Good afternoon, everyone, and welcome to the HireQuest, Incorporated Third Quarter 2024 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open for questions, following the presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, John Nesbett, IMS Investor Relations. John, the floor is yours.

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 would 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. 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 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, 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 Chief Executive Officer of HireQuest, Rick Hermanns. Please go ahead, Rick.

Good afternoon and thank you for joining our call today. We achieved slight growth in total revenue in the third quarter of 2024, compared to the third quarter of 2023 as well as sequential revenue growth of 8.5% when compared to the second quarter of 2024 as the market for temporary staffing solutions began to stabilize. As we've mentioned before, the staffing industry has faced a particularly difficult environment in recent quarters as employers remain cautious in their hiring decisions, influenced by the presidential election and an unpredictable economic landscape. Additionally the spike in illegal immigration, which occurred from 2022 through earlier 2024 led to the influx of undocumented workers to the lower-tier labor force. While it's hard to quantify the impact on our business or the staffing industry in general, many of the jobs that we staff daily are the types of jobs undocumented workers fill. Despite these headwinds, I'm proud to say that HireQuest has performed relatively well when compared to our peers, demonstrating the strength and versatility of our franchise model. In this quarter, system-wide sales for our temporary staffing brands grew by 3.6% year-over-year for the first time since the first quarter of 2023. Looking ahead, we believe that we're beginning to see a leveling out of the compressed demand we've been experiencing on the temporary and commercial staffing side of our business and are positioned for improved results as we move through the balance of 2024 and into 2025. Expense management continues to be a priority. We reduced SG&A expenses by over 15% in the quarter when compared to the third quarter of 2023 as we continue to mitigate workers' compensation expense that impacted our profitability in the second half of 2023. Specifically workers' compensation expense in the third quarter decreased nearly 67% when compared…

Thank you, Rick and good afternoon everyone. Thank you for joining us today. Total revenue for the third quarter of 2024 was $9.4 million, compared with revenue of $9.3 million in the same quarter last year an increase of 1.6%. 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 charged to our franchisees as well as other miscellaneous revenue. Franchise royalties for the third quarter were $9 million, compared to $8.9 million for the same quarter last year. Underlying the royalties are system-wide sales which are not part of our revenue but are a helpful contextual performance indicator. System-wide sales reflect sales at all offices including those classified as discontinued. System-wide sales for the third quarter were $148.6 million, compared to $151.2 million for the same period in 2023. The decrease in system-wide sales was primarily driven by a decline in our professional recruiting and staffing brands of $6.5 million and partially offset by a $3.9 million increase in sales generated by our temporary staffing brands when compared to the prior year period. Service revenue was $428,000 for the third quarter, compared to $366,000 for the same quarter a year ago. 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. Service revenue can fluctuate from quarter-to-quarter based on a number of factors including changes in system-wide sales, accounts receivable, insurance renewals and similar dynamics. Selling general and administrative expenses for the third quarter were $5.4 million, compared to $6.4 million in the prior year period, a decrease of 15.3% as the changes we made to our workers' compensation insurance policy in Q1 of this…

Thank you, Steve, and I'd like to thank our employees and franchisees for their hard work and dedication this quarter. And we look forward to closing out the year strong and speaking with you again on our year-end call. With that, we can now open the line to questions. Thank you.

Great. Thanks. So a lot of CEOs have been saying there's a lot of uncertainty out there because of the election. That's been a cover refrain for, I don't know three, six months, election is over, no disruption. So that's now behind us. You've been -- you said in your call that things are getting better prior to that. Now, first of all, why do you think things are getting better? What's getting better in the environment? And how does the resolution -- the relatively calm resolution of the election have -- lead to even more improvement in the environment?

So, thanks for the question, Mike. I would say three things. One is, of course, the reduction of interest rates today further reduces the chance of a meltdown in the commercial real estate market and commercial construction, which is a big driver of our business. So that's one thing. And of course, that already started during this quarter. So that's a very helpful factor. I also -- and the reality is that on top of it is with -- in June, obviously, the federal government started changing a bit of the way it was handling the illegal immigration. And I think, we're starting to see some of that as well, because we -- particularly our HireQuest Direct line, basically competes directly with undocumented workers. And so that, I think is a favorable thing that's happened throughout the summer. And then with that being resolved, it just -- it takes that issue off the table. And then, the other part is, we can just see it in our numbers that things have -- that we're getting orders where we weren't getting them before. I think that our franchisees have -- the market post pandemic was very strange. There was -- it was hard to find employees. It was hard to find permanent employees and good business development people. And some of those things have started to normalize. And so part of what, -- where I feel good about it, is that our franchisees themselves are sort of returning to habits that they had pre-pandemic and normal incentives are starting to take effect. So those would be the reasons for our optimism. Q – Mike Baker: Yes. Yes. That's, very helpful. And so then, if I could ask one follow-up within all those things getting better, 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 then same question, geographically.

Commercial construction has been strong really for the last -- since -- for that matter really since 2020, it's been consistently strong and even really during 2020. So that's been a bright spot throughout. Geographically, it's the same areas that are good for us which is Texas, Tennessee. But Tennessee is hurting a little bit, but Florida, Georgia they've all been -- the Southeast has been very strong for us. But now, we're also having some better success even in the Mid-Atlantic is getting stronger. And I would say also, our skilled trades division is really picking up as well. So we're getting some help from that as well. Q – Mike Baker: Awesome. Thank you. I’ll turn it over to someone else.

Thank you very much. [Operator Instructions] Your next question is coming from Kevin Steinke of Barrington Research. Kevin, your line is live. Q – Kevin Steinke: HI. Thank you. So, 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. Although, I think in your actual press release you said, you're optimistic that the market for both temporary staffing and permanent staffing is entering a more favorable economic environment. So 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?

Thanks for that question. So the perm staffing -- I'm sorry perm placement business has been incredibly tough, the last seven quarters. I'm not going to sugarcoat that. It's been really bad. And so, if nothing else, the optimism -- and I guess the optimism is almost based on, it almost can't stay that. It's at abnormally low levels. And so, it almost has no place to go, but up. And again, sort of what I alluded to in responding to Mike's question, regarding why we're optimistic, is part of it is, it was sort of in some respects it was almost too easy in 2022 for our offices and people started getting away from just normal blocking and tackling. And now they're kind of waking up and saying you know what I don't really like where I'm at and sort of readjusting to their own office habits basically to be a bit more aggressive. But it's also -- there was that overhang in 2022 where people were hiring pretty much as anything they could do to hire a person they would. And -- so 2023 came as a bit of a shock almost where it's gosh now I have 58 computer programmers, but I really only needed 30, but I was just grabbing them because I couldn't find them. And I think we're getting back again to just more at least of the normal market. And I think again 2023 and 2024 were abnormally depressed because of the strength of 2022, I don't know if that answers your question, but that's a lot of how I see it.

Yes absolutely. Yes that makes sense. So great. So on the expense side, I apologize if you called it out, but just you've talked about the core SG&A in the past and then also the workers' compensation expense. I can't recall if you gave the exact number. I'm backing into it being about $500,000 or so but just I was wondering if you could review those numbers for me.

Yes. And I'm kind of going to back into these. We didn't give the core -- or do you have it Steve?

Well, I've got the net workers' comp. You were spot on. It's about $500,000 in the third quarter of this year and then $1.5 million in the third quarter last year.

So, $1 million was the improvement which really -- so core SG&A stayed flat at $5.4 million. But obviously overall SG&A dropped by $1 million due to the improvement in workers' comp. So, we were able to hold our costs flat from the third quarter of last year which is pretty much consistent with our sales being flat as well year-over-year.

Yes. Okay. Understood. Yes, that's helpful. And so going forward with the demand picture appearing to pick up here do you think you can hold those core SG&A expenses relatively flat? I know you've talked about maybe having some excess capacity to add system-wide sales or just again I want to get back to how much capacity you think you might have in terms of--

That's a great question. Yes, ,Kevin that's a great question. So, here's how I would answer it is that yes we still have the ability to take on I would argue probably a 5% to 10% sales increase with no appreciable increase in costs. a need for SG&A. So, yes, we still have some slack capacity. The only thing that would dampen that in my mind would be to the extent that the environment the economy improves a bit is I do believe that there's going to be a very real potential for wages to go up. And so while we may not have a major headcount increase it's easy for me to see our perm payroll expenses go up. So I don't think we can stay flat, but I do think our headcount will stay almost exactly flat.

Okay. Yes. Got it. That's fair. And so 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 just kind of overall appetite for continuing.

Kevin, I'm glad you asked that question. I'm glad you asked that question. So obviously, our threshold for reporting acquisitions as we've grown has become significantly higher. So even in this quarter, we've made two acquisitions, small, but two acquisitions. And so we have any -- we have a fair number of deals in the pipeline right now. Nothing so significant as to saying trigger any disclosures or anything but we have -- but like I said we have a number of small deals that are in various points of completion. So like I said, we did two deals already in the last three months and would anticipate there's no reason for me to believe that that will slow down.

Okay. Yes. Obviously, like you mentioned too small to even register from a materiality perspective, but were those just kind of typical commercial staffing? Or what areas have you been looking at?

Yes. There – well, I shouldn't say that. Actually they were on demand. Two of them were on demand. The two were on demand this quarter. But really there tends to be more opportunities in the commercial because the commercial -- the traditional commercial staffing is a larger portion of the staffing industry. So we tend to have more of those opportunities whereas the on-demand is more of a niche market and there are fewer out there. That said, we found two of them this past quarter. And -- but I would -- so I would say they would tend to trend more towards commercial staffing though in the future.

Okay.

By the way to answer your original question they're also -- they tend to be -- whether it's the ones we're looking at whether it's the ones that we completed it might be someone who has only one market or two markets. And so it really fits in nicely either fortifying our position in a particular market or maybe it puts us in a new city. So -- which we had one of each like this last quarter. So they're nice deals. They're a very limited risk. And like I said just strengthen our overall presence.

Great. Yes. Helpful update. I will turn it back over. Thanks for taking my questions.

Sure.

Thank you very much. Well we appear to have reached the end of our question-and-answer session. I will now hand back over to the management team for any closing remarks.

Thank you, Jenny and thank you for joining us on this call. I certainly hope you will agree that despite the write-down of the MRI assets that there's a lot of information in there that have sort of validated our strategy as far as being a franchisor of staffing companies and it demonstrates our resilience despite the headwinds that you can clearly see in our peers. And again, I encourage you to reach out if you have any further questions and we just thank you for joining us and have a good day.

Thank you very much. This does conclude today's conference. You may now disconnect your phone lines at this time and have a wonderful rest of the day. Thank you for your participation.