Command Center – CCNI

If you have been checking the “Portfolio” tab you would have noticed that I have a position in CCNI. I’ll give some thoughts on the company and hope to instigate some discussion.

Company Description

Command Center, Inc. is a staffing company. The Company operates primarily in the manual labor segment of the staffing industry. The Company provides on-demand employees for manual labor, light industrial and skilled trades applications. Its customers are primarily small to mid-sized businesses in the wholesale trades, manufacturing, hospitality, construction, retail and auto auction industries. The Company owns and operates approximately 60 on-demand labor stores in over 20 states. In addition to short and longer term temporary work assignments, the Company recruits and places workers in temp-to-hire situations.

Some History

From 2007 to 2012 CCNI would bump around from being profitable to losing money, the recession certainly didn’t help and you can see the big drop in revenue from 2008 to 2010. The current CEO was brought in 2013 to turn around operations. And you can see the margin expansion taking place as the focus on operations took hold. Closing unprofitable branches, coaching the under-performing branches/managers, and strategically expanding location count drove margins higher.  Margins were at a record and the company was generating solid FCF. Focus shifted from day to day operations to expanding the footprint. North Dakota became 25% of revenue in 2014 and the future was looking bright.

A few things happened starting in late 2014 and early 2015 and hit margins.

  • the oil and gas industry seen the worst decline in a number of cycles
  • some of the branches (not sure exactly how many) were not taking on the correct work and focus on high margin, high value add work was lost

Management did recognize the issues and put provisions in place to right size them. In the meantime, share price suffered.

Through 2015 and H1 2016 comparable year-over-year results suffered. Investors became fatigued and some have been quite combative. Such things happen when expectations eclipse reality.

I’m not going to comment on the competency of management and what should or should not be done. Obviously, given that I have a position I feel I can trust them with my capital.

Today

The last 3 quarters we have started to see operational improvements and better communication to shareholders. Recent (small) acquisition is delivering as expected and is an example of what the cash can be used for to grow the business.

CCNI now trades at around 8x FCF without any margin expansion. The CEO has clearly stated that he feels that 2017 will see higher revenue and margins. The low multiple and cash generating ability of the business will open up options to increase shareholder value.

Given the risk/reward profile, I think CCNI is worth buying under $0.50.

Feel free to comment.

 

Thanks,

 

Dean

 

*the author is long CCNI at time of writing

5 Comments

Filed under Company Analysis

5 responses to “Command Center – CCNI

  1. saj

    Hi Dean,
    I like this one too but I haven’t yet liked the price enough to pull the trigger. I can’t get to 8x FCF like you have, so maybe I am missing something. Can you tell me what goes into that? I have 2016 roughly NI+Dep-capex of something like 800+300-100=$1 million on an EV of about $19 million, tho I agree FCF should rise in 2017. I’m not counting cash from NOLs because those are almost gone from what I can tell.
    I would buy it right now if Trump’s tax plan were to go through, but I have no idea how to handicap that!

    • Hey Saj,

      My FCF includes CFFO not including working capital from the last 4 quarters equal to almost 3mil. Q1 2017 was a profit of 423k vs. a loss last year of 338k. Subtract capex of about 200k gives you 2.8 mil in CFFO. And my enterprise value is similar to yours, about 18.4 mil. So you get 8x FCF for the market cap and about 6.5x EV/FCF.

      I didn’t do anything with the NOLs.

      Hope that helps.

      Dean

      • saj

        Thanks, Dean. CCNI’s CFO in the most recent year contains things like allowances for doubtful accounts, tax benefits, stock compensation etc which I either see as not sustainable or not belonging to shareholders. I still like it tho!

  2. You are right, some of the items I added back likely aren’t sustainable. Even if you remove them, still likely 2mil of (depressed) FCF on a 18.5 mil EV company.

  3. Pingback: $CCNI – Command Center quick update | Petty Cash

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