Daseke Inc (DSKE) 2021 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, 2021 as well as Daseke's 2022 outlook.

With us today are Jonathan Shepko, CEO and Board member; Jason Bates, EVP and CFO; and Traci Graham, Vice President of Finance and Investor Relations. After their prepared 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 like to turn the call over to Traci Graham, Vice President of Finance and Investor Relations, who will read the company's safe harbor statements within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautious -- sorry, important cautions regarding forward-looking statements. Traci, please go ahead.

Thanks, Victor. Please turn to Slide 2 for a review of our safe harbor and non-GAAP statements. Today's presentation contains forward-looking statements as within the meaning of the Private Securities Litigation Reform Act of 1995. Projected financial information, including our guidance outlook, are forward-looking statements. Forward-looking statements, including those with respect to revenues, earnings, performance, strategies, prospects and other aspects of Daseke's business are based on management's current estimates, projections and assumptions that are subject to risks and uncertainties that could cause the 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 do 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.

During the call, there will be -- 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. With the exception of free cash flow and net debt, the company will discuss these measures on an ex Aveda basis. These measures exclude the impact of the Aveda business. Although we see generating revenues from the Aveda business and completed the wind-down of our Aveda operations in 2020, we continue to recognize income and expenses primarily related to workers' compensation claims and insurance proceeds from the Aveda business in 2021.

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 terms of the structure of our call today, we will start by turning the call over to Daseke's CEO, Jonathan Shepko, as who will review our business operations and the progress we are making as we execute against our key strategic priorities. Jason will then provide a financial review of the quarter and full year as well as provide 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 Shepko. Jonathan?

Thank you, Traci. Good morning, everyone. Let's turn to Slide 3, where I'll speak briefly on some of the headline observations and key accomplishments Daseke made as we closed out a very successful fourth quarter and full year 2021.

I'm pleased to report that Daseke delivered another very strong quarter of operational and financial performance, capping off a second consecutive year of record adjusted EBITDA. In the fourth quarter, demand remains strong across the industrial end markets we serve, defining the normal extent of the seasonal deceleration.

We continue to face ongoing capacity constraints in the equipment market due to disruptions in the global supply chain though these disruptions have also worked to perpetuate the imbalance between supply and demand, which in turn has continued to support a very healthy rate environment. While this environment looks to have provided a new flow on rates, it is our proactive strategic deployment of assets against the most profitable pockets of the market that has allowed us to not only outperform the benchmark rate, but also extend our freight capture as evidenced by the 17.5% increase in revenue this quarter.

Daseke continues to focus on operational execution, driving a 25.9% improvement in our adjusted EBITDA of $49.6 million and a 360 basis point improvement in our adjusted operating ratio from 96% to 92.4%.

Additionally, our quarterly adjusted net income was $13 million and adjusted diluted earnings per common share of $0.18 were up 41.3% and 51%, respectively, even when compared to our strong fourth quarter of 2020. Despite cost pressures on employee compensation, recruiting and other operating line items, we delivered record results.

Our diligent execution within our Asset-Right business model enabled us to convert top line growth into meaningful increased profitability for our shareholders. Before turning the call over to Jason to provide more detail around our financial performance and outlook, I'd like to take a few moments to discuss our continued commitment to both our operational execution and long-term strategic direction.

Previously, we've highlighted the importance of our unique business model to our operational success. Throughout 2021, we leveraged this model to proactively identify the network optimization opportunities and accordingly, reallocated our assets to better serve our customers within these markets in order to drive superior rates compared to the greater flatbed market. Further, we tapped our extensive network of owner-operators and third-party carriers to accommodate our customers' requests for additional capacity, thereby capturing incremental freight spend from our blue chip shipper base. This dedication to customer service, operational efficiency and business model flexibility are each mainstays to our success in our long-term strategic plan.

Shifting from a trailer-centric view of our business to one of in-market leadership is a fundamental tenet of our strategic direction, positioning us for more profitable growth in the future as we begin to prioritize the marshaling of resources in support of these specific end markets.

Focused intensity targeted at such end markets and subverticals that are best positioned to distinctly value our specialized knowledge and credentials, our differentiated asset profile and our national footprint will give rise to opportunities to further expand our suite of services and reach to better service and engage these very customers.

A key element to advancing our strategy is the fundamental shift from siloed, independent operations to a federated and harmonized platform wherein the sharing of data, exchanging of best practices and coordination and asset utilization will collectively provide the foundation for future growth and optimization.

To accomplish this, there will be further operating company consolidations. There will be investments in technology, and there will be coordinated thoughtful standardization across our platform. Over the last few quarters, we focused on enhancing our plan to ensure these tactical transformational initiatives are executed in such a way so as they complement our long-term strategic direction.

We will begin to share many more details around our transformation plan as well as the longer-term strategic plan over the coming quarters.

With that, I will now turn the call over to Jason Bates to review the fourth quarter and full year 2021 financial performance and 2022 outlook. Jason?

Thank you, Jonathan, and good morning, everyone. If you please turn with me to Slide 4, we will start with a high-level review of the consolidated results for the fourth quarter. As Jonathan mentioned, our fourth quarter results once again provided evidence of Daseke's ability to execute efficiently and effectively, capitalizing on what has been a strong freight environment. I'm extremely proud of our team's collective performance in the fourth quarter and for the full year, both of which exceeded our expectations.

We experienced similar trends in the fourth quarter to those we've discussed throughout 2021, with a sizable uplift in demand across construction materials, steel and manufacturing-related verticals. Our ability to continually support and service our strategic customers over these past 12 to 18 months has been a key contributing factor in our ability to realize better-than-expected freight rates, particularly in our flatbed business during what has been an increasingly difficult supply-demand imbalance within the transportation industry.

We believe that this focus on customer service and strategic freight selection played a role in minimizing the seasonal volume slowdown we traditionally see from the third quarter into the fourth quarter and enabled us to capitalize on market opportunities within both of our segments and across end markets.

Our portfolio approach is purposeful and continues to deliver a diverse profile of consumers and end markets, which allow us to pivot and seize opportunities across a breadth of industrial verticals. We are proud of our team as they continued to redeploy assets to the most efficient end markets and deliver strong 2021 results.

Per Traci's comments at the outset of the call, we will primarily focus our discussion today on the adjusted results, excluding Aveda. As Jonathan mentioned, in the quarter, Daseke delivered revenues of $394.3 million, up 17.5% compared to revenues of $335.6 million in the fourth quarter of 2020.

We are optimistic about continued freight opportunities and our team's ability to further execute against this strong market environment as well as pull operational improvement levers to help further underpin our recent outperformance as we move into 2022.

The team delivered adjusted net income of $13 million or $0.18 per diluted share in the quarter. Adjusted EBITDA of $49.6 million, grew by nearly 26% compared to the fourth quarter of 2020 due to increased realization of our business improvement plans alongside growing freight rates and volumes, supported by healthy demand and strategic customer alignment and support.

The year-over-year growth was also supplemented by a higher-than-normal gain on sale of equipment, as we, along with most of the industry were beneficiaries of a strong used equipment market. The combination of these various items helped us to offset any moderation from the unusually high margins we experienced in 2020 period associated with the wind energy project revenues.

I'm also proud to highlight that while many companies in our industry face driver retention headwinds, Daseke continues to prioritize its workforce and thus, driver turnover remains significantly below the industry average, which we maintain as a competitive advantage.

Of note, we have implemented driver pay increases in the quarter in line with the market, which have been hedged by the continued expansion of freight rates. We continue to monitor the driver situation closely but are encouraged by our team's excellent work in ensuring Daseke is an attractive and quality employer for our dedicated driving professionals.

Finally, I'll briefly touch on our corporate overhead expenses. In the quarter, administrative expenses, including contract and professional costs improved through -- though corporate costs did experience a slight increase primarily associated with seasonal bonuses as well as salary and benefit increases, which are tied to the company's improving performance and market competitive rates.

On Slide 5, I'll briefly touch on our key financial performance measures from a full year perspective, again, referencing numbers, excluding the Aveda business. For the full year 2021, Daseke generated revenues of roughly $1.6 billion, which increased 11% versus 2020.

The top line increase was driven by growing freight volumes and rates compared to COVID impacted 2020, attributable to heightened performance in our steel and construction end markets coupled with a constrained supply chain environment, offsetting the normalization of record wind energy performance in 2020.

As we move to a discussion about the various profitability metrics, I want to take a moment to highlight several annual records that were achieved by the team in 2021. We achieved records in each of the following financial metrics as well as their adjusted counterparts, operating income, net income, earnings per share, adjusted EBITDA and operating ratio.

I can't properly express how proud we are as a management team of our organizational commitment to excellence over this past year. These various profitability records could not have been achieved without the hard work of each and every team member throughout our organization.

With that said, I'll take a moment to highlight the specific record results. Our operating income of $116.7 million improved more than 90% over the 2020 result. Adjusted net income of $77.8 million, nearly doubled versus the $39.6 million of adjusted net income delivered in 2020, further attesting to the effectiveness and efficiency gained through our strategic changes and operational upgrades achieved over the past 1.5 years.

Total adjusted EBITDA of $223.1 million improved by 25% compared to 2020's results. Finally, our adjusted operating ratio was 90.9% for the full year of 2021, which represents a 270 basis point improvement from the 93.6% adjusted OR in 2020.

These full year results show our ability to execute decisively on our operational plans, successfully deploying assets where our niche capabilities and flatbed offerings are most valued by our customers, while capitalizing on the year's strong market backdrop. I'd now like to walk you through a detailed view of the fourth quarter results at the operating segment level.

On Slide 6, we present our specialized segment results. Specialized segment revenues for the fourth quarter of 2021 were $220.3 million, up 12.1% versus the fourth quarter of 2020, driven by strong industrial end market demand, counteracting the normalization of the strong wind segment in the year ago period.

Continuing to Slide 7, we highlight our specialized segment adjusting for the divestiture of our Aveda business. Adjusted EBITDA improved to $33.3 million, up 11.4% versus the fourth quarter of 2020. We were also able to maintain adjusted EBITDA margins relatively flat versus the fourth quarter of 2020 in spite of the revenue mix shift from historically elevated wind energy projects in 2020, which created tougher comps. That said, I'm pleased to report specialized rates increased sizably in the quarter more broadly, with the rate per mile for the segment of $3.34 increasing by 13% when compared to $2.96 in the fourth quarter of 2020.

We've continued to see this rate growth across our portfolio of end markets and particularly around our construction materials channels, which helped to offset the aforementioned decrease in wind energy. This again highlights the beauty of our diverse set of service offerings, customers and end markets.

Our ability to capitalize on a strong rate environment, coupled with our operational enhancements, fleet rightsizing and dedication to driving efficiency across our portfolio is proven by the segment's revenue per tractor results of $66,800 versus $59,100 in the fourth quarter of 2020. Lastly, the segment's adjusted operating ratio was 90.1% versus 92.8% in the fourth quarter of 2020.

On Slide 8, we detail our Flatbed segment results for the quarter. Revenue in the fourth quarter was $176.4 million, which increased 24.1% from $142.1 million in the fourth quarter of 2020. Demand remains strong in the Flatbed segment during the fourth quarter as we continue to redeploy our assets into the most accretive end markets while leveraging our Asset-Right model to capture incremental revenue through our brokerage operation.

In the fourth quarter of 2021, we were able to realize a 23.1% increase in our rate per mile compared to the fourth quarter of 2020. While the overall flatbed market has experienced significant rate increases driven by the supply/demand imbalance, we've been able to generate incremental rate compared to the market due to our operational execution.

We proactively identify the most advantageous markets and redeploy our assets into those markets, enabling us to garner premium rates as evidenced by the chart in the lower right quadrant of this slide.

The rate improvement is also reflected in the revenue per tractor metric of $51,300, which increased 19.3% from $43,000 in the year ago period. The segment's adjusted EBITDA results of $26.5 million grew by 55% compared to the results of $17.1 million in the fourth quarter of 2020. This stronger adjusted EBITDA performance helped deliver adjusted EBITDA margin growth of 300 basis points, expanding to 15% despite facing tough comps due to the heightened COVID recovery environment in the year ago period. Finally, the segment's operating ratio improved a staggering 720 basis points to a 90% OR with the adjusted OR coming in at 89.4%.

Turning to Slide 9. I'll take a moment to speak about our cash flow performance. Through year-end 2021, Daseke has generated $144.7 million in cash from operating activities. Cash CapEx was $53.7 million and we collected cash proceeds from the sale of equipment of $58.6 million. This resulted in free cash flow generation of $149.6 million for the year. CapEx financed with debt or capital leases has totaled $64.7 million, bringing the net after financing of $84.9 million.

Looking to Slide 10. I will conclude with our outlook for the full year 2022 before handing the call back to Jonathan. Though we anticipate some headwinds in the coming year, many of which are present in the market today, including inflationary pressures on costs, driver shortages and equipment supply chain challenges, we remain confident in our ongoing ability to navigate these headwinds. We are optimistic heading into 2022 and expect to have a clearer view as we progress in the year. Having said that, we wanted to provide a high-level outlook to help you understand how our team is thinking about the business as we begin the year.

For full year 2022, we anticipate revenue growth between 4% and 7%. We expect this revenue growth to be a function of both continued organic rate improvement as well as volume increases. On an adjusted EBITDA basis, we are expecting to outpace our revenue growth. And at this time, are estimating an increase of 5% to 10% year-over-year. This bottom line expected performance will be a combination of the revenue drivers I just mentioned, combined with various operational initiatives currently underway, which Jonathan discussed last quarter and will readdress shortly.

Moving to CapEx. Our capital priorities in 2022 will continue down the path set in 2021. We are generally pleased with the state of our equipment and have tried to remain disciplined about staying on top of our maintenance CapEx. As referenced last quarter, we did experience a slight timing issue with regard to the receipt of new equipment we anticipated to take delivery of in the fourth quarter, but which was pushed into the first quarter of 2022. This represents roughly $25 million of net CapEx that shifted from 2021 into 2022.

Additionally, this year, we will have an added focus on driving organic growth through further investment in technological improvements designed to increase our scale and streamline our business, which we anticipate to be roughly $10 million. Taking those 2 items, in addition to our traditional maintenance CapEx, we expect net CapEx for 2022 to be within the range of $160 million to $170 million.

A question we've been frequently asked related -- a question we have been frequently asked relates to our views on consolidation in the industry and M&A in general. We do believe there are various data points and market realities that are bolstering the case for continued consolidation within our industry, and we view M&A as a very necessary complement to our long-term value creation strategy. To that end, we will continue to keep a close eye on the M&A market as a potential medium to fund strategic growth. However, as we've emphasized in the recent past, this leadership team intends to be very diligent with our approach to M&A, focused on full cycle earnings potential and long-term equity appreciation.

So in summary, we are excited about the amazing effort each of our team members here at Daseke put forth in 2021, which enabled us to achieve numerous profitability records this past year. Although the operating environment will likely present different challenges in 2022, we are similarly optimistic about our team's ability to execute and are looking forward to continued progress in our organizational evolution.

So with that, I'll hand the call back over to Jonathan to offer a few final words. Jonathan?

Thank you, Jason. I'd like to spend only a quick moment on this Slide 11. We've spent a lot of time referencing the various initiatives we've undertaken over the last 1.5 years to improve our operations and improve our business. Sometimes, when quarterly performance is analyzed discretely on these quarterly calls, the cumulative effect of these turnaround efforts can be lost. In the top left quadrant of the slide, however, we've lined out a handful of relevant metrics that frame up our successes over the last few years from fleet rationalization and efficiencies around asset utilization to improvements in relevant profitability metrics and the strengthening of our balance sheet, with comprehensively overhauled this company, and we'll continue to leverage this momentum as we move on to the next stage of our transformation, then on to the execution of our longer-term strategic vision. We've exceeded the expectations of many people, and there's still substantial opportunity left for us to take advantage of.

If you look to the top right quadrant of the slide, another takeaway I'd like you all to note is that in spite of this remarkable turnaround, the discount in our EV to EBITDA multiple relative to that of our peer groups has remained constant over this 3-year period, at around 30%, which is perplexing given where we started in 2019 when compared to where we stand today.

Next slide, please. On the previous slide, we offered up a quantitative brief for Daseke's valuation, also noting our relativeness pricing. And on Slide 12, I'd like to offer up the makings of a qualitative case for Daseke. This slide provides the high-level contours of the value drivers that will underpin our growth over the coming years. These drivers will provide our shareholders with multiple ways to win, both beta and alpha.

Our focus on continuous improvement remains unchanged as evidenced by our financial progress over the last 24 months. We will continue to evaluate our industrial end markets for both organic and strategic growth opportunities, including the expansion of our service offering to our customers. And we will examine opportunistic adjacent markets within which to expand our footprint.

We will allocate capital in support of these highest and best use opportunities with an emphasis on earnings, free cash flow generation and long-term equity value creation. With respect to secular capacity tightness, as I mentioned earlier, equipment supply chain has remained constrained, impacting both the demand and the supply side of the equation and sustaining a favorable rate environment for our industry and a $1 trillion infrastructure bill will only challenge the possibility of a near-term supply-demand equilibrium for the open deck carriers, extending the runway and providing a safe haven rate environment for our segment of the industry for the foreseeable future.

With that, I'd like to conclude our prepared remarks for this morning, and I'm excited to turn the call over to our operator for your questions. Victor?

(Operator Instructions) Our first question will come from the line of Jason Seidl from Cowen.

I wanted to hit on a couple of things here. Talk to me a little bit about rate. I saw the nice year-over-year bump in both your divisions. The sequential degradation that you guys noted in the charts, I'm assuming that's just the normal historical move. And if I'm correct on that, how would you compare it to normal seasonality in the quarter?

Yes, Jason, thanks. Yes, you're correct, there is a normal seasonal cases in our business that we like to kind of remind people of. A lot of people follow [naive Warren or Heartland], some of the big dry van guys and usually kind of third and fourth quarter are the peak periods. In our business, it's really second and third quarter, and then we seasonally slow down in the fourth and first quarter. So yes, you are correct, there is a seasonal cadence there where typically we see things kind of slow. Although if you look at kind of the year-over-year or the sequential change over the last 2 or 3 years, this year, we actually -- last year was the first quarter where it was unusual, and the fourth quarter was strong and that has a lot of that COVID recovery action that happened. Although this year, we saw a similar trend in terms of not dropping off as much as it normally has. So while it did kind of moderate, it was surprisingly strong for that sequential slowdown of third and fourth quarter.

So better than the historical slowdown that you've seen?

Yes. Q3 to Q4 of 2020 was an aberration. But setting that year aside, this year was probably one of the better sequential periods from Q3, Q4 in terms of rates.

Okay. Perfect. That's good to hear. Other thing, in the past, you guys had talked about your advantage in your driver turnover rates. You noted it again in your comments. But you also talked about how you're going to keep a close eye on the overall driver market because flatbed jobs, obviously, a much more difficult job than somebody on a dry van, no touch freight. Are you -- is the normal drive-in driver market pay getting up there to where you're starting to get worried that it could impact your ability to attract new drivers?

Yes. Great question. And I think we talked about this. You and I talked about this a few weeks back. It is something that we watch really closely. And I have a lot of friends in the dry van side of the world having spent most of my career over there who I talk to regularly. And when I look at some of the things they're doing and having to do to attract and retain drivers, it just -- it causes us to just kind of keep our ears open and our eyes open to how that might affect our drivers because to your point, a flatbed job is a tougher job. You're getting out of the vehicle, sometimes in less-than-ideal conditions. You're getting up on top of the trailers, you're tarping, down loads, tying things down. It's over dimensionalized. It's more complex. And so understandably, they deserve a premium in terms of compensation. So we just have to make sure that, that premium is still there and that the value for choosing to be a flatbed driver is still there. And so that is something we're very mindful of, and we watch very closely.

As we touched on in the prepared remarks, we did do some select targeted increases in certain pieces of our business in the quarter to that end, right, to make sure that it continues to be an attractive opportunity. But I want to revert back to your opening part of your question, and that is that our turnover is even with all of those puts and takes we just discussed, more than half of what a lot of the industry data points would suggest. So we're pretty pleased with our team's ability to kind of attract and retain drivers, but that doesn't mean that we can just rest on our laurels.

Okay. One final one, and I'll turn it over to the other analysts on the call here. Your outlook for '22, I just want to sort of try to dig in a little deeper. What does it include in terms of gain on sales since you're actually pushing some more purchases and CapEx into '22 from '21? And do you have anything in there for any new projects that might be linked to the infrastructure bill? And I'll just listen in and appreciate the time.

Yes. Great questions. Yes. So real quick on the gain on sale. Obviously, 2021, the gain on sale was strong. It was up -- I think, through the third quarter, it was up roughly $8 million year-over-year. And for the full year, it was closer to $10 million when you compare 2021 to 2020, right? So I think everyone in the industry experienced similar outperformance on the gain on sale.

For 2022, we're not assuming that the market -- I mean projecting used equipment pricing is tough, right? But we're not assuming that the market is going to be better but we're also not assuming that it's going to substantially moderate and get worse. We've got a relatively similar assumption around gain on sale on a per asset basis. It will moderate a little bit, but not meaningfully. We're not talking tens of millions of dollars of swing here. It may be $1 million or $2 million. And so I think that's an important data point.

Secondarily, with regard to the pushout you addressed, the pushout of equipment from Q4 into Q1, we're trying to stay still consistent with. It's really just a timing thing that's happening between Q4 and Q1. So I don't know that we would expect significantly more dispositions when you look at the number of trucks that are expected to be rolling off in 2022. So from that perspective, there's not going to be a step function up on the used equipment side. Was there another part to that question that I missed? I'm looking at Traci and Jonathan, I think I missed...

Yes. No, I was talking about in your projections for '22...

Infrastructure.

Infrastructure, yes.

Yes. Thank you. Yes, we -- listen, it's a little fuzzy exactly what the infrastructure bill is going to look like and how quickly it's going to make its way to us. We've been pretty conservative in our assumptions around what's going to flow through the infrastructure bill in 2022. We think we'll probably start seeing something in the back half of the year, but I don't want you to think that, that 4% to 7% guide on top line and 5% to 10% improvement on bottom line is largely dependent on the infrastructure bill, I would say it's minimally, it's nominally dependent, if at all, on the infrastructure bill. But I do want to point out because you asked about driver retention and things like that.

We did highlight a lot of potential headwinds with regard to inflationary pressures, driver recruitment attention, supply chain challenges. Those are taken into consideration in that guide. So we just want to make that clear that, that guide isn't our guide. And then we're saying, oh, and we need to worry about these things, which could provide downward pressure. We're seeing -- we've already taken that into consideration. Now they could be worse, or they could be not as bad. And that would obviously affect the guide. But we do want to make it clear that those kind of headwinds were factored into that guide that we provided.

Our next question comes from the line of Ryan Sigdahl from Craig-Hallum Capital.

Congrats on the progress. So you talked a little bit about rate environment for 2022. Zooming that out a little bit, if you can, can you talk through the puts and takes for rates over the next several years beyond, I guess, the next several quarters?

Yes. I mean it's a complicated one, right? So we've done a lot of -- Jonathan and I, we're both finance guys, right? So we do a lot of theoretical analysis around 3- and 5-year plans and modeling. In 2022, we're not assuming anything crazy from a rate perspective.

We're -- candidly, we're kind of in that mid-single-digit range with regard to rate assumptions, which could be conservative. But we try to align the inflationary assumptions and the cost pressures and things like that with driver pay increases, et cetera, with that rate increase, right? So to the extent that we outperform on that mid-single-digit rate assumption, more likely than not, some of that is going to make its way to drivers. And so we probably won't have as much of a flow-through as we have seen over the last 18 months. But back to your question about longer-term, and I'll let Jonathan, I know he's got some thoughts on this as well. But I mean, from my perspective, I really don't see the supply-demand imbalance that exists today, dissipating anytime soon. I think where -- we've got this $1 trillion infrastructure bill that's going to continue to provide pressure specifically in our markets that we support and service. And you've got a lot of challenges in terms of getting equipment. You've got a lot of challenges with regard to insurance.

We're hearing rumblings about crude oil, topping $100 a barrel, like there's a lot of things out there that are going to make it tough for people in our space, especially the smaller people. And that's where you heard me and Jonathan both kind of allude to opportunities for industry and further industry consolidation. And so when you think about the rate environment, I think rates are going to hold up for a little while. I don't think that they're reversing course anytime soon. Jonathan, anything?

Yes. Look, Jason said most of the things I would have said, Ryan. Look -- we've looked at flatbed rates for the last 40 years to try to kind of use that as a proxy to kind of forecast the future. And look, as you know, you're looking at compounded annual growth rate over that 30- to 40-year period of 2.5% or so. So generally, Jason, when we get this question, Jason says a lot, it's up into to the right. It's a very different forward curve and behaves very differently than oil and gas, right? I mean so you've got much more volatility in those forward curves. You've got -- the peaks and troughs are much more pronounced. They could sit there at -- in the doldrums and kind -- with kind of low watermarks for multiple years. If you look at the way the rates behave in this industry, highly correlated to CPI, first of all. So in essence, you're passing through the rates. We also -- 80% to 85% of what we do is dedicated. So we're not playing a spot market. So a lot of the extreme volatility is insulated. So we have a much more kind of balanced, moderated forward curve than guys that are playing the spot market.

If you look past the last 30 years or so, the times where rate did pull back, it was all macro-event driven. So if you look back to the dot-com bubble, I mean really didn't do much for rates there. But if you look at the Great Recession, you looked at the industrial recession, you looked at even COVID and you kind of analyze those events, trough as a percentage of peak was 85%. So there was some pull down, right, kind of 15% or so from that -- from those respective peaks in those respective cycles. But those cycles peak to trough to peak were often 18-month cycles, right?

At most.

And if you think about -- yes, and if you think about our cost structure, 77%, 78% variable. I mean we've got a long history as does the asset-light industry -- I'm sorry, the asset-based players within the industry of defending margins because of that variable cost structure.

So I think that when looked at it, I think Jason made a lot of compelling points, I think, particularly for the open deck segment of the industry with the infrastructure bill. You've got the supply chains preventing the over exuberance of the larger carriers from stepping on the gas and adding a bunch of trucks to their fleet to offset demand and pull prices down. So there's a lot of natural hedges in place, I think, to keep the rate environment pretty healthy for the foreseeable future.

Yes. And Ryan, just one correction. Jonathan said 85% of the fleet is dedicated. He meant contract.

I'm sorry.

I just want to clarify that.

All helpful context, guys. Appreciate it. As you think about the operational turnaround, if I do some back of the envelope math while you're not guiding to it, I think guidance implies you guys get to kind of your 90% OR a bit better than that. I guess, first, is that right? And then second, can you walk through -- you've laid out kind of the multiyear priorities, strategy, et cetera. But what are the main priorities that you guys are focused on the next 3 to 6 months?

Yes. I'll let Jonathan hit the second part of that question. I'll take the first part. Yes, I'm always a little reluctant when we talk -- because 2 years ago, I sat here and talk to you guys about our long-term goal of a 90% OR. And now I keep getting the question like, hey, you're already there, right? And so -- but I want to reiterate to everyone that, that goal is more -- we want to be a 90% OR through the peaks and the troughs. We're going through what's been a really, really strong market. And so yes, you would expect us to be doing well. But personally I think -- and if you were to talk to Rick or Jonathan or any of the leaders here in the organization, we think we should be operating in 80s in peak environments. And then maybe your kind of 90% to low 90s in trough environments. So we still feel like there's a lot of opportunity for us to continue to improve so that we're consistently performing through the peaks and the troughs of the cycles, not reverting back up to a high 90s OR when the market doesn't cooperate perfectly.

So we do think there's a lot of opportunity. And I'll turn it to Jonathan now to talk about what some of the strategic things are that we are going to be focusing on to kind of help us drive some of those opportunities.

Yes. Ryan, we talked about it on the past calls but, again, technology, I mean technology historically has been -- I mean look, it's been an Achilles heel for Daseke. We haven't had access to real-time data to make good decisions quickly. And I think the success we've had is really a testament to the -- I mean to kind of the tenured leadership we have at the opco level. So we're doing -- we're making investments in technology. Those are going to be to access better or real-time data.

There's a subset of this technology investment that's going to be just kind of good old corporate hygiene. But technology is one of those -- one of the legs of the stool. The other one is further consolidation, rationalization across our stable of opcos or enterprise, right? And it's taking -- it's figured out a way to work more collectively and taking some of our better-performing opcos and finding a very efficient, effective way to instill the best practices from those respective opcos across the enterprise and then also figuring out a way really to get the opcos to work together rather than we mentioned silo, I think we've said that in the last few calls. It was a good description for how we look today even with all the progress we've made on some of these asset utilization network optimization, kind of stop gap initiatives. The longer-term initiatives are really kind of getting at the heart of this to where we're really operating into one Daseke.

We want to preserve the kind of the touch and the feel of the local regional carrier. We think it's very beneficial in recruiting drivers. We think it's very beneficial in finding that right touch with the customers. But we've got to do a better job of really working in unison from a network optimization, asset utilization standpoint. Again, part of that is just the organizational restraints that we've been subjected to over the last few years, and part of that is also going back to technology.

And then I think the last thing is M&A. We've got a good team. We spent the better part of the year now building a very proprietary platform of deal flow. We're sure we're taking a look at all the marketed deals. But we think that the value opportunity is much more right in those kind of private one-off negotiated opportunities and then pulling those in the right way, right?

It's buying them right buying them thoughtfully, but then onboarding those opportunities the right way, and that's [not] creating 6, 7, 8, 10 platform, where we start to ramp up duplicative kind of back-office expenses again. It's truly taking the essence of those operating companies, these target operating companies that we acquire, taking the front office capabilities, the driver-facing functions, the customer-facing functions and then pulling out the more kind of commodity back-office functions and pulling them under the tent and then taking the buying power that Daseke has, taking the kind of brand recognition, the customer touch, the scale, the depth, the capabilities that Daseke has and driving that through that new target platform and ensuring that they're getting the benefit from all those -- from that kind of broader halo of attributes.

So we're excited about it. Again, we kind of feel like the dog kind of pulling it to leach. We've been a little bit more kind of balanced and reserved in really decisively kind of delineating and communicating what the transformation plan looks like and the broader strategic vision because we want to do that the right way.

We -- look, we've spent a lot of time identifying opportunities over the last several months. We've got a very detailed plan. And we're in the early innings of actually implementing some of the components of that plan. And what we said is instead of going out and continue to wave our arms to the market, which we've got kind of accused over the last few years, we feel like we're starting to really build credibility with the market. What we'd rather do is get 1/3 of the way into the plan, at least a couple of innings into the plan and come back to you go, guys, here's the plan. Here's what we've set out to do. Here's what we're doing and make sure all those dots connect for you guys. And I think that you're going to be excited. We as a team, all the way from kind of bottom to top of the organization, top to bottom of the organization, are really excited about where this company is going to go. We've got a method to the madness. And there is a very, I think, thoughtful, very interesting vision that we're going to exploit over the coming years.

Well done guys and looking forward to what's to come here in the near future.

Our next question comes from the line of Bert Subin from Stifel.

Jonathan, just to follow up on that question. I know you guys said in the prepared remarks that you're expecting the adjusted EBITDA growth to exceed revenue and part of that is going to be driven by some operational improvements. Can you just put a value on some of the larger items there? I know you talked about some of them, but can you put like a dollar value on some of the things you're expecting in '22?

Yes. So we've got legacy initiatives. It's better network optimization, better coordination of maintenance, best practices, some procurement efficiencies, things like that, those are legacy initiatives that we're still driving through.

Separately, we mentioned this idea of kind of a transformation phase of Daseke. And these are kind of the multiple initiatives, technology investments, additional kind of opco consolidation, harmonization across the -- just kind of broader harmonization across the fleet. Those are initiatives that are at the very, very beginning of their kind of respective stages. We think that we're going to be a good part of the way through those by the end of the year. But we think the benefit from those things, at least in 2022 are going to be mostly -- at least it's our assumption are to be mostly offset by the respective costs driving those initiatives. And so you might get a little bit of a benefit toward the end of this year. You're not getting the full run rate though of those things until 2023. So again, I think it's something we've been pretty moderated on as we think about 2022 guidance.

Do you think in terms of just all of the integration and operational improvements that -- where do you think we are sort of in that live cycle sort of halfway done with it in the later stages? Like how would you handicap it?

Yes. I think we've got a very clear line of sight. I'm not saying -- I mean as you guys know, any time somebody talks about transformation, some days are 2 steps forward, 1 day back kind of a day. So look, but we've got a good team. We've got very supportive opco leadership teams, really shouldering and driving some of these things forward.

We spent a lot of time socializing this with the opcos, making sure we're thinking about this the right way. But I think that from our standpoint, without kind of giving away too many of the punchlines for our next call, this is probably kind of a 15-month voyage and then we really shift into something that feels like optimization. Really where -- really think about the next 15 months or so as shoring the footing to ensure that we can really start to execute on our strategic growth plan.

And look, we're doing this with a mindset of turning Daseke into a $3 billion, $4 billion, $5 billion of enterprise value type company over the next 3 to 5 years, not maintaining status quo of $1.5 billion and trying to find pennies and dimes to pick up to kind of argue we're creating value for our shareholders. So there is a very kind of thoughtful plan. There's a groundswell of support. We're extremely excited. And I think that certainly, as we message to you what we're doing over the coming quarters, and we start to put up some data points signaling the successes and the little wins we're having along the way I think you guys are going to get excited.

That's helpful. Just as a follow-up, COVID has sort of dragged out this winter, and it's led to a lot of people being sort of calling out of work and just other delays around projects. Are you expecting that to creep into the first quarter results? I mean -- or are rates just so strong and supply is so tight that it's not having a real material impact.

Yes. Great question, Bert. So we're actually -- we're pretty pleased with what we've seen. Again, we're only 25 days in, right? But I actually was having a call with our COO yesterday kind of talking through how he's feeling. And he's like fingers crossed man. Things are looking pretty good. Again, we don't want to be too bullish here, but I will tell you that when we think about how Q4 came in better than we thought it would, and we're looking at where Q1 is vis-a-vis normal seasonal expectations. We're cautiously optimistic about how the first quarter is shaping up. So again, I think our end markets that we support are a little bit more vibrant right now than maybe some of the other retail-oriented spaces and there's some pent-up demand there, and there's likely to be a backlog for the foreseeable future. So again, I don't want to sit here and pound our chest, but I think I'm -- we're not scared about kind of how it's shaping up so far here in the first quarter.

Just a final question for me. You guys had withdrawn guidance going into the fourth quarter, but now you've sort of reinstated it for '22. Has anything changed in terms of your visibility from 3 months ago?

No. No. I think we kind of owned it. There was never an intentional withdrawal of any guidance. We just didn't directly address it. And we got really good feedback that, hey, guys, just talk about your guidance every quarter. So we will be. You'll hear us talk about it every quarter. So we only guide annually. We don't give quarterly guidance, right? We give an annual guide. We intend to give an update to that guide, whether it's good news or bad news every quarter. We, right now, we have given an annual guide based on kind of the [tea leaves] that we're reading in the fudgy crystal ball that we got today. And -- but as we get further through the year, we'll continue to kind of touch back on that data point because while there are some hard-to-predict market moving factors, there are things that are very controllable by us and that we have good visibility into and Jonathan touched on several of them, right?

And so I think we feel like we've got enough data points that we can at least provide kind of updates each quarter to kind of our view of the world for the year. And we think it's important for -- given the state of Daseke and that we're working to create investor confidence and credibility, regular touch points is probably a good thing. So you'll hear from us every quarter on that topic.

And our next question come from the line of Greg Gibas from Northland Securities.

Just a couple for me. First, how manageable are the rising fuel prices? And how much, I guess, are hedged there versus passed on to customers? And is there anything that you're kind of implying in guidance with -- regarding fuel price changes?

Yes. Good question. So that is something that we've been paying close attention to. As a general rule when we project out the future periods, we don't assume fuel to be a benefit. We also don't assume it to be a huge headwind. We assume it to be relatively neutral to overall results. The reason we assume that is we've got structural fuel surcharge programs that are put into place with essentially all of our customers.

And while there may be a slight detriment associated with the lag in those structural surcharges when fuel prices are rising, there's a commensurate benefit when they neutralize or reverse. And so we just don't want to get in the game of trying to predict which way fuel is going to go and then give you guys guidance based on that. So just to be clear, we're not assuming it to be a good guy. We're not assuming it to be a bad guy to the extent that it is to move dramatically one direction or the other, that would be something that we would touch on in our regular updates on the guidance for the year.

Okay. Great. That's helpful. And then if I could follow up to on kind of your M&A opportunities. It's something you've talked about last several quarters now. And I think you've been pretty clear on the playbook and strategy with Jonathan kind of addressing that even on this call, too. So -- but I just wanted to ask the ones maybe the opportunities that you've been eyeing over the last several quarters, are there any developments there in terms of timing or how we should think about those opportunities?

Yes. I mean I'm kind of looking at Jonathan like, do I have the great light here? Yes or no. He kind of nodded at me. So Yes. No, there's definitely been some developments. And again, we don't want to put the cart before the horse here, but we've got a couple of opportunities that we're looking at very closely. We're well down the diligence path. And listen, we've been well down the diligence path. We talked about this on the last quarterly call. We've been well down the diligence path on 2 or 3 in 2021. And then something came along that we discovered in diligence, and we weren't able to kind of get past it and we walked away. So we have the discipline, the same level of discipline today that we had last year. So that's not going to change. So we don't have anything to announce here, but I am cautiously optimistic. I used that word a couple of times now about kind of where we're at in the process and the probability of us kind of driving a couple of opportunities to fruition here over the next quarter or 2. Jonathan, anything you want to add?

I think the team would be pretty disappointed if we didn't do at least a few accretive acquisitions this year.

Okay. Great. Yes, I look forward to updates there, and I'll take the remainder of my questions off-line.

And our next question comes from the line of Barry Haimes from Sage Asset Management.

Great quarter and year. I had a question on sort of 2 different topics. The first one is the revenue guide. And you already talked about rate within that being up mid-single digits. So is volume up mid-single digit as well? And is the truck count -- average truck count for the year assumed to be similar? And then on the rate part, you mentioned the mid-single-digit assumption. But in terms of contract rates that you're getting currently over the last month or 2, would those be in line or greater than that number? So that's the revenue questions.

Yes. Great question. So the mid-single-digit assumption that we talked about is really on like-to-like opportunities. So there is going to be a mix component that comes into play in our business as we've evidenced over the last couple of years, as we've talked about the movement and how we shift assets to different end markets. But when we think about what we're going to be going to customers with and striving to kind of make sure we are receiving to be able to take care of our drivers, that's kind of that mid-single-digit number. We are anticipating some slight volume growth but it's kind of low single digits volume growth. We're not getting too out ahead of our skis on that front.

The other thing is with regard to your question about trucks. We did pull out some trucks this year. And so if you take kind of the starting truck count and the ending truck count, there has been a reduction over the course of the year. And we're not projecting to have any meaningful growth for organic, let me clarify, organic growth in the fleet this year. So that also needs to be taken into consideration when you look at the year-over-year revenue guide.

Got it. So the average truck count would be down low single digit for the year then?

Yes. We had a slight moderation from the beginning of the year this year to the end of the year. And again, there are puts and takes with owner-operators and LPs coming on board. So it's hard to predict perfectly. I would tell you it's probably going to be relatively flat to maybe slightly down year-over-year, assuming that we don't have a lot of owner-operators and LPs that come on board. And that's our assumption right now.

Got it. And then the other topic, I had a couple related to sort of free cash flow and CapEx. So the free cash flow last year, the way I think about it, which includes all the CapEx financed or not, was [$84.9 million], and you said there's about $25 million that slipped in terms of CapEx. So is the right way to think about it? How did you spent that money, [$60-ish million] would have been the true free cash flow number for the year. Is that about, right?

Yes, that's probably the right way to think about that.

Got it. And then the CapEx to make sure I understand the slide, the net CapEx guide of $160 million to $170 million, is that total CapEx net of equipment sales, but before any financing?

Correct. That's right. And then the cash CapEx guide that we gave is after financing.

Right. So if I took the, call it, $165 million less the $25 million that slipped, you'd sort of be at $140 million normalized, which is up a lot, I think, compared to last year, right? So is that -- are you just trying to get the average age down? Or could you just talk through what that change is all about?

Yes, no problem, Barry. Great questions. The one other piece that you need to take into consideration is the technology investments of roughly $10 million that we talked about that are more around kind of the transformation initiatives that Jonathan touched on. So I think if you kind of take that midpoint of $165 million, take the $25 million off from the timing shift and then the $10 million off for the kind of transformation, a onetime kind of transformation lift, you get $35 million off that $165 million getting down to $130 million, which is not that far off of kind of what we -- normally, you're going to see something that's going to range because as you know, Barry I have been in the industry a long time. It depends on what you bought 5 years ago, right? And so you will have ebbs and flows. We're typically going to be somewhere in that $100 million to $105 million on the low end, upwards to $130 million, $135 million on the high end as you go through the 5-year cycle.

So this would be a slightly higher year, but I don't want anyone walking away feeling like it's because there's a bunch of deferred maintenance CapEx that we're doing, that's not the case at all. We've actually done -- we've done a lot of things wrong -- a lot of things wrong in the history of Daseke. But one thing we've done an okay job at over the -- especially over the last few years -- Rick, our COO, has been on top of is making sure we're making the proper investments in the fleet. And so we've done a pretty good job there.

I'm not showing any further questions in the queue. I'd like to turn the call back over to Jonathan for any closing remarks.

Thank you, Victor. 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. We look forward to translating the market opportunities facing us today into profitable returns and consistent growth for our stakeholders. Thank you.

Thanks, everyone.

Thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.