Executive Summary

Q2 2025 revenue was $7.64M and diluted EPS was $0.08, down 12.0% and 46.7% year over year, respectively, as permanent placement/executive search softness and a few MRI franchise non-renewals weighed on results; adjusted EPS was $0.15 and adjusted EBITDA was $3.26M, with adjusted EBITDA margin at 43% .
Sequentially, system-wide sales rose 6% to $125.9M (from $118.4M in Q1), reflecting typical seasonality and pockets of improvement, though demand remains muted across manufacturing/warehousing and in certain construction markets (e.g., DC), and Upper Midwest remains weak .
SG&A increased to $5.86M (driven by ~$0.93M transaction expenses), offset by a sharp decline in net workers’ comp to $0.13M (vs. $0.55M) as cost actions took hold; management expects workers’ comp to continue improving toward neutral over time .
Balance sheet remains flexible: cash $2.68M, working capital $28.6M, LOC drawn $4.33M with $35.9M availability; quarterly dividend of $0.06 was paid June 16 and intention to continue remains subject to Board discretion .
Potential stock catalysts: further M&A (management reiterated interest in a TrueBlue transaction and broader pipeline), continued workers’ comp improvement and cost discipline, and any demand recovery in temporary staffing; however, sector-wide caution persists (tariffs/macro) .

What Went Well and What Went Wrong

What Went Well

Strong cost controls: net workers’ comp expense fell to $0.13M from $0.55M YoY and ~$1.0M cumulative savings YTD, underpinning margin resiliency despite revenue pressure .
Sequential improvement: system-wide sales up 6% QoQ to $125.9M, with select client wins (e.g., food processing plant) and resilience in temporary/day labor vs. MRI .
Strategic optionality: low leverage (LOC draw $4.33M vs. ~$16M prior year), $35.9M availability, and ongoing M&A pipeline; management reaffirmed interest in TrueBlue and other opportunities .

Management quote: “Our unique franchise model has delivered superior performance in our sector and positions us well to benefit from operating leverage when demand returns.”

What Went Wrong

Top-line pressure: franchise royalties fell to $7.28M (from $8.20M), and service revenue contracted to $0.35M (from $0.48M), driving total revenue down 12.0% YoY to $7.64M .
MRI softness and franchise non-renewals: executive search/permanent placement remained weak, and several MRI franchisees did not renew, contributing to market share slippage vs. last year in that niche .
Transaction costs: SG&A rose to $5.86M (from $5.29M) due to ~$0.93M transaction expenses; adjusted EBITDA margin compressed YoY to 43% (from 47%) .

Financial Results

Consolidated Performance vs. Prior Quarters

Metric	Q4 2024	Q1 2025	Q2 2025
Total Revenue ($USD Millions)	$8.08	$7.47	$7.64
Diluted EPS ($USD)	$0.16	$0.10	$0.08
Adjusted EPS ($USD)	$0.19	$0.13	$0.15
Adjusted EBITDA ($USD Millions)	$3.80	$2.80	$3.26
Adjusted EBITDA Margin (%)	47%	37%	43%
Net Income ($USD Millions)	$2.22	$1.36	$1.06

YoY Comparison – Q2 2025 vs. Q2 2024

Metric	Q2 2024	Q2 2025	YoY Change
Franchise Royalties ($USD Millions)	$8.20	$7.28	-$0.92M / -11.2%
Service Revenue ($USD Millions)	$0.48	$0.35	-$0.13M / -27.2%
Total Revenue ($USD Millions)	$8.68	$7.64	-$1.04M / -12.0%
System-wide Sales ($USD Millions)	$146.10	$125.90	-$20.20M / -13.9%
Net Income ($USD Millions)	$2.04	$1.06	-$0.98M / -48.1%
Adjusted Net Income ($USD Millions)	$2.48	$2.15	-$0.33M / -13.3%
Adjusted EBITDA ($USD Millions)	$4.04	$3.26	-$0.79M / -19.5%

Revenue Components (Segment-Like)

Metric	Q4 2024	Q1 2025	Q2 2025
Franchise Royalties ($USD Millions)	$7.64	$6.96	$7.28
Service Revenue ($USD Millions)	$0.44	$0.51	$0.35
Total Revenue ($USD Millions)	$8.08	$7.47	$7.64

KPIs and Balance Sheet Highlights

KPI	Q4 2024	Q1 2025	Q2 2025
System-wide Sales ($USD Millions)	$134.80	$118.40	$125.90
Net Workers’ Comp Expense ($USD Thousands)	$335	$28	$127
Cash ($USD Millions)	$2.22	$2.09	$2.68
Working Capital ($USD Millions)	$25.10	$27.40	$28.60
Accounts Receivable, Net ($USD Millions)	$42.35	$42.22	$42.79
Line of Credit – Drawn ($USD Millions)	$6.83	$5.46	$4.33
LOC Availability ($USD Millions)	$33.40	$34.80	$35.90

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Quarterly Dividend ($/share)	Q2–Q3 2025	Intends to pay $0.06 quarterly, subject to Board	Paid $0.06 on June 16; intends to continue, subject to Board	Maintained
Workers’ Compensation Expense	2H 2025–2026	Expected to decline further in 2025	Targeting elimination/neutral; current policy running close to neutral	Improved outlook (qualitative)
SG&A Run-Rate	Q3 2025 onward	Ongoing cost reduction focus; timing effects in Q1 masked improvements	Former CFO salary carried through ~two-thirds of Q2; will roll off in Q3	Lower expected (qualitative)

No explicit numeric revenue/EPS/margin guidance was provided; management centered commentary on cost discipline, workers’ comp trajectory, and M&A optionality .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2024 and Q1 2025)	Current Period (Q2 2025)	Trend
Demand, tariffs/macro	Softened late Q4; tariff/supply-chain uncertainty cited; broad staffing weakness	Sequential SWS +6%, but demand still muted; DC construction slower; Upper Midwest weak	Cautious stabilization with typical seasonality
Immigration enforcement	Anticipated benefit as ICE requires documented workers; E-Verify positioning	Some wins (e.g., food processing), but impact smaller than hoped; deportations data suggests modest overall effect	Incremental positive, slower ramp
Workers’ comp	Meaningful decline in 2024; expected further improvement in 2025	Q2 workers’ comp sharply lower YoY; management aims for neutral over time	Improving
MRI Network/executive search	Underperformance vs expectations; segment weak	Several franchise non-renewals; market for permanent placement slow (manufacturing/IT)	Pressure persists
M&A pipeline/leverage	Active pipeline; acquisition pricing becoming reasonable; small YE deal helpful	Dry powder with low debt and $35.9M availability; interest in TrueBlue reiterated	Constructive optionality
Regional/segment mix	Construction offsetting industrial weakness previously; mix shifting	Construction in DC market weaker; financial professionals category growing within MRI	Mixed by region/category

Management Commentary

Strategic positioning: “Our unique franchise model has delivered superior performance in our sector and positions us well to benefit from operating leverage when demand returns.” — Rick Hermanns .
Cost focus and margin resiliency: “Adjusted EBITDA…43% vs 47% in 2024…we believe adjusted EBITDA is a relevant metric…due to the size of non-cash operating expenses running through our P&L.” — David Hartley .
M&A strategy and balance sheet: “With only $4.3M of debt…we are well positioned with the financial flexibility and resources to pursue value creating opportunities…” — Rick Hermanns .
Demand/color: “May was probably the worst…we’ve sort of come back closer to prior-year comparisons…not a great recovery…Upper Midwest has been weak.” — Rick Hermanns .
MRI dynamics: “Several franchisees not renewing…impacting MRI; permanent placement and executive search continues to be slow, particularly in manufacturing and IT.” — Rick Hermanns .

Q&A Highlights

Acquisition pipeline: Interest in TrueBlue reiterated; multiple other leads; significant dry powder and capacity to transact .
Market share/performance: MRI non-renewals affected comparative share; local macro dynamics drive performance; construction in DC weaker; Upper Midwest and Northern Great Plains weakest .
SG&A run-rate: Transaction costs elevated Q2; former CFO salary carried two-thirds into Q2 and will roll off in Q3; no incremental unusual items expected near term .
Workers’ comp trajectory: On current policy running close to neutral; continued improvements expected through 2H 2025 and into 2026 .

Estimates Context

S&P Global consensus estimates for Q2 2025 EPS, revenue, and EBITDA were unavailable for HQI; therefore, estimate comparisons cannot be provided at this time (values retrieved from S&P Global).*
Given the unavailability, any future revision risk likely centers on MRI segment softness, transaction costs, and the pace of workers’ comp improvement.

Key Takeaways for Investors

Revenue/earnings compression remains primarily mix-driven (MRI/executive search softness and franchise non-renewals), but cost controls—especially workers’ comp—are supporting margins; watch adjusted EBITDA margin trajectory into Q3 as SG&A normalizes .
Sequential system-wide sales improved (+6%), suggesting seasonal stabilization; any sustained recovery in industrial end markets or construction would be the key swing factor for near-term trading .
Balance sheet flexibility (low debt, $35.9M LOC availability) positions HQI to be opportunistic in M&A; management signaling interest in TrueBlue and other deals is a medium-term thesis lever .
Dividend stability ($0.06/quarter) offers a floor to return profile; monitor Board decisions amid macro uncertainty .
Risk factors: extended macro softness/tariff uncertainty; MRI franchise attrition; slower-than-expected immigration enforcement benefits; ensure continued workers’ comp improvements materialize .
Near-term catalyst checks: Q3 SG&A run-rate post CFO transition, workers’ comp neutrality progress, and any acquisition announcements or integration updates .
Medium-term: A demand rebound and/or accretive M&A could re-expand royalties and margins; the franchise model should magnify operating leverage when volumes return .

HireQuest, Inc. (HQI)·Q2 2025 Earnings Summary