Business context and reporting period
The filing is a Form 10-Q for the 13 weeks ended March 27, 2015. The registrant named in the filing is Command Center, Inc., not Hirequest, Inc.; investors should verify the entity relationship. Command Center operated 57 on-demand labor stores in 22 states, primarily staffing manual-labor positions.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $18.98 million | $18.46 million |
| Gross profit / margin | $5.37 million / 28.3% | $4.88 million / 26.4% |
| Operating income / margin | $189,479 / 1.0% | $595,957 / 3.2% |
| Net income | $81,538 | $510,709 |
| Operating cash flow | $546,009 | $2.08 million |
| Capital expenditures | $38,315 | $30,096 |
| EBITDA (non-GAAP) | $396,000 | $678,000 |
Revenue rose 2.8% year over year; same-store sales were flat. SG&A increased to $5.14 million (27.1% of revenue) from $4.22 million (22.8%). Basic and diluted EPS were each reported as $0.00, rounded; the filing reports weighted-average diluted shares of 67.0 million versus 61.6 million.
At quarter-end, cash was $7.95 million, accounts receivable net was $8.47 million, total current assets were $19.55 million, and current liabilities were $5.59 million. The company had $1.97 million outstanding under its receivables-purchase facility and $2.61 million of long-term workers’ compensation claims liability. The facility has a $15 million maximum, bears interest at LIBOR plus 3.0% (3.2% effective rate), and is secured by company assets. A $3.6 million letter of credit for workers’ compensation collateral reduces facility availability; the company reported compliance with its covenant.
Material changes versus the prior comparable period
- Gross margin improved 1.9 percentage points, while operating margin fell 2.2 points and net income declined about 84%.
- Management attributed revenue growth mainly to five branches opened over the prior nine months. Bakken-region revenue declined 17.1%, offset by growth in other established branches.
- Workers’ compensation expense fell to 1.7% of revenue from 4.4%, which management attributed to claims management, job selection, and safety measures. Staffing costs also reflected relatively higher wages and payroll taxes in the Bakken region.
- Operating cash flow decreased to $546,009 from $2.08 million. Financing cash use was $1.16 million, primarily reflecting repayment of the receivables facility and $235,950 of cash paid in a stock retirement.
Outlook, risks, contingencies, and unusual items
- No quantified revenue, earnings, or margin guidance is provided. Management cited plans for growth and said hiring and training, along with expanded equity compensation for regular employees, increased SG&A.
- The company is largely self-insured under a high-deductible workers’ compensation policy, with responsibility for claims up to $500,000 per incident. On April 1, 2015, it renewed coverage and increased its required letter-of-credit collateral by $2.1 million to $5.7 million, further reducing facility availability.
- A prior workers’ compensation insurer, Freestone Insurance, is in liquidation and holds $1.8 million of company collateral. The company believes its claim has priority but cannot determine whether the collateral will be returned in full; the receiver was not expected to decide claims before the December 15, 2015 bar date.
- After quarter-end, the board authorized a stock-repurchase program of up to $5.0 million over three years, funded from working capital. The company also entered a 65-month lease to relocate its headquarters to Denver, expected to become operational in August 2015.
- The common stock traded on OTCQB at low prices and low volumes; the filing warns that shareholders may have difficulty reselling shares. Management reported effective disclosure controls and no material change in internal control over financial reporting.
- The filing reports no material change in legal proceedings or previously disclosed risk factors. The reported quarter’s results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Confirm the registrant’s identity and its relationship, if any, to Hirequest, Inc.
- Assess whether higher SG&A and compensation costs can be supported by growth, given the sharp year-over-year decline in operating income and net income.
- Monitor workers’ compensation claims, collateral requirements, and available borrowing capacity after the letter of credit increased to $5.7 million.
- Track recovery prospects and timing for the $1.8 million Freestone collateral claim.
- Evaluate the effects of the proposed share repurchases and headquarters lease on working capital and liquidity.