Labor Smart Inc (LTNC)

[DD2Gain]

Interesting perspective attempting to extrapolate branch maturity and correlate it with a percent of revenue growth, but the numbers from this year are damning as I see it. There would not be just 10% growth from the first 15 branches, there would be 10-20% growth from the first 6 as a reasonable expectation followed by 80-100% growth from the remaining 8 branches that would be ramping up to one year maturity, which we aren't seeing or we'd be looking at about $25 million in revenue this year for the first 15 branches alone rather than for 32 branches.

The one year maturity is simply a YOY benchmark. Ryan Schadel has stated that it should take 6 months for a branch to become profitable, which is in line with industry expectations

We expect a 6 month timeline for a branch to become profitable, and a cost of $35,000 to open and maintain a branch before it reaches break even. Our branch opening schedule will be based on available capital resources and performance of branches in operation. We project full year sales of $900,000 per branch, generating $180,000 in gross margin. Our margins may be pressure by competitive forces. Of course there can be no assurance these goals will be achieved.

I'd say he really underestimated the cost of building the business and has spent the company into peril. He factored organic growth into the business plan, but has shifted to acquisitions that require substantially more capital up front. Labor Ready did not do this even with more available and favorable OTC funding streams back in the 90's. Schadel screwed up and is now trying to figure out how to fix that if it's even possible.