HireQuest, Inc. Q3 FY2024 earnings call

• Total revenue had slight growth in Q3 2024 compared to Q3 2023 and sequential growth of 8.5% from Q2 2024.
• System-wide sales for temporary staffing brands grew 3.6% YOY for the first time since Q1 2023.
• SG&A expenses reduced by over 15% in Q3 2024 compared to Q3 2023, with workers' compensation expense down nearly 67%.
• Recognized a one-time non-cash impairment charge of over $6 million related to MRI Network assets, which impacted profitability. Excluding this charge, adjusted net income increased 29% YOY in Q3 2024.
• Current assets at September 30, 2024, were $58 million, with $1.6 million in cash and $50.5 million in net accounts receivable.

Total revenue for the third quarter of 2024 was $9.4 million, an increase of 1.6% compared to the third quarter of 2023. Franchise royalties were $9 million in Q3 2024, up from $8.9 million in Q3 2023. System-wide sales for temporary staffing brands grew 3.6% year-over-year. Service revenue was $428,000 in Q3 2024, compared to $366,000 in Q3 2023. Selling general and administrative expenses decreased by 15.3% to $5.4 million in Q3 2024 from $6.4 million in Q3 2023. Net workers' compensation expense in Q3 2024 was approximately $499,000, down from $1.5 million in Q3 2023.

• Believes the staffing market is beginning to level out and is positioned for improved results in the balance of 2024 and into 2025.
• Expect to capitalize on a stabilizing staffing market and continue prudent expense management.
• View permanent placement and executive recruiting as a long-term opportunity with MRI Network as a cornerstone of growth strategy.

• Headwinds from the presidential election, unpredictable economic landscape, and influx of undocumented workers affecting lower-tier labor force.
• Protracted industry-wide downturn in permanent placement and executive recruiting market impacting MRI Network's performance.

Q: A lot of CEOs have been saying there's a lot of uncertainty out there because of the election. Now, why do you think things are getting better? What's getting better in the environment? And how does the resolution of the election lead to even more improvement?

A: Reduction of interest rates helps commercial real estate and construction; change in federal handling of illegal immigration; market normalizing post-pandemic with franchisees returning to pre-pandemic habits.

Q: Are there specific lines of business or types of businesses that are getting better? Are you actually starting to see commercial real estate and construction get better? And same question, geographically.

A: Commercial construction has been strong since 2020; strong in Texas, Tennessee, Florida, Georgia; Mid-Atlantic is getting stronger; skilled trades division picking up.

Q: You talked about temporary staffing returning to system-wide sales growth. But at the same time, the executive recruiting and permanent staffing market being a little tougher. I'm just wondering, if you're seeing signs of stabilization or improvement on the permanent staffing side, and your outlook or your level of optimism for that part of the business?

A: Perm placement business has been tough for seven quarters; optimism based on market normalizing from abnormally low levels post-2022 overhang; offices readjusting to more aggressive habits.

Q: On the expense side, you've talked about the core SG&A in the past and then also the workers' compensation expense. I was wondering if you could review those numbers.

A: Net workers' comp expense was about $500,000 in Q3 2024 vs $1.5 million in Q3 2023; core SG&A stayed flat at $5.4 million, overall SG&A dropped due to improvement in workers' comp.

Q: With the demand picture appearing to pick up here do you think you can hold those core SG&A expenses relatively flat?

A: Yes, can take on 5%-10% sales increase with no appreciable increase in SG&A needs; potential for wages to go up, so perm payroll expenses may go up but headcount will stay almost flat.

Q: You've talked in previous calls with this softer demand environment that it typically has created more acquisition opportunities for you. Just wondering if that's been the case still or what the pipeline looks like and your overall appetite for continuing.

A: Made two small acquisitions in the last three months; have a fair number of deals in the pipeline; tends to look towards commercial staffing opportunities, fitting in nicely to fortify positions or enter new cities.