HireQuest, Inc.

words such as may, could, would, will, should, believe, expect, anticipate, and similar expressions constitute forward-looking statements. These statements involve risks and uncertainties regarding our operations and our future results that could cause higher question results to differ materially from management's current expectations. We encourage you to review the Safe Harbor Statement and risk factors contained in the company's earnings release and its files to the SEC, including without limitation the most recent annual report on Form 10-K and other periodic reports, which identifies specific risk factors that may also cause actual results or events to differ materially from those described in the forward-looking statements. Copies of the company's most recent reports on Form 10-K and 10-Q may be obtained on the company's website at higherquest.com or the SEC's website at sec.gov. The company does not undertake to publicly update or revise any forward-looking statements after the call or date of this call. I'd also like to remind everyone that this call will be available for replay through March 25th. A link to the website replay of the call was also provided in the earnings release and is available on the company's website at HireQuest.com. I'd like now to turn the call over to HireQuest CEO, Rick Hermans. Rick?

Thank you for joining us. This has certainly been an eventful period for HireQuest. Over the last 120 days, we have taken advantage of our balance sheet and our profitable business model to make two highly strategic and accretive acquisitions during what continues to be a challenging period for our industry. The result of these two acquisitions is that we have additional revenue streams and a stronger national presence. We have augmented our on-demand staffing model, provided through HireQuest Direct franchises nationwide, by adding traditional commercial staffing, which will be sold by franchisees of the well-respected 70-year-old Snelling staffing name. These two models are complementary, and they deliver several benefits for us, including, one, first, They increase our national scale, making it easier to sell to national accounts and making our various trade names more recognizable. Second, adding commercial or weekly pay staffing models to our existing on-demand staffing operations significantly diversifies our approach. Third, we were able to meaningfully grow our system-wide sales at attractive valuations, taking advantage of the inherent leverage in our business model. As it relates to Snelling, we acquired a 70-year-old brand name that is well regarded throughout the industry. Finally, they enable us to efficiently leverage our corporate resources and our workers' compensation efforts, creating incremental profitability. Combined, our system-wide sales should exceed $340 million, even without a return to pre-COVID system-wide sales levels. In addition, we have licensed our trademarks for 10 offices in California, which should produce at least another $20 million in system-wide sales. HireQuest was built on a risk-mitigated business model, positioning us to deliver consistent profits even in challenging environments. Indeed, this was as challenging an environment for the on-demand staffing sector as we are likely to see in our lifetimes. with the cancellation of sporting events, concerts, auto auctions, and many other events which provide significant volume for our franchisees. Nevertheless, we remain profitable, and while it has been a difficult time for many of our franchisees, most of them have performed admirably and are well positioned to come out on the other side stronger for the challenge. Similarly, we took steps to de-risk these two transactions. We expect to further reduce any risk involved in these acquisitions in the future. First, we acquired Snelling Staffing, purchasing 47 locations, which generated approximately $87 million of system-wide sales in 2020. We determined that it was in our best strategic interest to sell certain Snelling locations to third parties and have done so. As mentioned before, four of these offices were transitioned to a third party in California who will license the Snelling trademark and pay us a royalty. Second, we have closed the acquisition of Link Staffing, acquiring 35 locations in nine states, adding incremental $57 million in system-wide sales. In line with our California strategy, we transferred the franchise agreements of six of these offices to be operated pursuant to the trademark license agreement. We expect these locations to convert to the Snelling name as it is well known in the industry. Financially, our royalty revenue reflects the challenges related to the pandemic. The temporary employment market began to find its footing following the bottoming out that we experienced over the spring and summer months. That we were able to navigate through the shutdowns and construction delays and the other effects of the pandemic speak to our franchisees resilience and professionalism. The staffing industry is subject to economic and business cycle risk, even under the best of conditions. Our franchise business model was designed with this in mind to reduce quarter to quarter volatility and insulate us from extreme swings in economic activity. Over the course of 2020, we demonstrated the value of our approach and remained profitable on double digit declines in system-wide sales and revenues. Our franchisees rose to the serious challenge of adjusting staffing levels and expenses to align with the current economic conditions and a steep decline in system-wide sales. Looking ahead, we are encouraged by the increasing availability of vaccines and what appears to be a moderation in the number of COVID-19 cases over the last several weeks. As a reminder, though, as the economy as a whole shows signs of recovery, there are certain sectors like leisure and hospitality where we have exposure that will most likely be later to recover, which highlights the significance of our recent acquisitions. Going forward, we will continue to evaluate additional strategic transactions, screening for fit within our existing business structure and solid economics that contribute to our financial results in a positive and meaningful way. Deploying a disciplined approach to M&A, we are focused on opportunities that provide an entree into new and attractive geographies, strengthen the presence of our existing franchisees, provide access to targeted national accounts, or place us in industries with similar employment dynamics. Any deals we accept will need to demonstrate an ability to be absorbed into our franchise model quickly and provide a positive financial contribution in a short amount of time. We are not interested in chasing scale or growth that does not fit within our existing profile. For the year, we delivered more than $5 million of net income, or 39 cents per diluted share, despite the nearly 13% in system-wide sales and significant reserves placed on a notes receivable. Importantly, we generated positive cash flow of more than $9 million, adding to our cash reserves and providing us with the resources and flexibility to selectively pursue the two strategic transactions I just discussed. Subsequent to these transactions, our balance sheet remains solid, and we expect again to be debt-free following the integration of the 80 new locations in a relatively short time. Disciplined and responsible capital allocation remains a critical cornerstone to our strategic framework and the overall health of the company. Simultaneously, we are allocating a portion of our cash flow to our shareholders in the form of regular quarterly cash dividends. Beginning in the third quarter of 2020, we declared a cash dividend of five cents per common share, which was followed by additional dividends at the same rate in December and March. We intend to continue to pay this dividend on a quarterly basis based on our business results and financial position at the discretion of the board. Our commitment to regular cash dividends underscores our confidence in our business model and our franchisees and the quality of the services they provide. Let me turn the call over now to Corey to discuss the financial results further. Corey?

Thank you, Rick, and good afternoon, everyone. Thank you for joining us. Total revenue in 2020 was $13.8 million, compared to $15.9 million in 2019, a decrease of 13%, and was primarily due to the economic shutdown caused by COVID-19. Total revenue consists of two components, franchise royalties, which make up roughly 90% of total revenue, and service revenue. Franchise royalties in 2020 were $12.8 million, compared to $14.7 million in 2019, a decrease of 12.8%. Service revenue, which is generated from interest charged to our franchisees on overdue accounts receivable and fees for various optional services, was $1 million compared to $1.2 million in 2019, a decrease of 15.5%, which was largely due to a decrease in miscellaneous fees charged for optional services. Selling general and administrative expenses in 2020 were down 33.7%, to $8.7 million compared to $13.1 million in 2019. This $4.4 million decrease was primarily due to $5.1 million in merger-related expenses that were incurred in 2019 but not present in 2020. This decrease was partially offset by an increase in stock-based compensation and a reserve placed on our notes receivable that were issued to finance the sale of the offices acquired in the 2019 merger. This reserve was directly related to the negative impact COVID-19 has had on the economy, the financial condition of our borrowers, and the value of the underlying collateral. Net income in 2020 was $5.4 million, or 39 cents per diluted share, compared to a net loss from continuing operations of $505,000 or negative five cents per diluted share in 2019. Taking a look at the fourth quarter. Total revenue in the fourth quarter of 2020 was $3.4 million, compared to $5.9 million in the fourth quarter of 2019, a decrease of 42%, again related to the economic shutdown caused by COVID-19. Franchise royalties in the fourth quarter of 2020 were $3.2 million, compared to $5.4 million in the fourth quarter of 2019, a decrease of 40.2%. Service revenue was $176,000 compared to $476,000 in the fourth quarter of 2019, a decrease of 63%. This decrease is largely due to a decrease in miscellaneous fees charged for optional services. Selling general and administrative expenses in the fourth quarter of 2020 were down 31.5% to $2.2 million, compared to $3.1 million in the fourth quarter of 2019. This $973,000 decrease was primarily due to a decrease in payroll costs and lower stock-based compensation. Net income was $1.4 million, or 10 cents per diluted share in the fourth quarter of 2020, compared to $3.5 million or 26 cents per diluted share in the fourth quarter of 2019. The fourth quarter of 2019 included a loss from continuing operations of $315,000 or a negative two cents per diluted share. Beginning in the third quarter, our board approved and the company paid its first quarterly dividend of five cents per common share to shareholders of record as of September 1, 2020. Subsequently, the Board approved a 5-cent cash dividend for payment in December and again in March of 2021. In 2020, we returned approximately $1.4 million in cash to our shareholders in the form of dividends. We expect to continue this practice and pay a cash dividend each quarter at the Board's discretion. Moving on to the balance sheet. We have grown our current assets to $39 million at December 31st, 2020 from $37 million at December 31st, 2019. Current assets at December 31st, 2020 included $13.7 million of cash and $21.3 million of accounts receivable, while current assets at December 31st, 2019 included $4.2 million of cash and $28.2 million of accounts receivable. Property and equipment increased by $1.3 million since the end of 2019 to $3.2 million at the end of 2020 as we continue the construction on a new building adjacent to our corporate headquarters, which will give us additional room for growth. We also began an IT project updating our front office software in 2020 that resulted in an intangible asset of $343,000 at December 31st, 2020. Our notes receivable balance, net of reserve, at December 31st, 2020, was $5.9 million. During 2020, we collected approximately $2.1 million in cash from these notes. And with that, I will turn the call back over to the operator for Q&A.

Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while you poll for questions. Your first question is coming from Aaron Edelheit. Your line is live.

Hi, Rick. I wanted to ask you a question about the two acquisitions. When you, even in the press release, and I think you alluded to it in your comments, of them having 133 million or so in system-wide sales. But when I look inside the AKs that you provided, Snelling, which did 95 million in 2020, actually did 123 million in 2019 and 135 million in 2018. And Link did, instead of 57 million that they did last year, in 2019, they did 85 and the previous year over 100 million. And when I'm just thinking about like a post-COVID kind of return to normal world, is there any reason to think that these two companies couldn't get back to what they were doing previously? I've got to think especially with your management and with really investing and paying attention, that maybe you could even exceed those, but I'm just, I'm curious if you could comment, I know you can't comment to the timing of when that may happen, but assuming we went back to normal, is there any reason we couldn't go back? Cause you're talking about 30 to potentially a hundred percent higher revenue rates for these companies just acquired.

Yeah, Aaron, I appreciate the, uh, appreciate the question. And I think that, You're right. I mean, if your philosophy is that the economy, whether it's in 2022 or 2023 or the second half of 2021, returns essentially to 2019, there's really no reason to believe that – there's nothing structurally – it's not like a bunch of offices have been closed so that those old results can't or shouldn't be – achieved and so you know as an example in 20 using just higher quest numbers we had our system-wide sales in 2019 were nearly when you include the first half of the year from command center you know was around 291 million and we ended up at around you know basically 30 percent less around 210 million and again there's it's not as though we closed multiple offices in multiple markets that we can never go back to that 291 million. And so, um, to answer your question is, is no, I would. So as much as our system wide sales, even at 2020 levels, let's say assuming a full 12 months of snelling and link and higher quest combined, you know, should be in that 300, you know, would be in that 350 to $360 million range. If you assume even a 25% reversion back to 2019, you're pushing somewhere in the $450 million, $460 million range for total system sales whenever the economy recovers. Of course, it may not – I mean there's a lot of reasons why it may not ever get back to that that are outside of our control. But again, there's nothing structurally that would stop us.

Gotcha. And my hats off to you to really acquire these two companies. If I understand correctly, one of them was a subsidiary of a bankrupt or a troubled company and another. But just for you to acquire these companies right before, in my opinion, the economy reopens, my hats off to you as a shareholder. Do you see more opportunities? You know, one of the things I see you make these acquisitions incredible acquisitions, even the one of command center that brought higher quest public. And I'm just curious if you could talk to kind of the opportunities to continue to consolidate the industry and put them underneath your management and the superior model that you have at higher quest.

Well, it's a good question. And so part of it is, I will say a lot of companies have tried to sort of quote unquote consolidate the staffing industry over time. And frankly, it hasn't necessarily gone very well. And which fundamentally goes back to the point of our model literally turns that on its head. And really our goal is to have local ownership, right? And so it does put a little bit you know, sometimes it puts limits on it, right? Because once we have a franchisee in a market, you know, it's harder to buy another one in it. And so I wouldn't necessarily, you know, see us, you know, we're not out there just to buy new companies. It's not really what we're looking for. That said, we now have an entirely separate platform from which to develop. And I think that's one of the key parts of this these acquisitions is really that historically HireQuest had a very very limited presence in the traditional commercial staffing market and while Snelling and Link obviously had much larger presences they were still by national standards relatively small but by putting them together now we have more than 80 offices which creates its own momentum because now the name has more value and the network has more value which makes it easier to grow and so you know we've already have more sort of commitments for people to open new offices in 2021 than we did in 2020 2020 and that was even let's say before covet hit and so you know one of the what i don't want people to overlook is the fact that these these acquisitions are really important for setting up organic growth as well. Anyway, they're very important for setting up organic growth. But look, we're always looking for additional opportunities. And I think that now it's just become clear to a lot of people sort of, you know, what the status of the market is. And the market really froze, frankly, in the end of 2020. Nobody wanted to sell. Nobody wanted to buy. Whereas now, like I said, opportunities have started to present themselves. And again, we'll continue to be active where the opportunity is appropriate.

And another question is just beyond staffing. Are there, you know, kind of longer-term visions? Are there other verticals or that you could utilize higher-quest franchise models, such as security guards or trucking? How far do you think you could take the model?

Well, that's a critical question, and it was alluded to in my remarks, talking about expanding into... expanding into... markets or industries that have similar employment dynamics. And security guards is a perfect example. Realistically, a security guard isn't significantly different from a lot of employment characteristics as a traditional, you know, let's say as a welder who is working as a temporary employee. And as a result, there are numerous industries that are like that that we can absolutely go into. That's why rather than chasing bad acquisitions or moving into, let's say, weak markets or getting involved in accounts with really low margins just to drive growth, frankly, the more realistic option for growth is to go into heavy... basically fragmented industries, again, like the security guard business where it's hard for a person who, they may be a great operator of a security guard company, but they don't have access to the cash to finance that type of payroll or maybe not have the requisite skills to employ 50 or 75 guards. And so, yes, there are a lot of opportunities for us to grow. The The runway for us is, frankly, it's almost unlimited, really.

And then just the last question, I won't monopolize more time, but when I look at, like, Live Nation, which owns Ticketmaster and runs concerts, they're at, like, all-time highs. And I think about your business and when we've talked before, you know, you do a lot of concerts and stadiums and sport events and things like that. And I look at the vaccine distribution schedule, pretty much every adult having access to vaccines by May, the latest may be June. I've got to think that your Q3, if concerts, and I'm not asking you to predict when it's going to happen, but if concerts and sports and we go back to normal, like you're set up for a pretty strong third quarter in that period. in that scenario. Is that correct in your mind?

There's no question. There's two main factors in that. Undoubtedly, obviously, I'm a football fan. The Super Bowl was where I live here in the Tampa Bay area. There's 15,000 people in the stadium. As a result, the amount of business that we would have otherwise had basically we got no business out of the Super Bowl whereas in a normal year we would have gotten a large amount of business and so you know obviously a if there are people in the stands in let's say for let's say for college football this this fall then that will be very very good for us and it will you know because that is a big that is a big component of our business. I will say, but what I do need to temper this with is right now is there is a bit of a, there is a challenge finding employees. All of our franchisees, almost all of our franchisees are struggling to find employees right now. And I suspect that's true of almost every company in the United States right now. And, you know, so I think that as as basically people's tax refunds get spent and as their stimulus checks get spent and as the $300 a week extra supplemental unemployment benefits go away, we'll actually also see a real improvement in our system-wide sales as well as people return to the workforce that right now have the liquidity to not work.

Gotcha. Thank you so much and appreciate it.

Thank you, Aaron.

Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star 1 on your phone at this time. Your next question is coming from Peter Rebover. Your line is live.

Hey, Rick. So congratulations on the acquisitions. Great job. So I was wondering if you could maybe update us on how that sort of changes your industrial and geographic mix from, you know, year-end 2020.

That's a good question, Peter, and good to talk to you. Obviously, from a geographical standpoint, we're probably the acquisitions, especially Link, puts us far heavier in Texas than what we used to be, which To be honest with you is one of the was one of the attractions of Link was to be heavier in Texas. And so now our two largest states by far are Florida and Texas, which are two of the most dynamic states in the country. So we're very happy with that. The characteristic of the employees obviously changed significantly now is probably 70, not 70, but probably about 40% of our business now represents people who you would typically think of as their blue collar, but whereas the on-demand staffing would tend and trend more towards construction and recycling facilities and cleanup of stadiums, as now we've transitioned to where we're significantly heavier in manufacturing and logistics which again to me is attractive especially logistics as you know one of the things the pandemic I believe the pandemic will leave sort of an permanent mark on retailing and it'll go more towards online which will increase the need for logistics companies and that will actually suit you know will really that shift will help our new found product line. So anyway, so that takes us where, again, we're pretty much a lot more in the traditional commercial staffing. The other part is that Snelling in particular did a lot or does a lot of executive search and one of our plans is to develop that further and so we certainly will hope to see a lot more perm placement fee income by our franchisees moving forward as we make more investments to grow that segment. The same is true with medical. Stelling had a kind of an emerging medical staffing unit and so we will also spend the resources to properly properly develop that as well. So we're excited that it's created a number of new avenues for growth for us. And yet, again, it positioned us, again, geographically stronger in a couple of the most dynamic markets. And again, I think it'll put us stronger into logistics, which will have very positive effects on our bottom line in the long run.

Okay, great. Thanks so much for the color. I guess a second question would be, you know, there's been a big push toward, you know, minimum wage increase. And as you said, more of a blue collar workers, which tend to whose wages tend to increase off of minimum wage. So I'm curious whether that's a, you know, a tailwind to your, you know, to the system wide sales, like you get to charge more and get to take a higher percentage and so on.

Yeah, that's a that's a great question. And I think that the funny part about it is really one of the, when you look at companies, our competitors, let's say like Manpower, ADECO, funny thing about it is that their largest markets are Europe. And so if you think of rigid labor laws and high costs, it's Europe. And so to the extent that if that becomes the future of the United States, it doesn't necessarily hurt temporary staffing that way. Personally, I think that higher wages may in the long run depress manufacturing activity in the country, and that's not necessarily a good thing. So I would just say that I think it's hit or miss in some respects to the extent that it forces more automation. Obviously, that's not good unemployment at all, which is bad for us. So candidly, I think it's a mixed bag.

Okay. Okay, a couple of kind of housekeeping questions. You had, I think last year, your blended kind of royalty rate was, I think, 12.8 on 210 million, which is about 6%. And is that on the 340 that you were discussing, is that something that we can kind of expect as well, 6%? Or is there a different dynamic or something else we should look for?

Yeah, I would simply say to you is that tricky part and I can't really give you a good answer on that other than it'll change quite a bit because Snelling in particular has probably half of the Snelling franchisees have a completely different royalty model than what Link and Higher Quest did and so the numbers are going to look a little bit screwy So I wish I could tell you that you can look at that and know whether it's good or bad, but it's going to be jacked because of that. I would say to you, though, as a general rule is it will probably drift down a little bit because light industrial staffing tends to have lower markups, and therefore our royalty is not as high. In order for our franchisees to be competitive, our royalty is lower on low-margin accounts. And so I would actually anticipate it to drift downwards a bit, notwithstanding even, like I said, the set of franchisees that have franchise agreements that are completely nonstandard.

Okay. Would that affect the other – The other revenue, will that be like less accounts receivable financing and all that stuff, or more just general question?

Yes. There are a certain number of offices, again, using the Snelling ones, where their royalty is, in essence, to utilize the Snelling network and the Snelling name. They don't receive workers' comp. They don't receive... all of the back office support, they don't receive the cash. And so it is a truly, you know, so it'll alter everything. That's why I'm trying to say it's kind of like, it's going to muddle things that way. It's going to muddle things that way. But in theory, we're still targeting the same net margin as what we always have.

In theory, that would sort of de-risk the balance sheet a little bit with less workers' comp liability. Is that the other thing that I heard you say?

I mean, that's true, but I mean, I will have to say as much as it might do that, to be honest with you, one of the biggest advantages that we offer as a franchisor is access to A-rated workers' comp. That's a big deal because it's one of the hardest things to get is, if you're a small staffing company, is to get workers' comp at all, other than through the state pools, which are generally catastrophic in the long run to run your business. And so while it is certainly less risky for us, right? We can lose money on providing workers' comp to a franchisee. On the flip side of it is, it really It really is one of the primary reasons why I myself would sit there and say, this is why our product is so darn good, is because of the access to workers' comp at a very attractive rate.

Got it. And then maybe moving down the bottom line, I think you guys had about $2.2 million in SG&A per press release. Was that cash? Is that a good run rate to think about it? With these acquisitions, will there be addition to that? Just kind of curious on all that.

Oh, there's no question. We're going to have, you know, we're going to have, actually I want to step back from that for a second. My senior management team did an amazing job with both these acquisitions of minimizing the amount of outside, you know, of outside costs. We didn't spend heavily on, you know, all sorts of outside advisors or anything like that. We worked you know we did the work ourselves mostly and as a result given you know thinking of the fact that we made acquisitions that totaled almost sixty percent of our you know that our existing system-wide sales you would expect huge amounts of transaction costs fortunately again due to the efforts of the management team we were able to keep those costs at a minimum and Even in both instances, they were both asset purchases, and as a result, we'll have far less lingering costs to absorb these acquisitions. To give you an idea, when we merged with Command Center, we were still paying rent six months later on their corporate headquarters. We have none of that in either of these deals. That said, first quarter, you know, first quarter is going to contain, you know, a boatload of, you know, a boatload of deal expenses.

No, I understand that. I mean, I guess I'm just thinking more of a run rate for it to think about, like, right. So just kind of for modeling purposes, right, like off the system-wide sales, like what's your cost base? What's your cash cost base going forward? And I was just curious whether the fourth quarter was a good number or not.

No, fourth quarter is not a good number simply because, obviously, we've increased our size by 60%. So that alone requires additional SG&A to handle it. Now, I do think, and one of the most important parts of these acquisitions, again, was also to restore a lot of the operating leverage we lost during the pandemic. I mean, we lost a ton of operating leverage. Now we're back up to where we get our operating leverage back. And, you know, so that was very – you know, that was very important. But, again, for us to be able to hold that fourth quarter, you know, there's no – no. But I would say that it would be proportional. You know, the increase in SG&A would be proportional, not – you know what I'm saying? So it would fit within it and, you know, it would fit within – you know, a 60% increase in sales.

Got it. I understand. Um, and then, uh, I guess the last question just maybe, I know you, you have been kind of low to talk about, but what, you have some detail in your building in South Carolina. I know you're adding stuff to it. Is it, you know, uh, how big is the building, et cetera. So just kind of curious, is it more valuable now? Can you borrow against it to make more acquisitions and all that stuff?

So, so the, the, look, the building's not going to be the white knight that's going to, you know, that's going to, you know, that's going to allow us to buy acquisitions or, you know, to buy other companies. We have, the building is nearly complete. We have, I don't know, we have a really slow builder. I'll tell you, we have a really slow builder. The, we expect it to be done relatively soon. The building, you know, it's, because of commercial real estate being what it is. I would say that there's no big hidden equity in it. I'll just say that. It's not like we built it for $4 million and it's worth $8 million or anything like that. It's proportionate to what we paid for. But it's nearly complete. It's about, I think, the total building buildings, once they're done, will be like 25,000 square feet of office space. But we have... leases in part of it to outside parties as well. And we won't occupy the whole thing. We don't have enough need for all of it. So we have room to grow within it. And if you want to rent some office space in Goose Creek, South Carolina, call me afterwards and we'll get you set up with a lease.

Got it. Well, that's great. I really appreciate all the call you're giving us today and congratulations on growing the company so much.

Thank you.

Thank you.

Your next question is coming from Bill Chen. Your line is live. Bill Chen, your line is live. Hi.

I was wondering if you could comment on the cadence of that organic growth after the acquisition. How do you think about it? Do you think about it from X number of locations that you can open? Do you think about it in terms of X percent of incremental products that you could offer, services that you could offer? So, any commentary on that would be helpful.

Sure. I mean, I guess the way I – just so you know, the way I view it is sort of how many new offices we sell franchises for. And frankly, after that, I look at it as our typical franchisee will hopefully be doing $2 million to $3 million worth of revenue two, three years down the road. I mean, that's how I look at it. Of course, it doesn't always work that way because someone will do four and one will do one million of revenue, but that's how I look at it, is the number of units that we sell. I expect there to be a pickup in units. That being said, it might be a little bit slow because everybody will be focused on transitioning to a new system. I do think by the third or fourth quarter, though, there will hopefully, and I expect there to be people who, let's say right now they're running a higher quest direct, and then they say, gosh, I'd like to run a Snelling as well in my market. Or I've run a Snelling, and there's a lot of opportunity in the direct dispatch business. And so I do expect and hope that we will go back to a – go to a faster organic growth rate. Again, as I said before, the pandemic really hurt us, rightfully so, in 2020 as far as new office openings. But I would expect that to increase pretty significantly in 2021 and the beginning of 2022. And I do want to point out is that one of the things that we do that makes us fairly unique as a franchisor is frequently we will actually offer incentives for our franchisees to open new offices. And so rather than spending a bunch of money trying to find people that are sort of outside of the industry to open offices, we offer cash incentives to our franchisees typically to go out and expand. And so with sort of with the vaccination rates going up and with Again, a little bit more of an impetus for people to open, let's say, again, a selling office if they already have a higher request direct. We do think that it'll pick up. So it's a long answer for saying, yes, I do think that it'll pick up. And it's a very important aspect to our growth plan is just organic growth.

What is kind of the upfront cost to you and also working capital needs to get a new office started?

So let me say categorically that I can't really say anything from the standpoint of because that would be deemed as like selling a franchise, right? So I would give you a range that would be almost meaningless. But as far as workers – let's say, for example, working capital – That's one of the primary benefits of our model is that we provide the pay. We're the employer of record for our franchisees, so we provide all of the working capital, the vast majority of the working capital. The main thing that a franchisee, let's say a new franchisee is responsible for is they have to hire and develop their own staff. They pay the occupancy costs of their office And they pay the lights, the communications, internet, etc. And that's what they're responsible for. And so the startup costs are actually pretty low. So when we give a $50,000 incentive for somebody to open in Ogallala, Nebraska, that $50,000 goes a long ways towards opening that branch.

Is there a typical square foot for the office and is there, I'm assuming a lot of them are located in fairly low rent locations. I'm just kind of like thinking from like a retail box perspective, what that dynamic is like.

So, that's a fair question. There's a difference between a commercial, traditional commercial staffing office like Snelling or Link versus HireQuest Direct. HireQuest Direct is definitely tends to be in more trans, you know, transitory neighborhoods. And, you know, but size wise, I mean, it's pretty typical for an office to be between 900 and 2000 square feet. The, again, a direct dispatch office would tend to be in a more you know again in a more downscale neighborhood than a than a snelling office would but you know that I guess that I don't know if that answers your question but that would be you know but there's there are certain selling offices for example that are really nice you know very nice areas kind of it depends on what the it also depends on even within let's say snelling or link there are you know each Each office, each franchisee has their own sweet spot, and so for one person, they might focus on, I'm thinking of one now where their largest client is a big cheese plant, and they're in a relatively downscale neighborhood, but it's a tremendous office. On the other hand, you have some that mostly all they send out is administrative people or medical-oriented people. And, of course, that's going to be in a much nicer neighborhood. So there's no clear-cut answer except for the higher-quest directs. Those are pretty standard.

And, you know, I guess the follow-up question would be – culturally on the, the consider high quest. Um, that's a very blue collar industrial kind of, um, uh, you know, staffing solution with snelling and link. Uh, is there any challenges, um, having, uh, being the franchise or, or both, uh, light industrial and more of the admin medical, uh, are there, With my limited understanding of the staffing business, it seems like it's a different kind of franchisee who's going to be handling that office. As a franchisor, culturally, are there different challenges that we face with smelling and link?

That's a good question. The answer is yes. I would say in most of the Link and Snelling offices, there is certainly a difference between what I'd say is a typical commercial staffing business and, let's say, a direct dispatch office. That being said, the people who run them are really, frankly, pretty similar. Now, again, there are certain... let's say, Snelling and Link franchisees that definitely focus on more of the administrative or medical side, and those people, there would be a bit of a cultural difference. And again, obviously, we only closed Link on Monday, so we're still sorting through things, but we're in the process of you know, developing a management team. The management team for them will be separate as well. It's not, I mean, supplying money and workers' comp and back office support, frankly, there's no difference between, there's really no difference between, you know, Link, Snelling, Higher Quest Direct. I mean, an unemployment claim is an unemployment claim. On the other hand, the sort of supporting... recruiting is a lot different for a Link or a Snell Link than it is for HireQuest Direct. And therefore, the management teams for those divisions will be separate to account for what you're saying.

Got you. And MindLoss, thank you, that's great color. My last question would be, could you talk a little bit about the software or the technology aspect that you provide to these franchisees? Are there anything that's kind of custom built in-house? Do we need to kind of have different systems for the more light industrial versus the snowing and the link?

So there are some, there's no question, there are certain differences. Applicant tracking systems tend to be a far more, not tend, they are far more important for traditional commercial staffing than what they are for direct dispatch staffing. But our core software works for either. And so we are, we had already been, and I know Corey put it in his remarks, was we've already focused, or we had already embarked on a sort of a rewrite of our in-house software. We started it probably about the third, you know, the middle of, well, actually we started at the beginning of last year, and it started picking up more towards the end of last year. And so we're always revising, and obviously technology is changing. And so we continue to do it. The point is that it doesn't really require anything significantly different. And I don't want to say that. There's a lot of nuances. And if you were in the business, you would say there are definitely differences, but not of an order of magnitude either. you know, most softwares at their core, you know, again, it requires that you pay the worker, that you keep track of their information, that you, you know, you gather all the applicant information. Again, traditional staffing requires certainly more applicant tracking because you're doing more, your vetting process before placing a person, you have far more upfront vetting for that employee than what you do on a direct dispatch. And therefore, again, the software requires more robust ability to sort through employees. I don't know if that answers your question.

No, that's helpful. And I have no further questions. Thank you very much for your feedback.

Thank you. Your next question is coming from Aaron Edelheit. Your line is live.

Hi, Rick. I just have two follow-up questions. One is just speaking on margins, and when I think about your business, I think about kind of normalized earnings power. My first question was just about what would system-wide revenue be in a more normalized world for all the cross-currents from COVID and et cetera. And, you know, when I think about 450 million or maybe 500 million of system-wide revenue on a normalized basis when things return to normal, you know, based on past conversations we had, this is before your acquisitions, we were thinking about like a 4% net margin. And I'm getting numbers that would indicate to me that, HigherQuest has earnings power of $1.30 to possibly $1.50 per share. I just want to make sure, just based on one of the other caller's questions, is that the right framework to think about just in terms of the earnings, the new underlying earnings power of the business when things go back to normal?

Well, if you exclude, let's say, the pandemic itself, and again, it destroyed our operating leverage, I think that if you think of net earnings between 3.5% to 4.5%, that hasn't changed. That hasn't changed. Once we get to – and that's not even having to get to $450, $500 million of revenues. That's errors of system-wide sales. The just – just adding the acquisitions gets us back to more to where we should be. Meaning in that three and a half to four and a half percent range.

Yeah. So basically, but even though the, you know, they're in terms of the, the, when you think about these new businesses, especially in the commercial side is that when things get back, they're just doing that calculation of where higher quest could be. It's, it's the same of what we've discussed before. Is that right?

Yeah, I mean, that's certainly what we hope. I mean, I guess that's what I'd say. That was certainly what we would hope. Like I said, the margins might be a little bit on the lower side because a little bit on the lower side, then again, we'll have more scale. And so we hopefully can squeeze a little bit more out of it from an operating. I mean, you only have to pay me once. So if that gets spread over a much bigger base, that's obviously going to help some. But

Gotcha. In terms of your acquisitions, how should I think about the integration of these two acquisitions? As you mentioned, it's like 60% of existing revenue. How long, have you been able to do work already? How long could this take for you to get your system in place?

Well, again, due to the efforts of the franchisees and to my management team to be honest with you a lot of the a lot of it's done I mean basically everybody as of this week is operating on our software as an example and so for the last six weeks we've been tearing our you know well me very limited amount of hair but we've been tearing our hair out to get set up and so a lot of the a lot of the immediate integrate you know the sort of the hard parts a lot of them are a lot of them are done now there's still a long ways to go there's a lot of things to go but the you know frankly the most the most difficult things are done it's more now just settling in and you know settling in and you know again refining refining things so we're well, well, well along the way on integrating everything.

Great, phenomenal job. Thanks so much.

Sure thing.

Thank you. There are no further questions in the queue at this time.

Okay, well, I want to thank everybody for joining us on this call. I hope you are as excited as I am about the future of the company, and I appreciate the thoughtful questions. And appreciate you joining us. Thank you and have a good day.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day. Thank you for your attention.