HireQuest, Inc.

Previous 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.

Current wording

As of December 31, 2025 we had 413 franchisee-owned offices and 1 company-owned office in 43 states, the District of Columbia, and 14 countries outside of the United States. 197 of those offices operated by 177 franchisees were MRI offices which were divested to MRINetwork Operations, LLC on January 1, 2026. In addition, there were 18 MRI locations that provided contract staffing services only. We provide employment for an estimated 75 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 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.

Current wording

We finished 2025 with a strong balance sheet. Our assets exceeded liabilities by over $68.3 million. Our liquidity position stayed strong in 2025 with Current Assets at December 31, 2025 of $48.3 million compared to $49.2 million at December 31, 2024.

Previous wording

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 wording

On a year-over-year basis, we saw a 11.3% decrease in our system-wide sales from $563.6 million in 2024 to $500.2 million in 2025 as the overall staffing and recruiting industry remained soft during the year due to overall economic factors including inflation and lack of investment in economic expansion given global uncertainty. MRI, in particular, along with other professional recruiting and staffing brands, was impacted by the continued uncertainty in the overall economy which may have led to less hiring. System-wide sales for MRI and the other professional recruiting and staffing brands decreased 26.6%, or $36.1 million in 2025 when compared to 2024.

Previous wording

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 wording

We recorded an 11.4% decrease in total revenue from $34.6 million in 2024 to $30.6 million in 2025. Income from operations increased to $6.3 million in 2025 from $4.4 million in 2024 due to the $6.0 million goodwill and intangible asset charge associated with the MRI acquisition in 2024, partially offset by a decline in system-wide sales and associated revenues.

Previous 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.

Current wording

Total revenue for the year ended December 31, 2025 was approximately $30.6 million compared to $34.6 million for the year ended December 31, 2024, a decrease of 11.4%. This decrease is roughly consistent with the decrease in underlying system-wide sales which decreased 11.3% from $563.6 million in 2024 to $500.2 million in 2025. The office that we own is classified as held-for-sale and is not included in revenue.

Previous wording

We charge our franchisees a royalty fee on the basis of one of several models. Under the HireQuest Direct model, the royalty fee charged ranges from 6% to 8% of gross billings, depending on volume. Royalty fees are charged at 8% for the first $1 million of billing with the royalty fee dropping 0.5% for every $1 million of billing thereafter until the royalty fee is 6% (once gross billings reach $4 million annually). The smaller royalty fee is charged only on the incremental dollars resulting in an effective royalty fee at a blended rate of between 6% and 8%. We will grant our franchisees credits for low margin business. For the HireQuest, Snelling, DriverQuest, HQ Medical, and TradeCorp model, our royalty fee is 4.5% of the temporary payroll we fund plus 18% of the gross margin for the territory. Most franchise agreements provide for a royalty of 5% to 7% of direct placement sales. For the Snelling and SearchPath franchise agreements assumed where the franchise owner did not execute new HireQuest or HireQuest Direct business line franchise agreements, the royalty fee ranges from 5% to 8% of all sales. MRI franchise agreements assumed have royalty rates varying from 1% to 9% of placement sales, depending on sales volume and other factors. 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.

Current wording

We charge our franchisees a royalty fee on the basis of one of several models. Under the HireQuest Direct model, the royalty fee charged ranges from 6% to 8% of gross billings, depending on volume. Royalty fees are charged at 8% for the first $1 million of billing with the royalty fee dropping 0.5% for every $1 million of billing thereafter until the royalty fee is 6% (once gross billings reach $4 million annually). The smaller royalty fee is charged only on the incremental dollars resulting in an effective royalty fee at a blended rate of between 6% and 8%. We will grant our franchisees credits for low margin business. For the Snelling, DriverQuest, HQ Medical, and TradeCorp model, our royalty fee is 4.5% of the temporary payroll we fund plus 18% of the gross margin for the territory. Most franchise agreements provide for a royalty of 5% to 7% of direct placement sales. For the Snelling and SearchPath franchise agreements assumed where the franchise owner did not execute new HireQuest or HireQuest Direct business line franchise agreements, the royalty fee ranges from 5% to 8% of all sales. MRI franchise agreements assumed have royalty rates varying from 1% to 9% of placement sales, depending on sales volume and other factors. 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.

Previous 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.

Current wording

Franchise royalties for the year ended December 31, 2025 were approximately $29.0 million compared to $32.7 million for the year ended December 31, 2024, a decrease of 11.3%, driven predominantly by a decline in total system-wide sales of $63.4 million from $563.6 million in 2024 to $500.2 million in 2025 . The blended effective royalty rate for 2025 and 2024 was the same at 5.8%.

Previous 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.

Current wording

Service revenue for the year ended December 31, 2025 was approximately $1.6 million which decreased when compared to $1.9 million for the year ended December 31, 2024. Interest on overdue accounts increased approximately $116 thousand from $788 thousand for the year ended December 31, 2024 to $904 thousand for the year ended at December 31, 2025. This increase is related to an increase in accounts that were paid between 42 and 84 days outstanding. We pride ourselves on maintaining quality, creditworthy customers who pay timely, and the Company does not strive to increase interest on aged accounts receivable. Net insurance fees decreased by approximately $236 thousand to $94 thousand in 2025 from $330 thousand in 2024. The decrease in net insurance fees was primarily related to increased insurance costs to HireQuest as well as a decline in payroll in both our HireQuest Direct and Snelling offerings. Fees collected related to our advertising fund decreased by approximately $128 thousand from $389 thousand in 2024 to $261 thousand in 2025 and is related to the decline in MRI system-wide sales.

Previous 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.

Current wording

Operating expenses for the year ended December 31, 2025 were approximately $24.4 million compared to $30.2 million for the year ended December 31, 2024, a decrease of $5.8 million. This decrease was primarily driven by a $6.0 million goodwill and intangible asset charge in 2024 compared to only $674 thousand in 2025. The goodwill and intangible asset charge in both 2024 and 2025 were associated with MRI. Salaries, bonuses and stock based compensation also decreased approximately $828 thousand and net workers' compensation expense decreased $1.9 million. These decreases were partially offset by $1.2 million in transaction related expenses in 2025.

Previous 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.

Current wording

Workers' compensation expense was approximately $89 thousand for the year ended December 31, 2025, versus an expense of approximately $2.0 million for the year ended December 31, 2024, a decrease of $1.9 million. This decrease is primarily due to a decreased number of medical claims relative to the prior year along with an appropriate adjustment to amounts collected versus paid on such claims. 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

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 wording

Other Operating Expenses for the year ended December 31, 2025 were approximately $21.3 million compared to $25.5 million for the year ended December 31, 2024, a decrease of $4.2 million. The decrease in Other Operating expense primarily relates to a $6.0 million goodwill and intangible asset charge in 2024 compared to only $674 thousand in 2025, as well as a decrease of approximately $828 thousand in salaries, bonuses and stock based compensation. These decreases were partially offset by $1.2 million in transaction related expenses in 2025.

Previous 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.

Current wording

Depreciation and amortization for the year ended December 31, 2025 was approximately $3.0 million compared to $2.8 million for the year ended December 31, 2024. This increase is primarily the result of an IT project being placed in service causing amortization to begin.

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, 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.

Current wording

Other miscellaneous income includes all non-operating income and expense other than interest and taxes. For the year ended December 31, 2025, other miscellaneous income was approximately $223 thousand, compared to $145 thousand for the year ended December 31, 2024.

Previous 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.

Current wording

Interest income for the year ended December 31, 2025 was approximately $511 thousand compared to $556 thousand for the year ended December 31, 2024. Interest income represents interest related to the financing of franchised locations.

Previous 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.

Current wording

Interest and other financing expense relates primarily to our revolving credit facility. Interest and other financing expense decreased approximately $616 thousand to $307 thousand in the year ended December 31, 2025 when compared to the $923 thousand for the year ended December 31, 2024. This decrease was due primarilyto lower average borrowings during the year as we reduced borrowings on the line of credit with Bank of America to $0 as of December 31, 2025. 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 $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.

Current wording

Income tax expense was approximately $100 thousand in 2025 and $221 thousand in 2024. The effective tax rates for 2025 and 2024 were 1.5% and 5.3%, respectively. The effective tax rate is primarily driven by hiring tax credits, which reduced our effective tax rate by 28% and 21%for the years ended December 31, 2025 and December 31, 2024, 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

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.

Current wording

At December 31, 2025 our current assets exceeded our current liabilities by approximately $33.0 million. Our current assets included approximately $3.9 million of cash and**$39.3 **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, 2025, the outstanding balance under our line of credit with Bank of America was $0, with approximately another $9.7 million utilized for the issuance of Letters of Credit, leaving approximately $40.3 million available for additional borrowing under the line as of such date, assuming compliance with necessary conditions. Other current liabilities include approximately $7.0 million due to our franchisees, $1.8 million of accrued wages, benefits and payroll taxes, and $2.9 million related to our workers’ compensation claims liability.

Previous 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.

Current wording

During 2025 net cash generated by operating activities was approximately $12.1 million. Net cash generated by operating activities for the year included net income from continuing operations of approximately $6.6 million and a change of working capital of approximately $160 thousand as a source of cash. Non-cash expenses in 2025 included approximately $674 thousand in an intangible asset and goodwill impairment charge, $936 thousand in stock based compensation, and $3.0 million in depreciation and amortization.

Previous 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.

Current wording

During 2025, net cash generated from investing activities was approximately $296 thousand and included proceeds from payments on notes receivable of approximately $1.2 million. These proceeds were primarily offset by cash issued for notes receivable of $537 thousand and purchase of deferred compensation plan investments of $248 thousand.

Previous 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.

Current wording

During 2025, net cash used in financing activities was approximately $10.7 million which was primarily due to a net payback on our revolving credit of $6.8 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 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.

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.

Previous 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.

Current wording

At December 31, 2025, availability under the Senior Credit Facility was approximately** $40.3 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, 2025 was 3.7% and is repriced daily. For additional information related to the letter of credit securing our workers’ compensation obligations seeNote 5 - Workers’ Compensation Insurance and Reserves.

Previous 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.

Current wording

System-wide sales were $500.2 million in 2025, a decrease of 11.3%, from $563.6 million in 2024. 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 23.7% or $36.1 million in 2025 when compared to 2024. The remaining decrease of $27.3 million was due to the overall downturn of the economy including in the construction and manufacturing industries.

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 2024, we decreased our office count by 2 offices on a net basis by opening or acquiring 30 and closing 32.

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 2025, we decreased our office count by 12 offices on a net basis by opening or acquiring 7 and closing 19.

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 $6.3 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.

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 $5.2 million at December 31, 2025, versus $6.3 million at December 31, 2024. The decrease is due to our having now fully reserved claims from prior years as well as reduced payroll in 2025 and 2024. We estimate the future cost of these claims using several analytical techniques that incorporate actual loss activity, historical claims development patterns, and current period payroll and risk classification data. In addition, we engage an independent actuary to prepare an estimate of the future costs of claims. Management evaluates the independent actuarial estimate together with the results of our internal estimation methodologies when assessing the adequacy of the recorded workers’ compensation claims liability. We make adjustments as necessary. This liability involves significant judgment. 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 credit losses on notes receivable was approximately $773 thousand and $623 thousand at December 31, 2024 and December 31, 2023, 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 $1.2 million and $773 thousand at December 31, 2025 and December 31, 2024, respectively.

Previous wording

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 wording

During the third quarter of 2025, we completed our annual review of indefinite-lived intangible assets for potential impairment. As a result of this review, we concluded the carrying value of the MRI trade name exceeded its estimated fair value resulting in an impairment charge of $230 thousand. The related impairment was primarily due to a decrease in revenue attributable to the related business. In the fourth quarter of 2025, we entered into a contribution agreement which resulted in the transfer of certain assets and liabilities associated with MRI. Management deemed this a triggering event that led us to review the carrying value of intangible assets related to MRI. As a result of this review we concluded that the carrying amount of franchise agreements acquired in the MRI acquisition exceeded their estimated fair value resulting in an impairment charge of approximately $294 thousand. Also as a result of this review we concluded the carrying amount of the MRI trade name exceeded its estimated fair value resulting in an impairment charge of $150 thousand. These related impairments were attributable to decreased cash flows resulting from the contribution agreement.

Previous wording

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.

Current wording

The combined impairment charge of approximately $674 thousand and $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, 2025 and December 31, 2024, respectively.