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HIRE Technologies Inc. Interim / Quarterly Report 2022
47663_rns_2022-11-23_696640a0-3110-4d48-91f0-eb38e1a1053f.pdf
Interim / Quarterly Report
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TSX-V: HIRE Management's Discussion & Analysis
For theThree and Nine Months Ended September 30, 2022
Q3 2022 / MD&A
Table of Contents
| Introduction | 1 |
|---|---|
| Cautionary Note Regarding Forward- LookingStatements | 2 |
| Company Overview | 3 |
| Description of Business | 4 |
| Our Portfolio Companies | 4 |
| Acquisition Strategy | 5 |
| Acquisition Consideration & Integration | 6 |
| Recruitment & Staffing Operations | 6 |
| SaaS Products | 7 |
| Overall Performance and Non-IFRS Financial Measures | 8 |
| Selected Quarterly Information | 12 |
| Income Statement Data, IFRS | 12 |
| Balance Sheet Data, IFRS | 13 |
| Discussion of Operations | 14 |
| Revenue | 14 |
| Cost of Services | 15 |
| Gross Margin | 15 |
| Operating Expenses | 15 |
| Realized and Unrealized Gains & Losses | 16 |
| Income Taxes | 16 |
| Sources and Uses of Financing | 17 |
| Summary of Quarterly Results, IFRS | 18 |
| Seasonality Factors | 18 |
| Liquidity & Capital Resources | 19 |
| Off-Balance Sheet Arrangements | 21 |
|---|---|
| Related Party Transactions | 21 |
| Changes in Accounting Policies | 22 |
| Critical Accounting Estimates | 22 |
| Risks Arising from Financial Instruments | 23 |
| Interest Rate RiskCredit Risk | 2323 |
| Liquidity Risk | 24 |
| Market Risk | 24 |
| Disclosure of Outstanding Share Data | 24 |
| Risks & Uncertainties | 25 |
| Events after Quarter End | 32 |
The Management's Discussion and Analysis ("MD&A") provides a review of the financial condition and results of operations of HIRE Technologies Inc. (the "Company" or "HIRE") for the three and nine months ended September 30, 2022, and should be read in conjunction with the Company's annual audited consolidated financial statements for the years ended December 31, 2021 and December 31, 2020 and the unaudited condensed consolidated interim financial statements for the three months ended March 31, 2022 and the three and six months ended June0, 2022 and the notes thereto ("FS"). The Company's financial statements and financial information contained in this MD&A, unless otherwise noted, are prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations of the IFRS Interpretations Committee. This MD&A complements and supplements but does not form part of the Company's condensed consolidated interim financial statements. This MD&A has an effective date of November 22, 2022 (the "MD&A Date"). All dollar amounts in this MD&A are reported in Canadian dollars unless otherwise stated.
The Company's unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2022 have been prepared on a going concern basis under the historical cost convention, except for certain financial instruments, which are recorded at fair value. The going concern basis assumes that the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations.
The Company's ability to continue as a going concern is dependent upon the achievement of a profitable level of operations and may require the Company to raise additional funds. Although the Company has previously been successful in obtaining financing, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms acceptable to the Company. These conditions result in material uncertainties that may cast significant doubt about the Company's ability to continue as a going concern. The Company's unaudited condensed consolidated interim financial statements and annual audited consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. Such adjustments would be material. For additional risk factors see the "Risks and Uncertainties" section of the MD&A.
This MD&A contains forward-looking statements. See "Cautionary Note Regarding Forward-Looking Statements" for further information.
Further information relating to the Company is available on SEDAR at www.sedar.com.
Cautionary Note Regarding Forward-Looking Statements
This MD&A contains "forward-looking statements" or "forward-looking information" (collectively referred to hereafter as "forward-looking statements") within the meaning of applicable Canadian securities legislation.
All statements that address activities, events or developments that HIRE expects or anticipates will, or may, occur in the future, including statements about HIRE's business prospects, future trends, plans, strategies, including, in particular, HIRE's acquisition strategy and expense reductions, and the expected benefits thereof are forward-looking statements. In some cases, forward-looking statements are preceded by, followed by or include words such as "may", "will", "would", "could", "should", "believes", "estimates", "projects", "potential", "expects", "plans", "intends", "proposes", "anticipates", "targeted", "continues", "forecasts", "designed", "goal", or the negative of those words or other similar or comparable words. Although the management of HIRE believes that the assumptions made and the expectations represented by such statements are reasonable, there can be no assurance that a forward-looking statement herein will prove to be accurate.
Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of HIRE to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Additional risks and uncertainties applicable to the Company, as well as trends identified by the Company affecting it and the staffing industry can be found in the Company's continuous disclosure record available on SEDAR. Although HIRE has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated, or intended.
All forward-looking statements herein are qualified by this cautionary statement. Accordingly, readers should not place undue reliance on forward-looking statements. The Company undertakes no obligation to update publicly, or otherwise revise, any forward- looking statements, whether as a result of new information or future events or otherwise, except as may be required by law. If the Company does update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements, unless required by law.
Company Overview
Q3 2022 / MD&A
HIRE was incorporated on January 10, 2018 under the Business Corporations Act (British Columbia) as "Danacore Industries Inc." On December 19, 2019, the Company completed its "Qualifying Transaction", within the meaning of TSX Venture Exchange ("TSXV") Policy 2.4 and, in connection therewith changed its name to "Bay Talent Group Inc." On April 21, 2020 the Company changed its name to "HIRE Technologies Inc." The Company is a reporting issuer in the provinces of British Columbia, Alberta and Ontario. The Company's head office is located at Suite 400, 55 Adelaide Street East, Toronto, Ontario, Canada, M5C 1K6 and its registered office is located at 10th Floor, 595 Howe Street, Vancouver, British Columbia, Canada, V6C 2T5.
HIRE, through its direct and indirect wholly owned subsidiaries including PTC Accounting and Finance Inc. ("PTC"), ProVision IT Resources Ltd. ("ProVision"), The Headhunters Recruitment Inc. ("The Headhunters"), 2449983 Ontario Inc. ("The Kavin Group"), Taylor Ryan Inc. ("Taylor Ryan"), Leaders & Co. Consulting in Governance and Leadership Inc. ("Leaders") and BTG Holdco Inc. ("BTG Holdco" and together with PTC, ProVision, The Headhunters, The Kavin Group, Taylor Ryan, and Leaders, the "Subsidiaries") provides human resources services, which are comprised of recurring contract staffing services, on-occurrence permanent placement services, executive searches and a softwareas-a-service ("SaaS") performance management tool.
Description of Business
General
HIRE is a growing capital allocator that is rapidly establishing itself as a market leader in workforce management and staffing. HIRE's mission is to create a world-class portfolio of brands that will define the future of human resources through synergies, scale, and reach. The Company has extensive experience in building and growing staffing and executive search companies and is supported by a large recurring revenue base and a highly scalable shared services platform. This structure enables HIRE to create value for partners and shareholders.
HIRE has assembled an accomplished management team with a track record of successfully completing acquisitions and growing profitable businesses. The Company creates value through acquisitions, crossselling synergies, and the improvement of operating subsidiary profitability through cost savings achieved through back-office infrastructure consolidation.
Acquired businesses operate independently and are held as subsidiaries of the Company. HIRE has acquired seven businesses as at September 30, 2022: PTC, ProVision, The Headhunters, The Kavin Group, Taylor Ryan, Pulsify, and Leaders.
As previously stated, a key component of the Company's business strategy is to leverage economies of scale by consolidating back-office operations. As such, HIRE provides its subsidiaries with financial, strategy, technology, marketing, and administrative support.
Our Portfolio Companies
Q3
5
Acquisition Strategy
in staffing and technology assets
following:
Integrate the companies into the business model
to include a deferred compensation component that is intended to ensure continued engagement of the target management with the acquired business post-
Financial Performance: The Company will focus on accretive staffing and recruiting industry acquisitions that demonstrate a positive EBITDA with a history of financial performance and resiliency to macro-economic factors.
Synergies: The Company searches for acquisition targets that present potential synergistic benefits. Synergies potentially include expenses such as finance, shared office space, marketing, IT, and infrastructure support, integration of customer relationship management software, training, human resources, and consolidation of contract administration.
Technology: The Company evaluates technology and other assets for acquisition that complement existing business offerings. In addition to the factors mentioned previously, the Company's acquisition strategy for SaaS products considers the solution's uniqueness and the benefits it provides, the solution's marketability to and potential benefits for client businesses, stage of development and continuation of development teams, and intellectual property matters. Such technology acquisitions, may diversify product offerings, streamline operations, and provide additional client value.
HIRE pursues a twofold growth strategy of organic and acquisition growth. At the core of the Company's strategy is growth through acquisition execution. In assessing the suitability of target operating businesses and assets, the Company considers numerous operational and strategic factors which may include the transaction.
Geography: The Company currently has staffing and recruitment operations in jurisdictions throughout Canada including Vancouver, Edmonton, Winnipeg, Toronto, Ottawa, and Montréal. The Company's current acquisition pipeline includes businesses in Canada and the United States. When selecting targets, the Company evaluates the value of market entry and the complementary nature of the target's operations with those of the Subsidiaries operating in the same region.
Specialization: The Company serves a diverse range of industries through its Subsidiaries, including information technology, financial services, real estate and construction, government, waste management, health care, engineering, and manufacturing. Given the cyclical nature of some industries and the growth potential of others, the Company identifies target businesses that specialize in projected growth sectors and/or sectors that complement its existing business.
Management & Operations: Management is an integral part of the staffing and search businesses, and its strength is a crucial factor in acquisition decisions. The Company seeks businesses with strong management teams. The Company evaluates the management and operations of target businesses based on many factors including their brand reputation, existing client list, industry expertise, historical staff turnover, revenue growth, expense management, financial performance, innovativeness, and sector specialization. Acquisitions have historically included and are expected to continue
Optimize and maximize operational efficiencies for individual firms
Grow and scale through a network across different geographies and specialties
Acquisition Consideration & Integration
The Company's acquisition model includes paying for acquisitions with a combination of cash, shares, and future consideration. Acquisitions may also be structured to accommodate the vendor's continued involvement and retention of individuals key to the success and viability of the acquired firm. HIRE's business model is designed to appeal to owners seeking to leverage the benefits of a partnership with HIRE to grow their current operations; both organically and through acquisition. The structure of the Company's acquisitions, including the proportion of cash and shares as consideration, is subject to deal-specific factors including business, legal, and taxation advice, and is reviewed and approved by the Company's Board of Directors.
HIRE intends to maintain the brand value created by vendors by retaining the identity, specialization, and other success factors of the target firm within its market. The Company proposes to reduce operating expenses of target businesses by adding operating efficiencies and integrating back-end processes across subsidiary operations, while also providing target businesses with additional opportunities for growth through expanded service offerings, broader geographic coverage, and technology solutions.
Recruitment & Staffing Operations
HIRE provides recruitment and staffing services through six operating subsidiaries: PTC, ProVision, The Headhunters, The Kavin Group, Taylor Ryan, and Leaders.
PTC and ProVision work on a contingency-based fee structure and specialize in both on-occurrence permanent placement and recurring contract placement. The experienced teams at PTC
and ProVision use a complement of traditional recruitment methods and technology-driven search approaches. PTC and ProVision also provide clients and candidates with market intelligence, insights into technology trends, salary surveys, and broader career counselling.
The Headhunters perform permanent searches on contingency and retainer fee structures. Clients choose The Headhunters because of its Talent Sourcing Team which uncovers passive and hard- to-find candidates using cutting-edge sourcing techniques as well as its focus on finding the right fit through a Workstyle & Performance Profile behavioural assessment tool.
The Kavin Group provides full-time, part-time, and temporary staffing solutions in the light-industrial, waste management, and health care sectors. Core to the operations are bespoke staffing programs designed for each client with The Kavin Group overseeing all aspects of the recruitment cycle from sourcing through to onlocation support once staff are deployed. The Kavin Group derives its revenues from contingency fees.
Taylor Ryan provides executive search services to clients in the construction and real estate industries nationally. Specialized HR consulting services are also provided. Engagements are performed on a retainer fee or contingency fee basis.
Leaders provides executive search services to national and global enterprises as well as specialized indigenous search services. Mandates are performed on a retained basis, with highly structured client collaboration facilitated through the proprietary Leaders Report® application.
SaaS Products
Pulsify is a web-based performance management application designed around data analytics, meeting facilitation, immediate feedback and predictive insights. It is a simple and scalable tool designed for managers requiring no upfront configuration and implementation steps. The product is available at pulsifyapp.com in trial and paid annual subscription versions.
Overall Performance and Non-IFRS Financial Measures
Management analyzes the Company's financial information from different perspectives including revenue, gross profit, net income (loss), adjusted net income (loss), EBITDA, and adjusted EBITDA.
EBITDA and adjusted EBITDA are non-GAAP financial measures as such term is defined in NI 52-112, are not standardized financial measures under IFRS and may not be comparable to similar financial measures disclosed by other issuers. EBITDA is defined as net income (loss) adjusted to exclude interest, taxes, depreciation, and amortization. Adjusted EBITDA is defined as EBITDA, excluding transaction, restructuring & non-operating items, realized gains or losses on derivative financial instruments, other unrealized fair value through profit or loss mark-to-market gains or losses, goodwill impairment losses, earn-out payments treated as future contingent remuneration from acquisitions, and share based compensation expenses. Adjusted EBITDA also includes rent payments, which are not accounted for in EBITDA following the adoption of IFRS 16 Leases. Management believes that EBITDA and adjusted EBITDA are useful measures for investors and management in evaluating the performance of the Company. It provides investors and management with insight into HIRE's operating performance without the impact of significant accounting policies related to depreciation and amortization, financing, and taxes.
Adjusted net income (loss) is a non-GAAP financial measure as such term is defined in NI 52-112, is not a standardized financial measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers. The Company defines adjusted net income (loss) as net income (loss) excluding transaction, restructuring & non-operating items, realized gains or losses on derivative financial instruments, other unrealized fair value through profit or loss mark-to-market gains or losses, goodwill impairment losses, earn-out payments treated as future contingent remuneration from acquisitions, and share based compensation expenses.
Management believes that adjusted net income (loss) is a meaningful metric for the Company and investors in assessing the Company's financial performance. It provides investors and management with insight into performance without the impact of non-operating items.
EBITDA removes interest, taxes, depreciation, and amortization. Adjusted EBITDA removes transaction, restructuring & non-operating items, realized gains or losses on derivatives, other unrealized fair value through profit or loss mark-tomarket gains or losses, goodwill impairment losses, earn-out payments treated as future contingent remuneration from acquisitions, and share based compensation expenses.The reconciliation of net income (loss) to EBITDA and adjusted
| Period ended | 3 monthsendedSeptember 30,2022 | 3 monthsendedSeptember 30,2021 | 9 monthsendedSeptember 30,2022 | 9 monthsendedSeptember 30,2021 |
|---|---|---|---|---|
| $ | $ | $ | $ | |
| NET INCOME (LOSS) FOR THE PERIOD | (6,164,463) | (922,404) | (10,771,638) | 861,536 |
| Interest expense (see Statement of Income(loss)) | 188,505 | 129,295 | 192,719 | 339,220 |
| Amortization (see Statement of Income (loss)) | 184,354 | 208,515 | 553,063 | 498,718 |
| Depreciation (see Statement of Income (loss)) | 54,752 | 50,837 | 156,287 | 118,570 |
| Income tax expense (see Statement of Income(loss)) | 109,261 | 218,056 | 771,667 | 385,086 |
| EBITDA (LOSS) | (5,627,591) | (315,701) | (9,097,902) | 2,203,130 |
| Add: | ||||
| Transaction, restructuring,and non-operating items | 93,068 | 419,668 | 251,039 | 1,039,854 |
| Realized gain on convertible debenturederivatives (see FS note 14) | – | – | – | (423,815) |
| Other realized gains (see note 15) | – | – | (19,804) | – |
| Net unrealized loss (gain) on mark-tomarket (see note 14) | 167,977 | 88,798 | (117) | (3,406,576) |
| Loss on revaluation of contingentconsideration, net (see FS note 10(b) andnote 12) | 133,840 | – | 1,912,919 | – |
| Future contingent remuneration from acquisitions(see FS note 10(a)) | 3,021,437 | 100,534 | 5,502,853 | 301,601 |
| Profit share (see FS note 10(a)) | 735,770 | – | 1,442,774 | – |
| Share-based compensation (see FS note 16) | 32,756 | 11,600 | 600,609 | 104,438 |
| Impairment loss (see FS note 6) | 1,398,696 | – | 1,398,696 | – |
| Rent expense | (24,428) | (18,214) | (72,504) | (73,838) |
| ADJUSTED EBITDA (LOSS) | (68,475) | 286,685 | 1,918,563 | (255,206) |
| Adjusted EBITDA (Loss) as a % of revenue | (0.9%) | 3.7% | 7.3% | (1.3%) |
Net loss for the three months ended September 30, 2022 was $6,164,463 (net loss of $922,404 – September 30, 2021). Q3-2022 included $3,021,437 in contingent remuneration payable to the former shareholders of Taylor Ryan at $2,944,605 and Leaders at $76,832 and a loss on the revaluation of contingent consideration payable of $133,840. Excluding these items, net loss was $3,009,186 ($821,870 – September 30, 2021) which included $167,977 in net unrealized mark-to-market losses primarily on convertible debenture derivatives and $109,261 in income tax expenses.
HIRE recorded $7,702,503 in revenue ($7,728,382 – September 30, 2021). Compared to the previous two quarters, the recurring contract, the on-occurrence permanent placement and executive search books lack momentum primarily due to seasonality and other macroeconomic and business factors. Gross margin was $3,466,511 ($3,400,200 – September 30, 2021) and on a percentage of revenue basis was 45%, up 1 point from September 30, 2021. Higher margin generating onoccurrence permanent placements and executive searches represented 23% and 14% of our total book of business respectively or 37% in total, up from 24% for the quarter ended September 30, 2021
Total operating expenses were $5,597,067 for the quarter ended September 30, 2022. Excluding the loss on revaluation of contingent consideration payable of $133,840, which mainly comprised a loss of $155,948 on The Headhunters and a gain of $10,630 on Leaders, and the impairment loss of $1,398,696, operating expenses were $4,064,531 or 53% on a percentage of revenue basis, essentially flat versus Q3-2021 (52% – September 30, 2021).
$3,691,672 in selling, general, and administrative expenses were 48% on a percentage of revenue basis for the three months ended September 30, 2022 and excluded the increase in contingent remuneration payable to the former shareholders of Taylor Ryan of $2,944,605 and Leaders of $76,295 and the increase in profit share payable to the former shareholders of Taylor Ryan of $735,770, based on EBITDA thresholds exceeded in the year. Compared to the comparable quarter in 2021, on a percentage of revenue basis, selling, general and administrative expenses for Q3- 2022 held steady from the same 48% recorded a year earlier.
Amortization of intangible assets was $184,354 in the third quarter of 2022 ($208,515 – September 30, 2021). $188,505 in interest expense ($129,295 – September 30, 2021) included interest on the FirePower term debt facility used to finance the acquisition of Leaders, interest on HIRE's convertible debenture and interest on the revolving demand credit facility.
The loss on revaluation of contingent consideration of $133,840 consisted of a loss of $155,948 recognized on the revaluation of contingent consideration payable to the former shareholders of The Headhunters, a change of $11,838 on the net amount payable to the former shareholder of ProVision, and a gain of $10,630 recognized on deferred consideration payable to Leaders.
EBITDA loss was $5,627,591 for the three months ended September 30, 2022 (EBITDA loss of $315,701 – September 30, 2021). Excluding $167,977 in unrealized mark-to-market gains, the loss on revaluation of contingent consideration of $133,840, $93,068 in transaction, restructuring & non-operating items, impairment loss of $1,398,696, $3,021,437 in future contingent remuneration from acquisitions, $735,770 in profit share payable to the former shareholders of Taylor Ryan and $32,756 in share-based compensation expenses, and including the impact of $24,428 in rent paid, adjusted EBITDA was ($68,475), a decrease of $355,160 compared to the EBITDA of $286,685 for the three months ended September 30, 2021.
Net loss for the nine months ended September 30, 2022 was $10,771,638 (net income of $861,536 – September 30, 2021). Results for this year included $5,502,852 contingent remuneration payable to the former shareholders of Taylor Ryan at $5,301,916 and Leaders at $200,936 and a loss on the revaluation of contingent consideration payable of $1,912,919. Excluding these items net loss was $3,355,866 for the first nine months of the year. There was $19,804 in realized gains recognized on the settlement of interest in HIRE shares, while income tax expense of $771,667 was recognized as a result of profitability across our subsidiaries.
Revenue for the first three quarters of the year was $26,175,099, 55% or $6,570,398 higher than the prior year ($19,604,701 – September 30, 2021) attributable to acquisitive and organic growth. With year-over-year growth of 39% on the on-occurrence permanent placement book outpacing growth of 15% on the recurring contract book, gross margin of $12,993,772 or 50% on a percentage of revenue basis was much improved over the 42% on a percentage of revenue basis a year earlier ($8,183,420 – September 30, 2021). The cost of services on the recurring contract book was 84% as a percentage of recurring contract revenue, flat from a year earlier.
Operating expenses of $16,068,038 included $1,912,919 in losses on the revaluation of contingent consideration. Excluding the fair value adjustments, operating expenses were $14,155,119 or 54% as a percentage of revenue, a slight improvement from 55% ($10,767,189 – September 30, 2022) in the prior year on the same basis.
Selling, general, and administrative expenses were $12,010,641 or 46% as a percentage of revenue, which compares favourably to the $9,929,251 or 51% on the same basis for the first nine months of 2021.
$553,063 was recognized for amortization of intangible assets, higher than 2021 because of the 2021 Leaders and Pulsify acquisitions ($498,718 – September 30, 2021). Interest expense of $192,719 included interest on HIRE's term debt facility currently outstanding (interest expense of $339,220 – September 30, 2021).
The loss on revaluation of contingent consideration of $1,912,919 included a loss of $2,055,696 recognized on the revaluation of contingent consideration payable to the former shareholders of The Headhunters, a loss of $8,367 on deferred payment due to the former shareholders of Leaders, an adjustment of $2,915 recognized on the net amount payable to the former shareholder of ProVision, and a loss of $4 recognized
on the revaluation of contingent consideration payable to the former shareholders of The Kavin Group.
EBITDA loss was $9,097,902 for the nine months ended September 30, 2022 (EBITDA of $2,203,130 – September 30, 2021). Excluding $117 in unrealized mark-to-market gain, other realized gains of $19,804, the loss on revaluation of contingent consideration of $1,912,919, impairment loss of $1,398,696, $251,039 in transaction, restructuring & non-operating items consisting of non-replaced compensation of $99,295 and $151,744 in professional fees, $5,502,853 in future contingent remuneration from acquisitions, 1,442,774 in profit share payable to the former shareholders of Taylor Ryan, $600,609 in share based compensation expenses, and including the impact of $72,504 in rent paid, adjusted EBITDA was $1,918,563, $2,173,769 better than 2021 (adjusted EBITDA loss of $255,206).
Adjusted net income (loss) removes transaction, restructuring & non-operating items, realized gains or losses on derivatives, other unrealized fair value through profit or loss mark-to-market gains or losses, goodwill impairment losses, earn-out payments treated as future contingent remuneration from acquisitions, and share based compensation expenses. The reconciliation of net loss to adjusted net loss, and the resulting adjusted net loss per share, is presented below.
| Period ended | 3 months | 3 months | 9 months | 9 months |
|---|---|---|---|---|
| ended | ended | ended | ended | |
| September | September | September | September | |
| 30, 2022 | 30, 2021 | 30, 2022 | 30, 2021 | |
| $ | $ | $ | $ | |
| NET INCOME (LOSS) FOR THE PERIOD | (6,164,463) | (922,404) | (10,771,638) | 861,536 |
| Add: | ||||
| Transaction, restructuring & non-operating items | 93,068 | 419,668 | 251,039 | 1,039,854 |
| Realized gain on convertible debenture derivatives | ||||
| (see FS note 14) | – | – | – | (423,815) |
| Other realized gains (see note 15) | – | – | (19,804) | – |
| Net unrealized (gain) loss on mark-to-market | ||||
| (see FS note 14) | 167,977 | 88,798 | (117) | (3,406,576) |
| Loss on revaluation of contingent consideration | ||||
| (see FS note 10(b) and 12) | 133,840 | – | 1,912,919 | – |
| Future contingent remuneration from acquisitions | ||||
| (see FS note 10(a)) | 3,021,437 | 100,534 | 5,502,853 | 301,601 |
| Share-based compensation expense | ||||
| (see FS note 16) | 32,756 | 11,600 | 600,609 | 104,438 |
| Impairment loss (see FS note 6) | 1,398,696 | – | 1,398,696 | – |
| Profit share (see FS note 10(a)) | 735,770 | – | 1,442,774 | – |
| ADJUSTED NET INCOME (LOSS) | (580,919) | (301,804) | (317,331) | (1,522,962) |
| Basic adjusted net loss per share | (0.01) | (0.00) | (0.00) | (0.02) |
| Weighted number of shares | ||||
| (see Statement of Income (Loss)) | 84,645,676 | 67,402,322 | 84,144,696 | 63,158,330 |
Adjusted net loss was $580,919 or $0.01 per share for the quarter ended September 30, 2022 (net loss of $301,804 or $0.00 per share – September 30, 2021). Adjusted net income was $317,331 for the nine months ended September 30, 2022 (net loss of $1,522,962 – September 30, 2021). Even though growth tapered in Q3-2022 and the industry cycled through summer seasonality, the bottom-line profitability was achieved by all but one of the Subsidiaries. HIRE expects growth to pick up again in Q4-2022 as the Subsidiaries capitalize on continued market growth across the country with the need for candidates still strong across verticals in the last three months of the year.
Q3 2022 / MD&A
Selected Quarterly Information
Income Statement Data, IFRS
| Period ended | 3 months | 3 months | 9 months | 9 months |
|---|---|---|---|---|
| ended | ended | ended | ended | |
| September | September | September | September | |
| 30, 2022 | 30, 2021 | 30, 2022 | 30, 2021 | |
| $ | $ | $ | $ | |
| Revenue | 7,702,503 | 7,728,382 | 26,175,099 | 19,604,701 |
| Cost of services | 4,235,992 | 4,328,182 | 13,181,327 | 11,421,281 |
| GROSS MARGIN | 3,466,511 | 3,400,200 | 12,993,772 | 8,183,420 |
| Gross margin (% of revenue) | 45% | 44% | 50% | 42% |
| Operating expenses: | ||||
| Selling, general and administrative | 3,691,672 | 3,677,940 | 12,010,641 | 9,929,251 |
| Amortization of intangible assets | 184,354 | 208,515 | 553,063 | 498,718 |
| Interest expense (income) | 188,505 | 129,295 | 192,719 | 339,220 |
| Impairment loss (note 6) | 1,398,696 | – | 1,398,696 | – |
| Loss on revaluation of contingent | ||||
| consideration, net (note 10(b) and | 133,840 | – | 1,912,919 | – |
| note 12) | ||||
| OPERATING EXPENSES | 5,597,067 | 4,015,750 | 16,068,038 | 10,767,189 |
| Loss from operations | (2,130,556) | (615,550) | (3,074,266) | (2,583,769) |
| Contingent remuneration (note 10(a)) | (3,020,899) | – | (5,502,852) | – |
| Profit share (note 10(a)) | (735,770) | – | (1,442,774) | – |
| Realized gain on convertible debenture derivatives(note 14) | – | – | – | 423,815 |
| Other realized gains (see note 15) | – | – | 19,804 | – |
| Unrealized gains (loss) on mark-to-market, net (note14) | (167,977) | (88,798) | 117 | 3,406,576 |
| Income tax expense | (109,261) | (218,056) | (771,667) | (385,086) |
| NET INCOME (LOSS) FOR THE PERIOD | (6,164,463) | (922,404) | (10,771,638) | 861,536 |
| Basic earnings (loss) per share | (0.07) | (0.01) | (0.13) | 0.01 |
| Weighted number of shares | 84,645,676 | 67,402,322 | 84,144,696 | 63,158,330 |
Balance Sheet Data, IFRS
| Period ended | September 30, 2022 | December 31, 2021 |
|---|---|---|
| $ | $ | |
| Total assets | 21,558,119 | 24,163,624 |
| Total current liabilities | 22,808,274 | 11,237,663 |
| Total non-current liabilities | 4,847,111 | 8,906,013 |
| Total liabilities | 27,655,385 | 20,143,676 |
| Shareholders' equity (deficit) | (6,097,266) | 4,019,948 |
Revenue
| Period ended | 3 monthsendedSeptember30, 2022 | 3 monthsendedSeptember30, 2021 | 9 monthsendedSeptember30, 2022 | 9 monthsendedSeptember30, 2021 |
|---|---|---|---|---|
| $ | $ | $ | $ | |
| Recurring contract placements and SaaS | 4,817,217 | 5,155,745 | 15,646,975 | 13,607,687 |
| On-occurrence permanent placements | 1,805,462 | 1,840,631 | 7,322,832 | 5,265,008 |
| Executive searches | 1,079,824 | 732,006 | 3,205,292 | 732,006 |
| TOTAL | 7,702,503 | 7,728,382 | 26,175,099 | 19,604,701 |
Revenue was $7,702,503 for the quarter ended September 30, 2022, essentially flat versus the same quarter in 2021. The 48% or $347,818 increase in the Executive search revenue from $732,006 to $1,079,824 in the third quarter of 2022 is attributable to the fact that the 2021-Q3 results reflect only one month of operations of Leaders upon its acquisition in 2021.
For the nine months ended September 30, 2022, revenue was $26,175,099 which was 34% or $6,570,398 higher than the first nine months of 2021. The Leaders acquisition added $2,196,019 to the change while organic growth, 15% on the recurring contract book, 39% on the on-occurrence permanent book, and 22% overall, drove the exceptional result. As certain Subsidiaries actively change their portfolio mix, we expect additional improvement in gross margin metrics as discussed below.
Cost of Services
Cost of services consists of contractor wages, fees, taxes remitted, and in the case of executive search, costs associated with the completion of engagements. For the three months ended September 30, 2022, cost of services was $4,235,992 ($4,328,182 – September 30, 2021). As a percentage of revenue, cost of services was 55% for the quarter, a 1 point improvement over 56% for same quarter in 2021.
HIRE's portfolio continues to trend to a higher proportion of on-occurrence permanent placement and executive search revenue, 37% of total revenue at September 30, 2022 versus 24% at September 30, 2021. Both onoccurrence permanent placement and executive search engagements have significantly lower cost of services, and thus higher gross margins, relative to recurring contracts. Furthermore, the cost of services as a percentage of recurring contract revenue saw significant improvement during the first nine months of 2022 as HIRE repositioned its presence in the health care and light industrial segments where contractor wage rates continue to increase as a result of demand, thereby squeezing margin and profitability in these areas. HIRE's emphasis in 2022 is to seek more on-occurrence permanent business, while selectively passing on opportunities where profitability is challenging.
Cost of services on recurring contract revenue as a percentage of recurring contract revenue was 84% for the quarter ended September 30, 2022, 4 points higher than the 80% posted for both the quarter ended June 30, 2022 and the quarter ended March 31, 2022, and flat from the 84% reported for the quarter ended September 30, 2021.
Cost of services for the nine months ended September 30, 2022 was $13,181,327 ($11,421,281 – September 30, 2021). On a percentage of revenue basis, cost of services was 50%, 8 points better than the 58% reported for the nine months ended September 30, 2021. Factors contributing to the improvement were the changing portfolio mix, 40% on-occurrence permanent and executive search relative to the total book versus 31% a year earlier and a strategic preference for on-occurrence permanent placement business in the verticals noted previously.
Gross Margin
For the quarter ended September 30, 2022, gross margin was $3,466,511, $66,311 or 2% higher than the $3,400,200 for the same quarter in 2021. On a percentage of revenue basis, gross margin was 45%, 1 point better than the quarter ended September 30, 2021 (44% – September 30, 2021). This was the ninth consecutive quarter of sequential gross margin improvement and was attributable to a higher volume of on-occurrence permanent and executive search business relative to recurring contract business and strong organic year- over-year growth and additional selectivity resulting in further profitability in certain verticals.
Year-to-date, gross margin was $12,993,772, $4,810,352 higher than the same period in 2021 ($8,183,420 – September 30, 2021) On a percentage of revenue basis, it was a similar story, with gross margin at 50%, a 8 point increase over 2021 with the portfolio mix and improved engagement profitability driving the result as mentioned earlier.
Operating Expenses
Selling, general and administrative expenses were $3,691,672 for the quarter ended September 30, 2022 ($3,677,940 – September 30, 2021). As a percentage of revenue, selling, general and administrative expenses were 48% of revenue (48% – September 30, 2021).
Excluding impairment loss of $1,398,696, transaction, restructuring & non-operating items of $93,068 all of which is non-recurring professional fees, and share based compensation expense of $32,756, selling, general and administrative expenses were $2,167,152 or 28% of revenue ($3,246,672 or 42% - September 30, 2021).
For the nine months ended September 30, 2022, selling, general and administrative expenses were $12,010,641 or 46% on a percentage of revenue basis ($9,929,251 or 51% – September 30, 2021). Excluding impairment loss of $1,398,696, transaction, restructuring & nonoperating items of $251,039 consisting of $99,295 in non-replaced compensation and $151,744 in professional fees and share based compensation expense of $600,609, selling, general and administrative expenses were $9,760,297 or 37% of revenue, compared to $8,784,959 or 45% of revenue.
Amortization of intangible assets was $184,354 for the quarter ended September 30, 2022, a slight decrease from the $208,515 reported 12 months earlier. Amortization of intangible assets was $553,063 for the first nine months of 2022, up from $498,718 for the same period in 2021 as a result of the intangible assets recognized on the Leaders transaction.
Interest expense of $188,505 for the three months ended September 30, 2022 (interest expense of $129,295 – September 30, 2021) and interest expense of $192,719 for the nine months ended September 30, 2022 ($339,220 – September 30, 2021) include interest on the term debt facility upon which $3,000,000 is drawn, interest expense recognized on the convertible debentures currently outstanding, and bank indebtedness from the revolving line of credit (see the "Liquidity & Capital Resources" section of this MD&A).
Also included in operating expenses was a loss on the revaluation of contingent consideration of $133,840 for the quarter ended September 30, 2022 and $1,912,919 year-to-date (see the "Overall Performance and Non-IFRS Financial Measures" section of this MD&A).
Realized and Unrealized Gains & Losses
Realized gains on convertible debenture derivatives reflect the income statement impact of derecognized derivatives associated with the conversion of convertible debentures in the period. There were no conversions in the third quarter and first nine months of 2022 and no realized gains were recognized ($nil and $423,815 – September 30, 2021).
A loss of $167,977 and a gain of $117 were recognized for the three and nine months ended September 30, 2022 primarily related to unrealized mark-to-market gains on convertible debenture derivatives (a loss of $88,798 and a gain of $3,406,576 – September 30, 2021).
A gain of $ nil and $19,804 ($nil – September 30, 2021) was recognized for the three and nine months ended September 30, 2022 on convertible debenture interest settled in HIRE shares.
Income Taxes
Income tax expense decreased to $109,261 for the quarter ended September 30, 2022 down from $218,056 a year earlier. Income tax expense for the first half of 2022 was $889,883 versus $480,338 for 2021. With HIRE's Subsidiaries achieving consistent profitability, income taxes have increased in step.
Sources and Uses of Financing
| 2020 | Proceeds | Use of Proceeds |
|---|---|---|
| $ | $ | |
| Proceeds from August 21 and 24 private placement | 2,419,000 | |
| convertible debenture | ||
| Proceeds from December 11 equity and warrant | 4,096,399 | |
| private placement | ||
| Total proceeds raised | 6,515,399 | |
| Finders' fees | 379,231 | |
| Acquisitions ofThe Headhunters,The Kavin Group, andTaylor Ryan | 4,716,586 | |
| Acquisition transaction costs | 264,263 | |
| Investment in Atlas ID | 268,400 | |
| Remaining for general corporate purposes | 886,919 | |
| TOTAL USE OF PROCEEDS | 6,515,399 |
| 2021 | Proceeds | Use of Proceeds |
|---|---|---|
| $ | $ | |
| Proceeds from August 27 equity and warrant private placement | 2,000,000 | |
| Proceeds from September 29 and October 1, 2021 equityand warrant private placement | 2,836,100 | |
| Proceeds from term debt facility | 3,000,000 | |
| Total proceeds raised | 7,836,100 | |
| Finders' fees | 272,242 | |
| Acquisition of Leaders | 4,577,317 | |
| Acquisition transaction costs | 267,435 | |
| Term debt facility transaction costs | 154,078 | |
| Remaining for general corporate purposes | 2,565,028 | |
| TOTAL USE OF PROCEEDS | 7,836,100 |
Summary of Quarterly Results, IFRS
| Revenue | Gross Margin | OperatingExpenses | Net Income(Loss) | Basic Earnings(Loss) Per Share | |
|---|---|---|---|---|---|
| $ | $ | $ | $ | $ | |
| Q3 2022 | 7,702,503 | 3,466,511 | 5,597,067 | (6,164,463) | (0.07) |
| Q2 2022 | 9,363,994 | 5,034,740 | 7,853,927 | (3,135,752) | (0.04) |
| Q1 2022 | 9,108,602 | 4,492,521 | 5,806,001 | (1,471,423) | (0.02) |
| Q4 2021 | 8,098,947 | 3,997,073 | 11,081,353 | (6,234,741) | (0.07) |
| Q3 2021 | 7,728,382 | 3,400,200 | 4,015,750 | (922,404) | (0.01) |
| Q2 2021 | 6,385,990 | 2,455,817 | 3,790,654 | (463,530) | (0.01) |
| Q1 2021 | 5,490,329 | 2,327,403 | 2,960,785 | 2,247,470 | 0.04 |
| Q4 2020 | 3,348,697 | 1,317,050 | 2,291,174 | (4,788,474) | (0.10) |
| Q3 2020 | 2,549,339 | 883,317 | 1,989,169 | (4,116,233) | (0.09) |
Seasonality Factors
December 17, 2020.
HIRE's clients generally follow seasonal retail cycles but precede them by two to three months. The result is two distinct "peak" seasons: (1) February-May, preceding the summer season; and (2) August-October, preceding Halloween, Thanksgiving, and Christmas. Both provide extended spikes to the baseline revenue average of companies in the staffing sector, including the Subsidiaries.
| A summary of acquisitions is as follows: | |
|---|---|
| Q3 2020: The Company acquiredThe Headhunters on | Q2 2021:The Company acquired Pulsify on |
| September 1, 2020. | April 1, 2021. |
| Q4 2020: The Company acquiredThe Kavin Group on | Q3 2021: The Company acquired Leaders on |
| December 11, 2020. | August 27, 2021. |
| Q4 2020: The Company acquiredTaylor Ryan on |
Liquidity & Capital Resources
The Company's cash balances fluctuate significantly from period to period due to the operating subsidiaries' payroll liabilities and acquisition activity. Below is a summary of the Company's working capital balances as at September 30, 2022 and December 31, 2021 excluding convertible debentures and derivatives which are classified as current liabilities but cannot be cash settled in the short term and both contingent consideration and remuneration.
| Period ended | September 30, 2022 | December 31, 2021 |
|---|---|---|
| $ | $ | |
| Cash | 307,165 | 1,742,851 |
| Trade & other receivables | 5,908,952 | 5,543,218 |
| Sales tax receivable | 252,672 | 84,972 |
| Prepaid expenses | 330,052 | 358,635 |
| TOTAL CURRENTASSETS | 6,798,841 | 7,729,676 |
| Bank indebtedness | 1,490,000 | 1,385,000 |
| Trade & other payables | 3,592,959 | 4,391,843 |
| Income tax payable | 698,332 | 551,646 |
| Lease liability | 125,028 | 175,391 |
| Deferred revenue | 432,488 | 10,132 |
| TOTAL CURRENT LIABILITIES | 6,798,841 | 6,514,012 |
| Working capital | 460,034 | 1,215,664 |
The following table summarizes the Company's cash flows for the 9 months ended September 30, 2022 and 2021:
| Period ended | 9 months endedSeptember 30, 2022 | 9 months endedSeptember 30, 2021 |
|---|---|---|
| $ | $ | |
| Operating activities | (1,573,774) | (1,923,576) |
| Investing activities | 233,488 | (4,644,437) |
| Financing activities | (95,400) | 8,605,864 |
| Net increase (decrease)in cash | (1,435,686) | 2,037,941 |
The Company's cash flow from operations was a cash outflow of $1,435,686 for the nine months ended September 30, 2022 (cash inflow $2,037,941– September 30, 2021. Cash inflow from investing activities for the nine months ended September 30, 2022 included a cash inflow from purchase price adjustment of $269,776 for working capital delivered on closing on the Leaders transaction (cash outflow of $4,599,569 – September 30, 2021). Cash outflow from financing activities for 2022 of $95,400 was attributable to a reduction in the amount outstanding on the Company's earn-out payments and lease payments whereas the cash inflow of $8,605,864 for the nine months ended September 30, 2021 was attributable to additional borrowing activity on the Company's revolving credit facility and option and warrant exercises offset by earn-out payments and lease payments.
2022 / MD&A
Q3
The Company has a revolving demand operating facility with an aggregate credit limit of the lesser of $1,500,000 and the percentage of certain qualified receivables. As of September 30, 2022, there was $1,490,000 outstanding (December 31, 2021 – $1,385,000).
HIRE, ProVision, The Headhunters, and Taylor Ryan received Canada Emergency Business Account loans ("CEBA loans") totaling $260,000 in aggregate. The CEBA loans bear no interest until December 31, 2023 and bear interest at 5% per annum thereafter and to their December 31, 2025 maturity date. If 66.6% of the principal is repaid by December 31, 2023, the remaining 33.3% will be forgiven.
The Company has a non-revolving term facility of $5,000,000 that can be drawn in three tranches of $3,000,000, $1,000,000, and $1,000,000 to be used for acquisitions. On August 27, 2021 the Company drew down $3,000,000 to fund part of its acquisition of Leaders. The $3,000,000 bears interest at 12% per annum with monthly interest only payments until August 27, 2024. Financial covenants on the facility include (1) maximum debt to trailing six month annualized adjusted EBITDA of 3.5x starting at February 27, 2022; (2) from August 27, 2021 to February 27, 2022 minimum trailing three month average adjusted EBITDA of $100,000 measured monthly; and (3) minimum debt service coverage ratio of 1.40:1.00 calculated as (a) trailing six month annualized adjusted EBITDA less capital expenditures divided by (b) current debt obligations and distributions to shareholders. The Company is currently in compliance with the financial covenants.
Company acquisitions, including the purchase of The Headhunters and Taylor Ryan, included performance- based consideration provisions. Based on management estimates from cash flows from the businesses for the applicable calculation periods, as at September 30, 2022, the estimated value of the contingent consideration owing to The Headhunters and the contingent remuneration owing to Taylor Ryan were $4,782,948, and $9,212,323, respectively, as at September 30, 2022. Up to 50% of The Headhunters payment is payable in shares at the vendors' discretion, and the Taylor Ryan payment is payable 80% in cash and 20% in common shares of the Company, subject to certain regulatory restrictions and approvals. The payments are due in the fourth quarter of 2022 in the case of The Headhunters and the Company received releases from obligations to pay contingent remuneration owing to Taylor Ryan upon the sale of Taylor Ryan which closed on October 7, 2022. If the obligations to make contingent payments come to fruition, there will be a negative impact on the Company working capital and the Company will likely be required to raise additional capital in order to comply with its contractual obligations.
In addition, although currently characterized as a current liability, the Company has convertible debentures in the amount of $1,636,000 that come due on July 31, 2023. See "Liquidity Risks" below.
The Company's ability to continue its operation is dependent on its success in raising equity through share issuances, suitable debt financing and/or other financing arrangements. While the Company has been successful in raising equity in the past, there can be no guarantee that it will be able to do so in the future. If the Company is unable to obtain the requisite amount of financing it will be required to reduce corporate capacity and/or sell assets each of which would have a material adverse effect on its business and ability to continue as a going concern.
Please see the "Risks Arising from Financial Instruments – Liquidity Risk" section of this MD&A for a schedule of the Company's contractual obligations.
Please see the "Introduction" section of this MD&A for information concerning the Company's ability to continue as a going concern.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Related Party Transactions
The Company considers its related parties to consist of key members of its Board of Directors, senior officers, and companies controlled or significantly influenced by such individuals, which may exert significant influence over the Company's activities.
The Company had no material related party transactions in the nine months ended September 30, 2022, other than what have been disclosed on the FS.
There have been no changes in accounting policies since the Company's December 31, 2021 MD&A.
Critical Accounting Estimates
The following items were accounted for under IAS 20 – Accounting for government grants and disclosure of government assistance:
In 2021, the Company and certain Subsidiaries participated in the Canada Emergency Wage Subsidy program offered by the Government of Canada and received an aggregate $221,943 in government stimulus for the nine months ended September 30, 2021. $94,475 was recognized as a reduction to cost of services while $127,468 was recognized as a reduction to selling, general and administrative expenses. No amounts were received in 2022.
In 2021, certain Subsidiaries participated in the Canada Emergency Rent Subsidy program offered by the Government of Canada and received $23,738 which was recognized as a reduction in selling, general and administrative expenses. No amounts were received in 2022.
The Company recognized $5,232 as effective interest income on CEBA loans for the nine months ended September 30, 2022 ($31,918 – September 30, 2021).
The Company assessed its non-financial assets for indicators of impairment under IAS 36 – Impairment of Assets and determined that indicators of impairment do exist at Pulsify. The recoverable amount of this CGU was determined to be approximately $100,000, which was lower than the carrying amount of $1,498,696. This resulted in an impairment loss of $1,398,696 for the period ended September 30, 2022.
Risks Arising from Financial Instruments
The Company is exposed to risks that arise from its use of financial instruments as described below. There has been no change in the way the Company manages risk during the quarter.
Interest Rate Risk
Interest rate risk is the risk that the fair value of a financial instrument's future cash flows will fluctuate because of changes in market interest rates. The Company's exposure to interest rate risk is low due to limited exposure to long-term investment grade interestbearing debt as at September 30, 2022.
Credit Risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company's credit risk relates primarily to trade and other receivables, which are initially recognized at the stated amount of the receivable. The carrying amount of financial assets represents the maximum credit exposure.
The Company's exposure to credit risk with its customers is influenced mainly by each customer's unique characteristics. The Company does not require collateral for sales on credit. The Company does not offer significant credit terms and has not experienced significant credit losses in the past.
The Company monitors its collection experience monthly and ensures a stringent policy is applied to all past due accounts. The Company establishes an allowance for expected credit losses that corresponds to the specific customers' credit risk, historical trends, and economic circumstances. Subsequent recoveries of amounts previously written off are credited in the consolidated statement of net loss and comprehensive loss. The Company's maximum credit risk is the carrying value of cash and trade and other receivables.
Liquidity Risk
Liquidity risk is the risk that the Company may encounter difficulty in meeting its obligations associated with its financial liabilities. As at September 30, 2022, most of the Company's liabilities are regular monthly obligations except for the earn-out consideration payable to ProVision's former shareholders, the amount payable to the former owner of ProVision and the contingent consideration payable to the former shareholders of The Headhunters, The Kavin Group, and Leaders. The Company has the following undiscounted contractual payment obligations (cross reference to financial statement note indicated in parentheses):
| Period ended | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|
| $ | $ | $ | $ | |
| Trade, payroll, bonuses and other accrued liabilities | 3,174,857 | – | – | – |
| Contingentconsideration(Headhunters, Provision, KavinGroup - FSnote10(b)) | 4,819,848 | – | – | – |
| Contingent remuneration (Tylor Ryan, Leaders – FSnote 10(a) and note 10(b)) | 9,475,926 | 189,000 | 207,650 | 219,050 |
| Deferred consideration (Leaders – FS note 10(b) and12) | 413,333 | 386,666 | 333,333 | – |
| Profit share payable (Taylor Ryan - FS note 10(a)) | 382,770 | – | – | – |
| Lease liability (FS note 11) | 37,038 | 90,738 | – | – |
| CEBA loans (FS note 9) | – | 180,000 | – | – |
| Convertible debentures (FS note 14) | – | 1,636,000 | – | – |
| Term debt facility (FS note 13) | – | – | 3,000,000 | – |
| TOTAL | 18,303,771 | 2,482,404 | 3,540,983 | 219,050 |
As noted in the Liquidity and Capital Resources section and the table above, the Company has contractual obligations for the payments of contingent consideration and contingent remuneration estimated to be $4,782,948 payable to the vendors of The Headhunters and $9,212,323 payable to the vendors of Taylor Ryan as well as a profit share payable to the vendors of Taylor Ryan of $382,770. In Q4, the Company has divested Taylor Ryan, opened discussion with the former shareholders of The Headhunters and The Leaders regarding forbearance of certain maturing obligations, launched efforts to refinance its senior debt, and undertaken efforts to raise additional equity and debt capital (see FS note 21 and FS note 23). There is no assurance that the Company will be able to obtain forbearance, adequate financing, or be able to settle the related debt or equity service costs through the issuance of additional equity, or that such financing will be on terms acceptable to the Company.
Market Risk
Market risk is the risk that a financial instrument's fair value or future cash flows will fluctuate due to changes in the market interest rate. As at September 30, 2022, all financial instrument carrying values approximated fair value.
Disclosure of Outstanding Share Data
As at November 22, 2022, the Company had 84,606,176 common shares issued and outstanding, as well as, a total of 18,2234,565 warrants, 5,202,440 incentive stock options and 2,600,000 deferred share units, each exercisable or convertible into one common share. The Company's convertible debentures are convertible into up to 5,453,334 units comprised of one common share and one warrant convertible into one common share.
Risks & Uncertainties
The Company is subject to several risks and uncertainties, each of which could have an adverse effect on its results, business prospects, or financial position. The risks and uncertainties described herein are not the only ones the Company faces. Additional risks and uncertainties, including those that the Company does not know about now or currently deems immaterial, may also adversely affect the Company's business. If any of the disclosed risks occur, the Company's business may be harmed, and its financial condition, results of operations and prospects may suffer significantly.
The Company has limited operating history and may require additional capital.
HIRE began carrying on business in 2017 and has incurred operating losses and cash flow deficits in many reporting periods since inception. The Company is therefore subject to many of the risks common to earlystage enterprises, including under- capitalization, cash shortages, and limitations with respect to personnel, financial, and other resources. There is no assurance that the Company will be successful and the likelihood of success must be considered in light of its early stage of operations. To the extent the Company has negative operating cash flow in future periods, it may need to allocate a portion of its cash reserves to fund such operating cash flow. The Company may also be required to raise additional funds through the issuance of equity or debt securities. There can be no assurance that the Company will be able to generate a positive cash flow from operations, that additional capital or other types of
financing will be available when needed or that these financings will be on favourable terms.
The need for additional capital.
The future capital requirements of the Company will depend on many factors, including all matters relating to COVID-19, geo-political tension, economic variables such as inflation, the number and size of additional acquisitions consummated, the working capital needs of existing and acquired businesses, the amount of earnout and similar payments required to be paid to acquired business vendors post-acquisition, the rate of growth of its client base, the costs of expanding into new markets (if any), the growth of the staffing industry and the costs of to meet debt obligations. To meet such capital requirements, the Company may consider additional financing (including the incurrence of debt or the issuance of additional common shares) to fund all or a part of a particular venture, which could entail a dilution of current equity interests in the Company. There can be no assurance that additional funding will be available or, if available, that it will be available on acceptable terms. If adequate funds are not available, the Company may have to reduce substantially or otherwise eliminate certain expenditures. There can be no assurance that the Company will raise additional capital if its capital resources are depleted or exhausted. Furthermore, due to regulatory impediments or a lack of investor appetite, the ability of the Company to issue additional common shares or other securities exchangeable for or convertible into common shares to finance acquisitions may be restricted.
The Company may not be able to obtain the financing necessary to implement the Company's business plan.
A key component of the Company's long-term strategy is to consolidate the highly fragmented staffing industry. There is no guarantee that capital markets participants will support the Company's business strategy or that required capital will be available on acceptable terms or at all. A failure to access financing to complete one or more acquisitions could have a material adverse effect on the Company's business and the financial condition and results of the Company. Also, while business owners show interest in joining the Company, there is no assurance that negotiations will result in completed acquisitions.
There are risks inherent in the Company's acquisition strategy.
The Company's business plan includes the pursuit of business acquisitions in Canada, the United States and/or internationally consistent with its investment strategy. Such acquisitions involve inherent risks including but not limited to: (a) unanticipated costs or liabilities; (b) potential loss of key employees of the Company or the business acquired; (c) unanticipated changes in business, industry or general economic conditions that affect the assumptions underlying the acquisition; and (d) decline in the value of the acquired business or assets. Certain acquisitions include: (a) obligations to pay additional cash and/or share amounts to the vendors based on financial targets within a prescribed period following the closing of the acquisition; and (b) obligations of the vendors to compensate the Company where post-acquisition operational thresholds are not met. There can be no assurance that an acquired business will achieve the desired levels of revenue, profitability, productivity or otherwise perform as expected and, if the business fails to meet prescribed operational thresholds, that the Company will be able to enforce contractual repayment obligations. Any one or more of these factors could cause the Company to fail to realize the anticipated benefits of the acquisition in question. Additionally, there can be no assurance that the Company will be able to successfully identify suitable acquisition targets and complete acquisitions on terms beneficial to the Company and its shareholders. The Company's failure to successfully execute its acquisition strategy could have a material adverse effect on the Company's business. Moreover, the Company may be required to use available cash, incur debt, issue securities, or a combination of these to complete an acquisition.
ability to raise capital, to operate or develop its business and could dilute its existing shareholders' holdings as well as decrease the trading price of common shares. In addition, the process of acquiring and integrating companies into the Company's existing business may also result in unforeseen difficulties which may absorb significant management attention, require significant financial resources and be disruptive to operations causing the business and results of operations to suffer materially. There is no assurance that when evaluating a possible acquisition, the Company will correctly identify and manage the risks and costs inherent in the business or asset to be acquired.
The price of the securities of the Company may fluctuate significantly, which may make it difficult for holders of securities of the Company to sell their securities at a time or price they find attractive.
The price of the Company's common shares may be volatile and may be subject to wide fluctuations as a result of a variety of factors, many of which are beyond its control including, but not limited to, the following:
- actual or anticipated quarterly fluctuations in its operating results and financial condition;
- changes in financial estimates or publication of research reports and recommendations by financial analysts;
- reports in the press or investment community generally or relating to the Company's reputation or the industry in which it operates;
- strategic actions by the Company or its competitors, such as acquisitions, restructurings, dispositions, or financings;
- fluctuations in the stock price and operating results of the Company's competitors; future sales of the Company's securities;
- proposed or adopted regulatory changes or developments;
- the impact of COVID-19 on the Company's personnel, business operations and financial condition;
- domestic and international economic factors unrelated to the Company's performance;
- the impact of lock-up agreements and the release of securities from these agreements; and
- market conditions and changes in economic variables.
This could affect the Company's future flexibility and
Financial markets have recently experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of companies that have often been unrelated to the operating performance, underlying asset values or prospects of such companies.
Accordingly, the market price of common shares may decline even though the Company's operating results, underlying asset values or prospects may not correlate. The Company anticipates that continuing fluctuations in price and volume will continue.
The market price of the Company's common shares may decline due to the large number of convertible securities issued and outstanding.
Sales of substantial amounts of common shares in the public market, or the perception that these sales could occur, in particular following the exercise of convertible securities of the Company, some of which could be exercisable or convertible at significant discounts to the current market price, could cause the market price of the Company's common shares to decline. These sales could also make it more difficult for the Company to sell equity or equity-related securities in the future at a time and price that it deems appropriate.
The Company may issue additional equity securities or engage in other transactions that could dilute its book value or affect the priority of common shares, which may adversely affect the market price of the common shares.
The Board of Directors may determine from time to time that it needs to raise additional capital by issuing additional common shares or other securities. Except as otherwise described in this MD&A, the Company will not be restricted from issuing additional common shares, including securities that are convertible into or exchangeable for, or that represent the right to receive, common shares. Because the Company's decision to issue securities in any future offering will depend on market conditions and other factors beyond the Company's control, it cannot predict or estimate the amount, timing, or nature of any future offerings, or the prices at which such offerings may be affected. Additional equity or convertible offerings may dilute the holdings of the Company's existing shareholders or reduce the market price of the common shares, or both. Holders of common shares are not entitled to preemptive rights or other protections against dilution. New investors also may have rights, preferences and privileges that are senior to, and that adversely affect, the then-current holders of the Company's common shares. Additionally, if the Company raises additional
capital by making offerings of debt securities or preferred shares, upon liquidation of the Company, holders of its debt securities or preferred shares, and lenders with respect to other borrowings, may receive distributions of its available assets before the holders of the common shares.
The Company is reliant on key management.
The success of HIRE is dependent upon the ability, expertise, and judgment of its senior management. The Company's future success depends on its continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and the Company may incur significant costs to attract and retain them. The loss of the services of a member of the Company's executive management, or an inability to attract other suitably qualified persons when needed, could have a material adverse effect on the Company's ability to execute on its business plan and strategy, and the Company may be unable to find adequate replacements on a timely basis, or at all.
Furthermore, a loss of key management of a past or future acquiree could materially and adversely impact the anticipated benefits of the acquisition in question.
Conflicts of interest.
The Company will be subject to various potential conflicts of interest because its directors are engaged in a range of business activities. In addition, the Company's executive officers and directors may devote time to their outside business interests, so long as such activities do not materially or adversely interfere with their duties to the Company. In some cases, the Company's executive officers and directors may have fiduciary obligations associated with these business interests that interfere with their ability to devote time to the Company's business and affairs and that could adversely affect the Company's operations. These business interests could require significant time and attention of the Company's executive officers and directors. In addition, the Company may also become involved in other transactions which conflict with the interests of its directors and the executive officers who may from time to time deal with persons, firms, institutions or corporations with which the Company may be dealing, or which may be seeking investments similar to those desired by it. The interests of these persons could conflict with those of the Company.
In addition, from time to time, these persons may be competing with the Company for available investment opportunities.
In the event that such a conflict of interest arises at a meeting of the directors of HIRE, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In appropriate cases HIRE will establish a special committee of independent directors to review conflicts of interest. Conflicts, if any, will be subject to the procedures and remedies as provided under the Business Corporations Act (British Columbia) ("BCBCA"). The provisions of the BCBCA require a director or officer of a corporation who has a material interest in a contract or transaction of the corporation, or a director or officer of a corporation who is a director or officer of or has a material interest in an entity who has a material interest in a contract or transaction with the corporation, to disclose his or her interest and, in the case of directors, to refrain from voting on any matter in respect of such contract unless permitted under the BCBCA, as the case may be. Other than as indicated, HIRE has no other procedures or mechanisms to deal with conflicts of interest.
The business of the Company is subject to broader economic factors.
Any adverse change in general economic conditions may adversely affect the Company's business and financial condition. The demand for workforce solutions and other offered or proposed services to be offered by the Company are highly dependent upon the state of the economy, and upon the staffing needs and financial resources of the Company's clients, which inherently creates uncertainty and volatility. As economic activity slows, the need for temporary and new employees decreases as may demand for other services offered or proposed to be offered by the Company. Significant declines in demand in any region or industry in which the Company has a major presence may significantly decrease its revenues and profits. Deterioration in economic conditions or conditions in financial or credit markets could also have an adverse impact on the ability of the Company to collect payment for services.
It is difficult for the Company to forecast future demand for its services due to the inherent uncertainty in forecasting the direction and strength of economic cycles, the terms and nature of future staffing assignments and the financial viability of its clients. Additionally, the Company may experience a decline in revenue before a decline in economic activity is seen in the broader economy. When it is difficult for the Company to accurately forecast future demand, the Company may not be able to determine the optimal level of personnel and investment necessary to profitably take advantage of growth opportunities.
The Company may be unable to find eligible candidates to meet client needs.
The Company's staffing and recruiting business consists of the placement of individuals seeking employment. There can be no assurance that candidates for employment will continue to seek employment through the Company and the Company's subsidiaries. Candidates generally seek temporary or permanent positions through multiple sources, including the Company and its competitors. Canada's employment market has recently experienced instability principally attributable to the economic impact of COVID-19 including high rates of turnover and tight labour supply.
The Company operates in a highly competitive industry and may be unable to retain clients or market share.
The staffing, human resources consulting and IT services industries are highly competitive and the barriers to entry are low. There are many competitors and new competitors are entering the market regularly. Current and new competitors may be better capitalized, have a more robust operating history, have more expertise, and provide comparable or superior services at the same or lower cost. Longer-term contracts form a declining portion of the Company's revenue. There is no assurance that the Company will be able to retain clients or its market share in the future, nor can there be any assurance that it will maintain or increase its current margins, or reach and sustain profitability in light of competitive pressures.
The barriers to client portability are low.
The Company's stability and growth significantly depends on client relationships. In most cases, a small number of people have primary responsibility for a client relationship. There is a risk that when an employee leaves the Company, the clients who have established relationships with the departing employee may move the business to the employee's new employer. If the Company is unable to retain important client relationships, the business, financial condition and results of the Company's operations may be adversely affected
The Company may be subject to litigation.
The Company may become party to litigation, either as plaintiff or defendant, from time to time in the ordinary course of business including but not limited to actions related to the Company's commercial relationships, employment matters, and services delivered. Such matters include both actual as well as threatened claims.
Should any litigation in which the Company becomes involved result in an unfavourable outcome, it could adversely affect the Company's ability to continue operating and may impact the market price for common shares. Even if litigation results in a favourable outcome to the Company, litigation can redirect significant company resources away from operational matters.
The Company may not be able to prevent damages resulting from a cybersecurity attack.
The Company's business uses confidential information about candidates, (successful and unsuccessful), employees and clients. The Company may be subject to cyberattacks, computer viruses, social engineering schemes and other means of unauthorized access to its systems. The Company has not experienced any material losses to date related to cyberattacks or other information security breaches, but there can be no assurance that the Company will not incur such losses in the future. The security controls over sensitive or confidential information and other practices implemented by the Company and its third- party vendors may not prevent the improper access to, disclosure of, or loss of such information. Failure to protect the integrity and security of such confidential and/or proprietary information could expose the Company to fines, litigation, contractual liability, damage to its reputation and increased compliance costs, the costs of which may not be recoverable by insurance, in whole or in part, or in a timely manner if at all. In addition, as cyber threats continue to evolve, the Company may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities.
Damage to the Company's brand may harm its results.
The Company depends on its reputation, the reputation of its Subsidiaries, and the reputation of all of the Company's employees and representatives. Anything that harms these reputations will likely harm its business results. As a provider of recurring contract and onoccurrence permanent placement staffing, these reputations are dependent, in part, on the performance of the employees it places. If clients become dissatisfied with the performance of those employees, or if any of those employees engages in or are believed to have engaged in conduct that is harmful to clients, the Company's ability to retain existing clients and maintain or expand its client base may be negatively affected. The Company's ability to attract suitable candidates to fulfil both recurring contract and on-occurrence permanent placement positions is also affected by the external perception of its brand and reputation as well
as that of its Subsidiaries, employees and representatives.
Damage to the Company's reputation can be the result of the actual or perceived occurrence of any number of events and could include any negative publicity, whether true or not. Although the Company strives to operate in a manner that is respectful to all stakeholders and takes care in protecting its image and reputation, the Company does not ultimately have direct control over how it is perceived by others. Reputational damage could negatively affect its ability to attract and retain employees, decrease shareholder confidence, increase challenges in maintaining positive relationships with prospective clients and other industry participants, and impede its ability to execute its business plan, thereby having a material adverse impact on financial performance, financial condition, cash flows and growth prospects.
The Company may not be able to obtain access to technology necessary to compete in the recruiting industry.
The success of the Company's business depends on the demand for qualified employees and contractors. Technological innovation that leads to the automation of an increasing number of tasks poses a risk to the staffing industry. The Company attempts to mitigate this risk by searching for IT focused acquisition targets to broaden its revenue streams and diversify its operations.
In addition, the Company's candidates and clients increasingly demand technological innovation to improve the access to and delivery of its services. The Company faces extensive pressure for lower prices and new service offerings and must invest in and successfully adopt new technology to remain relevant to its clients and candidates. The Company attempts to mitigate this risk by implementing new technologies into its search and retention processes.
Alignment of the Company's cost structure with revenue.
The Company must ensure that its cost structure and workforce continue to be in line with the demand for its services. Failure to align the Company's cost structure and headcount with net revenue could adversely affect the Company's business, financial condition, and results of operations. The Company attempts to mitigate the risks of short-term revenue shifts by having a large portion of employee compensation based on the revenue of the employee's business unit. The Company is a growth company and in order to facilitate growth the
Company must continually invest in resources and overhead costs ahead of planned revenue and accordingly the Company may operate with substantial negative cash flow in the future.
Lenders may penalize or otherwise take action against the Company if it is unable to meet its obligations under financial instruments.
The Company's ability to continue its operations is dependent upon the continued support of its shareholders and its ability to obtain additional financing as and when required. The Company has drawn down funds on its term debt facility (the "Term Facility") and, from time to time, the Company has accessed its revolving demand operating facility (the "Operating Facility") in order to finance its operations and/or acquisitions between equity financings. The Company's failure to observe and implement cost controls, a deterioration of economic conditions and/ or the occurrence of other events, may negatively impact the Company's business resulting in a failure to comply with the covenants of the Term Facility and/or Operating Facility in the future. Although the Company is currently in compliance with the terms of the Term Facility and Operating Facility, the failure to comply with the terms of the Term Facility or Operating Facility in the future could limit the Company's ability to borrow additional funds under the Term Facility or Operating Facility or from other borrowing facilities or lenders in the future. The Operating Facility is a demand facility and may also be cancelled or amended at any time by the lender. In such circumstances, the Company may not be able to secure alternative financing or may only be able to do so at significantly higher costs. The Company attempts to mitigate these risks by only using the Operating Facility to fund temporary cash requirements, through the negotiation of flexible financial covenants to the extent it is able, and by maintaining a strong relationship with its lenders.
Management has discretion concerning unallocated funds.
Management has discretion concerning the use and allocation of the Company's available funds as well as the timing of their expenditure. As a result, shareholders must rely on the judgment of management for the application of the available funds. The results and the effectiveness of the application of the funds are uncertain. If the Company's cash reserves are not applied effectively, the Company's operating results may suffer.
The Company's staffing solutions are subject to extensive government regulation and the imposition of additional regulations, which could materially harm the Company's future earnings.
The Company's workforce solutions are subject to extensive government regulation. While the Company has had no material difficulty complying with regulations in the past, there can be no assurance that the Company will be able to continue to obtain all necessary licenses or approvals or that the cost of compliance will not materially increase beyond the expectations of management. The cost to comply, and any inability to comply with government regulation or licensing requirements, could have a material adverse effect on the Company's business and financial results. Increased government regulation of the workplace or of the employer-employee relationship, or judicial or administrative proceedings related to such regulation, could materially harm the Company's business. Additionally, the Company's recurring contract staffing services include employing individuals on a temporary basis. The wage rates that the Company pays to temporary workers are based on many factors including government mandated minimum wage requirements and benefits. There are anticipated legislative changes to the minimum wage requirements in jurisdictions where the Company operates and if the Company is unable to increase the fees charged to its clients to absorb any increased costs related to such legislative changes, the Company's results of operations and financial condition could be adversely affected. In addition, to the extent that government regulation results in increases to other employment related costs, such as unemployment insurance premiums and mandatory pension contributions, such costs could adversely impact the Company's profit margins.
Impact of COVID-19.
The World Health Organization declared COVID-19 a pandemic on March 11, 2020. Beginning in the second half of March 2020, many jurisdictions in North America, including where the Company and its Subsidiaries conduct operations, declared states of emergency, imposed quarantines and restrictions on travel, and shut down non-essential businesses resulting in an economic slowdown. The direct effects of government responses to the pandemic, applied at the federal, provincial, and municipal government levels have had, in certain cases, a material impact on the Company's clients.
Future crises may be precipitated by many causes, including natural disasters, public health crises, geopolitical instability, changes to energy prices or sovereign defaults. These factors may impact the ability of the Company to obtain equity or debt financing in the future and, if obtained, on terms favorable to the Company. Increased volatility and market turmoil can adversely impact the Company's operations and the value and price of the Company common shares.
Also, there is a risk that one or more of the Group's current service providers may themselves be adversely impacted by difficult economic circumstances, which could have a material adverse effect on the Company's business, financial condition, results, and prospects.
The Company does not anticipate paying dividends on its common shares.
The Company has not previously paid any dividends and does not anticipate paying any dividends in the foreseeable future. Dividends paid by the Company would be subject to tax and, potentially, withholdings. Any decision to declare and pay dividends in the future will be made at the discretion of the Board of Directors and will depend on, among other things, financial results, cash requirements, contractual restrictions and other factors that the Board of Directors may deem relevant. As a result, investors may not receive any return on investment, other than an appreciation in share price.
The Company is a holding company with its only asset being ownership of its Subsidiaries.
The Company is a holding company and essentially all of its assets are the capital stock of its Subsidiaries.
Consequently, the Company's cash flows and ability to leverage future business opportunities are dependent on the earnings of its direct and indirect subsidiaries and the distribution of those earnings to the Company. The ability of the Subsidiaries to pay dividends and other distributions will depend on their operating results and will be subject to applicable laws and regulations which require that solvency and capital standards be maintained by such companies and contractual restrictions contained in the instruments governing their debt, if any. In the event of a bankruptcy, liquidation or reorganization of any of its subsidiaries, holders of indebtedness and trade creditors will generally be entitled to payment of their claims from the assets of the Subsidiaries before any assets are made available for distribution to the Company.
The Company's business could be disrupted as a result of actions of certain shareholders or potential acquirers of the Company.
If any of the holders of common shares commence a proxy contest, advocate for change that is not necessarily in the best interests of the Company and all of its stakeholders, make public statements critical of the Company's performance or business, or engage in other similar activities, or if the Company becomes target to a potential acquisition, then the Company's business could be adversely affected because the Company may have difficulty attracting and retaining employees and clients due to perceived uncertainties as to its future direction and negative public statements about its business. In addition, responding to proxy contests and other similar actions by shareholders is likely to result in the Company incurring substantial additional costs and will divert the attention of management and employees; and, if individuals are elected to the Board of Directors of the Company with a specific agenda, the execution of the Company's strategic plan may be disrupted or a new strategic plan altogether may be implemented, which could have a material adverse impact on the Company's financial condition or results of operations. Further, any of these matters or any such actions by shareholders may impact and result in volatility of the price of the Company's common shares.
Events after Quarter End
On October 7, 2022, the Company announced the sale of Taylor Ryan and the transaction was cashless. The purchasers received 100% of the shares of Taylor Ryan Inc., and will receive transitional services from HIRE after closing, for a period no longer than 12 months. In exchange, the Company received releases from obligations to pay contingent remuneration and profit share payable totaling $9,595,093. In Q4, the Company expects to record reductions in assets and liabilities related to Taylor Ryan and expects that this sale transaction will result in a gain, that will be recorded in Q4 2022. The numbers are considered provisional, subject to final audit.
As part of the transaction, certain changes were made to the Company's senior secured lending facilities. The Company made a payment of $300,000 to the Revolving Demand Operating Facility (Note 8) and the credit limit was reduced to $1,200,000, with subsequent paydowns and lowered credit limits of $200,000 scheduled for December 2022 through February 2023. The Term Debt Facility (Note 13) was amended to require paydowns of $300,000 scheduled for February 2023 through May 2023. Additionally, the Company purchased certain receivables of Taylor Ryan Inc. in exchange for a $1.0 million secured promissory note bearing interest at 8% per annum and maturing on October 7, 2025. Collections on the purchased Taylor Ryan receivables will be paid 70% to paydown the Term Debt Facility and 30% to paydown the Taylor Ryan promissory note. The Taylor Ryan promissory note will rank junior to the Company's senior secured lending facilities.
In Q4, the Company has divested Taylor Ryan, opened discussion with the former shareholders of The Headhunters and The Leaders regarding forbearance of certain maturing obligations, launched efforts to refinance its senior debt, and undertaken efforts to raise additional equity and debt capital (see FS note 21 and FS note 23). There is no assurance that the Company will be able to obtain forbearance, adequate financing, or be able to settle the related debt or equity service costs through the issuance of additional equity, or that such financing will be on terms acceptable to the Company..
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