Q3 2021 Daseke Inc Earnings Call
Good morning, everyone and thank you for.
Today's conference call to discuss our financial results for the third quarter ended September 30 of 2021.
With me today are John can step out.
Remember, Jason Bates EVP and CFO.
Michelle Vice President Treasurer and Beth.
Okay.
After the prepared remarks the management.
We'll take your questions.
As a reminder, you may now download a PDF 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 <unk>, Vice President Treasurer.
The relations, who will read the Companys safe Harbor statement within the meaning of private Securities Litigation Reform Act of 1995.
It is important cautions regarding forward looking statements John Please go ahead.
Thank you Valerie please turn to slide two for a review of our.
Our safe Harbor and non-GAAP statements. Today's presentation contains forward looking statements within the meaning of the private Securities Litigation Act of.
<unk> 1995 projected financial information, including our guidance outlook are forward looking statements.
Forward looking statements, including those with respect to revenues earnings.
Further performance strategies prospects and other aspects desk desk use business.
Are based on managements current estimates projections and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
<unk> urge 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 occurring after today.
Whether as.
And cost of new information future events or otherwise.
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.
As a result operating ratio adjusted operating income adjusted net income or loss free cash flow and net debt.
Conciliation 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.
Jabil to available in the investors tab of the desk <unk> website, www dot <unk> dot com.
In terms of the structure of our call today, Jonathan will review the highlights of the quarter discuss our flexible business model.
Jason will then walk through our financial review of the quarter.
And then Jonathan will come.
<unk>, our <unk> marks a few closing comments before we open the line for your questions.
With that I'd like to turn the call over to <unk> CEO Mr. Jonathan.
Sure.
Yeah.
Thank you John good morning, everyone.
Let me begin on slide three.
Well I'll outline a few of the notable takeaways from the third.
Back to <unk>.
That would be delivered another quarter of strong operational and financial performance.
As evidenced by the meaningful improvement to our profitability metrics, including our operating ratio, which for this third quarter was 95% or 88, 7% on an adjusted basis.
Resilient demand and robust freight.
Quarters across our industrial end markets extended the strong freight environment.
<unk>, two a 13% improvement revenue with a 19% improvement in adjusted EBITDA, which was driven by execution.
Against our operational initiatives this quarter versus last year's third quarter.
While these industry dynamics remain supportive for our business.
Business on a forward looking basis.
Continuing to Opportunistically convert these rates and strong returns for our company and our shareholders remains a priority.
For the third quarter Gassy converted this revenue growth into adjusted EBITDA of $68 3 million.
Modestly bettering, our Q3 2020 adjusted EBITDA.
Volume.
As opposed to 16% margin this quarter.
Adjusted diluted earnings per share extra Vita at 43 with a.
79% improvement compared to last year's third quarter.
It is important to note that these 2023rd quarter comps, where each company records at the time of their print and <unk>.
March later, we continue driving this culture of improvement even in the face of industry wide challenges such as truck equipment and driver shortages.
Last point I would like to acknowledge is really one that speaks to our relationships.
They're not expressed any observable in the headline financials strong relationships with our drivers vendors and customers.
For quarter were fundamental to our business.
Investing in those relationships across cycles.
With a resilient and sustainable business.
It's no secret that the industry is facing some legitimate headwinds.
Supply chain issues of putting the OEM.
So an ever shrinking driver pool.
And though we believe demand will continue to do.
Propping up rates well into next year.
As we continue to execute decisively.
Our ability to lean on our long standing relationships will position us to continue to drive strong margins and improved cash flow.
Also ensuring our customers have the capacity they need to properly manage their businesses.
Before turning the call over to Jason to offer.
It's part detail around our financial performance for the quarter.
I would like to take a brief moment to speak to an aspect of our operating model, but played a critical role in our success this quarter.
Please turn to slide four.
On our last call we spoke about.
Priority to institutionalize, our company and the fundamental shift of our mindset.
Offer more historically relied on the performance and capability of the single Siloed operating companies.
The one that emphasizes the collaboration and coordination of our operations to execute as a highly functioning network.
And we provided some high level contours around our mission to rebuild our business to function to function within this network model, which will provide.
From one opportunities to better leverage the scale capabilities and footprint of our entire platform to better service our customers.
A key tenant of this approach however is the flexibility inherent in our business model. One that we believe will lead to enhanced stability and resiliency and ultimately deliver long term profitable growth.
Across our flatbed.
Additional rationalized business segments, the positions of strategic relevance that we maintain within each of our end market verticals, which span the gamut of industrial facing sub verticals provide.
Provide us with frequent opportunities to optimize our financial objectives by making targeted real time decisions around asset deployment.
Given that each of these and more.
So the film respective cyclical or secular tendencies, we were able to shift the supply of our capacity to most optimally balance the industry specific demand or end market portfolio.
We've talked at length about how diversity across both our end market verticals and our customer base delivers a portfolio effect.
Moderates volatility.
<unk> and allows us to concentrate the deployment of assets in areas, where our capabilities are most value additive and that's most attractive from a rate perspective. This is clearly shown in our last several quarterly results.
However, the competitive advantage of our network based operational structure.
Beyond simply this portfolio effect and includes other compelling features.
Such is the elasticity of our operating model.
During the third quarter as the market faced an even tougher supply side environment brought about by equipment and driver shortages gassy.
<unk> was able to navigate this challenge by leaning more heavily on our asset light strategy.
These periods of market imbalance offer opportunities to highlight <unk> unique blend of asset base and asset.
Capabilities.
Our third party logistics platform, which functions within our operating model of a shocker builder was critical in delivering on our commitment to service for our customers.
As we saw in Q3 when market capacity was tight.
Flex for our company assets to the highest and best use.
We relied on our owner operator third party.
Asset light logistics capabilities to backfill our fleet, thereby supplementing this incremental capacity that we were able to offer to our customers.
And while this transient shift in mix toward asset light strategies to accommodate this incremental freight demand results in lower incremental margins against those asset light strategies, we believe that supplementing with our asset light offerings.
Party, which enabled us to ensure that we continue to meet the demands for valued customers maintain our market position and maximize our free capture within our target verticals.
In times when the freight environment is initially tighter and excess rate isn't as prevalent we will shift our mix in favor of asset base, reducing our reliance on asset light brokerage offerings.
And reallocating more freight to a more profitable owned assets.
To that end, we will continually continue to strategically flex our operating model in a way the physicians basket.
To deliver outperformance across market cycles opportunistically.
Opportunistically, taking advantage of dislocations and supply demand imbalances to capture superior returns for our shareholders.
With that I will now.
Now I'll turn the call over to Jason Bates to review, our second quarter financial performance Jason.
Thank you Jonathan.
If you'll please turn with me to slide five we will have a high level review of the consolidated results for the third quarter.
This quarter's results once again demonstrate <unk> ability to execute.
Strong and improving market backdrop.
In the quarter, we continued to see a sustained uplift in traditional construction related materials.
As well as our steel and high security verticals, which have continued their positive momentum since the beginning of the year.
This strong demand has been a key contributor to the heightened freight rate environment.
<unk> in the industry.
<unk> delivered revenues of $424 6 million for the quarter up 13% compared to revenues of $375 8 million in last year's third quarter.
As a reminder, we divested davita business in 2020 and.
And we believe the financial details excluding the beta.
<unk> almost relevant reflective of how our team thinks about and manages the business. So we will be focusing on the results excluding the beta on this call.
Over the last couple of quarters, we highlighted that our revenue performance have begun to pull more closely in line with where we would've expected to be absent the COVID-19 pandemic headwinds.
Headwinds.
This sentiment has continued through the third quarter as demand further reflected an improving industrial end market and the verticals that we support.
Our team delivered adjusted net income of $30 1 million or <unk> 43 per diluted share in the quarter.
Adjusted EBITDA, excluding the beta of $68.
$4 million grew by almost 22% compared to the third quarter of 2020, which as you may recall was an unusually strong quarter in and of itself.
Most recent record quarterly results were driven largely by the continued positive traction and improved efficiency of our operational execution.
Bold.
With growing freight rates and demand in our flatbed segment.
At the combined operating segment level, our consolidated adjusted EBITDA results of $74 $7 million were up 12, 5% versus results of $66 4 million in last year's third quarter.
This adjusted EBITDA growth is particularly notable as it exceeded the.
A normalization of what were unusually high margins associated with our a typically strong wind energy project revenues in the year ago period.
I would highlight that while driver recruitment and retention has continued to be a headwind throughout our industry contributing to higher operating costs cited by many we are pleased to report that our.
Driver turnover rates continue to remain significantly below the industry average our driver retention trends highlight the excellent work our team has done and make each of our off coast unattractive work destination for our driving professionals where.
Where we are dedicated to getting the miles providing them with market competitive pay and above all focusing on getting them home.
Safely.
This prioritization of our workforce remains a key area of focus for our company.
And we have implemented targeted pay increases to ensure appropriate compensation for our driving associates in conjunction with the higher freight rates, we have experienced from our customers given the very tight supply and demand imbalance presence in the marketplace today.
Finally, I'd like to highlight the continued progress we have made on reducing the corporate overhead burden on the operating companies are supported by the 27, 3% reduction in this expense category versus last year's third quarter.
While we did drive reductions in various corporate expense categories. This effort was supported by financial benefits derived.
From our <unk> fleet services, and insurance entities, which outperformed expectations in the quarter.
With that I'd like to walk you through a detailed view of our results at the operating segment level.
On slide six we present, our specialized segment results.
<unk> segment revenues were $244 million up nearly 4% versus the prior.
Higher year, driven by strong operational execution that offset the lower fleet size and strong industrial demand.
On slide seven we detail our specialized segment adjusting for the divestiture of our beta business as previously discussed.
Our specialized segments adjusted EBITDA came in at $44 1 million, which was.
Down slightly from the prior year's quarter, we saw a similar trend in the adjusted EBITDA margin, which came in at 18, 1% for the quarter.
This was predominantly a function of a shift in mix as we experienced a year over year reduction in our wind energy business, which carried unusually strong volumes and margins in the third quarter of last year due to the supply.
Disruptions.
Creating tough year over year comparisons. However, in spite of the tough comps I am pleased to report the team was able to improve rates across the specialized segment in the quarter coming in at $3 41.
Which was up three 9% for the segments when compared to $3 28 in the third quarter of 2020.
This broad rate strength manifesting itself in various end market verticals, including but not limited to construction high security cargo and commercial flat glass and help offset headwinds associated with the absence of the aforementioned high margin wind energy project revenues from the prior year third quarter.
This is yet another.
Example of the resiliency of our diversified portfolio model, which enables us to flex up and down into different verticals to service the needs of our customers and maximize the return on invested capital for our shareholders.
Our operational work, coupled with fleet right sizing, which was done to drive enhanced efficiency optimization that.
<unk> of our assets has continued to benefit the specialized segment as evidenced by the revenue per tractor results of $70 $300 versus $67 $500 in last year's third quarter.
We have a hard charging team in the field and are impressed with their ability to continue to execute evidenced by driving yet another.
Sub 90 operating ratio for the segment, which came in at 87, 9% for the quarter and the adjusted operating ratio coming in at $86 nine.
On slide eight we detail our flatbed segment results for the quarter.
We generated flap and revenue in the third quarter of 184 million, which increased 27, 3% from.
From $144 5 million in the prior year quarter.
We've been well positioned to capture growing demand across a number of industrial end markets served by our flatbed business, where this favorable demand backdrop combined with our business improvement initiatives and brokerage business has translated into profitable results.
The verticals, where we experienced.
The surge in demand this past quarter included steel construction as well as agriculture.
As noted flatbed demand across the industrial market continues to grow with each coming quarter, which ultimately with a key driver to the robust rate environment, we continue to experience in.
In the quarter, we were able to generate a 32, 5% year over.
A year increase in our rate per mile. This improvement was further reflected in revenue of 56000.
Her tractor metric, which increased from 43000 in the third quarter of last year as our more efficient fleet operations captured those improving market rates.
The segment's adjusted EBITDA results of $30 7 million.
<unk> grew by nearly 62% compared to the results of $19 million in last year's third quarter.
This stronger adjusted EBITDA performance helps us segment secure EBITDA margin growth of 360 basis points expanding to 16, 7%.
Finally, the segment's operating ratio improved to five <unk>.
110 basis points to 88, 5% with the adjusted operating ratio coming in at 87 seven.
Once again, we want to highlight the impressive execution of the team and delivering sub 90 operating ratio results in a challenging operating environment.
Turning to slide nine I'll take a moment to speak about our.
Slow performance and provide an update on our capex outlook.
Through the third quarter desk has generated $115 $7 million and net cash from operating activities cash Capex was $34 2 million and we collected cash proceeds from the sale of equipment of $47 9 million.
This resulted in free cash flow generation of.
Cash was $9 $4 million year to date.
Capex financed with debt or capital leases totaled $55 million, bringing in net cash after financing of $74 4 million year to date.
On the right hand side of the slide number nine you see a snapshot of our updated capital outlook for the year as.
As Jonathan mentioned at the outset of the call sourcing new equipment has been a challenge felt industry wide and has resulted in delays in our ability to backfill portions of our fleet as we have sold out of older equipment.
This truck shortage dynamic is expected to continue forward into next year, and thus our capital spend in relation to new.
New equipment has been muted and will likely be pushed forward into subsequent periods if.
If you look at the midpoint of our original 2021 net Capex guide of $105 million and you take into account the roughly $20 million of incremental sales proceeds above our original plan due to a strong used equipment market.
Combined with slightly higher than planned dispositions as we have cleaned up the fleet.
And then you factor in roughly $20 million of unanticipated Capex rollover, which will spill into the first part of next year, you arrive and an updated 2021 net capex figure of approximately $65 million with an anticipated range of 21.
1% to $26 million coming in the fourth quarter.
So with that I'll go ahead and hand, the call back over to Jonathan to offer a few final thoughts Jonathan.
Thank you Jason.
You'll turn with me to slide 10, please I'd like to conclude the prepared remarks segment. This call I'll walk you through key components of our value proposition strategy.
One that we expect will provide desking and in turn our investors with opportunities for outsized growth through the foreseeable future.
When we speak about multiple ways to win with.
We would like you all to appreciate that our successes in a binary proposition delivering superior returns across market cycles.
Hence on a single end market business segment.
Our strategic initiatives.
Or is it contingent on a series of events all going the right direction. Instead, we believe there are a number of highly credible highly attainable opportunities that are each capable of driving meaningful incremental value to our shareholders.
But we also believe that this gassy team is well positioned to Capably drive.
High value from all five of these opportunities collectively.
First off our focus on continuous improvement.
As we've demonstrated since our transformation began more than two years ago.
And now delivering on our commitments to the market for seventh consecutive quarter, while consistently posting year over year improvements to our operational kpis our profitability measures.
We've embraced the renewed focus on operating income earnings and free cash flow.
We have successfully demonstrated that this team is capable of executing a thoughtful but disciplined approach to implementing business improvement plans operational integrations and cross platform optimization.
And we are finalizing our playbook to address the next phase of our transformation.
<unk>, we're in critical system upgrades and additional consolidation within our Opco fleet will drive further improved efficiencies.
<unk>, which we intend to begin to share more specifics about early next year.
Secondly, as we mentioned on our last call we have changed our strategic lands from one that focused on trailer centric decisions.
The one that is grounded.
Industrial end market emphasis.
In doing so.
And after evaluating the opportunity in both driving even only modest market share growth in current end markets as well as the prospect of entering new adjacent market verticals.
We believe there are substantial gains to be had.
With this more decisive focus on building market.
Leading positions by end market vertical.
We can know better target, our engagement and Marshal resources and support to these end markets.
With our differentiated scale expertise and asset underpinning all supporting this country's industrial economy, you will the tremendous competitive advantage and we will leverage to drive sustainable organic growth and attractive.
We are facing end markets.
Next lets spend a moment on M&A.
<unk> as a platform.
The North America desk is the largest specialized in flatbed carrier and we are a top 15 truckload carrier.
The thesis for industrial industry consolidation is still found with.
Estimate sizing the flatbed specialized trucking sectors as high as $150 billion.
A substantial subset of the broader transportation logistics industry still remains highly fragmented.
While there are less than 25 companies with more than 1000 trucks.
There are approximately 350 companies with 100 to 1000 trucks.
But a staggering 50000, plus companies with less than 100 trucks in their fleet at 99% of the market.
We have built a team a process in our proprietary pipeline of actionable opportunities.
We will now begin to consolidate with a focus on this 99%.
We will do M&A very differently this time with.
And emphasis on full cycle earnings and free cash flow looking for opportunities to expand our market relevance and select industrial end markets looking for opportunities to complement and supplement our scale and capabilities to better service our customers.
In acquiring targets in a manner much more keeping with the traditional consolidation play while preserving the brands the talent and the.
Culture whenever appropriate.
Next we move to maybe we move over to secular capacity tightness, which we believe will continue into the foreseeable future.
If we look at either side of the supply demand equation.
We believe there are reasons why neither side can practically serve as a catalyst to balancing this equation anytime soon.
We have seen.
<unk> sustained pick up on the demand side, driven by steel building materials and construction.
On the supply side, both the driver shortages as well as the supply chain issues plaguing the Oems provide a natural ceiling, preventing substantial swing capacity from quickly coming online to meet the robust demand.
Even more nuanced is the.
And demand in balance for flatbed and specialized segments, given the specialized nature of the drivers trucks and equipment we rely on.
So it does create challenges we believe the net effect will continue to be a healthy rate environment for the foreseeable future. We're in these rates will at a minimum keep pace with any inflationary variables.
Cost Creek.
And finally in the prospect of a longer term tailwind for the industrial economy. The desk services. The one trillion dollar infrastructure spending bill, which we believe has the potential to continue to serve not only as a backdrop for rates, but also extend the runway of this healthy rate environment for those carriers, such as <unk> and.
The building materials and construction end markets for many years to come.
With that I'd like to conclude our prepared remarks for this morning.
And I'm excited to turn this call over to the operator for your questions Valerie.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchtone telephone to ask a question.
But star then one.
One moment. Please our first question comes from Jason Seidl of Cowen Your line is open.
Thank you operator, gentlemen, good morning.
Wanted to focus a little bit.
On your your rates here in the quarter and look at them from both specialized.
<unk>.
As well as the flatbed rates, obviously strong up year over year, but specialized on a sequential basis at a had a big increase.
In the third quarter here could you walk us through some of the things that kind of pushed that was there a big mix issue.
That really took us from <unk>.
Six.
600, let's call it excuse me $66 seven.
Per tractor and a 73.
Yes so.
Good question, Jason on the specialized side, we'll start there.
We kind of highlighted the year over year tough comp right being the wind energy and I think we all kind of we're anticipating.
That this would be.
Pretty tough to have an improving rate environment.
In the face of that tough comp that was down meaningfully year over year.
And markets that actually did fairly well and were key contributing factors to both the sequential and year over year improvement that we realized in the quarter were really the construction.
And kind of high security cargo munitions business that we do as well as some of the commercial black glass, which all their.
There was there was a lot of end market strength in those spaces that helped drive some of those close rates that kind of help offset the pressure that we saw from the prior year's tough comp.
Okay.
That's great color and then.
Conversely on the flatbed side it looks like it was it was relatively flat sequentially, which was up just a bit here in terms of revenue per tractor was anything holding that back.
Because it felt like the market. The overall truck market was probably up a little bit more sequentially from Q2 to.
For Q3.
Yes, I think when you look at the kind of outpaced improvement that we realized between the first and second quarter as kind of the starting point for four then looking at the second to the third I think that's an important data point to just kind of keep in mind.
There wasn't anything particularly noteworthy.
Early in the flatbed business that detracted from it's just I think we got a little bit more a little earlier and then we're able to sustain that as we moved into the third quarter.
That makes sense and how should we think about these numbers as we go into Q for each division.
For the from a rate perspective or.
Or just for me.
Great perspective, yes, yes.
There is obviously a normal seasonal dip right that happens Q2, and Q3 are are really high demand low.
<unk> capacity availability, which kind of pressures rates favorably.
For those that can support the customers.
<unk>, which we experience here in Q2, three four and one typically you see a seasonal slowdown.
It's a time, where you're retooling equipment, you've got drivers. They are taking time off and so that all plays into it I will tell you.
We're cautiously optimistic based on where we're sitting today I think you're probably reading the tea leaves as well about.
You know the demand hasnt exactly disappeared and the supply is not coming in anytime soon.
So I don't want to give anyone false hopes or Boston impressions that it's going to continue to be as strong through that seasonal slowdown, but we're cautiously optimistic about what trends you might be able to.
See here through Q4 Q1.
That's good to hear that.
I wanted to switch already sort of touched on it a little bit about sort of that lack of pipe capacity coming back in a very hard as you referenced to.
To get new equipment people are running older equipment, what are the Oems of the partners that you work with what are they telling you in.
In terms of the ability to push new equipment out through the system and then when you get the new equipment are you finding that you are doing a lot more not rotable right away and that you are sending them back.
Yes, great question Jonathan.
Yes, Jason.
Jason.
Yeah, we really view certain critical vendors.
Anders and suppliers.
Our strategic relationships and assets, we got we got way in front of this market.
We've had conversations with the Oems as well as equipment really we rely on.
And they've given us they've given us assurances that theyre going to be there for us in 2022.
So we think that the challenges are fairly widespread across the industry in terms of visibility on new trucks, new trailers, but we've had top to top conversations with the Oems and they've given us their assurance that given the importance of <unk> to their to their respective businesses and the value of the relationship across market cycles.
But theyre going to be there for us. So we don't anticipate any meaningful disruptions related to some of the supply chain issues.
Some of our competitors are dealing with.
Okay.
I guess, let me I don't want to hung up all the questions here, Let me just ask one more on the M&A side. You know it was brought up that you're taking a slightly different.
Got it.
What about the approach of what's a good fit in terms of end markets and type of company that youre looking for or has that really changed other than sort of I know you're focused more on free cash flow and stuff like that.
Yeah, No I think you've kind of like Jonathan was alluding to that is going to be a huge part of how we think.
Approach going forward I mean, the old kind of the FTE perspective was hey.
Brian it's about chasing deals and growing the business and what is it that.
That got us to where we are today that we've got really good bones to kind of build off of but now we're kind of refining that a little bit and saying listen.
We want to be strategic in terms of making sure that we're going after kind of defensible niche end market segments, where we can.
For lack of a better term be kind of a price maker not a price taker right. We want to play in spaces, where we can have a meaningful market presence and I think that unique.
Blend of our skill set our capabilities are diversified with MIT portfolio lends itself and then not to mention our professional drivers that can do things that.
Just your standard guide coming out of a CDL school can't do.
I think it really opens itself up to a great opportunity for <unk>.
Further consolidation and our ability to leverage our scale in those end markets. So that is absolutely going to be a key tenant of the strategy as we think about M&A going forward.
Yes, Jason I'll, just add to that I mean look our.
We mentioned this on the last call too I mean, it's really having some some definitions.
The bogus.
Type of opportunities, we're going after instead of being much more kind of broad it agnostic and just trying to drive topline growth. So I think there's two parts to this one is we have.
We truly have some focus.
It's a purpose around our acquisition strategy now the second part of that is really just kind of good old fashioned diligence, what we're trying to.
We're trying to we're trying to communicate to the market.
And get to get in front of us really assuage any concerns that that.
It is the same the same strategy on top line growth above all and really mentioning that we're thinking about full cycle economics, but thinking about.
Accretive accretion dilution analysis with respect to.
Earnings with respect to free cash flow, we're making sure we're not inheriting any any deferred capex and if we are it needs to be reflected in the purchase price we're looking at.
We're looking at end markets customer end markets looking at point of origin, where looking at lane, we're seeing how all of that could help.
Looking at freight basket, so been truly a much more extensive much more.
Holistic look as it really start to piece these companies together and supplement our fleet offering for.
For our customers so.
It's not it's not really it wasn't meant to suggest a shift in what we communicated last quarter Q, but just really emphasizing that this is a much more diligent much more structured approach to that.
Evaluating opportunities.
Well I think this new holistic approach is going to be one that investors are going to embrace. So wish you guys. The best of luck and I appreciate the time as always.
Yeah.
Thank you.
Comes from Ryan.
Craig Hallum. Your line is open.
Good morning, guys. Thanks for taking our questions.
Hey, Ryan.
Hey, Brian.
I'm curious I don't think it was asked are you commented on it but no guidance. Historically you had a precedent of of doing that every quarter I didn't see an update I guess is this the new precedent going forward or can you comment on I guess is the old guidance maintained here.
Yeah.
Okay.
We had kind of a little bit on how long it would take for that question was that so you you want Ryan.
Yeah. So I think from our perspective, there's a lot of moving pieces out there right now we definitely.
I think if you recall last quarter, our guide was dead.
Our first and second quarter results we.
We expected almost kind of a reciprocal for third and fourth quarter.
With the third quarter coming in slightly better than we had expected that's encouraging right.
Don't want anyone to assume that that means that we think therefore, the fourth quarter is going to not be as good.
We're watching it we're cautiously optimistic it's a tough driver market we've talked.
Some of the equipment challenges in terms of deliveries and things like that that could be slight headwinds.
We're cautiously optimistic that if things continue to be tight that we could see.
Similar positive trend on the fourth quarter, but we do want to make sure that people still take into consideration and account for the seasonal.
Talking about the seasonal nature of our business right with the fourth quarter typically looking more like the first quarter and the second quarter and third quarter kind of looking like each other so so no firm guidance at this point, but definitely not implying that we're expecting to underperform, what we've previously communicated.
Helpful and then.
<unk> done going forward once some of these.
Things normalize the plan to go back to guiding or is this kind of a stepping away and the new norm, yes, no no intent to step away.
Our goal is to be very transparent.
And help people understand kind of the plan the vision the direction, we want to go I think as you.
We've been talking a lot about.
Kind of rolling out a more comprehensive three and five year plan.
The form of kind of an investor day that we're kind of targeting.
Early next year to do we'd love to do that in person and get everyone together and kind of walk through that and provide you guys with a lot more transparency.
With visibility.
With regard to what we think the business is capable of achieving.
Typically you'll see us kind of put out a full year guide at the outset of the year and then kind of given an update midway through <unk>.
That's what we've done in years prior to kind of what we're doing now.
No no hidden message is here.
By any stretch the imagination.
Helpful.
One last one and I'll turn it over to the others, you've talked about kind of overarching theme of better leveraging technology and data across the network I know you said Youll sure great.
Greater detail on kind of the go forward opportunity early next year, but any update I guess.
On initiatives, namely thinking the last several months since we last spoke here last had an update so.
<unk> data across the network.
Sure Ryan I'll hit that I mean from it from a technology standpoint, we're definitely going to kind of phase in sequence.
The overhaul of our.
System stack and so so it's really kind of first of all on deck is standardizing our Tms offering <unk>.
Right now we've got 11 outflows that we've got 11 different Tms solutions.
I mean, some of them have the same solution, but much different versions. So we're going to we're going to really harmonize that and we think just by.
Yeah.
We're going to have much better visibility across our offshore fleet.
When everybody is on a standard kind of.
Solutions. So that's the first one.
Sure.
We're doing some integration and back office, so we're going to be rolling out.
And in institutional.
Back office solution.
Doing that conforms with the one that we have at corporate and so we're gonna be we're gonna be doing that which which we think will drive a lot of efficiencies.
And then and then the last one that we're gonna be running kind of contemporaneously with all this is really a stopgap to a much much more kind of holistic.
Overhaul is really.
A data Lake right.
A lot of data that that we arent accessing or using it we are synthesizing it to make better real time decisions, we got very.
Levels of statistics within our within our Opco stable of how people use data.
And so what we're going to do is really drive down our corporate initiatives.
To capture all of that data.
Now, we have an overlay analytics and really start supplying our op codes and different functional areas within those off because with with real time dashboards to make the right decision. So we think that all of those is really a first step.
Kind of a balance for Seth that the organization can kind of withstand and manage its still run the business. We think that's the right steps.
We kind of view those as kind of must have hygiene items. So that's the that's the first leg of the systems system stack overhaul.
Thanks, guys I'll turn it over to dealers.
Thanks Ryan.
Thank you again, ladies and gentlemen.
Please press Star then one.
Next question comes from Bernstein of Stifel.
Your line is open.
Hey, good morning.
Hi.
I guess just following up on that question. How do you think about M&A sort of in the middle of the other integration exercise Youre doing you think that'll be a challenge as you work to integrate the opco and trying to build out a seamless package.
Or is that an opportunity as you sort of.
You are able to integrate the new potential new acquisitions.
You have like an understanding of how to do that if that makes sense.
Yeah. So when we think about the systems the systems upgrades.
We're not we're not doing all of.
Experience at once so we're you know we're very pragmatically sequencing the sense that we don't stress the entire organization all at the same time.
And those are those are that's a very different functional area that will be involved in that process than the than the ones that'll have the heavier lift.
As we.
Kind of diligence evaluate integrate onboard targets.
And and so we think that there are a handful of arcos today that have the wherewithal and the depth.
Within the ranks to two two.
So it's kind of onboard tuck in acquisition targets.
So we're mindful of that and the sequencing of.
Irrespective kind of Ikea initiative list.
And look we have the ability to kind of put some of those targets.
On the bench on the sidelines for now.
This isn't a technology initiatives Arnie.
A single Opco. They arent at 12 month push right there or are there kind of a.
Our multi months pushed you know three or four three or four months. So it's not like we're taking an opco offline for 12 to 15 months and doing a full comprehensive kind of back to front to back ERP implementation. These are very select very targeted.
Points of our system systems back that we're going to we're going to address.
So we think theres going.
There's going to be plenty of bandwidth capability within some of these more robust autos, there's still make tuck in acquisition.
Got it maybe just you know in spirit of playoff season can you can you sort of say where all of the integration exercises are like.
In terms of earnings I mean is this.
Sort of you know middle.
Later innings like when its all of this what is this conversation sort of behind us.
Yes.
I can tell you is broadly what we're calling kind of a transformation.
The transformation opportunity here is.
That function improvement.
And the evolution of the trajectory of the company and I think that.
Okay.
It's a special opportunity for us that I think that the shareholders are going to go to.
We are going to meaningfully benefit from it and I think that rather than piecemeal.
Piecemeal this out over the next year.
Either several months, we're really going to reserve the kind of the Grand unveiling. If you will for for our Investor Day, I think we might have some we might have some updates to share.
It's.
Early in the year, but but what I can tell you is when you think about the broader transformation, which includes integrations. It includes the systems upgrades.
Fluids M&A.
I think you can think about this really is a kind of 15 to 18 months push that will probably commence.
Get it to.
There are a year and so we're you know I think that I think that you know.
Uh huh.
The current Dassie team is kind of a measure twice cut once and so where we are.
We're nearing the end of the second measurement, where we're dotting all the i's crossing all the T and so I think that we're gonna be ready will you internally to start just to start providing.
Providing specific granular messaging.
So the op goes about this and really kind of getting all the shares organized on the deck, but I think that you should think about this is not an overnight. They were going to have all of this benefit in Q1 show up it's really going to be kind of a 15 to 18 month process that we'll kind of quote unquote formally kick off at the very beginning of the.
Yeah, Yeah, and I think just to add to that FERC may be a little bit more color.
When you think about kind of.
[laughter] business improvement initiatives that this company has undertaken over the last over the last 18 to 24 months that was really focused in and around stopping the bleeding.
And building a kind of a stable.
Platform.
So that we can consistently deliver.
Earnings.
And operational efficiencies and improvements, which we feel like we've been able to demonstrate over the last seven consecutive quarters.
And so the last really six months or so has been kind of like alright, now it's time to.
Refine things and start making that look like.
True best in class operating company not just <unk>.
Thats not hemorrhaging right and so there's almost like a secondary phase two and we're calling this the transformation phase.
That we're really going to start youll be able to have conversations with.
And we will be able to give you real time insights across our entire stable, whereas today.
Given the system challenges, it's not as easy and straightforward and we'll be able to really truly leverage things that from a from a global perspective that we haven't been able to do in the past and so it's really kind of taking it to the next level, but what I don't want you to hear.
Here is that that is going to impede our ability to continue to run a good company right.
That is kind of a table stakes that we've all talked about it the team is that we have.
A duty here and our responsibility to continue to deliver for customers take care of drivers and to take care of employees and drive.
<unk> returns for shareholders through this process.
We're going to be flawless and there won't be a little bumps along the way now I mean, thats not what were seeing but what we are saying is that that is a big part of how we're thinking about this and when Jonathan references kind of measure twice cut once so just a little additional color for you.
Yes, no that's great I really appreciate.
The in depth answers there maybe just one more question for me sort of switching gears.
How exposed is your asset portfolio to 85, the regulation in California is that a major concern for you today or do you think that only ended up impacting for the pockets of the trucking market.
Yes, I think people who have really.
We have any.
Dependence and commitments down there that's that's something that there should be concerned about.
When we think about the percentage of our business.
That is domiciled there that operates in and out of there that will be directly affected by that.
Pretty.
Small for us, but that doesn't mean that we're not paying close attention because what happens in one place. It can make its way to other places and so you just got to keep an eye on it and make sure you've got uniformity consistency and can all of your processes and practices to make sure we're protecting everyone.
Great. Thank you so much for the time.
Thanks Kurt.
Thank you. Our next question comes from Greg give us nothing security your line is open.
Good morning, guys. Thanks for taking the questions congrats on the results.
I guess just from a high level general market dynamics heading into 2022.
I know you don't want to get maybe absolute guidance or anything, but how are you thinking about some of those.
High level dynamics on a year over year basis.
And then maybe.
In addition to some of the internal improvement operational improvement dynamics that you have been.
Focusing on as well.
We kind of expect that to benefit financially.
Next year.
Yes, I mean, our goal as we kind of touched on it.
And the last question is really to make sure that we're continuing to move the dial up into the right.
That's the plan and there is nothing that we're going to embark upon that it's going to inhibit our ability to do that this year.
It's been a great year the teams executed very well, we're going to continue to focus on driving improved execution.
And so while we haven't we're not prepared at this juncture to kind of give firm guidance I would tell you that the intent is to improve as we move forward each year.
In that quarter.
Improvement.
Vis vis the prior years.
Quarter.
And Thats kind of how we think about I don't want us to get out over our skis, because we are going to have some some blocking and tackling and some tactical things that we're going to be doing.
That we just need to factor that in that they can be.
Slight headwinds or disruptions to the business, but we don't want them to be so such that they keep us from being able to continue to drive those year over year improvement. So I think as we think about it.
Given the likely supply demand challenges that will continue continue.
To be there in 2022, given everything we've talked about.
We think that the market sets up well for us to be able to undertake these these exercises and continue to provide the right level of service to customers and returns to shareholders as we think about 'twenty two.
Got it very helpful.
We talked about this near the beginning of the pandemic, but wanted to ask if you're seeing any impact from the long backups at many of the ports in the U S.
So to what degree.
Yeah, I mean, it's crazy.
We have a couple of our team members, who live down in that neck of the woods.
Send me a picture yesterday of all the shifts just parked out there.
It's mind boggling to see it.
I think Theres no question that it is having an effect on the overall.
No.
The whole industry and the entire.
Domestic space right. It's a question of.
Is that going to flow through and what's it going to look like when it does.
And what kind of tricky.
Trickle through effect will that have on inventories on consumer spending.
Supply and demand.
Yes.
It's a real issue.
And something that we're all paying close attention to to see how thats going to play.
Lay out.
Got it and one.
Wanted to follow up too on the driver market. It seems like you're managing that pretty well I wanted to ask them.
You talked about kind of having better retention than the market is that.
What are you kind of attribute that to is it premium benefits.
However remain competitive.
Are you thinking about the driver market.
Yes, I mean for US we've talked about this in the past. This is one of the things I love about that to be one of the reasons that I was really attracted to the opportunity to be a part of this team is.
Is what we do is different than kind of where I spent most of my career and that 53 foot vanilla dry van.
Space, where drivers are bouncing around not sure they want to be drivers we've got a very.
Very unique set of customers' equipment and.
And professional drivers that are very technical.
This is their career of choice right, they've gone out and got advanced certifications.
And capabilities to do things that other people can't do.
And so I think there is a little bit more of a stickiness to this business model not to mention the fact that we make sure we take care of our drivers right. We make sure that they that they make up a very solid.
Wage that they can take home to their families.
And I think at the same time.
The diversity of kind of our portfolio lends itself to people, having kind of career path development here at <unk>.
Whether it's from being a company driver to be an NLP.
Owner, operator on training, we hope to be.
In a full blown our operator or if it's getting into diverse different types of.
Freight that they can haul and things that really are interesting to them and so I think there's a lot of things that come into play and I don't want to discount we've talked a lot about further rationalization of the Opco network, but I don't want to discount.
The impact that that our op co teams and the relationships that they have that those drivers have with those different brands and what it means to them to be a part of those companies.
It's very important and it plays a big role in our ability to attract and retain drivers.
And to be able to be nimble when when things change on the frontline.
We're able to react and change you don't have a bunch of people out in the field sitting there waiting for someone at corporate on high to tell them what to do they move and they react and they make sure. They take care of drivers and so I think theres a lot its a long answer.
A short question, but the short but the short answer is there is a lot of different inputs there that all come together to kind of help us.
Provide a great work environment for our driving professionals.
Great Yeah that makes sense.
Last one from me I know you already provided a lot of comments on the M&A strategy appreciate that but.
Answer to your kind of wanted to get a sense of how big of a priority that is I think you said something like 10 actionable opportunities.
You kind of have right now and three are in advanced discussions so pretty safe to assume we would see something in the near term.
Yes, Greg I think Thats, I think thats a safe assumption.
Yes.
You just never know in this market, we've got a lot of water.
Hudson.
And the C. Right now so we hope we hope we're going to buy it.
As we said on the last fall, we actually add nonbinding LOI a couple are in place and they ultimately fell away when we got into diligence we made.
We made the right call Thats helpful.
And said Hey, this doesn't make sense so.
We have a couple that we're working on now.
If everything checks out.
We can agree on terms.
We'll close it if we can't we're going to again, we're gonna be balanced in.
And what kind of walk away and look at something new but.
Paul its a reasonably high priority so I'd be shocked if over the next 12 months.
We don't we don't get at least one or two acquisitions done.
Great sounds good thanks, guys.
Thanks, Greg Thank you.
Thank you I'm showing no further questions at this time I can turn the call back.
Thank you Stefano for any closing remarks.
Thank you Valerie.
Thanks, again to everyone for your time today and look forward to continuing the momentum we generated and we thank you for your commitment and confidence in our company.
Look forward to translating the market opportunities facing yesterday, and the profitable returns and consistent growth for our stakeholders.
Sure.
Thank you, ladies and gentlemen defense conclude today's conference. Thank you all now disconnect.
Great day.
[music].
Yeah.
[music].
[music].
Good morning, everyone and thank you for participating in today's conference call to discuss <unk> financial results for the third quarter ended September 30 of 2021 well.
Well, that's a day, our dogs, who stepped out.
Remember, Jason Bates, EVP, and CFO, and COO, Omnicell, Vice President Treasurer and Investor Relations.
After the prepared remarks, the management team will take your questions.
That's a lot of you may doubt now download a PDF 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.
I turn the call over to John Michel Vice President Treasurer, and Investor Relations, who will read the Companys Safe Harbor statement within the means of the private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward looking statements.
Please go ahead.
Thank you Valerie please turn to slide two for a review of our Safe Harbor and non.
Like statements.
Today's presentation contains forward looking statements within the meaning of the private Securities Litigation Act of 1995 projected financial information, including our guidance outlook are forward looking statements.
Forward looking statements, including those with respect to revenues earnings performance.
GAAP strategies prospects and other aspects.
Desk use business.
Are based on managements current estimates projections and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
I encourage you to read.
<unk> 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 occurring after today.
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 too.
Available in the investors tab of the desk <unk> website, www dot <unk> dot com.
In terms of the structure of our call today, Jonathan will review the highlights of the quarter discuss our flexible business model.
Jason will then walk through our financial review of the quarter.
And then Jonathan will come back to wrap up our mark.
A few closing comments before we open the line for your questions.
I'd like to turn the call over to <unk> CEO Mr. Jonathan.
Okay.
Thank you John good morning, everyone.
Let me begin on slide three.
Well I'll outline a few of the notable takeaways from the third quarter.
That would be delivered another quarter of strong operational and financial performance.
As evidenced by the meaningful improvement to our profitability metrics.
Our operating ratio, which for this third quarter was 95% or 88, 7% on an adjusted basis.
Resilient demand and robust freight volumes across our industrial.
And markets extended the strong freight environment.
Attributing to a 13% improvement revenue with a 19% improvement in adjusted EBITDA, which was driven by execution.
Against our operational initiatives this quarter versus last year's third quarter.
While these industry dynamics remain supportive for our business on a forward looking basis.
Continuing to Opportunistically convert these rates and strong returns for our company and our shareholders remains the priority.
For the third quarter Gassy converted this revenue growth into adjusted EBITDA of $68 3 million.
Modestly bettering, our Q3 2020, adjusted EBITDA margin as opposed to 16%.
<unk> margin this quarter.
Adjusted diluted earnings per share extra Vita at 43, with a 79% improvement compared to last year's third quarter.
It's important to note that these 2023rd quarter comps, where each company records at the time of their print and four quarters. Later, we continue driving this.
<unk> culture of improvement even in the face of industry wide challenges such as truck equipment and driver shortages.
Last point I would like to acknowledge is really one that speaks to our relationships.
They are not expressed any observable in the headline financials strong relationships with our drivers vendors and customers are fundamental to our business.
And investing in those relationships across cycles.
<unk> with a resilient and sustainable business.
It's no secret that the industry is facing some legitimate headwinds.
Supply chain issues of putting the OEM to an ever shrinking driver pool.
And though we believe demand will continue to do its part propping up rates well into next year.
Year as we continue to execute decisively.
Our ability to lean on our long standing relationships will position us to continue to drive strong margins and improved cash flow.
While also ensuring our customers have the capacity they need to properly manage their businesses.
Before turning the call over to Jason to offer more detail around our financial performance for the quarter.
I would like to take a brief moment to speak to an aspect of our operating model that played a critical role in our success this quarter.
Please turn to slide four.
On our last call, we spoke about priority to institutionalize, our company and the fundamental shift of our mindset from one that historically relied on the performance and capabilities of singles.
Siloed operating companies.
The one that emphasizes the collaboration and coordination of our operations to execute as a highly functioning network.
And we provided some high level contours around our mission to rebuild our business to function to function within this network model.
Which will provide additional opportunities to better leverage the scale capabilities.
And footprint of our entire platform to better service our customers.
A key tenet of this approach however is.
The flexibility inherent in our business model, one that we believe will lead to enhanced stability and resiliency and ultimately deliver long term profitable growth.
Across our flatbed specialized business segments the positions in strategic.
Relevance that we maintain within each of our end market verticals, which span the gamut of industrial facing some verticals provider.
Provide us with frequent opportunities to optimize our financial objectives by making targeted real time decisions around asset deployment.
Given that each of these end markets has its own respective cyclical and secular tendencies.
In seeds, we are able to shift the supply of our capacity to most optimally balance the industry specific demand or end market portfolio.
We've talked at length about how diversity across both our end market verticals and our customer base delivers a portfolio effect that moderates volatility.
It allows us to concentrate the deployment of assets.
In areas, where our capabilities are most value additives and thus most attractive from a rate perspective. This is clearly shown in our last several quarterly results.
However, the competitive advantage of our network based operational structure extends beyond simply this portfolio effect and includes other compelling features such as the elasticity of our operating model.
During the third quarter as the market faced an even tougher supply side environment brought about by equipment and driver shortages.
He was able to navigate this challenge by leaning more heavily on our asset light strategies.
These periods of market imbalance offer opportunities to highlight <unk> unique blend of asset based and asset light capabilities in.
And our third party logistics.
Six platform, which functions within our operating model as a shock absorber was critical in delivering on our commitment to service for our customers.
As we saw in Q3 when market capacity was tight.
As we flexed our company assets to the highest and best use.
Relied on our owner operator third party logistics capabilities to backfill our fleet.
Thereby supplementing this incremental capacity that we were able to offer to our customers.
And while this transient shift in mix toward asset light strategies to accommodate this incremental freight demand results in lower incremental margins against those asset light strategies, we believe that supplementing with our asset light offerings enabled us to ensure that we continue to meet the demands.
For valued customers maintain our market position.
Maximize our free capture within our target verticals.
In times when the freight environment is initially tighter and excess rate isn't as prevalent.
We'll shift our mix in favor of asset base, reducing our reliance on asset light brokerage offerings and reallocating more freight to a more profitable one.
Owned assets.
To that end, we will continue we continue to strategically flex our operating model in a way that positions <unk> to.
To deliver outperformance across market cycles.
Opportunistically, taking advantage of dislocations and supply demand imbalances to capture superior returns for our shareholders with that I will now turn the call over to Jason.
Dave to review, our second quarter financial performance Jason.
Thank you Jonathan.
If you'll please turn with me to slide five we will have a high level review of the consolidated results for the third quarter.
This quarter's results once again demonstrate <unk> ability to execute on our strong and improving market backdrop.
In the quarter, we continued to see a sustained uplift in traditional construction related materials.
As well as our steel and high security verticals, which have continued their positive momentum since the beginning of the year.
This strong demand has been a key contributor to the heightened freight rate environment and the industry.
That is to deliver revenues.
And that's a $424 6 million for the quarter.
13% compared to revenues of $375 8 million in last year's third quarter.
As a reminder, we divested davita business in 2020 and.
And we believe the financial details excluding davita are the most relevant and reflective of how our team thinks about.
And manages the business. So we will be focusing on our results excluding the beta on this call.
Over the last couple of quarters. We highlighted there are revenue performance have begun to pull more closely in line with where we would've expected to be absent the COVID-19 pandemic headwinds.
This sentiment has continued through the third.
Third quarter as demand further reflected an improving industrial end market and the verticals that we support.
Our team delivered adjusted net income of $30 1 million or <unk> 43 per diluted share in the quarter.
Adjusted EBITDA, excluding the beta of $68 4 million grew by almost 22% compared.
The third quarter of 2020, which as you may recall was an unusually strong quarter in and of itself.
Most recent record quarterly results were driven largely by the continued positive traction and improved efficiency of our operational execution.
Coupled with growing freight rates and demand in our flatbed segment.
At the combined operating segment level, our consolidated adjusted EBITDA results of $74 7 million were up 12, 5% versus results of $66 4 million in last year's third quarter.
This adjusted EBITDA growth is particularly notable as it exceeded the normalization of what were unusually high margins associated with.
With our a typically strong wind energy project revenues in the year ago period.
I would highlight that while driver recruitment and retention has continued to be a headwind throughout our industry contributing to higher operating costs cited by many we are pleased to report that our driver turnover rates continue to remain significantly below the industry average.
Our driver retention trends highlight the excellent work our team has done and they each of our op codes and attractive work destination for our driving professionals.
Where we are dedicated to getting the miles providing them with market competitive pay and above all focusing on getting them home safely.
This prioritization of our workforce remains a key.
Key area of focus for our company.
And we have implemented targeted pay increases to ensure appropriate compensation for our driving associates in conjunction with the higher freight rates, we have experienced from our customers given the very tight supply and demand imbalance presence in the marketplace today.
Finally, I'd like to highlight the continued progress we have.
Reducing the corporate overhead burden on the operating companies and supported by the 27, 3% reduction in this expense category versus last year's third quarter.
While we did drive reductions in various corporate expense categories. This effort was supported by financial benefits derived from our <unk> fleet services and insurance entities.
Which outperformed expectations in the quarter.
With that I'd like to walk you through a detailed view of our results at the operating segment level.
On slide six we present, our specialized segment results.
Specialized segment revenues were $244 million up nearly 4% versus the prior year driven by strong operational execution.
These offset the lower fleet size and strong industrial demand.
On slide seven we detail our specialized segment adjusting for the divestiture of our beta business as previously discussed.
Our specialized segments adjusted EBITDA came in at $44 1 million, which was down slightly from the prior year's quarter, we saw.
Option that our trend in the adjusted EBITDA margin, which came in at 18, 1% for the quarter.
This was predominantly a function of a shift in mix as we experienced the year over year reduction in our wind energy business, which carried unusually strong volumes and margins in the third quarter of last year due to the supply chain disruptions, creating tough year over.
Similar actions. However in spite of the tough comps I am pleased to report the team was able to improve rates across the specialized segment in the quarter coming in at $3 41.
Which was up three 9% for the segments when compared to $3 28 in the third quarter of 2020.
This broad rate strength manifest.
Your competitor softened various end market verticals, including but not limited to construction high security cargo and commercial flat glass and help offset headwinds associated with the absence of the aforementioned high margin wind energy project revenues from the prior year third quarter.
This is yet another example of the resiliency of our diversity.
Manifest portfolio model, which enables us to flex up and down into different verticals to service the needs of our customers and maximize the return on invested capital for our shareholders.
Our operational work, coupled with fleet right sizing, which was done to drive enhanced efficiency optimization and utilization of our assets has continued.
To benefit the specialized segment as evidenced by the revenue per tractor results of $70 $300 versus $67 500 in last year's third quarter.
We have a hard charging team in the field and are impressed with their ability to continue to execute evidenced by driving yet another sub 90 operating ratio for the segment.
<unk>, which came in at 87, 9% for the quarter and the adjusted operating ratio coming in at $86 nine.
On slide eight we detail our flatbed segment results for the quarter.
We generated flat revenue in the third quarter of $184 million, which increased 27, 3% from $144 5 million in the prior year quarter.
We've been well positioned to capture growing demand across a number of industrial end markets served by our flatbed business, where this favorable demand backdrop combined with our business improvement initiatives and brokerage business has translated into profitable results.
The verticals, where we experienced a surge in demand this past quarter included steel construction.
<unk> well as agriculture.
As noted flatbed demand across the industrial market continues to grow with each coming quarter, which ultimately with a key driver to the robust rate environment, we continue to experience.
In the quarter, we were able to generate a 32, 5% year over year increase in our rate per mile. This improvement was further reflect.
Reflected in revenue of 56000 per tractor metric, which increased from 43000 in the third quarter of last year as our more efficient fleet operations captured those improving market rates.
The segment's adjusted EBITDA results of $30 7 million grew by nearly 62% compared to the results.
As <unk> million in last year's third quarter.
This stronger adjusted EBITDA performance helped US segment secure EBITDA margin growth of 360 basis points expanding to 16, 7%.
Finally, the segment's operating ratio improved 510 basis points to 88 five.
And with the adjusted operating ratio coming in at 87 seven.
Once again, we want to highlight the impressive execution of the team and delivering sub 90 operating ratio results in a challenging operating environment.
Turning to slide nine I'll take a moment to speak about our cash flow performance and provide an update on our capex outlook.
Through the third quarter desk use generated $115 7 million in net cash from operating activities cash Capex was $34 2 million and we collected cash proceeds from the sale of equipment of $47 9 billion.
This resulted in free cash flow generation of $129 $4 million year to date.
Opex finance with debt or.
<unk> believes this is totaled $55 million, bringing our net cash after financing of $74 4 million year to date.
On the right hand side of the slide.
Number nine you see a snapshot of our updated capital outlook for the year as Jonathan mentioned at the outset of the call sourcing new equipment has been a challenge.
<unk> felt industry wide and has resulted in delays in our ability to backfill portions of our fleet as we have sold off older equipment.
This truck shortage dynamic is expected to continue forward into next year and thus our capital spend in relation to new equipment has been muted and will likely be pushed forward into subsequent periods.
Capital if you look at the midpoint of our original 2021 net Capex guide of $105 million and you take into account the roughly $20 million of incremental sales proceeds above our original plan due to our strong used equipment market combined with slightly higher than planned dispositions as we have cleaned up the fleet.
And then you factor in roughly $20 million of unanticipated Capex rollover, which will spill into the first part of next year you arrive at an updated 2021 net capex figure of approximately $65 million with an anticipated range of 21% to $26 million coming in the fourth quarter.
So with that I'll go ahead and hand, the call back over.
Then to offer a few final thoughts Jonathan.
Thank you Jason.
You'll turn with me to slide 10, please I'd like to conclude the prepared remarks segment. This call I'll walk you through key components of our value proposition strategy.
One that we expect will provide <unk> and in turn our investors with opportunities for outsized growth.
To John for the foreseeable future.
When we speak about multiple ways to win.
Thank you all to appreciate that our successes in a binary proposition delivering superior returns across market cycles doesn't simply hinge on a single end market business segment, our strategic initiatives.
Is it contingent on a series of events all going the right direction.
Third we believe there are a number of highly credible highly attainable opportunities that are each capable of driving meaningful incremental value to our shareholders.
But we also believe that this dasti team is well positioned to Capably drive value from all five of these opportunities collectively.
First off our focus on continuously.
Sure.
As we've demonstrated since our transformation began more than two years ago.
And now delivering on our commitments to the market for a seventh consecutive quarter, while consistently posting year over year improvements to our operational kpis our profitability measures.
We've embraced the renewed focus on operating income earnings and free cash flow.
<unk> successfully demonstrated that this team is capable of executing on thoughtful but disciplined approach to implementing business improvement plans operational integrations and cross platform optimization.
And we are finalizing our playbook to address the next phase of our transformation. We're in critical system upgrades and additional consolidation within our Opco fleet will.
The improved efficiencies.
<unk>, which we intend to begin to share more specifics about early next year.
Secondly, as we mentioned on our last call we have changed our strategic wins from one that's focused on trailer centric decisions.
The one that is grounded in the industrial end market emphasis.
In doing so.
Drive factor valuing the opportunity in both driving even only modest market share growth in current end markets as well as the prospect of entering new adjacent market verticals.
We believe there are substantial gains to be had.
With this more decisive focus on building market, leading positions by end market vertical we can know better target our engagement in.
And our resources and support to these end markets.
With our differentiated scale expertise and asset underpinning all supporting this country's industrial economy.
With the tremendous competitive advantage if you will.
Leverage to drive sustainable organic growth and attractive industrial facing end markets.
Next lets spend a moment.
On M&A.
<unk> as a platform.
The North America desk is the largest specialized in flatbed carrier and we are a top 15 truckload carrier.
The thesis for industrial industry consolidation is still sound.
With estimates sizing the flatbed specialized trucking sectors as high as $150 billion.
And Marshall is a substantial subset of the broader transportation logistics industry still remains highly fragmented.
There are less than 25 companies with more than 1000 trucks.
There are approximately 350 companies with 100 to 1000 truck fleets, but a staggering 50000, plus companies with less than 100 trucks in their fleet.
That's 99% of the market.
We have built the team our process and our proprietary pipeline of actionable opportunities.
We will now begin to consolidate with a focus on this 99%.
We will do M&A very differently. This time with an emphasis on full cycle earnings and free cash flow looking for opportunities to expand our market.
All of it's in select industrial end markets.
For opportunities to complement and supplement our scale and capabilities to better service our customers.
And acquiring targets in a manner much more keeping with the traditional consolidation play while preserving the brands the talent and the culture whenever appropriate.
Next we move to.
We move over to secular capacity tightness, which we believe will continue into the foreseeable future.
We look at either side of the supply demand equation.
Believe there are reasons why neither side can practically serve as a catalyst to balancing this equation anytime soon.
We've seen strong sustained pick up on the demand side, driven by steel building materials and construction.
On the supply side, both the driver shortages.
The supply chain issues plaguing, the Oems provide a natural ceiling, preventing substantial swing capacity, so quickly coming online to meet the robust demand.
More nuanced as the supply demand imbalance for flatbed and specialized segments given the specialized nature of the drivers trucks.
<unk> and equipment, we rely on.
So it does create challenges we believe the net effect will continue to be a healthy rate environment for the foreseeable future. We're in these rates will at a minimum keep pace with any inflationary variable cost creep.
And finally, the prospect of a longer term tailwind for the industrial.
Trucks.
<unk> services, the one trillion infrastructure spending bill, which we believe has the potential to continue to serve not only as a backdrop for rates.
Also extend the runway of this healthy rate environment for those carriers such as <unk>.
The building materials and construction end markets for many years to come.
With that I'd like.
We'll conclude our prepared remarks for this morning.
And I am excited to turn this call over the operator for your questions Valerie.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchstone telephone to ask a question. Please press Star then one.
One moment please.
First question comes.
From Jason Seidl of Cowen Your line is open.
Thank you operator, gentlemen, good morning.
Wanted to focus a little bit.
On your your rates here in the quarter and look at them from both specialized.
As well as the flatbed.
Rates, obviously strong up year over.
But specialized on a sequential basis.
And a big increase.
In the third quarter here could you walk us through some of the things that kind of pushed that was there a big mix issue.
And that really took us from <unk>.
600, let's call it excuse me $66 seven.
Protractor at a 70.
73.
Yes. So good question, Jason So yes on the specialized side, we'll start there.
We kind of highlighted the year over year tough comp rate being the wind energy and I think we all kind of we're anticipating that this would be.
Pretty tough to have an improving rate environment.
In the face of that tough comp that was down meaningfully year over year.
The end markets that actually did fairly well and were key contributing factors to both the sequential and year over year improvement that we realized in the quarter were really the construction kind of high security cargo munitions business that we do as well as some of the commercial.
Flat glass, which all there.
There was there was a lot of end market strength in those spaces that helped drive some of those those rates that kind of helped offset the pressure that we saw from the.
Prior year's tough comp.
Okay.
Great color and then.
Conversely on the flatbed side.
It looks like it was it was relatively flat sequentially, which was.
Just up a hair in terms of revenue per tractor was anything holding that back.
Because it felt like the market. The overall trucking market was probably up a little bit more sequentially from Q2 to Q3, yes.
Yes, I think when you look at the kind of outpaced improved.
We realized between the first and second quarter as kind of the starting point for four then looking at the second to the third I think thats, an important data point to just kind of keep in mind.
There wasn't anything, particularly noteworthy in the flatbed business that detracted from it's just I think.
We got a little bit more a little earlier and then we're able to sustain that as we moved into the third quarter.
Okay that makes sense and how should we think about these numbers as we go into <unk> for each division.
For the from a rate perspective or just from it.
Please state rate perspective, yes, I mean, there is there is.
We have normal seasonal dip right that happens Q2, and Q3 are a really high demand.
Capacity availability, which kind of pressures rates favorably.
For those that can support the customers, which we experience here in Q2 or three foreign one typically you see a seasonal slowdown.
It's a time, where you're retooling equipment drivers that are taking time off and so that all plays into it I will tell you.
We're cautiously optimistic based on where we're sitting today I think you're probably reading the tea leaves as well about the.
The demand hasnt exactly disappeared and the supply is not come.
Coming in anytime soon.
So I don't want to give anyone false hopes or false impression that it's going to continue to be as strong through that seasonal slowdown, but we're cautiously optimistic about what trends you might be able to see here through Q4 and Q1.
That's good to hear that.
I wanted.
The switch already sort of touched on it a little bit about sort of that lack of power capacity coming back.
Hard as you referenced to get new equipment people are running older equipment. What are the Oems of the partners that you work with what are they telling you in terms of the ability to push new equipment out to the system and then when you get the new equipment.
Are you finding that you are doing a lot more not rotable right away and that you are sending them back.
Yes, great question Jonathan.
Yes, yes, I mean look Jason.
We really view certain critical vendors and suppliers.
Yes.
Our strategic relationships and as such we got.
We got way in front of this market.
And we've had conversations with the Oems.
There is equipment really we rely on.
And they've given us they've given us assurances that theyre going to be there for us in 2022. So we think that the challenges are fairly widespread across the industry in terms of visibility on.
On new trucks, new trailers, but we've had top to top conversations with the Oems and they've given us their assurance that given the importance of desk you to their to their respective businesses and the value of the relationship across market cycles.
But theyre going to be there for us so we don't anticipate any meaningful disruptions related.
Added to some of the supply chain issues.
All of our competitors are dealing with.
Okay.
Yes, let me I don't want to hung up all the questions here, Let me just ask one more on the M&A side. It was brought up that.
Taking a slightly different approach on it.
About the approach of what's a good fit in terms of end market.
Markets and type of company that terms or has that really changed other than sort of now your focus more on free cash flow and stuff like that.
Yeah, No I think you've kind of like Jonathan was alluding to that is going to be a huge part of how we think about this going forward I mean, the old kind of desk perspective was hey.
It's.
So Barbara Ryan, it's about chasing deals and growing the business in and listen.
That got us to where we are today that we've got really good bones to kind of build off of but now we're kind of refining that a little bit and saying listen we want to be strategic in terms of making sure that we're going after kind of defensible niche.
Niche end market segments, where we can.
For lack of a better term be kind of a price maker not a price taker right. We want to play in spaces, where we can have a meaningful market presence and I think the unique.
Land.
Our skill set our capabilities are diversified.
With mid portfolio.
Leo lends itself and then not to mention our professional drivers that can do things that.
Just your standard guide coming out of a CDL school can do.
I think it really opens itself up to a great opportunity for further consolidation.
Our ability to leverage our scale in those end markets.
So that is absolutely going to be a key tenant of our strategy as we think about M&A going forward.
Yes, Jason I would just add to that I mean look our.
We mentioned this on the last call too I mean, it's really having some some definitions of focus.
So the type of opportunities, we're going after instead of being much more kind of broad.
<unk>.
They can just trying to drive topline growth. So I think there's two parts of this one as we have with.
We truly have some focus.
It's a purpose around our acquisition strategy now the second part of that is really just kind of good old fashion diligence, what we're trying to.
We're trying to communicate to the market.
And get and get in front of us really its way.
Wagering and concerns that that that this is the same. This is the same strategy on top line growth above all.
And really mentioning that we're thinking about full cycle economics and thinking about.
Accretive accretion dilution analysis with respect to earnings with respect to free cash flow, we're making sure we're not inheriting any any deferred capex and if we are.
It needs to be reflected in the purchase price we're looking at.
We're looking at end markets customer markets looking at point of origin, where looking at lane, we're seeing how all of that could help.
We're looking at freight basket still being truly a much more extensive much more holistic look as it really starts to pes piece. These companies together and supplement our fleet offering.
Customers so.
It's not it's not really it wasn't meant to suggest a shift in what we communicated last quarter or two but just really emphasizing that this is a much more diligent much more structured approach to evaluating opportunities.
I think this new holistic approach is going to be one that investors are going to embrace so when she goes.
Best of luck and I appreciate the time as always.
Thanks, Jason.
Thank you. Our next question comes from Ryan <unk> of Craig Hallum. Your line is open.
Good morning, guys. Thanks for taking our questions.
Hey, Ryan.
Right.
I'm curious I don't think it was asked are you commented on it but.
But no guidance historically, you had a precedent of of doing that every quarter I didn't see an update I guess is this the new precedent going forward or can you comment on I guess, it's the old guidance maintained here.
Yeah.
We had kind of a little bit on how long it would take for that question was that so you you want Brian.
Yeah. So I think from our perspective, there's a lot of moving pieces out there right now.
Currently.
I think if you recall last quarter, our guide was dead.
Our first and second quarter results, we expected almost kind of a reciprocal for third and fourth quarter.
With the third quarter coming in slightly.
Better than than we had expected that's encouraging right I don't want anyone to assume that that means that we think therefore, the fourth quarter is going to not be as good. So we're watching it we're cautiously optimistic it's a tough driver market. We've talked about some of the equipment challenges in terms of deliveries and things like that that could be slight headwinds.
We're cautiously optimistic that if things continue to be tight that we could see.
A similar positive trend on the fourth quarter, but we do want to make sure that people still take into consideration and account for the seasonal component as the seasonal nature of our business right with the fourth quarter typically looking more like the first quarter and.
Quarter, and third quarter kind of looking like each other so so no firm guidance at this point, but definitely not implying that we're expecting to underperform, what we've previously communicated.
Helpful and then any comment on going forward once some of these.
Things normalized.
Our plan to go back to guiding or is this kind of a stepping away and and the new norm, Yes, no no intent to step away our goal is to be very transparent.
And help people understand kind of the plan division the direction, we want to go I think as you guys know we've been talking a lot about.
Kind of rolling out a more comprehensive.
Hence a three and five year plan.
In the form of kind of an investor day that we're kind of targeting early next year to do we'd love to do that in person and get everyone together and kind of walk through that and provide you guys with a lot more transparency and visibility.
With regard to what we think the business is capable of achieving.
But typically you will see us kind of put out a full year guide at the outset of the year and then kind of given an update midway through.
That's what we've done in years prior to kind of what we're doing now.
No no hidden messages here by any stretch the imagination.
Helpful.
One last one I'll turn.
Turn it over to the others.
Talked about kind of overarching theme of better leveraging technology and data across the network I know you said youll share.
Greater detail on kind of the go forward opportunity early next year, but any update I guess on initiatives and namely thinking the last several months since we last spoke here.
Last night, an update so.
Technology data across the network yes.
Yes, sure Ryan I'll hit that.
Technology standpoint, we're definitely going to kind of phase in sequence.
The overhaul of our system stack.
So it's a really kind of first of all on deck.
Standard.
Standardizing our Tms offering.
Right now we've got 11 outflows, we've got 11 different Tms solutions.
And I mean, some of them have the same solution, but much different versions. So we're going to we're going to really harmonize that and we think just by doing that.
We're going to have much better visibility across our offshore fleet.
Everybody.
He is on a bonus.
Standard Tms solution. So that's the first one.
We're we're doing some integration and back office, so we're going to be rolling out.
And in institutional.
ERP back office solution that conforms with the one that we have at corporate and so we're going to be we're going to be doing that which.
Which we think will drive a lot of efficiencies.
And then and then the last one that we're gonna be running kind of contemporaneously with all of this is really a stopgap to a much much more kind of holistic overhaul is really.
Right now we have a lot of data that that we arent accessing or using it we are synthesizing it.
Better real time decisions, we've got very low.
Levels of sophistication within our within our Opco stable of how people use data.
And so what we're gonna do is really drive down our corporate initiatives.
To capture all of that data really overlay analytics and really start supplying our <unk> and.
Different functional areas within those op cos.
Real time dashboards to make the right decision. So we think that all of those is really our first step.
Our balance for Seth that the organization can kind of withstand and manage its still run their business. We think thats. The right steps. So we kind of view those as kind of must have hygiene items. So that's the that's the first leg of the systems system.
Some stack overhaul.
Thanks, guys I'll turn it over to the others.
Thanks Ryan.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one our next question comes from Bernstein of Stifel. Your line is okay.
Hey, good morning.
Good morning.
I guess just following up on that question. How do you think about M&A sort of in the middle of the other integration exercise Youre doing.
I think that'll be a challenge as you work to integrate the App goes and try to build out a seamless tech experience or is that an opportunity as you sort of hit your <unk>.
To integrate the new.
Potential new acquisitions.
You have like an understanding of how to do that if that makes sense.
Yeah.
So when we think about the systems the systems upgrades.
We're not we're not doing all of it at once so we're you know we're very pragmatically sequencing the sense of we don't stress the entire.
Tire organization, while at the same time.
And those are those are that's a very different functional area.
That will be involved in that process than then.
And then the ones that'll have the heavier lift.
As we kind of diligence evaluate integrated onboard targets.
And so we think that there.
There are a handful of arcos today that have kind of the wherewithal and the depth.
Within the ranks to two two.
Kind of onboard tuck in acquisition targets.
So we're mindful of that and the sequencing of their respective kind of Ikea initiative lifts and look we have the ability to kind of put some of those targets.
So on the on the bench on the Siloed for now, but this isn't a technology initiatives RNA.
For a single Opco. They arent at 12 months push right there or are there kind of a.
Our multi months pushed three for three or four months. So it's not like we're taking an opco offline for 12 to 15 months and.
Before comprehensive kind of backed off on front to back.
Implementation. These are very select very targeted points.
Points of our system systems back that were going on that we're going to address and so we think theres going to be there's going to be plenty of bandwidth capability within some of these more robust autos, there's still may tuck in acquisition.
And doing it got it maybe just you know in spirit of playoff season can you can you sort of say where all of the integration exercises are like in terms of earnings I mean is this sort of you know middle innings later innings like when its all of this what is this conversation sort of behind us.
Yeah look I, what I can tell.
Tell us broadly, what we're calling kind of the transformation.
The transformation opportunity here is it is a step function improvement.
And the evolution of trajectory of the company and I think that.
Look it's a it's a special opportunity for us that I think that the shareholders are going to go to.
We're going to meaningfully benefit from and I think that rather than.
Piecemeal this out over the next year.
Either several months, we're really going to reserve the kind of the Grand unveiling. If you will for for our Investor Day, I think we might have some we might have some updates to share.
Early in the year, but what I can tell you is when you think about the broader transformation, which includes integrations.
It includes the systems upgrades.
It includes M&A.
You could think about this really is a kind of 15 to 18 months push that will probably commence.
Right at the beginning of the year and so we're you know I think that I think that you know.
The current Dassie team is kind of a.
Measure twice cut once and so we're we're nearing the end of that second measurement.
Dotting all the ice functionality and so I think that we're gonna be ready will you internally to start just to start providing specific granular messaging to the op goes about this and really kind of getting all of the shares organized on the deck, but I.
And I should think about this is not an overnight they were going to have all this benefit in Q1 show up it's really going to be kind of a 15 to 18 month process that we'll kind of quote unquote formally kick off at the very beginning of the year.
And I think just to add to that FERC, maybe a little bit more color.
When you think about kind of.
The business improvement initiatives that this company has undertaken over the last over the last 18 to 24 months that was really focused in and around stopping the bleeding and building kind of a stable platform.
So that we can consistently deliver.
Earnings and operational efficiencies and.
Improvements.
We feel like we've been able to demonstrate over the last seven consecutive quarters.
And so the last really six months or so has been kind of like alright, now it is time to refine things and start making that look like.
A true best in class operating company not just our COO.
Company does not hemorrhage.
And so there's almost like a secondary phase two and we're calling this the transformation.
Yes.
That we're really going to start youll be able to have conversations with us and we will be able to give you real time insights across our entire stable, whereas today.
Given the system.
Because it's not as easy and straightforward and we will be able to really truly leverage things that from a from a global perspective that we haven't been able to do in the past and so it's really kind of taking it to the next level, but what I don't want you to hear is that that is going to impede our ability to continue to run a good company right.
That is kind of a.
Challenge that we've all talked about it the team is that we have.
A duty here and our responsibility to continue to deliver for customers take care of drivers and to take care of employees and drive returns for shareholders through this process does that mean, we're going to be flawless and there won't be a little bumps along the way now I mean, that's not what we're seeing.
A table, but what we are saying is that that is a big part of how we're thinking about this when Jonathan referenced is kind of a measure twice cut once so just a little additional color for you.
Yes, no that's great I really appreciate the in depth answers there maybe just one more question for me sort of switching gears.
How exposed is your asset portfolio to 85.
Seeing the regulation in California is that a major concern for you today or do you think that only ended up impacting sort of pockets of the trucking market.
Yes, I think people who have really heavy.
Dependence and commitments down there that's that's something that there should be concerned.
Bye.
When we think about the percentage of our business that.
The domiciled there that operates in and out of there that will be directly affected by that.
Pretty small for us, but that doesn't mean that we're not paying close attention because what happens in one place can make its way to other places.
Concern. So you just got to keep an eye on it and make sure you've got uniformity consistency and can all of your processes and practices to make sure we're protecting everyone.
Great. Thank you so much was done.
Thanks Kurt.
Thank you. Our next question comes from Greg Gibas Northland Securities. Your line is open.
Good morning, guys. Thanks for taking the questions congrats on the results.
Thanks.
From a high level general market dynamics heading into 2022.
No you don't want to get maybe absolute guidance or anything, but how are you thinking about some of those.
High level dynamics on a year over year basis.
Then maybe.
Sure.
In addition to some of the internal improvement operational improvement dynamics that you've been CFO.
<unk> on as well how would we kind of expect that the benefit financials next year.
Yes, I mean, our goal as we kind of touched on it in.
And the last question is really to make sure that we're continuing to move the.
Be well up into the right.
That's the plan and there is nothing that we're going to embark upon that it's going to inhibit our ability to do that this year.
It has been a great year the teams executed very well, we're going to continue to focus on driving that improved execution.
And.
The dial with while we haven't we're not prepared at this juncture to kind of give firm guidance I would tell you that the intent is to improve as we move forward each year in that.
Quarter to kind of drive improvement.
Vis vis the prior years similar quarter.
And that's kind of how we think about it I don't want us to get out over our skis.
And so because we are going to have some some blocking and tackling and some tactical things that we're going to be doing.
We just need to factor that in that they can be.
Slight headwinds or disruptions to the business, but we don't want them to be so such that they keep.
Being able to continue to drive those year over year improvement. So I think as we think about it.
Given the likely supply demand challenges that will continue to be there in 2022, given everything we've talked about.
We think that the market sets up well for us to be able to undertake these these exercise.
US from basis and continue to provide the right level of service to customers and returns to shareholders as we think about 'twenty two.
Got it very helpful.
We talked about this near the beginning of the pandemic, but wanted to ask if you're seeing any impact from the long backups at many of the ports in.
Exercise.
So to what degree.
Yeah, I mean, it's crazy.
We have a couple of our team members, who live down in that neck of the woods <unk> one of them sent me a picture yesterday of all the shifts just parked out there.
It's mind boggling to see it.
I think there is.
In the U S than it is having an effect on the overall.
The whole industry and the entire.
Domestic space right. It's a question of how is that going to flow through and what's it going to look like when it does.
And what kind of <unk>.
Trickle through effect will that have on inventories on consumer spending.
No question.
Supply and demand.
But yes it is.
It's a real issue.
And something that we're all paying close attention to to see how that's going to play out.
Got it and.
I wanted to follow up too on the driver market seems like you're managing that pretty well.
I wanted to ask it.
You talked about kind of having better retention than the market is that.
What are you kind of attribute that to is it premium benefits to remain competitive.
How are you thinking about the driver market.
Yes, I mean for US we've talked about this in.
In the past, it's one of the things I love about that.
The reasons that I was really attracted to the opportunity to be a part of this team is is what we do is different than kind of where I spent most of my career and that 53 foot vanilla dry van space, where drivers are bouncing around not sure. They want to be drivers we've got a very.
<unk> unique set of customers.
Equipment and.
And professional drivers that are very technical.
This is their career of choice right, they've gone out and got advanced certifications and capabilities to do things that other people can't do.
And so I think there is a little bit more of a stickiness to this business model.
I mean, not not to mention the fact that we make sure we take care of our drivers right. We make sure that they that they make up a very solid.
Wage that they can take home to their families and I think at the same time.
The diversity of kind of our portfolio lends itself to people having kind of career.
Path development here at <unk>.
Whether it's from being a company driver to be an NLP.
Owner, operator on training, we hope to be in a full blown our operator or if it's getting into diverse different types of.
Freight that they can haul and things that really.
Really are interesting to them and so I think there's a lot of things that come into play and I don't want to discount we've talked a lot about further rationalization of the Opco network, but I don't want to discount the impact that that our op co teams and the relationships that they have that those drivers have with those different brands and.
And what it means to them to be a part of those companies that's very important and it plays a big role in our ability to attract and retain drivers and to be able to be nimble.
And when things change on the frontline, we are able to react and change you.
You don't have a bunch of people out in the field sitting there waiting for someone at corporate on high to tell them what to do they move and they react and they make sure. They take care of drivers and so I think theres a lot. Its a long answer to a short question, but the short but the short answer is there is a lot of different inputs there that all come together to kind of help us.
Provide a great.
Work environment for our driving professionals.
Great Yeah that makes sense.
Last one from me and I know you already provided a lot of comments on the M&A strategy I appreciate that.
Just kind of wanted to get a sense of how big of a priority that is I think you said something like 10 actionable opportunities.
You kind of have right now in three.
In advanced discussions so pretty safe to assume we would see something in the near term.
Yeah, Greg I think I think that's I think that's a safe assumption I mean, yes, you just you just never know what this market. We've got a lot of lot of Hudson.
Hudson.
See right now so we hope we hope we're going to buy them at least as.
As we said on the last fall, we actually had nine nonbinding LOI is a couple of them in place and they ultimately fell away when we got into diligence.
We made the right call the tough fall and said Hey, this doesn't make sense. So.
We have a couple that we're working on now and if everything checks out.
We can agree on terms.
Close it if we can't we'll get again, we're gonna be balanced in.
And what kind of will walk away and look at something new but.
It's a reasonably high priority so I'd be shocked if over the next 12 months.
We don't we don't get at least one or two acquisitions done.
Great sounds good thanks, guys.
Thanks, Greg Thank you.
Thank you I'm showing no further questions at this time I can turn the call back over to Jonathan Cohen for any closing remarks.
Thank you Valerie thank.
Thanks, again to everyone for your time today and look forward to continuing the momentum we generated and we thank you for your commitment.
In our company.
We look forward to translating the market opportunities facing us today in a profitable returns and consistent growth for our stakeholders.
Take care.
Thank you ladies and gentlemen. This concludes today's conference. Thank you all participating now disconnect have a great day.