Daseke, Inc. (NASDAQ: DSKE) has implemented a series of restructuring initiatives thus far in 2019 to trim expenses and improve efficiency throughout its network of acquired flatbed companies.
On August 15, 2019, Daseke’s Chairman and Chief Executive Officer Don Daseke announced his retirement. He remains with the company in the role of Chairman Emeritus. Chris Easter, who filled the company’s newly created Chief Operating Officer position in January, assumed the helm as interim Chief Executive Officer upon Daseke’s departure. In May, the company announced that it was adding three new board seats, filling the roles with “operationally focused business leaders.”
The restructuring progresses
The largest flatbed, specialized transportation and logistics company in North America announced that it is increasing and accelerating its cost improvement plan in a press release issued after market close on September 4. The plan in its entirety is expected to lower the company’s total expenses by $30 million across its network, which operates 6,000 tractors and 13,000 flatbed and specialized trailers.
“Upon assuming the leadership role for Daseke, it became abundantly clear that our company can achieve much greater operating efficiency, leading to improved financial performance. Years of aggressive growth resulted in corporate costs that either failed to deliver value or were not appropriate for a company of our size and structure,” said Easter.
The plan is aggressive and aims to achieve a $30 million annual cost savings run rate by the close of first quarter 2020. The company believes that this goal is attainable as it focuses on improving the operations of its prior acquisitions as well as eliminating redundancies associated with separately operated business units.
The original plan unveiled in its second quarter 2019 earnings report, in which it significantly lowered its full year 2019 financial outlook citing weakness in flatbed markets, called for total operating income improvement between $20 million and $25 million by 2021.
The Flatbed Outbound Tender Reject Index (FOTRI.USA – SONAR) displays the weakness seen in flatbed markets this year as deceleration in manufacturing and industrial industries have weighed on flatbed market fundamentals. The index measures the percentage of flatbed outbound tenders rejected in the last seven days.
The new plan has many of the same initiatives in place, but the savings and/or timeframe have been accelerated. Daseke still plans to consolidate three separately operated units into “other high-performing Daseke operating companies.” This will lower its total business units to 13 from 16. These efforts are expected to yield $19 million in operating income improvement and occur faster than the two-year window previously outlined for full implementation. Specific business improvement plans at a couple of its operating units will account for $7 million of the savings and management restructuring and corporate cost reductions will provide the remaining $4 million.
Easter continued, “We possess some of the best talent in our industry throughout our operating companies, and we must better leverage their depth and experience. We are now tapping into their expertise to help accelerate our prior operational improvement plans. We have also announced new steps to streamline our corporate function through a number of cost initiatives, including the elimination of several corporate positions.”
In the press release, the carrier said that it has re-evaluated and eliminated several positions within the corporate office, including the role of President. “Resulting from such evaluations, R. Scott Wheeler has resigned from his position as President and member of the Board of Directors as of September 4, 2019. The Company has determined that the duties of the position of president will be assumed by Chris Easter.”
From the release, “Additionally, Bharat Mahajan, the Company’s CFO, and the Company have mutually agreed to a separation to facilitate his and his family’s desire to return to Canada. Mahajan entered into a separation and transition agreement on September 3, 2019.
The release stated that “these departures do not reflect any disagreements about the Company’s past financial reports or disclosures.”
Daseke said that it has brought on David Bizzaro from Bridgepoint Consulting, an Addison Group company (a professional services firm specializing in consulting, staffing, recruiting and executive search), to fill the role of interim CFO. The company said that it will conduct a permanent CFO search after it finds a permanent CEO.
Lastly, the company reiterated its 2019 financial guidance – total revenue of $1.7 to $1.75 billion, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $165 to $175 million and a 3x to 3.3x leverage ratio as defined by its debt agreements.
For Daseke, the restructuring of operations comes after a sustained period of acquisitions. In its decade in existence, the company has completed 19 acquisitions, grown its fleet count from 60 tractors to more than 6,000 units and seen revenue grow from $30 million to potentially more than $1.7 billion this year.
Easter concluded, “The incremental improvements we announced today will further allow our company to deliver higher free cash flow, build a strong balance sheet, and reduce debt in 2020 and beyond. We look forward to capitalizing on the truly unique platform that we have built here at Daseke and believe the strategic plan we are announcing today will better position the Company for significantly improved financial performance and growth.”
Shares of DSKE are up 10 percent on the announcement.