Good afternoon, everyone, and thank you for participating in today's call to discuss HireQuest Financial Results for the Fourth Quarter and Year Ended December 31, 2023. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I will now turn the call over to John Nesbett of IMS Investor Relations. Please go ahead.

Thank you. I’d like to welcome everybody to the call. Hosting the call today are HireQuest’s Chief Executive Officer, Rick Hermanns; and Chief Financial Officer, Steve Crane. I’d like to take a moment to read the Safe Harbor statement. This conference call contains forward-looking statements as defined within Section 27A of the Securities Act of 1933, as amended; and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements and terms such as anticipate, expect, intend, may, will, should or other comparable terms, involve risks and uncertainties, because they relate to events and depend on circumstances that will occur in the future. These statements include statements regarding the intent, belief or current expectations of HireQuest and members of its management as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those described in HireQuest periodic reports filed with the Securities and Exchange Commission and that actual results may differ materially from those contemplated by such forward-looking statements. Except as required by federal securities law, HireQuest undertakes no obligation to update or revise forward-looking statements to reflect changed conditions. I would now like to turn the call over to CEO of HireQuest, Rick Hermanns. Please go ahead, Rick.

Thank you, everyone, for joining today’s call. I’ll begin by providing an overview of our financial and strategic highlights from the fourth quarter and full year of 2023, and then I’ll turn the call over to Steve, who will share more details around our fourth quarter and full year financial results. Both our fourth quarter and full year 2023 results were characterized by the continued execution of our growth strategy and demonstrated strength of our business model as we achieved revenue growth and profitability despite a challenging economic environment that continues to impact the staffing and recruiting industry. Our fourth quarter revenue increased 21.3% to $9.8 million and franchise royalties increased 15.9% to $8.9 million. System-wide sales in the fourth quarter increased to $143.5 million compared to $127.9 million in 2022. For the full year, total revenue increased 22.4% to $37.9 million and franchise royalties grew 23.9% to $35.8 million. Full year system-wide sales were $605.1 million compared to $472.2 million in 2022. While our top line grew in the fourth quarter and for the full year 2023, primarily as a result of the MRINetwork acquisition, the state of the staffing and recruitment industry hampered organic growth. We were encouraged by the resiliency of our HireQuest direct franchisees who were down for year by only 2.7% and our Snelling franchisees who finished the year down 9%. These results compare very favorably to both our public and private competitors and really demonstrates the strength not only of our franchise model, but also speaks to the customer and geographic diversification cultivated by our franchisees. Our recently launched skilled trades offering, TradeCorp, really started to gain some traction this last year, though starting from a very small base, and we're excited to continue to see its momentum into 2024. MRINetwork wasn't immune to…

Thank you, Rick, and good afternoon, everyone. As Rick mentioned earlier, total revenue for the fourth quarter of 2023 was $9.8 million compared to $8 million for the same quarter last year, an increase of 21.3%. Total revenue for the full year of 2023 increased 22.4% to $37.9 million compared to $31 million in 2022. Our total revenue is made up of two components franchise royalties, which is our primary source of revenue, and service revenue, which is generated from certain services and interest charge to our franchisees, other miscellaneous revenue and starting this past quarter, it also includes the pass-through revenue from MRINetworks advertising fund. Franchise royalties for the fourth quarter were $8.9 million compared to $7.7 million for the same quarter last year, an increase of 15.9%. For the full year of 2023, franchise royalties increased 23.9% to $35.8 million compared to $28.9 million in 2022. Underlying the growth in royalties are system-wide sales, which are not part of our revenue, but our helpful contextual performance indicator. System-wide sales reflect sales at all offices, including those classified as discontinued. System-wide sales for the fourth quarter were $143.5 million compared to $127.9 million for the same period in 2022, which is an increase of 12.1%. Service revenue was $871,000 for the fourth quarter compared to $378,000 for the same quarter a year ago. Service revenue is composed of interest charge to our franchisees on overdue accounts receivable, service fees, other miscellaneous revenue and MRINetworks advertising fund revenue. The ad fund revenue contributed $515,000 in Q4 of 2023 and is offset by a corresponding expense in SG&A. Service revenue can fluctuate from quarter-to-quarter based on a number of factors, including growth in system-wide sales, changes in accounts receivable, insurance renewals and similar dynamics. Selling, general and administrative expenses for the…

Thank you, Steve. Our performance in both the fourth quarter and full year of 2023 demonstrates our ability to drive growth and profitability despite the challenging economic environment that is currently impacting the overall staffing and recruiting industry. Our focus right now is on controlling what we can control and reducing expenses to improve our bottom line. Looking long term, insiders and Board members own a substantial percentage of the company, and we will manage the company with a view on allocating capital to its best and highest use and maximizing growth of earnings per share. As always, I would like to thank our employees and franchisees for their hard work and dedication this past quarter and throughout all of 2023. We're excited for 2024 and believe that we are well positioned to continue driving long-term value for our franchises, and to our shareholders. With that, we can now open the line to questions.

Thank you. [Operator Instructions] First question comes from Kevin Steinke with Barrington Research. Please proceed.

Hi, good afternoon. I want to start off by asking about the March 1 insurance policy renewal in terms of workers' compensation. I mean how much do you think you accomplished with that relative to -- would you may be like to accomplish going forward?

Thanks, Kevin. So I would say two things. One is if you -- as far as what we accomplished, I do believe that we've -- I think that in the remaining 10 months of the year, our policy, as you've stated, renewed on March 1, is that the -- that will be -- it's structured in such a way that the rates will be somewhat more adequate. Frankly, we've had rate inadequacy for really probably 2 years, and it won't be as bad. So I'm not saying that we're going to -- as we pointed out, there's about a $3.6 million net expense. And obviously, that's not something we can obviously sustain or want to sustain. And so I think that the new structure will allow us to recover somewhere around half of that. Now part of what was in my remarks as well is 2023 also had some just had some bad development from the policy that ended on March 1, of 2023. That's the type of expense you really -- it's difficult to control for. For 30 years, we've done what I think is an excellent job in controlling our expenses. We closed claims quickly. We work them very hard. We have incentives for our franchisees to make sure that we're working together to get in to close claims quickly and at a reasonable amount. But at the end of the day, it's you can never completely control what happens. And as I stated, I -- there is nothing that -- there's nothing that I've seen thus far in the '23, '24 policy that just expired, that comes anything close to what the '22-'23 policy was. So I don't know if that answers your question, but I would like to think that we will certainly narrow that gap in '24, will we achieve breakeven or profitability in the workers' comp program? Probably not. But again, that's probably not, but much closer.

Got it. No, thank you. That did answer my question. So I also wanted to ask about the core G&A expenses, 4.5 million in the quarter. I believe you mentioned no need for additional expenses in 2024. So is that 4.5 million of core SG&A a good run rate? Or would you potentially look to reduce expenses if the demand environment continues to be soft. A – Rick Hermanns: So I think that the 4.5 million per quarter is a good number. Now can it be reduced still? Frankly, we literally already have taken steps that by the end of this month, we'll have reduced perm payroll by about another 550,000, which of course, would hit SG&A. So can we cut more? Well, yes, we already -- I'm saying we already have. That being said, the -- I think the more important way of looking at it is to the extent that we can grow, it's harder to cut at this point without cutting things that will impair our future. And so the answer to your question is if we had something that really started if our sales really dropped off a cliff, yes, there are things that we could cut. We could probably cut an additional $500,000 to $800,000 a quarter if we needed to. The thing is, its stuff like, let's say, software development, we could stop. We can absolutely slow down or shut some of those programs off. The problem is -- and still run the business exactly the way we are. The impact will be a year from now, 3 years from now. And so to the extent that we're able to maintain profitability and that while the environment is absolutely weak, it is absolutely weak for demand. We're still profitable. And we're still taking the…

Yes, it does answer the question. Thanks. I also wanted to just ask about -- I know you gave the declines -- organic declines for HireQuest direct and Snelling for the full year. I don't know if you had an organic number, percentage number for either system-wide sales or franchise royalties in the fourth quarter. And the reason I ask, I'm just trying to gauge things kind of stabilized or worsened or where the demand environment stands?

So what I would say to you -- and this is more anecdotal. I don't have the exact number, and I'd be happy to have Steve reach back out to you with I'm saying with the exact number. I would say anecdotally, we had a really decent, if you recall, and you cover a bunch of companies. So it's not like you should recall this. But our first quarter of last year was actually really strong, while a lot of our competitors were down 10% already from the first quarter of 2022, we were actually flat last year. So we were way ahead. But then right around this time last year, then we saw that 10%, 12% drop. And so I would just simply say is that -- the fourth quarter was pretty much consistent with Q2 and Q3 as far as being down about, let's say, 10% or so overall from the prior -- from the prior period. Now given that there were some tech sales mixed in, into the fourth quarter, you certainly could take the approach that the fourth quarter was the weakest of the 4.

Okay. All right. Understood. Just lastly, you mentioned in the earnings release that you continue to monitor the market for accretive M&A opportunities. Just wondering what the pipeline of opportunities looks like on the current economic environment?

So I would say that, there is clearly -- almost I say this every quarter, there's always plenty of acquisition opportunities up there, out there. It's always about price. There are -- I would just simply say, there's probably a bit more distressed properties available now. That doesn't mean they're going to sell for what they should sell, saying for what they should sell, because you still have people looking at a longer time frame and thinking that they're worth what they were in 2022. But I believe that there will be no shortage of opportunities. If the staffing and recruiting industry doesn't recover by the second half of this year, like I said, I suspect that there will be a fairly pretty strong increase in opportunities at realistic prices.

Okay. Great. That's helpful. Thanks for the commentary. I will turn it over.

[Operator Instructions] The next question comes from Peter Rabover from Artko Capital. Please proceed.

Hi, Rick, I think my questions were sort of answered, but I'll ask again. One is maybe if you could give some comments on how the year is progressing and how the economy is doing. You always give pretty good comments on that. And then you touched on capacity -- maybe I can ask it another way, but where do you think you guys have about 600 million in system-wide revenue, 580. What do you think your capacity is in a good economy? So just any ballpark you can give us would be great? Thanks.

Yes, appreciate it. And so to answer your questions. Number one, and again, what makes it a little more difficult to make those comparisons as our first quarter of last year really was pretty good. It was -- compared to the industry, it was great. And so therefore, in making comparisons, we're really almost comparing it to 2022 numbers. And so there is still weakness out there. There is absolutely weakness that's extended into the beginning of the year. I'm really loath to say this. I mean, I don't last week or two, I'd say, am I seeing a couple of green shoots, yes, I'm seeing a couple of green shoots, but it could just as easily be a false positive. So -- but the way I view things and admittedly, I could be completely wrong. But when you think about, let's say, during the – the staffing industry was obviously incredibly sensitive to the pandemic. And we had drop-offs of sales during the pandemic of 40%, 45%, certain jurisdictions way more. And then 2021, especially the second half of 2021, you had the most unbelievable market for staffing and recruiting really in my 34 years in the industry, I've never seen 35. I've never seen anything like it. And so, I think part of what '23, it's interesting, you've got a lot of companies that are out there, 2023 was a decent year. And then there are other ones where it's bad. I was just reading a story this morning. I was called, shoot, oh Santa. It was in the Wall Street Journal. It was talking about a company that had a pandemic upswing and a pandemic downswing in how they handle their firm payroll. Or even, I guess, a better example would be, let's just say, Peloton, right?…

It was great. No, I love it. The second question was, I'm just kind of curious, especially....

I remember it—never mind sorry, I don't mean to cut you off. I remember now. So as far as capacity, look when we did the acquisition of MRI at the end of 2022, I just sat there and if you just add it back what their system-wide sales were what ours were kind of running at that point out of -- if the economy would have stayed normal, I'd have that they say, "well, shoot " I don't know how we'd miss 700 million of system-wide sales in 2023. Well, obviously, that didn't happen. I mean clearly, that didn't happen. Now we made certain cuts that -- had that not happened, we might have kept staffing levels a bit higher than what they were. But I would argue that we could -- so long as it's let's say, like a tech staffing type deal where it's like right down the fairway for us, I could easily see us being able to add $50 million to $100 million of sales without materially adding any staff. Okay, because realizing that probably a quarter of our staff is IT. And sort of like and so you that's one of those things where that's where like you start getting into, obviously, a decline in sales really hurts us from that perspective because you don't quickly let go with programmers. You just don't -- you say you just don't do it because they're so hard to find. And so you -- and again, obviously, you're really fighting for your future. And -- but anyway, I would definitely argue that we could -- like I said, 50 million to 100 million without adding any significant amount of fixed costs.

Great. That mean I appreciate all the colors. That was a great. I will let somebody else take other question.

Next question comes from Mike Baker with D.A. Davidson. Please proceed.

Hi, thanks. Hi, since you brought it up, wondering if you care to talk about any of the green shoots that you might be -- or potentially false positives that you're seeing, which business lines, etcetera? Just curious what you meant by that comment?

Well, we look very carefully, obviously at how our sales track with the prior year. And clearly, it's kind of funny, we got spoiled because over the last -- you know, mostly the last -- most of the last 30 years most of the last 30 years, it's always up, up and up and also it's like, just kind of saying this -- it's not nearly as fun being on the downside of that and -- but that gap has closed rapidly. And now this is where it could be a false -- it could be a false positive because obviously, I'm talking one or two weeks. I'm not talking -- I'm saying I'm not talking the first quarter. So maybe we finally crossed that Rubicon [ph]. Maybe the staffing industry is reaching more of its historic norm versus saying and people are, let's say, because I really do believe in 2023, a lot of what happened is that temporary employees were being replaced with perm staff and driving down the staffing industry's revenues, that's what I think. And again, I could be 100% wrong. But there was, in fact, an article I read in the Wall Street -- I think it was a Wall Street Journal again, but I was talking about two different measures of how the government accounts for the unemployment rate. Because you said the thing 3.6%, 3.7% unemployment rate is a main thing. Historically, and then almost by any definition, you sit there and say, well, why, is it then that employment companies are down. And there are two different surveys that take place. There's a household survey and there's a business survey. And they really come up with a lot different internal dynamics. And one of them, I don't recall which one it is. One of them SKUs kind of lumps together, I'll say, gig work and temporary work, it treats it more like a traditional permanent job. And -- but the results were a lot different when you looked at it differently. And I really think that is part of, once again, really what we experienced in 2023. But like I said, in -- at least to me, economically, things always manage to find their level and I just think sooner or later, we're going to hit that level again. And I'm just hoping it's in March of 2024 and I'm saying not six months from now.

Right, understood. So if I can clarify what your point of the two different measures of employment is that perhaps the employment situation isn't quite as strong as it looks like in the -- was it think 3.9% was the latest number for unemployment. Was that what you were saying?

Well, or what happened is that it -- like the overall unemployment rate maybe went up a little bit, but there are -- actually that there are more permanent job that basically, they are more permanent employees than there are temporary employees now or that some of the gig employees went away. It's just how you define it and like the 3.9% may include a lot less temporary employees than the other survey and I wish I had the article in front of me. I probably just brought it up. But I'm just simply saying there are absolutely two different ways of looking at it. And I'm just saying, if you really -- if you think about it, why in the world -- and you can look at any staffing company's numbers, they're all down. Well, why are we all down when in reality, the economy is still growing, that shouldn't happen. In absence of -- really in absence of either a shift away from temporary workers, which may be part -- again, which I would call it the Peloton effect or it's just the way things have been. Again, it was just that surge in demand and unquestionably, 2022 was an incredible year for temporary staffing simply because nobody could find employees. And so it's -- and maybe it's just a decrease off of a fall high, that's a possibility. And like I said, it could be explained within how the numbers are because again, because then you would go back and ask that question, but unemployment hasn't gone up that much. Why in the world, are you down 10%?

Yes, got it. Makes sense. Appreciate the call.

Sure.

Okay. We have no further questions in queue. I'd like to turn the floor back to management for any closing remarks.

Well, again, I want to thank each of you for joining us today. The economy remains a challenge for the staffing industry. And as I alluded to, the first quarter isn't shaping up significantly better. But I think that one of the important parts in my remarks to just keep in perspective is that, since the beginning of 2021, we have grown -- we've done $76 million of acquisitions, $400 million increase in system-wide sales. And keeping in mind that $400 million into '23, which was actually a relatively weak year, and yet we retain only a little more than $13 million of debt on our balance sheet. And so we are generating nice amounts of cash flow. And while many of our peers have lost money in '23, we remain profitable the same way we did during the pandemic, and we're set up great for the future. And so we appreciate your continued interest in the company and your continued partnership with us. And so with that, I want to again thank you and look forward to speaking to you in another six or eight weeks. Thanks a lot.

Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.