Daseke : Annual Report (PDF 653 KB)

Daseke 2020 Annual Report

A Letter from our Chairman and Senior Leadership Team

Dear Fellow Stockholders,

As we at Daseke reflect upon the past year, we have a lot to be proud of and thankful for, as 2020 was a truly "extraordinary" year in every sense of the word. Our organization delivered exceptional operational and financial performance in the face of a global health crisis. This execution reinforced the foundation of our Company and furthered the progress gained since our transformational work began in 2019. First and foremost, we want to thank our employees who not only adapted to the unprecedented challenges put in front of us, but who rose above those challenges to continue serving our customers safely, effectively, and efficiently.

As an organization, we had to take swift and proactive steps to ensure the safety of our people and our communities, while maintaining diligence in support of our transformation initiatives. We've always been intently focused on safety at Daseke, and never has that been more true than in 2020. Staying committed to this philosophy was critically important, as we continued to move the industrial economy forward through the pandemic.

Keeping the Momentum

As you recall, we began 2020 still very much in "execution mode." We entered the year with a renewed focus, committed to seamless execution of our operationally-focused strategy, as we sought to fundamentally shift our approach to equity value creation. We continued the process of judiciously rationalizing our operations and fixed asset profile, as well as right-sizing our cost structure, with a long- term goal to deliver best-in-class operational and financial performance.

We successfully completed Phase I and materially completed Phase II of our business improvement and operational integration plans, reshaping our footprint after integrating several lagging operating companies into similar, yet higher-performing operators. We have always had a strong portfolio of operating companies but knew there was a tremendous amount of untapped potential and value embedded within the platform. This operational integration effort was only the first step in capturing this meaningful synergistic value, while helping to further optimize our existing footprint.

Additionally, early in 2020, we made the decision to strategically divest assets of Aveda Transportation and Energy Services ("Aveda"), a non-core operating company, which further streamlined our operating footprint in the Specialized market. Perhaps more importantly, this strategic divestiture meaningfully decreased the Company's exposure to the volatility of the Oil & Gas market, which we concluded had limited long-term fit in our existing portfolio.

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Building out Senior Leadership

One of the most important developments for our organization in 2020 was successfully advancing the build-out of our Executive leadership team, now including proven industry veterans. This began with bringing EVP, CFO, and Treasurer Jason Bates to the team, and with him over twenty years of public transportation sector experience. Next, we announced the appointment of Rick Williams to the EVP and COO position, after his previous tenure leading our Flatbed segment. The addition of Mr. Bates and Mr. Williams to the Executive leadership team, in conjunction with our deep talent at the operating company level, helped drive our tactical execution in 2020.

2020 Financial Results

In 2020, Daseke generated $1.45 billion of revenue. Excluding Aveda, we delivered $1.40 billion of revenue, which was down 8% from the prior year as the pandemic weighed on demand across the industrial economy. Despite the top-line pressure introduced by the global pandemic, Daseke delivered marked improvement in operating income, which was a first-order priority heading into the year. We delivered operating income, adjusted operating income and adjusted operating income excluding Aveda, of $35.4 million, $61.4 million and $89.4 million, respectively, each of which represented a significant improvement compared to the operating loss of $312.1 million, adjusted operating income of $55.0 million and adjusted operating income excluding Aveda of $55.7 million in the prior year. The transformative actions taken to shore up our business and maintain resilience in performance through all environments, as well as pockets of strength in select industrial verticals such as renewable energy and high-security cargo, allowed us to overcome the impacts of the softer freight market environment.

It's clear that the applied focus on operating performance has helped drop results to the bottom line. Better optimization of our assets and footprint, combined with targeted cost reductions also allowed us to deliver $137.3 million in cash from operations and $168.9 million in Free Cash Flow. These totals show healthy improvement compared to $114.4 million in cash from operations and $129.9 million in Free Cash Flow generated in the prior year, further demonstrating the highly cash flow generative nature of the Daseke business model, even through periods of market stress. Improved operating cash flow performance, combined with the strategic divestiture of the Aveda business, led improvements that helped further strengthen our balance sheet, reducing our net debt by nearly $105 million in 2020, and lowering the Company's leverage ratio, as defined by our term loan credit agreement, to 2.6x at year end, down from 3.25x in the prior year.

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Our Operating Ratio, the key metric we use to evaluate how efficiently we are running our operations finished the year at 97.6%, or 94.3% on an adjusted basis. Ex-Aveda, our Operating Ratio and Adjusted Operating Ratio was 95.6% and 93.6%, respectively. While this was a marked improvement relative to the prior year and our best full-year performance as a public company, we still have a lot of work left to do.

During the year we stated the explicit long-term goal of achieving a sub-90% Operating Ratio, and while we will need to continue to execute and drive further opportunities for efficiency and optimization, we are confident we have the team and the strategy in place to achieve that over the coming years.

The operational work that has driven the improvements in financial performance are driving strategic benefits across the enterprise as well. The work concluded over the last year and a half was a significant driving force to Daseke's successful balance sheet improvements. As we write to you in early 2021, we have successfully completed our balance sheet restructuring. Our recent term loan refinancing resulted in a reduction in overall debt, a lower cost of capital, and a maturity extension, all while increasing financial flexibility through a covenant-lite structure. Our credit rating agencies have responded in kind by upgrading our credit ratings in recognition of our improved financial performance and improving balance sheet health.

2021 Priorities

Daseke has spent the last six quarters instilling discipline and a continuous improvement mindset, in order to effectuate the holistic improvement and profitability enhancement across our business. In 2021, maintaining and building upon the momentum generated over the last year and a half will be crucial for our continued success. We have outlined a set of key priorities that will help us as we execute against this overarching priority.

First, it's important to note that we are still facing the impacts of a global health crisis, and while the situation has improved in recent months, we will absolutely continue to prioritize the safety of our employees, contractors, and customers just like we have through 2020.

Second, we will make targeted investments in our workflows and our technology. Better leveraging of our current capabilities, combined with better cooperation and data-driven decision making, will help drive meaningful improvements in both our top and bottom lines.

Third, we will continue to take actions to strengthen our balance sheet. Improving our credit metrics and moderating our leverage profile will be of key importance, as it will help further establish resilience to our financial results irrespective of market cyclicality. A defensible balance sheet will also ensure that we can be opportunistic regarding our markets and maintain robust access to capital where necessary.

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And finally, we will look to pursue selective growth opportunities, leveraging the scale embedded within our platform. Over the last year Daseke has demonstrated that we are adept at efficiently integrating operating units in order to capture synergistic value, while capitalizing on the substantial operating leverage that exists in our organization. Going forward, we will look for immediately accretive opportunities that we can "bolt on" to our platform. Once integrated, these opportunities will provide Daseke with increased depth in key industry verticals and geographies, allowing us to get closer to our key customers, which will ultimately enable us to use our capabilities, scale and cost structure as a competitive advantage to expand and retain market share.

2020 was a tremendously challenging year but one that not only demonstrated Daseke's mettle, but the unique value proposition we bring to the industrial economy, and we're only just getting started. We want to thank our employees, contractors, customers, and stockholders for their unwavering support during this pivotal time for our Company.

Sincerely,

Brian Bonner	Jonathan Shepko	Jason Bates
Chairman	Interim Chief Executive Officer	Chief Financial Officer

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