Hi folks. I haven’t posted here before (not sure if I will continue, because I frankly don’t have the time to keep up with these boards), but I wanted to share a few thoughts given the reaction to the 10Q today.
For the sake of transparency, I’m in the red on my TLSS investment by double-digits and I’m not concerned by this 10Q. I’m long on TLSS and have been long since I bought in… which I fully admit is not typically wise with pennystocks, but every once in a while the environment is right for a calculated risk. I’ll go into that a bit more later.
Re: the Amazon agreement, it’s highly unlikely that TLSS – and most of the smaller, regional delivery vendors contracted with Amazon – truly negotiate Amazon’s contracts and rates. The agreement referenced in the 10Q clearly references the start date of the Term as being effective on the date of the click-thru. That tells me it’s a boilerplate agreement that Amazon uses for all small delivery vendors. I expect you’ll hear about other such vendors receiving the same notice from Amazon (another user here mentioned this as well), who likely wants to revise the rates unilaterally and prior to the stated Term’s end date. The idea that TLSS management is going to ‘renegotiate’ the contract with Amazon is kind of laughable. But so is the idea that anyone can state with certainty that TLSS' Amazon relationship is done. It's a fluid situation that likely applies to many companies, not just TLSS.
Amazon is big enough to do this and have those small vendors acquiesce because those smaller vendors do not want to jeopardize their future business with an eCommerce giant. However, if enough of their vendors take Amazon to arbitration, then Amazon may relent because it just isn’t worth the hassle and legal fees.
“But Amazon was 99% of TLSS’ business. This is horrible!”
First, if Amazon claimed TLSS has breached their contract and terminated it effective immediately, then yes it would be horrible. But that’s not what’s happening. Amazon is providing advanced written notification to TLSS – and likely other small vendors who signed their boilerplate contract – of their intent to not renew the existing contract past September. It does not mean that Amazon will not offer TLSS – and other vendors – a revised boilerplate that amends or otherwise replaces the previous contract prior to such termination date.
Secondly, John and company have acknowledged the need to diversify their client base to minimize risk, and they acknowledged that prior to Amazon’s notification with respect to the referenced contract. TLSS is not suddenly and immediately scrambling for business. They were already looking to expand service to new clients and have entered into partnerships / acquisitions / potential acquisitions (see MGN Logistics) to execute on that diversification. The worst case scenario is that the Amazon contract is not renewed after September, meaning TLSS still has 3 more months of Amazon business while they continue their already-ongoing efforts at expanding their client base.
“But TLSS is losing money!”
Yes, they are. So are most OTC companies and many, many companies on larger exchanges. The question is whether their debt is being leveraged properly, whether the company’s leadership can execute on a plan to grow its business while reducing costs, and if the environment is favorable within their industry.
I fully admit that my stomach has been doing flips watching the stock’s recent movement. Because regardless of your plan, your diligence, your understanding of the opportunity… you always ask yourself “what if I’m wrong?”. But as I look at the 10Q I’m reminded that all of my reasons for starting a position on TLSS remain unchanged. I didn’t buy into TLSS because they delivered Amazon packages. Traders see any PR that associates a company with Amazon and they swarm like piranha on fresh meat. That might work for day traders who get in early enough, but that’s a ridiculous strategy for any real long-term success.
I personally got into TLSS because:
- John Mercadante has demonstrated success with Coach USA, a company whose fundamental operations (vehicles, drivers, gas, routes, etc.) makes him well-suited to understand and lead at TLSS. Further, John’s success with Coach USA was achieved by employing a strategy of aggressive mergers and acquisitions. Not just a few, mind you, but over 70 acquisitions over a 3-year period. Yes, those companies were all smaller operations, but what it tells me is that John was successful at a) identifying those companies, b) closing those deals, and c) absorbing them into Coach USA at a blistering pace. This doesn’t mean that John will be 100% successful at doing this with TLSS, but I have confidence investing in someone whose vision and business acumen has been demonstrated, and done so with such velocity. I should also note that the steps TLSS executive team has taken to reduce debt and operational costs while pursuing this growth strategy is also welcome and should be more prominent in their Q2 earnings report.
- A successful M&A strategy is not just good for TLSS in a vacuum. The eCommerce sector of retail is exploding due to COVID, and even if that levels off when life goes back to “normal”, it will have established a new baseline because a) consumer shopping behavior will have been altered, and b) fewer brick & mortar locations will exist to provide consumers with local purchase options. There literally could not be a better time for a logistics company who services the eCommerce sector to consolidate dozens of small, regional, or boutique delivery vendors into a larger company with ‘last mile’ fulfillment capabilities. Such a company would have enough clout to ACTUALLY be able to negotiate with eCommerce retailers instead of having to click-thru on boilerplate agreements and be subject to terms that change unilaterally by their customers.
In short, I’m long on TLSS despite it being a pennystock because the environment is favorable, its management is proven, and its growth strategy is ideal to capitalize on the opportunities presented by this favorable environment. The 10Q does nothing to change any of that.
I should note that my opinion is subject to change if something does materially change TLSS’ outlook. I do not ‘have faith’ in TLSS. I am making a calculated risk with my money based on the information available to me. My optimistic assessment does not exist in a vacuum. I strongly suggest you draw your own conclusions based on your interpretation of the facts in accordance with your own risk tolerance and timeline for expected ROI.
