Financial Performance Overview

HireQuest, Inc. provides staffing services through a franchise model. It operates under brands like Snelling, MRI, and DriverQuest. As of March 31, 2024, HireQuest had 428 franchised offices and 1 company-owned office.

In the first quarter of 2024, HireQuest generated $8.4 million in total revenue, down 14.6% from $9.9 million in the first quarter of 2023. The decrease was driven by lower royalties across all brands, especially MRI which saw royalties fall by $1 million.

Net income also dropped to $1.6 million, compared to $2.6 million last year. Lower revenue and higher workers’ compensation costs contributed to the 39% year-over-year decline.

Revenue and Profit Trends

HireQuest generates revenue from franchise royalties and fees for services like interest on overdue customer payments.

Franchise royalties made up $7.8 million (93%) of total Q1 2024 revenue. This was down 16% from $9.3 million last year, with MRI seeing the biggest drop.

Service revenue increased slightly to $588,000 (7% of revenue), up from $534,000 last year. This consists mainly of interest income.

On the expense side, lower compensation from staff cuts helped reduce operating costs by 3.4%. However, workers’ compensation costs jumped to $572,000, compared to $185,000 last year.

As a result, Q1 2024 operating income decreased to $2.1 million from $3.3 million last year. Combined with higher interest costs, this led to the 39% year-over-year decline in net income.

Strengths and Weaknesses

Strengths

• Franchise model. Franchisees take on the operating expenses and risks of running offices.
• Diversified staffing brands. Exposure to multiple industries (healthcare, construction, driving) smooths volatility.
• Cash generative. The business produces strong cash flow from franchise royalties.

Weaknesses

• Cyclical industry. Demand for temporary workers fluctuates with the overall economy.
• Low margins. The franchise model leads to thin margins and limits profit growth.
• Working capital needs. Funding payroll for temporary workers requires significant working capital.

Outlook

HireQuest expects its acquisition strategy and new office openings to drive growth in 2024 after a slow start this year. It sees opportunities to expand with national accounts and capitalize on an economic rebound.

However, rising inflation and interest rates could negatively impact results. Prolonged high inflation may also affect HireQuest’s acquisition strategy.

Ongoing global conflicts like the war in Ukraine have increased economic uncertainty. Resulting sanctions and supply chain issues could hamper client demand and growth prospects for staffing firms like HireQuest.

Overall, HireQuest generates steady cash flow that can fund acquisitions and dividends. But its financial performance remains vulnerable to economic cycles and fluctuations in client staffing needs. Cost control and diversification across staffing sectors will be key to smooth earnings volatility going forward.