HireQuest(HQI) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and management's analysis of financial condition and results of operations Item 1. Financial Statements This section presents HireQuest, Inc.'s unaudited consolidated financial statements as of June 30, 2025, detailing financial position, operations, and cash flows Consolidated Balance Sheets As of June 30, 2025, total assets slightly increased to $94.3 million, total liabilities decreased to $28.3 million, and total stockholders' equity rose to $66.0 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $94,315 | $94,013 | | Total Current Assets | $51,818 | $49,240 | | Franchise agreements, net | $18,885 | $19,737 | | Total Liabilities | $28,293 | $29,209 | | Line of credit | $4,333 | $6,829 | | Total Current Liabilities | $23,256 | $24,096 | | Total Stockholders' Equity | $66,022 | $64,804 | Consolidated Statements of Operations For Q2 2025, total revenue decreased to $7.6 million and net income fell to $1.1 million, with similar declines observed for the six-month period Q2 2025 vs Q2 2024 Performance (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $7,638 | $8,680 | -12.0% | | Income from Operations | $1,043 | $2,695 | -61.3% | | Net Income | $1,060 | $2,039 | -48.0% | | Diluted EPS | $0.08 | $0.15 | -46.7% | Six Months 2025 vs 2024 Performance (in thousands, except per share data) | Metric | H1 2025 | H1 2024 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $15,111 | $17,099 | -11.6% | | Income from Operations | $2,525 | $4,797 | -47.4% | | Net Income | $2,423 | $3,658 | -33.8% | | Diluted EPS | $0.17 | $0.26 | -34.6% | Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $4.4 million for the six months ended June 30, 2025, contributing to a $0.5 million increase in cash position Six-Month Cash Flow Summary (in thousands) | Activity | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $4,411 | $(779) | | Net cash provided by investing activities | $313 | $445 | | Net cash used in financing activities | $(4,268) | $(394) | | Net increase (decrease) in cash | $456 | $(728) | Notes to Consolidated Financial Statements The notes detail accounting policies, acquisitions, related-party transactions, debt, and impairment charges, including the acquisition of Ready Temporary Staffing and a goodwill impairment in Q3 2024 - As of June 30, 2025, the company had 413 franchisee-owned offices and 1 company-owned office across 43 states and 13 countries[20] - The company completed the acquisition of Ready Temporary Staffing, LLC (RTS) on December 30, 2024, for $1.4 million, which included $0.56 million in goodwill[19][37][39] - During Q3 2024, the company recognized a goodwill impairment charge of approximately $4.8 million and an intangible asset impairment of $1.2 million, both related to the MRI reporting unit due to industry and market conditions[78] - The effective tax rate for the six months ended June 30, 2025 was 8.2%, significantly lower than 19.2% for the same period in 2024, primarily due to the federal Work Opportunity Tax Credit (WOTC)[84] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q2 revenue decrease to a decline in system-wide sales across key brands, while maintaining sufficient liquidity despite increased operating expenses from transaction costs Results of Operations Q2 2025 total revenue fell 12.0% year-over-year due to a 13.9% drop in system-wide sales, with operating expenses rising due to transaction costs partially offset by lower workers' compensation expense - Q2 2025 system-wide sales decreased by 13.9% to $125.9 million from $146.1 million in Q2 2024. The decline was primarily driven by MRI ($10.3 million), HQ Direct ($5.9 million), and Snelling/HQ ($3.4 million)[112] - Six-month 2025 system-wide sales decreased by 12.8% to $244.3 million from $280.2 million in the prior year period, with declines led by MRI ($19.2 million), HQ Direct ($8.7 million), and Snelling/HQ ($6.4 million)[131] Franchise Royalties by Brand - Q2 (in thousands) | Brand | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | HireQuest Direct | $3,471 | $3,851 | | Snelling and HireQuest | $2,029 | $2,288 | | Northbound, MRI, and SearchPath | $1,505 | $1,740 | | Total | $7,284 | $8,201 | - Workers' compensation expense for Q2 2025 was $127 thousand, a significant decrease of $420 thousand from $547 thousand in Q2 2024[117] Use of Non-GAAP Financial Measure: Adjusted EBITDA Adjusted EBITDA, a non-GAAP measure, decreased to $3.3 million for Q2 2025 and $6.1 million for the six-month period compared to the prior year Adjusted EBITDA Reconciliation (in thousands) | Line Item | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $1,060 | $2,039 | $2,423 | $3,658 | | Interest expense | $71 | $253 | $214 | $495 | | Provision for income taxes | $56 | $557 | $224 | $897 | | Depreciation and amortization | $734 | $697 | $1,469 | $1,395 | | Acquisition related charges, net | $929 | $0 | $846 | $11 | | Adjusted EBITDA | $3,255 | $4,040 | $6,073 | $7,398 | Liquidity and Capital Resources The company maintains sufficient liquidity through cash from operations and a $50 million revolving credit facility, with $2.7 million in cash and $35.9 million available on the credit line as of June 30, 2025 - At June 30, 2025, current assets of $51.8 million exceeded current liabilities of $23.3 million, resulting in a working capital of $28.6 million[8][151] - The company has a $50 million revolving credit facility with Bank of America, with an outstanding balance of $4.3 million and availability of $35.9 million as of June 30, 2025[55][161] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a "smaller reporting company," HireQuest, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a "smaller reporting company" as defined by Rule 12b-2 of the Exchange Act and is not required to provide quantitative and qualitative disclosures about market risk[170] Item 4. Controls and Procedures Management concluded that disclosure controls were not effective as of June 30, 2025, due to a material weakness in accounting resources, for which remediation efforts are underway - A material weakness in internal control over financial reporting was identified due to insufficient accounting resources to handle technical accounting issues and provide adequate review functions[172] - Remediation efforts include engaging third-party experts for acquisitions, hiring additional accounting staff, and transitioning responsibilities from the Chief Accounting Officer to other personnel[172] - Despite the material weakness, management concluded that the financial statements included in the report are fairly presented in all material respects[173] PART II. OTHER INFORMATION This section provides updates on legal proceedings and any material changes to previously disclosed risk factors Item 1. Legal Proceedings The company is involved in various legal and administrative proceedings but does not anticipate any material uninsured losses from these matters - The company does not expect material uninsured losses from current legal proceedings and believes their outcomes will not have a material adverse effect on its business or financial condition[177] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes have occurred in the risk factors since the filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[178]