Heartland Express, Inc. Acquires Gordon Trucking, Inc.

I hope it works out for all you GTI guys been following you guys since Joseph1135 signed on good luck.

 

I think all trucks should have APU's installed, esp with all the anti-idling. There is no way a person should have to sleep in a hot or cold truck with what is available today.

 

No, joseph, but I am feeling vindicated big time. It is now public record in a corporate filing that Gordon's average run is 400 miles. Half above that, half below. You've been bumping heads with me almost since I started my narrative with braggadocio claims of big miles at Gordon.

I've dinged you back for misleading rookies and newbies, especially with regard to 0-300 mile stinker loads and short shrift OTR pay for local shag work, which you've denied. 400-mile average run, joseph. Corporate filing.

This morning in Bentonville, Wal-Mart top management wakes up with more eggs in one basket than they had yesterday before this announcement. Heartland/Gordon becomes 5th largest asset-based carrier in the US. The Gordons are out from underneath $150 million in debt they assumed in order to build the Mid-West infrastructure, as well as the Lathrop and Rancho terminals in CA, for example.

Cal Worthington (famous west coast car dealer with dealerships from CA all the way to AK) when asked how it felt to have such success, said that it feels like a small mouse running his little feet off in front of a big steam roller bearing fast down upon you, too far to escape to either side so you just run, run, run. Certainly the Gordons felt that way, too.

The Gordon's now hold a big chunk of publicly-held Heartland (NASDAQ, HTLD) stock and a lot less headaches. They get $110 million in cash now. Formerly debt-free HTLD needed a $250 million credit line from Wells Fargo to pull this deal off, pay the Gordons and operating capital to power this larger boat.

2,000 Gordon drivers wake up this morning wondering what of the Gordon legacy will remain and what will be lost. Heartland/Gordon expects to gain $30 million annual operating revenue (profit) from synergies from optimizing, selling assets and especially by reducing empty miles.

So we know things will change. The cooking of the Gordon omelet (you can't make an omelet without breaking an egg) has begun.

 

Conference call just completed. See slide presentation used at http://www.heartlandexpress.com/uploadedFiles/Investor/Investor Slides 11.11.13.pdf

Summary to follow...

 

Conference Call Summary

Corporate conference calls take a while, usually include a slide presentation and then a Q & A from the financial community. The HTLD/GTI conference call was no exception.

The purchase was made as an asset liquidation sale which gives HTLD at least $60 million going forward in tax advantages and up to $200 million, which all takes place over 10-15 years.

However, that means that Gordon as a separately functioning entity is gone. Not forgotten. The blue smurf trucks are not disappearing any time soon and one slide depicts the red, white and blue side-by-side in front of an American flag, a red Columbia, white International, and smurf-blue Cascadia.

It means that if you worked for Gordon, you now work for Heartland. Some GTI drivers will see no change for a while. The mantra going forward, though, is 'keep the best, get rid of the rest'. Except for drivers. Towards the end Gerdin said he told Steve Gordon that he didn't care if Bugs Bunny was on the side of the trailers as long as they kept GTI's drivers.

So I think HTLD recognizes that in the short term, GTI drivers aren't going to covet flying the HTLD colors. In order to receive the $30 million in operating synergies they need to keep Gordon drivers and they recognize the depth of experience--64% of Gordon drivers have over 5 years experience (not necessarily all with Gordon).

It was quickly pointed out that GTI does some things better than HTLD and HTLD hoped to learn from that. And also HTLD does some things better than GTI. Also that it would have taken 20 years to build on the west coast what GTI brought to the HTLD table in one day.

Brought to the table in one day, yes, but they have been working on this deal "all year." That was pointed out more than once.

 

Slide presentation: http://www.heartlandexpress.com/uploadedFiles/Investor/Investor Slides 11.11.13.pdf

The third slide provides an overview of the transaction that tracks with the press release. HTLD intends to pay off the debt it has assumed by 2015 to complete this deal. That's very aggressive.

HTLD CEO Gerdin and CFO Cosaert handled most of the HTLD financial and operations while Scott and Steve Gordon, sounding like equals to Gerdin and Cosaert, took the lead explaining facets of Gordon culture.

They pointed out that GTI grew through the recession, unlike most carriers, and there is a slide on that. HTLD is strong on the east; GTI is strong in the west. The combined HTLD/GTI will have 42% revenues from the west, 58% from the east.

GTI and HTLD are both short haul carriers and HTLD wants the 7% of GTI freight that GTI now brokers to outside carriers. Steve Gordon said they only work with carriers with a maximum of 2 alerts--which struck me as high. But HTLD wants as much of that freight as possible in order to reduce empty miles.

Slide 5 shows HTLD's strongly east US footprint, starting in 1978. Has west terminals in Denver, PHX and Dallas. (Gordon has a PHX terminal, so expect that operation and HTLD's in PHX combined into one.) HTLD runs 82% east, 18% west.

Slide 6 shows the combined HTLD/GTI system. GTI runs 77% west, 23% east. The balance is obvious. Overlaps exist in PHX, Columbus (where HTLD has a terminal, GTI a drop yard), St. Louis (where both have terminals--one will go bye-bye) and Mecklenberg.

Slide 7 shows GTI's markets and loads. Roughly 62% dry van, 16% dedicated, 14% reefer. The bulk of GTI freight (39.5%) is 100-400 miles and over a quarter (26.6%) under 100 miles. (Take note, joseph. This should end discussion and braggadocio. 65% of Gordon runs under 400 miles. Repeat: Over a quarter under 100 miles.)

15% of Gordon loads run 400-700 miles. 11% run 700-1000. Only 8% run over 1000 miles. Gordon is, was, a short haul carrier. Something I have been saying all along and received tons of flack over. Gordon is NOT a long haul carrier. 8% over 1000 miles. Because GTI was a privately-held company, claims otherwise could not be checked out. Just one driver's experience vs another. Enough.

Steve Gordon pointed out that GTI is not dependent on student drivers, who part 0f the 17% of Gordon driver force with one year and less experience. He described the trainer training academy and how students from CDL schools spend 4-6 weeks with a 5-year experience level trainer who has been Gordon trainer academy certified.

GTI has lower than industry-average driver turnover and less turnover than HTLD. HTLD hopes to learn from that. HTLD has not had a reefer fleet and GTI's reefer fleet will continue but probably not expanded near term. GTI also exceeds HTLD in better fuel mileage.

Slide 12 breaks out GTI drivers by experience. The largest, 64.5%, are drivers with over 5-years experience, then new drivers from CDL schools and with one year experience, 17.5%.

Drivers with 2 years experience represent only 8% of GTI drivers. You can extract from that Gordon loses 50% of those drivers it hired in at the one-year level. (No, wasn't discussed. The challenge to retain drivers was. The slide shows it, though. If you bring in 17% new drivers with one-year experience and you have only 8% with 2-year experience, GTI lost 9% who went bye-bye. Probably due to those short runs after all.)

Three year drivers represent only 5.7%, and 4-year 5.3%. So it's interesting that you have hiring at 1, 2, 3, 4 year level and the bulk 64.5% over 5 years experience. HTLD apparently hires only experienced drivers, has higher turnover than Gordon and similar percentage of senior, 5-year drivers.

 

Slide presentation: http://www.heartlandexpress.com/uploadedFiles/Investor/Investor Slides 11.11.13.pdf

Slide 12 shows Gordon top customers. (Funny, Con-way is shown near bottom. I assume that's a mistake!) GTI's relationship in the west with Gen Mills, Costco and Target brings new possibilities for HTLD in the east. GTI has 200-300 customers not now HTLD customers, which represents an opportunity.

Steve Gordon said he spoke to GTI's top 15 customers yesterday and they understood the synergy of the merger and congratulated it. Same for the financial industry reps during the Q&A, by the way. Lots of congrats.

This is HTLD's largest acquisition since 1992. In response to question whether HTLD would wait to complete this over the next two years answer was depends. HTLD 'always looking' at other carriers to analyze what they might bring to HTLD mix.

Gordon explained that freight demand has been flat this year, that west is busy now and 4th quarter has been busiest season in past. (He didn't say this, but think Thanksgiving and Xmas.) The second quarter has become GTI's new 4th quarter, busiest season.

Slide 16 shows HTLD/GTI new position as 5th largest asset-based trucking firm ahead of Knight and behind Werner. This acquisition combines strength in the east with strength in the west, Steve Gordon said.

CEO Gerdin said that since there were "fewer toll roads" in the west, growing the western US will be growth focus. HTLD intends to expand the GTI fleet, freshen with newer equipment. Teams will not change much. Now 3%-5% of HTLD and GTI. Gerdin said some loads miss the train or boat and teams rush those loads, not a growth area but not going away either.

Slide 17 shows GTI and HTLD operating financials with 90% operating revenues off almost a billion in revenue. HTLD wants to push that down to low 80s per cent operating revenues--optimizing, keeping the best, getting rid of the rest, etc.

Slide 18 shows 338(h)(10) election and tax advantages. Also means Gordon was liquidated.

Slide 19-20 show how HTLD/GTI plans to get down to 80s operating revenue. HTLD has 6:1 driver to non-driver ratio. Lean and mean. GTI has 3.5:1. So bodies on the GTI non-driver side will be leaving. HTLD will strive to keep GTI's driver force.

The combined fleet will have over 3,000 drivers with over 5-years experience. Pay levels for GTI will not change, focus on newer, expanded tractor and trailer fleet, plan to keep student program.

Slide 22 shows three tractors red, white and blue in front of American flag.

That's a wrap. You can listen to conference call for 30 days. Telephone replay will be available for 30 days beginning tomorrow by dialing 877-919-4059 (334-323-7226 international), access code 12686180.


/Oops. Late to my volunteer work in Bloomington. Snow still on the ground here in Indiana. Forgot to mention that HTLD runs PeopleNet and GTI runs with QualComm. The decision which to stay with will be made over time and probably go into effect as new equipment is brought on and older equipment retired rather than retrofitting.

/Gerdin also said that he had looked through 'hundreds' of GTI driver files, I presume in the due diligence phase of purchase.

 

Victor, I just completed a load that went from Rogers, AR to Woodburn, OR. That's not 400 miles.

 

Dont expect much more of that joseph.. I am sorry to say..

I hope to be proven wrong

 

It's time to give it up, joseph. Your miles don't represent GTI and never have. GTI was a short haul company with 25% of freight under 100 miles and 40% 100-400 miles. I surmised it a two-tier system and the 17% one-year drivers dropping down to 8% bears that out. Drivers don't leave jobs that pay well. You benefited from the peewee loads assigned to rookies and newbies.

A thank you is in order.

HTLD/GTI will likely keep the same driver strategy as GTI driver retention exceeds that of HTLD. HTLD/GTI remains a short haul outfit.

I'll cook you some crow, complete with feathers. Chew, joseph. Chew up.