Business context and reporting period
The supplied filing is a Form 10-Q for Command Center, Inc., a manual on-demand staffing company, for the 13 and 39 weeks ended September 29, 2017. The request identifies Hirequest, Inc.; the filing itself names Command Center, Inc. At November 10, the company operated 66 stores in 22 states.
Financial results and liquidity
| Metric | 13 weeks ended Sep. 29, 2017 | 39 weeks ended Sep. 29, 2017 |
|---|---|---|
| Revenue | $26.7 million | $73.6 million |
| Gross profit / margin | $7.2 million / 26.9% | $19.4 million / 26.4% |
| Operating income / margin | $1.6 million / 6.0% | $3.1 million / 4.3% |
| Net income / diluted EPS | $851,000 / $0.01 | $1.8 million / $0.03 |
| Adjusted EBITDA (non-GAAP) | $1.8 million | $3.6 million |
For the 39 weeks, operating cash flow was $2.5 million, investing cash outflow $102,000, and financing cash inflow $628,000. Cash and restricted cash totaled $6.1 million at period-end, including $6.06 million of cash and cash equivalents. Current assets were $18.3 million and current liabilities $4.4 million. Total liabilities were $5.5 million; the balance sheet reports no notes payable, but $569,000 outstanding under the account purchase facility. Only approximately $87,000 remained available under that facility, in part because a $6.0 million letter of credit secured workers’ compensation obligations.
Material changes versus prior comparable periods
- Quarterly revenue increased 1.0% from $26.4 million; net income was nearly flat versus $838,000. Gross margin improved from 25.9% to 26.9%, and operating income rose from $1.1 million to $1.6 million.
- Year-to-date revenue grew 9.5% from $67.2 million, while net income increased from $578,000 to $1.8 million. The 2016 Hancock acquisition contributed $5.9 million in 2017-period revenue, up $3.4 million year over year; revenue from existing stores increased approximately $3.0 million.
- Year-to-date operating cash flow improved from a $2.7 million use in 2016 to $2.5 million provided in 2017. Investing cash use fell from $2.1 million, primarily because the 2016 period included the Hancock acquisition.
- Management attributed improved staffing-service costs to lower workers’ compensation and unemployment expenses, partly offset by higher relative wages. SG&A improved as a share of revenue through cost controls and infrastructure leverage, partly offset by higher salaries.
Outlook, risks, contingencies and unusual items
- The filing provides no quantitative earnings or revenue guidance. Management said results for the interim periods are not necessarily indicative of full-year results.
- Freestone insurance liquidation: The company’s net recorded deposit is $1.8 million after a $500,000 reserve. The receiver’s initial 2017 proposal acknowledged only $500,000 of collateral and proposed returning approximately $6,000 to the company; the receiver later indicated the petition might not account for all collateral and planned to withdraw and reformulate it. The company is pursuing recovery, but timing and amount are uncertain. A materially reduced recovery could adversely affect financial condition.
- Workers’ compensation exposure is significant: the company is largely self-insured under a high-deductible policy and had approximately $8.4 million of combined cash collateral and letter-of-credit support.
- Other disclosed risks include dependence on key customers, although no single customer exceeded 10% of revenue at September 29, 2017, and higher minimum wages and competitive labor costs.
- After quarter-end, the board approved a proposed 1-for-12 reverse split, anticipated for December 7, 2017, subject to required filings and FINRA approval. The company said it was intended to help meet Nasdaq’s minimum share-price requirement; listing approval was not assured.
- The company reported effective disclosure controls and no material change in internal control over financial reporting. It reported no material legal-proceeding changes other than the Freestone matter.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for Command Center, Inc., despite the request’s Hirequest, Inc. label.
- Track the Freestone court process, the amount of collateral ultimately recognized, and any change to the $500,000 reserve or $1.8 million net deposit.
- Review borrowing-base availability and the account purchase facility’s full-recourse terms, covenant compliance, and workers’ compensation letter-of-credit requirements.
- Assess whether revenue growth and margin improvement persist, separating Hancock acquisition contribution from organic growth and monitoring wage and insurance costs.
- Verify whether the proposed reverse split became effective and whether the Nasdaq listing application was approved.