The largest flatbed, specialized transportation and logistics solutions company in North America, Daseke, Inc. (NASDAQ: DSKE), reported a third quarter 2019 net loss of $273 million stemming from $307 million in impairment charges and $14 million in restructuring costs related to the company's operational reorganization efforts.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $43 million, down 18% year-over-year. Excluding the restructuring charges, the company cited lower freight rates and higher driver pay as the reasons for the weaker results.
As part of the company's ongoing transformation, new business heads were inserted at Daseke's two primary divisions, flatbed and specialized. The company also established an internal leadership council and a transformation office to facilitate the reorganization.
"We took decisive actions to drive immediate operational changes across the company during the third quarter. We believe our accelerated operational integrations, business improvement plans and corporate rightsizing will drive positive impacts in the business," said Daseke's interim CEO and full-time chief operating officer Chris Easter.
Daseke's Operational Restructuring
In its second quarter 2019 earnings release, the company outlined operational changes initially planned to generate $20 to $25 million in operating income by fiscal 2021. In addition to several strategic initiatives throughout the organization, Daseke announced that it would consolidate its network of previous tuck-in acquisitions, lowering its total of separately operated business units from 16 to 13.
However, since its second quarter financial report the company has made other moves to cut corporate overhead and streamline the organization.
The company's founder and CEO retired in August. In September, Easter accelerated the company's cost initiatives to a $30 million annual cost savings run rate by the close of first quarter 2020. In that September press release, the company also announced that it had eliminated the role of president and that its chief financial officer and the company "mutually agreed to a separation." Lastly, Daseke "rightsized" its number of board seats from 11 to 8 later the same month.
Daseke is still searching to fill both its CEO and CFO roles.
The restructuring of the company has been ongoing for the bulk of 2019. It started in January when Daseke filled the newly created COO role with Easter and then added three new "operationally focused" board seats in May.
The consolidation comes after a long run of acquisitions; Daseke acquired 19 different entities since 2009, growing its fleet count from 60 tractors to more than 6,000. Revenue at Daseke has increased from $30 million to $1.7 billion (2019 guidance) over the same time period.
The weakness seen in flatbed markets this year has largely been the result of a deceleration in the manufacturing and industrial industries. The Flatbed Outbound Tender Reject Index (SONAR: FOTRI.USA) highlights the softness in flatbed demand. The index measures the percentage of flatbed outbound tenders rejected in the last seven days.
Flatbed Outbound Tender Reject Index – SONAR: FOTRI.USA
Daseke reported a 2% decline in total revenue year-over-year to $450 million. Revenue in Daseke's specialized division increased 1% to $288 million. The division saw a 140 basis point (bp) erosion in its adjusted operating ratio to 93.9% as both freight revenue per mile and freight revenue per tractor increased slightly. Management noted strength in end markets for wind energy as being only partially offset by weakness in oil and gas markets.
Daseke's Key Performance Indicators
The company's flatbed segment reported a 6% year-over-year decline in total revenue at $170 million as freight revenue per mile and freight revenue per tractor were both 7% lower in the period. The division's adjusted operating ratio deteriorated by 250 bps to 95%.
Daseke reaffirmed its full-year 2019 guidance of $1.7 to $1.75 billion in total revenue and adjusted EBITDA of $165 to $175 million.
Shares of DSKE are up more than 3% on the news.
DSKE Stock Price Chart – SONAR: STOCK.DSKE
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