HireQuest(US:HQI)2020-05-12 04:11Financial Data and Key Metrics Changes - Total revenue for Q1 2020 was $4.1 million, an increase of nearly 19% compared to $3.5 million in Q1 2019, primarily due to the merger with Command Center [20] - Income from continuing operations was $0.06 per diluted share, down from $0.17 per diluted share in Q1 2019, largely impacted by a $1.4 million reserve on notes receivable [25][15] - The operating margin approached 55% in Q1 2020 when excluding the impact of the one-time reserve [13] Business Line Data and Key Metrics Changes - Franchise royalty revenue increased to $3.7 million in Q1 2020, up 17.4% from $3.2 million in Q1 2019, with $783,000 of this increase attributable to branches acquired in the merger [22] - Service revenue rose 31.3% to $415,000 compared to $316,000 in the previous year, driven by increased interest charges on overdue accounts receivable [22] Market Data and Key Metrics Changes - Franchisees in construction, manufacturing, logistics, and waste services were less impacted by the pandemic compared to those in hospitality services and auto auctions [11] - The company does not operate in the Northeastern U.S. or California, which are significant COVID-19 hotspots, mitigating some operational risks [12] Company Strategy and Development Direction - The company remains focused on serving franchisees and protecting its business amid ongoing volatility, with plans to reduce fixed costs in anticipation of revenue declines [10][12] - There is an ongoing search for acquisition opportunities to expand market presence and strengthen existing franchisee operations [16][17] Management's Comments on Operating Environment and Future Outlook - The management noted that the economic environment is challenging, with expectations of a decline in system-wide sales in 2020 due to the pandemic [12] - The recently passed CARES Act is expected to provide relief to franchisees, with many already receiving funds under the Paycheck Protection Program [14][42] - Management expressed optimism about long-term business prospects, citing a strong balance sheet with $10 million in cash and no debt [18][57] Other Important Information - The company recorded a $1.4 million reserve against outstanding notes related to the Command Center merger, which negatively impacted net income but did not affect cash flow [15] - Current assets as of March 31, 2020, were $40.6 million, including $10 million in cash, sufficient to fund operations for at least the next 18 months [26] Q&A Session Summary Question: What is the expected SG&A run rate excluding the $1.4 million note reserve? - Management indicated that the SG&A run rate should be around $2 million going forward, potentially lower due to heavy audit expenses in Q1 [29] Question: What are the current economic conditions and their impact on temporary workers? - Management noted that business bottomed out in early April but has slowly improved since then, with significant impacts expected once auto auctions and construction resume [36][38] Question: How is the health of franchisees being supported during this period? - The majority of franchisees have received or been approved for PPP loans, which are crucial for covering personnel costs and mitigating income drops [42][44] Question: How does the current economic environment compare to previous years? - Management acknowledged that while economic contractions are bad for sales volumes, the current situation may provide opportunities as competitors face financial difficulties [55][57]