Business context and reporting period
This 10-Q is filed by Command Center, Inc. (the issuer named in the filing), a temporary staffing company operating 61 on-demand labor stores in 21 states as of June 24, 2016. The requested company metadata names Hirequest, Inc.; the filing itself does not identify Hirequest as the registrant.
The report covers the 13 and 26 weeks ended June 24, 2016, compared with the periods ended June 26, 2015. Financial statements are unaudited.
Financial results and liquidity
| Metric | 13 weeks ended June 24, 2016 | 13 weeks ended June 26, 2015 | 26 weeks ended June 24, 2016 | 26 weeks ended June 26, 2015 |
|---|---|---|---|---|
| Revenue | $21.68 million | $22.80 million | $40.74 million | $41.78 million |
| Gross profit / margin | $5.45 million / 25.2% | $6.19 million / 27.1% | $10.16 million / 25.0% | $11.56 million / 27.7% |
| Operating income (loss) | $371,495 | $932,613 | $(123,113) | $1.12 million |
| Net income (loss) | $274,852 | $530,141 | $(260,137) | $611,679 |
| Operating cash flow | Not separately reported for quarter | $(2.00) million | $(1.10) million |
Second-quarter net margin was 1.3%, versus 2.3% a year earlier; first-half net margin was negative 0.6%, versus positive 1.5%. Second-quarter EBITDA, a company-defined non-GAAP measure, was $547,000 versus $1.14 million; first-half EBITDA was $224,000 versus $1.53 million.
At June 24, cash was $2.23 million, restricted cash $170,327, accounts receivable net $10.50 million, current assets $15.03 million, and current liabilities $3.41 million. Working capital was approximately $11.62 million. Total liabilities were $5.33 million, including $398,252 outstanding under the receivables-purchase facility and workers’ compensation claims liabilities. The filing reports no conventional long-term borrowings on the balance sheet. Cash declined $5.40 million from year-end, to $2.23 million.
Material changes and management commentary
- Second-quarter revenue decreased 5.0%; first-half revenue decreased 2.5%. North Dakota revenue fell 41.9% in the quarter and 42.6% in the first half as demand weakened in the Bakken region. Management said revenue outside North Dakota, excluding the newly acquired branches, was approximately unchanged in the quarter; non-North Dakota revenue increased 4.5% in the first half.
- Gross margin declined as the mix shifted away from higher-margin North Dakota business. First-half staffing costs also reflect a roughly $700,000 workers’ compensation actuarial benefit recognized in the first half of 2015.
- SG&A fell about $183,000, or 4.0%, in the quarter and about $150,000, or 0.4%, in the first half. Management emphasized improving same-store sales and margins and noted that revenue is typically seasonally lower in the first half.
- In June, the company acquired the Hancock Staffing operations in Little Rock, Arkansas, and Oklahoma City, Oklahoma. Consideration was $2.70 million, including $1.98 million cash, a $220,000 one-year holdback, and $504,410 of assumed liabilities. The acquired branches contributed approximately $477,000 of revenue through quarter-end; the acquisition added approximately $1.31 million of goodwill and $660,000 of intangible assets.
- The company repurchased and retired 2.16 million shares for approximately $880,000 during the first half; about $2.7 million remained under its $5 million repurchase authorization. Shares issued and outstanding were 62.30 million at June 24, compared with 64.31 million at December 25, 2015.
Outlook, risks, and unusual items
The filing provides no numerical revenue or earnings guidance. Management’s stated priorities include improving same-store sales and margins, while acknowledging local economic conditions and temporary-labor demand can cause branch results to fluctuate. Forward-looking statements are subject to risks described in the company’s prior 10-K.
- Liquidity depends in part on a Wells Fargo receivables-purchase agreement with a $14 million maximum, full recourse, and a term through April 7, 2018. The facility bears interest at one-month LIBOR plus 2.5% (2.95% effective at quarter-end); a $5.7 million letter of credit for workers’ compensation collateral reduces availability. The company reported covenant compliance at June 24.
- The company is largely self-insured for workers’ compensation outside Washington and North Dakota, with responsibility for claims up to $500,000 per incident under its ACE policy. Cash and non-cash workers’ compensation collateral totaled approximately $8.1 million.
- Recovery of collateral held by Freestone Insurance, now in liquidation, is uncertain. The company recorded a further $250,000 reserve in the second quarter, bringing the recorded reserve to $500,000. The receiver’s accounting did not resolve collateral priority or recovery; the company says it may not recover all or any of the collateral.
- Management said existing legal proceedings were not expected to have a material adverse effect and reported no material change in risk factors. The stock trades on OTCQB with low trading volume and limited liquidity. The filing also notes approximately $1.7 million of cash deposits above FDIC-insured limits.
Important facts for investors to verify
- Confirm the issuer and its relationship, if any, to Hirequest, Inc.; this filing is in the name of Command Center, Inc.
- Track North Dakota demand and whether margin pressure persists as the regional revenue mix changes.
- Review operating cash use, the cash decline, and actual availability under the receivables facility after the $5.7 million letter of credit.
- Monitor workers’ compensation claims, collateral requirements, and the outcome of the Freestone liquidation and collateral claims.
- Assess the acquired Hancock branches’ subsequent contribution and the company’s remaining share-repurchase activity.