Hirequest, Inc. quarterly report, Q1 FY2017

Business context and reporting period

The supplied filing is Command Center, Inc.’s unaudited Form 10-Q for the thirteen weeks ended March 31, 2017—not a filing identified in its text as Hirequest, Inc. The company provides on-demand staffing services and reported operating 65 stores in 21 states as of May 12, 2017. Comparisons are with the thirteen weeks ended March 25, 2016.

Financial results and liquidity

SG&A was $5.34 million, or 23.9% of revenue, versus $5.17 million, or 27.1%. EBITDA was $395,000 and adjusted EBITDA was $405,000; both are non-GAAP measures. Basic and diluted EPS were each reported as $0.00.

At March 31, 2017, cash was $3.75 million, current assets were $15.18 million, and current liabilities were $3.46 million. Total assets were $24.04 million and total liabilities were $4.99 million. The balance sheet reports no conventional debt balance; the company used a full-recourse accounts-receivable purchase facility with a $14 million maximum. Approximately $92,000 was available under it at quarter-end, and the company was in compliance with its stated covenant. Its $5.7 million letter of credit for workers’ compensation collateral reduced facility availability and was increased to $6.0 million on April 7, 2017.

Material changes versus the prior period

• Revenue increased 17.2%. The Hancock acquisition contributed approximately $1.7 million, or 7.5% of quarterly revenue; revenue from other stores also increased.
• Gross margin improved by 1.0 percentage point, while SG&A rose modestly in dollars but declined as a share of revenue.
• The company moved from an operating and net loss to positive income, and operating cash flow improved by about $3.2 million.
• Cash and restricted cash totaled $3.75 million at quarter-end, up from $3.05 million at the beginning of the period. Financing cash use primarily reflected reduced amounts under the accounts-receivable facility.

Outlook, risks, and unusual items

The filing provides no quantified revenue or earnings guidance. Management cautions that quarterly results are not necessarily indicative of full-year results. It attributes improved performance in part to higher revenue and lower SG&A as a percentage of revenue.

• Customer concentration: One customer generated 11.4% of Q1 2017 revenue; management warns that losing a key customer could reduce revenue.
• Workers’ compensation exposure: The company is largely self-insured under a high-deductible program and had approximately $8.1 million of cash and non-cash collateral at March 31, including a letter of credit.
• Freestone collateral: The company’s former insurer is in liquidation. The company has a $500,000 allowance against deposits and says recovery of the remaining collateral is uncertain; the court-directed claims procedure was pending.
• Contingencies and commitments: Operating lease obligations totaled approximately $1.81 million. The company said other legal proceedings were not expected to have a material adverse effect.
• Accounting changes: The company was evaluating the impact of the new revenue recognition standard, expected to take effect for it in 2018, and the forthcoming lease standard.

Important facts for investors to verify

• Confirm the issuer: the provided document names Command Center, Inc., while the request metadata names Hirequest, Inc.
• Review customer concentration, including the 11.4% revenue contribution, and subsequent customer activity.
• Check the accounts-receivable facility balance, borrowing-base availability, covenant compliance, and the effect of the increased letter of credit.
• Monitor workers’ compensation claim estimates, collateral requirements, and the amount ultimately recoverable from the Freestone liquidation.
• Assess whether revenue growth and improved margins continued beyond this quarter; the filing gives no formal outlook.