The Money Edition

Welcome to the 68th edition of The LogTech Letter, a weekly look at the impact technology is having on the world of global and domestic logistics. Last week, I tried to historically contextualize recent moves by retailers to acquire 3PLs and asset-based providers. This week, I’m getting to the heart of the matter - what is actually revenue in the wild world of logistics?

As a reminder, this is the place to turn on Fridays for quick reflection on a dynamic, software category, or specific company that’s on my mind. You’ll also find a collection of links to stories, videos and podcasts from me, my colleagues at the Journal of Commerce, and other analysis I find interesting.

For those that don’t know me, I’m Eric Johnson, senior technology editor at the Journal of Commerce and JOC.com. I can be reached at eric.johnson@ihsmarkit.com or on Twitter at @LogTechEric.

Let’s talk money today. I want to dive into the sticky topics of revenue, profitability, transparent metrics, and vanity metrics, and what it all means in the big picture. First, a caveat: I'm not a finance person. Working out my personal monthly budget is a challenge, so asking me what makes a successful company tick? Not my forte. My primary role at the JOC is not determining which technology companies are going to be wildly successful, it’s whether a company is building/selling a product that addresses a need in the market. The chips will fall where they may from that point.

That said, there are some top line numbers that can tell a story, but the tricky part is determining what’s real and what’s not. Simply put, private companies have zero obligation to release any information publicly about their performance. They also have zero obligation to tell the truth about any information they do release. Of course, the chickens will come home to roost at some point. If you go on a podcast and say your revenue is $20 million and then sell your company a few months later, information could come to light suggesting the numbers were inflated. If you post on LinkedIn that your revenue is $100 million and then go public the next year, you can be sure that you’ll be held to account for the public metrics you released while private.

This isn’t so black and white either. Revenue in the world of logistics isn’t all the same. A dollar made by a forwarder is not the same as a dollar made by a data provider. A dollar made by a freight audit and payment vendor is not the same as a dollar made by enterprise SaaS vendor. There is pass-through revenue and direct revenue (pretty sure the latter is a term I just invented, but whatevs, you get the point). Pass-through revenue impacts intermediaries or payment vendors, in particular, since they are often collecting money from customers to pass it on to some other entity, such as US Customs or a payee.

Investors into the logistics space now have a better handle on those different categories of revenue than they did a decade ago (the ones that were learning about logistics as they invested into the space, that is; the ones who knew the space all along understood this implicitly).

But every once in a while, some developments come to light that bring into stark contrast what is and isn’t pass-through revenue, and also the extent to which private companies are beholden to be forthcoming with financials. Now for some feather ruffling…

In late November, SwanLeap was acquired by Transportation Insight. Terms of the deal were not disclosed, but according to a couple of sources, I’ve ballparked the amount it was sold at somewhere in the $15 million to $20 million neighborhood, on gross revenue of somewhere between $3 and $5 million of revenue (anyone with more firm information, please contact me and I’m more than happy to correct this). Why does this matter? Well, SwanLeap is a technology company - it’s not a digital intermediary. Transportation Insight described SwanLeap as a “a pioneering transportation management software company.” Which leads to a first question: how does $3-5 million in revenue for such a software provider translate into somewhere between a three and seven times multiple?

What’s more, how does the sale price, if I have it correct, square with this. According to this article, SwanLeap made $100 million in revenue in 2017, on course for $500 million in 2018? Let me step back for a second. I’ve interviewed CEO Brad Hollister a bunch and like him personally. He’s spoken at a JOC event. He’s demoed his product for me and makes a persuasive case. I’ve heard good things about the technology.

But SwanLeap’s revenue, as I understand it, was largely derived from its freight payment/audit product. This is but one small and anecdotal data point, but there are zero reviews of SwanLeap’s TMS on Gartner’s Peer Insights tool. That’s not to say a product review tool is the end-all, be-all here, but it also seems unlikely that a company with $100 million revenue in 2017, on the way to $500 million the next year, would have zero reviews in 2021. Another way to think about this: a company with $100 million in revenue, growing at an eye-gouging rate year-over-year, would have gotten the attention of the largest investors in the world.

“That’s like Slack growth,” as one source told me.

Why does this matter? Well, there’s an interesting parallel. project44 CEO Jett McCandless told me last Friday on LogTech Live that his company is nearing $100 million in ARR (the same amount SwanLeap said it had by 2017). project44 has a valuation of more than $1 billion. Both are SaaS companies, both catering to the logistics industry, so while project44 focuses on visibility and SwanLeap on TMS and freight pay/audit, it should be pretty close to apples-to-apples in terms of revenue-to-valuation (it should be noted that SwanLeap did not take venture capital while project44 most definitely has).

So that leads me to surmise that SwanLeap’s revenue back in the Inc 5000 list days was derived primarily from its payment and audit business. The revenue was pass-through revenue, money it collected from its customers to pay transportation vendors on their behalf. Whether SwanLeap pivoted to focus more on its TMS capability or not, that was never direct revenue and the characterization of it as such in the Inc 5000 list was misleading. I’ll save my distaste for such lists, and the amount of promotional babble they engender, for another newsletter.

But this all brings me back to project44. As noted in my interview with McCandless, project44 has been very forthcoming with its financial metrics. And there’s a reason for it, which he described here:

“The main driving factor is, we could file an S-1 in June of next year if we desire, and when you’re looking at being public, there’s a lot of rigor that’s required, and a lot of governance that’s required. And you want to get into a motion of beat and raise numbers. So what we’re doing right now is developing that muscle. So I want the team to be accountable and get into that motion and develop that muscle before they have to on a real public stage. So they know I’m going to continue to release numbers.”

Again, not in any way a perfect metric, but project44 has 81 reviews on Gartner’s Peer Insights, for comparison. The bigger picture is this: revenue for private companies in the logistics technology world has to be considered along two dimensions. First, whether or not the revenue is pass-through or direct; and second, whether the numbers are likely to be verifiable in the near future (through an imminent public offering or a sale in which revenue numbers are likely to surface and be independently scrutinized).

For companies not exposed to examination via those two means, their public proclamations of revenue growth need to be taken with a grain of salt. It doesn’t mean the numbers they say aren’t true, or that their company isn’t valuable, or that their product isn’t really good. It just means that without the context of pass-through versus direct, and without the validating factor of a looming sale or IPO, there’s really no way to independently confirm those numbers.

Here’s a roundup of recent pieces on JOC.com from my colleagues and myself (note: there is a paywall):

• The Federal Maritime Commission is diving into the murky depths of data coordination and standardization in an attempt to unkink international supply chains that touch US shores. In a first meeting on the project, the scope of the challenge started to take shape.

• Another week, another bit of visibility news. This time Transporeon has added ocean visibility specialist Logit One, which it will integrate with its Sixfold acquisition from fall 2020. Of note, Transporeon has also partnered with sensor-based visibility provider Roambee. Consolidation in the space continues, as does venture investment on the other end.

And here are some recent discussions, reports, and analysis I found interesting:

• Shifl CEO Shabsie Levy with some interesting, if radical suggestions for reworking ocean freight regulation away from the imposition of general rate increases and peak season surcharges.

• I spoke to the Delmarva Winter Freight meeting earlier this week about our LogTech Map and also areas where logistics technology aimed at the private market might bleed into public uses.

• Had a fantastic time chatting with Bryan Most and Don Davis at NYSHEX for their Supply Chain Secrets podcast.

TPMTech Session in Focus:

From now until TPMTech in late February, I’ll be spotlighting a different session at our upcoming event, to be held Feb 24-25 in Long Beach, Calif. I moderated a webcast in mid-November about the challenges facing the port community in addressing skyrocketing detention and demurrage costs. I also wrote recently about the role technology can play in helping importers and drayage operators find empty return appointments. Which is a good lead-in to a discussion with three technology providers at 10:10 am PT Feb 25 during TPMTech about how technology can solve larger issues in this domain. This session is the most tactical one on the program, but it felt like an area that needed to be addressed directly in light of growing unrest about the amount being assessed.

Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.