Hirequest, Inc. (then Command Center, Inc.) — Form 10-Q Summary
Reporting period: The 13 and 26 weeks ended June 29, 2018. The filing was made under Command Center, Inc.; it describes a manual, on-demand staffing business operating 67 branches across 22 states as of August 6, 2018.
Financial performance
| Metric | 13 weeks ended June 29, 2018 | 13 weeks ended June 30, 2017 | 26 weeks ended June 29, 2018 | 26 weeks ended June 30, 2017 |
|---|---|---|---|---|
| Revenue | $24.18 million | $24.50 million | $46.64 million | $46.85 million |
| Gross profit / margin | $6.28 million / 26.0% | $6.49 million / 26.5% | $11.87 million / 25.5% | $12.23 million / 26.1% |
| Operating income (loss) | $820,000 | $1.23 million | ($892,000) | $1.53 million |
| Net income (loss) | $563,000 | $735,000 | ($654,000) | $917,000 |
| Adjusted EBITDA (non-GAAP) | $1.30 million | $1.34 million | $1.71 million | $1.74 million |
- Second-quarter SG&A was $5.37 million, or 22.2% of revenue, versus $5.16 million, or 21.1%, a year earlier. Staffing-service costs rose to 74.0% of revenue from 73.5%.
- First-half operating cash flow was a use of $87,000, versus $935,000 provided in the prior-year period. Investing activities used $65,000 and financing activities used $1.81 million, including $719,000 for share repurchases and a $1.09 million reduction in the account purchase facility. Cash was $5.76 million and restricted cash $58,000 at period end.
- At June 29, current assets were $16.73 million and current liabilities $3.45 million, a $13.28 million working-capital surplus. Total liabilities were $4.45 million. No balance was reported outstanding under the account purchase facility at period end; approximately $49,000 was available under it. The facility maximum was $14 million, but a $6.2 million letter of credit for workers’ compensation collateral reduced availability.
Changes, drivers, and material items
- Revenue declined 1.3% in the quarter and 0.4% in the first half. Management attributed the decreases to higher-than-normal turnover in sales positions amid competition for workers in a low-unemployment job market.
- Management cited higher workers’ compensation costs and field-team wages and payroll taxes as reasons for lower gross margins, partly offset by lower state unemployment, per diem, and transportation costs.
- First-half SG&A increased $2.07 million year over year. It included a $1.54 million reserve increase against the Freestone workers’ compensation deposit, approximately $565,000 in executive severance, and a $100,000 proxy-contest settlement expense. These items explain the first-half operating loss; adjusted EBITDA excludes specified nonrecurring charges and is not a GAAP measure.
- Freestone Insurance Company is in liquidation. The company reduced its $1.8 million deposit carrying value to $260,000, estimating that recovery may be limited and that the remaining carrying amount could be lost. Recovery depends on court proceedings and the available liquidation assets.
- The company repurchased approximately 104,000 shares for $590,000 during the quarter at an average $5.69 per share; about $3.9 million remained under the repurchase authorization. The filing reports additional post-quarter repurchases, with different amounts and cutoff dates in separate sections.
Outlook, risks, and other disclosures
The filing provides no quantified earnings or revenue guidance. Management states that interim results are not necessarily indicative of full-year results. Key exposures include recruiting and retaining sales staff in a competitive labor market, workers’ compensation claims and collateral requirements, and uncertainty over recovery of the Freestone deposit. One customer represented 10.4% of accounts receivable and 7.9% of revenue for the period. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether sales-team turnover has eased and revenue and gross-margin trends have improved.
- Cash generation and facility availability, including the impact of the workers’ compensation letter of credit.
- Freestone liquidation developments and the basis for any further changes to the deposit reserve.
- The ongoing costs and pace of share repurchases, and the differing post-quarter repurchase figures stated in the filing.
- How much first-half weakness reflects continuing operating conditions versus severance, proxy-settlement, and Freestone-related charges.