Business context and reporting period
This Form 10-Q is for Command Center, Inc. (the filing’s registrant name), a temporary staffing company operating 57 on-demand labor stores in 22 states. The quarter ended September 25, 2015; year-to-date figures cover 39 weeks. The supplied metadata names Hirequest, Inc., but the filing itself identifies Command Center, Inc.
Financial performance
| Metric | 13 weeks ended September 25, 2015 | Comparable 2014 period | 39 weeks ended September 25, 2015 | Comparable 2014 period |
|---|---|---|---|---|
| Revenue | $24.856 million | $27.699 million | $66.639 million | $67.819 million |
| Gross profit / margin | $6.491 million / 26.1% | $7.679 million / 27.7% | $18.049 million / 27.1% | $18.394 million / 27.1% |
| Operating income / margin | $1.389 million / 5.6% | $2.546 million / 9.2% | $2.512 million / 3.8% | $4.778 million / 7.0% |
| Net income | $820,343 | $6.000 million | $1.432 million | $8.007 million |
| Basic and diluted EPS | $0.01 | $0.09 | $0.02 basic; $0.02 diluted | $0.13 basic; $0.12 diluted |
| EBITDA-D, company-defined non-GAAP | $1.595 million | $2.947 million | $3.061 million | $5.398 million |
Quarterly revenue fell 10.3%; year-to-date revenue fell 1.7%. Quarter cost of staffing services rose to 73.9% of revenue from 72.3%, compressing gross margin. Year-to-date cost of staffing services remained 72.9% of revenue. SG&A rose to 20.4% of quarterly revenue from 17.2%, and to 23.1% year to date from 19.3%.
Net income comparisons are affected by income-tax items: 2015 included tax benefits of $533,071 for the quarter and $930,549 year to date, while the comparable 2014 periods included tax provisions of $4.308 million and $4.246 million, respectively. The 2014 quarter also included an $806,786 goodwill impairment charge.
Cash flow, liquidity and obligations
- Cash was $5.779 million at September 25, 2015, down from $8.600 million at December 26, 2014. Operating cash flow was $1.321 million for the 39 weeks, versus $3.437 million a year earlier; investing used $212,148 and financing used $3.930 million.
- Current assets were $19.671 million and current liabilities $4.813 million. Trade accounts receivable, net, was $10.138 million; the filing reports a 37-day weighted average aging and $322,000 of year-to-date bad-debt expense, versus $108,000 in 2014.
- The account purchase facility had $369,395 outstanding on the balance sheet and approximately $410,000 of receivables sold; the facility limit is $15 million and its term runs through April 7, 2016. The effective interest rate was 3.19%. A $5.7 million letter of credit for workers’ compensation collateral reduces facility availability. The company reported compliance with the facility covenant.
- Workers’ compensation claims liabilities totaled approximately $3.855 million, current and long-term combined. The company describes itself as largely self-insured under a large-deductible policy. Cash collateral deposits were approximately $2.7 million; with the letter of credit, total collateral was approximately $8.4 million.
- Stockholders’ equity was $19.320 million. The company repurchased and retired shares under a $5 million, three-year authorization and reported approximately $3.8 million remaining.
Material changes, outlook and risks
- Management attributed the quarterly revenue decline mainly to North Dakota, where revenue fell $4.2 million, or 47.3%, as oil-and-gas activity weakened after crude prices began declining in late 2014. Revenue from other branches grew approximately 6.5%. Year to date, North Dakota revenue declined 36.6%, partly offset by 11.4% growth elsewhere.
- Quarterly staffing costs as a share of revenue increased partly because of lower higher-margin North Dakota revenue. Workers’ compensation expense was 4.4% of quarterly revenue versus 4.0% a year earlier, but 3.1% year to date versus 4.1% in 2014.
- SG&A growth reflected hiring and training to support planned growth, headquarters relocation from Idaho to Colorado, and expanded stock-based compensation. Management cited improved employee performance and retention as intended benefits. The filing provides no quantified revenue or earnings guidance.
- Year-to-date SG&A included a $250,000 reserve against $1.8 million of collateral held by former insurer Freestone Insurance, which is in liquidation. The company asserted a priority claim but warned it might not recover some or all of the collateral.
- The company fully reserved a $175,000 note receivable from Labor Smart after concluding repayment was not probable. Command Center filed suit to collect; Labor Smart also sued to halt collection efforts. The filing describes the litigation as ongoing.
- The company settled the Moreton/AdvantEdge litigation in May 2015 for $164,000. It reported no material changes in other legal proceedings and no material changes to the previously disclosed risk factors.
- Shares traded on OTCQB with low prices and low trading volume; the filing cautions that investors may have difficulty reselling shares. Approximately $5.2 million of cash deposits exceeded FDIC insurance limits at quarter end.
Important facts to verify
- Confirm the relationship, if any, between the metadata’s Hirequest, Inc. and the filing’s named registrant, Command Center, Inc.
- Review the tax benefits and prior-year tax provisions, which materially affect period-to-period net-income comparisons.
- Track recovery prospects for the Freestone collateral and outcome of the Labor Smart note litigation.
- Reconcile the share-repurchase disclosures: the filing gives different totals for third-quarter purchases, cumulative plan purchases, and cash used for treasury stock.
- Assess North Dakota demand, receivable aging and bad-debt expense, workers’ compensation claims and collateral requirements, and liquidity after share repurchases.