HireQuest, Inc. Q1 FY2026 Earnings Call

Greetings. Welcome to the HireQuest First Quarter 2026 Earnings Conference Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Walter Frank of IMS Investor Relations. You may begin.

Thank you, operator. I would like to welcome everybody to the call. Hosting the call today are HireQuest's CEO, Rick Hermanns; and CFO, David Hartley. 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. Those 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'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 CEO of HireQuest, Rick Hermanns.

Good afternoon, and thank you for joining our call today. Our First Quarter 2026 was another solid quarter of operational execution and profitability for our business that demonstrates the resilience of our franchise staffing model in diverse markets. While many in our industry have struggled to keep up with shifting customer demands and a soft market for staffing services that has been impacted by a slow and sometimes even frozen hiring market, we continue to deliver consistent results and sustained profitability for multiple reasons. First, our franchise staffing model aligns incentives by making our franchisees owners alongside us. In other words, when our business is performing well, everyone benefits. Our model also provides enhanced expense control with less need for regional or middle management, and our exposure to diverse customer verticals and recurring revenue streams at the local level helps us to mitigate macroeconomic risk. Put simply, our performance in the first quarter continues to reflect the resiliency and strength of our model. It is important to stress that as a management team, we take a long-term view of the business and value creation. We have driven positive results dating back to before COVID. The company has not lost money in a single year since our formation and has delivered double-digit compounded annual growth in system-wide sales, revenue and adjusted EPS from 2019 to 2025. This growth has also outpaced the broader market. Our total sales grew almost 57% from 2019 to 2025 after adjusting for the divestiture of MRI Network compared to a decline of approximately 3% in sales during the same period for the broader U.S. temporary staffing industry. Specifically, our commercial sales, as so adjusted, increased almost 80% during this period, while the broader industry declined by about 23%. All the while, we have maintained a strong balance sheet with no debt. Looking forward, we are not wavering from our strategy that combines disciplined M&A with organic franchise growth, which has resulted in the business more than doubling in size over the past five years. Furthermore, we have been able to keep our SG&A relatively stable as a percentage of system-wide sales despite persistent economic headwinds over the past couple of years. I talked about tentative green shoots in demand over the past couple of quarters, but those tended to be isolated and fleeting. In Q1, despite a rough start, towards the second half of the quarter, we started to see some consistent favorable weekly year-over-year comparisons across the business. And so far, in Q2, those comparisons have become even more favorable. This is encouraging for a number of reasons. First, I think we can attribute some of the improvement to the surge in undocumented workers that came from 2021 to 2023 finally being resolved. Secondly, we are starting to see the impact of our investments in our National Accounts program and the efforts of our franchisees starting to pay off. Looking ahead, we believe we're in a favorable position to benefit from what looks to be an improved staffing market in 2026. With that, I'll now turn the call over to David to provide a closer look at our first quarter financial results.

Thank you, Rick, and good afternoon, everyone. I appreciate everyone joining today. I'll now provide a summary of our first quarter results. Total revenue for the first quarter of 2026 was $6.5 million compared with revenue of $7.5 million in the prior year, a decrease of 12.7%. As a reminder to everyone, we completed our divestiture of certain MRI Network assets, which comprised the permanent placement franchise operations on January 1 of this year. So the first quarter of 2026 does not include any revenue or SG&A from that portion of the business. As a point of comparison, the first quarter of 2025 included approximately $574,000 in total revenue related to divested MRI Network assets. 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 in the first quarter were $6.1 million compared to $7 million for the same quarter last year. The first quarter of 2025 included approximately $500,000 in franchise royalties related to the divestiture. Underlying franchise royalties are system-wide sales, which are not a part of our revenue but are a helpful contextual performance indicator. System-wide sales reflect sales at all offices, including those classified as discontinued. System-wide sales in the first quarter were $102.6 million compared to $118.4 million in the first quarter of 2025. The first quarter of 2025 included approximately $16 million in system-wide sales related to the divestiture. Service revenue in the first quarter was $462,000 compared to $512,000 last year. The first quarter of 2025 included roughly $75,000 in service revenue related to the divestiture. Selling, general and administrative expense in the first quarter was $4.3 million compared to $5.3 million in the first quarter of 2025. Included in SG&A is workers' compensation expense, which totaled $39,000 for the first quarter compared to $28,000 in the first quarter of 2025. Additionally, the first quarter of 2025 included approximately $700,000 in SG&A related to the divestiture. For Q1 2026, core SG&A, which excludes the impact of workers' compensation and any nonrecurring operating expenses, was $4.2 million. We provide a table in the press release issued earlier this afternoon with a detailed reconciliation of core SG&A to SG&A, along with tables for the non-GAAP profitability metrics, net income to adjusted net income and net income to adjusted EBITDA, which I'll discuss shortly. Net income after tax was $1.6 million in the first quarter or $0.11 per diluted share compared to net income of $1.4 million or $0.10 per diluted share last year. Adjusted net income for the first quarter was $1.8 million or $0.13 per share compared to adjusted net income of $1.8 million or $0.13 per diluted share in the same period last year. And adjusted EBITDA for the first quarter of 2026 was $2.7 million compared to $2.8 million last year. Given the size of noncash operating expenses running through our P&L, we believe adjusted EBITDA and adjusted net income are both relevant metrics for us. Moving to the balance sheet: our total assets as of March 31, 2026, were $91.1 million compared to $88.2 million at December 31, 2025. Current assets included $1 million in cash and $44.7 million of net accounts receivable, while current assets at 2025 year-end included $3.9 million of cash and $39.3 million of net accounts receivable. Working capital was $32.5 million at the end of the first quarter compared with $33 million at the end of 2025. At the end of the first quarter, we had $0 drawn on our credit facility, and that provides us with $40.3 million in availability, assuming continued covenant compliance. 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 March 16, 2026, to shareholders of record as of March 2. 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, David. I'd also like to highlight that we issued a press release this afternoon, which described the new offer to the Board of Directors of TrueBlue. Our new offer is $105 million cash for the on-demand portion of TrueBlue's PeopleReady segment. As previously disclosed, HireQuest made multiple offers to TrueBlue in 2025. Last year, we were prepared to initiate a tender offer directly to TrueBlue shareholders and incurred substantial costs in its preparation. However, we postponed that process in hopes of engaging with the TrueBlue Board of Directors directly on a friendly basis. Now, roughly a year after we first made our interest known and made it public, nothing has materialized. We are once again exploring our options. We believe that the on-demand portion of TrueBlue's PeopleReady segment is very complementary to our HireQuest Direct division and as such, made an attractive all-cash offer earlier today to TrueBlue's Board of Directors. This part of TrueBlue's business has been an underperformer for them for years, and our proposal gives them the opportunity to divest these offices and raise a substantial amount of cash. We hope TrueBlue's Board will view this opportunity as a clear path to create incremental value for their shareholders. As always, I'd like to thank our employees and franchisees for their hard work and commitment, and we look forward to speaking with you again when we report our second quarter results in August. With that, we can now open the line to questions. Thank you.

Our first question comes from Kevin Steinke with Barrington Research.

Great. Thank you. I wanted to start out by asking about just the trends you saw throughout the first quarter. You mentioned a rough start. Is that at all related to maybe some weather headwinds or headwinds from the holidays? I know I've heard other companies talk about that. And then you talked about the second half becoming more consistent and that continuing into the second quarter with even some improvement. So maybe just a little more color on the trends as the quarter progressed and as you've moved here into the second quarter.

Yes, absolutely. So yes, what you said is accurate and mirrors what other people have observed. The beginning—basically until mid-February—our results were impacted significantly by the placement of New Year's Day. January effectively became a 20-business-day month. February is always traditionally weak because it's a short month. On top of that, the weather was unusually bad across an unusually large swath of the country. What we noticed starting around mid-February was our results became perceptibly better, particularly on a year-over-year comparison. Toward the end of the quarter, it continued to improve. If you look at the numbers David stated, for example, if you exclude the system-wide sales impact of the MRI Network divestiture, we were nearly flat year-over-year in system-wide sales. The better news is that in the first five weeks of the second quarter, our comparisons have become even more favorable. Absent some black swan event, we're feeling really good about our demand right now.

Okay. Yes, that's helpful. And so you mentioned the year-over-year comparisons becoming more favorable as we enter the second quarter. I had noticed as well that excluding MRI, the system-wide sales were flat year-over-year in the first quarter. So should we kind of think about that you've moved into more actual growth year-over-year on a weekly basis over the last few weeks?

Yes. From my perspective, I do feel much more optimistic now than I have in the last couple of years. We have solid momentum right now. Historically, we've had a few good weeks and then things have fallen off. But for the last eight to nine weeks, we've had pretty consistently decent results compared to the year-over-year period.

All right. And you mentioned maybe a couple of factors helping you out there: reduced undocumented immigration and also your National Accounts program. Maybe touch on how you believe those things have benefited the results recently here?

Two things in particular. One, between 2021 and early 2024, depending on the source, a substantial number of people came into the country, and while not everyone competes for our jobs, many do. Think of roles in food service and hospitality—jobs that often interact with our segments of the staffing industry. Net immigration is much lower now, and as the economy has grown, it has absorbed some of the excess labor that resulted from that immigration. Population growth in the United States in 2025 was one of the lowest on record, and we are starting to see more normal patterns. Previously, it was hard to reconcile declining staffing demand with a low unemployment rate. Now, the staffing industry seems to be tracking more with true changes in unemployment. For us, that is positive because we remain in a relatively low unemployment environment, and certain segments of business that had not been there in a while are returning. The other factor is our investment in the National Accounts department. We made meaningful investments and are now getting significant wins from that work. So we're seeing organic growth related to our efforts, not just macroeconomic changes.

All right. Great. Maybe just to touch on the TrueBlue offer for the PeopleReady on-demand segment: can you give investors a sense of the size of that business you're targeting in terms of system-wide sales or, since you mentioned it was underperforming, how you feel like you could improve its performance and profitability?

Unfortunately, I'm not at liberty to speak beyond what's been released publicly. Your questions are valid, but I can't provide additional detail at this time.

Okay. Completely understand. And just maybe lastly, you mentioned the positive year-over-year comparisons. Are you seeing that in any particular markets or segments of your business, commercial versus on-demand? Or is it broad-based in terms of the stabilizing and improving trends you've seen?

Commercial is where it's at right now. Our on-demand business is flat—doing reasonably well given the macro environment. But the commercial side has been strong and it is not geographically limited. This relates somewhat to the immigration point: there are many projects—retrofits and short- to medium-term industrial projects, perhaps related to reshoring or increased automation—where staffing is a good solution. We are winning many of those opportunities, and the improvements are broad-based.

The next question comes from Keegan Cox with D.A. Davidson. EO Commercial is where it's at right now. Our on-demand business is flat, doing reasonably well given the macro environment. The commercial side has been strong and is not geographically limited. This ties into the immigration point: there are many projects—retrofits and short- to medium-term industrial projects, perhaps related to reshoring or increased automation—where staffing is a good solution. We are winning many of those opportunities, and the improvements are broad-based.

I just wanted to ask how results came in versus your expectations for the quarter. I mean, excluding MRI, as you said, system-wide sales were flat. It looks like service revenues improved, but franchise royalties were down. Is that all weather related? You talked about it, but walk me through it again, I guess.

It depends on when in the quarter you ask me. If you had asked me in early February, I would have been quite concerned and expecting a weak quarter because of the early results. I can't control the weather or the calendar. The second half of the quarter improved and effectively balanced out the first half. So overall, we ended up roughly where we would have expected based on how events transpired. I feel good about the second quarter and the rest of the year, but we remain tied to macroeconomic circumstances beyond our control.

Got it. And you kind of talked about it already, seeing a return of some segments of business that haven't been there for a while. You mentioned retrofits. I'm guessing you're seeing more on the industrial side and construction as well?

Construction is improving but it's not back to what it was 18 months ago. It's recovering but slower, except for the very large projects like data centers, where we're getting more traction. The real action for us is industrial and manufacturing. That side has definitely improved.

Got it. And then just my final one: we follow a few indicators. If I look at TrueBlue and PeopleReady, that business looked like it accelerated this quarter. Other industry indicators show that temp staffing demand is improving. Looking at your results, why wouldn't your trends be holding up relative to these indicators?

They are holding up. In fact, recent industry data reported a sizable gain last week in temporary staffing jobs. Temporary staffing jobs rose in March and April and appear to be accelerating into May, which is notable compared to the last three years. As we noted in our prepared remarks, the staffing industry is down about 3% overall since 2019, and it appears that trend may finally be starting to break.

Thank you. We have reached the end of the question-and-answer session. And I will now turn the call over to management for closing remarks.

Again, I want to thank everybody for being with us today. This is an exciting time for the company as we hopefully are at the cusp of a period of higher demand for our services. We remain hopeful that our bid for the on-demand portion of TrueBlue's PeopleReady segment will be taken seriously and will lead to greater opportunities for everyone. Thank you for joining us, and we will look forward to speaking with you again in August.

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