HQI 10-K & 10-Q changes, risk factors and insider trading

We impaired our goodwill in 2024 and other intangible assets in both 2025 and 2024, and if our goodwill or other intangible assets is impaired further in the future, we will record an additional non-cash charge to our results of operations and the amount of the charge may be material.

At least annually, or whenever events or circumstances arise indicating impairment may exist, we review goodwill and other intangible assets for impairment as required by generally accepted accounting principles in the United States. In 2024, we recorded an impairment to our goodwill and other intangible assets which exceeded $6 million. In 2025, we recorded an impairment to our other intangible assets of approximately $892 thousand. The estimated fair value of our goodwill and other intangible assets could continue to change if there are future changes in our capital structure, cost of debt, interest rates, capital expenditure levels, ability to perform at levels that were forecasted or a permanent change to our market capitalization. In the future, we may need to make an additional reduction to the carrying amount of goodwill or other intangible assets by taking a non-cash charge to our results of operations. Such a charge would have the effect of reducing goodwill or other intangible assets with a corresponding impairment expense and may have a material effect upon our reported results. The additional expense may reduce our reported profitability or increase our reported losses in future periods and could negatively affect the market for our securities, our ability to obtain other sources of capital, and may generally have a negative effect on our future operations.

Recent shifts in U.S. government policies towards isolationism andisolationism, trade protectionism, alongimmigration withpolicy, and other 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 ofof, striking down by the United States Supreme Court, 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 recent joint U.S.-Israeli strikes on Iran beginning in February 2026, as well as other conflicts in the Middle East, have led to higher oil prices and created supply imbalances in the global market for oil and natural gas. The extent and duration of these effects cannot be reliably predicted, and the U.S.-Israeli strikes may have other adverse effects on the global economy. 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 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 aftercould the Hamas terrorist attacks on Israel couldfurther affect oil prices and have other effects on the global economy. Although we have no operations in Russiathe Middle East, 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.

We have an established reserve for estimated future costs of workers’ compensation claims under our deductible. Due, in part, to the long tail associated with many workers’ compensation claims, it is difficult to estimate future costs to be incurred on these claims. The reserve includes claims that have been reported but not settled, as well as claims that have been incurred but not reported. Annually,Annually we engage an independent actuary to estimate the future costs of these claims discounted by a present value interest rate to estimate the amount of the reserve. The actuarial estimate contains significant assumptions. Because of the difficulty in performing this analysis, we have experienced significant volatility in the resulting reserve. When the reserve is lowered, we see a gain in income. When the reserve is raised, our income is lowered. The corresponding raising or lowering of income could result in significant volatility in our reporting earnings and resulting stock price.

With nearly all of our offices being operated by franchisees, we are dependent on the financial success and cooperation of our franchisees. We have limited control over how our franchisees’ businesses are run, and the inability of franchisees to operate successfully could adversely affect our operating and financial results through decreased royalty payments or otherwise. If our franchisees incur too much debt, if their operating expenses increase, or if economic or sales trends deteriorate such that they are unable to operate profitably or repay existing debt, it could result in their financial distress, including insolvency or bankruptcy. To date, a small number of franchisees had difficulty in servicing the debts they owe to us as a result of the financial impacts of COVID-19. We have placed a reserve on the notes receivable from those franchisees in the amount of approximately $773$1.2 thousandmillion and $623$773 thousand at December 31, 20242025 and December 31, 2023,2024, respectively. If a significant franchisee or a significant number of franchisees become financially distressed, our operating and financial results could be impacted through reduced or delayed royalty payments. A franchisee bankruptcy could have a substantial negative impact on our ability to collect payments due under such franchisee’s franchise agreement. Our success also depends on the willingness and ability of our franchisees to be incentivized to deliver excellent customer service, resolve any issues efficiently, and ensure customer retention. In addition, our success depends on the willingness and ability of our franchisees to implement major initiatives, which may include financial investment. Our franchisees may be unable to successfully implement strategies that we believe are necessary for their further growth, which in turn may harm our growth prospects and financial condition

Our franchisees, and the franchisees of MRINetwork Operations, LLC in which we maintain an investment, provide various types of temporary personnel, permanent placements, and recruitment services through multiple business models under the trade names "HireQuest Direct," "Snelling," "HireQuest," "DriverQuest," TradeCorp," "HireQuest Health," "Northbound Executive Search," "Management Recruiters International," "MRI," and "Sales Consultants." Some of the MRI franchises also operate under other brand names specific to them. While we divested the permanent placement franchise agreements of MRI on January 1, 2026, we maintain an investment in MRNetwork Operations, LLC, the entity that serves as franchisor.

Approximately one-third of our franchisees ownedown multiple offices. If any of our relatively large ownership groups were to experience financial difficulty, reduced sales volume, or close, we may experience a negative impact on our results of operations, liquidity, or financial condition.

We occasionally lend money to our franchisees to facilitate a franchise conversion or expansion into a new market. While most of our franchisees have historically repaid their loans to us a small number have not, and there is no guarantee that our franchisees will continue to repay their loans in the future. To that end, we have recorded a reserve of approximately $773$1.2 thousandmillion on our notes receivable as of December 31, 2024.2025. The risk of non-payment is affected, among other things, by:

Our business requires the collection, use, processing, and storage of confidential and personal information about applicants, candidates, temporary workers, other employees, and clients. We have in the pastWe, and willour likelyfranchisees, are frequently exposed to unauthorized attempts to compromise sensitive information from our network or information technology. Attacks on information technology systems continue to grow in frequency and sophistication. These attacks include, but are not limited to, attempts to gain unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. We will also likely encounter cyber-attacks, computer viruses, social engineering schemes, and other means of unauthorized access to our systems. While past experiences have not materially impacted our business or results, there is no guarantyguarantee that we will not be materially impacted in the future.future and we remain vulnerable to sophisticated techniques used to obtain unauthorized access, or cause system interruption, that change frequently and may not produce immediate signs of intrusion. The security controls over sensitive or confidential information and other practices wewe, our franchisees, and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information. In that context, it is relevant that we have limited control over our franchisees' actions. We may failbe unable to anticipate cybersecurity incidents or techniques, timely discover them or implement adequate preventative practices and procedures that comply with the ever-expanding regimes of privacy regulation.procedures. Failure to protect the integrity and security of the confidential information we possess could expose us to regulatory fines, litigation, contractual liability, damage to our reputation, and increased compliance costs. We may be required to incur significant expenses to comply with mandatory privacy and security standards and protocols imposed by law, regulation, industry standards, or contractual obligations. We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses suffered as a result of a breach of our systems or information.

We regularly implement, modify, retire, and upgrade our systems and proprietary software. Our investment in information technology developments is material. While we believe that changes made to HQ Webconnect and other systems will be beneficial to our franchisees and to us, we cannot ensure that all changes will provide the desired benefits. These changes to our information technology systems may be disruptive, take longer than desired, be more expensive than anticipated, be distracting to management, result in loss of information, affect our accounting procedures or internal control over financial reporting, or fail, causing our business and results of operations to suffer materially. Furthermore, if we are unable to design, develop, acquire, implement, and utilize, in a cost-effective manner, technology and information systems that provide the capabilities necessary for us to compete effectively, especially in an era of rapidly evolving artifical intelligence, it could materially harm our business, results of operations, and financial condition.

We expect theThe increased use of internet-based and mobile technology has attracted, and likely will attractcontinue to attract, additional technology-oriented companies and resources to the staffing industry. We face increasing competition from “gig-economy” companies entering the temporary staffing industry by providing apps to connect workers with employers. Such competition could adversely affect our business and results of operations. Our candidates and clients increasingly demand technological innovation to improve the access to and delivery of our services.

Our clients increasingly rely on automation, artificial intelligenceintelligence, machine learning, and other new and rapidly evolving technologies to reduce their dependence on labor needs, which may reduce demand for our services and impact our operations. Our franchisees face extensive pressure for lower prices and new service offerings and we must continue to invest in and implement new technology and industry developments to remain relevant to our ultimate clients and candidates. If we are unable to do so, our business and results of operations may decline materially. Furthermore, if our clients are able to increase the effectiveness of their internal staffing and recruitment functions through analytics, automation or otherwise, their need for the services our franchisees offer may decline. New technology and more sophisticated staffing management and recruitment processes may cause clients to outsource less of their staffing management, reducing the demand for our franchisees services.

IfHowever, if we fail to achieve and maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting. If we cannot provide reliable financial reports, our business could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly.decline. Likewise, if our financial statements are not filed on a timely basis as required by the SEC, we could face severeregulatory consequences, and our reputation could be harmedharmed, which in turn could adversely affect the value of our securities.

In 2024,2025, our stock price, as reported by Nasdaq, ranged from a low of $11.39$7.38 to a high of $15.75.As$15.75. As a result, the market price and trading volume of our common stock is likely to be similarly volatile in the future, and investors in our common stock may experience a decrease, which could be substantial, in the value of their stock, including decreases unrelated to our results of operations or prospects, and could lose part or all of their investment.

As of December 31, 20242025 we had approximately 425413 franchisee-owned offices and 1 company-owned office in 4443 states, the District of Columbia, and 1314 countries outside of the United States. We197 licensedof ourthose tradenamesoffices operated by 177 franchisees were MRI offices which were divested to approximatelyMRINetwork 6Operations, officesLLC inon California.January 1, 2026. In addition, there were 1218 MRI locations that provided contract staffing services only. We provide employment for an estimated 6575 thousand temporary employees annually working for thousands of clients in many industries including construction, healthcare, recycling, warehousing, logistics, auctioneering, manufacturing, hospitality, landscaping, and retail.

On a year-over-year basis, we saw a 6.9%11.3% decrease in our system-wide sales from $605.1 million in 2023 to $563.6 million in 2024 to $500.2 million in 2025 as the overall staffing and recruiting industry softenedremained soft during the year due to overall economic factors including inflation and lack of investment in economic expansion given global uncertainty. MRI, in particular, along with other professional recruiting and staffing brands, was impacted by the continued uncertainty in the overall economy which particularlymay affectedhave led to less hiring. System-wide sales for MRI whereand system-widethe salesother professional recruiting and staffing brands decreased 18.6%26.6%, or $31$36.1 million in 20242025 when compared to 2023.2024.

We recorded an 8.7%11.4% decrease in total revenue from $37.9 million in 2023 to $34.6 million in 2024.2024 to $30.6 million in 2025. Income from operations declinedincreased fromto $10.6$6.3 million in 20232025 tofrom $4.4 million in 2024 due to the 6.9% decline in system-wide sales and a $6.0 million goodwill and intangible asset charge associated with the MRI acquisition.acquisition in 2024, partially offset by a decline in system-wide sales and associated revenues.

Total revenue for the year ended December 31, 20242025 was approximately $34.6$30.6 million compared to $37.9$34.6 million for the year ended December 31, 2023,2024, a decrease of 8.7%.11.4%. This decrease is roughly consistent with the decrease in underlying system-wide sales which decreased 6.9%11.3% from $605.1 million in 2023 to $563.6 million in 2024.2024 Revenueto does$500.2 notmillion includein any2025. company-owned offices, as theThe office that we own is classified as held-for-sale.held-for-sale and is not included in revenue.

We charge our franchisees a royalty fee on the basis of one of several models. Under the HireQuest Direct model, the royalty fee charged ranges from 6% to 8% of gross billings, depending on volume. Royalty fees are charged at 8% for the first $1 million of billing with the royalty fee dropping 0.5% for every $1 million of billing thereafter until the royalty fee is 6% (once gross billings reach $4 million annually). The smaller royalty fee is charged only on the incremental dollars resulting in an effective royalty fee at a blended rate of between 6% and 8%. We will grant our franchisees credits for low margin business. For the HireQuest, Snelling, DriverQuest, HQ Medical, and TradeCorp model, our royalty fee is 4.5% of the temporary payroll we fund plus 18% of the gross margin for the territory. Most franchise agreements provide for a royalty of 5% to 7% of direct placement sales. For the Snelling and SearchPath franchise agreements assumed where the franchise owner did not execute new HireQuest or HireQuest Direct business line franchise agreements, the royalty fee ranges from 5% to 8% of all sales. MRI franchise agreements assumed have royalty rates varying from 1% to 9% of placement sales, depending on sales volume and other factors. The MRI franchises with a lower royalty scale generally pay a flat annual fee plus a percentage-based royalty. For temporary labor, MRI franchises pay a royalty that ranges from 20% to 25% of payroll, depending on sales volume. Some customers that utilize qualified independent contractors cause the franchise to pay a royalty that ranges from 4% to 10% of contractor payments, depending on sales volume.

Franchise royalties for the year ended December 31, 20242025 were approximately $32.7$29.0 million compared to $35.8$32.7 million for the year ended December 31, 2023,2024, a decrease of 8.8%,11.3%, driven predominantly by a decline in total system-wide sales of $41.5$63.4 million from $605.1 million in 2023 to $563.6 million in 2024 to $500.2 million in 2025 . The blended effective royalty rate for 20242025 and 20232024 was 5.8%the andsame 5.9%,at respectively.5.8%.

Service revenue for the year ended December 31, 20242025 was approximately $1.9$1.6 million which decreased when compared to $2.1$1.9 million for the year ended December 31, 2023.2024. Interest on overdue accounts decreasedincreased approximately $62$116 thousand from $850$788 thousand for the year ended December 31, 20232024 to $788$904 thousand for the year ended at December 31, 2024.2025. This decreaseincrease followsis therelated overallto decreasean increase in accounts receivable.that were paid between 42 and 84 days outstanding. We pride ourselves on maintaining quality, creditworthy customers who pay timely, and the Company does not strive to increase interest on aged accounts receivable. Net insurance fees decreased by approximately $236 thousand to $94 thousand in 2025 from $330 thousand in 2024. The decrease in net insurance fees was primarily related to increased insurance costs to HireQuest as well as a decline in payroll in both our HireQuest Direct and Snelling offerings. Fees collected related to our advertising fund decreased by approximately $126$128 thousand from $515 thousand in 2023 to $389 thousand in 20232024 to $261 thousand in 2025 and is related to the decline in MRI system-wide sales.

Operating expenses for the year ended December 31, 20242025 were approximately $30.2$24.4 million compared to $27.2$30.2 million for the year ended December 31, 2023,2024, ana increasedecrease of $3.0$5.8 million. This increasedecrease was primarily driven by a $6.0 million goodwill and intangible asset charge in 2024 compared to only $674 thousand in 2025. The goodwill and intangible asset charge in both 2024 and 2025 were associated with MRIMRI. partially offset by a $1.2 million decrease in salaries,Salaries, bonuses and stock based compensation also decreased approximately $828 thousand and a $1.7 million reduction in net workers' compensation expense.expense decreased $1.9 million. These decreases were partially offset by $1.2 million in transaction related expenses in 2025.

Workers' compensation expense was approximately $89 thousand for the year ended December 31, 2025, versus an expense of approximately $2.0 million for the year ended December 31, 2024, versus an expense of approximately $3.7 million for the year ended December 31, 2023 a decrease of $1.7$1.9 million. This decrease is primarily due to a decreased number of medical claims relative to comparisonthe periods.prior year along with an appropriate adjustment to amounts collected versus paid on such claims. 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 typically fall into hundreds of different 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. Generally workers' compensation expense or benefit will fluctuate based on the mix of classifications, the level of payroll, recent claims resolution and cumulative experience. We cannot accurately predict the effects of workers' compensation in future periods, and historical trends may not be indicative of future results.

Other Operating Expenses for the year ended December 31, 20242025 waswere approximately $25.4$21.3 million compared to $20.7$25.5 million for the year ended December 31, 2023,2024, ana increasedecrease of $4.7$4.2 million. The increasedecrease in Other Operating expense primarily relates to a $6.0 million goodwill and intangible asset and goodwill impairment charge relatedin 2024 compared to MRIonly partially$674 offsetthousand byin 2025, as well as a $1.2decrease millionof decreaseapproximately $828 thousand in salaries, bonuses and stock based compensation. These decreases were partially offset by $1.2 million in transaction related expenses in 2025.

Depreciation and amortization for the year ended December 31, 20242025 was approximately $2.8$3.0 million compared to $2.8 million for the year ended December 31, 2023.2024. This increase is primarily the result of an IT project being placed in service causing amortization to begin.

Other Miscellaneous Income and Expense

Other miscellaneous income and expense includes all non-operating income and expense other than interest and taxes. For the year ended December 31, 2024,2025, other miscellaneous income was approximately $144$223 thousand, compared to $1.7$145 million of other miscellaneous expensethousand for the year ended December 31, 2023. In 2023 the largest component of this loss is related to the loss of $2.1 million on disposition of the TEC assets. This was partially offset by $187 thousand in rental income from leasing of excess space at market rates at our Corporate Headquarters and $102 thousand of miscellaneous other income.2024.

Interest income for the year ended December 31, 20242025 was approximately $556$511 thousand compared to $263$556 thousand for the year ended December 31, 2023.2024. Interest income represents interest related to the financing of franchised locations. The increase is primarily driven by the disposition of the TEC assets.

Interest and other financing expense relates primarily to our revolving credit facility. Interest and other financing expense decreased approximately $0.4$616 millionthousand to $1.0$307 millionthousand in the year ended December 31, 20242025 when compared to the $1.4$923 millionthousand for the year ended December 31, 2023.2024. This decrease was due primarily to lower average borrowings during the year.year Inas 2024we our averagereduced borrowings wereon $13.3the millionline versusof $16.5credit millionwith inBank 2023.of America to $0 as of December 31, 2025. Interest and other financing expense will fluctuate as we utilize the line of credit for acquisitions or other short-term liquidity needs.

Income tax expense was approximately $0.2$100 millionthousand in 20242025 and $1.3$221 millionthousand in 2023.2024. The effective tax rates for 20242025 and 20232024 were 5.3%1.5% and 17.3%,5.3%, respectively. The effective tax rate is primarily driven by thehiring federaltax Work Opportunity Tax Credit,credits, which reduced our effective tax rate by 21%28% and 12%21% for the years ended December 31, 20242025 and December 31, 2023,2024, respectively, and 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 factors impacting our effective rate include windfall tax deductions related to stock-basedstock based compensation, and deduction limits on overall compensation.

At December 31, 20242025 our current assets exceeded our current liabilities by approximately $25.1$33.0 million. Our current assets included approximately $2.2$3.9 million of cash and $42.3$39.3 million of accounts receivable, which our franchisees have billed to customers and which we own in accordance with our franchise agreements. As of December 31, 2024,2025, the outstanding balance under our line of credit with Bank of America was $6.8 million,$0, with approximately another $9.7 million utilized for the issuance of Letters of Credit, leaving approximately $33.4$40.3 million available for additional borrowing under the line as of such date, assuming compliance with necessary conditions. Other current liabilities include approximately $7.6$7.0 million due to our franchisees, $2.6$1.8 million of accrued wages, benefits and payroll taxes, and $3.6$2.9 million related to our workers’ compensation claims liability.

During 20242025 net cash generated by operating activities was approximately $12.3$12.1 million. Net cash generated by operating activities for the year included net income from continuing operations of approximately $3.9$6.6 million and a change of working capital of $0.9approximately million$160 thousand as a usesource of cashcash. which was partially offset by significant non-cashNon-cash expenses in 2024,2025 includingincluded approximately $6.0$674 millionthousand in an intangible asset and goodwill impairment charge, $1.8$936 millionthousand in stock-basedstock based compensation, and $2.8$3.0 million in depreciation and amortization.

During 2024,2025, net cash generated from investing activities was approximately $44$296 thousand and included cash proceeds from the conversion of acquired offices into franchisees of approximately $717 thousand and proceeds from payments on notes receivable of approximately $1.6$1.2 million. These proceeds were primarily offset by cash paid paidissued for acquisitionsnotes receivable of $1.7$537 million.thousand and purchase of deferred compensation plan investments of $248 thousand.

On February 28, 2023 the Company and all of its subsidiaries as borrowers entered into a Revolving Credit Agreement ("Credit Agreement") with Bank of America, N.A. for a $50,000,000 revolving facility (the “Senior Credit Facility”), which includes a $20,000,000 sublimit for the issuance of standby letters of credit. 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 BSBY 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 Credit Agreement. The Senior Credit Facility will mature on February 28, 2028. As part of this refinancing we recorded a loss on debt extinguishment of approximately $310 thousand, which is reflected on the line item, "Interest and other financing expense," in our consolidated statement of income for 2023.

System-wide sales were $500.2 million in 2025, a decrease of 11.3%, from $563.6 million in 2024, a decrease of 6.9%, from $605.1 million in 2023.2024. The decrease in system-wide sales is primarily related to a decrease in demand in the staffing and recruiting industry during the year which particularly affected MRI where system-wide sales decreased 18.6%23.7% or $31$36.1 million in 20242025 when compared to 2023.2024. The remaining decrease of $27.3 million was due to the overall downturn of the economy including in the construction and manufacturing industries.

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and the related disclosure of contingent assets and liabilities. Note 1,1 “- Overview and Summary of Significant Accounting Policies”, to the Consolidated Financial Statements describes the significant accounting policies used to prepare the Consolidated Financial Statements and recently issued accounting guidance.

We maintain reserves for workers’ compensation claims based on their estimated future cost. These reserves include claims that have been reported but not settled, as well as claims that have been incurred but not reported. Our estimated workers’ compensation claims liability was $5.2 million at December 31, 2025, versus $6.3 million at December 31, 2024, versus $6.6 million at December 31, 2023.2024. The decrease is due to our having now fully reserved claims from prior years whichas developedwell atas areduced higherpayroll ratein than2025 and 2024. We estimate the future cost of these claims using several analytical techniques that incorporate actual loss activity, historical norms.claims Annually,development patterns, and current period payroll and risk classification data. In addition, we engage an independent actuary to prepare an estimate of the future costs of these claims. Quarterly,Management weevaluates use development factors provided by anthe independent actuary toactuarial estimate together with the future costsresults of theseour claims.internal estimation methodologies when assessing the adequacy of the recorded workers’ compensation claims liability. We make adjustments as necessary. This liability involves significant judgment. If the actual costs of the claims exceed the amount estimated, we may incur additional charges.

Notes receivable from franchisees consist primarily of amounts due to us related to the financing of franchised locations. We report notes receivable from franchisees at the principal balance outstanding less an allowance for losses. We charge interest at a fixed rate and interest income is calculated by applying the effective rate to the outstanding principal balance. Notes receivable are generally secured by the assets of each location and the ownership interests in the franchise. We monitor the financial condition of our debtors and record provisions for estimated losses when we believe it is probable that our debtors will be unable to make their required payments. We evaluate the potential impairment of notes receivable based on various analyses, including estimated discounted future cash flows, at least annually and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When a note receivable is deemed impaired, we discontinue accruing interest and only recognize interest income when payment is received. Our allowance for credit losses on notes receivable was approximately $773$1.2 thousandmillion and $623$773 thousand at December 31, 20242025 and December 31, 2023,2024, respectively.

The combined impairment charge of approximately $674 thousand and $6.0 million is reflected in the line item, "Goodwill and intangible asset impairment charge," in our Consolidated Statements of Income for the twelve months ended December 31, 2024.2025 and December 31, 2024, respectively.

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; anticipated 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; expected impact of the MRINO transaction; intended office openings or closings; expectations with respect to discontinued operations; 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 materialize, 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 for and financial performance of the temporary staffing and permanent placement industry; effects of continued geopolitical unrest and regional conflicts, including conflicts in the Middle East; the financial performance of our franchisees; our franchisees’ and our 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 increases in the price of oil and gas and any potential recession; changes in customer demand; the extent to which we are successful in gaining new long-term relationships with customers or retaining existing ones, and 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 and permanent placement industry and those arising from the action or inaction of our franchisees and temporary employees; 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, MRINetwork, Snelling Staffing, LINK Staffing, Recruit Media, Inc., Dental Power Staffing, Temporary Alternatives, Inc., and subsequent or smaller acquisitions; 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; 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; and 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.

As of MarchJune 31,30, 2026, we had 257251 franchisee-owned offices and 1 company-owned office in 39 states, the District of Columbia, and 1 country outside of the United States. We provide employment for an estimated 75 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.

The following table displays our Consolidated Statements of Income for the three and six months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025. Percentages reflect the line item as a percentage of total revenue.

Three Months Ended MarchJune 31,30, 2026 Compared to the Three Months Ended MarchJune 31,30, 2025

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 MarchJune 31,30, 2026 or the three months ended MarchJune 31,30, 2025. 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, 2025, which disclosure is incorporated herein by reference.

Total revenue for the three months ended MarchJune 31,30, 2026 was approximately $6.5$8.1 million compared to $7.5$7.6 million for the three months ended MarchJune 31,30, 2025, aan decreaseincrease of approximately 12.7%.6.0%. The decreaseincrease in revenue was largely due to the loss of approximately $500 thousand of total revenueincrease in thesystem-wide quartersales endedfrom Marchboth 31,HireQuest 2025 related to the MRINetwork assets divestitureDirect and aSnelling. decline in royalties from the retained Northbound, MRI, and SearchPath franchisees of approximately $360 thousand in the current period. For the three months ended March 31, 2026, thereThere was aan $15.8$8.1 million or 13.4%6.4% decrease in underlying system-wide sales from $118.4$125.9 million for the three months ended MarchJune 31,30, 2025 to $102.6$117.8 million for the three months ended MarchJune 31,30, 2026. The decrease in system-wide sales was primarily driven by $16.0$17.7 million in system-wide sales related to MRINetworkthe divestiture of certain assets divestedand liabilities associated with the permanent placement franchisee base of HQ MRI Corporation on January 1, 2026 and(the a"MRINetwork declineAssets in HireQuest Direct of $2.3 million,Divestiture"), partially offset by a $1.9$5.2 million increase in system-wide sales of Snelling/HireQuest. and a $5.1 million increase in system-wide sales of HireQuest Direct.

Franchise royalties for the three months ended MarchJune 31,30, 2026 were approximately $6.1$7.6 million, aan decreaseincrease of approximately 12.9%4.1% from $7.0$7.3 million for the three months ended MarchJune 31,30, 2025. The decreaseincrease in royalties was largely due to increased royalties in both HireQuest Direct and Snelling that approximate the increase in system-wide-sales, partially offset by the loss of $506$620 thousand in royalties relatedas toa result of the MRINetwork assetsAssets divestiture, and a decrease in HireQuest Direct royalties that approximates the decrease in system-wide-sales.Divestiture. A summary of franchise royalties by brand for the three months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 follows:

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. Fees related to the MRINetwork national advertising fund are also included in service revenue. We do not profit from this fee as it represents pass-though items. As of January 1, 2026, all franchisees that had franchise agreements with the MRINetwork national advertising fund fee were divested to a new entity so going forward service revenue will no longer include such fees as a component. MRINetwork national advertising fund fees were $0 for the three months ended MarchJune 31,30, 2026, compared to $74$70 thousand for the three months ended MarchJune 31,30, 2025. 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 MarchJune 31,30, 2026 was approximately $462$513 thousand, aan decreaseincrease of $50$159 thousand from the three months ended MarchJune 31,30, 2025, when service revenue was approximately $512$354 thousand.thousand, primarily due to an increase of $198 thousand related to liability insurance, partially offset by the loss of MRINetwork national advertising fund fees of $70 thousand as a result of the MRINetwork Assets Divestiture. Interest income on overdue customer accounts receivable, which is included in service revenue was $203$253 thousand for the three months ended MarchJune 31,30, 2026 and $240$215 thousand for the three months ended MarchJune 31,30, 2025. Fluctuations in interest income generally followfollows 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.

Total Operatingoperating expenses for the three months ended MarchJune 31,30, 2026 were approximately $4.3$4.8 million compared to $5.3$6.6 million for the three months ended MarchJune 31,30, 2025. The decrease of $1.0$1.8 million was primarily driven by a decrease of $699$633 thousand in expenses relatedas toa result of the MRINetwork assetsAssets divestiture.Divestiture and $929 thousand in acquisition related charges incurred in the three months ended June 30, 2025.

Net workers' compensation expense was approximately $39 thousand for the three months ended MarchJune 31,30, 2026, compared to $28$127 thousand recorded in the three months ended MarchJune 31,30, 2025. 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. WorkersWorkers' 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 companyCompany 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-related expenses include wages, payroll taxes, benefits, and stock-based compensation. Compensation and benefits for the three months ended MarchJune 31,30, 2026 were approximately $2.3$2.5 million, a decrease of $535$222 thousand when compared to $2.9$2.7 million for the three months ended MarchJune 31,30, 2025. The decrease in compensation and benefits was primarily driven by the elimination of expenses relatedas toa result of the MRINetwork assetsAssets divestitureDivestiture, which accounted for $283 thousand in the three months ended MarchJune 31,30, 2026,2025, whichpartially accountedoffset forby $365compensation thousandand inbenefits threerelated monthsto endednew March 31, 2025.employees.

Depreciation and amortization for the three months ended MarchJune 31,30, 2026 was approximately $778$762 thousand compared to $734 thousand for the three months ended MarchJune 31,30, 2025. This increase is primarily the result of increased amortization related to shortening the estimated useful life of the MRI franchise agreements.

Other income and expense consists of interest income on notes receivable, equity in income or loss of unconsolidated affiliate, rent received from sub-tenants, and other non-operating income and expense.

Interest income forFor the three months ended MarchJune 31,30, 20262026, other miscellaneous income was approximately $101$5 thousandthousand, compared to $134$28 thousand for the three months ended MarchJune 31,30, 2025. Interest income represents interest related to the financing of franchised locations.

Interest and other financing expense relates primarily to the Credit Agreement. Interest and other financing expense decreased from $144$71 thousand for the three months ended MarchJune 31,30, 2025 to $8$30 thousand for the three months ended MarchJune 31,30, 2026. 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.

Income tax expense was approximately $264$684 thousand for the three months ended MarchJune 31,30, 2026. Our net ETR for the three months ended MarchJune 31,30, 2026 was 14.4%.19.9%. 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 federal hiring credits, 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 result from state income taxes, certain non-deductible expenses, and tax effects of stock-based compensation.

Income tax expense for the three months ended MarchJune 31,30, 2025 was approximately $169$56 thousand. Our net ETR for the three months ended MarchJune 31,30, 2025 was 10.5%.5.0%. The increase in the net ETR was driven by the a higher level of hiring credits applied during the three months ended MarchJune 31,30, 2025.

Following our acquisition of Dubin, we divided their operations into separate businesses and sold certain customer relatedcustomer-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 MarchJune 31,30, 2026 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.

TheAny assets and liabilities of our discontinued operations are presented separately inunder the assetassets and liability sections,liabilities, respectively, ofin theour balanceConsolidated sheetBalance Sheets 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.

At MarchJune 31,30, 2026, our current assets exceeded our current liabilities by approximately $32.5$35.1 million. Our current assets includedinclude approximately $1.0$1.6 million of cash and $44.7$48.9 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 MarchJune 31,30, 2026 included approximately $10.5$11.6 million due to our franchisees on pending settlement statements and $2.9$2.7 million related to our workers’ compensation claims liability.

During the threesix months ended MarchJune 31,30, 2026, cash provided by continuing operations was approximately $259$1.9 thousandmillion and included net income from continuing operations of approximately $1.6$4.3 million, adjusted by non-cash items (primarily depreciation, gain of divestiture of business, deferred taxes, and stock-based compensation) of approximately $587$2.2 thousand.million. These provisions were offset by changes in operating assets and liabilities requiring cash (primarily accounts receivable) of approximately $1.9$4.6 million. During the threesix months ended MarchJune 31,30, 2025, cash provided by continuing operating activities was approximately $1.9$4.5 million and included net income from continuing operations of approximately $1.4$2.5 million, adjusted by non-cash items of approximately $1.3$2.3 million (depreciation, deferred taxes. and stock-based compensation). These provisions were partially offset by changes in operating assets and liabilities requiring cash (primarily prepaid expenses) of approximately $770$305 thousand.

During the threesix months ended MarchJune 31,30, 2026, cash used by investing activities was approximately $435$28 thousand, primarily from cash issued for notes receivable of approximately $398$399 thousand, and capital contribution to unconsolidated affiliate of approximately $192 thousand. These provisions were offset by cash received from payments on notes receivable of approximately $148$754 thousand. During the threesix months ended MarchJune 31,30, 2025, cash provided by investing activities was approximately $316$313 thousand, primarily from payments on notes receivable of approximately $362$673 thousand, net of cash issued for notes receivable of approximately $304 thousand.