7/31/2015 Coyote Scripts FINAL.docx. Coyote Announcement July 31, 2015

Transcription

1 Joe Wilkins <SLIDE 1> Welcome to our webcast. Coyote Announcement July 31, 2015 Today we are pleased to share insights into the acquisition of Coyote Logistics by UPS. <SLIDE 2> Before we get started, I want to remind you that we choose to take advantage of the safe harbor provision allowed by the Securities and Exchange Commission for this type of announcement. Some of the comments we ll make today are forward looking statements that address our expectations for the future performance or results of operations of the company. These statements are subject to risks and uncertainties, which are described in detail in our 2014 Form 10-K and Qs. These reports are available on the UPS investor relations website and from the Securities and Exchange Commission. <SLIDE 3> Joining me today on the webcast are Alan Gershenhorn, UPS Chief Commercial Officer Jeff Silver, Coyote Founder and Chief Executive Officer And Richard Peretz, UPS Chief Financial Officer Now to discuss the acquisition, I will turn it over to Alan. 9:27:38 AM Page 1 of 9

2 Alan Gershenhorn <SLIDE 4> Thanks Joe. I am excited to be here today to talk about this great acquisition. Just as we said at our Investor Conference last November We are focused on expanding our capabilities leveraging technology and looking for opportunities that Network UPS for Growth. Coyote Logistics fits those objectives perfectly They are one of the largest pure-play truckload brokerage firms providing us an entrance into a fast growing marketplace. And on top of that UPS brings unique synergies to the table. These are the key points why this is a great deal for Investors customers Coyote and for UPS. Now, let me spend just a few minutes on the rationale behind UPS entering the truckload brokerage market. <SLIDE 5> The total US truckload industry is very large, topping 700 billion dollars in Within this huge market, truckload brokerage is estimated at 54 billion, and that s 60 percent larger than the US LTL industry and it s growing at 7 percent per year. Historically, this has been a very fragmented market with an estimated 10,000 brokers. But, recently however, the industry has seen consolidation with several players building scale and eclipsing $1 billion dollars in revenue. Truckload brokerage is a natural adjacency to the more traditional small package & LTL markets that we currently participate in. Adding a truckload broker will clearly bring a significant capability to the UPS portfolio, while also extending the breadth of our ground transportation service from mail to package to LTL and to now full-truckload. 9:27:38 AM Page 2 of 9

3 Finally, we like the business model..it s asset-lite, it s grounded in technology and allows UPS to expand its reach into new industries like food & beverage and even paper & packaging. <SLIDE 6> With that backdrop on why we see the truckload brokerage market as attractive, let s shift over to Why Coyote? First, Coyote provides UPS with a fast growing.highly innovative entrant in the U.S. truck brokerage industry. Now UPS can offer customers the most comprehensive logistics solutions available from small package to truckload. More importantly, Coyote brings a scaled solution with a carrier base of 35,000, innovative technology and a very experienced management team that brings a deep background in truckload brokerage and innovative network solutions. Second, Coyote is well known at UPS. In fact, we ve been a customer of theirs for the last few years and UPS has benefited from the power of their unique operating model, especially during peak season when our demand for truckload movements surge. Finally, Coyote s asset light model leverages their innovative technology solutions to produce one of the truck brokerage industry s fastest growing model. Coyote is a great addition to UPS while we may seem to have very different cultures, we are both very focused on providing the highest service quality to our customers. Now, let s talk about the significant synergy potential across the UPS network. <SLIDE 7> With Coyote, we have the opportunity for synergies in 3 specific areas: Operational Efficiency, Sales, and Information Technology. Let me spend a few minutes hitting some of the highlights. First, within the operational efficiency area, leveraging Coyote s expertise on private fleet / back haul movements, our teams will focus on filling empty capacity within the UPS network with revenue producing truckload shipments, lowering empty miles and improving our overall asset utilization. Secondly, Coyote brings truckload brokerage capabilities which have proved very valuable during our peak season operations. We fully expect them to play an integral role in future peak season operating plans. 9:27:38 AM Page 3 of 9

4 In addition, UPS currently purchases a billion dollars a year in outside truckload moves. With Coyote s expertise, we expect to see gains in truckload procurement. Next, from a sales synergy perspective, Coyote & UPS will work together positioning truckload brokerage & innovative network management solutions, creating additional value for the UPS customer base. And finally, both companies provide best in class IT systems. Coyote brings a world-class transportation technology platform.a true differentiator in the truckload brokerage market. <SLIDE 8> Next, let me provide a little bit more color around the tremendous opportunity to improve the utilization of our current operating networks. To maintain the balance of our network, UPS runs approximately 7 million empty legs every year in the United States. This graphic demonstrates how UPS drivers working with Coyote and their technology can turn those moves into revenue producing opportunities for UPS. Whether it moves inter-modally or stays in the UPS ground network these are high margin moves. Finally, I m excited about the future possibilities for UPS and Coyote Logistics working together, Coyote with its unique culture brings an innovative set of solutions to the truckload brokerage market, a seasoned management group, and a terrific team of employees. To tell you more about Coyote s strong growth history and core components of their value proposition I d like to welcome the founder and CEO of Coyote Jeff Silver. <SLIDE 9> Thanks Alan, it s incredibly exciting to participate in this announcement today. On behalf of our more than our 2,000 coyotes, we are incredibly thrilled to be joining the UPS family. Ever since our inception in 2006, we ve built Coyote on a foundation of hiring top talent. Arming them with state of the art technology and delivering innovative solutions all with a goal of delivering industry-leading service to our customers. 9:27:38 AM Page 4 of 9

5 Our commitment to our customers, driven by our no-excuses attitude has fueled this record-setting growth. Our Coyote teams have worked with teams at UPS from a commercial perspective for several years, and the teams have really grown to understand and appreciate each other. They work together incredibly well. While we may dress differently, we share a critical set of core values. For those of you who have not had the opportunity to get to know Coyote in the past, here are some of our key historical moments: We founded Coyote in 2006 initially by focusing on creating a technology platform that would be so critical to our success. We moved our first load in August of that year and we were off and running. We finished 2006 with 33 employees in a single office in Lake Forrest, Illinois. Today, we have more than 22 hundred Coyotes across 16 offices. Our no excuses service brought us early success with many large food and beverage companies who became great reference customers and helped drive our rapid growth with other shippers in many other industries such as paper products, consumer goods, and construction materials. Truck brokerage is a huge market with a fair amount of consolidation activity. We ve created a unique offering within this space, acting as much like a network integrator for our customers and underlying carriers as we do a broker. We feel like we have a huge amount of runway and growth potential ahead of us. I feel like in spite of our growth so far, we re really just getting started, and I personally look forward to helping write the next chapter of the Coyote story. As we bring innovative truck brokerage and network management solutions to the UPS customer base both here in the U.S. and around the globe. Next I want to share with you some additional color about Coyote and how I think we will benefit UPS as part of their team. <SLIDE 10> We ve grown quickly over the last nine years to become one of the largest truck brokerages in the U.S. with revenues topping 2.1 billion dollars last year. We ve built a network of over 35,000 contracted carriers. Providing approximately 12,000 customer with highly reliable truckload services and innovative network solutions. Our centralized business model allows us to maximize results for Coyote, for our customers, and for our contracted carriers. Our world-class technology platform provides our customers with increased visibility, efficiency and flexibility true differentiators in our marketplace. 9:27:38 AM Page 5 of 9

6 Coyote s unique model and value proposition has been widely recognized by our customers as our revenues has grown almost 50 percent per year over the last five years. Finally, Coyote brings a highly experienced management team with a unique energetic culture and no-excuses attitude. The combination of UPS and Coyote will bring customers a powerful set of innovative transportation solutions. Now, to tell you more about the details of today s announcement, here is Richard Peretz, UPS s Chief Financial Officer. Rich Richard Peretz <SLIDE 11> Thanks Jeff I know I speak for UPSers around the world when I welcome you and the entire Coyote family to the UPS family. We look forward to working with you and your team to further our innovative solutions for customers and to create additional value for our shareholders. UPS has admired Coyote s business model as a customer over the last several years. The opportunities to leverage this new relationship will allow UPS to recognize significant synergies from the combination of our great businesses. It s an extension of our network the multiplier effect we talked about at our conference The ability to add an adjacent industry that we can all use that our customers can use and ultimately will be driving revenue growth for the entire organization. Now let s look at some of the details associated with this acquisition. We are paying 1.8 billion dollars to acquire one of the country s largest truck brokerage firms. This transaction will be financed with available cash and through existing and new debt arrangements. Our strong credit rating will allow UPS to finance the majority of this deal at today s very attractive rates. And, with our strong balance sheet, we are able to complete this transaction with no change to our credit rating expected. Of course, the acquisition is subject to standard regulatory approval, which we fully expect to receive. 9:27:38 AM Page 6 of 9

7 As a result, we expect to close this deal sometime in the third quarter. So now, let s spend a few minutes elaborating on the key fundamentals of the deal. <SLIDE 12> First let me say that this deal is EPS and Cash Flow accretive in Looking at some of the other long-term fundamentals This is a great opportunity for UPS, as Alan mentioned earlier. It allows us to enter the large adjacent truckload brokerage industry. The acquisition is all part of our strategy of networked for growth. And, we are accomplishing this via a best-in-class company with a unique culture that is focused on fast top-line revenue and EBITDA growth. Our strategy is to keep them operating independently, allowing them to remain focused on their growth strategy. Further, the acquisition enables us to capitalize on the synergies that are unique to UPS, as well as the potential to help our customers operate better and more efficiently by better managing their fleet capacity. Now we will drill down a little further into synergy potential. <SLIDE 13> Today, UPS operates one of the largest truck fleets in the country. The opportunity to increase utilization of our network is a primary focus. We currently transport more seven million empty trailer movements every year. During our peak period, demand for UPS services increases dramatically. The addition of Coyote will enable us to more effectively handle that demand surge, during this period. In addition, across all the business units at UPS in the U.S., we spend over $1 billion a year in purchased truckload transportation. Combining the Coyote and UPS transportation spend will create opportunities to increase procurement savings. Our sales team will be able to leverage this new relationship. We know that a high percentage of our customers use truckload brokerage today. UPS can open the door for Coyote by leveraging our current customer base. 9:27:38 AM Page 7 of 9

8 Finally, the capabilities of both companies IT solutions will provide benefits. Bottom-line we expect to generate approximately $100 million in synergies in just the second full year of combined operations. These savings will continue to ramp up beyond More importantly the bulk of these savings will come from tangible cost synergies. <SLIDE 14> One of the aspects of this acquisition for UPS is that Coyote will remain independent. Operating from their home base in Chicago. UPS will work with the current Coyote executive team to determine the best approach to connecting and integrating operations where it makes sense, such as truckload procurement. The founder and key members of the team are committed to seeing the company accomplish their goals and will be staying on with UPS as part of the transaction. Integration costs are expected to be minimal over the next four years. The lionsshare of integration cost will occur in year one, that is to modify our systems to work together. These costs will be low due to the independent operating structure that will be maintained. <SLIDE 15> In closing the acquisition of Coyote Logistics allows UPS to take a meaningful position in a large and fast growing market. Coyote represents the best-in-class in this market. They are innovative, fast growing, and asset light. Their technology driven model will allow UPS to further optimize our transportation network. At the same time, we will expand solutions available to all of our combined customers. Combining Coyote s current operations with our synergy opportunities will be accretive to Earnings per Share and Cash flow starting in 2016 creating increased value for our investors. 9:27:38 AM Page 8 of 9

9 Thank you for your time today, please feel free to reach out to Joe and the Investor Relations team at UPS if you have any questions that were not answered here today. 9:27:38 AM Page 9 of 9