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Note 1 - Overview and Summary of Significant Accounting Policies | 6 Months Ended
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Jun. 30, 2024
Notes to Financial Statements |
Basis of Presentation and Significant Accounting Policies [Text Block] | Note 1 - Overview and Summary of Significant Accounting Policies Nature of Business HireQuest, Inc., together with its subsidiaries, (“HQI,” the “Company,” “we,” us,” or “our”) is a nationwide franchisor of offices providing direct-dispatch, executive search, and commercial staffing solutions primarily in the light industrial and blue-collar segments of the staffing industry and traditional commercial staffing. Our franchisees provide various types of temporary personnel through two primary business models operating under the trade names “HireQuest Direct”, “HireQuest”, “Snelling”, “DriverQuest”, “HireQuest Health”, "TradeCorp", "SearchPath", “Northbound Executive Search”, "Management Recruiters International", "Sales Consultants" and "MRI". HireQuest Direct specializes primarily in unskilled and semi-skilled industrial and construction personnel. HireQuest, Snelling and TradeCorp specialize primarily in skilled and semi-skilled industrial personnel, clerical and administrative personnel, and permanent placement services. DriverQuest specializes in both commercial and non-CDL drivers serving a variety of industries and applications. HireQuest Health specializes in skilled personnel in the medical and dental industries. Northbound Executive Search, MRI and SearchPath specialize in executive placement and consultant services. On December 4, 2023 we completed our acquisition of customer relationships and certain other assets of TEC, The Employment Company (“TEC”) for $9.8 million. TEC has been a premier provider of staffing services to the employers and workers in Northwest and Central Arkansas for over 40 years. For additional information related to these transactions, see Note 2 - Acquisitions. As of June 30, 2024, we had 413 franchisee-owned offices and 1 company-owned office in 43 states, the District of Columbia, and 13 countries outside of the United States. We are the employer of record to approximately 80 thousand employees annually, who in turn provide services to thousands of clients in various industries including construction, healthcare, recycling, warehousing, logistics, auctioneering, manufacturing, hospitality, landscaping, retail, and dental practices. We provide employment, marketing, working capital funding, software, and administrative services to our franchisees. Basis of Presentation We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and with the instructions to Article 8 of Regulation S-X. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the periods presented. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report filed on Form 10-K for the year ended December 31, 2023. Results for the interim periods presented are not necessarily indicative of the results expected for the full year or for any other period. Consolidation The consolidated financial statements include the accounts of HQI and all of its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated. U.S. GAAP requires the primary beneficiary of a variable interest entity (“VIE”) to consolidate that entity. To be the primary beneficiary of a VIE, an entity must have both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that are significant to the beneficiary. We provide acquisition financing to some of our franchisees that could result in our having to absorb losses. This results in some franchisees being considered VIEs. We have reviewed our relationship with each of these franchisees and determined that we are not the primary beneficiary of any of these entities. Accordingly, we have not consolidated these entities. Reclassifications Certain amounts in the consolidated financial statements for prior periods have been reclassified to conform to the current presentation. These reclassifications have no effect on net income, earnings per share, or stockholders’ equity as previously reported. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Actual results could differ from those estimates. Significant estimates and assumptions underlie our workers’ compensation claim liabilities, our workers’ compensation Risk Management Incentive Program, our deferred taxes, our allowance for credit losses, potential impairment of goodwill and other intangibles, stock-based compensation, and estimated fair value of assets and liabilities acquired. Franchise Royalties Below are summaries of our franchise royalties disaggregated by business model (in thousands):
|  | Three months ended |  |  | Six months ended |
|  | June 30, 2024 |  |  | June 30, 2023 |  |  | June 30, 2024 |  |  | June 30, 2023 |
HireQuest Direct |  | $ | 3,851 |  |  | $ | 3,834 |  |  | $ | 7,678 |  |  | $ | 7,939 |
Snelling and HireQuest |  |  | 2,288 |  |  |  | 2,373 |  |  |  | 4,400 |  |  |  | 4,820 |
DriverQuest and TradeCorp |  |  | 211 |  |  |  | 88 |  |  |  | 366 |  |  |  | 226 |
HireQuest Health |  |  | 111 |  |  |  | 173 |  |  |  | 206 |  |  |  | 264 |
Northbound, MRI, and SearchPath |  |  | 1,740 |  |  |  | 2,277 |  |  |  | 3,391 |  |  |  | 4,863 |
Total |  | $ | 8,201 |  |  | $ | 8,745 |  |  | $ | 16,041 |  |  | $ | 18,112 |
Service revenue, which forms the other component of our total revenue, consists of interest we charge our franchisees on overdue customer accounts receivable, trademark license fees, and other fees for optional services we provide. We recognize interest income based on the effective interest rate applied to the outstanding principal balance of overdue accounts. License fees are charged to some locations that utilize our intellectual property that are not franchisees. License fees are 9.0% of the gross margin for the location and are recognized when earned. We recognize revenue from optional services as we provide them. Advertising fund revenue includes contributions to our National Advertising Fund by franchisees. Revenue related to these contributions is based on a percentage of sales of certain franchised locations and is recognized as earned. Marketing and Advertising We expense advertising and marketing costs as we incur them. These costs were approximately $277 thousand and $160 thousand during the three months ended June 30, 2024 and June 30, 2023, respectively, and approximately $606 thousand and $366 thousand during the six months ended June 30, 2024 and June 30, 2023, respectively. These costs are included in general and administrative expenses. Some of our MRI franchisees are required to pay an advertising fee equal to 0.5% - 1.0% of total net sales, which supports national advertising designed to build brand awareness and drive traffic for both potential customers and potential candidates. The national advertising effort is administered by us, with franchisees providing input. Some examples include subscriptions to various job boards, the creation of digital content for social media, supporting investments in marketing-related software, and purchasing video and print media. Recently Issued Accounting Pronouncements Not Yet Adopted In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform ("Topic 848"), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. On December 21, 2022, the FASB issued ASU 2022-06, Reference Rate Reform ("Topic 848"), Deferral of the Sunset Date of Topic 848, which extends the period of time financial statement preparers can utilize the reference rate reform relief guidance contained in ASU 2022-04. The guidance provides optional practical expedients to ease the potential burden in accounting for contract modifications and hedge accounting related to reference rate reform. The provisions apply only to those transactions that reference the London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. On February 28, 2023 the Company refinanced its credit agreement and a term loan that each referenced LIBOR into a replacement line of credit that references the Bloomberg Short-Term Bank Yield Index ("BSBY"), therefore the optional expedient is no longer relevant to the Company’s financial statements and related disclosures. In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. In U.S. Securities and Exchange Commission ("SEC") Release No. 33-10532, Disclosure Update and Simplification, issued August 17, 2018, the SEC referred certain of its disclosure requirements that overlap with, but require incremental information to, U.S. GAAP to the FASB for potential incorporation into the FASB ASU. The ASU is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. ASU 2023-06 is the result of the Board’s decision to incorporate into the Codification 14 of the 27 disclosures referred by the SEC. Since we are already subject to the SEC’s existing disclosure requirements, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The adoption of this new guidance is not expected to have a significant impact on the Company's financial statements and related disclosures. In November 2023, FASB issued ASU 2023-07, Segment Reporting ("Topic 280"): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an interim and annual basis, primarily regarding significant segment expenses and information used to assess segment performance. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. Retrospective application is required for all periods presented. The adoption of this new guidance is not expected to have a significant impact on the Company's financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes ("Topic 740") - Improvements to Income Tax Disclosures, which requires enhancements and further transparency to certain income tax disclosures, primarily to the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024, on a prospective basis with retrospective application permitted. The adoption of this new guidance is not expected to have a significant impact on the Company's financial statements and related disclosures. There are no other new accounting pronouncements, issued or effective during the fiscal year, that are expected to have a significant impact on our financial statements and related disclosures.

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