December 02, 2015 - 2:33pm EST by
2015 2016
Price: 0.52 EPS 0 0
Shares Out. (in M): 66 P/E 0 0
Market Cap (in $M): 34 P/FCF 0 0
Net Debt (in $M): -6 EBIT 0 0
TEV ($): 29 TEV/EBIT 0 0

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Command Center supplies short-term manual labor for the hospitality (25% of revenue), retail (20%), construction (20%), warehousing (20%) and transportation /auto auctions (15%) industries and has traded off significantly this year as Bakken-based revenue has weighed on revenue growth.  It currently trades at 6x LTM EBITDA and at a steep discount to peers.  The Company employs over 32k workers and owns/operates 57 on-demand labor stores in 22 states to serve as flex capacity for businesses that need to adjust staffing levels to meet sudden shifts in production or temporarily replace full-time employees.  Its top 10 customers accounted for 27% of 2014 revenue.

Staffing companies primarily compete on price and availability.  The industry is highly fragmented (a significant proportion have fewer than 5 locations) and entry barrier are minimal, although onerous working capital demands - particularly in the spring/summer - can hamper growth for smaller players.  There are some local scale economics in the form of better matching staffing with client need and training costs, but not much.  According to the Company, in the US there are 100 large, national staffing companies and 10,000 that operate at the local level.  CCNI sizes the total U.S. staffing market at $100bn with light industrial/blue-collar (CCNI’s market) representing 28% of that.  Laborers are typically paid on the same day services are performed while customers typically pay CCNI after 30-days.  The Company has a full recourse factoring agreement in which Wells Fargo pays 90% of face value for eligible accounts that goes through April 2016.    

In 2006 the Company acquired 57 stores from former franchisees and opened an additional 20 additional, shifting its focus from franchising to operating on-demand staffing stores.  The Company really misfired after that, investing heavily in infrastructure to support its goal of hitting 100 stores by 2008 just as the economy turned.  Revenue was cut by almost have in 2008 and 2009 and the Company scrambled to cut costs and close stores.     

In February 2013, the founder/CEO Glenn Welstad was deposed and replaced by Frederick “Bubba” Sanford (a former Navy SEAL/consultant/serial entrepreneur), who refocused the Company on profitability.  During his first two years, things progressed nicely - redundant costs were cut, unprofitable branches closed, working capital rationalized.  Unfortunately, CCNI also pushed into oil/gas tethered regions and the subsequent stress in the energy sector has precipitated depressed economic conditions in the Bakken region (where the Company has 5 offices), decimating a > company-average margin source of revenue and catalyzing a ~30% sell-off in CCNI shares since January.  But outside of the Bakken, things are pretty swell…revenue growth in branches outside of North Dakota has grown 11.4% YTD, even as CCNI’s Bakken branches have declined by 36.6%. 

Still, I think the sell-off excessive.  I estimate that the Company has about $15mn in annual revenue from Bakken.  If we assume that Bakken revenue declines another 50% from here (mind you, the LTM numbers already reflect most of the selloff) while the balance comps at +hsd (as it has been), we’re probably looking at a $1.5mn hit to LTM EBITDA, bringing it to around low $3’s million.  CCNI shares are currently trading at ~9x-9.5x that number, which is still a discount to peers who trade around 10x (BGSF – 8.7x; KELYA – 12.8x; KFRC – 10.9x; MAN – 9.5x; ASGN – 16.6x; TBI – 9.4x).  Also significantly, CCNI has continued to generate about 8c in FCFE/share LTM (15% of the current share price). 

In a bear case scenario in which Bakken revenue falls another 50% and non-Bakken comps down 20% (similar to CCNI’s comp in 2009), the EBITDA burn might be around $2.5mn-$3mn (assuming no reactionary cost cuts), which, given the Company’s strong balance sheet, is hardly devastating.  At 0.2x that revenue (where the Company traded in 2009), this is a $0.20 stock.

It doesn’t seem to unreasonable to suppose that NTM Bakken revenues stay flat from today while the rest of Command comps msd/hsd, in which case we might be looking at $6.5mn in EBITDA.  This is a mediocre business that probably isn’t worth more than 7x….but still, with that, plus say another 8c in interim cash build, we’re at nearly 90c in per share value…..and there’s further upside from branch openings and acquisitions. 

But until that time comes, management is focused on improving same store sales, branch growth, acquisitions and share buybacks (authorization for ~14% of dso) in that order.  The returns on new branches are quite attractive – I think they can probably do $110k in EBITDA per branch at maturity (~2 year ramp; hsd margins) and working capital requirements should be rather minimal, maybe $250k-$300k, because of its factoring facility with Wells Fargo; but the Company tells me that finding store managers remains the key binding constraint.  Wrt acquisitions, the CCNI will typically pay a seller’s multiple of 2.5x-3.5x EBITDA on smaller fold-ins and up to 4x on larger ones where it can find some overhead synergies.  In any case - large or small, synergies or no - the returns well exceed its capital costs.  I think that the buyback authorization, while big at 14% of shares, will be tough to fully execute given the illiquid nature of the stock.


Finally, there’s been some meaningful insider buying from a director in September in the high-50c range and by Bubba in August at around the current price. 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.



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