HireQuest, Inc.
For the period ended Dec 31, 2024. Filed Mar 27, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 27, 2025
HQI$17.59+2.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-21.
0001437749-24-008879
Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-27.
0001437749-25-009646
Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 99 previous paragraphs and 91 current paragraphs.
54 unchanged; 28 reworded; 9 added; 17 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 12 previous and 12 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (9)
Current report
On a year-over-year basis, we saw a 6.9% decrease in our system-wide sales from $605.1 million in 2023 to $563.6 million in 2024 as the overall staffing and recruiting industry softened during the year which particularly affected MRI where system-wide sales decreased 18.6% or $31 million in 2024 when compared to 2023.
Current report
We recorded an 8.7% decrease in total revenue from $37.9 million in 2023 to $34.6 million in 2024. Income from operations declined from $10.6 million in 2023 to $4.4 million in 2024 due to the 6.9% decline in system-wide sales and a $6.0 million goodwill and intangible asset charge associated with the MRI acquisition.
Current report
Results of Operations
Current report
Other Operating Expenses
Current report
Other Operating Expenses for the year ended December 31, 2024 was approximately $25.4 million compared to $20.7 million for the year ended December 31, 2023, an increase of $4.7 million. The increase in Other Operating expense primarily relates to a $6.0 million intangible asset and goodwill impairment charge related to MRI partially offset by a $1.2 million decrease in salaries, bonuses and stock based compensation.
Current report
Other Miscellaneous Income and Expense
Current report
Notes Receivable and Allowance for Credit Losses
Current report
During the third quarter of 2024, we completed our annual review of goodwill for potential impairment using a quantitative assessment for all of our reporting units. The fair value of each reporting unit was estimated using a weighting of a discounted cash flow model and values of comparable businesses. As a result of this review, we concluded that the carrying value of our MRI reporting unit exceeded its estimated fair value resulting in an impairment charge of approximately $4.8 million. The goodwill impairment was primarily attributable to industry and market conditions affecting the overall financial performance of the reporting unit. These industry and market conditions were deemed a triggering event that led us to also review the fair value of certain indefinite-lived intangible assets related to the MRI reporting unit. As a result of this review we concluded the carrying value of the trade name related to MRI exceeded its estimated fair value resulting in an impairment charge of approximately $1.2 million. The related impairment was primarily attributable to industry and market conditions effecting the overall financial performance of the reporting unit. The balance for the trade name related to MRI was approximately $940 thousand and $2.2 million at December 31, 2024 and December 31, 2023, respectively.
Current report
The combined impairment charge of approximately $6.0 million is reflected in the line item, "Goodwill and intangible asset impairment charge," in our Consolidated Statements of Income for the twelve months ended December 31, 2024.
Removed paragraphs (17)
Previous report
On a year-over-year basis, we saw a 28.1% increase in our system-wide-sales from $472.2 million in 2022 to $605.1 million in 2023. This increase wasdriven primarily by the full year effect of the MRI acquisition in December 2022.
Previous report
We recorded a 22.4% increase in total revenue from $30.9 million in 2022 to $37.9 million in 2023; however income from operations declined from $16.3 million in 2022 to $10.6 million in 2023 due to higher selling, general & administrative costs driven primarily by (i) a $5.6 million increase in workers compensation expense, (ii) $753 thousand in increased amortization, and (iii) $2.6 million of increased salaries and benefits predominately related to the MRI transaction.
Previous report
Economy and Inflation
Previous report
We do not believe that recent inflation has had a material effect on our Company’s results of operations as inflation generally results in higher rates per hour that can offset any slowdown in organic growth opportunities. This might not be the case if inflation continues to grow. A prolonged period of high inflation may also impact our ability to carry out our acquisition strategy. On the other hand, if business conditions deteriorate, it may be easier for us to identify an acquisition candidate.
Previous report
The February 2022 Russian invasion of Ukraine and the resulting economic sanctions imposed by the United States and other countries, along with certain international organizations, have significantly impacted the global economy, including exacerbating inflationary pressures created by COVID-related supply chain disruptions, and given rise to potential global security issues that have adversely affected and may continue to adversely affect international business and economic conditions. The ongoing effects of the hostilities and sanctions are no longer limited to Russia and Russian companies and have spilled over to and negatively impacted other regional and global economic markets.
Previous report
In October 2023, the Palestinian militant group Hamas launched an unprecedented assault on Israel, who in turn formally declared war as its soldiers battled Hamas fighters and launched airstrikes on Gaza. This war between Israel and Hamas could spur inflation and hamper global growth if it turns into a wider conflict.
Previous report
Conflicts such as these have resulted in rising energy prices and an even more constrained supply chain, and thus aggravated the inflationary global environment with cost increases affecting labor, fuel, materials, food and services. At this time, the ultimate extent of the duration of the military actions, resulting sanctions and future economic and market disruptions, and resulting effects on the Company, and on our acquisition strategy, are impossible to predict.
Previous report
Other Selling, General and Administrative Expenses (“SG&A”)
Previous report
SG&A for the year ended December 31, 2023 was approximately $24.4 million compared to $12.9 million for the year ended December 31, 2022, an increase of $11.6 million. The increase in SG&A expenses primarily relates to increased Workers Compensation of $5.6 million, salaries and benefits ($2.6 million), and other costs ($1.6 million) related to the MRI acquisition. There was also a $0.5 million increase associated with an MRI advertising fund which has an equal amount of service revenue recognized and another $0.5 million related to impairment of a notes receivable. The increase was partially offset by approximately $0.6 million in lower executive bonus accruals for the year ending December 31, 2023.
Previous report
Other income and expense
Previous report
The Company utilized the proceeds of the Senior Credit Facility (i) to pay off its existing credit agreement with Truist, (ii) to pay off its existing term loan with Truist (described below) and (iii) to pay transaction fees and expenses incurred in connection with closing the transactions described above. The Company intends to utilize the proceeds of any loans made under the Senior Credit Facility for working capital, required letters of credit, and general corporate purposes in accordance with the terms of the Senior Credit Facility.
Previous report
Revenue Recognition
Previous report
Our primary source of revenue comes from royalty fees based on the operation of our franchised offices. Royalty fees from our HireQuest Direct business model are based on a percentage of sales for services our franchisees provide to customers, which ranges from 6.0% to 8.0%. Royalty fees from our HireQuest business line, including HireQuest franchisees, DriverQuest franchisees, the Northbound franchisee, the HireQuest Health franchisees, and Snelling and LINK franchisees who executed new franchise agreements upon closing, are 4.5% of the payroll we fund plus 18.0% of the gross margin for the territory. The MRI franchises with a lower royalty scale generally pay a flat annual fee plus a percentage-based royalty. For temporary labor, MRI franchises pay a royalty that ranges from 20% to 25% of payroll, depending on sales volume. Some customers that utilize qualified independent contractors cause the franchise to pay a royalty that ranges from 4% to 10% of contractor payments, depending on sales volume. Royalty fees from the Snelling and SearchPath franchise agreements assumed and not renegotiated at closing range from 5.0% to 8.0% of sales for services our franchisees provide to customers. Our franchisees are responsible for taking customer orders, providing customers with services, establishing the prices charged for services, and controlling other aspects related to providing service to customers prior to the service being transferred to the customer, such as determining which temporary employees to dispatch to the customer and establishing pay rates for the temporary employees. Accordingly, we present revenue from franchised locations on a net basis as agent as opposed to a gross basis as principal.
Previous report
For franchised locations, we recognize revenue when we satisfy our performance obligations. Our performance obligations primarily take the form of a franchise license and promised services. Promised services consist primarily of paying temporary employees, completing all statutory payroll related obligations, and providing workers' compensation insurance on behalf of temporary employees. Because these performance obligations are interrelated, we do not consider them to be individually distinct and therefore account for them as a single performance obligation. Because our franchisees receive and consume the benefits of our services simultaneously, our performance obligations are satisfied when our services are provided. Franchise royalties are billed on a weekly basis other than with MRI franchise royalties, which are billed on a monthly basis. We also offer various incentive programs for franchisees including royalty incentives, royalty credits, and other support initiatives. These incentives and credits are provided to encourage new office development and organic growth, and to limit workers' compensation exposure. We present franchise royalty fees net of these incentives and credits.
Previous report
For owned locations, we account for revenue when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified, and collectability of consideration is probable. Revenue derived from owned locations is recognized at the time we satisfy our performance obligation. Our contracts have a single performance obligation, which is the transfer of services. Because our customers receive and consume the benefits of our services simultaneously, our performance obligations are satisfied when our services are provided. Revenue from owned locations is reported net of customer credits, discounts, and taxes collected from customers that are remitted to taxing authorities. Our customers are invoiced every week and we rarely require payment prior to the delivery of service. Substantially all of our contracts include payment terms of 30 days or less and are short-term in nature. Because of our payment terms with our customers, there are no significant contract assets or liabilities. We do not extend payment terms beyond one year.
Previous report
Notes Receivable
Previous report
The test completed for 2023 indicated the fair value of goodwill exceeds its carrying value. Interim tests may be required if an event occurs or circumstances change that would more likely than not reduce the fair value below the carrying value or change the useful life of the asset. Many of the factors used in assessing fair value are outside the control of management, and it is reasonably likely that assumptions and estimates will change in future periods. These changes could result in future impairments.
Reworded paragraphs (28)
Previous wording
As of December 31, 2023 we had approximately 427 franchisee-owned offices and 1 company-owned office in 45 states, the District of Columbia, and 13 countries outside of the United States. We licensed our tradenames to approximately 10 offices in California. In addition, there were 7 MRI locations that provided contract staffing services only. We provide employment for an estimated 73 thousand temporary employees annually working for thousands of clients in many industries including construction, healthcare, recycling, warehousing, logistics, auctioneering, manufacturing, hospitality, landscaping, and retail.
Current wording
As of December 31, 2024 we had approximately 425 franchisee-owned offices and 1 company-owned office in 44 states, the District of Columbia, and 13 countries outside of the United States. We licensed our tradenames to approximately 6 offices in California. In addition, there were 12 MRI locations that provided contract staffing services only. We provide employment for an estimated 65 thousand temporary employees annually working for thousands of clients in many industries including construction, healthcare, recycling, warehousing, logistics, auctioneering, manufacturing, hospitality, landscaping, and retail.
Previous wording
We finished 2023 with a strong balance sheet. Our assets exceeded liabilities by over $62.7 million. Our liquidity position stayed strong in 2023 with Current Assets at December 31, 2023 of $51.5 million staying approximately the same as at December 31, 2022 ($51.9 million).
Current wording
We finished 2024 with a strong balance sheet. Our assets exceeded liabilities by over $64.8 million. Our liquidity position stayed strong in 2024 with Current Assets at December 31, 2024 of $49.2 million compared to $51.5 million at December 31, 2023.
Previous wording
Our total revenue consists of franchise royalties, and service revenue we receive from our franchises. Revenue would also include staffing revenue with respect owned locations. Once a company-owned office is sold, disposed of, or otherwise classified as held-for-sale, it would not be reflected in revenue and instead reported as “Income from discontinued operations, net of tax.” For a description of our revenue recognition practices, please refer to “Note 1–* Overview and Summary of Significant Accounting Policies*–* Revenue Recognition,” and “Critical Accounting Estimates– Revenue Recognition*,” which disclosure is incorporated herein by reference.
Current wording
Our total revenue consists of franchise royalties, and service revenue we receive from our franchises. Revenue would also include staffing revenue with respect to owned locations. Once a company-owned office is sold, disposed of, or otherwise classified as held-for-sale, it would not be reflected in revenue and instead reported as “Income from discontinued operations, net of tax.” For a description of our revenue recognition practices, please refer to “Note 1–* Overview and Summary of Significant Accounting Policies*–* Revenue Recognition,*” which disclosure is incorporated herein by reference.
Previous wording
Total revenue for the year ended December 31, 2023 was approximately $37.9 million compared to $30.9 million for the year ended December 31, 2022, an increase of 22.4%. This increase is roughly consistent with the increase in underlying system-wide-sales and reflects a lower blended effective royalty rate for 2023 than for 2022, as described below. Revenue does not include any company-owned offices, as the office that we own is classified as held-for-sale.
Current wording
Total revenue for the year ended December 31, 2024 was approximately $34.6 million compared to $37.9 million for the year ended December 31, 2023, a decrease of 8.7%. This decrease is roughly consistent with the decrease in underlying system-wide sales which decreased 6.9% from $605.1 million in 2023 to $563.6 million in 2024. Revenue does not include any company-owned offices, as the office that we own is classified as held-for-sale.
Previous wording
Franchise royalties for the year ended December 31, 2023 were approximately $35.8 million compared to $28.9 million for the year ended December 31, 2022, an increase of 23.9%, driven predominantly by the inclusion of a full year of MRI royalties in 2023 versus only approximately one month in 2022. The blended effective royalty rate for 2023 and 2022 was 6.0% and 6.4%, respectively.
Current wording
Franchise royalties for the year ended December 31, 2024 were approximately $32.7 million compared to $35.8 million for the year ended December 31, 2023, a decrease of 8.8%, driven predominantly by a decline in total system-wide sales of $41.5 million from $605.1 million in 2023 to $563.6 million in 2024 . The blended effective royalty rate for 2024 and 2023 was 5.8% and 5.9%, respectively.
Previous wording
Service revenue consists of revenue generated from franchisees that are outside of our core services such as license fees, franchise fees related to our advertising fund, and miscellaneous income. This includes interest we charge our franchisees on overdue customer accounts receivable and other miscellaneous fees for optional services we provide. As accounts receivable age over 42 days, our franchisees pay us interest on these accounts equal to 0.5% of the amount of the uncollected receivable each 14-day period. Accounts that age over between 42 and 84 days are charged back to the franchisee and no longer incur interest. Some of our franchisees elect to charge back accounts before they age 84 days in order to reduce or avoid the interest charge. Service revenue also includes amounts charged for various optional services and cost-sharing arrangements such as bulk vender programs or IT license blocks. Generally, we do not profit from these arrangements as they represent pass-through items, although there may be timing differences.
Current wording
Service revenue consists of revenue generated from franchisees that are outside of our core services such as license fees, franchise fees related to our advertising fund, and miscellaneous income. This includes interest we charge our franchisees on overdue customer accounts receivable and other miscellaneous fees for optional services we provide. As accounts receivable age over 42 days, our franchisees pay us interest on these accounts equal to 0.5% of the amount of the uncollected receivable each 14-day period. Accounts that age over between 42 and 84 days are charged back to the franchisee and no longer incur interest. Some of our franchisees elect to charge back accounts before they age 84 days in order to reduce or avoid the interest charge. Service revenue also includes amounts charged for various optional services and cost-sharing arrangements such as bulk vender programs or IT licenses. Generally, we do not profit from these arrangements as they represent pass-through items, although there may be timing differences.
Previous wording
Service revenue for the year ended December 31, 2023 was approximately $2.1 million compared to $2.1 million for the year ended December 31, 2022, a slight increase. Interest on overdue accounts decreased approximately $96 thousand from $946 thousand for the year ended December 31, 2022 to $850 thousand for the year ended at December 31, 2023. This decrease follows the overall decrease in accounts receivable. We pride ourselves on maintaining quality, creditworthy customers who pay timely, and the Company does not strive to increase interest on aged accounts receivable. Fees collected related to our advertising fund increased by approximately $514 thousand and is related to the MRI acquisition. License fees from California locations were $136 thousand for the year ended December 31,2023.
Current wording
Service revenue for the year ended December 31, 2024 was approximately $1.9 million which decreased when compared to $2.1 million for the year ended December 31, 2023. Interest on overdue accounts decreased approximately $62 thousand from $850 thousand for the year ended December 31, 2023 to $788 thousand for the year ended at December 31, 2024. This decrease follows the overall decrease in accounts receivable. We pride ourselves on maintaining quality, creditworthy customers who pay timely, and the Company does not strive to increase interest on aged accounts receivable. Fees collected related to our advertising fund decreased by approximately $126 thousand from $515 thousand in 2023 to $389 thousand in 2023 and is related to the decline in MRI system-wide sales.
Previous wording
Operating expenses for the year ended December 31, 2023 were approximately $27.2 million compared to $14.9 million for the year ended December 31, 2022, an increase of $12.2 million. This increase was primarily driven by a $5.6 million increase in workers compensation due to higher claims and higher personnel, amortization and other costs related to the MRI acquisition.
Current wording
Operating expenses for the year ended December 31, 2024 were approximately $30.2 million compared to $27.2 million for the year ended December 31, 2023, an increase of $3.0 million. This increase was primarily driven by a $6.0 million goodwill and intangible asset charge in 2024 associated with MRI partially offset by a $1.2 million decrease in salaries, bonuses and stock based compensation and a $1.7 million reduction in net workers' compensation expense.
Previous wording
Workers' compensationexpensewas approximately $3.7 million for the year ended December 31, 2023, versus a netbenefitof approximately $1.9 million for the year ended December 31, 2021. This increase is primarily due to (i) medical claims that were higher than historical claims, (ii) continued increases in medical costs and (iii) 2022 was a one-time benefit from the Snelling acquisition which is explained below. Our workers' compensation reserves provide benefits following a workplace injury. Benefits are usually statutory in nature and are generally provided in partial or complete replacement of the injured worker’s recourse to the liability system. Payments may include medical treatment, rehabilitation, lost wages, and survivor benefits. Workers compensation rating is typically based on job classification, and our workers fall in hundreds of classifications. Annually, we use third-party actuaries to ensure that the overall ratings are sound, that individual insurer rates are adequate, and that individual risks receive a fair rate that reflects both the characteristics of the job classification and the Company's risk experience. Approximately $1.2 millionof the benefit recorded during 2022 relates to the Snelling reserve assumed at the time of acquisition and continues to run off as claims are resolved. Generally workers' compensation expense (benefit) will fluctuate based on the mix of classifications, the level of payroll, recent claims resolution and cumulative experience. We cannot accurately predict the effects of workers' compensation in future periods, and historical trends may not be indicative of future results.
Current wording
Workers' compensation expense was approximately $2.0 million for the year ended December 31, 2024, versus an expense of approximately $3.7 million for the year ended December 31, 2023 a decrease of $1.7 million. This decrease is primarily due to a decreased number of medical claims relative to comparison periods. Our workers' compensation reserves provide benefits following a workplace injury. Benefits are usually statutory in nature and are generally provided in partial or complete replacement of the injured worker’s recourse to the liability system. Payments may include medical treatment, rehabilitation, lost wages, and survivor benefits. Workers compensation rating is typically based on job classification, and our workers typically fall into hundreds of different classifications. Annually, we use third-party actuaries to ensure that the overall ratings are sound, that individual insurer rates are adequate, and that individual risks receive a fair rate that reflects both the characteristics of the job classification and the Company's risk experience. Generally workers' compensation expense or benefit will fluctuate based on the mix of classifications, the level of payroll, recent claims resolution and cumulative experience. We cannot accurately predict the effects of workers' compensation in future periods, and historical trends may not be indicative of future results.
Previous wording
Depreciation and amortization for the year ended December 31, 2023 was approximately $2.8 million compared to $2.0 million for the year ended December 31, 2022. The increase was due to additional amortization stemming from acquisitions. In the 2022 acquisitions we acquired $5.6 million of franchise related intangibles, and $3.6 million of other intangibles. Of the $3.6 million in other intangibles, $3.6 million is indefinite lived and is not amortized.
Current wording
Depreciation and amortization for the year ended December 31, 2024 was approximately $2.8 million compared to $2.8 million for the year ended December 31, 2023.
Previous wording
Other miscellaneous income and expense includes all non-operating income and expense other than interest and taxes. For the year ended December 31, 2023, other miscellaneous expense was approximately $1.7 million, compared to $2.0 million of other miscellaneous expense for the year ended December 31, 2022. In 2023 the largest component of this loss is related to the loss of $2.0 million on disposition of the TEC assets. This was partially offset by $187 thousand in rental income from leasing of excess space at market rates at our Corporate Headquarters and $102 thousand of miscellaneous other income. In 2022, we recognized approximately $2.2 million in losses resulting from the conversion of the Temporary Alternatives, Dubin and Northbound acquisitions to franchises, and a $195 thousand non-royalty based incentive given to two franchises during an expansion and acquisitions of competitors.
Current wording
Other miscellaneous income and expense includes all non-operating income and expense other than interest and taxes. For the year ended December 31, 2024, other miscellaneous income was approximately $144 thousand, compared to $1.7 million of other miscellaneous expense for the year ended December 31, 2023. In 2023 the largest component of this loss is related to the loss of $2.1 million on disposition of the TEC assets. This was partially offset by $187 thousand in rental income from leasing of excess space at market rates at our Corporate Headquarters and $102 thousand of miscellaneous other income.
Previous wording
Interest income for the year ended December 31, 2023 was approximately $263 thousand compared to $247 thousand for the year ended December 31, 2022. Interest income represents interest related to the financing of franchised locations.
Current wording
Interest income for the year ended December 31, 2024 was approximately $556 thousand compared to $263 thousand for the year ended December 31, 2023. Interest income represents interest related to the financing of franchised locations. The increase is primarily driven by the disposition of the TEC assets.
Previous wording
Interest and other financing expense relates primarily to our revolving credit. Interest and other financing expense increased approximately $1.0 million to $1.4 million in the year ended December 31, 2023 when compared to the $368K for the year ended December 31, 2022. This increase was due, in part, to (i) a one-time write-off of costs associated with our previous line of credit with Truist, and (ii) a higher interest rate environment. Interest and other financing expense will fluctuate as we utilize the line of credit for acquisitions or other short-term liquidity needs. In addition, rising U.S. interest rates have been driven mainly by more aggressive action from the Federal Reserve to rein in inflation.
Current wording
Interest and other financing expense relates primarily to our revolving credit facility. Interest and other financing expense decreased approximately $0.4 million to $1.0 million in the year ended December 31, 2024 when compared to the $1.4 million for the year ended December 31, 2023. This decrease was due primarilyto lower average borrowings during the year. In 2024 our average borrowings were $13.3 million versus $16.5 million in 2023. Interest and other financing expense will fluctuate as we utilize the line of credit for acquisitions or other short-term liquidity needs.
Previous wording
Income tax expense was approximately $1.3 million in 2023 and $1.9 million in 2022. The effective tax rates for 2023 and 2022 were 17.3% and 13.7% respectively. The effective tax rate is primarily driven by the federal Work Opportunity Tax Credit, which reduced our effective tax rate by 11.9% and 9.1% for the years ended December 31, 2023 and December 31, 2022, respectively, and is included as part of income tax expense because it can be claimed only on the income tax return and can be realized only through the existence of taxable income. Other factors impacting our effective rate include windfall tax deductions related to stock-based compensation, and deduction limits on overall compensation.
Current wording
Income tax expense was approximately $0.2 million in 2024 and $1.3 million in 2023. The effective tax rates for 2024 and 2023 were 5.3% and 17.3%, respectively. The effective tax rate is primarily driven by the federal Work Opportunity Tax Credit, which reduced our effec tive tax rate by 21% and 12% for the years ended December 31, 2024 and December 31, 2023, respectively, and is included as part of income tax expense because it can be claimed only on the income tax return and can be realized only through the existence of taxable income. Other factors impacting our effective rate include windfall tax deductions related to stock-based compensation, and deduction limits on overall compensation.
Previous wording
(Loss) income from discontinued operations, net of tax
Current wording
Loss from discontinued operations, net of tax
Previous wording
As of December 31, 2023 there was 1 company-owned location reported as discontinued operations:
Current wording
As of December 31, 2024 and 2023 there was 1 company-owned location reported as discontinued operations:
Previous wording
The (loss) income from discontinued operations amounts as reported on our consolidated statements of operations was comprised of the following amounts (in thousands):
Current wording
The loss from discontinued operations amounts as reported on our consolidated statements of income was comprised of the following amounts:
Previous wording
At December 31, 2023 our current assets exceeded our current liabilities by approximately $15.7 million. Our current assets included approximately $1.3 million of cash and $44.4 million of accounts receivable, which our franchisees have billed to customers and which we own in accordance with our franchise agreements. As of December 31, 2023, the outstanding balance under our line of credit with Bank of America was $14.1 million, with approximately another $9.7 million utilized for the issuance of Letters of Credit, leaving approximately $26.2 million available for additional borrowing under the line as of such date, assuming compliance with necessary conditions. Other current liabilities include approximately $9.9 million due to our franchisees, $4.3 million of accrued wages, benefits and payroll taxes, and $3.9 million related to our workers’ compensation claims liability.
Current wording
At December 31, 2024 our current assets exceeded our current liabilities by approximately $25.1 million. Our current assets included approximately $2.2 million of cash and**$42.3 **million of accounts receivable, which our franchisees have billed to customers and which we own in accordance with our franchise agreements. As of December 31, 2024, the outstanding balance under our line of credit with Bank of America was $6.8 million, with approximately another $9.7 million utilized for the issuance of Letters of Credit, leaving approximately $33.4 million available for additional borrowing under the line as of such date, assuming compliance with necessary conditions. Other current liabilities include approximately $7.6 million due to our franchisees, $2.6 million of accrued wages, benefits and payroll taxes, and $3.6 million related to our workers’ compensation claims liability.
Previous wording
Our working capital requirements are driven largely by temporary employee payroll, which is typically daily or weekly, and weekly cash settlements with our franchises. Since collections from accounts receivable lag employee pay our working capital requirements increase as system-wide sales increase, and vice-versa. When the economy contracts, our cash balance tends to increase in the short-term as payroll funding requirements decrease and accounts receivable are converted to cash upon collection. As the economy recovers, our cash balance generally decreases and accounts receivable increase.
Current wording
Our working capital requirements are driven largely by temporary employee payroll, which is typically paid daily or weekly, and weekly cash settlements with our franchises. Since collections from accounts receivable lag employee pay our working capital requirements increase as system-wide sales increase, and vice-versa. When the economy contracts, our cash balance tends to increase in the short-term as payroll funding requirements decrease and accounts receivable are converted to cash upon collection and not replaced with additional billings. As the economy recovers, this dynamic generally reverses.
Previous wording
During 2023, net cash generated by operating activities was approximately $10.6 million. Operating activity for the year included net income of approximately $6.1 million offset by a decrease in balance sheet assets and an increase in balance sheet liabilities totaling approximately $2.8 million. We also had significant non-cash expenses in 2023, including approximately $1.7 million in stock-based compensation, $2.8 million in depreciation and amortization, and a loss on conversion of acquired operations into franchises of $2.0 million
Current wording
During 2024 net cash generated by operating activities was approximately $12.3 million. Net cash generated by operating activities for the year included net income of approximately $3.9 million and a change of working capital of $0.9 million as a use of cash which was partially offset by significant non-cash expenses in 2024, including approximately $6.0 million in an intangible asset and goodwill impairment charge, $1.8 million in stock-based compensation, and $2.8 million in depreciation and amortization.
Previous wording
During 2023, net cash used in investing activities was approximately $7.1 million and included cash paid for acquisitions of $9.8 million. These were partially offset by proceeds from the conversion of acquired offices into franchises of $2.3 million.
Current wording
During 2024, net cash generated from investing activities was approximately $44 thousand and included cash proceeds from the conversion of acquired offices into franchisees of approximately $717 thousand and proceeds from payments on notes receivable of approximately $1.6 million. These proceeds were offset by cash paid paid for acquisitions of $1.7 million.
Previous wording
During 2023, net cash used in financing activities was approximately $5.2 million which was primarily due to net payments on our revolving credit/term loan amounting to $1.6 million, and by the payment of dividends of approximately $3.3 million.
Current wording
During 2024, net cash used in financing activities was approximately $11.2 million which was primarily due to a net payback on our revolving credit of $7.3 million, and by the payment of dividends of approximately $3.4 million.
Previous wording
On February 28, 2023 the Company and all of its subsidiaries as borrowers entered into a Revolving Credit Agreement ("Credit Agreement") with Bank of America, N.A. for a $50,000,000 revolving facility (the “Senior Credit Facility”), which includes a $20,000,000 sublimit for the issuance of standby letters of credit. The Company also has a one-time right, upon at least ten Business Days’ prior written notice to the Bank to increase the maximum amount of the Senior Credit Facility to $60 million. The Senior Credit Facility replaced the Company's prior $60 million credit agreement with Truist Bank. The Senior Credit Facility provides for certain financial covenants including maintaining an Asset Coverage Ratio of at least 1.0:1.0 at all times; maintaining a Total Funded Debt to Adjusted EBITDA Ratio not exceeding 3.0:1.0; and maintaining, on a consolidated basis, a Fixed Charge Coverage Ratio of at least 1.25:1.0. Interest will accrue on the outstanding balance of the Senior Credit Facility at a variable rate equal to (a) the BSBY Daily Floating Rate plus a margin between 1.00% and 1.75% per annum. In each case, the applicable margin is determined by the Company's Total Funded Debt to Adjusted EBITDA, as defined in the Credit Agreement. At December 31, 2023 the effective interest rate was approximately 6.7%. The Senior Credit Facility will mature on February 28, 2028. As part of this refinancing we recorded a loss on debt extinguishment of approximately $310 thousand, which is reflected on the line item, "Interest and other financing expense," in our consolidated statement of income for the nine months ended September 30, 2023.
Current wording
On February 28, 2023 the Company and all of its subsidiaries as borrowers entered into a Revolving Credit Agreement ("Credit Agreement") with Bank of America, N.A. for a $50,000,000 revolving facility (the “Senior Credit Facility”), which includes a $20,000,000 sublimit for the issuance of standby letters of credit. The Company also has a one-time right, upon at least ten Business Days’ prior written notice to the Bank to increase the maximum amount of the Senior Credit Facility to $60 million. The Senior Credit Facility provides for certain financial covenants including maintaining an Asset Coverage Ratio of at least 1.0:1.0 at all times; maintaining a Total Funded Debt to Adjusted EBITDA Ratio not exceeding 3.0:1.0; and maintaining, on a consolidated basis, a Fixed Charge Coverage Ratio of at least 1.25:1.0. Interest will accrue on the outstanding balance of the Senior Credit Facility at a variable rate equal to (a) the BSBY Daily Floating Rate plus a margin between 1.00% and 1.75% per annum. In each case, the applicable margin is determined by the Company's Total Funded Debt to Adjusted EBITDA, as defined in the Credit Agreement. The Senior Credit Facility will mature on February 28, 2028. As part of this refinancing we recorded a loss on debt extinguishment of approximately $310 thousand, which is reflected on the line item, "Interest and other financing expense," in our consolidated statement of income for 2023.
Previous wording
At December 31, 2023, availability under the Senior Credit Facility was approximately $26.2 million based on eligible collateral, less letter of credit reserves, bank product reserves and current advances assuming continued covenant compliance. Approximately $9.2 million of availability under the Senior Credit Facility was utilized by outstanding letters of credit that secure our obligations to our workers’ compensation insurance carrier, and $500 thousand was utilized by a letter of credit that secures our pay-card funding account. Our all-in rate of borrowing for the year ended December 31, 2023 was 6.7% and is repriced daily. For additional information related to the letter of credit securing our workers’ compensation obligations see Note 5 - Workers’ Compensation Insurance and Reserves.
Current wording
At December 31, 2024, availability under the Senior Credit Facility was approximately** $33.6 million based on eligible collateral, less letter of credit reserves, bank product reserves and current advances assuming continued covenant compliance. Approximately $9.2 million of availability under the Senior Credit Facility was utilized by outstanding letters of credit that secure our obligations to our workers’ compensation insurance carrier, and $500 thousand was utilized by a letter of credit that secures our pay-card funding account. **Ouraverage borrowing rate for the year ended December 31, 2024 was 6.5% and is repriced daily. For additional information related to the letter of credit securing our workers’ compensation obligations see Note 5 - Workers’ Compensation Insurance and Reserves.
Previous wording
System-wide sales were $605.1 million in 2023, an increase of 28.1%, from $472.2 million in 2022. The increase in system-wide sales is primarily related to the acquisition of MRI in December 2022. System-wide sales attributable to acquisitions in 2023 were approximately $1.7 million.
Current wording
System-wide sales were $563.6 million in 2024, a decrease of 6.9%, from $605.1 million in 2023. The decrease in system-wide sales is primarily related to a decrease in demand in the staffing and recruiting industry during the year which particularly affected MRI where system-wide sales decreased 18.6% or $31 million in 2024 when compared to 2023.
Previous wording
We track the number of offices we open and close every year as the number of offices is usually directly tied to the amount of royalty and service revenue we earn. In 2023, we declined our office count by 8 offices on a net basis by opening or acquiring 21 and closing 29. In 2022, we added 218 offices on a net basis by opening or acquiring 223 and closing 5.
Current wording
We track the number of offices we open and close every year as the number of offices is usually directly tied to the amount of royalty and service revenue we earn. In 2024, we decreased our office count by 2 offices on a net basis by opening or acquiring 30 and closing 32.
Previous wording
We maintain reserves for workers’ compensation claims based on their estimated future cost. These reserves include claims that have been reported but not settled, as well as claims that have been incurred but not reported. Our estimated workers’ compensation claims liability was $6.6 million at December 31, 2023, versus $5.9 million at December 31, 2022. The increase is due to claims developing higher than expected. Annually, we engage an independent actuary to estimate the future costs of these claims. Quarterly, we use development factors provided by an independent actuary to estimate the future costs of these claims. We make adjustments as necessary. If the actual costs of the claims exceed the amount estimated, we may incur additional charges.
Current wording
We maintain reserves for workers’ compensation claims based on their estimated future cost. These reserves include claims that have been reported but not settled, as well as claims that have been incurred but not reported. Our estimated workers’ compensation claims liability was $6.3 million at December 31, 2024, versus $6.6 million at December 31, 2023. The decrease is due to our having now fully reserved claims from prior years which developed at a higher rate than historical norms. Annually, we engage an independent actuary to estimate the future costs of these claims. Quarterly, we use development factors provided by an independent actuary to estimate the future costs of these claims. We make adjustments as necessary. If the actual costs of the claims exceed the amount estimated, we may incur additional charges.
Previous wording
Notes receivable from franchisees consist primarily of amounts due to us related to the financing of franchised locations. We report notes receivable from franchisees at the principal balance outstanding less an allowance for losses. We charge interest at a fixed rate and interest income is calculated by applying the effective rate to the outstanding principal balance. Notes receivable are generally secured by the assets of each location and the ownership interests in the franchise. We monitor the financial condition of our debtors and record provisions for estimated losses when we believe it is probable that our debtors will be unable to make their required payments. We evaluate the potential impairment of notes receivable based on various analyses, including estimated discounted future cash flows, at least annually and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When a note receivable is deemed impaired, we discontinue accruing interest and only recognize interest income when payment is received. Our allowance for losses on notes receivable was approximately $623 thousand and $260 thousand at December 31, 2023 and December 31, 2022, respectively.
Current wording
Notes receivable from franchisees consist primarily of amounts due to us related to the financing of franchised locations. We report notes receivable from franchisees at the principal balance outstanding less an allowance for losses. We charge interest at a fixed rate and interest income is calculated by applying the effective rate to the outstanding principal balance. Notes receivable are generally secured by the assets of each location and the ownership interests in the franchise. We monitor the financial condition of our debtors and record provisions for estimated losses when we believe it is probable that our debtors will be unable to make their required payments. We evaluate the potential impairment of notes receivable based on various analyses, including estimated discounted future cash flows, at least annually and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When a note receivable is deemed impaired, we discontinue accruing interest and only recognize interest income when payment is received. Our allowance for credit losses on notes receivable was approximately $773 thousand and $623 thousand at December 31, 2024 and December 31, 2023, respectively.