Daseke Inc (DSKE) 2017 Q4 法說會逐字稿

Good morning, everyone, and thank you for participating in today's conference call to discuss Daseke's Financial Results for the Fourth Quarter and Full Year ended December 31, 2017. Delivering today's prepared remarks is Don Daseke, Chairman and CEO; and Scott Wheeler, President, CFO and Director. After their prepared remarks, the management team will take your questions. Before we go further, I would like to turn the call over to Cody Slach of Liolios group, Daseke's IR Advisor, as he reads the company's Safe Harbor statement within the meanings of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Thanks, Tikiya. Today's presentation includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include projected financial information. Forward-looking statements including those with respect to revenues, earnings, performance, strategies, prospects and other aspects of Daseke's business are based on current expectations 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 SEC for a discussion of the risks that can affect our business. We undertake no obligation to revise our forward-looking statements to reflect events or circumstances occurring after today. 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 acquisition -- excuse me, adjusted EBITDA and acquisition adjusted. 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 Daseke website, www.daseke.com.

In addition to being in a flatbed specialized trucking business, Daseke is in the business of acquiring other flatbed specialized carriers to join Daseke. Therefore, investors in Daseke's stock should assume Daseke is always evaluating, negotiating and performing due diligence on potential acquisitions. Furthermore, Daseke has never executed a binding contract for any acquisition until the closing date. This practice enables Daseke to perform due diligence until the closing date without any contractual obligation to ever close the acquisition transaction.

Once the acquisition is closed, Daseke will issue a press release and make any requisite filing with the SEC.

Now I would like to turn the call over to Daseke's Chairman and CEO, Mr. Don Daseke. Don?

Well, thank you, Cody, and good morning, everyone. It's a pleasure to be joining you this morning. Scott and I will be addressing the 5 main topics presented on Slide 3. First, I will review our accomplishments in 2017 and reiterate our long-term opportunity, which I think is compelling.

This will set the stage for Scott to review our financial results, introduce our strategic priorities in 2018 and discuss our financial outlook.

Before walking through our accomplishments in 2017, Slide 4 provides a useful snapshot of our business today. In Daseke's history, we have acquired and integrated 16 companies whose services span the U.S., Canada and Mexico. We employ over 4,500 great people and operate over 5,200 tractors and over 11,000 trailers that drove about 290 million miles in 2017.

Our revenue by segment and asset operating model are both well balanced, thanks to significant accomplishments in 2017. Indeed, 2017 was a pivotal year in execution of our strategy to build a premier flatbed and specialized logistics provider. In February 2017, we became a public company to continue our consolidation strategy of the highly fragmented market. As Slide 5 highlights, our accomplishments throughout the year have led to a highly diversified customer base. And many of our largest and long-standing customers -- relationships [2,500] customers, for whom we transport heavy, cumbersome, high-value and time-sensitive cargo.

For those of you not familiar, AGC is a big glass manufacturer and Metro (inaudible) makes huge concrete pieces that go into parking garages and stadiums.

And the small plant above Boeing, that's the Department of Defense. Our Top 10 customer relationships average over 20 years and no single customer accounts for over 5% of our revenue.

In looking at our end markets we service on Slide 6, we believe they are equally diversified. Our acquisitions of R&R Trucking and Roadmaster allowed us to enter the niche market of high-security cargo that now comprises roughly 8% of our revenue.

We like niche markets such as this because they allow Daseke to generate better margins. Whether it's a niche market or commodity markets like metals, we believe our current makeup has us well positioned to greatly benefit from any infrastructure improvements contemplated by the current administration.

As a reminder, Daseke's 2 core principles are investing in great people and building an organization of scale. To that end, 2017 was right on track.

As Slides 7 through 10, paints this picture in numbers. So let me walk them -- through them now. On Slide 7, we nearly doubled the revenue on acquisition adjusted revenue basis to $1.3 billion. This was driven by the completion of 7 acquisitions of scale that brought many talented employees to our team.

The near doubling of our company is reinforced in the market share expansion on Slide 8. It also underscores a large opportunity we have in front of us. Of course, we -- our acquisitions brought us more than just revenue and market growth. We added significant diversity to our asset base, as Slide 9 indicates. Today, we operate nearly equal asset-based versus asset-like model.

At this point, let me turn it over to Scott Wheeler, to go through some more of the numbers and facts about our company.

On Slide 10, there is another way to measure our increased scale. We grew our assets significantly from 2016 with more than 5,200 tractors and 11,000 flatbed and specialized trailers. Of course, 2017 was not without its challenges. We expected the contract rate environment to improve sooner than it did in the year, and we experienced a flat market in our specialized segment due to lower demand in large capital projects. This created headwinds to organic growth. In response, we've taken several proactive steps to position Daseke for organic growth in 2018.

This includes the creation of regional leader positions to drive accountability and various process and system improvements around integration and data analytics. I will dive deeper into this later in my remarks.

Despite the challenges, we remain committed as ever to our long-term opportunity. On Slide 11, we iterate our mission, which is building North America's premier flatbed and specialized logistics provider.

Now on to Slide 12. The mission is strongly supported by 6 key highlights that shape our compelling investment opportunity. First, we are the largest owner of flatbed and specialized equipment in North America. With $1.3 billion in revenue adjusted for the acquisitions in 2017, and we delivered a 48% adjusted CAGR from 2009 to acquisition adjusted to 2017. At our current size, we still have only scratched the surface of our potential penetration. Even factoring in our recent growth, we have an approximate 1% share of the $133 billion open deck transportation and logistics market. But more, the industrial freight and logistics market fundamentals are improving, with a sequential uptick in flatbed spot rates throughout 2017. And the ELD mandate that went into effect as of December 2017. The pool of companies to acquire in this improving market contains robust, and I will walk through the 3 types of acquisitions we are seeking later in our remarks.

Finally, we are aligned management team that owns more than 35% of the company and speaking on behalf of them and on behalf of Don, our largest shareholder, our prospects have never been stronger.

In summary, 2017 framed our opportunity and affirmed our ability to drive scale in the highly fragmented flatbed and specialized transportation market. We are a much larger organization that can further stave off cost increases, support customers with quality capacity and share practices that improve our organization from the ground up.

Our strategic or core priorities in 2018 will be supported by initiatives to maximize organic growth, while still being highly opportunistic in our acquisition strategy. Indeed, we expect 2018 to be another pivotal year in the pursuit of our long-term strategy.

I am very pleased this morning to discuss our outstanding accomplishments in 2017 as well as our outlook for 2018. Now looking at Slide 13. 2017 was a significant year. We are now the largest provider of open deck freight transportation services in North America and one of the fastest growing companies in the industrial sector. 2017 was a year in which we became public, significantly grew the scale of our operations, closed 7 acquisitions, had successful capital transactions, delivered a strong equity value increase and grew both revenues and EBITDA.

Now beginning with our financials. On Slide 14, you will see the results for the fourth quarter and the full year 2017 were consistent with the guidance we communicated in the third quarter.

Revenues increased 71% to $257.2 million compared to the quarter ago -- the previous year's quarter. The increase was driven by the 7 acquisitions of scale we completed during 2017. Net income for full year 2017 was $26.8 million or $0.58 per share compared to a net loss of $12.3 million or $0.81 per share of 2016. This change is primarily the result of one-time tax benefits due to the change in federal tax rate of 35% to 21% on net deferred tax liabilities as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017.

Excluding the impact related to the income tax adjustment, net loss for the full year 2017 would have been $19 million or $0.64 per share. Adjusted EBITDA increased 87% to $22.8 million compared to the fourth quarter of 2016.

These numbers were consistent with what we had provided on our most recent investor calls. The increase in adjusted EBITDA was largely driven by EBITDA from 2017 acquisitions of $12.6 million.

Now onto some specific commentary by segment.

As a reminder, on Slide 15, there is seasonality in our business. We moved open deck freight, and as such, our freight is exposed to the elements and demand is higher in the warmer months so you will typically see higher levels of rates, revenues and earnings in the second and third quarters, and typically lower levels in the first and fourth quarter. Here, you can see the approximate percentage of EBITDA by quarter for the last 2 years.

On Slide 16, we demonstrate more clearly, the EBITDA in our flatbed solutions segment by quarter in 2017.

The first quarter of 2017 was below the first quarter of 2016 by approximately $1 million that showed strong increases in each succeeding quarter, including the hurricane-affected third quarter.

The flatbed segment had very little impact in 2017 from acquisitions with approximately -- only $400,000 in contributions from 1 acquisition in December.

Overall, our flatbed segment grew EBITDA by approximately 5% and had an organic growth of approximately 4%.

On Slide 17, flatbed continues to show an upward trend in rates, with the fourth quarter rate per mile up 11%, fourth quarter of 2016 from $1.68 per mile to $1.84 per mile excluding fuel surcharge.

Our flatbed revenue per tractor also had very similar characteristics, showing growth from $36, 700 to $39,400 per quarter, when comparing the fourth quarter of 2016 to the fourth quarter of 2017.

This slide demonstrates a strong rate and rate growth environment and increasing revenue per tractor, seasonally on a quarter-over-quarter basis. We continue to feel positive about the upward trends we continue to see in our flatbed segment.

On Slide 18, we have a similar chart demonstrating the EBITDA by quarter in our specialized solutions segment. Being analogous to our flatbed segment, the specialized segment was down significantly in the first quarter but essentially flat for the remainder of the year including the hurricane-affected in third quarter. The first quarter had $3.3 million decline compared to the first quarter of 2016 followed by a flat quarter-over-quarter performance for the rest of the year.

As you may know, 2015 was an exceptional year from a pricing standpoint for super heavy haul in over-dimensional freight. That freight environment continued through the first quarter of 2016 due to the finalization of multiple projects related to renewable energy and refining. These higher revenue per mile freight in marks -- the end markets slowed in -- later in 2016 and then flattened at the reduced level throughout 2017.

During this time, we also saw a shift in volumes towards the end markets such as building materials and lumber. These market carry lower rate per mile but serve a strong client base.

At this freight mix adjusted through the course of 2017, the EBITDA for our specialized segment remained relatively flat, an excellent example of Daseke's diversification in end markets, reducing volatility and our belief is that the various end markets served by Daseke will always be rising or falling but rarely in the same direction at the same time.

So while the specialized segment showed an increase of $8.6 million in 2017, $12.2 million of that came via acquisitions.

Now on Slide 19, you can see the trends in our specialized segment. Over the past year, we have been anticipating much faster recovery in this segment, given the trends in the industrial economy as leading indicators such as the ISM manufacturing index would indicate.

We continue to feel optimistic that this will result in large-scale capital expenditure projects that result in higher margins and higher value over dimensional freight opportunity.

On Slide 20, you can see the effects of our continued investment in building Daseke in a platform for continued growth with increases over 2016 in public company costs -- we were a private company in 2016. Professional fees, staffing, technology, and other costs.

In addition, we also had a higher year for health claims on both an absolute dollar basis and on a cost per participant basis.

Now, turning to our balance sheet on Slide 21. At December 31, 2017, we had cash and cash equivalents of $91 million, we had $55.5 million available on our $70 million revolving line of credit, which reflects short-term usage related to the December acquisitions. The borrowing base at December 31 did not yield include -- did not yet include the assets of those acquisitions. We expect to have full availability of the revolver after adding the collateral from the acquisitions to the borrowing base. Total debt was $635 million and net debt was $544 million.

On February 14, 2018, we closed an oversubscribed public equity offering that generated net proceeds of $84 million. If you took the 12/31 balance sheet and applied those proceeds, we would show approximately $178 million of cash, net debt of $460 million, which would result in an approximately net leverage ratio of 3.2x.

Despite less than ideal market conditions in our stock at the time of the equity offering, we believe the offering was and still is in the best interest of our shareholders. Acquisitions are a fundamental tenet of -- tenet's Daseke's long-term ability to build value and scale, and we believe the operational financial steps taken to-date uniquely position us to take up further market share.

We have a robust pipeline of M&A opportunities that is roughly equivalent in number to our pipeline of a year ago, despite closing on 7 meaningful transactions in 2017.

We continue to believe that we have attractive opportunities to prudently deploy that capital in the fragmented specialized and flatbed market, the market where we still only hold 1% share.

The benefits of having demonstrable capital available was weighed against the opportunity cost of the delay and it was determined that it was in the best interest of our stakeholders to proceed in a carefully evaluated decision. Our approach to future equity offerings will be evaluated based upon the availability of attractive acquisitions of growth opportunities as a meaningful long-term value creation prospect. Speaking on behalf of our management team, who owns more than 35% of the stock, we believe our interests are aligned with all shareholders, and we expect to be prudent stewards of our capital.

Now I'd like to -- transition to discuss 2018, from both a financial and operational perspective.

February 2018 was our 1-year anniversary of becoming public. Pausing on Slide 23 to reflect on this period, there were significant accomplishments that took place to enable us to speak to you today as a much larger company and what we believe is the 16th largest truckload carrier and the largest open deck carrier in the U.S. with greater scale and increased diversification.

We have built a great team of employees. Operating companies and shareholders to thank for their support. But this reflection is also taught us important lessons that shape our 2018 priorities and outlook. Our operational priorities for 2018 will fall in the 3 main categories: organizational effectiveness, organic growth and continued quality measures and acquisitions. I will address each topic now as we move to Slide 24.

To increase our operational effectiveness, we have created a regional leadership structure with 6 of our operating division presidents. These leaders are long-tenured, highly regarded industry experts with significant personal upside in the performance of Daseke's stock. The new structure will streamline communications, increase the speed of implementation of new initiatives and deliver a much higher level of accountability. Together, we will focus on leveraging our scale, controlling cost and growing and managing our business. While this is the current structure we anticipate this can and will change over time as Daseke evolves.

Moving to Slide 25. As I stated earlier, our 2018 strategic priorities are operational effectiveness, organic growth and continued focus on mergers and acquisitions.

Operational effectiveness can be achieved through our new organizational structure and the continuing evolution of our processes and systems. We will consolidate and integrate where it makes sense to do so. We're also improving our systems and processes and adding the appropriate leadership so we can continue to scale the company in an orderly fashion as maintenance -- as mentioned, our customized freight management system is evolving and we're taking steps to consolidate and upgrade the company's operating systems including the consolidating the vast majority of our cloud software users to one environment.

Also, our corporate level software is being upgraded to improve our data analytics, acquisition due diligence and speed of integration to close. The organic growth profile of our business in 2017 from the second quarter forward was solid and growing in flatbed, essentially flat and specialized, but still lower than expected and frankly, not acceptable. Organic growth will be addressed in several ways including continuing to cancel rate increases as contracts come due. Particularly in the flatbed sector where we were seeing outsized demand.

We'll also have a stronger effort in controlling costs in developing what we hope are the best-in-class purchasing and procurement programs.

We will also be investing capital for growth in strategic niches, where we can be the market leader and focus on maximizing our sales and technology effectiveness.

We're pleased to report that we recently had a major sales win of our customized freight management system.

We entered into a contract and have launched operations to provide single-source 3PL services, with the backbone of the services being our own Daseke capacity. This customer produces complex industrial products, requiring a wide array of open deck trailer configurations.

This customer reports to be very satisfied with the access to quality capacity and the customer friendly interface and reporting supported by the seamless data interchange or EDI technology. We continue to evolve our customized technology to respond to national request for proposals and for stronger global visibility to unfilled orders through Daseke network thus enhancing our brokerage operations.

Driver recruiting and retention are always at the top of our -- the list of our focus. While our turnover has improved by approximately 10%, we still have improvements needed in this area. As such, we started 2 initiatives in the past several months to continue to attract and retain quality drivers. The first is what we refer to as pay leveling. In some cases, the issue is not as much how much of driver is paid but how they are paid or when they are paid. Historically, a driver has been paid by the mile, leading to a potentially choppy and unpredictable paycheck. Over the last 2 quarters, we have experimented with different approaches in different regions to calculate a more level pay that works for both the company and the driver.

This smooths out their paycheck cycles while giving them the opportunity to earn more dollars through greater personal productivity and safety levels.

We will be working to disseminate the most effective of these across the company as appropriate. We do foresee driver pay increases this year and will continue to report our view of the market on future calls.

Secondly, on February, we launched the 1.0 version of Daseke, drivedaseke.com, this platform will allow us to utilize our scale through national advertising and have the ability to disseminate driver leads to the most operate operating division or location. Furthermore, we are in the process of a full consolidation and integration of 2 companies purchased in the second half of 2017 and are focused on the highly specific niche. As a result, we expect to see both cost and revenue synergies as well as increased organic growth opportunities as a result of that combination.

We also expect to continue to grow through mergers and acquisitions, and we will continue our focused strategy of flatbed and specialized transactions in 3 main areas. First, we will look to continue to grow scale in the flatbed market. Secondly, we look to add specific strategic niches, where we can either generate higher margins, become the market leader or do both. Our entrance into the high-security cargo and commercial glass markets in 2017 are excellent examples.

Finally, we will seek highly accretive tuck-ins to our existing companies as we did by adding a small commercial glass moving company to our Smokey Point operation in 2017.

As shown on Slide 26, these strategic initiatives are supported by an improving industry environment. The February of 2018 ISM Manufacturing was strong at 60.8. This index has historically been a good leading indicator as it best represents our customer base. These are favorable supply and demand dynamics at play as capacity remains constrained. There's been a sequential uptick in flatbed spot rates through 2017 and the ELD mandate went into effect as of December 2017. We believe the combination of these tailwinds bodes well for our business and our outlook as we have contracts renewed in the first half of 2018.

This leads me to our financial expectations in 2018.

As Slide 27 indicates, we expect to grow revenues to approximately $1.35 billion compared to $846.3 million in 2017. This estimate does not assume any incremental acquisition.

We expect to grow adjusted EBITDA to approximately $150 million compared to $91.6 million in 2017.

Capital expenditures in 2018 are expected to range between $85 million and $105 million, which includes $20 million to $40 million in growth capital expenditures and $65 million in replacement capital expenditure compared to $39.5 million in total capital expenditures in 2017.

This increase is due to a peak level of CapEx several years ago that needs to be replaced in 2018.

Now to reiterate the key takeaways of today's discussion, please move to Slide 28. 2017 was very much focused on gaining scale, and we accomplished this goal. This was enabled by a successful equity raise. We had 7 excellent companies of scale join Daseke. We had new end markets of high-security cargo and commercial glass, along with adding 2 new top 10 customers, the Department of Defense and AGC. However, we had headwinds to organic growth that shapes our focus in 2019. To that end, we have implemented systems and processes and staffed a dedicated accountable team with common alignment. Our organic growth plan is supported by an improving industry environment with infrastructure improvement high on the current administration's agenda. We have strong liquidity that has this wealth position for expansion. But we remain rooted in allocating this capital in a prudent and effective manner with a highly refined M&A criteria.

The execution of our organic growth plan in conjunction with a focused high-growth consolidation strategy makes Daseke well positioned to capture a very large market opportunity.

This concludes our remarks. Now I will turn the call back over to the operator.

(Operator Instructions) And our first question will come from the line of Matt Brooklier of Buckingham Research.

Don and Scott, So I guess what I wanted to zero in on a little bit is the organic side of your business. Obviously, you guys are having great success in terms of going out and buying companies for the activity that you had in '17. The organic side, it's been, I guess, a little bit less of a contributor. Can you talk to -- and you did, Scott provide nice detail, maybe talk to, like, the most important drivers of organic business improvement in '18, is it pricing, is it what you think you're going to do on process side of things? I mean that -- I'm just trying to get a better sense as to what's going to get the organic side of your business kind of reaccelerating here?

Yes, number one, it begins with the rates. And very much about rates, they're very strong and improving rate environment. We feel very positive about the rate environment. The capacity is tight and customers understand the need for rate increases. The one issue now on the organic could be that we do anticipate seeing continued pressures on driver wages. And at this point, at this early stage of the year, we're not certain as to what the extent of those driver wage increases would be. Or potentially other cost increases such as diesel, et cetera.

But right now, it is mostly about rates and our ability to increase organizational effectiveness is also a big part of that. But also we will at focus on cost and particularly on making sure that we are purchasing absolutely effectively as we possibly can, purchasing and procuring.

Okay, that's helpful, can you remind us of how much of your total business reprices in a given year? And I guess, how much roughly of that reprice activity happens in the first half of the year?

I would say that approximately 90% of our business would reprice annually. Then we have some on larger -- longer contracts, some on shorter contracts. But a vast majority reprices on an annual basis.

Okay. And then the split between how much of it reprices in the first half versus the second half of the year?

Sorry. I neglected to answer that, Matt. The -- it renews throughout the year. And in all 12 months, there will be major renewals. But in general, if you said between December and April, we would anticipate about 60% of our contracts to be renewing in that period.

Okay, that's great. And then if you're able to and want to share, maybe if you could talk to your expectations for contract pricing this year. If we could maybe separate the 2 parts of your business, if you could talk about the potential for contract rate increases in flatbed and then maybe talk to your expectations on the specialized side of things, just given that market hasn't been as robust as the flatbed side of things?

Frankly, we expect to see that trend continue in 2018, where flatbed demand is very, very strong, and it's a very strong rate environment. We do expect to see specialized improve but mostly in certain highly specialized categories. And so overall, when you spread it across all of specialized, you would typically -- you wouldn't see as high of a percentage rate increases you would in the flatbed side of the market. And when we do have very long-term contracts, that's typically on the specialized side.

Okay, but -- I guess, just final question here. If we were to talk to maybe a number, do you think you can get 5% contract rate increases all in? Do you think it's just a higher number -- it could be a higher number? I'm just trying to…

Yes, thank you, Matt. Overall, if you put it all together and just as a growth Daseke number, we would expect mid- to high single digits realized 2018 because if I put in -- if I negotiate a price increase in April and it goes into effect in June, I don't get all of that rate increase in this year. So realize this year would be mid- to high single digits.

Our next question will come from the line of Jason Seidl with Cowen.

I want to stick on the revenue side because I think if you look at where you ended the year and your projections for '18, you're looking for roughly, call it, 4% growth. If you hit the midpoint of your range for pricing, that's kind of give you 7%. And admittedly, everything that we're seeing, at least on the flatbed side, is showing growth here on the demand front in early 2018. Could you give us a little more detail about the sort of types of organic headwinds that you face on a percentage basis on that specialized business because it just seems that a 4% bogey seems a little bit on the conservative side.

It may be. But we need to see how the specialized side develops. So this is the numbers we feel comfortable with today. We'd be happy to update it as we go through the year. Specialized still remains focused around a specific type of freight that we -- 2015 was a great year. Just a great year for this really big, over-dimensional heavy stuff. Think of major capital expenditures on the behalf of major industrial companies building refineries or wind electricity production farms. Those kinds of things were very robust in 2015 and then -- and waned as -- and even though we are not directly involved in that oil patch, there's still a lot of that related to that. Demand came down as well. And so what we have not seen in 2017, and we are not seeing it yet early in 2018, is a pickup in that kind of activity. It's very, very flat. And that is, as I talk about this, it's important to know that those prices for those very specialized, very heavy, very extremely valuable, months-to-plan activities also have very high -- revenues related to those are quite high. And so that's where it can distort things quite a bit. And until we see a shift there, we're going to be a little conservative on our projections there.

Okay, fair enough. I know, you're not giving any specific guidance for 1Q but you sort of have with even posting your Slide on '15 right? So if I look at your yearly number of $150 million, assuming that's correct, you have a 22% and a 25% of your EBITDA in '15 and '16 has occurred. But if I look at '17, you dropped at a 19%. And then you added 3 companies that might distort this mix even further in the fourth quarter. So that gives -- right now you have a range of about 19% to 25% of your EBITDA falling over the last 3 years in 1Q leaves a pretty big range for EBITDA for 1Q. Just curious, how should we look at those 3 companies that you acquired in 4Q as affecting the percentage as you move throughout the year of your EBITDA growth?

Well, those 3 companies were all very strong companies that we believe will be very strong contributors, as we move steeper into the year. One of those December acquisitions was a flatbed company. Flatbed it says, we can see on the seasonality chart, fairly flat, particularly in the first quarter. And frankly, March is a -- March and April are very pivotal years in determining what's going to happen in the marketplace. Right now, through Q1, we are very cautiously optimistic. And we are tracking to plan and feel very solid about the first quarter. But back to your question on those late December -- those December acquisitions and how they will affect the first quarter, we would not expect to see the full integration of those companies or the synergies that are available to those companies begin to show up until the end of the first quarter or more likely, really, in the second quarter.

Okay. So we should be looking -- well, I only bring this up, Scott, because you left out putting the percentages of 2017 up on that slide on '15, right? So If you did that, you'd be 19% to 25% of your EBITDA contribution would be falling into 1Q, which is a pretty big range that leaves you at about $20.5 million to $37.5 million. I'm just trying to get a sense of, was there a reason you left off '17 in that chart or no?

Yes, there is a really good reason, Jason. There were so many acquisitions in there. We couldn't find a way to make it discernible.

Okay. So really this is probably more of a steady state way to look at your company '16 and '15?

Yes.

Okay, fair enough then. Just wanted to touch a little bit on the acquisition side. Because obviously, what you paid for these companies has moved around a little bit. It's gone up a little bit on you. I think part of that was the market getting better. And part of that was sort of the type of company that you bought, sort of more asset light, if you will, to use one of your terms. Could you talk about what you're seeing currently in the marketplace for multiples?

Yes, they're very -- going to be fairly consistent with what we've seen in the past. We would certainly pay one price for one company in one condition and a different price for a different company with different prospects, different ability to be able to take advantage of our synergies, our costs, our scale, those kinds of things. But generally in line with our historical norms.

Okay, so we're talking somewhere north of 5x your company's?

Oh, yes. For tuck-ins, you would expect them to be something less than that and for something really special, you would expect them to be higher than that. And for an asset-light company, a purely asset-light company, obviously, the multiple is higher.

Okay, fair enough. And on the sort of the new way you guys have positioned yourself on a regional basis with putting certain gentlemen in charge of certain regions, has their compensation plan changed now? Or is it still the same as it was before?

It has not changed.

Our next question will come from the line of Steve Dyer of Craig-Hallum.

Just to kind of ask a previous question differently, it would seem that maybe your seasonality in Q1, particularly given some of the weather that we've seen here in Q1, should we be thinking sort of low end of that kind of historical range that you guys have talked about for EBITDA?

Well, we will be affected by the weather in the first quarter, there's no question, and we had that in our filings around the equity offering. But we are a business that operates outdoors. And much of the freight that we're moving moves outdoors. And so we always anticipate weather events will affect our business, particularly in the fourth quarter. And it's only when there was just a really outsized event or series of events, like we saw in the third quarter with the hurricanes that affected huge loss of our operating territories from Southern Texas to the Carolinas, that we would point that out as a significant deterrent to earnings. So right now, through January and February, we are tracking to plan. But remember, March and, oftentimes, April are the pivotal years in tick off in the open deck market.

Yes, I guess. So we're halfway through March, and as the last analyst kind of pointed out, that's a huge delta in sort of your seasonality swing. So I guess the fact that you left out '17 would suggest that the tip -- the seasonality we'll see is something more in the '15 to '16 range in Q1?

In terms of percentage of our business?

Yes.

No, I think it would be really relatively consistent to what we've seen in the consensus.

Okay. And then I guess, as you look back over the last year, it was a huge acquisition year. The pace was significant, and it seems like maybe some of the integration lagged expectations a little bit. Would you anticipate the pace will remain the same? Or do you take an opportunity to digest and integrate a little bit? How do you sort of generally think about this year versus last?

Hey, great question. Well, one, we are, as we stated earlier, we're in 2 businesses. We acquire businesses, great businesses to join us. And we also deliver freight. So we're built to be acquisitive. We always believe that we'll be working to get a better assimilation. But, yes, we agree that we need to improve all of those processes. It's one of the reasons for the evolution of my leadership. And we're going to be focusing on the maximization of all the organizational effectiveness, including on execution of operations and assimilation. We brought in new regional leaders and given them more responsibility to drive accountability, results, communication, activity, progress. We've added to our corporate infrastructure. We've taken -- we've brought in people here that are literally filling roles that I did personally in the past here, including focuses around mergers and acquisitions. Got new General Counsel and others that really help us support our ability to become more effective as an organization in those regards.

Okay, last question for me. Just housekeeping. Do you have the 2016 and 2017 cash flow from operations in front of you? I see the 10-K hasn't filed yet?

I do not. We can give that. We'll take a moment to look it up. It's in the kit.

Yes, I mean, you go on to the next question and chime back in here a little bit, if that's okay.

Okay.

Our next question will come from the line of Paul Penney of Northland Securities.

Could you give some more detail on the $65 million replacement CapEx? Is that both truck fleet and back-end system related? And remind us, what's the average age of the fleet these days?

Right now, the average age of the fleet is about 3.2 years old, which has gotten a little older as a result of some of the acquisitions we've recently made. The $65 million is purely replacement CapEx. And while you would think that if we had a, just for example, a 5-year CapEx replacement cycle, you might do 20% of that CapEx every year. But unfortunately, it is not that smooth. And in 2016 and '17, those 2 years, we had much lower CapEx than normal. In fact, we've planned to have a great deal more in each of those years. But as the conditions did not work, we cut back on the CapEx in '16 and '17. So '18 is a combination of a couple of things, a little bit of a catchup. But more it is just it's time to replace that equipment that was bought 4.5 to 5 years ago. So that replacement CapEx, as I said, is about 5% of revenues. And it's really just tractors and trailers. So in that number, there are some software systems, there are some facilities but the vast majority of that is tractors and trailers.

Okay, great. And in terms of niche markets, are there any other niches outside of glass and high security where you're looking at these days?

Yes.

Fair enough. Fair enough. And then lastly, more color on the margin trends in terms of why have adjusted EBITDA margins trended lower, especially this past quarter, when metrics are generally trending higher?

Well, margins in general are lower because we've acquired asset-lighter companies that by their very nature have lower margins but also typically have higher returns on capital because of the lower CapEx. So it's a bit of a trade-off. So as we went from a company that was kind of 65-35 or 2/3-1/3, heavy to light, to 50-50, you would naturally see the margin compression. We also remember, as I stated in our super heavy haul and over-dimensional, 2015 was just a great year. And we just haven't gotten back to those levels. So we believe there is room for improvement, and we intend to try and focus on those. But I think really the biggest thing that happened to us in 2017 was, we anticipated the strong rate environment would arrive sooner than it did and we -- even though we continued to have pressure on driver wages.

Great. And last question. Whether it's today or the future, have you thought about the -- in terms of the capital structure in terms of the warrants and is something that you'd contemplate proactively trying to eliminate?

Yes, I'll talk about it. I'll also ask Don to weigh in on this. But we -- the warrants are something that we continue to evaluate the potential or the possibility. Our board talks about it on a regular basis. But right now, we have no specific plans to do so. Don, would you say that any differently?

No. No, I think that's well stated. The part of the challenge is that, if we're going to do a tender offer for warrants, you really can't have things in progress. And we tend to kind of have things in progress all the time. And so if we're doing debt or equity or we had acquisitions, we just -- you have to disclose it, if you're doing a prospectus. Historically, we don't disclose things until they close. And so we're just trying to figure out a right time, and we haven't figured out a right time thus far. But as Scott points out, we do talk about it, we're focused on it. We'd like to get -- simplify our capital structure, we just hadn't figured the right time to do that.

There's a technical point, Paul. Given our recent equity offering, we would technically have a lockout from issuing certain amounts of equity between now and the lockout period expiring.

Our next question will come from the line of Willard Milby of Seaport Global Securities.

I know you all talked a little bit about the impact of the recent acquisitions of December. Seems like the integration time line you kind of have spoken about is maybe 4 to 6 months. Is that about right?

I would think so, yes.

Okay. And are you seeing the full...

There's one comment. Typically, we see the best improvements in EBITDA after 24 months. So we get them assimilated onto our systems and processes and involved in the right places and ways in 4 to 6 months. And then it takes a little bit longer to glean or garner all the effectiveness out of that, that we can.

Okay. So makes sense. So much of the costs associated with the integration are done after those 4 to 6 months, but I guess the full benefit is up to 2 years?

Yes. And some of that is simply because we need to change behaviors at the individual contributor level. It's really nice to talk about how we do things and hear what you can do in Daseke, but there are individuals that are contributing at individual companies that need to learn. That can take some time.

Okay, okay. And could you all remind me when the new freight management system went into effect. And do you have any data you can kind of put behind that on how that's been able to help the network in saying yes to more loads?

We don't have any data currently, but the system has been operating for some period of time, several months. We've used it largely for transfer of freight in between our operating companies. We've used it as a platform to submit national RFQs, give us a competitive advantage on data integrations, EDI and reporting, et cetera. And the most recent win was around our first single sourcing contract, where we are -- the freight comes into our system, and we disseminate it across the Daseke system through that system -- through the freight management system.

Okay, okay. And I know you talked about the difficulty of finding drivers these days and getting the seated trucks. Seems like the easiest way right now is the way you're going about. It's going out and finding these companies and basically buying a pool of drivers. As those drivers come onto the Daseke network, are you seeing retention levels that kind of mirror the rest of the Daseke family of companies? Is there more driver retention, less driver retention with newly acquired companies? Can you talk about that kind of dynamic as you add on these companies?

Certainly. It is one of the things that we look at in the diligence period to evaluate a company and its attractiveness to us. The better the turnover or retention rates, the more attractive they are to us. And we would expect that it will continue to be somewhat along historical trends. But there are -- as we report in 2 segments, I don't know we've ever said this publicly before, but I'm about to now, which is that turnover is much higher in the flatbed segment than the specialized segment. It just is. And we intend to try and do things to address it as much as possible on the flatbed side.

And I think you mentioned the 10% improvement in driver turnover. Was that a year-over-year figure for Q4?

Yes. That was a 2016 to 2017 number and a Q4-over-Q4 number as well.

Okay. So obviously had the hurricane impact from Q3. And I think there is maybe a delay in what we thought volumes could increase as maybe insurance companies had to approve certain projects to get done for replacement and repair. Are you seeing that level of business continue to uptick following these hurricanes as maybe some claims are starting to get approved?

Yes. We are seeing that kick in, in all of those markets where they were the most affected on the East Coast. That's particularly materials related to wind events and in Southern Texas and in all cases like that. It also involves materials that are related to water damage. So in many cases, a hurricane may merely be a few broken out windows and some roofs. But in Southern Texas, it was very much about a replacement of a lot of things that are inside the structures and not merely on the exteriors. So a lot of movement, a lot of demand. And we expect that -- if you look at historical norms, that demand will continue for some period of months. And we can -- we would expect to see that throughout 2018.

.

Okay, great. Two housekeeping questions, and then I'll hand it over. Do you have the expectation for normalized tax rate for 2018?

In the model, it would be -- 34% would be the right thing to use.

Okay. And has -- have the auditors gone through the 2017 numbers yet for, I guess, making the earnout official? And do you have a time frame on when those shares would be awarded, if and when that does get approved?

No and yes. So the -- no, they haven't. The -- once we finalize this audit that we published today, then we would begin to assemble the data and make a submission that then independent auditors would review and opine on what's the correctness of that calculation. And at that point in time, the shares would be issued, most likely in early to mid-May, sometime during the second quarter.

Our next question will come from the line of Steven Ralston of Zacks.

First of all, congratulations on attaining all your 2017 goals on M&A, revenues and adjusted EBITDA. If I could delve into that a little more -- quite a few questions have been -- I've answered myself by looking through your slides and your releases. But I did notice that you have bumped up slightly your 2018 organic EBITDA guidance and your revenue guidance. Have you -- are you still at $170 million for your pro forma adjusted EBITDA guidance? Or have you bumped that up too?

Well, let me answer it this way. That $170 million is a goal that is a target. It is not guidance for us. It's a -- it's not -- I'm not even sure it's a target. It is an amount that if it is achieved, then certain earnout considerations will go to the pre-public Daseke shareholders. That number is $170 million. And on an acquisition adjusted pro forma, we see no reason to change that number, and we believe that given our organic basis of operations, we should be able to achieve that number of $170 million. Obviously, our goal would be to exceed it. But right now, until we determine when and how much we are active in the M&A markets, it's hard to tell. But certainly, we would expect to meet the $170 million. Don, would you care to comment on that?

Yes, the second target this year is a stock price of $14. So it's really 2 targets we have to achieve to achieve our incentive for 2017. So we're certainly hopeful that we can do the things that the market will recognize as the right things for this year that builds our company, builds shareholder value, are recognized in the market and build EBITDA as well.

(Operator Instructions) Our next question will come from the line of Bruce Martin of Still Lake Capital.

Couple of quick questions. One follow-up on the CapEx. I think you said 5% of revenues. I assume you mean 5% of the revenues that come from the company-owned because otherwise, I don't know how you do the math if you have asset light and asset heavy. But the $65 million is really 5% of total revenues. So what is the right way to think about that? And I know, you said the last 2 years were light, so maybe this year is heavier. What is the real run rate replacement CapEx number? Is there a number that you use per company-owned truck that we should use in our heads? Like, what is the number?

I'm not sure I answer -- I know how to answer your question. But our normalized should be and over the long period of time cycle if you averaged our years -- our capital expenditures over, say, a 5- or a 6-year period, our percentage of our revenues should be normalized in the 5.5% to 6% range. If we had been an asset-heavier company, you may not have been an investor at that point in time, but we had guided to more of a 7% steady state. So as we have become a lighter company, we've guided to a lower number on a steady-state basis.

Okay. And then -- so then focusing on the total margin, if my historical numbers are right, I think the company used to have 13% to 14% EBITDA margins. And it's down around, I think your forecast for this year has it at 11%, and you take your $150 million of CapEx divide it by the revenue. And obviously, if you're spending 5% or 6% on CapEx, that only leaves EBITDA less CapEx of 5.5-ish percent. How do you guys look at that EBITDA margin of 11%, either versus what it was historically versus where it should be? What is sort of the internal goal? And what do you think is the right metric for that?

Yes. The right way to look at it, the way we look at it is, is our EBITDA margin appropriate for the mix of freight and type of revenue that is related to that revenue number? Meaning, asset-heavier companies should have a different margin percentage of profitability than an asset-light company, a pure asset-light company. And there are some comps out there that you could go take a look at, and you could see that, by nature, they have a much lower percentage of earned -- percentage margin for EBITDA. So the question in our mind is, is the number appropriate for what we have, given our mix of flat and specialized asset heavy and asset light.

So maybe if I come off of that, would you...

I'm sorry, Bruce. But to further answer your question, we certainly hope to improve those in both categories. The easiest to improve the margin would be in the asset-heavy category and less so in the asset-light category.

I was going to say, to piggyback off that, my sense -- and maybe I'm off on this, my sense, hearing you guys speak historically, is there is almost a greater attraction to the specialized solutions and as a rate per mile, it gets a much higher rate. But again, if I'm crunching the numbers right, the cost per mile are higher and the operating income per mile is actually a little lower so far from what you guys have been doing on the specialized side than what you're doing on the flatbed side.

In very recent memory, that's correct. In long-term history of the company, that may not be, in terms of which one's better or worse, which segment is better or worse. But certainly, in recent memory, is that correct? That's correct. You're right. Specialized carriers have much a higher rate per mile but typically has much higher operating cost. But it gives us -- there are things related to that. If you're doing these big over-dimensional loads, they may be pilot cars or police escorts, all kind of things and equipment is more expensive, the drivers are more expensive because they're much more highly skilled. So there are cost differences between them. And in -- so in general, your comment is not off-base, but we certainly have operating leverage in the specialized category based upon the current rate environment.

I was going to say, what is the attraction? I mean, it seems to me like the flatbed is an easier business to run, higher margin. You should be able to get more economy of scale. So I'm backing all the way into, again, how do you get the EBITDA margin up? And maybe, you just view specialized as a more stable. I don't know what the attraction is, but that's what I'm trying to figure out. And then, layering in again, the money you just raised, which I presume is for, I'm hoping, an imminent acquisition, which direction are we heading in and why? And does that make the margins better in 1 or 2 of those segments?

Well, I did say in our prepared remarks, and we're focused on acquisitions in 3 main categories. We want to continue to build scale in flatbed. Last year, we only did one transaction in flatbed. Now it was a very big transaction, added 1,000 drivers essentially in the flatbed space. Terrific opportunity for us. So we are going to continue to build scale in flatbed. We're not ignoring flatbed. We believe in flatbed. Two, we are going to look for specific niches where we have some sort of something that makes it special or different, whether we've got great operating margins, great opportunities to improve organic growth, take advantages of our scale or we have the opportunity to have more market leadership or significant piece of that niche, those things are very attractive to us, yes. So -- and then lastly, the third leg of where we're going to focus will be, continue to be small opportunistic tuck-ins for our existing platform company.

All right. And then very last question on the CapEx, on the growth part of the CapEx. The $20 million to $40 million, how do we think about that in terms of what you're buying with that growth Capex? And what returns you're expecting from that?

Well, we expect on those to get something in the mid-teens, I would think. The -- we certainly are hoping to focus on some of our niches that I talk about, where we believe we have great opportunities to grow organically, quickly. And have -- do so while maintaining very solid, very attractive profitability characteristics. These niche markets, and back to your earlier question on what's the attractiveness, they can have very outsized or greatly better-than-norm numbers around profitability, operating ratio, driver turnover, pricing power, all kinds of things that make those very attractive places for us to be. They have unique drivers and the 2 categories that we point to are high-security cargo and commercial glass. Don, would you care to comment on that?

No, no. That's -- it's absolutely correct. The -- and we like the fact that these categories, there's only a few companies in the country, few carriers in the country that focus on these categories. And so we think that represents a good opportunity for a carrier of our scale and financial strength to be in these niche categories. So we just are very excited about the opportunity.

And these companies also have the opportunity to pick up on our cost synergies, and their increased size allows us to increase our purchasing power and spread that purchasing power across the entire system.

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to the company for closing remarks.

Well, thank you, everyone. This is Don Daseke, again. We are very excited that you're interested in us. We are very proud of what we have accomplished. This is a journey. As we look back, we were $200 million in revenue just 4 years ago. And now we'll be at $1.3 billion. And the -- we have just begun the consolidation of this fragmented market. So we are very excited about what we've accomplished to date. We're very excited about our future. And we appreciate your interest in us and your investment in us. And when any of you ever have questions, please let us know. And when you want to see us in Dallas or visit one of our operating companies, please let us know. We will make ourselves available to you. Thanks for participating in the call today.

Ladies and gentlemen, this does conclude today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.