Daseke Reports Mixed Q3 Financials
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Daseke Inc.’s earnings declined despite revenue gains during the third quarter, the company reported Nov. 9.
The Addison, Texas-based flatbed and specialized transportation carrier posted net income of $12.6 million, or 17 cents per diluted share attributable to common stockholders, for the three months ending Sept. 30. That compared with $20.9 million, or 30 cents, during the same time the previous year. Total revenue increased 9% to $462.8 million from $424.6 million.
“I’m excited to report another strong quarter,” Daseke CEO Jonathan Shepko said during a call with investors. “We’ve talked at length about the effectiveness of our unique business model to respond favorably across cycles, and this quarter’s performance is continuing evidence of this strength.
“While we began to see some softness in a few of our flatbed end markets this quarter, this was offset by strong demand within several of our key other flatbed and specialized end markets, specifically high security, cargo, aerospace and agriculture.”
The year-over-year increase in revenue primarily was attributed to an increase in fuel surcharge revenue and growth in the brokerage and logistics service offerings. Consolidated rates improved slightly compared with the year-ago quarter due to the diversity of end markets, driven by strength within the specialized segment. The net income year-over-year change primarily was driven by a decrease in operating income.
“Exposure to several end markets and numerous sub-verticals across the industrial complex, some high beta and others with strong noncyclical tendencies provides us with a highly diversified portfolio of revenue contribution by customer,” Shepko said. “Our third-quarter adjusted operating ratio, excluding fuel surcharge of 89.3%, was one of the best in the company’s history, representative of our continued business transformation efforts and decisive execution by our seasoned operating teams.”
Shepko added the adjusted operating income and free cash flow fueled liquidity and allowed for further deleveraging. He also noted that the company continues to post strong adjusted operating income and free cash flow as it maintained focus on improving the quality of earnings and the cash flow profile.
“As we look to 2023, the macroeconomic and geopolitical uncertainty is a heavy consideration as we evaluate capital allocation priorities,” Shepko said. “That said, we are well positioned to both be defensive and opportunistic with our current liquidity and balance sheet. We have quarter liquidity of $311.7 million, notably higher than any of our peers as a percentage of market capitalization.”
Daseke reprioritized the importance of a strong balance sheet after it underwent an operational pivot in 2019. When the business transformation initiatives being executed began to take root and operations began to improve, the improvement trend line and free cash flow generation began to build.
“The change our business has undertaken over the last few years is real,” Shepko said. “It’s lasting, and we remain confident in our ability to generate positive free cash flow irrespective of the prevailing macroenvironment.”
Shepko also noted that a second driver is how the company is able to opportunistically shift capacity across end markets while maintaining the ability to flex capacity by toggling asset-light fleets. He noted that this provides a matrix of diversification that positions the company for resilience across rate cycles. He also pointed out that with 80% to 85% of business being contract based, the company does not have the same volatility as many of its spot-based peers.
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The specialized solutions segment saw revenue increase 10.8% to $270.4 million from $244 million during the prior-year period. Income from operations increased 18.2% to $35 million from $29.6 million last year. The segment continued to benefit from strength within high-security cargo, aerospace and agriculture. This more than offset lower wind-energy volumes. This strength in the freight environment supported margins, despite inflationary cost pressures. The segment includes company freight, owner-operator freight, brokerage and logistics.
• Company freight revenue increased 3.1% to $127.8 million from $123.9 million.
• Owner-operator freight revenue increased 14.3% to $48.7 million from $42.6 million.
• Brokerage revenue decreased 9.1% to $46.8 million from $51.5 million.
• Logistics increased 48.8% to $12.8 million from $8.6 million.
The flatbed solutions segment saw revenue increase 5.8% to $194.7 million from $184 million last year. Income from operations decreased 18% to $17.3 million from $21.1 million. The segment benefited from improvement in construction and manufacturing, which more than offset a decrease in steel. The flatbed segment continued to capture rates at a premium to the market despite softening in the overall freight market. The segment also includes company freight, owner-operator freight, brokerage and logistics.
• Company freight revenue decreased 5.1% to $42.8 million from $45.1 million.
• Owner-operator freight revenue decreased 8.6% to $81.5 million from $89.2 million.
• Brokerage revenue increased 26.6% to $38.5 million from $30.4 million.
• Logistics revenue decreased 18.2% to $900,000 from $1.1 million.
Daseke ranks No. 31 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.
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