Good afternoon and welcome to the HireQuest, Inc., third quarter 2026 earnings conference call. At this time, all participants are the listen-only mode. And we will open the floor for questions after the presentation. If you do wish to ask and join the queue for questions at any time, you can press star 1. And should you wish to remove yourself from the queue, press star 2. It is now my pleasure to turn the floor over to your host, Walter Frank.

Thank you, operator. I would like to welcome everybody to the call. Hosting the call today are HiReQuest's CEO, Rick Hermanns, and CFO, David Hartley. I would like to take a moment to read the Safe Harbor Statement. This conference call contains forward-looking statements as defined within Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements and terms such as anticipate, expect, intend, may, will, should, or other comparable terms involve risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. Those statements include statements regarding the intent, belief, or current expectations of HireQuest and members of its management, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those described in HireQuest's periodic reports filed with the SEC, and that actual results may differ materially from those contemplated by such forward-looking statements. Except as required by federal securities law, HireQuest undertakes no obligation to update or revise forward-looking statements to reflect change conditions. I would now like to turn the call over to the CEO of HireQuest, Rick Hermanns.

Good afternoon, and thank you for joining our call today. We saw continued momentum in the third quarter across our core commercial staffing brands as improving demand translated into another quarter of year-over-year revenue growth. Total revenue grew 4% year-over-year to $8.8 million, with broad-based growth across our HireQuest Direct and Snelling offices. Our franchise model continues to demonstrate its resilience, allowing us to grow alongside our franchisees as they continue to benefit from a strengthening from a strengthening labor market. On the macro level, market data increasingly suggests a shift to improving staffing demand. According to the Bureau of Labor Statistics, temp positions rose almost 19,000 in October, up 3% year-over-year, the highest since September 2022, in the fifth consecutive month of year-over-year growth. Broader payrolls also came in well above expectations in October in transportation and warehousing and manufacturing. Two of the light industrial end markets our franchisees serve added a combined 44,000 jobs. Staffing Industry Analysts Weekly Bullhorn Staffing Indicator, which shows near real-time weekly trends in temporary staffing volume and hours worked by temporary workers across the United States, also reached a new year-to-date high in late October, A trend also reflected in the American Staffing Association's ASA Staffing Index. While we're glad to see the encouraging market signs, we have consistently delivered results in all types of market environments thanks to our differentiated franchise staffing model. This model has allowed us to navigate a diverse mix of market conditions over the last several years to meet the demands of our customers while remaining solidly profitable. As I mentioned last quarter, and I'd like to say it again now, we've reported GAAP profitability in each quarter since the third quarter of 2024 when we recognized a one-time non-cash impairment charge of $6.4 million related to our acquisition of MRI Network, and we have never reported a loss on a non-GAAP basis. We believe that We believe the improving demand environment we've seen throughout 2026 positions our franchisees well as we close out the year and look ahead into 2027. As of today, we're seeing momentum continue into the fourth quarter. Weekly system-wide sales have been up double digits year over year for the last couple of months, but we've seen that strength continue to build with system-wide sales in the high teens year over year Thank you, Rick, and good afternoon, everyone.

Appreciate you joining us today. I'll now provide a summary of our third quarter results. We generated $8.8 million in total revenue in the third quarter of 2026, up 4% from $8.5 million a year ago. The third quarter of 2025 included $540,000 of total revenue related to the MRI network assets divestiture. So on a pro forma basis, total revenue increased 11.1% year over year. We have two sources of revenue. Franchise royalties, our primary source, which is the larger of the two, and the other is service revenue, which includes fees for certain services we provide to franchisees, interest we charge them, and other miscellaneous revenue. Franchise royalties rose 1.5% to $8.2 million from $8.1 million in the same quarter last year. The third quarter of 2025 included approximately 479,000 in franchise royalties related to the MRI divestiture. And pro forma, franchise royalties increased 7.9% in the third quarter of 2026. System-wide sales are the sales behind those royalties. They capture sales at all offices, including those classified as discontinued. We track them as an indicator of franchise performance and they sit outside our reported revenue. System-wide sales came in at $131.2 million for the third quarter compared to $133.6 million in the third quarter last year. The decrease was primarily driven by $15.8 million in system-wide sales related to the MRI assets divestiture included in our results last year. This was partially offset by an increase of $7.5 million in system-wide sales from HireQuest Direct and $6.6 million in system-wide sales from Snelling. Pro forma for the divestiture system-wide sales rose 11.4% in the third quarter. Service revenue in the third quarter was $604,000 compared to $387,000 last year. primarily due to an increase of $230,000 related to liability insurance. This was partially offset by the loss of $61,000 in MRI network national advertising fund fees that are no longer a part of our revenue due to the divestiture. Selling, general, and administrative expenses in the third quarter were $6.1 million compared to $5.1 million in the third quarter of 2025. SG&A in the third quarter of 26 included a non-cash expense of approximately $1.3 million due to write-downs of notes receivable, primarily as a result of a franchise location we repossessed during the quarter. Also included in SG&A is net workers' compensation expense, which totaled $434,000 for the third quarter of 2026, compared with a net benefit of $99,000 in the third quarter of 2025. For the third quarter of 26, core SG&A, which excludes the impact of workers' comp and any non-recurring operating expenses, was $4.4 million. We provide a table in the press release issued earlier this afternoon with a detailed reconciliation of core SG&A to SG&A. along with tables for the non-GAAP profitability metrics, net income to adjusted net income, and net income to adjusted EBITDA, which I'll discuss shortly. Net income was $1.7 million in the third quarter or $0.12 per diluted share compared to $2.3 million or $0.16 per diluted share last year. Net income in the third quarter of 2026 included the non-cash expense of 1.3 million related to the repossession of the franchise location. And additionally, our effective tax rate for continuing operations was 17% in the third quarter of this year compared to 5.2% in the third quarter last year. The third quarter of last year, primarily benefited from a higher level of work opportunity tax credits. Adjusted net income for the third quarter was $3 million or $0.22 per diluted share compared to adjusted net income of $3.3 million or $0.23 per diluted share last year. Adjusted EBITDA was $4.5 million in the third quarter compared to $4.5 million last year. Moving on now to the balance sheet. Our total assets as of September 30, 2026 were $95.7 million compared to $88.2 million at December 31, 2025. Current assets included $1.1 million in cash and $54.9 million of net accounts receivable, while current assets at 2025 year end included $3.9 million of cash and $39.3 million of net accounts receivable. Working capital was $38 million as of September 30, 2026, compared with $33 million at the 2025 year end. As of September 30, 2026, we had approximately $500,000 drawn on our credit facility and $40.5 million in availability, assuming continued covenant compliance. We have paid a regular quarterly dividend since the third quarter of 2020. During the third quarter of 2026, we paid a six cent per common share dividend declared on September 1st, 2026. We expect to continue to pay a dividend each quarter subject to the board's discretion. Additionally, during the first nine months of 2026, we repurchased approximately 226,000 shares of our common stock for approximately $2.4 million under our share repurchase program. With that, I will turn the call back over to Rick for some closing comments.

Thank you, David. As always, I'd like to thank our employees and franchisees for their hard work and commitment. And we look forward to speaking with you again when we report our fourth quarter and full year 2026 results in March. With that, we can now open the line to questions.

Thank you, sir. The floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star 1. We do ask if listening on speakerphone today to please pick up your handset while asking your questions to provide optimal sound quality. Once again, please press star 1 on your phone at this time to join the queue to ask a question. Thank you. And your first question will be from Mike Baker at DA Davidson. Please go ahead.

Great. Thanks, guys. So, yeah, nice quarter, two quarters in a row of growth year-over-year. Can you talk a little bit about the pace throughout the quarter? I think, just talk about where you ended, where you started the quarter versus where you ended, and then you made some comments about early 4Q trends. What's a reasonable expectation to finish the year in terms of top-line growth?

Well, I mean, obviously, and thanks for the question, Mike, we don't, you know, as far as what our revenues are, but I can simply say that by the end of the third quarter, our year-over-year comparisons were stronger than at the beginning of the quarter, and those trends have actually accelerated into the fourth quarter. And so while I wouldn't want to speculate how the year will end, like I said, the beginning of the fourth quarter has been stronger than the third quarter.

Okay, fair enough. You know, it's good to see the growth, of course, but if I could ask that the growth was up a little bit less than it was in the second quarter, but it sounds like it got better. I guess that implies maybe a little bit of softness early in the quarter. If you could just talk about, you know, is that right and what may have, you know, is that impacted any of the months in particular that, you know, now seems to be behind us?

I think part of the difference is what the comparisons were, let's say, with last year, including MRI, because I'm pretty confident, and David, you can check my numbers, Mike, and maybe offline we can get this for you, is that our actual comparisons were better in Q3 than they were in Q2, year over year. But obviously we have the MRI divestiture numbers that kind of, you know mess with the top you know it's the adjusted numbers that almost count more you know simply because of the size of those those other ones and so I just I don't believe that I don't believe that's possible the other part that I would say we did benefit in the third quarter you know I don't want to be one of those guys who sits there and you know if there's a storm in winter and say yeah our quarter was was off because we had some bad weather in the Northwest or something like that. We did benefit a bit in the third quarter of the fact that there really were no major hurricanes that had a significant impact. And so we didn't lose business in the third quarter due to weather events. And so that did actually help us. But again, our year-over-year trends continued to improve throughout the quarter. and so on. But like I said, we'll go back and look at that, but I don't think the initial assertion you made was correct.

Okay, fair enough. Yeah, I'll pass it on to someone else.

Thank you. Next question will be from Kevin Steinke at Barrington Research. Please go ahead, Kevin.

Great, great, thank you. So you referenced the broad-based growth that you saw across both HigherQuest Direct and Snelling, continued strength and commercial staffing. Are there any particular industry verticals or markets that you would call out that are helping to drive that strength?

Yeah, so, and again, it absolutely was, you know, broad-based improvements so I don't so and I'm going to go and now I'm going to say but there are a couple that were better but I want you know it's important to state that there was you know there was not one single area that like really drove the improvements but I would call out basically factory automations or warehouse automations there have been some large projects taking place across the country that that we've definitely benefited from you know think of a any sort of a large logistics company changing out their equipment and then having it be tested. A lot of our people have been involved in those upgrades of equipment. We've definitely benefited from that. We've also done a better job this year capturing food service business. I would say those two in particular have been have been very strong for us.

Great, that's helpful. So as you talked about the year of your comparison strengthened as you went through the third quarter and continued into the fourth quarter, is there anything that you would attribute that strengthening trend to? Do you think it's just the market? Is it something you're doing internally? I know you've talked about national accounts in the past. I don't know anything you would highlight behind the strengthening.

So, you know, it's a combination. So I would put it on to three different major factors. Number one is just an improvement in demand. And, you know, as we referenced in our prepared remarks is, you know, whether it's the Whether it's SIA, whether it's the American Staffing Association, we're seeing what everybody else is seeing, which is there is an improvement in demand for temporary staffing across the industry. So we do now have a tailwind for the last five months that we hadn't seen in three years. Now, part of it is then, well, why is that? And as I've stated before, and without taking a political stance on it whatsoever, the restrictive immigration policies have certainly improved demand for commercial staffing companies, especially those that cater to blue-collar workers, which HireQuest is one of them. and so that is another reason that we have seen for the improvement in the demand within the industry itself. The other part is, and we are absolutely doing better on our own sort of targeting of national accounts, we've sort of expanded the reach of our national account department to work and more in step with our franchisees to close business instead of just bringing opportunities to our franchisees is actually working with them to close it, meaning historically we might, let's say, pick up a contract with ABC Warehouse, which is across the country, and then say to our franchisees, okay, here are 38 locations you know go get them. We are working much more carefully and much more in tandem with our franchisees to go to those you know of those 38 locations the ones that are in our markets. I would add a final point that's improved our performance as well because it's allowed us to pick up a number of sites that let's say historically we really wouldn't have probably have attempted. We developed a basically a new app for our employees. And as a result, we're able to take on projects that we can recruit far more effectively outside of our branch network. And so, for example, we're completing a project now in upstate New York. Well, our closest branch is in New York City, so we're not even really close to it. We're probably 400 miles away. but because of this app we've developed along with, you know, along with other technological tools within the industry have been, you know, have filled a fairly large order that historically, like I said, we have never even attempted. And so that's helping as well.

Great. Yes, that's great color. Just want to ask about just a couple of the expense items. Workers' compensation expense, it's been, you know, closer to neutral the last couple quarters. It trended up some in the third quarter. I don't know if there's anything specific you would attribute that to.

No. I mean, look, obviously there's medical inflation. is out there, and that doesn't help us, but that's part of the reason why we do the reconciliation with the core SG&A, because earlier in the year, we had a couple of larger claims that just had driven that a bit worse than what we would have normally anticipated. But you know frankly we were a little bit surprised even to where it landed because overall the trends not that bad we're not where we were three four years ago on our workers comp situation so you know I wish I had a better response for it but it's but there's there's nothing there's nothing specifically like I said we're not seeing Don't get me wrong, we still think that workers' comp rates are probably inadequate for the amount of inflation that's within medical costs. But like I said, the rates have increased enough to where we don't expect, again, a reversion back to 2024 and 2023. All right.

Yeah, that's helpful. Also, I wanted to ask about the $1.3 million write-down of most receivable non-cash expense. Maybe just any color on what happened with that particular situation. And you noted you repossessed the franchise location. Is that in a market you want to continue to participate in? Is that a location that you'd like another franchisee to take over? Any more color there?

Yes. And so it's an operation that we had sold a few years back and the performance deteriorated, especially last year. And so, you know, as stated, we repossessed it. We still like the business. We still, you know, the same client list that used to generate significant profits. still exists. And so, you know, we're just applying more resources, you know, now that it's, you know, now that it's corporate owned, you know, that we're applying more resources to it. And our intention is to build it back up and then resell it. And we have, you know, we have a buyer, potential buyer, I shouldn't say we have a buyer, but we have a potential buyer already identified. And so our Again, our goal is absolutely to improve it and resell it. We like the market. Bottom line is we like the segment. We just don't like the results it's had the last nine months.

Okay, yeah, that makes sense. And then just lastly, just any thoughts on the... Acquisition landscape, opportunities out there, pipeline, valuations, or any other color that you could offer.

Yeah, and I pretty much say the same thing. We are always working on three to five opportunities at any given time, and this is no different. The reality is the improved... I think has thawed more opportunities, though, because, you know, especially in 2025, there had been, you know, sort of three laggard years combined with people had received basically, you know, ERT refunds and PPP money. And so they had enough liquidity to sort of ride it out. and now there's a more positive outlook in the industry which means now people are more willing to sell and yet it's still at reasonable numbers. One of the things we faced in let's say 24 and 25 is people look back to their 21 numbers and 22 numbers and they're sitting there saying, oh yeah, my business is worth X and yeah, 24 is just an anomaly. Well, it really obviously wasn't an anomaly now you have people who are like okay they can legitimately say here's our rebound and so more people are coming to market is what I'm saying so we're positive about opportunities coming that's not me saying though that you know that we have anything in the bag we don't but but I do think that throughout the industry I think that you will start to see more deals being done

I appreciate all the commentary. Thanks for taking the questions. Of course.

Ladies and gentlemen, a reminder to please press star one should you have any questions. And at this time, we have no further questions registered. I will turn the call back over to management.

Great. Thank you, operator, and thank you, everybody, for dialing in to our quarterly earnings call. Again, hopefully you will all agree that it was very good to see the continued improvement in revenues and, again, just another quarter of solid cash flow which, again, has worked its way into the fourth quarter. And so, again, we just thank you for our employees and to our franchisees and to our shareholders.

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time. Thank you for your participation.