HireQuest, Inc.
Q3 2021 Earnings Call Transcript

Published: 11 Nov 2021

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the HireQuest Third Quarter 2021 Earnings Call. At this time, all participants have been placed on a listen-only mode and the floor will be opened for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Brett Maas. Sir, the floor is yours.

[Brett Maas:]

Thank you, operator. I would like to welcome everybody to the call. Hosting the call today are HireQuest’s CEO, Rick Hermanns; and CFO, Cory Smith. Please be aware, some of the comments made during our call may contain and include forward-looking statements within the meaning of federal securities laws. Statements about our beliefs and expectations containing words such as may, could, would, will, should, believe, expect, anticipate and similar expressions constitute forward-looking statements. These statements involve risks and uncertainties regarding our operations and our future results and could cause actual results to differ materially from management’s current expectations. We encourage you to review the safe harbor statements and risk factors contained in the Company’s earnings release and its filings with the SEC, including without limitation, most recent annual report on Form 10-K and other periodic reports, which identify specific risk factors that may also cause actual results or events to differ materially from those described in the forward-looking statements. Copies of the Company’s most recent reports on Form 10-K and 10-Q may be obtained on the Company’s website at hirequest.com or at the SEC website at sec.gov. The Company does not undertake to publicly update or revise any forward-looking statements after the call or date of this call. I would also like to remind everyone that this call will be available for replay through November 25th. A link to the website replay of the call is also provided in the earnings release and available on the Company’s website at hirequest.com. I’d like to now turn the call over to the CEO of HireQuest, Rick Hermanns. Rick?

[Rick Hermanns:]

Thank you for joining us. This past quarter marked a milestone for us with weekly sales from our legacy HireQuest direct franchisees pulling even with 2019 numbers for the first time since the beginning of the pandemic. Over the course of the quarter, weekly sales results improved from trailing 2019 comps, 10% to 15% in early July to pulling even by the end of September. Given the continued uncertainty and headwinds from the pandemic, we’re excited by their momentum going into the end of the year. Q3 system-wide sales of $99.6 million and total revenue of $6.9 million, both represent record results for HireQuest, and were driven by a combination of organic growth and the contributions from our Snelling and Link acquisitions. We also had record adjusted EBITDA of $5.3 million. This is especially notable given that -- given we recently completed two large acquisitions at the end of the first quarter. Our ability to integrate both, Snelling and Link, and within two quarters, see the results from the increased scale, highlights the benefits and potential operating leverage for the franchisor model. Adjusting for the extraordinary noncash compensation and the nonrecurring note charge in the quarter, we comfortably achieved our stated net income target of 3.5% to 4.5% of system-wide sales. Subsequent to the end of the quarter, we announced two acquisitions

[Cory Smith:]

Thank you, Rick, and good afternoon, everyone. Thank you for joining us. Total revenue for the third quarter of 2021 was $6.9 million compared to $3.4 million for the same quarter last year, an increase of 103%. Our total revenue is made up of two components

[Operator:]

We do have a question from Aaron Edelheit.

[Unidentified Analyst:]

Congratulations on the great results. I was really surprised happily on the operating leverage and wanted to ask you is there some step change, or how should we think about this quarter when I look at your adjusted EBITDA margin? That was much higher than I expected and very happy with it. Going forward, was this an anomaly, or how should I think about this?

[Rick Hermanns:]

Well, thank you, and I appreciate the question. I would say that no, it’s not an anomaly really at all. It’s just hitting pretty much right about exactly where we should be. The prior periods, obviously, were affected by the pandemic. So, when you go back to 2020, our -- we were -- even though we did a lot of expense cutting in the beginning of the pandemic, you can only still cut so far. And so, really, the operating leverage has come back significantly with the sort of a bit of the releasing of the pandemic’s grip on the economy, and of course, the acquisitions of Snelling and Link having boosted our operating leverage as well. So, no, I wouldn’t look at it as anomaly as well and at all.

[Unidentified Analyst:]

Okay. Now, we’ve been -- obviously, you open the newspaper, you talk to anyone in business, and there are shortages of labor. I have to assume HireQuest is experiencing similar things. Do you have any idea if there were bottlenecks for you to provide labor to your customers? Can you give me any metrics of what you could be doing if there weren’t either shortages of labor or if there are bottlenecks? Could you give me any thoughts on how much better you could have done, even though I’m really happy with these results?

[Rick Hermanns:]

Yes. So, it’s a double-edged sword. So, let me first state that, I do think that the ending of the supplemental $300 a week unemployment benefits really helped our filling of orders towards the end of the quarter. And as I stated earlier is we went from running 10% to 15% behind 2019 numbers to basically even by the end of the quarter. A lot of that had to do with the return -- it’s like Return of the Jedi, well, this was like Return of the Worker. And so, the ending of that $300 supplemental pay for not working really brought a fair number of people back into the workforce. Now, as far as bottlenecks and stuff like that, we certainly have more unfilled orders now than we’ve ever had in the Company’s history. However -- and so sure, we could probably be 10% to 15% higher if we could fill every order. But I want to be careful in overstating that because the shortage of workers also leads to more orders. And so, it probably balances itself, if that makes any sense.

[Unidentified Analyst:]

Got you. Yes. No, it makes sense. Last question about kind of new verticals. I remember on the last call, I asked a question about trucking. You announced your first foray into healthcare with the dental staffing business. When I look long term and I think about the opportunities of this vertical, how big do you think -- could dental be like a $1 billion system sales business, or you had mentioned last quarter you thought that trucking could be enormous. I’m just wondering how you think about in the long term. I’m not looking for next quarter or next year, but just how big could some of these verticals or specifically, the dental opportunity be?

[Rick Hermanns:]

Right. So, obviously, with trucking, when you have pretty much widely acknowledged that there’s a shortage of 500,000 truckers right now, it’s easy to see where it becomes literally a 9 to 10-figure opportunity. On the other hand, dental is not -- dental is not that. And it’s not really our strategy necessarily to be necessarily -- it doesn’t have to be a huge segment. And part of going into dental, what’s helpful about going into dental is we’re and yet in a limited way to start with is for us to develop our own systems so that we can grow from there. So, I would say, medical, more broadly, is obviously a huge opportunity. Dental is not a small opportunity, but really should be viewed more as an entrée into the more -- is probably more into the more skilled and professional areas.

[Unidentified Analyst:]

So, it’s kind of like dipping your toe into the medical field? And we should -- maybe this isn’t the last announcement we’re going to see in that foray?

[Rick Hermanns:]

Yes. And that’s not saying that there’s anything now. It’s -- we truly -- there’s a lot of credentialing, and medical is significantly different than a person working on an assembly line. And so, we want to make sure that we do a good job with it. Now, that being said, that’s why we bought a more than 40-year-old company to get 40 years of experience within that industry -- or I’m sorry, we are contracted to buy it. That’s part of the reason for buying a company with that much experience is that, like I said, it will help us develop our systems.

[Operator:]

We do not currently have any participants in the Q&A field at this time.

[Rick Hermanns:]

All right. Well, then I’d like to thank everybody who joined us to thank you for joining us. And we look forward to seeing what the fourth quarter brings. And again, we thank you, and have a good day.