Greetings. Welcome to the HireQuest Inc. Fourth Quarter and Year-End 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.

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 Section 27A of the Securities Act of 1933 as amended and Section 21E 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. Those statements include statements regarding the intent, belief or current expectations of HireQuest and members of its management team 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 involves risks and uncertainties, including those described in HireQuest 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, 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. Go ahead, Rick.

Good afternoon, and thank you for joining our call today. Our fourth quarter and full year results are reflective of the challenging environment that impacted the entire staffing industry in 2024. While HireQuest was not immune to these market conditions, our flexible franchise model has allowed us to drive profitable results in both the fourth quarter and the full fiscal year. We achieved profitability in the fourth quarter of 2024, supported by total revenues of $8.1 million. The timing of the holiday season impact of the quarter as we saw less temporary staffing and day labor demand during the roughly two-week period that encompassed the holidays, which fell on a Wednesday. For the full year, we recognized total revenue of $34.6 million and net income of $3.7 million. The market for permanent placement in executive search solutions has been weak and continue to impact the performance of MRI network, which has fallen short of our internal expectations. A combination of staffing headwinds and an unpredictable economy, have caused employers to slow down or even halt their hiring decisions entirely, which has been -- which has had a particularly negative impact on permanent placement and executive search. During this market slowdown, we've taken the opportunity to evaluate, reorganize and refine certain operations and processes within MRI. We're controlling what we can control and believe that we are -- we've positioned MRI to benefit when demand levels for permanent placement and executive search return. Our temporary staffing and day labor offerings have performed better relative to the MRI network, though this segment has not been immune to recent market conditions. Relaxed immigration policies and lessened enforcement throughout the previous administration has reduced the demand for temporary and day labor services as some employers chose to exploit undocumented workers for cheaper labor. As…

Thank you, Rick, and good afternoon, everyone. Thanks for joining us today. Total revenue for the fourth quarter of 2024 was $8.1 million compared with revenue of $9.8 million in the same quarter last year, a decrease of 17.2%. For the full year, total revenue was $34.6 million compared with $37.9 million in 2023. 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 service and interest charge to our franchisee as well as other miscellaneous revenue. Franchise royalties for the fourth quarter were $7.6 million compared to $8.9 million for the same quarter last year. For the full year, franchise royalties were $32.7 million compared with $35.8 million in 2023. Underlying franchise 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 fourth quarter were $134.8 million compared to $143.5 million in the fourth quarter of 2023. Full year system-wide sales were $563.6 million compared with $605.1 million in 2023. The decrease in our revenue on an annual basis is roughly consistent with the decrease in underlying system-wide sales and as Rick pointed out, was driven by a softening of the overall staffing market throughout 2024. The impact of this was most acutely felt in our permanent placement and executive search business primarily MRI network, which declined 18.6% when compared with 2023 results for the segment. Service revenue was $439,000 for the fourth quarter compared to $871,000 in the year ago period. Service revenue for the fourth quarter of 2023 included pass-through revenue of $515,000 related to the MRI network advertising fund, which was for the full year of 2023,…

Thank you, Steve. I'd like to thank our employees and franchisees for their hard work and commitment throughout this past year. We're encouraged by what's ahead for our business. and look forward to driving an enhanced value to our shareholders in fiscal 2025. With that, we can now open the line to questions. Thank you.

Thank you. At this time, we’ll conduct the question-and-answer session. [Operator Instructions] Our first question is from Kevin Steinke with Barrington Research. Please proceed.

Thanks, and good afternoon. Just wanted to start out by talking a little bit more about the demand environment. Going back to your third quarter 2024 conference call, of course, that's going back to the first half of November, just a couple of days after the election. At that time, it seemed like there is a little more optimism around an improving demand environment for you and the industry. So if you could talk about maybe what if anything has changed since that time on the demand front that is maybe making the demand outlook a little more muted or cautious here?

Yeah. Thanks, Kevin. I mean, at that time, sort of the beginning of the fourth quarter, our comparative numbers were -- really were running pretty good. And then they really started to soften in December. And the other part is -- and it was alluded to in my remarks as well as this seems like a silly thing and it's -- but having Christmas and New Year's on Wednesdays probably cost us the equivalent of at least two days' worth of sales. And so that drove our comparisons down a bit. So I think that the between the tariff talk isn't really helping -- isn't helping demand much. And so like I said, demand kind of softened up. I will say that the first quarter hasn't -- there hasn't really been much of an improvement from December, although even just looking at the last few weeks, it's it started to improve again. But it's still a tricky environment for us. It's kind of like a -- it's like three steps forward, three steps back, and it we hit some good spots and then we hit some bad. So it's very much of a math market. And that's really backed up by -- and I know you covered a couple of other companies in the staffing industry. It's really pretty common throughout the staffing industry, it's pretty common. But again, I'm optimistic by nature, and I would just say that at least March is -- again, I go back to it. But of course, it's easy to say it's easy to say, but I do -- I am hopeful, but I think that our industry would benefit from a bit more and really our clients would benefit from a bit more certainty with respect to where supply chains and tariffs are going to be.

Okay. Yeah, that's helpful. I appreciate that. And you mentioned making some changes at MRI. Maybe could you talk through that a little bit more and you mentioned that positioning you for -- to benefit from an upturn when that occurs. So maybe just a little more color on that.

Sure. So when we bought MRI back in the end of 2022, we tried to keep as many departments separate that we could from a, let's say staffing versus recruiting. And so again, we were running parallel departments. And we had hoped that the market would recover a bit and that we would be rewarded for it. And so to give you an idea like what we did is rather than having a training department for MRI and then a training department for Snelling and HireQuest Direct. we basically we combine those. And so we've taken a couple -- we've taken a few steps like that to basically drive more efficiencies because -- just given the slowness in demand.

Okay, thanks. And talking about you've talked about in the past, obviously, one of the potential benefits of this uncertain demand environment is perhaps more acquisition opportunities becoming available? You mentioned you're still active on that front. So maybe what are you seeing in the pipeline? And in terms of valuations and more opportunities cropping up in this type of environment?

So there are I say the same thing every quarter, which is there's always plenty of opportunities, and so that's still the same. That had, I think that pricing of deals is starting to definitely get more reasonable because in reality, the staffing industry has been in a depressed state for literally nine quarters. So the ability to start buying at reasonable prices is returning. As you'll note, we completed an acquisition right at the end of the year as an example. And it's really turned out to be a very nice, small, but a nice small acquisition. And so we expect to continue to be able to find those. We're working on a couple that are larger. It's just -- but we're always -- again, I don't want you to read more into that other than -- what there really is, but other than to say that if typical staffing company being down 20%, 30% over the last two to three years, that is going to necessarily drive down their pricing expectations. And where that really can help us, and I'll use the example of the small acquisition we get at the end of the year, it happened to be in a market where our sales were really lagging. And by combining those two entities, it wasn't sort of just like X plus Y equals Z, but it was really more like X plus Y equals Z plus Z because especially at the branch level economics, the volume matters a lot. And so a branch -- it's not the same as saying, particularly for the franchisee, two different markets, billing $1.5 million doesn't equal the same profit as 1 market billing $3 million. And so like I said, these types of acquisitions tend to be very helpful even if they're small. But I realize you didn't quite ask that. But long and short of it is that we are out there, we're engaged as we typically are at any given time with three or four companies.

Okay. That's helpful. Appreciate it. And just lastly, I wanted to ask about workers' compensation. Obviously, very significant reduction year-over-year in the fourth quarter. You mentioned you think it can go down further in 2025, obviously, not to the same magnitude, but just any sense directionally, how that might trend. Do you still think that can kind of get back to neutral at some point in 2025? Or if not, maybe beyond that?

So if you go back pre-2021 -- really 2021 and before, orders comp was always a positive -- had a positive effect on our income. And then it started turning decidedly negative in '23 in particular. So as we've described before, there are really -- there are a couple of factors in it. And one was -- and again, we had a really, really bad workers' comp experience in '22 -- our '22,'23 policy year was bad. And so part of that had to work through and so that was where '23, of course, the numbers were really high. '24, we were still absorbing certain losses from that. And it's part of the reason why that we're pretty confident about '25 is those claims would mostly close now, and we're moving on from that. Whereas our '23, '24 policy a year was sort of a normal year. And so again, that's -- so it's pretty predictable. It should be pretty predictable where we're at. And our '24-'25 results back. We're actually good. And so I say all of that is that part of the reason for our optimism is just simply just based on the data -- the claims data. And that's consistent throughout the insurance industry by the way. If you look at -- you speak to any insurance executive of a multiline carrier, they're going to tell you that workers' comp is one of the best product lines they have right now because accident trends are better for a variety of reasons, accident trends workers come good. We're seeing that. The other part is that our rates are somewhat higher now as well. Our rates were inadequate in '22 and '23. And so that's part of what -- and really in '24, they still weren't really adequate, but those rates have firmed up a bit. And so we are also again, in a spot where we feel much better about 2025. So are we going to get all the way to where we break even on our workers' comp, maybe but we do think it will still be significantly better than '24.

Okay, thanks for the helpful commentary. I’ll turn it back over.

Great. Thanks, Kevin.

[Operator Instructions] The next question comes from Keegan Cox with D.A. Davidson. Please proceed.

Hello. I was just wondering going to pick up on the demand topic again. I know the executive plan business was a little bit weak or you've been seeing softness there. I was just wondering more on the temporary staffing and day labor side. Is there any industries or sectors that you're seeing weakness in particularly?

The -- that's a good question. So our -- we're sort of getting -- construction is definitely -- if you -- sorry, I'm not really want to line this up perfectly. Back about two years ago, Construction was masking a relatively steep decline, let's say, in logistics, warehouse and manufacturing. And I would say that the construction part has more leveled off. And so while manufacturing and warehousing still remains weak and is continuing -- I'm saying is continuing to weaken somewhat. Nothing as bad as what it was, but it's still down some. And again, our actual declines in the staffing side aren't really that pronounced. So our real declines are more in the executive search. -- fines definitely more pronounced. But anyway, I would just say, unfortunately, construction is not increasing the way it was to offset some of the decline on the industrial sectors.

That makes sense. And then just a follow-up on your SG&A. You guys have been pretty prudent with expense management, lowering setting expenses more than your revenues are falling, been able to hold into that margin. I was just wondering how much room is left? Like how much more could sales fall and how much SG&A could you cut to offset that, I guess?

Well, that's -- cutting -- we are careful when we cut expenses. We've tried to develop up a great team that we try to keep, let's say, during a soft period like this. But realistically, let's say, when you have a pandemic, let's say, like a pandemic level event. We cut almost 40% of our staff within two weeks. And so if demand were dropped off like that, we absolutely could do that. Now that might not have been your question, but the point is that we always have abilities to drop our cost significantly, which is why we retained profitability both in the second quarter of 2020 or even going back to like 2008, 2009, we'll cut our costs to the extent that we need to. What you're probably asking more is, hey, can we keep cutting even where we're at now? And the answer is yes. We haven't really made any cuts that, I would say, help you in the current period, but then do damage in the future. And really, quite frankly, the single biggest area for that is IT. We haven't made any significant -- we really haven't made any cuts in IT because we're really developing for the future. Now if we went up in revenue by 40% next year, and I'm not predicting it, but let's just say we went up 40% next year. That doesn't mean our IT spend is going to go up 40%. It probably wouldn't even go up at all. So my point is that IT is one area where we could still cut a lot if we wanted to, it would just impair sort of strategically what we're trying to do to year and half, two and half years down the road. And the same thing, we've been spending more money on marketing, not sales but actually marketing. Again, those are easy cuts if we really that we need to do them. And at this point, we're not -- as much as the market is challenging, it's not -- again, it's not a great recession or pandemic type levels where we feel that we should be basically defunding things that really will have a lot of value in the future. But as you pointed out, more current things we're certainly cutting and have [Indiscernible].

Thank you.

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

I want to thank everybody for joining us on this call. And again, appreciate your following the company or investing in the company. I want to thank our employees, our franchisees, and I would -- looking forward to 2025, I do I do believe that there are a lot of good things that are going on out there and within the company, and I'm looking forward to reporting back in another couple of months. Thank you very much for joining us.

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