'Lots Of Unknowns' Facing Flatbed Market, Says Daseke

On its earnings call with analysts and investors, management from Daseke Inc. DSKE, the nation's largest flatbed carrier, said that they see "lots of unknowns" when it comes to a rebound in demand. They said that their wind energy and infrastructure customers are doing well and noted that their clients in the automotive industry are expected to come back online soon.

"Volumes held up well" during the first 11 weeks of the first quarter, yielding to pandemic-related demand erosion in late March. Management said the end markets that saw more notable declines – aerospace and automotive – began to level in the back-half of April. Overall, volumes declined approximately 15% during the downturn, excluding a segment that the company has marked for divestiture, remaining at those levels since.

Many end markets that rely on flatbed trucking – oil and gas, aerospace, manufacturing and construction – have been under pressure. FreightWaves' Flatbed Outbound Tender Reject Index (SONAR: FOTRI.USA), a measure of carriers' willingness to accept the loads that are tendered to them by shippers under contract terms and a proxy for flatbed capacity availability, is significantly lower than prior year levels.

Flatbed Outbound Tender Reject Index (SONAR: FOTRI.USA)

The company reported a $0.01 per share adjusted loss during the first quarter of 2020, better than analysts' forecasts for a $0.07 loss.

As part of its restructuring, Daseke announced that it was seeking to exit its 2018 acquisition of Aveda Transportation and Energy Services, an oil rig transportation company.

"Our management and board of directors have concluded that the Aveda business is not a long-term fit with the rest of our portfolio, and as a result, we have elected to begin the process to strategically divest this business," stated CEO Chris Easter in the company's first quarter 2020 earnings press release.

After the company divests Aveda it will have less than 2% exposure to oil and gas end markets, which remain under duress as depressed prices have largely ended the need for exploration, development and production in the near-term. On the call, management also pointed to the fact that its top 10 customers only represent 27% of total revenue and the average age of those relationships is more than 20 years.

Management said that the company is on track with both phases of the operational restructuring. The first phase concluded during the first quarter, achieving a $30 million annual run rate improvement in operating income. The second phase will conclude at year-end and is expected to provide another $15 million in operating income. In its entirety, the plan includes reductions in tractors, trailers, headcount and the consolidation of separately operated flatbed companies that Daseke had acquired over the last decade.

Citing uncertainty into a freight recovery, the company withdrew its full-year 2020 guidance calling for $1.61 to $1.69 billion in revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $170 to $180 million compared to $170.9 million in 2019.

On the call, Easter formally introduced the company's new CFO Jason Bates, who joined Daseke in late April from USA Truck Inc. USAK, where he held the same position.

First Quarter 2020

Daseke reported a 9.7% year-over-year decline in revenue to $391 million. Lower per mile rates and weakness in several end markets were the primary reasons. As part of its restructuring, Daseke reduced its total average tractor count by 336 units compared to the first quarter of 2019. Freight revenue per tractor declined 7.5% in the company's specialized segment with the flatbed unit seeing a 1.8% increase. Rate per mile was 12% lower in specialized at $3.24 and 4.6% lower at $1.86 in the flatbed segment.

Key Performance Indicators – Daseke

The company's consolidated adjusted operating ratio (OR) was basically flat year-over-year at 97.2%. Before adjustments, the company reported a net loss of $17.3 million, or $0.29 per share. Excluding the $13.4 million non-cash impairment charge associated with the divestiture of Aveda and other expenses associated with the restructuring, Daseke reported an $800,000 net loss.

Consolidated adjusted EBITDA was $35 million, $37.3 million excluding Aveda and slightly higher than the year-ago period. Excluding the results from Aveda, net income increased by $8.9 million year-over-year in the quarter.

In 2019, Daseke recorded $312.8 million in impairment charges as valuations of prior acquisitions declined, mostly due to the declines in used truck prices.

Balance Sheet and Liquidity

Daseke ended the first quarter with liquidity of $107.5 million in cash and equivalents and $84.4 million available on its revolving credit facility. Total debt of $693.6 million, $586.1 million net of cash and equivalents, improved from the $608.4 million in net debt reported at the end of 2019. Net debt-to-adjusted EBITDA was 3.2x, below the company's 4x leverage covenant.

The carrier generated net cash from operations of $29.7 million, recording $4.5 million in cash capital expenditures (capex) with cash proceeds from equipment sales of $5.8 million. Daseke reported an additional $9.8 million in capex that was financed with debt and capital leases. Free cash flow was $31 million in the period, down $6.1 million from the prior year quarter.

Even with the COVID-19 headwinds that are somewhat constraining balance sheet improvement initiatives, management plans to lower the average tractor age from 3.25 years (excluding Aveda's fleet) to 3 years by year-end.

Shares of DSKE are up 15% in midday trading after surging more than 20% shortly after the market opened.