Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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; statements regarding any proposed transaction; benefits and synergies of any proposed transaction and future opportunities, including statements regarding value, profitability or growth prospects; 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; and all other statements that are not purely historical and that may constitute statements of future expectations. 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; the possibility that any strategic target will not agree to consummate a transaction or that any such transaction is consummated on different terms than currently anticipated; the possibility that conditions to the completion of a proposed transaction, including the receipt of any required shareholder approvals and any required regulatory approvals, will not be met; the possibility that we may be unable to achieve expected synergies and operating efficiencies within an expected time frame or at all and to successfully integrate any acquired operations with ours; the possibility that such integration may be more difficult, time-consuming, or costly than expected, or that operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, or suppliers) may be greater than expected following a proposed transaction or the public announcement of a proposed transaction; 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.

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 September 30, 2025, we had 399 franchisee-owned offices and 1 company-owned office in 43 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 65 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.

Results of Operations

Financial Summary

The following table displays our Consolidated Statements of Operations for the three and nine months ended September 30, 2025 and September 30, 2024. Percentages reflect the line item as a percentage of total revenue (in thousands, except percentages).

		Three months ended																Nine months ended
(in thousands except percentages)		September 30, 2025								September 30, 2024								September 30, 2025								September 30, 2024
Franchise royalties		$	8,110				95.4	%		$	8,988				95.5	%		$	22,355				94.7	%		$	25,029				94.4	%
Service revenue			387				4.6	%			428				4.5	%			1,253				5.3	%			1,486				5.6	%
Total revenue			8,497				100.0	%			9,416				100.0	%			23,608				100.0	%			26,515				100.0	%
Selling, general and administrative expenses			5,070				59.7	%			5,379				57.1	%			16,187				68.6	%			16,286				61.4	%
Goodwill and intangible asset impairment charge			230				2.7	%			6,035				64.1	%			230				1.0	%			6,035				22.8	%
Depreciation and amortization			752				8.9	%			697				7.4	%			2,221				9.4	%			2,092				7.9	%
Income (loss) from operations			2,445				28.8	%			(2,695	)			(28.6	)%			4,970				21.1	%			2,102				7.9	%
Other miscellaneous income (expense)			35				0.4	%			(65	)			(0.7	)%			195				0.8	%			12				0.0	%
Interest income			131				1.5	%			138				1.5	%			393				1.7	%			424				1.6	%
Interest and other financing expense			(63	)			(0.7	)%			(268	)			(2.8	)%			(277	)			(1.2	)%			(763	)			(2.9	)%
Net income (loss) before income taxes			2,548				30.0	%			(2,890	)			(30.7	)%			5,281				22.4	%			1,775				6.7	%
Provision for (benefit from) income taxes			137				1.6	%			(725	)			(7.7	)%			362				1.5	%			172				0.6	%
Net income (loss) from continuing operations			2,411				28.4	%			(2,165	)			(23.0	)%			4,919				20.8	%			1,603				6.0	%
Loss from discontinued operations, net of tax			(107	)			(1.3	)%			(42	)			(0.4	)%			(192	)			(0.8	)%			(152	)			(0.6	)%
Net income (loss)		$	2,304				27.1	%		$	(2,207	)			(23.4	)%		$	4,727				20.0	%		$	1,451				5.5	%
Non-GAAP data
Adjusted EBITDA		$	4,651				54.7	%		$	4,926				52.3	%		$	10,724				45.4	%		$	12,324				46.5	%

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).

		Three months ended								Nine months ended
(in thousands)		September 30, 2025				September 30, 2024				September 30, 2025				September 30, 2024
Net income (loss)		$	2,304			$	(2,207	)		$	4,727			$	1,451
Interest expense			63				268				277				763
Provision for (benefit from) income taxes			137				(725	)			362				172
Depreciation and amortization			752				697				2,221				2,092
EBITDA			3,256				(1,967	)			7,587				4,478
WOTC related costs			186				134				500				326
Non-cash compensation			345				549				824				1,249
Goodwill and intangible asset impairment charge			330				6,035				330				6,035
Acquisition related charges, net			284				100				1,130				111
Write down of notes receivable			250				75				353				125
Adjusted EBITDA		$	4,651			$	4,926			$	10,724			$	12,324

Three Months Ended September 30, 2025 Compared to the Three Months Ended September 30, 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 September 30, 2025 or the three months ended September 30, 2024. For a description of our revenue recognition practices, please refer to "Note 1 - Overview and Summary of Significant Accounting Policies - Revenue Recognition" in our Annual Report on Form 10-K for the year ended December 31, 2024, which disclosure is incorporated herein by reference.

Total revenue for the three months ended September 30, 2025 was approximately $8.5 million compared to $9.4 million for the three months ended September 30, 2024, a decrease of approximately 9.8%. For the three months ended September 30, 2025, there was a $14.9 million or 10.0% decrease in underlying system-wide sales from $148.4 million for the three months ended September 30, 2024 to $133.5 million for the three months ended September 30, 2025. The decrease in system-wide sales was primarily driven by a decline at MRI of $9.9 million, HQ Direct of $3.6 million and Snelling/HQ of $1.4 million. MRI declines resulted from a combination of a depressed economic environment and loss of franchisees whose principals retired and exited the business due to retirement or for other reasons.

Franchise Royalties

Franchise royalties for the three months ended September 30, 2025 were approximately $8.1 million, a decrease of approximately 9.8% from $9.0 million for the three months ended September 30, 2024. The relative decrease in franchise royalties approximates the decrease in system-wide-sales. A summary of franchise royalties by brand for the three months ended September 30, 2025 and September 30, 2024 follows:

		Three months ended
(in thousands)			September 30, 2025				September 30, 2024
Franchise royalties from HireQuest Direct		$	3,938			$	4,104
Franchise royalties from Snelling and HireQuest			2,400				2,372
Franchise royalties from DriverQuest and TradeCorp			214				260
Franchise royalties from HireQuest Health			60				104
Franchise royalties from Northbound, MRI, and SearchPath			1,498				2,148
Franchise royalties		$	8,110			$	8,988

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 September 30, 2025 was approximately $387 thousand, a decrease of $41 thousand from the three months ended September 30, 2024, when service revenue was approximately $428 thousand. Interest income on overdue customer accounts receivable, which is included in service revenue was $231 thousand for the three months ended September 30, 2025 and $197 thousand for the three months ended September 30, 2024. Fluctuations in interestgenerally 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.

Operating Expenses

Total Operating expenses for the three months ended September 30, 2025 were approximately $6.1 million compared to $12.1 million for the three months ended September 30, 2024. The decrease of $6.1 million wasprimarily driven by a $5.8 million dollar impairment in goodwill and intangible assets related to our acquisition of MRI as well as a $598 thousand decrease in workers compensation expense, partially offset by a $243 thousand increase in legal and professional expenses and a $175 thousand increase in write down of notes receivable.

Workers' Compensation

Workers' compensation benefit was approximately $99 thousand for the three months ended September 30, 2025, a decrease of $598 thousand when compared to a net expense of approximately $499 thousand recorded in the three months ended September 30, 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. Compensation and benefits for the three months ended September 30, 2025 was approximately $2.7 million, a decrease of $152 thousand when compared to $2.8 million for the three months ended September 30, 2024.

Depreciation and amortization

Depreciation and amortization for the three months ended September 30, 2025 was approximately $752 thousand compared to $697 thousand for the three months ended September 30, 2024. This increase is primarily 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 September 30, 2025, other miscellaneous income was approximately $35 thousand, compared to other miscellaneous expense of $65 thousand for the three months ended September 30, 2024.

Interest income

Interest income for the three months ended September 30, 2025 was approximately $131 thousand compared to $138 thousand for the three months ended September 30, 2024. Interest income represents interest related to the financing of franchised locations.

Interest and other financing expense

Interest and other financing expense relates primarily to the Credit Agreement with Bank of America, N.A. Interest and other financing expense decreased from $268 thousand for the three months ended September 30, 2024 to $63 thousand for the three months ended September 30, 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 $137 thousand for the three months ended September 30, 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 September 30, 2025 was 5.4%.

Income tax benefit for the three months ended September 30, 2024 was approximately $725 thousand. Our net ETR for the three months ended September 30, 2024 was25.1%. The decrease in the net ETR was driven by the level of WOTCs applied during the three months ended September 30, 2025.

Discontinued Operations

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 September 30, 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. During the third quarter of 2025, we reviewed the intangible assets associated with discontinued operations for any indications of impairment. As a result of this review, we concluded the carrying value of the intangible asset associated with discontinued operations exceeded its estimated fair value resulting in an impairment charge of $100 thousand.

Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 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 nine months ended September 30, 2025 or the nine months ended September 30, 2024.

Total revenue for the nine months ended September 30, 2025 was approximately $23.6 million compared to $26.5 million for the nine months ended September 30, 2024, a decrease of approximately 11.0%. For the nine months ended September 30, 2025, there was a $50.8 million or 11.9% decrease in underlying system-wide sales from $428.2 million for the nine months ended September 30, 2024 to $377.4 million for the nine months ended September 30, 2025. The decrease in system-wide sales was primarily driven by a decline in sales at MRI of$29.1 million, HQ Direct of $12.3 million and Snelling/HQ of $7.8 million. MRI declines resulted from a combination of a depressed economic environment and loss of franchisees who exited the system due to retirement or for other reasons.

Franchise Royalties

Franchise royalties for the ninemonths ended September 30, 2025were approximately $22.4 million, a decrease of approximately 10.7% from $25.0 million for the ninemonths ended September 30, 2024. The relative decrease in franchise royalties approximates the decrease in system-wide-sales. A summary of franchise royalties by brand for the nine months ended September 30, 2025 and September 30, 2024 follows:

		Nine months ended
(in thousands)		September 30, 2025				September 30, 2024
Franchise royalties from HireQuest Direct		$	10,996			$	11,782
Franchise royalties from Snelling and HireQuest			6,382				6,772
Franchise royalties from DriverQuest and TradeCorp			630				626
Franchise royalties from HireQuest Health			186				310
Franchise royalties from Northbound, MRI, and SearchPath			4,161				5,539
Franchise royalties		$	22,355			$	25,029

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 nine months ended September 30, 2025 was approximately $1.3 million, a decrease of $233 thousand from the nine months ended September 30, 2024, when service revenue was approximately $1.5 million. Interest income on overdue customer accounts receivable, which is included in service revenue was $686 thousand for the nine months ended September 30, 2025 and $570 thousand for the nine months ended September 30, 2024. Fluctuations in interestgenerally 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.

Operating Expenses

Total Operating expenses for the nine months ended September 30, 2025 were approximately $18.6 million compared to $24.4 million for the nine months ended September 30, 2024. The decrease of $5.8 millionwas primarily driven by a $5.8 million dollar impairment in goodwill and intangible assets related to our acquisition of MRI, as well as a $1.6 million decrease in net workers' compensation expense, partially offset by a $1.1 million increase in legal and professional expenses and $228 thousand increase in write down of notes receivable.

Workers' Compensation

Workers' compensation expense was approximately $56 thousand for the nine months ended September 30, 2025, a decrease of $1.6 million when compared to a net expense of approximately $1.6 million recorded in the nine months ended September 30, 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. Compensation and benefits for the nine months ended September 30, 2025 was approximately $8.2 million which was slightly down compared to $8.5 million for the nine months ended September 30, 2024.

Depreciation and amortization

Depreciation and amortization for the nine months ended September 30, 2025 was approximately $2.2 million compared to $2.1 for the nine months ended September 30, 2024. This increase is primarily the result of an IT project being placed in service causing amortization to begin.

Other Income and Expense

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

Other miscellaneous income (expense)

For the nine months ended September 30, 2025, other miscellaneous income was approximately $195 thousand, compared to other miscellaneous income of $12 thousand for the nine months ended September 30, 2024.This change was primarily driven by a gain of $103 thousand on the disposal of a franchise business we took control of and then sold to another franchisee during the period ended September 30, 2025 compared to a loss of $100 thousand on the disposal of a franchise business we took control of and then sold to another franchisee in the period ended September 30, 2024.

Interest income and expense

Interest income for the nine months ended September 30, 2025 was approximately $393 thousand compared to $424 thousand for the nine months ended September 30, 2024. Interest income represents interest related to the financing of franchised locations.

Interest and other financing expense

Interest and other financing expense relates primarily to the Credit Agreement with Bank of America, N.A. Interest and other financing expense decreased from $763 thousand for the nine months ended September 30, 2024 to $278 thousand for the nine months ended September 30, 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 $362 thousand for the nine months ended September 30, 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 nine months ended September 30, 2025 was 6.9%.

Income tax expense for the ninemonths ended September 30, 2024was approximately $172 thousand. Our net ETR for the ninemonths ended September 30, 2024was 9.7%. The decrease in the net ETR is driven by the level of WOTCs applied during the nine months ended September 30, 2024.

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 September 30, 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.

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 September 30, 2025, our current assets exceeded our current liabilities by approximately $31.3 million. Our current assets included approximately $1.1 million of cash and $46.9 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 September 30, 2025 included approximately $11.6 million due to our franchisees on pending settlement statements, $3.2 million related to our workers' compensation claims liability, and $2.2 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 nine months ended September 30, 2025, cash provided by continuing operations was approximately $5.5 million and included net income from continuing operations of approximately $4.9 million, adjusted by non-cash items (primarily depreciation and stock-based compensation) of approximately $3.7 million. These provisions were offset by changes in operating assets and liabilities requiring cash of approximately $3.1 million. During the nine months ended September 30, 2024, cash provided by continuing operating activities was approximately $3.5 million and included net income from continuing operations of approximately $1.6 million, adjusted by non-cash items of approximately $8.4 million (primarily goodwill and intangible asset impairment, depreciation and stock-based compensation). These provisions were partially offset by changes in operating assets and liabilities requiring cash (primarily accounts receivable) of approximately $6.5 million.

Investing Activities

During the nine months ended September 30, 2025, cash provided by investing activities was approximately $679 thousand, primarily from payments on notes receivable of approximately$1.1 million. These provisions were offset by cash issued for notes receivable of approximately $322 thousand. During the nine months ended September 30, 2024, cash provided by investing activities was approximately $557 thousand, primarily from payments on notes receivable of approximately $1.2 million. These provisions were offset by an investment in an intangible asset of approximately $338 thousand.

Financing Activities

During the nine months ended September 30, 2025, cash used by financing activities was approximately $7.2 million and included net payments on ourrevolving line of credit of approximately $4.6 million and the payment of approximately $2.5 million in dividends. During the nine months ended September 30, 2024, cash used by financing activities was approximately $3.7 million and included the payment of dividends totaling approximately $2.5 million and net payments on ourrevolving line of credit of approximately $717 thousand.

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 September 30, 2025, availability under the Senior Credit Facility was approximately $42.5 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 5.3% and is repriced daily.

Economy and Inflation

On July 4, 2025, the "One Big Beautiful Bill Act" was signed into law, which includes significant changes to federal tax law and other regulatory provisions that may impact the Company. We are currently evaluating the provisions of the new law and the potential effects on our financial position, results of operations, and cash flows. However, we do not expect the new law to have a material impact on our results of operations, financial condition, or liquidity.

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 include 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 nine months ended September 30, 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.

		Three months ended												Nine months ended
(in thousands, except percentages)		September 30, 2025				September 30, 2024				Change				September 30, 2025				September 30, 2024				Change
System-wide sales from HireQuest Direct		$	60,453			$	64,030				(5.6	)%		$	166,229			$	178,489				(6.9	)%
System-wide sales from Snelling and HireQuest			39,575				40,984				(3.4	)%			108,846				116,635				(6.7	)%
System-wide sales from DriverQuest and TradeCorp			3,700				3,925				(5.7	)%			10,596				10,332				2.6	%
System-wide sales from HireQuest Health			997				1,419				(29.7	)%			3,187				4,845				(34.2	)%
System-wide sales from Northbound, MRI, and SearchPath			28,745				38,000				(24.4	)%			88,565				117,900				(24.9	)%
System-wide sales from Continuing Operations			133,470				148,358				(10.0	)%			377,423				428,201				(11.9	)%
System-wide sales from Discontinued Operations			132				258				(48.8	)%			433				593				(27.0	)%
System-wide sales		$	133,602			$	148,616				(10.1	)%		$	377,856			$	428,794				(11.9	)%

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 nine months ended September 30, 2025:

Offices, December 31, 2023			427
Opened in 2024			30
Closed in 2024			(32	)
Offices, December 31, 2024			425
Opened in 2025			6
Closed in 2025			(31	)
Offices, September 30, 2025			400

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.