HireQuest (HQI) Q2 2026 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Monday, Aug. 10, 2026, at 4:30 p.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer-Richard F. Hermanns
• Chief Financial Officer-C. David Hartley

TAKEAWAYS

• Total Revenue -- $8.1 million, representing 6% growth driven, in part, by a stabilizing job market and recovering demand for temporary staffing services.
• Pro Forma Total Revenue -- Up 16.6% year over year, excluding the impact of the MRI Network assets divested at the start of the year.
• Franchise Royalties -- $7.6 million, an increase of 4.1% year over year, reflecting increased systemwide sales in core staffing divisions.
• Pro Forma Franchise Royalties -- Up 13.8% year over year, adjusting for the $620,000 in royalties from divested MRI Network assets in the prior-year period.
• Service Revenue -- $513,000, compared with $354,000 in the second quarter of 2025, due to higher service charges and interest from franchisees.
• Systemwide Sales -- $117.8 million, a decrease from $125.9 million in the prior-year period, primarily due to the loss of $17.7 million in sales from divested assets.
• Pro Forma Systemwide Sales -- Up 6.9% year over year, indicating underlying growth in the remaining franchise base.
• Selling, General, and Administrative Expenses -- $4.0 million, a 31.9% decrease from $5.9 million in the second quarter of 2025, reflecting reduced legal fees and the MRI divestiture.
• Core SG&A -- $3.8 million, compared with $4.7 million in the prior year after excluding workers' compensation and nonrecurring operating expenses.
• Net Income -- $2.7 million, or $0.19 per diluted share, representing an increase from $1.1 million or $0.08 per diluted share in the second quarter of 2025.
• Adjusted Net Income -- $3.2 million, or $0.23 per diluted share, compared with $2.1 million or $0.15 per diluted share in the prior-year period.
• Adjusted EBITDA -- $4.6 million, an increase from $3.3 million in the second quarter of 2025, driven by improved operating leverage.
• Snelling Franchisee Revenue -- Up approximately 15% year over year, reflecting significant growth in the manufacturing labor market.
• Cash Position -- $1.6 million as of June 30, 2026, compared with $3.9 million at the end of 2025.
• Net Accounts Receivable -- $48.9 million, compared with $39.3 million at the end of 2025, reflecting increased business volume.
• Working Capital -- $35.1 million, an increase from $33.0 million as of Dec. 31, 2025.
• Credit Facility Availability -- $41.0 million, providing liquidity for potential acquisitions or short-term needs.
• Quarterly Dividend -- $0.06 per common share, paid on June 15, 2026, to shareholders of record as of June 1.
• Workers' Compensation Expense -- $39,000, a decrease from $127,000 in the prior-year period.
• YTD Total Revenue -- $14.6 million, compared with $15.1 million for the first six months of 2025.
• Total Assets -- $93.4 million as of June 30, 2026, compared with $88.2 million at the end of 2025.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Hermanns stated, "there is work still to be done, and the market has a long way to go before it returns to previous levels," noting that while demand is improving, the industry remains below historical peaks.
• Hermanns noted that the business remains "a product of our industry, and our industry is a product of immigration and the economy," indicating that external macroeconomic and policy shifts continue to influence performance.

SUMMARY

Management reported that HireQuest, Inc. (NASDAQ:HQI) achieved its first quarter of year-over-year revenue growth since 2024, driven by a stabilizing demand environment for temporary staffing. The company highlighted that the growth was supported by three primary factors: federal immigration policy shifts, an uptick in the manufacturing labor market, and early returns from investments in the national accounts program. CFO Hartley noted that the second quarter benefited from significant cost reductions, including lower legal fees and the divestiture of the MRI Network assets, which helped restore operating leverage. The company ended the period with $1.6 million in cash and expanded working capital to $35.1 million to support its franchise model.

• CFO Hartley reported that the weekly year-over-year growth rate accelerated during the period, starting between 2% to 4% and ending the quarter at "upwards to 12% to 13%" in some weeks.
• CEO Hermanns noted that reshoring of manufacturing facilities is helping to offset the loss of existing manufacturing jobs to technology, stating that "reshoring is restoring what might have otherwise have been lost."
• The company has implemented a new recruitment application that allows franchisees to fulfill orders in geographic regions where they do not have physical branches, such as a new 100-person project in Upstate New York.
• Hartley stated that business growth has remained consistent six weeks into the third quarter, noting the company has "held the growth from the second half of the second quarter."
• Management identified Texas as a particularly strong geographic market for the company's staffing services during the second quarter.
• Hermanns attributed a return of clients to the staffing industry to a "contraction in the supply of labor" that has emerged over the last three to five years.
• Hermanns indicated that the stabilization of the tariff environment has allowed clients to make more definitive hiring decisions, which contributed to increased demand.

INDUSTRY GLOSSARY

• Systemwide Sales: The total sales volume generated by all franchised offices, used to measure the overall health of the franchise network although only a portion (royalties) is recorded as HireQuest revenue.
• Franchise Royalties: The primary revenue source for the company, consisting of fees paid by franchisees based on a percentage of their sales.
• Core SG&A: A non-GAAP financial measure that represents selling, general, and administrative expenses after excluding workers' compensation costs and nonrecurring items.
• Pro forma: A financial calculation that adjusts reported results to exclude specific events, such as divestitures, to allow for more accurate period-over-period comparisons.
• WOTC: Work Opportunity Tax Credit, a federal tax credit available to employers who hire individuals from certain target groups who have consistently faced significant barriers to employment.

Full Conference Call Transcript

Operator: Good afternoon. And welcome to the HireQuest Inc. Second Quarter 26 Earnings Conference Call. At this time, all participants have been placed on mute for the presentation. It is now my pleasure to turn the floor over to your host, Jen Belladeau from INF Investor Relations. Jen, the floor is yours. Thank you. I would like to welcome everybody to the call today. Hosting the call are HireQuest CEO, Richard F. Hermanns, and CFO, C. David Hartley. I will now take a moment to read the safe harbor statement.

This conference call contains forward-looking statements as defined within Section 27A of the Securities Act of 1.93 thousand as amended, and Section 21E of the Securities Exchange Act of 1.93 thousand as amended. These forward-looking statements and terms such as anticipate, expect, intend, may, will, should or other comparable terms involve and uncertainties because they relate to events and depend on circumstances that will occur in the future. Those statements include statements regarding the intent, belief, or current expectations of Hire Quest and members of its management, as well as the assumptions on which such statements are based.

Prospective investors are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties, including those described in HireQuest's periodic reports filed with the SEC. And that actual results may differ materially from those contemplated by such forward looking statements. Except as required by federal securities law, HireQuest undertakes no obligation to update or revise forward-looking statements to reflect changed conditions. Now I would like to turn the call over to the CEO of Hire Quest, Richard F. Hermanns. Please go ahead, Rick.

Richard F. Hermanns: Good afternoon, and thank you for joining our call today. In the second quarter, we continued to see improving demand for temporary staffing services as the market stabilizes and employers begin to prioritize hiring again. Leading up to Q2, we saw what I described as tentative green shoots in demand over the last few quarters, but with no real traction to speak of until the second half of the first quarter of this year when we started to see consistent demand in favorable weekly year over year comparisons across the business.

As you can see in our results, these comps were even more favorable in Q2 as we drove year over year revenue growth for the first time since the third quarter of 2020 4. And frankly, the latter part of the second quarter was better than the start. Dave will take a deeper dive into the financials, but moving down the P&L at a high level, the increased revenue in the quarter combined with disciplined expense management generated significantly improved GAAP profitability and earnings for our shareholders. We operate in an industry where a rising tide tends to lift all ships.

With macro factors like interest rates and the political landscape weighing heavily upon employers' decisions to hire downsize, or even freeze their-- their efforts altogether. The latter is what we are seeing for the better part of the last 2 years. So far this year, there have been 3 primary factors enabling our growth. First, we are seeing the benefits from the immigration policies enacted at the beginning of 2020 5. Second, our franchisees have taken advantage of the uptick in the manufacturing labor market, especially our Snelling franchisees who grew their top line by almost 15%.

And third, as I mentioned on last quarter's call, we are seeing a return on the investments we have made in our national accounts program. So while the industry is up as a whole, we continue to stand out from the pack thanks to our differentiated franchise staffing model which allows us to be nimble and flexible regardless of the market trends. I would like to highlight that we remain profitable throughout the duration of this market downturn.

In fact, we have reported GAAP profitability in each quarter since the third quarter of 2020 4 when we recognized a 1-time noncash impairment charge of 1 of $6.4 million related to our acquisition of MRI Network, which flowed down to our bottom line. On a non-GAAP basis, we have never reported a loss. With that background, you can see how exciting a stabilizing market is for our business after 2+ years of uncertainty. We are well positioned with a proven model, increasing demand, and a strong balance sheet and no debt. there is work still to be done, and the market has a long way to go before it returns to previous levels.

With that being said, we are encouraged by what we are seeing in both our business and in the broader staffing market And with our visibility today, believe that we are in a stronger place to deliver positive results through the balance of 2026. With that, I will turn over the call now to Dave to provide a closer look at our second quarter financial results.

C. David Hartley: Thank you, Rick, and good afternoon, everyone. Appreciate you all joining us today. I will now provide a summary of our second quarter results. Total revenue in the second quarter of 2020 6 was $8.1 million compared with revenue of $7.6 million in the prior year. An increase of 6%. Which is especially impressive when you take into account that the second quarter of 2020 5 included $690 thousand in total revenue related to the MRI network assets we divested at the beginning of the year. So pro forma for the divestiture, total revenue was up 16.6% in the second quarter.

As a quick refresher for all of you on the call, our total revenue is made up of 2 components. Franchise royalties, which is our primary source of revenue and service revenue, which is generated from certain services and interest charged to our franchisees. As well as other miscellaneous revenue. Royalties were $7.6 million compared to $7.3 million for the same quarter last year. Increase of 4.1%. Pro forma for the divestiture franchise royalties were up 13.8%. Underlying franchise royalties are system wide sales, which are not part of our revenue, but are a helpful contextual performance indicator. System wide sales reflect sales at all offices, including those classified as discontinued.

System wide sales in the second quarter were $117.8 million compared with $125.9 million in the second quarter of 2020 5. Divested MRI network assets contributed roughly $17.7 million in Q2 25, which translates to pro forma growth in this quarter of 6.9%. Service revenue in the second quarter was $513 thousand compared with $354 thousand last year. Selling, general and administrative expenses in the second quarter were $4.0 million compared to $5.9 million in the second quarter of 2020 5. Included in SG&A expenses is workers' compensation expense. Which totaled $39 thousand for the second quarter of 2020 6. Compared with $127 thousand in Q2 25.

For Q2 26, core SG&A which excludes the impact of workers' comp and any nonrecurring operating expenses, was $3.8 million compared to $4.7 million last year. Q2 of 2020 5 included approximately $633 thousand in SG&A expenses related to the divested MRI network assets. We provide a table in the press release issued earlier this afternoon with a detailed reconciliation of core SG&A to SG&A. Along with tables for non GAAP profitability metrics. Net income to adjusted net income and net income to adjusted EBITDA, which I will discuss shortly. Net income after tax was $2.7 million in the second quarter, or $0.19 per diluted share. Compared to net income of $1.1 million or $0.08 per diluted share last year.

Adjusted net income for the second quarter was $3.2 million or $0.23 per diluted share compared to adjusted net income of $2.1 million or $0.15 per diluted share last year. And adjusted EBITDA was $4.6 million in the second quarter, compared to $3.3 million last year. Given the size of noncash operating expenses running through our P&L, we believe adjusted EBITDA and adjusted net income are both relevant metrics for us. Moving on now to the balance sheet. Our total assets as of June 30, 2026, were $93.4 million compared to $88.2 million at December 31, 2025. Current assets included $1.6 million in cash, and $48.9 million of net accounts receivable.

While current assets at 2025 year end included $3.9 million of cash and $39.3 million of net accounts receivable. Working capital was $35.1 million as of June 30, 2026, compared with $33.0 million at 2025 year end. As of June 30, 2026, we had $41.0 million in availability on our credit facility, assuming continued credit covenant compliance. We have paid a regular quarterly dividend since the third quarter of 2020. Most recently, we paid a $0.06 per common share dividend on June 15, 2026, to shareholders of record as of June 1. We expect to continue to pay a dividend each quarter subject to the Board's discretion.

With that, I will turn the call back over to Rick for some closing comments.

Richard F. Hermanns: Thank you, Dave. As always, I would like to thank our employees and franchisees for their hard work and commitment. And we look forward to speaking with you again when we report our third quarter results in November. With that, we can now open the line to questions. Thank you.

Operator: Thank you. Ladies and gentlemen, the floor is now open for questions. If you wish, press *1 on your telephone keypad. We do ask if listening on speaker equipment that you pick up your handset while asking your question to provide optimal sound quality. Once again, please press *1 on your telephone keypad at this time if you wish to join the queue to ask a question. Please hold a moment while we poll for questions. And the first question today is coming from Mike Baker with D. A. Davidson. Mike, your line is live. Please go ahead.

Mike Baker: Great. Thanks. Couple of questions. 1, willing to answer it, you said the quarter, the run rate was better toward the end of the quarter than the beginning. Any quantification of that? What are you running at let's say, in the last month of the second quarter?

C. David Hartley: So we started the quarter running, year over year. We were running maybe 2% to 4% ahead of let's say, the year over year comparisons. By the end, we were running upwards to 12% to 13% in some weeks more than the prior year comparison.

Mike Baker: And does that just how I could probably figure it out. But does that include or exclude MRI in the base last year?

Richard F. Hermanns: Well, yeah. No. No. No. I am sorry. that is just comparing sort of our ongoing-- our-- our ongoing operations, really primarily HireQuest Direct and Snelling. The you know, until December, we will have that sort of the unfair favorable comparison because of the MRI royalties being included. Got it. Got it. Got it. So that is a pretty big ramp up I do not know. You said that we are seeing that in some weeks. I know you do not give any kind of guidance or anything like that, but would it be unfair to expect that kind of growth to continue into the-- for the rest of the year?

Or are there other factors to consider when we think about our forward model?

C. David Hartley: Yeah. I mean, look. Again, you are right. We do not provide guidance All I can say which would go along the lines of last quarter, is, of course, because we are already, what, 6 weeks you know, we are 6 weeks into this third quarter. And I would just say that we have held the growth from the second half of the second quarter. If that makes sense.

Mike Baker: Yeah. No. It does. Okay. Well, that yeah. Pretty big turnaround there.

Richard F. Hermanns: Besides really beating on the top line, at least relative to my model, you came in well ahead, in other words, lower on the expense line at $4.0 million if you include workers' comp or whatever, $3.8 million if excluding that. More than it is been in a while, Again, how do we think about expenses going forward? What have you done to lower expenses? And do you need to add back expenses as revenues start to ramp here?

C. David Hartley: Well, 1 of the things, and it was not really in our prepared remarks, but in our prepared remarks, but the second quarter of last year had an enormous amount of legal fees related to related to TrueBlue. The attempted, you know, the attempted takeover of TrueBlue. And so, you know, that created part of the part of the favorability. But, really, we did not we I would love to say we had some silver bullets.

We bought some AI or something. so it is nothing like that. it is really just we are finally getting some restoration of our of our operating you know, leverage that we lost over the last 3 years of a kind of a dead market And so we are just we are just regaining our economies of scale. I would also say is that you know, which has helped it as well is the there is probably some bleed over as well from the MRI divestiture even what we maybe saw as being part of MRI, you know, where we were able to make a few extra cuts as well.

But, again, mostly, it is just scale that is really working for us right now.

Mike Baker: Understood. I will turn it over to others. Thanks.

Operator: Thank you. Your next question is coming from Kevin Steinke from Barrington Research. Kevin, your line is live. Please go ahead.

Kevin Steinke: Great. Thank you. Also in your prepared comments, you mentioned that the visibility you have today gives you confidence in the outlook for the second half of 2026.

Richard F. Hermanns: So just kind of wondering what sort of visibility indicators you are able to draw from the business. I mean, how far out those go? And just any more comments around the visibility? Sure.

Kevin Steinke: Sure. And thanks, Kevin, for the question. there is 3 things I would say.

Richard F. Hermanns: Number 1 is, again, we are obviously 6 weeks into a 13-week quarter. And business has been strong already. So it is not a big leap of faith to say things are looking great for Q3. The you know, that said, the other 2 things that are where we have our visibility is just our pipeline even from our national accounts department. We have got a number of really nice opportunities that are that are lying out there, and the pressure is definitely more you know, we have more opportunities out there that we are even waiting to hear back from prospective clients. Then you know, than ones that we are kinda hanging on by our fingernails with.

So that is another part of it. And then the third thing is just looking the overall staffing market and you look at who is already reported and stuff like that. Is there is clearly you know, there is clearly a movement back toward temporary staffing. And that is great news for us. And so it is not just us you know, getting more wins from our national accounts department. Which we absolutely positively are. but it is also that there are just more opportunities out there.

And so know, as far as how long that will extend out in the future, look, I am not arrogant enough to think that I can tell you what is gonna happen in Q4 or, you know, the first quarter of next year? Because, you know, if anything, the last 3.5 years is taught us is that we are still a product of our industry, and our industry is a product of immigration and the economy. Right.

Kevin Steinke: No. that is that is helpful. And you mentioned there the national accounts. So that seems, you know, that is obviously something you are you have been investing in. Internally in not just kind of waiting for the uplift in the market to carry you. So again, can you kind of talk about the momentum there? I know I think you have added some people to go out and actually better penetrate these national accounts after you win them. And you mentioned the pipeline there is good. So I would just like to hear more about the benefits of your efforts on the national account side.

Richard F. Hermanns: Absolutely. Absolutely. So and there is a few different parts to that. First thing is a lot of large projects are coming out of the ground right now. You know, just when you think of the scale of whether it is a data center or you know, re you know, reshoring of these large factories. And the thing is it requires sometimes a very sophisticated sales process. And, you know, that is part of why we decided that we needed to do more with our national accounts department. The other thing is what we found in some instances was we had enough opportunities out there that were not being picked up.

And so we have been more aggressive in working with our franchisees to make sure that the opportunities are taken upon. The other thing that is sort of new for us, newer anyway, is you know, so we unveiled a an app that basically are that we can recruit more effectively electronically as well rather than simply relying on our on our branches. And what that is allowed us to do is to take business in places where we do not necessarily have a branch. For example, we have a large account coming up in Northern, you know, in Upstate New York. And so that historically, we would have never have gone after.

And now we can work with a couple of our franchisees that are not even in that market, and they are going to go and fill that. And that is gonna be it is a short term project. It might probably be, like, 6 weeks, but it is, you know, it is like a 100 people a day for 6 weeks. it is a nice sized account. And so we have had a number of those, and so that would be the other part. Where our national accounts have been like I said, sort of scoring some pretty good points.

Kevin Steinke: Yes. that is great to hear. So you mentioned there the reshoring of some factories, and it is not the first time I have heard that. I have heard comments from others in the staffing industry about that. So I am just curious to hear your thoughts on you know, if that is really providing some real legs, a real tailwind, you know, for your industry and your business now.

Richard F. Hermanns: I think the answer is yes. Do not get me wrong. The application of greater technologies is also stripping existing manufacturing jobs from our industry. But the reshoring is restoring what might have otherwise have been lost. If that makes any sense. And so reshoring is helping. I am not saying it is this massive tailwind that is just-- you know what I am saying? --that is just blowing us across the sea. that is not what is happening. But it is at least recovering what would have maybe otherwise have been lost.

And, you know, and I alluded to it earlier, you know, the other thing is there has just been a contraction in the supply of labor which is just bringing back a number of clients who maybe for the last 3 to 5 years have not really used much from the staffing industry. And I think that is really making a difference as well.

Kevin Steinke: Right. Okay. So in the end, the contraction and the supply, that is I guess, more related to the immigration point that you mentioned earlier. Correct?

Richard F. Hermanns: Correct. Yes.

Kevin Steinke: Okay. Well, great. I think, you know, lastly, you mentioned the uptick in manufacturing is kind of a key driver. Again, should we just tie that to the data centers and reshoring, or are there any other industry or geographic pockets where you are you are you are seeing that benefit from manufacturing activity.

Richard F. Hermanns: So I would say that we have seen a fairly diverse growth. I mean, we are really doing extraordinarily well in Texas. I will say, if there is a spot we are doing really well, it is Texas. But it is still pretty general. Whereas, really, over the last 4 or 5 years, it was very much centered in certain spots. And I would not just put it on data centers. To be honest with you, data centers has not really helped us as much as just the reshoring, but also just the fact that a number of companies are just going back to using temporary staffing. And we just have more opportunities. Okay.

Well, that is good because The other part is-- and I want just 1 final thing is I think that the last year, there was quite a bit of an unsettled environment as it related to tariffs.

C. David Hartley: And I think that has also now become sort of baked into decisions, and that helped us as well.

Kevin Steinke: Right. Right. Okay. Yeah. That makes sense. Well, I appreciate all the color, and congratulations on the strong results. I will turn it back over. Thanks.

Operator: Thank you. This does conclude today's Q&A session. I would now like to pass the floor back to Rick Herman for closing remarks.

Richard F. Hermanns: Thank you again, everybody, for joining us. For the presentation of our second quarter results. We certainly hope you will agree with us that it was a very promising quarter, and hopefully, 1 that is more of a harbinger of things to come in the near future. We are very grateful for the hard efforts of our employees and our franchisees. And we look forward to presenting our Q3 results in November. Thank you, and have a good day.

Operator: Thank you. This does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. Thank you once again For your participation.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has positions in and recommends HireQuest. The Motley Fool has a disclosure policy.