Strategy Discussion: Building a Defensible Growth Plan for Acquisition

insurance because it does not work in Texas.

Okay. What do you mean it doesn't work in Texas?

HealthNet just doesn't— HealthNet of California doesn't work in Texas. How's that?

Oh, bummer. Yeah.

Hey, What do we think the best way to approach this is?

With who?

With crafting, I guess, like an upside case, I guess. And I was throwing like $20 million or $25 million even at terminal out yesterday. But like, what do we need? What if the objective or if the goal is we need to be able to like put a hockey stick together? How do we want to defend the hockey stick?

Okay, so I've done some thinking on this. I think the thing that everyone hates about this business is the current way that it generates revenue in its customer base. So I think part of it needs to be like the idea that we can have exclusive arrangements and get some sort of preferred operating, like partner agreements with studios and dream on the ability to do that and kind of lock in that more contractual revenue. That's one aspect. The other aspect is using the equipment for other types of services that are not entertainment focused. I'm mainly thinking live events when I think about that, but making a push into the live event space just to try to further, uh, diversify the revenue stream. And then there's acquisitions and bolt-ons. Um, but I think just saying we're going to capture a growing share of a falling production market is not defensible, but saying we're going to re-engineer the actual customer, uh, vendor-like relationship because we will have the, uh, it'll be the closest to having the economies of scale, at least in the LA area, to actually make it happen.

Why are we able to do it when Hudson was not?

I think that's a question we have to ask Hudson. Did they put a, did they put a tactical effort into going after Netflix, Paramount, NBCUniversal, all of these companies that had fleet and had all this equipment, this duplicative equipment, and said, we'd take it over for you? Or did they just focus on their stages and try to get the captive revenue? Because if I was them, I would be going after what they already have captive. I wouldn't be trying to go and create a bunch of new demands, like, unless they had the bandwidth for it. Which I don't think they did unless Sean Griffin says otherwise.

That's what Sean's been doing. Like, I first heard of Sean going and doing that. The actual first story I ever heard about Sean was doing what you're talking about, which is he kicked Universal off of one of their captive shows.

Right.

And that really pissed, like, off and right, so forth.

That's my point, is that they didn't go try to make a deal with Universal. They made— they didn't make a deal, they just instituted, uh, mandates that they needed to use HBP or QIOTI equipment on their stages. I don't know.

Yes, to be clear though, QIOTI had that before. That was already there. What, um, the captive stage fees where if you were on a Coyote stage, you had to use Coyote shit.

Okay. I'm not saying that—

What was maybe different is that they, look, I think what both are true. They did this and then they also tried to, they were in, they were further in the conversation with the backlot operations decision maker that ultimately went with the Andre Champagne character instead of that, right? They were at the table. We weren't. And that would have looked obviously very different where they would have done exactly what we proposed to do, except they would have taken probably existing or bought net new assets and just thrown money at it just to like prove the model.

Right. Um, yeah, look, I'm not saying that this is like the smart business decision. I'm saying what actually can be— what can be put on a dream board and say, this is how we get to a $25 million valuation and get people excited about it. This is one of the avenues, and Sean's got to be the point person out front kind of driving that narrative. But that's how he adds value to this.

Okay, so I'm going to push back. I hear you. Let's zoom back out maybe even then further and talk about who is the hockey stick for? The hockey stick is for— in a way, it's for us, sure. But it's like the hockey stick is for— we know that hockey stick is like extra credit for Hudson, right? What they're more interested in is like understanding what the downside— how the downside has been solved for than anything kind of upside, right?

I agree.

They'll probably eventually care about upside, but like, I think that's the thing. So we have a desire to see a hockey stick from someone that we view as strategic in their ability to open a door, which we believe will be helpful in increasing the speed and likelihood of close of this project. Our hockey stick needs to— this part of the hockey stick is to put together a defensible enough position that when, like, scrutinized by the analyst or whatever, it is passing their muster. Because basically what I— as I thought about it, it's like, if we go in there with a $7 to $14 million EBITDA ramp They don't want to sell that company, right? Like, so we're making this for a, like, kind of scary headlines, ton of bad history, and a bunch of parties that all are kind of in the same jail cell together. We are coming in saying, look, we've— we're not saying we've got it figured out, but here's like 3 or 4 ways, like kind of what you're talking about, that You think, but I think one of them before we like, I think one of them is like we lean harder into the like sales cycle shift from transpo coordinator to line producer and we say, or just directly with the production company itself, like we're going to do a deal with Imagine Entertainment. Or fuck, what was that one Netflix show? It's like, you remember how on Nemesis season 1, Peony came in and just swept the floor, right? And they were able to just cut a deal directly with— we're going to do more of that because the like decision maker, like matrix has shifted up. Everyone is talking about how they are neutered effectively and none of the competitors currently are really focusing at that level except for maybe Coyote. And we're going to do more of that.

Right.

And that's going to— this is where I'm like, it'd be really helpful to be able to say like This is how many shows we all have. This is how we scale. If we get another 10 shows, we're only on 3 to 4 shows trailer-wise and probably around the same, maybe a little more trucks.

Right. Yeah. Trucks is higher volume, lower frequency, or sorry, higher breadth, but lower depth of penetration for— because there's so much other—

yeah, but they've got more specialty trucks than we do, right?

That's my point, is that when— that's why we're able to make this offer, because we have everything that we need to outfit the Transpo Pro Supplies locations department of a production post-merger. And yeah, maybe I— you were probably thinking the right level of authority. I was probably describing something a little too high. But that is the growth avenue that I'm talking about, is cutting deals for specific shows at whatever level the decision maker is.

I think we would have a hard time selling the, we're going to go sell studios. I think we'd have an easier time being like, we're going to sell production companies.

Right.

We're going to sell— versatile did with— and we're going to go talk to the head of production, which is a person that exists at these companies, and we're going to be like, look, budgets are tight, you're hiring line producers, you get to tell them you're using this because you guys get a rebate, or you guys get XYZ preferred, right, for bringing everything. And like You'll have the benefit of knowing where anywhere you're shooting something, we're going to get it there to you. And so maybe what we're saying is, I think it's like really, I think we probably have to look at it on a national basis to really, sorry, we're absolutely going to have to look at this on a national basis to get to like a 25 million keep it at a run rate.

Yeah.

And I think like something that should probably be, something that is maybe important is to not have an Olympics bump so that they get to ask, do you have like the Olympics in here? Like, what about that? And we can say no. And then they can think, well, they'll probably get a bump with that. And, and we'll be like, yeah., but we don't think it's like sustainable, you know what I mean? Right. Okay, so we're going to change the— we are going to accelerate the shift in decision-making. We're going to accelerate the— however we want to phrase it, but it's basically we're going to accelerate the shift to decision-maker, and that's going to translate to something. We'll come up with something that seems defensible, right?

Yeah, yeah, yeah.

And we are going to see. Mm. I'll tell you that every time I'm like seeing something on Instagram with like a musician or an artist or whatever at some event, like they're always in a Star Wagon. So they kind of, I feel like they already do a pretty good job of that. Live Nation and Ticketmaster just got hit with antitrust. I don't know if you saw that. Live events is definitely one, but you have to do it on the East Coast. Like, you'd have to be hitting the Bonnaroo, the ACLs, the Ultras, the Lollapaloozas.

Which the TR piece— I mean, I know they have existing operations in Georgia and New York, New Jersey.

Well, that would be their East Coast hub.

Yeah, right. I'm saying that's where the TR thing benefits by rolling them in— provides the benefit, I should say.

Okay, so to do— so that's a bullet point. And I think what it is, is it's— and the way it's unlocked that they can't do today, because we know they've been asking people to four-season or winterize like all of their trailers, right? Is our operational capabilities allow for this many trailers to be like cost-effectively optimized for other environments, thus unlocking this amount of revenue. Problem is, I don't know how much revenue these things actually are. I might call Ivan real quick. Okay. Let me call you back. I'll jump back on this.

Okay. I'll stay here. Bye.

Okay. Okay. He's emailing me 22 quotes from Coachella and Stagecoach. They said basically Coachella was like $235,000 for 2 weeks, like 110 trailers-ish. And Stagecoach was a little smaller. At like $125,000, but that's from '22. But that's good because now we have like a large, like a Lollapalooza. Basically we have a 2-weekend example and a 1-weekend, at least it used to be 1 weekend. I think it's actually 2 now. There. And that was 2022. So $235,000. Yeah. So I don't know how we want it. Like, it's almost like we want to commit to the— like, have the revenue committed but not expenses figured. What? Because it doesn't matter because this is literally just like—

well, to me it's all just like from a modeling perspective, you're saying it's a price-volume mix thing on account of assets. So if we have 1,200 assets and we're saying we can raise utilization by 5% because of this and rates go down by 2% on the same base of vehicles, so then we're raising over top line revenue at 3% at an 80% gross margin. So 2.4%, uh, revenue increase right there. So that's just one element of like a systematic, like multi-phase growth engine that we're trying to generate here. Mm-hmm. So I'd say like, don't, I would say don't focus on the granular piece. It's kind of have some. Rough estimates and assumptions that back what the ultimate model will demonstrate in terms of like what the upside cases are.

Just because I just finished the Succession rewatch, we're calling this the strategy of a thousand lifeboats. Yes. Royco CEO says Royco is sinking ship, needs lifeboats. Oh, man. Okay. So, but we have this quote. We have like, we have a couple of quotes. We have, you know, that data point to maybe fall back on. And then, yeah. I think that what we could— I would— I feel like get away with an out-of-town competitor basically ceding the market share and us picking up like a big piece of that.

You're talking about BI? Yeah. So a competitor geographic exit? Yes. Okay. That's like a fourth prong then of our growth strategy.

Like, and I think the talk track there is like, look, it's zero sum here. This is— these are a bunch like this move allows us to, like, push at least one of these at bay and pick up a lion's share of that market share. Right. And that market share is both in LA and Atlanta. So I think what we have to do here then, and that's probably another market point, is like we are going to open the East Coast up for trailer rentals where they have not. Like if part of our— if our— if we're already relying on this, like we are going to cost-effectively operationalize 120 assets to be East Coast ready. We're not just sitting them out for live events. We're not just sitting them out there for live events. Right. And therefore, like, we are going to— like, we're sitting them out there. The infrastructure is already there. The only thing that's missing is the assets. So we're going to ship the assets out there. And the same, like, cutting people off at the knees we're going to be doing in LA. We're going to be doing it even more in Atlanta. Right. And again, at the same time, there are these conversations happening with these production, at the production company level, at the line level, saying, look, you're about to go shoot in bumfuck Kentucky. There ain't nothing there., but we can get you stuff there from our Cincinnati hub. By the way, I want to set up a Cincinnati hub because I need a box truck here to do shit with. It's a good reason. Papa needs a cube.

Yeah. We'll send you a 10-ton.

Yeah. No, no, no, no, no.

Too late.

It's already on its way. But anyway, like the— okay, so there's that. I think you could probably model revenue uplifts in— I know we don't look at it this way, but if we were going to look at this way, I think you could model revenue uplift in location services as just like a percentage of market share, that because this like lion producer production company strategy is successful, it too is successful for the location services division.

Are you saying that the ground they seeded we would earn back?

Well, no, because the ground they seeded was in bathrooms.

Well, they also wound down their locations division as well.

The locations to them was bathrooms. Yes, there was some production supplies and table and chairs, but it wasn't a ton. I think what we could do there is say the tents, tables, and chairs, the production supply element of And even bathrooms. Yeah, I think like, fuck it, we're moving in a box. Like literally you get all your shit and we're going to pick LA-specific We're going to do a deal with Big Indie, who is the production services company in both New York and Los Angeles, who has a vested interest in keeping their costs as low as fucking possible. Right. Because they are paid a flat fee to make the show, and whatever they deliver it at, they get to keep.

Right. Yeah, but that goes back to the, just the, like the targeted, uh, sales channels moving from the transport coordinator, whoever the, like standard who you would expect to be the targets moving up to line producer level or even the independent production company level. Um, not the studios, but people responsible for putting on productions like that. So that could be part of the, like, target market.

Um, okay. I mean, like, 8 turns on 25. Is, well, not super exciting, but it's better than it was. Okay. All right, so there is a bit of an idea dump.

I can get this in the model relatively— I won't say quickly, but I can do it in a pretty quick turnaround.

I think if it's by the end of the week, if on Friday we're able to go to Michael and be like, hey, We've got— here's a card showing the hockey stick that looks a lot better. Here's some bullet points. We need to set up the whatever ADC meeting. It has to be that I can't go the following week. Yeah. And then I'm going to have to go off the road because we'll be inside of Jo's. Like, she usually goes early, so we'll start to be inside of her window.

Right.

Um, yeah, in case it wasn't clear, Richard and I had coordinated that, um, on that other call.

I had— it actually wasn't clear. I was like, wow, I, I almost went off camera to laugh because I was— it was cracking me up how angry, like, he was feigning. Um, I knew it was fake anger, but I thought he was being formed. I didn't realize that was coming from you as well. So that's, that's good.

It works. Yeah. I mean, like, I was like, you need to go so fucking hard and then I will pick it up and like confirm. But then like, I was making— we need to make it feel so aversive to do anything operational. Yeah.

Yeah.

Anyway, all right, you've got a call now with crew.

Uh, yep, yeah, I'll jump on that.

All right, bye.