How Much Should I Pay For a FedEx Linehaul Business?

foreign [Music] you worked hard you spent a lot of time at a company you've had success but at heart you're an entrepreneur so what do you do you looked at launch wrap businesses vending machine businesses real estate but something keeps drawing you back to FedEx line haul right right yeah what is the margins not running after AR being part of Under the Umbrella Fortune 100 company whatever it is it brings you back but it's a space you don't know and so you're looking at deals you're trying to figure out what's good what's not good and so the question is you know you don't know what you don't know so where do you start help me where do you go for help there's a question and so today we're going to attempt to uh that's a good one but today we're going to attempt to kind of drill down find an answer get ourselves to a place where we can answer a question of how do I know I'm getting a good deal how do I have high confidence in that yeah so first question I have for you true or false valuing your business there's only one way to do it that's widely false uh when we're talking about how people decide to come up with their their valuations of a line home business that's for sure good good point all right let's jump into it let's bring in the big guns hell you have founder of halty tech and I would say you know the leader of the Dallas lion Hall Summit fresh off of it great events you can say that oh my God what Tim goff's gonna kick your ass too too much I'm sorry let's bring him on we have our guest John haldy hey John good morning how are you sir I I gotta agree with Rick and correct you Christian please Holbrook Alex from Tim Goff and I we are absolutely a team of equals they deserve full credit for the success of the Dallas Summit I was just a bit player in that and I think they would agree with me that the team that we put together this year Brenna Emma Michelle and Delaney they get the Lion's Share Credit for making that happen I mean we had the vision but they were executing so I hate to start by correcting you but for that one had to be like I just was lucky to be there and to be a part of the show um it was phenomenal and the team that put it together deserved all that credit to be fair he gives the same intro to the other guys as well just so you know it was a great Dallas was great um thank you everyone um who was able to put that together including us we had a phenomenal time um and it was number two right it was it was building upon what was created what you guys had all created a year ago and it just went um for me and Us in my opinion as a contractor it was more valuable easier to access information I thought that the the way you guys had set up the information was easier to absorb and maybe kind of decide where you wanted to go so I'm again I'm already looking forward to next year always walk out of it very encouraged so let's dive into today because this is this is big this is um you know highly debatable um so let's dive into let's try to add some value and John I want to kick this to you first and I think the best way to approach this is to have a high level discussion um and by way of an example so John let me ask you this you are a prospective contractor playing scenario here you have an opportunity you're excited about getting to space you have the opportunity to look at two dedicated Soul runs running six days a week 500 miles a day how do you go about looking at this and figuring out whether or not what you're about to pay for it is a good deal or not can you walk me through what is your first thought what questions are you asking and who are you asking yeah I'd be happy to but I'm going to put a slight Twist on this I don't have the skill set to honestly value a business that's not what we do I I think I can provide some insight in this conversation on how you look at the revenue side and how you consider the expense side and to drill down to a projected likely free cash flow number which to me for any business is really the the heart of it how much money can you take out of the business as an owner right whether someone wants to pay a certain multiple I don't have my finger on the pulse of that I'm not qualified to Rick is much better person for that um but I'd love to talk about how you get to a number from which you then derive a multiple is that fair very fair so you know there's kind of two types of businesses at a super high level some businesses you look at them and you say we're not going to take cash out of it but it's going to appreciate value and we could exit with a multiple and then there's other businesses that are all about cash flow and I think that the tsp business lends itself more to that of course you have an equity component that you're paying for with the routes and in many cases the trucks if they come with it but that's an equity that's a that's an asset side to it and there may be some incremental appreciation as the market evolves but I think it's mostly a cash flow business would you all agree to that okay for sure so let's break it down right we we stop we start at the Top Line right can you walk us through when you're looking at this business how do you approach getting to that Top Line figure so from a top-line perspective that's a question about Revenue right and you have to look at the runs because in this business mixed matters I would argue that if you have four runs runs that are not consistent they're not predictable they don't have a certain number of miles you're always going to struggle to hit your targets from a cash flow perspective because you can't predict the top line so in your example uh two assigned runs doing 500 miles a week I love the story right there right not 500 miles a week per day because now you're talking six days a week if that's three thousand miles a week on a solo run those are great numbers you should be able to produce really good top line figures off of that run you have to understand that with the fixed expenses associated with trucks and drivers and other things and then the variable expenses that come with additional miles there's there's balance and for anybody who's not familiar with it I'll tell you what's simple terms if you can make at the end of the day x amount of money with three thousand miles a week you don't make half as much money with 1500 miles a week there's a point at which you actually start to go into the red probably for a solo I like to see 2400 miles a week consistently and then for a team I like to see about 4 800 miles a week consistently because when you get below those numbers your your margin starts to get significantly compressed and if I see a solo truck that's getting 2 000 miles a week I'm very worried that it's barely breaking even if at all there is an asterisk to that if it's very short runs which get paid more per mile or there's a lot of spot work in there that's consistent it could produce more Revenue but generally speaking on the top level you want that consistent number of miles and I would say you could look beyond that and go to trip Revenue because of the variability and the length of the trips and how they pay you per mile so it's a great product see miles per week I think looking at the actual Revenue per truck per week is it better all right I'm gonna hold you let's hold on hold on because this is we want this is a conversation that it's time to have and and let me go to his example Christian is going to sell you two dedicated PM solo runs they're doing 2500 miles a week according to what Christian are you looking at the a the schedule a and it's telling you that are you looking at settlement statements where are you saying that 2500 miles a week is coming from and how long are you verifying it great point so here's what I would say when I was approaching looking at a business is I would look at the A1 what it's scheduled for I'd ask how it's running if I can I'm going to ask the manager how many days you should have a pretty good sense of how many days it's going to be running because dedicated run from that you can look at your settlement statements I pulled about four weeks and averaged it out but I think maybe you guys have to pay enough how many weeks you should be looking at so curious to get your thoughts and John I think this is a question we spend a lot of time with if I have that solo run and I lost the driver and it hasn't ran for two months or my TR my engine blew up on it and I haven't ran that dedicated run for two months because I wasn't able to I'm about to lose it and I say oh man you know what I need to sell so I package my business together probably gonna call line hall Solutions obviously because they're going to be able to help me out but um what are we using for the revenue for that run we know the Run ran for those two months but that contractor doesn't have settlement statements to support the recent history of that run how are how are you thinking mentally of utilizing that data for the revenue well I'm going to answer that in a minute but let me back up and say this schedule a you start with what do you expect it to produce per week right then you look at settlement history and you ask is it doing what it's expected to do right some runs they do exactly as they're supposed to some runs pick up additional work because there's work available in the terminal some runs they don't have the freight and so they don't even in a dedicated run might not go every time equipment issues could impact the consistency of whether you get the miles you expect driver issues could impact that right overall Freight could so to Christian's point I would say four weeks not nearly enough in my opinion it's too easy for a seller to cherry pick a four-week window I tell anybody get a Year's worth and then start there and look to see if there's a pattern of consistency that validates the schedule a right now you can do it by hand there are various folks who have software in the space we have it other folks do um you don't have to use us but find tools that would make your life easy even if it's just Excel and put the story together this is the due diligence part of buying any business right you want to validate that what you're being told actually is supported by the data behind it and the settlements are your primary source for that when it comes to how many miles and how much revenue are you getting does that make sense it does and so let me let me kind of keep going down this little structure it as of a p l right so we talked about your Revenue where we could look at your historicals we'll pull yours worth of data we can get an idea of the first expense item let's say fuel right from our settlements do we care about what happened what another contractor does for the rest of their expenses do you consider what they've been doing or do you look at industry averages call up vendors how do you value what that business can make you I think if you're doing your due diligence properly you have to look at both right because you can look at industry averages and you can say what should my expected end free cash flow be what can I take out of this business and I think that the industry averages give you a starting point for what you should expect to see when you look at the actuals and then you can compare the actuals against what you expected and if they're wildly different than what you expect I think is part of good hygiene for doing an acquisition you have to dig in and understand why are they different at the simplest level if you have an operator who's lousy at running their business this could be a great value-add opportunity if you're good at running your business right you could boost the p l from what they're claiming on the flip side looking at actuals versus expected can illustrate to you that maybe they're in a really tough market for hiring maybe they have to pay very very high amounts to get drivers in that market or maybe they're in a great Market maybe drivers are plentiful and cheap right similarly for fuel are they running in mountainous regions and it's really hard to stay fuel efficient and are they losing money on fuel are they in Florida with great weather and lots of empty trailers and lots of flat roads and they get great mileage the major buckets that I think of fuel drivers equipment and management those are the four big expense lines everything kind of falls into those buckets so I think you're right Christian you look at what they're telling you and then you sanity check in on what the rest of the industry is doing when it's at Cross purposes it's not in the middle of the bell curve you need to ask why and is it something you as a buyer could fix or are you inheriting a problem that's going to stay with you and that has to adjust your expectations right and I want to go a little deeper there into how we get there right because we're talking about two two kind of aspects here the technical side a value of business which is what we're touching on where you get the data and there's a fundamental side right where you look at growth and opportunities so we'll put that aside for now but the technical side how do we get to those values if say I'm approaching a contractor I don't know what their accounting practices are I don't necessarily know if they're good and maybe they have been operating long enough to have good enough data so yes it's good to look at but is it fair enough to say you don't necessarily need it because you can produce a good summary of what a business can do for you or has been doing by going into my ground Biz and then applying those averages or applying you know maybe reaching out to a John haldi and saying hey what is what do these expenses look like I I think you're right I think that the industry standard in terms of the quality of their accounting their bookkeeping their financial reporting it could be a lot better across most tsps and I wouldn't be surprised to see a bias in somebody selling that most of them are selling because they're not tracking that stuff well they don't have good data so um you know option one is you want to roll up your sleeves and take as much hard date as you can and try to do a forensic reconstruction of a valid p l maybe that's not worth the time and effort so at that point option two is take the industry averages and then I would say go do your homework as far as drivers go there are plenty of recruiters who are offering free services in terms of helping you know what the market is like for a given geography are you going to expect to pay more you can expect to pay less I think from an equipment standpoint there are different vendors in the leasing in the in the sales side and you can use your common sense it's very different to operate in in Flats with good weather as opposed to lousy weather or colder weather or mountainous regions you could look at that and make some presumptions on what your equipment costs might be in your your breakdown costs so I think it's it's a it's a messy mix of this and you have to use your judgment and do your homework certainly talking to as many people as you can and learning as much as you can about the space is to your benefit right because there's a lot of people at the shows online networking use your Rolodex vendors take advantage of these resources so that you can make as informed a decision as possible about predicting what you're going to take out of the business 2013 I first started looking at business quests to buy some Fedex runs figured out very quickly pnd wasn't for me line hall man you know that could be a place that I could flourish part-time side hustle while I do my regular job The Narrative hasn't changed very much in terms of people think about our space I remember looking and talking to Brokers and people selling and getting data dumped almost with just information and that me today this version of me not relative at all but the one thing that I was so frustrated with and what really is leading to this conversation um many years later is the way that people calculate their numbers is just very different some cases you know you get tax returns and then it's averaged out and they're building their data their their ebitda off of tax returns in other cases they're building them off settlement statements and what the Run could do or not do and you have a zero sense of consistency and I'm not talking about in terms of pricing I'm just talking about in terms of the numbers that are being presented is there a way to get the industry standardized in terms of what we use and I say we but more of what you being a leader in terms of analyzing and you know with the data and what you have access to is there a way to standardize this so that people at least when we're looking at an ad from business for Sailors a contractor wants to sell another business to another contractor they can say hey here's what the here's what the Run does and we know what we're talking about well I don't think you can do that by edict or by regulation but I think that market forces can push it in the correct direction if buyers start becoming intolerant of crappy books right if buyers start becoming intolerant of wealth and proformas that don't hold water I think it's going to force the industry to get better at it for the simple reason that if you take someone trying to sell something and they're saying it's going to make x amount of money and you have a community of buyers who are going well how do you justify that and most of them are calling BS because they can't justify it the sellers are going to have to start getting more sophisticated about documenting things if they want to get full price because hopefully the buyer Community is saying I don't believe your numbers so I'm going to discount them by 50 and I'll base my decision based on that discounted pro forma so the better the numbers get hopefully the more the buyers believe them and the more they conveys the decision on that they don't have to Discount as much so I think that there's Market forces that can do this I think that when you look at brokerage generally whether it's real estate or other things there's always a desire to sell for the highest price because that's how you attract your brokerage customers but I think that the buyer Community has to stop being stupid right they have to start demanding better information or accurate information I think that they need to work with people like Uric who are demanding these things and I think that long term it's going to evolve in the right direction if buyers do that agree and I agree kind of more with more emphasis than I can I can share right now how important are tax returns tax returns or should I and there's a load I basically told you my opinion and the way that I asked the question but tell me John how important are tax returns so I think they're important I think if you're going to do proper due diligence besides settlements besides P L's I think you have to go further because what you're trying to do is spot check to make sure you're not being told hello to BS right so I'll come to tax returns one of the other things that you should think about is asking for 12 months worth of bank statements for the company make sure that the money going in and the money going out makes sense and ask a lot of questions about them go back once you've reviewed them say what's this money going to okay that's you taking money out of the business what are all these other expenses and maybe it's some fuzzy stuff like they wanted to have a company car in the business because it's more beneficial tax wise you can earmark those and take them out but if their actual driver pay stubs which you should ask for also like history of weekly payroll doesn't match what they're telling you they pay for drivers the bank statements will validate that this is how much money going out for payroll those kinds of things where tax returns are important is again validating the story that you're being told making sure you're not being lied to or they're not bluffing it around the edges right you know where you can get into a mess with this in this business is depreciation because for people who buy trucks they have the ability to time the placement of the depreciation using accelerated and bonus depreciation so if they choose to they can take depreciation today and show no profit on the books even though they're taking cash out of the business and the tax return is going to show they made no money but similarly if they've taken it or they choose to defer it they can look a lot more profitable on the tax returns so again you have to look at all the different pieces and assemble them to understand what's happening because depreciation is a huge part of the p l and they can control whether it's this year next year last year whatever so you have to take it with a grain of salt and make sure you get a credible story from them about how depreciation could be impacting the returns it's very important point I do want to ask this because we're talking about the the revenue number and then going from there do you place as much of a value on unassigned and spot runs and in that it almost seems like to answer the question but I I suppose what I'm getting at is how much of a difference do you value on assignment spot runs the answer is it depends okay during the covet boom time you saw unassigned runs solo runs getting 3 500 miles a week because they needed every truck and Driver they could get at all times when the boom time ended a lot of people who had unassigned runs and thought this is as good as a signed I don't understand the difference suddenly found out the difference because FedEx was in a position of over capacity and when there's over capacity unassigned runs are the first ones to fall off the table and if you remember what I said you wanna the core of a good tsp business is consistency and predictability on your miles in Revenue and if you have runs that aren't going consistently you are in this horrible spot where the fixed costs they keep coming every week you still got to pay for the truck the insurance all the things associated with it and you still probably have to pay for the driver unless you're willing to let them go and eat the cost of recruiting and you know if it's a case where the runs are not going to go for three months well great you can make some changes but unassigned runs tend to be the kind of thing where hey we don't need you Tuesday and we don't need you Friday but you got a driver who's expecting to make a certain amount of money so now you're in the ball game of talking about minimums so it can eat you a live to have runs that aren't consistently going so yes if I was buying if in your example if those were two unassigned runs I would definitely apply a discount the question of how much depends entirely on what has it been doing for the last 12 months how inconsistent is it and it also depends on my prediction of how much over capacity or under capacity is FedEx going to have in the near term or long-term future so I think a discount applies to those things um but it's really dependent on the situation if somebody's got spots they run consistently every day five days a week that's a very different story than hey I occasionally pick up a spot spot you know run to Chewie every now and then so it's hard to answer with a definite number Christian no and and I think that's what we're getting to which is there may not be a correct answer necessarily but it's you know where do you find the highest confidence in acquiring that business because if they have been running consistently and you can show that through the historical settlement statements then you should have a high degree of confidence that you can continue doing that it is possible that a contractor really hustles but with a long enough time frame it should give you confidence that you can potentially repeat that and there is a value on that unassigned run or those spot runs so I think what you said is fair but remember past performance is no indication of future we're in a very interesting time where we had covid then we had an economic slowdown which impacted the overall Freight economy and now you've got a period with one FedEx that some people myself included are predicting is probably going to be a period of incredible growth and expansion and under capacity on the growth on the ground side and so I think that six months ago I was very I took a dim view of someone trying to pay a lot to acquire lots of spots or lots of unassigned runs but when I look at right now with the consolidation of FedEx the potential for them to move some of those full trailers to ground from Freight and express and I combine that with the potential in the short term of UPS going on strike yellow may be going bankrupt and I think wow FedEx is in the cat bird seat that they may very well have a ton of freight that they're not prepared to handle and that should be a huge boom time for the ground folks so it depends not only on what the contractor has done historically but your own prediction of macro economic factors that are affecting the market and how confident you are as to whether or not the unassigned runs are going to get full use or partial use or whether they're going to be more demand who knows so it's there's no one size fits-all answer to that and that's unfortunate because we're really looking for a concrete answer John so something you offered you some concrete thoughts because we've touched on okay I I'm very distressed that selling Brokers love to obsess about gross revenue I think very concrete that's not the number to focus on and the reason I don't like that is in your example Christian if you have two assigned solo in the last six months they have been grossing for 12 months they've been grossing uh what would be a good number to use here uh 250 000 a year okay each run so 500 000 total fuel is at three and a half bucks something happens next week in the Mideast and fuel goes to six bucks again okay Those runs do the exact same number of miles for the next 12 months selling Brokers would love to advertise oh my God look at this business their gross revenue went up 25 in the last 12 months the underlying business hasn't changed the gross Top Line has because fuel costs more and I hate using multiples of gross unless you're adjusting the multiple based on the market Dynamic of fuel price which doesn't happen so there's a concrete answer for you don't use gross two two things and I want to get into your and I watched your interview that um you you and Dave did recently um I didn't get to see it at the the summit but I watched your YouTube phenomenal for anyone who hasn't seen it but you talk about the way that you kind of analyze the data and you take fuel out which I think is extremely interesting as everybody should know our revenue is correlated to the price of fuel so as fuel goes up we pay more at the pump we're also getting more revenue and the reverse is also true and from somebody who's you know also been in the trucking industry sometimes you can become a slave to fuel and the good thing about FedEx one of the benefits is I don't believe that FedEx contractors are as overly obsessed with the price of fuel that typical trucking companies will be because of that system that they've integrated into our settlement statements can I add some color on that for folks watching yeah for sure for a freight company when they are trying to move things there's this risk of fuel price movements fuel comes down could be good fuel goes up could be bad who Bears the risk from a tsp's perspective FedEx Bears the risk they reimburse you each week based on the average price you paid for fuel for each truck so if fuel is going up you're not taking it on the chin it feels going down you're not making a windfall so FedEx is dealing with that and I'm not sure how they pass it on to customers or if they do but as a tsp for the most part they mute that there are some little games you can play on the edge because they have to figure out how to pay you and if you can do better than their assumed MPG you can make money and if you're doing worse you lose money but fuel up or down doesn't really matter to you as a tsp it shouldn't kind of want to get to our opinion about that but when we look at post pandemic FedEx line haul we saw volatile fuel prices I mean it was low May of 2021 I believe it was just insanely low and then you know it may have been 2020 obviously but and then it skyrocketed and so as a contractor our Revenue just went you know from from lows to highs and I wouldn't say we were overly concerned with it just because of the way the system works but when we're looking at the revenue of these businesses obviously when if someone's selling your business based on the revenue it was just such an outlier towards the median when we're looking at at a longer period of time and so all that to say is when we're trying to come up with the revenue of these businesses and especially of runs that may you know certainly aren't consistent and we had a very aggressive time and then all of a sudden in 2023 we we have you know lows in terms of volume what should we consider you have to start with the revenue you have to start somewhere so what are we how are we explaining to a potential you know new contractor that the revenue that they expected is very different and then how long should we be including in that or how long would you suggest using in a look back period when we have fuel prices that were so off base and when we do consider the fuel prices when we're trying to predict a line item for fuel what do you suggest we use flat percentage based on industry averages or are we using the actual fuel listed on the settlement that you know Hall detect makes it easy for us to figure out what that is well this goes back to the whole thing which is and you talk about a great period with fuel prices where not only were they moving wildly but they were moving quickly like week to week you saw Wild swings like by a dollar in diesel prices because the gyrations on Wall Street commodity Traders and you know world news about Fuel and stripe and fuel producing regions and that kind of stuff it goes back to what I said your your goal in doing the due diligence to acquire business is how can you make the most reasonable informed prediction of what your p l is going to look like and if you acknowledge the fact that FedEx for the most part takes fuel out of it I think the most reasonable thing to anchor on is how do I take the fuel out of the gross revenue completely and look at what's left we call it trip Revenue other people have their own metrics for this but what's left after fuel how do I predict that because if the miles are consistent it should be an extremely consistent number if it's an unassigned run and the miles are not consistent maybe it's not a consistent number but if you can take the if you can get to a what we call Trip Revenue which is literally gross minus all the fuel reimbursement boom now you're Off to the Races and you can do things now we like to do some gyrations which we talked about in that video which is to move fuel expense up to cogs right which gives you a gross profit that takes Revenue trip Revenue fuel revenue and fuel expense out and now you have an extremely stable number because if you leave fuel expense down below your actual revenue is going to change a little bit so you want to try to just be as informed as you can and predict what your p l is going to look like right good point which I I now I think it's a good time for us to talk about the other side the fundamental side you know when everything with you guys switch over and talk about evaluations and fundamental analysis right and I want to start it by asking one question which is I get very often From perspective new contractors which is the contract is an annual contract should I be worried that this will be taken away and should that reduce therefore maybe the multiple or the value I place on acquiring this business the answer is hell yes you should be worried about it so here's the thing it's an annual contract FedEx doesn't want to be capricious or do things on a whim that's not to the benefit of the network they don't operate that way but and I'll give you a point of comparison just to step back if I come to you Christian and I say I've got a strip center with 10 retail bays in it it's producing a hundred thousand of free cash flow at the end of the day in noi right net operating income I should say not free cash flow and a lie you'll pay some multiple maybe 10 times that for the strip mall you'll give me a million dollars for it but here's the thing it's a physical hard asset I can insure against catastrophic loss fire flood or any other things I can get whole if I buy that from you and something happens to make it go away routes which are your asset that produces this money there are reasons that they can go away some of them you can control for example if you have a lousy safety score they can take it away if you have lousy performance in terms of points and declines in your ability to have a driver and a truck ready when they need it they can take it away if you cross an ethical line they can take it away if this is where it gets really ugly if FedEx loses a massive customer in your Geographic patch and they lose the freight well they don't need the Run anymore and they can take it away technically they don't have to make you whole your routes can just go away so there has to be a discount applied to that in your mind but understand they don't want to do that they do it very cautiously because it sends shock waves through the whole network when it happens and my experience has been when it happens through no fault of your own but because they lost customers they'll work hard to try to make it up to you by giving you different runs but it may take a while they may not have the runs to give you so my answer is hell yes you got to discount it when you compare it to a hard asset class like something like real estate and and that's why when people talk about multiples that get above four five x range or even including those it's always like well I don't know if we're ever going to be able to achieve those with the current state of the contract the FedEx model would need to be adjusted the tsp would have to be to reach those higher multiples in terms of where we're going to get to you know as an industry and I think for me that's that's fine you know it's it's I can build a business and I can grow a business and I can provide value and add to it and when I'm ready to sell out a 3X you know you can do very nicely with with a business that you've ran successfully and so when we talk about the multiples specifically John and I know you know you don't get as involved but for us you know how much these businesses are worth and trying to depend on that value we spend most of our time with do you like to talk about the multiples in terms of what people should be paying at all as part of your analysis well I'll offer these thoughts without putting a specific number well maybe I will put a specific when and I I came from the the finance in real estate space before I got into this so I'm going to go back to that one of the things that absolutely impacts multiples is interest rates there absolutely correlated so when interest rates are low because most people Finance these businesses that means that people will typically pay a higher multiple okay because they can get financing cheaper so when they work through the spreadsheet and they think about how much cash has to go towards interest and principle and those things they can afford out of the free cash flow to pay more for their financing so interest rates go up multiples in any Market have to come down so that take that as a given and understand that it's cyclical and it's tied to interest rates in the last 15 years of the biggest low interest rate environment we've ever seen so historical multiples have been higher than they've ever been in every business that is a finance business okay so as interest rates have gone up I would expect multiples to come in you know better than I whether they have right from a sanity standpoint though if you have a business you can take a hundred thousand out of right and you pay a certain multiple you can go back and say well how many years does it take me to pay off the debt to to do this thing and you know real estate's the kind of thing where you historically see multiples that are extremely high and that's because it's financed it's low touched you can do them in scale they're very consistent and there's very little risk of a catastrophic loss you just have economic cycles and interest rate Cycles this business like we said you have to Discount the routes for the possibility that they just go away through your own fault or no fault of your own you have to factor in the interest rate costs recoded the market for tsp routes in my mind the fair value market where most things traded was like three times and that included trucks or not trucks the the yeah break it out trucks is its own thing when you look to buy something with trucks you need to ask how much am I paying for the routes and then you look at how much am I paying for the equipment the equipment should be a very simple sort of Kelly Blue Book exercise of what are the trucks really worth oh you think they're worth 500 Grand I'm hearing they're worth 400 Grand let's find a number in the middle and let's move on but the routes from a multiple standpoint this is what I'm talking about and so if a solo route was producing 20 000 in free cash flow pre-covered pre lots of Brokers getting into space the market felt like at the time a 20 000 a year free cash flow route would generate sixty seventy thousand dollars on the sale and now we've seen much higher numbers historically and there was demand to get into the space there was low interest rates FedEx was booming shipping was booming when everybody else was out of work so you know Supply demand came into it I don't know where it's going to settle out I don't know what if if FedEx really is going to go through a massive growth phase on the tsp side I think that's going to depress these multiples I think if FedEx is giving away free routes like candy you know mints at a diner at the end of your meal why would you pay a hundred thousand hundred fifty thousand for a route over here when you could go and build the ground Biz and get something free so there's going to be a cycle right and and maybe we're heading to a down cycle on the multiples it's hard to say but back to the point don't ever pay for a multiple of gross unless you're doing all the gyrations to figure out how to adjust for you've got things like fuel in there that shouldn't be in there with and I asked the question related to trucks and just from my perspective you know 2017-18 it was 3x with a truck included there was there was a you got the truck with that and you there you didn't see as many leased trucks out there uh as part of the deal there was no real Penske and Ryder it just wasn't as prevalent in the deals and then now you know kind of the the 19 20 21 it was 3x independent of the trucks and then now it's it could be 4 5x just based on with or without the trucks and I think it's important to remember and we try to preach constantly is that not all runs are created equal I think you're there's runs that demand a 5x multiple in our Marketplace and that is the the we call them you know the white whales 550 Plus miles six or seven days a week am solo dedicated runs the runs that everybody wants they're they're easy to own easy to operate you won't have to put much effort into it and the money is going to be there and you're never going to need to upgrade that run you want more of those runs and we see less of them as the hours of service have reduced the mileage on the FedEx runs there's not as many of those out there anymore and that's very different from your dedicated PM run doing 320 miles a night five days a week that may or may not have some spots attached to it so inherently in my opinion when we're trying to evaluate the business if we're pairing Those runs together those are two very different multiples even within that same sale of how we're trying to evaluate that process and and I think that's a conversation that I'd love to lead and I'm trying you know to push the market towards that and saying hey there's not a flat multiple that we should be paying it's more based on how you know and it could be correlated to the demand of the Run who wants these contractors want these are they willing to pay a significantly higher price for them comparatively or is it one that we have to go to new contractors because no contractor is going to want to touch it for any amount of money and why so um I think the one thing you know we would love your help with is determining the numbers that we're using to give to people in terms of of a a more technical amount of that data well let me let me put some color on what you just said because I do agree with you when you have the the white whale I think when you look at the numbers what happens is it plays out like this a solo run that gets 2500 miles a week is going to produce ballpark trip Revenue two hundred thousand a year let's just take that as a as an example a white whale doing 3 500 miles a week is going to do more like 280 300 000 dollars a year and it you go well it's a higher multiple because of all the revenue but what actually happens is the white whale is much much more profitable oh hell yeah regular one and so I think when you actually look at the the end free cash flow that you could expect to take out of it the multiples are closer in line than you would think if you're looking at the multiple of that but when you look at the multiple of Revenue it's a higher multiple of the white whale because it's so much profitable more profitable so let's make up a story here the 200 000 in trip Revenue produces 20 000 in profit the 300 000 in trip Revenue produces forty five thousand in profit right and so when you do the ratios you find out that when you look at the profit the multiples are not that far out of whack but when you look at the revenue you think my God I'm paying so much more for the white whale does that make sense it makes complete sense and we're seeing it every day um the difference in the runs and the quality of the runs and the the multiple that were were kind of our customers and what we even to a certain extent expect off of those runs John it's there's 20 things that I didn't get to on my notes that we needed to talk about but as always this is a conversation if Lionel Solutions in in the summer um you know leading into the fall of 2023 this is the conversation we're having we're having it with you we're having it with with everybody I believe we're gonna Circle back around to you very soon and maybe get your opinion um as we almost try to walk down this journey me personally it's something that I'm extremely invested in I want to know that the values that that people's business they're getting into they're Justified and create a system where whatever I am talking about whoever I'm talking to there's a sense of understanding that the numbers are the same and it's impossible we'll never get there but I'll do my best to kind of push everybody in speaking the same linehaul vernacular when it comes to valuing you know evaluating but even determining net net income ebitda the numbers we all use but they're very different from business to business well Rick I am delighted that you're leading the effort to shed light on these topics and to educate folks I think it's super important that everybody thinking about getting into the space or anybody in the space really understands how these numbers interplay with each other and and how to Value these things and I thank you for letting me be a part of the conversation and I love to continue to be a part of it I think what you're doing is is super healthy for the whole community for sure same same to you thank you so much have a wonderful week I'm sure we'll talk about this probably very soon thank you John Christian Rick thank you for having me on here it's been a pleasure look forward next time same same all right guys have a good one [Music]