Q1 2023 Daseke Inc Earnings Call
Participants
Aaron Coley; Executive VP & CFO; Daseke, Inc.
Adrianne D. Griffin; VP of IR & Treasurer; Daseke, Inc.
Jonathan M. Shepko; CEO & Director; Daseke, Inc.
Bert William Subin; Associate; Stifel, Nicolaus & Company, Incorporated, Research Division
Gregory Thomas Gibas; VP & Senior Research Analyst; Northland Capital Markets, Research Division
Ryan Ronald Sigdahl; Partner & Senior Research Analyst of Institutional Research; Craig-Hallum Capital Group LLC, Research Division
Presentation
Operator
Good morning, everyone, and thank you for joining today's conference call to discuss Daseke's financial results for the first quarter ended March 31, 2023. With us today are Jonathan Shepko, Chief Executive Officer and Board Member; Aaron Coley, Executive Vice President and Chief Financial Officer; and Adrianne Griffin, Vice President of Investor Relations and Treasurer. (Operator Instructions)
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 issued earlier today. You may access these slides in the Investor Relations section of the Daseke's website.
I would like to now turn the call over to Adrianne Griffin, who will read the company's safe harbor statement that provides important cautions regarding forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Adrianne, please go ahead.
Adrianne D. Griffin
Thank you, Mikala, and good morning, everyone. Slide 2 of today's presentation contains our safe harbor and non-GAAP statements. Today's presentation also contains forward-looking statements 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 revenue, earnings, performance, strategy, 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 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 not to 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 and not limited to adjusted EBITDA, adjusted EBITDA margin, adjusted operating ratio, adjusted operating income, 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 to 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.
In terms of the structure of our call today, I will start by turning the call over to Jonathan Shepko, who will review our business operations and the progress we're making as we execute against our key strategic priorities. Aaron Coley will then provide an update on our recent capital allocation actions and our first quarter results. Jonathan will conclude our prepared remarks with an updated 2023 outlook, before we open the line for your questions.
With that, I'll hand the call over to Jonathan.
Jonathan M. Shepko
Good morning, everyone, and thank you for joining our call today. At this point, in this quarter's reporting cycle, it's likely no surprise to our listeners that our industry is facing weaker demand than many of us were forecasting at the beginning of this year. Smaller operators are experiencing near breakeven spot rates, prompting an exit of the capacity from the industry with net relocations maintaining at record high levels.
While at the same time, remaining capacity is being reallocated into the strongest end markets, resulting in rate pressure across nearly every industry sub-vertical. Compound this with persistent inflationary headwinds, most notably maintenance costs and driver pay, with driver pay typically lagging in response to the prevailing rate environment.
The cumulative effect of weaker demand, lower prices and inflationary headwinds set the backdrop for what is framing up to be a challenging year. Despite the strain of these current challenges placed in our sector's fundamentals, I'd like to contextualize where we are at as a company.
First, 2022 was a record year for Daseke. It was notably the third consecutive year of record financial performance for our company, demonstrating the initial success of our transformation efforts and better preparing us for this year's challenges.
Despite a drastically different rate environment in this first quarter of 2023, we reported a favorable $46.8 million of adjusted EBITDA. In fact, this was the second best adjusted EBITDA trend for first quarter in our company's history and only $2.8 million shy of our record achieved in the more frothy first quarter of 2022.
Next, I'd like to point out the cross-cycle durability of our operating model, which is functioning as designed. Within our Flatbed segment, which generally experiences more volatility in slower freight environments, we noted several positive indicators, including relatively flat load count with an increased length of haul, increased percentage of company load miles as a percentage of total miles and reduced deadhead, each of which helped us drive adjusted EBITDA margin improvement as compared to not only the first quarter of 2022, but also the fourth quarter of 2022. These productivity improvements helped to stave off the full impact of the rate declines versus the prior year period.
During the first quarter of 2023, our Specialized segment delivered adjusted EBITDA and adjusted EBITDA margin flat to the prior year quarter, a substantial accomplishment in light of the macro environment.
Lastly, I'd like to highlight the idiosyncratic opportunities still available to Daseke as we continue with our transformation. In my recent letter to shareholders, we introduced the name of these collective transformational work streams as One Daseke. One Daseke will leverage technology and facilitate the sharing of best practices, while creating a more cost-efficient durable business model that consistently delivers profitable growth across future cycles. It's a series of initiatives intended to unite the teams across the company around the culture of close coordination and continuous improvement.
We are re-sequencing our transformation initiatives to pull forward these system deployments and extend out the operating subsidiary integrations to improve the efficiency of the integration process and the traction of the post-integration efforts, providing more sustainable long-term cost and revenue synergies.
Over the coming quarters, we continue to expect these initiatives will provide cumulative incremental operating income in excess of $25 million with additional cost and revenue synergy opportunities still available thereafter as we focus on the optimization of our business.
While we do expect our One Daseke efforts to partially offset the collective headwinds in 2023 and still contribute approximately $15 million in support of adjusted EBITDA as referenced on our last earnings call, our re-sequencing of these work streams is expected to shift realization of the totality of these run rate synergies slightly from late 2023 to mid-2024.
With that, I'll hand the call over to Aaron before closing our prepared remarks. Aaron?
Aaron Coley
Thank you, Jonathan, and good morning, everyone. In February, we established a target gross leverage of 1.5 to 2x total debt to adjusted EBITDA for normalized ongoing operations. After quarter end, we took decisive action toward this goal, paying off $50 million of long-term debt balance with cash on hand, thus cutting the interest expense associated with $50 million of long-term debt and reducing our pro forma gross leverage from 2.88x to 2.66x.
In addition, we also used $20 million of cash on hand to redeem the entire class of Series B-1 preferred shares that were receiving a 13% cash dividend, thus eliminating $2.6 million of annual dividend payments. These combined actions improved first quarter adjusted EPS by $0.03 on a pro forma basis or $0.11 annualized.
Pro forma for these transactions, we have maintained a healthy level of available liquidity at $95.6 million, including a cash balance of $91 million and $104.6 million of availability under our undrawn revolving credit facility. We will continue evaluating opportunities for additional outsized repayments to reduce gross leverage, further improving the risk-adjusted return for current and prospective shareholders.
As Jonathan mentioned in his opening remarks, the first quarter of this year was characterized by an environment of softening freight demand and lower overall freight rates. And while we were not immune to these headwinds, our asset right model moderated the impacts. I'll also remind our listeners that first quarter of 2022 was the highest ever first quarter adjusted EBITDA for the company.
The current year quarter consolidated revenue declined by $21.1 million or 5% to $399.8 million. The decline was due to a $17.6 million reduction in brokerage revenue, all of which was contained within our Flatbed segment, as well as $17.6 million reduction in owner-operator freight as we continued to focus on loading the higher margin company-owned assets and improving utilization for our entire company-owned fleet.
The intentional shift afforded by our model allowed us to capture an additional $4.3 million of company freight revenue with better margin pull-through partially offset the brokerage and owner-operator declines.
We realized continued demand strength in agriculture and high security cargo end markets due to the non-correlated relationship of agricultural equipment deliveries and sensitive cargo transport to the broader industrial economy, offset by a decrease in construction end market, symptomatic of the impacts of a higher interest rate environment and a degree of continued economic uncertainty.
Compared to a record first quarter of 2022, our adjusted operating ratio increased slightly by 120 basis points to 93.4% as total operating expenses fell more slowly than revenue. While overall expenses were lower, we realized increases in salaries, wages and benefits and operations and maintenance expense that pressured margin. Over the next several quarters, however, we expect these expenses will begin to reflect the changing dynamics of the current cycle.
Transitioning now to net income. In the current year quarter, net income was $0.5 million or $0.05 loss per diluted common share compared to the prior quarter of $13 million or $0.18 of earnings per diluted share. $7.2 million of the comparative period net income decline related to the expiration of warrants in the prior quarter that did not reoccur and incremental net interest expense resulting from rising floating interest rates on a flat absolute quantum of debt.
Regarding EPS, approximately $0.19 of comparative period decline related to the increased net interest expense and the expiration of warrants previously mentioned as well as $1.5 million in cash dividends associated with the Series B preferred shares that were issued in November of 2022 in connection with the founder's share repurchase.
Despite these headwinds, adjusted EBITDA was $46.8 million and adjusted EBITDA margin was 34 -- or 13.4%, representing a modest improvement in margin from 13.2% in the prior year quarter. As a final highlight of our consolidated results, we generated free cash flow of $33.7 million, nearly $3 million more than the prior year quarter, a significant achievement in a difficult environment.
Turning now to our Specialized Solutions segment. Revenue was $230.7 million, a 1.8% improvement versus the prior year as our team prioritized loading the higher margin company-owned assets. Through these efforts, company freight revenue increased slightly as a 5% increase in miles outpaced a decline in the company rate per mile.
Demand strength in agricultural and energy end markets added to revenue growth as well as the contribution from the hazardous waste focused SJ Transportation acquisition, which was completed late in the prior year quarter. These gains were partially offset by declines in the construction and manufacturing end markets.
Overall, the Specialized segment recorded approximately flat miles, a slight decline of 1.5% in average rate per mile to $3.31 and a segment adjusted OR that was roughly flat at 92.4%. In the first quarter of 2023, net income increased to $2.1 million from $6.2 million in the prior year quarter, primarily due to increased interest expense.
Finally, adjusted EBITDA and adjusted EBITDA margin increased slightly to $27.9 million or 13.6%. We are very pleased with the financial and operational performance of this segment during a difficult quarter.
Turning now to our Flatbed Solutions segment. The first quarter demonstrates the adaptability of our asset-right strategy. In an environment with 9.3% lower rates and roughly half the flatbed loads available in the market versus this time last year, our team shifted priority to loading higher margin company assets, which generated an increase in company freight revenue of 8.7% due to a nearly 21% increase in company miles driven as compared to 7.6% fewer miles driven by owner-operators.
The result of these movements was segment revenue of $169.1 million, a $25.3 million lower than the prior year quarter, primarily due to a $17.7 million decline in brokerage revenue. With the industrial end markets we serve, strength in the manufacturing end market was more than offset by decline in steel and construction end markets.
Flatbed Solutions adjusted OR was 94.8%, primarily due to lower revenue. Segment adjusted EBITDA was $18.9 million, with adjusted EBITDA margin improving slightly for both the prior period quarter and sequential quarter to 13.2%. Though improved operational and productivity efforts by our flatbed teams.
Looking at these results, our asset-right operating model is working as designed. We're concentrating on our efforts on enhancing productivity, which we expect to improve across the year.
I'll now turn the call back to Jonathan for an update on our 2023 outlook. Jonathan?
Jonathan M. Shepko
Thank you, Aaron. While our organization successfully navigated a difficult first quarter, in the remainder of 2023, we now anticipate a delayed recovery in freight demand that is likely to attenuate the seasonal uplift in rates and volumes typically realized in our second and third quarters, compounded by revised rate expectations for the remainder of the year that are 1% to 2% lower than those forecasted at the beginning of 2023, which appear to be well in line with the adjustments made by the broader industry.
If these expectations prevail, we anticipate full year 2023 adjusted EBITDA in the range of $210 million to $220 million, which is 6% to 11% below our previous guidance of $235 million, and again, is generally consistent with the recalibrations announced by most of our truckload peers this quarter. A return to stronger supply and demand fundamentals, including rates, seasonality or economic recovery, along with our continuing cost and revenue optimization initiatives could positively influence our ultimate financial performance.
Our organic capital expenditures net of property and equipment sales are expected to be $135 million to $145 million as compared to an original outlook of $145 million to $155 million. We believe consistent, disciplined reinvestment in our fleet is imperative across all cycles to enhance the driver experience, reduce future operating expenses and prepare our fleet for increasing profitability.
Our fleet utilization is improving, and our driver recruiting classes are the largest we've had in recent history, further positioning us to outperform through the early stage recovery of the next cycle. In this environment, we are investing in the technology and processes to support profitable growth in the up cycle, while prudently managing near-term controllable costs and reallocating resources to accelerate performance in this current environment.
Our One Daseke efforts will not only augment the resilience and efficiency of the model with technology, best practice and continuous improvement, but they will support the foundation of a new high watermark in our earnings profile when the cycle inevitably inflects.
Throughout our organization, we are fortunate to have leadership that knows how to operate with excellence in this environment, a team that can channel us across the near-term challenges through the execution of our long-term strategy, while compounding growth at attractive returns.
Now we will turn the call back to the operator and take your questions.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Bert Subin from Stifel.
Bert William Subin
Maybe just thinking a little bit about where you left it off on the guidance side of things. How derisked do you think the new EBITDA range is? I think if you were to end the year like 2023 in that range, investors would generally view that pretty favorably, but there seems to be probably some concern there's more downside. How are you evaluating the bare case at this stage now 5-plus months into the year?
Jonathan M. Shepko
Yes, I think -- look, a lot of -- there's a lot of data points out there that we're looking at. We're looking at load-to-truck ratios, utilization. We're looking at normal seasonality trends. And look, it's frankly a mixed bag. We ultimately took the revision downward because of the lack of seasonality. We typically by April really see a noticeable uptick in utilization, load-to-trucks, even rates. I mean, typically rates from March to April increased 10% to 15%.
And when you think about our Q2 and Q3, because of the seasonality in those 2 quarters being on trend for us, about 60% of our EBITDA is generating during those 2 quarters. So really important quarters for us. And we're just not really seeing the seasonal uplift. And so, we've kind of looked at -- look, we've looked at our peers, we looked at industry data. And based on customer feedback as well on recent discussions around pricing contracts and things like that, we've -- look, we've taken our guide down.
And it's based on -- as I said in the call, well, it could have 1% to 2% further degradation in rates. We've also -- we have assumed a little bit of an uptick in -- firming up in volumes, which we are actually seeing a little bit of improvement in volumes. But it's not such a pronounced improvement that we get hand back with the shippers, whereby we can really drive rate increases at this point. So we think that the seasonality might be there at some level, which is not simply going to be as pronounced as we typically see.
So -- and we feel pretty good about that guide so far. We've also got the integration efforts, the transformation efforts that are underway, and those are performing as expected. So we do have some things going for us. If loads hold, we think we continue to drive -- I mean, you saw this quarter the Southeast Flatbed segment really was able to drive productivity and improve productivity, which does a lot to offset rates. And we think that will continue if the freight holds. But at the end of the day, we're not economists and we're not soothsayers. So we're doing the best we can with the data we have in front of us today.
Bert William Subin
That's very super helpful. Maybe on the so-called cost initiative side of things, can you sort of highlight what's factored into the $210 million to $220 million guide for this year and what you ultimately think you can drive in 2024?
Jonathan M. Shepko
Yes. The way we're thinking about that, Bert, is we've got -- so last year -- we really commenced these transformation efforts last year, where we said the costs were going to largely offset any noticeable benefit from those efforts. We think a lot of those costs have kind of dissipated. So we kind of enter the year with probably roughly $5 million of benefit from the initiatives that we undertook last year.
And we expect to get an incremental $10 million this year. So we're thinking about $15 million of improvements of synergies related to those transformation efforts that we realized this year with probably something that feels like an exit run rate in the high teens. And then going into 2024, we think there's another $10 million on the table. So a total of $25 million -- cumulative of $25 million, probably an exit run rate that feels like closer to $30 million exiting 2024.
So a little bit of upside to what we've been telling the market. But we think timing -- as I said on the prepared remarks, timing has shifted a little bit to pull forward some of the systems implementations, which we think are kind of the long pole in the tent here, primarily around the TMS, kind of the lifeblood of these operating companies. So that's a better reason to shift. But we think the quantum of opportunity is -- that we've underwritten, too, internally is absolutely still there.
Bert William Subin
And just one last follow-up, and I'll pass it back over. As we look at the CapEx range, can you just highlight maybe why you think that range still makes sense based on where we are in the down cycle versus perhaps reducing your leverage incrementally? Is it just your belief that we're bottoming out here and '24 and '25 you're going to have a lot of opportunities, you want to be prepared for that? Or is it more around the maintenance CapEx side of things, where you want to get cost out of the fleet?
Jonathan M. Shepko
Yes. I mean a lot of the CapEx -- the large part of the CapEx is to replace rolling stock. And we take that very, very seriously. I think companies that try to kick the can on CapEx get into trouble, particularly when the cycle does inflect. They're just more disadvantaged. And so a lot of the CapEx this year -- as we said on our last call, we eliminated a lot of the growth CapEx.
And so, primarily what you're looking at is replacement CapEx, which we've kind of fine-tuned a little bit. There's some CapEx in there for systems. There's some CapEx in there -- about $5 million of that CapEx was pull forward for wind, which we expect to reflate toward the latter part of 2024. And given the lead time on those Schnable trailers of 18-plus months, we wanted to go ahead and get that in there.
So we think the CapEx is right-sized relative to the opportunity set ahead of us. We do think that the market starts to come back in 2024. We do think we're -- we've seen the bottom, we're at the bottom, nearing the bottom. And 2024, depending on what the Fed does -- I mean I think there's speculation that if the banking situation worsens, you could see 100 basis points of rate unwinding this year, which we think is going to be a massive catalyst to the economy, especially the kind of the industrial complex.
But if that ends up being kind of later next year, that's -- look, you're going to get the bang no matter what, and we want to be well positioned to take advantage of that when the cycle does inflect. So that's how we're thinking about it.
Operator
Our next question comes from Ryan Sigdhal from Craig-Hallum Capital Group.
Ryan Ronald Sigdahl
Staying on guidance here. So previously, you were guiding for revenue flat to up low single-digits. You said 1 to 2 points lower rates relative to your previous expectations. So I guess does simplistically will that imply kind of flattish revenue, maybe down a little bit? Or more through the puts and takes on revenue, please?
Aaron Coley
Yes. So our revenue guide is about 5% on the adjusted EBITDA range.
Ryan Ronald Sigdahl
You're guiding for revenue growth of 5%?
Aaron Coley
No, I said we're down 5%.
Ryan Ronald Sigdahl
Sorry, I missed that. Okay, down 5%.
Aaron Coley
(inaudible).
Ryan Ronald Sigdahl
Yes. And then can you split that between flatbed and specialized kind of expectations for the year?
Aaron Coley
Yes. Sure, Ryan. Flatbed is down 11% and specialized is down 2%.
Ryan Ronald Sigdahl
Given specialized has -- just one last follow-up on that. Specialized has hung in there a little better, I guess. Does that assume kind of what we've seen in flatbeds and a little more deterioration maybe flows through into specialized through the rest of the year relative to kind of current environment?
Aaron Coley
Yes, it does. As we look at across our sub-verticals on specialized, while they've held on pretty strong through the first quarter as excess capacity in other markets or chasing fewer freight, we expect to see some compression there as capacity tries to enter some of those markets.
Ryan Ronald Sigdahl
Last one from me, drivers. I mean it's been an ongoing battle, it feels like, for many, many years. Kind of inflationary wages there, but also just finding drivers. I guess are you seeing any improvements there? And I know you said kind of the cost side it's a lag. But any improvements on availability and then kind of timing on when we could potentially see some better wage inflation or I guess lower wage inflation on the driver side?
Jonathan M. Shepko
Yes. We've actually had a lot of positive momentum on the driver side. Our utilization is probably approaching kind of 92%. So we're absolutely seeding trucks. As you pointed out, if you looked at really kind of early 2022, late 2021 when the rate environment really kind of expeditiously increased, driver pay was lagging. And so historically, for us, driver pay as a percentage of revenue was around kind of 32%, 33%.
It got as low as high 29% to 30% really at the kind of the peak rate environment. And then really as rates started to inflect downward in the back half of 2022, wages started to catch up. So we kind of find ourselves today where wages as a percentage of revenue are closer to kind of 37-plus percent. But we do think that the market, the environment is setting up for -- look, for an environment whereby driver pay can start to be walked down cautiously and carefully.
Kind of transport trucking, non-farm payrolls decreased in February, but they increased slightly back up in March. So they're kind of hanging in there, up 3.2% kind of year-over-year. So when you start to see that moderate and fall off, that kind of gives you a sign that you've got excess driver capacity and you can start walking rates back. So I think we're probably a quarter or so from doing that.
Ryan Ronald Sigdahl
Great.
Aaron Coley
I'd say on the seeded...
Ryan Ronald Sigdahl
Yes, go ahead.
Aaron Coley
On the seeded -- I was just going to say, Ryan, on the seeded truck count, we are seeing 1% to 2% pickup in seeded rates. Our overall truck count is up about 5.5% to 6% depending on how you measure it through the quarter. And so, we are seeing larger recruiting classes, we are seeding more trucks, which we expect to continue to do through the remainder of the year.
Operator
Our next question comes from Gregory Gibas at Northland Securities.
Gregory Thomas Gibas
Regarding what you're seeing in the market, it sounded like it's mostly rate being pressured versus volume holding up relatively better. Is that kind of what you're seeing? And I guess, a similar question being how much of the weakening rates is a function of the decline in demand versus maybe the increase in industry capacity?
Jonathan M. Shepko
Yes, I mean I think if you think about load volumes, and we'll stay on flatbed for a second just, because it's kind of bigger, better, higher macro correlation. That -- in the Southeast flatbeds the largest flatbed market or flatbed region in the country so we'll stay there, they're actually seeing pretty good loads and pretty good volumes. If you look, though and pretty good is relative right.
If you look, at load-to-truck that's kind of load-to-truck metrics over time, if you look at 2018, which is pre-COVID when we had good times. And then you look at Q1, so let's think about Q1 to Q2, because the movement from Q1 to Q2 is pretty important here as a bellwether for how the rest of the year is going to be. If you look at really Q1 to Q2 in 2021, Q1 to Q2 in 2018, you had kind of mid-60s going to kind of 90%.
And I'm not sure that number means anything to you or anybody listening on the call. But 90%, as a kind of frame of reference, it's really as good as it gets. I mean that's a massively healthy environment where you've got substantial excess capacity and great, great coverage relative to your trucking capacity. 2022, Q1 to Q2 -- it went from 90% down to 55%. 55% by all accounts is an extremely healthy environment.
But you started to see -- you started to see a signal in that Q1 from Q2, load-to-truck went down. And then a few months later, you started to see pressure on contract rates and continued pressure on spot rates. If you look at where we're at in Q1 of this year, we're in the teens, okay? The last time we were in the teens was Q2, 2020, I mean, the dear of kind of the COVID environment, right, where everybody thought the world was going to shut down.
The last time we were in it before that, was kind of mid-2019 when we had our last freight recession, right? So if you look at where we're at, relatively, the companies we have, the brands we have, the teams we have, finding freight, they're doing a great job. And if you look at -- I think what separates us maybe from relative to some of the smaller carriers it's, the customers that we engage with.
The market, the absolute size of the market, whether it's steel, lumber, steel pipe and tubing, building materials, those markets have absolutely contracted. But what our customers are doing, our investment-grade customers are doing is they're using as an opportunity to take a market share. So they're actually hanging in there okay on a relative basis. But historically speaking, the load-to-truck ratio is extremely low.
Utilization rates are low, which means you've got excess capacity. And so, again, you typically see those things tick up from Q1 to Q2, and we're just not seeing that in any way, shape or form.
Gregory Thomas Gibas
Okay understood. Appreciate the color there. I wanted to apologize if you addressed already kind of your plans here, but I noticed it was adding 15% drivers in the tractor fleet year-over-year in this quarter. How do you maybe expect that to trend throughout this year just following that kind of softening in demand?
Jonathan M. Shepko
Greg, can you repeat that question, please?
Gregory Thomas Gibas
Yes, just regarding -- I think it was year-over-year, you added 15% to drivers in the tractor fleet. Basically, just wondering how you're expecting that the trend throughout this year, just given the softening in demand?
Jonathan M. Shepko
Yes, I think there's a bit of a timing difference there. I mean when you think about our truck count, a lot of our trucks that we had in orders last year were delayed. So we ended up getting a big delivery of trucks at the end of last year. And so, we're in the process of kind of cycling through those seeding those in Q1, a lot of those are largely seeded. Now you start the disposition process as well.
So if you're looking at just truly truck count ticking up, it's probably overstated in Q1 relative to what we're going to see for the rest of the year. We had assumed year-over-year that we'd have about 80 more driver -- 80 more trucks this year than last year. And that utilization, we'd be able to see those trucks more. So we would go from something that felt like kind of 86%, 87% seeded truck last year to something that felt like 90% to 91% seeded this year.
And so -- those are the assumptions that are going to play through. And again, as we mentioned on the comments with Bert, we're seeing the driver side of the equation is absolutely healthy. We're seeing those trucks probably in certain opcos, a little bit ahead -- well, substantially ahead of plan, right? And some of those opcos we've got -- 6% to 7% on seeded, so they actually need more trucks. So, we're feeling pretty good about where we're at.
Aaron Coley
The other thing that you're seeing, Greg, if you're looking at the press release in terms of company trucks is our intentional -- switch and our asset-right model. And so, we're deploying more company-owned trucks and deemphasizing brokerage, deemphasizing the owner operators. And so, we are getting some conversions of lease purchases to company trucks. And so that's kind of why you see the shift in our mix of our mode.
Gregory Thomas Gibas
Okay got it. And I guess, lastly, you already addressed kind of wage driver wages, but just wondering if you could provide some color on maybe the other -- the levels of inflation you are seeing across some of the other big cost categories?
Jonathan M. Shepko
Yes, I mean we're still seeing on -- the kind of the maintenance costs. I mean we're still seeing kind of 20% cost increases, and that was probably off of 40% cost increases in 2022. We're still seeing kind of 20% plus expectation of cost increases this year for kind of maintenance and repairs. Tires were up about 40% last year. I don't think it's going to be another 40%, but we're in the process of meeting with some of the tire vendors right now to figure out what those price increases are going to look like.
But again, I think when you look at the inflationary headwinds we face, and you look at now kind of a CAGR on rates versus 2019, so kind of pre-pandemic environment till today, you've had a kind of CAGR of 3% rate increases, right? When you CPI adjust that, you haven't really shown any real rate improvement, and you've got all the inflationary headwinds to offset as part of that. So it is truly kind of a perfect storm.
Operator
That concludes the question-and-answer session. Thank you for your participation today. I will now turn the call over to Mr. Shepko for his closing remarks. Mr. Shepko, go ahead.
Jonathan M. Shepko
Thank you, Mikala. Though we're in a trough looking up, cycle terms in our industry are quick and substantial. And when the inflection comes, our unique portfolio of brands and services with a network of 4,800 tractors and 11,000 trailers, we're well positioned to expand asset productivity, increase revenues, leverage earnings growth and enhance shareholder value.
I'd like to thank our entire 4,300 person team for their focus and dedication. We delivered a strong first quarter despite a challenging macro backdrop, confirmation that we're more resilient and agile organization, and we remain diligent on our commitments to drive shareholder value through proactive balance sheet optimization and operational excellence. Thank you all for your time this morning.
Operator
Thank you for your participation in today's conference, this concludes the program. You may now disconnect.
