hqi20230331_10q.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-53088

HIREQUEST, INC.

(Exact name of registrant as specified in its Charter)

Delaware		91-2079472
(State of incorporation or organization)		(I.R.S. employer identification no.

111 Springhall Drive, Goose Creek, SC 29445
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (843) 723-7400

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.001 par value		HQI		The NASDAQ Stock Market LLC
Title of each class		Trading Symbol(s)		Name of each exchange on which registered

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer ☐, an accelerated filer ☐, a non-accelerated filer ☒, a smaller reporting company ☒, or an emerging growth company ☐ (as defined in Rule 12b-2 of the Exchange Act).

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of issuer's common stock outstanding at May 10, 2023: 13.9 million

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HireQuest, Inc.

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PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Changes in Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4.	Controls and Procedures	30

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 5.	Other Information	31
Item 6.	Exhibits	31
	Signatures	32

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HireQuest, Inc.

Consolidated Balance Sheets

(in thousands, except par value data)	*March 31, 2023*			*December 31, 2022*
ASSETS	(unaudited)
Current assets
Cash	$	8,207		$	3,049
Accounts receivable, net of allowance for doubtful accounts		48,118			45,728
Notes receivable		967			817
Prepaid expenses, deposits, and other assets		1,426			1,833
Prepaid workers' compensation		916			503
Total current assets		59,634			51,930
Property and equipment, net		4,388			4,353
Workers’ compensation claim payment deposit		1,469			1,231
Franchise agreements, net		22,718			23,144
Other intangible assets, net		10,543			10,690
Goodwill		5,870			5,870
Other assets		162			325
Notes receivable, net of current portion and reserve		4,363			2,675
Intangible asset held for sale - discontinued operations		1,405			3,065
Total assets	$	110,552		$	103,283
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	207		$	448
Line of credit		21,214			12,543
Term loans payable		498			704
Other current liabilities		4,169			3,408
Accrued payroll, benefits, and payroll taxes		4,276			5,602
Due to franchisees		10,372			9,846
Risk management incentive program liability		1,116			877
Workers' compensation claims liability		3,041			3,352
Total current liabilities		44,893			36,780
Term loan payable, net of current portion		519			3,291
Deferred tax liability		195			60
Workers' compensation claims liability, net of current portion		2,173			2,573
Franchisee deposits		2,359			2,325
Total liabilities		50,139			45,029
Commitments and contingencies (Note 8)
Stockholders' equity
Preferred stock - $0.001 par value, 1,000 shares authorized; none issued		-			-
Common stock - $0.001 par value, 30,000 shares authorized; 13,927 and 13,918 shares issued, respectively		14			14
Additional paid-in capital		33,206			32,844
Treasury stock, at cost - 40 shares		(146	)		(146	)
Retained earnings		27,339			25,542
Total stockholders' equity		60,413			58,254
Total liabilities and stockholders' equity	$	110,552		$	103,283

See accompanying notes to consolidated financial statements.

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HireQuest, Inc.

Consolidated Statements of Income

(unaudited)

	*Three months ended*
(in thousands, except per share data)	*March 31, 2023*			*March 31, 2022*
Franchise royalties	$	9,323		$	6,575
Service revenue		534			468
Total revenue		9,857			7,043
Selling, general and administrative expenses		5,844			2,655
Depreciation and amortization		697			499
Income from operations		3,316			3,889
Other miscellaneous income (expense)		43			(3,379	)
Interest income		46			94
Interest and other financing expense		(540	)		(48	)
Net income before income taxes		2,865			556
Provision for income taxes		547			65
Net income from continuing operations		2,318			491
Income from discontinued operations, net of tax		312			112
Net income	$	2,630		$	603

Basic earnings per share
Continuing operations	$	0.17		$	0.04
Discontinued operations		0.02			-
Total	$	0.19		$	0.04

Diluted earnings per share
Continuing operations	$	0.17		$	0.04
Discontinued operations		0.02			-
Total	$	0.19		$	0.04

Weighted average shares outstanding
Basic		13,707			13,526
Diluted		13,782			13,659

See accompanying notes to consolidated financial statements.

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HireQuest, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

	*Common stock*				*Treasury stock*			*Additional*		*Retained*			*Total stockholders'*
*Three months ended (in thousands)*	*Shares*		*Par value*		*Amount*			*paid-in capital*		*earnings*			*equity*
Balance at December 31, 2022		13,918	$	14	$	(146	)	$	32,844	$	25,542		$	58,254
Stock based compensation		-		-		-			362		-			362
Common stock dividends		-		-		-			-		(833	)		(833	)
Restricted common stock granted for services		9		-		-			-		-			-
Net income		-		-		-			-		2,630			2,630
Balance at March 31, 2023		13,927	$	14	$	(146	)	$	33,206	$	27,339		$	60,413

Balance at December 31, 2021		13,745	$	14	$	(146	)	$	30,472	$	16,395		$	46,735
Stock based compensation		-		-		-			479		-			479
Common stock dividends		-		-		-			-		(822	)		(822	)
Restricted stock granted for services		78		-		-			-		-			-
Net income		-		-		-			-		603			603
Balance at March 31, 2022		13,823	$	14	$	(146	)	$	30,951	$	16,176		$	46,995

See accompanying notes to consolidated financial statements.

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HireQuest, Inc.

Consolidated Statements of Cash Flows

(unaudited)

	*Three months ended*
*(in thousands)*	*March 31, 2023*			*March 31, 2022*
Cash flows from operating activities
Net income	$	2,630		$	603
Income from discontinued operations		(312	)		(112	)
Net income from continuing operations		2,318			491
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		697			499
Non-cash interest		328			24
Stock based compensation		362			246
Deferred taxes		135			(139	)
Loss on disposition of intangible assets		-			3,625
Changes in operating assets and liabilities:
Accounts receivable		(2,390	)		2,634
Prepaid expenses, deposits, and other assets		372			(359	)
Prepaid workers' compensation		(413	)		(791	)
Accounts payable		(241	)		(1,577	)
Risk management incentive program liability		239			92
Other current liabilities		760			684
Accrued payroll, benefits and payroll taxes		(1,326	)		(819	)
Due to franchisees		526			711
Workers' compensation claim payment deposit		(238	)		(283	)
Workers' compensation claims liability		(711	)		(98	)
Net cash provided by operating activities - continuing operations		418			4,940
Net cash (used in) provided by operating activities - discontinued operations		(28	)		503
Net cash provided by operating activities		390			5,443
Cash flows from investing activities
Purchase of acquisitions		-			(18,470	)
Purchase of property and equipment		(77	)		(81	)
Proceeds from the sale of purchased locations		-			9,317
Proceeds from payments on notes receivable		187			95
Cash issued for notes receivable		(25	)		(40	)
Investment in intangible asset		(82	)		(163	)
Net change in franchisee deposits		34			52
Net cash provided by (used in) investing activities		37			(9,290	)
Cash flows from financing activities
Payments on term loan payable		(2,977	)		(53	)
Payments related to debt issuance		(131	)		-
Net proceeds from revolving line of credit		8,672			5,292
Payment of dividends		(833	)		(822	)
Net cash provided by financing activities		4,731			4,417
Net increase in cash		5,158			570
Cash, beginning of period		3,049			1,256
Cash, end of period	$	8,207		$	1,826
Supplemental disclosure of non-cash investing and financing activities
Notes receivable issued for the sale of intangible assets		2,000			350
Amounts payable related to the purchase of acquisition		-			2,202
Supplemental disclosure of cash flow information
Interest paid		204			24
Income taxes paid, net of refunds		4			(38	)

See accompanying notes to consolidated financial statements.

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HireQuest, Inc.

Notes to Consolidated Financial Statements

Note 1 - Overview and Summary of Significant Accounting Policies

Nature of Business

HireQuest, Inc., together with its subsidiaries, (“HQI, the “Company,” “we,” us,” or “our”) is a nationwide franchisor of offices providing direct-dispatch, executive search, and commercial staffing solutions primarily in the light industrial and blue-collar segments of the staffing industry and traditional commercial staffing. Our franchisees provide various types of temporary personnel through two business models operating under the trade names “HireQuest Direct”, “HireQuest”, “Snelling”, “DriverQuest”, “HireQuest Health”, “Northbound Executive Search”, and "MRI". HireQuest Direct specializes primarily in unskilled and semi-skilled industrial and construction personnel. HireQuest and Snelling specialize primarily in skilled and semi-skilled industrial personnel, clerical and administrative personnel, and permanent placement services. DriverQuest specializes in both commercial and non-CDL drivers serving a variety of industries and applications. HireQuest Health specializes in skilled personnel in the medical and dental industries. Northbound Executive Search and MRI specialize in executive placement and consultant services.

On January 24, 2022, we completed our acquisition of Temporary Alternatives, Inc. (“Temporary Alternatives”) to acquire three locations in west Texas and New Mexico for $7.0 million, inclusive of $336 thousand of adjusted net working capital payable. Temporary Alternatives is a staffing division of dmDickason Personnel Services, a family-owned company based in El Paso, TX. On February 21, 2022 we completed our acquisition of The Dubin Group, Inc., and Dubin Workforce Solutions, Inc. (collectively, “Dubin”). We acquired their staffing operations for $2.5 million, inclusive of a $300 thousand note payable and $62 thousand of adjusted net working capital payable. Dubin provides executive placement services and commercial staffing in the Philadelphia metropolitan area. On February 28, 2022 we completed our acquisition of Northbound Executive Search, LTD. (“Northbound”) to acquire their operations for $11.4 million, inclusive of a $1.5 million note payable and $328 thousand of adjusted net working capital payable. Northbound provides executive placement and short-term consultant services primarily to blue-chip clients in the financial services industry. On December 12, 2022 we completed our acquisition of certain assets and liabilities of MRINetwork (“MRI”) for $13.3 million, inclusive of $60 thousand of contingent consideration and $223 thousand of adjusted net working capital payable. MRI provides executive placement services and commercial staffing across the US and internationally.

For additional information related to these transactions, see Note 2 - Acquisitions.

As of March 31, 2023, we had 440 franchisee-owned offices and 1 company-owned office in 38 states and the District of Columbia. We are the employer of record to approximately 85,000 employees annually, who in turn provide services to thousands of clients in various industries including construction, recycling, warehousing, logistics, auctioneering, manufacturing, hospitality, landscaping, retail, and dental practices. We provide employment, marketing, working capital funding, software, and administrative services to our franchisees.

Basis of Presentation

We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and with the instructions to Article 8 of Regulation S-X. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the periods presented.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report filed on Form 10-K for the year ended December 31, 2022. Results for the interim periods presented are not necessarily indicative of the results expected for the full year or for any other period.

Consolidation

The consolidated financial statements include the accounts of HQI and all of its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated.

U.S. GAAP requires the primary beneficiary of a variable interest entity (“VIE”) to consolidate that entity. To be the primary beneficiary of a VIE, an entity must have both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that are significant to the beneficiary. We provide acquisition financing to some of our franchisees that could result in our having to absorb losses. This results in some franchisees being considered VIEs. We have reviewed our relationship with each of these franchisees and determined that we are not the primary beneficiary of any of these entities. Accordingly, we have not consolidated these entities.

Foreign Currency Translation

The functional currency of the company and all of its' subsidiaries is the United States dollar. Certain franchises located outside the United States may transact business in their local currency. As a result, some accounts receivable may be denominated in currencies other than United States dollar. Assets and liabilities are translated into United States dollars at the exchange rate in effect on the balance sheet date. Royalties received from and expenses charged to non-US franchises are always denominated in United States dollars, and the franchisee bears all foreign exchange risk. Foreign currency translation and re-measurement gains and losses are included in results of operations within other income (expense), net, which was zero during the periods ended March 31, 2023 and March 31, 2022, respectively.

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Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Actual results could differ from those estimates.

Significant estimates and assumptions underlie our workers’ compensation claim liabilities, our workers’ compensation Risk Management Incentive Program, our deferred taxes, our allowance for credit losses, potential impairment of goodwill and other intangibles, stock-based compensation, and estimated fair value of assets and liabilities acquired.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consist of amounts due for staffing services provided to customers of franchisees and of accounts receivable originating at company-owned locations. At March 31, 2023,and December 31, 2022, substantially all of our net accounts receivable were due from customers of franchisees. We own the accounts receivable from staffing services provided by our employees on behalf of the franchisees until they age beyond a date agreed upon with each respective franchisee between 42 and 84 days. When accounts receivable age beyond the agreed-upon date, they are charged back to our franchisees. Accordingly, we do not record an allowance for doubtful accounts on these accounts receivable because we do not bear the risk of loss. Otherwise, estimates of expected credit losses on accounts receivable over their life would be recorded at inception, based on historical information, current conditions, and reasonable and supportable forecasts.

For staffing services provided by company-owned offices, we record accounts receivable at face value less an allowance for doubtful accounts. We determine the allowance for doubtful accounts based on historical write-off experience, the age of the receivable, other qualitative factors and extenuating circumstances, and current economic data which represents our best estimate of the amount of expected credit losses on these accounts receivable, if any. We review the allowance for doubtful accounts periodically and evaluate how conditions that existed during the historical charge-off period may differ from our current expectations and accordingly may revise our estimate of expected credit losses. Our allowance for doubtful accounts on company-owned and purchased accounts receivable was approximately $84 thousand and $70 thousand at March 31, 2023, and December 31, 2022, respectively.

Revenue Recognition

Our primary source of revenue comes from royalty fees based on the operation of our franchised offices. Royalty fees from our HireQuest Direct business model are based on a percentage of sales for services our franchisees provide to customers, which ranges from 6.0% to 8.0%. Royalty fees from our HireQuest business line, including HireQuest franchisees, DriverQuest franchisees, the Northbound franchisee, the HireQuest Health franchisees, and Snelling and LINK franchisees who executed new franchise agreements upon closing, are 4.5% of the payroll we fund plus 18.0% of the gross margin for the territory. 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. Royalty fees from the Snelling franchise agreements assumed and not renegotiated at closing range from 5.0% to 8.0% of sales for services our franchisees provide to customers. Our franchisees are responsible for taking customer orders, providing customers with services, establishing the prices charged for services, and controlling other aspects related to providing service to customers prior to the service being transferred to the customer, such as determining which temporary employees to dispatch to the customer and establishing pay rates for the temporary employees. Accordingly, we present revenue from franchised locations on a net basis as agent as opposed to a gross basis as principal.

For franchised locations, we recognize revenue when we satisfy our performance obligations. Our performance obligations primarily take the form of a franchise license and promised services. Promised services consist primarily of paying temporary employees, completing all statutory payroll related obligations, and providing workers' compensation insurance on behalf of temporary employees. Because these performance obligations are interrelated, we do not consider them to be individually distinct and therefore account for them as a single performance obligation. Because our franchisees receive and consume the benefits of our services simultaneously, our performance obligations are satisfied when our services are provided. Franchise royalties are billed on a weekly basis other than with MRI franchise royalties, which are billed on a monthly basis. We also offer various incentive programs for franchisees including royalty incentives, royalty credits, and other support initiatives. These incentives and credits are provided to encourage new office development and organic growth, and to limit workers' compensation exposure. We present franchise royalty fees net of these incentives and credits.

For owned locations, we account for revenue when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified, and collectability of consideration is probable. Revenue derived from owned locations is recognized at the time we satisfy our performance obligation. Our contracts have a single performance obligation, which is the transfer of services. Because our customers receive and consume the benefits of our services simultaneously, our performance obligations are satisfied when our services are provided. Revenue from owned locations is reported net of customer credits, discounts, and taxes collected from customers that are remitted to taxing authorities. Our customers are invoiced every week and we rarely require payment prior to the delivery of service. Substantially all of our contracts include payment terms of 30 days or less and are short-term in nature. Because of our payment terms with our customers, there are no significant contract assets or liabilities. We do not extend payment terms beyond one year.

Below are summaries of our franchise royalties disaggregated by business model (in thousands):

	*Three months ended*
	*March 31, 2023*		*March 31, 2022*
HireQuest Direct model	$	4,012	$	3,526
HireQuest, Snelling, DriverQuest, HireQuest Health, MRI, Northbound, SearchPath and TradeCorp		5,311		3,049
Total	$	9,323	$	6,575

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Service revenue, which forms the other component of our total revenue, consists of interest we charge our franchisees on overdue customer accounts receivable, trademark license fees, and other fees for optional services we provide. We recognize interest income based on the effective interest rate applied to the outstanding principal balance of overdue accounts. License fees are charged to some locations that utilize our intellectual property that are not franchisees. License fees are 9.0% of the gross margin for the location and are recognized when earned. We recognize revenue from optional services as we provide them.

Notes Receivable

Notes receivable from franchisees consist primarily of amounts due to us related to the financing of franchised locations. We charge interest at a fixed rate and interest income is calculated by applying the effective rate to the outstanding principal balance. The Company estimates expected credit losses over the life of its notes receivable as of the reporting date based on relevant information about past events, current conditions, and reasonable and supportable forecasts. The Company records the estimate of expected credit losses as an allowance for credit losses. Our notes receivable are measured at an amortized cost basis with the allowance for credit losses reported as a valuation account on the balance sheet that adjusts the asset’s amortized cost basis.

Our 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 compare the amortized cost basis of a note and the fair value of collateral securing the note as of the reporting date. This includes reserves we have collected and hold in cash, any amounts payable to the franchisee, workers’ compensation rebates not yet paid to the franchisee, and other items where we legally have the right to offset any note receivable balance due. Our allowance for losses on notes receivable was approximately $260 thousand at March 31, 2023 and at December 31, 2022.

Some of our notes receivable have contingent consideration based on a percentage of specified system-wide sales that exceed certain thresholds. Notes with contingent consideration are recorded at fair value when originated. Probability of payment is reflected in the fair value, as is the time value of money. Subsequent changes in the recorded amount of contingent consideration are recognized during period in which the change was recognized.

Notes receivable from non-franchisees consist primarily of amounts due to us from the sale of non-core assets acquired after an acquisition. We report notes receivable from non-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 unsecured. We monitor the financial condition of our debtors and 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. There was no impairment reserve on notes receivable from non-franchisees at March 31, 2023 or December 31, 2022.

Intangible Assets

Intangible assets acquired are recorded at fair value. We test our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. We test our indefinite-lived intangible assets for impairment annually or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable (see "Impairment" below). If the carrying value exceeds the fair value, we recognize an impairment in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates. There were no intangible asset impairment charges in 2023 or 2022.

Finite-lived intangible assets are amortized using the straight-line method over their estimated useful lives, which ranges from 5 to 15 years. Our finite-lived intangible assets include acquired franchise agreements, acquired customer relationships, acquired customer lists, internally developed software, and purchased software. Our indefinite-lived intangible assets include acquired domain names and acquired trade names. For additional information related to significant additions to intangible assets, see Note 2 - Acquisitions.

Intangible assets internally developed are measured at cost. We capitalize costs to develop or purchase computer software for internal use which are incurred during the application development stage. These costs include fees paid to third parties for development services and payroll costs for employees' time spent developing the software. We expense costs incurred during the preliminary project stage and the post-implementation stage. Capitalized development costs are amortized on a straight-line basis over the estimated useful life of the software. The capitalization and ongoing assessment of recoverability of development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life.

The table below reflects information related to our intangible assets (in thousands).

		*March 31, 2023*							*December 31, 2022*
	*Estimated useful life*	*Gross*		*Accumulated amortization*			*Net*		*Gross*		*Accumulated amortization*			*Net*
*Finite-lived intangible assets:*
Franchise agreements	15 years	$	25,556	$	(2,838	)	$	22,718	$	25,556	$	(2,413	)	$	23,143
Purchased software	7 years		3,200		(686	)		2,514		3,200		(571	)		2,629
Internally developed software	5 years		2,375		(152	)		2,223		2,294		(38	)		2,256
Total finite-lived intangible assets			31,131		(3,676	)		27,455		31,050		(3,022	)		28,028
*Indefinite-lived intangible assets:*
Domain name	Indefinite		2,226		-			2,226		2,226		-			2,226
Trade name	Indefinite		3,580		-			3,580		3,580		-			3,580
Total intangible assets		$	36,937	$	(3,676	)	$	33,261	$	36,856	$	(3,022	)	$	33,834

Impairment - Intangible Assets

Indefinite-lived intangible assets are tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances that indicate the Indefinite-lived intangible asset is more likely than not impaired. Such indicators may include a deterioration in macroeconomic conditions; a significant increase in cost factors; negative overall financial performance (including a decline in our expected future cash flows); entity-specific changes in key personnel, strategy or customers; and industry considerations including competition, legal, regulatory, contractual or asset-specific factors, among others. The occurrence of these indicators could have a significant impact on the recoverability of the indefinite-lived intangible and could have a material impact on our consolidated financial statements. For purposes of our impairment test, the assessment of indefinite-lived intangibles is performed at the asset level.

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Impairment of indefinite-lived intangibles is determined using a two-step process. The first step involves assessing qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if we determine, based on the qualitative assessment, that it is more likely than not that an indefinite-lived intangible asset's fair value is less than its carrying amount. Otherwise, no further impairment testing is required. The qualitative assessment may be performed on none, some, or all of our indefinite-lived intangible assets. Alternatively, we can bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to the quantitative impairment test.

Goodwill

Goodwill represents the excess purchase price over the fair value of identifiable assets received attributable to business combinations. Goodwill is measured for impairment at least annually, or whenever events and circumstances arise that indicate an impairment may exist (see "Impairment" below). These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. We test for goodwill impairment at the reporting unit level. In assessing the value of goodwill, assets and liabilities are assigned to a reporting unit and the appropriate valuation methodologies are used to determine fair value at the reporting unit level. At March 31, 2023 we had a single reporting unit.

The table below summarizes our goodwill at December 31, 2022 and changes during the three months ended March 31, 2023 (in thousands):

Goodwill balance at December 31, 2022	$	5,870
Change in goodwill during 2023		-
Goodwill balance at March 31, 2023	$	5,870

Impairment - Goodwill

Goodwill is tested annually for impairment during the third quarter or earlier upon the occurrence of certain events or substantive changes in circumstances that indicate goodwill is more likely than not impaired. Such indicators may include a sustained, significant decline in our stock price; a decline in our expected future cash flows; significant disposition activity; a significant adverse change in the economic or business environment; and the testing for recoverability of a significant asset group, among others. The occurrence of these indicators could have a significant impact on the recoverability of goodwill and could have a material impact on our consolidated financial statements.

For purposes of our impairment test, we operate as a single reporting unit. Determining the fair value of a reporting unit when performing a quantitative impairment test involves the use of significant estimates and assumptions by management. Different judgments relating to the determination of reporting units could significantly affect the testing of goodwill for impairment and the amount of any impairment recognized.

When evaluating goodwill for impairment, we have the option to first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying value. Qualitative factors include macroeconomic conditions, industry and market conditions, and overall company financial performance. If, after assessing these events and circumstances, we determine that it is more likely than not the fair value of the reporting unit is greater than its carrying amount, a quantitative impairment test is not necessary. If necessary, the quantitative impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds the carrying value, no impairment of goodwill is deemed necessary. If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment loss in an amount equal to the excess, up to the carrying value of the goodwill.

Based on our annual qualitative assessment, we have concluded that it is more likely than not the fair value of our r

SEC Form 10-Q filed by HireQuest Inc.