HQI - NASDAQ

Greetings, and welcome to the HireQuest Inc. Second Quarter 2023 Earnings Conference Call. [Operator Instructions]. I will now turn the call over to your host, Mr. John Nesbett, Investor Relations. John, you may begin.

Thank you. I'd 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. I'd like to 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 and 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. These 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 periodic report filed with the Securities and Exchange Commission and the 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 Chief Executive Officer of HireQuest, Rick Hermanns. Go ahead, Rick.

Thank you, everyone, for joining today's call. I'll begin by providing an overview of our financial and strategic highlights from the second quarter and year-to-date. And then I'll turn the call over to David, who will share more details around our second quarter results. Our performance in the second quarter reflects our ability to deliver solid results despite what I can -- what I think can accurately be described as a difficult economic environment. As I have frequently said, we have a unique model for the staffing industry, and the results this quarter reflect the strength of the franchise model. Our franchisees are entrepreneurial and incentivized to run a successful office no matter what the market environment, and we are seeing solid execution across the franchise base. This quarter also includes MRI Network and the over 200 franchise offices we onboarded as part of that acquisition at the end of last year. MRI is a top permanent placement in executive search and professional staffing network based in the United States and one of the largest executive recruiting networks in the world. The addition of MRI allowed us to immediately scale our presence in the Executive Search segment and is further enhanced and strengthened our broader franchise model. In the quarter, our total revenue grew 12.4% to $9 million, and franchise royalties increased 20.5% to $8.7 million compared to $7.2 million in the prior year period. System-wide sales for the quarter increased to $157 million compared to $120 million for the second quarter of 2022. While the majority of the growth in system-wide sales came from the addition of MRI, some of our small array offerings, such as DriverQuest and HireQuest Health, also contributed. I would also like to point out that both our HireQuest Direct and Snelling franchisees held their own despite the soft macro environment, with year-over-year declines of 4.4% and 9.2%, respectively. For the 6 months ended June 30, 2023, total revenue was $18.8 million, an increase of 25.3% compared to $15 million in the prior year period and franchise royalties increased 30.7% to $18 million compared to $13.8 million for the 6 months ended June 30, 2022. SG&A was $5.6 million in the second quarter of 2023, an increase of 74.5% compared to the second quarter of '22. The increase was primarily related to ongoing costs related to the MRI acquisition and increased workers' compensation costs in the second quarter. MRI was a large acquisition for us. As we continue to integrate MRI and drive synergies across our business, we expect to bring expenses down over the balance of the year. In the second quarter, we continued to make progress and excluding the effect of workers' compensation insurance, Q2 SG&A was approximately $4.9 million compared to $5.7 million in Q1. we just want to make sure that we drive synergies thoughtfully and in a sustained fashion. Our positioning continues to improve, with an increasingly diverse mix of staffing options and a strong presence across key geographic areas. As we continue to drive organic growth, integrate acquisitions into our business and drive synergies, we are confident that we will be able to drive growth and improve performance for the long term. With that, I'll pass it along to our CFO, David Burnett, who will provide a closer look at our second quarter results. David?

Thank you, Rick, and good afternoon, everyone. Thank you for joining us today. Expanding on some of the numbers Rick mentioned, let's start with total revenue, which for the second quarter of 2023 was $9 million compared to $8 million for the same quarter last year, an increase of 12.4%. Our total revenue was made up of 2 components: franchise royalties, which is our primary source of revenue, making up approximately 95% of total revenue; and service revenue, which is generated from certain services and interest charge to our franchisees. Other miscellaneous revenue is classified with service revenue. We did not report any revenue from company-owned operations, although at June 30, 2023, we owned one location classified as held for sale and reported below the line as discontinued operations. For continuing operations, franchise royalties for the second quarter were $8.7 million compared to $7.2 million for the same quarter last year, an increase of 20.5%. The MRI Network accounted for $1.9 million of the increase in royalties for the second quarter as royalties from pre-existing locations decreased by approximately $430,000. Underlying the growth in royalties are system-wide sales, which are not part of our revenue but can serve as a key performance indicator. System-wide sales reflect sales in all offices, including those classified as discontinued. It serves as a basis for most of our royalty revenue. System-wide sales for the second quarter were $157 million compared to $120 million for the same period in 2022, an increase of 30.8%. Similar to the growth in royalties, growth in system-wide sales was driven by the addition of MRI Network, which accounted for $43.5 million of the increase, and system-wide sales for the second quarter. Sales from preexisting locations decreased by approximately $6.6 million. Service revenue, which is generated from certain interest charge to our franchisees, service fees and other miscellaneous revenues such as license fees, was $286,000 for the second quarter compared to $779,000 for the same quarter a year ago. Service revenue will fluctuate from quarter-to-quarter based on a number of factors, including changes in the volume and mix of system-wide sales, changes in accounts receivable, insurance renewals and similar dynamics. Selling, general and administrative expenses for the second quarter were $5.6 million compared to $3.2 million in the prior year period. That is an increase of 74.5%. As Rick referenced earlier, the increase was primarily driven by a few large items. 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. Comp and benefits for the second quarter was $3.2 million versus $2.3 million in the prior year period. Since the acquisition, we have absorbed significant personnel costs as we integrate MRI Network into our preexisting operations. We are handling integration in a disciplined manner in hopes of creating an annuity-like payback from cost savings over the foreseeable future. Second, we had an $878,000 swing in workers' compensation expense. For the second quarter in 2023, workers' compensation expense was approximately $690,000 compared to a $188,000 benefit in workers' compensation in the second quarter of 2022. The increase primarily relates to changes in rates that we are unable to immediately pass along to our franchisees. 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. In the past, we have benefited from the runoff of older claims that were acquired in the Snelling acquisition from 2021, but those have now largely been realized. In addition to increased salaries and benefits, we also absorbed other MRI Network SG&A expenses, including marketing, IT, insurance, professional fees and the like. These increases are evident in our SG&A costs for the second quarter and more so in the year-to-date results. As we communicated in our last earnings call, we expect to carry certain transition items and associated expenses well into 2023 to support our expanded operations. The increase in SG&A can be felt in income from operations, which is total revenue plus SG&A, depreciation and amortization. Income from operations was $2.7 million in the second quarter versus $4.3 million in the prior year period, a decrease of 37.4%. Net income includes income from operations adjusted for miscellaneous items, interest, income taxes and discontinued operations. All-in net income for the quarter was $2.0 million or $0.15 per diluted share compared to net income of $4.9 million or $0.36 per diluted share in the second quarter last year. Net income for the second quarter of 2022 includes $1.3 million of gains from the conversion of acquired operations into franchises. Adjusted EBITDA in the second quarter of 2023 was $3.9 million compared to $5.8 million in the second quarter of last year. We believe adjusted EBITDA is a relevant metric for us due to the size of certain noncash operating expenses running through our P&L. A detailed reconciliation of adjusted EBITDA to net income is provided in our 10-Q, which was filed this afternoon. Moving on now to the balance sheet. Our current assets at June 30, 2023, were $57.9 million compared to $51.9 million at December 31, 2022. Current assets as of June 30 included $2 million of cash and $51 million of accounts receivable, while current assets at December 31, 2022 included $3 million of cash and $45.3 million of accounts receivable. Current assets exceeded current liabilities by $17.3 million at June 30 versus year-end when working capital was $15.2 million. The increase in working capital is driven by the increase in accounts receivable, offset partially by a corresponding increase in the credit line. At June 30, we had $16.5 million drawn on our credit facility and another $23.2 million in availability, assuming continued covenant compliance. We believe our credit facility provides us with flexibility and room for short-term working capital needs as well as the capacity to capitalize on potential 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 June 15, 2023 to shareholders of record on June 1. We expect to continue to pay our shareholders 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. To conclude, we are very pleased with our performance this quarter, especially in the face of a more challenging economic environment. Our results are a testament to the innovative franchise or model and the strength of our business initiatives that include synergistic mix of strong organic growth and accretive M&A activity. As always, I would like to thank our employees for their hard work and dedication this quarter. And as CEO of HireQuest, I look forward to continuing to drive operational success and value for our shareholders. With that, we can now open the line to questions. Thank you.

[Operator Instructions]. Your first question is coming from Mike Baker of D.A. Davidson.

Okay. So it sounds like you saw a little bit of organic growth slowdown. I presume that's a function of the slowing employment growth that we've seen over the last couple of months. But is that the right way to think about it? Or is there something else going on? And I guess, if you could help us sort of frame up how we should think about revenues for the third and fourth quarter.

Thanks, Mike. So realistically, our results are somewhat in line with the other companies that have been reported thus far. So for example, PeopleReady was down, I think, 16%. And if you look at from a perm placement standpoint, most of them are running down 25% to 30%. So that gives you an idea of what the sort of the staffing and the recruiting industry is experiencing. In our instance, particularly on the staffing side, we exceeded at least what's been reported thus far by our peers. On the recruiting and perm placement side, we're probably right in the middle of what everybody else is reporting. That said, as I said earlier, let's say, last quarter, the -- our geographic mix is working in our favor as far as on the staffing side. I think that if you look at the overall economy, clearly, there are places where jobs are -- employment is softening and therefore, temporary staffing definitely gets hit with that. Like I said, we're seeing a bit less of an impact because of our heavy exposure in Texas and Florida. I would expect -- I haven't seen anything in this quarter or and really don't see anything coming from the Fed that would get me to believe that we're going to get relief any time before the end of the year. And so I think that -- I don't see that at least from internal growth. I don't see that recovering until the economy begins to recover. And even I remember sitting probably in a call at the end of the year, it's kind of like, look, you can't forecast what the economy is going to do, and we are definitely susceptible to it. But all that being said is, I don't expect our same-store sales to improve any time before the end of the year. I'm not seeing it. But if something happens where the economy does turn, we'll be right with it. But I do, again, want to point out that the, let's say, 6% blended decline we've seen in our existing staffing offices is actually really good comparison to our peers. So I don't know if that answers your question, but hopefully I did.

Yes. No, that definitely helps. And I guess, if I could ask one more, moving down the P&L, we understand, I think, the sticky costs and MRI, which should come down over time, but it might take a while anyway, how should we sort of think about the expense rate in the coming quarters, excluding workers' comp, which I understand is volatile.

So the good news is during the second quarter, we -- mostly through attrition, but basically, we were able to reduce our perm staffing cost by close to $900,000 on an annualized basis. Sort of fitting within that pattern of, again, rationalizing our staff size to the revenues that we have. And even during -- as I pointed out in my reading, there were some other -- in my presentation, there was a number of other costs that went away in the second quarter. And so we're not getting that far off of -- the Q2 still contained -- obviously, a lot of those costs came off during the quarter. And so I would say Q3 might still have a little bit of extra expense from the MRI acquisition, but I would say that the costs from, let's say, a legacy standpoint, will pretty much be -- will have flown through by the end of the quarter. So Q3 should be a fairly reasonable number. Q4, we really should be at where we are. Now that can change based on Fed keeps raising rates, revenues keep softening, we may have to make other unanticipated cuts. But I guess what I'm saying is we are -- we have made a lot of the cuts that we had planned on making. There are still another -- there's a still fair bit of ones that we can make, but they're more in the lines of what I would consider to be investments. Meaning -- and I brought this example up in the last earnings call and I bring it up again, let's just say that franchise sales, as an example. Well, as long as we have new units being sold, we'll keep doing that. We'll keep devoting those resources. But if we get to a point where we start thinking we're fighting the Fed, that's an area where there is still opportunities to reduce costs. But what I'm saying, then is, it's going to be situational. I wish I could tell you SG&A is going to drop another $2 million a year annualized, but it's really going to be based off of what we see in demand. And again, there are still a few cuts to be made, but most of them have been made, they just weren't fully reflected in Q2.

Your next question is coming from Kevin Steinke of Barrington Research.

With regard to the revenue outlook, again, I know it's a fluid environment here. Third quarter, historically, it's been a stronger quarter sequentially versus the second quarter. And I think you've talked about that effect might be muted a bit as well by MRI. But is there any reason to believe that, that historical trend could continue? Or would maybe be disrupted due to the economy? Or -- I don't know if you have any visibility into that at this point.

So that's a great question, Kevin. The reality is that Q3 is generally our best quarter. You're absolutely right. The state of the economy is going to affect whether, let's say, Q3 is better than Q2. It will probably be but will it be, let's say, as good as it's supposed to be? Hard to completely say because even back in April, our comparisons were, let's say, our year-over-year comparisons were probably stronger in early April than what they were, let's say, in late June. And so Q3 may be, let's say, not as pronounced of an increase is what we would normally expect to see if that answers your question.

Yes. No, that's helpful. Good insight. And you mentioned there some of the, I guess, you could call them growth-related costs that you brought on with MRI. You mentioned franchise sales. I think you've talked about training costs in the past. Have you seen -- it's all still early on, but you've seen some of the benefits of retaining those costs thus far? And could the economy impact maybe the returns that you get from those expenses in the near term? I don't know if that -- because of that, maybe you'd be willing to hang on to a little bit longer to see how they benefit you when the economy strengthens, or how are you trying to think about that dynamic?

So there are 3 -- to me, there's 3 types of, I'll say, investments, right? You have some that are like truly, I don't say frivolous. We don't do anything that's frivolous, but are ones that you only do in a really good economy. And when things aren't very good, you get rid of it. All of those we've gotten rid of. There are other ones that the economy can absolutely kill, and you can easily spin them back up once the economy is good. Franchise sales probably fits that one perfectly, right? It's something that if we were to go into a full-on recession, we're not going to sell a lot of franchises. And therefore, it's something that's harder to justify spending a lot of money on. But then you get to a third group of investments, let's say, IT. Those are things that really pay off in the long term. They don't pay off in the short run. And frankly, unless the economy gets to be so bad to the extent that our cash flow is like truly impacted, we're going to probably keep spending that money even if it impacts our earnings in a negative way in the shorter run because, frankly, that's -- that innovation that will keep us sort of ahead of the game, and that's what our strong balance sheet allows us to continue to do. And so we're just really going to be judicious with the cuts we make. I mean it's not an easy environment out there, and yet we're still performing reasonably well. Do I wish we'd be doing better? Of course, I do. And -- but there are certain segments of the economy that are really struggling. I was reading -- it was about maybe 6 weeks ago where like 1/3 of all of the jobs that have been lost in the last, like, 6 months in the United States are in the IT sector. So our -- and I brought this up at our last earnings call, is how much our MRI IT-related franchisees are struggling. And when I read that after that, it's like, well, that makes sense of it. 1/3 of all of the job losses are in one segment, it certainly makes sense why they're struggling. All that being said, I was literally just speaking with somebody before the call, and they're starting to see it improve a little bit. My point is, I'm not going to cut -- unless we were starting to really struggle from a cash flow standpoint, I'm not going to cut things that we're investing that will have a long-term impact on the profitability of the company. But I certainly will cut things that can either be easily respun up or that are -- really should only be being done in a good economy. I don't know if that answers your question really. But the -- we're very -- we're careful in so far as we're not going to spend crazy money in a down economy, but we're also not going to kill our future just to keep the next couple of quarters looking good.

Yes. I would say, absolutely yes. That answers the question. That's great insight. Lastly, I wanted to ask about how you're thinking about acquisitions in the current environment? If this environment might present you with more opportunities as other competitors struggle, maybe more than you are in this environment? And what you're seeing on deal flow and pricing and those sorts of dynamics?

So first, I'll just repeat one thing that I've said numerous times, which is the one advantage of a recession is that it tends to create more opportunities for us and better pricing. And so I will still stick by that in that there are more opportunities right now than what, let's say, there were 6 months ago. Now I'm not sitting there and saying, we're beating people off with the stick who are trying to throw their businesses at us, that's not true. But there are definitely more serious opportunities for us. As far as our attitude towards buying them, is that we are very much in the market to buy for 2 reasons, really. Beyond, let's say, just normal. Strategically, we've been doing it for 5 years now, and we intend to keep doing it. So beyond the fact that it just hits our normal business process. In specific now, obviously, with our current HQD and Snelling business down, layering on an acquisition will be easier. We have probably a bit of slack in our perm staff right now, and so we'd be able to take on an acquisition without adding as much staff as maybe we would have to in the past. We're probably running $30 million to $50 million on an annualized basis behind what we would have been -- what I would have expected prior to the economy slowing down here. And so obviously, if we did a $30 million or $40 million, and we haven't really cut perm payroll as it relates to HQD and -- HireQuest Direct and Snelling yet. And so again, we could easily layer on a $25 million, $30 million acquisition without adding much staff. And so from that perspective, it would be a bit more lucrative than normal, so we're very desirous of finding an acquisition that way. But the other -- but that's got to be tempered with the economy is down a bit, and so we just have to be careful as far as sellers' expectations because obviously, they're going to look back to 2022 and say, that's what the price should be based off of. And we're going to be looking more, well, we're in mid-'23, things are different now, price is a bit different, and so that kind of puts a damper on getting a deal done. But again, I would argue the good point about it, too, is now we know what the run rate is in an economy that isn't amped up by post-COVID demand and things like that. So I think it gives us a fair representation of what we're buying, and it gives us more upside if we -- because we're buying it in the midst of an uncertain economy. So we're bullish on that. And again, our VP of Corporate Development is working diligently lining up prospective acquisitions.

Your next question is coming from Aaron Edelheit of Mindset Capital.

Rick. I wanted to ask you, last quarter, when we talked on the earnings conference call, you kind of alluded to the fact that this is going to be a messy quarter. And when I see the workers' comp kind of increasing and I see the SG&A that you're kind of working through very thoughtfully, and I look out to next quarter. Based on what I'm hearing, and I don't want to get a false expectation about what I'm hearing from you, is we should see a sequential increase, assuming nothing crazy happens, just from seasonal strength in terms of revenue, you have been -- you're working off expenses. And so we should see -- I mean, just a higher revenue and lower expenses, the third quarter should be a much better like EPS quarter. Am I hearing that right? Or is that the right way I should be thinking about maybe this is being the messy trough and -- plus the slowing of the economy?

So I mean, the elephant in the room is the economy itself. So I am cautious in what I say simply because I don't know what the Fed is going to do and how that's going to impact business and -- or for that matter, downgrades of regional banks. Are they going to start really cutting back on lending on commercial projects and things like that. There's a lot of things that could affect what I'm saying right now, so realizing everything that I say can be totally different a week from now. That said, third quarter is our strongest quarter typically, and sequentially, it should be better. As I said in answering one of the questions was if though that it continues to weaken, what we would have gained by a better quarter, we might lose because of a weaker economy. And so I want to leave that open. It certainly shouldn't be from a sales standpoint. It certainly shouldn't be worse than the second quarter. Worst case, it shouldn't be. And as some of the costs that we dropped in the second quarter in the midst of it, we should have the benefit in the third quarter of them being completely out. And so I definitely believe that SG&A will be less with the exception of workers' comp, which is somewhat unpredictable. One of the parts of the workers' comp that has made the comparisons bad, we had benefited from the runoff of some old Snelling claims which were in our -- which was in our presentations in the past. And so part of it, we had some unfavorable comparisons, but those should start going away as well. We've had 3 quarters in a row now where workers' comp has been a drag on earnings and not a positive. Well, sooner or later, that should level off, again, as the benefit that we have from Snelling falls away, and we should benefit from that. There are other expenses beyond personnel that, again, we dropped in the second quarter that should be fully reflected in the third quarter. So yes. I mean from my perspective, things should be better. Now whether -- but I'm not suggesting it's time to break open the champagne either. There are still a lot of clouds out there from the economy, and we're hanging in there really -- I think it's really well especially, again, you just have to look at the comparisons to our peers, and we're holding out very well. But I don't...

That's very helpful.

I don't want to be -- I don't want to be just too celebratory right now either because things outside of our control can happen.

Got you. So the way that I have been thinking about, and I think you just are kind of confirming it, is you took on a big acquisition, you've been really thoughtful about the expense base, about how it can help you grow in the long term. We're having a short-term hit and shareholders from that SG&A. It's going to slowly start running off. Workers' comp has been elevated more than normal. Then on top, you have kind of a slowing economy. But on the positive side, I guess, if I just switch into my next question. And I just want to make sure that I'm, as a long-term shareholder, that I'm viewing things the right way. And I know that you're going to caution me, but I think of HireQuest as building up a stream of cash flows. And you acquired MRI, you kind of use that line of credit, you can now see you paying off that line of credit every quarter, and you have -- your AR is going to peak in Q3. So after it peaks because of just the seasonality, right? You should pay down even more of that line of credit outside of any acquisitions. And at the same time, so it's kind of like you're reloaded for hopefully a very full pipeline. And I just wanted to ask more of it sounds like with the slowing of the economy, what I've always thought of HireQuest is that, yes, short-term results maybe hit a little but it increases the odds of you getting an acquisition. And that you should be able -- you're now in a much, much stronger place because you're just producing cash flow to basically go out and reload. And I wanted to ask specifically about kind of the bid-ask of acquisitions is that in terms of what sellers are asking and what you may want to acquire, do you feel it's closer now than it was in the past? And just a little more details about do you -- how do you feel about another kind of acquisition before year-end?

So there's a lot in that. There was a lot in that. It's fine. Let me go back to the first part of it. As far as your long-term summation is very close to how I would view it as well. We're out there trying to grow as much as we can organically, but in the meantime, we're also being aggressive in making accretive acquisitions. And good times, bad times, we're still ultimately building up that revenue stream, right? So we're going to be lumpy as all get out because we keep doing acquisitions. And it's not like we're sitting there and letting everything sink in for 1.5 years and then -- before we move on to the next one, and so that absolutely is existing. The other part I want to make sure because I don't know if I've properly conveyed this. The MRI -- as much as we talk about the MRI expenses, I don't want you to think that the MRI deal has done poorly for us. In spite of the fact that it has been more negatively impacted by the recession, or at least recessionary factors, than HireQuest Direct and Snelling, frankly, it's still been a profitable acquisition for us. Despite even carrying some of the extra costs that we are now, we are -- it has been an accretive acquisition. So I just want to make sure that anybody who's listening understands that it has been a -- it has worked. Obviously, to the extent that its sales and revenues are down limits the upside that we would otherwise have been experiencing. But frankly, it has panned out the way -- maybe not the way it's supposed to because of the economy, but it has actually panned out well for shareholders, reasonably well given what the economy is. And that's obviously one of those things that once the economy straightens back out, that should increase even more. Now as far as the second part of your question, one of the -- as far as like bid-ask and things like that, there are kind of several ways that we can benefit as a buyer from this. One thing is a -- and I keep sort of saying recession, but we're really -- we're in recessions in certain places and in other places, we're not. At least, it's in my way of looking at it. And I brought this up in the last quarter, for example, Florida, Texas, there's no way to look at it as being in a recession. They're performing very well, at least on the HireQuest Direct and the Snelling side, and so it's hard for me to sit there and say recession because it doesn't really apply in a lot of the markets that we're in. But to the extent that it does in other markets, it creates distress in some of the companies, and it will absolutely bring the price down some. And obviously, one of the biggest ways that we can ultimately benefit, we only hit these in one out of -- maybe one out of five acquisitions, but like it's something like the Snelling acquisition. We had a book of $5.6 million bargain purchase agreement, and we probably made another few million bucks on running off their workers' comp. So I mean that deal, literally, we almost got it for free when push comes to shove. And so we're obviously, hopefully going to be the beneficiary of somebody who overextended themselves, and we're going to be able to sort of find them right at the right time. That being said, we don't have to do that either. If we just find a good company at a fair price, that works out okay for us as well. The tricky part for us is simply -- it has to fit our geography, it has to fit sort of where our network is. And the seller, a lot of times -- and we have a whole laundry list of things that we look for, and so we are pretty choosy. But an uncertain economy makes it so that a lot of people are more willing to sell because they want to grab what they have. And maybe for the last 3 years, they've been making a lot of extra money, and they see it starting to decline and they're more anxious to sell, and then we have an easier time getting to the right price. But all that being said, the deals have been there for the last -- available for the last 4 years. And so I'm not trying to say either that we have 5x as many deals available to us now than what we did a year ago. But we do -- but there is -- there are more, I will say that. And we are -- we have the exact same attitude. And I want to say one last point. You brought up the point as far as our borrowings and stuff like that, and it's absolutely accurate as well that for most of the year, our borrowings have been heavier than what they have historically been, but those borrowings keep coming down. And a year ago, we're borrowing at something like 3.25% or something like that. And so -- and a much smaller borrowings. But now we're borrowing at 6.5%, 7%, whatever it is, on a much higher amount, and so that has impacted our earnings as well. Even if no decent acquisitions come about, that money keeps -- that money keeps rolling in and we will benefit from some -- I think our interest expense for the quarter was up $700,000 or something like that, which makes a difference, too. And if we do nothing at the rate we're going, it will be paid off in 3, 4 quarters and that will go away, and that will be added income that way. Of course, I would expect an acquisition before then. I'm not saying there's one now, but I'm saying that I would certainly expect one because we've done most of the work that we've needed to do on MRI, and so we're in a position where operationally, we can absolutely do an acquisition. It's just a question of coming to the right buyer and the right price -- the right seller, I'm sorry, and the right price.

[Operator Instructions]. Your next question is coming from Mike Albanese of EF Hutton.

Rick. Lot of great insight on the call as usual. I just got a quick one for you, kind of returning back to the macro, I guess. Obviously, demand is softening, but can you just tell me what you're seeing generally speaking regarding wages?

So wages have continued to go up. Part of it is in many of the states that we operate in have minimum wage escalators. And while we don't typically pay minimum wage, it definitely impacts, particularly in the HireQuest Direct and the Snelling divisions, it impacts, even people who are making more than minimum wage. And so there has definitely been a fair bit of pressure on wages, again, just simply because legally, the minimum wage keeps going up.

Got it. Would you say, I mean, just relative -- or comparing to the growth you've seen in wages over the previous quarters, is it decelerating? Is it accelerating? Or it's just kind of the same trend continuing?

I would say there's still a lot of pressure upwards.

Okay.

Maybe not. Now that said, it's certainly not the second quarter of 2021, in particular. There was a lot of upwards pressure then. I'm not suggesting that it's like that either. But again, there is just a constant -- there really is a constant shortage. Look, I was on -- I was flying through Minneapolis the other day. And you got a restaurant in the middle of the airport, it was closed until 2:00 because they didn't have enough people.

We have now reached the end of our question-and-answer session, and I will now turn the call back over to the management for closing comments.

Well, thank you, everybody, for joining us on the call. We obviously wish the economy was a bit stronger and we would have had a bit better results. That said, I think, again, when you look at our results compared to our peers and you factor in the workers' comp obstacles we've had, I think you'd agree that we have performed pretty well given the circumstances. And as we try to convey every time as well, we're focused on the long term and our results will be lumpy throughout. But that's why we retain a conservative balance sheet, so that we have opportunities -- that we're able to jump on opportunities. And so again, I thank you for your time and your interest, and we look forward to the future. Thank you, and have a good night.