Good afternoon, everyone, and welcome to the HireQuest, Incorporated Third Quarter 2024 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open for questions, following the presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, John Nesbett, IMS Investor Relations. John, the floor is yours.

Thank you operator. I’d like to welcome everyone to the call. Hosting the call today are HireQuest’s Chief Executive Officer, Rick Hermanns; and Chief Financial Officer, Steve Crane. I would 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, involve risks and uncertainties, including those described in HireQuest’s periodic reports filed with the SEC 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 the Chief Executive Officer of HireQuest, Rick Hermanns. Please go ahead, Rick.

Good afternoon and thank you for joining our call today. We achieved slight growth in total revenue in the third quarter of 2024, compared to the third quarter of 2023 as well as sequential revenue growth of 8.5% when compared to the second quarter of 2024 as the market for temporary staffing solutions began to stabilize. As we've mentioned before, the staffing industry has faced a particularly difficult environment in recent quarters as employers remain cautious in their hiring decisions, influenced by the presidential election and an unpredictable economic landscape. Additionally, the spike in illegal immigration, which occurred from 2022 through early 2024, led to the influx of undocumented workers into the lower-tier labor force. While it's hard to quantify the impact on our business or the staffing industry in general, many of the jobs that we staff daily are the types of jobs undocumented workers fill. Despite these headwinds, I'm proud to say that HireQuest has performed relatively well compared to our peers, demonstrating the strength and versatility of our franchise model. In this quarter, system-wide sales for our temporary staffing brands grew by 3.6% year-over-year for the first time since the first quarter of 2023. Looking ahead, we believe that we're beginning to see a leveling out of the compressed demand we've been experiencing on the temporary and commercial staffing side of our business and are positioned for improved results as we move through the balance of 2024 and into 2025. Expense management continues to be a priority. We reduced SG&A expenses by over 15% in the quarter when compared to the third quarter of 2023 as we continue to mitigate workers' compensation expense that impacted our profitability in the second half of 2023. Specifically, workers' compensation expense in the third quarter decreased nearly 67% compared to the third quarter of 2023. We believe that we can maintain and even improve on these results. And as I mentioned on last quarter's call, we see no indication that workers' compensation will reach 2023 levels moving forward. We view permanent placement and executive recruiting as a significant long-term opportunity that ideally complements our existing staffing offerings and MRI Network is the cornerstone of our growth strategy in this market. That said, the overall market for permanent placement and executive recruiting has faced industry-wide challenges for several quarters. And while we anticipated some contraction of MRI at the time of the acquisition, we did not project the protracted industry-wide downturn that we've experienced. To better reflect the current fair value of MRI Network to our business, we made the decision to write down certain non-cash assets related to MRI resulting in a one-time non-cash impairment charge of just over $6 million. This charge significantly impacted our profitability in the quarter and in the year-to-date period, for which Steve will provide more detail in his prepared remarks. At a high level though, absent this one-time non-cash charge, adjusted net income in the quarter increased 29% compared to the third quarter of 2023, demonstrating not only our ability to deliver strong growth and value on a year-over-year basis, but also our ability to do so in the face of headwinds that have continued to impact the entire staffing industry. As we close out the year, we believe that we are well-positioned to drive enhanced financial performance as we enter a period where we expect to capitalize on a stabilizing staffing market and employ prudent expense management across our business. I would like to conclude my prepared remarks by reiterating some important data points that we presented on last quarter's call. Since our Command Center merger in the summer of 2019, our operational results have consistently outpaced the broader staffing industry regardless of macroeconomic factors, highlighted by a four-year adjusted EBITDA CAGR of 12.6% from 2019 to 2023 that is more than double almost all other commercial or professional staffing companies in our peer group. This quarter, we achieved our highest adjusted EBITDA since the third quarter of 2022 and with the visibility that we have today, we believe that we're in a strong position to continue this trend. Overall we're pleased with our third quarter results. And we're optimistic that the market for both temporary and permanent staffing solutions is entering a more favorable economic environment. We're ready and eager to capitalize on the opportunities that become available to us as demand for staffing services strengthens. I'll now pass the call over to our Chief Financial Officer, Steve Crane, who will provide a closer look at our third quarter results.

Thank you, Rick and good afternoon everyone. Thank you for joining us today. Total revenue for the third quarter of 2024 was $9.4 million, compared with revenue of $9.3 million in the same quarter last year, an increase of 1.6%. 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 as well as other miscellaneous revenue. Franchise royalties for the third quarter were $9 million, compared to $8.9 million for the same quarter last year. Underlying the royalties are system-wide sales which are not part of our revenue but are a helpful contextual performance indicator. System-wide sales for the third quarter were $148.6 million, compared to $151.2 million for the same period in 2023. The decrease in system-wide sales was primarily driven by a decline in our professional recruiting and staffing brands of $6.5 million, partially offset by a $3.9 million increase in sales generated by our temporary staffing brands when compared to the prior year period. Service revenue was $428,000 for the third quarter, compared to $366,000 for the same quarter a year ago. Service revenue is composed of interest charged to our franchisees on overdue accounts receivable, service fees, and other miscellaneous revenue, and MRI Networks advertising fund revenue. Service revenue can fluctuate from quarter to quarter based on a number of factors, including changes in system-wide sales, accounts receivable, insurance renewals, and similar dynamics. Selling general and administrative expenses for the third quarter were $5.4 million, compared to $6.4 million in the prior year period, a decrease of 15.3% as the changes we made to our workers' compensation insurance policy in Q1 of this year have lessened the increase in related expense we experienced in 2023. Additionally, we continue to prioritize expense management across our business. Net workers' compensation expense in the third quarter of 2024 was approximately $499,000 compared to a net expense of approximately $1.5 million in the third quarter of 2023. Also included in our SG&A were salaries and benefits which continue to be the largest component of our operating expenses. In the third quarter of 2024, we recognized $2.8 million in compensation-related expenses, compared to $2.9 million in the third quarter of 2023. Our year-to-date compensation-related expenses decreased 11.1% to $8.5 million, primarily driven by headcount reductions we made during 2023 related to the integration of the MRI Network acquisition. Net loss after tax was $2.2 million in the third quarter of 2024, or a loss of $0.16 per diluted share compared to a net income of $1.5 million or earnings per diluted share of $0.11 in the third quarter of 2023. As Rick mentioned in his prepared remarks, we recognized a one-time non-cash impairment charge of $6 million in the quarter related to the MRI network assets we acquired in December 2022. This non-cash impairment charge had a considerable impact on our profitability both in the quarter and year-to-date in 2024. As such, we decided that providing an adjusted net income figure for the quarter and the year-to-date period as of September 30, 2024 would be a helpful metric to better showcase the growth and progress that we've achieved. With that said, adjusted net income for the third quarter of 2024, which excludes the one-time non-cash impairment charge, amortization of acquired intangibles, and other non-recurring one-time expenses net of the tax effect from these adjustments, was $2.8 million or $0.20 per diluted share compared to adjusted net income of $2.2 million or $0.16 per diluted share in the third quarter of 2023. Adjusted net income for the nine months ended September 30, 2024, was $7.3 million or $0.52 per diluted share compared to adjusted net income of $7.3 million or $0.53 per diluted share in the prior year period. We provided a table in the press release we put out earlier this afternoon with a detailed reconciliation of net income to adjusted net income. Adjusted EBITDA in the third quarter of 2024 was $4.9 million compared to $3.7 million in the prior year period. Adjusted EBITDA margin for the quarter was 52% compared to 40% in the prior year period. We believe adjusted EBITDA is a relevant metric for us due to the size of non-cash operating expenses running through our P&L. A detailed reconciliation of net income to adjusted EBITDA is provided in our press release and our 10-Q. Moving now to the balance sheet. Our current assets at September 30, 2024, were $58 million compared to $51.5 million at December 31, 2023. Current assets as of September 30, 2024, included $1.6 million in cash and $50.5 million of net accounts receivable, while current assets at December 31, 2023, included $1.3 million of cash and $44.4 million of net accounts receivable. Current assets exceeded current liabilities by $23.4 million at September 30, 2024, versus year-end 2023 when working capital was $15.7 million. Current liabilities were 59.7% of current assets at September 30, 2024, versus 69.4% of current assets at December 31, 2023. At September 30, 2024, we had $13.4 million drawn on our credit facility and another $26.9 million in availability assuming continued covenant compliance. Importantly, our credit facility was not impacted by the one-time non-cash impairment charge that we recognized in the quarter. 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. Most recently, we paid a $0.06 per common share dividend on September 16, 2024, to shareholders of record as of September 2. We expect to continue to pay a dividend each quarter, subject to the Board's discretion. With that, I'll turn the call back over to Rick for some closing comments.

Thank you, Steve, and I'd like to thank our employees and franchisees for their hard work and dedication this quarter. And we look forward to closing out the year strong and speaking with you again on our year-end call. With that, we can now open the line to questions. Thank you.

Great. Thanks. Many CEOs have been mentioning the uncertainty surrounding the election, which has been a recurring theme for the past few months. Now that the election is over and without disruption, that concern is behind us. You mentioned in your call that conditions were improving even before this. Firstly, why do you believe things are getting better? What aspects of the environment are improving? Additionally, how does the smooth outcome of the election contribute to further positive changes in the environment?

Thank you for the question, Mike. I would highlight three key points. First, the recent reduction in interest rates lowers the likelihood of a collapse in the commercial real estate market and commercial construction, which are significant drivers for our business. This trend has already begun in this quarter, providing us with valuable support. Additionally, in June, the federal government began adjusting its approach to illegal immigration, which is beneficial for us as our HireQuest Direct line competes directly with undocumented workers. We're beginning to see positive impacts from these changes over the summer, which alleviates that concern. Moreover, we have noticed improvements in our numbers, with an increase in orders that we weren't previously seeing. The market dynamics post-pandemic were quite unusual, making it difficult to find both employees and capable business development personnel. Thankfully, some of these conditions are starting to stabilize. I feel optimistic because our franchisees are reverting to their pre-pandemic practices, and regular incentives are beginning to take hold. These are the reasons for our positive outlook.

Yes. Yes. That's very helpful. And so then, if I could ask one follow-up, within all those things getting better, are there specific lines of business or types of businesses that are getting better? Are you actually starting to see commercial real estate and construction get better? And then same question, geographically.

Commercial construction has remained robust since 2020 and has consistently performed well, even during that year. Texas and Tennessee have been strong markets for us, though Tennessee is facing some challenges. Florida and Georgia have also shown strength, particularly in the Southeast. Additionally, we are seeing improved performance in the Mid-Atlantic region. I would also highlight that our skilled trades division is experiencing growth, contributing positively to our overall success.

Awesome. Thank you. I’ll turn it over to someone else.

Thank you very much. Your next question is coming from Kevin Steinke of Barrington Research. Kevin, your line is live.

HI. Thank you. So, you talked about temporary staffing returning to system-wide sales growth. But at the same time, the executive recruiting and permanent staffing market being a little tougher. Although, I think in your actual press release, you said you're optimistic that the market for both temporary staffing and permanent staffing is entering a more favorable economic environment. So I'm just wondering if you're seeing signs of stabilization or improvement on the permanent staffing side, and your outlook or your level of optimism for that part of the business?

Thank you for your question. The permanent placement business has faced significant challenges over the past seven quarters. I won't downplay that; it's been quite difficult. However, the current low levels of activity lead to a sense of optimism since they can't stay this way indefinitely. There’s only one direction for it to go: up. As I mentioned in response to Mike's question, part of our optimism stems from the fact that in 2022, things were somewhat easier for our teams, leading to a departure from fundamental practices. Now, there’s a realization that many are reassessing their situations and adjusting their approaches to be more proactive. Additionally, in 2022, hiring practices were somewhat erratic, with companies hiring anyone they could find. As a result, 2023 has been surprising for many—finding out, for example, that they hired more programmers than they actually needed. We're returning to a more normalized market. The downturn in 2023 and 2024 seems unusual compared to the strong performance in 2022. I hope that clarifies my perspective on the situation.

Yes absolutely. Yes that makes sense. So great. So on the expense side, I apologize if you called it out, but just you've talked about the core SG&A in the past and then also the workers' compensation expense. I can't recall if you gave the exact number. I'm backing into it being about $500,000 or so but just I was wondering if you could review those numbers for me.

Yes. I'm going to work backwards here. Did you have the core number, Steve?

Well, I've got the net workers' comp. You were spot on. It's about $500,000 in the third quarter of this year and then $1.5 million in the third quarter last year.

So, there was a $1 million improvement, and core SG&A remained flat at $5.4 million. However, overall SG&A decreased by $1 million due to improvements in workers' compensation. We managed to keep our costs steady compared to the third quarter of last year, which aligns with our sales also being flat year-over-year.

Yes, I understand. That's helpful. Given that demand seems to be increasing, do you believe you can maintain your core SG&A expenses at a similar level? I know you've mentioned the possibility of having some excess capacity to support system-wide sales, so I want to clarify how much capacity you anticipate having.

That's a great question. Yes, Kevin that's a great question. So, here's how I would answer it is that yes we still have the ability to take on I would argue probably a 5% to 10% sales increase with no appreciable increase in costs, a need for SG&A. So, yes, we still have some slack capacity. The only thing that would dampen that in my mind would be to the extent that the environment the economy improves a bit is I do believe that there's going to be a very real potential for wages to go up. And so while we may not have a major headcount increase it's easy for me to see our perm payroll expenses go up. So I don't think we can stay flat, but I do think our headcount will stay almost exactly flat.

Okay. Yes. Got it. That's fair. And so you've talked in previous calls with this softer demand environment that it typically has created more acquisition opportunities for you. Just wondering if that's been the case still or what the pipeline looks like and your overall appetite for continuing.

Kevin, I'm glad you asked that question. I'm glad you asked that question. So obviously, our threshold for reporting acquisitions as we've grown has become significantly higher. So even in this quarter, we've made two acquisitions, small, but two acquisitions. And so we have a fair number of deals in the pipeline right now. Nothing so significant as to trigger any disclosures or anything but we have, like I said, a number of small deals that are in various points of completion. So, we did two deals already in the last three months and would anticipate there's no reason for me to believe that that will slow down.

Okay. Yes. Obviously, like you mentioned too small to even register from a materiality perspective, but were those just kind of typical commercial staffing? Or what areas have you been looking at?

Yes, two of the deals this quarter were on demand. However, there are typically more opportunities in commercial staffing since it represents a larger part of the staffing industry. This means we generally encounter more prospects in that area, while on-demand staffing is more niche and less common. Nonetheless, we did identify two on-demand opportunities this past quarter. Looking ahead, I would expect the trend to lean more towards commercial staffing.

Okay.

To answer your original question, they tend to be either the ones we are currently considering or the ones we have already completed. It might involve someone who operates in only one or two markets. This aligns well with either strengthening our position in a specific market or expanding into a new city. Last quarter, we experienced both scenarios. These are beneficial deals with very limited risk, and they contribute to enhancing our overall presence.

Great. Yes. Helpful update. I will turn it back over. Thanks for taking my questions.

Sure.

Thank you very much. Well, we appear to have reached the end of our question-and-answer session. I will now hand back over to the management team for any closing remarks.

Thank you, Jenny, and thank you for joining us on this call. I certainly hope you will agree that despite the write-down of the MRI assets that there's a lot of information in there that have sort of validated our strategy as far as being a franchisor of staffing companies and it demonstrates our resilience despite the headwinds that you can clearly see in our peers. And again, I encourage you to reach out if you have any further questions and we just thank you for joining us and have a good day.

Thank you very much. This does conclude today's conference. You may now disconnect your phone lines at this time and have a wonderful rest of the day. Thank you for your participation.