Flatbed operator Daseke posted record full-year 2021 results Tuesday, with management calling for further improvement in the new year. A multiyear turnaround, which consolidated past acquisitions and reduced its fleet size and debt leverage, led the company to a 90.9% full-year adjusted operating ratio, 270 basis point better year-over-year.
The company’s fleet ended 2021 approximately 15% (870 units) smaller since the restructuring initiatives were implemented in 2019. Efforts to clean up the balance sheet and better deploy capital resulted in a 10% revenue decline over the same time, but the margins are much better. Adjusted OR has improved 550 bps since full-year 2019, with debt to equity declining from 3.5x to 0.9x over the same time.
The OR also benefited from a $10 million increase in the gains on equipment sales in 2021 as used truck values have increased on the back of manufacturing production delays.
Daseke (NASDAQ: DSKE) reported fourth-quarter adjusted earnings per share of 18 cents, better than the consensus estimate of 7 cents and ahead of the year-ago result of 12 cents. Revenue was up 18% year-over-year on a consolidated basis at $394 million. Higher freight rates and growth in the brokerage unit were credited with the increase.
Daseke’s specialized freight segment, which moves large, heavy, project-type freight, reported a 12% year-over-year revenue increase even as the average tractor count declined 6%. Freight revenue per mile was 13% higher in the quarter at $3.34.
The company’s general flatbed unit reported a 24% year-over-year increase in revenue as average tractors in use declined 9%. Rate per mile jumped 23% to $2.50, with freight revenue per tractor almost 20% higher in the quarter.
Much higher rates and improved asset deployment more than offset cost inflation. The adjusted OR in the specialized unit was 270 bps lower year-over-year at 90.1% and 550 bps lower in the flatbed segment at 89.4%.
Purchased transportation expense as a percentage of total revenue, which was 420 bps higher year-over-year, presented a headwind in the period. A 45% increase in brokerage revenue, which is mostly dependent on third-party capacity, and a 270-bp increase in the percentage of owner operators used in its freight operations, were the reasons for the higher capacity costs.
On a call with analysts, management said the goal is to operate the company at a 90% OR on a consolidated basis throughout the cycle, touching the 80s during peak markets.
Guidance points to reaching OR goal sooner than later
Revenue is forecast to increase between 4% and 7% in 2022, compared to consensus of 4% at the time of the print, with some operating leverage expected as adjusted earnings before interest, taxes, depreciation and amortization are expected to be 5% to 10% higher. The guidance assumes mid-single-digit rate increases, which will be partially absorbed by cost inflation, including driver wages.
The company implemented a driver pay increase during the fourth quarter, which management described as “in line with the market.”
The backdrop for many of the industrial verticals — construction, steel and manufacturing — Daseke serves remains strong. U.S. industrial production increased by an annual rate of 4% during the fourth quarter, according to the Federal Reserve Board. The December data was 3.7% higher year-over-year and 0.6% above pre-pandemic levels.
“I think our end markets that we support are a little bit more vibrant right now than maybe some of the other retail-oriented spaces. There’s some pent-up demand there and there’s likely to be a backlog for the foreseeable future,” CFO Jason Bates said on the call. “I don’t want to sit here and pound our chest, but we’re not scared about how it’s shaping up so far here in the first quarter.”
He said the fourth quarter experienced a more muted sequential slowdown from the third quarter than typically seen. That has management “cautiously optimistic” about the prospects for the first quarter.
Daseke had $148 million in cash on hand ($255 million in total liquidity) at year-end. Net debt was $447 million, an 11% year-over-year decline. Full-year 2021 cash flow from operations was $145 million (free cash flow of $150 million).
The cash metrics benefited as roughly $25 million of equipment buying spilled over into the new year due to production delays at the original equipment manufacturers. If equipment deliveries resume at a more normal cadence, Daseke will see an elevated level of net capital expenditures; $160 to $170 million in 2022 (only $25 million to $35 million in cash capex).
Net debt leverage stood at two times, as adjusted EBITDA reached $223 million for the year.
The company continues to pursue acquisitions, typically flatbed fleets with fewer than 100 trucks, and management remains hopeful it can close a few deals this year.
“I think the team would be pretty disappointed if we didn’t do at least a few accretive acquisitions this year,” CEO Jonathan Shepko concluded.
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