Hirequest, Inc. (filing registrant: Command Center, Inc.) — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017; comparisons are to the periods ended June 24, 2016. The filing describes a manual, on-demand labor staffing business operating 66 stores in 22 states as of August 14, 2017. The statements are unaudited. The filing identifies the registrant as Command Center, Inc.; it does not explain the Hirequest name in the request metadata.
Key financial results
| Metric | 13 weeks ended June 30, 2017 | 13 weeks ended June 24, 2016 | 26 weeks ended June 30, 2017 | 26 weeks ended June 24, 2016 |
|---|---|---|---|---|
| Revenue | $24.50 million | $21.68 million | $46.85 million | $40.74 million |
| Gross profit / margin | $6.49 million / 26.5% | $5.45 million / 25.2% | $12.23 million / 26.1% | $10.16 million / 24.9% |
| Operating income (loss) | $1.23 million | $0.36 million | $1.53 million | $(0.15) million |
| Net income (loss) | $0.73 million | $0.27 million | $0.92 million | $(0.26) million |
| Net margin | 3.0% | 1.3% | 2.0% | (0.6)% |
| Adjusted EBITDA (non-GAAP) | $1.34 million | $0.54 million | $1.74 million | $0.45 million |
- Revenue and profitability: Quarterly revenue rose approximately 13%; first-half revenue increased approximately 15%. Management attributed about $1.6 million of quarterly growth and $3.4 million of first-half growth to the Hancock stores acquired in June 2016. Revenue at other stores increased 5.4% for the quarter and 7% for the first half. Gross margin improved, while SG&A rose modestly in dollars but declined as a share of revenue.
- Cash flow: First-half operating cash flow was $0.94 million, compared with cash used of $1.77 million in the prior-year period. Investing used $0.10 million versus $2.02 million, largely because the prior period included the Hancock acquisition. Financing provided $0.22 million, compared with $1.38 million used in the prior period. Cash increased by $1.06 million to $4.10 million.
- Liquidity and obligations: At June 30, current assets were $16.48 million and current liabilities $3.90 million, implying working capital of about $12.58 million. Total liabilities were $5.04 million; the balance sheet lists no conventional long-term debt. The account purchase agreement had approximately $109,000 outstanding and about $120,000 of availability; a $6.0 million letter of credit for workers’ compensation collateral reduces facility availability. The company reported compliance with its facility covenant.
- Other balance-sheet items: Accounts receivable, net, was $10.52 million. Workers’ compensation risk-pool deposits were approximately $2.4 million, net of an allowance, in addition to the letter of credit. Total assets were $24.84 million and stockholders’ equity $19.80 million.
Material changes, outlook and risks
- The first half moved from a $0.26 million net loss to $0.92 million net income. SG&A declined from 25.1% to 22.4% of first-half revenue; gross margin increased from 24.9% to 26.1%.
- No specific revenue, earnings, or margin guidance is provided. Management cautions that interim results are not necessarily indicative of full-year results.
- Freestone Insurance collateral litigation: The company carries a net $1.8 million deposit associated with former insurer Freestone. The receiver’s proposed plan acknowledged only $500,000 of the company’s collateral and proposed returning approximately $6,000 of that amount, while the company asserts a priority claim for return of the full deposit. The timing and outcome remain uncertain; management stated an adverse ruling could materially harm financial condition. The company had recorded a $500,000 reserve against the deposit.
- Workers’ compensation exposure: The company is largely self-insured under a high-deductible policy and reserves claims using actuarial estimates. Cash and non-cash collateral totaled approximately $8.4 million, including the $6.0 million letter of credit.
- Other risks: No individual customer accounted for more than 10% of revenue at quarter-end, but the company warns that losing a significant customer could reduce revenue. One vendor represented 31.1% of accounts payable. The company also identified allowance for doubtful accounts and workers’ compensation estimates as significant accounting estimates.
- Management reported disclosure controls were effective as of June 30, 2017 and no material change in internal control over financial reporting during the first half.
Important facts for investors to verify
- Confirm the issuer identity and any relationship between the filing’s Command Center, Inc. and Hirequest, Inc.; the supplied filing names Command Center as registrant.
- Track the Freestone court proceedings, the basis and priority of the collateral claim, and any change in the recorded reserve or recoverable amount.
- Verify future cash needs and facility availability, including the impact of the workers’ compensation letter of credit and covenant requirements.
- Assess whether revenue and margin growth continue at stores excluding Hancock, and whether the improvement translates into operating cash flow.
- Monitor workers’ compensation claims and reserve assumptions, customer concentration, and the concentrated vendor payable.