rlgt presentation - 1-21-16pm sde...• rlgt is an asset light, high roic business trading at 10x...
TRANSCRIPT
Buckley Capital Partners, LP PRIVATE & CONFIDENTIAL 1 Buckley Capital Partners, LP PRIVATE & CONFIDENTIAL 1
Radiant Logistics A Compellingly Priced Growth Compounder
Presented By: Buckley Capital Partners
It’s the Network That Delivers
Buckley Capital Partners, LP PRIVATE & CONFIDENTIAL 2
Buckley Capital Management LLC
January 2016
1111 Lincoln Rd. Ste. 400
Miami Beach, FL 33139
The information presented herein is not an offer to sell or solicitation of an offer to buy an interest in Buckley Capital Partners, LP and must be supplemented by an Offering Memorandum (“the Memorandum”) when considering an investment. An investment may be made only after receipt and review of the Memorandum and execution of certain agreements. There can be no assurance that the Fund will achieve its objectives or not incur losses.
Buckley Capital Partners, LP PRIVATE & CONFIDENTIAL 2
Buckley Capital Partners, LP PRIVATE & CONFIDENTIAL 3
Background
• Introduction – Buckley Capital Management, LLC (BCM) is a long-biased,
deep value-oriented equity fund focused on businesses with consistent long term growth, founded in Jan. 2011
– BCM’s objective is first and foremost the preservation of capital, while also producing above-average returns through conservative/heavily discounted equity investing with an open mandate to allow us to exploit market inefficiencies in any industry or market capitalization
– BCM manages a limited partnership and separately managed accounts
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Background
• Investment Philosophy Overview – Buckley Capital Partners, LP is a long biased, value and special
situation focused long biased equity fund – BCP’s discipline is to only invest in situations with asymmetric risk-
reward return characteristics – The fund employs a fundamental approach that is research
intensive and concentrated, focused primarily in small cap equities • Extensive due diligence and bottom-up research into every
investment with periodic physical visits and close links with management
• Evaluate an investment idea as if buying the entire company, with a focus on buying with a large margin of safety
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Investment Philosophy
• Core Strategy – Focus on transparent, predictable, underfollowed
companies at very attractive valuations such as: • Owner-operator managers where the CEO is the founder and
has the majority of his net worth in the business, thus properly incentivizing him
• Businesses with a long term track record of compounding at a high growth rate
• Invest in businesses that are only a small portion of their tangible addressable market (TAM) but could expand to a much larger portion of their market over time, providing a long runway for growth
• High barriers to entry and high returns on equity, with the ability to profitably reinvest capital – Limited dependence on debt financing – Free optionality from hidden assets
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Investment Criteria
• Conviction comes from a profound understanding of the management team’s incentives and capabilities which is reinforced by frequent physical visits
• Margin of safety: prefer great investments that are simple and transparent
• Limited downside supported by high quality businesses with consistent, predictable cash flow generation and manageable debt – Cash and securities on balance sheet – Hidden tangible assets (e.g. stakes in other businesses/real estate) – High free cash flow yield
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Investment Criteria
• Rapid growth in the intrinsic value of the underlying business
• Negative sentiment and/or short-term events can cause a fundamental disconnect between price and value
• Conviction is essential. Should be compelled to buy more if the stock price fell with no change in the business fundamentals
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Risk Management
• Wealth Preserving Portfolio Construction – Little to no leverage – Invest in easy to understand, transparent businesses at great
prices – Invest in companies: view investments as owning entire
companies, not speculating on stock prices – Focus on asymmetries of returns: look for ‘fat pitch’ situations
where probability-weighted risk-reward is heavily in our favor – Concentration: ideally comprised of 10-15 core long positions – Constantly reevaluate every investment: mistakes are inevitable,
realizing them quickly and remaining emotionally unattached to securities is extremely important in protecting against capital loss
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Year Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Annual
2011 -0.70% 1.07% 14.98% 16.90% 4.80% 3.99% -1.64% 1.81% -5.23% -2.49% 7.69% 1.97% 49.44%
2012 2.19% 3.96% 1.09% -3.30% -1.43% 0.22% -1.62% -3.99% 2.49% 0.32% 5.57% 5.11% 10.60%
2013 6.21% 1.94% 0.67% -0.76% -0.03% -2.94% 2.93% -1.75% 9.76% -1.39% 4.22% 1.96% 22.06%
2014 -7.91% 4.74% 3.12% 5.00% 3.99% 5.11% -0.30% -0.50% -1.37% 10.17% -2.48% 5.33% 26.27%
2015 -2.15% 4.37% -6.88% 14.29% 3.33% 8.20% -6.28% -4.40% 0.66% 5.51% -9.93% -7.78% -3.23%
BCP Monthly Performance (Net of Fees)
Performance Data
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Ø Returns are net of fees, and reflect $1,000 invested in January 2011
Performance Summary
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
BCP
S&P 500
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General Partner Buckley Capital Management, LLC
Minimum Investment $500,000
Management Fee 1.0% (paid quarterly in arrears)
Carried Interest 20.0%
High Water Mark Yes
Broker M.S. Howells & Co.
Custodian Pershing LLC
Legal Greenberg Traurig, LLP
Independent Auditor PwC
Independent Administrator Michael J. Liccar & Company, LLC
Terms & Service Providers
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• Zack Buckley, Managing Partner In 2011, Mr. Buckley worked as an analyst for Baker Street Capital while simultaneously launching Buckley Capital. Mr. Buckley has been featured in The Wall Street Journal, Barron’s, Reuters, CNBC, Market Watch, Value Walk, Business Insider, and the Financial Post, and has also been a speaker at several Value Investing Congresses. Mr. Buckley graduated from the University of Miami with two degrees - a Bachelor of Arts (BA) in Economics and a Bachelor of Business Administration (BBA) in Accounting.
Biography Of Presenter
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It’s the Network That Delivers
Stock: RLGT Headquarters: Bellevue, Washington
Price: $2.97 52 Week Range: $2.95-$8.00
Mkt. Cap.: $145m Enterprise Value: $190m
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• RLGT is an asset light, high ROIC business trading at 10x earnings and 5.6x EBITDA
• Given its unlevered balance sheet and accretive M&A opportunities, we believe RLGT will double earnings over the next 3 years
• The ~60% price decline is not due to fundamental reasons • We believe RLGT’s earnings multiple should also be double
where it currently is, and therefore the shares should trade at ~$12/share in 3 years vs. the current $3 share price, a ~50% IRR
• RLGT recently issued a buyback; the last two times they have issued a buyback the stock has at least doubled in the subsequent 12 months
Investment Thesis
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• All stocks in the transportation sector have been down significantly
• XPO’s acquisition of Conway (an asset based trucking company) brought skepticism to whether other 3PL’s would switch to an asset based business model
• Comments from some asset-owned carriers of lower spot pricing (the price at which transportation is transacted and delivered on now) in some sectors is a sign that the 3PL space is turning down and that the industry is soft.
• None of these have an impact on RLGT’s business
Why Are The Shares Mis-Priced?
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• While all transportation stocks are down because of expected lower future growth, RLGT’s future growth profile is incredibly strong
• Over the last decade, 3PL’s have consistently traded in the range of ~12x EBITDA. We think this will continue and RLGT should re-price closer to this level over time
• While XPO changed their business strategy, RLGT has no intention of doing the same
• Spot pricing does not have a significant impact on RLGT’s business.
Why These Reasons Are Unimportant
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Industry Association Data Does Not Suggest A Major Slowing In Shipments
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• Market research suggests that the North American 3PL industry accounts for about 10% of the $1.5 trillion value of goods and services shipped.
• Over the last 20 years, the U.S. 3PL market has grown at a CAGR of ~9% annually.
• The cost of owning and running a private transportation fleet is increasing, giving companies another reason to switch to 3PLs.
• The industry is highly fragmented, with the top ten U.S. 3PL players accounting for only about one-third of the market.
• This suggests there is a very healthy growth path and TAM for the leading companies such as RLGT.
Favorable 3PL Industry Dynamics
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3PL Industry Dynamics: Healthy Growth & Highly Fragmented
Source: Armstrong & Associates
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• A large portion of the 3PL market is composed of smaller brokers/agents
• Smaller agents have been in the business since it deregulated in the early 1980s and are now looking for an exit strategy as they hit retirement age
• The size of these independent brokers/agents is too small to move the needle for the major billion dollar companies
• RLGT is a perfect size to acquire these smaller 3PL’s • RLGT targets $2-3m EBITDA agents, only pays 4-5x TTM
EBITDA, with 50% down and additional cost synergies leading to high 20% ROIC’s
• Management believes they can add $20m-$30m of EBITDA within the existing capital structure, nearly doubling the size of the business
Well Positioned To Take Advantage Of The Market Consolidation With A Highly Accretive Strategy
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A History Of Additive Acquisitions
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• Historically, RLGT has been positioned primarily as a US-based Freight Forwarder, while Wheels is one of the largest Bi-Modal (truck and rail) brokerage operators in Canada
• Wheels gives RLGT three platforms to do acquisitions when it previously only had one: U.S. Freight Forwarding, Canadian Freight Forwarding, and Truck Brokerage
• Wheels nearly doubled RLGT’s revenues and the scale benefits help increase density in various trade lanes which provide better efficiency and pricing
• The combination of RLGT’s traditional, US-focused Freight Forwarding with Wheels’ Truck Brokerage, intermodal capabilities, and Canadian footprint, gives RLGT significant cross-selling capabilities within the company’s network
• Recent comments from CEO Crain suggest that consolidation savings and synergies from the Wheels integration into the legacy RLGT network are already occurring
Wheels Is A Game Changing Acquisition
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Wheels Broadens Agents Product Offering & Customer Base
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A Broad & Well Diversified Customer Base
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• CEO and founder, Bohn Crain, a highly skilled and impressive owner-operator, heads the company
• Owns ~20% of the stock and has an excellent history of growth and execution
• Since FY06, RLGT’s revenues have grown at a CAGR of ~38% through the combination of both organic revenue growth and 16 acquisitions.
• EBITDA has grown at a ~55% rate due to the scale benefits from RLGT’s non-asset based, networked business model
• Crain has done a phenomenal job building a high-quality, diversified business over the last decade and we believe he is just getting started.
Skilled Owner Operator CEO
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A Track Record Of Outstanding Growth & A Forecast Of Continued Healthy Future Growth
Radiant grew revenues and was profitable even in 2009
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• We believe revenue growth should average about 20%, with the combination of organic growth of 6%-10% and continued bolt-on and strategic acquisitions
• RLGT should be able to double its margins over the next 5-10 years as a result of operating leverage. This dynamic alone should lead to 5-10% annualized EBITDA growth
• We think RLGT’s EBITDA growth rate will slow over the next five years, but still be in the 25-35% range.
Future Profit Growth of +25% Likely In The Next 3-5 Years – A Growth Compounder
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RLGT is attractive on an absolute basis as well as relative to both public and private market comparables
• Radiant should do roughly $0.30 in EPS next year and is therefore currently trading at ~10x forward earnings.
• CHRW and EXPD have averaged trading at 12x EBITDA for the past decade, while ECHO, a higher growth peer more similar to RLGT has traded at an average of 15x EBITDA. Thus a valuation of 12x EBITDA seems appropriate.
• Private acquisition multiples for 3PL companies have ranged between 6-12x EBITDA. RLGT’s size and growth characteristics would place it in the higher range, giving it a 10-12x EBITDA multiple.
• We expect EBITDA will be ~$60m in three years. At that point, we estimate net debt will be ~$120m, or a market cap of ~$600m or $12.20 per share. From current share prices, this is a ~50% IRR.
Attractive Valuation Provides Significant Upside Potential
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• Strong & Sustainable Business Model • Growing Competitive Barriers • Good Long-Term Track Record Of Growth • Healthy TAM & Growth Opportunities • Financial Margin Leverage • Skilled Management Aligned With Shareholders • Attractive Valuation
RLGT Possesses The Key Characteristics Of A Growth Compounder
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The Shares Of RLGT Have Declined ~60% For No Fundamental Reason
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The Shares Of RLGT Have Significantly Underperformed the Dow Transports
RLGT
DJT
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A History Of Timely Buybacks
Buyback #1: At $0.24Per Share Announced On 5/18/09 Performance of RLGT vs. S&P 500
~10x outperformance to date vs. S&P 500, despite recent stock decline
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A History Of Timely Buybacks
Buyback #2: At $1.14 Per Share Announced On 11/21/12 Performance of RLGT vs. S&P 500
~5x outperformance to date vs. S&P 500, despite recent stock decline
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Elements Of a Strong Investment Story
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Q & A We would be happy to take your questions
Thank You
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Contact Information