HireQuest, Inc. (Nasdaq: HQI), a national provider of back-office and operational support for franchised operators of on-demand and temporary staffing service providers across the United States, today reported financial results for the third quarter ended September 29, 2019.

“Operationally, the third quarter was a milestone period for us, as we completed the merger between Command Center and Hire Quest, converted 100% of our corporate-owned branches to franchises and completed the sale of our California locations,” commented Rick Hermanns, HireQuest’s President and Chief Executive Officer. “As expected, we incurred approximately $4.8 million in expenses related to the merger, restructuring, rebranding, and related efforts. We anticipate more charges in the fourth quarter 2019 and the first quarter 2020 related to the merger and integration efforts, however, the charges will be significantly lower than those experienced in the third quarter. We remain poised to enter 2020 with the capacity to grow through the expansion of national accounts, organic growth and, potentially acquisitions.”

“As we continue to eliminate redundancy, including the consolidation of our headquarters to a single facility post-merger, we are positioned to improve our profit margins,” continued Mr. Hermanns. “By the end of November, we expect to be at our target for headcount. There are some legacy issues including leases and contractual obligations which we cannot eliminate immediately, but all targeted costs we have the ability to cut should be eliminated during the first quarter of 2020. In 2020 we will focus on achieving organic growth through incentives for high-performing franchisees to help them expand into adjacent markets, securing additional national accounts and potential acquisition if we find an excellent opportunity.”

Third Quarter 2019 Financial Summary

  • Franchise royalties increased 44.3% to $3.1 million compared to quarter ended September 30, 2018.
  • Services revenue, which includes interest paid on aging accounts, increased 45.3% to $241,000 over same period last year.
  • Total revenue increased 44.3% to $3.4 million compared to $2.3 million in the year-ago period.
  • Net loss from continuing operations was $8.5 million, or $(0.65) per diluted share, compared to net income from continuing operations of $1.1 million, or $0.11 per diluted share, in the year-ago period.
  • The net loss from continuing operations included approximately $4.8 million in expenses related to the merger.

Third Quarter 2019 Financial Results

In the third quarter of 2019 Hire Quest, Inc. (“the Company”) sold branches it had acquired from Command Center through sales of operating branch assets 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 third party. Collectively, the assets sold in these three 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.

Franchise royalties in the third quarter of 2019 were $3.1 million, up 44.3% compared to $2.2 million in the year-ago quarter. Service revenue was $241,000, up 45.3% compared to $166,000 in the prior-year quarter.

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 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 we provide our franchisees.

Total revenue in the third quarter of 2019 was $3.4 million, an increase of 44.3%, or $1.1 million, compared to $2.3 million in the year-ago quarter. This increase is primarily due to the merger.

Selling, general and administrative (“SG&A”) expenses in the third quarter of 2019 were $7.4 million compared to $1.3 million for the third quarter last year. The year-over-year increase is primarily due to approximately $4.8 million in restructuring, rebranding and merger-related costs.

The loss from operations in the third quarter of 2019 was $4.1 million, compared to income from operations of $1.1 million in the third quarter last year.

Loss from continuing operations in the third quarter of 2019 was $8.5 million, or $(0.65) per diluted share, compared to net income of $1.1 million, or $0.11 per diluted share, in the year-ago quarter.

Balance Sheet and Capital Structure

Cash and restricted cash at September 29, 2019, was $1.5 million, compared to $1.3 million at December 31, 2018.

Conference Call

HireQuest will hold a conference call this afternoon, November 12, 2019, at 4:30 p.m. Eastern time.

Date:

Tuesday, November 12, 2019

Time:

4:30 p.m. Eastern time

Toll-free dial-in number:

1-800-263-0877

International dial-in number:

1-646-828-8143

Conference ID:

6975980

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization.

The conference call will be broadcast live and available for replay at http://public.viavid.com/index.php?id=136990 and via the investor relations section of HireQuest’s website at www.hirequestllc.com.

A replay of the conference call will be available after 7:30 p.m. Eastern time on the same day and continuing through November 26, 2019.

Toll-free replay number:

1-844-512-2921

International replay number:

1-412-317-6671

Replay ID:

6975980

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 more than 150 franchisee-owned offices in 30 states and the District of Columbia, the Company provides employment annually for approximately 85,000 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.hirequestllc.com.

Important Cautions Regarding Forward-Looking Statements

This news release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are not statements of historical facts, including statements on HireQuest’s strategy (including with respect to acquisitions, geographic expansion and broadening participation with national accounts), and on expected growth, reduction of operational risk, and benefits for its franchisees. Generally, the words “intend,” “expect,” “anticipate,” “estimate,” “continue,” “will,” “could.” “may” and similar expressions identify forward-looking statements. These statements are subject to uncertainties and risks, including, but not limited to, the level of demand and financial performance of the temporary staffing industry; the financial performance of our franchisees; changes in customer demand; the extent to which we are successful in gaining new long-term relationships with customers or retaining existing ones and the level of service failures that could lead customers to use competitors’ services; significant investigative or legal proceedings including, without limitation, those brought about by the existing regulatory environment or changes in the regulations governing the temporary staffing industry; strategic actions, including acquisitions and dispositions and our success in integrated acquired businesses including, without limitation, successful integration following the Legacy HQ/Command Center merger; disruptions to our technology network including computer systems and software, as well as natural events such as severe weather, fires, floods, and earthquakes or man-made or other disruptions of our operating systems; and other risks set forth in our most recent reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission, copies of which are available on our website at www.hirequestllc.com and the SEC website at www.sec.gov. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the Company, are expressly qualified by these cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof, except as required by law.

HireQuest, Inc.
Consolidated Balance Sheets
 
September 29, 2019December 31, 2018
ASSETS (unaudited)
Current assets
Cash and restricted cash

$

1,528,334

$

1,291,317

Accounts receivable, net of allowance for doubtful accounts

 

35,710,457

 

20,725,170

Notes receivable

 

4,527,645

 

-

Prepaid expenses, deposits, and other assets

 

492,676

 

-

Prepaid workers' compensation

 

1,254,671

 

-

Due from affiliates

 

114

 

209,685

Current assets of discontinued operations

 

2,256,960

 

-

Total current assets

 

45,770,857

 

22,226,172

Property and equipment, net

 

2,097,605

 

2,045,881

Notes receivable, net of current portion

 

10,500,455

 

85,500

Deposits and other assets

 

-

 

8,334

Right-of-use asset

 

174,460

 

-

Total assets

$

58,543,377

$

24,365,887

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable

$

39,234

$

53,435

Line of credit

 

6,889,848

 

-

Other current liabilities

 

8,076,594

 

1,947,551

Accrued wages and benefits

 

1,989,158

 

504,035

Due to affiliates

 

85,605

 

7,740,083

Due to franchisees

 

5,338,721

 

620,385

Lease liability

 

151,900

 

-

Workers' compensation claims liability

 

1,189,132

 

-

Current liabilities of discontinued operations

 

77,154

 

-

Total current liabilities

 

23,837,346

 

10,865,489

Workers' compensation claims liability, net of current portion

 

1,081,819

 

-

Franchisee deposits

 

1,433,163

 

767,509

Deferred tax liability

 

3,080,184

 

-

Lease liability, net of current portion

 

48,315

 

-

Total liabilities

 

29,480,827

 

11,632,998

Commitments and contingencies (Note 9)
Stockholders' equity
Preferred stock - $0.001 par value, 416,666 shares authorized; none issued

 

-

 

-

Common stock - $0.001 par value, 30,000,000 shares authorized; 13,472,334 and 9,939,668 shares issued and outstanding, respectively

 

13,472

 

9,940

Additional paid-in capital

 

25,861,985

 

6,938,953

Retained earnings

 

3,187,093

 

5,783,996

Total stockholders' equity

 

29,062,550

 

12,732,889

Total liabilities and stockholders' equity

$

58,466,223

$

24,365,887

HireQuest, Inc.
Consolidated Statements of Operations
(unaudited)
 
Quarter endedThree quarters ended
September 29, 2019September 30, 2018September 29, 2019September 30, 2018
Franchise royalties

$

3,139,158

 

$

2,175,960

 

$

9,276,714

 

$

8,032,132

 

Service revenue

 

241,362

 

 

166,148

 

 

817,693

 

 

762,330

 

Total revenue

 

3,380,520

 

 

2,342,108

 

 

10,094,407

 

 

8,794,462

 

Selling, general and administrative expenses

 

7,393,380

 

 

1,270,547

 

 

9,817,245

 

 

3,980,006

 

Depreciation and amortization

 

40,200

 

 

8,428

 

 

75,630

 

 

26,357

 

Income (loss) from operations

 

(4,053,060

)

 

1,063,133

 

 

201,532

 

 

4,788,099

 

Other miscellaneous income

 

417,188

 

 

29,096

 

 

661,077

 

 

148,684

 

Interest and other financing expense

 

(106,461

)

 

(13,057

)

 

(521,838

)

 

(14,697

)

Net income before income taxes

 

(3,742,333

)

 

1,079,172

 

 

340,771

 

 

4,922,086

 

Provision for income taxes

 

4,716,731

 

 

13,783

 

 

4,816,337

 

 

35,678

 

Income (loss) from continuing operations

 

(8,459,064

)

 

1,065,389

 

 

(4,475,566

)

 

4,886,408

 

Income from discontinued operations, net of tax

 

682,674

 

 

20,246

 

 

722,756

 

 

40,561

 

Net income (loss)

$

(7,776,390

)

$

1,085,635

 

$

(3,752,810

)

$

4,926,969

 

 
Earnings per share-basic and diluted
Continuing operations

$

(0.65

)

$

0.11

 

$

(0.41

)

$

0.49

 

Discontinued operations

 

0.05

 

 

0.00

 

 

0.07

 

 

0.01

 

Total

$

(0.60

)

$

0.11

 

$

(0.34

)

$

0.50

 

 
Weighted average shares outstanding:
Basic and diluted

 

12,927,634

 

 

9,939,668

 

 

10,939,318

 

 

9,939,668