Business context and reporting period
Command Center, Inc. (the registrant named in this filing; the supplied filing text does not identify Hirequest, Inc.) filed this unaudited Form 10-Q for the 13 weeks ended March 25, 2016, compared with the 13 weeks ended March 27, 2015. It operated 59 on-demand labor stores in 20 states, providing temporary manual-labor staffing and temp-to-hire placements.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $19.07 million | $18.98 million |
| Gross profit / margin | $4.72 million / 24.7% | $5.37 million / 28.3% |
| Operating income (loss) | ($495,000) | $189,000 |
| Net income (loss) | ($539,000) | $82,000 |
| Company-reported EBITDA | ($323,000) | $396,000 |
| Company-reported Adjusted EBITDA | ($74,000) | $396,000 |
| Cash flow from operations | ($1.83 million) | $546,000 |
Cost of staffing services increased to 75.3% of revenue from 71.7%; SG&A remained 27.1% of revenue. Cash declined by $2.54 million during the quarter to $5.09 million. At March 25, current assets were $16.50 million and current liabilities $2.54 million; total liabilities were $4.45 million. Net accounts receivable was $9.28 million, with a $660,000 allowance. The filing reports no accounts receivable sold or balance outstanding under its $15 million full-recourse account purchase facility. It does not describe material conventional borrowings; an outstanding $5.7 million letter of credit under the facility supports workers’ compensation collateral.
Material changes versus the prior comparable period
- Revenue increased just 0.5%, masking a 10% increase outside North Dakota and a roughly $1.5 million, 43.4% decline in North Dakota revenue as demand weakened in the Bakken region.
- Gross margin fell 3.6 percentage points and the company moved from modest operating and net income to losses. Management attributed the margin pressure principally to lower-margin revenue mix after North Dakota’s decline and higher workers’ compensation costs.
- Workers’ compensation expense was approximately $800,000, or 4.0% of revenue, versus approximately $330,000, or 1.7%, a year earlier. The prior-year quarter included an approximately $400,000 favorable actuarial adjustment to prior claims.
- Operating cash flow swung from positive $546,000 to negative $1.83 million, reflecting the net loss, higher receivables, and approximately $667,000 paid on previously accrued workers’ compensation claims.
- Trade-receivable average aging increased to 44 days from 31 days in the prior-year comparison. Management said it added collection staff and tightened credit review.
Outlook, risks, contingencies, and unusual items
No specific financial guidance or quantified outlook was provided. Management identified improved same-store sales as an operating objective and said North Dakota’s declining contribution should reduce that region’s influence on results. It also noted that branch revenue can fluctuate with local conditions and labor demand, and that first-quarter seasonality typically leaves revenue lower than in other quarters.
The company is largely self-insured for workers’ compensation outside Washington and North Dakota, with ACE coverage above $500,000 per incident. Approximately $8.1 million of cash and non-cash collateral supported workers’ compensation obligations at quarter-end, including the $5.7 million letter of credit. The account purchase agreement was extended through June 7, 2016 while renewal documents were completed; the company was in compliance with its covenant at March 25.
A separate $1.8 million collateral deposit associated with former insurer Freestone remains exposed to its liquidation proceeding. The company added a $250,000 reserve in Q1 2016 and said return of the collateral is uncertain, depending on the priority of its claim and available assets. It also settled a workers’ compensation case involving a 2010 Minnesota claim and is challenging the state’s denial of liability. The company said pending legal proceedings were not expected to have a material adverse effect. Two customers represented 20.2% and 10.7% of receivables, respectively; approximately $4.6 million of bank deposits exceeded FDIC insurance limits.
The board’s $5 million, three-year stock repurchase plan remained active: 502,837 shares were repurchased and retired for approximately $220,000 in Q1, leaving about $3.37 million available. The company repurchased a further 387,243 shares for approximately $162,000 from March 26 through April 27, 2016. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer/entity relationship: this filing is for Command Center, Inc., not Hirequest, Inc.
- Track staffing demand and revenue trends outside North Dakota, along with the continuing decline in the Bakken region.
- Monitor gross margin and workers’ compensation costs, claims estimates, and required collateral.
- Assess receivable aging, customer concentration, collections, and the effect of operating cash outflows on liquidity.
- Follow renewal or replacement of the account purchase facility and the status of the Freestone collateral recovery and Minnesota claim.
- Review the company’s non-GAAP EBITDA reconciliations alongside GAAP results; the filing presents non-GAAP figures but they are not substitutes for GAAP performance.