HireQuest reports 18.7% revenue increase for the first quarter of 2020

Company Generates $5.5 Million in Cash from Operations

GOOSE CREEK, SC – HireQuest, Inc. (Nasdaq: HQI), a national provider of back-office and operational support for franchised operators of on-demand and temporary staffing service providers, reported financial results for the first quarter ended March 31, 2020.

First Quarter 2020 Financial Summary

• Franchise royalties increased 17.4% to $3.7 million compared to $3.2 million in the prior year period. Of this increase, approximately $783,000 related to branches acquired in the merger and subsequently converted to our franchise model.
• Services revenue, which includes interest paid on aging accounts receivable, increased 31.2% to $415,000 compared to $316,000 in the prior year period.
• Total revenue increased 18.7% to $4.1 million compared to $3.5 million in the prior year period.
• Reserve of $1.4 million placed on notes receivable issued to finance the sale of offices acquired in the merger with Command Center as a result of the negative impact COVID-19 has had on the economy.
• Income from continuing operations, inclusive of the non-recurring, pre-tax reserve of $1.4 million placed on notes receivable, was $875,000, or $0.06 per diluted share, compared to $1.7 million, or $0.17 per diluted share, in the year-ago period.

System-wide sales¹ (a non-GAAP operating performance metric) for the first quarter 2020 increased 18.7% to $56.5 million compared to $47.6 million for the quarter ended March 31, 2019.

“The operating profit margin, excluding the impact of the $1.4 million one-time reserve on notes receivable, remained steady on higher revenue for the first quarter, despite increasing challenges faced by our franchisees because of extraordinary pressures in the current labor market,” commented Rick Hermanns, HireQuest’s President and Chief Executive Officer. “We remain optimistic about the long-term prospects for our business as we believe our franchise model, which significantly reduces risks by minimizing capital investments and generating ongoing levels of cash, will further strengthen our balance sheet and allow us to weather the volatility created by current economic conditions.”

“Market and economic challenges exacerbated by the current COVID-19 pandemic, drove our decision to record a $1.4 million reserve against the outstanding notes in conjunction with the sales of offices we acquired in the merger,” continued Mr. Hermanns. “This reserve negatively impacted our net income, although there was no impact to cash. Cash generation was exceptionally strong in the first quarter with nearly $5.5 million generated from operations.”

In the third quarter of 2019, the company sold substantially all the offices it acquired in the merger with Command Center. Accordingly, the assets and liabilities, operating results and cash flows for these businesses and previously company-owned offices are presented as discontinued operations, separate from continuing operations, for all periods presented in the company’s consolidated financial statements and footnotes. Unless otherwise noted, discussions herein relate to the Company’s continuing operations.

First Quarter 2020 Financial Results

Franchise royalties in the first quarter of 2020 were $3.7 million, up 17.4% compared to $3.2 million in the year-ago quarter. Of this increase, $783,000 was related to branches acquired in the merger and subsequently sold and converted to the company’s franchise model. Service revenue was $415,000, up 31.2% compared to $316,000 in the prior-year quarter. This increase was largely related to an increase in interest charged on outstanding accounts receivable.

The company’s total revenue is calculated by aggregating its revenue derived from franchise royalties and service revenue. Franchise royalties are the royalties earned from franchisees primarily on the basis of their sales to their customers. Service revenue consists of interest charged to franchisees on overdue accounts and other miscellaneous revenue for optional services the company provides its franchisees.

Total revenue in the first quarter of 2020 was $4.1 million, an increase of 18.7%, or $648,000, compared to $3.5 million in the year-ago quarter. This increase is primarily due to the company’s merger with Command Center, Inc., which was completed in the third quarter of 2019.

Selling, general and administrative (“SG&A”) expenses in the first quarter of 2020 were $3.3 million compared to $1.6 million for the first quarter last year. The increase was primarily due to a $1.4 million reserve placed on notes receivable the Company issued to finance the sale of offices acquired in the merger with Command Center. This reserve is directly related to the negative impact COVID-19 has had on the economy. The increase was also driven by an increase in stock-based compensation of approximately $323,000, an increase in legal and professional fees of $282,000 and increased compensation costs of $147,000, which were partially offset by a decrease in workers’ compensation costs of $702,000.

Inclusive of the $1.4 million reserve on notes receivable, income from operations in the first quarter of 2020 was $835,000, compared to $1.9 million in the first quarter last year.

Net Income in the first quarter of 2020 was $875,000, or $0.06 per diluted share, compared to $1.7 million, or $0.17 per diluted share, in the year-ago quarter. Excluding the non-recurring and non-operational reserve on notes receivable, net income would have been approximately $2.3 million, excluding any tax effect, an increase of 35.2% over the prior-year quarter.

About HireQuest

HireQuest, Inc. is a nationwide franchisor that provides on demand labor solutions primarily in the light industrial and blue-collar segments of the staffing industry for HireQuest Direct and HireQuest franchised offices across the United States. Through its nationwide network of approximately 135 franchisee-owned offices in 30 states and the District of Columbia, the Company provides employment annually for approximately 67,000 field team members working for thousands of customers, primarily in the areas of construction, light industrial, manufacturing, hospitality, and event services. For more information, visit www.hirequest.com.