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HI

HireQuest, Inc. (HQI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $8.1M (-17.2% YoY) and diluted EPS was $0.16 vs $0.00 in Q4 2023; adjusted EPS rose to $0.19 vs $0.18 YoY, reflecting cost controls despite softer demand .
  • SG&A fell 22.7% YoY to $5.1M, aided by a sharp reduction in net workers’ compensation expense ($0.335M vs $1.3M YoY), supporting profitability in the quarter .
  • Adjusted EBITDA was $3.8M; adjusted EBITDA margin expanded to 47% vs 44% YoY, driven by lower workers’ comp costs and disciplined expense management .
  • Management reiterated quarterly dividend continuity at $0.06 and highlighted M&A as a key growth lever; no quantitative revenue or margin guidance was issued, but workers’ comp is expected to decline further in 2025, providing a margin tailwind .
  • Potential stock reaction catalysts: continued dividend, visible cost relief in workers’ comp, and accretive small/mid-size acquisitions in depressed industry valuation conditions .

What Went Well and What Went Wrong

What Went Well

  • Margin resilience and cost discipline: SG&A fell 22.7% YoY and net workers’ comp expense dropped meaningfully, enabling profitability and margin expansion in Q4; CFO: “Adjusted EBITDA margin for the quarter was 47% compared to 44% in the fourth quarter of twenty twenty three” .
  • Operational execution in a tough market: CEO emphasized profitability despite sector-wide headwinds—“our flexible franchise model has allowed us to drive profitable results in both the fourth quarter and the full fiscal year” .
  • Capital deployment and M&A pipeline: Management remains active and sees more reasonable deal pricing after nine depressed quarters; “pricing of deals is starting to definitely get more reasonable… we completed an acquisition right at the end of the year” .

What Went Wrong

  • Top-line pressure: Franchise royalties fell 14.0% YoY to $7.6M and total revenue declined 17.2% YoY to $8.1M, reflecting softer demand and holiday timing effects .
  • System-wide sales contraction: System-wide sales decreased 6.0% YoY to $134.8M in Q4, consistent with broader market softness and caution on hiring .
  • MRI Network underperformance and impairment: Permanent placement/executive search remains weak; management recorded a $6.0M non-cash impairment in Q3 and highlighted ongoing reorganization to improve efficiency .

Financial Results

Quarterly Key Metrics (sequential trend)

MetricQ2 2024Q3 2024Q4 2024
Total Revenue ($USD Millions)$8.68 $9.42 $8.08
Diluted EPS ($)$0.15 $(0.16) $0.16
Adjusted EPS ($)—$0.20 $0.19
Adjusted EBITDA ($USD Millions)$4.04 $4.93 $3.80

Notes: Adjusted EPS not disclosed in Q2 press release.

Q4 YoY Comparison (Q4 2023 vs Q4 2024)

MetricQ4 2023Q4 2024
Franchise Royalties ($USD Millions)$8.89 $7.64
Service Revenue ($USD Millions)$0.87 $0.44
Total Revenue ($USD Millions)$9.76 $8.08
SG&A ($USD Millions)$6.62 $5.12
Net Income ($USD Millions)$0.02 $2.22
Diluted EPS ($)$0.00 $0.16
Adjusted Net Income ($USD Millions)$2.53 $2.63
Adjusted EPS ($)$0.18 $0.19
Adjusted EBITDA ($USD Millions)$4.29 $3.80
Adjusted EBITDA Margin (%)44% 47%

Revenue Components (Q4 2024 vs Q4 2023)

Component ($USD Millions)Q4 2023Q4 2024
Franchise Royalties$8.89 $7.64
Service Revenue$0.87 $0.44
Total Revenue$9.76 $8.08

KPIs and Operating Metrics

KPIQ2 2024Q3 2024Q4 2024
System-wide Sales ($USD Millions)$146.1 $148.6 $134.8
Working Capital ($USD Millions)$20.6 $23.4 $25.1
Net Workers’ Comp Expense ($USD Millions, quarter)——$0.335

Balance Sheet Snapshot (Dec 31, 2024 vs Dec 31, 2023)

Metric ($USD Millions)Dec 31, 2023Dec 31, 2024
Cash$1.3 $2.2
Total Assets$103.8 $94.0
Total Liabilities$41.1 $29.2
Working Capital$15.7 $25.1
Line of Credit Drawn$14.1 $6.8
LOC Availability—~$33.4

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Quarterly Dividend ($/share)Ongoing$0.06 (intent) $0.06 (paid 3/17/25; intends to continue) Maintained
Workers’ Compensation ExpenseFY 2025n/aExpected to decline further in 2025 (directional) Lowered (directional)
Revenue/MarginsFY/Q1 2025n/aNo quantitative guidance provided n/a

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
Demand environmentQ2: Industry-wide challenging environment; focus on profitability and cost control . Q3: Slight YoY revenue growth; election-related caution; temporary staffing grew YoY for first time since early 2023 .December softness from holiday timing (Wed holidays) and ongoing macro caution; some recent improvement; industry remains choppy .Mixed; near-term choppy, cautiously improving late Q1.
Workers’ compQ2: Steps to lower workers’ comp; still elevated . Q3: SG&A down on workers’ comp reduction .Q4 quarter workers’ comp expense down to $0.335M; mgmt expects further declines in 2025 .Improving; 2025 expected tailwind.
MRI Network (executive search)Q2: Decline in system-wide sales drove royalties down; MRI cited . Q3: $6.0M impairment; market weak; reorganization .Market still weak; operational refinements and integration to drive efficiency; positioned for upturn .Challenged; restructuring to leverage future recovery.
M&A pipelineQ2: M&A is key strategy; evaluating opportunities . Q3: No explicit deals noted; monitoring .Pricing more reasonable after prolonged downturn; small acquisition completed; working on several deals .Active; potentially accretive at better valuations.
Sector mix (construction/industrial)Q2: Industry-wide softness . Q3: Temp brands grew YoY; broader caution persists .Construction leveled; warehousing/manufacturing remain weak; staffing declines modest vs MRI .Mixed; industrial pockets weak, construction not offsetting.
Macro/tariffsQ3: Election uncertainty cited .Tariff talk dampening demand; desire for more certainty on supply chains/tariffs .Ongoing headwind.
IT/marketing spend—Will preserve IT/marketing investment for strategic value; can cut if needed .Strategic investment maintained; optionality to reduce if needed.

Management Commentary

  • CEO: “Our fourth quarter and full year results are reflective of the challenging environment… our flexible franchise model has allowed us to drive profitable results in both the fourth quarter and the full fiscal year” .
  • CEO: “Workers’ compensation expense… has come down significantly, and we believe it will continue to decline further in 2025. Moreover, we continue to closely monitor the market for acquisition opportunities…” .
  • CFO: “Adjusted EBITDA margin for the quarter was 47% compared to 44% in the fourth quarter of twenty twenty three… we believe adjusted EBITDA is a relevant metric for us” .
  • CEO on demand: Holiday timing cost “at least two days’ worth of sales”; tariff talk “isn’t really helping demand much” .
  • CEO on M&A: “Pricing of deals is starting to definitely get more reasonable… engaged… with three or four companies” .

Q&A Highlights

  • Demand outlook: December softness from holiday calendar and tariff uncertainty; noted choppiness but recent improvement late Q1; industry-wide trend consistent across peers .
  • MRI Network actions: Consolidated training and other functions to drive efficiency; positioned to benefit as permanent placement demand returns .
  • M&A/pricing: Depressed industry over nine quarters is lowering seller price expectations; small acquisition closed; working on larger opportunities; branch-level economics benefit from consolidation .
  • Workers’ comp trajectory: Claims from problematic 2022–2023 policy years largely resolved; rates firming; mgmt expects significantly better 2025, potentially breakeven over time .
  • SG&A flexibility: Will protect strategic IT/marketing but has capacity to cut substantially in severe downturns; historical precedent of aggressive cost action in crises .

Estimates Context

  • Wall Street consensus via S&P Global was unavailable for HQI for the latest and next three quarters at the time of review; attempted retrieval returned no data. As a result, estimate beat/miss analysis versus SPGI consensus cannot be provided [GetEstimates attempted with no values].
  • Implication: If/when coverage resumes, we expect estimates to reflect lower Q4 revenue/system-wide sales, but improved SG&A trajectory and workers’ comp tailwinds; adjusted EBITDA margin strength (47%) supports potential upward revision to margin assumptions .

Key Takeaways for Investors

  • Q4 delivered profitability and margin expansion despite top-line declines, underpinned by workers’ comp relief and SG&A discipline—positioning for operating leverage as demand normalizes .
  • Permanent placement/executive search (MRI) remains the key drag; restructuring and integration efforts could drive recovery when hiring decisions normalize; watch macro certainty/tariff path .
  • Accretive M&A remains a core growth lever with improving target valuations; small deals in lagging markets can enhance branch-level economics materially .
  • Dividend continuity ($0.06/quarter) and ample liquidity (>$33M LOC availability) provide shareholder return and capital flexibility; limited balance sheet risk post-impairment .
  • Near-term trading: Headlines of “margin up, workers’ comp down” are supportive; lack of top-line guidance and ongoing industrial softness may cap multiple until demand stabilizes .
  • Medium-term thesis: Franchise model resilience, cost structure flexibility, and M&A optionality in a cyclical industry can compound value across cycles; monitor system-wide sales inflection and MRI stabilization .
  • Risk monitors: Industrial demand (warehousing/manufacturing), tariff policy uncertainty, and any reversal in workers’ comp trends remain key downside variables .