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Daseke, Inc. (NASDAQ:DSKE)
Q2 2020 Earnings Call
Aug 7, 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 second quarter ended June 30th, 2020.

With us today are Chris Easter, CEO; Jason Bates, EVP and CFO; and John Michell, VP of Treasury and Investor Relations. After their prepared remarks, the management team will take your questions. As a reminder, you may now download the PDF of the presentation slides that will accompany the 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

Thank you, Catie. Please turn to Slide 2 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 do 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 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 Investor tabs of the Daseke website, www.daseke.com.

In terms of the structure of our call today, Chris will start with a review of our business operations and the progress we are making as we navigate through the pandemic environment and execute against our strategic priorities. Jason will then walk through the financial review of the quarter, and Chris will come back to wrap up with our remarks with a few closing comments before we open the line for questions.

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

Chris Easter -- Chief Executive Officer, Director

Thank you, Brooks, and good morning, everyone. Slide 3 outlines a few of our key takeaways from the second quarter. In a quarter weighed down by COVID-19, I'm pleased by the hard work, commitment, and solid execution by the entire Daseke family in the second quarter as we were able to deliver dramatically improved operating results year-over-year.

The Daseke team achieved a 96.5% operating ratio. This was our best quarterly OR since the Company was taken public more than three years ago and represents a year-over-year improvement of 250 basis points and was achieved in spite of COVID-19 headwinds. We also achieved a positive net income, which was a great accomplishment in the face of extremely challenging market conditions. The continued execution of our transformation actions, coupled with swift tactical cost actions in response to the pandemic related impacts were the key drivers of improvement.

We launched the initial transformation actions last August, and I'm pleased to announce that in less than a year, our team has turned around its performance from what was an accelerating decline and bottom line loss to a 96.5% OR and positive trajectory. I could not be prouder of what our team has accomplished in this short period, particularly considering the additional challenge of COVID-19.

And what is even more exciting for our team is the fact that we are still just getting started in terms of our potential to deliver earnings improvement. I will touch more on this upside potential later in the call. It is also important to note the demonstrated resilience of our business model in this extreme environment.

Our diverse portfolio of services, customers, and end markets served us well as end markets like wind energy, lumber and building materials held fairly steady through the quarter and are actually progressing ahead of last year. These verticals helped offset softness in other end markets that were materially impacted by COVID-19, like aerospace and metals. These offsetting end markets helped demonstrate the strength of our diversified portfolio model.

Our resilience is further bolstered by the significant portion of brokerage and asset-light capacity across our portfolio. Having said that, we were not immune to the effects of the pandemic, as we saw volume declines, which negatively impacted our top line during the quarter. We experienced an immediate decline to our consolidated freight volumes, which troughed in April and then sequentially improved through May and June.

As we look forward, we will continue to closely monitor our freight volumes and are confident in our ability to navigate through the market turbulence to a position of strength on the other side. During the second quarter, we also made significant progress on the strategic divestiture of our Aveda Transportation and Energy Services business. As a reminder, we announced the decision to sell the Aveda assets late last quarter. We did not make this decision lightly nor as a reaction to macro factors, but rather did so after undertaking proactive actions to better align the business' cost structure with the rest of our platform.

However, at the end of the day, we decided that this business was not an ideal nor strategic long-term fit for our organization. In terms of our financial progress on the divestiture, we collected approximately $48 million in net proceeds from the sale of PP&E and the reduction in net working capital during the second quarter. We have completed the large majority of the work related to the divestiture of this business, but expect to fully complete it by the end of third quarter as previously disclosed.

At the end of Q2, we had $4.9 million of PP&E that was still held for sale, but expect closing costs such as lease terminations and severance to fully offset any cash proceeds. Therefore, we'd expect to see about a $7 million to $10 million in cash usage in the third quarter to complete the divestiture process.

To reiterate our previous disclosure, when this process is complete, our exposure to the oil and gas end market will drop from roughly 13% of our historical revenue in 2019 to less than 2%. I'll end on this page with one of the bigger highlights of the second quarter, and that was the ongoing strengthening of our balance sheet. By continuing to drive strong free cash flows despite the pandemic as well as the sale of aforementioned non-core Aveda assets, we increased our cash position by nearly 50% quarter-over-quarter. This helped us lower our net debt and reduce our leverage ratio down to three times.

We retained healthy liquidity with over $240 million available between our cash on hand and undrawn revolving credit facility. And we hope that the progress the team has achieved over the past year helps emphasize our Company's ability to generate solid free cash flow above and beyond the onetime asset sales.

Please turn to Slide 4, and I'll provide a few more details on our financial performance during the quarter. First, we had revenue of $352 million, which was down about 20% when compared to the same quarter in 2019. This was largely in line with our expectations, given the pushes and pulls of various end markets freight demand that I mentioned earlier. Additionally, nearly half of that decline came from the reduction in Aveda sales, which resulted from the sale of various components of its portfolio through the quarter.

If you exclude Aveda, the core business revenue was down roughly 13%. Our adjusted EBITDA came in at $44 million for the quarter, down only 5%. However, when excluding Aveda, adjusted EBITDA was $45.8 million and was up 13% due to both our long -- both our short-term and long-term cost containment efforts. The combination of strong operational cash flow generation and Aveda asset sales helped us generate $73 million in free cash flow during the period.

Looking over the fullness of the last 12 months, we've generated $175 million of free cash flow. That excess capital has allowed us to strengthen our balance sheet by reducing net debt by $118 million year-over-year and has also provided us with the resources we need to invest in our business, so we are prepared to exit the pandemic as a stronger niche market leader.

Please turn to Slide 5. As I said earlier, roughly one year ago, we announced the foundation of our operational improvement plan and then accelerated that plan only two weeks later. In hindsight, those proactive efforts proved critical to our ability to not only navigate through this pandemic, but to do so from a position of strength.

As you all know, we're in the middle of Phase II of the transformational program we outlined, and we remain on pace to achieve the $15 million improvement goal on a run rate basis as we enter fiscal 2021, in spite of the COVID-19 headwinds. Please turn to Slide 6. I think it's important that our investors understand that the hard work we've been doing over the last year is not simply a cost exercise. We are building a stronger Daseke through this work. First, we're simplifying our business by reducing operating units from 16 to 9, and we are refining best practices, which can be applied in a cross-platform fashion.

We continue to build out our leadership team, as I've added Jason in April, and then we announced Rick Williams as our Chief Operating Officer in May. We are not being shortsighted about investing in our fleet either, evidenced by the fact we have lowered our average truck age to 3.4 years from 3.8 years at the start of this year.

Finally, we are focused on increasing the utilization of all of our assets, which is particularly important in areas of our business that are more commodity driven, like our flatbed solutions. We are clearly seeing the results of our transformational efforts through our improved operating ratio. We have made great progress over the last few quarters, but we are not at all satisfied with our current OR and have significant room for continued improvement.

With our simplified platform of nine operating companies, we are confident in our ability to continue to drive and improve OR from the 96.5% reported regardless of the market environment. We have several operating companies that operate at sub-90% operating ratios today. And through our continued operational excellence initiatives, we are working on the others.

With Rick Williams moving into his new role as Chief Operating Officer during the second quarter, we are looking forward to the focus that he will bring to help maintain this momentum.

With that, I will now turn the call over to Jason Bates to review our financial performance for the quarter. Jason?

Jason Bates -- Executive Vice President and Chief Financial Officer

Great. Thank you, Chris. Our Q2 2020 consolidated financial details are presented on Slide 7, both with and without the impact of Aveda. Given the strategic decision we have made to exit this business, we have provided this information to assist you in better analyzing and modeling our business on a go-forward basis.

In the second quarter, revenue was $351.7 million, down 22% compared to $450.6 million in the year ago quarter. But as Chris mentioned, and as you can see on the right-hand side of the slide, revenue was only down 13%, excluding Aveda. The decline was driven by lower volumes and freight rates in both our specialized and flatbed operating segments as the impacts of the COVID-19 pandemic weighed on our -- weighed on industrial production and dampened demand in the quarter.

Net income for the quarter was a positive $0.5 million, which after our preferred dividend equates to a loss of $0.01 per share, attributable to common stockholders. This GAAP earnings result compares favorably to a net loss of $6.4 million in the prior year quarter. This is another area where we see a real contrast when you exclude the impact of Aveda as our net income actually improved by $10 million year-over-year to a positive $5.1 million when we look at our core earnings results.

Adjusted net income of $8 million grew meaningfully compared to adjusted net income of $3.4 million in last year's second quarter. Adjusted EBITDA was $43.7 million, down roughly 5% compared to $46 million in the year ago quarter. Again, excluding Aveda, adjusted EBITDA improved 13% to $45.8 million. This latter improvement highlights our team's strong operational performance in the quarter. This improvement was a result of our operational integration activity and cost improvement plans, which enabled us to overcome the general softening across the broader industrial space, which negatively impacted volumes and freight rates, as previously discussed.

Before moving on to the operating segments, allow me to briefly touch on our corporate segment, which also improved its adjusted EBITDA versus last year's second quarter. As mentioned on last quarter's earnings call, this portion of our business is expected to benefit from cost containment efforts such as rightsizing of the executive staff as well as additional cost reduction initiatives taken to adapt to the global pandemic.

As evidenced on the table, we were able to drive out an additional $2 million of corporate costs compared to last year's second quarter or an improvement of 17%. Moving on to a more detailed look at our segment results, starting with our specialized segment on Slide 8. For this business, given the ongoing divestiture process with the Aveda assets classified as held for sale, I will again speak to our reported headline results and then a more in-depth discussion of the segment pro forma for the Aveda divestiture.

Specialized revenue in the second quarter decreased 21% year-over-year to $221.5 million. Adjusted EBITDA for the second quarter decreased 13% to $33 million, driven primarily by weakness in manufacturing and aerospace end markets in addition to continued pressure in oil and gas. Turning to Slide 9, where we detail our specialized segment results, ex Aveda. Revenue of $211.8 million, declined roughly 6% compared to the prior year period. Despite this top line pressure, adjusted EBITDA results of $35.2 million, grew by 9% versus the $32.3 million of adjusted EBITDA achieved in last year's second quarter.

Adjusted EBITDA margins of 16.6%, grew by 230 basis points year-over-year. Notably, specialized operating ratio of a 90% OR, improved by 410 basis points versus last year's second quarter. The adjusted operating ratio was 89.5%, which also marks steady year-over-year improvement compared to 92% in the second quarter of 2019.

Our specialized rate per mile increased roughly 5% to $3.05, up from $2.90 in the year ago quarter. While revenue per tractor increased a little more than 1% to $59,400. Improved profitability, as evidenced by the sub-90% OR and the 9% improvement in adjusted EBITDA in the face of a weaker top line environment was supported by certain wind energy projects, which have remained strong, while other key end markets see demand and revenues rebound from a broader-based macro weakness.

As Chris alluded to earlier, we have a very diverse customer base with exposure to a wide array of industrial end markets, each of which are experiencing their own respective growth and economic recovery patterns. Additionally, we have a number of distinct embedded advantages in our business, which help provide further support and establish resilience to our financial results. This includes our highly unique equipment and deep technical operational knowhow and experience when serving the needs of customers in the specialized freight market.

Moving to Slide 10, we detail our flatbed segment results for the quarter. Flatbed revenue in the second quarter decreased 22% to $137.2 million, driven by weaker volumes and freight rates stemming from the broader macroeconomic weakness. This was reflected in the more than 7% decline in the flatbed rate per mile, which declined to $1.80 per mile versus $1.94 in last year's second quarter. However, despite significant top line pressure, our segment adjusted EBITDA results of $20.4 million, grew 3% compared to the results of $19.9 million in the year ago quarter.

This profitability improvement was driven by prior operational integrations and business improvement plans, which have driven out cost and enhanced efficiency across our operations. Those plans have helped us more than counteract the macro-related pressure on volumes and rates. The improved operational efficiency of this business has now begun to clearly manifest itself in our results as the flatbed segment operating ratio of 92.2% improved by 430 basis points, with adjusted operating ratio of 91.5%, improving 400 basis points, both when compared to the prior year.

While we are proud of the progress our team members have realized thus far, we all recognize there is still a significant amount of additional upside in our business as well as a commensurate amount of collaboration and teamwork required to achieve it. We will continue to work toward completion of Phase II of our operational and cost improvement plans, which will help us drive further improvements to our financial results through continued cost discipline and demonstrating greater efficiency and productivity across our operations and assets.

Now turning to our balance sheet and free cash flow metrics as detailed on Slide 11. As of June 30th, Daseke had $157.3 million in cash and liquidity of $239.9 million, inclusive of the available borrowing capacity on the revolver, which still remains undrawn. Net debt decreased by $118 million year-over-year to $532.1 million. Our leverage, as defined in our debt agreements, as Chris alluded to as well, was at three times, well below our four times covenant.

The chart on the right side of this slide is to help you understand our operating cash flows and caped through the first half of 2020. Through the first half of the year, net cash provided by operating activities was $82.9 million. Cash capex was $14.9 million and cash proceeds from the sale of equipment was $36.4 million. This resulted in free cash flow generation of $104.4 million. Capex financed with debt or cap leases totaled $30 million, leaving you with a net of $74.4 million after financed capex for the first half of the year.

Improving operating income and converting adjusted EBITDA into strong free cash flow has been a key focal point in our transformation. The emphasis we have put on this goal through overhauled operations and targeted cost eliminations is demonstrating itself in our cash returns as well as our leverage metrics. In fact, the weaker external economic environment has eliminated the impact of the transformational work we have undertaken over the last year as we've been able to make progress toward our op income -- toward our income improvement and deleveraging goals in the face of significant macro headwinds and broader based economic uncertainty.

Before we leave this page, I'd like to reiterate the capex guide we provided last quarter as we continue to expect it to come in somewhere between $60 million to $65 million for fiscal year 2020. Turning now to Slide 12, you will see the clear impact that our transformational work has had on our balance sheet health. Enhanced operating cash flow generation has driven significant improvement in our cash balance, which has more than doubled since the second quarter of last year and grew more than 46% versus the first quarter after including proceeds from the asset divestitures.

The critical takeaway here is that we're continuing to generate strong cash flow results on an operating level, we remain committed to continuing down our deleveraging path, all while maintaining, actually, while improving our balance sheet, as evidenced by our net debt reduction of close to $120 million year-over-year in the second quarter.

So with that, I'll now hand the call back over to Chris, where he will detail our outlook and priorities for the second half of the year.

Chris Easter -- Chief Executive Officer, Director

Thank you, Jason. I'll conclude on Slide 13 with our second half 2020 priorities.

As we look forward, we're laser-focused on maintaining our momentum, just as we did in the first half of the year. We will continue to monitor and adjust our business to the realities of the economy, which will clearly see pushes and pulls from the pandemic. We will continue to prioritize the safety of our people, our customers, and our communities above all else.

We'll also continue to focus internally on driving additional operations excellence across organization as we complete the remaining steps of Phase II of our operational improvement plan. Next, we'll continue to focus our efforts of operating our business effectively and efficiently to drive positive cash flow generation, which will allow us to continue to build financial strength and delever our balance sheet over the next few years. As we discussed, we do expect to use some cash in the third quarter related to final steps for the divestiture of the Aveda business and to support the capex we projected. But that should be partially offset by continued operational momentum.

Lastly, we'll invest widely in our culture, our team, and our platform to emerge from this crisis as a stronger niche market leader that will have a strong set of growth opportunities ahead of it. We look forward to sharing our journey with all of you.

This concludes our prepared remarks, and I'm excited to turn the call back over to you for questions.

Questions and Answers:

Operator

[Operator Instructions]. Your first question comes from the line of Jason Seidl from Cowen. Your line is open.

Jason Seidl -- Cowen and Company -- Analyst

Thank you, operator. Hey, Chris, hey Jason, hey team. I wanted to focus a little bit, the first question on the longer term, right? You're sort of ahead, I think, of everyone's expectations in your cost takeouts. And that's during an extremely difficult operating environment. Some would argue that this quarter might have been one of the most difficult given how the pandemic really swung around sort of that demand complex that you always look at. I'm wondering sort of longer term, how should we look at your Company's ability to push that OR even lower? And sort of what are your goals for the, let's say, next three years?

Chris Easter -- Chief Executive Officer, Director

Thanks Jason. Appreciate it. And, yes, it was a challenging quarter. And -- but I think the opportunity for us to improve was clearly evident and we continue to execute. And when I think about the longer term, we put that 90% number down there, and we do see that type of potential in the future over the next several years.

We've made great progress in 12 months toward that end, and we've got a lot of work left to do. And we're impatient to achieve that. We've executed on the plans to date. But as we look to, maybe into 2021 and beyond, we do see additional leverage we can pull and work toward that. And again, the underlying our business model as it is today is where we kind of frame up that 90% potential, our mix of asset, asset-light brokerage.

So I think that's important to note too. But in our current model and our mix of business, we certainly see that type of potential for the long-term and we're going to be working toward that end.

Jason Seidl -- Cowen and Company -- Analyst

Okay, that's great color. Jason, on sort of the longer-term capex side with Aveda out of the mix after 3Q. How should we look at your maintenance capital going forward given the current complex of companies that you have?

Jason Bates -- Executive Vice President and Chief Financial Officer

Yeah. So, I mean, I think it's important. Just real quick, I was just going to touch on one thing to add on to Chris' comment there. I think it's important to understand and I think this year, this quarter specifically, demonstrates that Daseke is largely a self-help story, at least in the short term. We have a lot of levers that we can pull, that we don't need a gigantic macroeconomic recovery for us to continue to make progress. And I think that definitely is not lost on you as you kind of highlighted in your opening comments. But I think that there's still a lot more meat on that bone for us, and we're going to continue to execute and drive toward that 90% OR over the long run.

Getting back to your second question about capex. I think when we look at our business, we want to make sure that we're continually investing. We're bringing that average age down. And I think it's important to understand too, Daseke is a little different in terms of the composition of the assets. Some of these specialized assets have longer lives. And so the capex investment cycles for those is a little bit different. I think it's probably safe to say, we haven't built out our full kind of capex -- replacement capex plans. But we -- I think at the outset of this year, we were kind of saying in that 70% to 75% range, kind of on a replacement capex basis. And I'm looking down the table to John, who's our resident expert on this front. I think that that's probably a good starting point as you model out next year and going forward. But I'll turn it over to John to add any color he might have.

John P. Michell -- Vice President of Operations Strategy

Yeah, to Jason's point. One of the pre-COVID guide, which Jason has just talked about, the two weeks' cumulative depreciation was $21 million. So kind of the $75 million to $100 million gives you kind of a range on maintenance capex.

Jason Seidl -- Cowen and Company -- Analyst

Okay. Pretty good. And how should we think about fleet age, Jason, your comments, your assets are vastly different than just a regular drive in player. So how should we think about that average age? How close are we to what you would call an optimal age for Daseke?

Jason Bates -- Executive Vice President and Chief Financial Officer

Yeah. Great question. We've actually been having some pretty healthy internal debates about this topic over the last few weeks because I will say that, that number, that 3.4 is a little deceptive, kind of getting back to the point I just alluded to. And so we're looking at working with our operating companies to kind of get a little bit more granularity and visibility into maybe bifurcating the asset classes so that there's more transparency for all of you.

So you can kind of see when you look at our kind of core over-the-road trucks, what's our average age versus some of these specialized assets that sometimes we'll hold on to for six, seven, eight years or some of our kind of local or regional stuff that had longer live. I would tell you, we still have a little bit of room to go on that overall weighted average. I think we want to see that number probably get a little closer to that 3 [Phonetic], the kind of low 3s. But again, it's going to depend on the mix of that specialized versus traditional kind of flatbed business. So we have a little bit of room to go on that front, and we're committed to continuing to invest. And we've got plans in place to keep driving that down. And here, over the coming quarters, as we get a little bit more granularity from the opco level up, we'll look at kind of bifurcating that for you guys, so you have a little bit more visibility on that.

Jason Seidl -- Cowen and Company -- Analyst

Jason, that's great color. And I look forward to you guys giving us more info. That more info always helps. Last question, and this is going to be in the near term. Chris, I think you talked about many of the pushes and pulls in the economy in the quarter. I was wondering if you can give us a little more meat on the bone, talking about some of the areas that you see that are coming back in terms of your end markets and your expectations for the second half of the year in terms of demand? And I'll turn it over to anybody else after you answer.

Chris Easter -- Chief Executive Officer, Director

Yeah, it's -- that's a challenging question in terms of the forecast in the future in this environment. But as we -- as I alluded to in our comments earlier, though, the lumber segment has been very strong. And we would -- we right now are expecting that to continue to be strong. Wind energy continues to be strong as well. Some areas that actually have bounced back a little bit, and defense has actually come back a little bit. As COVID hit hard early, there were some shutdowns in some of that area, that has rebounded somewhat.

But other areas like aerospace, we're not optimistic we're going to see any upside on that anytime soon, but it's pretty much fully cooked in our current run rate, as is the metals. Beyond that, there's -- it's hard to really see with much clarity the exact push and pulls. But back to the resilience and diversification of our business model across so many end verticals and some of which, again, don't go with your typical -- not that this is a typical cycle in any way, but they don't necessarily correlate with the typical cycle. So I don't know that, Jason, if you had anything else you would add.

Jason Bates -- Executive Vice President and Chief Financial Officer

I mean, the only thing I would reiterate is just highlighting that last point that Chris made. It's kind of a new phenomenon for me. I've been in the industry for a long time, but it's the first time I've really had such a diversified end market exposure, and it's actually really nice because it does kind of counterbalance. And that's one of the unique benefits of the Daseke portfolio model is that you do have that kind of -- it ebbs and flows oftentimes in different cycles, and it provides a little bit more stability. So as we continue to focus on kind of pulling the levers we can, I don't want to say we're insulated from, but we're somewhat insulated from the extreme volatility that some of the other kind of retail heavy companies are exposed to.

Jason Seidl -- Cowen and Company -- Analyst

That's great color, guys. And I appreciate the time as always. Be safe out there.

Chris Easter -- Chief Executive Officer, Director

Same to you, Jason.

Jason Bates -- Executive Vice President and Chief Financial Officer

Thanks, Jason.

Operator

Your next question comes from the line of Ryan Sigdahl from Craig-Hallum Capital. Your line is open.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Good morning, guys and congrats on the operational improvements and the quarter.

Chris Easter -- Chief Executive Officer, Director

Thanks, Ryan. Good morning.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

First, I want to start, you mentioned freight trends improved throughout the quarter. How have those trended in July, specifically both rates and volume?

Chris Easter -- Chief Executive Officer, Director

Yes. July has really been more of a sideways movement. It's neither up nor down. And so it's kind of settled in and how we had reached a quick drop down in plateau that it gradually went up as the quarter progressed. Now we've kind of reached a plateau and it's just moving sideways. As we're looking forward in the quarter, again, there are some pushes and pulls in the different segments. But I think, actually, if you look back at last year, you'll see our Q2 and Q3, we're very, very close in terms of top line revenue. Our expectation is similar for this Q2 to Q3. Although back to our ability, our self-help story here is we're going to continue driving actions. We're completing the Aveda and all, so we should continue to see the improved performance as we're moving forward, despite maybe what we see right now is more of a flat line on revenue.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

And then you talked kind of about that self-help. Is it reasonable from an OR perspective kind of sequentially Q2 to Q3 for that to continue to improve?

Chris Easter -- Chief Executive Officer, Director

I would say, yeah, we would expect to see -- when you're talking about that 96.5% OR, the energy [Phonetic] we should see that continuing to improve.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Great. And then as volumes have recovered off a kind of peak pandemic related lows in April, what are you seeing between your asset-light versus asset owned segments? Have you seen customers shift their desire to work more directly with owned fleets versus brokerage and outsourcing?

Chris Easter -- Chief Executive Officer, Director

It really does vary with our -- we're so diversified. It really depends, I guess, on some of the end markets of what you might see there. But I'd say, in general, we see in the marketplace, maybe some declines in brokerage. But from an asset-based brokerage perspective, being an asset player in that space, we actually -- our revenue on brokerage was actually a lower or a lesser decline than in our asset side of our business. And we actually did see -- although we don't break it out separately, we see some improvement on our ability to generate margins in that as well during this past quarter. But we're going to continue to leverage our asset position, our value position, both in terms of our equipment and our expertise and our confidence with our customers and those carriers we interact with to grow that as we're looking toward the future. But all that said, we didn't necessarily see a big shift in that dynamic during the quarter.

Jason Bates -- Executive Vice President and Chief Financial Officer

Yeah. I think the only thing, Jason, or Ryan, I would add to that is that at the end of the day, all the brakes got to move on the truck. So the people who own the trucks and own the assets, at the end of the day when things get tightened, there's concerned about capacity, you're going to see some of these bigger guys that are going to -- in terms of shippers, are going to look toward those who have assets. They want to make sure that they're keeping that relationship intact and because the brokers, they come and go, those of us who have been in this industry for a long time, you see these cycles, right?

And when there's a lot of capacity out there, they're going to be dipping their toe into waters of getting better rates and using those brokers. But when things start firming up and there's concerns about financial stability of companies and you've got guys maybe going under due to regulatory pressures or fuel starts creeping up and becoming a headwind, insurance becomes a headwind. You've got some of those things out there that may drive some people out of the market, you're going to see a lot of these shippers. They're not dumb. They've been in this industry for a long time too and they're going to make sure they keep those asset players, those relationships intact. And we've got some amazing operators out there who've got really good relationships with lots of different big key customers, and they're continuing to foster and nurture those relationships.

Chris Easter -- Chief Executive Officer, Director

And maybe one final point to even add on to that is that the -- when you think about that asset, I kind of looked at that in the past is you've got a key, the -- a broker has got to go get the keeper. We've actually got that key. Now when you're specialized, like we are, you've almost got a golden key because you have these specialized trailers and equipment and the knowhow that's hard to replicate. And in many cases, it's not replicated out there. So you'd be -- we would, and oftentimes be among the very last of the asset guys to maybe be taken -- to be taken out our backseat behind someone because they need that, that customer, shipper needs that valued specialized asset.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

That's great, guys. Thanks. I'll turn it over to someone else. Good luck.

Chris Easter -- Chief Executive Officer, Director

Thanks, Ryan.

Jason Bates -- Executive Vice President and Chief Financial Officer

Thanks, Ryan.

Operator

Your next question comes from the line of Greg Gibas from Northland Securities. Your line is open, sir.

Greg Gibas -- Northland Securities -- Analyst

Good morning, guys. Thanks for taking the questions and congrats on the improvement in the quarter, very nice to see.

Chris Easter -- Chief Executive Officer, Director

Good morning.

Greg Gibas -- Northland Securities -- Analyst

First of all, I guess, could you provide just a little bit of color on the degree to which the freight volumes improved month-to-month within the quarter? Obviously, you mentioned that April was the low point, but maybe how does that compare to the next two months?

Chris Easter -- Chief Executive Officer, Director

Yeah, it was sequential in this small incremental improvements, relatively speaking. So it wasn't anything dramatic, but small incremental improvements.

Jason Bates -- Executive Vice President and Chief Financial Officer

Yeah. I think the only thing I would add to that is, we were expecting it to be really bad. I think all of us thinking Q2 was going to kind of be where the bottom dropped out of the market and again, I've only been here for three months, right? So I was shocked to see how resilient this Daseke model held up through that downturn. So we didn't see this gigantic drop-off in April that would necessitate a huge pick back up, right? I mean, there was this -- the drop off, don't get me wrong. Everyone in the industry saw it. But we started seeing that climb its way back. And I think in our mid-quarter update, we talked about five of the previous six weeks had sequentially improved each week.

And the only exception to that was actually Memorial Day weekend, right? So it was really, I mean, when you normalize for that, it was six straight weeks of improvement. And that trend is something that kind of speaks. It kind of plateaued a little bit here in the back half of June and into July. And you've got holiday, with the July 4 holiday. But overall, we've been pleasantly surprised at how well the business has kind of held in there. But more importantly, how well the team has kind of executed on cost actions in the face of that revenue challenge.

Chris Easter -- Chief Executive Officer, Director

And in fact, yeah, I think there were a couple of the end markets that did see an immediate [Speech Overlap] and that's where those operating company leaders, they didn't wait for guidance from corporate or anything. They just acted immediately as they have in the past. They've been running these businesses. They ran and cut cost. We had other businesses that we actually saw increases in some volumes. And so that's backed it. The business model, it's hard to pinpoint any one thing because we're seeing a little bit evolving.

Jason Bates -- Executive Vice President and Chief Financial Officer

Yeah, that's why I say, it was weird for me. It was when I really kind of got some exposure because the numbers I was talking about were like the all-in numbers. And you have these puts and takes that Chris was just talking about. And so it was actually surprising to see how there wasn't that much volatility that as much as you would have expected going into this pandemic.

Greg Gibas -- Northland Securities -- Analyst

Got it. Yeah. That's the duty of the diversified end markets, I guess. And thanks for that color on how it trended [Phonetic]. That does help a lot in the quarter. Second one from me, I guess, we could be -- if you could -- you've talked a little bit about this already, but just provide a little bit more color on the degree to which capacity would tighten, I guess, in the second half of the year? And maybe how your expectations for capacity improvement have changed since the last quarter? And if you could just provide the general health of the specialized competitive landscape?

Chris Easter -- Chief Executive Officer, Director

Yeah. I think it's going to -- the capacity is going to be a reflection of the demand curve over time. I think the -- we -- one thing we communicated last quarter, I'd reiterate again this quarter is, we're in a position of strength and resilience with the cash we've got on hand, we will navigate despite the depth or breadth of downturn or if there's a second incremental downturn to come, which we don't see that at this point. But if there were, we're in a position to navigate through it. I would say that there are peers out there that may not be in that type of a position of strength. I think a lot of the smaller carriers out there, which -- many of which are in our space, right? That's our primary competitors, are $30 million, $10 million, $40 million companies that are out there. And there are some great operators out there, but do they all have the ability to be resilient through this type of a situation. And some of them might have between a couple of helps, like maybe there're some governmental help, I think, in some cases, that are helping some of these folks get through it. But if that's not sustainable, then some of those might exit.

All that said, my view is, I think we're going to see some tightening of capacity. And it will ride itself to the demand. And we're in a position to get through that fine. And we also are seeing decreased turnover from a driver perspective. We actually finished the quarter at total turnover right around 60%. We typically outperform our large for-hire carriers significantly on turnover. I think, Jason, from your experience as well. And this quarter was an improvement over the previous year. I think we were at about a 63% Q2 of last year. We're down to about 60% for this quarter. So we're seeing great -- lower turnover numbers and an ability to get drivers as we're going forward, too. So Jason, anything to add.

Jason Bates -- Executive Vice President and Chief Financial Officer

You said it perfectly. I do think there's going to be some tightening in capacity in the back half of the year, and probably even more so into 2021, depending on what happens in the macro environment. I mean, all of our crystal balls are a little bit fuzzy right now. So there's a lot of uncertainty out there, but we're preparing for a spectrum of possibilities. And we are -- make -- to Chris' earlier point, we're making sure that we've got -- we're shoring up our position from a cost perspective, from a liquidity perspective. And then we'll be opportunistic where it makes sense. And if capacity starts coming out, then we'll be a little bit more aggressive. And if not, we'll continue to focus on our internal self-help opportunities.

Greg Gibas -- Northland Securities -- Analyst

Sure. That's a good way think about it. And was going to actually ask about the driver retention, so I appreciate that color there. Last one for me would just be, given you already realized those net proceeds, I think it was $48 million from the disposition of the Aveda assets. I guess, what's -- I know you can't share too much, but what stage, I guess, would you say we are in there in terms of the disposition process?

Jason Bates -- Executive Vice President and Chief Financial Officer

Yeah. We're well down the path. As we said, our goal as a management team is going to be to always under-promise and over-deliver. And we told you that our goal was to be completely exited from this business by the end of the third quarter. I think Chris and the team said that before I even got here, and we reiterated that last quarter, and we are very confident that that's going to be the case.

Greg Gibas -- Northland Securities -- Analyst

Do you think that is the ninth inning?

Jason Bates -- Executive Vice President and Chief Financial Officer

Yeah, I would say we're in the top of the ninth, right. So [Speech Overlap] we're not going into extra innings on this. So, yeah, we're well down that path. I think Chris may have mentioned in his prepared remarks, we've got roughly $4 million to $5 million of kind of just the remaining assets sitting there. We do have, as Chris touched on, some costs associated with the final exiting of the business. We expect it to be a little bit of a cash drag in the $7 million to $10 million, that's the net number when you take the -- what we expect getting rid of these remaining assets for versus some of the lead terminations and severance and things like that. But, yes, we expect to be largely out of this business here in very short order.

Greg Gibas -- Northland Securities -- Analyst

Great. Thanks very much.

Chris Easter -- Chief Executive Officer, Director

Thanks, Greg.

Operator

[Operator Instructions] Your next question comes from the line of David Ross from Stifel. Your line is open, sir.

Matt -- Stifel Nicolaus -- Analyst

Hey, guys, good morning. This is Matt [Phonetic] on for Dave. Thanks for taking the question

Chris Easter -- Chief Executive Officer, Director

Hey Matt, good morning.

Matt -- Stifel Nicolaus -- Analyst

Yeah, you guys have done a great job of improving the balance sheet liquidity and the free cash flow is impressive to say the least. And thanks for the color with respect to the maintenance capex requirements of the business. I'm curious, real quick, how should we think about the percentage of the investment that might ultimately be debt financed? And sort of how to think about that balance over the longer term?

Jason Bates -- Executive Vice President and Chief Financial Officer

I think I'll just -- I'll answer your question, but I'll also use it as an opportunity to kind of have a broader conversation about the capital market and the balance sheet overhaul that we're thinking about going into the future here. So with regard to financing versus straight purchasing, listen, this year, we did a healthy amount of financing. One, we had some great rates that were afforded to us. And two, there was a lot of uncertainty, right, with regard to what the overall economy was going to do, whether there was going to be a double dip. And so accumulating cash from our really strong free cash flow generating businesses made a lot of sense.

And so that was kind of our goal. Now we're sitting in a position where we still don't have perfect clarity on what's going to happen. We've got this COVID, is there going to be a second wave, what's going to happen with the election? Is there going to be an infrastructure bill or not. And so there's still some uncertainty around there. And so we're going to kind of proceed cautiously. But we're also, as I alluded to in response to a previous question, we're going to be opportunistic. I have a lot of relationships with people in the capital markets. And John Michell does too. And we've been having lots of conversations with people because I think it's important to understand what's going on out there and where there might be opportunities.

But I think because of the work that's been done over the last year, we're in a position where we don't really have to do anything, right? And we want to make sure that we -- when we do something that we do it in such a way that it makes a lot of sense and it's strategic and it opens doors. It continues to open doors for us and provide flexibility. And that's the way we'll think about it. And so in response, direct response to your question about how much is going to be cash, how much is going to be financing, we're going to be opportunistic, right. If there's really good debt financing options out there, we'll consider those if the pros of holding on to cash from a -- giving you optionality outweigh the cost of debt financing.

But at the same time, I don't think you're going to see us sit here and accumulate $200 million, $300 million, $400 million of cash and just sit on it, right, especially when we've got debt. So that doesn't make sense either. So it's a long answer to your short question, but hopefully it helps you understand a little bit how we're thinking about it, how we're evaluating all of the options that are out there. And we're going to make the right -- we're going to let the math guide us, right? Whatever -- we want good that. Yeah, optionality, but also make the right decision for the shareholders, for the lenders, and ultimately for the employees as well.

Matt -- Stifel Nicolaus -- Analyst

Yeah. Certainly. Makes a lot of sense. Congrats on the progress.

Chris Easter -- Chief Executive Officer, Director

Awesome. Thank you, Matt.

Jason Bates -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. That concludes the Q&A session. I will now turn the call over back to Mr. Chris Easter, CEO, for closing remarks.

Chris Easter -- Chief Executive Officer, Director

Thank you, Catie. The COVID-19 outbreak is a crisis for everyone. And last August, we had to completely reexamined every part of our business from top to bottom and figure out which levers we could pull and should pull. We built the playbook resulting -- sorry, including this downside playbook, which means we know what we should do and what glass we should break scenarios and what responses we could exercise if needed.

We reduced our fleets, improved earnings, and prioritized our cash flow and cash balances. We had all the tools in the toolkit and we're using these now. We remain focused on the long-term price and believe we have a solid path to both navigate today's challenges and thrive to take care -- advantage of tomorrow's opportunities. Thanks for joining us today and for your continued support of Daseke. We look forward to talking to you again next quarter. Have a great day. Thank you.

Duration: 50 minutes

Call participants:

Brooks Hamilton -- Investor Relations

Chris Easter -- Chief Executive Officer, Director

Jason Bates -- Executive Vice President and Chief Financial Officer

John P. Michell -- Vice President of Operations Strategy

Jason Seidl -- Cowen and Company -- Analyst

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Greg Gibas -- Northland Securities -- Analyst

Matt -- Stifel Nicolaus -- Analyst

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