Camp, Henry Investing With TOC Part 2-FINAL

TOCICO 2014 Conference
Investing with TOC

Part 2
(Early Results)
How terrible is wisdom when it brings

no profit to the wise.
Sophocles c. 450 BC
Presented By: Henry Fitzhugh Camp and Brian Delfield
Date: June 10, 2014
2014 TOCICO. All rights reserved. 1
Presentation Summary (in reverse order)
4) Your questions
3) Details of the company
2) Examination of preliminary results
(Top Line to bottom line in 2 years)
1) Review of TOC Equity Partners Alpha rationale
and guidance
2
2014 TOCICO. All rights reserved.
Exploiting the secret (Review)
This is normal
Use TOC
Demonstrate
Make money
Leave bread
crumbs
Pull, dont Push
3
Summary (Review)
Until TOC becomes the way, use the secret

Buy companies Improve Sell Repeat
Get as much debt leverage as you can finance
Use the TOC Distribution Solution to either
quickly reduce inventory and pay down debt or
Produce capital to buy more companies
There is plenty of money chasing deals
They are eager to invest in safe lucrative deals
TELL ME HOW YOU DO!
4
Summary (Review)

TELL ME HOW YOU DO!
5
Summary (Review)

TELL ME HOW YOU DO!
6
Hawkeye Engine Services
Around Christmas 2012 we bought 51% of Hawkeye

Buys commercial aircraft engines
Tears down the engines
Sells the parts
7
Hawkeye Results (year 1)
8
Hawkeye Results (so far)
Time axis: Year +

Quarter
The Blue dotted
line shows when
TOC-EP bought
control of
Hawkeye
Red is the cash
flow generated
(left axis)
Green is the # of Chicago

Presentation
employees
(right axis)
9
The Red Curve is

profit growth
The Green Curve
is Complication
Chicago
Presentation
10
2014 Q1 was
spent finalizing
the $30m deal for
6 planes
Minimum earnings
for Q2 equal
2013s whole year
Q3 will be bigger
still, maybe 40x
the 2012 baseline
Chicago
Presentation
11
Baseline Example:
Buy a CFM56-7B (Boeing 737 engine) for $2.3 million
Sell parts over ~4 years for $5.5 to $6.0 million
12
Natural reluctance to buy a $2.3 million engine to get a $10,000 part

Fast selling parts are in worldwide shortage
Slow selling parts are in worldwide surplus
13
TOC perspective:
The company is financially constrained:
Previous owners provided capital
One owner ready to retire
No bank line of credit
Searching for capital
14
TOC perspective:
The company is financially constrained:
Previous owners provided capital
One owner ready to retire
No bank line of credit
Searching for capital
Decision of how to exploit the constraint:

Change guiding metric from profit per engine to profit per quarter
15
Subordination:
We become willing to flip engines
Lower margins
Engine holding period cut in half
16
Legitimate pressures
Dont want to write off parts later that never sell
Dont want to pay taxes before we have to
Logical actions:
Accelerate the write off of the cost of the engine
80% of the selling price of parts sold are considered COGS
After a engines cost is fully expensed, remaining parts have no cost
Consequences:
We believe our own BS that slow sellers have no cost
We wait indefinitely to sell slow movers at a good price
Money that could be used to buy another engine remains in stock
17
Subordination:
Lower margins
We aggressively sell parts with no value to recover cash
18
Subordination:
Lower margins

We established a Supply Buffer of planes and engines
19
Subordination:
Lower margins

We hired Ballistix (Justin Roff-Marsh) to build us a Sales Machine
20
Three categories of parts:

STEAM Super fast movers
WATER Readily sold parts
ICE Parts that provide good margin over time
21
Subordination:
Lower margins

We hired Ballistix (Justin Roff-Marsh) to build our sales machine
All subordination efforts simply reduce our cash to cash cycle
22
Conclusion
Especially while TOC remains a secret:

Raise money to buy good companies
Share with partners who are good at
what you aint
Multiply your money
Do it again!
Questions? 23
Your Presenters
Henry Fitzhugh Camp is a co-founder & CEO of IDEA

Camp is an ex-professor with 30+ years experience in distribution and supply
chains. He is a practical entrepreneur who has largely moved from consulting
into private equity, using TOC to enhance the value of portfolio companies.
He is a Louisville, Kentucky native and earned a BA in Mathematics from the
University of Virginia and is a world-wide authority in Theory of Constraints
Replenishment.
When in doubt, choose the less efficient alternative.
Brian Delfield is an entrepreneur and investor who finds hidden value

Delfield uses TOC to grow top line sales and explode bottom line profits.
Being a former, and very unconventional, Big Six CPA, Senior Executive, and
TOC guy who spent 20+ years successfully running businesses across a
spectrum of industries and niches, he now leverage his deep "operator" and
TOC expertise with his own and others capital to buy and build return on
investment machines.
Along the way, and just for funHe teaches, colleagues, associates and
friends like you some of his TOC-inspired business building
24 ideas.

Camp, Henry Investing With TOC Part 2-FINAL

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Camp, Henry Investing With TOC Part 2-FINAL

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TOCICO 2014 Conference

Investing with TOC

How terrible is wisdom when it brings

Until TOC becomes the way, use the secret

Until TOC becomes the way, use the secret

Until TOC becomes the way, use the secret

Around Christmas 2012 we bought 51% of Hawkeye

Time axis: Year +

Green is the # of Chicago

The Red Curve is

Natural reluctance to buy a $2.3 million engine to get a $10,000 part

Decision of how to exploit the constraint:

We aggressively sell parts with no value to recover cash

We aggressively sell parts with no value to recover cash

We aggressively sell parts with no value to recover cash

Three categories of parts:

We aggressively sell parts with no value to recover cash

All subordination efforts simply reduce our cash to cash cycle

Especially while TOC remains a secret:

Henry Fitzhugh Camp is a co-founder & CEO of IDEA

When in doubt, choose the less efficient alternative.

Brian Delfield is an entrepreneur and investor who finds hidden value

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