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Daseke, Inc. (DSKE -0.12%)
Q1Â 2020 Earnings Call
May 8, 2020, 11:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, everyone, and thank you for participating in today's conference call to discuss Daseke's financial results for the first quarter ended March 31, 2020. Delivering today's prepared remarks are Chris Easter, CEO; Jason Bates, CFO; and John Michell, VP of Operation Strategy. After their prepared remarks, the management team will take your questions. As a reminder, you may now download a PDF of the presentation slides that will accompany their remarks made on today's conference call, as indicated in the press release we issued earlier today. You may access these slides in the Investor Relations section of our website.
Before we go further, I would like to turn the call over to Brooks Hamilton with the Alpha IR Group, who will read 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. Brooks, please go ahead.
Brooks Hamilton -- Investor Relations
Thanks, Josh. Please turn to slide two for a review of our safe harbor and non-GAAP statements. Today's presentation contains forward-looking statements as within the meaning of the Private Securities Litigation Reform Act of 1995. Projected financial information, including our guidance outlook, are forward-looking statements. Forward-looking statements, including those with respect to revenues, earnings, performance, strategies, prospects and other aspects of Daseke's business, are based on management's current estimates, projections and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. I encourage you to read our filings with the Securities and Exchange Commission for a discussion of the risks that can affect our business and to not place undue reliance on any forward-looking statements. We undertake no obligation to revise our forward-looking statements to reflect events or circumstances occurring after today, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. During the call, there will also be a discussion of some items that do not conform to the U.S. Generally Accepted Accounting Principles, or GAAP, including adjusted EBITDA, adjusted operating ratio, adjusted operating income, adjusted net income or loss and free cash flow. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix to the investor presentation and press release issued this morning, both of which are available in the Investors tab of the Daseke website, www.daseke.com.
Now I would like to turn the call over to Daseke's CEO, Mr. Chris Easter. Chris?
Chris Easter -- Chief Executive Officer
Thank you, Brooks, and good morning, everyone. I'll begin today's call by providing an overview of our business operations and the progress we're making as we execute against our key strategic priorities. I will also take a few moments to discuss the aggressive actions our team has taken over the last nine months to improve this business and how they have reinforced the foundation of the company, which is critical as we work to navigate the unexpected challenges that the COVID-19 pandemic has introduced to the global market. First, I think it's important to acknowledge the significant effort and hard work that our employees and contractors have contributed over the last few weeks. We've always been intently focused on safety at Daseke, but never more so than today. We are following the CDC and local government guidelines to ensure that our people, customers and communities are protected. The way our extended Daseke family has stepped up to safely serve our customers and keep our business moving has been outstanding. I want to thank everyone on our team for their dedication and hard work. Now moving to today's business beginning on slide three. Much has changed in the short time since we talked to you on our fourth quarter earnings call in early March. Starting with the good news. We announced late last month that we have welcomed Jason Bates as Daseke's new Chief Financial Officer. I'll formally introduce Jason later in the call.
But his joining our company was a critical step in the process of refreshing our executive leadership team after my appointment to CEO in February of this year. Jason brings more than two decades of experience with public companies in the trucking and transportation industry. This includes some of the largest and most sophisticated truckers in our market. He has spent the last 10 years serving in executive roles helping drive both operational and financial improvements. We will lean on Jason's industry and financial expertise as we continue to transform our business and improve our returns. Next, as you saw in our press release today, we have made the decision to strategically divest our Aveda transportation and energy services business. I think it's important for our investors and analysts to understand that the actions we are taking today with Aveda are not a knee-jerk reaction to the COVID-19 situation or a significant impact on the oil and gas industry. We have spent the last several months studying the Aveda business, specifically in relation to our consolidated operational footprint within our specialized segment. This process included the implementation of several actions to improve Aveda's operating performance and better align its cost structure with our own. However, after careful review, we do not believe that the Aveda business is a good long-term fit within our portfolio. From a strategic perspective, this will further streamline our specialized segment and will significantly reduce our exposure to the oil and gas end market, which has presented headwinds to our consolidated results in recent quarters.
Our remaining ownership of the business will be classified as assets held for sale on our financial statements until we've concluded the process. Now I'd like to take a moment to provide some insight into the state of our business as we see it today. As the COVID-19 epidemic became a part of public awareness, we acted fast and took a number of proactive measures to ensure the safety of our employees, contractors and the many physical spaces in which we do business. While the intended effect was to preserve both the health of our workers and customers, our proactive actions help insulate our business from many meaningful COVID-related interruptions to our operations. The rate environment continued to face some challenges through the first quarter as we expected, but our freight volumes held up well for the first 11 weeks of the year. However, we began to see volumes slow during the last few weeks of March across certain end markets. This continued into April and spread into some additional end markets, but volumes appear to have plateaued toward the third week of April. Although we are not experiencing weaker demand across all markets, we expect COVID-related-19 volume declines to impact our performance in the second quarter. Fortunately, we are prepared for this new environment. The operational and cost improvement initiatives we put in place over the last few quarters have helped fortify our business. Our actions have helped us generate solid cash returns and have made our business model far more resilient today than it was just nine months ago.
That said, our visibility remains somewhat challenged until our country starts to collectively get back to work. And thus, we are withdrawing our full year guidance until we have a clear picture of the future economic landscape. During these uncertain times, we're encouraged by our ample liquidity and improved balance sheet. At the end of the quarter, we had over $191.9 million of available liquidity at our disposal, comprised of $107.5 million of cash on hand and $84.4 million of undrawn capacity on our revolving credit agreement. As I mentioned a moment ago, our business model has historically been highly cash flow generative, which is evidenced by the over 70% increase in our cash on hand and the 10% decline in our net debt levels year-over-year. We have no significant near-term debt maturities as our term loan does not mature until 2024. This balance sheet stability and ample liquidity will enable our business to not only weather the near-term headwinds, but, given our market leadership standing, should put us in a position to be on the offensive as we exit the crisis. Moving to slide four. I'd like to spend a moment walking you through the architecture of our business model, which we believe will provide stability and resiliency as we navigate this period of uncertainty. First, we are the largest flatbed and specialized carrier in North America, holding a leading position in a highly fragmented niche market. Second, roughly 90% of our business is conducted directly with our customers. In times like today, where the economic landscape and forecast are shifting in real time, the ability to directly manage customer relationships becomes paramount.
Many of our customers have trusted us for multiple decades and we've collectively helped each other through multiple market cycles. While our business is focused on the industrial marketplace, we serve a highly diverse set of subsectors and industries, with no individual pocket of industry exposure large enough to be a single driver of our earnings results. In fact, our top 10 customers combined represent roughly 1/4 of Daseke's revenue on average. Further, the cargo we move for our customers is often their most vital equipment and many of the industries we serve have been deemed essential parts of the national economic infrastructure. Also it is important to note that through the eventual strategic divestment of our Aveda business, we will significantly reduce our exposure to the oil and gas sector. As we have pointed out in recent quarters, certain challenges in this market have weighed on our earnings results and mask some of the great work we've done with our operational excellence initiatives. Last year, oil and gas market represented roughly 13% of our total revenue. But its profitability contribution was far less than that, and both earnings and EBITDA have been trending down since early 2019. In fact, Aveda's adjusted EBITDA has been down four straight quarters sequentially and was less than $1 million total over the last nine months. Once we have successfully divested Aveda, our aggregate exposure to that market will be less than 2% of revenues and will immediately improve the quality and stability of our future earnings.
All in, given our leadership position in the market and the diversity and strength of our customer base, the commercial side of our business is defensible and resilient. Moving to the right hand of the page. What complements our strong positioning on the commercial side of our business is our corporate structure and flexible business model. Our model is balanced between asset, asset-light and non-asset services. Roughly 70% of our business is on a variable cost structure. This is even more of an asset at a time when the demand landscape is uncertain. Further, our brokerage business offers a natural hedge to navigating any future changes in volumes. Ultimately, we believe our size, market leadership position, diverse industry exposure within the broader industrial market and a largely variable cost structure will serve as strong competitive advantages as we manage through the current uncertain environment and will allow Daseke to exit this period in a position of strength. Turning to slide five, we'll provide a snapshot of our performance for the first quarter. Revenue for the quarter was $391 million, reflecting some continued rate pressure which was consistent with our prior forecast. Our operating ratio for the quarter was 102.1% or 97.2% on an adjusted basis. Consolidated adjusted EBITDA was $35 million, which was down versus last year's first quarter, with the year-over-year decline driven primarily by continued weakness in the oil and gas end market.
It is clear that the actions we have taken over the last three quarters are sustaining our performance and helping offset broader market weakness. This is further evidenced by the fact that our first quarter operating income results, excluding the impairment, actually improved by $4 million year-over-year, despite the roughly 10% drop in our revenues. This demonstrates that our model can shed certain revenues and actually become more profitable in the process through driving efficiencies and the capture of synergistic value across our portfolio. Despite the headwinds faced in the quarter, our business continued to display strong cash flow generation, delivering over $31 million of free cash flow in the quarter and $124 million on a trailing 12-month basis. Deleveraging our balance sheet remains a key strategic objective, and this solid cash flow performance is an important tool driving our deleveraging efforts. Our net debt decreased by over $62 million year-over-year. We will continue to prioritize leverage reduction until we have debt levels more aligned with our long-term targets. Our leverage is defined by our credit agreements with 3.2 times, closely in line with where we started the year. Before turning the call over to John, I want to take a brief moment to provide progress on our larger business transformation efforts. Please turn to slide six. The end of the first quarter marked the successful completion of Phase I of our operational and cost improvement plan.
To recap, we completed three business integrations, merging some struggling operators into some of our strongest and most established ones, helping fix underlying performance issues and capture further benefits of scale. We institute a collection of business improvement plans across our entire portfolio in an effort to drive a more optimized business footprint for underlying companies. On top of that, we also conducted a right-sizing of our corporate office and our realignment of the executive leadership team and board of directors. In total, these operational and cost improvement efforts have driven a $30 million improvement in our operating income. As we move forward, we're focused on executing Phase II of our plan, which was launched in March. The central pillars of the plan are similar to Phase one, and they include three more business integrations and new cross platform business optimization plans. When complete, we will have reduced our operating companies from 16 to nine in less than one year, reducing our complexity and streamlining our business significantly. Through Phase II, we are on track to deliver an additional $15 million of operating income improvement by year-end. While top line pressures may mask the impact of these plans on our profitability measures, they remain critical in these uncertain times and will help us drive more profitable long-term growth in the future.
With that, I will now turn the call over to John Michell to review our financial performance last quarter. John?
John Michell -- Vice President of Operations Strategy
Thank you, Chris. Our Q1 2020 financial details are presented on slide seven. In the first quarter, revenue was $391 million, down approximately 10% compared to $433 million in the year-ago quarter. The decline was driven by both lower volumes and freight rates in both of our operating segments. Net loss for the quarter was $17.3 million or $0.29 per share and included a non-cash impairment charge of $13.4 million. Adjusted EBITDA was $35 million, down about 20% compared to $43.8 million in the year-ago quarter. The year-over-year decline was driven primarily by weakness in oil and gas and aerospace-related end markets, but was partially offset by operational improvements from the Phase I integrations. Given the announcement we've made today related to the Aveda business, I want to highlight that excluding that business, our first quarter net income would have increased by $8.9 million compared to Q1 of last year and our adjusted EBITDA would have actually been up 1% as well. Further, our adjusted OR would have improved to 95.5%. Again, given the top line decline, that shows the real impact that our operational excellence initiatives are having in terms of driving efficiency, productivity and stronger bottom line performance. Let me briefly note our corporate segment adjusted EBITDA, which is a nonoperating segment and includes corporate salaries and other administrative expenses and intersegment eliminations.
As a reminder, on our last call, we said we expected further reductions to the segment in 2020 as a direct result of the right-sizing of our executive team and other cost containment initiatives. During the first quarter, we continued to make solid progress on that goal as you can see on the bottom of the table. Moving on to a more detailed look at our specialized segment results on slide eight. Specialized revenue in Q1 decreased 11% year-over-year to $240.4 million. Adjusted EBITDA for the first quarter decreased 32% to $24.1 million, driven primarily by weakness in our oil and gas-related end markets, coupled with softer manufacturing and aerospace environments, which was partially offset by decreased net fuel costs. Our adjusted operating ratio was 96.2% compared to 93.8% in the first quarter of 2019. The specialized rate per mile decreased roughly 12% to $3.24 for the quarter and revenue per tractor decreased 8% to $57,800, driven by similar factors that negatively impacted our adjusted EBITDA. As we look forward and, as Chris mentioned, our diverse customer base hedges our business somewhat in specialized as many of our end markets are still moving product, like our wind product business. But other markets are starting to see some pandemic-related slowdowns that we'll have to navigate through during the second quarter.
The resiliency of our non-oil and gas markets can be seen on slide nine. In an effort to help some of you better model our business post-the eventual Aveda hold divestiture, we've provided a snapshot of our Q1 performance excluding the oil and gas-focused business. When you exclude Aveda, specialized revenue would have fallen 7% versus 11%. Adjusted EBITDA would have declined 7% versus 32%, with EBITDA margins that would have been nearly flat. Lastly, adjusted OR would have been 92.9% versus 96.2%.Moving to slide 10, you'll see our flatbed segment results. Flatbed revenue in Q1 decreased 8% to $155.2 million, while adjusted EBITDA in the quarter decreased 2% to $17.9 million. The small decline to adjusted EBITDA was driven in part by softness in metals and manufacturing end markets, partially offset by decreased net fuel costs. First quarter adjusted operating ratio for the flatbed segment was 93.9%, showing a 280 basis point improvement compared to 96.7% in the year-ago quarter. This is driven by the integrations and the implementations of business improvement plans. Flatbed rate per mile in the first quarter decreased 4.6% to $1.86, and flatbed revenue per tractor increased 1.7% to $42,300, highlighting those productivity gains. Now turning to our balance sheet and free cash flow as indicated on slide 11.
At March 31, we had $107.5 million in cash and liquidity of $191.9 million, including the availability on our revolver. Net debt was down $62.3 million year-over-year to $586.1 million. And our leverage as defined in our debt agreements was 3.2 times, well below our four times covenant. For the first quarter, net cash provided by operating activities was $29.7 million, cash capex was $4.5 million and cash proceeds from the sale of equipment was $5.8 million, for free cash flow of $31 million. For the quarter, capex financed with debt or capital leases totaled $9.8 million during the year, leaving you with a net of $21.2 million after finance capex. As our teams continue driving improved efficiency as it relates to our equipment, we continued to sell off some older underutilized assets. We ended 2019 with an average fleet age of around 3.8 years and currently, excluding Aveda, we're at 3.25 years. With our shift in capex priorities that Chris will talk to you in a few minutes, we will likely end the year 2020 around three years. The key takeaway here is that we generated strong free cash flow, continued our deleveraging efforts while maintaining our balance sheet, which was supported by the benefits from the decisive actions we took in 2019.
Before I pass the call back to Chris, I want to talk about another important digital initiative that the finance team has been focused on as a part of our ongoing transformation efforts. We've implemented a set of new tools that are providing us with real-time access to occupational metrics and other powerful data that will help us become even more efficient across the organization as we continue to shift to a focus on operations. Our improved digital environment is facilitating quicker and more precise response to rapidly changing business conditions. We believe continued expansion of our digital capabilities will be a big factor in our ability to counteract impacts from COVID and quickly stabilize our business to continue to optimize the operation of our fleets.
With that, I'll now hand the call back over to Chris.
Chris Easter -- Chief Executive Officer
Thank you, John. And to both John and our whole finance team, I want to thank all of you for your hard work over the last six months as you all filled in admirably until we could find the right financial leader in Jason to join our team. Slide 12 outlines some key balance sheet trends that I'd referenced earlier on the call, which continue to benefit from our business improvement efforts. Our strengthening balance sheet and healthy cash position are going to be important differentiating factors as we navigate this ongoing economic uncertainty. With almost $100 million in cash on hand at quarter's end and significant borrowing capacity available on our credit facility, we have more than sufficient liquid capital to weather the environment. Taking this a step further, given the actions we've taken to improve our business and the toolkit we have at our disposal, we expect to continue to be a generator of free cash flow. For example, we outlined that a few of our end markets saw some COVID-related volume impact throughout April, but our cash position actually has increased during the month. While deleveraging on a net basis has been a key focus of ours over the last year, it is important to reiterate our strategic goals, including lowering our absolute level of debt as well.
Our debt levels are stable and declining and we have no need to tap markets for additional capital. Additionally, our term loan, effectively the main source of our debt outstanding does not mature until 2024. This provides us greater flexibility in how we utilize our available capital and future free cash flow. I'll close my remarks on slide 13. The foundational elements that we have executed on over the last nine months put us in a position of strength. First, we've talked at length today about the stability of our business model, the diversity of our customer base and the end markets they operate in makes us resilient through economic cycles. The last six weeks have been fairly telling in terms of what the short-term economic impact looks like. We saw volume decline beginning in the middle of March and accelerated somewhat through April as much of the country shut down. Our teams did an excellent job of sharing volumes and shifting capacity to lessen the potential impacts of the overall market decline. Toward the end of April, you saw flattening of the decline as you really had all of the COVID-related closures that we would expect. Heading into May, the expectation is we'll have more openings versus closings, given the recent announcements by both our customers and the different states regarding their phased reopening plans. So we think we have reasonable short-term visibility into what the trough looked like from a volume perspective during late April.
The question that remains now is for how long? And that is one that time will tell. But we are fully prepared to navigate this uncertainty and prosper as key components of the industrial economy come back online. Second, we have almost $108 million in cash and are in a financially sound position to ride this pandemic out. Third, we've shown just how agile we can be in a short amount of time over the last nine months. I have tremendous confidence in the experience and ability of our leadership team, which will help us find new opportunities for further cost and productivity improvements as we move through 2020. We have the toolkit we need to navigate these uncertain times and continue to drive operational excellence. Fourth, we are taking proactive measures to further manage our cost and make sure we are prepared should the pandemic lead to longer shelter-in-place conditions than currently expected.
These include the curtailment of all nonessential discretionary expenses, the temporary furlough of certain personnel as well as other select headcount reductions and, lastly, we've reduced our capex budget by roughly 15% as we refocused our capital spending to fund our critical needs, and now expect it to come in somewhere between $60 million to $65 million. We're in a position to not only weather the coming storm but thrive when it's behind us. We have a clear path and a bright future. Before I turn the call over to the operator for a few questions from our analysts, I'd like to take a moment to introduce our new CFO, Jason Bates. Again, Jason brings tremendous industry experience as a former CFO of USA Truck and as a Vice President of Finance at Swift Transportation.
I know many of you already know Jason fairly well from his past lives, and we're excited to have him. Jason?
Jason Bates -- Executive Vice President and Chief Financial Officer
Thanks, Chris. And I'm excited to be here as well. I'm looking forward to meeting with all of our key stakeholders over the coming months, including many of you on the call today. I started at Daseke just a few weeks ago, but I've already been hard at work alongside my finance team and the executive leadership team that Chris has put together. As Chris mentioned at the top of the call, I have two decades of industry experience and I'm looking forward to applying my skills and expertise to the already impressive work being done here at Daseke. I'm excited about the challenge that this opportunity affords, and I believe Daseke is truly at an inflection point in its development. But what drew me to the CFO role here was the ability to play a significant role in that development and fully effectuate Chris' vision for the company. I believe we have tremendous assets and expertise across our business. And when combined with the initiatives in place to further drive best-in-class operations, I am confident we can use our market leadership position to produce even better returns. I'm thankful, but also very excited to get to work delivering results for our business.
So this concludes our team's prepared remarks, and we're excited to turn the call over to you for questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from Jason Seidl with Cowen. You may proceed with your question.
Jason Seidl -- Cowen -- Analyst
Thanks, operator. Hey, Chris. Welcome to Daseke. And yes, Chris, we do know each other from a previous life twice. Want to ask a couple questions around Aveda; some housekeeping, some more strategic. Given that you have a pretty good strong financial position here right now, why sell Aveda now at what seemingly might be the bottom of the energy market? Is it just that you don't want to wait this thing out until it could bring a better price? Or is it just not worth the headache?
John Michell -- Vice President of Operations Strategy
Yes. No. Jason, appreciate the question. Really what we're talking about is simplifying Daseke and the operations. Chris talked about taking those operations from 16 to nine. All the options were on the table. We're being much more aggressive on the revenue synergy side. And really, as we're reviewing this portfolio and building a business that is resilient across market cycles, it just makes sense to exit this one completely.
Jason Seidl -- Cowen -- Analyst
Right. I would imagine, I mean if you exit it completely, you're not going to get much for it, given sort of the current rate environment, because I look at the numbers and their rate must have been down close to 20% in the quarter here, when you're giving the numbers ex-Aveda and with Aveda and given the fact that it hadn't been generating much EBITDA. So I would imagine it's going to have minimal effect on your cash positions going forward. The other question I have is, when you break out your supplemental information and Specialized Solutions, is that in the quarter, are those numbers in the operating statistics including Aveda or excluding Aveda?
John Michell -- Vice President of Operations Strategy
Yes. So Jason, we've given you both. You've got the specialized segment includes Aveda and then the second slide, which is slide nine, shows those same metrics excluding Aveda.
Jason Seidl -- Cowen -- Analyst
Okay. I was just looking at your press release. Okay. So I was just trying to look at tractors and everything else. Okay. Fine, we can work with that going forward. Could you talk a little bit, you mentioned some of the announcements by your customers. Can you talk a little bit about what they've told you and what's the expected pace of sort of the comeback in the economy, if you will, or putting people back to work and what you expect in certain end markets?
Chris Easter -- Chief Executive Officer
Yes. It's just been and it's great to know you do know Jason. We're very excited to have him onboard by the way. So appreciate the fact you know him; that's great news for us. So I think as we look across our landscape, though, I think it also gives us a chance to reflect on the strength of Daseke in terms of our diversification. And it's a mixed bag as you look at some of the customers. I mean, early on, we saw some more immediate impacts in things like the auto industry and aerospace, for example. And we've seen strength or consistency in some of the others. And I think likewise, as we start to come back online and as folks are looking out, it's kind of a mixed bag, too. And many of them are still trying to sort through it themselves. Yes, we're seeing some of the auto manufacturers are starting to open back up. But there's lots of unknowns out there. I think if anything and we got areas of strength. The wind energy, for example, of which I know was mentioned earlier, too, has been very strong and some of the other infrastructure-type projects, construction and otherwise that we work on have been strong. But as you look back at how things are going to open up, there's a lot of unknowns. And that's, again, part of the reason why we have made the decision to withdraw guidance. We're just not certain of how those things are going to go. Is it going to be a longer U? Is it going to be an L? And I think beyond that for us, it's even within all those various industries it could be a mixed bag of those types of impacts. But what we do know is, again, where we stand on liquidity. We know the things in our control, the actions that already have been under way and we know the multiple contingency actions and leverage we can pull, if need be, depending on how the markets react in the future.
Jason Seidl -- Cowen -- Analyst
Welcome aboard, Jason.
Jason Bates -- Executive Vice President and Chief Financial Officer
Thank you.
Operator
Thank you. Our next question comes from Greg Gibas with Northland Securities. You may proceed with your question.
Greg Gibas -- Northland Securities -- Analyst
Good morning, guys, thanks for taking my questions. Congrats on the new role, Jason.
Jason Bates -- Executive Vice President and Chief Financial Officer
Appreciate it, Greg.
Greg Gibas -- Northland Securities -- Analyst
All right. It sounds like volumes held up pretty well first 11 weeks or so of the quarter, with the slowdown back in the last couple weeks. So I was just wondering if you could comment on, I guess the degree to which things slowed down in those last couple weeks and maybe how the current environment differs from the end of the first quarter and what you've seen in April.
Chris Easter -- Chief Executive Officer
Yes. So again, we did see around in fact, the week after our last earnings call, which I think the week of March 9, I think we had the call March 10, it was the week after that, that all the sudden the overall volume we started to see decline, right? Up until that point, we had seen very surgical impacts like aerospace and auto. But then we started to see a more broad decline. Again, as we went into April, that decline actually plateaued off. And the three, I guess kind of three full weeks, I think, John, of April kind of in the middle is where it leveled off and we think we saw things plateau. There's about a 15% reduction in volumes overall that we saw, and again, with some areas of strength and some areas of weakness. Right now that's kind of where we sit and that's kind of at least the trough we see right now. John, I don't know if you want to add anything onto that from your view.
John Michell -- Vice President of Operations Strategy
Yes. No, I think the only comment is maybe around the pricing and how that held up over the time period.
Chris Easter -- Chief Executive Officer
Yes. As John the pricing has held up pretty well. Yes, we're hearing rumblings and things, and wouldn't be surprised if down the road there were some pricing pressures. But I think time will tell. At the same time, we're seeing and sensing some indications of maybe some capacity exiting the market at the same time, which supply and demand always seems to right itself as you go through these types of situations.
Greg Gibas -- Northland Securities -- Analyst
Got it. Yes. That's really helpful. And then if I could just follow up on the divestiture of the Aveda assets. What stage are we at, I guess, in that strategic sale of the business? And are there interested parties that have reached out at this point?
John Michell -- Vice President of Operations Strategy
Yes. Greg, I think it's important to note on Aveda that we haven't stood still over the last couple months, right? They've been under a business improvement plan. We've taken significant costs out of the business, in the process of shutting down some of the smaller terminals. In Q1, we just made the decision to formally market the rest of the business and are really pursuing all available options. It's a cyclical asset, but it's got a substantial footprint. It's one of the largest in the market. It's just one that doesn't necessarily fit with us. So that's something that we formally launched in Q1, and that's kind of how we're moving those assets to held for sale, but it's one that we're actively marketing today.
Greg Gibas -- Northland Securities -- Analyst
Got it. Okay. Last one for me would just be if you can provide a little bit of color on, I guess the degree to which you expect capacity to tighten in the second half of the year and maybe how your expectations for capacity improvements have changed since last quarter.
Chris Easter -- Chief Executive Officer
Yes. Originally, I think before the pandemic, most in the industry, including ourselves, did expect some capacity tightening as we went through this year. I think, I certain expect that still to be the case. I think the degree to which we will see it actually translate is, let's just say in Q3 and Q4, is going to be more than anything a reflection on how long and deep the downturn is. The deeper and longer that we see a downturn, whether it be a U, V, L, whatever it ends up, the more significant I think you'll see a capacity drop-off, particularly around those that do not have the liquidity to weather the storm. And I also would say, it's interesting in our competitive landscape, the more specialized, in particular, our segment, that more specialized area, many of our competitors are fairly small. And many times they are tied to one industry vertical predominantly or maybe just a couple of customers. Back to the strength of the diversity of our model, yes, we're specialized, but we have an ability to share capacity. And that's an exciting thing I've seen in the last, say 30 to 60 days, more than ever, our team of leaders have pulled together and have responded and shared information or sharing capacity to help weather this storm. That's something that our competitors don't have. They don't have a sister company they can lean to and look for help and share with each other as we do.
John Michell -- Vice President of Operations Strategy
Yes. I don't want to belabor the point. But just kind of ripping on that, the beauty of that is that portfolio, right? And you have certain pockets with multiyear cycles and just don't have that same cyclicality as others. And within Daseke you've got the models with lower operating leverage and higher operating leverage and kind of that brokerage business acts as a natural shock observer, if you will, and allows us to really pivot the capacity and shift those log ins.
Chris Easter -- Chief Executive Officer
Excellent point. That brokerage is definitely allowing us to now sweat the assets a little better than we would have otherwise, in having that natural hedge. And one other thing I should add on is a real hats-off to our operating team leaders out there. As Don built this company over the last several years, bringing together these great operators and business builders, as we went into this pandemic situation, they did not wait for corporate guidance on actions to take. They know their business. They know those cycles and industries. As soon as they saw things start to happen, they started pulling levers and actions without direction, which is exactly that's part of this great model we have is all these great businesses and they know how to run these businesses and respond. So it's quite refreshing and it really does reinforce the strength of our model.
Greg Gibas -- Northland Securities -- Analyst
Okay, that's good to hear. Thanks guys.
Operator
Thank you. [Operator Instructions] Our next question comes from Ryan Sigdahl with Craig-Hallum. You may proceed with your question.
Ryan Sigdahl -- Craig-Hallum -- Analyst
Good morning and welcome, Jason. Are you able to quantify how much volumes were down in April? And then, given that's improved kind of at the end of the month, are you able to also quantify kind of what the run rate or what it is over the last one week or 2?
Chris Easter -- Chief Executive Officer
Yes. I think I maybe mentioned a little bit earlier, we're seeing about 15% again this is excluding Aveda, I should say, about a 15% drop overall. We're not seeing anything that's indicating that's necessarily going one way or the other right now. We're kind of, as we go into May, I'd say we're not seeing it worsen or necessarily increase, but we are starting to see the indications of some openings in terms of the plants and factories that had previously been closed. So it is still quite murky, cloudy out there. As Jason said, the crystal ball is pretty cloudy. And in fact, our focus stays on the things we can see and control that are within our ability, and that's what, again, continues to give us confidence that we can navigate through it. But right now, we don't have a good enough line of sight to say what that horizon looks like, say for Q2 and three, right now.
Ryan Sigdahl -- Craig-Hallum -- Analyst
Got it. And then you mentioned your covenant 3.2 times right now, covenant's at four times. What's your confidence in staying below that, given presumably EBITDA will decline here in Q2 and potentially quarters after that?
John Michell -- Vice President of Operations Strategy
Yes. Greg, we've got several years until that TL even matures, right? So we have options. And we're focused on all the things, which is protecting our cash flow generation. And given the impact of COVID, we continue to evaluate that and we're doing all the things you would expect. We're shoring up liquidity, reducing capex, cost-cutting measures. And really, those are the same things we've been doing since last August. Continue to show positive trajectory in the business and a team that's doing the right things, and as a lender, that's exactly the type of business that you look to support, so
Ryan Sigdahl -- Craig-Hallum -- Analyst
Great, that's it for me. Guys good luck. I'll turn it over thank you.
Operator
And I'm not showing any further questions at this time. I would now like to turn the call back over to Chris Easter for any further remarks.
Chris Easter -- Chief Executive Officer
Thank you, Josh. These are uncertain times, and I hope all of you on the phone today remain safe and healthy. Fortunately here at Daseke, we launched a series of decisive actions last August that have materially changed the trajectory of our performance. And because of these actions and the hard work of our team, we stand prepared to navigate this economic downturn and exit this period in a stronger competitive position than when it began. My team and I are prepared for multiple scenarios on how the economic recovery may take shape and we will be prepared to attack each opportunity in the same proactive stance that we've taken over the last few quarters. Thanks again everyone for joining us today and please stay safe. Have a great day.
Operator
[Operator Closing Remarks]
Duration: 42 minutes
Call participants:
Brooks Hamilton -- Investor Relations
Chris Easter -- Chief Executive Officer
John Michell -- Vice President of Operations Strategy
Jason Bates -- Executive Vice President and Chief Financial Officer
Jason Seidl -- Cowen -- Analyst
Greg Gibas -- Northland Securities -- Analyst
Ryan Sigdahl -- Craig-Hallum -- Analyst
