Q2 2020 Daseke Inc Earnings Call
With us today, Rpcs, sorry, you, Jason Bates, VP and CFO, John Michelle meat VP of Treasury <unk> Investor Relations.
There are definitely marks the management team go take your question.
As a reminder, you may download if need be after the presentation slides that accompany the remarks need of today's conference call as indicated in the press release issued earlier today.
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We go further I would like to stereotypical Thomas on Monday.
I agree who will read the company's safe Harbor statement within the meaning of the fight It Securities Litigation Reform Act like United.
That's for bites imported fashion regarding forward looking statement group. Please go ahead.
Thank you Keith.
Please turn to slide two for view of our Safe Harbor non-GAAP statements.
This presentation contains forward looking statements as within the meaning of the private Securities Litigation Reform Act 99.
Projected financial information, including our guidance outlook or forward looking statements.
Looking statements, including those with respect to revenues earnings performance strategies prospects and other aspects of that he'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.
Activations and projections.
I encourage you to read our filings with the Securities and Exchange Commission for discussion of the risk that can affect our business and not place undue reliance on any forward looking statements undertakes no obligation or buys are forward looking statements to reflect events or circumstances occurring after today, whether as a result, the new information future events or otherwise.
Except as may be required under applicable securities laws.
During the call there'll also be a discussion of some I did not perform U.S. generally accepted accounting principles or gap, including adjusted EBITDA.
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 next to the Investor presentation and press release issued this morning, most of which are available on investor tab assay website, www dot dot dot com.
In terms of the structure of our call today, Chris will start with or view or business operations on the progress we are making as we navigate through the pandemic environment execute against our strategic priorities. Jason will then walk through the financial review of the quarter and Chris will come back to wrap up with a remarks with a few closing comments before wheel.
On for questions.
I would like to turn the call over today, CEO Mr., Chris Easter Chris.
[noise] and good morning, everyone.
Wind a few of our key takeaways from a second quarter and a core weighed down by covert 19, I'm pleased by the hard work commitment and solid execution by the entire Dansky family and the second quarter, because we were able to deliver dramatically improved operating results year over year.
To achieve team achieved 96.5% operating ratio.
Our best quarterly or since the company was taken public more than three years ago and represents a year over year improvement of 250 basis points.
With achieved in spite of cobot 19 headwind.
We also achieved positive net income, which was a great accomplishment in the face of extremely challenging market conditions.
The continued execution of our transformation actions, coupled with Swift tactical cost actions in response to the pandemic related impacts were the key drivers of improvement.
We launched the initial transformation actions last August and I'm pleased to announce in less than a year or team has turned around its performance from what was an accelerating decline and bottom line loss to 90, 596.5% a war.
But a trajectory.
I couldn't be prouder, what our team has accomplished in the short period, particularly considering the additional challenges scope at 19.
And what is even more excited for team is the fact that we are still just getting started in terms of architectural to deliver earnings improvement.
I will touch more on this upside potential later in the call. It is also important to note that demonstrated resilience of our business model in this extreme environments, our diverse portfolio of services customers and end markets served us well, it's in markets like wind energy lumber and building materials held fairly steady through the quarter.
And our actually progressing ahead of last year.
These verticals help offset softness and other end markets that word materially impacted by code at 19 like aerospace and metal.
These offsetting end markets help demonstrate the strength of our diversified portfolio model.
Resilience is further bolstered by the significant portion of brokerage and asset like capacity across our portfolio.
Having said that we were not immune to the effects of the pandemic as we saw volume declines, which negatively impacted our top line during the quarter, we experienced an immediate decline to our consolidated freight volumes, which troughed in April and then sequentially improved through May engine.
As we look forward, we will continue to closely monitor our freight volumes and are confident in our ability to navigate to the market turbulence to position of strength on the other side.
During the second quarter. We also made significant progress on the strategic divestiture of our BITA transportation and energy services business.
As a reminder, we announced the decision to sell the of either assets late last quarter.
We did not make this decision lightly nor the reaction to macro factors, but rather did so after undertaking proactive actions to better align the businesses cost structure with the rest of our platform.
However at the end of a day, we decided that this business was not an ideal nor strategic long term fit for our organization.
In terms of our financial progress on the divestiture, we collected approximately 48 million a net proceeds from the sale of P.P. acne and the reduction in net working capital during the second quarter.
We have completed the large majority of the work related to the divestiture of this business, but expect to fully completed by the end of third quarter as previously disclosed.
At the end of Q2, we had a 4.9 million of PPD that we're still held for sale, but expect closing costs, such as lease terminations and severance to fully offset any cash proceeds therefore, we'd expect to see about a $7 million to $10 million $7 million to $10 million in cash usage in the third quarter to complete the divestiture process.
Yes.
To reiterate our previous disclosure when this process is complete our exposure to the oil and gas end market will draw from roughly 13% of our historical revenue.
In 2019 to less than 2%.
All in on this page with one of the bigger highlight for the second quarter and that would be ongoing strength strengthening of our balance sheet.
By continuing to drive strong free cash flows despite the pandemic as well as to the sale of Afro mentioned noncore beat assets, we increased our cash position by nearly 50% quarter over quarter.
This helped us lower our net debt and reduce our leverage ratio down to three times, we retain healthy liquidity with over 240 million available between our cash on hand, and Undrawn revolving credit facility and we hope that the progress. The team has achieved over the past year helps emphasize our company's ability to generate solid free cash flow.
Well above and beyond the onetime asset sales.
Please turn to slide four.
And I'll provide a few more details on our financial performance during the quarter.
First we had revenue of 352 million, which was down about 20% when compared the same quarter. In 2019. This was largely in line with our expectations given the pushes and pulls of various end markets freight demand that I mentioned earlier. Additionally, nearly half of that decline came from the reduction in a beat us sales, which resulted from the sale.
I was curious can prominence of its portfolio through the quarter.
If you exclude davita the core business revenue was down roughly 13%.
Our adjusted EBITDA came in at 44 million for the quarter down only 5%. However, when excluding Davita adjusted EBITDA was 45.8 million and was up 13% due to both our long both our short term and long term cost containment efforts the combination of strong operational cash flow generation.
And a meta asset sales helped us generate 73 million in free cash flow during the period.
Looking over the full list of the last 12 months, we've generated 175 million a free cash flow.
That excess capital has allowed us to strengthen our balance sheet by reducing net debt by $118 million year over year and has also provided us with the resources, we need to invest in our business. So we are prepared to exit the pandemic as a stronger and east market leader.
Please turn to slide five.
As I said earlier, roughly one year ago, we announced the foundation of our operational improvement plan and then accelerated that plan only two weeks later.
In hindsight those proactive efforts proof critical to our ability to not only navigate through this pandemic, but to do so from a position of strength.
As you all know we're in the middle of Phase two of the transformational program, we outline and we remain on pace to achieve the 15 million dollar improvement goal on a run rate basis as we enter fiscal 2021 in spite of the coded 19 headwinds.
Please turn to slide six.
I think it's important that our investors understand that the hard work we've been doing over the last years not simply a cost exercise we're building a stronger to ASCII through this work.
First we're simplifying our business by reducing operating units from 16 to nine and we're refining best practices, which can be applied in a cross platform fashion.
We continue to build out our leadership team as I'd add adjacent in April and then we announced Rick Williams as our Chief operating officer in May.
We're not being short sighted about investing in our fleet either evidenced by the fact, we have lowered our average truck gauge to 3.4 years from 3.8 years at the start of this year.
Finally, we are focused on increasing the utilization of all of our assets, which is particularly important in areas of our business that are more commodity driven like our flatbed solutions.
We're clearly seeing the results of our transformational efforts through our improved operating ratio.
We've made great progress over the last few quarters, but we are not at all satisfied with our current or can have significant room for continued improved.
With our simplified platform of nine operating companies, we are confident in our ability to continue driving it improve or from the 96.5% reported regardless of the market environment. We have several operating companies that operate at sub 90 operating ratios today and through our continued operational excellence initiatives we.
We're working on the others with rig Williams moving into his new role as Chief operating officer. During the second quarter. We're looking forward to the focus that he will bring to help maintain this momentum.
With that I'll now turn the call over to Jason Bates to review, our financial performance for the quarter Jason.
Great. Thank you Chris.
Our Q2 2020 consolidated financial details are presented on slide seven.
Both with and without the impact of a meta.
Given the strategic decision we have made exit this business. We provided this information to assist you in better analyzing and modeling our business on a go forward basis.
In the second quarter revenue was 351.7 million down 22% compared to 450.6 million in the year ago quarter.
But as Chris mentioned and as you can see on the right hand side of the slide revenue was only down 13% excluding davita.
The decline was driven by lower volumes and freight rates in both our specialized and flatbed operating segments as the impacts of the cobot 19 pandemic weighed on our weighed on industrial production and dampened demand in the quarter.
Net income for the quarter was a positive half a million dollars, which after our preferred dividends equates to a loss of one cents per share attributable attributable to common stockholders.
GAAP earnings result compares favourably to a net loss of 6.4 million in the prior year quarter.
This is another area, where we see a real contracts when you exclude the impact of of EDA as our net income actually improved by $10 million year over year to a positive 5.1 million when we look at our core earnings results.
Adjusted net income of 8 million grew meaningfully compared to adjusted net income of 3.4 million in last year's second quarter.
Adjusted EBITDA was 43.7 million down roughly 5% compared to 46 million in the year ago quarter.
Again, excluding the BITA adjusted EBITDA improved 13% to for 45.8 million.
This latter improvement highlights our team's strong operational performance in the quarter. This improvement was the result of our operational integration activity and cost improvement plans, which enabled us to overcome the general softening across the broader industrial space, which negatively impacted volumes of freight rates as previously discussed.
Before moving on to the operating segments allow me to briefly touch on our corporate segment, which also improved its adjusted EBITDA versus last year's second quarter.
As mentioned on last quarters earnings call. This portion of our business is expected to benefit from cost containment efforts such as Rightsizing of the executive staff as well as additional cost reduction initiatives taken to adapt to the global pandemic.
As evidenced on the table, we were able to drive out an additional 2 million of corporate costs compared to last year second quarter order improvement of 17%.
Moving onto a more detailed look at our segment results starting with our specialized segments on slide eight.
For this business given the ongoing divestiture process with Davita assets classified as held for sale I will again speak to our reported headline results and then a more in depth discussion of the segments pro forma for the abuse via divestiture.
Life revenue in the second quarter decreased 21% year over year to 221.5 million.
Adjusted EBITDA for the second quarter decreased 13% to 33 million driven primarily by weakness in manufacturing and aerospace end markets. In addition to continued pressure in oil and gas.
Turning to slide nine where we detailed our spec detail. Our specialized segment results exit meta revenue of 211.8 million declined roughly 6% compared to the prior year period. Despite this topline pressure adjusted EBITDA results of 35.2 million grew by 9% versus the $32.3 million of adjust.
That EBITDA achieved in last year's second quarter.
Adjusted EBITDA margins of 16.6% grew by 230 basis points year over year, notably specialized operating ratio of a 90 or.
Improved by 410 basis points versus last year's second quarter.
The adjusted operating ratio was 89.5, which also marks steady year over year improvement compared to 92% in the second quarter of 2018.
Our specialized rate per mile increased roughly 5% to 3.05 up from $2, a 90 cents in the year ago quarter, while revenue per tractor increased a little more than 1% to 59400.
Improved profitability as evidenced by the sub 90% or and 9% improvement in adjusted EBITDA in the face of a weaker topline environment was supported by certain when Anders wind energy projects, which have remained strong while other key end markets see demand in revenues rebound from a broader based macro weakness.
As Chris alluded to earlier, we have a very diverse customer base with exposure to a wide array of in industrial end markets.
Each of which are experiencing their own respective growth and economic recovery patterns. Additionally, we have a number of distinct embedded advantages in our business, which helped provide further support and establish resilience to our financial results. This includes our highly unique equipment and deep technical operational no health and experience.
Serving the needs of customers in the specialized freight market.
Moving to slide 10, we detail our flatbed segment results for the quarter.
Weapon revenue in the second quarter decreased 22% to 137.2 million driven by weaker volumes and freight rates stemming from the broader macroeconomic weakness. This was reflected in the more than 7% decline in a flat that rate per mile which declined to $1.80 per mile versus $1.94 and last year second quarter. However.
Despite significant top line pressure our segment adjusted EBITDA results of 20.4 million grew 3% compared to the results of 19.9 million in the year ago quarter.
This profitability improvement was driven by prior operational integrations and business improvement plans, which have driven out cost enhanced efficiency across our operations.
Those plans have helped us more than counteract the macro related pressure on volumes and raise the improved operational efficiency of this business has now begun to clearly manifest itself in our results as the plasmid segment operating ratio of 92.2% improved by 430 basis points with adjusted operating ratio up 91.
0.5%, improving 400 basis points, both when compared to the prior year.
While we are proud of the progress our team members have realized thus far we all recognize there is still a significant amount of additional upside in our business as well as a commensurate amount of collaboration and teamwork required to achieve it we will continue to work towards completion of phase two of our operational and cost improvement plans, which will help us drive further.
Improvements to our financial results through continued cost discipline, and demonstrating greater efficiency and productivity across our operations and assets.
Now turning to our balance sheet and free cash flow metrics as detailed on slide 11.
As of June Thirtyth desk at $157.3 million in cash and liquidity of 239.9 million inclusive of the available borrowing capacity on the revolver, which still remains undrawn.
Net debt decreased by 118 million year over year to 532.1 billion, our leverage as defined in our debt agreements as Chris alluded to as well was at three times well below our four times covenant.
The chart on the right side of this slide adult you understand our operating cash flows and capex through the first half 2020.
Through the first half of the year net cash provided by operating activities was 82.9 million cash Capex was 14.9 billion and cash proceeds from the sale of equipment was 36.4 million. This resulted in free cash flow generation of 104.4 million capex financed with debt or cap leases totaled 30 million, leaving you with a net of 74.
4 million after finance Capex for the first half of the year.
Improving operating income and converting adjusted EBITDA and a strong free cash flow has been a key focal point in our transformation.
The emphasis we have put on this goal through overhaul operations and targeted cost eliminations is demonstrating itself in our cash returns as well as our leverage metrics in fact, the weaker external economic environment has illuminated the impact of the transformational work we have undertaken over the last year as we've been able to make progress towards our offering.
Toward our income improvement in de leveraging goals in the face of significant macro headwinds and broader based economic uncertainty.
Before we leave this page I'd like to reiterate the Capex guide, we provided last quarter as we continue to expected to come in somewhere between 60 to 65 million for fiscal year 2020.
Turning now to slide 12, you will see the clear impact our transformational work has had on our balance sheet help.
Enhanced operating cash flow generation has driven significant improvement in our cash balance which has more than doubled since the second quarter of last year and grew more than 46% versus the first quarter after including proceeds from the asset divestitures.
The critical takeaway here is that we're continuing to generate strong cash flow results on an operating level, we remain committed to continuing down our deleveraging path, all while maintaining actually while improving our balance sheet as evidenced by our net debt reduction of close to 120 million year over year in the second quarter, So with that I'll now hand the call.
Back over to Chris where you will detail our outlook in priorities for the second half of the year.
Thank you Jason I'll conclude on slide 13, with our second half 2020 priorities.
As we look forward, we're laser focused on maintaining our momentum just as we did in the first half of the year.
We will continue to monitor and adjust our business to the realities of the economy, which will clearly see pushes and pulls from the pandemic.
We will continue to prioritize the safety of our people our customers in our communities above all else.
We'll also continue focus on focused internally on driving additional operations excellence across organization as we complete the remaining steps a phase two of our operational improvement plan.
Next we'll continue to focus our efforts.
Operating our business effectively and efficiently to drive positive cash flow generation, which will allow us to continue to build financial strength to de lever our balance sheet over the next few years.
As we discussed we do expect to use some cash in the third quarter related to final steps of the divestiture they'd be the business and the support the Capex, we projected that should be partially offset by continued operational momentum.
Lastly, we will invest wisely in our culture, our team and our platform to emerge from this crisis as a stronger niche market leader.
We'll have a strong set of growth opportunities ahead, we look forward to sharing our journey with all of you.
This concludes our prepared remarks, and I'm excited to turn call back over to you for questions.
Ladies and gentlemen, if you have any questions. At this time. Please go ahead, sorry, then the number one on your Touchstone cell phone is a question, let me answer which removed himself from the Q reprice.
Again ask this question.
Then the number one from the telephone.
Thanks.
Your first question comes from the line is Jason Seidl from Cowen Your line is open.
Thank you operator, increasing Jason the team.
Focusing a little bit first question longer term right you're.
You sort of ahead I think of everyone's expectations in your cost Takeouts and thats during an extremely difficult.
Operating environment. Some would argue that this quarter might have been one of the most difficult given how the pandemic really swung around sort of thats demand. The complex. If you always look at.
Wondering sort of longer term, how should we look at your company's ability to push that or even lower and sort of what are your goals for the like slate next three years.
Hey, Thanks, Jason I appreciate it and yes, there was a challenging quarter and but I think the opportunity for us to improve was was clearly evident that we continue to execute and I think about the longer term.
When we put that 90 number down there and we do see that type of potential in the future over the next several years.
We've made great progress in 12 months toward that end, we've got a lot of work left to do and we're in patient to achieve that.
We've we've executed on the plans to date, but as we looked at maybe into 2021 and beyond we do see additional levers, we can pull and work towards that and again the underlying our business model as it is today is where we kind of frame up that 90 potential you know our mix of asset asset light brokerage. So I think thats important to note too but in our current.
Model and our mix of business, we certainly see that type of potential for the long term and we're going to be working toward that end.
Okay Thats.
Thats great color.
Jason on the on sort of the longer term capex side with a view that out of the.
Out of the mix after three Q, how should we look at your maintenance capital going forward given the current complex companies such as.
Yes, so I mean, I think it's important just real quick I was just going to touch on one thing to add on the Christmas comment there I think it's important to understand and I think this year. This quarter, specifically demonstrated the dansky is largely a self help story at least in the short term we have a lot of levers that we can pull that we don't need.
Instinct macroeconomic recovery for up to continue to make progress I think that we've not lost on us as you kind of highlighted in your your opening comments on but I think that Theres theres still a lot more meat on the phone for us and we're going to continue to execute and drive towards that 90 or over the long run.
Getting back to your second question about Capex.
I think when we look at our business, we want to make sure that we're continually investing we were bringing that average age down and and.
I think it's important to understand to data is a little different in terms of that the composition of the assets. Some of these specialized assets have longer lives and so the capex investment cycles for those a little bit different.
I think it is probably to contain haven't built out our whole kind of capex replacement Capex plans.
But we think at the opposite of this year, we were kind of saying that 70 to 75 range kind of on a replacement capex basis, and looking down the delma tables that John Who's our resident expert on this front I think that that probably at a good starting point as you model out next year and going forward, but I'll.
I'll turn it over to John to add any color you might have yet to two data points on one of the free covered guide with Jason just talked about the to the cumulative depreciation was $41 million. So kind of 75 to 100 billion gives you kind of kind of range on on maintenance Capex.
Okay pretty good and how should we think about fleet age Jason's. Your comments your assets are vastly different than I was just a regular driving player. So how should we think about that average age how close are we to what you would call an optimal age for gas.
Yes, great question, we've actually been having some pretty healthy internal debate about this topic over over the last few weeks because I will say that number that 3.4 as a little deceptive.
Kind of getting back to the point I just alluded to and so we're looking at working with our operating companies to kind of get a little bit more granularity on visibility into maybe bifurcated the asset classes, so that theres more transparency for all of our view.
So you can kind of see when you look at our core over the road troughs.
What's our average age versus some of these specialized assets that sometimes will you'll hold onto for 678 years or some of our kind of local or regional stuff that they had longer lives I.
I would tell you we still have a little bit of have room to go on that overall weighted average I think we want to see that number probably get a little closer to today three.
How low threes, but again, it's going to depend on the mix of that specialized versus versus traditional kind of.
Flatbed business. So we have a little bit of room to go on that front end and we're committed to continuing to invest.
And.
We've got plans in place to keep driving down and here over the coming quarters as we get a little bit more granularity from the awful level up we'll look at kind of bifurcated that for you guys you have a little bit more visibility on that.
Jason listen Thats, great color and I look forward to you guys, giving us more info that mournful always helps last question and this is going to be in the near term Chris I think you talked about many of the the pushes and pulls that the economy in the quarter. I was wondering if you can give us a little more meat on the phone talking about some of the areas that that you see that are coming back.
In terms of your end markets and your expectations for.
The second half of the year in terms of demand.
And alternative would anybody else after you answer.
That's a better.
As a challenging question in terms of the forecast in the future in this environment, but.
As we get as I alluded to in our comments earlier, though the the lumber the lumber segment has been very strong and we would we right now we're expecting that to continue to be strong wind energy.
Continues to be strong as well.
I think some areas that actually have bounced back a little bit.
In defense has actually come back a little that was co bid hit hard early there was some shutdowns and in some of that area that has rebounded somewhat.
But other areas like aerospace going out we're not we're not optimistic we're going to see any upside on that anytime soon but it's pretty much fully cooked in our current run rate as is the metals.
Beyond that but theres the it it's hard to really see with much clarity that exact push and pulls back to the resilience and diversification of our business model across so many in verticals and some of which again don't go with your typical not but this is a typical cycle in any way but.
I don't they don't necessarily correlate with the typical cycle. So.
I don't know that Jason if you add anything else you annually thing I would reiterate it just highlighting that last point that Chris made it if it's it kind of a new phenomenon for me I've been in the industry for a long time, but but first time really had such a diversified end market exposure and it's actually really nice because it does kind of counter balance.
And Thats one of the unique benefits of the Dansky portfolio model is is that you do have that second that kind of ebbs and flows oftentimes in different cycles and and it provides a little bit more stability. So as we continue to focus on kind of pulling the levers we can.
Well I don't want to say, we're insulated from FFO. We're we're somewhat insulated from the extreme volatility at some of the other kind of retail heavy companies are exposed to.
Well listen that's that's great color guys and I appreciate the time as always be safe out there.
Thank you Jason.
Your next question comes from the line Diane Dyer from Craig when they make capital your line is open.
Good morning, guys and congrats on on the operational improvements on the quarter. Thanks, Ryan. Good morning, first wanted to start you mentioned freight trends.
Proof throughout the quarter both trended in July.
Specifically, both rates and volume.
July is really been more of a sideways movement, it's neither up nor down and you know so it's it's kind of settled in and how we reached a quick drop down in plateaued that egregiously went up as the quarter progress now we've kind of reached a plateau and it's just moving sideways.
As we're looking forward in the quarter again, there is some put theres some pushes and pulls in the different segments, but I think.
Actually if you look back at last year, you'll see our Q2 in Q3 were very very close in terms of topline revenue. Our expectation is similar for this Q2 to Q3, although that to our ability. Our self help story here is we're going to continue driving actions. We're completing the lead and also we should continue to see.
The improved performance as we're moving forward. Despite the maybe what we see right now is more of a flat line on revenue.
And then you talked to kind of both self help.
Reasonable from and or.
Perspective kind of sequentially Q2 to Q3 for that to continue to improve.
I would say, yes, we would expect to see when you're talking about that 96 five of our advantage that we should see that continuing to improve.
Great.
And then.
As volumes have recovered off of kind of Pete endemic related lows in April what are you seeing between your asset light versus asset owned segments.
Have you seen customers shift their desire to work more directly with owned fleets versus brokerage in outsourcing.
You know.
It really does vary with art, we're so diversified it really depends I guess and some of the end markets of what you might see there, but I'd say in general.
We see in the marketplace, maybe some declines in brokerage, but but from an asset based brokerage perspective being the an asset player in that space. We actually are our revenue on brokerage was actually a lower or lesser decline than in our asset side of our business and we actually did see.
Although we don't break it out separately, we see we see some improvement on our ability to generate margins in that as well during this past quarter, but we're going to continue to leverage our asset position our value physician, both in terms of our equipment and our expertise and our confidence with our customers.
Those carriers, we interact with two to grow that as we're looking towards the future, but but all that said, we didnt necessarily see a big shift in that dynamic during the quarter.
Yes, I think the only thing Jason that Ryan I would add to that is is that.
At the end of the day.
All the breakout to move on a truck so that people who own the trucks and on the assets at the end of the day when when things get tightened their concern about capacity you're going to see some of these bigger guys.
In terms of shippers are going to look towards those who have assets. They want to make sure that they're keeping that relationship intact and because the brokers.
They come and go idle those who have been in this industry for a long time, you see these cycles right and when there's a lot of capacity out there, they're going to be dipping their toe into the waters of getting better rates and using those brokers, but but when things start firming up and there's concerns about.
Financial stability of companies and you got guys, maybe going under due to regulatory pressures or or you will start creeping up and becoming a headwind insurance becomes ahead when you've got some of those things out there that may drive some people out of the market you're going to see a lot of the shippers, they're not dumb they've been in this dividend since your for long time to it and they're going to make sure. They keep.
Those asset players those relationships intact, and we've got some amazing operators out there who got really good relationships with lots of different big key customers and and they're continuing to foster and nurture those relationships and maybe when the one final point even add on to that is that the when you think about that asset I kind of looked at that the path.
You had a key you've got to key the.
A broker has got to go get the key we've actually got that Keenan. When you are specialized like we are you've almost got a gold and key because you have the specialized trailers and equipment and the know how that hard to replicate and in many cases, it's not replicated out there so you'd be with and oftentimes be among the very last of the asset guys to maybe be take.
To be taken to taken out our backseat behind someone because they need that that customer shipper needs that valued specialized asset.
Thats great guys. Thanks, I'll turn it over to someone else. Good luck. Thanks Ron.
Your next question comes from the line Greg events from Northland Securities. Your line is open.
Morning, guys. Thanks for taking the questions and congrats on the improvements in the quarter varied.
Good morning.
First of all I guess.
Could you provide just a little bit of color on the degree to which the freight volumes improve month to month within the quarter. Obviously, you mentioned that April was the low point, but maybe how did that compared to the next few months.
Yeah. It was it was it was sequential into small incremental improvements relatively speaking so wasnt anything dramatic, but small incremental improvements, yes, I think the only thing I would add to that as we were expecting it to be really bad I think all of US thinking Q2 was going to kind of be where where the bottom dropped out of the market.
And again.
I've only been here for three months right. So so I was shocked to see how resilient stacking model held up through that downturn. So so we didn't see this gigantic drop off in April that would necessitate a huge pick back up right I mean, there whether the drop off don't get me wrong, everyone in the industry saw but but we started seeing.
That claim claim its way back and I think at our mid quarter update we talked about five of the previous six weeks had had sequentially improved each week and the only exception to that was with actually Morial day weekend right.
So it's really I mean, when you normalize for that was six straight weeks of improvement.
And you know that trend.
It is something that kind of speaks it's kind of flat total little bit here in the back half of June and into July and you've got holiday with affordable holiday, but but overall, we've been pleasantly surprised at how well the business is kind of held in there, but more importantly, how well the team has kind of executed on on.
Cost actions in the face of that revenue challenge and in fact, I think over there was a couple of the end market that did see an immediate purcell, yet as our phase and that's where those those operating company leaders. They didn't wait for guidance from from corporate or anything. They just acted immediately as they have in.
The past they've been running these businesses they ran and cut cost.
We had other businesses, though it actually saw increases in some volumes and so thats back to the business model, it's hard to pinpoint any one thing because it we're seeing a little bit evolving yes, that's why I say it was weird for me.
Hey, it was when I really kind of got some exposure because the numbers I would talk about work like the all in numbers and you had that puts and takes that Chris was just talking about it. So it was actually surprising to see how there wasn't that much volatility.
As much as you would have expected going into this this pandemic.
Got it yes, thats the beauty of the diversified end markets I guess and that's it thanks for that color and how it's trended other that does help a lot within the quarter.
Second the I guess, we could see if you could you've talked a little bit about this already but just provide a little bit more color on the degree to which capacity would tighten I guess in the second half the year and.
Maybe how your expectations for capacity improvements, it's changed since last quarter and if you could just provide general health of the specialized competitive landscape.
Yes, I think.
It's going to the capacity is going to be a reflection of the demand curve overtime I think though.
We have one thing we communicated last quarter I'd reiterate again this quarter is we're in a position of strength and resilience with the cash we've got on hand, we will navigate despite the depth breadth.
Downturn or if there is a second.
Incremental downturn to come which we don't we don't see that at this point, but if there were we're in a position to navigate through it I would say that there are peers out there that may not be.
That type of a position of strength.
I think a lot of the smaller carriers out there, which many of which are in our space right. That's our primary competitors are $30 million $10 million $40 million companies that are out there and there's some great operators out there, but do they all have the ability to be resis resilient through this type of situation and.
Some of them might have.
Between you know the a couple of held flight maybe there's some governmental help I think with in some cases that are helping some of these folks get through it but if that's not sustainable that some of those might exit all that said my view is I think we're going to see some tightening.
Capacity.
And.
It will right itself to to the demand.
And we're in a position to to get through that fine and we also are seen decrease turnover from a driver perspective, we actually finished the quarter or total turnover right around 60%.
We typically outperform our large for higher carriers significantly on turnover I think Jason from your experience as well and this quarter was an improvement over the previous year I think we're at about a 63%.
Q2 of last year were down about 60% for this quarter. So we're seeing we're seeing great.
Lower turnover numbers and an ability to get drivers as we're going forward too so.
I think now having said it perfectly I I do think theres going to be soon.
There is some tightening capacity in the back half of the year in any probably even more so at the 2021, depending on what happens in the macro environment I mean, all of our Crystal balls are a little bit plus the right now so.
That theres a lot of uncertainty out there, but we're preparing for a spectrum of possibilities and we are make to Chris is earlier plant, we're making sure that we've got we're shoring up our position from a cost perspective from a liquidity perspective, and then we'll be opportunistic where it makes sense and it capacity starts coming out.
And then we'll be a little more aggressive and if not we'll continue to focus on our internal self help opportunities.
Sure. That's a good way to think about it and it was going to actually asked about the driver attention. So appreciate that color there.
Last one from me would just be given you already realized realize those net proceeds I think it was $48 million and the disposition of the to assets.
I guess whats I know you can share too much but what stage I guess would you say we are in there in terms of the disposition process.
Yeah, we're well down the path as we said.
Our goal of the management team is going to is going to be to always under promise and over delivered and we told you that our goal is to be completely exited from this business by the end of third quarter, I think Chris and his team said that before I, even got here and we reiterated that last quarter and and we are very confident that thats going to be the case and the ninth inning, yes, I would say we're in the top of the now.
Right. So were then we'll do we're not going in extra innings on this so.
So, yes, we were well down that had like I think Chris.
Touched in his prepared remarks, we've got roughly $45 million of kind of just the remaining assets sitting there we do have as good as Chris touched on some costs associated with the final exiting the business, we expect it to be a little bit of cash drag.
In the $7 million to $10 million. The net number when you take that what we expect to get rid of these these are meeting assets for versus some of the lease terminations and severance and things like that but yes, we expect to be largely out of this business here in very short order.
Great. Thanks very much.
Great.
And then if you like to ask question first fire then the number one I guess Alison.
Your next question comes from the line of David Ross from Stifel. Your line is open.
Hey, guys. Good morning. This is Matt on for Dave Thanks for taking the question.
Hey, Matt good morning.
Yes, you guys have done a great job.
Improving the balance sheet liquidity in.
The free cash flow is.
Impressive to say the lease.
Thanks for the color with respect to the.
Maintenance capex requirements of the business.
Curious real quick how should we think about the percentage of the investments.
That might ultimately be debt financed and sort of how to think about that balance over the longer term. Thanks.
Great Great question, Matt I think I'll just I'll ask your question at all so you there's an opportunity to kind of have a broader conversation about.
The capital market and the balance sheet.
Overhaul that that we're thinking about going into the into the future here.
So with regard to financing versus versus straight purchasing listen this year, we did a healthy amount of financing one we had some great rates that were afforded us into there was a lot of uncertainty right with regard to what was the the overall economy was going to do whether there were going to be a double dip and so assuming.
Operating cash from our really strong free cash flow generating businesses male offsets and so that was kind of our goal.
Now, we're sitting as position, where we still have perfect clarity on what was going to happen. We've got this cove. It is there going to be a second wave what's going to happen with the election is there going to be an infrastructure bill or not and so there's still some uncertainty around there and so we're going to kind of proceed cautiously, but we're also as I alluded to in in response to a previous question we're going.
To be opportunistic.
I have a lot of relationships with people on the capital markets and and John to show those two and we've been having lots of conversations people because I think it's important to understand what's going on out there and where there might be opportunities, but I think because of the work that's been done over the last year.
We're in a position, where we don't really have to do anything right in and we want to make sure that.
We when we do something that we we do in such a way that makes a lot of sense and its strategic and it in it it opens doors and continues to open doors for us and provide flexibility and thats. The way, we'll think about it and so in response direct response to your question about how much can be cash homogeneity financing were.
To be opportunistic great. If there is really good.
Really good debt financing options out there.
We'll consider those it if the pros of holding onto cash from a from a.
Giving you optionality outweigh the cost of debt financing, but at the same time.
I don't think youre going to see us seedier and accumulate two three $400 million on cash and just sit on it right.
Especially when we've got that so that doesn't make sense either so its a long long answer to your short question, but hopefully that helps you understand a little bit how we're thinking about it how we're we're evaluating all the options that are out there and we're going to make the right real a math guide us right whatever we want to it we want to preserve optionality, but also make the right decision.
And for the point for the shareholders for the lenders.
And ultimately for the employees as well.
Yes, certainly makes a lot of sense congrats on the progress.
Awesome. Thank you Matt.
Yes.
Thank you.
Thank you. That's concludes thank you any session I will now turn the call over back.
Okay.
For closing remarks.
Thank you see the company to 19 outbreak as a crisis for everyone and last August we had to completely re examine every part of our business from top to bottom and figure out which levers we could pull in should pull.
We built the playbook, resulting are at sorry, including this downside playbook, which means which means we know what we should do and with glass, we should break scenarios and what responses, we could exercise if needed we reduced our fleets improved earnings and prioritize our cash flow and balancing.
Cash balances.
We had all the tools in the toolkit and when using these now we remain focused on the long term prize and believe we have a solid path to both navigate today's challenges and and drive to take care advantage of tomorrow's opportunities.
Thanks for joining us today and for your continued support of Dansky. We look forward to talking to you again next quarter have a great day. Thank you.
Yes.
Okay.
Okay.
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