M&A Announcement

Jul 6, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the Uber's acquisition of Postmates conference call. At this time, all participants are in a listen only mode. After the speakers presentation, there will be a question and answer session. I would like to hand the conference over to your speaker today. Emily Reuter, Investor Relations. Please go ahead. Thank you, operator. Good morning, everybody. And welcome to today's conference call regarding Uber's agreement to acquire Postmates. On the call today, we have Dara Casa Shahhi and Nelson Chai. We also have Kent Scofield, and this is Emily Reuter from the Investor Relations team. We will start today with the remarks and Dara Nelson and then host a brief Q and A session. We have allotted 30 minutes for this call. Certain statements on this call may be deemed to be forward looking statements concerning the proposed transaction and other matters related to Uber and Postmates that are subject to risks and uncertainties. Actual results may differ materially from these forward looking statements and we do not undertake any obligation to update any forward looking statements we make today. For more information about factors that may cause actual results to differ materially from forward looking statements, please refer to the risks and uncertainties included in our SEC filings, including our filings on Forms 10 K, 10 Q, and 8 K. In addition, in connection with the proposed transaction, we will file with the SEC a registration statement on form s 4 to include a pres prospectus of Uber. Investors are urged to carefully read the registration statement and other relevant documents to be filed with the SEC in their entirety when they become available as they will contain important information about Uber, Postmates, a proposed transaction, and related matters. Investors will be able to obtain free copies of the registration statement and other documents filed with the SEC through the website maintained by the SEC at www.sec.gov and on our investor relations website at investor. Uber.com. You can find today's press release, a deal focused investor presentation, and any additional materials to be filed by Uber with the SEC in connection with the proposed transaction on investor. Uber.com. With that, let me hand it over to Dara. Thanks, Emily. I'm excited to announce that we signed an agreement to acquire Plosmades in an all stock transaction valued at approximately $2,650,000,000. This acquisition is going to allow us to drive continued growth improve our operating efficiency and accelerate our path to profitability through the combination of Uber And Postmates Scale Technology and complimentary geographic strengths. Before I talk more about the deal, I wanted to provide a brief update on our Eats business and our views on food delivery category more broadly. Globally, the food delivery ecosystem is large dynamic, highly competitive and growing quickly. Consumers and Restaurants have been shifting towards delivery before COVID-nineteen, but the pandemic has accelerated these trends. Rapidly attracting new customers and restaurants, including many that have previously not considered ordering or offering food delivery. We believe this reflect these water trends. We've seen record volumes with strong growth throughout April, May, June. Based on preliminary results, we expect that Eats gross bookings grew just over 100% year on year in Q2. We're in the unique position of having the ETH business to significantly offset headwinds in our Ride business, which saw gross bookings decline roughly 75% year on year in Q2, with a steady recovery to a less than 60% year on year decline as of the last few days with recovery varied by geography and with some countries having recovered to year on year growth. We believe the success of Uber Eats over the last 4 years from 0 to the largest food delivery service by gross bookings outside of China year to date 2020 was in large part due to the power of our global brand and our delivery model, which connects restaurants with a network of drivers and deliver people. We've continued to extend our strong position in urban areas, engagement some of our most valuable customers with an additional Uber service beyond rideshare. Eats has now achieved a leading category position in dozens of the biggest cities around the world including London, Paris, Lisbon, Tokyo, Taipei, Sydney, Toronto Mexico City, and many others. In the U. S, we have a leading position in a number of major metropolitan markets. Importantly, we continue to gain the category position in New York City. And while we've seen significant growth across the city, We're particularly pleased with our growth outside of Manhattan, which represents nearly 2 thirds of the NYC online food delivery market by gross bookings and has grown as much faster and has grown much faster than Manhattan over the past several quarters. Some of these cities were large profitable strongholds for established competitors who have historically been focused on a marketplace or 2 p model. Our success in these areas is a resounding endorsement of the value of our delivery model that our delivery model brings to consumers restaurants and delivery people through increased selection and network efficiencies. It's clear than ever to us that the logistics size of the equation will continue to play prominent role in the growth of this category. Our business is a technology enabled game of inches. It takes time and a relentless focus on execution, but as we start benefiting from strong flywheel effects, model starts to turn profitable. While we continue to invest in our business in the U. S. In a number of competitive markets, our each business is now profitable on an adjusted EBITDA basis in 2 of our top 5 Eats Countries by gross bookings. We're confident that we can continue to make progress towards breakeven and beyond on our Eats business, both organically and inorganically. Of course, consolidation could naturally accelerate that progress. We said that we would be a consolidator for the right assets or the right price. Which brings us today to the announcement with Postmates. This transaction combines our rides and e platform and deep logistics expertise with Postmates brand and distinctive delivery assets in the US. I want to spend a few minutes highlighting some of the valuable and differentiated products, technology, and expertise that Postmates will bring to Uber, including $643,000,000 in Q1 gross bookings, growing over 67% year on year and over 50% quarter on quarter in Q2. A geographic presence with strength in the U. S. Southwest, including Los Angeles, Las Vegas, Orange County, Phoenix, and San Diego that complement our existing Eats presence. Differentiated restaurant selection of over 115,000 partnered restaurants, a number of which are new to the Uber E platform, including relationships with popular local hero brands, such as Sugarfish, Takaya, or Gumka, Ono, Hawaiian, Barbecue, and Suites. A well loved brand with over 10,000,000 loyal active customers who place an order in the last 12 months ending March 31st. Industry leading delivery efficiency and batching at nearly 3 deliveries per hour in established geographies, which we intend to leverage through combined dispatch efforts to further improve our own delivery efficiency. A sizable subscription base with 30 percent of orders coming from Postmates, unlimited. Technology and operations to facilitate to facilitate delivery for non partnered merchants, that's much more reliable for consumers and delivery people and significantly less disruptive for merchants than the approach of many competitors. And an accelerated deliveries and service effort which complements our own efforts on grocery and B2C delivery. The combination of Uber Eats and Postmates is also to drive significant efficiencies and cost savings that allow us to bring benefits to all sides of the marketplace, including consumers and restaurants. We believe we can achieve over 200,000,000 of run rate synergies 1 year after close. Additionally, we believe that over time, we can offer wider selection and lower prices for consumers, generate increased demand, lower cost, streamlined operations with fewer tablets for restaurants, and provide more work opportunities and improved earnings for delivery people. We believe all of this will ultimately drive value for Uber as well. And with that, I'll turn it over Nelson for more details on the transaction. Thanks, Darr. Turning now to the details of the transaction. The transaction is valued at approximately $2,650,000,000 on a fully diluted basis subject to net debt adjustments. Postmates stockholders will receive a 100% cash consideration. Uber common stock issued in the transaction will be valued at 31 $0.45 based on Uber's 10 day VWAP as of June 29, 2020. Postmates stockholders are presenting more than 55 percent of its outstanding shares have committed to approve the transaction. Uber is committed to provide bridge financing to Postmates during the process of obtaining regulatory approval. Postmates will be combined with the Uber Eats business unit led by Pierre Dimitry Gorgodi, vice president of our delivery business. We estimate synergies to be over $200,000,000 of run rate savings 1 year after close, driven by efficiencies in G And A, sales and marketing, courage utilization and payment fees. We believe the combination accelerates our path to profitability. We expect to provide more details on the efficiencies we'll be able to achieve, as well as other acquisition related financial impacts once the deal closes. In terms of process and timing, the transaction is subject to customary closing positions, including applicable regulatory approval. As such, we expect to close the transaction in Q1 of 2021. I'm sorry. I think I said, the transaction was, cash. It's all stock. I apologize if I if I misspoke. And with that, let's move to Q And A. Please be mindful that we will not come in our Q2 performance please keep questions focused on this transaction. Our first question this morning comes from Brian Nowak from Morgan Stanley. Please go ahead. Thanks for taking my questions guys. I have 2 Just the first one, could you give us any, any rough idea on the the Postmates current EBITDA profit or loss runway? Just to have an idea for the way to think about the business after the synergies. Then the second one, just on the on the efficiency, 3 orders, nearly 3 orders per courier per hour is, I think, is pretty strong. Maybe talk to us about what drives us. Is there anything differentiated with Postmates tech stack or the routing technology or anything that you can leverage from that perspective to maybe make Uber Eats run even more efficiently? Thanks. Hi, Brian. Thanks for the question. We're not going to disclose Postmates run rate at this point, although I can tell you that the business was getting, much closer to profits on a run rate basis. And, the company under Bastian's leadership was feeling very, very good about the direction. We think with synergies, this will be a profitable deal for us. If you look at the deal on a standalone basis. In terms of the Postmates, the number of transactions per hour We agree. What they've done is very, very impressive as a smaller player in the field, but I think the team was very focused on making sure that they have the most efficient cost base that they could. Part of what Postmates does quite effectively is their batching technology. And because they have a pretty good concentration in a smaller number of markets, LA Orange County, the markets that we went over, they can use their technology to to batch quite efficiently. And I think that we are certainly gonna talk to them, and I'm sure that this is technology that can be leveraged across Uber and Uber Eats on a global basis. They got a number of tips per drop, so to speak. So delivery so their earnings increase as well. And for restaurants, it brings in more business because it reduces essentially the cost of delivery. Our next question comes from Brian Fitzgerald from Wells Fargo. Please go ahead. Hey guys, it just looking at some of the numbers from, I think a measure. It looks like, the combined entity will have leadership positions in LA, Atlanta. Phoenix. Those are strong, Miami number, number 2 in in New York and San Fran. I call it half market share there. So can you talk a little bit about how you view entering those those two cities in particular, and and maybe, our is is quite seeing any of this, in a feedback from local officials about the grades and, hey, you're extracting a toll from these restaurants while they're under duress. Sorry, which 2 cities in particular were you pointing out? San Fran and New York. Okay. Listen, I think first of all, when you look at the market and the size of the market, we really believe that the market is much bigger than, let's say, the traditional delivery players. Right? Like, we look at, groceries, a category. There's a lot of hot food being we look at essentials as category that, we are going to go after as well. So make number stake. When we look at the the category, for us, it started with food, but it's much more expansive than that. It's essentials. It's grocery. And by the way, we expect the grocery players and, and, and players and kind of, adjacent categories as well as the big restaurants themselves to get into our category as well. So while we have good share in those markets, we kind of view the market share and the market much more broadly than the category positions that most of these most of these, services measure. In terms of NYC and NSF, there are very big players there. We are going to be a, a decent player in the markets as well. We don't think we're going to have any particular trouble in those markets because they're very competitive. They've got some big players and again, big players in both the traditional restaurants, category as well as grocery, etcetera. So I think that this is a deal that, again, it's gonna be good for us. It's gonna be good for restaurants. It's gonna be good for delivery people. And while I'm sure we will have plenty of discussions on a local basis. I don't see any kind of, big red flag so to speak. Got it. Thanks, Daryl. Sure. Our next question comes from Mark Mahaney from RBC. Please go ahead. Thanks. Two questions, please. Could you double click a little bit more on the $200,000,000 of run rate synergies Nelson, I think you just went through the list, pretty quickly, but spend a little bit more time on how you came up with those numbers. And then you talk about the transaction accelerating the path to profitability. You may not quantify it, but are we talking about a couple of months, a couple of quarters, anything that, puts a little more color around how how that that rate of acceleration? Thanks a lot. So so, Mark, you want me to go sorry. I got it. So, Mark, you know, as I said in my prepared comments, we'll spend a little bit more time as we get closer to. But, you know, we went through their financials quite closely and obviously know our ours as well. And so we obviously see, pretty straightforward, integration opportunities here. As you know, we'll continue with, you know, Postmates has a tremendous following in the markets and and where they are. And so we'll continue to to do that, but, it's actually a relatively straightforward, G and A sales and marketing. Kind of standard playbook type stuff that you'll see us continue to execute there. So, again, I I think from that perspective, again, we'll give more colors, I said. In terms of accelerating the path of profitability, I think both businesses continue to benefit for what's going on, regard outside in the world in COVID and how it's pushed forward, a lot of food delivery. Their business has continued to do quite well. They've continued to narrow their loss, if you will, we continue to grow our business as Dara said, and, you know, we look forward to talking about our business more when we do our 2nd quarter earnings. You know, we put the the align in the sand next year regarding profitability and our ability to get there is is predicated a little bit. A lot of recovery more broadly, but certainly on improving our each economics, which we believe we are doing. Okay. Thank you. Next question. Our next question comes from Steven Fox from Fox Advisors. Please go ahead. Hi, good morning. Just as a follow-up to everything you've talked about, can you maybe expand on competitive environment as you implement more technology into the delivery system and network. Is there certain advantages you think you come out of that with relative to all the entrants that you cited. Thank you very much. Sure. I think that one huge advantage out that we have is, the same technology stack that essentially is powering our Uber ride service is the and many of the elements of that technology stack in terms of our routing, our mapping, our pricing, even if you look at batching, which is picking 2 or 3 or 4 orders up and delivering it, which creates increases efficiency, that technology is broadly similar to our pool, Uber pool technology, which isn't running now because of COVID, but a lot of the underlying technology matching technology that we got, comes out of the Uber ride service, and is being built on top of that core service for Uber Eats. And that just provides an enormous advantage in terms of the talent that you can hire as far as the engineers go, the efficiency of the systems, and your ability to drive more and more efficiency out of these systems, in a way that some of our competitors can't we put that together with some of the really smart work that we've seen from Postmates. And we really like, the combination there. And, I think that team has been very scrappy, very entrepreneurial, and we can use some of the learning to their systems and build on top of our systems, in order to build a better service overall, for everyone involved. And then on the competitive sector, listen, these are, big markets. We expect competition in this category for many, many years to come. And because of the innovation of Postmates, kind of, the over the top service that they built, where they essentially deliver anything, area, we've been developing our own, over the top services as well in order to broaden our offering and really the vision for us is to become an everyday service. And you're being able to use, Uber rides to go any place in a city. However you wanna get there, whether it's with a car or a taxi or mass transit, or, if you want anything delivered to your home, within a couple of hours, you can come to Uber Eats. And if it's food, it's great. But if you want groceries, pharmacy, again, any other category, you can have it delivered to your home as well. So Postmates, we think, is a great step along that vision. Any place you wanna go, anything you wanna deliver to your home, Uber is gonna be there with you, And we think these everyday frequent interactions create habit, create a connection with customers. We talked about the Postmates Postmates unlimited their subscription service, our subscription service, as well as growing at very, very rapid rates. And we think over a period of time, we can have a technological edge We can have a brand edge and we can just have a frequency edge over the other competitors out there. But we think it's these are big, big markets. And again, we'll be running against a lot of competitors as we look to build our own service. Great. That's extremely helpful. Good luck with the transaction. Thanks. Thank you very much. Next question. Our next question comes from Ross Sandler from Barclays. Please go ahead. Hey guys. So, Darr, you mentioned that Postmates has really good efficiency metrics in terms of fleet or delivery cost per order. So the question is, I guess, how wide is the gap in delivery efficiency between Postmates and Uber? And is there, technology that Postmates is is using that you could deploy on the Uber Eats side, to potentially improve the, the delivery efficiency on on both sides of the house. And I guess, what do you think is the, long term opportunity to increase, take rate at both Postmates and at Uber Eats? From that. Hey, Ross. Yeah, absolutely. So in terms of the delivery efficiency, we do think that there's real potential there now. Now I will caution you, that not all delivery network are are born equal in that the geography in which you operate, is can significantly differ, let's say, how much you can batch the routing, the number of drops per hour. Obviously, the more, concentrated, let's say, geography is like the LA area. The more you can, the more aggressive you can be with this kind of batching. That said, we do think, that we at at Uber have the opportunity to batch more, and to increase our own efficiency metrics. And the, efficiencies of the deal, the synergies of the deal that we talked about, the $200,000,000 plus don't include significant numbers, as it relates to network efficiency if we're able to drive significant numbers on network efficiencies. The synergies can be substantially beyond the $200,000,000. We want it to be conservative. In our planning as we are in every part of our business. But again, the network efficiency we think is, has potential and that potential can actually improve on the synergies that we talk to you about. In terms of take rate, etcetera, I wouldn't accept any significant moves on the rate front. As you know, take rates in general have been, moving up for us. I think our take rate is very low considering that, the cost of delivery generally is contra revenue for us. And This deal isn't about increasing take rates. This deal is actually about creating, kind of larger industrial logic and efficiencies that will allow us to actually keep take rates low as low as we can for restaurants and gross, and grocery partners because that is essentially a great way to, from a long term perspective, grow the business going forward. We will build tools like advertising, for example, for restaurants who want more promotion on the network one way or the other. But I actually think that this is this is a pretty good way of keeping take rates nice and low because this is a very, very large hand that's ahead of us. Next question. Our next question comes from Pierre Ferigroup from New Street Research. Please go ahead. Hi, thanks guys for taking my question. I wasn't wondering if you could share your on how you see the U. S. Market evolving from here. So now, if I look at the latest numbers, postmate is number 1, you guys for Sorry. I meant DoorDash is number 1. You guys with the combination will be twothree of their size, and we'll still have a Grubhub as a number 3. And for now, like, on a shareless trajectory. So my question was, do you think there is room for further consolidation or is your experience, anything that I few weeks that regulation is going to present that? And so do you think that your smartphone becomes like a 3 player market? And then if that's the case, is that the kind of environment that you had implied in your 30% EBITDA margin contribution margin target and your 16% take rate target for it? Yes, Pierre, this is a it's very difficult to speculate whether US market is going. And I certainly wouldn't think that it is going to reduce from 3 to 2. And and remember, I I do think the way that we view this category is very broad. Ourselves, DoorDash, I I'm actually not sure about Grubhub. Are all looking to get into adjacent categories and really looking to power local commerce, and different types of delivery to the home. This is a business that Amazon is in. This is business that Walmart is in. So I do think that, kind of the category and the markets are going to start overlapping with a lot of other players, but the TAMs here, the total addressable markets are huge. I think that there is plenty of room in the U. S. Markets. And, if you wanna stick to the traditional players, I I think that there is room for 3 players. It's a big enough market and there is room certainly for 3 players to be profitable and to do very well. That said, we like our position. We're never satisfied. But, we think that this Postmates deals, if you have to stronger in the US, I think it brings a terrific brand, a really strong management team and the opportunity to increase efficiencies. And we think that it it's, it puts us in a very strong position going forward and what is our largest market. Thanks, Alan. Operator, can we take the final question, please? Certainly. Our final question comes from Heath Terry from Goldman Sachs. Please go ahead. Great. Thank you. Dara Postmates has obviously been one of the more aggressive in the market in terms of customer acquisition with the ubiquitous $100 cards at, at restaurants, as their primary strategy there. I'm wondering how that factored into you and the team's view on the value of their customer sort of the sustainability of their of their customers, both, in terms of the asset at Postmates and then also the impact that maybe having, Postmates as a more rational competitor, to Uber Eats within the within the company would have on the, the overall value of the business? Well, I think that, Postmates for us, we've always admired Postmates, I guess, begrudgingly from afar, in that it was a competitor who, was able peed aggressively and to, be a leader in some very important markets, with a much smaller capital base than a lot of its competition, including ourselves. And and, you know, I think that they did it with some aggressive tactics But I think they've also built a great brand. It's a very scrappy brand out there. They have a number of great kind of top top local restaurants. It's seen as a very local kind of, brand that has real substance behind it. We really like what they've done with their subscription program. So I do think that some of these tactics that, they brought to bear, these are the tactics of great entrepreneurs and, you know, these are tactics that we can learn from as well. And and we can take into, into our company as we build our services. So we like what they've done. We like some of these tactics, and you can expect to see some of these tactics at Uber Eats, And of course, you can expect us to continue to do what we're doing again. For a little perspective, we have gone from essentially 0 and an east from the east side, pretty much 100% organically until now have built the largest food delivery company outside of China. In the world. So we think the combination of kind of Uber Eats of scale hyper growth on top of the technology platform that we've got here And then some of the really good work that Postmates has done in terms of delivery efficiency and in terms of just building a really terrific brand that resonates with millennials. We think it's just a wonderful combination, and it's a combination that'll work for restaurants. It'll consumers and I'll work for couriers as well. So we're pretty excited about it. I think, that's it. Emily, anything else to add? No. That's it. Thank you all for for joining this morning. Alright. Thank you very much for joining. We're thrilled, to move forward on this transaction. Congratulations to the folks who worked on this deal and congratulations to the Postmates folks. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.