|Shares Out. (in M):||34||P/E||7.1x||0.0x|
|Market Cap (in M):||26||P/FCF||0.0x||0.0x|
|Net Debt (in M):||16||EBIT||6||0|
AutoInfo Inc. (OTCBB: AUTO) is a small non-asset based transportation company headquartered in Boca Raton, Florida. According to Transport Topics, the company’s Sunteck Transport Group subsidiary is the 8th largest freight brokerage firm. The small, under-appreciated company seems to be mispriced by the market, especially given two large motivated financial owners that control a significant amount of the outstanding shares.
As a non-asset based company, the company does not own the transportation assets, but rather operates a network uniting customers in need of shipping services, sales agents and transportation capacity providers. Services offered to end customers are similar to other non-asset based providers and include a variety of transportation needs. Additionally, the company has a second segment that it has labeled “agent support services” that provide services to its network partners. This segment consists mostly of financial related services, including interest bearing loans for agents to grow their businesses and more recently sale / lease assistance for truck owners and operators. This segment will now see the company financing the purchase of trucks by new operators joining their network.
AutoInfo is, as yet, not traded on a national exchange and is certainly a small and relatively illiquid company. Average daily volume over the last three months is approximately 11,893 shares and over the last year the average daily volume is 28,803, though making an adjustment for the Baker Street purchase mentioned below, the average daily volume over the last 12 months approximates that of the last three months. Currently, the market cap is $25.6 mm and its enterprise value is $41.7 mm. In 2011 the company generated $320 mm in revenue and $3.6 mm in net income. It is trading at 7.5 x net income. [All of these figures reflect no adjustments for the recent acquisition and options which are discussed below.]
|Kinderhook Capital Management||13G||18.40%|
|Baker Street Capital Management||13D||9.10%|
|Harry Wachtel||Chairman / CEO||18.12%|
|James Martin||Board Member||16.50%|
Together the owners above own 62.12% of the company. Kinderhook has been involved with AutoInfo since at least 2004 when it participated in a small private placement and purchased a convertible debenture which was converted into common stock. Later the company made additional open market purchases. The firm’s purchases appear to be in the range of $.33 to $.54 per share. In late 2011 Baker Street acquired the block that it now owns for $.55 per share.
One might surmise that given Kinderhook’s long involvement with the company and Baker Street’s recent activism, productive conversations regarding the company’s future direction and realization of intrinsic value may be ongoing. For reference, Baker Street has filed six 13D’s on US companies since early 2010, including at Tix Corporation (TIXC.PK) where the firm actually made a bid for the entire company and was later given board representation. It also participated in a tender offer in for Pyne Gould Corp. (NZSE: PGC). There have been no subsequent 13D filings by Baker Street after its initial filing in early November 2011.
Interestingly, the company disclosed in its recent 10-K filing the formation of a strategic initiatives committee. Here is the excerpt:
Our Board has an audit committee, a compensation committee and recently formed a special strategic initiatives committee…The strategic initiatives committee is responsible for working with management to evaluate strategic opportunities that may arise from time to time.. The committee is comprised of Mr. Patterson and Mr. Wachtel.
The current AutoInfo business really came into existence when Sunteck Transport merged into the public AutoInfo in 2000. Sunteck, in addition to the recently acquired Eleets Transport, remains the main operating entity. Since 2001 the current management team has grown the business (adjusted for the Eleets acquisition) from $8 mm in revenue and $.05 mm in operating income to $254 mm in revenue and $6.5 mm in operating income. Below is a chart showing the impressive record of growth, all on a per share basis, to account for dilution. Also provided is the growth in debt per share, given this important consideration.
|Per Share Compounded Growth Rates|
|2001 through 2011|
The company performed fairly well, in my opinion, during the recent global financial crisis. Full year 2008 and 2009 revenue grew over the prior years, while operating profit did decline approximately 33% in 2009. By 2010 full year operating income surpassed the previous high water mark in 2008 by over 35%.
In 2011, AutoInfo acquired one of its large partners Eleets Transport. AutoInfo had essentially bankrolled Eleets growth over the last several years with loans and advances made through its agent support services segment. In exchange for the discharge of those debts, the company acquired that business in late 2011. This acquisition will impact reported results and comparisons for prior years, as the acquired business’s brokerage division was not included in the sale and so the associated revenues will no longer accrue to AUTO. However, no longer will the high commission rates AUTO paid the agent exist and so operating income is approximately comparable.
|Fully Diluted Share Count||43.11|
|Diluted Market Cap||$32.33|
|LTM Adj Net Income||$3.66|
I present some comparable companies below, but there are key differences between those companies and AutoInfo, including of course size and diversity of services, but also business structure. With an average ROE of 35.2% since 2001 and a more recent 5 year ROE of 13.4%, I would classify AutoInfo as an average business. As a frame of reference the average ROE of the comparable companies provided below is currently 22.1% (inclusive of AutoInfo). Many of the comparable business are superior models that drive superior economics. Given the size of the company and that it is Bulletin Board company, I consider 13x net earnings (which might also be a reasonable expectation given the recent steps toward strategic initiatives) to be approximately the appropriate multiple which would put fair value closer to $1.10 on a fully diluted basis. I expect modest growth in 2012, perhaps on the order of 10% in terms in operating income growth. As adjusted for the Eleet acquisition the company grew revenue 44% and operating income by 8%. As a reminder, revenue in 2012 compared to unadjusted 2011 is likely to be down given the nature of the Eleets acquisition.
|Company||Ticker||Market Cap||Sales (LTM)||EBITDA (LTM)||Debt||Cash||Debt / Equity||Debt / EBITDA||EBITDA Margin||P / TBV||EV / EBITDA||EV / REV||P / E (ttm)||ROE (ttm)|
|CH Robinson Worldwide Inc.||NasdaqGS:CHRW||$10,433.54||$10,336.35||$725.23||$0.00||$373.67||0.00%||NM||7.02%||12.25||13.87||1.00||24.43||35.20|
|Expeditors International of Washington Inc.||NasdaqGS: EXPD||$9,727.35||$6,150.50||$656.26||$0.00||$1,294.83||0.00%||NM||10.67%||4.88||12.86||1.39||25.61||20.55|
|Landstar System Inc.||NasdaqGS:LSTR||$2,680.85||$2,650.79||$209.06||$158.25||$108.84||52.65%||0.24||7.89%||11.03||13.06||1.06||24.11||40.96|
|Hub Group Inc.||NasdaqGS:HUBG||$1,317.18||$2,751.53||$113.80||$25.67||$49.09||5.85%||NM||4.14%||8.51||11.37||0.48||22.22||14.27|
|Echo Global Logistics, Inc.||NasdaqGS: ECHO||$365.41||$602.76||$23.00||$0.20||$47.01||0.17%||NM||3.82%||5.06||13.85||0.53||30.87||10.74|
|XPO Logistics, Inc.||AMEX: XPO||$273.79||$177.08||$2.96||$2.13||$74.01||1.96%||NM||1.67%||3.44||82.56||1.46||NM||1.07|
|Pacer International Inc.||NasdaqGS: PACR||$220.37||$1,478.50||$31.30||$0.00||$24.00||0.00%||NM||2.12%||1.91||6.27||0.13||15.75||13.00|
|Radiant Logistics, Inc.||AMEX: RLGT||$67.85||$257.41||$8.20||$17.83||$2.12||203.18%||1.69||3.19%||NM||10.20||0.33||29.97||47.15|
|AutoInfo Inc.||OTCBB: AUTO||$25.60||$319.97||$6.63||$16.27||$0.14||65.37%||2.43||2.07%||1.72||6.29||0.13||7.50||15.82|
Options – The company has a significant amount of options outstanding at 12.31.12. 3.425 mm of these shares were granted in 2011. That represented approximately 10% of the shares outstanding at the end of the year. This deserves to be something that is followed closely. While 4.5 mm shares expired in 2010 at slightly higher prices than the shares issued in 2011, further dilution of this magnitude would not support the investment thesis. Management would suggest that some of these grants are more one-time in nature and others are more periodic in nature. We’ll continue to watch this quite closely.
Eleets Integration – The recent acquisition of Eleets should be a fairly simple transition given the company’s intimate knowledge of the business prior to the acquisition, however, unexpected complications would hinder the company’s progress at least over the shorter-term.
Advances and Support Services – The company had a total of $6.14 mm worth of advances and other assets related to this segment. While this is down considerably due to the Eleets acquisition, it still represents a significant commitment of capital for AutoInfo. Deterioration of the businesses of its agents has the potential to impair this value. These are typically small businesses, with repayments dependent on the agent successfully operating its business. The fact that AutoInfo sits in the payment stream helps mitigate this risk, but does not eliminate it.
Receivables – It is important to keep an eye on the progression of the company’s receivables, which the company’s credit facility is primarily supporting. DSO’s at approximately 58 days at 12.31.12 were in-line with the 10 year average of 58.5 days.
For those new to the industry or those with a casual interest it might be instructive to follow XPO Logistics, now run by Bradley Jacobs who made a splash in this business last year with investment into that company. An interesting read is: http://sec.gov/Archives/edgar/data/1166003/000095012311069724/k50546dadefa14a.htm
AutoInfo Inc. appears to be an attractive business trading well below its intrinsic value, with significant insider and financial ownership. The company has a long history of growth in a still fragmented market that has a long runway for future growth. It may also be an attractive acquisition target, in part with the support of its concentrated financial oriented owners.
|Entry||04/12/2012 11:45 PM|
|I looked at this briefly and agree it is cheap. Could you talk more about the Eleets acquisition? At face value it looks something akin to a deed in lieu, with references to beach houses and private property as collateral. Combine that with the fact that Eleets is the guy's name spelled backwards, Boca Raton and an auditor with one publicly traded client and I felt it was a little sketchy. That being said, I do respect Baker Street and accept I could be missing something here.|
|Subject||A Couple of thoughts|
|Entry||04/13/2012 03:29 PM|
|I hear the initial concerns given the accountant, Boca Raton etc. but it doesn't take much industry related research (scuttle-but wise) to verify AUTO's legitimacy as a business. I mean I realize it has a small market cap but it's a decent sized 3PL operation from a gross/net revenue standpoint (it's actually the 8th largest 3PL truck broker in the industry). A quick google search and some common sense should persuade those fears. Sometimes the smoke doesn't equal fire and that mis-perception presents opportunity. Golfer, curious to why you say this is a mediocre business? Given the companies asset light nature, historical CAGR in revenues/cash flow and highly attractive ROIC/ROE I'm not sure I understand the argument. This is a non asset based forwarding network that should grow at order-of-magnitude faster than GDP, has fixed SG&A, network effects, operating leverage, minimal capex, high/improving ROIC in a stable to growing world, no-brainer buyback potential at mid single digit EBIT, and near certain multiple expansion once it gets to critical scale and comparisons to the bigger boys becomes appropriate. I think it's a pretty good business by traditional metrics. Not saying there aren't real risks here as shit happens and with such an illiquid and closely held stock I think one definitely has to be willing to hold long-term here (as if something out of left field somehow/someway severely disrupts or permanently impairs the biz your toast as theres no way you get out of this one unscathed, even if you see it coming prior to other investors). Regardless, I think the valuation goes a long way as far as appropriately compensating for this and rest of the risks involved. At the end of the day I think it's just to cheap given it's private market value and while I can't say for sure I gotta believe that's what Baker Street is betting on. They are savvy investors and have to be aware that once your in here your in so to speak (as a friend put it, this is a one way ticket) - so a corporate event is the only thing that would allow them an orderly exit. So I think the endgame here for them is either (a) selling the entire company to a strategic/financial owner at a control premium (such as Landstar or say Brad Jacobs @ XPO), or (b) a catalyst driven equity revaluation and liquidity event (such as an uplist to a real exchange or a dividend recap). I think this is a business that should trade at high EBITDA multiples given its intrinsic quality and it's value to the Landstars of the world as a tuck in acquisition. At the current valuation the multiple arbitrage potential here makes a deal a no brainer for a larger strategic acquirer not to mention that there aren't many other potential networks of size out there to really move the needle. Just my two cents though.|
|Subject||RE: A Couple of thoughts|
|Entry||04/13/2012 03:30 PM|
|Annoying, sent this from an IPad and the formatting went screwy.|
|Subject||RE: RE: RE: A Couple of thoughts|
|Entry||04/13/2012 04:33 PM|
I think it's fair to characterize this as an average business. I haven't spent a bunch of time on AUTO, but spent enough a while back to conclude that it doesn't deserve a "typical" non-asset based logistics provider ("NABLP") multiple. For whatever reason, AUTO runs much higher receivables (and hence, net working capital) as a percent of revenue than other NABLPs, and materially lower margins as well. So you've got this catch-22 where the faster they grow, the less cash they generate. The only way the biz will ever generate much cash is if growth slows very materially, in which case the multiple will necessarily contract. As a consequence of the very significant working cap requirements, ROICs are much lower than most other NABLPs.
Last year's positive FCF generation was an anomaly, as it was driven primarily by them buying in their largest agent, who was in a position of financial distress (a yellow flag itself). The purchase of this agent was, itself, a little bit squirrely in my opinion. Something just smells fishy when you read through the disclosures regarding the buy-in. Just my opinion.
|Subject||RE: RE: RE: A Couple of thoughts|
|Entry||04/13/2012 06:56 PM|
Yeah, I think we're reading the tea leaves similarly and more or less agree on the attractiveness of the overall risk-reward equation.
Re business quality, fair enough assuming a no growth or steady state type of scenario. Although I’m not sure I agree that their best days of revenue and cash flow growth are behind them given the potential operating leverage as they scale and the various other growth drivers underpinning AUTO's business/future prospects. I mean growth should be decent simply by the fact that they are one of the larger players operating in a highly fragmented (and consolidating) industry with structurally high ROIC and above average growth prospects (due to the ongoing megatrend of companies continuing to outsource their corporate shipping needs). So I think the top and bottom line tailwinds here are strong, the recent changes in steady state operating profitability material (even if not well understood), and if management can rein in the option issuance and starts acting like a normal public company as it relates to promoting the company and articulating its long-term vision, the future could be quite a bit better than I think most percieve at this point. If we differ then, its probably because in the future I think growth prospects are equivalent (maybe even a little better) than you do and perhaps more importantly, that working capital requirements are likely to be much less - at least relative to what an examination of the company's historical financials would suggest.
I think pro forma revenue growth could reasonably clock along in the high teens, low twenties (if not higher) for quite a long time to come, and while admittedly less that its CAGR over the previous five years that's nothing to sneeze at, and pretty darn good in a stable to slow growth world. As far as the specific levers that should get us there - I would think some combination of pricing, organic growth (as existing agents continue to grow their business), and new agent “on-boards,” not to mention potential acquisitions given the large public private arbitrage in this space should be enough to get the job done over time.
|Subject||RE: RE: RE: RE: A Couple of thoughts|
|Entry||04/13/2012 07:03 PM|
Yes, historically you’re correct given a large portion of the business was in essence a more capital intensive financing operation but (as I understand it) that piece of the business is essentially in run-off at this point. What I think people may be missing is that by bringing the acquired agent in house, operating profitability automatically improves given the terms of the previous arrangement - same effect regarding the decision to let go of one of the company’s larger, but marginally profitable agents last year. So I could be wrong but I don’t think past is prologue as far as the net working capital requirements of the business are concerned (as operating profitability is permanently improved due to the secondary effects of the two corporate events noted above – so we have a significant margin tailwind here). In other words, going forward I think the business should scale much better than it has historically.
To be fair though, I agree a discount to the larger, primarily company owned (i.e. non-franchised) asset-light businesses of its kind is warranted to a certain extent, as big piece of the company’s value proposition relates to its policy of paying higher commission rates to its agents vs. comps (and hence its margins should be lower all things equal). So, maybe with scale AUTO’s operating margin balances out around 4-5% vs. the 6-7% of comps, and hence we should apply a similar discount valuation wise. But outside of that I don’t see any reason on a structural basis why on a pro forma basis AUTO should be any less profitable and/or require more working capital than similar truck brokerage businesses in the industry with a similar level of scale.
Regardless, given Auto’s value proposition, operating margin expansion potential, and its ability to take share/grow much faster than an already relatively fast growing industry, I think that discount should be tempered somewhat. That, and if memory serves, NTM EBITDA should be ~$8m so I think the discount relative to peers is just too severe and ultimately not ultimately not sustainable. Eventually either the valuation will rise as this is recognized or eventually LSTR, Brad Jacobs, or a PE firm will step in and close the gap for us.
All of that said, due to various qualitative issues I would rather own RLGT relative to AUTO any day of the week and twice on Sunday. I’m just saying I think AUTO’s a decent but potentially superior business that’s just too cheap and an interesting risk/reward at the current valuation.
As an aside, I would love it if any transportation/3PL specialists with familiarity with the company could chime on any of the above issues. It’s always possible I could be missing something obvious here.
|Subject||Brad Jacobs on Truck Brokerage Consolidation|
|Entry||04/13/2012 07:41 PM|
Per the very interesting read that Golfer linked above, which I think is helpful for anyone new to the story as far as framing the opportunity on a high level.
"Once I settled on transportation, I first looked at an asset-heavy trucking company roll-up, but I couldn’t figure out a way to create the kind of shareholder value I was looking for. I wanted a higher return on capital. Then I discovered C.H. Robinson and Expeditors International of Washington. C.H. Robinson is the leader in truck brokerage, and Expeditors is the largest U.S.-based freight forwarder.
I love these two companies. They’re both non-asset based, which is a business model I understand because of my oil brokerage days. They have no debt to speak of. They throw off free cash flow in all parts of the economic cycle. Their returns on capital are 20% to 30%. So I started looking very intently at brokers, and I liked what I saw.
There are four verticals within the brokerage space that, together, represent a very large acquisition universe — about $200 billion in aggregate. All four are non-asset based, meaning the companies don’t own the trucks, ships or planes. They manage the logistics of how freight moves from one point to another by matching shippers with carriers. XPO is already in three of the four verticals.
The first is truck brokerage. It’s a really attractive model, very straightforward — basically, it’s like a trading floor, with a bunch of salespeople talking to shippers and carriers. Our people are matching freight loads to trucking companies and making a spread. We don’t own any of the trucks. We’re brokers; middlemen between the shipper and the carrier.
Domestic truck brokerage is around $50 billion a year. It’s very fragmented — more than 10,000 licensed truck brokers in the U.S., and 99% of them have revenue under $200 million. In other words, only about 25 truck brokers have revenue over $200 million. Lots of opportunities for consolidation.
There should be a big opportunity for penetration as well. Truck brokerage is a classic outsourcing service that delivers value to both shippers and carriers, and yet of the $350 billion of freight that’s moved on the ground in the U.S. each year, only around $50 billion, or about 15%, of that freight currently goes through brokers.
I believe that the 15% penetration number is going to go up. It’s a similar bet to the one I made when I got into construction equipment rental. I thought the trend was for rental penetration to grow because the economics of the customer favored rental, and in fact that happened.
There’s a similar incentive to outsource freight arrangements. Brokers offer a real value proposition by excelling at their core competency, which is to efficiently manage the flow of traffic. So there’s a fundamental economic benefit that should drive penetration. In addition, I think that as we grow XPO, our technology, size and professionalism will help attract business from the 85% who don’t currently use brokers.
If you look around the room, literally every single thing here — including the clothes you’re wearing — was on a truck at some point. It’s an exciting landscape. The trucking industry isn’t going away, and neither is truck brokerage."
|Subject||RE: RE: RE: RE: A Couple of thoughts|
|Entry||04/13/2012 09:31 PM|
|Just re-read my response and shouldn't have said run-off. The financing business is just a much smaller piece of the business now and will likely be used opportunistically to fund promising agents until the they reach exit velocity. So I think as revenue recovers next year normalized operating margins should be closer to 3% vs. the 2% TTM level.|
|Entry||03/22/2013 03:54 PM|
i assume that "whopperinvest" is THE Whopper . . . nice write-up on SA as to why this is a great overbid situation (along with OUTD).