HireQuest, Inc. (NASDAQ:HQI) Q4 2019 Earnings Conference Call - Final Transcript

Mar 30, 2020 • 10:00 am ET

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HireQuest, Inc. (NASDAQ:HQI) Q4 2019 Earnings Conference Call - Final Transcript

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Executive
Richard F. Hermanns

structure.

Today, all of our revenue is derived from franchise royalties and service revenue, and our operating infrastructure is appropriately sized to serve approximately 130 franchised-owned offices. While we are a few -- while there are a few minor legacy issues that remain, we completed the rightsizing of our operational support ahead of schedule, including early termination of the lease for the Command Center's headquarters in Lakewood, Colorado.

As we turn the page and look forward to our goals in 2020, we are primarily focused on protection of our business in preparation for an increasingly volatile economy. Our cash generation and steadily improving balance sheet provides us with the flexibility to select appropriate investment opportunities at the right time for us. Historically, investments in existing franchises have created acceptable returns with relatively short payback that create new profitable streams of revenue for future periods. At the same time, we continue to search for and consider opportunities for growth through acquisitions that could add markets where we currently lack a presence or perhaps access to national accounts. As always, we are taking a disciplined and prudent approach to acquisition with the ultimate goal of acquiring assets that could be transitioned to our franchise model as quickly as possible.

In many cases, we provide buyer financing. And fortunately, our balance sheet affords us the flexibility to do just that. Our proven model is profitable and provides acceptable returns. We have no interest in deviating from what we know, and what we know works despite business and economic uncertainty and ongoing volatility.

The COVID-19 outbreak has begun to impact our operations and revenue, as well as those of our franchisees. We expect the effects to become more acute in the next two months. Certain regions are being more affected than others. At our behest, most, if not all of our independent franchise businesses, have already implemented special operating procedures to reduce the likelihood of a spread of the virus. In general, those franchisees whose businesses are oriented towards construction, manufacturing, logistics or waste services, have been less impacted than those whose businesses are more oriented towards hospitality services.

We believe that the recently passed CARES Act and the benefits it created for small businesses, particularly through loans and grants, will provide significantly -- will provide significant relief for our franchisees, and we hope that it will blunt the most negative business effects of the outbreak in the near term. We have advised our franchisees to be very cautious in extending credit to their clients, and we are monitoring the quality of our accounts receivable.

To the extent that COVID-19 leads to a recession, it is a near certainty that our revenues will decline. We've already begun developing plans to adjust our fixed costs should the effects of this outbreak last more than two or three months. I've run a staffing company through three prior recessions and, thus, I'm no stranger to the dangers and opportunities that recessions create. To the extent that our