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, 2019

 

OR

 

 

 

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

 

For the transition period from ________ to _________

 

PICTURE 4

DASEKE, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

Delaware
(State or other jurisdiction of incorporation or organization)

 

001-37509
(Commission
File Number)

 

47-3913221
(IRS Employer
Identification No.)

 

 

 

 

 

15455 Dallas Parkway, Suite 550
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)

 

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 every Interactive Data File required to be submitted 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 such files).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

 

 

 

☐ 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  ☒

 

 

 

 

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 Capital Market

 

Common shares of the registrant outstanding at November 8, 2019 were 64,589,075.

 

 

 

Table of Contents

DASEKE, INC.

FORM 10-Q

For the Quarterly Period Ended September 30, 2019

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 Statement of Changes in Stockholders' Equity 

 

3

Consolidated Statements of Cash Flows 

 

5

Notes to Consolidated Financial Statements 

 

7

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

 

29

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

 

60

Item 4. Controls and Procedures 

 

60

Part II. Other Information 

 

62

Item 1. Legal Proceedings 

 

62

Item 1A. Risk Factors 

 

62

Item 5. Other Information 

 

62

Item 6. Exhibits Index 

 

63

Signatures 

 

64

 

 

 

 

 

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 contain words such as “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “believe,” “plan,” “should,” “could,” “would,” “forecast,” “seek,” “target,” “predict,” and “potential,” the negative of these terms, or other comparable terminology. Forward-looking statements may include statements about the Company’s goals; 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 operating 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 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. Accordingly, 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 the Company’s control) that could cause actual results to differ materially from the 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, driver shortages and increases in driver compensation or owner-operator contracted rates, loss of senior management or key operating personnel, seasonality and the impact of weather and other catastrophic events, fluctuations in the price or availability of diesel fuel, increased prices for, or decreases in the availability of, new revenue equipment and decreases in the value of used revenue equipment, the failure of any restructuring actions and cost reduction initiatives that the Company undertakes to meet the expected results, the Company’s ability to generate sufficient cash to service all of the Company’s indebtedness, restrictions in its existing and future debt 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, litigation and governmental proceedings, and insurance and claims expenses. For additional information regarding known material factors that could cause the Company’s actual results to differ from its projected results, please see the Company’s filings with the Securities and Exchange Commission (the SEC), particularly the section titled “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K, filed with the SEC on March 8, 2019, and the Company’s Quarterly Report on Form 10-Q, filed with the SEC on August 5, 2019.

 

All forward-looking statements, expressed or implied, attributed to the Company or persons acting on its behalf are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that the Company or persons acting on its behalf may issue.

 

 

 

 

Table of Contents

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions, except share data)

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2019

 

2018

ASSETS

 

 

 

 

 

 

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

79.6

 

$

46.0

Accounts receivable, net of allowance of $2.6 at September 30, 2019 and $1.2 at December 31, 2018

 

 

230.3

 

 

209.2

Drivers’ advances and other receivables

 

 

8.0

 

 

5.5

Current portion of net investment in sales-type leases

 

 

 —

 

 

16.2

Parts supplies

 

 

3.9

 

 

4.9

Prepaid and other current assets

 

 

21.9

 

 

26.3

Total current assets

 

 

343.7

 

 

308.1

 

 

 

 

 

 

 

Property and equipment, net

 

 

463.1

 

 

572.7

Intangible assets, net

 

 

111.0

 

 

208.8

Goodwill

 

 

145.7

 

 

258.4

Right-of-use assets

 

 

97.0

 

 

 —

Other long-term assets

 

 

29.6

 

 

42.9

Total assets

 

$

1,190.1

 

$

1,390.9

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

24.0

 

$

22.2

Accrued expenses and other liabilities

 

 

54.2

 

 

46.5

Accrued payroll, benefits and related taxes

 

 

39.6

 

 

21.7

Accrued insurance and claims

 

 

18.6

 

 

18.1

Current portion of long-term debt

 

 

61.6

 

 

63.5

Other current liabilities

 

 

49.9

 

 

21.9

Total current liabilities

 

 

247.9

 

 

193.9

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

639.1

 

 

622.7

Deferred tax liabilities

 

 

66.2

 

 

126.8

Other long-term liabilities

 

 

79.6

 

 

0.5

Total liabilities

 

 

1,032.8

 

 

943.9

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

  

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

  

 

 

  

Series A convertible preferred stock, $0.0001 par value; 10,000,000 shares authorized; 650,000
shares issued with liquidation preference of $65.0 at September 30, 2019 and December 31, 2018

 

 

65.0

 

 

65.0

Common stock, par value $0.0001 per share; 250,000,000 shares authorized, 64,583,275 and
64,455,174 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

 —

 

 

 —

Additional paid-in-capital

 

 

436.6

 

 

433.9

Accumulated deficit

 

 

(343.7)

 

 

(51.0)

Accumulated other comprehensive loss

 

 

(0.6)

 

 

(0.9)

Total stockholders’ equity

 

 

157.3

 

 

447.0

Total liabilities and stockholders’ equity

 

$

1,190.1

 

$

1,390.9

 

 

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

 

1

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In millions, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2019

    

2018

    

2019

    

2018

Revenues:

 

 

  

 

 

  

 

 

  

 

 

  

Company freight

 

$

205.2

 

$

206.9

 

$

618.2

 

$

511.4

Owner operator freight

 

 

118.3

 

 

122.6

 

 

351.1

 

 

330.7

Brokerage

 

 

78.6

 

 

82.2

 

 

222.8

 

 

188.4

Logistics

 

 

13.5

 

 

11.6

 

 

39.0

 

 

31.3

Fuel surcharge

 

 

34.8

 

 

38.3

 

 

102.9

 

 

104.3

Total revenue

 

 

450.4

 

 

461.6

 

 

1,334.0

 

 

1,166.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

Salaries, wages and employee benefits

 

 

127.7

 

 

114.8

 

 

371.1

 

 

287.7

Fuel

 

 

34.1

 

 

38.9

 

 

105.3

 

 

103.7

Operations and maintenance

 

 

56.8

 

 

51.5

 

 

164.7

 

 

126.4

Communications

 

 

1.0

 

 

0.9

 

 

3.2

 

 

2.4

Purchased freight

 

 

155.5

 

 

170.6

 

 

458.5

 

 

429.9

Administrative expenses

 

 

21.4

 

 

16.1

 

 

54.7

 

 

41.3

Sales and marketing

 

 

1.3

 

 

1.0

 

 

3.8

 

 

2.3

Taxes and licenses

 

 

4.8

 

 

4.7

 

 

14.7

 

 

12.3

Insurance and claims

 

 

13.4

 

 

12.7

 

 

38.1

 

 

32.4

Acquisition-related transaction expenses

 

 

 —

 

 

0.6

 

 

 —

 

 

2.4

Depreciation and amortization

 

 

38.3

 

 

36.8

 

 

119.5

 

 

93.8

Gain on disposition of property and equipment

 

 

(1.0)

 

 

(0.9)

 

 

(2.1)

 

 

(1.5)

Impairment

 

 

306.8

 

 

 —

 

 

306.8

 

 

2.8

Restructuring charges

 

 

6.9

 

 

 —

 

 

6.9

 

 

 —

Total operating expenses

 

 

767.0

 

 

447.7

 

 

1,645.2

 

 

1,135.9

Income (loss) from operations

 

 

(316.6)

 

 

13.9

 

 

(311.2)

 

 

30.2

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income):

 

 

  

 

 

  

 

 

  

 

 

  

Interest income

 

 

(0.3)

 

 

(0.2)

 

 

(0.7)

 

 

(1.2)

Interest expense

 

 

12.8

 

 

11.9

 

 

38.2

 

 

33.2

Write-off of deferred financing fees

 

 

2.0

 

 

 —

 

 

2.0

 

 

 —

Other

 

 

 —

 

 

(0.7)

 

 

(1.3)

 

 

(2.5)

Total other expense

 

 

14.5

 

 

11.0

 

 

38.2

 

 

29.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before benefit for income taxes

 

 

(331.1)

 

 

2.9

 

 

(349.4)

 

 

0.7

Provision (benefit) for income taxes

 

 

(57.8)

 

 

0.7

 

 

(60.4)

 

 

(14.2)

Net income (loss)

 

 

(273.3)

 

 

2.2

 

 

(289.0)

 

 

14.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

  

 

 

  

 

 

  

 

 

  

Foreign currency translation adjustments, net of tax of $0.1, $0.1, $(0.2) and $(0.1), respectively

 

 

(0.2)

 

 

0.3

 

 

0.3

 

 

(0.6)

Comprehensive income (loss)

 

 

(273.5)

 

 

2.5

 

 

(288.7)

 

 

14.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

(273.3)

 

 

2.2

 

 

(289.0)

 

 

14.9

Less dividends to Series A convertible preferred stockholders

 

 

(1.2)

 

 

(1.2)

 

 

(3.7)

 

 

(3.7)

Net income (loss) attributable to common stockholders

 

$

(274.5)

 

$

1.0

 

$

(292.7)

 

$

11.2

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

  

 

 

  

 

 

  

 

 

  

Basic and Diluted

 

$

(4.25)

 

$

0.01

 

$

(4.54)

 

$

0.18

Weighted-average common shares outstanding:

 

 

  

 

 

  

 

 

  

 

 

  

Basic and Diluted

 

 

64,583,275

 

 

65,289,320

 

 

64,525,777

 

 

60,413,694

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per Series A convertible preferred share

 

$

1.91

 

$

1.91

 

$

5.72

 

$

5.72

 

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

 

2

Table of Contents

 

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Nine Months Ended September 30, 2019

(Unaudited)

(In millions, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Convertible

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Preferred Stock

 

Common Stock

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Par

 

Additional

 

Accumulated

 

Comprehensive

 

 

 

 

    

Shares

    

Amount

    

Shares

    

Value

    

Paid- In Capital

    

Deficit

    

Income (Loss)

    

Total

Balance at January 1, 2019

 

650,000

 

$

65.0

 

64,455,174

 

$

 —

 

$

433.9

 

$

(51.0)

 

$

(0.9)

 

$

447.0

Vesting of restricted stock units

 

 —

 

 

 —

 

14,498

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Series A convertible preferred stock dividend

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(1.2)

 

 

 —

 

 

(1.2)

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 

1.0

 

 

 —

 

 

 —

 

 

1.0

Foreign currency translation adjustments

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

0.1

 

 

0.1

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(9.3)

 

 

 —

 

 

(9.3)

Balance at March 31, 2019

 

650,000

 

$

65.0

 

64,469,672

 

$

 —

 

$

434.9

 

$

(61.5)

 

$

(0.8)

 

$

437.6

Vesting of restricted stock units

 

 —

 

 

 —

 

110,321

 

 

 —

 

 

(0.2)

 

 

 —

 

 

 —

 

 

(0.2)

Series A convertible preferred stock dividend

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(1.3)

 

 

 —

 

 

(1.3)

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 

0.9

 

 

 —

 

 

 —

 

 

0.9

Foreign currency translation adjustments

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

0.4

 

 

0.4

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(6.4)

 

 

 —

 

 

(6.4)

Balance at June 30, 2019

 

650,000

 

$

65.0

 

64,579,993

 

$

 —

 

$

435.6

 

$

(69.2)

 

$

(0.4)

 

$

431.0

Vesting of restricted stock units

 

 —

 

 

 —

 

3,282

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Series A convertible preferred stock dividend

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(1.2)

 

 

 —

 

 

(1.2)

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 

1.0

 

 

 —

 

 

 —

 

 

1.0

Foreign currency translation adjustments

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(0.2)

 

 

(0.2)

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(273.3)

 

 

 —

 

 

(273.3)

Balance at September 30, 2019

 

650,000

 

$

65.0

 

64,583,275

 

$

 —

 

$

436.6

 

$

(343.7)

 

$

(0.6)

 

$

157.3

 

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

3

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Nine Months Ended September 30, 2018

(Unaudited)

(In millions, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Convertible

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Preferred Stock

 

Common Stock

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Par

 

Additional

 

Retained

 

Comprehensive

 

 

 

 

    

Shares

    

Amount

 

Shares

    

Value

    

Paid- In Capital

    

Earnings

    

Income (Loss)

    

Total

Balance at January 1, 2018

 

650,000

 

$

65.0

 

48,712,288

 

$

 —

 

$

277.9

 

$

7.3

 

$

1.0

 

$

351.2

Exercise of stock options

 

 —

 

 

 —

 

5,000

 

 

 —

 

 

0.1

 

 

 —

 

 

 —

 

 

0.1

Series A convertible preferred stock dividend

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(1.2)

 

 

 —

 

 

(1.2)

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 

0.9

 

 

 —

 

 

 —

 

 

0.9

Issuance of common stock

 

 —

 

 

 —

 

8,545,000

 

 

 —

 

 

84.5

 

 

 —

 

 

 —

 

 

84.5

Foreign currency translation adjustments

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(0.3)

 

 

(0.3)

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(0.8)

 

 

 —

 

 

(0.8)

Balance at March 31, 2018

 

650,000

 

$

65.0

 

57,262,288

 

$

 —

 

$

363.4

 

$

5.3

 

$

0.7

 

$

434.4

Series A convertible preferred stock dividend

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(1.3)

 

 

 —

 

 

(1.3)

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 

0.9

 

 

 —

 

 

 —

 

 

0.9

Issuance of common stock

 

 —

 

 

 —

 

1,612,979

 

 

 —

 

 

15.4

 

 

 —

 

 

 —

 

 

15.4

Issuance of earnout shares

 

 —

 

 

 —

 

5,000,000

 

 

 —

 

 

48.2

 

 

(48.2)

 

 

 —

 

 

 —

Foreign currency translation adjustments

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(0.6)

 

 

(0.6)

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

13.5

 

 

 —

 

 

13.5

Balance at June 30, 2018

 

650,000

 

$

65.0

 

63,875,267

 

$

 —

 

$

427.9

 

$

(30.7)

 

$

0.1

 

$

462.3

Exercise of warrants

 

 —

 

 

 —

 

 2

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Vesting of restricted stock units

 

 —

 

 

 —

 

74,713

 

 

 —

 

 

(0.4)

 

 

 —

 

 

 —

 

 

(0.4)

Series A convertible preferred stock dividend

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(1.2)

 

 

 —

 

 

(1.2)

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 

0.9

 

 

 —

 

 

 —

 

 

0.9

Issuance of common stock

 

 —

 

 

 —

 

495,389

 

 

 —

 

 

4.4

 

 

 —

 

 

 —

 

 

4.4

Foreign currency translation adjustments

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

0.3

 

 

0.3

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

2.2

 

 

 —

 

 

2.2

Balance at September 30, 2018

 

650,000

 

$

65.0

 

64,445,371

 

$

 —

 

$

432.8

 

$

(29.7)

 

$

0.4

 

$

468.5

 

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

 

 

 

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DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in millions)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2019

    

2018

Cash flows from operating activities

 

 

  

 

 

  

Net income (loss)

 

$

(289.0)

 

$

14.9

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

 

 

 

 

 

 

Depreciation

 

 

107.1

 

 

81.6

Amortization of intangible assets

 

 

12.4

 

 

12.2

Amortization of deferred financing fees

 

 

2.4

 

 

2.2

Non-cash operating lease expense

 

 

19.7

 

 

 —

Write-off of deferred financing fees

 

 

2.0

 

 

 —

Stock-based compensation expense

 

 

2.9

 

 

2.7

Deferred taxes

 

 

(60.4)

 

 

(16.1)

Bad debt expense

 

 

2.7

 

 

0.6

Gain on disposition of property and equipment

 

 

(2.1)

 

 

(1.5)

Gain on disposition of building

 

 

 —

 

 

(0.8)

Deferred gain recognized on sales-type leases

 

 

 —

 

 

(2.0)

Impairment

 

 

306.8

 

 

2.8

Restructuring charges

 

 

6.9

 

 

 —

Changes in operating assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

(23.5)

 

 

(57.5)

Drivers’ advances and other receivables

 

 

(2.4)

 

 

(0.6)

Payments received on sales-type leases

 

 

 —

 

 

10.5

Prepaid and other current assets

 

 

(2.3)

 

 

(9.5)

Accounts payable

 

 

1.8

 

 

(5.6)

Accrued expenses and other liabilities

 

 

4.4

 

 

12.9

Net cash provided by operating activities

 

 

89.4

 

 

46.8

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

  

 

 

  

Purchases of property and equipment

 

 

(17.4)

 

 

(58.8)

Proceeds from sale of property and equipment

 

 

23.8

 

 

15.5

Cash paid for acquisitions, net of cash received

 

 

 —

 

 

(131.8)

Net cash provided by (used in) investing activities

 

 

6.4

 

 

(175.1)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

  

 

 

  

Advances on line of credit

 

 

980.8

 

 

775.0

Repayments on line of credit

 

 

(980.8)

 

 

(763.9)

Advances on long-term debt

 

 

 —

 

 

6.1

Principal payments on long-term debt

 

 

(57.8)

 

 

(41.0)

Deferred financing fees

 

 

(0.4)

 

 

(1.0)

Proceeds from issuance of common stock

 

 

 —

 

 

84.2

Series A convertible preferred stock dividends

 

 

(3.7)

 

 

(3.7)

Net cash provided by (used in) financing activities

 

 

(61.9)

 

 

55.7

 

 

 

 

 

 

 

Effect of exchange rates on cash and cash equivalents

 

 

(0.3)

 

 

 —

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

33.6

 

 

(72.6)

Cash and cash equivalents – beginning of period

 

 

46.0

 

 

90.7

Cash and cash equivalents – end of period

 

$

79.6

 

$

18.1

 

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

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DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Unaudited)

(in millions)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2019

    

2018

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

35.6

 

$

31.0

Cash paid for income taxes

 

 

1.6

 

 

1.8

 

 

 

 

 

 

 

Noncash investing and financing activities

 

 

 

 

 

 

Property and equipment acquired with debt or finance lease obligations

 

 

65.6

 

 

36.1

Accrued capital expenditures

 

 

 —

 

 

5.9

Property and equipment sold for notes receivable

 

 

0.4

 

 

0.4

Property and equipment transferred to sales-type lease

 

 

 —

 

 

8.4

Sales-type lease returns to property and equipment

 

 

 —

 

 

0.5

Sales-type lease assets acquired with debt or capital lease obligations

 

 

 —

 

 

9.9

Sales-type lease assets sold for notes receivable

 

 

 —

 

 

46.2

Sales-type lease returns to sales-type lease assets

 

 

 —

 

 

24.0

Common stock issued in acquisitions

 

 

 —

 

 

19.7

Issuance of earnout shares

 

 

 —

 

 

48.2

Right-of-use assets acquired

 

$

33.5

 

$

 —

 

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

 

 

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

 

Nature of Operations

 

Daseke, Inc.’s (the Company or Daseke) wholly-owned subsidiary Daseke Companies, Inc., was incorporated in December 2008 and began operations on January 1, 2009. Daseke is engaged in full service open-deck trucking that specializes primarily in flatbed truckload and heavy haul transportation of specialized items throughout the United States, Canada and 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 in the United States. The Company is also subject to regulation by the Ministries of Transportation and Communications and 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 (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 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 months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019.

 

The consolidated balance sheet as of December 31, 2018 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, 2018 as set forth in the Company’s Annual Report on Form 10-K, filed with the SEC on March 8, 2019.

 

Certain items have been reclassified for presentation purposes to conform to the accounting policies of the consolidated entity. These reclassifications had no material impact on income from operations, net loss and comprehensive loss, the balance sheets or statements of cash flows.

 

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.

 

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, 2019 and December 31, 2018, the balance of deferred finance charges was $12.5 million and $16.2 million, respectively, which is included as a reduction of long-term debt, net of current portion in the consolidated balance sheets. Amortization expense was $0.9 million and $0.7 million the three months ended September 30, 2019 and 2018, and $2.4 million and $2.2 million for the nine months ended September 30, 2019 and 2018, respectively. Amortization expense is included in interest expense in the consolidated statements of operations and comprehensive income (loss). During the third quarter of 2019, the Company expensed $2.0 million to write-off certain deferred financing fees due to unsuccessful efforts to restructure the debt facilities.

 

Impairment of Long-Lived Assets 

 

Long-lived assets are reviewed for impairment at the asset group level whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment is indicated. A loss is then recognized for the difference, if any, between the fair value of the asset (as estimated by management using its best judgment) and the carrying value of the asset. If actual market value is less favorable than that estimated by management, additional write-downs may be required. In the three months ended September 30, 2019, the Company recognized asset impairments, which

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are more fully described in Notes 2, 5 and 7.

 

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.

 

Contingent Consideration

 

The contingent consideration liabilities, included in other current liabilities on the consolidated balance sheet, represent future payment obligations for certain EBITDA thresholds related to the Company’s acquisitions over a defined period of time. See Note 3 for additional details on the future payment obligations connected to the Company’s acquisitions. The fair value of the Company’s contingent consideration liabilities are determined using estimates based on discount rates that reflect the risk involved and the projected EBITDA of the acquired businesses, therefore the liabilities are classified within Level 3 of the fair value framework. The balance of contingent consideration as of September 30, 2019 and December 31, 2018 was $21.5 million and $21.9 million, respectively. The table below is a summary of the changes in the fair value of this liability for the nine months ended September 30, 2019 and 2018 (in millions):

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2019

    

2018

Balance at beginning of period

 

$

21.9

 

$

0.8

Fair value of earn-out liability for acquisition

 

 

 —

 

 

20.3

Change in fair value

 

 

(0.4)

 

 

(0.7)

Balance at end of period

 

$

21.5

 

$

20.4

 

Stock-Based Compensation

 

Awards of equity instruments issued to employees and directors are accounted for under the fair value method of accounting and recognized in the consolidated statements of operations and comprehensive income (loss). Compensation cost is measured for all stock-based awards at fair value 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 restrictions and are fully transferable. Option valuation models require 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 non-vested 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.

 

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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 had 16 operating segments as of September 30, 2019 and 2018 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, 2019 and 2018, shares of the Company’s 7.625% Series A Convertible Cumulative Preferred Stock (Series A Preferred Stock) and outstanding stock options were not included in the computation of diluted earnings (loss) per share as their effects were anti-dilutive. Additionally, for the three and nine months ended September 30, 2019 and 2018, there was no dilutive effect from the Merger Agreement earn-out provision found in the Agreement and Plan of Merger, dated December 22, 2016, in which a wholly-owned subsidiary of Hennessy Capital Acquisition Corp. II (Hennessy) merged with and into Daseke, with Daseke surviving as a direct wholly-owned subsidiary of Hennessy, (the Merger Agreement) or the outstanding warrants to purchase shares of the Company’s common stock (the common stock purchase warrants). See Note 16 for the effects of non-vested restricted stock units on basic and diluted earnings per share under the two-class method.

 

Common Stock Purchase Warrants

 

The Company accounts for the issuance of common stock purchase warrants in connection with equity offerings in accordance with the provisions of the Accounting Standards Codification (ASC) 815, Derivatives and Hedging (Topic 815). The Company classifies as equity any contract that (i) requires 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 contract that (i) requires 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.

 

Foreign Currency Gains and Losses

 

The functional currency for all operations except Canada is the U.S. dollar. 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 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. 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 transaction to the equivalent amount of functional currency is recorded in the consolidated statements of operations and comprehensive income (loss) of the foreign operating company as a component of foreign exchange gain or loss.

 

Assets Held for Sale

 

Through December 31, 2018, assets held for sale were primarily comprised of revenue equipment in the Company’s lease purchase program and recorded as a component of prepaid and other current assets on the consolidated balance sheets. Assets held for sale were not subject to depreciation, and were recorded at the lower of depreciated carrying value or fair market value less selling costs. Assets held for sale as of December 31, 2018, totaled $3.6 million, consisting of $2.7 million for the Flatbed Solutions segment and $0.9 million for the Specialized Solutions.

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Following the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), the revenue equipment in the Company’s lease purchase program no longer meets the criteria for assets held for sale. See Note 2 for additional information on the adoption of ASU No. 2016-02.

 

Revenue and Expense Recognition

 

The Company’s revenue and related costs are recognized when the Company satisfies its performance obligation(s) transferring goods or services to the customer and the customer obtains control of such goods and services. With respect to freight, brokerage, logistics and fuel surcharge revenue, these conditions are met, and the Company recognizes company freight, owner operator freight, brokerage and fuel surcharge revenue, over time, and logistics revenue, as the services are provided. While the Company may enter into master service agreements with its customers, a contract is not established until the customer specifically requests the Company’s services and the Company accepts.

 

The Company evaluates each contract for distinct performance obligations. In the Company’s business, a typical performance obligation is the transportation of a load including any highly interrelated ancillary services.

 

The Company predominantly estimates the standalone selling price of its services based upon observable evidence, market conditions and other relevant inputs. The Company allocates the total transaction price to each distinct performance obligation based upon the relative standalone selling prices.

 

The Company’s customers simultaneously receive and consume the benefits of the Company’s contracts; therefore, revenue is recognized over time. This is a faithful depiction of the satisfaction of the performance obligation, as the customer does not need to re-perform the transportation services the Company has provided to date.

 

Generally, the Company’s customers are billed upon delivery of the freight or monthly and remit payment according to the approved payment terms.

 

Freight Revenue

 

Freight revenue is generated by hauling customer freight using company owned equipment (company freight) and owner-operator equipment (owner-operator freight). Freight revenue is the product of the number of revenue-generating miles driven and the rate per mile received from customers plus accessorial charges, such as loading and unloading freight, cargo protection, fees for detained equipment or fees for route planning and supervision.

 

Brokerage Revenue

 

The Company regularly engages third-party capacity providers to haul loads. The Company is primarily responsible for fulfilling the promise to provide load transportation services, and has discretion in setting prices, along with the risk to fulfill the contract to the customer. Based upon this evaluation, the Company has determined that it is the principal and therefore, records gross revenues and expenses for brokerage services.

 

Logistics Revenue

 

Logistics revenue is generated from a range of services, including value-added warehousing, loading and unloading, vehicle maintenance and repair, preparation and packaging, fuel management, and other fleet management solutions. The Company recognizes logistics revenue as services are completed.

 

Fuel Surcharge

 

Fuel surcharge revenue compensates the Company for fuel costs above a certain cost per gallon base. Generally, the Company receives fuel surcharges on the miles for which it is compensated by customers.

 

The Company has designated the following preference and practical expedients:

 

·

To not disclose remaining performance obligations when the expected performance obligation duration is one year or less. The vast majority of the Company’s services transfer control within a month of the inception of the contract with select specialized loads taking several months to allow for increased planning and permitting.

 

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·

Recognize the incremental costs of obtaining or fulfilling a contract as an expense when incurred, as the amortization period of a potential asset would be recognized in one year or less.

 

·

Exclude taxes collected on behalf of government authorities from the Company’s measurement of transaction prices. Tax amounts are not included within net income or cost of sales.

 

New Accounting Pronouncements

 

In July 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-11, Earnings per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); and Derivatives and Hedging (Topic 815). ASU 2017-11 provides guidance on accounting for financial instruments with down round features and clarifies the deferral of certain provisions in Topic 480. ASU 2017-11 will become effective for annual periods beginning after December 15, 2018 and interim periods within those periods. The Company adopted this pronouncement on January 1, 2019, which did not impact the consolidated financial statements.

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. 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 and does not believe it will have a material impact on the consolidated financial statements.

 

NOTE 2 – LEASES

 

Change in Accounting Principle

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which amends the FASB ASC and creates Topic 842 (ASC 842), Leases. On January 1, 2019, the Company adopted ASC 842, which is effective for interim and annual reporting periods beginning on or after December 15, 2018. This Topic requires balance sheet recognition of lease assets and lease liabilities for leases classified as operating leases under GAAP. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

 

The Company has completed its evaluation of the requirements of ASC 842 and related amendments. As part of the Company’s evaluation, management compiled and analyzed contracts, identified the full lease population, implemented and populated leasing software and implemented new controls associated with adopting and adhering to the standard, and reviewed its accounting practices for revenue equipment that it leased to certain of its owner-operators.

 

The Company adopted this guidance as of January 1, 2019, using the optional transition method and elected the option to not apply ASC 842 to comparative periods, which continue to be presented under the accounting standards in effect for those periods.

 

Lessee

 

The adoption of this standard had a material impact on the Company’s financial position. Adoption of the new standard resulted in the recording of right-of-use assets and lease liabilities on the Company’s consolidated balance sheets of approximately $96.9 million and $96.9 million, respectively, as of January 1, 2019. The right-of-use assets recorded on the balance sheet include primarily trucking facilities and terminals and revenue equipment leases. The standard did not have a material impact on the Company’s consolidated statements of operations and comprehensive income (loss), however, there have been additions and modifications to its existing financial disclosures.

 

The Company has designated the following preferences and practical expedients:

 

·

To not reassess whether any expired or existing contracts contain a lease;

 

·

Carryforward previous conclusions related to prior lease classification under the prior lease accounting standard to lease classification for existing leases under ASC 842;

 

·

To not reassess initial indirect costs;

 

·

Elect the hindsight practical expedient related to lease term and impairment;

 

·

Adopt the land easement practical expedient;

 

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·

To not separate the non-lease components of a contract from the lease component for its office equipment asset class;

 

·

To not apply the recognition requirements to leases with terms of twelve months or less; and

 

·

To apply the portfolio approach in determination of the incremental borrowing rate.

 

The Company has capitalized operating and finance leases for various real estate including corporate offices, trucking facilities and terminals, warehouses, and tractor parking as well as various types of equipment including tractors, trailers, forklifts, and office equipment. New real estate lease agreements will typically have initial terms between 3 to 15 years and new equipment lease agreements will typically have initial terms of 3 to 9 years. Leases with an initial term of 12 months or less (short term leases) across all asset classes are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

 

Some of the Company’s leases include one or more options to renew, with renewals that can extend the lease term from 1 to 5 years. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The exercise of lease renewal options is at the Company’s sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Rights and obligations related to lease agreements the Company has signed but that have not yet commenced are not material. The Company has certain lease agreements related to its revenue equipment that contain residual value guarantees. These residual value guarantees require the Company to return the revenue equipment at the end of the lease term in a certain condition as specified by the lessor in the lease agreement.

 

The Company determines whether an arrangement is classified as a lease at inception. The right-of-use assets and lease liabilities relating to operating leases are included in right-of-use assets, other current liabilities, and other long-term liabilities on the Company's consolidated balance sheets. The right-of-use assets and lease liabilities relating to finance leases are included in other long-term assets, current portion of long-term debt, and long-term debt, net of current portion on the Company's consolidated balance sheets. The Company's right-of-use assets represent its right to use the underlying assets for the lease term and the Company's right-of-use liabilities represent its obligation to make lease payments arising from the leases. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company's capitalized operating lease agreements generally do not provide an implicit rate. The Company developed an incremental borrowing rate based on the information available at the commencement date regarding the interest rate applicable to collateralized borrowings for a period similar to the original lease period. The incremental borrowing rates were used in determining the present value of lease payments which is reflected as the lease liability.

 

The Company follows ASC 360, “Impairment or Disposal of Long-Lived Assets” guidance to determine whether right-of-use assets relating to operating and finance leases are impaired. The Company recorded impairment charges of $10.0 million to right-of-use assets relating to operating leases and $0.7 million to right-of-use assets relating to finance leases for the three and nine months ended September 30, 2019. See Note 5 for discussion on impairment charges.

 

The following table reflects the Company’s components of lease expenses for the three and nine months ended September 30, 2019 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

Classification

    

September 30, 2019

Operating lease cost

 

 

 

 

 

 

 

 

Revenue equipment

 

Operations and maintenance

 

$

2.8

 

$

16.3

Real estate

 

Administrative expense

 

 

1.1

 

 

10.2

Total operating lease cost

 

 

 

$

3.9

 

$

26.5

 

 

 

 

 

 

 

 

 

Finance lease cost

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

 

Depreciation and amortization

 

$

1.5

 

$

3.9

Interest on lease liabilities

 

Interest expense

 

 

0.2

 

 

0.7

Total finance lease cost

 

 

 

$

1.7

 

$

4.6

 

 

 

 

 

 

 

 

 

Total lease cost(a)

 

 

 

$

5.6

 

$

31.1

(a)

Short-term lease expense and variable lease expense are immaterial.

 

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Table of Contents

The components of assets and liabilities for operating and finance leases are as follows as of September 30, 2019 (in millions):

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

 

Classification

    

2019

Assets

 

 

 

 

 

Capitalized operating lease right-of-use assets

 

Right-of-use assets

 

$

97.0

Finance lease right-of-use assets

 

Other long-term assets

 

 

25.0

Total lease assets

 

 

 

$

122.0

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Capitalized operating lease liabilities:

 

 

 

 

 

Current

 

Other current liabilities

 

$

28.4

Non-current

 

Other long-term liabilities

 

 

78.6

    Total capitalized operating lease liabilities

 

 

 

$

107.0

 

 

 

 

 

 

Finance lease liabilities:

 

 

 

 

 

Current

 

Current portion of long-term debt

 

$

6.0

Non-current

 

Long-term debt, net of current portion

 

 

20.0

    Total finance lease liabilities

 

 

 

$

26.0

 

 

 

 

 

 

Total lease liabilities

 

 

 

$

133.0

 

The following table is a summary of supplemental cash flows related to leases for the nine months ended September 30, 2019 (in millions):

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2019

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

Operating cash flows from capitalized operating leases

 

$

(26.0)

Operating cash flows from finance leases

 

 

(0.6)

Financing cash flows from finance leases

 

 

(4.4)

Right-of-use assets obtained in exchange for lease obligations:

 

 

 

Capitalized operating lease right-of-use assets

 

$

33.5

Finance lease right-of-use assets

 

 

10.8

 

The following table is the future payments on leases as of September 30, 2019 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

Capitalized

 

 

 

 

 

 

 

 

Operating

 

Finance

 

 

 

Year ending December 31, 

 

leases

 

leases

    

Total

2019(1)

 

$

9.1

 

$

1.9

 

$

11.0

2020

 

 

30.6

 

 

7.3

 

 

37.9

2021

 

 

23.5

 

 

6.8

 

 

30.3

2022

 

 

19.0

 

 

4.8

 

 

23.8

2023

 

 

13.7

 

 

5.3

 

 

19.0

2024

 

 

9.0

 

 

2.2

 

 

11.2

Thereafter

 

 

18.4

 

 

1.0

 

 

19.4

Total lease payments

 

 

123.3

 

 

29.3

 

 

152.6

Less: interest

 

 

(16.3)

 

 

(3.3)

 

 

(19.6)

Present value of lease liabilities

 

$

107.0

 

$

26.0

 

$

133.0

(1)

Three months ending December 31, 2019

 

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The following table is a summary of weighted average lease terms and discount rates for leases as of September 30, 2019:

 

 

 

 

 

 

 

    

2019

Weighted-average remaining lease term (years)

 

 

 

 

Capitalized operating leases

 

 

5.16

 

Finance leases

 

 

3.90

 

Weighted-average discount rate

 

 

 

 

Capitalized operating leases

 

 

5.54

%  

Finance leases

 

 

4.38

%  

 

The following table is the future payments under lease agreements as of December 31, 2018 prior to adoption of ASC 842 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Leases

 

Operating Leases

 

 

 

 

 

Revenue

 

Office

Year ending December 31, 

 

    

 

 

Equipment

 

 and Terminals

2019

 

$

5.7

 

$

19.5

 

$

11.9

2020

 

 

4.5

 

 

13.0

 

 

11.2

2021

 

 

4.3

 

 

5.7

 

 

9.5

2022

 

 

2.4

 

 

3.2

 

 

8.5

2023

 

 

2.9

 

 

0.3

 

 

6.6

Thereafter

 

 

0.8

 

 

 —

 

 

23.0

Total minimum lease payments

 

$

20.6

 

$

41.7

 

$

70.7

Loan amount attributable to interest

 

 

(2.4)

 

 

 

 

 

 

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

 

 

18.2

 

 

 

 

 

 

Less: current portion

 

 

(4.8)

 

 

 

 

 

 

Long-term capital leases

 

$

13.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Lessor

 

The adoption of this standard had a material impact on the Company’s financial position, resulting in recording of additional property and equipment and reductions to net investment in sales-type leases and prepaid and other current assets on its consolidated balance sheets of approximately $59.4 million, $55.8 million, and $3.6 million, respectively. The additional assets recorded on the balance sheet in property and equipment include tractors and trailers leased or available for lease to owner-operators. The standard did not have a material impact on the Company’s consolidated statements of operations and comprehensive income (loss), however, there have been additions and modifications to its existing financial disclosures.

 

The Company leases tractors and trailers to certain of its owner-operators and accounts for these transactions as operating leases. Historically, the Company has accounted for these equipment leases as sales-type leases. Under the new guidance, the Company's equipment leases no longer qualify for sales-type lease treatment and are now treated as operating leases. This change in accounting treatment resulted in the derecognition of net investment in sales-type leases and recording the associated assets as if the agreements were always operating leases. The Company will no longer recognize a lease receivable, unearned interest income, or deferred gain related to sales-type leases and will recognize income from operating leases as payments are received. 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 and comprehensive income (loss). The Company's equipment leases may include options for the lessee to purchase the equipment at the end of the lease term or terminate the lease prior to the end of the lease term. When an asset reaches the end of its useful economic life, the Company disposes of the asset.

 

The Company recorded depreciation expense of $5.7 million and $16.4 million on its assets leased under operating leases for the three and nine months ended September 30, 2019, respectively. Lease income from lease payments related to the Company's operating leases for the three and nine months ended September 30, 2019, was $6.5 million and $18.0 million, respectively.

 

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Table of Contents

The following table is the future minimum receipts on leases as of September 30, 2019 (in millions):

 

 

 

 

 

Twelve months ending September 30, 

 

Amount

2020

 

$

25.8

2021

 

 

19.7

2022

 

 

11.9

2023

 

 

5.8

2024

 

 

1.7

Thereafter

 

 

0.3

Total minimum lease receipts

 

$

65.2

 

The components of the net investment in sales-type leases as of December 31, 2018 prior to the adoption of ASC 842 are as follows (in millions):

 

 

 

 

 

 

    

2018

Minimum lease receivable

 

$

78.1

Deferred gain

 

 

(10.1)

Net minimum lease receivable

 

 

68.0

Unearned interest income

 

 

(12.3)

Net investment in sales-type leases

 

 

55.7

Current portion

 

 

(16.2)

 

 

$

39.5

 

The following table is the future minimum receipts on leases as of December 31, 2018 prior to the adoption of ASC 842 (in millions):

 

 

 

 

 

 

 

 

 

Year ending December 31, 

 

Amount

2019

 

$

16.2

2020

 

 

14.5

2021

 

 

11.0

2022

 

 

11.2

2023

 

 

2.6

Thereafter

 

 

0.2

Total

 

$

55.7

 

 

 

NOTE 3 – ACQUISITIONS

 

The Company is a leading consolidator of the open-deck freight market in North America. From Daseke Companies, Inc.’s inception in late 2008, the Company and Daseke Companies, Inc. have acquired 20 open-deck trucking companies. To date, the primary reason for each acquisition was to add resources and services in geographic areas, customers and markets that the Company wants to serve.

 

For each acquisition, the aggregate purchase price 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 final purchase price allocations may result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill.

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Table of Contents

The following is a summary of the allocation of the purchase price paid to the fair values of the net assets, net of cash acquired, of the 2018 acquisitions (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(all amounts in U.S. dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leavitt's

 

Builders

 

Kelsey Trail

 

Aveda

Accounts receivable

 

$

1.9

 

$

8.4

 

$

2.3

 

$

37.3

Parts supplies

 

 

0.1

 

 

0.3

 

 

 —

 

 

 —

Prepaid and other current assets

 

 

0.4

 

 

1.5

 

 

0.4

 

 

2.5

Property and equipment

 

 

8.5

 

 

29.4

 

 

9.2

 

 

89.8

Goodwill

 

 

5.1

 

 

14.7

 

 

3.3

 

 

7.7

Intangible assets

 

 

3.6

 

 

10.6

 

 

1.5

 

 

15.0

Other long-term assets

 

 

 —

 

 

0.5

 

 

 —

 

 

 —

Deferred tax liability

 

 

 —

 

 

(9.2)

 

 

(2.7)

 

 

(6.7)

Accounts payable and other liabilities

 

 

(4.9)

 

 

(19.9)

 

 

(8.0)

 

 

(30.0)

Total consideration paid (net of cash acquired)

 

$

14.7

 

$

36.3

 

$

6.0

 

$

115.6

 

Leavitt’s Freight Service

 

On August 1, 2018, the Company acquired 100% of the outstanding equity interests of Leavitt’s Freight Service, Inc. (Leavitt’s), based in Springfield, Oregon. Total consideration paid was $14.9 million of cash, which was funded with cash on hand. The acquisition was treated as an asset purchase because Leavitt’s was a qualified subchapter S-subsidiary acquired directly from an S-corporation; therefore, the values assigned to the intangible assets and goodwill are deductible for tax purposes. Approximately $0.3 million of transaction expenses were incurred in the acquisition, which will be deductible for tax purposes because the transaction qualified as an asset purchase.

 

Builders Transportation

 

On August 1, 2018, the Company acquired 100% of the outstanding equity interests of Builders Transportation Co., LLC (Builders), based in Memphis, Tennessee. Total consideration paid was $36.3 million, consisting of $30.0 million in cash, 399,530 shares of Daseke common stock valued at $3.4 million and the payoff of $2.9 million of outstanding debt. The cash consideration was funded with 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 $0.2 million of transaction expenses were incurred in the acquisition, which are not deductible for tax purposes.

 

Kelsey Trail Trucking

 

On July 1, 2018, the Company acquired 100% of the outstanding equity interests of Kelsey Trail Trucking Ltd. (Kelsey Trail), based in Saskatoon, Saskatchewan province, Canada. Total consideration paid was $6.2 million, consisting of $5.3 million in cash and 95,859 shares of Daseke common stock valued at $0.9 million. The cash consideration was funded with 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 $0.1 million of transaction expenses were incurred in the acquisition, which are not deductible for tax purposes. During the first quarter of 2019, goodwill and deferred tax liability were decreased by $0.9 million to adjust the beginning balance of deferred taxes.

 

Aveda Transportation and Energy Services

 

On June 6, 2018, the Company acquired all of the outstanding common shares of Aveda Transportation and Energy Services Inc., a corporation existing under the laws of the Province of Alberta, Canada (Aveda), pursuant to the Agreement and the Plan of Arrangement (the Agreement). Total consideration paid was $118.7 million, consisting of $27.3 million in cash, 1,612,979 shares of Daseke common stock valued at $15.4 million, and the payoff of $54.8 million of outstanding debt. The Company will also pay to the holders of Aveda common shares up to C$0.45 in cash per Aveda common share, contingent on and based on Aveda’s Company EBITDA (as defined in the Agreement) meeting certain thresholds set forth in the Agreement for the period beginning June 1, 2018 and ending on May 1, 2019 or with agreement of the parties, July 1, 2018 to June 30, 2019. The contingent consideration for this earn-out has been valued at an estimated $21.2 million. The Aveda acquisition was a stock purchase; therefore, the value assigned to the intangible assets and goodwill are not deductible for tax purposes. Approximately $1.1 million of transaction expenses were incurred in the acquisition, which are not deductible for tax purposes. During the first quarter of 2019, goodwill and deferred tax liability were increased by $0.7 million to adjust the beginning balance of deferred taxes.

 

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Table of Contents

NOTE 4 – PREPAID AND OTHER CURRENT ASSETS

 

The components of prepaid expenses and other current assets are as follows as of September 30, 2019 and December 31, 2018 (in millions):

 

 

 

 

 

 

 

 

 

    

2019

    

2018

Insurance

 

$

8.3

 

$

7.4

Licensing, permits and tolls

 

 

5.5

 

 

5.6

Other assets

 

 

4.3

 

 

4.4

Other prepaids

 

 

2.3

 

 

3.9

Highway and fuel taxes

 

 

1.5

 

 

1.4

Assets held for sale

 

 

 —

 

 

3.6

 

 

$

21.9

 

$

26.3

 

 

 

NOTE 5 – GOODWILL AND INTANGIBLE ASSETS

 

Goodwill represents the excess of the purchase price of all acquisitions over the estimated fair value of the net assets acquired. The Company performs an impairment test of goodwill annually as of October 1 or when impairment indicators arise.

 

On July 30, 2019, the Company internally announced a plan to integrate three operating segments with three other operating segments (Project Synchronize or the Plan), which will reduce the number of operating segments from 16 to 13. The Plan was implemented to streamline and reduce the Company’s cost structure, improve asset utilization and capitalize on operational synergies. Additionally, the Company announced the planned implementation of Business Improvement Plans (BIP), which are expected to increase profitability by right-sizing trailer-to-tractor ratios, yielding management capacity allocations, and improving maintenance execution. On September 4, 2019, the Company announced a comprehensive restructuring plan (Project Pivot) intended to reduce its cost base, right size its organization and management team and increase and accelerate its previously announced operational improvement goals. As part of Project Pivot, the Company executed a new management restructuring and substantial corporate cost reduction plan. See Note 6 for additional details.

 

During the third quarter of 2019, the Company identified a triggering event following the announcement of Project Synchronize, BIP, Project Pivot and the decline of the Company’s stock price. As a result, the Company completed goodwill impairment and assets impairment analyses as of September 30, 2019 (see Note 7 for additional details).  The result of the goodwill impairment analysis prepared in the third quarter was a non-cash goodwill impairment charge of $112.8 million, of which $105.0 million is not deductible for tax purposes. Goodwill impairment is recorded in impairment in the consolidated statements of operations and comprehensive income (loss).

 

The summary of changes in goodwill follows for the nine months ended September 30, 2019 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

    

Flatbed

    

Specialized

    

Total

Goodwill balance at December 31, 2018

 

$

101.5

 

$

156.9

 

$

258.4

Impairment

 

 

(38.7)

 

 

(74.1)

 

 

(112.8)

Adjustments to previously recorded goodwill (net)

 

 

 —

 

 

(0.3)

 

 

(0.3)

Foreign currency translation adjustment

 

 

 —

 

 

0.4

 

 

0.4

Goodwill balance at September 30, 2019

 

$

62.8

 

$

82.9

 

$

145.7

 

During the third quarter of 2019, the Company recorded an impairment charge to intangible assets of $85.6 million for non-competition agreements, customer relationships and trade names categories of intangible assets.

 

Intangible assets consisted of the following as of September 30, 2019 and December 31, 2018 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2019

 

As of December 31, 2018

 

    

Intangible

    

Accumulated

    

 

    

Intangible

    

Intangible

    

Accumulated

    

Intangible

 

 

Assets

 

Amortization

 

Impairment

 

Assets, net

 

Assets

 

Amortization

 

Assets, net

Non-competition agreements

 

$

33.8

 

$

(18.0)

 

$

(12.1)

 

$

3.7

 

$

33.8

 

$

(12.8)

 

$

21.0

Customer relationships

 

 

130.9

 

 

(40.7)

 

 

(42.0)

 

 

48.2

 

 

130.9

 

 

(33.5)

 

 

97.4

Trade names

 

 

90.6

 

 

 —

 

 

(31.5)

 

 

59.1

 

 

90.6

 

 

 —

 

 

90.6

Foreign currency translation adjustment

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(0.2)

 

 

 —

 

 

(0.2)

Total intangible assets

 

$

255.3

 

$

(58.7)

 

$

(85.6)

 

$

111.0

 

$

255.1

 

$

(46.3)

 

$

208.8

 

As of September 30, 2019, non-competition agreements and customer relationships had weighted average remaining useful lives of 2.8 and 4.6 years, respectively.

 

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Table of Contents

Amortization expense for intangible assets with definite lives was $4.2 million and $4.1 million for the three months ended September 30, 2019 and 2018, respectively, and $12.4 million and $12.2 million for the nine months ended September 30, 2019 and 2018, respectively.

 

Future estimated amortization expense is as follows (in millions):

 

 

 

 

 

 

 

 

 

    

Non-competition

    

Customer

Year ending December 31, 

 

Agreements

 

Relationships

2019(1)

 

$

0.5

 

$

1.5

2020

 

 

1.5

 

 

5.9

2021

 

 

1.2

 

 

5.9

2022

 

 

0.5

 

 

5.9

2023

 

 

 —

 

 

5.9

Thereafter

 

 

 —

 

 

23.1

Total

 

$

3.7

 

$

48.2

(1)

Three months ending December 31, 2019

 

 

NOTE 6 – INTEGRATION AND RESTRUCTURING

 

As discussed in Note 5, the Company implemented Project Synchronize and Project Pivot which resulted in recording of integration and restructuring costs. The integration and restructuring costs consist of assets impairments, employee-related costs, other transition and termination costs related to restructuring activities. Employee-related costs include severance, tax preparation, and relocation costs. Severance, tax preparation and relocation costs are expensed in accordance with ASC 420. Other transition and termination costs include fixed asset-related charges, contract and lease termination costs, professional fees, and other miscellaneous expenditures associated with the 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 recorded $6.9 million of integration and restructuring expenses in connection with the Plan and Project Pivot in the three and nine months ended September 30, 2019 and the Company expects to incur the majority of the estimated remaining $1.5 million through the end of fiscal 2019. Estimated remaining charges of $0.5 million, $0.8 million and $0.2 million are related to the Specialized Solutions segment, the Flatbed Solutions segment and corporate office, respectively. Total expected restructuring charges represent management’s best estimate to date. As the execution of the program is still in process, the amount and nature of actual restructuring charges incurred could vary from total expected charges. Any changes to the estimates of executing the Plan, the BIP and corporate restructuring will be reflected in our future results of operations.

 

The following table summarizes the integration and restructuring costs as of September 30, 2019 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance

 

Operating

 

 

 

 

 

 

 

 

 

and

 

Lease

 

Fixed Asset

 

 

 

 

 

 

 

Other Payroll

 

Termination

 

Impairment

 

Other

 

Total

Specialized Solution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs accrued

 

$

0.6

 

$

0.5

 

$

1.4

 

$

1.0

 

$

3.5

Amounts paid or charged

 

 

(0.4)

 

 

(0.5)

 

 

(1.4)

 

 

(1.0)

 

 

(3.3)

Specialized Solution balance at September 30, 2019

 

 

0.2

 

 

 —

 

 

 —

 

 

 —

 

 

0.2

Flatbed Solution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs accrued

 

 

 —

 

 

 —

 

 

0.7

 

 

0.2

 

 

0.9

Amounts paid or charged

 

 

 —

 

 

 —

 

 

(0.7)

 

 

(0.2)

 

 

(0.9)

Flatbed Solution balance at September 30, 2019

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs accrued

 

 

2.5

 

 

 —

 

 

 —

 

 

 —

 

 

2.5

Amounts paid or charged

 

 

(0.2)

 

 

 —

 

 

 —

 

 

 —

 

 

(0.2)

Corporate balance at September 30, 2019

 

 

2.3

 

 

 —

 

 

 —

 

 

 —

 

 

2.3

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs accrued

 

 

3.1

 

 

0.5

 

 

2.1

 

 

1.2

 

 

6.9

Amounts paid or charged

 

 

(0.6)

 

 

(0.5)

 

 

(2.1)

 

 

(1.2)

 

 

(4.4)

Consolidated balance at September 30, 2019

 

$

2.5

 

$

 —

 

$

 —

 

$

 —

 

$

2.5

18

Table of Contents

 

 

 

NOTE 7 – PROPERTY AND EQUIPMENT

 

In accordance with ASC 360, “Impairment or Disposal of Long-Lived Assets,” the Company reviews its definite lived long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amount of an asset or group of assets exceeds its net realizable value, the asset will be written down to its fair value and the amount recognized for impairment is equal to the difference between the carrying value and the asset’s fair value.

 

During the third quarter of 2019, the Company recorded an impairment charge of $97.6 million to state property and equipment at fair value, which related to the Specialized Solutions segment of $58.6 million and the Flatbed Solutions segment of $39.0 million. The impairment charge is included in impairment in the consolidated statements of operations and comprehensive income (loss).

 

The components of property and equipment are as follows as of September 30, 2019 and December 31, 2018 (in millions):

 

 

 

 

 

 

 

 

 

    

2019

    

2018

Revenue equipment

 

$

620.4

 

$

734.0

Buildings and improvements

 

 

65.1

 

 

61.9

Assets leased and available for lease to owner-operators

 

 

60.5

 

 

 —

Furniture and fixtures, office and computer equipment and vehicles

 

 

38.2

 

 

36.5

 

 

 

784.2

 

 

832.4

Accumulated depreciation

 

 

(321.1)

 

 

(259.7)

 

 

$

463.1

 

$

572.7

 

Depreciation expense on property and equipment was $34.1 million and $32.8 million for the three months ended September 30, 2019 and 2018, respectively, and $107.1 million and $81.6 million for the nine months ended September 30, 2019 and 2018, respectively. Depreciation expense and accumulated depreciation on assets leased and available for lease to owner-operators was $5.7 million and $16.4 million for the three and nine months ended September 30, 2019, respectively. Included in depreciation expense is the net impact of the step-up in basis of fixed assets resulting from acquisitions of $5.5 million and $7.0 million for the three months ended September 30, 2019 and 2018, and $18.2 million and $16.4 million for the nine months ended September 30, 2019 and 2018, respectively.

 

 

NOTE 8 – ACCRUED EXPENSES AND OTHER LIABILITIES

 

The components of accrued expenses and other liabilities are as follows as of September 30, 2019 and December 31, 2018 (in millions):

 

 

 

 

 

 

 

 

 

    

2019

    

2018

Brokerage and escorts

 

$

18.8

 

$

12.6

Unvouchered payables

 

 

12.4

 

 

11.7

Other accrued expenses

 

 

9.7

 

 

8.0

Owner-operator deposits

 

 

8.5

 

 

9.3

Sales and local taxes payable

 

 

2.3

 

 

3.3

Fuel and fuel taxes

 

 

1.9

 

 

1.2

Interest

 

 

0.6

 

 

0.4

 

 

$

54.2

 

$

46.5

 

 

NOTE 9 – LONG-TERM DEBT

 

Long-term debt consists of the following as of September 30, 2019 and December 31, 2018 (in millions):

 

 

 

 

 

 

 

 

 

    

2019

    

2018

Term loan facility

 

$

489.7

 

$

493.5

Equipment term loans

 

 

197.5

 

 

190.7

Finance and capital leases

 

 

26.0

 

 

18.2

 

 

 

713.2

 

 

702.4

Less current portion

 

 

(61.6)

 

 

(63.5)

Less unamortized debt issuance costs

 

 

(12.5)

 

 

(16.2)

Total long-term debt

 

$

639.1

 

$

622.7

 

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Term Loan Facility

 

The Company has a $500.0 million term loan facility under a loan agreement with Credit Suisse AG, Cayman Islands Branch, as administrative agent, and the lenders party thereto (the Term Loan Facility) with 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 4.00% per annum and LIBOR (subject to a 1.00% floor) plus 5.00% per annum. At September 30, 2019, the average interest rate on the Term Loan Facility was 7.4%.

 

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

 

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 4.00 to 1.00, stepping down to 3.75 to 1.00 on March 31, 2021. 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 restricted in favor of the administrative agent and the lenders, 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 voluntary prepayments of borrowings. In certain circumstances (subject to exceptions, exclusions and, in the case of excess cash flow, step-downs described below), the Company may also be required to make an offer to prepay the 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%, 25% or 0% for excess cash flow periods for the year ending December 31, 2019 and beyond, depending upon the first lien leverage ratio.

 

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

 

The Company has a five-year, senior secured asset-based revolving line of credit with an aggregate maximum credit amount equal to $100.0 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) under a credit agreement with PNC Bank, National Association, as administrative agent and the lenders party thereto. The ABL Facility’s maximum credit amount may be increased by $30.0 million pursuant to an uncommitted accordion. 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. The ABL Facility matures on February 27, 2022. As of September 30, 2019, the Company had a debit balance of $2.8 million, $13.9 million in letters of credit outstanding, and could incur approximately $84.6 million of additional indebtedness under the ABL Facility.

 

Borrowings under 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 day 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 to 1.00

 

1.25

%  

2.25

%  

Greater than or equal to 1.75 to 1.00

 

0.75

%  

1.75

%  

 

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The ABL Facility was amended on June 15, 2018, to adjust margins, if necessary, on the ABL Facility beginning in the fiscal quarter ended September 30, 2018, to the applicable rates set forth in the following table corresponding to the average RLOC Utilization for the trailing 12 month period on the last day of the most recently completed fiscal quarter. RLOC Utilization at a particular date shall mean an amount equal to (a)(i) outstanding amount of Revolving Advances plus (ii) the outstanding amount of the Swing Loans plus (iii) the aggregate Maximum Undrawn Amount of all outstanding Letters of Credit, divided by (b) Maximum Revolving Advance Amount, each as defined in the credit agreement.

 

 

 

 

 

 

 

RLOC Utilization

 

Base Rate Margins

 

LIBOR Rate Margins

 

Less than 33.3%

 

0.50

%  

1.50

%

Greater than or equal to 33.3%, but less than 66.6%

 

0.75

%  

1.75

%

Greater than or equal to 66.6%

 

1.00

%  

2.00

%

 

At September 30, 2019, the interest rate on the ABL Facility was 5.50%.

 

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 requiring a leverage ratio of less than or equal to 4.00 to 1.00 for the fiscal quarter, stepping down to 3.75 to 1.00 on March 31, 2021 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, 2019, the Company was in compliance with all covenants contained in the Term Loan and ABL Facilities.

 

Equipment Term Loans and Mortgages

 

As of September 30, 2019, the Company had term loans collateralized by equipment in the aggregate amount of $194.2 million with 32 lenders (Equipment Term Loans). The Equipment Term Loans bear interest at rates ranging from 1.5% to 10.7%, require monthly payments of principal and interest and mature at various dates through January 2028. 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.

 

As of September 30, 2019, the Company has a bank mortgage loan with a balance of $3.3 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 2020.

 

The interest rate and monthly payments will be adjusted on November 1, 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, 2020 (which will not be less than 3.7%). The bank mortgage loan matures November 1, 2023.

 

Finance and Capital Leases

 

The Company leases certain equipment under long-term finance and capital lease agreements that expire on various dates through May 2025. As of December 31, 2018, the book value of the property and equipment recorded under capital leases was $16.6 million, net of accumulated depreciation of $7.8 million. Depreciation expense related to capital lease equipment was $0.8 million and $2.2 million for the three and nine months ended September 30, 2018, respectively. See Note 2 for information on finance leases.

 

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Future Payments

 

Future principal payments on long-term debt as of September 30, 2019 are as follows (in millions):

 

 

 

 

 

 

 

 

 

 

Twelve months ending September 30, 

Term Loan Facility

    

Equipment Term Loans

    

Total

 

 

 

 

 

 

 

 

 

2020

$

5.0

 

$

50.2

 

$

55.2

2021

 

2.5

 

 

43.3

 

 

45.8

2022

 

2.5

 

 

37.4

 

 

39.9

2023

 

11.2

 

 

26.6

 

 

37.8

2024

 

2.5

 

 

28.9

 

 

31.4

Thereafter

 

466.0

 

 

11.1

 

 

477.1

Total long-term debt

$

489.7

 

$

197.5

 

$

687.2

 

 

 

 

 

 

 

 

 

 

NOTE 10 – INCOME TAXES

 

The effective tax rates for the three months ended September 30, 2019 and 2018 were 17.4% and 23.5%, respectively, and 17.3% and (2,333.6%) for the nine months ended September 30, 2019 and 2018, respectively. The difference between the Company’s effective tax rate and the federal statutory rate primarily results from state income taxes and nondeductible expenses, including the effect of the per diem pay structure for drivers, and in 2019 non-deductible goodwill impairment. State tax rates vary among states and range from approximately 1% to 6%, although some state rates are higher and a small number of states do not impose an income tax.

 

Regarding the new tax on global intangible low-taxed income (GILTI), which became applicable in 2018 as part of the Tax Cuts and Jobs Act of 2017 (TCJA), the Company will treat GILTI as a period cost if and when incurred.

 

There were no changes in uncertain tax positions during the nine months ended September 30, 2019.

 

NOTE 11 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

Common stock has voting rights – one vote for each share of common stock.

 

On February 14, 2018, the Company and one of the Company’s stockholders entered into an underwriting agreement with Cowen and Company, LLC and Stifel, Nicolaus & Company, Incorporated, as representatives of the several underwriters named therein, in connection with an underwritten public offering of 7,500,000 shares of the Company’s common stock, at a price to the public of $10.60 per share. Pursuant to the underwriting agreement, the Company granted the underwriters a 30-day option to purchase up to an additional 1,125,000 shares of common stock, which was exercised in full on February 16, 2018 and closed simultaneously with the offering on February 20, 2018. Net proceeds received by the Company were approximately $84.4 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company has used the net proceeds from the offering for general corporate purposes, including, among other things, working capital, capital expenditures, debt repayment or refinancing.

 

On June 1, 2018, after having met the earnout provisions contained in the Merger Agreement, the Company issued 5,000,000 shares of the Company’s common stock, par value $0.0001 per share, pro rata among the Private Daseke Stockholders (Earnout Shares).

 

The Earnout Shares were issued in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended (the Securities Act), pursuant to Section 4(a)(2) thereof, which exempts transactions by an issuer not involving any public offering on the basis that the securities were offered and sold in a non-public offering to “accredited investors” (as defined in Rule 501(a) of Regulation D under the Securities Act). Private Daseke, which refers to Daseke, Inc. and its subsidiaries prior to the merger with Hennessy, engaged a purchaser representative to serve as the purchaser representative for two Private Daseke stockholders who were not “accredited investors,” which purchaser representative met all of the conditions set forth in Rule 501(i) of Regulation D, as required to comply with applicable federal securities laws in connection with the issuance of shares of the Company’s common stock to these two Private Daseke stockholders pursuant to the Merger Agreement.

 

On June 6, 2018, as part of the consideration paid for the Aveda acquisition, the Company issued 1,612,979 shares of Daseke common stock valued at $15.4 million. See Note 3 for additional details about the Aveda acquisition.

 

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On July 1, 2018, as part of the consideration paid for the Kelsey Trail acquisition, the Company issued 95,859 shares of Daseke common stock valued at $0.9 million. See Note 3 for additional details about the Kelsey Trail acquisition.

 

On August 1, 2018, as part of the consideration paid for the Builders acquisition, the Company issued 399,530 shares of Daseke common stock valued at $3.4 million. See Note 3 for additional details about the Builders acquisition.

 

As of September 30, 2019, the Company has approximately 0.5 million shares of common stock reserved for future issuances of stock options and restricted stock units under the Company’s 2017 Omnibus Incentive Plan. See Note 12 for additional details about the Company’s stock-based compensation plan.

 

Preferred Stock

 

The Company has issued and outstanding 650,000 shares of Series A Preferred Stock with a redemption value of $65.0 million. 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 5,652,173 shares of common stock would be issuable upon conversion of all of the currently outstanding shares of Series A Preferred Stock.

 

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

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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. On February 27, 2019 the Company’s board of directors declared a quarterly dividend of $1.91 per share, which was paid on March 15, 2019. On May 21, 2019, the Company’s board of directors declared a second quarterly dividend of $1.91 per share, which was paid on June 15, 2019. On August 20, 2019 the Company’s board of directors declared a third quarterly dividend of $1.91 per share, which was paid on September 15, 2019. On February 27, 2018 the Company’s board of directors declared a quarterly dividend of $1.91 per share, which was paid on March 15, 2018. On May 22, 2018, the Company’s board of directors declared a second quarterly dividend of $1.91 per share, which was paid on June 20, 2018. On August 21, 2018 the Company’s board of directors declared a third quarterly dividend of $1.91 per share, which was paid on September 14, 2018.

 

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.

 

Warrants

 

At September 30, 2019, there were a total of 35,040,658 warrants outstanding to purchase 17,520,329 shares of the Company’s common stock.

 

The Company issued warrants (the Public Warrants) to purchase its common stock which were originally issued as part of units in the initial public offering (the IPO) of Hennessy (as defined below). There are 19,959,902 Public Warrants outstanding. The Company also issued 15,080,756 warrants (the Private Placement Warrants) to the 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 merger with Hennessy, 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 12 – STOCK-BASED COMPENSATION

 

Under the 2017 Omnibus Incentive Plan (the Plan), 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, the Company is authorized to issue up to 4.5 million shares of common stock. All awards granted were authorized under the Plan. These awards generally vest annually on a pro-rata basis over a five-year period on the anniversary of each grant date. We also grant awards to our directors under the Plan. The awards granted to directors vest ratably over periods of one, two or five years annually on the anniversary of each grant date.

 

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 are recorded as a cumulative adjustment to stock-based compensation expense in the period forfeitures occur. Aggregate stock-based compensation charges, net of forfeitures, were $1.0 million and $0.9 million during the three months ended September 30, 2019 and 2018, respectively, and $2.9 million and $2.7 million during the nine months ended September 30, 2019 and 2018, respectively. These expenses are included as a component of salaries, wages and

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Table of Contents

employee benefits on the accompanying consolidated statements of operations and comprehensive income (loss). As of September 30, 2019, there was $4.9 million and $6.2 million of unrecognized stock-based compensation expense related to stock options and restricted stock units, respectively. This expense will be recognized over the weighted average periods of 3.1 years for stock options and 2.7 years for restricted stock units.

 

Stock Options

 

The following table summarizes stock option grants under the Plan:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grantee Type

    

# of
Options
Granted

    

Issued and
Outstanding

    

Vesting
Period

    

Weighted
Average
Exercise
Price

    

Weighted Average
Grant Date
Fair Value
(Per Option)

 

 

 

 

 

 

 

 

 

 

 

 

 

Director Group

 

150,000

 

115,000

 

5 years

 

$

9.98

 

$

4.36

Employee Group

 

2,632,730

 

2,363,874

 

3-5 years

 

$

8.56

 

$

3.70

Total

 

 

 

2,478,874

 

 

 

 

 

 

 

 

 

The Company’s calculations of the fair value of stock options granted during the nine months ended September 30, 2019 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, 2019:

 

 

 

 

Weighted average expected life

    

6.3 years

Risk-free interest rate

 

1.45% to 2.58%

Expected volatility

 

32.52% to 37.91%

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. 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.

 

A summary of option activity under the Plan as of September 30, 2019 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
millions)

Outstanding as of January 1, 2019

 

2,066,529

 

$

10.23

 

8.5

 

$

 —

Granted

 

631,136

 

 

3.20

 

 

 

 

 

Forfeited or expired

 

(218,791)

 

 

9.42

 

 

 

 

 

Outstanding as of September 30, 2019

 

2,478,874

 

$

8.51

 

8.2

 

$

0.1

 

 

 

 

 

 

 

 

 

 

 

Exercisable as of September 30, 2019

 

631,939

 

$

10.27

 

7.5

 

$

 —

Vested and expected to vest as of September 30, 2019

 

2,478,874

 

$

8.51

 

8.2

 

$

0.1

 

The stock options’ maximum contract term is ten years. The total weighted average fair value of options granted during the nine months ended September 30, 2019 and 2018 was $0.8 million and $1.4 million, respectively.

 

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.

 

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Table of Contents

The following table summarizes restricted stock unit grants under the Plan:

 

 

 

 

 

 

 

 

 

 

 

Grantee Type

    

# of
Restricted Stock
Units Granted

    

Issued and Outstanding

 

Vesting
Period

    

Weighted
Average
Grant Date
Fair Value
(Per Unit)

 

 

 

 

 

 

 

 

 

 

Director Group

 

785,498

 

730,838

 

1-2 years

 

$

2.75

Employee Group

 

1,568,655

 

512,973

 

5 years

 

$

10.59

Total

 

 

 

1,243,811

 

 

 

 

 

 

A summary of restricted stock unit awards activity under the Plan as of September 30, 2019 and changes during the nine months then ended are as follows:

 

 

 

 

 

 

 

    

Units

    

Weighted
Average Grant
Date Fair
Value
(Per Unit)

 

 

 

 

 

 

Non-vested as of January 1, 2019

 

841,361

 

$

10.44

Granted

 

753,986

 

 

2.45

Vested

 

(179,314)

 

 

10.22

Forfeited

 

(172,222)

 

 

9.77

Non-vested as of September 30, 2019

 

1,243,811

 

$

5.75

 

 

NOTE 13 – DEFINED CONTRIBUTION PLAN

 

On January 1, 2015, the Company established the Daseke, Inc. 401(k) Retirement Plan (the Retirement Plan). The Retirement Plan is a defined contribution plan and intended to qualify under the Internal Revenue Code provisions of Section 401(k). Under the safe harbor matching requirements, the Company had expenses of $1.4 million and $0.9 million for the three months ended September 30, 2019 and 2018, respectively, and $4.2 million and $2.8 million for the nine months ended September 30, 2019 and 2018, respectively. The Company sponsored defined contribution profit-sharing plans, including 401(k) provisions, for substantially all employees of acquired companies whose plans were merged into the Retirement Plan effective January 1, 2019. Matching contributions for 401(k) defined contribution plans not yet merged into the Retirement Plan totaled approximately $0.1 million and $0.3 million for the three and nine months ended September 30, 2018, respectively.

 

NOTE 14 – COMMITMENTS AND CONTINGENCIES

 

Letters of Credit

 

The Company had outstanding letters of credit as of September 30, 2019 totaling approximately $16.4 million, including those disclosed in Note 9. These letters of credit are related to liability and workers compensation insurance claims.

 

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 to pay self-insurance and deductibles on such matters up to a certain threshold before the insurance is applied.

 

NOTE 15 – 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.

 

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 $2.9 million and $1.1 million for the three months ended September

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Table of Contents

30, 2019 and 2018, respectively, and $7.5 million and $3.2 million for the nine months ended September 30, 2019 and 2018, respectively. Intersegment revenues and expenses for the Specialized Solutions segment totaled $4.7 million and $2.6 million for the three months ended September 30, 2019 and 2018, respectively, and $8.8 million and $6.5 million for the nine months ended September 30, 2019 and 2018, respectively.

 

The following tables reflect certain financial data of the Company’s reportable segments for the three and nine months ended September 30, 2019 and 2018 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Flatbed

    

Specialized

    

 

 

    

 

 

 

 

Solutions

 

Solutions

 

Corporate/

 

Consolidated

 

 

Segment

 

Segment

 

Eliminations

 

Total

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

169.8

 

$

288.0

 

$

(7.4)

 

$

450.4

Company freight

 

 

55.2

 

 

155.4

 

 

(5.4)

 

 

205.2

Owner operator freight

 

 

71.1

 

 

49.1

 

 

(1.9)

 

 

118.3

Brokerage

 

 

23.6

 

 

54.5

 

 

0.5

 

 

78.6

Logistics

 

 

0.7

 

 

12.9

 

 

(0.1)

 

 

13.5

Fuel surcharge

 

 

19.2

 

 

16.1

 

 

(0.5)

 

 

34.8

Operating loss

 

 

(107.9)

 

 

(187.6)

 

 

(21.1)

 

 

(316.6)

Depreciation

 

 

12.7

 

 

21.1

 

 

0.3

 

 

34.1

Amortization of intangible assets

 

 

1.5

 

 

2.7

 

 

 —

 

 

4.2

Impairment

 

 

113.2

 

 

193.6

 

 

 —

 

 

306.8

Restructuring

 

 

0.9

 

 

3.5

 

 

2.5

 

 

6.9

Non-cash operating lease expense

 

 

1.7

 

 

4.6

 

 

0.1

 

 

6.4

Interest expense

 

 

2.8

 

 

3.2

 

 

6.8

 

 

12.8

Loss before income tax

 

 

(110.6)

 

 

(191.0)

 

 

(29.5)

 

 

(331.1)

Total assets

 

 

376.1

 

 

730.9

 

 

83.1

 

 

1,190.1

Cash capital expenditures

 

 

(0.6)

 

 

5.4

 

 

0.5

 

 

5.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

181.5

 

$

283.9

 

$

(3.8)

 

$

461.6

Company freight

 

 

56.3

 

 

153.1

 

 

(2.5)

 

 

206.9

Owner operator freight

 

 

74.3

 

 

49.1

 

 

(0.8)

 

 

122.6

Brokerage

 

 

29.2

 

 

53.2

 

 

(0.2)

 

 

82.2

Logistics

 

 

0.8

 

 

10.8

 

 

 —

 

 

11.6

Fuel surcharge

 

 

20.9

 

 

17.7

 

 

(0.3)

 

 

38.3

Operating income (loss)

 

 

12.2

 

 

11.8

 

 

(10.1)

 

 

13.9

Depreciation

 

 

7.7

 

 

25.0

 

 

 —

 

 

32.7

Amortization of intangible assets

 

 

1.5

 

 

2.6

 

 

 —

 

 

4.1

Interest expense

 

 

2.2

 

 

2.9

 

 

6.8

 

 

11.9

Income (loss) before income tax

 

 

10.1

 

 

9.5

 

 

(16.7)

 

 

2.9

Total assets

 

 

474.2

 

 

906.6

 

 

25.7

 

 

1,406.5

Cash capital expenditures

 

 

1.4

 

 

25.6

 

 

0.7

 

 

27.7

 

 

 

 

 

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Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Flatbed

    

Specialized

    

 

 

    

 

 

 

 

Solutions

 

Solutions

 

Corporate/

 

Consolidated

 

 

Segment

 

Segment

 

Eliminations

 

Total

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

512.7

 

$

838.3

 

$

(17.0)

 

$

1,334.0

Company freight

 

 

165.3

 

 

463.8

 

 

(10.9)

 

 

618.2

Owner operator freight

 

 

213.1

 

 

142.4

 

 

(4.4)

 

 

351.1

Brokerage

 

 

74.7

 

 

148.3

 

 

(0.2)

 

 

222.8

Logistics

 

 

2.0

 

 

37.1

 

 

(0.1)

 

 

39.0

Fuel surcharge

 

 

57.6

 

 

46.7

 

 

(1.4)

 

 

102.9

Operating loss

 

 

(98.5)

 

 

(168.8)

 

 

(43.9)

 

 

(311.2)

Depreciation

 

 

38.1

 

 

68.5

 

 

0.5

 

 

107.1

Amortization of intangible assets

 

 

4.5

 

 

7.9

 

 

 —

 

 

12.4

Impairment

 

 

113.2

 

 

193.6

 

 

 —

 

 

306.8

Restructuring

 

 

0.9

 

 

3.5

 

 

2.5

 

 

6.9

Non-cash operating lease expense

 

 

7.2

 

 

12.2

 

 

0.3

 

 

19.7

Interest expense

 

 

8.1

 

 

9.8

 

 

20.3

 

 

38.2

Loss before income tax

 

 

(106.3)

 

 

(177.8)

 

 

(65.3)

 

 

(349.4)

Cash capital expenditures

 

 

2.3

 

 

13.6

 

 

1.5

 

 

17.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

488.7

 

$

687.1

 

$

(9.7)

 

$

1,166.1

Company freight

 

 

147.8

 

 

370.0

 

 

(6.4)

 

 

511.4

Owner operator freight

 

 

205.9

 

 

126.7

 

 

(1.9)

 

 

330.7

Brokerage

 

 

76.0

 

 

112.8

 

 

(0.4)

 

 

188.4

Logistics

 

 

2.2

 

 

29.1

 

 

 —

 

 

31.3

Fuel surcharge

 

 

56.8

 

 

48.5

 

 

(1.0)

 

 

104.3

Operating income (loss)

 

 

28.5

 

 

24.1

 

 

(22.4)

 

 

30.2

Depreciation

 

 

21.4

 

 

60.1

 

 

0.1

 

 

81.6

Amortization of intangible assets

 

 

4.4

 

 

7.8

 

 

 —

 

 

12.2

Impairment

 

 

 —

 

 

2.8

 

 

 —

 

 

2.8

Interest expense

 

 

6.0

 

 

8.1

 

 

19.1

 

 

33.2

Income (loss) before income tax

 

 

22.8

 

 

17.7

 

 

(39.8)

 

 

0.7

Cash capital expenditures

 

 

3.8

 

 

54.0

 

 

1.0

 

 

58.8

 

 

 

NOTE 16 – EARNINGS (LOSS) PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

(in millions, except per share data)

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(273.3)

 

$

2.2

 

$

(289.0)

 

$

14.9

Less Series A preferred dividends

 

 

(1.2)

 

 

(1.2)

 

 

(3.7)

 

 

(3.7)

Allocation of earnings to non-vested participating restricted stock units

 

 

 —

 

 

 —

 

 

 —

 

 

(0.2)

Net income (loss) attributable to common stockholders

 

$

(274.5)

 

$

1.0

 

$

(292.7)

 

$

11.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

 

64.6

 

 

64.3

 

 

64.5

 

 

59.4

Weighted average non-vested participating restricted stock units

 

 

 —

 

 

1.0

 

 

 —

 

 

1.0

Denominator for basic and diluted EPS – weighted-average shares

 

 

64.6

 

 

65.3

 

 

64.5

 

 

60.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share

 

$

(4.25)

 

$

0.01

 

$

(4.54)

 

$

0.18

 

 

 

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Table of Contents

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

 

Overview

 

Introductory Note

 

On February 27, 2017, Hennessy Capital Acquisition Corp. II (Hennessy), a special purpose acquisition corporation, consummated the merger of Hennessy’s wholly-owned subsidiary with and into Daseke, Inc. (Daseke or the Company), with Daseke, Inc. surviving as a direct wholly-owned subsidiary of Hennessy (the Business Combination). Upon consummation of the Business Combination, Daseke, Inc. changed its name to Daseke Companies, Inc. and Hennessy changed its name to Daseke, Inc.

 

Daseke is a leading provider and consolidator of transportation and logistics solutions focused exclusively on flatbed and specialized (open-deck) freight in North America. The transportation and logistics market is one of the largest industries in the United States. The flatbed and specialized freight market currently represents approximately 10% of the more than 1.5 million trucks used in the broader transportation and logistics market.

 

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 5,900 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 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.

 

Third Quarter Operational Overview

 

·

Total revenue of $450.4 million, a decrease of 2.4%, company freight of $205.2 million, a decrease of 0.8%, owner operator freight of $118.3 million, a decrease of 3.5% and brokerage freight of $78.6 million, a decrease of 4.4% compared to third quarter of 2018;

 

·

Rate per mile for the three months ended September 30, 2019 was $1.90 for Flatbed Solutions segment and $3.54 for Specialized Solutions segment;

 

·

Asset impairment charges totaled $306.8 million for the three months ended September 30, 2019

 

·

Operating loss of $316.6 million, compared with operating income of $13.9 million in third quarter of 2018;

 

·

Net loss of $273.3 million, or $4.25 per basic and diluted share, compared with net income of $2.2 million, or $0.01 per basic and diluted share, in the third quarter of 2018;

 

·

Total liquidity available at September 30, 2019 decreased by $23.5 million to $242.0 million from $265.5 million at December 31, 2018; and

 

·

Material debt at September 30, 2019 increased by $12.7 million to $651.6 million from $638.9 at December 31, 2018.

 

Recent Developments

 

On June 6, 2018, the Company acquired all of the outstanding common shares of Aveda, for total consideration of $118.7 million, consisting of $27.3 million in cash, 1,612,979 shares of Daseke common stock valued at $15.4 million, the payoff of $54.8 million of outstanding debt and contingent consideration of $21.2 million. Aveda transports equipment required for the exploration, development and production of petroleum resources in the United States and Canada, expanding the Specialized Segment.

 

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Table of Contents

On August 1, 2018, the Company acquired all of the outstanding shares of Builders based in Memphis, Tennessee for total consideration of $36.3 million, consisting of $30.0 million in cash, 399,530 shares of Daseke common stock valued at $3.4 million and the payoff of $2.9 million of outstanding debt. Builders transports metals and building materials, expanding the Flatbed Segment.

 

On July 1 and August 1, 2018, the Company closed two acquisitions to acquire 100% of the outstanding shares of the entities for aggregate consideration of $21.1 million, consisting of $20.1 million in cash and 95,859 shares of Daseke common stock valued at $0.9 million. Additionally, the Company assumed approximately $10.6 million of debt and capital lease obligations. These two acquisitions expand operations in the northwest United States and Canada, in the Flatbed and Specialized Segments.

 

On July 30, 2019, the Company internally announced a plan to integrate three operating segments with three other operating segments, Project Synchronize (the Plan), which will reduce the number of operating segments from 16 to 13.  As a result of the Plan, Builders Transportation will merge into Hornady Transportation, Moore Freight Service into E.W. Wylie, and the Schilli Companies into Lone Star Transportation. The Plan is being implemented to streamline and reduce the Company’s cost structure, improve asset utilization and capitalize on operational synergies.. Additionally, the Company announced the planned implementation of Business Improvement Plans, which are expected to increase profitability by yield management capacity allocation, right-sizing trailer-to-tractor ratios, and improving maintenance execution.  These Plans are expected to improve annual operating income by $30.0 million in 2020. 

 

On September 4, 2019, the Company announced a comprehensive restructuring plan (Project Pivot) intended to reduce its cost base, right size its organization and management team and increase and accelerate its previously announced operational improvement goals. As part of Project Pivot, the Company has also executed a new management restructuring and substantial corporate cost reduction plan, which is expected to yield an additional $4 million in run-rate benefits by the end of the first quarter of fiscal 2020.

 

How 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, Free Cash Flow, Adjusted Operating Ratio and Adjusted Net Income (Loss), and its key drivers of revenue quality, growth, expense control and operating efficiency. Adjusted EBITDA, Free Cash Flow, Adjusted Operating Ratio and Adjusted Net Income (Loss) 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 derived in accordance with GAAP. See “Non-GAAP Financial Measures” for more information on the Company’s use of these non-GAAP measures, as well as a description of the computation and reconciliation of the Company’s Adjusted EBITDA, Free Cash Flow, and Adjusted Net Income (Loss) to net income (loss) and Adjusted Operating Ratio to operating ratio.

 

Revenue

 

The Company records four types of revenue: freight (company and owner operator), brokerage, logistics and 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 locations 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.

 

The Company’s brokerage revenue is generated by its use of third-party carriers when it needs capacity 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 value-added warehousing, loading and unloading, vehicle maintenance and repair, preparation and packaging, fuel management, 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 North American economic activity.

 

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Table of Contents

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 for 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 that 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 the first half of 2019, 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 delayed 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 comprehensive income (loss)) and fuel. Driver-related expenses vary with miles traveled, however the Company currently expects its expenses relating to driver wages to remain stable in the near-term as a result of driver wage increases implemented in the second half of 2018 to address the shortage of qualified drivers in the general trucking industry, compared to demand at that time. The expectation of stable driver wages paid per mile are due to current market conditions caused by shippers’ downward pressure on rates resulting in some easing of capacity 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 comparability of the Company’s results of operations among the periods presented is impacted by the acquisitions listed below. Also, as a result of the below acquisitions, the Company’s historical results of operations may not be comparable or indicative of future results.

 

Specialized Solutions Acquisitions

 

·

Kelsey Trail Acquisition – Effective July 1, 2018, a Company subsidiary acquired 100% of the outstanding equity interests of Kelsey Trail, to strengthen and grow its operations in Canada.

 

·

Aveda Acquisition – Effective June 6, 2018, the Company acquired 100% of the outstanding equity interests of Aveda, to expand its capabilities to include the specialized transportation of equipment required for the exploration, development and production of petroleum resources in the United States and Canada.

 

The Company refers to the acquisitions described above collectively as the “Specialized Solutions Acquisitions.”

 

31

Table of Contents

Flatbed Solutions Acquisitions

 

·

Builders Acquisition – Effective August 1, 2018, the Company acquired 100% of the outstanding equity interests of Builders, to expand its presence in the steel and construction materials markets.

 

·

Leavitt’s Acquisition – Effective August 1, 2018, a Company subsidiary acquired 100% of the outstanding equity interests of Leavitt’s, to strengthen its operations in Central Oregon and expand its capabilities to the lumber industry.

 

The Company refers to the acquisitions described above collectively as the “Flatbed Solutions Acquisitions.”

 

The Company refers to the Flatbed Solutions Acquisitions and Specialized Solutions Acquisitions described above collectively as the “Recent Acquisitions.”

 

32

Table of Contents

Results of Operations

 

The following table sets forth items derived from the Company’s consolidated statements of operations and comprehensive income (loss) for the three months ended September 30, 2019 and 2018 in dollars and as a percentage of total revenue and the increase or decrease in the dollar amounts of those items.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

 

 

 

 

 

 

2019

 

2018

 

Increase (Decrease)

(Dollars in millions)

    

$

    

%

    

$

    

%

    

$

    

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE:

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

Company freight

 

$

205.2

 

45.6

 

$

206.9

 

44.8

 

$

(1.7)

 

(0.8)

Owner operator freight

 

 

118.3

 

26.3

 

 

122.6

 

26.6

 

 

(4.3)

 

(3.5)

Brokerage

 

 

78.6

 

17.5

 

 

82.2

 

17.8

 

 

(3.6)

 

(4.4)

Logistics

 

 

13.5

 

3.0

 

 

11.6

 

2.5

 

 

1.9

 

16.4

Fuel surcharge

 

 

34.8

 

7.7

 

 

38.3

 

8.3

 

 

(3.5)

 

(9.1)

Total revenue

 

 

450.4

 

100.0

 

 

461.6

 

100.0

 

 

(11.2)

 

(2.4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

  

 

 

 

 

  

 

 

 

 

 

 

 

Salaries, wages and employee benefits

 

 

127.7

 

28.4

 

 

114.8

 

24.9

 

 

12.9

 

11.2

Fuel

 

 

34.1

 

7.6

 

 

38.9

 

8.4

 

 

(4.8)

 

(12.3)

Operations and maintenance

 

 

56.8

 

12.6

 

 

51.5

 

11.2

 

 

5.3

 

10.3

Communications

 

 

1.0

 

0.2

 

 

0.9

 

0.2

 

 

0.1

 

11.1

Purchased freight

 

 

155.5

 

34.5

 

 

170.6

 

37.0

 

 

(15.1)

 

(8.9)

Administrative expenses

 

 

21.4

 

4.8

 

 

16.1

 

3.5

 

 

5.3

 

32.9

Sales and marketing

 

 

1.3

 

0.3

 

 

1.0

 

0.2

 

 

0.3

 

30.0

Taxes and licenses

 

 

4.8

 

1.1

 

 

4.7

 

1.0

 

 

0.1

 

2.1

Insurance and claims

 

 

13.4

 

3.0

 

 

12.7

 

2.8

 

 

0.7

 

5.5

Acquisition-related transaction expenses

 

 

 —

 

 —

 

 

0.6

 

0.1

 

 

(0.6)

 

(100.0)

Depreciation and amortization

 

 

38.3

 

8.5

 

 

36.8

 

8.0

 

 

1.5

 

4.1

Gain on disposition of property and equipment

 

 

(1.0)

 

(0.2)

 

 

(0.9)

 

(0.2)

 

 

(0.1)

 

11.1

Impairment

 

 

306.8

 

68.1

 

 

 -

 

 —

 

 

306.8

 

*

Restructuring charges

 

 

6.9

 

1.5

 

 

 -

 

 —

 

 

6.9

 

*

Total operating expenses

 

 

767.0

 

170.3

 

 

447.7

 

97.0

 

 

319.3

 

71.3

Operating ratio

 

 

170.3%

 

 

 

 

97.0%

 

 

 

 

 

 

 

Adjusted operating ratio(1)

 

 

97.0%

 

 

 

 

94.5%

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

 

(316.6)

 

(70.3)

 

 

13.9

 

3.0

 

 

(330.5)

 

(2,377.7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income):

 

 

  

 

 

 

 

  

 

 

 

 

 

 

 

Interest income

 

 

(0.3)

 

(0.1)

 

 

(0.2)

 

 -

 

 

(0.1)

 

50.0

Interest expense

 

 

12.8

 

2.8

 

 

11.9

 

2.6

 

 

0.9

 

7.6

Write-off of unamortized deferred financing fees

 

 

2.0

 

0.4

 

 

 —

 

 -

 

 

2.0

 

*

Other

 

 

 —

 

 -

 

 

(0.7)

 

(0.2)

 

 

0.7

 

(100.0)

Total other expense

 

 

14.5

 

3.2

 

 

11.0

 

2.4

 

 

3.5

 

31.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before benefit for income taxes

 

 

(331.1)

 

(73.5)

 

 

2.9

 

0.6

 

 

(334.0)

 

(11,517.2)

Provision (benefit) for income taxes

 

 

(57.8)

 

(12.8)

 

 

0.7

 

0.2

 

 

(58.5)

 

(8,357.1)

Net income (loss)

 

$

(273.3)

 

(60.7)

 

$

2.2

 

0.5

 

$

(275.5)

 

(12,522.7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total miles (in millions)(2)(3)

 

 

124.2

 

 

 

 

121.3

 

 

 

 

2.9

 

2.4

Company-operated tractors, as of quarter-end

 

 

3,736

 

 

 

 

3,799

 

 

 

 

(63)

 

(1.7)

Owner-operated tractors, as of quarter-end

 

 

2,413

 

 

 

 

2,314

 

 

 

 

99

 

4.3

Number of trailers, as of quarter-end

 

 

13,208

 

 

 

 

13,897

 

 

 

 

(689)

 

(5.0)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company-operated tractors, average for the quarter

 

 

3,744

 

 

 

 

3,690

 

 

 

 

54

 

1.5

Owner-operated tractors, average for the quarter

 

 

2,395

 

 

 

 

2,332

 

 

 

 

63

 

2.7

Total tractors, average for the quarter

 

 

6,139

 

 

 

 

6,022

 

 

 

 

117

 

1.9

 

33

Table of Contents


*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.

(2)

Total miles includes company and owner operator and excludes brokerage.

(3)

Miles are estimated based on information received as the date of filing. Miles may change quarter to quarter when final information is received from each operating segment.

 

34

Table of Contents

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 three months ended September 30, 2019 and 2018 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 September 30, 2019 and 2018.

 

SPECIALIZED SOLUTIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

 

 

 

 

 

    

2019

    

2018

    

Increase (Decrease)

(Dollars in millions)

    

$

    

%

    

$

    

%

    

$

    

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE(1):

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

Company freight

 

$

155.4

 

54.0

 

$

153.1

 

53.9

 

$

2.3

 

1.5

Owner operator freight

 

 

49.1

 

17.0

 

 

49.1

 

17.3

 

 

 —

 

 -

Brokerage

 

 

54.5

 

18.9

 

 

53.2

 

18.7

 

 

1.3

 

2.4

Logistics

 

 

12.9

 

4.5

 

 

10.8

 

3.8

 

 

2.1

 

19.4

Fuel surcharge

 

 

16.1

 

5.6

 

 

17.7

 

6.2

 

 

(1.6)

 

(9.0)

Total revenue

 

 

288.0

 

100.0

 

 

283.9

 

100.0

 

 

4.1

 

1.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES(1):

 

 

  

 

 

 

 

  

 

 

 

 

 

 

 

Salaries, wages and employee benefits

 

 

82.6

 

28.7

 

 

79.4

 

28.0

 

 

3.2

 

4.0

Fuel

 

 

21.7

 

7.5

 

 

25.2

 

8.9

 

 

(3.5)

 

(13.9)

Operations and maintenance

 

 

43.3

 

15.0

 

 

38.7

 

13.6

 

 

4.6

 

11.9

Purchased freight

 

 

85.2

 

29.6

 

 

84.0

 

29.6

 

 

1.2

 

1.4

Depreciation and amortization

 

 

23.8

 

8.3

 

 

27.6

 

9.7

 

 

(3.8)

 

(13.8)

Impairment

 

 

193.6

 

67.2

 

 

 —

 

 -

 

 

193.6

 

*

Restructuring

 

 

3.5

 

1.2

 

 

 —

 

 -

 

 

3.5

 

*

Other operating expenses

 

 

21.9

 

7.6

 

 

17.2

 

6.1

 

 

4.7

 

27.3

Total operating expenses

 

 

475.6

 

165.1

 

 

272.1

 

95.8

 

 

203.5

 

74.8

Operating ratio

 

 

165.1%

 

 

 

 

95.8%

 

 

 

 

 

 

 

Adjusted operating ratio(2)

 

 

93.9%

 

 

 

 

92.5%

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

$

(187.6)

 

(65.1)

 

$

11.8

 

4.2

 

$

(199.4)

 

(1,689.8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total miles (in millions)(3)(4)

 

 

57.8

 

 

 

 

57.2

 

 

 

 

0.6

 

1.0

Company-operated tractors, at quarter-end

 

 

2,472

 

 

 

 

2,436

 

 

 

 

36

 

1.5

Owner-operated tractors, at quarter-end

 

 

699

 

 

 

 

678

 

 

 

 

21

 

3.1

Number of trailers, at quarter-end

 

 

8,280

 

 

 

 

8,724

 

 

 

 

(444)

 

(5.1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company-operated tractors, average for the quarter

 

 

2,479

 

 

 

 

2,446

 

 

 

 

33

 

1.3

Owner-operated tractors, average for the quarter

 

 

694

 

 

 

 

721

 

 

 

 

(27)

 

(3.7)

Total tractors, average for the quarter

 

 

3,173

 

 

 

 

3,167

 

 

 

 

 6

 

 


*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.

(3)

Total miles includes company and owner operator and excludes brokerage.

(4)

Miles are estimated based on information received as the date of filing. Miles may change quarter to quarter when final information is received from each operating segment.

 

35

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, 2019 and 2018 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 September 30, 2019 and 2018.

 

FLATBED SOLUTIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

 

 

 

 

 

 

2019

 

2018

 

Increase (Decrease)

(Dollars in millions)

    

$

    

%

    

$

    

%

    

$

    

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE(1):

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

Company freight

 

$

55.2

 

32.5

 

$

56.3

 

31.0

 

$

(1.1)

 

(2.0)

Owner operator freight

 

 

71.1

 

41.9

 

 

74.3

 

40.9

 

 

(3.2)

 

(4.3)

Brokerage

 

 

23.6

 

13.9

 

 

29.2

 

16.1

 

 

(5.6)

 

(19.2)

Logistics

 

 

0.7

 

0.4

 

 

0.8

 

0.4

 

 

(0.1)

 

(12.5)

Fuel surcharge

 

 

19.2

 

11.4

 

 

20.9

 

11.5

 

 

(1.7)

 

(8.1)

Total revenue

 

 

169.8

 

100.0

 

 

181.5

 

100.0

 

 

(11.7)

 

(6.4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES(1):

 

 

  

 

 

 

 

  

 

 

 

 

 

 

 

Salaries, wages and employee benefits

 

 

35.0

 

20.6

 

 

33.0

 

18.2

 

 

2.0

 

6.1

Fuel

 

 

12.5

 

7.4

 

 

13.7

 

7.5

 

 

(1.2)

 

(8.8)

Operations and maintenance

 

 

13.2

 

7.8

 

 

12.6

 

6.9

 

 

0.6

 

4.8

Purchased freight

 

 

77.8

 

45.8

 

 

90.3

 

49.8

 

 

(12.5)

 

(13.8)

Depreciation and amortization

 

 

14.2

 

8.4

 

 

9.2

 

5.1

 

 

5.0

 

54.3

Impairment

 

 

113.2

 

66.7

 

 

 —

 

 -

 

 

113.2

 

*

Restructuring

 

 

0.9

 

0.5

 

 

 —

 

 -

 

 

0.9

 

*

Other operating expenses

 

 

10.9

 

6.4

 

 

10.5

 

5.8

 

 

0.4

 

3.8

Total operating expenses

 

 

277.7

 

163.5

 

 

169.3

 

93.3

 

 

108.4

 

64.0

Operating ratio

 

 

163.5%

 

 

 

 

93.3%

 

 

 

 

 

 

 

Adjusted operating ratio(2)

 

 

95.0%

 

 

 

 

92.5%

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

$

(107.9)

 

(63.5)

 

$

12.2

 

6.7

 

$

(120.1)

 

(984.4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total miles (in millions)(3)(4)

 

 

66.4

 

 

 

 

64.1

 

 

 

 

2.3

 

3.6

Company-operated tractors, at quarter-end

 

 

1,264

 

 

 

 

1,363

 

 

 

 

(99)

 

(7.3)

Owner-operated tractors, at quarter-end

 

 

1,714

 

 

 

 

1,636

 

 

 

 

78

 

4.8

Number of trailers, at quarter-end

 

 

4,928

 

 

 

 

5,173

 

 

 

 

(245)

 

(4.7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company-operated tractors, average for the quarter

 

 

1,265

 

 

 

 

1,244

 

 

 

 

21

 

1.7

Owner-operated tractors, average for the quarter

 

 

1,701

 

 

 

 

1,611

 

 

 

 

90

 

5.6

Total tractors, average for the quarter

 

 

2,966

 

 

 

 

2,855

 

 

 

 

111

 

3.9


*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.

(3)

Total miles includes company and owner operator and excludes brokerage.

(4)

Miles are estimated based on information received as the date of filing. Miles may change quarter to quarter when final information is received from each operating segment.

 

36

Table of Contents

 

PICTURE 10

 

Revenue. Total revenue decreased 2.4% to $450.4 million for the three months ended September 30, 2019 from $461.6 million for the three months ended September 30, 2018, primarily due to the slow demand in the Flatbed Solutions segment, offset by the Recent Acquisitions of $7.3 million. The decrease in total revenue, excluding the effect of the Recent Acquisitions, was a decrease of $18.5 million, or 4.0%, due primarily to decreases in company freight, owner operator freight and brokerage revenue. Company freight revenue, excluding the effect of the Recent Acquisitions of $5.3 million, decreased $6.9 million, or 3.4%, from $206.9 million for the three months ended September 30, 2018 to $199.9 million for the three months ended September 30, 2019. Owner operator freight revenue, excluding the effect of the Recent Acquisitions of $0.6 million, decreased $5.0 million, or 4.0%, from $122.6 million for the three months ended September 30, 2018 to $117.7 million for the three months ended September 30, 2019. Brokerage revenue, excluding the effect of the Recent Acquisitions of $0.5 million, decreased $4.2 million, or 5.1%, from $82.2 million for the three months ended September 30, 2018 to $78.0 million for the three months ended September 30, 2019. The decreases in company freight and owner operator freight revenue, excluding the Recent Acquisitions, were primarily a result of a 4.3% decrease in total miles driven and offset by a slight increase in rate per mile. Logistics increased $1.9 million, or 16.4%, from $11.6 million for the three months ended September 30, 2018 to $13.5 million for the three months ended September 30, 2019 as a result of increases in logistics activities. Fuel surcharges, excluding the effect of the Recent Acquisitions of $0.9 million, decreased $4.4 million, or 11.4%, from $38.3 million for the three months ended September 30, 2018 to $33.9 million for the three months ended September 30, 2019.

 

PICTURE 11

 

The Company’s Specialized Solutions segment’s revenue was $288.0 million for the three months ended September 30, 2019 as compared to $283.9 million for the three months ended September 30, 2018, an increase of 1.4%, which was primarily due to the increase in company freight, brokerage and logistics revenue. Company freight revenue increased $2.3 million, or 1.5%, from $153.1 million for the three months ended September 30, 2018 to $155.4 million for the three months ended September 30, 2019. Owner operator freight revenue was flat at $49.1 million for the three months ended September 30, 2018 and for the three months ended September 30, 2019. Brokerage revenue increased $1.3 million, or 2.4%, from $53.2 million for the three months ended September 30, 2018 to $54.5 million for the three months ended September 30, 2019. The increase in overall freight revenue was primarily a result of a slight increase in rate per mile and miles driven compared to the same period in 2018. Logistics increased 19.4% to $12.9 million from $10.8 million compared to the same period in 2018 as a result of increases in logistics activites. Fuel surcharges decreased 9.0% compared to the same period in 2018.

 

 

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PICTURE 12

 

The Company’s Flatbed Solutions segment’s revenue was $169.8 million for the three months ended September 30, 2019 as compared to $181.5 million for the three months ended September 30, 2018, a decrease of 6.4%, which was primarily the result of the slow demand from the industrial industry. The decrease in revenue, excluding the effect of the Flatbed Solutions Acquisitions of $7.3 million, was 10.4%, or $18.9 million, due to decreases in company freight, owner operator freight and brokerage revenue. Company freight revenue, excluding the effect of the Flatbed Solutions Acquisitions of $5.3 million, decreased $6.5 million, or 11.5%, from $56.3 million for the three months ended September 30, 2018 to $49.9 million for the three months ended September 30, 2019. Owner operator freight revenue, excluding the effect of the Flatbed Solutions Acquisitions of $0.6 million, decreased $3.8 million, or 5.1%, from $74.3 million for the three months ended September 30, 2018 to $70.5 million for the three months ended September 30, 2019. Brokerage revenue, excluding the effect of the Flatbed Solutions Acquisitions of $0.5 million, decreased $6.0 million, or 20.6%, from $29.2 million for the three months ended September 30, 2018 to $23.1 million for the three months ended September 30, 2019. The decreases in company freight and owner operator freight, excluding the effect of the Flatbed Solutions Acquisitions, was a result of a 9.4% decrease in miles driven offset by a 0.8% increase in rate per mile compared to the same period in 2018. Fuel surcharges, excluding the effect of the Flatbed Solutions Acquisitions of $0.9 million, decreased $2.5 million, or 12.0%, from $20.9 million for the three months ended September 30, 2018 to $18.3 million for the three months ended September 30, 2019.

 

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. Driver pay rate increases implemented during the second half of 2018 to address the general driver shortage are reflected in results for the current quarter. The Company does not expect further driver pay rate increases given the current market and downward rate pressures.

 

Salaries, wages and employee benefits expense increased 11.2% to $127.7 million for the three months ended September 30, 2019 from $114.8 million for the three months ended September 30, 2018, primarily due to the Recent Acquisitions and healthcare costs. The increase in salaries, wages and employee benefits expense, excluding the effect of the Recent Acquisitions of $2.9 million, was 8.6%, or $9.9 million, and was primarily due to increased employee compensation due to an increase in headcount at the corporate office to support the scale and strategic growth of the Company, increases in healthcare costs and one-time severance costs related to Project Pivot. Excluding the effect of the Recent Acquisitions, salaries, wages and employee benefits expense, as a percentage of consolidated revenue (excluding brokerage revenue), increased 3.9% for the three months ended September 30, 2019 as compared to the same period in 2018.

 

The Company’s Specialized Solutions segment had a $3.2 million, or 4.0%, increase in salaries, wages and employee benefits expense for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily as a result of the higher driver pay rates and healthcare costs. Salaries, wages and employee benefits expense, as a percentage of Specialized Solutions revenue (excluding brokerage revenue), increased 1.0% for the three months ended September 30, 2019 as compared to the same period in 2018.

 

The Company’s Flatbed Solutions segment had a $2.0 million, or 6.1%, increase in salaries, wages and employee benefits expense for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily as a result of the Flatbed Solutions Acquisitions, which resulted in a $2.9 million increase. Excluding the effect of the Flatbed Solutions Acquisitions, salaries, wages and employee benefit expense decreased 2.6%, or $0.9 million for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. Excluding the effect of the Flatbed Solutions Acquisitions, salaries, wages and employee benefits expense, as a percentage of Flatbed Solutions revenue (excluding brokerage revenue), increased 1.4% for the three months ended September 30, 2019 as compared to the same period in 2018. This increase is a result of a decrease in revenue, excluding the impact of the Flatbed Solutions Acquisitions.

 

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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.

PICTURE 13

*Fuel expense excludes the effect of the Recent Acquisitions.

 

Total fuel expense decreased $4.8 million, or 12.3%, to $34.1 million for the three months ended September 30, 2019 from $38.9 million for the three months ended September 30, 2018, excluding the effect of the Recent Acquisitions of $1.1 million, fuel expense decreased 15.1%, or $5.9 million. This decrease was primarily due to a 6.6% decrease in average diesel prices period over period. The U.S. national average diesel fuel price, as published by the U.S. Department of Energy, was $3.023 for the three months ended September 30, 2019, compared to $3.237 for the same period in 2018. Total miles driven, excluding the Recent Acquisitions, decreased 4.3% for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.

 

The Company’s Specialized Solutions segment’s fuel expense decreased 13.9% to $21.7 million for the three months ended September 30, 2019 from $25.2 million for the three months ended September 30, 2018, primarily as the result of a decrease in average diesel prices and a decrease of 0.4% in company miles for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.

 

The Company’s Flatbed Solutions segment’s fuel expense decreased 8.8% to $12.5 million for the three months ended September 30, 2019 from $13.7 million for the three months ended September 30, 2018, primarily as a result of a decrease in average diesel price. Excluding the effect of the Flatbed Solutions Acquisitions of $1.1 million, fuel expense in the Flatbed Solutions segment decreased 16.9% or $2.3 million. Company miles, excluding the Flatbed Solutions Acquisitions, decreased 29.6% for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.

 

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 10.3% to $56.8 million for the three months ended September 30, 2019 from $51.5 million for the three months ended September 30, 2018. After adjusting for the effect of the Recent Acquisitions, operations and maintenance expense increased 8.8% for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 due to an increase of $2.1 million for pilot car fees. Excluding the effect of the Recent Acquisitions, operations and maintenance expense, as a percentage of consolidated revenue (excluding brokerage revenue), increased 1.8% for the three months ended September 30, 2019 as compared to the same period in 2018 as a result of normal equipment trade cycles and related expenses.

 

The Company’s Specialized Solutions segment’s operations and maintenance expense increased $4.6 million, or 11.9%, for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 as a result of an increase of $2.0 million in pilot car and an increase in maintenance expense due to normal replacement cycles of tractors and trailers. Operations and maintenance expense, as a percentage of Specialized Solutions revenue (excluding brokerage revenue), increased 1.8% for the three months ended September 30, 2019 as compared to the same period in 2018.

 

The Company’s Flatbed Solutions segment’s operations and maintenance expense increased $0.6 million, or 4.8%, for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018, primarily as a result of the Flatbed Solutions Acquisitions of $0.8 million. Excluding the effect of the Flatbed Solutions Acquisitions, operations and maintenance expense decreased $0.2 million, or 1.5%, for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018, primarily as a result of a decrease in maintenance expense, due to a reduction of tractors in the Company’s fleet. Excluding the effect of the Flatbed Solutions Acquisitions, operations and maintenance expense, as a percentage of Flatbed Solutions revenue (excluding brokerage revenue), increased 0.6% for the three months ended September 30, 2019 as compared to the same period in 2018.

 

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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 8.9% from $170.6 million during the three months ended September 30, 2018 to $155.5 million during the three months ended September 30, 2019. Excluding the effect of the Recent Acquisitions of $0.9 million on purchased freight expense, total purchased freight expense decreased 9.4% to $154.5 million for the three months ended September 30, 2019. Purchased freight expense from owner-operators, excluding the Recent Acquisitions, decreased 4.6% from $102.4 million during the three months ended September 30, 2018 to $97.7 million during the three months ended September 30, 2019 as a result of a decrease in owner operator revenue. Purchased freight expense from third-party capacity providers, excluding the Recent Acquisitions, decreased 29.8% from $63.2 million during the three months ended September 30, 2018 to $44.4 million during the three months ended September 30, 2019, as a result of lower rates and decreased utilization of third-party capacity providers. Excluding the effect of the Recent Acquisitions, purchased freight expense, as a percentage of consolidated revenue, decreased 2.1% for the three months ended September 30, 2019 as compared to the same period in 2018.

 

The Company’s Specialized Solutions segment’s purchased freight expense increased 1.4% to $85.2 million during the three months ended September 30, 2019 from $84.0 million during the three months ended September 30, 2018.  Purchased freight expense from owner-operators increased 4.2% from $35.0 million during the three months ended September 30, 2018 to $36.5 million during the three months ended September 30, 2019, primarily as a result of an increase in the utilization of owner operators. Purchased freight expense from third-party capacity providers decreased 28.4% from $41.6 million during the three months ended September 30, 2018 to $29.8 million during the three months ended September 30, 2019, as a result of a decreased in utilization of third-party capacity providers.  Purchased freight expense, as a percentage of Specialized Solutions revenue, was flat for the three months ended September 30, 2019 as compared to the same period in 2018.

 

The Company’s Flatbed Solutions segment’s purchased freight expense decreased 13.8% to $77.8 million for the three months ended September 30, 2019 from $90.3 million for the three months ended September 30, 2018. Excluding the effect of the Flatbed Solutions Acquisitions, the Company’s Flatbed Solutions segment’s purchased freight expense decreased 14.9% to $76.8 million for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. Purchased freight expense from owner-operators, excluding the Flatbed Solutions Acquisitions, decreased 5.7% to $61.2 million for the three months ended September 30, 2019 from $64.9 million for the three months ended September 30, 2018, as a result of a decrease in owner operators revenue. Purchased freight expense from third-party capacity providers, excluding the Flatbed Solutions Acquisitions, decreased 33.4% from $21.6 million during the three months ended September 30, 2018 to $14.4 million during the three months ended September 30, 2019, primarily as a result of decreased utilization of third-party capacity providers.  Excluding the effect of the Flatbed Solutions Acquisitions, purchased freight expense, as a percentage of Flatbed Solutions revenue, decreased 2.5% for the three months ended September 30, 2019 as compared to the same period in 2018.

 

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 increased 4.1% to $38.3 million during the three months ended September 30, 2019 from $36.8 million during the three months ended September 30, 2018, as a result of the Recent Acquisitions of $0.7 million. Amortization of intangible assets and net impact of step-up in basis of acquired assets impact on expense was $4.2 million and $5.5 million, respectively. After adjusting for the effect of the Recent Acquisitions, depreciation and amortization expense increased 2.3% as a result of $5.7 million of depreciation expense recognized on assets available for lease and leased to owner-operators due to the impact of the adoption of ASC 842 for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018, offset by an approximately 60 tractor decrease in the Company’s fleet.

 

The Company’s Specialized Solutions segment’s depreciation and amortization expense decreased 13.8% for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. Amortization of intangible assets and net impact of step-up in basis of acquired assets impact on expense was $2.7 million and $4.8 million, respectively. Depreciation and amortization expense decreased $3.8 million as a result of disposals in approximately 440 trailers, offset by $0.6 million of depreciation expense recognized on assets available for lease and leased to owner-operators due to the impact of the adoption of ASC 842 for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.

 

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The Company’s Flatbed Solutions segment’s depreciation and amortization expense increased 54.3% for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. Amortization of intangible assets and net impact of step-up in basis of acquired assets impact on expense was $1.5 million and $0.7 million, respectively. Excluding the Flatbed Solutions Acquisitions, depreciation and amortization expense increased $4.4 million as a result of the impact of adoption of ASC 842 which resulted in the recognition of $5.1 million of depreciation expense on assets available for lease and leased to owner-operators, offset by the impact of a reduction of approximately 99 tractors in the segment’s fleet for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.

 

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 $0.1 million for the three months ended September 30, 2019. Excluding the effect of the Recent Acquisitions of $0.2 million, operating taxes and license expense, as a percentage of revenue, was 1.0% for the three months ended September 30, 2019 and 2018.

 

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 5.5% to $13.4 million during the three months ended September 30, 2019 from $12.7 million during the three months ended September 30, 2018, partially as a result of the Recent Acquisitions of $0.3 million. Excluding the effect of the Recent Acquisitions, insurance and claims, as a percentage of revenue, increased 0.2% for the three months ended September 30, 2019 compared to the three months ended September 30, 2018.

 

Impairment.  Impairment charges of $306.8 million were recognized in the three months ended September 30, 2019  related to goodwill, intangible assets, property and equipment and right-of-use assets recognized under ASC 842. Impairment charges for the Specialized Solutions segment totaled $193.6 million and for the Flatbed Solutions segment totaled $113.2 million.

 

Restructuring Costs. Restructuring costs of $6.9 million were recognized in the three months ended September 30, 2019 in connection with Project Synchronize and Project Pivot (the Plans). Restructuring costs for the Specialized Solutions segment totaled $3.5 million, for the Flatbed Solutions segment totaled $0.9 million, and for the corporate office totaled $2.5 million.

 

Operating Income (Loss).  Operating loss was $316.6 million, or 70.3% of revenue, for the three months ended September 30, 2019 compared to operating income $13.9 million, or 3.0% of revenue, for the three months ended September 30, 2018, primarily as a result of impairment and restructuring charges. Net of these charges, operating loss was $2.9 million due to the decrease in revenue and increases in salaries and wages and maintenance expense offset by decreases in fuel and purchased freight.

 

The Company’s Specialized Solutions segment’s operating loss was $187.6 million, or 65.1% of revenue, for the three months ended September 30, 2019 compared to operating income $11.8 million, or 4.2% of revenue, for the three months ended September 30, 2018. The change in operating income (loss) as a percent of revenue is primarily a result of impairment and restructuring charges. Excluding these charges, operating income was $9.5 million, or 3.3% of revenue, a decrease of $2.3 million compared to the three months ended September 30, 2018 due to increases in salaries and wages, maintenance expense, purchased freight and insurance and claims.

 

The Company’s Flatbed Solutions segment’s operating loss was $107.9 million, or 63.5% of revenue, for the three months ended September 30, 2019 compared to operating income $12.2 million, or 6.7% of revenue, for the three months ended September 30, 2018, the decrease primarily as a result of impairment and restructuring charges. Net of these charges, operating income was $6.2 million, or 3.7% of revenue, a decrease of $6.0 million compared to the three months ended September 30, 2018 due to decreases in revenue and increases in salaries and wages, operations and maintenance, offset by a decrease in fuel and purchased freight.

 

Interest Expense. Interest expense consists of cash interest and amortization of debt issuance costs and fees and prepayment penalties. Interest expense increased 7.6% to $12.8 million during the three months ended September 30, 2019 from $11.9 million during the three months ended September 30, 2018. This increase was primarily attributable to higher interest rates on the Term Loan Facility and increases in equipment term loan and finance lease outstanding balances. The Company wrote off $2.0 million of deferred financing fees as a result of an unsuccessful debt refinancing during the three months ended September 30, 2019.

 

Income Tax. Provision for income taxes decreased from $0.7 million for the three months ended September 30, 2018 to a benefit for income taxes of $57.8 million for the three months ended September 30, 2019. The decrease is primarily the result of the tax impact of impairment charges of $52.2 million. The effective tax rate was 17.4% for the three months ended September 30, 2019, compared to 23.5% for the three months ended September 30, 2018. The effective income tax rate varies from the federal statutory rate primarily due to state income taxes and the impact of nondeductible permanent differences, including driver per diems and transaction expenses and in 2019 non-deductible goodwill impairment charges.

 

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The following table sets forth items derived from the Company’s consolidated statements of operations and comprehensive income (loss) for the nine months ended September 30, 2019 and 2018 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, 

 

 

 

 

 

 

 

2019

 

2018

 

Increase (Decrease)

(Dollars in millions)

    

$

    

%

    

$

    

%

    

$

    

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE:

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

Company freight

 

$

618.2

 

46.3

 

$

511.4

 

43.9

 

$

106.8

 

20.9

Owner operator freight

 

 

351.1

 

26.3

 

 

330.7

 

28.4

 

 

20.4

 

6.2

Brokerage

 

 

222.8

 

16.7

 

 

188.4

 

16.2

 

 

34.4

 

18.3

Logistics

 

 

39.0

 

2.9

 

 

31.3

 

2.7

 

 

7.7

 

24.6

Fuel surcharge

 

 

102.9

 

7.7

 

 

104.3

 

8.9

 

 

(1.4)

 

(1.3)

Total revenue

 

 

1,334.0

 

100.0

 

 

1,166.1

 

100.0

 

 

167.9

 

14.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

  

 

 

 

 

  

 

 

 

 

 

 

 

Salaries, wages and employee benefits

 

 

371.1

 

27.8

 

 

287.7

 

24.7

 

 

83.4

 

29.0

Fuel

 

 

105.3

 

7.9

 

 

103.7

 

8.9

 

 

1.6

 

1.5

Operations and maintenance

 

 

164.7

 

12.3

 

 

126.4

 

10.8

 

 

38.3

 

30.3

Communications

 

 

3.2

 

0.2

 

 

2.4

 

0.2

 

 

0.8

 

33.3

Purchased freight

 

 

458.5

 

34.4

 

 

429.9

 

36.9

 

 

28.6

 

6.7

Administrative expenses

 

 

54.7

 

4.1

 

 

41.3

 

3.5

 

 

13.4

 

32.4

Sales and marketing

 

 

3.8

 

0.3

 

 

2.3

 

0.2

 

 

1.5

 

65.2

Taxes and licenses

 

 

14.7

 

1.1

 

 

12.3

 

1.1

 

 

2.4

 

19.5

Insurance and claims

 

 

38.1

 

2.9

 

 

32.4

 

2.8

 

 

5.7

 

17.6

Acquisition-related transaction expenses

 

 

 —

 

 -

 

 

2.4

 

0.2

 

 

(2.4)

 

(100.0)

Depreciation and amortization

 

 

119.5

 

9.0

 

 

93.8

 

8.0

 

 

25.7

 

27.4

Gain on disposition of revenue property and equipment

 

 

(2.1)

 

(0.2)

 

 

(1.5)

 

(0.1)

 

 

(0.6)

 

40.0

Impairment

 

 

306.8

 

23.0

 

 

2.8

 

0.2

 

 

304.0

 

10,857.1

Restructuring charges

 

 

6.9

 

0.5

 

 

 —

 

 -

 

 

6.9

 

*

Total operating expenses

 

 

1,645.2

 

123.3

 

 

1,135.9

 

97.4

 

 

509.3

 

44.8

Operating ratio

 

 

123.3%

 

 

 

 

97.4%

 

 

 

 

 

 

 

Adjusted operating ratio(1)

 

 

97.0%

 

 

 

 

94.5%

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

 

(311.2)

 

(23.3)

 

 

30.2

 

2.6

 

 

(341.4)

 

(1,130.5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income):

 

 

  

 

 

 

 

  

 

 

 

 

 

 

 

Interest income

 

 

(0.7)

 

(0.1)

 

 

(1.2)

 

(0.1)

 

 

0.5

 

(41.7)

Interest expense

 

 

38.2

 

2.9

 

 

33.2

 

2.8

 

 

5.0

 

15.1

Write-off of unamortized deferred financing fees

 

 

2.0

 

0.1

 

 

 —

 

 -

 

 

2.0

 

*

Other

 

 

(1.3)

 

(0.1)

 

 

(2.5)

 

(0.2)

 

 

1.2

 

(48.0)

Total other expense

 

 

38.2

 

2.9

 

 

29.5

 

2.5

 

 

8.7

 

29.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before benefit for income taxes

 

 

(349.4)

 

(26.2)

 

 

0.7

 

0.1

 

 

(350.1)

 

(50,014.3)

Benefit for income taxes

 

 

(60.4)

 

(4.5)

 

 

(14.2)

 

(1.2)

 

 

(46.2)

 

325.4

Net income (loss)

 

$

(289.0)

 

(21.7)

 

$

14.9

 

1.3

 

$

(303.9)

 

(2,039.6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total miles (in millions)(2)(3)

 

 

365.1

 

 

 

 

343.7

 

 

 

 

21.4

 

6.2

Company-operated tractors, at period-end

 

 

3,736

 

 

 

 

3,799

 

 

 

 

(63)

 

(1.7)

Owner-operated tractors, at period-end

 

 

2,413

 

 

 

 

2,314

 

 

 

 

99

 

4.3

Number of trailers, at period-end

 

 

13,208

 

 

 

 

13,897

 

 

 

 

(689)

 

(5.0)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company-operated tractors, average for the period

 

 

3,816

 

 

 

 

3,324

 

 

 

 

492

 

14.8

Owner-operated tractors, average for the period

 

 

2,339

 

 

 

 

2,142

 

 

 

 

197

 

9.2

Total tractors, average for the period

 

 

6,155

 

 

 

 

5,466

 

 

 

 

689

 

12.6

 

42

Table of Contents


*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.

(2)

Total miles includes company and owner operator and excludes brokerage.

(3)

Miles are estimated based on information received as the date of filing. Miles may change quarter to quarter when final information is received from each operating segment.

 

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Table of Contents

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, 2019 and 2018 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, 2019 and 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

 

 

 

 

    

2019

    

2018

    

Increase (Decrease)

(Dollars in millions)

    

$

    

%

    

$

    

%

    

$

    

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE(1):

 

 

  

 

  

 

 

 

 

  

 

 

  

 

  

Company freight

 

$

463.8

 

55.3

 

$

370.0

 

53.8

 

$

93.8

 

25.4

Owner operator freight

 

 

142.4

 

17.0

 

 

126.7

 

18.4

 

 

15.7

 

12.4

Brokerage

 

 

148.3

 

17.7

 

 

112.8

 

16.4

 

 

35.5

 

31.5

Logistics

 

 

37.1

 

4.4

 

 

29.1

 

4.2

 

 

8.0

 

27.5

Fuel surcharge

 

 

46.7

 

5.5

 

 

48.5

 

7.2

 

 

(1.8)

 

(3.7)

Total revenue

 

 

838.3

 

100.0

 

 

687.1

 

100.0

 

 

151.2

 

22.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES(1):

 

 

  

 

 

 

 

  

 

 

 

 

 

 

 

Salaries, wages and employee benefits

 

 

246.4

 

29.4

 

 

197.5

 

28.7

 

 

48.9

 

24.8

Fuel

 

 

67.5

 

8.1

 

 

66.7

 

9.7

 

 

0.8

 

1.2

Operations and maintenance

 

 

123.6

 

14.7

 

 

91.6

 

13.3

 

 

32.0

 

34.9

Purchased freight

 

 

237.8

 

28.4

 

 

192.1

 

28.0

 

 

45.7

 

23.8

Depreciation and amortization

 

 

76.4

 

9.1

 

 

67.9

 

9.9

 

 

8.5

 

12.5

Impairment

 

 

193.6

 

67.2

 

 

2.8

 

0.4

 

 

190.8

 

6,814.3

Restructuring

 

 

3.5

 

1.2

 

 

 —

 

 -

 

 

3.5

 

*

Other operating expenses

 

 

58.3

 

7.0

 

 

44.4

 

6.5

 

 

13.9

 

31.3

Total operating expenses

 

 

1,007.1

 

120.1

 

 

663.0

 

96.5

 

 

344.1

 

51.9

Operating ratio

 

 

120.1%

 

 

 

 

96.5%

 

 

 

 

 

 

 

Adjusted operating ratio(2)

 

 

93.6%

 

 

 

 

92.7%

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

$

(168.8)

 

(20.1)

 

$

24.1

 

3.5

 

$

(192.9)

 

(800.4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total miles (in millions)(3)(4)

 

 

169.1

 

 

 

 

163.3

 

 

 

 

5.8

 

3.6

Company-operated tractors, at period-end

 

 

2,472

 

 

 

 

2,436

 

 

 

 

36

 

1.5

Owner-operated tractors, at period-end

 

 

699

 

 

 

 

678

 

 

 

 

21

 

3.1

Number of trailers, at period-end

 

 

8,280

 

 

 

 

8,724

 

 

 

 

(444)

 

(5.1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company-operated tractors, average for the period

 

 

2,492

 

 

 

 

2,173

 

 

 

 

319

 

14.7

Owner-operated tractors, average for the period

 

 

674

 

 

 

 

618

 

 

 

 

56

 

9.1

Total tractors, average for the period

 

 

3,166

 

 

 

 

2,791

 

 

 

 

375

 

 


*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.

(3)

Total miles includes company and owner operator and excludes brokerage.

(4)

Miles are estimated based on information received as the date of filing. Miles may change quarter to quarter when final information is received from each operating segment.

 

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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, 2019 and 2018 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, 2019 and 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

 

 

 

 

 

2019

 

2018

 

Increase (Decrease)

(Dollars in millions)

    

$

    

%

    

$

    

%

    

$

    

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE(1):

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

Company freight

 

$

165.3

 

32.2

 

$

147.8

 

30.2

 

$

17.5

 

11.8

Owner operator freight

 

 

213.1

 

41.6

 

 

205.9

 

42.1

 

 

7.2

 

3.5

Brokerage

 

 

74.7

 

14.6

 

 

76.0

 

15.6

 

 

(1.3)

 

(1.7)

Logistics

 

 

2.0

 

0.4

 

 

2.2

 

0.5

 

 

(0.2)

 

(9.1)

Fuel surcharge

 

 

57.6

 

11.2

 

 

56.8

 

11.6

 

 

0.8

 

1.4

Total revenue

 

 

512.7

 

100.0

 

 

488.7

 

100.0

 

 

24.0

 

4.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES(1):

 

 

  

 

 

 

 

  

 

 

 

 

 

 

 

Salaries, wages and employee benefits

 

 

104.4

 

20.4

 

 

86.9

 

17.8

 

 

17.5

 

20.1

Fuel

 

 

37.8

 

7.4

 

 

36.9

 

7.6

 

 

0.9

 

2.4

Operations and maintenance

 

 

40.5

 

7.9

 

 

34.4

 

7.0

 

 

6.1

 

17.7

Purchased freight

 

 

237.8

 

46.4

 

 

247.6

 

50.7

 

 

(9.8)

 

(4.0)

Depreciation and amortization

 

 

42.6

 

8.3

 

 

25.8

 

5.3

 

 

16.8

 

65.1

Impairment

 

 

113.2

 

22.1

 

 

 —

 

 -

 

 

113.2

 

*

Restructuring

 

 

0.9

 

0.2

 

 

 —

 

 -

 

 

0.9

 

*

Other operating expenses

 

 

34.0

 

6.6

 

 

28.6

 

5.9

 

 

5.4

 

18.9

Total operating expenses

 

 

611.2

 

119.2

 

 

460.2

 

94.2

 

 

151.0

 

32.8

Operating ratio

 

 

119.2%

 

 

 

 

94.2%

 

 

 

 

 

 

 

Adjusted operating ratio(2)

 

 

95.7%

 

 

 

 

93.1%

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

$

(98.5)

 

(19.2)

 

$

28.5

 

5.8

 

$

(127.0)

 

(445.6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total miles (in millions)(3)(4)

 

 

196.0

 

 

 

 

180.4

 

 

 

 

15.6

 

8.6

Company-operated tractors, at period-end

 

 

1,264

 

 

 

 

1,363

 

 

 

 

(99)

 

(7.3)

Owner-operated tractors, at period-end

 

 

1,714

 

 

 

 

1,636

 

 

 

 

78

 

4.8

Number of trailers, at period-end

 

 

4,928

 

 

 

 

5,173

 

 

 

 

(245)

 

(4.7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company-operated tractors, average for the period

 

 

1,324

 

 

 

 

1,151

 

 

 

 

173

 

15.0

Owner-operated tractors, average for the period

 

 

1,665

 

 

 

 

1,524

 

 

 

 

141

 

9.3

Total tractors, average for the period

 

 

2,989

 

 

 

 

2,675

 

 

 

 

314

 

11.7


*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.

(3)

Total miles includes company and owner operator and excludes brokerage.

(4)

Miles are estimated based on information received as the date of filing. Miles may change quarter to quarter when final information is received from each operating segment.

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PICTURE 1

 

Revenue. Total revenue increased 14.4% to $1,334.0 million for the nine months ended September 30, 2019 from $1,166.1 million for the nine months ended September 30, 2018, primarily due to the Recent Acquisitions of $153.7 million. The increase in total revenue, excluding the effect of the Recent Acquisitions, was an increase of $14.2 million, or 1.2%, due primarily to increases in company freight, owner operator freight and brokerage revenue. Company freight revenue, excluding the effect of the Recent Acquisitions of $106.7 million, increased $0.1 million from $511.4 million for the nine months ended September 30, 2018 to $511.5 million for the nine months ended September 30, 2019. Owner operator freight revenue, excluding the effect of the Recent Acquisitions of $15.1 million, increased $5.2 million, or 1.6%, from $330.7 million for the nine months ended September 30, 2018 to $335.9 million for the nine months ended September 30, 2019. Brokerage revenue, excluding the effect of the Recent Acquisitions of $24.4 million, increased $10.0 million, or 5.3%, from $188.4 million for the nine months ended September 30, 2018 to $198.4 million for the nine months ended September 30, 2019, as a result of the growth in our brokerage operations. The increases in company freight and owner operator freight revenue, excluding the Recent Acquisitions, were primarily a result of a 3.9% increase in rate per mile and an increase in wind and oil energy projects, offset by a decrease of 3.1% in total miles. Logistics, excluding the effect of the Recent Acquisitions of $0.9 million, increased $6.8 million, or 21.9%, from $31.3 million for the nine months ended September 30, 2018 to $38.1 million for the nine months ended September 30, 2019 as a result of increases in logistics activities. Fuel surcharges, excluding the effect of the Recent Acquisitions of $6.5 million, decreased $7.9 million, or 7.5%, from $104.3 million for the nine months ended September 30, 2018 to $96.4 million for the nine months ended September 30, 2019.

 

PICTURE 14

 

The Company’s Specialized Solutions segment’s revenue was $838.3 million for the nine months ended September 30, 2019 as compared to $687.1 million for the nine months ended September 30, 2018, an increase of 22.0%, which was primarily due to the Specialized Solutions Acquisitions. The increase in revenue, excluding the effect of the Specialized Solutions Acquisitions of $103.9 million, was an increase of $47.3 million, or 6.9%, primarily due to increases in company freight, owner operator freight, and brokerage revenue. Company freight revenue, excluding the effect of the Specialized Solutions Acquisitions of $71.2 million, increased $22.6 million, or 6.1%, from $370.0 million for the nine months ended September 30, 2018 to $392.6 million for the nine months ended September 30, 2019. Owner operator freight revenue, excluding the effect of the Specialized Solutions Acquisitions of $10.7 million, increased $5.0 million, or 3.9%, from $126.7 million for the nine months ended September 30, 2018 to $131.7 million for the nine months ended September 30, 2019. Brokerage revenue, excluding the effect of the Specialized Solutions Acquisitions of $20.2 million, increased $15.2 million, or 13.4%, from $112.8 million for the nine months ended September 30, 2018 to $128.0 million for the nine months ended September 30, 2019. The increases in company freight and owner operator freight revenue, excluding the effect of the Specialized Solutions Acquisitions, were a result of a 7.2% increase in rate per mile and an increase in wind and oil energy projects compared to the same period in 2018, offset by a 1.5% decrease of total miles. Logistics, excluding the effect of the Specialized Solutions Acquisition of $0.9 million, increased 24.2% compared to the same period in 2018 as a result of increases in logistics activities. Fuel surcharges, excluding the effect of the Specialized Solutions Acquisitions of $0.8 million, decreased 5.2% compared to the same period in 2018.

 

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Table of Contents

PICTURE 15

 

The Company’s Flatbed Solutions segment’s revenue was $512.7 million for the nine months ended September 30, 2019 as compared to $488.7 million for the nine months ended September 30, 2018, an increase of 4.9%, which was primarily the result of the Flatbed Solutions Acquisitions of $50.2 million. Revenue excluding the effect of the Flatbed Solutions Acquisitions decreased 5.3%, or $25.8 million, due to decreases in company freight revenue. Company freight revenue, excluding the effect of the Flatbed Solutions Acquisitions of $35.5 million, decreased $17.9 million, or 12.1%, from $147.8 million for the nine months ended September 30, 2018 to $129.8 million for the nine months ended September 30, 2019 due to a 16.8% decrease in company miles and offset by a 0.3% increase in rate per mile. Owner operator freight revenue, excluding the effect of the Flatbed Solutions Acquisitions of $4.4 million, increased $2.7 million, or 1.3%, from $205.9 million for the nine months ended September 30, 2018 to $208.7 million for the nine months ended September 30, 2019. The increases in owner-operator freight, excluding the effect of the Flatbed Solutions Acquisitions, was a result of a 4.0% increase in miles compared to the same period in 2018. Brokerage revenue, excluding the effect of the Flatbed Solutions Acquisitions of $4.1 million, decreased $5.4 million, or 7.1%, from $76.0 million for the nine months ended September 30, 2018 to $70.6 million for the nine months ended September 30, 2019. Fuel surcharges, excluding the effect of the Flatbed Solutions Acquisitions of $5.7 million, decreased $4.9 million, or 8.7%, from $56.8 million for the nine months ended September 30, 2018 to $51.8 million for the nine months ended September 30, 2019.

 

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. Driver pay rate increases implemented during the second half of 2018 to address the general driver shortage are reflected in results for the current period. The Company does not expect further driver pay rate increases given the current market and downward rate pressures.

 

Salaries, wages and employee benefits expense increased 29.0% to $371.1 million for the nine months ended September 30, 2019 from $287.7 million for the nine months ended September 30, 2018, primarily due to the Recent Acquisitions. The increase in salaries, wages and employee benefits expense, excluding the effect of the Recent Acquisitions of $55.1 million, was 9.8%, or $28.2 million, and was primarily due to increased employee compensation due to an increase in headcount at the corporate office to support the scale and strategic growth of the Company, increases in healthcare costs and one-time severance costs related to Project Pivot. Excluding the effect of the Recent Acquisitions, salaries, wages and employee benefits expense, as a percentage of consolidated revenue (excluding brokerage revenue), increased 2.7% for the nine months ended September 30, 2019 as compared to the same period in 2018.

 

The Company’s Specialized Solutions segment had a $48.9 million, or 24.8%, increase in salaries, wages and employee benefits expense for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily as a result of the Specialized Solutions Acquisitions of $34.8 million. The increase, excluding the effect of the Specialized Solutions Acquisitions, was 7.1%, or $14.1 million, and was primarily due to increased employee compensation, due to an increase in the number of Company drivers and higher driver pay rates implemented in the second half of 2018, and an increase in healthcare costs, as discussed above. Excluding the effect of the Specialized Solutions Acquisitions, salaries, wages and employee benefits expense, as a percentage of Specialized Solutions revenue (excluding brokerage revenue), increased 0.5% for the nine months ended September 30, 2019 as compared to the same period in 2018.

 

The Company’s Flatbed Solutions segment had a $17.5 million, or 20.1%, increase in salaries, wages and employee benefits expense for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily as a result of the Flatbed Solutions Acquisitions, which resulted in a $20.3 million increase. Excluding the effect of the Flatbed Solutions Acquisitions, salaries, wages and employee benefit expense decreased 3.3%, or $2.8 million for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. Excluding the effect of the Flatbed Solutions Acquisitions, salaries, wages and employee benefits expense, as a percentage of Flatbed Solutions revenue (excluding brokerage revenue), increased 0.4% for the nine months ended September 30, 2019 as compared to the same period in 2018. This increase is a result of higher driver pay rates implemented in the second half of 2018.

 

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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.

 

PICTURE 16

*Fuel expense excludes the effect of the Recent Acquisitions.

 

Total fuel expense increased $1.6 million, or 1.5%, to $105.3 million for the nine months ended September 30, 2019 from $103.7 million for the nine months ended September 30, 2018. This increase was primarily a result of the Recent Acquisitions of $16.0 million. Excluding the effect of the Recent Acquisitions, fuel expense decreased 13.8%, or $14.3 million. The U.S. national average diesel fuel price, as published by the U.S. Department of Energy, was $3.055 for the nine months ended September 30, 2019, compared to $3.148 for the same period in 2018, a 3% decrease. Company miles driven, excluding the Recent Acquisitions, decreased 7.3% for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

 

The Company’s Specialized Solutions segment’s fuel expense increased 1.2% to $67.5 million for the nine months ended September 30, 2019 from $66.7 million for the nine months ended September 30, 2018, primarily as the result of the Specialized Solutions Acquisitions of $8.2 million. Excluding the effect of the Specialized Solutions Acquisitions, fuel expense in the Specialized Solutions segment decreased 11.1% to $59.3 million as a result of a decrease in average diesel fuel prices and a decrease of 1.6% in company miles for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

 

The Company’s Flatbed Solutions segment’s fuel expense increased 2.4% to $37.8 million for the nine months ended September 30, 2019 from $36.9 million for the nine months ended September 30, 2018, primarily as a result of the Flatbed Solutions Acquisitions of $7.8 million. Excluding the effect of the Flatbed Solutions Acquisitions, fuel expense in the Flatbed Solutions segment decreased 18.7% or $6.9 million. Company miles, excluding the Flatbed Solutions Acquisitions, decreased 16.8% for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

 

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 30.3% to $164.7 million for the nine months ended September 30, 2019 from $126.4 million for the nine months ended September 30, 2018, primarily as a result of the Recent Acquisitions of $20.6 million. After adjusting for the effect of the Recent Acquisitions, operations and maintenance expense increased 14.0% for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. Excluding the effect of the Recent Acquisitions, operations and maintenance expense, as a percentage of consolidated revenue (excluding brokerage revenue), increased 1.7% for the nine months ended September 30, 2019 as compared to the same period in 2018 as a result of pilot car fees and normal equipment trade cycles and related expenses.

 

The Company’s Specialized Solutions segment’s operations and maintenance expense increased $32.0 million, or 34.9%, for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018, as a result of the Specialized Solutions Acquisitions of $15.1 million. Excluding the effect of the Specialized Solutions Acquisitions, operations and maintenance expense increased $16.9 million, or 18.4%, for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018, primarily as a result of increased pilot car and permit expenses and an increase in maintenance expense, due to normal replacement cycles of tractors and trailers. Excluding the effect of the Specialized Solutions Acquisitions, operations and maintenance expense, as a percentage of Specialized Solutions revenue (excluding brokerage revenue), increased 1.9% for the nine months ended September 30, 2019 as compared to the same period in 2018.

 

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Table of Contents

The Company’s Flatbed Solutions segment’s operations and maintenance expense increased $6.1 million, or 17.7%, for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018, primarily as a result of the Flatbed Solutions Acquisitions of $5.4 million. Excluding the effect of the Flatbed Solutions Acquisitions, operations and maintenance expense increased $0.7 million, or 2.1%, for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018, primarily as a result of an increase in maintenance expense, due to normal replacement cycles of tractors and trailers. Excluding the effect of the Flatbed Solutions Acquisitions, operations and maintenance expense, as a percentage of Flatbed Solutions revenue (excluding brokerage revenue), increased 0.6% for the nine months ended September 30, 2019 as compared to the same period in 2018.

 

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 increased 6.7% from $429.9 million during the nine months ended September 30, 2018 to $458.5 million during the nine months ended September 30, 2019, primarily as a result of the Recent Acquisitions of $34.7 million. Excluding the effect of the Recent Acquisitions on purchased freight expense, total purchased freight expense decreased 1.5% to $423.7 million for the nine months ended September 30, 2019. Purchased freight expense from owner-operators, excluding the Recent Acquisitions, increased 0.2% from $272.7 million during the nine months ended September 30, 2018 to $273.2 million during the nine months ended September 30, 2019, primarily as a result of an increase in the utilization of owner operators. Purchased freight expense from third-party capacity providers, excluding the Recent Acquisitions, decreased 5.9% from $140.6 million during the nine months ended September 30, 2018 to $132.2 million during the nine months ended September 30, 2019, primarily as a result of decreased utilization of third-party capacity providers. Excluding the effect of the Recent Acquisitions, purchased freight expense, as a percentage of consolidated revenue, decreased 1.0% for the nine months ended September 30, 2019 as compared to the same period in 2018.

 

The Company’s Specialized Solutions segment’s purchased freight expense increased 23.8% to $237.8 million during the nine months ended September 30, 2019 from $192.1 million during the nine months ended September 30, 2018, primarily as a result of the Specialized Solutions Acquisitions of $27.9 million. Excluding the effect of the Specialized Solutions Acquisitions on purchased freight expense, total purchased freight expense increased 9.2% to $209.9 million for the nine months ended September 30, 2019. Purchased freight expense from owner-operators, excluding the Specialized Solutions Acquisitions, increased 2.9% from $95.9 million during the nine months ended September 30, 2018 to $98.6 million during the nine months ended September 30, 2019, primarily as a result of an increase in the utilization of owner operators. Purchased freight expense from third-party capacity providers, excluding the Specialized Solutions Acquisitions, increased 3.3% from $84.1 million during the nine months ended September 30, 2018 to $86.8 million during the nine months ended September 30, 2019, primarily as a result of higher rates and increased utilization of third-party capacity providers.  Excluding the effect of the Specialized Solutions Acquisitions, purchased freight expense, as a percentage of Specialized Solutions revenue, increased 0.6% for the nine months ended September 30, 2019 as compared to the same period in 2018.

 

The Company’s Flatbed Solutions segment’s purchased freight expense decreased 4.0% to $237.8 million for the nine months ended September 30, 2019 from $247.6 million for the nine months ended September 30, 2018. Excluding the effect of the Flatbed Solutions Acquisition purchased freight expense of $6.8 million, the Company’s Flatbed Solutions segment’s purchased freight expense decreased 6.7% to $230.9 million for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. Purchased freight expense from owner-operators, excluding the Flatbed Solutions Acquisitions, decreased 2.8% to $174.5 million for the nine months ended September 30, 2019 from $179.6 million for the nine months ended September 30, 2018. Purchased freight expense from third-party capacity providers, excluding the Flatbed Solutions Acquisitions, decreased 3.6% from $56.4 million during the nine months ended September 30, 2018 to $54.4 million during the nine months ended September 30, 2019, primarily as a result of decreased utilization of third-party capacity providers.  Excluding the effect of the Flatbed Solutions Acquisitions, purchased freight expense, as a percentage of Flatbed Solutions revenue, decreased 0.8% for the nine months ended September 30, 2019 as compared to the same period in 2018.

 

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 increased 27.4% to $119.5 million during the nine months ended September 30, 2019 from $93.8 million during the nine months ended September 30, 2018, primarily as a result of the Recent Acquisitions of $19.5 million. Amortization of intangible assets and net impact of step-up in basis of acquired assets impact on expense was $12.4 million and $18.2 million, respectively. After adjusting for the effect of the Recent Acquisitions, depreciation and amortization expense increased $6.3 million as a result of the impact of adoption of ASC 842 which resulted in the recognition of $16.4 million of depreciation expense on assets available for lease and leased to owner-operators, offset by the impact of a reduction of approximately 60 tractors for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

 

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The Company’s Specialized Solutions segment’s depreciation and amortization expense increased 12.5% to $76.4 million for the nine months ended September 30, 2019 as compared to $67.9 million for the nine months ended September 30, 2018 primarily as a result of the Specialized Solutions Acquisitions. Amortization of intangible assets and net impact of step-up in basis of acquired assets impact on expense was $7.9 million and $16.6 million, respectively. After adjusting for the effect of the Specialized Solutions Acquisitions of $14.8 million, depreciation and amortization expense decreased $6.3 million as a result of a decrease in approximately 440 trailers, offset by $1.8 million of depreciation expense recognized on assets available for lease and leased to owner-operators due to the impact of the adoption of ASC 842 on assets available for lease and leased to owner-operators for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

 

The Company’s Flatbed Solutions segment’s depreciation and amortization expense increased 65.1% to $42.6 million for the nine months ended September 30, 2019 as compared to $25.8 million for the nine months ended September 30, 2018. Amortization of intangible assets and net impact of step-up in basis of acquired assets impact on expense was $4.5 million and $1.6 million, respectively. Excluding the Flatbed Solutions Acquisitions of $4.7 million, depreciation and amortization expense increased $12.1 million as a result of the impact of  adoption of ASC 842 which resulted in the recognition of $14.6 million of depreciation expense on assets available for lease and leased to owner-operators, offset by the impact of a reduction of approximately 100 tractors in the segment’s fleet for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

 

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 $12.3 million for the nine months ended September 30, 2018 to $14.7 million for the nine months ended September 30, 2019. Excluding the effect of the Recent Acquisitions of $2.5 million, operating taxes and license expense, as a percentage of revenue was relatively flat for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

 

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 17.6% to $38.1 million during the nine months ended September 30, 2019 from $32.4 million during the nine months ended September 30, 2018, partially as a result of the Recent Acquisitions of $3.1 million. Excluding the effect of the Recent Acquisitions, insurance and claims, as a percentage of revenue, increased 0.3% for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2019 due to increases in claims accruals and liability premiums.

 

Impairment. Impairment charges of $306.8 million were recognized in the nine months ended September 30, 2019 related to goodwill, intangible assets, property and equipment and right-of-use assets recognized under ASC 842. Impairment charges for the Specialized Solutions segment totaled $193.6 million and for the Flatbed Solutions segment totaled $113.2 million.

 

Restructuring Costs. Restructuring costs of $6.9 million were recognized in the three months ended September 30, 2019 in connection with Project Synchronize and Project Pivot (the Plans). Restructuring costs for the Specialized Solutions segment totaled $3.5 million, for the Flatbed Solutions segment totaled $0.9 million and for the corporate office totaled $2.5 million.

 

Operating Income (Loss).  Operating loss was $311.2 million, or 23.3% of revenue, for the nine months ended September 30, 2019 compared to operating income $30.2 million, or 2.6% of revenue, for the nine months ended September 30, 2018, the decrease primarily a result of impairment and restructuring charges. Excluding these charges operating income was $2.5 million or 0.2% of revenue, a decrease of $27.7 million compared to the nine months ended September 30, 2018, primarily due to increases in owner operator freight and brokerage revenue which produces lower margins than company freight and increases in salaries and wages, fuel expense, operations and maintenance expense and depreciation and amortization as discussed above.

 

The Company’s Specialized Solutions segment’s operating loss was $168.8 million, or 20.1% of revenue, for the nine months ended September 30, 2019 compared to operating income of $24.1 million, or 3.5% of revenue, for the nine months ended September 30, 2018, primarily due to impairment and restructuring charges. Net of these charges, operating income was $28.3 million, or 3.4% of revenue, an increase of $4.2 million compared to the nine months ended September 30, 2018. The increase is due to an increase in the segment’s company freight and owner operator freight due to an increase in rate per mile and an increase in wind and oil energy projects and brokerage and logistics revenue, offset by the resulting increase in salaries and wages, fuel expense, maintenance expense, services purchased from owner-operators and third-party capacity providers and depreciation and amortization.

 

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The Company’s Flatbed Solutions segment’s operating loss was $98.5 million, or 19.2% of revenue, for the nine months ended September 30, 2019 compared to operating income of  $28.5 million, or 5.8% of revenue, for the nine months ended September 30, 2018, primarily as a result of impairment and restructuring charges.  Net of these charges, operating income was $15.6 million, or 3.0% of revenue, a decrease of $12.9 milion compared to the nine months ended September 30, 2018. The decrease is due to a decrease in company rate per mile, increase in owner operator freight revenue with lower margins than company freight and increases in operations and maintenance, insurance and claims, salaries and wages and fuel costs.

 

Interest Expense. Interest expense consists of cash interest and amortization of debt issuance costs and fees and prepayment penalties. Interest expense increased 15.1% to $38.2 million during the nine months ended September 30, 2019 from $33.2 million during the nine months ended September 30, 2018. This increase was primarily attributable to higher interest rates on the Term Loan Facility and increases in equipment term loan and finance lease outstanding balances. The Company wrote off $2.0 million of deferred financing fees as a result of an unsuccessful debt refinancing during the nine months ended September 30, 2019.

 

Income Tax. Benefit for income taxes increased from $14.2 million for the nine months ended September 30, 2018 to $60.4 million for the nine months ended September 30, 2019. The increase is primarily the result of the tax impact of impairment charges of $52.2 million. The effective tax rate was 17.3% for the nine months ended September 30, 2019, compared to (2,333.6%) for the nine months ended September 30, 2018. The effective income tax rate varies from the federal statutory rate primarily due to state income taxes and the impact of nondeductible permanent differences, including driver per diems and transaction expenses, and in 2019 non-deductible goodwill impairment.

 

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Non-GAAP Financial Measures

 

Adjusted EBITDA, Free Cash Flow, Adjusted Operating Ratio and Adjusted Net Income (Loss)

 

Adjusted EBITDA, Free Cash Flow, Adjusted Operating Ratio and Adjusted Net Income (Loss) 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.

 

Adjusted EBITDA

 

The Company defines Adjusted EBITDA as net income (loss) plus (i) depreciation and amortization, (ii) interest expense, and other fees and charges associated with financings, 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) business transformation costs, (vi) non-cash impairment, (vii) restructuring charges, and (viii) non-cash stock and equity-compensation expense.

 

The Company’s board of directors and executive management team use Adjusted EBITDA as a key measure of its performance and for business planning. Adjusted EBITDA assists them in comparing its operating performance over various reporting periods on a consistent basis because it removes 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 also allows 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. 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 is useful because it provides investors and industry analysts the same information that the Company uses internally for purposes of assessing its core operating performance. However, Adjusted EBITDA 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 Adjusted EBITDA. Certain items excluded from Adjusted EBITDA 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 differently than the Company does, and as a result, it may be difficult to use Adjusted EBITDA 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 should not be considered a measure 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 supplementally.

A reconciliation of Adjusted EBITDA to net income (loss) for the three and nine months ended September 30, 2019 and 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

(Dollars in millions)

    

2019

    

2018

 

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(273.3)

 

$

2.2

 

$

(289.0)

 

$

14.9

Depreciation and amortization

 

 

38.3

 

 

36.8

 

 

119.5

 

 

93.8

Interest income

 

 

(0.3)

 

 

(0.2)

 

 

(0.7)

 

 

(1.2)

Interest expense

 

 

12.8

 

 

11.9

 

 

38.2

 

 

33.2

Write-off of deferred financing fees

 

 

2.0

 

 

 —

 

 

2.0

 

 

 —

Income tax benefit

 

 

(57.8)

 

 

0.7

 

 

(60.4)

 

 

(14.2)

Acquisition-related transaction expenses

 

 

 —

 

 

0.6

 

 

 —

 

 

2.4

Business transformation costs

 

 

6.8

 

 

 —

 

 

6.8

 

 

 —

Impairment

 

 

306.8

 

 

 —

 

 

306.8

 

 

2.8

Restructuring

 

 

6.9

 

 

 —

 

 

6.9

 

 

 —

Stock based compensation

 

 

1.0

 

 

0.9

 

 

2.9

 

 

2.7

Adjusted EBITDA

 

$

43.2

 

$

52.9

 

$

133.0

 

$

134.4

 

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Free Cash Flow

 

The Company defines Free Cash Flow as net cash provided by operating activities less purchases of property and equipment, plus proceeds from sale of property and equipment as such amounts are shown on the face of the Statement of Cash Flows. The Company’s board of directors and executive management team use Free Cash Flow to assess the Company’s liquidity and ability to repay maturing debt, fund operations and make additional investments. The Company believes Free Cash Flow provides useful information to investors because it is an important indicator of the Company’s liquidity, including its ability to reduce net debt, make strategic investments, pay dividends to common shareholders and repurchase stock. The Company’s 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 cash provided by operating activities nor 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 the Company’s business or discretionary cash available to the Company 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.

 

A reconciliation of Free Cash Flow to cash flows from operating activities for the three and nine months ended September 30, 2019 and 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

(Dollars in millions)

    

2019

    

2018

 

2019

    

2018

Net cash provided by operating activities

 

$

34.5

 

$

17.8

 

$

89.4

 

$

46.8

Purchases of property and equipment

 

 

(5.3)

 

 

(27.7)

 

 

(17.4)

 

 

(58.8)

Proceeds from sale of property and equipment

 

 

7.3

 

 

3.8

 

 

23.8

 

 

15.5

Free Cash Flow

 

$

36.5

 

$

(6.1)

 

$

95.8

 

$

3.5

 

Adjusted Operating Ratio

 

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, acquisition-related transaction expenses, non-cash impairment charges,  unusual or non-regularly recurring expenses or recoveries, (ii) less, business transformation costs, and (iii) further adjusted for the net impact of the step-up in basis (such as increased depreciation and amortization expense) and amortization of identifiable intangible assets resulting from acquisitions, as a percentage of (b) total 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 excluding acquisition-related transaction expenses, additional depreciation and amortization expenses as a result of acquisitions, unusual or non-regularly recurring expenses or recoveries and non-cash impairment 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 accurately 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 GAAP measures 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, 2019 and 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

(Dollars in millions)

 

2019

    

2018

 

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

450.4

 

$

461.6

 

$

1,334.0

 

$

1,166.1

Salaries, wages and employee benefits

 

 

127.7

 

 

114.8

 

 

371.1

 

 

287.7

Fuel

 

 

34.1

 

 

38.9

 

 

105.3

 

 

103.7

Operations and maintenance

 

 

56.8

 

 

51.5

 

 

164.7

 

 

126.4

Purchased freight

 

 

155.5

 

 

170.6

 

 

458.5

 

 

429.9

Depreciation and amortization

 

 

38.3

 

 

36.8

 

 

119.5

 

 

93.8

Impairment

 

 

306.8

 

 

 —

 

 

306.8

 

 

2.8

Restructuring

 

 

6.9

 

 

 —

 

 

6.9

 

 

 —

Other operating expenses

 

 

40.9

 

 

35.1

 

 

112.4

 

 

91.6

Operating expenses

 

 

767.0

 

 

447.7

 

 

1,645.2

 

 

1,135.9

Operating ratio

 

 

170.3%

 

 

97.0%

 

 

123.3%

 

 

97.4%

Acquisition-related transaction expenses

 

 

 —

 

 

0.6

 

 

 —

 

 

2.4

Business transformation costs

 

 

6.8

 

 

 —

 

 

6.8

 

 

 —

Impairment

 

 

306.8

 

 

 —

 

 

306.8

 

 

2.8

Restructuring

 

 

6.9

 

 

 —

 

 

6.9

 

 

 —

Amortization of intangible assets

 

 

4.2

 

 

4.1

 

 

12.4

 

 

12.2

Net impact of step-up in basis of acquired assets

 

 

5.5

 

 

7.0

 

 

18.2

 

 

16.4

Adjusted operating expenses

 

$

436.8

 

$

436.0

 

$

1,294.1

 

$

1,102.1

Adjusted operating ratio

 

 

97.0%

 

 

94.5%

 

 

97.0%

 

 

94.5%

 

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, 2019 and 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

(Dollars in millions)

    

2019

    

2018

 

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue(1)

 

$

288.0

 

$

283.9

 

$

838.3

 

$

687.1

Salaries, wages and employee benefits

 

 

82.6

 

 

79.4

 

 

246.4

 

 

197.5

Fuel

 

 

21.7

 

 

25.2

 

 

67.5

 

 

66.7

Operations and maintenance

 

 

43.3

 

 

38.7

 

 

123.6

 

 

91.6

Purchased freight

 

 

85.2

 

 

84.0

 

 

237.8

 

 

192.1

Depreciation and amortization

 

 

23.8

 

 

27.6

 

 

76.4

 

 

67.9

Impairment

 

 

193.6

 

 

 —

 

 

193.6

 

 

2.8

Restructuring

 

 

3.5

 

 

 —

 

 

3.5

 

 

 —

Other operating expenses

 

 

21.9

 

 

17.2

 

 

58.3

 

 

44.4

Operating expenses

 

 

475.6

 

 

272.1

 

 

1,007.1

 

 

663.0

Operating ratio

 

 

165.1%

 

 

95.8%

 

 

120.1%

 

 

96.5%

Business transformation costs

 

 

0.7

 

 

 —

 

 

0.7

 

 

 —

Impairment

 

 

193.6

 

 

 —

 

 

193.6

 

 

2.8

Restructuring

 

 

3.5

 

 

 —

 

 

3.5

 

 

 —

Amortization of intangible assets

 

 

2.7

 

 

2.6

 

 

7.9

 

 

7.8

Net impact of step-up in basis of acquired assets

 

 

4.8

 

 

6.9

 

 

16.6

 

 

15.5

Adjusted operating expenses

 

$

270.3

 

$

262.6

 

$

784.8

 

$

636.9

Adjusted operating ratio

 

 

93.9%

 

 

92.5%

 

 

93.6%

 

 

92.7%

(1)

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

 

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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, 2019 and 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

(Dollars in millions)

    

2019

    

2018

 

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue(1)

 

$

169.8

 

$

181.5

 

$

512.7

 

$

488.7

Salaries, wages and employee benefits

 

 

35.0

 

 

33.0

 

 

104.4

 

 

86.9

Fuel

 

 

12.5

 

 

13.7

 

 

37.8

 

 

36.9

Operations and maintenance

 

 

13.2

 

 

12.6

 

 

40.5

 

 

34.4

Purchased freight

 

 

77.8

 

 

90.3

 

 

237.8

 

 

247.6

Depreciation and amortization

 

 

14.2

 

 

9.2

 

 

42.6

 

 

25.8

Impairment

 

 

113.2

 

 

 —

 

 

113.2

 

 

 —

Restructuring

 

 

0.9

 

 

 —

 

 

0.9

 

 

 —

Other operating expenses

 

 

10.9

 

 

10.5

 

 

34.0

 

 

28.6

Operating expenses

 

 

277.7

 

 

169.3

 

 

611.2

 

 

460.2

Operating ratio

 

 

163.5%

 

 

93.3%

 

 

119.2%

 

 

94.2%

Business transformation costs

 

 

0.1

 

 

 —

 

 

0.1

 

 

 —

Impairment

 

 

113.2

 

 

 —

 

 

113.2

 

 

 —

Restructuring

 

 

0.9

 

 

 —

 

 

0.9

 

 

 —

Amortization of intangible assets

 

 

1.5

 

 

1.5

 

 

4.5

 

 

4.4

Net impact of step-up in basis of acquired assets

 

 

0.7

 

 

 —

 

 

1.6

 

 

0.9

Adjusted operating expenses

 

$

161.3

 

$

167.8

 

$

490.9

 

$

454.9

Adjusted operating ratio

 

 

95.0%

 

 

92.5%

 

 

95.7%

 

 

93.1%

(1)

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

 

Adjusted Net Income (Loss)

 

The Company defines Adjusted Net Income (Loss) as net income (loss) adjusted for acquisition related transaction expenses, business transformation costs, non-cash impairments, amortization of intangible assets, the net impact of step-up in basis of acquired assets and unusual or non-regularly recurring expenses or recoveries.

 

The Company’s board of directors and executive management team use Adjusted Net Income (Loss) as a key measure of its performance and for business planning. Adjusted Net Income (Loss) assists them in comparing its operating performance over various reporting periods on a consistent basis because it removes from operating results the impact of items that, in its opinion, do not reflect the Company’s core operating performance. Adjusted Net Income (Loss) also allows 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’ acquisition related items, such as acquisition-related transaction expenses, non-cash impairments, amortization of intangible assets and the net impact of the step up in basis of acquired assets, as well as removing the impact of unusual or non-regularly recurring expenses or recoveries.

 

The Company believes its presentation of Adjusted Net Income (Loss) is useful because it provides investors and industry analysts the same information that it uses internally for purposes of assessing its core operating performance. However, Adjusted Net Income (Loss) is not a substitute for, or more meaningful than, net income (loss) or any other measure derived solely from GAAP measures, and there are limitations to using non-GAAP measures such as Adjusted Net Income (Loss). Although the Company believes that Adjusted Net Income (Loss) 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 Net Income (Loss) differently than it does. As a result, it may be difficult to use Adjusted Net Income (Loss) 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 Net Income (Loss) supplementally.

 

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A reconciliation of Adjusted Net Income to net income (loss) for the three and nine months ended September 30, 2019 and 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

(Dollars in millions)

    

2019

    

2018

 

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(273.3)

 

$

2.2

 

$

(289.0)

 

$

14.9

Acquisition-related transaction expenses

 

 

 —

 

 

0.6

 

 

 —

 

 

2.4

Business transformation costs

 

 

6.8

 

 

 —

 

 

6.8

 

 

 —

Impairment

 

 

306.8

 

 

 —

 

 

306.8

 

 

2.8

Restructuring

 

 

6.9

 

 

 —

 

 

6.9

 

 

 —

Amortization of intangible assets

 

 

4.2

 

 

4.1

 

 

12.4

 

 

12.2

Net impact of step-up in basis of acquired assets

 

 

5.5

 

 

7.0

 

 

18.2

 

 

16.4

Tax impact of impairments in 2019 and TCJA(1) tax rate change in 2018

 

 

(52.2)

 

 

 —

 

 

(52.2)

 

 

(12.6)

Adjusted net income

 

$

4.7

 

$

13.9

 

$

9.9

 

$

36.1


(1)

Tax Cuts and Jobs Act.

 

Liquidity and Capital Resources

 

The Company had the following sources of liquidity available at September 30, 2019 and December 31, 2018.

 

 

 

 

 

 

 

 

(Dollars in millions)

    

September 30, 2019

    

December 31, 2018

 

 

 

 

 

 

 

Cash

 

$

79.6

 

$

46.0

Working capital surplus

 

 

77.8

 

 

131.7

Availability under line of credit

 

 

84.6

 

 

87.8

Total

 

$

242.0

 

$

265.5

 

The Company’s primary sources of liquidity have been provided by operations, issuances of capital stock and borrowings under its credit facilities. In February 2018, the Company completed an underwritten public offering of 8,625,000 shares of the Company’s common stock for its own account. After deducting underwriting discounts and commissions and offering expenses payable by the Company, the Company received approximately $84.4 million of net proceeds from the offering, which the Company has been using for general corporate purposes, which may include, among other things, working capital, capital expenditures, debt repayment or refinancing, and support the Company’s acquisition strategy. See Note 11 of Notes to the Consolidated Financial Statements for more information.

 

Cash increased by $33.6 million during the nine months ended September 30, 2019 as compared to December 31, 2018. This increase primarily resulted from net cash provided by operating activities. See below for more information.

 

As of September 30, 2019 and December 31, 2018, the Company had a working capital surplus of $77.8 million and $131.7 million, respectively. The decrease in working capital surplus is due to the adoption of ASC 842 – Leases which increased other current liabilities by $28.4 million and increased accrued liabilities by $25.6 million.

 

As of September 30, 2019, the Company had no borrowings on its $100.0 million asset-based revolving line of credit (ABL Facility) and $13.9 million in outstanding letters of credit (discussed below), leaving $84.6 million available under the ABL Facility.

 

The Company has from time to time considered the possibility of a private offering of securities, which would not be registered under the Securities Act of 1933, as amended (the Securities Act), and which would be offered only to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act. The proceeds of such an offering may be used for general corporate purposes, including the repayment of all or a portion of the Company’s term loan credit facility, repayment of outstanding balances on the ABL facility and to support the Company’s acquisition strategy. Also, in connection with such offering, the Company’s credit facilities may be amended or refinanced. There can be no assurance that the Company will conduct or complete such an offering.

 

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. The Company also uses large amounts of cash and credit for the following activities:

 

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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. The Company had net cash capital receipts of approximately $6.4 million and financed $65.6 million of non-cash capital expenditures for the nine months ended September 30, 2019. The Company had the following capital assets activity in 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

(Dollars in millions)

    

2019

    

2018

 

 

 

 

 

 

 

Net cash capital expenditures (receipts)

 

$

(6.4)

 

$

43.3

Total financed capital expenditures

 

 

65.6

 

 

36.1

Accrued capital expenditures

 

 

 —

 

 

5.9

Transfers of property and equipment to sales-type lease assets

 

 

 —

 

 

(8.4)

Transfers of sales-type lease assets to property and equipment

 

 

 —

 

 

0.5

Property and equipment sold for notes receivable

 

 

(0.4)

 

 

(0.4)

Total net capital assets additions

 

$

58.8

 

$

77.0

 

The decrease in total net capital assets additions is due to timing of the Company’s replacement cycle for revenue equipment.

 

Additionally, the Company entered into operating leases for revenue equipment with terms of 2 to 5 years and real property with terms of 1.5 to 10 years having asset values at lease inception of $23.2 million and $10.3 million, respectively, for the nine months ended September 30, 2019. 

 

ABL and Term Loan Facilities and Equipment Financing Agreements

 

As of September 30, 2019, the Company had (i) a $500.0 million senior secured term loan credit facility, consisting of a $250.0 million term loan, a $150 million tack-on loan and $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 $100.0 million (subject to availability under a borrowing base). The delayed draw term loans were used to support the Company’s acquisition activities. See Note 9 of Notes to Consolidated Financial Statements for more information regarding the Term Loan Facility and the ABL Facility.

 

The Company had $194.2 million of term loans and $26.0 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 likely will 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 $20 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.

 

Business combinations – The Company’s strategy has historically been to consolidate the open-deck transportation industry and it has used significant amounts of capital to acquire 20 businesses since Daseke Companies, Inc.’s inception in 2008. However, during 2019, the Company intends to focus on organic growth, increasing free cash flow and margins, but will continue to evaluate potential tuck-in

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transactions of its subsidiaries and any other sources of growth it considers in the best interest of the Company.

 

Material Debt

 

Overview

 

As of September 30, 2019, the Company had the following material debt:

 

·

the Term Loan Facility and the ABL Facility;

·

secured equipment loans and finance lease agreements; and

·

bank mortgage secured by real estate.

 

The amounts outstanding under such agreements were as follows as of September 30, 2019 (in millions):

 

 

 

 

 

Term Loan Facility

 

$

489.7

Mortgages

 

 

3.3

Equipment term loans

 

 

194.2

Finance lease obligations

 

 

26.0

Total long-term debt and capital leases

 

 

713.2

Less: current portion

 

 

(61.6)

Long-term debt and finance leases obligations, less current portion

 

$

651.6

 

See Note 2 and Note 9 of the Notes to Consolidated Financial Statements included herein for information regarding the Company’s material debt and finance lease obligations, respectively.

 

Off-Balance Sheet Arrangements

 

Information about the Company’s standby letters of credit and 17,520,329 shares of common stock issuable upon exercise of outstanding warrants is included in Note 14 and Note 11, respectively, of 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 nine months ended September 30, 2019 and 2018 is set forth in the table below:

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

(Dollars in millions)

    

2019

    

2018

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

89.4

 

$

46.8

Net cash provided by (used in) investing activities

 

$

6.4

 

$

(175.1)

Net cash provided by (used in) financing activities

 

$

(61.9)

 

$

55.7

 

Operating Activities. Cash provided by the Company’s operating activities consists of net income or 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, non-cash operating lease expense, stock-based compensation, bad debt expense and the effect of changes in working capital and other activities. 

 

Cash provided by operating activities was $89.4 million during the nine months ended September 30, 2019 and consisted of $289.0 million of net loss plus $400.4 million of non-cash items, consisting primarily of depreciation, amortization, non-cash operating lease expense, write-off of deferred financing fees, impairment, restructuring costs and stock-based compensation, less $22.0 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, 2019 reflect increases of $23.5 million in accounts receivable, $2.4 million in drivers’ advances and other receivables and $2.3 million in prepaid and other current assets, offset by a $1.8 million increase in accounts payable and $4.4 million increase in accrued expenses and other liabilities. Cash provided by operating activities was $46.8 million during the nine months ended September 30, 2018 and consisted of $14.9 million of net income plus $81.7 million of non-cash items, consisting primarily of depreciation, amortization, deferred taxes and stock-based compensation, less $49.8 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, 2018 primarily reflects a $57.5 million increase in accounts receivable, a $9.5 million increase in prepaid and other current assets, offset by a $5.6 million increase in accounts payable and accrued expenses and $10.5 million in payments received on sales-type leases. 

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The $42.6 million increase in cash provided by operating activities during the nine months ended September 30, 2019, as compared with the nine months ended September 30, 2018, was primarily the result of a $303.9 million increase in net loss, reduced by a $25.5 million increase in depreciation, $6.9 million in restructuring, $2.0 million in write-off of deferred financing fees, a $304.0 million increase in impairment and a $19.7 million increase in non-cash operating lease expense, increased by a $44.3 million decrease in deferred tax benefit. Net cash provided by working capital increased $27.8 million and other increases were $2.0 million for deferred gain recognized on sales-type leases and $0.8 million for the gain on disposition of building during the nine months ended September 30, 2018 which did not occur during the nine months ended September 30, 2019.

 

Investing Activities. Cash flows from investing activities increased from $175.1 million used in investing activities due to $131.8 million cash paid for Recent Acquisitions and net cash equipment purchases of $43.3 million for the nine months ended September 30, 2018 to $6.4 million provided by investing activities for the nine months ended September 30, 2019 due to a decrease of $41.4 million in cash equipment purchases and an increase of $8.3 million in cash receipts from sales of revenue equipment for the nine months ended September 30, 2019.

 

Total net cash capital expenditures (receipts) for the nine months ended September 30, 2019 and 2018 are shown below:

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

(Dollars in millions)

    

2019

    

2018

 

 

 

 

 

 

 

Revenue equipment (tractors, trailers and trailer accessories)

 

$

13.0

 

$

46.8

Buildings and building improvements

 

 

1.5

 

 

8.4

Other

 

 

2.9

 

 

3.6

Total cash capital expenditures

 

 

17.4

 

 

58.8

Less: Proceeds from sales of property and equipment

 

 

23.8

 

 

15.5

Net cash capital expenditures (receipts)

 

$

(6.4)

 

$

43.3

 

Financing Activities. Cash flows from financing activities decreased from $55.7 million provided by financing activities for the nine months ended September 30, 2018 to $61.9 million used in financing activities for the nine months ended September 30, 2019. This decrease was primarily a result of proceeds of $84.2 million from issuance of common stock in the nine months ended September 30, 2018 and net debt repayments of $23.8 million. Cash flows from financing activities for the nine months ended September 30, 2019 included repayments of $57.8 million of long-term debt.

 

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 filed on March 8, 2019. The Company considers certain of these accounting policies to be “critical” 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 Annual Report on Form 10-K filed on March 8, 2019. Management bases its estimates and judgments on historical experience

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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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

There have been no material changes in the Company’s market risk since December 31, 2018. For further information on the Company’s market risk, refer to “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K filed on March 8, 2019.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are designed, without limitation, to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the Company’s principal executive and financial officer, to allow timely decisions regarding required disclosure.

 

As 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 the principal executive and  financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities and Exchange Act of 1934 (the Exchange Act)). Based on this evaluation, the principal executive and financial officer concluded, due to material weaknesses in our internal control over financial reporting as described below, that our disclosure controls and procedures were not effective as of September 30, 2019.

 

During the quarter ended September 30, 2019 we determined  management’s review of the completeness and accuracy of the impairment analysis prepared in coordination with our third-party valuation specialist did not operate at a sufficient level of precision to prevent or detect a material misstatement. Management considers this control deficiency to be a material weakness.

 

We are committed to remediating the control deficiency that gave rise to the material weakness described above.  Management is responsible for implementing changes and improvements to internal control over financial reporting and for remediating the control deficiency that resulted in the material weakness.

 

With oversight from the Audit Committee, we will take significant steps to remediate our internal control deficiency in determining and recording asset impairments by enhancing our controls to ensure a proper level of review related to the completeness and accuracy of the specialist’s deliverables.

 

Some of the key remediation actions will include:

 

•  Reviewing our impairment processes and controls to enhance the overall design of procedures performed on deliverables from the specialist

•  Enhancing our management review controls to improve the precision of review around the key assumptions and inputs into the specialist’s models and resulting valuations and allocations

 

To complete the remediation, we plan, with oversight from the Audit Committee, to continue to:

 

•  Evaluate the sufficiency of our accounting resources and personnel to determine whether additional resources are needed

•  Evaluate whether further enhancements are needed to the design of our impairment procedures and controls

•  Demonstrate consistent operating effectiveness of our management review controls over our asset impairment process over a sufficient time period

 

The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material

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weakness will be completed in fiscal year 2020 due to the timing of the Company’s annual goodwill impairments testing date as of October 1 of each year.

 

Management’s Remediation

 

As previously described in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2018, we began implementing remediation plans to address the material weaknesses. The weaknesses will not be considered remediated, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of these material weaknesses will be completed by the end of fiscal 2019.

 

Changes in Internal Control over Financial Reporting

 

Except as noted above, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the third quarter of fiscal 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The Company and its subsidiaries are involved in litigation and claims primarily arising in the normal course of business, which include claims for personal injury or property damage incurred in the transportation of freight. Based on its knowledge of the facts and, in certain cases, advice of outside counsel, the Company believes the resolution of claims and pending litigation will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

 

Item 1A. Risk Factors

 

Other than the risk factor included below, there have been no material changes in the risks facing the Company as described in the Company’s Annual Report on Form 10-K filed on March 8, 2019.

 

We may not realize all the expected benefits of our restructuring plan and our restructuring plan may adversely affect our business operations.

 

In 2019, we initiated a plan to integrate three operating segments with three other operating segments (the Plan), which will reduce the number of our operating segments from 16 to 13. We have undertaken the Plan in an effort to streamline and reduce the Company’s cost structure, improve asset utilization and capitalize on operational synergies. Additionally, the Company announced the planned implementation of Business Improvement Plans (BIP), which are expected to increase profitability by right-sizing trailer-to-tractor ratios, yielding management capacity allocations, and improving maintenance execution. In conjunction with its accelerated operational/cost improvement plan, the Company has also executed a new management restructuring and substantial corporate cost reduction plan. The Plan, BIP and corporate restructuring could result in significant disruptions to our operations, including adversely affecting the successful implementation and completion of our strategic objectives and the results of our operations. If we do not fully realize or maintain the anticipated benefits of the Plan, BIP and corporate restructuring, our business, financial condition and results of operations could be adversely affected.

 

Item 5. Other Information

 

On July 30, 2019, the Company internally announced a plan to integrate three operating segments with three other operating segments (the Plan), which will reduce the number of operating segments from 16 to 13.  As a result of the Plan, Builders Transportation will merge into Hornady Transportation, Moore Freight Service into E.W. Wylie, and the Schilli Companies into Lone Star Transportation. The Plan is being implemented to streamline and reduce the Company’s cost structure, improve asset utilization and capitalize on operational synergies. Additionally, the Company announced the planned implementation of Business Improvement Plans, which are expected to increase profitability by right-sizing trailer-to-tractor ratios, yielding management capacity allocations, and improving maintenance execution. On September 4, 2019, the Company announced a comprehensive restructuring plan (Project Pivot) intended to reduce its cost base, right size its organization and management team and increase and accelerate its previously announced operational improvement goals. As part of Project Pivot, the Company executed a new management restructuring and substantial corporate cost reduction plan.  The Company recorded $6.8 million of business transformation costs and $6.9 million restructuring expenses in connection with these three strategic actions in the three months ended September 30, 2019 and expects to incur the majority of the estimated remaining $3.0 million of business transformation costs and $1.5 million of restructuring expenses through the end of fiscal 2019. Any changes to these three actions will be reflected the Company’s our future results of operations.

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Item 6. Exhibits

 

EXHIBIT INDEX

 

 

 

Exhibit No.

Exhibit

 

 

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

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).

 

 

3.3

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).

 

 

10.1*+

First Amendment to Daseke, Inc. 2017 Omnibus Incentive Plan (as amended and restated on May 26, 2017, effective as of February 27, 2017), effective as of September 6, 2019.

 

 

10.2+

Separation Agreement, dated as of August 26, 2019, by and between Don R. Daseke and Daseke, Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the registrant on August 29, 2019).

 

 

10.3+

Separation Agreement, dated as of September 4, 2019, by and between Scott Wheeler and Daseke, Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the registrant on September 4, 2019).

 

 

10.4+

Transition and Separation Agreement, dated as of September 3, 2019, by and between Bharat Mahajan and Daseke, Inc. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the registrant on September 4, 2019).

 

 

10.5*+

First Amendment to Employment Agreement, effective as of September 6, 2019, by and between Christopher Easter and Daseke, Inc.

 

 

10.6*+

Non-Qualified Stock Option Award Agreement, dated September 6, 2019, by and between Christopher Easter and Daseke, Inc.

 

 

10.7*+

Employment Agreement, dated as of September 19, 2019, by and between Brian Bonner and Daseke Inc.

 

 

10.8*+

Restricted Stock Unit Award Agreement, dated as of September 19, 2019, by and between Brian Bonner and Daseke Inc.

 

 

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*

XBRL Instance Document.

 

 

101.SCH*

XBRL Taxonomy Extension Schema Document.

 

 

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document.

 

 

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document.

 

 

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document.

_____________________________

 

 

 

 

*

Filed herewith.

**

Furnished herewith.

+

Management contract or compensatory plan or arrangement.

63

Table of Contents

 

 

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: November 12, 2019

DASEKE, INC.

 

 

 

 

By:

/s/ Christopher Easter

 

Name:

Christopher Easter

 

Title:

Interim Chief Executive Officer and Chief Operating Officer

 

 

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

 

 

Officer)

 

64

Exhibit 10.1

FIRST AMENDMENT TO

DASEKE, INC.

 2017 OMNIBUS INCENTIVE PLAN

(As Amended and Restated on May 26, 2017, Effective as of February 27, 2017)

WHEREAS, DASEKE, INC. (the “Company”) has heretofore adopted the DASEKE, INC. 2017 OMNIBUS INCENTIVE PLAN, as amended and restated on May 26, 2017, effective as of February 27, 2017 (the “Plan”); and

WHEREAS, the Company desires to amend the Plan in certain respects;

NOW, THEREFORE, the Plan shall be amended as follows, effective as of September 6, 2019:

1.         The third sentence of Section 4(a)(i) of the Plan shall be deleted and the following shall be substituted therefor:

“Subject in each instance to adjustment as provided in Section 4(b), the maximum number of Shares with respect to which Awards (including Options and Stock Appreciation Rights) may be granted to any single Participant in any fiscal year shall be (I) with respect to fiscal years beginning prior to January 1, 2019, 450,000 Shares, and (II) with respect to fiscal years beginning on or after January 1, 2019, 1,000,000 Shares; the maximum number of Shares which may be paid to a Participant in the Plan in connection with the settlement of any Award(s) designated as “Performance Compensation Awards” in respect of a single Performance Period shall be as set forth in Section 11(e); and the maximum number of Shares with respect to which Awards (including Options and Stock Appreciation Rights) may be granted to any single non-employee member of the Board in any fiscal year shall be (x) with respect to fiscal years beginning prior to January 1, 2019, 90,000 Shares, and (y) with respect to fiscal years beginning on or after January 1, 2019, 350,000 Shares; provided, however, that the number of Shares granted during a single fiscal year of the Company to any non-employee member of the Board, taken together with any cash fees paid to such non-employee member of the Board during such fiscal year, shall not, in each case, exceed $500,000 in total value (calculating the value of any such Shares based on the grant date fair value of such Shares for financial reporting purposes and excluding, for this purpose, the value of any dividend or dividend equivalent payments paid pursuant to any Shares granted in a previous fiscal year).”

2.         The first sentence of Section 11(e) of the Plan shall be deleted and the following shall be substituted therefor:

“Notwithstanding any provision contained in the Plan to the contrary, the maximum Performance Compensation Award payable to any one Participant under the Plan for a Performance Period is (i) to the extent such Award is based on a number of Shares (including Awards that may be settled in either cash or Shares), 450,000 Shares (which amount shall be increased to 1,000,000 Shares for Performance Periods beginning on or after January 1, 2019) or (ii) to the extent such Award is

designated to be paid only in cash and is not based on a number of Shares, a maximum value at the date of grant equal to $4,500,000.”

3.         As amended hereby, the Plan is specifically ratified and reaffirmed.

IN WITNESS WHEREOF, the undersigned has caused this First Amendment to be executed this 10th day of September, 2019, effective for all purposes as provided above.

 

 

 

 

 

DASEKE, INC.

 

 

 

 

 

By:

/s/ Soumit Roy

 

 

Name: Soumit Roy

 

 

Title: Secretary

 

 

 

Exhibit 10.5

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this  “Amendment”) is by and between Daseke, Inc.,  a Delaware corporation (the “Company”), and Christopher R. Easter (“Employee”), effective as of September 6, 2019 (the “Effective Date”).

WHEREAS, the Company and Employee have entered into that certain Employment Agreement effective as of January 16, 2019 (the “Agreement”); and

WHEREAS, the Company and Employee desire to amend the Agreement in certain respects and have entered into this Amendment for that purpose.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Employee agree as follows, effective as of the Effective Date:

1.              Section 1 of the Agreement shall be deleted in its entirety and replaced with the following:

“1.         Employment.  During the Employment Period (as defined in Section 4), the Company shall employ Employee, and Employee shall serve, as Chief Operating Officer of the Company and in such other position or positions as may be assigned from time to time by the Board (as defined in Section 2(b)), the Company’s Executive Chairman (the “Executive Chairman”), or the Company’s Chief Executive Officer (the “CEO”) (other than Employee in his capacity as interim CEO).  Effective as of August 15, 2019, Employee shall also serve as the interim CEO of the Company until otherwise determined by the Board, and, effective as of September [6], 2019, Employee shall also serve as the principal financial officer of the Company (the “PFO”) until otherwise determined by the Board.”

2.              The following shall be added to the end of Section 2(a) of the Agreement:

“During such period in which Employee serves as the Company’s interim CEO, Employee’s duties shall include such additional duties as may be assigned to Employee by the Board or the Executive Chairman, and during such period in which Employee serves as PFO, Employee’s duties shall include such additional duties as may be assigned to Employee by the Board, the Executive Chairman, or the CEO (other than Employee in his capacity as interim CEO).”

3.              The following shall be added after the first sentence of Section 3(a) of the Agreement:

“Notwithstanding the foregoing, in consideration for acting as the interim CEO, Employee’s Base Salary shall be increased to $650,000, effective as of August 15, 2019.”

4.              The following shall be added to the end of Section 5(c) of the Employment Agreement:

“For the avoidance of doubt and notwithstanding the preceding provisions of this Section 5(c), the Company and Employee expressly agree that any diminution or reduction in Employee’s title, position, responsibilities or duties associated with the cessation of his service as interim CEO and/or PFO shall not constitute Good Reason.”

5.              Except as expressly modified by this Amendment, the terms of the Agreement shall remain in full force and effect and are hereby confirmed and ratified.

6.              This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Amendment.

[Signature Page To Follow]

IN WITNESS WHEREOF, the Company and Employee have executed this Amendment effective as of the Effective Date.

 

 

 

 

EMPLOYEE

 

 

 

 

 

By:

/s/ Christopher R. Easter

 

 

Christopher R. Easter

 

 

 

 

 

DASEKE, INC.

 

 

 

 

 

By:

/s/ Soumit Roy

 

 

Name: Soumit Roy

 

 

Title: Secretary

 

Exhibit 10.6

NON-QUALIFIED STOCK OPTION AWARD AGREEMENT

DASEKE, INC.
2017 Omnibus Incentive Plan

This NON-QUALIFIED STOCK OPTION AWARD AGREEMENT (this “Agreement”), is made as of the 6th day of September, 2019 between Daseke, Inc, (the “Company”), and Christopher Easter (the “Participant”), and is made pursuant to the terms of the Company’s 2017 Omnibus Incentive Plan (as amended, restated or otherwise modified from time to time, the “Plan”). Capitalized terms used herein but not defined shall have the meanings set forth in the Plan.

Section 1.             Nonqualified Stock Option. Subject to the terms and conditions set forth in this Agreement and the Plan, the Company hereby grants to the Participant, as of the Grant Date, a non-qualified stock option (the “Option”) to purchase from the Company 238,636 Shares (such Shares are referred to as the “Option Shares”) at an Exercise Price per Share of $2.20, subject to such vesting, transfer and other restrictions and conditions as set forth in this Agreement (the “Award”). For purposes of this Agreement, the “Grant Date” shall be September 6, 2019.

Section 2.             Vesting Requirements.

(a)          Generally. Except as otherwise provided herein, the Option shall vest and become exercisable with respect to the number of Option Shares subject to the Award on the “Vesting Date” determined in accordance with the following schedule, subject to the Participant’s continuous service or employment with the Company and its Affiliates (“Service”) from the Grant Date through the Vesting Date.

Vesting Date

    

Vesting Percentage

1st anniversary of Grant Date

 

33 1/3%

2nd anniversary of Grant Date

 

33 1/3%

3rd anniversary of Grant Date

 

33 1/3%

 

(b)          Change in Control. Notwithstanding Section 2(a) hereof, upon the occurrence of a Change in Control, 100% of any then unvested Option Shares granted hereunder shall immediately become fully vested and non-forfeitable, provided that the Participant remains in continuous Service from the Grant Date through the occurrence of the Change in Control, except to the extent that a Replacement Award (as such award is defined and determined under Section 13 of the Plan) is provided to the Participant to replace or adjust this outstanding Award.

(c)          Involuntary Termination of Service due to Death or Disability. Notwithstanding Section 2(a) hereof, in the event of the Participant’s termination of Service prior to the Vesting Date by the Company and its Affiliates due to the Participant’s death or Disability, any then unvested Option Shares shall immediately become vested and non-forfeitable on a pro rata basis based on the number of full months completed in the period beginning on the anniversary of the Grant Date immediately preceding the date of termination (“Termination Date”) and ending on the Termination Date divided by twelve.

 

(d)          Other Terminations of Service. Upon the occurrence of a termination of the Participant’s Service for any reason other than as contemplated by Section 2(c) hereof, all outstanding and unvested Option Shares shall immediately be forfeited and cancelled, and the Participant shall not be entitled to any compensation or other amount with respect thereto. Notwithstanding anything to the contrary herein, upon a termination of the Participant’s Service for Cause, all Option Shares, whether vested or unvested, shall immediately be forfeited and cancelled, and the Participant shall not be entitled to any compensation or other amount with respect thereto.

Section 3.             Option Exercise. Subject to this Award Agreement and the Plan, on and after a Vesting Date, the Option may be exercised in whole or in part with respect to the number of Option Shares which have become vested pursuant to Section 2 above by filing a written notice with the Committee in accordance with rules and procedures established by the Committee; provided, however, that in no event will the Option (or any portion thereof) be exercisable after the Expiration Date of the Option. Any such notice shall specify the number of Option Shares which the Participant elects to purchase and shall be accompanied by payment of the Exercise Price for such Option Shares indicated by the Participant’s election (except as otherwise provided by the Committee in connection with a broker-assisted cashless exercise program). Subject to applicable law and as approved by the Committee, the Exercise Price shall be payable (a) in cash, or its equivalent, (b) through delivery of irrevocable instructions to a broker to sell the Shares otherwise deliverable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the aggregate Exercise Price, (c) the Company’s withholding of Shares otherwise issuable upon exercise of an Option pursuant to a “net exercise” arrangement, (d) by a combination of the foregoing, or (e) by such other methods as may be approved by the Committee.

Section 4.             Certificates: Cash in Lieu of Fractional Shares. Shares or other securities of the Company or any Affiliate delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the SEC, any stock exchange upon which such Shares or other securities are then listed, and any applicable Federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. In lieu of issuing a fraction of a Share pursuant to the Plan or this Agreement, the Company may pay to the Participant an amount equal to the Fair Market Value of such fractional share.

Section 5.             Restrictions on Transfer. No Award (nor any interest therein) may be sold, assigned, alienated, pledged, attached or otherwise transferred or encumbered by the Participant otherwise than by will or by the laws of descent and distribution, and any such purported sale, assignment, alienation, pledge, attachment, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute a sale, assignment, alienation, pledge, attachment, transfer or encumbrance. Notwithstanding the foregoing, at the discretion of the Committee, the Award may be transferred by the Participant solely to the Participant’s spouse, siblings, parents, children and grandchildren or trusts for the benefit of such persons or partnerships, corporations, limited liability companies or other entities owned solely by such persons, including, but not limited to, trusts for such persons.

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Section 6.             Expiration Date. The Expiration Date of the Option shall occur on the earliest to occur of the following: (a) the ten-year anniversary of the Grant Date, (b) if the Participant’s Termination Date occurs for Cause, the Termination Date, or (c) if the Participant’s Termination Date occurs for any reason other than Cause, the three month anniversary of the Termination Date.

Section 7.             Adjustments. The Award granted hereunder shall be subject to the adjustment as provided in Section 4(b) of the Plan.

Section 8.              No Right of Continued Service. Nothing in the Plan or this Agreement shall confer upon the Participant any right to continued Service.

Section 9.             Tax Withholding. The Company will withhold from the Shares to be issued to you upon exercise of the Option the number of Shares determined at the minimum allowable rate of tax withholding in the Participant’s relevant tax jurisdiction, based on the Shares’ Fair Market Value at the time such determination is made.

Section 10.             No Rights as a Stockholder: Dividends. The Participant shall not have any privileges of a stockholder of the Company with respect to any Shares issuable upon exercise of the Option, including without limitation any right to vote any Shares underlying such Option or to receive dividends or other distributions in respect thereof, unless and until Shares underlying the Option are delivered to the Participant.

Section 11.             Clawback. The Award will be subject to recoupment in accordance with any existing clawback policy or clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. In addition, the Board may impose such other clawback, recovery or recoupment provisions as the Board determines necessary or appropriate, including but not limited to a reacquisition right in respect of previously acquired Shares or other cash or property upon the occurrence of Cause. The implementation of any clawback policy will not be deemed a triggering event for purposes of any definition of “constructive termination.”

Section 12.             Amendment and Termination. Subject to the terms of the Plan, any amendment to this Agreement shall be in writing and signed by the parties hereto. Notwithstanding the immediately-preceding sentence, subject to the terms of the Plan, the Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, this Agreement and/or the Award; provided that, subject to the terms of the Plan, any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially impair the rights of the Participant or any holder or beneficiary of the Award shall not be effective without the written consent of the Participant, holder or beneficiary.

Section 13.             Securities Law Requirements. Notwithstanding any other provision of this Agreement, the Company shall have no liability to make any distribution of Shares under this Agreement unless such delivery or distribution would comply with all applicable laws. In particular, no Shares will be delivered to a Participant unless, at the time of  delivery, the shares qualify for exemption from, or are registered pursuant to, applicable federal and state securities laws.

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Section 14.             Construction. The Award granted hereunder is granted by the Company pursuant to the Plan and is in all respects subject to the terms and conditions of the Plan. The Participant hereby acknowledges that a copy of the Plan has been delivered to the Participant and accepts the Award hereunder subject to all terms and provisions of the Plan, which are incorporated herein by reference. In the event of a conflict or ambiguity between any term or provision contained herein and a term or provision of the Plan, the Plan will govern and prevail. The construction of and decisions under the Plan and this Agreement are vested in the Committee, whose determinations shall be final, conclusive and binding upon the Participant.

Section 15.             Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, without giving effect to the choice of law principles thereof.

Section 16.             Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

Section 17.             Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.

Section 18.             Entire Agreement. This Agreement and the Plan constitute the entire agreement between the parties with respect to the subject matter hereof and thereof.

[SIGNATURES ON FOLLOWING PAGE]

 

 

 

4

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first written above.

 

DASEKE, INC.

 

 

 

 

By:

/s/ Soumit Roy

 

Name:

Soumit Roy

 

Title:

Secretary

 

 

 

 

 

 

 

PARTICIPANT

 

 

 

 

/s/ Christopher Easter

9/10/19

 

Participant’s Signature

Date

 

 

 

 

Name:

Christopher Easter

 

Address:

 

 

 

 

 

 

 

 

 

SIGNATURE PAGE TO

NON-QUALIFIED STOCK OPTION AWARD AGREEMENT

Exhibit 10.7

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”) is made and entered into by and between Daseke, Inc., a Delaware corporation (the “Company”), and Brian Bonner (“Employee”) as of September 19, 2019, and effective as of August 15,  2019 (the “Effective Date”).

 

1.   Employment.  During the Employment Period (as defined in Section 4), the Company shall employ Employee, and Employee shall serve, as Executive Chairman of the Board of the Company.  In addition, the Employee  may continue his service as a member of the Board of Directors of the Company (the “Board”), for no additional consideration while Employee is determined to be an insider or management, provided, once Employee is determined to be an independent director, he shall be entitled to receive the same compensation as other independent directors of the Board.

2.   Duties and Responsibilities of Employee.

(a)        During the Employment Period, Employee shall devote Employee’s substantially all business time, attention and best efforts to the businesses of the Company and its direct and indirect subsidiaries (collectively, the “Company Group”) as may be requested by the Board from time to time.  Employee’s duties shall include those normally incidental to the position identified in Section 1, as well as such additional duties as may be assigned to Employee by the Board from time to time.  Employee shall have his office at the Company’s Addison, Texas office but shall also be able to work from remote locations through electronic communication means .

(b)        Employee may, without violating this Agreement:  (i) as a passive investment, own publicly traded securities in such form or manner as shall not require any employment services by Employee in the operation of the entities in which such securities are owned; (ii) engage in charitable and civic activities, including participation in professional groups and associations;  or (iii) with the prior written consent of the Board, engage in other personal and passive investment activities, in each case, so long as such interests or activities do not interfere with Employee’s ability to fulfill Employee’s duties and responsibilities under this Agreement and are not inconsistent with Employee’s obligations to the Company Group or competitive with the business of the Company Group. The parties agree that the Employee may serve as a director on one other public company board,  provided that such company is not a  competitors or anticipated competitors of the Company Group,  and may receive restricted stock for that service; provided that specific approval for said service is obtained from the Company General Counsel.

(c)        Employee hereby represents and warrants that Employee is not the subject of, or a party to, any employment agreement, non-competition covenant, nondisclosure agreement, or any other agreement, obligation,  restriction or understanding that would prohibit Employee from executing this Agreement or fully performing each of Employee’s duties and responsibilities hereunder, or would in any manner, directly or indirectly, limit or affect any of the duties and responsibilities that may now or in the future be assigned to Employee hereunder.

(d)        Employee owes each member of the Company Group fiduciary duties  (including (i) duties of loyalty and non-disclosure and (ii) such fiduciary duties that an officer of the Company has under applicable law), and the obligations described in this Agreement are in

 

addition to, and not in lieu of, the obligations Employee owes each member of the Company Group under statutory or common law.

3.   Compensation.

(a)        Base Salary.  During the Employment Period, the Company shall pay to Employee an annualized base salary of $600,000 (the “Base Salary”) in consideration for Employee’s services under this Agreement, payable in substantially equal installments in conformity with the Company’s customary payroll practices for other senior executives as may exist from time to time, but no less frequently than monthly. The Base Salary shall be reviewed by the Compensation Committee of the Board (the “Compensation Committee”) in accordance with the Company’s policies and practices, but no less frequently than once annually, and may be increased but not decreased (unless agreed to in writing by Employee). To the extent applicable, the term “Base Salary” shall include any such increases (or decreases agreed to in writing by Employee) to the Base Salary enumerated above.

(b)        Restricted Stock Unit Award.  On September 6, 2019, Employee was awarded restricted stock units under the Company’s 2017 Omnibus Incentive Plan, as amended, with respect to 500,000 shares of the common stock of the Company.  The award described in the preceding sentence is subject to the terms of that certain Restricted Stock Unit Award Agreement between the Company and Employee evidencing the grant and terms of such award.

(c)        Business Expenses.  Subject to Section 24, the Company shall reimburse Employee for Employee’s reasonable out-of-pocket business-related expenses actually incurred in the performance of Employee’s duties under this Agreement so long as Employee timely submits all documentation for such reimbursement, as required by Company policy in effect from time to time.  Any such reimbursement of expenses shall be made by the Company upon or no later than thirty (30) days following receipt of such documentation .(but in any event not later than the close of Employee’s taxable year following the taxable year in which the expense is incurred by Employee).  In no event shall any reimbursement be made to Employee for such expenses incurred after the date of Employee’s termination of employment with the Company.

(d)        Benefits.  During the Employment Period, Employee shall be eligible to participate in the same benefit plans and programs in which other similarly situated senior executives are eligible to participate, subject to the terms and conditions of the applicable plans and programs in effect from time to time.  In addition, during the Employment Period, Employee shall be entitled to eight weeks of paid vacation in accordance with the policies set forth in the employee handbook of the Company or in any approved Company policy.  The Company shall not, however, by reason of this Section 3(d), be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such plan or policy, so long as such changes are similarly applicable to other similarly situated senior executives generally.

4.   Term of Employment.  The initial term of Employee’s employment under this Agreement shall be for the period beginning on the Effective Date and ending on the one year anniversary of the Effective Date (the “Initial Term”).  On the first anniversary of the Effective Date, Employee’s employment shall continue, if at all, on at at-will basis in which either Employee or the Company may terminate the employment relationship at any time, for any lawful reason,

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and without any further obligation under this Agreement except as expressly provided for herein.  The period from the Effective Date through the termination of Employee’s employment pursuant to this Agreement, regardless of the time or reason for such termination, shall be referred to herein as the “Employment Period.”

5.   Termination of Employment.

(a)        Company’s Right to Terminate Employee’s Employment for Cause During the Initial Term.  The Company may terminate Employee’s employment during the Initial Term for “Cause”  which, for purposes of this Agreement, shall mean:

(i)        Employee’s commission of fraud, breach of fiduciary duty, theft, or embezzlement against the Company, its subsidiaries, affiliates or customers;

(ii)       Employee’s willful refusal without proper legal cause to faithfully and diligently perform Employee’s duties;

(iii)      Employee’s breach of Sections  8,  9 or 10 of this Agreement or any other material breach of this Agreement;

(iv)      Employee’s conviction of, or plea of guilty or nolo contendere to, any crime involving moral turpitude or a felony (or state law equivalent);

(v)       Employee’s willful misconduct or gross negligence in the performance of duties to the Company that has or could reasonably be expected to have a material adverse effect on the Company;  or

(vi)      Employee’s material breach and violation of the Company’s written policies pertaining to workplace conduct (including sexual harassment), discrimination or insider trading.

Provided, however, that solely with respect to the actions or omissions set forth in Section 5(a)(ii), (iii),  (v) and (vi), such actions or omissions must remain uncured thirty (30) days after the Board has provided Employee written notice of the obligation to cure such actions or omissions. For the avoidance of doubt, the actions or omissions set forth in Section 5(a)(i) and (iv) are not subject to cure by Employee under any circumstances.

(b)        Company’s Right to Terminate without Cause.  The Company may terminate Employee’s employment for convenience at any time during the Employment Period for any reason, or no reason at all, upon notice to Employee.

(c)        Employee’s Right to Terminate for Good Reason During the Initial Term.  Employee shall have the right to terminate Employee’s employment with the Company during the Initial Term for “Good Reason.”  For purposes of this Agreement, “Good Reason” shall mean:

(i)         a  material diminution  in Employee’s position, responsibilities or duties or the assignment of Employee to a position, responsibilities or duties of a materially

3

 

lesser status or degree of responsibility than his position, responsibilities or duties immediately following the Effective Date; or

(ii)       any material breach by the Company of any provision of this Agreement.

Notwithstanding the foregoing provisions of this Section 5(c) or any other provision of this Agreement to the contrary, any assertion by Employee of a termination for Good Reason shall not be effective unless all of the following conditions are satisfied: (A) the condition giving rise to Employee’s termination of employment must have arisen without Employee’s consent; (B) Employee must provide written notice to the Board of the existence of such condition(s) within thirty (30) days of the initial existence of such condition(s); (C) the condition(s) specified in such notice must remain uncorrected for thirty (30) days following the Board’s receipt of such written notice; and (D) the date of Employee’s termination of employment must occur following the expiration of the thirty (30) day cure period, but in any event within sixty-five  (65) days following the Board’s receipt of such notice and during the Initial Term.

(d)        Death or Disability.  Upon the death or Disability of Employee, Employee’s employment with Company shall terminate.  For purposes of this Agreement, a “Disability”  shall exist if Employee is entitled to receive long-term disability benefits under the Company’s disability plan or, if there is no such plan, Employee’s inability to perform the essential functions of Employee’s position (after accounting for reasonable accommodation, if applicable), due to an illness or physical or mental impairment or other incapacity that continues, or can reasonably be expected to continue, for a period in excess of one hundred-twenty (120) days, whether or not consecutive.  The determination of whether Employee has incurred a Disability shall be made in good faith by the Board.

(e)        Employee’s Right to Terminate for Convenience.  Employee shall have the right to terminate Employee’s employment with the Company for convenience at any time and for any other reason, or no reason at all, (i) during the Initial Term on sixty  (60) days’ advance written notice to the Company; provided, however, that if Employee has provided notice to the Company of Employee’s termination of employment, the Company may determine, in its sole discretion, that such termination shall be effective on any date prior to the effective date of termination provided in such notice (and, if such earlier date is so required, then it shall not change the basis for Employee’s termination of employment nor be construed or interpreted as a termination of employment pursuant to Section 5(b)); or (ii) following the Initial Term, at any time for any reason on notice to the Company.

6.   Obligations of the Company upon Termination of Employment.

(a)        For Cause; Death or Disability; Following the Initial Term.  If Employee’s employment is terminated (i) during the Initial Term by the Company for Cause pursuant to Section 5(a) or by Employee other than for Good Reason pursuant to Section 5(e);  (ii) due to Employee’s death or Disability; or (iii) following the Initial Term by either Employee or the Company for any reason, then Employee shall be entitled to all Base Salary earned by Employee through the date that Employee’s employment terminates (the “Termination Date”) and, subject to the terms and conditions of any benefit plans in which he may participate at the time of such

4

 

termination, any post-employment benefits available pursuant to the terms of those plans; however, Employee shall not be entitled to any additional amounts or benefits as the result of such termination of employment.

(b)        Without Cause; Good Reason during the Initial Term.  Subject to Section 6(c) below, if Employee’s employment is terminated during the Initial Term (i) by the Company pursuant to Section 5(b); or (ii) by Employee for Good Reason pursuant to Section 5(c),  then Employee shall be entitled to be paid, in a lump sum less deductions for applicable taxes,  an amount equal to $600,000 less the aggregate Base Salary (determined prior to any deductions for taxes or other amounts) paid to Employee during the Initial Term through the Termination Date.  Any payment required pursuant to the preceding sentence shall be paid on the Company’s first regularly scheduled pay date that is on or after the date that is 60 days after the Termination Date (but in no event later than March 15th of the year following the year in which the Termination Date occurs).

(c)        Conditions to Receipt of Payment.  Notwithstanding the foregoing, Employee’s eligibility and entitlement to the payment set forth in Section 6(b) is dependent upon Employee’s (i) continued compliance with Employee’s obligations under each of Sections 8,  9 and 10 below and (ii) execution and delivery to the Company,  on or before the Release Expiration Date (as defined below), and non-revocation within any time provided by the Company to do so, of a release of all claims in a form acceptable to the Company (the “Release”), which Release shall release each member of the Company Group and their respective affiliates, and the foregoing entities’ respective shareholders, members, partners, officers, managers, directors, fiduciaries, employees, representatives, attorneys, agents and benefit plans (and fiduciaries of such plans) from any and all claims, including any and all causes of action arising out of Employee’s employment with the Company and any other member of the Company Group or the termination of such employment, but excluding all claims to the payment owed under this Section 6. If the Release is not executed and returned to the Company on or before the Release Expiration Date, and the required revocation period has not fully expired without revocation of the Release by Employee, then Employee shall not be entitled to any portion of the payment set forth in Section 6(b).  As used herein, the “Release Expiration Date” is that date that is twenty-one (21) days following the date upon which the Company delivers the Release to Employee (which shall occur no later than seven (7) days after the Termination Date) or, in the event that such termination of employment is “in connection with an exit incentive or other employment termination program” (as such phrase is defined in the Age Discrimination in Employment Act of 1967, as amended), the date that is forty-five (45) days following such delivery date.

7.   Disclosures.  Promptly (and in any event, within three business days) upon becoming aware of (a) any actual or potential Conflict of Interest or (b) any lawsuit, claim or arbitration filed against or involving Employee or any trust or vehicle owned or controlled by Employee, in each case, Employee shall disclose such actual or potential Conflict of Interest or such lawsuit, claim or arbitration to the Board.  A “Conflict of Interest” shall exist when Employee engages in, or plans to engage in, any activities, associations, or interests that conflict with, or create an appearance of a conflict with, Employee’s duties, responsibilities, authorities, or obligations for and to the Company Group.

8.   Confidentiality.

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(a)        Disclosure to and Property of the Company.  All information, trade secrets, designs, ideas, concepts, improvements, product developments, discoveries and inventions, whether patentable or not, that are conceived, made, developed, acquired by or disclosed to Employee, individually or in conjunction with others, during the term of his employment (whether during business hours or otherwise and whether on the Company’s premises or otherwise) that relate to the Company’s or any member of the Company Group’s business, products or services and all writings or materials of any type embodying any such matters (collectively, “Confidential Information”) shall be disclosed to the Company, and are and shall be the sole and exclusive property of the Company or its Affiliates.  Confidential Information does not, however, include any information that is available to the public other than as a result of any unauthorized act of Employee.

(b)        No Unauthorized Use or Disclosure.  Employee agrees that Employee will preserve and protect the confidentiality of all Confidential Information and work product of the Company and each member of the Company Group, and will not, at any time during or after the termination of Employee’s employment with the Company, make any unauthorized disclosure of, and shall not remove from the Company premises, and will use reasonable efforts to prevent the removal from the Company premises of, Confidential Information or work product of the Company or its Affiliates, or make any use thereof, in each case, except in the carrying out of Employee’s responsibilities hereunder.  Notwithstanding the foregoing, Employee shall have no obligation hereunder to keep confidential any Confidential Information if and to the extent (i) such information becomes generally known to the public or within the relevant trade or industry other than due to Employee’s violation of this Section 8(b), or (ii) disclosure thereof is specifically required by law; provided,  however, that in the event disclosure is required by applicable law and Employee is making such disclosure, Employee shall provide the Company with prompt notice of such requirement, and shall use commercially reasonable efforts to give such notice prior to making any disclosure so that the Company may seek an appropriate protective order, or (iii) Employee is making a good faith report of possible violations of applicable law to any governmental agency or entity or is making disclosures that are otherwise compelled by law or provided under the whistleblower provisions of applicable law.

(c)        Remedies.  Employee acknowledges that money damages would not be a sufficient remedy for any breach of this Section  8 by Employee, and the Company or its Affiliates shall be entitled to enforce the provisions of this Section  8 by specific performance and injunctive relief as remedies for such breach or any threatened breach.  Such remedies shall not be deemed the exclusive remedies for a breach of this Section  8, but shall be in addition to all remedies available at law or in equity to the Company, including the recovery of damages from Employee and remedies available to the Company pursuant to other agreements with Employee.

(d)        No Prohibition.  Nothing in this Section  8 shall be construed as prohibiting Employee, following the expiration of the 12-month period immediately following Employee’s termination of employment with the Company, from being employed by any entity engaged in the Business (as defined below) or engaging in any activity prohibited by Section 9;  provided, that during such employment or engagement Employee complies with his obligations under this Section  8.

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(e)        Permitted DisclosuresNothing herein will prevent Employee from: (i) making a good faith report of possible violations of applicable law to any governmental agency or entity; or (ii) making disclosures that are protected under the whistleblower provisions of applicable law.  Further, an individual (including Employee) shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (A) is made (i) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.  An individual who files a lawsuit for retaliation by an employer of reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (x) files any document containing the trade secret under seal; and (y) does not disclose the trade secret, except pursuant to court order.

9.   Non-Competition; Non-Solicitation.

(a)        The Company shall provide Employee access to Confidential Information for use only during the Employment Period, and Employee acknowledges and agrees that the Company Group shall be entrusting Employee, in Employee’s unique and special capacity, with developing the goodwill of the Company Group, and in consideration thereof and in consideration of the Company providing Employee with access to Confidential Information and as an express incentive for the Company to enter into this Agreement and employ Employee, Employee has voluntarily agreed to the covenants set forth in this Section  9.  Employee further agrees and acknowledges that the limitations and restrictions set forth herein, including geographical and temporal restrictions on certain competitive activities, are reasonable in all respects and not oppressive, shall not cause Employee undue hardship, and are material and substantial parts of this Agreement intended and necessary to prevent unfair competition and to protect the Company Group’s Confidential Information, goodwill and substantial and legitimate business interests.

(b)        Employee agrees that, during the Prohibited Period, Employee shall not, without the prior written approval of the Board, directly or indirectly, for Employee or on behalf of or in conjunction with any other person or entity of any nature:

(i)         engage in or participate within the Market Area in competition with any member of the Company Group in any aspect of the Business, which prohibition shall prevent Employee from directly or indirectly owning, managing, operating, joining, becoming an officer, director, employee or consultant of, or loaning money to, or selling or leasing equipment or real estate to or otherwise being affiliated with any person or entity engaged in, or planning to engage in, the Business in the Market Area in competition, or anticipated competition, with any member of the Company Group;

(ii)       appropriate any Business Opportunity of, or relating to, the Company Group located in the Market Area;

(iii)      solicit, canvass, approach, encourage, entice or induce any customer or supplier of any member of the Company Group to cease or lessen such customer’s or supplier’s business with the Company Group; or

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(iv)       solicit, canvass, approach, encourage, entice or induce any employee or contractor of the Company Group to terminate his, her or its employment or engagement with any member of the Company Group.

(c)        Because of the difficulty of measuring economic losses to the Company Group as a result of a breach or threatened breach of the covenants set forth in Section 8 and in this Section  9, and because of the immediate and irreparable damage that would be caused to the members of the Company Group for which they would have no other adequate remedy, the Company and each other member of the Company Group shall be entitled to enforce the foregoing covenants, in the event of a breach or threatened breach, by injunctions and restraining orders from any court of competent jurisdiction, without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and without the necessity of posting any bond or other security.  The aforementioned equitable relief shall not be the Company’s or any other member of the Company Group’s exclusive remedy for a breach but instead shall be in addition to all other rights and remedies available to the Company and each other member of the Company Group at law and equity.  In addition, Employee acknowledges that money damages would not be a sufficient remedy for any breach of this Section 9 by Employee, and the Company or its Affiliates shall be entitled to enforce the provisions of this Section 9 by terminating payments then owing to Employee under this Agreement.

(d)        The covenants in this Section 9, and each provision and portion hereof, are severable and separate, and the unenforceability of any specific covenant (or portion thereof) shall not affect the provisions of any other covenant (or portion thereof).  Moreover, in the event any arbitrator or court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which such arbitrator or court deems reasonable, and this Agreement shall thereby be reformed.

(e)        For purposes of this Section  9, the following terms shall have the following meanings:

(i)         Business” shall mean the business and operations that are the same or similar to those performed by the Company in the flatbed and open deck trucking business and any other member of the Company Group for which Employee provides services or about which Employee obtains Confidential Information during the Employment Period.

(ii)       Business Opportunity” shall mean any commercial, investment or other business opportunity relating to the Business.

(iii)      Market Area” shall mean the continental United States and any other geographical area in which the company conducts Business or intends to conduct Business (to the extent the Employee is aware of and involved in the development or the expansion of such Business) as of the Termination Date.

(iv)       Prohibited Period” shall mean the period during which Employee is employed by any member of the Company Group and continuing for a period of 12

8

 

months following the date that Employee is no longer employed by any member of the Company Group.

10. Ownership of Intellectual PropertyEmployee agrees that the Company shall own, and Employee shall (and hereby does) assign, all right, title and interest (including patent rights, copyrights, trade secret rights, mask work rights, trademark rights, and all other intellectual and industrial property rights of any sort throughout the world) relating to any and all inventions (whether or not patentable), works of authorship, mask works, designs, know-how, ideas and information authored, created, contributed to, made or conceived or reduced to practice, in whole or in part, by Employee during the period in which Employee is or has been employed by or affiliated with the Company or any other member of the Company Group that either (a) relate, at the time of conception, reduction to practice, creation, derivation or development, to any member of the Company Group’s businesses or actual or anticipated research or development, or (b) were developed on any amount of the Company’s or any other member of the Company Group’s time or with the use of any member of the Company Group’s equipment, supplies, facilities or trade secret information (all of the foregoing collectively referred to herein as “Company Intellectual Property”), and Employee shall promptly disclose all Company Intellectual Property to the Company.  All of Employee’s works of authorship and associated copyrights created during the period in which Employee is employed by or affiliated with the Company or any member of the Company Group and in the scope of Employee’s employment shall be deemed to be “works made for hire” within the meaning of the Copyright Act.  Employee shall perform, during and after the period in which Employee is or has been employed by or affiliated with the Company or any other member of the Company Group, all reasonable acts deemed necessary by the Company to assist the Company Group, at the Company’s expense, in obtaining and enforcing its rights throughout the world in the Company Intellectual Property.  Such acts may include execution of documents and assistance or cooperation (i) in the filing, prosecution, registration, and memorialization of assignment of any applicable patents, copyrights, mask work, or other applications, (ii) in the enforcement of any applicable patents, copyrights, mask work, moral rights, trade secrets, or other proprietary rights, and (iii) in other legal proceedings related to the Company Intellectual Property.

11. Arbitration.

(a)        Subject to Section 11(b), any dispute, controversy or claim between Employee and the Company arising out of or relating to this Agreement or Employee’s employment with the Company shall be finally settled by arbitration in Dallas, Texas before, and in accordance with the then-existing American Arbitration Association (“AAA”) Employment Arbitration Rules.  The arbitration award shall be final and binding on both parties.  Any arbitration conducted under this Section 11 shall be heard by a single arbitrator (the “Arbitrator”) selected in accordance with the then-applicable rules of the AAA and approved by Employee, provided that such approval is not unreasonably withheld.  The Arbitrator shall expeditiously (and, if practicable, within ninety (90) days after the selection of the Arbitrator) hear and decide all matters concerning the dispute.  Except as expressly provided to the contrary in this Agreement, the Arbitrator shall have the power to (i) gather such materials, information, testimony and evidence as the Arbitrator deems relevant to the dispute before him or her (and each party shall provide such materials, information, testimony and evidence requested by the Arbitrator). and (ii) grant injunctive relief and enforce specific performance.  The decision of the Arbitrator shall be reasoned, rendered in writing, be final and binding upon the disputing parties and the parties agree

9

 

that judgment upon the award may be entered by any court of competent jurisdiction; provided,  however, that the parties agree that the Arbitrator and any court enforcing the award of the Arbitrator shall not have the right or authority to award punitive or exemplary damages to any disputing party.  The party whom the Arbitrator determines is the prevailing party in such arbitration shall receive, in addition to any other award pursuant to such arbitration or associated judgment, reimbursement from the other party of all reasonable legal fees and costs associated with such arbitration and associated judgment.

(b)        Notwithstanding Section 11(a), either party may make a timely application for, and obtain, judicial emergency or temporary injunctive relief to enforce any of the provisions of Sections 8 through 10;  provided, however, that the remainder of any such dispute (beyond the application for emergency or temporary injunctive relief) shall be subject to arbitration under this Section 11.

(c)        By entering into this Agreement and entering into the arbitration provisions of this Section 11, THE PARTIES EXPRESSLY ACKNOWLEDGE AND AGREE THAT THEY ARE KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVING THEIR RIGHTS TO A JURY TRIAL.

(d)        Nothing in this Section 11 shall prohibit a party to this Agreement from (i) instituting litigation to enforce any arbitration award, or (ii) joining the other party to this Agreement in a litigation initiated by a person or entity that is not a party to this Agreement.

12. Defense of Claims.  During the Employment Period and thereafter, upon request from the Company, Employee shall cooperate with the Company Group in the defense of any claims or actions that may be made by or against any member of the Company Group that relate to Employee’s actual or prior areas of responsibility.  The Company shall pay or reimburse Employee for all of Employee’s reasonable travel and other direct expenses reasonably incurred (including, if applicable, lost wages), to comply with Employee’s obligations under this Section 12, so long as Employee provides reasonable documentation of such expenses and obtains the Company’s prior approval before incurring such expenses.

13. Withholdings; Deductions.  The Company may withhold and deduct from any benefits and payments made or to be made pursuant to this Agreement (a) all federal, state, local and other taxes as may be required pursuant to any law or governmental regulation or ruling and (b) any deductions consented to in writing by Employee.

14. Indemnification. The Company agrees to indemnify Employee with respect to any acts or omissions he may in good faith commit during the period during which he is an officer, director and/or employee of the Company or any member of the Company Group, and to provide Employee with coverage under any directors’ and officers’ liability insurance policies, in each case on terms not less favorable than those provided to its other directors and officers generally, as in effect from time to time, but with policy terms and carriers acceptable to the Board. The Company is obligated to keep this coverage in effect at all times during the term of this Agreement and for a tail period of 6 years.

10

 

15. Title and Headings; Construction.  Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof.  Unless the context requires otherwise, all references herein to an agreement, instrument or other document shall be deemed to refer to such agreement, instrument or other document as amended, supplemented, modified and restated from time to time to the extent permitted by the provisions thereof.  All references to “dollars” or “$” in this Agreement refer to United States dollars.  The words “herein”, “hereof”, “hereunder” and other compounds of the word “here” shall refer to the entire Agreement, and not to any particular provision hereof.  Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular number includes the plural and conversely.  The use herein of the word “including” following any general statement, term or matter shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not non-limiting language (such as “without limitation”, “but not limited to”, or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that could reasonably fall within the broadest possible scope of such general statement, term or matter.  Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party hereto, whether under any rule of construction or otherwise.  On the contrary, this Agreement has been reviewed by each of the parties hereto and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties hereto.

16. Applicable Law; Submission to Jurisdiction.  This Agreement shall in all respects be construed according to the laws of the State of Texas without regard to its conflict of laws principles that would result in the application of the laws of another jurisdiction.  With respect to any claim or dispute related to or arising under this Agreement, the parties hereby consent to the arbitration provisions of Section 11 and recognize and agree that should any resort to a court be necessary and permitted under this Agreement, then they consent to the exclusive jurisdiction, forum and venue of the state and federal courts located in Dallas,  Dallas County, Texas.

17. Entire Agreement and Amendment.  This Agreement contains the entire agreement of the parties with respect to the matters covered herein and supersedes all prior and contemporaneous agreements and understandings, oral or written, between the parties hereto concerning the subject matter hereof.  This Agreement may be amended only by a written instrument executed by both parties hereto.

18. Waiver of Breach.  Any waiver of this Agreement must be executed in writing by the party to be bound by such waiver.  No waiver by either party hereto of a breach of any provision of this Agreement by the other party, or of compliance with any condition or provision of this Agreement to be performed by such other party, shall operate or be construed as a waiver of any subsequent breach by such other party or any similar or dissimilar provision or condition at the same or any subsequent time.  The failure of either party hereto to take any action by reason of any breach shall not deprive such party of the right to take action at any time.

19. Assignment.  This Agreement is personal to Employee, and neither this Agreement nor any rights or obligations hereunder shall be assignable or otherwise transferred by Employee.  The Company may assign this Agreement with Employee’s consent, including to any member of the

11

 

Company Group and to any successor (whether by merger, purchase or otherwise) to all or substantially all of the equity, assets or businesses of the Company.

20. Notices.  Notices provided for in this Agreement shall be in writing and shall be deemed to have been duly received (a) when delivered in person, (b) when sent by facsimile transmission (with confirmation of transmission) on a business day to the number set forth below, if applicable; provided,  however, that if a notice is sent by facsimile transmission after normal business hours of the recipient or on a non-business day, then it shall be deemed to have been received on the next business day after it is sent,  (c) on the first business day after such notice is sent by air express overnight courier service, or (d) on the second business day following deposit with an internationally-recognized overnight or second-day courier service with proof of receipt maintained,  in each case, to the following address, as applicable:

If to the Company, addressed to:

Daseke, Inc.

ATTN: General Counsel

15455 Dallas Parkway, Suite 440

Addison, TX  75001

 

If to Employee, addressed to:

Brian Bonner
The most recent address on the Company’s records.

21. Counterparts.  This Agreement may be executed in any number of counterparts, including by electronic mail or facsimile, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument.  Each counterpart may consist of a copy hereof containing multiple signature pages, each signed by one party, but together signed by both parties hereto.

22. Deemed Resignations.  Except as otherwise determined by the Board or as otherwise agreed to in writing by Employee and any member of the Company Group prior to the termination of Employee’s employment with the Company or any member of the Company Group, any termination of Employee’s employment shall constitute, as applicable, an automatic resignation of Employee: (a) as an officer of the Company and each member of the Company Group; (b) from the Board, if applicable; and (c) from the board of directors or board of managers (or similar governing body) of any member of the Company Group and from the board of directors or board of managers (or similar governing body) of any corporation, limited liability entity, unlimited liability entity or other entity in which any member of the Company Group holds an equity interest and with respect to which board of directors or board of managers (or similar governing body) Employee serves as such Company Group member’s designee or other representative.

23. Certain Excise Taxes.  Notwithstanding anything to the contrary in this Agreement, if Employee is a “disqualified individual” (as defined in Section 280G(c) of the Internal Revenue Code of 1986, as amended (the “Code”)), and the payments and benefits provided for in this Agreement, together with any other payments and benefits which Employee

12

 

has the right to receive from the Company or any of its affiliates, would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), then the payments and benefits provided for in this Agreement shall be either (i) reduced (but not below zero) so that the present value of such total amounts and benefits received by Employee from the Company or any of its affiliates shall be one dollar ($1.00) less than three times Employee’s “base amount” (as defined in Section 280G(b)(3) of the Code) and so that no portion of such amounts and benefits received by Employee shall be subject to the excise tax imposed by Section 4999 of the Code or (ii) paid in full, whichever produces the better net after-tax position to Employee (taking into account any applicable excise tax under Section 4999 of the Code and any other applicable taxes).  The reduction of payments and benefits hereunder, if applicable, shall be made by reducing, first, payments or benefits to be paid in cash hereunder in the order in which such payment or benefit would be paid or provided (beginning with such payment or benefit that would be made last in time and continuing, to the extent necessary, through to such payment or benefit that would be made first in time) and, then, reducing any benefit to be provided in-kind hereunder in a similar order.  The determination as to whether any such reduction in the amount of the payments and benefits provided hereunder is necessary shall be made by the Company in good faith.  If a reduced payment or benefit is made or provided and through error or otherwise that payment or benefit, when aggregated with other payments and benefits from the Company or any of its affiliates used in determining if a “parachute payment” exists, exceeds one dollar ($1.00) less than three times Employee’s base amount, then Employee shall immediately repay such excess to the Company upon notification that an overpayment has been made.  Nothing in this Section 23 shall require the Company to be responsible for, or have any liability or obligation with respect to, Employee’s excise tax liabilities under Section 4999 of the Code.

24. Section 409A.

(a)        Notwithstanding any provision of this Agreement to the contrary, all provisions of this Agreement are intended to comply with Section 409A of the Code, and the applicable Treasury regulations and administrative guidance issued thereunder (collectively, “Section 409A”) or an exemption therefrom and shall be construed and administered in accordance with such intent. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, any installment payment provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement upon a termination of Employee’s employment shall only be made if such termination of employment constitutes a “separation from service” under Section 409A.

(b)        To the extent that any right to reimbursement of expenses or payment of any benefit in-kind under this Agreement constitutes nonqualified deferred compensation (within the meaning of Section 409A), (i) any such expense reimbursement shall be made by the Company no later than the last day of the taxable year following the taxable year in which such expense was incurred by Employee, (ii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (iii) the amount of expenses eligible for reimbursement or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year.

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(c)        Notwithstanding any provision in this Agreement to the contrary, (i) if any payment or benefit provided for herein would be subject to additional taxes and interest under Section 409A if Employee’s receipt of such payment or benefit is not delayed until the earlier of (A) the date of Employee’s death or (B) the date that is six (6) months after the Termination Date (such date, the “Section 409A Payment Date”), then such payment or benefit shall not be provided to Employee (or Employee’s estate, if applicable) until the Section 409A Payment Date, and (ii) to the extent any payment hereunder constitutes nonqualified deferred compensation (within the meaning of Section 409A), then each such payment which is conditioned upon Employee’s execution of a release and which is to be paid or provided during a designated period that begins in one taxable year and ends in a second taxable year shall be paid or provided in the later of the two taxable years.  Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement are exempt from, or compliant with, Section 409A and in no event shall any member of the Company Group be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by Employee on account of non-compliance with Section 409A.

25. Clawback.  To the extent required by applicable law, any applicable securities exchange listing standards or any clawback policy adopted by the Company, any incentive compensation granted pursuant to Section 3(b) under this Agreement shall be subject to the provisions of any applicable clawback policies or procedures, which clawback policies or procedures may provide for forfeiture and/or recoupment of such amounts paid or payable under this Agreement.

26. Effect of Termination.  The provisions of Sections 5,  8-13 and 22 and those provisions necessary to interpret and enforce them, shall survive any termination of this Agreement and any termination of the employment relationship between Employee and the Company.

27. Third-Party Beneficiaries.  Each member of the Company Group that is not a signatory to this Agreement shall be a third-party beneficiary of Employee’s obligations under Sections 7-10 and shall be entitled to enforce such obligations as if a party hereto.

28. Severability.  If an arbitrator or court of competent jurisdiction determines that any provision of this Agreement (or portion thereof) is invalid or unenforceable, then the invalidity or unenforceability of that provision (or portion thereof) shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect.

[Remainder of Page Intentionally Blank;

Signature Page Follows]

 

 

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IN WITNESS WHEREOF, Employee and the Company each have caused this Agreement to be executed and effective as of the Effective Date.

 

 

 

 

 

EMPLOYEE

 

 

 

/s/ Brian Bonner

 

Brian Bonner

 

 

 

DASEKE, INC.

 

 

 

By:

/s/ Christopher R. Easter

 

 

Name:   Christopher R. Easter

 

 

Title:     Interim Chief Executive Officer

 

SIGNATURE PAGE TO
EMPLOYMENT AGREEMENT

Exhibit 10.8

RESTRICTED STOCK UNIT AWARD AGREEMENT

DASEKE, INC.

 2017 Omnibus Incentive Plan

This RESTRICTED STOCK UNIT AWARD AGREEMENT (this “Agreement”), is made as of the 19th day of September, 2019 between Daseke, Inc. (the “Company”), and Brian Bonner (the “Participant”), and is made pursuant to the terms of the Company’s 2017 Omnibus Incentive Plan (as amended, restated or otherwise modified from time to time, the “Plan”).  Capitalized terms used herein but not defined shall have the meanings set forth in the Plan.

Section 1.        Restricted Stock Units.  In connection with the Participant’s employment with the Company, the Company hereby issues to the Participant, as of the Grant Date,  500,000 restricted stock units (the “RSUs”), subject to such vesting, transfer and other restrictions and conditions as set forth in this Agreement (the “Award”).  Each RSU represents the right to receive one share, subject to the terms and conditions set forth in this Agreement and the Plan.  For purposes of this Agreement, the “Grant Date” shall be September 6, 2019.

Section 2.        Vesting Requirements.

(a)        Generally.  Except as otherwise provided herein, the RSUs (and any associated Dividend Equivalents, as defined below) shall vest and become non-forfeitable with respect to the number of Shares subject to the Award represented by the Vesting Percentage on the corresponding Vesting Date” determined in accordance with the following schedule, subject to the Participant’s continuous service to the Company and its Affiliates as an employee or as a member of the Board (“Service”) from the Grant Date through the applicable Vesting Date.

 

Vesting Date

    

Vesting Percentage

1st anniversary of the Grant Date

 

50%

2nd anniversary of the Grant Date

 

50%

 

(b)        Change in Control.  Notwithstanding Section 2(a) hereof,  upon the occurrence of a Change in Control, 100% of any then unvested RSUs (and any Dividend Equivalents) granted hereunder shall immediately become fully vested and non-forfeitable, provided that the Participant remains in continuous Service from the Grant Date through the occurrence of the Change in Control, except to the extent that a Replacement Award (as such award is defined and determined under Section 13 of the Plan) is provided to the Participant to replace or adjust this outstanding Award.

(c)        Involuntary Termination of Service.  Notwithstanding Section 2(a) hereof, provided that the Participant timely executes (and does not revoke) the Release (as such term is defined in that certain employment agreement by and between the Participant and the Company, dated as of September 19, 2019 (the “Employment Agreement”)) and continues to abide by each of the Participant’s commitments set forth in Sections 8, 9 and 10 of the Employment Agreement,  then in the event, prior to the final Vesting Date, of:

 

 

(i)         both (x) the termination of the Participant’s employment by the Company without Cause (as such term is defined in the Employment Agreement) and (y) the Participant’s cessation of service as a member of the Board because of the Company’s failure to nominate the Participant for election to the Board by the Company’s shareholders, then 100% of any then unvested RSUs (and any Dividend Equivalents) granted hereunder shall immediately become fully vested and non-forfeitable on the later to occur of the foregoing clauses (x) and (y); and

(ii)       the Participant’s resignation from employment with the Company for Good Reason (as such term is defined in the Employment Agreement) on or before the first anniversary of the effective date of the Employment Agreement,  then 100% of any then unvested RSUs (and any Dividend Equivalents) granted hereunder shall immediately become fully vested and non-forfeitable on the Termination Date.  For the avoidance of doubt, in the event the Participant resigns for Good Reason following the first anniversary of the effective date of the Employment Agreement, the preceding sentence shall be of no force or effect, and the treatment of the Award in connection with such termination of the Participant’s service shall be determined in accordance with Section 2(e) hereof.

For purposes of this Agreement, the “Termination Date” shall be the date the Participant’s employment or service with the Company, as applicable, terminates for any reason entitling the Participant to accelerated vesting pursuant to Sections 2(c) or 2(d).

(d)        Termination of Service due to Death or Disability.  Notwithstanding Section 2(a) hereof, in the event of the termination of the Participant’s Service prior to the final Vesting Date due to the Participant’s death or Disability, any then unvested RSUs (and any Dividend Equivalents associated with such unvested RSUs) shall immediately become vested and non-forfeitable on a pro rata basis, determined based on (i) the number of full months completed in the period beginning on the Grant Date and ending on the Termination Date divided by (ii) 24, with such quotient then being reduced by the 50% Vesting Percentage determined in accordance with Section 2(a) if the Participant’s death or Disability occurs on or after the first anniversary of the Grant Date.

(e)        Other Terminations of Service.  Upon the occurrence of a termination of the Participant’s Service for any reason other than as contemplated by Sections 2(c) or 2(d) hereof, all outstanding and unvested RSUs (and any associated Dividend Equivalents) shall immediately be forfeited and cancelled, and the Participant shall not be entitled to any compensation or other amount with respect thereto.  Notwithstanding anything to the contrary herein, upon a termination of the Participant’s Service for Cause, all RSUs and Dividend Equivalents, whether vested or unvested, shall immediately be forfeited and cancelled, and the Participant shall not be entitled to any compensation or other amount with respect thereto.

Section 3.       Settlement.  As soon as reasonably practicable following a Vesting Date, Termination Date, or the occurrence of the Change in Control that does not include the receipt of any Replacement Award by the Participant, as applicable (and in any event within 60 days following the applicable Vesting Date,  Termination Date, or the occurrence of the Change in Control that does not include the receipt of any Replacement Award by the Participant,  as applicable), any RSUs and Dividend Equivalents that become vested and non-forfeitable pursuant

2

to Section 2 hereof shall be paid by the Company delivering to the Participant a number of Shares equal to the number of such RSUs and a cash payment equal to the associated Dividend Equivalents.

Section 4.         Restrictions on Transfer.  No RSUs (nor any interest therein) may be sold, assigned, alienated, pledged, attached or otherwise transferred or encumbered by the Participant otherwise than by will or by the laws of descent and distribution, and any such purported sale, assignment, alienation, pledge, attachment, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute a sale, assignment, alienation, pledge, attachment, transfer or encumbrance.  Notwithstanding the foregoing, at the discretion of the Committee, RSUs may be transferred by the Participant solely to the Participant’s spouse, siblings, parents, children and grandchildren or trusts for the benefit of such persons or partnerships, corporations, limited liability companies or other entities owned solely by such persons, including, but not limited to, trusts for such persons.

Section 5.        Adjustments.  The Award granted hereunder shall be subject to the adjustment as provided in Section 4(b) of the Plan.

Section 6.        No Right of Continued Service.  Nothing in the Plan or this Agreement shall confer upon the Participant any right to continued Service.

Section 7.        Tax Withholding.  The Company will withhold from the Shares to be issued to you (and from the amount of cash associated with any Dividend Equivalents payable to you) pursuant to Section 3 of this Agreement the number of Shares (and amount of cash) determined at up to the maximum allowable rate in the Participant’s relevant tax jurisdiction, based (with respect to the RSUs) on the Shares’ Fair Market Value at the time such determination is made.

Section 8.        No Voting Rights as a Stockholder; Rights to Dividends or Other Distributions.  The Participant shall not have any voting privileges of a stockholder of the Company with respect to any RSUs unless and until Shares underlying the RSUs are delivered to the Participant in accordance with Section 3 hereof.  However, in the event that the Company declares and pays a dividend in respect of its outstanding Shares on or after the Grant Date and, on the record date for such dividend, the Participant holds RSUs granted pursuant to this Agreement that have not been settled, the Company shall retain an amount in cash equal to the cash dividends the Participant would have received if the Participant was the holder of record as of such record date, of the number of Shares related to the portion of the RSUs that have not been settled as of such record date, (such payments “Dividend Equivalents”).  The Dividend Equivalents will be paid in accordance with Section 3 hereof.

Section 9.        Clawback.  The Award will be subject to recoupment in accordance with any existing clawback policy or clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law.  In addition, the Board may impose such other clawback, recovery or recoupment provisions as the Board determines necessary or

3

appropriate, including but not limited to a reacquisition right in respect of previously acquired Shares or other cash or property upon the occurrence of Cause.  The implementation of any clawback policy will not be deemed a triggering event for purposes of any definition of “constructive termination.”

Section 10.      Amendment and Termination.  Subject to the terms of the Plan, any amendment to this Agreement shall be in writing and signed by the parties hereto.  Notwithstanding the immediately preceding sentence, subject to the terms of the Plan, the Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, this Agreement and/or the Award; provided that, subject to the terms of the Plan, any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially impair the rights of the Participant or any holder or beneficiary of the Award shall not be effective without the written consent of the Participant, holder or beneficiary.

Section 11.     Securities Law Requirements.  Notwithstanding any other provision of this Agreement, the Company shall have no liability to make any distribution of Shares under this Agreement unless such delivery or distribution would comply with all applicable laws.  In particular, no Shares will be delivered to a Participant unless, at the time of delivery, the shares qualify for exemption from, or are registered pursuant to, applicable federal and state securities laws.

Section 12.      Construction.  The Award granted hereunder is granted by the Company pursuant to the Plan and is in all respects subject to the terms and conditions of the Plan.  The Participant hereby acknowledges that a copy of the Plan has been delivered to the Participant and accepts the Award hereunder subject to all terms and provisions of the Plan, which are incorporated herein by reference.  In the event of a conflict or ambiguity between any term or provision contained herein and a term or provision of the Plan, the Plan will govern and prevail.  The construction of and decisions under the Plan and this Agreement are vested in the Committee, whose determinations shall be final, conclusive and binding upon the Participant.

Section 13.      Governing Law.  This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, without giving effect to the choice of law principles thereof.

Section 14.      Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

Section 15.      Binding Effect.  This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.

Section 16.      Entire Agreement.  This Agreement and the Plan constitute the entire agreement between the parties with respect to the subject matter hereof and thereof.

[SIGNATURES ON FOLLOWING PAGE]

 

4

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first written above.

 

 

 

 

 

DASEKE, INC.

 

 

 

 

By:

/s/ Soumit Roy

 

 

 

 

Name:

Soumit Roy

 

 

 

 

Title:

Secretary

 

 

 

PARTICIPANT

 

 

 

/s/ Brian Bonner

 

Participant’s Signature

Date

 

 

 

Name:

Brian Bonner

 

 

 

 

Address:

 

 

 

 

 

 

 

 

SIGNATURE PAGE TO

RESTRICTED STOCK UNIT AWARD AGREEMENT

Exhibit 31.1

CERTIFICATION

I, Christopher Easter, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 of Daseke, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

Date: November 12, 2019

By:

/s/ Christopher Easter

 

 

Christopher Easter

 

 

Interim Chief Executive Officer and

 

 

Chief Operating Officer

 

 

(Principal Executive Officer)

 

Exhibit 31.2

CERTIFICATION

I, Christopher Easter, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September  30, 2019 of Daseke, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

Date: November 12, 2019

By:

/s/ Christopher Easter

 

 

Christopher Easter

 

 

Interim Chief Executive Officer and Chief Operating Officer

 

 

(Principal Financial Officer)

 

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report  on Form 10-Q of Daseke , Inc. (the Company) for the period ended September  30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Christopher Easter,  Interim Chief Executive Officer and Chief Operating Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

Date: November 12, 2019

By:

/s/ Christopher Easter

 

Name:

Christopher Easter

 

Title:

Interim Chief Executive Officer and

 

 

Chief Operating Officer

 

 

(Principal Executive Officer)

 

 

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report  on Form 10-Q of Daseke, Inc. (the Company) for the period ended September  30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Christopher Easter,  Interim Chief Executive Officer and Chief Operating Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

Date: November 12, 2019

By:

/s/ Christopher Easter

 

 

Christopher Easter

 

 

Interim Chief Executive Officer and Chief Operating Officer

 

 

(Principal Financial Officer)