Business Overview

Daseke, Inc. (NASDAQ:DSKE) is a premier North American transportation solutions specialist dedicated to servicing challenging industrial end-markets through experienced people and a fleet of more than 4,900 tractors and 11,000 flatbed and specialized trailers. The company delivers its diverse offering of solutions to thousands of customers across the United States, Canada, and Mexico.

Daseke operates two reportable segments: Flatbed Solutions and Specialized Solutions. The Flatbed Solutions segment focuses on delivering transportation and logistics solutions that principally require the use of flatbed and retractable-sided transportation equipment, while the Specialized Solutions segment focuses on delivering transportation and logistics solutions that require the use of specialized trailering transportation equipment. Both segments operate highly flexible business models comprised of company-owned tractors and trailers and asset-light operations, which consist of owner operator transportation, freight brokerage, and logistics.

The company's asset-based operations provide committed capacity and continuity of operations to meet shippers' needs, while the asset-light operations offer flexibility and scalability to meet customers' dynamic needs with lower capital expenditure requirements and fixed costs.

Challenging Freight Market Conditions

Thus far in 2023, Daseke has faced a challenging operating environment, with excess capacity lingering in the market longer than anticipated, load availability not rebounding as much as expected, inflationary headwinds persisting, and the used equipment market oversupplied. The company does not anticipate any substantive improvement in current freight market conditions for the rest of the year and expects a typical fourth-quarter slowdown.

Quarterly Financial Performance

For the third quarter of 2023, Daseke reported total revenue of $402.3 million, down 13.1% from the same period in 2022. This decrease was primarily attributed to lower owner operator freight and brokerage revenue due to decreased available freight volume, as well as lower fuel surcharge revenue due to decreased fuel costs. Total miles driven increased 2.1%, while rate per mile decreased 9.0% due to a decline in market rates.

The Specialized Solutions segment's revenue decreased 11.1% year-over-year, primarily due to an 8.6% decrease in rate per mile and a 27.2% decrease in fuel surcharge. The Flatbed Solutions segment's revenue decreased 15.8%, primarily due to an 8.9% decrease in rate per mile and a 27.5% decrease in fuel surcharge, partially offset by a 4.0% increase in total miles.

For the first nine months of 2023, Daseke reported total revenue of $1,209.4 million, down 11.4% from the same period in 2022. The company's annual revenue for 2022 was $1,569.4 million.

Profitability and Cash Flows

Daseke's net income for the third quarter of 2023 was $3.2 million, compared to $12.6 million in the same period of 2022. For the first nine months of 2023, the company reported net income of $9.4 million, compared to $43.3 million in the same period of 2022. The company's annual net income for 2022 was -$17.7 million.

Operating cash flow for the first nine months of 2023 was $92.5 million, compared to $106.7 million in the same period of 2022. The company's annual operating cash flow for 2022 was $118.7 million. Free cash flow for the first nine months of 2023 was $91.5 million, compared to $101.3 million in the same period of 2022. The company's annual free cash flow for 2022 was $88.4 million.

Liquidity

As of September 30, 2023, Daseke had $77.2 million in cash and cash equivalents and $112.2 million in available borrowing capacity under its $150 million asset-based revolving credit facility. The company also had $320.0 million outstanding under its senior secured term loan facility and $317.3 million in equipment and real estate term loans.

Daseke's management team is focused on improving profitability by reallocating resources out of unprofitable lanes and contemplating the elimination of fleets that lack cross-cycle resilience. The company's 2024 ambition is to be cash flow positive regardless of the market environment.

Risks and Challenges

Daseke faces several risks and challenges, including: - Continued excess capacity and lower freight volumes in the transportation industry - Inflationary pressures and rising interest rates - Volatility in the used equipment market - Driver shortages and increases in driver compensation or owner-operator contracted rates - Fluctuations in fuel prices - Seasonality and the impact of weather and other catastrophic events

Outlook

The company does not expect any substantive improvement in current freight market conditions for the rest of 2023 and anticipates a typical fourth-quarter slowdown. However, Daseke is focused on improving profitability through cost reduction, network optimization, and commercial initiatives, which will be facilitated by the continued integration of its operating companies into a subset of the highest-performing platform companies.

The company currently estimates its 2023 net capital expenditures to be $155 million to $160 million, up from the previous guidance of $135 million to $145 million, largely due to the timing of equipment deliveries and the impact of the secondary equipment market on cash proceeds.

Conclusion

Daseke is navigating a challenging freight market environment, with excess capacity, lower freight volumes, and inflationary pressures impacting its financial performance. The company is focused on improving profitability through operational initiatives and is aiming to be cash flow positive in 2024, regardless of market conditions. While the near-term outlook remains uncertain, Daseke's diversified business model, experienced management team, and strategic initiatives position the company to weather the current market challenges and capitalize on future growth opportunities.