Titanium eyeing ‘transformational’ acquisition
BOLTON, Ont. – With a healthy balance sheet and downward pressure on freight volumes and rates, the time could be right for Titanium Transportation to make a sizeable acquisition.
That was the message from CEO Ted Daniel, when he addressed analysts to discuss Q3 results Nov. 6.
“We have some pretty good dry powder at this point in time, which gives us a lot of ammunition to purchase either a couple smaller or mid-sized ones, or maybe something a little bigger,” he said. “To me, that would be the transformational opportunity I’m looking for.”
An acquisition could be as large as a 400- to 600-truck fleet, Daniel said, maybe even in the U.S. Valuations are becoming more palatable with pressures on rates, and Titanium has paid down debt and strengthened its balance sheet. An attempted acquisition recently fell through at the “11th hour,” Daniel acknowledged.
“It didn’t make sense to pull the trigger (after extensive due diligence),” he said. “It’s very important we remain disciplined with the risk, because of the soft rate and overcapacity environment. We can’t take unnecessary risks.”
When shopping for an acquisition, Daniel said Titanium is mostly likely to add a truckload van and/or flatdeck fleet.
Discussing results, Daniel said the third quarter was the company’s strongest of 2019 and it’s second best Q3 behind only 2018. But results were down from record-setting 2018.
Revenue slipped 4.8% year-over-year, to $42.7 million, and profitability fell from $1.1 million to $300,000. Year-to-date, Titanium has made $1.3 million in profit, compared to $4.4 million over the same period in 2018.
Daniel blamed an economic slowdown and softness in demand, as well as excess capacity in the market. However, the company has maintained profitability, largely because its truck transportation segment has contracts for more than 90% of its business, and contract rates have remained stable even while spot market prices plummeted.
The new U.S. logistics business, based out of Charlotte, N.C., was also a bright spot, exceeding revenue projections by 44% in its first months of operation. The company is looking to expand that operation, and has already selected a second U.S. location, soon to be announced. It could be operational by the end of the year, or early 2020.
“We view the U.S. as a large marketplace for us to expand in,” said chief operating officer, Marilyn Daniel.
Ted Daniel is not seeing signs capacity is tightening, however, as the market remains flooded with low-priced used trucks and trailers. Spot market rates have stabilized, but he said “They have kind of rock-bottomed, but are hovering horizontally now at the bottom.”
“What’s really encouraging to us, is we’ve been able to be profitable in all our divisions, given the current climate,” he said.
Marilyn Daniel said regulatory changes, such as the move to electronic logging devices and the U.S. drug clearinghouse, could reduce capacity next year.
“I look forward to regulatory changes,” she said. “I feel it’s elevating the industry.”
The company has also managed its driver pool well, and isn’t feeling the pinch of the driver shortage, Marilyn Daniel said.
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