Good afternoon, ladies and gentlemen, and welcome to the HireQuest Third Quarter 2021 Earnings Call. At this time, all participants have been placed on a listen-only mode and the floor will be opened for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Brett Maas. Sir, the floor is yours..
Thank you, operator. I would like to welcome everybody to the call. Hosting the call today are HireQuest’s CEO, Rick Hermanns; and CFO, Cory Smith. Please be aware, some of the comments made during our call may contain and include forward-looking statements within the meaning of federal securities laws.
Statements about our beliefs and expectations containing words such as may, could, would, will, should, believe, expect, anticipate and similar expressions constitute forward-looking statements.
These statements involve risks and uncertainties regarding our operations and our future results and could cause actual results to differ materially from management’s current expectations.
We encourage you to review the safe harbor statements and risk factors contained in the Company’s earnings release and its filings with the SEC, including without limitation, most recent annual report on Form 10-K and other periodic reports, which identify specific risk factors that may also cause actual results or events to differ materially from those described in the forward-looking statements.
Copies of the Company’s most recent reports on Form 10-K and 10-Q may be obtained on the Company’s website at hirequest.com or at the SEC website at sec.gov. The Company does not undertake to publicly update or revise any forward-looking statements after the call or date of this call.
I would also like to remind everyone that this call will be available for replay through November 25th. A link to the website replay of the call is also provided in the earnings release and available on the Company’s website at hirequest.com. I’d like to now turn the call over to the CEO of HireQuest, Rick Hermanns.
Rick?.
first, our acquisition of Recruit Media at the beginning of October accelerates our development efforts and will provide new tools for our franchisees to better serve their clients and workforce; second, we announced that we entered into a definitive agreement to acquire Dental Power Staffing division of Dental Power, and we expect to close this transaction before the end of the year.
As we’ve said in the past, we believe that our franchise model can be applied across a broad range of staffing verticals and service industries, and we continue to evaluate the best avenue to enter these verticals, internal development, acquisitions or a combination.
Smaller transactions such as Dental Power give us a platform to build on, both organically and through add-on acquisitions. Before I turn over the call to Cory to discuss the financial results further, I wanted to mention that the Board of Directors has declared our regular quarterly dividend.
We will pay a $0.06 per share dividend on December 15th to shareholders of record on December 1st. Our expectation is that we will continue to pay a $0.06 dividend quarterly going forward. With that, I’ll turn the call over to Cory.
Cory?.
franchise royalties, our primary source of revenue which typically accounts for about 95% of our total revenue; and service revenue. Franchise royalties for the quarter were $6.5 million compared to $3.2 million last year, an increase of 103%.
While the addition of Snelling and Link locations contributed to this growth, we experienced organic growth of 52% during the third quarter. We also achieved a milestone this quarter with system-wide sales matching 2019 levels, levels we have not seen since the pandemic began in early 2020.
Service revenue, which is generated from interest charge to our franchisees on overdue accounts receivable and fees for various optional services, was $341,000, compared to $164,000 last year. Selling, general and administrative expenses for the quarter were $3 million compared to $1.4 million last year.
This increase was partially due to additional expenses to support the Snelling and Link acquisitions, but also included an additional $460,000 in noncash compensation costs as well as a nonrecurring charge of $307,000 related to an increase in the reserve placed on notes receivable related to the 2019 sale of locations in the state of California.
Net income for the quarter was $3.2 million or $0.23 per diluted share compared to net income of $2 million or $0.15 per diluted share last year. Adjusted EBITDA in the third quarter of 2021 was $5.3 million compared to $2.9 million in the third quarter of last year.
We believe adjusted EBITDA is a relevant metric for us going forward due to the size of noncash operating expenses running through our P&L. A detailed reconciliation of adjusted EBITDA to net income is provided in our 10-Q. Moving on to the balance sheet.
Our current assets at September 30, 2021, were $46.7 million compared to $39 million at December 31, 2020. Current assets at September 30th included $4.8 million of cash and $38.4 million of accounts receivable, while current assets at December 31, 2020, included $13.7 million of cash and $21.3 million of accounts receivable.
Our notes receivable balance, net of reserves at September 30th, was $4.3 million compared to $8.1 million at December 31, 2020. During the second quarter, we closed on a new $63.2 million credit facility comprised of a $60 million revolving credit facility and a $3.2 million term loan.
We believe that this new facility provides us with flexibility and room for both, organic growth as well as the capacity to capitalize on potential future acquisitions. Beginning in the third quarter of 2020, our Board approved and the Company paid its first quarterly dividend of $0.05 per common share.
Since then, we have paid a regular quarterly dividend. And in June 2021, our Board approved an increase in our quarterly dividend from $0.05 to $0.06 per common share. As Rick mentioned, we will pay this $0.06 dividend on December 15th to shareholders of record as of December 1st.
And we expect to continue to pay this increased dividend each quarter in 2022, subject to the Board’s discretion. And with that, I will turn the call back over to the operator for questions and answer..
[Operator Instructions] We do have a question from Aaron Edelheit. [Ph].
Congratulations on the great results. I was really surprised happily on the operating leverage and wanted to ask you is there some step change, or how should we think about this quarter when I look at your adjusted EBITDA margin? That was much higher than I expected and very happy with it.
Going forward, was this an anomaly, or how should I think about this?.
Well, thank you, and I appreciate the question. I would say that no, it’s not an anomaly really at all. It’s just hitting pretty much right about exactly where we should be. The prior periods, obviously, were affected by the pandemic.
So, when you go back to 2020, our -- we were -- even though we did a lot of expense cutting in the beginning of the pandemic, you can only still cut so far.
And so, really, the operating leverage has come back significantly with the sort of a bit of the releasing of the pandemic’s grip on the economy, and of course, the acquisitions of Snelling and Link having boosted our operating leverage as well. So, no, I wouldn’t look at it as anomaly as well and at all..
Okay. Now, we’ve been -- obviously, you open the newspaper, you talk to anyone in business, and there are shortages of labor. I have to assume HireQuest is experiencing similar things.
Do you have any idea if there were bottlenecks for you to provide labor to your customers? Can you give me any metrics of what you could be doing if there weren’t either shortages of labor or if there are bottlenecks? Could you give me any thoughts on how much better you could have done, even though I’m really happy with these results?.
Yes. So, it’s a double-edged sword. So, let me first state that, I do think that the ending of the supplemental $300 a week unemployment benefits really helped our filling of orders towards the end of the quarter. And as I stated earlier is we went from running 10% to 15% behind 2019 numbers to basically even by the end of the quarter.
A lot of that had to do with the return -- it’s like Return of the Jedi, well, this was like Return of the Worker. And so, the ending of that $300 supplemental pay for not working really brought a fair number of people back into the workforce.
Now, as far as bottlenecks and stuff like that, we certainly have more unfilled orders now than we’ve ever had in the Company’s history. However -- and so sure, we could probably be 10% to 15% higher if we could fill every order. But I want to be careful in overstating that because the shortage of workers also leads to more orders.
And so, it probably balances itself, if that makes any sense..
Got you. Yes. No, it makes sense. Last question about kind of new verticals. I remember on the last call, I asked a question about trucking. You announced your first foray into healthcare with the dental staffing business.
When I look long term and I think about the opportunities of this vertical, how big do you think -- could dental be like a $1 billion system sales business, or you had mentioned last quarter you thought that trucking could be enormous. I’m just wondering how you think about in the long term.
I’m not looking for next quarter or next year, but just how big could some of these verticals or specifically, the dental opportunity be?.
Right. So, obviously, with trucking, when you have pretty much widely acknowledged that there’s a shortage of 500,000 truckers right now, it’s easy to see where it becomes literally a 9 to 10-figure opportunity. On the other hand, dental is not -- dental is not that.
And it’s not really our strategy necessarily to be necessarily -- it doesn’t have to be a huge segment. And part of going into dental, what’s helpful about going into dental is we’re and yet in a limited way to start with is for us to develop our own systems so that we can grow from there.
So, I would say, medical, more broadly, is obviously a huge opportunity. Dental is not a small opportunity, but really should be viewed more as an entrée into the more -- is probably more into the more skilled and professional areas..
So, it’s kind of like dipping your toe into the medical field? And we should -- maybe this isn’t the last announcement we’re going to see in that foray?.
Yes. And that’s not saying that there’s anything now. It’s -- we truly -- there’s a lot of credentialing, and medical is significantly different than a person working on an assembly line. And so, we want to make sure that we do a good job with it.
Now, that being said, that’s why we bought a more than 40-year-old company to get 40 years of experience within that industry -- or I’m sorry, we are contracted to buy it. That’s part of the reason for buying a company with that much experience is that, like I said, it will help us develop our systems..
[Operator Instructions] We do not currently have any participants in the Q&A field at this time..
All right. Well, then I’d like to thank everybody who joined us to thank you for joining us. And we look forward to seeing what the fourth quarter brings. And again, we thank you, and have a good day..