Business context and reporting period
The filing is Command Center, Inc.’s Form 10-K for the 52 weeks ended December 27, 2013, with comparison to the 52 weeks ended December 28, 2012. Although the request identifies HireQuest, Inc., the filing identifies the registrant as Command Center, Inc.; confirm the intended company and filing. The company operated 56 on-demand labor stores in 23 states, providing primarily manual, light-industrial, hospitality and event staffing. It served approximately 3,600 customers and employed about 33,000 temporary workers during 2013.
Financial performance and liquidity
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Revenue | $93.75 million | $98.43 million | Down 4.8% |
| Gross profit / margin | $24.25 million / 25.9% | $24.89 million / 25.3% | Margin up 0.6 percentage points |
| Operating income / margin | $4.37 million / 4.7% | $2.48 million / 2.5% | Improved |
| Net income | $2.94 million | $1.56 million | Up 88.6% |
| Diluted EPS | $0.05 | $0.02 | Up |
| Operating cash flow | $5.21 million | $(1.83) million | Improved by about $7.0 million |
SG&A declined to $19.53 million (20.8% of revenue) from $22.04 million (22.4%). Management attributed the improvement to organizational changes, expense controls and recovery of previously written-off receivables. Same-store revenue rose 8.0% to $92.9 million, while total revenue fell, principally reflecting lower restoration work, the wind-down of DR Services hard-bid construction contracts and reduced emphasis on lower-margin work. The company reported EBITDA-D, a non-GAAP measure, of $4.72 million versus $2.85 million.
At year-end, cash was $5.82 million and current assets were $17.92 million against current liabilities of $12.33 million, for working capital of approximately $5.59 million. Net accounts receivable were $10.58 million, after a $637,000 allowance. The principal funding obligation was $8.05 million under a full-recourse accounts-receivable purchase facility; the facility limit was $14 million and its reported effective interest rate was 3.2%. The agreement runs through April 2016, is secured by company assets, and includes a payroll-related covenant, which the company said it met. Cash increased by $4.19 million during 2013. The filing reports no goodwill impairment; goodwill was $3.31 million.
Material changes, outlook and risks
- Store count fell from 59 to 56 after four closures and one opening. Management said it would prioritize same-store growth and profitability, while considering new locations selectively; no quantified revenue or earnings guidance was provided.
- Workers’ compensation expense is a significant exposure: the company is substantially self-insured under a large-deductible policy, with responsibility for covered claims up to $350,000 per incident and a $1.8 million deposit for its current self-insured layer. The filing’s MD&A says workers’ compensation costs rose to 4.5% of revenue from 4.2%; a note separately describes expense as approximately $4.1 million in both years, so the figures warrant reconciliation.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end, identifying a material weakness involving incomplete accounting-procedure documentation and lack of a system to verify third-party deposits. Remediation efforts were underway. The filing states the company’s financial statements were not subject to an auditor attestation of internal controls.
- The company reported an accumulated deficit of $48.75 million and warned that it may need additional working capital for operations, receivables and growth; access to additional capital is not assured. Other risks include economic and seasonal demand, intense price competition, worker availability, customer credit and workers’ compensation claims.
- Customers may terminate most contracts on short notice. The largest 10 customers generated about 20% of revenue, and one customer represented 13.0% of accounts receivable at year-end. The company also reported that $5.3 million of cash deposits exceeded FDIC insurance limits.
- Non-operating derivative fair-value changes were volatile: a $786,615 expense in 2013 versus an $842,256 gain in 2012. This materially affects the comparison of net income and is distinct from operating performance.
- In March 2014, a non-management owner elected to exercise 4.2 million warrants at $0.08 per share; the filing said the shares had not yet been issued and were expected to be issued soon. This represents potential share dilution. The company had 59.71 million common shares outstanding at year-end.
Key facts investors should verify
- Confirm that the filing belongs to the intended issuer: it is for Command Center, Inc., not HireQuest, Inc.
- Reconcile the differing workers’ compensation expense disclosures and assess claim-reserve adequacy and future collateral or deposit needs.
- Review the internal-control material weakness, remediation progress and any subsequent auditor or management updates.
- Assess dependence on receivables factoring, facility availability and covenant headroom, alongside cash collection quality and customer concentration.
- Confirm issuance and ownership effects of the 4.2 million exercised warrants and evaluate remaining warrants, options and other potential dilution.
- Separate recurring operating improvement from the effects of derivative remeasurement, tax provision changes and working-capital movements when evaluating earnings and cash generation.