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DSKE: Daseke reports 2017 results & issues 2018 guidance: Target Increased

03/20/2018
By Steven Ralston, CFA

NASDAQ:DSKE

SUMMARY OF RECENT EVENTS

• On March 16, 2018, Daseke (NASDAQ:DSKE) announced financial results for the full year of 2017
Total revenues increased 29.8% to $846.3 million, primarily due to the seven acquisitions completed throughout the year, increases in the fuel surcharge and an improving operating environment. Excluding the effect of the acquisitions, total revenues increased 6.2% as fuel surcharge, freight and brokerage revenues increased 29.8%, 3.5% and 10.0%, respectively.  
• Net income improved to $27.0 million versus a net loss of $12.3 million for 2016. 2017’s positive net income was due to a $46.0 million tax benefit derived from the recent passing of the Tax Cuts and Jobs Act, which lowered the Federal tax rate on net deferred tax liabilities from 35% to 21%.
Adjusted EBITDA increased 4.2% to $91.904 million compared to $88.240 million in 2016.
• Shares outstanding have increased 17.9% from 37,715,960 to 44,480,232 shares.
• During 2017, Daseke entered two new markets through mergers
High security cargo (The R&R Trucking Companies and The Roadmaster Group) and now accounts for 10% of revenues
Commercial glass hauling (Moore Freight Service), which now accounts for 3% of revenues
Management’s 2018 financial guidance 
• Management expects total revenues to grow (on an organic basis) to approximately $1.35 billion versus the $846.3 million reported in 2017. 
• Organic Adjusted EBITDA is anticipated to increase to approximately $150 million compared to $91.9 million in 2017.

• Recent Corporate/Operational Highlights
• On December 4, 2017, Daseke Inc. announced that three additional carriers have merged into Daseke. 
TSH & Co. (Tennessee Steel Haulers & Co.)
• 100% asset-light operations with approximately 1,100 owner operators
• Shifts Daseke’s business mix to roughly 50/50 (asset-light/asset-based) 
• Enhances size & scale of flatbed coverage in the East Coast and Southeast 
The Roadmaster Group 
• Augments high-security cargo exposure
Moore Freight Service, Inc.
• Adds specialized flatbed service of hauling sheets of commercial glass
• Operational organization consolidated into regional/end-market structure: Southeast, South/northeast/commercial glass, Texas/Midwest, West and High Security Cargo. 

• On December 29, 2017. Daseke Inc. completed a tuck-in acquisition with Belmont Enterprises (a truckload carrier dedicated to hauling residential glass) merging into Daseke’s SPD subsidiary (Smokey Point Distributing). Operating out of Olympia, WA, Belmont specializes in transporting STOCE (sheets of clear and coated glass), which measure 102 inches by 144 inches long, with a patented swivel tie-down system. Total consideration for the stock purchase was $4.6 million in cash, which was funded through the line of credit under the ABL facility. 


• The company has been very successful in raising capital to help fund its growth initiatives, including the company’s consolidation strategy.
• During 2017, Daseke received $500 million from a Term Loan Facility and $127.9 million from stock issuances. 
• On February 12, 2018, Daseke completed a follow-on public offering of public offering of 8.63 million shares (8.545 million by the company & 80,000 shares by a stockholder) priced at $10.60. Net proceeds to Daseke Inc were approximately $84 million. Shares outstanding increased from 44,480,232 to approximately 53.0 million shares.

The flatbed trucking industry continues to benefit from the economic expansion exemplified by rising flatbed rates. However, demand for over-dimensional loads (specialized services) has not yet improved as projects related to large capex plans industrial activity stimulates the manufacturing, construction, building, aerospace and energy industries in North America. Also, an increase in infrastructure spending to upgrade the nation’s roads and bridges should benefit Daseke.


• The company continues to build awareness by attending Analyst Conferences
• Liolios 6th Annual Gateway Conference (September 6, 2017)
• UBS Industrials and Transportation Conference (November 15, 2017)
• 2017 Southwest IDEAS Investor Conference (November 15, 2017)
• 8th  Annual Craig-Hallum Alpha Select Conference (November 16, 2017) 
• Furey Research Partners Hidden Gems Conference (November 16, 2017)
• Credit Suisse 5th Annual Industrial Conference (November 30, 2017)
• Stifel Transportation & Logistics Conference (February 2018)

• On December 5, 2017, the Horatio Alger Association of Distinguished Americans announced that that Don R. Daseke, founder, CEO and Chairman of Daseke, Inc. had been selected for membership, along with 11 other esteemed leaders across North America. The formal induction will occur in early April during the 71st Horatio Alger Award Ceremonies in Washington DC. 
• Daseke Inc. continues to be the major consolidator in the highly fragmented open deck trucking space. 

Full Year 2017 Financial Results 

On March 16, 2018, Daseke Inc. reported results for the fourth quarter and full year ending December 31, 2017. For full year, the company reported total revenues of $ $846.3 million, which increased 29.8% from $651.8 million in 2016. The increase was primarily due to seven acquisitions completed throughout the year. Excluding the effect of the acquisitions, total revenues increased 6.2% as fuel surcharge, freight and brokerage revenues increased 29.8%, 3.5% and 10.0%, respectively.  

Revenue generated by the Flatbed Solutions segment increased 14.1% YOY to $354.1 million, primarily due to the acquisition of TSH & Co. Excluding the effect of the acquisition, revenue increased 8.8% The increase in revenue, excluding the effect of the TSH & Co. Acquisition, was 8.8% (or $27.4 million), primarily due a 4.9% increase in freight revenue and a 29.6% increase in fuel surcharges. Excluding the effect of recent acquisitions, brokerage revenues increased 23.8%. Revenue per truck increased 4.9%.

Revenue of the Specialized Solutions segment increased 44.3% YOY to $499.1 million, which was primarily due to six acquisitions (Moore Freight Services, Roadmaster Group, R&R Trucking, The Steelman Companies, Schilli Transportation Services and Big Freight Systems). Excluding the effect of recent acquisitions, revenue increased 4.4% (or $15.3 million), primarily due a 2.8% increase in freight revenue and a 30.3% increase in fuel surcharges. Excluding the effect of recent acquisitions, brokerage revenue increased 2.9%. Revenue per truck decreased 5% in the specialized segment. 

Salaries, wages and employee benefits expense increased 26.4% (or $15.7 million) to $250.0 million, primarily due to acquisitions. Excluding the effect of acquisitions, salaries, wages and employee benefits expense increased 5.4%. Total fuel expense increased 40.2% to $93.7 million, primarily a result of higher fuel prices and as a result of recent acquisitions. Operations and maintenance expense increased 23.2%. Purchased freight expense increased 46.2% to $225.3 million, primarily due to acquisitions. Excluding the effect of acquisitions, purchased freight expense increased 11.3%. Interest expense increased 27.8% to $29.5 million, primarily attributable to borrowings for acquisitions and equipment (long term debt increased to $69.7 million), along with higher interest rates on the Term Loan Facility. 

For the year, net income improved to $27.0 million versus a net loss of $12.3 million for 2016. 2017’s positive net income was due to a $46.0 million tax benefit from the recent passing of the Tax Cuts and Jobs Act, which composed the majority of the total $52.3 million income tax benefit. The Tax Cuts and Jobs Act lowered the Federal tax rate on net deferred tax liabilities from 35% to 21%.

The company reported net income attributable to common stockholders of $22.0 million (or $0.56 per diluted share) versus a loss of $17.0 million (or $0.82 per diluted share) in 2016. Excluding the $46 million impact of the tax law change on net deferred tax liabilities, net income attributable to common stockholders would have been a loss of $4 million (or $0.10 per share). Shares outstanding have increased 17.9% from 37,715,960 to 44,480,232 shares.

Adjusted EBITDA increased 4.2% to $91.904 million compared to $88.240 million in 2016.

Management’s Guidance for 2018

Management expects total revenues to grow (on an organic basis) to approximately $1.35 billion versus the $846.3 million reported in 2017. Organic Adjusted EBITDA is anticipated to increase to approximately $150 million compared to $91.9 million in 2017. Capex is budgeted to be between $85 million and $105 million versus the $19.8 million spent in 2017. 

Daseke Inc. is the major consolidator in the highly fragmented open deck trucking industry. The company has grown significantly through a series of mergers over the last 6 years. Having become a publically-traded company through a merger with a SPAC (Hennessy Capital Acquisition Corp. II) in February, Daseke is poised to benefit from the improvement in flatbed line-haul rates that began in December 2016. The recent announcements of eight mergers/acquisitions since May 2017 demonstrate that Daseke is the leading consolidator of premier open deck trucking companies.

Daseke is poised for continued growth through additional mergers, bolstered by organic growth via operating and integration synergies along with positive industry trends, especially industrial output growth. Since 2008, Don Daseke (the company’s founder and CEO) has been pursuing the goal of building the premier open deck trucking company. Daseke has created a national network of open deck trucking companies, a scalable platform with which to continue pursuing a strategy of consolidating premier open deck trucking companies within a highly fragmented market. The company’s record of growth in revenues and Adjusted EBITDA has been driven by a combination of strategic acquisition driven and organic growth strategies.

Indicated Target

Based on comparative analysis that utilizes the valuation metric of EV/EBITDA, a mid-second quartile industry multiple indicates a share price target of $15.40.

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