Company Announces Conference Call on August 14, 2014
HIRAM, GA /
eTeligis/, 7/30/2014 8:50:00 AM - Labor SMART,
Inc. (OTCQB: LTNC) (the "Company"), a leader in providing on-demand
blue collar staffing primarily in the southeastern United States,
today issued the following letter to shareholders:
Dear Fellow Shareholder,
It's certainly been a very exciting first half of 2014. We are on
track to post a record year for Labor SMART.
There has been so much accomplished and the outlook continues to be
so strong that I felt it important to correspond with you directly
and highlight our accomplishments as well as provide an outlook for
the remainder of the year.
Briefly, our highlights:
- Most significant is the most recent - we are now self-insured
in 14 states. This is a key part of our growth strategy as it has
the potential to improve our cash flow and lower our cost of sales.
Already this has had an immediate positive effect on our gross
profit margins.
- Record revenues continue to be achieved on a monthly basis. In
June alone we recorded $2,209,702. Furthermore at those branches
that have been open for a year or more, revenue increased by 23
percent, year-over-year.
- Expansion has been strong. We doubled our footprint from 15
offices to 30 in the first six months of 2014. This expansion has
been geographic as well with an entry into the Western US with new
offices in Denver and Texas as well as our recent acquisition in
Oklahoma.
- Our gross margins are increasing monthly - this is a stated
goal of the company to continue to improve our gross margins. As
noted above, the recent self-insurance will contribute
substantially to achieving this goal sooner than we originally
planned.
- Our client base continues to increase and we are seeing repeat
business on a regular basis. This repeat business is a strong
endorsement of both your company and the workers we supply to these
businesses. As our footprint has expanded, so has the number of
clients we service across multiple cities. We continue to diversify
our client roster to include non-seasonal types of customers, such
as those in the hospitality industry.
- The addition of Jay Reynolds to our team as Director of
Business Development. Jay brings a strong background and is leading
our sales team as we enhance our sales culture and continue to
execute our business plan.
- We negotiated better terms with Transfac Capital on funding
against our accounts receivable to 85% from the 70% earlier level.
This improvement is as a result of the strengthening of our
business position.
These are significant achievements in the first half of 2014, which
as you will recall, started off with three months of very slow
economic growth due to weather-related issues nationwide. At Labor
SMART we were an anomaly as we achieved record revenues during all
three of these months - something that we had not anticipated and
which frankly was a very pleasant surprise for us. This unusual
weather did however cause a slow start to our expansion season for
2014.
Now, the challenges ahead....and we are confident that we can meet
them head on and surmount them.
- The growth of the company - while growth is extremely important
to provide additional revenue, it is also costly and time consuming
to bring new branch offices on board. It can take six to nine
months for a new branch to reach a profitable sales level and 12-18
months for a new branch to produce the long term revenue level we
expect, which is at a run rate of $1.5 million annually per
office.
- Our convertible debt is a challenge. We have taken steps to
secure this in small tranches so that no one individual or entity
can force conversion. We continue to pay the overwhelming majority
of this debt with cash, thereby keeping dilution to a minimum.
Since inception, we have strived to take advantage of every
resource available to us to grow as quickly as necessary to reach
critical mass, which I believe has been achieved. While convertible
debt is not ideal, it has provided us the quick capital that was
needed to grow from startup to 30 branch offices in 2 years. With
less than $3 million in paid in capital, we have built a business
that should generate millions in profits in the years to come. Now,
it is time to remove this debt from the balance sheet and graduate
to more traditional funding for future growth. Therefore, we are
aggressively exploring our options to achieve this in the best
manner possible for the company and its shareholders.
- Acquisitions. Our business is highly fragmented. We intend to
continue to acquire other offices. We have very specific criteria
however, and the most important is that the work culture be similar
to our existing commitment to customers. There are many potential
targets that we are considering at the present time.
- General economic conditions - as the economy continues to gain
strength our customer mix may continue to change - we believe it
will grow as construction picks up and large companies bring
manufacturing back to the US - with a significant presence in our
strong area of the country - the Southeastern US. This is both a
challenge as well as an opportunity in that the worker pool may
become smaller, yet the potential for business grows. We believe we
are equipped and nimble enough to deal with this
challenge/opportunity should it arise.
I'd like to expand a little on what I consider major fundamental
changes to our organization, but first I need to provide some
background. Our operating plan, growth strategy, and even revenue
projections since inception, were drafted and prepared long before
Labor SMART began its rapid growth. In fact, in early 2011 my
original "Waffle House napkin" projection for revenue in 2012 was
only $4 million. We actually came in at $7.1million. The 2013
projection was only $12 million. We produced over $16.6 million. I
prepared these projections based on a combination of expected
scenarios, obstacles, opportunities, and challenges. Each year, the
world class Labor SMART team has delivered above and beyond my
expectations.
One of the critical components of the five year plan launched in
2012 was to quickly scale our business to a size that would be big
enough to secure a large deductible insurance policy for worker's
compensation, and this would need to be achieved no later than
2016. Being substantially self-insured puts us in the driver's seat
for one of our largest expense items. I anticipated us being able
to achieve this goal sometime in 2015. Yet again, the Labor SMART
team delivered beyond my expectations when we bound a large
deductible policy on June 14, 2014, a full year ahead of
schedule.
And here we are. One of the driving necessities behind our rapid
organic expansion (getting big enough to be self-insured), has been
secured. For Labor SMART, rapid organic expansion is no longer a
requirement to meet our future goals, and for the first time since
inception, goals that we set years ago need to be adjusted to
reflect the better than expected reality we in which we now
operate.
While we intend to continue and even hasten our growth, some course
adjustments need to be made that will help us concentrate on
achieving overall profitability while growing at the same time.
First, with our new self-insurance, we needed to "clean out" any
book of business that didn't fit squarely in our model and that
task has been completed as of last week. Compared to 2013, we have
shed approximately $320,000 average monthly revenue in low margin,
higher risk business. These adjustments to our business mix will
have a minor negative impact on 2014 revenue and a very positive
impact on 2014 gross profit margins. Additionally and more
importantly, we have reduced our risk exposure from a safety and
credit perspective and will continue to take a risk averse position
in regards to safety. The effects of shedding this business
requires a reduction of 2014 revenue projections from $30 million
to $25-27 million but at the same time an increase in our 2014
gross margin projections from our original goal of reaching 22%
gross margin by Q4 to our new goal of 23.5% gross margin for the
entire year and reaching 25% in Q4 2014.
Second, we need to evaluate the most effective way to continue
rapid revenue growth, while showing profitability. Expanding
organically takes a dramatic toll on our profitability, as costs
are expensed and cannot be amortized over time. Now that our
organization has reached a sizeable scale, it is my belief that we
must take advantage of our scale, our world class infrastructure
and our lowered workers compensation costs to grow the company even
faster, but more through acquisitions than organic growth.
Therefore, we are adjusting our growth strategy for 2015 to reflect
a much higher appetite for acquisitions.
Historically, we have been able to execute acquisitions at a
multiple of 1-2 times EBITDA. I expect to expand this range up to
as much as 4 times EBITDA, which is still extremely below public
valuation and very accretive to Labor SMART earnings. The
acquisitions we have completed were structured in such a way that
allows for up to a 100% return on cash within 24 months and all
have been purchased with cash plus seller notes, with no Labor
SMART stock being issued. I believe this is a sound acquisition
model than can be replicated. Labor SMART has an experienced
management team that can quickly and efficiently integrate $20-40
million in acquisitions next year.
As I said at the beginning, 2014 so far has been a banner year for
your company and all signs point to that continuing in the
remaining months.
With all of this good news and opportunity, I know that many of you
are very concerned about the share price of the company. Obviously,
I share that concern as the single largest shareholder. We believe
the current share price certainly does not reflect either the value
of the company at its present time or the potential that we see on
the horizon. While we are just as disappointed in the current level
of our share price, we believe that as we perform and continue to
build this business the share price will reflect that value and
provide superior returns to early investors in our young company.
One important point to remember is that we still are an emerging
growth company and not yet able to uplist to a major exchange and
as a result, our shares can oftentimes be traded in ways that have
absolutely nothing to do with our underlying business. The key
focus remains growing the business - and as the business grows that
will become reflected in the value of the company as seen in its
market cap.
Very shortly we will file our 10Q for the second quarter and six
month period ending June 27, 2014. On August 14 at 10AM Eastern
Time, we will hold a conference call to review our second quarter
results as well as the content of this letter and provide updates
to our business plan. The call information is below:
Conference ID: 82219278
Participants' toll-free dial-in number (U.S. and Canada): (855)
582-8078
I invite all shareholders to attend. There will be a time allotted
for Q&A and I look forward to speaking with you.
We tell our story to new investors and will continue to do so in
the future. If you have any questions please feel free to contact
either Bev Jedynak at 312-943-1123 (bjedynak@janispr.com) or Jim
Janis, 312-882-9535 (junglejimjanis@yahoo.com) of Martin E. Janis
& Company, Inc., our public relations/investor relations
firm.
Please know that all of us at Labor SMART, in whatever role we
play, are committed to becoming THE leader in the blue-collar,
on-demand staffing industry and with your support, we can continue
in this endeavor.
Thank you,
C. Ryan Schadel
President & CEO
Safe Harbor Statement
This letter and the accompanying release contain statements that
constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. These statements
appear in a number of places in this release and include all
statements that are not statements of historical fact regarding the
intent, belief or current expectations of Labor SMART, Inc., its
directors or its officers with respect to, among other things: (i)
financing plans; (ii) trends affecting its financial condition or
results of operations; (iii) growth strategy and operating
strategy. The words "may", "would", "will", "expect", "estimate",
"can", "believe", "potential", and similar expressions and
variations thereof are intended to identify forward-looking
statements. Investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve
risks and uncertainties, many of which are beyond Labor SMART,
Inc.'s ability to control, and that actual results may differ
materially from those projected in the forward-looking statements
as a result of various factors. More information about the
potential factors that could affect the business and financial
results is and will be included in Labor SMART, Inc.'s filings with
the U.S. Securities and Exchange Commission.
CONTACT:
Bev Jedynak
312-943-1123
bjedynak@janispr.com
Jim Janis
312-882-9535
junglejimjanis@yahoo.com
SOURCE: Labor SMART, Inc.
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