Brian Holland, the CFO and president of Fleet Advantage, a truck leasing and big data firm, was trying to put his finger on what it means to be a finance chief at the kind of fast-growing, sales-driven companies that have employed him over his more than 20-year career. And then he thought of something a former boss had said to him: “You’re one of the few bean counters that I can even stand to be around.”
Holland still doesn’t know whether that was a compliment or not. But for him, the exchange “really highlights the challenge faced by a lot of CFOs and financial executives — which is, how do you make yourself relevant within an organization?”
Traditionally, the finance function has been relegated to keeping score, according to Holland. “I’m very operational minded, very entrepreneurial spirited, and so I want to be involved in helping to drive the future of the business” rather than just overseeing finance, he says. “You bring a lot more value by being outside of the financial domain.”
To him, that’s meant involving himself in Fleet Advantage’s business development efforts. Essentially, the firm originates and manages the leases of large, long-haul, tractor-trailer fleets. Via the analysis of big data largely gathered from electronic, on-board computers, the firm tries to cement long-term relationships with its clients.
The firm uses data to buttress a contrarian business model. Instead of the more common approach of encouraging clients to drain every last mile out of the trucks they lease, the company contends that buying new vehicles earlier in the lease cycle can be cheaper in the long run because maintenance and fuel costs will be less.
Instead of the traditional seven-to-ten year lease term, the firm thus uses its analytics to push a three-to-four year term, repeated as many times as possible. But lessees can exchange old trucks once they reach what the company calls an “economic tipping point,” regardless of when that occurs in the lease term, and pay no early termination fees.
Such an arrangement requires a lot of client hand-holding, and Holland does a bigger share of that than many finance chiefs do. Many of the executives he deals with at lessee firms are either in finance or treasury, and his position as CFO provides him with more credibility than that of a salesperson. “I can talk to a CFO or a treasury analyst because we wear the same uniform,” he says. About 20% of Holland’s time is taken up with customer interaction.
Less surprisingly, more of the finance chief’s time — about 40% — involves putting together syndicated financing to back the company’s leases. That involves both managing banking relationships and negotiating deals that have a large amount of leeway to support the flexibility of the leasing arrangements.
In a press release, Fleet Advantage gives Holland, who joined the company in Jan. 2011, credit for being “a driving force” behind the company’s rapid revenue growth and what it sees as the success of its business model. From 2010 through 2014, its annual revenues grew from $40 million to $240 million. In a recent interview with CFO, Holland detailed how the firm’s use of big data and the revenue and tax advantages of its business model. An edited version of that conversation follows.
How would you describe your company?
Although technically we’re a specialty finance company, we’re probably better described as an information technology company that’s focused on business intelligence. And so we use data analytics to help private fleet operators make better decisions about their fleets.
What’s the special sauce of your program?
The real basis of the program is the ability to upgrade the asset to newer technology. You get a newer truck with newer safety features and new technologies. More importantly you’re getting better fuel economy. For example, let’s say you buy a truck today that costs $100,000, and your lease payment is $1,500 per month. Three years from now, with inflation, that same truck may cost $110,000.
Ordinarily, you would think that that’s not good because your cost has gone up. But by getting a new truck with better fuel economy, you may be saving $500 a month in fuel and $100 a month in maintenance. So your net cost has gone down fairly dramatically, and you have all the intangible benefits that go along with having a new vehicle.
Describe how you gather and use big data.
For us, that means taking disorganized data from disparate sources, aggregating it into a comprehensive format, sifting through the data to find what’s relevant, and then putting that into actionable intelligence for our clients to use in making better decisions.
We gather information from their on-board computers and from a variety of industry sources. We use that to help benchmark and measure their performance and, more importantly, to reduce their overall costs.
How do clients use the data and analysis you provide?
Many private fleet owners view their transportation group more as a customer-service function and a cost center, rather than as a profit center. What we do is give them the tools to be able to manage it as a profit center, to have a P&L for every particular truck so they can use that data to reduce costs.
Doesn’t it cost more to buy a new truck rather than get the most value out of your existing vehicle? Traditionally, the [equipment leasing] industry has focused on what we call ‘functional obsolescence.’ That’s what they taught us in school. The longer life you get out of an asset, the better off you’re going to be. Well, with the improvements in technology, that’s not necessarily the case. If you can improve the efficiency of the asset and focus on the overall cost, then it may make more sense to run a shorter life cycle.
The focus is looking at the fuel economy and the cost of maintenance in the context of the cost of the asset. Fuel accounts for about 70% of the cost of operation.
How do you benefit by providing clients with these analytics?
Our model allows us to provide value-added services to our clients. We originate the lease, but it really is a continuous improvement model. Instead of just starting a lease and sticking it in a drawer and leaving it there for the term of the lease, which sometimes might be three to five years, we work with our clients every month. It benefits us by enabling us to continue to grow the volume with them.
What kinds of big data services and tools do you provide clients with?
For each customer it’s different, but there are some standards. We equip all of our trucks with an on-board computer, which provides a lot of information. Most clients will use that for logistics and route optimization. We use it to track a variety of different things in the engine: idle time, the amount of time spent in each gear, fuel efficiency, and mileage.
And so we take all of that granular data and summarize it. It gives our clients the ability to manage that across their fleet, to do comparisons between different locations and to actually make improvements in the performance.
And they don’t pay any extra for all of this?
We include our service fees in the cost of the equipment.
Do you, as the lessor, gain tax advantages through these arrangements?
One of the benefits of leasing is that you transfer the benefit of the tax advantages from the lessee to the lessor, which is one of the ways that you reduce the overall cost. So as the lessor we enjoy tax benefits. [The customer gets] the benefit of the tax benefits through a lower lease payment.
Does encouraging your clients to assume shorter lease terms give you a greater tax advantage?
The shorter the lease term, the better the tax advantages. Included in our arrangements is a Section 1031 exchange [provision] which perpetuates the tax benefits inherent within the lease.
How does Section 1031 work for you?
It allows you to exchange one asset for a like-kind asset. By utilizing that like-kind exchange at the end of the [shorter] lease rather than having to pay the tax on depreciation recapture [on the longer lease], you perpetuate the tax benefits in the lease, which reduces the overall cost.