HireQuest Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 21, 2024

There are 6 speakers on the call.

Operator

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Hire Quest's Financial Results for the 4th Quarter and Year Ended December 31, 2023. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to John Nesbitt of IMS Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you. I'd like to welcome everybody to the call. Hosting the call today are Hire Quest's Chief Executive Officer, Rick Hermann's 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 Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended.

Speaker 1

These forward looking statements and 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 intent, belief or current expectations of Hire Quest 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 Hire Quest's 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, Hire 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 CEO of Hire Quest, Rick Kermitz.

Speaker 1

Please go ahead, Rick.

Speaker 2

Thank you, everyone, for joining today's call. I'll begin by providing an overview of our financial and strategic highlights for the Q4 full year of 2023, and then I'll turn the call over to Steve, who will share more details around our Q4 and full year financial results. Both our Q4 and full year 2023 results were characterized by the continued execution of our growth strategy and demonstrated strength of our business model as we achieved revenue growth and profitability despite a challenging economic environment that continues to impact the staffing and recruiting industry. Our 4th quarter revenue increased 21.3% to $9,800,000 and franchise royalties increased 15.9 percent to $8,900,000 System wide sales in the 4th quarter increased to $143,500,000 compared to $127,900,000 in 2022. For the full year, total revenue increased 22.4 percent to $37,900,000 and franchise royalties grew 23.9 percent to $35,800,000 Full year system wide sales were 6 $105,100,000 compared to $472,200,000 in 2022.

Speaker 2

While our top line grew in the Q4 and for the full year 2023, primarily as a result of the MRI Network acquisition, The state of the staffing and recruitment industry hampered organic growth. We were encouraged by the resiliency of our Hire Quest direct franchisees who were down for the year by only 2.7% and our Snelling franchisees who finished the year down 9%. These results compare very favorably to both our public and private competitors and really demonstrates the strength not only of our franchise model, but also speaks to the customer and geographic diversification cultivated by our franchisees. Our recently launched skilled trades offering Trade Core really started to gain some traction this last year, though starting from a very small base and we're excited to continue to see its momentum into 2024. MRI network wasn't immune to the headwinds of the professional staffing and executive recruiting markets either.

Speaker 2

But as we've said in the past, MRI historically has had less standardized royalty model, so decreases in system wide sales don't necessarily translate to decreases in royalty revenues. Our reported SG and A expenses continue to impact our bottom line. However, our core SG and A expense were effectively flat in Q4 2023 at $4,500,000 compared to $4,400,000 in Q4 2022. We provide details in today's press release on core SG and A, which excludes workers' compensation expense, the MRI ad fund expenses, which are really just a pass through with corresponding services revenue and one time charges. In fact, this core SG and A expense decreased in both absolute dollars and as a percentage of total revenue for each of the past three quarters.

Speaker 2

We believe the current level provides us with plenty of capacity to take advantage of increased system wide sales, either driven organically or through additional acquisitions without a linear increase in fixed costs. Over the past couple of quarters, I spent a fair amount of time talking about our net workers' compensation expense. Total net workers' compensation expense for 2023 was $3,700,000 compared to a net benefit of $1,900,000 in 2022. As I've mentioned on previous calls, there are 2 primary factors that impact this number. First is the difference between our net premium amounts collected and our expected losses for the policy year.

Speaker 2

And the second is any changes to the expected losses up or down for prior policy years. Unfortunately for us, last year, our comp rates were below our expected loss rates, accounting for approximately 2 thirds of the expense. And we had a particularly bad loss experience in the prior policy year, which accounted for the remaining third of the expense. While we can't predict future loss experiences, the 2022, 2023 policy year was historically bad for us, but we haven't seen anything in the 2023, 2024 policy year to date that would lead us to expect a repeat this year. Additionally, we've taken steps with our carrier to address the shortfall component of the expense and expect to see some relief on that side of the equation starting in Q2 2024.

Speaker 2

We believe these actions will help normalize our margins as we progress through the year and the changes take effect. We continue to believe that we are a leader in the staffing industry with regards to our ability to manage workers' compensation expense, and it continues to be a core competency and competitive advantage. M and A continues to be a key component of our growth and we continued executing on it in 2023, while keeping our leverage low and maintaining a strong balance sheet. Most recently, we announced the acquisition of Tech Staffing Services in the Q4 of 2023. This acquisition is an excellent example of the accretive opportunities that we look for in the market as it expanded our selling operations in Northwest and Central Arkansas, while restoring some of the operating leverage that we've lost due to the challenging economic environment.

Speaker 2

MRI Network has proven to be a solid acquisition for us as well. While revenues have been down as a result of industry headwinds, MRI has demonstrated healthy profitability this past year. Additionally, as it relates to M and A, I'd like to point out that we've been able to maintain a healthy balance sheet and low leverage throughout all these transactions. Since the beginning of 2021, we've increased system wide sales by just shy of $400,000,000 We've invested over $75,000,000 from about $13,700,000 to only $13,800,000 at the end of 2023. That is we financed our growth almost exclusively with cash flow from operations.

Speaker 2

We believe that as demand for staffing solutions recovers, Hire Quest will be well positioned with premier staffing and executive search capabilities that we can leverage to enhance our offerings and operations, improve our bottom line and drive increased value for our shareholders. I'll now pass the call over to our Chief Financial Officer, Steve Crane, who will provide a closer look to our Q4 and full year results. Steve?

Speaker 3

Thank you, Rick, and good afternoon, everyone. As Rick mentioned earlier, total revenue for the Q4 of 2023 was $9,800,000 compared to $8,000,000 for the same quarter last year, an increase of 21.3%. Total revenue for the full year of 2023 increased 22.4 percent to $37,900,000 compared to $31,000,000 in 2022. Our total revenue is made up of 2 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, other miscellaneous revenue and starting this past quarter, it also includes the pass through revenue from MRI Networks Advertising Fund. Franchise royalties for the 4th quarter were $8,900,000 compared to $7,700,000 for the same quarter last year, an increase of 15.9%.

Speaker 3

For the full year of 2023, franchise royalties increased 23.9 percent to $35,800,000 compared to 28 $900,000 in 2022. Underlying the growth in 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 offices, including those classified as discontinued. System wide sales for the Q4 were $143,500,000 compared to 127 $900,000 for the same period in 2022, which is an increase of 12.1%. Service revenue was $871,000 for the 4th quarter compared to $378,000 for the same quarter a year ago.

Speaker 3

Service revenue is composed of interest charged to our franchisees on overdue accounts receivable, service fees, other miscellaneous revenue and MRI Networks advertising fund revenue. The ad fund revenue contributed $515,000 in Q4 of 2023 and is offset by a corresponding expense in SG and A. 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. Selling, general and administrative expenses for the Q4 were $6,600,000 compared to $4,700,000 in the prior year period. For the full year, SG and A expenses were $24,400,000 compared to $12,900,000 in 2022.

Speaker 3

The increase in SG and A for the year is attributable to 3 primary drivers increased workers' compensation expense, increased expenses to support the growth in system wide sales and acquisition, integration expense, which we incurred during the 1st and second quarters and the MRI network advertising fund expense of $515,000 are included in our 4th quarter and full year SG and A. For the Q4 in 2023, workers' compensation expense was approximately $1,300,000 compared to $166,000 in the Q4 of 2022. For the full year, workers' compensation expense was approximately $3,700,000 compared to a net benefit of $1,900,000 in the full year of 2022. Beyond workers' compensation, the largest component of SG and A is employee salaries and benefits. Salaries and benefits for the Q4 of 2023 were $3,000,000 versus $3,200,000 in the prior year period.

Speaker 3

For the full year of 2023, salaries and benefits were $13,000,000 versus $10,400,000 in 20 22. Also included in our full year SG and A were increased salaries and benefits related to personnel costs as we integrated MRI network as well as SG and A expenses from MRI, including marketing, IT, insurance, professional fees and similar costs. We had largely completed MRI's integration by 3rd quarter and this most recent quarter reflects an expected level based upon current revenue volumes for executive recruiting services. We don't anticipate the need for additional increased expenses looking ahead to 2024. Net income includes income from operations adjusted for miscellaneous items, interest, income taxes and discontinued operations.

Speaker 3

Net income for the quarter was $16,000 compared to $2,700,000 in the prior year period. Net income from continuing operations for the quarter was $467,000 or $0.03 per diluted share compared to net income from continuing operations of $2,600,000 or $0.19 per diluted share in the Q4 last year. Besides increased SG and A, net income in the 4th quarter was negatively impacted by 2.6 $1,000,000 charge related to the resale of the tech offices to franchisees. For the full year of 2023, net income was $6,100,000 compared to $12,500,000 in the prior year period. Net income from continuing operations for the full year 2023 was $6,400,000 or $0.47 per diluted share combined with $12,000,000 or $0.87 per diluted share in 2022.

Speaker 3

Adjusted EBITDA in the Q4 of 2020 3 was $4,300,000 compared to $4,400,000 in the Q4 of last year. For the full year, adjusted EBITDA was $16,500,000 compared to $22,000,000 in 2022. We believe adjusted EBITDA is a relevant metric for us due to the size of non cash operating expenses running through our P and L. A detailed reconciliation of adjusted EBITDA to net income is provided in our 10 ks, which will be filed shortly. Moving on now to the balance sheet.

Speaker 3

Our current assets at December 31, 2023 were $51,500,000 compared to $51,900,000 at December 31, 2022. Current assets as of December 31, 2023 included $1,300,000 of cash and $44,400,000 of net accounts receivable, while current assets at December 31, 2022 included $3,000,000 of cash and $45,700,000 of net accounts receivable. Current assets exceeded current liabilities by $15,700,000 at December 31, 2023 versus year end 2022 when working capital was $15,200,000 Current liabilities were 69.4 percent current assets at December 31, 2023 versus 70.8% of current assets at December 31, 2022. At December 31, 2023, we had $14,100,000 drawn on our credit facility and another $26,200,000 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.

Speaker 3

We have paid a regular quarterly dividend since the Q3 of 2020. Continuing that pattern, we paid a 0.06 dollars per common share dividend on March 15, 2024 to shareholders of record as of March 1. For the full year 2023, we paid dividends in the amount of $0.24 per common share and 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 2

Thank you, Steve. Our performance in both the Q4 and full year of 2023 demonstrates our ability to drive growth and profitability despite the challenging economic environment that is currently impacting the overall staffing and recruiting industry. Our focus right now is on controlling what we can control and reducing expenses to improve our bottom line. Looking long term, insiders and board members own a substantial percentage of the company and we will manage the company with a view on allocating capital to its best and highest use and maximizing growth to thank our employees and franchisees for their hard work and dedication this past quarter and throughout all of 2023. We're excited for 2024 and believe that we are well positioned to continue driving long term value for our franchise to our shareholders.

Speaker 2

With that, we can now open the line to questions.

Operator

Thank you. At this time, we will be conducting a question and answer session. The first question comes from Kevin Stankey with Barrington Research. Please proceed.

Speaker 4

Hey, good afternoon. I want to start off by asking about the March 1 insurance policy renewal in terms of workers' compensation? And then how much do you think you accomplished with that relative to what you maybe like to accomplish going forward?

Speaker 2

Thanks, Kevin. So I would say 2 things. One is, if you as far as what we accomplished, I do believe that we've I think that in the remaining 10 months of the year, our policy as you stated renewed on March 1, is that the there'll be it's structured in such a way that the rates will be somewhat more adequate. Frankly, we've had rate inadequacy for really probably 2 years and it won't be as bad. So it I'm not saying that we're going to as we pointed out, there's about a $3,600,000 net expense.

Speaker 2

And obviously, that's not something we can obviously sustain or want to sustain. And so I think that the new structure will allow us to recover somewhere around half of that. Now part of what was in my remarks as well is 2023 also had some just had some bad development from the policy that ended on March 1, 2023. That's the type of expense you really it's difficult to control for. We for 30 years, we've done what I think is an excellent job in controlling our expenses.

Speaker 2

We close claims quickly. We work them very hard. We have incentives for our franchisees to make sure that we're working together to get into a to close claims quickly and at a reasonable amount. But at the end of the day, it's you can never completely control what happens. And as I stated, there is nothing that there's nothing that I've seen thus far in the 2023, 2024 policy that just expired that comes anything close to what the 20 2, 2023 policy was.

Speaker 2

So I don't know if that answers your question, but I would like to think that we will certainly narrow that gap in 2024. Will we achieve breakeven or profitability in the workers' comp program? Probably not. But again, that's probably not, but much closer.

Speaker 4

Got it. No, thank you. That did answer my question. So I also wanted to ask about the core G and A expenses, dollars 4,500,000 in the quarter. I believe you mentioned no need for additional expenses in 2024.

Speaker 4

So is that $4,500,000 of core SG and A good run rate? Or would you potentially look to reduce expenses if the demand in permits continues to be soft?

Speaker 2

So I think that the $4,500,000 per quarter is a good number. Now can it be reduced still? Frankly, we literally already have taken steps that by the end of this month, we will have reduced perm payroll by about another $550,000 which of course would hit SG and A. So can we cut more? Well, yes, we already you know what I'm saying?

Speaker 2

We already have. That being said, I think the more important way of looking at it is to the extent that we can grow, it's harder to cut at this point without cutting things that will impair our future. And so the answer to your question is, if we had something that really started if our sales really dropped off a cliff, yes, there are things that we could cut. We could probably cut an additional $500,000 to $800,000 a quarter if we needed to. The thing is, is it stuff like, let's say software development.

Speaker 2

We could stop, we can absolutely slow down or shut some of those programs off. The problem is and still run the business exactly the way we are. The impact will be a year from now, 3 years from now. And so to the extent that we're able to maintain profitability and that while the environment is absolutely weak, it is absolutely weak for demand, we're still profitable and we're still taking the viewpoint that the economy will recover at some point, whether it's in the second half of twenty twenty four or even if it's in 2025, we want to be positioned to take advantage of that uptick. And as alluded to in my remarks, well not even alluded to, but we stated is we're in a position to grow sort of like with the Tek acquisition without adding any additional staff.

Speaker 2

So do we have we're at a weird point. Do we have, let's say, slack capacity where we have 5 people doing what 3 people should be doing? No, we don't do. We would never ever do that. On the other hand, if you have something like franchise sales, like, okay, we're not selling franchise sale.

Speaker 2

Our franchise sales level isn't what we would expect in a really good environment. But we only have one we have one person selling franchises. So it's you literally go from a franchise sales effort to no effort, right? So it's like, do you do that when it's a little bit weak? And the answer is, in my opinion, not at this point.

Speaker 2

But if you were truly getting to a point where your viability was being threatened, Absolutely. Then you get rid of it. I don't know if that answers your question, but that's how we see things.

Speaker 4

Yes, it does answer the question. Thanks. I also wanted to just ask about I know you gave the declines organic declines for Hire Quest Direct and Snelling for the full year. I don't know if you had an organic number, percentage number for either system wide sales or franchise royalties in the 4th quarter? And the reason I ask, I'm just trying to gauge if things kind of stabilized or worsened or where the demand environment stands?

Speaker 2

So what I would say to you and this is more anecdotal. I don't have the exact number and I'd be happy to have Steve reach back out to you with you know I'm saying with the exact number. I would say anecdotally, we had a really decent, if you recall and you cover a bunch of companies, so it's not like you should recall this. But our Q1 of last year was actually really strong, While a lot of our competitors were down 10% already from the Q1 of 2022, we were actually flat last year. So we were way ahead.

Speaker 2

But then right around this time last year, then we saw that 10%, 12% drop. And so I would just simply say is that the 4th quarter was pretty much consistent with Q2 and Q3 as far as being down about, let's say, 10% or so overall from the prior period. Now given that there were some tech sales mixed in, into the 4th quarter, you certainly could take the approach that the 4th quarter was the weakest of the 4.

Speaker 4

Okay. All right. Understood. So lastly, you mentioned in the earnings release that you continue to monitor the market for accretive M and A opportunities. Just wondering what the pipeline of opportunities looks like in the current economic environment?

Speaker 2

So I would say that there is clearly I almost say this every quarter, there's always plenty of acquisition opportunities out there. It's always about price. There are I would just simply say there's probably a bit more distressed properties available now. That doesn't mean they're going to sell for what they should sell, you know what I'm saying, for what they should sell, because you still have people looking at a longer timeframe and thinking that they're worth what they were in 2022. But I believe that there will be no shortage of opportunities.

Speaker 2

If the staffing and recruiting industry doesn't recover by the second half of this year, like I said, I suspect that there will be a fairly a pretty strong increase in opportunities at realistic prices.

Speaker 4

Okay, great. That's helpful. Thanks for the commentary. I will turn it

Operator

The next question comes from Peter Rabover from Artko Capital. Please proceed.

Speaker 5

Hey, Rick. I think my questions were sort of answered, but I'll ask again. One is maybe if you could give some comments on how the year is progressing and how the economy is doing. You always give pretty good comments on that. And then you touched on capacity.

Speaker 5

Maybe I can ask it another way, but where do you think you guys have about $600,000,000 in system wide revenue, dollars 580, what do you think your capacity is in a good economy? So just any ballpark you can give us would be great. Thanks.

Speaker 2

Yes. No, appreciate it. And so to answer your questions, number 1, and again, what makes it a little more difficult to make those comparisons is our Q1 of last year really was pretty good. It was compared to the industry was great. And so therefore, in making comparisons, we're really almost comparing it to 2022 numbers.

Speaker 2

And so there is still weakness out there. There is absolutely weakness that's extended into the beginning of the year. The I'm really loathed to say this. I mean, the last week or 2, I'd say, am I seeing a couple of green shoots? Yes, I'm seeing a couple of green shoots, but it could just as easily be a false positive.

Speaker 2

So but the way I view things and admittedly, I could be completely wrong. But when you think about, let's say, during the staffing industry was obviously incredibly sensitive to the pandemic. And we had drop offs of sales during the pandemic of 40%, 45%, certain jurisdictions way more. And then 2021, especially the second half of twenty twenty one, you had the most unbelievable market for staffing and recruiting really in my 34 years in the industry. I've never seen 35 years.

Speaker 2

I've never seen anything like it. And so I think part of what 2023 it's interesting, you get a lot of companies that are out there, 2023 was a decent year. And then there are other ones where it's bad. I was just reading a story this morning, I think it was called, shoot, HoSenta, it was in the Wall Street Journal. He was talking about a company that had its pandemic upswing and a pandemic downswing and how they handled their perm payroll.

Speaker 2

Or even I guess a better example would be, let's just say, Peloton, right? During the pandemic, all of a sudden they couldn't make enough of them. And then all of a sudden it's like, wow, a lot of people bought these things. And then when life turned returned to more normal, really it turned out it was just 2021 2022 was really more of a cannibalization or it was just cannibalization of what maybe would have occurred in 2023. I would argue that that's what happened to the staffing and recruiting industry in 2023 is a lot of companies went out and brought in huge amounts of staffing and recruiting because you couldn't find people.

Speaker 2

And now as things have eased off of it and normalized a bit more, it's become 23% for the staffing industry feels like a recession, even though the overall economy is certainly not in what could be described as recession. So all that being said, I do believe that as long as the economy writ large doesn't go into a recession is that we'll get back to a more normal position regardless of what happens because then things will find their equilibrium. All that's an incredibly long way of saying, so far we haven't so far Q1 hasn't really has been no great shakes, although there might be a false positive or then again, it might be green shoots really literally in the last week or 2. As far as the gosh, dang, that was such a filibustering answer that I forgot the second part of your question.

Speaker 4

It was great. No, I love it. No, the second question was, I'm just kind of curious, especially

Speaker 2

I remember it. Never mind. Sorry, I don't mean to cut you off. I remember now. So as far as capacity, look, when we did the acquisition of MRI at the end of 2022, I just sat there and if you could just add it back what their system wide sales were, what ours were kind of running at that point, I'd have if the economy would have stayed normal, I'd have sat there and say, shoot, I don't know how we'd have missed $700,000,000 of system wide sales in 2023.

Speaker 2

Well, obviously, that didn't happen. I mean, clearly, that didn't happen. Now, we've made certain cuts that had that not happened, we might have kept staffing levels a bit higher than what they were. But I would argue that we could so long as it's, let's say, like a tech staffing type deal where it's like right down the fairway for us, I could easily see us being able to add $50,000,000 to $100,000,000 of sales without materially adding any without materially adding any staff. Okay.

Speaker 2

Realizing that probably a quarter of our staff is IT. And so that's one of those things where that's where like you start getting into obviously a decline in sales really hurts us from that perspective because you don't quickly let go of programmers. You just you know what I'm saying? You just don't do it, because they're so hard to find. And so you and again, obviously, you're really fighting for your future.

Speaker 2

And, but anyway, I would definitely argue that we could, like I said, dollars 50,000,000 to $100,000,000 without adding any significant amount of fixed costs.

Speaker 5

Okay, great. I mean, I appreciate all the colors. That was great. I'll let somebody else take a question.

Operator

Next question comes from Mike Baker with D. A. Davidson. Please proceed.

Speaker 5

Hey, thanks. Hey, since you brought it up, wondering if you care to talk about any of the green shoots that you might be or potentially false positives that you're seeing? Which business lines, etcetera? Just curious what you meant by that comment?

Speaker 2

Well, we look very carefully obviously at how our sales track with the prior year. And clearly, it's kind of funny we got spoiled because over what we see the last most of the last 30 years, it's always up, up, up, up and up and all of a sudden it's like, wow, this kind of you know what I'm saying? It's not nearly as fun being on the downside of that. And but that gap has closed rapidly. And now this is where it could be a false positive because obviously I'm talking 1 or 2 weeks.

Speaker 2

I'm not talking I'm saying I'm not talking the Q1. So maybe we finally crossed that Rubicon, maybe the staffing industry is reaching more of its historic norm versus saying and people are, let's say, because I really do believe in 2023, a lot of what happened is that temporary employees were being replaced with perm staff and driving down the staffing industry's revenues. That's where I think. And again, I could be 100% wrong. But there was in fact an article I read in The Wall Street, I think it was in The Wall Street Journal again, but it was talking about 2 different measures of how the government accounts for the unemployment rate, because you sit there and think a 3.6%, 3.7% unemployment rate is amazing.

Speaker 2

Historically, and in almost by any definition, you sit there and say, well, why is it then that employment companies are down? And there are 2 different surveys that take place. There's a household survey and there's a business survey. And they really come up with a lot different internal dynamics. And one of them, I don't recall which one it is, one of them skews kind of lumps together, I'll say, gig work and temporary work, it treats it more like a traditional permanent job.

Speaker 2

And but the results were a lot different when you looked at it differently. And I really think that is part of once again really what we experienced in 2023. But like I said, in at least to me economically, things always manage to find their level. And I just think sooner or later, we're going to hit that level again. And I'm just hoping it's in March of 2024 and not, you know, I'm saying not 6 months from now.

Speaker 5

Right. Understood. So if I can clarify what your point of the 2 different measures of employment is that perhaps the employment situation isn't quite as strong as it looks like in the 3.9 was the latest number for unemployment. Was that what you were saying?

Speaker 2

Well or what happened is that it like the overall unemployment rate maybe went up a little bit, but there are actually that there are more permanent jobs, jobs, that basically there are more permanent employees than there are temporary employees now or that some of the gig employees went away. It's just how you define it. And like the 3.9% may include a lot less temporary employees than the other survey. And I wish I had the article in front of me. I probably shouldn't have brought it up.

Speaker 2

But I'm just simply saying there are absolutely 2 different ways of looking at it. And I'm just saying, if you really if you think about it, why in the world and you can look at any staffing companies numbers, they're all down. Well, why are we all down when in reality, the economy is still growing? That shouldn't happen. In absence of really in absence of either a shift away from temporary workers, which may be part again, which I would possibly call it the Peloton effect or it's just the way things have been again, it was just that surge in demand and unquestionably, 2022 was an incredible year for temporary staffing simply because nobody could find employees.

Speaker 2

And so it's and maybe it's just a decrease off of a false high. That's a possibility. And like I said, it could be explained within how the numbers are because again, because then you would go back and ask that question, but unemployment hasn't gone up that much. Why in the world are you down 10%?

Speaker 5

Yes. Got it. Makes sense. Appreciate the color.

Speaker 2

Sure.

Operator

Okay. We have no further questions in queue. I'd like to turn the floor back to management for any closing remarks.

Speaker 2

Well, again, I want to thank each of you for joining us today. The economy remains a challenge for the staffing industry. And as I alluded in the Q1 isn't shaping up significantly better. But I think that one of the important parts of my remarks to just keep in perspective is that since the beginning of 2021, we have grown, we've done $76,000,000 of acquisitions, dollars 400,000,000 increase in system wide sales And keeping in mind that $400,000,000 into 'twenty three, which was actually a relatively weak year, and yet we retain only a little more than $13,000,000 of debt on our balance sheet. And so we are generating nice amounts of cash flow.

Speaker 2

And while many of our peers have lost money in 2023, we remain profitable the same way we did during the pandemic and we're set up great for the future. And so we appreciate your continued interest in the company and your continued partnership with us. And so with that, I want to again thank you and look forward to speaking to you in another 6 or 8 weeks. Thanks a lot.

Operator

Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

Powered by Quartr

Key Takeaways

  • Revenue and royalties growth: Q4 revenue rose 21.3% to $9.8 million and full‐year revenue grew 22.4% to $37.9 million, driven mainly by the MRI Network acquisition despite modest organic declines.
  • Core SG&A discipline: Excluding one-time and pass-through items, core SG&A held at $4.5 million in Q4 and fell as a percentage of revenue for three consecutive quarters, giving capacity to support future system-wide sales without proportional cost hikes.
  • Workers’ compensation normalization: A $3.7 million workers’ comp expense in 2023 (versus a $1.9 million benefit in 2022) stemmed from underpriced premiums and adverse loss development, but a March 2024 policy renewal is expected to recoup about half the shortfall and improve margins.
  • Accretive M&A and strong balance sheet: Q4’s acquisition of Tech Staffing Services and the MRI integration have lifted system-wide sales by roughly $400 million since 2021, while debt increased only modestly to $13.8 million, reflecting cash-flow financing of growth.
  • Profitability in a tough market: Hire Quest delivered Q4 adjusted EBITDA of $4.3 million and full-year EBITDA of $16.5 million, generated positive net income per share, maintained its quarterly dividend, and outperformed many peers amid industry headwinds.
AI Generated. May Contain Errors.
Earnings Conference Call
HireQuest Q4 2023
00:00 / 00:00