LeeWay Services Targets U.S. IPO for Growth Efforts (Private:LWS)

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A brief introduction to LeeWay Services

LeeWay Services (LWS) has applied to raise $18.3 million in an initial public offering of its common stock, according to an S-1 registration statement.

The Company offers freight brokerage and related financing Services in the United States.

The cargo transportation business has been resilient but faces a potential downturn as the U.S. remains on the brink of recession.

I will provide a final opinion when we learn more information about the IPO.

LeeWay overview

Based in Salt Lake City, Utah, LeeWay was formed to offer a variety of freight brokerage services across the United States and has expanded to include e-commerce capabilities.

Management is led by CEO and President S. Whitfield Lee, who has been with WLP since its inception in 1984 and has founded a number of companies in various industry segments.

The company’s main offerings include:

• freight brokerage

• Dedicated Contract Carriage

• transportation management

• funding platform

LeeWay has booked a market value investment of $3.3 million in debt as of March 31, 2022 from investors including WLP Corporation.

LeeWay – Customer Acquisition

The company seeks customers of all business sizes who want the best pricing and execution for their freight needs.

LeeWay also launched its specialty finance business in 2019, targeting small and medium-sized businesses.

This business combined with its freight brokerage capabilities allows the company to offer e-commerce sellers a one-stop shop.

Sales and marketing expenses as a percentage of total revenue have decreased while revenue has increased, as shown in the following figures:

sales and marketing	Expenses vs. Income
Period	percentage
Three months. Ends March 31, 2022	0.7%
2021	1.7%
2020	1.9%

(Source)

The Sales and Marketing Efficiency Multiplier, defined as how many dollars of additional new revenue generated by each dollar of sales and marketing spend, increased 88.9 times over the most recent reporting period, as shown in the table below:

sales and marketing	efficiency rate
Period	Several
Three months. Ends March 31, 2022	88.9
2021	29.5

(Source – SEC)

LeeWay Market and Competition

According to a 2019 market research report by Grand View Research, the global road transportation market was estimated at US$2.8 trillion in 2019 and is projected to surpass US$4 trillion by 2025.

This represents a projected CAGR of 5.5% from 2019 to 2025.

The main drivers for this expected growth are the growing need for good transportation due to the growth of the e-commerce industry and improved technologies resulting in more reliable vehicles, better fleet management and lower operating costs.

Also, the breakdown of the US road haulage market by type is shown below:

US Road Haulage Market (Grand View Research)

Key contestants or other industry participants include:

• XPO logistics

• CHRobinson

• About cargo

• transfix

• Other freight brokers and financial services companies

Financial performance of LeeWay Services

The company’s recent financial results can be summarized as follows:

• Fast growing topline earnings

• Increase in gross profit and gross margin

• Higher operating profit

• Growing cash flow from operations

The following are relevant financial results arising from the company’s registration statement:

total revenue
Period	total revenue	% variance vs. before
Three months. Ends March 31, 2022	$12,233,724	166.6%
2021	$27,897,504	100.5%
2020	$13,911,540
gross profit (loss)
Period	gross profit (loss)	% variance vs. before
Three months. Ends March 31, 2022	$2,528,247	284.4%
2021	$4,372,235	115.1%
2020	$2,032,591
gross margin
Period	gross margin
Three months. Ends March 31, 2022	20.67%
2021	15.67%
2020	14.61%
Operating Profit (Loss)
Period	Operating Profit (Loss)	operating margin
Three months. Ends March 31, 2022	$900,385	7.4%
2021	$1,141,432	4.1%
2020	$139,804	1.0%
net income (loss)
Period	net income (loss)	net margin
Three months. Ends March 31, 2022	$900,385	7.4%
2021	$957,421	7.8%
2020	$58,578	0.5%
Cash flow from operations
Period	Cash flow from operations
Three months. Ends March 31, 2022	$167,494
2021	$190,880
2020	$ (907,844)
(Glossary of terms)

(Source – SEC)

As of March 31, 2022, LeeWay had $36,322 in cash and $8.8 million in total debt.

Free cash flow was negative ($7,370) for the twelve months ended March 31, 2022.

LeeWay Services IPO details

LeeWay intends to raise $18.3 million in gross proceeds from an initial public offering of its common stock, although the final figure may vary.

No existing shareholder has expressed an interest in buying shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

for proprietary technology development, acquisitions, general corporate and working capital purposes.

(Source – SEC)

Management’s presentation of the company’s roadshow is not available.

With respect to pending legal proceedings, management says that the Company is not involved in any legal proceedings that would materially adversely affect its financial condition or operations.

The only listed bookrunner of the IPO is ThinkEquity.

Commentary on the LeeWay IPO

LWS is seeking an IPO to fund its overall, unspecified business growth plans.

The Company’s financials show strong revenue growth, higher gross profit and gross margin, increasing operating profit and growing cash flow from operations.

Free cash flow for the twelve months ended March 31, 2022 was negative ($7,370).

Sales and marketing spend as a percentage of total revenue has declined as revenue has risen sharply and the sales and marketing efficiency multiplier has increased to 88.9x over the most recent reporting period.

The company currently plans not to pay dividends on its shares and expects to reinvest any profits back into its business expansion efforts for the foreseeable future.

LWS’s CapEx ratio sits at a low 0.99x, indicating it’s spending heavily on investments as a percentage of its operating cash flow.

The market opportunity for the provision of freight brokerage and related services in the United States is large, but is expected to grow moderately in the coming years and features significant, fragmented competition.

ThinkEquity is the sole underwriter, and IPOs led by the firm over the past 12 months have generated an average negative return (64.1%) since its IPO. This is a lowest performance for any major underwriter over the period.

The main risk to the company’s prospects is high inflation, which is dampening growth in freight volumes as the US risks entering a recession in the coming quarters.

As we learn more about the company’s IPO valuation assumptions, I’ll provide a definitive opinion.

Estimated IPO Price Date: To be announced.