HireQuest reports income from continuing operations of $3.8 million

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, today reported financial results for the fourth quarter and year ended December 31, 2019.

“The $3.8 million in income from continuing operations on total revenue of $5.9 million in the fourth quarter reflects the true earnings and cash generating potential of our business as we turn the page on our transition to a 100% franchise business model,” commented Rick Hermanns, HireQuest’s President and Chief Executive Officer. “On the basis of these results, we believe that our franchise model is self-sustaining and provides us with incremental cash flows to further strengthen our balance sheet. With more than $4 million in cash reserves, zero debt and a cash-flow generative business model, we are well-capitalized and well-positioned to selectively pursue opportunities that may arise in what may become an increasingly volatile economy.

“As we enter 2020, our transition is complete, our company has an operating infrastructure that is appropriately aligned to support our existing franchisees and their respective businesses,” continued Mr. Hermanns. “We are confident in the long-term prospects for the company given our proven and effective business model, despite near-term challenges that we and our franchisees face as we navigate uncertainties related to the coronavirus pandemic and the resulting economic volatility.”

Fourth Quarter 2019 Financial Summary

• Franchise royalties increased 65.8% to $5.4 million compared to the quarter ended December 31, 2018. Of this increase, 26.2% related to branches acquired in the merger and subsequently sold and converted to our franchise model.
• Services revenue, which includes interest paid on aging accounts, increased 69.8% to $476,000 over the same period last year. Of this increase, 1.2% was merger related.
• Total revenue increased 66.1% to $5.9 million compared to $3.5 million in the prior year period. Of this increase, 24.1% was merger related.
• Income from continuing operations was $3.8 million, or $0.28 per diluted share, compared to $2.2 million, or $0.22 per diluted share, in the year-ago period.
• Income from continuing operations included approximately $545,000 in expenses related to the merger.

System-wide sales¹ (a non-GAAP operating performance metric) for the full-year 2019 increased 27.2% to $241.6 million compared to $190.0 million for the year ended December 31, 2018

In the third quarter of 2019, the Company sold branches it had acquired from Command Center to existing and new franchisees. The sales took place in two tranches which were completed in July and September 2019. In addition, the Company made the strategic decision to sell the assets of Command Center’s four California branches outside of its franchise system to an unaffiliated party. Collectively, the assets the Company sold in the September and California transactions are the “discontinued operations.” As such, the income arising from these branch assets has been classified as income from discontinued operations, net of tax in the Consolidated Statements of Operations for all periods presented.

Additionally, the related assets and liabilities associated with the discontinued operations are classified as current assets of discontinued operations and current liabilities of discontinued operations in the Consolidated Balance Sheets. Unless otherwise noted, discussions herein relate to the Company’s continuing operations.

Fourth Quarter 2019 Financial Results

Franchise royalties in the fourth quarter of 2019 were $5.4 million, up 65.8% compared to $3.3 million in the year-ago quarter. Of this increase, 26.2% was related to branches acquired in the merger and subsequently sold and converted to our franchise model. Service revenue was $476,000, up 69.8% compared to $280,000 in the prior-year quarter. Of this increase, 1.2% was related to branches acquired in the merger and subsequently sold and converted to our franchise model.

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 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 fourth quarter of 2019 was $5.9 million, an increase of 66.1%, or $2.4 million, 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 fourth quarter of 2019 were $3.1 million, compared to $1.3 million for the fourth quarter last year. The year-over-year increase is due, in part, to approximately $545,000 in merger-related expenses including pre-payment of leases, payment of employee severance, and rebranding expenses, as well as an increase in stock-based compensation expenses and professional and other fees associated with running a public company.

Income from operations before taxes in the fourth quarter of 2019 was $2.4 million, compared to $2.1 million in the fourth quarter last year.

Inclusive of the $545,000 in merger-related expenses, income from continuing operations in the fourth quarter of 2019 was $3.8 million, or $0.28 per diluted share, compared to $2.2 million, or $0.22 per diluted share, in the year-ago quarter.

Full-Year 2019 Financial Results

Franchise royalties for the full-year 2019 were $14.7 million, up 30.0% compared to $11.3 million in the prior year. Of this increase, 42.5% was related to branches acquired during the merger and converted to our franchise model. Service revenue was $1.2 million, up 15.4% compared to $1.0 million in the prior year. 28.0% of this increase was related to branches acquired during the merger.

Total revenue for the full-year 2019 was $15.9 million, an increase of 28.8%, or $3.6 million, compared to $12.3 million in the prior year. 41.9% of this increase related to the acquisition, and subsequent conversion to franchises, of a significant number of offices through the Company’s merger with Command Center, Inc., which was completed in the third quarter of 2019. Both royalty revenue and service revenue were higher as a result of the significant increase in the number of franchised offices.

Selling, general and administrative expenses for the full-year 2019 were $12.7 million compared to $5.3 million for the full-year 2018. Approximately 70% of this increase was due to expenses related to the company’s merger and 30% was due in large part to an increase in stock-based compensation and increased legal and professional fees associated with the operation of a public company. The significant merger-related expenses include professional fees of approximately $1.8 million for investment bankers, attorneys and other professionals, $1.9 million severance payments and other non-recurring compensation items, $835,000 for reorganizational and rebranding expenses, and $566,000 in other non-recurring expenses.

Income from operations, inclusive of $6.1 million of merger-related expenses, for the full-year 2019 was $2.8 million, compared to $6.9 million for the full-year 2018.

Loss from continuing operations for the full-year 2019 was $506,000, or $(0.05) per diluted share, compared to income from continuing operations of $7.1 million, or $0.71 per diluted share, for the prior year.

Balance Sheet and Capital Structure

Cash at December 31, 2019, was $4.2 million, compared to $1.3 million at December 31, 2018.

Total assets were $47.0 million at December 31, 2019. Total liabilities were $15.7 million.

– BUSINESS WIRE

About HireQuest

HireQuest, Inc. provides back-office and operational support for HireQuest Direct and HireQuest franchised branch locations across the United States. Through its nationwide network of approximately 140 franchisee-owned offices in 32 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.