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Edited Transcript of DSKE earnings conference call or presentation 12-Nov-19 4:00pm GMT

Q3 2019 Daseke Inc Earnings Call

ADDISON Nov 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Daseke Inc earnings conference call or presentation Tuesday, November 12, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian Bonner

Daseke, Inc. - Executive Chairman

* Christopher R. Easter

Daseke, Inc. - Interim CEO & COO

* John P. Michell

Daseke, Inc. - VP of Finance

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Conference Call Participants

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* Gregory Thomas Gibas

Northland Capital Markets, Research Division - VP & Senior Research Analyst

* Jason H. Seidl

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Matthew Stevenson Brooklier

The Buckingham Research Group Incorporated - Analyst

* Ryan Ronald Sigdahl

Craig-Hallum Capital Group LLC, Research Division - Research Analyst

* Brooks Hamilton;Alpha IR Group;Analyst

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Presentation

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Operator [1]

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Good morning, everyone, and thank you for participating in today's conference call to discuss the latest financial results for the third quarter ended September 30, 2019.

Delivering today's prepared remarks are Chris Easter, COO and Interim CEO; Brian Bonner, Executive Chairman; and John Michell, Vice President of Operations Strategy. 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 like to turn the call over to Brooks Hamilton with the Alpha IR Group, who will read the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Brooks, please go ahead.

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Brooks Hamilton;Alpha IR Group;Analyst, [2]

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Thanks, Nora. Please turn to Slide 2 for a review of our safe harbor and non-GAAP statement. Today's presentation contains forward-looking statements as within the meaning of the Private Securities Litigation Reform Act of 1995. Projected financial information, including our guidance outlook, are forward-looking statements. Forward-looking statements, including 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 adjusted EBITDA, adjusted operating ratio, adjusted net income or loss and free cash flow. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix of the investor presentation and press release issued this morning, both of which are available on the Investors tab of the Daseke website, www.daseke.com.

Now I would like to turn the call over to Daseke's COO and Interim CEO, Mr. Chris Easter. Chris?

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [3]

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Thank you, Brooks, and good morning, everyone. Starting on Slide 3. Today, we will cover several topics. First, I will start our call by providing a detailed overview of the significant operational and strategic actions taken at Daseke over the last few months. This will include an update to the first phase of our operational improvement and rightsizing plan that was launched during the third quarter.

Then Daseke's Executive Chairman, Brian Bonner, will provide some commentary on a few Board and strategic developments. Followed by John Michell, our Vice President of Operations Strategy, who will give a more detailed discussion of our third quarter financial results. I'll close our prepared remarks with a few pictures -- big picture thoughts before we take your questions.

Turning to Slide 4. I'd like to start out with a recap of the last 100 days. This has been a period of decisive action for the company. We embrace change, mobilized our team and came together as an organization to reposition the business. We have a tremendous platform to leverage as the industry leader in the flatbed and specialized transportation markets in North America.

The strategic actions we are taking today will allow us to capitalize on this leadership position as we drive enhanced profitability and reposition Daseke for future growth.

Let's take a step back and review how we got here. In our last earnings call, you heard us outline our shift and focus as we pivoted away from concentrating on acquisitions and made a commitment to operations excellence, which included intelligent integration and building better organizational efficiencies.

As a reminder, that plan had 2 key components. The first involve integrating 3 of our lower-performing operating companies into 3 other high-performing sister companies. We are merging these units for the purpose of capturing operational synergies and driving improved efficiencies through better asset utilization and the use of shared services. Additionally, these integrations will allow us to better leverage the deep talent, institutional know-how and functional support teams of some of our strongest performers across our portfolio.

Second, we initiated a broader business improvement plan across our operating companies. Simply put, we identified specific underperforming operating units where we must drive improved performance. These business improvement plans are targeting areas such as yield management capacity allocations, rightsizing trailer-to-truck ratios and maintenance execution to name a few.

Later in August, the company announced the retirement of Founder and CEO, Don Daseke. Don remains a member of our Board of Directors as well as our largest individual shareholder. Given our pivot from an acquisitions-based strategy focused on building size to a platform rooted in operations excellence and capturing value through our scale, the transition of Don's responsibilities to me made sense. In conjunction with Don's retirement, we named Brian Bonner to the role of Executive Chairman as he has similarly taken the reins of leadership at the Board of Directors level.

A few weeks later, as we started to execute against our operational and cost improvement plan, we quickly sharpened our line of sight to our ability to drive value and accelerated the pace of our original plan. Then in September, we enhanced that plan to include corporate cost reduction.

Effectively, we went from a $20 million to $25 million net improvement goal over 2.5 years to a $30 million goal in roughly 8 months. For clarity, that goal is based off of our first half 2019 revenue and operating cost run rate on an annualized basis, and the large majority of the drivers of the $30 million will be cost savings.

And today, I'd like to share some changes within our operations team. These changes will allow us better leverage the capabilities of our company's deep industry experience and talent through the creation of new leadership roles, including a new leadership council, Transformation Office and operating segment leaders. These Phase 1 strategic actions from our accelerated plan are summarized on Slide 5.

There are 3 core components to this accelerated plan. First, with regards to our operational integrations. Our leaders and associates were onboard from the start. Their willingness to embrace change, allowed us to accelerate the timeline and goal for this initiative to $19 million in operating income improvement on a run rate basis by the end of first quarter 2020.

Second, turning to our business improvement plans, we again saw an opportunity to move with a greater sense of urgency. Our new goal raised our original outlook to $7 million by the end of the first quarter next year.

Lastly, in early September, we announced the rightsizing of our executive management and board and a substantial corporate cost-reduction plan. This is expected to yield an additional $4 million decrease in our operating costs by the end of the first quarter of 2020 as well. These savings come after evaluating and subsequently eliminating several management positions and other meaningful costs within our corporate office as we look to hone our focus and consolidate certain duties at the executive management level.

That's a quick strategic summary of what was obviously a very important quarter for Daseke, we took decisive action and drove significant but necessary change across the business. Our team is maintaining a sharp focus on actions that drive immediate value but are also clearly prioritizing initiatives that are appropriate and required to sustain long-term improved performance. And note the title of this slide. This is just Phase I. These actions represent only the first steps in an evolving strategy. We are rebuilding a culture centered around operational excellence, continuous improvement and accountability. We look forward to updating you as our strategy evolves in the coming months.

With that review of the last 100 days complete, please turn to Slide 6. So I can walk you through a number of other important changes that we've made to better leverage the tremendous talent we have across the company.

The heads of our operating companies have decades of experience and are true thought leaders in the flatbed, specialized transportation and logistics industry. But they have been a largely untapped resource to date outside of their operating company responsibilities. Therefore, we have formed a new leadership structure that mobilizes these talented individuals to help drive our much needed performance improvement across the entire organization.

First, we created a leadership council comprised of several Daseke operational company leaders, which will be headed by Phil Byrd. Phil is the current CEO of Bulldog Hiway Express, was the previously Chairman of the American Trucking Associations and has received several distinguished industry awards. The goal of the new council will be to promote and champion organizational improvement and best practice initiatives as we move forward.

Second, we are pleased to announce the creation of a new Transformation Office, which will be headed by John Wilbur. John is currently the CEO of Roadmaster Group. John's background includes experience in private equity and banking and he was responsible for the integration of our R&R acquisition in 2018. John is a perfect fit to head up this new important office.

The Transformation Office will be responsible for ensuring the successful completion of the previously announced operational integrations and business improvement plans across the Daseke organization.

As we complete Phase 1 of this important work in late Q1 2020, this office will work hand-in-hand with our leadership council to take its initiatives and drive them across the company by tracking execution and ensuring accountability.

And third, we created a new segment head roles to oversee operations for each of our divisions. This is expected to improve our reporting and management structure by streamlining decision making within our 2 segments through these talented individuals. Tex Robbins, CEO of Lone Star Transportation, heads up our specialized segment; while Rick Williams, CEO of Central Oregon Truck Company, heads up our flatbed segment. Tex and Rick have decades of experience in our business, and collectively, they will be responsible for overseeing and implementing best practices across our segment operating companies.

These 4 leaders have over 100 years of collective trucking experience and institutional knowledge. And each has been instrumental in helping me drive positive change over the last several months. Further, each has run -- each run high-performing operating companies within Daseke, delivering industry-leading return and profitability metrics. Thus, we believe they have a lot more to contribute to our organization. I look forward to their expanded contributions.

Now moving on to the third quarter results and key themes that are highlighted on Slide 7. Our third quarter revenue was $450 million, which was flat versus the second quarter and down slightly year-over-year. From a big picture perspective, we continue to see softness in our flatbed markets although we are starting to see some signs that the rate environment may be bottomed.

Our specialized segment saw a 1.4% increase in revenue, driven by ongoing strength in our wind end markets that offset a weak oil and gas segment. Third quarter adjusted EBITDA was $43 million, which was down versus $53 million in the prior year quarter. Third quarter net loss was $273.3 million.

We took decisive action, which resulted in extraordinary cost, and we will deliver exceptional results in the future. Furthermore, our team is aligned behind a simple -- simplified disciplined focus. We are excited to demonstrate our ability to execute and deliver profit.

With that, I will now turn the call over to Brian Bonner, our Executive Chairman, to provide a number of corporate and board related updates. Brian?

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Brian Bonner, Daseke, Inc. - Executive Chairman [4]

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Thank you, Chris, and good morning, everyone. I'd like to take a few minutes to update all of you on a few corporate developments. Please turn to Slide 8.

First, an observation. Under Chris' leadership, I want to say how proud I am of everyone at Daseke and how hard they work to drive significant change across the company in a short period of time. Additionally, our operating company leaders have stepped up and embraced our integrations and business improvement plans. I am most proud of the commitment by all of our leaders to drive measurable financial improvements.

Next, you will see detailed in our press release that we've taken a noncash impairment charge this quarter of $306.8 million. The recent decline in our stock price and an updated look at our historical acquisitions, given today's market conditions, prompted an impairment review. We do not expect these charges to impact our ability to generate cash flow or have any impact on our ongoing operations or our debt covenants.

Next, I want to update our investors on the closing process of the Aveda Transportation and Energy Services acquisition we completed in June 2018. As a reminder, this acquisition had a potential earnout associated with it. Daseke takes a conservative approach with respect to reserving for earnouts related to acquisitions. Upfront, we reserved the full amount of any earnout until the final earnout obligations are determined. So we have and will continue to reserve the full charge of $21 million in our financial statements until our discussions with the Aveda shareholders representative are finalized.

It is important to note that this does not mean that, in our opinion, that we will be obligated to pay the full $21 million, but rather simply a testament to our conservative treatment of this potential payment until the discussions are concluded.

In accordance with this agreement, we have submitted our earnout calculation to the Aveda shareholder representative and are in active communication related to earnout calculations. We will not comment any further on the Aveda earnout until we have completed our discussions with the Aveda shareholder representative.

Lastly, I want to update the Daseke investors and stakeholders on our status of our ongoing CEO search. The board remains focused on fulfilling its fiduciary responsibility to secure the best individual for this critical leadership role.

Chris remains a high-quality candidate for the job. I thank him for his commitment to the organization as both Chief Operating Officer and Interim CEO, as well as an impressive amount of heavy lifting he and the whole team have undertaken on the operational improvement efforts.

I will now turn the call over to John Michell to review our financial performance last quarter. John?

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John P. Michell, Daseke, Inc. - VP of Finance [5]

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Thank you, Brian. Our Q3 financial details are presented on Slide 9. Revenue was $450.4 million compared to $461.6 million in the year ago quarter. The decline was driven primarily by the softer freight rate environment in our flatbed segment, which was partially offset by 1.4% revenue increase in our specialized segment.

As Brian mentioned, the integrations resulted in a triggering event, which required us to perform an impairment test of our goodwill. As part of the process, there was a review of affected assets. You evaluate each asset and perform an analysis and determine if you have the economic support of the carrying values. The total amount of the impairment was $306.8 million. The reduction in the deferred tax liability was $57.7 million for a total tax adjusted net impact to earnings of approximately $272 million.

Net loss for Q3 was $273.5 million or $4.25 per share, which includes noncash impairment charge. Adjusted EBITDA was $43.2 million compared to $52.8 million in the year ago quarter. The year-over-year decline in adjusted EBITDA was driven by softness in freight rates and higher driver pay.

Now let's talk through some of these onetime costs we incurred during the quarter. Moving to Slide 10. We've tried to make the impact of some of these costs easier to understand. We had an impairment of goodwill of $112.8 million. We had an impairment of intangibles of $85.7 million. We had an impairment of PP&E, right of use and other assets of $108.3 million for a total impairment of $306.8 million.

This resulted in a reduction in the deferred tax liability of $57.7 million or an approximately $35 million tax impact of the impairment. The impairment is expected to reduce depreciation and amortization by approximately $7.4 million per quarter. There were a number of onetime costs expensed during the quarter as a result of the ongoing operational improvement plan and corporate rightsizing. In total, there were $13.7 million in costs that don't impact adjusted EBITDA. Broadly speaking, these were $6.5 million for employee-related costs, $2.8 million related to fixed asset write-offs, $2.6 million of legal and consulting and $1.8 million for other related expenses. Finally, we had $2 million attributed to the write-off of unamortized financing fees.

Moving on to a more detailed look at our segment results on Slide 11. Specialized revenue in Q3 increased 1.4% to $288 million, driven by strong wind energy-related end markets, which outpaced broad weakness in our oil and gas-related end markets. The team moved very quickly in responding to market conditions. That said, at this time, we are maintaining our infrastructure that supports oil and gas transportation, such that we can take advantage of our market position when conditions improve.

Adjusted EBITDA decreased 15% to $34.3 million. Our operating ratio was 97.4% compared to 95.8% in the third quarter of 2018.

Specialized rate per mile was relatively flat versus the year ago quarter at $3.54, and revenue per tractor increased approximately 1%, but this is offset by $3 million of cost headwinds related to higher driver pay versus the year prior.

Slide 12 shows our flatbed segment. Flatbed revenue in Q3 decreased 6.4% to $169.8 million, and adjusted EBITDA decreased 4.6% to $20.7 million, driven by the softness in manufacturing and construction markets, coupled with truck downsizing across the segment. Weaker flatbed rates versus the prior year period represented a $3.7 million headwind to our EBITDA results. Flatbed had an operating ratio in Q3 of 96.9% compared to 93.3% in the year ago quarter.

The flatbed rate per mile in Q3 decreased 7% to $1.90 and flatbed revenue per tractor decreased 7% to 42,600, which highlights the soft freight rate environment.

Now turning to our balance sheet and free cash flow. As Slide 13 indicates, at September 30, we had $79.6 million, 0 outstanding and $84.6 million available under our revolving credit facility for a total available liquidity of $164.2 million. Net debt was $633.6 million and leverage in accordance with our debt agreements was at 3.25x, which remains well below our 4.0x covenant.

Our credit agreements removed many of these onetime items we've discussed today, so we maintain a healthy cushion against our covenants.

For the 9 months ending September 30, cash provided by operating activities was $89.4 million. Cash CapEx was $17.4 million, and cash proceeds from the sale of capital property and equipment was $23.8 million, resulting in free cash flow of $95.8 million for that 9-month period. We financed $65.6 million in PP&E during the 9 months. Overall, we reduced our net debt by $16.5 million versus the second quarter even in the face of softer industry conditions and before the full benefits of our operational and cost improvement plan.

I will close my prepared remarks with a quick reminder that our fourth quarter is historically our slowest quarter of the year from a seasonal perspective. For example, our last 3 fourth quarters saw operating ratios of 100% or greater as volumes tend to slow with the holiday season. We still believe you'll see some solid signs of progress based on the decisive actions we've taken to control costs and streamline the organization. They will likely be more impactful as we move past the fourth quarter and into fiscal 2020.

With that, I'll hand the call back to Chris.

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [6]

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Thank you, John. Moving to Slide 14. We are reaffirming our outlook for 2019, although we expect to be at the lower end of the range. Let's end on Slide 15, where I'll summarize. I'm even more confident that we will achieve our $30 million target. We have a sharp, simple focus and our team is aligned and mobilized as we build a culture based on empowerment and accountability.

That concludes our prepared remarks, and I'm excited to turn the call over for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Jason Seidl of Cowen and Company.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [2]

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A bunch of different questions that sort of circle different areas here. Brian, you mentioned the CEO search is ongoing. One, any hint on timing? And two, what about your search for a CFO?

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Brian Bonner, Daseke, Inc. - Executive Chairman [3]

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Yes. Our timing still remains the same as we previously discussed, which was 3 to 6 months from the start. So we are still looking at a first quarter completion of that effort. And then regarding the CFO search, we are doing that as we conclude the CEO search with the understanding that both individuals would like to understand who they're reporting to or have reporting to them.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [4]

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Okay. That makes sense. And in relationship to some of the impairments that you guys took out there. I understand what triggered it. On the acquisition front, was there any one particular acquisition that you guys made that triggered most of this? Or was it spread out evenly over some of the ones you've made? And then also on the reorganizational charges, where a lot of them put in when you look at your income statement or a lot of the numbers put already in salaries, wages and benefits? Is that why it jumped up as a percent of revenue?

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Brian Bonner, Daseke, Inc. - Executive Chairman [5]

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Yes, I'll take the first part of it. Regarding the trigger, we had 2 triggers there. It was the restructuring effort, as well as the stock price that triggered an evaluation of the impairments, and we were following FASB ASC 350 methodology to calculate the impairment. So that was what the overall trigger was. There wasn't 1 specific opco that was driving that.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [6]

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Okay. So it was more spread across specific opcos in terms of the impairment?

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Brian Bonner, Daseke, Inc. - Executive Chairman [7]

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Correct.

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John P. Michell, Daseke, Inc. - VP of Finance [8]

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Yes. Okay. And then to your last question, a big part of those costs were -- and these agreements are out there obviously, the severance-related to the headcount reduction. And so that's the big increase in the SWB's line item.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [9]

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Okay. That's what I thought. I just wanted to add just some quick modeling one. On the operations front, can you talk about some of your end markets a little bit more? I know you mentioned wind a little bit. You made the comment that you sort of see the rates improving a little bit on the flatbed side, I'd like some more meat on the bones there.

And then I want to talk a little bit about brokerage.

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [10]

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Yes. I'd say from a kind of a segment perspective or industry vertical perspective. We're seeing some strength in some, it's kind of a mix, especially on the specialized side with things like wind energy being very strong, but oil and gas is down. But -- so there's offsets in there. We're seeing some other lift sequentially on like our security cargo and some of the other segments, and we're seeing some softness, though, on steel and manufacturing. But it's all a mix. I mean, we're seeing things, I think, kind of level off. And I think even more importantly, though, we're seeing that capacity is what's -- where we're seeing things tighten. And I think that's helping offset, to some extent, rate pressures and it's given us more optimism -- more optimism as we're moving forward. And what was the last part of your question again?

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [11]

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I was going to jump to brokerage. But on the capacity tightening, is this because you've seen some bankruptcies? Or what's going on there on the capacity side?

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [12]

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I think that's clear evidence for part of it. I think the truck orders and new orders are down. When you see the bankruptcies out there, there's a lot of smaller companies in particular that have been struggling.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [13]

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Okay. I appreciate that. And last one, and I'll turn it over to somebody else. On the brokerage front. Obviously, you went from very strong growth in Q2 to negative growth. We've been hearing, brokerage has gotten a lot more competitive over the last few months. How should we look at that going forward, especially in 4Q?

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [14]

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Yes, I think it's a tough market out there in brokerage. And for us, it's -- we're obviously able to execute well on brokerage. It's a large chunk of our business. But it also gives us insulation. So right now, in a tighter market, we tend to -- more of those loads tend to end up on our trucks because we're wanting to make sure we're sweating those assets and using those as best we can. And I just think, long term, for us, that brokerage is certainly an avenue of growth. We love the nonasset component. And we already have got such great relationships and strength with our customers. We think it's clearly a path for us in the future for growth.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [15]

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Okay. So in Q4, you would expect it to be down again? Do you think it's going to be any worse than it was in Q3?

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [16]

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No, I don't think -- I'm not saying things that were proportionately yet, I think take a look at the seasonality for it, take a look at where we are. I don't expect anything beyond those normal seasonal type shifts that you would see.

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Operator [17]

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Your next question comes from the line of Matt Brooklier of Buckingham Research.

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Matthew Stevenson Brooklier, The Buckingham Research Group Incorporated - Analyst [18]

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So kind of a follow-on question. You did talk to the seasonality that you have embedded in your business as we're kind of thinking about fourth quarter. The message there is, right, it's weak -- weaker on a sequential basis if I'm looking at the midpoint of your guidance, it implies that, that decline this year may be a little bit less worse that's been in years past. So maybe if you could just talk to some of the benefits that you're expecting. I'm assuming some of the corporate restructuring, right? The full run rate of that hitting in third quarter, that provides a little bit of a lift. But is there -- A, I'd like to confirm that. And then, B, is there anything else from the programs that you've initiated that could start to benefit the fourth quarter here from a cost perspective?

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [19]

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Yes, I'll go ahead and take that, Matt. Yes, I think the -- looking at the fourth quarter and again, I made a quick note of the slide where we're confirming guidance. But yes, we absolutely are. Confirming that, we feel confident and comfortable with where we're headed in our trajectory for the balance of the year. And yes, we are seeing some of the lift from some of the actions we're taking that are already -- that will start to come through in the fourth quarter. But of course, we won't see the full lift until we get into next year.

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Brian Bonner, Daseke, Inc. - Executive Chairman [20]

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Yes. And I'll just -- Matt because I know part of it is a modeling question. When you think about EBITDA, there's a lot of noise below that, around depreciation and amortization. And so my comment was around, hey, look, Chris -- as John simplify, and we're focused on OR and just note that Q4 has a bigger impact on OR than it does to EBITDA, which you highlighted.

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Matthew Stevenson Brooklier, The Buckingham Research Group Incorporated - Analyst [21]

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Okay. That's helpful. And then could you talk to contract rates? Where do we think rates are resetting? I know you're feeling a little bit better in your specialized business versus flatbed. But all in, where do we think contract rates are trending right now?

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [22]

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I'd say we're seeing slight declines. I don't want to go out there with a number right now. But in our contract renewals, they are kind of spread out during the course of the year, depending upon the industry segment. But we certainly -- I think they have plateaued on the low side, and we're seeing stability, I think, in our end markets.

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Matthew Stevenson Brooklier, The Buckingham Research Group Incorporated - Analyst [23]

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Okay. And then last one, and then I'll pass it along. If we think about the fleet moving into next year, you think about the integrations that you have going on, you're thinking about kind of the market, probably more headwinds than tailwinds until things turn around. How should we think about the fleet? Is the expectation to keep consolidated fleet flat? Could the fleet be down next year? What are your kind of your initial thoughts here?

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [24]

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Yes, we definitely are taking advantage of this entire integration and operational focus process to skinny down where it's appropriate on trucks and trailers. I think as we come out of the fourth quarter, we'll be able to show those numbers more clearly. The market has been a little tough from a disposition perspective on the trucks, but the trailers have been solid for us. But we're deep into exercising those as we speak. So I would look -- at the macro level, I would expect our count to start next year down some from the start of this year. And we're going to stay lean. As you said, the -- it's not a blue sky outlook for next year. So we're not going to go out there with blue sky optimism. We're staying lean and be prepared to -- for our earlier point on brokerage, be prepared to lever up quickly with brokerage as we need to.

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John P. Michell, Daseke, Inc. - VP of Finance [25]

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And the idea there, Chris, may reduce the truck count but increase the utilization, so don't impact volumes.

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [26]

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Yes, absolutely.

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Operator [27]

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Your next question comes from the line of Steve Dyer of Craig-Hallum Capital.

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Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [28]

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Ryan Sigdahl on for Steve. So given the recent business unit consolidations, have you seen any impact to customer contracts or revenue? And then secondly, what has been the feedback, I guess, if any, are you hearing from customers in those regions?

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [29]

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I'd say that we were proactive in our discussions with key customers for sure. And that the fact is that we've seen no real material impact. If anything, in some cases, we may have taken some action ourselves as we're looking at yield management in the process. But yes, no real impact from a customer perspective. And I think our team did a fantastic job of proactively communicating, and the strong brand names of those -- the companies -- the parent companies that others integrated into, I think, positioned us to come out of that just fine.

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Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [30]

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Great. Then switching over within the impairment charge, I want to dig in, I guess, into 1 specific part of that related to the PP&E impairment of -- I believe that was $108 million if I caught that right. That seems rather high, I guess, given these assets were recorded at fair value when acquired. So I guess, what happened over the past year or 2 that these assets have deteriorated more than what the depreciation was?

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [31]

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Well, it's a complex model. I say that because I've spent many, many hours, I feel like a closet accountant at this point, digging in on the numbers. And obviously, our current market value has a lot to do with that. But -- and I'm not going to get into all the details. But John, I don't know if you wanted to add any comments over in terms of that from an overlay.

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John P. Michell, Daseke, Inc. - VP of Finance [32]

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We haven't talked about this for a bit. We've obviously got 2 things going on here. One, when we acquire assets as part of an acquisition, we've talked about the step-up in basis, and we have that step-up in depreciation. That's one. And then two, you're looking at current market values. And given where used truck prices are, you've got some impact there. So yes.

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [33]

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Yes. John is right. That's the key. I think I missed that point at first. But yes, that used truck market impact certainly came through as we were out getting current appraisals.

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Operator [34]

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(Operator Instructions) Your next question comes from the line of Greg Gibas of Northland Securities.

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Gregory Thomas Gibas, Northland Capital Markets, Research Division - VP & Senior Research Analyst [35]

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Congrats on the quarter. I guess, first, you've already identified these $30 million of operational improvements that have been broken out. Just wondering if you could talk about -- is there any room for additional cost savings that you think there'll be after that? I mean, considering fuel costs and driver compensation is a bit beyond your control. I mean, I know it's early to talk about numbers, but are you still seeing additional opportunities?

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Brian Bonner, Daseke, Inc. - Executive Chairman [36]

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Absolutely. Absolutely, we feel there are additional opportunities. Again, when -- as we talked about this at the very start of the last quarter, where we were sitting at 99 OR for the last many quarters. The opportunity is certainly there. Our operators know how to run the business. And that's what they're engaged in now. So they are excited as they've been kind of empowered and enabled to drive for results and so there definitely is. We'll be talking about that more in the future. So don't -- I'm not saying cook a bunch of numbers into your model, other than the fact that we're confident we can do more and we will do more.

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Gregory Thomas Gibas, Northland Capital Markets, Research Division - VP & Senior Research Analyst [37]

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That's good to hear. And then you talked a little bit about the end markets you're seeing strength and then weakness in. Was just wondering if you could call out some of the regional markets that you're seeing better-than-expected performance or even perhaps weaker performance in some of them.

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John P. Michell, Daseke, Inc. - VP of Finance [38]

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Yes, Greg, it's less regional and more of that end market that we're seeing that. Obviously, we kind of called out flatbed and we have such density in the southeast, and there's so much of the in the flatbed. So that's kind of regionally southeast, it's difficult, but it's much more a function of the end market and geographic specific.

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Gregory Thomas Gibas, Northland Capital Markets, Research Division - VP & Senior Research Analyst [39]

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Got it. Okay. And then in the past, you did talk about moving some of the operating companies that were pretty heavy in spot market toward more contracted rates. Just wondering if you could provide maybe an update on the progress here. I imagine that would kind of help you become a little less dependent on where spot rates move.

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [40]

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Yes. So there is, in fact, in particular, with one of our integrations with Builders Transport, they had been heavy in the spot market, and they're in the midst of that transition now, where Hornady is much more contract-based. So that is kind of a -- in process as we transition. You don't do that on a dime. And so we're working our way there. But it's back to -- I think, it's not like you want to get out of the spot market. The spot market is -- it's certainly can be an attractive component as well, and we're going to maintain our feet in there as we're moving forward.

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Operator [41]

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Thank you. I'd like to turn the call back over to speaker, Chris Michell (sic) [Chis Easter]. Please go ahead, sir.

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Christopher R. Easter, Daseke, Inc. - Interim CEO & COO [42]

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All right. Thank you, Nora, and thanks again, everyone, for joining us today. Our strategic focus and execution continue to build momentum. We have taken swift the decisive action to address the areas of our business that need our attention. I am very excited about the path we are on and the future of Desake. Thanks again.

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Operator [43]

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Ladies and gentlemen, to the conference is concluded. Thank you for participating. You may now disconnect.