HireQuest Inc (HQI) Reports Mixed Results Amid Economic Challenges in Q3 2023
System-wide sales increased to $151.2 million in Q3 2023, up from $123.2 million in the same period last year.
Net income from continuing operations decreased by 61.5% to $1.6 million in Q3 2023, compared to $4.1 million in Q3 2022.
Franchise royalties rose to $8.9 million, an 18.1% increase in total revenue for the quarter.
Workers' compensation expenses and SG&A costs rose, impacting the bottom line.
On November 8, 2023, HireQuest Inc (NASDAQ:HQI) released its financial results for the third quarter ended September 30, 2023. The company, a national franchisor of staffing services, reported an increase in system-wide sales driven by the acquisition of MRINetwork. However, this growth was offset by a general decline in sales from existing operations and a significant increase in workers' compensation expenses.
Performance and Challenges
HireQuest Inc (NASDAQ:HQI) faced a challenging economic environment in the third quarter of 2023. Despite achieving revenue growth, the company's bottom line was negatively impacted by a net increase of $2.8 million in workers' compensation expense compared to the third quarter of 2022. President and CEO Rick Hermanns noted the impact of workers' compensation insurance on operations and the company's efforts to adjust plans to mitigate future impacts. Hermanns also highlighted the company's long-term view and operational staffing levels in anticipation of growth from the pending acquisition of TEC Staffing Services.
We achieved revenue growth in the third quarter, driven primarily by the addition of MRINetwork. Our bottom line was again negatively impacted by workers compensation expense which had a net increase of $2.8 million compared to the third quarter in 2022." - Rick Hermanns, President and CEO of HireQuest Inc
Financial Achievements and Details
Franchise royalties for Q3 2023 were $8.9 million, up from $7.4 million in the prior-year period, contributing to an 18.1% increase in total revenue to $9.3 million. Service revenue, however, decreased slightly to $377 thousand from $429 thousand in the prior-year period. SG&A expenses saw a significant rise to $6.4 million from $2.1 million in Q3 2022, primarily due to increased workers' compensation costs and expenses supporting growth from acquisitions.
Depreciation and amortization expenses increased to approximately $699 thousand, up from $497 thousand in Q3 2022, mainly due to acquisitions. Interest and other financing expenses also rose to approximately $302 thousand due to a larger balance on the company's line of credit, related to the MRINetwork acquisition and subsequent working capital needs.
Income tax expense for Q3 2023 was approximately $518 thousand, with a net effective tax rate of 24.5%, compared to $946 thousand and a net effective tax rate of 18.6% in the prior-year period. Net income from continuing operations decreased significantly to $1.6 million, or $0.12 per diluted share, from $4.1 million, or $0.30 per diluted share, in Q3 last year. Adjusted EBITDA for the quarter was $3.7 million compared to $6.5 million in the third quarter of the previous year.
Year-To-Date Financials
For the nine months ended September 30, 2023, franchise royalties increased by 26.9% to $26.9 million, and total revenue increased by 22.8% to $28.1 million compared to the same period in 2022. SG&A expenses for the nine-month period were $17.8 million, with workers' compensation expense at approximately $2.3 million. Net income from continuing operations for the year-to-date was $6.0 million, or $0.44 per diluted share, down from $9.4 million, or $0.69 per diluted share, in the prior year. Adjusted EBITDA was $12.2 million compared to $17.7 million in the same period last year.
Balance Sheet and Capital Structure
As of September 30, 2023, HireQuest Inc reported cash of $1.1 million, total assets of $105.2 million, and total liabilities of $42.2 million. Working capital stood at $19.1 million, an improvement from $15.2 million as of December 31, 2022. The company also declared a quarterly cash dividend of $0.06 per share of common stock.
HireQuest Inc will hold a conference call to discuss its financial results, and the call will be available for replay through November 22, 2023. For more detailed information, investors and interested parties can access the live broadcast and replay of the call on the company's website.
For value investors seeking to understand the nuances of HireQuest Inc's financial performance, the detailed earnings report and subsequent conference call provide an opportunity to gauge the company's resilience and strategic direction amid economic headwinds.
Explore the complete 8-K earnings release (here) from HireQuest Inc for further details.
This article first appeared on GuruFocus.
