentation of non-U.S. GAAP financial measures that exclude the impact of specified items provide useful supplemental information that is essential to a proper understanding of the Company's financial condition and results. Non-U.S. GAAP measures are not formally defined under U.S. GAAP, and other entities may use calculation methods that differ from those used by us. As a complement to U.S. GAAP financial measures, our management believes these non-U.S. GAAP financial measures assist investors in comparing the financial condition and results of operations of financial institutions due to the industry prevalence of such non-U.S. GAAP measures. See the tables below for a reconciliation of these non-U.S. GAAP measures to the most directly comparable U.S. GAAP financial measures.
Company Contact:
HireQuest, Inc.
David Hartley, Vice President of Corporate Development
(800) 835-6755
Email: cdhartley@hirequest.com
Investor Relations Contact:
IMS Investor Relations
John Nesbett/Jennifer Belodeau
(203) 972-9200
Email: hirequest@imsinvestorrelations.com
- Tables Follow -
HireQuest, Inc.
Consolidated Balance Sheets
(in thousands except par value data) | December 31, 2023 | December 31, 2022 | ||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 1,342 | $ | 3,049 | ||||
Accounts receivable, net of allowance for doubtful accounts | 44,394 | 45,728 | ||||||
Notes receivable | 1,788 | 817 | ||||||
Prepaid expenses, deposits, and other assets | 3,283 | 1,833 | ||||||
Prepaid workers' compensation | 646 | 503 | ||||||
Total current assets | 51,453 | 51,930 | ||||||
Property and equipment, net | 4,280 | 4,353 | ||||||
Workers' compensation claim payment deposit | 1,469 | 1,231 | ||||||
Franchise agreements, net | 21,440 | 23,144 | ||||||
Other intangible assets, net | 10,162 | 10,690 | ||||||
Goodwill | 5,870 | 5,870 | ||||||
Deferred tax asset | 325 | - | ||||||
Other assets | 102 | 325 | ||||||
Notes receivable, net of current portion and reserve | 7,834 | 2,675 | ||||||
Intangible assets held for sale - discontinued operations | 891 | 3,065 | ||||||
Total assets | $ | 103,826 | $ | 103,283 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 137 | $ | 448 | ||||
Line of credit | 14,119 | 12,543 | ||||||
Term loans payable | 514 | 704 | ||||||
Other current liabilities | 2,338 | 3,408 | ||||||
Accrued payroll, benefits, and payroll taxes | 4,286 | 5,602 | ||||||
Due to franchisees | 9,881 | 9,846 | ||||||
Risk management incentive program liability | 565 | 877 | ||||||
Workers' compensation claims liability | 3,871 | 3,352 | ||||||
Total current liabilities | 35,711 | 36,780 | ||||||
Term loans payable, net of current portion | 132 | 3,291 | ||||||
Workers' compensation claims liability, net of current portion | 2,766 | 2,573 | ||||||
Deferred tax liability | - | 60 | ||||||
Franchisee deposits | 2,485 | 2,325 | ||||||
Total liabilities | 41,094 | 45,029 | ||||||
Commitments and contingencies (Note 11) | ||||||||
Stockholders' equity | ||||||||
Preferred stock - | - | - | ||||||
Common stock - | 14 | 14 | ||||||
Additional paid-in capital | 34,527 | 32,844 | ||||||
Treasury stock, at cost - 43,849 and 33,092 shares, respectively | (146 | ) | (146 | ) | ||||
Retained earnings | 28,337 | 25,542 | ||||||
Total stockholders' equity | 62,732 | 58,254 | ||||||
Total liabilities and stockholders' equity | $ | 103,826 | $ | 103,283 | ||||
HireQuest, Inc.
Consolidated Statement of Income
| Three months ended (unaudited) | Twelve months ended | |||||||||||||||
(in thousands, except per share data) | December 31, 2023 | December 31, 2022 | December 31, 2023 | December 31, 2022 | ||||||||||||
Franchise royalties | $ | 8,893 | $ | 7,671 | $ | 35,813 | $ | 28,897 | ||||||||
Service revenue | 871 | 378 | 2,069 | 2,055 | ||||||||||||
Total revenue | 9,764 | 8,049 | 37,882 | 30,952 | ||||||||||||
Selling, general and administrative expenses | 6,624 | 4,723 | 24,448 | 12,874 | ||||||||||||
Depreciation and amortization | 698 | 544 | 2,793 | 2,040 | ||||||||||||
Income from operations | 2,442 | 2,782 | 10,641 | 16,038 | ||||||||||||
Other miscellaneous income | (1,997 | ) | (26 | ) | (1,738 | ) | (2,047 | ) | ||||||||
Interest income | 67 | 49 | 263 | 247 | ||||||||||||
Interest and other financing expense | (230 | ) | (112 | ) | (1,386 | ) | (368 | ) | ||||||||
Net income before income taxes | 282 | 2,693 | 7,780 | 13,870 | ||||||||||||
Provision (benefit) for income taxes | (185 | ) | 49 | 1,345 | 1,895 | |||||||||||
Net income from continuing operations | 467 | 2,644 | 6,435 | 11,975 | ||||||||||||
Income from discontinued operations, net of tax | (451 | ) | 74 | (300 | ) | 483 | ||||||||||
Net income | $ | 16 | $ | 2,718 | $ | 6,135 | $ | 12,458 | ||||||||
Basic earnings per share | ||||||||||||||||
Continuing operations | $ | 0.03 | $ | 0.19 | $ | 0.47 | $ | 0.87 | ||||||||
Discontinued operations | (0.03 | ) | 0.01 | (0.02 | ) | 0.04 | ||||||||||
Total | $ | - | $ | 0.20 | $ | 0.45 | $ | 0.91 | ||||||||
Diluted earnings per share | ||||||||||||||||
Continuing operations | $ | 0.03 | $ | 0.19 | $ | 0.47 | $ | 0.87 | ||||||||
Discontinued operations | (0.03 | ) | 0.01 | (0.02 | ) | 0.04 | ||||||||||
Total | $ | - | $ | 0.20 | $ | 0.45 | $ | 0.91 | ||||||||
Weighted average shares outstanding (in thousands) | ||||||||||||||||
Basic | 13,783 | 13,676 | 13,733 | 13,654 | ||||||||||||
Diluted | 13,830 | 13,741 | 13,801 | 13,721 | ||||||||||||
HireQuest, Inc.
Non-U.S. GAAP - Reconciliation of Net Income to Adjusted EBITDA
(unaudited)
| Three months ended | Twelve months ended | |||||||||||||||
(in thousands) | December 31, 2023 | December 31, 2022 | December 31, 2023 | December 31, 2022 | ||||||||||||
Net income | $ | 16 | $ | 2,718 | $ | 6,135 | $ | 12,458 | ||||||||
Interest expense | 230 | 112 | 1,386 | 368 | ||||||||||||
Provision for income taxes | (185 | ) | 49 | 1,345 | 1,895 | |||||||||||
Depreciation and amortization | 698 | 544 | 2,793 | 2,040 | ||||||||||||
EBITDA | 759 | 3,423 | 11,659 | 16,761 | ||||||||||||
WOTC related costs | 122 | 150 | 461 | 601 | ||||||||||||
Non-cash compensation | 555 | 479 | 1,483 | 1,673 | ||||||||||||
Acquisition related charges, net | 2,618 | 262 | 2,344 | 2,660 | ||||||||||||
Impairment of notes receivable | 240 | 117 | 540 | 350 | ||||||||||||
Adjusted EBITDA | $ | 4,294 | $ | 4,431 | $ | 16,487 | $ | 22,045 | ||||||||
HireQuest, Inc.
Supplemental Metrics - SG&A Breakdown
(unaudited)
| Three months ended | Twelve months ended | |||||||||||||||
(in thousands) | December 31, 2023 | December 31, 2022 | December 31, 2023 | December 31, 2022 | ||||||||||||
Core SG&A | $ | 4,534 | $ | 4,440 | $ | 19,715 | $ | 14,469 | ||||||||
Net workers' compensation expense (benefit) | 1,335 | 166 | 3,678 | (1,945 | ) | |||||||||||
Impairment of notes receivable | 240 | 117 | 540 | 350 | ||||||||||||
MRINetwork advertising fund expenses | 515 | - | 515 | - | ||||||||||||
SG&A | $ | 6,624 | $ | 4,723 | $ | 24,448 | $ | 12,874 | ||||||||
SOURCE: HireQuest Inc.
View the original press release on accesswire.com
FAQ
What were the franchise royalties for HireQuest (HQI) in Q4 2023?
How did total revenue change for HireQuest (HQI) in Q4 2023?
Why did SG&A expenses increase for HireQuest (HQI) in Q4 2023?
What was the net income from continuing operations for HireQuest (HQI) in Q4 2023?
How did adjusted EBITDA change for HireQuest (HQI) in Q4 2023?
