DASEKE, INC. Overview Introductory Note Daseke is a leading provider and consolidator of transportation and logistics solutions focused exclusively on flatbed and specialized (open-deck) freight inNorth America . The Company believes it provides one of the most comprehensive transportation and logistics solution offerings in the open-deck industry. The Company delivers a diverse offering of transportation and logistics solutions to approximately 6,700 customers across the continentalUnited States ,Canada andMexico 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 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-operator transportation, freight brokerage and 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. Recent Developments COVID-19 Pandemic
The Company expects that its results of operations and financial condition may continue to be adversely impacted in the near-term in 2021 by the COVID-19 pandemic, as levels of activity in the Company's business have historically been positively correlated to broad measures of economic activity and to measures of industrial production since many of the Company's customers are in the manufacturing and industrial segments. However, given the diversity of the Company's customer base and the various end markets that Daseke serves, not all of the Company's customers have been as affected, and at the beginning of 2021, the Company is seeing improvement in industrial demand, which had previously been pressured by the pandemic. As the coronavirus pandemic continues to evolve, we believe the extent of the impact to our business, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of the coronavirus pandemic, including as a result of the emergence of new variants of the coronavirus; the development, acceptance and efficacy of treatments and vaccines; the pandemic's impact on theU.S. and global economies; and the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic. Those primary drivers are beyond our knowledge and control, and there are no comparable recent events that provide guidance as to the effect the COVID-19 global pandemic may have. As a result, the ultimate impact of the pandemic is highly uncertain and subject to change. See "Item 1A. Risk Factors-Risks Relating to the COVID-19 Pandemic" in our Annual Report on Form 10-K/A, filed with theSEC onMay 6, 2021 , for more information regarding risks relating to the COVID-19 pandemic.
Debt Refinancing and ABL Amendment
OnMarch 9, 2021 , the Company,Daseke Companies, Inc. , a wholly-owned subsidiary of the Company (the Term Loan Borrower), and the Company's other domestic subsidiaries party thereto entered into the Term Loan Amendment. Pursuant to the Term Loan Amendment, the Company prepaid, refinanced and replaced all of the issued and outstanding term loans, which had an aggregate principal amount of$483.5 million (the Prior Term Loans), under the Term Loan Agreement with$83.5 million in cash on hand and new replacement terms loans in an aggregate principal amount of$400 million (the Replacement Term Loans). The Replacement Term Loans have a scheduled maturity date ofMarch 9, 2028 and an interest rate of LIBOR plus 4.00 percent (with a 0.75 percent LIBOR floor). The Prior Term Loans had a maturity date ofFebruary 27, 2024 and an interest rate of LIBOR plus 5.00 percent (with a 1.00 percent LIBOR floor). In addition, the Term Loan Amendment, among other things, (a) removed the total leverage financial covenant, which had been tested on a quarterly basis, and (b) provided additional covenant flexibility in the form of increased debt, lien, investment, disposition and restricted payment baskets. OnApril 29, 2021 , the Company,Daseke Companies, Inc. and the Company's other domestic subsidiaries party thereto entered into the ABL Amendment, which extended the scheduled maturity date of the ABL Facility fromFebruary 27, 2025 toApril 29, 2026 . The ABL Amendment also, among other things, (a) increased the Maximum Revolving Advance Amount (as defined therein) from$100 million to$150 million , (b) provides that the Maximum Revolving Advance Amount may be increased further from$150 million to$200 million (the ABL Amendment did not result in such an increase), (c) removed the total leverage financial covenant, which had been tested on a quarterly basis, and (d) provided additional covenant flexibility in the form of increased debt, lien, investment, disposition and restricted payment baskets. 16 Table of Contents Results of Operations The following table sets forth items derived from the Company's consolidated statements of operations for the three months endedMarch 31, 2021 and 2020 in dollars and as a percentage of total revenue and the increase or decrease in the dollar amounts of those items. Three Months Ended March 31, 2021 2020 Increase (Decrease) (Dollars in millions, except Rate per mile) $ % $ % $ % REVENUE: Company freight$ 145.1 43.5$ 180.9 46.3$ (35.8) (19.8) Owner operator freight 105.1 31.5 107.8 27.6 (2.7) (2.5) Brokerage 48.5 14.5 61.7 15.8 (13.2) (21.4) Logistics 8.5 2.5 10.1 2.6 (1.6) (15.8) Fuel surcharge 26.7 8.0 30.5 7.9 (3.8) (12.5) Total revenue 333.9 100.0 391.0 100.0 (57.1) (14.6) OPERATING EXPENSES:
Salaries, wages and employee benefits 90.7 27.2 110.4 28.2 (19.7) (17.8) Fuel 25.4 7.6 28.7 7.3 (3.3) (11.5) Operations and maintenance 30.3 9.1 45.6
11.7 (15.3) (33.6) Communications 1.1 0.3 1.0 0.3 0.1 10.0 Purchased freight 121.4 36.4 134.2 34.3 (12.8) (9.5) Administrative expenses 16.5 4.9 20.2 5.2 (3.7) (18.3) Sales and marketing 0.6 0.2 0.7 0.2 (0.1) (14.3) Taxes and licenses 3.9 1.2 4.5 1.2 (0.6) (13.3) Insurance and claims 16.8 5.0 15.0 3.8 1.8 12.0
Depreciation and amortization 22.2 6.6 26.3 6.7 (4.1) (15.6) Gain on disposition of revenue property and equipment (3.1) (0.9) (1.2) (0.3) (1.9) 158.3 Impairment - - 13.4 3.4 (13.4) (100.0) Restructuring charges - - 0.5 0.1 (0.5) (100.0) Total operating expenses 325.8 97.6 399.3 102.1 (73.5) (18.4)
INCOME (LOSS) FROM OPERATIONS 8.1 2.4 (8.3)
(2.1) 16.4 (197.6) Other expense (income): Interest income (0.1) - (0.3) (0.1) (0.2) (66.7) Interest expense 11.1 3.3 12.0 3.1 (0.9) (7.5)
Change in fair value of warrant liability 5.6 1.7 (1.0)
(0.3) 6.6 (660.0) Other (0.4) (0.1) 1.2 0.3 (1.6) (133.3) Total other expense 16.2 4.9 11.9 3.0 4.3 36.1 Income (loss) before benefit for income taxes (8.1) (2.4) (20.2) (5.2) 12.1 (59.9) Income tax benefit (0.8) (0.2) (3.9) (1.0) 3.1 (79.5) Net loss$ (7.3) (2.2)$ (16.3) (4.2)$ 9.0 (55.2) OPERATING STATISTICS: Company miles 58.7 67.3 (8.6) (12.8) Owner operator miles 44.7 49.9 (5.2) (10.4)
Total miles (in millions) 103.4 117.2
(13.8) (11.8)
Rate per mile $ 2.42 $ 2.46 $ (0.04) (1.8)
Company-operated tractors, at period-end 2,785 3,558 (773) (21.7) Owner-operated tractors, at period-end 2,091 2,193 (102) (4.7) Number of trailers, at period-end 11,478 12,704 (1,226) (9.7) Company-operated tractors, average for the period 2,833 3,558 (725) (20.4) Owner-operated tractors, average for the period 2,098 2,244 (146) (6.5) Total tractors, average for the period 4,931 5,802
(871) (15.0)
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The following table sets forth the Company's Specialized Solutions segment's
revenue, operating expenses and income (loss) from operations for the three
months ended March 31, 2021 and 2020 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 three months ended March 31, 2021 and 2020.
SPECIALIZED SOLUTIONS
Three Months Ended March 31,
2021 2020 Increase (Decrease)
(Dollars in millions, except Rate per
mile) $ % $ % $ %
REVENUE(1):
Company freight $ 102.7 55.9 $ 132.1 55.0 $ (29.4) (22.3)
Owner operator freight 34.6 18.8 42.8 17.8 (8.2) (19.2)
Brokerage 26.6 14.5 42.8 17.8 (16.2) (37.9)
Logistics 7.2 3.9 9.1 3.8 (1.9) (20.9)
Fuel surcharge 12.5 6.8 13.6 5.7 (1.1) (8.1)
Total revenue 183.6 100.0 240.4 100.0 (56.8) (23.6)
OPERATING EXPENSES(1):Salaries, wages and employee benefits 56.6 30.8 74.2 30.9 (17.6) (23.7) Fuel 17.1 9.3 18.3 7.6 (1.2) (6.6) Operations and maintenance 20.0 10.9 34.7 14.4 (14.7) (42.4) Purchased freight 49.4 26.9 68.5 28.5 (19.1) (27.9) Depreciation and amortization 13.1 7.1 16.9
7.0 (3.8) (22.5) Impairment - - 13.4 5.6 (13.4) (100.0) Restructuring - - 0.5 0.2 (0.5) (100.0)
Other operating expenses 16.9 9.2 20.4 8.5 (3.5) (17.2) Total operating expenses 173.1 94.3 246.9
102.7 (73.8) (29.9)
INCOME (LOSS) FROM OPERATIONS$ 10.5 5.7$ (6.5)
(2.7)$ 17.0 (261.5) OPERATING STATISTICS: Company miles 37.9 40.7 (2.8) (6.9) Owner operator miles 11.4 13.3 (1.9) (14.3)
Total miles (in millions) 49.3 54.0
(4.7) (8.7)
Rate per mile $ 2.78 $ 3.24 $ (0.45) (14.0)
Company-operated tractors, at
period-end 1,878 2,341 (463) (19.8)
Owner-operated tractors, at period-end 510 676 (166) (24.6)
Number of trailers, at period-end 7,270 8,110 (840) (10.4)
Company-operated tractors, average for
the period 1,894 2,344 (450) (19.2)
Owner-operated tractors, average for
the period 506 680 (174) (25.6)
Total tractors, average for the period 2,400 3,024
(624) (20.6)
(1) Includes intersegment revenues and expenses, as applicable, which are
eliminated in the Company's consolidated results.
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The following table sets forth the Company's Flatbed Solutions segment's
revenue, operating expenses and income (loss) from operations for the three
months ended March 31, 2021 and 2020 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 three
months ended March 31, 2021 and 2020.
FLATBED SOLUTIONS
Three Months Ended March 31,
2021 2020 Increase (Decrease)
(Dollars in millions, except Rate per
mile) $ % $ % $ %
REVENUE(1):
Company freight $ 44.8 29.2 $ 51.4 33.1 $ (6.6) (12.8)
Owner operator freight 71.0 46.3 66.1 42.6 4.9 7.4
Brokerage 22.1 14.4 19.6 12.6 2.5 12.8
Logistics 1.2 0.8 0.8 0.5 0.4 50.0
Fuel surcharge 14.4 9.5 17.3 11.1 (2.9) (16.8)
Total revenue 153.5 100.0 155.2 100.0 (1.7) (1.1)
OPERATING EXPENSES(1):Salaries, wages and employee benefits 28.6 18.6 33.4 21.5 (4.8) (14.4) Fuel 8.3 5.4 10.4 6.7 (2.1) (20.2) Operations and maintenance 10.3 6.7 10.7 6.9 (0.4) (3.7) Purchased freight 75.4 49.1 70.5 45.4 4.9 7.0 Depreciation and amortization 8.8 5.7 9.1
5.9 (0.3) (3.3) Other operating expenses 11.1 7.2 12.5 8.1 (1.4) (11.2) Total operating expenses 142.5 92.8 146.6 94.5 (4.1) (2.8)
INCOME (LOSS) FROM OPERATIONS$ 11.0 7.2$ 8.6
5.5$ 2.4 27.9 OPERATING STATISTICS: Company miles 20.8 26.6 (5.8) (21.8) Owner operator miles 33.3 36.6 (3.3) (9.0)
Total miles (in millions) 54.1 63.2
(9.1) (14.4)
Rate per mile $ 2.14 $ 1.86 $ 0.28 15.1
Company-operated tractors, at
period-end 907 1,217 (310) (25.5)
Owner-operated tractors, at period-end 1,581 1,517 64 4.2
Number of trailers, at period-end 4,208 4,594 (386) (8.4)
Company-operated tractors, average for
the period 939 1,214 (275) (22.7)
Owner-operated tractors, average for
the period 1,592 1,564 28 1.8
Total tractors, average for the period 2,531 2,778
(247) (8.9)
(1) Includes intersegment revenues and expenses, as applicable, which are
eliminated in the Company's consolidated results.
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Revenue. Total revenue decreased 14.6% to $333.9 million for the three months
ended March 31, 2021 from $391.0 million for the same period in 2020. The exit
of the Aveda operations resulted in a $42.0 million , or 10.7%, reduction in
total revenue. The remaining decrease in total revenue was due primarily to
decreases in company freight, fuel surcharge and brokerage revenue. Company
freight revenue decreased $35.8 million , or 19.8%, to $145.1 million for the
three months ended March 31, 2021 from $180.9 million for the same period in
2020. The decrease in company freight revenue was a result of a 1.8% decrease in
rate per mile and an 11.8% decrease in total miles driven, in conjunction with a
$25.2 million reduction due to the exit of the Aveda operations. Brokerage
revenue decreased $13.2 million , or 21.4%, to $48.5 million for the three months
ended March 31, 2021 from $61.7 million for the same period in 2020 due to a
$9.9 million reduction due to the exit of the Aveda operations combined with a
decrease in customer sales volumes. Fuel surcharge revenue, decreased $3.8
million , or 12.5%, to $26.7 million for the three months ended March 31, 2021
from $30.5 million for the same period in 2020 due to a decrease in loaded
miles.
The Company's Specialized Solutions segment's revenue decreased 23.6% to $183.6
million for the three months ended March 31, 2021 from $240.4 million for the
same period in 2020. The exit of the Aveda operations resulted in a $42.0
million , or 17.5%, reduction in the Specialized Solutions segment's revenue.
The remaining decrease was primarily due to decreases in brokerage revenue and
company freight. Company freight revenue decreased $29.4 million , or 22.3%, to
$102.7 million for the three months ended March 31, 2021 from $132.1 million for
the same period in 2020. The decrease in company freight revenue was primarily a
result of a 14.0% decrease in rate per mile and a 8.7% decrease in total miles
driven compared to the same period in 2020, in conjunction with a $25.2 million
reduction due to the exit of the Aveda operations. The decrease in rate per mile
was primarily driven by the exit of Aveda operation which historically had the
highest rate per mile within the segment. Brokerage revenue decreased $16.2
million , or 37.9%, to $26.6 million for the three months ended March 31, 2021
from $42.8 million for the same period in 2020 primarily due to a $9.9 million
reduction due to the exit of the Aveda operations combined with a decreasein customer sales volumes. The Company's Flatbed Solutions segment's revenue decreased$1.7 million , or 1.1%, to$153.5 million for the three months endedMarch 31, 2021 from$155.2 million for the same period in 2020, which was primarily due to a decrease in miles driven. Company freight revenue decreased$6.6 million , or 12.8%, to$44.8 million for the three months endedMarch 31, 2021 from$51.4 million for the same period in 2020. Owner operator freight revenue increased$4.9 million , or 7.4%, to$71.0 million for the three months endedMarch 31, 2021 from$66.1 million for the same period in 2020. Brokerage revenue increased$2.5 million , or 12.8%, to$22.1 million for the three months endedMarch 31, 2021 from$19.6 million for the same period in 2020 due to increase in customer volumes. The decrease in overall freight revenue was a result of a 14.4% decrease in total miles driven compared to the same period in 2020, offset by a 15.1% increase in rate per mile. Fuel surcharge revenue decreased$2.9 million , or 16.8%, to$14.4 million for the three months endedMarch 31, 2021 from$17.3 million for the same period in 2020 due to a decrease in loaded miles. 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 decreased 17.8% to$90.7 million for the three months endedMarch 31, 2021 from$110.4 million for the same period in 2020. The decrease in salaries, wages and employee benefits expense was primarily due to decreased employee headcount related to Project Pivot and Project Synchronize and driver pay due to the decrease in company miles compared to the same period in 2020. Salaries, wages and employee benefits expense, as a percentage of consolidated revenue (excluding brokerage revenue), decreased 1.8% for the three months endedMarch 31, 2021 as compared to the same period in 2020. The Company's Specialized Solutions segment had a$17.6 million , or 23.7%, decrease in salaries, wages and employee benefits expense for the three months endedMarch 31, 2021 compared to the same period in 2020, primarily as a result of the decreased employee headcount related to Project Synchronize and driver pay due to the decrease in company miles compared to the same period in 2020. Salaries, wages and employee benefits expense, as a percentage of Specialized Solutions revenue (excluding brokerage revenue), decreased 1.5% for the three months endedMarch 31, 2021 as compared to the same period in 2020. The Company's Flatbed Solutions segment had a$4.8 million , or 14.4%, decrease in salaries, wages and employee benefits expense for the three months endedMarch 31, 2021 compared to the same period in 2020, primarily as a result of the decreased employee headcount related to Project Synchronize and driver pay due to the decrease in company miles compared to the same period in 2020. Salaries, wages and employee benefits expense, as a percentage of Flatbed Solutions revenue (excluding brokerage revenue), decreased 2.9% for the three months endedMarch 31, 2021 as compared to the same period in 2020. 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. 20 Table of Contents Total fuel expense decreased$3.3 million , or 11.5%, to$25.4 million for the three months endedMarch 31, 2021 from$28.7 million for the same period in 2020. This decrease was primarily due to a 12.8% decrease in Company miles driven; offset by a 1.1% increase in fuel price. TheU.S. national average diesel fuel price, as published by theU.S. Department of Energy , was$2.913 for the three months endedMarch 31, 2021 , compared to$2.882 for the same period in 2020. The Company's Specialized Solutions segment's fuel expense decreased 6.6% to$17.1 million for the three months endedMarch 31, 2021 from$18.3 million for the same period in 2020, primarily as a result of a 6.9% decrease in Company miles driven for the three months endedMarch 31, 2021 as compared to the same period in 2020. The Company's Flatbed Solutions segment's fuel expense decreased 20.2% to$8.3 million for the three months endedMarch 31, 2021 from$10.4 million for the same period in 2020, primarily as a result of a 21.8% decrease in Company miles driven for the three months endedMarch 31, 2021 as compared to the same period in 2020. 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 decreased 33.6% to$30.3 million for the three months endedMarch 31, 2021 from$45.6 million for the same period in 2020 due to a decrease of$3.0 million in maintenance costs such as repairs and tires,$8.2 million in operation costs such as pilot car and permit fees, and$4.0 million in other operations expenses. Operations and maintenance expense, as a percentage of consolidated revenue (excluding brokerage revenue), decreased 3.2% for the three months endedMarch 31, 2021 as compared to the same period in 2020. The Company's Specialized Solutions segment's operations and maintenance expense decreased$14.7 million , or 42.4%, for the three months endedMarch 31, 2021 as compared to the same period in 2020 as a result of a decrease of$3.1 million in maintenance expense such as repairs, washes and tires due to a reduction of tractors and trailers in the Company's fleet, a decrease of$8.2 million in operation costs such as pilot car and permit fees and a decrease of$3.4 million in other operations expenses. Operations and maintenance expense, as a percentage of Specialized Solutions revenue (excluding brokerage revenue), decreased 4.8% for the three months endedMarch 31, 2021 as compared to the
same period in 2020. The Company's Flatbed Solutions segment's operations and maintenance expense decreased$0.4 million , or 3.7%, for the three months endedMarch 31, 2021 as compared to the same period in 2020. Operations and maintenance expense, as a percentage of Flatbed Solutions revenue (excluding brokerage revenue), for the three months endedMarch 31, 2021 was generally consistent with the same period in 2020.
Purchased Freight. Purchased freight expense consists of the payments to 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 lower payments during periods of declining fuel prices.
Total purchased freight expense decreased$12.8 million or 9.5% to$121.4 million during the three months endedMarch 31, 2021 from$134.2 million during the same period in 2020. Purchased freight expense from owner-operators decreased 3.5% to$86.5 million during the three months endedMarch 31, 2021 from$89.6 million during the same period in 2020 as a result of a 10.4% decrease in owner operator miles driven. Purchased freight expense from third-party capacity providers decreased 6.1% to$39.7 million during the three months endedMarch 31, 2021 from$42.3 million during the same period in 2020, as a result of lower rates and decreased utilization of third-party capacity providers. Purchased freight expense, as a percentage of consolidated revenue, for the three months endedMarch 31, 2021 , increased 2.0% for the three months endedMarch 31, 2021 as compared to the same period in 2020. The Company's Specialized Solutions segment's purchased freight expense decreased 27.9% to$49.4 million during the three months endedMarch 31, 2021 from$68.5 million during the same period in 2020. Purchased freight expense from owner-operators decreased 18.5% to$26.4 million during the three months endedMarch 31, 2021 from$32.4 million during the same period in 2020, as a result of a 14.3% decrease in owner operator miles driven. Purchased freight expense from third-party capacity providers decreased 22.5% to$20.0 million during the three months endedMarch 31, 2021 from$25.8 million during the same period in 2020, as a result of a decrease in utilization of third-party capacity providers. Purchased freight expense, as a percentage of Specialized Solutions revenue, for the three months endedMarch 31, 2021 , decreased 1.6% for the three months endedMarch 31, 2021 as compared to the same period in 2020. 21 Table of Contents The Company's Flatbed Solutions segment's purchased freight expense increased 7.0% to$75.4 million for the three months endedMarch 31, 2021 from$70.5 million for the same period in 2020. Purchased freight expense from owner-operators increased 5.1% to$60.1 million for the three months endedMarch 31, 2021 from$57.2 million for the same period in 2020, as a result of an increase in owner operators' rate. Purchased freight expense from third-party capacity providers increased 18.6% to$19.8 million during the three months endedMarch 31, 2021 from$16.7 million during the same period in 2020, primarily as a result of increased utilization of third-party capacity providers. Purchased freight expense, as a percentage of Flatbed Solutions revenue, for the three months endedMarch 31, 2021 , increased 3.7% for the three months endedMarch 31, 2021 as compared to the same period in 2020. Depreciation and Amortization. Depreciation and amortization expense consists primarily of depreciation for company-owned tractors and trailers and amortization of those financed with finance leases. The primary factors affecting these expense items include the size and age of company-owned tractors and trailers and the cost of new equipment. Amortization of intangible assets is also included in this expense. Depreciation and amortization expense decreased$4.1 million , or 15.6%, to$22.2 million during the three months endedMarch 31, 2021 from$26.3 million during the same period in 2020 as a result of a 20.4% decrease in average tractor
count in the Company's fleet.
The Company's Specialized Solutions segment's depreciation and amortization expense decreased$3.8 million , or 22.5%, for the three months endedMarch 31, 2021 as compared to the same period in 2020 as a result of a 19.2% decrease in average tractor count in the segment's fleet. The Company's Flatbed Solutions segment's depreciation and amortization expense decreased$0.3 million , or 3.3%, for the three months endedMarch 31, 2021 as compared to the same period in 2020 as a result of a 22.7% decrease in average tractor count in the segment's fleet. Administrative Expenses. Administrative expenses consists of operating lease cost for real estate, professional fees and other expenses that are not directly associated with the Company's fleet services. Administrative expense decreased$3.7 million for the three months endedMarch 31, 2021 as compared to the same period in 2020 as a result of cost reduction initiatives. Administrative expenses, as a percentage of revenue, was relatively consistent with the same period in 2020. 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 decreased$0.6 million for the three months endedMarch 31, 2021 . Operating taxes and license expense, as a percentage of revenue, was generally consistent for the three months endedMarch 31, 2021 and 2020. 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 factor affecting the Company's insurance and claims expense is 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 increase with the miles the Company travels. Insurance and claims expense increased 12.0% to$16.8 million during the three months endedMarch 31, 2021 from$15.0 million during the same period in 2020 due to increases in insurance claims and premiums. Insurance and claims, as a percentage of revenue, increased 1.2% for the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . Impairment. No impairment expense was recognized during the three months endedMarch 31, 2021 . As a result of the then-planned divestiture of Aveda, impairment charges of$13.4 million were recorded for the three months endedMarch 31, 2020 consisting of property and equipment of$4.0 million , right-of-use assets of$3.2 million and tradename intangible assets of$6.2
million. Restructuring Costs. No restructuring costs and$0.5 million were recognized in
the three months endedMarch 31, 2021 and 2020, respectively. The costs in 2020 were in connection with Phase I of Project Synchronize, which was completed in the first quarter of 2020, and the closure of certain Aveda terminals. Other (Income) Expense. Interest expense consists of cash interest, amortization and write-off of related issuance costs and fees and prepayment penalties. Interest expense decreased 7.5% to$11.1 million for the three months endedMarch 31, 2021 from$12.0 million for the three months endedMarch 31, 2020 . This decrease was primarily attributable to lower interest rates on the Term Loan Facility and decreases in equipment term loan outstanding balance. Change in fair value of warrant liability changed from a gain of$1.0 million for the three months endedMarch 31, 2020 to a loss of$5.6 million for the three months endedMarch 31, 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. In addition, for the three months endedMarch 31, 2021 , there was$1.1 million included in interest expense related to the write-off of unamortized debt issuance costs associated with the extinguishment of certain lenders in the debt refinancing. Other income for the three months endedMarch 31, 2021 was$0.4 million compared to other expense of$1.2 million for the three months endedMarch 31, 2020 related to gain or loss on disposal of non-revenue assets. 22 Table of Contents
Income Tax. Income tax benefit was$0.8 million for the three months endedMarch 31, 2021 compared to income tax benefit of$3.9 million for the same period in 2020. The effective tax rate was 9.9% for the three months endedMarch 31, 2021 , compared to 19.3% for the same period in 2020. The effective income tax rate varies from the federal statutory rate primarily due to the jurisdictional mix of earnings, combined with the unfavorable impact of nondeductible expenses, including the effect of the per diem pay structure for drivers and the change in fair value of warrant liability.
Liquidity, Capital Resources and Capital Requirements
The Company had the following sources of liquidity available atMarch 31, 2021 andDecember 31, 2020 . (Dollars in millions) March 31, 2021 December 31, 2020 Cash $ 107.3 $ 176.2 Availability under line of credit 82.7 83.2 Total $ 190.0 $ 259.4 The Company's primary sources of liquidity have been provided by operations, issuances of capital stock and borrowings under its credit facilities. Cash decreased by$68.9 million atMarch 31, 2021 as compared toDecember 31, 2020 . This decrease primarily resulted from an increase of$103.1 million in net cash used in financing activities; offset by a$29.5 million increase in net cash provided by operating activities. See below for more information. As ofMarch 31, 2021 , the Company had no borrowings,$16.7 million in outstanding letters of credit (discussed below), with$82.7 million available under the ABL Facility. The Company's business requires substantial amounts of cash for operating expenses, including salaries and wages paid to employees, contract payments to independent contractors, insurance and claims payments, tax payments, and others. OnMarch 22, 2021 , the Company's Board of Directors authorized the repurchase of up to three million shares of the Company's common stock. The repurchases will require cash to repurchase the shares. The Company also uses large amounts of cash and credit for the following activities: 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 capital expenditures for the three months endedMarch 31, 2021 and 2020 are shown below: Three Months Ended March 31, (Dollars in millions) 2021 2020 Net cash capital receipts $ (4.9) $ (1.3)
Financed capital expenditures 14.4
9.8
Property and equipment purchases and sales $ 9.5 $
8.5
Property and equipment purchases and sales increased due to an increase in financed capital expenditures due to timing of the Company's replacement cycle for revenue equipment offset by an increase in net cash capital receipts due to the sale of equipment to right size the Company's fleet. Additionally, the Company entered into operating leases for revenue equipment with terms of 2 to 5 years and real property with terms of 3 to 7 years having asset values at lease inception of$2.8 million and$3.0 million , respectively, for the three months endedMarch 31, 2021 . Material Debt Overview
As of
? the Term Loan Facility and the ABL Facility;
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? secured equipment loans and finance lease agreements; and
? bank mortgage secured by real estate.
The amounts outstanding under such agreements, excluding financing fees, were as
follows as of
Term Loan Facility$ 400.0 Mortgages 2.4 Equipment term loans 161.4 Finance lease obligations 31.4 Total long-term debt and finance leases
595.2
Less: current portion
(53.4)
Long-term debt and finance leases obligations, less current portion
ABL and Term Loan Facilities and Equipment Financing Agreements
As ofMarch 31, 2021 , the Company has (i) a$400.0 million senior secured term loan credit facility, and (ii) an asset-based senior secured revolving credit facility with an aggregate maximum credit amount equal to$100.0 million (that may be increased to$150.0 million , subject to availability under a borrowing base). See Note 6 of Notes to Consolidated Financial Statements for more information regarding the Term Loan Facility and the ABL Facility, including theMarch 9, 2021 Term Loan refinancing. The Company had$161.4 million of term loans and$31.4 million of finance leases collateralized primarily by revenue equipment, with terms of 48 to 60 months. Certain of the 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 ABL Facility) and transfers of assets. 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 ABL Facility will provide sufficient credit availability to support its ongoing operations, fund 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 may need to sell additional equity or debt securities or seek additional financing through additional borrowings, lease financing or equity capital, though it is not likely that the Company will issue any common stock in the near term. 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, the Company may be required to extend the maturity of then outstanding indebtedness, rely on alternative financing arrangements or engage in asset sales.
Letters of credit - 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$100 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 insurance liabilities.
Off-Balance Sheet Arrangements
Information about the Company's standby letters of credit is included in Note 6 of the Notes to Consolidated Financial Statements included herein. See also Liquidity and Capital Resources above. Cash Flows
The Company's summary statements of cash flows information for the three months
ended
Three Months Ended March 31,
(Dollars in millions) 2021 2020
Net cash provided by operating activities $ 29.5 $ 29.7 Net cash provided by investing activities $
4.9 $ 1.3
Net cash used in financing activities
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Operating Activities. Cash provided by operating activities was $29.5 million
during the three months ended March 31, 2021 and consisted of $7.3 million of
net loss plus $28.0 million of non-cash items, consisting primarily of
depreciation, amortization, non-cash operating lease expense, impairment, change
in fair value of warrant liability and stock-based compensation, plus $8.8
million of net cash provided by working capital and other activities. Cash
provided by working capital and other activities during the three months ended
March 31, 2021 reflect an increase of $3.4 million in accounts receivable and a
decrease of $3.8 million in accounts payable; offset by a $9.9 million increase
in accrued expenses and other liabilities, a $5.7 million decrease in other
current assets, $0.4 million decrease in drivers' advances and other
receivables.
The $0.2 million decrease in cash provided by operating activities during the
three months ended March 31, 2021 , as compared with the three months ended March
31, 2020 , was the result of a $9.0 million decrease in net loss, reduced by
decreases of $4.0 million in depreciation, $0.1 million in amortization of
intangible assets, $0.3 million in amortization of deferred financing fees, $3.3
million in non-cash operating lease expense, $0.7 million in bad debt expense,
$1.9 million increase in gain on disposition of property and equipment, $13.4
million in impairment, increased by $3.0 million in deferred taxes, $6.6 million
in change in fair value of warrant liability, $1.5 million in stock-based
compensation expense and $1.1 million in write-off of deferred financing fees.
Net cash provided by working capital decreased $0.2 million .
Investing Activities. Cash flows from investing activities increased from $1.3
million provided by investing activities for the thee months ended March 31,
2020 to $4.9 million provided by investing activities for the three months ended
March 31, 2021 reflecting an increase of $0.7 million in cash equipment
purchases and an increase of $4.3 million in cash receipts from sales of revenue
equipment for the three months ended March 31, 2021 .
Total net cash capital expenditures (receipts) for the three months ended
Three Months Ended March 31,
(Dollars in millions) 2021 2020
Revenue equipment (tractors, trailers and trailer accessories) $ 3.7 $ 4.0 Buildings and building improvements 0.2 0.1 Other 1.3 0.4 Total cash capital expenditures 5.2 4.5 Less: Proceeds from sales of property and equipment 10.1 5.8 Net cash capital expenditures (receipts) $
(4.9) $ (1.3) Financing Activities. Cash flows from financing activities increased from$20.0 million used in financing activities for the three months endedMarch 31, 2020 to$103.1 million used in financing activities for the three months endedMarch 31, 2021 . This increase was primarily a result of net debt payments of$83.1 million . Inflation
Inflation can have an impact on the Company's operating costs. A prolonged period of inflation could cause interest rates, fuel, wages and other costs to increase, which would adversely affect the Company's results of operations unless freight rates correspondingly increase. The Company attempts to limit the effects of inflation through increases in freight rates, certain cost control efforts and limiting the effects of fuel prices through fuel surcharges and measures intended to reduce the consumption of fuel. Over the past three fiscal years, the effect of inflation has been immaterial. Seasonality In the transportation industry, results of operations generally show a seasonal pattern. The Company's productivity decreases during the winter season because inclement weather impedes operations, end-users reduce their activity and certain shippers reduce their shipments during winter. At the same time, operating expenses increase and fuel efficiency decreases because of engine idling and harsh weather creating higher accident frequency, increased claims and higher equipment repair expenditures. The Company also may suffer from weather-related or other events such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes and explosions. These events may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies, destroy the Company's assets, increase insurance costs or adversely affect the business or financial condition of its customers, any of which could adversely affect the Company's results of operations or make such results more volatile. Critical Accounting Policies The Company's significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K/A filed onMay 6, 2021 . The Company considers certain of these accounting policies to be "critical" to the 25
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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 Annual Report on Form 10-K/A filed onMay 6, 2021 . 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 of 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.
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