Rick Hermanns: MRI part. Going back to the MRI part the — and this was in our sort of updated investor presentation that was put out in — I think it was December, maybe early January, but probably late December. The system-wide sales once you include MRI are going to be a lot more jumpy than what they have been in the past. And so — but MRI had a lot — it does have a lot of franchisees that pay franchise royalties that are significant — basically aren’t necessarily tied to their sales volume. And so it’s — I just want to make sure that system-wide sales are not going to be nearly as predictive in the future as they were in the past. And so I just want to caveat all of that is that that will definitely make a big difference. Now, obviously, that will be segment information that will be split out going forward, but I just want to clarify that as well.
Mike Baker: Okay. So, using the old math in other words of net income should equal 3% to 4% of systemwide sales, you’re saying that that doesn’t really hold anymore?
Rick Hermanns: Yes, that’s pretty much — frankly, that’s out the window except for our traditional — our Snelling and our HireQuest Direct offices. But so with the MRI, it’s significantly different. And so as we put out in December, we’re looking more now towards a percentage of fortunately with the MRI acquisition our royalty revenues are now higher. If you go back five, eight calls ago, one of the things we shied away from — we shied away from utilizing revenue, GAAP revenue mostly because it was relatively small and therefore, it was so — it would be very jumpy. And so we didn’t want to necessarily — we don’t want to create this yo-yo effect on margins and things like that. The good news is now we’re headed towards $40-plus million worth of franchise royalties and therefore there’s more stability.
So, our real peg going forward is more sort of particularly like operating income as a percentage of royalties — or I mean at least as revenues is going to be more appropriate and really more what we’re going to target simply because of the — because of the at least until MRI sort of settles into a pattern settles into an appropriate pattern. It just makes it really kind of meaningless compared to what it was in the past because there are — again there are certain franchisees that pay really a fraction of what we would have expected in the past.
Mike Baker: Okay. Okay. Thanks for that help. I will turn it over to someone else.
Operator: Your next question is coming from Aaron Edelheit with Mindset Capital. Please pose your question, your line is live.
Aaron Edelheit: Hi, Rick, how are you doing?
Rick Hermanns: Good. How are you?
Aaron Edelheit: I’m doing fine. I wanted to ask specifically about the pipeline, you put out an 8-K that was pretty amazing to kind of dive through about what MRI could mean to you in terms of how accretive it can be? And I guess we’re going to see that absent some charges and transition stuff in the first half. And I understand it’s going to be jumpy and everything. But as a shareholder watching you acquire these companies like Snelling and MRI and watching you build this cash flow, I’m really fascinated just to hear about can you keep doing this? And what does the pipeline look like? And should we get more — as the economy weakens, does it increase the odds that you could even acquire more, or how should we think about just your pipeline?
Rick Hermanns: Thanks for the question. So, I’m going to split that into three answers. First answer is as far as our pipeline — and I’ve said this on multiple occasions is our pipeline is always — frankly, it’s as full as we want it to be. And it’s maintaining — for us, it’s a matter of maintaining discipline. And — but it’s always there. Now, with the uncertainty in the economy, I’m not so sure that we can — frankly, we can be particularly picky now, because of the chances of a recession. And the reality is that a bad economy — well, it certainly does not help us. I mean again, I want to reiterate that recession does not help us. But except to the extent that it creates opportunities and very few companies in the staffing industry, especially smaller private companies are particularly well capitalized.
And so a downturn creates a lot of opportunities. And so, I would definitely say, yes, that creates, a recession creates a lot more opportunities, especially at a good price. And so, that’s for us has always been the silver lining of any recession. And generally our best deals have always been with distressed companies. And normally, obviously, as Warren Buffett, who said something I rather — I might ruin this quote but I would rather pay a fair price for a good company than a good price for a fair company. However, because of our franchise model, paying a low price for a fair company still works, because we liberate that fair company from bad management and put it into the hands of franchisees. So it — that’s a long answer to — we get a lot of opportunities during a recession.
Now the — the second part of the answer is then the pipeline for, what I’d say is related to MRI, and really I could probably put points two and three into this one answer. Is that the MRI acquisition stands on its own as far as a franchised opportunity for us, meaning they have a great contract staffing division which you could think of as very high paid temporary staff. And so, that’s a nice solid business that we’re happy to have. And then with their — they’ve been a longtime franchisor of executive search franchises. That’s great. And those are items that we hope to stabilize and to improve going forward. As it relate — as long as economic conditions allow for it. But one of the things that drew us to MRI and still does is the opportunity.
And I want to make sure I caution anybody who’s listening to this as I say it. This acquisition was priced and was priced in a way that we don’t need any of these things to occur to make it a solid deal. That being said there are opportunities that might not have — that wouldn’t have existed. And so, we now have a network of another 200-plus franchisees, which means we have 200-plus entrepreneurs around the globe that we can expand their horizons with some of the other offerings that we have. And probably a good example of that is, for example, we’re starting to incentivize MRI franchisees to supply leads for our Snelling and HireQuest Direct divisions. We’re giving our incentives that we’ve always given to our Snelling and HireQuest Direct franchises to expand into contract staffing.
And so — these are things that we can grow what already — sort of what already existed, simply because we have more opportunities. There are other things that we’re working with as well that are similar to that. I don’t want to give away our entire internal strategy. But the point is there are a lot of ways that we believe that we can squeeze a lot more efficiency out of the MRI network, and most importantly that is really good for the franchise network both Snelling, HireQuest and MRI and just create more opportunities for all three of our major offerings. And again, more opportunities for our franchisees, means more system-wide sales, which means more royalties to HireQuest. It’s truly a win-win-win. And in fact I’ll give, I guess, one example is one of our franchisees, one of our MRI franchisees has a good client, a good friend who has a manufacturing facility in Georgia that utilizes about $2 million a year temporary staffing.
There’s going to be a — I think the meeting might have already taken place. The point is if we get this business, the referring MRI franchisee will receive a commission. The Snelling franchisee will get a great $2 million account and we’ll get some extra royalties. It is a perfect example of if this deal goes great, those are the types of wins that we’ll have — those are the types of wins that we’ll have, which like I said will be great for the network, great for us, great for our shareholders.
