Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017March 31, 2022

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________

img165874883_0.jpg 

DASEKE, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdictionother jurisdiction of Incorporation)incorporation or organization)

001-37509
(Commission
File Number)

47-3913221
(IRS Employer
Identification No.)

15455 Dallas Parkway, Suite 550
Addison, Texas

75001

15455 Dallas Parkway, Suite 440
Addison, Texas

75001

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s Telephone Number, Including Area Code: (972) 248-0412

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

DSKE

The NASDAQ Stock Market LLC

Registrant’s Telephone Number, Including Area Code: (972) 248-0412

Not applicable

(Former name, former address and former fiscal year, if changed since last report)Warrants, each exercisable for one half of a share of Common Stock at an exercise price of $5.75 per half share

*

*

* On February 23, 2022, NASDAQ Stock Market LLC filed a Form 25 with the Securities and Exchange Commission (the SEC) to delist Daseke, Inc.’s warrants from NASDAQ due to the expiration of the warrants on February 27, 2022; each warrant not exercised on or before the expiration date became void. The deregistration of the warrants under Section 12(b) of the Securities Exchange Act of 1934, as amended, will be effective for 90 days, or such shorter period as the SEC may determine, after the filing of the Form 25.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes  ☒. Yes No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

☐ Large accelerated filer

☒ Accelerated filer

☐ Non-accelerated filer (Do not check if a smaller reporting company)

☐ Smaller reporting company

☐ Smaller reporting company

☒☐ Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Common shares of the registrant outstanding at November 6, 2017April 22, 2022 were 44,392,349.63,454,264.

 

 

Table of Contents

DASEKE, INC.

FORM 10-Q

For the Quarterly Period Ended September 30, 2017March 31, 2022

INDEX

 

Page No.

Part I. Financial Information

1

Item 1. Financial Statements (Unaudited)

1

Consolidated Balance Sheets

1

Consolidated Statements of Operations and Comprehensive Income (Loss)

2

Consolidated StatementStatements of Changes in Stockholders' Equity

3

Consolidated Statements of Cash Flows

4

5

Notes to Consolidated Financial Statements

6

7

Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations

30

17

Item 3. Quantitative and Qualitative Disclosures About Market Risk

51

26

Item 4. Controls and Procedures

51

26

Part II. Other Information

26

Item 1. Legal Proceedings

53

26

Item 1A. Risk Factors

53

26

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

53

26

Item 6. Exhibits Index

54

27

Signatures

55

28

Table of Contents

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this Report) of Daseke, Inc. (Daseke or the Company) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except as otherwise indicated by the context, references in this Report to “we,” “us” and “our” are to the consolidated business of the Company. All statements in this Report, including those made by the management of the Company, other than statements of historical fact, are forward-looking statements. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof. Forward-looking statements may containbe identified by the use of words such as “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “believe,” “plan,” “should,” “could,” “would,” “expect,” “plan,” “estimate,” “project,” “forecast,” “seek,” “target,” “anticipate,” “believe,” “estimate,” “predict,” “potential” and “continue,“potential,” the negative of these terms, or other comparable terminology. Examples of forward-lookingForward-looking statements may include statements regardingabout the Company’s goals; the Company’s business strategy and plans; the Company’s financial strategy, liquidity and capital required for its business strategy and plans; the Company’s competition and government regulations; general economic conditions; and the Company’s future financial results, operating results, business strategies, projected costs, management’s plans and objectives for future acquisitions, and industry trends.results.

These forward-looking statements are based on information available as of the date of this Report, (or, in the case of forward-looking statements incorporated herein by reference, as of the date of the applicable filed document), and current expectations, forecasts and assumptions. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate.the Company anticipates. Accordingly, forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date, and the Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Readers are cautioned not to place undue reliance on the forward-looking statements.

Forward-looking statements are subject to risks and uncertainties (many of which are beyond ourthe Company’s control) that could cause actual results to differ materially from ourthe Company’s historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, general economic and business risks, (suchsuch as downturns in customers’ business cycles and disruptions in capital and credit markets),markets; the Company’s ability to adequately address downward pricing and other competitive pressures; the Company’s insurance or claims expense; driver shortages and increases in driver compensation or owner-operatorowner operator contracted rates, loss of senior management or key operating personnel, our ability to identify and execute future acquisitions successfully, seasonality and the impact of weather and other catastrophic events,rates; fluctuations in the price or availability of diesel fuel,fuel; increased prices for, or decreases in the availability of, new revenue equipment and decreases in the value of used revenue equipment,equipment; impact to the Company’s business and operations resulting from the COVID-19 pandemic; seasonality and the impact of weather and other catastrophic events; the Company’s ability to secure the services of third-party capacity providers on competitive terms; loss of key personnel; a failure of the Company’s information systems, including disruptions or failures of services essential to our operations or upon which our information technology platforms rely, data or other security breach, or cybersecurity incidents; the Company’s ability to execute and realize all of the expected benefits of its integration, business improvement and comprehensive restructuring plans; the Company’s ability to realize all of the intended benefits from acquisitions and investments; the Company’s ability to complete divestitures successfully; the Company’s ability to generate sufficient cash to service all of ourthe Company’s indebtedness and the Company’s ability to finance its capital requirements; restrictions in ourits existing and future debt agreements,agreements; increases in interest rates; changes in existing laws or regulations, including environmental and worker health safety laws and regulations and those relating to tax rates or taxes in general; the impact of governmental regulations and other governmental actions related to the Company and its operations,operations; and litigation and governmental proceedings, and insurance and claims expenses.proceedings. For additional information regarding known material factors that could cause ourthe Company’s actual results to differ from ourits projected results, please see the Company’s filings with the Securities and Exchange Commission (the SEC), particularly the section titled “Risk“Part I. Item 1A. Risk Factors” in the Company’s CurrentAnnual Report on Form 8-K,10-K, filed with the SEC on March 3, 2017, as amendedFebruary 23, 2022. Additional risks or uncertainties that are not currently known to us, that we currently deem to be immaterial, or that could apply to any company could also materially adversely affect our business, financial condition, or future results.

All forward-looking statements, expressed or implied, attributed to the Company or persons acting on March 16, 2017 and May 4, 2017.its behalf are expressly qualified in their entirety by this cautionary statement.

Table of Contents

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands,Dollars in millions, except share and per share data)

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

March 31,

 

 

December 31,

 

 

2017

 

2016

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

  

 

 

  

 

 

 

 

 

 

Cash and cash equivalents

 

$

112,510

 

$

3,695

 

$

153.5

 

$

147.5

 

Accounts receivable, net of allowance of $382 and $321 at September 30, 2017 and December 31, 2016, respectively

 

 

106,081

 

 

54,177

Accounts receivable, net of allowance of $2.1 at March 31, 2022 and December 31, 2021

 

202.2

 

172.3

 

Drivers’ advances and other receivables

 

 

2,809

 

 

2,632

 

9.9

 

7.7

 

Current portion of net investment in sales-type leases

 

 

6,022

 

 

3,516

Parts supplies

 

 

4,365

 

 

1,467

Income tax receivable

 

 

111

 

 

719

Prepaid and other current assets

 

 

20,321

 

 

13,504

Other current assets

 

 

19.8

 

 

 

22.6

 

Total current assets

 

 

252,219

 

 

79,710

 

385.4

 

350.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

369,199

 

 

318,747

 

397.7

 

397.7

 

Intangible assets, net

 

 

77,541

 

 

71,653

 

85.2

 

86.9

 

Goodwill

 

 

139,889

 

 

89,035

 

148.0

 

140.1

 

Other long-term assets

 

 

18,573

 

 

11,090

Right-of-use assets

 

109.1

 

108.3

 

Other non-current assets

 

 

4.2

 

 

 

4.3

 

Total assets

 

 

857,421

 

 

570,235

 

$

1,129.6

 

 

$

1,087.4

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

  

 

 

  

 

 

 

 

 

 

Checks outstanding in excess of bank balances

 

 

1,479

 

 

1,166

Accounts payable

 

 

12,493

 

 

4,788

 

$

20.2

 

$

14.7

 

Accrued expenses and other liabilities

 

 

24,660

 

 

16,104

 

59.8

 

43.9

 

Accrued payroll, benefits and related taxes

 

 

12,027

 

 

7,835

 

28.5

 

32.9

 

Accrued insurance and claims

 

 

10,248

 

 

9,840

 

36.8

 

26.8

 

Current portion of long-term debt

 

 

26,514

 

 

52,665

 

55.2

 

55.5

 

Warrant liability

 

0

 

4.7

 

Current operating lease liabilities

 

 

34.1

 

 

 

33.7

 

Total current liabilities

 

 

87,421

 

 

92,398

 

234.6

 

212.2

 

 

 

 

 

 

 

 

 

 

 

 

 

Line of credit

 

 

 —

 

 

6,858

 

0

 

0

 

Long-term debt, net of current portion

 

 

395,841

 

 

208,372

 

524.3

 

531.4

 

Deferred tax liabilities

 

 

114,900

 

 

92,815

 

85.5

 

85.1

 

Other long-term liabilities

 

 

1,342

 

 

286

Subordinated debt

 

 

 —

 

 

66,443

Non-current operating lease liabilities

 

81.5

 

81.1

 

Other non-current liabilities

 

 

3.5

 

 

 

1.6

 

Total liabilities

 

 

599,504

 

 

467,172

 

 

929.4

 

 

 

911.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

  

 

 

  

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

  

 

 

  

 

 

 

 

 

 

Series A convertible preferred stock, $0.0001 par value; 10,000,000 shares authorized; 650,000 shares issued with liquidation preference of $65,000

 

 

65,000

 

 

 —

Series B convertible preferred stock, $0.01 par value; 75,000 shares authorized; zero and 64,500 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

 

 

 —

 

 

 1

Common stock, par value $0.0001 per share; 250,000,000 shares authorized, 44,480,232 and 20,980,961 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

 

 

 4

 

 

 1

Series A convertible preferred stock, $0.0001 par value; 10,000,000 shares authorized; 650,000 shares issued with liquidation preference of $65.0 at March 31, 2022 and December 31, 2021

 

65.0

 

65.0

 

Common stock, par value $0.0001 per share; 250,000,000 shares authorized, 63,441,801 and 62,489,278 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

0

 

0

 

Additional paid-in-capital

 

 

222,102

 

 

117,807

 

400.2

 

387.8

 

Accumulated deficit

 

 

(30,221)

 

 

(14,694)

 

(265.0

)

 

(276.8

)

Accumulated other comprehensive income (loss)

 

 

1,032

 

 

(52)

Accumulated other comprehensive income

 

 

0

 

 

 

0

 

Total stockholders’ equity

 

 

257,917

 

 

103,063

 

 

200.2

 

 

 

176.0

 

Total liabilities and stockholders’ equity

 

$

857,421

 

$

570,235

 

$

1,129.6

 

 

$

1,087.4

 

The accompanying notes are an integral part of the consolidated financial statements.

1

1

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands,Dollars in millions, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

 

September 30, 

 

September 30, 

 

March 31,

 

    

2017

    

2016

    

2017

    

2016

 

2022

 

 

2021

 

Revenues:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

 

 

Freight

 

$

171,245

 

$

135,415

 

$

446,454

 

$

398,466

Company freight

 

$

156.0

 

$

145.1

 

Owner operator freight

 

129.8

 

105.1

 

Brokerage

 

 

34,198

 

 

25,977

 

 

83,723

 

 

68,358

 

78.2

 

48.5

 

Logistics

 

 

7,871

 

 

 —

 

 

10,571

 

 

 —

 

11.4

 

8.5

 

Fuel surcharge

 

 

18,008

 

 

12,756

 

 

48,331

 

 

34,562

 

 

45.6

 

 

 

26.7

 

Total revenue

 

 

231,322

 

 

174,148

 

 

589,079

 

 

501,386

 

421.0

 

333.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

 

 

Salaries, wages and employee benefits

 

 

64,955

 

 

49,298

 

 

174,253

 

 

149,861

 

97.5

 

90.7

 

Fuel

 

 

24,734

 

 

17,296

 

 

64,423

 

 

49,076

 

35.1

 

25.4

 

Operations and maintenance

 

 

35,132

 

 

27,874

 

 

86,332

 

 

72,933

 

34.4

 

30.3

 

Communications

 

 

539

 

 

370

 

 

1,491

 

 

1,208

 

0.9

 

1.1

 

Purchased freight

 

 

61,598

 

 

42,541

 

 

148,945

 

 

120,501

 

171.6

 

121.4

 

Administrative expenses

 

 

8,619

 

 

5,221

 

 

24,019

 

 

17,711

Administrative

 

16.9

 

16.5

 

Sales and marketing

 

 

488

 

 

435

 

 

1,425

 

 

1,280

 

0.4

 

0.6

 

Taxes and licenses

 

 

2,963

 

 

2,268

 

 

7,855

 

 

6,946

 

3.6

 

3.9

 

Insurance and claims

 

 

6,351

 

 

5,065

 

 

15,516

 

 

13,648

 

23.4

 

16.8

 

Acquisition-related transaction expenses

 

 

773

 

 

 —

 

 

2,255

 

 

18

 

1.4

 

0

 

Depreciation and amortization

 

 

19,805

 

 

16,998

 

 

53,758

 

 

50,515

 

21.6

 

22.2

 

(Gain) loss on disposition of revenue property and equipment

 

 

(339)

 

 

(495)

 

 

(513)

 

 

158

Impairment of revenue property and equipment

 

 

 —

 

 

1,195

 

 

 —

 

 

1,195

Gain on disposition of property and equipment

 

(4.6

)

 

(3.1

)

Restructuring charges

 

 

0.6

 

 

 

0

 

Total operating expenses

 

 

225,618

 

 

168,066

 

 

579,759

 

 

485,050

 

 

402.8

 

 

 

325.8

 

Income from operations

 

 

5,704

 

 

6,082

 

 

9,320

 

 

16,336

 

18.2

 

8.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (income) expense:

 

 

  

 

 

  

 

 

  

 

 

  

Other expense (income):

 

 

 

 

 

 

Interest income

 

 

(76)

 

 

(4)

 

 

(130)

 

 

(40)

 

(0.1

)

 

(0.1

)

Interest expense

 

 

8,624

 

 

6,724

 

 

21,064

 

 

17,521

 

7.1

 

11.1

 

Write-off of unamortized deferred financing fees

 

 

 —

 

 

 —

 

 

3,883

 

 

 —

Change in fair value of warrant liability

 

(4.7

)

 

5.6

 

Other

 

 

(32)

 

 

(64)

 

 

(247)

 

 

(266)

 

 

(0.5

)

 

 

(0.4

)

Total other expense

 

 

8,516

 

 

6,656

 

 

24,570

 

 

17,215

 

 

1.8

 

 

 

16.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before provision (benefit) for income taxes

 

 

(2,812)

 

 

(574)

 

 

(15,250)

 

 

(879)

Provision (benefit) for income taxes

 

 

(2,862)

 

 

683

 

 

(3,448)

 

 

607

Income (loss) before income taxes

 

16.4

 

(8.1

)

Income tax expense (benefit)

 

 

3.4

 

 

 

(0.8

)

Net income (loss)

 

 

50

 

 

(1,257)

 

 

(11,802)

 

 

(1,486)

 

13.0

 

(7.3

)

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

 

 

Unrealized income (loss) on interest rate swaps

 

 

 —

 

 

61

 

 

52

 

 

(1)

Foreign currency translation adjustments

 

 

526

 

 

 —

 

 

1,032

 

 

 —

 

 

1.1

 

 

 

0.2

 

Comprehensive income (loss)

 

 

576

 

 

(1,196)

 

 

(10,718)

 

 

(1,487)

 

$

14.1

 

 

$

(7.1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

50

 

 

(1,257)

 

 

(11,802)

 

 

(1,486)

 

$

13.0

 

$

(7.3

)

Less dividends to Series A convertible preferred stockholders

 

 

(1,225)

 

 

 —

 

 

(2,919)

 

 

 —

 

 

(1.2

)

 

 

(1.2

)

Less dividends to Series B convertible preferred stockholders

 

 

 —

 

 

(1,243)

 

 

(806)

 

 

(3,729)

Net loss attributable to common stockholders

 

$

(1,175)

 

$

(2,500)

 

$

(15,527)

 

$

(5,215)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

  

 

 

  

 

 

  

 

 

  

Basic and Diluted

 

$

(0.03)

 

$

(0.12)

 

$

(0.45)

 

$

(0.25)

Net income (loss) attributable to common stockholders

 

$

11.8

 

 

$

(8.5

)

Earnings (loss) per common share:

 

 

 

 

 

 

Basic

 

$

0.19

 

 

$

(0.13

)

Diluted

 

$

0.18

 

 

$

(0.13

)

Weighted-average common shares outstanding:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

 

 

Basic and Diluted

 

 

39,359,523

 

 

20,980,961

 

 

34,790,861

 

 

20,980,961

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

62,891,317

 

 

 

65,080,364

 

Diluted

 

 

65,433,575

 

 

 

65,080,364

 

Dividends declared per Series A convertible preferred share

 

$

1.91

 

$

 —

 

$

2.59

 

$

 —

 

$

1.91

 

 

$

1.91

 

Dividends declared per Series B convertible preferred share

 

$

 —

 

$

18.75

 

$

12.50

 

$

18.75

The accompanying notes are an integral part of the consolidated financial statements.

2

2

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

NineThree Months Ended September 30, 2017March 31, 2022

(Unaudited)

(In thousands, except share data)Dollars in millions)

 

 

Series A Convertible

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Par

 

 

Additional

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Value

 

 

Paid-In Capital

 

 

Deficit

 

 

Income

 

 

Total

 

Balance at January 1, 2022

 

 

650,000

 

 

$

65.0

 

 

 

62,489,278

 

 

$

—

 

 

$

387.8

 

 

$

(276.8

)

 

$

—

 

 

$

176.0

 

Exercise of options

 

 

—

 

 

 

—

 

 

 

91,425

 

 

 

—

 

 

 

0.8

 

 

 

—

 

 

 

—

 

 

 

0.8

 

Exercise of warrants

 

 

—

 

 

 

—

 

 

 

817,648

 

 

 

—

 

 

 

9.4

 

 

 

—

 

 

 

—

 

 

 

9.4

 

Vesting of restricted stock units

 

 

—

 

 

 

—

 

 

 

43,450

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Series A convertible preferred stock dividend

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1.2

)

 

 

—

 

 

 

(1.2

)

Stock-based compensation expense

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2.2

 

 

 

—

 

 

 

—

 

 

 

2.2

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

13.0

 

 

 

—

 

 

 

13.0

 

Balance at March 31, 2022

 

 

650,000

 

 

$

65.0

 

 

 

63,441,801

 

 

$

—

 

 

$

400.2

 

 

$

(265.0

)

 

$

—

 

 

$

200.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Convertible

 

Series B Convertible

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Preferred Stock

 

Preferred Stock

 

Common Stock

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Par

 

 

 

Par

 

Additional

 

Accumulated

 

Comprehensive

 

 

 

 

    

Shares

    

Amount

    

Shares

    

Value

    

Shares

    

Value

    

Paid- In Capital

    

Deficit

    

Income (Loss)

    

Total

Balance, January 1, 2017 as previously reported

 

 —

 

$

 —

 

64,500

 

$

 1

 

145,495

 

$

 1

 

$

117,807

 

$

(14,694)

 

$

(52)

 

$

103,063

Effect of reverse acquisition

 

 —

 

 

 —

 

 —

 

 

 —

 

20,835,466

 

 

 1

 

 

 —

 

 

 —

 

 

 —

 

 

 1

Balance at January 1, 2017

 

 —

 

 

 —

 

64,500

 

 

 1

 

20,980,961

 

 

 2

 

 

117,807

 

 

(14,694)

 

 

(52)

 

 

103,064

Income on interest rate swaps

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

52

 

 

52

Series B convertible preferred stock dividend

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(806)

 

 

 —

 

 

(806)

Repurchase of common shares

 

 —

 

 

 —

 

 —

 

 

 —

 

(3,616,781)

 

 

(1)

 

 

(36,167)

 

 

 —

 

 

 —

 

 

(36,168)

Conversion of Series B convertible preferred stock to common shares

 

 —

 

 

 —

 

(64,500)

 

 

(1)

 

9,301,150

 

 

 1

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Shares assumed by legal acquirer

 

 —

 

 

 —

 

 —

 

 

 —

 

11,050,630

 

 

 1

 

 

83,639

 

 

 —

 

 

 —

 

 

83,640

Settlement of legal acquirer transaction costs

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(19,063)

 

 

 —

 

 

 —

 

 

(19,063)

Issuance of Series A convertible preferred stock

 

650,000

 

 

65,000

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

65,000

Issuance of common stock

 

 —

 

 

 —

 

 —

 

 

 —

 

6,764,272

 

 

 1

 

 

74,685

 

 

 —

 

 

 —

 

 

74,686

Series A convertible preferred stock dividend

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(2,919)

 

 

 —

 

 

(2,919)

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

1,201

 

 

 —

 

 

 —

 

 

1,201

Foreign currency translation adjustments

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,032

 

 

1,032

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(11,802)

 

 

 —

 

 

(11,802)

Balance at September 30, 2017

 

650,000

 

$

65,000

 

 —

 

$

 —

 

44,480,232

 

$

 4

 

$

222,102

 

$

(30,221)

 

$

1,032

 

$

257,917

The accompanying notes are an integral part of the consolidated financial statements.

3

3

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWSCHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)Three Months Ended March 31, 2021

(Unaudited)

(Dollars in thousands)millions)

 

 

Series A Convertible

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Par

 

 

Additional

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Value

 

 

Paid-In Capital

 

 

Deficit

 

 

Income

 

 

Total

 

Balance at January 1, 2021

 

 

650,000

 

 

$

65.0

 

 

 

65,023,174

 

 

$

—

 

 

$

401.6

 

 

$

(327.8

)

 

$

—

 

 

$

138.8

 

Exercise of options

 

 

—

 

 

 

—

 

 

 

149,545

 

 

 

—

 

 

 

0.6

 

 

 

—

 

 

 

—

 

 

 

0.6

 

Vesting of restricted stock units

 

 

—

 

 

 

—

 

 

 

5,737

 

 

 

—

 

 

 

(0.8

)

 

 

—

 

 

 

—

 

 

 

(0.8

)

Series A convertible preferred stock dividend

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1.2

)

 

 

—

 

 

 

(1.2

)

Stock-based compensation expense

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1.4

 

 

 

—

 

 

 

—

 

 

 

1.4

 

Foreign currency translation adjustments

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

0.2

 

 

 

0.2

 

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(7.3

)

 

 

—

 

 

 

(7.3

)

Balance at March 31, 2021

 

 

650,000

 

 

$

65.0

 

 

 

65,178,456

 

 

$

—

 

 

$

402.8

 

 

$

(336.3

)

 

$

0.2

 

 

$

131.7

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

September 30, 

 

    

2017

    

2016

Cash flows from operating activities

 

 

  

 

 

  

Net loss

 

$

(11,802)

 

$

(1,486)

Adjustments to reconcile net loss to net cash provided by operating activities

 

 

 

 

 

  

Depreciation

 

 

49,109

 

 

45,973

Amortization of intangible assets

 

 

4,649

 

 

4,542

Amortization of deferred financing fees

 

 

1,330

 

 

934

Write-off of deferred financing fees

 

 

3,883

 

 

 —

Stock-based compensation expense

 

 

1,201

 

 

 —

Deferred taxes

 

 

(4,849)

 

 

(245)

Bad debt expense

 

 

347

 

 

176

Non-cash interest expense

 

 

92

 

 

805

(Gain) loss on disposition of property and equipment

 

 

(513)

 

 

158

Deferred gain recognized on sales-type leases

 

 

(793)

 

 

(532)

Impairment of revenue equipment

 

 

 —

 

 

1,195

Changes in operating assets and liabilities

 

 

 

 

 

  

Accounts receivable

 

 

(28,567)

 

 

(7,156)

Drivers’ advances and other receivables

 

 

547

 

 

(274)

Payments received on sales-type leases

 

 

3,774

 

 

2,776

Other current assets

 

 

(339)

 

 

3,524

Accounts payable

 

 

2,911

 

 

894

Accrued expenses and other liabilities

 

 

5,478

 

 

(2,176)

Net cash provided by operating activities

 

 

26,458

 

 

49,108

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

  

 

 

  

Purchase of property and equipment

 

 

(15,565)

 

 

(3,143)

Proceeds from sale of property and equipment

 

 

5,252

 

 

4,424

Cash paid in acquisitions, net of cash acquired

 

 

(91,133)

 

 

 —

Net cash provided by (used in) investing activities

 

 

(101,446)

 

 

1,281

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

  

 

 

  

Checks outstanding in excess of bank balances

 

 

313

 

 

317

Advances on line of credit

 

 

543,404

 

 

528,664

Repayments on line of credit

 

 

(550,261)

 

 

(528,603)

Principal payments on and payoff of long-term debt

 

 

(231,817)

 

 

(59,656)

Proceeds from Term Loan Facility

 

 

350,000

 

 

14,188

Deferred financing fees

 

 

(14,411)

 

 

(1,788)

Pay off of subordinated debt

 

 

(66,715)

 

 

 —

Issuance of common stock

 

 

128,184

 

 

 —

Repurchase of common stock

 

 

(36,168)

 

 

 —

Issuance of Series A convertible preferred stock

 

 

65,000

 

 

 —

Series A convertible preferred stock dividends

 

 

(1,680)

 

 

 —

Series B convertible preferred stock dividends

 

 

(2,016)

 

 

(3,628)

Net cash provided by (used in) financing activities

 

 

183,833

 

 

(50,506)

 

 

 

 

 

 

 

Effect of exchange rates on cash and cash equivalents

 

 

(30)

 

 

 —

 

 

 

 

 

 

 

Net increase (decrease) in cash  and cash equivalents

 

 

108,815

 

 

(117)

Cash and cash equivalents – beginning of period

 

 

3,695

 

 

4,886

Cash and cash equivalents – end of period

 

$

112,510

 

$

4,769

The accompanying notes are an integral part of the consolidated financial statements.

4

4

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Unaudited)

(Dollars in thousands)millions)

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

September 30, 

 

    

2017

    

2016

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

20,916

 

$

15,637

Cash paid for income taxes

 

$

629

 

$

942

 

 

 

 

 

 

 

Noncash investing and financing activities

 

 

 

 

 

 

Property and equipment acquired with debt or capital lease obligations

 

$

13,609

 

$

32,517

Property and equipment sold for notes receivable

 

$

412

 

$

408

Property and equipment transferred to sales-type lease

 

$

7,042

 

$

6,193

Assets held for sale returned to property and equipment

 

$

 —

 

$

351

Sales-type lease returns to property and equipment

 

$

724

 

$

1,188

Sales-type lease assets sold for notes receivable

 

$

21,488

 

$

18,609

Sales-type lease returns to sales-type lease assets

 

$

13,795

 

$

12,026

Common stock issued in acquisitions

 

$

11,079

 

$

 —

Accrued Series A convertible preferred dividends

 

$

1,239

 

$

 —

Accrued Series B convertible preferred dividends

 

$

 —

 

$

1,378

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net income (loss)

 

$

13.0

 

 

$

(7.3

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities

 

 

 

 

 

 

Depreciation

 

 

19.9

 

 

 

20.5

 

Amortization of intangible assets

 

 

1.7

 

 

 

1.7

 

Amortization of deferred financing fees

 

 

0.3

 

 

 

0.8

 

Non-cash operating lease expense

 

 

0

 

 

 

(0.4

)

Change in fair value of warrant liability

 

 

(4.7

)

 

 

5.6

 

Write-off of deferred financing fees

 

 

0

 

 

 

1.1

 

Stock-based compensation expense

 

 

4.2

 

 

 

2.4

 

Deferred taxes

 

 

0.3

 

 

 

(0.8

)

Bad debt expense

 

 

0.1

 

 

 

0.2

 

Gain on disposition of property and equipment

 

 

(4.6

)

 

 

(3.1

)

Changes in operating assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

(26.4

)

 

 

(3.4

)

Drivers’ advances and other receivables

 

 

(4.7

)

 

 

0.4

 

Other current assets

 

 

4.3

 

 

 

5.7

 

Accounts payable

 

 

5.4

 

 

 

(3.8

)

Accrued expenses and other liabilities

 

 

20.4

 

 

 

9.9

 

Net cash provided by operating activities

 

 

29.2

 

 

 

29.5

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(8.8

)

 

 

(5.2

)

Proceeds from sale of property and equipment

 

 

11.5

 

 

 

10.1

 

Cash paid for acquisitions, net of cash received

 

 

(19.3

)

 

 

0

 

Net cash (used in) provided by investing activities

 

 

(16.6

)

 

 

4.9

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Advances on line of credit

 

 

422.1

 

 

 

337.6

 

Repayments on line of credit

 

 

(422.1

)

 

 

(337.6

)

Principal payments on long-term debt

 

 

(15.3

)

 

 

(196.5

)

Proceeds from long-term debt

 

 

0

 

 

 

97.5

 

Payments of deferred financing fees

 

 

0

 

 

 

(2.9

)

Exercise of stock options, net

 

 

0.8

 

 

 

0

 

Exercise of warrants

 

 

9.4

 

 

 

0

 

Series A convertible preferred stock dividends

 

 

(1.2

)

 

 

(1.2

)

Net cash used in financing activities

 

 

(6.3

)

 

 

(103.1

)

 

 

 

 

 

 

 

Effect of exchange rates on cash and cash equivalents

 

 

(0.3

)

 

 

(0.2

)

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

6.0

 

 

 

(68.9

)

Cash and cash equivalents – beginning of period

 

 

147.5

 

 

 

176.2

 

Cash and cash equivalents – end of period

 

$

153.5

 

 

$

107.3

 

The accompanying notes are an integral part of the consolidated financial statements.

5

5

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

(Unaudited)(Dollars in millions)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

7.1

 

 

$

7.7

 

Cash paid for income taxes

 

$

0.1

 

 

$

0.2

 

 

 

 

 

 

 

 

Noncash investing and financing activities

 

 

 

 

 

 

Property and equipment acquired with debt or finance lease obligations

 

$

7.3

 

 

$

14.4

 

Right-of-use assets acquired

 

$

8.1

 

 

$

5.8

 

The accompanying notes are an integral part of the consolidated financial statements.

6

Table of Contents

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The registrant was originally formed in April 2015 as a special purpose acquisition company (SPAC) under the name Hennessy Capital Acquisition Corp. II (Hennessy). As a SPAC, Hennessy had no operations and its purpose was to go public with the intention of merging with or acquiring an operating company with the proceeds of the SPAC’s initial public offering (the IPO).

On February 27, 2017, Hennessy consummated the Business Combination (as defined and described in Note 2) with Daseke, Inc. Upon consummation of the Business Combination, Daseke, Inc. changed its name to Daseke Companies, Inc. and Hennessy changed its name to Daseke, Inc.

Daseke, Inc. was formed in December 2008 and began operations on January 1, 2009. Daseke is engaged in full service open-deck trucking thatand specializes primarily in flatbed truckload and heavy haul transportation of specialized items throughout the United States, and Canada and into Mexico with trailers.Mexico. The Company also provides logistical planning and warehousing services to customers. The Company is subject to regulation by the Department of Transportation, the Department of Defense, the Department of Energy, and various state regulatory authorities. Additionally, due toauthorities in the recent acquisition of R&R Trucking Holdings, LLC (see Note 3), theUnited States. The Company is also subject to regulationsregulation by the DepartmentMinistries of DefenseTransportation and the Department of Energy.

Unless expressly stated otherwise, references to the Company or Daseke refers to Daseke, Inc.Communications and its wholly owned subsidiaries, Hennessy refers to the registrant prior to the closing of the Business Combination, and Private Daseke refers to Daseke, Inc. and its subsidiaries prior to the closing of the Business Combination.various provincial regulatory authorities in Canada.

Basis of Presentation

These interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP)(US GAAP) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periodsmonths ended September 30, 2017March 31, 2022 are not necessarily indicative of the results that may be expected for the year ended December 31, 2017.2022.

The consolidated balance sheet as of December 31, 20162021 has been derived from the audited consolidated financial statements at that date. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes for the year ended December 31, 20162021 as set forth in the Company’s CurrentAnnual Report on Form 8-K/A,10-K, filed with the SEC on March 16, 2017.

Principles of Consolidation

The consolidated financial statements include the accounts of Daseke, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

February 23, 2022.

6

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

Deferred Financing Fees

In conjunction with obtaining long-term debt, the Company incurred financing costs which are being amortized using the straight-line method, which approximates the effective interest rate method, over the terms of the obligations. As of September 30, 2017 and December 31, 2016, the balance of deferred financing fees was $13.3 million and $4.1 million, respectively, which is included as a reduction of long-term debt, net of current portion in the consolidated balance sheets. Amortization expense was $0.5 million and $0.3 million for the three months ended September 30, 2017 and 2016, respectively, and $1.3 million and $0.9 million for the nine months ended September 30, 2017 and 2016, respectively, which is included in interest expense. In February 2017, in conjunction with new term loan financing discussed in Note 9, the Company incurred deferred financing costs of $14.2 million and expensed unamortized deferred financing fees totaling $3.9 million.

Fair Value Measurements

The Company follows the accounting guidance for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a framework for measuring fair value and expands disclosures about fair value measurements. The three levels of the fair value framework are as follows:

Level 1 -– Quoted market prices in active markets for identical assets or liabilities.

Level 2 -– Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3 -– Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs from inactive markets.

A financial asset or liability’s classification within the framework is determined based on the lowest level of input that is significant to the fair value measurement.

The fairCompany may be required, on a non-recurring basis, to adjust the carrying value of the Company’s interest rate swaps isproperty and equipment, intangible assets, goodwill and contingent consideration. When necessary, these valuations are determined using cash flow computer models with unobservable inputs, thereforeby the liability for interest rate swaps is classified withinCompany using Level 3 ofinputs. These assets are subject to fair value adjustments in certain circumstances, such as when there is evidence that impairment may exist.

The Company’s warrant liabilities are included within the Level 1 and Level 3 fair value hierarchy. The following table sets forth by level within the fair value framework. In conjunction with the Business Combination discussed in Note 2,hierarchy the Company’s lone interest rate swap was terminated. At December 31, 2016, theassets and liabilities that were accounted for at fair value (in millions):

 

 

Fair value as of March 31, 2022

 

Liabilities:

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Warrant liability

 

$

0

 

 

$

—

 

 

$

0

 

 

$

0

 

Total fair value

 

$

0

 

 

$

—

 

 

$

0

 

 

$

0

 

 

 

Fair value as of December 31, 2021

 

Liabilities:

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Warrant liability

 

$

2.7

 

 

$

—

 

 

$

2.0

 

 

$

4.7

 

Total fair value

 

$

2.7

 

 

$

—

 

 

$

2.0

 

 

$

4.7

 

7

Table of this liability was $51,871andContents

The table below is classified in accrued expenses and other liabilities on the consolidated balance sheets. The tables below are a summary of the changes in the fair value of thisthe warrant liability within the Level 3 fair value hierarchy for the three and nine months ended September 30, 2017 and 2016March 31, 2022 (in thousands)millions):

2016

Balance at January 1, 2016

$

(124)

Change in fair value

(63)

Balance at June 30, 2016

(187)

Change in fair value

72

Balance at September 30, 2016

$

(115)

 

 

Three Months Ended

 

 

 

March 31, 2022

 

Balance at beginning of period

 

$

2.0

 

Change in fair value

 

 

(2.0

)

Balance at end of period

 

$

0

 

2017

Balance at January 1, 2017

$

(52)

Change in fair value

52

Balance at June 30, 2017

 —

Change in fair value

 —

Balance at September 30, 2017

$

 —

7

Table of ContentsCommon Stock Purchase Warrants

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

Stock-Based Compensation

Awards of equity instruments issued to employees and directors are accounted for under the fair value method of accounting and recognizedThe Company’s common stock purchase warrants expired in the consolidated statements of operations. Compensation cost is measured for all stock-based awards at fair valueaccordance with their terms on the date of grant and recognized using the straight-line method over the service period over which the awards are expected to vest.

Fair value of all time-vested options as of the date of grant is estimated using the Black-Scholes option valuation model, which was developed for use in estimating the fair value of traded options that have no vesting restrictionsFebruary 27, 2022 and are fully transferable. Option valuation models requireno longer exercisable. During the input of highly subjective assumptions, including the expected stock price volatility. Since the Company does not have a sufficient history of exercise behavior, expected term is calculated using the assumption that the options will be exercised ratably from the date of vesting to the end of the contractual term for each vesting tranche of awards. The risk-free interest rate is based on the U.S. Treasury yield curve for the period of the expected term of the stock option. Expected volatility is calculated using an index of publicly traded peer companies.

Fair values of nonvested stock awards (restricted stock units) are equal to the market value of the common stock on the date of the award with compensation costs amortized over the vesting period of the award.

Segment Reporting

The Company determines its operating segments based on the information utilized by the chief operating decision maker to allocate resources and assess performance. Based on this information, the Company has determined it has twelve operating segments as of September 30, 2017 and eight operating segments as of September 30, 2016 that are aggregated into two reportable segments: Flatbed Solutions, which delivers its services using primarily flatbed transportation equipment to meet the needs of high-volume, time-sensitive shippers, and Specialized Solutions, which delivers transportation and logistics solutions for super heavy haul, high-value customized and over-dimensional loads, many of which require engineering and customized equipment.

Earnings (Loss) Per Share

Basic earnings (loss) per common share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share reflect the potential dilution of earnings per share that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the Company’s earnings (loss).

For the three and nine months ended September 30, 2017, shares of the Company’s 7.625% Series A Convertible Cumulative Preferred Stock (Series A Preferred Stock)March 31, 2022, prior to their expiration, there were not included in the computation of diluted loss per share as their effects were anti-dilutive. For the three and nine months ended September 30, 2017 and 2016, shares of Private Daseke’s Series B Convertible Preferred Stock (Series B Preferred Stock)were not included in the computation of diluted earnings per share as their effects were anti-dilutive. For the three and nine months ended September 30, 2017, there was no dilutive effect from the Merger Agreement earn-out provision (see Note 2) or the outstanding1,635,296 warrants to purchaseexercised for 817,648 shares of the Company’s common stock (the common stock purchase warrants).

Common Stock Purchase Warrants

The Company accountsin exchange for the issuance of common stock purchase warrants$9.4 million in connection with equity offerings in accordance with the provisions of the Accounting Standards Codification (ASC) 815, Derivatives and Hedging (ASC 815). The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). See Note 11 for additional details on the common stock purchase warrants.

The Company assessed the classification of its common stock purchase warrants and determined that such instruments meet the criteria for equity classification at the time of issuance.

8

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

Foreign Currency Gains and Losses

The local currency is the functional currency for the Company’s operations in Canada. For these operations, assets and liabilities are translated at the rates of exchange on the consolidated balance sheet date, while income and expense items are translated at average rates of exchange during the period. The resulting gains or losses arising from the translation of accounts from the functional currency into U.S. dollars are included as a separate component of stockholders’ equity in accumulated other comprehensive income (loss) until a partial or complete liquidation of the Company’s net investment in the foreign operation.

From time to time, the Company’s foreign operations may enter into transactions that are denominated in a currency other than their functional currency (U.S. dollars). These transactions are initially recorded in the functional currency of the operating company based on the applicable exchange rate in effect on the date of the transaction. Monthly, these transactions are remeasured to an equivalent amount of the functional currency based on the applicable exchange rate in effect on the remeasurement date. Any adjustment required to remeasure a transactionproceeds to the equivalent amount of functional currency is recorded inCompany.

Recently Issued Accounting Pronouncements

In August 2020, the consolidated statements of operations of the foreign operating company as a component of foreign exchange gain or loss.

Assets Held for Sale

Assets held for sale is comprised of revenue equipment in our lease purchase programFASB issued ASU 2020-06 – Debt – Debt with Conversion and is recorded as a component of prepaid and other current assets on the consolidated balance sheets. Assets held for sale at September 30, 2017 and December 31, 2016, totaled $7.1 million and $2.8 million, respectively. Assets held for sale are not subject to depreciation, and are recorded at the lower of depreciated carrying value or fair market value less selling costs. The Company expects to sell these assets in its lease purchase program within twelve months of being classified as assets held for sale. 

New Accounting Pronouncements

In July 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-11, Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480)Other Options (Subtopic 470-20) and Derivatives and Hedging (Topic 815). ASU 2017-11 provides– Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The guidance simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on accountingcalculating earnings per share, requiring use of the if-converted method for financialall convertible instruments with down round features and clarifyrescinding an entity’s ability to rebut the deferralpresumption of certain provisionsshare settlement for instruments that may be settled in Topic 480. ASU 2017-11 will become effective for annual periods beginning after December 15, 2018 and interim periods within those periods.cash or other assets. The Company is currently evaluatingadopted this guidance as of January 1, 2022. The adoption did not have a material impact on the impact of adopting this guidance.Company’s consolidated financial statements.

In May 2017,March 2020, the FASB issued ASU 2017-09, Compensation 2020-04– Stock CompensationReference Rate Reform (Topic 718). ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award requires the application of modification accounting. Modification accounting will apply unless the fair value848): Facilitation of the modified award isEffects of Reference Rate Reform on Financial Reporting. The amendments provide optional guidance for a limited time to ease the same as the original award, the vesting conditionspotential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying US GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The provisions of the modified awardthis update are the same as the original award and the classification of the modified award as an equity instrument or liability instrument is the same as the original award. ASU 2017-09 will become effective for annual periods beginning afterall entities as of March 20, 2020 through December 15, 201731, 2022 and interim periods within those periods. Early adoption apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. In addition, in January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848) – Scope, to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. ASU 2020-04 is permitted. The Company does not expect ASU 2017-09expected to have a material impact on itsthe Company’s consolidated results of operations, financial condition, cash flows, or financial statement disclosures.statements.

In January 2017, December 2019, the FASB issued ASU 2017-04, IntangiblesNo.2019-12 – GoodwillIncome Taxes (Topic 740) Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and Other (Topic 350).the recognition of deferred tax liabilities for outside basis differences. ASU 2017-04 removes2019-12 also clarifies and simplifies other aspects of the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amountaccounting for income taxes. The Company adopted this guidance as of goodwill. ASU 2017-04 is effective for fiscal years beginning December 15, 2019, with early adoption permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017, and applied prospectively.2022. The Company doesadoption of this standard did not expect ASU 2017-04 to have a material impact on itsthe Company's consolidated results of operations, financial condition, cash flows, or financial statement disclosures.statements.

9

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 provides new guidance intended to reduce diversity in practice in how certain cash receipts and payments are classified in the statement of cash flows, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, and distributions from certain equity method investees. ASU 2016-05 will become effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 31, 2019. Early adoption is permitted. ASU 2016-15 requires application using a retrospective transition method. The Company is currently evaluating the impact of adopting this guidance.

In June 2016, the FASB issued ASU No. 2016-13, Accounting for Credit Losses (Topic 326). ASU 2016-13 requires the use of an “expected loss” model on certain types of financial instruments. The ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of adopting this guidance.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718). ASU 2016-09sets forth a “current expected credit loss” (CECL) model which requires the recognitionCompany to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. ASU 2016-09 also allowscredit losses on financial assets, including trade receivables. The new standard will become effective for the Company to repurchase morebeginning with the first quarter of the Company’s shares for tax withholding purposes without triggering liability accounting. In addition, ASU 2016-09 allows for a policy election2023 and is not expected to account for forfeitures as they occur rather than on an estimated basis. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted. The Company adopted this pronouncement on April 1, 2017 and election to account for forfeitures as they occur did not have a material impact on the Company’s consolidated resultsfinancial statements.

8

Table of Contents

Lease Income

The Company leases tractors and trailers to certain of its owner operators and accounts for these transactions as operating leases. These leases typically have terms of 30 to 72 months and are collateralized by a security interest in the related revenue equipment. The Company recognizes income for these leases as payments are received over the lease term, which are reported in purchased freight on the consolidated statements of operations financial condition, cash flows or financial statement disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 amends various aspects of existing guidance for leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The main difference between previous GAAP and the amended standard is the recognition of lease assets and lease liabilities of lessees on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this ASU will have on its consolidated financial position and results of operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)comprehensive income (loss). The core principle ofCompany's equipment leases may include options for the guidance is that an entity should recognize revenuelessee to depictpurchase the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued updated guidance with ASU 2015-14 and deferred the effective date of ASU 2014-09 by one year. The guidance in ASU 2014-09 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods.

In March 2016, the FASB issued an ASU that further clarifies guidance under ASU 2014-09 with respect to principal versus agent considerations in revenue from contracts with customers. In the second quarter of 2016, the FASB issued two ASUs that provide additional guidance when identifying performance obligations and licenses as well as allowing for certain narrow scope improvements and practical expedients. In May 2017, the FASB issued an ASU that provides guidance on the identification of the customer in a service concession arrangement. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective), or retrospectively with the cumulative effect of initially applying the guidance recognizedequipment at the date of initial application (modified retrospective). The Company plans to adopt this new guidance in the first quarter of 2018 and would apply the modified retrospective method, which may result in a cumulative-effect adjustment to opening retained earnings with an insignificant change to revenue on a go-forward basis. The Company has completed its review of a sample of revenue contracts for all revenue sources and has concluded that the new guidance will not have a material impact on its revenue recognition practices, business processes, systems and controls. The new guidance will result in changes to the timing of recognition for certain revenue streams, namely freight revenue, where a contract has not been completed by the end of a reporting period. Based on a reviewthe lease term or terminate the lease prior to the end of our customer shipping arrangements, we currently believe the implementationlease term. When an asset reaches the end of this standard will change our revenue recognition policyits useful economic life, the Company disposes of the asset.

Lease income from recognizing revenue upon shipment completionlease payments related to recognizing revenue over time based onthese operating leases for the progress toward completion of shipments in transit at each period end.

10

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

three months ended March 31, 2022 and 2021 was $7.6 million and $6.0 million, respectively.

NOTE 2 – BUSINESS COMBINATIONACQUISITIONS

On February 27, 2017, Hennessy consummatedMarch 3, 2022, the mergerCompany acquired 100% of Hennessy’s wholly-owned subsidiarythe outstanding stock of SJ Transportation Co., Inc. (SJ Transportation) for consideration net of cash acquired of $19.3 million, which was funded with and into Daseke, Inc., with Daseke, Inc. survivingcash on hand. The acquisition was a stock purchase under US GAAP. A Section 338(h)(10) election is being filed for the entity acquired which will deem those acquisitions as a direct wholly-owned subsidiaryan asset purchase for tax purposes; therefore approximately $7.7 million of Hennessy (the Business Combination) pursuantthe values assigned to the Agreementintangible assets and Plangoodwill are expected to be deductible for tax purposes. Approximately $0.2 million of Merger, dated December 22, 2016 (the Merger Agreement). The aggregate consideration received by Private Daseke stockholders upon closing was $266.7 million, consisting of newly issued shares of common stock at a value of $10.00 per share. The Merger Agreement contains an earn-out provision through which Private Daseke stockholders could receive up to 15 million additional shares of common stock (with up to 5 million shares payable annually with respect to 2017, 2018 and 2019 performance). The full 15 million shares are only payable if (i) the annualized Adjusted EBITDA (giving effect to acquisitions and as definedtransaction expenses were incurred in the Merger Agreement)acquisition, which are not deductible for 2017, 2018 and 2019 is at least $140.0 million, $170.0 million and $200.0 million, respectively, and (ii) the closing share price of the Company’s common stock is at least $12.00, $14.00 and $16.00 for any 20 trading days in a consecutive 30 trading day period in 2017, 2018 and 2019, respectively. For each year, the 5 million earn-out shares will be prorated to the extent the annualized Adjusted EBITDA (giving effect to acquisitions and as defined in the Merger Agreement) exceeds 90% but represents less than 100%, of the applicable earn-out target.tax purposes.

Following the consummation of the Business Combination on February 27, 2017 (the Closing), there were 37,715,960 shares of common stock issued and outstanding, consisting of (i) 26,665,330 shares issued to Private Daseke stockholders pursuant to the Merger Agreement, (ii) 419,669 shares issued in a private placement that closed in conjunction with the Business Combination, (iii) 2,288,043 shares originally issued to Hennessy Capital Partners II LLC (the Sponsor) in a private placement that closed simultaneously with the consummation of the IPO, and (iv) 8,342,918 shares, following redemptions, which shares were originally issued in the IPO. In connection with the Business Combination, $65.0 million of Series A Preferred Stock (650,000 shares) were issued in a private placement.

In conjunction with the Closing, the Company entered into (i) a $350.0 million term loan credit facility (the Term Loan Facility), which consists of a $250.0 million term loan funded on the closing date of the Term Loan Facility and up to $100.0 million of term loans to be funded from time to time under a delayed draw term loan facility, and (ii) an asset-based revolving credit facility (the ABL Facility), in an aggregate maximum credit amount equal to $70.0 million (subject to availability under a borrowing base). See Note 9 for more information regarding the Term Loan Facility and the ABL Facility. Prior to the Closing, the Company had a credit facility consisting of a term loan (Senior Term Loan) and a revolving line of credit (Line of Credit).

11

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 2 – BUSINESS COMBINATION – (Continued)

The following table is a summary of cash proceeds and utilization of proceeds in the Business Combination (in thousands):

 

 

 

 

Proceeds

 

 

 

 

 

 

 

Public share proceeds(1)

 

$

83,429

Issuance of Series A Preferred Stock

 

 

65,000

Term Loan Facility

 

 

250,000

Cash(2)

 

 

3,209

Total proceeds

 

 

401,638

 

 

 

 

Use of Proceeds

 

 

 

 

 

 

 

Repayment of Line of Credit(3)

 

 

16,717

Repayment of Senior Term Loan(4)

 

 

122,724

Repayment of equipment loans(5)

 

 

89,488

Repayment of subordinated debt(6)

 

 

67,460

Payment of deferred financing fees(7)

 

 

14,148

Repurchase Main Street and Prudential shares(8)

 

 

36,168

Hennessy transaction costs

 

 

19,063

Daseke transaction costs(9)

 

 

1,204

Total use of proceeds

 

 

366,972

 

 

 

 

Net cash received

 

$

34,666

(1) - 8,342,918 public shares outstanding valued at $10.00 per share

(2) - Daseke cash utilized for payment of deferred financing fees and transaction costs

(3) - includes payment of $59 accrued interest recognized in interest expense

(4) - includes payment of $422 accrued interest recognized in interest expense

(5) - includes payment of $731 accrued interest recognized in interest expense

(6) - includes payment of $745 accrued interest recognized in interest expense

(7) - excludes $81 paid subsequent to the Closing

(8) - Hennessy repurchased Private Daseke shares held by Main Street Capital II, LP, Main Street Mezzanine Fund, LP, Main Street Capital Corporation, Prudential Capital Partners IV, L.P., Prudential Capital Partners (Parallel Fund) IV, L.P. and Prudential Capital Partners Management Fund IV, L.P.

(9) - $0.8 million and $0.4 million expensed in fourth quarter 2016 and first quarter 2017, respectively

The Business Combination was accounted for as a reverse merger in accordance with GAAP. Under this method of accounting, Hennessy is treated as the “acquired” company. This determination was primarily based on Private Daseke comprising the ongoing operations of the combined company, Private Daseke’s senior management comprising the senior management of the combined company, and Private Daseke stockholders having a majority of the voting power of the combined company. For accounting purposes, Private Daseke is deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of Private Daseke (i.e., a capital transaction involving the issuance of stock by Hennessy for the stock of Private Daseke). Accordingly, the consolidated assets, liabilities and results of operations of Private Daseke are the historical financial statements of the combined company, and Hennessy’s assets, liabilities and results of operations are consolidated with Private Daseke beginning on the acquisition date.

In connection with the Closing, Daseke, Inc. changed its name to Daseke Companies, Inc. and Hennessy Capital Acquisition Corp. II changed its name to Daseke, Inc. Daseke, Inc.’s common stock and warrants began trading under the ticker symbols DSKE and DSKEW, respectively, on February 28, 2017.

12

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 3 – ACQUISITIONS

The Company is a leading consolidator of the open-deck freight market in North America. From its inception in late 2008, the Company has successfully acquired twelve open-deck trucking companies. Negotiations and discussions with potential targets are an integral part of the Company’s operations, and the Company may be in varying stages of the acquisition process, from infancy to very mature, at any point in time.

The following is a summary of the preliminary allocation of the purchase price paid to the fair values of the net assets, net of the Company’s recent acquisitionscash acquired (in thousands)millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

(all amounts in U.S. dollars)

 

 

 

 

 

 

 

 

 

    

 

 

 

 

R&R

 

 

Steelman

 

 

Schilli

 

Big Freight

Accounts receivable

 

$

5,129

 

$

4,383

 

$

8,798

 

$

4,914

Parts supplies

 

 

149

 

 

90

 

 

1,681

 

 

 —

Prepaid and other current assets

 

 

1,515

 

 

2,296

 

 

4,701

 

 

576

Property and equipment

 

 

16,887

 

 

11,100

 

 

41,423

 

 

11,492

Goodwill & Intangibles

 

 

22,560

 

 

14,318

 

 

12,989

 

 

10,551

Other long-term assets

 

 

156

 

 

5,013

 

 

 —

 

 

121

Deferred tax liabilities

 

 

(5,238)

 

 

(2,763)

 

 

(14,598)

 

 

(3,571)

Accounts payable and other liabilities

 

 

(2,920)

 

 

(15,612)

 

 

(27,634)

 

 

(6,294)

Total

 

$

38,238

 

$

18,825

 

$

27,360

 

$

17,789

 

 

SJ Transportation

 

Accounts receivable

 

$

3.4

 

Other current assets

 

 

1.8

 

Property and equipment

 

 

10.4

 

Goodwill

 

 

7.7

 

Accounts payable and other liabilities

 

 

(4.0

)

Total

 

$

19.3

 

The aggregate purchase price noted above was allocated to the major categories of assets acquired and liabilities assumed at estimated fair values as of the acquisition date, which were based, in part, upon outside preliminary appraisals for certain assets and subject to change when additional information concerning final asset and liability values is obtained.

 

The Company has not completed its assessments of the fair value of purchased intangible assets for the R&R and Steelman acquisitions, and no value has been allocated to them at this time. The Company has completed its assessments for the Schilli and Big Freight acquisitions and allocated the resulting fair values to intangible assets. The final purchase price allocations may result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill.

R&R Trucking Holdings, LLC

On September 1, 2017For the Company acquired 100%three months ended March 31, 2022, revenue and net income of the outstanding stock of R&R Trucking Holdings, LLC (R&R), based in Duenweg, Missouri. Total consideration paidacquired company, post-acquisition date, was $38.4 million, consisting of $24.6 million in cash and the Company assumed and repaid of $13.8 million of long-term debt. The cash consideration was funded through a delayed draw on September 1, 2017 under the Term Loan Facility. The acquisition was a stock purchase, therefore the values assigned to the intangible assets and goodwill are not deductible for tax purposes. Approximately $0.4 million of transaction expenses were incurred in the acquisition, which are not deductible for tax purposes.

The Steelman Companies

On July 1, 2017, the Company acquired 100% of the outstanding stock of The Steelman Companies (Steelman), based in Springfield, Missouri, for consideration of $18.8 million, consisting of $11.2 million in cash and 746,170 shares of Daseke common stock valued at $7.6 million. The fair value of the 746,170 shares issued was determined based on the closing price of the stock on the acquisition close date. The cash consideration was funded through cash on hand. The acquisition was a stock purchase under GAAP. A Section 338(h)(10) election is being filed for certain of the entities acquired which will deem those acquisitions as an asset purchase for tax purposes, therefore approximately $13.0 million of the values assigned to the intangible assets and goodwill are expected to be deductible for tax purposes. Approximately $0.3 million of transaction expenses were incurred in the acquisition, which are not deductible for tax purposes.

13

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 3 – ACQUISITIONS – (Continued)

Schilli Transportation Services, Inc.

On May 1, 2017, the Company acquired 100% of the outstanding stock of Schilli Transportation Services, Inc. and certain of its affiliates (Schilli), based in Remington, Indiana. Total consideration paid was $27.4 million, consisting of $21.0 million in cash, 232,885 shares of Daseke common stock valued at $2.3$1.9 million and $4.0$0.1 million, of long-term debt refinanced byrespectively. There were 0 acquisitions during the Company. The fair value of the 232,885 shares issued was determined based on the closing price of the stock on the acquisition close date. The cash consideration was funded through a delayed draw on May 1, 2017 under the Term Loan Facility. The acquisition was a stock purchase, therefore the values assigned to the intangible assets and goodwill are not deductible for tax purposes. Approximately $0.4 million of transaction expenses were incurred in the acquisition, which are not deductible for tax purposes.three months ended March 31, 2021.

Big Freight Systems, Inc.

On May 1, 2017, the Company acquired 100% of the outstanding stock of Big Freight Systems, Inc. (Big Freight), based in Steinbach, Manitoba. Total consideration paid was $16.7 million consisting of $12.4 million in cash, 109,248 shares of Daseke common stock valued at $1.1 million and, the Company assumed approximately $3.2 million of outstanding debt. The fair value of the 109,248 shares issued was determined based on the closing price of the stock on the acquisition close date. Big Freight’s purchase agreement also contains an earn-out for additional cash consideration to be paid on the excess of each of 2017, 2018 and 2019’s earnings before interest, taxes, depreciation and amortization (EBITDA Amount) over 2016’s EBITDA Amount (as defined in the purchase agreement), multiplied by 0.4. A contingent liability of $1.1 million was included in the allocation of the purchase price for this earn-out. The cash consideration was funded through a delayed draw on May 1, 2017 under the Term Loan Facility and cash on hand. The acquisition was a stock purchase, therefore the values assigned to the intangible assets and goodwill are not deductible for tax purposes. Approximately $0.6 million of transaction expenses were incurred in the acquisition, which are not deductible for tax purposes.

Supplemental Pro Forma Information (Unaudited)

 

The following supplemental pro forma financial information reflects the R&R, Steelman, Schilli and Big Freight acquisitionsSJ Transportation acquisition as if theyit occurred on January 1, 2016.2021 (in millions). This pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the pro forma events taken place on January 1, 2016.2021. Further, the pro forma financial information does not purport to project the future operating results of the consolidated company.

 

 

Three Months Ended

 

 

March 31,

 

 

 

2022

 

 

2021

 

Pro forma revenue

 

$

5.9

 

 

$

6.1

 

Pro forma net income

 

$

0.2

 

 

$

0.6

 

9

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

(in thousands)

    

2017

    

2016

 

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro forma revenue

 

$

241,135

 

$

230,092

 

$

690,449

 

$

666,014

Pro forma net income (loss)

 

$

285

 

$

(1,167)

 

$

(11,323)

 

$

810

NOTE 43 – PREPAID AND OTHER CURRENT ASSETS

The components of prepaid expenses and other current assets are as follows as of September 30, 2017March 31, 2022 and December 31, 20162021 (in thousands).millions):

 

 

 

 

 

 

 

 

    

2017

    

2016

Assets held for sale

 

$

7,112

 

$

2,812

Other assets

 

 

2,529

 

 

3,546

Insurance

 

 

4,564

 

 

2,246

Other prepaids

 

 

1,562

 

 

1,104

Licensing, permits and tolls

 

 

3,031

 

 

2,772

Highway and fuel taxes

 

 

1,523

 

 

1,024

 

 

$

20,321

 

$

13,504

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Prepaid insurance

 

$

5.5

 

 

$

7.5

 

Prepaid licensing, permits and tolls

 

 

4.3

 

 

 

4.8

 

Parts supplies

 

 

4.1

 

 

 

3.5

 

Other prepaids

 

 

2.4

 

 

 

2.7

 

Income tax receivable

 

 

1.9

 

 

 

1.9

 

Prepaid software

 

 

1.0

 

 

 

1.1

 

Prepaid highway and fuel taxes

 

 

0.6

 

 

 

1.1

 

Total

 

$

19.8

 

 

$

22.6

 

14NOTE 4 – INTEGRATION AND RESTRUCTURING

TableDuring the first quarter of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 5 – GOODWILL AND INTANGIBLE ASSETS

Goodwill represents2022, the excessCompany internally announced a phased integration and restructuring plan (Transformation Plan or the Plan), with the first phase integrating 5 operating segments into 3 other operating segments, which will reduce the number of overall operating segments from 11 to 6. The second phase of the purchase pricePlan will integrate those 6 operating segments into 4 to 5 operating segments. As of all acquisitions overMarch 31, 2022, we had 10 operating segments. The Transformation Plan is intended to reduce the estimated fair valueCompany’s cost base, right size its organization and management team and increase and accelerate its previously announced operational improvement goals. In addition, the Company anticipates additional revenue opportunities driven by synergies from optimizing a consolidated operation, including empty mile reduction, pricing improvements, and additional seated truck contribution. The integration and restructuring costs consist of employee-related costs and other transition and termination costs related to restructuring activities. Employee-related costs include severance, tax preparation, and relocation costs, which are accounted for in accordance with ASC 420 Exit or Disposal Cost Obligations. Other transition and termination costs include fixed asset-related charges, contract and lease termination costs, professional fees, and other miscellaneous expenditures associated with the net assets acquired. integration or restructuring activities, which are expensed as incurred. Costs are reported in restructuring charges in the consolidated statements of operations and comprehensive income (loss). The obligation related to employee separation costs is included in other current liabilities in the consolidated balance sheets.

The Company performs an impairment testrecorded $0.6 million of goodwill annually as of October 31 or when impairment indicators arise. There was no goodwill impairment identified forintegration and restructuring expenses in connection with the three and nine months ended September 30, 2017. The preliminary summary of changesPlan in goodwill follows for the nine months ended September 30, 2017 (in thousands).

 

 

 

 

 

 

 

 

 

 

 

    

Flatbed

    

Specialized

    

Total

Goodwill balance at December 31, 2016

 

 

46,660

 

 

42,375

 

 

89,035

Goodwill acquired and adjustments to previously recorded goodwill

 

 

 —

 

 

50,207

 

 

50,207

Foreign currency translation adjustment

 

 

 —

 

 

647

 

 

647

Goodwill balance at September 30, 2017

 

$

46,660

 

$

93,229

 

$

139,889

Intangible assets consisted of the following at September 30, 2017 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2017

 

As of December 31, 2016

 

    

Intangible

    

Accumulated

    

Intangible

    

Intangible

    

Accumulated

    

Intangible

 

 

Assets

 

Amortization

 

Assets, net

 

Assets

 

Amortization

 

Assets, net

Non-competition agreements

 

$

10,900

 

$

(5,175)

 

$

5,725

 

$

8,350

 

$

(3,929)

 

$

4,421

Customer relationships

 

 

59,190

 

 

(22,471)

 

 

36,719

 

 

56,210

 

 

(19,078)

 

 

37,132

Trade names

 

 

34,780

 

 

 —

 

 

34,780

 

 

30,100

 

 

 —

 

 

30,100

Foreign currency translation adjustment

 

 

 —

 

 

317

 

 

317

 

 

 —

 

 

 —

 

 

 —

Total intangible assets

 

$

104,870

 

$

(27,329)

 

$

77,541

 

$

94,660

 

$

(23,007)

 

$

71,653

As of September 30, 2017, non-competition agreements and customer relationships had weighted average remaining useful lives of 2.63 and 7.81 years, respectively.

Amortization expense for intangible assets with definite lives was $1.8 million and $1.5 million for the three months ended September 30, 2017March 31, 2022. As of March 31, 2022, we have incurred a cumulative total of $0.6 million in integration and 2016, respectively,restructuring costs since inception of the Plan.

The Company completed the previously announced internal restructuring (Project Pivot) and $4.6 million and $4.5 million for the nine months ended September 30, 2017 and 2016, respectively. Projected amortization expense for the next five fiscal years endingintegration (Project Synchronize) plans as of December 31, 2017, 2018, 2019, 20202021 and does not expect any future material restructuring costs associated with those prior plans. As of December 31, 2021, will be $6.3the Company had incurred a cumulative total of $9.9 million $6.5 million, $6.4 million, $5.6 millionin integration and $5.1 million, respectively.restructuring costs related to Project Pivot and Project Synchronize.

10

Table of Contents

The following table summarizes the integration and restructuring costs as of March 31, 2022 (in millions):

 

 

Severance

 

 

Operating

 

 

 

 

 

 

 

 

 

and

 

 

Lease

 

 

 

 

 

 

 

 

 

Other Payroll

 

 

Termination

 

 

Other

 

 

Total

 

Balance at December 31, 2021

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Specialized Solution

 

 

 

 

 

 

 

 

 

 

 

 

Costs accrued

 

 

0.1

 

 

 

—

 

 

 

—

 

 

 

0.1

 

Amounts paid or charged

 

 

(0.1

)

 

 

—

 

 

 

—

 

 

 

(0.1

)

Specialized Solution balance at March 31, 2022

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Flatbed Solution

 

 

 

 

 

 

 

 

 

 

 

 

Costs accrued

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Amounts paid or charged

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Flatbed Solution balance at March 31, 2022

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

Costs accrued

 

 

—

 

 

 

—

 

 

 

0.5

 

 

 

0.5

 

Amounts paid or charged

 

 

—

 

 

 

—

 

 

 

(0.5

)

 

 

(0.5

)

Adjustments

 

 

—

 

 

 

—

 

 

 

 

 

 

—

 

Corporate balance at March 31, 2022

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

Costs accrued

 

 

0.1

 

 

 

—

 

 

 

0.5

 

 

 

0.6

 

Amounts paid or charged

 

 

(0.1

)

 

 

—

 

 

 

(0.5

)

 

 

(0.6

)

Adjustments

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consolidated balance at March 31, 2022

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

NOTE 65 – PROPERTY AND EQUIPMENT

The components of property and equipment are as follows at September 30, 2017 and December 31, 2016 (in thousands)millions):

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

    

2017

    

2016

 

2022

 

 

2021

 

Revenue equipment

 

$

474,544

 

$

398,394

 

$

524.8

 

$

520.5

 

Revenue equipment leased and available for lease to owner operators

 

130.0

 

123.4

 

Buildings and improvements

 

 

50,546

 

 

43,000

 

58.2

 

58.0

 

Furniture and fixtures, office and computer equipment and vehicles

 

 

17,292

 

 

14,421

Furniture and fixtures, office and computer equipment, vehicles and capitalized software development

 

 

33.8

 

 

 

33.3

 

 

 

542,382

 

 

455,815

 

746.8

 

735.2

 

Accumulated depreciation

 

 

(173,183)

 

 

(137,068)

 

 

(349.1

)

 

 

(337.5

)

 

$

369,199

 

$

318,747

Property and equipment, net

 

$

397.7

 

 

$

397.7

 

Depreciation expense on property and equipment was $18.0$19.9 million and $15.5$20.5 million for the three months ended September 30, 2017March 31, 2022 and 2016, respectively, and $49.1 million and $46.0 million for the nine months ended September 30, 2017 and 2016,2021, respectively.

15

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 7 – SALES-TYPE LEASES

The Company leases revenue equipment to certain of its owner-operators and accounts for these transactions as sales-type leases. These leases have terms of 30 to 72 months and are collateralized by a security interest in the related revenue equipment. A minimum lease receivable is recorded, net of unearned interest income and deferred gain on sale of the equipment. The gain is recognized as payments are collected, rather than in the period the lease is recorded due to the uncertainty of collection.

The components of the net investment in sales-type leases are as follows at September 30, 2017 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

    

2017

    

2016

Minimum lease receivable

 

$

35,120

 

$

21,055

Deferred gain

 

 

(7,092)

 

 

(3,049)

Net minimum lease receivable

 

 

28,028

 

 

18,006

Unearned interest income

 

 

(3,848)

 

 

(3,671)

 

 

 

 

 

 

 

Net investment in sales-type leases

 

 

24,180

 

 

14,335

Current portion

 

 

(6,022)

 

 

(3,516)

 

 

$

18,158

 

$

10,819

The long-term portion of sales-type leases is classified in other long-term assets on the consolidated balance sheets at September 30, 2017 and December 31, 2016.

Gain or loss on disposition of revenue equipment leased to owner-operators is included as a component of purchased freight in the consolidated statements of operations. The gains totaled approximately $0.5 million and $0.2 million for the three months ended September 30, 2017 and 2016, respectively, and $0.8 million and $0.5 million for the nine months ended September 30, 2017 and 2016, respectively.

NOTE 86 – ACCRUED EXPENSES AND OTHER LIABILITIES

The components of accrued expenses and other liabilities are as follows at September 30, 2017as of March 31, 2022 and December 31, 20162021 (in thousands)millions):

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

    

2017

    

2016

 

2022

 

 

2021

 

Brokerage and escorts

 

$

6,732

 

$

3,559

 

$

18.6

 

$

15.6

 

Unvouchered payables

 

 

4,892

 

 

2,587

 

13.2

 

8.7

 

Owner operator deposits

 

11.9

 

11.3

 

Fuel and fuel taxes

 

6.7

 

1.2

 

Accrued property taxes and sales taxes payable

 

5.2

 

2.3

 

Other accrued expenses

 

 

5,339

 

 

3,956

 

3.4

 

3.7

 

Owner-operator deposits

 

 

4,779

 

 

2,032

Interest

 

 

255

 

 

1,705

 

 

0.8

 

 

 

1.1

 

Dividends

 

 

1,239

 

 

1,209

Fuel

 

 

995

 

 

711

Fuel taxes

 

 

429

 

 

345

 

$

24,660

 

$

16,104

 

$

59.8

 

 

$

43.9

 

11

16

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 97 – LONG-TERM DEBT

Long-term debt consists of the following at September 30, 2017as of March 31, 2022 and December 31, 20162021 (in thousands)millions):

 

 

 

 

 

 

 

 

    

2017

    

2016

Senior debt

 

 

 

 

 

 

 

 

 

 

 

 

 

Line of credit

 

$

 —

 

$

6,858

Term loan facility

 

 

348,462

 

 

 —

Senior term loan

 

 

 —

 

 

125,682

Equipment term loans

 

 

82,668

 

 

111,882

Real estate term loan

 

 

 —

 

 

13,772

Capital leases

 

 

4,540

 

 

13,818

 

 

 

435,670

 

 

272,012

Less current portion

 

 

(26,514)

 

 

(52,665)

Less unamortized debt issuance costs

 

 

(13,315)

 

 

(4,117)

Long-term portion

 

 

395,841

 

 

215,230

 

 

 

 

 

 

 

Subordinated debt

 

 

 

 

 

 

 

 

 

 

 

 

 

Main Street Capital Corporation

 

 

 —

 

 

21,660

Prudential Capital Partners

 

 

 —

 

 

21,492

LST Seller notes

 

 

 —

 

 

22,000

DTR Seller notes

 

 

 —

 

 

1,000

BHE Seller notes

 

 

 —

 

 

291

Total subordinated debt

 

 

 —

 

 

66,443

 

 

 

 

 

 

 

Total long-term debt

 

$

395,841

 

$

281,673

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Term Loan Facility

 

$

396.0

 

 

$

397.0

 

ABL Facility

 

 

0

 

 

 

0

 

Equipment and real estate term loans

 

 

163.3

 

 

 

169.0

 

Finance lease liabilities

 

 

27.5

 

 

 

28.5

 

Total debt and finance lease liabilities

 

 

586.8

 

 

 

594.5

 

Less current portion

 

 

(55.2

)

 

 

(55.5

)

Less unamortized deferred financing fees

 

 

(7.3

)

 

 

(7.6

)

Long-term debt and finance lease liabilities, less current portion and unamortized deferred financing fees

 

$

524.3

 

 

$

531.4

 

Term Loan Facility

In conjunction withOn March 9, 2021, the closeCompany and Daseke Companies, Inc., a wholly-owned subsidiary of the Business Combination on February 27, 2017, the Company (the Term Loan Borrower), entered into the $350.0 milliona Refinancing Amendment (Amendment No. 3 to Term Loan Facility underAgreement) (the Term Loan Amendment) with JPMorgan Chase Bank, N.A., as successor administrative agent and collateral agent and a loan agreement withreplacement lender, Credit Suisse AG, Cayman Islands Branch, as predecessor administrative agent and collateral agent, the lendersother loan parties party thereto and the other financial institutions party thereto. The Term Loan Facility consists of (i) a $250.0 million term loan funded on the closing date ofPursuant to the Term Loan Facility (the Closing Date Term Loan)Amendment, the Company prepaid, refinanced and up to $100.0 millionreplaced all of the then-issued and outstanding term loans, to be funded from time to time under a delayed draw feature available until February 27, 2018.

The sizewhich had an aggregate principal amount of the Term Loan Facility could increase from time to time pursuant to an uncommitted incremental facility$484 million, with cash on hand and new replacement terms loans in an aggregate principal amount for all such incremental loansof $400 million (the Replacement Term Loans). At March 31, 2022 and commitments up toDecember 31, 2021, the sum of (a) $65.0 million and (b) an uncapped amount based on the maximum first lien, secured and total leverage ratio-based formulas depending upon the security and ranking of the relevant incremental facility. The proceeds from the Closing Date Term Loan were used to partially refinance certain of the Company’s capital leases, purchase money debt, equipment and real estate financings and to pay transaction costs associated with the Business Combination and refinance the Line of Credit and the Senior Term Loan.

The Term Loan Facility has a scheduled maturity date of February 27, 2024. Term loans under the Term Loan Facility are, at the Company’s election from time to time, comprised of alternate base rate loans (an ABR Borrowing) or adjusted LIBOR loans (a Eurodollar Rate Borrowing), with the applicable margins of interest being an alternate base rate (subject to a 2.00% floor) plus 4.50% per annum for ABR Borrowings and LIBOR (subject to a 1.00% floor) plus 5.50% per annum for Eurodollar Rate Borrowings. At September 30, 2017, the average interest rate on the Replacement Term Loan FacilityLoans was 6.6%4.75%.

The Term Loan Facility is secured by all assets As ofMarch 31, 2022, the Company except those assets collateralizing equipment and certain real estate lenders debt and subject to certain customary exceptions.

17

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 9 – LONG-TERM DEBT – (Continued)

As amended on August 16, 2017, the Term Loan Facility contains a financial covenant requiring the Company to maintain a consolidated total leverage ratio as of the last day of any fiscal quarter of less than or equal to 4.25 to 1.00 commencing on June 30, 2017, stepping up to 4.75 to 1.00 on September 30, 2017, stepping down to 4.25 to 1.00 on March 31, 2018, stepping down to 4.00 to 1.00 on March 31, 2019 and stepping down to 3.75 to 1.00 on March 31, 2021. Additionally, as amended on August 16, 2017, the Term Loan Facility contains a pro forma total leverage ratio of less than or equal to 4.25 to 1.00 for term loans funded from the delayed draw feature. The consolidated total leverage ratio is defined as the ratio of (i) consolidated total debt minus unrestricted cash and cash equivalents and cash and cash equivalents restrictedwas in favor of the administrative agent and the lenders not to exceed $5 million, to (ii) consolidated adjusted EBITDA for the trailing 12 month period (with customary add-backs permitted to consolidated adjusted EBITDA, including in respect of synergies and cost-savings reasonably identifiable and factually supportable that are anticipated to be realized in an aggregate amount not to exceed 25% of consolidated adjusted EBITDA and subject to other customary limitations).

The Term Loan Facility permits voluntarily prepayments of borrowings. In certain circumstances (subject to exceptions, exclusions and,compliance with all covenants contained in the case of excess cash flow, step-downs described below),agreement governing the Company may also be required to make an offer to prepay theReplacement Term Loan Facility if it receives proceeds as a result of certain asset sales, debt issuances, casualty or similar events of loss, or if it has excess cash flow (defined as an annual amount calculated using a customary formula based on consolidated adjusted EBITDA, including, among other things, deductions for (i) the amount of certain voluntary prepayments of the Term Loan Facility and (ii) the amount of certain capital expenditures, acquisitions, investments and restricted payments). The percentage of excess cash flow that must be applied as a mandatory prepayment is 50% with respect to the initial excess cash flow period (the fiscal year ending on December 31, 2018) and will be 50%, 25% or 0% for future excess cash flow periods depending upon the first lien leverage ratio.Loans.

The Term Loan Facility contains (i) certain customary affirmative covenants that, among other things, require compliance with applicable laws, periodic financial reporting and notices of material events, payment of taxes and other obligations, maintenance of property and insurance, and provision of additional guarantees and collateral, and (ii) certain customary negative covenants that, among other things, restrict the incurrence of additional indebtedness, liens on property, sale and leaseback transactions, investments, mergers, consolidations, liquidations and dissolutions, asset sales, acquisitions, the payment of distributions, dividends, redemptions and repurchases of equity interests, transactions with affiliates, prepayments and redemptions of certain other indebtedness, burdensome agreements, holding company limitations, changes in fiscal year and modifications of organizational documents.

ABL Facility

Also, in conjunction with the Closing on February 27, 2017, theThe Company entered intohas a five-year, senior secured asset-based revolving line of credit with an aggregate maximum credit amount equal to $70.0 million (subject to availability under a borrowing base equal to 85% of the Company’s eligible accounts receivable, 80% of the Company’s eligible unbilled accounts receivable and 50% of parts supplies)(the ABL Facility) under a credit agreement (as amended, restated, supplemented or otherwise modified from time to time, the ABL Credit Agreement) with PNC Bank, National Association, as administrative agent and the lenders party thereto. The size of the ABL Facility could increase from time to time pursuant to an uncommitted accordion by an aggregate amount for all such increases of up to $30 million. The ABL Facility matures on February 27, 2022. The ABL Facility also provides for the issuance of letters of credit subject to certain restrictions and a sublimit of $20 million, as defined in the credit agreement.

As of September 30, 2017,March 31, 2022, the Company had no0 borrowings, and $8.9$23.1 million in letters of credit outstanding, under the ABL Facility and could incur approximately $70.0approximately $123.1 million of additional indebtedness under the ABL Facility.

Borrowings underFacility, based on current qualified collateral. As of March 31, 2022, the ABL Facility bear interest at rates based upon the Company’s fixed charge coverage ratio and, at the Company’s election from time to time, either a base rate plus an applicable margin or an adjusted LIBOR rate plus an applicable margin. Margins on the ABL Facility are adjusted, if necessary to the applicable rates set forth in the following table corresponding to the fixed charge coverage ratio for the trailing 12 month period on the last daywas 4.0%. As of the most recently completed fiscal quarter.

 

 

 

 

 

 

Fixed Charge Coverage Ratio

 

Base Rate Margins

 

LIBOR Rate Margins

 

Less than 1.25 to 1.00

 

2.25

%  

3.25

%

Greater than or equal to 1.25 to 1.00, but less than 1.50 to 1.00

 

1.75

%  

2.75

%

Greater than or equal to 1.50 to 1.00, but less than 1.75

 

1.25

%  

2.25

%

Greater than or equal to 1.75 to 1.00

 

0.75

%  

1.75

%

18

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DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 9 – LONG-TERM DEBT – (Continued)

The ABL Facility is secured by all of the Company’s U.S. based accounts receivable, parts supplies, cash and cash equivalents excluding proceeds of Term Loan Facility, securities and deposit accounts and other general assets not included in the Term Loan Facility collateral.

The ABL Facility contains (i) a financial covenant similar to the consolidated total leverage ratio required under the Term Loan Facility (but, as amended on August 31, 2017, in any event requiring a leverage ratio of less than or equal to 4.75 to 1.00 for the fiscal quarter ended September 30, 2017, stepping down to 3.75 to 1.00 on March 31, 2021, in the same increments as the Term Loan Facility noted above) and (ii) during any period after a default or event of default or after excess availability falling below the greater of (x) $15.0 million and (y) 20% of the maximum credit amount, continuing until such time as no default or event of default has existed and excess availability has exceeded such amounts for a period of 60 consecutive days, a financial covenant requiring the Company to maintain a minimum consolidated fixed charge coverage ratio of 1.00x, tested on a quarterly basis. The Company’s fixed charge coverage ratio is defined as the ratio of (1) consolidated adjusted EBITDA minus unfinanced capital expenditures, cash taxes and cash dividends or distributions, to (2) the sum of all funded debt payments for the four quarter period then ending (with customary add-backs permitted to consolidated adjusted EBITDA).

The ABL Facility contains affirmative and negative covenants similar to those in the Term Loan Facility, together with such additional terms as are customary for a senior secured asset-based revolving credit facility.

As of September 30, 2017,2022, the Company was in compliance with all covenants contained in the Term Loan and ABL Facilities.

Line of Credit and Senior Term Loan

Prior to the Closing, the Company had a credit facility under a credit agreement with PNC, as agent, and other lenders party thereto (the PNC Credit Agreement), which included a revolving line of credit and a term loan. In August 2016, the PNC Credit Agreement was amended, increasing the borrowing capacity to an aggregate $212.1 million from $150.0 million, consisting of a $75.0 million revolving line of credit and a $137.1 million senior term loan. In conjunction with the amendment, the Company refinanced $73.0 million of equipment notes with various lenders under the PNC Credit Agreement. The line of credit was subject to a borrowing base equal to 85% of the Company’s eligible accounts receivable, 80% of the Company’s eligible unbilled accounts receivable

Equipment and 50% of parts supplies.Real Estate Term Loans

As of DecemberMarch 31, 2016, borrowings on the line of credit bore interest at either (a) the Libor Rate (as defined in the credit agreement), plus a margin of 3.25%, or (b) the Base Rate (as defined in the credit agreement), plus a margin of 2.25%. The PNC revolving credit facility also provided for the issuance of up to $10 million in letters of credit. As of December 31, 2016, the Company had outstanding letters of credit thereunder totaling $4.1 million. Total availability under the line of credit was $33.0 million as of December 31, 2016. At December 31, 2016, the average interest rate on the line of credit was 4.5%.

As of December 31, 2016, the Senior Term Loan was due in monthly installments of $1,690,154, plus applicable interest at either (a) the Libor Rate (as defined in the credit agreement), plus a margin of 4.00%, or (b) the Base Rate (as defined in the PNC Credit Agreement), plus a margin of 3.00%. At December 31, 2016, the average interest rate on the Senior Term Loan was 4.4%.

Prior to the amendment in August 2016, debt on the Senior Term Loan had interest rates of either (a) the Libor Rate (as defined in the credit agreement), plus a margin of 3.75%, or (b) the Base Rate (as defined in the credit agreement), plus a margin of 2.75%.

Margins on the line of credit and Senior Term Loan were adjusted, if necessary to the applicable rates set forth in the following table corresponding to the fixed charge coverage ratio for the trailing twelve month period on the last day of the most recently completed fiscal quarter.

 

 

 

 

 

 

 

 

 

 

 

 

Base Rate Margins

 

LIBOR Rate Margins

 

Fixed Charge Coverage Ratio

    

Line of Credit

    

Senior Term Loan

    

Line of Credit

    

Senior Term Loan

 

Less than 1.25 to 1.00

 

2.25

%  

3.00

%  

3.25

%  

4.00

%

Greater than or equal to 1.25 to 1.00, but less than 1.50 to 1.00

 

1.75

%  

2.50

%  

2.75

%  

3.50

%

Greater than or equal to 1.50 to 1.00, but less than 1.75

 

1.25

%  

2.00

%  

2.25

%  

3.00

%

Greater than or equal to 1.75 to 1.00

 

0.75

%  

1.50

%  

1.75

%  

2.50

%

19

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DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 9 – LONG-TERM DEBT – (Continued)

The PNC Credit Agreement also contained a subjective acceleration clause, which permitted the lender to demand payment in the event of a material adverse change. Only the scheduled principal payments are being presented in the current portion of long-term obligations as the lender did not exercise the acceleration clause.

Borrowings under the PNC Credit Agreement were secured by all assets of the Company, except those assets collateralizing equipment and certain real estate lenders debt. The PNC Credit Agreement contained certain financial covenants, including a minimum fixed charge coverage ratio, a senior secured debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) ratio and a funded debt to consolidated EBITDA ratio.

Additionally, the PNC Credit Agreement contained negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements. As of December 31, 2016, the Company was in compliance with all covenants contained in the PNC Credit Agreement.

The PNC Credit Agreement contained a required principal payment based on excess cash flow (as defined) beginning in fiscal 2016 and due 15 days following the delivery of the audited financial statements to PNC. No excess cash flow payment was required prior to refinancing in conjunction with the Business Combination.

Equipment Term Loans and Mortgages

As of September 30, 2017,2022, the Company had term loans collateralized by equipment in the aggregate amount of $79.0$161.1 million with thirty(30)15 lenders (Equipment Term Loans). The Equipment Term Loans bear interest at rates ranging from 1.5%2.6% to 6.8%5.9%, require monthly payments of principal and interest and mature at various dates through July 2024. Certain of the Equipment Term Loans contain conditions, covenants, representations and warranties, events of default, and indemnification provisions applicable to the Company and certain of its subsidiaries that are customary for equipment financings, including, but not limited to, limitations on the incurrence of additional debt and the prepayment of existing indebtedness, certain payments (including dividends and other distributions to persons not party to its credit facility) and transfers of assets.

The Company had a construction loan with a balance of $8.8 million incurred to finance the construction of a new headquarters and terminal in Arlington, Washington which was repaid in February 2017 in conjunction with the Business Combination. See Note 2 for additional details on the Business Combination. The construction loan was collateralized by such property and buildings. The initial principal amount on February 19, 2015 of $7.8 million was increased on April 26, 2016 to $8.8 million. The construction loan earned interest at 3.25% payable monthly.

2029. As of September 30, 2017,March 31, 2022, the weighted average interest rate was 3.9%.

As of March 31, 2022, the Company has a bank mortgage loan with a balance of $3.7$2.2 million incurred to finance the construction of the headquarters and terminal in Redmond, Oregon. The mortgage loan is collateralized by such property and buildings. The mortgage is payable in monthly installments of $15,776, including interest at 3.7% through November 2017.

The interest rate and monthly payments will be adjusted on November 1, 2017 and 2020 to a rate of 2.5%, plus the three-year advance rate published by the Federal Home Loan Bank of Seattle in effect 45 days prior to November 1, 2017 and 2020 (which will not be less than 3.7%). The bank mortgage loan matures November 1, 2023.

Real Estate Term Loan

In April 2016, the Company refinanced $14.2 million of its Line of Credit with bank debt (Real Estate Term Loan) utilizing nine wholly-owned real estate assets which previously served as collateral on the PNC Term Loan. The Real Estate Term Loan was subordinate to the PNC Credit Agreement and Equipment Term Loans and was due in monthly installments of $59,109 (based on 20 year amortization schedule), plus applicable interest at either (a) the Libor Rate (as defined in the loan agreement), plus a margin of 2.75%, or (b) the Default Rate (as defined in the loan agreement). The Company incurred debt issuance costs of $0.4 million, which were being amortized to interest expense over five years using the straight-line method. In conjunction with the Business Combination, the Real Estate Term Loan was repaid and all unamortized debt issuance costs written off to interest expense. See Note 2 for additional details on the Business Combination.

20

Table of ContentsNOTE 8 – INCOME TAXES

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 9 – LONG-TERM DEBT – (Continued)

Capital Leases

The Company leases certain equipment under long-term capital lease agreements that expire on various dates through June 2024. As of September 30, 2017 and December 31, 2016, the book value of the property and equipment recorded under capital leases was $5.6 million and $24.1 million, net of accumulated depreciation of $5.0 million and $17.0 million, respectively. Depreciation expense related to leased equipment was $0.6 million and $1.8 millioneffective tax rates for the three months ended September 30, 2017March 31, 2022 and 2016, respectively,2021 were 20.7% and $1.8 million9.9%, respectively. The difference between the Company’s effective tax rate and $5.3 million for the nine months ended September 30, 2017 and 2016, respectively.

Main Street Capital Corporation

In 2013, Main Street Capital Corporation (Main Street) loanedfederal statutory rate primarily results from the Company $20.0 million under a senior subordinated secured term loan (the Main Street Loan). The Main Street Loan was subordinatemix of earnings with state jurisdictions, combined with the impact of nontaxable income, primarily related to the PNC Credit Agreement and Equipment Term Loans. Interest payments were due monthly through maturity at the rate of 12% per annum. Paid-in kind (PIK) interest, at a rate of 2.5% per annum, could have been paid monthly or accrued and added to the principal balance quarterly, at the optionchange in fair value of the Company. For the nine months ended September 30, 2017 and year ended December 31, 2016, $0.1 million and $0.5 million, respectively, of accrued PIK interest was added to the principal balance and accrued PIK interest of $0.1 million was recorded in accrued expenses as of December 31, 2016. In conjunction with Business Combination, the Main Street Loan was repaid in February 2017. See Note 2 for additional details on the Business Combination.

Prudential Capital Partners

In 2013, the Company issued senior secured subordinated promissory notes in the initial aggregate principal amount of $20.0 million (PCP Subordinated Notes) to Prudential Capital Partners IV, L.P., Prudential Capital Partners (Parallel Fund) IV, L.P. and Prudential Capital Partners Management Fund IV, L.P. (collectively, the PCP Investors) pursuant to the Securities Purchase Agreement, dated as of November 12, 2013, by and among the Company, certain of its subsidiaries and the PCP Investors. The PCP Subordinated Notes were subordinate to the PNC Credit Agreement and Equipment Term Loans. Interest payments were due monthly through maturity at the rate of 12% per annum. PIK interest, at a rate of 2.5% per annum, could have been paid monthly or accrued and added to the principal balance quarterly, at the option of the Company. For the nine months ended September 30, 2017 and year ended December 31, 2016, $0.1 million and $0.5 million, respectively, of accrued PIK interest was added to the principal balance and $0.1 million accrued PIK interest was recorded in accrued expenses as of December 31, 2016. In conjunction with Business Combination, the PCP Subordinated Notes were repaid in February 2017. See Note 2 for additional details on the Business Combination.

The Main Street Loan and the PCP Subordinated Notes (Subordinated Debt) were collateralized by all assets of the Company, except those assets collateralizing the Equipment Term Loans. The Main Street Loan and the PCP Subordinated Notes contained certain financial covenants, including a minimum fixed charge coverage ratio, a senior secured debt to consolidated EBITDA ratio and a funded debt to consolidated EBITDA ratio. Additionally, they contained negative covenants limiting, among other things, additional indebtedness, capital expenditures, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements. The Main Street Loan and the PCP Subordinated Notes were subject to a make-whole payment of 5.0% of the prepayment amount if such prepayment was made before the third anniversary of the agreements.

LST Seller

As part of the consideration paid to the seller of Lone Star Transportation, LLC and affiliates (LST), Daseke Lone Star, Inc. (a subsidiary of the Company) issued $22.0 million of subordinated notes (the LST Seller Notes). The LST Seller Notes bore interest at 10% payable monthly and were subordinate to the PNC Credit Agreement, Main Street Loan and PCP Subordinated Notes. In conjunction with the Business Combination, the LST Seller Notes were repaid in February 2017. See Note 2 for additional details on the Business Combination.

21

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 9 – LONG-TERM DEBT – (Continued)

DTR Sellers

As part of the consideration paid to the sellers of Davenport Transport & Rigging, LLC, LST issued $1.0 million of subordinated notes (the DTR Seller Notes). The DTR Seller Notes bore interest at 5% payable monthly and were subordinate to the PNC Credit Agreement, Main Street Loan and PCP Subordinated Notes. In conjunction with Business Combination, the DTR Seller Notes were repaid in February 2017. See Note 2 for additional details on the Business Combination.

BHE Sellers

As part of the consideration paid to the sellers of Bulldog Hiway Express (BHE), the Company issued $2.0 million of subordinated notes (the BHE Seller Notes). The BHE Seller Notes bore interest at 7% payable monthly. On December 19, 2016, a portion of the outstanding principal amount under the BHE Seller Notes was forgiven in exchange for the payment by the Company of certain pension liabilities of BHE. The BHE Seller Notes were subordinate to the PNC Credit Agreement and the Main Street Loan and the PCP Subordinated Notes. In conjunction with Business Combination, the BHE Seller Notes were repaid in February 2017. See Note 2 for additional details on the Business Combination.

Future Payments

Future principal payments on long-term debt as of September 30, 2017 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Term Loan Facility

    

Equipment Term Loans

 

Capital
Leases

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

$

3,485

 

$

20,875

 

$

2,387

 

$

26,747

2018

 

 

3,485

 

 

20,802

 

 

1,410

 

 

25,697

2019

 

 

3,485

 

 

17,226

 

 

822

 

 

21,533

2020

 

 

3,485

 

 

11,516

 

 

152

 

 

15,153

2021

 

 

3,485

 

 

5,037

 

 

61

 

 

8,583

Thereafter

 

 

331,037

 

 

7,212

 

 

81

 

 

338,330

 

 

 

 

 

 

 

 

 

 

 

 

 

Total minimum lease payments

 

 

 

 

 

 

 

 

4,913

 

 

 

Loan amount attributable to interest

 

 

 

 

 

 

 

 

(373)

 

 

(373)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total (Present value of minimum lease payments on capital leases)

 

$

348,462

 

$

82,668

 

 

4,540

 

$

435,670

Less current portion

 

 

 

 

 

 

 

 

(2,154)

 

 

 

Long-term capital leases

 

 

 

 

 

 

 

$

2,386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE 10 – INCOME TAXES

The Company’s statutory federal tax rate is 35%.warrant liability. State tax rates vary among states and typically range from approximately 1%1% to 6%6%, although some state rates are higher and a small number of states do not impose an income tax. The effective tax ratesrate for the three months ended September 30, 2017 and 2016 were 101.8% and (119.0%), respectively, and 22.6% and (69.1%) forMarch 31, 2022 differs from the nine months ended September 30, 2017 and 2016, respectively. The difference between the Company’s effective tax rate andfor the federal statutory ratesame period in 2021 primarily resultsdue to the impact to the pre-tax book income from state income taxes and nondeductible expenses, including the effectchange in fair value of the per diem pay structure for drivers, transaction expenses and withdrawn Private Daseke IPO expenses. warrant liability.

There were no0 changes in uncertain tax positions during the three and nine months ended September 30, 2017. As a result of the Business Combination, the Company had an Internal Revenue Code of 1986, as amended, section 382 ownership change, which will not impair the Company’s ability to utilize the net operating losses.

March 31, 2022.

12

22

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 11 – STOCKHOLDERS’ EQUITY

Common Stock

On September 19, 2017, the Company and certain stockholders of the Company (the Selling Stockholders) entered into an underwriting agreement (the Underwriting Agreement) with Stifel, Nicolaus & Company, Incorporated and Cowen and Company, LLC, as representatives of the several underwriters named therein (collectively, the Underwriters), in connection with an underwritten public offering (the Offering) of 5,292,000 shares of the Company’s common stock, par value $0.0001 per share, including 4,882,167 shares of common stock to be sold by the Company and 409,833 shares of common stock to be sold by the Selling Stockholders, at a price to the public of $12.00 per share ($11.34 per share net of underwriting discounts and commissions). Pursuant to the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to an additional 793,800 shares of common stock, which was exercised in full on September 20, 2017 and closed simultaneously with the Offering on September 22, 2017. Net proceeds received by the Company from its sale of 5,675,967 shares of common stock were approximately $63.6 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. As described in the prospectus supplement, dated September 19, 2017, filed with the SEC on September 20, 2017, the Company intends to use the net proceeds from the Offering for general corporate purposes, which may include, among other things, working capital, capital expenditures, debt repayment or refinancing or the financing of possible future acquisitions.

Preferred Stock

At the Closing, the Company issued 650,000 shares of Series A Preferred Stock for cash of $65.0 million. Proceeds from the sales were part of the consideration received as part of a recapitalization and reverse acquisition completed in the Business Combination. See Note 2 for additional details about the Business Combination. The par value of Series A Preferred Stock is $0.0001 per share. Additional features of this preferred stock are as follows:

Under the Certificate of Designations, Preferences, Rights and Limitations of the Series A Preferred Stock (the Certificate of Designations), each share of Series A Preferred Stock will be convertible, at the holder’s option at any time, initially into approximately 8.6957 shares of the Company’s common stock (assuming a conversion price of approximately $11.50 per share), subject to specified adjustments as set forth in the Certificate of Designations. If any holder elects to convert its Series A Preferred Stock after the seven-year anniversary of the issue date, if the then-current Conversion Price (as defined in the Certificate of Designations) exceeds the Weighted Average Price (as defined in the Certificate of Designations) for the common stock during any ten consecutive Trading Days (as defined in the Certificate of Designations), at its option by delivery of a Notice of Conversion in accordance with Section 8(b) of the Certificate of Designations no later than five business days following such tenth consecutive Trading Day, to convert any or all of such holder’s shares of Series A Preferred Stock into, at the Company’s sole discretion, either common stock, cash or a combination of common stock and cash; provided, that the Company shall provide such converting holder notice of its election within two Trading Days of receipt of the Notice of Conversion; provided further, that in the event the Company elects to issue common stock for all or a portion of such conversion, the Conversion Rate for such conversion (subject to the limitations set forth in Section 11 of the Certificate of Designations) shall mean the quotient of the Liquidation Preference (as defined in the Certificate of Designations) divided by the average Weighted Average Price for the common stock during the 20 consecutive Trading Days commencing on the Trading Day immediately following the Trading Day on which the Company provided such notice. If the Company does not elect a settlement method prior to the deadline set forth in the Certificate of Designations, the Company shall be deemed to have elected to settle the conversion entirely in common stock. Based on the assumed conversion rate, a total of 5,652,171 shares of Series A Preferred Stock would be issuable upon conversion of all of the currently outstanding shares of Series A Preferred Stock.

23

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 11 – STOCKHOLDERS’ EQUITY – (Continued)

On or after the third anniversary of the initial issuance date but prior to the fifth anniversary of the initial issuance date, the Company will have the right, at its option, to give notice of its election to cause all outstanding shares of the Series A Preferred Stock to be automatically converted into shares of the Company’s common stock at the then-effective conversion rate, if the Weighted Average Price of Company’s common stock equals or exceeds 140% of the then-current conversion price for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days. On or after the fifth anniversary of the initial issuance date but prior to the seventh anniversary of the initial issuance date, the Company will have the right, at its option, to give notice of its election to cause all outstanding shares of the Series A Preferred Stock to be automatically converted into shares of Company’s common stock at the then-effective conversion rate, if the Weighted Average Price of Company’s common stock equals or exceeds 115% of the then-current conversion price for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days. On or after the seventh anniversary of the initial issuance date, the Company will have the right, at its option, to give notice of its election to cause all outstanding shares of the Series A Preferred Stock to be automatically converted into shares of Company’s common stock at the then-effective conversion rate, if the Weighted Average Price of Company’s common stock equals or exceeds the then-current conversion price for at least 10 consecutive trading days. If the Company undergoes certain fundamental changes (as more fully described in the Certificate of Designations but including, among other things, certain change-in-control transactions, recapitalizations, asset sales and liquidation events), each outstanding share of Series A Preferred Stock may, within 15 days following the effective date of such fundamental change and at the election of the holder, be converted into Company’s common stock at a conversion rate (subject to certain adjustments) equal to (i) the greater of (A) the sum of the conversion rate on the effective date of such fundamental change plus the additional shares received by holders of Series A Preferred Stock following such fundamental change (as set forth in the Certificate of Designations) and (B) the quotient of (x) $100.00, divided by (y) the greater of (1) the applicable holder stock price and (2) 66 2/3% of the closing sale price of the Company’s common stock on the issue date plus (ii) the number of shares of Company’s common stock that would be issued if any and all accumulated and unpaid dividends were paid in shares of Company’s common stock.

The Series A Preferred Stock contains limitations that prevent the holders thereof from acquiring shares of the Company’s common stock upon conversion that would result in (i) the number of shares beneficially owned by such holder and its affiliates exceeding 9.99% of the total number of shares of the Company’s common stock then outstanding or (ii) the Series A Preferred Stock being converted into more than 19.99% of the shares of the Company’s common stock outstanding on the initial issue date of the Series A Preferred Stock (subject to appropriate adjustment in the event of a stock split, stock dividend, combination or other similar recapitalization) without, in the latter instance, stockholder approval of such issuance.

Additional features of the Series A Preferred Stock are as follows:

a.

Liquidation – In the event of liquidation, holders of Series A Preferred Stock have preferential rights to liquidation payments over holders of common stock. Holders of Series A Preferred Stock shall be paid out of the assets of the Company at an amount equal to $100 per share plus all accumulated and unpaid dividends.

b.

Dividends – Dividends on the Series A Preferred Stock are cumulative at the Dividend Rate. The “Dividend Rate” is the rate per annum of 7.625% per share of Series A Preferred Stock on the liquidation preference ($100 per share). Dividends are payable quarterly in arrears in cash or, at the Company’s election and subject to the receipt of the necessary shareholder approval (to the extent necessary), in shares of the Company’s common stock. The Company’s board of directors declared quarterly dividends of $0.68 per share on April 24, 2017, and $1.91 per share on July 18, 2017, which were both then paid on July 28, 2017. As of September 30, 2017, accrued dividends of $1.2 million were recorded in accrued expenses and other liabilities.

c.

Voting rights – Except as required by Delaware law, holders of the Series A Preferred Stock will have no voting rights except with respect to the approval of any material and adverse amendment to the Company’s certificate of incorporation, and certain significant holders of Series A Preferred Stock may have approval rights with respect to certain key economic terms of the Series A Preferred Stock, as set forth in the Certificate of Designations.

24

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 11 – STOCKHOLDERS’ EQUITY – (Continued)

As of December 31, 2016, 64,500 shares of Series B Preferred Stock were issued and outstanding. Private Daseke’s board of directors declared quarterly dividends on the Series B Preferred Stock of $18.75 per share on October 13, 2016 and $12.50 per share on February 21, 2017. Both the October 13, 2016 and February 21, 2017 dividends were paid on February 27, 2017. As of December 31, 2016, accrued dividends of $1.2 million were recorded in accrued expenses and other liabilities.

In February 2017, in connection with, and immediately prior to, the Closing, the Series B Preferred Stock were converted into 9,301,150 shares of Private Daseke’s common stock.

Warrants

At September 30, 2017, there were a total of 35,040,664 warrants outstanding to purchase 17,520,332 shares of the Company’s common stock.

Hennessy has issued warrants to purchase its common stock which were originally issued as part of units in the IPO (the Public Warrants). There are 19,959,908 Public Warrants outstanding. Hennessy has also issued 15,080,756 warrants (the Private Placement Warrants) to Sponsor in a private placement that closed simultaneously with the consummation of the IPO.

Each warrant entitles the registered holder to purchase one-half of one share of the Company’s common stock at a price of $5.75 per one-half of one share ($11.50 per whole share), subject to adjustment. The warrants may be exercised only for a whole number of shares of the Company’s common stock. No fractional shares will be issued upon exercise of the warrants. The warrants will expire on February 27, 2022, five years after the completion of the Business Combination, or earlier upon redemption or liquidation. The Warrants are listed on the NASDAQ market under the symbol DSKEW.

The Company may call the Public Warrants for redemption at a price of $0.01 per warrant if, and only if, the reported last sale price of the Company’s common stock equals or exceeds $24.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date the Company sends the notice of redemption to the Public Warrant holders.

NOTE 129 – STOCK-BASED COMPENSATION

On February 27, 2017, the Company and Hennessy’s common stockholders approvedUnder the 2017 Omnibus Incentive Plan (the(as amended from time to time, the Incentive Plan), whereby the Company may grant awards of stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and performance awards. Under the Plan,As of March 31, 2022, the Company is authorized to issue up to 4.5has 0.6 million shares of common stock. All awards granted were authorizedstock available for issuance under the Plan.Incentive Plan, assuming the maximum potential number of shares that may be issued from outstanding awards.

Stock Options

The following table summarizes stock option grants under the Plan during the nine months ended September 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

Grantee Type

    

# of
Options
Granted

    

Issued and
Outstanding

    

Vesting
Period

    

Weighted
Average
Exercise
Price

    

Weighted Average
Grant Date
Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Director Group

 

150,000

 

150,000

 

5 years

 

$

9.98

 

$

654,000

Employee Group

 

1,305,500

 

1,296,500

 

5 years

 

$

9.99

 

$

5,652,740

Total

 

 

 

1,446,500

 

 

 

 

 

 

 

 

25

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 12 – STOCK-BASED COMPENSATION – (Continued)

The Company’s calculations of the fair value of stock options granted during the nine months ended September 30, 2017 were made using the Black-Scholes option-pricing model. The fair value of the Company’s stock option grants was estimated utilizing the following assumptions for the nine months ended September 30, 2017:

Weighted average expected life

6.5 years

Risk-free interest rate

1.95% to 2.09%

Expected volatility

40.4% to 40.6%

Expected dividend yield

0.00%

Since the Company does not have a sufficient history of exercise behavior, expected term is calculated using the assumption that the options will be exercised ratably from the date of vesting to the end of the contractual term for each vesting tranche of awards. Risk-free interest rate is based on the U.S. Treasury yield curve for the period of the expected term of the stock option. Expected volatility is calculated using an index of publicly traded peer companies.

Restricted Stock Units

Restricted stock units are nontransferable until vested and the holders are entitled to receive dividends with respect to the non-vested units. Prior to vesting, the grantees of restricted stock units are not entitled to vote the shares. Restricted stock unit awards vest in equal annual increments over the vesting period.

The following table summarizes restricted stock unit grants under the Plan during the nine months ended September 30, 2017:

 

 

 

 

 

 

 

 

Grantee Type

    

# of
Restricted Stock
Units Granted

    

Vesting
Period

    

Grant Date
Fair Value

 

 

 

 

 

 

 

 

Employee Group

 

876,123

 

5 years

 

$

8,340,691

All stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized on a straight-line basis as expense over the employees’ requisite service period. Forfeitures will be recorded as a cumulative adjustment to stock-based compensation expense in the period forfeitures are incurred.

Stock Options

A summary of option activity under the Plan as of September 30, 2017 and changes during the nine months then ended are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

Shares

    

Weighted
Average
Exercise
Price

    

Weighted
Average
Remaining
Contractual
Terms
(Years)

    

Aggregate
Intrinsic
Value (in
thousands)

 

 

 

 

 

 

 

 

 

 

 

Outstanding as of January 1, 2017

 

 —

 

$

 —

 

 —

 

$

 —

Granted

 

1,455,500

 

 

9.99

 

10.0

 

 

 —

Exercised

 

 —

 

 

 —

 

 —

 

 

 —

Forfeited or expired

 

(9,000)

 

 

9.98

 

 —

 

 

20

Outstanding as of September 30, 2017

 

1,446,500

 

 

9.99

 

9.4

 

 

4,425

 

 

 

 

 

 

 

 

 

 

 

Exercisable as of September 30, 2017

 

 —

 

$

 —

 

 —

 

$

 —

26

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 12 – STOCK-BASED COMPENSATION – (Continued)

Restricted Stock Units

A summary of restricted stock unit awards activity under the Plan as of September 30, 2017 and changes during the nine months then ended are as follows:

 

 

 

 

 

 

 

    

Units

    

Weighted
Average Grant
Date Fair
Value
(Per Unit)

 

 

 

 

 

 

Outstanding as of January 1, 2017

 

 —

 

$

 —

Granted

 

876,123

 

 

9.52

Vested

 

 —

 

 

 —

Forfeited

 

(155,334)

 

 

9.66

Outstanding as of September 30, 2017

 

720,789

 

$

9.49

Aggregate stock-based compensation charges, net of forfeitures, were $0.7$4.2 million and $1.2$2.4 million duringfor the three and nine months ended September 30, 2017March 31, 2022 and included as a component of salaries, wages and employee benefits on the accompanying consolidated statements of operations.2021, respectively. As of September 30, 2017,March 31, 2022, there was $5.6$1.6 million, $6.1 million, and $17.7 million of unrecognized stock-based compensation expense related to stock options, whichrestricted stock units (RSUs) and performance stock units (PSUs) (both equity and liability awards), respectively. This expense will be recognized over athe weighted average periodperiods of 4.4 years.1.1 years for stock options, 1.8 years for RSUs and 1.6 years for PSUs.

NOTE 13 – DEFINED CONTRIBUTION PLAN

On January 1, 2015, the Company established the Daseke, Inc. 401(k) Retirement Plan (the Retirement Plan) and merged six separate plans into the Retirement Plan. The Retirement Plan is a defined contribution plan and intended to qualify under ERISA provisions of 401(k). Under the safe harbor matching requirements, the Company had expenses of $0.6 million and $0.5 million forDuring the three months ended September 30, 2017March 31, 2022, there were 203,821 RSUs awarded to participants that are classified as equity. In addition, during the three months ended March 31, 2022, there were 235,393 PSUs awarded to participants that are classified as liabilities. During the three months ended March 31, 2022, there were no stock options granted.

Restricted Stock Units

The following table summarizes RSU grants under the Incentive Plan:

Grantee Type

 

# of
RSUs Granted

 

 

Issued and Outstanding

 

 

Vesting
Period

 

Weighted Average Grant Date Fair Value (Per Unit)

 

Director Group

 

 

830,978

 

 

 

71,771

 

 

1-2 years

 

$

11.21

 

Employee Group

 

 

2,393,066

 

 

 

753,265

 

 

3-5 years

 

$

9.28

 

Total

 

 

 

 

 

825,036

 

 

 

 

 

 

A summary of RSU awards activity under the Incentive Plan as of March 31, 2022, and 2016the changes during the three months ended March 31, 2022 are as follows:

 

 

Units

 

 

Weighted
Average Grant
Date Fair Value
(Per Unit)

 

Non-vested as of January 1, 2022

 

 

673,830

 

 

$

8.56

 

Granted

 

 

203,821

 

 

 

12.16

 

Vested

 

 

(45,752

)

 

 

8.49

 

Forfeited

 

 

(6,863

)

 

 

9.94

 

Non-vested as of March 31, 2022

 

 

825,036

 

 

$

9.45

 

The weighted average grant date fair value of RSUs granted during the three months ended March 31, 2022 was $12.16. There were no RSUs granted during the three months ended March 31, 2021. The total fair value of RSUs vested during the three months ended March 31, 2022 and $1.82021 was $0.5 million and $1.7$0.1 million, respectively.

13

Table of Contents

Performance Stock Units

As of March 31, 2022, the Company had 3,150,571 PSUs outstanding, of which 1,405,571 were classified as liabilities.

As of March 31, 2022, there were 630,571 PSUs classified as liabilities in which the vesting occurs upon the achievement of specific performance-based conditions related to the Company’s financial performance over a three year period, modified based on the Company’s Relative Total Shareholder Return (TSR) and subject to final vesting based on the participant’s continued employment through the end of the requisite service periods. The ultimate amount to vest may be downwardly adjusted by the Compensation Committee of the Company’s Board of Directors if the TSR is negative. The amount of awards that will ultimately vest for these PSUs can range from 0% to 200% based on the nine months ended September 30, 2017 and 2016, respectively. Matching contributions for 401(k) defined contribution plans not yet merged intoTSR calculated over a three year period beginning January 1 of the Retirement Plan totaled approximately $47,000 for both the three and nine months ended September 30, 2017.

NOTE 14 – INTEREST RATE SWAP

year each grant was made. The Company currently expects that these PSUs will vest between 105% and 138%. The fair value of these PSUs will be remeasured at each period-end until the earlier of the date they are reclassified to equity or the vesting date. The inputs and assumptions used to calculate the fair value ranged from timea remaining term of 1.75 to time, uses2.75 years, risk free interest rate swapsof 2.11% to manage risks2.39%, the expected volatility of 58.2% to 89.3%, and the expected dividend yield of 0.0%.

In addition, there are 775,000 PSUs classified as liabilities in which the vesting occurs upon the achievement of specific performance-based conditions related to interest rate movements. These interest rate swapsthe Company’s financial performance over a two year period, subject to various subjective individual performance goals and subject to final vesting based on the participant’s continued employment through the end of the requisite service periods. The fair value of these PSUs will be remeasured at each period-end until the earlier of the date they are reportedreclassified to equity or the vesting date. The Company currently expects that these PSUs will vestat100%.The fair value is equal to the market value of the common stock at each period-end.

As of March 31, 2022, the total fair value of liability-classified awards was approximately $16.7 million, of which $3.5 million was recorded as a liability within other non-current liabilities on the consolidated balance sheets in accrued expenses and other liabilities.

The Company had an interest rate swap agreement which qualified for hedge accounting and accordingly was designated as a cash flow hedge. For this interest rate swap, the change in fair value on the effective portion of the hedge was recognized as a component of other comprehensive income. In conjunction with the Business Combination discussed in Note 2, this interest rate swap was terminated. At December 31, 2016, the fair value of this interest rate swap was a liability of $51,871.

The terms of the interest rate swap designated as a cash flow hedge at December 31, 2016 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

Notional

    

Termination

    

Interest Rate

    

Interest Rate

 

Effective Date

 

Amount

 

Date

 

Received

 

Paid

 

11/12/2013

 

$

12,000,000

 

4/30/2018

 

0.6

%

3.63

%

sheet.

27

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 1510 – COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases certain office building facilities, terminal locations and revenue equipment under non-cancelable operating leases. Building and terminal rent expense under operating leases was $2.1 million and $0.7 million for the three months ended September 30, 2017 and 2016, respectively, and $4.5 million and $2.0 million for the nine months ended September 30, 2017 and 2016, respectively. Tractor, trailer and other revenue equipment rent expense under operating leases was $4.7 million and $3.5 million for the three months ended September 30, 2017 and 2016, respectively, and $12.7 million and $9.2 million for the nine months ended September 30, 2017 and 2016, respectively.

Letters of Credit

The Company had outstanding letters of credit at September 30, 2017as of March 31, 2022 and December 31, 2021 totaling approximately $11.1$25.6 million and $25.7 million, respectively, including those disclosed in Note 9.7. These letters of credit coverare related to liability and workers’ compensation insurance claims.

Contingencies

Contingencies

The Company is involved in certain claims and pending litigation arising in the normal course of business. These proceedings primarily involve claims for personal injury or property damage incurred in the transportation of freight or for personnel matters. The Company maintains liability insurance to cover liabilities arising from these matters but is responsible forto pay self-insurance and deductibles on such matters up to a certain threshold before the insurance is applied.

14

Table of Contents

NOTE 1611 – REPORTABLE SEGMENTS

The Company evaluates the performance of the segments primarily based on their respective revenues and operating income. Accordingly, interest expense and other non-operating items are not reported in segment results. In addition, the Company has disclosed a corporate segment, which is not an operating segment and includes acquisition transaction expenses, corporate salaries, interest expense and other corporate administrative expenses and intersegment eliminations. In addition, the corporate segment, from time to time when advantageous to do so, purchases and resells certain revenue equipment. During the three months ended March 31, 2022, the corporate segment purchased $4.6 million in revenue equipment, which it resold for $4.9 million. This resulted in gains of $0.3 million for the three months ended March 31, 2022 and was recognized within Gain on disposition of property and equipment on the consolidated statements of operations. During the three months ended March 31, 2021, the corporate segment did 0t purchase or resell any revenue equipment.

The Company’s operating segments also provide transportation and related services for one another. Such services are generally billed at cost, and no profit is earned. Such intersegment revenues and expenses are eliminated in the Company’s consolidated results. Intersegment revenues and expenses for the Flatbed Solutions segment totaled $0.7$0.8 million and $0.8$0.9 million for the three months ended September 30, 2017March 31, 2022 and 2016, respectively, and $2.4 million and $1.5 million for the nine months ended September 30, 2017 and 2016,2021, respectively.

Intersegment revenues and expenses for the Specialized Solutions segment totaled $1.2$1.9 million and $0.5$2.3 million for the three months ended September 30, 2017March 31, 2022 and 2016, respectively and $2.6 million and $2.0 million for the nine months ended September 30, 2017 and 2016.

2021, respectively.

28

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 16 – REPORTABLE SEGMENTS– (Continued)

The following tables reflect certain financial data of the Company’s reportable segments for the three and nine months ended September 30, 2017March 31, 2022 and 20162021 (in thousands)millions):

 

 

 

 

 

 

 

 

 

 

 

 

    

Flatbed

    

Specialized

    

 

 

    

 

 

 

Flatbed

 

Specialized

 

 

 

 

 

 

Solutions

 

Solutions

 

Corporate/

 

Consolidated

 

Solutions

 

Solutions

 

Corporate/

 

Consolidated

 

 

Segment

 

Segment

 

Eliminations

 

Total

 

Segment

 

 

Segment

 

 

Eliminations

 

 

Total

 

Three Months Ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

85,592

 

$

147,631

 

$

(1,901)

 

$

231,322

 

$

195.1

 

$

228.5

 

$

(2.6

)

 

$

421.0

 

Operating income

 

 

4,755

 

 

7,159

 

 

(6,210)

 

 

5,704

Company freight

 

41.5

 

116.4

 

(1.9

)

 

156.0

 

Owner operator freight

 

88.1

 

42.2

 

(0.5

)

 

129.8

 

Brokerage

 

41.2

 

37.0

 

0

 

78.2

 

Logistics

 

0.9

 

10.5

 

0

 

11.4

 

Fuel surcharge

 

23.4

 

22.4

 

(0.2

)

 

45.6

 

Operating income (loss)

 

16.0

 

17.6

 

(15.4

)

 

18.2

 

Depreciation

 

 

6,713

 

 

11,290

 

 

37

 

 

18,040

 

8.2

 

11.4

 

0.3

 

19.9

 

Amortization of intangible assets

 

 

437

 

 

1,328

 

 

 —

 

 

1,765

 

0.7

 

1.0

 

0

 

1.7

 

Restructuring

 

0

 

0.1

 

0.5

 

0.6

 

Non-cash operating lease expense

 

0

 

0

 

0

 

0

 

Interest expense

 

0.8

 

1.2

 

5.1

 

7.1

 

Income (loss) before income tax

 

 

2,997

 

 

5,060

 

 

(10,869)

 

 

(2,812)

 

15.2

 

16.9

 

(15.7

)

 

16.4

 

Total assets

 

 

272,686

 

 

472,761

 

 

111,974

 

 

857,421

Capital expenditures

 

3.3

 

7.9

 

4.9

 

16.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

78,975

 

$

96,534

 

$

(1,361)

 

$

174,148

 

$

153.5

 

$

183.6

 

$

(3.2

)

 

$

333.9

 

Operating income

 

 

3,794

 

 

5,739

 

 

(3,451)

 

 

6,082

Company freight

 

44.8

 

102.7

 

(2.4

)

 

145.1

 

Owner operator freight

 

71.0

 

34.6

 

(0.5

)

 

105.1

 

Brokerage

 

22.1

 

26.6

 

(0.2

)

 

48.5

 

Logistics

 

1.2

 

7.2

 

0.1

 

8.5

 

Fuel surcharge

 

14.4

 

12.5

 

(0.2

)

 

26.7

 

Operating income (loss)

 

11.0

 

10.5

 

(13.4

)

 

8.1

 

Depreciation

 

 

7,161

 

 

8,303

 

 

40

 

 

15,504

 

8.0

 

12.2

 

0.3

 

20.5

 

Amortization of intangible assets

 

 

489

 

 

1,005

 

 

 —

 

 

1,494

 

0.8

 

0.9

 

0

 

1.7

 

Non-cash operating lease expense

 

(0.1

)

 

(0.3

)

 

0

 

(0.4

)

Interest expense

 

2.1

 

1.7

 

7.3

 

11.1

 

Income (loss) before income tax

 

 

1,708

 

 

3,917

 

 

(6,199)

 

 

(574)

 

9.4

 

8.8

 

(26.3

)

 

(8.1

)

Total assets

 

 

295,286

 

 

304,623

 

 

8,946

 

 

608,855

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Flatbed

    

Specialized

    

 

 

    

 

 

 

Solutions

 

Solutions

 

Corporate/

 

Consolidated

 

Segment

 

Segment

 

Eliminations

 

Total

Nine Months Ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

253,794

 

$

340,289

 

$

(5,004)

 

$

589,079

Operating income

 

 

14,955

 

 

12,756

 

 

(18,391)

 

 

9,320

Depreciation

 

 

20,619

 

 

28,375

 

 

115

 

 

49,109

Amortization of intangible assets

 

 

1,310

 

 

3,339

 

 

 —

 

 

4,649

Income (loss) before income tax

 

 

9,725

 

 

7,004

 

 

(31,979)

 

 

(15,250)

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

237,169

 

$

267,651

 

$

(3,434)

 

$

501,386

Operating income

 

 

14,041

 

 

14,689

 

 

(12,394)

 

 

16,336

Depreciation

 

 

21,219

 

 

24,637

 

 

117

 

 

45,973

Amortization of intangible assets

 

 

1,468

 

 

3,074

 

 

 —

 

 

4,542

Income (loss) before income tax

 

 

9,517

 

 

9,907

 

 

(20,303)

 

 

(879)

Capital expenditures

 

9.0

 

10.6

 

0

 

19.6

 

15

NOTE 17 – SUBSEQUENT EVENTS

On October 17, 2017 the Company’s board of directors declared a quarterly dividend of $1.91 per share on 650,000 shares of Series A Preferred Stock outstanding as of August 15, 2017, or $1.2 million, which was paid on October 20, 2017.

29

Table of Contents

NOTE 12 – EARNINGS (LOSS) PER SHARE

ASC Topic 260, “Earnings Per Share”, provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Company’s outstanding non-vested RSUs are participating securities unless there is a net loss attributable to common stockholders. Accordingly, earnings per common share are computed using the two-class method.

Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the Company’s earnings.

For the three months ended March 31, 2022 and 2021, shares of the Company’s 7.625% Series A Convertible Cumulative Preferred Stock (Series A Preferred Stock) were not included in the computation of diluted earnings (loss) per share as their effects were anti-dilutive. In addition, for the three months ended March 31, 2021, shares of the Company’s outstanding stock options and PSUs were not included in the computation of diluted loss per share as their effects were anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per share under the two-class method:

 

 

Three Months Ended

 

 

 

March 31,

 

(in millions, except per share data)

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

Net income (loss)

 

$

13.0

 

 

$

(7.3

)

Less Series A Preferred Stock dividends

 

 

(1.2

)

 

 

(1.2

)

Net income (loss) attributable to common stockholders

 

 

11.8

 

 

 

(8.5

)

Allocation of earnings to non-vested participating RSUs

 

 

(0.1

)

 

 

0

 

Numerator for basic EPS - income (loss) available to common stockholders - two class method

 

$

11.7

 

 

$

(8.5

)

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

Add back Series A Preferred Stock dividends

 

$

0

 

 

$

0

 

Add back allocation earnings to participating securities

 

 

0.1

 

 

 

0

 

Reallocation of earnings to participating securities considering potentially dilutive securities

 

 

(0.1

)

 

 

—

 

Numerator for diluted EPS - income (loss) available to common shareholders - two class method

 

$

11.7

 

 

$

(8.5

)

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

Denominator for basic EPS - weighted-average shares

 

 

62,891,317

 

 

 

65,080,364

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

Stock options and PSUs

 

 

2,542,258

 

 

 

0

 

Series A Preferred Stock

 

 

0

 

 

 

0

 

Denominator for diluted EPS - weighted-average shares

 

 

65,433,575

 

 

 

65,080,364

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

0.19

 

 

$

(0.13

)

Diluted earnings (loss) per share

 

$

0.18

 

 

$

(0.13

)

16

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Overview

Daseke Inc. is a leading providerpremier North American transportation solutions specialist dedicated to servicing challenging industrial end-markets through experienced people, a fleet of more than 4,500 tractors and consolidator11,000 flatbed and specialized trailers, and has operations throughout the United States, Canada and Mexico. The Company also provides logistical planning and warehousing services to customers.

The Company believes it provides one of the most comprehensive transportation and logistics solutions offerings in the open-deck industry. The Company delivers its diverse offering of transportation and logistics solutions focused exclusively on open deck freight in North America. The transportation and logistics market is oneto thousands of the largest industries in the United States. The open deck freight market represented an approximately $133 billion subset of the broader transportation and logistics market in 2016. The U.S. open deck freight market is expected to grow to approximately $150 billion in 2017-2018 and to approximately $174 billion in 2019.

The Company believes it is the largest owner of open deck equipment and the second largest provider of flatbed, open deck transportation and logistics solutions by revenue in North America. The Company delivers a comprehensive and diverse offering of flatbed and specialized transportation and logistics solutions to approximately 4,800 customers across the continental United States, Canada and Mexico through two reportable segments: Flatbed Solutions and Specialized Solutions. The Flatbed Solutions segment focuses on delivering transportation and logistics solutions that principally require the use of flatbed and retractable-sided transportation equipment, and the Specialized Solutions segment focuses on delivering transportation and logistics solutions that principally include super heavy haul, high-value customized, over-dimensional, step deck and removable gooseneck trailer solutions.require the use of specialized trailering transportation equipment.

Both of the Company’s reportable segments operate highly flexible business models comprised of company-owned tractors and trailers and asset-light operations (which consist of owner-operatorowner operator transportation, freight brokerage and freight brokerage)logistics). The Company’s asset-based operations have the benefit of providing shippers with certainty of delivery and continuity of operations. Alternatively, the Company’s asset-light operations offer flexibility and scalability to meet customers’ dynamic needs and have lower capital expenditure requirements and fixed costs. Approximately 62.0%

Recent Developments

During the first quarter of freight, logistics and brokerage revenue for the nine months ended September 30, 2017 was derived from company-owned equipment and approximately 38.0% was derived from asset-light services.

Business Combination and Other Recent Developments

On February 27, 2017, Hennessy consummated the merger of Hennessy’s wholly-owned subsidiary with and into Private Daseke, with Private Daseke surviving as a direct wholly-owned subsidiary of Hennessy. The aggregate consideration received by Private Daseke stockholders upon closing was $266.7 million, consisting of newly issued shares of common stock at a value of $10.00 per share. The Merger Agreement contains an earn-out provision through which Private Daseke stockholders could receive up to 15 million additional shares of common stock (with up to 5 million shares payable annually with respect to 2017, 2018 and 2019 performance). See Note 2 of Notes to Consolidated Financial Statements for more information regarding the Business Combination.

On May 1, 2017,2022, the Company completed mergersinternally announced a phased integration and restructuring plan, with two leading open-deck specialized transportation companies: the Schilli Companies (Schilli), headquartered in Remington, Indiana,first phase integrating five operating segments into three other operating segments, which will reduce the number of overall operating segments from eleven to six. The second phase of the Plan will integrate those six operating segments into four to five operating segments. The Plan is intended to reduce the Company’s cost base, right size its organization and Big Freight Systems Inc. (Big Freight), headquartered in Steinbach, Manitoba. On July 1, 2017,management team and increase and accelerate its previously announced operational improvement goals. In addition, the Company anticipates additional revenue opportunities driven by synergies from optimizing a consolidated operation, including empty mile reduction, pricing improvements, and additional seated truck contribution. During the first quarter of 2022, one of those integrations was completed, which reduced our operating segments from eleven to ten. The Company also plans to make certain technology upgrades to its transportation management system, implement a merger with The Steelman Companies (Steelman), headquartered in Springfield, Missouri. common accounting platform amongst its operating segments, as well as other investments to support data-driven decision making.

On September 1, 2017,March 3, 2022, the Company completed a mergeracquired SJ Transportation for consideration net of cash acquired of $19.3 million, which was funded with R&R Trucking Holdings, LLC (R&R), basedcash on hand. This acquisition expands the Company’s geographic footprint with existing customers in Duenweg, Missouri.the industrial and hazardous waste end markets, while also providing an opportunity within the specialty chemicals vertical. SJ Transportation services niche, counter-cyclical, defensible end markets with high barriers to entry and will complement the existing high security cargo operations within the Specialized Solutions segment.

HowThus far in 2022, like others in our industry, we have experienced inflationary cost headwinds in driver pay, operations and maintenance, and insurance expenses. The Company Evaluates Its Operations

The Company uses a number of primary indicators to monitor its revenue and expense performance and efficiency, including Adjusted EBITDA, Adjusted EBITDAR, free cash flow and adjusted operating ratio, and its key drivers of revenue quality, growth, expense control and operating efficiency. Adjusted EBITDA, Adjusted EBITDAR, free cash flow and adjusted operating ratio are not recognized measures under GAAP and should not be considered alternatives to, or more meaningful than, net income (loss), cash flows from operating activities, operating income, operating ratio, operating margin or any other measure derivedU.S. inflation rate is the highest experienced in accordance with GAAP. See “Non-GAAP Financial Measures” for more informationfour decades. Inflation can have an impact on the Company’s useoperating costs. A prolonged period of these non-GAAP measures, as well as a description of the computation and reconciliation of the Company’s Adjusted EBITDA, Adjusted EBITDAR and free cash flow to net income (loss) and adjusted operating ratio to operating ratio.

Revenue

The Company records four types of revenue: freight, brokerage, logistics andinflation could cause interest rates, fuel, surcharge. Freight revenue is generated by hauling freight for the Company’s customers using its trucks or its owner-operators’ equipment. Generally, the Company’s customers pay for its services based on the number of miles in the most direct route between pick-up and delivery locationswages and other ancillary services the Company provides. Freight revenue is the product of the number of revenue-generating miles driven and the rate per mile the Company receives from customers plus accessorial charges, such as loading and unloading freight for its customers, cargo protection, fees for detaining its equipment or fees for route planning and supervision. Freight revenue is affected by fluctuations in North American economic activity as well as changes in specific customer demand, the level of capacity in the industry and driver availability.

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Table of Contents

The Company’s brokerage revenue is generated primarily by its use of third-party carriers when it needs capacitycosts to move its customers’ loads. The main factor that affects brokerage revenue is the availability of the Company’s drivers and owner-operators (and hence the need for third-party carriers) and the rate for the load. Brokerage revenue is also affected by fluctuations in North American economic activity as well as changes in the level of capacity in the industry and driver availability.

Logistics revenue is generated from a range of services, including vehicle maintenance and repair, fuel management services, value-added warehousing and packaging, and other fleet management solutions. Logistics revenue is primarily driven by specific customer requirements for additional services and may fluctuate depending on customers’ utilization of these services due to changes in cargo specifications, delivery staging and fluctuations in the North American economic activity. The Company began recording logistics revenue as a result of the Recent Acquisitions.

Fuel surcharges are designed to compensate the Company for fuel costs above a certain cost per gallon base. Generally, the Company receives fuel surcharges on the miles forincrease, which it is compensated by customers. However, the Company continues to have exposure to increasing fuel costs related to empty miles, fuel efficiency due to engine idle time and other factors and to the extent the surcharge paid by the customer is insufficient. The main factors thatwould adversely affect fuel surcharge revenue are the price of diesel fuel and the number of loaded miles. In general, a declining energy and fuel price environment, such as in 2015 and most of 2016, negatively affects the Company’s fuel surcharge revenues, and conversely, an environment with rising fuel and energy prices benefits its fuel surcharge revenues. Although the Company’s surcharge programs vary by customer, they typically involve a computation based on the change in national or regional fuel prices. The Company’s fuel surcharges are billed on a lagging basis, meaning it typically bills customers in the current week based on a previous week’s applicable index. Therefore, in times of increasing fuel prices, the Company does not recover as much as it is currently paying for fuel. In periods of declining prices, the opposite is true. Also, its fuel surcharge programs typically require a specified minimum change in fuel cost to prompt a change in fuel surcharge revenue. Therefore, many of these programs have a time lag between when fuel costs change and when the change is reflected in fuel surcharge revenue.

Expenses

The Company’s most significant expenses vary with miles traveled and include driver wages, services purchased from owner-operators and other transportation providers (which are recorded on the “Purchased freight” line of the Company’s consolidated statements of operations) and fuel. Although driver-related expenses vary with miles traveled, the Company currently expects that its expenses relating to driver wages, as a percentage of operating revenues, will increase in the near-term, with or without changes in total miles, due to expected increases in average driver wages paid per mile in the general trucking industry. The expected increases in driver wages per mile are due to current market conditions caused by a lack of qualified drivers in the industry.

Maintenance and tire expenses and cost of insurance and claims generally vary with the miles the Company travels but also have a controllable component based on safety improvements, fleet age, efficiency and other factors. The Company’s primary fixed costs are depreciation of long-term assets (such as tractors, trailers and terminals), interest expense, rent and non-driver compensation.

The Company’s fuel surcharge programs help to offset increases in fuel prices but typically do not offset empty miles, idle time and out of route miles driven. As discussed above under “Revenue,” its fuel surcharge programs have a time lag between when fuel costs change and when the change is reflected in fuel surcharge revenue. Due to this time lag, the Company’s fuel expense, net of fuel surcharge, negatively impacts its operating income during periods of sharply rising fuel costs and positively impacts its operating income during periods of falling fuel costs. In general, due to the fuel surcharge programs, its operating income is less negatively affected by an environment with higher, stable fuel prices than an environment with lower fuel prices. In addition to its fuel surcharge programs, the Company believes the most effective protection against fuel cost increases is to maintain a fuel-efficient fleet by incorporating fuel efficiency measures. Also, the Company has arrangements with some of its significant fuel suppliers to buy the majority of its fuel at contracted pricing schedules that fluctuate with the market price of diesel fuel. The Company has not used derivatives as a hedge against higher fuel costs in the past but continues to evaluate this possibility.

Factors Affecting the Comparability of the Company’s Financial Results

Acquisitions

The Company has a long history of and intends to continue to acquire appropriate flatbed and specialized trucking companies. Negotiations and discussions with potential target companies are an integral part of the Company’s operations. These negotiations and discussions can be

31

Table of Contents

in varying stages from infancy to very mature. Therefore, investors in Daseke’s stock should assume the Company is always evaluating, negotiating and performing diligence on potential acquisitions.

The comparability of the Company’s results of operations among the periods presented is impacted by the acquisitions listed below, which were completed in the second and third quartersunless freight rates correspondingly increase. Thus far, we have been able to maintain our margins through a combination of 2017. Also, as a result of the below acquisitions, the Company’s historical results of operations may not be comparable or indicative of future results.

·

Schilli Acquisition – Effective as of May 1, 2017, the Company acquired all of the outstanding stock of Schilli to expand its presence in the Midwestern U.S. Schilli is part of the Company’s Specialized Solutions segment.

·

Big Freight Acquisition – Effective as of May 1, 2017, the Company acquired all of the outstanding stock of Big Freight to expand its presence into Canada and the power sports industry. Big Freight is part of the Company’s Specialized Solutions segment.

·

Steelman Acquisition – Effective as of July 1, 2017, the Company acquired all of the outstanding stock of Steelman to expand its presence in the Midwest and in both the power sports and heavy haul industries. Steelman is part of the Company’s Specialized Solutions segment.

·

R&R Acquisition – Effective as of September 1, 2017, the Company acquired all of the outstanding stock of R&R to expand the Company’s capabilities to include government and commercial arms, ammunition and explosives. R&R is part of the Company’s Specialized Solutions segment.

The Schilli, Big Freight, Steelman and R&R Acquisitions are collectively referred torate strength, contributions from our ongoing transformation initiatives, such as the Recent Acquisitions.Plan, and our fuel surcharges.

In addition to inflation, like others in our industry, we have observed ongoing delays in receiving new equipment as the supply chain disruptions persisted throughout the first quarter of 2022. Due to these challenges in sourcing new equipment, we expect 2022 net capital expenditures to be between $145 million and $155 million, which is approximately $15 million lower than the 2022 net capital expenditures previously expected, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

The Business Combination17

The Company’s historical results of operations may not be comparable or indicative of results after the consummation of the Business Combination as a result of the following:

·

Decreased Leverage. As of December 31, 2016, after giving pro forma effect to the Business Combination, the Company would have had approximately $295.0 million of outstanding total indebtedness compared to the actual outstanding total indebtedness of $338.5 million, in each case, prior to debt issuance costs. For the year ended December 31, 2016, the Company’s pro forma interest expense would have been approximately $3.4 million lower than its historical interest expense.

·

Public Company Expenses. The Company incurred, and will continue to incur, direct, incremental general and administrative expenses as a result of being a publicly traded company, including, but not limited to, costs associated with annual and quarterly reports to stockholders, tax return preparation, independent auditor fees, investor relations activities, registrar and transfer agent fees, incremental director and officer liability insurance costs and independent director compensation. These direct, incremental general and administrative expenses, which the Company’s management estimates will total approximately $0.5 million annually, are not included in the Company’s historical financial results of operations.

·

Transaction Costs. During the nine months ended September 30, 2017, the Company expensed $2.0 million of transaction costs related to the Business Combination, compared to $0.3 million for the same period in 2016.

·

Deferred Financing Fees. During the first quarter of 2017, the Company expensed $3.9 million of unamortized deferred financing fees associated with debt refinanced in conjunction with the Business Combination. There were no such expenses for the nine months ended September 30, 2016.

32

Table of Contents

Results of Operations

The following table sets forth itemsrevenue, operating expenses and income from operations (in dollars and as a percentage of total revenue), derived from the Company’s consolidated statements of operations, for the three months ended September 30, 2017March 31, 2022 and 20162021, as well as certain operating statistics for the same periods. In addition, the absolute and relative changes for each are presented. Rate per mile is the period’s revenue less fuel surcharge, brokerage and logistics revenues divided by total number of company and owner operator miles driven in the period. Revenue per tractor is the period’s revenue less fuel surcharge, brokerage and logistics revenues divided by the average number of tractors in the period, including owner operator tractors.

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

2022

 

2021

 

Increase (Decrease)

(Dollars in millions, except Rate per mile and Revenue per tractor)

 

Amount

 

 

%

 

Amount

 

 

%

 

Absolute

 

 

Relative

REVENUE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company freight

 

$

156.0

 

 

 

37.1

 

%

 

$

145.1

 

 

 

43.5

 

%

 

$

10.9

 

 

 

7.5

 

%

Owner operator freight

 

 

129.8

 

 

 

30.8

 

 

 

 

105.1

 

 

 

31.5

 

 

 

 

24.7

 

 

 

23.5

 

 

Brokerage

 

 

78.2

 

 

 

18.6

 

 

 

 

48.5

 

 

 

14.5

 

 

 

 

29.7

 

 

 

61.2

 

 

Logistics

 

 

11.4

 

 

 

2.7

 

 

 

 

8.5

 

 

 

2.5

 

 

 

 

2.9

 

 

 

34.1

 

 

Fuel surcharge

 

 

45.6

 

 

 

10.8

 

 

 

 

26.7

 

 

 

8.0

 

 

 

 

18.9

 

 

 

70.8

 

 

Total revenue

 

$

421.0

 

 

 

100.0

 

 

 

$

333.9

 

 

 

100.0

 

 

 

$

87.1

 

 

 

26.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages and employee benefits

 

$

97.5

 

 

 

23.2

 

%

 

$

90.7

 

 

 

27.2

 

%

 

$

6.8

 

 

 

7.5

 

%

Fuel

 

 

35.1

 

 

 

8.3

 

 

 

 

25.4

 

 

 

7.6

 

 

 

 

9.7

 

 

 

38.2

 

 

Operations and maintenance

 

 

34.4

 

 

 

8.2

 

 

 

 

30.3

 

 

 

9.1

 

 

 

 

4.1

 

 

 

13.5

 

 

Communications

 

 

0.9

 

 

 

0.2

 

 

 

 

1.1

 

 

 

0.3

 

 

 

 

(0.2

)

 

 

(18.2

)

 

Purchased freight

 

 

171.6

 

 

 

40.8

 

 

 

 

121.4

 

 

 

36.4

 

 

 

 

50.2

 

 

 

41.4

 

 

Administrative

 

 

16.9

 

 

 

4.0

 

 

 

 

16.5

 

 

 

4.9

 

 

 

 

0.4

 

 

 

2.4

 

 

Sales and marketing

 

 

0.4

 

 

 

0.1

 

 

 

 

0.6

 

 

 

0.2

 

 

 

 

(0.2

)

 

 

(33.3

)

 

Taxes and licenses

 

 

3.6

 

 

 

0.9

 

 

 

 

3.9

 

 

 

1.2

 

 

 

 

(0.3

)

 

 

(7.7

)

 

Insurance and claims

 

 

23.4

 

 

 

5.6

 

 

 

 

16.8

 

 

 

5.0

 

 

 

 

6.6

 

 

 

39.3

 

 

Acquisition-related transaction expenses

 

 

1.4

 

 

 

0.3

 

 

 

 

—

 

 

 

—

 

 

 

 

1.4

 

 

 

100.0

 

 

Depreciation and amortization

 

 

21.6

 

 

 

5.1

 

 

 

 

22.2

 

 

 

6.6

 

 

 

 

(0.6

)

 

 

(2.7

)

 

Gain on disposition of revenue property and equipment

 

 

(4.6

)

 

 

(1.1

)

 

 

 

(3.1

)

 

 

(0.9

)

 

 

 

(1.5

)

 

 

48.4

 

 

Restructuring charges

 

 

0.6

 

 

 

0.1

 

 

 

 

—

 

 

 

—

 

 

 

 

0.6

 

 

 

100.0

 

 

Total operating expenses

 

$

402.8

 

 

 

95.7

 

 

 

$

325.8

 

 

 

97.6

 

 

 

$

77.0

 

 

 

23.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

$

18.2

 

 

 

4.3

 

%

 

$

8.1

 

 

 

2.4

 

%

 

$

10.1

 

 

 

124.7

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

(0.1

)

 

 

—

 

%

 

$

(0.1

)

 

 

—

 

%

 

$

—

 

 

 

—

 

%

Interest expense

 

 

7.1

 

 

 

1.7

 

 

 

 

11.1

 

 

 

3.3

 

 

 

 

(4.0

)

 

 

(36.0

)

 

Change in fair value of warrant liability

 

 

(4.7

)

 

 

(1.1

)

 

 

 

5.6

 

 

 

1.7

 

 

 

 

(10.3

)

 

 

(183.9

)

 

Other

 

 

(0.5

)

 

 

(0.1

)

 

 

 

(0.4

)

 

 

(0.1

)

 

 

 

(0.1

)

 

 

25.0

 

 

Total other expense

 

$

1.8

 

 

 

0.4

 

 

 

$

16.2

 

 

 

4.9

 

 

 

$

(14.4

)

 

 

(88.9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

16.4

 

 

 

3.9

 

%

 

 

(8.1

)

 

 

(2.4

)

%

 

 

24.5

 

 

 

(302.5

)

%

Income tax expense (benefit)

 

 

3.4

 

 

 

0.8

 

 

 

 

(0.8

)

 

 

(0.2

)

 

 

 

4.2

 

 

 

(525.0

)

 

Net income (loss)

 

$

13.0

 

 

 

3.1

 

 

 

$

(7.3

)

 

 

(2.2

)

 

 

$

20.3

 

 

 

(278.1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company miles

 

 

51.8

 

 

 

 

 

 

 

58.7

 

 

 

 

 

 

 

(6.9

)

 

 

(11.8

)

%

Owner operator miles

 

 

44.8

 

 

 

 

 

 

 

44.7

 

 

 

 

 

 

 

0.1

 

 

 

0.2

 

 

Total miles (in millions)

 

 

96.6

 

 

 

 

 

 

 

103.4

 

 

 

 

 

 

 

(6.8

)

 

 

(6.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rate per mile

 

$

2.96

 

 

 

 

 

 

$

2.42

 

 

 

 

 

 

$

0.54

 

 

 

22.3

 

%

Revenue per tractor

 

$

61,900

 

 

 

 

 

 

$

50,700

 

 

 

 

 

 

$

11,200

 

 

 

22.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company owned tractors, at quarter-end

 

 

2,518

 

 

 

 

 

 

 

2,785

 

 

 

 

 

 

 

(267

)

 

 

(9.6

)

%

Owner operator tractors, at quarter-end

 

 

2,047

 

 

 

 

 

 

 

2,091

 

 

 

 

 

 

 

(44

)

 

 

(2.1

)

 

Number of trailers, at quarter-end

 

 

11,051

 

 

 

 

 

 

 

11,478

 

 

 

 

 

 

 

(427

)

 

 

(3.7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company owned tractors, average for the quarter

 

 

2,556

 

 

 

 

 

 

 

2,833

 

 

 

 

 

 

 

(277

)

 

 

(9.8

)

%

Owner operator tractors, average for the quarter

 

 

2,060

 

 

 

 

 

 

 

2,098

 

 

 

 

 

 

 

(38

)

 

 

(1.8

)

 

Total tractors, average for the period

 

 

4,616

 

 

 

 

 

 

 

4,931

 

 

 

 

 

 

 

(315

)

 

 

(6.4

)

 

18

Table of Contents

The following table sets forth revenue, operating expenses and income from operations (in dollars and as a percentage of total revenue) of the Company’s Specialized Solutions segment for the three months ended March 31, 2022 and 2021, as well as certain operating statistics for the same periods. In addition, the absolute and relative changes for each are presented. Rate per mile is the period’s revenue less fuel surcharge, brokerage and the increase or decreaselogistics revenues divided by total number of company and owner operator miles driven in the dollar amountsperiod. Revenue per tractor is the period’s revenue less fuel surcharge, brokerage and logistics revenues divided by the average number of those items.tractors in the period, including owner operator tractors.

SPECIALIZED SOLUTIONS

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

2022

 

2021

 

Increase (Decrease)

(Dollars in millions, except Rate per mile and Revenue per tractor)

 

Amount

 

 

%

 

Amount

 

 

%

 

Absolute

 

 

Relative

REVENUE(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company freight

 

$

116.4

 

 

 

50.9

 

%

 

$

102.7

 

 

 

55.9

 

%

 

$

13.7

 

 

 

13.3

 

%

Owner operator freight

 

 

42.2

 

 

 

18.5

 

 

 

 

34.6

 

 

 

18.8

 

 

 

 

7.6

 

 

 

22.0

 

 

Brokerage

 

 

37.0

 

 

 

16.2

 

 

 

 

26.6

 

 

 

14.5

 

 

 

 

10.4

 

 

 

39.1

 

 

Logistics

 

 

10.5

 

 

 

4.6

 

 

 

 

7.2

 

 

 

3.9

 

 

 

 

3.3

 

 

 

45.8

 

 

Fuel surcharge

 

 

22.4

 

 

 

9.8

 

 

 

 

12.5

 

 

 

6.9

 

 

 

 

9.9

 

 

 

79.2

 

 

Total revenue

 

$

228.5

 

 

 

100.0

 

 

 

$

183.6

 

 

 

100.0

 

 

 

$

44.9

 

 

 

24.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages and employee benefits

 

$

61.9

 

 

 

27.1

 

%

 

$

56.6

 

 

 

30.8

 

%

 

$

5.3

 

 

 

9.4

 

%

Fuel

 

 

25.2

 

 

 

11.0

 

 

 

 

17.1

 

 

 

9.3

 

 

 

 

8.1

 

 

 

47.4

 

 

Operations and maintenance

 

 

24.1

 

 

 

10.5

 

 

 

 

20.0

 

 

 

10.9

 

 

 

 

4.1

 

 

 

20.5

 

 

Purchased freight

 

 

66.5

 

 

 

29.1

 

 

 

 

49.4

 

 

 

26.9

 

 

 

 

17.1

 

 

 

34.6

 

 

Depreciation and amortization

 

 

12.4

 

 

 

5.4

 

 

 

 

13.1

 

 

 

7.1

 

 

 

 

(0.7

)

 

 

(5.3

)

 

Other operating expenses

 

 

20.8

 

 

 

9.1

 

 

 

 

16.9

 

 

 

9.2

 

 

 

 

3.9

 

 

 

23.1

 

 

Total operating expenses

 

$

210.9

 

 

 

92.3

 

 

 

$

173.1

 

 

 

94.3

 

 

 

$

37.8

 

 

 

21.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

$

17.6

 

 

 

7.7

 

%

 

$

10.5

 

 

 

5.7

 

%

 

$

7.1

 

 

 

67.6

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company miles

 

 

36.0

 

 

 

 

 

 

 

37.9

 

 

 

 

 

 

 

(1.9

)

 

 

(5.0

)

%

Owner operator miles

 

 

10.6

 

 

 

 

 

 

 

11.4

 

 

 

 

 

 

 

(0.8

)

 

 

(7.0

)

 

Total miles (in millions)

 

 

46.6

 

 

 

 

 

 

 

49.3

 

 

 

 

 

 

 

(2.7

)

 

 

(5.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rate per mile

 

$

3.40

 

 

 

 

 

 

$

2.78

 

 

 

 

 

 

$

0.62

 

 

 

22.3

 

%

Revenue per tractor

 

$

69,400

 

 

 

 

 

 

$

57,200

 

 

 

 

 

 

$

12,200

 

 

 

21.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company owned tractors, at quarter-end

 

 

1,795

 

 

 

 

 

 

 

1,878

 

 

 

 

 

 

 

(83

)

 

 

(4.4

)

%

Owner operator tractors, at quarter-end

 

 

479

 

 

 

 

 

 

 

510

 

 

 

 

 

 

 

(31

)

 

 

(6.1

)

 

Number of trailers, at quarter-end

 

 

7,005

 

 

 

 

 

 

 

7,270

 

 

 

 

 

 

 

(265

)

 

 

(3.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company owned tractors, average for the quarter

 

 

1,801

 

 

 

 

 

 

 

1,894

 

 

 

 

 

 

 

(93

)

 

 

(4.9

)

%

Owner operator tractors, average for the quarter

 

 

485

 

 

 

 

 

 

 

506

 

 

 

 

 

 

 

(21

)

 

 

(4.2

)

 

Total tractors, average for the period

 

 

2,286

 

 

 

 

 

 

 

2,400

 

 

 

 

 

 

 

(114

)

 

 

(4.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

 

 

 

 

 

 

2017

 

2016

 

Increase (Decrease)

(Dollars in thousands)

    

$

    

%

    

$

    

%

    

$

    

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE:

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

Freight

 

$

171,245

 

74.0

 

$

135,415

 

77.8

 

$

35,830

 

26.5

Brokerage

 

 

34,198

 

14.8

 

 

25,977

 

14.9

 

 

8,221

 

31.6

Logistics

 

 

7,871

 

3.4

 

 

 —

 

*

 

 

7,871

 

*

Fuel surcharge

 

 

18,008

 

7.8

 

 

12,756

 

7.3

 

 

5,252

 

41.2

Total revenue

 

 

231,322

 

100.0

 

 

174,148

 

100.0

 

 

57,174

 

32.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

  

 

 

 

 

  

 

 

 

 

  

 

 

Salaries, wages and employee benefits

 

 

64,955

 

28.1

 

 

49,298

 

28.3

 

 

15,657

 

31.8

Fuel

 

 

24,734

 

10.7

 

 

17,296

 

9.9

 

 

7,438

 

43.0

Operations and maintenance

 

 

35,132

 

15.2

 

 

27,874

 

16.0

 

 

7,258

 

26.0

Communications

 

 

539

 

0.2

 

 

370

 

0.2

 

 

169

 

45.7

Purchased freight

 

 

61,598

 

26.6

 

 

42,541

 

24.4

 

 

19,057

 

44.8

Administrative expenses

 

 

8,619

 

3.7

 

 

5,221

 

3.0

 

 

3,398

 

65.1

Sales and marketing

 

 

488

 

0.2

 

 

435

 

0.2

 

 

53

 

12.2

Taxes and licenses

 

 

2,963

 

1.3

 

 

2,268

 

1.3

 

 

695

 

30.6

Insurance and claims

 

 

6,351

 

2.7

 

 

5,065

 

2.9

 

 

1,286

 

25.4

Acquisition-related transaction expenses

 

 

773

 

0.3

 

 

 —

 

*

 

 

773

 

*

Depreciation and amortization

 

 

19,805

 

8.6

 

 

16,998

 

9.8

 

 

2,807

 

16.5

Loss on disposition

 

 

(339)

 

(0.1)

 

 

(495)

 

(0.3)

 

 

156

 

(31.5)

Impairment

 

 

 —

 

*

 

 

1,195

 

0.7

 

 

(1,195)

 

(100.0)

Total operating expenses

 

 

225,618

 

97.5

 

 

168,066

 

96.5

 

 

57,552

 

34.2

Operating ratio

 

 

97.5%

 

 

 

 

96.5%

 

 

 

 

 

 

 

Adjusted operating ratio(1)

 

 

95.4%

 

 

 

 

94.1%

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

 

5,704

 

2.5

 

 

6,082

 

3.5

 

 

(378)

 

(6.2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (income) expense:

 

 

  

 

 

 

 

  

 

 

 

 

  

 

 

Interest income

 

 

(76)

 

*

 

 

(4)

 

*

 

 

(72)

 

1,800.0

Interest expense

 

 

8,624

 

3.7

 

 

6,724

 

3.9

 

 

1,900

 

28.3

Write-off of unamortized deferred financing fees

 

 

 —

 

*

 

 

 —

 

*

 

 

 —

 

*

Other

 

 

(32)

 

*

 

 

(64)

 

*

 

 

32

 

(50.0)

Total other expense

 

 

8,516

 

3.7

 

 

6,656

 

3.8

 

 

1,860

 

27.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before provision for income taxes

 

 

(2,812)

 

(1.2)

 

 

(574)

 

(0.3)

 

 

(2,238)

 

389.9

Provision for income taxes

 

 

(2,862)

 

(1.2)

 

 

683

 

0.4

 

 

(3,545)

 

(519.0)

Net income (loss)

 

$

50

 

 -

 

$

(1,257)

 

(0.7)

 

$

1,307

 

(104.0)

(1)
Includes intersegment revenues and expenses, as applicable, which are eliminated in the Company’s consolidated results.

*indicates not meaningful.19

(1)

Adjusted operating ratio is not a recognized measure under GAAP. For a definition of adjusted operating ratio and reconciliation of adjusted operating ratio to operating ratio, see “Non-GAAP Financial Measures” below.

33

Table of Contents

The following table sets forth the Company’s Flatbed Solutions segment’s revenue, operating expenses operating ratio, adjusted operating ratio and operating income for the three months ended September 30, 2017 and 2016 infrom operations (in dollars and as a percentage of its Flatbed Solutions segment’s total revenue and the increase or decrease in the dollar amountsrevenue) of those items. The following table also sets forth certain operating statistics for the Company’s Flatbed Solutions segment for the three months ended September 30, 2017March 31, 2022 and 2016.2021, as well as certain operating statistics for the same periods. In addition, the absolute and relative changes for each are presented. Rate per mile is the period’s revenue less fuel surcharge, brokerage and logistics revenues divided by total number of company and owner operator miles driven in the period. Revenue per tractor is the period’s revenue less fuel surcharge, brokerage and logistics revenues divided by the average number of tractors in the period, including owner operator tractors.

FLATBED SOLUTIONS

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

2022

 

2021

 

Increase (Decrease)

(Dollars in millions, except Rate per mile and Revenue per tractor)

 

Amount

 

 

%

 

Amount

 

 

%

 

Absolute

 

 

Relative

REVENUE(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company freight

 

$

41.5

 

 

 

21.3

 

%

 

$

44.8

 

 

 

29.2

 

%

 

$

(3.3

)

 

 

(7.4

)

%

Owner operator freight

 

 

88.1

 

 

 

45.2

 

 

 

 

71.0

 

 

 

46.3

 

 

 

 

17.1

 

 

 

24.1

 

 

Brokerage

 

 

41.2

 

 

 

21.1

 

 

 

 

22.1

 

 

 

14.4

 

 

 

 

19.1

 

 

 

86.4

 

 

Logistics

 

 

0.9

 

 

 

0.5

 

 

 

 

1.2

 

 

 

0.8

 

 

 

 

(0.3

)

 

 

(25.0

)

 

Fuel surcharge

 

 

23.4

 

 

 

11.9

 

 

 

 

14.4

 

 

 

9.3

 

 

 

 

9.0

 

 

 

62.5

 

 

Total revenue

 

$

195.1

 

 

 

100.0

 

 

 

$

153.5

 

 

 

100.0

 

 

 

$

41.6

 

 

 

27.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages and employee benefits

 

$

28.0

 

 

 

14.4

 

%

 

$

28.6

 

 

 

18.6

 

%

 

$

(0.6

)

 

 

(2.1

)

%

Fuel

 

 

9.9

 

 

 

5.1

 

 

 

 

8.3

 

 

 

5.4

 

 

 

 

1.6

 

 

 

19.3

 

 

Operations and maintenance

 

 

10.3

 

 

 

5.3

 

 

 

 

10.3

 

 

 

6.7

 

 

 

 

—

 

 

 

—

 

 

Purchased freight

 

 

107.8

 

 

 

55.3

 

 

 

 

75.4

 

 

 

49.1

 

 

 

 

32.4

 

 

 

43.0

 

 

Depreciation and amortization

 

 

9.0

 

 

 

4.6

 

 

 

 

8.8

 

 

 

5.7

 

 

 

 

0.2

 

 

 

2.3

 

 

Other operating expenses

 

 

14.1

 

 

 

7.2

 

 

 

 

11.1

 

 

 

7.2

 

 

 

 

3.0

 

 

 

27.0

 

 

Total operating expenses

 

$

179.1

 

 

 

91.8

 

 

 

$

142.5

 

 

 

92.8

 

 

 

$

36.6

 

 

 

25.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

$

16.0

 

 

 

8.2

 

%

 

$

11.0

 

 

 

7.2

 

%

 

$

5.0

 

 

 

45.5

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company miles

 

 

15.8

 

 

 

 

 

 

 

20.8

 

 

 

 

 

 

 

(5.0

)

 

 

(24.0

)

%

Owner operator miles

 

 

34.2

 

 

 

 

 

 

 

33.3

 

 

 

 

 

 

 

0.9

 

 

 

2.7

 

 

Total miles (in millions)

 

 

50.0

 

 

 

 

 

 

 

54.1

 

 

 

 

 

 

 

(4.1

)

 

 

(7.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rate per mile

 

$

2.59

 

 

 

 

 

 

$

2.14

 

 

 

 

 

 

$

0.45

 

 

 

21.0

 

%

Revenue per tractor

 

$

55,600

 

 

 

 

 

 

$

45,800

 

 

 

 

 

 

$

9,800

 

 

 

21.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company owned tractors, at quarter-end

 

 

723

 

 

 

 

 

 

 

907

 

 

 

 

 

 

 

(184

)

 

 

(20.3

)

%

Owner operator tractors, at quarter-end

 

 

1,568

 

 

 

 

 

 

 

1,581

 

 

 

 

 

 

 

(13

)

 

 

(0.8

)

 

Number of trailers, at quarter-end

 

 

4,046

 

 

 

 

 

 

 

4,208

 

 

 

 

 

 

 

(162

)

 

 

(3.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company owned tractors, average for the quarter

 

 

755

 

 

 

 

 

 

 

939

 

 

 

 

 

 

 

(184

)

 

 

(19.6

)

%

Owner operator tractors, average for the quarter

 

 

1,575

 

 

 

 

 

 

 

1,592

 

 

 

 

 

 

 

(17

)

 

 

(1.1

)

 

Total tractors, average for the period

 

 

2,330

 

 

 

 

 

 

 

2,531

 

 

 

 

 

 

 

(201

)

 

 

(7.9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

 

 

 

 

 

 

2017

 

2016

 

Increase (Decrease)

(Dollars in thousands)

    

$

    

%

    

$

    

%

    

$

    

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE(1):

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

Freight

 

$

67,807

 

79.2

 

$

64,281

 

81.4

 

$

3,526

 

5.5

Brokerage

 

 

9,385

 

11.0

 

 

7,410

 

9.4

 

 

1,975

 

26.7

Logistics

 

 

 —

 

 -

 

 

 —

 

 -

 

 

 —

 

*

Fuel surcharge

 

 

8,400

 

9.8

 

 

7,284

 

9.2

 

 

1,116

 

15.3

Total revenue

 

 

85,592

 

100.0

 

 

78,975

 

100.0

 

 

6,617

 

8.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES(1):

 

 

  

 

 

 

 

  

 

 

 

 

  

 

 

Salaries, wages and employee benefits

 

 

23,538

 

27.5

 

 

23,233

 

29.4

 

 

305

 

1.3

Fuel

 

 

10,212

 

11.9

 

 

9,401

 

11.9

 

 

811

 

8.6

Operations and maintenance

 

 

9,584

 

11.2

 

 

8,710

 

11.0

 

 

874

 

10.0

Purchased freight

 

 

24,536

 

28.7

 

 

20,169

 

25.5

 

 

4,367

 

21.7

Depreciation and amortization

 

 

7,150

 

8.4

 

 

7,650

 

9.7

 

 

(500)

 

(6.5)

Impairment

 

 

 —

 

 -

 

 

 —

 

 -

 

 

 —

 

*

Other operating expenses

 

 

5,817

 

6.8

 

 

6,018

 

7.6

 

 

(201)

 

(3.3)

Total operating expenses

 

 

80,837

 

94.4

 

 

75,181

 

95.2

 

 

5,656

 

7.5

Operating ratio

 

 

94.4%

 

 

 

 

95.2%

 

 

 

 

 

 

 

Adjusted operating ratio(2)

 

 

93.5%

 

 

 

 

93.9%

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

$

4,755

 

5.6

 

$

3,794

 

4.8

 

$

961

 

25.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total miles

 

 

36,646,345

 

 

 

 

37,767,726

 

 

 

 

(1,121,381)

 

(3.0)

Company-operated tractors

 

 

1,144

 

 

 

 

1,162

 

 

 

 

(18)

 

(1.5)

Owner-operated tractors

 

 

469

 

 

 

 

441

 

 

 

 

28

 

6.3

Number of trailers

 

 

2,881

 

 

 

 

2,842

 

 

 

 

39

 

1.4

(1)
Includes intersegment revenues and expenses, as applicable, which are eliminated in the Company’s consolidated results.

*indicates not meaningful.20

(1)

Includes intersegment revenues and expenses, as applicable, which are eliminated in the Company’s consolidated results.

(2)

Adjusted operating ratio is not a recognized measure under GAAP. For a definition of adjusted operating ratio and reconciliation of adjusted operating ratio to operating ratio, see “Non-GAAP Financial Measures” below.

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Revenue. Total revenue increased 26.1% for the three months ended March 31, 2022 as compared to the same period in 2021. The increase in total revenue was primarily attributed to deploying assets into strong markets, which allowed the Company to capture rate increases in both the Flatbed and Specialized segments, and the Company’s ability to capture excess volumes within our brokerage service offering. There was a 22.3% increase in rate per mile and a 6.6% decrease in total miles driven.

The following table sets forth the Company’s Specialized Solutions segment’s revenue operating expenses, operating ratio, adjusted operating ratio and operating incomeincreased 24.5% for the three months ended September 30, 2017March 31, 2022 as compared to the same period in 2021, primarily due to overall elevated freight rates driven by high-security cargo and 2016 in dollars and as a percentage of its Specialized Solutions segment’s total revenue and the increase or decrease in the dollar amounts of those items. The following table also sets forth certain operating statistics for the Company’s Specialized Solutions segment glass transportation growth. Company freight increased 13.3% for the three months ended September 30, 2017March 31, 2022 as compared to the same period in 2021 due to a 19.3% increase in company rate per mile, partially offset by a 5.0% decrease in miles driven due to downsizing of company tractors. Owner operator freight increased 22.0% due to a 31.2% increase in owner operator rate per mile, partially offset by a 7.0% decrease in miles driven primarily due to a 4.2% decrease in average owner operator tractors. The Company deployed company-owned assets into end markets with higher rates and 2016.

SPECIALIZED SOLUTIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

 

 

 

 

 

    

2017

    

2016

    

Increase (Decrease)

(Dollars in thousands)

    

$

    

%

    

$

    

%

    

$

    

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE(1):

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

Freight

 

$

105,137

 

71.2

 

$

72,367

 

75.0

 

$

32,770

 

45.3

Brokerage

 

 

24,852

 

16.8

 

 

18,579

 

19.2

 

 

6,273

 

33.8

Logistics

 

 

7,886

 

5.3

 

 

 —

 

 -

 

 

7,886

 

*

Fuel surcharge

 

 

9,756

 

6.6

 

 

5,588

 

5.8

 

 

4,168

 

74.6

Total revenue

 

 

147,631

 

100.0

 

 

96,534

 

100.0

 

 

51,097

 

52.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES(1):

 

 

  

 

 

 

 

  

 

 

 

 

  

 

 

Salaries, wages and employee benefits

 

 

39,507

 

26.8

 

 

24,714

 

25.6

 

 

14,793

 

59.9

Fuel

 

 

14,521

 

9.8

 

 

7,895

 

8.2

 

 

6,626

 

83.9

Operations and maintenance

 

 

25,180

 

17.1

 

 

18,927

 

19.6

 

 

6,253

 

33.0

Purchased freight

 

 

38,965

 

26.4

 

 

23,733

 

24.6

 

 

15,232

 

64.2

Depreciation and amortization

 

 

12,618

 

8.5

 

 

9,308

 

9.6

 

 

3,310

 

35.6

Impairment

 

 

 —

 

 -

 

 

1,195

 

1.2

 

 

(1,195)

 

(100.0)

Other operating expenses

 

 

9,681

 

6.6

 

 

5,023

 

5.2

 

 

4,658

 

92.7

Total operating expenses

 

 

140,472

 

95.2

 

 

90,795

 

94.1

 

 

49,677

 

54.7

Operating ratio

 

 

95.2%

 

 

 

 

94.1%

 

 

 

 

 

 

 

Adjusted operating ratio(2)

 

 

92.6%

 

 

 

 

91.2%

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

$

7,159

 

4.8

 

$

5,739

 

5.9

 

$

1,420

 

24.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total miles

 

 

38,948,331

 

 

 

 

24,266,511

 

 

 

 

14,681,820

 

60.5

Company-operated tractors

 

 

1,638

 

 

 

 

1,109

 

 

 

 

529

 

47.7

Owner-operated tractors

 

 

408

 

 

 

 

236

 

 

 

 

172

 

72.9

Number of trailers

 

 

4,813

 

 

 

 

3,394

 

 

 

 

1,419

 

41.8

*indicates not meaningful.

(1)

Includes intersegment revenues and expenses, as applicable, which are eliminated in the Company’s consolidated results.

(2)

Adjusted operating ratio is not a recognized measure under GAAP. For a definition of adjusted operating ratio and reconciliation of adjusted operating ratio to operating ratio, see “Non-GAAP Financial Measures” below.

Revenue. Totalmargins, and as such, some of the excess volumes, for which the Company was unable to utilize company-owned assets, were captured through our brokerage service offering. This resulted in a 39.1% increase in brokerage revenue increased 32.8% to $231.3 million for the three months ended September 30, 2017 from $174.1 millionMarch 31, 2022 as compared to the same period in 2021. In this segment, total brokerage loads were up 16% and the brokerage revenue per load was up 20% due to higher rates during the three months ended March 31, 2022 as compared to the same period in 2021. Fuel surcharge revenue increased 79.2% for the three months ended September 30, 2016, primarilyMarch 31, 2022 as compared to the same period in 2021 due to the Recent Acquisitions. The change in total revenue, excluding the effect of the Recent Acquisitions, was an increase of $8.8 million, or 5.1%, dueincreased fuel costs that led to increases in freight revenue,higher fuel surcharge and brokerage revenue. Freight revenue, excluding the effect of the Recent Acquisitions, increased $5.7 million, or 4.2%, from $135.4 million for the three months ended September 30, 2016 to $141.1 million for the three months ended September 30, 2017. Fuel surcharges, excluding the effect of the Recent Acquisitions, increased from $12.7 million for the three months ended September 30, 2016 to $14.9 million for the three months ended September 30, 2017, an increase of 17.1%. Brokerage revenue, excluding the effect of the Recent Acquisitions, increased $0.9 million, or 3.6%, from $26.0 million for the three months ended September 30, 2016 to $26.9 million for the three months ended September 30, 2017.surcharges.

The Company’s Flatbed Solutions segment’s revenue was $85.6 millionincreased 27.1% for the three months ended September 30, 2017 and $79.0 million for the three months ended September 30, 2016, an increase of 8.4%. This increase was primarily a result of increases in rates, which produced increases of $3.5 million, or 5.5%, in freight revenue and $2.0 million, or 26.7%, in brokerage revenues despite 1.1 million fewer milesMarch 31, 2022 as compared to the same period in 2016. The $1.1 million, or 15.3%,2021, primarily due to increases in owner operator freight revenue and brokerage revenue driven by strength in the construction, manufacturing, steel and agriculture industries. Owner operator freight increased 24.1% due to a 20.8% increase in fuel surcharge revenue also contributed to theowner operator rate per mile and a 2.7% increase in miles driven. The Company deployed company-owned assets into end markets with higher rates and margins, and as such, some of the Flatbed Solutions segment’s revenue.

The Company’s Specialized Solutions segment’sexcess volumes, for which the Company was unable to utilize company-owned assets, were captured through our brokerage service offering. This resulted in a 86.4% increase in brokerage revenue was $147.6 million for the three months ended September 30, 2017March 31, 2022 as compared to the same period in 2021. In this segment, total brokerage loads were up 32% and $96.5 million forthe brokerage revenue per load was up 41% due to higher rates during the three months ended September 30, 2016, an increase of 52.9%, which was primarily March 31, 2022 as compared to the same period in 2021. Fuel surcharge revenue increased 62.5% due to increased fuel costs that led to higher fuel surcharges. Company freight revenue decreased 7.4% due to the Recent Acquisitions. The

35

Tabledownsizing of Contents

increase in revenue, excluding the effect of the Recent Acquisitions, was an increase of $2.8 million, or 2.9%, primarily duecompany tractors which led to increases in freight revenue and fuel surcharge,a 24.0% decrease in miles, partially offset by a slight decrease in brokerage revenues. Freight revenue, excluding the effect of the Recent Acquisitions, increased to $75.0 million for the three months ended September 30, 2017 from $72.3 million for the same period in 2016, an increase of 3.7%. Fuel surcharges, excluding the effect of the Recent Acquisitions, increased to $6.7 million for the three months ended September 30, 2017 from $5.6 million for the same period in 2016, an increase of 19.6%. Brokerage revenue, excluding the effect of the Recent Acquisitions, decreased to $17.6 million for the three months ended September 30, 2017 from $18.6 million for the same period in 2016, a decrease of 5.5%.

In both segments, the21.9% increase in fuel surcharge revenue was the result of increases in fuel prices, which commenced in the fourth quarter of 2016 and continued through the third quarter of 2017 with only a less than 1% decrease in fuel prices in the second quarter of 2017.rate per mile.

Salaries, Wages and Employee Benefits. Salaries, wages and employee benefits expense, which consists of compensation for all employees, is primarily affected by the number of miles driven by company drivers, the rate per mile paid to company drivers, employee benefits including, but not limited to, health care and workers’ compensation, and to a lesser extent, the number of, and compensation and benefits paid to, non-driver employees. In general, the Specialized Solutions segment drivers receive a higher driver pay per total mile than Flatbed Solutions segment drivers due to the former requiring a higher level of training and expertise.

Salaries, wages and employee benefits expense increased 31.8% to $65.0 million7.5% for the three months ended September 30, 2017 from $49.3 million for the three months ended September 30, 2016, primarily dueMarch 31, 2022 as compared to the Recent Acquisitions.same period in 2021. The increase in salaries, wages and employee benefits expense excluding the effect of the Recent Acquisitions, was 5.5%, or $2.7 million, and was primarily due to increased health insurance claims, higher driver pay in the Specialized Solutions segment and increased employee compensation, workers’ compensation premiums,headcount related to the expansion of corporate functions in legal, accounting and stock-based compensation, partially offset by a decrease in workers’ compensation claims.

The Company’s Flatbed Solutions segment’s salaries,safety departments. Salaries, wages and employee benefits expense, was relatively flatas a percentage of consolidated revenue (excluding brokerage revenue), decreased 3.4% for the three months ended September 30, 2017March 31, 2022 as compared to the three months ended September 30, 2016.same period in 2021.

The Company’s Specialized Solutions segment had a $14.8 million, or 59.9%, increaseincreased 9.4% in salaries, wages and employee benefits expense for the three months ended September 30, 2017March 31, 2022 compared to the same period in 2021, primarily as a result of increased health insurance claims and higher driver and non-driver pay. Salaries, wages and employee benefits expense, as a percentage of Specialized Solutions revenue (excluding brokerage revenue), decreased 3.8% for the three months ended September 30, 2016,March 31, 2022 as compared to the same period in 2021.

The Company’s Flatbed Solutions segment decreased 2.1% in salaries, wages and employee benefits expense for the three months ended March 31, 2022 compared to the same period in 2021, primarily as a result of the decreased employee headcount and lower driver pay due to the Recent Acquisitions. This increase, excludingdecrease in Company miles compared to the effectsame period in 2021. Salaries, wages and employee benefits expense, as a percentage of Flatbed Solutions revenue (excluding brokerage revenue), decreased 3.6% for the Recent Acquisitions, was 7.5%, or $1.9 million, and was primarily duethree months ended March 31, 2022 as compared to increased employee compensation and stock-based compensation.the same period in 2021.

Fuel. Fuel expense consists primarily of diesel fuel expense for company-owned tractors and fuel taxes. The primary factors affecting fuel expense are the cost of diesel fuel, the miles per gallon realized with company equipment and the number of miles driven by company drivers.

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Table of Contents

Total fuel expense increased $7.4 million, or 43.0%, to $24.7 million38.2% for the three months ended September 30, 2017 from $17.3 millionMarch 31, 2022 as compared to the same period in 2021. This increase was primarily due to a 45.7% increase in fuel price, partially offset by an 11.8% decrease in Company miles driven. The Company’s Specialized Solutions segment’s fuel expense increased 47.4% for the three months ended September 30, 2016. This increase wasMarch 31, 2022 as compared to the same period in 2021, primarily as a result of the Recent Acquisitions and higherincrease in fuel prices. Excludingprice, partially offset by a 5.0% decrease in Company miles driven for the effect ofthree months ended March 31, 2022 as compared to the Recent Acquisitions,same period in 2021. The Company’s Flatbed Solutions segment’s fuel expense increased 11.3%, or $2.0 million.19.3% for the three months ended March 31, 2022 as compared to the same period in 2021, as a result of the increase in fuel price, partially offset by a 24.0% decrease in Company miles driven for the three months ended March 31, 2022 as compared to the same period in 2021. The U.S. national average diesel fuel price, as published by the U.S. Department of Energy, was $2.615$4.244 for the three months ended September 30, 2017,March 31, 2022, compared to $2.381$2.913 for the same period in 2016, a 9.9% increase.2021.

The Company’s Flatbed Solutions segment’s fuel expense increased 8.6% to $10.2 million for the three months ended September 30, 2017 from $9.4 million for the three months ended September 30, 2016, primarily as a result of higher fuel prices, partially offset by a 3.0% decrease in total miles.

The Company’s Specialized Solutions segment’s fuel expense increased 83.9% to $14.5 million for the three months ended September 30, 2017 from $7.9 million for the three months ended September 30, 2016, primarily as a result of the Recent Acquisitions, higher fuel prices and an increase in total miles. Excluding the effect of the Recent Acquisitions, fuel expense in the Specialized Solutions segment increased 14.5% to $9.0 million and total miles increased 2.3%.

Operations and Maintenance. Operations and maintenance expense consists primarily of ordinary vehicle repairs and maintenance, costs associated with preparing tractors and trailers for sale or trade-in, driver recruiting, training and safety costs, permitting and pilot car fees and other general operations expenses. Operations and maintenance expense is primarily affected by the age of company-owned tractors and trailers, the number of miles driven in a period and driver turnover.

Operations and maintenance expense increased 26.0% to $35.1 million13.5% for the three months ended September 30, 2017 from $27.9 million for the three months ended September 30, 2016, primarily as a result of the Recent Acquisitions. Operating and maintenance expense increased 4.7% after adjusting for the effect of the Recent Acquisitions.

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Table of Contents

The Company’s Flatbed Solutions segment’s operations and maintenance expense increased $0.9 million, or 10.0%, for the three months ended September 30, 2017March 31, 2022 as compared to the three months ended September 30, 2016,same period in 2021 primarily from increased maintenancedue to a 97.7% increase in pilot car and tire costs.

permit fees. The Company’s Specialized Solutions segment’s operations and maintenance expense increased $6.3 million, or 33.0%,20.5% for the three months ended September 30, 2017March 31, 2022 as compared to the three months ended September 30, 2016, primarilysame period in 2021 as a result of the Recent Acquisitions. Excluding the effect of the Recent Acquisitions,a 108.9% increase in pilot car and permit fees driven by increases in wind-related transportation. The Company’s Flatbed Solutions segment’s operations and maintenance expense was relatively flatgenerally consistent for the three months ended September 30, 2017March 31, 2022 as compared to the same period in 2021. Operations and maintenance expense, as a percentage of consolidated revenue (excluding brokerage revenue), was generally consistent for the three months ended September 30, 2016.March 31, 2022 as compared to the same period in 2021.

Purchased Freight. Purchased freight expense consists of the payments to owner-operators,owner operators, including fuel surcharge reimbursements, and payments to third-party capacity providers that haul loads brokered to them. Purchased freight expense generally takes into account changes in diesel fuel prices, resulting in lowerhigher payments during periods of decliningincreasing fuel prices.

Total purchased freight expense increased 44.8% from $42.5 million41.4% during the three months ended September 30, 2016March 31, 2022 as compared to $61.6 millionthe same period in 2021. Purchased freight expense from owner operators increased 27.3% during the three months ended September 30, 2017, primarilyMarch 31, 2022 as compared to the same period in 2021 as a result of the Recent Acquisitions. Excluding the effect of the Recent Acquisitions on purchased freight expense, total purchased freight expense increased 9.5% to $46.6 million for the three months ended September 30, 2017. Purchased freight expense from owner-operators, excluding the Recent Acquisitions, increased 13.1% from $23.0 million during the three months ended September 30, 2016 to $26.0 million during the three months ended September 30, 2017, primarily as a result of increases23.2% increase in fuel surcharge reimbursements made to owner-operators asowner operators’ rate and a result of higher fuel prices.0.2% increase in owner operator miles driven. Purchased freight expense from third-party capacity providers excluding the Recent Acquisitions, increased 6.3% from $18.9 million76.2% during the three months ended September 30, 2016March 31, 2022 as compared to $20.0 millionthe same period in 2021, as a result of an increase in utilization of third-party capacity providers. In addition, the cost of diesel fuel increased by 45.7% during the three months ended September 30, 2017, primarilyMarch 31, 2022 as compared to the same period in 2021. Purchased freight expense, as a percentage of consolidated revenue, for the three months ended March 31, 2022, increased 4.4% as compared to the same period in 2021.

The Company’s Specialized Solutions segment’s purchased freight expense increased 34.6% during the three months ended March 31, 2022 as compared to the same period in 2021. Purchased freight expense from owner operators increased 20.1% during the three months ended March 31, 2022 as compared to the same period in 2021, as a result of thea 31.2% increase in rates on brokered loads.owner operators' rate, partially offset by a 7.0% decrease in owner operator miles driven. Purchased freight expense from third-party capacity providers increased 51.3% during the three months ended March 31, 2022 as compared to the same period in 2021, as a result of an increase in utilization of third-party capacity providers. In addition, the cost of diesel fuel increased by 45.7% during the three months ended March 31, 2022 as compared to the same period in 2021. Purchased freight expense, as a percentage of Specialized Solutions revenue, for the three months ended March 31, 2022, increased 2.2% as compared to the same period in 2021.

The Company’s Flatbed Solutions segment’s purchased freight expense increased 21.7% to $24.5 million43.0% for the three months ended September 30, 2017March 31, 2022 as compared to the same period in 2021. Purchased freight expense from $20.2 millionowner operators increased 30.4% for the three months ended September 30, 2016, primarily dueMarch 31, 2022 as compared to higher utilizationthe same period in 2021, as a result of owner-operators and third party capacity providers in the Company’s Flatbed Solutions segment. Purchased freight expense from owner-operators increased 15.8% to $17.3 million for the three months ended September 30, 2017 from $14.9 million for the three months ended September 30, 2016 due to ana 20.8% increase in owner-operator loads.owner operators’ rate and a 2.7% increase in owner operator miles driven. Purchased freight expense from third-party capacity providers increased 43.8% from $4.7 million92.2% during the three months ended September 30, 2016March 31, 2022 as compared to $6.7 million during the three months ended September 30, 2017, primarily as a result of the increasesame period in brokered loads in the Company’s Flatbed Solutions segment.

The Company’s Specialized Solutions segment’s purchased freight expense increased 64.2% to $39.0 million during the three months ended September 30, 2017 from $23.7 million during the three months ended September 30, 2016, primarily as a result of the Recent Acquisitions. Excluding the effect of the Recent Acquisitions on purchased freight expense, total purchased freight expense increased 1.0% to $24.0 million for the three months ended September 30, 2017. Purchased freight expense from owner-operators, excluding the Recent Acquisitions, increased 8.1% to $8.8 million for the three months ended September 30, 2017 from $8.1 million for the three months ended September 30, 2016. Purchased freight expense from third-party capacity providers, excluding the Recent Acquisitions, decreased 6.1% from $14.2 million during the three months ended September 30, 2016 to $13.3 million during the three months ended September 30, 2017,2021, primarily as a result of increased utilization of company driversthird-party capacity providers. In addition, the cost of diesel fuel increased by 45.7% during the quarter.three months ended March 31, 2022 as compared to the same period in 2021. Purchased freight expense, as a percentage of Flatbed Solutions revenue, for the three months ended March 31, 2022, increased 6.2% as compared to the same period in 2021.

Depreciation and Amortization. Depreciation and amortization expense consists primarily of depreciation for company-owned tractors and trailers orand amortization of those financed with capitalfinance leases. The primary factors affecting these expense items include the size of the fleet and age of company-owned tractors and trailers and the cost of new equipment. Amortization of intangible assets is also included in this expense.

22

Table of Contents

Depreciation and amortization expense increased 16.5% to $19.8 milliondecreased 2.7% during the three months ended September 30, 2017 from $17.0 million duringMarch 31, 2022 as compared to the three months ended September 30, 2016, primarilysame period in 2021 as a result of a 9.8% decrease in average tractor count in the Recent Acquisitions. After adjusting for the effect of the Recent Acquisitions,Company’s fleet, partially offset by an increase in depreciation per tractor associated with a 7.7% increase in revenue equipment leased and available to lease to owner operators within our Flatbed Solutions segment. The Company’s Specialized Solutions segment’s depreciation and amortization expense decreased 7.0%, primarily5.3% for the three months ended March 31, 2022 as compared to the same period in 2021 as a result of a 1.2% reduction4.9% decrease in company-owned tractors, excluding company-owned tractors ofaverage tractor count in the Recent Acquisitions, combined with an increasing shift in utilization of operating leases to finance capital expenditures.

segment’s fleet. The Company’s Flatbed Solutions segment had a 6.5% decrease insegment’s depreciation and amortization expense was generally consistent for the three months ended September 30, 2017March 31, 2022 as compared to the three months ended September 30, 2016 primarily as a result of a 1.5% reductionsame period in company-owned tractors.2021.

The Company’s Specialized Solutions segment had a 35.6% increase in depreciation and amortization expense for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 primarily as a result of the Recent Acquisitions. After adjusting for the effect of the Recent Acquisitions, depreciation and amortization expense decreased 7.4%, primarily as a result of a 0.9% reduction in company-owned tractors, excluding company-owned tractors of the Recent Acquisitions, combined with an increasing shift in utilization of operating leases to finance capital expenditures.

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Table of Contents

Taxes and Licenses. Operating taxes and licenses expense primarily represents the costs of taxes and licenses associated with the Company’s fleet of equipment and will vary according to the size of its equipment fleet. Taxes and license expense increased from $2.3 million for the three months ended September 30, 2016 to $3.0 million for the three months ended September 30, 2017. Excluding the effect of the Recent Acquisitions, operating taxes and license expense, as a percentage of revenue, was 1.2% for the three months ended September 30, 2017 and 1.3% for the three months ended September 30, 2016.

Insurance and Claims. Insurance and claims expense consists of insurance premiums and the accruals the Company makes for estimated payments and expenses for claims for bodily injury, property damage, cargo damage and other casualty events. The primary factorsfactor affecting the Company’s insurance and claims expense areis seasonality (the Company typically experiences higher accident frequency in winter months), the frequency and severity of accidents, trends in the development factors used in its accruals and developments in large, prior-year claims. The frequency of accidents tends to increasecorrelate with the miles the Company travels.travels, however insurance and claims expense could increase in periods where there are claims in excess of the Company’s self-insured retention. Insurance and claims expense increased 25.4% to $6.3$6.6 million, or 39.3% during the three months ended September 30, 2017March 31, 2022 as compared to the same period in 2021 primarily due to a $10.8 million increase in insurance claims, primarily resulting from $5.1two claims over the Company’s self-insured retention, partially offset by a $2.4 million duringdecrease in insurance premiums, due to the three months ended September 30, 2016, primarily as a resultcreation of the Recent Acquisitions. Excludingrisk retention group in the effectsecond quarter of the Recent Acquisitions, insurance2021, and claims, as a percentage$1.0 million decrease in our estimate of revenue, was 2.8% for the three months ended September 30, 2017 and 2.9% for the three months ended September 30, 2016.incurred but not reported claims.

InterestOther (Income) Expense.Interest expense consists of cash interest, non-cash paid-in-kind interest, amortization and write-off of related issuance costs and fees and prepayment penalties.fees. Interest expense increased 28.3% to $8.6 million duringdecreased 36.0% for the three months ended September 30, 2017 from $6.7 million duringMarch 31, 2022 as compared to the three months ended September 30, 2016.same period in 2021. This increasedecrease was primarily attributable to an increaselower interest rates achieved through the successful refinancing of our Term Loan Facility (as defined below) during the first quarter of 2021, and decreases in amortization of debt issuance costs and higher interest ratesthe balance outstanding on the Term Loan Facility as compared to debt outstandingFacility. Change in 2016 under the Senior Term Loan and Equipment Term Loans.

Income Tax. Provision for income taxes decreased from $0.7fair value of warrant liability was a gain of $4.7 million for the three months ended September 30, 2016March 31, 2022 compared to a benefitloss of $2.9$5.6 million for the same period in 2021. The change in fair value is directly related to the fair value of the warrant liability as of each period end as calculated using Level 1 and Level 3 inputs. The Company’s common stock purchase warrants expired during three months ended March 31, 2022 and are no longer exercisable.

Income Tax. Income tax expense was $3.4 million for the three months ended September 30, 2017. The decrease is primarily the result of the increase in loss before provision forMarch 31, 2022 compared to income tax benefit of $2.2 million for the three months ended September 30, 2017 compared to the same period in 2016. The effective tax rate was 101.8% for the three months ended September 30, 2017, compared to (119.0%) for the three months ended September 30, 2016. The effective income tax rate varies from the federal statutory rate of 35% primarily due to state income taxes and the impact of nondeductible permanent differences, including driver per diems, transaction expenses and withdrawn Private Daseke IPO expenses.

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Table of Contents

The following table sets forth items derived from the Company’s consolidated statements of operations for the nine months ended September 30, 2017 and 2016 in dollars and as a percentage of total revenue and the increase or decrease in the dollar amounts of those items.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

 

 

 

 

 

2017

 

2016

 

Increase (Decrease)

(Dollars in thousands)

    

$

    

%

    

$

    

%

    

$

    

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE:

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

Freight

 

$

446,454

 

75.8

 

$

398,466

 

79.5

 

$

47,988

 

12.0

Brokerage

 

 

83,723

 

14.2

 

 

68,358

 

13.6

 

 

15,365

 

22.5

Logistics

 

 

10,571

 

1.8

 

 

 —

 

*

 

 

10,571

 

*

Fuel surcharge

 

 

48,331

 

8.2

 

 

34,562

 

6.9

 

 

13,769

 

39.8

Total revenue

 

 

589,079

 

100.0

 

 

501,386

 

100.0

 

 

87,693

 

17.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

  

 

 

 

 

  

 

 

 

 

  

 

 

Salaries, wages and employee benefits

 

 

174,253

 

29.6

 

 

149,861

 

29.9

 

 

24,392

 

16.3

Fuel

 

 

64,423

 

10.9

 

 

49,076

 

9.8

 

 

15,347

 

31.3

Operations and maintenance

 

 

86,332

 

14.7

 

 

72,933

 

14.5

 

 

13,399

 

18.4

Communications

 

 

1,491

 

0.3

 

 

1,208

 

0.2

 

 

283

 

23.4

Purchased freight

 

 

148,945

 

25.3

 

 

120,501

 

24.0

 

 

28,444

 

23.6

Administrative expenses

 

 

24,019

 

4.1

 

 

17,711

 

3.5

 

 

6,308

 

35.6

Sales and marketing

 

 

1,425

 

0.2

 

 

1,280

 

0.3

 

 

145

 

11.3

Taxes and licenses

 

 

7,855

 

1.3

 

 

6,946

 

1.4

 

 

909

 

13.1

Insurance and claims

 

 

15,516

 

2.6

 

 

13,648

 

2.7

 

 

1,868

 

13.7

Acquisition-related transaction expenses

 

 

2,255

 

0.4

 

 

18

 

*

 

 

2,237

 

*

Depreciation and amortization

 

 

53,758

 

9.1

 

 

50,515

 

10.1

 

 

3,243

 

6.4

(Gain) loss on disposition

 

 

(513)

 

(0.1)

 

 

158

 

*

 

 

(671)

 

(424.7)

Impairment

 

 

 —

 

 

 

 

1,195

 

0.2

 

 

(1,195)

 

(100.0)

Total operating expenses

 

 

579,759

 

98.4

 

 

485,050

 

96.7

 

 

94,709

 

19.5

Operating ratio

 

 

98.4%

 

 

 

 

96.7%

 

 

 

 

 

 

 

Adjusted operating ratio(1)

 

 

96.2%

 

 

 

 

94.2%

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

 

9,320

 

1.6

 

 

16,336

 

3.3

 

 

(7,016)

 

(42.9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (income) expense:

 

 

  

 

 

 

 

  

 

 

 

 

  

 

 

Interest income

 

 

(130)

 

*

 

 

(40)

 

*

 

 

(90)

 

225.0

Interest expense

 

 

21,064

 

3.6

 

 

17,521

 

3.5

 

 

3,543

 

20.2

Write-off of unamortized deferred financing fees

 

 

3,883

 

0.7

 

 

 —

 

*

 

 

3,883

 

*

Other

 

 

(247)

 

*

 

 

(266)

 

(0.1)

 

 

19

 

(7.1)

Total other expense

 

 

24,570

 

4.2

 

 

17,215

 

3.4

 

 

7,355

 

42.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before benefit for income taxes

 

 

(15,250)

 

(2.6)

 

 

(879)

 

(0.2)

 

 

(14,371)

 

1,634.9

Benefit for income taxes

 

 

(3,448)

 

(0.6)

 

 

607

 

0.1

 

 

(4,055)

 

(668.0)

Net loss

 

$

(11,802)

 

(2.0)

 

$

(1,486)

 

(0.3)

 

$

(10,316)

 

694.2

*indicates not meaningful.

(1)

Adjusted operating ratio is not a recognized measure under GAAP. For a definition of adjusted operating ratio and reconciliation of adjusted operating ratio to operating ratio, see “Non-GAAP Financial Measures” below.

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Table of Contents

The following table sets forth the Company’s Flatbed Solutions segment’s revenue, operating expenses, operating ratio, adjusted operating ratio and operating income for the nine months ended September 30, 2017 and 2016 in dollars and as a percentage of its Flatbed Solutions segment’s total revenue and the increase or decrease in the dollar amounts of those items. The following table also sets forth certain operating statistics for the Company’s Flatbed Solutions segment for the nine months ended September 30, 2017 and 2016.

FLATBED SOLUTIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

 

 

 

 

 

2017

 

2016

 

Increase (Decrease)

(Dollars in thousands)

    

$

    

%

    

$

    

%

    

$

    

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE(1):

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

Freight

 

$

200,670

 

79.1

 

$

194,855

 

82.2

 

$

5,815

 

3.0

Brokerage

 

 

27,979

 

11.0

 

 

22,482

 

9.5

 

 

5,497

 

24.5

Logistics

 

 

 —

 

 -

 

 

 —

 

 -

 

 

 —

 

*

Fuel surcharge

 

 

25,145

 

9.9

 

 

19,832

 

8.4

 

 

5,313

 

26.8

Total revenue

 

 

253,794

 

100.0

 

 

237,169

 

100.0

 

 

16,625

 

7.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES(1):

 

 

  

 

 

 

 

  

 

 

 

 

  

 

 

Salaries, wages and employee benefits

 

 

71,723

 

28.3

 

 

71,325

 

30.1

 

 

398

 

0.6

Fuel

 

 

30,594

 

12.1

 

 

26,708

 

11.3

 

 

3,886

 

14.5

Operations and maintenance

 

 

27,475

 

10.8

 

 

24,599

 

10.4

 

 

2,876

 

11.7

Purchased freight

 

 

70,211

 

27.7

 

 

59,775

 

25.2

 

 

10,436

 

17.5

Depreciation and amortization

 

 

21,929

 

8.6

 

 

22,687

 

9.6

 

 

(758)

 

(3.3)

Impairment

 

 

 —

 

 -

 

 

 —

 

 -

 

 

 —

 

*

Other operating expenses

 

 

16,907

 

6.7

 

 

18,034

 

7.6

 

 

(1,127)

 

(6.2)

Total operating expenses

 

 

238,839

 

94.1

 

 

223,128

 

94.1

 

 

15,711

 

7.0

Operating ratio

 

 

94.1%

 

 

 

 

94.1%

 

 

 

 

 

 

 

Adjusted operating ratio(2)

 

 

93.1%

 

 

 

 

92.2%

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

$

14,955

 

5.9

 

$

14,041

 

5.9

 

$

914

 

6.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total miles

 

 

112,318,418

 

 

 

 

114,115,490

 

 

 

 

(1,797,072)

 

(1.6)

Company-operated tractors

 

 

1,158

 

 

 

 

1,173

 

 

 

 

(15)

 

(1.3)

Owner-operated tractors

 

 

454

 

 

 

 

442

 

 

 

 

12

 

2.7

Number of trailers

 

 

2,916

 

 

 

 

2,877

 

 

 

 

39

 

1.4

*indicates not meaningful.

(1)

Includes intersegment revenues and expenses, as applicable, which are eliminated in the Company’s consolidated results.

(2)

Adjusted operating ratio is not a recognized measure under GAAP. For a definition of adjusted operating ratio and reconciliation of adjusted operating ratio to operating ratio, see “Non-GAAP Financial Measures” below.

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The following table sets forth the Company’s Specialized Solutions segment’s revenue, operating expenses, operating ratio, adjusted operating ratio and operating income for the nine months ended September 30, 2017 and 2016 in dollars and as a percentage of its Specialized Solutions segment’s total revenue and the increase or decrease in the dollar amounts of those items. The following table also sets forth certain operating statistics for the Company’s Specialized Solutions segment for the nine months ended September 30, 2017 and 2016.

SPECIALIZED SOLUTIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

 

 

 

 

    

2017

    

2016

    

Increase (Decrease)

(Dollars in thousands)

    

$

    

%

    

$

    

%

    

$

    

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE(1):

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

Freight

 

$

250,255

 

73.5

 

$

206,641

 

77.2

 

$

43,614

 

21.1

Brokerage

 

 

55,820

 

16.4

 

 

45,986

 

17.2

 

 

9,834

 

21.4

Logistics

 

 

10,594

 

3.1

 

 

 —

 

 -

 

 

10,594

 

*

Fuel surcharge

 

 

23,620

 

6.9

 

 

15,024

 

5.6

 

 

8,596

 

57.2

Total revenue

 

 

340,289

 

100.0

 

 

267,651

 

100.0

 

 

72,638

 

27.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES(1):

 

 

  

 

 

 

 

  

 

 

 

 

  

 

 

Salaries, wages and employee benefits

 

 

97,880

 

28.8

 

 

74,430

 

27.8

 

 

23,450

 

31.5

Fuel

 

 

33,829

 

9.9

 

 

22,368

 

8.4

 

 

11,461

 

51.2

Operations and maintenance

 

 

57,990

 

17.0

 

 

47,686

 

17.8

 

 

10,304

 

21.6

Purchased freight

 

 

83,704

 

24.6

 

 

64,161

 

24.0

 

 

19,543

 

30.5

Depreciation and amortization

 

 

31,714

 

9.3

 

 

27,711

 

10.4

 

 

4,003

 

14.4

Impairment

 

 

 —

 

 -

 

 

1,195

 

0.4

 

 

(1,195)

 

(100.0)

Other operating expenses

 

 

22,416

 

6.6

 

 

15,411

 

5.8

 

 

7,005

 

45.5

Total operating expenses

 

 

327,533

 

96.3

 

 

252,962

 

94.5

 

 

74,571

 

29.5

Operating ratio

 

 

96.3%

 

 

 

 

94.5%

 

 

 

 

 

 

 

Adjusted operating ratio(2)

 

 

94.0%

 

 

 

 

92.5%

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

$

12,756

 

3.7

 

$

14,689

 

5.5

 

$

(1,933)

 

(13.2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total miles

 

 

94,967,882

 

 

 

 

74,273,172

 

 

 

 

20,694,710

 

27.9

Company-operated tractors

 

 

1,382

 

 

 

 

1,091

 

 

 

 

291

 

26.7

Owner-operated tractors

 

 

294

 

 

 

 

241

 

 

 

 

53

 

22.0

Number of trailers

 

 

4,100

 

 

 

 

3,332

 

 

 

 

768

 

23.0

*indicates not meaningful.

(1)

Includes intersegment revenues and expenses, as applicable, which are eliminated in the Company’s consolidated results.

(2)

Adjusted operating ratio is not a recognized measure under GAAP. For a definition of adjusted operating ratio and reconciliation of adjusted operating ratio to operating ratio, see “Non-GAAP Financial Measures” below.

Revenue. Total revenue increased 17.5% to $589.1 million for the nine months ended September 30, 2017 from $501.4 million for the nine months ended September 30, 2016, primarily as a result of the Recent Acquisitions. The change in total revenue, excluding the effect of the Recent Acquisitions, was an increase of $19.9 million, or 4.0%, due to increases in fuel surcharge, freight and brokerage revenue. Fuel surcharge revenue, excluding the effect of the Recent Acquisitions, increased from $34.6 million for the nine months ended September 30, 2016 to $43.9 million for the nine months ended September 30, 2017, an increase of 26.9%. Freight revenue, excluding the effect of the Recent Acquisitions, increased 1.6% to $404.7 million for the nine months ended September 30, 2017 from $398.5 million for the nine months ended September 30, 2016. Brokerage revenue, excluding the effect of the Recent Acquisitions, increased 6.3% to $72.7 million for the nine months ended September 30, 2017 from $68.3 million for the nine months ended September 30, 2016 due to less capacity.

The Company’s Flatbed Solutions segment’s revenue was $253.8 million for the nine months ended September 30, 2017 and $237.2 million for the nine months ended September 30, 2016, an increase of 7.0%. This increase was primarily a result of increases in rates, which produced increases of $5.8 million, or 3.0%, in freight revenue and $5.5 million, or 24.5%, in brokerage revenues despite 1.8 million fewer miles compared to the same period in 2016. The $5.3 million, or 26.8%, increase in fuel surcharge revenue also contributed to the increase in the Flatbed Solutions segment.

The Company’s Specialized Solutions segment’s revenue was $340.3 million for the nine months ended September 30, 2017 and $267.7 million for the nine months ended September 30, 2016, an increase of 27.1%, primarily as a result of the Recent Acquisitions. The increase in revenue, excluding the effect of the Recent Acquisitions, was $4.8 million, or 1.8%, primarily due to increases in fuel surcharge. Fuel

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surcharges, excluding the effect of the Recent Acquisitions, increased 27.6% to $19.2 million for the nine months ended September 30, 2017 from $15.0$0.8 million for the same period in 2016. Freight revenue, excluding the effect of the Recent Acquisitions, increased less than 1.0%2021. The effective tax rate was 20.7% for the ninethree months ended September 30, 2017March 31, 2022, compared to the same period in 2016 and brokerage revenue, excluding the effect of the Recent Acquisitions, decreased by 2.6% for the nine months ended September 30, 2017 compared to the same period in 2016.

In both segments, the increase in fuel surcharge revenue was the result of increases in fuel prices which commenced in the fourth quarter of 2016 and continued through the third quarter of 2017, with only a less than 1% decrease in fuel prices in the second quarter of 2017.

Salaries, Wages and Employee Benefits. Salaries, wages and employee benefits expense increased 16.3% to $174.3 million for the nine months ended September 30, 2017 from $149.9 million for the nine months ended September 30, 2016, primarily as a result of the Recent Acquisitions. The increase in salaries, wages and employee benefits expense, excluding the effect of the Recent Acquisitions, was 3.2%, or $4.9 million, and was primarily due to increased employee compensation, workers’ compensation premiums, and stock-based compensation, partially offset by a decrease in workers’ compensation claims.

The Company’s Flatbed Solutions segment’s salaries, wages and employee benefits expense was relatively flat for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

The Company’s Specialized Solutions segment had a $23.5 million, or 31.5%, increase in salaries, wages and employee benefits expense for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily as a result of the Recent Acquisitions. This increase, excluding the effect of the Recent Acquisitions, was 5.3%, or $3.9 million, and was primarily due to increased employee compensation, workers’ compensation premiums, and stock-based compensation, partially offset by a decrease in employee health insurance costs.

Fuel. Total fuel expense increased $15.3 million, or 31.3%, to $64.4 million for the nine months ended September 30, 2017 from $49.1 million for the nine months ended September 30, 2016. This increase was primarily a result of the Recent Acquisitions and higher fuel prices. Excluding the effect of the Recent Acquisitions, fuel expense increased 15.8% or $7.8 million. The U.S. national average diesel fuel price, as published by the U.S. Department of Energy, was $2.578 for the nine months ended September 30, 2017, compared to $2.2509.9% for the same period in 2016, a 14.6% increase.

2021. The Company’s Flatbed Solutions segment’s fuel expense increased 14.5% to $30.6 million for the nine months ended September 30, 2017 from $26.7 million for the nine months ended September 30, 2016, primarily as a result of higher fuel prices and partially offset by a 1.6% decrease in total miles.

The Company’s Specialized Solutions segment’s fuel expense increased 51.2% to $33.8 million for the nine months ended September 30, 2017 from $22.4 million for the nine months ended September 30, 2016, primarily as the result of the Recent Acquisitions and higher fuel prices. Excluding the effect of the Recent Acquisitions, fuel expense in the Specialized Solutions segment increased 17.4% to $26.3 million as a result of higher fuel prices and an increase in total miles.

Operations and Maintenance. Operations and maintenance expense increased 18.4% to $86.3 million for the nine months ended September 30, 2017 from $72.9 million for the nine months ended September 30, 2016, primarily as a result of the Recent Acquisitions. Operating and maintenance expense increased 6.9% after adjusting for the effect of the Recent Acquisitions.

The Company’s Flatbed Solutions segment’s operations and maintenance expense increased $2.9 million, or 11.7%, for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily as a result of increased shop supplies, road maintenance, tire replacements, and tractor lease costs asdifference between the Company’s utilization of operating leases to finance tractor purchases increased in 2017.

The Company’s Specialized Solutions segment’s operations and maintenance expense increased $10.3 million, or 21.6%, for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily as a result of the Recent Acquisitions. Excluding the effect of the Recent Acquisitions, operations and maintenance expense increased $2.0 million, or 4.1%, for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily as a result of increased tractor lease costs as the Company’s utilization of operating leases to finance tractor purchases increased in 2017 and higher pilot car expenses for alternative energy projects and other over-dimension loads, partially offset by decreases in in-house maintenance, road maintenance, and tire replacement costs.

Purchased Freight. Total purchased freight expense increased 23.6% from $120.5 million during the nine months ended September 30, 2016 to $148.9 million during the nine months ended September 30, 2017, primarily as a result of the Recent Acquisitions. Excluding the effect of the Recent Acquisitions on purchased freight expense, total purchased freight expense increased 7.0% to $128.9 million for the nine months ended September 30, 2017. Purchased freight expense from owner-operators, excluding the Recent Acquisitions, increased

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7.2% from $69.1 million during the nine months ended September 30, 2016 to $74.1 million during the nine months ended September 30, 2017, primarily as a result of increases in fuel surcharge reimbursements made to owner-operators as a result of higher fuel prices. Purchased freight expense from third-party capacity providers, excluding the Recent Acquisitions, increased 8.0% from $49.1 million during the nine months ended September 30, 2016 to $53.0 million during the nine months ended September 30, 2017, primarily as a result of the increase in rates on brokered loads.

The Company’s Flatbed Solutions segment’s purchased freight expense increased 17.5% to $70.2 million for the nine months ended September 30, 2017 from $59.8 million for the nine months ended September 30, 2016, primarily due to increases in total loads requiring higher utilization of owner-operators and third party capacity providers in the Company’s Flatbed Solutions segment. Purchased freight expense from owner-operators increased 10.6% to $49.2 million for the nine months ended September 30, 2017 from $44.4 million for the nine months ended September 30, 2016. Purchased freight expense from third-party capacity providers increased 39.1% from $13.5 million during the nine months ended September 30, 2016 to $18.8 million during the nine months ended September 30, 2017, primarily as a result of the increase in brokered loads in the Company’s Flatbed Solutions segment.

The Company’s Specialized Solutions segment’s purchased freight expense increased 30.5% to $83.7 million during the nine months ended September 30, 2017 from $64.2 million during the nine months ended September 30, 2016, as a result of the Recent Acquisitions. Excluding the effect of the Recent Acquisitions on purchased freight expense, total purchased freight expense decreased slightly to $63.7 million for the nine months ended September 30, 2017. Purchased freight expense from owner-operators, excluding the Recent Acquisitions, was relatively flat, increasing only 1.0% from the nine months ended September 30, 2016 to the nine months ended September 30, 2017. Purchased freight expense from third-party capacity providers, excluding the Recent Acquisitions, decreased 4.0% from $35.5 million during the nine months ended September 30, 2016 to $34.1 million during the nine months ended September 30, 2017, primarily as a result of increased utilization of company drivers during the current year.

Depreciation and Amortization. Depreciation and amortization expense increased 6.4% to $53.8 million during the nine months ended September 30, 2017 from $50.5 million during the nine months ended September 30, 2016, as a result of the Recent Acquisitions. After adjusting for the effect of the Recent Acquisitions, depreciation and amortization expense decreased 4.9%, primarily as a result of an increasing shift in utilization of operating leases to finance capital expenditures.

The Company’s Flatbed Solutions segment had a 3.3% decrease in depreciation and amortization expense for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 primarily as a result of a 1.3% reduction in company-owned tractors.

The Company’s Specialized Solutions segment had a 14.4% increase in depreciation and amortization expense for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 as a result of the Recent Acquisitions. After adjusting for the effect of the Recent Acquisitions, depreciation and amortization expense decreased 6.1%, primarily as a result of an increasing shift in utilization of operating leases to finance capital expenditures.

Taxes and Licenses. Taxes and license expense increased from $6.9 million for the nine months ended September 30, 2016 to $7.9 million for the nine months ended September 30, 2017. Excluding the effect of the Recent Acquisitions, operating taxes and license expense, as a percentage of revenue, was 1.3% for the nine months ended September 30, 2017 and 1.4% for the nine months ended September 30, 2016.

Insurance and Claims. Insurance and claims expense increased 13.7% to $15.5 million during the nine months ended September 30, 2017 from $13.6 million during the nine months ended September 30, 2016, primarily as a result of the Recent Acquisitions. Excluding the effect of the Recent Acquisitions, insurance and claims increased 1.6%, or $0.2 million. This increase can be primarily attributed to an increase in insurance premium rates, partially offset by a marginal decrease in total miles of 0.8% excluding miles from the Recent Acquisitions.

Interest Expense. Interest expense consists of cash interest, non-cash paid-in-kind interest, amortization of related issuance costs and fees and prepayment penalties. Interest expense increased 20.2% to $21.1 million during the nine months ended September 30, 2017 from $17.5 million during the nine months ended September 30, 2016. This increase was primarily attributable to an increase in amortization of debt issuance costs and higher interest rates on the Term Loan Facility as compared to debt outstanding in 2016 under the Senior Term Loan and Equipment Term Loans.

Income Tax. Income tax expense decreased from $0.6 million for the nine months ended September 30, 2016 to a benefit of $3.4 million for the nine months ended September 30, 2017. Excluding the effect of the Recent Acquisitions, the increase was primarily the result of the increase in loss before provision (benefit) for income taxes of $13.4 million for the nine months ended September 30, 2017 compared to the same period in 2016. The effective tax rate was 22.6% for the nine months ended September 30, 2017, compared to (69.1%) for the nine months ended September 30, 2016. The effective income tax rate varies fromand the federal statutory rate primarily results from the mix of 35% primarily due toearnings with state income taxes andjurisdictions, combined with the impact of nondeductible permanent differences, including driver per diems, transaction expenses and withdrawn Private Daseke IPO expenses.

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Non-GAAP Financial Measures

Adjusted EBITDA, Adjusted EBITDAR and Free Cash Flow

Adjusted EBITDA, Adjusted EBITDAR and free cash flow are not recognized measures under GAAP. The Company uses these non-GAAP measures as supplements to its GAAP results in evaluating certain aspects of its business, as described below.

The Company defines Adjusted EBITDA as netnontaxable income, (loss) plus (i) depreciation and amortization, (ii) interest expense, including other fees and charges associated with indebtedness, net of interest income, (iii) income taxes, (iv) acquisition-related transaction expenses (including due diligence costs, legal, accounting and other advisory fees and costs, retention and severance payments and financing fees and expenses), (v) non-cash impairments, (vi) losses (gains) on sales of defective revenue equipment out of the normal replacement cycle, (vii) impairments related to defective revenue equipment sold out of the normal replacement cycle, (viii) initial public offering-related expenses (which offering Private Daseke withdrew at the end of 2015), (ix) expensesprimarily related to the Business Combination and related transactions, (x) non-cash stock and equity-compensation expense, and (xi) accounting charges resulting from accounting for the possible earn-out pursuant to the Business Combination. The Company defines Adjusted EBITDAR as Adjusted EBITDA plus tractor operating lease charges.

The Company’s board of directors and executive management team use Adjusted EBITDA and Adjusted EBITDAR as key measures of its performance and for business planning. Adjusted EBITDA and Adjusted EBITDAR assist themchange in comparing its operating performance over various reporting periods on a consistent basis because they remove from the Company’s operating results the impact of items that, in their opinion, do not reflect the Company’s core operating performance. Adjusted EBITDA and Adjusted EBITDAR also allow the Company to more effectively evaluate its operating performance by allowing it to compare the results of operations against its peers without regard to its or its peers’ financing method or capital structure. Adjusted EBITDAR is used to view operating results before lease charges as these charges can vary widely among trucking companies due to differences in the way that trucking companies finance their fleet acquisitions. The Company’s method of computing Adjusted EBITDA is substantially consistent with that used in its debt covenants and also is routinely reviewed by its management for that purpose.

The Company believes its presentation of Adjusted EBITDA and Adjusted EBITDAR is useful because they provide investors and industry analysts the same information that the Company uses internally for purposes of assessing its core operating performance. However, Adjusted EBITDA and Adjusted EBITDAR are not substitutes for, or more meaningful than, net income (loss), cash flows from operating activities, operating income or any other measure prescribed by GAAP, and there are limitations to using non-GAAP measures such as Adjusted EBITDA and Adjusted EBITDAR. Certain items excluded from Adjusted EBITDA and Adjusted EBITDAR are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital, tax structure and the historic costs of depreciable assets. Also, other companies in its industry may define Adjusted EBITDA and Adjusted EBITDAR differently than the Company does, and as a result, it may be difficult to use Adjusted EBITDA, Adjusted EBITDAR or similarly named non-GAAP measures that other companies may use to compare the performance of those companies to its performance. Because of these limitations, Adjusted EBITDA and Adjusted EBITDAR should not be considered measuresfair value of the income generated by the Company’s business or discretionary cash available to it to invest in the growth of its business. The Company’s management compensates for these limitations by relying primarily on the Company’s GAAP results and using Adjusted EBITDA and Adjusted EBITDAR supplementally.warrant liability.

The Company defines free cash flow as Adjusted EBITDA less net capital expenditures (capital expenditures less proceeds from equipment sales). Its board of directors and executive management team use free cash flow to assess its performance and ability to fund operations and make additional investments. Free cash flow represents the cash that its business generates from operations, before taking into account cash movements that are non-operational. The Company believes its presentation of free cash flow is useful because it is one of several indicators of its ability to service debt, make investments and/or return capital to its stockholders. The Company also believes that free cash flow is one of several benchmarks used by investors and industry analysts for comparison of performance in its industry, although its measure of free cash flow may not be directly comparable to similar measures reported by other companies. Furthermore, free cash flow is not a substitute for, or more meaningful than, net income (loss), cash flows from operating activities, operating income or any other measure prescribed by GAAP, and there are limitations to using non-GAAP measures such as free cash flow. Accordingly, free cash flow should not be considered a measure of the income generated by its business or discretionary cash available to it to invest in the growth of its business. The Company’s management compensates for these limitations by relying primarily on the Company’s GAAP results and using free cash flow supplementally.

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A reconciliation of Adjusted EBITDA, Adjusted EBITDAR and free cash flow to net income (loss) for the three and nine months ended September 30, 2017 and 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

(In thousands)

    

2017

    

2016

 

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

50

 

$

(1,257)

 

$

(11,802)

 

$

(1,486)

Depreciation and amortization

 

 

19,805

 

 

16,998

 

 

53,758

 

 

50,515

Interest income

 

 

(76)

 

 

(4)

 

 

(130)

 

 

(40)

Interest expense

 

 

8,624

 

 

6,724

 

 

24,947

 

 

17,521

Income tax provision (benefit)

 

 

(2,862)

 

 

683

 

 

(3,448)

 

 

607

Acquisition-related transaction expenses

 

 

773

 

 

16

 

 

2,255

 

 

289

Impairment  

 

 

 —

 

 

1,195

 

 

 —

 

 

1,195

Stock based compensation

 

 

663

 

 

 —

 

 

1,201

 

 

 —

Withdrawn initial public offering-related expenses

 

 

 —

 

 

259

 

 

 —

 

 

3,050

Net losses on sales of defective revenue equipment out of the normal replacement cycle

 

 

 —

 

 

22

 

 

 —

 

 

718

Impairment on sales of defective revenue equipment out of the normal replacement cycle

 

 

 —

 

 

 —

 

 

 —

 

 

190

Expenses related to the Business Combination and related transactions

 

 

 —

 

 

344

 

 

2,034

 

 

344

Tractor operating lease charges

 

 

4,448

 

 

3,610

 

 

12,366

 

 

9,324

Adjusted EBITDAR

 

$

31,425

 

$

28,590

 

$

81,181

 

$

82,227

Less tractor operating lease charges

 

 

(4,448)

 

 

(3,610)

 

 

(12,366)

 

 

(9,324)

Adjusted EBITDA

 

$

26,977

 

$

24,980

 

$

68,815

 

$

72,903

Net capital expenditures

 

 

(14,930)

 

 

(10,549)

 

 

(23,922)

 

 

(31,236)

Free cash flow

 

$

12,047

 

$

14,431

 

$

44,893

 

$

41,667

Adjusted Operating Ratio

Adjusted operating ratio is not a recognized measure under GAAP. The Company uses adjusted operating ratio as a supplement to its GAAP results in evaluating certain aspects of its business, as described below. The Company defines adjusted operating ratio as (a) total operating expenses (i) less fuel surcharges, acquisition-related transaction expenses, non-cash impairment charges and initial public offering-related expenses (which offering Daseke withdrew at the end of 2015) and (ii) further adjusted for the net impact of the step-up in basis resulting from acquisitions (such as increased depreciation and amortization expense), as a percentage of (b) total revenue excluding fuel surcharge revenue.

The Company’s board of directors and executive management team view adjusted operating ratio, and its key drivers of revenue quality, growth, expense control and operating efficiency, as a very important measure of the Company’s performance. The Company believes fuel surcharge is often volatile and eliminating the impact of this source of revenue (by eliminating fuel surcharge from revenue and by netting fuel surcharge against fuel expense) affords a more consistent basis for comparing its results of operations between periods. The Company also believes excluding acquisition-related transaction expenses, additional depreciation and amortization expenses as a result of acquisitions, non-cash impairments and withdrawn initial public offering-related expenses enhances the comparability of its performance between periods.

The Company believes its presentation of adjusted operating ratio is useful because it provides investors and industry analysts the same information that it uses internally for purposes of assessing its core operating profitability. However, adjusted operating ratio is not a substitute for, or more meaningful than, operating ratio, operating margin or any other measure derived solely from GAAP measures, and there are limitations to using non-GAAP measures such as adjusted operating ratio. Although the Company believes that adjusted operating ratio can make an evaluation of its operating performance more consistent because it removes items that, in its opinion, do not reflect its core operations, other companies in its industry may define adjusted operating ratio differently than it does. As a result, it may be difficult to use adjusted operating ratio or similarly named non-GAAP measures that other companies may use to compare the performance of those companies to the Company’s performance. The Company’s management compensates for these limitations by relying primarily on its GAAP results and using adjusted operating ratio supplementally.

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A reconciliation of adjusted operating ratio to operating ratio for each of the three and nine months ended September 30, 2017 and 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

(Dollars in thousands)

2017

    

2016

 

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

$

231,322

 

$

174,148

 

$

589,079

 

$

501,386

Fuel surcharge

 

18,008

 

 

12,756

 

 

48,331

 

 

34,562

Operating revenue, net of fuel surcharge

$

213,314

 

$

161,392

 

$

540,748

 

$

466,824

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

$

225,618

 

$

168,066

 

$

579,759

 

$

485,050

Fuel surcharge

 

18,008

 

 

12,756

 

 

48,331

 

 

34,562

Acquisition-related transaction expenses

 

773

 

 

16

 

 

2,255

 

 

289

Impairment  

 

 —

 

 

1,195

 

 

 —

 

 

1,195

Withdrawn initial public offering-related expenses

 

 —

 

 

259

 

 

 —

 

 

3,050

Expenses related to the Business Combination and related transactions

 

 —

 

 

344

 

 

2,034

 

 

344

Net impact of step-up in basis of acquired assets

 

3,260

 

 

1,637

 

 

7,088

 

 

5,911

Adjusted operating expenses

$

203,577

 

$

151,859

 

$

520,051

 

$

439,699

 

 

 

 

 

 

 

 

 

 

 

 

Operating ratio

 

97.5%

 

 

96.5%

 

 

98.4%

 

 

96.7%

Adjusted operating ratio

 

95.4%

 

 

94.1%

 

 

96.2%

 

 

94.2%

A reconciliation of the Company’s Flatbed Solutions segment’s adjusted operating ratio to operating ratio for the three and nine months ended September 30, 2017 and 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

(Dollars in thousands)

    

2017

    

2016

 

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue(1)

 

$

85,592

 

$

78,975

 

$

253,794

 

$

237,169

Fuel surcharge

 

 

8,400

 

 

7,284

 

 

25,145

 

 

19,832

Operating revenue, net of fuel surcharge

 

$

77,192

 

$

71,691

 

$

228,649

 

$

217,337

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

$

80,837

 

$

75,181

 

$

238,839

 

$

223,128

Fuel surcharge

 

 

8,400

 

 

7,284

 

 

25,145

 

 

19,832

Net impact of step-up in basis of acquired assets

 

 

227

 

 

596

 

 

888

 

 

2,835

Adjusted operating expenses

 

$

72,210

 

$

67,301

 

$

212,806

 

$

200,461

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating ratio

 

 

94.4%

 

 

95.2%

 

 

94.1%

 

 

94.1%

Adjusted operating ratio

 

 

93.5%

 

 

93.9%

 

 

93.1%

 

 

92.2%

(1)

Includes intersegment revenues and expenses, as applicable, which are eliminated in the Company’s consolidated results.

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Table of Contents

A  reconciliation of the Company’s Specialized Solutions segment’s adjusted operating ratio to Operating Ratio for the three and nine months ended September 30, 2017 and 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

(Dollars in thousands)

    

2017

    

2016

 

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue(1)

 

$

147,631

 

$

96,534

 

$

340,289

 

$

267,651

Fuel surcharge

 

 

9,756

 

 

5,588

 

 

23,620

 

 

15,024

Operating revenue, net of fuel surcharge

 

$

137,875

 

$

90,946

 

$

316,669

 

$

252,627

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

$

140,472

 

$

90,795

 

$

327,533

 

$

252,962

Fuel surcharge

 

 

9,756

 

 

5,588

 

 

23,620

 

 

15,024

Impairment  

 

 

 —

 

 

1,195

 

 

 —

 

 

1,195

Net impact of step-up in basis of acquired assets

 

 

3,033

 

 

1,040

 

 

6,200

 

 

3,076

Adjusted operating expenses

 

$

127,683

 

$

82,972

 

$

297,713

 

$

233,667

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating ratio

 

 

95.2%

 

 

94.1%

 

 

96.3%

 

 

94.5%

Adjusted operating ratio

 

 

92.6%

 

 

91.2%

 

 

94.0%

 

 

92.5%

(1)Includes intersegment revenues and expenses, as applicable, which are eliminated in the Company’s consolidated results.

Liquidity, and Capital Resources and Capital Requirements

Overview

The Company’s business requires substantial amounts of cash to cover operating expenses as well as to fund items such as cash capital expenditures on its fleet and other assets, working capital changes, principal and interest payments on debt obligations, letters of credit to support insurance requirements and tax payments. The Company expects net capital expenditures to be approximately $35.0 million for 2017.

The Company’s primary sources of liquidity have been provided by operations, issuances of capital stock and borrowings under its credit facility. The Company had the following sources of liquidity available at September 30, 2017March 31, 2022 and December 31, 2016.2021 (in millions).

 

 

 

 

 

 

(In thousands)

    

September 30, 2017

    

December 31, 2016

 

 

 

 

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Cash

 

$

112,510

 

$

3,695

 

$

153.5

 

$

147.5

 

Availability under line of credit

 

 

70,000

 

 

32,958

 

 

123.1

 

 

 

107.8

 

Total

 

$

182,510

 

$

36,653

 

$

276.6

 

 

$

255.3

 

The Company’s primary sources of liquidity have been cash provided by operating activities, issuances of capital stock and borrowings under its credit facilities. The Company also receives cash from sales of equipment.

Cash increased by $108.8 million from December 31, 2016The Company’s business requires substantial amounts of cash for operating expenses, including salaries and wages paid to September 30, 2017. This increase primarily resulted from proceedsemployees, contract payments to independent contractors, insurance and claims payments, tax payments, and others. The Company also uses large amounts of new debt financingcash and equities issued, net of debt repayments and share repurchases, in conjunction with the Business Combination. Net proceeds totaled $34.7 million. See Note 2 of Notes to Consolidated Financial Statementscredit for more information. Additionally, on September 19, 2017, the Company raised $63.6 million from an offering of 5,675,967 shares of its common stock. See Note 11 of the Notes to the Consolidated Financial Statements for more information.capital expenditures.

As of September 30, 2017, the Company has (i) a $350.0 million senior secured term loan credit facility, consisting of a $250.0 million term loan and up to $100.0 million of term loans funded under a delayed draw term loan facility, and (ii) an asset-based senior secured revolving credit facility with an aggregate maximum credit amount equal to $70.0 million (subject to availability under a borrowing base). The delayed draw term loans are available to support the Company’s acquisition activities. See Note 9 of Notes to Consolidated Financial Statements for more information regarding the Term Loan Facility, the ABL Facility, the Senior Term Loan and the Line of Credit.

On August 16, 2017, the Company obtained an amendment of the Term Loan Facility that increased the delayed draw incurrence condition relating to pro forma total leverage ratio to 4.25x from 3.50x, effective August 16, 2017 through the maturity of the delayed draw term loan facility in February 2018, which enabled the Company to access $60.5 million from the delayed draw term loan facility in the three months ended September 30, 2017. The Term Loan Facility amendment also increased the total leverage ratio covenant for the test periods ending September 30, 2017 and December 31, 2017 to 4.75x from 4.25x, with step-downs reverting to pre-amendment levels beginning in the test period ending March 31, 2018. On August 31, 2017, the Company obtained an amendment to the ABL Facility that, among other things, similarly modified the total leverage ratio covenant thereunder.

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Table of Contents

The Company believes it can finance its expected cash needs, including debt repayment, in the short-term with cash flows from operations, and borrowings available under the ABL Facility. The Company expects that the Term Loan Facility and ABL Facility will provide sufficient credit availability to support its ongoing operations, fund its new debt service requirements, capital expenditures, and working capital needs. Over the long-term, the Company will continue to have significant capital requirements, and expects to devote substantial financial resources to grow its operations and fund its acquisition activities. As a result of these funding requirements, the Company likely will need to sell additional equity or debt securities or seek additional financing through additional borrowings, lease financing or equity capital. The availability of financing or equity capital will depend upon the Company’s financial condition and results of operations as well as prevailing market conditions. If such additional borrowings, lease financing or equity capital is not available at the time it needs to incur such expenditures, then the Company may be required to extend the maturity of then outstanding indebtedness, rely on alternative financing arrangements or engage in asset sales.

 

Since its inception, the Company has acquired over twenty open-deck trucking companies. The primary reason for each acquisition was to add resources and services in geographic areas, customers and markets that the Company wants to serve. The Company will continue to

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Table of Contents

evaluate potential acquisitions and any other sources of growth it considers in its best interest. Additionally, depending on the Company’s actual and anticipated sources and uses of liquidity, prevailing market conditions and other factors, the Company may from time to time seek to repay or repurchase outstanding debt or equity securities through cash purchases in the open market or privately negotiated transactions. The amounts involved in any such transactions may be material.

Capital Expenditures

The Company follows a dual strategy of both owning assets and employing asset-light activities, the latter of which reduces the capital expenditures required to operate the business. Asset-light activities are conducted utilizing tractors and trailers provided by owner operators and third-party carriers for significant portions of our flatbed and specialized services. Company-owned asset expenditures require substantial cash and financing (including finance and operating leases) to maintain a modern tractor fleet, refresh the trailer fleet, fund replacement and or growth in the revenue equipment fleet, and for the acquisition of real property and improvements to existing terminals and facilities.

Total property and equipment additions for the three months ended March 31, 2022 and 2021 are shown below (in millions):

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net cash capital receipts

 

$

(2.7

)

 

$

(4.9

)

Property and equipment acquired with debt or finance lease obligations

 

 

7.3

 

 

 

14.4

 

Total net property and equipment additions

 

$

4.6

 

 

$

9.5

 

Total net property and equipment additions decreased due to ongoing delays in receiving new equipment as the supply chain disruptions persisted throughout the three months ended March 31, 2022.

Additionally, the Company entered into operating leases for revenue equipment with terms of one year to four years and real property with terms of less than one year to five years having asset values at lease inception of $0.8 million and $7.3 million, respectively, for the three months ended March 31, 2022.

The Company currently estimates its 2022 net capital expenditures to be $145 million to $155 million.

Material Debt

Overview

As of March 31, 2022, the Company had the following material debt:

•
the Term Loan Facility and the ABL Facility;
•
equipment and real estate term loans; and
•
finance lease liabilities.

The amounts outstanding under such agreements were as follows (in millions):

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Term Loan Facility

 

$

396.0

 

 

$

397.0

 

ABL Facility

 

 

—

 

 

 

—

 

Equipment and real estate term loans

 

 

163.3

 

 

 

169.0

 

Finance lease liabilities

 

 

27.5

 

 

 

28.5

 

Total debt and finance lease liabilities

 

 

586.8

 

 

 

594.5

 

Less current portion

 

 

(55.2

)

 

 

(55.5

)

Less unamortized deferred financing fees

 

 

(7.3

)

 

 

(7.6

)

Long-term debt and finance lease liabilities, less current portion and unamortized deferred financing fees

 

$

524.3

 

 

$

531.4

 

The Company regularly evaluates its capital structure and liquidity position. From time to time and as opportunities arise, the Company may access the debt capital markets and modify its debt arrangements to optimize its capital structure and liquidity position.

See Note 7 of the Notes to Consolidated Financial Statements included herein for information regarding the Company’s material debt.

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Table of Contents

ABL and Term Loan Facilities and Equipment Financing Agreements

As of March 31, 2022, the Company has (i) a $400.0 million senior secured term loan credit facility (the Term Loan Credit Facility), and (ii) an asset-based senior secured revolving credit facility with an aggregate maximum credit amount equal to $150.0 million (that may be increased to $200.0 million, subject to availability under a borrowing base).

As of March 31, 2022, the Company had $163.3 million of equipment and real estate loans and $27.5 million of finance leases collateralized primarily by revenue equipment, with the majority of the equipment loans and finance leases having terms of 48 to 60 months.

As of March 31, 2022, the Company had no borrowings outstanding on the ABL Facility, $23.1 million in outstanding letters of credit, and $123.1 million available under the ABL Facility, based on current qualified collateral. Under the terms of the ABL Facility, lenders may issue up to $40 million of standby letters of credit on our behalf. Outstanding letters of credit reduce the availability on the $150 million ABL Facility. Standby letters of credit are generally issued for the benefit of regulatory authorities, insurance companies and state departments of insurance for the purpose of satisfying certain collateral requirements, primarily related to automobile, workers’ compensation, and general insurances liabilities.

Cash Flows

The Company’s summary statements of cash flows information for the ninethree months ended September 30, 2017March 31, 2022 and 20162021 is set forth in the table below:below (in millions):

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

(In thousands)

    

2017

    

2016

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

26,458

 

$

49,108

Net cash provided by (used in) investing activities

 

$

(101,446)

 

$

1,281

Net cash provided by (used in) financing activities

 

$

183,833

 

$

(50,506)

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net cash provided by operating activities

 

$

29.2

 

 

$

29.5

 

Net cash (used in) provided by investing activities

 

$

(16.6

)

 

$

4.9

 

Net cash used in financing activities

 

$

(6.3

)

 

$

(103.1

)

Operating Activities. Cash provided by the Company’s operating activities consists of net loss adjusted for certain non-cash items, including depreciation and amortization, deferred interest, gain/loss on disposal of property and equipment, deferred income taxes, deferred gain and interest recognized on sales-type leases, stock-based compensation, bad debt expense and the effect of changes in working capital and other activities.

Cash provided by operating activities was $26.5$29.2 million during the ninethree months ended September 30, 2017March 31, 2022 and consisted of $11.8$13.0 million of net lossincome plus $59.3$17.2 million of non-cash items, consisting primarily of depreciation, amortization, deferred taxes, gain on disposition of property and equipment, change in fair value of warrant liability and stock-based compensation, partially offset by $4.8 million in deferred taxes, less $16.2$1.0 million of net cash used forin working capital and other activities. Cash used forin working capital and other activities during the ninethree months ended September 30, 2017 primarilyMarch 31, 2022 reflect a $28.6an increase of $26.4 million increase in accounts receivable, $3.8an increase of $4.7 million in payments received on sales-type leases,drivers’ advances and a $8.4other receivables, partially offset by an increase of $20.4 million in accrued expenses and other liabilities, an increase of $5.4 million in accounts payable, and accrued expenses. Cash provided by operating activities was $49.1 million during the nine months ended September 30, 2016 and consisteda decrease of $1.5 million of net loss plus $53.3 million of non-cash items, consisting primarily of depreciation and amortization, less $2.4 million of net cash used for working capital and other activities. Cash used for working capital and other activities during the nine months ended September 30, 2016 primarily reflect a $7.2 million increase in accounts receivable, driver advances and other receivables, a $1.3 million decrease in accounts payable and accrued expenses, offset by a $3.5 million decrease in prepaid expenses and other assets and $2.8$4.3 million in payments received on sales-type leases.other current assets.

The $22.9$0.3 million decrease in cash provided by operating activities during the ninethree months ended September 30, 2017March 31, 2022, as compared with the ninethree months ended September 30, 2016, excluding the Recent Acquisitions,March 31, 2021, was primarily the result of a $4.7$20.3 million increaseimprovement in net loss, a $4.1income, reduced by decreases in non-cash items of $10.8 million decrease in deferred tax liabilities, a $2.2 million decrease in depreciation, and a $10.9 million increasedecreases in net cash used forprovided by working capital and other activities.of $9.8 million.

Investing Activities. Cash flows fromused in investing activities decreased from $1.3was $16.6 million for the three months ended March 31, 2022 as compared to provided by investing activities of $4.9 million for the ninethree months ended September 30, 2016March 31, 2021. This change is primarily due to $101.4a $19.3 million used in investing activitiescash payment for the nine months ended September 30, 2017 due to net cash paid for acquisitions of $91.1 millionSJ Transportation acquisition and an increase of $3.6 million in netcash equipment purchases, partially offset by an increase of $1.4 million in cash receipts from sales of revenue equipment for the three months ended March 31, 2022.

Total net cash capital receipts for the three months ended March 31, 2022 and 2021 are shown below (in millions):

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Revenue equipment (tractors, trailers and trailer accessories)

 

$

7.8

 

 

$

3.7

 

Buildings and building improvements

 

 

0.2

 

 

 

0.2

 

Other

 

 

0.8

 

 

 

1.3

 

Total cash capital expenditures

 

 

8.8

 

 

 

5.2

 

Less: Proceeds from sales of property and equipment

 

 

11.5

 

 

 

10.1

 

Net cash capital receipts

 

$

(2.7

)

 

$

(4.9

)

Financing Activities. Cash used in financing activities decreased from $103.1 million for the three months ended March 31, 2021 to $6.3 million for the three months ended March 31, 2022. During the three months ended March 31, 2022, we had approximately $86.6 million less net debt-related payments compared to same period in 2021, primarily as the result of $11.6the Company refinancing the Term Loan Facility during the three months ended March 31, 2021. During the three months ended March 31, 2022, we received $9.4 million in the nine months ended September 30, 2017proceeds from warrant exercises compared to none in the same period in 2016.2021.

25

48

Table of Contents

Critical Accounting Estimates

Total net capital expenditures forThe preparation of the nine months ended September 30, 2017Company’s consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires it to make estimates and 2016assumptions that impact the amounts reported in its consolidated financial statements and accompanying notes. Therefore, the reported amounts of assets, liabilities, revenue, expenses, and associated disclosures of contingent assets and liabilities are shown below:affected by these estimates and assumptions. The Company evaluates these estimates and assumptions on an ongoing basis, utilizing historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from these estimates and assumptions, and it is possible that materially different amounts will be reported using differing estimates or assumptions.

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

(In thousands)

    

2017

    

2016

 

 

 

 

 

 

 

Revenue equipment (tractors, trailers and trailer accessories)

 

$

14,391

 

$

1,904

Buildings and building improvements

 

 

174

 

 

401

Other

 

 

1,000

 

 

838

Total cash capital expenditures

 

$

15,565

 

$

3,143

Less: Proceeds from sales of property and equipment

 

 

5,252

 

 

4,424

Net cash capital (proceeds) expenditures(1)

 

$

10,313

 

$

(1,281)

(1)

The Company acquires property and revenue equipment with debt and capital lease obligations. For the nine months ended September 30, 2017 and 2016, the Company incurred $13.6 million and $32.5 million, respectively, of debt and capital lease obligations to acquire property and revenue equipment.

49

TableThe Company considers critical accounting estimates to be those that involve a significant level of Contents

The following tables provide detailsestimation uncertainty and have had or are reasonably likely to have a material impact on the cash and noncash components of gross capital expenditures for the Company’s reportable segments for the three and nine months ended September 30, 2017 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Flatbed

    

Specialized

    

 

 

    

 

 

 

 

Solutions

 

Solutions

 

Corporate/

 

Consolidated

 

 

Segment

 

Segment

 

Eliminations

 

Total

Three Months Ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

$

2,297

 

$

6,407

 

$

55

 

$

8,759

Proceeds from sale of property and equipment

 

 

(110)

 

 

(2,190)

 

 

 —

 

 

(2,300)

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncash investing and financing activities

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment acquired with debt or capital lease obligations

 

 

2,298

 

 

6,172

 

 

 —

 

 

8,470

Gross capital expenditures

 

$

4,485

 

$

10,389

 

$

55

 

$

14,929

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

$

326

 

$

1,029

 

$

19

 

$

1,374

Proceeds from sale of property and equipment

 

 

(164)

 

 

(281)

 

 

 —

 

 

(445)

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncash investing and financing activities

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment acquired with debt or capital lease obligations

 

 

7,698

 

 

1,922

 

 

 —

 

 

9,620

Gross capital expenditures

 

$

7,860

 

$

2,670

 

$

19

 

$

10,549

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Flatbed

    

Specialized

    

 

 

    

 

 

 

 

Solutions

 

Solutions

 

Corporate/

 

Consolidated

 

 

Segment

 

Segment

 

Eliminations

 

Total

Nine Months Ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

$

2,521

 

$

12,941

 

$

103

 

$

15,565

Proceeds from sale of property and equipment

 

 

(707)

 

 

(4,545)

 

 

 —

 

 

(5,252)

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncash investing and financing activities

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment acquired with debt or capital lease obligations

 

 

4,839

 

 

8,770

 

 

 —

 

 

13,609

Gross capital expenditures

 

$

6,653

 

$

17,166

 

$

103

 

$

23,922

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

$

688

 

$

2,299

 

$

156

 

$

3,143

Proceeds from sale of property and equipment

 

 

(2,756)

 

 

(1,668)

 

 

 —

 

 

(4,424)

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncash investing and financing activities

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment acquired with debt or capital lease obligations

 

 

15,019

 

 

17,498

 

 

 —

 

 

32,517

Gross capital expenditures

 

$

12,951

 

$

18,129

 

$

156

 

$

31,236

Financing Activities. Cash flows from financing activities increased from $50.5 million used in financing activities for the nine months ended September 30, 2016 to $183.8 million provided by financing activities for the nine months ended September 30, 2017. This increase was primarily a result of a recapitalization and refinancing of outstanding long-term debt in conjunction with the Business Combination. The recapitalization included $64.6 million of proceeds upon issuance of common stock and $65.0 million of proceeds upon issuance of Series A Preferred Stock, partially offset by $36.2 million in repurchases of common stock. Cash inflows from the recapitalization and proceeds from a new $250.0 million term loan (discussed under Material Debt below) were utilized in part for repayments of $66.7 million in subordinated debt, $211.1 million in long-term debt, $16.7 million on the line of credit and $14.2 million in financing fees. Excluding cash flows from the Business Combination, cash flows from financing activities included $6.9 million net repayments on the line of credit, $100.0 million advance on the delayed draw term loan facility, net of $16.6 million in repayments of long-term debt, $3.7 million Series A and Series B Preferred Stock dividends and proceeds of $63.6 million for the September 2017 issuance of common stock.

50

Table of Contents

Material Debt

Overview

As of September 30, 2017, the Company had the following material debt:

·

the Term Loan Facility and the ABL Facility;

·

secured equipment loans and capital lease agreements; and

·

bank mortgage secured by real estate

The amounts outstanding under such agreements were as follows as of September 30, 2017 (in thousands):

 

 

 

 

Term Loan Facility

 

$

348,462

Mortgages

 

 

3,730

Equipment term loans and capital leases

 

 

83,478

Total long-term debt and capital leases

 

 

435,670

Less: current portion

 

 

(26,514)

Long-term debt and capital leases, less current portion

 

$

409,156

See Note 9 of Notes to Consolidated Financial Statements for information regarding the Company’s material debt.

Off-Balance Sheet Arrangements

The Company’sCompany's financial condition or results of operations, liquidity, capital expenditures and capital resources are not materially affected by off-balance sheet transactions. Daseke had stand-by lettersoperations. See “Critical Accounting Estimates” included in Part II, Item 7 of credit in the amount of $11.1 million at September 30, 2017. The letters of credit provide collateral primarily for liability insurance claims. Also, the Company leases certain revenue equipment, terminals and office building facilities under non-cancelable operating leases. Daseke’s rent expense under these leases for the nine months ended September 30, 2017 was approximately $17.2 million.

At September 30, 2017, there were 17,520,332 shares of common stock issuable upon exercise of outstanding warrants.

Critical Accounting Policies

The Company’s significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements in the Company’s Currentour Annual Report on Form 8-K/A filed on March 16, 2017. The Company considers certain10-K for the year ended December 31, 2021, for a discussion of theseour critical accounting policies to be “critical”estimates; there have been no material changes to the portrayal of the Company’s financial position and results of operations, as they require the application of significant judgment by management. As a result, they are subject to an inherent degree of uncertainty. The Company identifies and discusses these “critical” accounting policies in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s Current report on Form 8-K/A filed on March 16, 2017. Management bases its estimates and judgments on historical experience and on various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, management evaluates its estimates and judgments, including those considered “critical.” Management has discussed the development, selection and evaluation ofcritical accounting estimates including those deemed “critical,” and the associated disclosures in this Quarterly Report on Form 10-Q with the Audit Committee of the Company’s board of directors.as disclosed therein.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the Company’s market risk since December 31, 2016.2021. For further information on the Company’s market risk, refer to “Item 2.01. Completion of Acquisition or Disposition of Assets—Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk—7A. Quantitative and Qualitative Disclosures About Market Risk” in the Company’s CurrentAnnual Report on Form 8-K/A10-K filed March 16, 2017.on February 23, 2022.

Item 4. Controls and Procedures

On February 27, 2017, Hennessy consummated the merger of Hennessy’s wholly-owned subsidiary, HCAC Merger Sub, Inc., with and into Daseke, Inc., with Daseke, Inc. surviving as a direct wholly-owned subsidiary of Hennessy. Upon the closing of the Business Combination on February 27, 2017, the sole business conducted by the Company is the business conducted by Daseke. Also, as a result of the Business

51

Table of Contents

Combination, the internal control over financial reporting utilized by Daseke prior to the Business Combination became the internal control over financial reporting of the Company.

Evaluation of Disclosure Controls and Procedures

The Company carried outAs of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s management conducted an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officerprincipal executive and Chief Financial Officer,principal financial officers, of the effectiveness of the design and operation of the Company’s “disclosuredisclosure controls and procedures”procedures (as defined in Rule 13a-15(e) of the Securities and Exchange Act Rule 13a-15(e)) as of the end of the period covered by1934 (the Exchange Act)). Based on this report. Based upon that evaluation, the Chief Executive Officerprincipal executive and Chief Financial Officerprincipal financial officers concluded that the Company’sour disclosure controls and procedures were effective as of September 30, 2017.March 31, 2022.

Changes in Internal Control over Financial Reporting

There werehave been no changes in the Company’sour internal control over financial reporting (as defined in RuleRules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the ninethree months ended September 30, 2017March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

52

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is party to a variety of legal proceedingsand its subsidiaries are involved in litigation and claims primarily arising in the normal course of business. Whilebusiness, which include claims for personal injury or property damage incurred in the resultstransportation of these proceedings cannot be predicted with certainty,freight. Based on its knowledge of the final outcomefacts and, in certain cases, advice of these proceedings areoutside counsel, the Company believes the resolution of claims and pending litigation will not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.flows, and the Company and its subsidiaries are not currently a party to, nor is their property currently subject to, any material legal proceedings other than ordinary routine litigation incidental to the business, and we are not aware of any such proceedings contemplated by governmental authorities.

Item 1A. Risk Factors

There have been no material changes in the risks facing the Company as described in the Company’s CurrentAnnual Report on Form 8-K filed on March 3, 2017, as amended on March 16, 2017 and May 4, 2017.10-K for the year ended December 31, 2021.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds26

During the three months ended September 30, 2017, in connection with, and as partial consideration for, certain acquisitions, the Company issued shares of common stock that were not registered under the Securities Act of 1933, as amended (the Securities Act), in reliance on the private offering exemption of Section 4(a)(2) of the Securities Act or the private offering safe harbor provision of Rule 506 of Regulation D promulgated thereunder based on the following factors: (i) the number of offerees or purchasers, as applicable, (ii) the absence of general solicitation, (iii) investment representations obtained from those receiving shares of the Company’s common stock, including with respect to their status as accredited investors, (iv) the provision of appropriate disclosure, and (v) the placement of restrictive legends on the certificates reflecting the securities. For additional information, see Note 3 of Notes to Consolidated Financial Statements.

53

Table of Contents

Item 6. Exhibits

EXHIBIT INDEX

Exhibit No.

Exhibit

3.1

3.1

Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the registrant on March 3, 2017).

3.2

Charter Amendment to Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q filed by the registrant on August 6, 2020).

3.3

By-Laws (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the registrant on May 25, 2018).

3.4

First Amendment to the By-Laws of Daseke, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the registrant on August 18, 2020).

3.5

Certificate of Designations, Preferences, Rights and Limitations of 7.625% Series A Convertible Cumulative Preferred Stock (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed by the registrant on March 3, 2017).

3.3

10.1*

Bylaws (incorporated by reference to Exhibit 3.3 to the registrant’s registration statement on Form S-1 (File No. 333-205152) filed byof Restricted Stock Unit Award Agreement (Non-Employee Directors) of the registrant on June 22, 2015)(commencing in 2022).

10.1

31.1*

Amendment No. 1 to Term Loan Agreement, dated as of August 16, 2017, among Daseke Companies, Inc., Daseke, Inc., Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the registrant on August 22, 2017).

10.2* 

First Amendment to Fifth Amended and Restated Revolving Credit and Security Agreement, dated as of August 31, 2017, by and among Daseke, Inc. Daseke Companies, Inc., each of its subsidiaries party thereto, the lenders party thereto and PNC Bank, National Association.

31.1*

Chief Executive Officer certification under Section 302 of Sarbanes-Oxley Act of 2002.

31.2*

Chief Financial Officer certification under Section 302 of Sarbanes-Oxley Act of 2002.

32.1**

Chief Executive Officer certification under Section 906 of Sarbanes-Oxley Act of 2002.

32.2**

Chief Financial Officer certification under Section 906 of Sarbanes-Oxley Act of 2002.

101.INS*

Inline XBRL Instance Document.

101.SCH*

Inline XBRL Taxonomy Extension Schema Document.

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

_____________________________

*

Filed herewith.

**104

Furnished herewith.Inline Cover Page Interactive Data File (embedded within the Inline XBRL document).

*

Filed herewith.

**

Furnished herewith.

27

54

Table of Contents

SIGNATURES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 3, 2022

DASEKE, INC.

Date November 9, 2017

DASEKE, INC.

By:

/s/ Jason Bates

By:Name:

/s/ R. Scott WheelerJason Bates

Name:Title:

R. Scott Wheeler

Title:

Executive Vice President and Chief Financial Officer

(On behalf of the Registrant and as the Registrant’s Principal Financial

Officer)

28

55