Author Topic: CCNI - Command Center  (Read 16684 times)


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Re: CCNI - Command Center
« Reply #50 on: November 14, 2019, 05:10:17 PM »
Wabuffo and others:  Do you understand slide 11 from this presentation, in particular the statement that royalties and interest collectively typically total 4% of system-wide revenue?: 

Everything else I've seen suggests that system-wide royalties alone (not including interest) are about 6%of system-wide sales:

1.  The notes to HQ's 2018 financials state:  "The royalty ranges from approximately 8% of sales by franchisees to approximately 4% of sales by franchisees."  [p. 11:]

2.  Same financial statements state that annual franchise royalties were $9.7 million in 2017 and $11.27 million in 2018.  The September 2019 presentation says HQ system-wide sales were $168 million in 2017 and $189 million in 2018.  [Slide 15:]  Based on those numbers, the average royalty rates were 5.8% in 2017 [9.7/168] and 6% in 2018 [11.27/189]

3.  Year-to-date system-wide franchise sales have been $160 million [2019 Q3 10-Q at p.19] and year-to-date franchise royalties have been $9.28 million, for an average royalty rate of 5.8%. 

So, what exactly is slide 11 of the September presentation referring to when it says royalties and interest are typically 4% of system-wide revenue?  Is a portion of what the company reports as "franchise royalties" in its financials really insurance premiums that franchisees pay to HQ corporate for "insurance" to cover the $500,000 deductible that exists on HQ's worker's comp policy, with the variance between these "premiums" that HQ collects from franchisees and deductible reimbursements it has to pay them representing the potential worker's comp variance to margins that management referred on the call?  I can't find any disclosure one way or the other about this.  I also don't see how it could be true in light of the statement in the 2018 HQ financials that HQ paid $7.5 million on behalf of franchisees in 2018 for insurance from a related-party to cover deductible reimbursements. (This policy was canceled on the date of the merger.)  [p. 14:]  The company isn't taking in enough in franchise royalties to self-insure a risk that cost $7.5 million to insure in 2018 on a smaller franchise base.

Also, what explains the odd seasonality of reported franchise royalties?
« Last Edit: November 14, 2019, 05:20:44 PM by KJP »


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Re: CCNI - Command Center
« Reply #51 on: November 14, 2019, 08:10:29 PM »
KJP - I haven't looked into the internals of the numbers as deeply as you but here are my guesses, FWIW:

So, what exactly is slide 11 of the September presentation referring to when it says royalties and interest are typically 4% of system-wide revenue?

I'm guessing that there's a flat 4% royalty/interest that covers working capital management (receivables) plus another variable portion (as per the slide you referenced) that covers workers' comp.  If you add the extra 35% of the bar chart covering the insurance to the 4% royalty + interest portion - you get around 6% total "royalty" fee as a % of franchisee revenue.  At least that's how I interpreted it - could be wrong. 

I mean the entire value-added of their business model is that HQ provides two basic transactional services to the franchisee:

1) They factor the franchisee receivables (HQI advances 70% of what's owed to the franchisee from the hiring customers, and then HQI does the collection) and
2) They provide scale purchasing of workers' comp. insurance (since they can aggregate the entire network as part of a larger risk pool).

Thus, I would imagine, these two components make up the value-added basic service for which franchisees pay a royalty fee.  They provide other services upon request but those go into the service fee part of their revenue model since these are considered "extras".

I think this mgmt is new to public company investor relations and can be confusing in their shareholder communication.  They aren't always clear and consistent with how they present basic business model information - but they'll improve.

Of course, I could be wrong about all this.

« Last Edit: November 14, 2019, 08:33:01 PM by wabuffo »