Q4 2019 Earnings Call
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Greetings and welcome to higher quest for.
Fourth quarter and year end 2019 earnings conference call.
Time, all participants are in listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note. This conference call is being recorded I'd now like to turn the conference over to your host Mr., Brett Maas with Hayden IR. Thank you you may begin. Thank you operator, I'd like to welcome everybody to the call hosting the call today are higher quest CEO, Rick Herman's and CFO Corey Smith.
Please be aware that some of the comments made during our call may include forward looking statements within the meaning of federal Securities laws statements about our beliefs and expectations containing words, such as make could would will should believe expect anticipate and similar expressions constitute forward looking statements. These statements involve risks and uncertainties regarding our operations in future results that could cause harm.
Quest results to differ materially from management's current expectations. We encourage you to review the safe Harbor statements and risk factors contained the company's earnings release and its filings with the Securities Exchange Commission, including without limitation. The most recent annual report on form 10-K. Most recent quarterly report on form 10-Q, and other periodic reports, which identify specific risk factors that also may cause.
Actual results or events to differ materially from those described are 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 higher quest L.C. dotcom or the Fccs website, FCC dot Gov coming does not undertake to publicly update or revise any forward looking statements after the call or the data this call.
I'd like to remind everyone. This called available for replay through April 13th starting at one PM Eastern time today, a link to the website a replay of the call. It was also provided the earnings release results are available on the company's website again hard with L.C. dotcom I'd like to now the current called turn the call or a CEO higher quest, Rick Herman's Rick.
Thank you for joining us.
2019 was a uneventful and productive year for higher quest, culminating with terrific financial results for the fourth quarter.
Which were made possible by the completion of the merger with command Center and the conversion of all company owned branches to our proven successful franchise model, we enter 2020 with efficient business operations operating at a powerful scale virtually unencumbered by legacy and transition activities.
Company as well capitalized with a strong balance sheet and it historically profitable self sustaining operating model that is generating positive cash flow our fourth quarter results illustrate this with $3.8 million of income from continuing operations on 5.9 million in revenue and $4.2 million in cash reserve reserves.
With zero debt.
These results were achieved through the successful execution of our merger integration plan and included converting all of the legacy Command center locations to higher quests franchise model exiting the California market via the sale of all of all four company owned locations to an independent third party and improvements to.
Operating processes that delivered increased efficiencies and a leaner cost structure.
Today, all of our revenue is derived from franchise royalties and service revenue and our operating infrastructure is appropriately sized to serve approximately 130 franchise downed offices, while we are.
While there are few minor legacy issues that remain we completed the rightsizing of our operational support ahead of schedule, including early termination of the lease for the command centers headquarters in Lakewood, Colorado.
As we turn the page and look forward to our goals.
In 2020, we're primarily focused on protection of our business in preparation for an increasingly volatile economy, our cash generation and steadily improving balance sheet provides us with the flexibility to select appropriate investment opportunities at the right time for us historically investments in existing franchises have created acceptable rate.
Turns with relatively short paybacks that create new profitable streams of revenue for future periods. At the same time, we continue to search for and consider opportunities for growth through acquisitions that could add markets, where we currently lack of presence or perhaps access to national accounts as always we're taking a discipline.
And and prudent approach to acquisitions with the ultimate goal of acquiring assets.
Can be transition to our franchise model as quickly as possible in many cases, we provide buyer financing Unfortunately, our balance sheet affords us the flexibility to do just that.
Our proven model is profitable and provides acceptable returns we have no interest in deviating from what we know and what we know works despite business and economic uncertainty and ongoing volatility.
Kovac 19 outbreak has begun to impact our operations in revenue as well as those of our franchisees. We expect the effects to become more acute in the next few months certain regions are being more effective than others at our behest. Most if not all of our independent franchise businesses have already implemented special.
Operating procedures to reduce the likelihood of a spread of the virus.
In general those franchisees, whose businesses are oriented towards construction manufacturing logistics or waste services have been less impacted than those whose businesses are more oriented towards hospitality services. We believe that the recently passed cares act and the benefits it created for small.
All business businesses, particularly through loans and grants will provide significantly will provide significant really for our franchisees and we hope that it will blunt the most negative business effects of the outbreak in the near term.
We have advised our franchisees to be very cautious and extending credit to their clients and we are monitoring the quality of our accounts receivable.
To the extent to covert 19 leads to a recession is a near certainty that our revenues will decline we've already begun developing plans to adjust our fixed cost should the effects of this outbreak last more than two or three months I run the staffing company through three prior recessions and let them know stranger to the dangers and opportunities that risk.
Sessions create to the extent that our revenues work to decline, we should be able to mitigate a significant portion of the negative effects.
That is while a relatively mild drop in revenues will likely result in a nominal.
Amount of income decline.
We are more able to sustain our typical net margins in a mild recession.
The largest the decline in revenues the more difficult. It is to maintain net income margins given that we're in an environment that is unlike any other that we have experienced before it is ultimately impossible to predict what the ultimate impact of the Corona virus and its fall out will be on our earnings.
2019 was your great accomplishment in positioning for future growth our business model is solid profitable and self sustaining within a proven ability to generate robust margins and positive cash flow.
Balance sheet is strong with healthy cash reserves and zero debt, providing us with a fair amount of installation to current economic volatility and the flexibility to pursue a variety of growth opportunities.
Let me turn the call over now to Corey to discuss the fourth quarter results Cory.
Thank you Rick and good morning, everyone. As a reminder, at the end of our third quarter nearly all of our company owned locations were sold to franchisees as part of our strategy to convert all of our corporate owned locations to franchisees.
In addition, we sold the assets related to our California locations to an unaffiliated third party outside of our franchise system as part of our strategy to exit the California market.
As a result of these changes our financial results include income from discontinued operations.
My prepared remarks relate only to our ongoing operations.
Franchise royalty revenue in the fourth quarter of 2019 was $5.4 million compared to $3.3 million in the fourth quarter of 2018, and the increase of 66% with 26% of this increase attributable to offices acquired during the merger.
Service revenue was up 70% to $476000 compared to $280000 in the fourth quarter of last year.
Service revenues generated from interest charge to our franchisees on overdue accounts receivable and from fees for various optional services, we offer our franchisees virtually all of this increase is attributable to original higher quest locations.
Total revenue in the fourth quarter of 2019 was $5.9 million compared to $3.3 million in the fourth quarter of 2018, 24% of this increased attributable to offices acquired in our merger with command Center.
Selling general and administrative expenses in the fourth quarter of 2019 were $3.1 million compared to $1.3 million in the fourth quarter of last year.
This year over year increases due to merger related expenses, including rebranding and restructuring expenses and the increase in legal and other professional fees increased compensation costs.
Income from continuing operations was $3.8 million or 28 cents per diluted share in fourth quarter of 2019 compared to $2.2 million were 22 cents per diluted share in the fourth quarter of 2018.
Moving in the balance sheet.
At December 30, Onest 2019, we had current assets of $37 million, which included cash from $4.2 million and accounts receivable of $28 million at the end of 2018 current assets were $22 million and included cash of $1.3 million and accounts receivable of 20.
$1 million.
With that ill turn the call back over to drop the operator for QNX.
Thank you.
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Yeah no questions at this time at this point I'd like to turn the call back over to requirements for closing comments.
Well, thank you everybody I.
Again, I as much as the covert 19.
Situation bears a great deal of.
Watchfulness I'm very pleased with the results that we had in the fourth quarter and again look forward to the opportunities. So this may provide and for the future and so again, thank you for joining us.
This concludes todays conference you may disconnect your lines at this time and we thank you for your participation.