Capstone Headwaters

TRANSPORTATION & LOGISTICS Q1 2020 PUBLIC EARNINGS UPDATE

TABLE OF CONTENTS QUARTERLY SPOTLIGHT – TRUCKING

 Quarterly Spotlight • Public markets have taken notice of trucking companies that have strong  Macroeconomic Backdrop balance sheets and the ability to weather freight recessions.  Third-Party Logistics • Numerous Less-than-truckload (LTL) and Truckload (TL) carriers, which are leading economic indicators, are trading at valuations near or above pre-  Trucking pandemic valuations.  Warehousing • Healthy companies will be in prime position to take market share from  Marine overleveraged or bankrupt competitors as capacity contracts.  Railroads • A rebound in rates will provide financially prudent Truckload carriers with a  Airlines tailwind for continued outperformance.  Team • Truckload rates are more competitive with other modes of transportation  Firm Track Record which can spur additional demand by substitution. • The Trucking industry has been a leader in the rebound of Transportation and Logistics stocks (the Airline industry is the laggard).

A Major Rebound for Trucking Stocks

23B LTL Truckload CONTACTS 22B 21B Burke Smith 20B Head, Transportation & Logistics 310-872-0038 19B [email protected] 18B 17B Anant Vashi Director 16B 505-690-3561 15B Market(USD) Capitalization [email protected] 14B Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 As of 5/26/20

Source: Capital IQ, PitchBook, FactSet, and Capstone Research www.capstoneheadwaters.com June 2020 3 Transportation & Logistics | Q1 2020

MACROECONOMIC BACKDROP

Cass Freight Index Stock Price Index by Industry

1.25 10.0% 1.20 0.0% 1.15 -10.0% 1.10 -20.0% 1.05 -30.0% 1.00

% Change -40.0% 0.95 Index 1990 = 1 Jan -50.0% 0.90 0.85 -60.0% 0.80 -70.0% Dec-19 Jan-20 Feb-20 Mar-20 Apr-20

3PL Airlines Marine Railroad Warehousing Trucking Source: Cass Information Systems, Inc. Source: Capital IQ

Dow Jones Transportation Index WTI Price & Baker Hughes Rig Count (Weekly Data)

3,000 12,000 $140 2,500 11,000 $120

$100 2,000 10,000 Rig Count $80 1,500 9,000

Index $60 WTI Price 8,000 1,000 $40 500 7,000 $20

6,000 $0 -

Rig Count WTI Price

Source: Capital IQ Source: Capital IQ & Baker Hughes

Industrial Production Index: Manufacturing Advance Retail Sales

110 480,000

105 430,000

100 380,000 95 330,000 USD (mm) USD 90 Index 2012 = 100 = Index 2012 280,000 85

80 230,000

Source: Federal Reserve Bank of St. Louis Source: Federal Reserve Bank of St. Louis

2 Transportation & Logistics | Q1 2020

THIRD-PARTY LOGISTICS

52-Week Range 1Q 2019 1Q 2020 Revenue 1Q 2020 EPS 2Q 2019 2Q 2020 Est.

Company PX Low High EV/EBITDA Revenue EPS Actual Estimate S / M Actual Estimate S / M Revenue EPS Revenue EPS C.H. Robinson 82.18 56.94 91.23 14.9x 3,751 1.16 3,805 3,565 6.7% 0.57 0.69 -17.4% 3,909 1.22 3,450 0.62 Deutsche Post 32.87 21.36 39.15 7.92x 17,231 0.67 17,019 16,480 3.3% 0.26 0.46 -42.7% 17,783 0.41 16,406 0.41 Echo Global Logistics 21.16 14.17 24.50 13.55x 538 0.13 551 551 0.0% (0.11) 0.19 -160.2% 554 0.19 470 0.12 Expeditors Intl. 77.16 52.55 81.64 13.5x 2,020 0.80 1,902 1,715 10.9% 0.71 0.63 12.2% 2,036 0.88 1,821 0.65 FedEx 134.20 88.69 178.50 5.66x 17,010 2.80 17,487 16,701 4.7% 1.20 1.27 -5.6% 17,807 (7.57) 16,783 2.24 J.B. Hunt 117.78 75.29 122.29 10.54x 2,090 1.09 2,281 2,179 4.7% 0.98 0.98 0.5% 2,262 1.23 2,009 0.83 Kuehne + Nagel 144.70 119.25 168.00 10.93x 5,237 1.50 5,098 - N/A 1.19 0.00 N/A 5,496 1.72 - 1.03 Penske 37.15 19.99 53.81 9.81x 5,564 1.19 5,009 5,161 -2.9% 0.64 0.68 -5.7% 5,756 1.42 3,634 (0.31) Radiant Logistics 4.03 3.08 6.90 6.54x 206 0.06 177 182 -2.8% 0.00 0.05 -97.9% 205 0.09 161 0.03 36.81 22.62 60.55 4.28x 2,180 0.86 2,161 2,114 2.2% (2.10) (0.85) -147.8% 2,245 1.43 1,978 (1.25) UPS 101.17 82.00 125.31 11.30x 17,160 1.28 18,035 17,169 5.0% 1.11 1.23 -9.9% 18,048 1.94 17,266 1.06 Universal Logistics 15.14 11.02 27.49 4.69x 377 0.61 382 383 -0.3% 0.45 0.37 22.4% 383 0.70 241 (0.23) XPO 78.97 38.47 100.18 5.71x 4,120 0.37 3,864 3,968 -2.6% 0.20 0.43 -53.3% 4,238 1.19 3,393 (0.58)

Average 9.18x 5,960 0.96 5,982 5,398 10.8% 0.39 0.47 -16.7% 6,209 0.37 5,201 0.35 Median 9.81x 3,751 0.86 3,805 2,179 74.6% 0.57 0.46 23.3% 3,909 1.19 2,009 0.41

Source: Capital IQ as of June 3, 2020, all values in USD , revenue data in millions

Sector Themes Continued

Freight Brokerage • While revenue was strong in Q1 2020, there was significant margin compression for net revenue as brokers competed fiercely for loads. o C.H. Robinson Worldwide’s (:CHRW) and Echo Global Logistics' (Nasdaq:ECHO) gross margins decreased by 31% and 11%, respectively, for Q1 compared with Q1 2019. • Companies have reconfigured a significant portion of their fixed costs to variable in order to scale total cost with volume (There are some challenges because brokerages now have significant technology budgets). • There was a consensus among executives that freight volumes have bottomed and that markets will improve over the second half of the year. o Indicative of the broader market, Echo’s volume had a short-lived surge in late March then in the 1st half of April dipped 4% (TL) and 24% (LTL) due to small and midsize businesses getting hit the hardest by shutdowns.

Freight Forwarding • Ocean and air transportation volumes have been under pressure from a slowing global economy related to COVID-19 and tariffs. • Purchased transportation costs have grown because ocean and airline carriers have sharply cut capacity in recent weeks. o “Our Q1 performance was better than we might have expected, given the contraction in demand across geographies, as well as the severity and suddenness of the collapse in air carrier belly space and reduction in containership sailings” according to Jeffrey Musser, CEO of of Washington (Nasdaq: EXPD).1 • Customers are attempting to renegotiate contract rates and there has been an uptick in accounts receivable (A/R) risk. • Chinese manufacturing coming back should have a delayed positive impact; Kuehne + Nagel International (SWX:KNIN) reported their business in China is back to 90-95%. 3 Transportation & Logistics | Q1 2020

THIRD-PARTY LOGISTICS (CONTINUED)

Sector Themes Continued

Parcel • Significant changes to business mix and demand variability have negatively impacted margins across the industry. o “Throughout the quarter, we adjusted our network and controlled costs, but we were not able to fully offset the unprecedented and swift changes in market demand and mix” according to David Abney, CEO of UPS (NYSE:UPS).2 • There has been a sharp decline in airline capacity that is putting tremendous pressure on global supply chains (A significant percentage of belly space on passenger airlines is reserved for general ). o Frank Appel, Deutsche Post’s (XTRA:DPW) CEO, noted in the company’s investor presentation that Air and Ocean freight were down 9.5% and 5.7%, respectively, year-over-year (YOY) for Q1. • An increase in e-commerce volume has made it challenging to manage costs as business to consumer (B2C) delivery is more expensive than business to business (B2B) delivery. o Deutsche Poste noted that e-commerce volume isn’t’ coming just from (Nasdaq:AMZN), but also from smaller and midsized customers. • Shelter-in-place restrictions have disproportionately affected small and medium-sized enterprises.

Health & Safety Highlight

• Supplying personal protective equipment • Facility deep cleaning by industrial hygienists (PPE) to all employees • Warehouse hourly employees receiving extra $2/hr • Added two weeks of paid pandemic sick leave • LTL service center employees receiving bonuses • Added free access to telemedicine to insurance • Total extra spending = $50+mm • Expanded mental health programs for families

4 Transportation & Logistics | Q1 2020

TRUCKING

52-Week Range 1Q 2019 1Q 2020 Revenue 1Q 2020 EPS 2Q 2019 2Q 2020 Est. EV/EBIT Company PX Low High DA Revenue EPS Actual Estimate S / M Actual Estimate S / M Revenue EPS Revenue EPS ArcBest 21.89 13.54 32.46 2.94x 711.8 0.18 701 705 -0.6% 0.07 (0.12) 158.5% 771 0.92 635 (0.07) Covenant 13.01 6.54 18.62 4.71x 219.2 0.24 214 193 10.5% (0.12) (0.10) -22.4% 219 0.33 177 (0.07) Daseke 2.72 0.86 4.43 5.04x 433.0 (0.16) 391 388 0.9% (0.29) (0.07) -335.0% 451 (0.12) 373 (0.09) Forward Air 49.76 39.59 72.09 2.74x 321.5 0.64 343 341 0.4% 0.30 0.39 -22.7% 346 0.78 266 0.09 Heartland Express 21.75 15.65 22.71 10.08x 139.5 0.21 166 165 0.8% 0.16 0.13 22.6% 142 0.27 149 0.13 Hub Group 47.07 36.51 60.42 6.49x 933.0 0.71 839 874 -4.0% 0.40 0.59 -32.2% 921 0.87 772 0.21 Knight-Swift 40.21 27.54 42.07 7.67x 1,204.5 0.51 1,125 1,087 3.5% 0.38 0.35 7.2% 1,242 0.46 1,036 0.33 115.62 85.30 119.93 13.86x 1,034.1 1.58 929 929 -0.1% 1.04 1.10 -5.4% 1,046.3 1.53 768 0.71 Marten 25.65 16.01 26.59 8.17x 199.0 0.25 219 204 7.0% 0.25 0.24 4.2% 212 0.28 205 0.22 Mullen 6.05 3.85 10.62 5.80x 319.6 0.11 318 321 -1.0% 0.04 0.07 -44.2% 319 0.30 244 (0.01) Old Dominion 165.58 88.61 171.77 17.80x 990.8 1.10 987 984 0.4% 1.11 1.12 -1.3% 1,061 1.44 895 1.03 P.A.M. 33.15 22.00 71.56 1.79x 128.7 1.39 129 120 7.9% (0.23) 0.31 -174.2% 133 1.45 102 0.15 Patriot 8.34 8.06 21.26 1.96x 27.0 0.09 24 - N/A (0.12) 0.00 N/A 28 0.12 0 0.00 Roadrunner 2.10 1.75 12.75 N/A 507.1 (1.78) - 420 -100.0% 0.00 (0.26) 100.0% 481 (3.77) 421 (0.16) 109.25 56.35 113.92 9.94x 410.6 0.85 446 436 2.4% 1.06 0.81 31.2% 464 1.40 411 0.85 Schneider 23.90 15.36 24.38 5.82x 1,194.1 0.21 1,119 1,102 1.6% 0.25 0.19 27.9% 1,213 0.19 1,007 0.18 TFI 41.84 23.21 48.53 6.46x 1,230.8 0.74 1,240 1,201 3.3% 0.88 0.73 20.6% 1,338 1.02 1,110 0.49 U.S. Xpress 5.30 2.65 6.52 5.32x 415.4 0.10 433 413 4.8% (0.19) (0.16) -20.4% 414 0.05 414 (0.15) USA Truck 7.40 2.36 11.86 5.71x 134.0 0.18 127 125 1.6% (0.30) (0.36) 17.2% 134 0.00 119 (0.09) Werner 44.63 28.54 46.95 7.17x 596.1 0.51 593 575 3.1% 0.33 0.35 -6.6% 628 0.62 556 0.37 YRC 1.49 1.29 4.79 3.18x 1,182.3 (1.48) 1,150 1,137 1.2% 0.12 (0.86) 113.9% 1,273 (0.71) 950 (1.38)

Average 6.63x 587.2 0.29 547 558 -2.8% 0.24 0.21 -8.0% 611 0.35 505 0.13 Median 5.81x 433.0 0.24 433 420 1.4% 0.16 0.19 1.4% 464 0.33 414 0.13

Source: Capital IQ as of June 3, 2020, all values in USD , revenue data in millions

Sector Themes

Truckload • Lower freight volumes only started to hit later in Q1 and the full adverse impacts from COVID-19 are expected to be borne out in Q2. o For Landstar System (Nasdaq:LSTR), the last week of March had dispatched load volume 14% lower compared to the same week in 2019 – “one of the swiftest and most dramatic reductions in week-to-week load volumes in the history of the company” according to Jim Gattoni, CEO.3 • Large well-capitalized carriers with a technology focus are well positioned to capture market share in this environment. • Companies have had a tough time repositioning one-way trucking assets because of business closures (Balancing inbound vs. outbound). • Freight volumes should increase over the second half of the year as more production comes back online. • Processing and delay times are longer at origin/destination because of increased security related to COVID-19. • The Used Truck market is oversaturated with inventory which is adversely impacting prices. • Potential for capacity constraint as TL companies exit the market in a very tough operating environment.

5 Transportation & Logistics | Q1 2020

TRUCKING (CONTINUED)

Sector Themes Continued

LTL • LTL volumes dropped off significantly at the beginning of April 2020 and have remained steady ever since. • High services levels have been a major tailwind for LTL carriers because of the explosion in e-commerce orders over the last two months. • Major carriers have transitioned many of their fixed costs to variable costs to scale with volume in a down market. o “A majority of our costs are variable, and we are doing an excellent job of managing our costs in relation to the drop in revenue. A rapid decrease in business and ongoing uncertainty about the macroeconomic environment add difficulty to our decision-making process,” according to Greg Gantt, CEO of Old Dominion Freight Line (Nasdaq:ODFL).4 • LTL pricing is expected to remain disciplined with many carriers unwilling to trade price for volume (Top 25 carriers are ~90% of total revenue).

Owner Operator Models Provide Much Needed Flexibility and Resiliency in Downturns

“For every $1 decrease in revenue, direct freight related costs decreased by approximately $0.85. The significant percentages of costs tied directly to revenue somewhat insulates the Landstar model from significant downturns in freight and typically generates positive free cash flow throughout most business cycles.” - Jim Gattoni, CEO of Landstar3

6 Transportation & Logistics | Q1 2020

WAREHOUSING

52-Week Range 1Q 2019 1Q 2020 Revenue 1Q 2020 EPS 2Q 2019 2Q 2020 Est.

Company PX Low High EV/EBITDA Revenue EPS Actual Estimate S / M Actual Estimate S / M Revenue EPS Revenue EPS Americold 35.51 23.30 40.42 23.30x 393 (0.03) 484 477 1.4% 0.11 0.07 51.8% 438 0.03 493 0.15 Duke Realty 35.64 25.19 38.88 29.20x 267 0.12 229 219 4.6% 0.05 0.12 -57.1% 239 0.20 224 0.16 Industrial Logistics 18.73 12.95 24.18 15.29x 46 0.26 64 62 4.1% 0.20 0.26 -24.1% 60 0.20 63 0.25 Prologis 95.46 59.82 99.79 36.02x 829 0.55 1,067 802 33.1% 0.70 0.42 66.0% 839 0.60 903 0.48

Average 25.95x 384 0.22 461 390 10.8% 0.26 0.22 9.2% 394 0.26 421 0.26 Median 26.25x 330 0.19 356 348 4.4% 0.15 0.19 13.8% 339 0.20 358 0.20

Source: Capital IQ as of June 3, 2020, all values in USD , revenue data in millions

Sector Themes

Cold Storage • At any given time, there is an ~120-day supply of food to meet normal consumer demand in the supply chain (Grocery stores, retail distribution centers, major market distribution centers, production advantage sites – Each node maintains ~30-day supply of food). • There was a major unexpected shift from food service providers (restaurants) to retail stores (grocers) as the U.S. economy gradually shutdown. • Food service products are now sitting longer because of reduced demand but are still being preserved in warehouses across the country. • The supply chain was designed for a steady-state of affairs and not for monumental shifts in demand that occur simultaneously nation wide.

E-Commerce • There has been significant growth in categories such as food & beverage and consumer staples while home furnishings, sporting goods, and clothing are sharply down from a volume perspective. • COIVD-19 is likely to accelerate a market share shift from brick and mortar to e-commerce retail as new purchasing habits are formed.

General • A focus on resiliency will likely increase the demand for warehousing as there is growth in inventory levels over time. • Firms are expecting companies bring inventory back to the U.S. so that it’s easier to access in the future. • On average, large customers are fairing better than smaller customers in the current environment. Duke Realty (NYSE:DRE) noted that they received inquiries for rent deferrals from 24% of their tenants, the majority operate spaces under 100k sq. feet.

7 Transportation & Logistics | Q1 2020

MARINE

52-Week Range 1Q 2019 1Q 2020 Revenue 1Q 2020 EPS 2Q 2019 2Q 2020 Est.

Company PX Low High EV/EBITDA Revenue EPS Actual Estimate S / M Actual Estimate S / M Revenue EPS Revenue EPS 1,048 746 1,583 5.08x 9,540 (31.74) 9,571 9,455 1.2% 9.86 9.34 5.7% 9,627 7.00 7,771 (7.61) Ardmore 5.47 3.73 9.79 9.77x 62 (0.28) 65 41 59.5% 0.20 0.17 16.7% 55 (0.30) 55 0.61 Atlas 7.45 5.39 14.62 7.59x 285 1.26 308 304 1.5% 0.15 0.23 -33.3% 275 0.10 358 0.25 DHT 5.90 4.77 8.83 5.21x 132 0.12 212 143 48.6% 0.44 0.52 -14.7% 106 (0.07) 207 0.92 Frontline 9.08 6.09 13.33 7.38x 238 0.24 412 305 35.2% 0.84 0.99 -14.7% 193 0.01 328 1.03 Kirby 53.44 32.76 92.30 9.20x 745 0.74 644 622 3.5% (4.15) 0.44 -1051.8% 771 0.79 592 0.44 Matson 29.65 23.75 42.16 7.88x 532 0.29 514 514 0.0% 0.09 0.09 -1.8% 558 0.43 505 0.12

Average 7.44x 1,648 (4.20) 1,675 1,626 3.0% 1.06 1.68 -36.8% 1,655 1.14 1,402 (0.61) Median 7.59x 285 0.24 412 305 35.2% 0.20 0.44 -55.0% 275 0.10 358 0.44 Source: Capital IQ as of June 3, 2020, all values in USD , revenue data in millions

Sector Themes

Inland Marine • Q1 2020 started strong with high barge utilization, robust customer demand, and improved pricing as customers readied their supply chains and secured storage facilities (Inland barge utilization surpassed the mid-90% range). • “Since the end of March, reduced demand for refined products has resulted in an increase of available barges in the industry. As a result, Kirby’s spot barge utilization has declined slightly” according to David Grzebinski, CEO of (NYSE:KEX).5

Ocean Freight • Maersk (CPSE:MAERSK B) expects volumes to decline between 20% and 25% in Q2 2020 as demand remains weak for non-essential goods. o Matson (NYSE:MATX) saw quarterly volume drop by 23% and 17% after 9/11 and the Great Recession, respectively, and expect a similar decline. • Freight rates are up 5.7% compared to Q1 2019 which are mitigating the increase in bunker costs resulting from International Maritime Organization (IMO) 2020 compliance. • The industry is consolidating as the top five carriers continue to grow (eight of the top 20 players have disappeared over the last four years). • Oil tanker storage has fluctuated tremendously – spot rates have been as little as $15k/day and over $250k/day in Q1 according to DHT Holding (NYSE:DHT). • Substantial capacity loss from passenger jet belly space has led to historically high airfreight rates (200-300% previous records) which Matson executives expect will make their expedited service more attractive.

8 Transportation & Logistics | Q1 2020

RAILROADS

52-Week Range 1Q 2019 1Q 2020 Revenue 1Q 2020 EPS 2Q 2019 2Q 2020 Est.

Company PX Low High EV/EBITDA Revenue EPS Actual Estimate S / M Actual Estimate S / M Revenue EPS Revenue EPS Canadian National 87.67 68.11 94.60 12.62x 2,652 0.81 2,501 2,448 2.2% 1.00 0.79 27.0% 3,027 1.44 2,474 0.95 Canadian Pacific 252.96 186.55 270.72 12.24x 1,322 2.31 1,441 1,389 3.7% 2.10 2.91 -27.7% 1,511 3.95 1,289 2.54 CSX 72.18 46.81 80.62 10.36x 3,013 1.02 2,855 2,876 -0.7% 1.00 0.95 5.4% 3,061 1.08 2,409 0.71 KSU 149.31 92.86 178.59 11.59x 675 1.02 732 716 2.2% 1.58 1.77 -11.0% 714 1.28 592 1.31 Norfolk Southern 184.06 112.62 219.88 11.37x 2,840 2.51 2,625 2,573 2.0% 1.47 2.24 -34.5% 2,925 2.70 2,202 1.62 Union Pacific 170.94 105.08 188.96 12.76x 5,384 1.93 5,229 5,090 2.7% 2.15 1.90 13.1% 5,596 2.22 4,332 1.55

Average 11.82x 2,648 1.60 2,564 2,515 2.0% 1.55 1.76 -4.6% 2,806 2.11 2,216 1.45 Median 11.92x 2,746 1.48 2,563 2,511 2.2% 1.53 1.84 -2.8% 2,976 1.83 2,306 1.43

Source: Capital IQ as of June 3, 2020, all values in USD , revenue data in millions

Sector Themes

• Overall volume has declined due to a lack of imports – especially for premium, bulk, and industrial customers. o Union Pacific Corporation (NYSE:UNP) has already experienced a drop of 22% to-date in Q2. o Both railroads and their intermodal trucking partners, such as Hub Group (Nasdaq:HUBG), commented in it’s earning call that when the country begins to open and demand returns, non-essential products will flow thus balancing networks and reducing costs. • Class I railroads have been extremely focused on lowering operating ratios over the past few years with many now below 60%. CSX Corporation (Nasdaq:CSX) is at 58.7%. • Precision scheduled railroading (PSR) has greatly improved efficiency of the industry with many companies improving their metrics with respect to train velocity, car miles per day, terminal car dwell, and fuel consumption. • Over the last year, PSR has reduced the asset base – and therefore CapEx demands – for railroads which executives expect will aid in a recovery. o Norfolk Southern Corporation’s (NYSE:NSC) active locomotive fleet is almost 15% lower in this quarter, compared with Q1 2019. o Fixed costs are being eliminated as quickly as possible to scale the overall cost structure with revenue. • Railroads are still in the process of trying to figure out how to compete and capture market share in an e-commerce world.

9 Transportation & Logistics | Q1 2020

AIRLINES

52-Week Range 1Q 2019 1Q 2020 Revenue 1Q 2020 EPS 2Q 2019 2Q 2020 Est.

Company PX Low High EV/EBITDA Revenue EPS Actual Estimate S / M Actual Estimate S / M Revenue EPS Revenue EPS Alaska Air 36.20 20.02 72.22 3.15x 1,876 0.03 1,636 1,708 -4.2% (1.89) (1.14) -65.5% 2,288 2.11 249 (3.75) Allegiant 112.65 60.06 183.26 6.41x 452 3.52 409 409. -0.1% (2.08) 1.02 -304.5% 492 4.33 61 (6.27) American 11.22 8.25 34.99 3.99x 10,584 0.41 8,515 9,011 -5.5% (5.26) (2.36) -123.5% 11,960 1.49 1,308 (7.76) Delta 26.41 17.51 63.44 3.31x 10,472 1.09 8,592 9,333 -7.9% (0.84) (0.82) -2.5% 12,536 2.21 1,384 (4.39) JetBlue 10.31 6.61 21.65 3.04x 1,871 0.14 1,588 1,627 -2.4% (0.97) (0.43) -127.9% 2,105 0.59 218 (1.86) SkyWest 34.06 10.58 66.52 4.38x 724 1.69 729 700 4.3% 0.59 0.91 -35.1% 744 1.71 335 (0.23) Southwest 34.48 22.47 58.83 4.20x 5,149 0.70 4,234 4,547 -6.9% (0.18) (0.32) 42.8% 5,909 1.37 576 (2.95) Spirit 14.49 7.01 55.21 4.59x 856 0.82 771 825 -6.6% (0.41) (0.62) 34.3% 1,013 1.67 77 (2.80) United 29.91 17.80 96.03 3.00x 9,589 1.09 7,979 8,210 -2.8% (6.86) (3.04) -125.7% 11,402 4.02 1,237 (9.92)

Average 4.01x 4,619 1.05 3,828 4,041 -3.6% (1.99) (0.76) -78.6% 5,383 2.17 605 (4.44) Median 3.99x 1,876 0.82 1,636 1,708 -4.2% (0.97) (0.62) -65.5% 2,288 1.71 335 (3.75)

Source: Capital IQ as of June 3, 2020, all values in USD , revenue data in millions

Sector Themes

• Airlines have been scrambling to decrease their cash burns in Q2 2020 as revenues have decreased by ~85%+. o United Airline Holdings (Nasadaq:UAL) expects to burn ~$45mm a day through Q3 and can drop to ~$25mm a day in Q4 if needed. o (Nasdaq:GS) expects a burn rate of $70mm a day in Q2, dropping to $50mm a day in June. o Co. (NYSE:LUV) expects a $35mm a day burn rate in Q2. • Steep decreases in capacity have grounded thousands of planes to balance capacity with demand (DAL has grounded ~650+ planes this quarter). • Major airlines have cash reserves and credit facilities to maintain liquidity but need air travel to pick up significantly to remain going concerns. o The above constituents increased the total cash on their balance sheets by 97.5% in Q1, compared to Q1 2019. • The industry will likely exit the pandemic much smaller in terms of revenue, planes, and network (The new normal). • Passenger load factors will most likely decrease as airlines grapple with removing center seats to promote social distancing on future flights.

10 Transportation & Logistics | Q1 2020

TRANSPORTATION & LOGISTICS TEAM

Burke Smith Managing Director, Head of Transportation & Logistics [email protected] | 310-872-0038

BurkeistheHeadoftheTransportation&LogisticspracticeatCapstoneHeadwatersandisbasedinthe Denver office. Burke joined the firm in 2014, bringing to Capstone Headwaters 19 years experience as an advisor to or leader of middle market companies. Most recently, Burke ran several asset-based trucking and warehousing operations, and previously managed an 8-state last mile delivery network. Over his career to date, Burke has executed more than 45 transactions with a combined value in excess of $40 billion. Burke began his career working on Wall Street. He initially trained at Wasserstein Perella & Co., where he worked directly for famed M&A banker Bruce Wasserstein. Burke then joined Donaldson, Lufkin & Jenrette (DLJ) as an early member of the firm’s Exclusive Sales Group, which became one of the most successful middle market sell-side advisory practices on Wall Street. Following the acquisition of DLJ by Credit Suisse, Burke joined UBS as an Executive Director in the mergers and acquisitions group. Burke earned a Law degree from Harvard Law School, and an MA and BA from Stanford University.

Anant Vashi Director [email protected] | 505-690-3561

Anant joined Capstone Headwaters after several years in investment banking sourcing capital for early and growth stage companies. Prior to investment banking, Anant worked with Sun Mountain Capital, a $90 million New -based co-investment fund focused on emerging technologies and economic development within the state. Prior to that, Anant worked as a Senior Associate for Mesa Capital Partners, a private equity fund which invests in growth opportunities in the service, manufacturing and technology areas. Anant began his private equity career with MWV Pinnacle, a $23 million fund mandated to invest in minority owned or managed companies. In addition to his investment banking and private equity positions, Anant has also worked in several corporate roles, including as CFO for an early stage transportation technology company and as Director of Corporate Development and FP&A for two middle market private equity sponsored companies. Anant earned his MBA from Case Western University and holds an MA from New School University and a BA from St John’s College.

Jay Mercier Nathan Feldman Associate Analyst 404-934-6362 845-416-5906 [email protected] [email protected]

11 Transportation & Logistics | Q1 2020

FIRM TRACK RECORD

Capstone Headwaters maintains an active Transportation & Logistics practice with operational expertise that enables us to profoundly understand how to help companies maximize value. We are known for our work in all links of the supply chain, including transportation, logistics, warehousing, supply-chain management, technology, packaging and other outsourced services. This market presence allows Capstone Headwaters to provide companies with experienced, up-to-date market data and access to key decision makers among the industry’s most active acquirers and investors.

has secured debt financing in has been acquired by connection with a growth has been acquired by investment by

have been acquired by has been acquired by has been acquired by

to form Fusion Transport Holdings

a subsidiary of

has been acquired by has been acquired by has been acquired by

12 Transportation & Logistics | Q1 2020

CITATIONS

1. Expeditors International, “Expeditors Reports First Quarter 2020 EPS of &.071,” https://investor.expeditors.com/press- releases/2020/05-05-2020-133110898, accessed May 14, 2020. 2. Seeking Alpha, “ (UPS) CEO, David Abney on Q1 2020 Results - Earnings Call Transcript,” https://seekingalpha.com/article/4340614-united-parcel-service-ups-ceo-david-abney-on-q1-2020-results-earnings- call-transcript?part=single, accessed May 12, 2020. 3. Seeking Alpha, “Landstar System, Inc.'s (LSTR) CEO Jim Gattoni on Q1 2020 Results - Earnings Call Transcript,” https://seekingalpha.com/article/4339477-landstar-system-inc-s-lstr-ceo-jim-gattoni-on-q1-2020-results-earnings-call- transcript?part=single, accessed May 15, 2020. 4. Seeking Alpha, “Old Dominion Freight Line, Inc. (ODFL) CEO Greg Gantt on Q1 2020 Results - Earnings Call Transcript,” https://seekingalpha.com/article/4339626-old-dominion-freight-line-inc-odfl-ceo-greg-gantt-on-q1-2020-results- earnings-call-transcript?part=single, accessed May 12, 2020. 5. Seeking Alpha, “Kirby Corporation (KEX) CEO David Grzebinski on Q1 2020 Results - Earnings Call Transcript,” https://seekingalpha.com/article/4343169-kirby-corporation-kex-ceo-david-grzebinski-on-q1-2020-results-earnings- call-transcript?part=single, accessed May 12, 2020.

Disclosure: This report is a periodic compilation of certain economic and corporate information, as well as completed and announced merger and acquisi- tion activity. Information contained in this report should not be construed as a recommendation to sell or buy any security. Any reference to or omission of any reference to any company in this report should not be construed as a recommendation to buy, sell or take any other action with respect to any security of any such company. We are not soliciting any action with respect to any security or company based on this report. The report is published solely for the general information of clients and friends of Capstone Headwaters. It does not take into account the particular investment objectives, financial situation or needs of individual recipients. Certain transactions, including those involving early-stage companies, give rise to substantial risk and are not suitable for all investors. This report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Prediction of future events is inherently subject to both known and unknown risks and other factors that may cause actual results to vary materially. We are under no obligation to update the information contained in this report. Opinions expressed are our present opinions only and are subject to change without notice. Additional information is available upon request. The companies mentioned in this report may be clients of Capstone Headwaters. The decisions to include any company in this report is unrelated in all respects to any service that Capstone Headwaters may provide to such company. This report may not be copied or reproduced in any form, or redistributed without the prior written consent of Capstone Headwaters. The information contained herein should not be construed as legal advice.

13 LEADERSHIP THROUGH THE COVID-19 ERA INTEGRATED CRISIS MANAGEMENT SOLUTIONS

As a firm, we have mobilized our collective resources to deliver an integrated solution to business owners navigating through these times. We can help frame your decisions, access capital to protect your position, and provide specialty transaction expertise to capture opportunities as they arise.

Our full-service capabilities help companies through every aspect of the business, supported by dedicated industry experts, market intelligence, and private equity coverage.

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We specialize in performance We help manage through new or We can assist opportunist improvement and value creation existing lenders or investors and acquisitions, execute sales, and in difficult situations. secure an optimal solution. navigate distressed transactions.

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Capstone Headwaters is one of the largest and most active independent investment banking firms in the . The firm has a rich 18+ year history of achieving extraordinary results for middle market entrepreneurs, business owners, investors, and creditors. The firm offers a fully integrated suite of corporate finance services, including merger & acquisition, debt & equity placement, ESOP advisory, corporate restructuring, valuation & fairness opinion, and financial advisory services.

Headquartered in Boston, Capstone Headwaters has over 170 professionals across 17 offices in the U.S. with 16 dedicated industry groups. Capstone has been recognized consistently as one of the top investment banks to work for and “U.S. Middle Market Firm of the Year.”

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