Daseke, Inc. (DSKE) Q4 2020 Earnings Call Transcript

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Daseke, Inc. (DSKE -0.12%)
Q4 2020 Earnings Call
Jan 29, 2021, 11:00 a.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 Fourth Quarter and Year Ended December 31st, 2020. With us today are Jonathan Shepko, Interim CEO and Board Member; Jason Bates, EVP and CFO; and John Michell, VP of Treasury and Investor Relations. After their prepared remarks, the management team will take your question.

As a reminder, you may now download a 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 the slides in the Investor Relations section of our website. Before we go further, I would like to turn the call over to John Michell, VP of Treasury and Investor Relations 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. John, please go ahead.

John Michell -- Vice President of Treasury and Investor Relations

Thank you, Tamia. 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 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 U.S. Generally Accepted Accounting Principles or GAAP, including but not limited to adjusted EBITDA, adjusted operating ratio, adjusted operating income, adjusted net income or loss, free cash flow, and net debt. 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 website www.daseke.com.

In terms of the structure of our call today, Jonathan will start with a review of our business operations and the progress we are making as we execute against our key strategic priorities. Jason will then walk through a financial review of the quarter and year and then Jonathan will come back to wrap up our remarks with a few closing comments before we open the line for your questions. Now, I'd like to turn the call over to Daseke's Interim CEO, Mr. Jon Shepko. Jonathan?

Jonathan Shepko -- Interim Chief Executive Officer

Thank you, John and good morning everyone. On Slide 3, we outline a few of the notable takeaways from what was another strong quarter capping off an exceptional and transformational year for the company. In late 2019, we made a fundamental shift in how we approach our business and we started the process of rationalizing our operations and rightsizing our cost structure as the first step in delivering best-in-class operational and financial performance to all our stakeholders.

With our renewed focus, our team knew 2020 would be about seamless execution and I'm proud to say the strong results delivered during this year reflects significant hard work by everyone on this team in execution of our 2020 priorities. I'd like to also take this opportunity to thank each of our opco management teams who shouldered much of this change, all while successfully managing their businesses through the backdrop of a global pandemic.

This is my first time communicating with the majority of our shareholders, so I'd like to take a brief moment to introduce myself. I've been a Director with Daseke since we became public in early 2017 and prior to that, I served the company as a Board Observer beginning in 2014. In 2019, I chaired a special operating committee comprised of select Board members, including Brian Bonner, our Chairman as well as select members from the management team. That committee was tasked with architecting the tactical pivot and the resetting of priorities that the company executed against in 2020.

Daseke's transformation has been focused on operational excellence and improving our cost structure to drive performance, reduce costs, and achieve greater efficiency. Looking ahead to 2021, our priorities will be continuing the operational excellence momentum, platform optimization, and demonstrating our ability to drive shareholder value through sustainable growth initiatives. Now I'd like to take a moment to walk through some of the specific highlights of 2020.

As I mentioned, this past year, we successfully fortified our platform and streamlined our business through organizational integrations as well as an enhanced focus on data driven decision making. This was driven by the successful completions of Phase 1 and 2 of our operational improvement and integration plans, which contributed meaningfully to our operational and financial performance in spite of the difficult pandemic plagued macro environment of 2020.

We're now a leaner, more streamlined business, focused on execution and positioned to immediately accommodate accretive growth opportunities as they arise. We rationalized our fleet and fixed asset profile allowing for more efficient reinvestment back into the business. These efforts also led to material improvements in specific key metrics like operating income and operating ratio. In fact, our operating ratio marked the best performance in Daseke's history as a public company. It's also critical for our investors to understand that another big accomplishment over the past year was the successful completion and building out an entirely new leadership team. This included Jason's hiring of CFO, Rick's promotion into the role of COO as well as Jim and Julie's onboarding as our CIO and Chief People Officer respectively.

We also streamlined and assigned new responsibilities across the organization underneath these functional area leaders. And while Chris Easter's leadership helped facilitate the necessary transformational pivot our company experienced in 2020, it was this executive team as well as the very talented operating company management teams that made it all happen. I think it's also important note that our business showed tremendous resilience in the face of a pandemic and lockout conditions that no one in this country was prepared for.

Despite those volatile conditions, we put out numerous profitability records in the second half of the year, which were supported by our portfolio approach and diverse client base. Understand that this diversity is purposeful and allows for us to flex any unique accretive opportunities as they arise such as wind and high security cargo in 2020. And while those two markets may return to more normalized trends in 2021, we are seeing encouraging signs of a rebound in other industrial markets that were more deeply impacted by the pandemic last year. Jason will provide a bit more context on this in a few minutes.

Our focus on driving efficiency and more profitable operations combined with the sale of the Aveda Transportation business, which we determined did not complement our portfolio of operating companies and end markets, helped us drive significant free cash flow and strengthened our balance sheet in a dramatic fashion in 2020. This included delivering free cash flow from operations of $137.3 million and free cash flow of $168.9 million. Those strong cash flows allowed us to reduce our net debt by $104.9 million to a total of $503.5 million on December 31st. I want to pause there and recognize what a great accomplishment this was particularly while simultaneously navigating a pandemic. We actually lowered our leverage ratio as defined by our bank agreements from 3.2 times to 2.6 times as of year-end. Perhaps most notably, we doubled our liquidity versus the prior year-end to over $259 million as of December 31st.

Once again, just a phenomenal job that's true to network across this whole organization top to bottom. So as we look forward, we remain focused on sustaining our strong recovery momentum and capturing the reflation of industrial markets that are healing fairly quickly and are poised to pick up pace as pandemic conditions abate. Our immediate priorities include, first, completing our CEO search process. This process is well under way and the Board and I have already started to evaluate quality candidates as we speak. While I can't offer a specific timetable here, I can assure you that we will work with a strong sense of purpose with the right candidate complementing the current executive team and demonstrating the ability to drive engagement across the organization in respect of long-term sustainable growth for our stakeholders.

Second, our leadership team has numerous operational and tactical initiatives in progress and we will continue the hard work necessary to drive further financial and operational excellence in 2021. Third, as I've mentioned, we've brought on new talent and promoted from within in several key areas including finance, human resources, IT, safety, and risk management. Some of those leaders are just getting started and we believe they will all further streamline our organization and maximize their efficiency this year.

In particular, we see tremendous opportunity to upgrade our systems infrastructure. Among other things, these upgrades will allow for further refinements to process improvements such as real-time more transparent information flow, which will improve decision making and enterprisewide platforms to allow for better coordination, collaboration among opcos. When I think about internal catalysts for shareholder value creation, this is one of the biggest opportunities for the company that will help drive better top line and margin performance in the future.

Lastly, we will further refine and define the Daseke vision and strategy which we plan to share in more detail with you in the coming months. We remain the leading flatbed and specialized transportation and logistics solutions company in North America. We have developed a much stronger balance sheet, which we believe is imperative to being opportunistic across market cycles and we will continue to drive solid free cash flows to further fortify the balance sheet in 2021.

However, Daseke was purpose-built to be a platform for growth and what we will do in 2021 is continue to build credibility with the market, demonstrating that we can use the lessons of the past to inform a better approach to sustainable accretive growth all while maintaining the discipline and fervor to continue to drive operational improvements across our organization. With that, I will now turn the call over to Jason Bates to review our fourth quarter and full-year financial performance. Jason?

Jason Bates -- Executive Vice President and Chief Financial Officer

Great. Hey, thank you, Jonathan. If you please turn with me to Slide 4 for a high level review of the results for the quarter. I could not be more proud of the execution demonstrated by the entire Daseke team during the quarter, which exceeded even our internal expectations. These results were driven by the various ongoing operational improvements, which Jonathan touched on combined with an unusually strong market environment for a fourth quarter. We didn't experience the normal year-end slowdown in volumes in the quarter and subsequent impact on freight rates which we believe can partially be attributed to the industrial economy strengthening throughout the second half of 2020 combined with abnormally mild winter weather in the quarter.

As mentioned previously, our diverse customer profile is purposeful and allows us to pivot when we see outsized opportunities. In mid-2020 that was wind and high security cargo as was noted on our last earnings call, but as those sectors began to slow down into year-end, we saw an uplift in construction related verticals specifically lumber, roofing, steel, and even glass and we are very proud of our front line teams' ability to quickly redirect assets where appropriate to the most efficient end markets. As we move into 2021, we expect that the wind and high security cargo verticals will likely normalize, providing tough year-over-year comps. However, we're encouraged by the fact that our diverse end market portfolio facilitates our ability to benefit from strength in other pockets of the industrial world such as those previously discussed.

Those burgeoning pockets of demand as well as lower capacity and better discipline across the industry yielded a positive rate environment in the fourth quarter, which has continued thus far into 2021. All of this supports our ongoing commitment to drive consistent, operational, and financial improvement, which we expect to manifest itself over time through our operating ratio. We set a long-term target to reach a 90s operating ratio and there has been no change in our strategy and or commitment to achieve that target in the future.

Let us turn to Slide 5 where we detail our consolidated financial results. In the fourth quarter, consolidated revenues were $335.6 million, down 17% compared to revenues of $403 million in last year's fourth quarter. This decline in revenue was driven in large part by the strategic divestiture of the Aveda business. Similar to last quarter, on the right hand of the slide, we are providing our financial performance exclusive of that divestiture in order to help appropriately assess and model our business on a like-for-like basis. Excluding Aveda, our consolidated revenues were down 7% year-over-year. The decline in revenues was driven by a combination of factors, including the timing of the completion of certain renewable and wind related projects, the strategic reduction of underutilized trucks, and by the economic impact of the COVID-19 pandemic, which led to lower freight volumes in both the flatbed and specialized segments.

Some of our end markets across the industrial economy are still feeling the impacts of the ongoing pandemic, pressuring overall demand and weighing on freight volumes. However, this delta to last year's top line is fairly consistent to what we have seen across the back half of the year. Despite the softer year over year demand impacting the top line, the effectiveness of our improved operations and business enhancements continued to flow through to the P&L as we were able to deliver $7.3 million of net income or $0.02 per diluted common share for the fourth quarter.

This performance compares to a net loss of $18.4 million in last year's fourth quarter. When you exclude the Aveda business, the team delivered adjusted net income of $9.2 million or $0.12 a share in the quarter, which also compares favorably versus the adjusted net income of $5.3 million or $0.06 a share in the fourth quarter of 2019. Adjusted EBITDA of $39.5 million improved by 4% compared to the fourth quarter of 2019 or a 6% improvement versus last year's adjusted EBITDA after excluding Aveda. So overall, despite the lower revenue base and the demand pressures brought on by the pandemic, our profitability continues to show marked improvement.

On Slide 6, I'll briefly touch on our financial performance measures from a full-year perspective. Again, I will reference these numbers excluding the impacts of the Aveda business divestiture for additional comparability. For the full year 2020, Daseke generated revenues of $1.4 billion excluding Aveda, which declined 8% versus 2019. Again, this top line decline was driven by the lower freight volumes compared to last year as COVID-19 softened demand across the industrial market. Operating income of $61.4 million improved materially over 2019.

Adjusted net income of $39.6 million grew more than three-fold versus the $9.4 million of adjusted net income delivered across 2019, again, further demonstrating the impact of the strategic changes and operational improvements achieved over the last five quarters. The total adjusted EBITDA of $178.7 million improved by 15% compared to last year's results. Notably, the operating segments of the business delivered a combined adjusted EBITDA growth of 6% versus the prior year while the corporate cost declined by 25% year-over-year, a function of the corporate cost cutting and reorganization initiatives. Looking at the full year results in aggregate, it is clear that we are capturing the benefits from our operational integrations, targeted cost reductions, and a more optimized utilization of our assets.

With that, I'd like to take some time to walk you through a detailed view of our results at the operating segment level. On Slide 7, we display the quarterly results for our Specialized segment. However, now that we've exited the Aveda business entirely, we believe we're viewing our results excluding that business again as more comparable and consistent with our business going forward. So if we flip to Slide 8, we detail our Specialized segment results exclusive of Aveda.

Revenues of $196.5 million were down 9% year-over-year, driven primarily by lower freight volumes as a result of the pandemic driven softness in demand combined with the strategic fleet reductions undertaken as a part of our improvement plans. These headwinds impacting freight volumes were partially offset by the improving rate environment in select end markets. The Specialized segment's adjusted EBITDA results of $29.9 million, decreased by 3% versus the $30.7 million captured in last year's fourth quarter, which was seasonally strong due to the timing of certain wind energy projects at the end of 2019.

Adjusted EBITDA results in the quarter were negatively impacted by the energy projects -- I'm sorry, were negatively impacted by the 9% decline in revenue and volumes combined with certain insurance costs associated with the business that had not previously been pushed down from the corporate level to the segment level. Despite this marginally lower quarterly EBITDA, the segment's EBITDA margins improved by 90 basis points to 15.2% up from 14.3% from the prior year quarter.

Again, our improved margin performance reflects the enhancements we made to the base business through a more optimized usage of our fleet and moving away from certain less profitable revenues. Specialized rate per mile of $2.96 was flat to last year while revenue per tractor of $59,100 grew by 4.4% versus last year's results of $56,600 again reflecting more profitable operations as we improve the optimization of our fleet.

Moving to Slide 9, we detail our Flatbed segment results for the quarter. Flatbed revenue in the fourth quarter decreased 5% to $142.1 million, down from $150.3 million in the last year's fourth quarter. This decrease was driven primarily by weaker freight volumes and lower brokerage revenues. Volume declined due to the impact to demand from the ongoing pandemic and through strategic fleet downsizing efforts. These headwinds were nearly offset by the cost reductions and the improving rate environment. The segment's rate per mile increased by nearly 9% versus last year's fourth quarter period and revenue per tractor grew by nearly 12% to $43,000.

The Flatbed segment adjusted EBITDA results of $17.1 million declined by 4% compared to the result of $17.8 million in last year's fourth quarter. Much like in the Specialized segment, higher insurance costs now allocated from corporate down to the segment level offset the impacts of the improving freight rates and operational improvement plan and business integrations. Despite marginally lower adjusted EBITDA, the Flatbed segment EBITDA margins improved by 20 basis points to 12% reflecting the more optimized fleet leading to more profitable operations. The segment's operating ratio declined 10 basis points to 97.2% with the adjusted operating ratio coming in at 94.9%.

Now turning to Slide 10 where we detail our balance sheet and free cash flow metrics. As of year-end, Daseke had $176.2 million in cash and total liquidity of $259.4 million including the available borrowing capacity on our credit facility. Net debt of $503.5 million has decreased nearly $105 million year-over-year. As mentioned previously, these significant year-over-year improvements are a testament to the tremendous amount of hard work by our entire organization and highlight our commitment to continue to transform Daseke into an increasingly profitable, sustainable, and stable company.

Our operating cash flows and capital expenditures across the full year are displayed on the chart on the right hand side of the page. Across 2020, net cash provided by operating activities was $137.3 million. Cash CapEx was $37.2 million and cash proceeds from the sale of equipment was $68.8 million which includes the divestiture of our Aveda assets. This resulted in free cash flow generation of $168.9 million for the year. CapEx financed with debt or capital leases totaled $58.3 million across the year, resulting in net cash flows of $110.6 million.

Looking forward, continued enhancements to our cash flow generation as well as a focus on the optimal debt and leverage profile will each remain key focal points in our strategy. We will strive to continue to prioritize improving balance sheet health while maintaining adequate optionality and financial flexibility through improved liquidity provisions. This is of significant importance as we continue to successfully manage through the impacts of the global pandemic on the macro environment and the economic uncertainties it can cause to our end markets within the industrial economy. We will remain prudent and conservative with how we manage our liquidity and our balance sheet while capturing the benefits of higher earnings and cash flows from our improving model.

I'll close my remarks with our 2021 outlook, which is offered on Page 11. In terms of our assumptions, we expect our overall freight volumes to remain relatively flat over the fiscal year 2020. We should continue to see improvement in lagging areas including construction related verticals and other later cycle industrials, but we expect that to be offset by a normalization of volumes in wind and other areas that were outsized in 2020. We expect to continue to drive operational excellence, but we'll have to overcome some headwinds in 2021 with higher anticipated insurance costs related to the ever tightening insurance market, which we anticipate to be roughly an $8 million headwind year-over-year as well as lower margins resulting from a mix shift, specifically, the potential for less highly specialized support of wind and high security cargo markets.

For the full year 2020, we estimate that we had roughly a $22 million positive adjusted EBITDA impact from above average demand in markets like wind and high security cargo. That number is a net number, so it assumes had we not pivoted to those unique high-margin opportunities, we would have supported other normal margin business instead and that's factored into that $22 million number. So the combination of those two items alone creates a $30 million adjusted EBITDA headwind as we move into 2021.

However, we believe we will be able to largely offset these headwinds through the continuation of our various operational and tactical initiatives, which Jonathan alluded to previously combined with our strategic deployment of assets to the various end markets, which are experiencing supply demand imbalances as they more fully recover from the COVID pandemic.

So with that set of assumptions and acknowledging that everyone's crystal ball is a little fuzzy right now with the economic, political, and pandemic uncertainty, we are projecting to $1.4 billion to $1.5 billion in revenues for the full year 2021. We also expect to deliver $165 million to $175 million in adjusted EBITDA depending on how the year unfolds in relation to the aforementioned points. We feel this range appropriately reflects our performance capability on both ends. If the COVID pandemic were to adversely develop or economic or political environments were to drive the market downward, we could see the low-end of this range being in play.

However, if the COVID vaccine is highly effective and the economy responds strongly or if we were to get regulatory and or political support for an industrial or infrastructure bill, we could easily see ourselves at the high-end of this range. As we move throughout the year and have better visibility into 2021, our commitment to you is that we will make the appropriate refinements to this guidance. So with that, I'll hand the call back over to Jonathan to offer a few final thoughts. Jonathan?

Jonathan Shepko -- Interim Chief Executive Officer

Thank you, Jason. I'll conclude on Slide 12 with an updated view of our 2021 priorities. After 18 months of disciplined [Indecipherable] wholesale operational improvement across the organization through the lessons learned and best practices adopted, a continuous improvement mindset will remain part of Daseke's identity for years to come.

However with this capstone 2020 performance, I'd like to note the end of the heavy lifting phase of our restructuring, declare a modest victory on behalf of the tremendous team, and talk to you all about life for Daseke going forward. Specifically, 2021 will provide for those optimization of our industry leading Flatbed and Specialized segments as well as organic and strategic growth. We will leverage our balance sheet, our unmatched asset heavy scale, and the operational leverage of our platform to drive value for our shareholders.

First and always, we will continue to prioritize the safety of our people and our customers as we have throughout the last challenging year. Investments in workflows and technology, over the next two years, upgrades to systems and workflows will drive meaningful improvements in our top line and margin profiles. These initiatives will lean on different functional area leaders and capabilities within Daseke in the operationally intensive phases 1 and 2.

It will be focused on facilitating better cooperation and data sharing among opcos, layering in more robust real-time analytics across the platforms to support decision making. Think about concepts such as FP&A optimization, load optimization, network profitability, pricing and commercial excellence. This improved architecture will also allow Daseke to evaluate, diligence, benchmark and onboard potential targets with more efficiency while also providing our team with the tools to monitor and track on a real-time basis the post closing performance of our targets relative to underwritten purchase expectations.

Moving on, we continue to receive questions about our balance sheet and leverage profile. The reality is that we are in a cyclical capital intensive industry and we serve a number of volatile high beta end markets. We believe a fortress balance sheet is critical to establishing staying power and resilience across market cycles. We will continue to prioritize moderating our leverage profile with a shift in focus to optimizing our funded leverage profile versus net leverage to ensure we can be opportunistic and proactive across all cycles whether that's taking market share or buying more capitalized competitors during the trough.

Number four, next, select pursuit of growth opportunities. The market that this company was founded on continues to be sound. This is a highly fragmented industry that would benefit from consolidation. Scale matters over the past 18 months, this organization has learnt significant lessons and how to successfully build efficiencies and integrate businesses to create value. We've spent time overhauling our diligence process, our valuation metrics and our onboarding procedures.

M&A will look differently going forward going forward. Prospective targets will be subject to a high degree of internal scrutiny and rigor our financial objectives will be focused on full cycle EPS and free cash flow accretion and the question of strategic relevance must be answered. At the end of the day, our objective is because close to our customer by providing the geographical footprint, service capabilities, scale and pricing that ensures we remain strategically relevant in the end markets we choose to service. We have substantial capacity to accommodate growth, substantial operational leverage within our platform. This is key to our value proposition. Daseke M&A 2.0 will find attractive growth opportunities that we can bring into our platform without incremental redundant fixed costs.

Furthermore because of our scale, we would expect to be able to drive additional sales through those new brands and we would expect to use our 2020 lessons learned playbook to also improve variable cost of these targets. So then once onboarded, these opportunities will provide tremendous pull-through with outside EBITDA profiles that will be very accretive to our pro forma margin profile.

As I alluded to earlier on this call. In the coming months, we hope to be in a position to share redefined vision with all of these which among other things will provide more depth into our perspectives around organic and strategic growth. With that though, I'd like to conclude our prepared remarks for this morning and I'm excited to turn the call over for your questions.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from the line of Ryan Sigdahl with Craig-Hallum Capital Group.

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

Good morning, guys, thanks for taking our questions. First, I just want to start on wind energy. So I know you had some outsized projects this year, both year-over-year, quarter-over-quarter, etc that didn't repeat from a comp perspective, but it doesn't sound like you're assuming that business to remain elevated this year in 2021, but given the new administration's embrace of renewable energy initiatives, it seemed like there is a lot of opportunity for Daseke heading into this year as well as over the next several years. So I guess how do you think about that opportunity to win business generally for you guys and assumptions that are in guidance.

Jason Bates -- Executive Vice President and Chief Financial Officer

Yeah, thanks, Ryan. Appreciate the question. So I think as a lot of you know, the way these things work is you've got the PTC credits that get extended and renewed and so we, at the end of last year were coming up on the conclusion of one of those cycles and there was uncertainty about whether or not that was going to be renewed or if it did get renewed for how long it would be renewed and so, part of what drove a lot of the higher volume and some of the supply demand imbalances that we experienced in that sector last year was the pull forward of a lot of that activity trying to get it done before the deadline and so that you had that combined with COVID-19, which significantly disrupted the supply chain that typically participates in that activity.

And so our teams did a great job of being there for customers in a pinch when they needed it and so that's what really drove a lot of what we experienced last year. When you have that kind of a pull forward, even though as you guys probably are aware in the past few weeks, there has been an extension albeit only a one-year extension to the PTC -- the supply chain is a little dry and so we got to kind of prime that pump and allow things to make their way through the supply chain before we'll really start seeing some of those heavy volumes pick up and again given that it's just a one-year renewal as opposed to the previous multi-year renewal and pipeline, we wouldn't expect it to be at those same levels and then you layer on the additional lack of visibility or unlikely situation of having the same type of pandemic driven supply chain issues, we really don't anticipate that 2021 will look anything like 2020 did.

So it could be a quarter or two before that supply chain really -- the well gets pumped -- primed so that you can start seeing that flow through and we may to your point, see some decent volumes there and the end of the second quarter and into the back half of the year, but we really don't believe it to be anything at the level of what we saw in 2020.

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

Good, then just moving on to within the specialty segment, rates were -- the decline sequentially was fairly large. I guess can you elaborate on what caused that versus Q3 and then which maybe you just answered part of it in that response, but then what are you expecting from rates and specialty specifically in 2021?

Jason Bates -- Executive Vice President and Chief Financial Officer

Yeah, good question and you're right, that was really what drove that. As we talked about the third quarter and we talked about it on the call then and kind of reiterated today and tried to give you guys some full year numbers to more fully help you appreciate the size of that tailwind that we had this last year, but when you look at the fourth quarter rates at 2.96% versus the fourth quarter of last year, they're relatively flat and keep in mind that's actually impressive that they're flat because there was a lot of wind activity going on in the fourth quarter of 2019 that we didn't have any to the same level in the fourth quarter of 2020. And so while it's flat, we view it as actually being slightly up when you normalize for that mix effect.

Now to the latter part of your question if we roll forward into 2021, what do we expect to see? That's something there's a lot of puts and takes there. The mix factor is definitely going to be something that comes into play. We again, wind will be down and so the rates are not anticipated to be as strong, but we will see COVID recovery in the other sectors that were pressured in 2019. So there's a lot of moving pieces there, but I think net-net, that we would expect them to be down on a full-year basis year-over-year. Exactly, the magnitude of that shortfall is hard to ascertain at this point. We would probably air on the side of being cautious with regard to how we would model that going forward.

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

And then just you mentioned higher insurance costs this year. Driver wages continue to be kind of a pressure throughout the industry, has been, but it seems like you guys are making a lot of good operational improvements. Margins are heading higher, but the headwinds seem to be intensifying as well. So I guess as you think about that 90% OR that you're targeting, how do you think about insurance costs, whether it's driver wages, kind of all of the external things you can't control. What gives you confidence that you can continue to offset those over the next couple of years as you aim toward that 90%, and that that's still the right expectation?

Jason Bates -- Executive Vice President and Chief Financial Officer

Yes, great question. And Ryan, I've been in this industry for almost 20 years now, and it seems like there's these cycles, right, where you have these ebbs and flows, where you have this supply demand imbalance and the rate market gets tight and then you have other periods where it's -- you're scrapping to get any rate increases and you've got the driver dynamic that typically kind of follows that same mantra. The key in order to kind of continue to drive sustainable revenues and earnings profiles is to have really strong relationships with customers. Because at the end of the day, we're here for the customers. They need us and we need them. It's a symbiotic relationship.

And so when we get into environments where insurance costs get tough or when driver wages, the supply demand situations emerge on the driver front, you got to be ready to have those conversations directly with your customers. And we've got some great operations and sales teams out there that have wonderful decades-long relationships with key customers.

And they need us, we need them and we work together. And so I guess the short answer to your question is there's always going to be ups and downs. And it's about staying in front of them and communicating clearly with customers so that they can understand what you need and when you need it. Because sometimes there's things they can do other than just giving you rate to help kind of neutralize some of those headwinds. And so that's something that we have already been doing this year in terms of talking with customers and really trying to drive it.

The other thing is where there are levers that we can pull, this is kind of getting to the latter part of your question about the 90% OR there are -- I mean, listen Ryan, there are so many opportunities. I mean, when I first got here, I think I made reference at one point to the fact that we weren't even picking fruit off the tree. We were picking it up off the ground so that it wouldn't rot. Now we're at the point where there's not a ton of that fruit lane on the ground anymore, but there's still a lot of fruit, really low on that tree for us to go and get. And that's kind of what Jonathan was alluding to about some of the operational initiatives.

Our COO, Rick Williams, and all of our operating company CEOs are driving and we've got scorecards and metrics on different things that we're going to be going after this year to help drive improved margin profile going forward. And we really -- to be honest with you, Ryan, we don't need a ton of help from the market or a ton of help to be able to drive toward that 90% OR. We have multiple paths with levers that we can pull that are very company-specific that will allow us to get there. And then when you layer on some decorum of growth and maybe we start at a certain point, looking at acquisitive opportunities of well-performing companies that can also add to the ability to drive those margins down and to the right.

Jonathan Shepko -- Interim Chief Executive Officer

Yes, Ryan, this is Jonathan. Look, I don't want to -- I mean, certainly, everything that Jason said is true. I think look, I think the analysts, the investors broadly look at Daseke and look at our OR, look at some of our margins and look, to Jason's point, there's lots of work to do. There's internally -- there's a path to getting OR, getting our EBITDA margin where we want it to be without any kind of external growth opportunities, strategic growth opportunities, but again, we are rightsizing the platform, rightsizing our cost structures in respect of the operational leverage we think we need to take advantage of growth in the coming years.

So I do want to make sure that everybody understands this, yes, disproportionately, our cost structures look high. When a platform business, platform company is starting out, that's often the case. We simply haven't monetized the platform yet, brought in the scale to really rightsize our structure. So it's really a two-pronged approach going forward and I don't want strategic growth to be kind of left out of that equation. Again, we can certainly drive continued efficiencies internally and we plan to do that but our margin profile is going to change dramatically over the coming years as we really ramp the platform up.

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

Great, thanks guys. I'll turn it over and I like the fruit tree analogy, that was good. All right, thanks guys.

Jason Bates -- Executive Vice President and Chief Financial Officer

Yeah.

Operator

Your next question comes from the line of David Ross with Stifel.

David Ross -- Stifel -- Analyst

Good morning, gentlemen. Jason, you talked about some of the headwinds and not factoring in the mix headwind but insurance for example and other issues. How much of that can be made up with pricing. It's a very strong pricing market right now. Do you think you can cover all that with rate increases.

Jason Bates -- Executive Vice President and Chief Financial Officer

Yeah, again, I don't know that it's our intent to cover all of it with rate increases. I mean obviously we'll try. I think there is other things though that we can do. We've got levers that we can pull as we touched on, combined with the fact that we've got operational execution in terms of utilization of assets, reduction in maintenance expense, better fuel routing and things like that that are going to help drive -- cover some of those headwinds as well.

David Ross -- Stifel -- Analyst

Yeah, I mean my assumption would be cover the increase with price and then the rest of the improvements get you closer to your 90% [Phonetic].

Jason Bates -- Executive Vice President and Chief Financial Officer

Yes, correct, yes.

David Ross -- Stifel -- Analyst

And the D&A outlook for 2021, should it stay roughly at the run rate of 4Q, so kind of in the $104 million, $108 million range.

Jason Bates -- Executive Vice President and Chief Financial Officer

Yes. I think, Jon, what are we thinking on that one?

Jonathan Shepko -- Interim Chief Executive Officer

Yes, it will be somewhere between $95 million and $100 million. Q4 had a little incremental D&A in the quarter.

Jason Bates -- Executive Vice President and Chief Financial Officer

Yes, we are constantly evaluating and taking a look at all of our assets to make sure we've got them kind of positioned correctly from a kind of book value relative to the market. There was a little bit of that, that happened in the fourth quarter. So I think your fourth quarter number is a little higher than we would expect on a go-forward basis but to Jon's point, maybe more in that kind of $95-ish million range.

David Ross -- Stifel -- Analyst

Okay and because we think about Daseke a lot as a free cash flow story because you guys have done a nice job there. How should we think about EBITDA as a proxy for cash flow from operations? It's usually cash flow from operations usually comes in lower, sometimes much lower. So any color on working capital this year that may help or hurt?

Jonathan Shepko -- Interim Chief Executive Officer

Yes, I mean from a working capital perspective, I wouldn't say it be material one way or the other. You're not going to see a significant impact related to that. Most of the delta between the two is interest.

Jason Bates -- Executive Vice President and Chief Financial Officer

Yes, that was the big thing I was going to mention as well. If you take the EBITDA target and you deduct the interest, we've got a little bit of a dividend for some preferred shares that we have out there, but other than that -- and there's honestly, we may have some cash taxes this year because of how we've been performing, which is a good and a bad problem, I guess but other than that, I think you're -- the way you're thinking about it is the right way to think about it.

David Ross -- Stifel -- Analyst

And then lastly, just on the driver side, the owner-operator environment. Tractor count is down. It seems like owner operators aren't down as much as company owned. Some of that in specialized is due to the Aveda exit, but how do you think about the current owner operating environment and what you need, what you're seeing?

Jason Bates -- Executive Vice President and Chief Financial Officer

Yes, it's a really good question. It's something that we've been talking a lot about internally. There's pros and cons to both models, right? And I think striking that balance is what's going to be important. Sometimes when the driver market is tough and you've got options or you've got drivers who want to become owner operators or want to have a path to becoming an owner operator, you may be able to find some capacity that way either from people internally that are wanting to elevate their career in that direction or finding people from the outside that are bringing trucks to the table.

So it's something that we want to make sure we strike a balance on because you don't want to get too heavy on the owner-operator side because at the end of the day, they're independent and they can do what they want and sometimes you need someone to cover a load, you need to be able to tell them they need to cover that load. And so there's a balance that needs to be struck there but yes, there's no question that the driver market is one that's tough.

Again, kind of falling back on my background, I look at flatbed vis-a-vis most of my career, which was spent in kind of the traditional dry van, think you put a dry van business where drivers -- I mean, you literally create drivers out of thin air, right? They -- if they have a pulse and they can get it to yell [Phonetic], you train them and you put them behind a truck, right? Flatbedding is a little bit different. These guys are legitimate drivers. I mean these guys are professionals. You got tarping involved, you've got -- you are managing extended length loads and there's a lot of technical and professional skill sets required.

So while it doesn't mean that we're immune to the same driver pressures that you're going to hear from the Knight-Swifts or the Warners or the Schneiders of the world, it's not as pronounced as quickly as what they see. And so I would just kind of remind you of that, that's one of the reasons we love this business model is we are a little bit different. We are a little bit niche, and it allows -- and there's a level of specialization, not just to the type of freight we haul, but to our driver population as well. So just a reminder on that front.

David Ross -- Stifel -- Analyst

Thank you.

Jason Bates -- Executive Vice President and Chief Financial Officer

Thank you, David.

Operator

Your next question comes from the line of Jason Seidl with Cowen.

Jason Seidl -- Cowen -- Analyst

Thank you, operator. Hey gentlemen, good morning. I wanted to talk a little bit about the pricing on the flatbed side. Talk about your contracts when they are renewing and sort of how you see that as we progress through the year?

Jason Bates -- Executive Vice President and Chief Financial Officer

Yeah, so this is one of my one of my favorite ones as you and I know, Jason, we've talked about this a lot over the years. Again, getting back to one of the beauties of the Daseke portfolio model is we are very diverse and we have a lot of different end markets that we service, we have a lot of different operating companies, and a lot of different customer relationships and there's not really any one period where, like all of our contracts renew. They are literally staggered throughout the year.

And so in certain times, that's really good and other times, you don't get to take advantage of things as much as you'd like but I think as I alluded to earlier, a lot of it comes down to the relationships you've got with customers. And even though you've got a contract to the extent that you're in a situation where there's escalating insurance costs or driver wages and you go, you have that conversation with your customer, I'm not saying that all the time they're going to acquiesce and work with you, but with the right partners, there's a level of back and forth and give and take that we're able to mutually agree upon.

Jason Seidl -- Cowen -- Analyst

Okay, so when we look at your guidance, what does your guidance imply in terms of your rate increases on the contractual side for flatbed?

Jason Bates -- Executive Vice President and Chief Financial Officer

So flatbed rates, we do expect them to be up, right? When you look at 2020 and a combination of the mix, combined with the supply demand issues associated with COVID, the flatbed environment wasn't as strong last year as what we expect to see here in 2021. So we are anticipating flatbed rates to be up.

I don't know that we're going to see -- while we would love to see it, I don't know that we're going to be seeing almost double-digit numbers like we saw in the fourth quarter but I think kind of that mid-single digit range is an area that we're going to be targeting and again, like we talked about with driver cost pressures, insurance cost pressures. I mean, we're going to need that to be able to continue to provide the same level of service and support to our customers to make sure there's no disruptions in their supply chain.

Jason Seidl -- Cowen -- Analyst

Okay, perfect. And then lastly, touching on the CEO search. You guys sort of update us if you have any additional thoughts on your timing? And then also, maybe just sort of describe that perfect person that you're looking for if you could pluck him out of thin air today?

Jonathan Shepko -- Interim Chief Executive Officer

Yes, Jason, I can take that. So look, the reality is we're in a completely different place today than we were a year or so ago when we undertook the search. We don't need the heavy handed, roll up your sleeves operationally intensive turnaround CEO. We're really looking for a leader, someone that can complement the team, someone that believes in the functional leaders at the table and respects their abilities to get to the right decision and drive execution within their verticals. So we want someone who can build trust and earn the respect with everyone in the organization and a leader that appreciates our culture and our legacy.

And look, not the least of importance, we're looking for someone with skins on the wall. So we're looking for someone with a demonstrable track record of driving shareholder value within a multi-billion dollar organization. And look, as I said on the call, not a lot of specificity around this. I'm not trying to be a certain spec, but I mean, we've already actually started receiving candidates from the search firm that we're working with. So we're well into the process. We're months ahead where we were in the search last year at this time. So we're making great progress. The emphasis is truly going to be, though, Jason, on finding the right individual and making sure that, again, that person complements this team.

Jason Seidl -- Cowen -- Analyst

So where on your list does transportation experience fall in terms of the person you're looking for?

Jonathan Shepko -- Interim Chief Executive Officer

Look, I think we've got -- again, I'm exercising this team. I think the Board is very respectful of the capabilities of this team, I think, over the last several months they've -- Jason has been here since April, Rick Williams was officially part of this in April or May, but practically, he was functioning as the company's COO months earlier than that.

So it's absolutely not a necessity. It's not a number one, not a number two, maybe even not a Top 3. We feel that with the opco talent we have and with the industry depth and experience we have at the table, I mean, truly, every executive on our team is a trucking veteran that we don't need to add more depth to our team. We're looking for, again, somebody that complements the team, somebody that can help prioritize strategic initiatives to underpin and drive the vision and somebody that can kind of build the right respect and repo with all levels of the organization.

Jason Seidl -- Cowen -- Analyst

Okay, well, listen, that's actually fantastic color and gentlemen, I appreciate the time as always and everyone be safe out there.

Jonathan Shepko -- Interim Chief Executive Officer

Yes, you as well, thank you.

Operator

We have time for one last question. Your final question comes from the line of Greg Gibas with Northland Securities.

Greg Gibas -- Northland Securities -- Analyst

Great, good morning guys, thanks for taking the questions. I guess, first, to kind of follow-up, if we back out some of the rate environment improvement that positively helped revenue, how should we think about the degree to which volumes are down year-over-year and then maybe how that's trending on a monthly basis more recently?

Jason Bates -- Executive Vice President and Chief Financial Officer

Yes, no, it's a great question and again, I think you got to kind of look at the business in its separate parts, right? So when we talk about specialized, we highlighted the fact that things have slowed down on the wind side, right, and the high security cargo side. And so as we think about volumes there, obviously, those have kind of trickled down throughout the quarter, which was anticipated. Now as we move into 2021, we do believe that our business can shift those assets. We have a history of doing so. So they may not be at doing the same level of margin profile business, but there could be significant volume opportunity there. And by significant, I mean, a few percentage points higher than what we did in 2020, even in spite of some of the strength we saw in that wind market.

On the flatbed side, what we did -- we actually had pretty good volumes last year in spite of the COVID pandemic, but the rates were pressured. And so now that, that reversed course in the fourth quarter and we've seen that similar trend carrying forward candidly through the month of January, which is very unusual for our business. Flatbed rates and volumes being as strong as they were in the fourth quarter and as strong as we've seen them thus far in January is seasonally unusual.

So listen, we're cautiously optimistic about what we're seeing there and have pretty -- we'll be pretty pleased if that trend continues through the rest of the first quarter because, as you know, busy season for us really is Q2 and Q3, and that's when we would expect -- if we can stay strong through Q1 and then carry that momentum into Q2 and Q3, we feel like that sets up really well for the year.

Greg Gibas -- Northland Securities -- Analyst

Sure. Great. It's helpful, Jason. And then I did want to ask relating to the end markets, which end markets are still being impacted I guess the most by pandemic related issues? You mentioned construction related markets picking up more recently, but what markets are you still kind of waiting to see or realize more of a recovery?

Jason Bates -- Executive Vice President and Chief Financial Officer

Yes, so one of the big ones, obviously, is aerospace. We've seen pressure there. From the moment the pandemic happened, it's kind of flat lined. And it's not continuing to decline, but we haven't seen that recovery yet that we would like to see. Some of the bigger manufacturing type activities while improving aren't necessarily back to kind of pre-pandemic levels, but I'm pleased that you pointed out construction, I mean construction is hot right now.

And anything related to construction, we're seeing strong demand and strong pricing and that's from lumber to glass to gypsum to, you name it, there's even steel. Some of those things have been picking up and so I think there's some puts and takes there but again, for me, coming from the background I came from, it's one of the things I love about Daseke this diversity of our portfolio, this broad array of customers, markets, regions that we service, there's going to be ebbs and flows in one or the other, but they kind of complement each other and it kind of help insulate that volatility. And again, it's one of the things that really makes Daseke unique.

Greg Gibas -- Northland Securities -- Analyst

Great. Last quick one for me. In the past, you noted that the recent delays, I guess, in major ports in the U.S. really hasn't impacted Daseke's business at all. Could you just maybe confirm that's still the case? And then maybe how we should think about the percentage of the freight volume or contracts that are completely domestic here?

Jason Bates -- Executive Vice President and Chief Financial Officer

Yes, good question, so I don't want to convey that port disruptions don't ever have any negative effects on Daseke, but I think our team, again, it gets back to the true professional nature of not just our drivers, but all of our frontline employees and even the leaders out at the opco level that figure out ways to pivot when there are disruptions and figure out ways to keep the trucks moving and keep drivers getting paid and getting home and so I think we do a really good job of handling those types of disruptions.

I mean, I think COVID is a perfect example of that. I thought coming here in the midst of a pandemic, I was bracing for a really tough second and third quarter and I was shocked at how this team just mobilized and figured out creative ways to get things done and so, I want to highlight that point and make sure it's not lost that we are subjected to some of the things that happen out in the marketplace, but the team does a great job of maneuvering around that.

But with regard to the percentage of the business that's foreign versus domestic, most of the business that we do is domestic, but there are different pieces of the supply chain that can initiate overseas and make their way to us, but I would say, as you think about the greater Daseke business as a whole, I'd say, a significant percentage of that revenues is more domestic in nature and the end market is domestic, even though it may originate overseas.

Greg Gibas -- Northland Securities -- Analyst

Okay, great. Thank you.

Jason Bates -- Executive Vice President and Chief Financial Officer

Our pleasure.

Operator

I would like to turn the call back over to Jonathan Shepko for closing remarks.

Jonathan Shepko -- Interim Chief Executive Officer

Thanks, everyone, for your time today. We have a proven and highly capable leadership team here at Daseke. The successes we had in 2020 have positioned the company well for 2021. We're looking forward to a highly successful year and we appreciate your continued support of Daseke. We look forward to talking with you again next quarter. Have a great day.

Jason Bates -- Executive Vice President and Chief Financial Officer

Thanks everyone.

Jonathan Shepko -- Interim Chief Executive Officer

Thanks everyone.

Operator

[Operator Closing Remarks]

Duration: 59 minutes

Call participants:

John Michell -- Vice President of Treasury and Investor Relations

Jonathan Shepko -- Interim Chief Executive Officer

Jason Bates -- Executive Vice President and Chief Financial Officer

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

David Ross -- Stifel -- Analyst

Jason Seidl -- Cowen -- Analyst

Greg Gibas -- Northland Securities -- Analyst

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