hqi20240630_10q.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-38513

HIREQUEST, INC.

(Exact name of registrant as specified in its Charter)

Delaware		91-2079472
(State of incorporation or organization)		(I.R.S. employer identification no.)

111 Springhall Drive, Goose Creek, SC 29445
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (843) 723-7400

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.001 par value		HQI		The NASDAQ Stock Market LLC
Title of each class		Trading Symbol(s)		Name of each exchange on which registered

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer ☐, an accelerated filer ☐, a non-accelerated filer ☒, a smaller reporting company ☒, or an emerging growth company ☐ (as defined in Rule 12b-2 of the Exchange Act).

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of issuer's common stock outstanding atAugust 7, 2024: 14.0 million

Table of Contents

HireQuest, Inc.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Changes in Stockholders' Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	28

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
	Signatures	30

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HireQuest, Inc.

Consolidated Balance Sheets

(in thousands, except par value data)	*June 30, 2024*			*December 31, 2023*
ASSETS	(unaudited)			(audited)
Current assets
Cash	$	614		$	1,342
Accounts receivable, net of allowance of $365 and $199		49,878			44,394
Notes receivable		1,863			1,788
Prepaid expenses, deposits, and other assets		3,665			3,283
Prepaid workers' compensation		1,630			646
Total current assets		57,650			51,453
Property and equipment, net		4,198			4,280
Workers’ compensation claim payment deposit		1,128			1,469
Deferred tax asset		326			325
Franchise agreements, net		20,588			21,440
Other intangible assets, net		9,936			10,162
Goodwill		5,870			5,870
Other assets		70			102
Notes receivable, net of current portion and allowance of $623 thousand		6,959			7,834
Intangible asset held for sale - discontinued operations		891			891
Total assets	$	107,616		$	103,826
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	250		$	137
Line of credit		15,700			14,119
Term loans payable		348			514
Other current liabilities		1,794			2,338
Accrued payroll, benefits, and payroll taxes		3,595			4,286
Due to franchisees		10,625			9,881
Risk management incentive program liability		823			565
Workers' compensation claims liability		3,876			3,871
Total current liabilities		37,011			35,711
Term loan payable, net of current portion		-			132
Workers' compensation claims liability, net of current portion		2,775			2,766
Franchisee deposits		2,416			2,485
Total liabilities		42,202			41,094
Commitments and contingencies (Note 10)
Stockholders' equity
Preferred stock - $0.001 par value, 1,000 shares authorized; none issued		-			-
Common stock - $0.001 par value, 30,000 shares authorized; 14,013 and 13,997 shares issued, respectively		14			14
Additional paid-in capital		35,227			34,527
Treasury stock, at cost - 40 shares		(146	)		(146	)
Retained earnings		30,319			28,337
Total stockholders' equity		65,414			62,732
Total liabilities and stockholders' equity	$	107,616		$	103,826

See accompanying notes to consolidated financial statements.

Table of Contents

HireQuest, Inc.

Consolidated Statements of Income

(unaudited)

	*Three months ended*						*Six months ended*
(in thousands, except per share data)	*June 30, 2024*			*June 30, 2023*			*June 30, 2024*			*June 30, 2023*
Franchise royalties	$	8,201		$	8,745		$	16,041		$	18,112
Service revenue		479			245			1,058			736
Total revenue		8,680			8,990			17,099			18,848
Selling, general and administrative expenses		5,288			5,625			10,907			11,470
Depreciation and amortization		697			700			1,395			1,397
Income from operations		2,695			2,665			4,797			5,981
Other miscellaneous income		39			99			76			142
Interest income		151			68			287			114
Interest and other financing expense		(253	)		(314	)		(495	)		(854	)
Net income before income taxes		2,632			2,518			4,665			5,383
Provision for income taxes		557			465			897			1,012
Net income from continuing operations		2,075			2,053			3,768			4,371
(Loss) income from discontinued operations, net of tax		(36	)		(45	)		(110	)		267
Net income	$	2,039		$	2,008		$	3,658		$	4,638

Basic earnings (loss) per share
Continuing operations	$	0.15		$	0.15		$	0.27		$	0.32
Discontinued operations		-			-			(0.01	)		0.02
Total	$	0.15		$	0.15		$	0.26		$	0.34

Diluted earnings (loss) per share
Continuing operations	$	0.15		$	0.15		$	0.27		$	0.32
Discontinued operations		-			-			(0.01	)		0.02
Total	$	0.15		$	0.15		$	0.26		$	0.34

Weighted average shares outstanding
Basic		13,818			13,720			13,809			13,699
Diluted		13,886			13,817			13,889			13,779

See accompanying notes to consolidated financial statements.

Table of Contents

HireQuest, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

	*Common stock*
*Six months ended (in thousands except per share data)*	*Shares*		*Par value*		*Treasury Stock amount*			*Additional paid-in capital*		*Retained earnings*			*Total stockholders' equity*
Balance at December 31, 2023		13,997	$	14	$	(146	)	$	34,527	$	28,337		$	62,732
Stock based compensation		-		-		-			700		-			700
Common stock dividends ($0.06 per share)		-		-		-			-		(1,676	)		(1,676	)
Restricted common stock granted		16		-		-			-		-			-
Net income		-		-		-			-		3,658			3,658
Balance at June 30, 2024		14,013	$	14	$	(146	)	$	35,227	$	30,319		$	65,414

Balance at December 31, 2022		13,918	$	14	$	(146	)	$	32,844	$	25,542		$	58,254
Stock based compensation		-		-		-			822		-			822
Common stock dividends ($0.06 per share)		-		-		-			-		(1,668	)		(1,668	)
Restricted common stock granted		21		-		-			-		-			-
Net income		-		-		-			-		4,638			4,638
Balance at June 30, 2023		13,939	$	14	$	(146	)	$	33,666	$	28,512		$	62,046

*Three months ended*
Balance at March 31, 2024		14,002	$	14	$	(146	)	$	34,889	$	29,118		$	63,875
Stock based compensation		-		-		-			338		-			338
Common stock dividends ($0.06 per share)		-		-		-			-		(838	)		(838	)
Restricted common stock granted		11		-		-			-		-			-
Net income		-		-		-			-		2,039			2,039
Balance at June 30, 2024		14,013	$	14	$	(146	)	$	35,227	$	30,319		$	65,414

Balance at March 31, 2023		13,927	$	14	$	(146	)	$	33,206	$	27,339		$	60,413
Stock based compensation		-		-		-			460		-			460
Common stock dividends ($0.06 per share)		-		-		-			-		(835	)		(835	)
Restricted common stock granted		12		-		-			-		-			-
Net income		-		-		-			-		2,008			2,008
Balance at June 30, 2023		13,939	$	14	$	(146	)	$	33,666	$	28,512		$	62,046

See accompanying notes to consolidated financial statements.

Table of Contents

HireQuest, Inc.

Consolidated Statements of Cash Flows

(unaudited)

	*Six months ended*
(in thousands)	*June 30, 2024*			*June 30, 2023*
Cash flows from operating activities
Net income	$	3,658		$	4,638
Loss (income) from discontinued operations		110			(267	)
Net income from continuing operations		3,768			4,371
Adjustments to reconcile net income to net cash used in operations:
Depreciation and amortization		1,395			1,397
Non-cash interest		11			341
Provision for credit losses		167			-
Stock based compensation		700			822
Deferred taxes		(1	)		200
Write down of note receivable		50			-
Loss on disposition of intangible assets		11			-
Changes in operating assets and liabilities:
Accounts receivable		(5,650	)		(5,361	)
Prepaid expenses, deposits, and other assets		(360	)		(798	)
Prepaid workers' compensation		(984	)		(495	)
Accounts payable		113			(285	)
Risk management incentive program liability		258			507
Other current liabilities		(555	)		(347	)
Accrued payroll, benefits and payroll taxes		(691	)		(984	)
Due to franchisees		744			1,487
Workers' compensation claim payment deposit		341			(238	)
Workers' compensation claims liability		14			(772	)
Net cash used in operating activities - continuing operations		(669	)		(155	)
Net cash used in operating activities - discontinued operations		(110	)		(73	)
Net cash used in operating activities		(779	)		(228	)
Cash flows from investing activities
Purchase of property and equipment		-			(98	)
Proceeds from payments on notes receivable		762			394
Cash issued for notes receivable		(13	)		(52	)
Investment in intangible asset		(235	)		(121	)
Net change in franchisee deposits		(69	)		106
Net cash provided by investing activities		445			229
Cash flows from financing activities
Payments on term loan payable		(298	)		(3,141	)
Payments related to debt issuance		-			(131	)
Net proceeds from revolving line of credit		1,580			3,961
Payment of dividends		(1,676	)		(1,668	)
Net cash used in financing activities		(394	)		(979	)
Net decrease in cash		(728	)		(978	)
Cash, beginning of period		1,342			3,049
Cash, end of period	$	614		$	2,071
Supplemental disclosure of non-cash investing and financing activities
Notes receivable issued for the sale of intangible assets		-			2,000
Supplemental disclosure of cash flow information
Interest paid		482			829
Income taxes paid, net of refunds		725			1,341

See accompanying notes to consolidated financial statements.

Table of Contents

HireQuest, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Note 1 - Overview and Summary of Significant Accounting Policies

Nature of Business

HireQuest, Inc., together with its subsidiaries, (“HQI,” the “Company,” “we,” us,” or “our”) is a nationwide franchisor of offices providing direct-dispatch, executive search, and commercial staffing solutions primarily in the light industrial and blue-collar segments of the staffing industry and traditional commercial staffing. Our franchisees provide various types of temporary personnel through two primary business models operating under the trade names “HireQuest Direct”, “HireQuest”, “Snelling”, “DriverQuest”, “HireQuest Health”, "TradeCorp", "SearchPath", “Northbound Executive Search”, "Management Recruiters International", "Sales Consultants" and "MRI". HireQuest Direct specializes primarily in unskilled and semi-skilled industrial and construction personnel. HireQuest, Snelling and TradeCorp specialize primarily in skilled and semi-skilled industrial personnel, clerical and administrative personnel, and permanent placement services. DriverQuest specializes in both commercial and non-CDL drivers serving a variety of industries and applications. HireQuest Health specializes in skilled personnel in the medical and dental industries. Northbound Executive Search, MRI and SearchPath specialize in executive placement and consultant services.

On December 4, 2023 we completed our acquisition of customer relationships and certain other assets of TEC, The Employment Company (“TEC”) for $9.8 million. TEC has been a premier provider of staffing services to the employers and workers in Northwest and Central Arkansas for over 40 years. For additional information related to these transactions, see Note 2 - Acquisitions.

As of June 30, 2024, we had 413 franchisee-owned offices and 1 company-owned office in 43 states, the District of Columbia, and 13 countries outside of the United States. We are the employer of record to approximately 80 thousand employees annually, who in turn provide services to thousands of clients in various industries including construction, healthcare, recycling, warehousing, logistics, auctioneering, manufacturing, hospitality, landscaping, retail, and dental practices. We provide employment, marketing, working capital funding, software, and administrative services to our franchisees.

Basis of Presentation

We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and with the instructions to Article 8 of Regulation S-X. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the periods presented.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report filed on Form 10-K for the year ended December 31, 2023. Results for the interim periods presented are not necessarily indicative of the results expected for the full year or for any other period.

Consolidation

The consolidated financial statements include the accounts of HQI and all of its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated.

U.S. GAAP requires the primary beneficiary of a variable interest entity (“VIE”) to consolidate that entity. To be the primary beneficiary of a VIE, an entity must have both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that are significant to the beneficiary. We provide acquisition financing to some of our franchisees that could result in our having to absorb losses. This results in some franchisees being considered VIEs. We have reviewed our relationship with each of these franchisees and determined that we are not the primary beneficiary of any of these entities. Accordingly, we have not consolidated these entities.

SEC Form 10-Q filed by HireQuest Inc.