Q3 2023 Daseke Inc Earnings Call
Good morning, everyone and thank you for joining today's conference call to discuss financial and operational results for the quarter ended September 30 of 2023 with US today are Jonathan Shopko, Chief Executive Officer, and Board member, Aaron Foley Executive Vice President and Chief Financial Officer, Scott Hoppe Executive Vice President Chief operating Officer and.
And Griffin, Vice President of Investor Relations, and Treasurer, I wouldn't like to hand, the call over to Adrian Griffin Adrian. Please go ahead.
Thank you Kevin as indicated in the press release earlier today participants may dial download the third quarter of 2023 presentation that will accompany their remarks made on today's call. You may access. This presentation on <unk> website, www dot dusky dot com in the events and presentations portion within the <unk>.
That's the relations section.
Slide two of today's presentation contains our safe Harbor and non-GAAP statements. Today's presentation. Also contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Projected financial information, including our guidance outlook are forward looking statements.
Forward looking statements, including those with respect to revenues earnings performance strategies prospects and other aspects of Das Key's 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.
Our filings with the Securities and Exchange Commission for a discussion of the risks that could affect our business and not to place any undue reliance on any forward looking statements and we undertake no obligation to revise our forward looking statements to reflect events or circumstances occurring after today, whether as a result of new information future events.
Or otherwise, except as may be required under applicable securities laws. During the call. There will also be a discussion of some items that do not conform to U S. Generally accepted accounting principles or GAAP, including and not limited to adjusted EBITDA adjusted EBITDA margin adjusted operating ratio adjusted operating income and adjusted net.
Income or loss 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 them.
Of which are available on our website.
Arms of the structure of our call today I will first turn the call over to Jonathan Shopko, who will review our business operations and then progress that we're making as we execute our key strategic priorities and Cali will then provide an update on our third quarter results. Jonathan will conclude our prepared remarks with an updated 2023 outlook before we open it.
Line for your questions with that I'll turn the call over to Jonathan Johnson. Thank you Adrian and thank you all for joining us this morning.
Before I provide our results for the third quarter and outlook for the final quarter of the year.
I'd like to thank our team members for their ongoing service to our customers our vendors their fellow team members at our company.
Yeah.
Thus far during a challenging year for the transportation and logistics industry. Our team has achieved many successes in fact, we have demonstrated improved performance during the cycle trough, including enhanced operational productivity successful execution of our 2023, one to ask your initiatives and a strengthening of our balance sheet.
Our collection performance will advance our business for many years to come.
During the quarter, we recorded 98 billion total consolidated miles or 2 million mile increase over the prior year period, the company miles reporting eight 5% growth in concert with the additional mileage.
Organization has taken decisive actions to improve our operating performance year over year consolidated productivity as measured by miles proceeded tractor per day improved 6%, we added 10% to our company tractor fleet and concurrently improve.
<unk> utilization by 6%.
Achieving operational improvement is materially more difficult in a softer environment that these results are a testament to our team's focused and deliberate execution simultaneously. Our operating teams are also diligently allocated incremental and higher rate loads to our company owned fleet for improved margin capture.
Yeah.
We continue to advance our one to ask your initiatives to improve our process and position ourselves for the up cycle.
Earlier. This year for example, we launched a new platform that facilitates companywide visibility for our recruiters to see share open driving positions across the desk your organization.
With a holistic view of open driving positions recruiters can efficiently collaborate to guide the best driving talent to the optimal fit anywhere within das.
Another encouraging success is the completion of our first phase integrations.
In late 2022, we began integrating two smaller operating companies into our largest specialized operating company at.
At the inception of the integration of the two smaller opco struggled with higher seated truck count operational challenges and commercial opportunities collective weight driving each of these companies operating ratios to exceed 100% over the last several months as the benefits of these integrations have begun to offset the friction costs. We have seen a several hundred basis point improvement in operating ratio.
Much more challenging environment.
And on our August earnings call, we discussed taking actions to integrate an underperforming southeast flatbed suite with one of our stronger core South east flat, but flatbed platform companies. The once underperforming fleet is now delivering margins on par with a stronger platform company, helping to offset some of the continued market weakness.
Pro forma for these integrations the combined operations are improving financial and operational metrics and these integrations are absolutely contributed to improved adjusted EBITDA performance in 2023 in fact with these cumulative actions. We are pleased to report achieving the $10 million and adjusted EBIDTA contribution we set as a goal for this current year and.
And we would expect this post integration value uplift to be even more pronounced in stronger market environments.
These actions are concrete examples of the strategies, we are employing to optimize our operations improved consolidated performance and deliver strong returns.
For our final update on improved performance during the cycle trough, we have firmly adhere to our commitment to enhance our balance sheet using excess cash to reduce higher cost components of our capital structure, reducing gross debt and lowering ongoing cash costs, which Aaron will now detail in his prepared remarks, Eric thank.
Thank you Jonathan and good morning, everyone I'll begin with an update on our capital allocation on slide seven as you will recall earlier in 2023, we committed to meaningfully reduce our gross leverage during the third quarter. We continued to deliver on that commitment I'm, making a $20 million discretionary payments on our term loan.
Included in this payment we have now reduced the term loan paint balanced by $73 million in 2023. In addition to redeeming all of our preferred series B one shares carried a 13% annual dividend for $20 million.
Together this $93 million balance sheet improvement was funded with cash on hand, and as of September 32023, our total debt was lower than the balance as of year end 2022. If these actions had cumulatively occurred on January one of this year, we would have lowered interest expense by $2 eight.
And permanently eliminated $2 6 million in annual preferred dividend payments for a total cash savings on an annual basis exceeding $5 million given our term loan currently bears interest at nine 5% and the series B one was at 13% we significantly improved.
Our cost of capital, our resulting liquidity position was $189 million, including $77 million of cash on hand, and $112 million available from our revolver. We will continue to evaluate opportunities for additional outsized term loan repayments and we intend to remain.
<unk> points and flexible with our capital allocation.
While always considering the improvement of our risk adjusted return for shareholders now turning to slide eight I'd like to review, our consolidated Q3 financial performance as anticipated.
Typical seasonal uplift was largely absent in our third quarter consolidated revenue of $402 million was 13% lower than the same quarter last year, while net revenue, which excludes fuel surcharge revenue was $355 million or 11% lower than the prior year period, we continue to.
<unk> demand growth in logistics, where revenue increased more than 8% year over year, which was driven by our strong customer relationships.
And our focus on leveraging our differentiated capabilities.
To help customers solve their logistics challenges during the third quarter. The company recorded a 93% adjusted or compared to 89% in the prior year period.
As operating expenses occurred at a reduced at a slower rate than revenue.
Adjusted EBITDA of $50 million was $2 million lower compared to the second quarter of this year, but less than one half of 1%.
Lower on an adjusted EBITDA margin basis, which declined from 2014, 1% from 14, 5%.
That said as compared to the prior year period, adjusted EBITDA declined $15 million, primarily due to freight rate declines combined with fuel surge surcharge revenue declines that outpaced the decline in fuel cost in the current year quarter and weekend secondary market for revenue equipment sales during the third quarter of 2002.
23 company fuel expense net of fuel surcharge revenue increased by <unk> <unk> per company mile as compared to the same period. In 2022. This resulted in approximately $5 million of adjusted EBITDA reduction in the current year period as compared to the prior year period, while we expect fuel surcharge to be.
Neutral to earnings over the long term.
<unk> current market.
Conditions when diesel prices quickly rise or fall current quarter. Adjusted EBITDA was also impacted by lower realized prices on equipment sales, which reduced third quarter 2023 gain on sale by $2 million versus the third quarter of 2022.
Realized prices were lower due to additional equipment in the market arising from transportation companies shedding the excess capacity as new orders arrived and carriers that exited.
Including consolidated results, we generated cash flow from operations of $34 million in the quarter. This is a sequential improvement versus the $28 million generated in the second quarter and $31 million in the first quarter, which totaled $993 million in cash flow from operations. So far this year demonstrating the cash.
<unk> power of our business, even at freight cycle lows.
Turning now to slide 10, our specialized solutions segment reported revenue of $239 million at 11% decline versus the prior year quarter, primarily due to revenue reduction and the owner operator freight brokerage.
And fuel surcharge revenue.
In the third quarter of this year specialized solutions realized an average rate per mile of $3 31.
Compared to the prior year period of $3 62.
This declining rate equates to $12 million of lower revenue on $48 million drive million miles driven during the quarter.
Adjusted <unk> was 92% in the current year quarter compared to the near cycle peak of 87% in the third quarter of last year. This current quarter result is still favorable considering the current freight environment adjusted EBITDA and adjusted EBITDA margin were $31 million and 15% in the current year peer.
<unk>.
Current quarter adjusted EBITDA was impacted by increased net fuel expense of nine per mile. This quarter.
Resulting in a $4 million reduction in adjusted EBITDA as compared to the same period in 2022 specialized.
Specialized solutions maintained solid performance versus the prior year period with total miles miles proceeded truck per day, and deadhead essentially flat with the year ago period compared to the prior year period segment company miles were nearly 5% higher than company loaded miles or more than six.
Set higher.
Our team to continue to prioritize.
Loading of higher margin company owned assets, resulting in the decline in company freight revenue of less than 2% versus the robust prior period.
Moving on to Slide 11, third quarter 2023, Flatbed solutions segment revenue of $164 million was 31 million lower than the strong prior year quarter. However, this is a reduction of revenues. This reduction in revenues was largely contained to the $25 million decline in asset.
Light revenue between brokerage and owner operator.
In the third quarter of this year flatbed solutions realized average rate per mile or $2 36.
Compared to the prior year period at $2 59.
This decline in rate equates to a blended $12 million of lower revenue on the 50 million miles driven in the quarter. Adjusted <unk> was 95% in the current year quarter compared to the near cycle peak of 92% in the third quarter of last year, adjusted EBITDA, and adjusted EBITDA margin or $19 million in 2000.
14% in the current year periods current quarter adjusted EBITDA was impacted by the previously mentioned <unk> per mile increased net fuel expense, resulting in a $1 $5 million reduction in adjusted EBITDA as compared to the same period in 2020 to nearly all of the aforementioned $2 million decrease in gain.
On sale was realized within the flatbed segment. The combined impact of these two trends was $3 5 million comprising a majority of the $3 9 million comparative period reduction in adjusted EBITDA.
To combat the declining rates flatbed solutions diligently focused on operational excellence.
Total segment miles increased 4% versus the prior period to nearly 50 million miles.
<unk> truck count was nearly 19% higher embedded.
From improvements in deadhead and miles proceeded.
Truck per day of 1% and 6%, respectively. When combined with the proactive asset right shift towards company capacity these productivity and utilization improvement overlaid on a 2% higher companies seated truck count created an increase of more than 20% and company loaded miles.
This yielded 5% better company freight revenue than the third quarter of 2020 to overcome in a soft rate environment and partially offsetting that decline in brokerage revenue.
Our asset right strategy continues to support our results through the cycle.
And we remain focused on productivity improvements to augment our results now and in the future. This includes the successful integrations Jonathan mentioned in his opening remarks, our results reflect our team members focus on operational efficiency and the strengthening of our balance sheet, which establishes an even stronger position ahead of the <unk>.
Pending that cycle now I'll now turn the call back to Jonathan for an update on our 2023 outlook Jonathan.
Thank you Erin turning now to slide 12, with nine months of the year behind us our forecast for the remaining months anticipated many of the somatic pressures on financial performance to persist inflationary headwinds that oversupply of used equipment market, a restless owner, operator and lease purchase driver pool and typical seasonal rates softening there already challenge.
<unk> environment.
We do believe in the adage the cure for low prices as oil prices and this cycle will eventually correct any meaningful way, even without as distinct external catalyst.
We will likely not be beneficiaries of this recovery until 2024, however, and as such we are adjusting our 2023 full year adjusted EBITDA outlook to 185 to $190, which implies a fourth quarter of $35 million to $40 million.
Furthermore, we are updating our net capital expenditure guidance to $155 million to $160 million.
Which is higher than the previous guidance of $135 million to $145 million.
This update is largely due to the timing of equipment deliveries based upon delivery delays in the first half of the year.
In our ongoing discussions with the Oems, while we were expecting and ongoing lag in 2023 equipment deliveries in recent months the Oems have committed to fulfilling our original 2023 orders and hence we now expect 2023 reinvestment or in line with our original capital budget of $145 million to $155 million.
That said as discussed in todays prepared remarks, the secondary equipment market has impacted our cash proceeds which is also contributing to the modest increase in our net capital guidance.
As we prepare for the impending up cycle. These expenditures position our company with a younger fleet, which reduces operating and maintenance costs increases uptime and allows us to attract and retain some of the best drivers in the industry.
Our 2024 ambition.
To continue to be cash flow positive regardless of the market environment with that in mind, we intend for our future capital expenditures Devin upper bound within our projected discretionary cash flow and we will remain focused on deleveraging our balance sheet and holding sacrosanct the durability of our company.
Yes.
Moving on to slide 13.
While the freight environment is not cooperating the macro backdrop is cautious in the capital markets are skittish. We do believe this phase of the cycle will soon pass as it always has what I'd like everyone. On this call to walk away with today are a few key messages from this slide.
First our significant progress during the last four years as evidenced in part by our sustained peer leading improvement and adjusted EBITDA margin inclusive of fuel surcharge.
Since the last cycle trough in 2019.
To be clear the chart on the right side of this slide is a trough to trough relative comparison of rolling four quarters' adjusted EBIDTA margin inclusive of fuel surcharge revenue comparing <unk> versus a broad 14 company transportation and logistics peer group.
Our margin improvement over this four year period as demonstrated our best in class positioning among the trucking and logistics industry group, while besting nearly all of our truckload peers with trough to trough margin improvement of nearly 32% or 300 basis points and a more constructive freight market. We expect this relative outperformance to.
Sustained with an even wider adjusted EBIDTA margin spread.
Second in addition to numerous operating company integrations.
Our progress is clearly validated by our third quarter adjusted or of 93% an impressive improvement from 96% in 2019.
In our 2023 year to date adjusted EBITDA of $150 million is 26% higher than what we generated through the first three quarters of 2019.
This significant financial progress together with our 2023 capital allocation actions has contributed to improving our gross leverage to three three times from four five times in 2019. The change we are affecting is real and it is the last name.
We will continue to pull the right levers delivered our commitments and priorities and drive additional earnings and free cash flow. These efforts will provide an attractive runway for our shareholders.
Extended by the recovery in our sector as well as the eventual multiple expansion, we would expect our stock to benefit from as we perform.
We are proud of how we have risen to the occasion and driven the company forward.
We're encouraged by the resolve and agility of our team continuing to provide customers with differentiated service as well as finding new opportunities.
The nadir of the cycle was pressure testing our businesses, prompting us with an obligation to be dispassionate critical about not only our customers lanes in sub verticals, but also our own operating companies.
We are taking comprehensive approach focused on improving long term profitability from reallocating resources that are unprofitable lanes to contemplating elimination of fleets that lack cross cycle resilience, we will not take our eye off the ball.
I would now like to ask the operator to open the line for your questions Kevin.
Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered or asked to move yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Okay.
Our first question comes from Jason <unk> with TD Cowen. Your line is open. Thank you.
Operator, Jonathan team. Good morning, guys couple questions from me here.
Youre, increasing the capex a bit but.
Reducing your expectations on earnings seems a little bit counterintuitive, maybe run through that a little bit more for me and also I know you probably don't have it out yet for 2024 on capex, but at least Directionally what should we expect.
Yes, thanks, Jason.
Yes, as we look at 2023, we have the opportunity to catch up and so as we look at 2024, we would expect a lower 2024 net capex.
Maintain the investment in in our equipment and our professional drivers.
Reduced support costs.
Reduced support cost ahead of the upcoming cycle and we think these these together.
Lower our operating cost to increase asset reliability, and overall better prepare us for the upcoming cycle.
Yes, and just to just to add onto that Jason I do what I do want to be clear. So our Capex guide at the beginning of the year was $1 50 to $1 55 and <unk> are.
Our prepared remarks, we kind of mentioned given given some of the delays.
And the OEM deliveries deliveries and scheduling we took that and that at the end of the first quarter, we took that down to $1 35 to $1 45.
The Oems then told US I mean really for the last kind of in the last few months that they can actually catch us up we've taken advantage of that to Aaron's point, we do believe having a younger fleet being well positioned to take advantage of the uptake is the way to go. So our Capex guide is very close to what it was at the beginning of the year and that Q1 reduction.
<unk> was only only given anticipated only only.
Only provided nobody made because we anticipated some some equipment equipment delays by the Oems. Okay that makes sense and you said the guide for next year is going to be down as a guide for growth's going to be down as well.
Yes, yes, yes, okay perfect okay.
You guys also talked about not expecting to see a turn around until 2024.
I get you to narrow that do you expect is it going to be first half second half for you guys.
Yes.
Yes.
Hard to hard to say I mean, we've listened to some of the other our other peers kind of talk about it and I think we're thinking about it we're thinking about 2024, the same way, where it's going to be yes, I think the word transition year has been that you used to describe next year quite a bit.
And I think if you think about if you think about things from a from a rate standpoint, you look at you look at a source like FTR, whose predicting spot rates to firm back up next year.
That's great for us is great for the industry.
It also it also means that contract rates are not not far behind maybe a couple of quarters behind that so when you think about the rate the rate side of the ledger.
Cautiously optimistic there early discussions we've had as we go into bid season with our with our larger core customers suggest that contract rates are going to be flat to this year I think as we get to the back half of the year, we might have we might see some kind of movement, there and maybe get a little bit of gain a little bit of ground with some of those customers.
So we think that we think all in all the right side of the lenders can be going to be fairly balanced fairly stable.
The volume side of the Ledger, we think is going to be interesting. We do think that the industry has talked about capacity, leaving the market for a number of quarters now we do think that we're at a point within the next few quarters, where that will start to have a more meaningful impact.
And really bringing supply demand.
And parity.
And I think the other big shift that Youre seeing there.
The carriers, leaving RMB, one truck Firetruck 10 truck carriers anymore fleets anymore.
100, 200, 300, 400 truck fleets that are exiting the market. So we think that as that phenomenon continues you've got some of the larger brokerage brokerage houses coming closing down you've got some of the number of the asset light logistics shops closing up shop. So as you really begin to take continue to take that capacity out, particularly in those larger swaths.
We'll start to see a little bit of parity, we think that will.
That will help and the other thing that I think we can speak to on the volume side is is we're starting to see kind of a flight to safety. If you will of our customers' 2021 2022, there was kind of a reallocation of volumes.
In favor of.
Broker favors.
The brokerage shops, and the asset light guys right, because they had a kind of value proposition and lower and lower rates relative to con contract rates. What we're seeing now is a.
A number a number of those a number of those carriers are going out of business a number of those carriers can't cover the loads when they get them. So they are they are double brokering triple brokering those loads.
<unk> are losing visibility as to actually who's moving those loads.
Cargo claims are up dramatically on time delivery service generally is dramatically waning and so we do think that as as these more sophisticated shippers look at the universe look at the kind of financial fallout.
And the risk to managing and containing their business operations theyre going to shift they're going to shift some of that transport spend in favor of the asset right asset asset based guys and say, we'll be beneficiaries of that on the on the volume side and then I think what we've got we've got our we've got our transformation, which we which we have said $10 million $10 million.
Sure, we still feel really really good about that and then you've got look you've got you've got an election year. So.
Interesting to see what the fed does.
As we approach that if anything so there could be a catalyst there to improving the environment, we certainly think that depending on which regime, which regime wins next year.
There could be a more a more.
Look our Frac friendlier.
<unk> group and control that would be that would be very beneficial to a lot of the end markets that we serve so theres a lot I think to be excited about next year, but we're still putting our numbers together for 2024, but we're I think we're cautiously optimistic that it will be a transition year, plus with potentially a little bit of upside to this year.
Okay.
Given that backdrop and given the background for lower Capex.
Generate additional cash next year, you've done a very good job of debt repayment with the $50 million logged into $20 million slug, what should we expect going forward and has there been any consideration.
To doing a buyback I know you guys aren't the most liquid name out there, but being slightly less.
Less liquid than you are now and probably will have very little impact.
Yes.
So a fair question I mean, I think that all hit either share buybacks first and then I'll talk about I'll talk about leverage to this I think the way we're thinking about the share repurchase.
We think it's on the table, it's something we talk about.
Amongst the management team.
Frankly daily, particularly at this price and what the board pretty pretty regularly as well. So I do think that will will earmark some amount of cash for a repurchase I can't tell you. The repurchases is going to take place in the next month or six months, but.
Certainly would like it to take place.
And this kind of stock price zipcode before before the market starts to price in a kind of a recovery in.
And the stock and the stock tiers. So we do want to buy kind of in this in this area. So I think something in the near term is definitely on the table.
That said.
We've made a commitment to our shareholders to delever.
And we're going to we're going to play through to that I think that as you look at as you look at our stock I mean, we've completely decoupled from from any correlation relative to our peers. So we're not I mean truly the correlation of zero relative to our peer group and so when you look at it.
The only thing that we can think of us.
Kind of volume constraints aside to your point, but the only thing I can think of is look we're we're levered name right relative to our peer group. We think our leverage profile is manageable it's extremely friendly covenant light paper. There is no near term maturities, but at the end of the day when you look at us versus our peers and they average a half a turn of leverage.
Gross leverage at three three times.
And kind of a risk off environment, we could see how we get we get penalized for that.
And look at the end of the day, if you normalized our debt load.
And you take out the preferred dividends and you look at us relative to our peers you add another $1 per share of EPS right and so.
The optics.
The risk of asking given that given our current leverage profile the amount of cash that's going into the pockets of our lenders and not going into the pockets of our shareholders. It's something we're extremely mindful of so we're balancing that but there will be additional repayments of debt in the near term I can't I can't give you a number yet.
But both of those are both of those are on the table, but we're absolutely going to prioritize delevering the company.
That makes a lot of sense to me and my last one before I turn it over to somebody else I guess I was surprised to see the pressure at the high security cargo given all that's been going on globally on a geopolitical basis can you maybe give us some more details on what's going on with the end market.
Yes, I think that that one there's really kind of two things two things going on I mean, there were some pretty sizeable loads.
That that I think the Dod has shifted a little bit to rail, which they don't typically do but they had they had a little bit more time and some of those some of those larger loads weren't as time sensitive so they shifted a little bit that capacity a couple of months to rail.
And then and then honestly <unk> got a lot of our competitors, which is a tight group of qualified carriers that can move the stuff we're moving.
But those guys are all doing the same things, we are where theyre looking at end markets going what end markets are still extremely attractive and they're shifting capacity around it.
To capture more more more upside within those markets and high Securities has been one that's been completely resilient from a volume standpoint, and a rate standpoint. So we intermittently C that we started at the beginning of Q1 and kind of January February.
That competitive dynamic abated, we saw it a little bit.
This quarter, but the market the underlying market the volumes.
Are absolutely still there and we think they are absolutely going to still be there for the foreseeable future based on based on our feedback from our customers. So.
Just kind of an anomaly.
I appreciate that Jonathan team I appreciate the time thanks.
Thanks, Jason Thanks, Jason.
One moment for our next question.
Our next question comes from Ryan <unk> with Craig Hallum. Your line is open.
Hey, good morning, guys.
Good morning, Brian.
Curious on the Capex guidance what percent of that is new tractors and equipment versus used.
It's all it's all new Ryan.
Any thought to I guess, the secondary markets oversupplied youre not getting as much for your tractors are selling and there's all kinds of capacity, leaving with presumably equipment hitting the market I guess why not shift from new equipment strategy into lightly used used.
Sure.
Look Brian Youre spot on I mean, thats something that were we.
We're evaluating for net for next year.
We.
And the rationale is look we had some legacy.
I mean look at this is that this is a long story right you've been around it the whole time that we're trying to get our fleet age down our company truck fleet age down as well as our LP fleet age two.
A reasonable age.
There was there was there was some deferred capex from years ago on the trailer side of things. So we needed to spend this money.
To be well positioned for the upturn and so we needed the new equipment.
Right now our company truck Fleet ages.
Is closer to two low two years of age.
And we have a we are a pretty young trailer fleet as well. So I think prospectively, what will do particularly next year. In addition to kind of moderating the absolute quantum of Capex, we'll shift some of that to the used truck market I mean, those prices kind of peak peak to where we're at today. So peak 2022 to to current the average.
Used truck prices come down 40%. So we think it's an attractive buy and so we will use that to kind of supplement here in there next year. So it would be a combination of new and used trailers next year, sorry, new and used trucks and trailers next year.
Makes sense.
Switching over curious for an update on the wind market, specifically and any expectations on a rebound in 2024, if that has changed and then secondly to that I guess does that have any exposure to the offshore activity or is it primarily onshore within the wind market.
Yes, so so.
Now, we actually had a pretty pretty good quarter this quarter with wind.
As you know it's closely tied to to the production tax credits and what's going on there.
And so we did have we did have a positive quarter. It is all domestic domestic ones. So theres not a lot of not a lot of international exposure, we've looked into that.
And we just we just Ken and we've talked to other companies about.
Partnerships joint ventures, and things like that to get some exposure there. It just doesn't make a lot of a lot of sense for that we do think we do think that and we've got exposure to really the primary three Oems that probably represent 90, 90% of the wind market and <unk>.
One of them is really bullish on when in 2020 for one of them is kind of flat and one of them is.
It should be a rougher year so.
We are.
I think net net forecasting probably some kind of modest uptick next year for wind but.
But we think the real the real kind of <unk>.
Longer recovery for wind is probably going to 2025.
Great. Thank you.
Sure.
One moment for our next question.
Okay.
Our next question comes from Gary <unk> with Northland Securities. Your line is open.
Hey, good morning, Jonathon Aaron how are you doing.
Good morning, Gary Good morning.
Hey, Greg how are you.
Yes.
I'm good I'm good thanks.
I'm wondering if you could discuss the assumptions that go into the updated outlook is that just maybe the assumption that rates remain stable kind of like we've seen in the most recent quarter.
Yes, I mean, I think if you I think if you look at it so last last.
Last quarter, we took guide down to I'll just use the lower point of the guide to 200, So 200 to 210.
200, we had as we talked about this quarter between a softer equipped.
Equipment market.
We had about a $2 $5 million headwind there and then we had about $5 million.
Given the given the diesel volatility. So those are both things that we hadn't we hadn't kind of factored in when we provided that 200 to 210 guide so you've got $75 million of headwind there used truck market is not going to knock knock and improve so we don't think in Q4, we're going to see any kind of any kind of gain on sale. So you kind of approximate the same head.
And kind of two five.
So you are kind of going okay, well 200 feels like 190.
Right. If you take off you take off that kind of $10 million and kind of totality, so two and a half in two and half from the equipment market five from fuel and so it kind of feels like that's directionally, where we're going and as we think about the last two months of the year.
We think that the rates are going to fall with normal seasonality that we experienced at this time of the year.
For us the Big question and why is that why there is that little bit of tweaking between 185 to $190 versus that kind of quick bridge I. Just gave you from 190 to 200, it's really I think about how.
How productive.
The LP and the owner operators are those last couple of months and do they show up for work. They are independent contractors as you appreciate and so its okay do they do they take the rest of the year after they come and say look I Havent hit I haven't hit.
My target income for the year, so im going to work work hard work through the holidays and get it done or are we just going to say hey look it's been a tough year, we'll will start over we will start over next year. So I think that's that's a little bit of a hedge that we have in there with that 185 to 190.
Great extremely helpful.
And then wanted to just follow up on the integration process of the Opco is where do we stand with that do you expect to see continued improvements there or would you say largely complete just curious your thoughts on how maybe integration.
We'll take going forward.
Yes, no the integrations of the integrations are going well, we obviously mentioned that on today's call. We have we had $10 million earmarked and integration benefit next year that we feel we feel very very good about.
We've some have.
Got really well some we've learned some lessons, but they've ended up in a really good spot and I think the <unk>.
Organization is really finally, starting to understand and embrace and appreciate.
The shift from the old mindset of.
Focus on topline growth for EBITDA and really starting to embrace look.
For the investors.
They're focused on you've taken you've taken topline and youre turning it into cash and how much cash can we generate right and then using that to Delever the company and drive the EPS growth in the business. So we've spent a lot of time talking to them about that they are onboard they understand why we need to do it and so so the.
The flywheel is is catching.
So we're look we're encouraged about it and think again on the heels of next year's transformation. We still think we have we have a lot of runway and business optimization after that.
Okay makes sense.
Lastly, you mentioned the launch of an entertainment division for hauling equipment Frisco as any other opportunities for commercial expansion into potentially new verticals or different ones.
You have visibility on.
Yes, we continue to like our growth on our logistics side of it as an area of focus for US. It's an area of strength are and it grew 8% year over year.
So we're looking to increase share of wallet with our customers and provide leverage our differentiated value proposition on the things that we can do whether it be load and load planning and logistics warehousing.
We're looking to grow those areas with our customers and so we're always looking for new opportunities.
We're evaluating specialty chemicals.
It's down right now.
As as life Sciences, and pharma. So we're looking at Hey, this is a good entry point into both into both of those we really like what's going on in Mexico.
And the opportunity there we have a couple of terminals located in El Dorado area. So we've got a lot of customers and with the kind of near shoring trend in Mexico, surpassing surpassing China earlier this year from a kind of an import standpoint.
We think theres a lot of runway there and then.
Has has waste hasn't hazmat business.
There's a lot of opportunity as we kind of block in the western part of the United States. So there's a number of things that we're looking at and focusing on and trying to figure out window when to pull the trigger.
Yeah.
Great good to hear thanks, guys.
Absolutely.
And I'm not showing any further question at this time I would like to turn the call back over to Jonathan for any closing remarks.
Thank you Kevin.
We are proud of the way our team members continue to strive for excellence in our operations and for our customers. We are focused on driving profitability of our operations and are weighing the volatility of earnings resulting from our current profile Wayne sub verticals in operating companies. Finally, we continue to view <unk> as the premier operate opportunity in the truckload space, Thanks to our mix of defense.
<unk> and growth attributes, which have enabled us to increase earnings throughout the cycles, regardless of when the up cycle starts when freight demand improves we believe that <unk> story will become even more compelling to investors as we continue to strengthen our balance sheet realized organic and inorganic opportunities through our continuously improving <unk> platform. Thank you.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Okay.
Yeah.