Yahoo Finance HireQuest, Inc. (NASDAQ:HQI) Q1 2024 Earnings Call Transcript
HireQuest, Inc. (NASDAQ:HQI) Q1 2024 Earnings Call Transcript May 11, 2024
HireQuest, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. Welcome to the HireQuest, Inc. First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, John Nesbett of IMS Investor Relations. You may begin.
John Nesbett: Thank you, operator. I’d like to welcome everyone to the call. Hosting the call today are HireQuest’s Chief Executive Officer, Rick Hermanns; and Chief Financial Officer, Steve Crane. I’d like to take a moment to read the Safe Harbor statement. This conference call contains forward-looking statements as defined within the 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 and depend on circumstances that will occur in the future. These statements include statements regarding the intent, belief or current expectations of HireQuest and members of its management as well as the assumptions on which such statements are based.
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 HireQuest’s periodic reports filed with the SEC 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 changed conditions. I would now like to turn the call over to the CEO of HireQuest, Rick Hermanns. Please go ahead, Rick.
Rick Hermanns: Thank you, everyone, for joining today’s call. I’ll begin by providing an overview of our financial and strategic highlights from the first quarter of 2024, and then I’ll turn the call over to Steve, who will share more details around our first quarter financial results. Our first quarter results were in line with our expectations with franchise royalties of $7.8 million, total revenue of $8.4 million and net income from continuing operations of $1.7 million or $0.12 a share. Overall, we delivered a solid performance given the current economic headwinds that continue to affect the U.S. staffing market. While the overall environment for staffing solutions in the United States is currently a difficult one, the impact on our individual franchisees varies by geography and industry focus.
During the first quarter, our HireQuest direct franchisees spared the best of the three primary offerings due in part to geographic factors. While MRI network, specifically firm placements struggled the most consistent with what we’ve seen from our peers in that segment. We expect to see general demand increase as we move into the second and third quarters, which are traditionally stronger for our business as demand for temporary staffing tends to increase as a result of normal seasonal factors. Our diverse group of staffing solutions is well-positioned to capitalize on increased demand with employers becoming more comfortable adding headcount to their operations. As we’ve done effectively for several quarters now, our focus is on controlling what we can control.
Our core SG&A decreased year-over-year in the quarter to $4.9 million from $5.7 million in the first quarter of 2023. In the first quarter of 2024, orders compensation expense was $572,000, which represented a significant sequential decrease from $1.3 million in the fourth quarter of 2023. We stated – we started our new policy year at the beginning of March, and were encouraged by the results from the changes we implemented this year. As I explained on last quarter’s call, there are two primary factors that impact our workers’ compensation levels. First, the difference between our net premium amounts collected and ours and our expected losses for the policy year. And second, any changes to the expected losses up or down for prior policy years.
The 2023 policy year was historically bad for our business and negatively impacted our bottom line over the last several quarters. That said, at this point, with the visibility that we have today, we see no indication of the 2023, 2024 policy year, repeating the same trend. Additionally, we proactively worked with our carrier to adjust our plan for the current policy year, which began March 1 to mitigate the factors in our control that contributed to the large expenses we experienced last calendar year. We are intently focused on reducing our workers’ compensation expense. And as we progress through 2024, we believe that we are well-positioned to continue mitigating the impact of workers’ compensation on our business as these numbers return to normalized levels.
M&A remains a key part of our business as well. Our strategy around M&A is to identify accretive acquisitions that allow us to expand and strengthen our diverse group of staffing offerings while simultaneously keeping our debt leverage low and maintaining a strong balance sheet. Over the past several years, we made numerous acquisitions that have significantly expanded our staffing offerings, geographic presence and addressable market. Our focus on organic growth combined with strategic acquisitions has driven significant revenue growth, enhanced our product offerings and expanded our addressable market, and we remain intently focused on scanning the market for other opportunities that will benefit our business. Overall, we’re pleased with the results that we were able to deliver in this quarter given the circumstances.
As demand for staffing solutions continue to recover, we believe that we are ideally positioned to leverage our proven and growing model of over 400 franchise-owned offices across the United States and the world and to drive increased value for our shareholders. Now, I’ll pass on the call to our Chief Financial Officer, Steve Crane, who will provide a closer look at the first quarter results. Steve?
Steve Crane: Thank you, Rick. Good afternoon, everyone. Thank you for joining us today. Total revenue for the first quarter of 2024 was $8.4 million, compared to $9.9 million for the same quarter last year, a decrease of 14.6%. 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 charge for our franchisees, other miscellaneous revenue and pass-through revenue from MRI Networks advertising fund. Franchise royalties for the first quarter were $7.8 million compared to $9.3 million for the same quarter last year. Underlying the royalties are system-wide sales, which are not part of our revenue but are helpful contextual performance indicator.
System-wide sales reflect sales at all offsets, including those classified as discontinued. System-wide sales for the first quarter were $134 million compared to $153.5 million for the same period in 2023. Service revenue was $588,000 for the fourth quarter compared to $534,000 for the same quarter a year ago. Service revenue is composed of interest charge to our franchisees on overdue accounts receivable, service fees, other miscellaneous revenue and MRI networks advertising fund revenue. The ad fund revenue contributed $101,000 in the first quarter of 2024. The Service revenue can fluctuate from quarter-to-quarter based on a number of factors, including growth in system-wide sales, changes in accounts receivable, insurance renewals and similar dynamics.
SG&A expenses for the first quarter were $5.6 million compared to $5.8 million in the prior year period. MRI network advertising fund expenses of $101,000 are included in our first quarter 2024 results. In the first quarter, workers’ compensation expense was approximately $572,000 compared to approximately $185,000 in the first quarter of 2023, and decreased sequentially from an expense of $1.3 million in the fourth quarter of 2023. This is an encouraging trend that reflects our more proactive approach to the impact that workers’ compensation has had on our results in recent quarters. Also included in our first quarter SG&A were salaries and benefits of $3 million, a decrease of 15.7% compared to $3.6 million in the first quarter of 2023 related to headcount reductions and lower bonus accrued expense.
Net income, which includes income from operations adjusted for miscellaneous items, interest, income taxes and discontinued operations was $1.6 million in the first quarter of 2024 compared to $2.6 million in the prior year period. Net income from continuing operations for the quarter was $1.7 million or $0.12 per diluted share compared to net income from continuing operations of $2.3 million or $0.17 per diluted share in the first quarter of last year. Adjusted EBITDA in the first quarter of 2024 was $3.4 million compared to $4.6 million in the first quarter of last year. 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-Q, which was filed this afternoon.
Moving on now to the balance sheet. Our current assets at March 31, 2024, were $55.1 million compared to $51.5 million at December 31, 2023. Current assets as of March 31, 2024, included $1.6 million of cash and $47.7 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 $18 million at March 31, 2024, versus year-end 2023 when working capital was $15.7 million. Current liabilities were 67.3% of current assets at March 31, 2024, versus 69.4% of current assets at December 31, 2023. At March 31, 2024, we had $16.1 million drawn on our credit facility and another $24.2 million in availability, assuming continued covenant compliance.
We believe our credit facility provides us with flexibility and room for short-term working capital needs as well as the capacity capitalized on potential acquisitions. We have paid a regular quarterly dividend since the third quarter of 2020 and continuing that pattern, we paid a $0.06 per share dividend on March 15, 2024, shareholders of record as of March 1. We expect to continue to pay a dividend each quarter subject to the Board’s discretion. With that, I’ll turn the call back over to Rick for some closing comments.
Rick Hermanns: Thank you, Steve. We’re pleased with our first quarter results given the current economic environment and are encouraged by the trend we’re seeing in the market. I’d like to thank our employees and franchisees for their hard work and dedication in this quarter, and we remain optimistic about what’s ahead for our business and the staffing industry in the second half of 2024. With that, we can now open the line to questions. Thank you.
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