Daseke, Inc. (NASDAQ:DSKE) Q2 2023 Earnings Call Transcript

Daseke, Inc. (NASDAQ:DSKE) Q2 2023 Earnings Call Transcript August 5, 2023

Operator: Good morning, everyone. And thank you for joining today’s conference call to discuss Daseke’s Financial and Operational Results for the Quarter Ended June 30, 2023. With us today are Jonathan Shepko, Chief Executive Officer and Board Member; Aaron Coley, Executive Vice President and Chief Financial Officer; and Adrianne Griffin, Vice President of Investor Relations and Treasurer. I would like to now turn the call over to Adrianne Griffin. Adrianne, please go ahead.

Adrianne Griffin: Thank you, Steven. As indicated in the press release issued earlier today, participants may now download the second quarter 2023 presentation that will accompany the remarks made on today’s call. You may access this presentation on Daseke’s website www.daseke.com and in the Events and Presentations portion within the Investor Relations section. Slide two of today’s presentation contains our Safe Harbor and non-GAAP statements. Today’s presentation also contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Projected financial information, including our guidance outlook, are forward-looking statements. Forward-looking statements, including those with respect to revenues, earnings, performance, strategies, prospects and other aspects of Daseke’s business are based on management’s current estimates, projections and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

I encourage you to read our filings with the Securities and Exchange Commission for a discussion of the risks that can affect our business and not to place any undue reliance on any forward-looking statements. We undertake no obligation to revise our forward-looking statements to reflect events or circumstances occurring today, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws. During the call, there will also be a discussion of some items that do not conform to U.S. Generally Accepted Accounting Principles or GAAP, including and not limited to, adjusted EBITDA, adjusted EBITDA margin, adjusted operating ratio, adjusted operating income, adjusted net income or loss and free cash flow.

Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix of the investor presentation and press release issued this morning. In terms of the structure of our call today, I will first turn the call over to Jonathan Shepko, who will review our business operations and the progress we are making as we execute our key strategic priorities. Aaron Coley will then provide an update on our second quarter results. Jonathan will conclude our prepared remarks with an updated 2023 outlook before we open the line for your questions. With that, I will turn the call over to Jonathan. Jonathan?

Jonathan Shepko: Good morning, everyone, and thank you for joining our call today. Since the second quarter of 2022, when we delivered our company’s highest ever quarterly adjusted EBITDA, our industry has faced multiple consecutive quarters of challenges in both the freight rate side of the ledger as well as the cost side. While many agreed at the bottom is here, our industry continues its optimism in support of a forthcoming inflection and we remain watchful for consistent key data points to signal the inflection is eminent. Whether such recovery ultimately occurs in the back half of this year or at some later point, our team has approached the current environment as an opportunity to reinvent and reposition Daseke. Given our solid Q2 2023 performance as a small cap public company with a business model and end market exposure truly unmatched by any of our publicly traded peers, any company that is successfully executing a fundamental rebuilding and continuing repositioning of our organization, we believe it’s misplaced to discretely evaluate our performance and our progress on a quarter-by-quarter basis, particularly when comparative periods include the record breaking industry cycle peak of 2022 versus the current cycle trough.

As such, today, in addition to providing more context around the second quarter’s performance, I would like to provide a recap of our profound progress to-date and our momentum as we approach the next up cycle. To that after Aaron provides this quarterly financial update, I will offer a summary of our transformation progress, spend some time on capital allocation and close with the comparison of our performance in the current environment to that of legacy Daseke’s performance in the pre-COVID freight recession of 2019. This comparison illustrates the significant improvement affected over the last few years and the resulting strength of an organization on better footing for tomorrow. Before moving forward, though, I would like to take a moment to thank the entire Daseke team across North America, who continues to prioritize our legacy of strong employee relationships, including those with our committed drivers.

Their contributions toward our company’s success, as well as the success of our customers are critical throughout this difficult and important time. With that, I will now turn the call over to Aaron for an update on our financials.

Aaron Coley: Thank you, Jonathan, and good morning, everyone. As illustrated on slide six, during the second quarter, we continued to strengthen our balance sheet as we made a discretionary payment with cash on hand to reduce our term loan debt balance by $50 million, which reduced our interest expense. In addition, we also used $20 million of cash on hand to redeem the entire class of Series B-1 preferred shares that were receiving a 13% cash dividend, thus eliminating $2.6 million of annual dividend payments. These actions improved free cash flow performance for the remainder of the year and beyond. At the end of the second quarter, we maintained a very healthy level of available liquidity at $198 million, including a cash balance of $94 million and $104 million available under our undrawn revolving credit facility.

We continue to evaluate opportunities for additional repayments to reduce gross debt, further improving the risk adjusted return for current and prospective shareholders. Turning to slide seven. I would like to review our second quarter financial performance. Notably, our more typical seasonal second quarter uplift was largely absent this year and that’s the second quarter consolidated revenue of $407 million was 15% lower than the same quarter last year. However, the intentional shift to load higher margin company-owned assets and improved utilization of our entire company-owned fleet allowed us to capture additional $3 million of company freight revenue, with better margin pull-through and partially offsetting lower owner-operator and brokerage revenue.

Demand strength in agriculture and mining end markets was more than offset by a decrease in construction end market due primarily to the underperformance in our Northwest Flatbed operations. And in response to this lower than expected financial performance during the second quarter, we reorganized an underperforming operating company into another operating segment. This type of decisive action is foundational to One Daseke, our series of strategic transformational initiatives, which Jonathan will expound on in his closing remarks. Despite the challenging freight environment, the company reported a 92% adjusted OR in the current period and while lower than the prior year period was 100 basis points better than on a sequential basis, second quarter compared to first quarter.

In fact, on a sequential basis, the rate per mile increased 2%, revenue per tractor increased 5%, net revenue increased 4% and adjusted EBITDA margin increased 110 basis points, nascent indicators of the stabilization in the freight market. Finally, we generated cash flow from operations of $28 million, an impressive 23% increase over the prior year quarter, while cash flow from investing activities, which reflects net purchases and sales of revenue generating equipment, consumed $2 million. We continue to primarily fund new equipment purchases through equipment financing, which reduces our weighted average cost of capital. Similarly, for the six months ended June 30, 2023, we generated $58.9 million in cash flow from operations, which was $7 million better than the prior year period.

These results compare favorably against the peak cycle in the year ago period and showed a strong cash flow generation capability of the business even in down portions of the cycle. Turning now to slide eight. Our Specialized Solutions segment reported revenue of $239.4 million, a 10% decline versus the prior year, while revenue net of fuel surcharge declined by only 6%. The Specialized Solutions segment recorded a nearly 5% increase in miles, offset by a 6% decline in rate per mile. Notably, we have continued to capture rates in our Specialized Solutions segment that are a significant premium to the Flatbed market. As compared to the prior year quarter, our team continued to prioritize loading high margin company-owned assets, resulting in nearly flat company freight revenue, while asset-light revenue in the segment declined.

FiledIMAGE/Shutterstock.com

Demand strength in agriculture and energy end markets was more than offset by lower construction and high security cargo revenue versus a stronger year ago period, which included the first full quarter of high security focused acquisition. Adjusted OR was 90.4% in the current year quarter and 88% in the cycle peak of the second quarter of last year. This current quarter 90% OR is very favorable in light of the freight environment. Adjusted EBITDA and adjusted EBITDA margin were $33.4 million and 15.4%, respectively. Despite the difference in the market conditions from a year ago, we are encouraged by the Specialized increasing both rate per mile and revenue per tractor on a sequential basis. Now turning to slide nine. During the second quarter of 2023, Flatbed Solutions segment rates remained 13% lower than the second quarter of 2022.

Despite the rate decline, Flatbed Solutions continued its pursuit of operational excellence and increased total miles driven by 5%, an average length of haul by 7%, improved head by 0.5% and added 4% more trucks to the fleet, all while maintaining nearly flat unseated trucks. The team was once again able to increase company freight by more than 10%, while brokerage revenue declined by more than 50% versus the prior year period. The net result of these dynamics was segment revenue of $168 million, which was $47 million lower than the prior year quarter, primarily due to $25 million decline in brokerage. Adjusted EBITDA and adjusted EBITDA margin was $19.1 million and 13.1%, respectively. Within the industrial end markets that we serve, strength in manufacturing end markets was more than offset by declines in steel and construction end markets, most notably in the Pacific Northwest.

These results demonstrate the success of our asset right operating model and we will continue to focus on productivity. I will now turn the call back to Jonathan for an update on our 2023 outlook. Jonathan?

Jonathan Shepko: Thank you, Aaron. Before I share our perspective on freight conditions and the outlook for the rest of the year, I want to provide more insight on One Daseke, our ongoing transformation, which is defining and expanding the business strategies that will guide us throughout many economic cycles to come. We have begun laying the groundwork to meaningfully shift the high low watermarks of our financial performance, delivering a higher baseline, while navigating this trough and more peak cycle upside regardless of when the market turns. Looking now at slide 13. One Daseke comprises three distinct and complementary phases, integration, finance and optimization, with a time line that includes our achievements to-date and our goal is to reach a target adjusted EBITDA run rate of $30 million as we exit 2024.

Advancing the first two phases in tandem, we intend to finish the integration phase, bringing together many of the Daseke operating companies, consolidating teams and operations and setting a structure for future success by the end of 2024. Along the way, we will work towards specific objectives, key among them operating ratio, where our target will remain 90%. This is our magnetic north as we follow our transformation roadmap and I was very pleased to see our Specialized Solutions segment already around this mark through this cycle trough. Drilling into the finance phase on slide 14, we present the virtuous cycle of efficiently deploying our strong cash flow to lower our weighted average cost of capital by allowing burdensome revenue equipment leases to expire maturity and reducing our term loan B balance to deliver additional earnings per share.

These actions will generate a flywheel effect on free cash flow and will be supplemented with accretive M&A that targets industrial end markets and Specialized service offerings and incremental growth in the next up cycle. With balance sheet strength as a top priority, our capital structure already looks remarkably better than it did in the last cycle with lower gross leverage, higher liquidity, lower share count and hence lower risk. The finance phase of One Daseke will further with — will further enhance our capital and balance sheet profiles, while also giving shareholders more ownership of our growing earnings. On these next two slides, I’d like to tack back to my opening comment, proposing Daseke’s trending performance to be used to evaluate the attractiveness of our value proposition rather than a quarter-by-quarter view, particularly at this point in the cycle.

On slide 15, I’d like to walk through an interesting case study comparing Daseke’s current performance in this freight recession to the last freight recession, our industry experienced just before COVID in 2019. Industry data suggests this current downturn exhibits similar contours to that of the prior cycle’s trough, though, I would say, our current recessionary environment is more pronounced and the cost inflation has made things even more challenging. If you look at 2019, Daseke’s fleet of approximately 5,700 trucks generated $1.7 billion in revenue with an adjusted EBITDA margin of 11% and an adjusted OR of 96%. Comparatively, in the first half of 2023, we operated a smaller fleet with 4,863 trucks and delivered enhanced profitability with a 14% adjusted EBITDA margin and adjusted operating ratio of 93%.

So what you see today in just 48 months, Daseke is a company with a more effective operating model and improved margin profile and a stronger balance sheet, all of which we have channeled to create a step change in the expected low watermark adjusted EBITDA, the trough-to-trough adjusted EBITDA of our company, if you will, from $156 million to something in the low $200s, dramatic improvement to date, but even more to come for our investors. On slide 16, we demonstrate the last trough to peak cycle, beginning with the last freight recession in 2019, which I will talk to you on the last slide. While there will always be different catalysts that play to ignite recovery, in 2020, there was COVID-related stimulus. During the three-year recovery that is 2020, 2021 and 2022, we generated approximately $170 million of cumulative incremental adjusted EBITDA, ultimately generating a high watermark of $235 million in the 2022 cycle peak.

With the three phases of our One Daseke transformation, including integration and finance phases, followed by optimization, at the peak of this impending cycle, we would ultimately expect to largely eclipse not only the cumulative incremental adjusted EBITDA generated during the last up cycle, but dramatically shift the high water performance mark of our business beyond our record setting 2022 adjusted EBITDA print. In addition to the 2019 versus 2023 case study I reviewed, which compared the resiliency of our continuously improving organization in a recessionary environment to that of Daseke only a few years ago. I’d also like to spend just a moment on our Q2 operating ratios. With all of the talk this quarter about tough comps or freight recession, it’s easy to lose focus, but our entire team is encouraged when we look at the absolute performance of Daseke, specifically referencing our second quarter adjusted operating ratio, excluding fuel charge of 92.3%.

As an investor interested in the transportation space, if you compare our adjusted operating ratio to that of our peer group for this quarter, we are right in the middle of the pack, relying on our asset right and end market-focused strategies to perform well even in this environment and yet we trade at a material discount to these same peers. Our model is working. Our Specialized segment, which comprises 55% to 60% of our company has achieved our stated cross-cycle OR target of 90%. Within our Flatbed segment, we have seen a surprising level of resiliency in this challenged environment with our Southeast Flatbed companies performing in the low 90s OR. While integration noise and trouble building materials in lumber markets plagued our smaller Northwest fleet and contributed to the softer 95.1 adjusted OR print for the overall Flatbed segment in this quarter.

Before we open to questions, I’d like to close our prepared remarks with an update on our 2023 guidance. Today Daseke’s updated outlook now assumes no improvement in current freight market conditions in the second half of the year. The supply-demand relationship remains in balance with demand elusive and carriers exiting the industry at a much more sluggish pace than they entered the market in 2021 and 2022. That said, we anticipate the second half 2023 adjusted EBITDA will be within a range between 100% and 110% of that of first half 2023, which would imply full year 2023 adjusted EBITDA of $200 million to $210 million. And while we have had puts and takes across various end markets and operating assumptions that have impacted our projections, this revision is primarily linked to a shift in the resurgence of wind demand back — from the back half of 2023 to now 2024 and continued degradation in the building materials complex in the Pacific Northwest.

Notwithstanding Wind and Northwest Flatbed, absent a wave of economic uncertainty like we saw at the end of last year, we expect load availability for the coming months to otherwise remain reasonably stable until giving way to a more typical gradual decline in the fourth quarter. I will also note that our capital expenditure outlook for the full year 2023 is unchanged at $135 million to $145 million, given planned organic investments in company tractors to support the asset-light strategy and maintain a low average age of fleet, thereby reducing maintenance costs. Experience suggests that market repays longer troughs with steeper rebounds and we intend to continue to control costs, improve operations and bolster our balance sheet, all of which will position us for outsized performance as we enter the next up cycle.

Now we will turn the call back to the operator and take your questions. Steven?

See also 18 Highest Paying Countries for Nurses and 23 Most Gay Friendly Cities in the US.

Q&A Session

Operator: Thank you. [Operator Instructions] And our first question is from Ryan Sigdahl of Craig-Hallum Capital Group.

Ryan Sigdahl: Good morning, guys.

Jonathan Shepko: Hi, Ryan.

Ryan Sigdahl: Curious how much visibility, if any you have into 2024 based on conversations with your key customers right now. Just — we know what’s going on in the spot market, but curious how much visibility and how far out the contract rates are going at this point?

Jonathan Shepko: Ryan, we don’t have a lot of visibility into 2024. To give you kind of a couple of data points. I mean if you look at FTR, right, I mean, for Flatbed, they are projecting spot rates to firm up, they are projecting contract rates to be down possibly 1% in 2024. If you look at particularly on the Specialized segment of our industry — of our business, if you look at a lot of our publicly traded shippers, publicly traded customers, a lot of them have publicly stated 2024 is going to be extremely robust. So, again, Specialized segment we think has a pretty resilient kind of runway ahead of it in 2024 and beyond. From a Flatbed standpoint, we are going into kind of Q4 bid season right now and it’s a bit of a mixed bag, right?

If you think about in Flatbed, more commodity-oriented end markets. If you think about that as a normal distribution, you kind of go, hey, one standard deviation to the left or the right of the midpoint, a lot of those customers are holding rates steady right now. You have got some outliers on either end that are trying to push rates down. But we are — and I think we are compromising in the end, comprising in the middle and we are still getting that freight. But you have to also have surprisingly other guys that are telling us that they are trying to secure capacity and make sure they have visibility to capacity in hopes of an early spring kind of rebound in some of those more commodity end markets. So, we are cautiously optimistic. Don’t have a lot of tangible points other than what maybe some of our publicly traded comps state on their earnings, but we did mention some of the reduction in guidance toward the back half of the year and even some of our miss this year was related specifically to Wind.

One of our big Wind clients, specifically — customer specifically has stated they expect Wind to come back meaningfully in 2024 or 2025, and consecutively, did their second beat in raise really about Wind and Aerospace, two end markets that, again, do very well for us on the Specialized side. So we are cautiously optimistic about 2024.

Ryan Sigdahl: Is there any opportunity to move trucks to less or I guess focus on less cyclical sectors into adjacent ones, thinking pharma, entertainment, et cetera? And maybe that’s more part of the optimization phase kind of next year and beyond, but curious if there’s opportunity there?

Jonathan Shepko: Yeah. There’s absolutely opportunity to do that. I think one of the things that this trough, this down market does, I mean, we have kind of on the last several calls, mentioned that we are really shifting to more of an end market focused strategy and really trying to build as much as we can kind of an all-weather portfolio. I mean we are not looking to strip beta out of our investor’s portfolios. I mean that we are not going to get that perfect at it, but we are looking to really build a more resilient portfolio of end markets through diversification. And so one of the things that this downturn does for us is, it allows us to look at how those end markets can vary. It allows us to look at the volatility of those end markets, particularly with the drawdown is on some of those commodity end markets, so that we can really think about how much exposure prospectively with one of those end markets and really use that as an opportunity to kind of rebalance, if you will, thinking about kind of portfolio management.

And so I do think that — I do think prospectively, when we think about CapEx to the different fleet strategies we have, whether they be regionally — can region — CapEx be regionally allocated or end market allocated, it will inform certainly some tweaking. So I do think you will see some of that as we move forward and get a little bit better at this approach to kind of portfolio optimization.

Ryan Sigdahl: Good. Yeah. Rumors are Taylor Swift drivers received some very nice bonuses. So maybe an opportunity there for the Flatbed. Last question for me, just on the CapEx guidance, $140 million at midpoint, does that include leased equipment and then is the strategy still the same to have a small amount of leased equipment or can you finance that at a cheaper cost of capital internally at this point?

Aaron Coley: Great question. And yes, we would expect to reduce our overall operating leases going forward in favor of equipment financing just because it’s better in this market and so we would expect to reduce that. The gross CapEx number does include operating leases, any that we would have net of any proceeds from the sale of revenue generating equipment.

Ryan Sigdahl: Great. Thank you. Good luck guys.

Jonathan Shepko: Thanks, Ryan.

Aaron Coley: Thanks, Ryan.

Operator: Thank you. One moment for our next question. Our next question comes from Elliot Alper of TD Cowen.

Elliot Alper: Great. Thank you for the question. Maybe on Flatbed, can you expand on some of the challenges you are seeing in the macro environment and maybe how impactful the Northwest Flatbed operation was in the quarter, seeing some of the encouraging homebuilding data and CAT was positive on new construction side. I mean, curious to hear your thoughts, maybe the puts and takes in the back half of the year there?

Jonathan Shepko: Yeah. Sure. Sure. So I am going to — we are going to continue to differentiate between Southeast Flatbed and the Pacific Northwest Flatbed. So, as we said on the call, our Southeast Flatbed segment, which is probably 75% to — probably closer to 80% of our total Southeast composition did very well. They executed, they drove improved productivity, they have looked to diversify their end markets, get out of more kind of volatile end markets, they have picked up additional dedicated business, they are really shifting their sales teams to find more dedicated business to provide really that kind of the baseload and that resiliency. And look, the Northwest, when we talked about maybe last quarter, the quarter before, we said about 30% or so of our overall portfolio is made up of construction, and probably, 20% of that is residential facing.

So maybe 6% overall is residential kind of in a normalized cycle, a lot of that sits in the Pacific Northwest. So, they do a lot of buildings materials. I mean when you think about Owens Corning and Roofing Shingles, you think about lumber and things like that. And you just haven’t seen inventory drawdowns up there at the kind of retail or supplier level or at the kind of manufacturing level, wholesaler level. So things are absolutely sitting there. So nothing is moving up there. Had you remove — directionally had you removed that part of the business from this and just focused on Southeast Flatbed, this would have probably been, as I said, something in the low 90s OR and it probably would have moved our consolidated OR for this quarter down 1.5 basis points to 200 basis points.

So, we are absolutely kind of going back to what Ryan asked. I mean we are evaluating how we think about exposure in these different end markets, these different regions and we will move assets around. But we are absolutely focused on that and that team up there in the Northwest is doing what they can, and they are repositioning assets and trying to approach the market a little bit differently, but you can’t do that overnight. So, again, we are in the midst of probably one of the worst freight recessions this organization has seen and I think we have been remarkably as a whole, right? I mean, relying on diversification, relying on that ability to shift between asset-light back and higher margin company starts in environments like this. We think that we have been notwithstanding Wind and Northwest issues, we have been pretty resilient this quarter.

Elliot Alper: Got it. Thank you. And then maybe one on the guidance, so it looks like Flatbed rates improved sequentially in the quarter, but commentary kind of suggests maybe you tread water for the rest of the year. I guess, how should we think about those two things and maybe what Flatbed rates could look like in the back half of the year?

Jonathan Shepko: Yeah. So, I mean, I think, we are not going to provide specific guidance on rates. But again, directionally, as we said in our prepared remarks, we do think we will see some of the seasonal softening that will likely more manifest itself and rates and to a lesser extent volume. So we have kind of layered that in to our assumptions. But again, I think, there are also a lot of data points out there that we are looking at to kind of triangulate and say, the bottom, I think, the bottom is here, aside from some of the seasonality of the business. We do generally think and I think most of our peers have been on the same kind of venture saying that, look, the bottom is here, you kind of mentioned some — I don’t know if they are quite green shoots yet, but certainly bright spots in the business, whether on you are looking at non-residential construction, where 13 months out of the last 14 months spending has increased.

You are sitting at eight million jobs now in the construction, non-residential construction, silos, so the highest in history manufacturing and industrial data, not great, but certainly stable. I mean, ISM manufacturing went from 46% to 46.4% in June. So a little bit of an uptick. So, there’s certainly a bright spots. The consumer remains strong, corporate earnings have been reasonably resilient and so, I think, we are getting really, really late into this down cycle. And if you look at spot rates, I read something the other day that said that for the first time in a long, long time, whatever long, long time means, that the current spot rate is below the rolling five-year average. So, think about that where the current spot rate is below the rates that we were seeing in 2017, 2018, you have had massive inflation on the cost side of the equation since then and we are sitting here to date, improving our operating cash flow were positive earnings, where some of our peers are net loss this quarter.

We are doing things to optimize our balance sheet, we have got a really good transformation ahead of us, and again, we think we are just getting started. So there’s a lot of momentum here going into that eventual up cycle.

Elliot Alper: I appreciate that. Thank you.

Jonathan Shepko: Sure. Thanks, Elliot.

Operator: Thank you. [Operator Instructions] One moment while we queue our next question. Our next question is from Greg Gibas of Northland Securities. Please go ahead.

Greg Gibas: Hey. Thanks for taking the question. First, you commented on the slow pace of capacity exiting the market. Wondering if you could maybe expand on that pace that you are seeing there and with that — would we expect that to kind of elongate the recovery in the freight market, just given how slow of a pace you are seeing right now?

Jonathan Shepko: Yeah. I mean, I think, it’s difficult to say, Greg. Look, I think, we have — look, frankly, we as in all of our other peers try to make crystal ball predictions and haven’t gotten them completely right the last couple of quarters and so we are a little reluctant to look too far out. What we can tell you is, there are a lot of data points there that suggest the bottom is in that suggests short of normal seasonality at the end of the year. We could see some kind of reversion to normalization early next year. I am not saying a peak, really strong peak environment. I am not saying this thing shoots up, hockey sticks up, but I think some kind of directionally return to normal next year. But I think — look, I think, a lot of this — and I think what gets us excited is that when you talk to our customers, when you look at commentary just broadly across the industries and really corporate earnings and some of the corporate commentary from earnings this quarter.

When you think about all the things that, all the articles that you read on the consumer, there is a lot of demand there right now, but I think, everybody is reluctant to transact, because there’s a lacking kind of decisive transparency from the Fed as to what’s going to happen with the rate environment. But I think what encourages us is that, we are seeing inventory drawdowns, we are seeing bright spots in our business. Demand people want to transact. They want to do things, they want to build things, they want to move things, but everybody is waiting to see what the Fed does and I think when that clarity comes to the market, things are going to move back pretty quickly. But we are not — we are certainly not assuming that’s going to happen.

We are not planning our business around that. We are being defensive when it comes to protecting our balance sheet and we are being opportunistic and not wasting this recession, not wasting this, quote-unquote, crisis, if you will and doing what we can to really improve the business, improve the structures, improve our processes, add really good talent to the bench, and again, we are going to come out of this fighting when things do turn.

Greg Gibas: Great. That’s helpful. And I think it does show to the improvements in the business, right? I mean just looking at the free cash flow growth you had in Q2 pretty substantial, despite the decline in earnings. And I wanted to just ask, should we expect that to continue into the back half as like kind of meaningful free cash flow improvement year-over-year, despite that kind of flat second half relative to the first half?

Aaron Coley: Yeah. We like the cash flow pull-through. I mean, as you mentioned, we had almost $59 million of operating cash flow or cash flow from operations in the first half of the year and net our investing activities start selling and purchasing revenue generating equipment was $2 million. So we really do like the cash flow. We are focused on cash conversion. We are focused on rates. We are focused on getting unit economics for each trailer to make sure that every trailer is profitable with the lanes that they are running so that we get all 5,000 tractors in profitable lanes every single day or at least on a round trip. So we believe in the cash flow profile of the business, we believe in its ability to continue to generate cash flow and we are working initiatives within One Daseke to lower our weighted average cost of capital as we described on slide 14.

Greg Gibas: Perfect. That’s helpful. I guess just last one for me is, as I do look at that slide 13 actually, just kind of detailing those three legs of value creation. What would you say are kind of maybe second back half or early 2024 catalysts on that cost side in terms of improving in that first and second phase? What can we really look to and what would drive an improvement in the business in the next, call it, six months or so?

Jonathan Shepko: Yeah, Greg, I mean, a lot of — as we kind of touched on the call, a lot of what we are doing now, we have got the kind of finance work stream that we touched on, but specifically with respect to the integration phase. I mean, it really is as the name suggests. I mean it’s integration. It’s taking our operations and taking what was once a very highly disparate and highly siloed group of 25 operating companies and continuing to kind of bring talent together, centralized talent, align on philosophy, align on strategy. And to Aaron’s point, really purpose and point the assets in the kind of highest and best use kind of profit venues and so that’s really what this is, is it’s taking some of these operating companies who are a little bit kind of subscale whose management teams maybe aren’t quite as built out, whose systems aren’t quite as sophisticated, whose processes might be not quite as refined and really integrating them with kind of a big brother big sister, if you will, right, and that’s really what we are doing.

And then you are overlaying a more sophisticated perspective, deeper bench of talent and you are really allowed to generate higher earnings, cash flow, EBITDA, whatever metric you want to do per truck, because of that perspective and expertise that you bring to bear on those integrations.

Aaron Coley: And so another way to think about that, I think, just building on that is kind of look at Phase 1 and Phase 2, and it’s really kind of about post-acquisition integration to create scale. So we acquired a lot of companies or operating companies over the past, some of those weren’t completely at scale and so kind of the first phase is adding those together, part, as Jonathan mentioned, putting those teams together and building capabilities. And this next phase, as you look beyond is more around unlocking commercial potential and go-to-market strategy, sharing best practices, adding services where we are doing one OpCo to another expanding share of wallet and so those are kind of the three phases. I appreciate you picking up that there are three phases, one and two kind of being done concurrently and we are on the cusp of kind of the third one and we will start to see some of those benefits in the future.

Greg Gibas: Great. That’s helpful. Thanks, guys.

Jonathan Shepko: Thanks, Greg.

Aaron Coley: Thanks, Greg.

Operator: Okay. That concludes the question-and-answer session. Thank you for your participation today. I will now turn the call over to Mr. Shepko for his closing remarks. Mr. Shepko, go ahead.

Jonathan Shepko: Thank you. Thank you, Steven. To conclude, I hope you have a bit more insight to One Daseke and its potential of a catalyst for outperformance need coming up cycle in combination with our solid growth platform of industrial end markets. Our goal, again, to add incremental EBITDA across the cycle will be enhanced by our One Daseke transformation. But as I mentioned last quarter, the functional objectives must go hand-in-hand with a new perspective. I firmly believe that our end market diversification and asset right stories remain critically thematic to our success. A mindset of collaboration, continuous improvement and openness to new solutions and ideas that will take us further together. If we leverage the deep experience of our team, our differentiated and diverse capabilities and expansive data with this mindset, we will unlock even more value in the upcoming cycle.

As one final note, I’d like to also welcome Scott Hoppe to the executive team, although he’s been with the company and in the industry for more than two decades. He officially took the CEO role in June and we look forward to building a strong future together. Thank you all for your time this morning.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.