Q2 2023 Daseke Inc Earnings Call
Good morning, everyone and thank you for joining today's conference call to discuss <unk> financial and operational results for the quarter ended June 30th 2023.
With us today are Jonathan <unk>, Chief Executive Officer and Board member.
Aaron Coli executive Vice President and Chief Financial Officer, and Adrian Griffin, Vice President President of Investor Relations and Treasurer.
I'd like to now turn the call over to Adrianne Griffin Adrian. Please go ahead.
Thank you Steven as indicated in the press release issued earlier today participants may now download the second quarter 2023 presentation that will accompany their remarks made on today's call. You may access. This presentation on <unk> website, www dot dot dot com and then the events and presentation.
Portion within the Investor Relations section.
Two of today's presentation contains our safe Harbor and non-GAAP statements.
Today's presentation also contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Projected financial information, including our guidance outlook are forward looking statements forward looking statements, including those with respect to revenues earnings performance strategies prospects and other aspects of <unk> business are based on managements current estimates projections and assumptions that are subject to risks and uncertainties that could cause.
Cause actual results to differ materially from our expectations and projections.
Encourage you to read our filings with the Securities and Exchange Commission for a discussion of the risks that can affect our business and not to place any undue reliance on any forward looking statements. We undertake no obligation to revise our forward looking statements to reflect events or circumstances occurring today, whether as a result of new information future events.
Or otherwise, except as may be required by applicable securities laws. During the call. There will also be a discussion of some items that do not conform to U S. Generally accepted accounting principles or GAAP, including and not limited to adjusted EBITDA adjusted EBITDA margin adjusted operating ratio adjusted operating income adjusted net income or loss and free cash.
Flow reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix of the Investor presentation and press release issued this morning in terms of the structure of our call today I will first turn the call over to Jonathan <unk>, who will review our business operations and the progress we are making as we execute our key strategic priorities.
Eric <unk> will then provide an update on our second quarter results, Jonathan will conclude our prepared remarks with an updated 2023 outlook before we open the line for your questions with that I'll turn the call over to Jonathan Jonathan.
Good morning, everyone and thank you for joining our call today.
Since the second quarter of 2022, when we delivered our companys highest ever quarterly adjusted EBITDA.
Our industry has faced multiple consecutive quarters of challenges in both the freight rate side of the ledger as well as the cost side.
While many agree that the bottom is here our industry continues its optimism and supportive of forthcoming inflection.
And we remain watchful for consistent key data points to cyclically inflection is eminent.
Whether such recovery ultimately occurs in the back half of this year or at some later point our team as approach the current environment as an opportunity to reinvent and repositioned <unk>.
Given our solid Q2 2023 performance.
As a small cap public company with a business model and end market exposure truly unmatched by any of our publicly traded peers.
We ended company that has successfully executing a fundamental rebuilding and continuing repositioning of our organization we.
We believe it's misplaced to discretely evaluate our performance and our progress on a quarter by quarter basis, particularly when comparative periods, including the include the record breaking industry cycle peak of 2022 versus the current cycle trough.
As such today in addition to providing more context around the second quarter's performance.
I would like to provide a recap of our profile progress to date and our momentum as we approach. The next up cycle to that after Aric provides us quarterly financial update I will offer a summary of our transformation progress spend some time on capital allocation and close with the comparison of our performance in the current environment to that of legacy <unk> performance in the pre Covid freight recession.
2019.
This comparison illustrates the significant improvement affected over the last few years and the resulting strength of an organization on better footing for tomorrow.
Before moving forward, though I would like to take a moment to thank the entire <unk> team across North America, who continues to prioritize our legacy of strong employer relationships, including those with our committed drivers their contributions toward our company's success as well as the success of our customers are critical throughout this difficult and important time.
With that ill.
I'll now turn the call over to Erik for an update on our financials.
Thank you Jonathan and good morning, everyone as illustrated on slide six during the second quarter, we continued to strengthen our balance sheet as we made a discretionary payment with cash on hand to reduce our term loan debt balance by $50 million, which reduced our interest expense. In addition, we also used $20 million of cash on hand to redeem the Intel.
Class a series B, one preferred shares that were receiving a 13% cash dividend, thus, eliminating $2 6 million of annual dividend payments.
These actions improve free cash flow performance for the remainder of the year and beyond.
At the end of the second quarter, we maintained a very healthy level of available liquidity at $198 million, including a cash balance of $94 million and $104 million available under our undrawn revolving credit facility, we continue to evaluate opportunities for additional repayments to reduce gross debt further in.
Proving the risk adjusted return for current and prospective shareholders.
Turning to slide seven I would like to review, our second quarter financial performance, notably.
Notably our more typical seasonal second quarter uplift was largely absent this year and thats. The second quarter consolidated revenue of $407 million was 15% lower than the same quarter last year. However, the intentional shift to low to higher margin company owned assets and improved utilization of our <unk>.
Tire company owned fleet allowed us to capture additional $3 million of company freight revenue with better margin pull through and partially offsetting lower owner, operator, and brokerage revenue demand strength in agriculture, and mining end markets was more than offset by a decrease in construction end market due to <unk>.
Similarly to the underperformance at our northwest Flatbed operations and in response to this lower than expected financial performance. During the second quarter, we reorganized an underperforming operating company Intuit. Other operating segment. This type of decisive action is foundational to one desk.
A series of strategic transformational in this ships, which Jonathan will expound on it in his closing remarks.
Okay.
Despite the challenging freight environment the company reported a 92% adjusted <unk> in the current period and while lower than the prior year period was 100 basis points better than on a sequential basis second quarter compared to first quarter.
On a sequential basis the rate per mile increased 2% revenue per tractor increased 5% net revenue increased 4% and adjusted EBITDA margin increased 110 basis points Nathan indicators of stabilization in the freight market.
Finally, we generated cash flow from operations of $28 million, an impressive 23% increase over the prior year quarter, while cash flow from investing activities, which reflects net purchases and sales of revenue generating equipment consumed $2 million.
We continue to primarily fund new equipment purchases through equipment financing, which reduces our weighted average cost of capital. Similarly for the six months ended June 32023, we generated $58 million 9 million in cash flow from operations, which was $7 million better than the prior year period. These results.
<unk> compare favorable Lee against the peak cycle in the year ago period and show the strong cash flow generation capability of the business even in down portions of the cycle.
Turning now to slide eight our specialized solutions segment reported revenue of $239 4 million, a 10% decline versus the prior year, while revenue grew net of fuel surcharge declined by only 6%.
Specialized solutions segment recorded a nearly 5% increase in miles offset by a 6% decline in rate per mile. Notably we have continued to capture rates in our specialized solutions segment that are a significant premium to the flatbed market.
As compared to the prior year quarter, our team continued to prioritize loading high margin company owned assets, resulting in nearly flat company freight revenue while asset light revenue in this segment declined demand strength in agriculture, and energy end markets was more than offset by lower construction and high security cargo revenue.
Versus a stronger year ago period, which included the first full quarter of a high security focused acquisition.
Adjusted <unk> was 94% in the current year quarter and 88%.
Cycle peak of the second quarter of last year.
Current quarter, 90% or is very favorable in light of the freight environment adjusted EBITDA and adjusted EBITDA margin was $33 4 million or 15, 4% respectively. Despite the difference in the market conditions from a year ago. We are encouraged by the specialized increasing both rate per mile and revenue.
For tractor on a sequential basis.
Now turning to slide nine.
During the second quarter of 2023 flatbed solution segment rates remained 13% lower than the second quarter of 2022. Despite the rate declined flatbed solutions continued its pursuit of operational excellence and increased total miles driven by 5% and average length of haul by 7% improved Deb had.
By half a percent and added 4% more trucks to the fleet all while maintaining nearly flat unseated trucks the.
The team was once again able to increase company freight by more than 10%, while brokerage revenue declined by more than 50% versus the prior year period. The net result of these dynamics with segment revenue of $168 million, which was $47 million lower than the prior year quarter, primarily due to $25 million.
<unk> and brokerage adjusted EBITDA and adjusted EBITDA margin was $19 1 million and 13, 1% respectively.
Within the industrial end markets that we serve strengthen manufacturing end markets was more than offset by declines in steel and construction end markets most notably in the specific northwest. These results demonstrate the success of our asset right operating model and we will continue to focus on productivity I'll now I'll turn the call.
Back to Jonathan for an update on our 2023 outlook Jonathan Thank you Erinn.
Before I share our perspective on freight conditions and the outlook for the rest of the year I want to provide more insight and <unk>, our ongoing transformation, which is defining and expanding the business strategies that will guide us throughout many economic cycles to come.
We have begun laying the groundwork to meaningfully shift to high low watermarks of our financial performance delivering a higher baseline while navigating this trough and more peak cycle upside regardless of when the market terms.
Looking now on slide 13 <unk>.
<unk> comprises three distinct and complementary phases integration finance and optimization.
With a timeline that includes our achievements to date.
And our goals to reach a target adjusted EBITDA run rate of $30 million as we exit 2024.
Advancing the first two phases in tandem we intend to finish the integration.
Integration phase, bringing together many of the das the operating companies consolidating teams and operations and setting a structure for future success by the end of 2024.
Along the way, we will work towards specific objectives key among them operating ratio, where our target will remain 90%.
This is our magnetic north as we follow our transformation roadmap and I was very pleased to see our specialized solutions segment already around this mark through the cycle trough.
Drilling into the finance phase on slide 14, we present, the virtuous cycle of efficiently deploying our strong cash flow to lower our weighted average cost of capital by allowing burdensome revenue equipment leases to expire at maturity and reducing our term loan b balance to deliver additional earnings per share.
These actions will generate a flywheel effect on free cash flow and will be supplemented with accretive M&A that targets industrial end markets and specialized service offerings.
And incremental growth in the next up cycle.
With balance sheet strength is a top priority our capital structure already looks remarkably better than it did in the last cycle with lower gross leverage higher liquidity lower share count and hence lower risk.
The finance phase of <unk> will future, which will further enhance our capital and balance sheet profiles, while also giving shareholders more ownership of our growing earnings.
On these next two slides I would like to tack back to my opening comment proposing <unk> trading performance to be used to evaluate the attractiveness of our value proposition rather than a quarter by quarter view, particularly at this point in the cycle.
On slide 15, I'd like to walk through an interesting case study comparing desk. These current performance and this freight recession to the last freight recession, our industry experienced just before Covid and 2019.
Industry data suggests this current downturn exhibit similar contours to that to that of the prior cycles trough. So I would say our current recessionary environment is more pronounced in the cost inflation has made things even more challenging.
If you look at 2019 <unk> split of approximately 5700 trucks generated $1 7 billion in revenue with an adjusted EBITDA margin of 11% and adjusted or of 96% comparatively in the first half of 2023, we.
We operate a smaller fleet with 4863 trucks.
And delivered enhanced profitability with a 14% adjusted EBITDA margin and adjusted operating ratio of 93%.
So what you see today, just 48 months <unk> as a company with a more effective operating model.
An improved margin profile and a stronger balance sheet, all of which we have channel to create a step change in the expected low watermark adjusted EBITDA the.
The trough to trough adjusted EBITDA of our company, if you will from $156 million to something in the low two hundreds dramatic improvement to date with even more to come for our investors.
On slide 16, we demonstrate the last trough to peak cycle.
Beginning with the last freight recession in 2019, which comp to on the last slide.
While there will always be different catalysts to play to ignite a recovery in 2020. It was COVID-19 related stimulus during the three year recovery that is 2000 22021, and 2022, we generated approximately $170 million of accumulative incremental adjusted EBITDA.
Ultimately generating a high watermark of $235 million in the 2022 cycle peak.
With the three phases of our one to ask you transformation, including integration and finance phases, followed by optimization at.
At the peak of this impending cycle, we would ultimately expect to largely clips not only the cumulative incremental adjusted EBITDA generated during the last up cycle.
But dramatically shift the high water performance Mark of our business beyond our record setting 2022 adjusted EBITDA print.
In addition to the 2019 versus 2023 case study, a review, which compared the resiliency of our continuously improving organization in a recessionary environment to that <unk> only a few years ago I would also like to spend just a moment on our Q2 operating ratios with all the talk this quarter about tough comps or freight recession, it's easy to lose focus.
But our entire team is encouraged when we look at the absolute performance of <unk>, specifically referencing our second quarter adjusted operating ratio, excluding fuel charge of 92, 3%.
As an investor interest in the transportation space, if you compare our adjusted operating ratio to that of our peer group for this quarter were right in the middle of the pack relying on our asset right and end market focused strategies to perform well even in this environment.
Yet we trade at a material discount to these same peers our model is working.
Our specialized segments, which comprises 55% to 60% of our company has achieved our stated cross cycle target of 90%.
Within our flatbed segment, we've seen a surprising level of resiliency in this challenged environment with our southeast flatbed companies performing in the low nineties or while integration noise and trouble building materials and lumber markets plagued our smaller northwest fleet and contributed to the softer $95, one adjusted or print for the overall flatbed segment.
In this quarter.
Before we open to questions I'd like to close our prepared remarks with an update on our 223 guidance today to ask you is updated outlook now assumes no improvement in current freight market conditions in the second half of the year the supply demand relationship remains imbalance with demand elusive and carriers exiting the industry at a much more sluggish pace when they entered the market.
In 2021 and 2022.
That said, we anticipate the second half 2023, adjusted EBITDA will be within a range between 100% and 110% of that of first half 2023, which would imply full year 2023, adjusted EBITDA of $200 million to $210 million.
And while we've had puts and takes across various end markets and operating assumptions that have impacted our projections. This revision is primarily linked to a shift in the resurgence of wind demand back from the back half of 2023 to now 2024 and continued degradation in the building materials complex in the Pacific Northwest.
Withstanding win in northwest flatbed.
Absent a wave of economic uncertainty like we saw at the end of last year, we expect load availability for the coming months to otherwise remain reasonably stable until giving way to a more typical gradual decline in the fourth quarter.
I'll also note that our capital expenditure outlook for the full year 2023 is unchanged at a $135 million to $145 million given planned organic investments in company tractors to support the asset right strategy and maintain a low average age of fleet, thereby reducing maintenance costs.
Experience suggests that market repays longer troughs with steeper rebounds, and we intend to continue to control costs improve operations and bolster our balance sheet, all of which will position us for outsized performance as we enter the next up cycle.
Now, we will turn the call back to the operator and take your questions Steven.
Thank you we will now conduct the question and answer session.
Reminder, to ask a question. Please press star one on one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again.
Please standby for our first question.
Our first question is from Ryan <unk> of Craig Hallum Capital Group.
Good morning, guys.
Curious how much visibility if any you have into 2024 based on conversations with your key customers right now.
We know what's going on in the spot market, but curious how much visibility and how far out the contract rates are going at this point.
Ryan we don't have a lot of visibility into 2024.
Give you a kind of a couple of data points I mean, if you look at if you look at FTR right I mean for flatbed.
They are projecting spot rates to firm up theyre projecting.
Contract rates to be down, possibly 1% in 2024.
If you look at particularly on the specialized segment of our industry or our business. If you look at a lot of our publicly traded shippers.
Shippers publicly traded customers.
Lot of them have publicly stated 2024 is going to be extremely robust. So again specialized specialized segment. We think has a pretty resilient kind of runway ahead of it in 2024 and beyond from a from a flatbed standpoint.
We're going into kind of.
Q4 bid season right now.
And it's a bit of a mixed bag right. If you think about if you think about the flatbed more commodity or commodity oriented end markets. If you think about if you think about that as a normal distribution and kind of go hey.
One one standard deviation to the left or right at the midpoint.
A lot of those customers or are holding rates steady right now you've got you've got some outliers outliers on either end that are that are trying to push rates down.
But.
But we are.
I think we're compromising the NEM comprising in the middle and we're still getting still getting that freight but <unk> also have surprisingly other other other guys that are telling us that they are trying to secure capacity and make sure they have visibility to capacity and.
Hopes of an early spring kind of rebound in some of those more commodity end market. So we're cautiously optimistic don't have a lot of lot of tangible points other than what maybe some of our publicly traded comps.
Yes state on the sale of our earnings, but we did we did mention some of the some of the reduction in guidance toward the back half of the year and even some of our.
Some of our Miss this year was related specifically to wind.
One of our big win win win current clients, specifically customer specifically as stated they expect wind to come back meaningfully in 2024 and 2025.
And consecutively did their second beaten raise.
About about wind and aerospace to end markets that again do very very well for us on the specialized side. So we're cautiously optimistic about in about 2024.
Is there any opportunity.
Move trucks to less or I guess focus on less cyclical sectors and adjacent ones thinking pharma entertainment et cetera, and maybe that's more part of the optimization phase kind of next year and beyond but.
Curious if theres opportunity there.
Yes, there's absolutely opportunity to do that I think one of the.
One of the one of the things that this trough this down market does I mean, we've kind of on the last several calls I mentioned that that we're really shifting to more of an end market focus strategy and really trying to build up as much as much as we can kind of an all weather portfolio. I mean, we're not looking to strip paid out of our out of our investors' portfolios I mean that we're not going to get that that perfect data.
But we are looking to to really build a more a more resilient portfolio of end markets through diversification and so one of the things that this downturn does for US is it allows us to see it allows us to look at how those end markets Covariate allows us to look at the volatility of those end markets, particularly with the drawdown is.
On some of those commodity end markets. So that we can really think about how much exposure prospectively with one of those end markets and really use that as an opportunity kind of rebalance. If you will thinking about kind of portfolio management.
And so I do think that I do think prospectively, when we think about when we think about capex to the different fleet strategies, we have whether they be regionally.
That capex, we originally allocated or end market allocated it will inform some certainly some tweaking. So I do think youll see some of that as we as we move forward and get a little bit better at this approach to kind of portfolio optimization.
Good.
Rumors or Taylor Swift drivers received some very nice bonuses.
Maybe an opportunity for flatbed.
Last question for me just on the Capex guidance of $140 million midpoint does that include lease the equipment and is the strategy still the same to have a small amount of leased equipment or can you finance that at a cheaper cost of capital internally at this point.
Great question, and yes, we would expect to reduce our our overall operating leases.
Going forward in favor of equipment financing just because it's better in this market.
And so we would expect to reduce that the gross capex number.
Does include.
Operating leases any that we would have net of any proceeds from the sale of a revenue generating equipment.
Great. Thank you good luck guys.
Thanks, Brian Brian .
One moment for our next question.
Alright. Our next question comes from Elliot Alper of TD Cohen.
Great. Thank you for the question.
Maybe on flatbed can you expand on some of the challenges you're seeing in the macro environment and maybe how impactful the northwest swap that operation was in the quarter.
Some of the encouraging.
Homebuilding data on cat with positive on new construction side I'm curious to hear your thoughts maybe the puts and takes in the back half of the year there.
Yes sure sure so so.
We're going to continue to differentiate between southeast flatbed and the Pacific Northwest.
So as we said on the call are southeast Flatbed segment, which is probably 75% probably closer to 80% of our total southeast.
Composition.
It did very well.
They executed they drove improved productivity.
Look to diversify their end markets get out or get out of more kind of volatile end markets. They've picked up additional dedicated business, they're really shifting their sales teams to find more dedicated business to provide really that is that kind of the base load and that that resiliency.
And.
<unk>.
And look the north with the northwest when we talked about maybe last quarter to quarter before we set about 30, 30% or so of our of our overall portfolio is is is is made up of construction and probably 20% of that is residential facing some 86% overall as residential kind of a normalized.
<unk> cycle, a lot of that a lot of that sits in the Pacific northwest. So they do a lot of buildings materials I mean, when you think about Owens Corning and roofing shingles, do you think about lumber and things like that and you just havent seen inventory drawdowns up there at the at the kind of retailer supplier level or at the at the kind of.
The kind of manufacturing level wholesaler level. So things are things are absolutely sitting there so nothing's nothing's moving up there.
Yes.
Or actually had you removed that part of the business from this and just focused on on on southeast Flatbed. This this would have probably been as I said something in the low 90, <unk> and it probably would've moved our consolidated or for this quarter down one 5% to 200 basis points. So we're we're absolutely kind of going back to where Ryan asked me where evaluate.
<unk>, how we think about exposure in these different end markets. These different regions and we'll move assets around but.
We're absolutely focused on that and that team up there in the northwest is doing what they can and they're repositioning assets and trying to approach approach the market a little bit differently, but you can't you can't do that overnight. So again, we are in the midst of probably one of the worst for.
Freight recessions as this organization has seen and I think we've been remarkably as a whole right I mean, relying on diversification relying on that ability to shift between asset buyback higher margin company trucks in environments. Like this we think that we've been we've been notwithstanding wind in northwest issues, we've been pretty pretty resilient this quarter.
Alright. Thank you and then maybe one on the guidance. So it looks like flatbed rates improved sequentially in the quarter.
But commentary kind of suggests maybe you tread water for the rest of the year I guess, how should we think about those two things and maybe what flatbed rates could look like in the back half here.
Alright.
Yes, so I mean.
We're not we're not going to provide specific guidance on.
On rates, but again directionally as we said in our prepared remarks, we do think we'll see some of the seasonal softening.
That all that will likely more manifest itself in and rates until a lesser extent volumes. So we've kind of layered that in to our assumptions.
But again I think there are also a lot of data points out there.
That we're looking at.
Kind of triangulate and say the bottom I think the bottom this year aside from some of the seasonality of the business. We do generally think and I think most of our peers have been on the same.
The same kind of vectra, saying that look the bottom is here you kind of mentioned some some.
Don't know if they are quite green shoots yet, but certainly bright spots in the business, whether youre looking at when you're looking at nonresidential construction, where.
<unk> last 14 months as spending has increased and you are sitting at 8 million jobs now and in the construction nonresidential construction silos of the highest in history manufacturing and industrial data not not not great, but certainly stable ISN manufacturing went from 46% to $46 four.
So a little bit of an uptick. So so there are certainly bright spots to consumer remains strong corporate earnings have been have been reasonably resilient.
And so I think we're getting really really late into this down cycle.
And if you look at spot rates I read something the other day that said that for the first time in a long long time, whatever a long long time means.
That that that the current spot rate is below the rolling five year average so think about that where the current spot rate is below the rates that we're seeing in 2017 2018, you've had massive massive inflation on the cost side of the equation. Since then and we're sitting here today, improving our operating cash flow.
<unk> were positive earnings where some of our peers are net loss. This quarter, we're doing things to optimize our balance sheet. We've got a really good transformation ahead of us.
And again, we think we're just getting started so there's a lot of momentum here going into that eventual up cycle.
Okay I appreciate that thank you.
Sure. Thanks Elliot.
Alright, thank you.
As a reminder to ask a question. Please press star one on your telephone.
Wait for your name to be announced.
One moment, while we.
The queue our next question.
Okay.
Our next question is from.
Greg <unk> of Northland Securities. Please go ahead.
Hey, thanks for taking the questions.
First you commented on the slow pace of capacity exiting the market I'm wondering if you could maybe expand on that.
That piece that Youre seeing there and with that we expect that to kind of elongate the recovery in the freight market.
Given how slow the pace you are seeing right now.
Yes, I mean, I think it's I think it's difficult to say Greg.
Look I think we'd look for frankly, we as all of our other peers tried to make crystal ball predictions and haven't got them completely right. The last couple of quarters.
And so we're a little reluctant to look too far out.
What we can tell you is there are a lot of data points. There that suggest the bottom is and that suggests it is <unk>.
The normal seasonality of the end of the year, we could see some kind of reversion to normalization early next year I'm not seeing a peak really strong peak environment I'm not saying this thing shoots up hockey sticks up, but but I think some kind of.
Directionally returned to normal next year.
But I think look I think a lot of this and I think what gets US excited is that when you talk to or when you talk to our customers. When you look at commentary just broadly across the industries.
And really corporate earnings and some of the corporate commentary from earnings this quarter. When you think about all the things that all the articles that you read on on the consumer.
There is a lot of demand there right now, but I think everybody is reluctant to transact.
There's a there's a lagging kind of decisive transparency from the fed as to what's going to happen with the rate environment, but I think what encourages US is that we are seeing inventory drawdowns. We are seeing we are seeing bright spots in our business.
Demand people want to want to transact they want to do things they want to build things they want to move things, but everybody is waiting to see what the fed does and I think when that when that clarity comes to the market things are going to move back pretty quickly, but we're not we're certainly not.
Assuming that's going to happen, we're not we're not planning our business around that we're being we're being defensive when it comes to protecting our balance sheet and we're being opportunistic and not wasting. This recession not wasting this clinical crisis, if you will and doing what we can to really really improve the business improve the structures improve improve our processes add really good talent to the to <unk>.
The bench and again, we're going to come out of this fighting when things do turn.
Great. That's helpful and I think it does show the improvements in the business right. I mean, just looking at the free cash flow growth you had in Q2.
Pretty substantial despite the decline in earnings.
It is asking can we expect that to continue into the back half is like kind of.
Meaningful free cash flow improvement year over year.
Despite that kind of flat second half relative to the first half.
Yes, we like the the.
The cash flow pull through I mean, as you mentioned, we had almost $59 million of operating cash flow or cash flow from operations in the first half of the year.
And net investing activities.
As far as selling in and purchasing revenue generating equipment was $2 million. So we really do like the cash flow. We're focused on cash conversion. We're focused on rates. We're focused on getting you Didnt economics for each trial trailer to make sure that every trailer is prop.
<unk> with the lanes that they're running so that we get all 5000 tractors and profitable lanes every single day or at least on a round trip.
So we believe in the cash flow profile of the business. We believe in its ability to continue to generate cash flow and we're working initiatives within <unk> lower our weighted average cost of capital as we described on slide 14.
Perfect that's helpful.
I guess just last one from me.
As I do look at that slide 13.
<unk> 13, actually it's kind of detailing those three legs of the value creation, what would you say are kind of.
Maybe second back half or early 2024 catalysts on that cost side or in terms of improving.
First and second phase what can we really look to it.
Driving improvement.
And the business in the next call it six months or so.
Yes, Greg I mean, a lot of as we kind of touched on the call a lot of a lot of what we're doing now.
We've got the finance work stream that we touched on but specifically with respect to the integration phase I mean, it's really as the name suggests I mean its integration, it's taking it's taking our operations and taking what was what was once a very highly disparate and highly siloed group of two.
<unk> thousand five operating companies and continuing to kind of bring talent together centralized talent.
Wine on philosophy aligned on strategy, and Sharon's point really purpose and point the assets.
Kind of highest highest and best use kind of.
Kind of.
Venues and so that's that's really what this is is it's taking it's taking some of these operating companies who are a little bit kind of subscale to who.
Who is management teams, maybe aren't quite as built out whose whose systems are arent quite as sophisticated whose processes might be not quite as refined and really integrating them with with with with kind of a big brother Big sister, If you will right and Thats and Thats really what were doing and then you're overlaying.
More sophisticated perspective deeper bench of talent and Youre really allowed to generate.
Here earnings cash flow EBITDA, whatever metric you want to do per truck because of because of that perspective and expertise that you bring to bear on those integrations.
And so another way to think about that.
Just building on that just kind of look at phase, one and phase two and it's really kind of about post acquisition integration degree scale. So we acquired a lot of companies are operating companies over the past some of those more completely at scale and so the kind of the first phases, adding those together as Jonathan mentioned, putting those teams together and build.
<unk>.
Capabilities in this next phase as you look beyond is more around unlocking commercial potential and go to market strategy sharing best practices.
Adding services, where we do on one off towed to another expanding share of wallet and so.
Those are the kind of the three phases I appreciate you picking up that there are three phases.
Wanted to kind of being done concurrently.
We're on the cusp of kind of the third one well.
We will start to see some of those benefits in the future.
Great. That's helpful. Thanks, guys.
Thanks, Craig Thanks, Greg.
Okay that concludes the question and answer session. Thank you for your participation today I will now turn the call over to Mr. Shopko for his closing remarks, Mr. <unk>.
Okay. Thank you Steven to conclude I hope you have a bit more inside of <unk> and its potential and the catalysts for outperformance in these coming up cycle in combination with our solid growth platform of industrial end markets. Our goal again that incremental EBITDA across the cycle will be enhanced by our <unk> transformation.
But as I mentioned last quarter, the functional objectives must go hand in hand, with a new perspective.
I firmly believe that our end market diversification and asset write stories remain critically thematic to our success, our mindset of collaboration continuous improvement and openness to new solutions and ideas that will take us farther together.
If we leverage the deep experience of our team our differentiated and diverse capabilities and expansive data with this mindset, we will unlock even more value in the upcoming cycle.
Yes.
As one final note I'd like to also welcome Scott happy to the executive team. Although he has been with the company and in the industry for more than two decades. He.
He officially took the CEO role in June and we look forward to building a strong future together.
Thank you all for your time this morning.
This concludes today's conference call. Thank you for participating you may now disconnect.
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