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. 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 the 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 demonstrate 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 the headwinds of the professional staffing and executive recruiting markets either. But as we've said in the past, MRI historically has had a less standardized royalty model, so decreases in system-wide sales don't necessarily translate to decreases in royalty revenues. Our reported SG&A expenses continued to impact our bottom line. However, our core SG&A expenses were effectively flat in Q4 2023 at $4.5 million compared to $4.4 million in Q4 2022. We provide details in today's press release on core SG&A, which excludes workers' compensation expense, the MRI ad fund expenses, which are really just a pass-through with corresponding services revenue, and one-time charges. In fact, this core SG&A expense decreased in both absolute dollars and as a percentage of total revenue for each of the past three quarters. We believe the current level provides us with plenty of capacity to take advantage of increased system-wide sales, either driven organically or through additional acquisitions without a linear increase in fixed costs. Over the past couple of quarters, I spent a fair amount of time talking about our net workers' compensation expense. Total net workers' compensation expense for 2023 was $3.7 million compared to a net benefit of $1.9 million in 2022. As I've mentioned on previous calls, there are two primary factors that impact this number. First is the difference between our net premium amounts collected and our expected losses for the policy year. And the second is any changes to the expected losses up or down for prior policy years. Unfortunately, for us, last year, our comp rates were below our expected loss rates, accounting for approximately two-thirds of the expense, and we had a particularly bad loss experience in the prior policy year, which accounted for the remaining third of the expense. While we can't predict future loss experiences, the '22, '23 policy year was historically bad for us, but we haven't seen anything in the '23, '24 policy year-to-date that would lead us to expect to repeat this year. Additionally, we've taken steps with our carrier to address the shortfall component of the expense and expect to see some relief on that side of the equation starting in Q2 2024. We believe these actions will help normalize our margins as we progress through the year and the changes take effect. We continue to believe that we are a leader in the staffing industry with regards to our ability to manage workers' compensation expense and it continues to be a core competency and competitive advantage. M&A continues to be a key component of our growth strategy, and we continued executing on it in 2023 while keeping our leverage low and maintaining a strong balance sheet. Most recently, we announced the acquisition of TEC Staffing Services in the fourth quarter of 2023. This acquisition is an excellent example of the accretive opportunities that we look for in the market as it expanded our Snelling operations in Northwest and Central Arkansas while restoring some of the operating leverage that we've lost due to the challenging economic environment. MRINetwork has proven to be a solid acquisition for us as well. While revenues have been down as a result of industry headwinds, MRI has demonstrated healthy profitability this past year. Additionally, as it relates to M&A, I'd like to point out that we've been able to maintain a healthy balance sheet and low leverage throughout all these transactions. Since the beginning of 2021, we've increased system-wide sales by just shy of $400 million. We've invested over $75 million in acquisitions and finished 2023 with net debt of $13.4 million. I'll also highlight that fully diluted shares over that time have increased from about 13.7 million to only 13.8 million at the end of 2023. In other words, we financed our growth almost exclusively with cash flow from operations. We believe that as demand for staffing solutions recovers, HireQuest will be well positioned with premier staffing and executive search capabilities that we can leverage to enhance our offerings and operations, improve our bottom line, and drive increased value for our shareholders. I'll now pass the call over to our Chief Financial Officer, Steve Crane, who will provide a closer look at our fourth quarter and full year results.

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 charged 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 are helpful contextual performance indicators. 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 charged 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 fourth quarter were $6.6 million compared to $4.7 million in the prior year period. For the full year, SG&A expenses were $24.4 million compared to $12.9 million in 2022. The increase in SG&A for the year is attributable to three primary drivers: increased workers' compensation expense, increased expenses to support the growth in system-wide sales, and acquisition integration expenses, which we incurred during the first and second quarters. The MRINetwork advertising fund expense of $515,000 is included in our fourth quarter and full-year SG&A. For the fourth quarter in 2023, workers' compensation expense was approximately $1.3 million compared to $166,000 in the fourth quarter of 2022. For the full year, workers' compensation expense was approximately $3.7 million compared to a net benefit of $1.9 million in the full year 2022. Beyond workers' compensation, the largest component of SG&A is employee salaries and benefits. Salaries and benefits for the fourth quarter of 2023 were $3 million versus $3.2 million in the prior year period. For the full year of 2023, salaries and benefits were $13 million versus $10.4 million in 2022. Also included in our full-year SG&A were increased salaries and benefits related to personnel costs as we integrated MRINetwork, as well as SG&A expenses from MRI, including marketing, IT, insurance, professional fees, and similar costs. We had largely completed MRI's integration by the third quarter, and this most recent quarter reflects an expected level based on current revenue volumes for executive recruiting services. We don't anticipate the need for additional increased expenses looking ahead to 2024. Net income includes income from operations adjusted for miscellaneous items, interest, income taxes, and discontinued operations. Net income for the quarter was $16,000 compared to $2.7 million in the prior year period. Net income from continuing operations for the quarter was $467,000 or $0.03 per diluted share compared to net income from continuing operations of $2.6 million or $0.19 per diluted share in the fourth quarter last year. Besides increased SG&A, net income in the fourth quarter was negatively impacted by a $2.6 million charge related to the resale of the tech offices to franchisees. For the full year of 2023, net income was $6.1 million compared to $12.5 million in the prior year period. Net income from continuing operations for the full year 2023 was $6.4 million or $0.47 per diluted share compared to $12 million or $0.87 per diluted share in 2022. Adjusted EBITDA in the fourth quarter of 2023 was $4.3 million compared to $4.4 million in the fourth quarter of last year. For the full year, adjusted EBITDA was $16.5 million compared to $22 million in 2022. We believe adjusted EBITDA is a relevant metric for us due to the size of noncash operating expenses running through our P&L. A detailed reconciliation of adjusted EBITDA to net income is provided in our 10-K, which will be filed shortly. Moving on now to the balance sheet. Our current assets at December 31, 2023, were $51.5 million compared to $51.9 million at December 31, 2022. Current assets as of December 31, 2023, included $1.3 million of cash and $44.4 million of net accounts receivable, while current assets at December 31, 2022, included $3 million of cash and $45.7 million of net accounts receivable. Current assets exceeded current liabilities by $15.7 million at December 31, 2023, versus year-end 2022 when working capital was $15.2 million. Current liabilities were 69.4% of current assets at December 31, 2023, versus 70.8% of current assets at December 31, 2022. At December 31, 2023, we had $14.1 million drawn on our credit facility and another $26.2 million in availability, assuming continued covenant compliance. We believe our credit facility provides us with flexibility and room for short-term working capital needs as well as the capacity to capitalize on potential acquisitions. We have paid a regular quarterly dividend since the third quarter of 2020. Continuing that pattern, we paid a $0.06 per common share dividend on March 15, 2024, to shareholders of record as of March 1. For the full year 2023, we paid dividends in the amount of $0.24 per common share, and we expect to continue to pay a dividend each quarter, subject to the Board's discretion. With that, I will turn the call back over to Rick for some closing comments.

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. 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 regarding workers' compensation. How much do you think you achieved with that compared to what you would like to accomplish moving forward?

Thank you, Kevin. I would like to mention two points. First, regarding what we have achieved, I believe we have structured our policy, renewed on March 1, to make the rates more adequate moving forward. We have experienced rate inadequacy for about two years, but I expect this to improve. While we acknowledge the current net expense of about $3.6 million is not sustainable, the new structure should help recover roughly half of that amount. Additionally, 2023 saw some negative developments from the policy ending on March 1, 2023, which are difficult to control. For the past 30 years, we have effectively managed our expenses by closing claims promptly, and we incentivize our franchisees to collaborate in this process. However, unforeseen factors can still impact our outcomes. So far, I do not see any indicators in the 2023-2024 policy that compare to the previous year's policy. Although I hope we can narrow the gap in 2024, it is unlikely that we will reach breakeven or profitability in the workers' compensation program this year, but we will be 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?

I believe that 4.5 million per quarter is a reasonable figure. Is it possible to reduce it further? We have already taken steps that will lead to a reduction of about 550,000 by the end of this month, which will impact SG&A. Can we cut more? Yes, we already have. However, the key consideration is that as we look to grow, it becomes more challenging to make cuts without jeopardizing our future. If our sales were to dramatically decline, there are areas we could cut, potentially reducing an additional 500,000 to 800,000 a quarter if necessary. For instance, we could halt software development or slow down certain programs. The downside to that is it would affect our business in the long term, as the repercussions would be felt a year or three years from now. Despite the current weak demand environment, we remain profitable and believe the economy will recover eventually, whether in the second half of 2024 or in 2025. We want to be ready to capitalize on that recovery. As I've mentioned, we are positioned to grow, similar to how we did with the tech acquisition, without needing to hire additional staff. We are not overstaffed; we do not have five people doing the work of three. However, in areas like franchise sales, our current level isn’t as strong as it could be in a better market, yet we only have one person working on franchise sales. This makes it easy to go from some sales effort to none at all. In my view, cutting that effort isn’t advisable at this moment. However, if our financial viability were at significant risk, then we would consider making such a cut. I'm not sure if that entirely answers your question, but that's how we perceive the situation.

Yes, it answers the question. Thank you. I wanted to ask if you have any organic numbers or percentage figures for either system-wide sales or franchise royalties in the fourth quarter. I’m trying to understand whether things have stabilized, worsened, or where the demand environment currently stands.

What I can share is more of an anecdotal observation. I don't have the exact figures, but I can have Steve follow up with you to provide that detail. Anecdotally, our first quarter last year was quite strong compared to many of our competitors, who were down 10% from the first quarter of 2022, while we managed to stay flat. However, around this time last year, we experienced a 10% to 12% decline. I would note that the fourth quarter was consistent with the second and third quarters, showing an overall decline of about 10% from the previous period. Considering that there were some tech sales included in the fourth quarter, one might argue that it was the weakest quarter of the four.

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?

There are definitely plenty of acquisition opportunities available, as I mention nearly every quarter. The key factor is price. Currently, there seem to be more distressed properties on the market. However, this doesn’t guarantee they will sell at their true value because many people still hold onto valuations from 2022. I believe there will be ample opportunities going forward. If the staffing and recruiting industry doesn't bounce back in the second half of this year, I expect to see a significant rise in opportunities at more realistic prices.

Thank you. The next question comes from Peter Rabover from Artko Capital. Please proceed.

Hi, Rick, I think my questions were somewhat addressed, but I'll ask again. Could you provide some comments on how the year is going and the state of the economy? You usually have great insights on that. You mentioned capacity, so I’d like to rephrase my question: with approximately 600 million in system-wide revenue, or 580, what do you estimate your capacity could be in a strong economy? Any rough estimate you can share would be appreciated. Thank you.

Thank you for your questions. To address the first part, making comparisons is challenging since our first quarter from last year was quite good compared to the industry average. Consequently, we are almost comparing our current situation to the numbers from 2022. There is still some weakness in the market, which has carried into the start of this year. I hesitate to say this, but I have noticed a few positive signs recently. However, they may just be temporary and not indicative of a trend. Historically, the staffing industry has been very sensitive to the pandemic, experiencing significant sales declines during that time. In the second half of 2021, we witnessed an unprecedented market for staffing and recruiting, unlike anything I have seen in my 34 years in the industry. As we look at 2023, it's interesting to note that some companies have performed reasonably well, while others have struggled. I read an article discussing how a company faced a pandemic-related upswing and then downturn, affecting their payroll handling. A fitting example could be Peloton, which saw a surge in demand during the pandemic only to experience a decline as things returned to normal, suggesting that 2021 and 2022 may have simply drawn from what would have been expected in 2023. I believe a similar situation has occurred in the staffing and recruiting sector this year, where many companies hired extensively due to a labor shortage. Now that conditions are stabilizing, 2023 feels like a recession for our industry, even though the broader economy isn't in a recession. Overall, I think as long as the broader economy avoids a downturn, we will return to a more normalized state eventually. In summary, our first quarter hasn't been stellar, though there may be some early signs of recovery. Regarding the second part of your question, I apologize, I went on for quite a while and lost track of it.

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

I recall now, so regarding capacity, when we acquired MRI at the end of 2022, I looked at their system-wide sales and our own sales at that time. If the economy had remained stable, I thought there was no way we would miss $700 million in system-wide sales for 2023. Clearly, that didn’t happen. We made some cuts, and had things gone differently, we might have maintained higher staffing levels. However, I believe we could potentially add between $50 million to $100 million in sales without significantly increasing our staff, particularly in tech staffing, where about a quarter of our employees are in IT. A decline in sales is challenging for us because it’s not easy to let go of programmers since they’re difficult to replace. We're focused on our future, but I’m confident that we could achieve that growth without incurring significant additional fixed costs.

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

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

Hi, thanks. Since you mentioned it, I was wondering if you could discuss any positive indicators you might be noticing, or any potential false positives, and which business lines are involved. I'm curious about what you meant by that comment.

We carefully monitor our sales compared to the previous year. It's interesting because we have been used to consistent growth for the last several decades, and being on the downside isn't as enjoyable. However, that gap has narrowed quickly. This could be misleading because I'm only considering a short timeframe of one or two weeks, not the entire quarter. Perhaps we've finally moved past a threshold, and the staffing industry is aligning more with its historical norms. It seems that in 2023, a significant factor was the replacement of temporary employees with permanent staff, which negatively impacted staffing revenues. I could be completely wrong about this. There was an article I read, possibly in the Wall Street Journal, discussing different ways the government measures the unemployment rate. While the reported rate is around 3.6% to 3.7%, it raises the question of why employment companies are struggling. There are two main surveys: a household survey and a business survey, which produce very different results. One of them combines gig work and temporary work as if they were traditional permanent jobs, leading to varying conclusions. I believe this difference in measurement contributes to our experiences in 2023. Economically, things tend to stabilize, and I believe we will reach that stability again soon, hopefully by March 2024 and not in another six months.

I understand your point about the two different measures of employment. It seems that the employment situation might not be as strong as the unemployment rate of 3.9% suggests. Was that your message?

The overall unemployment rate may have increased slightly, but there are actually more permanent employees than temporary ones now, or some gig workers may have left the workforce. It's all about how you interpret the data, and the 3.9% unemployment rate might reflect a significant drop in temporary workers compared to other surveys. There are definitely two different perspectives here. If you consider that staffing company numbers are all down while the economy continues to grow, it raises the question of why that is happening. This could be due to a shift away from temporary workers, which I refer to as the Peloton effect, or it may simply be a result of the patterns we've observed. The surge in demand in 2022 made it an exceptional year for temporary staffing, as many struggled to find employees. It's possible that the current decrease is just a correction from that peak. Additionally, given that unemployment hasn't risen significantly, it makes you wonder why there's a 10% drop in staffing. Sure.

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

Thank you all for joining us today. The economy continues to pose challenges for the staffing industry, and as I mentioned, the first quarter is not looking significantly better. However, it's important to remember that since the start of 2021, we have completed $76 million in acquisitions and achieved a $400 million increase in system-wide sales. Even in 2023, which was a relatively weak year for us, we still have only a little over $13 million in debt on our balance sheet. We are generating substantial cash flow, and while many of our competitors faced losses in 2023, we remain profitable as we did during the pandemic, positioning us well for the future. We appreciate your ongoing interest and partnership with the company. Thank you, and I look forward to speaking with you again in six to eight weeks.

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