Business Overview

HireQuest, Inc. is a nationwide franchisor of direct dispatch, executive search, and commercial staffing solutions, operating through a network of over 400 franchised offices across the United States. The company’s diversified portfolio of staffing brands, including HireQuest Direct, Snelling, HireQuest Health, and MRINetwork, has enabled it to navigate the complex and ever-evolving staffing industry landscape with agility and resilience.

Founded in 2005 as Command Center, the company underwent a transformative merger with Legacy HQ in 2019, which resulted in the creation of HireQuest, Inc. This strategic combination positioned the company to capitalize on the growing demand for specialized staffing services, leveraging the strengths of both organizations to drive innovation and expand its footprint nationwide. As part of the merger, HireQuest assumed all of Command Center’s workers’ compensation claims. Prior to the merger, both companies had obtained their workers’ compensation insurance through ACE with high deductible policies. Legacy HQ had also purchased a deductible reimbursement insurance policy from its own captive insurer, HireQuest Insurance Company, which was terminated on July 15, 2019.

Following the merger, HireQuest has continued to obtain its workers’ compensation insurance through ACE in all states except for monopolistic jurisdictions, maintaining a large deductible policy structure where HireQuest has primary responsibility for all claims made. In the monopolistic jurisdictions of North Dakota, Ohio, Washington, and Wyoming, HireQuest pays workers’ compensation insurance premiums and obtains full coverage under mandatory state-administered programs.

HireQuest has grown both organically and through strategic acquisitions, including the 2022 acquisition of Selling Staffing and the 2023 acquisition of TEC, The Employment Company. As of September 30, 2024, HireQuest had 416 franchisee-owned offices and 1 company-owned office in 43 states, the District of Columbia, and 13 countries outside of the United States, providing employment for an estimated 80,000 temporary employees annually.

Financials

In the face of recent macroeconomic challenges, HireQuest has demonstrated its ability to adapt and thrive. The company’s net income from continuing operations has remained relatively stable, recording $6.43 million in 2023 and $11.97 million in 2022. Similarly, its annual revenue has grown from $22.53 million in 2020 to $37.88 million in 2023, showcasing the resilience of its business model.

For the most recent fiscal year (2023), HireQuest reported revenue of $37.88 million, net income of $6.13 million, operating cash flow of $10.62 million, and free cash flow of $10.13 million. In the most recent quarter (Q3 2024), the company recorded revenue of $9.42 million, a net loss of $2.21 million, operating cash flow of $4.16 million, and free cash flow of $4.06 million.

The company saw a 1.6% increase in revenue compared to Q3 2023, driven by a 0.9% increase in franchise royalties. However, the net loss of $2.21 million in Q3 2024, compared to net income of $1.48 million in Q3 2023, was primarily due to a $6.04 million non-cash goodwill and intangible asset impairment charge related to the MRI Network acquisition. Excluding this one-time charge, adjusted net income increased 29% year-over-year.

HireQuest’s adjusted EBITDA in the third quarter of 2024 was $4.9 million, compared to $3.7 million in the prior year period. The adjusted EBITDA margin for the quarter improved to 52% compared to 40% in the prior year period.

Liquidity

HireQuest’s financial performance is further bolstered by its strong liquidity position. As of September 30, 2024, the company had $1.62 million in cash and cash equivalents, with a current ratio of 1.675 and a quick ratio of 1.675, indicating a healthy ability to meet its short-term obligations. The company’s debt-to-equity ratio stands at 0.213, reflecting a conservative capital structure.

HireQuest has access to a $50 million revolving credit facility with Bank of America, of which $26.9 million was available as of the latest reporting period, assuming continued covenant compliance. This provides the company with additional financial flexibility to pursue strategic opportunities and navigate economic uncertainties.

Diversified Portfolio

One of the key drivers of HireQuest’s success has been its diversified portfolio of staffing solutions. The company operates multiple business models and brands, each with a distinct focus:

This diversification allows HireQuest to serve a wide range of industries and client needs, providing a buffer against sector-specific downturns.

Recent Performance

In the third quarter of 2024, HireQuest reported total revenue of $9.4 million, a 1.6% increase from the same period in the prior year. Franchise royalties, the company’s primary source of revenue, grew by 0.9% to $9.0 million, while service revenue increased by 17.2% to $428,000. This performance demonstrates the adaptability of HireQuest’s business model, as it navigates shifting market dynamics and evolving client needs.

The company’s system-wide sales for their temporary staffing brands grew by 3.6% year-over-year in the third quarter of 2024, marking the first growth since the first quarter of 2023. This positive trend indicates a potential stabilization and improvement in the temporary staffing market.

Strategic Initiatives

Despite the challenges faced by the broader staffing industry, HireQuest has remained focused on strategic initiatives that position the company for long-term success. The company’s acquisition strategy, which has included the integration of Selling Staffing, LINK, Recruit Media, and most recently, the TEC Staffing Services, Inc. acquisition in 2023, has strengthened its geographic footprint and expanded its service offerings.

Additionally, HireQuest has made investments in technology and innovation to enhance the efficiency and competitiveness of its franchised offices. The company’s proprietary HQ WebConnect platform, which provides franchisees with a comprehensive suite of tools for managing their operations, has been instrumental in driving productivity and customer satisfaction.

Future Outlook

Looking ahead, HireQuest remains optimistic about the future of the staffing industry. The company’s management team has expressed confidence in the stabilization of the temporary staffing market and the potential for a recovery in the executive search and professional placement segments. HireQuest believes that the market for both temporary and permanent staffing solutions is entering a more favorable economic environment, positioning the company for improved results as it moves through the balance of 2024 and into 2025.

The company is particularly optimistic about the potential impact of reduced interest rates, which they believe will further reduce the chance of a meltdown in the commercial real estate market and commercial construction, a significant driver of their business. HireQuest has noted stabilization and improvement in their temporary staffing business, as well as their skilled trades division.

While acknowledging industry-wide challenges in the permanent placement and executive recruiting business (MRI Network), HireQuest believes this segment is starting to stabilize and improve. The company has also stated that it has the ability to take on a 5-10% increase in system-wide sales with no appreciable increase in core SG&A expenses, highlighting the scalability of its business model.

Furthermore, the resolution of certain geopolitical and economic factors, such as the 2024 presidential election and the ongoing impact of the COVID-19 pandemic, is expected to provide a more favorable operating environment for HireQuest and its franchisees.

Conclusion

In conclusion, HireQuest, Inc. has demonstrated its ability to navigate the complexities of the staffing industry, leveraging its diversified portfolio, strategic acquisitions, and technological innovations to drive sustained growth and profitability. The company’s resilience is evident in its 4-year adjusted EBITDA CAGR of 12.6% from 2019 to 2023, which is more than double the growth of its peer group.

Despite facing challenges such as the recent goodwill and intangible asset impairment charge related to the MRI Network acquisition, HireQuest’s underlying business fundamentals remain strong. The company’s franchise-based model has proven effective in navigating industry headwinds, and its diverse range of staffing solutions positions it well to capitalize on various market opportunities.

As HireQuest continues to execute on its strategic initiatives and capitalize on emerging opportunities, it is well-positioned to deliver long-term value for its shareholders. The company’s strong liquidity position, scalable business model, and ongoing efforts to improve operational efficiency provide a solid foundation for future growth in the dynamic staffing industry.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.