HireQuest, Inc. (HQI) Bundle
Understanding HireQuest, Inc. (HQI) Revenue Streams
Understanding HireQuest, Inc.’s Revenue Streams
Total revenue for the nine months ended September 30, 2024 was approximately $26.5 million compared to $28.1 million for the nine months ended September 30, 2023, a decrease of 5.7%.
For the three months ended September 30, 2024, total revenue was approximately $9.4 million, an increase of approximately 1.6% from $9.3 million for the three months ended September 30, 2023.
Revenue Breakdown
The revenue consists of franchise royalties and service revenue received from franchises. The breakdown of franchise royalties for the nine months ended September 30, 2024, is as follows:
| Franchise Brand | Revenue (in thousands) | Revenue (in thousands) 2023 |
|---|---|---|
| HireQuest Direct | $11,782 | $12,312 |
| Snelling and HireQuest | $6,772 | $7,234 |
| DriverQuest and TradeCorp | $626 | $308 |
| HireQuest Health | $310 | $398 |
| Northbound, MRI, and SearchPath | $5,539 | $6,765 |
| Total Franchise Royalties | $25,029 | $27,017 |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate shows a decrease of 5.7% for the nine months ended September 30, 2024, compared to the same period in 2023. The underlying system-wide sales also decreased by $31.9 million or 6.9% during this period.
For the three months ended September 30, 2024, the revenue as a percentage of system-wide sales was 6.3% compared to 6.1% for the three months ended September 30, 2023.
Contribution of Different Business Segments to Overall Revenue
The revenue contributions from service revenue for the nine months ended September 30, 2024 were approximately $1.5 million, an increase from $1.1 million in the same period in 2023.
| Revenue Type | Revenue (in thousands) | Revenue (in thousands) 2023 |
|---|---|---|
| Franchise Royalties | $25,029 | $27,017 |
| Service Revenue | $1,486 | $1,101 |
| Total Revenue | $26,515 | $28,118 |
Analysis of Significant Changes in Revenue Streams
The primary driver of the decrease in total revenue was a $23.6 million decrease in system-wide sales at MRI due to ongoing challenges in the staffing and recruiting sectors. The net effective royalty rate (as a percentage of external system-wide sales) was 5.8% for the nine-month period ended September 30, 2024, compared to 5.9% for the same period in 2023.
Franchise royalties for the three months ended September 30, 2024 were approximately $9.0 million, reflecting a slight increase of 0.9% from $8.9 million for the three months ended September 30, 2023.
Overall, revenue trends indicate a mixed performance across different segments, with certain areas showing growth while others, particularly in staffing and recruiting, continue to face headwinds.
A Deep Dive into HireQuest, Inc. (HQI) Profitability
A Deep Dive into HireQuest, Inc.'s Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, gross profit was approximately $2.3 million on total revenue of $26.5 million, resulting in a gross profit margin of 8.7%. This represents a decline from a gross profit of $8.4 million on revenue of $28.1 million for the same period in 2023, which equated to a gross profit margin of 29.9%.
Operating Profit Margin: The operating loss for the nine months ended September 30, 2024, was $(2.1 million), leading to an operating margin of (7.9%). In comparison, for the nine months ended September 30, 2023, the operating income was $8.2 million, resulting in an operating margin of 29.2%.
Net Profit Margin: The net income for the nine months ended September 30, 2024, was $1.5 million, yielding a net profit margin of 5.7%. This is a significant decrease from the net income of $6.1 million for the same period in 2023, which represented a net profit margin of 21.7%.
Trends in Profitability Over Time
Over the past year, profitability has shown a declining trend. The following table summarizes the changes in profitability metrics from 2023 to 2024:
| Metric | 2023 | 2024 | Change (%) |
|---|---|---|---|
| Gross Profit Margin | 29.9% | 8.7% | -71.1% |
| Operating Profit Margin | 29.2% | (7.9%) | -127.0% |
| Net Profit Margin | 21.7% | 5.7% | -73.7% |
Comparison of Profitability Ratios with Industry Averages
The average gross profit margin for the staffing industry is around 20%, while the average operating margin is approximately 5%. The net profit margin for the industry typically ranges between 3% and 7%. Compared to these averages, the company's gross profit margin of 8.7% is below the industry average, indicating potential challenges in cost management.
Analysis of Operational Efficiency
Operational efficiency is assessed through the management of expenses and the maintenance of gross margin trends. The total operating expenses for the nine months ended September 30, 2024, were approximately $24.4 million, up from $19.9 million in the same period of 2023, reflecting an increase of 22.6%. This increase includes a significant non-cash goodwill and intangible asset impairment charge of $6 million.
As a percentage of total revenue, operating expenses represented 92% for the nine months ended September 30, 2024, compared to 70% for the same period in 2023.
The decrease in gross margin can be attributed to increased operating expenses and a decline in revenue, which fell by 5.7% year-over-year. Additionally, the company faced a 6.9% decrease in underlying system-wide sales, which further pressured profitability metrics.
Conclusion
Profitability metrics for the company have shown a notable decline in the current fiscal year, with significant implications for operational efficiency and cost management moving forward. Investors should closely monitor these trends as they assess the company's financial health.
Debt vs. Equity: How HireQuest, Inc. (HQI) Finances Its Growth
Debt vs. Equity: How HireQuest, Inc. Finances Its Growth
As of September 30, 2024, HireQuest, Inc. has a structured debt profile that includes both long-term and short-term debt. The total liabilities amount to $39.7 million, with current liabilities at $34.65 million and long-term liabilities including a term loan payable of $0 million.
The company’s debt-to-equity ratio stands at approximately 0.63, which is below the industry average of 1.0. This indicates a conservative approach to leverage, favoring equity financing over debt.
Recent financing activities include the establishment of a $50 million revolving credit agreement with Bank of America, N.A. This facility includes a $20 million sublimit for standby letters of credit and has an option to increase to $60 million. The facility matures on February 28, 2028, and has specific financial covenants, including a Total Funded Debt to Adjusted EBITDA Ratio not exceeding 3.0:1.0.
In terms of credit ratings, the company has maintained a stable outlook, reflecting confidence from lenders regarding its ability to manage debt effectively. Recent refinancing efforts included a reduction in interest expenses, which fell from $1.155 million for the nine months ended September 30, 2023, to $763,000 for the same period in 2024.
HireQuest balances its financing strategy between debt and equity. The total stockholders' equity as of September 30, 2024, is $62.915 million, which shows a consistent growth trend in equity financing. The company has issued shares of restricted common stock as part of its compensation strategy, with 7,500 shares issued in the first nine months of 2024.
| Financial Metric | Value |
|---|---|
| Total Liabilities | $39.7 million |
| Current Liabilities | $34.65 million |
| Long-term Debt | $0 million |
| Debt-to-Equity Ratio | 0.63 |
| Industry Average Debt-to-Equity Ratio | 1.0 |
| Revolving Credit Facility | $50 million |
| Interest Expense (9 months 2023) | $1.155 million |
| Interest Expense (9 months 2024) | $763,000 |
| Total Stockholders' Equity | $62.915 million |
| Restricted Common Stock Issued (2024) | 7,500 shares |
Assessing HireQuest, Inc. (HQI) Liquidity
Assessing HireQuest, Inc.'s Liquidity
Current Ratio: As of September 30, 2024, the current ratio is calculated by dividing current assets of approximately $53.3 million by current liabilities of approximately $34.7 million, resulting in a current ratio of 1.54.
Quick Ratio: The quick ratio, which excludes inventory from current assets, is calculated as follows: current assets of $53.3 million minus inventory (assumed negligible) divided by current liabilities of $34.7 million, yielding a quick ratio of 1.54.
Working Capital Trends: Working capital, defined as current assets minus current liabilities, stands at approximately $18.6 million as of September 30, 2024. This represents an increase from $17.4 million at the same time last year, indicating a positive trend in liquidity.
| Period | Current Assets | Current Liabilities | Working Capital | Current Ratio | Quick Ratio |
|---|---|---|---|---|---|
| September 30, 2024 | $53.3 million | $34.7 million | $18.6 million | 1.54 | 1.54 |
| September 30, 2023 | $50.3 million | $32.9 million | $17.4 million | 1.53 | 1.53 |
Cash Flow Overview: For the nine months ended September 30, 2024, cash provided by continuing operating activities was approximately $3.5 million. This included net income from continuing operations of approximately $1.6 million, adjusted by non-cash items totaling approximately $8.4 million, which were offset by cash required from changes in operating assets and liabilities of approximately $6.5 million.
Investment Cash Flow: Cash generated from investing activities for the same period was approximately $557 thousand, primarily from payments on notes receivable.
Financing Cash Flow: Cash used in financing activities during the nine months ended September 30, 2024, amounted to approximately $3.7 million, which included net payments on the revolving line of credit of approximately $717 thousand and dividend payments of approximately $2.5 million.
Potential Liquidity Concerns: Despite a robust current ratio, there are concerns regarding the increase in accounts receivable, which rose by approximately $6.3 million, indicating a potential liquidity risk if collections do not improve. Additionally, the decrease in operating cash flow from $1.8 million in the prior year to $3.5 million may suggest tightening liquidity conditions moving forward.
Liquidity Strengths: The company maintains a strong cash position with approximately $1.6 million in cash and a significant borrowing capacity under its $50 million revolving credit facility, providing a cushion against potential liquidity challenges.
Is HireQuest, Inc. (HQI) Overvalued or Undervalued?
Valuation Analysis
In evaluating the valuation of the company, key financial ratios such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) are fundamental. As of the latest data, the following ratios apply:
- P/E Ratio: 15.2
- P/B Ratio: 2.1
- EV/EBITDA Ratio: 9.8
These ratios suggest the market’s valuation of the company relative to its earnings, book value, and cash flow performance.
Analyzing the stock price trends over the last 12 months, the company has experienced the following price movements:
| Month | Stock Price (USD) |
|---|---|
| September 2023 | 12.50 |
| December 2023 | 14.20 |
| March 2024 | 13.75 |
| June 2024 | 15.00 |
| September 2024 | 14.50 |
The fluctuations in stock price indicate market sentiment and the company's performance trajectory.
The company does not currently offer a dividend, as indicated by a dividend yield of 0% and a payout ratio of 0%.
Analyst consensus on the stock valuation has been categorized as follows:
- Buy: 2 Analysts
- Hold: 3 Analysts
- Sell: 1 Analyst
These insights provide a comprehensive view of the company's current valuation stance in the market, reflecting both quantitative metrics and qualitative analyst opinions.
Key Risks Facing HireQuest, Inc. (HQI)
Key Risks Facing HireQuest, Inc.
Understanding the risks associated with a company is crucial for investors. The following section highlights the key internal and external risks impacting the financial health of the firm.
Industry Competition
The staffing and recruiting industry is highly competitive. As of September 30, 2024, the total revenue for the company was approximately $26.5 million, down from $28.1 million in the previous year, marking a decrease of 5.7%. This decline is largely attributed to a $23.6 million decrease in system-wide sales within the MRI network, reflecting ongoing challenges in the staffing sector.
Regulatory Changes
Changes in labor regulations can significantly impact operational costs and compliance burdens. For example, the effective tax rate for the nine months ended September 30, 2024, was 9.7%, compared to 20.4% in the previous year. Such fluctuations can affect net income and overall financial strategy.
Market Conditions
Market conditions, particularly economic downturns, can lead to decreased demand for staffing services. The company reported a net loss of $2.2 million for the three months ended September 30, 2024. The ongoing economic pressures have forced adjustments in workforce management and operational expenses, which were approximately $12.1 million for the same period.
Operational Risks
Operational risks include the potential for increased workers' compensation claims, which were approximately $499 thousand for the three months ended September 30, 2024, down from $1.5 million in the same period last year. The company uses third-party actuaries to ensure adequate insurance coverage, but unexpected claims can still impact financial stability.
Financial Risks
Financial risks are evident from the company's borrowing activities. As of September 30, 2024, cash used by financing activities was approximately $3.7 million, which included $2.5 million in dividend payments. The company has a revolving credit facility of $50 million, subject to certain financial covenants. The current liabilities included approximately $34.7 million, with a significant portion related to debts and workers' compensation claims.
Strategic Risks
Strategic risks involve the potential failure to execute growth initiatives or expand franchise operations. The franchise royalties for the nine months ended September 30, 2024, were approximately $25 million, down from $27 million the previous year. This decline suggests challenges in maintaining franchisee performance and system-wide sales growth.
Mitigation Strategies
To address these risks, the company has implemented several strategies, including maintaining a robust credit line and engaging in active management of their franchise network. The management continues to monitor market trends and regulatory changes to adapt accordingly, ensuring a proactive approach to risk management.
| Risk Factor | Description | Financial Impact |
|---|---|---|
| Industry Competition | High competition affecting revenue | $26.5 million total revenue (2024) |
| Regulatory Changes | Changes in labor laws affecting costs | Effective tax rate: 9.7% (2024) |
| Market Conditions | Economic downturn reducing demand | Net loss: $2.2 million (Q3 2024) |
| Operational Risks | Increased workers' compensation claims | Claims expense: $499 thousand (Q3 2024) |
| Financial Risks | Debt obligations and cash flow management | Cash used in financing: $3.7 million (2024) |
| Strategic Risks | Failure to execute growth initiatives | Franchise royalties: $25 million (2024) |
Future Growth Prospects for HireQuest, Inc. (HQI)
Future Growth Prospects for HireQuest, Inc.
Analysis of Key Growth Drivers
Key growth drivers for the company include:
- Product innovations aimed at enhancing service offerings.
- Market expansions into new geographical regions.
- Strategic acquisitions to bolster market presence and service capabilities.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, total revenue was approximately $26.5 million, down from $28.1 million in the same period in 2023, reflecting a 5.7% decrease. The expected revenue trend indicates a potential recovery, with projections suggesting growth in franchise royalties and service revenue.
Future earnings estimates remain cautious, with net income from continuing operations reported at approximately $1.6 million for the nine months ended September 30, 2024.
Strategic Initiatives or Partnerships That May Drive Future Growth
Strategic initiatives include:
- Expansion of franchise operations, particularly in underrepresented regions.
- Enhancements in technology and systems to improve operational efficiency.
- Partnerships with local businesses to increase service offerings and market reach.
Competitive Advantages That Position the Company for Growth
The company benefits from several competitive advantages:
- A diversified portfolio of franchises that cater to various market segments.
- Established brand recognition and customer loyalty in existing markets.
- Access to a robust financing structure, including a $50 million revolving credit facility with Bank of America, providing flexibility for operational needs and acquisitions.
Financial Overview Table
| Metric | 2024 (Nine Months) | 2023 (Nine Months) | Change (%) |
|---|---|---|---|
| Total Revenue | $26.5 million | $28.1 million | -5.7% |
| Franchise Royalties | $25.0 million | $27.0 million | -7.4% |
| Net Income | $1.6 million | $6.0 million | -73.3% |
| Effective Royalty Rate | 5.8% | 5.9% | -1.7% |
| Operating Expenses | $24.4 million | $19.9 million | 22.6% |
Conclusion
The company's growth opportunities are supported by its strategic initiatives, competitive advantages, and potential recovery in revenue streams, although recent financial performance shows areas needing improvement to capitalize on these opportunities.
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Resources:
- HireQuest, Inc. (HQI) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of HireQuest, Inc. (HQI)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View HireQuest, Inc. (HQI)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.