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HireQuest, Inc. (HQI)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue declined 11.2% year over year to $7.47M, with diluted EPS of $0.10; adjusted EPS was $0.13 and adjusted EBITDA was $2.80M (37% margin), reflecting persistent macro headwinds in staffing .
  • Expense control was a bright spot: SG&A fell 6.5% YoY to $5.26M and net workers’ compensation expense decreased sharply to $28K from $572K in Q1 2024, supporting profitability despite lower revenues .
  • System-wide sales fell 11.7% YoY to $118.4M, with management citing employers’ cautious hiring and tariff uncertainty; immigration enforcement is emerging as a tailwind for documented day-labor demand .
  • Management emphasized an active M&A pipeline with more realistic seller pricing after ~9 quarters of muted demand, positioning HQI to pursue accretive deals; CFO transition to David Hartley (effective May 31) underscores continued focus on corporate development .

What Went Well and What Went Wrong

What Went Well

  • Cost discipline: SG&A down 6.5% YoY to $5.26M; net workers’ comp expense dropped to $28K from $572K YoY, materially aiding margins and profitability .
  • Profitability resilience: Net income of $1.36M and adjusted EBITDA of $2.80M with a 37% margin; “we continue to achieve solid margins and profitability supported by the resiliency and strength of our franchise model” (CEO) .
  • Strategic M&A positioning: “Pricing of deals is starting to definitely get more reasonable… industry has been in a depressed state for literally nine quarters” (CEO), increasing odds of accretive acquisitions .

What Went Wrong

  • Top-line pressure: Franchise royalties fell to $6.96M (from $7.83M) and total revenue to $7.47M (from $8.42M); system-wide sales down to $118.4M (from $134.0M) YoY .
  • Margin compression vs prior periods: Adjusted EBITDA margin was 37% vs 40% in Q1 2024 and 47% in Q4 2024, reflecting lower revenue and mix .
  • Professional/perm staffing softness: Ongoing weakness in executive search (MRINetwork) vs temporary staffing; management reiterated demand caution and tariff-related uncertainty holding clients back .

Financial Results

Consolidated P&L and Profitability

MetricQ1 2024Q4 2024Q1 2025
Revenues ($USD Millions)$8.42 $8.08 $7.47
Diluted EPS ($)$0.12 $0.16 $0.10
Adjusted EPS ($)$0.15 $0.19 $0.13
Net Income ($USD Millions)$1.62 $2.22 $1.36
Income from Operations ($USD Millions)$2.10 $2.27 $1.48
Adjusted EBITDA ($USD Millions)$3.36 $3.80 $2.80
Adjusted EBITDA Margin (%)40% 47% 37%

Segment / Revenue Composition

MetricQ1 2024Q4 2024Q1 2025
Franchise Royalties ($USD Millions)$7.83 $7.64 $6.96
Service Revenue ($USD Millions)$0.59 $0.44 $0.51
Total Revenue ($USD Millions)$8.42 $8.08 $7.47

KPIs and Operating Metrics

KPIQ1 2024Q4 2024Q1 2025
System-wide Sales ($USD Millions)$134.0 $134.8 $118.4
Net Workers’ Comp Expense ($USD Millions)$0.57 $0.34 $0.03
SG&A ($USD Millions)$5.62 $5.12 $5.26
Working Capital ($USD Millions)—$25.1 $27.4
Cash ($USD Millions)—$2.22 $2.09
Line of Credit Drawn ($USD Millions)—$6.83 $5.46
Line of Credit Availability ($USD Millions)—$33.4 $34.8

Notes: “—” indicates not disclosed for that period in the referenced document.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Quarterly Dividend ($/share)OngoingIntends to pay $0.06 quarterly, subject to Board discretion Paid $0.06 on Mar 17, 2025; intends to continue $0.06 quarterly, subject to Board discretion Maintained
Workers’ Compensation ExpenseFY 2025Expected to decline further in 2025 vs 2024 “Significantly better than ’24; maybe breakeven” (qualitative) Improved (qualitative)
Revenue/Profitability OutlookFY 2025Temporary staffing stabilizing; perm staffing weak; focus on expense control and M&A Similar narrative; macro/tariff uncertainty; immigration enforcement tailwind; strong M&A pipeline Maintained (qualitative)

No formal numeric revenue/EPS guidance was issued in Q1 2025 .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024 and Q4 2024)Current Period (Q1 2025)Trend
Macro demand and tariffsPost-election optimism; temporary staffing stabilized; softness emerged in Dec; tariff uncertainty weighing on demand “No dramatic shift” since Q2 began; tariff standoffs hold clients at bay Cautious/flat
Immigration enforcement tailwindIllegal immigration affected day-labor demand; enforcement changes expected to help documented hiring Clients “coming back,” raids reopening doors; HQI positioned as E-Verify employer Improving
Workers’ comp expenseDown significantly YoY; ~$0.5M in Q3 vs ~$1.5M prior year Q1 net workers’ comp expense $28K; outlook “significantly better” than 2024 Improving
M&A pipeline and pricingActive pipeline; small acquisitions; ability to add capacity without SG&A spike Distressed sellers more realistic on price; engaged with 3–4 companies; strong pipeline Improving/opportunity
Segment performance (temp vs perm)Temp stabilized/growing; perm (MRI) remained weak; impairment in Q3 Industry headwinds persist; perm staffing still soft; temp better but cautious Mixed
IT investment and costsIntent to preserve IT/marketing spend; room to cut if necessary Continued expense management with strategic investment focus Maintain/optional cuts

Management Commentary

  • “Despite this challenging environment, we continue to achieve solid margins and profitability supported by the resiliency and strength of our franchise model. Expense management remains a key focus…” (CEO) .
  • “Pricing of deals is starting to definitely get more reasonable… the staffing industry has been in a depressed state for literally nine quarters.” (CEO) .
  • CFO transition: “Steve will be succeeded by David Hartley… David’s extensive financial experience… the main architect of more than 15 acquisitions.” (CEO) .
  • Perm staffing/MRI: “Weak… continued to impact performance… we’re controlling what we can and positioned MRI to benefit when demand returns.” (CEO) .
  • Workers’ comp outlook: “Part of the reason for our optimism is… claims have mostly closed now… rates have firmed up… may be significantly better than ’24.” (CEO) .

Q&A Highlights

  • Demand/tariffs: No material improvement noted in April/early Q2; tariff standoffs dampen client action despite limited real-world impact .
  • Immigration enforcement: Documented tailwind; franchisees report clients returning and references to enforcement actions (raids), reopening doors for E-Verify providers .
  • SG&A trend/one-offs: Q1 SG&A included timing shifts (~$190K professional fees) and minor RIF with tenure-related severance masking underlying improvements sequentially .
  • M&A confidence: Broader distress and more realistic pricing; actively engaged on multiple opportunities; considering adding a deal-sourcing role rather than VP-level backfill .
  • Segment/industry mix: Construction leveled; manufacturing/warehousing remain weak; declines more pronounced in executive search than temporary staffing .

Estimates Context

  • Wall Street consensus (S&P Global) for HQI Q1 2025 revenue and EPS was unavailable at the time of this analysis; no estimate comparison is included. Values retrieved from S&P Global (consensus unavailable).
  • In absence of consensus, near-term model focus will likely center on revenue trajectory vs Q4 2024/Q1 2024, margin resilience aided by lower workers’ comp, and potential inorganic revenue via acquisitions .

Key Takeaways for Investors

  • HQI preserved profitability in Q1 2025 on lower revenues through disciplined SG&A and sharply reduced workers’ comp expense—an operational lever that should continue to support margins in 2025 .
  • The franchise model provides flexibility to maintain profitability in weak demand cycles, with demonstrated ability to cut costs if macro conditions worsen further .
  • Immigration enforcement is an emerging tailwind for day-labor and temporary staffing; early signs suggest client re-engagement that could stabilize system-wide sales as the year progresses .
  • M&A could be a catalyst: depressed industry conditions improve deal economics; management is actively pursuing opportunities with available credit facility capacity (~$34.8M) and modest draws ($5.46M) .
  • Watch for mix shifts: temporary staffing more resilient than executive search; any normalization in perm hiring would materially aid royalties and margins given prior MRI headwinds .
  • Dividend reliability: $0.06 quarterly maintained, signaling capital discipline amid macro uncertainty .
  • Near-term trading: Without consensus estimates, stock narrative hinges on evidence of demand stabilization (orders/resumption of hiring), continued workers’ comp relief, and announced M&A that is demonstrably accretive .