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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-38513

HIREQUEST, INC.
(Exact name of registrant as specified in its Charter)

Delaware |  | 91-2079472
(State of incorporation or organization) |  | (I.R.S. employer identification no.)
111 Springhall Drive, Goose Creek, SC 29445
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (843) 723-7400

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.001 par value |  | HQI |  | The NASDAQ Stock Market LLC
Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer ☐, an accelerated filer ☐, a non-accelerated filer ☒, a smaller reporting company ☒, or an emerging growth company ☐ (as defined in Rule 12b-2 of the Exchange Act).

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of issuer's common stock outstanding at May 7, 2025: 14.0 million

Table of Contents

HireQuest, Inc.

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements | 3
| Consolidated Balance Sheets | 3
| Consolidated Statements of Operations | 4
| Consolidated Statements of Changes in Stockholders' Equity | 5
| Consolidated Statements of Cash Flows | 6
| Notes to Consolidated Financial Statements | 7
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 26
Item 4. | Controls and Procedures | 26
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings | 27
Item 1A. | Risk Factors | 27
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 27
Item 5. | Other Information | 27
Item 6. | Exhibits | 27
| Signatures | 28

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HireQuest, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and par value data) |  | March 31, 2025 |  |  | December 31, 2024 |
ASSETS |  |  |  |  |  |  |  |
Current assets |  |  |  |  |  |  |  |
Cash |  | $ | 2,087 |  |  | $ | 2,219 |
Accounts receivable, net of allowance of $278 and $275 |  |  | 42,218 |  |  |  | 42,348 |
Notes receivable |  |  | 1,501 |  |  |  | 1,166 |
Prepaid expenses, deposits, and other assets |  |  | 3,627 |  |  |  | 2,413 |
Prepaid workers' compensation |  |  | 1,207 |  |  |  | 1,094 |
Total current assets |  |  | 50,640 |  |  |  | 49,240 |
Property and equipment, net |  |  | 4,134 |  |  |  | 4,149 |
Workers’ compensation claim payment deposit |  |  | 1,127 |  |  |  | 1,127 |
Franchise agreements, net |  |  | 19,311 |  |  |  | 19,737 |
Other intangible assets, net |  |  | 8,171 |  |  |  | 8,442 |
Goodwill |  |  | 1,633 |  |  |  | 1,633 |
Deferred tax asset |  |  | 1,793 |  |  |  | 2,073 |
Other assets |  |  | 50 |  |  |  | 57 |
Notes receivable, net of current portion and allowance of $876 thousand and $773 thousand, respectively |  |  | 5,987 |  |  |  | 6,664 |
Intangible asset held for sale - discontinued operations |  |  | 891 |  |  |  | 891 |
Total assets |  | $ | 93,737 |  |  | $ | 94,013 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |
Current liabilities |  |  |  |  |  |  |  |
Accounts payable |  | $ | 329 |  |  | $ | 174 |
Line of credit |  |  | 5,456 |  |  |  | 6,829 |
Term loan payable |  |  | - |  |  |  | 88 |
Other current liabilities |  |  | 1,790 |  |  |  | 2,018 |
Accrued payroll, benefits, and payroll taxes |  |  | 2,900 |  |  |  | 2,557 |
Due to franchisees |  |  | 7,774 |  |  |  | 7,579 |
Risk management incentive program liability |  |  | 1,652 |  |  |  | 1,252 |
Workers' compensation claims liability |  |  | 3,367 |  |  |  | 3,599 |
Total current liabilities |  |  | 23,268 |  |  |  | 24,096 |
Workers' compensation claims liability, net of current portion |  |  | 2,503 |  |  |  | 2,707 |
Franchisee deposits |  |  | 2,402 |  |  |  | 2,406 |
Total liabilities |  |  | 28,173 |  |  |  | 29,209 |
Commitments and contingencies (Note 11) |  |  |  |  |  |  |  |
Stockholders' equity |  |  |  |  |  |  |  |
Preferred stock - $0.001 par value, 1,000,000 shares authorized; none issued |  |  | - |  |  |  | - |
Common stock - $0.001 par value, 30,000,000 shares authorized; 14,076,900 and 14,072,804 shares issued, respectively |  |  | 14 |  |  |  | 14 |
Additional paid-in capital |  |  | 36,525 |  |  |  | 36,286 |
Treasury stock, at cost - 43,849 shares |  |  | (146 | ) |  |  | (146 | )
Retained earnings |  |  | 29,171 |  |  |  | 28,650 |
Total stockholders' equity |  |  | 65,564 |  |  |  | 64,804 |
Total liabilities and stockholders' equity |  | $ | 93,737 |  |  | $ | 94,013 |

See accompanying notes to consolidated financial statements.

3

Table of Contents

HireQuest, Inc.

Consolidated Statements of Operations

(unaudited)

|  | Three months ended |
(in thousands, except per share data) |  | March 31, 2025 |  |  | March 31, 2024 |
Franchise royalties |  | $ | 6,960 |  |  | $ | 7,831 |
Service revenue |  |  | 512 |  |  |  | 588 |
Total revenue |  |  | 7,472 |  |  |  | 8,419 |
Selling, general and administrative expenses |  |  | 5,255 |  |  |  | 5,619 |
Depreciation and amortization |  |  | 734 |  |  |  | 698 |
Income from operations |  |  | 1,483 |  |  |  | 2,102 |
Other miscellaneous income |  |  | 131 |  |  |  | 37 |
Interest income |  |  | 134 |  |  |  | 136 |
Interest and other financing expense |  |  | (144 | ) |  |  | (243 | )
Net income before income taxes |  |  | 1,604 |  |  |  | 2,032 |
Provision for income taxes |  |  | 169 |  |  |  | 340 |
Net income from continuing operations |  |  | 1,435 |  |  |  | 1,692 |
Loss from discontinued operations, net of tax |  |  | (72 | ) |  |  | (73 | )
Net income |  | $ | 1,363 |  |  | $ | 1,619 |
Basic earnings per share |  |  |  |  |  |  |  |
Continuing operations |  | $ | 0.10 |  |  | $ | 0.12 |
Discontinued operations |  |  | - |  |  |  | - |
Total |  | $ | 0.10 |  |  | $ | 0.12 |
Diluted earnings per share |  |  |  |  |  |  |  |
Continuing operations |  | $ | 0.10 |  |  | $ | 0.12 |
Discontinued operations |  |  | - |  |  |  | - |
Total |  | $ | 0.10 |  |  | $ | 0.12 |
Weighted average shares outstanding |  |  |  |  |  |  |  |
Basic |  |  | 13,925 |  |  |  | 13,800 |
Diluted |  |  | 13,980 |  |  |  | 13,886 |

See accompanying notes to consolidated financial statements.

4

Table of Contents

HireQuest, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

|  | Common stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Three months ended (in thousands except per share data) |  | Shares |  |  | Par value |  |  | Treasury Stock amount |  |  | Additional paid-in capital |  |  | Retained earnings |  |  | Total stockholders' equity |
Balance at December 31, 2024 |  |  | 14,073 |  |  | $ | 14 |  |  | $ | (146 | ) |  | $ | 36,286 |  |  | $ | 28,650 |  |  | $ | 64,804 |
Stock based compensation |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 239 |  |  |  | - |  |  |  | 239 |
Common stock dividends ($0.06 per share) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (842 | ) |  |  | (842 | )
Restricted common stock granted |  |  | 4 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,363 |  |  |  | 1,363 |
Balance at March 31, 2025 |  |  | 14,077 |  |  | $ | 14 |  |  | $ | (146 | ) |  | $ | 36,525 |  |  | $ | 29,171 |  |  | $ | 65,564 |
Balance at December 31, 2023 |  |  | 13,997 |  |  | $ | 14 |  |  | $ | (146 | ) |  | $ | 34,527 |  |  | $ | 28,337 |  |  | $ | 62,732 |
Stock based compensation |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 362 |  |  |  | - |  |  |  | 362 |
Common stock dividends ($0.06 per share) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (838 | ) |  |  | (838 | )
Restricted common stock granted |  |  | 5 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,619 |  |  |  | 1,619 |
Balance at March 31, 2024 |  |  | 14,002 |  |  | $ | 14 |  |  | $ | (146 | ) |  | $ | 34,889 |  |  | $ | 29,118 |  |  | $ | 63,875 |

See accompanying notes to consolidated financial statements.

5

Table of Contents

HireQuest, Inc.

Consolidated Statements of Cash Flows

(unaudited)

|  | Three months ended |
(in thousands) |  | March 31, 2025 |  |  | March 31, 2024 |
Cash flows from operating activities |  |  |  |  |  |  |  |
Net income |  | $ | 1,363 |  |  | $ | 1,619 |
Loss from discontinued operations |  |  | 72 |  |  |  | 73 |
Net income from continuing operations |  |  | 1,435 |  |  |  | 1,692 |
Adjustments to reconcile net income to net cash provided by (used in) operations: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 734 |  |  |  | 698 |
Non-cash interest |  |  | 4 |  |  |  | 7 |
Provision for credit losses |  |  | 107 |  |  |  | 67 |
Stock based compensation |  |  | 239 |  |  |  | 362 |
Deferred taxes |  |  | 280 |  |  |  | 41 |
(Gain) loss on disposition of intangible assets |  |  | (103 | ) |  |  | 11 |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | 127 |  |  |  | (3,386 | )
Prepaid expenses, deposits, and other assets |  |  | (1,211 | ) |  |  | 603 |
Prepaid workers' compensation |  |  | (114 | ) |  |  | (548 | )
Accounts payable |  |  | 154 |  |  |  | (47 | )
Risk management incentive program liability |  |  | 400 |  |  |  | 139 |
Other current liabilities |  |  | (229 | ) |  |  | (1,131 | )
Accrued payroll, benefits and payroll taxes |  |  | 343 |  |  |  | 306 |
Due to franchisees |  |  | 196 |  |  |  | 242 |
Workers' compensation claim payment deposit |  |  | - |  |  |  | 342 |
Workers' compensation claims liability |  |  | (436 | ) |  |  | (292 | )
Net cash provided by operating activities - continuing operations |  |  | 1,926 |  |  |  | (894 | )
Net cash used in operating activities - discontinued operations |  |  | (72 | ) |  |  | (73 | )
Net cash provided by (used in) operating activities |  |  | 1,854 |  |  |  | (967 | )
Cash flows from investing activities |  |  |  |  |  |  |  |
Purchase of property and equipment |  |  | (22 | ) |  |  | - |
Proceeds from payments on notes receivable |  |  | 362 |  |  |  | 396 |
Cash issued for notes receivable |  |  | (20 | ) |  |  | (13 | )
Investment in intangible asset |  |  | - |  |  |  | (99 | )
Net change in franchisee deposits |  |  | (4 | ) |  |  | (71 | )
Net cash provided by investing activities |  |  | 316 |  |  |  | 213 |
Cash flows from financing activities |  |  |  |  |  |  |  |
Payments on term loan payable |  |  | (88 | ) |  |  | (169 | )
Net (payments to) proceeds from revolving line of credit |  |  | (1,372 | ) |  |  | 1,988 |
Payment of dividends |  |  | (842 | ) |  |  | (838 | )
Net cash (used in) provided by financing activities |  |  | (2,302 | ) |  |  | 981 |
Net (decrease) increase in cash |  |  | (132 | ) |  |  | 227 |
Cash, beginning of period |  |  | 2,219 |  |  |  | 1,342 |
Cash, end of period |  | $ | 2,087 |  |  | $ | 1,569 |
Supplemental disclosure of non-cash investing and financing activities |  |  |  |  |  |  |  |
Notes receivable issued for the sale of intangible assets |  | $ | 950 |  |  | $ | - |
Supplemental disclosure of cash flow information |  |  |  |  |  |  |  |
Interest paid |  | $ | 137 |  |  | $ | 236 |
Income taxes paid, net of refunds |  | $ | 5 |  |  | $ | 78 |

See accompanying notes to consolidated financial statements.

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HireQuest, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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 30, 2024 we completed our acquisition of Ready Temporary Staffing, LLC (“RTS”) for $1.4 million. RTS has been a premier provider of staffing services to the employers and workers in Colorado for over 50 years. For additional information related to this transactions, see Note 2 - Acquisitions.

As of March 31, 2025, we had 424 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 65 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, 2024. 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.

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.

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Franchise Royalties

Below are summaries of our franchise royalties disaggregated by business model:

|  | Three months ended |
(in thousands) |  |  | March 31, 2025 |  |  |  | March 31, 2024 |
HireQuest Direct |  | $ | 3,587 |  |  | $ | 3,823 |
Snelling and HireQuest |  |  | 1,953 |  |  |  | 2,110 |
DriverQuest and TradeCorp |  |  | 195 |  |  |  | 155 |
HireQuest Health |  |  | 67 |  |  |  | 94 |
Northbound, MRI, and SearchPath |  |  | 1,158 |  |  |  | 1,649 |
Total |  | $ | 6,960 |  |  | $ | 7,831 |

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.

Deferred Compensation Plan

We offer a non-qualified defined contribution plan to eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation. This plan allows participants to direct their account based on available investment options. As a benefit, we match 100% of each employee’s first 3% of contributions, then 50% of each employee’s contribution beyond 3%, up to a maximum match of 4% of the employee’s eligible earnings.

The deferred compensation liability is included in accrued wages and benefits on our Consolidated Balance Sheets. The total deferred compensation liability is funded through company-owned life insurance policies which are recorded in cash on our Consolidated Balance Sheets. The carrying value of company-owned life insurance policies is based on the cash surrender value of the policies, which approximates fair value. Changes in the cash surrender value, premiums incurred, and proceeds received relating to the company-owned life insurance policies are included in Selling, general and administrative expenses on our Consolidated Statements Income.

Marketing and Advertising

We expense advertising and marketing costs as we incur them. These costs were approximately $378 thousand and $329 thousand during the three months ended March 31, 2025 and March 31, 2024, 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 Adopted Accounting Pronouncements

There were no new accounting pronouncements adopted during the quarter that are expected to have a significant impact on our financial statements and related disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2024, the Financial Accounting Standards Board ("FASB") issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) which expands the required disclosures related to an entity’s expenses and address requests from investors for more granular information about the make-up of expenses in commonly presented expense captions such as selling, general, and administrative. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027. We are currently evaluating the impact these changes may have 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 standard did not have a material impact on our financial statements and related disclosures.

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Note 2 - Acquisitions

Business Combinations

Ready Temporary Staffing

On December 30, 2024, we completed our acquisition of certain assets of RTS with the terms of an Asset Purchase Agreement dated December 13, 2024, including two locations in Colorado, for $1.4 million. The acquisition of RTS expanded our presence in Colorado and grew our franchise base.

The fair values of the assets acquired and liabilities assumed were determined based on information available to us. The following table summarizes the values of the identifiable assets acquired and liabilities assumed as of the acquisition date.

(in thousands) |  |  |  |
Cash consideration |  | $ | 1,400 |
Total consideration |  | $ | 1,400 |
Customer lists |  | $ | 490 |
Accounts receivable |  |  | 374 |
Property and equipment |  |  | 35 |
Goodwill |  |  | 558 |
Other current liabilities |  |  | (47 | )
Accounts payable |  |  | (10 | )
Purchase price |  | $ | 1,400 |

Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers, and future cash flows after the acquisition of RTS. Goodwill is deductible for income tax purposes.

The following table presents unaudited pro forma information (in thousands, except per share data) assuming (a) the acquisition of RTS had occurred on January 1, 2023, (b) all of RTS’ operations had been converted to franchises on such date, and (c) none of the other acquisitions discussed in this Note 2 had occurred. The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had in fact taken place on that date.

|  | Three months ended |
Unaudited (in thousands except per share data) |  |  | March 31, 2025 (actual) |  |  |  | March 31, 2024 |
Total revenue |  | $ | 7,472 |  |  | $ | 8,664 |
Net income |  |  | 1,363 |  |  |  | 1,712 |
Basic earnings per share |  | $ | 0.10 |  |  | $ | 0.13 |
Basic weighted average shares outstanding |  |  | 13,925 |  |  |  | 13,800 |
Diluted earnings per share |  | $ | 0.10 |  |  | $ | 0.12 |
Diluted weighted average shares outstanding |  |  | 13,980 |  |  |  | 13,886 |

These calculations reflect increased amortization expense, increased SG&A expense, the elimination of losses associated with the transaction, and the consequential tax effects that would have resulted had the acquisition closed on January 1, 2023.

In connection with the acquisition, we sold certain assets related to the operations of the acquired locations to a related party. In connection with the purchase, the buyer executed a franchise agreements with us related to the RTS locations. The aggregate sale price for the operating assets was approximately $617 thousand. In conjunction with the sale of assets acquired in this transaction, we recognized a gain of approximately $139 thousand. For more information see Note 3 - Related Party Transactions regarding the Worlds Franchisees.

Asset Acquisitions

EPIC Labor

On September 30, 2024 we completed our acquisition of the customer relationships of EPIC Labor ("EPIC") in accordance with the terms of the Asset Purchase Agreement dated September 30, 2024. EPIC was a premier provider of healthcare and life science staffing services to the employers in Arkansas for over 25 years.

The following table summarizes the estimated fair values of the identifiable assets acquired as of the acquisition date:

(in thousands) |  |  |  |
Cash consideration |  | $ | 300 |
Total consideration |  | $ | 300 |
Customer relationships |  | $ | 300 |

We determined the EPIC transaction was an asset acquisition for accounting purposes as substantially all of the fair value of the gross assets acquired was concentrated in the customer relationships. Accordingly, no pro forma financial information is presented.

Immediately after the acquisition, we sold all of the assets acquired. In connection with their purchase, the buyers executed franchise agreements with us and became franchisees. The aggregate sale price for the assets was approximately $200 thousand. In conjunction with the sale of assets acquired in this transaction, we recognized a loss of approximately $100 thousand.

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Note 3 - Related Party Transactions

Prior to entering into a new related party transaction that is disclosable pursuant to Item 404 of Regulation S-K, the Audit Committee reviews and monitors all relevant information available. In addition, the Audit Committee reviews a summary of related parties and related party transactions on a quarterly basis. The Audit Committee, in its sole discretion, may approve the related party transaction only if it determines, in good faith and under all circumstances, that the transaction is in the best interests of the Company and its shareholders. The Audit Committee, in its sole discretion, may also impose conditions as it deems appropriate on the Company or the related party in connection with the approval of the related party transaction.

Several significant shareholders and directors of HQI own portions of Jackson Insurance Agency, Bass Underwriters, Inc., Insurance Technologies, Inc., and a number of our franchisees (in whole or in part).

Jackson Insurance Agency ("Jackson Insurance") and Bass Underwriters, Inc. ("Bass")

Edward Jackson, a member of our Board and significant stockholder, and a member of Mr. Jackson’s immediate family own Jackson Insurance. Mr. Jackson, Richard Hermanns, our CEO, Chairman of our Board, and largest stockholder, and irrevocable trusts set up by each of them, collectively own a majority of Bass, a large managing general agent.

Jackson Insurance and Bass brokered property, casualty, general liability, and cybersecurity insurance for a series of predecessor entities prior to the 2019 merger with Command Center. Since July 15, 2019, they have continued to broker these same policies for HQI. Jackson Insurance also brokers certain insurance policies on behalf of some of our franchisees, including the Worlds Franchisees (defined below).

During the three months ended March 31, 2025 and March 31, 2024, Jackson Insurance and Bass invoiced HQI approximately $1.5 million and $1.3 million, respectively, for premiums, taxes, and fees related to these insurance policies. Jackson Insurance and Bass retain a commission of approximately 9% - 15% of premiums.

Insurance Technologies, Inc. ("Insurance Technologies")

Mr. Jackson, Mr. Hermanns, and irrevocable trusts set up by each of them, collectively own a majority of Insurance Technologies, an IT development and security firm. On October 24, 2019, HQI entered into an agreement with Insurance Technologies to add certain cybersecurity protections to our existing information technology systems and to assist in developing future information technology systems within our HQ WebConnect software. In addition, Insurance Technologies assisted with the IT diligence and integration process with respect to acquisitions completed in 2021.

During the three months ended March 31, 2025 and March 31, 2024, Insurance Technologies invoiced HQI approximately $91 thousand and $124 thousand, respectively, for services provided pursuant to this agreement.

The Worlds Franchisees

Mr. Jackson and immediate family members of Mr. Hermanns have significant ownership interests in certain of our franchisees (the “Worlds Franchisees”). There were 35 Worlds Franchisees at March 31, 2025 that operated 69 of our 423 franchisee-owned offices.

Other transactions regarding the Worlds Franchisees are summarized below:

|  | Three months ended |
(in thousands) |  |  | March 31, 2025 |  |  |  | March 31, 2024 |
Franchisee royalties |  | $ | 2,217 |  |  | $ | 2,437 |

Balances regarding the Worlds Franchisees are summarized below:

(in thousands) |  |  | March 31, 2025 |  |  |  | December 31, 2024 |
Due to franchisees |  | $ | 1,772 |  |  | $ | 2,871 |
Risk management incentive program liability |  |  | 693 |  |  |  | 492 |

Note 4 - Line of Credit and Term Loans

Revolving Credit Agreement with Bank of America, N.A.

On February 28, 2023 the Company and all of its subsidiaries as borrowers entered into a Revolving Credit Agreement (the "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. Approximately $5.4 million and $6.8 million was drawn on the Senior Credit Facility as of March 31, 2025 and December 31, 2024, respectively. 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. As of March 31, 2025 this has not been exercised. 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. As of March 31, 2025 we were in compliance with all financial covenants.

Interest will accrue on the outstanding balance of the line of credit at a variable rate equal to (a) the Term SOFR Daily Floating Rate (as defined in the Credit Agreement) plus a margin between 1.00% and 1.75% per annum. In each case, the applicable margin is determined by the Company's Total Funded Debt to Adjusted EBITDA, as defined in the Credit Agreement. At March 31, 2025 the effective interest rate was approximately 5.7%. The Senior Credit Facility will mature on February 28, 2028.

The Credit Agreement and other loan documents contain customary representations and warranties, affirmative, and negative covenants, including without limitation, those covenants governing indebtedness, liens, fundamental changes, restricting certain payments including dividends unless certain conditions are met, transactions with affiliates, investments, engaging in business other than the current business of the Company and all of its subsidiaries and business reasonably related thereto, and sale/leaseback transactions. The Credit Agreement and other loan documents also contain customary events of default including, without limitation, payment default, material breaches of representations and warranties, breach of covenants, cross-default on material indebtedness, certain bankruptcies, certain ERISA violations, material judgments, change in control, termination or invalidity of any guaranty or security documents, and defaults under other loan documents. The obligations under the Credit Agreement and other loan documents are secured by substantially all of the assets of the Company and all of its subsidiaries as collateral including, without limitation, their accounts and notes receivable, intellectual property and the real estate owned by HQ Real Property Corporation.

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At March 31, 2025, 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. For additional information related to the letter of credit securing our workers’ compensation obligations see Note 5 - Workers’ Compensation Insurance and Reserves.

Term Loan

In connection with the Northbound acquisition, we entered into an amortizing term loan from the seller for $1.5 million that matured on March 1, 2025 that bore interest at 4.0%. This note has been satisfied in full.

Note 5 - Fair Value of Financial Instruments

The carrying amounts of cash, accounts receivable, accounts payable, the line of credit and all other current assets and liabilities approximate fair values due to their short-term nature. The fair value of notes receivable approximates the amortized cost basis as adjusted by an allowance for credit losses as we believe the stated interest rates reflects the prevailing market rates given our unique collateral position and the scarce capital resources willing to finance a franchise. The fair value of the term loan payable approximates its carrying value because current rates for similar borrowings do not have a material impact.

|  | March 31, 2025 |
(in thousands) |  |  | Total |  |  |  | Level 1 |  |  |  | Level 2 |  |  |  | Level 3 |
Cash |  | $ | 2,087 |  |  | $ | 2,087 |  |  | $ | - |  |  | $ | - |
Notes receivable |  |  | 7,488 |  |  |  | - |  |  |  | 7,488 |  |  |  | - |
Accounts receivable |  |  | 42,218 |  |  |  | - |  |  |  | 42,218 |  |  |  | - |
Total assets at fair value |  | $ | 51,793 |  |  | $ | 2,087 |  |  | $ | 49,706 |  |  | $ | - |
Line of credit |  |  | 5,456 |  |  |  | - |  |  |  | 5,456 |  |  |  | - |
Total liabilities at fair value |  | $ | 5,456 |  |  | $ | - |  |  | $ | 5,456 |  |  | $ | - |

|  | December 31, 2024 |
(in thousands) |  |  | Total |  |  |  | Level 1 |  |  |  | Level 2 |  |  |  | Level 3 |
Cash |  | $ | 2,219 |  |  | $ | 2,219 |  |  | $ | - |  |  | $ | - |
Notes receivable |  |  | 7,830 |  |  |  | - |  |  |  | 7,830 |  |  |  | - |
Accounts receivable |  |  | 42,348 |  |  |  | - |  |  |  | 42,348 |  |  |  | - |
Total assets at fair value |  | $ | 52,397 |  |  | $ | 2,219 |  |  | $ | 50,178 |  |  | $ | - |
Term loan payable |  | $ | 88 |  |  | $ | - |  |  | $ | 88 |  |  | $ | - |
Line of credit |  |  | 6,829 |  |  |  | - |  |  |  | 6,829 |  |  |  | - |
Total liabilities at fair value |  | $ | 6,917 |  |  | $ | - |  |  | $ | 6,917 |  |  | $ | - |

Note 6 - Workers’ Compensation Insurance and Reserves

Since July 15, 2019 we have obtained our workers’ compensation insurance through Chubb Limited and ACE American Insurance Company (collectively, “ACE”) in all states in which we operate other than monopolistic jurisdictions. The ACE policies are large deductible policies where we have primary responsibility for all claims made. ACE provides insurance for covered losses and expenses in excess of $500 thousand per incident. Under these large deductible programs we are largely self-insured. Per our contractual agreements with ACE we must provide a collateral deposit of $ 9.2 million, which we accomplish by providing a letter of credit under our agreement with Bank of America. For workers’ compensation claims originating in the monopolistic jurisdictions of North Dakota, Ohio, Washington, and Wyoming, we pay workers’ compensation insurance premiums and obtain full coverage under mandatory state administered programs. Our liability associated with claims in these jurisdictions is limited to premium payments based upon the amount of payroll paid, or hours worked, within each jurisdiction. Accordingly, our consolidated financial statements reflect only the mandated workers’ compensation insurance premium liability for workers’ compensation claims in these jurisdictions.

Prior to July 15, 2019, one of our predecessor entities ("Legacy HQ") also obtained its workers’ compensation insurance through ACE in all states in which it operated other than monopolistic jurisdictions. The ACE policy was a large deductible policy pursuant to which Legacy HQ had primary responsibility for all claims with ACE providing insurance for covered losses and expenses in excess of $500 thousand per incident. In addition to the ACE policy, Legacy HQ purchased a deductible reimbursement insurance policy from Hirequest Insurance Company (“HQ Ins.”), an independent captive insurer, to cover losses up to the $500 thousand deductible with ACE. This resulted in Legacy HQ effectively being fully insured until the merger with Command Center. Effective July 15, 2019, Legacy HQ terminated its deductible reimbursement policy with HQ Ins.
Command Center, the predecessor entity that acquired Legacy HQ in 2019, also obtained its workers’ compensation insurance through ACE. Pursuant to Command Center’s most recent policy, which expired on March 1, 2020, ACE provided insurance for covered losses and expenses in excess of $500 thousand per incident. Command Center’s ACE policy included a one-time obligation for the Company to pay any single claim filed under the Command Center policy within a policy year that exceeds $500 thousand (if any), but only up to $750 thousand for that claim. All other claims within the policy year were subject to the $500 thousand deductible. Effective July 15, 2019, in connection with the merger with Command Center, we assumed all of the workers’ compensation claims of Command Center.

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Note 7 - Stockholders’ Equity

Dividend

Historically, we have paid a quarterly dividend. We intend to continue to pay a quarterly dividend based on our business results and financial position. The following common share dividends were paid during 2025 and 2024:

Declaration date (total paid in thousands) |  | Dividend per share |  |  | Total paid |
March 1, 2024 |  | $ | 0.06 |  |  | $ | 838 |
June 1, 2024 |  |  | 0.06 |  |  |  | 838 |
September 1, 2024 |  |  | 0.06 |  |  |  | 841 |
December 1, 2024 |  |  | 0.06 |  |  |  | 842 |
March 1, 2025 |  |  | 0.06 |  |  |  | 842 |

Note 8 - Stock Based Compensation

Employee Stock Incentive Plan

In December 2019, our Board approved the 2019 HireQuest, Inc. Equity Incentive Plan (the “2019 Plan”). Subject to adjustment in accordance with the terms of the 2019 Plan, no more than 1.5 million shares of common stock are available in the aggregate for the grant of awards under the 2019 Plan. No more than 1 million shares may be issued in the aggregate pursuant to the exercise of incentive stock options. In addition, no more than 250 thousand shares may be issued in the aggregate to any employee or consultant, and no more than 50 thousand shares may be issued in the aggregate to any non-employee director, in any twelve-month period. Shares of common stock available for distribution under the Plan may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner. The 2019 Plan was approved by our shareholders in June 2020 and became effective as of that date.

In September 2019, our Board approved a share purchase match program to encourage ownership and further align the interests of key employees and directors with those of our shareholders. Under this program, we will match 20% of any shares of our common stock purchased on the open market by or granted in lieu of cash compensation to key employees and directors up to $25 thousand in aggregate value per individual within any calendar year. These shares vest on the second anniversary of the date on which the matched shares were purchased if the individual is still employed by the Company or still serves as a director and certain other vesting criteria are met. During the first three months of 2025, we issued 681 shares valued at approximately $9 thousand under this program. During the first three months of 2024, we issued 863 thousand shares valued at approximately $12 thousand under this program.

In the first three months of 2025, we issued 4,096 shares of restricted common stock pursuant to the 2019 Plan valued at approximately $55 thousand to members of our Board of Directors for their services in lieu of cash compensation. Of these, 3,415 shares vested equally over the three months post grant. The remaining 681 shares were issued pursuant to our share purchase match program.

In the first three months of 2024, we issued 5,174 shares of restricted common stock pursuant to the 2019 Plan valued at approximately $69 thousand to members of our Board of Directors for their services in lieu of cash compensation. Of these, 4,311 shares vested equally over the three months post grant. The remaining 863 shares were issued pursuant to our share purchase match program.

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The following table summarizes our restricted stock outstanding at December 31, 2024, and changes during the three months ended March 31, 2025.

(number of shares in thousands) |  |  | Shares |  |  |  | Weighted average grant date price |
Non-vested, December 31, 2024 |  |  | 106 |  |  | $ | 18.28 |
Granted |  |  | 4 |  |  |  | 13.40 |
Vested |  |  | (13 | ) |  |  | 16.21 |
Non-vested, March 31, 2025 |  |  | 97 |  |  |  | 18.37 |

Stock options that were outstanding at Command Center were deemed to be issued on the date of the merger with Legacy HQ. Outstanding awards continue to remain in effect according to the terms of the Command Center 2008 Plan, the Command Center 2016 Plan, and the corresponding award documents. There were approximately 13 thousand stock options vested at March 31, 2025 and December 31, 2024.

The following table summarizes our stock options outstanding at December 31, 2024, and changes during the three months ended March 31, 2025.

(number of shares in thousands) |  |  | Number of shares underlying options |  |  |  | Weighted average exercise price per share |  |  |  | Weighted average grant date fair value |
Outstanding, December 31, 2024 |  |  | 13 |  |  | $ | 5.47 |  |  | $ | 2.98 |
Granted |  |  | - |  |  |  | - |  |  |  | - |
Outstanding, March 31, 2025 |  |  | 13 |  |  |  | 5.47 |  |  |  | 2.98 |

There were no non-vested stock options outstanding at March 31, 2025 or at December 31, 2024.

The following table summarizes information about our outstanding stock options, and reflects the intrinsic value recalculated based on the closing price of our common stock of $14.16 at March 31, 2025.

(number of shares and intrinsic value in thousands) |  |  | Number of shares underlying options |  |  |  | Weighted average exercise price per share |  |  |  | Weighted average remaining contractual life (years) |  |  |  | Aggregate intrinsic value |
Outstanding and exercisable |  |  | 13 |  |  | $ | 5.47 |  |  |  | 3.0 |  |  | $ | 83 |

At March 31, 2025, there was unrecognized stock-based compensation expense totaling approximately $562 thousand relating to non-vested restricted stock grants that will be recognized over the next 3.4 years.

Note 9 - Earnings per Share

We calculate basic earnings per share by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding. We do not include the impact of any potentially dilutive common stock equivalents in our basic earnings per share calculations. Diluted earnings per share reflect the potential dilution of securities that could share in our earnings through the conversion of common shares issuable via outstanding stock options and unvested restricted shares, except where their inclusion would be anti-dilutive. Outstanding common stock equivalents at March 31, 2025 and March 31, 2024 totaled approximately 109 thousand and 165 thousand, respectively.

We use the treasury stock method to calculate the diluted common shares outstanding which were as follows:

|  | Three months ended |
(in thousands) |  |  | March 31, 2025 |  |  |  | March 31, 2024 |
Weighted average number of common shares used in basic net income per common share |  |  | 13,925 |  |  |  | 13,800 |
Dilutive effects of unvested restricted stock and stock options |  |  | 55 |  |  |  | 86 |
Weighted average number of common shares used in diluted net income per common share |  |  | 13,980 |  |  |  | 13,886 |

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Note 10 - Goodwill and Intangible Assets

Annual impairment test

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 prices 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 effecting 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 at March 31, 2025 and at December 31, 2024.

The table below reflects our goodwill and changes in the carrying value:

(in thousands) |  |  |  |
Goodwill balance at December 31, 2024 |  | $ | 1,633 |
Impairment charge during 2025 |  |  | - |
Goodwill balance at March 31, 2025 |  | $ | 1,633 |
Goodwill before impairment |  | $ | 6,428 |
Accumulated impairment charge |  |  | (4,795 | )
Goodwill balance at March 31, 2025 |  | $ | 1,633 |

Intangible Assets

The following table reflects our finite-lived and indefinite-lived intangible assets:

|  |  | March 31, 2025 |  |  | December 31, 2024 |
(in thousands except useful life) | Estimated useful life |  |  | Gross |  |  |  | Accumulated amortization |  |  |  | Net |  |  |  | Gross |  |  |  | Accumulated amortization and impairment |  |  |  | Net |
Finite-lived intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Franchise agreements | 15 years |  | $ | 25,556 |  |  | $ | (6,245 | ) |  | $ | 19,311 |  |  | $ | 25,556 |  |  | $ | (5,819 | ) |  | $ | 19,737 |
Purchased software | 7 years |  |  | 3,200 |  |  |  | (1,600 | ) |  |  | 1,600 |  |  |  | 3,200 |  |  |  | (1,486 | ) |  |  | 1,714 |
Internally developed software | 5 years |  |  | 3,125 |  |  |  | (1,120 | ) |  |  | 2,005 |  |  |  | 3,125 |  |  |  | (963 | ) |  |  | 2,162 |
Total finite-lived intangible assets |  |  | 31,881 |  |  |  | (8,965 | ) |  |  | 22,916 |  |  |  | 31,881 |  |  |  | (8,268 | ) |  |  | 23,613 |
Indefinite-lived intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Domain name | Indefinite |  |  | 2,226 |  |  |  | - |  |  |  | 2,226 |  |  |  | 2,226 |  |  |  | - |  |  |  | 2,226 |
Trade name | Indefinite |  |  | 2,340 |  |  |  | - |  |  |  | 2,340 |  |  |  | 3,580 |  |  |  | (1,240 | ) |  |  | 2,340 |
Total intangible assets |  | $ | 36,447 |  |  | $ | (8,965 | ) |  | $ | 27,482 |  |  | $ | 37,687 |  |  | $ | (9,508 | ) |  | $ | 28,179 |

Amortization expense related to intangible assets totaled approximately $696 thousand and $656 thousand for the three months ended March 31, 2025 and March 31, 2024, respectively.

Note 11 - Commitments and Contingencies

Franchise Acquisition Indebtedness

New franchisees financed the purchase of several offices with promissory notes. In some instances, this financing resulted in certain franchises being considered VIEs. We have determined that we are not required to consolidate these entities because we do not have the power to direct these entities’ daily operations. If these franchises default on these notes, we bear the risk of loss of the outstanding balance on these notes, less what we could recoup from the potential resale of the repossessed office(s). The balance due from the franchises determined to be VIEs was approximately $6.9 million at March 31, 2025 and at December 31, 2024.

Legal Proceedings

From time to time, we are involved in various legal and administrative proceedings. Based on information currently available to us, we do not expect material uninsured losses to arise from any of these matters. We believe the outcome of these matters, even if determined adversely, will not have a material adverse effect on our business, financial condition or results of operations. There have been no material changes in our legal proceedings as of March 31, 2025.

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Note 12 - Income Tax

Our income tax provision during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, adjusted for any discrete items occurring during the relevant interim period. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year and changes in tax law and tax rates. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known, or the tax environment changes.

Our effective tax rate for continuing operations during the three months ended March 31, 2025 and March 31, 2024 was 10.5% and 16.7%, respectively. The primary reason for the difference between the statutory federal income tax rate of 21.0% and our effective income tax rate results from the federal Work Opportunity Tax Credit, which is designed to encourage employers to hire workers from certain targeted groups with higher-than-average unemployment rates. Other differences result from state income taxes, certain non-deductible expenses, and tax effects of stock-based compensation.
We use an intra-period tax allocation to allocate total income tax expense or benefit to the different components of continuing operations and discontinued operations. This allocation uses a with and without methodology to determine income tax expense for discontinued operations. Tax benefit allocated to discontinued operations was $23 thousand and $24 thousand for the three months ended March 31, 2025 and March 31, 2024, respectively.

Note 13 - Segment Information

Management determined HQI is a single reporting segment. The following table presents significant expenses regularly reviewed by our chief operating decision maker when determining resource allocation and assessing performance:

|  | Three months ended |
(in thousands) |  | March 31, 2025 |  |  | March 31, 2024 |
Total revenue |  | $ | 7,472 |  |  | $ | 8,419 |
Salaries and benefits |  |  | (2,629 | ) |  |  | (2,678 | )
Workers' compensation, net |  |  | (28 | ) |  |  | (572 | )
Depreciation and amortization |  |  | (734 | ) |  |  | (698 | )
Interest income |  |  | 134 |  |  |  | 136 |
Acquisition related gains (charges), net |  |  | 103 |  |  |  | (11 | )
Stock based compensation |  |  | (239 | ) |  |  | (362 | )
Interest and other financing expense |  |  | (144 | ) |  |  | (243 | )
Provision for credit losses |  |  | (107 | ) |  |  | (67 | )
Other costs, net |  |  | (2,224 | ) |  |  | (1,892 | )
Net income before income taxes and discontinued operations |  |  | 1,604 |  |  |  | 2,032 |
Provision for income taxes |  |  | (169 | ) |  |  | (340 | )
Loss from discontinued operations, net of tax |  |  | (72 | ) |  |  | (73 | )
Net income |  | $ | 1,363 |  |  | $ | 1,619 |

Other costs consist primarily of selling, general, and administrative costs and includes marketing and advertising, computer expenses, and legal and professional fees.

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Note 14 - Discontinued Operations

In connection with the Dubin acquisition, certain assets acquired are still owned by us and classified as held-for-sale. When we acquired Dubin, there were two business lines. Dubin Workforce Solutions specialized in temporary labor assignments. The Dubin Group focused on permanent recruiting. We immediately sold the assets of Dubin Workforce Solutions to a new franchisee. There was not a franchisee identified for the Dubin Group portion of the business, however, we began marketing the franchise and classified it as held-for-sale immediately upon acquisition. We entered into an employment agreement with the seller to continue managing the business as a Company-owned location while it was held-for-sale. During 2024, we actively solicited but did not receive any reasonable offers to purchase the assets and, in response, have adjusted the price and increased efforts to grow the customer base. The franchise continues to be actively marketed at a price that is reasonable given its results of operation. We expect to complete a sale of these assets within the next 12 months.

Intangible assets associated with discontinued operations consist of a customer list with a net carrying value of approximately $891 thousand at March 31, 2025 and December 31, 2024.

The net loss from discontinued operations as reported in our Consolidated Statements of Income was comprised of the following amounts:

|  | Three months ended |
(in thousands) |  |  | March 31, 2025 |  |  |  | March 31, 2024 |
Revenue |  | $ | 119 |  |  | $ | 96 |
Cost of staffing services |  |  | 27 |  |  |  | 39 |
Gross profit |  |  | 92 |  |  |  | 57 |
Selling, general and administrative expenses |  |  | (187 | ) |  |  | (143 | )
Loss on sale of intangible assets |  |  | - |  |  |  | (11 | )
Net loss before tax |  |  | (95 | ) |  |  | (97 | )
Benefit for income taxes |  |  | (23 | ) |  |  | (24 | )
Net loss |  | $ | (72 | ) |  | $ | (73 | )

Note 15 - Notes Receivable

Several franchisees borrowed funds from us primarily to finance the initial purchase price of office assets, including intangible assets.

Notes outstanding, net of allowance for losses, were approximately $7.5 million and $7.8 million as of March 31, 2025 and December 31, 2024, respectively. Notes receivable generally bear interest at a fixed rate between 6.0% and 10.0%. Notes receivable are generally secured by the assets of each office and the ownership interests in the franchise. We report interest income on notes receivable as interest income in our Consolidated Statements of Operations. Interest income was approximately $134 thousand and $136 thousand during the three months ended March 31, 2025 and March 31, 2024, respectively.

We estimate the allowance for credit losses for franchisees separately from the allowance for credit losses from non-franchisees because of the level of detailed sales information available to us with respect to our franchisees. Based on our review of available collateral historical information, current conditions, and reasonable and supportable forecasts, we have established an allowance of approximately $876 thousand and $773 thousand as of March 31, 2025 and December 31, 2024, respectively, for credit losses.

The following table summarizes our notes receivable balance to franchisees:

(in thousands) |  |  | March 31, 2025 |  |  |  | December 31, 2024 |
Note receivable |  | $ | 8,364 |  |  | $ | 8,603 |
Allowance for losses |  |  | (876 | ) |  |  | (773 | )
Notes receivable, net |  | $ | 7,488 |  |  | $ | 7,830 |

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. The financial position, results of operations, cash flows and other information included herein are not necessarily indicative of the financial position, results of operations and cash flows that may be expected in future periods. See "Special Note Regarding Forward-Looking Statements" and "Part II - Item 1A. Risk Factors" below for a discussion of uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Additionally, we use a non-GAAP financial measure and a key performance indicator to evaluate our results of operations. For important information regarding the use of such non-GAAP measure, including a reconciliation to the most comparable GAAP measure, see the section titled "Use of Non-GAAP Financial Measure: Adjusted EBITDA" below. For important information regarding the use of such key performance indicator, see the section titled “Key Performance Indicator: System-Wide Sales” below.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q and other documents incorporated herein by reference include, and our officers and other representatives may sometimes make or provide, certain estimates and other forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act, including, among others, statements with respect to future revenue; franchise sales and system-wide sales; net income and Adjusted EBITDA (a Non-GAAP Financial Measure); operating results; dividends and shareholder returns; cost synergies of any mergers or acquisitions including those we have completed in 2023 and 2024; intended office openings or closings; expectations of the effect on our financial condition of claims and litigation; strategies for customer retention and growth; strategies for risk management; all other statements that are not purely historical and that may constitute statements of future expectations; and the impact of any global pandemic including COVID-19. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and similar references to future periods.

While we believe these statements are accurate, forward-looking statements are not historical facts and are inherently uncertain. They are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. We cannot assure you that these expectations will occur, and our actual results may be significantly different. Therefore, you should not place undue reliance on these forward-looking statements. Important factors that may cause actual results to differ materially from those contemplated in any forward-looking statements made by us include the following: the level of demand and financial performance of the temporary staffing and permanent placement industry; the financial performance of our franchisees; our and our franchisees’ customers’ ability to navigate successfully the challenges posed by instability in the financial and capital markets and the overall economic environment including the impact of any potential recession; strategic actions, including acquisitions and dispositions and our success in integrating acquired businesses including, without limitation, successful integration following the acquisitions of Ready Temporary Staffing, TEC Staffing Services, MRI Network, Snelling Staffing, LINK, Recruit Media, Dental Power, Temporary Alternatives, Inc., and subsequent or smaller acquisitions; changes in customer demand; the extent to which we are successful in gaining new long-term relationships with customers or retaining existing ones: the level of service failures that could lead customers to use competitors’ services; workers' compensation expenses that fluctuate from period to period based on the mix of classifications, the level of payroll, recent claims resolution and cumulative experience; significant investigative or legal proceedings including, without limitation, those brought about by the existing regulatory environment or changes in the regulations governing the temporary staffing industry and those arising from the action or inaction of our franchisees and temporary employees; disruptions to our technology network including computer systems and software whether resulting from a cyber-attack or otherwise; natural events such as pandemics, severe weather, fires, floods, and earthquakes, or man-made or other disruptions of our operating systems or the economy including by war or political turmoil; the factors discussed in the “Risk Factors” section below and in our most recent Annual Report on Form 10-K; and the other factors discussed in this Quarterly Report and our Annual Report.

Any forward-looking statement made by us in this Quarterly Report on Form 10-Q is based only on information currently available to us and speaks only as of the date on which it is made. The Company disclaims any obligation to update or revise any forward-looking statement, whether written or oral, that may be made from time to time, based on the occurrence of future events, the receipt of new information, or otherwise, except as required by law.

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Overview

HireQuest, Inc., together with its subsidiaries, (“HQI,” the “Company,” “we,” us,” or “our”) is a nationwide franchisor of offices providing direct-dispatch, executive search, commercial staffing, and permanent placement solutions primarily in the light industrial, blue-collar, executive, managerial, and administrative segments of the staffing industry. Our franchisees provide various types of temporary personnel, permanent placements, and recruitment services through multiple business models under the trade names “HireQuest Direct,” “Snelling,” “HireQuest,” “DriverQuest,” “HireQuest Health,” “TradeCorp," "Northbound Executive Search," "SearchPath," "Management Recruiters International," "MRI," and "Sales Consultants." Some of the MRI franchises also operate under other brands specific to a locality.

| ● | HireQuest Direct focuses on daily-work/daily-pay jobs primarily for construction and light industrial customers.

| ● | Snelling and HireQuest focus on longer-term staffing positions in the light industrial and administrative arenas.
| ● | DriverQuest specializes in both commercial and non-CDL drivers serving a variety of industries and applications.

| ● | HireQuest Health specializes in skilled personnel in the healthcare and dental industries.

| ● | TradeCorp focuses on short-term skilled construction jobs.

| ● | Northbound Executive Search, MRI, SearchPath, and Sales Consultants focus on executive, managerial, and professional recruitment services, although they also offer short-term consultant services.

Our brands exhibit similar long-term financial performance and have similar economic characteristics. Therefore, we provide our services under a single operating division or segment. However, we strive to provide additional information and disclosures related to business models where appropriate.

As of March 31, 2025 we had 424 franchisee-owned offices and 1 company-owned office in 44 states, the District of Columbia, and 13 countries outside of the United States, and we licensed our trade names to 6 offices in California. In addition, on such date, there were 12 MRI locations that provided contract staffing services only. We provide employment for an estimated 80 thousand temporary employees annually working for thousands of clients in many industries including construction, healthcare, recycling, warehousing, logistics, auctioneering, manufacturing, hospitality, landscaping, retail, and dental.

Management is pursuing a strategy that includes organic and acquisition growth components. Our organic growth strategy includes expanding existing client business, seeking out national and global account opportunities for our franchisees, access to capital for our franchisees to expand into new markets, and offering new franchises to qualified applicants. Part of this growth strategy includes an expansive training program for our franchisees to start, operate and grow their business. Our acquisition growth strategy includes identifying strategic, accretive, "tuck-in" acquisitions financed primarily through a combination of cash and debt (including seller financing), the issuance of equity in appropriate circumstances, and the use of earn-outs where efficient to protect the negotiated value and future cash flows.

Recent Developments

The RTS Acquisition

On December 30, 2024 we completed our acquisition of one location of Ready Temporary Services ("RTS") in Denver, Colorado in accordance with the terms of an Asset Purchase Agreement dated December 13, 2024 for $1.4 million. RTS has been a provider of day labor and industrial staffing services to the employers and workers of Denver, Colorado for multiple decades. We funded this acquisition with cash on hand and a draw on our existing line of credit. We immediately entered into a franchise agreement and sold the non-working capital assets we acquired.

TEC, The Employment Company

On October 23, 2023 we entered into an agreement to acquire certain assets of TEC, The Employment Company ("TEC") for approximately $9.8 million. TEC has 10 locations across Arkansas that provide light industrial, clerical, technical, and professional staffing services. Prior to our acquisition, TEC generated over $34 million in system wide sales during the 12-month period ended September 30, 2023. The acquisition of TEC expanded our presence in Arkansas and grew our franchise base, as we immediately entered into new franchise agreements and sold the all of assets acquired. We funded this acquisition with our Senior Credit Facility and the proceeds related to the near simultaneous franchising of operations.

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Results of Operations

Financial Summary

The following table displays our Consolidated Statements of Operations for the three-month periods ended March 31, 2025 and March 31, 2024. Percentages reflect the line item as a percentage of total revenue (in thousands, except percentages).

|  | Three months ended |
(in thousands except percentages) |  |  | March 31, 2025 |  |  |  | March 31, 2024 |
Franchise royalties |  | $ | 6,960 |  |  |  | 93.1 | % |  | $ | 7,831 |  |  |  | 93.0 | %
Service revenue |  |  | 512 |  |  |  | 6.9 | % |  |  | 588 |  |  |  | 7.0 | %
Total revenue |  |  | 7,472 |  |  |  | 100.0 | % |  |  | 8,419 |  |  |  | 100.0 | %
Selling, general and administrative expenses |  |  | 5,255 |  |  |  | 70.3 | % |  |  | 5,619 |  |  |  | 66.7 | %
Depreciation and amortization |  |  | 734 |  |  |  | 9.8 | % |  |  | 698 |  |  |  | 8.3 | %
Income from operations |  |  | 1,483 |  |  |  | 19.8 | % |  |  | 2,102 |  |  |  | 25.0 | %
Other miscellaneous income |  |  | 131 |  |  |  | 1.8 | % |  |  | 37 |  |  |  | 0.4 | %
Interest income |  |  | 134 |  |  |  | 1.8 | % |  |  | 136 |  |  |  | 1.6 | %
Interest and other financing expense |  |  | (144 | ) |  |  | (1.9 | )% |  |  | (243 | ) |  |  | (2.9 | )%
Net income before income taxes |  |  | 1,604 |  |  |  | 21.5 | % |  |  | 2,032 |  |  |  | 24.1 | %
Provision for income taxes |  |  | 169 |  |  |  | 2.3 | % |  |  | 340 |  |  |  | 4.0 | %
Net income from continuing operations |  |  | 1,435 |  |  |  | 19.2 | % |  |  | 1,692 |  |  |  | 20.1 | %
Loss from discontinued operations, net of tax |  |  | (72 | ) |  |  | (1.0 | )% |  |  | (73 | ) |  |  | (0.9 | )%
Net income |  | $ | 1,363 |  |  |  | 18.2 | % |  | $ | 1,619 |  |  |  | 19.2 | %
Non-GAAP data |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Adjusted EBITDA |  | $ | 2,799 |  |  |  | 37.5 | % |  | $ | 3,358 |  |  |  | 39.9 | %

Use of Non-GAAP Financial Measure: Adjusted EBITDA

Adjusted EBITDA is a non-GAAP measure that represents our net income before interest expense, provision for income taxes, depreciation and amortization, costs related to the work opportunity tax credit (“WOTC”), non-cash compensation and acquisition-related charges, net, and other charges and gains we consider non-recurring. We utilize Adjusted EBITDA as a financial measure as management believes investors find it a useful tool to perform meaningful comparisons and evaluations of past, present, and future operating results. We believe it is a complement to net income and other financial performance measures. Adjusted EBITDA is not intended to represent or replace net income as defined by U.S. GAAP and should not be considered as an alternative to net income or any other measure of performance prescribed by U.S. GAAP. We use Adjusted EBITDA to measure our financial performance because we believe interest, taxes, depreciation and amortization, WOTC-related costs, non-cash compensation, acquisition-related charges, net and other non-recurring charges and gains bear little or no relationship to our operating performance.

| ● | By excluding interest expense, Adjusted EBITDA measures our financial performance irrespective of our capital structure or how we finance our operations.

| ● | By excluding taxes on income, we believe Adjusted EBITDA provides a basis for measuring the financial performance of our operations excluding factors that are beyond our control.

| ● | By excluding depreciation and amortization expense, Adjusted EBITDA measures the financial performance of our operations without regard to their historical cost.

| ● | By excluding WOTC related costs, Adjusted EBITDA provides a basis for measuring the financial performance of our operations excluding the costs associated with qualifying for this tax credit.

| ● | By excluding non-cash compensation, Adjusted EBITDA provides a basis for measuring the financial performance of our operations excluding the value of our restricted stock and stock option awards.

| ● | By excluding acquisition-related charges, net, Adjusted EBITDA provides a basis for measuring the financial performance of our operations without regard to gains or losses that arise from acquisitions.

| ● | By excluding other non-recurring charges and gains such as goodwill and intangible asset impairment, Adjusted EBITDA provides a basis for measuring financial performance without such items.

In addition, our Credit Agreement requires us to comply with a fixed charge coverage ratio and a leverage ratio, both of which include Adjusted EBITDA substantially as defined above. For all of these reasons, we believe that Adjusted EBITDA provides us, and investors, with information that is relevant and useful in evaluating our business.

However, because Adjusted EBITDA excludes depreciation and amortization, it does not measure the capital we require to maintain or preserve our fixed and intangible assets. In addition, because Adjusted EBITDA does not reflect interest expense, it does not take into account the total amount of interest we pay on outstanding debt, nor does it show trends in interest costs due to changes in our financing or changes in interest rates. Adjusted EBITDA, as defined by us, may not be comparable to Adjusted EBITDA as reported by other companies that do not define Adjusted EBITDA exactly as we define the term. Because we use Adjusted EBITDA to evaluate our financial performance, we reconcile it to net income, which is the most comparable financial measure calculated and presented in accordance with U.S. GAAP below (in thousands).

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|  | Three months ended |
(in thousands) |  |  | March 31, 2025 |  |  |  | March 31, 2024 |
Net income |  | $ | 1,363 |  |  | $ | 1,619 |
Interest expense |  |  | 144 |  |  |  | 243 |
Provision for income taxes |  |  | 169 |  |  |  | 340 |
Depreciation and amortization |  |  | 734 |  |  |  | 698 |
EBITDA |  |  | 2,410 |  |  |  | 2,900 |
WOTC related costs |  |  | 150 |  |  |  | 85 |
Non-cash compensation |  |  | 239 |  |  |  | 362 |
Acquisition related (gains) charges, net |  |  | (103 | ) |  |  | 11 |
Write down of note receivable |  |  | 103 |  |  |  | - |
Adjusted EBITDA |  | $ | 2,799 |  |  | $ | 3,358 |

Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

Revenue

Our total revenue consists of franchise royalties and service revenue we receive from our franchises. Revenue would also include staffing revenue with respect to owned locations, when applicable. Once a company-owned office is sold, disposed of, or otherwise classified as held-for-sale, it would not be reflected in revenue and instead reported as “Income from discontinued operations, net of tax.” Revenue does not include any owned locations for the three months ended March 31, 2025 or the three months ended March 31, 2024.

Total revenue for the three months ended March 31, 2025 was approximately $7.5 million compared to $8.4 million for the three months ended March 31, 2024, a decrease of approximately 11.2%. For the quarter ended March 31, 2025, there was a $15.6 million or 11.7% decrease in underlying system-wide sales from $134.0 million for the three months ended March 31, 2024 to $118.4 million for the three months ended March 31, 2025. The decrease in system-wide sales was primarily driven by a decline at MRI of $8.9 million, HQ Direct of $2.8 million and Snelling/HQ of $2.9 million. Revenue as a percentage of system-wide sales was 6.3% for the three months ended March 31, 2025 compared to 6.3% for three months ended March 31, 2024.

Franchise Royalties

Franchise royalties for the three months ended March 31, 2025 were approximately $7.0 million, a decrease of approximately 11.2% from $7.8 million for the three months ended March 31, 2024. Our net effective royalty rate (as a percentage of external system-wide sales) was 5.9% for the three-month period ended March 31, 2025 and 5.9% for the three months ended March 31, 2024. Our net effective royalty rate will generally fluctuate due to mix of business among the various royalty models under which we operate, as well as incentives we offer during the year. A summary of franchise royalties by brand for the three months ended March 31, 2025 and March 31, 2024 follows:

|  | Three months ended |
(in thousands) |  |  | March 31, 2025 |  |  |  | March 31, 2024 |
Franchise royalties from HireQuest Direct |  | $ | 3,587 |  |  | $ | 3,823 |
Franchise royalties from Snelling and HireQuest |  |  | 1,953 |  |  |  | 2,110 |
Franchise royalties from DriverQuest and TradeCorp |  |  | 195 |  |  |  | 155 |
Franchise royalties from HireQuest Health |  |  | 67 |  |  |  | 94 |
Franchise royalties from Northbound, MRI, and SearchPath |  |  | 1,158 |  |  |  | 1,649 |
Franchise royalties |  | $ | 6,960 |  |  | $ | 7,831 |

Service Revenue

Service revenue consists of interest we charge our franchisees on overdue customer accounts receivable and other miscellaneous fees for optional services we provide. Direct costs to provide certain services are reflected as a reduction in service revenue. As accounts receivable age over 42 days, our franchisees pay us interest on these accounts equal to 0.5% of the amount of the uncollected receivable each 14-day period. All accounts that age beyond 84 days are charged back to the franchisee and no longer incur interest, although some of our franchisees elect to charge back accounts that age over 42 days in order to avoid the interest charge. In addition to royalty fees, we also charge a license fee to some locations that utilize our intellectual property that are not franchisees. License fees are 9% of the gross margin for those locations. We have no employees and provide no services at the licensed locations. Service revenue also includes amounts charged for various optional services and cost-sharing arrangements such as bulk vendor programs or IT license blocks. Generally, we do not profit from these arrangements as they represent pass-through items, although there may be timing differences. In addition, there are occasionally classification differences where the cost is embedded in selling, general and administrative expenses.

Service revenue for the three months ended March 31, 2025 was approximately $512 thousand, a decrease of $76 thousand from the three months ended March 31, 2024, when service revenue was approximately $588 thousand. Interest income, which is included in service revenue was $240 thousand for the three months ended March 31, 2025 and $185 thousand for the three months ended March 31, 2024. Fluctuations in interest generally follow the mix of aged accounts in our accounts receivable, although relatively few age over 42 days and result in service revenue for us. Many of our franchisees have elected to charge back accounts early in order to avoid or reduce the interest charge. Therefore, there will not be a proportionally large increase in service revenue even when there is a large increase in accounts receivable. We pride ourselves on maintaining quality, creditworthy customers who pay timely. We view the imposition of higher interest rates on aged accounts receivable to serve as an incentive for our franchisees to select credit-worthy customers. Service revenue is expected to fluctuate from quarter-to-quarter. The increase in interest income was primarily offset by a $95 thousand increase in liability insurance.

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Operating Expenses

Total Operating expenses for the three months ended March 31, 2025 were approximately $6.0 million compared to $6.3 million for the three months ended March 31, 2024. The decrease of $0.3 million was primarily driven by a $0.5 million decrease in Workers compensation expense. Overall, operating expenses represented 5.1% of system-wide-sales in the three months ended March 31, 2025 versus 4.7% of system-wide sales in the three months ended March 31, 2024.

Workers' Compensation

Workers' compensation expense was approximately $28 thousand for the three months ended March 31, 2025, a decrease of $544 thousand when compared to a net expense of approximately $572 thousand recorded in the three months ended March 31, 2024. Our workers' compensation reserves provide benefits following a workplace injury. Benefits are usually statutory in nature and are generally provided in partial or complete replacement of the injured worker’s recourse to the liability system. Payments may include medical treatment, rehabilitation, lost wages, and survivor benefits. Workers compensation rating is typically based on job classification, and our workers fall in hundreds of classifications. Annually, we use third-party actuaries to ensure that the overall ratings are sound, that individual insurer rates are adequate, and that individual risks receive a fair rate that reflects both the characteristics of the job classification and the Company's risk experience. The company pays premiums, actual claims, and establishes reserves for future claims. In turn we charge our franchises a percentage of payroll as determined by our workers' compensation carrier, plus or minus certain incentives and charges we provide for good or bad workers' compensation claims history. The overall charge is an estimate of the fully developed future costs and may not always coincide with the actual costs we incur resulting in expense or benefit in a given period. Over the long-term, our workers' compensation expense should equal the amounts we collect from franchisees and essentially be a pass-through cost. In the short-term, we cannot accurately predict the effects of workers' compensation in specific future periods, and historical trends are not indicative of future results.

Compensation and Benefits

Compensation-related expenses include wages, payroll taxes, benefits, and stock-based compensation, and continue to be the largest component of operating expenses. Compensation and benefits for the three months ended March 31, 2025 was approximately $2.9 million which was slightly down compared to $3.0 million for the three months ended March 31, 2024.

Other Selling, General, and Administrative Expenses ("SG&A")

Other SG&A was $2.2 million for the three months ended March 31, 2025, compared to $1.9 million for the three months ended March 31, 2024.

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Depreciation and amortization

Depreciation and amortization for the three months ended March 31, 2025 was approximately $734 thousand compared to $698 thousand for the three months ended March 31, 2024. This increase is the result of an IT project being placed in service causing amortization to begin.

Other Income and Expense

Other income and expense consists of interest income on notes receivable, rent received from sub-tenants, and other non-operating income and expense.

Other miscellaneous income (expense)

For the three months ended March 31, 2025, other miscellaneous income was approximately $131 thousand, compared to other miscellaneous income of $37 thousand for the three months ended March 31, 2024. This change was primarily driven by a gain on the disposal of a franchise business we took control of and then sold to another franchisee in the period ending March 31, 2024.

Interest income and expense

Interest income for the three months ended March 31, 2025 was approximately $134 thousand compared to $136 thousand for the three months ended March 31, 2024. Interest income represents interest related to the financing of franchised locations and the increase is due to the increase in Notes Receivables associated with the TEC acquisition in December 2023 as noted in Note 2-Acquisitions.

Interest and other financing expense relates primarily to the Credit Agreement with Bank of America, N.A. Interest and other financing expense decreased from $243 thousand for the three months ended March 31, 2024 to $143 thousand for the three months ended March 31, 2025. Interest and other financing expense will fluctuate as we utilize the line of credit for acquisitions or other short-term liquidity needs. The decrease in interest expense is consistent with the decrease in the outstanding line of credit balance.

Provision for income tax

Income tax expense was approximately $169 thousand for the three months ended March 31, 2025. We estimate an annual projected effective tax rate ("ETR") for the year to determine income tax expense or benefit in the interim periods. The estimated annual ETR does not include tax effects from significant unusual or infrequently occurring items. Such items are accounted for discretely during the period in which they occur. The ETR is primarily driven by the federal WOTC, which 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 significant items affecting our tax rate are windfall tax deductions related to stock-based compensation, and overall limits on executive compensation. Our net ETR for the three months ended March 31, 2025 was 10.5%.

Income tax expense for the three months ended March 31, 2024 was approximately $340 thousand. Our net ETR for the three months ended March 31, 2024 was 16.7%. The increase in the net ETR is driven by mix of our revenue, particularly the addition of MRI Network as the increase in executive, managerial and professional recruiting does not generate WOTC's at the same levels as staffing services.

Discontinued Operations

Following the acquisition of Dental Power, we used the platform to build a customer base in the dental-oriented sector of the staffing industry, which benefits our entire system by increasing revenue opportunities for all franchises under the HireQuest Health brand. Dental Power has national customers, and we did not have any plans to sell the operations as a single franchise or bifurcate it off into several geographical franchisees. It was not being marketed or otherwise held-for-sale. We operated Dental Power as a company-owned location reflected in continuing operations. As part of the MRI Network acquisition, their franchise base included a number of natural buyers who were already operating in the dental industry. We immediately began marketing Dental Power for sale to these and any other potential buyers. On March 27, 2023, we completed the sale of the assets we acquired in the Dental Power acquisition to an acquired MRI franchisee, who will continue to operate the business as part of their franchise. All operations of Dental Power while we operated the business have been classified as discontinued operations for all periods presented.

Following our acquisition of Dubin, we divided their operations into separate businesses and sold certain customer related assets of one of the acquired locations to a new franchisee. The remaining assets related to the operations of the other acquired location (in Philadelphia) have not been sold and as of March 31, 2025 remain classified as held-for-sale. In the meantime, we operate this Philadelphia location as company-owned, although all operations are presented as part of discontinued operations.

The assets and liabilities of our discontinued operations are presented separately in the asset and liability sections, respectively, of the balance sheet for all periods presented. Similarly, cash flows and the results of operations are also removed from continuing operations in the respective financial statements. In general, assets held-for-sale are not amortized or depreciated, and are measured at the lower of carrying amount or fair value less costs to sell.

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Liquidity and Capital Resources

Overview

Our major source of liquidity and capital is cash generated from our ongoing operations consisting of royalty revenue, service revenue and staffing revenue from franchisee-owned locations. We also receive principal and interest payments on notes receivable that we issued in connection with the conversion of company-owned or acquired offices to franchised offices.

At March 31, 2025 , our current assets exceeded our current liabilities by approximately $27.3 million. Our current assets included approximately $2.1 million of cash and $42.2 million of net accounts receivable, which our franchisees have billed to customers and which we own in accordance with our franchise agreements. Our largest current liabilities as of March 31, 2025 included approximately $7.8 million due to our franchisees on pending settlement statements, $3.4 million related to our workers’ compensation claims liability, and $5.5 million of borrowings under our line of credit.

Our working capital requirements are driven largely by temporary employee payroll, which is typically daily or weekly, and weekly cash settlements with our franchises. Since collections from accounts receivable lag employee pay our working capital requirements increase as system-wide sales increase, and vice-versa. When the economy contracts, our cash balance tends to increase in the short-term as payroll funding requirements decrease and aged accounts receivable are converted to cash upon collection. As the economy recovers, our cash balance generally decreases and accounts receivable increase.

We believe that our current cash balance, together with the future cash generated from operations, principal and interest payments on notes receivable, and our borrowing capacity under our line of credit, will be sufficient to satisfy our working capital needs, capital asset purchases, future dividends (if any), and other liquidity requirements associated with our continuing operations for the next 12 months. We also believe that these sources of liquidity and capital will be sufficient to satisfy our liquidity requirements associated with our continuing operations beyond the next 12 months.

Our access to, and the availability of, financing on acceptable terms in the future will be affected by many factors including overall liquidity in the capital or credit markets, the state of the economy and our credit strength as viewed by potential lenders. We cannot provide assurances that we will have future access to the capital or credit markets on acceptable terms. We expect our borrowing costs to continue to increase as the Federal Reserve raises its benchmark interest rates in an effort to control inflation.

Operating Activities

During the three months ended March 31, 2025, cash provided by continuing operations was approximately $1.9 million and included net income from continuing operations of approximately $1.4 million, adjusted by non-cash items (primarily depreciation and stock-based compensation) of approximately $1.3 million. These provisions were offset by changes in operating assets and liabilities requiring cash of approximately $0.8 million. During the three months ended March 31, 2024, cash used by continuing operating activities was approximately $0.9 million and included net income from continuing operations of approximately $1.7 million, adjusted by non-cash items of approximately $1.2 million. These provisions were partially offset by changes in operating assets and liabilities requiring cash of approximately $3.8 million.

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Investing Activities

During the three months ended March 31, 2025, cash generated by investing activities was approximately $317 thousand, primarily from payments on notes receivable. During the three months ended March 31, 2024, cash generated by investing activities was approximately $213 thousand.

Financing Activities

During the three months ended March 31, 2025, cash used by financing activities was approximately $2.3 million and included net payments on our revolving line of credit of approximately $1.4 million and the payment of approximately $0.8 million in dividends. During the period ended March 31, 2024, cash provided by financing activities was approximately $1.0 million and included the payment of dividends totaling approximately $0.8 million and proceeds from our revolving line of credit of approximately $2.0 million.

Revolving Credit Agreement with Bank of America, N.A.

On February 28, 2023 the Company and all of its subsidiaries as borrowers (collectively, the "Borrowers") entered into a Revolving Credit Agreement with Bank of America, N.A. (the "Bank") 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 Term SOFR 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 related credit agreement (the "Credit Agreement"). The Senior Credit Facility will mature on February 28, 2028.

The Credit Agreement and other loan documents contain customary representations and warranties, affirmative, and negative covenants, including without limitation, those covenants governing indebtedness, liens, fundamental changes, restricting certain payments including dividends unless certain conditions are met, transactions with affiliates, investments, engaging in business other than the current business of the Borrowers and business reasonably related thereto, and sale/leaseback transactions. The Credit Agreement and other loan documents also contain customary events of default including, without limitation, payment default, material breaches of representations and warranties, breach of covenants, cross-default on material indebtedness, certain bankruptcies, certain ERISA violations, material judgments, change in control, termination or invalidity of any guaranty or security documents, and defaults under other loan documents. The obligations under the Credit Agreement and other loan documents are secured by substantially all of the assets of the Borrowers as collateral including, without limitation, their accounts and notes receivable, intellectual property and the real estate owned by HQ Real Property Corporation.

The Company utilized the proceeds of the Senior Credit Facility (i) first to pay off its existing credit agreement with Truist (described below), (ii) second, to pay off its existing term loan with Truist (described below), and (iii) third, to pay transaction fees and expenses incurred in connection with closing the transactions described above. The Company intends to utilize the proceeds of any loans made under the Senior Credit Facility for working capital, required letters of credit, and general corporate purposes in accordance with the terms of the Senior Credit Facility.

At March 31, 2025, availability under the Senior Credit Facility was approximately $34.8 million based on eligible collateral, less letter of credit reserves, bank product reserves, and current advances, assuming continued covenant compliance. Our all-in-rate of borrowing was 5.7% and is repriced daily.

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Economy and Inflation

Recent shifts in U.S. government policies towards isolationism and trade protectionism, along with potential future shifts in policy, may lead to uncertainty in the economy which may impact whether businesses in many industries choose to expand operations or preserve resources which, in turn, may affect the market for temporary or permanent placement services. The recent imposition of and continuing negotiations with respect to tariffs and their effect on the overall economy of the United States could impact our share price as well as our results of operations.

In addition, the Russian invasion of Ukraine and the resulting economic sanctions imposed by the United States and other countries, along with certain international organizations, continue to impact the global economy, including by exacerbating inflationary pressures created by COVID-related supply chain disruptions, and have given rise to potential global security issues that have adversely affected and may continue to adversely affect international business and economic conditions. Furthermore, the threat of a wider war in the Middle East after the Hamas terrorist attacks on Israel could affect oil prices and have other effects on the global economy. Although we have no operations in Russia or Ukraine or in the Middle East certain of our or our franchisees’ customers may have been or may in the future be impacted by these events. The ongoing effects of the hostilities and sanctions are no longer limited to companies from such regions and have spilled over to and negatively impacted other regional and global economic markets.

The conflicts have resulted in rising energy prices and an even more constrained supply chain, and thus exacerbated the inflationary global economic environment, with cost increases affecting labor, fuel, materials, food and services. If these impacts continue to affect us and/or our clients, particularly in the industrial/manufacturing and construction sectors, demand for our labor may decrease, which would decrease gross billings and therefore our royalty revenue. Furthermore, sustained increases in the consumer price index has and will likely continue to put upward pressure on wages. If we are unable to match or exceed wages offered by other potential employers to our temporary employees, we may suffer from employee attrition. At this time, the ultimate extent and duration of the U.S. policy shift, military actions, resulting sanctions and future economic and market disruptions, and resulting effects on the Company, are impossible to predict.

Key Performance Indicator: System-Wide Sales

We refer to total sales generated by our franchisees as “franchise sales.” For any period prior to their conversion to franchises, we refer to sales at company-owned and operated offices as “company-owned sales.” In turn, we refer to the sum of franchise sales and company-owned sales as “system-wide sales.” In other words, system-wide sales include sales at all offices, whether owned and operated by us or by our franchisees. In addition, system-wide sales includes sales at company-owned offices that are classified as discontinued operations. System-wide sales is a key performance indicator, although we do not record system-wide sales as revenue. Management believes that information on system-wide sales is important to understanding our financial performance because those sales are the basis on which we calculate and record much of our franchise royalty revenue, are directly related to all other royalty revenue and service revenue and are indicative of the financial health of our franchisee base. Management uses system-wide sales to benchmark current operating levels to historic operating levels. System-wide sales should not be considered as an alternative to revenue.

For the three months ended March 31, 2025, nearly all of our offices were franchised with the only exceptions being a portion of the Dubin operations acquired in the first quarter of 2022. The following table reflects our system-wide sales broken into its components for each period indicated. The Dubin operations are presented in the consolidated financial statements as discontinued operations because they are considered held-for-sale, but their system-wide sales are reflected along with all other offices in the table below. Percentages indicate the change in system-wide sales relative to the comparable prior period (in thousands, except percentages):

|  | Three months ended |
(in thousands) |  |  | March 31, 2025 |  |  |  | March 31, 2024 |  |  |  | Change |
System-wide sales from HireQuest Direct |  | $ | 51,572 |  |  | $ | 54,333 |  |  |  | (5.1 | )%
System-wide sales from Snelling and HireQuest |  |  | 33,660 |  |  |  | 36,559 |  |  |  | (7.9 | )%
System-wide sales from DriverQuest and TradeCorp |  |  | 3,222 |  |  |  | 2,969 |  |  |  | 8.5 | %
System-wide sales from HireQuest Health |  |  | 1,143 |  |  |  | 1,728 |  |  |  | (33.9 | )%
System-wide sales from Northbound, MRI, and SearchPath |  |  | 28,675 |  |  |  | 38,350 |  |  |  | (25.2 | )%
System-wide sales from Discontinued Operations |  |  | 119 |  |  |  | 96 |  |  |  | 24.0 | %
System-wide sales |  | $ | 118,391 |  |  | $ | 134,035 |  |  |  | (11.7 | )%

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Number of Offices

We examine the number of offices we open and close every period. The number of offices is directly tied to the amount of royalty and service revenue we earn. We count a location as an office if it has a physical location and is generating revenue.

The following table accounts for the number of offices opened and closed or consolidated during the three months ended March 31, 2025:

Offices, December 31, 2023 |  |  | 427 |
Opened in 2024 |  |  | 30 |
Closed in 2024 |  |  | (32 | )
Offices, December 31, 2024 |  |  | 425 |
Opened in 2025 |  |  | 2 |
Closed in 2025 |  |  | (3 | )
Offices, March 31, 2025 |  |  | 424 |

Critical Accounting Estimates

See Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2024.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and, as such, are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, management concluded that these disclosure controls and procedures were not effective as of the end of such period as a result of the material weakness disclosed below.

Material Weakness

As previously reported and described below, we identified a material weakness in our internal control over financial reporting as we did not have sufficient accounting resources available to handle the volume of technical accounting issues and provide adequate review functions. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a key part of the remediation, the Company has engaged third party professionals with appropriate technical expertise for subsequent acquisitions and will continue to do so given the complexity around the accounting treatment for acquisitions. Also, in order to give the Chief Accounting Officer (“CAO”) more time to do an appropriate review as and when required, the Company has transitioned the CAO’s responsibility over the Finance Operations Group which processes and reconciles daily transactions to another leader in the organization. In addition, the Company recruited and hired additional staff in the accounting department with appropriate professional experience. In November 2023, the Company hired a Chief Financial Officer (“CFO”) with 17 years of experience as a public company CFO and 5 years of experience as a public company director including as Audit Committee Chair. Additionally, the Company is working through the accounting processes currently the responsibility of the CAO with the goal of transitioning work from the CAO to other appropriately experienced accounting staff. The Company has also strengthened its monthly results review communications with the CEO/CODM. In order to finalize the remediation efforts of the Material Weakness, the focus of the Company in 2025 will be on the lack of segregation of duties in the IT system relative to posting of journal entries, adding new users and password security and review of certain journal entries and certain account reconciliations and supporting schedules.

Notwithstanding the material weakness, which still existed as of March 31, 2025, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, have concluded that the consolidated financial statements included in this Annual Report present fairly, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with accounting principles generally accepted in the United States.

The certifications required by Rule 13a-14 of the Exchange Act are filed as exhibits 31.1 and 31.2, respectively, to this Quarterly Report on Form 10-Q.

We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that control deficiencies contributing to the material weakness are remediated as soon as possible. We have made significant progress towards remediation and continue to implement our remediation plan for the material weakness in internal control over financial reporting described above. We will consider the material weakness remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.

Changes in Internal Control Over Financial Reporting

Other than efforts to remediate the material weakness described above, there was no change to the Company's internal control over financial reporting that occurred during the Company's quarter ended March 31, 2025 and that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we are involved in various legal and administrative proceedings. Based on information currently available to us, we do not expect material uninsured losses to arise from any of these matters. We believe the outcomes of these proceedings, even if determined adversely, will not have a material adverse effect on our business, financial condition, results of operations, or liquidity and capital resources.

Item 1A. Risk Factors

There have been no material changes from the risk factors we previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on March 21, 2024.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No. |  | Description
31.1 |  | Certification of Richard Hermanns, Chief Executive Officer of HireQuest, Inc. pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2 |  | Certification of Steve Crane, Chief Financial Officer of HireQuest, Inc. pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1 |  | Certification of Richard Hermanns, Chief Executive Officer of HireQuest, Inc., and Steve Crane, Chief Financial Officer of HireQuest, Inc., pursuant to 18 U.S.C. Section 1350, as adopted in Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101.INS |  | Inline XBRL Instance Document (filed herewith)
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
104 |  | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.

/s/ Richard Hermanns |  | May 8, 2025 |
Richard Hermanns |  | Date |
President and Chief Executive Officer |  |  |
/s/ Steve Crane |  | May 8, 2025 |
Steve Crane |  | Date |
Chief Financial Officer |  |  |

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