Hirequest, Inc. (issuer named in request) — 2016 third-quarter 10-Q summary
Issuer discrepancy: The supplied filing identifies the registrant as Command Center, Inc., not Hirequest, Inc. Confirm that this is the intended filing before relying on the figures. The report covers the 13 and 39 weeks ended September 23, 2016; the comparable periods ended September 25, 2015.
Business context
Command Center operated 61 on-demand labor stores in 21 states, providing temporary manual-labor staffing. It acquired the assets of Hancock Staffing’s Arkansas and Oklahoma operations in June 2016.
Financial results and liquidity
| Metric | Third quarter 2016 | 39 weeks 2016 |
|---|---|---|
| Revenue | $26.43 million, up 6.4% | $67.17 million, up 0.8% |
| Gross profit / margin | $6.84 million / 25.9% (26.1% prior year) | $16.98 million / 25.3% (27.1% prior year) |
| Operating income / margin | $1.12 million / 4.2% (prior-year margin 5.6%) | $1.02 million / 1.5% (prior-year margin 3.8%) |
| Net income | $838,000, versus $820,000 | $578,000, versus $1.43 million |
| Operating cash flow | Used $2.76 million, versus $1.32 million provided in the prior-year period |
Cash was $490,000 at September 23, down from $7.63 million at December 25, 2015. Current assets were $15.21 million and current liabilities $2.89 million. Total liabilities were $4.81 million. The account purchase agreement balance was $71,615; the company also reported approximately $8.3 million of receivables sold under the facility and a $5.7 million letter of credit that reduced availability. The $14 million facility is full recourse and secured by company assets.
Management said operating cash flow plus availability under the account purchase agreement should provide adequate liquidity for the next 12 months. No specific earnings or revenue guidance was provided.
Material changes and management commentary
- Quarterly revenue growth included approximately $2.0 million from Hancock. North Dakota revenue fell 31.5% year over year amid lower Bakken-region staffing demand; excluding Hancock and North Dakota, revenue rose 4.3%.
- For the 39-week period, North Dakota revenue declined 38.3%. Excluding Hancock and North Dakota, revenue increased 4.7%.
- Year-to-date staffing costs rose to 74.7% of revenue from 72.9%. The prior period included an approximately $700,000 workers’ compensation actuarial benefit; management estimated the adjusted prior-period cost ratio at 74.0%. Higher costs also reflected lower-margin regional mix and increased costs in other branches.
- Third-quarter SG&A increased approximately $547,000 year over year, including higher payroll taxes, workers’ compensation accruals, and bad-debt expense. Receivables aged to a 44-day weighted average from 37 days a year earlier; the allowance for doubtful accounts was approximately $795,000.
- The Hancock purchase consideration was $2.69 million, including $1.98 million cash, a $220,000 one-year holdback, and $485,145 of assumed liabilities. It added $1.18 million of goodwill and $659,564 of identified intangible assets.
- The company repurchased 3.40 million shares for approximately $1.38 million in the first 39 weeks of 2016; approximately $2.2 million remained under the repurchase authorization.
Risks, contingencies, and unusual items
- Workers’ compensation coverage is largely self-insured below $500,000 per incident under the Chubb large-deductible policy. Cash and non-cash collateral totaled approximately $8.1 million.
- Recovery of collateral held by former carrier Freestone Insurance remains uncertain; the company had reserved $500,000 against deposits. A Minnesota workers’ compensation claim dispute was also described.
- The filing reports no material change in previously disclosed risk factors and states that management considered disclosure controls effective. The company noted limited trading volume and liquidity in its OTCQB-listed stock.
- Management cautioned that interim results are not necessarily indicative of full-year results. The 2016 Stock Incentive Plan, covering up to 6 million shares over 10 years, was subject to shareholder approval.
Important facts to verify
- Whether this Command Center, Inc. filing is the intended filing for Hirequest, Inc.
- Cash availability and covenant headroom under the recourse receivables facility, including the effect of the $5.7 million letter of credit.
- Receivables aging, bad-debt exposure, and the recoverability of Freestone collateral.
- Ongoing workers’ compensation costs and performance in North Dakota and other branches.
- The effects of the Hancock acquisition and the shareholder vote on the proposed incentive plan.