Dynamex Inc. (DDN)
Interview with:
Rick McClelland, President and CEO
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same-day delivery and logistics services in the United States and Canada.

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Dynamex – everything we pick up today is delivered today throughout the US and Canada

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Transportation
Trucking
(DDN - Amex)

Dynamex Inc.

1870 Crown Drive
Dallas, TX 75234
Phone: 214-561-7500


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Rick McClelland
President and
Chief Executive Officer

Ray Schmitz
Chief Financial Officer

Interview conducted by:
Lynn Fosse
Editor

CEOCFOinterviews.com
May 2003

BIO:
Rick McClelland is President, CEO and Chairman of the Board for Dynamex, a leading provider of same-day transportation and logistics services in the United States and Canada.  Rick has 30 years of direct industry experience.

Company Profile:
Dynamex Inc. (AMEX: DDN) is a leading provider of same-day delivery and logistics services in the United States and Canada. From headquarters in Texas, Dynamex directs a rapidly growing transcontinental network of 50 operating locations in key markets in both countries. Dynamex offers a range of same-day transportation and distribution services for clients of all sizes and needs. The Company provides services within cities, between cities and between countries. When their clients require a seamless national or international network of transportation and distribution services, Dynamex will partner with other providers anywhere in the world.
 
The Company offers the highest level of professional customer support, the latest in communications and information management technology and the assurance that you are doing business with a financially solid, well-managed, visionary enterprise dedicated to growing stronger, larger and better - to be the leader and the standard for excellence in the industry. Scheduled deliveries can include: bank deposits, mail pickup, delivery routes, inter-office correspondence, payroll delivery, shipment overload, or whatever you can think of that requires us to repetitively perform a delivery.

Services:
On Demand - the pick-up and delivery of time sensitive goods, 24 hours a day, 7 days a week.

Dedicated Fleet - Dedicated Fleet is right for you when you need extra vehicle capacity to perform deliveries or you don't want to be in the equipment management and delivery business anymore! Many of Dynamex’s Scheduled Fleet Customers come to them to reduce their costs of recruiting, training, insurance, fuel, maintenance and asset management.

BioTransport - a division of Dynamex, which for the past decade, has served as the Chain of Custody for many of the nation's largest labs and hospitals. From the moment a biological specimen leaves its point of origin, all transport and handling must meet OSHA requirements for packaging and handling procedures. With online and direct reporting, a BioTransport process is logged in detail from pick-up to proof-of-delivery.

Expedite - the service to use when your same-day shipment has to span the continent or the globe NOW. With online access to flight information, Dynamex’s system reports the detailed flight information and status changes to your shipment. From pick-up, all the way to completion and proof-of-delivery, we provide you with timely updates to keep you informed.

Facilities Management - Facilities Management provides outsourcing and internal messenger services. Dynamex can staff and manage mail, copy and reception centers, including shipping and receiving as well as other related support functions. This cost saving alternative enables the Company’s customers to focus on their core business while using Dynamex’s expertise to run their office services.

Call Centers - a core competency of Dynamex, offering expertise in managing large volume call centers. With proven experience supporting Fortune 500 companies, Dynamex has the real world experience to implement and manage your customized call center solution.

dxNow - When Dynamex started looking for something that would make them stand out from the rest of same-day transportation industry, they did something unique. They asked their Customers what they wanted. Overwhelmingly Dynamex customers said that they wanted to place and track their orders online. They wanted to receive status updates as the delivery was underway and they wanted to have a way of communicating with Dynamex that would not involve waiting on the telephone.

CEOCFOinterviews: Mr. McClelland, please give us a brief description of Dynamex and what you offer?

Mr. McClelland: “We are a provider of same-day transportation services. We are largely a courier company in that most of the shipments we handle are seventy pounds or less in weight. Everything we pick up today will be delivered today, which is the thing that would most differentiate us from a company like Federal Express, or United Postal Services. The shipments that we move are often local shipments moving between two points in the same city. Our services also include inter-city offerings such as a shipment which needs to move between New York and Philadelphia on the same day. This also includes same-day air services.  For example a client may ask us to pick up something in Washington D.C. and put it on the next commercial flight to Los Angeles. The common theme is, everything we pick up today, we deliver today. In addition to our on-demand services, we also provide local distribution services and fleet outsourcing services.  These services are used by clients that have a lot of volume to move from a distribution center to delivery locations generally within a 50 mile radius. Customers within a fifty mile radius would use our distribution services or they may even outsource their entire private delivery fleet to us.”

CEOCFOinterviews: Is there a typical customer for Dynamex?

Mr. McClelland: “Customers use us to move various types of materials, such as documents, architectural drawings, medical specimens, blood samples, pharmaceutical supplies, auto parts, computer parts and software. We would move exactly the same menu or list of commodities as our competitors, the only difference is that when a company uses us, they are going to get delivery within minutes or hours as opposed to overnight.”

CEOCFOinterviews: What is the cost basis for same-day delivery compared to overnight?

Mr. McClelland: “The cost basis for our same-day on-demand service is driven by weight, distance and speed. A 100 pound shipment that has to go fifty miles in ninety minutes is going to be more expensive than an envelope going across town in four hours. In some cases our service is slightly more expensive than an overnight courier service, but it is much faster. The overnight people do participate in a local courier space, but they are doing it on an overnight basis.

Inter-city services are expensive. The average price may run from one-hundred to five-hundred dollars, but we will move it between two cities in hours, while the major players move it overnight. We move medical specimens or medical equipment that are required for a critical surgery situation or repair parts for an assembly line that shut down.  A shut down like this can cost the manufacturer as much as ten thousand dollars a minute to have that assembly line down; therefore, paying us five-hundred dollars to assist in fixing their problem is extremely cost effective.”

CEOCFOinterviews: How does the business break down in terms of the on-demand service and fleet management?

Mr. McClelland: “We get about 50% of total sales from our on-demand services, and the other half of our business is equally split between local distribution and vehicle outsourcing.”

CEOCFOinterviews: Do you see that mix changing, and would you like it to change?

Mr. McClelland: “We see it changing because the distribution and vehicle outsourcing opportunities are larger than the on-demand opportunity. This is the fastest growing part of the business and we think that trend will continue.”

CEOCFOinterviews: Where are you located geographically?

Mr. McClelland: “We are headquartered in Dallas. In the United States, we are in most of the major markets. On the west coast we are in Seattle, San Francisco, Los Angeles, San Diego and we are also in Phoenix and Denver. In the central part of the country, we are in Chicago, Minneapolis, Kansas City, Memphis and Dallas, and we have a small presence in Houston. In the eastern part of the U.S., we are in Columbus, Boston, Hartford, New York, Philadelphia, Pittsburgh, Baltimore, D.C., Richmond and Atlanta; we also have a small presence in the Florida market. In Canada, we are basically wall-to-wall, coast-to-coast in all major markets and all secondary markets. We derive two-thirds of our revenue from operations in the U.S., and one-third of our revenue from our operations in Canada.”

CEOCFOinterviews: Do you expect to expand geographically in the United States?

Mr. McClelland: “Yes, we will establish a stronger presence in Florida, Texas, and probably Buffalo and Detroit. We would like to establish a presence in St. Louis at some point and Indianapolis.”

CEOCFOinterviews: Is there much competition for same-day delivery service and why are people choosing you?

Mr. McClelland: “We face a lot of competition from the local ‘mom and pop’ companies; these are the small privately held, local delivery companies that do essentially the same thing we do in terms of the point-to-point local on-demand service. There are about five thousand of these small delivery companies in the United States alone, and usually hundreds in each major market like Atlanta, L.A., and New York. In terms of why they would choose us over these other companies is because the most important part of our differentiation is geographic coverage. For a large Fortune 100 company that operates in twenty cities, there is a tendency for them to prefer to consolidate vendors and use a company like ours.

We are very distinct in terms of operating on a national basis in Canada and the United States and having a comprehensive service menu and technology that is very unique. Our key point of differentiation is national capability and experience in starting relationships and managing relationships with regional and national accounts. Our technology is leading-edge in the same-day transportation industry. Clients can use our technology to book orders, change orders, get price quotes, pull down data related to cost and performance. They can use our technology to get e-mail notification of pick-up and delivery and communicate with us in a variety of ways.

Another point of differentiation is that all of our drivers are uniformed and bonded. A key point of differentiation and no-doubt the most important thing that separates us from most of our competitors is the level of experience and tenacity possessed by the people that operate our business on a day-to-day basis. Everyone here is very knowledgeable with respect to our industry, and approach the business and our competition very vigorously.”

CEOCFOinterviews: How has the state of the country and the heightened security affected your pickup and delivery and your operation in general?

Mr. McClelland: “It has been pretty problematic in Washington D.C.. Security is very tight there and has been since the initial anthrax cases, which makes it difficult to move around there as efficiently as before. There is not as much business there and what is left is more difficult and costly to handle. The current economy has made the business environment challenging for us just as it has been challenging for virtually every other industry. Companies aren’t selling as much product as they were a year or two ago, so they aren’t shipping as much as they were. You have less volume moving and you have companies that are watching the nickels and pennies and trying to find ways to use premium priced services, like our on-demand services, as little as possible. We have a strong value proposition; despite the challenges in the operating environment right now, Dynamex is growing, and profitable. Cash flow is very strong. Although 2002 was a down year, we managed to reduce our outstanding debt by 30% and the business is quite healthy.”

CEOCFOinterviews: Your strategy appears to be working.

Mr. McClelland: “We believe the strategy that we have is a good strategy and we are getting the results we had hoped to get even in a down economy. Our structure is thin and lean; we are a nimble company with a good and flexible cost structure, good geographical coverage, the largest sales organization in the industry, as well as a comprehensive service menu and great technology. We are out there leveraging all of those things in the marketplace with good success.”

CEOCFOinterviews: When you do fleet management, is the cost of fuel something that you are able to pass on, and how does the fleet management program work?

Mr. McClelland: “The fleet management program works by us identifying companies that are currently operating their own private delivery fleet and showing them that the hiring, routing and dispatching of drivers is a core competency of ours, and not theirs. For example, in the office-products business, it is not very difficult for us to show them that we can do a better job in terms of recruiting, background checks, managing, dispatching, routing and controlling drivers. The customer achieves the administrative benefits of outsourcing and they may also save money. We design install, and manage the system--drivers and vehicles. Regarding the question about fuel; yes, generally speaking, if there are important spikes in the cost of fuel as there have been in the last few months, that is something that we would typically pass on to the client.”

CEOCFOinterviews: You are able to track everything online, is that something new?

Mr. McClelland: “In 1998 we created dxNow which is the online ordering, tracking and reporting tool for Dynamex. dxNow allows our customers real-time viewing of their order status.  Dynamex was the first in the same-day industry to offer this technology to customers.  This was beneficial because historically drivers were communicating with their dispatchers using two-way radios. That wasn’t an especially good process in the sense that drivers spend a lot of time outside their vehicles and by the time they received their message for changes or updated the delivery with dispatch, it was long after the job was done. Today, with cell phone technology and two-way mobile data units, it has become much easier to communicate and therefore more useful to customers. The dispatchers are sending the information related to the client requirements to the drivers that may have a hand-held Nextel unit. The driver can then update the status on the shipment, and that information can be passed on instantly and automatically to the client through the dxNow capabilities.  It is very fluid, it’s real-time and it works great!”

CEOCFOinterviews: There is information on your website about facilities management and call centers. Do you have many other ‘irons in the fire,’ and can you tell us what may be coming up?

Mr. McClelland: “Facilities management largely relates to mailroom management or what we call ‘courier intercept operations.’ This is where a client may decide that they want to outsource their mailroom operations. That could entail three people or thirty people. Our mailroom service involves receiving, sorting and delivering envelopes and packages. The service allows us to get visibility on the origins of the shipments coming in, as well as their destination. Ultimately, we will hopefully do the deliveries. The courier intercept operations are a similar scenario. For example, a property manager of a large office tower in downtown Chicago, Los Angeles, or Toronto does not want several overnight or same-day courier companies coming into the building and moving around in the elevators, delivering envelopes and packages to the various tenants in the structure. They don’t want that to happen because of image and security issues. Their preference is to have uniformed people who have been cleared through security be the primary group moving around the building delivering packages. Therefore, all of the delivery companies that have product for that tower will bring it to us and we sort it by floor and by company. Our uniformed people will move the product inside the building.

CEOCFOinterviews: Do you own the trucks?

Mr. Schmitz: “No, we do not own the trucks; one of the advantages that we have is that we are not capital intensive. If you look at our balance sheet, all we have is cash, accounts receivables and goodwill, at least on the asset side. We do have some minor fixed assets that relate to our IT infrastructure, leasehold improvements and furniture and fixtures. All vehicles are supplied by our drivers and they bear the cost of operating those vehicles. We pay them a percent of what they deliver, so that offsets their cost which is where they make a profit.”

CEOCFOinterviews: Do you see acquisitions as part of your future strategy?

Mr. McClelland: “Yes. We did about seven deals in 2002, and largely these were distressed companies. We were fortunate enough to step in and buy their customer list and thereby increase market share. These are low-risk deals that are cash flow neutral and earnings neutral.

CEOCFOinterviews: What are your biggest challenges ahead and how are you prepared?

Mr. McClelland: “Organizational development is probably the biggest challenge. We are a young company; we are in our adolescent stage in the United States, having begun operations here in 1995. In Canada, the company has been operating for almost twenty years. We have almost 6,000 people working inside the company on a full-time basis. We have grown quickly, and we are always working very hard on the organizational development issues, such as attracting good people, training and development, succession planning, management development and HR systems. We have a big opportunity. We are the largest provider of same-day on-demand transportation services in America, yet we have less than 4% market share. The challenge is to build infrastructure vigorously as we go looking for new customers.”

CEOCFOinterviews: In closing, what would you like to say to shareholders and potential investors?

Mr. Schmitz: “The thing that we offer as an investment opportunity relates to several things. First, we are a variable cost company at the gross margin line. We pay our drivers and messengers a percentage of the total that we bill our customers, therefore we know when we make a delivery what our direct costs are going to be. That model was followed throughout our acquisition program and with all of the entities we have acquired since 1995. The second point is that we have a fixed cost infrastructure. We can increase our sales volume at a faster rate than we would increase our overhead costs. For example, we have the physical locations, the data systems, the management and the administrative people in place today. If business picks up a great deal, we would have to add some more people, but not nearly as quickly as sales increase.

We generate significant cash flow and are paying down debt very aggressively. We will continue to do this until we retire the bank term-loan and the unsecured portion of our bank debt.  We will have that done in the next two years, so from that standpoint we have done extremely well. We have reduced long-term debt from almost fifty million dollars about three years ago, to slightly over twenty-seven million dollars at the end of our last quarter. And lastly, our business has performed extremely well in some difficult periods. I think that our potential investors should look at how well we have performed in a down economy and the fact that we have always been cash flow positive.”

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