Bubba Sandford - CEO Colette Pieper - CFO

Matt Campbell - Laridae Capital Charlie Pine - Van Clemens and Company Hans van der Burg - Logos IM

Thank you Sheila and good morning everyone. I want to thank everyone for your participation in this call and your interest in Command Center.

I'd like to start off briefly by discussing our financial and operational performance for the quarter. The momentum we sustained in the second half of 2016 carried into the first quarter of 2017 with 17% overall revenue growth and gross margin expansion of 100 basis points enabled us to drive positive earnings in what is typically our seasonally weakest quarter.

This is largely attributed to an overarching plan we put in place starting in Q2 of 2016. As we mentioned at that time and numerous times if you're not satisfied with the results and we are happy to know that the plan we put into place is contributing to the financial and operational turnaround of the company and it's continuing into the first quarter of 2017.

In addition, we had year-over-year revenue growth in North Dakota. Well, obviously this is a positive trend for us.

We will continue to diversify and demonstrated our growth outside of that region and we'll continue in this fashion, lessening our dependence on that area and any fluctuations in the energy sector. Before I go into more details on our performance, I'd like to turn the call over to Colette Pieper, our CFO to discuss, have a deeper discussion of the financials.

Colette?

Thank you, Bubba and good morning everyone. Jumping right into our first quarter results, our revenue in the first quarter increased 17% to $22.3 million compared to the first quarter last year.

Revenue in North Dakota increased 3% to $2 million and represented about 9% of our overall sales, down considerably from approximately 25% during the peak of the oil boom in 2014. With North Dakota representing a much smaller portion of our business than in past quarters, in the future we expect to only call out its performance if meaningful to our overall operations.

In addition, approximately $1.7 million of the increase in quarter over quarter revenue was contributed by Hancock Staffing which was acquired in June of last year. Excluding the acquisition, revenue increased 8.5% to $20.7 million in the first quarter of 2017.

As Bubba mentioned, gross margin in the first quarter increased 100 basis points to 25.7% compared to 24.7% in the same period last year. The increase was primarily due to our continued greater emphasis on obtaining higher margin work across the company, which resulted in a favorable mix of higher margin business compared to last year's first quarter.

Selling, general and administrative expenses in the first quarter were $5.3 million compared to $5.2 million in the year ago quarter. As a percentage of revenue, however, SG&A expenses were down to 23.9% compared to 27.1% in the first quarter of 2016.

The decline was due to lower salary stock-based compensation and office expenses as a percentage of revenue. Net income in the first quarter increased to $0.2 million or $0.00 per share compared to a net loss of $0.5 million or $0.01 per share in the year ago quarter.

Before I move on to talk about adjusted EBITDA I want to mention that there was some confusion in the last earnings call regarding EBITDA and adjusted EBITDA, accordingly we have clearly defined these two terms in our recent press release and Form 10-Q and we will continue to these definitions and table format in the future. Changes to prior year amounts were not material.

Adjusted EBITDA in the first quarter of 2017 improved to $0.4 million compared to a negative $0.1 million in the year ago quarter. The improvement in both net income and adjusted EBITDA was due to the increase in revenue and gross margins.

Cash and cash equivalents as well as restricted cash at March 31, 2017 was $3.8 million compared to $3 million at December 30, 2016. And finally we continue to remain debt free.

With that I'll turn the call back over to Bubba. Bubba?

Thank you, Colette. As I discussed in my opening, the momentum from the second half of 2016 has continued into the first quarter 2017.

I also mentioned and we discussed in the past that the - this improvement was largely attributed to an overarching plan including but not limited to realigning the organization, maximizing our strengths, cutting any extraneous costs [indiscernible] numerous other things including a training program we implemented at - a comprehensive training program we implemented at the corporate office in Denver. The two main components I think that are important are they renewed focus and commitment to our coaching, training and developing wholly accountable branches to the key to success and the branches executing on these keys to success which we've talked about and I'll mention here briefly and that selling good accounts increasing the margins and servicing with excellence.

While I realize it's probably hard to conceptualize these over the phone, I'd thought I provide a couple of examples that would demonstrate the results of these in action. These are the results from the - we see on a weekly basis as well as my visits across all the stores.

One such example is a manager that came to the training program. Through the interactions with all of the trainers and the corporate staff and the field staff and the candid feedback and constructive criticism that person has received.

They've gone and increased their revenue, they've increased the margins, the customer satisfaction level was up. And in my last visit, the quality of the workers there has increased.

Second such example is a manager that came here and again through the constructive criticism, direct candid feedback that individual has gone in and significantly increased the revenue in their store. So we're seeing the results of this training and obviously as we've talked about one of the parts of the training is approximately 3% of that training is dedicated to sales training.

So we're seeing the results of that and we're going to continue on that path. Additionally, our present store count is 65 and this is something we'll continue to evaluate, store openings along with store closings.

All driven by our strategy and philosophy of deploying capital in a manner that gets the greatest return for the shareholders. We've talked in the past about evaluating - ruthlessly evaluating any assets whose value does not exceed the resources both personnel and financial associated with sustaining that asset.

So as a result the traditional metric of opening and closing stores is dynamic for us and that it will always be driven off our capital allocation strategy in terms of deploying the capital we get the greatest return. Along those lines we'll continue to evaluate deploying our capital on any acquisitions similar to the Hancock deal.

That acquisition has proved financial success for us, it's generated revenue for us without us adding any infrastructure making highly accretive. We'll continue to evaluate any and all acquisitions that are in a similar manner.

We'll continue to evaluate and reduce and eliminate any extraneous costs, we've done that even though our costs, overall SG&A was up slightly as a percentage of revenue and they went down. And this allowed us to open numerous stores over the course of the year, thereby allowing us to use that SG&A money on revenue generating items for the shareholders.

Looking forward, we've seen the results of the plan we know how to execute on this plan, we'll continue to execute on that plan, we'll continue to generate cash and then deploy that cash in a manner to drive shareholder value. We'll look at any possible share repurchase and acquisitions opening stores and anything else that will get a greater return for the shareholders.

We're off to a good start in 2017 and will continue in this manner, we continue to expect to drive long-term shareholder value. With that, that concludes the presentation portion of our call and I'll turn it back over to Sheila.

I was wondering, now that you've got your headquarters moved, your personnel is in place, North Dakota seems to be at least stabilize maybe a bit of tailwind. I was wondering if you could just kind of prioritize capital allocation, what at this point makes the most sense for you at this point in time if you could give us a sense of the share buybacks versus growing the branch at this point?

And I have a follow up.

That's something we do on a daily basis is evaluate that and depending upon our cash availability and the long-term kind of planning, it's something we balance, whether it's a share repurchase opening stores or if an acquisition similar to Hancock came up that would generate a greater return than the share repurchase or store openings. That's the way we deploy it.

But from a seasonality standpoint, Q1 is your weakest? Is that right?

Yes.

Your weakest quarter? Okay.

And could you just talk to us a little bit about turnover a bit, where is your turnover at this point. Are you happy with your management team at this point in terms of training?

Yeah. We feel we have a very - an excellent management team and excellent staff here at corporate, in the field and as well as the branches, but it's something we always continue to try and seek to improve and upgrade.

And so it's - we're happy with the team we have in place.

Not too much. I don't have too much follow-on.

I think everything is pretty clear, but first of all, I want to give a nod to the fact that for the first time in a year that you got the numbers out on time and the work that was done to do that and I hope you continue in that fashion, getting back into that strive is going to be - will be a good thing for the business and for your public phasing as far as the market goes. One thing I'm sort of interested in asking about in your growth areas right now and where you're seeing business improvement, can you talk about other than North Dakota, can you address a couple of areas, first of all, what states are you seeing the most activity in and what verticals are you seeing the most activity and interest in?

Well, we don't disclose what states the revenue percentage and growth rates for states. What we're seeing is again, when we have excellent branch managers in a particular branch, they will capture any potential revenue across any verticals.

We've talked about our national accounts and some other lines, but we've also seen growth from managers that are benefiting from the training and taking that training, going out and executing on that and finding that. One of the things we've mentioned in the past is that the nice part about our business is that anyone in this economy who needs a temporary worker can utilize our services and it's a benefit we provide to them because of all the burdens someone has to go - a company has to go to, a small mom-and-pop to hire a worker.

We can take a lot of that burden and allow them to hire workers and then jettison those workers and not have to share, burden that or share the burden of that cost for a long term benefit. So we're seeing potential across all opportunities, all verticals and really based on the quality of the branch manager.

Okay. And you're not - but you're not willing to discuss at all what geographies you are seeing greater growth occurring in right now.

Well again, we're not discussing, but it's more for us, it's on the quality of the manager not necessarily the region. So we're not seeing any regions more, it's the quality of the manager that's delivering the improvement.

I had a question on the Hancock acquisition that you did last year. From the results so far, it doesn't really look like there is any or much seasonality in the revenue performance of the acquired branches of Hancock throughout the quarters.

But when comparing to pro forma pretax profits from the note 4 in the 10-Q that you released today, it looks like the pretext profit must have been pretty significant in the first quarter of 2016 for these Hancock branches. Therefore, I was wondering if there's some sort of seasonality in your earnings from these Hancock branches.

Hans, this is Colette Pieper. As I understood your question, you were looking at Q1 2016 revenue.

We didn't have Hancock back then. We only had, I mean we only acquired them in June of last year.

Did I misunderstand your question?

No. We're almost on the same page.

It's just in the note 4 of the 10-Q that you released today, it shows the pro forma results of Q1 including the Hancock and therefore, if you compared it?

Well, that's a requirement under GAAP that when you have an acquisition, you have to project what the end time results would have been. So it's hypothetical.

We don't have the operating results because obviously they were not under Command Center at the time and so it's just a disclosure as to what could it have been, but in no way does it reflect what it actually was because again they were not under Command Center.

No, no, no. Of course, I understand, but given that there is just quite a big difference between I think you did in Q1 2016, you did 520 or 535,000 in pretax profits and here it says minus 13,000 which would imply that there would have been sort of over 500,000 pretax profits for Hancock in Q1.

Is that - would you say that's not really what happened last year or at least you didn't know or you may provide some color on that.

Well, the net income before tax in the note 4 was a negative $13,000, correct. Yes.

So all we did was we just projected the gross margin based on an estimate of additional revenues from Hancock. And the other thing was that the tax provision a year ago was different than what we projected last year, the tax provision was only $4000 where then our projection, it was 101,000.

So yeah, again, this is just a pro forma and doesn't really show what the results would have been because we don't know what kind of account Hancock would have had if it had been part of Command Center.

True. But then at least to the core of my question, you do not really - do you see any sort of seasonality in these earnings, because like Command Center overall has sort of a somewhat weaker first quarter.

Is that also - is there certain quarters that are weaker for these Hancock branches that you acquired or is there not really such an effect that you're noticing?

Well, I don't know if we, I mean we only have three quarters to really go by, but of course the second quarter last year was a short period of time and our revenue was just shy of $500,000. Q3, it was $2 million in revenue, Q4 was 1.9 million, Q1 of this year was 1.7.

So again as we go through full 12 months, we'll be able to understand more if there is seasonality and what the growth opportunities are as well, because it took a little bit of time for them to transition into Command Center, I mean they were strong off the star, but now we've had about nine months of them being part of our organization.

I had another question about the Wells Fargo bank account purchase agreement. I saw from the cash flow statement that you released today, I think Q1 2017, approximately $590,000 was used in relation to your account purchase agreement.

But as far as I understood, this one was already paid down completely at last year's end. Could you explain to me why this extra money went into the facility?

Well, what you're looking at is just the difference in the agreement. This is a non-typical type of agreement.

So as we try to explain in the 10-Q, we sell our invoices. We get 90% of the available amount on the invoice and when the cash is collected, we get the remaining 10%.

We can get cash on certain invoices from customers, certain receivables if they aren't excluded. And at the end of each quarter, what we began to do now under my leadership with my controller, we try to draw down as much as what is available to us at Wells Fargo and so at the time of March 31st, we try to bring in all the available cash to us.

The amount that you're looking at on the cash flow statement of 589,000, that was just the difference in the amount at the end of 2016 compared to the balance sheet as of March 31st of 2017, but we didn't have any more funds available to us at that day. We are trying to make some changes to this agreement and hopefully it will be in place by the end of the second quarter.

Okay, because my other question indeed was about this sort of low availability per the end of the first quarter of 92,000 and indeed as you just mentioned, I'm aware that some receivables are not eligible because they're either too long payment terms or there are certain amount of data overdue, but I guess we'll find some clarification next quarter, so I'll leave that for now.

Thank you. We're pleased that we have been able to continue the positive trends from the second half of 2016 through the first quarter, our most difficult quarter and our revenues up and we remain profitable.

Our cash balance continues to grow and our gross margins are some of the highest in the industry. We believe that Q1 has established a good base for the remainder of the year and we look forward to continue driving long term shareholder value throughout the year.

I'd like to thank everyone for listening today's call and look forward to speaking to you next quarter. Thank you.