HIREQUEST, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited consolidated
financial statements and the related notes included in Item 1 of Part I of this
Quarterly Report on Form 10-Q and with our audited consolidated financial
statements and related notes included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2021. The financial position, results of
operations, cash flows and other information included herein are not necessarily
indicative of the financial position, results of operations and cash flows that
may be expected in future periods. See "Special Note Regarding Forward-Looking
Statements" below for a discussion of uncertainties and assumptions that may
cause actual results to differ materially from those expressed or implied in the
forward-looking statements. Additionally, we use a non-GAAP financial measure
and a key performance indicator to evaluate our results of operations. For
important information regarding the use of such non-GAAP measure, including a
reconciliation to the most comparable GAAP measure, see the section titled "Use
of Non-GAAP Financial Measure: Adjusted EBITDA" below. For important information
regarding the use of such key performance indicator, see the section titled "Key
Performance Indicator: System-Wide Sales" below.

Special note regarding forward-looking statements

This Quarterly Report on Form 10-Q and other documents incorporated herein by
reference include, and our officers and other representatives may sometimes make
or provide, certain estimates and other forward-looking statements within the
meaning of the safe harbor provisions of the U.S. Private Securities Litigation
Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the
Exchange Act, including, among others, statements with respect to future
revenue, franchise sales, system-wide sales, and the growth thereof; net income
and Adjusted EBITDA (a Non-GAAP Financial Measure); the impact of any global
pandemic including COVID-19; operating results; dividends and shareholder
returns; anticipated benefits of mergers or acquisitions; intended office
openings or closings; expectations of the effect on our financial condition of
claims and litigation; strategies for customer retention and growth; strategies
for risk management; and all other statements that are not purely historical and
that may constitute statements of future expectations. Forward-looking
statements can be identified by words such as: "anticipate," "intend," "plan,"
"goal," "seek," "believe," "project," "estimate," "expect," "strategy,"
"future," "likely," "may," "should," "will," and similar references to future
periods.



While we believe these statements are accurate, forward-looking statements are
not historical facts and are inherently uncertain. They are based only on our
current beliefs, expectations, and assumptions regarding the future of our
business, future plans and strategies, projections, anticipated events and
trends, the economy, and other future conditions. We cannot assure you that
these expectations will 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 and financial performance of
the temporary staffing industry; the financial performance of our
franchisees; our and our franchisees' customers' ability to navigate
successfully the challenges posed by current global supply disruptions and
inflation, including with respect to energy prices; the impacts of COVID-19 or
other diseases or pandemics; changes in customer demand; the extent to which we
are successful in gaining new long-term relationships with customers or
retaining existing ones, the level of service failures that could lead customers
to use competitors' services; significant investigative or legal proceedings
including, without limitation, those brought about by the existing regulatory
environment or changes in the regulations governing the temporary staffing
industry and those arising from the action or inaction of our franchisees and
temporary employees; strategic actions, including acquisitions and dispositions
and our success in integrating acquired businesses; disruptions to our
technology network including computer systems and software whether resulting
from a cyber-attack or otherwise; natural events such as severe weather, fires,
floods, and earthquakes, or man-made or other disruptions of our operating
systems or the economy including by war; the factors discussed in the "Risk
Factors" section in our most recent Annual Report on Form 10-K, which we filed
with the SEC on March 15, 2022; and the other factors discussed in this
Quarterly Report and our Annual Report.



Any forward-looking statement made by us in this Quarterly Report on Form 10-Q
is based only on information currently available to us and speaks only as of the
date on which it is made. The Company disclaims any obligation to update or
revise any forward-looking statement, whether written or oral, that may be made
from time to time, based on the occurrence of future events, the receipt of new
information, or otherwise, except as required by law.



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Overview

We are a nationwide franchisor of offices providing direct-dispatch and
commercial staffing solutions 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",
"LINK Staffing", "DriverQuest", "HireQuest Health", and "Northbound Executive
Search". HireQuest Direct specializes primarily in unskilled and semi-skilled
industrial and construction personnel. HireQuest, Snelling, and LINK 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 specializes in
executive placement and consultant services in the financial services industry.
As of June 30, 2022 we had 223 franchisee-owned offices and 2 company owned
offices in 38 states and the District of Columbia. We provide employment for an
estimated 75,000 temporary employees annually working for thousands of clients
in many industries including construction, recycling, warehousing, logistics,
auctioneering, manufacturing, hospitality, landscaping, and retail.



The COVID-19 pandemic materially adversely impacted our business in 2020 and, to
a much lesser extent, into 2021. Comparisons between 2022 and 2021 should be
viewed through a COVID-19 lens with the understanding that for the six-month
period ended June 30, 2021 our revenues and expenses were impacted by COVID and
lower than they otherwise would have been. A full economic recovery has been
slow to occur, and it is uncertain if businesses will remain fully open, or
another broad shutdown will occur due to a variant or new strain. The long-term
effectiveness of economic stabilization efforts, including government payments
to affected citizens and industries, and government vaccination efforts, is also
uncertain. Also affecting comparisons between 2022 and 2021 were the
acquisitions consummated in 2021 and 2022 as described below.



Recent Developments



The Snelling Acquisition

On March 1, 2021, we completed our acquisition of certain assets of Snelling
Staffing ("Snelling") in accordance with the terms of the Asset Purchase
Agreement dated January 29, 2021 (the "Snelling Agreement"). At the time of
acquisition, Snelling Staffing was a 67-year-old staffing company headquartered
in Richardson, TX. Pursuant to the Snelling Agreement, HQ Snelling Corporation
("HQ Snelling"), our wholly-owned subsidiary, acquired approximately 47 offices
and substantially all of the operating assets, and assumed certain liabilities
of the sellers for a purchase price of $17.9 million, subject to customary
adjustments for net working capital plus further adjustment of $7.2 million of
collateral released to the sellers by their workers' compensation insurer (the
"Snelling Acquisition"). Also on March 1, 2021, HQ Snelling entered into the
First Amendment to the Purchase Agreement, pursuant to which HireQuest, Inc.
agreed to advance $2.1 million to be paid to the sellers at closing to be used
to pay accrued payroll liabilities that HQ Snelling assumed pursuant to the
Snelling Agreement. We funded this acquisition with existing cash on hand and a
draw on our existing line of credit with Truist Bank ("Truist").

The acquisition of LINK

On March 22, 2021, we completed our acquisition of the franchise relationships
and certain other assets of LINK Staffing ("LINK") in accordance with the terms
of the Asset Purchase Agreement dated February 12, 2021 (the "LINK Agreement").
At the time of acquisition LINK was a family-owned staffing company
headquartered in Houston, TX. Pursuant to the LINK Agreement, HQ Link
Corporation ("HQ Link"), our wholly-owned subsidiary, acquired approximately 35
franchised offices, customer lists and contracts, and other assets of LINK for a
purchase price of $11.1 million (the "LINK Acquisition"). We funded this
acquisition with existing cash on hand.

Media Acquisition Recruit

On October 1, 2021 we completed our acquisition of Recruit Media, Inc. ("Recruit
Media") in accordance with the terms of the Stock Purchase Agreement dated
October 1, 2021 (the "Recruit Agreement"). Pursuant to the Recruit Agreement, we
purchased all of the outstanding shares of common stock of Recruit Media for
approximately $4.4 million. Recruit Media is a tuck-in acquisition whose
intellectual property compliments our technological structure, allowing us to
accelerate improvements to our platform. We funded this acquisition with
existing cash on hand and a draw on our existing line of credit with Truist.



The Dental Power Acquisition

On December 6, 2021 we completed our acquisition of the Dental Power Staffing
division ("Dental Power") of Dental Power International, Inc. ("DPI") in
accordance with the terms of a definitive agreement, dated November 2, 2021, for
approximately $1.9 million. DPI is a 46-year-old dental staffing company
headquartered in Carrboro, North Carolina with long-standing client
relationships in the dental industry. providing temporary, long-term contract,
and direct-hire staffing services to dental practices across the U.S. As of June
30, 2022, all of the operations acquired from DPI remain company owned. We
funded this acquisition with existing cash on hand and a draw on our existing
line of credit with Truist.

The acquisition of temporary alternatives

On January 24, 2022 we completed our acquisition of certain assets of Temporary
Alternatives in accordance with the terms of the Asset Purchase Agreement dated
January 10, 2022 , including three locations in West Texas and New Mexico for
approximately $7.0 million, inclusive of a prescribed amount of working capital.
Temporary Alternatives is a staffing division of dmDickason Personnel Services,
a family-owned company based in El Paso, TX. The acquisition of Temporary
Alternatives will expand our national footprint into West Texas and grow our
franchise base, and we immediately entered into a franchise agreement and sold
the non-working capital assets acquired. We funded this acquisition with
existing cash on hand and a draw on our existing line of credit with Truist.



The Dubin Acquisition

On February 21, 2022 we completed our acquisition of the staffing operations of
The Dubin Group, Inc., and Dubin Workforce Solutions, Inc. (collectively
"Dubin") in accordance with the terms of an Asset Purchase Agreement
dated January 19, 2022  for approximately $2.5 million, inclusive of a
prescribed amount of working capital. Dubin provides executive placement
services and commercial staffing in the Philadelphia metro area. The acquisition
of Dubin will help expedite growth into a new staffing vertical, expand our
national footprint, and grow our franchise base. We funded this acquisition with
existing cash on hand, deferred purchase payments, and a draw on our existing
line of credit with Truist. We divided Dubin into separate businesses and sold
certain customer related assets of one of the acquired locations to a new
franchisee. The remaining assets related to the operations of the other acquired
locations have not been sold and as of June 30, 2022 are classified as
available-for-sale. In the meantime, we operate the Philadelphia Snelling
franchise as company-owned.



The Northbound Acquisition

On February 28, 2022 we completed our acquisition of certain assets of
Northbound Executive Search, LTD ("Northbound") in accordance with the terms of
an Asset Purchase Agreement dated January 25, 2022, for approximately $11.4
million, inclusive of a prescribed amount of working capital. Northbound
provides executive placement and short-term consultant services primarily to
blue chip clients in the financial services industry. The acquisition of
Northbound will help expedite growth into a new staffing vertical, expand our
national footprint, and grow our franchise base, and we immediately entered into
a franchise agreement and sold the customer-related assets acquired. We funded
this acquisition with existing cash on hand, seller financing of $1.5
million, and a draw on our existing line of credit with Truist.



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Results of Operations



Financial Summary

The following table displays our consolidated statements of operations for the
interim periods ended June 30, 2022 and June 30, 2021. Percentages reflect the
line item as a percentage of total revenue (in thousands, except percentages).



                                       Three months ended                                 Six months ended
                             June 30, 2022            June 30, 2021            June 30, 2022             June 30, 2021
Franchise royalties       $ 7,220        77.7 %    $ 5,451        95.5 %    $ 13,793        79.1 %    $ 8,710        95.6 %
Staffing revenue, owned
locations                   1,288        13.9 %          -         0.0 %       2,392        13.7 %          -         0.0 %
Service revenue               780         8.4 %        256         4.5 %       1,248         7.2 %        399         4.4 %
Total revenue               9,288       100.0 %      5,707       100.0 %      17,433       100.0 %      9,109       100.0 %
Cost of staffing
revenue, owned
locations                     947        10.2 %          -         0.0 %       1,709         9.8 %          -         0.0 %
Gross profit                8,341        89.8 %      5,707       100.0 %      15,724        90.2 %      9,109       100.0 %
Selling, general and
administrative expenses     3,530        38.0 %      2,041        35.8 %       6,367        36.5 %      5,882        64.6 %
Depreciation and
amortization                  610         6.6 %        366         6.4 %       1,176         6.7 %        699         7.7 %
Income from operations      4,201        45.2 %      3,300        57.8 %       8,181        46.9 %      2,528        27.8 %
Other miscellaneous
income                      1,458        15.7 %         30         0.5 %      (1,922 )     (11.0 )%     3,811        41.8 %
Interest income                54         0.6 %         96         1.7 %         147         0.8 %        231         2.5 %
Interest and other
financing expense            (109 )      (1.2 )%       (20 )      (0.4 )%       (157 )      (0.9 )%       (25 )      (0.3 )%
Net income before
income taxes                5,604        60.3 %      3,406        59.7 %       6,249        35.8 %      6,545        71.9 %
Provision for income
taxes                         847         9.1 %        686        12.0 %         934         5.4 %         83         0.9 %
Net income from
continuing operations       4,757        51.2 %      2,720        47.7 %       5,315        30.5 %      6,462        70.9 %
Income from
discontinued
operations, net of tax        134         1.4 %          -         0.0 %         179         1.0 %          -         0.0 %
Net income                $ 4,891        52.7 %    $ 2,720        47.7 %    $  5,494        31.5 %    $ 6,462        70.9 %
Non-GAAP data
Adjusted EBITDA           $ 5,913        63.7 %    $ 4,407        77.2 %    $ 11,220        64.4 %    $ 5,940        65.2 %

Use of a non-GAAP financial measure: Adjusted EBITDA

Earnings before interest, taxes, depreciation and amortization, and non-cash
compensation, or Adjusted EBITDA, is a non-GAAP measure that represents our net
income before interest expense, income tax expense, depreciation and
amortization, non-cash compensation, compliance costs related to the work
opportunity tax credit ("WOTC") and other charges we consider unusual and/or
non-recurring. We utilize Adjusted EBITDA as a financial measure as management
believes investors find it a useful tool to perform more meaningful comparisons
and evaluations of past, present, and future operating results. We believe it is
a complement to net income and other financial performance measures. Adjusted
EBITDA is not intended to represent or replace net income as defined by U.S.
GAAP and should not be considered as an alternative to net income or any other
measure of performance prescribed by U.S. GAAP. We use Adjusted EBITDA to
measure our financial performance because we believe interest, taxes,
depreciation and amortization, non-cash compensation, WOTC-related costs and
other non-recurring charges bear little or no relationship to our operating
performance. By excluding interest expense, Adjusted EBITDA measures our
financial performance irrespective of our capital structure or how we finance
our operations. By excluding taxes on income, we believe Adjusted EBITDA
provides a basis for measuring the financial performance of our operations
excluding factors that are beyond our control. By excluding depreciation and
amortization expense, Adjusted EBITDA measures the financial performance of our
operations without regard to their historical cost. By excluding non-cash
compensation, Adjusted EBITDA provides a basis for measuring the financial
performance of our operations excluding the value of our restricted stock and
stock option awards. By excluding WOTC related costs, Adjusted EBITDA provides a
basis for measuring the financial performance of our operations excluding the
costs associated with qualifying for this tax credit. In addition, by excluding
certain non-recurring charges, Adjusted EBITDA provides a basis for measuring
financial performance without such items. In addition, our Credit Agreement
requires us to comply with a fixed charge coverage ratio and a leverage ratio,
both of which include Adjusted EBITDA substantially as defined above. For all of
these reasons, we believe that Adjusted EBITDA provides us, and investors, with
information that is relevant and useful in evaluating our business.



However, because Adjusted EBITDA excludes depreciation and amortization, it does
not measure the capital we require to maintain or preserve our fixed and
intangible assets. In addition, because Adjusted EBITDA does not reflect
interest expense, it does not take into account the total amount of interest we
pay on outstanding debt, nor does it show trends in interest costs due to
changes in our financing or changes in interest rates. Adjusted EBITDA, as
defined by us, may not be comparable to Adjusted EBITDA as reported by other
companies that do not define Adjusted EBITDA exactly as we define the term.
Because we use Adjusted EBITDA to evaluate our financial performance, we
reconcile it to net income, which is the most comparable financial measure
calculated and presented in accordance with U.S. GAAP below (in thousands).



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                                                   Three months ended                       Six months ended
                                            June 30, 2022       June 30, 2021       June 30, 2022       June 30, 2021
Net income                                 $         4,891     $         2,720     $         5,494     $         6,462
Interest expense                                       109                  20                 157                  25
Provision for income taxes                             847                 686                 934                  83
Depreciation and amortization                          610                 366               1,176                 699
WOTC related costs                                     163                 146                 295                 239
EBITDA                                               6,620               3,938               8,056               7,508
Non-cash compensation                                  364                 301                 610                 569
Acquisition related charges, net                    (1,304 )               168               2,321              (2,137 )
Impairment of notes receivable                         233                   -                 233                   -
Adjusted EBITDA                            $         5,913     $         4,407     $        11,220     $         5,940

Three months completed June 30, 2022 Compared to the three months ended June 30, 2021

Gross Profit

Our total revenue consists of franchise royalties, staffing revenue with respect
to our owned locations, and service revenue. Gross profit includes total revenue
less the cost of staffing services at owned locations. Once a company-owned
office is sold, disposed of, or otherwise classified as available-for-sale, it
would not be reflected in gross profit and instead reported as "Income from
discontinued operations, net of tax."



Gross profit for the three months ended June 30, 2022 was approximately $8.3
million compared to $5.7 million for the three months ended June 30, 2021, an
increase of 46.2%. Gross profit as a percentage of system-wide sales was 6.9%
for the three months ended June 30, 2022 versus 6.4% for the three months ended
June 30, 2021.  The 60-basis point improvement was primarily due to increased
service revenue and the Gross Profit from the company owned locations.

Franchise fees

Franchise royalties for the three months ended June 30, 2022 were approximately
$7.2 million, an increase of 32.5% from $5.5 million for the three months ended
June 30, 2021. This increase is consistent with the 33.7% increase in underlying
system-wide-sales for the quarter ended June 30, 2022 compared to the prior year
quarter. Approximately $418 thousand of this increase in royalties was due to
the Snelling, LINK, Northbound, Temporary Alternatives and Dubin acquisitions
and approximately $1.4 million was due to organic growth. Our net effective
royalty rate (as a percentage of external system-wide sales) held steady at 6.1%
for the three-month period ended June 30, 2022 and 2021.  Our net
effective royalty rate will generally fluctuate due to mix of business among the
various royalty models we operate under, as well as incentives we offer during
the year. A summary of franchise royalties for the three months ended June 30,
2022 and June 30, 2021 are as follows (in thousands):



                                                                    Three months ended
                                                            June 30, 2022        June 30, 2021
Franchise royalties from pre-existing locations            $         4,673      $         3,322
Franchise royalties from 2021 acquisitions                           2,008                2,129
Franchise royalties from 2022 acquisitions                             539                    -
Franchise royalties                                        $         7,220      $         5,451




Service Revenue

Service revenue consists of interest we charge our franchisees on overdue
customer accounts receivable and other miscellaneous fees for optional services
we provide. Direct costs to provide certain services are reflected as a
reduction in service revenue. As accounts receivable age over 42 days, our
franchisees pay us interest on these accounts equal to 0.5% of the amount of the
uncollected receivable each 14-day period. Accounts that age over 84 days are
charged back to the franchisee and no longer incur interest. Some of our
franchisees elect to charge back accounts that age over 42 days in order to
avoid the interest charge. In addition to royalty fees, we also charge a license
fee to some locations that utilize our intellectual property that are not
franchisees. License fees are 9% of the gross margin for the location. We have
no employees and provide no services at the licensed locations.



Service revenue for the three months ended June 30, 2022 was approximately $780
thousand, an increase of $524 thousand from the three months ended June 30,
2021, when service revenue was approximately $256 thousand. This increase was
largely due to the growth in the number of franchisee locations and
corresponding service-related fees. Due to the timing of certain services and
the related costs to provide them, we have incurred a disproportionate amount of
service revenue in the three months ended June 30, 2022 and do not expect the
same trend to continue in the next two quarters. The remaining increase relates
to interest and follows the overall increase in 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 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.
The Company does not strive to increase interest on aged accounts receivable.

Endowment income, owned locations

Following the December 2021 acquisition of Dental Power, we have a platform to
build a customer base in the dental-oriented sector of the staffing industry,
which we expect will benefit our entire system by increasing revenue
opportunities under the HireQuest Health brand. As of June 30, 2022, all of the
operations acquired from DPI remain company owned, but franchisees in 19
locations are operating under the HireQuest Health banner. Although we may
franchise Dental Power operations in the future, we currently have no firm plans
in place to do so. For the three months ended June 30, 2022, staffing revenue
from owned locations was $1.3 million. We had no company owned locations during
the three months ended June 30, 2021.

Selling, general and administrative expenses

SG&A expenses for the three months ended June 30, 2022 were approximately $3.5
million, an increase from $2.0 million for the three months ended June 30, 2021.
The increase in SG&A expenses primarily relates to salaries and benefits, which
increased $766 thousand as a result of additional headcount to keep pace with
growth in system-wide sales as a result of the 2021 and 2022 acquisitions, plus
organic growth. In addition, Compensation expense in the three months ended June
30, 2022 includes an accrual of approximately $303 thousand for executive
bonuses. There was no such accrual in the three months ended June 30, 2021.
Compensation-related expenses remain by far the largest component of SG&A.



For the three months ended June 30, 2022, SG&A also includes a $233 thousand
impairment charge related to notes receivable due from non-franchisees. During
2020, the California Purchaser experienced significant economic hardships due to
the impacts of COVID-19 and the related government mandates in the state. As a
result, we restructured a portion of the notes receivable in an effort to
increase the probability of repayment. We granted near-term payment concessions
to help the debtor attempt to improve its financial condition so it may
eventually be able to repay the amount due. During the three months ended June
30, 2022 we were asked to provide a third forbearance agreement and avoid
foreclosure action.  We are currently negotiating the terms and conditions
related to that agreement. As part of the forbearance we will likely have to
forgive additional payments due on the notes. After reviewing the
potential outcomes, we recorded an additional impairment of approximately
$233 thousand at June 30, 2022, bringing the note balance down to approximately
$71 thousand, which we expect to collect before the end of 2022.



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Other Income and Expense

Other income and expenses include depreciation, amortization, interest income, rents received from sub-tenants and other non-operating income and expenses.

Depreciation and amortization
Depreciation and amortization for the three months ended June 30, 2022 was
approximately $610 thousand compared to $366 thousand for the three months ended
June 30, 2021. We own our corporate headquarters, a building of approximately
15,000 square feet, in Goose Creek, South Carolina. This building serves as our
base of operations for nearly all of the employees who provide franchisee
support functions. In late 2021, we completed the construction of a 10,000
square foot building adjacent to our corporate headquarters and a supporting
parking lot. Depreciation increased by approximately $19 thousand in the three
months ended June 30, 2022 due to this addition. The remaining increase of $225
thousand was primarily due to additional amortization stemming from
acquisitions. We acquired $21.9 million of franchise agreements and $9.0 million
of other intangibles in acquisitions during 2021 and $14.9 million of other
intangibles in acquisitions during 2022 (excluding Goodwill). Of the
$23.9 million in other intangibles over the two years, only $3.6 million are
indefinite lived and not amortized. Future years will continue to have
significant amortization expense until the underlying intangibles are disposed
of, impaired or fully amortized. Future acquisitions are expected to further
increase tangible and intangible assets on our balance sheet, and
correspondingly increase depreciation and amortization.

Other income and expense
For the three months ended June 30, 2022, other miscellaneous income was
approximately $1.5 million, compared to income of $30 thousand for the three
months ended June 30, 2021. In the three months ended June 30, 2022, we
recognized approximately $1.4 million in gains resulting from the conversion of
the Temporary Alternatives, Dubin and Northbound acquisitions to franchises. The
gain is actually a partial reversal of the $3.6 million loss recognized in the
first quarter of 2022 due to valuation adjustments as the accounting for those
transactions was being finalized.

The remaining other miscellaneous income for the three months ended June 30,
2022, and income for the three months ended June 30, 2021, is primarily gross
rents from leasing excess space at our corporate headquarters to third
parties. We lease approximately 3,220 square feet of office space in our
headquarters to unaffiliated companies. These leases are at the market
rate. Rental income for the three months ended June 30, 2022 is higher than the
three months ended June 30, 2021 after completion of the new building adjacent
to our corporate headquarters.

Interest income and expense
Interest income for the three months ended June 30, 2022 was approximately $54
thousand compared to $96 thousand for the three months ended June 30, 2021.
Interest income represents interest related to the financing of franchised
locations, and one note to the California Purchaser. The decrease is primarily
related to stopping the accrual of interest on the impaired notes to
non-franchisees.

Interest and other financing expense relates primarily to the Revolving Credit
and Term Loan Agreement with Truist. Interest and other financing expense
increased from $20 thousand at June 30, 2021 to $109 thousand at June 30, 2022.
Interest and other financing expense will fluctuate as we utilize the line of
credit for acquisitions or other short-term liquidity needs. Due to the
acquisitions in the first quarter of 2022, we carried a larger balance on our
line of credit for most of the quarter ended June 30, 2022.

Provision for income tax
Income tax expense was approximately $847 thousand for the three months ended
June 30, 2022. We estimate an annual projected effective tax rate (ETR) for the
year to determine income tax expense (benefit) in the interim periods. The
estimated annual ETR does not include tax effects from significant unusual or
infrequently occurring items. Such items are accounted for discretely during the
period in which they occur. The ETR is primarily driven by the federal Work
Opportunity Tax Credit, which is included as part of income tax expense because
it can be claimed only on the income tax return and can be realized only through
the existence of taxable income. Other significant items affecting our tax rate
are  and windfall tax deductions related to stock-based compensation, overall
limits on executive compensation.  Our ETR for the three months ended June 30,
2022 was 15.1%.

Income tax expense for the three months ended June 30, 2021 was approximately
$686 thousand. The annual ETR included the non-taxable bargain purchase gain
recognized in 2021. Bargain purchase gains are recorded net of deferred taxes,
and are treated as permanent differences, resulting in a lower ETR in the period
recorded. Our ETR for the three months ended June 30, 2021 was 20.1%.

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Semester completed June 30, 2022 Compared to the half-year ended June 30, 2021

Gross Profit
Our total revenue consists of franchise royalties, staffing revenue with respect
to our owned locations, and service revenue. Gross profit includes total revenue
less the cost of staffing services at owned locations. Once a company-owned
office is sold, disposed of, or otherwise classified as available-for-sale, it
would not be reflected in gross profit and instead reported as "Income from
discontinued operations, net of tax."

Gross profit for the six months ended June 30, 2022 was approximately $15.7
million compared to $9.1 million for the six months ended June 30, 2021, an
increase of 72.6%. This increase is consistent with the 51.6% increase in
underlying system-wide-sales for the six months ended June 30, 2022 compared to
the six months ended June 30, 2021. In addition, the net effective royalty rate
was higher in the six months ended June 30, 2022 than it was in the six months
ended June 30, 2021. Gross profit as a percentage of system-wide sales was 7.1%
for the six-month period ended June 30, 2022 versus 6.2% for the six months
ended June 30, 2021. The 90-basis point improvement was primarily due to
increased service revenue and the Gross Profit from the company-owned location.

Franchise Royalties
Franchise royalties for the six months ended  June 30, 2022 were approximately
$13.8 million, an increase of 58.4% from $8.7 million for the six months ended
June 30, 2021. Approximately $3.3 million of this increase in royalties was due
to th e Snelling and LINK acquisitions and approximately $1.8 million was due to
organic growth. Our net effective royalty rate (as a percentage of external
system-wide sales) increased from 6.0% for the six months ended June 30, 2021 to
6.3% for the six months ended June 30, 2022.  Our net effective royalty rate
will fluctuate due to mix of business among the various royalty models we
offer and will generally be higher in the early portion of the year until volume
related discounted rates become effective. A summary of franchise royalties for
the six months ended  June 30, 2022 and  June 30, 2021 are as follows (in
thousands):

                                                           Six months ended
                                                   June 30, 2022       June 30, 2021
Franchise royalties from pre-existing locations   $         8,400     $     

6,553

Franchise royalties from 2021 acquisitions                  4,699           

2,157

Franchise royalties from 2022 acquisitions                    694                   -
Franchise royalties                               $        13,793     $         8,710




Service Revenue

Service revenue consists of interest we charge our franchisees on overdue
customer accounts receivable and other miscellaneous fees for optional services
we provide. Direct costs to provide certain services are reflected as a
reduction in Service Revenue. As accounts receivable age over 42 days, our
franchisees pay us interest on these accounts equal to 0.5% of the amount of the
uncollected receivable each 14-day period. Accounts that age over 84 days are
charged back to the franchisee and no longer incur interest. Some of our
franchisees elect to charge back accounts that age over 42 days in order to
avoid the interest charge. In addition to royalty fees, we also charge a license
fee to some locations that utilize our intellectual property that are not
franchisees. License fees are 9% of the gross margin for the location. We have
no employees and provide no services at the licensed locations. These license
fees are included in service revenue.

Service revenue for the six months ended  June 30, 2022 was approximately $1.2
million, an increase from approximately $399 thousand for the six months ended
June 30, 2021. This increase was largely due to the introduction of trademark
license fees after the March 2021 Acquisitions. In addition, we experienced
strong growth in the number of franchisee locations and the related
service-related fees. Due to the timing of certain services and the related
costs to provide them, we have incurred a disproportionate amount of service
revenue in the first half of 2022 and do not expect the same trend to continue
in the last two quarters. The remaining increase relates to interest and follows
the overall increase in accounts receivable, although relatively few age over 42
days and result in service revenue for us. In addition, for the six months ended
June 30, 2022, several franchisees elected to charge back accounts early in
order to avoid 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. The Company does not strive to increase
interest on aged accounts receivable.

Staffing Revenue, Owned Locations
Following the December 2021 acquisition of Dental Power, we have a platform to
build a customer base in the dental-oriented sector of the staffing industry,
which we expect will benefit our entire system by increasing revenue
opportunities under the HireQuest Health brand. As of June 30, 2022, all of the
operations acquired from DPI remain company owned.  Although we may franchise
these operations in the future, we currently have no firm plans in place to do
so. For the six months ended June 30, 2022, staffing revenue from owned
locations was approximately $2.4 million. We had no company owned locations
during the six months ended June 30, 2021.

Selling, General, and Administrative Expenses
SG&A expenses for the six months ended  June 30, 2022 were approximately $6.4
million, an increase of 8.3% from $5.9 million for the six months ended June 30,
2021. The increase in SG&A expenses primarily relates to salaries and benefits,
which increased approximately $590 thousand as a result of additional headcount
to keep pace with growth in system-wide sales as a result of the 2021 and 2022
acquisitions, plus the organic growth. In addition, compensation expense in the
six months ended  June 30, 2022 includes an accrual of approximately $657
thousand for executive bonuses. There was no such accrual in the six months
ended June 30, 2021, although the six months ended June 30, 2021  includes the
entire 2020 executive bonus of $1.1 million. We have historically recognized
discretionary bonuses in the first quarter of the fiscal year following the year
to which the bonus related.  Beginning in the fourth quarter of 2021, we changed
our methodology and now recognize the expense during the year to which the bonus
relates, resulting in the accrual described in the preceding sentence.

For the six months ended  June 30, 2022, SG&A also includes a $233 thousand
impairment charge related to notes receivable due from non-franchisees. During
2020, the California Purchaser experienced significant economic hardships due to
the impacts of COVID-19 and the related government mandates in the state. As a
result, we restructured a portion of the notes receivable in an effort to
increase the probability of repayment. We granted near-term payment concessions
to help the debtor attempt to improve its financial condition so it may
eventually be able to repay the amount due. During the three months ended June
30, 2022 we were asked to provide a third forbearance agreement and avoid
foreclosure action.  We are currently negotiating the terms and conditions
related to that agreement. As part of the forbearance we will likely have to
forgive additional payments due on the notes. After reviewing the
potential outcomes, we recorded an additional impairment of approximately
$233 thousand at June 30, 2022 , bringing the note balance down to approximately
$71 thousand, which we expect to collect before the end of 2022.

These increases were offset by a decrease in SG&A expenses relating to a
reduction in workers compensation expenses of approximately $602 thousand,
primarily as a result of aggressive claims management and lower experience
rates. The reduction in workers compensation expenses is mostly a reflection of
our efforts to reduce the long-tail exposure from Snelling pre-acquisition
claims. In addition, the six months ended June 30, 2021 included
acquisition-related expenses of approximately $1.6 million. Acquisition-related
expenses for the six months ended June 30, 2022 were only $88  thousand.

Other income and expenses Other income and expenses include depreciation, amortization, interest income, rents received from sub-tenants and other non-operating income and expenses.

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Depreciation and amortization
Depreciation and amortization for the six months ended June 30, 2022 was
approximately $1.2 million, compared to $699 thousand for the six months ended
June 30, 2021. We own our corporate headquarters, a building of approximately
15,000 square feet, in Goose Creek, South Carolina. This building serves as our
base of operations for nearly all of the employees who provide franchisee
support functions. In late 2021, we completed the construction of a 10,000
square foot building adjacent to our corporate headquarters and a supporting
parking lot. Depreciation increased by approximately $39 thousand in the six
months ended June 30, 2022 due to this addition. The remaining increase of
$438 thousand was primarily due to additional amortization stemming from
acquisitions. We acquired $21.9 million of franchise agreements and $9.0 million
of other intangibles in acquisitions during 2021 and $14.9 million of other
intangibles in acquisitions during the six months ended June 30, 2022. Of the
$14.9 million in other intangibles, only $3.7 million are indefinite lived
and not amortized. Future years will continue to have significant amortization
expense until the underlying intangibles are disposed of, impaired or fully
amortized. Future acquisitions are expected to further increase tangible and
intangible assets on our balance sheet, and correspondingly increase
depreciation and amortization.

Other income and expense
For the six months ended June 30, 2022, other miscellaneous income (loss) was a
loss of approximately $1.9 million, compared to income of $3.8 million for the
six months ended June 30, 2021. In the six months ended June 30, 2022, we
recognized approximately $2.2 million in losses resulting from the conversion of
the Temporary Alternatives, Dubin and Northbound acquisitions to franchises.

The remaining increase of other miscellaneous income during the six months
ended  June 30, 2022 represents gross rents from leasing excess space at our
corporate headquarters to third parties. We lease approximately 3,220 square
feet of office space in our headquarters to unaffiliated companies. These leases
are at the market rate.  Rental income for the six months ended June 30, 2022 is
higher than the six months ended June 30, 2021 after completion of the new
building adjacent to our corporate headquarters.

Other miscellaneous income in the six months ended June 30, 2021 includes a
bargain purchase gain of approximately $4.9 million from the Snelling
acquisition (adjusted to $5.6 million in later quarters), which is recorded net
of deferred taxes. This gain was partially offset by losses during the six
months ended June 30, 2021 on the transfer of unwanted assets acquired in the
LINK transaction of approximately $1.9 million.  The remaining items of other
miscellaneous income consist of small gains and losses resulting from the
conversion of Snelling owned stores to franchises, and gross rents from leasing
excess space at our corporate headquarters to third parties.

Interest income and expense
Interest income for the six months ended June 30, 2022 was approximately $147
thousand compared to $231 thousand for the six months ended June 30, 2021.
Interest income represents interest related to the financing of franchised
locations, and one note to the California Purchaser. The decrease is consistent
with a decrease in principal related to the financing of franchised locations.
In March  2021, we sold approximately $5.3 million of notes receivable to Bass
for no gain or loss in order to mitigate credit risk and potential future
losses. In addition, during the six months ended June 30, 2022 we stopped
accruing interest on the impaired notes receivable from non-franchisees.

Interest and other financing expense relates primarily to the Revolving Credit
and Term Loan Agreement with Truist. Interest and other financing expense
increased from $25 thousand at June 30, 2021 to $157 thousand at June 30, 2022.
Interest and other financing expense will fluctuate as we utilize the line of
credit for acquisitions or other short-term liquidity needs. Due to the
acquisitions in the six months ended June 30, 2022, we carried a larger balance
on our line of credit for most of the period.

Provision for income tax
Income tax expense was approximately $934 thousand for the six months ended June
30, 2022. We estimate an annual projected effective tax rate (ETR) for the
year to determine income tax expense (benefit) in the interim periods. The
estimated annual ETR does not include tax effects from significant unusual or
infrequently occurring items. Such items are accounted for discretely during the
period in which they occur. The ETR is primarily driven by the federal Work
Opportunity Tax Credit, which is included as part of income tax expense because
it can be claimed only on the income tax return and can be realized only through
the existence of taxable income. Other significant items affecting our tax rate
are  and windfall tax deductions related to stock-based compensation, overall
limits on executive compensation.  Our ETR for the six months ended June 30,
2022 was 14.9%.

Income tax expense for the six months ended June 30, 2021 was approximately
$83 thousand. The tax expense includes the non-taxable bargain purchase gain
recognized in 2021. Bargain purchase gains are recorded net of deferred taxes,
and are treated as permanent differences, resulting in a lower ETR in the period
recorded. We do not expect that benefit to reoccur, but generally expect that
our effective tax rate will be significantly lower than statutory rates due to
ongoing Work Opportunity Tax Credits and stock-based compensation.

Cash and capital resources

Insight

Our major source of liquidity and capital is cash generated from our ongoing
operations consisting of royalty revenue, staffing revenue from owned locations,
and service revenue. We also receive principal and interest payments on notes
receivable that we issued in connection with the conversion of company-owned or
acquired offices to franchised offices. In addition, we have the capacity to
borrow under our line of credit with Truist, (see "Revolving Credit and Term
Loan Agreement with Truist" below).

On June 30, 2022, our current assets exceeded our current liabilities by
approximately $22.2 million. Our current assets included approximately $1.1
million of cash and $45.7 million of net accounts receivable, which our
franchisees have billed to customers and which we own in accordance with our
franchise agreements. We used approximately $19.1 million of cash during the six
months ended June 30, 2022 for acquisitions. Our largest current liabilities as
of June 30, 2022 included approximately $12.3 million due to our franchisees on
pending settlement statements, $4.7 million related to our workers' compensation
claims liability, and $2.8 million of borrowings under our line of credit.

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Our working capital requirements are driven largely by temporary employee
payroll, which is typically daily or weekly, and weekly cash settlements with
our franchises. Since collections from accounts receivable lag employee pay our
working capital requirements increase as system-wide sales increase, and
vice-versa. When the economy contracts, our cash balance tends to increase in
the short-term as payroll funding requirements decrease and aged accounts
receivable are converted to cash upon collection. As the economy recovers, our
cash balance generally decreases and accounts receivable increase.



We believe that our current cash balance, together with the future cash
generated from operations, and our borrowing capacity under our line of credit,
will be sufficient to satisfy our working capital needs, capital asset
purchases, and other liquidity requirements associated with our continuing
operations for the next 12 months. We also believe that future cash
generated from operations, principal and interest payments on notes receivable,
and our borrowing capacity under our line of credit, will be sufficient to
satisfy our working capital needs, capital asset purchases, future dividends,
and other liquidity requirements associated with our continuing operations
beyond the next 12 months.



Our access to, and the availability of, financing on acceptable terms in the
future will be affected by many factors including overall liquidity in the
capital or credit markets, the state of the economy and our credit strength as
viewed by potential lenders. We cannot provide assurances that we will have
future access to the capital or credit markets on acceptable terms. We expect
our borrowing costs to increase as the Federal Reserve raises its benchmark
interest rates in an effort to bring down inflation.

Operational activities

During the six months ended June 30, 2022, cash generated by continuing
operating activities was approximately $8.7 million and included net income of
approximately $5.3 million, adjusted by non-cash items including a net loss on
the sale of intangible assets acquired of approximately $2.2 million,
depreciation and amortization in the amount of $1.2 million, and stock-based
compensation of $1.3 million. These provisions were partially offset by changes
in operating assets and liabilities requiring cash of approximately $1.2
million. During the six months ended June 30, 2021, cash generated by operating
activities was approximately $11.3 million and included net income of
approximately $6.5 million, adjusted by non-cash items including a net loss on
the sale of intangible assets acquired of approximately $1.2 million,
depreciation and amortization in the amount of $700 thousand, and stock-based
compensation of $569 thousand.  These provisions were partially offset by a
bargain purchase gain recognized in relation to an acquisition of approximately
$5.0 million, and changes in operating assets and liabilities requiring cash of
approximately $1.0 million. Cash for the six months ended June 30, 2021 was also
boosted by the return of a workers' compensation claim deposit of approximately
$7.2 million which was acquired in the Snelling transaction

Investing activities

During the six months ended June 30, 2022, cash used by investing activities was
approximately $10.0 million and included cash paid for acquisitions of
approximately $19.1 million. This use was partially offset by the proceeds
from the sale of purchased locations of approximately $9.3 million. During the
six months ended June 30, 2021, cash used by investing activities was
approximately $24.0 million and included cash paid for acquisitions of
approximately $28.8 million. This use was offset by proceeds from the sale of
notes receivable of approximately $5.3 million and the sale of purchased
locations of approximately $1.0 million.

Fundraising activities

During the six months ended June 30, 2022, cash provided by financing activities
was approximately $751 thousand and included net proceeds from our revolving
line of credit of approximately $2.7 million. This provision was offset by the
payment of approximately $1.6 million in dividends and net payments on our term
loan of $266 thousand. During 2021, cash provided by financing activities was
approximately $1.2 million and included initiation of the term loan of
approximately $3.2 million offset by the payment of dividends totaling
approximately $1.5 million, and debt issuance costs of $476 thousand related to
establishing our line of credit.

Revolving Credit and Term Loan Agreement with Truist

On June 29, 2021 the Company and all of its subsidiaries as borrowers
(collectively, the "Borrowers") entered into a Revolving Credit and Term Loan
Agreement with Truist Bank, as Administrative Agent, and the lenders from time
to time made a party thereto (the "Credit Agreement"), pursuant to which the
lenders extended the Borrowers (i) a $60 million revolving line of credit with a
$20 million sublimit for letters of credit (the "Line of Credit") and (ii) a
$3,153,500 term loan (the "Term Loan"). Truist Bank may also make Swingline
Loans available in its discretion. The Credit Agreement replaced the Company's
prior $30 million credit facility with BB&T, now Truist. The Credit Agreement
provides for a borrowing base on the Line of Credit that is derived from the
Borrowers' accounts receivable subject to certain reserves and other
limitations. Interest will accrue on the outstanding balance of the Line of
Credit at a variable rate equal to (a) the LIBOR Index Rate plus a margin
between 1.25% and 1.75% per annum or (b) the then applicable Base Rate, as that
term is defined in the Credit Agreement plus a margin between 0.25% and 0.75%
per annum. In each case, the applicable margin is determined by the Company's
Average Excess Availability on the Line of Credit, as defined in the Credit
Agreement. Interest will accrue on the Term Loan at a variable rate equal to (a)
the LIBOR Index Rate plus 2.0% per annum or (b) the then applicable Base Rate
plus 1.0% per annum. In addition to interest on outstanding principal under the
Credit Agreement, the Borrowers will pay a commitment fee on the unused portion
of the Line of Credit in an amount equal to 0.25% per annum. All loans made
pursuant to the Line of Credit mature on June 29, 2026. The Term Loan will be
paid in equal monthly installments based upon a 15-year amortization of the
original principal amount of the Term Loan and will be payable in monthly
installments with the remaining principal balance due and payable in full on the
earlier of the date of termination of the commitments on the Line of Credit and
June 29, 2036.



The Credit Agreement and other loan documents contain customary representations
and warranties, affirmative, and negative covenants, including without
limitation, those covenants governing indebtedness, liens, fundamental changes,
restricting certain payments including dividends unless certain conditions are
met, transactions with affiliates, investments, engaging in business other than
the current business of the Borrowers and business reasonably related thereto,
sale/leaseback transactions, speculative hedging, and sale of assets. The Credit
Agreement and other loan documents also contain customary events of default
including, without limitation, payment default, material breaches of
representations and warranties, breach of covenants, cross-default on material
indebtedness, certain bankruptcies, certain ERISA violations, material
judgments, change in control, termination or invalidity of any guaranty or
security documents, and defaults under other loan documents. The Credit
Agreement also requires the Borrowers, on a consolidated basis, to comply with a
fixed charge coverage ratio of at least 1.25:1.00 and a leverage ratio of not
more than 3.0:1.0. The obligations under the Credit Agreement and other loan
documents are secured by substantially all of the assets of the Borrowers as
collateral including, without limitation, their accounts and notes receivable,
stock of the Company's subsidiaries, and intellectual property and the real
estate owned by HQ Real Property Corporation.



The Company utilized the proceeds of the Term Loan (i) first to pay off its
prior credit facility, and (ii) second, to pay transaction fees and expenses
incurred in connection with closing the transactions described above. The
Company intends to utilize the proceeds of any loans made under the Line of
Credit and the remainder of the Term Loan for working capital, acquisitions,
required letters of credit, and general corporate purposes in accordance with
the terms of the Credit Agreement. On March 1, 2022, our workers' compensation
provider agreed to reduce the required collateral deposit from $14.3 million to
$10.7 million. The collateral is currently accomplished by delivering letters of
credit under the Credit Agreement.

To June 30, 2022availability under the line of credit was approximately
$27.0 million based on eligible collateral, less letter of credit reserves, banking product reserves and outstanding advances.

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Economy and Inflation



Many leading economists predict high rates of inflation will continue through
2022. We do not believe inflation has had a material effect on our Company's
results of operations as inflation generally results in higher rates per hour
that can offset any slowdown in organic growth opportunities. This might not be
the case if inflation continues to grow. A prolonged period of high inflation
may also impact our ability to carry out our acquisition strategy. On the other
hand, if business conditions deteriorate, it may be easier for us to identify an
acquisition candidate.



In late 2019, there was an outbreak of a new strain of coronavirus (COVID) first
identified in Wuhan, Hubei Province, China, which has since spread globally. On
March 11, 2020, the World Health Organization declared COVID a pandemic.
Further, the COVID outbreak has resulted in government authorities around the
world implementing numerous measures to try to reduce the spread of COVID, such
as travel bans and restrictions, quarantines, "shelter-in-place,"
"stay-at-home," total lock-down orders, business limitations or shutdowns and
similar orders. As a result, the COVID pandemic has negatively impacted the
global economy, disrupted global supply chains and workforce participation, and
created significant volatility and disruption of financial markets.



More recently, more contagious variants of COVID, such as the Delta and Omicron
variants, have emerged and spread globally, which has caused some governments to
reimplement various measures, or impose new restrictions, in an effort to lessen
the spread of COVID and its variants. While we do not expect COVID to impact our
operations, it could impact our acquisition strategy, positively or negatively.
The extent to which new opportunities are presented to us will depend on future
developments, which remain highly uncertain and cannot be predicted with
confidence.

KPI: System wide sales

We refer to total sales generated by our franchisees as "franchise sales." For
any period prior to their conversion to franchises, we refer to sales at
company-owned and operated offices as "company-owned sales." In turn, we refer
to the sum of franchise sales and company-owned sales as "system-wide sales." In
other words, system-wide sales include sales at all offices, whether owned and
operated by us or by our franchisees. In addition, system-wide sales includes
sales at company-owned offices that are classified as discontinued operations.
System-wide sales is a key performance indicator, although we do not record
system-wide sales as revenue. Management believes that information on
system-wide sales is important to understanding our financial performance
because those sales are the basis on which we calculate and record much of our
franchise royalty revenue, are directly related to all other royalty revenue and
service revenue and are indicative of the financial health of our franchisee
base. Management uses system-wide sales to benchmark current operating levels to
historic operating levels. System-wide sales should not be considered as an
alternative to revenue.



During the six months ended June 30, 2022, nearly all of our offices were
franchised with the only exceptions being the Dental Power location acquired in
the fourth quarter of 2021 and a portion of the Dubin operations acquired in the
first quarter of 2022. The Dubin operations are presented in the consolidated
financial statements as discontinued operations because they are considered
held-for-sale. During the six months ended June 30, 2021, all of our offices
were franchised. The following table reflects our system-wide sales broken into
its components for the periods indicated. Percentages indicate the change in
system-wide sales relative to the comparable prior period (in thousands, except
percentages).



                                            Three months ended                                   Six months ended
                               June 30, 2022       June 30, 2021      Change       June 30, 2022       June 30, 2021      Change
System-wide sales             $       120,032     $        89,744        33.7 %   $       221,065     $       145,849        51.6 %




Approximately $36.4 million of system-wide sales during the three months
ended June 30, 2022 was due to the 2021 acquisitions, and approximately
$8.4 million was due to the 2022 acquisitions.  For the six months ended June
30, 2022, approximately $68.6 million was due to the 2021 acquisitions and
approximately $10.6 million was due to the 2022 acquisitions. For the three and
six months ended June 30, 2021 approximately $31.8 million and $38.5 million was
due to the 2021 acquisitions, respectively.



Number of Offices



We examine the number of offices we open and close every period. The number of
offices is directly tied to the amount of royalty and service revenue we earn.
Our franchisees opened four offices in the first quarter of 2022 and did not
close any.

The following table shows the number of offices opened and closed or consolidated in the first three months of 2022.

Offices, December 31, 2020                    139
Purchased in 2021 (net of sold locations)      65
Opened in 2021                                 14
Closed in 2021                                 (1 )
Offices, December 31, 2021                    217
Opened in 2022                                  8
Purchased in 2022                               3
Closed in 2022                                 (3 )
Offices, June 30, 2022                        225

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