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spk01: Good morning, everyone, and thank you for participating in today's conference call to discuss Dasky's financial results for the first quarter ended March 31, 2022, as well as Dasky's outlook. With us today are Jonathan Shepko, CEO and board member, Jason Bates, EVP and CFO, and Tracy Graham, VP of Finance and Investor Relations. After their preferred 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 now like to turn the call over to Tracy Grimm, VP of Finance and Investor Relations, 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. Tracy, please go ahead.
spk02: Thanks, May. Please turn to slide two for a review of our safe harbor and non-GAAP statements. Today's presentation 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 include those with respect to revenues, earnings, performance, strategies, prospects and other aspects of Dasky'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 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. In 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, but not limited to, adjusted EBITDA, adjusted operating ratio, adjusted operating income, adjusted net income or loss, free cash flow, and net debt. 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 in the Investors tab of the Dasky website, www.dasky.com. In terms of the structure of our call today, we will start by turning the call over to Dasky's CEO, Jonathan Shepko, who will review our business operations and the progress we are making as we execute against our key strategic priorities. Jason Bates, Daski's CFO, will then provide a financial review of the quarter and speak briefly about our 2022 outlook, at which point Jonathan will wrap up our remarks with a few closing comments before we open the line for your questions. With that, I will hand the call over to Mr. Jonathan Shefco. Jonathan?
spk03: Thank you, Tracy. Good morning, everyone. Let me begin on slide three, where I will highlight a few of the key takeaways from our first quarter of 2022. Daski delivered another strong quarter of operational and financial performance, while continuing to make progress against our ongoing transformation and further expanding returns for our shareholders. Healthy freight demand across the industrial landscape we support has continued to sustain, with a persistent theme of supply, demand, and balance helping to drive strong freight rates across most of the end markets we service. This dynamic continues to play through in our top line, and our teams have continued to execute operationally, successfully converting this to attractive top line revenue growth and to substantial earnings for our shareholders this quarter. As I mentioned, demand across most of our key end markets remained strong in the first quarter, continuing to defy our normal seasonal trends as we posted both year-over-year and sequential rate improvements. We continue to see demand strength in construction, manufacturing, and steel markets driving flatbed performance, while high-security cargo and glass bolstered growth in the specialized segment. In the first quarter of 2022, we opportunistically shifted assets to support the work we do with the Department of Defense in order to capture this freight with our company assets as demand surged. This is yet another example of how our diversified portfolio of end markets yielded an opportunity for us to strategically redeploy assets into one of our highly specialized niche pockets of demand, providing for not only incremental freight capture, but also higher margin potential. Though the supply-demand imbalance continues to buttress the current rate environment, we continue to face challenges in securing equipment in Q1 as the global supply chain also remains challenged. The capacity constraints due to equipment availability and driver shortages within our industry have only added additional cross-currents that further complicate the supply picture. As such, without a timely and meaningful correction to the demand side of the equation, we anticipate that this new flow on rates will hold for the foreseeable future, particularly as we enter our seasonally strong second and third quarters. With that said, this quarter's outperformance versus expectations was truly about our operational execution into a number of thriving end markets we service, creating opportunities to garner premium rates with our company assets while also capturing excess volumes through our brokerage service offering. Revenues this quarter are $421 million, a 26.1% improvement year-over-year, coupled with continuously improving profitability metrics despite facing strong year-over-year comps. demonstrates the earnings power of our unique model, which places meaningful emphasis on execution across all market environments. In the first quarter, Dasky converted this revenue growth into $49.6 million of adjusted EBITDA, a 38.5% improvement year-over-year. And adjusted diluted earnings per share was $0.24, a significant increase when compared to last year's first quarter of $0.04 per share. Before turning the call over to Jason to provide more detail around our financial performance and four-year outlook, I'd like to take a few moments to proclaim a modest victory for our company this quarter, that is the completion of our first acquisition. I'm pleased to announce that during the first quarter, we completed our first tuck-in acquisition, and while on the smaller side of things based on our internal M&A mandate, even for tuck-ins, this acquisition decisively exemplifies our strategic priorities for M&A. This acquisition expands our geographic footprint with existing customers in the industrial and hazardous waste end markets, while also providing an opportunity to expand within the specialty chemicals verticals. The target services niche, counter-cyclical, and defensible end markets that carry high barriers to entry will be a strong complement to the existing high-security cargo operations within our specialized segments. The target has been immediately accretive as several commercial strategies were identified during our due diligence efforts with additional low risk synergies on the horizon as we continue to integrate operations with our existing platform. We expect the post acquisition implied multiple in 2022 to be about 4.4 times with line of sight to a fully integrated run rate implied multiple of roughly 3.6 times. We remain committed to M&A as a means to supplement accretive growth and as a logical catalyst to drive multiple expansion and we remain diligently focused on identifying opportunities with the potential to improve our earnings and free cash flow profiles. With that, I will now turn the call over to Jason Bates to review our first quarter of 2022 financial performance. Jason?
spk08: Thank you, Jonathan, and good morning, everyone. As Jonathan outlined, Dasky's diversified portfolio of industrial-facing end markets and the strategic flexing of our asset right model has enabled the company to execute effectively across various market environments. We have consistently demonstrated our ability to strategically deploy our assets and our owner-operator network to support customers, capture strong freight rates, and outperform our traditional seasonality trends. We are pleased to report our efforts and transformative business initiatives have driven yet another quarter of positive financial results to both the top and bottom line. As we've seen over the past several quarters, in the first quarter, we continue to see sustained demand strengthening across our construction and manufacturing end markets. In addition, this quarter we experienced a heightened demand in high-security cargo due to ongoing geopolitical matters, as Jonathan previously mentioned. Candidly, we've experienced steady demand across virtually all of the end markets we serve, which, when coupled with the limited capacity within the industry, has led to the strong freight rates we've been able to experience in the market today, especially in our flatbed business. We will continue to strategically deploy assets into the most advantageous and end markets with strong freight rates and those which will yield the highest margins while leveraging our owner-operator fleet and brokerage capabilities to meet customer needs where their demand exceeds our own capacity. Please turn with me to slide four for a high-level review of our consolidated results for the first quarter. On the left half of the slide, we have our traditional gap measures with our non-gap measures shown in the table on the right. In the quarter, Daske delivered revenues of $421 million, up 26.1% compared to revenues of $333.9 million in last year's first quarter. As mentioned, our revenues continue to reflect strong freight rates as we continue to provide needed capacity to the areas where our capabilities generate the most value, which enabled us to capture rate increases in both the specialized and flatbed segments. This strong top-line year-over-year growth comes despite tough comps from the prior year's quarter. We delivered adjusted net income of $17.1 million, or $0.24 per diluted share, in the quarter, both of which represented substantial improvements year-over-year. Adjusted EBITDA of $49.6 million grew by 38.5% compared to the first quarter of 2021. These impressive consolidated financial improvements were a function of continued strength in demand and strong freight rates, which more than offset inflationary pressures, equipment delays, and insurance headwinds. At the combined operating segment level, our consolidated adjusted EBITDA results of $56.7 million were up 27.7% versus results of $44.4 million in last year's first quarter. Before moving to our segment level results, I'd like to discuss the labor market briefly. While Dasky does exhibit higher driver retention rates than the industry average, we are not immune to inflationary headwinds around driver recruitment and retention. We continue to prioritize the quality of life of our drivers and have made a point to address as many of their needs as possible, including compensation. Over the past year, we have implemented various targeted pay increases to our driving professionals in line with the broader market. It is noteworthy that wage inflation has been hedged somewhat by the strong rate and demand market backdrop previously discussed. We will continue to monitor closely the labor market and remain committed to the prioritization of each of our driving professionals, recognizing that they are critical to our success. Lastly, I'd like to briefly touch on our corporate overhead expenses. Corporate expenses in the quarter once again decreased, coming in $1.1 million lower year over year. Key contributing factors include lower outsourced and professional fees, which were partially offset by corporate salary and benefit increases, also in keeping with the broader market. On slide five, we present a detailed view of our results at the operating segment level, starting with our specialized segment results. Specialized revenues were $228.5 million, up 24.5% versus the prior year, driven by diverse end market exposure and strengthening rates across numerous verticals, including construction, high-security cargo, and glass. Strong demand also helped more than offset the muted wind volumes we've experienced compared to the last couple of years, a further testament to our diverse end market portfolio approach. Notably, aerospace, an end market that has lagged in recent years, began to see improvement in the quarter as contracts were successfully renegotiated and the demand for aerospace volumes is beginning to return. Our specialized segments adjusted EBITDA improved 28.9% with margins increasing 50 basis points versus the prior year's period. Key contributing factors include the strong market backdrop and notable strength in a majority of our specialized end markets as previously discussed. This was further supported by a rate per mile for the segment of $3.40, which increased by 22% compared to $2.78 in the first quarter of 2021. This rate expansion has been consistent across our portfolio of end markets, contributing to the year-over-year growth. Revenue per tractor also increased meaningfully to $69,400 from $57,200 in last year's first quarter. Lastly, the segment's adjusted operating ratio for the first quarter was 91.2%, marking a 230 basis point improvement versus the prior year's quarter. On slide six, we outline our flatbed segment results for the quarter. We generated flatbed revenue in the fourth quarter of $195.1 million, which increased 27.1% from $153.5 million in the prior year quarter. Notably, each of our end-market verticals and flatbeds realized revenue increases in the period, with the booming construction and growth in steel, manufacturing, and agriculture industries driving the segment performance. Leveraging our portfolio model, we are pleased with our ability to capture this growing demand and maximize the capture of improving freight rates across this collection of verticals. Once again, our asset right model and strong demand environment paired with our operational initiatives has delivered another quarter of profitable growth in our flatbed segment. In the quarter, we realized a 21% increase year-over-year in our rate-per-mile metric. This increase in rate-per-mile was further displayed in revenue of $55,600 per tractor, which increased from $45,800 in the same period the previous year. The segment's adjusted EBITDA results of $25 million grew by 26.3% compared to the results of $19.8 million in last year's first quarter, as flatbed demand and ongoing tightness in available capacity kept rates at attractive levels, helping offset the cost pressures. Our adjusted EBITDA margins were essentially flat year over year, coming in at 12.8% versus 12.9% in the prior year's quarter. The segment's operating ratio improved 100 basis points to 91.8%, with the adjusted operating ratio also improving to 91.4%. You've heard us reference the benefits of our unique business model and asset fleet composition in recent quarters, and how that positioned Dasky to most effectively play to its strength in the flatbed and specialized freight markets. The strategic optimization of asset deployment into capacity-constrained markets affords us the opportunity to outperform market benchmark rates and capture strong margins. At the bottom of the page on slide six, you'll see a chart detailing Dasky's flatbed segment Realized rates when compared to the flatbed rate benchmark. Our business model enables us to utilize an optimized combination of company-owned assets, our owner-operator network, and our growing brokerage business to maximize rate capture, oftentimes through mixed shifts, which leads to Dasky's rate outperformance relative to the broader market. We are encouraged by the progress we have made, executing decisively into a good market backdrop and delivering strong performance for the business. However, we remain most encouraged by what this means as cycles fluctuate, as this unique asset-right dynamic, combined with thoughtful execution, provides ASCII the ability to defend margins if, or when, markets rate ease. We believe strongly that this is a structural advantage we carry in the market, not an aberration. And we will look for ways to expand this rate outperformance dynamic as we fully execute against our transformation initiatives as time progresses. Turning to slide seven, I'll take a moment to discuss our cash flow performance. In the first quarter, DASKI generated $29.2 million in cash from operating activities. Cash CapEx was $8.8 million, and we collected cash proceeds from the sale of equipment of $11.5 million. This resulted in free cash flow generation of $31.9 million in the quarter. CapEx financed with debt or capital leases had totaled $7.3 million, bringing in net after finance of $24.6 million. In terms of our capital sources and balance sheet, we continue to maintain healthy liquidity of over $257 million with our cash balance, supported by the strong free cash flowing nature of our model and significant undrawn availability on our revolving credit facility. On the left side of the page, we note that while cash and cash equivalents as reported stand at nearly $154 million, we have earmarked $18.8 million of that cash that otherwise would have been deployed from our capital budget specifically into new equipment purchases. Given the ongoing tightness to the supply of new vehicles and the inability for OEMs to work down the backlog, we are also showing our cash balance net of the delayed CapEx figure. From a capital allocation planning perspective, we will maintain a balanced, value-based approach. We see significant runway to invest in support of high-impact organic and operational transformation opportunities, with a component of strategic opportunities to evaluate any and all of which have the potential to enhance our leadership position within the flatbed and specialized markets where we focus. We will prioritize opportunities that are most likely to provide attractive, risk-adjusted returns and create sustained long-term value for our shareholders. And Jonathan's going to touch on this a little later in the call. Looking at slide eight, I will conclude with our outlook for the full year of 2022. Despite the various reports of a pending freight recession, we are continuing to see strength in demand and freight rate environments. Given the continued strength we've seen in our end market and open dialogue we have been having with our customers, we are comfortable in reiterating our 2022 revenue and adjusted EBITDA outlook. We remain confident in the resilience of our business model despite the macro inflationary pressures at play. We remain confident in our ability to achieve revenue growth of 4% to 7% and adjusted EBITDA growth of 5% to 10% for fiscal year 2022 when compared to fiscal 2021. This outlook is supported by the continued strength in industrial and market demand combined with strong rates, which have continued to sustain thus far in Q2, and incremental benefits from our operational transformation initiatives. These positive market dynamics and company-specific initiatives are helping to overcome inflationary cost pressures and pockets of disruption in the greater macroeconomic environment. As a result of the delays in receiving new equipment that we articulated previously, we are reducing our net CapEx guidance to a range of $145 to $155 million for the full year. Cash capex plus proceeds is expected to remain in a range between $25 and $35 million, but could flex up or down depending on how much we choose to finance, as we will continue to closely monitor interest rates and make the right economic decision on the capital allocation front. As we look forward to the range of the year, while we remain optimistic about the various aforementioned data points and structural benefits of DASCI, we will continue to monitor industry headwinds, including driver availability, supply chain disruptions, maintenance, fuel and insurance headwinds, as well as other potential inflationary challenges. We do not believe these headwinds will overcome the opportunities that lie ahead for us. To recap, we have a strong industrial demand environment, a unique ability to flex company, owner-operator, as well as brokered assets between our diverse, high barriers to entry-end markets, all supported by a durable rate environment. Additionally, we started to implement and continue to enhance our key transformational initiatives to further strengthen our operational efficiency. As we continue to evaluate the strongest use of our capital, we see a trajectory for 2022 with a focus on driving organic growth through both investments in the business and technological enhancements, all while carefully evaluating strategic inorganic opportunities for growth as well. In spite of the various uncertainties in today's macro environment, we believe DASC is well-prepared and possesses a variety of structural and self-help opportunities that will assist us in our goal of continuing to outperform both internal and external expectations. As we progress through 2022, we will remain focused on operational excellence and strategically returning value to our dedicated shareholders. So with that, I'll hand the call back over to Jonathan to offer a few final words. Jonathan?
spk03: Thank you, Jason. If you'll please turn with me to slide nine. On our last few calls, we've referenced planning and preparation in front of a new wave of transformational initiatives that are now underway at Daske, albeit in the early innings. One of the primary objectives of our broader transformational plans is the shift from disjointed and siloed operations in each OPCO to a cross-functional collaborative through the establishment of a highly coordinated network mindset for our operations. As we think about future state Daske, Our vision is further consolidation down to a smaller subset of key operating companies, which we refer to internally as our platform opcos. These platforms have sophisticated cross-functional teams with best-in-class management, and each has its own distinct strategic contours. For example, one platform might be focused on low-beta specialized end markets, such as defense, high-security cargo, and hazardous materials, while its counterpart, high-beta specialized, might be focused on commercial flat glass, power sports, heavy haul, and construction. This platform concept was chosen to accomplish two primary objectives. First, it allows us to leverage the human capital we have across our entire organization, giving us the flexibility to rationalize, redeploy, and high-grade talent across operating company lines in support of a shared service environment that will sit within and among our platform operating companies and ultimately result in a more streamlined and efficient back-office function for our organization. And second, this approach is congruent with our in-market focus strategy It allows for more decisive planning and execution when evaluating organic and strategic growth opportunities at the optical level. Simply put, our back office will be streamlined through the sharing of top talent across the organization, while each platform will become a pillar for organic and strategic growth in the respective end markets and sub-verticals it serves. The platforms will focus on tactical execution and operational optimization. while corporate will provide thought leadership, corporate services support, and, after leveraging feedback and perspectives from the platform management teams, refine and affirm the strategic direction of the company. We have commenced the first phase of these integrations with more to follow in the second half of the year and in early 2023. Let's touch briefly on tech-enabled solutions. We have made and will continue to make investments in technology to support our long-term strategic direction, focusing on TMS upgrades and standardization a common accounting platform, and the development of a data lake. Each of these technologies is instrumental in the success of our transformation, providing consistency and clarity across our operating platforms. Additionally, our initial investments into technology capabilities will support leadership's data-driven decision-making and shape how we further optimize our operations. While we are still in the early stages of integrations and technology implementation, at this time, we believe these initiatives will yield roughly 20 to 25 million of annualized operating improvement in 2023. We believe that while this number is significant in its magnitude, particularly since this incremental value wedge will become a structural part of our base business going forward, we do also see upside potential to this initial range as we navigate the various work streams. We will continue to provide updates on our progress throughout the year. Looking ahead beyond the horizon of our current transformation phase, There are a number of other additional opportunities that will enable Dasky to continue fueling a strong growth trajectory, while also further optimizing our organization beyond 2023. We will look to use our existing operating footprint to establish a presence in new adjacent market verticals, capturing value where our capabilities bring needed capacity. We will also continue to enhance and refine our operations and competitive strengths to expand our market share in targeted verticals where we already have anchored a meaningful presence establishing Dasky as the preferred provider of capacity and freight solutions. Next, we'll continue to target accretive growth opportunities that complement our existing operation, opportunities that allow us to integrate both vertically and horizontally. Earlier I spoke about a recent Tuckin acquisition, one that is almost perfectly aligned with our refined M&A philosophy. Our disciplined approach to M&A will largely focus on building out niche, defensible in-market exposure that expands Dasky's cross-cycle durability and defensibility of our margin profile. We have a fairly robust pipeline of actionable opportunities. We will continue to evaluate M&A as one option for creating long-term value appreciation for our shareholders relative to other competing opportunities for capital. Turning to slide 10, I'd like to touch on Dasky's financial progress and the significant strides we've made in improving the quality of our earnings. Since the beginning of our transformation and restructuring initiatives in 2019, we have seen significant improvement in our adjusted diluted earnings per share from 46 cents at the end of our TTM period ending Q3 of 2020 to $1.27 for the TTM period ending this quarter, a 97% compound annual growth rate. EBITDA and EBIT, both notionally and as a percentage of revenue, have continued to trend upward and, with an emphasis on improving the quality of our EBITDA, operating income as a percentage of EBITDA has nearly doubled since 2019, improving from 36% to 66% as of the TTM period ending this first quarter. If you refer to the lower left corner of the slide, we have provided adjusted return on equity since 2019, which has notably improved from roughly 2% in 2019 to 13.4% for the trailing 12 months into Q1 2022, and stands at 15.5% when referencing our May 2nd market capitalization and the calculation. The dedication and focus of our team on operational efficiencies and business improvement plans, in addition to our ability to leverage the operational scale of our business, continues to drive tremendous value to our shareholders. While we've made substantial progress over the last few years, we know there's still work to be done in the next phase of our transformation, which we believe will only further bolster our earnings and free cash flow profiles as we strive to find ways to continue to enhance value for our shareholders. Looking to slide 11, I'd like to conclude our prepared remarks with a qualitative and quantitative perspective in support of Daske's resiliency across market cycles. First, I'd like to discuss the progress we've made in strengthening our balance sheet, a commitment we made to our shareholders on our Q4 2020 earnings call in January of last year. Through our TLB refinancing in early 2021, we paid down roughly $85 million of term loan debt, replacing our $485 million term loan with a new $400 million term loan. We stripped financial maintenance covenants and we extended our term loan maturity to 2028 with no other term debt maturities over this same six-year period. We've reduced our net leverage to 1.8 times while continuing to improve our liquidity. In addition, based on our projected 2022 adjusted EBITDA, less interest, and net cash CapEx of $181 million, We are generating enough cash flow to completely pay off current net term debt within two years. Today, our balance sheet provides tremendous insulation for market volatility and affords us the opportunity to execute opportunistically as we identify attractive risk-adjusted prospects to drive a creative organic and or strategic growth for our shareholders. We believe having a strong balance sheet is sacrosanct when navigating cyclical industries as a capital-intensive company, and we will continue to prioritize actions that support this tenet. Next segment, diversification with not only our industrial end markets, but also our customer base, each helps to mitigate the impact of an economic deceleration. Roughly 55 percent of our revenue is generated by our specialized segment, which tends to be higher margin and extends into sub-verticals where our competitive advantages are more sustainable. And with approximately 20 percent of our total company revenues tied to countercyclical end markets found within our specialized segment, It also serves as a counterbalance to some of our higher beta end markets within our overall industrial-facing portfolio. We also have significant diversity across our customer base, as our top 10 customers only represent 27% of our business, with an average tenure of these top 10 customers that exceeds 20 years. Our diversification has allowed us to deploy differentiated services and capabilities to a differentiated set of customers and end markets to optimize our asset deployment, consistently finding pockets of strength across cycles. Moving on to secular tailwinds. Dasky is uniquely positioned to improve profitability and defend margins irrespective of the prevailing market environment. As discussed earlier, we see a substantial self-help opportunity underpinned by a well-delineated transformation strategy to further improve the business over the next 12 to 18 months with plans for additional optimization thereafter. A renewed strategy which shifts away from a pure play trailer-centric construct to one focused on building leadership positions in niche industrial-facing end markets with stronger margins and high barriers to entry provides focus and informs our organic and inquisitive growth priorities. To that point, there's substantial organic growth opportunity in simply engaging our existing customers and our current markets more proactively in an attempt to capture additional market share. As an interesting point of reference, we estimate that even a modest 25 basis point increase in market share across the end market sub-verticals we currently service would result in an EBITDA increase of approximately $20 million, which has not been factored into our transformational plan estimates. However, highly accretive opportunities for strategic growth also abound, having now built a robust pipeline of off-market M&A opportunities within a highly disciplined evaluation framework. As stated in the past, at least until our transformational initiatives are largely complete, M&A efforts will be highly biased toward tuck-in acquisitions. and it is now our expectation that we can execute on this strategy while achieving low-risk post-acquisition, synergy-adjusted, effective EV to EBITDA multiples in the low fours or less. Dasky also has several structural advantages that position us to be successful despite market fluctuations. First, we have limited exposure to spot rates, as 80% to 85% of our rates are contract, insulating our rates from market volatility. We have deep-seated long-term partnerships with our customers in markets where our specialized segment, specialized skill, and specialized scale are each valued. Our focus on markets with a defensible position due to high barriers to entry provides natural support through cycles as it limits capacity entrance and expansion within these markets. And this higher margin business provides cushion for us to profitably balance the interplay between rates and volumes in environments where demand is softening. And finally, our variable cost structure is yet another lever we can pull to defend margins if demand slows. Something worth noting, as part of our normal course best practices, we perform stress test sensitivities on our business. And given the fundamental changes that this company has undergone over the last few years, it is our expectation that even in the face of a 2008-type recessionary event, Dasky would still be able to generate positive free cash flow. That is adjusted EBITDA, less interest, taxes, dividends, and net cash capex. Finally, I'd like to take a moment to share some of our fleet dynamics as a reminder of Dasky's size, scale, and industry advantages. Dasky is an organization with 4,600 trucks with an average age of two and a half years on our company fleet and over 11,000 trailers. Our combined fleet drove 400 million miles in the last 12 months. Roughly half of our revenue is generated by our asset-like capabilities, which we flex up as demand surges, only to then shift freight to our more profitable company trucks when demand slows. Finally, what I believe to be an underappreciated advantage for Dasky versus our other public comps, our driver turnover at only 60% is nearly one-half that of the broader industry's turnover, particularly valuable in maintaining market share and even increasing freight capture during highly challenged environments played with capacity constraints. I hope a review of these factors has reaffirmed your excitement in Dasky as an attractive opportunity on both an absolute and relative basis. Our team commits to all of you that we will continue to leverage these competencies in an effort to provide superior returns to our shareholders across cycles. With that, I'd like to conclude our prepared remarks for this morning, and we'll turn the call over to our operator for your questions. May?
spk01: As a reminder to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ryan Sigdell with Craig Hallam Capital. Your line is open.
spk04: Good morning, Jonathan, Jason. Nice results and progress.
spk08: Thank you.
spk04: Curious, just to start maybe on the acquisition, I don't believe I saw it anywhere, but what was the revenue and EBITDA contribution and any other metrics you can give there?
spk03: Yeah, I think the right way, Ryan, to think about that is really on kind of an adjusted, synergy-adjusted basis. So we paid $21 million for 19.3 million for just under $6 million of synergy-adjusted EBITDA. Gotcha. Helpful. And then revenue on that?
spk04: you're willing to give it?
spk03: Yeah, so we... Yeah, look, pre-adjusted revenue, Ryan, was that the evened out margin was about 32% evened out margin.
spk04: Got it. 32%, so basically much, much better margins than core Dasky business.
spk03: That's right. Correct.
spk04: Okay. Good, presumably better free cash flow conversion as well on that.
spk03: Absolutely, yep.
spk04: Great. It seems like a nice bolt-on high-quality ad there with strategic value as well. Curious, okay, so with that in mind, so $6 million EBITDA, you reiterated your full-year guidance. That layers in now, I guess, three-quarters of an acquisition. Q1 outperformed our expectation. I think also your internal ones per Jonathan's comments. I guess what am I missing on just reiteration of guidance when it seems like there's a lot of incremental positives contributing?
spk08: Yeah, I mean, I think the big question mark is a lot of the inflationary pressures and uncertainties out there, right? Candidly, you know, if you couldn't tell from the tone on the call, we feel very comfortable. Very comfortable with that guy. So you can interpret that how you will. You know, we're not formally, you know, taking numbers up at this juncture. But given what we see today, we feel pretty comfortable reiterating. And over the next couple months and once we get this acquisition more fully tucked in and have a little bit more visibility into the realization of, you know, some of those synergies and expanding that market a little bit, you know, you may hear something different from us here at the end of the second quarter.
spk04: Good. Appreciate the commentary, Ken, and your end market exposure relative to a lot of the other public truckers out there. But curious, kind of on top of that, so widely publicized spot rate declines in the dry van market. You guys obviously don't participate in that, but curious if you have any context and correlation to past cycles, kind of how the heavy haul flatbed specialized if there was any correlation to the dry van spot market, you know, as a leading indicator, six, nine months later, we've seen this, or just completely different altogether?
spk08: Yeah, I mean, we've, for a lot of different reasons, as we've been going through the transformation efforts over the last couple years, we've spent a disproportionate amount of time analyzing end markets, rate trends, correlations, or lack thereof. And I can tell you, When you look at the Dasky portfolio and the diversity in that portfolio, we don't see the same type of negative correlations. Now, there are individual segments of the business that may be more closely tied and correlated to kind of what happens in dry van, but when you look at it in aggregate, there's just not a correlation there. Thanks, guys.
spk04: Good luck.
spk08: Yeah, and that's going back over, you know, 10 years. So, you know, trying to go through multiple cycles there.
spk04: Great. That's it for me. Good luck, guys.
spk01: Your next question comes from the line of Elliot Alper from Calvin. Your line is open.
spk07: Great. Thank you. So piggybacking off that last question, we've seen flatbed and specialized spot rates kind of outperform compared to the driving in over the past couple of months. You guys have come down with the group despite this. Can you talk about the dynamics in the rate environment you're seeing? I know you discussed your 15% to 20% exposure to spot, but maybe some kind of commentary you're seeing around there, and then anything on April performance on the contract side. Thanks.
spk08: Yeah, thanks, Elliot. Yeah, great question on the rate side. We, you're right, I mean, Flatbed and Specialized have both been outperforming the dry van, and that's the public data. Based on the comment we just discussed, you know, previously about some of the diversity of the end markets, we support – we've seen – a strong market. April, you know, again, you know, not to let the cat out of the bag, but April was strong. Rates were strong. Demand was strong. You know, I was actually just on a call with our COO and all of the operational leaders yesterday talking about what they're seeing here, you know, on the first week of May through April. And almost across the board, it was man, we could use some more trucks. Can we get more trucks? We got customer demand. We, you know, that we're doing everything we can with our LP and owner-operator fleet and our brokerage relationships to try to meet the needs of our customers. But there's a lot of opportunity out there. So that's why we kind of scratch our heads, you know, at some of the kind of correlations that people are making between kind of our business model and our end market exposure versus maybe some of the more retail-oriented consumer kind of affected competitors.
spk03: Yeah, Elliot, I think, you know, just for what it's worth, anecdotally, if we had to guess, I think that in Q1, we probably repriced 50% to 60% of our book. So the market, the demand is definitely there, and You know, I think challenges, again, on the supply side, you know, I think present kind of a nice fairway for the rain environment to hold steady, if not continue to firm up even more.
spk07: Okay. That was really helpful. Thank you. I guess over to the owner-operator side, strong top-line growth. I guess how should we think about that business unit through the remainder of the year and kind of what's baked into your guidance today? and anything you're seeing on kind of the net new operators onto the platform?
spk08: Yeah, that obviously, you know, you're familiar with that model, right? A lot of those guys are paid on a percentage of revenue basis. So in a really strong rate environment, becoming an LP or owner-operator is an attractive option. We try to do a good job at helping educate them and walk them through it and help them to look past just, this week and this month, which sometimes is difficult to do, but helping them think about it through the cycles, right, and make sure that it's the right decision for them. You know, we do have a, you know, LP program, which is kind of a little bit of like an owner-operator on training wheels program, if you will, where there still are owned assets, right, and so there are times where guys will go into that program and then maybe realize that it's a little harder than they thought or it's not kind of what they like, and sometimes Rather than just leaving, we're able to bring them back and put them back over to company. So we have seen a lot of interest in that program for the reasons I mentioned previously, and we've been very strategic about how we've been growing it. We're spending a lot of time internally analyzing the profitability of that program, not just in terms of, you know, rates and volumes, but also looking at the other pieces of that equation, right, the insurance side of things, the safety side of things. You know, we want to make sure guys aren't stuck with, you know, being upside down in overvalued trucks three years from now and not being able to kind of continue to move forward in a viable way. So there's a lot of that type of work that we're doing. But, yeah, there's no question that right now there's a lot of demand for that program.
spk03: I think it's a nice way to flex capacity. It comes at the expense of a margin profile that's It's kind of half that of our company trucks. So it's absolutely surge capacity. But it also provides really kind of downside optionality when the market starts to soften. We'll take those drivers and shift them back to company trucks that are doing kind of twice the margin of the LP truck. So it provides a nice hedge and kind of a softening rate environment.
spk07: Okay, great. Thank you both.
spk03: Yep.
spk01: Your next question comes from the line of Bert Subin of Stifel. Your line is open.
spk06: Good morning.
spk04: Hey, Bert.
spk06: Hey, Bert. Have you guys said what percent of your current total revenue comes from dedicated contracts?
spk08: No, we haven't disclosed that historically. It is a growing number, you know, but it's kind of in the low double digits, you know, and I think you know that's It also depends, as you know, how you define dedicated. Lots of people call different things dedicated, but it's definitely a growing portion of our business and something, especially given the supply-demand imbalances that look to kind of continue to be out there, a lot of customers are asking about.
spk06: Okay, got it. Thanks, Jason. What are you seeing on the contractual rate side? I mean, probably ex-dedicated. I think last quarter you said mid-single digits plus. I assume that's probably moved up a little bit now.
spk08: Yeah. I mean, even last quarter, I kind of was hedging a little bit when we talked about it because I'm assuming you found out for the year. Last quarter, we were kind of hedging because we said, listen, if the inflationary environment continues to be what it looks like it might be, I suspect we'll get higher rates. I don't know. So you're probably going to see an outperformance on the top line. But the reason we're getting the higher rates is because we've got inflationary costs and more compensation going through the drivers and things like that. So maybe not as big of an outperformance on the bottom line. But we're feeling pretty good about where rates are trending five months in right now.
spk06: And just in terms of – I know you sort of reiterated that you don't have a ton of spot exposure there. What would you expect to be the impact on brokerage if flatbed rates do sort of start to follow the trend, what you're seeing in dry van?
spk08: Yeah, that's a great question. I'll start by kind of reiterating our brokerage model, right? As much as we wish several years ago we had really expanded and grown our brokerage profile and had a freestanding standalone brokerage platform, really what brokerage has been for us over the last couple of years is an overflow support function for our customers and our strategic partnerships that we have with them. And so the reality is, is that If things were to kind of slow down a little bit, we would simply be taking things away from our broker capacity and bringing them on to our company-owned or owner-operated and LP assets. So it really, net-net, you would just lose the nominal margin that you're capturing on that. And that's similar to what we did back in 2020 when COVID kind of came through. You saw that same kind of shift back and forth. And so it is, as Jonathan alluded to, kind of a flex situation. valve for us to be able to move up and down. And so while we might see that kind of slow down a little bit, if it slowed down meaningfully, we would just pull that freight over onto our assets where we can generate pretty strong margins.
spk06: Okay. Just final question from me. Could you say what your exposure is to oil equipment markets? Is that a potential tailwind for the business, or did you mostly pull out of that post-2015? Yeah.
spk08: Yeah, so we had an oil rigging kind of company that had been purchased at one point, which just wasn't a strategic fit for the business. And so that would be a beta business that we used to talk about a lot that we've now divested up completely. I mean, we still support a lot of end markets that tie into that, you know, but not directly like that oil rigging business did.
spk06: Got it. Okay, thank you very much.
spk01: Your next question comes from the line of Greg Dubas from Northland Securities. Your line is open.
spk05: Hey, good morning, guys. Congrats on the quarter. Thanks for taking the questions. You know, just wanted to cover guidance again. You know, you say you're very comfortable with it. You know, are you kind of assuming that market dynamics right now remain unchanged? And what are your kind of expectations on capacity with respect to guidance?
spk08: Yeah, I think that's probably a fair assumption. Listen, we're cautiously optimistic. I know myself, I know Jonathan, and I know Rick Williams, our COO, have all had very, very detailed conversations with our OEM providers about equipment. I think they're doing the best they can to dig out, and I think they're making up some ground. We're optimistic that we'll still be able to get the lion's share of what we hope to see this year, which means other people will be seeing the same thing. But having said that, when you think about our business model, on the demand side – we're not seeing any indications that it's slowing down anytime soon. And so you've got the supply constraint, and you have plentiful demand. And that's what we've been seeing, and it doesn't look like that's slowing down in the foreseeable future.
spk03: Yeah, I mean, Greg, as you know, Q2 and Q3 are the big quarters, the kind of make-or-break-the-year type quarters for us. And so we usually have a pretty good sense by – you know, by late April, early May, what those quarters are going to look like, you know, depending on kind of the rhythm we have with our customers and market verticals. And so, I think that's going back to Jason's point, you know, by our second quarter call, I think, you know, any impact to guidance, we'll probably be in a position to kind of better speak to that on the heels of that call. But, I mean, again, we feel very good about the you know, the state of our industrial facing end markets and cautiously optimistic that we're going to continue to exceed expectations.
spk05: Okay, great. Very helpful. If I could follow up on the tuck-in acquisition, it seems like it checks all the boxes, exactly what you're looking for in terms of expanding the geographical footprint, you know, new end markets, specialty chemicals. Could you maybe talk a little bit more about that and what it brings, you know, in terms of the new footprint to Dasky? And then, you know, I guess the date on when that was completed and did it contribute anything to Q1?
spk03: Yeah, it was actually closed in early March. And really, from a strategic fit, we mentioned it's hazardous waste. It's a subvertical that we currently have today. There were a few big customers you know, within that smaller acquisition that we actually have relationships with service today. What this acquisition really did was it got us into a new region, a new part of the country, into the Northeast, which, you know, you can't otherwise access permits and kind of permit your way into that. You kind of have to buy your way, you know, into that part of the country. So, it got us into a part of the country that allowed us to extend our footprint. Again, it's a nice counter-cyclical, low-correlation type end market. We had relationships with those customers. We had very good visibility because of our scale, because of our long-standing relationships with those customers, executing in fairly short order on commercial opportunities, commercial improvements. One of the things it did do, and we've kind of mentioned this now on a few calls, is is we're moving away from a trailer-centric strategy. This acquisition also came with tankers, and so we now have a very kind of modest tanker fleet as part of Dasky, and that's something we'll likely look to grow under the kind of guide to this kind of specialty chemical push as one of the identified sub-markets we'd like to expand our leadership position in.
spk05: Perfect. Great. I guess last one from me, just wanted to, you know, compliment your transparency on some of your transformational initiatives, you know, included in the slide deck. And, you know, I guess I just wanted to touch on, I think it was 20 to 25 million in kind of annualized earning improvement in 2023. You know, is that going to be kind of a Q4 run rate on maybe when you realize that, those savings?
spk03: Yeah, I think you can think about it really, you know, ratably over the first few quarters of the year, such that by Q4, kind of the exit run rate, it's, you know, it's a full $20 to $25 million. But I think that you'll start to see that kind of layer in by, you know, potentially as early as Q4 of this year, but certainly by Q1 of 2023. And I think a The team, again, is very confident in our ability to kind of generate that. I think there's upside to the plan. The plan is something we've been working on for several months, really being thoughtful, really being surgical in how we think about continuing to transform Dasky. So this isn't a let's cut things to the bone. We think there's tons of opportunity. There's still tons of even net of some of this movement, lots of operational leverage still in the business to accommodate additional growth, whether it be strategic or organic.
spk05: Great. Thanks, guys.
spk03: Sure.
spk01: I will now turn the call over to Jonathan for closing remarks.
spk03: I'd like to thank everyone for your time today. We look forward to continuing upon the momentum we've generated alongside our broader transformation. We thank you for your commitment and confidence. and we look forward to translating the market opportunities facing us today into profitable returns and consistent growth for our stakeholders. Thank you.
spk08: Thanks, everyone.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect.
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