Daseke, Inc. (DSKE) Q4 2018 Earnings Conference Call Transcript

DSKE earnings call for the period ending December 31, 2018.

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Daseke, Inc.  (NASDAQ:DSKE)
Q4 2018 Earnings Conference Call
March 08, 2019, 11:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning, everyone, and thank you for participating in today's conference call to discuss Daseke's Financial Results for the Fourth Quarter and Full Year Ended December 31, 2018. Delivering today's prepared remarks is Don Daseke, CEO and Chairman; Scott Wheeler, President and Director; Bharat Mahajan, CFO; and Chris Easter, COO. After their prepared remarks, the management team will take your questions.

Before we go further, I would like to turn the call over to Cody Slach of Liolios Group, Daseke's IR Advisor, as he reads the company's Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Cody Slach -- Investor Relations and Advisor

Thanks, Nicole. Today's presentation includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include projected financial information. Forward-looking statements, including those with respect to revenues, earnings, performance, strategies, prospects and other aspects of Daseke's business, are based on current expectations 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 SEC for a discussion of the risks that can affect our business. We undertake no obligation to revise our forward-looking statements to reflect events or circumstances occurring after today.

During the call, there will also be a discussion of some items that do not conform to the US Generally Accepted Accounting Principles, or GAAP, including adjusted EBITDA and acquisition-adjusted measures. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the Appendix to the investor presentation and press release issued this morning, both of which are available in the Investors tab of the Daseke website, daseke.com.

In addition to being in the flatbed specialized trucking business, Daseke is in the business of acquiring other flatbed specialized carriers to join Daseke. Therefore, investors in Daseke's stock should assume Daseke is always evaluating, negotiating and performing due diligence on potential acquisitions.

Now, I would like to turn the call over to Daseke's CEO, Mr. Don Daseke. Don?

Don R. Daseke -- Chairman and Chief Executive Officer

Well, thank you, Cody, and good morning, everyone. I'm excited to be here today to share the results of another record year. Starting on Slide 3. Today we will cover several topics. First, I'll provide a high level review of our full year 2018 results. I will then revisit Daseke's compelling market opportunity and address where we headed as an organization. As we reported in our pre-announcement last month, our strategic focus for 2019 will be on driving organic growth, operational effectiveness generating free cash flow and delevering our balance sheet. I will then introduce our new Chief Operating Officer, Chris Easter and then Bharat will take you through our financial results in detail and provide our 2019 financial outlook. Finally, Scott will close the call with a review of our 2018, strategic priorities as well as present our priorities for 2019.

Turning to Slide 4. 2018 was another record year of revenue and adjusted EBITDA for our organization. Revenue for the year increased 91% to $1.6 billion and was above our outlook of $1.55 billion driven by solid organic growth as well as revenue on an acquisition adjusted basis was up 14%. Adjusted EBITDA in 2018 was up 90%, to a record $174.3 million and above our outlook of $170 million.

On an acquisition adjusted basis, EBITDA was up 14%. The fact that our adjusted EBITDA has grown at a pace consistent with revenue is proof that our consolidation strategy is working and that the company we've built can produce solid long-term organic growth. In 2018 along with nearly doubling revenue, we drastically grew the scope and scale of our business and diversified our revenue mix. We ended 2018 with a mix of 51%, asset-light, up from 41% in 2017. This assets light shift is meaningful as it allows us to operate a nimbler organization with lower capital expenditure, capital investment requirements yielding higher free cash flow.

Turning to Slide 5, that tells the story of our unique growth company and shows the solid record in our building North America's largest mover of industrial goods. The business has grown significantly over the first decade with a 10-year revenue CAGR of 56%, and an adjusted EBITDA CAGR of 45%. Our objective over the next 10 years is to accelerate returns on our capital.

On Slide 6, over the course of our first decade, we executed on our strategy of building scale. We have built a great company and today we are the market leader with plenty of runway for growth and consistently produce results in line with our outlook. Even with these strong results, I truly believe that we've only scratched the surface, and I'm excited for what the next decade will bring. Looking at our strategy for 2019, we're taking a pause on M&A and our focus will be centered around organic growth, free cash flow generation and delevering our balance sheet, all which we believe will drive shareholder value over the long term.

Turning to Slide 7. I'm very excited about our team and one that has evolved and strengthened throughout the year. In terms of our roles, I will continue to focus on the big picture strategy, while Scott will focus on developing and implementing strategic initiatives. Bharat will focus on capital markets and financial strategy and Chris will be tasked with trucking operations.

Speaking of Chris. I'd like to formally introduce him on this call. Chris is a West Point graduate, a recipient of the Bronze Star in Desert Storm and brings with him more than 30 years of industry experience in key transportation and logistics roles, including the U.S. Army, Wamart, Schneider. His in-depth knowledge of flatbed and specialized transportation, broad background in large-scale logistics and proven ability to build and lead teams gives us great confidence in his ability to make a meaningful impact on our organization. Chris' leadership style, experience and organizational skills will be instrumental in driving organic growth, maximizing free cash flow and optimizing our scale. I'm confident he will be an excellent addition to our management team.

So with that, I'd like to turn the call over to Chris, so he can speak about his new role and the opportunities he sees in the business. Chris?

Chris Easter -- Chief Operating Officer

Thank you, Don, and good morning, everyone. It's great to be joining you today. I'd like to say how honored I'm to been selected to lead our fantastic operating team. I've watched Don and the Daseke team build an exceptional company focused on flatbed, specialized transportation and logistics. As I look across Daseke, I see an unmatched breadth and depth of technical know-how, coupled with an equally impressive legacy of success, that success spanning over many decades and across many different customers and industry verticals. We are uniquely positioned in the marketplace and I see tremendous opportunities ahead for both growth and operational effectiveness across the entire Daseke organization.

With that, I'll pass the call over to Bharat.

Bharat Mahajan -- Chief Financial Officer

Thank you, Chris. Before I discuss our results, turning to Slide 9. I'd like to talk about a term that we reference on a regular basis, acquisition adjusted. Our financial statement results only include the period, post the transaction date and acquisition adjusted includes the results both pre and post the transaction date. Therefore, we believe our results on an acquisition adjusted basis are a better proxy of our size and organic growth and provide some helpful data points.

I will now move to our fourth quarter financial details, which I presented on Slide 10. Revenue increased 74% to $447 million compared to $257.2 million, which in the year ago -- in the year ago quarter. On an acquisition adjusted basis, revenues were up 13%, which again is how we internally view organic growth. Operating loss was $8.3 million compared to a loss of $2.3 million in the year ago quarter. Daseke was highly acquisitive throughout 2017 and 2018. As a result, when we acquired companies, we stepped up the book value of assets of each acquisition to fair market value and recorded the value of intangible assets such as customer relationships and non-compete agreements.

The depreciation impact of the step-up of assets to fair market value as well as the amortization of intangible, impacts of operating income and net income which makes comparability to other trucking companies that are not as acquisitive less meaningful.

For the fourth quarter of 2018, $7.7 million of depreciation was related to the net impact of the step-up in basis of acquired assets, and amortization was $4.5 million, for a total impact of $12.2 million. Further, Q4 2018 operating costs were impacted by $11.1 million related to goodwill impairment. The combined impact of the increased depreciation use a step up in basis, intangible amortization and goodwill writedown had a non-cash impact of $23.3 million.

Net loss for the fourth quarter was $20.1 million or $0.31 per share compared to net income of $38.8 million or $0.84 per share in the year ago quarter. Adjusted net income where we adjust for acquisition or business combination related expenses, non-cash impairment, amortization of intangible assets, the net impact of step-up in basis of acquired assets and the impact of the revaluation of deferred taxes due to the tax rate change in the Tax Cuts and Jobs Act was $3.4 million compared to an adjusted net loss of $2.4 million in the fourth quarter of 2017.

Adjusted EBITDA increased 73% to $39.9 million compared to $23.1 million in the fourth quarter of 2017. And this represents the fifth consecutive quarter that year-over-year adjusted EBITDA growth has exceeded 50%. Acquisition adjusted EBITDA increased to 7% -- increased 7% to $39.9 million compared to $37.2 million in the fourth quarter of 2017.

Looking at our results by segment, flatbed revenue in the fourth quarter increased 73% to $173.3 million with adjusted EBITDA up 38% to $15.2 million. Specialized solutions revenue increased 75% to $277.9 million and adjusted EBITDA was up 95% to $36.6 million. Before providing further commentary by segment, as a reminder, there is seasonality in our business. We move open deck freight, so our freight is exposed to the elements and demand is higher in the warmer months. Typically you will see higher levels of rate, revenue and earnings in the second and third quarters and typically lower levels in the first and fourth quarters.

Moving onto a more detailed view of our segment results. Slide 11 provides a view of our Q4 revenue and adjusted EBITDA on an actual and acquisition adjusted basis for our flatbed segment. The addition of Tennessee Steel Haulers last December, a 1,000 truck owner operator fleet caused asset-light revenues in our flatbed segment to increase from 50% in 2017 to 62% in 2018.

Please recall asset-light revenues generates lower EBITDA margins, however, have substantially lower long-term capital expenditure requirements resulting in higher free cash flow. Given our strategic decision to move to a more asset-light mix, we experienced a lower EBITDA margin, but our actual dollar amount of adjusted EBITDA grew by 38%. During the quarter, we experienced some headwinds in our flatbed segment. Wages for both drivers and non-driving personnel have continued to rise with tight labor markets.

While freight rates are up significantly year-over-year, the market is still adjusting to the current environment. In 2018, there was a significant dislocation in the market, that caused pricing to increase substantially. This led to incremental trucking capacity, coming into the market to provide shippers with some temporary relief toward the end of the year, which is typically a time of lower demand because of the winter weather and holidays. Long-term capacity constraints still exist, but we are seeing some short-term loosening in the market. Conversations with shippers around demand leading indicators like the IFM, manufacturing index and industrial production index all provide encouraging data points, but we will continue to monitor this as we head into the spring season.

Slide 12 highlights a few revenue metrics within flatbed. Fourth quarter rate per mile was up 5% to a $1.96. For context, rates were up 14% in Q4 of 2017 compared to Q4 of 2016 meaning that we still had rate growth against the top comp. Flatbed revenue per tractor increased 5% to $41,800 compared to $39,400 in the fourth quarter of 2017.

Slide 13 provides a more detailed review of Q4 2018 revenue and adjusted EBITDA for our specialized segment. The shift in the percentage revenues from asset heavy to asset-light decreased slightly to 41%. The adjusted EBITDA margins in our specialized business improved 100 basis points due to operating leverage driven by higher rates and improved freight mix. Namely, the over dimensional loads associated with major capital improvement projects undertaken by our customers and strengthened energy, commercial blast in our defense business.

On Slide 14, you can see we realized that 38% increase in rig per mile $3.60 compared to $2.62 in the fourth quarter of 2017. Driven by wind volume up from Q4 of 2017 and the addition of Aveda's high rate per mile project business. Revenue for tractor increased 31% to $63,000 compared to $47,600 in the year ago quarter.

Turning to Slide 15 and transitioning to full year 2018 results. Revenue in 2018 increased 91% to $1.6 billion. The strong revenue growth was driven by the benefit of the acquisitions we completed in 2017, four acquisitions made in 2018 and solid organic growth with revenue on an acquisition adjusted basis up 14%. Operating income increased significantly in 2018 to $21.9 million, up 212% from $7 million in 2017. Included in operating expense is $24.1 million of depreciation expense related to the net impact of the step-up in basis of acquired assets, $16.6 million for the amortization of intangibles and the writedown of goodwill and intangibles added another $13.9 million for a total non-cash impact of $54.6 million. Net loss for 2018 was $5.2 million or $0.8 per share compared to net income of $27 million or $0.72 per share in 2017.

Adjusted net income for 2018 was $39.5 million compared to $1.4 million in 2017. Adjusted EBITDA increased 90% to $174.3 million compared to $91.9 million in 2017. Acquisition adjusted EBITDA increased 14% to $190.4 million compared to $166.3 million in 2017.

Turning to our 2018 results by segment. Flatbed revenue increased 87% to $662 million primarily driven by two flatbed acquisitions since December 2017 with adjusted EBITDA up 45% to $70.2 million. Specialized solutions revenue increased 93% to $965.1 million due largely to two specialized acquisitions we made since December 2017. Specialized adjusted EBITDA was up 110% to $134.6 million.

Slide 16 measures EBITDA by segment on an acquisition adjusted basis. Looking at our results this way. On the flatbed side, we had an increase in our acquisition adjusted EBITDA by 7% to $78.8 million compared to $73.9 million in 2017. Acquisition adjusted EBITDA in our specialized segment increased 26% to $142 million from $112.8 million in 2017 due to higher volumes in our wind business and investments made in 2018 particularly in support of our commercial glass business.

Finally, in the corporate adjustment line item, you will see we had an increase in cost, primarily driven by revenues nearly doubling in 2018. While overhead costs increased in 2018 on an absolute dollar basis as a percentage of revenue, corporate overhead declined 50 basis points to 1.9% compared to 2.4% in 2017. Despite our growth, we are driving down our corporate overhead as a percentage of revenue. The key takeaway on this slide is the 14% acquisition adjusted EBITDA growth we reported for the year which demonstrates that our organic growth initiatives are working.

Now turning to our balance sheet. As Slide 17 indicate, at December 31, 2018, we had cash of $46 million, $87.8 million available under our asset backed loan, net debt was $656.4 million and total available liquidity was $133.8 million. Additionally, at the end of 2018, working capital excluding cash and earn-out liabilities totaled $89.4 million, which was up 32% or $21.4 million versus the end of 2017. This compares to total revenue growth of 91% during the year which shows our efficient use of capital during the period of significant business expansion.

Moving on to our leverage metrics on Slide 18. If one word to use a common financial reporting platform to calculate leverage using historical reported results without taking the full impact of acquisitions into account, one could calculate a leverage ratio of approximately 4.4 times EBITDA. However, it is very important to note that in accordance with our debt facility to leverage as defined was 3.3 times at December 31.

Note that this is lower than what a simple calculation based of our reported financial statements equates to and what commonly used financial platform show because these calculations reflect the debt from acquisitions right after closing, but do not reflect the full year of corresponding acquired earnings. Our debt agreements made pro forma adjustments for this.

On Slide 19, we reiterate our 2019 outlook. For 2019, we expect revenue to be in the range of $1.8 billion to $1.9 billion, an increase of approximately 12% to 18% over 2018. Adjusted EBITDA is anticipated to be in the range of $200 million to $210 million, an increase of approximately 15% to 20% over 2018. This represents approximately 8% growth over our acquisition adjusted EBITDA of $190.4 million in 2018.

Net capital expenditures are expected to be in the range of $65 million to $70 million compared to $121 million in 2018. We anticipate that approximately 70% of our total capital expenditures in 2019 will be invested in the first two quarters of the year. We expect to delever the balance sheet by the end of the year and our end of the year net leverage ratio as defined in our debt agreement is expected to be approximately 2.9 times at December 31, 2019.

For a more detailed view of our 2019 outlook, please reference the table at the end of the press release we issued today.

Now I'll turn the call over to Scott.

R. Scott Wheeler -- Director and President

Thank you, Bharat. Good morning, everyone. First, I would like to highlight the many accomplishments that the organization achieved under our 2018 strategic priorities. Second, I will show the benefits of joining the Daseke platform by sharing the results of a recent acquisition. And finally, I will introduce our priorities for 2019.

Now please turn to Slide 21 and review our 2000 (sic) (2018) strategic priorities and the major accomplishments we achieved under each priority. As I laid out in prior calls, our three main strategic priorities in 2018 were organic growth, operational effectiveness and focused M&A. In 2018, we've made significant strides on all three fronts.

First grabbing organic growth throughout the organization was and will always be our primary initiative for our company and you clearly saw that with the results we are discussing today. Second, we have numerous achievements under our operational effectiveness initiatives. These produce significant programs that allowed us to take advantage of our consolidated purchasing power, manage our overall fleet more effectively through Daseke Fleet Services, invest in new equipment and facilities to reduce our operating costs in 2019 and maintain corporate overhead in the desired range as the percentage of revenues.

Finally, our third strategic priority for 2018 was focused M&A. During the year, we made two acquisitions of scale and two acquisitions that became subsidiaries of our existing platform companies. We found great businesses that well within our existing operations and will benefit from our scale and platform.

On Slide 22, we highlight our largest acquisition during the year, Aveda. The transaction closed on June 6, 2018, and in the seventh month ended December 31, 2018, is compared to the same year ago period, revenue increased to 26%, to $124.3 million, adjusted EBITDA increased 87% to $13.6 million and adjusted EBITDA margin increased 350 basis points to 10.9%. These amazing results would not have been achieved if it wasn't for the extremely talented Aveda team and the synergies available to us -- available to us to the -- due to the platform we built at Daseke.

We often discuss the 20% average uplift in adjusted EBITDA that we generate two years after companies joined Daseke. This is an average and not all achieve the results Aveda has produced in such a short period of time. But combined with the solid acquisition adjusted growth we produced in 2018, you can clearly see the value that is created when companies joined Daseke. We don't expect to breakout each acquisition going forward, but given the public profile of Aveda, the size of the acquisition, we hope you appreciate the additional color we have provided these past two quarters.

Overall, we made significant achievements on the initiatives we attach the business with -- at the beginning of 2019. I believe that the scale we have built combined with the operational excellence we are driving will allow us to continue to produce outstanding results and sets this up nicely to tackle our strategic priorities for 2019.

Speaking of which, let's turn to Slide 23. The objectives we are focused on in 2019 will centered around organizational and operational effectiveness. At a high level, we will prioritize operations and operational effectiveness over acquisitions in an effort to drive free cash flow generation and the deleveraging of our balance sheet. There are several areas we plan to focus on to accomplish our 2019 objective starting with organic growth. Our efforts to drive organic growth will be led by operational efficiency, sales maximization, new customer growth, appropriate rate increases, and expanding our overall capacity by growing our brokerage business, which can drive revenue growth with low overhead and low capital needs.

Next, we will be building on our shared services platform in several key areas. We will gain greater efficiency through taking advantage of our purchasing power and optimizing our fleet via Daseke Fleet Services. This will allow us to maintain the optimal fleet mix, manage maintenance and operations of our revenue generating assets and help maximize the efficiency of our capital expenditures. We will build out our business development efforts and build the infrastructure, systems, capacity and the people to maximize the efforts of our sales teams across the country. Finally, we anticipate that we will end the year with an appropriate amount of financial leverage. Our focus on producing free cash flow to naturally reduce net leverage will also position us for agility in any market condition.

The strategic priorities we have set for the business in 2019 will work our -- hard work and dedication from the entire organization. But I'm confident that we are developing the right people, processes and structures to drive the business forward and accomplish the goals we have set for the year.

Before turning the call back to the operator for questions and answers, let's turn to Slide 24, to review the key takeaways. In 2019, we exceeded expectations, delivered exceptional organic growth and executed on several great acquisitions. We've laid out our strategic plan for 2019 and we will be focused on free cash flow generation and reducing net financial leverage. Additionally, we will continue to grow this organization organically through maximizing the existing business operations of the business that we have built, controlling cost, taking advantage of our scale and ensuring that we have the people, processes, systems and structures to succeed. The team is excited about all the opportunities are ahead of us in 2019, and we look forward to updating you on our progress as we execute on our plans.

This concludes our remarks. And now I will turn the call back over to the operator for Q&A.


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Questions and Answers:

Operator

Thank you, sir. (Operator Instructions) And our first question comes from Jason Seidl from Cowen and Company. Please proceed.

Adam Kramer -- Cowen and Company -- Analyst

Hey, guys, this is Adam on for Jason. I guess my first question was the impairment charge this quarter was a little higher than usual. And just wondering is this something you anticipate happening again? You may have to writedown other businesses? Or was this just simply a one-time thing and won't be occurring again?

Bharat Mahajan -- Chief Financial Officer

Thank you. Good morning, Adam. This is Bharat here. The impairment charge we kind of view that as a one-time event, it was related to a particular business unit and just looking at kind of -- when we look at impairments, we have to do it at a Daseke level, Daseke past when we look at it from a flatbed and specialized standpoint. Those business unit past as well and then we go down to an operating company level in this particular operating company had some operational challenges and we've got past that, and we feel that the results from this operating company are going to be strong in 2019, so just a one-time event.

Adam Kramer -- Cowen and Company -- Analyst

Got it. Thank you for that. And then a quick follow up. I just trying to think a little bit about revenue synergies and cost synergies from your acquisitions. And maybe darting this one to Chris, what kind of are your initial focus is or initial projects that you're working on. How can you guys drive more synergies off of some of the acquisitions from last year?

Chris Easter -- Chief Operating Officer

Yeah, Adam. Thank you for that. My initial focus really is what I'd describe as operational margin focused deeply on listening, assessing and then prioritizing. Just finishing my fifth week on the job, been able to visit just over half of our operating units and their leadership teams. I'm going to complete the balance of those visits over the next four weeks. So by that first week of April, I'll have completed a kind of a national tour and hit all of the operating units. I think at that point, I'll be able to better than prioritize existing current initiatives and/or any new initiatives we feel could be put in place to help drive that both the organic growth and the operational effectiveness. I'm not at a point yet where I'm ready to get into any details from that as I'm still deep into that assessment.

Adam Kramer -- Cowen and Company -- Analyst

Got it. Well, thank you so much for the time. Appreciate it.

Operator

Thank you. And our next question comes from Steve Dyer from Craig-Hallum. Please proceed.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Good morning. Thanks for taking my question. Just digging into the two different segments. You seem to be getting really good operating leverage on the specialized side of the business year-over-year organically and less so there seems to be more struggle around flatbed. And I'm just wondering if there's something inherently different about those two sides of the business, sort of the companies that you acquired and the ability to extract synergies on that over the last year and how you think about that going forward?

R. Scott Wheeler -- Director and President

Well there are -- this is Scott, there are significant differences between the two segments, clearly flatbed is a more traditional platform trailering equipment that will move more traditional, building material specialized, and specialized will take a lot more different equipment, different rates per mile and different market cycles and market fluctuations. So we are being able to achieve a lot in a lot of areas and I think you will see us be able to continue to do so. But I think what you're seeing is that it's a rate based or market-based environment, where specialized were picking up pretty significantly in the back half of the year.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Yeah, I mean, I understand the differences in the two businesses, but revenue -- revenue growth exceeded EBITDA growth on a acquisition adjusted basis on flatbed by a decent amount. So I'm just wondering why on an operating basis that side is deleveraging?

R. Scott Wheeler -- Director and President

Oh yeah, absolutely. That's -- sorry, I didn't understand your question. That segment of our business became dramatically asset lighter. And Bharat showed the slides on the next pre and post. We have much greater concentration of owner operators as opposed to company drivers over the prior year. And in fact, our brokerage which has even lower margins was up over 100% quarter-over-quarter, so -- year-over-year, I mean, so that combination of dramatically shift to an asset lighter delivery platform and flatbed really focused on that. We may show up in less margin expansion, but it would be anticipated to be lower because of the nature of the delivery mechanism.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Okay, I can take the rest offline. Just a question around CapEx, since you've gone public, I think you've wrestled with what's a sustainable or maintenance CapEx level as a percentage of revenue and I've heard everything I guess from 4.5 or 5 to 7. And I'm just trying to think about, is this year is the level that you're guiding for this year, sustainable? And I don't know how to think about that in terms of average age of your equipment. Do you view this as a maintenance year? Do you view it as a little bit leaner year to generate some free cash flow? Or going forward what -- I guess, what rule of thumb should we think about there?

Bharat Mahajan -- Chief Financial Officer

Hey, Steve, it's Bharat. So we've gone through and run a several different model and looked at maintenance CapEx from various perspective. And where we've generally landed, given where our fleet is right now, that -- we're generally going to land somewhere in that $65 million to $75 million range depending on how we look at maintenance CapEx and one of the other things that we've also started to do and this is already reflected in our 2019 guidance and that we've also started to supplement some of the fleet with some operating leases as well and then that gives us some flexibility with respect to being able to better manage through business cycles and things like that as well. So the level that we've kind of put out for 2019, we feel very comfortable with those levels.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Thanks, Bharat. And then I guess if I look at the different assumptions including CapEx, I sort of get to a GAAP free cash flow as defined by cash from operations less CapEx, I kind of get to a free cash flow number of around $50 million to $70 million for 2019. Am I in the ballpark there?

Bharat Mahajan -- Chief Financial Officer

Yeah. Depending on kind of how we looked at it and we kind of take from an EBITDA standpoint and back off all the items. We come out to somewhere between $65 million to $75 million in that range generally.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Okay. All right. I'll hop back in the queue. Thank you.

Bharat Mahajan -- Chief Financial Officer

Thanks, Steve.

Operator

Thank you. And our next question comes from Paul Penney from Northland Capital. Please proceed.

Paul Penney -- Northland Capital Markets -- Analyst

Good morning, guys. Thanks for taking my call. On the debt side, credit spreads have come down a little bit this year and it was mentioned before, Bharat, in terms of maybe a focus on (Technical Difficulty) with your receivables?

Don R. Daseke -- Chairman and Chief Executive Officer

Paul, could you repeat that question? You broke up a little bit.

Paul Penney -- Northland Capital Markets -- Analyst

Question about the ability to refinance the debt, ability, just to -- that was touched upon earlier I think a couple of quarters ago and just your thoughts on, is there ability to get a new banking relationship with somewhat -- some sort to lower the cost of debt?

Bharat Mahajan -- Chief Financial Officer

Yes, happy to answer that, Paul. So certainly something that we always look at is our capital structure and we're visiting that on a constant basis. We do have as you know a pretty substantial amount over $200 million of AR against an ABL that is only $100 million. So we see that there is opportunity there. We've also kind of looked at what's happening with respect to the debt markets, as you know they were pretty difficult at the end of 2018. The good news for Daseke is that we're in a very strong position this year and we're going to be naturally delevering ourselves down to 2.9 times by the end of this year. So we can be opportunistic and when we feel the timing is right and market conditions are right where we can get a favorable transaction done, we'll look to do something.

Paul Penney -- Northland Capital Markets -- Analyst

Okay, great. And I totally applaud your efforts to delever and focus on free cash. Is there any covenants in the debt side that would prevent you from buying back stock given the cheapness of your stock on an absolute and relative basis?

Bharat Mahajan -- Chief Financial Officer

There are certain restrictions within the debt agreements with respect to how much stock we could buyback. But our decision right now is that we just want to focus predominantly on delevering the business and then after we've done that, we can decide what is the best use of that cash.

Paul Penney -- Northland Capital Markets -- Analyst

Okay, great. And then just one just quick question on the CapEx side again. Why is it front-end loaded this year? Can you just give more color on why it's front-end loaded versus back-end loaded this year?

Bharat Mahajan -- Chief Financial Officer

It's just last year the timing of what we did with respect to our bill slots and things like that in terms of how we manage them. It was really related to that more than anything else. So that's the main reason as back-end loaded.

Paul Penney -- Northland Capital Markets -- Analyst

Okay, great. And Scott, we do truly appreciate the extra disclosure on Aveda and your acquisition. So compliments there. Thanks so much.

Bharat Mahajan -- Chief Financial Officer

Thank you, Paul.

Operator

Thank you. And our next question comes from Matt Brooklier from Buckingham Research. Please proceed, sir.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Hey, thanks, and good morning. So just a question on your pricing expectations, you talked to 2.5% rate growth on a consolidated basis. Are you able to provide a little bit of color in terms of what you're expecting for your flatbed division and then what you're expecting on the specialized side of things?

Don R. Daseke -- Chairman and Chief Executive Officer

Well, we would expect something along this line. We continue to believe the specialized will be very tight and there will be a very strong pricing environment in specialized. There's a lot of activity in specialized that makes us feel that, that will continue to be strong. We think it will be loser capacity and therefore a little bit loser pricing and transactional flatbed business, weather events would effect all of those things. But we still -- regardless of that combination, we still feel confident in our ability to achieve our guidance.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Okay. So it sounds like you're getting more rate growth contribution from the specialized side of the business versus flatbed for '19 and I guess, OK. And if you could just talk to -- we're kind of a little bit early in the bid season, but talk about your experience in terms of trying to get incremental rate on your contract business across the board. How are those negotiations, how are those conversations gone? Are they in line with your expectations, are they gone better or worse? Just looking for a little bit more color in terms of kind of the initial progress through bid season?

Don R. Daseke -- Chairman and Chief Executive Officer

Once the initial progress is very analogous to what I outlined, there still is a great deal of tightness of capacity and a heightened demand in the specialized side. On the flatbed side in 2018, we had a lot of exposure to what we call premium rates, not largely going into hurricane affected areas and things like that. But the -- that caused almost like a spike. It's not -- we don't have a large exposure to spot when we do it can be quite profitable, we don't expect those premium rates to be in place in 2019.

But generally pricing discussions have been positive and up ticking and that we -- at the end of the day will depend upon volumes that the pricing environment is very good, but stronger and specialized and flat.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Okay. And then you highlighted that your corporate cost Bharat were up in '18. Is there a good way to think about what '19 should look like from a corporate cost perspective?

Bharat Mahajan -- Chief Financial Officer

Yeah, I kind of look at, we did about $30 million in 2018 and probably look at somewhere in that $30 million to $35 million for 2019.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Okay, that's helpful. And then my last question, I'll pass it along. How should we think about cost and specifically driver wages saw a big increase in terms of market, driver wages in '18, what are your thoughts on driver wage increases in '19? Do you think they key pace with there's 2.5% increase in rates, could it be a little bit more than that, could it be a little bit less. How are you thinking about the driver cost side of things?

Don R. Daseke -- Chairman and Chief Executive Officer

Well, as you know we've been on a rising driver wage environment in all of 2018, and we believe that will continue in 2019. In the Q4 '18 over Q4 '17 drivers wages were up about 10%. We do believe that 2019 will also be a year of increasing wages probably in the mid-single-digit something like that, but once again, that rising wage environment is one of the major drivers for a rising rate environment. And shippers know that we all need drivers to be able to fulfill our goals, and so rates are going to be a part of that.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Okay. Appreciate the time guys.

Operator

Thank you. And our next question comes from David Ross from Stifel. Please proceed.

David Ross -- Stifel Financial Corp. -- Analyst

Yeah, thank you, and good morning. Just a follow-up on that last question on rates. It sounds like the 2.5% pricing guidance is artificially low because there's some year-over-year spot comp that is challenging that -- I guess, if you had just talk about on an apples-to-apples basis, what kind of contract renewals are you getting from customers when you're sitting down with them now?

Don R. Daseke -- Chairman and Chief Executive Officer

We don't release that data.

David Ross -- Stifel Financial Corp. -- Analyst

Okay. And then what percentage is spot versus contract on the flatbed side, because you talked about that being transactional but more than not being contract?

Don R. Daseke -- Chairman and Chief Executive Officer

I'm not sure, I understand the question David, but I'm going to try and answer it anyway.

David Ross -- Stifel Financial Corp. -- Analyst

I mean, is it 90% contract or -- and 10% spot on the loads for flatbed?

Don R. Daseke -- Chairman and Chief Executive Officer

Oh, yeah, something like that, it is probably -- well, we probably gotten a little more spot. So it's probably 85-15, 80-20, something like that on the contract versus spot.

David Ross -- Stifel Financial Corp. -- Analyst

Is that similar to a year ago or is it come back more to the contract side?

Don R. Daseke -- Chairman and Chief Executive Officer

It's more spot than it was at this point in time a year ago, but some of that is a couple of the acquisitions that we made in 2018 just had more exposure to spot than we had historically. And then whereas the premium rates were going into effect kind of splits (ph) if you will that was taking place a lot in flatbed as well.

David Ross -- Stifel Financial Corp. -- Analyst

I know we talked a lot about 4Q, but it's only three weeks left in the first quarter. So I guess how was it and how's March specifically in the first week?

Bharat Mahajan -- Chief Financial Officer

We don't normally David, discuss quarters before they've come to an end. What I can tell you is that overall for 2019, we feel very comfortable with our guidance of $1.8 billion to $1.9 billion in revenue and $200 million to $210 million in EBITDA.

David Ross -- Stifel Financial Corp. -- Analyst

Okay. And then Bharat, what's the average fleet age right now as it stands, If you look across and you could either do it for flatbed and specialized separately or overall with the aggregate fleet?

Bharat Mahajan -- Chief Financial Officer

Here's what I state, David, is generally our line haul is going to be from 2.4 to 2.8, 2.9 years. You are going to see an older fleet age in our heavy haul like Aveda type of business. Those trucks last a lot longer, 10 to 15 years, trailers will last between 15 and 30 years. So that side of the business has a longer fleet age than the line haul side of the business.

David Ross -- Stifel Financial Corp. -- Analyst

Yeah, it's understandable because it put fewer miles per year on them...

Bharat Mahajan -- Chief Financial Officer

Absolutely.

David Ross -- Stifel Financial Corp. -- Analyst

On a tired after a few years. I'm not sure if you answer this already or not, but flatbed adjusted -- I guess acquisition adjusted EBITDA was down year-over-year in the fourth quarter. What was the reason for that?

Don R. Daseke -- Chairman and Chief Executive Officer

Well it was mix. We had mixed results, but it was largely a bit of a tough comp over Q4 '17. We were getting those bonus rates I talked about related to hurricanes Harvey and Irma, the time when capacity was already tightening, our miles were down about -- just almost 3% kind of 2.8%. But probably one of the biggest things is the shift in the mix of revenues from mostly company to heavy owner operator percentage and brokerage. So our asset-light mix grew significantly. There was -- and our brokerage grew significantly as well. And there was -- the first time we really noticed any effects for that whole tariff discussion in our business, we think there was some acceleration of steel inventories forward in the third quarter and then took a pause in the fourth quarter, as people were waiting and seeing in anticipation of what would happen when tariffs kicked in or if they would kick in. And so there was kind of a wait and see and steel to some degree in the fourth quarter we believe affected those numbers.

David Ross -- Stifel Financial Corp. -- Analyst

And both in the flatbed and specialized segments you've got brokerage. Is there a thought to combine the brokerage, you basically just have brokerage separately that handle both flat and specialized or is there a reason that brokerage is held separately in the two segments?

Don R. Daseke -- Chairman and Chief Executive Officer

Yes, there is a very clear and compelling business reason to do so. Number one, they're not the same thing, but primarily this brokerage is handled focused on our key customers key freight today. And so a major customer would entrust us typically to move that on our own company equipment if we don't have the availability of equipment or drivers at the right time at the right place and we will go ahead and execute that order through our brokerage arms. So it is more focused directly at customers, close to the customer and with a high degree of knowledge of that customer, their needs, requirements, et cetera, as opposed to just kind of a general broad brokerage. We do some general broad brokerage and that is an objective of ours to grow that in 2019. But right now the vast majority of our brokerage is focused on -- executing on behalf of key customers.

David Ross -- Stifel Financial Corp. -- Analyst

And last question, Bharat, I don't know if you touched on this or not either, but there have been a lot of numbers flying around, I apologize, leverage covenants on the debt to EBITDA you've got the 3.3 at the end of the year. What's I guess the leverage covenants as we look out through '19?

Bharat Mahajan -- Chief Financial Officer

Yeah. So the covenant at the end of 2018 was at 4.25 and 3.3 is kind of the rounded up number, it was really 3.26. So we were almost a full turn below the coverage -- the covenants at the end of 2018, we expect to be at 2.9 by the end of '19 and the covenants at that time will be four times. So we expect to be a full turn below the covenant.

David Ross -- Stifel Financial Corp. -- Analyst

Okay, that's good. You're making -- you're out running the covenants in that sense. All right. That's it for me. Yeah, that's it for me. Thank you very much for the time.

Bharat Mahajan -- Chief Financial Officer

Thanks, David.

Operator

Thank you. And your next question comes from Willard Milby from Seaport Global. Please proceed.

Willard Milby -- Seaport Global Securities -- Analyst

Hey, good morning, everybody. If I could start out I guess talking about I guess the pockets of your business. The government DoD being a top 10 customer. What was the impact of the government shutdown to close Q4 and any impact here in Q1?

Don R. Daseke -- Chairman and Chief Executive Officer

We saw no effect of the government shutdowns in our business. No real discernible effect. Our largest exposure to government freight is the Department of Defense and they were not subject to the shutdown.

Willard Milby -- Seaport Global Securities -- Analyst

Okay. And Bharat, you talked about and Scott as well, the -- seeing some short term loosening in the market. I'm presuming that it was mostly tied to flatbed just kind of getting your comments on the capacity tightness of some specialized? But as you kind of look at the overall revenue mix pie that is Daseke, what slices would you say are probably getting the most attention when you look at I guess broader economic indicators. Where do you think which slices maybe have a particular strength there, which one is maybe are little bit more concerning as you kind of look out through 2019?

Don R. Daseke -- Chairman and Chief Executive Officer

Yeah, I'll take that one. The -- where we continue to see strength is in large, heavy, cumbersome, time sensitive, high value cargo. That's where the strength we're seeing in 2019 and where we have seen some softening is what I described earlier as transactional flatbed as opposed to core supplier to a core shipper. We think those volumes will continue to be there, it's that transaction or the one-offs that we think there will be a little loosening or softening in the flatbed side.

Willard Milby -- Seaport Global Securities -- Analyst

Is there any particular end market that is maybe subject to more transactional business?

Don R. Daseke -- Chairman and Chief Executive Officer

No, I don't think so in particular, I mean, we -- on the flatbed side, the vast majority of what we're moving there is building materials of all types and steel of all types. So those will be our biggest categories of flatbed. So this kind of broadly down.

Willard Milby -- Seaport Global Securities -- Analyst

Okay. As far as the shift and more look that appears to be year-over-year shift in the exposure to spot loads. Is that tied to overall business levels just allowing you to have available equipment to be in the spot market? Or is that a more conscious business shift saying, we want this more transactional exposure as we kind of look at how 2019 is shaping up?

Don R. Daseke -- Chairman and Chief Executive Officer

Well, when we looked at one company in 2018, we did want a little more exposure to spot and that was one of the reason that we like to that. But really I think this shift to what I would call the premium pricing or the spot pricing was more market conditions frankly. There was just a huge amount of demand and not enough capacity to cover, which cause some spot activity in the contract marketplace.

Willard Milby -- Seaport Global Securities -- Analyst

Okay. All right. Got some other housekeeping questions, but I'll follow up with those offline. I appreciate the time guys.

Don R. Daseke -- Chairman and Chief Executive Officer

Thanks, Willard.

Operator

Thank you. And our next question comes from Barry Haimes from Sage Asset Management. Please proceed.

Barry George Haimes -- Sage Asset Management, LLC -- Analyst

Hi, everybody, good quarter. One question maybe just on drivers. Get a feel for the unseated truck count in the quarter compared to maybe a year ago or earlier in the year? And just a sense with the market loosening a little bit, are you seeing any difference on retention and recruitment efforts? Thanks.

Don R. Daseke -- Chairman and Chief Executive Officer

Yeah, I would say, Barry, retention continues to be a really strong suit for us. We have still this quarter have about 62% turnover, which in the real world sounds crazy, but in trucking and transportation it's a pretty good number and significant improvement in our own internal results over the last 18 months. So we feel really good there and then drivers will continue to be in tight supply and we're going to have to do everything we can to attract them. The biggest shift that we've seen is kind of a shift if you will to something that's probably what you're looking for is that we have seen a greater as rates have risen there has been a greater interest in drivers being owner operators or at least purchase owner operators as opposed to being a company driver. And the reason is generally how they are paid. Owner operators get -- typically get paid a percentage of revenue as opposed to bottom line.

Barry George Haimes -- Sage Asset Management, LLC -- Analyst

Great. Thanks a lot.

Don R. Daseke -- Chairman and Chief Executive Officer

Thanks, Barry.

Operator

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Daseke for closing remarks.

Don R. Daseke -- Chairman and Chief Executive Officer

Thank you. I'm very excited about the results we produced in 2018. We consistently met or exceeded our targets. For 2019, we've laid out a clear strategy, centered around organic growth, free cash flow and reducing our net leverage. I believe we're in a great position to achieve these results and especially with the additions to our management team. I'd like to thank everyone for listening to our call. We appreciate your interest in us, and we look forward to talking with you again in the future. Thanks everyone.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines all this time. Thank you for your participation.

Duration: 60 minutes

Call participants:

Cody Slach -- Investor Relations and Advisor

Don R. Daseke -- Chairman and Chief Executive Officer

Chris Easter -- Chief Operating Officer

Bharat Mahajan -- Chief Financial Officer

R. Scott Wheeler -- Director and President

Adam Kramer -- Cowen and Company -- Analyst

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Paul Penney -- Northland Capital Markets -- Analyst

Matthew Brooklier -- The Buckingham Research Group -- Analyst

David Ross -- Stifel Financial Corp. -- Analyst

Willard Milby -- Seaport Global Securities -- Analyst

Barry George Haimes -- Sage Asset Management, LLC -- Analyst

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