Hirequest Inc

NASDAQ:HQI

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Greetings, and welcome to the HireQuest Inc. Third Quarter 2023 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.I will now turn the conference over to your host, Mr. John Nesbett of IMS Relations. Sir, you may begin.

[John Nesbett, executive]

Thank you, and good afternoon, everyone. I'd like to welcome everybody to the call. Hosting the call today are HireQuest's Chief Executive Officer, Rick Hermanns; and Chief Financial Officer, David Burnett.I'd like to take a moment to read the safe harbor statement. This conference call contains forward-looking statements as defined within secured 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 in terms such as anticipate, expect, intend, may, will, should and other comparable terms, involve risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. These statements include statements regarding the intent, belief and 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 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 changed conditions.I would now like to turn the call over to the Chief Executive Officer of HireQuest, Rick Hermanns. Go ahead, Rick.

[Richard Hermanns, executive]

Thank you, everyone, for joining today's call. I'll begin by providing an overview of our financial and strategic highlights from the third quarter, and then I'll turn the call over to David, who will share more details around our third quarter results. The third quarter of 2023 was highlighted by increased revenue growth and healthy profitability primarily related to our acquisition of MRINetwork, which has driven increases in franchise royalties and underlying system-wide sales. Our total revenue in the third quarter grew 18.1% to $9.3 million, and franchise royalties increased 19.9% to $8.9 million compared to $7.4 million in the prior year period.System-wide sales for the quarter increased to $151.2 million compared to $123.2 million in the third quarter of 2022. As mentioned, the majority of system-wide sales growth continues to be driven by our acquisition of MRINetwork with additional increased contributions from our DriverQuest and [ TradeCorp ] offerings compared to the prior period -- prior year period. This growth was offset by HireQuest Direct's relatively moderate year-over-year decline of just 5.4% and Snelling's decline of 17.2%.SG&A expenses in the third quarter were $6.4 million compared to $2.1 million in the prior year period. The increase was primarily related to increased costs associated with workers' compensation insurance as well as expenses to support increased system-wide sales from acquisitions and organic growth, particularly the MRINetwork. Excluding workers' compensation and impairment of notes receivable, SG&A expenses in the quarter grew 34.1% year-over-year and represented 49.5% of total revenue compared to 43.6% of total revenue in the third quarter of 2022.SG&A, excluding workers' compensation and impairment of notes receivable has decreased for 2 consecutive quarters as a percentage of total revenue from 57.4% in Q1 of 2023 and 54.9% in Q2 as well as in absolute dollars. Workers' compensation has negatively impacted our results for the last few quarters. And in this third quarter -- in this third quarter, we recorded a $1.5 million expense, which is a $2.8 million net increase from the $1.3 million benefit we recorded in Q3 of 2022. Prior periods also benefited from our workers' compensation reserve that we assumed from a 2021 acquisition, but the remaining liability there has remained relatively stable in 2023. Moving forward, we don't expect that liability to impact year-over-year comparisons as meaningfully as in recent quarters.Like we mentioned in the press release, there are a number of factors that have contributed to the increase in our workers' compensation expense, some in our control, some outside of it. On a more macro level, while medical costs have been rising in recent years, workers' compensation insurance rates have actually been declining. When combined with general wage inflation, it seems unlikely that the current relationship between workers' compensation benefits and premiums can be sustained. Also, as we've grown in recent years and added franchisees, specifically to our Snelling offering, the composition of our franchisees clients and job types have shifted.We are working with our partners in this area to adjust our plans to better reflect our current business mix as well as the overall market in order to reduce the impact in the future. However, no meaningful improvement can be expected until the second quarter of next year. SG&A expenses have also grown to support the increased system-wide sales. During Q4 of 2022, we increased our operational footprint with the acquisition of MRINetwork in additions to certain areas that support growth in our HireQuest Direct, Snelling and other temporary staffing offerings. When we announced the MRINetwork acquisition, we said we would be carrying additional costs as we integrated its operation, and that integration was largely complete at the end of the third quarter, and we believe expenses for MRINetwork are now in line with this current revenues.SG&A, excluding workers' compensation and impairment of notes receivable was $4.6 million in this past quarter, a roughly $1 million reduction compared to Q1 of this year, which was the first full quarter after the acquisition. Professional recruiting and staffing has some different -- has different support needs to our traditional temporary labor staffing, but we expect to be able to leverage what we have today to support future growth. I said in previous quarters, M&A continues to be a key part of our growth strategy and opportunities such as our pending acquisition of TEC Staffing Services that we announced last month are part of why we have maintained operating levels, operating staff levels over the past couple of quarters.TEC's 10 offices throughout Northwest and Central Arkansas provide light, industrial, clerical, technical and professional staffing services and generated over $34 million in revenue for the trailing 12-month period ended September 30, 2023. TEC's operations align well with our Snelling franchise offering and is a good example of our core acquisition strategy to acquire businesses and convert them to franchise operations. So in contrast to MRINetwork, we have the resources in place and the capacity to support the additional system-wide sales with little to no incremental expenses, thus restoring some of the operating leverage that the company has lost, as a result of the current economic environment.With that, I'll pass it along to our CFO, David Burnett, who will provide a closer look at our third quarter results. David?

[David Burnett, executive]

Thank you, Rick, and good afternoon, everyone. Thank you for joining us today. Expanding on some of the numbers Rick just mentioned, let's start with total revenue, which for the third quarter of 2023 was $9.3 million compared to $9 million in the second quarter of 2023 and $7.8 million for the third quarter of 2022. The year-over-year increase of 18.1% is primarily due to the addition of MRINetwork.Our total revenue is made up of 2 components: franchise royalties, which is our primary source of revenue; and service revenue, which is generated from certain services and interest charge to our franchisees. We did not report any revenue from company-owned operations, although at September 30, 2023, we owned 1 location classified as held for sale and reported below the line as discontinued operations.For continuing operations, franchise royalties for the third quarter were $8.9 million compared to $7.4 million for the same quarter last year, an increase of 19.9%. The MRINetwork accounted for $1.6 million of the increase in royalties for the third quarter as royalties from pre-existing locations had a net decrease of approximately 119,000. Underlying the growth in royalties are system-wide sales, which are not part of our revenue, but can serve as a key contextual performance indicator. System-wide sales reflect sales at all offices, including the location currently classified as discontinued.System-wide sales for the third quarter of 2023 were $151.2 million compared to $123.2 million for the same period in 2022, an increase of 22.7%. Similar to the growth in royalties, growth in system-wide sales was driven by the addition of MRINetwork, which accounted for $39.3 million of the year-over-year increase for the third quarter as combined sales from other locations decreased on a net basis by approximately $11.3 million.Service revenue, which is generated from interest charge to our franchisees on overdue accounts receivable, service fees and other miscellaneous revenue, was $377,000 for the third quarter compared to $429,000 for the same quarter a year ago. Service revenue can fluctuate from quarter-to-quarter based on a number of factors, including changes in system-wide sales, accounts receivable, insurance renewals and similar dynamics.While there were many things in the quarter that we felt good about, including the 22.7% growth in our active customer system-wide sales and the 19.9% growth in our franchise royalty revenues, we also saw growth in our cost structure. Selling, general and administrative expenses for the third quarter of 2023 were $6.4 million compared to $2.1 million in the third quarter of 2022 and $5.6 million in the second quarter of 2023. As Rick referenced earlier, the increase was primarily driven by workers' compensation insurance. We had a $2.8 million swing in workers' compensation expense. For the third quarter in 2023, workers' compensation expense was approximately $1.5 million compared to a $1.3 million benefit in net workers' compensation expense in the third quarter of 2022.I will just echo Rick's remarks that the workers' compensation carriers have struggled with interest rates in a challenging labor market, all while medical costs are rising. We have identified key components of the rate disparity as it relates to our business, and we are addressing them. From past experience, we expect it will take a few more quarters until we see meaningful improvements. In the meantime, workers compensation expense will likely remain elevated will fluctuate quarter-to-quarter based on the mix of worker classifications, the level of payroll and claims resolution.Beyond workers' compensation, the largest component of SG&A is employee compensation and benefits. Compensation and benefits for the third quarter of 2023 was $2.9 million versus $2.3 million in the prior year period, but below the $3.4 million in the second quarter of 2023. We initially absorbed significant personnel costs as we integrated MRINetwork into our operations. However, we are handling the integration in a disciplined manner and have made progress in controlling the impact of these costs.In addition to increased salaries and benefits, we have also incurred other MRINetwork SG&A expenses, including marketing, IT, insurance, professional fees and similar costs. These are evident in our SG&A for the third quarter of 2023 and more so in the year-to-date results. These costs were substantially higher in the first and second quarters of 2023. The acquisition of MRINetwork came with sticky costs that reflect a slow and deliberate process. By the end of the third quarter, the incremental costs related to the MRINetwork have reached what would be an expected level based upon the current revenue volumes for executive recruiting services.The increased SG&A, particularly workers' compensation can be felt in income from operations, which is total revenue less SG&A, depreciation and amortization. Income from operations was $2.2 million in the third quarter of 2023 versus $5.2 million in the prior year period. Net income includes income from operations adjusted for miscellaneous items, interest, income taxes and discontinued operations. All-in net income for the quarter was $1.5 million or $0.11 per diluted share compared to net income of $4.2 million or $0.31 per diluted share in the third quarter last year.Adjusted EBITDA in the third quarter of 2023 was $3.7 million compared to $6.5 million in the third quarter last year. We believe adjusted EBITDA is a relevant non-GAAP metric for us due to the size of noncash operating expenses running through our P&L. A detailed reconciliation of adjusted EBITDA to net income is provided in our 10-Q, which we filed this afternoon.Moving on now to the balance sheet. Our current assets at September 30, 2023, were $56.2 million compared to $51.9 million at December 31, 2022. Current assets as of September 30, 2023, included $1.1 million of cash and $50.2 million of net accounts receivable, while current assets at December 31, 2022, included $3 million of cash and $45.3 million of net accounts receivable. Current assets exceed current liabilities by $19.1 million at September 30, 2023, versus year-end 2022 when working capital was $15.2 million. The increase in working capital was driven by the increase in accounts receivable following the acquisition of MRINetwork, offset partially by a corresponding increase on the credit line.Current liabilities were 66% of current assets at September 30, 2023, versus 70.8% of current assets at December 31, 2022. At September 30, we had $14.4 million drawn on our credit facility and another $25.9 million in availability, assuming continued covenant compliance. We believe our credit facility provides us with flexibility and room for short-term working capital needs as well as the capacity to capitalize on potential acquisitions, including the pending transaction that Rick mentioned earlier.We have paid a regular quarterly dividend since the third quarter of 2020. Continuing that pattern, we paid a $0.06 per common share dividend on September 15, 2023, to shareholders of record as of September 1. We expect to continue to pay a dividend each quarter, subject to the Board's discretion.With that, I will turn the call back over to Rick for some closing comments.

[Richard Hermanns, executive]

Thank you, David. Despite a challenging economic environment for our industry, I'm proud of our franchisees' performance and HireQuest's ability to generate continued profitability. We have a long-term view of our business and looking out beyond the current economic environment and near-term increases in expenses, we believe that we are well positioned to continue our record of strong performance as a leading provider of temporary workforce hiring and professional recruiting solutions. As always, I'd like to thank our employees for their hard work and dedication this quarter. And as CEO of HireQuest, I look forward to continuing to drive operational success and value for our shareholders.With that, we can now open the line to questions. Thank you.

[Operator]

[Operator Instructions] Our first question is coming from Mike Baker with D.A. Davidson.

[Michael Baker, analyst]

Okay. So good job on the top line and controlling what you can control. I guess maybe to me, at least, the obvious question is, is the workers' comp, you gave some color on expecting that to continue. But I guess when you say continue to be elevated, and I know it's hard to estimate, but do we think continue to be elevated at the same level, i.e., $1.5 million a quarter? And then I guess the second part of that question is, how do we think about the other costs, the $4.6 million, excluding workers' comp and the impairment. Is that sort of a reasonable run rate going forward now that you've worked through the MRI integration? Or does that come down? In other words, how much of the MRI integration is in that, still in that $4.6 million for this quarter?

[Richard Hermanns, executive]

Mike, thanks for that question. Let me -- obviously, there are 2 very, very important questions in there. And I guess I'll really just to back it out even further is clearly, the quarter was impacted by 3 main factors: 1, obviously, being the workers' comp. And so part of the reason why we are saying, for example, no meaningful improvement will occur until basically Q2 of 2024 is because our renewal is March 1 for our workers' comp program. So some of the things that we've identified that we need to change, like I said, we're locked into our policy. We're locked into our policy until March 1.The -- but the other things are as far as from an elevated standpoint, our -- some of them are a little bit -- some of them -- how can I put this? We're not -- the reality is, and it maybe was put in a little bit. It was put in subtly. But basically, obviously, you have medical inflation that's taking place. You have wage inflation, and yet you have workers' comp rates that have dropped. Now part of it, we suspect and we think that workers' comp rates can't keep going down at a time when the cost of workers' comp generally, the components obviously being indemnity benefits, which are tied to higher wages and medical costs, which, of course, are subject to a lot of medical inflation.So it's hard for -- frankly, it's hard for me to imagine that rates won't go back up. And to the extent that rates go back up, it assists us in then. But I have -- we literally -- in that area, we have literally no control. One of the other factors that has happened to us over time is as we've drifted from more, let's say, a far more heavy concentration in construction to one that's more industrial and warehouse and professional and clerical. And this is one of the areas where we'll definitely be working with our carriers. We're not comfortable that, that we've been giving credit on our fixed cost sufficient for the fact that our claims or that are payroll has moved more towards basically less risky work. And our -- and so we're going to definitely work with them on bringing that fixed cost component down as well, just based on our sort of general risk profile.That said, the last year, our actual losses have not been -- has really have been relatively speaking, worse than, let's say, the last 30 years -- not massively. I'm not suggesting that, that's part of it, but it was a relatively bad year. Of course, that hurts us in our argument with the carrier that they need to reduce their base key. But the net result is, as we have had a bit more of a trend towards higher overall claims. And I would add that, for example, because they become -- they're a pretty good comparison towards for us is TrueBlue, for example, I know, booked a big reserve adjustment as well for their workers' comp, which would just simply say that they're experiencing, what we're experiencing, which then I go back to the first point of it's hard to imagine workers' comp rates generally continuing to go down at a time when claims are going up.Now that said, so year-to-date, we're something like $4.4 million behind the prior year comparison. How much do that do we start recovering in 2024? I'm not -- I don't think we'll recover all of it. So I'm not -- so I want to make sure everybody understands, I'm not just trying to paint a happy face on something. That said, I do think that we will make meaningful progress on bringing that back to a more normal level. So your question as far as like, do I expect it to be $1.5 million a quarter? No, I don't expect it to be $1.5 million a quarter of cost. But whereas for the prior 3 years, it had been a benefit. I'm not expecting that -- I'm not expecting that, either.As far as the other SG&A expenses, the -- as was stated in the sort of -- in the presentation, the -- by the end of September, we have pretty much eliminated most, I'll say, extraneous expenses that were sort of planned as we integrated MRINetwork. And so there will still be a bit of an improvement on that in Q4 simply because there were certain expenses that did in fact linger into Q3, but Q3 did not contain nearly as much as, let's say, Q1 and Q2. So it's not going to be -- it will be a relatively -- it will be a relatively minor improvement. But I want to be really clear on, and sometimes it becomes a really difficult concept sort of to explain or to at least see directly is obviously, we added a fairly significant amount of employees and expenses for the MRINetwork acquisition.And professional recruiting support is different than -- not completely different, but is somewhat distinct from, let's say, the services that we provide to our Snelling and HireQuest Direct franchises. And so it's not like you can just sort of integrate them all together and say, okay, our system-wide sales are just X-plus Y and we just can run at the same rate. It's not that way. We have separate individuals that obviously support each division. So here's where that's important, and this is where it bears into the future, and it bears a great deal of understanding, or it bears to understand it in order to understand our Q3 results and sort of what's sort of going forward.So I don't want anybody to go away thinking, well, MRINetwork acquisition was a disaster. It's not the case. It's been -- it's been profitable for us. And given elevated interest rates, even if you allocate all of our interest expense to the acquisition, it is still cash flow positive and how we generally buy companies, the multiple of EBITDA that we look to buy companies at, it's still squarely in the middle of it. Now it's not quite the home one, we had hoped to hit, because obviously, it has been a challenging economic environment. But I just don't want people to go away thinking yes, your SG&A is up in an absolute sense, which it is, the MRINetwork is comfortably profitable.Now the reality is, is that, if you recall in Q1, our system-wide sales and our revenues were excluding MRI, were roughly flat with the prior year. And it was basically at the end of March that we started seeing a, I would call it, a noticeable, a noticeable decline in our system-wide sales in, in the HireQuest Direct, but more specifically or more noticeably in the Snelling -- on the Snelling side. And that continued into Q3, Q3 probably even deteriorated a little bit more than Q2, but it's fairly -- I would say that it's fairly stable, fairly stable, but obviously at lower levels.So to the extent that our SG&A expenses are higher on a relative basis, it's because of the operating leverage that we lost in the -- basically on the Snelling and HireQuest Direct side. And obviously, that goes to part of what is important about the, the TEC acquisition is that, in reality, we'll be able to add that $34 million of system-wide sales on. Well, we didn't -- we have basically the same perm staff right now than what we had, let's say, in April of this year, because we spent 2 years hanging off of dear life trying to keep our good staff, and we knew already in May, we've probably engaged with TEC already back in May, along with a few other -- along with a few other prospective acquisitions. So we were expecting to be able to recover our operating leverage.And so anyway, going forward, to the extent that we're tracking back to sort of where is our SG&A relative to what it was in the past, we absolutely expect by Q1, assuming no major changes and no major changes in, no major changes in the economy or no other major acquisitions is that we should be sort of back at a level of SG&A relative to our revenue excluding workers' comp also keeping that thrown out. But by Q1, it will be at normal -- we will be at normal levels in Q1. I hope that answers your question. I know that was a really, really, really long answer, but...

[Michael Baker, analyst]

Yes. No, no, no. It obviously did one really quick follow-up that last thing you said by 1Q '24, excluding working comp, SG&A back to normal levels. What's the normal level? Is that that I think you said 50 -- around 54% of royalties or just fall...

[Richard Hermanns, executive]

No. We shoot for less. Look, we shoot for less than that. I mean I would -- I mean I would certainly target less than 50%. That's really more where -- that's more what we're targeting. Now again, obviously when we -- it's kind of an interesting thing. When we bought MRI at the end of 2022 and they had done around $260 million, $270 million worth of system-wide sales. And of course, we had done -- we were on target to do $450 million, something like that. So obviously -- and we knew due to some franchise terminations in the MRINetwork, we were never going to hit that $270 million figure, but we knew -- but obviously, professional recruiting has been hit heavier than staffing.But net you sit there and say, well, gosh, we should -- it would have been fair to think that we would have been pushing [ $7-odd million ] of system-wide sales. obviously, you just have to look at the numbers, we're not even close to that. And so we have lost a good amount of operating leverage. And really, the relative declines in MRI have been worse. But I go back to -- we are still thinking we are still hitting our targets, our -- at least our original assumptions for EBITDA within MRINetwork. And so we do expect to get back to where we are sort of excluding the workers' comp part. That's a bit more of a wildcard. And again, I'm not going to sugarcoat it. It is something that will -- it will -- it is something that will dog us for at least 6 months, and it may well be 1.5 years to 2 years before it goes back to what I would call normal. And then maybe a new normal, because I don't -- I'm not the CEO of Chubb, I'm not the CEO of AIG. So I don't control workers' comp rates.

[Michael Baker, analyst]

Yes. Yes. Okay. Understood. So yes, [indiscernible] there. I guess, as one other one in the sort of the offset is the TEC acquisition. Where are you in terms of -- I think -- so those are company-owned offices. I think the plan is to refranchise those and in some respect, that helps pay for not, maybe not all of the acquisition, but a lot of it. Where are you in terms of the refranchising process for those...

[Richard Hermanns, executive]

I'm glad you asked that question. So we've had staff out in Arkansas in the last couple of weeks. I myself was out there. And like I said, a lot of senior management has been out there. And so I would just say that we are in very, very advanced -- at a very advanced stage to have all of them converted. We're trying absolutely as hard as we can that when we have an anticipated close of November 27, and it is our goal, and I think it's a reasonable goal. I certainly cannot make a promise, but it's -- but we are well on our way to hitting our goal of having them all refranchised or all franchised on November 27. And if they're not, we're still far enough along that I'm saying it wouldn't be long thereafter.

[Michael Baker, analyst]

Yes. Makes sense. Okay. Appreciate that. Yes. It sounds like a great acquisition.

[Operator]

[Operator Instructions] Our next question is coming from Kevin Steinke with Barrington Research.

[Kevin Steinke, analyst]

I wanted to start off by asking about just the overall tone of demand environment and the economy as you see it, do you think it's been kind of stable since you reported second quarter 3 months ago? Has it worsened a bit. I think you mentioned maybe Snelling decelerated a bit more in the third quarter, but just kind of maybe your general overall read on where the demand environment stands today relative to a few months ago?

[Richard Hermanns, executive]

Yes. I think that from an, let's say, an aggregate standpoint, we -- probably by June had hit from a comparative standpoint, we've leveled off, right? So you would just have to say, well, okay, we -- I'm saying we found our level, so to speak, in demand, which is certainly off from the prior year. It is still absolutely true what I said really the last couple of quarters is, it is very, where it is weakest is definitely it's not uniform at all. And I think, in fact, maybe the best way of looking at it is construction has held up significantly better than logistics and warehousing. There's no question about that.And so while I'm sure there are a lot more factors at play than, let's say, than what we might see, I would probably argue that the sort of the weakness you see in e-commerce is probably what is affecting, let's say, Snelling more whereas, again, our construction remains significantly, significantly stronger than relatively speaking, than our logistics, our offices that are more focused on logistics. The -- and that tends to be geographical as well. And that's why, so for example, HireQuest Direct has remained stronger while it's also more heavily centered in Texas, Tennessee, Georgia and Florida, which now the question is, is it just because the economies are better in those states? Or is it because we're more heavily towards construction. And it's probably a bit of both, whereas Illinois, Washington and a couple of other states that are probably more tied to distribution and logistics have been definitely more of a challenge.And I would go back to probably ties back to sort of PeopleReady and TrueBlue again, was down. I think they reported, they were down like 19% or something. Well, they tend to be more heavily concentrated. West Coast, more heavily concentrated warehouse and logistics than where we are. And that probably explains a lot of the sort of relative difference between, let's say, our relative performances in the third quarter, as we're just geographically, we're in a better spot. And -- and again, our business mix is in an area that is more stronger.Now the -- and I said this in the last quarterly call, and I'll say the same thing is interest rates are of great concern to us, not because of what we pay particularly not that I like to pay any more interest than we need to, but more importantly, because of how it impacts real estate projects going forward to the extent that we have a lot of business going on with -- in the construction industry, clearly, it's important to us that those projects, the new projects continue to be approved and funded to follow the projects that are being worked on now.And so I will say one thing, and I really kind of meant to say this earlier, we've also -- I'm sort of happy to say that our trade core division, historically, HireQuest has really never done much as far as targeting skilled construction labor. And in the very last days of 2022, we spun up a division called [ TradeCorp ]. And we are -- I'm happy to say that in 9 months, we've -- it's making significant, significant, I shouldn't say significantly, I guess, it's significant, it's not 10% of our sales or anything. But I mean, it is doing nicely. It's setting up to be hopefully meaningful in the future.And it's one of the ways for anybody who's even sort of investors, said, look, we're not a one-trick pony. We're not out there, just -- let's just go buy, buy, buy, buy, buy. It's not what we're trying to do. Also, we still want to grow organically and skilled trades is one of those areas that we perceive, first of all, due to demographic reasons. It's trades people are going to be harder and harder to find. And so we're trying to position ourselves gobsmacked in the center of that, of that field. And like I said, we're very happy with our progress. But I want, again, investors to understand as well, we don't just -- we're not just out looking to buy people. We're also looking to grow internally as well. And [ TradeCorp ] is a good example of that.

[Kevin Steinke, analyst]

Okay. That's very helpful. And just talking again about the pending acquisition of TEC. Wondering if you could provide any background or color on how that deal came about? And is that a business that maybe was a little more financially stressed with the downturn in the economy? Or how healthy were they? Are they just trying to get a sense as to how that plays into the pipeline and...

[Richard Hermanns, executive]

Yes. So it was not -- no TEC was not a distressed company at all. The owner seller is -- but is somebody who -- he's been in the business for 40-some-odd years. And so this was -- and just clearly a retirement strategy. And so he is a pretty advanced age. So it was completely related to that. That said, we're buying it going in sort of the $34 million that we put out there is what the TTM sales are that's probably 15% to 18% off what it was what the TTM would have been, let's just say, in January of '23. So the good news is the sort of the decline in sales has been sort of already absorbed within that. So that's a good thing.And from that perspective, it is a -- as far as how it was came about, it's just basically our VP of Corporate Development, David Hartley, just out there sourcing deals. We're always out there sourcing deals. And so it was one of 10 different ones that we were looking at, let's say, in April, May. And fortunately, we were able to come to a deal. It's a very nice deal for us insofar as it's very typical of the types of people that we place historically. So there's no -- it's right down the fairway. And maybe for us, what I like about the deal as well is geographically, it strengthens our presence in the state of Arkansas. We've had a presence there, but it really fleshes it, it really fleshes it out. And we're hopeful that some of the national accounts that we have are going to be able to be -- are going to be able to access those in Arkansas, where TEC hadn't in the past. And so we're very bullish on it. We're very bullish on it.

[Operator]

Thank you. We have no further questions in the queue at this time. So I will hand it back over to management for their closing remarks.

[Richard Hermanns, executive]

I want to thank everybody who has joined us. I realize that sort of the top line, at least if you count earnings is kind of the top line are less than what we would have hoped. I -- hopefully, if you listen carefully to what's being said, #1, it comports with what, really what I said for the last few years, which is an expansion even if it means that we leave 1 out of 3 open positions unfilled is better than a recession or better than a stressed economy. And so what you're seeing really what started in Q1, but has especially become apparent in Q2 and Q3 is we are absolutely subject to the cyclicality of the economy.And the fundamentals of what we do haven't necessarily changed outside of the workers' comp, which, like I said, we believe that we will be able to rectify a significant portion of that, again, not promising that, that some of that may not be a little bit of an impairment, but it's not -- we certainly do not expect any more quarters like we did this past quarter. We think that we will be definitely -- we're making progress towards sort of rectifying at least the bulk of those negative comparisons. So again, I want to thank our franchisees, I want to thank our employees, and I want to thank our investors and look forward to a great fourth quarter. Thank you.

[Operator]

Thank you, ladies and gentlemen. This concludes today's conference, and you may disconnect your lines at this time, and we thank you for your participation.