Hirequest, Inc. — Filing Summary
Filing identity: The supplied 10-Q is filed by Command Center, Inc., not Hirequest, Inc. It covers the 13 and 26 weeks ended June 26, 2015, compared with periods ended June 27, 2014. Investors should verify that this is the intended filing.
Business context
Command Center operated 57 on-demand labor stores in 22 states, providing primarily short-term manual-labor staffing. Its temporary workers are employees of the company.
Financial results
| Metric | Q2 2015 | Q2 2014 | First half 2015 | First half 2014 |
|---|---|---|---|---|
| Revenue | $22.80 million | $21.66 million | $41.78 million | $40.12 million |
| Gross profit / margin | $6.19 million / 27.1% | $5.84 million / 26.9% | $11.56 million / 27.7% | $10.72 million / 26.7% |
| Operating income / margin | $0.93 million / 4.1% | $1.64 million / 7.5% | $1.12 million / 2.7% | $2.23 million / 5.6% |
| Net income / margin | $0.53 million / 2.3% | $1.50 million / 6.9% | $0.61 million / 1.5% | $2.01 million / 5.0% |
| Diluted EPS | $0.01 | $0.02 | $0.01 | $0.03 |
For the first half, EBITDA, a company-defined non-GAAP measure, was $1.53 million versus $2.45 million. Q2 EBITDA was $1.14 million versus $1.77 million.
Cash flow and liquidity: First-half operating cash flow was negative $1.10 million, compared with positive $1.98 million a year earlier. Investing used $0.21 million and financing used $2.14 million; cash declined $3.45 million to $5.15 million. Management’s liquidity discussion instead says operating cash used was approximately $1.3 million. At June 26, current assets were $18.93 million and current liabilities were $4.56 million. Accounts receivable was $10.25 million, with a reported weighted-average aging of 32 days.
Borrowings and obligations: The company reported $1.24 million outstanding under its full-recourse account purchase facility on the balance sheet; the MD&A describes approximately $2.0 million of receivables sold under the facility. The $15 million facility runs through April 7, 2016, bears interest at LIBOR plus 3.0% (3.2% effective at quarter-end), and is secured by company assets. A $5.7 million letter of credit reduces availability. The company said it was in compliance with the facility covenant. Workers’ compensation claims liabilities totaled approximately $3.49 million, current and long-term combined.
Changes and management commentary
- Q2 revenue rose 5.3% and first-half revenue rose 4.0%, attributed to higher same-store sales. First-half gross margin improved to 27.7% from 26.7%.
- Profitability weakened despite revenue growth: Q2 operating income fell about 43% and net income fell about 65%; first-half operating income fell about 50% and net income about 70%.
- SG&A increased to 22.8% of Q2 revenue from 19.1%, and to 24.8% for the first half from 20.8%. Management cited hiring and training to support planned growth and expanded equity compensation. Lower workers’ compensation costs partly supported gross margins.
- Bakken-region revenue declined 31% in Q2 and 12% in the first half year over year amid lower temporary-labor demand. Growth elsewhere more than offset the Q2 decline.
- Management provided no specific numerical earnings or revenue guidance. It described same-store sales growth, client and industry diversification, safety training, and claims management as priorities, and cautioned that interim results are not necessarily indicative of full-year results.
Unusual items, risks, and contingencies
- Q2 SG&A included a $250,000 reserve against $1.8 million of collateral held by former workers’ compensation carrier Freestone, which is in liquidation. The company is seeking return of the collateral; recovery is uncertain.
- The company recorded a $175,000 reserve and reduced to zero the carrying value of a Labor Smart convertible note purchased for $175,000. It had demanded payment, filed suit to collect, and reported that Labor Smart had also sued to halt collection efforts. Command Center also submitted a non-binding proposal to acquire substantially all of Labor Smart’s assets through bankruptcy proceedings.
- A separate Moreton/AdvantEdge insurance dispute was settled in May 2015; the company paid $164,000 and was released from future claims.
- Workers’ compensation coverage is largely self-insured below a $500,000 per-incident excess coverage threshold under the ACE policy. Cash and non-cash workers’ compensation collateral totaled approximately $8.4 million.
- One customer represented 14.9% of accounts receivable at June 26, 2015, versus 12.5% a year earlier. Cash deposits exceeding FDIC insurance limits were approximately $4.7 million.
- The company disclosed limited trading liquidity and low-priced OTCQB shares. It reported no material changes to previously disclosed risk factors and said disclosure controls were effective.
Important facts for investors to verify
- Whether this Command Center 10-Q is the intended filing for Hirequest, Inc.
- The conflicting operating-cash-flow figures in the cash-flow statement and MD&A, and the differing facility balances in the balance sheet, note, and MD&A.
- Potential recovery and timing of the Freestone collateral, and the outcome and collectability of the Labor Smart note and related litigation.
- Cash needs from receivable growth, workers’ compensation collateral requirements, and the availability and terms of the recourse financing facility.
- Whether elevated SG&A and lower Bakken demand affect margins and earnings in subsequent periods; the filing gives no specific forward guidance.