Breaking Down Q1 Conference Call – Acquisitions & Logistics…In Ted I trust, you just have to listen to one of his conference calls, he has the business well handled. Debt continues to get paid down and they continue to grow the core business with or without further acquisitions.
Here are my 13 points to takeaway from Q1 Conference Call;
1. Core Trucking Business put up record revenue and EBITDA in Q1 FY 19 – IMPACT: Core business continues to put up record numbers in the face of tough macro environment. The strength in the core trucking market will help finance the profitable US Logistics buildout from a cashflow perspective, it is more about supply being taking out of the market in 2019 that will drive further growth.
2. Second Best Q in company History – IMPACT: I talked about this on twitter early in the week, the ELD regulation in 2018 caused such a tough compare. The core business continues to run at record pace when you take a further step back on a normalized basis.
3. Extreme Weather Hurt Q1 Numbers – IMPACT: This was brought up by all the rails in Q1 the tough operating environment they faced due to the weather. All logistics businesses faced the same issues. Makes the core record trucking revenues look even better.
4. Capacity Already Being Taken Out of Industry – IMPACT: This on of the critical points of the calls. Capacity was added quickly after rates spiked following tightens since ELD implementation in Q1 FY18 and it took a year to normalize. This bodes real well for the back half of 2019 as market tightens.
5. US Logistics Should Ramp Dramatically – IMPACT: Biggest takeaway from the call, North Carolina hub should add 10 -20M in revenue on an annual basis and each incremental logistics hub should add 10M+ in Revenue annual revenue with a second location to be added by year end. You can see how quickly the business can scale.
6. Canada ELD December 2019 – IMPACT: Brought up that in Jan 18 US truckers were not ready for ELD program and expect the same come December in Canada that will take further capacity out of the market in the back half of 2019.
7. Higher Margin in US Logitstics – IMPACT: Bodes well given US expansion not only from a currency perspective but also broader margin profile of the consolidated business as the business expands south of the border (Also makes its more attractive to a take out candidate… just saying).
8. Stable Pricing in Trucking Rates – IMPACT: Given most of their prices are on a contracted basis and not spot prices bodes well that they see little to no downside in pricing for the remainder of 2019.
9. Drug & Alcohol Policy in US – IMPACT: Firmer impaired driving rules will continue to tighten supply if nothing else make the industry and road safer for all of us which is nothing but a positive.
10. Fleet Growth – IMPACT: 14 Drivers added in Q1 and 5 Driver added in Q2 with room for a further 40 trucks depending on market conditions bodes well for organic growth.
11. Taking Care of Its Drivers – IMPACT: Drivers got a significant raise in 2018 alongside stock purchase plan shows why they are an industry leader in driver retention. People first.
12. “Very Interesting M&A Environment” – IMPACT: How can you not listen to that and get giddy given the company is under levered and has demonstrated being excellent allocators of capital when the industry has excess supply and companies are leaving the market. Something is in the works...
13. “Not Going to Buy Fluids Business” – IMPACT: SHOTS FIRED!!! Direct shot at TFII buying fluid management business in the US and how Ted is going to stick to his core knitting in Trucking and Logistics business in Canada or the US and not going to divert from it. Love it.
In Conclusion, at a little over 2x EBITDA when each new Logistics hub can bring in an incremental 5 – 10% organic revenue growth alongside the core organic growth in its Trucking business from a both a market share growth or a fleet growth can not be matched.
I truly believe this is one of the core businesses all small cap investors should own.
The truly strategic asset that is worth well over 2.00/share if anyone tries to take out this company.
Added this week, Ted Daniel is my guy especially at 2x EBITDA and an under levered Balance Sheet.
LONG