Business context and reporting period
The filing is for the 13 and 39 weeks ended September 26, 2014, compared with the periods ended September 27, 2013; balance-sheet figures are compared with December 27, 2013. The filing names the registrant as Command Center, Inc. (the request metadata identifies Hirequest, Inc.). The company provides temporary manual-labor staffing and reported 54 stores in 22 states.
Financial performance and liquidity
| Metric | Q3 2014 | 39 weeks 2014 |
|---|---|---|
| Revenue | $27.7 million; up 7.0% | $67.8 million; down 1.9% |
| Gross profit / margin | $7.7 million / 27.7% | $18.4 million / 27.1% |
| Operating income / margin | $2.5 million / 9.2% | $4.8 million / 7.0% |
| Net income | $6.0 million; $0.09 diluted EPS | $8.0 million; $0.12 diluted EPS |
| EBITDA-D (non-GAAP) | $2.9 million / 10.5% of revenue | $5.3 million / 7.8% of revenue |
Q3 net income included a $4.3 million income-tax benefit, primarily from releasing the valuation allowance on deferred tax assets after management concluded future utilization was more likely than not. It also included an approximately $807,000 goodwill impairment. Accordingly, reported net income substantially reflects tax and other items beyond operating performance.
For the 39 weeks, operating cash flow was $3.4 million, capital expenditures were $232,000, and financing cash outflow was $3.0 million, principally repayment of the account-purchase facility. Cash rose by $216,000 to $6.0 million. At September 26, current assets were $21.3 million and current liabilities $9.0 million. The facility balance was $4.7 million, down from $8.1 million at year-end; it is a full-recourse receivables-purchase arrangement, not described as conventional term debt. The $15 million facility also supported a $3.6 million workers’ compensation letter of credit, which reduced availability. The company reported compliance with the facility covenant.
Workers’ compensation claims liability totaled approximately $4.2 million, including current and long-term portions. The company is largely self-insured under a large-deductible policy, with the insurer covering covered losses above $500,000 per incident. Trade receivables were $11.7 million, with 28-day weighted-average aging; one customer represented 17.1% of receivables.
Material changes versus the prior comparable period
- Q3 revenue grew 7.0%, attributed to same-store sales. For the year-to-date period, revenue fell 1.9%, mainly from closing unprofitable branches and a vendor-on-premise job site; same-store sales increased 7%, or about $4.4 million.
- Gross margin improved to 27.7% in Q3 from 25.8%, and to 27.1% year to date from 25.7%. Management cited lower workers’ compensation costs, improved claims management and job selection, and greater attention to assignment margins. Year-to-date workers’ compensation expense also benefited from an approximately $400,000 reduction in policy cost after changing carriers.
- Year-to-date SG&A declined to $13.1 million from $14.6 million, and as a share of revenue to 19.3% from 21.1%; Q3 SG&A rose to $4.8 million from $4.4 million.
- The company recognized an approximately $807,000 impairment of goodwill associated with DR Services after declining results led it to suspend those operations.
- Shares outstanding increased to 65.5 million from 59.7 million at year-end, including 4.2 million shares issued upon warrant exercises and shares issued for acquisition earn-out consideration.
Outlook, risks and unusual items
The filing gives no numerical revenue, earnings, or margin guidance. Management said it expects absolute SG&A to increase in future quarters as it adds people to support growth. It emphasized same-store improvement, cost control, customer satisfaction, and safer job selection. Management cautioned that interim results are not necessarily indicative of full-year results.
Key risks and contingencies include workers’ compensation claims and collateral requirements; customer concentration in receivables; the full-recourse facility and its covenant; and cash deposits exceeding FDIC insurance limits by approximately $5.0 million. Management said it was involved in routine legal proceedings and did not expect a material adverse outcome; it reported no material changes to previously disclosed risk factors. The common stock traded on the OTCQB in low volume, and management noted limited resale liquidity. Most notably, management concluded disclosure controls and procedures were not effective at period-end. There were no material changes in internal control over financial reporting during the quarter.
Subsequent to quarter-end, the company granted 370,000 employee stock options and rights to 825,000 shares, vesting subject to the stated service conditions.
Important facts for investors to verify
- Confirm the registrant identity: this supplied 10-Q is filed by Command Center, Inc., although the request metadata says Hirequest, Inc.
- Assess the sustainability of operating improvement and same-store sales growth, and distinguish it from the large, noncash deferred-tax benefit in reported earnings.
- Review the deferred-tax-asset realization assumptions and the company’s ability to use approximately $5.4 million of tax-loss carryforwards.
- Track factoring-facility availability after the $3.6 million letter of credit, covenant headroom, receivables collections, and workers’ compensation claims and collateral needs.
- Evaluate the impact of ineffective disclosure controls, the suspended DR Services operations, customer concentration, and the low-liquidity OTCQB market.