Greetings, and welcome to the HireQuest Inc. Fourth Quarter and Year-End 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded.

I would now like to turn the conference over to your host, Jennifer Belodeau. You may begin..

Thank you, Kelly. I would like to welcome everybody to the call. Hosting the call today are HireQuest's CEO, Rick Hermanns; and CFO, David Burnett. Let me 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 SEC and that actual results may differ materially from those contemplated by such forward-looking statements.

Except as required by federal securities law, HireQuest undertakes no obligation to update or revise forward-looking statements to reflect changed conditions. Let me now 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, I will provide an overview of the financial and strategic highlights for the quarter and then David will share more details surrounding our fourth quarter results.

We delivered strong top line growth in the fourth quarter, driven primarily by our franchise royalties, which increased by 26.4% to $7.7 million. Total revenue also increased 23.1% to $8 million.

Income from operations increased 68.4% to $2.8 million and net income from continuing operations increased 21% to $2.6 million or $0.19 per basic and diluted share.

Adjusted EBITDA for the fourth quarter was $4.4 million, compared to $3.4 million in the fourth quarter of 2021, showcasing our ability to drive sustained profitability across our business. For the full year, we saw an increase in franchise royalties of 35.6% to $28.9 million, compared to $21.3 million in 2021.

Income from operations increased 109.6% to $16 million compared to $7.7 million in 2021.

Our net income from continuing operations increased modestly to $12 million or $0.87 per basic and diluted share compared to $11.8 million or $0.88 a share per basic and $0.87 per diluted share in 2021, primarily related to acquisition costs that we incurred throughout 2022.

However, adjusting for these acquisition-related charges and other non-cash expenses that we expect to recoup as we integrate and scale our acquisitions, we actually saw an increase in adjusted EBITDA of 78.9% to $22 million compared to $12.3 million in 2021.

So as you can see, we believe we are well positioned to drive continued profitability in tandem with our strategy of making accretive acquisitions that complement the organic growth of our business. Speaking more on our acquisition strategy.

In the fourth quarter, we announced and closed our acquisition of certain assets of MRI Network, the third largest recruiting network in the world, adding over 200 offices to our franchise network across the United States and internationally.

MRI provides us with immediate scale in the executive recruiting and professional staffing segments of the market and is highly complementary to our existing HireQuest direct and selling offerings. We've made great progress in integrating MRI into our operations.

However, there are certain transition items and associated expenses that we will be carrying through the first half of this year. In addition to MRI, we successfully grew our franchise base through three other acquisitions over the course of 2021.

These transactions fall under our more common category, where we acquired businesses with one or more offices and then resell them as franchises.

As I've mentioned on previous calls, we've become quite efficient at executing and integrating acquisitions like these into our business and expect that they will continue to make up a majority of the transactions we complete going forward.

Overall, we're very pleased with our fourth quarter and annual results, and are encouraged by the progress we've made both organically and through our acquisition strategy throughout fiscal 2022.

We remain intently focused on identifying accretive opportunities in the market that allow us to continue expanding our franchise network and brand offerings and complement the organic growth of our business.

As we move through 2023, we believe we are well-positioned for continued growth in the current uncertain economic environment as many businesses and organizations may opt to fill their staffing needs with temporary rather than permanent employees.

Additionally, an uncertain economy could result in consolidation in our industry providing acquisition opportunities. That said, nobody likes a recession and we will remain watchful as the year unfolds. With that, I'll pass along to our CFO, David Burnett who will take -- who will provide a closer look at our fourth quarter and full year results.

David?.

franchise royalties our primary source of revenue which makes up roughly 95% of our total revenue and service revenue which is generated from service fees, interest charged on overdue accounts and other miscellaneous franchise-related revenue.

On occasion, we will report a third component, company-owned revenue, which would be related to operations that are not marketed as a potential franchise and are managed by us instead of a franchisee.

At December 31, 2022 we operated two such locations, but they did not meet this criteria and instead were classified as held for sale and reported below the line as discontinued operations.

Even though we previously have reported one of these as company-owned revenue, we reclassified it in the fourth quarter and retroactively as we began the process of franchising it out. I won't refer to those operations specifically and they are not included in the revenue I just mentioned.

But it is important to keep in mind that we are still benefiting from them. And once they are franchised out, we will retain the royalty stream. For continuing operations, franchise royalties for the quarter were $7.7 million compared to $6.1 million for the fourth quarter of 2021, an increase of 26.4%.

For the full year 2022, royalties were $28.9 million compared to $21.3 million in the full year 2021, an increase of 35.6%. Underlying the growth in royalties are system-wide sales, which for the quarter were $127.9 million compared to $106.8 million for the same period in 2021.

System-wide sales for the full year 2022 were $472.2 million compared to $354.5 million in the full year 2021, an increase of 33.2% primarily related to acquisitions completed in 2022 and organic growth related to the rebound from the economic downturn lingering in 2021 due to COVID-19.

System-wide sales include sales at all offices including those classified as discontinued. Selling, general and administrative expenses for the quarter were $4.7 million compared to $4.4 million in the fourth quarter of 2021. For the year, SG&A decreased from $13.3 million in 2021 to $12.9 million in 2022.

The decrease was primarily driven by a $2 million benefit in net workers' compensation, $1.2 million of which is attributable to the Snelling workers' compensation reserves that were assumed at the time of the acquisition and are currently in runoff mode.

This decrease was offset by a net increase in compensation expense of approximately $800,000, which includes additional headcount to keep pace with our growth. Compensation-related expenses remain by far the largest component of SG&A and most of the costs we took on from the MRI acquisition are related to human capital.

Income from operations which is total revenue less SG&A, depreciation and amortization was $16 million in 2022 versus $7.7 million in 2021, an increase of 109.6%.

Most of the $8.5 million increase in total revenue fell straight to income from operations, reflecting our ability to leverage incremental revenue without rapid increases in core operating expenses. Income tax expense for the quarter was approximately $1.9 million, an effective tax rate of 13.7%.

This was over double the effective tax rate for 2021, which was 5.1%. The lower rate for 2021 was the result of a large non-taxable bargain purchase gain recognized as part of the Snelling acquisition.

Our normal effective tax rate is expected to be in the teens and will fluctuate based on significant permanent items like the Work Opportunity Tax Credit. All in net income for the quarter was $2.7 million or $0.20 per diluted share compared to net income of $2.2 million, or $0.16 per diluted share in the fourth quarter last year.

For the year, net income was $12.5 million or $0.91 per diluted share compared to net income of $11.9 million in 2021 or $0.87 per diluted share. Adjusted EBITDA in the fourth quarter of 2022 was $4.4 million compared to $3.4 million in the fourth quarter of 2021.

And as Rick highlighted earlier, our adjusted EBITDA for the year was $22 million compared to $12.3 million last year. We believe adjusted EBITDA is a relevant metric for us going forward due to the size of non-cash operating expenses running through our P&L. A detailed reconciliation of adjusted EBITDA to net income will be provided in our 10-K.

Moving on now to the balance sheet. Our current assets at December 31, 2022 were $51.9 million compared to $42 million at December 31, 2021.

Current assets as of December 31, included $3 million of cash, and $45.3 million of accounts receivable while current assets at December 31, 2021 included $1.3 million of cash and $38.2 million of accounts receivable.

Current assets exceeded current liabilities by $15.2 million at December 31 versus a year earlier when working capital was $20.5 million. The decrease in working capital reflects a larger balance on the credit line, following the acquisition of the MRI network assets late in the fourth quarter.

At year-end, we had $12.5 million drawn on our credit facility and another $12.2 million in availability after accounting for certain reserves and letters of credit. In February 2023, we replaced this Truist Bank facility, plus a term loan we had at Truist Bank with a new $50 million credit line from Bank of America.

We believe this new facility provides us with the flexibility and room for both organic growth, 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 yesterday, we paid a $0.06 per common share dividend to shareholders of record as of March 1. We expect to continue to pay a dividend each quarter subject to the Board's discretion. With that, I will turn the call back over to Rick for some closing comments..

Thanks, David. Our fourth quarter and full year results demonstrate our ability to drive sustainable growth, across our business both organically and through acquisitions that broaden the scope of our franchised operations and expand our geographic presence.

As always, I would like to take the time to acknowledge our team, our franchisees, and their workers for their continued excellence and dedication to the success of our business.

This is an exciting time for our business, and we believe that we – that with our significantly expanded franchise network and dynamic offerings, for a variety of staffing and other talent-related needs, we are well positioned to continue driving improved results, and value for our shareholders as we move through 2023.

With that, we can now open the line to questions. Thank you..

Certainly. The floor is now open for questions. [Operator Instructions] Your first question is coming from Mike Baker with D.A. Davidson. Please pose your question. Your line is live..

Okay. Thanks. Lot I could ask, but I guess I'll ask this. You guys are in a pretty interesting and unique position to have an opinion on the job market, which is obviously a huge topic right now and wages and all those kinds of things.

So I guess, I'll just ask you a bigger picture, what's your view of the job market right here of where wages are going? Is it easier or harder to find temporary staffing? And how does your business typically react in the recession? And would that be different this time, around just because of the diversification that you guys now have through your acquisitions? Thanks..

Yes. Thanks, Mike. So number one is, I would say, that there is no question that there has been a noticeable slackening of demand. So there's no question that the -- at the margins, the amount of openings have declined. And therefore, it is easier to find people. That said, wages are still continuing to go up.

And so for us, the increasing wages tends to soften the blow of let's say, reduced demand. So -- but it's noticeable. Now as far as, how our business generally reacts to a recession, because it's not good. It's -- recessions are never good, typically for any company and certainly not for a staffing company.

That said, there is still such a while everybody is rightfully concerned about the economy, we're still sitting with incredibly low unemployment rates. And therefore, I'm – maybe, I'm whistling past the graveyard, but it seems to me that this is very much different than usual, in that there is just a shortage of talent.

And so, again while I completely acknowledge that there is a slowing down of overall demand, the demand in most instances still exceeds our capacity to actually even fill it. And so, it will take quite a bit more slippage, before it will really start to -- before it would really start to impact our numbers. But thanks, for the question. .

Sure. And so, I guess as a follow-up to that, sort of understanding that, you don't really give forward guidance and I appreciate that. But, how should we think about -- in the past, we've sort of thought of your system-wide sales, growing at GDP or something along those lines.

Is that still a fair way to think about the system-wide sales?.

So, let's set aside MRI for a second, because that creates a new -- that's created a new dynamic for us. In our core Snelling and HireQuest Direct, yes, I mean GDP really does represent a good gauge as to which way our sale -- our system-wide sales are going to go.

And so, if you assume a recession, I think that it's fair to say that, for us to lose 2 to 3 times whatever the percent decline in GDP is, is a reasonable assumption. And whereas growing tends to be not that much of a factor, unless we're coming directly out of a trough.

In other words, obviously, if you go back to 2017, 2018 we've been in a growth period already for five, six years. So I'm not suggesting that a 3% growth of GDP would necessarily yield, a 9% increase in our system-wide sales.

But coming off of a trough, then that same way that saying going into, a recession would drop at 2 to 3 times the GDP decline, in the immediate couple of quarters coming out of a recession, would also be that factor 2 to 3 times a 2 to 3 times sort of that increase, which is really just typically recovering what was lost during the recession.

Does that make any sense on, what I'm saying?.

Yes. No, I got it. I'm with you, I’m following you. .

Okay. So, that's….

But that is MRI….

MRI part. Going back to the MRI part the -- and this was in our sort of updated investor presentation that was put out in -- I think it was December, maybe early January, but probably late December. The system-wide sales once you include MRI are going to be a lot more jumpy than what they have been in the past.

And so -- but MRI had a lot -- it does have a lot of franchisees that pay franchise royalties that are significant -- basically aren't necessarily tied to their sales volume. And so it's -- I just want to make sure that system-wide sales are not going to be nearly as predictive in the future as they were in the past.

And so I just want to caveat all of that is that that will definitely make a big difference. Now, obviously, that will be segment information that will be split out going forward, but I just want to clarify that as well..

Okay.

So, using the old math in other words of net income should equal 3% to 4% of systemwide sales, you're saying that that doesn't really hold anymore?.

Yes, that's pretty much -- frankly, that's out the window except for our traditional -- our Snelling and our HireQuest Direct offices. But so with the MRI, it's significantly different. And so as we put out in December, we're looking more now towards a percentage of fortunately with the MRI acquisition our royalty revenues are now higher.

If you go back five, eight calls ago, one of the things we shied away from -- we shied away from utilizing revenue, GAAP revenue mostly because it was relatively small and therefore, it was so -- it would be very jumpy. And so we didn't want to necessarily -- we don't want to create this yo-yo effect on margins and things like that.

The good news is now we're headed towards $40-plus million worth of franchise royalties and therefore there's more stability.

So, our real peg going forward is more sort of particularly like operating income as a percentage of royalties -- or I mean at least as revenues is going to be more appropriate and really more what we're going to target simply because of the -- because of the at least until MRI sort of settles into a pattern settles into an appropriate pattern.

It just makes it really kind of meaningless compared to what it was in the past because there are -- again there are certain franchisees that pay really a fraction of what we would have expected in the past..

Okay. Okay. Thanks for that help. I will turn it over to someone else..

Your next question is coming from Aaron Edelheit with Mindset Capital. Please pose your question, your line is live..

Hi, Rick, how are you doing?.

Good.

How are you?.

I'm doing fine. I wanted to ask specifically about the pipeline, you put out an 8-K that was pretty amazing to kind of dive through about what MRI could mean to you in terms of how accretive it can be? And I guess we're going to see that absent some charges and transition stuff in the first half. And I understand it's going to be jumpy and everything.

But as a shareholder watching you acquire these companies like Snelling and MRI and watching you build this cash flow, I'm really fascinated just to hear about can you keep doing this? And what does the pipeline look like? And should we get more -- as the economy weakens, does it increase the odds that you could even acquire more, or how should we think about just your pipeline?.

Thanks for the question. So, I'm going to split that into three answers. First answer is as far as our pipeline -- and I've said this on multiple occasions is our pipeline is always -- frankly, it's as full as we want it to be. And it's maintaining -- for us, it's a matter of maintaining discipline. And -- but it's always there.

Now, with the uncertainty in the economy, I'm not so sure that we can -- frankly, we can be particularly picky now, because of the chances of a recession. And the reality is that a bad economy -- well, it certainly does not help us. I mean again, I want to reiterate that recession does not help us.

But except to the extent that it creates opportunities and very few companies in the staffing industry, especially smaller private companies are particularly well capitalized. And so a downturn creates a lot of opportunities. And so, I would definitely say, yes, that creates, a recession creates a lot more opportunities, especially at a good price.

And so, that's for us has always been the silver lining of any recession. And generally our best deals have always been with distressed companies. And normally, obviously, as Warren Buffett, who said something I rather -- I might ruin this quote but I would rather pay a fair price for a good company than a good price for a fair company.

However, because of our franchise model, paying a low price for a fair company still works, because we liberate that fair company from bad management and put it into the hands of franchisees. So it -- that's a long answer to -- we get a lot of opportunities during a recession.

Now the -- the second part of the answer is then the pipeline for, what I'd say is related to MRI, and really I could probably put points two and three into this one answer.

Is that the MRI acquisition stands on its own as far as a franchised opportunity for us, meaning they have a great contract staffing division which you could think of as very high paid temporary staff. And so, that's a nice solid business that we're happy to have.

And then with their -- they've been a longtime franchisor of executive search franchises. That's great. And those are items that we hope to stabilize and to improve going forward. As it relate -- as long as economic conditions allow for it. But one of the things that drew us to MRI and still does is the opportunity.

And I want to make sure I caution anybody who's listening to this as I say it. This acquisition was priced and was priced in a way that we don't need any of these things to occur to make it a solid deal. That being said there are opportunities that might not have -- that wouldn't have existed.

And so, we now have a network of another 200-plus franchisees, which means we have 200-plus entrepreneurs around the globe that we can expand their horizons with some of the other offerings that we have.

And probably a good example of that is, for example, we're starting to incentivize MRI franchisees to supply leads for our Snelling and HireQuest Direct divisions. We're giving our incentives that we've always given to our Snelling and HireQuest Direct franchises to expand into contract staffing.

And so -- these are things that we can grow what already -- sort of what already existed, simply because we have more opportunities. There are other things that we're working with as well that are similar to that. I don't want to give away our entire internal strategy.

But the point is there are a lot of ways that we believe that we can squeeze a lot more efficiency out of the MRI network, and most importantly that is really good for the franchise network both Snelling, HireQuest and MRI and just create more opportunities for all three of our major offerings.

And again, more opportunities for our franchisees, means more system-wide sales, which means more royalties to HireQuest. It's truly a win-win-win.

And in fact I'll give, I guess, one example is one of our franchisees, one of our MRI franchisees has a good client, a good friend who has a manufacturing facility in Georgia that utilizes about $2 million a year temporary staffing. There's going to be a -- I think the meeting might have already taken place.

The point is if we get this business, the referring MRI franchisee will receive a commission. The Snelling franchisee will get a great $2 million account and we'll get some extra royalties.

It is a perfect example of if this deal goes great, those are the types of wins that we'll have -- those are the types of wins that we'll have, which like I said will be great for the network, great for us, great for our shareholders. .

Okay. So I guess what I hear -- thank you for all that. What I hear is the pipeline is still full. There's lots of opportunity. You're staying disciplined.

There may be more opportunity if things weaken from here and you're seeing a bunch of cross-selling opportunities in addition just to the accretive nature of MRI just cross-selling and incentivizing MRI to sell some of your existing offerings is a big opportunity as well.

Is that a fair summary?.

No, that's a fair summary..

Okay. So I want to go to just your comments about the economy. As you're seeing things right now like right now on the ground you're latest from what you're seeing your franchisees are saying.

When I think about a slowing of the economy or just more openings, et cetera, but you have been suffering from not having enough labor and yet also your labor, the wage rates are going up. So you're just from wages going up. I believe your system-wide revenue again excluding MRI for the year was about $470 million.

And in terms of where we are now and I'm not asking -- I'm asking a hypothetical if things just kind of stayed economically and wage the way it was. Do you see excluding MRI that $470 million is flattish going up a little bit? How would you see it? I'm not asking you to predict the economy.

I'm more looking for how things are going so far through Q1 just in the balancing of well, hey, you now have more access to labor to fill more orders, but there may be less orders, but wages are also going up.

Can you give some color to just those dynamics?.

So I would definitely say, we're obviously almost halfway through or half the work practically through the first quarter. And I would simply say that the market is flat. And so it's hard to tell in some instances have the increase in wages offset an actual decline in demand, it's hard to tell.

We've also had -- and I literally had a conversation this afternoon with a franchisee, who's experienced a relatively difficult first quarter. But his first response in essence was the weather has been really bad.

And I -- you've probably never heard me once say on any call that whether -- I don't like quoting weather as being an issue simply because people tend to forget that that can create a favorable -- people like to sit there and say, gosh, aren't we great, because they're comparing it to a crappy quarter from the prior year that contained 15 blizzards in the space of six weeks, right? So it's easy to do that.

So, I don't like to do that. But clearly there's been some really bad weather. And so it's very, very difficult to draw strong conclusions from what we're seeing right now and I realize that's not a very satisfying answer but it's..

No, no. I think that's very helpful. I know and I appreciate just the -- Rick [ph], so when I think about like that -- and again, I want to exclude MRI just for a second. And I don't know in this transition year, because MRI is such a big kind of acquisition and it's going to be -- there's going to be some kind of messiness to it.

If there's a way to just be like, hey, here's our original kind of system-wide revenue. And here's kind of plus -- just some way for this year just to simplify. But when I think about that $470 or so, and I take your traditional -- again, I'm excluding MRI.

And I'm just making sure that the business -- because there's going to be some messiness just so I understand, I've always thought, that that's like 3.5% to 4% net margins on that $470 or so? And is that the right -- is that gets the depending on what your system-wide revenue is like 4%, it's like around $1.25 kind of earnings power is how I personally have thought about it.

Now obviously there's going to be -- you have the economy or the weather just you're acquiring companies.

But excluding MRI is that still the right kind of way to think about kind of a normalized earnings power for, let's just -- I don't know what to call it the legacy business or the existing business?.

I do think that that's a reasonable way of looking at it. Perhaps maybe now it's 3.25% to 4% because we've got more amortization than we have historically. So it's possible..

But that amortization really is like….

…maybe that's harder to up at that level just because of the amount of amortization we have. But....

Amortization is -- it's not a cash expense, right?.

Correct. Yeah. Yeah. That's right. That's correct. And just say on the $470 -- and I would say on the $470 is that clearly, now mind you that $470 million includes two weeks' worth of -- it does include two weeks of MRI.

So it's not -- I'm saying, it's not a clean comparison realizing you got to back out a certain amount of money a certain amount of for MRI. Let's just play per ton that is $450. And I'm not saying its $450 I'm just -- let's just say it was $450 million. In fact, its $460 is actually..

Well, you exceeded my number, because I was expecting $443 or so..

There you go. So we did that. So let's just say, it was $460. I would say that it should -- again, realizing the economy is clearly in a fraud position. A lot of things could happen.

It would generally -- if the economy were flat it should go up just based on when certain of our acquisitions took place in 2022, right? So there should be growth simply from acquisitions, not even including MRI..

Got you. No, no. That's really helpful. And then, -- and so what I'm so fascinated by is that, you were mentioning amortization and it's why, it's real -- I love that you break out EBITDA normally when you look at adjusted EBITDA you kind of get really scared, but you can tie in to your cash flows what you're building. And so, that's really helpful.

Now in terms of MRI, how do you see the timeline of the integration of that in terms of you're going to – obviously, we're going to see a big jump in revenue, but you're flowing through making sure that you're acquiring that you're fixing the system, and the branches, and cross-selling, and maybe closing down some? Like, how do you think about that, in terms of how the year will progress? When do you think it will kind of shake out so to speak?.

So I think that by -- and this was in the press release I think, for the earnings, that the first half of the year will contain costs still related to the transition. And there was a couple of people, who as an example were – or are sort of holdovers to make sure that the financial systems integrate. And so there are some more savings to come.

And there are let's say lingering contracts that we are on still that will not be renewed. And I'm not talking about human capital now, I'm talking about just there was – we give you an example there's one software that was purchased that frankly, we didn't like at all, but it runs through April.

So, we're still stuck with that, for another six weeks from now, right? But then that's going to go away. But by the end of April, or I mean by the end of June I would expect that most of the transition costs will have – will be pretty much where we should be..

And so you would expect maybe like Q3 we're seeing kind of a clean kind of integrate – fully integrated quarter?.

Sure. Unless, we do another acquisition. Then we're back in --.

I hope so Rick..

That's exactly right. But yes at least from MRI. But yes, all things being equal by the third quarter, we should be at a relatively normal pace.

And of course, that's one of the difficulties in looking at our track record over the last four years is every quarter or three out of four quarters tends to have an acquisition in it, or something or a pandemic, and it clearly makes things difficult finally to look at. You got to really pay attention unfortunately.

But if you look through it you can – as I think most people can look at it and say, wow, there's a lot of improvements in here and a lot of good things to grab..

Thank you so much..

Sure..

[Operator Instructions] You have a question from Stanford Wyatt at August Partners. Please pose your question. Your line is live..

Hey, Rick.

How are you doing?.

We’re good..

Hey, good. I just had a quick question. I know you noted in the press release that, you put the Dental Power up for sale and excluding – it looks like that costs you about $1.3 million of revenue. So, I guess adding that back your revenue grew over 40%.

I know you had a more difficult comparison in the fourth quarter versus third quarter, but that's – I mean, that's showing accelerated growth to last quarter.

I guess is that on a normalized basis? Is that the right way to think about it?.

I'm not quite sure, I understand the question. .

Okay. Yeah. Just I mean, looking at the press release it said, you put Dental Power business as listed for sale and total revenue would have been $9.4 million without that which – yeah so that's – I mean, that's over 40% growth to last year on a normalized..

If you take that out, it certainly alters things, right? So comparing third quarter to fourth quarter is nearly impossible, unless you back out the Dental Power revenues from the third quarter.

And so I would simply say that, there wasn't really all that much appreciably different in the real world between the third quarter and the fourth quarter just the reclassification of Dental Power as discontinued operations just change that. So I wouldn't read anything into that part..

Okay. Got it. Yeah. Just looking at the year-over-year growth rates, because I know you had more difficult comparing in 4Q without any COVID hit last year, and then obviously two weeks of MRI in 4Q, which maybe offset that. But nonetheless that's a really high growth rate relative to your peers. So, good to see that continuing.

And then one other question just on the kind of the EBITDA margins or just the margin profile overall. I've always looked at kind of the adjusted EBITDA relative to system-wide sales to kind of take out some of the non-cash and some of the transition acquisition costs and all that.

And I know that, it looks like the MRI deal will be a lower margin deal.

But over time, do you think you get back kind of in line? Does the margin profile get back in line with the core HireQuest business?.

That's really a $13 million question, right? I am certainly -- the deal wasn't priced on margins, it was just priced on EBITDA. And therefore, the profile may always be different. And I don't think that we'll ever get to -- I don't think we'll ever get to what we have let's say for the Snelling and HireQuest Direct on it.

Certainly, not relative to system-wide sales, we'll never get to it for that never come close to it. As far as revenues, I believe that we can get saying we can get within a reasonable distance of it..

Yeah. .

But again, part of that and I was literally speaking to our VP of Ops today about that almost specifically using the example of the Georgia manufacturer that I was talking about.

Well realistically, if that comes through to fruition, that's the type of kind of like a soft gain that I'm saying that doesn't get priced into it, right? So it's like yes we might not get to that point. That doesn't mean it's not really adding even more sort of more value. And so, your question is really apt.

It's just too early to tell, how close we'll be able to get to our traditional margins..

Yeah. Okay. Got it. Well, I know in the deck you highlight the $4 million of EBITDA that MRI could do on a normalized basis just as you get some cost efficiencies there. And the core business doing in the low to mid-20s of EBITDA this year plus the $4 million you picked up. Maybe that's a reasonable way to think about it.

And then hopefully there's more upside to the $4 million from MRI as you... .

But to your point. Right is that if we had $22 million of EBITDA -- adjusted EBITDA compared to $31 million worth of revenues, you sit there sales you're pushing -- saying you're pushing 65%, 70%. And you sit there and say "Well, okay now we get $4 million for what was roughly let's just say $11 million of revenues.

You say well that sucks you got -- I'm saying what a terrible deal, right? You're down in the -- you're down below your sub-40%.

But then you sit there and say "Well, but that's still less than 4x -- in less than 4x you paid less than about 3.4x EBITDA which is a good deal, right? So that's where -- like I said, it's unfortunate from the standpoint, from an analyst standpoint or an investor standpoint, it kind of bollixed our numbers up a bit, right? It's not -- it's just not as clean as it used to be.

That being said, it's goes back to my first sentence which were the first part of my response is the deal was priced based off of EBITDA not based off of margins. .

Yeah. No totally. I guess my question was just around -- I mean, there's obviously just a ton of upside if you do get your margins back to normalize. I mean, it seemed like a great deal for the $4 million that you got right now. And then if you do get….

I'm not -- I got a expectation. We didn't get..

I understand what you say I mean it's great. .

I think said we won't. .

Yeah. Okay. Yeah, a great deal as it was and then more to go as you get more efficient with it. And yeah, that was it for me. Appreciate the time. And keep up the good work. Thank you..

There are no additional questions in queue at this time. I would now like to turn the floor back over to Rick Hermanns for any closing remarks. .

Well, thank you, everybody for joining us. I think you will agree that it was a very good quarter for us and a good year and we look forward to the opportunities that will present themselves in 2023.

I can assure you that the management team at HireQuest is always working hard and is always looking for opportunities to continue the growth of this company. Thank you for being a part of the company and for your interest and have a good night. Thank you. .

This does conclude today's conference call and you may disconnect your phone lines at this time. Thank you for your participation and have a wonderful day..