Q2 2021 Daseke Inc Earnings Call
Good morning, and thank you for participating in today's conference call to discuss cash keeps financial results for the second quarter ended June 30, 'twenty 'twenty 1.
Today are Jonathan KEPCO, CEO and board member, Jason Bates E V. P. N E S. L G.
John Michelle VP of Treasury and Investor Relations.
And Chuck Ceriani Board Chairman.
After their prepared remarks, the management team will take your questions.
As a reminder, you may now download a PDF of the presentation slides that will accompany their remarks made on today's conference call as indicated in the press release, we issued earlier today.
You may access these slides in the Investor Relations section of our website.
Before we go further I would like to turn the call over to John Michelle.
<unk> Treasury and Investor Relations, who will read the company's safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1995.
That provides important cautions regarding forward looking statement John.
John Please go ahead.
Thank you Tony Please turn to slide 2 for a review of our Safe Harbor and non-GAAP statements. Today's presentation contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 per.
Projected financial information, including our guidance outlook.
Forward looking statements.
Forward looking statements, including those with respect to revenues earnings performance strategies prospects and other aspects of <unk> business.
Just on managements current estimates projections and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from her.
Expectations.
Yes.
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 to not place undue reliance on any forward looking statements.
We undertake no obligation to revise our forward looking statements to reflect events or circumstances current after today, whether as a result of new information future events or otherwise, except as may be required under 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 but not limited to adjusted EBITDA adjusted operating ratio adjusted operating income adjusted net income or loss free cash flow and net debt.
Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix to the Investor presentation and press release issued this morning, both of which are available on the investors tab. The basket website www dot tasking dot com.
In terms of the structure of our call today, we will start by turning the call over to desk as board Chairman, Mr. Chuck Ceriani, who will provide some comments on the recently announced appointment of Jonathan ship Count as debt Skus permanent Chief Executive Officer Officer.
After which Jonathan will review our business operations and the progress we are making as we execute against our key strategic priorities.
Jason will then provide a financial review of the quarter at which point Jonathan will wrap up our remarks with a few closing comments before we open the line for your questions.
With that I'll hand, the call over to Mr. Chuck seriously.
Thank you John and good morning, everyone.
This morning, we announced that <unk> board of directors has appointed Jonathan to the CEO role on a permanent basis.
The board has spent the last several months conducting a comprehensive executive search process.
Interviewing and very numerous prospects.
In order to identify the best candidate best suited to lead our organization.
The next phase of its development.
After taking the appropriate time to evaluate the needs of our organization.
We concluded that you're honest thing was the right person to lead us forward.
With the priority of driving further operational improvements across the organization and executing against our growth strategy.
And as you know Jonathan that's it.
The interim title since the beginning of the year.
He has more than debt the board's expectations since stepping into the role.
In fact.
<unk> was able to undertake a much more paced intelligent search.
Cause of the successes, Jonathan and the rest of the executive team we're cheating.
Ultimately it did become clear through this several months process that Jonathan carried not only the necessary and complementary skill set.
This aligns with our strategic direction and priorities.
But also the added benefit of maintaining continuity.
These factors, which combined with its native insight into our business operations will.
We will be of significant value as we continue to execute our operational transformation.
Jonathan has been a director at desk you since we began trading publicly in early 2017.
And he has a depth and breadth of knowledge around our business operations and strategy that is unparalleled.
He brings extensive professional experience in capital markets debt and equity financing indirect investing.
For those of you that are new to our story.
Jonathan also served as chairman of the special operating committee. They played a critical role in constructing and overseeing the tactical pivot.
A loud before operational transformation in the improvement of our operating and financial results.
Additionally, as chair of the committee he helped lead the resetting of our strategic and tactical priorities.
The company committed to and executed against in 2020.
Which took place in the middle of a global pandemic.
That introduced significant volatility into the broader economy.
Yes, the emerged from that transformation in the pandemic as a stronger entity that is much better suited to achieve sustainable long term growth and.
And Jonathan demonstrated his leadership qualities, playing a very meaningful role in working with our team to bring that to fruition.
More recently his experience and expertise where leverage as the company successfully executed a refinancing transaction as part of our larger balance sheet restructuring efforts a key strategic win for US earlier this year.
Jonathan will continue to be supported by a very strong bench of talent across our executive leadership team.
As well as by the numerous industry veterans, we have at each of Danske These operating companies.
It's important to reiterate that as we continue forward on our path Jonathan.
Jonathan formal appointment to the rule is not indicative of a change in our key priorities and overall strategic direction.
And while we are still completing additional stages of our operational transformation, we have made significant progress.
As our company now begins to look towards a new phase of free to growth.
Our board firmly believes that Jonathan is the right leader to complete to ask these continued transformation.
Becoming a truly world class company.
With that I will turn the call over to Jonathan.
Thank you Chuck good morning, everyone.
Let me add how excited and humbled I am to accept the position as permanent CEO of this great organization.
We are the largest flatbed specialized transportation and logistics solutions company in North America.
We've made tremendous strides in our transformation over the last 2 years, we still have significantly more opportunity to take advantage of.
Before achieving a level of operational excellence and our team believes is possible for this organization.
We've also begun to identify and plan initiatives that will drive long term profitable growth and I believe our approach to accomplishing these objectives as sales.
As Chuck highlighted we have an incredibly talented team here at <unk> and together, we have a unique opportunity to leverage our platform to build a larger more efficient and more profitable business that will drive significant value for all of our stakeholders.
And I'm looking forward to leading this team and continuing to develop all the emerging leaders we have across the organization.
With that let's please turn to slide 4.
Outline a few of the notable takeaways from the first quarter.
That would be delivered very strong operational and financial performance from Q2, setting numerous quarterly records from an 88% adjusted operating ratio to adjusted earnings of 42 per diluted share.
We spent a lot of time speaking with you all about the uniqueness of our business model, which offers a diversified portfolio of end markets and customers and serves as a proxy for the performance of this country's industrial standing.
While the portfolio effect across our business serves to naturally smoothed out periods of volatility the true force multiplier shows when markets are experiencing more normalized demand like we've seen thus far in 2021 hour.
Our business model, which compliance combines a fleet of company owned trucks with our network of owner operators.
Ask any position to capture meaningful benefits by strategically concentrated in the deployment of our assets and resources in other quarters of markets, where our capabilities are most valued and the competitive landscape is most favorable.
With the close of the second quarter of 2021, we offer you a very compelling case study of the value proposition of our model, which provides for solid performance across market cycles on the 1 hand, you have the 2020 adult arms of the global pandemic.
We demonstrated solid absolute and relative performance.
We proactively implemented aggressive cost control measured.
Focus more intensely on operational improvement efforts and reposition our assets away from softer end markets and do it in markets that were less impacted by the prevailing economic struggles at the time, such as women high security cargo.
All of which enabled us to post sequentially improved financial results, while most industries we're struggling.
In contrast with 2020.
2021 has provided an environment in which many of our markets are dramatically rebounded, resulting in a return to stronger freight rates and higher margins and we continue to believe we have again credit extremely well because of the complement of our balanced end market exposure and depth of operational sophistication.
It's very easy for companies to lose focus on execution and service when times are good.
But our team aggressively pursued this environment with the intention of outperformance. Despite the increased rate environment, neither our customer service nor operational kpis were compromised.
Our team rallied to leverage our ongoing business improvement initiatives combined with an operating rate environment with manufacturing and construction adjacent vertical is leading the way.
Which collectively resulted in record performance for our shareholders.
In terms of our specific results for the quarter, we drove revenue of $404 million, which was up 15% year over year and adjusted EBITDA of over $69 million, an increase of 58% versus Q2.2020.
As we said in the past we are committed to improvements in our business that driving earnings portion of EBITDA equation and success here is evident in our operating income performance.
I think it is important to note that we've seen strong market dropped backdrops before most notably in 2018, when there was a similarly strong environment, but historically during these times basket struggled to convert the strong top line performance into profitable returns.
As discussed earlier, though with our emphasis on the seismic execution. This current environment only underscores the transformational impact of the operational and integration initiatives. We've completed over the last 2 years, our operating our operating ratio results, which at 88, 8% or 88.0% on an adjusted basis.
Showed that we were able to engage the environment in an operationally efficient manner.
While our operating income of $45.3 million and our free cash flow of $32.3 million demonstrated our ability to deliver strong company profits to our stockholders.
And after completing a refinancing transaction earlier this year with closing quarterly leverage of roughly 2.4 times our balance sheet remains a point of strength that will afford us with strategic flexibility to support our long term growth objectives.
Before turning the call over to Jason to talk through our financial performance at a more granular level I wanted to take a brief moment to address the state of our markets.
Our business performance in the first half of the year has been supported by the improving economic environment across the broader and broader industrial economy and strong demand combined with tight capacity has led to a healthy recovering rate environment.
Our business services look through specific niches within the industrial economy more broadly all markets tend to exhibit downside correlation in periods of declining aggregate demand like we saw during the pandemic last year. However in contrast to many markets served by the broader freight and transportation industry. Many of which are starting to exhibit signs of a modest slow.
Dale.
We believe our open deck segment is there any material or different up economic up cycle.
<unk> outlook remains positive and even improving and capacity in the market remains tight.
While we are certainly encouraged by the reflation of our end markets. It has been our demonstrated ability to effectively execute our strategy and of these economic tailwind that has provided the real value for our stockholders to that and I would hope that this quarter's wide margin records across the board served as a comforting benchmark from which to gauge the fundamental change this company has undertaken.
As well as the depth of our operating talent.
In light of this performance and the current <unk> end markets, we are raising our full year outlook for both revenues and adjusted EBITDA, which Jason will give further detail on later during this call.
With that I will now turn the call over to Jason Bates to review, our second quarter financial performance Jason.
Great. Thank you Jonathan and good morning, everyone if.
If you'll please turn with me to slide 5 we will have a high level review of our consolidated results for the second quarter.
As Jonathan mentioned, our results are a strong testament to <unk> ability to execute into an improving market backdrop.
This quarter, we continued to see a strong uplift in construction and manufacturing related verticals, what youre seeing growing momentum since the beginning of the year. This has been a key contributing factor to the recovery freight environment, particularly in our flatbed business.
As Jonathan mentioned in the second quarter to ask you delivered revenues of $404 million up nearly 15% compared to revenues of $351.7 million in last year's second quarter.
On this slide we've done as we've done the last few quarters, we provide a consolidated view of our performance inclusive of the <unk> business on the left side with a snapshot of pro forma for the divestiture of this business on the right side of the slide.
As most of you know, we divested <unk> business last year, and we believe the financial details in the table on the right hand of the slide provides for a more relevant apples to apples comparison.
And is reflective of how management thinks about the business and mark can make decisions.
Excluding the Vita, our consolidated revenues were up by more than 18% year over year.
We noted last quarter that our revenue performance have begun to pull more closely in line with where we would've expected to be absent the pandemic and this sentiment range true across the second quarter at demand reflected an improving industrial end market.
Excluding the beta the team delivered adjusted net income of $30.2 million or <unk> 42 per diluted share in the quarter.
Adjusted quarterly record.
Adjusted EBITDA of $69.4 million grew by more than 51% compared to the second quarter of 2020. After excluding davita due to continued positive traction and momentum associated with our business improvement plans, coupled with improved freight rates and volumes in our flatbed segment.
At the combined operating segment level, our consolidated adjusted EBITDA results of $74.6 million were up nearly 40% versus results of $53.4 million in last year's comparable quarter.
EBITDA growth is particularly notable as it has more than overcome the normalization of what were unusually high margins associated with our wind energy project revenues in the year ago period.
I would also like to highlight that while many of the in the industry have cited concerns over driver recruitment and retention. We are pleased to report that our driver turnover remained significantly below industry averages. This phenomenon highlights the excellent work our team has done and making each of our op codes and attractive work destination for our driving professionals, where we spoke.
On getting the miles getting them and getting them home safely and on time.
We will continue to monitor the situation closely but are very encouraged by the overall performance throughout our organization as we all remain focused on taking care of our driving professionals.
Finally, I'd like to take a moment to highlight the progress we've made on reducing the corporate overhead burden on the operating companies as evidenced by a 44% reduction in this expense category.
This was achieved through reductions in various corporate expenses augmented by benefits from our <unk> fleet services and insurance entities outperforming expectations.
With that I'd like to walk you through a detailed view of our results at the operating segment level on slide number 6 we present, our specialized segment results.
In an effort to maintain comparability and consistency with our business going forward. We also present, our specialized segment results exclusive of the impact of the divested of EDA business, which is displayed on slide number 7.
Specialized segment revenues, excluding <unk> were $226.1 million up nearly 7% versus the prior year driven by strong operational execution that offset the lower fleet size and the mix shift away from the aforementioned wind energy project revenues from the year ago period.
Our solid execution and the impact of operational improvements and integrations was further evidenced by the improvement to the specialized segments adjusted EBITDA and EBITDA margins, which were up 21, 6% and 230 basis points, respectively versus last year's second quarter.
This is particularly notable given the marginal increase to rates as rate per mile for the segment of $3.12 grew by only 2.3% compared to $3 <unk> in the second quarter of 2020.
Again this year over year rate increase appears pedestrian but is attributable to the unusually strong rate environment stemming from the COVID-19 impacted supply chain and this segment back in 2020.
It's clear that our operational work and fleet right sizing, which was done to drive enhanced utilization of our assets and better optimize our business has made a significant impact in this segment as evidenced by the revenue per tractor results of $66.700 versus $59.400 in last year's second quarter and again.
This was despite the mix shift away from the wind energy business that was unusually strong in the year ago period.
Lastly, the segment's operating ratio improved 300 basis points to 87, 1% with the adjusted operating ratio coming in at 86, 5%.
On slide number 8 we detail our flatbed segment results for the quarter, we generated flatbed revenue in the second quarter of $180.9 million, which increased 32% from $137.2 million in the prior year quarter.
As Jonathan noted, we have been able to capture the upswing in demand across a number of industrial end markets served by our flatbed business, where this improving demand backdrop combined with our business improvement initiatives has translated into profitable results.
Flatbed demand across the broader industrial market continues to improve with each sequential quarter and we are happy to see it rebound to near pre pandemic levels.
This phenomenon was a key contributing factor to our robust rate environment in the quarter in which we were able to realize on nearly 39% year over year increase in our rate per mile.
This was additionally reflected in revenue of 50 to $55500 per tractor metric, which grew by more than 38% from 40100 as the more efficient fleet operations captured those improving market rates.
The segment's adjusted EBITDA results of $32 million grew by nearly 57% compared to results of $20.4 million in last year's second quarter.
This stronger adjusted EBITDA performance helped US segment secure EBITDA margin growth of 280 basis points expanding to 17, 7%.
Finally, the segment's operating ratio improved 490 basis points to an 87, 3% with the adjusted operating ratio coming in at 86, 8%.
Turning to slide 9 I'll take a moment to speak about our cash flow performance and provide an update on our full year outlook.
Through the second quarter desk has generated $58.1 million in cash from operating activities cash.
Cash Capex was $18 million and we collected cash proceeds from the sale of equipment of $26.6 million.
This resulted in free cash flow generation of $66.7 million year to date.
Capex financed with debt or capital leases had totaled $29.2 million, bringing in net after financing of $37.5 million.
Earlier this year, we announced that <unk> board of directors had authorized a share repurchase program of up to 3 million common shares in conjunction with the shareholder cooperation agreement entered into at the conclusion of 2020.
I would like to share that at this point in time, we have successfully executed upon our commitment and have completed the 3 million share repurchase the total aggregate price paid for the 3 million shares was $20.4 million or $6.79 average price per share.
Having completed this repurchase activity in accordance with our shareholder cooperation agreement as always we will continue to evaluate the available options for capital allocation and we'll pursue the options that we believe will drive the greatest amount of shareholder value creation.
On the right hand side of slide number 9 you will see a snapshot of our updated outlook for the year.
Although we do anticipate continued industry wide cost pressures in the form of driver recruitment and retention of equipment acquisition as well as insurance and other general expenses into the foreseeable future.
Given the strong revenues and adjusted EBITDA performance halfway through the year.
Ongoing realization of our business improvement initiatives and our positive view towards market fundamentals for the remainder of 2021, we are raising our guidance outlook for both metrics. We now expect revenues to range between 1.5 and $1.6 billion up nearly 7% at the midpoint from our initial guidance range of 1.4%.
5 billion. Additionally.
Additionally, we now expect to generate between 202 hundred $10 million and adjusted EBITDA, which represents more than a 20% increase at the midpoint relative to our prior outlook of $1.65 million to $175 million to.
To be clear the aforementioned cost headwinds are considered in this earnings outlook. Further we are not increasing our 2021 capex outlook at this time, however, given the strength in the used equipment market, we would expect to come in several million dollars below our previous net Capex guide so that fact combined with the substantially increased.
Adjusted EBITDA outlook I, just referenced will help drive meaningful improvements to our free cash flow generation for the year a trend we hope to continue to build upon.
So with that I'll hand, the call back over to Jonathan to offer a few final thoughts Jonathan.
Thank you Jason.
I'll conclude our prepared remarks on slide 10.
We provide a snapshot of our near term priorities.
Well you've heard us mention many of these points over the last few quarters over the coming quarters as we begin to shift from planning to execution.
We'll be in a better position to provide you all with more specifics and visibility around our continued value add initiatives that said, let me now take a few minutes to provide a slightly more refined glimpse into our key priorities for the next several quarters.
First we will continue to institutionalize the platform. We believe technology is 1 of our biggest opportunities for improved profitability with the ultimate goal of using differentiated technology and unmatched scale to position us with a sustainable competitive advantage longer term.
<unk> technology enablement across the organization, we will continue to be a strategic mainstay in the near term. However, our initial focus will be on standardizing our back office systems.
Standing up the centralized data repository that leverages best in class analytic solutions to transform the vast amounts of data we receive across our platforms into actionable initiatives.
Standardizing, our Tms offering across our op codes to ensure coordination continuity and constants.
In tandem with these initial systems enhancements as mentioned on our last call. We will continue to seek efficiencies through continued rationalization of our lab operating companies streamlining back and middle office functions across the organization there with while creating.
<unk> shared service centers to drive additional efficiencies.
Remiss not to point out however that preservation of the front office driver and customer facing functions along with brand continuity will be sacrosanct or these integrations. The pedigree of Opco brands that we have assembled as well as their drivers and our customers are the lifeblood of our business preserving their standing in the market their ability to leverage there.
Heald relationships with customers and their long standing culture and reputation within the driver community.
Something we believe it makes us and them special.
These initiatives are all intended to provide an environment with the people the systems and the processes necessary to function as a single network.
We're consolidated suite learning the benefits of a larger fleet, while preserving the benefits of the regional carrier.
This will allow us to finally realize efficiencies in the back and mid office will provide for front office synergies that will drive better top line through efforts such as network optimization and coordinated strategic sales.
But finally will arm our team with a usable data analytics and insights to make real time refinements to our operations.
Next I'd like to spend some time discussing our focus on growth.
The most potentially noteworthy takeaways from our call today could be the first bullet of this section as.
As we think about growth prospectively.
We will approach strategic decisions with the objective of building strategically relevant footholds by end market versus simply looking to agnostic Leah mass opened X scale.
While today, we serve many of the end market verticals that we will ultimately be targeting our emphasis will be on building sustainable industry, leading positions in each of these niche markets. Additionally, we will be looking to build capabilities and scale and industry verticals, where trailer configuration could look different than our open deck staple.
Examples of these end markets will be pharma life Sciences, which would involve expanding our today limited fleet of reefers, and specialty chemicals, which would involve adding to a modest fleet of tankers and interesting factor those extra familiar with our end market composition today more than 10% of all freight moved by <unk> is comprised of trailer types.
That would not be capable of handing the traditional array of open deck or flatbed target. Examples of such freight includes high security cargo industrial waste commercial explosive drayage.
Drayage intermodal and the initiatives.
Fundamentally we are looking for end markets, whereas among other things we have the ability to select and high grade our customers provide critical scale with capacity.
<unk> highly differentiated <unk> highly specialized capabilities fleet strategies or know how these.
Markets would have high barriers to entry with defensible segmentation and will also provide diversification characteristics to support further to further support an all weather non correlated portfolio approach all of which we believe will come with the added benefit of higher margin loans.
This will be a nuance shift away from a trailer center centric strategy to 1 that targets favorable industrial end markets and to be clear, while this isn't necessarily a change in our overarching strategy. It's an opportunity we are taking to reset how we think about driving growth and improving profitability for our shareholders only now with a much more targeted focus on.
Intensity that underpins, our strategic and tactical priorities now.
And then with respect to strategic growth.
We will look for opportunities that position us to develop were sustained at industry, leading foothold in the end market verticals, we have identified.
These matrix these may be traditional tuck in acquisition of competitors or vertical integration opportunities that provide expanded capabilities for the benefit of our customers.
We're also excited about a number of highly impactful organic growth opportunities in front of us as well from continued build out to third party brokerage platform for our dedicated fleet offering to leveraging the relationships and the request from our customers to build out capabilities to service new end markets. Our team is working hard to prioritize these opportunities creating go to.
Market Playbooks to best delineate the approach to execution.
And this brings us to the final strategic priority to execute decisively.
<unk> was formed through the acquisition of a series of operating companies.
I look at the Opco talent that actually has around the table. It's clear to me what differentiates us from our peers. We don't have regional officer terminal managers running our operating subsidiaries, we have Ceos tried and true multi generational trucking executives running our op costs. These are teams that have been through the cycles. They are proactive operators.
And without a bunch of oversight without a bunch of convincing from corporate.
They've already made the decisions and pull the necessary levers to optimize our respective operating models given the prevailing wins at the time for our executive team. It's about providing these op codes with the right framework within which to optimize our business to ensure they are collectively performing as a unified network, providing the right systems to facilitate access to <unk>.
<unk> for timely data and providing the right strategic direction to help our teams understand what we are all striving for here at <unk>.
We've provided a lot of context on this next point over the last few quarters, given our diversified industrial end market composition as well as our blended asset heavy an asset like capabilities.
We're able to approach distinct market environments, opportunistically repositioning assets, the highest and best use freight opportunities and managing our fleet composition, while leveraging our ability to recruit and retain drivers by balancing asset heavy and asset light strategies.
Finally, the last bullet maintaining open and frequent communication with our customers. The reason we're all here are customers that.
<unk> is fortunate to work with some of the best shippers in the industry and in times like this we prioritize our longstanding relationships over maximizing rate because we know that we will inevitably be on the other side of the table 1 day, but most importantly, because we value the partnerships, we have with our customers some of which have been in place for several decades going forward.
We will look to be much more engaging with our customers looking for ways to provide additional services, including additional pre transport approach transport capabilities if needed.
Looking for ways to provide additional capacity through dedicated private fleet offerings looking for ways to provide greater leverage in their supply chain be it through integrated technology solutions, our strategically located terminals yards looking for ways broadly to service our customers better.
This concludes our prepared remarks for today's call, but before we go to your questions.
Like to quickly highlight a shift in our prior expectations to host an investor call day Investor day in the fall given all the heavy lifting at work I just outlined regarding our near term priorities.
We'd like to get through some of that work before we outlined our 3 to 5 year goals and a deeper dive event.
So we're shifting so we're going to shift the timing of that event to the first half of 2022, we will host the event in New York City and hopefully the shift in timing will allow us to see many of you in person as opposed to doing a virtual event. We're.
We're looking forward to it and to executing against these near term priorities over the second half of 2021.
So we'd like to moving into Q&A session now.
Thank you.
This time I would like to remind everyone in order to ask a question Press Star then the number 1 on your telephone keypad again that is star then the number 1 on your telephone keypad.
For just a moment to compile the Q&A roster.
Our first question coming from the line of Jason Seidl with Cowen Your line is open.
Thank you operator morning, everyone, Jonathan congratulations by the way.
Wanted to dig in and talk a little bit about sort of.
2022, as we look out there is an infrastructure bill.
There's some bipartisan support it looks like.
It's getting more favorable per.
Yes at least on it getting done could you talk a little bit about.
How that could impact your results in 2022.
I'm, assuming it's going to be mostly on the flatbed side.
And maybe what we should expect in terms of if that got passed let's say this year when we should expect any impacts from it.
Yes, Jason Hey, good question. So I mean, I think all of US are watching this pretty closely.
It's evolved even over the last 6 months or so with regard to the size and the complexity of that bill.
There's no question I mean your point is valid there is no question that our end market exposure.
<unk> would definitely stand to benefit from any type of infrastructure build that comes to fruition.
Given.
The absence of firm details on that it's kind of hard to project exactly what that might mean, but I think it is for us specifically, but I think it's safe to say that.
Net.
That's something that we're hoping to see and to the extent that it does come to fruition would definitely help elongate what's been a pretty.
Constrained supply demand environment, which.
Gives us the opportunity to try to position ourselves in the best way possible for our customers.
And our shareholders and so it's something we will definitely be watching closely and to the extent that it were to get pass later this year.
Would really depend on what the what the ramp period, it looks like for that Bill right.
And that's.
So theres a lot of.
Uncertainty there, but rest assured that given our end market ties it would definitely be a good thing for us.
Okay, and do you think you'd have more near term impact in the flatbed division or the specialty division.
Yes.
Yes, I think Jason it's going to be is going to be flat that and again, we've only we've only orange soundbites.
This newer newer run this 1 trillion dollars Bill look look at largely looks to address traditional infrastructure.
But.
2700 pages Bill that just came out last night. So I think we're going to wait till eclipsed cluster of versions of that.
Okay.
I think you've got still some some issues with the attempt to coupled with the reconciliation bill, but if and when something does pull through.
As Jason said, it does overlay well with our end markets and we are absolutely well positioned to benefit and we expect that it will certainly extend the runway of a favorable favorable rate environment, yes.
To your question about flatbed versus specialized while there is no question that the flatbed would would definitely benefit from that there are different op codes within our flatbed division that would also stand to benefit from some other freight that would move their specialized sorry, what I'd say is specialized.
I know what you're about Jason.
I want to I want to ask 1 more sort of generic question. The other couple easy ones for you Jason.
Jonathan I think you mentioned about sort of.
Our build out of your.
Third party brokerage capabilities could you could you give us a little more meat on that and almost as.
That going to be in both divisions, because obviously you had much more of a growth in the brokerage portion of your flat, but as youre doing your specialized.
Yes.
This quarter as we said, we got to kind of pre pandemic revenue levels within brokerage right around $60 million per the quarter. So historically, we've been right around $240.250 million of revenue against that consolidated revenues of $1.5 billion, so lots and lots of opportunity to kind of bolster our asset light capabilities.
1 other things that we haven't we haven't done a good job of is is really coordinating coordinating and really kind of centralizing the asset light capabilities.
Within and across our operating companies and part of Thats been Ben.
Really I think a lack of a strategy and a lack of direction and a prioritization to do so and part of that's been with not having the right technology platform in place and so 1 of the things we're working around right now we've mentioned in the last few quarters is getting the right technology platform in place.
We are working on internal and external load Board. We've got we've got we've got kind of the makings of a.
External facing load board right now, but we're also and have invested a bit in internal technology to facilitate.
Better kind of internal and third party brokerage capabilities and its really coming up with the philosophy internally.
For the <unk> to execute on what I think a lot of them a lot of them.
Brokerage is kind of a release valve.
And I think that we're thinking about how do you how do you use that across market cycles to really to really kind of flex up and down from kind of a revenue standpoint take could take better advantage of opportunities like this and then when things soften.
Take you take you take those additional loads of additional relationships that you've built in better times and redeploy those loans against your company trucks. So it's really thinking about strategy getting everyone. On the same page internally about what third party brokerage should look like and then underpinning it with the right technology solutions to execute on that strategy.
Jonathan that's that's great color can I just 2.
2 more quick ones for Jason they should be easy how should we think about gain on sale going forward and coupled that with your capex outlook and then kudos to completing the share repurchase program and I don't know if I missed this but have you guys announced a new 1 yet.
The planes so yes.
Yes, so on the first question.
We actually debated internally about giving kind of a revised capex guidance, but the difficulty is exactly what you. Just highlighted is the use truck used equipment. It's not just trucks the used equipment market has been.
Very volatile.
Over the last 18 to 24 months and it's difficult to predict and so as of as.
As of late it's been pretty strong and.
We don't see that slowing down.
In the near term, but you've been in this industry just as long as I have if not longer than I have and you know it can turn on a dime. So that's the 1 caveat that its a little tricky for us.
As a general model, we kind of look at where it's been recently and we kind of project that forward and so on.
How we're thinking about it right now so for modeling purposes, I think that's probably.
As good or better as any for you guys. As you think about how to model that going forward. We do anticipate that just what we've seen already and assuming that there is not a material deviation to kind of the trend that we've been seeing there debt. Our net capex will come in lower than we had anticipated which is going to generate.
Free cash flow in the year and we're taking a really hard look I know you didn't ask this question, but im going to go ahead and take the opportunity. We're taking a really hard look at Capex as an organization. We have identified a lot of opportunities, where maybe we are being as efficient at deploying that capital.
<unk> when you look at kind of the op co structure that we've historically had as we get 12 point, where we have.
<unk> visibility and better communication across those platforms in the form of data and just.
Commute communicated with each other we can maybe more efficiently utilize what we've gotten and be able to generate similar levels of revenue and profitability of our improved levels of revenue and profitability without a significant or.
Outsized capital deployment requirement, which would only further expand that free cash flow capabilities. So we're pretty encouraged at some of the opportunity that we're identifying as we're undertaking this exercise.
And that's something we'll be looking forward to giving you guys more color as Jonathan alluded to here over the coming quarters as we further refine that kind of 3 to 5 year strategy and plan. So hopefully that answers. The first question there the second 1 with regard to the share repurchase.
We do not have.
Any current plans for incremental share repurchase, but it will be a thought we have our board meeting later this month and I am sure.
As is always the case just from a capital deployment.
3 or 4 key ways to deploy capital.
And we're going to look at each of them right whether it's.
Debt debt reduction or share repurchase or dividends or M&A.
We're going to we're going to take a look at all those and figure out which 1 makes the most sense for our organization as we move forward we've alluded to in prior quarters that our intent is not to have.
Unnecessarily have hundreds of millions of dollars just sitting on the balance sheet, we want to make sure that we're deploying that in the most shareholder friendly and accretive manner possible. So so we'll be looking to give you guys additional color on that point as we move forward and that makes sense, Jason well listen that's all from me nice results.
It's also good to see the market recognizing nice results take care gentlemen, appreciate the time. Thanks. Thanks, Jason.
Oh.
We have our next question coming from the line of Susan <unk> with Stifel. Your line is open.
Hey, good morning, Congrats on the congrats.
Congrats on the quarter and congratulations Jonathan thank.
Thank you. Thank you appreciate it.
Can you provide us I mean, you guys went through that's been in your prepared remarks, but can you provide an update on where you are from an operational standpoint more.
How far along you are in sort of what we should expect from integration of operations technology investments and ultimately when you think about resuming M&A are we you know.
Middle innings, there early innings are we getting closer to the later innings any color would be helpful. Thanks.
Yeah sure I'll take that let just let Jason chime in with any additional comments so.
On the M&A side, we're actively I think we mentioned this on the last call. We're actively looking at M&A opportunities, we've actually entered into a handful of non binding LOI.
And we're very close on.
On 1 particular acquisition, but ultimately didn't think it was in the best interest of the shareholders and move forward on that acquisition.
As we've talked about we've employed a lot of.
Additional rigor in our evaluation, we're looking at.
Acquisition opportunities from from every different angle from strategic considerations. The tactical considerations looking at really the full cycle value proposition of those targets. So.
We're being very disciplined very thoughtful not.
Not trying to rush Rusty acquisition opportunity.
The current kind of market environment, and kind of valuation complex notwithstanding.
So.
It's definitely something we are open to we're prepared to do it we have a handful of op codes, particularly within within our Opco stable.
Have the depth.
The capacity to absorb.
The right targets so that's ongoing.
From a from a kind of integration standpoint.
Not not not really prepared to share too much at this time.
On that I think that we've done a lot of work and continue to do a lot of work.
I think when you think about integrations, it's nothing it's nothing that we're particularly going to rush rush to accomplish.
The integrations of a year and a half or 2 ago, we're very different than the integrations that we want to make.
Over the next 12 months to 18 months.
We want these to be very thoughtful very very surgical type integrations, where were taken into account culture operating models customer composition capabilities. So really considering the full picture as we think about those we've got a lot of great teams. So it is thinking about how to move the pieces on the on the game table route to opt.
<unk> the offering for our stakeholders.
I think if you think about integrations theyre, probably not a 2021 event there are likely more of a of a 2022 type event, we're going to leave though with systems systems are really the full from here for us.
Better systems are going to help provide some of the some of the top line.
The opportunities, we mentioned and Theyre going to really be the again, the fulcrum for for better execution, whether it's on the M&A front, whether it's on the Opco integration front, we've got to have the systems in place to better facilitate some of those movements.
Yes, I don't have too much to add there I think you summarized it really well just debt.
Hopefully the thing that you kind of noted it took away from his comments in and around M&A is that there is going to be a very.
Disciplined and tactically strategic approach to M&A, its not just going to be a growth for the sake of growing type strategy as much as it is what aligns with our stated strategy as a team and and then once we get into things as he alluded to listen we're not afraid to pull back and say.
No. This isn't what we thought it was or.
There is day to hear that mix changes the thesis and it means that we need to kind of backup and pushed pause or or even pushed cancel.
And we've already demonstrated that discipline and again, that's not something the world sees.
But we want to make sure you guys understand that that's how this team is approaching those types of things and then with regard to kind of where we go from here I just want to Echo again, what Jonathan said I think there is a lot of time and energy and horsepower thats being applied to making sure that we're <unk>.
Making the right strategic decisions for this organization long term and.
There's going to be systems that are going to play a critical part of that.
We look forward to share anymore, as we continue to move down that path here over the coming months and quarters.
Yeah, that's great I appreciate all the color there maybe just as a follow up.
Great second quarter results.
Trying to figure out sort of what how you guys think we should interpret this as it operational challenges are starting to reverse and the business is becoming more sustainably profitable or is it just a function really tight driver market unusually high rates on specialized in flatbed.
And sort of leading to a really good <unk>, maybe slightly softer 2 H any thoughts there would be very helpful. Thank you.
Yes, so I'll start and then I'll, let Jonathan chime in.
I think it's going to be kind of somewhere in between those 2 things what I don't want anyone to walk away from feeling is that.
We get to kind of lumped into this quarter, because that's definitely not what happened right. There has been a lot of work that's been going on behind the scenes for the last 18 months to 24 months.
Heavy lifting by lots of people tough decisions integrations fleet downsizing.
Conversations with customers.
It is really kind of been masked by a lot of other things that were going on in the world.
And I think that kind of all came together and really started manifesting itself.
Candidly in the first quarter and second quarter, you started seeing that there is no question that there is a.
Supply demand imbalance out there in the market, but but.
That doesn't look to be dissipating as Jonathan touched on in his prepared remarks at least in our markets that we service anytime soon.
And to the point that Jason Seidl brought up.
Infrastructure Bill comes down the pipeline, that's only going to further.
Drive length to the tail on that and so I think it's a combination of the 2 things I think the key point, we want to drive home is that our organization I've touched on this on 2 or 3 calls and so hopefully you'll indulge me hitting it 1 more time 1 of the things I love about <unk> is.
Our ability to flex as an organization, we have a variety of different operating companies that are led by unbelievably talented and informed operators, who can flex up and flex down when we need to enter different markets and we've demonstrated that over the long.
6.7 quarters, now and expect to continue to do so as we move forward.
All I'll add a little bit to that I mean again, Jason Jason pointed out it's no secret I mean, thats a good rate environment right.
We executed I mean revenue and consolidated on a consolidated basis was up 18% adjusted EBITDA was up 57%.
Seated trucks, and we controlled variable costs.
Also I think we mentioned in the script, but it's also I think important to call out a bit of a headwind going into this year relative to last year, we did rationalize our fleet down down 10% or so so if you look at performance, we were able to greatly greatly improve asset utilization theres, great great flow through great conversion of top line.
Our auditors did a great job recruiting or training drivers seated truck count was seated truck percentage was flat year over year, and I think thats important to point out, particularly given what was going on last quarter. At this time or you probably weren't having a lot of drivers looking around for different opportunities with COVID-19 kind of looming in the backdrop.
But we were able to improve kind of miles per truck per day.
<unk> focused on moderating debt head out of rate out of route miles. So great execution. All around also we touched a little bit on this with Jason but brokerage from some early inning success with brokerage. So again I've got to give lots of credit where lots of credits do our <unk> and our drivers did a phenomenal job.
So maybe final question from me and just sort of along those lines. What you were just speaking about your owner operated truck mix is I think increased every quarter since the first quarter of last year.
Now youre at sort of like a 44% level is.
Is that increasing because organic growth is getting tougher.
Do you think that that continues to increase from here. Thanks.
All the time.
Yes, yes, no I'm happy to touch on that.
There are so again getting back to the differentiating strategies across our Opco stable, we have different operating company debt that focus and specialize on kind of a different driver relationships. So some are much more.
Lease purchase an owner operator centric and others are more company centric.
<unk> seen a lot of opportunities to grow.
And our lease purchase an owner operator environment has been strong and there's no question that the <unk>.
Rising rate environment has helped fuel that I mean keep in mind a lot of the.
Many contractors typically have compensations that are more aligned on a percentage of pace and so so that it becomes an attractive thesis for us in these types of rising market, but also it is kind of the <unk>.
Evolution of a driver lifecycle to become at least purchase and then eventually in independent contractors kind of what those guys aspire to get to in many cases, and then theres some that theyre happy being company drivers and they do a really good job I don't really want to do it forever.
I think there is a variety of things at play there, but hopefully that helps shed a little bit of light on on kind of what we've been doing behind the scenes and why we've seen some of some of that migration I don't know that I would characterize it as a.
We arent seeing an interest in company driver.
Opportunities, but there's no question that.
The drivers are going to seek out the opportunities that are going to be the most advantageous for them and so we have seen that evolution over the last 12 months or so.
Very helpful. Thank you.
We have our next question coming from the line of Brian <unk> with Craig Hallum Capital. Your line is open.
Thanks Ryan.
So you've got very detailed commentary I appreciate that on the current day and go forward strategy here just 1 from me and 1 follow up but you guys have talked about a 90% or target.
8% this quarter certainly sounds from your commentary some company specific as well as some industry tailwind, but is that 90% still the right long term expectation here or have you guys identified further cost savings et cetera that that potentially it could be better than that.
Yeah. Good question I was actually joking with Jonathan.
Question was going to come.
I think the.
When we were thinking about that in <unk>. It was more on a full year basis through the peaks and valleys. So as I know you know, but I'll reiterate when you think about our earnings cadence as an organization typically your second and third quarters are going to be your very very strong outperforming quarters, and your first and fourth quarter.
Just due to the seasonality of traditional flatbed and open debt business, we're going to be slower.
And so perfect World, we'd love to see a much smoother earnings cadence and as some of our operating companies, we have that but others are more exposed to that kind of seasonal volatility and so while we're super pleased with the performance of the team.
Net 88, or we are also realistic about kind of the seasonal.
Adjustments that need to be taken into consideration.
I see.
We set a 90 or target it was like almost a year and a half ago.
And at the time, we were bumping up on 100 right high nineties.
There has been in it a very impressive flow through on the traction of our business integration and business improvement initiatives combined with aligning with <unk>.
Very constrained supply demand environment, which helped as well.
We want to make sure that we're able to continue to deliver a 90 or sub 90 operating ratio target through the cycles. So not just through the debt.
The annual cycles, but also through the broader economic cycles. We don't we don't want to be an 88 or when when the markets come in and Everything's Great and then a 95 when things slow down we want to be able to be.
Loans.
Hi, <unk> and the slower times, and maybe lower to mid <unk> in the really really hard times, but but those things take time and all the stuff that Jonathan alluded to about all of our strategic initiatives and how we're going to tactically approach them. Each 1 of those things is going to help to chip away.
25 basis points here 50 basis points. There. So that we can more consistently deliver that kind of performance longer term. So hopefully that helps Jonathan anything you would add to that.
Look I think Jason I think she is already set everything needs to be said I think it's a normalized.
Through the cycle type type objective I still think it is.
It's going to be kind of a couple of year couple of your target and I think it.
The history of this new team in the last 4.5 quarters has been.
To kind of beat expectations. So I'd hope that I would hope that over time as we continue to tap the opco talent, we have as we continue to to kind of all all harmonized as a team that will be able to continue to surprise the market.
Yes helpful guidance, and then just on kind of strategic.
Expansion and getting into adjacent verticals.
From pharma et cetera can any of that would be done with the organic business in business units that you have or is most of that acquiring other kind of experts in that area to get in there and then secondly on that what type of multiples are you seeing in the market today from an M&A standpoint.
Yes, so I think the first part we are absolutely and look as we as we will always do we will look at kind of build versus buy so we look to enter these new markets. We're going to do the usual type of analysis that does it doesn't make sense to that.
A market premium to acquire a platform that gets us into a new vertical or does it does it make sense just to build out these capabilities internal and unfortunately, a lot of the end markets that we're looking at today, we have very large very well established blue chip customers that are already playing in that space and already offer a path.
GAAP to going into those those end market verticals and in some cases have already asked us to consider working with debt to develop capabilities in those end markets. So it's going to be we're going to we're going to again put in the right. The right kind of analysis, the right kind of thoughts behind behind each of those opportunities.
And what kind of what kind of look at it as they come we do as I mentioned on the call we do have.
You mentioned pharma life science, we do have reefer capabilities today. So if we wanted to do that we certainly have a few customers we could very easily.
To leg into that space. So we're looking at all of those things currently.
We are we are as you pointed out we are looking from an M&A standpoint, we are looking at.
Not only horizontal horizontal integration, but vertical integration opportunities so.
Again. This is this is about providing providing our customers with more expanded capabilities and better scale. So as we find opportunities to integrate horizontally to integrate vertically.
We'll look to do that we're also testing opportunities to fund some of those initiatives, whether it's strategically place yards building out certain free transport capabilities in house at the request of certain customers.
It really just spend some capital doing those things again about about getting closer to the customers. So we're being thoughtful and diligent in all those and all of those opportunities.
Yes, the only thing I would add is the second part of your question there about the multiples. It really does depend on what you are looking at right. If youre looking at a more traditional flatbed.
Decently run organization Youre going to see multiples that are going to be high fours low fives, if youre looking at something thats much more asset light or.
Maybe maybe more specialized in nature, you could see those multiples moving higher.
And I'll just be Frank some of the multiples we've seen out there.
Our head Scratchers for US we have a hard time figuring out what.
What the ultimate long term exit strategy is on some of those things and so listen we're not.
We're not going to go out there and get into bidding wars.
And run up multiples on things, we're going to be very methodical and disciplined about how we how we how we approach this.
Helpful guidance. Thanks, Good luck.
Appreciate it.
We have our next question coming from the line of Greg EBITDA with Northland Securities. Your line is open.
Hey, guys, good morning, and congratulations Jonathan and congrats to all on the strong results too.
Sorry, if I missed this but.
Wondered if you commented on whether youre expecting traditional seasonality or cadence in the back half of this year.
Yes.
I didn't directly address it but thank you for bringing it up I do think that based on what we know today, we would assume debt or we would hope that the.
The third quarter is kind of I don't want to say directly in line with the second quarter, but more seasonally in line with what we saw in the second quarter and then we would expect a little bit of a slowdown as you go into the.
The tougher weather season, and ended the year and holidays and things like that so.
Would expect a little bit I don't want to I don't want to necessarily guide you to a perfect mirror, what we saw in Q1 and Q2, but maybe something more directionally that way.
Okay. That's helpful and then.
If I could follow up on the end markets too you mentioned construction and manufacturing.
Is there any other maybe callouts or markets that stood out to you either positively or negatively or whether you expect.
Any anything.
Regarding.
Positively performing end markets continue to trend the way they are right now and maybe any comments on the geographical trends youre seeing too.
Yes, yes, so youre right I mean construction has been strong steel has been strong hi.
Hi security cargo is 1 that we've talked about a little bit in the past but.
We have seen.
Really really strong performance from our operating companies that participate in that vertical <unk>.
Commercial flat glass glass in general has been pretty strong as well.
So again hopefully.
I kind of rattled through agriculture has been pretty strong as I kind of rattled through these it helps you appreciate wow the diversity of kind of the end markets that we service the flip side of that is in no.
No surprise here wind energy.
It has been.
I don't want to say is it bad right. It's just last year was so good and people forget about that debt. It's kind of returned to a more normal cadence right. So so on a year over year basis. When you look at that from a comp perspective, it's down and then while it's slowly improving aerospace is still.
1 of those end market vertical debt.
<unk> has not rebounded.
Like some of the other industrials that we touched on.
So hopefully that gives a little color on kind of the end market verticals and then with regard to geographic.
I don't know that I would necessarily highlight any 1.
<unk> area of the country, that's been stronger than in other given that we kind of service the entire country and are moving freight all over the place.
<unk>.
There is not 1 that I would necessarily highlight or call out as being abnormally strong or weak at least from where we stand today, Jonathan anything you would add to that.
Yes.
Great that's really helpful. Jason.
I was going to ask kind of a bunch of new markets or strategic alternatives, but I think you touched on that quite a bit. So I can take that offline and I guess the last 1 from me.
Guarding.
Driver recruitment retention and then you mentioned the elevated insurance costs to be <unk>.
Headwinds again.
Just wondering if you could maybe talk about the impact that you're seeing year over year or try to quantify that in any way.
Yes.
5 our recruitment and retention.
As we said in kind of our prepared remarks, while there is no question that it is something that we need to keep our eyes on and watch.
I'm knocking on wood as were talking right like our team has done a really good job in that regard.
Yes.
Got a lot of close acquaintances and friends.
53 foot dry van space, who.
We are having I think a little bit harder time, there than what we've been having.
Again, I don't want to sweep it under the rug and say that we're not worried about driver recruitment and retention, but I do want to say that when you compare us to kind of industry averages we are significantly outperforming.
In that arena.
And so again, it's something you always have to keep your eyes on and be mindful of and make sure you're taking care of your drivers youre getting the miles you get them paid you get them home and that's something we're not going to stop focusing on but like I said knock on wood, we've seen some pretty strong performance from our teams at attracting and retaining drivers Jonathan.
Alluded to the fact that our unseated truck percentage is relatively flat year over year and I don't know that theres. Many people in the industry that can say that right now and.
That's coming off of what wasn't unusually low turnover environments in Q2 of last year due to COVID-19 as Jonathan referenced so the.
<unk> is really executing at a high level and we couldnt be more proud of that.
<unk> focus on that front on.
On the insurance side.
We went down the path as we've been talking about Av.
And true, creating a risk retention group and kind of moving to.
Environment, where we are.
Focusing more on on.
Controlling our own destiny with regard to kind of insurance.
We still it's early days in that but.
The insurance market and Youre, probably hearing this from everyone.
Premiums in excess markets are are up substantially and have been 2 or 3 years in a row and so that's something we just need to keep watching.
We feel pretty good about the strategy that we have in place and the team's ability to continue to execute on that front as evidenced by the performance that we saw this particular quarter in that line item, but it's 1 that we've got to continue to keep our eyes on.
Great I appreciate the color Jason Thanks, guys.
Yes pleasure.
Our next question coming from the line of Barry Haimes with Sage asset management. Your line is open.
Thanks, very much and again my congrats on the quarter end to Jonathan.
Jason first.
On Capex, you know understanding that you didn't want to update the old number but could you just remind us.
What's the old number was so.
The total equipment precious number so I'm looking for the cash.
Plus financed and then what your old assumption was on the equipment sales.
That's the first question. Thanks.
So we the previous guide we had given was $100 million to $110 million for net capex.
Net of proceeds.
So that's factored into that figure.
And then net.
Net financing or kind of cash capex. The guidance, we have given was kind of 35% to $45 million.
So those were the previous numbers, we had given.
Again, we have exceed we are with that 20% raise on the EBITDA guide.
And bind with.
Our better than anticipated used truck and used equipment markets were worse, we would expect a commensurate.
Effect to kind of the overall cash flow generating capabilities, but if you're just looking at the capex side of the equation is going to be lower.
I would say, it's going to be millions of dollars lower I don't know that I would say, it's going to be tens of millions of dollars based on what I know today, but again, we still have 5 months left in and a used equipment environment, that's pretty difficult to project right now.
Got it thanks.
My second question is.
Can you give us some feel for contract pricing so.
Maybe in the second quarter those contracts that came up how.
How much prices are going up or any kind of leading edge number if somebody walks in today, so any any feel for that thanks.
Yeah.
So our our business is a little different than kind of the drive end guys in that respect I would tell you that.
If you look at some of the kind of broader industry data that's out there.
Siding.
Contract rates to be and this is this is looking out into 2022 right contract rates to continue to be in that 5 plus percent type environment.
Each customer is unique for us they're going to be some scenarios, where we're going to take <unk>.
Smaller rate increases because maybe they they gave us a lot of additional business or higher rates from the previous year.
And so it is unique the way, we think about it and then theres going to be others, where given the supply demand environment or the specialized nature of the business or or the difficult driver environment for that particular specialized.
Market, we may be seen much higher increases and so again I know, it's not a direct answer to the question that youre looking for there, but hopefully that kind of more industry outlook can kind of help you from a modeling perspective and kind of how we think about it going forward into 2022.
But thats kind of where we're at today with regard to rates on our Jonathan anything you would add okay.
And then just my last question.
Right the time is.
On the asset light part of the business.
I know historically that.
It was used as sort of an augmentation to capacity in.
You wouldn't even give customers that extra capacity.
Yeah.
Green on contract rates.
And of course.
In a market that's a tight market that can work to your disadvantage so as youre rethinking.
The whole asset light part of the business I'm, just kind of curious how you're thinking of sort of contract versus spot or any other color in terms of how you think you want that to work going forward. Thanks.
Yes, Barry so when.
When we talked about and first of all I don't think youre, saying this but want to make sure that it's clear to everyone. We're not we're not advocating a big big shift asset light, we're still going to be we're still gonna be asset heavy asset right within our I think is what we like to say we are.
In terms of thinking about the build out I think I think what you have is you have a number of <unk> to your point of view do you think about brokerage as kind of that additional capacity outlet.
And so the relationships they have with the customers the loads that they go after are they responding to rfps rfps from their customers are based on their capacity and if if for whatever forever issue day, they've got network constraints.
Because of how they're deploying their trucks in a particular day and a particular week they'll go out they'll go out to the market and look for a third party carrier.
Kind of past those loans off to.
That's a very different approach than going out to the market and trying to get a 110.105, 115% of your of your asset base capacity with the objective of.
Really taking advantage of the of the third party carrier network that we have and so.
<unk>.
It'll it'll effectively function the same way, we are and softer freight environment, we're going to take take those extra loads as extra relationships would be an additional capacity and when the market contracts instead of 115% 120%.
Type type type access it moderates to 80% to 85%, we're going to take all of those loads and put them on our trucks.
But then in the up cycle is to your point, we really want to be able to flex and take advantage of the relationships of the shipper relationships that we have and do a better job of that going look instead of instead of going out for 1990, 95% capacity to make sure that we can take these on a company trucks, we're going to flex that we're going to flex up to 115%.
20%, so it's really using asset light as a lever to optimize profitability.
Across market cycles.
Okay. Thanks, very much I appreciate the color.
Thank you Barry.
Thank you there are no further questions at this time I will now turn the call back over to the presenters for any closing comments.
Thanks again, everyone for your time today, we have the right team the right strategy and the right plan to complete our transformation and pivot to driving long term sustainable growth and value for all of our stakeholders I am excited about the opportunity I have to continue to lead this great team and look forward to updating you all on our progress. Thank you again for your continued interest in <unk> and have a good.
Dave.
Thanks, everyone.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Okay.
Yes.