Daseke Inc

F:1VG

Earnings Call Transcript 2023-Q1

[Operator]

Good morning everyone and thank you for joining today’s conference call to discuss Daseke's Financial Results for the First Quarter ended March 31, 2023. With us today are Jonathan Shepko, Chief Executive Officer and Board member; Aaron Coley, Executive Vice President and Chief Financial Officer; and Adrianne Griffin, Vice President of Investor Relations and Treasurer. 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 issued earlier today. You may access these slides in the Investor Relations section of Daseke’s website.

I would like to turn the call over to Adrianne Griffin, who will read the Company's Safe Harbor Statement that provides important cautions regarding forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Adrianne, please go ahead.

[Adrianne Griffin, VP, IR and Treasurer]

Thank you Michelle and good morning everyone. Slide 2 of today's presentation contains Safe Harbor and non-GAAP statements. Today's presentation also contains forward-looking statements 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 not to 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 and not limited to adjusted EBITDA, adjusted EBITDA margin, adjusted operating ratios, 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 on the investors tab of the Daseke website www.daseke.com.

In terms of the structure of our call today, I will start by turning the call over to Jonathan Shepko, who will review our business operations and the progress we are making as we execute against our strategic priorities. Aaron Coley will then provide an update on our recent capital allocation actions and our first quarter results. Jonathan will conclude our prepared remarks with an updated 2023 outlook before we open the line for your questions.

With that, I'll hand the call over to Jonathan.

[Jonathan Shepko, CEO]

Good morning, everyone and thank you for joining our call today. At this point in this quarters reporting cycle, it's likely no surprise to listeners that our industry is facing weaker demand than many of us were forecasting at the beginning of this year. Smaller operators are experiencing near breakeven spot rates, prompting an exit capacity for the industry when that relocation is maintaining a record high levels, while at the same time remaining capacity is being reallocated into the strongest end markets, resulting in rate pressure across nearly every industry sub vertical.

Compound this with persistent inflationary headwinds, most notably maintenance cost and driver pay with driver pay typically lagging in response to the prevailing rate environment. The cumulative effect of weaker demand, lower prices and inflationary headwinds set the backdrop for was framing up to be a challenging year. Despite the strain these current challenges place in our sectors fundamentals, I'd like to contextualize where we're at as a company.

First 2022 was a record year for Daseke. It was notably the third consecutive year of record financial performance for our company, demonstrating the initial success of our transformation efforts and better preparing us for this year's challenges. Despite a drastically different rate environment, this first quarter of 2023 we reported a favorable $46.8 million of adjusted EBITDA. In fact, this was the second best adjusted EBITDA print for first quarter in our company's history, and only $2.8 million shy of our record achieved in the more frothy first quarter of 2022.

Next, I'd like to point out the cross cycle durability of our operational, which is functioning as designed. Within our flatbed segment, which generally experiences more volatility and slower freight environments we noticed several positive indicators including relatively flat load count with an increased length of haul, increased percentage of company load miles as a percentage of total miles and reduced [debt head] which helped us drive adjusted EBITDA margin improvement as compared to not only the first quarter of 2022, but also the fourth quarter of 2022.

These productivity improvements helped to stave off the full impact of the rate declines versus the prior year period. During the first quarter of 2023 our specialized segment delivered adjusted EBITDA and adjusted EBITDA margin flat to the prior year quarter; a substantial accomplishment in light of the macro environment. Lastly, I'd like to highlight the idiosyncratic opportunities still available to Daseke as we continue with our transformation.

In my recent letter to shareholders, we introduced the name of these collective transformational work streams as One Daseke. One Daseke will leverage technology and facilitate the sharing of best practices, while creating a more cost efficient, durable business model that consistently delivers profitable growth across future cycles. It's a series of initiatives intended to unite the teams across the company around the culture of close coordination and continuous improvement.

We are re-sequencing our transformation initiatives to pull forward these system deployments and extend out the operating subsidiary integrations to improve the efficiency of the integration process. And the traction of the post integration efforts providing more sustainable long term cost and revenue synergies. Over the coming quarters we continue to expect these initiatives will provide cumulative incremental operating income in excess of $25 million with additional cost and revenue synergy opportunities still available thereafter, as we focus on the optimization of our business.

While we do expect our One Daseke efforts to partially offset the collective headwinds in 2023 and still contribute approximately $15 million in support of adjusted EBITDA as referenced on our last earnings call, our re-sequencing of these work streams is expected to shift realization of the totality of these run rate synergies slightly from late 2023 to mid 2024.

With that, I'll hand the call over to Aaron, closing our prepared remarks, Aaron?

[Aaron Coley, EVP and CFO]

Thank you, Jonathan. And good morning, everyone. In February, we established a target growth leverage of 1.5 to 2 times total debt to adjusted EBITDA for normalized ongoing operations. After quarter end, we took decisive action toward this goal, paying off $50 million of long term debt balance with cash on hand, thus, cutting in the interest expense associated with $50 million of long term debt and reducing our pro forma gross leverage from 2.88 times to 2.66 times.

In addition, we also use $20 million of cash on hand to redeem the entire class of Series B1 preferred shares that we're receiving that 13% cash dividend; that's eliminating $2.6 million of annual dividend payments. These combined actions improved first quarter adjusted EPS by $0.03 on a pro forma basis, or $0.11 annualized. Pro forma for these transactions, we have maintained a healthy level of available liquidity at $95.6 million, including the cash balance of $91 million and $104.6 million of availability under our undrawn revolving credit facility.

We will continue evaluating the opportunities for additional outsize repayments to reduce gross leverage, further improving the risk adjusted return for current and prospective shareholders. As Jonathan mentioned in his opening remarks, the first quarter of this year was characterized by an environment of softening freight demand and lower overall freight rates. And while we were not immune to these headwinds our asset right model moderated the impacts. Also remind our listeners that first quarter of 2022 was the highest ever first quarter adjusted EBITDA for the company. The current year quarter consolidated revenue declined by $21.1 million or 5% to $399.8 million. The decline was due to $17.6 million reduction in brokerage revenue, all of which was contained within our flatbed segment as well as $17.6 million reduction in owner operator freight as we continue to focus on loading higher margin company owned assets and improving utilization for entire company on fleet.

The intentional shift afforded by our model allowed us to capture an additional 4.3 million of company freight revenue with better margin pull through partially offset the brokerage and owner operator declines. We’ve realized continued demand strength in agriculture and high security cargo in markets due to the non-correlated relationship of agricultural equipment deliveries and sensitive cargo transport to the broader industrial economy offset by a decrease in construction in market symptomatic of the impacts of a higher interest rate environment and a degree of continued economic uncertainty.

Compared to a record first quarter of 2022, our adjusted operating ratio increased slightly by 120 basis points to 93.4% as total operating expenses fell more slowly than revenue. While overall expenses were lower, we realized increases in salaries, wages and benefits and operations and maintenance expense that pressured margin. Over the next several quarters, however, we expect these expenses will begin to reflect the changing dynamics of the current cycle.

Transitioning now to net income. In the current year quarter net income was $0.5 million or $0.05 per law loss per diluted common share compared to the prior quarter of $13 million or $0.18 of earnings per diluted share. $7.2 million of the comparative period net income decline related to the expiration of warrants in the prior quarter that did not reoccur an incremental net interest expense resulting from rising floating interest rates on a flat absolute quantum of debt.

Regarding EPS approximately $0.19 of comparative period decline, related to the increased net interest expense and the expiration of warrants previously mentioned as well as $1.5 million in cash dividends associated with the Series B preferred shares that were issued in November of 2022 in connection with the founders share repurchase.

Despite these headwinds, adjusted EBITDA was $46.8 million and adjusted EBITDA margin was 34 or 13.4% representing a modest improvement in margin from 13.2% in the prior year quarter. As a final highlight of our consolidated results, we generated free cash flow of $33.7 million nearly $3 million more than the prior year quarter; a significant achievement in a difficult environment.

Turning now to our specialized sector solution segment. Revenue was $230.7 million a 1.8% improvement versus the prior year as our team prioritized loading higher margin company owned assets. Through these efforts, company freight revenue increased slightly as a 5% increase in miles outpaced a decline in the company rate per mile. Demand strength in agriculture and in energy and markets added to revenue growth as well as the contribution from the hazardous waste focus SJ transportation acquisition which was completed late in the prior year quarter. These gains were partially offset by declines in the construction and manufacturing end markets.

Overall, the specialized segment recorded approximately flat miles, a slight decline of 1.5% and average rate per mile to $3.31 and a segment adjusted OR there was roughly flat at 92.4%. In the first quarter of 2023 net income increase to $2.1 million from $6.2 million in the prior year quarter primarily due to increased interest expense. Finally, adjusted EBITDA and adjusted EBITDA margin increased slightly to $27.9 million or 13.6%. We're very pleased with the financial and operational performance of this segment during a difficult quarter.

Turning now to our flatbed solution segment, the first quarter demonstrates the adaptability of our asset right strategy in an environment with 9.3% lower rates and roughly half the flatbed loads available in the market versus this time last year our team shifted priority to loading higher margin company assets which generated an increase in company freight revenue of 8.7% due to a nearly 21% increase in company miles driven as compared to 7.6 fewer miles driven by owner operators. The result of these movements was segment revenue of $169.1 million, a $25.3 million lower than the prior year quarter, primarily due to a $17.7 million decline in brokerage revenue.

With the industrial and markets we serve strengthen the manufacturing end market was more than offset by declines fueling construction in markets. Flatbed solutions adjusted OR was 94.8% primarily due to lower revenue. Segment adjusted EBITDA was 18.9 million with adjusted EBITDA margin improving slightly for both the prior period quarter and sequential quarter to 13.2%. Though improved operational and productivity support our flatbed teams. Looking at these results our asset right operating model is working as designed. We are concentrating on our efforts on enhancing productivity which we expect to improve across the year.

I'll now turn the call back to Jonathan for an update in our 2023 outlook. Jonathan?

[Jonathan Shepko, CEO]

Thank you Aaron. Well, our organization successfully navigated difficult first quarter in the remainder of 2023 we now anticipated delayed recovery and freight demand. And it is likely to attenuate the seasonal uplift in rates and volumes typically realized in our second and third quarters, compounded by revised rate expectations for the remainder of the year that are 1% to 2% lower than those forecasts at the beginning of 2023 which appear to be well in line with the adjustments made by the broader industry.

If these expectations prevail, we anticipate full year 2023 adjusted EBITDA in the range of $210 million to $220 million which is 6% to 11% below our previous guidance of $235 million and again, it's generally consistent with the recalibrations announced by most of our truckload peers this quarter.

Our return to stronger supply and demand fundamentals including rates seasonality or economic recovery, along with our continuing cost and revenue optimization initiatives could positively influence our ultimate financial performance.

Our organic capital expenditures net of property and equipment sales are expected to be $135 million to $145 million as compared to an original outlook of $145 million to $155 million. We believe consistent discipline reinvestment in our fleet is imperative across all cycles to enhance the driver experience, reduced future operating expenses, and prepare our fleet for increasing profitability. Our fleet utilization is improving. And our driver recruiting classes are the largest we've had in recent history, further positioning us to outperform through the early stage recovery of the next cycle.

In this environment we are investing in the technology and processes to support profitable growth in the upcycle. While prudently managing year term controllable costs, and reallocating resources to accelerate performance in this current environment. Our One Daseke efforts will not only augment the resilience and efficiency of the model with technology, best practice and continuous improvement, but they will support the foundation of a new high watermark in our earnings profile when the cycle inevitably inflex.

Throughout our organization, we are fortunate to have leadership that knows how to operate with excellence in this environment. A team that can channel us across the near term challenges through the execution of our long term strategy while compounding growth at attractive returns.

Now, we will turn the call back to the operator and take your questions.

[Operator]

Thank you. At this time, we will conduct a question answer session. [Operator Instructions] First question comes from the line of Bert Subin from Stifel. And Bert your line is now open.

[Bert Subin, Stifel, Nicolaus & Company, Inc.]

Great. Hey, good morning.

[Jonathan Shepko, CEO]

Good morning.

[Bert Subin, Stifel, Nicolaus & Company, Inc.]

Hey, Jonathan. Maybe just thinking a little bit about where you left off on the guidance side of things. How many risks do you think the new EBITDA ranges? I think if you were to end the year like 2023, in that range, investors would generally view that pretty favorably. But there seems to be probably some concern, there's more downside. How are you evaluating the bear case at this stage now five plus months into the year?

[Jonathan Shepko, CEO]

Yes. I think look, a lot of there was a lot of data points out there that we're looking at. We're looking at low to truck ratios, utilization. We're looking at normal seasonality trends. And look, it's frankly a mixed bag. And we ultimately took the revision downward because of the lack of seasonality. We typically by April really see a noticeable uptick in utilization, loaded trucks even rates and typically rates from March to April increased 10% to 15%. And when you think about our Q2 and Q3 because of the seasonality in those two quarters being on trend for us, about 60% of our EBITDA generating during those two quarters, so really important quarters for us. And we're just not really seeing the seasonal uplift. And so we've kind of looked at our peers.

We looked at industry data and based on customer feedback as well as recent discussions around pricing contracts and things like that look, we've taken our guide down, and it's based on as I said that in the call of kind of a 1% to 2%, further degradation rates, we've also, we have assumed a little bit of a an uptick in firming up in volumes, which we are actually seeing a little bit of improvement in volumes. But it's not such a pronounced improvement that we get hand back with the shippers whereby we can really drive rate increases at this point.

So we think that the seasonality might be there at some level. It's just not simply going to be as pronounced as we typically see. So, and we feel pretty good about that guide so far, we've also got the integration efforts, the transformation efforts that are underway, and those are performing as expected.

So we did have some things going for us as if loads hold, we think we continue to drive. I mean, you saw this quarter the Southeast flatbed segment, really was able to drive productivity, improved productivity, which does a lot to offset rates. And we think that'll continue if the freight holds. But at the end of the day we're not economists and we're not soothsayer, so we're doing the best we can with the data we have in front of us today.

[Bert Subin, Stifel, Nicolaus & Company, Inc.]

That's great now. Super helpful. Maybe on the self help confidential side of things, can you sort of highlight what's factored into the 210 to 220 guide for this year? And then what you ultimately think you can drive in 2024?

[Jonathan Shepko, CEO]

Yes. The way we're thinking about that Bert is we've got so last year, we really commenced these transformation efforts last year, but we said the costs were going to largely offset any noticeable benefit from those efforts. We think a lot of those costs have kind of dissipated. So we kind of enter the year with probably roughly 5 million of benefit from the initiatives that we undertook last year. And we expect to get an incremental 10 million this year. So we're thinking about $15 million of improvements of synergies related to those transformation efforts that we'd realize this year with probably something that feels like an exit run rate in the high teens.

And then going into 2024, we think there's another $10 million on the table. So a total of 25 cumulative 25, probably an exit run rate that feels like closer to 30 exiting 2024. So a little bit of upside to what we've been telling the market but we think timing, as I said on the prepare to March timing is shifted a little bit to fall forward some of the systems implementations, which we think are kind of the long pole in the tent here, primarily around the TMS, kind of the lifeblood of these operating companies. So that's a bit of the reason of the shift, but we think the quantum of opportunity is that we've underwritten to internally is absolutely still there.

[Bert Subin, Stifel, Nicolaus & Company, Inc.]

And just want one last follow up and I'll pass it back over. As we look at the CapEx range, can you just highlight maybe why you think that range is still make sense based on where we are in the down cycle versus perhaps reducing your leverage incrementally? Is it just your belief that we're bottoming out here in '24 and '25, we're going to have a lot of opportunities. So you want to you want to be prepared for that? Or is it more around the maintenance CapEx side of things where you want to get cost out of the fleet?

[Jonathan Shepko, CEO]

Yes. I mean, a lot, of the CapEx, the large part of the CapEx is to replace rolling stock. And we take that very, very seriously. I think companies that try to [tick the] [indiscernible] CapEx get into trouble, particularly when the cycle does inflect. They're just more disadvantaged. And so a lot of the CapEx this year, as we said on our last call, we eliminated a lot of the growth CapEx. And so primarily what you're looking at is replacement CapEx which was kind of fine tuned a little bit.

There's some CapEx in there for systems. There's some CapEx in there, about $5 million of that CapEx was pull forward for wind, which we expect to reflate toward the latter part of 2024 and given the lead time on those [shallow] trailers of 18 plus months, we wanted to go ahead and get that in there.

So we think the CapEx is right size relative to the opportunity set ahead of us. We do think that the market starts to come back in 2024. We do think we've seen the bottom we're at the bottom, nearing the bottom. And 2024, depending on what the Fed does, I mean, I think there is speculation that if the banking situation worsens. You can see 100 basis point of rate unwinding this year, which we think is going to be a massive catalyst to the economy, especially the kind of the industrial complex, but if that ends up being kind of later next year, that's, look you're going to get the bang no matter what. And we want to be well positioned to take advantage of that when the cycle does inflex. So that's how we're thinking about it.

[Bert Subin, Stifel, Nicolaus & Company, Inc.]

Thanks so much. Jonathan.

[Jonathan Shepko, CEO]

Thank you.

[Operator]

All right. Our next question comes from Ryan Sigdahl from Craig-Hallum Capital Group.

[Ryan Sigdahl, Craig-Hallum Capital Group]

Thank you. Good morning. Staying on guidance here. So previously, you were guiding for revenue flat to up low single digits. You said one to two points lower rates relative to your previous expectations, I guess. Does simplistically lead imply kind of flattish revenue, maybe down a little bit or more through the put stakes on revenue, please?

[Aaron Coley, EVP and CFO]

Yes. Thanks, Ryan. So our revenue guide is about 5% on the adjusted EBITDA range.

[Ryan Sigdahl, Craig-Hallum Capital Group]

You're guiding for revenue growth of 5%.

[Aaron Coley, EVP and CFO]

No, I said we're down. 5%.

[Ryan Sigdahl, Craig-Hallum Capital Group]

Thank you. Sorry. I missed that. Down 5. Yes. And then can you split that between flatbed and specialized kind of expectations for the year?

[Jonathan Shepko, CEO]

Yes. Sure. Ryan, flatbed is down 11% and specialize is down 2%.

[Ryan Sigdahl, Craig-Hallum Capital Group]

Given specialized has just one last follow up on that specialized hung in there a little better, I guess, does that assume kind of what we've seen in flatbeds. And a little more deterioration maybe flows through in a specialized through the rest of the year relative to kind of current environment?

[Jonathan Shepko, CEO]

Yes, it does. As we look at across our sub verticals on specialized while they've held on pretty strong through the first quarter, as excess capacity and other markets are chasing your freight, we expect to see some compression there as capacity tries to enter some of those markets.

[Ryan Sigdahl, Craig-Hallum Capital Group]

Last one, for me, drivers. I mean, it's been an ongoing battle of – it feels like for many, many years kind of inflationary wages there, but also just finding drivers. I guess are you seeing any improvements there? And I know you said kind of the cost side is a lag but any improvements on availability, and then kind of timing on when we could potentially see some better wage inflation or I guess, lower wage inflation on the driver side?

[Jonathan Shepko, CEO]

Yes. We've actually had a lot of positive momentum on the driver side. Our utilization is probably approaching kind of 92%. So we're absolutely [seeing] trucks, as you pointed out, if you looked at really kind of early 2022 late 2021, when the rate environment really kind of expeditiously increased driver pay was lagging and so historically for us driver pay as a percentage of revenue was around kind of 30% to 33%. It got to as low as high 29% to 30% in a really at the kind of the peak rate environment.

And then really as rates started to inflect downward in the back half of 2022 wage started to catch up so we can kind of found ourselves today, where wages as a percentage of revenue are closer to kind of 37 plus percent, but we do think that the market the environment is setting up for an environment whereby driver pay can start to be walked down cautiously and carefully. Non transport, kind of transport trucking nonfarm payrolls decreased in February, but they increased slightly back up in March. So they're kind of hanging in there up 3.2% kind of year-over-year. So when you start to see that moderate and fall off, that kind of gives you a sign that you've got excess driver capacity, you can start walking rate back, so I think we're probably a quarter or so from doing that.

[Ryan Sigdahl, Craig-Hallum Capital Group]

Great. Thanks. Yes go ahead.

[Jonathan Shepko, CEO]

I am assuming I was going to say Ryan on the CD truck count, we are seeing a 1% to 2% pickup in seated rates overall truck counts up about 5.5% to 6% and on how you measure it through the quarter, and so we are seeing larger recruiting classes, we are seeing more trucks which we expect to continue to do through the remainder of the year.

[Ryan Sigdahl, Craig-Hallum Capital Group]

Great, thanks.

[Operator]

Our next question comes from Greg Gibas at Northland Securities.

[Greg Gibas, Northland Capital Markets]

I guess regarding what you're seeing in the market it sounded like it's mostly rate being pressured versus volume holding up relatively better. Is that kind of what you're seeing and I guess a similar question being how much of the weakening rates is a function of the decline in demand versus maybe the increase in industry capacity?

[Jonathan Shepko, CEO]

Yes. I mean, I think if you think about load volumes, and we'll stay on flatbed for a second just because it's kind of got a bigger, better higher kind of macro correlation. The Southeast flatbeds largest flatbed market, or flatbed region in the country. So we'll stay there. They are actually seeing pretty good loads and pretty good volumes. If you look though, and pretty good as relative, right? If you look at loaded trucks, [indiscernible] loaded truck metrics over time.

If you look at 2018, which is pre-COVID, when we really had good times, and then you look at Q1 so let's think about Q1 to Q2 because the movement from Q1 to Q2 is pretty, pretty important here as a bellwether for how the rest of the year is going to be. If you look at really Q1 to Q2 in 2021, Q1 to Q2 in 2018 yet kind of mid 60s going to kind of 90, and I'm not sure that number means anything to you, or anybody listening on the call, but 90, as a kind of frame of references. It's really as good as it gets. I mean, that's a massively healthy environment where you've got substantial excess capacity and great coverage relative your trucking capacity.

2022 Q1 to Q2 it went from 90 down to 55. 55 by all accounts is an extremely healthy environment. But you started to see a signal in that Q1 from Q2 loaded truck went down. And then a few months later, you started to see pressure on contract rates and continued pressure on spot rates. If you look at where we're at, in Q1 of this year, we're in the teens. Okay.

The last time we were in the teens, was Q2, 2020. I mean, kind of the COVID environment, right where everything everybody thought the world was going to shut down. The last time we were in it before that was kind of mid 2019 when we had our last freight recession, right.

So if you look at where we're at relatively the companies we have the brands, we have the teams, we have finding freight, they're doing a great job. And if you look at I think what separates us maybe from relative to some of the smaller carriers, it's the customers that we engage with. The market, the absolute size of the market, whether it's steel, lumber, steel piping, tubing, building materials, those markets have absolutely contracted. But what our customers are doing, our investment grade customers are doing is they're using as an opportunity to take a market share. So they are actually hanging in there, okay, on a relative basis. But historically speaking the loaded truck ratio is extremely low. Utilization rates are low which means you've got excess capacity and so, again, you typically see those things tick up from Q1 to Q2 and we're just not seeing that any in any way shape or form.

[Greg Gibas, Northland Capital Markets]

Okay, understood, appreciate the color there. I wanted to apologize if you addressed already kind of your plans here, but notice there was adding 15% drivers in the tracker fleet year-over-year in this quarter. How do you maybe expect that to trend throughout this year just following that kind of softening in demand?

[Jonathan Shepko, CEO]

Greg. Can you repeat that question, please?

[Greg Gibas, Northland Capital Markets]

Yes. Just regarding I think it was year-over-year you added 15% to drivers and the tractor fleet. Basically, just wondering how you're expecting that the trend throughout this year, just given the softening in demand?

[Aaron Coley, EVP and CFO]

Yes. I think there's a bit of a timing difference there. And when you think about our truck count, a lot of our trucks that we had an order last year were delayed. So we ended up getting a big delivery of trucks at the end of last year. And so we're in the process of kind of cycling through the seeding those in Q1, a lot of those are largely seated now you start the disposition process as well.

So if you're looking at just truly truck ticking up, it's probably overstated in Q1 relative to what we're going to see for the rest of the year. We had assumed year-over-year that we'd have about 80 more driver, 80 more trucks this year than last year. And the utilization we'd be able to see those trucks more. So we would go from something that felt like kind of 86%, 87% seated truck last year to something that felt like 90% to 91% seated this year. And so those are the assumptions that are going to play through. And again, as we mentioned on the comments with Bert, we're seeing the driver side of the equation is absolutely healthy. We're seeing those trucks probably in [indiscernible] a little bit ahead, well, substantially ahead of plan, right and some of that because we've got 7%, 6% to 7% on seeded, so they actually need more trucks. So we're feeling pretty good about where we're at.

[Jonathan Shepko, CEO]

The other thing that you're seeing, Greg, if you look at the press release in terms of company trucks, is our intentional switch and our asset right model. And so we're deploying more company owned trucks and de-emphasizing brokerage. De-emphasizing owner operators. And so we are getting some conversions of lease purchases to company trucks. So that's kind of why you see the shift in our mix of our mode.

[Greg Gibas, Northland Capital Markets]

Okay, got it. Thanks for that. And I guess, lastly, you already addressed kind of wage, driver wages. But just wondering if you could provide some color on maybe the other level of inflation you're seeing across some of the other big cost categories?

[Jonathan Shepko, CEO]

Yes. I mean, we're still seeing on the, the kind of the maintenance cost. I mean we're still seeing kind of 20% cost increases, and that was probably off of 40% cost increases in 2022. We're still seeing kind of 20% plus expectation of cost increases this year for kind of maintenance and repairs. Tires were up about 40% last year. I don't think it's going to be another 40%. But we're in the process of meeting with some of the tire vendors right now to figure out what those price increases are going to look like. But again, I think when you look at the inflationary headwinds we faced and you look at now, kind of a CAGR on rates versus 2019 so kind of pre-pandemic environment today, you've had a kind of CAGR of 3% rate increases and when you CPI adjust that you haven't really shown any real rate improvement, and you've got all the inflationary headwinds to offset as part of that. So it is truly kind of a perfect storm.

[Greg Gibas, Northland Capital Markets]

Okay, make sense. Appreciate it guys.

[Jonathan Shepko, CEO]

Thank you.

[Operator]

That concludes the question answer session. Thank you for your participation today. I will now turn the call over to Mr. Shepko for his closing remarks. Mr. Shepko, go ahead.

[Jonathan Shepko, CEO]

Thank you Michelle. Though we're in a trough looking up cycle turns in our industry are quick and substantial. And when the inflection comes our unique portfolio of brands and services with a network of 1400 tractors and 11,000 trailers will be well-positioned to expand asset productivity, increased revenues, leverage earnings growth and enhance shareholder value. I'd like to thank our entire 4300 persons team for their focus and dedication. We delivered a strong first quarter despite a challenging macro backdrop, confirmation that we're more resilient, agile organization. We remain diligent our commitments to drive shareholder value through proactive balance sheet optimization and operational excellence. Thank you all for your time this morning.

[Operator]

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.