Earnings Transcript for DSKE - Q1 Fiscal Year 2022

Operator: Good morning, everyone, and thank you for participating in today’s conference call to discuss Daseke’s financial results for the first quarter ended March 31, 2022 as well as Daseke’s outlook. With us today are Jonathan Shepko, CEO and Board member; Jason Bates, EVP and CFO; and Traci Graham, VP of Finance and Investor Relations. After their prepared remarks, the management team will take your questions. As a reminder, you may now download a PDF of the presentation slides that will accompany the remarks made on today’s conference call as indicated in the press release, we issued earlier today. You may access these slides in the Investor Relations section of our website. Before we go further, I would now like to turn the call over to Traci Graham, VP of Finance and Investor Relations, who will read the company’s Safe Harbor statement that provide important cautions regarding forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Traci, please go ahead.

Traci Graham: Thanks, Mag. Please turn to Slide 2 for a review of our Safe Harbor and non-GAAP statements. Today’s presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Projected financial information, including our guidance outlook, our forward-looking statements. Forward-looking statements, include those with respect to revenues, earnings, performance, strategies, prospects and other aspects of Daseke’s business are based on management’s current estimates, projections and assumptions that are subject to risks and uncertainties that could cause the actual results to differ materially from our expectations and projections. I encourage you to read our filings with the Securities and Exchange Commission for a discussion of the risks that can affect our business and to not place undue reliance on any forward-looking statements. We undertake no obligation to revise our forward-looking statements to reflect events or circumstances occurring after today whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. During the call, there will also be a discussion of some items that do not conform to U.S. Generally Accepted Accounting Principles or GAAP, including, but not limited to, adjusted EBITDA, adjusted operating ratio, adjusted operating income, adjusted net income or loss, free cash flow and net debt. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix to the investor presentation and press release issued this morning, both of which are available in the Investors tab of the Daseke website, www.daseke.com. In terms of the structure of our call today, we will start by turning the call over to Daseke’s CEO, Jonathan Shepko, who will review our business operations and the progress we are making as we execute against our key strategic priorities. Jason Bates, Daseke’s CFO, will then provide a financial review of the quarter and speak briefly about our 2022 outlook, at which point, Jonathan will wrap up our remarks with a few closing comments before we open the line for your questions. With that, I will hand the call over to Mr. Jonathan Shepko. Jonathan?

Jonathan Shepko: Thank you, Traci. Good morning, everyone. Let me begin on Slide 3. Well, we’ll highlight a few of the key takeaways from our first quarter of 2022. Daseke delivered another strong quarter of operational financial performance, while continuing to make progress against our ongoing transformation and further expanding returns for our shareholders. While the freight demand across the industrial landscape we support has continued to sustain with the persistent theme of supply, demand, and balance helping to drive strong freight rates across most of the end markets we service. This dynamic continues to play through in our top-line and our teams have continued to execute operationally, successfully converting this to attractive top-line revenue growth and a substantial earnings for our shareholders this quarter. As I mentioned, demand across most of our key end markets remain strong in first quarter, continuing to defy our normal seasonal trends as we posted both year-over-year and sequential rate improvements. We continue to see demand strengthening construction, manufacturing and steel markets driving flatbed performance, while high security cargo and glass bolstered growth in the specialized segment. In the first quarter of 2022, we opportunistically shifted assets to support the work we do with the Department of Defense in order to capture this freight with our company assets as demand surged. This is yet another example of how our diversified portfolio end markets yielded an opportunity for us to strategically redeploy assets in one of our highly specialized niche pockets of demand, providing for not only incremental freight capture, but also higher margin potential. Both supply demand and balance continues to buttress the current rate environment. We continue to face challenges in securing equipment Q1, as the global supply chain also remains challenged. The capacity constraints due to equipment availability and driver shortages within our industry, have only added additional crosscurrents that further complicate the supply picture. As such without a timely and meaningful correction to the demand side of the equation, we anticipate that this new flow on rates will hold for the foreseeable future, particularly as we enter our seasonally strong second and third quarters. With that said, this quarters outperformance versus expectations was truly about our operational execution into a number of driving end markets we service, creating opportunities to garner premium rates with our company assets, while also capturing excess volumes through our brokerage service offering. Revenues this quarter of $421 million, a 26.1% improvement year-over-year, coupled with continuously improving profitability metrics, despite facing strong year-over-year comps demonstrate the earnings power of our unique model, which places meaningful emphasis on execution across all market environments. In the first quarter, Daseke converted this revenue growth into $49.6 million of adjusted EBITDA a 38.5% improvement year-over-year, and adjusted diluted earnings per share was $0.24 a significant increase when compared to last year’s first quarter of $0.04 per share. Before turning the call over to Jason to provide more detail around our financial performance and full year outlook, I’d like to take a few moments to proclaim a modest victory for our company this quarter. That is the completion of our first acquisition. I’m pleased to announce that during the first quarter, we completed our first tuck-in acquisition and while on the smaller side of things based on our internal M&A mandate, even for tuck-ins, this acquisition decisively exemplifies our strategic priorities for M&A. This acquisition expands our geographic footprint with existing customers and the industrial and hazardous waste in markets, while also providing an opportunity to expand within this specialty chemicals verticals. The target services niche, counter cyclical, and defensible end markets that carry high barriers to entry, and will be a strong complement to the existing high security cargo operations within our specialized segment. The target has been immediately accretive as several commercial strategies were identified during our due diligence efforts with additional low risk synergies on the horizon as we continue to integrate operations with our existing platform. We expect the post acquisition implied multiple in 2022, to be about 4.4 times with line of sight to a fully integrated run rate implied multiple of roughly 3.6 times. We remain committed to M&A as a means to supplement accretive growth and as a logical catalyst to drive multiple expansion. And we remain diligently focused on identifying opportunities with the potential to improve our earnings and free cash flow profiles. With that, I will now turn the call over to Jason Bates to review our first quarter of 2022 financial performance. Jason?

Jason Bates: Thank you, Jonathan, and good morning, everyone. As Jonathan outlined, Daseke’s diversified portfolio of industrial-facing end markets and the strategic flexing of our asset right model has enabled the company to execute effectively across various market environments. We have consistently demonstrated our ability to strategically deploy our assets and our owner-operator network to support customers capture strong freight rates and outperform our traditional seasonality trends. We are pleased to report our efforts and transformative business initiatives have driven yet another quarter of positive financial results to both the top and bottom line. As we’ve seen over the past several quarters, in the first quarter, we continue to see sustained demand strengthening across our construction and manufacturing end markets. In addition, this quarter, we experienced a heightened demand in high-security cargo due to ongoing geopolitical matters, as Jonathan previously mentioned. Candidly, we have experienced steady demand across virtually all of our – all of the end markets we serve, which when coupled with the limited capacity within the industry has led to the strong freight rates we’ve been able to experience in the market today, especially in our flatbed business. We will continue to strategically deploy assets into the most advantageous end markets with strong freight rates and those which will yield the highest margins while leveraging our owner-operator fleet and brokerage capabilities to meet customer needs where their demand exceeds our owned capacity. Please turn with me to Slide 4 for a high-level review of our consolidated results for the first quarter. On the left half of the slide, we have our traditional GAAP measures with our non-GAAP measures shown in the table on the right. In the quarter, Daseke delivered revenues of $421 million, up 26.1% compared to revenues of $333.9 million in last year’s first quarter. As mentioned, our revenues continue to reflect strong freight rates as we continue to provide needed capacity to the areas where our capabilities generate the most value, which enabled us to capture rate increases in both the specialized and flatbed segments. This strong top-line year-over-year growth comes despite tough comps from the prior year’s quarter. We delivered adjusted net income of $17.1 million or $0.24 per diluted share in the quarter, both of which represented substantial improvements year-over-year. Adjusted EBITDA of $49.6 million grew by 38.5% compared to the first quarter of 2021. These impressive consolidated financial improvements were a function of continued strength in demand and strong freight rates, which more than offset inflationary pressures, equipment delays and insurance headwinds. At the combined operating segment level, our consolidated adjusted EBITDA results of $56.7 million were up 27.7% versus results of $44.4 million in last year’s first quarter. Before moving to our segment level results, I’d like to discuss the labor market briefly. While Daseke does exhibit higher driver retention rates than the industry average, we are not immune to inflationary headwinds around driver recruitment and retention. We continue to prioritize the quality of life of our drivers and have made a point to address as many of their needs as possible, including compensation. Over the past year, we have implemented various targeted pay increases to our driving professionals in line with the broader market. It is noteworthy that wage inflation has been hedged somewhat by the strong rate and demand market backdrop previously discussed. We will continue to monitor closely the labor market and remain committed to the prioritization of each of our driving professionals, recognizing that they are critical to our success. Lastly, I’d like to briefly touch on our corporate overhead expenses. Corporate expenses in the quarter once again decreased, coming in $1.1 million lower year-over-year. Key contributing factors include lower outsourced and professional fees, which were partially offset by corporate salary and benefit increases also in keeping with the broader market. On Slide 5, we present a detailed view of our results at the operating segment level, starting with our specialized segment results. Specialized revenues were $228.5 million, up $24.5 million – sorry, up 24.5% versus the prior year, driven by a diverse end market exposure and strengthening rates across numerous verticals, including construction, high security cargo and glass. Strong demand also helped more than offset the muted wind volumes we’ve experienced compared to the last couple of years. A further testament to our diverse end market portfolio approach. Notably, aerospace, an end market that has lagged in recent years began to see improvement in the quarter. As contracts were successfully renegotiated and the demand for aerospace volumes is beginning to return. Our specialized segments adjusted EBITDA improved 28.9%, with margins increasing 50 basis points versus the prior year’s period. Key contributing factors include the strong market backdrop and notable strength in a majority of our specialized end markets, as previously discussed. This was further supported by a rate per mile for the segment of $3.40, which increased by 22% compared to $2.78 in the first quarter of 2021. This rate expansion has been consistent across our portfolio of end markets, contributing to the year-over-year growth. Revenue per tractor also increased meaningfully from $69,000 – to $69,400 from $57,200 in last year’s first quarter. Lastly, the segment adjusted operating ratio for the first quarter was 91.2%, marking a 230 basis point improvement versus the prior year’s quarter. On Slide 6, we outlined our flatbed segment results for the quarter. We generated flatbed revenue in the fourth quarter of $195.1 million, which increased 27.1% from $153.5 million in the prior year quarter. Notably, each of our end market verticals in flatbed realized revenue increases in the period, with the boom in construction and growth in steel manufacturing and agriculture industries driving the segment performance. Leveraging our portfolio model, we are pleased with our ability to capture this growing demand and maximize the capture of improving freight rates across this collection of verticals. Once again, our asset right model and strong demand environment paired with our operational initiatives has delivered another quarter of profitable growth in our flatbed segment. In the quarter, we realized a 21% increase year-over-year in our rate per mile metric. This increase in rate per mile was further displayed in revenue of $55,600 per tractor, which increased from $45,800 in the same period the previous year. The segment’s adjusted EBITDA results of $25 million grew by 26.3% compared to the result of $19.8 million in last year’s first quarter as flatbed demand and ongoing tightness in available capacity kept rates at attractive levels, helping offset the cost pressures. Our adjusted EBITDA margins were essentially flat year-over-year, coming in at 12.8% versus 12.9% in the prior year’s quarter. The segment’s operating ratio improved 100 basis points to 91.8% with the adjusted operating ratio also improving to 91.4%. You’ve heard us reference the benefits of our unique business model and asset fleet composition in recent quarters and how that positions Daseke to most effectively play to its strength in the flatbed and specialized freight markets. The strategic optimization of asset deployment into capacity-constrained markets afford us the opportunity to outperform market benchmark rates and capture strong margins. At the bottom of the page on Slide 6, you’ll see a chart detailing Daseke’s flatbed segment realized rates when compared to the flatbed rate benchmark. Our business model enables us to utilize an optimized combination of company-owned assets, our owner-operator network and our growing brokerage business to maximize rate capture oftentimes through mix shifts, which leads to Daseke’s rate outperformance relative to the broader market. We are encouraged by the progress we have made, executing decisively into a good market backdrop and delivering strong performance for the business. However, we remain most encouraged by what this means as cycles fluctuate as this unique asset right dynamic, combined with thoughtful execution, provides Daseke the ability to defend margins if or when market rates ease. We believe strongly that this is a structural advantage we carry in the market, not an aberration, and we will look for ways to expand this rate outperformance dynamic as we fully execute against our transformation initiatives as time progresses. Turning to Slide 7. I’ll take a moment to discuss our cash flow performance. In the first quarter, Daseke generated $29.2 million in cash from operating activities. Cash CapEx was $8.8 million, and we collected cash proceeds from the sale of equipment of $11.5 million. This resulted in free cash flow generation of $31.9 million in the quarter. CapEx financed with debt or capital leases have totaled $7.3 million, bringing in net after finance of $24.6 million. In terms of our capital sources and balance sheet, we continue to maintain healthy liquidity of over $257 million with our cash balance, supported by the strong free cash flowing nature of our model and significant undrawn availability on our revolving credit facility. On the left side of the page, we note that while cash and cash equivalents as reported stands at nearly $154 million, we have earmarked $18.8 million of that cash that otherwise would have been deployed from our capital budget, specifically into new equipment purchases. Given the ongoing tightness to the supply of new vehicles and the inability for OEMs to work down the backlog, we are also showing our cash balance net of the delayed CapEx figure. From a capital allocation planning perspective, we will maintain a balanced value-based approach. We see significant runway to invest in support of high-impact organic and operational transformation opportunities with the component of strategic opportunities to evaluate any and all of which have the potential to enhance our leadership position within the flatbed and specialized markets where we focus. We will prioritize opportunities that are most likely to provide attractive risk-adjusted returns and create sustained long-term value for our shareholders. And Jonathan is going to touch on this a little later in the call. Looking to Slide 8. I will conclude with our outlook for the full year of 2022. Despite the various reports of a pending freight recession, we are continuing to see strength in demand and freight rate environments. Given the continued strength we’ve seen in our end market and open dialogue we have been having with our customers, we are comfortable in reiterating our 2022 revenue and adjusted EBITDA outlook. We remain confident in the resilience of our business model despite the macro inflationary pressures at play. We remain confident in our ability to achieve revenue growth of 4% to 7% and adjusted EBITDA growth of 5% to 10% for fiscal year 2022 when compared to fiscal 2021. This outlook is supported by the continued strength in industrial end market demand, combined with strong rates, which have continued to sustain thus far in Q2 and incremental benefits from our operational transformation initiatives. These positive market dynamics and company-specific initiatives are helping to overcome inflationary cost pressures and pockets of disruption in the greater macroeconomic environment. As a result of the delays in receiving new equipment that we articulated previously, we are reducing our net CapEx guidance to a range of $145 million to $155 million for the full year. Cash CapEx less proceeds is expected to remain in a range between $25 million and $35 million, but could flex up or down depending on how much we choose to finance as we will continue to closely monitor interest rates and make the right economic decision on the capital allocation front. As we look forward to the remainder of the year, while we remain optimistic about the various aforementioned data points and structural benefit to Daseke, we will continue to monitor industry headwinds, including driver availability, supply chain disruptions, maintenance, fuel and insurance headwinds as well as other potential inflationary challenges. We do not believe these headwinds will overcome the opportunities that lie ahead for us. To recap, we have a strong industrial demand environment, a unique ability to flex company, owner operator as well as brokered assets between our diverse high barriers to entry end markets, all supported by a durable rate environment. Additionally, we started to implement and continue to enhance our key transformational initiatives to further strengthen our operational efficiency. As we continue to evaluate the strongest use of our capital, we see a trajectory for 2022 with a focus on driving organic growth through both investments in the business and technological enhancements, all while carefully evaluating strategic inorganic opportunities for growth as well. In spite of the various uncertainties in today’s macro environment, we believe Daseke is well prepared and possesses a variety of structural and self-help opportunities that will assist us in our goal of continuing to outperform both internal and external expectations. As we progress through 2022, we will remain focused on operational excellence and strategically returning value to our dedicated shareholders. So with that, I’ll hand the call back over to Jonathan to offer a few final words. Jonathan?

Jonathan Shepko: Thank you, Jason. If you’ll please turn with me to Slide 9. On our last few calls, we’ve referenced planning and preparation in front of a new wave of transformational initiatives that are now underway at Daseke, albeit in the early innings. One of the primary objectives of our broader transformational plans is the shift from disjointed and siloed operations in each OpCo to a cross-functional collaborative through the establishment of a highly coordinated network mindset for our operations. As we think about future state Daseke, our vision is further consolidation down to a smaller subset of key operating companies, which we refer to internally as our platform OpCos. These platforms have sophisticated cross-functional teams with best-in-class management and each has its own distinct strategic contours. For example, one platform might be focused on low beta specialized end markets such as defense, high-security cargo and hazardous materials, while its counterpart high beta specialized I’d be focused on commercial flat glass, powersports, heavy-haul and construction. This platform concept was chosen to accomplish two primary objectives

Operator: [Operator Instructions] Your first question comes from the line of Ryan Sigdahl with Craig-Hallum Capital. Your line is open.

Ryan Sigdahl: Good morning, Jonathan. Jason. Nice results and progress.

Jonathan Shepko: Thank you.

Jason Bates: Thank you.

Ryan Sigdahl: Curious just to start maybe on the acquisition. I don’t believe I saw it anymore, but what was the revenue and EBITDA contribution and any other metrics you can give there?

Jonathan Shepko: Yes. I think the right way, Ryan, to think about that is really on kind of an adjusted synergy-adjusted basis. So we paid $20 million, right at $21 million for –

Jason Bates: $19.3.

Jonathan Shepko: $19.3 million for just under $6 million of synergy adjusted EBITDA.

Ryan Sigdahl: Got you. Helpful. And then revenue on that, you’re willing to give it?

Jonathan Shepko: Yes. So we – yes, look, preadjusted revenue, Ryan, was that the EBITDA margin was about 32% EBITDA margin.

Ryan Sigdahl: Got it. 32%, so basically much, much better margins than core Daseke business.

Jonathan Shepko: That’s right.

Jason Bates: Correct. Yes.

Ryan Sigdahl: Okay. Good. Presumably better free cash flow conversion as well on that?

Jonathan Shepko: Absolutely.

Jason Bates: Yes.

Ryan Sigdahl: Great. It seems like a nice bolt-on high-quality add there with strategic value as well. Curious, okay. So with that in mind, it’s a $6 million EBITDA, you reiterated your full year guidance that layers in now, I guess, three quarters of an acquisition. Q1 outperformed our expectation; I think also your internal ones per Jonathan’s comments, rates strong. I guess what am I missing on just reiteration of guidance when it seems like there’s a lot of incremental positives contributing?

Jason Bates: Yes. I mean I think the big question mark is a lot of the inflationary pressures and uncertainties out there, right? Candidly, if you couldn’t tell from the tone on the call, we feel very comfortable, very comfortable with that guide. So you can interpret that how you will. We’re not formally taking numbers up at this juncture. But given what we see today, we feel pretty comfortable reiterating. And over the next couple of months and once we get this acquisition more fully tucked in and have a little bit more visibility into the realization of some of those synergies and expanding that market a little bit, you may hear something different from us here at the end of the second quarter.

Ryan Sigdahl: Good. I appreciate the commentary kind of your end market exposure relative to a lot of the other public truckers out there. But curious kind of on top of that, so widely publicized spot rate declines in the dry van market. You guys obviously don’t participate in that, but curious if you have any context and correlation to past cycles, kind of how the heavy haul flatbed specialized if there was any correlation to the dry van spot market as a leading indicator, six, nine months later, we’ve seen this or just completely different altogether?

Jason Bates: Yes. I mean we’ve – for a lot of different reasons, as we’ve been going through the transformation efforts over the last couple of years; we’ve spent a disproportionate amount of time analyzing end markets, rate trends, correlations or lack thereof. And I can tell you, when you look at the Daseke portfolio and the diversity in that portfolio, we don’t see the same type of negative correlations that – now there are individual segments of the business that may be more closely tied and correlated to kind of what happens in dry van. But when you look at it in aggregate, there’s just not a correlation there.

Jonathan Shepko: And I think that’s going…

Jason Bates: Yes, and that’s going back over 10 years. So trying to go through multiple cycles there.

Ryan Sigdahl: Great. That’s it for me. Good luck, guys.

Jonathan Shepko: Thanks, Ryan.

Operator: Your next question comes from the line of Elliot Alper from Cowen. Your line is open.

Elliot Alper: Great. Thank you. So piggybacking off that last question. We’ve seen flatbed and specialized spot rates kind of outperformed compared to the drive in over the past couple of months. You guys have come down with the group despite this. Can you talk about the dynamics in the rate environment you’re seeing? I know you discussed your 15% to 20% exposure to spot, but maybe some kind of commentary you’re seeing around there? And then anything on April performance on the contract side? Thanks.

Jason Bates: Yes. Thanks, Elliot. Yes, great question on the rate side. We – you’re right. I mean, flatbed specialized have both been outperforming the dry van. And that’s the public data. Based on the comment we just discussed previously about some of the diversity of the end markets we support, we’ve seen a strong market. April, again, not to let the cat out the bag, but April was strong. Rates were strong. Demand was strong. I was actually just on a call with our COO and all of the operational leaders yesterday talking about what they’re seeing here on first week of May through April and almost across the board, it was man, we could use some more trucks. And can we get more trucks. We got customer demand that we’re doing everything we can with our LP and owner operator fleet, our brokerage relationships to try to meet the needs of our customers, but there’s a lot of opportunity out there. So that’s why we kind of scratch our heads at some of the kind of correlations that people are making between kind of our business model and our end market exposure versus maybe some of the more retail-oriented consumer kind of affected competitors.

Jonathan Shepko: Yes, Elliot, I think just for what it for anecdotally, if we had to guess, I think that in Q1, we probably repriced 50% to 60% of our book. So the market, the demand is definitely there. And I think challenges again on the supply side, I think present kind of a nice fairway for the rain environment to hold steady, if not continue to firm up even more.

Elliot Alper: Okay. That was really helpful. Thank you. I guess over to the owner-operator side, strong top line growth, I guess how should we think about that business unit through the remainder of the year and kind of what’s baked into your guidance? And anything you’re seeing on kind of the net new operators onto the platform?

Jason Bates: Yes. That obviously – you’re familiar with that model, right? A lot of those guys are paid on a percentage of revenue basis. So in a really strong rate environment becoming an LP or owner operator is an attractive option. We try to do a good job at helping educate them and walk them through it and help them to look past just this week and this month, which sometimes is difficult to do, but helping them think about it through the cycles, right, and make sure that it’s the right decision for them. We do have an LP program, which is kind of a little bit of like an owner-operator on training wheel program, if you will, where there still are owned assets, right? And so there are times where our guys will go into that program and then maybe realize it’s a little harder they thought or it’s not kind of what they like. And rather than just leaving, we were able to bring them back and put them back over to the company. So we have seen a lot of interest in that program for the reasons I mentioned previously. And we’ve been very strategic about how we’ve been growing it. We’re spending a lot of time internally analyzing the profitability of that program, not just in terms of rates and volumes, but also looking at the other pieces of debt equation, right? The insurance side of things, the safety side of things that we want to make sure guys aren’t stuck with being upside down in overvalued trucks three years from now and not being able to kind of continue to move forward in a viable way. So there’s a lot of that type of work that we’re doing. But yes, there’s no question that right now, there’s a lot of demand for that program.

Jonathan Shepko: Yes. And I think look, it’s a nice way to flex it inflects capacity in terms of the expense of a margin profile that’s kind of half out of our company trucks. So it’s absolutely search capacity. We also provides really kind of downside optionality when the market starts to soften, we’ll take those drivers and shift them back to company trucks that are doing kind of twice the margin of the LP driver or the LP truck. So it provides a nice hedge in kind of a stocking rate environment.

Elliot Alper: Okay, great. Thank you both.

Jonathan Shepko: Yep.

Operator: Your next question comes from the line of Bert Subin of Stifel. Your line is open.

Bert Subin: Good morning.

Jonathan Shepko: Hey, Bert.

Jason Bates: Hey, Bert.

Bert Subin: Have you guys said what percent of your current total revenue comes from dedicated contracts?

Jason Bates: No. We haven’t disclosed that historically. It is a growing number. But it’s kind of in the low double digits. And I think that’s – it also depends, as you know, how you define dedicated. Lots of people call different things dedicated, but it’s definitely a growing portion of our business and something, especially given the supply/demand imbalances that look to kind of continue to be out there, a lot of customers are asking about.

Bert Subin: Okay. Got it. Thanks, Jason. What are you seeing on the contractual rate side? I mean probably ex-Dedicated? Like what’s your – I think last quarter, you said mid-single digits plus. I assume that’s probably moved up a little bit now?

Jason Bates: Yes. I mean, even last quarter, I kind of was hedging a little bit when we talked about it because in our time about for the year. Last quarter, we were kind of hedging because we said, listen, if the inflationary environment continues to be what it looks like it might be, I suspect we’ll get higher rates. I don’t know. So you’re probably going to see an outperformance on the top line, but we’re going to – the reason we’re getting the higher rate is because we’ve got inflationary costs and more compensation going through the drivers and things like that. So maybe not as big of an outperformance on the bottom line. But we’re feeling pretty good about where rates are trending five months in right now.

Bert Subin: And just in terms of – I know you sort of reiterated that you don’t have a ton of spot exposure. What would you expect to be the impact on brokerage if flatbed rates do sort of start to follow the trend, what you’re seeing in driven?

Jason Bates: Yes. That’s a great question. I’ll start by kind of reiterating our brokerage model, right? As much as we wish several years ago, we had really expanded and grown our brokerage profile and have a freestanding stand-alone broker platform. Really, what brokerage has been for us over the last couple of years is an overflow support function for our customers and our strategic partnerships that we have with them. And so the reality is, is that if things were to kind of slow down a little bit, we would simply be taking things away from our broker capacity and bringing them on to our company-owned or owner-operated and LP assets. So it really, net-net, you would just lose the nominal margin that you’re capturing on that. And that’s similar to what we did back in 2020 when COVID kind of came through. You saw that same kind of shift back and forth. And so it is, as Jonathan alluded to, kind of a flex valve for us to be able to move up and down. And so while we might see that kind of slow down a little bit, if it slowed down meaningfully, we would just pull that freight over onto our assets where we can generate pretty strong margins.

Bert Subin: Okay. Just final question for me. Could you say what your exposure is to oil equipment markets? Is that a potential tailwind for the business? Or did you mostly pull out of that post 2018?

Jason Bates: Yes. So we had an oil rigging kind of company that had been purchased at one point, which just wasn’t a strategic fit for the business. And so that would be Abeta business that we used to talk about a lot that we’ve now divested up completely. I mean we still support a lot of end markets that tie into that, but not directly like that oil rigging business did.

Bert Subin: Got it. Okay, thank you very much.

Operator: Your next question comes from the line of Greg Gibas from Northland Securities. Your line is open.

Greg Gibas: Hey good morning guys. Congrats on the quarter. Thanks for taking the questions. I just wanted to cover guidance again. You said you’re very comfortable with it. Are you kind of assuming that market dynamics right now remain unchanged? And what are your kind of expectations on capacity with respect to guidance?

Jason Bates: Yes. I think that’s probably a fair assumption. I listen, we’re cautiously optimistic that – I know myself, I know Jonathan and I know Rick Williams, our COO, have all had very, very detailed conversations with our OEM providers about equipment. I think they’re doing the best they can to dig out, and I think they’re making up some ground. We’re optimistic that we’ll still be able to get the lion’s share of what we hope to see this year, which means other people will be seeing the same thing. And so – but having said that, when you think about our business model on the demand side, we just – we’re not seeing any indications that it’s slowing down anytime soon. And so you’ve got the supply constraint and you have plentiful demand, and that’s what we’ve been seeing, and it doesn’t look like that’s slowing down in the foreseeable future.

Jonathan Shepko: Yes. I mean, Greg, as Q2 and Q3 are the big quarters, the kind of make or break the year type quarters for us. And so we usually have a pretty good sense by late April, early May with those quarters are going to look like, depending on kind of the rhythm we have with our customers and our end market verticals. And so I think that’s going back to Jason’s point, by our second quarter call, I think any impact to guidance, we’ll probably be in a position to kind of better speak to that on the heels of that call. But I mean, again, we feel very good about the state of our industrial-facing end markets and cautiously optimistic that we’re going to continue to exceed expectations.

Greg Gibas: Okay. Great. Very helpful. If I could follow up on the tuck-in acquisition. It seems like it checks all the boxes, exactly what you’re looking for in terms of expanding the geographical footprint, new end markets, specialty chemicals. Could you maybe talk a little bit more about that and what it brings in terms of the new footprint to Daseke. And then I guess, the date on when that was completed and did it contribute anything to Q1?

Jonathan Shepko: Yes. It was actually closed in early March. And really, look, from a strategic fit, we mentioned it’s a hazardous waste. It’s a sub vertical that we currently have today. There were a few big customers within that smaller acquisition that we actually have relationships with service today. What this acquisition really did was we got us into a new region, a new part of the country into the Northeast, which you can’t otherwise access permits and kind of permit your way into that. You kind of have to buy your way into that part of the country. So it got us into a part of the country that allowed us to extend our footprint. Again, it’s a nice countercyclical low correlation type end market. We have relationships with those customers. We had very good visibility on because of our scale, because of our long-standing relationships with those customers, executing in fairly short of our commercial opportunities, commercial improvements. One of the things it did do and we kind of mentioned this now on a few calls, is we’re moving away from a trailer-centric strategy. This acquisition also came with tankers. And so we now have a very kind of modest tanker fleet as part of Daseke, and that’s something we’ll likely look to grow the kind of guide to this kind of specialty chemical push is one of the identified submarkets, we’d like to expand our leadership position in.

Greg Gibas: Perfect. Great. I guess, last one for me. I just wanted to complement your transparency on some of your transformational initiatives included in the slide deck. And I guess I just wanted to touch on, I think it was $20 million to $25 million in kind of annualized earnings improvement in 2023. Is that going to be kind of a Q4 run rate on maybe when you realize that those savings?

Jonathan Shepko: Yes. I think you can – look, I think, Greg, you can think about it really ratably over the first few quarters of the year, such that by Q4, kind of the exit run rate, it’s a full $20 million to $25 million. But I think that you’ll start to see that kind of layer in by potentially as early as Q4 of this year, but certainly by Q1 of 2023. And I think the team again is – look, is very confident in our ability to kind of generate that. I think there’s upside to the plan. The plan is something we’ve been working on for several months, really being thoughtful; we’re being surgical in how we think about continuing to transform Daseke. So we – this isn’t a – let’s cut things to the bone. We think there’s tons of opportunity. There’s still tons of even net of some of this movement, lots of operational leverage still in the business to accommodate additional growth, whether it be strategic or organic.

Greg Gibas: Great. Thanks guys.

Operator: I will now turn the call over to Jonathan for closing remarks.

Jonathan Shepko: I’d like to thank everyone for your time today. We look forward to continuing upon the momentum we’ve generated alongside our broader transformation. We thank you for your commitment and confidence in Daseke, and we look forward to translating the market opportunities facing us today in a profitable returns and consistent growth for our stakeholders. Thank you.

Jason Bates: Thanks, everyone.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.