Brett Maas - Hayden IR Richard Coleman - Chief Executive Officer Cory Smith - Chief Financial Officer.

Michael Potter - Monarch Capital Group David Lavigne - Trickle Research.

Greetings, and welcome to the Command Center Inc. Second Quarter, 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Brett Maas, Hayden IR. Thank you, Mr. Maas. You may begin..

Thank you, operator. I'd like to welcome everyone to Command Center's second quarter 2018 earnings conference call. Hosting the call today are Command Center's CEO, Rick Coleman; and CFO, Cory Smith. Please be aware that some of the comments made during our call may include forward-looking statements within the meaning of the federal securities laws.

Statements about our beliefs and expectations containing words such as may, could, would, will, should, believe, expect, anticipate and similar expressions constitute forward-looking statements.

These statements involve risks and uncertainties regarding our operations and future results that could cause Command Center's results to differ materially from management's current expectations.

We encourage you to review the Safe Harbor statements and risk factors contained in the Company's earnings release and in its filings with the Securities and Exchange Commission, including without limitation that most recent Annual Report on Form 10-K and other periodic reports, which identifies specific risk factors that also may cause actual results or events to differ materially from those described in forward-looking statements.

Copies of the Company's most recent reports on Forms 10-K, and 10-Q may be obtained on the Company's website at www.commandonline.com or at the SEC's website, at www.sec.gov. The Company does not undertake to publicly update or revise any forward-looking statements after the date of this conference call.

Also note that on this call the Company will be discussing non-GAAP financial information. They are providing this information as a supplement to the information prepared in accordance with the Accounting Principles Generally Accepted in the United States or GAAP.

You can find a reconciliation of these metrics to the reported GAAP results in the reconciliation table provided in the Company's earnings release. I would like to remind everyone on this call that this call will be available to replay through August 28, starting at 1:00 P.M. Eastern today.

A link to the replay, the website replay of this call will also be provided in the earnings release, which is also available on the Company's website. Any redistribution, retransmission or rebroadcast of this call in any way without the expressed written consent of the Command Center management team is strictly prohibited.

Now I would like to turn the call over to Rick, CEO of Command Center. Rick Coleman, please take the floor..

Thank you, Brett. Good morning, everyone, and thank you all for joining us. During the second quarter we began to identify and implement operational improvements designed to increase our profitability and facilitate revenue growth.

Our highest priority is to maximize performance from each of our 67 branches through an increased sales presence, effective count management, and improved local staffing practices. In late May, we began our efforts to strengthen our field management team.

Among other things, this involved clarifying reporting structures and adjusting bonus parameters for positions that have a direct impact on our revenue and profitability. Aligning our people and incentives with the company's goals and our customers' needs is the most direct path to improving performance and optimizing our financial results.

Our human resources team is also executing a comprehensive plan to identify and attract high quality, high performing leaders to fill vacant revenue producing positions.

Although we don't expect immediate results, we believe the steps we are taking will enhance our service delivery, quality and capabilities and allow us to generate even greater long-term returns. We also continue to manage our cost structure in line with our revenue.

SG&A, excluding non-recurring expenses which Cory will discuss further, was essentially flat year-over-year even with the employee-related investments we are making to improve branch performance. Despite periodic fluctuations by location, industry, or time period we continue to operate profitably and generate cash.

As an organization, the Command Center is able to deliver profits from our operations even as revenue fluctuates. In good quarters and even in not so good quarters, we generate cash, strengthen our balance sheet and create long-term value.

Our business model is built for consistent profitability and to allow us to take advantage of opportunities as they arise. But those don't always come from the same sources. Our baseline staffing opportunities most consist of many relatively small short-term personnel deployments. But these are often augmented by manor long-term assignments.

As a result, our overall business is solid and has durable earnings power. Nonetheless we have identified branches that have opportunities for improvement. That's our focus for the coming year, improving the profitability of underperforming branches.

We are fortunate that our scale allows us to make branch level improvements without the need for significant incremental investments in our centralized support. With our stable fixed cost structure, most of the incremental profitability at the branch level can flow directly to the consolidated bottom line.

The solid reliable performance of our business model combined with very low capital requirements enables us to enhance the value of our company through strategic capital deployment and during the second quarter we continued with our share repurchase program.

Since the start of our current $5 million program in September 2017, we've repurchased approximately $1.1 million worth of our common stock in open market transactions. With $3.9 million remaining under this authorization, we plan to continue repurchasing shares of our common stock provided market conditions remain favorable.

We also continue to monitor potential acquisitions and other strategic alternatives. As part of this, our board of directors routinely considers potential capital allocation strategies. However I reiterate acquisitions are not in current priority for us. And we are instead focused on improving the value of our existing operations.

At the Annual Shareholder Meeting, we elected four new directors. Our board now stands of seven directors, six of whom are independent. The board continues to maintain a standing strategic review committee and their mission is to identify and evaluate our opportunities to create an unlocked value for our shareholders.

The committee is looking at every opportunity and not discounting any potential tactic or strategy. Because their work is ongoing and by its nature sensitive, we don't anticipate answering many questions about this process, the timeline, or potential outcomes.

With current industry drivers and macroeconomic conditions as a backdrop, we are encouraged by our prospects. We have a solid service delivery platform that supports the scale of our business with room to grow.

We have a strong balance sheet with ample cash, an abundance of working capital and no debt, and a business model that is highly leverageable, profitable, and generates cash for reimbursement or return to shareholders.

I also want to thank our dedicated team of employees and field team members for the continued good work and ongoing commitment to exceptional customer service. I'll now turn the call over to Cory Smith, our CFO to review the financial results..

Thank you, Rick, and good morning everyone. Revenue in the second quarter was $24.2 million compared to $24.5 million in 2017. Despite decrease is largely attributable to higher than normal turnover and vacancies in our local field positions. Gross margin in the second quarter of this year was 26%, compared to 26.5% in 2017.

Our gross margins have remained healthy in the mid 20% range for quite some time with moderate quarter-over-quarter fluctuations to be expected. Selling, general, and administrative expenses this quarter were $5.4 million compared to $5.2 million in the second quarter of 2017, an increase of approximately $204,000 or 4%.

This increase was primarily due to increased compensation costs, which included increased stock-based compensation in a non-recurring $95,000 severance expense. Also contributing to the increase was a one-time $100,000 expense related to the settlement of our recent proxy contest.

Conversely, SG&A expenses were positively impacted by a decrease in contract labor costs and a refund of our workers compensation risk pool deposit in excess of what we had recorded. Excluding the aforementioned non-recurring expenses totaling $195,000, SG&A expenses were 21.4% of revenue in the second quarter compared to 21.1% in 2017.

Net income this quarter was $563,000 or $0.11 per diluted share compared to $735,000 or $0.14 per diluted share in the second quarter of last year. Adjusted EBITDA was essentially flat at approximately $1.3 million in the second quarters of both 2018 and 2017.

Turning to the 2018 year-to-date results, revenue through the first half of 2018 was $46.6 million compared to $46.9 million in 2017, a slight decrease of 0.4%. Our gross margin over the same time period was 25.5% in 2018 compared to 26.1% in 2017. Again gross margin remains healthy in the mid 20% range.

SG&A expenses for the first half of 2018 were $12.6 million compared to $10.5 million in 2017. This increase is primarily due to non-recurring expenses totaling approximately $2.2 million.

These non-recurring expenses are comprised of a $1.5 million expense related to an increase in the reserve on our workers compensation deposit in receivership approximately $565,000 of compensation expense related to vacant severance and $100,000 settlement payment related to our recent proxy contest.

Excluding these non-recurring expenses, SG&A was 22.2% of revenue through the first half of 2018, a slight decrease from 22.4% last year.

We reported a $610,000 net loss in the first half of 2018 or a negative $0.13 per diluted share primarily due to the non-recurring expenses I just discussed compared to net income of $917,000 or $0.18 per diluted share in the first half of 2017. Adjusted EBITDA was essentially flat at $1.7 million in the first half of both 2018 and 2017.

Moving on to the balance sheet, cash and cash equivalents including restricted cash totaled approximately $5.8 million at the end of our second quarter compared to $7.8 million at the end of last year.

This change in our cash balance is typical in the second quarter and is primarily due to annual contracts renewals, the settlement of the liabilities related to the non-recurring expenses previously discussed and the purchase of our common stock.

During this quarter we purchased about $104,000 shares of our common stock in an aggregate price of roughly $590,000 resulting in an average price of $5.69 per share.

This recent activity brings the program total close to 195,000 shares repurchase and an approximate cost of $1.1 million under our current $5 million repurchase program resulting in $3.9 million left under the current authorization.

Since the original planned inception in 2013 through the end of the second quarter of this year, we have purchased a total of approximately $707,000 shares at a total cost of roughly $4 million. As Rick mentioned, we plan to continue acquiring Command Center shares as part of our comprehensive capital allocation strategy.

And with that, I'll turn the call back over to the operator for Q&A..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Michael Potter with Monarch Capital Group. Please proceed with your question..

Hey, guys. Good call and good commentary so far and it looks like we are back on track here.

A couple of quick questions, one of which is the lack of revenue growth, Rick, can you give us a little bit more insight into, I guess, the market dynamics? Is it a demand issue or is it that we are having a problem finding, I guess, enough candidates to fill the open slots?.

Hey, Mike. Thanks for your question. No, I don't think it's a demand issue. I think there is still plenty of opportunity for us out there across the regions that we operate in. The real challenge that we have is finding the right combination of people in each of our branches to take advantage of those opportunities.

So we do have periodic difficulties in certain areas of the country finding people to fill jobs and in other areas of the country we have periodic difficulties finding jobs to put people in. But those shift from location to location quarter to quarter.

So the real challenge that we are focused on is getting the right people in place who can operate a profitable branch regardless of whether it's an easy quarter for them or a more challenging quarter..

So it's really at the - it's finding people to in position at all branches more so than end market demand or finding available candidates for our customers?.

Yeah, I think that's a fair summary. The company previously had referred to our branches as stores and there is a good reason for that. They actually operate like a lot of independent stores.

There is oversight at the regional level and at the corporate level, but what happens in each store, if you will, is different depending on its location, the demographics of that area and the team that's working there..

Okay.

And then can you give us a little bit more color on the workman's comp expense?.

We want to be more - a little bit more specific, Mike, which - what aspect of that are you asking about?.

Well, I guess, we had $1.5 million charge for the first six months. Is that correct? Just some more color..

Yeah. Really there has been no significant update this quarter. The process continues. It's going to take some time to unwind. And at this point we haven't changed our position from last quarter..

Okay. Guys, thank you..

You are welcome. Thank you..

Our next question is from David Lavigne from Trickle Research. Please proceed with your question..

Hi, guys.

How are you doing?.

Good, Dave..

So I apologize. I was a little late if this is redundant, I apologize.

But can you just give us a little maybe kind of a high level of the quarter in terms of with new management coming in, is there anything about the quarter that was felt a little bit translational or just kind of getting used to the new management and maybe some new things you are implementing or is it fair to say that the quarter really kind of did operate from what is going to be kind of a going forward normal basis? So was it just a little bit feel from transition sort of adjusting [ph] I guess? Can you just kind of - I mean I realize that's kind of a broad question, but?.

Yeah, I think as a team we've discussed what our priorities need to be and I don't know that they are significantly different than the priorities that the company has always had and the challenges are very similar to the challenges that the company has always had. What's different I think is how we are going about addressing them.

We are very systematically evaluating the performance of every branch, every person in every branch, and trying to address, I don't know if you call it, the operational discipline of the company.

That means having periodic operating reviews, not only at the branch level but at the regional level, sharing best practices across branches and enhancing both our employee acquisition strategies, as well as the training the new employees go through. As you know what we do is not easy. It never has been.

And as a result, there is often pretty, what I would consider, pretty significant turnover in key positions. Our challenge is to find the right people, make sure we have the right compensation plans in place for those people, and stabilize each and every brand that we have.

If we do that right, then we expect the revenues will increase over time and our profits will increase. Most of it is pretty basic blocking and tackling. What we are doing differently is probably more closely monitoring and working more effectively as a team on developing those strategies..

Okay. So now I ask you a question I ask you every time I see you that I'm going to ask it again..

Okay..

Can you give us any color on sort of what's out there in terms of maybe even if it's Greenfield branches or just addition of branches or is it really just you are going to focus on kind of tightening the screws that you just talked about or I mean is there something out there that looks like that's changed I guess the landscape for maybe the potential additions through acquisition or whatever?.

No, I don't think it's changed since last time we spoke, but for everyone else's benefit I would say that again we are not focused on acquisitions. There are some opportunities that come our way from time to time. We take the quick look. If we see something interesting, we'll buy then and see if it's helpful to our business.

But for the most part we really have untapped potential in our existing business. And as I said before, it's all tied to stabilizing the operations at 67 very unique branches and having effective teams that operate within those branches..

Great, thanks..

Thank you..

[Operator Instructions] There are no further questions in the queue. I'd like to hand the call back to management for closing comments..

Great. Thank you, operator. Thanks everyone. We appreciate you dialing in and look forward to our third quarter call..

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day..