HireQuest, Inc. Common Stock (DE) 2026 Q2 Earnings Call

Thank you. I'd like to welcome everybody to the call today. Hosting the call are HireQuest CEO, Rick Hermanns, and CFO, David Hartley. I'll now 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 in 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. Now I'd like to turn the call over to the CEO of HireQuest, Rick Hermanns.

Please go ahead, Rick. Good afternoon, and thank you for joining our call today.

In the second quarter, we continued to see improving demand for temporary staffing services as the market stabilizes and employers begin to prioritize hiring again. Leading up to Q2, we saw what I described as tentative green shoots in demand over the last few quarters, but with no real traction to speak of until the second half of the first quarter of this year, when we started to see consistent demand and favorable weekly year-over-year comparisons across the business. As you can see in our results, these comps were even more favorable in Q2, as we drove year-over-year revenue growth for the first time since the third quarter of 2024. Frankly, the latter part of the second quarter was better than the start.

David will take a deeper dive into the financials, but moving down the P&L at a high level, the increased revenue in the quarter, combined with disciplined expense management, generated significantly improved GAAP profitability and earnings for our shareholders. We operate in an industry where a rising tide tends to lift all ships. With macro factors like interest rates and the political landscape weighing heavily upon the employers' decisions to hire, downsize, or even freeze their efforts altogether. The latter is what we are seeing for the better part of the last two years. So far this year, there have been three primary factors enabling our growth. First, we are seeing the benefits from the immigration policies enacted at the beginning of 2025. Second, our franchisees have taken advantage of the uptick in the manufacturing labor market, especially our Snelling franchisees, who grew their top line by almost 15%.

Third, as I mentioned on last quarter's call, we are seeing a return on the investments we've made in our national accounts program. So while the industry is up as a whole, we continue to stand out from the pack, thanks to our differentiated franchise staffing model, which allows us to be nimble and flexible regardless of the market trends. I'd like to highlight that we remain profitable throughout the duration of this market downturn. In fact, we've reported GAAP profitability in each quarter since the third quarter of 2024 when we recognized a one-time non-cash impairment charge of $6.4 million related to our acquisition of MRINetwork, which flowed down to our bottom line. On a non-GAAP basis, we have never reported a loss. With that background, you can see how exciting a stabilizing market is for our business after two-plus years of uncertainty.

We're well-positioned with a proven model, increasing demand, and a strong balance sheet, and no debt. There's work still to be done, and the market has a long way to go before it returns to previous levels. With that being said, we're encouraged by what we're seeing in both our business and in the broader staffing market. With our visibility today, we believe that we're in a stronger place to deliver positive results through the balance of 2026. With that, I'll turn over the call now to David to provide a closer look at our second quarter financial results.

Thank you, Rick, and good afternoon, everyone. Appreciate you all joining us today. I will now provide a summary of our second quarter results. Total revenue in the second quarter of 2026 was $8.1 million, compared with revenue of $7.6 million in the prior year, an increase of 6%, which is especially impressive when you take into account that the second quarter of 2025 included $690,000 of total revenue related to the MRINetwork assets we divested at the beginning of the year. So pro forma for the divestiture, total revenue was up 16.6% in the second quarter. As a quick refresher for all of you on the call, 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 interests charged to our franchisees, as well as other miscellaneous revenue.

Royalties were $7.6 million compared to $7.3 million for the same quarter last year, an increase of 4.1%. Pro forma for the divestiture, franchise royalties were up 13.8%. Underlying franchise royalties are system-wide sales, which are not 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 second quarter were $117.8 million, compared with $125.9 million in the second quarter of 2025. Divested MRINetwork assets contributed roughly $17.7 million in Q2 2025, which translates to pro forma growth in this quarter of 6.9%. Service revenue in the second quarter was $513,000, compared with $354,000 last year. Selling, general and administrative expenses in the second quarter were $4 million, compared to $5.9 million in the second quarter of 2025.

Included in SG&A expenses is workers' compensation expense, which totaled $39,000 for the second quarter of 2026, compared with $127,000 in Q2 2025. For Q2 2026, core SG&A, which excludes the impact of workers' comp and any non-recurring operating expenses, was $3.8 million, compared to $4.7 million last year. Q2 of 2025 included approximately $633,000 in SG&A expenses related to the divested MRINetwork assets. 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 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 $2.7 million in the second quarter, or $0.19 per diluted share, compared to net income of $1.1 million or $0.08 per diluted share last year.

Adjusted net income for the second quarter was $3.2 million, or $0.23 per diluted share, compared to adjusted net income of $2.1 million or $0.15 per diluted share last year. Adjusted EBITDA was $4.6 million in the second quarter, compared to $3.3 million last year. Given the size of non-cash operating expenses running through our P&L, we believe adjusted EBITDA and adjusted net income are both relevant metrics for us. Moving on now to the balance sheet. Our total assets as of June 30, 2026, were $93.4 million, compared to $88.2 million at December 31, 2025. Current assets included $1.6 million in cash and $48.9 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 $35.1 million as of June 30, 2026, compared with $33 million at 2025 year-end.

As of June 30, 2026, we had $41 million in availability on our credit facility, 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 June 15, 2026, to shareholders of record as of June 1. 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. As always, I would 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 third-quarter results in November. With that, we can now open the line to questions.