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What changed in HireQuest, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of HireQuest, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+124 added−154 removedSource: 10-K (2025-03-27) vs 10-K (2024-03-21)

Top changes in HireQuest, Inc.'s 2024 10-K

124 paragraphs added · 154 removed · 109 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur software system also allows us to produce internal reports necessary to track and manage financial performance of franchisees, customer trends, detect potential fraud, and to examine other key performance indicators. We believe that our software facilitates efficient customer interaction, allowing for online bill payment, invoice review, and other important functions.
Biggest changeWe have developed and own our proprietary software to handle most aspects of operations, including temporary employee dispatch and payroll, invoicing, and accounts receivable. Our software system also allows us to produce internal reports necessary to track and manage financial performance of franchisees, customer trends, detect potential fraud, and to examine other key performance indicators.
He has fulfilled the General Counsel or Chief Legal Officer role for both HQI, and its predecessor, HireQuest, LLC, since 2014. His work with HireQuest involves a range of legal, operational, and risk management affairs in different realms, including mergers and acquisitions, securities, employment, insurance and finance, workers’ compensation, and intellectual property. Previously, Mr.
He has fulfilled the General Counsel or Chief Legal Officer role for both HQI, and its predecessor, HireQuest, LLC, since 2014. His work with HireQuest involves a range of legal, operational, and risk management affairs in different realms, including mergers and acquisitions, securities, employment, insurance and finance, workers’ compensation, litigation, and intellectual property. Previously, Mr.
For temporary labor through our Snelling and HireQuest brands, including HireQuest franchisees, Snelling franchisees, DriverQuest franchisees, HireQuest Health franchisees, and Northbound franchises, we charge a royalty fee of 4.5% of the payroll we fund plus 18% of the gross margin for the territory. Most franchise agreements require a royalty of 5% - 7% of direct placement sales.
For temporary labor through our Snelling and HireQuest brands, including HireQuest franchisees, Snelling franchisees, DriverQuest franchisees, TradeCorp franchisees, HireQuest Health franchisees, and Northbound franchises, we charge a royalty fee of 4.5% of the payroll we fund plus 18% of the gross margin for the territory. Most franchise agreements require a royalty of 5% - 7% of direct placement sales.
In 2023, our franchisees operated under the trade names “HireQuest Direct,” “Snelling,” “HireQuest,” “DriverQuest,” “HireQuest Health,” "Northbound Executive Search," "Management Recruiters International," "TradeCorp" and "Sales Consultants." Many of the MRI franchises also operate under other brands specific to a locality. HireQuest Direct focuses on daily-work/daily-pay jobs primarily for construction and light industrial customers.
In 2024, our franchisees operated under the trade names “HireQuest Direct,” “Snelling,” “HireQuest,” “DriverQuest,” “HireQuest Health,” "Northbound Executive Search," "Management Recruiters International," "TradeCorp" and "Sales Consultants." Many of the MRI franchises also operate under other brands specific to a locality. HireQuest Direct focuses on daily-work/daily-pay jobs primarily for construction and light industrial customers.
As of December 31, 2023, HireQuest, Inc. was the corporate parent of a series of wholly-owned subsidiaries, all of which are listed on Exhibit 21.1 filed herewith and incorporated herein by reference. Our Securities Exchange Act Reports We maintain a website at the following address: www.hirequest.com .
As of December 31, 2024, HireQuest, Inc. was the corporate parent of a series of wholly-owned subsidiaries, all of which are listed on Exhibit 21.1 filed herewith and incorporated herein by reference. Our Securities Exchange Act Reports We maintain a website at the following address: www.hirequest.com .
Historically, our business has been bolstered by declining unemployment rates as our customers find it more difficult and more expensive to recruit, interview, hire, and train qualified staff. As employers look for alternatives to combat these increasing costs and administrative burdens, opportunities arise for the temporary staffing and permanent placement industry.
Historically, our business has been bolstered by declining unemployment rates as our customers find it more difficult and more expensive to recruit, interview, hire, and train qualified staff. As employers look for alternatives to combat these increasing costs and administrative burdens, opportunities arise for the temporary staffing industry.
Number of Offices By State December 31, 2023 We have a strong concentration of offices in established and emerging regions such as the Southeast, Florida, Texas, the upper Midwest, Colorado, and Washington. These regional office concentrations contribute to greater brand recognition while we continue to add offices in unserved and underserved regions.
Number of Offices By State December 31, 2024 We have a strong concentration of offices in established and emerging regions such as the Southeast, Florida, Texas, the upper Midwest, Colorado, and Washington. These regional office concentrations contribute to greater brand recognition while we continue to add offices in unserved and underserved regions.
For contract staffing, MRI franchises pay a royalty that ranges from 20% to 25% of payroll, depending on sales volume. Some customers that utilize qualified independent contractors cause the franchise to pay a royalty that ranges from 4% to 10% of contractor payments, depending on sales volume.
For non-permanent contract staffing, MRI franchises pay a royalty that ranges from 20% to 25% of payroll, depending on sales volume. Some customers that utilize qualified independent contractors cause the franchise to pay a royalty that ranges from 4% to 10% of contractor payments, depending on sales volume.
The remaining assets related to the operations of the other acquired locations have not been sold as of December 31, 2023 and are classified as held-for-sale. In the meantime, we operate the Philadelphia franchise as company-owned.
The remaining assets related to the operations of the other acquired locations have not been sold as of December 31, 2024 and are classified as held-for-sale. In the meantime, we operate the Philadelphia franchise as company-owned.
Approximately 75% of industry revenue is generated by temporary and contract employee staffing services, with the remainder coming from executive recruiting and permanent placement, outsourcing / outplacement, and human resource consulting.
Approximately 85% of industry revenue is generated by temporary and contract employee staffing services, with the remainder coming from executive recruiting and permanent placement, outsourcing / outplacement, and human resource consulting.
He is the co-founder of ArchCity Defenders, a non-profit organization in St. Louis, Mo., that led the push for change in Missouri’s municipal court system following the Ferguson unrest. For this work, Mr. McAnnar has received multiple awards, including the National Legal Aid & Defenders Association New Leaders in Advocacy Award and the Ina M.
(OTC:SLGD). He is the co-founder of ArchCity Defenders, a non-profit organization in St. Louis, Missouri, that led the push for change in Missouri’s municipal court system following the Ferguson unrest. For this work, Mr. McAnnar has received multiple awards, including the National Legal Aid & Defenders Association New Leaders in Advocacy Award and the Ina M.
Following the acquisitions completed in 2021, 2022 and 2023, we are expanding into or increasing our presence in several of the remaining segments of the staffing industry including permanent placement, health care, clerical and administrative, and professional. The direct-dispatch and commercial staffing industry has developed based on a business need for flexible staffing solutions.
Following the acquisitions completed and business lines started in 2022, 2023, and 2024, we are expanding into or increasing our presence in several of the remaining segments of the staffing industry including permanent placement, health care, clerical and administrative, and professional. The direct-dispatch and commercial staffing industry has developed based on a business need for flexible staffing solutions.
Additionally, in states that do not require participation in a state-run program, our franchisees gain access to our "A++" rated workers’ compensation insurance coverage. Franchise Agreements - Permanent Placement We assumed most of our permanent placement franchise agreements from Management Recruiters International, Inc. ("MRI") in December 2022. There are a significant number of variations among the agreements.
Additionally, in states that do not require participation in a state-run program, our franchisees gain access to our "A++" rated workers’ compensation insurance coverage. Franchise Agreements - Permanent Placement We assumed most of our permanent placement franchise agreements from MRI in December 2022. There are a significant number of variations among the agreements.
With our collaborative inter-office and inter-brand culture, franchisees have vast resources to draw up on to grow and scale their businesses. 5 Table of Contents Our Industry Temporary Staffing and Permanent Recruiting According to the American Staffing Association (ASA), the staffing and recruiting industry in the United States generated record annual revenue of approximately $220 billion in 2023 (even after a revenue dip in 2020).
With our collaborative inter-office and inter-brand culture, franchisees have vast resources to draw up on to grow and scale their businesses. 5 Table of Contents Our Industry Temporary Staffing and Permanent Recruiting According to the American Staffing Association (ASA), the staffing and recruiting industry in the United States generated record annual revenue of approximately $220 billion in 2023.
As we continue to develop new markets and to serve our existing markets, we expect our brands to become more recognizable and a greater asset to us in driving repeat customers, encouraging customers to expand their use of our services across multiple markets, and increasing new customer development. 7 Table of Contents Our Offices Domestic: We had 427 franchisee owned offices and one company owned office located in 45 states, the District of Columbia, and 13 countries outside the United States as of December 31, 2023.
As we continue to develop new markets and to serve our existing markets, we expect our brands to become more recognizable and a greater asset to us in driving repeat customers, encouraging customers to expand their use of our services across multiple markets, and increasing new customer development. 7 Table of Contents Our Offices Domestic: We had approximately 425 franchisee owned offices and one company owned office located in 44 states, the District of Columbia, and 13 countries outside the United States as of December 31, 2024.
Northbound, MRI, and Sales Consultants focus on executive, managerial, and professional recruitment services, although many franchisees also offer short-term consultant and contract staffing services. Our revenue, which is primarily comprised of ro yalty fees generated by the operations of our franchised offices, license fees, and interest charged to our franchisees on overdue accounts receivable, was $35.8 million in 2023.
Northbound, MRI, and Sales Consultants focus on executive, managerial, and professional recruitment services, although many franchisees also offer short-term consultant and contract staffing services. Our revenue, which is primarily comprised of ro yalty fees generated by the operations of our franchised offices, license fees, and interest charged to our franchisees on overdue accounts receivable, was $34.6 million in 2024.
As of December 31, 2023, our temporary staffing franchisees operated under 157 executed franchise agreements. For our HireQuest Direct brand we charge a royalty fee of between 6% and 8% of gross temporary labor sales, depending on sales volume.
As of December 31, 2024, our temporary staffing franchisees operated under 169 executed franchise agreements. For our HireQuest Direct brand we charge a royalty fee of between 6% and 8% of gross temporary labor sales, depending on sales volume.
Our Intellectual Property We own the rights to all of our key trademarks including “HireQuest,” “HireQuest Direct,” “Snelling,” “DriverQuest,” “HireQuest Health,” "Northbound Executive Search," "MRI," “VETSQuest,” “The Right People at the Right Time,” "Management Recruiters," "Sales Consultants," "TradeCorp," and all of our stylized logos. We also own the rights to trademarks we have utilized in the past.
Our Intellectual Property We own the rights to all of our key trademarks including “HireQuest,” “HireQuest Direct,” “Snelling,” “DriverQuest,” “HireQuest Health,” "Northbound Executive Search," "MRI," “VETSQuest,” “The Right People at the Right Time,” "Management Recruiters," "Sales Consultants," "TradeCorp," and all of our stylized logos.
This does not include revenue from locations currently owned by us as those are classified as held-for-sale and reported as discontinued operations. Our system-wide sales, which we define as sales at all offices, whether owned and operated by us or by our franchisees, were $605.1 million in 2023. Nearly all system-wide-sales originated from franchisee-owned offices.
This does not include revenue from locations currently owned by us as those are classified as held-for-sale and reported as discontinued operations. Our system-wide sales, which we define as sales at all offices, whether owned and operated by us or by our franchisees, were $ 563.6 million in 2024. Nearly all system-wide sales originated from franchisee-owned offices.
Given the nature of temporary employment, it is difficult for us to determine the exact number of full-time employees on a given day, however, approximately 15 thousand temporary employees worked at least 1,800 hours in 2023. 9 Table of Contents These temporary employees served thousands of customers, primarily in the construction, industrial/manufacturing, warehousing, hospitality, recycling/waste management, and disaster recovery industries.
Given the nature of temporary employment, it is difficult for us to determine the exact number of full-time employees on a given day, however, approxi mately 841 temporary employees worked at least 1,800 hours in 2024. 9 Table of Contents These temporary employees served thousands of customers, primarily in the construction, industrial/manufacturing, warehousing, hospitality, recycling/waste management, and disaster recovery industries.
Most franchisees are not granted any exclusive territory. Historically, the franchisees have been encouraged to focus on a particular demographic, industry, or geography. As of December 31, 2023 our MRI franchisees operated under 192 executed franchise agreements.
Most franchisees are not granted any exclusive territory. Historically, the franchisees have been encouraged to focus on a particular demographic, industry, or geography. As of December 31, 2024 our MRI franchisees operated under 197 e xecuted franchise agreements.
McAnnar served in the litigation departments of Carmody MacDonald, P.C., and Armstrong Teasdale, LLP, an Am Law 200 firm, where he focused on complex commercial litigation, corporate, and employment law. Since July 2023, he has served on the Board of Directors and the Audit, Compensation, and Nominations and Governance Committees of Scott's Liquid Gold, Inc. (OTC:SLGD).
McAnnar served in the litigation departments of Carmody MacDonald, P.C., and Armstrong Teasdale, LLP, an Am Law 200 firm, where he focused on complex commercial litigation, corporate, and employment law. Beginning in July 2023 and until it was acquired, he served on the Board of Directors and the Audit, Compensation, and Nominations and Governance Committees of Scott's Liquid Gold, Inc.
Finally, we licensed our trademarks for use in 10 locations in California. In addition, there were 7 MRI locations that provided contract staffing services only. The map below provides the number of offices we had in each state.
Finally, we licensed our trademarks for use in 6 locations in California. In addition, there were 12 MRI locations that provi ded contract staffing services only. The map below provides the number of offices we had in each state.
These concentrations also allow us to better recognize local and regional market trends. International: In the MRI transaction, we acquired 19 non-US offices located in 13 countries in North and South America, Europe, Asia, and Africa. International operations transact with us using US dollars, and currently only placement services are provided outside of the United States.
These concentrations also allow us to better recognize local and regional market trends. International: As of December 31, 2024 we had 19 non-US offices located in 13 co untries in North and South America, Europe, Asia, and Africa. International operations transact with us using US dollars, and currently only placement services are provided outside of the United States.
Franchising Strategy As of December 31, 2023, there were approximately 427 franchised Snelling, HireQuest, HireQuest Direct, and MRI offices operated by 325 franchisees. Approximately 15% of our franchisees owned multiple offices. Our largest franchisee owned 11 offices, and about 3% of our franchisees owned 4 or more offices. One individual owned significant interest in 8 franchisees that operated 28 offices.
Franchising Strategy As of December 31, 2024, there were approximately 425 franchised Snelling, HireQuest, HireQuest Direct, and MRI offices operated by 329 franchisees. Approximately 15% of our franchisees owned multiple offices. Our largest franchisee owned 12 offices, and about 4% of our franchisees owned 4 or more offices. One individual owned significant interest in 8 franchisees that operated 31 offices.
We also had 34 franchisees that share common ownership with significant stockholders, directors, and officers of the Company. We refer to these as the "Worlds Franchisees." These 34 Worlds Franchisees operated 70 offices as of December 31, 2023. Our approach to the franchise model creates what we believe to be superior office-level economics.
We also h ad 35 franchisees that share common ownership with significant stockholders, directors, and officers of the Company. We refer to these as the "Worlds Franchisees." These 35 W orlds Franchisees operated 69 offices as of December 31, 2024. Our approach to the franchise model creates what we believe to be superior office-level economics.
The primary competitive factors in our staffing markets include price, the ability to provide the requested workers on a timely basis, and success in meeting customer expectations. Secondary factors include customer relationships, name recognition, and established reputation.
The primary competitive factors in our staffing markets include price, the ability to provide the requested workers on a timely basis, and success in meeting customer expectations. Secondary factors include customer relationships, name recognition, and established reputation. For larger accounts our financial stability and carrier relationships are considered competitive factors for us.
We employed approximately 73 thousand temporary employees and contracted with 120 independent contractors during 2023. At December 31, 2023, we had approximately 427 franchisee-owned offices and one company owned office operating in 45 states, the District of Columbia, and 13 countries outside the United States.
We employed approximately 65 thousand temporary employees and contracted with 173 independent contractors during 2024. At December 31, 2024, we had approximately 425 franchisee-owned offices and one company owned office operating in 44 states, the District of Columbia, and 13 countries outside the United States.
We are now able to offer total talent access to our clients and partners. Smaller acquisitions have helped us fill our footprint and provide our franchisees and customers with ore targeted offerings.
We are now able to offer total talent access to our clients and partners. Smaller acquisitions have helped us fill our footprint and provide our franchisees and customers with ore targeted offerings. In 2022, the Temporary Alternatives and Dubin acquisitions filled gaps in our geography.
We license some intellectual property from third parties for use in our corporate headquarters, but such licenses are not material to our business. Our Organizational Structure HireQuest, Inc. is a holding company.
These works include advertising and marketing materials and other items that are not material to our business. We license some intellectual property from third parties for use in our corporate headquarters, but such licenses are not material to our business. Our Organizational Structure HireQuest, Inc. is a holding company.
McAnnar 41 Chief Legal Officer, Vice President of Professional Services, and Secretary Richard Hermanns is the President and Chief Executive Officer, as well as Chairman of the Board of Directors, of HireQuest, Inc. Mr. Hermanns has thirty-four years of experience in the temporary staffing industry.
Crane 68 Chief Financial Officer John D. McAnnar 42 Chief Legal Officer, Vice President of Professional Services, and Secretary Richard Hermanns is the President and Chief Executive Officer, as well as Chairman of the Board of Directors, of HireQuest, Inc. Mr. Hermanns has more than thirty-five years of experience in the temporary staffing industry.
In 2023, we employed approximately 73 thousand temporary employees and contracted with 120 independent contractors. Our systems generated approximately 1.5 m illion paychecks. Most of these payments were made via electronic transfer or paycard.
In 2024, we employed approximately 65 thousand temporary employees and contracted with 173 independent contractors. Our systems generated approximately1.3 m illion paychecks. Most of these payments were made via electronic transfer or paycard.
The table below displays the number of HireQuest Direct, HireQuest, Snelling, and Northbound franchise agreements scheduled to renew at the end of each year: Year Renewals 2024 25 2025 12 2026 43 2027 32 2028 27 After 2028 (1) 18 1. Excludes franchise agreements that renew between 2024 and 2028 which will be up for renewal again after 2028.
The table below displays the number of HireQuest Direct, Snelling, and TradeCorp franchise agreements scheduled to renew at the end of each year: Year Renewals 2025 10 2026 39 2027 28 2028 25 2029 54 After 2029 (1) 13 1. Excludes franchise agreements that renew between 2025 and 2029 which will be up for renewal again after 2029.
The table below displays the number of MRI and SearchPath franchise agreements scheduled to renew each year: Year Renewals 2024 58 2025 32 2026 31 2027 20 2028 14 After 2028 (1) 37 1. Excludes franchise agreements that renew between 2024 and 2028 which will be up for renewal again after 2028.
The table below displays the number of MRI, SearchPath, and Northbound franchise agreements scheduled to renew each year: Year Renewals 2025 56 2026 31 2027 28 2028 17 2029 8 After 2029 (1) 57 1. Excludes franchise agreements that renew between 2025 and 2029 which will be up for renewal again after 2029.
On a net basis, we closed 8 offices in 2023 (acquiring 7, opening 12, and closing 27). We also licensed our tradenames to approximately 10 locations in California. In addition, there were 7 MRI locations that provided contract staffing services only.
On a net basis, we closed 2 offices in 2024 (acquiring or adding 30 and closing 32). We also licensed our tradenames to approximately 6 locations in California. In addition, there were 12 MRI locations that provided contract staffing services only.
We have invested in off-site back-up and storage systems that we believe provide reasonable protection for our electronic information systems against breakdowns as well as other disruptions and unauthorized intrusions. We rely on common law protection of our copyrighted works. These works include advertising and marketing materials and other items that are not material to our business.
We license the use of our software to franchisees via our franchise agreements. The system is not patented. We have invested in off-site back-up and storage systems that we believe provide reasonable protection for our electronic information systems against breakdowns as well as other disruptions and unauthorized intrusions. We rely on common law protection of our copyrighted works.
The Northbound acquisition did the same for New York City but also brought a high-class executive placement offering that we hope to leverage into other markets.
The Northbound acquisition did the same for New York City but also brought a high-class executive placement offering that we hope to leverage into other markets. Subsequent tuck in acquisitions in 2023 and 2024 served to bolster our existing services in certain geographic regions.
In the meantime, we continue to operate Dental Power as company-owned. 2022 Acquisitions The Temporary Alternatives Acquisition On January 24, 2022 we completed our acquisition of certain assets of Temporary Alternatives in accordance with the terms of an Asset Purchase Agreement dated January 10, 2022, including three locations in West Texas and New Mexico for approximately $7.0 million, inclusive of a prescribed amount of working capital.
The information on our website is not incorporated by reference in this Annual Report on Form 10-K. 3 Table of Contents Recent Developments 2022 Acquisitions The Temporary Alternatives Acquisition On January 24, 2022 we completed our acquisition of certain assets of Temporary Alternatives in accordance with the terms of an Asset Purchase Agreement dated January 10, 2022, including three locations in West Texas and New Mexico, for approximately $7.0 million, inclusive of a prescribed amount of working capital.
TEC has been a provider of industrial staffing services to the employers and workers in Northwest and Central Arkansas for over 40 years.
TEC has been a provider of industrial staffing services to the employers and workers in Northwest and Central Arkansas for over 40 years. We funded this acquisition with existing cash on hand and a draw on our existing line of credit.
Executives of the company set this tone at the top, and we routinely have Company functions designed to engage and integrate our employees into our culture. Through our wholly-owned subsidiary HQ LTS Corporation, we employed 139 distinct corporate employees during 2023, with 96 active at December 31, 2023.
Executives of the company set this tone at the top, and we routinely have Company functions designed to engage and integrate our employees into our culture. Through our wholly-owned subsidiary HQ LTS Corporation, we employed 92 full-time employees at December 31, 2024. Most of these individuals are employed at our corporate headquarters in Goose Creek, SC.
We funded this acquisition with existing cash on hand and a draw on our existing line of credit. 4 Table of Contents Our Model We are a nationwide franchisor of temporary staffing offices providing direct-dispatch and commercial staffing solutions in the light industrial and blue-collar industries, and professional recruitment offices providing permanent placement services in the executive, managerial and administrative fields.
We immediately entered into a franchise agreement and sold the non-working capital assets we acquired. 4 Table of Contents Our Model We are a nationwide franchisor of temporary staffing offices providing direct-dispatch and commercial staffing solutions in the light industrial and blue-collar industries, and professional recruitment offices providing permanent placement services in the executive, managerial and administrative fields.
We charge a royalty fee of between 1.0% of total cash in plus a minimum of at least $15,000 to 9.0% of total cash in. The MRI franchises with a lower royalty scale generally pay a flat annual fee plus a percentage-based royalty.
We charge a royalty fee on permanent placement business of between 1.0% to 9.0% of total cash received with minimum annual royalties applying in many circumstances. The MRI franchises with a lower percentage royalty also generally pay a flat annual fee.
Most of these individuals are employed at our corporate headquarters in Goose Creek, SC. The vast majority of these employees are full-time. These employees provide back-office support, including financing, insurance, accounting, operations, national sales, information technology, legal, and human resources services to our franchisees and temporary employees.
The vast majority of these employees are full-time. These employees provide back-office support, including financing, insurance, accounting, operations, national sales, information technology, legal, and human resources services to our franchisees and temporary employees. Executive Officers Information about our executive officers follows: Name Age Position Richard Hermanns 61 President, Chief Executive Officer, and Chairman of the Board Steven G.
Because HQ WebConnect© is a proprietary system, we maintain a dedicated IT development staff, who continually refine our software in response to feedback from franchisees, customers, and employees. We license the use of our software to franchisees via our franchise agreements. The system is not patented.
We believe that our software facilitates efficient customer interaction, allowing for online bill payment, invoice review, and other important functions. Because HQ WebConnect© is a proprietary system, we maintain a dedicated IT development staff, who continually refine our software in response to feedback from franchisees, customers, and employees.
We funded this acquisition with existing cash on hand and a draw on our then-existing line of credit with Truist Bank ("Truist").
RTS has been a provider of day labor and industrial staffing services to the employers and workers of Denver, Colorado for multiple decades. We funded this acquisition with cash on hand and a draw on our existing line of credit.
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The information on our website is not incorporated by reference in this Annual Report on Form 10-K. 3 Table of Contents Recent Developments 2021 Acquisitions The Snelling Acquisition On March 1, 2021 we completed our acquisition of certain assets of Snelling Staffing ("Snelling") in accordance with the terms of the Asset Purchase Agreement dated January 29, 2021 (the “Snelling Agreement”).
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We immediately entered into three franchise agreements with existing franchisees and sold the operating assets we acquired. 2024 Acquisitions The RTS Acquisition On December 30, 2024 we completed our acquisition of one location of Ready Temporary Services ("RTS") in Denver, Colorado in accordance with the terms of an Asset Purchase Agreement dated December 13, 2024 for $1.4 million.
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At the time of acquisition, Snelling Staffing was an eminent staffing company headquartered in Richardson, TX. Pursuant to the Snelling Agreement, HQ Snelling Corporation (“HQ Snelling”), our wholly-owned subsidiary, acquired approximately 47 offices and substantially all of the operating assets, and assumed certain liabilities of the sellers for a purchase price of approximately $17.9 million (the "Snelling Acquisition").
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We also own a stylized trademark for the "Recruit" logo and the domain name "Recruit.com." We also own the rights to trademarks we have utilized in the past. We license the use of our marks to our franchisees via the franchise agreements.
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Also on March 1, 2021, HQ Snelling entered into the First Amendment to the Purchase Agreement, pursuant to which HireQuest, Inc. agreed to advance $2.1 million to be paid to the sellers at closing to be used to pay accrued payroll liabilities that HQ Snelling assumed pursuant to the Snelling Agreement.
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The LINK Acquisition On March 22, 2021 we completed our acquisition of the franchise relationships and certain other assets of LINK Staffing (“LINK”) in accordance with the terms of the Asset Purchase Agreement dated February 12, 2021 (the "LINK Agreement"). At the time of acquisition, LINK was a family-owned staffing company headquartered in Houston, TX.
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Pursuant to the LINK Agreement, HQ Link Corporation ("HQ Link"), our wholly-owned subsidiary, acquired approximately 35 franchised offices, customer lists and contracts, and other assets of LINK for a purchase price of approximately $11.1 million (the "LINK Acquisition"). We funded this acquisition with existing cash on hand and a draw on our line of credit.
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The Recruit Media Acquisition On October 1, 2021 we completed our acquisition of Recruit Media, Inc. (“Recruit Media”) in accordance with the terms of the Stock Purchase Agreement dated October 1, 2021 (the “Recruit Agreement”). Pursuant to the Recruit Agreement, we purchased all of the outstanding shares of common stock of Recruit Media for approximately $4.4 million.
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We funded this acquisition with existing cash on hand and a draw on our then-existing line of credit with Truist. The Dental Power Acquisition On December 6, 2021 we completed our acquisition of the Dental Power Staffing division ("Dental Power") of Dental Power International, Inc.
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(“DPI”) in accordance with the terms of the Asset Purchase Agreement dated November 2, 2021, for approximately $1.9 million. DPI was a 46-year-old dental staffing company headquartered in Carrboro, NC with long-standing client relationships in the dental industry providing temporary, long-term contract, and direct-hire staffing services to dental practices across the U.S.
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We funded this acquisition with existing cash on hand and a draw on our existing line of credit with Truist. We operated Dental Power as a company-owned location until the fourth quarter of 2022, when we classified it as held-for-sale.
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Following the December 2021 acquisition of Dental Power, we used the platform to build a customer base in the dental-oriented sector of the staffing industry, which we believe benefits our entire system by increasing revenue opportunities under the HireQuest Health brand. In 2022, the Temporary Alternatives and Dubin acquisitions filled gaps in our geography.
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Executive Officers Information about our executive officers follows: Name Age Position Richard Hermanns 60 President, Chief Executive Officer, and Chairman of the Board Steven G. Crane 67 Chief Financial Officer John D.
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We license the use of our marks to our franchisees via the franchise agreements. We have developed and own our proprietary software to handle most aspects of operations, including temporary employee dispatch and payroll, invoicing, and accounts receivable.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs previously reported, we identified a material weakness in our internal control over financial reporting as we did not have sufficient accounting resources available to handle the volume of technical accounting issues and provide adequate review systems. Further information on this material weakness, which has not been resolved as of December 31, 2023, is included in “
Biggest changeAs previously reported, we identified a material weakness in our internal control over financial reporting as we did not have sufficient accounting resources available to handle the volume of technical accounting issues and provide adequate review systems or segregation of certain duties.
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Further information on this material weakness, which has not been resolved as of December 31, 2024, is included in “

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeItem 1C. Cybersecurity Cybersecurity incidents continue to become more prevalent requiring adequate and and continuous assessment, identification, and management of material risks associated with cybersecurity threats.
Biggest changeItem 1C. Cybersecurity Cybersecurity incidents continue to become more prevalent requiring adequate and continuous assessment, identification, and management of material risks associated with cybersecurity threats.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAt December 31, 2023, we leased approximately 5 thousand square feet of office space in our headquarters to an unaffiliated company. This lease was at the market rate. We are unaware of any material liens or other encumbrances on our real property, other than as general collateral for our revolving line of credit.
Biggest changeAt December 31, 2024, we leased approximately 5 thousand square feet of office space in our headquarters to an unaffiliated company. This lease was at the market rate. We are unaware of any material liens or other encumbrances on our real property, other than as general collateral for our revolving line of credit.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information for our Common Stock Our common stock is listed on the Nasdaq Capital Market under the symbol “HQI.” Holders of Our Common Stock As of March 19, 2024, we had approximately 72 holders of record of our common stock.
Biggest changeItem 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information for our Common Stock Our common stock is listed on the Nasdaq Capital Market under the symbol “HQI.” Holders of Our Common Stock As of March 19, 2025, we had approximately 73 holders of record of our common stock.
Issuer Purchases of Equity Securities There were no purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) of its common stock under the Exchange Act) during the three months ended December 31, 2023.
Issuer Purchases of Equity Securities There were no purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) of its common stock under the Exchange Act) during the three months ended December 31, 2024.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

59 edited+12 added−33 removed62 unchanged
Biggest changeAt this time, the ultimate extent of the duration of the military actions, resulting sanctions and future economic and market disruptions, and resulting effects on the Company, and on our acquisition strategy, are impossible to predict. 24 Table of Contents Results of Operations The following table displays our consolidated statements of operations for the years ended December 31, 2023 and December 31, 2022 (in thousands, except percentages): Year ended December 31, 2023 December 31, 2022 Franchise royalties $ 35,813 94.5 % $ 28,897 93.4 % Service revenue 2,069 5.5 % 2,055 6.6 % Total revenue 37,882 100.0 % 30,952 100.0 % Selling, general and administrative expenses 24,448 64.5 % 12,874 41.6 % Depreciation and amortization 2,793 7.4 % 2,040 6.6 % Income from operations 10,641 28.1 % 16,038 51.8 % Other miscellaneous expense (1,738 ) (4.6 )% (2,047 ) (6.6 )% Interest income 263 0.7 % 247 0.8 % Interest and other financing expense (1,386 ) (3.7 )% (368 ) (1.2 )% Net income before income taxes 7,780 20.5 % 13,870 44.8 % Provision for income taxes 1,345 3.6 % 1,895 6.1 % Net income from continuing operations 6,435 17.0 % 11,975 38.7 % Net (loss) income from discontinued operations, net of tax (300 ) (0.8 )% 483 1.6 % Net income $ 6,135 16.2 % $ 12,458 40.2 % Non-GAAP data Adjusted EBITDA $ 16,487 43.5 % $ 22,045 71.2 % 1.
Biggest changeIncome from operations declined from $10.6 million in 2023 to $4.4 million in 2024 due to the 6.9% decline in system-wide sales and a $6.0 million goodwill and intangible asset charge associated with the MRI acquisition. 24 Table of Contents Results of Operations The following table displays our consolidated statements of operations for the years ended December 31, 2024 and December 31, 2023 (in thousands, except percentages): Year ended December 31, 2024 December 31, 2023 Franchise royalties $ 32,673 94.4 % $ 35,813 94.5 % Service revenue 1,925 5.6 % 2,069 5.5 % Total revenue 34,598 100.0 % 37,882 100.0 % Selling, general and administrative expenses 21,406 61.9 % 24,448 64.5 % Goodwill and intangible asset impairment charge 6,035 17.4 % - — % Depreciation and amortization 2,789 8.1 % 2,793 7.4 % Income from operations 4,368 12.6 % 10,641 28.1 % Other miscellaneous income (expense) 145 0.4 % (1,738 ) (4.6 )% Interest income 556 1.6 % 263 0.7 % Interest and other financing expense (923 ) (2.7 )% (1,386 ) (3.7 )% Net income before income taxes 4,146 12.0 % 7,780 20.5 % Provision for income taxes 221 0.6 % 1,345 3.6 % Net income from continuing operations 3,925 11.3 % 6,435 17.0 % Net loss from discontinued operations, net of tax (253 ) (0.7 )% (300 ) (0.8 )% Net income $ 3,672 10.6 % $ 6,135 16.2 % Non-GAAP data Adjusted EBITDA $ 16,129 46.6 % $ 16,487 43.5 % 1.
Contingent consideration is remeasured at fair value each reporting period with subsequent changes in the fair value of the contingent consideration recognized during the period.
Contingent consideration is remeasured at fair value each reporting period with subsequent changes in the fair value of the contingent consideration recognized during the period.
Other factors impacting our effective rate include windfall tax deductions related to stock-based compensation, and deduction limits on overall compensation. 27 Table of Contents (Loss) income from discontinued operations, net of tax Company-owned offices that have been disposed of by sale, disposed of other than by sale, or are classified as held-for-sale are reported separately as discontinued operations.
Other factors impacting our effective rate include windfall tax deductions related to stock-based compensation, and deduction limits on overall compensation. 27 Table of Contents Loss from discontinued operations, net of tax Company-owned offices that have been disposed of by sale, disposed of other than by sale, or are classified as held-for-sale are reported separately as discontinued operations.
The assets and liabilities of a discontinued operation held-for-sale are measured at the lower of the carrying value or fair value less cost to sell. As of December 31, 2023 there was 1 company-owned location reported as discontinued operations: ● Certain assets acquired in the Dubin Agreement related to the operations of the Philadelphia franchise.
The assets and liabilities of a discontinued operation held-for-sale are measured at the lower of the carrying value or fair value less cost to sell. As of December 31, 2024 and 2023 there was 1 company-owned location reported as discontinued operations: ● Certain assets acquired in the Dubin Agreement related to the operations of the Philadelphia franchise.
Discussions of 2022 items and year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 which we filed with the SEC on March 21, 2023.
Discussions of 2023 items and year-to-year comparisons between 2023 and 2022 that are not included in this Annual Report on Form 10-K can be found in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 which we filed with the SEC on March 21, 2024.
“Risk Factors” for a discussion of uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. This section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
“Risk Factors” for a discussion of uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. This section of this Annual Report on Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.
For additional information related to the letter of credit securing our workers’ compensation obligations see Note 5 - Workers’ Compensation Insurance and Reserves. 29 Table of Contents Key Performance Indicator: System-Wide Sales We refer to total sales generated by our franchisees as “franchise sales.” For any period prior to their conversion to franchises, we refer to sales at company-owned and operated offices as “company-owned sales.” In turn, we refer to the sum of franchise sales and company-owned sales as “system-wide sales.” In other words, system-wide sales include sales at all offices, whether owned and operated by us or by our franchisees.
For additional information rel ated to the letter of credit securing our workers’ compensation obligations see Note 5 - Workers’ Compensation Insurance and Reserves. 29 Table of Contents Key Performance Indicator: System-Wide Sales We refer to total sales generated by our franchisees as “franchise sales.” For any period prior to their conversion to franchises, we refer to sales at company-owned and operated offices as “company-owned sales.” In turn, we refer to the sum of franchise sales and company-owned sales as “system-wide sales.” In other words, system-wide sales include sales at all offices, whether owned and operated by us or by our franchisees.
We will perform our next annual goodwill impairment tests as of August 31, 2024; or earlier, if adverse changes in circumstances result in our assessment that a triggering event has occurred at any of our reporting units and an interim test is required.
We will perform our next annual goodwill impairment tests as of August 31, 2025; or earlier, if adverse changes in circumstances result in our assessment that a triggering event has occurred at any of our reporting units and an interim test is required.
Management uses system-wide sales to benchmark current operating levels to historic operating levels. System-wide sales should not be considered as an alternative to revenue. During 2023, all of our offices were franchised with the only exception being the Philadelphia office acquired in February 2022.
Management uses system-wide sales to benchmark current operating levels to historic operating levels. System-wide sales should not be considered as an alternative to revenue. During 2024, all of our offices were franchised with the only exception being the Philadelphia office acquired in February 2022.
Service revenue also includes amounts charged for various optional services and cost-sharing arrangements such as bulk vender programs or IT license blocks. Generally, we do not profit from these arrangements as they represent pass-through items, although there may be timing differences.
Service revenue also includes amounts charged for various optional services and cost-sharing arrangements such as bulk vender programs or IT licenses. Generally, we do not profit from these arrangements as they represent pass-through items, although there may be timing differences.
If the actual costs of the claims exceed the amount estimated, we may incur additional charges. 31 Table of Contents Workers ’ compensation Risk Management Incentive Program ( “ RMIP ” ) Our RMIP is designed to incentivize our franchises to keep our temporary employees safe and control exposure to large workers’ compensation claims.
If the actual costs of the claims exceed the amount estimated, we may incur additional charges. Workers ’ compensation Risk Management Incentive Program ( “ RMIP ” ) Our RMIP is designed to incentivize our franchises to keep our temporary employees safe and control exposure to large workers’ compensation claims.
We accomplish this by paying our franchisees an amount equivalent to a percentage of the amount they pay for workers’ compensation insurance if they keep their workers’ compensation loss ratios below specified thresholds. Notes Receivable Notes receivable from franchisees consist primarily of amounts due to us related to the financing of franchised locations.
We accomplish this by paying our franchisees an amount equivalent to a percentage of the amount they pay for workers’ compensation insurance if they keep their workers’ compensation loss ratios below specified thresholds. Notes Receivable and Allowance for Credit Losses Notes receivable from franchisees consist primarily of amounts due to us related to the financing of franchised locations.
Revenue would also include staffing revenue with respect owned locations.
Revenue would also include staffing revenue with respect to owned locations.
Workers ’ Compensation Claims Liability We maintain reserves for workers’ compensation claims based on their estimated future cost. These reserves include claims that have been reported but not settled, as well as claims that have been incurred but not reported. Our estimated workers’ compensation claims liability was $6.6 million at December 31, 2023, versus $5.9 million at December 31, 2022.
Workers ’ Compensation Claims Liability We maintain reserves for workers’ compensation claims based on their estimated future cost. These reserves include claims that have been reported but not settled, as well as claims that have been incurred but not reported. Our estimated workers’ compensation claims liability was $6.3 million at December 31, 2024, versus $6.6 million at December 31, 2023.
Other current liabilities include approximately $9.9 million due to our franchisees, $4.3 million of accrued wages, benefits and payroll taxes, and $3.9 million related to our workers’ compensation claims liability. Our working capital requirements are driven largely by temporary employee payroll, which is typically daily or weekly, and weekly cash settlements with our franchises.
Other current liabilities include approximately $7.6 million due to our franchisees, $2.6 million of accrued wages, benefits and payroll taxes, and $3.6 million related to our workers’ compensation claims liability. Our working capital requirements are driven largely by temporary employee payroll, which is typically paid daily or weekly, and weekly cash settlements with our franchises.
Our allowance for losses on notes receivable was approximately $623 thousand and $260 thousand at December 31, 2023 and December 31, 2022, respectively. Some of our notes receivable have contingent consideration based on a percentage of specified system-wide sales that exceed certain thresholds. Notes with contingent consideration are recorded at fair value when originated.
Our allowance for credit losses on notes receivable was approximately $773 thousand and $623 thousand at D ecember 31, 2024 and December 31, 2023, respectively. Some of our notes receivable have contingent consideration based on a percentage of specified system-wide sales that exceed certain thresholds. Notes with contingent consideration are recorded at fair value when originated.
We also receive principal and interest payments on notes receivable that we issued in connection with the conversion of company-owned offices to franchised offices. At December 31, 2023 our current assets exceeded our current liabilities by approximately $15.7 million.
We also receive principal and interest payments on notes receivable that we issued in connection with the conversion of company-owned offices to franchised offices. At December 31, 2024 our current assets exceeded our current liabilities by approximately $25.1 million.
The Company also has a one-time right, upon at least ten Business Days’ prior written notice to the Bank to increase the maximum amount of the Senior Credit Facility to $60 million. The Senior Credit Facility replaced the Company's prior $60 million credit agreement with Truist Bank.
The Company also has a one-time right, upon at least ten Business Days’ prior written notice to the Bank to increase the maximum amount of the Senior Credit Facility to $60 million.
We cannot provide assurances that we will have future access to the capital or credit markets on acceptable terms. 28 Table of Contents Cash Flows Operating Activities During 2023, net cash generated by operating activities was approximately $10.6 million.
We cannot provide assurances that we will have future access to the capital or credit markets on acceptable terms. 28 Table of Contents Cash Flows Operating Activities During 2024 net cash generated by operating activities was approximately $12.3 million.
We provide employment for an estimated 73 thousand temporary employees annually working for thousands of clients in many industries including construction, healthcare, recycling, warehousing, logistics, auctioneering, manufacturing, hospitality, landscaping, and retail. We finished 2023 with a strong balance sheet. Our assets exceeded liabilities by over $62.7 million.
We provide employment for an estimated 65 thousand temporary employees annually working for thousands of clients in many industries including construction, healthcare, recycling, warehousing, logistics, auctioneering, manufacturing, hospitality, landscaping, and retail. We finished 2024 with a strong balance sheet. Our assets exceeded liabilities by over $64.8 million.
For the year ended December 31, 2023, other miscellaneous expense was approximately $1.7 million, compared to $2.0 million of other miscellaneous expense for the year ended December 31, 2022. In 2023 the largest component of this loss is related to the loss of $2.0 million on disposition of the TEC assets.
For the year ended December 31, 2024, other miscellaneous income was approximately $144 thousand, compared to $1.7 million of other miscellaneous expense for the year ended December 31, 2023. In 2023 the largest component of this loss is related to the loss of $2.1 million on disposition of the TEC assets.
Our current assets included approximately $1.3 million of cash and $44.4 million of accounts receivable, which our franchisees have billed to customers and which we own in accordance with our franchise agreements.
Our current assets included approximately $2.2 million of cash and $ 42.3 million of accounts receivable, which our franchisees have billed to customers and which we own in accordance with our franchise agreements.
Once a company-owned office is sold, disposed of, or otherwise classified as held-for-sale, it would not be reflected in revenue and instead reported as “Income from discontinued operations, net of tax.” For a description of our revenue recognition practices, please refer to “ Note 1 – Overview and Summary of Significant Accounting Policies – Revenue Recognition, ” and “ Critical Accounting Estimates – Revenue Recognition ,” which disclosure is incorporated herein by reference. 25 Table of Contents Total revenue for the year ended December 31, 2023 was approximately $37.9 million compared to $30.9 million for the year ended December 31, 2022, an increase of 22.4%.
Once a company-owned office is sold, disposed of, or otherwise classified as held-for-sale, it would not be reflected in revenue and instead reported as “Income from discontinued operations, net of tax.” For a description of our revenue recognition practices, please refer to “ Note 1 – Overview and Summary of Significant Accounting Policies – Revenue Recognition, ” which disclosure is incorporated herein by reference. 25 Table of Contents Total revenue for the year ended December 31, 2024 was approximately $34.6 million compared to $37.9 million for the year ended December 31, 2023, a decrease of 8.7%.
At December 31, 2023, availability under the Senior Credit Facility was approximately $26.2 million based on eligible collateral, less letter of credit reserves, bank product reserves and current advances assuming continued covenant compliance.
At December 31, 2024, availability under the Senior Credit Facility was approximately $33.6 million based on eligible collateral, less letter of credit reserves, bank product reserves and current advances assuming continued covenant compliance.
Since collections from accounts receivable lag employee pay our working capital requirements increase as system-wide sales increase, and vice-versa. When the economy contracts, our cash balance tends to increase in the short-term as payroll funding requirements decrease and accounts receivable are converted to cash upon collection. As the economy recovers, our cash balance generally decreases and accounts receivable increase.
Since collections from accounts receivable lag employee pay our working capital requirements increase as system-wide sales increase, and vice-versa. When the economy contracts, our cash balance tends to increase in the short-term as payroll funding requirements decrease and accounts receivable are converted to cash upon collection and not replaced with additional billings. As the economy recovers, this dynamic generally reverses.
The blended effective royalty rate for 2023 and 2022 was 6.0% and 6.4%, respectively. Service Revenue Service revenue consists of revenue generated from franchisees that are outside of our core services such as license fees, franchise fees related to our advertising fund, and miscellaneous income.
The blended effective royalty rate for 2024 and 2023 was 5.8% and 5.9%, respectively. Service Revenue Service revenue consists of revenue generated from franchisees that are outside of our core services such as license fees, franchise fees related to our advertising fund, and miscellaneous income.
As of December 31, 2023 we had approximately 427 franchisee-owned offices and 1 company-owned office in 45 states, the District of Columbia, and 13 countries outside of the United States. We licensed our tradenames to approximately 10 offices in California. In addition, there were 7 MRI locations that provided contract staffing services only.
As of December 31, 2024 we had approximately 425 franchisee-owned offices and 1 company-owned office in 44 states, the District of Columbia, and 13 countries outside of the United States. We licensed our tradenames to approximately 6 offices in California. In addition, there were 12 MRI locations that provided contract staffing services only.
Number of Offices We track the number of offices we open and close every year as the number of offices is usually directly tied to the amount of royalty and service revenue we earn. In 2023, we declined our office count by 8 offices on a net basis by opening or acquiring 21 and closing 29.
Number of Offices We track the number of offices we open and close every year as the number of offices is usually directly tied to the amount of royalty and service revenue we earn. In 2024, we decreased our office count by 2 offices on a net basis by opening or acquiring 30 and closing 32.
As of December 31, 2023, the outstanding balance under our line of credit with Bank of America was $14.1 million, with approximately another $9.7 million utilized for the issuance of Letters of Credit, leaving approximately $26.2 million available for additional borrowing under the line as of such date, assuming compliance with necessary conditions.
As of December 31, 2024, the outstanding balance under our line of credit with Bank of America was $6.8 million, with approximately another $9.7 million utilized for the issuance of Letters of Credit, leaving approximately $33.4 million available for additional borrowing under the line as of such date, assuming compliance with necessary conditions.
The effective tax rate is primarily driven by the federal Work Opportunity Tax Credit, which reduced our effective tax rate by 11.9% and 9.1% for the years ended December 31, 2023 and December 31, 2022, respectively, and is included as part of income tax expense because it can be claimed only on the income tax return and can be realized only through the existence of taxable income.
The effective tax rate is primarily driven by the federal Work Opportunity Tax Credit, which reduced our effec tive tax rate by 21% and 12% for the years en ded December 31, 2024 and December 31, 2023, respectively, and is included as part of income tax expense because it can be claimed only on the income tax return and can be realized only through the existence of taxable income.
Probability of payment is reflected in the fair value, as is the time value of money. Subsequent changes in the recorded amount of contingent consideration are recognized during period in which the change was recognized. Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the estimated fair value of the net assets of acquired businesses.
Subsequent changes in the recorded amount of contingent consideration are recognized during period in which the change was recognized. 31 Table of Contents Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the estimated fair value of the net assets of acquired businesses.
The (loss) income from discontinued operations amounts as reported on our consolidated statements of operations was comprised of the following amounts (in thousands): Year ended December 31, December 31, 2023 2022 Revenue $ 1,777 $ 6,313 Cost of staffing services 1,145 4,505 Gross profit 632 1,808 Selling, general and administrative expense (713 ) (795 ) Gain on sale of intangible assets 197 - Amortization - (384 ) Impairment of intangible asset (514 ) - Net (loss) income before income taxes (398 ) 629 (Benefit) provision for income taxes (98 ) 146 Net (loss) income $ (300 ) $ 483 Liquidity and Capital Resources Overview Our major source of liquidity and capital is cash generated from our ongoing operations consisting of royalty revenue, service revenue and staffing revenue from franchisee-owned locations.
The loss from discontinued operations amounts as reported on our consolidated statements of income was comprised of the following amounts: Year ended December 31, December 31, (in thousands) 2024 2023 Revenue $ 759 $ 1,777 Cost of staffing services 251 1,145 Gross profit 508 632 Selling, general and administrative expense (772 ) (713 ) (Loss) gain on sale of intangible assets (11 ) 197 Interest expense (60 ) - Impairment of intangible asset - (514 ) Net loss before income taxes (335 ) (398 ) Benefit for income taxes (82 ) (98 ) Net loss $ (253 ) $ (300 ) Liquidity and Capital Resources Overview Our major source of liquidity and capital is cash generated from our ongoing operations consisting of royalty revenue, service revenue and staffing revenue from franchisee-owned locations.
Franchised offices, December 31, 2021 217 Purchased in 2022 (net of sold locations) 207 Opened in 2022 16 Closed in 2022 (5 ) Franchised offices, December 31, 2022 435 Purchased in 2023 7 Opened in 2023 14 Closed in 2023 (29 ) Franchised offices, December 31, 2023 427 30 Table of Contents Seasonality Our revenue fluctuates quarterly and is generally higher in the second and third quarters of our year.
Franchised offices, December 31, 2022 435 Purchased in 2023 7 Opened in 2023 14 Closed in 2023 (29 ) Franchised offices, December 31, 2023 427 Purchased in 2024 - Opened in 2024 30 Closed in 2024 (32 ) Franchised offices, December 31, 2024 425 30 Table of Contents Seasonality Our revenue fluctuates quarterly and is generally higher in the second and third quarters of our year.
Royalty fees are charged at 8% for the first $1 million of billing with the royalty fee dropping 0.5% for every $1 million of billing thereafter until the royalty fee is 6% (once gross billings reach $4 million annually).
Under the HireQuest Direct model, the royalty fee charged ranges from 6% to 8% of gross billings, depending on volume. Royalty fees are charged at 8% for the first $1 million of billing with the royalty fee dropping 0.5% for every $1 million of billing thereafter until the royalty fee is 6% (once gross billings reach $4 million annually).
Annually, we use third-party actuaries to ensure that the overall ratings are sound, that individual insurer rates are adequate, and that individual risks receive a fair rate that reflects both the characteristics of the job classification and the Company's risk experience.
Workers compensation rating is typically based on job classification, and our workers typically fall into hundreds of different classifications. Annually, we use third-party actuaries to ensure that the overall ratings are sound, that individual insurer rates are adequate, and that individual risks receive a fair rate that reflects both the characteristics of the job classification and the Company's risk experience.
As part of this refinancing we recorded a loss on debt extinguishment of approximately $310 thousand, which is reflected on the line item, "Interest and other financing expense," in our consolidated statement of income for the nine months ended September 30, 2023.
The Senior Credit Facility will mature on February 28, 2028. As part of this refinancing we recorded a loss on debt extinguishment of approximately $310 thousand, which is reflected on the line item, "Interest and other financing expense," in our consolidated statement of income for 2023.
Service revenue for the year ended December 31, 2023 was approximately $2.1 m illion compared to $2.1 million for the year ended December 31, 2022, a slight increase. Interest on overdue accounts decreased approximately $96 thousand from $946 thousand for the year ended December 31, 2022 to $850 thousand for the year ended at December 31, 2023.
Service revenue for the year ended December 31, 2024 was approximately $1.9 m illion which decreased when compared to $2.1 million for the year ended December 31, 2023. Interest on overdue accounts decreased approximately $62 thousand from $850 thousand for the year ended December 31, 2023 to $788 thousand for the year ended at December 31, 2024.
We cannot accurately predict the effects of workers' compensation in future periods, and historical trends may not be indicative of future results. 26 Table of Contents Other Selling, General and Administrative Expenses (“SG&A”) SG&A for the year ended December 31, 2023 was approximately $24.4 million compared to $12.9 million for the year ended December 31, 2022, an increase of $11.6 million.
We cannot accurately predict the effects of workers' compensation in future periods, and historical trends may not be indicative of future results. 26 Table of Contents Other Operating Expenses Other Operating Expenses for the year ended December 31, 2024 was approximately $25.4 million compared to $20.7 million for the year ended December 31, 2023, an increase of $4.7 million.
Year ended December 31, 2023 December 31, 2022 Net income $ 6,135 16.2 % $ 12,458 40.2 % Interest and other financing expense 1,386 3.7 % 368 1.2 % Provision for income taxes 1,345 3.6 % 1,895 6.1 % Depreciation and amortization 2,793 7.4 % 2,040 6.6 % EBITDA 11,659 30.8 % 16,761 54.2 % WOTC related costs 461 1.2 % 601 1.9 % Non-cash compensation 1,483 3.9 % 1,673 5.4 % Acquisition related charges 2,344 6.2 % 2,660 8.6 % Impairment of notes receivable 540 1.4 % 350 1.1 % Adjusted EBITDA $ 16,487 43.5 % $ 22,045 71.2 % Revenue Our total revenue consists of franchise royalties, and service revenue we receive from our franchises.
Year ended December 31, 2024 December 31, 2023 Net income $ 3,672 10.6 % $ 6,135 16.2 % Interest and other financing expense 923 2.7 % 1,386 3.7 % Provision for income taxes 221 0.6 % 1,345 3.6 % Depreciation and amortization 2,789 8.1 % 2,793 7.4 % EBITDA 7,605 22.0 % 11,659 30.8 % WOTC related costs 483 1.4 % 461 1.2 % Non-cash compensation 1,759 5.1 % 1,483 3.9 % Goodwill and intangible asset impairment 6,035 17.4 % - — % Acquisition related charges (28 ) (0.1 )% 2,344 6.2 % Impairment of notes receivable 275 0.8 % 540 1.4 % Adjusted EBITDA $ 16,129 46.6 % $ 16,487 43.5 % Revenue Our total revenue consists of franchise royalties, and service revenue we receive from our franchises.
This decrease follows the overall decrease in accounts receivable. We pride ourselves on maintaining quality, creditworthy customers who pay timely, and the Company does not strive to increase interest on aged accounts receivable. Fees collected related to our advertising fund increased by approximately $514 thousand and is related to the MRI acquisition.
This decrease follows the overall decrease in accounts receivable. We pride ourselves on maintaining quality, creditworthy customers who pay timely, and the Company does not strive to increase interest on aged accounts receivable.
Benefits are usually statutory in nature and are generally provided in partial or complete replacement of the injured worker’s recourse to the liability system. Payments may include medical treatment, rehabilitation, lost wages, and survivor benefits. Workers compensation rating is typically based on job classification, and our workers fall in hundreds of classifications.
Our workers' compensation reserves provide benefits following a workplace injury. Benefits are usually statutory in nature and are generally provided in partial or complete replacement of the injured worker’s recourse to the liability system. Payments may include medical treatment, rehabilitation, lost wages, and survivor benefits.
This was partially offset by $187 thousand in rental income from leasing of excess space at market rates at our Corporate Headquarters and $102 thousand of miscellaneous other income.
This was partially offset by $187 thousand in rental income from leasing of excess space at market rates at our Corporate Headquarters and $102 thousand of miscellaneous other income. Interest income and expense Interest income for the year ended December 31, 2024 was approximately $556 thousand compared to $263 thousand for the year ended December 31, 2023.
The increase is due to claims developing higher than expected. Annually, we engage an independent actuary to estimate the future costs of these claims. Quarterly, we use development factors provided by an independent actuary to estimate the future costs of these claims. We make adjustments as necessary.
The decrease is due to our having now fully reserved claims from prior years which developed at a higher rate than historical norms. Annually, we engage an independent actuary to estimate the future costs of these claims. Quarterly, we use development factors provided by an independent actuary to estimate the future costs of these claims. We make adjustments as necessary.
License fees from California locations were $136 thousand for the year ended December 31,2023. Operating expenses Operating expenses for the year ended December 31, 2023 were approximately $27.2 million compared to $14.9 million for the year ended December 31, 2022, an increase of $12.2 million.
Operating Expenses Operating expenses for the year ended December 31, 2024 were approximately $30.2 million compared to $27.2 million for the year ended December 31, 2023, an increase of $3.0 million.
Our all-in rate of borrowing for the year ended December 31, 2023 was 6.7% and is repriced daily.
O ur average borrowing rate for the year ended December 31, 202 4 was 6. 5 % and is repriced daily.
These were partially offset by proceeds from the conversion of acquired offices into franchises of $2.3 million. Financing Activities During 2023, net cash used in financing activities was approximately $5.2 million which was primarily due to net payments on our revolving credit/term loan amounting to $1.6 million, and by the payment of dividends of approximately $3.3 million.
Financing Activities During 2024, net cash used in financing activities was approximately $11.2 million which was primarily due to a net payback on our revolving credit of $7.3 million, and by the payment of dividends of approximately $3.4 million.
Approximately $1.2 million of the benefit recorded during 2022 relates to the Snelling reserve assumed at the time of acquisition and continues to run off as claims are resolved. Generally workers' compensation expense (benefit) will fluctuate based on the mix of classifications, the level of payroll, recent claims resolution and cumulative experience.
Generally workers' compensation expense or benefit will fluctuate based on the mix of classifications, the level of payroll, recent claims resolution and cumulative experience.
This increase is roughly consistent with the increase in underlying system-wide-sales and reflects a lower blended effective royalty rate for 2023 than for 2022, as described below. Revenue does not include any company-owned offices, as the office that we own is classified as held-for-sale.
This decrease is roughly consistent with the decrease in underlying system-wide sales which decreased 6.9% from $605.1 million in 2023 to $563.6 million in 2024. Revenue does not include any company-owned offices, as the office that we own is classified as held-for-sale. Franchise Royalties We charge our franchisees a royalty fee on the basis of one of several models.
Interest income and expense Interest income for the year ended December 31, 2023 was approximately $263 thousand compared to $247 thousand for the year ended December 31, 2022. Interest income represents interest related to the financing of franchised locations. Interest and other financing expense relates primarily to our revolving credit.
Interest income represents interest related to the financing of franchised locations. The increase is primarily driven by the disposition of the TEC assets. Interest and other financing expense relates primarily to our revolving credit facility.
In 2022, we added 218 offices on a net basis by opening or acquiring 223 and closing 5. The following table accounts for the number of offices opened and closed in 2023 and 2022.
The following table accounts for the number of offices opened and closed in 2024 and 2023.
Provision for income tax Income tax expense was approximately $1.3 million in 2023 and $1.9 million in 2022. The effective tax rates for 2023 and 2022 were 17.3% and 13.7% respectively.
Interest and other financing expense will fluctuate as we utilize the line of credit for acquisitions or other short-term liquidity needs. Provision for income tax Income tax expense was approximately $0.2 million in 2024 and $1.3 million in 2023. The effective tax rates for 2024 and 2023 were 5.3% and 17.3%, respectively.
Franchise royalties for the year ended December 31, 2023 were approximately $35.8 million compared to $28.9 million for the year ended December 31, 2022, an increase of 23.9%, driven predominantly by the inclusion of a full year of MRI royalties in 2023 versus only approximately one month in 2022.
Franchise royalties for the year ended December 31, 2024 were approximately $32.7 million compared to $35.8 million for the year ended December 31, 2023, a decrease of 8.8%, driven predominantly by a decline in total system-wide sales of $41.5 million from $605.1 million in 2023 to $563.6 million in 2024 .
This increase was primarily driven by a $5.6 million increase in workers compensation due to higher claims and higher personnel, amortization and other costs related to the MRI acquisition. Workers' Compensation Workers' compensation expense was approximately $3.7 million for the year ended December 31, 2023, versus a net benefit of approximately $1.9 million for the year ended December 31, 2021.
Workers' Compensation Workers' compensation expense was approximately $2.0 million for the year ended December 31, 2024, versus an expense of approximately $3.7 million for the year ended December 31, 2023 a decrease of $1.7 million. This decrease is primarily due to a decreased number of medical claims relative to comparison periods.
Our liquidity position stayed strong in 2023 with Current Assets at December 31, 2023 of $51.5 million staying approximately the same as at December 31, 2022 ($51.9 million). On a year-over-year basis, we saw a 28.1% increase in our system-wide-sales from $472.2 million in 2022 to $605.1 million in 2023.
Our liquidity position stayed strong in 2024 with Current Assets at December 31, 2024 of $49.2 million compared to $51.5 million at December 31, 2023.
The increase in SG&A expenses primarily relates to increased Workers Compensation of $5.6 million, salaries and benefits ($2.6 million), and other costs ($1.6 million) related to the MRI acquisition.
The increase in Other Operating expense primarily relates to a $6.0 million intangible asset and goodwill impairment charge related to MRI partially offset by a $1.2 million decrease in salaries, bonuses and stock based compensation.
Interest and other financing expense increased approximately $1.0 million to $1.4 million in the year ended December 31, 2023 when compared to the $368K for the year ended December 31, 2022. This increase was due, in part, to (i) a one-time write-off of costs associated with our previous line of credit with Truist, and (ii) a higher interest rate environment.
Interest and other financing expense decreased approximately $0.4 million to $1.0 million in the year ended December 31, 2024 when compared to the $1.4 million for the year ended December 31, 2023. This decrease was due primarily to lower average borrowings during the year . In 2024 our average borrowings were $13.3 million versus $16.5 million in 2023.
We also had significant non-cash expenses in 2023, including approximately $1.7 million in stock-based compensation, $2.8 million in depreciation and amortization, and a loss on conversion of acquired operations into franchises of $2.0 million Investing Activities During 2023, net cash used in investing activities was approximately $7.1 million and included cash paid for acquisitions of $9.8 million.
Net cash generated by operating activities for the year included net income of approximately $3.9 million and a change of working capital of $0.9 million as a use of cash which was partially offset by significant non-cash expenses in 2024, including approximately $6.0 million in an intangible asset and goodwill impairment charge, $1.8 million in stock-based compensation, and $2.8 million in depreciation and amortization.
Depreciation and Amortization Depreciation and amortization for the year ended December 31, 2023 was approximately $2.8 million compared to $2.0 million for the year ended December 31, 2022. The increase was due to additional amortization stemming from acquisitions. In the 2022 acquisitions we acq uired $5.6 million of franchise related intangibles, and $3.6 million of other intangibles.
Depreciation and Amortization Depreciation and amortization for the year ended December 31, 2024 was approximately $2.8 million compared to $2.8 million for the year ended December 31, 2023. Other Miscellaneous Income and Expense Other miscellaneous income and expense includes all non-operating income and expense other than interest and taxes.
The following table reflects our system-wide sales broken into its components for the periods indicated (in thousands): Year ended December 31, December 31, 2023 2022 Franchise sales $ 603,365 $ 465,910 Company-owned sales 1,777 6,320 System-wide sales $ 605,142 $ 472,230 System-wide sales were $605.1 million in 2023, an increase of 28.1%, from $472.2 million in 2022.
The following table reflects our system-wide sales broken into its components for the periods indicated (in thousands): Year ended December 31, December 31, 2024 2023 System-wide sales from HireQuest Direct $ 235,278 $ 246,193 System-wide sales from Snelling and HireQuest 155,443 157,404 System-wide sales from DriverQuest and TradeCorp 13,687 5,824 System-wide sales from HireQuest Health 6,033 6,700 System-wide sales from Northbound, MRI, and SearchPath 152,423 187,244 System-wide sales from discontinued operations 759 1,777 System-wide sales $ 563,623 $ 605,142 System-wide sales were $563.6 million in 2024, a decrease of 6.9%, from $605.1 million in 2023.
Removed
This increase was driven primarily by the full year effect of the MRI acquisition in December 2022.
Added
On a year-over-year basis, we saw a 6.9% decrease in our system-wide sales from $605.1 million in 2023 to $563.6 million in 2024 as the overall staffing and recruiting industry softened during the year which particularly affected MRI where system-wide sales decreased 18.6% or $31 million in 2024 when compared to 2023.
Removed
We recorded a 22.4% increase in total revenue from $30.9 million in 2022 to $37.9 million in 2023; however income from operations declined from $16.3 million in 2022 to $10.6 million in 2023 due to higher selling, general & administrative costs driven primarily by (i) a $5.6 million increase in workers compensation expense, (ii) $753 thousand in increased amortization, and (iii) $2.6 million of increased salaries and benefits predominately related to the MRI transaction.
Added
We recorded an 8.7% decrease in total revenue from $37.9 million in 2023 to $34.6 million in 2024.
Removed
Economy and Inflation We do not believe that recent inflation has had a material effect on our Company’s results of operations as inflation generally results in higher rates per hour that can offset any slowdown in organic growth opportunities. This might not be the case if inflation continues to grow.
Added
Fees collected related to our advertising fund decreased by approximately $126 thousand from $515 thousand in 2023 to $389 thousand in 2023 and is related to the decline in MRI system-wide sales.
Removed
A prolonged period of high inflation may also impact our ability to carry out our acquisition strategy. On the other hand, if business conditions deteriorate, it may be easier for us to identify an acquisition candidate.
Added
This increase was primarily driven by a $6.0 million goodwill and intangible asset charge in 2024 associated with MRI partially offset by a $1.2 million decrease in salaries, bonuses and stock based compensation and a $1.7 million reduction in net workers' compensation expense.
Removed
The February 2022 Russian invasion of Ukraine and the resulting economic sanctions imposed by the United States and other countries, along with certain international organizations, have significantly impacted the global economy, including exacerbating inflationary pressures created by COVID-related supply chain disruptions, and given rise to potential global security issues that have adversely affected and may continue to adversely affect international business and economic conditions.
Added
Investing Activities During 2024, net cash generated from investing activities was approximately $44 thousand and included cash proceeds from the conversion of acquired offices into franchisees of approximately $717 thousand and proceeds from payments on notes receivable of approximately $1.6 million. These proceeds were offset by cash paid paid for acquisitions of $1.7 million.
Removed
The ongoing effects of the hostilities and sanctions are no longer limited to Russia and Russian companies and have spilled over to and negatively impacted other regional and global economic markets.
Added
The decrease in system-wide sales is primarily related to a decrease in demand in the staffing and recruiting industry during the year which particularly affected MRI where system-wide sales decreased 18.6% or $31 million in 2024 when compared to 2023.
Removed
In October 2023, the Palestinian militant group Hamas launched an unprecedented assault on Israel, who in turn formally declared war as its soldiers battled Hamas fighters and launched airstrikes on Gaza. This war between Israel and Hamas could spur inflation and hamper global growth if it turns into a wider conflict.
Added
Probability of payment is reflected in the fair value, as is the time value of money.
Removed
Conflicts such as these have resulted in rising energy prices and an even more constrained supply chain, and thus aggravated the inflationary global environment with cost increases affecting labor, fuel, materials, food and services.
Added
During the third quarter of 2024, we completed our annual review of goodwill for potential impairment using a quantitative assessment for all of our reporting units. The fair value of each reporting unit was estimated using a weighting of a discounted cash flow model and values of comparable businesses.
Removed
Franchise Royalties We charge our franchisees a royalty fee on the basis of one of several models. Under the HireQuest Direct model, the royalty fee charged ranges from 6% to 8% of gross billings, depending on volume.
Added
As a result of this review, we concluded that the carrying value of our MRI reporting unit exceeded its estimated fair value resulting in an impairment charge of approximately $4.8 million. The goodwill impairment was primarily attributable to industry and market conditions affecting the overall financial performance of the reporting unit.
Removed
This increase is primarily due to (i) medical claims that were higher than historical claims, (ii) continued increases in medical costs and (iii) 2022 was a one-time benefit from the Snelling acquisition which is explained below. Our workers' compensation reserves provide benefits following a workplace injury.
Added
These industry and market conditions were deemed a triggering event that led us to also review the fair value of certain indefinite-lived intangible assets related to the MRI reporting unit.
Removed
There was also a $0.5 million increase associated with an MRI advertising fund which has an equal amount of service revenue recognized and another $0.5 million related to impairment of a notes receivable. The increase was partially offset by approximately $0.6 million in lower executive bonus accruals for the year ending December 31, 2023.

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