Business
Overview
HireQuest, Inc. (HQI) is a staffing services
franchisor with 399 franchisee-owned offices. Their offering touches nearly
every segment of the staffing and recruiting market and can be split up as
follows:
1. Direct Dispatch Staffing: Daily-work/daily-pay
jobs in construction and light industrial
47.7%
of LTM franchise royalties; Includes HireQuest Direct
2. Commercial Staffing: Longer-term
staffing positions in light industrial and administrative
29.0%
of LTM franchise royalties; Includes Snelling, HireQuest
3. Executive &
Professional Search: Executive, managerial, and professional recruitment
services
19.8%
of LTM franchise royalties; Includes MRINetwork, Northbound, SearchPath
4. Vertical-Focused Staffing:
Skilled trades, commercial and non-CDL drivers, healthcare, dental
3.6%
of LTM franchise royalties; Includes TradeCorp, DriverQuest, HireQuest Health
HQI’s
franchise model is unique among public peers (BGSF, JOB, KELYA, MAN, MHH, TBI)
who use a primarily company-owned model. HQI provides franchisees with working
capital, workers’ compensation insurance, and proprietary software while
receiving royalties on system-wide sales (SWS). This generates cost savings by
eliminating middle management and replacing their oversight with franchisees
incentivized as business owners. Additionally, HQI charges them interest on accounts
receivable, which are held on HQI’s balance sheet, when they age over 42 days, and
shares a portion of the savings when they keep workers’ compensation loss
ratios below certain thresholds.
Management
Rick Hermanns, CEO, founded the first corporate form
of HQI in 1991 and currently owns 20.9% of the business, worth $32M,
and recently purchased $276k worth of shares in 12/2025. He built HQI from
scratch before taking it public via
reverse merger with Command Center
(CCNI) in 07/2019. The current CFO, David Hartley, was staffed
on this deal while working at D.A. Davidson before joining
HQI in 08/2020. This management team has experience, skin in the
game, and a demonstrated ability to capitalize on industry downturns.
During the 2Q20 earnings call, Hermanns states HQI
keeps minimal debt and a lean cost structure to enable countercyclical
investment. In 06/2020, HQI announced a buyback authorization for 1M (~7.4%) of
their 13.5M shares outstanding before closing two acquisitions in 1Q21:
1. Snelling
Staffing: 47 offices doing $87M sales ($1.9M per office) purchased for $17M (0.20x
multiple)
2. Link
Staffing: 35 offices doing $57M sales ($1.6M per office) purchased for $11M (0.19x
multiple)
These
acquisitions expanded HQI’s offering from direct dispatch staffing into
commercial staffing at highly accretive prices, demonstrating management’s
financial and strategic competency. In the 4Q22 earnings call, Hermanns framed
their approach as buying fair businesses at good prices before liberating them
from poor management.
Industry Overview
The staffing industry is highly cyclical, with limited
barriers to entry resulting in a fragmented competitive landscape where price
competition leaves cost management critical to success. Smaller firms tend to
be uneconomic because they are unable to obtain workers’ compensation insurance
outside of high-cost state pools, while larger firms tend to operate with the
structural inefficiencies of the company-owned model. HQI pools franchisee
purchasing power at the corporate level to obtain favorable financing and
insurance rates, resulting in office-level operating margins 150 to 350 bps
above competitors.
The industry is currently experiencing its worst
downturn since 2008. Holding industry beta likely has a positive expected return,
but at a low Sharpe due to timing difficulties. Given the number of public peers,
it makes sense to hedge this out and isolate HQI’s relative performance.
Outlook
Inorganic
Growth
An important driver of HQI’s fundamental
outperformance in the past has been the acquisition playbook best demonstrated
with CCNI, another staffing company using a company-owned model. In 2018, prior
to the transaction, HQI had 93 offices doing $189M SWS ($2.0M per office) earning
$7M EBIT (~3.8% margin) compared to CCNI with 67 offices doing $97M sales
($1.4M per office) and earning only $1M EBIT (1.2% margin). CCNI retained 32% ownership,
worth $27M at the time of consummation, implying a 0.29x sales multiple.
However, HQI immediately turned around and franchised out CCNI’s company-owned
offices to franchisees for $15M seller-financed primarily at 6% over 5 years.
This knocks the effective purchase price down to $12M, or a 0.12x sales
multiple. While this playbook should continue to create value over time through
smaller tuck-in acquisitions, the odds of another large deal are currently
elevated.
HQI’s closest competitor is TrueBlue (TBI),
specifically their PeopleReady division, which provides on-demand general and
skilled labor for industrial jobs. HQI has tried and failed to make a deal
since 2023, making multiple private offers before making public ones in 02/2025
and 05/2025, which were rejected and met with a poison pill. The rejection of
the public offers attracted EHS Investments (EHS), which issued a letter to
TBI’s board in 09/2025 and recently announced director nominees in 01/2026.
EHS is run by Eric Su, a UPenn graduate who most
recently worked as IAC’s head of M&A from 10/2019 to 04/2025. IAC, a public
company, is known for creating value through M&A deals. In his 09/2025
letter, Su cited TBI’s decision not to engage HQI as a serious governance
failure while also pointing to inefficient workers’ compensation insurance and
a bloated cost structure as operational failures, among other points. HQI’s
franchise model very directly addresses these issues and makes them a natural
fit for this situation. Su also stated that, unless TBI can demonstrate
evidence of a turnaround within a year, they should pursue a sale to strategic
owners who can maximize value and mentions HQI as an option in a presentation
accompanying the letter.
In 12/2025, EHS issued another letter announcing
its intention to nominate directors in light of continued issues and minimal board
engagement. After describing these issues, Su repeats that TBI should have sold
to HQI when it had the chance and lists a strategic review as the first of two
points in his plan following a successful board refresh. In 01/2026, TBI
responded by adding two new directors before EHS quickly issued another letter doubling
down on their 12/2025 letter and naming 3 director nominees.
Organic Growth
HQI acquired MRINetwork (MRI) in 11/2022 to
expand into executive and professional search. MRI employs a nontraditional
franchise model where network members frequently use their own trade names,
software, and financing. They were the third-largest player in their market with
232 offices doing $283M SWS ($1.2M per office), and HQI paid only $14M (0.05x
multiple). MRI was complementary to HQI’s direct dispatch and commercial
staffing businesses, with all three frequently selling to different departments
within the same companies. They also have an in-house franchise sales team and
franchisee training program, which were both new to HQI.
In the 1Q23 earnings call, Hermanns states he
has very specific strategic goals in mind for MRI, but that it would take 3 to
5 years to realize the benefits with minimal impact during the first 2 to 3
years. Last quarter marked 3 years since the deal and, during this time, MRI
has had exposure to a depressed IT staffing market, one of the hardest-hit
segments of the industry. On the 2Q25 earnings call, Hermanns stated MRI’s lack
of integration results in franchisee churn during hard times as individuals
choose to exit the business altogether.
In 12/2025, HQI put out a press release
announcing a change in ownership structure to pursue a strategic reset focusing
on growth, client relationships, and organizational cohesion. The release
states this will include a new service model and network-wide strategic
initiatives that will begin in 1Q26. While HQI has offered no specifics, I
think it is likely these initiatives will capitalize on the opportunities
identified at the time of purchase, namely building out a franchise sales team
and franchisee training programs while enabling franchisees to expand their
branch-level offerings to cross-sell clients. Additionally, better integrating
network members would improve franchisee retention and drive economies of scale
at the corporate level. These are hard to quantify individually, but during the
2Q23 earnings call Hermanns claimed HQI could enable a “fairly good-sized
number” of MRI network members to double or triple their business, and
according to the original timeline this should be happening within the next 2
years.
Valuation
On an absolute basis, HQI trades at ~15x adj.
net income despite earning ~25% on tangible equity capital as the low-cost
operator in an out-of-favor industry. Additionally, HQI pays a dividend and
recently announced a $20M buyback authorization. On a relative basis, HQI is
the cheapest it has been in years. HQI’s multiple on system-wide sales fell
from ~3.5x industry sales multiples during 2021 to ~2.0x today, creating a drag
on firm-specific returns despite fundamental outperformance. This implies the
market’s belief in HQI’s ability to outperform in the future has deteriorated,
a view that appears to be driven by the operational difficulties experienced at
MRI. In my view, the franchise model remains a strategic driver of fundamental
outperformance complemented by two tactical ones in a potential TBI acquisition
and improvements at MRI.
TBI currently has a $111M MC and carries $41M
net debt implying an $152M EV, or 0.10x their $1,616M LTM sales compared to HQI
with a $163M MC and $1M net debt at 0.32x SWS. If we assume an all-stock deal
where HQI buys TBI at a large 100% premium with successful integration, maintaining
their SWS multiple, this implies 58% incremental upside for equity holders.
Keep in mind this upside number does not account for the consideration HQI
would receive by franchising TBI’s company-owned locations or the potential
margin expansion from further economies of scale. Historically, HQI has been
able to complete these types of conversions within one or two quarters, even on
large deals such as CCNI.
Although not directly disclosed, using the $283M
SWS from the original acquisition announcement and commentary from subsequent
10Ks, we can say MRI likely has $73M LTM SWS across at least 200 offices ($0.4M
per office). If we assume a third of these offices 2.5x their business, this
results in $37M incremental MRI SWS. From FY23 to FY24, HQI’s executive and professional
search segment reported 7.6% incremental royalty rates, implying this $37M
would translate to $2.8M in royalty revenue. In the 12/2022 MRI acquisition
presentation, HQI targets MRI’s adj. EBITDA as a percent of royalty revenue hitting
>50% long term. Assuming a 50% adj. EBITDA margin over that $2.8M
incremental royalty revenue results in a 9.5% uplift to HQI’s consolidated LTM adj.
EBITDA. This doesn’t account for organic growth opportunities in HQI’s other
segments, such as investing in a franchise sales team or franchisee training
programs.
These two near-term, firm-specific drivers would result in 68% upside uncorrelated from industry beta estimated on a conservative basis. Over a 2-year holding period, this translates to a 29.4% IRR compared to 252D realized volatility of HQI’s alpha against public peers at 49.1%.
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