Daseke Inc (DSKE) 2021 Q1 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 first quarter ended March 31, 2021. With us today are Jonathan Shepko, Interim CEO and Board member; Jason Bates, EVP and CFO; and [Jonathan] Michell, VP of Treasury 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 this press release, we issued earlier today, you may access the slides in the Investor Relations section of our website. Before we go further, I would like to turn the call over to Jonathan Michell, VP of Treasury and Investor Relations, who will read the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. John, please go ahead.

Thanks, Kathy. 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 actual results to differ materially from our expectations and projections. I encourage you to read our filings with the Securities and Exchange Commission for a discussion of the risks that can affect our business and to not place undue reliance on any forward-looking statements.

We undertake no obligation to revise our forward-looking statements to reflect events or circumstances occurring after today, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. 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, but not limited to, adjusted EBITDA, adjusted operating ratio, adjusted operating income, adjusted net income or loss, free cash flow and net debt. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix of the investor presentation and press release issued this morning, both of which are available on the Investors tab of the Daseke website, www.daseke.com.

In terms of the structure of our call today, Jonathan will start with a review of our business operations and the progress we are making as we execute against our key strategic priorities. Jason will then walk through the financial review of the quarter. And finally, Jonathan will come back to wrap up our remarks with a few closing comments before we open the line for your questions. I'd like to turn the call over to Daseke's interim CEO, Mr. Jonathan Shepko. Jonathan?

Thank you, John. Good morning, everyone. I'd like to start off today's call by taking a moment to make mention of a noteworthy accomplishment by our company. This quarter will mark the fourth consecutive quarter in which our team has successfully executed against our internal and external expectations. What's more, this accomplishment has been realized in the midst of not only a comprehensive transformational overhaul within our organization, but also strong headwinds from the global pandemic. Our results continue to reflect the hard work and commitment of all of our employees and the benefit of our unique business model which remains supported by diversity across our customer base as well as the industrial end-markets that we serve.

Our unique model, which at its core is constructed around an asset-light fleet, serving a well-diversified portfolio of end markets, geographies and customers, enables Daseke to better weather volatility across market cycles. It offers a unique advantage in that it allows us to reposition and flex our resources to take advantage of the highest and best-use opportunities available to our fleet at any point in time. And our strong performance this last quarter was underpinned by these very attributes as we capture the reflation of numerous markets, such as steel, glass, construction and manufacturing that are approaching and in some cases exceeding the prepandemic levels.

Let's begin our discussion on Slide 3 where we outline a few of the notable takeaways from the first quarter. We had $334 million of revenue during the period and nearly $36 million in adjusted EBITDA. Daseke's transformation over the last 1.5 years has been focused on operational excellence and improving our cost structure in order to drive performance, reduce costs and achieve greater efficiency. We held true to those lasting priorities, and we are working hard to ensure continuous improvement remains part of our culture. To that end, we believe we are making solid progress as evidenced in our results as our adjusted operating ratio of 95.6% was a 140 basis point improvement on a consolidated basis, and our free cash flow was $34 million for the quarter. Our business performance in Q1 was clearly supported by the improving economic landscape across the broader industrial economy, which is driving a healthy rate environment.

For those of you not familiar with the seasonality of open deck transportation, I would like to note that we have a slightly different seasonal pattern that our friends in dry van. We traditionally see improved fundamentals in the second and third quarters with the first and fourth quarters being seasonally slower. That said, the strength of the market for the last 2 quarters, which should have been our off-market quarters, has been unprecedented and has us highly encouraged about the continued prospect for stronger performance in the second and third quarters.

With that, I will now turn the call over to Jason Bates to review our first quarter financial performance. Jason?

Thank you, Jonathan. I will start by briefly addressing the 10-K/A that we put out last night. As outlined in our press release on April 22, last month the SEC issued a statement concerning the accounting for warrants issued by companies that went public through SPACS. While Daseke did go public through a SPAC vehicle, which involved the issuance of warrants, that process was completed over 4 years ago. As outlined in our 10-K/A, we have restated our previously issued financial statements to reflect the warrants as a liability with subsequent changes in their estimated fair value recorded as noncash income or expense. The corrections in the accounting for these warrants was nonoperational and noncash and thus had no impact on our revenue, operating income, operating ratio, adjusted EBITDA, adjusted EPS or free cash flow in prior years or moving forward.

So with that, I'll now turn our discussion to the consolidated results from the first quarter, which can be found on Slide 4. As Jonathan mentioned at the top of the call, our results reflected our expectations of improving broader market dynamics, particularly on the flatbed side. These were partially offset by an expected normalization of demand in selected specialized markets, specifically wind energy, and the uptick in certain operating costs, particularly stemming from the insurance markets. Q1's results were driven by the various ongoing operational improvements we have undertaken, combined with improving market demand. The uplift in construction-related verticals, such as lumber, roofing, steel and glass, combined with strength in munitions, gained momentum in the first quarter. And this growing demand, combined with a tighter market capacity led to a strong rate environment in the first quarter.

Consolidated revenues were $333.9 million for the quarter, down 15% compared to revenues of $391 million in last year's first quarter. This decline in revenues was driven in large part by the strategic divestiture of the Aveda business and from fleet downsizing as we look to shed less attractive revenues. Similarly, to how we have been displaying results since the Aveda divestiture process began. On the right-hand portion of the slide we are providing our financial performance exclusive of the impact that business had on our comparable results. This provides a view on the business on a like-for-like basis, but is also more indicative of how leadership thinks about our business internally.

Excluding Aveda, our consolidated revenues were down 4% year-over-year. This decline in revenues was driven by the strategic reduction of underutilized and less profitable trucks, lingering pockets of weakness stemming from the COVID-19 pandemic and the normalizations of wind energy project revenues versus last year's comparable quarter. The delta to the top line compared to last year has incrementally but consistently pulled closer to where we would have expected to be outside of pandemic.

Excluding Aveda, the team delivered adjusted net income of $4.1 million or $0.04 per share in the quarter. Adjusted EBITDA of $35.8 million declined by 4% compared to the first quarter of 2020 after excluding Aveda, due to lower freight volumes and revenues from select wind energy markets, partially offset by growth in volumes and improvement in freight rates in the flatbed segment.

While the adjusted EBITDA is down marginally versus last year, it is worth pointing out that the same operating segment level, our consolidated adjusted EBITDA results of $44.1 million actually grew 5% versus the result of $42 million in last year's comparable quarter. The delta here was the year-over-year uptick in our corporate cost center, up primarily as a result of the build-out of our executive leadership team. Overall, despite the lower relative revenue base, our profitability continues to trend in the right direction, and we will look to capture incremental improvement as we return to growth. With that, I'd like to walk you through a detailed view of our results at the operating segment level.

On Slide 5, we present our specialized segment results. However, in an effort to maintain comparability and consistency with our business going forward, we also presented the specialized segment results, exclusive of the impacts of the divested Aveda business, which is displayed on Slide 6. The revenues of $183.6 million were down 7% versus the prior year, with the decline primarily driven by a normalization of revenues from wind energy projects that were a strong contributor to results in last year's first quarter. This phenomenon was consistent with our 2021 business outlook. Additionally, we saw lower freight volumes, which stemmed from the strategic fleet downsizing we did as a part of the operational and cost improvement initiatives.

This impact to our results is further explained in our segment rate information on the right-hand side of the slide. Compared to last year's first quarter, the specialized segment saw a slight decline in freight rate per mile from $2.83 to $2.78 due to the tail off of wind energy project revenues, which was offset by strong rate growth in other verticals. However, fleet downsizing efforts and a more optimized usage of our fleet assets drove a roughly 4% increase in revenue per tractor of $57,200, up from $54,800 per tractor captured last year.

Adjusted EBITDA results of $24.6 million decreased by 6% compared to the $26.3 million delivered in the first quarter of 2020, with the decline driven by the same factors that drove the top line decline relative to the prior year period, as discussed previously. And that was partially offset by good contract rates in the market and improving demand in construction and building related verticals. Despite this marginally lower EBITDA figure, specialized EBITDA margins incrementally improved up to 13.4%, which was up 10 basis points from 13.3% from the prior year quarter, again reflecting slightly more profitable operations despite the shift in end market mix.

On Slide 7 we detail our flatbed segment's results for the quarter. Flatbed revenue in the first quarter was $153.5 million compared to the $155.2 million in the prior year quarter. Here's another instance where we see the contributions from our integrations and operational improvement plans are delivering value, nearly overcoming the impact of lower freight volumes from the strategic curtailing of less attractive revenues. Flatbed rates were very strong in the quarter as rate per mile grew 15% year-over-year as demand across the broader industrial market continues to improve sequentially. Revenue of 45,700 per tractor grew by more than 8% from 42,300 as the more efficient and better utilized fleet stepped up to capture those strong rates in the market. That healthy demand and solid freight rates were significant contributors to the segment's adjusted EBITDA performance. Adjusted EBITDA results of $19.8 million grew by 11% compared to the results of $17.9 million in last year's first quarter.

Stronger adjusted EBITDA and improved cost structure helped the flatbed segment EBITDA margins improve by 140 basis points to 12.9%, reflecting the more profitable operations from our better-utilized fleet access and a good freight environment. The segment's operating ratio improved 170 basis points to 92.8%, with the adjusted operating ratio coming in at 92.2%, which was 160 basis point improvement versus last year's first quarter.

Turning to Slide 8. I'll take a moment to speak about our cash flows and balance sheet developments. Through the first quarter Daseke generated $29.5 million in cash from operating activities. Cash CapEx was $5.2 million, and we collected cash proceeds from the sale of equipment of $10.1 million. This resulted in free cash flow generation of $34.4 million during the quarter. CapEx finance with debt or capital leases totaled $14.4 million, bringing in net after financing of $20 million. We've made a significant amount of progress in our transformation efforts, driving improved financial performance, strong operating and free cash flow generation and debt reduction. These results led to an important restructuring of our balance sheet through the refinancing of our term loan.

Where we highlight some of the salient points of the transaction on the right portion of this slide. We deployed $84 million of the excess cash generated from our strong operations and strategic divestitures last year to pay down debt as a part of the refinancing transaction. The results of the transaction met several key objectives, including a meaningfully lower interest rate, extending the maturity and adding financial flexibility through the new covenant-light structure and other more attractive credit terms. Additionally, we recently increased the size of our revolving credit facility to $150 million, further boosting liquidity available to our company.

I'm proud of the hard work across the organization that help make this strategic success possible. We have fortified and derisked our balance sheet. And the greater access to capital on more favorable terms help strengthen our ability to opportunistically execute on accretive growth opportunities. This consistently improving balance sheet health will further serve our goals for shareholder value creation and aid in our commitment to driving sustainable and profitable growth for our shareholders.

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

Thank you, Jason. I'll conclude our prepared remarks with Slide 9, where I'd like to spend some time discussing some meaningful in-flight initiatives and milestone decisions we pushed forward in this first quarter, SUBSTANTIAL progress this organization has made that isn't necessarily reflected in our numbers. First, we have developed a preliminary future state map outlining the necessary and continued evolution of Daseke that complements our longer-term vision, all of which we intend to share in more detail during our Investor Day, which we are tentatively slating for early fall.

That said, what I can tell you is that it answers some of the fundamental questions around the value proposition of our consolidation strategy, offering up a consolidated shared service center model to help drive efficiencies in the back and mid offices and provide for additional rationalization over time of our OpCo's table. This next phase of inter-OpCo consolidation however will be carefully and thoughtfully executed with a keen eye on complement cultures and driven by strategic fit as opposed to the vintage 2019-2020 consolidations which were generally done in an effort to establish the brand and customer relationships of underperforming OpCos.

As discussed briefly on our last call, we will be undertaking a comprehensive overhaul of our systems staff, not only aimed at ensuring efficiencies across our enterprise, but equally as important, getting accurate, insightful, real-time data into the hands of our decision-makers.

Moving down the slide, institutionalizing our company will be grounded in the fundamental shift of our mindset from one that focuses on the performance and capabilities of a single OpCo to one that unlocks the power of our entire network. We are rebuilding the business to function as a network operation whereby we are able to better leverage the scale, capabilities and footprint of our entire platform to better service our customers. To help facilitate a more efficient shift we have, among other things, established a number of councils and teams consisting of functional and cross-functional leaders from our corporate center and our OpCos. These teams are closely working with senior leadership and a newly formed OpCo CEO council, and they have been tasked with the identification and prioritization of high-impact initiatives and best-in-class standards and then driving the implementation and adoption of those priorities across the enterprise.

Examples of just some of the functional areas represented by these teams include safety, maintenance, procurement and business analytics. Lastly, with respect to growth, as Jason mentioned a moment ago, we launched a very important win with the refinancing of our term loan this quarter. With the cash we have on hand, our upsized $150 million revolver and this new term loan facility, we have the financial wherewithal to do some very transformational things on the M&A front. Couple that with our ability to tuck in OpCos, an approach that was successfully proven out during our 2019-2020 integration efforts and it creates an exciting equation for strategic growth vis-à-vis this tuck-in strategy.

Additionally, we are building out longer-term sustainable fleet capabilities that will help drive organic growth with a renewed emphasis on third-party brokerage and a more coordinated network-based initiative focused on private, dedicated and self-sourced fleet services. As I've mentioned, we expect to be in a position in the coming months to share a redefined multiyear vision for Daseke's future with all of you, during which we'll provide a greater breadth and depth around our strategy and playbook for organic and strategic growth among other things.

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

(Operator Instructions) And your first question is from Ryan Sigdahl of Craig-Hallum Capital.

Curious, I know it's somewhat apples and oranges between you guys and the other public trucking companies. But industry trends are accelerating. Most of them again different trends in sectors, but most of them beat and raised. You guys reiterated your guidance, a little more cautiousness kind of on the commentary. I guess can you really walk through the differences and where you guys are seeing more headwinds than others?

Yes. Yes, I'm happy to hit that real quick, Ryan. So I think the way I think about it, it's important to kind of remind everyone about kind of the cadence that we've had here because there's been a lot of moving pieces in the Daseke story over the last 18 to 24 months. And so with the divestiture of the Aveda business and with the really disproportionately strong wind energy market that we saw last year, it's important to kind of refresh everyone on how those things affect the earnings cadence for our business. And so when you think about it, the really, the 2019 kind of normalized adjusted EBITDA was about $155 million. And last year we had about $178 million adjusted EBITDA, of which we highlighted, $22 million was a net benefit from that wind energy and high security cargo tailwinds.

And so when you look at it that way, you had kind of $155 million and '19, $156 million, I'm using air quotes here, adjusted basis for 2020. And our guidance is kind of $165 million to $175 million for of 2021. We knew we were going to have some insurance headwinds that we kind of highlighted to you guys, and that's roughly $8 million to $10 million headwind range that was factored into that. So when you think about all those different puts and takes, the $165 million to $175 million really represents a pretty meaningful and somewhat aggressive target. And so I think laying it out like that's important for people to have the context of kind of the stretch that we're placing on the organization this year.

But we feel really good about it. We wouldn't have put that number out there if we didn't think we could achieve it. It's going to be a stretch. There's going to be a lot of hard work to get there to kind of overcome some of those unusually beneficial things that we saw last year. But with the COVID recovery that we're seeing, the strengthening that we're seeing in a lot of the construction-related verticals, in the munitions area, we're really able to kind of overcome that year-over-year headwind on both the insurance and on the wind energy kind of softness.

And so I just think it's important to kind of lay those breadcrumbs out for everyone to kind of reiterate kind of some of the -- because there has been a lot of moving pieces in the Daseke story. And so hopefully that helps kind of paint the picture of -- while we didn't necessarily -- it was a beat, but it wasn't a raise. It's important that people understand the context of why. And we're rolling into the second quarter, which is typically Q2 and Q3 are our stronger quarters. And we'll know a lot more here in the next 3 months about how the year is looking to shape up. And hopefully, second quarter will be a little bit even more optimistic than we are now.

Yes. Couple other perspectives and tacking on to Jason's comments. And I appreciate you acknowledging that. Look, it's difficult to really have an apples-to-apples comparison here. Because I mean, we've done the same, we looked at earnings calls, commentary from the analyst community as earnings have come out for our industry. And look, the asset-light guys are having understandably a great year given where spot rates are. They're really kind of flexed up, take advantage of the prevailing rate environment. The asset-heavy guys, look, for a lot of those guys, if you look at the end-markets that they service, I mean, it's been a tremendous boon for carriers servicing consumer-facing verticals, with the e-commerce, e retail pull forward and some of the other COVID tailwinds Jason referenced.

And so we're -- as we look ahead, you look at one of the asset-light guys that shares common end markets, industrial-facing end markets, mentioned that they saw their flatbed business up 5% year-over-year. If you look at that, some of the other data points, really comparing flatbed segments within some of our peers, we're absolutely holding our ground, if not exceeding and overperforming relative to some of those data points. And I think the other thing here that some of our peers have talked about is the weather impact in Q1. For us, I mean, we're live -- live learn mode versus the van guys that are dropping hooks.

So when you think about our drivers out there in minus 10, minus 20, minus 30 degree weather with their tarps and their belts and their cables and everything else, trailers are frozen over. And it shuts us down. So it had a meaningful impact, note-worthy impact, storm, Winter Storm Uri, some of the other regional storms that they came through in Q1, absolutely hit us around. And I think the other point that Jason touched on in his model on our earnings call, which was really the rightsizing that went on going into 2020 on the fleet side of things. I mean we took out nearly 400 trucks. I mean those were obviously company trucks that had disproportionately high-margin margin profiles relative to owner-operator and [LP] trucks.

So it hit us a lot more, and it was the right thing to do at the time. And it was one of the reasons we outperformed last year when everyone else was getting knocked around a bit with COVID but we did this for efficiencies, better utilization, pulling down our fleet age, and we'll look to add 60% or so of those trucks back on, those 400 trucks or so back on really in Q2, Q3, tying back to Jason's point, which is really peak season for us. And what that's going to do is it's going to provide a better maintenance profile.

It provides our drivers with better safety features, better amenities. These newer trucks are better for the environment, most are SmartWay compliant. So as you look at our CapEx spend, which is concentrated really in Q2, Q3, as we shift the on-season, start to have some of these new trucks come back into our fleet and add to our fleet size and looking at which should continue to be a strong rate environment, we feel really good about the coming quarters.

Helpful. Specifically on specialized, I get the year-over-year comps and some of the unusual good guys last year, but we've seen kind of rates sequentially declining each of the last couple of quarters here. I guess Q2 going forward, what the visibility you have, do you think those trends continue or can we at least on a sequential basis kind of relative to a more normalized Q1 here, start indicating up similar to kind of the flat bed trends on a like?

Yes. I mean, Ryan, the specialized rates are going to be tricky for the next 2 or 3 quarters from a comparable basis because that was really when the wind energy. So we saw a little bit in Q1. And then in Q2 and especially in Q3, it was really strong. And those rates are, as you know, the way that, that business is, it's not about the rate per mile, it's about the rate for the move -- the overall payment for the move, and they're usually not really long mileage moves. And so those rates are unusually high and skew those data points. And so I think it's important to keep that in mind that those Q2 and Q3 are going to be really tough comps from a rate perspective. And that we really won't be normalized, I'm again using air quotes, on that kind of rate, normalized rate trend until we get past those periods.

But what about specifically kind of sequentially? Is Q1, sounds like more of a normal?

Yes, yes, yes.

I get the year-over-year ones. But on a sequential basis can we work higher from here?

Yes. I think you should see us trend upward from a rate perspective in the specialized and flatbed segment from Q1 as we move forward.

Good. CEO search. I don't believe I caught an update there. Can you give one? And then secondly, on the stock buyback, I didn't see anything, but have you guys started to execute on that in the quarter or post quarter here?

Sure. Sure, Ryan. I'll answer the CEO search. Just a couple of comments on that. So the search is ongoing. We don't have any material updates at this time. They -- look, I'd expect to have an announcement on or before our next earnings call, certainly. And I think while we all look forward to the next phase of leadership, look, I'd like to be clear from my perspective, from our senior leadership team's perspective, from the Board's perspective, things are moving full steam ahead.

As mentioned on our last call, I was slot into this role because of my experience showing the operating committee in 2019 and 2020, I work closely with Brian Bonner, the Executive Chairman at the time, to architect the turnaround plan. And I have a lot of legacy with the company. I'm always saying that because I want to reinforce that I'm not simply keeping the seat warm. I am pushing, the team is pushing. And look, we're all intensely focused on executing our vision and strategic plan while managing the opportunities ahead. It's the momentum that we're seeing. Hopefully you're seeing it. It's the strong teams we have in place with corporate, it's the strong teams we have in place with the OpCos that are allowing the Board to be much more methodical around the search process.

Yes. And I'll hit the second part of your question there about the share repurchase program. So as a reminder, we did put into place a -- there was a share -- cooperation agreement entered into at the end of last year between Don and Phil and the Board. And in conjunction with that, there was an agreement to do a 3 million share repurchase. There's been a lot of moving pieces that have been going on specifically and around the 10-K/A and some of the other things that have kind of necessitated us to kind of wait until we got all that done so that we can then get out of the blackout period and then put a 10b5-1 in place. But we look to move forward on that here now that we've got all that behind us, and we'll begin pursuing that share repurchase program that we had committed to in some form or fashion.

(Operator Instructions) Your next question is from Gregory Gibas of Northland Securities.

I guess first to follow up on kind of the revenue dynamics there. You mentioned the lower freight volumes from fleet downsizing, but that obviously being partially offset by the improving freight rates. So I guess just wondering if you could discuss maybe what revenue growth would have looked like if you back out the downsizing on the fleet size? And I guess along those lines, what does fleet reinvestment budget look like this year and maybe the cadence of that spend for the year?

Yes. So I think our guide on kind of CapEx, we haven't really changed at this juncture. We still believe that the ranges that we put out at the outset of the year are still good ranges to use. And from a cadence perspective, as Jonathan, I think, alluded to earlier, you're going to see more of that in the second quarter and third quarter with a little bit less in the fourth quarter. It's just from a kind of cadence and flow on how that works, which kind of aligns with kind of our business trends anyway.

With regard to what the kind of revenue growth or earnings profile might have looked like absent the shedding of the business, I think if you go and you look at kind of the truck count trends, and you kind of see what kind of reductions we had in truck counts, that hopefully will help you kind of, depending on what assumptions you're assuming there with regard to revenues and profitability, that will help kind of inform you about how strong the performance really was in the quarter with regard to kind of get to an apples-to-apples basis. And I appreciate, Greg, the challenge, right, because there are so many moving pieces in our business over the last 18 to 24 months. It is kind of hard to see. And that's why we want to make sure we take the time to kind of highlight for you guys that the business is actually doing really good.

And when you look at it on an apples-to-apples basis, which is tough to get to, we're seeing really strong rate environment. We're seeing really good execution in the field. We're seeing trucks getting good rate increases with customers. There are some cost headwinds that we've got to be mindful of, right, on the insurance front, on the driver front. But overall, the business is actually trending really well.

Great. Yes, that's helpful. And I guess, given you maintain the full year guidance, I guess I just wanted to ask, and maybe this isn't the case. But if any of your end market verticals are performing differently than expected so far this year?

Yes. I would say we had highlighted the fact that we expect the wind energy to be down. Aerospace is still down. We -- if I'm being honest, I think we would have hoped it would have been doing a little bit better right now than it is. So that one, I guess, is a little bit of a disappointment or different than our expectation. But on the flip side of that, several of these construction verticals are doing very well. And I would say it's better than we expected. When you look at roofing and lumber and flat glass and steel, like some of these things are doing really, really well. And the other one that's kind of been a really pleasant surprise, to be honest with you, with munitions. Munitions has been killing it here, no pun intended, in the first quarter. And hopefully that trend continues.

Great. Yes, that's good to hear. Regarding your efforts to continue streamlining the business and then maximizing efficiency, I recognize it's always an ongoing process, but where are you finding near-term opportunities there? You talked a little bit about it in your prepared remarks. But for improved optimization, what kind of financial impact might we see this year or maybe more near term?

Yes. Look, I'll give you some high-level points. Don't mean to be circumspect on this, but this is something we'll provide quite a bit of detail on in the coming months, but our efforts to refine systems and processes to hit some of these efficiencies is something we've been focused on for a while. You all have been focused on it for a while. And we're addressing it. We don't think the answer is necessarily centralizing everything at corporate, pulling everything up to the mother ship, but a hybrid coach that provides the benefits but really does a better job at purposing the challenge that we have in the field. And our OpCos is part of that playbook. And a lot of this is going to be driven by systems. I mean I think that's the fulcrum for a lot of the change within our organization right now, is overhauling that system stack and providing a system that's capable of driving through some of these efficiencies through mid and back office, providing the ability to leverage some of the insights, perspectives and better decision-making for the front office. That's where a lot of this is going to go.

And that is all the time we have allocated for Q&A today. I will now turn the call back to Jonathan Shepko for closing remarks.

Yes. Thank you, Kathy. Thank you all for your time and support today. We look forward to speaking with you again soon, and everyone enjoy their weekend.

Thanks, everyone.

Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.