A recap of some of the highlights of the first quarter earnings of Daseke, a company that is very different this year than what it was when it reported earnings for 2017's first quarter.
- The reason Daseke is so different is that it made seven acquisitions in the last year in the flatbed and specialized transportation area as part of its stated goal to acquire and consolidate in that field. As a result, comparing some numbers apples-to-apples doesn't tell the whole story. For example, purchased transportation, which has been a big issue for several company earnings this year--too much of it at rates too high--looks at first glance like it soared. And it did, to $117.7 million from $37.5 million, accounting for 35.9% of revenues this year versus 23.4% last year. But that's part of the plan. "As we become asset lighter, purchased freight will become a bigger percentage of our spend," president and COO Scott Wheeler said on the conference call following the earnings release. For example, he said the acquisition of Tennessee Steel Haulers late last year--one of three companies whose acquisitions were all announced on the same day--brought with it about 1,000 owner operators. They don't draw salaries, but the money paid to them would show up as purchased freight. As purchased freight rose as a percentage of revenues, salaries declined, from about 31.2% to 25.1% of revenues. Wheeler said the asset light part of the business, with acquisitions that are heavy on driver relationships rather than the ownership of employee and equipment, has led the company to be about 50% asset light, up from about a third.
- Daseke has been a public company for about 14.5 months. Its financial performance in the first quarter compared to a year earlier marked a significant turnaround. The company's net loss narrowed to a little less than $1 million, or about 4 cts per share, and operations were profitable at about $7.7 million compared to a small operating loss in the first quarter of last year. But CEO Don Daseke was upfront in addressing the fact that the company's aggressive acquisition and consolidation strategy in the flatbed sector is not finding fans on Wall Street, where the stock has languished. The stock has traded in a tight range of about $8.40-$8.75...until this earnings report. Daseke's stock rose 62 cts Tuesday, a gain of a little more than 9%, to $9.36. But that fact was not known when Don Daseke said on the conference call, "I'm disappointed where the stock has been trading, and I've been impacted the most. The feedback from shareholders has been loud and clear and we accept that here today." Still, Don Daseke indicated no change in strategy, which he described as "executing continued operational growth, taking advantage of scale, driving organic growth and delivering great transactions." The earnings per share beat consensus by 4 cts, according to SeekingAlpha, and the revenue of $327.6 million was about $17.8 million ahead of consensus projections.
- Don Daseke described the M&A landscape as being a "robust acquisition pipeline with an opportunity to consolidate the industry." The company is in the process of making one of its most significant acquisitions with a June closing date targeted for its purchase of Aveda, which the presentation that went along with the earnings call described as "one of the largest oil rig moving companies in North America." The acquisition was unique first because it was announced publicly before closing due to the public nature of Aveda. The final price is uncertain because the amount of stock swap vs. cash in the final transaction still has not been determined. One aspect of the Aveda acquisition touted by Wheeler is the fact that integration with the Daseke should result in some work that is now being outsourced to other companies can be brought back into the bigger parent corporation. After integration, Aveda is expected to provide about 10% of company revenue.
- Daseke's numbers on rates were higher but not by an enormous amount, considering how much the spot market has shot up. The average flatbed rate per mile rose to $1.81 from $1.71 in the first quarter of last year, and was actually down sequentially from the fourth quarter, which was $1.87. It was noted on the call that winter is tough on all trucks, but is especially tough on flatbeds. Flatbed revenue per tractor was $40,600, up from $39,600 a year earlier. Increases in driver costs were described as "recurring," indicating they aren't heavily fueled by signing bonuses. Wheeler described that as "unique." Still, Wheeler said Don Daseke has described driver recruiting and retention as issues "1, 2 and 3," and that the company is "encouraged by our retention rate. Based on the data we have seen, we believe we are outpacing the market and continue to do so."