Author Topic: CCNI -- Command Center  (Read 11273 times)

KJP

  • Hero Member
  • *****
  • Posts: 794
Re: CCNI -- Command Center
« Reply #30 on: November 20, 2018, 12:17:10 PM »
I have higher earnings at those levels based on normalized SG&A of just over $21 million annually.  You also included taxes which they currently don't pay due to NOLs. That will likely change in a year or so.

26% GM = $4.0 million pre-tax net income = adjusted P/E (net of cash) of 3
25% GM = $3.1 million pre-tax net income = adjusted P/E of 4
24.5% GM = $2.6 million pre-tax of net income = adjusted P/E of 4.6
24% GM = $2.1 million of pre-tax net income = adjusted P/E of 5.7

I am using 24.5% GM for forward estimates which was what they had in the last quarter.  Five year average is 26%

Yes, I used $22 million of annual SG&A and included taxes at 25% because, as you noted, the NOL will be used up soon.  I agree it would be fair to shave a bit more off the adjusted market cap to account for the remaining NOL.

I like your numbers better and hope they can be achieved.  As you illustrated, at ~$21 million SG&A and a capital allocation policy heavy on buybacks, this looks cheap, even if the company is a full-rate taxpayer.
« Last Edit: November 20, 2018, 12:19:09 PM by KJP »


KJP

  • Hero Member
  • *****
  • Posts: 794
Re: CCNI -- Command Center
« Reply #31 on: April 08, 2019, 01:14:57 PM »
Significant transaction announced today:  https://www.businesswire.com/news/home/20190408005786/en/Command-Center-Announces-Definitive-Merger-Agreement-Transition

Note the planned tender offer at $6/share for existing shareholders.

KJP

  • Hero Member
  • *****
  • Posts: 794
Re: CCNI -- Command Center
« Reply #32 on: April 09, 2019, 06:07:53 AM »
I think this is one to keep an eye on. 

The transaction is akin to a reverse merger for Hire Quest and probably driven in part its CEO's desire to have an easier way to eventually exit his controlling stake in that company.  When the transaction closes, there will be 14.5 million Command Center shares outstanding, and then they are going to tender for 1.5 million shares at $6/share.  I believe that $9 million tender will be roughly $2 million more than the company's cash on hand at the time.  Assuming the tender is fully subscribed, that would leave 13 million shares outstanding, with ~$2 million or so in net debt.

The plan is then to franchise all of Command Center's 67 branches (less any closed due to overlap with existing Hire Quest locations) to mirror Hire Quest's franchise model.  Once this process is complete, the press release projects "annual EBITDA in excess of $15 million, exclusive of growth opportunities."  The combined company should be an asset-light franchisor, so D&A should be very low.  So, assuming a 25% tax rate, that $15 million in EBITDA should generate $10+ million in net income/free cash flow. 

The company may also be able to generate significant one-time gains from the franchising process itself, i.e., whoever buys the existing franchises will pay Command Center to take over the existing location, relationships, etc.  It's not clear to me how much money franchising all of the existing locations would generate.

At the end of the day, the company may end up being an asset-light franchisor generating $10+ million in free cash flow, with an experienced and incentivized CEO who owns 39% of the company (Rick Hermanns, current CEO and majority owner of Hire Quest).  If there are 13 million shares outstanding, here are the share prices at various cash flow multiples:

8x FCF = $80 million market cap = $6.15/share
10x FCF = $100 million market cap = $7.70/share
12x FCF = $120 million market cap = $9.23/share
15x FCF = $150 million market cap = $11.53/share
17x FCF = $170 million market cap = $13.07/share
20x FCF = $200 million market cap = $15.38/share

So, the $6.00/share tender offer price implies only about 8x free cash flow, which seems quite low for an apparently successful franchisor.  I think at least low double-digit multiple of free cash flow is more appropriate.  I'm also giving the company no credit for the potential proceeds it may get for selling its existing locations to franchisees.

We'll learn more the merger documents are filed with the SEC.  I'm particularly interested in whether insiders are planning to tender their shares. 


writser

  • Hero Member
  • *****
  • Posts: 1842
Re: CCNI -- Command Center
« Reply #33 on: April 09, 2019, 06:47:21 AM »
Interesting situation, another KJP value pick is involved in a deal. Good stuff. Shares are all over the place today. With a pre-announcement price of $4 and a tender for ~30% outstanding at $6 I'd say the market is currently not super optimistic about the deal. If some insiders do not tender you could easily sell 50%+ at $6. Shares traded below $5 today, implying the deal is a net negative. Hard to judge without more information, but if you agree somewhat with KJP's posts that seems overly pessimistic.

I scalped a few shares, probably sold too soon. Haven't looked at this in too much detail ..
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

Tim Eriksen

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 751
Re: CCNI -- Command Center
« Reply #34 on: April 10, 2019, 07:58:00 AM »
CCNI reported a much better Q4 than I expected.   Earnings of $0.23 per share.  Cash now up to $7.9 million.  They may be able to pay for the tender (up to 1.5 million shares at $6) without any debt.    Back of the envelope is the Hire Quest acquisition/merger would result in issuance of 9.8 million shares, bringing total o/s to 14.5 million.  Post tender that becomes 13.0 million if fully subscribed.  Per management, after normalization (and synergies ?) EBITDA estimated at $15 million,or $1.15 per share.  Since there is no debt on either entity and minimal depreciation that leaves any non cash amortization from the merger (which I would back out) and taxes.  Adjusted EPS could be $0.85 per share.

Plus they will earn proceeds from franchising the 67 CCNI branches.  For example: 100k per branch = $6.7 million or $0.50 per share.  I am not predicting that amount per branch, I have no idea without seeing the economic split between franchise and franchisee.