Filing summary
Registrant identity: The supplied filing is for Command Center, Inc., not Hirequest, Inc. It reports the quarter ended September 27, 2013 (13 weeks) and the year-to-date period of 39 weeks ended that date. Financial statements are unaudited.
Business context and results
Command Center provided temporary semi-skilled and unskilled workers across several industries and operated 57 stores in 23 states. Management attributed lower revenue chiefly to winding down disaster-recovery contracts and a change in organizational structure, while emphasizing improved operating cost control.
| Metric | Q3 2013 | Q3 2012 | 39 weeks 2013 | 39 weeks 2012 |
|---|---|---|---|---|
| Revenue | $25.91 million | $28.38 million | $69.11 million | $71.75 million |
| Gross profit / margin | $6.68 million / 25.8% | $7.34 million / 25.9% | $17.79 million / 25.7% | $17.99 million / 25.1% |
| Operating income / margin | $2.20 million / 8.5% | $0.98 million / 3.4% | $2.93 million / 4.2% | $2.04 million / 2.8% |
| Net income / margin | $1.23 million / 4.7% | $0.72 million / 2.5% | $1.71 million / 2.5% | $1.00 million / 1.4% |
| Diluted EPS | $0.02 | $0.01 | $0.03 | $0.02 |
| EBITDA-D, non-GAAP | $2.27 million | $1.06 million | $3.21 million | $2.33 million |
Cash flow, liquidity, and financing
- Year-to-date operating cash flow was $2.30 million, compared with cash use of $2.03 million in 2012. Management cited a $1.12 million reduction in receivables, partly offset by a $1.17 million increase in workers’ compensation risk-pool deposits and reductions in claims liabilities and accrued payroll-related balances.
- Cash was $3.06 million at September 27, 2013, versus $1.63 million at December 28, 2012. Current assets were $17.05 million and current liabilities $12.76 million (current ratio approximately 1.34).
- The company had $8.17 million outstanding under a full-recourse accounts-receivable purchase facility, down from $9.05 million at year-end. The facility maximum was $14 million; its effective rate was 3.2%, and it was secured by company assets. The company reported compliance with its covenant.
- Year-to-date investing cash flow was positive $2,000; financing cash use was $883,000, reflecting a reduction in facility borrowings. Workers’ compensation collateral deposits totaled approximately $2.9 million.
Changes, outlook, and risks
- Revenue declined 9.6% in Q3 and 3.7% year to date. Gross margin was broadly steady in Q3 and improved year to date, while operating income rose as SG&A fell. Q3 SG&A improvement was attributed to organizational changes, recoveries of previously written-off receivables, and lower travel costs.
- Workers’ compensation expense increased as a share of revenue in Q3 (5.3% versus 4.3%) and slightly year to date (4.4% versus 4.3%), reflecting higher estimated claims liability. Field-worker wages also increased.
- Net income included adverse noncash warrant-valuation changes of $884,000 in Q3 and $787,000 year to date; the comparable 2012 periods included gains. The company reported no income-tax provision in 2013, versus provisions of $408,000 and $698,000 in the comparable 2012 periods.
- Management expected available cash to fund operations into the foreseeable future under its current plan, but warned that lower-than-planned sales or higher working-capital needs could require additional cash or expense reductions. No numerical earnings or revenue guidance was provided.
- A lawsuit by Trident Seafoods and Liberty Mutual over responsibility for a former temporary worker’s compensation benefits remained unresolved; mediation had occurred and discussions continued. The company disputed the claims, said recorded accruals were adequate, and did not expect resolution to materially affect results or financial condition.
- Management concluded disclosure controls and procedures were not effective as of quarter-end. It reported no material change in internal control over financial reporting during the quarter. The company also noted limited, low-volume OTCQB trading in its shares and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the registrant: this filing identifies Command Center, Inc., not Hirequest, Inc.
- Track revenue trends and the durability of cost reductions, particularly following the wind-down of disaster-related contracts.
- Review receivables aging, reserves, collection of three delinquent accounts, and the full-recourse factoring facility’s balance, covenants, and collateral.
- Assess workers’ compensation claims estimates, required collateral, and the outcome of the Trident litigation.
- Understand warrant remeasurement effects and potential dilution, including approximately 1.3 million contingent shares awaiting board approval.
- Monitor remediation of ineffective disclosure controls and the risks associated with limited trading liquidity.