10-Q 1 dske-20180630x10q.htm 10-Q dske_Current_Folio_10Q

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2018

 

OR

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to _________

 

DASEKE, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

Delaware
(State or Other Jurisdiction of Incorporation)

 

001-37509
(Commission
File Number)

 

47-3913221
(IRS Employer
Identification No.)

 

 

 

 

 

15455 Dallas Parkway, Suite 550
Addison, Texas

 

75001

(Address of Principal Executive Offices)

 

(Zip Code)

 

 

 

 

 

Registrant’s Telephone Number, Including Area Code: (972) 248-0412

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒     No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes  ☒      No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

☐ Large accelerated filer

 

 

 

☒ Accelerated filer

☐ Non-accelerated filer (Do not check if a smaller reporting company)

 

 

 

 

☐ Smaller reporting company

 

 

 

☒ Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐        No  ☒

 

Common shares of the registrant outstanding at August 7, 2018 were 64,445,371.

 

 

 

 


 

DASEKE, INC.

FORM 10-Q

For the Quarterly Period Ended June 30, 2018

INDEX

 

 

 

 

 

 

 


 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (this Report) of Daseke, Inc. (Daseke or the Company) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except as otherwise indicated by the context, references in this Report to “we,” “us” and “our” are to the consolidated business of the Company. All statements in this Report, including those made by the management of the Company, other than statements of historical fact, are forward-looking statements. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof. Forward-looking statements may contain words such as “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “believe,” “plan,” “should,” “could,” “would,” “forecast,” “seek,” “target,” “predict,” and “potential,” the negative of these terms, or other comparable terminology. Forward-looking statements may include statements about the Company’s goals; the Company’s financial strategy, liquidity and capital required for its business strategy and plans; the Company’s competition and government regulations; general economic conditions; and the Company’s future operating results.

 

These forward-looking statements are based on information available as of the date of this Report (or, in the case of forward-looking statements incorporated herein by reference, as of the date of the applicable filed document), and current expectations, forecasts and assumptions. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that the Company anticipates. Accordingly, forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date, and the Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Accordingly, readers are cautioned not to place undue reliance on the forward-looking statements.

 

Forward-looking statements are subject to risks and uncertainties (many of which are beyond our control) that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, general economic and business risks, driver shortages and increases in driver compensation or owner-operator contracted rates, loss of senior management or key operating personnel, our ability to identify and execute future acquisitions successfully, seasonality and the impact of weather and other catastrophic events, fluctuations in the price or availability of diesel fuel, increased prices for, or decreases in the availability of, new revenue equipment and decreases in the value of used revenue equipment, our ability to generate sufficient cash to service all of our indebtedness, restrictions in our existing and future debt agreements, increases in interest rates, changes in existing laws or regulations, including environmental and worker health safety laws and regulations and those relating to tax rates or taxes in general, the impact of governmental regulations and other governmental actions related to the Company and its operations, litigation and governmental proceedings, and insurance and claims expenses. For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see the Company’s filings with the Securities and Exchange Commission (the SEC), particularly the section titled “Item 1A. Risk Factors” in the Company’s Current Report on Form 10-K, filed with the SEC on March 16, 2018.

 

All forward-looking statements, expressed or implied, attributed to the Company or persons acting on its behalf are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that the Company or persons acting on its behalf may issue.

 

 

 

 


 

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

 

2018

 

2017

ASSETS

 

 

 

 

 

 

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

78,734

 

$

90,679

Accounts receivable, net of allowance of $398 and $212 at June 30, 2018 and December 31, 2017, respectively

 

 

195,606

 

 

127,368

Drivers’ advances and other receivables

 

 

5,215

 

 

4,792

Current portion of net investment in sales-type leases

 

 

13,346

 

 

10,979

Parts supplies

 

 

5,040

 

 

4,653

Prepaid and other current assets

 

 

34,433

 

 

28,240

Total current assets

 

 

332,374

 

 

266,711

 

 

 

 

 

 

 

Property and equipment, net

 

 

501,120

 

 

429,639

Intangible assets, net

 

 

186,857

 

 

93,120

Goodwill

 

 

264,025

 

 

302,702

Other long-term assets

 

 

39,726

 

 

33,496

Total assets

 

 

1,324,102

 

 

1,125,668

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

 

29,057

 

 

12,488

Accrued expenses and other liabilities

 

 

46,319

 

 

25,876

Accrued payroll, benefits and related taxes

 

 

16,330

 

 

14,004

Accrued insurance and claims

 

 

12,236

 

 

12,644

Current portion of long-term debt

 

 

48,022

 

 

43,056

Total current liabilities

 

 

151,964

 

 

108,068

 

 

 

 

 

 

 

Line of credit

 

 

 —

 

 

4,561

Long-term debt, net of current portion

 

 

567,378

 

 

569,740

Deferred tax liabilities

 

 

121,513

 

 

90,434

Other long-term liabilities

 

 

20,985

 

 

1,632

Total liabilities

 

 

861,840

 

 

774,435

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

  

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

  

 

 

  

Series A convertible preferred stock, $0.0001 par value; 10,000,000 shares authorized; 650,000 shares issued with liquidation preference of $65,000 at June 30, 2018 and December 31, 2017

 

 

65,000

 

 

65,000

Common stock, par value $0.0001 per share; 250,000,000 shares authorized, 63,875,267 and 48,712,288 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

 

 

 6

 

 

 5

Additional paid-in-capital

 

 

427,892

 

 

277,931

Retained earnings (accumulated deficit)

 

 

(30,652)

 

 

7,338

Accumulated other comprehensive income

 

 

16

 

 

959

Total stockholders’ equity

 

 

462,262

 

 

351,233

Total liabilities and stockholders’ equity

 

$

1,324,102

 

$

1,125,668

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

1


 

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2018

    

2017

    

2018

    

2017

Revenues:

 

 

  

 

 

  

 

 

  

 

 

  

Freight

 

$

272,583

 

$

149,654

 

$

512,654

 

$

275,209

Brokerage

 

 

60,091

 

 

28,656

 

 

106,229

 

 

49,525

Logistics

 

 

8,891

 

 

2,700

 

 

19,609

 

 

2,700

Fuel surcharge

 

 

35,334

 

 

16,313

 

 

65,988

 

 

30,323

Total revenue

 

 

376,899

 

 

197,323

 

 

704,480

 

 

357,757

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

Salaries, wages and employee benefits

 

 

90,614

 

 

58,186

 

 

172,959

 

 

108,307

Fuel

 

 

31,359

 

 

20,466

 

 

64,735

 

 

39,689

Operations and maintenance

 

 

40,465

 

 

28,967

 

 

75,028

 

 

52,191

Communications

 

 

807

 

 

549

 

 

1,506

 

 

952

Purchased freight

 

 

141,582

 

 

49,760

 

 

259,305

 

 

87,346

Administrative expenses

 

 

13,077

 

 

8,022

 

 

25,214

 

 

15,400

Sales and marketing

 

 

651

 

 

555

 

 

1,287

 

 

937

Taxes and licenses

 

 

3,890

 

 

2,611

 

 

7,584

 

 

4,892

Insurance and claims

 

 

10,428

 

 

5,042

 

 

19,612

 

 

9,165

Acquisition-related transaction expenses

 

 

1,402

 

 

1,037

 

 

1,842

 

 

1,483

Depreciation and amortization

 

 

31,766

 

 

17,638

 

 

56,948

 

 

33,953

(Gain) loss on disposition of revenue property and equipment

 

 

(490)

 

 

26

 

 

(645)

 

 

(174)

Impairment

 

 

2,840

 

 

 —

 

 

2,840

 

 

 —

Total operating expenses

 

 

368,391

 

 

192,859

 

 

688,215

 

 

354,141

Income from operations

 

 

8,508

 

 

4,464

 

 

16,265

 

 

3,616

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income):

 

 

  

 

 

  

 

 

  

 

 

  

Interest income

 

 

(601)

 

 

(50)

 

 

(1,042)

 

 

(54)

Interest expense

 

 

11,070

 

 

6,544

 

 

21,407

 

 

12,440

Write-off of unamortized deferred financing fees

 

 

 —

 

 

 —

 

 

 —

 

 

3,883

Other

 

 

(900)

 

 

(107)

 

 

(1,859)

 

 

(215)

Total other expense

 

 

9,569

 

 

6,387

 

 

18,506

 

 

16,054

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before provision (benefit) for income taxes

 

 

(1,061)

 

 

(1,923)

 

 

(2,241)

 

 

(12,438)

Provision (benefit) for income taxes

 

 

(14,546)

 

 

2,184

 

 

(14,929)

 

 

(586)

Net income (loss)

 

 

13,485

 

 

(4,107)

 

 

12,688

 

 

(11,852)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

  

 

 

  

 

 

  

 

 

  

Unrealized income on interest rate swaps

 

 

 —

 

 

 —

 

 

 —

 

 

52

Foreign currency translation adjustments, net of tax expense (benefit) of $(78), $274, $(251) and $274, respectively

 

 

(623)

 

 

507

 

 

(943)

 

 

507

Comprehensive income (loss)

 

 

12,862

 

 

(3,600)

 

 

11,745

 

 

(11,293)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

13,485

 

 

(4,107)

 

 

12,688

 

 

(11,852)

Less dividends to Series A convertible preferred stockholders

 

 

(1,239)

 

 

(1,693)

 

 

(2,478)

 

 

(1,694)

Less dividends to Series B convertible preferred stockholders

 

 

 —

 

 

 —

 

 

 —

 

 

(806)

Net income (loss) attributable to common stockholders

 

$

12,246

 

$

(5,800)

 

$

10,210

 

$

(14,352)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

  

 

 

  

 

 

  

 

 

  

Basic and Diluted

 

$

0.20

 

$

(0.15)

 

$

0.17

 

$

(0.44)

Weighted-average common shares outstanding:

 

 

  

 

 

  

 

 

  

 

 

  

Basic and Diluted

 

 

60,558,956

 

 

37,945,310

 

 

57,935,688

 

 

32,468,674

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per Series A convertible preferred share

 

$

1.91

 

$

0.68

 

$

3.81

 

$

0.68

Dividends declared per Series B convertible preferred share

 

$

 —

 

$

 —

 

$

 —

 

$

12.50

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

2


 

 

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2018

(Unaudited)

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Convertible

 

 

 

 

 

 

 

 

 

Retained

 

Accumulated

 

 

 

 

 

Preferred Stock

 

Common Stock

 

 

 

 

Earnings

 

Other

 

 

 

 

 

 

 

 

 

 

 

Par

 

Additional

 

(Accumulated

 

Comprehensive

 

 

 

 

    

Shares

    

Amount

    

Shares

    

Value

    

Paid- In Capital

    

Deficit)

    

Income (Loss)

    

Total

Balance, January 1, 2018

 

650,000

 

$

65,000

 

48,712,288

 

$

 5

 

$

277,931

 

$

7,338

 

$

959

 

$

351,233

Exercise of options

 

 —

 

 

 —

 

5,000

 

 

 —

 

 

50

 

 

 —

 

 

 —

 

 

50

Series A convertible preferred stock dividend

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(2,478)

 

 

 —

 

 

(2,478)

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 

1,788

 

 

 —

 

 

 —

 

 

1,788

Issuance of common stock

 

 —

 

 

 —

 

10,157,979

 

 

 1

 

 

99,923

 

 

 —

 

 

 —

 

 

99,924

Issuance of earnout shares

 

 —

 

 

 —

 

5,000,000

 

 

 —

 

 

48,200

 

 

(48,200)

 

 

 —

 

 

 —

Foreign currency translation adjustments

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(943)

 

 

(943)

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

12,688

 

 

 —

 

 

12,688

Balance at June 30, 2018

 

650,000

 

$

65,000

 

63,875,267

 

$

 6

 

$

427,892

 

$

(30,652)

 

$

16

 

$

462,262

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

3


 

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

Six months ended

 

 

June 30, 

 

    

2018

    

2017

Cash flows from operating activities

 

 

  

 

 

  

Net income (loss)

 

$

12,688

 

$

(11,852)

Adjustments to reconcile net income (loss) to net cash provided by operating activities

 

 

 

 

 

  

Depreciation

 

 

48,815

 

 

31,069

Amortization of intangible assets

 

 

8,133

 

 

2,884

Amortization of deferred financing fees

 

 

1,452

 

 

793

Write-off of deferred financing fees

 

 

 —

 

 

3,883

Stock-based compensation expense

 

 

1,788

 

 

538

Deferred taxes

 

 

(16,239)

 

 

(1,419)

Bad debt expense

 

 

202

 

 

221

Non-cash interest expense

 

 

 —

 

 

92

Gain on disposition of property and equipment

 

 

(645)

 

 

(157)

Gain on disposition of building

 

 

(836)

 

 

 —

Deferred gain recognized on sales-type leases

 

 

(1,414)

 

 

(339)

Impairment

 

 

2,840

 

 

 —

Changes in operating assets and liabilities

 

 

 

 

 

  

Accounts receivable

 

 

(31,460)

 

 

(20,311)

Drivers’ advances and other receivables

 

 

(95)

 

 

102

Payments received on sales-type leases

 

 

6,547

 

 

2,076

Prepaid and other current assets

 

 

(6,315)

 

 

433

Accounts payable

 

 

56

 

 

1,103

Accrued expenses and other liabilities

 

 

3,518

 

 

4,714

Net cash provided by operating activities

 

 

29,035

 

 

13,830

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

  

 

 

  

Purchase of property and equipment

 

 

(31,123)

 

 

(6,806)

Proceeds from sale of property and equipment

 

 

11,676

 

 

2,952

Cash paid in acquisitions, net of cash acquired

 

 

(79,084)

 

 

(40,571)

Net cash used in investing activities

 

 

(98,531)

 

 

(44,425)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

  

 

 

  

Advances on line of credit

 

 

468,130

 

 

343,083

Repayments on line of credit

 

 

(472,691)

 

 

(349,939)

Advances on long-term debt

 

 

5,901

 

 

 —

Principal payments on and payoff of long-term debt

 

 

(25,227)

 

 

(224,587)

Proceeds from Term Loan Facility

 

 

 —

 

 

289,500

Deferred financing fees

 

 

(633)

 

 

(14,266)

Pay off of subordinated debt

 

 

 —

 

 

(66,715)

Proceeds from issuance of common stock

 

 

84,569

 

 

64,577

Repurchase of common stock

 

 

 —

 

 

(36,168)

Issuance of Series A convertible preferred stock

 

 

 —

 

 

65,000

Exercise of options

 

 

50

 

 

 —

Series A convertible preferred stock dividends

 

 

(2,478)

 

 

 —

Series B convertible preferred stock dividends

 

 

 —

 

 

(2,016)

Net cash provided by financing activities

 

 

57,621

 

 

68,469

 

 

 

 

 

 

 

Effect of exchange rates on cash and cash equivalents

 

 

(70)

 

 

15

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(11,945)

 

 

37,889

Cash and cash equivalents – beginning of period

 

 

90,679

 

 

3,695

Cash and cash equivalents – end of period

 

$

78,734

 

$

41,584

 

The accompanying notes are an integral part of the consolidated financial statements.

4


 

DASEKE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

Six months ended

 

 

June 30, 

 

    

2018

    

2017

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

20,025

 

$

17,728

Cash paid for income taxes

 

$

1,347

 

$

436

 

 

 

 

 

 

 

Noncash investing and financing activities

 

 

 

 

 

 

Property and equipment acquired with debt or capital lease obligations

 

$

11,589

 

$

5,139

Accrued capital expenditures

 

$

4,362

 

$

 —

Property and equipment sold for notes receivable

 

$

248

 

$

70

Property and equipment transferred to sales-type lease

 

$

3,932

 

$

4,842

Sales-type lease returns to property and equipment

 

$

407

 

$

645

Sales-type lease assets acquired with debt or capital lease obligations

 

$

9,873

 

$

 —

Sales-type lease assets sold for notes receivable

 

$

28,147

 

$

12,700

Sales-type lease returns to sales-type lease assets

 

$

15,451

 

$

6,957

Common stock issued in acquisitions

 

$

15,355

 

$

3,438

Issuance of earnout shares

 

$

48,200

 

$

 —

Accrued Series A convertible preferred dividends

 

$

 —

 

$

1,693

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

5


 

Table of Contents

 

DASEKE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations

 

The registrant was originally formed in April 2015 as a special purpose acquisition company (SPAC) under the name Hennessy Capital Acquisition Corp. II (Hennessy). As a SPAC, Hennessy had no operations and its purpose was to go public with the intention of merging with or acquiring an operating company with the proceeds of the SPAC’s initial public offering (the IPO).

 

On February 27, 2017, Hennessy consummated the Business Combination (as defined and described in Note 3) with Daseke, Inc. Upon consummation of the Business Combination, Daseke, Inc. changed its name to Daseke Companies, Inc. and Hennessy changed its name to Daseke, Inc.

 

Daseke, Inc. was formed in December 2008 and began operations on January 1, 2009. Daseke is engaged in full service open-deck trucking that specializes primarily in flatbed truckload and heavy haul transportation of specialized items throughout the United States, Canada and Mexico. The Company also provides logistical planning and warehousing services to customers. The Company is subject to regulation by the Department of Transportation, the Department of Defense, the Department of Energy and various state regulatory authorities.

 

Unless expressly stated otherwise, references to the Company or Daseke refers to Daseke, Inc. and its wholly owned subsidiaries, Hennessy refers to the registrant prior to the closing of the Business Combination, and Private Daseke refers to Daseke, Inc. and its subsidiaries prior to the closing of the Business Combination.

 

Basis of Presentation

 

These interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ended December 31, 2018.

 

The consolidated balance sheet as of December 31, 2017 has been derived from the audited consolidated financial statements at that date. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes for the year ended December 31, 2017 as set forth in the Company’s Current Report on Form 10-K, filed with the SEC on March 16, 2018.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Daseke, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

6


 

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Deferred Financing Fees

 

In conjunction with obtaining long-term debt, the Company incurred financing costs which are being amortized using the straight line method, which approximates the effective interest rate method, over the terms of the obligations. As of June 30, 2018 and December 31, 2017, the balance of deferred finance charges was $16.8 million and $17.7 million, respectively, which is included as a reduction of long-term debt, net of current portion in the consolidated balance sheets. Amortization expense was $0.8 million and $0.5 million for the three months ended June 30, 2018 and 2017, respectively, and $1.5 million and $0.8 million for the six months ended June 30, 2018 and 2017, respectively, which is included in interest expense. In February 2017, in conjunction with new term loan financing, as amended, discussed in Note 10, the Company incurred deferred financing costs of $14.2 million and an additional $4.8 million in November 2017 related to the tack-on loan. Unamortized deferred financing fees totaling $3.9 million were expensed as a result of the new term loan financing.

 

Fair Value Measurements

 

The Company follows the accounting guidance for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a framework for measuring fair value and expands disclosures about fair value measurements. The three levels of the fair value framework are as follows:

 

Level 1 - Quoted market prices in active markets for identical assets or liabilities.

Level 2 - Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3 - Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs from inactive markets.

 

A financial asset or liability’s classification within the framework is determined based on the lowest level of input that is significant to the fair value measurement.

 

The fair value of the Company’s interest rate swaps is determined using cash flow computer models with unobservable inputs, therefore the liability for interest rate swaps is classified within Level 3 of the fair value framework. In conjunction with the Business Combination discussed in Note 3, the Company’s lone interest rate swap was terminated. The table below is a summary of the changes in the fair value of this liability for the six months ended June 30, 2017 (in thousands):

 

 

 

 

 

    

2017

Balance at January 1, 2017

 

$

(52)

Change in fair value

 

 

52

Balance at June 30, 2017

 

$

 —

 

Stock-Based Compensation

 

Awards of equity instruments issued to employees and directors are accounted for under the fair value method of accounting and recognized in the consolidated statements of operations and comprehensive loss. Compensation cost is measured for all stock-based awards at fair value on the date of grant and recognized using the straight-line method over the service period over which the awards are expected to vest.

 

Fair value of all time-vested options as of the date of grant is estimated using the Black-Scholes option valuation model, which was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Since the Company does not have a sufficient history of exercise behavior, expected term is calculated using the assumption that the options will be exercised ratably from the date of vesting to the end of the contractual term for each vesting tranche of awards. The risk-free interest rate is based on the United States Treasury yield curve for the period of the expected term of the stock option. Expected volatility is calculated using an index of publicly traded peer companies.

 

Fair values of nonvested stock awards (restricted stock units) are equal to the market value of the common stock on the date of the award with compensation costs amortized over the vesting period of the award.

 

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Table of Contents

DASEKE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Segment Reporting

 

The Company determines its operating segments based on the information utilized by the chief operating decision maker to allocate resources and assess performance. Based on this information, the Company has determined it has 16 operating segments as of June 30, 2018 and ten operating segments as of June 30, 2017 that are aggregated into two reportable segments: Flatbed Solutions, which delivers its services using primarily flatbed transportation equipment to meet the needs of high-volume, time-sensitive shippers, and Specialized Solutions, which delivers transportation and logistics solutions for super heavy haul, high-value customized and over-dimensional loads, many of which require engineering and customized equipment.

 

Earnings (Loss) Per Share

 

Basic earnings (loss) per common share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share reflect the potential dilution of earnings per share that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the Company’s earnings (loss).

 

For the three and six months ended June 30, 2018 and 2017, shares of the Company’s 7.625% Series A Convertible Cumulative Preferred Stock (Series A Preferred Stock) were not included in the computation of diluted loss per share as their effects were anti-dilutive. Additionally, for the three and six months ended June 30, 2018 and 2017, there was no dilutive effect from the Merger Agreement earn-out provision (see Note 3) or the outstanding warrants to purchase shares of the Company’s common stock (the common stock purchase warrants). For the three and six months ended June 30, 2017, shares of Private Daseke’s Series B Convertible Preferred Stock (Series B Preferred Stock) were not included in the computation of diluted loss per share as their effects were anti-dilutive.

 

Common Stock Purchase Warrants

 

The Company accounts for the issuance of common stock purchase warrants in connection with equity offerings in accordance with the provisions of the Accounting Standards Codification (ASC) 815, Derivatives and Hedging (Topic 815). The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). See Note 12 for additional details on the common stock purchase warrants.

 

The Company assessed the classification of its common stock purchase warrants and determined that such instruments meet the criteria for equity classification at the time of issuance.

 

Foreign Currency Gains and Losses

 

The local currency is the functional currency for the Company’s operations in Canada. For these operations, assets and liabilities are translated at the rates of exchange on the consolidated balance sheet date, while income and expense items are translated at average rates of exchange during the period. The resulting gains or losses arising from the translation of accounts from the functional currency into United States dollars are included as a separate component of stockholders’ equity in accumulated other comprehensive loss until a partial or complete liquidation of the Company’s net investment in the foreign operation.

 

From time to time, the Company’s foreign operations may enter into transactions that are denominated in a currency other than their functional currency (United States dollars). These transactions are initially recorded in the functional currency of the operating company based on the applicable exchange rate in effect on the date of the transaction. Monthly, these transactions are remeasured to an equivalent amount of the functional currency based on the applicable exchange rate in effect on the remeasurement date. Any adjustment required to remeasure a transaction to the equivalent amount of functional currency is recorded in the consolidated statements of operations of the foreign operating company as a component of foreign exchange gain or loss.

 

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Table of Contents

DASEKE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Assets Held for Sale

 

Assets held for sale is comprised of revenue equipment in the Company’s lease purchase program and is recorded as a component of prepaid and other current assets on the consolidated balance sheets. Assets held for sale at June 30, 2018 and December 31, 2017, totaled $14.1 million and $9.9 million, respectively. Assets held for sale totaled $10.2 million and $7.0 million for the Flatbed Solutions segment as of June 30, 2018 and December 31, 2017, respectively. Assets held for sale totaled $3.9 million and $2.9 million for the Specialized Solutions segment as of June 30, 2018 and December 31, 2017, respectively.

 

Assets held for sale are not subject to depreciation, and are recorded at the lower of depreciated carrying value or fair market value less selling costs. The Company expects to sell these assets in its lease purchase program within twelve months of being classified as assets held for sale. Any gains from the sale of these assets are recognized as a deferred gain in the consolidated balance sheets in current portion of net investment in sales-type leases and other long-term assets.

 

New Accounting Pronouncements

 

In March 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-05, Income Taxes (Topic 740). ASU 2018-05 provides amendments to SEC paragraphs pursuant to SEC Staff Accounting Bulletin (SAB) No. 118 related to the Tax Cuts and Jobs Act (TCJA) that became effective January 2018. The Company adopted the disclosure requirements of SAB 118 as of December 31, 2017 which were included in the Company’s Current Report on Form 10-K filed March 16, 2018 and as described in SAB 118 carried forward through June 30, 2018.

 

In July 2017, the FASB issued ASU 2017-11, Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Topic 815. ASU 2017-11 provides guidance on accounting for financial instruments with down round features and clarifies the deferral of certain provisions in Topic 480. ASU 2017-11 will become effective for annual periods beginning after December 15, 2018 and interim periods within those periods. The Company is currently evaluating the impact of adopting this guidance.

 

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718). ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award requires the application of modification accounting. Modification accounting will apply unless the fair value of the modified award is the same as the original award, the vesting conditions of the modified award are the same as the original award and the classification of the modified award as an equity instrument or liability instrument is the same as the original award. ASU 2017-09 became effective for annual periods beginning after December 15, 2017 and interim periods within those periods. The Company adopted this pronouncement on January 1, 2018 which did not have a material impact on its consolidated results of operations, financial condition, cash flows, or financial statement disclosures as there were no changes to the terms or conditions of the Company’s share-based payment awards during the six months ended June 30, 2018.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 provides new guidance intended to reduce diversity in practice in how certain cash receipts and payments are classified in the statement of cash flows, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, and distributions from certain equity method investees. ASU 2016-05 became effective for fiscal years beginning after December 15, 2017 and interim periods within fiscal years. The Company adopted this pronouncement on January 1, 2018 which did not impact its consolidated statement of cash flows.

 

In June 2016, the FASB issued ASU No. 2016-13, Accounting for Credit Losses (Topic 326). ASU 2016-13 requires the use of an “expected loss” model on certain types of financial instruments. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of adopting this guidance.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 amends various aspects of existing guidance for leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The main difference between previous GAAP and the amended standard is the recognition of lease assets and lease liabilities of lessees on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. Entities are required to adopt the ASU using a modified retrospective approach, subject to certain optional practical expedients, and apply the provisions of ASU 2016-02 to leasing arrangements existing at or entered into after the earliest comparative period presented in the financial statements. The Company is

9


 

Table of Contents

DASEKE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

currently evaluating the provisions of ASU 2016-02 and assessing its impact on the Company’s financial statements. As part of the Company’s assessment to-date, the Company has formed an implementation team and is currently reviewing lease accounting specific software packages. The Company expects the adoption of ASU 2016-02 will materially gross up its consolidated balance sheet with the recognition of right-of-use assets and operating lease liabilities. The impact to the Company’s consolidated statements of operations and cash flows are not expected to be material. The new standard will also require additional disclosures for financing and operating leases.

 

NOTE 2 – REVENUE RECOGNITION

 

Adoption of New Accounting Standard

 

The Company has evaluated its current accounting practices to the requirements of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and related amendments. This evaluation included an assessment of representative contracts from each of the Company’s revenue streams. The Company was recognizing revenue upon completion of transportation or other services. By nature, the Company’s services are short in duration, typically representing less than one week to completion, therefore the Company has determined that the difference between recognizing revenue upon completion and over time is minimal to its business.

 

In addition to freight revenue, the Company also recognizes logistics revenue as a separate revenue stream. Logistics revenue is generated from a range of services, including value-added warehousing, loading and unloading, vehicle maintenance and repair, preparation and packaging, fuel management, and other fleet management solutions. The Company recognizes logistics revenue over time as services are completed.

 

The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows, however, there have been additions and modifications to its existing financial disclosures. While the overall revenue, systems and controls were minimally impacted by the new standard, the underlying recognition methodology has changed. Under the new standard, the Company now recognizes revenue over time as its customers are simultaneously receiving and consuming the benefits of its services, primarily based upon the output method of miles driven. The primary difference for the Company’s business, although currently immaterial, is the recognition of revenue for in-transit services at the end of each reporting period.

 

The Company adopted this guidance as of January 1, 2018, utilizing the modified retrospective method and the practical expedient that applies to all contracts that were not completed at the date of adoption. The Company determined the differences between recognition methods was minimal, thus no opening adjustment was deemed necessary to retained earnings. The comparative information was not restated and continues to be presented under the accounting standards in effect for those periods. The Company does not anticipate any material changes to the costs of obtaining or fulfilling a contract, or corporate taxes.

 

Accounting Policies

 

The vast majority of the Company’s revenue is recognized over time as its customers simultaneously receive and consume the benefits. While there may be master service agreements with Company customers, a contract is not established until the customer specifically requests the Company’s services and the Company accepts.

 

The Company evaluates each contract for distinct performance obligations. In the Company’s business, a typical performance obligation is the transportation of a load including any highly interrelated ancillary services.

 

The Company predominantly estimates the standalone selling price of its services based upon observable evidence, market conditions and other relevant inputs. The Company allocates the total transaction price to each distinct performance obligation based upon the relative standalone selling prices.

 

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Table of Contents

DASEKE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The Company’s customers simultaneously receive and consume the benefits of the Company’s contracts, therefore revenue is recognized over time. This is a faithful depiction of the satisfaction of the performance obligation, as the customer does not need to re-perform the transportation services the Company has provided to date.

 

Brokerage Revenue

 

The Company regularly engages third-party capacity providers to haul loads brokered to them when it needs additional capacity. The Company is primarily responsible for fulfilling the promise to provide load transportation services, has discretion in setting prices, along with the risk to fulfill the contract to the customer. Based upon this evaluation, the Company has determined that it is the principal and therefore, records gross revenues for brokerage services.

 

Disclosure Designations

 

The Company has designated the following preference and practical expedients:

 

·

Not disclose remaining performance obligations when the expected performance obligation duration is one year or less. The vast majority of the Company’s services transfer control within a month of the inception of the contract with select specialized loads taking several months to allow for increased planning and permitting.

 

·

Recognize the incremental costs of obtaining or fulfilling a contract as an expense when incurred, as the amortization period of a potential asset would be recognized in one year or less.

 

·

Exclude taxes collected on behalf of government authorities from the Company’s measurement of transaction prices. Tax amounts are not included within net income or cost of sales.

 

Disaggregation of Revenue

 

The Company’s income and segment disclosures have been reviewed to ensure revenues are properly disaggregated in accordance with the new guidance as displayed in the table below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Flatbed

    

Specialized

    

 

 

    

 

 

 

 

Solutions

 

Solutions

 

Corporate/

 

Consolidated

 

 

Segment

 

Segment

 

Eliminations

 

Total

Three Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Freight

 

$

118,486

 

$

157,118

 

$

(3,021)

 

$

272,583

Brokerage

 

 

23,875

 

 

36,399

 

 

(183)

 

 

60,091

Logistics

 

 

693

 

 

8,236

 

 

(38)

 

 

8,891

Fuel surcharge

 

 

19,125

 

 

16,605

 

 

(396)

 

 

35,334

Total revenue

 

$

162,179

 

$

218,358

 

$

(3,638)

 

$

376,899

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Freight

 

$

68,889

 

$

82,143

 

$

(1,378)

 

$

149,654

Brokerage

 

 

9,495

 

 

19,198

 

 

(37)

 

 

28,656

Logistics

 

 

 —

 

 

2,708

 

 

(8)

 

 

2,700

Fuel surcharge

 

 

8,514

 

 

7,936

 

 

(137)

 

 

16,313

Total revenue

 

$

86,898

 

$

111,985

 

$

(1,560)

 

$

197,323

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Freight

 

$

222,998

 

$

294,627

 

$

(4,971)

 

$

512,654

Brokerage

 

 

46,873

 

 

59,589

 

 

(233)

 

 

106,229

Logistics

 

 

1,407

 

 

18,273

 

 

(71)

 

 

19,609

Fuel surcharge

 

 

35,909

 

 

30,757

 

 

(678)

 

 

65,988

Total revenue

 

$

307,187

 

$

403,246

 

$

(5,953)

 

$

704,480

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Freight

 

$

132,863

 

$

145,118

 

$

(2,772)

 

$

275,209

Brokerage

 

 

18,593

 

 

30,968

 

 

(36)

 

 

49,525

Logistics

 

 

 —

 

 

2,708

 

 

(8)

 

 

2,700

Fuel surcharge

 

 

16,746

 

 

13,864

 

 

(287)

 

 

30,323

Total revenue

 

$

168,202

 

$

192,658

 

$

(3,103)

 

$

357,757

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Table of Contents

DASEKE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Significant Judgements

 

Under the new revenue standard, significant judgements are required in order to identify contracts with customers and estimate transaction prices. Additional judgments are required for the identification of distinct performance obligations, the estimation of standalone selling prices and the allocation of the transaction price by relative standalone selling prices. Assumptions regarding the timing of when control transfers to the customer requires significant judgement in order to recognize revenue.

 

NOTE 3 – BUSINESS COMBINATION

 

On February 27, 2017, Hennessy consummated the merger of Hennessy’s wholly-owned subsidiary with and into Daseke, Inc., with Daseke, Inc. surviving as a direct wholly-owned subsidiary of Hennessy (the Business Combination) pursuant to the Agreement and Plan of Merger, dated December 22, 2016 (the Merger Agreement). The aggregate consideration received by Private Daseke stockholders upon closing was $266.7 million, consisting of newly issued shares of common stock at a value of $10.00 per share. The Merger Agreement contains an earn-out provision through which Private Daseke stockholders could receive up to 15 million additional shares of common stock (with up to 5 million shares payable annually with respect to 2017, 2018 and 2019 performance). The full 15 million shares are only payable if (i) the annualized Adjusted EBITDA (giving effect to acquisitions and as defined in the Merger Agreement) for 2017, 2018 and 2019 is at least $140.0 million, $170.0 million and $200.0 million, respectively, and (ii) the closing share price of the Company’s common stock is at least $12.00, $14.00 and $16.00 for any 20 trading days in a consecutive 30 trading day period in 2017, 2018 and 2019, respectively. For each year, the 5 million earn-out shares will be prorated to the extent the annualized Adjusted EBITDA (giving effect to acquisitions and as defined in the Merger Agreement) exceeds 90% but represents less than 100%, of the applicable earn-out target. The Company met the earn-out provisions for the year ended December 31, 2017 and 5 million shares were issued to the Private Daseke stockholders in the second quarter of 2018.

 

Following the consummation of the Business Combination on February 27, 2017 (the Closing), there were 37,715,960 shares of common stock issued and outstanding, consisting of (i) 26,665,330 shares issued to Private Daseke stockholders pursuant to the Merger Agreement, (ii) 419,669 shares issued in a private placement that closed in conjunction with the Business Combination, (iii) 2,288,043 shares originally issued to Hennessy Capital Partners II LLC (the Sponsor) in a private placement that closed simultaneously with the consummation of the IPO, and (iv) 8,342,918 shares, following redemptions, which shares were originally issued in the IPO. In connection with the Business Combination, $65.0 million of Series A Preferred Stock (650,000 shares) were issued in a private placement.

 

In conjunction with the Closing, the Company entered into (i) a $350.0 million term loan credit facility (the Term Loan Facility), which consists of a $250.0 million term loan funded on the closing date of the Term Loan Facility and up to $100.0 million of term loans to be funded from time to time under a delayed draw term loan facility, and (ii) an asset-based revolving credit facility (the ABL Facility), in an aggregate maximum credit amount equal to $70.0 million (subject to availability under a borrowing base). See Note 10 for more information regarding the Term Loan Facility and the ABL Facility. Prior to the Closing, the Company had a credit facility consisting of a term loan (Senior Term Loan) and a revolving line of credit (Line of Credit).

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Table of Contents

DASEKE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

The following table is a summary of cash proceeds and utilization of proceeds in the Business Combination (in thousands):

 

 

 

 

Proceeds

 

 

 

 

 

 

 

Public share proceeds(1)

 

$

83,429

Issuance of Series A Preferred Stock

 

 

65,000

Term Loan Facility

 

 

250,000

Cash(2)

 

 

3,209

Total proceeds

 

 

401,638

 

 

 

 

Use of Proceeds

 

 

 

 

 

 

 

Repayment of Line of Credit(3)

 

 

16,717

Repayment of Senior Term Loan(4)

 

 

122,724

Repayment of equipment loans(5)

 

 

89,488

Repayment of subordinated debt(6)

 

 

67,460

Payment of deferred financing fees(7)

 

 

14,148

Repurchase Main Street and Prudential shares(8)

 

 

36,168

Hennessy transaction costs

 

 

19,063

Daseke transaction costs(9)

 

 

1,204