HireQuest(US:HQI)2025-05-08 20:54PART I. FINANCIAL INFORMATION This section covers HireQuest, Inc.'s Q1 2025 financial statements, management's analysis, market risk, and internal controls Item 1. Financial Statements HireQuest, Inc.'s Q1 2025 financial statements show a slight asset decrease, lower revenue and net income, but improved operating cash flow Consolidated Balance Sheets As of March 31, 2025, total assets slightly decreased, liabilities fell, and stockholders' equity rose, with a reduced line of credit Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $93,737 | $94,013 | | Cash | $2,087 | $2,219 | | Accounts receivable, net | $42,218 | $42,348 | | Goodwill | $1,633 | $1,633 | | Total Liabilities | $28,173 | $29,209 | | Line of credit | $5,456 | $6,829 | | Total current liabilities | $23,268 | $24,096 | | Total Stockholders' Equity | $65,564 | $64,804 | Consolidated Statements of Operations Q1 2025 total revenue and net income declined due to lower franchise royalties compared to the prior-year period Q1 2025 vs Q1 2024 Performance (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Franchise royalties | $6,960 | $7,831 | | Total revenue | $7,472 | $8,419 | | Income from operations | $1,483 | $2,102 | | Net income | $1,363 | $1,619 | | Diluted earnings per share | $0.10 | $0.12 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased in Q1 2025, driven by net income and stock-based compensation, partially offset by dividends - Key changes in stockholders' equity for Q1 2025 included net income of $1.36 million and dividend payments of $842 thousand14 Consolidated Statements of Cash Flows Q1 2025 saw improved operating cash flow, significant cash used in financing, resulting in a slight decrease in the overall cash balance Cash Flow Summary (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $1,854 | $(967) | | Net cash provided by investing activities | $316 | $213 | | Net cash (used in) provided by financing activities | $(2,302) | $981 | | Net (decrease) increase in cash | $(132) | $227 | Notes to Consolidated Financial Statements Notes detail accounting policies, recent acquisitions, and financial instruments, including the franchise model, RTS acquisition, and credit facility status - As of March 31, 2025, the company had 424 franchisee-owned offices and 1 company-owned office across 43 states, D.C., and 13 other countries21 - On December 30, 2024, the company acquired Ready Temporary Staffing, LLC (RTS) for $1.4 million in cash2037 - The company has a $50 million revolving credit facility with Bank of America, with approximately $5.4 million drawn and $9.2 million utilized for letters of credit as of March 31, 20255661 - The company paid a quarterly dividend of $0.06 per share, totaling $842 thousand in Q1 202568 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 revenue decline due to lower system-wide sales, reduced operating expenses, decreased Adjusted EBITDA, and strong liquidity Results of Operations Q1 2025 total revenue decreased due to lower system-wide sales, while operating expenses fell, leading to reduced income from operations - Total revenue decreased 11.2% year-over-year, driven by an 11.7% ($15.6 million) decrease in system-wide sales, led by MRI, HQ Direct, and Snelling/HQ brands117 Franchise Royalties by Brand (in thousands) | Brand | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | HireQuest Direct | $3,587 | $3,823 | | Snelling and HireQuest | $1,953 | $2,110 | | Northbound, MRI, and SearchPath | $1,158 | $1,649 | | Total Franchise Royalties | $6,960 | $7,831 | - Workers' compensation expense decreased significantly to $28 thousand in Q1 2025 from $572 thousand in Q1 2024123 - The effective tax rate for continuing operations was 10.5% in Q1 2025, compared to 16.7% in Q1 2024, primarily due to the federal Work Opportunity Tax Credit (WOTC)88132 Use of Non-GAAP Financial Measure: Adjusted EBITDA Adjusted EBITDA, a non-GAAP measure, decreased to $2.8 million in Q1 2025, reflecting adjustments to net income for various items Adjusted EBITDA Reconciliation (in thousands) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income | $1,363 | $1,619 | | Interest expense | $144 | $243 | | Provision for income taxes | $169 | $340 | | Depreciation and amortization | $734 | $698 | | EBITDA | $2,410 | $2,900 | | Non-cash compensation | $239 | $362 | | Acquisition related (gains) charges, net | $(103) | $11 | | Adjusted EBITDA | $2,799 | $3,358 | Key Performance Indicator: System-Wide Sales System-wide sales decreased by 11.7% in Q1 2025, with significant declines in the Northbound, MRI, SearchPath, and HireQuest Health segments System-Wide Sales by Brand (in thousands) | Brand | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | HireQuest Direct | $51,572 | $54,333 | (5.1)% | | Snelling and HireQuest | $33,660 | $36,559 | (7.9)% | | Northbound, MRI, and SearchPath | $28,675 | $38,350 | (25.2)% | | HireQuest Health | $1,143 | $1,728 | (33.9)% | | Total System-wide sales | $118,391 | $134,035 | (11.7)% | Liquidity and Capital Resources The company maintains strong liquidity with $27.3 million in working capital and $34.8 million available under its credit facility - At March 31, 2025, working capital (current assets minus current liabilities) was approximately $27.3 million138 - Cash provided by continuing operations was $1.9 million in Q1 2025, compared to cash used of $0.9 million in Q1 2024142 - As of March 31, 2025, availability under the Senior Credit Facility was approximately $34.8 million149 Number of Offices The total number of offices decreased by one in Q1 2025, with two new openings offset by three closures Office Count Reconciliation | Period | Count | | :--- | :--- | | Offices, December 31, 2024 | 425 | | Opened in 2025 | 2 | | Closed in 2025 | (3) | | Offices, March 31, 2025 | 424 | Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, HireQuest is exempt from providing quantitative and qualitative market risk disclosures - As a "smaller reporting company" defined by Rule 12b-2 of the Exchange Act, HireQuest is not required to provide quantitative and qualitative disclosures about market risk157 Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to a material weakness in accounting resources, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to a continuing material weakness158 - The material weakness stems from insufficient accounting resources to handle technical accounting issues and provide adequate review; remediation efforts are underway159 - Despite the material weakness, management concluded that the financial statements are fairly presented in all material respects160 PART II. OTHER INFORMATION This section addresses legal proceedings, risk factors, equity sales, and other required disclosures Item 1. Legal Proceedings The company is involved in various legal proceedings but does not anticipate any material uninsured losses from these matters - The company does not expect current legal proceedings to have a material adverse effect on its business, financial condition, or results of operations164 Item 1A. Risk Factors No material changes have occurred in the company's risk factors since the filing of its 2023 Annual Report on Form 10-K - No material changes have occurred in the company's risk factors since the filing of its 2023 Form 10-K165 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None166 Item 5. Other Information The company reported no other information for this item - None167 Item 6. Exhibits The report includes various exhibits, notably CEO and CFO certifications and Inline XBRL data files - Filed exhibits include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1) and Inline XBRL documents (Exhibit 101 series)168