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Transportation & LogisticsEquity ResearchTransportation & LogisticsEquity ResearchAugust 4, 2017Economic Update & Transportation Market OutlookWhat Lies Ahead For The U.S. Economy & The Domestic Transportation IndustryPresentation to Daseke Shipper ConferenceJohn G. Larkin, CFA Managing Director 214.706.9455 jglarkin@stifel.comJohn Engstrom Associate Analyst 214.706.9456 engstromj@stifel.comRoxanna Islam Associate Analyst 214.706.9485 islamr@stifel.comStifel does and seeks to do business with companies covered in its research reports. As a result, investorsshould be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.All relevant disclosures and certifications can be found on pages 26 – 32 of this report.
It feels like we can’t get anywhere inWashington D.C.Transportation & LogisticsEquity Research2
Discussion AgendaTransportation & LogisticsEquity Research The United States Continues to Chug Along at a 1.5% to 2% GDP Growth Rate,But Could Be Positioned to Accelerate Freight Markets Cycle Through Excess Capacity but Flatbed Relatively Healthy Era of Trucking Industry Consolidation is Underway Daseke and Their Unique Strategy Conclusions3
PopulationConsumers drive freight, and population growth drives theconsumer; U.S. population still rising, but growth is slowingPopulation (millions)Transportation & LogisticsEquity ResearchY/Y Population Y/Y Change In Population GrowthAbsolute Population Level 0E2053E2056E2059E0.0%Source: The World Bank; U.S. Census4
ProductivityY/y productivity growth has declined in recent years8%4.07%6%3.55%3.04%2.53%2.02%1%1.50%1.0Y/Y Change In ProductivityY/Y Productivity Growth4.5-1%Source: U.S. Bureau of Labor 1953-2%19500.51947Indexed Productivity (1947 1)Productivity IndexTransportation & LogisticsEquity Research5
Gross Domestic ProductThe Fed’s currently published GDP estimates imply acontinuation of current growth rates that we see as unlikely6%Avg 4.5%ForecastAvg 1.9%184%Avg 1.8%Chart displays seasonally adjusted annual data; pink shaded regions denote recessionSource: Bureau of Economic Analysis, Federal 1124Q000%4Q99144Q982%4Q97164Q96U.S. GDP (2009 chained U.S., Tn; SAAR)Avg 2.7%Y/Y % Change20Transportation & LogisticsEquity Research6
UnemploymentBoth U6 and U3 unemployment¹ have come down, and U6 is Transportation & LogisticsEquity Researchnow catching up to the rate of improvement seen in U3U6 (seasonally adjusted)U3 (seasonally adjusted)Oct. '097.1%18%June ‘17 U3 (seasonally adj): 4.4%June ‘17 U6 (seasonally adj): 8.6%Seasonally Adjusted Unemployment Rate16%14%12%June '174.4%Dec. 2%¹ U6 Unemployment includes unemployed, discouraged workers, marginally attached, plus total employed parttime for economic recessions Source: U.S. Bureau of Labor Statistics; recessions shown in light blue7
ParticipationThe decline in unemployment is largely due to a falling laborforce participation rateTransportation & LogisticsEquity Research68%66%PeakApr. 2000: 67.3%Most RecentJune 2017: 62.8%64%62%11.2 M JobsRequired to KeepRate Constant60%58%The Decline In Labor Force Participation Rate Is PartlyDue To Retiring Baby Boomers, And Partly Due ToExpanded Entitlement Programs56%Source: U.S. Bureau of Labor Statistics8
Auto Sales:EconomicIndica Year-over-year Auto Sector growth has beentors tapering since 2012, even though fleet age remains higherthan historical norm ( 11.5 Yrs vs. 8-9 Yr Hist Avg.)2018Transportation & LogisticsEquity 0%4-30%2-40%0-50%YTD Sales figures are through June 2017;Source: Ward’s Automotive 920012003200520072009201120132015U.S. Vehicle Sales (millions)Y/Y Chan ge9
Discussion AgendaTransportation & LogisticsEquity Research The United States Continues to Chug Along at a 1.5% to 2% GDP Growth Rate, ButCould Be Positioned to Accelerate Freight Markets Cycle Through Excess Capacity but Flatbed Relatively Healthy Era of Trucking Industry Consolidation is Underway Daseke and Their Unique Strategy Conclusions10
Large Fleet Supply / DemandLarge TL supply/demand has rationalized as large fleetshave removed capacityLarge TL Loads/Fleet Size Index (Jan 2005 100)115Large TL Fleet Size IndexTransportation & LogisticsEquity ResearchLarge TL Loads Index110105100959085Source: American Trucking Associations, Stifel estimates; data through May 2017Large Truckload - carriers who earn over 30mm in annual 5May-058011
Small Fleet Supply / DemandBut Small TL supply/demand continues towardoversupplySmall TL Loads/Fleet Size Index (Jan 2005 100)110Small TL Fleet Size IndexTransportation & LogisticsEquity ResearchSmall TL Loads Index10090807060Source: American Trucking Associations, Stifel estimates; data through May 2017Small Truckload - carriers who earn less than 30mm in annual 5May-055012
/03/1705/25/1707/16/17DAT Flatbed Load to TruckFlatbed TL DynamicsFlatbed Load-to-Truck has increased in 2017 assupply/demand has improvedFlatbed Load-to-Truck57Source: DAT Truckload TrendsTransportation & LogisticsEquity Research(November 2012 through Present)534945413733292521171395113
Source: 4/13/1307/13/1310/13/1201/13/1204/13/1207/13/12 p.com Flatbed RatesFlatbed TL DynamicsFlatbed Rates have increased with supply/demandimprovementsFlatbed RatesTransportation & LogisticsEquity Research(March 2009 through Present) 2.40 2.20 2.00 1.80 1.60 1.40 1.20 1.0014
Discussion AgendaTransportation & LogisticsEquity Research The United States Continues to Chug Along at a 1.5% to 2% GDP Growth Rate, ButCould Be Positioned to Accelerate Freight Markets Cycle Through Excess Capacity but Flatbed Relatively Healthy Era of Trucking Industry Consolidation is Underway Daseke and Their Unique Strategy Conclusions15
History of Trucking Industry ConsolidationTransportation & LogisticsEquity Research Prior to deregulation in 1980, carriers expanded by acquiring geographicauthority Subsequent to deregulation, carriers grew by establishing low cost positionsand taking market share from less efficient, lower service carriers, oftenforcing the weaker carriers out of business Now, we are 37 years after deregulation, and organic growth has been morechallenging primarily due to the challenges associated with recruiting andretaining compliant drivers Instead, carriers are growing via M&A in order to create cost efficiencies andmarketing synergies16
Small Carriers Versus Large Carriers(Large Carriers Usually Win)Transportation & LogisticsEquity ResearchLarge carriers benefit from: Purchasing economies of scale Network density and efficiencies Higher quality technology Newer, more fuel efficient fleet Wider variety of trailing equipment Ability to serve multi-regional and national customers17
Consolidation Generates BenefitsTransportation & LogisticsEquity Research Sharing of best ideas Cross selling opportunities Sharing of loads and empties to drive improved productivity Attraction and retention of better talent Common IT can eliminate duplicate overhead Lower cost of capital; removal of organic growth constraints18
Examples in the Truckload IndustryTransportation & LogisticsEquity Research Swift/Knight merger Creates largest carrier Drives Swift's margins in the direction of Knight's Heartland acquires Interstate Distributor Co. Provides freight density on top of the infrastructure created by the Gordondeal Drives Interstate's margins in the direction of Heartland's Schneider acquires Watkins & Shepherd and Lodeso Provides middle mile services for e-commerce customers Offers a one stop shop/integrated logistics solution for key customers19
Examples in the Truckload Industry (cont’d)Transportation & LogisticsEquity Research Transforce acquires Transport America and XPO Truckload Provides growth into US market Creates NAFTA synergies CRST acquires Gardiner Trucking Establishes west coast beachhead Adds short haul/regional distribution capability to CRST's suite of nicheservices Daseke acquires 12 flatbed/open deck/unsided/drop deck/specialized carriers Creates only national footprint in the space Enables maintenance of regional heritage while creating national servicecapability20
Discussion AgendaTransportation & LogisticsEquity Research The United States Continues to Chug Along at a 1.5% to 2% GDP Growth Rate, ButCould Be Positioned to Accelerate Freight Markets Cycle Through Excess Capacity but Flatbed Relatively Healthy Era of Trucking Industry Consolidation is Underway Daseke and Their Unique Strategy Conclusions21
Daseke: Building Something SpecialA unique approach to solving logistics challenges for customersmoving flatbed, open deck, unsided, or specialized freightTransportation & LogisticsEquity Research Approaching a national footprint; also building Canadian network 2/3 of power is company owned A robust acquisition pipeline suggests the best is yet to come Soft integration offers the best of both worlds Scale, diversity of equipment, and relevant expertise is second to noneSource: Daseke22
Company OverviewDSKE competes in asset and non-asset segmentsacross a very diversified customer baseTransportation & LogisticsEquity ResearchData is Year End 2016Customer SegmentationRevenue by SegmentDaseke’s customer base is very welldiversifiedThe company’s “Asset Right” strategyprovides a differentiated offeringAircraftparts, 9%Lumber, 8%Metals,23%NonAssetBased,34%Other, 21%BuildingMaterials,17%Source: Company data, presentationsHeavyEquipment& Energy,22%TruckloadAsset94%Based,66%23
Discussion AgendaTransportation & LogisticsEquity Research The United States Continues to Chug Along at a 1.5% to 2% GDP Growth Rate, ButCould Be Positioned to Accelerate Freight Markets Cycle Through Excess Capacity but Flatbed Relatively Healthy Era of Trucking Industry Consolidation is Underway Daseke and Their Unique Strategy Conclusions24
ConclusionsTransportation & LogisticsEquity Research Economic growth hindered by obstructionist behavior in Washington Weakening dollar should boost exports Infrastructure program would strengthen demand for flatbed freight Energy self-sufficiency program would also be positive for the flatbed sector Automated manufacturing will be additive, as well All in all, the future is bright and we expect Daseke to lead the way(DSKE, Buy, 12.40, 8/02/17 closing price)25
Important Disclosures & CertificationsTransportation & LogisticsEquity ResearchI, John G. Larkin, certify that the views expressed in this research report accurately reflect mypersonal views about the subject securities or issuers; and I, John G. Larkin, certify that no partof my compensation was, is, or will be directly or indirectly related to the specificrecommendations or views contained in this research report. Our European Policy for ManagingResearch Conflicts of Interest is available at www.stifel.com.For a price chart with our ratings and target price changes for DSKE go es.action?ticker DSKE26
Important Disclosures & Certifications(continued)Transportation & LogisticsEquity ResearchStifel or an affiliate expects to receive or intends to seek compensation for investment banking servicesfrom Daseke, Inc. in the next 3 months.Stifel or an affiliate is a market maker or liquidity provider in the securities of Daseke, Inc.Stifel acted as financial advisor to Hennessy Capital Acquisition Corp II in connection with the mergerwith Daseke, Inc.The equity research analyst(s) responsible for the preparation of this report receive(s) compensationbased on various factors, including Stifel’s overall revenue, which includes investment banking revenue.Our investment rating system is three tiered, defined as follows:BUY – We expect a total return of greater than 10% over the next 12 months with total return equal to thepercentage price change plus dividend yield.HOLD – We expect a total return between -5% and 10% over the next 12 months with total return equalto the percentage price change plus dividend yield.SELL – We expect a total return below -5% over the next 12 months with total return equal to thepercentage price change plus dividend yield.27
Important Disclosures & Certifications(continued)Transportation & LogisticsEquity ResearchOccasionally, we use the ancillary rating of SUSPENDED (SU) to indicate a long-term suspension inrating and/or target price, and/or coverage due to applicable regulations or Stifel policies.SUSPENDED indicates the analyst is unable to determine a “reasonable basis” for rating/target priceor estimates due to lack of publicly available information or the inability to quantify the publiclyavailable information provided by the company and it is unknown when the outlook will be clarified.SUSPENDED may also be used when an analyst has left the firm.Of the securities we rate, 49% are rated Buy, 41% are rated Hold, 2% are rated Sell and 8% are ratedSuspended.Within the last 12 months, Stifel or an affiliate has provided investment banking services for 20%, 7%,0% and 14% of the companies whose shares are rated Buy, Hold, Sell and Suspended, respectively.Additional DisclosuresPlease visit the Research Page at www.stifel.com for the current research disclosures and respectivetarget price methodology applicable to the companies mentioned in this publication that are withinStifel's coverage universe. For a discussion of risks to target price please see our stand-alonecompany reports and notes for all stocks.28
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Small TL Fleet Size Index Small TL Loads Index. Small Fleet Supply / Demand. But Small TL supply/demand continues toward oversupply. Transportation & Logistics Equity Research. . Transforce acquires Transport America and XPO Truckload Provides growth into US market Creates NAFTA synergies CRST acquires Gardiner Trucking
