Q2 revenue declines 5% YoY for Command Center
Command Center, Inc. has reported its financial results for the second quarter ended 24th June 2016.
Revenue in the second quarter declined 5% to $21.7m, compared to $22.8m in the year-ago quarter. The decline was driven in large part by a $1.6m, or 42%, drop in revenue from the company’s North Dakota branches, which is a state economically dependent on the health of the oil industry. Revenue from branches outside North Dakota, and excluding revenue from the Hancock Staffing branches acquired during the quarter, was approximately $19.0m, which is unchanged from the second quarter of 2015.
Gross margin in the second quarter was 25.2%, compared to 27.1% in the year-ago quarter. During the second quarter of 2015, the company recognised an approximate $250,000 benefit (or approximately 110 basis points) due to an actuarial adjustment associated with the prior year workers’ compensation liability. The remaining 80 basis point decline was primarily due to the reduction in higher margin revenue from North Dakota, as well as a higher mix of business that did not meet the company’s gross margin target. Compared to the first quarter of 2016, gross margin for the second quarter was up 50 basis points.
Operating income in the second quarter was $0.4m compared to $0.9m in the year-ago quarter. The company states that the decrease was due to lower gross margin, partially offset by a 4% reduction in selling, general and administrative (SG&A) expenses to $5.0m, compared to $5.2m in the year-ago quarter. SG&A in the second quarter of 2015 included a $0.3m valuation allowance associated with deposits placed with the company’s former workers’ compensation insurance carrier and a $0.2m reserve for a note issued by Labor Smart, Inc. SG&A expenses for the second quarter of 2016 were also approximately 3% lower than the first quarter of 2016.
EBITDA (a non-GAAP term defined below) in the second quarter was $0.5m compared to $1.1m in the year-ago quarter. Adjusted EBITDA (a non-GAAP term defined below) in the second quarter was $0.5m compared to $1.6m in the year-ago quarter.
Net income in the second quarter was $0.3m or $0.00 per diluted share, compared to net income of $0.5m or $0.01 per diluted share in the year-ago quarter.
Cash at 24th June 2016 was $2.2m, compared to $7.6m at 25th December 2015. During the second quarter, the company used approximately $2.5m in cash to acquire the assets of Hancock Staffing, which included $2m as purchase price and approximately $0.5m paid to purchase Hancock Staffing’s accounts receivable line and pay other assumed liabilities.
Hancock Staffing operated one branch in Little Rock, Arkansas, and another in Oklahoma City, Oklahoma, with combined annualized revenue of approximately $8m. Command Center says that the acquisition is immediately accretive to earnings. Hancock Staffing provided services in the same general market segments that Command Center currently operates, including light industrial, construction, hospitality and event services. The transaction was completed on 3rd June 2016.
The company also repurchased 1,660,627 shares of its common stock in the second quarter for a total cost of $660,000, or an average price of $0.40 per share. There is approximately $2.7m remaining under the $5m plan. The company’s debt balance at 24th June 2016 was $0.8m compared to $0.5m at the end of 2015.
Command Center ended the quarter with 61 stores operating in 21 states.
Command Center’s president and CEO, Bubba Sandford, said, “Overall revenue in the second quarter continued to be pressured by the decline in revenue from our branches in North Dakota’s oil-driven market.
“With revenue from branches outside North Dakota unchanged, several of those offices did not perform to the standards of excellence we demand from the field and everyone in the company. In the end, we just did not perform to the high expectations we set for ourselves as a company.
“As a result, we began taking measures in the second quarter and even more recently to improve operations in the field by making several changes. They include personnel changes and eliminating certain positions, as well as an overall flattening of the organization to foster a closer relationship between our branch and corporate-level staff. As we are always looking to manage and reduce costs, we also adjusted costs related to travel and other support items without compromising service to the branches.
“In the second quarter, we were able to use our strong cash position to purchase the operations of Hancock Staffing. We believe our diligence in finding the right acquisition is now paying off and will continue to add shareholder value in the future. The transaction, which closed on June 3rd, strengthens our presence in two important markets and is a prudent allocation of the company’s capital.
“Hancock Staffing built their business on a service-oriented culture, which has fostered high-quality, long-term client relationships. Integration of the offices has gone smoothly, and they are generating cash for the company. Capitalizing on the strength of our new team members from Hancock Staffing, we are hopeful to expand operations in the future in these market areas.
“For the remainder of 2016, we expect to focus on our existing branches to drive maximum efficiencies and profitability. We also always look at new store openings to increase concentration in our current markets, and as we rebuild our cash reserve, we expect that our balance sheet will enable us to remain opportunistic in seeking additional acquisitions. We continue to remain confident these strategies are the most optimal for driving long-term shareholder value.”
Picture source: Pixabay