Author Topic: CCNI - Command Center  (Read 13192 times)

KJP

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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

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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

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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

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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 ..
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Tim Eriksen

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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.       

KJP

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Re: CCNI -- Command Center
« Reply #35 on: July 26, 2019, 07:23:42 AM »
The tender closed and (in a surprise to me) was undersubscribed, so anyone who tendered got $6.00 for all the shares they tendered. 

Prior to the closing of the tender, shares were trading around $5.60.  Who is selling at that price when there's an open tender at $6.00?  I've seen this in other tenders as well.  What drives that behavior? 

Jurgis

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Re: CCNI -- Command Center
« Reply #36 on: July 26, 2019, 07:46:41 AM »
The tender closed and (in a surprise to me) was undersubscribed, so anyone who tendered got $6.00 for all the shares they tendered. 

Prior to the closing of the tender, shares were trading around $5.60.  Who is selling at that price when there's an open tender at $6.00?  I've seen this in other tenders as well.  What drives that behavior?

Assuming sellers know about the tender, then sellers selling at discount ($5.60) expect the tender to be oversubscribed and the stock to drop much lower after tender.

I don't follow CCNI so I can't say if the expectation that stock will drop after tender is rational. Clearly the expectation of oversubscription was wrong.
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Tim Eriksen

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Re: CCNI -- Command Center
« Reply #37 on: July 26, 2019, 07:48:21 AM »
The tender closed and (in a surprise to me) was undersubscribed, so anyone who tendered got $6.00 for all the shares they tendered. 

Prior to the closing of the tender, shares were trading around $5.60.  Who is selling at that price when there's an open tender at $6.00?  I've seen this in other tenders as well.  What drives that behavior?

Surprised me too.  I tendered 100% expecting to have it pro-rated.  It will be interesting how the market responds to earnings.  GAAP EPS will be low (I estimate $0.12 annually) due to high intangible amortization ($0.38 annually), excluding gains from sale of company owned locations.  Cash EPS will be solid.
« Last Edit: July 26, 2019, 11:44:49 AM by Tim Eriksen »

Foreign Tuffett

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Re: CCNI - Command Center
« Reply #38 on: July 26, 2019, 12:10:55 PM »
From the "Related Party Transactions" section of the proxy:

"Members of the Company owned fifty of the ninety-seven, thirty-nine of the seventy-nine, fifty-four of the ninety-seven, and thirty-nine of the eighty-five franchisee branch locations at December 31, 2018 and 2017 and at March 31, 2019 and 2018, respectively. Relatives of Company members owned twenty-seven, eighteen, thirty-two, and twenty franchise locations at December 31, 2018 and 2017 and at March 31, 2019 and 2018 respectively."

So of the ~97 total Hire Quest locations, a total of 86(!) are franchises owned by Hire Quest insiders and their relatives. I'm skeptical that minority shareholders will be treated fairly here.

There are lots of other related party transactions as well.




wabuffo

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Re: CCNI - Command Center
« Reply #39 on: July 26, 2019, 01:57:09 PM »
They have already begun buying out the some of Command Center owned locations and converting them:

https://www.sec.gov/Archives/edgar/data/1140102/000119380519000640/e618556_8k-cc.htm
Quote
On July 15, 2019, to commence effecting the transition of the Company’s branches from being Company-owned to being franchisee-owned, the Company entered into Asset Purchase Agreements (“Purchase Agreements”) with existing franchisees of Hire Quest and new franchisees (collectively, “Buyers”) for the sale of certain assets related to the operations of the Company’s branches in Conway and North Little Rock, AR; Flagstaff, Mesa, North Phoenix, Phoenix, Tempe, Tuscon, and Yuma, AZ; Aurora and Thornton, CO; Atlanta, GA; College Park and Speedway, IN; Shreveport, LA; Baltimore and Landover, MD; Oklahoma City and Tulsa, OK; Chattanooga, Madison, Memphis, and Nashville, TN; Amarillo, Austin, Houston, Irving, Lubbock, Odessa, and San Antonio, TX; and Roanoke, VA (collectively, the “Franchise Assets”).

The closings under such agreements occurred on July 15, 2019. The aggregate purchase price for the Franchise Assets consisted of approximately (i) $4.7 million paid in the form of promissory notes accruing interest at an annual rate of 6% issued by the Buyers to the Company plus (ii) the right to receive 2% of annual sales in excess of $3.2 million in the aggregate for the franchise territory containing Phoenix, AZ for 10 years, up to a total aggregate amount of $2.0 million.
...
A subset of the Purchase Agreements was entered into with, and the related Franchise Assets sold to, Buyers in which Richard Hermanns and Edward Jackson (both of whom are New Directors (as defined below) and significant shareholders of the Company as a result of the Merger) have direct or indirect interests (the “Worlds Buyers”).

I'm skeptical that minority shareholders will be treated fairly here.

Its always a concern - so you have to follow the incentives of the new management team coming in.  I think they had strong reasons to do the takeover merger as a value creation move (ie., perhaps move to a new, lower corporate tax rate as a public company under the new Tax Act).  I'm willing to give them some rope at the outset ...

wabuffo