HQI - NASDAQ

Good afternoon everybody. And welcome to the HireQuest Incorporated First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to your host, John Nesbett, Investor Relations. John, over to you.

Thank you. And good afternoon. I would like to welcome everyone to the call. Hosting the call today are HireQuest’s Chief Executive Officer, Rick Hermanns; and Chief Financial Officer, David Burnett. Let’s 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 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements in terms, such as anticipate, expect, intend, may, will, should, or other comparable terms involve risks 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 HireQuest 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 Securities And Exchange Commission 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. I would now like to turn the call over to the CEO of HireQuest, Rick Hermanns. Go ahead Rick.

Thank you for joining us for today’s call. To begin with I will provide an overview of the financial and strategic highlights for the quarter. And then David will share more details surrounding our first quarter results. Our first quarter results were driven by strong performance at our organic locations in the integration of strategic, accretive acquisitions into our business. Total revenue grew 40% to $9.9 million with franchise royalties increasing 41.8% to $9.3 million. System-wide sales for the quarter increased to $153.5 million compared to $101 million in the first quarter of 2022. And net income from continuing operations increased 372.1% to $2.3 million or $0.17 per diluted share. Last quarter, we announced that we had completed our acquisition of MRI Network, a top permanent placement and executive search firm and professional staffing network based in the United States and the third largest executive recruiting network in the world. This was a transformative acquisition for us, adding over 200 franchise offices both in the United States and international to our staffing network. Excuse me. Our acquisition of MRI Network is a perfect example of our broader M&A strategy. We are intently focused on identifying, evaluating, and executing accretive acquisitions that we believe will further enhance the organic growth of our business. MRI Network allows us to add immediate scale in a brand new service focused on the executive search and professional staffing market. And in a way that supports our existing HireQuest Direct and Snelling offerings. As is the case with any acquisition we also encourage certain expenses related to our purchase of MRI Network that are reflected in this quarter’s results, particularly in our SG&A. These are near term, one-off expenses that we planned for as part of the acquisition and we expect them to have – expect them largely phased out by the end of the third quarter. We will note here that certain expenses related to MRI have been a bit more difficult to eliminate as quickly as we would have wished. That said, we are pleased with the progress we’ve made this quarter, particularly our ability to efficiently integrate large acquisitions into our business to have a near term – near, immediate positive impact on our results. This is especially true in the current economic environment where many staffing companies have been reporting declining revenues year-over-year for their U.S. and North American businesses. With the first quarter now closed and a little more visibility into 2023, I’m confident that we are well positioned to continue driving our growth strategy to deliver consistent, improved results as we move through the balance of the year. With that, I will pass it along to our CFO, David Burnett, who will provide a closer look at our first quarter results. David?

Thank you, Rick. Good afternoon everyone. Thanks for joining us today. Expanding on some of the numbers Rick mentioned, let’s start with total revenue, which for the first quarter of 2023 was $9.9 million compared to $7.0 million for the same quarter last year, an increase of 40%. Our total revenue is made up of two components, franchise royalties, which is our primary source of revenue; and service revenue, which is generated from certain services and interest charge to our franchisees and other miscellaneous revenue. On occasion, we will report a third component, company-owned revenue, which would be related to company-owned locations that are not marketed as a potential franchise and are managed by us instead of a franchisee. At March 31, 2023, we owned one location but it did not meet this criteria and instead is classified as held for sale and reported below the line as discontinued operations. Those operations are not included in the revenue I just mentioned, but it is important to keep in mind that we are still benefiting from this location and once it is franchised out, we will retain a royalty stream. For continuing operations, franchise royalties for the quarter were $9.3 million compared to $6.6 million for the same quarter last year, an increase of 41.8%. Almost all of the increase in royalties relates to acquisitions. Although organic sales grew modestly, we are proud to be able to maintain organic sales in an uncertain and declining market. Underlying the growth in royalties are system-wide sales, which for the quarter were $153.5 million compared to $101 million for the same period in 2022. System-wide sales reflect sales at all offices including those classified as discontinued. Similar to the growth in royalties, growth in system-wide sales is primarily related to acquisitions completed in 2022, but unlike many of our competitors, we did not lose organic sales year-over-year. Service revenue, which is generated from interest charged to our franchisees on overdue accounts receivable, service fees and other miscellaneous revenues such as license fees was $534,000 for the quarter compared to $468,000 for the same quarter a year ago. Changes in service revenue are generally related to growth in system-wide sales and the resulting increase in accounts receivable. Selling, general and administrative expenses for the quarter were $5.8 million compared to $2.7 million in the prior year period that is an increase of 120.1%. The increase was primarily driven by two large items. First, we had a tough comparable for our workers’ compensation expense. For the first quarter in 2023 workers’ compensation expense was approximately $185,000 compared to a $613,000 benefit in network of compensation expense in the first quarter of 2022. That is a $798,000 swing in worker’s compensation expense from Q1 2022 to Q1 2023. This benefit in the prior year included a $365,000 reductions related to the Snelling workers’ compensation reserves assumed at the time of acquisition that have been winding down. There was no such adjustment in 2023. Generally, workers’ compensation expense will fluctuate quarter-to-quarter based on the mix of worker classifications, the level of payroll and claims resolution both recent and historical. The predominant item driving the increase in SG&A is compensation and benefits. Compensation related expenses have always been the largest component of SG&A. There was a $1.6 million increase in compensation related expenses from Q1 2022 to Q1 2023. When we acquired MRINetwork in December 2022, we took on over 30 new corporate employees. During the first quarter we have absorbed significant costs as we integrate MRINetwork into our operations. We are handling the integration in a disciplined manner in the hopes of creating an annuity like payback from cost savings for the foreseeable future. Because high costs often creep back in over the near term, it is critical for us to be patient and secure cost synergies that will hold for several years. In addition to increased salaries and benefits, we have also absorbed other MRINetwork SG&A expenses including marketing, IT, insurance, professional fees, and the like. As we communicated in our last earnings call we expect to carry certain transition items and associated expenses through at least the first half of this year and into the third quarter. The increase in SG&A can be felt in income from operations, which is total revenue less SG&A, depreciation and amortization. Income from operations was $3.3 million in the first three months of 2023 versus $3.9 million in the first three months of 2022, a decrease of 14.7%. Net income includes income from operations adjusted for miscellaneous items, interest, income taxes and discontinued operations. Interest in financing expense included a $318,000 loss on debt extinguishment related to the refinance of our line of credit. This was largely offset by a $340,000 gain on the conversion of our Dental Power business into a franchise, which is reflected net of tax in discontinued operations. Net income for the first quarter of 2022 included $3.6 million of losses resulting from the conversion of acquired operations into franchises. All in net income for the quarter was $2.6 million or $0.19 per diluted share compared to net income of $603,000 or $0.04 per diluted share in the first quarter last year. Adjusted EBITDA in the first quarter of 2023 was $4.6 million compared to $5.3 million in the first quarter of 2022. We believe adjusted EBITDA is a relevant metric for us due to the size of non-cash operating expenses running through our P&L. A detailed reconciliation of adjusted EBITDA-to-net income is provided in our 10-Q. Moving on now to the balance sheet. Our current assets at March 31, 2023 were $59.6 million compared to $51.9 million at December 31, 2022. Current assets as of March 31st included $8.2 million of cash and 41, excuse me, $48.1 million of accounts receivable. While current assets at December 31, 2023 included $3 million of cash and $45.3 million of accounts receivable. The elevated cash balance reflects some cash management inefficiencies as we change banks from Truist to Bank of America. Current assets exceeded current liabilities by $14.7 million at March 31 versus year-end when working capital was $15.2 million. The decrease in working capital reflects a larger balance on the credit line following the acquisition of MRINetwork. At year end we had 21.2, I’m sorry, at quarter end we had $21.2 million drawn on our credit facility and another $19.1 million in availability, assuming continued covenant compliance. As I’ve referenced a couple times in February of 2023, we replaced a line of credit facility at Truist Bank, plus a term loan we had at Truist Bank with a new $50 million line of credit from Bank of America. We believe that this new facility provides us with the flexibility and room for short-term working capital needs, as well as the capacity to capitalize on potential future acquisitions. We have paid a regular quarterly dividend since the third quarter of 2020. Continuing that pattern, we paid a $0.06 per common share dividend on March 15, 2023 to shareholders of record as of March 1st. 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.

Thanks David. As I said before, I am confident in HireQuest’s ability to drive sustainable growth across our business and generate positive operational results in 2023 and beyond. As I – as always, I would like to extend my sincerest thanks to our team, our franchisees, their workers for their excellent work and dedication. I’m very encouraged by the progress that we’ve made in expanding our franchising network and offerings to address a broad spectrum of staffing needs, and I look forward to leveraging our network to drive growth and value for our shareholders. With that we’ll now open the line for questions. Thank you.

Thank you very much. [Operator Instructions] Okay. Your first question is coming from Kevin Steinke of Barrington. Kevin, your line is live.

Hey. Kevin Steinke with Barrington Research. So yes, I’m wanted to start off, I guess by asking about organic sales growth. You noted they grew modestly while other competitors were and maybe reporting declines. What’s your feel for organic growth outlook as we continue to progress through 2023 in terms of the pipeline and overall demand? Is that softening and what’s labor supply availability, just any comments on that as we move forward in the year?

Sure. So we are definitely seeing a continued slight slowing in demand. It’s noticeable without being appreciable, if that makes – if that makes any sense. We’re definitely – you can see it, the – as far as throughout the year, obviously, look it depends on if the Fed keeps increasing interest rates that may accelerate even further. As far as workforce supply, it’s definitely based on industry, and that’s even true of the declines, oddly enough is that there are anything that’s touches upon tech and that’s particularly true, let’s say with the MRINetwork is, there’s – it’s a full on recession for those offices that focus on IT, at least in our experience as far as – and there are certain geographic regions as well that are definitely performing poor. Whereas, frankly and probably why we are outperforming, let’s say from an organic standpoint why we’re outperforming our competition is we’re heavy in Texas, Georgia, Florida, South Carolina states that have not been nearly as negatively impacted as certain others. And where we are experiencing the most softening are in certain, again are in certain states.

Okay. That’s a helpful commentary. Yes, just in terms of the cost items related to the MRI and you mentioned that maybe some of the costs are rolling off a little more slowly than you might have hoped. And so you also talked about the compensation and benefits increase of $1.6 million, I believe you said related to MRI. So can you just maybe talk about a little bit more what’s maybe taken a little longer there? And did you actually, or have you achieved all the synergies out of the gate from MRI that, that you would’ve thought of or is there still more to come or I guess there coming more slowly?

So that’s right there. Right there’s your finger on maybe why they’re going down a bit slower than hoped for is some of the synergies have been slower. And what I want to caution really anybody who’s listening as far as who’s an investor is, this is a marathon and we in buying MRI, we took over a company that has in let’s say system-wide sales more than 50% of what we had. So this is - this was a very significant acquisition. And while in my optimism, I had maybe hoped that we were going to be able to digest it faster than let’s say, than what it’s turned out to be. So some of the expenses are sticking around a little bit longer because we want to make sure we do gather all of those efficient – all the synergies that we really know that in the long run we’ll have. And so, like I said is it taking a little bit longer? Yes. And that’s why I’ll own it. Is that earlier – we’re really, I had been hoping and thinking that by the end of the second quarter all the expenses would be gone. They’ll definitely drag a bit into the – into the third quarter. But this is where obviously, I mean, I’ve only been the CEO of sort of the public company since middle of 2019. Hopefully, I’ve developed a track record of where I’m not going to try to overpromise anything and I certainly did it prior to that when we were private company. And so it’s like this – this – I know when we’re overstaffed, I know when we’re over – when we’re overspending on something. On the other hand, we bought MRI with some very, very specific goals in mind. And yes, it’s taking a little more patience, of course, again, we’re still only five months into this thing, right, you know 5.5 months, so it’s not like we’ve been screwing around with this for years. But there are just certain things that we absolutely know will generate those, again, those synergies. But ultimately I know where we need to be to have this be a good investment and we’ll ultimately get – we’ll ultimately get to the point we need to get to. But – and I want to use a concrete example. Let’s say franchise sales, and I think even you asked the question back in maybe it was September of last year, or like third quarter last year, maybe before that. We had never up until the end – the latter half of 2022, we meaning HireQuest had never actually had a franchise sales program. We never had a franchise salesperson, never hired brokers, never did anything, it was all purely organic. And we started with like a part-time salesperson at the end of last year. And even that was by part-time it was probably not even the half-time of a person. Well, now through the MRI acquisition we had two salespeople, now, real franchise salespeople. Now, realistically there’s – it’s easy to demonstrate and measure whether they’re successful or not. And those are things where – but it requires patience where we can’t expect that all of a sudden on day one we’re going to be cranking – we’re going to be cranking out four new franchises a month. It just doesn’t work that way. That being said, we can certainly, again measure what’s coming in or what’s being produced and if – if it’s insufficient there’s all sorts of opportunities to just to go back to the way we were. So I guess, again what I’m really saying to you, and I’m saying to anybody who’s listening is we’re well aware of where we need to be and we’re well aware of what – what our costs realistically need to be at. But we’re also interested in what happens to the company three years from now and five years from now far more than we are interested in what happens over the next three months.

Great. That’s helpful commentary. And that makes sense, obviously with an acquisition of this size to take the time to get it right even if maybe it takes a little bit longer. So completely understood there. So maybe just lastly here you, you enumerated a number of costs in the press release and your comments here, and I think you said some of those coming off by the third quarter or maybe by the end of the third quarter. What cost should we think about rolling off their, you mentioned IT expenses and license fees, third-party services for contract staffing, obviously the salary and benefits costs and advertising marketing. So just wondering what kind of should be coming out as we get to that third quarter timeframe?

Yes. So let me – let me make sure I clarify that statement and I’ll go back to my, because part of it isn’t – it’s not necessarily just reducing costs, it’s making sure that the costs are in line with what the revenues are. So I want to – I’ll go back to the franchise salespeople. I’d hire 50 more franchise salespeople if they were producing enough new franchises to justify the cost, right? So I’m not saying to you that, well we’re going to get rid of it because that’ll reduce our cost so that our SG&A goes down. That’s not really the point. The point is more, we’re going to make sure that we’re selling enough franchisees to justify what is a fairly heavy investment. Now, some instance, and so that’s important to note. I mean, and again it’s sort of like we took on over 220 new franchises. Well, we want to make sure that they understand that we’re committed to their success and to giving them good service, but it still ultimately has to flow through that, those costs are in line with what the revenues are. Now as far as some other costs that that are identified to go away like there are certain software’s where we’re running – we have two different copies of, let’s say, of our accounting software. Well, it takes a while – their software – what theirs was and ours was, those have to be integrated even though they’re two copies of the exact same software. It’s just frankly things like those, that’s a good example. The other part is we had a holdover of their Chief Financial Officer, there meaning MRINetwork CFO, well, okay, he left in the middle of April, so that – that’s an expense that rolls – what I’m saying that’s an expense that rolled off already that will then be partially captured in the second quarter and obviously will be completely gone in the third quarter. And I do want to draw out two other points. I don’t want to just have it be buried as well. One is, keep in mind our effective tax rate. Just the effect of a higher effective tax rate was about $170,000 of net income. Not that that changes a lot, but it’s still kind of one of those things. Obviously we get no benefit from paying taxes other than – other than it keeps us alive as a company, but it’s – there’s no, relatively speaking we paid a lot higher tax rate. And it’s described why, but that the point is, it does make the comparison not look as good as what, what I’d prefer. And the other part is with the worker’s comp. That worker’s comp swing of $800 was frankly not expected, but it’s obviously had a major impact. But going back to your other point is, is that there are, like I said, certain software’s that the contract will come out – will be coming up that both HireQuest and MRINetwork might be using some form of let’s say – well, where we store our data. Their software or their data storage is in a completely separate than how we store ours. Well, obviously that’s just not cost effective, but that takes three months, six months, nine months before that stuff goes away. And so anyway, there’s just, if there are just certain things that we had hoped we could have gotten through faster than what we did and are – and part of it is, and again it’s why I still want to go back to like why we’re focusing – we’re focusing on three to five years not three to five months, is we spent a lot of time these last five months really working on relationships within the franchise community. Because really ultimately what we bought, and I want to make sure this is made completely clear, as we bought a series of 220 relationships. And how well we do with this deal in the long run is going to be based on how well we do with building relationships with those 220 franchises. Because kind of a funny thing is if you look at, I don’t know exactly what the data is but if you went and looked for it, it probably – franchise acquisition costs are probably at least $50,000 per franchise. And so if you looked at the value of MRI just off of that, just to replace it to get to 220 franchises we’d probably have to pay $11 million with zero historical revenue. And so I want to keep that in perspective is again, we’re focused on those relationships as well because that’s where the synergies will ultimately come from as they get comfortable with us. And so, like I said, we’re being patient, we’re being patient, we’re trying to invest in the system in a way that benefits all of our franchises. And but again we’re also well aware that ultimately everything needs to be cost effective. And I’ve been in business for 33 years and that’s never been a problem for me to make sure that ultimately we’re in that position.

Okay. Well thanks for all the insight. That was helpful. I will turn it over.

Thank you, Kevin.

Thank you. Thank you very much. Your next question is coming from Matthew Hayes from D.A. Davidson. Matthew, your line is life.

Hi, thank you for taking my question. Weekly jobless claims just came in at $264,000 hitting a 1.5 year high last week. Could you comment on how this development impacts your business?

I think that where it affects us most is it’s an indicator that demand is softening. It’s just another indicator. It hasn’t really impacted us from a job fill standpoint, other than what I would say is, is clients are being a bit more selective. A year ago, a year-and-a-half ago many clients would were desperate enough that they would, that – that they were less choosy than what they are now. Now they’re back to a more normal way of being choosy. So that’s one aspect of it, and as I said before in response to one of Kevin’s questions, there are certain industries and areas that are – that 260 – I would love to be able to see the detail that 264,000 new jobless – 264,000 new jobless claims. My guess is, is that they fall in probably very much in certain industries and not necessarily overall. So I don’t know if that answers your question, but I would just say that, like I said, it – but anytime you start seeing that and as if the jobless rate starts going up, clearly that’s what’s driving that softness. That’s why some of our competition were showing revenue declines of 14%, 15%, 16%. And then that would tend to accelerate that higher jobless claims, obviously.

That makes sense. And a follow up for you, Rick, you’ve built this business from scratch, and it seems like a real differentiator to this story is your deep understanding of both the franchise staffing model and incentivizing entrepreneurs from having been in this business for over 30 years. I guess my question is, how much longer do you plan on running the business?

You know what, I have no – I pretty much – I work out five days a week, even though I’m fat. I still work out five days a week. I feel great. So I have no – I have no intention of going anywhere.

Great. I’ll jump back into queue.

Thank you very much. Your next question is coming from Mike Albanese of EF Hutton. Mike, your line is live.

Rick, David, how are you guys?

David, how are you?

Good, Mike.

Yes. First off, glad to hear that you have no intentions of I guess, leaving, continuing to build upon your previous successes here at HireQuest. You pretty much answered my question in your responses to Kevin, but I’d like to just go back to his original question and maybe I can – we can dig into it just a little bit deeper. And the question is as it relates to the divergence in organic growth rate between you and your competitors, and I’m wondering if you get the sense at all that you are stealing market share from them, and what that could be attributable to is it the difference in business model or is it just simply kind of what you alluded to, which is just your exposure to different end markets and different geographies? I’m really just wondering if there’s more under the hood there.

I would love to sit there and say, we’re just so much freaking better than everybody else, that we’re just crushing them. Right? And that’s why honestly though, if I said that I’d be lying. I mean, I do think generically we are better, right? I mean, I’d say that to any client because of our model, right? I would always take a franchisee on average over a corporate run store every time, right? So I believe in that. That being said, though, that has been baked into our numbers for literally decades. So I can’t really claim that as why we did so much, let’s say better from a revenue standpoint this quarter. I think it’s a hundred percent just based on where we are. And because even within our own numbers, there are a couple of places where we are off, and fortunately those are in places where we have – those tend to be in places where we have less exposure. And look, I live in Florida. You would never confuse this place with someplace that’s in a recession. It’s booming. House prices are up, everything is up. Fortunately, like I said, we are heavy in Texas and Texas, Florida, Georgia, South Carolina, Tennessee. So, I just think that is really what it is. And so call that strategy, call it dumb luck it is just a fact.

Yes. No, I mean, well said. That’s fair. I think I like to give you a little more credit than it’s just dumb luck, right? I mean, it’s…

I understand that.

[Indiscernible] by design. But my general thought is I wonder if the softening labor market and the weakening demand is really exposing a better business model. And if that’s starting to show on the numbers. And yes, I know it’s hard to kind of dissect that. So, I was just curious as to what your thoughts on that were.

Even in the places where we’re way down, right, like there’s one particular market I’m thinking we’re way down. Well, it’s related to one single client. And – they have had a big slowdown and they consolidated their operations. Well, there’s nothing we could do. There’s literally nothing we could do about that. Now if we were in certain other states – we’re in certain other states where, it’s just – it’s softer. You can tell, I mean, you can see it probably even where you look at real estate prices and it’s almost a harbinger for us as well. I will say, for a thought going forward is obviously if interest rate increases, ultimately choke off commercial real estate demand. That’s sort of the longer term where it starts to create broad-based problems.

Yes, that makes sense. Okay. Thank you very much. That’s really all I got for you today.

All right,

Thank you very much. Your next question is coming from Aaron Edelheit of Mindset Capital. Aaron, your line is live.

Thank you. Just for the record, Rick, you’re not allowed to leave HireQuest. That’s a new shareholder rule we’re implementing. I don’t know if you know about it.

Thank you for that.

I just want to say in all seriousness, I really appreciate the candor. I really appreciate you just sharing open and not glossing over any of the tougher things that you go through. I really appreciate it. My question, just to clarify, and I really appreciate all the detail that you’ve shared and your commentary in answering the questions. It sounds like you believe the synergies are still there, it just may be an extra quarter, and that when we’re looking in Q4, obviously no one can control or no one look, if I could predict where the economy was going, I – I’d be sitting on a beat somewhere. But absent that by Q4, things should be normalized to where you want them to be. Is that an accurate assessment?

No, I would say that’s actually somewhat inaccurate, but maybe not in the way that you think. I would’ve never…

Okay.

I never went in– we never went in thinking that we were going to get all these synergies in the first quarter or the second quarter. A lot of these are literally, these are three- to five-year propositions in a lot of cases. For example, utilizing MRI has a great training program. Well, we’re co-opting that into also working with our Snelling branches, for example. Now what’s the payoff on that, right? In the current quarters, it’s nothing really, right? It’s something that happens over time. And so I don’t expect to get a benefit from that for two, three years, frankly. Now, there are other things, there are other synergies in particular where I think that both the MRI network and HireQuest Direct, Snelling, all three frequently sell to the exact same companies, but maybe different areas within those companies. Those synergies have been slower to develop than what I had really thought. And that those are the ones that definitely should be blooming by the third and fourth quarter. But that’s taken a little bit longer than what it is. That would be a faster one. And again, some of the synergies on just how we deliver our services. So whether that’s handling accounting and things like that, there are still synergies that – we just have to plough through it and already they started, but they need to – but they have more to go.

Yes. When you – those costs that you specifically highlighted it’s like $700,000, $800,000 out outside of the worker’s comp, which I understand fluctuates up and down. I just want to clarify so that I fully understand, are those some of the costs, are those all of the costs, are there even more synergies that you fully expect? Like how should I think about those specific extra costs that you highlighted in the press release versus kind of the – in terms of a more normalized where things should be Q4?

So I’m a builder, not a burner, right? We didn’t buy MRI network. You know what I’m saying? To strip out whatever we could and then just, you know what I’m saying, and just feed off of a corpse.

Yes.

That makes no sense. There would be no purposes in us doing that. Rather we looked at MRI network as being something that would be accretive to what we do, it would expand, it does expand our product offerings to a far broader segment of the overall staffing industry. It also brought in 220 franchisees, many of which have – certainly have the talent to do more than what they’re doing. And so by bringing those resources, it is absolutely our intention, and goal and expectation that – that there are – again, within that group of 220 MRI franchises, there are a fairly good sized number that, you know what I’m saying, that we can help them double or triple their business. That’s how we’re going into. That’s that requires – and so I’m not saying, because I wouldn’t carry, I want to make sure I’m clear. Unless it was something along the lines of, hey, we only have one person who knows how to run this software and we better not get rid of them even though they – even though they are in a terrible expensive employee, there’s nobody I want to. There’s, nobody and I tried to – and I may have done a bad job with it when I was answering Kevin’s question. It’s not my goal to – you know what I’m saying, it’s not my goal to cut anything. My – our goal would be that those synergies would develop, those incremental amounts of business would develop that those costs are just in line with what they, you know what I’m saying, with what they need to be. And I go back to the – I don’t want to beat a dead horse, but the franchise sales again becomes, it’s very easily to demonstrate whether it’s been successful or not. And we’ve got a pretty heavy investment in it now. I believe it will make a lot of sense. And we’ve started to – we’ve got some green shoots that have started. I think we’ve opened – I don’t know in the first through May, I don’t know there has been – I think we got anyway, like four or five, something I don’t quote on. But they’re starting to come, right? So it’s kind of like, okay. And then that justifies it. As it does, those results even as you sell a new franchise, you don’t really get Jack when you sell one of those. It’s over time that that starts becoming worthwhile. So that was a really long way of answering your question, but it’s just simply the – I would not look at the synergies as just, hey, let’s just gut what we can. It’s not that at all. It’s making sure that we use what we have to absolutely optimize what we’re doing.

So, if I were to summarize what I heard, this is really about – this acquisition is really about growth. When I just take some of the examples, you have people who will sell franchises for the first time, you have training programs, you have bought in new franchises who have the opportunity to expand what they’re doing with HireQuest offerings, and that by next year it should be really clear that organically from the combined HireQuest MRI, that HireQuest is growing organically. And if you’re not, then you’ll pull back on some of these investments. Is that a right way to think about it?

Yes. No, that’s – that is exactly, you are spot on.

Okay, so speaking of growth, I would be remiss to you have an expanded credit line, you’ve been a track record…

It’s not – it’s actually, it’s reduced by the way, it’s reduced.

Oh, okay. Well I guess I’m more flexible. But what does your pipeline look like? And I’m keenly interested because if my understanding is correct, the economy does weaken from here, you don’t have as great account, as account receivable demand, which means your cash balance goes up, you pay down your credit line along with just your normal free cash flow puts you in even a better position to acquire more companies like MRI. What does your pipeline look like? And how do you think about where you are balance sheet wise towards taking advantage if you see another great opportunity like MRI?

So as far as on the pipeline, my answer’s the same as what it is almost every quarter, which is we have more than enough targets. I will fully admit we’re being choosy because you are buying off of 2022 multiples or earnings rather versus maybe what’s really going on now. So, we’re being careful, because we need to see some people experience a little bit of pain, that’s when we’ll probably be more aggressive. You are right in saying that, obviously to the extent that our revenues go down, it also drives down our AR, which then, of course, drives down our borrowings. Based on ordinary earnings and cash flow, obviously, I would like to think of it as though we will have a relatively notwithstanding any future acquisitions in the near term, that our line of credit will move down relatively quickly. And so the resources we have generally are adequate, even as it is. And again, I would expect our line to drop fairly consistently and yet significantly over the next three to four quarters, realizing as well and it was in the press release, I think, but it’s – we’re really inefficient right now as far as on our cash position is. I think even at the end of the quarter; we were sitting at like $8 million in cash versus let’s say $3 million at the end of the year. So our borrowings were really inflated by at least on [indiscernible] $5 million versus what they probably normally should have been. Point being that, because that was kind of just, now we’ve, anyway, they had clients paying into old lockbox instead of the new lockbox. So anyway, like I said, it’s just harder to keep the cash balances as low as we would normally like to. All that being said is that, I don’t see any actual lack of resources unless we were able to bag a whale.

Thank you very much and keep up the great work.

Thank you.

Thank you very much. There appears to be no further questions in the queue. I’m going to hand back over to management for any closing remarks.

Well, I want to thank everybody for listening in. I hope that you will agree that the quarter was momentous in that again, we took on an entity that represented almost 50% of what HireQuest was previously, and that there are a lot of opportunities out there that we are working towards. Admittedly little – the opportunities are in some ways bigger and therefore the investments are bigger. But anyway, I do want to thank you for joining us. And look forward to continuing the success as we go through 2023. Thank you very much.