Potential Merger & Cost Synergy Analysis Discussion

Hey James, I'm doing well.

What's going on?

Not too much, just hanging in there.

What office are you out of? Uh, Gower. Okay, nice.

The three of us are all at Gower. Occasionally move around through the Valley and, um, the mothership, but, uh, mostly at Gower.

Is the mothership down in Wilshire?

Uh, yeah.

That office is so dope.

It is.

It's like if you forced me to come return to office, but you were like, but it's here. I'm like, all right.

Yeah, that was my exact experience. I got hired during COVID um, and it was 3 days a week at the time, but it was all in that office with all the amenities and everything. So I was like, sure, I'd rather be here than my crappy apartment.

What part of town do you live in?

I used to live, uh, just outside Culver, uh, West Adams.

Yeah.

Um, now I live, um, mid-Wilshire near the Grove.

Boom, nice.

Yeah, how about you?

I used to live in Laurel Canyon, um, but my wife— real quick, my wife, um, is a producer and we shot a movie.

She shot a movie in Italy last year, so we used that kind of as an opportunity to blow everything up out there. After the fires and everything and just kind of reconstitute here in Ohio. And so I super commute back and forth from time to time. And it's pretty nice. It snowed this morning. It snowed a shitload this morning. And now it's 60 degrees.

Lovely.

How did you find Ohio? Did you throw a dart at a map or was there a connection?

He's from here. And we've got 2 kids under 5 with a third next— due next month.

Congratulations.

Sure. Hey guys.

Hey Stephanie.

Hey Stephanie.

But yeah, no, she's—

quick, long story short, she's from here.

There's a lot of infrastructure here that we had to replicate out in LA and it was just easier.

But understandable.

Well, cool.

Well, great to catch up with you guys.

For the purposes of today, I thought, one, we'd open it up to any questions on any of the stuff that we fired across if you've had time to review. But then if nothing there, we'd kind of start by going at the high-level summary dashboard of the model that we've kind of thrown together. And talk through maybe some of the blunt instrument cost takeouts that we've identified that would need to be validated with just further, like, analysis and conversation and planning.

Yep.

From there, shift to the pretty high-confidence structure that we've pulled together, talk through sanity check that we understand kind of the org chart you guys sent across and some open items that we have on our side of just like, do, for example, like, do we put transportation resources into this if we're just duplicating infrastructure without any cost takeout there? You know, those types of things where it's like we're only putting that in if it kind of makes sense.

So, and then kind of really rounding it out with the intention of pulling this into, um, a single sheet framework that we have to summarize kind of terms, considerations, and structure, and then really work towards getting some semblance of value assigned here, um, so that we have something to move forward with. So that's what I've got. Let me know if you guys had any other things. Go ahead, Stephanie.

I said sounds like a game plan. Cool. To your first thing of questions on the materials you sent, I would say I don't know about Shawn and Pat. I've done a very kind of cursory look at the information, and so far my questions are mainly around helping to reconcile the detail versus the P&Ls that were shared. And so we can either talk about that now, or I can just send you follow-up questions about, like, matching up the rent— the lease schedule to the rent expenses and the P&Ls, the payroll, etc., just understanding where numbers are different and why. I don't know if that's worth talking about now, or we could just table that for a follow-up.

Yeah, it's the, the rent schedule specifically as is as of today. And we had a lot of activity in '25, so we're not going to see it match to the P&L just because we took on some new leases. We got some other subleases that we executed on in '25. So what I sent over is as of today, this is what our ongoing rent obligation is.

Okay. So maybe so structural question, you got your kind of your rent expense and then you've got your net rent. Backing out your sublease revenue, is the rent line in the P&L supposed to tie to the net rent number?

Yeah, rent in the P&L is net rent.

Okay.

Yeah.

Okay. I'll follow up with some questions then, because I'm mostly seeing that the net rent in the current lease schedule exceeds what was in the 2025 annualized number. So I want to understand if that's telling us it's going up from your 2025 annualized, or it could just be a function of that. So like I'm seeing $2.2 million in the lease schedule for Transpo versus $1.7 million in the '25 annualized. Pro Supplies, I'm seeing $1.3 million in the lease schedule versus $800,000 in that. So I just want to understand Yeah, just high level really quickly.

Um, Coango we entered into in 2025, you're going to see half of that in '25 because we entered in July, but we'll have that full for '26. Washington is the same, half a year in '25, full in '26. Um, the sublessee at Glen Oaks went from covering the full lease obligation to covering about two-thirds, or leaving about a $50,000 obligation per month. So you're going to see that added onto the P&L as well. So those 3 items kind of constitute the majority of the increase there. But if you want to send over, like, I can send over more detailed, like, maybe like a bridge if you want to send that, those questions over after the call.

Okay, cool. And then I'll have like kind of a similar question on the payroll detail of just maybe a matter of included, excluded, but like, yep, we can, we can cover that off separately.

Okay.

Really quick badge of honor.

On the Glen Oaks tenant, Tesla, we were their most expensive real estate in the entire company.

You shared that last time. From what I've heard from our real estate team, that rang true with what it was like 80 cents a square foot or something like that.

Yeah.

Yeah.

But we had a sword of Damocles hanging over our head because they were operating 70% of the business on a month-to-month lease at the Burbank Airport when we stepped in.

What is it? That's outrageous. We'll pay it.

Because I think we had it. We were maybe at one point, I don't know, bidding against you may be too firm or too strong a word, but we had definitely been talking to that landlord.

Well, yeah, because I mean, like, they own— they bought the land from them. Yeah, yeah, those guys are characters.

Okay.

Yeah.

And then maybe a last question, and I'll follow up on other ones. But on the debt overview, the two investor line of credit balances. So should I— so effectively, is that basically like preferred equity that's sitting above the MT Studio Services? Like, are those kind of owners of the company, or how should I think about that? There's no debt service listed. So are there just—

it's all— yeah, it's all owners of the company who have contributed funds to support the operation.

Okay, so we'll ultimately kind of COVID that off in structuring conversations, I'm sure.

Yeah, I mean, I think that the whole debt component in and of itself is a, a question around like optimal— how do you build the optimal capital structure for a go-forward entity? Um, the investor lines there have never been serviced, and they were used for the purposes of like, I don't know if we said this in there, but acquiring assets, acquiring divisions, acquiring companies, or in the strike, just general working capital needs where, you know, we all hit a buzzsaw and we're caught flat-footed, like after a handful of months. But yeah, happy to provide any visibility there. But beyond that, no other creditors other than the single kind of serialized debt with First Source, which is a legacy kind of bank, um, and is secured by the underlying assets. Um, cool. Anything else on that?

Um, no, not, not at the moment, but I'm sure we'll have some follow-ups we'll email.

Yeah. That's probably easier to do at that point.

Dig in a bit more.

Sure.

Okay. John, Pat, any other questions on what they sent over from y'all?

No.

Yeah, not for me. I mean, I'll admit I didn't get a ton of time to look through it, but I'm glad— thank you for sending over the headcounts. Just good to get some visibility into that. Yeah. If we have a list of questions afterwards, we'll follow up by email.

Yeah. Just quickly on the headcounts, you'll see it's broken out by the LA operation and Atlanta, and I think James will speak more to like the Atlanta component of it, but I think it's important to distinguish those two just for the purposes of the structuring of what we're talking about here.

Yeah, and I know y'all have explained this to me before, but please one more time. With TR, your org chart, you had kind of like this dotted horizontal line. Like, what is the exact relationship there? James, you had, I think, mentioned before like a fleet management arrangement, but I like, are you, do you have an ownership stake in that? Is it joint venture? Like, is it just a management contract? Like, what, what is the relationship with TR?

Um, we have refrained from completing like an ownership transaction there because we're waiting to see what happens, like just kind of an aggregate.

Um, we—

there's a symbiotic, I guess, mutual support kind of associate or I guess, alliance agreement.

Alliance agreement.

I am renegotiating all of their debt right now with their creditors. And in effect, I'm acting as sponsor for the entity. But we have not bundled it into the aggregate holdco as of yet, because it's just been more of the same. And I think different like it has its own strengths and weaknesses. And this is just quickly on the Atlanta piece, but like that they are coordinators themselves is a blessing and a curse because they represent 33, 25 to 33% of their own revenue.

Cool. As long as they're working.

Yeah.

But like, I will say this, they like, we've, we run pro supplies out of there.

We use each other's fleet. They have some very interesting, like, features that I think are helpful. But yeah, just to cross the Atlantic piece off on this, and then we can kind of work backwards, I guess. But I would be interested to hear your reaction to the idea that when you put the two together eliminate the personnel of EOD Atlanta. And so you effectively just have the ongoing real estate kind of liability for until 2030, 2031. But that equates to about half a million dollars in real estate obligations and some, you know, change.

But you can't—

they make about the same amount of revenue Um, but TR is a little bit more profitable.

So if you're able—

that's kind of the truest expression of your 1 1 possibly 3, because the revenue you're able to move through there, the contribution margin is able to increase by just consolidating everything into a single location. Um, but that would be that it's less about a bet on Atlanta as a market that has any semblance of kind of a critical mass of production volume and more as an East Coast hub that's able to facilitate the revenue that— like, I think really only 10% of TR's revenue is based out of Atlanta. The rest of it's everywhere else in the country. So they work up and down the East Coast seaboard and kind of their way across because they use our hub, they use our infrastructure here for their LA stuff, which is really just what the studio, whatever show Keith Fisher is working on at that point in time.

Or they're able to get on some other stuff. It's kind of de minimis in the grand scheme of things. It's what, it's kind of like we were talking about a couple Paul's go, where it's like figuring out what to do with Atlanta and New York, it is, it is kind of de minimis in the grand scheme of things. But there is, there's not zero benefit, but it's not like some earth-shattering kind of decision.

Yeah.

Um, one thing they do have, and Sean, I think you'll like this, is they have a 4-year contract with Tom Brady where they built him a half-million-dollar land yacht.

Sorry, him around to every football game that he's a commentator for.

So 22 weeks a season, he pays them like a crazy amount of money per week for a driver, the truck, and the trailer to just meet him wherever he goes.

And he jumps on his jet to fly wherever he goes to and then flies there, and then he bases out of it during the games.

It's good to be Tom.

It's good to be Tom.

Yeah. Can I, can I ask on Georgia, given the way that you described your relationship with TR so far, in that you've refrained from taking on an ownership interest, like, why not just not do that, use the Coyote location and bring over some of the team? Like, never take on that lease over there, like, just—

it would be 6, it's not quite 6 in 1 as we think about it, and we've spent very little time thinking about it, which is why we kind of put it in a set-aside.

But like, from the amount of time that we've talked through it, their revenue, like the way they are set up over there is they make more off of their revenue. So it's really just trying to simply put, figure out how do we get the most out of every dollar, increase the contribution margin there. We don't know what the revenue composition per se of Atlanta is.

Um, sorry, let me ignore this. Um, yeah, I think that's an option. I mean, like, that's kind of why it's in a set-aside.

Like, we think it's a good entity, or we think it's a good company, but it's just more of the same, which is why we've kind of held it at arm's length. We presented here as an ingredient to be used as we think about how do we maximize either the contribution margin or cost takeout of the different locations.

Yeah, and I guess we can kind of table it for a later discussion and think about it more because you're right, it's not the priority as we talked about last time. It just strikes me as any— if Atlanta is in play, the main synergy is getting rid of one of those properties. We don't have any union workforce out there, so like the staffing can change, right? There's clearly a big difference in our, you know, other operating costs, which is probably going to boil down to like insurance and other things we've talked about. So it feels like those things could get figured out. Uh, so it's more like, assuming you can get the PR team on board, as you said, it's like their shows that are at play. It's like that could, could be a solution there. Totally.

I will tell you that one of the— it's, it's why we like— the longer we've just kind of held them in this cryostasis, for lack of a better term, the better our terms have gotten with them. Yeah.

So we've gone from talking about some, you know, pre-2023 deal structure to why don't you just take what we have to give you and like we walk away from the risk.

And he was still like, nah. But I think like that's— I would say that there's like a substantive conversation that just kind of needs to be had around Atlanta where we put the ingredients there and figure out, hey, based off of what we think 2027 is going to require across the Southeast and East Coast even.

Yeah.

This is what we think is best there.

Yeah. I do think what I did— I think it was you who said it best last time, where it's just which one is the easiest to sublease.

Yeah. Well, assuming you have the obligation, but it sounds like you don't even— you're not even obligated to have them right now. No.

And I think that's kind of why we've got it broken out very specifically where it's almost like a toggle.

Yeah. As we think about it. Okay. And then you mentioned you're running Pro Supplies out of there. Is that Pro Supplies revenue running out? Is that in this? These Georgia transfer numbers you shared, or do you— is that in your Pro Supplies division?

No, that's in our Pro Supplies division.

Okay. Do you know how— I'll ask a follow-up question on that.

It's very little. It's— yes, it's to me. We just— I think it's pretty new as of 2025. Um, and there's been some stuff there, um, but it's It's a beachhead that we could take or leave.

Okay.

Thank you.

Cool.

John, Pat, anything else?

I think it's probably enough time on Georgia.

Yeah. We allocated as many minutes as we need to Georgia for today.

Yeah. Cool.

Okay, JD, do you want to rip the high-level summary pro forma structure or vice versa? What do you want to do?

Um, let's start with just the financial component of it. Um, we can walk through that. James, you're my, uh, you're on in charge of size.

How is this for everyone?

I was going to say, are you going to make us ask to zoom in as usual, or are you just going to do it?

I just want to make sure everyone's paying attention. I am now. Um, okay, so high level, you're just going to see the 2025 performance of both Pac and Co. Pac and Co includes all of the LA operations and the Atlanta operations. Um, Coyote is going to have basically everything you've provided to us, excluding the studio, excluding the G&L, before any pro forma adjustments, and then including admin as well. You'll see that on a combined basis. And then 2026 onwards is going to be a post-combined entity view with the synergies that we've identified. The big ones being $15 million of payroll, taking headcount from, I believe it's 316 on a combined basis down to 177. Some rent obligations that have fallen off as of 2026 and then will continue to fall off as we go., and then some small fixed cost changes mainly on the insurance side, which we peg at $800K to $1.2 million in savings, but that's from a higher level diligence. I think as we get into it, we can hone in on that number more. Um, and then a financial performance just going out 5 years, assuming a 5% revenue growth rate, um, and a steady gross margin percentage, and then 5% on the personnel. Very standard stuff, just as those, uh, costs and revenue grow. Um, so based on what we've seen so far and the information we've gotten, we believe that this structure does work. Think of my business can be profitable. Um, there's some very key points regarding kind of what comes with, um, a transaction from your guys's side and what the, like, specifics of the, like, union arrangements and the assets that are being attributed, etc., to figure out how these, uh, the final numbers pencil and then performance and the industry stuff that we all are aware of. Um, but given current trajectories, not trying to aggressively, um, project out revenue growth because we know that that's not something we can rely on, making sure that it works in the environment that we're operating in right now. So a little under $8 million of EBITDA in 2026, growing to $13 million in 2030. Payroll going from 33 to 18 being the biggest number, and then some other changes as well. So this is high level. This is obviously would need to be diligenced and further analyzed, but we're confident that this is achievable, at least from what we've seen.

Quick note on that personnel, that's leaving really New York and Atlanta.

Virtually as is. Okay, again, so same thing that we just talked through there, um, and I would say that what we're presenting here is conservative. So when he says we think $800,000 to $1.2 million on insurance, Lockton said it's like $1.2 million. We're saying it's $800,000 because it never is what someone says it is.

Um, we always find it's more than what they told it's going to be.

So, but I would say like that's—

this is where we feel confident in starting from to work our way up. For example, you have 6 people, I think, in pro supplies sales. We have 3.

This has 9. Probably don't need all 9.

And that's just here in LA.

That was my—

gonna be my first question is like, because like obviously most of this headcount takeout's gonna be on the ops side because that's just where the bigger headcount is. But yeah, so I got the, uh, is that how you actually did the forecasting on the sales side is to just like, hey, we're gonna be simple and just add the two together and just— and we'll figure it out kind of on the back end.

Yes, until we have a constructive conversation around what it actually should probably look like.

Yeah, I mean, now that I have this, I think I can like— I guess there's going to be savings there.

Right.

Totally.

But we don't— we don't— we—

I don't think we eliminated a single sales role and just to combine, it was all on the operations and fleet side, um, fleet being Transpo-specific. But that is where we look to, uh, for the savings. And what— yeah, it was $316,000 on a combined basis down to $177,000.

Yeah. Okay. Yeah, James, just to be kind of responsive to a kind of a request that you got a while ago, it's like I, I do want to kind of go through and think about what a kind of revised combined sales structure would be here. Um, I think I was just waiting on these headcount numbers to even get a sense of what the number was and how they broke down between your, um, different lines of business.

But I think, I think I have enough here where I can take a cut at that. Well, and so that's one of the things that following this we'll be able to send over is just the ability to probably—

right, JD, we'll start to be able to give them the ability to start to run scenarios themselves, right?

Great. Can you, on the payroll side, do you at a high level have a sense of like how much of the synergy comes from duplicative roles and positions versus like difference in burden per FTE, i.e., like the union impact, if you will? Because I'm, you know, I think as we've talked about, I think there's some diligence that will need to be done on the union side of like what's possible and not possible and how that needs to be structured. But I'm just curious, ballpark, how much of this relies on exiting the CBA versus just duplicative overhead?

I would say that it doesn't contemplate exiting any union agreement right now. It's more duplicative overhead. We had Richard run an analysis for us on what he thinks the combined fleet, uh, staffing would need to be, um, and eliminating basically the duplicative full-time employee roles. Um, on your— I mean, obviously we have very detailed information on our end about roles. For you guys, I think we only have kind of high-level stuff here, so I tried my best to estimate what your guys' structure would look like compared to ours, but obviously it's, it's all an estimate. So that's kind of why I said like the payroll number from a high level, we're saying 15 million. But unless we have like very specific information about what that roster looks like, then we can start to identify what the true duplicative roles are and where those can be eliminated.

Yeah, that makes sense because I, I mean, I view this as like a phase one of, uh, is there a there there? And then we can deep dive a bit more if I think it's going in the right direction, right? James, you kind of waved your hand a little when JD responded it was mostly duplicative roles. Did you want to say something about the union?

I did, yeah. I mean, the— it doesn't contemplate us exiting a CBA, generally speaking, true. What it— because the way that that is structured, as I recall, is we have It's— we just speak to the union piece. We would step into, as we understand it, there's an agreement for New York, there's a commercial division agreement in LA, and then there's a kind of what we call fleet services agreement.

And those are really the three that matter. We understand there's a grip and lighting agreement, go, but that's right. From a day zero perspective and a path of least resistance and minimum amount of friction and interruption to, you know, revenue, we would, without knowing what it actually says, step into the commercial services agreement effectively as is. Because if you don't do that, obviously on day negative one there's probably revenue in progress governed by a white paper that on day zero is no longer—

like, there's nothing there.

And so you kind of just set up this nuclear bomb there, huge destruction.

So we think we probably have to step into that as is, but that's not the case for the kind of fleet maintenance one. And I, you know, from some cursory digging, we've gotten pretty confident around being able to walk away from that, the fleet maintenance agreement. So it's not so much eliminating or walking away. In our model, we're actually modeling, I think, a pay increase for the people that are left, but we don't think— we think that there's more there to go get. So that's why it's a bit fuzzy. Like, I think, like, the— I just want to be very clear that, like, it's— we're not painting just some, like, that number goes to zero.

We fully expect, like, that conversation to play out as it is.

But, but it's upside to these numbers. Yes. Yeah, that's good. I was just trying to get a sense of how dependent on that path this would be, and understood.

I'm trying to think, JD, on the union piece, we covered commercial services. But yeah, the fleet maintenance piece is the— it's a big piece of that number, but the rest is really still to be kind of hammered out. Um, okay, we hit rent, we hit personnel a little bit, um, and insurance is what it is.

Anything on this at this time? Um, do you mind giving a high-level walkthrough of just where the payroll. I know you, you talked about it's not New York, it's not Atlanta, it's not sales, but do you want to talk it all through what you've assumed on the operation side to get to that 18?

Um, so here you'll have our— in this column under Avon, you'll have our operating team, and then you'll have my best guess based on the information you gave us of what your guys's operating team looks like for these divisions., and then the associated payroll costs, and then just an average cost per head, extrapolating that out. So the majority of those savings are going to come on the transportation side. Um, the fleet we have going from 65 employees on a combined basis down to 27. That's based on an analysis that Richard ran, um, and gave us, like I said earlier. Um, and then a small increase to kind of the, uh, the, the rate there, but administrative going from 33 to 20. We're currently running with 6 administrative employees. Um, we have 27 here, so still having more than what Avon has on just a double basis, but not taking the full brunt of that. Same with operations, we're currently at 16, you have 60 here, um, so taking that down to 25, um, I think that needs to be confirmed. You understand what the operations actually looks like, because operations to us may mean something different to you guys. Like, when I think of operations, we think of lot operations and everything associated with getting the vehicles out on the road. Um, maybe it means something different on the transportation side for you guys, but this is a big savings on the Los Angeles side.

Um, Georgia, I would point out that in Richard's plan, he also has like car washers and lot personnel in his fleet side. So as he thinks about it, he would kind of consolidate those functions under one umbrella there. So there's some there's within these numbers still some semblance of like duplicative.

Yeah. If Richard had his way, I think these numbers would be lower, but I don't want to take his like 100% estimate and kind of put it to his credit. He was giving people pay raises. So.

Right.

That's true. But yeah, that's going to be the bulk of it. Georgia is a small difference from a 2 to a 1.4 on a combined basis, assuming that TR and Coyote's footprint in Atlanta has some overlap there. Getting out of the New Mexico operation, Pro Supplies going down. We currently have 32 people on the operating— operation side on Pro Supplies. You guys have 23. So we took that 55 to 40. And then administrative, we have 4, you have 5, taking that from 9 on a combined basis to 6. Like we were talking about with Sean earlier, we're assuming no reduction in sales force here. So that's another opportunity for cost cutting if there's sales resources that are no longer necessary.

Um, keeping—

I mean, there's a lot of like low-level rental agent stuff. Like, there's going to be, you know, scale benefits there, right? Um, I'm shocked you guys have more opera— I'm assuming that in that operations headcount there's like warehouse—

that's just warehouse staff, right?

Right.

Location services.

Yeah, that too. Location services. Oh, that's bundled in there. Okay, so that's why the headcount is higher than what we have.

That's an important clarification, is we bundle location services and pro supplies and bathrooms kind of all in that line item. We don't have them broken out.

Specifically. Um, when you say location services, are you just explicitly talking about pro supplies on location, or is there anything else? And obviously the setup and the strike of that.

Is there anything else? Yeah, bathrooms as well. Bathrooms. Yeah, yeah, yeah.

But just the strike and pickup and delivery and all that going along with the— what was that AC headcount you had?

What does that mean? It's an AC division, so air conditioning.

It's, it's part of location services where they bring, you know, a 20-ton air conditioner to set. Yeah, I mean, like, HDR, as y'all know because y'all looked at it, it was like a Swiss Army knife.

Like, it just like had the pinnacles kind of everywhere, um, AC being one of them.

So, and then the New York, New Jersey operation just staying status quo for the time being because we don't know what that would need to look like. Um, so the main drivers of the savings is going to be, I think, as you would expect, the production supply side in Los Angeles and the transportation side on Los Angeles.

Yeah, and just FYI, like, the New Mexico, we've wound that down already, um, since the last time we talked.

Okay. Yeah, I think you're showing nothing for transpo in New York, New Jersey, so it's like it says all that just kind of booked in the It's all the headcount and just prospers just for simplicity's sake because it's so small.

That's correct.

You said New Mexico is wound down as of right now or as of today? Yeah, you can take it out. We're— I mean, we've got— we're going to list the property for sale and, um, but we've already stopped operations there.

Got it. Okay. And then, yeah, I think just in terms of, like, let's say we do want to, if this, we end up taking this to the next step, kind of like you said, Stephanie, I think a much more detailed analysis of this can be done with more personnel information. I'd be happy to work on that collaboratively. But from a high level, I think we're pretty confident in the numbers we're seeing here.

What have y'all assumed? Assumed around the like manufacturing trailer repair side in terms of staffing, just kind of baked into that operations number, baked into that fleet number?

I mean, like, he's got—

simply put, he's got a handful of Yeah, so this is— I'm hesitant to show this file just because I had to do some fill number backwards math here, but he's got some like— he's got 3 people in parts and fleet, or fleet parts and trailer parts. He's got 3 in body and paint. He's got 3 in motorhome and production vehicles. Um, so I think that's the other— that would be the other piece is like, because when we look at yours, I'm extrapolating from this information. Um, so manufacturing fares being on the 25 side, um, he's saying a substantial headcount, a lot fewer people.

Um, I think you should think about his approach as like pooled labor that is able to do whatever trailer-related task is required under the, you know, under his tutelage. Also, like, it's basically like he is very— as you might eventually learn, he's extremely proud of like what he built at Coyote and what he can and what he's built with us. And to his credit, it's been amazing. But like, he takes unskilled labor and puts them in—

I can't remember his term for it, JD.

An apprenticeship. Thank you. An apprenticeship program. And he just makes them do whatever task is, and that might be laminating, like taking a wall off and laminating it. And he's got kind of like all of that stuff figured out. So it's less specific and like named titled roles and more just like general labor pool that is able to be utilized by maybe one specific specialist who will take 3 techs.

And if you have like a big backlog of PDIs, so you have your PDI lead grab 3 techs and have them just kind of assembly lining it.

Yeah, but I guess to your question, Steph, like I mean, because what you're describing sounds like a lot of like, yeah, PDIs, like someone, you know, trucks coming back needing to be refurbed. Given the fleet size, it's not like we're going to need a lot of new trailers anytime soon. That's what I said. But I assume like this means like the headcount for manufacturing is essentially gone.

Oh, I'm so sorry. You know, we're not building trailers. Yeah, yeah. Like from a manufacturing perspective, like the actual people assigned to that activity is zero. It might be that the space is used to decommission or like whatever it is, but it is not—

there is no resources allocated to the construction of new units.

That makes complete sense. And this team that's here, we call them manufacturing and repairs because historically they manufactured, but their activity of late is more repairs, as you would imagine, when there's not a lot of new units rolling out. So, yes, that makes sense. Yeah, we do have to our union conversation. Part of that diligence will need to be like, you know, well, first order question will be what does the agreement follow and like what does that look like? Second order question will be like how does definition of work roles within the agreement influence ability to flex in the ways this headcount would suggest?

So that's where—

and I can actually speak to that piece because from our whatever one stage beyond cursory is, we arrive at a fuzzy situation wherein generally speaking most CBAs, like, can they be assigned? Sure. But they can also more or less be walked away from, like, because what we have here is a bona fide third-party transaction, a change in control, an underlying—

with a core, I guess, associated with an asset deal wherein here's where the fuzziness starts. Like, the actual addresses where the union or the CBA governed are being contributed, and the work that was there at those addresses might stay the same, but the people doing them, or the census of the people conducting that work at that address, is different.

And then one stage beyond that is this is again where his apprenticeship program really plays a factor where the union's not looking to like bag apprentices. And so he has— this is how he's able to successfully kind of navigate this in the past. And it would be kind of a continuation of that.

But again, it's contingent on substantial diligence efforts and just like that.

I think from our perspective, though, like our approach to that would be provided we can get confidence with— gain confidence in some of the initial conclusions that we have kind of around the treatment of that without having seen the CBAs. We will be better off just looking to step into the commercial services agreements in LA and New York and stay silent to the degree possible.

Until, you know, potential closing date, because otherwise the negotiation posture that they would be able to adopt might change.

Can I just like translate that into like plain language in my head? So like, I'm— there's a couple ways I think you could, or I was envisioning you could kind of get the savings on the union side. And like, one is essentially You go up to Balboa, which is our depot up in Sylmar. You essentially just shut the thing down, you move all the trailers off, you hire new people to accommodate the fact that you have a new volume in an Avon location. The Avon location is on— is non-union. That's how— that's how you get the savings. What you're describing to me sounds like you're actually going to come in, take over Balboa, continue to operate Balboa with the same labor, but just not honor the I don't know, I don't even want to say that, but like, essentially just like, it's like, hey, we're kind of operating this in a non-union way now because it's a third-party transaction, it's a change of control, and then just negotiate with the union around not, not operating it. Am I understanding that correct?

Like, I want to make sure I'm tracking. I would think about it as like trying to be realistic with how the union is going to respond to this. So I think What the initial path you described there of Balboa is now an Avon, we only rent cube trucks out of Balboa now and we are doing trailer maintenance somewhere else, which is kind of non-union. I'm like, okay, that's fine. We're still coming in to try to organize. They're going to try to organize regardless. I guess that's my point. And so, like, because of that, we would say that from this side of it, we think we will be in a worse position in that trying to be— I'm going to be candid. We think we'll be in a worse position trying to be reasonable and proactive with them.

Like, I'm just like, try to like reconfigure something on this side of it versus just like They're going to come regardless.

So yeah, I think you're right. I mean, I think we'd all probably, you know, agree, those of us who have kind of dealt with the union, is like, it's— if you kind of went to them before this transaction, it's like, hey, let's work out a deal, like, their posture is going to be very hostile and say the deal is you're honoring everything that I've ever gotten.

Yeah.

So I guess my question is like, and like, maybe I'm getting too specific or tactical in these questions, but like, you move into Balboa day one, you have workers there who are members of the union, even if you kind of get rid of half of them and the remaining half continue to do the work at Balboa, how do you— you just kind of change their payroll status and just say the union, hey, we're a new company now, we're coming in, we are not a signatory, these employees are no longer union, and like that, that's literally it?

Okay, so I want to I guess want to make sure that on this tactical piece of it, and as it relates specifically to Balboa, we would—

are you asking, are we taking the existing employees there and just converting them to treating them as non-union or bringing net new employees in?

Yeah, well, yeah, I mean, the way I read what you were saying was you were doing the first thing you said there, right? Was like, I'm taking the employees that are there, I'm going to kind of find efficiencies, and then I'm going to convert them.

So you're saying like it's—

we got to bring the latter to that.

That is what basically puts us into the world of this agreement that was in place is now once again in place. If we hire those people there to do materially the same thing at the same place, we are effectively like, yeah, by, you know, agreement in principle with whatever was already there.

Um, I would agree.

Yes, I think that Richard's approach to this would be we begin staffing up in advance of a closing to accommodate a lot of the work that would need to be done out of there, and then on day zero, there's a net new pool of employees And then you have, as we understand it, a 6-plus-month, the-longer-the-better clock that runs before you can really hire any of those people back if you need. Richard's got a pretty deep bench of, like, people he can pull from.

But I think even in this structure, what we know is that they are still going to come organized. And we're not necessarily— I think there's a separate conversation around this about how do you— what is our posture within that?

Because fighting it is not necessarily—

is a career-limiting move, or it's like, it's just like, what is it— what is it going to get you, more or less? Versus like, we think there's a pretty good chance that they probably vote it down because the composition of their staff is a lot of people who have sat for that song and dance before and said no.

That's very helpful clarification, right? Because like, not a labor attorney, right?

So I don't have any expertise here, but like, if something was— I'm not talking about it at all because it's like, I have no idea.

Like, you never know who's got an AI recorder running in the background that's like, here's this day at this time, you said, how do we bust this union?

No, yeah, no, I think fair to say that's something we'll need to talk with lawyers later on the proper way to handle. And ultimately, like in a sale, it's— there are going to be rules that govern this and we'll have to figure out what that looks like.

But yeah, and I think like there's the like whatever relationship dynamic with 399 and I think what is it, 817? Um, in New York. And then there's just like commercial terms, business piece of it, just like right now it contemplates us increasing the fleet staff, increasing our average comp per FTE in that team because we are modeling a worst-case scenario where we're wrong and they do get some type of white paper, or we meet them halfway on something and go kind of from there.

And so in the interest of time, should I pull up the—

Yeah, let's go to the structure piece quickly and then we can kind of round it out.

How are you guys on time if we go a couple minutes over?

I think that'll be fine with me. Yeah, I can go over a couple minutes.

All right. So Pretty simple from like a structure, high-level structure standpoint. It's a 721 tax-free reorg. In effect, the parties, us and y'all, we contribute on the MT side, we contribute the assets and operations. So think about that as effectively a wall-to-wall clearout. Everything, like all the assets and all the operations, liabilities and everything, they get contributed. The assets, and what will be an administrative nightmare but ultimately worth the pain in the long run, are contributed into a net new clean asset code that has a really big asterisk that depends on everybody's built-in game, um, and just kind of like the inter— like the entity structure, but As based off of the basis of what we know about us for the most part and what we assume, it's possible, but to be confirmed.

A lot of that gets kind of teased out in the current carrying value or book value.

And then new opco is we get rid—

like, it's trying to structure away the risk for both parties.

So whatever it's eliminating, ideally, is any successor liability that could arise from the transaction where you've got clean entities, you've got contributed thing.

You're having to set up a lot of net new stuff, but y'all's org, it's a hard stop on an ever cascading and increasing complexity org chart where you have like all of these different asset codes and op codes kind of floating around., and it's trying to get it distilled to as simple of a kind of org chart as possible. This is likely not the final product, right? Both from a, we don't know how the union piece could play out, there might be something there, and the aforementioned kind of tax considerations, um, otherwise.

But I would interpret this as the fewer entities in the fewer entities that we have kind of at play, the better and easier, um, from a reporting and, um, just, yeah, accounting standpoint.

But we have a very high confidence interval that a 721 is the kind of fastest and full-scale way to accomplish kind of those strategic existential requirements of the transaction, allows us to realize a lot of those cost savings that we've talked about day one.

And it shores off risk on—

it shores off a good amount of risk on both sides. It shores off at least a lot of any of the success or liability risk from there.

And so in effect, the parties contribute. And this is really like the entities that you kind of see here are our understanding of the org chart of like the relevant— like there was, for example, Starwagons had GRIP fleet and GRIP and lighting assets in it.

Yeah, there's some oddities and we— that org chart was like— I, uh, the ones that don't make sense like that, that it's insignificant, and I can share at some point like book value, but like it's, it's like there's not really light and grip in Starwagons effectively.

So there's $150,000 in VS Rentals OpCo. It's, um, it's, um It is what it is. But in effect, these are— it's maybe a blunt instrument, but the real headline here is 721 tax-free reorg.

This, like, as we've kind of discussed in the past, and it's— this is, I guess, the still to-be-understood piece of it. But this would have the HPP stake moving into a minority so that there is no kind of ongoing reporting requirements on a consolidated basis. In effect, the HPP piece of this moves to kind of that— it eliminates that earnings drag that Victor was talking about on their call today, um, in effect overnight. Um, what it doesn't have is I mean, like, it's still valuing this is just going to come down to like, what are we actually doing here? Because I think if you— and JD, maybe this is where you pick up, but I think this is still—

this is an easy structure.

What we do with it and how we get it to a place where there's a value component assigned to the parties is going to be an exercise. And it is one that I have felt extremely validated in talking with our professional services team because they are similarly like, I don't know what you do with that. Like, and we've talked through some of those, but from a high level, JD, maybe hit them with the frameworks that we kind of are thinking through and then we can follow up with another time.

Yeah, the, basically the valuation methodology that we're trying to use to come up with an initial terms for the deal would be what assets are HPP contributing to the deal, what operating, what assets are we contributing to the deal, as well as the operations that we're contributing and on an ongoing basis. Because if what HPP is contributing is a loss-making we don't necessarily ding it against the valuation, but we also don't want to shortchange that we are contributing a profitable enterprise and the intention of being a profitable enterprise because of what the assets are being attributed, are going to, into for the long term. So the idea being understanding what is the actual value of the assets that HP is contributing, that would kind of be the valuation or the membership percentage or the ownership percentage that HPP would be awarded in this. And then that can flex based on whether it's preferred or common, if there's some sort of rate of return hurdle that we're trying to hit or not, or the type of risk that we want to— that HPP wants to take on or see as an ongoing basis. Like, if HPP just wants to wash their hands of it and contribute the assets and have a small membership interest going forward, that would look one way versus if you want to potentially get more out of a profitable enterprise down the road if things go well and potentially contribute cash alongside to help support the interest or the whole operation rather than having to go to a third party to kind of inject capital in to make sure that all the transaction works. We can explore all those different options. The idea being, what is HP contributing today from an asset basis? Because from an operation basis, there's not a positive value being contributed.

So yeah, I think like, simply put, the— we want to figure this— we want to look at this without any consideration of a third-party capital partner here, like for two reasons.

It's going to give us our sharpest lens.

Like if we model like a $25 million injection in this, it's going to— I don't want to think blunt, but it could detract from kind of the cost-cutting austerity mindset that both parties have right now. If there's this kind of deus ex machina liquidity injection further, I think it puts us in our best negotiating position. I still stand by what I said last time. I do think a capital partner will ultimately be beneficial. But I think we're in a much better negotiating position if the parties can agree to a structure and a model, an operating model that works, and are then going out to do an abbreviated just kind of capital markets exercise, which we have line of sight to already. But I think what JD was really speaking to there that I want to be blunt on is that there's this there's been this kind of concept that we've talked about of like no ongoing, no ongoing responsibility for either the financial or operational risk and/or upside or participation in upside down the road. And on this, I would say that's really where we would want to understand value. Because I think that's an either/or. Like, either the parties are— either Hudson is wanting to, like, shore off wholesale comprehensively the risk and financial responsibility, or the parties— like, Hudson wants to participate in future upside. But I think that piece of that, there, there's this—

I think there's a missile additional clarification needed in the value that's actually being contributed there versus the amount of risk that's being taken on.

So yeah, and, and one, I think, clarification on that, you know, no ongoing financial responsibility. I mean, the goal is to— right now we've been funding operating losses, um, And maybe this is not an important distinction where the business is today, but like, just to clarify, I don't know if it's no ongoing financial responsibility. I think it's getting to a business that is at least break-even, you know, like that's not to say if combined there is profit and we have some share in that and we may reinvest in that, but the idea is like to minimize coming out of pocket. And everything's going to be viewed at relative to where we are today. So like, there's a lot of room for improvement over where we are today. That's not like no responsibility whatsoever. So I think that will be an ongoing dialogue depending on where we're shaking out with like these numbers and what it means from a contribution standpoint going forward. To kind of fund the rightsizing and let some of these obligations burn off if there's like a well-defined plan. Does that make sense at all? I mean, that, that kind of maybe just means that there's maybe more options than just it's got to be zero now.

But yeah, it's less of a binary black and white and potentially a spectrum of like options. Yeah, it does make sense. I would say that like we're trying, we're trying to approach this from like as holistically thoughtful as we can, understanding that whatever is represented in this transaction, you still have, uh, 20 stages at 53% occupancy with the grip and lighting division that also has a union agreement, and that's we don't believe that that entity is actually—

that entity might be break-even. I think based off of y'all's pro forma, stages plus grip and lighting is break-even, but it's not really for us to— it's outside the scope of what we're kind of talking about here.

But it is trying to factor that piece in.

We'll have to figure that out on our own.

Right.

But I think like there are some— there is not no consideration there because we are interested in exploring, I think, the West Hollywood stage.

But that would be, you know, subject to the same type of analysis that we have to do in all of these other segments. It's kind of starting to if it's, it's getting to a place where we are honing in on here's what works for the parties, here's how value is getting assigned, and staying focused on that. We're not trying to take credit for, um, whatever value this ultimately means for kind of HPP going forward, in the same way that we would not at this time think that the performance of the underlying assets under this superco operating structure is— what JD was saying there is the assets currently have a negative contribution margin. So we're trying— we're absorbing problems, as it's been described, pretty comprehensively and overnight. So putting some value quotient to that is where the crux of this now lies.

I think speed.

Like, I would say that we are confident that we can do this quickly. The hardest part of this, once you have terms locked, it really just goes into planning, like actual deep dive planning. There's a mutual diligence effort, but, and we're confident on that piece as well, but structurally this should shortcut a decent amount of custom or conventional or customary type things because entities as it currently sits aren't currently being contributed. So it's really getting an understanding for practices so much and less so kind of like what skeletons exist inside of Silver Co Enterprises LLC.

And there's a couple.

Or Hollywood Depot Rentals is the one that has my eye. Oh, that one. That one we structured away.

Yeah.

You're thinking about Walk and Talk Holdings Incorporated.

Maybe.

Maybe. Yeah.

Um, but yeah, and look, we have all that stuff already, but I think like we're kind of here at time. We have, um, we're gonna package a lot of this up and send it over to you. We have kind of like that what I talked about summary term sheet framework that we think it's worth setting some time to just go through to try and get this to a decision point as quickly as possible. I think whatever we can do to kind of be responsive to y'all's questions and additional questions as needed. Um, but from our perspective, we have pulled together kind of everything we need short of assigning kind of value, and that's the biggest hurdle to clear to get it to a decision of is this worth continuing the conversation on?

Yeah. Um, okay. Uh, yeah, will y'all send over what you shared with us today so that we can dig in on our own time a bit more on some of the assumptions in there? Yep. I will also circle back with some of the follow-up questions I mentioned up earlier. Uh, and then I think, you know, Sean and Pat and I can circle back internally with like some updated thoughts. And then, yeah, I think it would be good to regroup and talk more about that to figure out how to get this to a head.

Yeah. Well, do you want to go ahead and set a time or do you want to follow up with times?

Um, let us follow up with some times.

Okay.

Okay, appreciate it, guys.

Yep, thank you.

Thank you for the time.

Thank you.

Thank you.