Daseke Annual Report 2017

Plain-text annual report

is the leading consolidator and largest ﬂatbed is the leading consolidator and largest ﬂatbed and specialized transportation company in and specialized transportation company in North America. Our combined ﬂeet of more North America. Our combined ﬂeet of more than 5,200 trucks and 11,000 ﬂatbed and than 5,200 trucks and 11,000 ﬂatbed and specialized trailers serves 49 U.S. states specialized trailers serves 49 U.S. states as well as Canada and Mexico and offers as well as Canada and Mexico and offers comprehensive services to some of the world’s comprehensive services to some of the world’s most respected major industrial shippers. most respected major industrial shippers. Our destination is the ongoing, long-term Our destination is the ongoing, long-term generation of value for our shareholders. generation of value for our shareholders. 820839nar.indd 1 3/23/18 11:21 PM LETTER TO SHAREHOLDERS To Our Shareholders, First Base: It is a pleasure to share our ﬁrst annual report since I have long stated that “ﬁrst base” for Daseke was Daseke (Nasdaq: DSKE) became a publicly traded to become a public company and build the capacity company on February 28, 2017. What an adventure and scale necessary to gain signiﬁcant synergies and we have enjoyed together in building North America’s competitive advantages in the ﬂatbed and specialized premier ﬂatbed and specialized trucking company! market. Building that scale was the primary focus of In addition to becoming public in 2017, we also: > Welcomed seven new stand-alone operating companies to the Daseke family, three of which have positioned us to become a market leader in the very attractive niches of high-security cargo and commercial glass. > Became the largest owner in the ﬂatbed and specialized market. our team in 2017. Of course, scale matters little unless you have the right people in place to capitalize on the opportunity. My philosophy is on my business card — “Investing in People.” People make the difference. When Daseke agrees to acquire a new operating company, it is not just because we value the customer relationships, brand equity or proﬁtable operating history the company will bring to the Daseke family. Even more > Exited the year with acquisition-adjusted annual importantly, it is because we believe the people are an revenue of $1.3 billion and acquisition-adjusted excellent cultural ﬁt. EBITDA of $141 million. The owners and management teams who join Daseke We have come a long way from our ﬁrst year of are not looking for an exit; they are seeking a platform operations in 2009 with $30 million in annual revenue that will allow their great companies to achieve new and $6 million in EBITDA. Today, Daseke offers comprehensive, best-in-class service to some of the world’s most respected industrial shippers through our combined ﬂeet of more than 5,200 tractors, 11,000 ﬂatbed and specialized trailers, and one million-plus square feet of industrial warehousing space. With average experience of more than 25 years among the leadership of our operating companies, Daseke’s management team has the deepest expertise of any in ﬂatbed and specialized trucking. heights. Through our acquisitions and scale-building in 2017, we have added not just the right business components but also the right people to help Daseke achieve our goals. Second Base: With “ﬁrst base” reached, we intend to use our newfound scale to maximize operational efﬁciencies and build organic growth in 2018 and beyond. We have evolved the structure of Daseke to best achieve our “second base” goals through: > Naming Scott Wheeler president of Daseke. Scott has been my trusted partner and CFO since the earliest days of Daseke, and no one better understands the nuances and complexities of our organization; 2 D A S E K E , I N C . 820839nar.indd 2 3/23/18 11:21 PM >Advancing our regional operational leadership with six of our most experienced ﬂatbed and specialized CEOs in the industry;>Expanding our executive management team to enhance processes related to acquisition and integration;>Fostering collaboration among our operating companies to implement key technologies such as our Freight Management System, capitalize on cross-selling and operating synergies, and improve driver recruiting and retention.We will also continue our fundamental strategy of industry consolidation. Daseke is the largest provider of ﬂatbed and specialized transportation in North America — and with only a fraction of the overall market share, we have a long runway for growth and continued addition of scale.Our focus is on long-term value for our shareholders. We will achieve this through the prudent allocation of capital to best grow our EBITDA both organically and strategically, whether that capital is used for equipment, technology or acquisitions. The Daseke management team proudly owns more than thirty ﬁve percent of Daseke. We are all aligned.We will continue to nurture and add to our robust pipeline of acquisition prospects. We have always been selective, and this will not change.In the meantime, we will look to capitalize on a strong ﬂatbed market, along with expanding niche markets where Daseke can be a dominant force, such as commercial glass and high-security cargo. We will be creative and tenacious in addressing the challenging labor market for drivers. We strive to be innovative to make Daseke a premier destination for the industry’s best drivers looking for their “million-mile home.”We will cheer on the potential for a once-in-a-generation infrastructure investment. We endorse this idea not only as proud Americans, but as employers of the men and women who navigate our roads daily and as a provider of the type of equipment it will take to move the materials needed to strengthen our nation’s infrastructure.And as always, we will maintain our focus on generating long-term value for our shareholders.Thank you for investing in — and thank you for believing in — this journey we call Daseke.Sincerely,Don R. DasekeCEO & ChairmanMarch 16, 2018 2017 ANNUAL REPORT 3 scaleGenerating long-term value throughDaseke is a high-growth company Daseke is a high-growth company scaled for success.scaled for success.As one of the fastest-growing companies of its kind in the United States, Daseke relies on the tremendous scale of both our specialized equipment and our ﬂatbed ﬂeets to increase cost efﬁciencies and fuel organic growth. For a high-growth company like Daseke, building scale matters.4 DASEKE, INC. Acquisition-Adjusted Revenue GrowthAcquisition-Adjusted 2017 (Includes 2017 Acquisitions) (1)2009(First Year of Operations)$30M$1.3B60%CAGRAcquisition-Adjusted EBITDA GrowthAcquisition-Adjusted 2017E (Includes 2017 Acquisitions) (2)2009(First Year of Operations)$6M$141M48%CAGR(1) Acquisition-Adjusted revenue (giving effect to acquisitions during 2017) is calculated by adding Daseke’s revenue for 2017 and the revenue of each company acquired in 2017 for the period beginning January 1, 2017 and ending on its acquisition date, based on the acquired company’s internal ﬁnancial statements for that portion of same period prior to Daseke’s acquisition.(2) Estimated Acquisition-Adjusted EBITDA (giving effect to acquisitions during 2017) is calculated by adding Daseke’s estimated Adjusted EBITDA for 2017 (midpoint of disclosed range) and the estimated Adjusted EBITDA of each company acquired in 2017 for the period beginning January 1, 2017, and ending on its acquisition date, based on the acquired company’s internal ﬁnancial statements for that portion of same period prior to Daseke’s acquisition.Super Heavy Haul 2017 ANNUAL REPORT 5Joining Daseke is not an exit for Joining Daseke is not an exit for the company. It’s an evolution to a the company. It’s an evolution to a scalable platform.scalable platform.Our consolidation strategy is built on long-term ﬁnancial performance, long-term relationships and top-tier safety scores, among other criteria. By proactively pursuing carriers that possess the qualities we value most, we’ve grown into a family of 16 proven brands that share success as one Daseke family.Generating long-term value through (1) Acquisition-Adjusted revenue (giving effect to acquisitions during 2017) is calculated by adding Daseke’s revenue for 2017 and the revenue of each company acquired in 2017 for the period beginning January 1, 2017, and ending on its acquisition date, based on the acquired company’s internal ﬁnancial statements for that portion of same period prior to Daseke’s acquisition.Revenue by SegmentAcquisition-Adjusted 2017 (1)(cid:122)(cid:122)(cid:122)(cid:122)SpecializedFlatbed43%57%Asset Right Operating ModelAcquisition-Adjusted 2017 (1)(cid:122)(cid:122)(cid:122)(cid:122)Asset-Light Revenue> Brokerage> Owner Operator> LogisticsAsset-Based Revenue > Company Equipment49%51%Asset-Based = Greater Margin & CapexAsset-Light = Lower Capex & Margin6 DASEKE, INC. High-Value Customized Freight 2017 ANNUAL REPORT 7Generating long-term value through8 DASEKE, INC. Our healthy mix of industry Our healthy mix of industry verticals and end markets verticals and end markets moderates risk.moderates risk.Daseke is well diversiﬁed in virtually every area of our business — from the specialized niches, locations and equipment of our operating companies to our revenues by end-market and customer. We are well positioned as a high- growth company.Over Dimensional FreightRevenue Mix by End-Market (Acquisition-Adjusted 2017) (1)(1) Acquisition-Adjusted revenue (giving effect to acquisitions during 2017) is calculated by adding Daseke’s revenue for 2017 and the revenue of each company acquired in 2017 for the period beginning January 1, 2017, and ending on its acquisition date, based on the acquired company’s internal ﬁnancial statements for that portion of same period prior to Daseke’s acquisition.Commercial Glass 3%Aircraft Parts 5%Lumber 6%Energy 8%High- Security Cargo 10%Building Materials 17%Metals 20%Other Cargo 20%Heavy Machinery 8%Power Sports 2%Concrete Products 2% 2017 ANNUAL REPORT 9peopleGenerating long-term value throughWe invest in people.We invest in people.Our philosophy of investing in people underscores the value of our industry-leading team. By retaining seasoned leaders and quality drivers from the businesses we choose to pursue, acquire and integrate, the depth of our management experience continues to grow, along with the breadth of our ﬁeld expertise.Flatbed10 DASEKE, INC. High-SecurityCommercial GlassBEST FleetsTO DRIVE FOR® 2017 ANNUAL REPORT 11OPERATING COMPANIES — LE ADERSHIP Front Row: Gregg Stanley, Dan Wirkkala, Gary Coleman, Lee Michaud, Phil Byrd, Sr., Rick Williams; Second Row: Rendy Taylor, Craig Stanley, Scott Hoppe, John Wilbur, Tex Robbins, Chris Hornady, Grant Mize, Chris Cooper, Mark Randolph, Jim Towery; Not pictured: Gail Cooper, Tom Schilli, Phil Nelson, Dan Moore Dan Wirkkala Smokey Point Distributing Gail Cooper (Not Pictured) Gary Coleman Big Freight Systems John Wilbur Roadmaster Group Scott Hoppe E.W. Wylie Mark Randolph J. Grady Randolph Rick Williams Central Oregon Truck Company The Boyd Companies Rendy Taylor WTI Transport Tom Schilli (Not Pictured) The Schilli Companies Tex Robbins Lone Star Transportation Lee Michaud The Schilli Companies Phil Byrd, Sr. Bulldog Hiway Express Jim Towery Steelman Transportation Chris Cooper The Boyd Companies Chris Hornady Hornady Transportation Phil Nelson (Not Pictured) R&R Trucking Craig Stanley TSH & Company Gregg Stanley TSH & Company Dan Moore (Not Pictured) Moore Freight Service Grant Mize Moore Freight Service 820839nar.indd 13 3/23/18 11:22 PM 2 0 1 7 A N N U A L R E P O R T 1 3 THE DASEKE FAMILYLed by operating division presidents with an average of 25 years of experience at their companies, the Daseke family consists of 16 trusted names in two segments: specialized and ﬂatbed freight. Our specialized equipment accommodates over-dimensional freight, high-security cargo, commercial glass and other challenging loads, while our ﬂatbed trucks haul building materials, steel, gypsum and other industrial materials.Established 1979Established 1959Established 1938Established 1948Established 1988Established 1935Established 1961Established 1931Established 1988Established 1991Established 2001Established 1956Established 1989Established 1928Established 1977Established 1992IBIFERHSystems Inc.12 DASEKE, INC. DASEKE AT A GLANCEDaseke is a uniquely focused consolidator of the open deck transportation industry whose specialized hauling equipment, nationwide ﬂatbed ﬂeets and highly skilled drivers make seemingly impossible trucking challenges look effortless. We know the industry, and we’re proud to say that our top 10 customer relationships average over 20 years.Offers services across the United States, Canada, and MexicoThe largestﬂatbed & specialized carrier in North America 16th largest truckload carrier in North America (2)(1) Includes owner-operator.(2) Logistics Management Magazine, 2017.5,200 trucks (1)11,000 trailers (1)OverOver14 DASEKE, INC. Blue-Chip Customer Base (Top 10)Blue-Chip Customer Base (Top 10)(Acquisition-Adjusted 2017) (Acquisition-Adjusted 2017) (1)(1)MetalsMetalsBuilding Building ProductsProductsIndustrial Industrial ProductsProductsRevenue by Customer(Acquisition-Adjusted 2017) (1)(1) Acquisition-Adjusted revenue (giving effect to acquisitions during 2017) is calculated by adding Daseke’s revenue for 2017 and the revenue of each company acquired in 2017 for the period beginning January 1, 2017, and ending on its acquisition date, based on the acquired company’s internal ﬁnancial statements for that portion of same period prior to Daseke’s acquisition.• No single customer accounted for greater than 6% of total revenues• Top 10 customer relationships average over 20 years30%70%Top 10 CustomersHigh-Security High-Security CargoCargoAviationAviationMillion-plussquare feet of industrial warehousing space Daseke drove Daseke drove 290 million milesin 2017 — the equivalent of in 2017 — the equivalent of traveling the distance traveling the distance between the earth and the between the earth and the sun three times.sun three times. 2017 ANNUAL REPORT 15BOARD OF DIRECTORS MANAGEMENT Front Row: Ron Gafford, Mark Sinclair, Brian Bonner; Back Row: Kevin M. Charlton, Don R. Daseke, Daniel J. Hennessy, Front Row: Derek Blount, Angie Moss, John Michell, Soumit Roy; Back Row: Don R. Daseke, Greg Hirsch, R. Scott Wheeler Jonathan Shepko, R. Scott Wheeler Don R. Daseke Chief Executive Ofﬁcer Brian Bonner (1, 2) Independent Director Jonathan Shepko (1) Independent Director and Chairman of the Board of Directors Kevin M. Charlton (3*) Independent Director Mark Sinclair (1*) Independent Director Daniel J. Hennessy (2*, 3) Vice Chairman, Independent Director Ron Gafford (2, 3) Independent Director R. Scott Wheeler Director, President and Chief Financial Ofﬁcer Don R. Daseke Chief Executive Ofﬁcer Angie Moss Chief Accounting Ofﬁcer, John Michell Vice President of and Chairman of the Senior Vice President Finance Board of Directors and Controller R. Scott Wheeler Director, President and Greg Hirsch Senior Vice President Soumit Roy General Counsel Chief Financial Ofﬁcer Derek Blount Senior Vice President Board Committees (1) Audit Committee (2) Corporate Governance and Nominating Committee (3) Compensation Committee Committee Chair * 1 6 D A S E K E , I N C . 2 0 1 7 A N N U A L R E P O R T 1 7 820839nar.indd 16 3/23/18 11:22 PM 820839nar.indd 17 3/23/18 11:22 PM 820839nar.indd 19 3/23/18 11:22 PM 2 0 1 7 A N N U A L R E P O R T 1 9 18 DASEKE, INC. STOCK PERFORMANCE STOCK PERFORMANCE The following graph compares the change in the cumulative total stockholder return on our common stock with the cumulative total return of the S&P 500 Index - Total Return, the Dow Jones Transportation Index, and the DASEKE, INC. 15455 Dallas Parkway, Suite 550 Addison, Texas 75001 Russell 2000 Index for the 10 months ended December 31, 2017. Our comparative peer group is the Russell 2000 To the Stockholders of Daseke, Inc.: Index, which closely mirrors the benchmarks of other companies in the transportation sector. This comparison assumes $100 invested on February 27, 2017, in (a) Daseke, Inc. common stock, (b) the S&P 500 Index - Total Return, (c) the Dow Jones Transportation Index and (d) the Russell 2000 index. Comparison of 10 Month Cumulative Total Return Comparison of 10 Month Cumulative Total Return Among Daseke, Inc., the S&P 500 Index - Total Returns, the Dow Jones Transportation Index, and the Russell 2000 Index $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 2/27/17 2/28/17 3/31/17 4/30/17 5/31/17 6/30/17 7/31/17 8/31/17 9/30/17 10/31/17 11/30/17 12/31/17 You are cordially invited to attend the 2018 annual meeting of stockholders (the ‘‘Annual Meeting’’) of Daseke, Inc. (the ‘‘Company’’) to be held on Tuesday, May 22, 2018 at 1:00 p.m., Central time, at the Addison Conference Centre, 15650 Addison Road, Addison, TX 75001 to consider and vote upon the following proposals: 1. To elect the two directors named in this proxy statement to serve as Class III directors on the Company’s Board of Directors (the ‘‘Board of Directors’’ or ‘‘Board’’) until the 2021 annual meeting of stockholders or until their successors are elected and qualified; 2. To ratify the selection by our audit committee of Grant Thornton LLP to serve as our independent registered public accounting firm for the year ending December 31, 2018; and 3. Such other matters as may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. THE BOARD UNANIMOUSLY RECOMMENDS A VOTE ‘‘FOR’’ THE ELECTION OF EACH NOMINEE FOR DIRECTOR NAMED IN THIS PROXY STATEMENT AND ‘‘FOR’’ THE RATIFICATION OF GRANT THORNTON LLP TO SERVE AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. The Annual Meeting will be held at the Addison Conference Centre, 15650 Addison Road, Addison, TX 75001. The Board has fixed the close of business on Monday, March 26, 2018 as the record date (the ‘‘Record Date’’) for the determination of stockholders entitled to notice of, and to vote at, the Annual Meeting or any postponement or adjournment thereof. Accordingly, only stockholders of record at the close of business on the Record Date are entitled to notice of, and shall be entitled to vote at, the Annual Meeting or any postponement or adjournment thereof. Your vote is important. You are requested to carefully read the proxy statement and accompanying Notice of Annual Meeting for a more complete statement of matters to be considered at the Annual Meeting. By Order of the Board of Directors, /s/ DON R. DASEKE Don R. Daseke Chairman and CEO 2/27/17 2/28/17 3/31/17 4/30/17 5/31/17 6/30/17 7/31/17 8/31/17 9/30/17 10/31/17 11/30/17 12/31/17 Daseke, Inc. $ 100.00 $ 102.10 $ 101.20 $ 101.50 $ 94.40 $ 111.30 $ 121.90 $ 131.00 $ 130.50 $ 138.30 $ 126.90 $ 142.90 This proxy statement is dated April 10, 2018 and is being mailed with the form of proxy beginning on April 10, 2018. S&P 500 Index - Total Returns $ 100.00 $ 99.75 $ 99.86 $ 100.89 $ 102.31 $ 102.95 $ 105.06 $ 105.38 $ 107.56 $ 110.07 $ 113.44 $ 114.70 Important Notice Regarding the Availability of Proxy Materials for the 2018 Annual Meeting of Dow Jones Transportation Index $ 100.00 $ 99.42 $ 96.30 $ 96.10 $ 97.11 $ 101.41 $ 97.37 $ 99.11 $ 105.50 $ 103.84 $ 109.64 $ 113.33 Russell 2000 Index $ 100.00 $ 98.49 $ 98.62 $ 99.70 $ 97.67 $ 101.05 $ 101.80 $ 100.51 $ 106.78 $ 107.69 $ 110.79 $ 110.34 Stockholders to Be Held on Tuesday, May 22, 2018 at 1:00 p.m., Central time at the Addison Conference Centre, 15650 Addison Road, Addison, TX 75001 The proxy statement and annual report to stockholders are available at http://www.cstproxy.com/daseke/2018. 2 02 0 D A S E K E , I N C . 820839nar.indd 20 3/23/18 11:22 PM IMPORTANT Whether or not you expect to attend the Annual Meeting, you are respectfully requested by the Board of Directors to sign, date and return the enclosed proxy card promptly, or follow the instructions contained in the proxy card or voting instruction form provided to you to vote via telephone or online. If you grant a proxy, you may revoke it at any time prior to the Annual Meeting or vote during the Annual Meeting, as discussed in more detail in the proxy statement. PLEASE NOTE: If your shares are held by a broker, bank, broker-dealer, custodian or other similar organization (also known as shares held in ‘‘street name’’), your broker, bank, broker-dealer, custodian, or other holder cannot vote your shares in the election of directors unless you provide them with instructions, as discussed in more detail in the proxy statement. DASEKE, INC. 15455 Dallas Parkway, Suite 550 Addison, Texas 75001 NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 22, 2018 To the Stockholders of Daseke, Inc.: NOTICE IS HEREBY GIVEN that the 2018 annual meeting of stockholders (the ‘‘Annual Meeting’’) of Daseke, Inc., a Delaware corporation (the ‘‘Company’’), will be held on Tuesday, May 22, 2018 at 1:00 p.m., Central time, at the Addison Conference Centre, 15650 Addison Road, Addison, TX 75001 to consider and vote upon the following proposals: 1. To elect the two directors named in this proxy statement to serve as Class III directors on the Company’s Board of Directors (the ‘‘Board of Directors’’ or ‘‘Board’’) until the 2021 annual meeting of stockholders or until their successors are elected and qualified; 2. To ratify the selection by our audit committee of Grant Thornton LLP to serve as our independent registered public accounting firm for the year ending December 31, 2018; and 3. Such other matters as may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. The meeting will be held at the Addison Conference Centre, 15650 Addison Road, Addison, TX 75001. Only stockholders of record of the Company as of the close of business on March 26, 2018 are entitled to notice of, and to vote at, the Annual Meeting or any adjournment or postponement thereof. Each share of common stock entitles the holder thereof to one vote. Your vote is important. Proxy voting permits stockholders unable to attend the Annual Meeting to vote their shares through a proxy. By appointing a proxy, your shares will be represented and voted in accordance with your instructions. You can vote your shares by completing and returning your proxy card, or submit your proxy by telephone or over the Internet (if those options are available to you) in accordance with the instructions on the enclosed proxy card or voting instruction form, as discussed in greater detail in this proxy statement. Proxy cards that are signed and returned, but do not include voting instructions, will be voted by the proxy holders as recommended by the Board of Directors. You can change your voting instructions or revoke your proxy at any time prior to the Annual Meeting by following the instructions included in this proxy statement and on the proxy card or voting instruction form. Even if you plan to attend the Annual Meeting, it is strongly recommended you vote your shares before the Annual Meeting date to ensure that your shares will be represented at the Annual Meeting if you are unable to attend. You are urged to review carefully the information contained in the enclosed proxy statement prior to deciding how to vote your shares. You may also access our proxy materials at the following website: http://www.cstproxy.com/daseke/2018. By Order of the Board of Directors, /s/ DON R. DASEKE Don R. Daseke Chairman and CEO TABLE OF CONTENTS PROXY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . THE ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . . . . CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . PROPOSAL ONE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROPOSAL TWO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 1 5 8 12 18 20 27 28 31 32 34 DASEKE, INC. 15455 Dallas Parkway, Suite 550 Addison, Texas 75001 PROXY STATEMENT 2018 ANNUAL MEETING OF STOCKHOLDERS To be held on Tuesday, May 22, 2018, at 1:00 p.m., Central time held at the Addison Conference Centre, 15650 Addison Road, Addison, TX 75001 QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS Why did you send me this proxy statement? This proxy statement and the enclosed proxy card are being sent to you in connection with the solicitation of proxies by the Board of Directors (the ‘‘Board of Directors’’ or ‘‘Board’’) of Daseke, Inc., a Delaware corporation (the ‘‘Company,’’ ‘‘we,’’ ‘‘us,’’ and ‘‘our’’), for use at the 2018 annual meeting of stockholders (the ‘‘Annual Meeting’’) to be held on Tuesday, May 22, 2018 at 1:00 p.m., Central time, at the Addison Conference Centre, 15650 Addison Road, Addison, TX 75001, or at any adjournments or postponements thereof. This proxy statement summarizes the information that you need to make an informed decision on the proposals to be considered at the Annual Meeting. This proxy statement and the enclosed proxy card were mailed to the Company’s stockholders beginning on April 10, 2018. What is included in these materials? These materials include: This Proxy Statement for the Annual Meeting and the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission (the ‘‘SEC’’) on March 16, 2018. What proposals will be addressed at the Annual Meeting? Stockholders will be asked to consider the following proposals at the Annual Meeting: 1. To elect the two directors named in this proxy statement to serve as Class III directors on the Board until the 2021 annual meeting of stockholders or until their successors are elected and qualified; and 2. To ratify the selection by our audit committee of Grant Thornton LLP (‘‘Grant Thornton’’) to serve as our independent registered public accounting firm for the year ending December 31, 2018. We will also consider any other business that properly comes before the Annual Meeting, although we are not currently aware of any business to be acted upon at the Annual Meeting other than the matters discussed in this proxy statement. How does the Board of Directors recommend that I vote? Our Board of Directors unanimously recommends that stockholders vote ‘‘FOR’’ each nominee for director and ‘‘FOR’’ the ratification of the selection of Grant Thornton as our independent registered public accounting firm. Who may vote during the Annual Meeting? Stockholders who owned shares of the Company’s common stock, par value $.0001 per share, as of the close of business on March 26, 2018 are entitled to vote during the Annual Meeting. As of the Record Date, there were 57,169,408 shares of our common stock issued and outstanding. How many votes must be present to hold the Annual Meeting? If I am a stockholder of record of the Company’s shares, how do I vote? Your shares are counted as present at the Annual Meeting if (a) you attend the Annual Meeting, (b) you vote (either by mail, telephone or online) in advance of the Annual Meeting (even if you abstain from voting on either proposal or both proposals) or at the Annual Meeting, or (c) your shares are registered in the name of a bank or brokerage firm and you do not provide voting instructions and such bank or broker casts a vote on the ratification of the selection of Grant Thornton to serve as our independent registered public accounting firm (as discussed further below). On March 26, 2018, there were 57,169,408 shares of the Company’s common stock outstanding and entitled to vote. In order for us to conduct the Annual Meeting, a majority of our outstanding shares of common stock entitled to vote during the Annual Meeting must be present at the beginning of the Annual Meeting. This is referred to as a quorum. Consequently, 28,584,705 shares of common stock must be present at the beginning of the Annual Meeting to constitute a quorum. How many votes do I have? Each share of common stock is entitled to one vote on each matter that comes before the Annual Meeting. Information about the stock holdings of our directors and executive officers is contained in the section of this Proxy Statement entitled ‘‘Security Ownership of Certain Beneficial Owners and Management.’’ What is the difference between a stockholder of record and a beneficial owner of shares held in street name? Stockholder of Record. If your shares are registered directly in your name with the Company’s transfer agent, Continental Stock Transfer & Trust Company, you are considered the stockholder of record with respect to those shares, and the proxy materials were sent directly to you by the Company. Beneficial Owner of Shares Held in Street Name. If your shares are held in an account at a broker, bank, broker-dealer, custodian or other similar organization, then you are the beneficial owner of shares held in ‘‘street name,’’ and the proxy materials were forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting during the Annual Meeting. As a beneficial owner, you have the right to instruct that organization on how to vote the shares held in your account, but you must follow the instructions that organization has provided to you in order to vote or attend the Annual Meeting. Those instructions are contained in a ‘‘vote instruction form’’ provided to you. What is the proxy card? The proxy card enables you to appoint Don Daseke, the Chairman and CEO, and R. Scott Wheeler, a director, President and Chief Financial Officer, each as your representative at the Annual Meeting. By completing and returning the proxy card, you are authorizing Messrs. Daseke and Wheeler to vote your shares during the Annual Meeting in accordance with your instructions on the proxy card. This way, your shares will be voted whether or not you attend the Annual Meeting. Even if you plan to attend the Annual Meeting, it is strongly recommended that you complete and return your proxy card or vote via telephone or online before the Annual Meeting date in case your plans change. If a proposal comes up for vote during the Annual Meeting that is not on the proxy card, the representatives you have appointed as proxies will vote your shares, under your proxy, according to their best judgment. There are three ways to vote: • Via Telephone/Online Prior to the Annual Meeting. If you are a stockholder of record, you may vote in advance of the Annual Meeting by telephone by calling 866-894-0536 and following the instructions, or online at http://www.cstproxyvote.com. If you choose to vote online in advance of the Annual Meeting, have your proxy card in hand when you access the website and follow the instructions. • By Mail. If you are a stockholder of record, you may vote by proxy by filling out the proxy card and sending it back in the envelope provided. • Via Telephone/Online During the Annual Meeting. If you are a stockholder of record, you may vote during the Annual Meeting by following the instructions provided at the Annual Meeting. If I am a beneficial owner of shares held in street name, how do I vote? There are three ways to vote: • Via Telephone/Online Prior to the Annual Meeting. You may vote by submitting your vote by telephone or online if those options are made available to you by your broker, bank, broker- dealer, custodian or other similar organization in accordance with the instructions on the voting instruction form provided to you. Although most banks, brokers and other nominees offer these voting alternatives, availability and specific procedures vary. • By Mail. You may vote by filling out the vote instruction form and sending it back in the envelope provided by your broker, bank, broker-dealer, custodian or other similar organization that holds your shares. • Via Telephone/Online During the Annual Meeting. If you are a beneficial owner, you will need to follow the instructions on the voting instruction form provided to you in order to attend and vote during the Annual Meeting. Will my shares be voted if I do not provide my proxy? If you hold your shares directly in your own name, they will not be voted if you do not provide a proxy (either voting by telephone or online, or by filling out a proxy card). Proxy cards that are signed and returned, but do not include voting instructions, will be voted by the proxy holders as recommended by the Board of Directors. If you are a beneficial owner, your shares may be voted under certain circumstances if they are held in the name of a brokerage firm. Brokerage firms generally have the authority to vote shares absent instructions from their customers on certain ‘‘routine’’ matters, including the ratification of the selection of the independent registered public accounting firm. At the Annual Meeting, your shares may only be voted by your brokerage firm on Proposal Two. Brokers are prohibited from exercising discretionary authority on non-routine matters. Proposal One is considered a non-routine matter, and therefore brokers cannot exercise discretionary authority regarding this proposal for beneficial owners who have not returned instructions to the brokers. When brokers cannot exercise discretionary authority and do not receive instructions from beneficial owners, this results in ‘‘broker non-votes’’, which are still counted for purposes of determining quorum, but which do not impact the outcome of either Proposal One or Proposal Two. 2 3 What vote is required to elect directors? Directors are elected by a plurality of the votes cast at the Annual Meeting. Abstentions will have no direct effect on this proposal, assuming that a quorum is present. There are no cumulative voting rights. What vote is required to ratify the selection by our audit committee of Grant Thornton as our independent registered public accounting firm? Approval of the proposal to ratify the selection of Grant Thornton as our independent registered public accounting firm requires the affirmative vote of the majority of the shares present in person or by proxy and entitled to vote on the matter at the Annual Meeting. Abstentions will have no direct effect on this proposal, assuming that a quorum is present. Can I change my vote after I have voted? You may revoke your proxy and change your vote at any time before the final vote at the Annual Meeting. You may vote again by signing and returning a new proxy card or vote instruction form with a later date or by submitting a later vote electronically or via phone (if those options are available to you), or, if you are a stockholder of record, by attending the Annual Meeting and voting at the Annual Meeting. Attending the Annual Meeting will not automatically revoke your proxy unless you vote again during the Annual Meeting or specifically request that your prior proxy be revoked by delivering to the Company’s General Counsel at 15455 Dallas Parkway, Suite 550, Addison, Texas 75001, a written notice of revocation prior to the Annual Meeting. Please note, however, that if your shares are held of record by a broker, bank, broker-dealer, custodian or other similar organization, you must instruct your broker, bank, broker-dealer, custodian or other similar organization that you wish to change your vote by following the procedures on the voting instruction form provided to you by such representative. What happens if I do not indicate how to vote my proxy? If you sign your proxy card without providing further instructions, your shares will be voted ‘‘FOR’’ all the director nominees and ‘‘FOR’’ the ratification of the selection of the independent registered public accounting firm at our Annual Meeting. Is my vote kept confidential? Proxies, ballots and voting tabulations identifying stockholders are kept confidential to the extent possible and will not be disclosed except as may be necessary to meet legal requirements. THE ANNUAL MEETING We are furnishing this proxy statement to you as a stockholder of Daseke, Inc. as part of the solicitation of proxies by our Board of Directors for use at our Annual Meeting to be held on Tuesday, May 22, 2018, or any adjournment or postponement thereof. Date, Time, Place and Purpose of the Annual Meeting The Annual Meeting will be held at the Addison Conference Centre, 15650 Addison Road, Addison, TX 75001, on Tuesday, May 22, 2018, at 1:00 p.m., Central time. You are cordially invited to attend the Annual Meeting, at which stockholders will be asked to consider and vote upon the following proposals, which are more fully described in this proxy statement: • To elect the two directors named in this proxy statement to serve as Class III directors on the Board until the 2021 annual meeting of stockholders or until their successors are elected and qualified; and • To ratify the selection by our audit committee of Grant Thornton to serve as our independent registered public accounting firm for the year ending December 31, 2017. Record Date, Voting and Quorum Our Board fixed the close of business on March 26, 2018, as the Record Date for the determination of holders of our outstanding common stock entitled to notice of and to vote on all matters presented at the Annual Meeting. As of the record date, there were 57,169,408 shares of the Company’s common stock issued and outstanding and entitled to vote. Each share of common stock entitles the holder thereof to one vote. The holders of 57,169,408 shares of common stock entitled to vote, present in person or represented by proxy at the Annual Meeting, constitute a quorum. Required Vote The affirmative vote of a plurality of the votes cast at the Annual Meeting by the holders of common stock entitled to vote in the election directors is required to elect each director. The approval of the proposal to ratify the selection of Grant Thornton as our independent registered public accounting firm requires the affirmative vote of a majority of the common stock present in person or represented by proxy and entitled to vote on this matter at the Annual Meeting. Where do I find the voting results of the Annual Meeting? Voting We will announce preliminary voting results at the Annual Meeting. The final voting results will be tallied by the inspector of election and published in the Company’s Current Report on Form 8-K, which the Company is required to file with the SEC within four business days following the Annual Meeting. Who bears the cost of soliciting proxies? The Company will bear the cost of soliciting proxies in the accompanying form and will reimburse brokerage firms and others for expenses involved in forwarding proxy materials to beneficial owners or soliciting their execution. In addition to solicitations by mail, the Company, through its directors and officers, may solicit proxies in person, by telephone or by electronic means. Such directors and officers will not receive any special remuneration for these efforts. Who can help answer my questions? You can contact our General Counsel, Soumit Roy by sending a letter to Mr. Roy at the offices of the Company at 15455 Dallas Parkway, Suite 550, Addison, Texas 75001 with any questions about the proposals described in this proxy statement or how to execute your vote. If you are a stockholder of record, you may vote during the Annual Meeting by following the instructions provided at the Annual Meeting. If you are a stockholder of record, you may also vote by proxy by having one or more individuals who will be at the Annual Meeting vote your shares for you. These individuals are called ‘‘proxies’’ and using them to cast your ballot during the Annual Meeting is called voting ‘‘by proxy.’’ If you wish to vote by proxy, you must (i) complete the enclosed form, called a ‘‘proxy card,’’ and mail it in the envelope provided or (ii) submit your proxy by telephone or over the Internet in accordance with the instructions on the enclosed proxy card. If you complete the proxy card and mail it in the envelope provided or submit your proxy by telephone or over the Internet as described above, you will designate Don Daseke, the Chairman and CEO, and R. Scott Wheeler, a director, President and Chief Financial Officer, each to act as your proxy at the Annual Meeting. One of them will then vote your shares during the Annual Meeting in accordance with the instructions you have given them in the proxy, as applicable, with respect to the proposals presented in this proxy statement. Proxies will extend to, and be voted at, any adjournment(s) 4 5 reimburse them for their reasonable out-of-pocket expenses for such solicitations. If any additional solicitation of the holders of our outstanding shares of common stock is deemed necessary, we (through our directors and officers) anticipate making such solicitation directly. The solicitation of proxies by mail may be supplemented by telephone, telegram and personal solicitation by officers, directors and other employees of the Company, but no additional compensation will be paid to such individuals. No Right of Appraisal Neither Delaware law nor our second amended and restated certificate of incorporation provide for appraisal or other similar rights for dissenting stockholders in connection with any of the proposals to be voted upon at the Annual Meeting. Accordingly, our stockholders will have no right to dissent and obtain payment for their shares. Other Business We are not currently aware of any business to be acted upon at the Annual Meeting other than the matters discussed in this proxy statement. The form of proxy accompanying this proxy statement confers discretionary authority upon the named proxy holders with respect to amendments or variations to the matters identified in the accompanying Notice of Annual Meeting and with respect to any other matters which may properly come before the Annual Meeting. If other matters do properly come before the Annual Meeting, or at any adjournment(s) or postponement(s) of the Annual Meeting, we expect that shares of our common stock, represented by properly submitted proxies will be voted by the proxy holders in accordance with the recommendations of our Board. Principal Offices Our principal executive offices are located at Daseke, Inc., 15455 Dallas Parkway, Suite 550, Addison, Texas 75001. Our telephone number at such address is 972-248-0412. or postponement(s) of the Annual Meeting. Alternatively, you can vote your shares during the Annual Meeting. While we know of no other matters to be acted upon at this year’s Annual Meeting, it is possible that other matters may be properly presented at the Annual Meeting. If that happens and you have submitted your proxy, the proxy representatives will vote on such other matters in accordance with their best judgment. Our Board of Directors is asking for your proxy. Giving the Board your proxy means you authorize it to vote your shares at the Annual Meeting in the manner you direct. You may vote for or withhold your vote for each nominee or proposal or you may abstain from voting. All valid proxies received prior to the Annual Meeting will be voted. All shares represented by a proxy will be voted, and where a stockholder specifies by means of the proxy a choice with respect to any matter to be acted upon, the shares will be voted in accordance with the specification so made. If no choice is indicated on the proxy, but the proxy card is signed, the shares will be voted ‘‘FOR’’ the election of each nominee for Director and ‘‘FOR’’ the ratification of the selection of Grant Thornton as our independent registered public accounting firm and as the proxy holders may determine in their discretion with respect to any other matters that may properly come before the Annual Meeting. If you are a beneficial owner, meaning that you own your shares in ‘‘street name’’ rather than directly as a holder of record, you may vote by filling out the vote instruction form provided to you and sending it back in the envelope provided by your broker, bank, broker-dealer or other similar organization that holds your shares. Alternatively, you may vote by submitting your proxy by telephone or over the Internet (if those options are available to you) in accordance with the instructions on the voting instruction form provided to you. This is allowed if you hold shares in street name and your bank, broker or other nominee offers those alternatives. Although most banks, brokers and other nominees offer these voting alternatives, availability and specific procedures vary. Stockholders who have questions or need assistance in completing or submitting their proxy cards should contact our President and Chief Financial Officer, R. Scott Wheeler, at 972-248-0412. Revocability of Proxies Any proxy may be revoked by the person giving it at any time before the polls close during the Annual Meeting. A proxy may be revoked in advance of the Annual Meeting by filing with our General Counsel (at 15455 Dallas Parkway, Suite 550, Addison, Texas 75001) a written notice of revocation bearing a date later than the date of such proxy or providing a subsequent proxy relating to the same shares, or by attending the Annual Meeting and voting during the Annual Meeting. Simply attending the Annual Meeting will not constitute revocation of your proxy. If your shares are held in the name of a broker or other nominee who is the record holder, you must follow the instructions of your broker or other nominee to revoke a previously given proxy. Attendance at the Annual Meeting You can attend the Annual Meeting at the Addison Conference Centre, 15650 Addison Road, Addison, TX 75001, and you can submit questions, confirm your ownership and vote by following the instructions to be provided. Solicitation of Proxies The cost of preparing, assembling, printing and mailing this proxy statement and the accompanying form of proxy, and the cost of soliciting proxies relating to the Annual Meeting, will be borne by the Company. Some banks and brokers have customers who beneficially own common stock listed of record in the names of nominees. We intend to request banks and brokers to solicit such customers and will 6 7 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Merger Transaction On February 27, 2017, Hennessy Capital Acquisition Corp. II (‘‘Hennessy Capital’’) consummated the previously announced merger of a wholly owned subsidiary of the former registrant with and into Daseke, Inc., with Daseke, Inc. surviving as a direct wholly owned subsidiary of Hennessy Capital, in accordance with the Agreement and Plan of Merger, dated December 22, 2016 (the ‘‘Business Combination’’). In connection with the Business Combination, the former registrant changed its name from ‘‘Hennessy Capital Acquisition Corp. II’’ to ‘‘Daseke, Inc.’’, and the surviving company, a direct wholly owned subsidiary of the registrant, changed its name to Daseke Companies, Inc. At a special meeting of Hennessy Capital stockholders conducted on February 27, 2017, Messrs. Hennessy, Daseke and Sinclair were each elected as directors with terms commencing upon consummation of the closing of the transaction and expiring at the time of our third annual meeting following the transaction (expected to be held during the second calendar quarter of 2019). Also on February 27, 2017, (i) effective immediately upon consummation of the closing of the transaction, (a) the size of the Board was increased to eight members, (b) the Board appointed Messrs. Charlton and Wheeler to serve as directors with terms expiring at the time of our second annual meeting following the transaction (the 2018 Annual Meeting), and (c) the Board appointed Messrs. Bonner and Gafford to serve as directors with terms expiring at the time of our first annual meeting following the transaction, which was the 2017 Annual Meeting and (ii) effective on February 28, 2017, the Board also appointed Mr. Shepko to serve as a director with a term expiring at the time of our first annual meeting following the transaction, which was the 2017 Annual Meeting. The Board has determined that each of Messrs. Hennessy, Bonner, Charlton, Gafford, Shepko and Sinclair are independent within the meaning of Nasdaq Rule 5605(a)(2) and, to the extent applicable, that they qualify as independent directors according to the rules and regulations of the SEC and Nasdaq with respect to committee membership. In assessing the independence of these individuals, the Board considered all factors set forth in each director’s biography, as set forth below. There are no family relationships among any directors or officers. Directors and Officers The directors and executive officers of the Company are as follows: Name Position Don R. Daseke . . . . Chairman of the Board of Directors and Chief Executive Officer Daniel J. Hennessy . . Vice Chairman, Independent Director Brian Bonner . . . . . . Independent Director Ron Gafford . . . . . . Independent Director Mark Sinclair . . . . . . Independent Director Kevin M. Charlton . . Independent Director Jonathan Shepko . . . Independent Director R. Scott Wheeler . . . Director, President and Corporate Chief Financial Officer Angie Moss . . . . . . . Senior Vice President, Chief Accounting Officer, Corporate Controller, and Assistant Secretary Age Class 78 Class I 60 Class I 61 Class II 68 Class II 69 Class I 52 Class III 40 Class II 61 Class III 59 * Don R. Daseke has been Chief Executive Officer and Chairman of the board of directors of Daseke, Inc. since he founded the company (formerly named Walden Smokey Point, Inc.) in November 2008. Mr. Daseke has served as the President and sole director on the board of directors of The Walden Group for more than 30 years. Mr. Daseke also has served as the chairman of the board of directors of both Liquid Motors, Inc. and East Teak Fine Hardwoods, Inc. since June 2005 and March 2006, respectively. Mr. Daseke has been active in the non-profit sector throughout his career, having served in leadership roles for a number of non-profit institutions, including the WaterTower Theatre, DePauw University, the Dallas Chapter of the World Presidents Organization and the Dallas Arboretum and Botanical Society. Additionally, Mr. Daseke currently serves on the Advisory Council for the Cattle Barons Ball in Dallas, Texas. From 2005 to 2009, Mr. Daseke was a Commissioner on the Planning and Zoning Commission for Addison, Texas, and in May 2009, he was elected to a two-year term on the Addison Town Council. Mr. Daseke served as Mayor Pro Tempore of Addison, Texas in 2010. Mr. Daseke was the Regional Winner of the Ernst & Young Entrepreneur of the Year Award in 2014. Mr. Daseke received his B.A. from DePauw University, an M.B.A. from the University of Chicago, Graduate School of Business, and the Presidents Program in Leadership from the Harvard Business School. Mr. Daseke is a Certified Public Accountant (retired). Because Mr. Daseke has served as a chief executive officer and a member of the board of directors of a number of companies and has significant experience in the transportation and logistics industry, Mr. Daseke is well-qualified to serve on our Board. Daniel J. Hennessy is the founder and managing member of Hennessy Capital LLC and the Chairman and CEO of Hennessy Capital Acquisition Corp. III, a Special Purpose Acquisition Company (or ‘‘SPAC’’) he formed which went public on the NYSE MKT in June of 2017. Mr. Hennessy was also the Chairman and CEO of Hennessy ‘s first two SPACs: Hennessy Capital Acquisition Corp. I, which merged with School Bus Holdings Inc. in February 2015 and is now known as Blue Bird Corporation (NASDAQ: BLBD), and Hennessy Capital, which merged with Daseke, Inc. in February 2017. Mr. Hennessy now serves as Vice Chairman of both Blue Bird and the Company. Mr. Hennessy is also a Partner at CHS Capital LLC (f/k/a Code Hennessy & Simons LLC) a middle market private equity investment firm he co-founded in 1988 and led its investments in industrial, infrastructure and energy businesses. Over a 25-year period, CHS invested $2.8 billion in 395 operating companies with aggregate revenues of approximately $15 billion. Prior to forming CHS, Mr. Hennessy was employed by Citicorp from 1984 to 1988 as head of the Midwest Region for Citicorp Mezzanine Investments and Vice President and Team Leader with Citicorp Leveraged Capital Group. He began his career in 1981 in the oil and gas lending group at Continental Illinois National Bank (now Bank of America) where he was a Banking Officer. Mr. Hennessy holds a B.A. degree, magna cum laude, from Boston College and an M.B.A. from the University of Michigan Ross School of Business. Kevin M. Charlton is President, COO and Vice Chairman of Hennessy Capital Acquisition Corp. III as well as the Managing Partner of River Hollow Partners, a private equity firm he founded in July 2013 to focus on the lower mid-market. Mr. Charlton was also the President, COO and a Director of Hennessy’s first two SPACs, Hennessy Capital Acquisition Corp. I, which merged with School Bus Holdings Inc. in February 2015 and is now known as Blue Bird Corporation (NASDAQ: BLBD), and Hennessy Capital, which merged with Daseke, Inc. in February 2017. Mr. Charlton now serves as a Director of both Blue Bird and the Company. From 2009 to 2013, Mr. Charlton was a Managing Director in the Principal Transactions Group of Macquarie Capital (USA) Inc., and led a team that oversaw its existing portfolio of North American investments. Prior to joining Macquarie Capital (USA) Inc., Mr. Charlton worked as Managing Director at Investcorp International, a mid-market private equity firm, JPMorganChase, McKinsey & Company and as a contractor in the Astrophysics Division at NASA Headquarters. He received a Master’s in Business Administration with honors from the Kellogg School of Management at Northwestern University, a Master’s of Science in Aerospace Engineering with Distinction from the University of Michigan, and a Bachelor’s of Science in Engineering Cum Laude from Princeton University. We believe his background and skill set make Mr. Charlton well-suited to serve as a member of our Board of Directors. Brian Bonner served as a member of the board of directors of Daseke, Inc. beginning in February 2015. Mr. Bonner served as Vice President and Chief Information Officer of Texas Instruments, a publicly traded company, from January 2000 to May 2014. In this role, Mr. Bonner managed the business and technology aspects of IT operations. Prior to being appointed Chief Information Officer, 8 9 Mr. Bonner served Texas Instruments for over 33 years in a number of strategic leadership roles and positions in general management, mass marketing and global product management. Mr. Bonner served as a member on the board of directors of Copper Mobile from June 2012 through October 2015 and is currently an advisory board member for Southern Methodist University’s Computer & Electrical Engineering Department. Mr. Bonner also served as an advisory board member for Gemini Israel Funds from June 2004 to May 2015. Mr. Bonner holds an M.B.A. in Marketing and Finance from the Fuqua School of Business at Duke University, an MSEE and BSEE from the University of Michigan, and a B.A. in Physics from Kalamazoo College. He received the Minority & Women Business Development Award from Texas Instruments, the Transformational CIO Award from HMG Strategies and the Most Innovative User of Technology from Information Week Magazine. Mr. Bonner has significant experience serving as an executive officer and in other leadership positions in a large public company setting, including 14 years as chief information officer, and he has more than three years of experience serving on the board of directors of a private technology company. He has extensive experience in management, finance, operations and marketing. We believe his background and skill set make Mr. Bonner well-suited to serve as a member of our Board of Directors. Ron Gafford served as a member of the board of directors of Daseke, Inc. beginning in February 2015. From November 2012 to October 2014, Mr. Gafford served as a consultant to the chief executive officer and the board of directors of Austin Industries, Inc., a U.S.-based construction company. Prior to that, Mr. Gafford served Austin Industries, Inc. as president from March 1996 to November 2012, as chief executive officer from March 2001 to November 2012 and as chairman from March 2008 to November 2012. Mr. Gafford earned his B.S. from Texas A&M University in 1972 and completed the Advanced Management Program at Harvard University School of Business in 1987. Mr. Gafford brings more than 40 years of professional experience in the construction industry. He has significant experience serving in leadership positions in a large company setting, including 11 years as chief executive officer. He has extensive experience in management, finance and operations. We believe his background and skill set make Mr. Gafford well-suited to serve as a member of our Board of Directors. Mark Sinclair was appointed to the Daseke, Inc. Board of Directors effective as of January 1, 2017. At the end of 2017, Mr. Sinclair completed a 46 year career in public accounting with over 38 years at Ernst & Young (EY) where he served as an Audit Partner, as Partner in Charge of Human Resources and Partner in Charge of the Strategic Growth Markets Practice in North Texas. After retirement from EY, Mr. Sinclair served 8 years as a Partner at Whitley Penn LLP, a Texas regional accounting firm. Mr. Sinclair primarily served and advised high growth public and venture/private equity backed companies from early stage to multi billion dollar revenue companies, often with global operations, in a wide variety of industries including technology, manufacturing, service and mining. He worked closely with management and reported to the Boards of his clients with a heavy focus on the governance aspects of internal controls and overall enterprise risk management. Mr. Sinclair is currently Chairman of the Board of the Institute for Excellence in Corporate Governance at the University of Texas at Dallas. He is also on the Board of the National Association of Corporate Directors (NACD), North Texas Chapter and has achieved the NACD Board Leadership Fellow designation. Mr. Sinclair is a Certified Public Accountant and a Certified Management Accountant. Mr. Sinclair qualifies as a ‘‘financial expert’’ for the audit committee under SEC guidelines. Because of his strong financial and accounting background, Mr. Sinclair is well-qualified to serve on our Board. Jonathan Shepko was appointed to the board of directors of the Company, effective as of February 2017. Mr. Shepko is a Co-founder and Managing Partner of EF Capital Management, LP, which makes direct debt and equity investments (generally between $20MM and $100MM), in both public and private companies, across the United States. He is currently a Director, and Chairman of the Compensation Committee, for Shipston Equity Holdings, which, under the Busche Performance Group umbrella, is a Tier 1 supplier of ‘‘crash critical’’ chassis components, largely to the automotive OEM’s. From 2015 to 2016, Mr. Shepko served as a Director, Chairman and CEO of Ameriqual Group Holdings, LLC, a global leader in shelf-stable food processing for the military, consumer and food service markets. Prior to founding EF Capital, Mr. Shepko was a Managing Director with Ares Management (~$100B AUM), where he focused on originating and structuring debt financings in the energy industry. From 2009 until 2014, Mr. Shepko co-headed, and served as Managing Director of, CLG Energy Finance (an affiliate of Beal Bank), which focused on providing senior-stretch and uni-tranche facilities to the energy and infrastructure industries. Prior to forming CLG Energy Finance, Mr. Shepko was a Vice President with EnCap Investments, LP, where his responsibilities included originating, structuring and managing private equity investments in the oil and gas sector, while also serving on the boards of several of these companies. Collectively, Mr. Shepko has underwritten and managed nearly $2 billion in direct equity and debt financings, spanning multiple industries, including investments in high-growth, as well as mature companies. Mr. Shepko graduated magna cum laude with a degree in Finance from Texas A&M University. We believe his background and skill set make Mr. Shepko well-suited to serve as a member of our Board of Directors. R. Scott Wheeler is the President and Corporate Chief Financial Officer of Daseke, Inc. Mr. Wheeler has also served as a director of the company since December 2016. Previously, he served as the Executive Vice President and Corporate Chief Financial Officer of Daseke, Inc. from February 2015 to January 2018. Prior to this, beginning in August 2012, Mr. Wheeler served as Daseke’s Senior Vice President and Corporate Chief Financial Officer. From 2008 to 2012, Mr. Wheeler served as Chief Financial Officer of OneSource Virtual, Inc., and from 2003 to 2008, Mr. Wheeler was the Managing Director of VCFO, a chief financial officer and controller focused consulting firm focused on high growth companies. From 1998 to 2002, Mr. Wheeler served as Chief Financial Officer of Malibu Entertainment Worldwide, a publicly-traded location-based entertainment company. Mr. Wheeler currently sits on the Advisory Board of the College of Business at Texas A&M University—Commerce, where he also serves as an Adjunct Professor of Finance. Mr. Wheeler was Mayor of Addison, Texas from 1999 to 2005 and served on the Advisory Board of BBVA Compass Bank Dallas from 1994 to 2008. Mr. Wheeler earned his undergraduate degree from Texas A&M University—Commerce in 1980 and his M.B.A. from Southern Methodist University in 1985. Because of his years of experience in finance, including his 18 years as chief financial officer of the companies noted above, and his knowledge of management and operations, Mr. Wheeler is well-qualified to serve on our Board. Angie Moss is Senior Vice President, Chief Accounting Officer, Corporate Controller, and Assistant Secretary. Previously, she served as our Vice President and Corporate Controller from February 2015 to July 2017 and as our Corporate Controller from June 2013, when she joined Daseke. Ms. Moss brings over 22 years’ experience in public accounting with national and regional accounting firms. From June 2012 to June 2013, Ms. Moss served Sanford, Baumeister & Frazier, LLP, an accounting firm, as an audit partner, and from June 2001 to December 2011, she served Travis Wolff, LLP, an accounting firm, in various capacities, including as an audit partner, Audit Department Head and member of the board of directors. Ms. Moss also serves as a member of the Advisory Board of the University of Texas at Arlington College of Business’ Department of Accounting. She has also served on the American Institute of Certified Public Accountants (AICPA) committees and on the AICPA Accounting and Review Services Committee, which promulgates standards for accounting and review services. Ms. Moss earned a bachelor of business administration degree from the University of Texas at Arlington, graduating summa cum laude. She is a Certified Public Accountant. 10 11 Number and Terms of Office of Officers and Director CORPORATE GOVERNANCE Our Board of Directors is divided into three classes with only one class of directors being elected in each year and each class serving a three-year term. The term of office of our Class III directors, consisting of Messrs. Charlton and Wheeler will expire at this Annual Meeting. The term of office of our Class I directors, consisting of Messrs. Daseke, Hennessy and Sinclair, will expire at the next annual meeting of stockholders. Our officers are elected by the Board of Directors and serve at the discretion of the Board of Directors, rather than for specific terms of office. Our Board of Directors is authorized to appoint persons to the offices set forth in our bylaws as it deems appropriate. Our bylaws provide that our officers may consist of a Chief Executive Officer, President, Chief Financial Officer, Vice Presidents, Secretary, Assistant Secretaries, Treasurer and such other offices as may be determined by the Board of Directors. Committee Membership, Meetings and Attendance The table below shows the current chair and membership of the Board and each standing Board committee, the independence status of each Board member and the number of Board and Board committee meetings held during fiscal 2017. Director Board of Directors Audit Committee Corporate Governance and Nominating Committee Compensation Committee Don R. Daseke* . . . . . . . . . . . . . . . . . . . . . . . . . . . Brian Bonner . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kevin M. Charlton . . . . . . . . . . . . . . . . . . . . . . . . Ronald Gafford . . . . . . . . . . . . . . . . . . . . . . . . . . . Daniel J. Hennessy . . . . . . . . . . . . . . . . . . . . . . . . Jonathan Shepko . . . . . . . . . . . . . . . . . . . . . . . . . . Mark Sinclair** . . . . . . . . . . . . . . . . . . . . . . . . . . R. Scott Wheeler* . . . . . . . . . . . . . . . . . . . . . . . . . Number of 2017 Meetings . . . . . . . . . . . . . . . . . . . C ! ! ! ! ! ! ! 12 ! ! C 9 ! ! C 4 C ! ! 7 C Chair • Member * Non-Independent Director ** Financial Expert We currently have the following standing committees: the audit committee, the nominating and governance committee, and the compensation committee. Each of the standing committees of the Board of Directors is comprised entirely of independent directors, and was comprised of entirely independent directors during 2017. During the fiscal year ended December 31, 2017, the Board of Directors held approximately 4 general meetings and 8 special meetings. The audit committee met 9 times during 2017, the compensation committee met 7 times during 2017, and the nominating and governance committee met 4 times during 2017. Each director then serving attended or participated in at least 75% of the meetings of the Board of Directors and the respective committees of which he was or is a member held during the period such incumbent director was a director during fiscal year ended December 31, 2017. We encourage all of our directors to attend our annual meetings of stockholders, and all eight of our directors attended the 2017 Annual Meeting. The independent directors of the Board of Directors met in executive session during 2017. Mr. Hennessy presides at the meetings of the independent directors of the Board. Audit Committee We have a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’), and NASDAQ Listing Standards. In addition, a written charter for the audit committee has been adopted, as discussed below. During 2017 prior to the Business Combination, Messrs. Bell, Burns, Shea and Sullivan served as members of our audit committee. Mr. Bell served as chairman of the audit committee. Under the NASDAQ Listing Standards and applicable SEC rules, we are required to have three members of the audit committee, all of whom must be independent. Messrs. Bell, Burns, Shea and Sullivan were determined to be independent for the purposes of audit committee service at the time of their service. In 2017 following the merger transaction and currently, the audit committee consists of Messrs. Bonner, Shepko and Sinclair, and Mr. Sinclair serves as the chairman of the audit committee, each of whom has been determined to be independent for the purposes of audit committee service. Each member who served during 2017 has been determined to be financially literate. The Board of Directors determined that Mr. Bell qualified as an ‘‘audit committee financial expert’’ as defined in applicable SEC rules, and currently Mr. Sinclair is the member of our audit committee that qualifies as an ‘‘audit committee financial expert.’’ The audit committee charter effective during 2017 details the principal functions of the audit committee, including: • the appointment, compensation, retention, replacement, and oversight of the work of the independent auditors and any other independent registered public accounting firm engaged by us; • pre-approving all audit and non-audit services to be provided by the independent auditors or any other registered public accounting firm engaged by us, and establishing pre-approval policies and procedures; • reviewing and discussing with the independent auditors all relationships the auditors have with us in order to evaluate their continued independence; • setting clear hiring policies for employees or former employees of the independent auditors; • setting clear policies for audit partner rotation in compliance with applicable laws and regulations; • obtaining and reviewing a report, at least annually, from the independent auditors describing (i) the independent auditor’s internal quality-control procedures and (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues; • reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction; • reviewing with management, its enterprise risk management process and the adequacy of internal controls systems; and 12 13 • reviewing with management, the independent auditors, and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities. A copy of this audit committee charter is available on our website and free of charge from the Company by writing to the Company’s General Counsel, 15455 Dallas Parkway, Suite 550, Addison, Texas 75001. Compensation Committee During 2017 prior to the Business Combination, the members of our compensation committee were Messrs. Bell, Burns, Shea, and Sullivan. Mr. Shea served as chairman of the compensation committee. Under the NASDAQ Listing Standards and applicable SEC rules, we are required to have independent compensation committee members. Messrs. Bell, Burns, Shea and Sullivan were determined to be independent for the purposes of compensation committee service at the time of their service. In 2017 following the merger transaction and currently, the compensation committee consists of Messrs. Charlton, Gafford and Hennessy, and Mr. Charlton serves as the chairman of the compensation committee, each of whom has been determined to be independent for the purposes of compensation committee service. The compensation committee charter effective during 2017 details the principal functions of the compensation committee, including: • reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer based on such evaluation; • reviewing and approving the compensation of all of our other executive officers; • reviewing our executive compensation policies and plans; • implementing and administering our incentive compensation equity-based remuneration plans; • assisting management in complying with our proxy statement and annual report disclosure requirements; • approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our executive officers and employees; • producing a report on executive compensation to be included in our annual proxy statement; and • reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors. The charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by NASDAQ and the SEC. A copy of this compensation committee charter is available on our website and free of charge from the Company by writing to the Company’s General Counsel, 15455 Dallas Parkway, Suite 550, Addison, Texas 75001. Corporate Governance and Nominating Committee During 2017, the members of our corporate governance and nominating committee were Messrs. Bonner, Gafford and Hennessy and Mr. Hennessy serves as the chairman of the nominating and governance committee. The nominating and governance committee charter effective during 2017 details the principal functions of the nominating and governance committee, including: • Advise the Board and make recommendations regarding appropriate corporate governance practices and assist the Board in implementing those practices; • Assist the Board by identifying individuals qualified to become members of the Board, consistent with the criteria approved of by the Board, and recommending director nominees to the Board for election at the annual meetings of stockholders or for appointment to fill vacancies on the Board; • Advise the Board about the appropriate composition of the Board and its committees; and • Lead the Board in the annual performance evaluation of the Board and its committees, and of management. A copy of this corporate governance and nominating committee charter is available on our website and free of charge from the Company by writing to the Company’s General, 15455 Dallas Parkway, Suite 550, Addison, Texas 75001. The Board of Directors will consider director candidates recommended for nomination by our stockholders during such times as they are seeking proposed nominees to stand for election at the next annual meeting of stockholders (or, if applicable, a special meeting of stockholders). Our stockholders that wish to nominate a director for election to the Board should follow the procedures set forth in our bylaws. We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the Board of Directors considers educational background; diversity, including diversity of professional experience; knowledge of our business; integrity; professional reputation; independence; wisdom; and the ability to represent the best interests of our stockholders. Audit Committee Report* Our audit committee has reviewed and discussed our audited financial statements with management, as well as management’s assessment of the effectiveness of our Company’s internal controls over financial reporting, and has discussed with our independent registered public accounting firm their evaluation of our Company’s internal control over financial reporting as well as the matters required to be discussed by the applicable rules and standards promulgated by the Public Company Accounting Oversight Board (the ‘‘PCAOB’’). Additionally, our audit committee has received the written disclosures and the letter from our independent registered public accounting firm, as required * The information contained in this Audit Committee Report shall not be deemed to be ‘‘soliciting material’’ or ‘‘filed’’ or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended (the ‘‘Securities Act’’) or the Exchange Act. 14 15 by the applicable requirements of the PCAOB, and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence. Based upon such review and discussions, our audit committee recommended to the Board that the audited financial statements be included in our Annual Report on Form 10-K, as filed with the SEC on March 16, 2018 for the year ended December 31, 2017. Submitted by: Audit Committee of the Board of Directors Brian Bonner Jonathan Shepko Mark Sinclair Compensation Committee Report* The Compensation Committee of the Board of Directors of Daseke, Inc. has reviewed and discussed with management the executive compensation disclosures (as required by Item 402 of Regulation S-K of the U.S. Securities and Exchange Commission) contained in this Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2018. Based on that review and discussion, the Compensation Committee recommended to the Board of Directors that the executive compensation disclosures be included in this Proxy Statement and that the information contained in this report be incorporated by reference into the Daseke, Inc. Annual Report on Form 10-K for the year ended December 31, 2017. Submitted by: Compensation Committee of the Board of Directors. Kevin M. Charlton, Chairperson Ronald Gafford, Member Danial J. Hennessy, Member of our businesses, and the Board and management actively engage in discussion on these topics. In addition, each of the Board’s committees considers risk within its area of responsibility. Compensation Committee Interlocks and Insider Participation None of our executive officers currently serves, nor served in the past year or at any time during 2017, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board of Directors. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act, as amended, requires our officers, directors and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of such forms, we believe that during the year ended December 31, 2017 there were no delinquent filers. Communication with Directors The Board of Directors recommends that stockholders initiate communications with the Board, the Chairman, or any Board committee by writing to the Company’s General Counsel. This process assists the Board in reviewing and responding to stockholder communications. The Board has instructed the General Counsel to review correspondence directed to the Board and, at the General Counsel’s discretion, to forward items that he deems to be appropriate for the Board’s consideration. Corporate Governance Guidelines Our Board has adopted Corporate Governance Guidelines to further its goal of providing effective governance of our business and affairs for the long-term benefit of our stockholders. A copy of the Corporate Governance Guidelines is available free of charge on the Investors section of our website at http://www.daseke.com. The Corporate Governance and Nominating Committee is responsible for periodically reviewing the Corporate Governance Guidelines and recommending changes as appropriate to ensure the effective functioning of our Board and corporate governance. Board Leadership Structure and Role in Risk Oversight Code of Ethics Our Board of Directors recognizes that the leadership structure and combination or separation of the Chief Executive Officer and Chairman roles is driven by the needs of the Company at any point in time. As a result, no policy exists requiring combination or separation of leadership roles and our governing documents do not mandate a particular structure. This has allowed our Board of Directors the flexibility to establish the most appropriate structure for the Company at any given time. Currently, our Chief Executive Officer is also our Chairman. The Board believes that, at this time, having a combined Chief Executive Officer and Chairman is the appropriate leadership structure for our company. In making this determination, the Board considered, among other matters, Mr. Daseke’s experience in leading businesses, and believes that his experience and knowledge allow him to serve as both Chairman and Chief Executive Officer. In addition, the Board believes that such structure promotes clearer leadership and direction for the Company and allows for a single, focused chain of command to execute our strategic initiatives and business plans. The Board, directed by the Audit Committee, is actively involved in overseeing our risk management processes. The Board focuses on our general risk management strategy and ensures that appropriate risk mitigation strategies are implemented by management. Further, operational and strategic presentations by management to the Board include consideration of the challenges and risks We have adopted a code of ethics that applies to our officers and directors. We have filed copies of our code of ethics, our audit committee charter and our compensation committee charter as exhibits to our registration statement in connection with the initial public offering; these documents are also available on our website. You may review these documents by accessing our public filings at the SEC’s web site at www.sec.gov. In addition, a copy of the code of ethics will be provided without charge upon request to us. 16 17 Annual Report on Form 10-K. As of December 31, 2017, each non-employee director held 25,000 outstanding options, all of which are exercisable. In addition, our non-employee directors are reimbursed for all out-of-pocket expenses incurred in connection with attending Board or committee meetings. Each director is indemnified for his or her actions associated with being a director to the fullest extent permitted under Delaware law. Process for Determining Non-Employee Director Compensation The compensation committee conducts an annual review of director compensation and benefits, including cash, equity-based awards and other compensation. In determining non-employee director compensation, the Board will consider whether a director’s independence may be jeopardized if: (i) director compensation and perquisites exceed market levels for similarly-situated companies, (ii) the Company makes substantial charitable contributions to organizations with which a director is affiliated and/or (iii) the Company enters into consulting contracts with (or provides other indirect forms of compensation to) a director or an organization with which the director is affiliated. In determining non-employee director compensation, the Compensation Committee seeks guidance from the Board. After the Board’s review of this information with the compensation consultant, the compensation committee recommended that the Board, and the Board approved the compensation paid to non-employee directors for 2017. In determining non-employee director compensation for 2018, the compensation committee has received advice from the independent compensation consultants who are retained by the Board to, among other functions, analyze compensation and develop initial recommendations as to the amount and form of compensation to be paid to the Company’s non-employee directors, including pay mix. After the Board’s review of this information with the compensation consultant, the compensation committee recommended that the Board approve the 2018 compensation package, and the Board approved the compensation package for 2018. Annual Cash Compensation DIRECTOR COMPENSATION Our directors who also serve as employees of the Company do not receive additional compensation for their services as directors. Directors who are not also employees receive an annual retainer in the amount of $75,000 and, as applicable, an annual fee for serving as the chair of the audit committee in the amount of $15,000, as the chair of the compensation committee in the amount of $10,000 and as the chair of the corporate governance and nominating committee in the amount of $10,000. The annual retainer and committee fees are paid quarterly. In 2017, Messrs. Bonner and Gafford also received a one-time cash payment in the amount of $30,000 for serving on a special committee of the Board related to the Business Combination. Any cash compensation of Hennessy Capital’s directors before the Business Combination is described in Hennessy Capital’s definitive proxy statement dated February 6, 2017 (the ‘‘Hennessy Proxy Statement’’) in the section entitled ‘‘Information About Hennessy Capital—Executive Compensation’’ beginning on page 217, which is incorporated herein by reference. For 2018, the annual cash compensation package for non-employee directors will not change. Equity Compensation In addition to annual cash compensation described above, in connection with the Business Combination our non-employee directors received a one-time grant of 25,000 options with an exercise price equal to the fair market value on the date of grant. The Board has decided that for the fiscal year 2018 our non-employee directors will receive an annual grant of restricted stock units worth $50,000. The following table presents information regarding compensation earned by the non-employee directors for their board service during the year ended December 31, 2017. Name Fees earned or paid in cash ($)(1) Stock Option awards awards ($)(2) incentive plan compensation compensation earnings All other compensation Total ($) Nonequity Nonqualified deferred Daniel J. Hennessy . . . Brian Bonner . . . . . . . Kevin M. Charlton . . . Ronald Gafford . . . . . Jonathan Shepko . . . . Mark Sinclair . . . . . . . 85,000 — 105,000 — 85,000 — 105,000 — 75,000 — 90,000 — 107,750 107,750 107,750 107,750 107,750 107,750 — — — — — — — — — — — — — — — — — — 192,750 212,750 192,750 212,750 182,750 197,750 (1) Represents annual directors’ fees of $75,000 and for Mr. Hennessy, an annual fee of $10,000 for chairing the Corporate Governance and Nominating Committee; for Mr. Bonner, a one-time payment of $30,000 for serving on a special committee of the board related to the Business Combination; for Mr. Charlton, an annual fee of $10,000 for chairing the Compensation Committee; for Mr. Gafford, a one-time payment of $30,000 for serving on a special committee of the board related to the Business Combination; and for Mr. Sinclair, an annual fee of $15,000 for chairing the Audit Committee. (2) Represents the aggregate grant date fair value, computed in accordance with FASB ASC Topic 718, of options granted to each non-employee director during fiscal year 2017. For additional information regarding the assumptions underlying this calculation, please see Note 13 to our consolidated financial statements for the fiscal year ended December 31, 2017, included in our 18 19 EXECUTIVE COMPENSATION We are an ‘‘emerging growth company’’, as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These include, but are not limited to, reduced narrative and tabular disclosure obligations regarding executive compensation, and also includes an exemption from the requirement to submit certain executive compensation matters to stockholder advisory votes, such as ‘‘say on pay’’, ‘‘say on frequency’’ and ‘‘say on golden parachutes’’. Further, our reporting obligations extend only to our ‘‘named executive officers,’’ or ‘‘NEOs,’’ who are the individuals who served as our principal executive officer and our two other most highly compensated officers who served as executive officers during the last completed fiscal year. This executive compensation disclosure provides an overview of the executive compensation program for our named executive officers identified below for the fiscal year ended December 31, 2017. For 2017, our NEOs were: Name Principal Position Don R. Daseke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Executive Officer R. Scott Wheeler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Financial Officer Angie Moss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Accounting Officer Compensation Overview Our executive compensation program is designed to attract and retain individuals with the background and skills necessary to successfully execute our business model in a demanding environment, to motivate those individuals to reach near-term and long-term goals in a way that aligns their interest with that of our stockholders, and to reward success in reaching such goals. We use three primary elements of compensation to fulfill that design—base salary, cash bonus, and long-term equity incentive awards. Cash bonuses and equity incentives (as opposed to base salary) represent the business performance-driven elements of our compensation program. They are also flexible in application and can be tailored to meet our objectives. The determination of specific individuals’ cash bonuses reflects our belief as to the NEOs’ relative contribution to achieving or exceeding annual goals, and the determination of specific individuals’ long-term incentive awards, which for 2017 were time-based stock option awards, is based on their expected long-term contributions. We provide a basic benefits package generally to all employees, including our NEOs, which includes a company-sponsored 401(k) plan and health, disability and life insurance. Elements of 2017 Compensation We strive to recruit individuals who will support the Company’s mission and values. To accomplish this overarching goal, the Company’s executive compensation philosophy aims to properly motivate management with an easy to comprehend compensation package that seeks to provide the NEOs with base salaries, annual cash bonuses, and long-term equity-based compensation awards. Our NEOs also receive certain retirement, health, welfare, and additional benefits as described below. Compensation Elements Characteristics Primary Objective Base salary . . . . . . . . . . . . . . . . Fixed annual cash compensation. Salaries may be increased from time to time by the Compensation Committee based on our NEOs’ responsibilities and performance. Cash bonuses . . . . . . . . . . . . . . Performance-based annual cash incentive (paid pursuant to the NEOs’ employment agreements except as otherwise noted below). Long-term equity incentives . . . . Equity-based compensation awards. For 2017 long-term equity incentive awards consisted of stock options that are subject to a 5-year vesting period. The exercise price of the options is equal to or greater than the fair market value of a share of common stock on the date of grant. Retirement savings 401(k) plan . Qualified 401(k) retirement plan benefits are available for our NEOs and all other full-time employees. Recognize performance of job responsibilities and attract and retain talented employees. Encourage focus on near-term performance goals and reward achievement of those goals. Emphasize our long-term growth, encourage shareholder value creation, and retain talented employees. Provide an opportunity for tax-efficient savings. Health and welfare benefits . . . . Health and welfare benefits are available to our NEOs and other full-time employees. Provide benefits to meet the health and welfare needs of our employees and their families. Compensation Best Practices The Company maintains compensation arrangements intended to optimize returns to stockholders and include best practice features. We have listed below some of the more significant best practices 20 21 that we have adopted and the practices we have avoided, which we believe promote responsible pay and governance principles and alignment with stockholder interests. approved by the Board, in it’s discretion, on May 2, 2017 and was based on her performance leading up to the Business Combination. What We Do What We Do Not Do • Determine annual incentive compensation based on our assessment of Company performance • Provide excessive severance agreements to executives • Allow directors or officers to pledge and/or • Utilize an independent compensation consultant hedge Company stock • Perform an annual compensation risk • Provide excessive perquisites to our executives assessment • Utilize a balanced approach to compensation, which combines fixed and variable, short-term and long-term, and cash and equity • Maintain a competitive compensation package designed to attract, motivate and retain and reward experienced and talented executive officers Process for Determining Executive Compensation • Utilize compensation practices that involve excessive or unnecessary risk-taking • Allow directors or officers to engage in speculative trading of Company stock The compensation committee has overall responsibility for approving and evaluating the director and officer compensation plans, policies and programs of the Company. The compensation committee uses several different tools and resources in reviewing elements of executive compensation and making compensation decisions, including our compensation consultant noted below. These decisions, however, are not purely formulaic and the compensation committee exercises judgment and discretion as appropriate, as described further below. The compensation committee considers input from our CEO in making determinations regarding our executive compensation program and the individual compensation of each executive officer, other than our CEO. Our CEO and management also provide information to the compensation committee regarding the performance of the Company for the determination of annual bonuses. The compensation committee makes the final determination of NEO compensation. Our CEO makes no recommendations regarding, and does not participate in discussions about, his own compensation. As discussed above, the compensation committee has retained a compensation consultant to assist the committee in assessing and determining executive compensation for 2018. On an annual basis, the compensation committee reviews and discusses compensation data for our CEO and our other NEOs as compared to compensation data for similarly situated executive officers at peer companies selected by the compensation committee. The compensation committee selects peer companies with similar market capitalization and similar lines of business to the Company (i.e., independent exploration and production companies). The peer group changes from time to time as a result of fluctuations in company size, changes in the business lines of our peers, acquisitions, developments in the oil and gas industry, and other factors. There was no peer group used by the Board in benchmarking 2017 compensation decisions. 2017 Compensation Decisions The Board, based on the applicable NEO’s employment agreement, has approved the following bonus applicable in 2017 (i) Don R. Daseke will receive an annual cash bonus of $120,000; (ii) R. Scott Wheeler will receive an annual cash bonus of $120,000; and (iii) Angie Moss will receive an annual cash bonus of $75,000. Additionally, Ms. Moss received a transaction bonus of $40,000, which was Agreements with our Executive Officers On February 27, 2017, in connection with the consummation of the Business Combination, the Company entered into employment agreements with each of Don R. Daseke, R. Scott Wheeler and Angie J. Moss as described below. The employment agreements each have an initial five-year term (three-year term in the case of Ms. Moss) that will be automatically extended for successive one-year periods unless either party provides written notice of termination at least 60 days prior to the date the then-current employment term would otherwise end. The employment agreements provide for annual salaries of at least $550,000, $450,000, and $300,000 for Mr. Daseke, Mr. Wheeler and Ms. Moss, respectively, and target annual cash bonuses of at least $150,000 for Messrs. Daseke and Wheeler and $75,000 for Ms. Moss, based upon the attainment of certain milestones determined by the compensation committee. Mr. Wheeler’s agreement also provides for a transaction bonus of $100,000, which became payable on the closing of the Business Combination. Messrs. Daseke and Wheeler and Ms. Moss are able to participate in the same incentive compensation and benefit plans in which other senior executives of the Company are eligible to participate. If the employment of Messrs. Daseke and Wheeler or Ms. Moss is terminated by the Company for cause or by the executive without good reason, such executive will be entitled to receive (i) all accrued salary through the date of termination and (ii) any post-employment benefits due under the terms and conditions of the Company’s benefits plans. The executive will not be entitled to any additional amounts or benefits as the result of a termination of employment for cause or by the executive without good reason. During the initial three years of employment under the employment agreements of Messrs. Daseke and Wheeler, the executive may only be terminated by the Company for cause. If the employment of Messrs. Daseke and Wheeler or Ms. Moss is terminated by the Company without cause (after the three year anniversary of the effective date of the agreement for Messrs. Daseke and Wheeler) or by the executive for good reason (including a voluntary resignation following notice from the Company of non-renewal), such executive will be entitled to receive (i) an amount equal to one and one-half times (one times for Ms. Moss) his or her base salary in effect immediately prior to the date of termination of his or her employment, (ii) an amount equal to one and one-half times (one times for Ms. Moss) his or her target annual bonus for the year preceding the year in which termination occurs, (iii) accelerated vesting of (A) outstanding unvested time-based equity which would have otherwise become vested in the calendar year of the executive’s termination had the executive’s employment under the employment agreement continued through the end of such calendar year and (B) unless otherwise provided in an applicable award agreement, the service condition relating to outstanding unvested performance-based equity pro-rated for the applicable performance period during which the executive would have been employed had the executive’s employment under the employment agreement continued through the end of the calendar year of the executive’s termination (but the vesting of such performance-based awards shall remain subject to the applicable performance conditions) and (iv) reimbursements equal to the difference between monthly amounts owed by the executive to continue coverage for the executive and his or her eligible dependents under the Company’s group health plans pursuant to the Consolidated Omnibus Reconciliation Act of 1985, as amended (‘‘COBRA’’), and the contribution amount owed by similarly situated employees for the same or similar healthcare coverage, if the executive timely and properly elects COBRA coverage and until the earlier of the date such executive is no longer eligible for COBRA coverage, receives such coverage under another employer’s group health plan or 18 months (12 months for Ms. Moss) following the date of termination (‘‘COBRA Payments’’). Payments made to the executive under this paragraph will be made in installments over a period of 22 23 18 months (or 12 months for Ms. Moss), subject to the earlier payment of certain of such installments as provided in the employment agreements to ensure such payments are not considered nonqualified deferred compensation under certain provisions of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’). If the employment of Messrs. Daseke and Wheeler or Ms. Moss is terminated by the Company due to the executive’s death or disability, such executive will be entitled to receive (i) all accrued salary through the date of termination, (ii) an amount equal to the executive’s pro-rated target annual bonus, (iii) accelerated equity award vesting (under the same terms described above for termination without cause or for good reason), (iv) COBRA Payments, and (v) any post-employment benefits due under the terms and conditions of the Company’s benefit plans. The executive will not be entitled to any additional amounts or benefits as the result of a termination of employment due to death or disability. Messrs. Daseke and Wheeler’s and Ms. Moss’ eligibility and entitlement, if any, to each severance payment and any other payment and benefit described above is subject to the execution and non-revocation of a customary release of claims agreement by such executive. Each such executive is also subject to general confidentiality obligations in his or her employment agreement as well as non-compete and non-solicitation restrictions for a period of 18 months (12 months for Ms. Moss). Under the employment agreements, ‘‘good reason’’ generally means (i) relocation of the geographic location of an executive’s principal place of employment by more than 50 miles; (ii) a material diminution in the executive’s position, responsibilities or duties or the assignment of the executive to a position, responsibilities or duties of a materially lesser status or degree of responsibility than his or her position, responsibilities or duties immediately following the 2017 Business Combination; (iii) any material breach by the Company of any provision of the executive’s employment agreement; or (iv) non-renewal by the Company of the then-existing initial term or renewal term of the executive’s employment agreement. Under the employment agreements, ‘‘cause’’ generally means (i) the commission by the executive of fraud, breach of fiduciary duty, theft, or embezzlement against the Company, its subsidiaries, affiliates or customers; (ii) the executive’s willful refusal without proper legal cause to faithfully and diligently perform his or her duties; (iii) the breach of the confidentiality, non-competition, non-solicitation and intellectual property provisions in the executive’s employment agreement or the material breach of any other written agreement between the executive and one or more members of affiliated entities including the Company and its direct and indirect subsidiaries; (iv) the executive’s conviction of, or plea of guilty or nolo contendere to, a felony (or state law equivalent) or any crime involving moral turpitude; (v) willful misconduct or gross negligence by the executive in the performance of duties to the Company that has or could reasonably be expected to have a material adverse effect on the Company; or (vi) the executive’s material breach and violation of the Company’s written policies pertaining to sexual harassment, discrimination or insider trading. Each of the employment agreements between each of Messrs. Daseke and Wheeler and Ms. Moss and the Company contains a ‘‘clawback’’ provision that enables the Company to recoup any amounts paid to an executive as an annual bonus or incentive compensation under his or her employment agreement if so required by applicable law, any applicable securities exchange listing standards or any clawback policy adopted by the Company. If amounts payable to such executive under his or her employment agreement or otherwise exceed the amount allowed under Section 280G of the Code for such executive (thereby subjecting the executive to an excise tax), then such payments due to the executive officer under the employment agreement will either (i) be reduced (but not below zero) so that the aggregate present value of the payments and benefits received by the executive is $1.00 less than the amount which would otherwise cause the executive to incur an excise tax under Section 4999 of the Code or (ii) be paid in full, whichever produces the better net after-tax position to the executive. Summary Compensation Table The following table sets forth information for the fiscal years ended December 31, 2017 and 2016 concerning compensation of our named executive officers. Name and principal position Year Salary ($) Bonus ($) Option awards ($) Nonequity All other incentive plan compensation(1) compensation ($) Total ($) Don Daseke . . . . . . . . . . . . . 2017 533,333 120,000 566,800 —Chief Executive Officer 2016 450,000 — — R. Scott Wheeler . . . . . . . . . . 2017 430,128 220,000 436,000 —Chief Financial Officer 2016 325,000 — — Angie Moss . . . . . . . . . . . . . . 2017 294,167 115,000 261,000 —Chief Accounting Officer 2016 265,000 — — — — — — — — — — 10,388 10,600 10,377 1,220,133 450,000 986,228 335,600 680,544 8,883 273,883 (1) Reflects employer matching contributions to the Company’s defined contribution retirement plan. Narrative to Summary Compensation Table For a discussion of each element of compensation to our NEOs in 2017, see the executive compensation disclosures beginning on page 24. The compensation of Hennessy Capital’s executive officers before the Business Combination is described in the Hennessy Proxy Statement in the section entitled ‘‘Information About Hennessy Capital—Executive Compensation’’ beginning on page 217, which is incorporated herein by reference. Outstanding Equity Awards At Fiscal Year-End Table The following table reflects information regarding outstanding equity-based awards held by our NEOs as of December 31, 2017. Option awards Name Number of securities underlying unexercised options (#) exercisable Number of securities underlying unexercised options (#) unexercisable(1) Don Daseke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. Scott Wheeler . . . . . . . . . . . . . . . . . . . . . . . . . . . . Angie Moss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 130,000 100,000 60,000 Option exercise price ($) 9.98 9.98 9.98 Option expiration date 2/27/2027 2/27/2027 2/27/2027 (1) The option awards reported in these columns are subject to time-based vesting conditions, pursuant to which 20% of the options become exercisable on each of the first five anniversaries of the date of grant (February 27, 2017). The treatment of these awards upon certain termination and change in control events is described above under ‘‘Executive Compensation—Agreements with our Named Executive Officers.’’ 24 25 Potential Payments Upon a Termination or Change in Control SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT For details on payments upon termination or change in control in the employment agreements for the NEOs in 2017, see the agreements disclosures beginning on page 26. Equity Compensation Plan Information Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights(2) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Plan category Equity compensation plans approved by security holders(1) . . . . . . . . . Equity compensation plans not (a) 2,419,586 approved by security holders . . . . N/A Total . . . . . . . . . . . . . . . . . . . . . . 2,419,586 (b) $10.36 N/A $10.36 (c) 1,826,137 N/A 1,826,137 (1) On February 27, 2017, the Company and Hennessy’s common stockholders approved the 2017 Omnibus Incentive Plan, whereby the Company may grant awards of stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and performance awards. Under the Plan, the Company is authorized to issue up to 4.5 million shares of common stock. (2) The weighted average exercise price does not take into account shares issuable upon vesting of outstanding restricted stock units. The following table sets forth information regarding the beneficial ownership of our common stock as of March 26, 2018 based on information filed with the SEC or obtained from the persons named below, with respect to the beneficial ownership of shares of our common stock, by: • each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; • each of our executive officers and directors (including our nominees) that beneficially owns shares of our common stock; and • all our executive officers and directors as a group. Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. Name and Address of Beneficial Owner(1) Don R. Daseke(2) . . . . . . . . . . . . . . . . . . . . . . . . . Daniel J. Hennessy . . . . . . . . . . . . . . . . . . . . . . . . Brian Bonner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ron Gafford . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mark Sinclair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kevin M. Charlton . . . . . . . . . . . . . . . . . . . . . . . . . Jonathan Shepko . . . . . . . . . . . . . . . . . . . . . . . . . . R. Scott Wheeler . . . . . . . . . . . . . . . . . . . . . . . . . . Angie Moss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All directors and executive officers as a group (9 individuals) . . . . . . . . . . . . . . . . . . . . . . . . . . Osterweis Capital Management, Inc.(3) . . . . . . . . . . Number of Shares Beneficially Owned Approximate Percentage of Outstanding Common Stock 15,095,264 813,498 43,261 57,682 0 133,824 34,609 136,273 27,255 16,521,124 4,347,850 26.40% 1.42% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 28.58% 7.61% (1) Unless otherwise noted, the business address of each of the following entities or individuals is 15455 Dallas Parkway, Suite 550, Addison, Texas 75001. (2) The shares reported in the above table also include shares held of record by Barbara Daseke, his spouse, and by The Walden Group, Inc., an entity of which Mr. Daseke is the President and majority stockholder. Mr. Daseke disclaims beneficial ownership of the shares held of record by Ms. Daseke and The Walden Group, Inc. except to the extent of his pecuniary interest therein. The Walden Group owns 13,757,629 common shares in Daseke, Inc. (3) Comprised of approximately 4,347,850 shares of Common Stock issuable upon conversion of 500,000 shares of Series A Convertible Preferred Stock, convertible at the rate of 8.6957 shares of Common Stock per 1 share of Series A Convertible Preferred Stock. Information is based on a Schedule 13G filed with the SEC on February 14, 2018 by (i) Osterweis Capital Management, Inc., (ii) Osterweis Capital Mangement, LLC, (iii) John S. Osterweis, and (iv) Carl P. Kaufman. Business Address: One Maritime Plaza, Suite 800, San Francisco, CA 94111 26 27 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Upon consummation of the merger transaction, the following persons received the following In May 2015, Hennessy Capital Partners II LLC (‘‘Hennessy LLC’’) purchased 5,031,250 founder shares for an aggregate purchase price of $25,000, or approximately $0.005 per share. The number of founder shares issued was determined based on the expectation that such founder shares would represent 20.0% of the outstanding shares upon completion of the initial public offering of Hennessy Capital. In May 2015, Hennessy LLC transferred 50,000 founder shares to each of Messrs. Bell, Sullivan, Burns and Shea, the former independent directors, 35,000 to Mr. Petruska, the former Executive Vice President, Chief Financial Officer and Secretary, 200,000 to Mr. Charlton, the former President and Chief Operating Officer, and a current director of the Company, and 5,000 to Charles B. Lowrey II, an advisor to the Company. The 5,031,250 shares held by the Company’s initial stockholders prior to the exercise of the over-allotment option included 656,250 shares subject to forfeiture to the extent that the underwriters’ over-allotment option was not exercised in full. Since the underwriters did not exercise the over-allotment option in full, Hennessy LLC forfeited 41,273 of its founder shares, which were canceled by the Company. Hennessy LLC purchased 15,080,756 private placement warrants for a purchase price of $0.50 per warrant, or $7,540,378 in the aggregate, in private placement transactions that occurred simultaneously with the closing of the initial public offering and the closing of the over-allotment option for the initial public offering. Each private placement warrant entitles the holder to purchase one-half of one share of the common stock at $5.75 per share. Warrants may be exercised only for a whole number of shares of common stock. The private placement warrants (including the common stock issuable upon exercise of the private placement warrants) could not, subject to certain limited exceptions, be transferred, assigned or sold by it until 30 days after the completion of the merger transaction. Hennessy Capital entered into an Administrative Services Agreement with Hennessy Capital LLC, an affiliate of Hennessy LLC, pursuant to which Hennessy Capital paid a total of $10,000 per month for office space, utilities and secretarial support. Upon completion of the merger transaction, the Company ceased paying these monthly fees. Hennessy Capital also paid Mr. Petruska, the former Chief Financial Officer, $11,650 per month for his services during the first 12 months following the consummation of Hennessy Capital’s initial public offering (until July 28, 2016). Hennessy Capital paid Mr. Petruska $8,300 per month thereafter (for a maximum of 12 additional months) and $150,000 in cash upon the successful completion of the merger transaction. Hennessy LLC, executive officers and directors, or any of their respective affiliates, were reimbursed for any out-of-pocket expenses incurred in connection with activities on Hennessy Capital’s behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. The independent directors reviewed on a quarterly basis all payments that were made to Hennessy LLC, officers, directors or affiliates and determined which expenses and the amount of expenses would be reimbursed. Prior to the initial public offering, Hennessy LLC provided an aggregate of $237,500 to the registrant under an unsecured promissory note and in advances, to be used for a portion of the expenses of the initial public offering. These loans and advances were non-interest bearing, unsecured and were repaid upon the closing of the initial public offering. In connection with the merger transaction, Hennessy Capital entered into a registration rights agreement with respect to the founder shares and private placement warrants. The holders of these securities are entitled to make up to three demands, excluding short form registration demands, that the Company register such securities for sale under the Securities Act. In addition, these holders have ‘‘piggy-back’’ registration rights to include such securities in other registration statements filed by us and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company bears the costs and expenses of filing any such registration statements. number of shares of the Company’s common stock: Name Don R. Daseke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Barbara Daseke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Walden Group, Inc.(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brian J. Bonner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gafford Investments, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Daseke Trucking Preferred, LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lenox Hill Capital, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. Scott Wheeler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Angie J. Moss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of Shares 1,308,795 28,841 13,757,629 43,261 57,682 865,224 34,609 136,273 27,255 (1) The Walden Group, Inc., an entity of which Mr. Daseke is the President and majority stockholder. Mr. Daseke disclaims beneficial ownership of the shares held of record by Ms. Daseke and The Walden Group, Inc. except to the extent of his pecuniary interest therein. On February 27, 2017, the Company entered into an amended and restated registration rights agreement with certain stockholders, including Don R. Daseke, The Walden Group, Inc., Brian J. Bonner, Gafford Investments, Ltd., Daseke Trucking Preferred, LP, Lenox Hill Capital, LLC, and R. Scott Wheeler. On September 19, 2017, the Company and certain stockholders, including Joseph Kevin Jordan, The Jordan Family Irrevocable Trust and The Joy and Kevin Jordan Revocable Trust, entered into an underwriting agreement with Stifel, Nicolaus & Company, Incorporated and Cowen and Company, LLC, as representatives of the several underwriters named therein, in connection with an underwritten public offering of the Company’s common stock. On October 2, 2014, in connection with the acquisition of Lone Star Transportation, one of Daseke Inc.’s subsidiaries, Daseke Lone Star, Inc., issued the LST Subordinated Notes, which totaled $22.0 million in the aggregate. The LST Subordinated Notes consist of a $20.0 million subordinated promissory note held by Joseph Kevin Jordan and a $2.0 million subordinated promissory note initially held by Tex Robbins Transportation, LLC and assigned to Joseph Kevin Jordan on December 31, 2014. The LST Subordinated Notes bear interest at 10.0% per annum and mature in October 2019. The LST Subordinated Notes are guaranteed by the Company. In conjunction with the merger transaction, the LST Subordinated Notes were repaid in February 2017. On February 14, 2018, the Company and a certain stockholder, Kevin Charlton, entered into an underwriting agreement with Cowen and Company, LLC and Stifel, Nicolaus & Company, Incorporated as representatives of the several underwriters named therein, in connection with an underwritten public offering of the Company’s common stock. One of the Company’s subsidiaries, Lone Star Transportation, leases equipment from Gates Equipment Services, Inc. pursuant to seven equipment leases. Joseph Kevin Jordan owns 50% of Gates Equipment Services, Inc. The aggregate monthly rental payments under the seven equipment leases were $8,765 for January 2016. For the period from February 2016 to January 2017, the aggregate monthly rental payments under such leases are $5,829 per month. The leases terminated in January 2017. The Company has entered into indemnification agreements with each of its directors and executive officers. 28 29 Our audit committee must review and approve any related person transaction we propose to enter into in which the amount involved exceeds $120,000. The audit committee charter details the policies and procedures relating to transactions that may present actual, potential or perceived conflicts of interest and may raise questions as to whether such transactions are consistent with the best interest of the Company and its stockholders. A summary of such policies and procedures is set forth below. Any potential related party transaction that is brought to the audit committee’s attention will be analyzed by the audit committee, in consultation with outside counsel or members of management, as appropriate, to determine whether the transaction or relationship does, in fact, constitute a related party transaction. At its meetings, the audit committee will be provided with the details of each new, existing or proposed related party transaction, including the terms of the transaction, the business purpose of the transaction and the benefits to us and to the relevant related party. In determining whether to approve a related party transaction, the audit committee must consider, among other factors, the following factors to the extent relevant: • whether the terms of the transaction are fair to us and on the same basis as would apply if the transaction did not involve a related party; PROPOSALS TO BE CONSIDERED BY STOCKHOLDERS PROPOSAL ONE—ELECTION OF TWO CLASS III DIRECTORS Our second amended and restated certificate of incorporation provides for a Board of Directors classified into three classes as nearly equal in number as possible, whose terms of office expire in successive years. Our Board of Directors now consists of eight directors as set forth above in the section entitled ‘‘Directors, Executive Officers and Corporate Governance—Directors and Officers’’. Messrs. Charlton and Wheeler are nominated for election at this Annual Meeting of stockholders, as directors in Class III, to hold office until the annual meeting of stockholders in 2021, or until their successors are chosen and qualified. Unless you indicate otherwise, shares represented by executed proxies in the form enclosed will be voted for the election as directors of each nominee unless any such nominee shall be unavailable, in which case such shares will be voted for a substitute nominee designated by the Board of Directors. We have no reason to believe that any of the nominees will be unavailable or, if elected, will decline to serve. • whether there are business reasons for us to enter into the transaction; Nominee Biographies • whether the transaction would impair the independence of an outside director; • whether the transaction would present an improper conflict of interest for any director or executive officer taking into account the size of the transaction, the overall financial position of the director, executive officer or related party, the direct or indirect nature of the director’s, executive officer’s or related party’s interest in the transaction and the ongoing nature of any proposed relationship, and any other factors the Audit Committee deems relevant; and • any pre-existing contractual obligations. Any member of the audit committee who has an interest in the transaction under discussion must abstain from voting on the approval of the transaction, but may, if so requested by the chairman of the audit committee, participate in some or all of the audit committee’s discussions of the transaction. Upon completion of its review of the transaction, the audit committee may determine to permit or to prohibit the transaction. For biographies of each nominee to serve as a Class III directors, please see the section entitled ‘‘Directors, Executive Officers and Corporate Governance—Directors and Officers’’. Required Vote The two nominees receiving the highest number of affirmative votes shall be elected as directors. You may withhold votes from any or all nominees. Recommendation Our Board of Directors recommends a vote ‘‘FOR’’ the election to the Board of Directors of each of the abovementioned nominees. 30 31 PROPOSAL TWO—RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We are asking the stockholders to ratify the Audit Committee’s selection of Grant Thornton as our independent registered public accounting firm for the fiscal year ending December 31, 2018. The Audit Committee is directly responsible for appointing the Company’s independent registered public accounting firm. The Audit Committee is not bound by the outcome of this vote. However, if the stockholders do not ratify the selection of Grant Thornton as our independent registered public accounting firm for the fiscal year ending December 31, 2018, our Audit Committee intends to reconsider the selection of Grant Thornton as our independent registered public accounting firm going forward. A representative of Grant Thornton is expected to be present at the Annual Meeting. The representative will have an opportunity to make a statement if he/she desires to do so and will be available to answer appropriate questions from stockholders. Withum Smith+Brown, PC (‘‘Withum’’) audited our financial statements for the fiscal year ended December 31, 2016. On February 27, 2017, Hennessy Capital’s Audit Committee confirmed, recommended and approved the dismissal of Withum as the company’s independent registered public accounting firm. For the fiscal years ended December 31, 2015 and 2016, Withum’s audit report on Hennessy Capital’s financial statements did not contain an adverse opinion or disclaimer of opinion, nor was it qualified as to audit scope or accounting principles except as follows: such audit report contained an explanatory paragraph in which Withum expressed substantial doubt as to Hennessy Capital’s ability to continue as a going concern if it not complete a business combination by July 28, 2017. During the fiscal years ended December 31, 2015 and 2016 and the subsequent period through the date of Withum’s dismissal, (i) there were no ‘‘disagreements’’ (as described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between Hennessy Capital and Withum on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to Withum’s satisfaction, would have caused Withum to make reference in connection with Withum’s opinion to the subject matter of the disagreement; and (ii) there were no ‘‘reportable events’’ as the term is described in Item 304(a)(1)(v) of Regulation S-K. Hennessy Capital gave permission to Withum to respond fully to the inquiries of the successor auditor. A copy of this disclosure was furnished to Withum and Hennessy Capital requested that Withum furnish a letter addressed to the SEC stating whether such firm agreed with the above statements or, if not, stating the respects in which it did not agree. Hennessy Capital received the requested letter from Withum, and a copy of the letter was filed with the Current Report on Form 8-K filed with the SEC on March 3, 2017 as Exhibit 16.1. On February 27, 2017, as part of the change in independent registered public accounting firms described above, the Hennessy Audit Committee confirmed, recommended and approved the appointment of Grant Thornton as the Company’s independent registered public accounting firm to audit the Company’s consolidated financial statements as of and for the fiscal year ending December 31, 2017. During the two fiscal years prior to and through February 27, 2017, Hennessy Capital had not consulted with Grant Thornton regarding either (1) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on the financial statements of Hennessy Capital, or (2) any matter that was the subject of a disagreement or a reportable event described in Items 304(a)(1)(iv) or (v), respectively, of Regulation S-K or the type of audit opinion that might be rendered on the financial statements of Hennessy Capital, or (2) any matter that was the subject of a disagreement or a reportable event described in Items 304(a)(1)(iv) or (v), respectively, of Regulation S-K. The following is a summary of fees paid to Withum for audit, audit related and tax fees for the period ended December 31, 2016 and fees paid to Grant Thornton for audit, audit related and tax fees for the period ended December 31, 2017. Audit Fees. Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services provided in connection with regulatory filings and includes interim procedures, quarterly reviews and audit fees, as well as attendance at audit committee meetings. Audit-Related Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under ‘‘Audit Fees.’’ These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. Tax Fees. Tax fees consist of fees billed for tax return preparation and tax planning and advice. Audit Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audit-Related Services(2) . . . . . . . . . . . . . . . . . . . . . . Tax Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All Other Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . $117,000 — 2,500 — $ 906,264 427,331 495,444 — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $120,000 $1,829,039 2016 Fees(1) 2017 Fees(1) (1) Fees paid for services in 2016 were paid to Withum, fees paid for services in 2017 were paid to Grant Thornton. (2) Audit-related services are comprised of registration statements, proxy statements, SX-305 interim reviews and accounting consultation. The audit committee determined that the services provided by Grant Thornton were compatible with Grant Thornton’s independence as the independent registered public accounting firm during 2017. Pre-Approval Policy Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit). Vote Required The ratification of the appointment of Grant Thornton requires the vote of a majority of the shares present in person or by proxy and entitled to vote on the matter at the Annual Meeting. Recommendation Our Board of Directors recommends a vote ‘‘FOR’’ the ratification of the selection by the Audit Committee of Grant Thornton as our independent registered public accounting firm. 32 33 public accounting firm and, upon request, quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. In addition, the reports and other information are filed through Electronic Data Gathering, Analysis and Retrieval (known as ‘‘EDGAR’’) system and are publicly available on the Securities and Exchange Commission’s website, located at http://www.sec.gov. We will provide without charge to you, upon written or oral request, a copy of our annual report and the reports and other information filed with the Securities and Exchange Commission. In addition, we provide information regarding our corporate governance and financial and stock information on our corporate website at https://www.daseke.com/. Any requests for copies of information, reports or other filings with the Securities and Exchange Commission should be directed to: Soumit Roy, General Counsel Daseke, Inc. 15455 Dallas Parkway, Suite 550 Addison, Texas 75001 Submission of Stockholder Proposals for the 2018 Annual Meeting OTHER MATTERS For any proposal to be considered for inclusion in our proxy statement and form of proxy for submission to the stockholders at our 2019 Annual Meeting of Stockholders, it must be submitted in writing and comply with the requirements of Rule 14a-8 of the Exchange Act. Generally, such proposals are due 120 days before the anniversary of the date we release our proxy materials for the prior year, which was April 10, 2018. Therefore, we have determined that Rule 14a-8 stockholder proposals must be receive by the Company at its offices at 15455 Dallas Parkway, Suite 550, Addison, Texas 75001, no later than December 11, 2018. In addition, our bylaws provide notice procedures for stockholders to nominate a person as a director and to propose business to be considered by stockholders at a meeting. Notice of a nomination or proposal must be delivered to us not less than 90 days and not more than 120 days prior to the date for the preceding year’s annual meeting of stockholders. In the event that the annual meeting is called for a date that is not within 45 days before or after such anniversary date, notice by the stockholder to be timely must be so received no earlier than the opening of business on the 120th day before the meeting and not later than the later of (x) the close of business on the 90th day before the meeting or (y) the close of business on the 10th day following the day on which public announcement of the date of the annual meeting is first made by us. Currently, we expect our 2019 Annual Meeting to be within 45 days of the anniversary date of the 2018 Annual Meeting. Accordingly, for our 2019 Annual Meeting, assuming that we do not issue a public announcement changing the date of the meeting, notice of a nomination or proposal must be delivered to us no later than February 21, 2019 and no earlier than January 22, 2019. Nominations and proposals also must satisfy other requirements set forth in the bylaws. The Chairman of the Board may refuse to acknowledge the introduction of any stockholder proposal not made in compliance with the foregoing procedures or the procedures set forth in the bylaws. Householding Information Unless we have received contrary instructions, we may send a single copy of this proxy statement to any household at which two or more stockholders reside if we believe the stockholders are members of the same family. This process, known as ‘‘householding,’’ reduces the volume of duplicate information received at any one household and helps to reduce our expenses. However, if stockholders prefer to receive multiple sets of our disclosure documents at the same address this year or in future years, the stockholders should follow the instructions described below. Similarly, if an address is shared with another stockholder and together both of the stockholders would like to receive only a single set of our disclosure documents, the stockholders should follow these instructions: • If the shares are registered in the name of the stockholder, the stockholder should contact us at our offices at 15455 Dallas Parkway, Suite 550, Addison, Texas 75001, to inform us of his or her request; or • If a broker, bank, broker-dealer, custodian or other similar organization holds the shares, the stockholder should contact that representative directly. Where You Can Find More Information We file annual and quarterly reports and other reports and information with the Securities and Exchange Commission. These reports and other information can be inspected and copied at, and copies of these materials can be obtained at prescribed rates from, the Public Reference Section of the Securities and Exchange Commission, 100 F Street, NE, Washington, D.C. 20549. We distribute to our stockholders annual reports containing financial statements audited by our independent registered 34 35 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) (cid:59)(cid:3) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2017. (cid:134)(cid:3) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . Commission File Number: 001-37509 DASEKE, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 47-3913221 (I.R.S. Employer Identification No.) 15455 Dallas Parkway, Suite 550 Addison, Texas (Address of principal executive offices) 75001 (Zip Code) Registrant’s telephone number, including area code (972) 248-0412 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common stock, $0.01 par value Name of each exchange on which registered The NASDAQ Capital Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:134) No (cid:59) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes (cid:134) No (cid:59) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:59) No (cid:134) Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:59) No (cid:134)(cid:3) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:59) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer (cid:134) Accelerated filer (cid:59) Non-accelerated filer (cid:134)(cid:3) (Do not check if a smaller reporting company) Smaller reporting company (cid:134) Emerging growth company (cid:59) If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financing accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:134) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:134) No (cid:59) The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant, computed by reference to the last sales price as reported on the NASDAQ Capital Market as of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, was $198,140,423. 57,169,408 shares of common stock were outstanding as of March 14, 2018. DOCUMENTS INCORPORATED BY REFERENCE Certain information required by Part III of this report is incorporated by reference from the registrant’s proxy statement for the 2018 Annual Meeting of Stockholders. DASEKE, INC. 2017 ANNUAL REPORT ON FORM 10-K INDEX Part I. Item 1. Business .......................................................................................................................................... Overview ......................................................................................................................................... Acquisitions .................................................................................................................................... Industry and Competition ................................................................................................................ Customers ........................................................................................................................................ Revenue Equipment ........................................................................................................................ Employees and Independent Contractors ........................................................................................ Safety and Risk Management .......................................................................................................... Fuel ................................................................................................................................................. Seasonality ...................................................................................................................................... Regulation ....................................................................................................................................... Item 1A. Risk Factors ..................................................................................................................................... Item 1B. Unresolved Staff Comments ........................................................................................................... Properties ........................................................................................................................................ Item 2. Item 3. Legal Proceedings ........................................................................................................................... Item 4. Mine Safety Disclosures.................................................................................................................. Page No. 4 4 4 5 5 6 6 7 7 7 8 8 12 29 29 31 31 Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ........................................................................................................ Selected Financial Data ................................................................................................................... Item 6. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .......... Item 7A. Quantitative and Qualitative Disclosures About Market Risk ........................................................ Financial Statements and Supplementary Data ............................................................................... Item 8. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .......... Item 9A. Controls and Procedures ................................................................................................................. Item 9B. Other Information ............................................................................................................................ Part III. Item 10. Directors, Executive Officers and Corporate Governance .............................................................. Item 11. Executive Compensation ................................................................................................................. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ........................................................................................................................ Item 13. Certain Relationships and Related Transactions, and Director Independence ................................ Item 14. Principal Accounting Fees and Services ......................................................................................... Part IV. Item 15. Exhibits, Financial Statement Schedules ......................................................................................... Item 16. Form 10-K Summary ...................................................................................................................... Signatures .......................................................................................................................................................... 31 31 32 34 64 64 64 65 65 66 66 66 66 66 66 67 67 71 72 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K (this Form 10-K) may contain forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) with respect to the financial condition, results of operations, plans, objectives, future performance and business of Daseke, Inc. (Daseke or the Company). Statements preceded by, followed by or that include words such as “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “believe,” “plan,” “should,” “could,” “would,” “goals” or similar expressions are intended to identify some of the forward-looking statements. All statements, other than statements of historical fact, are forward-looking statements. Forward-looking statements may include statements about the Company’s goals; the Company’s business strategy; the Company’s financial strategy, liquidity and capital required for its business strategy and plans; the Company’s competition and government regulations; general economic conditions; and the Company’s future operating results. Forward-looking statements are based on the Company’s management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. As such, forward- looking statements involve risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control. These risks include, but are not limited to, general economic and business risks, driver shortages and increases in driver compensation or owner-operator contracted rates, loss of senior management or key operating personnel, the Company’s ability to recognize the anticipated benefits of recent acquisitions, the Company’s ability to identify and execute future acquisitions successfully, seasonality and the impact of weather and other catastrophic events, fluctuations in the price or availability of diesel fuel, increased prices for, or decreases in the availability of, new revenue equipment and decreases in the value of used revenue equipment, the Company’s ability to generate sufficient cash to service all of its indebtedness, restrictions in the Company’s existing and future debt agreements, increases in interest rates, changes in existing laws or regulations, including environmental and worker health and safety laws and regulations and those relating to tax rates or taxes in general, the impact of governmental regulations and other governmental actions related to the Company and its operations, litigation and governmental proceedings, and insurance and claims expenses. Other factors described herein, or factors that are unknown or unpredictable, could also have a material adverse effect on future results. See “Item 1A. Risk Factors,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for a description of various factors that could cause actual results to differ materially from those contemplated by forward-looking statements. Forward-looking statements speak only as of the date on which such statements are made. The Company undertakes no obligation to update any forward-looking statements for any reason, whether as a result of new information, future events or otherwise, except as required by federal securities law. Accordingly, readers are cautioned not to place undue reliance on the forward-looking statements. WHERE YOU CAN FIND MORE INFORMATION The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the SEC). The Company’s SEC filings are available to the public through the Internet at the SEC's website at http://www.sec.gov. You may also read and copy any document we file with the SEC at the SEC's public reference room at 100 F Street, N.E. Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about its public reference facilities and their copy charges. The Company also makes available free of charge on its Internet website at http://investor.daseke.com all of the documents that the Company files with the SEC as soon as reasonably practicable after it electronically files those documents with the SEC. Information contained on the Company’s website is not incorporated by reference into and does not otherwise form a part of this Form 10-K. 2 3 PART I Acquisitions Item 1. Business Overview Daseke, Inc. is a leading provider of transportation and logistics solutions focused exclusively on flatbed and specialized freight in North America. The Company is the 16th largest truckload carrier in North America,1 and of the 50 largest United States trucking companies, Daseke was one of the fastest-growing companies in 2015.2 From 2009 to 2017, the Company has grown revenue from $30 million to $846 million at a compound annual growth rate (CAGR) of 52%. The Company was incorporated in Delaware in 2008. Daseke believes that it provides one of the most comprehensive transportation and logistics solutions offerings in the open deck industry. The Company delivers a diverse offering of transportation and logistics solutions to approximately 5,400 customers across the continental United States, Canada and Mexico. In 2017, Daseke’s company and owner-operator drivers drove approximately 291 million miles. The Company has two reportable segments: Flatbed Solutions and Specialized Solutions. The Flatbed Solutions segment focuses on delivering transportation and logistics solutions that principally require the use of flatbed and retractable-sided transportation equipment, and the Specialized Solutions segment focuses on delivering transportation and logistics solutions that principally include super heavy haul, high-value customized, over-dimensional, commercial glass and high security cargo solutions. The Flatbed Solutions segment generated approximately 41% of total revenue in 2017, and the Specialized Solutions segment generated approximately 59% of total revenue in 2017. As of December 31, 2017, the Flatbed Solutions segment operated 2,547 tractors and 4,573 trailers, and the Specialized Solutions segment operated 2,727 tractors and 6,664 trailers. For more information on the Company’s reportable segments, see Note 18 of the Company’s audited consolidated financial statements included elsewhere in this Form 10-K. Both of the Company’s reportable segments operate highly flexible business models comprised of company-owned tractors and asset-light operations (which consist of owner-operator transportation, freight brokerage and logistics). The Company’s asset-based operations have the benefit of providing shippers with certainty of delivery and continuity of operations. Alternatively, the Company’s asset-light operations offer flexibility and scalability to meet customers’ dynamic needs and have lower capital expenditure requirements and fixed costs. In 2017, approximately 59% of the Company’s freight, logistics and brokerage revenue was derived from company-owned equipment and approximately 41% was derived from asset-light services. Business Combination On February 27, 2017, a wholly owned subsidiary of Hennessy Capital Acquisition Corp. II, a special purpose acquisition company with no operations (Hennessy), merged with and into Daseke, Inc., with Daseke, Inc. surviving as a direct wholly- owned subsidiary of Hennessy (the Business Combination), in accordance with the Agreement and Plan of Merger, dated December 22, 2016 (the Merger Agreement), by and among Hennessy, HCAC Merger Sub, Inc., Daseke, Inc. and Don R. Daseke, solely in his capacity as the Stockholder Representative (as defined therein). Subsequent to the closing of the Business Combination, Daseke, Inc. changed its name to “Daseke Companies, Inc.” and Hennessy Capital changed its name to “Daseke, Inc.” Unless expressly stated otherwise, references to the Company or Daseke refers to Daseke, Inc. and its wholly owned subsidiaries, Hennessy refers to the registrant prior to the closing of the Business Combination, and Private Daseke refers to Daseke, Inc. and its subsidiaries prior to the closing of the Business Combination. See Note 2 of Notes to Consolidated Financial Statements for more information regarding the Business Combination. 1. 2. Logistics Management Magazine, 2017 Journal of Commerce, April 2016 Daseke is a leading consolidator of the flatbed and specialized freight market in North America, having successfully acquired more than 16 companies since beginning operations in 2009. The Company has a robust pipeline of potential acquisition candidates, and negotiations and discussions with potential target companies are an integral part of the Company’s day-to-day operations. In 2017, the Company’s acquisitions included the following: • On May 1, 2017, the Company acquired Big Freight Systems, Inc. (Big Freight). Big Freight is a top-tier safety ranked open deck carrier with a specialization in the power sports industry. Big Freight serves all Canadian provinces and 19 states within the United States. • On May 1, 2017, the Company acquired Schilli Transportation Services, Inc. and certain of its affiliates (Schilli). Schilli’s services include open deck specialized transportation as well as industrial warehousing and distribution services, including export packaging and free trade zone access in Savannah, Georgia. • On July 1, 2017, the Company acquired The Steelman Companies and certain of its affiliates (Steelman). Steelman carries flatbed and heavy haul freight, specializes in transporting roll-on powersports, industrial warehousing as well as offers 10-wheel drive-away services. • On September 1, 2017, the Company acquired R&R Trucking Holdings, LLC and certain of its affiliated operating companies (R&R). R&R moves specialty cargo requiring unique training and security clearances, including the transport of defense and commercial arms, ammunition and explosives, radioactive cargo and hazardous materials throughout its network of high security terminals. • On December 1, 2017, the Company acquired: Tennessee Steel Haulers, Inc., Alabama Carriers, Inc. and Fleet Movers, Inc., (collectively TSH & Co.). TSH & Co. has a 1,100 flatbed-focused fleet with a 100% asset-light operating model and has operations throughout the East Coast and Southeast as well as Mexico. • On December 1, 2017, the Company acquired Roadmaster Group, Inc. and subsidiaries and Roadmaster Equipment Leasing, Inc. and all subsidiaries (collectively Roadmaster Group). The Roadmaster Group is one of the leading high- security cargo carriers in the industry. • On December 1, 2017, the Company acquired: Moore Freight Service, Inc., and certain of its affiliates (Moore Freight Services). Moore Freight Services specializes in delivering commercial sheet glass, a unique, specialized niche, throughout the Midwest, East Coast and Canada with highly customized trailers. • On December 29, 2017, the Company acquired Belmont Enterprises, Inc. (Belmont). Belmont is a dedicated glass hauler that will complement the Company’s existing glass hauling capabilities, serving primarily the Pacific Northwest area of the United States. Industry and Competition The open deck freight market is expected to represent an approximately $150 billion subset of the broader transportation and logistics market in 2017-2018 and is expected to grow to $174 billion in 2019.3 Open deck freight is defined as loads secured atop trailer decks without sides or a roof and is generally both complex and time-sensitive, which separates it from regular dry-van freight. The open deck industry requires highly trained drivers and specialized equipment with the ability to handle uniquely shaped and overweight cargo. Specialized loads often require specific expertise to address the additional administrative paperwork, proper licenses and hauling permits, extensive coordination with local officials and escort vehicles. In addition, open deck freight is often high-value, which demands increased liability insurance. Open deck routes are frequently more irregular than dry-van routes due to the nature of the freight. Open deck lanes stretch 3 FTR Associates, Inc. (FTR) 4 5 across the country, with particular density around corridors of significant lumber, steel and machinery production, notably in the Southeast, Midwest and West Coast regions of the United States. Employees and Independent Contractors The open deck industry is highly competitive and fragmented. The Company competes primarily with other flatbed carriers and to a lesser extent, logistics companies, as well as railroads. The Company competes with other motor carriers for the services of drivers, independent contractors and management employees and with logistics companies for the services of third-party capacity providers and management employees. A number of the Company’s competitors have greater financial resources than it does. The Company believes that the principal differentiating factors in its business, relative to competition, are service, efficiency, pricing, the availability and configuration of equipment that satisfies customers’ needs, and its ability to provide comprehensive transportation solutions to customers. Customers The Company’s customers, many of whom are Fortune 500 companies, rely on it to transport mission-critical loads, making it an integral part of their supply chains. As of December 31, 2017, the Company has over 5,400 customers. The Company’s ability to dependably transport high-value, complex and time-sensitive loads as well as provide the value- added logistics services required to plan, transport and deliver loads has resulted in longstanding and established customer relationships. In 2016 and 2017 customer relationships with top ten customers, based on revenue, span more than 20 years on average at the Company’s operating divisions. The Company’s customers represent a broad and attractive range of end markets. Examples of the freight the Company regularly transports include aircraft parts, manufacturing equipment, structural steel, pressure vessels, wind turbine blades, heavy machinery, commercial glass, high security cargo, arms, ammunition and explosives, lumber and building and construction materials. Because the Company’s customers are generally in the industrial and manufacturing sector, as is typical for open deck services providers, the Company is not subject to the same consumer-related issues as dry van trucking companies, whose freight typically include consumer goods. In 2017, the Company’s Flatbed Solutions segment provided transportation and logistics solutions to more than 2,200 customers, and the Company’s Specialized Solutions segment provided unique, value-added transportation and logistics solutions to more than 3,200 customers. See Note 18 of the Company’s audited consolidated financial statements included elsewhere in this Form 10-K for information on its two reportable segments. A material portion of the Company’s revenue is generated from its major customers, the loss of one or more of which could have a material adverse effect on its business. In 2016 and 2017, the Company’s top ten customers accounted for approximately 36% and 31%, respectively, of its revenue; however, in 2016 and 2017, no single customer represented more than 8% and 6%, respectively, of the Company’s revenue. In 2016 and 2017, no customer of the Flatbed Solutions segment or the Specialized Solutions segment accounted for 10% or more of the Company’s consolidated total revenue. Revenue Equipment As of December 31, 2017, the Company operated 3,218 company-owned tractors. The Company also had under contract 2,056 tractors owned and operated by independent contractors as of December 31, 2017. The Company also operated 11,237 trailers as of December 31, 2017. Growth of its tractor and trailer fleet is determined by market conditions and its experience and expectations regarding equipment utilization and driver recruitment and retention. In acquiring revenue equipment (tractors, trailers and trailer accessories), the Company considers a number of factors, including economy, price, rate, economic environment, technology, warranty terms, manufacturer support, driver comfort and resale value. The Company maintains strong relationships with its equipment vendors and the financial flexibility to react as market conditions dictate. The Company’s acquisitions have provided a significant increase in its tractor and trailer fleets. As of December 31, 2017, there were approximately 4,798 full-time employees in the Company’s total employee headcount of 4,813, which includes approximately 3,044 drivers. The Company is not a party to any collective bargaining agreements. The Company also contracts with owner-operator drivers to provide and operate tractors, which provide additional revenue equipment capacity. Independent contractors own their own tractors and are responsible for all associated expenses, including financing costs, fuel, maintenance, insurance and highway use taxes. As of December 31, 2017, the Company had 2,056 independent contractors, who accounted for approximately 27% of total miles in 2017. The Company’s strategy for both company and owner-operator drivers is to (i) hire safe and experienced drivers (the majority of driver positions hired require twelve months of over-the-road experience); (ii) promote retention with a competitive compensation package in the case of company drivers and contracted rates in the case of owner-operator drivers and positive working conditions; and (iii) minimize safety problems through careful screening, mandatory drug testing, continuous training, electronic logging system and rewards for accident-free driving. The Company also seeks to minimize turnover of company drivers by providing highly attractive tractors, deploying satellite televisions inside the cabs, instituting a rewards program that allows drivers to redeem points for merchandise, and focusing on providing upgraded nationwide facilities. As a result, at least one of the Company’s operating companies has been named to the Truckload Carriers Association’s 20 Best Fleets to Drive For ® in North America each year since 2010, and the Company has achieved driver retention rates that it believes is superior to the trucking industry average. Safety and Risk Management The Company takes pride in its safety-focused culture and conducts mandatory intensive orientation for all of its drivers. The Department of Transportation (DOT) requires that the Company perform drug and alcohol testing that meets DOT regulations, and its safety program includes pre-employment, random and post-accident drug testing and all other testing required by the DOT. The Company also equips its company tractors with critical-event recorders to help continually train drivers, so that the Company can prevent or reduce the severity of accidents. The primary safety-related risks associated with the Company’s business include damage to cargo hauled, physical damage to company equipment, damage to buildings and personal property, third party personal injury and property damage and workers’ compensation. The Company regularly reviews insurance limits and retentions. The Company’s historic and current retention ranges from $0 to $1.5 million per occurrence. In addition, the Company has secured excess liability coverage of up to $100.0 million per occurrence. To the extent under dispatch and in furtherance of the Company’s business, its owner-operators are covered by the Company’s liability coverage. However, each such owner-operator is responsible for physical damage to his or her own equipment, occupational accident coverage, liability exposure while the truck is used for non-company purposes, and, in the case of fleet operators, any applicable workers’ compensation requirements for their employees. Fuel The Company actively manages its fuel purchasing network in an effort to maintain adequate fuel supplies and reduce its fuel costs. The Company purchases its fuel through a network of retail truck stops with which it has negotiated volume purchasing discounts. The Company seeks to reduce its fuel costs by routing its drivers to truck stops with which the Company has negotiated volume purchase discounts when fuel prices at such stops are lower than the bulk rate paid for fuel at the Company’s terminals. The Company stores fuel in aboveground and underground storage tanks at some of its facilities. To help offset increases in fuel prices, the Company utilizes a fuel surcharge program designed to compensate the Company for fuel costs above a certain cost per gallon base. Generally, the Company receives fuel surcharges on the miles for which it is compensated by customers. In addition to its fuel surcharge program, the Company believes the most 6 7 effective protection against fuel cost increases is to maintain a fuel-efficient fleet by incorporating fuel efficiency measures. The Company has not used derivatives as a hedge against higher fuel costs in the past but continue to evaluate this possibility. Shortages of fuel, increases in fuel prices or rationing of petroleum products could have a material adverse effect on the Company’s operations and profitability. Seasonality In the transportation industry, results of operations generally show a seasonal pattern. The Company’s tractor productivity decreases during the winter season because inclement weather impedes operations and some shippers reduce their shipments during winter. At the same time, operating expenses increase and fuel efficiency declines because of engine idling and harsh weather creating higher accident frequency, increased claims and higher equipment repair expenditures. The Company also may suffer from weather-related or other events such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes and explosions. These events may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies, destroy the Company’s assets or adversely affect the business or financial condition of customers, any of which could adversely affect the Company’s results or make the Company’s results more volatile. Regulation The Company’s operations are regulated and licensed by various federal, provincial, state, local and foreign government agencies in the United States and Canada. In the United States, the Company and its drivers must comply with the safety and fitness regulations of the DOT and the agencies within the states that regulate transportation, including those regulations relating to drug- and alcohol-testing and hours-of-service. Weight and equipment dimensions also are subject to government regulations. The Company also may become subject to new or more restrictive regulations relating to fuel emissions, environmental protection, drivers’ hours-of-service, driver eligibility requirements, on-board reporting of operations, collective bargaining, ergonomics and other matters affecting safety, insurance and operating methods. Other agencies, such as the United States Environmental Protection Agency (EPA) and the United States Department of Homeland Security (DHS), also regulate the Company’s equipment, operations, drivers and the environment. To the extent that the Company conducts operations outside of the United States, it is subject to analogous governmental safety, fitness, weight and equipment regulations and environmental protection and operating standards, as well as the Foreign Corrupt Practices Act, which generally prohibits United States companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining favorable treatment. For example, in Canada, Daseke must conduct its operations in various provinces pursuant to operating authority granted by the Ministries of Transportation and Communications in those provinces. The DOT, through the Federal Motor Carrier Safety Administration (FMCSA), imposes safety and fitness regulations on the Company and its drivers, including rules that restrict driver hours-of-service. In December 2011, the FMCSA published its 2011 Hours-of-Service Final Rule (the 2011 Rule), requiring drivers to take 30-minute breaks after eight hours of consecutive driving and reducing the total number of hours a driver is permitted to work during each week from 82 to 70 hours. The 2011 Rule provided that a driver may restart calculation of the weekly time limits after taking 34 or more consecutive hours off duty, including two rest periods between one a.m. and five a.m., which restrictions are referred to as the 2011 Restart Restrictions. These 2011 rule changes, including the 2011 Restart Restrictions, became effective on July 1, 2013. However, on December 13, 2014, Congress passed the 2015 Omnibus Appropriations bill, which was signed into law on December 16, 2014. Among other things, the legislation provided relief from the 2011 Restart Restrictions, which essentially reverts back to the more straight forward 34-hour restart period, without need for two rest periods between one a.m. and five a.m., which was in effect before the 2011 Rule became effective. On December 22, 2014, the FMCSA published a Notice of Suspension summarizing this suspension of enforcement of the 2011 Restart Restrictions. The FMCSA has adopted a data-driven Compliance, Safety and Accountability (the CSA) program as its safety enforcement and compliance model. The CSA program holds motor carries and drivers accountable for their role in safety by evaluating and ranking fleets and individual drivers on certain safety-related standards. The CSA program affects drivers because their safety performance and compliance impact their safety records and, while working for a carrier, will impact their carrier’s safety record. The methodology for determining a carrier’s DOT safety rating relies upon implementation of Behavioral Analysis and Safety Improvement Categories (BASIC) applicable to the on-road safety performance of the carrier’s drivers and certain of those rating results are provided on the FMCSA’s Carrier Safety Measurement System website. As a result, certain current and potential drivers may no longer be eligible to drive for the Company, the Company’s fleet could be ranked poorly as compared to its peer firms, and the Company’s safety rating could be adversely impacted. The occurrence of future deficiencies could affect driver recruiting and retention by causing high-quality drivers to seek employment (in the case of company drivers) or contracts (in the case of owner-operator drivers) with other carriers, or could cause the Company’s customers to direct their business away from the Company and to carriers with better fleet safety rankings, either of which would adversely affect the Company’s results of operations and productivity. Additionally, the Company may incur greater than expected expenses in its attempts to improve its scores as a result of such poor rankings. Those carriers and drivers identified under the CSA program as exhibiting poor BASIC scores are prioritized for interventions, such as warning letters and roadside investigations, either of which may adversely affect the Company’s results of operations. To promote improvement in all CSA categories, including those both over and under the established scoring threshold, the Company has procedures in place to address areas where it has exceeded the thresholds and the Company continually reviews all safety-related policies, programs and procedures for their effectiveness and revises them, as necessary, to establish positive improvement. However, the Company cannot assure you these measures will be effective. The methodology used to determine a carrier’s safety rating is subject to possible change by the FMCSA and, as a result, the Company’s acceptable safety rating could be impaired. In particular, in January 2016, the FMCSA published a proposed rulemaking that would amend the methodology used by the agency for determining a carrier’s safety fitness. Under the proposed rulemaking, the FMCSA would update the current safety fitness rating methodology by integrating on-road safety data from inspections, along with the results of carrier investigations and crash reports, to determine a motor carrier’s overall safety fitness on a monthly basis. However, in March 2017, FMCSA published a notice of withdrawal that removed the January 2016 proposed rulemaking from further regulatory consideration. Consequently, the FMCSA continues to utilize the three safety fitness rating scale—“satisfactory,” “conditional,” and “unsatisfactory”—to assess the safety fitness of motor carries. The Company currently has a “satisfactory” FMCSA rating on 97% of it’s fleet, the remaining 3% has a “conditional” rating which we anticipate to become “satisfactory” in 2018. Nonetheless, should the FMCSA adopt rulemakings in the future that revise the methodology used to determine a carrier’s safety rating in a manner that incorporates more stringent standards, then it is possible that the Company and other motor carriers could be adversely affected, as compared to consideration of the current standards. If the Company were to receive an unsatisfactory DOT safety rating as a result of any changes to the methodology, it could adversely affect the Company’s business as some of its existing customer contracts require a satisfactory DOT safety rating, and an unsatisfactory rating could negatively impact or restrict the Company’s operations. In the aftermath of the September 11, 2001 terrorist attacks, federal, state and municipal authorities implemented and continue to implement various security measures, including checkpoints and travel restrictions on large trucks. This could reduce the pool of qualified drivers, which could require the Company to increase driver compensation or owner-operator contracted rates, limit fleet growth or allow trucks to be non-productive. Consequently, it is possible that the Company may fail to meet the needs of customers or may incur increased expenses. The FMCSA published a final rule on December 16, 2015 mandating the use of Electronic Logging Devices (ELDs) for commercial motor vehicle drivers to measure their compliance with hours-of-service requirements by December 18, 2017. The 2015 ELD final rule generally applies to most motor carriers and drivers who are required to keep records of duty status, unless they qualify for an exception to the rule, and the rule also applies to drivers domiciled in Canada and Mexico. Under the 2015 final rule, motor carriers and drivers subject to the rule must use either an ELD or an automatic onboard recording device (AOBRD) compliant with existing regulations by December 18, 2017. The AOBRDs may be used until December 16, 2019, if the devices were put into use before December 18, 2017. Starting December 16, 2019, all carriers and drivers subject to the 2015 final rule must use ELDs. Commencing with the December 18, 2017 effective date, the Company and other motor carriers subject to the 2015 rule are required to use ELDs or AOBRDs in their operations. The Company is subject to various environmental laws and regulations governing, among other matters, the operation of fuel storage tanks, release of emissions from its vehicles (including engine idling) and facilities, and adverse impacts to the environment, including to the soil, groundwater and surface water. The Company has implemented programs designed 8 9 operating expenses. These adverse effects, combined with the uncertainty as to the reliability of the newly designed diesel engines and the residual value of these vehicles, could materially increase the Company’s operating expenses or otherwise adversely affect its operations. Since October 2013, any entity acting as a broker or a freight forwarder is required to obtain authority from the FMCSA, and is subject to a minimum $75,000 financial security requirement. Several of the Company’s subsidiaries are licensed by the FMCSA as a property broker and, therefore, they are obligated to satisfy this financial security requirement. This new requirement may limit entry of new brokers into the market or cause current brokers to exit the market. Such persons may seek agent relationships with companies such as the Company to avoid this increased cost. If they do not seek out agent relationships, the number of brokers in the industry could decrease. to monitor and address identified environmental risks. Historically, the Company’s environmental compliance costs have not had a material adverse effect on its results of operations; however, there can be no assurance that such costs will not be material in the future or that such future compliance will not have a material adverse effect on the Company’s business and operating results. Additionally, the Company is a Charter Partner in the EPA’s SmartWay Transport Partnership, a voluntary program promoting energy efficiency and air quality. If the Company fails to comply with applicable environmental laws or regulations, the Company could be subject to costs and liabilities. Those costs and liabilities may include the assessment of sanctions, including administrative, civil and criminal penalties, the imposition of investigatory, remedial or corrective action obligations, the occurrence of delays in permitting or performance of projects and the issuance of orders enjoining performance of some or all of its operations in a particular area. The occurrence of any one or more of such developments could have a material adverse effect on the Company’s business and operating results. The Company maintains bulk fuel storage and fuel islands at some of its terminals. The Company also has vehicle maintenance operations at certain of its facilities. The Company’s operations involve the risks of fuel spillage or seepage into the environment, discharge of contaminants, environmental damage, and unauthorized hazardous material spills, releases or disposal actions, among others. Some of the Company’s operations are at facilities where soil and groundwater contamination have occurred, and the Company or its predecessors have been responsible for remediating environmental contamination at some locations. In the past, the Company has also been responsible for the costs of cleanup of cargo and diesel fuel spills caused during its transportation operations, including as a result of traffic accidents or other events. If the Company is found to be responsible for such contamination or spills, the Company could be subject to costs and liabilities, including costs for remediation, environmental natural resource damages and penalties. The EPA regulations limiting exhaust emissions became more restrictive in 2010. In 2010, a presidential executive memorandum was signed directing the National Highway Traffic Safety Administration (NHTSA) and the EPA to develop new, stricter fuel efficiency standards for, among other vehicles, heavy-duty trucks. In 2011, the NHTSA and the EPA adopted final Phase 1 rules that established the first-ever fuel economy and greenhouse gas standards for medium-and heavy-duty vehicles. These standards apply to certain combination tractors’ model years 2014 to 2018 and require them to achieve an approximate 20 percent reduction in fuel consumption by model year 2018 which equates to approximately four gallons of fuel for every 100 miles traveled. Additionally, in October 2016, the EPA and NHTSA jointly published final Phase 2 standards for improving fuel efficiency and reducing greenhouse gas emissions from new on-road medium- and heavy-duty vehicles beginning for model year 2019 and extending through model year 2027. The Phase 2 standards build upon the Phase 1 standards, encouraging wider application of currently available technologies and the development of new and advanced cost-effective technologies through model year 2027. In addition, for the first time, greenhouse gas emissions limits and fuel efficiency standards will be imposed on new trailers. The Company expects that these Phase 2 standards will result in its incurrence of increased costs for acquiring new tractors and for additional parts and maintenance activities to retrofit its tractors with technology to achieve compliance with such standards. Such increased costs could adversely affect the Company’s operating results and profitability, particularly if such costs are not offset by potential fuel savings. The Company cannot predict, however, the extent to which its operations and productivity will be adversely impacted. Notwithstanding the federal standards, a number of states have mandated, and states may continue to individually mandate, additional emission-control requirements for equipment that could increase equipment or other costs for entire fleets. For instance, the California Air Resource Board also has adopted emission control regulations that will be applicable to all heavy-duty tractors that pull 53-foot or longer box-type trailers within the state of California. The tractors and trailers subject to these regulations must be either EPA Smart Way certified or equipped with low-rolling resistance tires and retrofitted with Smart Way-approved aerodynamic technologies. The Company currently purchases Smart Way certified equipment in its new tractor and trailer acquisitions. In order to reduce exhaust emissions, some states and municipalities have also begun to restrict the locations and amount of time where diesel-powered tractors may idle. These restrictions could force the Company to alter its drivers’ behavior, purchase on-board power units that do not require the engine to idle or face a decrease in productivity. Federal and state lawmakers also have implemented or proposed potential limits on greenhouse gas emissions under a variety of other climate-change initiatives. Compliance with such regulations may increase the cost of new tractors and trailers or require the Company to retrofit its equipment, and could impair equipment productivity and increase its 10 11 Item 1A. Risk Factors RISK FACTORS The following risk factors apply to the business and operations of the Company. These risk factors are not exhaustive, and investors are encouraged to perform their own investigation with respect to the business, financial condition and prospects of the Company. The Company may face additional risks and uncertainties that are not presently known to it, or that the Company currently deems immaterial, which may also impair its business. The following discussion should be read in conjunction with the financial statements and notes to the financial statements included elsewhere in this Form 10-K. The Company’s industry is affected by general economic and business risks that are largely beyond its control. The Company’s industry is highly cyclical, and its business is dependent on a number of factors, many of which are beyond its control. The Company believes that some of the most significant of these factors are economic changes that affect supply and demand in transportation markets in general, such as: • changes in customers’ inventory levels and in the availability of funding for their working capital; • excess tractor capacity in comparison with shipping demand; • downturns in customers’ business cycles; and • recessionary economic cycles. The risks associated with these factors are heightened when the United States and/or global economy is weakened. Some of the principal risks during such times are as follows: • the Company may experience low overall freight levels, which may impair its asset utilization, because its customers’ demand for its services generally correlate with the strength of the United States and, to a lesser extent, global economy; • certain of the Company’s customers may face credit issues and cash flow problems, particularly if they encounter increased financing costs or decreased access to the capital markets, and such issues and problems may affect their ability to pay for the Company’s services; terrorism, military action against a foreign state or group located in a foreign state, or heightened security requirements could lead to reduced economic demand, reduced availability of credit or temporary closing of the shipping locations or United States borders. Such events or enhanced security measures in connection with such events could impair the Company’s operating efficiency and productivity and result in higher operating costs. The Company’s industry is highly competitive and fragmented, and its business and results of operations may suffer if it is unable to adequately address downward pricing and other competitive pressures. The Company competes with many truckload carriers of varying sizes, including some that may have greater access to equipment, a wider range of services, greater capital resources, less indebtedness or other competitive advantages and including smaller, regional service providers that cover specific shipping lanes with specific customers or that offer niche services. The Company also competes, to a lesser extent, with some less-than-truckload carriers, railroads, and third-party logistics, brokerage, freight forwarding and other transportation companies. Numerous competitive factors could impair the Company’s ability to maintain or improve its profitability. These factors include the following: • many of the Company’s competitors periodically reduce their freight rates to gain business, especially during times of reduced growth in the economy, which may limit the Company’s ability to maintain or increase freight rates, may require the Company to reduce its freight rates or may limit its ability to maintain or expand its business; • some shippers have reduced or may reduce the number of carriers they use by selecting core carriers as approved service providers and in some instances the Company may not be selected; • many customers periodically solicit bids from multiple carriers for their shipping needs, which may depress freight rates or result in a loss of business to competitors; • the continuing trend toward consolidation in the trucking industry may result in more large carriers with greater financial resources and other competitive advantages, and the Company may have difficulty competing with them; • advances in technology may require the Company to increase investments in order to remain competitive, and its customers may not be willing to accept higher freight rates to cover the cost of these investments; • higher fuel prices and, in turn, higher fuel surcharges to the Company’s customers may cause some of its customers to consider freight transportation alternatives, including rail transportation; • freight patterns may change as supply chains are redesigned, resulting in an imbalance between the Company’s capacity and the Company’s customers’ demands; and • competition from freight logistics and brokerage companies may negatively impact the Company’s customer relationships and freight rates; • customers may bid out freight or select competitors that offer lower rates from among existing choices in an attempt to lower their costs, and the Company might be forced to lower its rates or lose freight. The Company also is subject to cost increases outside of its control that could materially reduce its profitability if it is unable to increase its rates sufficiently. Such cost increases include, but are not limited to, increases in fuel prices, driver wages, owner-operator contracted rates, interest rates, taxes, tolls, license and registration fees, insurance, revenue equipment and healthcare for its employees. The Company’s suppliers’ business levels also may be negatively affected by adverse economic conditions or financial constraints, which could lead to disruptions in the supply and availability of equipment, parts and services critical to its operations. A significant interruption in the Company’s normal supply chain could disrupt its operations, increase its costs and negatively impact its ability to serve its customers. In addition, events outside the Company’s control, such as strikes or other work stoppages at its facilities or at customer, port, border or other shipping locations, or actual or threatened armed conflicts or terrorist attacks, efforts to combat • the Company may have higher exposure to litigation risks as compared to smaller carriers; and • smaller carriers may build economies of scale with procurement aggregation providers, which may improve the smaller carriers’ abilities to compete with the Company. Driver shortages and increases in driver compensation or owner-operator contracted rates could adversely affect the Company’s profitability and ability to maintain or grow its business. Recent driver shortages in the industry require, and could continue to require, the Company to spend more to attract and retain company and owner-operator drivers. The Company’s challenge with attracting and retaining qualified drivers primarily stems from intense market competition, which may subject it to increased payments for driver compensation and owner-operator contracted rates. Also, because of the intense competition for drivers, the Company may face difficulty maintaining or increasing its number of company and owner-operator drivers. Compliance and enforcement initiatives included in the CSA program implemented by the FMCSA and regulations of the DOT relating to driver time and safety and fitness could also reduce the availability of qualified drivers. In addition, like most in the Company’s industry, the Company suffers from a high turnover rate of drivers, especially, with respect to company drivers, in the first 180 days of 12 13 employment. The high turnover rate requires the Company to continually recruit a substantial number of drivers in order to operate existing revenue equipment. Further, with respect to owner-operator drivers, shortages can result from contractual terms or company policies that make contracting with the Company less desirable to certain owner-operator drivers. Due to the absence of long-term contracts, owner-operators can quickly terminate their relationships with the Company. If the Company is unable to continue to attract and retain a sufficient number of company and owner-operator drivers, it could be required to operate with fewer trucks and face difficulty meeting shipper demands or be forced to forego business that would otherwise be available to it, which could adversely affect its profitability and ability to maintain or grow its business. The loss of senior management or key operating personnel could adversely affect operations. The Company’s success to date has depended, and will continue to depend, largely on the skills, efforts and motivation of Mr. Daseke, its Chairman and Chief Executive Officer, and on the other members of its senior management team, who generally have significant experience with the Company and within the transportation industry. Mr. Daseke, age 78, has been the Company’s Chairman and Chief Executive Officer since its formation. The Company also depends on the continued service of key operating personnel. If for any reason the services of its key personnel, particularly Mr. Daseke, were to become unavailable, there could be a material adverse effect on its business, financial condition, results of operations, cash flows and prospects. A key component of the Company’s strategy includes selectively pursuing strategic and complementary acquisitions; however, it may not be able to execute future acquisitions successfully. Historically, a key component of the Company’s growth strategy has been to pursue acquisitions of strategic and complementary businesses. For example, from 2009 to the date hereof, the Company has acquired more than 16 businesses. The Company expects to continue considering acquisitions in the future and expects that acquisitions will continue to be a key component of its business plan going forward and the value of the Earn-Out Consideration is based in large part on the Company’s ability to complete acquisitions and meet certain Adjusted EBITDA targets. Recent or future acquisitions may negatively impact its business, financial condition, results of operations, cash flows and prospects because: • • • • the Company may assume liabilities, including environmental liabilities, or be subject to risks beyond its estimates or what was disclosed to it; the acquisition could divert management’s attention and other resources from the Company’s existing business; to facilitate such acquisitions, the Company may incur or assume additional indebtedness or issue additional shares of stock; and the acquired company may require increases in working capital and capital expenditure investments to fund its growth. Further, the companies that the Company acquires may not achieve anticipated revenue, earnings or cash flows, including as a result of the loss of any major customers or key employees, and the Company may be unable to fully realize all of the anticipated benefits and synergies from recent and future acquisitions. Although the Company has an identified pipeline of near- and medium-term acquisition targets as of the date hereof, the consummation of any acquisitions will be dependent on, among other things, the results of its due diligence and the Company may not complete any acquisitions in its pipeline. The Company may not be able to acquire any additional companies at all or on terms favorable to it. Certain of the Company’s larger, better capitalized competitors may seek to acquire some of the companies the Company may be interested in, and competition for acquisitions would likely increase acquisition prices and result in it having fewer acquisition opportunities. Seasonality and the impact of weather and other catastrophic events adversely affect the Company’s operations and profitability. The Company’s tractor productivity decreases during the winter season because inclement weather impedes operations and some shippers reduce their shipments during winter. At the same time, operating expenses increase due to, among other things, a decline in fuel efficiency because of engine idling and harsh weather that creates higher accident frequency, increased claims and higher equipment repair expenditures. The Company also may suffer from weather-related or other events, such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes and explosions, which may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies, destroy its assets or the assets of its customers or otherwise adversely affect the business or financial condition of its customers, any of which could adversely affect its results or make its results more volatile. The Company may be adversely affected by fluctuations in the price or availability of diesel fuel. Fuel is one of the Company’s largest operating expenses. Diesel fuel prices fluctuate greatly due to factors beyond the Company’s control, such as political events, price and supply decisions by oil producing countries and cartels, terrorist activities, environmental laws and regulations, armed conflicts, depreciation of the dollar against other currencies, world supply and demand imbalances, and hurricanes and other natural or man-made disasters, each of which may lead to an increase in the cost of fuel. Such events may lead not only to increases in fuel prices, but also to fuel shortages and disruptions in the fuel supply chain. Because the Company’s operations are dependent upon diesel fuel, significant diesel fuel cost increases, shortages or supply disruptions could materially and adversely affect its results of operations and financial condition. The Company has not used derivatives as a hedge against higher fuel costs in the past but continues to evaluate this possibility. Increases in fuel costs, to the extent not offset by rate per mile increases or fuel surcharges, have an adverse effect on the Company’s operations and profitability. The Company incurs certain fuel costs that cannot be recovered even with respect to customers with which it maintains fuel surcharge programs, such as those associated with empty miles or the time when its engines are idling. Because the Company’s fuel surcharge recovery lags behind changes in fuel prices, its fuel surcharge recovery may not capture in any particular period the increased costs it pays for fuel, especially when prices are rising. Further, during periods of low freight volumes, shippers can use their negotiating leverage to impose less compensatory fuel surcharge policies. There can be no assurance that the Company’s fuel surcharge program will be maintained indefinitely or will be sufficiently effective. Increased prices for, or decreases in the availability of, new revenue equipment and decreases in the value of used revenue equipment could adversely affect the Company’s results of operations and cash flows. Investment in new equipment is a significant part of the Company’s annual capital expenditures, and the Company requires an available supply of tractors and trailers from equipment manufacturers to operate and grow its business. In recent years, manufacturers have raised the prices of new revenue equipment significantly due to increased costs of materials and, in part, to offset their costs of compliance with new tractor engine and emission system design requirements mandated by the EPA and various state agencies, which are intended to reduce emissions. For example, more restrictive EPA engine and emissions system design requirements became effective for engines built on or after January 1, 2010. In 2011, the EPA and the NHTSA established Phase 1 of a national program to reduce greenhouse gas emissions and establish new fuel efficiency standards for medium- and heavy-duty vehicles beginning for model year 2014 and extending through model year 2018. In October 2016, the EPA and NHTSA jointly published final Phase 2 standards for improving fuel efficiency and reducing greenhouse gas emissions from new on-road medium- and heavy-duty vehicles beginning for model year 2019 and extending to model year 2027. The Phase 2 standards build upon the Phase 1 standards, encouraging wider application of currently available technologies and the development of new and advanced cost-effective technologies through model year 2027. In addition, for the first time, greenhouse gas emissions limits and fuel efficiency standards will be imposed on new trailers. Greenhouse gas emissions regulations are likely to affect equipment design and cost. Notwithstanding the federal standards, a number of states have mandated, and states may continue to individually mandate, additional emission-control requirements for equipment that could increase equipment or other costs for entire fleets. Further equipment price increases may result from these federal and state requirements. If new equipment prices increase 14 15 more than anticipated, the Company could incur higher depreciation and rental expenses than anticipated. If the Company is unable to fully offset any such increases in expenses with freight rate increases and/or improved fuel economy, its results of operations and cash flows could be adversely affected. The Company may face difficulty in purchasing new equipment due to decreased supply. From time to time, some original equipment manufacturers (OEM) of tractors and trailers may reduce their manufacturing output due to lower demand for their products in economic downturns or a shortage of component parts. Component suppliers may either reduce production or be unable to increase production to meet OEM demand, creating periodic difficulty for OEMs to react in a timely manner to increased demand for new equipment and/or increased demand for replacement components as economic conditions change. At times, market forces may create market situations in which demand outstrips supply. In those situations, the Company may face reduced supply levels and/or increased acquisition costs. An inability to continue to obtain an adequate supply of new tractors or trailers for its operations could have a material adverse effect on its business, results of operations and financial condition. During prolonged periods of decreased tonnage levels, the Company and other trucking companies may make strategic fleet reductions, which could result in an increase in the supply of used equipment. When the supply exceeds the demand for used revenue equipment, the general market value of used revenue equipment decreases. Used equipment prices are also subject to substantial fluctuations based on availability of financing and commodity prices for scrap metal. A depressed market for used equipment could require the Company to trade its revenue equipment at depressed values or to record losses on disposal or an impairment of the carrying values of its revenue equipment that is not protected by residual value arrangements. Trades at depressed values and decreases in proceeds under equipment disposals and impairment of the carrying values of its revenue equipment could adversely affect its results of operations and financial condition. • change the nature of the business; • merge or consolidate with, or acquire, another entity; and • sell or otherwise dispose of assets. In addition, the Company’s credit facilities and certain of its other debt agreements require it to maintain certain financial ratios or to reduce its indebtedness if it is unable to comply with such ratios. These restrictions may also limit the Company’s ability to obtain future financings to withstand a future downturn in its business or the economy in general, or to otherwise conduct necessary corporate activities. The Company may also be prevented from taking advantage of business opportunities that arise because of the limitations that its debt agreements impose on it. A breach of any covenant in the Company’s credit facilities or certain of its other debt agreements would result in a default thereunder after any applicable grace periods expire and, if not waived, could result in acceleration of amounts borrowed thereunder. Further, the Company’s credit facilities and certain of its other debt agreements contain cross-default provisions, such that a default under one agreement would create a default under the other agreements. In the event of acceleration, the Company may not be able to make all of the required payments or borrow sufficient funds to refinance such indebtedness. Even if new financing were available at that time, it may not be on terms that are acceptable to the Company. The Company’s leverage and debt service obligations may adversely affect its financial condition, results of operations, business prospects and ability to make payments on its debt obligations. The Company may not be able to generate sufficient cash to service all of its indebtedness and may be forced to take other actions to satisfy its obligations under applicable debt instruments, which may not be successful. As of December 31, 2017, the Company had $635.0 million of indebtedness outstanding. The Company’s level of indebtedness could adversely affect it in several ways, including the following: As of December 31, 2017, the Company had $635.0 million of indebtedness outstanding. Its ability to make scheduled payments on or to refinance its indebtedness obligations depends on its financial condition and operating performance, which are subject to prevailing economic and competitive conditions and certain financial, business and other factors beyond its control. The Company may not be able to maintain a level of cash flows from operating activities sufficient to permit it to pay the principal, premium, if any, and interest on its indebtedness. If the Company’s cash flows and capital resources are insufficient to fund debt service obligations, the Company may be forced to reduce or delay investments and capital expenditures, sell assets, seek additional capital or restructure or refinance indebtedness. The Company’s ability to restructure or refinance indebtedness will depend on the condition of the capital markets and its financial condition at such time. Any refinancing of indebtedness could be at higher interest rates and may require the Company to comply with more onerous covenants, which could further restrict business operations. The terms of existing or future debt instruments may restrict the Company from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on outstanding indebtedness on a timely basis would likely result in a reduction of the Company’s credit rating, which could harm its ability to incur additional indebtedness. In the absence of sufficient cash flows and capital resources, the Company could face substantial liquidity problems and might be required to dispose of material assets or operations to meet debt service and other obligations. However, the proceeds of any such disposition may not be adequate to meet any debt service obligations then due. The Company’s credit facilities and the terms of the Series A Preferred Stock contain restrictive covenants that may impair the Company’s ability to conduct business, and to maintain compliance with these covenants in the future, which could lead to default and acceleration under the credit facilities. The Company’s credit facilities and terms of the Series A Preferred Stock contain operating covenants and financial covenants that limit management’s discretion with respect to certain business matters. Among other things, these covenants, subject to certain limitations and exceptions, restrict the Company’s ability to: • incur additional indebtedness; • • • • require the Company to dedicate a substantial portion of its cash flow from operations to service its existing debt, thereby reducing the cash available to finance its operations and other business activities; limit management’s discretion in operating its business and its flexibility in planning for, or reacting to, changes in its business and the industry in which it operates; increase its vulnerability to downturns and adverse developments in its business and the economy generally; limit its ability to access the capital markets to raise capital on favorable terms or to obtain additional financing for working capital, capital expenditures or acquisitions or to refinance existing indebtedness; • place restrictions on its ability to obtain additional financing, make investments, lease equipment, sell assets and engage in business combinations; • make it more likely that a reduction in its borrowing base following a periodic redetermination could require it to repay a portion of its then-outstanding bank borrowings; • make it vulnerable to increases in interest rates as indebtedness under the Company’s credit facility may vary with prevailing interest rates; • place it at a competitive disadvantage relative to competitors with lower levels of indebtedness in relation to their overall size or less restrictive terms governing their indebtedness; and • make it more difficult for it to satisfy its obligations under its debt instruments and increase the risk that it may default on its debt obligations. 16 17 The Company may incur substantial additional indebtedness, which could increase the risks it faces. While the Company’s credit facility contains restrictions on the Company’s ability to incur additional indebtedness, such restrictions are subject to waiver and a number of significant qualifications and exceptions. Indebtedness incurred in compliance with these restrictions could be substantial. Additional leverage increases the risks described above under “— the Company’s leverage and debt service obligations may adversely affect its financial condition, results of operations, business prospects and ability to make payments on its debt obligations.” Furthermore, any increase in the Company’s level of indebtedness will have several important effects on its future operations, including, without limitation: • • it will have additional cash requirements in order to support the payment of interest on its outstanding indebtedness; increases in its outstanding indebtedness and leverage will increase its vulnerability to adverse changes in general economic and industry conditions, as well as to competitive pressure; and equipment weight, equipment dimensions, fuel emissions, driver hours-of-service, driver eligibility requirements, on- board reporting of operations and ergonomics. The Company may become subject to new or more restrictive regulations relating to such matters that may require changes in its operating practices, influence the demand for transportation services or require it to incur significant additional costs. Possible changes to laws and regulations include: • • • increasingly stringent environmental laws and regulations, including changes intended to address fuel efficiency and greenhouse gas emissions that are attributed to climate change; restrictions, taxes or other controls on emissions; regulation specific to the energy market and logistics providers to the industry; • changes in the hours-of-service regulations, which govern the amount of time a driver may drive in any specific period; • depending on the levels of its outstanding indebtedness, its ability to obtain additional financing for working capital, capital expenditures, general corporate and other purposes may be limited. • driver and vehicle ELD requirements; The Company has significant ongoing capital expenditure requirements. If the Company is unable to obtain such capital on favorable terms or at all, it may not be able to execute on its business plans and its business, financial condition, results of operations, cash flows and prospects may be adversely affected. The Company’s business is capital intensive. Its capital expenditures focus primarily on revenue equipment replacement and, to a lesser extent, facilities, revenue equipment growth and investments in information technology. The Company also expects to devote substantial financial resources to grow its operations and fund its acquisition activities. As a result of the Company’s funding requirements, it likely will need to sell additional equity or debt securities or seek additional financing through other arrangements to increase its cash resources. Any sale of additional equity or debt securities may result in dilution to its stockholders. Public or private financing may not be available in amounts or on terms acceptable to the Company, if at all. If the Company is unable to obtain additional financing, it may be required to delay, reduce the scope of, or eliminate future acquisition activities or growth initiatives, which could adversely affect its business, financial condition and operating results. In such case, the Company may also operate its revenue equipment (including tractors and trailers) for longer periods, which would result in increased maintenance costs, which would in turn reduce its operating income. Increases in interest rates could adversely affect the Company’s business. The Company’s business and operating results can be harmed by factors such as the availability, terms of and cost of capital, increases in interest rates or a reduction in credit rating. These changes could cause the Company’s cost of doing business to increase and limit its ability to pursue acquisition opportunities. For example, as of December 31, 2017, outstanding borrowings under the Company’s credit facilities were approximately $498.5 million, and a 1.0% increase in interest rates would result in an increase in annual interest expense of approximately $5.0 million, assuming the $498.5 million in debt was outstanding for the full year, before the effects of income taxes. Recent and continuing disruptions and volatility in the global financial markets may lead to a contraction in credit availability impacting its ability to finance its operations. The Company requires continued access to capital. A significant reduction in cash flows from operations or the availability of credit could materially and adversely affect its ability to achieve its planned growth and operating results. The Company operates in a highly regulated industry, and changes in existing laws or regulations, or liability under existing or future laws or regulations, could have a material adverse effect on its results of operations and profitability. The Company operates in the United States pursuant to operating authority granted by the DOT and in various Canadian provinces pursuant to operating authority granted by the Ministries of Transportation and Communications in such provinces. The company, as well as its company and owner-operator drivers, must also comply with governmental regulations regarding safety, equipment, environmental protection and operating methods. Examples include regulation of • requirements leading to accelerated purchases of new trailers; • mandatory limits on vehicle weight and size; • driver hiring restrictions; • increased bonding or insurance requirements; and • security requirements imposed by the DHS. From time to time, various legislative proposals are introduced, including proposals to increase federal, state or local taxes, including taxes on motor fuels and emissions, which may increase the Company’s or its independent affiliates’ operating costs, require capital expenditures or adversely impact the recruitment of drivers. Restrictions on greenhouse gas emissions or climate change laws or regulations could also affect the Company’s customers that use significant amounts of energy or burn fossil fuels in producing or delivering the products the Company carries, which, in turn, could adversely impact the demand for the Company’s services as well as its operations. The Company also could lose revenue if its customers divert business from it because it has not complied with their sustainability requirements. See “Item 1. Business - Regulation” for information regarding several proposed, pending and final regulations that could significantly impact the Company’s business and operations. Safety-related evaluations and rankings under the CSA program could adversely impact the Company’s relationships with its customers and its ability to maintain or grow its fleet, each of which could have a material adverse effect on its results of operations and profitability. The CSA includes compliance and enforcement initiatives designed to monitor and improve commercial motor vehicle safety by measuring the safety record of both the motor carrier and the driver. These measurements are scored and used by the FMCSA to identify potential safety risks and to direct enforcement action. Certain measurements and scores collected by the CSA from transportation companies are available to the general public on the FMCSA’s website. The Company’s CSA scores are dependent upon its safety and compliance experience, which could change at any time. In addition, the safety standards prescribed in the CSA program or the underlying methodology used by the FMCSA to determine a carrier’s safety rating could change and, as a result, the Company’s ability to maintain an acceptable score could be adversely impacted. For example, in January 2016, the FMCSA published a proposed rulemaking that would amend the methodology used by the agency for issuance of a safety fitness determination. Under the proposed rulemaking, the FMCSA would update the current safety fitness rating methodology by integrating on-road safety data from inspections, along with the results of carrier investigations and crash reports, to determine a motor carrier’s overall safety 18 19 fitness on a monthly basis. However, in March 2017, FMCSA published a notice of withdrawal that removed the January 2016 proposed rulemaking from further regulatory consideration. Nonetheless, should the FMCSA adopt rulemakings in the future that revise the methodology used to determine a carrier’s safety rating in a manner that incorporates more stringent standards, then it is possible that the Company and other motor carriers could be adversely affected, as compared to consideration of the current standards. If the Company receives an unacceptable CSA score, its relationships with customers could be damaged, which could result in a loss of business. The requirements of CSA could shrink the industry’s pool of drivers as those with unfavorable scores could leave the industry. As a result, the costs to attract, train and retain qualified drivers could increase. In addition, a shortage of qualified drivers could increase driver turnover, decrease asset utilization, limit growth and adversely impact the Company’s results of operations and profitability. The Company is subject to environmental and worker health and safety laws and regulations that may expose it to significant costs and liabilities and have a material adverse effect on its results of operations, competitive position and financial condition. The Company is subject to stringent and comprehensive federal, state, provincial, local and foreign environmental and worker health and safety laws and regulations governing, among other matters, the operation of fuel storage tanks, release of emissions from its vehicles (including engine idling) and facilities, the health and safety of its workers in conducing operations, and adverse impacts to the environment. Under certain environmental laws, the Company could be subject to strict liability, without regard to fault or legality of conduct, for costs relating to contamination at facilities the Company owns or operates or previously owned or operated and at third-party sites where the Company disposed of waste, as well as costs associated with the clean-up of releases arising from accidents involving the Company’s vehicles. The Company often operates in industrial areas, where truck terminals and other industrial activities are located, and where soil, groundwater or other forms of environmental contamination have occurred from historical or recent releases and for which the Company has incurred and may, in the future, incur remedial or other environmental liabilities. The Company also maintains aboveground and underground bulk fuel storage tanks and fueling islands at some of its facilities and vehicle maintenance operations at certain of its facilities. The Company’s operations involve the risks of fuel spillage or seepage into the environment, environmental damage and unauthorized hazardous material spills, releases or disposal actions, among others. Increasing efforts to control air emissions, including greenhouse gases, may have an adverse effect on the Company. Federal and state lawmakers have implemented, and are considering, a variety of new climate-change initiatives and greenhouse gas regulations that could increase the cost of new tractors, impair productivity and increase the Company’s operating expenses. For example, in 2011, the NHTSA and the EPA adopted final Phase I rules that established the first- ever fuel economy and greenhouse gas standards for medium- and heavy-duty vehicles, including certain combination tractors’ model years 2014 to 2018 and, in October 2016, the EPA and NHTSA jointly published final Phase 2 standards for improving fuel efficiency and reducing greenhouse gas emissions from new on-road medium- and heavy-duty vehicles beginning for model year 2019 through model year 2027. In addition, for the first time, greenhouse gas emissions limits and fuel efficiency standards will be imposed on new trailers. Compliance with environmental laws and regulations may also increase the price of the Company’s equipment and otherwise affect the economics of the Company’s industry by requiring changes in operating practices or by influencing the demand for, or the costs of providing, transportation services. For example, regulations issued by the EPA and various state agencies that require progressive reductions in exhaust emissions from diesel engines have resulted in higher prices for tractors and diesel engines and increased operating and maintenance costs. Also, in order to reduce exhaust emissions, some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors, such as the Company’s, may idle. These restrictions could force the Company to alter its drivers’ behavior, purchase on-board power units that do not require the engine to idle or face a decrease in productivity. The Company is also subject to potentially stringent rulemaking related to sustainability practices, including conservation of resources by decreasing fuel consumption. This increased focus on sustainability practices may result in new regulations and/or customer requirements that could adversely impact the Company’s business. If the Company has operational spills or accidents or if it is found to be in violation of, or otherwise liable under, environmental or worker health or safety laws or regulations, the Company could incur significant costs and liabilities. Those costs and liabilities may include the assessment of sanctions, including administrative, civil and criminal penalties, the imposition of investigatory, remedial or corrective action obligations, the occurrence of delays in permitting or performance of projects, and the issuance of orders enjoining performance of some or all of the Company’s operations in a particular area. The occurrence of any one or more of these developments could have a material adverse effect on its results of operations, competitive position and financial condition. Environmental and worker health and safety laws are becoming increasingly more stringent and there can be no assurances that compliance with, or liabilities under, existing or future environmental and worker health or safety laws or regulations will not have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows or prospects. See “Item 1. Business - Regulation” for information regarding several proposed, pending and final regulations that could significantly affect the Company’s business and operations. The Company is subject to the risks of litigation and governmental proceedings, which could adversely affect its business. The Company is, and in the future may be, subject to legal and governmental proceedings and claims. The parties in such legal actions may seek amounts from the Company that may not be covered in whole or in part by insurance. Defending itself against such legal actions could result in significant costs and could require a substantial amount of time and effort by the Company’s management team. The Company cannot predict the outcome of litigation or governmental proceedings to which it is a party or whether it will be subject to future legal actions. As a result, the potential costs associated with legal actions against the Company could adversely affect its business, financial condition, results of operations, cash flows or prospects. Insurance and claims expenses could significantly reduce the Company’s profitability. The Company is exposed to claims related to cargo loss and damage, property damage, personal injury, workers’ compensation, group health and group dental. The Company has insurance coverage with third-party insurance carriers, but it assumes a significant portion of the risk associated with these claims due to its self-insured retention (SIR) and deductibles, which can make its insurance and claims expense higher or more volatile. Additionally, the Company faces the risks of increasing premiums and collateral requirements and the risk of carriers or underwriters leaving the transportation sector, which may materially affect its insurance costs or make insurance more difficult to find, as well as increase its collateral requirements. The Company could experience increases in its insurance premiums in the future if it decides to increase its coverage or if its claims experience deteriorates. In addition, the Company is subject to changing conditions and pricing in the insurance marketplace and the Company cannot assure you that the cost or availability of various types of insurance may not change dramatically in the future. If the Company’s insurance or claims expense increases, and the Company is unable to offset the increase with higher freight rates, its results of operations could be materially and adversely affected. The Company’s results of operations may also be materially and adversely affected if it experiences a claim in excess of its coverage limits, a claim for which coverage is not provided or a claim that is covered but its insurance company fails to perform. The Company derives a material portion of its revenue from its major customers, the loss of one or more of which could have a material adverse effect on the Company’s business. A material portion of the Company’s revenue is generated from its major customers, the loss of one or more of which could have a material adverse effect on the Company’s business. In 2016 and 2015, the Company’s top ten customers, based on revenue, accounted for approximately 36% and 33%, respectively, of the Company’s revenue, and the Company’s largest customer accounted for approximately 8% of its revenue in both 2016 and 2015. For the year ended December 31, 2017, the Company’s top ten customers, based on revenue, accounted for approximately 31% of its revenue, and the Company’s largest customer accounted for approximately 6% of its revenue. A material portion of the Company’s freight is from customers in the building materials industry, and as such, the Company’s results may be more susceptible to trends in construction cycles, which are affected by numerous factors, including rates of infrastructure spending, real estate equity values, interest rates and general economic conditions, than carriers that do not have this concentration. 20 21 Economic conditions and capital markets may adversely affect the Company’s customers and their ability to remain solvent. The Company’s customers’ financial difficulties can negatively impact the Company’s results of operations and financial condition and the Company’s ability to comply with the covenants in its debt agreements, especially if they were to delay or default on payments to us. Generally, the Company does not have contractual relationships that guarantee any minimum volumes with customers, and the Company cannot assure you that customer relationships will continue as presently in effect. A reduction in, or termination of, the Company’s services by one or more of its major customers could have a material adverse effect on the Company’s business and operating results. Difficulty in obtaining goods and services from the Company’s vendors and suppliers could adversely affect the Company’s business. The Company is dependent upon its vendors and suppliers, including equipment manufacturers, for tractors, trailers and other products and materials. The Company believes that it has positive vendor and supplier relationships and are generally able to obtain favorable pricing and other terms from such parties. If the Company fails to maintain amenable relationships with its vendors and suppliers, or if its vendors and suppliers are unable to provide the products and materials the Company needs or undergo financial hardship, the Company could experience difficulty in obtaining needed goods and services, and subsequently, its business and operations could be adversely affected. The Company is subject to certain risks arising from doing business in Canada and Mexico. The Company provides trucking services in Canada in addition to the United States, and the Company also transports freight into and out of Mexico by transferring the Company’s trailers to tractors operated by Mexican-based carriers with which the Company has contractual and long-standing relationships. As a result, the Company is subject to risks of doing business internationally, including fluctuations in foreign currencies, changes in the economic strength of Canada and Mexico, difficulties in enforcing contractual obligations and intellectual property rights, burdens of complying with a wide variety of international and United States export and import laws, and social, political, and economic instability. In addition, if the Company is unable to maintain its Customs-Trade Partnership Against Terrorism (C-TPAT) status, it may have significant border delays, which could cause its operations in Canada to be less efficient than those of competitor truckload carriers also operating in Canada that obtain or continue to maintain C-TPAT status, and the Company may face a loss of certain business due to customer requirements to deal only with C-TPAT participating carriers. As a C-TPAT participant, the Company’s security measures are subject to periodic review by the United States Customs and Border Protection (CBP), and the Company is required to perform an annual security threat assessment of its international operations. If CBP determines the Company has failed to comply with its minimum security criteria for highway carriers and other evolving security standards recommended by the agency, the Company may be unable to maintain its C-TPAT status. The Company also faces additional risks associated with its foreign operations, including restrictive trade policies and imposition of duties, taxes or government royalties imposed by the Canadian or Mexican government, to the extent not preempted by the terms of North American Free Trade Agreement. Further, to the extent that the Company conducts operations outside of the United States, it is subject to the Foreign Corrupt Practices Act, which generally prohibits United States companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining favorable treatment. If the Company is not in compliance with the Foreign Corrupt Practices Act, other anti-corruption laws or other laws governing the conduct of business with government entities (including local laws), it may be subject to criminal and civil penalties and other remedial measures, which could harm its reputation and have a material adverse impact on the Company’s business, financial condition, results of operations, cash flows and prospects. Any investigation of any actual or alleged violations of such laws could also harm the Company’s reputation or have a material adverse impact on its business, financial condition, results of operations, cash flows and prospects. The Company’s contractual agreements with its owner-operators expose it to risks that it does not face with its company drivers. The Company relies, in part, upon independent contractor owner-operators to perform the services for which it contracts with customers. Approximately 20% of the Company’s freight was carried by independent contractor owner-operators in 2017. The Company’s reliance on independent contractor owner-operators creates numerous risks for the Company’s business. For example, the Company provides financing to certain of its independent contractor owner-operators purchasing tractors from the Company. If owner-operators operating the tractors the Company financed default under or otherwise terminate the financing arrangement and the Company is unable to find a replacement owner-operator, the Company may incur losses on amounts owed to it with respect to the tractor in addition to any losses it may incur as a result of idling the tractor. Further, if the Company is unable to provide such financing in the future, due to liquidity constraints or other restrictions, the Company may experience a shortage of owner-operators available to it. If the Company’s independent contractor owner-operators fail to meet the Company’s contractual obligations or otherwise fail to perform in a manner consistent with the Company’s requirements, the Company may be required to utilize alternative service providers at potentially higher prices or with some degree of disruption of the services that the Company provides to customers. If the Company fails to deliver on time, if its contractual obligations are not otherwise met, or if the costs of its services increase, then the Company’s profitability and customer relationships could be harmed. The financial condition and operating costs of the Company’s independent contractor owner-operators are affected by conditions and events that are beyond the Company’s control and may also be beyond their control. Adverse changes in the financial condition of the Company’s independent contractor owner-operators or increases in their equipment or operating costs could cause them to seek higher revenues or to cease their business relationships with the Company. The prices the Company charges its customers could be impacted by such issues, which may in turn limit pricing flexibility with customers, resulting in fewer customer contracts and decreasing the Company’s revenues. Independent contractor owner-operators typically use tractors, trailers and other equipment bearing the Company’s trade names and trademarks. If one of the Company’s independent contractor owner-operators is subject to negative publicity, it could reflect on the Company and have a material adverse effect on the Company’s business, brand and financial performance. Under certain laws, the Company could also be subject to allegations of liability for the activities of its independent contractor owner-operators. Owner-operators are third-party service providers, as compared to company drivers who are employed by the Company. As independent business owners, the Company’s owner-operators may make business or personal decisions that conflict with the Company’s best interests. For example, if a load is unprofitable, route distance is too far from home or personal scheduling conflicts arise, an owner-operator may deny loads of freight from time to time. In these circumstances, the Company must be able to timely deliver the freight in order to maintain relationships with customers. If the Company’s owner-operators are deemed by regulators or judicial process to be employees, the Company’s business and results of operations could be adversely affected. Tax and other regulatory authorities have in the past sought to assert that owner-operators in the trucking industry are employees rather than independent contractors. Taxing and other regulatory authorities and courts apply a variety of standards in their determination of independent contractor status. If the Company’s owner-operators are determined to be its employees, it would incur additional exposure under federal and state tax, workers’ compensation, unemployment benefits, labor, employment, and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings. The Company depends on third parties in its brokerage business, and service instability from these providers could increase the Company’s operating costs or reduce its ability to offer brokerage services, which could adversely affect its revenue, results of operations and customer relationships. The Company’s brokerage business is dependent upon the services of third-party capacity providers, including other 22 23 truckload carriers. These third-party providers may seek other freight opportunities and may require increased compensation during times of improved freight demand or tight trucking capacity. The Company’s inability to maintain positive relationships with, and secure the services of, these third parties, or increases in the prices the Company must pay to secure such services, could have an adverse effect on its revenue, results of operations and customer relationships. The Company’s ability to secure the services of these third-party providers on competitive terms is subject to a number of risks, including the following, many of which are beyond the Company’s control: • equipment shortages in the transportation industry, particularly among contracted truckload carriers and railroads; • interruptions in service or stoppages in transportation as a result of labor disputes, seaport strikes, network congestion, weather-related issues, acts of God or acts of terrorism; • changes in regulations impacting transportation; • increases in operating expenses for carriers, such as fuel costs, insurance premiums and licensing expenses, that result in a reduction in available carriers; and • changes in transportation rates. The Company is dependent on computer and communications systems, and a systems failure or data breach could cause a significant disruption to its business. The Company’s business depends on the efficient and uninterrupted operation of its computer and communications hardware systems and infrastructure. The Company currently maintains its computer systems at multiple locations, including several of its offices and terminals and third party data centers, along with computer equipment at each of its terminals. The Company’s operations and those of its technology and communications service providers are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure, terrorist attacks, Internet failures, computer viruses, data breaches (including cyber-attacks or cyber intrusions over the Internet, malware and the like) and other events generally beyond its control. Although the Company believes that it has robust information security procedures and other safeguards in place, as cyber threats continue to evolve, it may be required to expend additional resources to continue to enhance its information security measures and investigate and remediate any information security vulnerabilities. A significant cyber incident, including system failure, security breach, disruption by malware or other damage, could interrupt or delay the Company’s operations, damage its reputation, cause a loss of customers, agents or third party capacity providers, expose the Company to a risk of loss or litigation, or cause the Company to incur significant time and expense to remedy such an event, any of which could have a material adverse impact on its results of operations and financial position. The Company’s business may be harmed by terrorist attacks, future wars or anti-terrorism measures. In the aftermath of the terrorist attacks of September 11, 2001, federal, state and municipal authorities have implemented and are implementing various security measures, including checkpoints and travel restrictions on large trucks and fingerprinting of drivers in connection with new hazardous materials endorsements on their licenses. Such existing measures and future measures may have significant costs associated with them which a motor carrier is forced to bear. Moreover, large trucks carrying large freight are potential terrorist targets, and the Company may be obligated to take measures, including possible capital expenditures intended to protect its trucks. In addition, the insurance premiums charged for some or all of the coverage currently maintained by the Company could continue to increase dramatically or such coverage could be unavailable in the future. If the Company’s employees were to unionize, the Company’s operating costs could increase and its ability to compete could be impaired. None of the Company’s employees are currently represented under a collective bargaining agreement; however, the Company always faces the risk that its employees will try to unionize, and if its owner-operators were ever re-classified as employees, the magnitude of this risk would increase. Further, Congress or one or more states could approve legislation and/or the National Labor Relations Board (the NLRB) could render decisions or implement rule changes that could significantly affect the Company’s business and its relationship with employees, including actions that could substantially liberalize the procedures for union organization. For example, in December 2014, the NLRB implemented a final rule amending the agency’s representation-case proceedings that govern the procedures for union representation. Pursuant to this amendment, union elections can now be held within 10 to 21 days after the union requests a vote, which makes it easier for unions to successfully organize all employers, in all industries. In addition, the Company can offer no assurance that the Department of Labor will not adopt new regulations or interpret existing regulations in a manner that would favor the agenda of unions. Any attempt to organize by the Company’s employees could result in increased legal and other associated costs and divert management attention, and if the Company entered into a collective bargaining agreement, the terms could negatively affect its costs, efficiency and ability to generate acceptable returns on the affected operations. In particular, the unionization of the Company’s employees could have a material adverse effect on its business, financial condition, results of operations, cash flows and prospects because: • restrictive work rules could hamper the Company’s efforts to improve and sustain operating efficiency and could impair the Company’s service reputation and limit the Company’s ability to provide next-day services; • a strike or work stoppage could negatively impact the Company’s profitability and could damage customer and employee relationships, and some shippers may limit their use of unionized trucking companies because of the threat of strikes and other work stoppages; and • an election and bargaining process could divert management’s time and attention from the Company’s overall objectives and impose significant expenses. Higher health care costs and labor costs could adversely affect the Company’s financial condition and results of operations. With the passage in 2010 of the United States Patient Protection and Affordable Care Act (the PPACA), the Company is required to provide health care benefits to all full-time employees that meet certain minimum requirements of coverage and affordability, or otherwise be subject to a payment per employee based on the affordability criteria set forth in the PPACA. Many of these requirements have been phased in over a period of time, with the majority of the most impactful provisions affecting the Company having begun in the second quarter of 2015. Additionally, some states and localities have passed state and local laws mandating the provision of certain levels of health benefits by some employers. The PPACA also requires individuals to obtain coverage or face individual penalties, so employees who are currently eligible but have elected not to participate in the Company’s health care plans may ultimately find it more advantageous to do so. It is also possible that by making changes or failing to make changes in the health care plans the Company offers it will have difficulty attracting and retaining employees, including drivers. Finally, implementing the requirements of health care reform is likely to impose additional administrative costs. The costs and other effects of these new healthcare requirements may significantly increase the Company’s health care coverage costs and could materially adversely affect its financial condition and results of operations. The Company’s total assets include goodwill and indefinite-lived intangibles. If the Company determines that these items have become impaired in the future, net income could be materially and adversely affected. As of December 31, 2017, the Company had recorded goodwill of $302.7 million and indefinite-lived intangible assets of $93.1 million, net of accumulated amortization. Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. In accordance with Financial Accounting Standards Board Accounting Standards Codification, Topic 350, “Intangibles — Goodwill and Other,” the Company tests goodwill and indefinite-lived intangible assets for potential impairment annually and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value below its carrying amount. Any excess in carrying value over the estimated fair value is charged to the Company’s results of operations. Further, the Company may never realize the full value of its 24 25 intangible assets. Any future determination requiring the write-off of a significant portion of intangible assets could have an adverse effect on the Company’s financial condition and results of operations. If there are changes to the methods used to allocate carrying values, if management’s estimates of future operating results change, if there are changes in the identified reporting units or if there are changes to other significant assumptions, the estimated carrying values and the estimated fair value of the Company’s goodwill and long-lived assets could change significantly, and could result in future non-cash impairment charges, which could materially impact its results of operations and financial condition for any such future period. The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain the Company’s resources, increase the Company’s costs and distract management. As a public company, the Company must comply with new laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, related regulations of the SEC and the requirements of The NASDAQ Capital Market (NASDAQ), with which the Company was not required to comply as a private company. For example, the Company must: • maintain a comprehensive compliance function; • comply with rules promulgated by NASDAQ; • prepare and distribute periodic public reports in compliance with obligations under the federal securities laws; • establish new internal policies, such as those relating to insider trading; and • involve and retain to a greater degree outside counsel and accountants in the above activities. Complying with statutes, regulations and requirements relating to public companies occupies a significant amount of time of management and significantly increases the Company’s costs and expenses, which could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows. Furthermore, the Company’s management may not be able to implement programs and policies to comply with such statutes, regulations and requirements in an effective and timely manner. for (i) any derivative action or proceeding brought on the Company’s behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of the Company’s directors, officers, employees or agents to us or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of Delaware General Corporation Law (DGCL) or the Company’s charter or bylaws, or (iv) any action asserting a claim against the Company that is governed by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Any person or entity purchasing or otherwise acquiring any interest in shares of the Company’s capital stock will be deemed to have notice of, and consented to, the provisions of the Company’s charter described in the preceding sentence. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers, employees or agents, which may discourage such lawsuits against the Company and such persons. Alternatively, if a court were to find these provisions of the Company’s charter inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, the Company may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect its business, financial condition or results of operations. Some provisions of the Company’s governing documents and Delaware law, may inhibit a takeover, which could limit the price investors might be willing to pay in the future for its common stock. Some provisions in the Company’s charter and bylaws may have the effect of delaying, discouraging, or preventing an acquisition of the Company or a merger in which the Company is not the surviving company and may otherwise prevent or slow changes in the Company’s board of directors and management. These provisions include: • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • • the exclusive right of the Company’s board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director with or without cause by stockholders, which prevents stockholders from being able to fill vacancies on the Company’s board of directors; the ability of the Company’s board of directors to determine whether to issue shares of the Company’s preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or A small number of the Company’s stockholders hold a substantial portion of its outstanding common stock. special meeting of the Company’s stockholders; Mr. Daseke and his affiliates beneficially own approximately 31% of the Company’s common stock as of February 1, 2018. In addition, Mr. Daseke serves as the Company’s Chief Executive Officer and Chairman of the Board of Directors. Consequently, Mr. Daseke and his affiliates are able to strongly influence all matters that require approval by the Company’s stockholders, including the election and removal of directors, changes to the Company’s organizational documents and approval of acquisition offers and other significant corporate transactions. In addition, other members of the Company’s board of directors and key management at the corporate level and at the Company’s operating companies own more than an additional 11% of the Company’s common stock as of February 1, 2018. This concentration of ownership will limit other stockholders’ ability to influence corporate matters, and as a result, actions may be taken that you may not view as beneficial and may have the effect of delaying or preventing a change in control and might adversely affect the market price of the Company’s common stock to the extent investors perceive a disadvantage in owning stock of a company with a controlling stockholder. The Company’s charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by its stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with the Company or its directors, officers, employees or agents. • the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, or the board of directors, which may delay the ability of the Company’s stockholders to force consideration of a proposal or to take action, including the removal of directors; • limiting the liability of, and providing indemnification to, the Company’s directors and officers; • controlling the procedures for the conduct and scheduling of stockholder meetings; • providing for a staggered board, in which the members of the board of directors are divided into three classes to serve for a period of three years from the date of their respective appointment or election; and • advance notice procedures that stockholders must comply with in order to nominate candidates to the Company’s board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company. The Company’s charter provides that, unless it consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum These provisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in the Company’s board of directors and management. 26 27 As a Delaware corporation, the Company is also subject to provisions of Delaware law, including Section 203 of the DGCL, which prohibits business combinations between us and one or more significant stockholders unless specified conditions are met. These provisions could discourage an acquisition of the Company or other change in control transaction, whether or not it is desired or beneficial to the Company’s stockholders, and thereby negatively affect the price that investors might be willing to pay in the future for the Company’s common stock. In addition, to the extent that these provisions discourage an acquisition of the Company or other change in control transaction, they could deprive stockholders of opportunities to realize takeover premiums for their shares of the Company’s common stock. The Company does not currently pay dividends on its common stock. The Company does not currently intend to pay cash dividends on its common stock. Any future dividend payments are within the absolute discretion of the Company’s board of directors and will depend on, among other things, its results of operations, working capital requirements, capital expenditure requirements, financial condition, level of indebtedness, contractual restrictions with respect to payment of dividends, business opportunities, anticipated cash needs, provisions of applicable law and other factors that the Company’s board of directors may deem relevant. Additionally, legal and contractual restrictions in agreements governing the Company’s Series A Preferred Stock and current indebtedness place certain restrictions on the Company’s ability to pay cash dividends. Consequently, a stockholder’s only opportunity to achieve a return on its investment in the Company will be if the stockholder sells its common stock at a price greater than the stockholder paid for it. An active trading market for the Company’s common stock may not be sustained. Although the Company’s common stock is listed on NASDAQ, there has been a limited public market for its common stock and a more active trading market for its common stock may not develop or be sustained. An absence of an active trading market could adversely affect the Company’s stockholders’ ability to sell its common stock in short time periods. Also, as a result of the limited public market for the Company’s common stock, the Company’s share price may experience significant volatility and may not necessarily reflect the value of the Company’s expected performance. Furthermore, an inactive trading market may impair the Company’s ability to raise capital by selling shares and may impair its ability to acquire other companies by using the Company’s shares as consideration, which, in turn, could harm its business. If securities or industry analysts do not publish or cease publishing research or reports about the Company, its business, or its market, or if they change their recommendations regarding the Company’s securities adversely, the price and trading volume of the Company’s common stock could decline. The trading market for the Company’s common stock will be influenced by the research and reports that industry or securities analysts may publish about the Company, its business, its market, or its competitors. If any of the analysts who cover the Company change their recommendation regarding the Company’s common stock adversely, or provide more favorable relative recommendations about the Company’s competitors, the price of the Company’s common stock would likely decline. If any of the analysts who cover the Company were to cease coverage of the Company or fail to regularly publish reports on it, the Company could lose visibility in the financial markets, which could cause the price or trading volume of the Company’s common stock to decline. Pursuant to the Jumpstart Our Business Startups Act of 2012 (the JOBS Act), the Company’s independent registered public accounting firm will not be required to attest to the effectiveness of the Company’s internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 for so long as the Company is an “emerging growth company.” Under the JOBS Act, the Company’s independent registered public accounting firm will not be required to attest to the effectiveness of the Company’s internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 until the Company is no longer an “emerging growth company.” The Company could be an “emerging growth company” until the earlier of (i) the last day of the fiscal year (a) following July 28, 2020, the fifth anniversary of the IPO, (b) in which the Company has total annual gross revenue of at least $1.07 billion or (c) in which the Company is deemed to be a large accelerated filer, which means the market value of its common stock that is held by non-affiliates exceeds $700 million as of the last business day of its prior second fiscal quarter, and (ii) the date on which the Company has issued more than $1.0 billion in non-convertible debt during the prior three-year period. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the Securities Act), for complying with new or revised accounting standards. An “emerging growth company” can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has chosen not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company that is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. Item 1B: Unresolved Staff Comments None. Item 2. Properties Daseke’s headquarters, which is leased, is located in a multi-tenant office building in Addison, Texas. The Company has 88 locations in North America, 22 of which are owned and 66 of which are leased. Daseke’s terminals may include customer service, sales/marketing, fuel and/or maintenance and warehousing facilities. Daseke believes that substantially all of its property and equipment is in good condition and its buildings and improvements have sufficient capacity to meet current needs. From time to time, Daseke invests in additional facilities to meet the needs of its business as it pursues additional growth. The following tables provides information regarding terminals and certain other locations owned or leased by Daseke: Owned Leased Location Birmingham, Alabama ...................................... Birmingham, Alabama ...................................... Chickasaw, Alabama ........................................ (cid:3) Cincinnati, Ohio ................................................ Clarksville, Tennessee ...................................... Clayton, Alabama ............................................. Cofield, North Carolina .................................... Greenville, Mississippi ..................................... Houston, Texas ................................................. Laredo, Texas ................................................... Monroeville, Alabama ...................................... Monterrey, Mexico ........................................... Nashville, Tennessee ........................................ (cid:3) Pawleys Island, South Carolina ........................ (cid:3) Redmond, Oregon ............................................. Tuscaloosa, Alabama ........................................ (cid:165)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3) FLATBED SOLUTIONS Description of Activities at Location Customer Service (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3) Sales/ Marketing (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) Fuel (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3) Maintenance (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) Admin Warehouse (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) 28 29 Owned Location Abilene, Texas .................................................. (cid:3) Angleton, Texas ................................................ (cid:3) Arlington, Washington ..................................... Arlington, Washington ..................................... Atlas, Missouri .................................................. Bossier City, Louisiana ..................................... (cid:3) Catlettsburg, Kentucky ..................................... (cid:3) Conyers, Georgia .............................................. (cid:3) Corpus Christi, Texas ....................................... (cid:3) Crane, Indiana ................................................... Duenweg, Missouri ........................................... East Camden, Arkansas .................................... Evansville, Indiana ........................................... (cid:3) Fort Worth, Texas ............................................. (cid:3) Gaffney, South Carolina ................................... Gainesville, Texas............................................. Garden City, Georgia ........................................ Glendale, Arizona ............................................. Greer, South Carolina ....................................... (cid:3) Griffin, Georgia ................................................ (cid:3) Hackensack, NJ................................................. (cid:3) Hamburg, Pennsylvania .................................... (cid:3) Hampton, Georgia............................................. (cid:3) Hiram, Georgia ................................................. (cid:3) Houston, Texas ................................................. Humble, Texas .................................................. (cid:3) Indianapolis, Indiana......................................... Joplin, Missouri ................................................ Kansas City, Missouri ....................................... (cid:3) Lafayette, Indiana ............................................. (cid:3) Laredo, Texas ................................................... League City, Texas ........................................... (cid:3) Louden, Tennessee ........................................... (cid:3) Maxton, North Carolina .................................... (cid:3) Mediapolis, Iowa .............................................. Melbourne, Florida ........................................... (cid:3) Memphis, Tennessee......................................... (cid:3) Milan, Tennessee .............................................. (cid:3) Mount Vernon, Indiana ..................................... North Charleston, South Carolina..................... (cid:3) Odessa, Texas ................................................... Peoria, Arizona ................................................. (cid:3) Pharr, Texas ...................................................... (cid:3) Plattsburg, New York ....................................... (cid:3) Pomona, California ........................................... (cid:3) Port Wentworth, Georgia .................................. (cid:3) Prichard, Alabama ............................................ (cid:3) Remington, Indiana........................................... Richmond, Kentucky ........................................ (cid:3) Richmond, Virginia .......................................... (cid:3) Salt Lake City, Utah ......................................... (cid:3) Sanford, North Carolina.................................... (cid:3) Seguin, Texas .................................................... (cid:3) Shoals, Indiana .................................................. South Bend, Indiana.......................................... Spring Hill, Kansas ........................................... (cid:3) Springfield, Missouri ........................................ (cid:3) St. Joseph, Missouri .......................................... (cid:3) Steinbach, Manitoba, Canada ........................... (cid:3) Sweetwater, Texas ............................................ Temple, Texas................................................... Toledo, Ohio ..................................................... (cid:3) Tulsa, Oklahoma ............................................... Wentworth, Georgia ......................................... (cid:3) West Fargo, North Dakota ................................ (cid:3) Wichita, Kansas ................................................ (cid:3) Winnipeg, Manitoba, Canada ........................... (cid:3) SPECIALIZED SOLUTIONS Customer Service Sales/ Marketing Description of Activities at Location Fuel Maintenance (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) 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(cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) Admin (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:165)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3) 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(cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3) (cid:165)(cid:3) (cid:3)(cid:3) In addition to the locations listed above, Daseke owns parcels of vacant land and leases or owns several non-operating facilities in various locations around the United States. Daseke also maintains various drop yards throughout the United States and Canada. Item 3. Legal Proceedings The Company is involved in litigation and claims primarily arising in the normal course of business, which include claims for personal injury or property damage incurred in the transportation of freight. The Company’s insurance program for liability, physical damage and cargo damage involves self-insurance with varying risk retention levels. Claims in excess of these risk retention levels are covered by insurance in amounts that management considers to be adequate. Based on its knowledge of the facts and, in certain cases, advice of outside counsel, the Company believes the resolution of claims and pending litigation, will not have a material adverse effect on it, taking into account existing reserves. Item 4. Mine Safety Disclosures None. Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Daseke’s common stock and warrants trade on NASDAQ under the symbols “DKSE” and “DSKEW,” respectively. As of March 14, 2018, there were 94 stockholders of record of its common stock. The following table sets forth, for the periods indicated, the high and low sales for our common stock and our warrants, as reported on NASDAQ. On February 27, 2017, the Business Combination occurred, whereby a wholly owned subsidiary of Hennessy merged with and into Private Daseke, with Private Daseke surviving as a direct wholly owned subsidiary of Hennessy. Hennessy was a special purpose acquisition company with no operations. Common Stock Fiscal Quarter First quarter* ................................................................. Second quarter ............................................................... Third quarter .................................................................. Fourth quarter ................................................................ Warrants Fiscal Quarter First quarter* ................................................................. Second quarter ............................................................... Third quarter .................................................................. Fourth quarter ................................................................ 2017 2016 Low High Low High 9.26 8.76 11.14 11.29 $ $ $ $ 10.88 11.21 13.55 14.52 $ $ $ $ 9.52 9.44 9.50 9.67 $ $ $ $ 9.83 9.90 9.93 10.11 2017 2016 Low High Low High 0.75 0.88 1.15 1.14 $ $ $ $ 1.25 1.28 1.69 2.08 $ $ $ $ 0.13 0.15 0.25 0.18 $ $ $ $ 0.20 0.67 0.65 0.91 $ $ $ $ $ $ $ $ * The Business Combination was consummated during the First Quarter of 2017. Dividends The Company has not paid any cash dividends on its common stock to date and does not intend to pay cash dividends. It is the present intention of the Company to retain any earnings for use in its business operations and, accordingly, the Company does not anticipate declaring any dividends in the foreseeable future. The payment of cash dividends in the future will be dependent upon the Company’s revenues and earnings, if any, capital requirements, debt covenants and general financial condition. The payment of any cash dividends will be within the discretion of the Company’s board of directors at such time. In addition, the PNC Credit Agreement (as defined and described in Note 9 of Notes to Consolidated Financial Statements) restricts the Company’s ability to pay dividends, subject to certain negotiated exceptions. 30 31 Unregistered Sales of Equity Securities and Use of Proceeds On December 1, 2017, in connection with, and as partial consideration for, the acquisitions of TSH & Co., Roadmaster Group and Moore Freight Services, the Company issued 972,680, 3,114,247 and 145,129 shares of common stock, respectively, to the sellers in such acquisitions that were not registered under the Securities Act, in reliance on the private offering exemption of Section 4(a)(2) of the Securities Act or the private offering safe harbor provision of Rule 506 of Regulation D promulgated thereunder based on the following factors: (i) the number of offerees or purchasers, as applicable, (ii) the absence of general solicitation, (iii) investment representations obtained from those receiving shares of the Company’s common stock, including with respect to their status as accredited investors, (iv) the provision of appropriate disclosure, and (v) the placement of restrictive legends on the certificates reflecting the securities. For additional information regarding these acquisitions and share issuances, see Note 3 of Notes to Consolidated Financial Statements. Item 6. Selected Financial Data The following selected historical consolidated financial information is provided to assist with the analysis of the Company’s financial performance. The table below provides the Company’s revenue, net income (loss), Adjusted EBITDA and free cash flow for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 on a historical basis. The historical revenue, net income (loss), Adjusted EBITDA and free cash flow for the years ended December 31, 2014 and 2013 are derived from the Company’s audited historical consolidated financial statements not included in this Form 10-K. The historical revenue, net income (loss), Adjusted EBITDA and free cash flow for the years ended December 31, 2017, 2016 and 2015 are derived from the Company’s audited historical consolidated financial statements included elsewhere in this Form 10-K. (in thousands) 2017 Total revenue .................................................... $ 846,304 $ 651,802 $ 678,845 $ 542,711 $ 1,300 $ Net income (loss) .............................................. $ Adjusted EBITDA(1) ......................................... $ 70,346 $ Free cash flow(1) ................................................ $ (332) $ (12,279) $ 88,240 $ 56,571 $ 26,996 $ 91,904 $ 55,988 $ 3,263 $ 97,304 $ 30,335 $ 2014 2016 Year Ended December 31, 2015 2013 206,543 (2,976) 23,905 3,180 (1) Adjusted EBITDA and free cash flow are not recognized measures under GAAP. For a definition of Adjusted EBITDA and free cash flow and a reconciliation of Adjusted EBITDA and free cash flow to net income (loss), see “Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk— Non-GAAP Financial Measures” below. The following table sets forth selected historical consolidated financial and other data as of and for the years ended December 31, 2017, 2016 and 2015. Such financial data are derived from Daseke’s audited consolidated financial statements included elsewhere in this Form 10-K. The historical results presented below and above are not necessarily indicative of the results to be expected for any future period and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk” below and Daseke’s audited consolidated financial statements and the related notes appearing elsewhere in this Form 10-K. (Dollars in thousands, except share and per share data) Consolidated statement of operations data: Total revenue ............................................................................................................ $ Operating expenses: Salaries, wages and employee benefits ................................................................. Fuel ........................................................................................................................ Operations and maintenance ................................................................................. Purchased freight ................................................................................................... Taxes and licenses ................................................................................................. Insurance and claims ............................................................................................. Depreciation and amortization .............................................................................. (Gain) loss on disposition of revenue property and equipment ............................ Impairment ............................................................................................................. Other operating expenses ...................................................................................... Total operating expenses .................................................................................... Income from operations ............................................................................................ Interest expense ........................................................................................................ Other expense (income) ............................................................................................ Total other expense ................................................................................................ Income (loss) before provision for income taxes ..................................................... Provision (benefit) for income taxes ........................................................................ Net income (loss) ...................................................................................................... $ Dividends declared per Series A convertible preferred share .................................. $ Dividends declared per Series B convertible preferred share .................................. $ Net income (loss) available to common stockholders ............................................. $ Basic net income (loss) per common share .............................................................. $ Diluted net income (loss) per common share ........................................................... $ Basic weighted average common shares outstanding .............................................. Diluted weighted average common shares outstanding ........................................... Consolidated balance sheet data (at end of period): Cash .......................................................................................................................... $ Property and equipment, net ..................................................................................... $ Total assets ................................................................................................................ $ Current liabilities ...................................................................................................... $ Working capital(1) ..................................................................................................... $ Long-term debt and other long-term liabilities ........................................................ $ Total stockholders' equity ......................................................................................... $ Other financial data (unaudited): Adjusted EBITDA(2) ................................................................................................. $ Adjusted EBITDAR(2) .............................................................................................. $ Adjusted EBITDA Margin(2) .................................................................................... Free cash flow(2) ........................................................................................................ $ Operating ratio .......................................................................................................... Adjusted operating ratio(2) ........................................................................................ Operating statistics (unaudited): Total miles ................................................................................................................ Company-operated tractors, as of year-end.............................................................. Owner-operated tractors, as of year-end .................................................................. Number of trailers ..................................................................................................... 2017 Year Ended December 31, 2016 2015 846,304 $ 651,802 $ 678,845 249,996 93,749 118,390 225,254 11,055 23,962 76,863 (700) — 40,720 839,289 7,015 29,556 2,745 32,301 (25,286) (52,282) 26,996 6.40 12.50 22,032 0.59 0.56 37,592,549 39,593,701 90,679 429,639 1,125,668 108,068 111,020 666,367 351,233 $ $ $ $ $ $ $ $ $ $ $ $ $ 197,789 66,865 96,100 154,054 9,222 19,114 67,500 (116) 2,005 28,636 641,169 10,633 23,124 (375) 22,749 (12,116) 163 (12,279) — 18.75 (17,049) (0.81) (0.81) 20,980,961 20,980,961 3,695 318,747 570,235 92,398 36,282 374,774 103,063 $ $ $ $ $ $ $ $ $ $ $ $ $ 91,904 108,769 $ $ 10.9 % $ 99.2 % 97.3 % 55,988 88,240 101,177 $ $ 13.5 % $ 98.4 % 95.6 % 56,571 178,703 70,296 98,734 181,985 9,228 19,655 63,573 (2,184) — 27,847 647,837 31,008 20,602 (320) 20,282 10,726 7,463 3,263 — 75.00 (1,473) (0.07) (0.07) 20,980,961 20,980,961 4,886 354,535 627,607 109,669 42,538 397,888 120,050 97,304 106,261 14.3 % 30,335 95.4 % 93.0 % 290,749,395 3,218 2,056 11,237 246,989,374 2,304 609 6,347 230,923,639 2,267 702 5,977 Company-operated tractors, average for the year .................................................... Owner-operated tractors, average for the year ......................................................... 2,644 888 2,279 667 2,054 700 (1) Working capital is defined as current assets (excluding cash) less current liabilities (excluding the current portion of long-term debt). (2) Adjusted EBITDA, Adjusted EBITDAR, Adjusted EBITDA Margin, free cash flow and adjusted operating ratio are not recognized measures under GAAP. For a definition of Adjusted EBITDA, Adjusted EBITDAR, Adjusted EBITDA Margin, free cash flow and adjusted operating ratio, a reconciliation of Adjusted EBITDA, Adjusted EBITDAR and free cash flow to net income (loss) and a reconciliation of operating ratio to operating ratio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk—Non-GAAP Financial Measures” below. 32 33 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the Company’s audited consolidated financial statements and the related notes appearing elsewhere in this Form 10-K. The following discussion contains forward- looking statements that reflect future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside the Company’s control. The Company’s actual results could differ materially from those discussed in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” above. Introduction The Company is a leading provider and consolidator of transportation and logistics solutions focused exclusively on flatbed and specialized freight in North America. The transportation and logistics market is one of the largest industries in the United States. The flatbed and specialized freight market represented an approximately $133 billion subset of the broader transportation and logistics market in 2016. The United States flatbed and specialized freight market is expected to grow to approximately $150 billion in 2017-2018 and to approximately $174 billion in 2019. The Company believes it provides one of the most comprehensive transportation and logistics solution offerings in the open deck industry. The Company delivers a diverse offering of transportation and logistics solutions to approximately 5,400 customers across the continental United States, Canada and Mexico through two reportable segments: Flatbed Solutions and Specialized Solutions. The Flatbed Solutions segment focuses on delivering transportation and logistics solutions that principally require the use of flatbed and retractable-sided transportation equipment, and the Specialized Solutions segment focuses on delivering transportation and logistics solutions that principally include super heavy haul, high-value customized, over-dimensional, commercial glass and high security cargo solutions. The Flatbed Solutions segment and Specialized Solutions segment generated approximately 41% and 59%, respectively, of revenue in 2017. Since beginning operations in 2009, the Company has established a track record of growing its business both organically and through strategic and complementary acquisitions, having successfully completed the acquisition of more than 16 operating companies during such period. In 2017, the Company generated revenue of approximately $846 million, compared to $30 million in 2009 (its first year of operation), reflecting a CAGR of approximately 52%. Both of the Company’s reportable segments operate highly flexible business models comprised of company-owned tractors and asset-light operations (which consist of owner-operator transportation, freight brokerage and logistic). The Company’s asset-based operations have the benefit of providing shippers with certainty of delivery and continuity of operations. Alternatively, the Company’s asset-light operations offer flexibility and scalability to meet customers’ dynamic needs and have lower capital expenditure requirements and fixed costs. Approximately 59% of 2017 freight, logistics and brokerage revenue was derived from company-owned equipment and approximately 41% was derived from asset-light services. Business Combination and Other Recent Developments On February 27, 2017, Hennessy consummated the merger of Hennessy’s wholly-owned subsidiary with and into Private Daseke, with Private Daseke surviving as a direct wholly-owned subsidiary of Hennessy. The aggregate consideration received by Private Daseke stockholders upon closing was $266.7 million, consisting of newly issued shares of common stock at a value of $10.00 per share. The Merger Agreement contains an earn-out provision through which Private Daseke stockholders could receive up to 15 million additional shares of common stock (with up to 5 million shares payable annually with respect to 2017, 2018 and 2019 performance). See Note 2 of Notes to Consolidated Financial Statements for more information regarding the Business Combination. On May 1, 2017, the Company acquired two leading open-deck specialized transportation companies: Schilli, headquartered in Remington, Indiana, and Big Freight, headquartered in Steinbach, Manitoba. On July 1, 2017, the Company acquired Steelman, headquartered in Springfield, Missouri. On September 1, 2017, the Company acquired R&R, based in Duenweg, Missouri. On December 1, 2017, the Company acquired three transportation companies: Moore Freight Services, headquartered in Mascot, Tennessee; Roadmaster Group, headquartered in Phoenix, Arizona; and TSH & Co., headquartered in Nashville, Tennessee. On December 29, 2017, the Company acquired Belmont, based in Olympia, Washington. How the Company Evaluates Its Operations The Company uses a number of primary indicators to monitor its revenue and expense performance and efficiency, including Adjusted EBITDA, Adjusted EBITDAR, free cash flow and adjusted operating ratio, and its key drivers of revenue quality, growth, expense control and operating efficiency. Adjusted EBITDA, Adjusted EBITDAR, free cash flow and Adjusted operating ratio are not recognized measures under GAAP and should not be considered alternatives to, or more meaningful than, net income (loss), cash flows from operating activities, operating income, operating ratio, operating margin or any other measure derived in accordance with GAAP. See “Non-GAAP Financial Measures” for more information on the Company’s use of these non-GAAP measures, as well as a description of the computation and reconciliation of the Company’s Adjusted EBITDA, Adjusted EBITDAR and free cash flow to net income (loss) and adjusted operating ratio to operating ratio. Revenue The Company records four types of revenue: freight, brokerage, logistics and fuel surcharge. Freight revenue is generated by hauling freight for the Company’s customers using its trucks or its owner-operators’ equipment. Generally, the Company’s customers pay for its services based on the number of miles in the most direct route between pick-up and delivery locations and other ancillary services the Company provides. Freight revenue is the product of the number of revenue-generating miles driven and the rate per mile the Company receives from customers plus accessorial charges, such as loading and unloading freight for its customers, cargo protection, fees for detaining its equipment or fees for route planning and supervision. Freight revenue is affected by fluctuations in North American economic activity as well as changes in specific customer demand, the level of capacity in the industry and driver availability. The Company’s brokerage revenue is generated primarily by its use of third-party carriers when it needs capacity to move its customers’ loads. The main factor that affects brokerage revenue is the availability of the Company’s drivers and owner- operators (and hence the need for third-party carriers) and the rate for the load. Brokerage revenue is also affected by fluctuations in North American economic activity as well as changes in the level of capacity in the industry and driver availability. Logistics revenue is generated from a range of services, including vehicle maintenance and repair, fuel management services, value-added warehousing and packaging, and other fleet management solutions. Logistics revenue is primarily driven by specific customer requirements for additional services and may fluctuate depending on customers’ utilization of these services due to changes in cargo specifications, delivery staging and fluctuations in the North American economic activity. The Company began recording logistics revenue as a result of the Recent Acquisitions. Fuel surcharges are designed to compensate the Company for fuel costs above a certain cost per gallon base. Generally, the Company receives fuel surcharges on the miles for which it is compensated by customers. However, the Company continues to have exposure to increasing fuel costs related to empty miles, fuel efficiency due to engine idle time and other factors and to the extent the surcharge paid by the customer is insufficient. The main factors that affect fuel surcharge revenue are the price of diesel fuel and the number of loaded miles. In general, a declining energy and fuel price environment, such as in 2015 and most of 2016, negatively affects the Company’s fuel surcharge revenues, and conversely, an environment with rising fuel and energy prices benefits its fuel surcharge revenues. Although the Company’s surcharge programs vary by customer, they typically involve a computation based on the change in national or regional fuel prices. The Company’s fuel surcharges are billed on a lagging basis, meaning it typically bills customers in the current week based on a previous week’s applicable index. Therefore, in times of increasing fuel prices, the Company does not recover as much as it is currently paying for fuel. In periods of declining prices, the opposite is true. Also, its fuel surcharge programs typically require a specified minimum change in fuel cost to prompt a change in fuel surcharge revenue. Therefore, many of these programs have a time lag between when fuel costs change and when the change is reflected in fuel surcharge revenue. 34 35 Expenses The Company’s most significant expenses vary with miles traveled and include driver wages, services purchased from owner-operators and other transportation providers (which are recorded on the “Purchased freight” line of the Company’s consolidated statements of operations) and fuel. Although driver-related expenses vary with miles traveled, the Company currently expects that its expenses relating to driver wages, as a percentage of operating revenues, will increase in the near- term, with or without changes in total miles, due to expected increases in average driver wages paid per mile in the general trucking industry. The expected increases in driver wages per mile are due to current market conditions caused by a lack of qualified drivers in the industry. Maintenance and tire expenses and cost of insurance and claims generally vary with the miles the Company travels but also have a controllable component based on safety improvements, fleet age, efficiency and other factors. The Company’s primary fixed costs are depreciation of long-term assets (such as tractors, trailers and terminals), interest expense, rent and non-driver compensation. The Company’s fuel surcharge programs help to offset increases in fuel prices but typically do not offset empty miles, idle time and out of route miles driven. As discussed above under “Revenue,” its fuel surcharge programs have a time lag between when fuel costs change and when the change is reflected in fuel surcharge revenue. Due to this time lag, the Company’s fuel expense, net of fuel surcharge, negatively impacts its operating income during periods of sharply rising fuel costs and positively impacts its operating income during periods of falling fuel costs. In general, due to the fuel surcharge programs, its operating income is less negatively affected by an environment with higher, stable fuel prices than an environment with lower fuel prices. In addition to its fuel surcharge programs, the Company believes the most effective protection against fuel cost increases is to maintain a fuel-efficient fleet by incorporating fuel efficiency measures. Also, the Company has arrangements with some of its significant fuel suppliers to buy the majority of its fuel at contracted pricing schedules that fluctuate with the market price of diesel fuel. The Company has not used derivatives as a hedge against higher fuel costs in the past but continues to evaluate this possibility. Factors Affecting the Comparability of the Company’s Financial Results Acquisitions The comparability of the Company’s results of operations among the periods presented is impacted by the acquisitions listed below. Also, as a result of the below acquisitions, the Company’s historical results of operations may not be comparable or indicative of future results. 2017 Acquisitions: • Belmont Acquisition – Effective December 29, 2017, the Company acquired 100% of the outstanding equity interests of Belmont, based in Olympia, Washington as a dedicated glass hauler that will complement the Company’s existing glass hauling capabilities. Belmont was consolidated under the Company’s Smokey Point Distributing, which is part of the Company’s Specialized Solutions segment. • Moore Freight Services Acquisition – Effective December 1, 2017 the Company acquired 100% of the outstanding equity interests of Moore Freight Services to expand its capabilities as a commercial sheet glass carrier. Moore Freight Services is part of the Company’s Specialized Solutions segment. • Roadmaster Group Acquisition – Effective December 1, 2017 the Company acquired 100% of the outstanding equity interests of Roadmaster Group to expand its capabilities as a market leader in high security cargo. Roadmaster Group is part of the Company’s Specialized Solutions segment. • R&R Acquisition – Effective September 1, 2017, the Company acquired 100% of the outstanding stock of R&R, based in Duenweg, Missouri to expand its capabilities to include government and commercial arms, ammunitions and explosives. R&R is part of the Company’s Specialized Solutions segment. • Steelman Acquisition – Effective July 1, 2017, the Company acquired 100% of the outstanding stock of Steelman, based in Springfield, Missouri to expand its presence in the Midwestern United States and in both the power sports and heavy haul industries. Steelman is part of the Company’s Specialized Solutions segment. • Schilli Acquisition – Effective May 1, 2017, the Company acquired 100% of the outstanding stock of Schilli, based in Remington, Indiana to expand its presence in the Midwestern United States. Schilli is part of the Company’s Specialized Solutions segment. • Big Freight Acquisition - Effective May 1, 2017, the Company acquired 100% of the outstanding stock of Big Freight, based in Steinbach, Manitoba to expand its presence into Canada and the power sports industry. Big Fright is part of the Company’s Specialized Solutions segment. We refer to these acquisitions collectively as the “Specialized Solutions Acquisitions.” • Tennessee Steel Haulers Acquisition – Effective December 1, 2017, the Company acquired 100% of the outstanding equity interests of TSH & Co. to expand its presence on the East Coast and in the Southeastern United States in both the steel and building materials industries. TSH & Co. is part of the Company’s Flatbed Solutions segment. We refer to all 2017 acquisitions collectively as the “Recent Acquisitions.” 2015 Acquisitions: • Bulldog Acquisition – Effective as of July 1, 2015, the Company acquired all of the capital stock of Bulldog Hiway Express (Bulldog) to expand its presence in the Southeastern United States and in the automotive, port intermodal and power generation markets. Bulldog is part of the Company’s Specialized Solutions segment. • Hornady Acquisition – Effective as of August 1, 2015, the Company acquired all of the capital stock of Hornady Truck Line, Inc. and B.C. Hornady & Associates, Inc., collectively with Hornady Transportation, LLC, the wholly owned operating subsidiary of Hornady Truck Line, Inc., (Hornady) to expand its presence in the Eastern United States and in the building materials and steel markets. Hornady is part of the Company’s Flatbed Solutions segment. We refer to all 2015 acquisitions collectively as the “2015 Acquisitions.” We did not complete any acquisitions during 2016. The Business Combination The Company’s historical results of operations may not be comparable or indicative of results after the consummation of the Business Combination as a result of the following: • Decreased Leverage. As of December 31, 2016, after giving pro forma effect to the Business Combination, the Company would have had approximately $295.0 million of outstanding total indebtedness compared to the actual outstanding total indebtedness of $338.5 million, in each case, prior to debt issuance costs. For the year ended December 31, 2016, the Company’s pro forma interest expense would have been approximately $3.4 million lower than its historical interest expense. 36 37 • Public Company Expenses. The Company incurred, and will continue to incur, direct, incremental general and administrative expense as a result of being a publicly traded company, including, but not limited to, costs associated with annual and quarterly reports to stockholders, tax return preparation, independent auditor fees, investor relations activities, registrar and transfer agent fees, incremental director and officer liability insurance costs and independent director compensation. These direct, incremental general and administrative expenses, which the Company’s management estimates will total approximately $0.5 million annually, are not included in the Company’s historical financial results of operations. • Transaction Costs. During the years ended December 31, 2017 and 2016, the Company expensed $2.0 million and $3.5 million, respectively, of transaction costs related to the Business Combination. There were no such expenses for the year ended December 31, 2015. • Deferred Financing Fees. During the first quarter of 2017, the Company expensed $3.9 million of unamortized deferred financing fees associated with debt refinanced in conjunction with the Business Combination. There were no such expenses for the years ended December 31, 2016 or 2015. Results of Operations Year Ended December 31, 2017 Compared to Year Ended December 31, 2016 The following table sets forth items derived from the Company’s consolidated statements of operations for the years ended December 31, 2017 and 2016 in dollars and as a percentage of total revenue and the increase or decrease in the dollar amounts of those items. (Dollars in thousands) REVENUE: Freight ............................................................................................................. $ Brokerage ........................................................................................................ Logistics .......................................................................................................... Fuel surcharge ................................................................................................. Total revenue .............................................................................................. OPERATING EXPENSES: Salaries, wages and employee benefits ........................................................... Fuel .................................................................................................................. Operations and maintenance ........................................................................... Communications .............................................................................................. Purchased freight ............................................................................................. Administrative expenses ................................................................................. Sales and marketing ........................................................................................ Taxes and licenses ........................................................................................... Insurance and claims ....................................................................................... Acquisition-related transaction expenses ........................................................ Depreciation and amortization ........................................................................ Gain on disposition of revenue property and equipment ................................ Impairment ...................................................................................................... Total operating expenses ........................................................................... Operating ratio ................................................................................................ Adjusted operating ratio(1)............................................................................... INCOME FROM OPERATIONS ............................................................... Other (income) expense: Interest income ................................................................................................ Interest expense ............................................................................................... Write-off of unamortized deferred financing fees .......................................... Other ................................................................................................................ Total other expense .................................................................................... Income (loss) before income taxes ............................................................... Provision (benefit) for income taxes ............................................................... Net income (loss) ........................................................................................ $ 632,764 120,943 22,074 70,523 846,304 249,996 93,749 118,390 2,145 225,254 33,233 1,965 11,055 23,962 3,377 76,863 (700) — 839,289 99.2% 97.3% 7,015 (398) 29,556 3,883 (740) 32,301 (25,286) (52,282) 26,996 Year Ended December 31, 2017 2016 $ % $ % Increase (Decrease) % $ 74.8 $ 14.3 2.6 8.3 100.0 517,861 87,410 — 46,531 651,802 79.5 $ 13.4 * 7.1 100.0 114,903 33,533 22,074 23,992 194,502 22.2 38.4 * 51.6 29.8 26.4 40.2 23.2 32.6 46.2 31.6 12.7 19.9 25.4 * 13.9 503.4 (100.0) 30.9 30.3 10.3 14.7 0.2 23.6 3.9 0.3 1.4 2.9 * 10.4 * 0.3 98.4 52,207 26,884 22,290 527 71,200 7,983 222 1,833 4,848 3,352 9,363 (584) (2,005) 198,120 1.6 (3,618) (34.0) * 3.5 — (0.1) 3.5 (354) 6,432 3,883 (409) 9,552 * 27.8 * 123.6 42.0 (1.9) * (1.9) $ (13,170) (52,445) 39,275 108.7 (32,174.8) (319.9) 29.5 11.1 14.0 0.3 26.6 3.9 0.2 1.3 2.8 0.4 9.1 (0.1) * 99.2 0.8 * 3.5 0.5 * 3.8 (3.0) (6.2) 3.2 $ 197,789 66,865 96,100 1,618 154,054 25,250 1,743 9,222 19,114 25 67,500 (116) 2,005 641,169 98.4% 95.6% 10,633 (44) 23,124 — (331) 22,749 (12,116) 163 (12,279) indicates not meaningful. * (1) Adjusted operating ratio is not a recognized measure under GAAP. For a definition of adjusted operating ratio and reconciliation of adjusted operating ratio to operating ratio, see “Non-GAAP Financial Measures” below. 38 39 The following table sets forth the Company’s Flatbed Solutions segment’s revenue, operating expenses, operating ratio, adjusted operating ratio and operating income for the years ended December 31, 2017 and 2016 in dollars and as a percentage of its Flatbed Solutions segment’s total revenue and the increase or decrease in the dollar amounts of those items. The following table also sets forth certain operating statistics for the Company’s Flatbed Solutions segment for the years ended December 31, 2017 and 2016. The following table sets forth the Company’s Specialized Solutions segment’s revenue, operating expenses, operating ratio, adjusted operating ratio and operating income for the years ended December 31, 2017 and 2016 in dollars and as a percentage of its Specialized Solutions segment’s total revenue and the increase or decrease in the dollar amounts of those items. The following table also sets forth certain operating statistics for the Company’s Specialized Solutions segment for the years ended December 31, 2017 and 2016. FLATBED SOLUTIONS SPECIALIZED SOLUTIONS (Dollars in thousands) REVENUE(1): Freight ............................................................................................................. $ Brokerage ........................................................................................................ Logistics .......................................................................................................... Fuel surcharge ................................................................................................. Total revenue .............................................................................................. OPERATING EXPENSES(1): Salaries, wages and employee benefits ........................................................... Fuel .................................................................................................................. Operations and maintenance ........................................................................... Purchased freight ............................................................................................. Depreciation and amortization ........................................................................ Other operating expenses ................................................................................ Total operating expenses ........................................................................... Operating ratio ................................................................................................ Adjusted operating ratio(2)............................................................................... INCOME FROM OPERATIONS ............................................................... $ Year Ended December 31, 2017 2016 $ % $ % Increase (Decrease) % $ 276,592 40,882 192 36,440 354,106 78.1 $ 11.5 0.1 10.3 100.0 253,824 29,745 — 26,871 310,440 81.8 $ 9.6 * 8.7 100.0 96,860 41,592 36,524 107,248 29,183 24,238 335,645 94.8% 93.8% 18,461 27.4 11.7 10.3 30.3 8.2 6.8 94.8 5.2 $ 93,818 36,503 32,845 77,563 30,445 23,623 294,797 95.0% 93.4% 15,643 30.2 11.8 10.6 25.0 9.8 7.6 95.0 22,768 11,137 192 9,569 43,666 3,042 5,089 3,679 29,685 (1,262) 615 40,848 9.0 37.4 * 35.6 14.1 3.2 13.9 11.2 38.3 (4.1) 2.6 13.9 5.0 $ 2,818 18.0 (Dollars in thousands) REVENUE(1): Freight ............................................................................................................. $ Brokerage ........................................................................................................ Logistics .......................................................................................................... Fuel surcharge ................................................................................................. Total revenue .............................................................................................. OPERATING EXPENSES(1): Salaries, wages and employee benefits ........................................................... Fuel .................................................................................................................. Operations and maintenance ........................................................................... Purchased freight ............................................................................................. Depreciation and amortization ........................................................................ Impairment ...................................................................................................... Other operating expenses ................................................................................ Total operating expenses ........................................................................... Operating ratio ................................................................................................ Adjusted operating ratio(2)............................................................................... INCOME FROM OPERATIONS ............................................................... $ Year Ended December 31, 2017 2016 $ % $ % Increase (Decrease) % $ 362,277 80,225 21,940 34,690 499,132 72.6 $ 16.1 4.4 7.0 100.0 268,121 57,791 — 20,086 345,998 77.5 $ 16.7 * 5.8 100.0 94,156 22,434 21,940 14,604 153,134 145,004 52,157 80,728 124,905 47,531 — 33,462 483,787 96.9% 95.1% 15,345 29.1 10.4 16.2 25.0 9.5 * 6.7 96.9 3.1 $ 97,100 30,362 62,336 81,126 36,899 2,005 19,892 329,720 95.3% 93.1% 16,278 28.1 8.8 18.0 23.4 10.7 0.6 5.7 95.3 47,904 21,795 18,392 43,779 10,632 (2,005) 13,570 154,067 4.7 $ (933) (5.7) 35.1 38.8 * 72.7 44.3 49.3 71.8 29.5 54.0 28.8 (100.0) 68.2 46.7 OPERATING STATISTICS: Total miles ....................................................................................................... Company-operated tractors, as of year-end .................................................... Owner-operated tractors, as of year-end ......................................................... Number of trailers, as of year-end ................................................................... 152,956,123 1,155 1,392 4,573 Company-operated tractors, average for the year ........................................... Owner-operated tractors, average for the year ................................................ 1,156 535 149,284,755 1,203 390 2,943 1,182 430 3,671,368 (48) 1,002 1,630 (26) 105 2.5 (4.0) 256.9 55.4 (2.2) 24.4 indicates not meaningful. * (1) Includes intersegment revenues and expenses, as applicable, which are eliminated in the Company’s consolidated results. (2) Adjusted operating ratio is not a recognized measure under GAAP. For a definition of adjusted operating ratio and reconciliation of adjusted operating ratio to operating ratio, see “Non-GAAP Financial Measures” below. OPERATING STATISTICS: Total miles ....................................................................................................... Company-operated tractors, as of year-end .................................................... Owner-operated tractors, as of year-end ......................................................... Number of trailers ........................................................................................... 137,793,272 2,063 664 6,664 Company-operated tractors, average for the year ........................................... Owner-operated tractors, average for the year ................................................ 1,488 353 97,704,619 1,101 219 3,404 1,097 236 40,088,653 962 445 3,260 391 117 41.0 87.4 203.2 95.8 35.6 49.6 indicates not meaningful. * (1) Includes intersegment revenues and expenses, as applicable, which are eliminated in the Company’s consolidated results. (2) Adjusted operating ratio is not a recognized measure under GAAP. For a definition of adjusted operating ratio and reconciliation of adjusted operating ratio to operating ratio, see “Non-GAAP Financial Measures” below. Revenue. Total revenue increased 29.8% to $846.3 million for the year ended December 31, 2017 from $651.8 million for the year ended December 31, 2016, primarily as a result of the Recent Acquisitions. The change in total revenue, excluding the effect of the Recent Acquisitions, was an increase of $40.5 million, or 6.2%, due to increases in fuel surcharge, brokerage and freight revenue. Fuel surcharge revenue, excluding the effect of the Recent Acquisitions, increased 29.8% to $60.4 million for the year ended December 31, 2017 from $46.5 million for the year ended December 31, 2016 due to higher fuel prices. Brokerage revenue, excluding the effect of the Recent Acquisitions, increased 10.0% to $96.1 million for the year ended December 31, 2017 from $87.4 million for the year ended December 31, 2016 due to less capacity. Freight revenue, excluding the effect of the Recent Acquisitions, increased 3.5% to $535.8 million for the year ended December 31, 2017 from $517.9 million for the year ended December 31, 2016 due to higher rates. The Company’s Flatbed Solutions segment’s revenue was $354.1 million for the year ended December 31, 2017 and $310.4 million for the year ended December 31, 2016, an increase of 14.1%, partially as a result of the TSH & Co. Acquisition. The increase in revenue, excluding the effect of the TSH & Co. Acquisition, was 8.8%, or $27.4 million. This increase was primarily the result of increases in rates and fuel surcharges, which produced increases of $12.4 million, or 4.9%, in freight revenue, and $7.9 million, or 29.6%, in fuel surcharge revenue. Additionally, brokerage revenues increased $7.1 million, or 23.8%, for the year ended December 31, 2017 as compared to the year ended December 31, 2016 due to less capacity. 40 41 The Company’s Specialized Solutions segment’s revenue was $499.1 million for the year ended December 31, 2017 and $346.0 million for the year ended December 31, 2016, an increase of 44.3%, primarily as a result of the Specialized Solutions Acquisitions. The increase in revenue, excluding the effect of the Specialized Solutions Acquisitions, was $15.3 million, or 4.4%, primarily due to increases in fuel surcharges and rates. Fuel surcharges, excluding the effect of the Specialized Solutions Acquisitions, increased 30.3% to $26.2 million for the year ended December 31, 2017 from $20.1 million for the same period in 2016. Freight revenue, excluding the effect of the Specialized Solutions Acquisitions, increased 2.8% for the year ended December 31, 2017 compared to the same period in 2016 and brokerage revenue, excluding the effect of the Specialized Solutions Acquisitions, increased by 2.9% for the year ended December 31, 2017 compared to the same period in 2016. In both segments, excluding the effects of acquisitions, the increase in fuel surcharge revenue was the result of increases in fuel prices which commenced in the fourth quarter of 2016 and continued through the end of 2017, with only a less than 1% decrease in fuel prices in the second quarter of 2017. Salaries, Wages and Employee Benefits. Salaries, wages and employee benefits expense, which consists of compensation for all employees, is primarily affected by the number of miles driven by company drivers, the rate per mile paid to company drivers, employee benefits including, but not limited to, health care and workers’ compensation, and to a lesser extent, the number of, and compensation and benefits paid to, non-driver employees. In general, the Specialized Solutions segment drivers receive a higher driver pay per total mile than Flatbed Solutions segment drivers due to the former requiring a higher level of training and expertise. Salaries, wages and employee benefits expense increased 26.4% to $250.0 million for the year ended December 31, 2017 from $197.8 million for the year ended December 31, 2016, primarily as a result of the Recent Acquisitions. The increase in salaries, wages and employee benefits expense, excluding the effect of the Recent Acquisitions, was 5.4%, or $10.7 million, and was primarily due to increased employee compensation, workers’ compensation premiums, and stock-based compensation, partially offset by a decrease in workers’ compensation claims. The Company’s Flatbed Solutions segment had a $3.0 million, or 3.2%, increase in salaries, wages and employee benefits expense for the year ended December 31, 2017 compared to the year ended December 31, 2016, partially as a result of the TSH & Co. Acquisition, which resulted in a $1.3 million increase. Excluding the effect of the TSH & Co. Acquisition, salaries, wages and employee benefit expense increased 1.8%, or $1.7 million, primarily due to increased employee compensation, workers’ compensation premiums, and stock-based compensation, offset by decreases in workers’ compensation claims and employee benefits. The Company’s Specialized Solutions segment had a $47.9 million, or 49.3%, increase in salaries, wages and employee benefits expense for the year ended December 31, 2017 compared to the year ended December 31, 2016, primarily as a result of the Specialized Solutions Acquisitions. This increase, excluding the effect of the Specialized Solutions Acquisitions, was 7.9%, or $7.7 million, and was primarily due to increased employee compensation, employee benefits, workers’ compensation premiums, and stock-based compensation. Fuel. Fuel expense consists primarily of diesel fuel expense for company-owned tractors and fuel taxes. The primary factors affecting fuel expense are the cost of diesel fuel, the miles per gallon realized with company equipment and the number of miles driven by company drivers. Total fuel expense increased $26.8 million, or 40.2%, to $93.7 million for the year ended December 31, 2017 from $66.9 million for the year ended December 31, 2016. This increase was primarily a result of the Recent Acquisitions and higher fuel prices. Excluding the effect of the Recent Acquisitions, fuel expense increased 15.9% or $10.7 million. The United States national average diesel fuel price, as published by the United States Department of Energy, was $2.656 for the year ended December 31, 2017, compared to $2.304 for the year ended December 31, 2016, a 15.3% increase. The Company’s Flatbed Solutions segment’s fuel expense increased 13.9% to $41.6 million for the year ended December 31, 2017 from $36.5 million for the year ended December 31, 2016 primarily as a result of higher fuel prices. The TSH & Co. Acquisition did not materially impact fuel expense for the year ended December 31, 2017. The Company’s Specialized Solutions segment’s fuel expense increased 71.8% to $52.2 million for the year ended December 31, 2017 from $30.4 million for the year ended December 31, 2016, primarily as the result of the Specialized Solutions Acquisitions and higher fuel prices. Excluding the effect of the Specialized Solutions Acquisitions, fuel expense in the Specialized Solutions segment increased 18.4% to $36.0 million as a result of higher fuel prices. Operations and Maintenance. Operations and maintenance expense consists primarily of ordinary vehicle repairs and maintenance, costs associated with preparing tractors and trailers for sale or trade-in, driver recruiting, training and safety costs, permitting and pilot car fees and other general operations expenses. Operations and maintenance expense is primarily affected by the age of company-owned tractors and trailers, the number of miles driven in a period and driver turnover. Operations and maintenance expense increased 23.2% to $118.4 million for the year ended December 31, 2017 from $96.1 million for the year ended December 31, 2016, primarily as a result of the Recent Acquisitions. Excluding the effect of the Recent Acquisitions, operating and maintenance expense increased $6.8 million, or 7.1%, for the year ended December 31, 2017 as compared to the year ended December 31, 2016, primarily as a result of higher pilot car expenses for alternative energy projects and other over-dimension loads, increased tractor lease costs as the Company’s utilization of operating leases to finance tractor purchases increased in 2017, increased tire replacements, offset by a decrease in in-house maintenance. The Company’s Flatbed Solutions segment’s operations and maintenance expense increased $3.7 million, or 11.2%, for the year ended December 31, 2017 as compared to the year ended December 31, 2016, primarily as a result of increased tire replacements, road maintenance, securements, tolls, training and tractor lease costs as the Company’s utilization of operating leases to finance tractor purchases increased in 2017. The TSH & Co. Acquisition accounted for only $0.3 million of the increase in operations and maintenance expense for the year ended December 31, 2017 as compared to the year ended December 31, 2016. The Company’s Specialized Solutions segment’s operations and maintenance expense increased $18.4 million, or 29.5%, for the year ended December 31, 2017 as compared to the year ended December 31, 2016, primarily as a result of the Specialized Solutions Acquisitions. Excluding the effect of the Specialized Solutions Acquisitions, operations and maintenance expense increased $3.2 million, or 5.1%, for the year ended December 31, 2017 as compared to the year ended December 31, 2016, primarily as a result of increased tractor lease costs as the Company’s utilization of operating leases to finance tractor purchases increased in 2017 and higher pilot car expenses for alternative energy projects and other over-dimension loads, offset by decreases in in-house maintenance, road maintenance, and shop supplies costs. Purchased Freight. Purchased freight expense consists of the payments to owner-operators, including fuel surcharge reimbursements, and payments to third-party capacity providers that haul loads brokered to them. Purchased freight expense generally takes into account changes in diesel fuel prices, resulting in lower payments during periods of declining fuel prices. Total purchased freight expense increased 46.2% from $154.1 million during the year ended December 31, 2016 to $225.3 million during the year ended December 31, 2017, primarily as a result of the Recent Acquisitions. Excluding the effect of the Recent Acquisitions on purchased freight expense, total purchased freight expense increased 11.3% to $171.5 million for the year ended December 31, 2017. Purchased freight expense from owner-operators, excluding the Recent Acquisitions, increased 11.0% from $89.0 million during the year ended December 31, 2016 to $98.8 million during the year ended December 31, 2017, primarily as a result of increases in fuel surcharge reimbursements made to owner- operators as a result of higher fuel prices. Purchased freight expense from third-party capacity providers, excluding the Recent Acquisitions, increased 13.6% from $62.0 million during the year ended December 31, 2016 to $70.5 million during the year ended December 31, 2017, primarily as a result of the increase in rates on brokered loads. 42 43 development factors used in its accruals and developments in large, prior-year claims. The frequency of accidents tends to increase with the miles the Company travels. Insurance and claims expense increased 25.4% to $24.0 million during the year ended December 31, 2017 from $19.1 million during the year ended December 31, 2016, primarily as a result of the Recent Acquisitions. Excluding the effect of the Recent Acquisitions, insurance and claims increased 2.8%, or $0.5 million. This increase can be primarily attributed to an increase in insurance premium rates, partially offset by a marginal decrease in total miles of 0.6% excluding miles from the Recent Acquisitions. Impairment. During 2017, the Company had no charges relating to impairment of revenue equipment or goodwill. In 2016, certain long-lived assets in the Specialized Solutions segment were written down with a charge of $1.6 million due to a decline in market value on select tractors with defective diesel particulate filter systems. The charge was necessary to reduce the carrying value of this revenue equipment to the price expected to be received upon sale of the assets to a third party. Also in 2016, the carrying value of one subsidiary exceeded its estimated fair value. Accordingly, a non-cash, non- tax deductible goodwill impairment charge of $0.4 million was recognized during the fourth quarter of 2016. Interest Expense. Interest expense consists of cash interest, non-cash paid-in-kind interest, amortization of related issuance costs and fees and prepayment penalties. Interest expense increased 27.8% to $29.5 million during the year ended December 31, 2017 from $23.1 million during the year ended December 31, 2016. This increase was primarily attributable to an increase in amortization of debt issuance costs and higher interest rates on the Term Loan Facility as compared to debt outstanding in 2016 under the Senior Term Loan and Equipment Term Loans. Income Tax. Provision for income taxes decreased from $0.2 million for the year ended December 31, 2016 to a tax benefit of $52.3 million for the year ended December 31, 2017. The decrease is primarily the result of a one-time tax benefit due to the change in the Federal tax rate from 35% to 21% on net deferred tax liabilities as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017. The effective tax rate was 206.8% for the year ended December 31, 2017, compared to (1.3)% for the year ended December 31, 2016. The effective income tax rate varies from the federal statutory rate primarily due to state income taxes and the impact of nondeductible permanent differences, including driver per diems, transaction expenses and cumulative change in the state tax rate applied to the beginning net deferred tax liabilities balance. The Company’s Flatbed Solutions segment’s purchased freight expense increased 38.3% to $107.2 million for the year ended December 31, 2017 from $77.6 million for the year ended December 31, 2016, partially as a result of the TSH & Co. Acquisition, which resulted in a $13.3 million increase to purchased freight expense. Excluding the effect of the TSH & Co. Acquisition, the Company’s Flatbed Solutions segment’s purchased freight expense increased 21.1% to $93.9 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016, primarily due to increases in total loads requiring higher utilization of owner-operators and third party capacity providers in the Company’s Flatbed Solutions segment. Purchased freight expense from owner-operators, excluding the TSH & Co. Acquisition, increased 15.2% to $66.0 million for the year ended December 31, 2017 from $57.3 million for the year ended December 31, 2016. Purchased freight expense from third-party capacity providers, excluding the TSH & Co. Acquisition, increased 41.4% from $17.8 million during the year ended December 31, 2016 to $25.1 million during the year ended December 31, 2017, primarily as a result of the increase in brokered loads in the Company’s Flatbed Solutions segment. The Company’s Specialized Solutions segment’s purchased freight expense increased 54.0% to $124.9 million during the year ended December 31, 2017 from $81.1 million during the year ended December 31, 2016, as a result of the Specialized Solutions Acquisitions. Excluding the effect of the Specialized Solutions Acquisitions on purchased freight expense, total purchased freight expense increased 4.1% to $84.4 million for the year ended December 31, 2017. Purchased freight expense from owner-operators, excluding the Specialized Solutions Acquisitions, increased 3.4% to $32.8 million for the year ended December 31, 2017 from $31.7 million for the year ended December 31, 2016. Purchased freight expense from third-party capacity providers, excluding the Specialized Solutions Acquisitions, increased 2.4% from $44.3 million during the year ended December 31, 2016 to $45.3 million during the year ended December 31, 2017, primarily as a result of increased in brokered loads in the Company’s Specialized Solutions segment. Depreciation and Amortization. Depreciation and amortization expense consists primarily of depreciation for company- owned tractors and trailers or amortization of those financed with capital leases. The primary factors affecting these expense items include the size and age of company-owned tractors and trailers and the cost of new equipment. Depreciation and amortization expense increased 13.9% to $76.9 million during the year ended December 31, 2017 from $67.5 million during the year ended December 31, 2016, as a result of the Recent Acquisitions. After adjusting for the effect of the Recent Acquisitions, depreciation and amortization expense decreased 5.4%, primarily as a result of an increasing shift in utilization of operating leases to finance capital expenditures. The Company’s Flatbed Solutions segment had a 4.1% decrease in depreciation and amortization expense for the year ended December 31, 2017 as compared to the year ended December 31, 2016. Excluding the TSH & Co. Acquisition, depreciation and amortization expense during the year ended December 31, 2017 decreased 4.4% primarily as a result of a 4.0% reduction in company-owned tractors and a 3.0% reduction in trailers, respectively, as compared to the year ended December 31, 2016. The Company’s Specialized Solutions segment had a 28.8% increase in depreciation and amortization expense for the year ended December 31, 2017 as compared to the year ended December 31, 2016 as a result of the Specialized Solutions Acquisitions. After adjusting for the effect of the Specialized Solutions Acquisitions, depreciation and amortization expense decreased 6.1% for the year ended December 31, 2017 as compared to the year ended December 31, 2016, primarily as a result of an increasing shift in utilization of operating leases to finance capital expenditures. Taxes and Licenses. Operating taxes and licenses expense primarily represents the costs of taxes and licenses associated with the Company’s fleet of equipment and will vary according to the size of its equipment fleet. Taxes and license expense increased from $9.2 million for the year ended December 31, 2016 to $11.1 million for the year ended December 31, 2017. Excluding the effect of the Recent Acquisitions, operating taxes and license expense, as a percentage of revenue, was 1.3% for the year ended December 31, 2017 as compared to 1.4% for the year ended December 31, 2016. Insurance and Claims. Insurance and claims expense consists of insurance premiums and the accruals the Company makes for estimated payments and expenses for claims for bodily injury, property damage, cargo damage and other casualty events. The primary factors affecting the Company’s insurance and claims expense are seasonality (the Company typically experiences higher accident frequency in winter months), the frequency and severity of accidents, trends in the 44 45 Year Ended December 31, 2016 Compared to Year Ended December 31, 2015 The following table sets forth items derived from the Company’s consolidated statements of operations for the years ended December 31, 2016 and 2015 in dollars and as a percentage of total revenue and the increase or decrease in the dollar amounts of those items. The following table sets forth the Company’s Flatbed Solutions segment’s revenue, operating expenses, operating ratio, adjusted operating ratio and operating income for the years ended December 31, 2016 and 2015 in dollars and as a percentage of its Flatbed Solutions segment’s total revenue and the increase or decrease in the dollar amounts of those items. The following table also sets forth certain operating statistics for the Company’s Flatbed Solutions segment for the years ended December 31, 2016 and 2015. Year Ended December 31, 2016 2015 $ % $ % Increase (Decrease) % $ 79.5 $ 13.4 7.1 100.0 506,582 108,900 63,363 678,845 74.6 $ 16.0 9.3 100.0 11,279 (21,490) (16,832) (27,043) 2.2 (19.7) (26.6) (4.0) 10.7 (4.9) (2.7) (20.5) (15.3) 16.3 (40.1) (0.1) (2.8) (97.9) 6.2 (94.7) * (1.0) 26.3 10.4 14.5 0.3 26.8 3.2 0.4 1.4 2.9 0.2 9.4 (0.3) * 95.4 19,086 (3,431) (2,634) (416) (27,931) 3,540 (1,168) (6) (541) (1,167) 3,927 2,068 2,005 (6,668) (Dollars in thousands) REVENUE: Freight ............................................................................................................. $ Brokerage ........................................................................................................ Fuel surcharge ................................................................................................. Total revenue ............................................................................................... OPERATING EXPENSES: Salaries, wages and employee benefits ........................................................... Fuel .................................................................................................................. Operations and maintenance ........................................................................... Communications .............................................................................................. Purchased freight ............................................................................................. Administrative expenses ................................................................................. Sales and marketing ........................................................................................ Taxes and licenses ........................................................................................... Insurance and claims ....................................................................................... Acquisition-related transaction expenses ........................................................ Depreciation and amortization ........................................................................ Gain on disposition of revenue property and equipment ................................ Impairment ...................................................................................................... Total operating expenses ........................................................................... Operating ratio ................................................................................................ Adjusted operating ratio(1)............................................................................... INCOME FROM OPERATIONS ............................................................... Other (income) expense: Interest income ................................................................................................ Interest expense ............................................................................................... Other ................................................................................................................ Total other expense, net............................................................................. Income (loss) before income taxes ............................................................... Provision for income taxes .............................................................................. Net income (loss) ........................................................................................ $ 517,861 87,410 46,531 651,802 197,789 66,865 96,100 1,618 154,054 25,250 1,743 9,222 19,114 25 67,500 (116) 2,005 641,169 98.4% 95.6% 10,633 (44) 23,124 (331) 22,749 (12,116) 163 (12,279) 30.3 10.3 14.7 0.2 23.6 3.9 0.3 1.4 2.9 * 10.4 * 0.3 98.4 1.6 * 3.5 (0.1) 3.5 (1.9) * (1.9) $ 178,703 70,296 98,734 2,034 181,985 21,710 2,911 9,228 19,655 1,192 63,573 (2,184) — 647,837 95.4% 93.0% 31,008 (69) 20,602 (251) 20,282 10,726 7,463 3,263 (Dollars in thousands) Year Ended December 31, 2016 2015 $ % $ % Increase (Decrease) % $ FLATBED SOLUTIONS REVENUE(1): Freight ............................................................................................................. $ Brokerage ........................................................................................................ Fuel surcharge ................................................................................................. Total revenue .............................................................................................. 253,824 29,745 26,871 310,440 81.8 $ 9.6 8.7 100.0 241,741 29,151 35,428 306,320 78.9 $ 9.5 11.6 100.0 12,083 594 (8,557) 4,120 OPERATING EXPENSES(1): Salaries, wages and employee benefits ........................................................... Fuel .................................................................................................................. Operations and maintenance ........................................................................... Purchased freight ............................................................................................. Depreciation and amortization ........................................................................ Other operating expenses ................................................................................ Total operating expenses ........................................................................... Operating ratio ................................................................................................ Adjusted operating ratio(2)............................................................................... INCOME FROM OPERATIONS ............................................................... $ 93,818 36,503 32,845 77,563 30,445 23,623 294,797 95.0% 93.4% 15,643 30.2 11.8 10.6 25.0 9.8 7.6 95.0 5.0 $ 87,936 39,788 29,288 75,785 30,276 23,016 286,089 93.4% 90.7% 20,231 28.7 13.0 9.6 24.7 9.9 7.5 93.4 5,882 (3,285) 3,557 1,778 169 607 8,708 6.6 $ (4,588) (22.7) 5.0 2.0 (24.2) 1.3 6.7 (8.3) 12.1 2.3 0.6 2.6 3.0 4.6 (20,375) (65.7) * 3.0 * 3.0 25 2,522 (80) 2,467 1.6 1.1 0.5 $ (22,842) (7,300) (15,542) (36.2) 12.2 31.9 12.2 (213.0) (97.8) (476.3) OPERATING STATISTICS: Total miles ....................................................................................................... Company-operated tractors, as of year-end .................................................... Owner-operated tractors, as of year-end ......................................................... Number of trailers, as of year-end ................................................................... 149,284,755 1,203 390 2,943 Company-operated tractors, average for the year ........................................... Owner-operated tractors, average for the year ................................................ 1,182 430 136,945,193 1,205 432 2,920 1,120 390 12,339,562 (2) (42) 62 40 9.0 (0.2) (9.7) 5.5 10.3 indicates not meaningful. * (1) Includes intersegment revenues and expenses, as applicable, which are eliminated in the Company’s consolidated results. (2) Adjusted operating ratio is not a recognized measure under GAAP. For a definition of adjusted operating ratio and reconciliation of adjusted operating ratio to operating ratio, see “Non-GAAP Financial Measures” below. indicates not meaningful. * (1) Adjusted operating ratio is not a recognized measure under GAAP. For a definition of adjusted operating ratio and reconciliation of adjusted operating ratio to operating ratio, see “Non-GAAP Financial Measures” below. 46 47 The following table sets forth the Company’s Specialized Solutions segment’s revenue, operating expenses, operating ratio, adjusted operating ratio and operating income for the years ended December 31, 2016 and 2015 in dollars and as a percentage of its Specialized Solutions segment’s total revenue and the increase or decrease in the dollar amounts of those items. The following table also sets forth certain operating statistics for the Company’s Specialized Solutions segment for the years ended December 31, 2016 and 2015. SPECIALIZED SOLUTIONS (Dollars in thousands) Year Ended December 31, 2016 2015 $ % $ % Increase (Decrease) % $ REVENUE(1): Freight ............................................................................................................. $ Brokerage ........................................................................................................ Fuel surcharge ................................................................................................. Total revenue .............................................................................................. 268,121 57,791 20,086 345,998 77.5 $ 16.7 5.8 100.0 269,000 79,866 28,186 377,052 71.3 $ 21.2 7.5 100.0 (879) (22,075) (8,100) (31,054) OPERATING EXPENSES(1): Salaries, wages and employee benefits ........................................................... Fuel .................................................................................................................. Operations and maintenance ........................................................................... Purchased freight ............................................................................................. Depreciation and amortization ........................................................................ Impairment ...................................................................................................... Other operating expenses ................................................................................ Total operating expenses ........................................................................... Operating ratio ................................................................................................ Adjusted operating ratio(2)............................................................................... INCOME FROM OPERATIONS ............................................................... $ 97,100 30,362 62,336 81,126 36,899 2,005 19,892 329,720 95.3% 93.1% 16,278 28.1 8.8 18.0 23.4 10.7 0.6 5.7 95.3 4.7 $ 88,892 30,508 68,833 110,726 33,179 — 21,760 353,898 93.9% 91.9% 23,154 23.6 8.1 18.3 29.4 8.8 * 5.8 93.9 8,208 (146) (6,497) (29,600) 3,720 2,005 (1,868) (24,178) (0.3) (27.6) (28.7) (8.2) 9.2 (0.5) (9.4) (26.7) 11.2 * (8.6) (6.8) 6.1 $ (6,876) (29.7) OPERATING STATISTICS: Total miles ....................................................................................................... Company-operated tractors, as of year-end .................................................... Owner-operated tractors, as of year-end ......................................................... Number of trailers ........................................................................................... 97,704,619 1,101 219 3,404 Company-operated tractors, average for the year ........................................... Owner-operated tractors, average for the year ................................................ 1,097 236 93,978,446 1,062 270 3,057 934 310 3,726,173 39 (51) 347 163 (74) 4.0 3.7 (18.9) 11.4 17.5 (23.9) indicates not meaningful. * (1) Includes intersegment revenues and expenses, as applicable, which are eliminated in the Company’s consolidated results. (2) Adjusted operating ratio is not a recognized measure under GAAP. For a definition of adjusted operating ratio and reconciliation of adjusted operating ratio to operating ratio, see “Non-GAAP Financial Measures” below. Revenue. Total revenue decreased 4.0% to $651.8 million for the year ended December 31, 2016 from $678.8 million for the year ended December 31, 2015. The change in total revenue, excluding the effect of the 2015 Acquisitions, was a decrease of $68.9 million, or 10.2%, primarily due to a decrease in fuel surcharge. Fuel surcharges, excluding the effect of the 2015 Acquisitions, was a decrease of 30.3%. Freight revenue, excluding the effect of the 2015 Acquisitions, decreased 5.5% to $478.7 million for the year ended December 31, 2016 from $506.6 million for the year ended December 31, 2015 primarily due to a highly competitive freight market resulting in downward pressure on rates. Brokerage revenue, excluding the effect of the 2015 Acquisitions, decreased 20.1% to $87.0 million for the year ended December 31, 2016 from $108.9 million for the year ended December 31, 2015 primarily due to loads shifting to company tractors as the Company’s freight capacity increased. The Company’s Flatbed Solutions segment’s revenue was $310.4 million for the year ended December 31, 2016 and $306.3 million for the year ended December 31, 2015, an increase of 1.3%. This increase is primarily a result of the Hornady Acquisition. The Company’s Flatbed Solutions segment’s total revenue, excluding the effect of the Hornady Acquisition, was $287.6 million for the year ended December 31, 2016, which was a decrease of 6.1%, or $18.7 million, as compared to $306.3 for the year ended December 31, 2015. This decrease was primarily a result of the $10.4 million, or 29.4%, decrease in fuel surcharge revenue (excluding the effect of the Hornady Acquisition on fuel surcharge revenue) and the $8.9 million, or 3.7%, decrease in freight revenue (excluding the impact of the Hornady Acquisition on freight revenue). The Company’s Specialized Solutions segment’s revenue was $346.0 million for the year ended December 31, 2016 and $377.1 million for the year ended December 31, 2015, a decrease of 8.2%. Excluding the effect of the Bulldog Acquisition, the Specialized Solutions segment’s total revenue was $326.9 million for the year ended December 31, 2016, which was a decrease of 13.3%, or $50.2 million. This decrease resulted from decreases of $8.6 million, or 30.5%, in fuel surcharge revenue, $19.1 million, or 7.1%, in freight revenues and $22.5 million, or 28.1%, in brokerage revenue (in each case, excluding the effect of the Bulldog Acquisition on revenues). In both segments, excluding the effect of the Hornady Acquisition and the Bulldog Acquisition, as applicable, the decrease in fuel surcharge was the result of the continuing decline in fuel prices during most of 2016, and the decrease in freight revenue was primarily attributable to a highly competitive freight market resulting in downward pressure on rates. Salaries, Wages and Employee Benefits. Salaries, wages and employee benefits expense, which consists of compensation for all employees, is primarily affected by the number of miles driven by company drivers, the rate per mile paid to company drivers, employee benefits including, but not limited to, health care and workers’ compensation, and to a lesser extent, the number of, and compensation and benefits paid to, non-driver employees. In general, the Specialized Solutions segment drivers receive a higher driver pay per total mile than Flatbed Solutions segment drivers due to the former requiring a higher level of training and expertise. Salaries, wages and employee benefits expense increased 10.7% to $197.8 million for the year ended December 31, 2016 from $178.7 million for the year ended December 31, 2015, primarily due to the increase in employees as a result of the 2015 Acquisitions. The increase in salaries, wages and employee benefits expense, excluding the effect of the 2015 Acquisitions, was 1.9%, or $3.5 million, and is primarily due to increased compensation for drivers and driver support teams and healthcare benefit costs. The Company’s Flatbed Solutions segment had a $5.9 million, or 6.7%, increase in salaries, wages and employee benefits expense for the year ended December 31, 2016 compared to the year ended December 31, 2015, primarily as a result of the increase in employees due to the Hornady Acquisition, which resulted in a $7.3 million increase. Excluding the effect of the Hornady Acquisition, salaries, wages and employee benefit expense decreased 1.6%, primarily due to a 5.1% decrease in the number of drivers, partially offset by a 0.8% increase in total miles in the Flatbed Solutions segment. The Company’s Specialized Solutions segment had an $8.2 million, or 9.2%, increase in salaries, wages and employee benefits expense primarily as a result of the increase in employees as a result of the Bulldog Acquisition, which resulted in an $8.3 million increase. Excluding the effect of the Bulldog Acquisition, salaries, wages and employee benefits expense was comparable with a 0.1% decrease from the year ended December 31, 2015. Fuel. Fuel expense consists primarily of diesel fuel expense for company-owned tractors and fuel taxes. The primary factors affecting fuel expense are the cost of diesel fuel, the miles per gallon realized with its equipment and the number of miles driven by its company drivers. Total fuel expense decreased $3.4 million, or 4.9%, to $66.9 million for the year ended December 31, 2016 from $70.3 million for the year ended December 31, 2015. This decrease is primarily a result of lower fuel prices, partially offset by a 7.0% increase in total miles. The United States national average diesel fuel price, as published by the United States Department of Energy, was $2.304 for the year ended December 31, 2016, compared to $2.691 for the year ended December 31, 2015, a 14.4% decrease. Excluding the effects of the 2015 Acquisitions, total fuel expense decreased by 11.2%, primarily as a result of lower fuel prices. Fuel expense has also been positively impacted by improved efficiency from more fuel-efficient engines and driver training programs. The Company’s Flatbed Solutions segment’s fuel expense decreased 8.3% to $36.5 million for the year ended December 31, 2016 from $39.8 million for the year ended December 31, 2015. Excluding the effect of the Hornady 48 49 Acquisition, fuel expense decreased 14.5% as a result of lower fuel prices, partially offset by an increase in total miles of 0.8%. The Company’s Specialized Solutions segment’s fuel expense decreased 0.5% to $30.4 million for the year ended December 31, 2016 from $30.5 million for the year ended December 31, 2015. Excluding the effect of the Bulldog Acquisition, fuel expense decreased 6.8% as the result of lower fuel prices and a decrease in total miles of 1.5%. Operations and Maintenance. Operations and maintenance expense consists primarily of ordinary vehicle repairs and maintenance, costs associated with preparing tractors and trailers for sale or trade-in, driver recruiting, training and safety costs, permitting and pilot car fees and other general operations expenses. Operations and maintenance expense is primarily affected by the age of company-owned tractors and trailers, the number of miles driven in a period and driver turnover. Operations and maintenance expense decreased 2.7% to $96.1 million for the year ended December 31, 2016 from $98.7 million for the year ended December 31, 2015. Operations and maintenance expense decreased 7.7% after adjusting for the effect of the 2015 Acquisitions. The Company’s Flatbed Solutions segment’s operations and maintenance expense increased $3.6 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015, primarily as a result of the Hornady Acquisition, which accounted for $1.9 million of the increase. Excluding the effect of the Hornady Acquisition, this increase was primarily from tractor lease costs as the Company’s utilization of operating leases to finance tractor purchases increased in 2016. The Company’s Specialized Solutions segment’s operations and maintenance expense decreased $6.5 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015. Excluding the effect of the Bulldog Acquisition, operations and maintenance expense decreased $9.5 million, or 13.8%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015 primarily as a result of lower pilot car and maintenance costs due to a decrease in alternative energy project loads, which require a greater use of pilot cars than the Company’s other loads, in 2016 as compared to 2015. Purchased Freight. Purchased freight expense consists of the payments to owner-operators, including fuel surcharge reimbursements, and payments to third-party capacity providers that haul loads brokered to them. Purchased freight expense generally takes into account changes in diesel fuel prices, resulting in lower payments during periods of declining fuel prices. Total purchased freight expense decreased 15.3% from $182.0 million during the year ended December 31, 2015 to $154.1 million during the year ended December 31, 2016, primarily as a result of a decrease in alternative energy project loads, which are serviced by more owner-operators than the Company’s other loads, in 2016 as compared to 2015 combined with a shift to company drivers from third-party capacity providers. Excluding the effect of the 2015 Acquisitions on purchased freight expense, total purchased freight expense decreased 18.5% to $148.3 million during the year ended December 31, 2016 as compared to the year ended December 31, 2015. Purchased freight expense from owner-operators decreased 16.1% from $99.7 million during the year ended December 31, 2015 to $83.7 million during the year ended December 31, 2016, excluding Hornady’s $5.4 million of purchased freight expense from owner-operators, primarily as a result of a decrease in total loads for alternative energy projects, which are serviced by more owner-operators than the Company’s other projects, combined with a decline in the number of owner-operators and a decrease in fuel charge reimbursements made to owner-operators as a result of lower fuel prices. Purchased freight expense from third-party capacity providers decreased 24.7% from $82.3 million during the year ended December 31, 2015 to $62.0 million, primarily as a result of the decrease in brokered loads due to more loads being shifted to company tractors as the Company’s capacity increased. The 2015 Acquisitions did not have a material effect on purchased freight expense from third-party capacity providers during the year ended December 31, 2016. The Company’s Flatbed Solutions segment’s purchased freight expense increased 2.3% to $77.6 million for the year ended December 31, 2016 from $75.8 million for the year ended December 31, 2015, primarily due to the Hornady Acquisition. Excluding the effect of the Hornady Acquisition on purchased freight expense, the Company’s Flatbed Solutions segment’s purchased freight expense decreased 4.7% to $72.2 million during the year ended December 31, 2016 as compared to the year ended December 31, 2015. Purchased freight expense from owner-operators, excluding Hornady’s $5.4 million of purchased freight expense from owner-operators, decreased 3.0% to $52.0 for the year ended December 31, 2016 from $53.5 for the year ended December 31, 2015. Purchased freight expense from third-party capacity providers decreased 16.9% from $21.4 million during the year ended December 31, 2015 to $17.8 million during the year ended December 31, 2016, primarily as a result of the decrease in brokered loads due to more loads being shifted to company tractors as the Company’s capacity increased. The Company’s Specialized Solutions segment’s purchased freight expense decreased 26.7% to $81.1 million during the year ended December 31, 2016 from $110.7 million during the year ended December 31, 2015. Purchased freight expense from owner-operators decreased 31.3% from $46.2 million during the year ended December 31, 2015 to $31.7 million during the year ended December 31, 2016, primarily as a result of a decrease in total loads for alternative energy projects, which are serviced by more owner-operators than the Company’s other loads, combined with a decline in the number of owner-operators and a decrease in fuel charge reimbursements made to owner-operators as a result of lower fuel prices. Purchased freight expense from third-party capacity providers decreased 27.4% from $60.9 million during the year ended December 31, 2015 to $44.2 million during the year ended December 31, 2016 for the same reasons the Flatbed Solutions segment’s purchased freight expense from third-party capacity providers decreased over the same periods. The Bulldog Acquisition did not have a material effect on purchased freight expense during the year ended December 31, 2016. Depreciation and Amortization. Depreciation and amortization expense consists primarily of depreciation for company- owned tractors and trailers or amortization of those financed with capital leases. The primary factors affecting these expense items include the size and age of company-owned tractors and trailers and the cost of new equipment. Depreciation and amortization expense increased 6.2% to $67.5 million during the year ended December 31, 2016 from $63.6 million during the year ended December 31, 2015, primarily as a result of the 2015 Acquisitions. After adjusting for the effect of the 2015 Acquisitions, depreciation and amortization expense decreased 3.1%, primarily as a result of a 1.6% reduction in company-owned tractors combined with an increasing shift in the utilization of operating leases to finance capital expenditures. The Company’s Flatbed Solutions segment had a 0.6% increase in depreciation and amortization expense primarily as a result of the Hornady Acquisition. Excluding Hornady’s $3.1 million depreciation and amortization expense during the year ended December 31, 2016, depreciation and amortization expense decreased 9.6% primarily due to the increased use of operating leases to finance capital expenditures, which resulted in a 34.1% increase in tractor lease cost for the year ended December 31, 2016 as compared to the year ended December 31, 2015. The Company’s Specialized Solutions segment had an 11.2% increase in depreciation and amortization expense primarily as a result of the Bulldog Acquisition. Excluding Bulldog’s $2.8 million depreciation and amortization expense during the year ended December 31, 2016, depreciation and amortization expense increased 2.7% primarily as a result of an 11.3% increase in company-owned trailers partially offset by a 3.7% reduction in company-owned tractors. Taxes and Licenses. Operating taxes and licenses expense primarily represents the costs of taxes and licenses associated with the Company’s fleet of equipment and will vary according to the size of its equipment fleet. Taxes and license remained flat at $9.2 million during the years ended December 31, 2016 and 2015. As a percentage of revenue, operating taxes and license expense was 1.4% for the years ended December 31, 2016 and 2015. Excluding the impact of the 2015 Acquisitions, taxes and licenses expense decreased by $0.6 million, or 6.3%. Insurance and Claims. Insurance and claims expense consists of insurance premiums and the accruals the Company makes for estimated payments and expenses for claims for bodily injury, property damage, cargo damage and other casualty events. The primary factors affecting the Company’s insurance and claims expense are seasonality (the Company typically experiences higher accident frequency in winter months), the frequency and severity of accidents, trends in the development factors used in its accruals and developments in large, prior-year claims. The frequency of accidents tends to increase with the miles the Company travels. Insurance and claims expense decreased 2.8% to $19.1 million during the year ended December 31, 2016 from $19.7 million during the year ended December 31, 2015. Insurance and claims 50 51 expense, excluding Bulldog’s and Hornady’s insurance and claims expense, was $18.3 million, a decrease of 7.1% as compared to the year ended December 31, 2015. This decrease can be primarily attributed to lower premiums on marginally lower total miles of 0.1%. Impairment. In 2016, certain long-lived assets in the Specialized Solutions segment were written down with a charge of $1.6 million due to a decline in market value on select tractors with defective diesel particulate filter systems. The charge was necessary to reduce the carrying value of this revenue equipment to the price expected to be received upon sale of the assets to a third party. Also in 2016, the carrying value of one subsidiary exceeded its estimated fair value. Accordingly, a non-cash, non-tax deductible goodwill impairment charge of $0.4 million was recognized during the fourth quarter of 2016. During 2015, the Company had no charges relating to impairment of revenue equipment or goodwill. Interest Expense. Interest expense consists of cash interest, non-cash paid-in-kind interest, amortization of related issuance costs and fees and prepayment penalties. Interest expense increased 12.2% to $23.1 million during the year ended December 31, 2016 from $20.6 million during the year ended December 31, 2015. Excluding Bulldog’s and Hornady’s interest expense, interest expense increased 9.8%, or $2.0 million, which interest expense was primarily attributable to the borrowings the Company incurred to finance its acquisitions, prepayment penalties on equipment refinancing in August 2016 and additions of revenue equipment. Income Tax. Provision for income taxes decreased from $7.5 million for the year ended December 31, 2015 to $0.2 million for the year ended December 31, 2016. The effective tax rate was (1.3)% for the year ended December 31, 2016, compared to 69.6% for the year ended December 31, 2015. The effective income tax rate varies from the federal statutory rate of 35% primarily due to state income taxes and the impact of nondeductible permanent differences, including driver per diems, transaction expenses and cumulative change in the state tax rate applied to the beginning net deferred tax liabilities balance. Non-GAAP Financial Measures Adjusted EBITDA, Adjusted EBITDAR and Free Cash Flow Adjusted EBITDA, Adjusted EBITDAR and free cash flow are not recognized measures under GAAP. The Company uses these non-GAAP measures as supplements to its GAAP results in evaluating certain aspects of its business, as described below. The Company defines Adjusted EBITDA as net income (loss) plus (i) depreciation and amortization, (ii) interest expense, including other fees and charges associated with indebtedness, net of interest income, (iii) income taxes, (iv) acquisition- related transaction expenses (including due diligence costs, legal, accounting and other advisory fees and costs, retention and severance payments and financing fees and expenses), (v) non-cash impairment, (vi) losses (gains) on sales of defective revenue equipment out of the normal replacement cycle, (vii) impairment related to defective revenue equipment sold out of the normal replacement cycle, (viii) initial public offering-related expenses (which offering Private Daseke withdrew at the end of 2015), (ix) expenses related to the Business Combination and related transactions, (x) non-cash stock and equity-compensation expense, and (xi) accounting charges resulting from accounting for the possible earn-out pursuant to the Business Combination. The Company defines Adjusted EBITDAR as Adjusted EBITDA plus tractor operating lease charges. The Company’s board of directors and executive management team use Adjusted EBITDA and Adjusted EBITDAR as key measures of its performance and for business planning. Adjusted EBITDA and Adjusted EBITDAR assist them in comparing its operating performance over various reporting periods on a consistent basis because they remove from the Company’s operating results the impact of items that, in their opinion, do not reflect the Company’s core operating performance. Adjusted EBITDA and Adjusted EBITDAR also allow the Company to more effectively evaluate its operating performance by allowing it to compare the results of operations against its peers without regard to its or its peers’ financing method or capital structure. Adjusted EBITDAR is used to view operating results before lease charges as these charges can vary widely among trucking companies due to differences in the way that trucking companies finance their fleet acquisitions. The Company’s method of computing Adjusted EBITDA is substantially consistent with that used in its debt covenants and also is routinely reviewed by its management for that purpose. The Company believes its presentation of Adjusted EBITDA and Adjusted EBITDAR is useful because they provide investors and industry analysts the same information that the Company uses internally for purposes of assessing its core operating performance. However, Adjusted EBITDA and Adjusted EBITDAR are not substitutes for, or more meaningful than, net income (loss), cash flows from operating activities, operating income or any other measure prescribed by GAAP, and there are limitations to using non-GAAP measures such as Adjusted EBITDA and Adjusted EBITDAR. Certain items excluded from Adjusted EBITDA and Adjusted EBITDAR are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital, tax structure and the historic costs of depreciable assets. Also, other companies in its industry may define Adjusted EBITDA and Adjusted EBITDAR differently than the Company does, and as a result, it may be difficult to use Adjusted EBITDA, Adjusted EBITDAR or similarly named non- GAAP measures that other companies may use to compare the performance of those companies to its performance. Because of these limitations, Adjusted EBITDA and Adjusted EBITDAR should not be considered measures of the income generated by the Company’s business or discretionary cash available to it to invest in the growth of its business. The Company’s management compensates for these limitations by relying primarily on the Company’s GAAP results and using Adjusted EBITDA and Adjusted EBITDAR supplementally. The Company defines free cash flow as Adjusted EBITDA less net capital expenditures (capital expenditures less proceeds from equipment sales). Its board of directors and executive management team use free cash flow to assess its performance and ability to fund operations and make additional investments. Free cash flow represents the cash that its business generates from operations, before taking into account cash movements that are non-operational. The Company believes its presentation of free cash flow is useful because it is one of several indicators of its ability to service debt, make investments and/or return capital to its stockholders. The Company also believes that free cash flow is one of several benchmarks used by investors and industry analysts for comparison of performance in its industry, although its measure of free cash flow may not be directly comparable to similar measures reported by other companies. Furthermore, free cash flow is not a substitute for, or more meaningful than, net income (loss), cash flows from operating activities, operating income or any other measure prescribed by GAAP, and there are limitations to using non-GAAP measures such as free cash flow. Accordingly, free cash flow should not be considered a measure of the income generated by its business or discretionary cash available to it to invest in the growth of its business. The Company’s management compensates for these limitations by relying primarily on the Company’s GAAP results and using free cash flow supplementally. A reconciliation of Adjusted EBITDA, Adjusted EBITDAR and free cash flow to net income (loss) for the years ended December 31, 2017, 2016 and 2015 is as follows: (In thousands) Year Ended December 31, 2016 2015 2017 Net income (loss) ...................................................................................................................................... $ Depreciation and amortization .............................................................................................................. Interest income ...................................................................................................................................... Interest expense ..................................................................................................................................... Write-off of unamortized deferred financing fees ................................................................................ Income tax provision (benefit) .............................................................................................................. Acquisition-related transaction expenses .............................................................................................. Impairment ............................................................................................................................................. Stock-based compensation expense ...................................................................................................... Withdrawn initial public offering-related expenses .............................................................................. Net losses on sales of defective revenue equipment out of the normal replacement cycle .................. Impairment on sales of defective revenue equipment out of the normal replacement cycle ............... Expenses related to the Business Combination and related transactions ............................................. Tractor operating lease charges ............................................................................................................. Adjusted EBITDAR ............................................................................................................................... $ Less tractor operating lease charges ......................................................................................................... Adjusted EBITDA .................................................................................................................................. $ Net capital expenditures .......................................................................................................................... Free cash flow .......................................................................................................................................... $ 26,996 $ 76,863 (398) 29,556 3,883 (52,282) 3,377 — 1,875 — — — 2,034 16,865 108,769 $ (16,865) 91,904 $ (35,916) 55,988 $ (12,279) $ 67,500 (44) 23,124 — 163 296 2,005 — 3,051 718 190 3,516 12,937 101,177 $ (12,937) 88,240 $ (31,669) 56,571 $ 3,263 63,573 (69) 20,602 — 7,463 1,192 — — 1,280 — — — 8,957 106,261 (8,957) 97,304 (66,969) 30,335 52 53 Adjusted Operating Ratio Adjusted operating ratio is not a recognized measure under GAAP. The Company uses adjusted operating ratio as a supplement to its GAAP results in evaluating certain aspects of its business, as described below. The Company defines adjusted operating ratio as (a) total operating expenses (i) less fuel surcharges, acquisition-related transaction expenses, non-cash impairment charges and initial public offering-related expenses (which offering Private Daseke withdrew at the end of 2015) and (ii) further adjusted for the net impact of the step-up in basis resulting from acquisitions (such as increased depreciation and amortization expense), as a percentage of (b) total revenue excluding fuel surcharge revenue. The Company’s board of directors and executive management team view adjusted operating ratio, and its key drivers of revenue quality, growth, expense control and operating efficiency, as a very important measure of the Company’s performance. The Company believes fuel surcharge is often volatile and eliminating the impact of this source of revenue (by eliminating fuel surcharge from revenue and by netting fuel surcharge against fuel expense) affords a more consistent basis for comparing its results of operations between periods. The Company also believes excluding acquisition-related transaction expenses, additional depreciation and amortization expenses as a result of acquisitions, non-cash impairment and withdrawn initial public offering-related expenses enhances the comparability of its performance between periods. The Company believes its presentation of adjusted operating ratio is useful because it provides investors and industry analysts the same information that it uses internally for purposes of assessing its core operating profitability. However, adjusted operating ratio is not a substitute for, or more meaningful than, operating ratio, operating margin or any other measure derived solely from GAAP measures, and there are limitations to using non-GAAP measures such as adjusted operating ratio. Although the Company believes that adjusted operating ratio can make an evaluation of its operating performance more consistent because it removes items that, in its opinion, do not reflect its core operations, other companies in its industry may define adjusted operating ratio differently than it does. As a result, it may be difficult to use adjusted operating ratio or similarly named non-GAAP measures that other companies may use to compare the performance of those companies to the Company’s performance. The Company’s management compensates for these limitations by relying primarily on its GAAP results and using adjusted operating ratio supplementally. A reconciliation of adjusted operating ratio to operating ratio for each of the years ended December 31, 2017, 2016 and 2015 is as follows: (Dollars in thousands) Year Ended December 31, 2016 2017 2015 A reconciliation of the Company’s Flatbed Solutions segment’s adjusted operating ratio to operating ratio for the years ended December 31, 2017, 2016 and 2015 is as follows: FLATBED SOLUTIONS (Dollars in thousands) Year Ended December 31, 2016 2017 2015 Total revenue(1) ................................................................. $ 354,106 $ 310,440 $ 306,320 35,428 Operating revenue, net of fuel surcharge ..................... $ 317,666 $ 283,569 $ 270,892 Fuel surcharge ................................................................ 26,871 36,440 Total operating expenses(1) ............................................... $ 335,645 $ 294,797 $ 286,089 35,428 4,952 Adjusted operating expenses ........................................ $ 298,114 $ 264,757 $ 245,709 Fuel surcharge ................................................................ Net impact of step-up in basis of acquired assets ........... 36,440 1,091 26,871 3,169 Operating ratio .................................................................. Adjusted operating ratio .................................................... 94.8% 93.8% 95.0% 93.4% 93.4% 90.7% (1) Includes intersegment revenues and expenses, as applicable, which are eliminated in the Company’s consolidated results. A reconciliation of the Company’s Specialized Solutions segment’s adjusted operating ratio to operating ratio for the years ended December 31, 2017, 2016 and 2015 is as follows: SPECIALIZED SOLUTIONS (Dollars in thousands) Year Ended December 31, 2016 2017 2015 Total revenue(1) ................................................................ $ 499,132 $ 345,998 $ 377,052 28,186 Operating revenue, net of fuel surcharge .................... $ 464,442 $ 325,912 $ 348,866 Fuel surcharge ............................................................... 34,690 20,086 Total revenue ............................................................................ $ 846,304 $651,802 $678,845 63,363 Fuel surcharge ......................................................................... 70,523 Operating revenue, net of fuel surcharge .............................. $ 775,781 $605,271 $615,482 46,531 Total operating expenses .......................................................... $ 839,289 $641,169 $647,837 63,363 Fuel surcharge ......................................................................... 70,523 1,192 3,377 Acquisition-related transaction expenses ................................ — — Impairment .............................................................................. Withdrawn initial public offering-related expenses ................ 1,280 — Expenses related to the Business Combination and related transactions ............................................................................. Net impact of step-up in basis of acquired assets .................... — 9,812 Adjusted operating expenses ................................................ $ 754,999 $578,381 $572,190 46,531 296 2,005 3,051 3,516 7,389 2,034 8,356 Total operating expenses(1) .............................................. $ 483,787 $ 329,720 $ 353,898 28,186 171 — 4,860 Adjusted operating expenses ....................................... $ 441,832 $ 303,409 $ 320,681 Fuel surcharge ............................................................... Acquisition-related transaction expenses ...................... Impairment .................................................................... Net impact of step-up in basis of acquired assets .......... 34,690 — — 7,265 20,086 — 2,005 4,220 Operating ratio ................................................................. Adjusted operating ratio ................................................... 96.9% 95.1% 95.3% 93.1% 93.9% 91.9% (1) Includes intersegment revenues and expenses, as applicable, which are eliminated in the Company’s consolidated results. Liquidity and Capital Resources and Capital Requirements Operating ratio .......................................................................... 99.2% Adjusted operating ratio............................................................ 97.3% 98.4% 95.6% 95.4% 93.0% Overview The Company’s business requires substantial amounts of cash to cover operating expenses as well as to fund items such as cash capital expenditures on its fleet and other assets, working capital changes, principal and interest payments on debt obligations, letters of credit to support insurance requirements and tax payments. The Company made net capital expenditures of approximately $35.9 million for 2017. 54 55 The Company’s primary sources of liquidity have been provided by operations, issuances of capital stock and borrowings under its credit facility. The Company had the following sources of liquidity available at December 31, 2017 and 2016. (In thousands) December 31, 2017 2016 90,679 $ Cash ............................................................................................................. $ Availability under revolving line of credit ................................................... 55,500 Total ............................................................................................................. $ 146,179 $ 3,695 32,958 36,653 Cash increased by $87.0 million during the year ended December 31, 2017 as compared to the year ended December 31, 2016. This increase primarily resulted from proceeds of new debt financing and equities issued, net of debt repayments and share repurchases, in conjunction with the Business Combination. Net proceeds totaled $34.7 million. See Note 2 of Notes to Consolidated Financial Statements for more information. Additionally, on September 19, 2017, the Company raised $63.6 million from an offering of 5,675,967 shares of its common stock. See Note 12 of the Notes to the Consolidated Financial Statements for more information. As of December 31, 2017, the Company has (i) a $500.0 million senior secured term loan credit facility, consisting of a $250.0 million term loan, a $150 million tack-on loan and $100.0 million of term loans funded under a delayed draw term loan facility, and (ii) an asset-based senior secured revolving credit facility with an aggregate maximum credit amount equal to $70.0 million (subject to availability under a borrowing base). The delayed draw term loans were used to support the Company’s acquisition activities. See Note 9 of Notes to Consolidated Financial Statements for more information regarding the Term Loan Facility, the ABL Facility, the Senior Term Loan and the Line of Credit. The Company believes it can finance its expected cash needs, including debt repayment, in the short-term with cash flows from operations and borrowings available under the ABL Facility. The Company expects that the Term Loan Facility and ABL Facility will provide sufficient credit availability to support its ongoing operations, fund its new debt service requirements, capital expenditures, and working capital needs. Over the long-term, the Company will continue to have significant capital requirements, and expects to devote substantial financial resources to grow its operations and fund its acquisition activities. As a result of these funding requirements, the Company likely will need to sell additional equity or debt securities or seek additional financing through additional borrowings, lease financing or equity capital. The availability of financing or equity capital will depend upon the financial condition and results of operations as well as prevailing market conditions. If such additional borrowings, lease financing or equity capital is not available at the time it needs to incur such expenditures, then the Company may be required to extend the maturity of then outstanding indebtedness, rely on alternative financing arrangements or engage in asset sales. impairment of equipment, less $10.5 million of net cash used by working capital and other activities. Cash used for working capital and other activities during the year ended December 31, 2017 primarily reflect a $15.3 million increase in accounts receivable and a $3.4 million increase in prepaid expenses and other current assets, offset by $5.8 million in payments received on sales-type leases and a $1.9 million increase in accounts payable and accrued expenses. Cash provided by operating activities was $66.4 million during the year ended December 31, 2016 and consisted of $12.3 million of net loss plus $71.3 million of non-cash items, consisting primarily of depreciation and amortization and impairment of equipment, plus $7.4 million of net cash provided by working capital and other activities. Cash used for working capital and other activities during the year ended December 31, 2016 primarily reflect an $8.7 million decrease in accounts receivable, $3.7 million in payments received on sales-type leases and a $6.4 million decrease in prepaid expenses and other assets, offset by a $10.9 million decrease in accounts payable and accrued expenses. The $20.6 million decrease in cash provided by operating activities during the year ended December 31, 2017 as compared with the year ended December 31, 2016 was the result of a $42.0 million decrease of non-cash items, primarily from a one-time tax benefit due to the change in the Federal tax rate from 35% to 21% on net deferred tax liabilities as a result of the enactment of the Tax Cuts and Jobs Act in December 2017. Other factors for the decrease in cash provided by operating activities include the $10.5 million of net cash used by working capital and other activities during the year ended December 31, 2017 as compared to $7.4 million of net cash provided by working capital and other activities during the year ended December 31, 2016, offset by a $39.3 million increase in net income. The $21.6 million decrease in cash provided by operating activities during the year ended December 31, 2016 as compared with the year ended December 31, 2015 was primarily the result of a $15.5 million decrease in net income and $7.1 million of net cash provided by working capital and other activities during the year ended December 31, 2016 as compared to $13.7 million of net cash provided by working capital and other activities during the year ended December 31, 2015. Investing Activities. Cash used by investing activities increased $295.6 million during the year ended December 31, 2017 as compared to the year ended December 31, 2016, primarily due to $279.8 million paid for the Recent Acquisitions, net of cash acquired. Excluding the Recent Acquisitions, cash used in investing activities increased $15.8 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016 due to increases in net purchases of revenue equipment. Cash provided by investing activities increased $6.0 million during the year ended December 31, 2016 as compared to the year ended December 31, 2015, in part due to the Hornady Acquisition. Excluding Hornady’s impact on cash provided by investing activities, cash used in investing activities increased $3.7 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015 primarily due to fewer tractor purchases in the year ended December 31, 2016 as Daseke’s utilization of operating leases to finance tractor purchases increased. Cash Flows Total net capital expenditures for the year ended December 31, 2017 and 2016 are shown below: The Company’s summary statements of cash flows information for the years ended December 31, 2017, 2016 and 2015 are set forth in the table below: (In thousands) Year Ended December 31, 2017 2016 (In thousands) Year Ended December 31, 2017 2016 2015 45,764 $ Net cash provided by operating activities ................................ $ Net cash provided by (used in) investing activities ................. $ (293,853) $ 335,141 $ Net cash provided by (used in) financing activities ................. $ 66,415 $ 1,798 $ 85,084 (4,152) (69,404) $ (78,452) Operating Activities. Cash provided by the Company’s operating activities consists of net income or loss adjusted for certain non-cash items, including depreciation and amortization, deferred interest, gain/loss on disposal of property and equipment, deferred income taxes, deferred gain and interest recognized on sales-type leases, stock-based compensation, bad debt expense and the effect of changes in working capital and other activities. Cash provided by operating activities was $45.8 million during the year ended December 31, 2017 and consisted of $27.0 million of net income plus $29.3 million of non-cash items, consisting primarily of depreciation and amortization and Revenue equipment (tractors, trailers and trailer accessories) ...................................... $ Buildings and building improvements .......................................................................... Other ............................................................................................................................. Total cash capital expenditures ..................................................................................... $ Less: Proceeds from sales of property and equipment .................................................. Net cash capital (proceeds) expenditures(1) ................................................................... $ 16,884 $ 677 2,231 19,792 $ 5,773 14,019 $ 1,152 1,685 1,271 4,108 5,906 (1,798) (1) The Company also acquires property and revenue equipment with debt and capital lease obligations. For the years ended December 31, 2017 and 2016, the Company incurred $21.9 million and $33.5 million, respectively, of debt and capital lease obligations to acquire property and revenue equipment. 56 57 The following tables provide details on the cash and noncash components of gross capital expenditures for the Company’s reportable segments for the years ended December 31, 2017 and 2016 (in thousands): Flatbed Solutions Segment Specialized Solutions Segment Corporate/ Eliminations Consolidated Total Year Ended December 31, 2017 Cash flows from investing activities Purchases of property and equipment ......................................... $ Proceeds from sale of property and equipment ........................... 3,609 $ (725) 15,583 $ (5,048) 600 $ — 19,792 (5,773) Noncash investing and financing activities Property and equipment acquired with debt or capital lease obligations ................................................................................... Gross capital expenditures ................................................................ $ 4,795 7,679 $ 17,102 27,637 $ — 600 $ 21,897 35,916 Year Ended December 31, 2016 Cash flows from investing activities Purchases of property and equipment ......................................... $ Proceeds from sale of property and equipment ........................... 1,167 $ (3,068) 2,726 $ (2,838) 215 $ — 4,108 (5,906) Noncash investing and financing activities Property and equipment acquired with debt or capital lease obligations ................................................................................... Gross capital expenditures ................................................................ $ 15,371 13,470 $ 18,096 17,984 $ — 215 $ 33,467 31,669 Financing Activities. Cash flows from financing activities increased from $69.4 million used in financing activities for the year ended December 31, 2016 to $335.1 million provided by financing activities for the year ended December 31, 2017. This increase was primarily a result of a recapitalization and refinancing of outstanding long-term debt in conjunction with the Business Combination. The recapitalization included $64.6 million of proceeds upon issuance of common stock and $65.0 million of proceeds upon issuance of Series A Preferred Stock, partially offset by $36.2 million in repurchases of common stock. Cash inflows from the recapitalization and proceeds from a new $250.0 million term loan (discussed under Material Debt below) were utilized in part for repayments of $66.7 million in subordinated debt, principal repayments of $239.5 million in long-term debt and $19.2 million in financing fees. Excluding cash flows from the Business Combination, cash flows from financing activities included $2.3 million net repayments on the line of credit, $12.3 million from advances on long term debt, $100.0 million advance on the delayed draw term loan facility, $150.0 million from a tack-on loan to the term loan facility, $6.2 million Series A and Series B Preferred Stock dividends and proceeds of $63.6 million for the September 2017 issuance of common stock. Net cash used in financing activities decreased $12.0 million during the year ended December 31, 2016 as compared to the year ended December 31, 2015. This decreased outflow was primarily a result of a decrease of $2.9 million in cash outflows of bank overdrafts due to timing of payments, $7.6 million increase in net borrowings under the revolving line of credit, $14.2 million increase in proceeds of long-term debt, primarily due to the real estate term loan refinancing, and $2.7 million decrease in related party debt payments due to the payoff of such debt in 2015, partially offset by $13.9 million of increases in principal payments on long-term debt incurred to finance the Bulldog Acquisition, the Hornady Acquisition and purchases of property and equipment. Material Debt Overview As of December 31, 2017, the Company had the following material debt: the Term Loan Facility and the ABL Facility; • • secured equipment loans and capital lease agreements; and • bank mortgage secured by real estate The amounts outstanding under such agreements and other debt instruments were as follows as of December 31, 2017 and 2016: December 31, (In thousands) Revolving line of credit ............................................................................................................. $ Term loan facility ...................................................................................................................... PNC term loan ........................................................................................................................... Real Estate Term Loan .............................................................................................................. Mortgages ................................................................................................................................. Equipment term loans and capital leases ................................................................................... 498,462 — — 3,669 128,315 2017 4,561 $ 2016 6,858 — 125,682 13,772 11,636 114,064 Main Street Loan ....................................................................................................................... PCP Subordinated Notes ........................................................................................................... LST Subordinated Notes ........................................................................................................... Davenport Subordinated Note ................................................................................................... Bulldog Subordinated Note ....................................................................................................... — — — — — 21,660 21,492 22,000 1,000 291 338,455 Total long-term debt and capital leases ..................................................................................... Less: current portion ................................................................................................................. (52,665) Long-term debt and capital leases, less current portion ............................................................ $ 591,951 $ 285,790 635,007 (43,056) On February 27, 2017, in conjunction with the Closing, the Company entered into the New Credit Facilities, a portion of the borrowings of which were used to pay off the Old PNC Term Loan, the Old Revolving Credit Facility, the Main Street Loan, the PCP Subordinated Notes, the LST Subordinated Notes, the Davenport Subordinated Note and the Bulldog Subordinated Note. See Note 9 of Notes to Consolidated Financial Statements for information regarding the Company’s material debt. Off-Balance Sheet Arrangements The Company’s financial condition, results of operations, liquidity, capital expenditures and capital resources are not materially affected by off-balance sheet transactions. The Company had stand-by letters of credit in the amount of $13.7 million and $6.5 million at December 31, 2017 and 2016, respectively. The letters of credit provide collateral primarily for liability insurance claims. Also, the Company leases certain revenue equipment, terminals and office building facilities under non-cancelable operating leases. The Company’s rent expense under these leases for the years ended December 31, 2017, 2016 and 2015 were approximately $17.0 million, $16.0 million and $11.2 million, respectively. At December 31, 2017, there were 17,520,329 shares of common stock issuable upon exercise of outstanding warrants. 58 59 Contractual Obligations The table below summarizes the Company’s contractual obligations as of December 31, 2017: The Company considers critical accounting policies to be those that require it to make more significant judgments and estimates when preparing financial statements. The Company’s critical accounting policies include the following: Payments Due By Period Revenue Recognition (In thousands) Long-term debt obligations, including interest(1) .............. $ 78,032 $ 136,311 $ 86,936 $ 521,227 $ 822,506 Capital lease obligations(2) ................................................ 6,337 Operating lease obligations(3) ............................................ 86,651 Purchase obligations(4) ...................................................... — Total contractual obligations ............................................. $ 105,955 $ 171,953 $ 100,963 $ 536,623 $ 915,494 2,516 25,407 — 2,667 32,975 — 879 13,148 — 275 15,121 — 1-3 Years 3-5 Years Total Less Than 1 Year More Than 5 Years (1) Includes interest obligations on long-term debt and excludes fees. For variable rate debt, the interest rate in effect as of December 31, 2017 was utilized. The table assumes long-term debt is held to maturity. As discussed above under “Material Debt—Overview,” certain of the Company’s long-term debt obligations were repaid, and the Company has entered into the New Credit Facilities in conjunction with the Closing on February 27, 2017. (2) Capital lease obligations relate primarily to revenue equipment. (3) Represents future monthly rental payment obligations, which include an interest element, under operating leases for tractors, trailers, facilities and real estate. Substantially all lease agreements for revenue equipment have fixed payment terms based on the passage of time. The tractor lease agreements generally stipulate maximum miles and provide for mileage penalties for excess miles. These leases generally run for a period of three to five years for tractors and five to seven years for trailers. (4) Represents purchase obligations for fuel. Inflation Inflation can have an impact on the Company’s operating costs. A prolonged period of inflation could cause interest rates, fuel, wages and other costs to increase, which would adversely affect the Company’s results of operations unless freight rates correspondingly increase. The Company attempts to limit the effects of inflation through increases in freight rates, certain cost control efforts and limiting the effects of fuel prices through fuel surcharges and measures intended to reduce the consumption of fuel. Over the past three years, the effect of inflation has been minor. Seasonality In the transportation industry, results of operations generally show a seasonal pattern. The Company’s tractor productivity decreases during the winter season because inclement weather impedes operations and some shippers reduce their shipments during winter. At the same time, operating expenses increase and fuel efficiency declines because of engine idling and harsh weather creating higher accident frequency, increased claims and higher equipment repair expenditures. The Company also may suffer from weather-related or other events such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes and explosions. These events may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies, destroy the Company’s assets or adversely affect the business or financial condition of its customers, any of which could adversely affect results or make results more volatile. Critical Accounting Policies The preparation of the Company’s consolidated financial statements in conformity with GAAP requires it to make estimates and assumptions that impact the amounts reported in its consolidated financial statements and accompanying notes. Therefore, the reported amounts of assets, liabilities, revenue, expenses, and associated disclosures of contingent assets and liabilities are affected by these estimates and assumptions. The Company evaluates these estimates and assumptions on an ongoing basis, utilizing historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from these estimates and assumptions, and it is possible that materially different amounts will be reported using differing estimates or assumptions. The Company recognizes revenue and related costs when persuasive evidence of an arrangement exists, delivery has occurred or services have been performed, the fee is fixed or determinable and collectability is probable. With respect to freight, brokerage, logistics and fuel surcharge revenue, these conditions are met, and the Company recognizes freight, brokerage and fuel surcharge revenue, upon delivery of a load and logistics revenue, as the services are provided. The Company recognizes brokerage revenue on a gross basis, as opposed to a net basis, because it bears the risks and benefits associated with revenue-generating activities by, among other things, (1) acting as a principal in the transaction, (2) establishing prices, (3) managing all aspects of the shipping process, and (4) taking the risk of loss for collection, delivery and returns. Accordingly, all such revenue billed to customers is classified as brokerage revenue, and all corresponding payments to carriers for transportation services arranged by the Company in connection with brokerage and intermodal activities and to independent contractor providers of revenue equipment are classified as purchased freight. Goodwill and Intangible Assets Goodwill and other intangible assets result from business acquisitions. The Company accounts for business acquisitions by assigning the purchase price to tangible and intangible assets and liabilities. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over amounts assigned is recorded as goodwill. Goodwill is tested for impairment at least annually (or more frequently if impairment indicators arise) for each reporting unit by applying either a qualitative or quantitative analysis in accordance with the authoritative accounting guidance on goodwill. The Company first assesses qualitative factors to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as the basis for determining whether it is necessary to perform a quantitative goodwill impairment test. The Company may bypass the qualitative assessment for any reporting unit in any period and proceed directly with the quantitative analysis. The quantitative analysis compares the fair value of the reporting unit with its carrying amount. The Company estimates the fair value of a reporting unit using discounted expected future cash flows. The Company’s annual assessment is conducted as of October 1 of each year. Prior to 2017, the annual assessment was conducted as of November 1, but was changed during 2017 to better align with the Company’s reporting periods. The change in testing date does not delay, accelerate or avoid an impairment charge. The Company determined that it is impractical to objectively determine projected cash flows and related valuation estimates that would have been used as of October 1 for periods prior to October 1, 2017 without the use of hindsight. As such, the Company prospectively applied the change in the annual goodwill impairment assessment date beginning October 1, 2017. Other intangible assets recorded consist of indefinite lived trade names and definite lived non-competition agreements and customer relationships. These intangible assets are stated at estimated fair value at the time of acquisition less accumulated amortization. Amortization is recorded using the straight-line method over the following estimated useful lives: (i) non- competition agreements: two to five years, and (ii) customer relationships: 10 to 15 years. The Company evaluates its definite lived intangible assets for impairment when current facts or circumstances indicate that the carrying value of the assets to be held and used may not be recoverable. Indefinite-lived intangible assets are tested for impairment annually applying a fair value based analysis in accordance with the authoritative accounting guidance for such assets. Income Taxes Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the consolidated financial statement and tax basis of assets and liabilities at the applicable enacted tax rates. The Company adheres to the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740-10, Income Taxes, relating to accounting for uncertain tax positions. The Company recognizes 60 61 the tax benefit from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. become effective for annual periods beginning after December 15, 2017 and interim periods within those periods. Early adoption is permitted. The Company does not expect ASU 2017-09 to have a material impact on its consolidated results of operations, financial condition, cash flows, or financial statement disclosures. Accrued Insurance and Claims The Company uses a combination of purchased insurance and self-insurance programs and beginning in December 2017, with the acquisition of the Roadmaster Group (see Note 3 to the consolidated financial statements), a captive group insurance company. The insurance provides for the cost of vehicle liability, cargo loss, damage, general liability, property, workers’ compensation claims and employee medical benefits. Self-insurance accruals relate primarily to vehicle liability, cargo damage, workers’ compensation and employee medical claims. The measurement and classification of self-insured costs requires the consideration of historical cost experience, demographic and severity factors, and judgments about the current and expected levels of cost per claim and retention levels. These methods provide estimates of the liability associated with claims incurred as of the balance sheet date, including claims not reported. The Company believes these methods are appropriate for measuring these highly judgmental self-insurance accruals. However, the use of any estimation method is sensitive to the assumptions and factors described above, based on the magnitude of claims and the length of time from the date the claim is incurred to ultimate settlement. Accordingly, changes in these assumptions and factors can materially affect actual costs paid to settle the claims and those amounts may be different than estimates. Stock-Based Compensation Awards of equity instruments issued to employees and directors are accounted for under the fair value method of accounting and recognized in the consolidated statements of operations and comprehensive income (loss). Compensation cost is measured for all stock-based awards at fair value on the date of grant and recognized using the straight-line method over the service period over which the awards are expected to vest. Fair value of all time-vested options as of the date of grant is estimated using the Black-Scholes option valuation model, which was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Since the Company does not have a sufficient history of exercise behavior, expected term is calculated using the assumption that the options will be exercised ratably from the date of vesting to the end of the contractual term for each vesting tranche of awards. The risk-free interest rate is based on the United States Treasury yield curve for the period of the expected term of the stock option. Expected volatility is calculated using an index of publicly traded peer companies. Fair values of nonvested stock awards (restricted stock units) are equal to the market value of the common stock on the date of the award with compensation costs amortized over the vesting period of the award. Recently Issued Accounting Pronouncements In July 2017, the FASB issued Accounting Standards Update (ASU) 2017-11, Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). ASU 2017-11 provides guidance on accounting for financial instruments with down round features and clarifies the deferral of certain provisions in Topic 480. ASU 2017-11 will become effective for annual periods beginning after December 15, 2018 and interim periods within those periods. The Company is currently evaluating the impact of adopting this guidance. In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718). ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award requires the application of modification accounting. Modification accounting will apply unless the fair value of the modified award is the same as the original award, the vesting conditions of the modified award are the same as the original award and the classification of the modified award as an equity instrument or liability instrument is the same as the original award. ASU 2017-09 will In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350). ASU 2017-04 removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years beginning December 15, 2019, with early adoption permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017, and applied prospectively. The Company adopted this pronouncement on October 1, 2017 as a part of the annual goodwill assessment and the adoption had no impact on the Company’s consolidated results of operations, financial condition, cash flows or financial statement disclosures. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 provides new guidance intended to reduce diversity in practice in how certain cash receipts and payments are classified in the statement of cash flows, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, and distributions from certain equity method investees. ASU 2016-05 will become effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal years. Early adoption is permitted. ASU 2016-15 requires application using a retrospective transition method. The Company is currently evaluating the impact of adopting this guidance. In June 2016, the FASB issued ASU No. 2016-13, Accounting for Credit Losses (Topic 326). ASU 2016-13 requires the use of an “expected loss” model on certain types of financial instruments. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of adopting this guidance. In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718). ASU 2016-09 requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. ASU 2016-09 also allows for the Company to repurchase more of the Company’s shares for tax withholding purposes without triggering liability accounting. In addition, ASU 2016-09 allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted. The Company adopted this pronouncement on April 1, 2017 and election to account for forfeitures as they occur did not have a material impact on the Company’s consolidated results of operations, financial condition, cash flows or financial statement disclosures. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 amends various aspects of existing guidance for leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The main difference between previous GAAP and the amended standard is the recognition of lease assets and lease liabilities of lessees on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this ASU will have on its consolidated financial condition and results of operations. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and related amendments. Topic 606 supersedes all industry revenue guidance. The core principle of the guidance is for an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective). To evaluate our current accounting processes, compared to the new standard, we completed an assessment of representative contracts from each of our revenue streams. Currently, we recognize revenue upon completion of transportation or other 62 63 services. By nature, our services are short in duration, typically representing less than one week to completion. Under the new standard, we will recognize revenue over time as our customers simultaneously receive and consume the benefits of our services. Due to the short nature of our transactions, we have determined the differences between recognizing revenue upon completion and over time are minimal. The adoption of this standard will not have a material impact on our financial position, results of operations or cash flows. There will be additions and modifications to our existing financial disclosures. While the overall revenue, systems and controls will be minimally impacted by the new standard, the underlying recognition methodology will change. Under adoption of Topic 606, revenue for services will be recognized over time as our customers simultaneously receive and consume the benefits of our services. The primary difference between the two recognition approaches for our business is the recognition of revenue for in-transit services at each reporting period. The Company adopted this guidance, utilizing the modified retrospective method, on January 1, 2018, which did not result in a transition adjustment to the opening balance of retained earnings. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company has interest rate exposure arising from the credit facility and other financing agreements, which have variable interest rates. These variable interest rates are impacted by changes in short-term interest rates. The Company managed interest rate exposure through an interest rate swap agreement in effect at December 31, 2016, with a total notional amount of $12.0 million (pay fixed — weighted average rate of 3.63% at December 31, 2016; receive LIBOR). In conjunction with the Business Combination, in February 2017, this interest rate swap was terminated. Assuming the current level of borrowings, a hypothetical one-percentage point increase in interest rates would increase the Company’s annual interest expense by $5.1 million. At December 31, 2016 and December 31, 2017, the Company had outstanding approximately $145.7 million and $509.4 million, respectively, of variable rate borrowings that were not subject to interest rate swaps. The Company has commodity exposure with respect to fuel used in company-owned and leased tractors. Increases in fuel prices will raise the Company’s operating costs, even after applying fuel surcharge revenue. Historically, the Company has been able to recover a majority of fuel price increases from its customers in the form of fuel surcharges. The Company cannot predict the extent or speed of potential changes in fuel price levels in the future, the degree to which the lag effect of fuel surcharge programs will impact it as a result of the timing and magnitude of such changes, or the extent to which effective fuel surcharges can be maintained and collected to offset such increases. The Company generally has not used derivative financial instruments to hedge its fuel price exposure in the past, but continues to evaluate this possibility. Item 8. Financial Statements and Supplementary Data The information called for by Item 8 is found in a separate section of this Form 10-K starting on pages F-1. See the “Index to Financial Statements” on page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are designed, without limitation, to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. As of the end of the period covered by this Form 10-K, the Company’s management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2017, the Company’s disclosure controls and procedures were effective. There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the fiscal quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Management’s Report on Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2017. Item 9B. Other Information None. 64 65 Item 10. Directors, Executive Officers and Corporate Governance Item 15. Exhibits and Consolidated Financial Statement Schedules Part III Part IV The information called for by this Item is contained in the Company’s definitive Proxy Statement for its 2018 Annual Meeting of Stockholders, and is incorporated herein by reference. (a)(1) Financial Statements The Company has adopted a code of ethics that applies to its officers and directors. The Company has filed copies of its code of ethics, its audit committee charter and its compensation committee charter as exhibits to the Company’s registration statement in connection with the initial public offering; these documents are also available on its website. You may review these documents by accessing our public filings at the SEC's web site at www.sec.gov. In addition, a copy of the code of ethics will be provided without charge upon request to the Company. Item 11. Executive Compensation The financial statements included in Item 8. Financial Statements and Supplementary Data above are filed as part of this Form 10-K. (2) Financial Statement Schedules There are no financial statement schedules filed as part of this Form 10-K, since the required information is included in the Consolidated Financial Statements, including the notes thereto, or the circumstances requiring inclusion of such schedules are not present. The information called for by this Item is contained in the Company’s definitive Proxy Statement for its 2018 Annual Meeting of Stockholders, and is incorporated herein by reference. (3) Exhibits: Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information called for by this Item is contained in the Company’s definitive Proxy Statement for its 2018 Annual Meeting of Stockholders, and is incorporated herein by reference. Item 13. Certain Relationships and Related Party Transactions, and Director Independence The information called for by this Item is contained in the Company’s definitive Proxy Statement for its 2018 Annual Meeting of Stockholders, and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information called for by this Item is contained in the Company’s definitive Proxy Statement for its 2018 Annual Meeting of Stockholders, and is incorporated herein by reference. Exhibit No. 2.1§† Exhibit Merger Agreement, dated as of December 22, 2016, by and among Hennessy Capital Acquisition Corp. II, HCAC Merger Sub, Inc., Daseke, Inc. and Don R. Daseke, solely in his capacity as the Stockholder Representative (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the registrant on December 29, 2016). 2.2§† 2.3*§† 2.4*§† 2.5*§† 3.1 3.2 3.3 4.1 Purchase and Sale Agreement by and among Daseke, Inc., Daseke TRS LLC, and Thomas R. Schilli, dated May 1, 2017 (incorporated by reference to Exhibit 2.1 to the Quarterly Report on Form 10-Q filed by the registrant on August 9, 2017). Purchase and Sale Agreement, dated December 1, 2017, by and among Daseke, Inc., Daseke MFS LLC, Daniel R. Moore, Judith N. Moore, Randall K. Moore, Tiffani M. Swalley, John D. Moore and V. Jean Nichols. Purchase and Sale Agreement, dated December 1, 2017, by and among Daseke, Inc., Daseke RM LLC and Lyons Capital, LLC. Purchase and Sale Agreement, dated December 1, 2017, by and among Daseke, Inc., Daseke Companies, Inc., Daseke TSH LLC, Sidney T. Stanley 2007 Family Irrevocable Gift Trust, Sidney Stanley, Craig Stanley, Gregg Stanley, Sara Beth Sheehan, the Craig T. Stanley 2012 GST-Exempt Family Trust, Gregg F. Stanley 2012 GST-Exempt Family Trust and Sara Beth Sheehan 2012 GST-Exempt Family Trust. Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the registrant on March 3, 2017). Bylaws (incorporated by reference to Exhibit 3.3 to the registrant’s registration statement on Form S-1 (File No. 333-205152) filed by the registrant on June 22, 2015). Certificate of Designations, Preferences, Rights and Limitations of 7.625% Series A Convertible Cumulative Preferred Stock (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed by the registrant on March 3, 2017). Specimen stock certificate for the registrant’s common stock (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed by the registrant on March 3, 2017). 66 67 Exhibit No. 4.2 Exhibit Specimen stock certificate for the registrant’s 7.625% Series A Convertible Preferred Stock (incorporated by reference to Exhibit 4.2 to the registrant’s Current Report on Form 8-K filed by the registrant on March 3, 2017). Exhibit No. 10.2 Exhibit Amendment No. 1 to Term Loan Agreement, dated as of August 16, 2017, among Daseke Companies, Inc., Daseke, Inc., Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report filed by the registrant on Form 8-K on August 22, 2017). 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 10.1 Specimen warrant certificate (incorporated by reference to Exhibit 4.3 to the registrant’s Current Report on Form 8-K filed by the registrant on March 3, 2017). Warrant Agreement, dated July 22, 2015, between Continental Stock Transfer & Trust Company and the registrant (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed by the registrant on July 28, 2015). Sponsor Warrants Purchase Agreement, dated May 11, 2015, among the registrant and Hennessy Capital Partners II LLC (incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 (No. 333-205152) filed by the registrant on June 22, 2015). Form of Backstop and Subscription Agreement by and among the registrant, Hennessy Capital Partners II LLC and the investor(s) party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the registrant on December 29, 2016). Amended and Restated Registration Rights Agreement, dated as of February 27, 2017, by and among the registrant, Daseke Companies, Inc. (f/k/a Daseke, Inc.), Hennessy Capital Partners II LLC, and certain security holders of the registrant party thereto (incorporated by reference to Exhibit 4.1 of the registrant’s Current Report on Form 8-K filed by the registrant on March 3, 2017). Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.7 to the registrant’s Current Report on Form 8-K filed by the registrant on December 29, 2016). Form of Subscription Agreement for 7.625% Series A Convertible Cumulative Preferred Stock by and among the registrant and the investor(s) party thereto (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the registrant on December 29, 2016). Securities Subscription Agreement by and among the registrant and the Hennessy Capital Partners II LLC (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1 filed by the registrant on June 22, 2015). Sponsor Share Forfeiture Agreement, dated December 22, 2016, by and among the registrant, HCAC Merger Sub, Inc., Daseke, Inc., and Don R. Daseke, solely in his capacity as the Stockholder Representative (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form 8-K filed by the registrant on December 29, 2016). Term Loan Agreement, dated as of February 27, 2017, among the registrant, HCAC Merger Sub, Inc. (which merged with and into Daseke, Inc., which changed its name to Daseke Companies, Inc.), as borrower, certain financial institutions from time to time party thereto, as lenders, Credit Suisse AG, Cayman Islands Branch, as administrative agent, and Credit Suisse Securities (USA) LLC, UBS Securities LLC, and PNC Capital Markets LLC, as joint lead arrangers and joint bookrunners (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the registrant on March 3, 2017). 10.3* 10.4 10.5 10.6* 10.7+ 10.8+ 10.9+ 10.10+ 10.11+ 10.12+ Incremental and Refinancing Amendment (Amendment No. 2 to the Term Loan Agreement), dated as of November 28, 2017, among the registrant, Daseke Companies, Inc. and certain of its subsidiaries, Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and the lenders party thereto. Fifth Amended and Restated Revolving Credit and Security Agreement, dated February 27, 2017, among the registrant, HCAC Merger Sub, Inc. (which merged with and into Daseke, Inc., which changed its name to Daseke Companies, Inc.) and certain of its subsidiaries party thereto, PNC Bank, National Association, as lender and agent, and certain financial institutions, as lenders, from time to time party thereto (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on March 3, 2017). First Amendment to Fifth Amended and Restated Revolving Credit and Security Agreement, dated August 31, 2017, by and among the registrant, Daseke Companies, Inc., and certain of its subsidiaries party thereto and PNC Bank, National Association, as agent, and the lenders party thereto (incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q filed on November 9, 2017). Second Amendment to Fifth Amended and Restated Revolving Credit and Security Agreement, dated November 28, 2017, by and among the registrant, Daseke Companies, Inc. and certain of its subsidiaries party thereto, PNC Bank, National Association, as agent, and the lenders party thereto. Employment Agreement, dated February 27, 2017, by and between the registrant and Don R. Daseke (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by the registrant on March 3, 2017). Employment Agreement, dated February 27, 2017, by and between the registrant and R. Scott Wheeler (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by the registrant on March 3, 2017). Employment Agreement, dated February 27, 2017, by and between the registrant and Angie J. Moss (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed by the registrant on March 3, 2017). Form of Indemnification Agreement between the registrant and each of its directors and executive officers (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed by the registrant on March 3, 2017). Daseke, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.13 to the Current Report on Form 8-K filed by the registrant on March 3, 2017). Daseke, Inc. 2017 Omnibus Incentive Plan, as amended and restated on May 26, 2017, effective as of February 27, 2017 (incorporated by reference to Exhibit 4.3 to the registrant’s Registration Statement on Form S-8 filed on May 31, 2017 (File No. 333-218386)). 68 69 10.14+ 10.15+ 10.16+ 10.17+ 10.18+ 10.19+ 10.20+ 10.21+ 10.22 10.23 10.24 Exhibit No. 10.13+ Exhibit Daseke, Inc. 2017 Management Stock Ownership Program (incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K filed by the registrant on March 3, 2017). Exhibit No. 23.1* Consent of Independent Registered Public Accounting Firm Exhibit Daseke, Inc. 2017 Management Stock Ownership Program for Selected Management (incorporated by reference to Exhibit 4.5 to the registrant’s Registration Statement on Form S-8 filed on May 31, 2017 (File No. 333-218386). Daseke, Inc. 2017 Stock Ownership Program for Employees (incorporated by reference to Exhibit 4.4 to the registrant’s Registration Statement on Form S-8 filed on May 31, 2017 (File No. 333-218386)). 31.1* Chief Executive Officer certification under Section 302 of Sarbanes-Oxley Act of 2002. 31.2* Chief Financial Officer certification under Section 302 of Sarbanes-Oxley Act of 2002. 32.1** Chief Executive Officer certification under Section 906 of Sarbanes-Oxley Act of 2002. 32.2** Chief Financial Officer certification under Section 906 of Sarbanes-Oxley Act of 2002. Daseke, Inc. 2017 Stock Ownership Program for Truck Driver Employees (incorporated by reference to Exhibit 4.6 to the registrant’s Registration Statement on Form S-8 filed on May 31, 2017 (File No. 333-218386)). 101.INS* XBRL Instance Document. 101.SCH* XBRL Taxonomy Extension Schema Document. Daseke, Inc. Form of Restricted Stock Unit Award Agreement (Canadian Employee) (incorporated by reference to Exhibit 4.10 to the registrant’s Registration Statement on Form S-8 filed on May 31, 2017 (File No. 333-218386)). 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document. Daseke, Inc. Form of Non-Qualified Stock Option Award Agreement (Canadian Employee) (incorporated by reference to Exhibit 4.11 to the registrant’s Registration Statement on Form S-8 filed on May 31, 2017 (File No. 333-218386)). 101.LAB* XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document. * Filed herewith. ** Furnished herewith. + Management contract or compensatory plan or arrangement. § Schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Daseke, Inc. hereby undertakes to furnish supplementally copies of any of the omitted schedules and attachments upon request by the United States Securities and Exchange Commission (the SEC); provided, however, that Daseke, Inc. may request confidential treatment pursuant to Rule 24b-2 (Rule 24b-2) of the Securities Exchange Act of 1934, as amended, for any schedules and attachments so furnished. Confidential information has been omitted from this Exhibit and has been filed separately with the SEC pursuant to a confidential treatment request under Rule 24b-2. Form of Restricted Stock Unit Award Agreement of the registrant (incorporated by reference to Exhibit 10.7 to the registrant’s Current Report on Form 8-K filed on March 3, 2017). Form of Non-Qualified Stock Option Award Agreement of the registrant (incorporated by reference to Exhibit 10.8 to the registrant’s Current Report on Form 8-K filed on March 3, 2017). Form of Non-Qualified Stock Option Award Agreement for Non-Employee Directors of the registrant (incorporated by reference to Exhibit 10.9 to the registrant’s Current Report on Form 8-K filed on March 3, 2017). † Voting and Support Agreement, dated as of December 22, 2016, by and among Daseke, Inc., Hennessy Capital Partners II LLC and the other initial stockholders of Hennessy Capital Acquisition Corp. II set forth therein (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by the registrant on December 29, 2016). Letter Agreement, dated as of December 22, 2016, by and among Hennessy Capital Acquisition Corp. II, Daseke, Inc., The Walden Group, Inc. Prudential Capital Partners IV, L.P., Prudential Capital Partners Management Fund IV, L.P., Prudential Capital Partners (Parallel Fund) IV, L.P., Main Street Capital Corporation, Main Street Capital II, LP and Main Street Mezzanine Fund, LP (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by the registrant on December 29, 2016). Commitment Letter, dated as of December 22, 2016 by and among Hennessy Capital Acquisition Corp. II and Credit Suisse Securities (USA) LLC, Credit Suisse AG, Cayman Islands Branch, UBS AG, Stamford Branch and UBS Securities LLC (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed by the registrant on December 29, 2016). Item 16. Form 10-K Summary None. 21.1* List of subsidiaries. 70 71 SIGNATURES REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DASEKE, INC. (Registrant) Date: March 16, 2018 By: /S/ R. Scott Wheeler R. Scott Wheeler Director, President and Chief Financial Officer (Principal Financial Officer) Board of Directors and Stockholders Daseke, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Daseke, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on March 16, 2018, behalf of the registrant and in the capacities indicated. Basis for opinion /s/ Don R. Daseke Don R. Daseke /s/ R. Scott Wheeler R. Scott Wheeler /s/ Angie J. Moss Angie J. Moss /s/ Daniel J. Hennessy Daniel J. Hennessy /s/ Brian Bonner Brian Bonner /s/ Kevin M. Charlton Kevin M. Charlton /s/ Ron Gafford Ron Gafford /s/ Mark Sinclair Mark Sinclair /s/ Jonathan Shepko Jonathan Shepko Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) Director, President and Chief Financial Officer (Principal Financial Officer) Senior Vice President, Chief Accounting Officer and Corporate Controller (Principal Accounting Officer) Director Director Director Director Director Director These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2013. Dallas, Texas March 16, 2018 72 F-1 DASEKE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) DASEKE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In thousands, except share and per share data) December 31, 2017 2016 Revenues: Years Ended December 31, 2016 2017 2015 Current assets: ASSETS Cash and cash equivalents ................................................................................................................. $ Accounts receivable, net ................................................................................................................... Drivers’ advances and other receivables ........................................................................................... Current portion of net investment in sales-type leases ...................................................................... Parts supplies .................................................................................................................................... Income tax receivable ....................................................................................................................... Prepaid and other current assets ........................................................................................................ Total current assets ......................................................................................................................... 90,679 127,368 4,792 10,979 4,653 91 28,149 266,711 Property and equipment, net ................................................................................................................ Intangible assets, net ............................................................................................................................ Goodwill .............................................................................................................................................. Other long-term assets ......................................................................................................................... 429,639 93,120 302,702 33,496 Total assets ..................................................................................................................................... $ 1,125,668 Current liabilities: LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable .............................................................................................................................. $ Accrued expenses and other liabilities .............................................................................................. Accrued payroll, benefits and related taxes ....................................................................................... Accrued insurance and claims ........................................................................................................... Current portion of long-term debt ..................................................................................................... Total current liabilities ................................................................................................................... Line of credit ....................................................................................................................................... Long-term debt, net of current portion ................................................................................................ Deferred tax liabilities ......................................................................................................................... Other long-term liabilities.................................................................................................................... Subordinated debt ................................................................................................................................ Total liabilities ............................................................................................................................... 12,488 25,876 14,004 12,644 43,056 108,068 4,561 569,740 90,434 1,632 — 774,435 Commitments and contingencies (Note 17) Stockholders’ equity: Series A convertible preferred stock, $0.0001 par value; 10,000,000 shares authorized; 650,000 shares issued with liquidation preference of $65,000 at December 31, 2017 ...................... Series B convertible preferred stock, $0.01 par value; 75,000 shares authorized; 64,500 shares issued and outstanding at December 31, 2016 ............................................................ Common stock (par value $0.0001 per share); 250,000,000 shares authorized, 48,712,288 5 and 20,980,961 shares issued and outstanding at December 31, 2017 and 2016, respectively ......... 277,931 Additional paid-in-capital .................................................................................................................... Retained earnings (accumulated deficit) .............................................................................................. 7,338 959 Accumulated other comprehensive income (loss) ............................................................................... Total stockholders’ equity .............................................................................................................. 351,233 Total liabilities and stockholders’ equity ........................................................................................ $ 1,125,668 65,000 — The accompanying notes are an integral part of the consolidated financial statements. $ $ $ $ 3,695 54,177 2,632 3,516 1,467 719 13,504 79,710 318,747 71,653 89,035 11,090 570,235 5,954 16,104 7,835 9,840 52,665 92,398 6,858 208,372 92,815 286 66,443 467,172 — 1 2 117,806 (14,694) (52) 103,063 570,235 Freight ............................................................................................................................................. $ Brokerage ........................................................................................................................................ Logistics .......................................................................................................................................... Fuel surcharge ................................................................................................................................. Total revenue ......................................................................................................................... 632,764 $ 120,943 22,074 70,523 846,304 517,861 $ 87,410 — 46,531 651,802 506,582 108,900 — 63,363 678,845 Operating expenses: Salaries, wages and employee benefits .......................................................................................... Fuel ................................................................................................................................................. Operations and maintenance .......................................................................................................... Communications ............................................................................................................................. Purchased freight ............................................................................................................................ Administrative expenses ................................................................................................................. Sales and marketing ........................................................................................................................ Taxes and licenses .......................................................................................................................... Insurance and claims ...................................................................................................................... Acquisition-related transaction expenses ....................................................................................... Depreciation and amortization ....................................................................................................... Gain on disposition of revenue property and equipment ............................................................... Impairment ...................................................................................................................................... Total operating expenses .................................................................................................... Income from operations...................................................................................................... Other expense (income): Interest income ............................................................................................................................... Interest expense .............................................................................................................................. Write-off of unamortized deferred financing fees ......................................................................... Other ............................................................................................................................................... Total other expense ............................................................................................................ Income (loss) before provision (benefit) for income taxes .................................................................. Provision (benefit) for income taxes .................................................................................................... Net income (loss) ................................................................................................................ 249,996 93,749 118,390 2,145 225,254 33,233 1,965 11,055 23,962 3,377 76,863 (700) — 839,289 7,015 (398) 29,556 3,883 (740) 32,301 (25,286) (52,282) 26,996 197,789 66,865 96,100 1,618 154,054 25,250 1,743 9,222 19,114 25 67,500 (116) 2,005 641,169 10,633 (44) 23,124 — (331) 22,749 (12,116) 163 (12,279) Other comprehensive income: Unrealized income on interest rate swaps ...................................................................................... Foreign currency translation adjustments, net of $517 tax expense .............................................. Comprehensive income (loss) ............................................................................................ 52 959 28,007 62 — (12,217) Net income (loss) .................................................................................................................................. Less dividends to Series A convertible preferred stockholders ..................................................... Less dividends to Series B convertible preferred stockholders ..................................................... Net income (loss) attributable to common stockholders ................................................... $ 26,996 (4,158) (806) 22,032 $ (12,279) — (4,770) (17,049) $ 178,703 70,296 98,734 2,034 181,985 21,710 2,911 9,228 19,655 1,192 63,573 (2,184) — 647,837 31,008 (69) 20,602 — (251) 20,282 10,726 7,463 3,263 33 — 3,296 3,263 — (4,736) (1,473) Net income (loss) per common share: Basic ............................................................................................................................................... $ Diluted ............................................................................................................................................ $ 0.59 $ 0.56 $ (0.81) $ (0.81) $ (0.07) (0.07) Weighted-average common shares outstanding: Basic ............................................................................................................................................... Diluted ............................................................................................................................................ 37,592,549 39,593,701 20,980,961 20,980,961 20,980,961 20,980,961 Dividends declared per Series A convertible preferred share .............................................................. $ Dividends declared per Series B convertible preferred share .............................................................. $ 6.40 $ 12.50 $ — $ 18.75 $ — 75.00 The accompanying notes are an integral part of the consolidated financial statements. F-2 F-3 d e n i a t e R s g n i n r a E k c o t S n o m m o C e l b i t r e v n o C B s e i r e S k c o t S d e r r e f e r P e l b i t r e v n o C A s e i r e S k c o t S d e r r e f e r P S E I R A I D I S B U S D N A . C N I , E K E S A D Y T I U Q E ’ S R E D L O H K C O T S N I S E G N A H C F O S T N E M E T A T S D E T A D I L O S N O C 5 1 0 2 d n a 6 1 0 2 , 7 1 0 2 , 1 3 r e b m e c e D d e d n E s r a e Y ) a t a d e r a h s t p e c x e , s d n a s u o h t n I ( l a t o T d e t a l u m u c c A r e h t O e v i s n e h e r p m o C ) s s o L ( e m o c n I 5 1 1 , 7 0 1 $ ) 7 4 1 ( $ 8 2 8 , 3 $ 2 3 4 , 3 0 1 $ d e t a l u m u c c A ( l a n o i t i d d A ) t i c i f e D l a t i p a C n I - d i a P r a P e u l a V — 5 7 3 , 4 1 5 1 1 , 7 0 1 3 3 ) 6 3 7 , 4 ( 3 6 2 , 3 — ) 7 4 1 ( — 3 3 — — 0 5 0 , 0 2 1 ) 4 1 1 ( 2 6 ) 0 7 7 , 4 ( ) 9 7 2 , 2 1 ( 3 6 0 , 3 0 1 2 5 ) 6 0 8 ( ) 8 6 1 , 6 3 ( — 0 4 6 , 3 8 ) 3 6 0 , 9 1 ( 0 0 0 , 5 6 3 0 3 , 7 2 1 0 4 5 , 2 ) 8 5 1 , 4 ( 9 5 9 5 7 8 , 1 6 9 9 , 6 2 3 3 2 , 1 5 3 $ 2 6 — — ) 2 5 ( 2 5 — — — — — — — — — — — 9 5 9 9 5 9 — — — 8 2 8 , 3 ) 6 3 7 , 4 ( — 3 6 2 , 3 5 5 3 , 2 ) 0 7 7 , 4 ( ) 9 7 2 , 2 1 ( ) 4 9 6 , 4 1 ( — ) 6 0 8 ( — — — — — — — $ 8 3 3 , 7 6 9 9 , 6 2 — — ) 8 5 1 , 4 ( ) 1 ( 5 7 3 , 4 1 1 3 4 , 3 0 1 — — — — — — 6 0 8 , 7 1 1 — — 6 0 8 , 7 1 1 1 1 2 — — — — 2 — — — 2 — — $ 5 9 4 , 5 4 1 s e r a h S 6 6 4 , 5 3 8 , 0 2 1 6 9 , 0 8 9 , 0 2 — — — — — — — 1 6 9 , 0 8 9 , 0 2 — — 1 6 9 , 0 8 9 , 0 2 1 — 1 — — — — 1 — — — 1 — — — r a P e u l a V $ — 0 0 8 , 4 5 s e r a h S 0 0 7 , 9 0 0 8 , 4 5 — — — 0 0 5 , 4 6 — — — — — — 0 0 5 , 4 6 ) 7 6 1 , 6 3 ( ) 1 ( ) 1 8 7 , 6 1 6 , 3 ( — 9 3 6 , 3 8 ) 3 6 0 , 9 1 ( — — 5 7 8 , 1 0 4 5 , 2 1 0 3 , 7 2 1 — — $ 1 3 9 , 7 7 2 $ 1 1 — — 2 — — — — — 5 — — — — — 0 5 1 , 1 0 3 , 9 0 3 6 , 0 5 0 , 1 1 — — 8 2 3 , 6 9 9 , 0 1 $ 8 8 2 , 2 1 7 , 8 4 — — — — — — — — — — $ — — — — — — — — — — ) 1 ( ) 0 0 5 , 4 6 ( — — — — — — — — — — — — — — — — — — $ — — — — — — — — — — — — — — — — — — t n u o m A s e r a h S . . . . . . . . . . k c o t s d e r r e f e r p e l b i t r e v n o c B s e i r e s f o e c n a u s s I . . . . . . . . . . . . . . . . . . . . . . . . . s p a w s e t a r t s e r e t n i n o n i a g d e z i l a e r n U . . . . . . . . . . . . . d n e d i v i d k c o t s d e r r e f e r p e l b i t r e v n o c B s e i r e S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e m o c n i t e N . . . . . . . . . . . . . . . d e t r o p e r y l s u o i v e r p s a 5 1 0 2 , 1 y r a u n a J , e c n a l a B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n o i t i s i u q c a e s r e v e r f o t c e f f E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1 0 2 , 1 y r a u n a J t a e c n a l a B . . . . . . . . . . . . . . . . . . . . . . . . . s p a w s e t a r t s e r e t n i n o n i a g d e z i l a e r n U . . . . . . . . . . . . . d n e d i v i d k c o t s d e r r e f e r p e l b i t r e v n o c B s e i r e S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . s s o l t e N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . s p a w s e t a r t s e r e t n i n o e m o c n I . . . . . . . . . . . . . d n e d i v i d k c o t s d e r r e f e r p e l b i t r e v n o c B s e i r e S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . s e r a h s n o m m o c f o e s a h c r u p e R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . s e r a h s n o m m o c o t k c o t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . r e r i u q c a l a g e l y b d e m u s s a s e r a h S . . . . . . . . . . . . . . s t s o c n o i t c a s n a r t r e r i u q c a l a g e l f o t n e m e l t t e S d e r r e f e r p e l b i t r e v n o c B s e i r e S f o n o i s r e v n o C 0 0 0 5 6 , 0 0 0 0 5 6 , . . . . . . . . . k c o t s d e r r e f e r p e l b i t r e v n o c A s e i r e S f o e c n a u s s I — — — — — — — — — — — — . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . k c o t s n o m m o c f o e c n a u s s I . . . . . . . . . . . . s e x a t d e r r e f e d n o n o i t i s i u q c a e s r e v e r f o t c e f f E . . . . . . . . . . . . . d n e d i v i d k c o t s d e r r e f e r p e l b i t r e v n o c A s e i r e S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S . . . . . . . . . . . . . . . . . . . . s t n e m t s u j d a n o i t a l s n a r t y c n e r r u c n g i e r o F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e m o c n i t e N 0 0 0 , 5 6 $ 0 0 0 , 0 5 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B DASEKE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended December 31, 2016 2015 2017 . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t f o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m o c c a e h T Cash flows from operating activities Net income (loss) .................................................................................................................... $ 26,996 $ (12,279) $ Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation ......................................................................................................................... Amortization of intangible assets ......................................................................................... Amortization of deferred financing fees ............................................................................... Write-off of deferred financing fees ..................................................................................... Stock-based compensation expense ...................................................................................... Deferred taxes ...................................................................................................................... Bad debt expense .................................................................................................................. Non-cash interest expense .................................................................................................... Gain on disposition of property and equipment .................................................................... Deferred gain recognized on sales-type leases ..................................................................... Impairment ........................................................................................................................... Changes in operating assets and liabilities Accounts receivable ............................................................................................................. Drivers’ advances and other receivables .............................................................................. Payments received on sales-type leases ................................................................................ Prepaid and other current assets ........................................................................................... Accounts payable ................................................................................................................. Accrued expenses and other liabilities ................................................................................. Net cash provided by operating activities ............................................................................. 70,168 6,695 1,777 3,883 1,875 (53,394) 235 92 (699) (1,362) — (15,294) 519 5,761 (3,437) 283 1,666 45,764 Cash flows from investing activities (19,792) Purchase of property and equipment ....................................................................................... Proceeds from sale of property and equipment ....................................................................... 5,773 Cash paid in acquisitions, net of cash acquired ....................................................................... (279,834) Net cash provided by (used in) investing activities .............................................................. (293,853) 61,499 6,001 1,347 — — (349) 612 1,078 (116) (751) 2,005 8,660 (405) 3,653 6,352 (1,034) (9,858) 66,415 (4,108) 5,906 — 1,798 3,263 58,407 5,166 1,456 — — 7,007 328 1,049 (2,184) (467) — 6,837 727 2,191 (1,757) (5,139) 8,200 85,084 (6,431) 2,215 64 (4,152) Cash flows from financing activities: Advances on line of credit ...................................................................................................... 754,635 Repayments on line of credit .................................................................................................. (756,932) Advances on long-term debt ................................................................................................... 12,301 Principal payments on and payoff of long-term debt .............................................................. (239,506) Proceeds from Term Loan Facility ......................................................................................... 500,000 — Proceeds from long-term debt ................................................................................................. Payments on related party debt ............................................................................................... — (19,193) Deferred financing fees ........................................................................................................... (66,715) Pay off of subordinated debt ................................................................................................... Issuance of Series B Convertible Preferred Stock ................................................................... — Issuance of common stock ...................................................................................................... 127,893 (36,168) Repurchase of common stock ................................................................................................. 65,000 Issuance of Series A convertible preferred stock .................................................................... Series A convertible preferred stock dividends ....................................................................... (4,158) (2,016) Series B convertible preferred stock dividends ....................................................................... Net cash provided by (used in) financing activities .............................................................. 335,141 702,846 (706,724) — (72,987) — 14,188 — (1,889) — — — — — — (4,838) (69,404) 671,070 (682,516) — (59,087) — — (2,700) (1,607) — 875 — — — — (4,487) (78,452) Effect of exchange rates on cash and cash equivalents .............................................................. (68) — — Net increase (decrease) in cash and cash equivalents ................................................................ Cash and cash equivalents – beginning of year ......................................................................... Cash and cash equivalents – end of year ................................................................................... $ 90,679 $ 86,984 3,695 (1,191) 4,886 3,695 $ 2,480 2,406 4,886 The accompanying notes are an integral part of the consolidated financial statements. F-4 F-5 DASEKE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued) (In thousands) DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2016 2017 2015 Supplemental disclosure of cash flow information Cash paid for interest .............................................................................................................. $ 28,676 $ 20,523 $ 16,583 892 Cash paid for income taxes ..................................................................................................... $ 1,078 $ 1,010 $ Noncash investing and financing activities Property and equipment acquired with debt or capital lease obligations ................................. $ 21,897 $ 33,467 $ 62,753 237 Property and equipment sold for notes receivable .................................................................. $ 8,232 Property and equipment transferred to sales-type lease ......................................................... $ — Assets held for sale returned to property and equipment ........................................................ $ 807 Sales-type lease returns to property and equipment ................................................................ $ Sales-type lease assets acquired with debt or capital lease obligations ................................... $ 3,186 Sales-type lease assets sold for notes receivable ..................................................................... $ 28,405 $ 20,934 $ 15,437 8,282 Sales-type lease returns to sales-type lease assets ................................................................... $ 19,720 $ 16,784 $ — $ — $ Transfer between Senior Term Loan and line of credit ........................................................... $ 9,993 — $ 13,500 — $ Preferred Series B convertible preferred stock issued for acquisitions ................................... $ 3,000 — $ Issuance of seller subordinated notes ...................................................................................... $ — $ — — $ Common stock issued in acquisitions ..................................................................................... $ 63,987 $ — $ 48,000 — $ Acquisitions financed with Senior Term Loan and line of credit ............................................ $ 1,277 — $ Accrued series B convertible preferred dividends ................................................................... $ — — $ BHE Subordinated Notes forgiven to fund pension plan liability ........................................... $ 555 $ 7,053 $ — $ 818 $ 4 $ 452 $ 6,240 $ 351 $ 1,830 $ 538 $ 1,209 $ 1,709 $ NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The registrant was originally formed in April 2015 as a special purpose acquisition company (SPAC) under the name Hennessy Capital Acquisition Corp. II (Hennessy). As a SPAC, Hennessy had no operations and its purpose was to go public with the intention of merging with or acquiring an operating company with the proceeds of the SPAC’s initial public offering (the IPO). On February 27, 2017, Hennessy consummated the Business Combination (as defined and described in Note 2) with Daseke, Inc. Upon consummation of the Business Combination, Daseke, Inc. changed its name to Daseke Companies, Inc. and Hennessy changed its name to Daseke, Inc. Daseke, Inc. was formed in December 2008 and began operations on January 1, 2009. Daseke is engaged in full service open-deck trucking that specializes primarily in flatbed truckload and heavy haul transportation of specialized items throughout the United States, Canada and Mexico. The Company also provides logistical planning and warehousing services to customers. The Company is subject to regulation by the Department of Transportation and various state regulatory authorities. Additionally, due to the recent acquisitions (see Note 3), the Company is also subject to regulations by the Department of Defense and the Department of Energy. Unless expressly stated otherwise, references to the Company or Daseke refers to Daseke, Inc. and its wholly owned subsidiaries, Hennessy refers to the registrant prior to the closing of the Business Combination, and Private Daseke refers to Daseke, Inc. and its subsidiaries prior to the closing of the Business Combination. The accompanying notes are an integral part of the consolidated financial statements. Principles of Consolidation The consolidated financial statements include the accounts of Daseke, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounts Receivable The Company grants credit to its customers for substantially all of its sales. Accounts receivable are carried at original invoice amount less an estimate for doubtful accounts. The Company establishes an allowance for doubtful accounts based on a periodic review of its outstanding receivables and consideration of historical experience. Accounts receivable are written off when deemed uncollectible and recoveries of trade accounts receivable previously written off are recorded as income when received. Accounts receivable are unsecured and the Company does not charge interest on outstanding receivables. F-6 F-7 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Changes in the allowance for doubtful accounts is as follows (in thousands): Goodwill and Intangible Assets Beginning balance .......................................................................... $ Provision, charged to expense......................................................... Write-off, less recoveries ................................................................ Ending balance ................................................................................ $ 321 $ 235 (344) 212 $ 82 612 (373) 321 Year Ended December 31, 2017 2016 Cash and Cash Equivalents Cash equivalents are defined as short-term investments that have an original maturity of three months or less at the date of purchase and are readily convertible into cash. The Company maintains cash in several banks and, at times, the balances may exceed federally insured limits. The Company does not believe it is exposed to any material credit risk on cash. The Company has a money market account as of December 31, 2017 and there were no cash equivalents at December 31, 2016. Sales-Type Leases The Company leases revenue equipment to certain of its owner-operators and accounts for these transactions as sales-type leases. These leases have terms of 30 to 72 months and are collateralized by a security interest in the related revenue equipment. A minimum lease receivable is recorded, net of unearned interest income and deferred gain on sale of the equipment. The gain is recognized as payments are collected, rather than in the period the lease is recorded due to the uncertainty of collection. Parts Supplies Parts supplies consists of parts, replacement tires, and miscellaneous supplies and are valued at the lower of cost or market with cost determined principally on the first-in, first out method. Tires on new revenue equipment are capitalized as a component of the related equipment cost when the tractor or trailer is placed in service. Replacement tires are expensed when placed on the tractor or trailer. Property and Equipment Property and equipment are stated at cost less accumulated depreciation, and are depreciated to estimated salvage value using the straight-line method over the estimated useful lives of the related assets as follows: Buildings and building improvements ................................................................... 10 – 40 years Leasehold improvements ....................................................................................... 5 – 20 years Revenue equipment – tractors, trailers and accessories ......................................... 5 – 15 years 5 – 7 years Vehicles ................................................................................................................. 5 – 7 years Furniture and fixtures ............................................................................................ 3 – 5 years Office and computer equipment............................................................................. The Company periodically evaluates the carrying value of long-lived assets for recoverability. The carrying value of a long-lived asset is considered impaired if its future undiscounted cash flows is less than its carrying value. In 2016, the carrying value of assets held for sale, consisting primarily of tractors, was reduced by $1.6 million due to a change in the estimated fair value less costs to sell. This adjustment to fair value is included in impairment on the consolidated statements of operations and comprehensive income (loss). Goodwill and other intangible assets result from business acquisitions. The Company accounts for business acquisitions by assigning the purchase price to tangible and intangible assets and liabilities. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over amounts assigned is recorded as goodwill. Goodwill is tested for impairment at least annually (or more frequently if impairment indicators arise) for each reporting unit by applying either a qualitative or quantitative analysis in accordance with the authoritative accounting guidance on goodwill. The Company first assesses qualitative factors to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as the basis for determining whether it is necessary to perform a quantitative goodwill impairment test. The Company may bypass the qualitative assessment for any reporting unit in any period and proceed directly with the quantitative analysis. The quantitative analysis compares the fair value of the reporting unit with its carrying amount. The Company estimates the fair value of a reporting unit using discounted expected future cash flows. The Company’s annual assessment is conducted as of October 1 of each year. Prior to 2017, the annual assessment was conducted as of November 1, but was changed during 2017 to better align with the Company’s reporting periods. The change in testing date does not delay, accelerate or avoid an impairment charge. The Company determined that it is impractical to objectively determine projected cash flows and related valuation estimates that would have been used as of October 1 for periods prior to October 1, 2017 without the use of hindsight. As such, the Company prospectively applied the change in the annual goodwill impairment assessment date beginning October 1, 2017. In 2016, the carrying value of one subsidiary exceeded its estimated fair value. Accordingly, a non-cash, non-tax deductible goodwill impairment charge of $0.4 million was recognized during the three months ended December 31, 2016 and is included in impairment on the consolidated statements of operations and comprehensive income (loss). There was no goodwill impairment identified for the years ended December 31, 2017 or 2015. Other intangible assets recorded consist of indefinite lived trade names and definite lived non-competition agreements and customer relationships. These intangible assets are stated at estimated fair value at the time of acquisition less accumulated amortization. Amortization is recorded using the straight-line method over the following estimated useful lives: Customer relationships ...................................................................................... 10 – 15 years 2 – 5 years Non-competition agreements ............................................................................. The Company evaluates its definite lived intangible assets for impairment when current facts or circumstances indicate that the carrying value of the assets to be held and used may not be recoverable. Indefinite-lived intangible assets are tested for impairment annually applying a fair value based analysis in accordance with the authoritative accounting guidance for such assets. No indicators of impairment were identified for the years ended December 31, 2017, 2016 and 2015. Revenue and Expense Recognition The Company recognizes revenue and related costs when persuasive evidence of an arrangement exists, delivery has occurred or services have been performed, the fee is fixed or determinable and collectability is probable. With respect to freight, brokerage, logistics and fuel surcharge revenue, these conditions are met, and the Company recognizes freight, brokerage and fuel surcharge revenue, upon delivery of a load and logistics revenue, as the services are provided. The Company recognizes brokerage revenue on a gross basis, as opposed to a net basis, because it bears the risks and benefits associated with revenue-generating activities by, among other things, (1) acting as a principal in the transaction, (2) establishing prices, (3) managing all aspects of the shipping process, and (4) taking the risk of loss for collection, delivery and returns. Accordingly, all such revenue billed to customers is classified as brokerage revenue, and all corresponding payments to carriers for transportation services arranged by the Company in connection with brokerage and intermodal activities and to independent contractor providers of revenue equipment are classified as purchased freight. F-8 F-9 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Advertising Advertising costs are expensed as incurred and were insignificant for the years ended December 31, 2017, 2016 and 2015. Sales Taxes Taxes collected from customers and remitted to governmental authorities are presented in revenues in the consolidated statements of operations and comprehensive income (loss) on a net basis. Income Taxes Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the consolidated financial statement and tax basis of assets and liabilities at the applicable enacted tax rates. The Company recognizes the tax benefit from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income tax matters in income tax expense within the statements of operations and comprehensive income (loss). The Company had no uncertain tax positions as of December 31, 2017 and 2016. The Company is no longer subject to United States federal income tax examinations by tax authorities for years before 2014. The Company is no longer subject to state income tax examinations by tax authorities for years before 2013. Concentrations of Credit Risk Financial instruments that potentially subject the Company to credit risk include accounts receivable. One customer represented approximately 13% of trade accounts receivable as of December 31, 2016, however no customer represented greater than 7% of trade accounts receivable as of December 31, 2017. No customer represented 10% or more of total revenue for the years ended December 31, 2017, 2016 and 2015. Deferred Financing Fees In conjunction with obtaining long-term debt, the Company incurred financing costs which are being amortized using the straight line method, which approximates the effective interest rate method, over the terms of the obligations. As of December 31, 2017 and 2016, the balance of deferred finance charges was $17.7 million and $4.1 million, respectively, which is included as a reduction of long-term debt, net of current portion in the consolidated balance sheets. Amortization expense for the years ended December 31, 2017, 2016 and 2015 totaled $5.7 million, $1.3 million and $1.5 million, respectively, which is included in interest expense. In February 2017, in conjunction with new term loan financing, as amended, discussed in Note 9, the Company incurred deferred financing costs of $14.2 million and an additional $4.8 million in November 2017 related to the tack-on loan. Unamortized deferred financing fees totaling $3.9 million were expensed as a result of the new term loan financing. Fair Value Measurements The Company follows the accounting guidance for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a framework for measuring fair value and expands disclosures about fair value measurements. The three levels of the fair value framework are as follows: Level 1 – Quoted market prices in active markets for identical assets or liabilities. Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3 – Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs from inactive markets. A financial asset or liability’s classification within the framework is determined based on the lowest level of input that is significant to the fair value measurement. The fair value of the Company’s interest rate swaps is determined using cash flow computer models with unobservable inputs, therefore the liability for interest rate swaps is classified within Level 3 of the fair value framework. In conjunction with the Business Combination discussed in Note 2, the Company’s lone interest rate swap was terminated. At December 31, 2016, the fair value of this liability was $51,871 and is classified in accrued expenses and other liabilities on the consolidated balance sheets. The tables below are a summary of the changes in the fair value of this liability for the years ended December 31, 2017 and 2016 (in thousands): Balance, beginning of year ............................................................. $ Change in fair value ........................................................................ Balance, end of year ....................................................................... $ (52) $ 52 — $ (124) 72 (52) 2017 2016 Fair Value of Financial Instruments The Company’s financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses, interest rate swaps, the line of credit and long-term debt. The carrying value of these financial instruments approximates fair value based on the liquidity of these financial instruments, their short-term nature or variable interest rates. Stock-Based Compensation Awards of equity instruments issued to employees and directors are accounted for under the fair value method of accounting and recognized in the consolidated statements of operations and comprehensive income (loss). Compensation cost is measured for all stock-based awards at fair value on the date of grant and recognized using the straight-line method over the service period over which the awards are expected to vest. Fair value of all time-vested options as of the date of grant is estimated using the Black-Scholes option valuation model, which was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Since the Company does not have a sufficient history of exercise behavior, expected term is calculated using the assumption that the options will be exercised ratably from the date of vesting to the end of the contractual term for each vesting tranche of awards. The risk-free interest rate is based on the United States Treasury yield curve for the period of the expected term of the stock option. Expected volatility is calculated using an index of publicly traded peer companies. Fair values of nonvested stock awards (restricted stock units) are equal to the market value of the common stock on the date of the award with compensation costs amortized over the vesting period of the award. F-10 F-11 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accrued Insurance and Claims The Company uses a combination of purchased insurance and self-insurance programs and beginning in December 2017, with the acquisition of the Roadmaster Group (see Note 3), a captive group insurance company. The insurance provides for the cost of vehicle liability, cargo loss, damage, general liability, property, workers’ compensation claims and employee medical benefits. Self-insurance accruals relate primarily to vehicle liability, cargo damage, workers’ compensation and employee medical claims. The measurement and classification of self-insured costs requires the consideration of historical cost experience, demographic and severity factors, and judgments about the current and expected levels of cost per claim and retention levels. These methods provide estimates of the liability associated with claims incurred as of the balance sheet date, including claims not reported. The Company believes these methods are appropriate for measuring these highly judgmental self-insurance accruals. However, the use of any estimation method is sensitive to the assumptions and factors described above, based on the magnitude of claims and the length of time from the date the claim is incurred to ultimate settlement. Accordingly, changes in these assumptions and factors can materially affect actual costs paid to settle the claims and those amounts may be different than estimates. Segment Reporting The Company determines its operating segments based on the information utilized by the chief operating decision maker to allocate resources and assess performance. Based on this information, the Company has determined it has 15 operating segments as of December 31, 2017 and eight operating segments as of December 31, 2016 that are aggregated into two reportable segments: Flatbed Solutions, which delivers its services using primarily flatbed transportation equipment to meet the needs of high-volume, time-sensitive shippers, and Specialized Solutions, which delivers transportation and logistics solutions for super heavy haul, high-value customized and over-dimensional loads, many of which require engineering and customized equipment. Earnings (Loss) Per Share Basic earnings (loss) per common share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share reflect the potential dilution of earnings per share that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the Company’s earnings (loss). Common Stock Purchase Warrants The Company accounts for the issuance of common stock purchase warrants in connection with equity offerings in accordance with the provisions of the Accounting Standards Codification (ASC) 815, Derivatives and Hedging (ASC 815). The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net- cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). See Note 12 for additional details on the common stock purchase warrants. The Company assessed the classification of its common stock purchase warrants and determined that such instruments meet the criteria for equity classification at the time of issuance. Foreign Currency Gains and Losses The local currency is the functional currency for the Company’s operations in Canada. For these operations, assets and liabilities are translated at the rates of exchange on the consolidated balance sheet date, while income and expense items are translated at average rates of exchange during the period. The resulting gains or losses arising from the translation of accounts from the functional currency into United States dollars are included as a separate component of stockholders’ equity in accumulated other comprehensive income (loss) until a partial or complete liquidation of the Company’s net investment in the foreign operation. From time to time, the Company’s foreign operations may enter into transactions that are denominated in a currency other than their functional currency (United States dollars). These transactions are initially recorded in the functional currency of the operating company based on the applicable exchange rate in effect on the date of the transaction. Monthly, these transactions are remeasured to an equivalent amount of the functional currency based on the applicable exchange rate in effect on the remeasurement date. Any adjustment required to remeasure a transaction to the equivalent amount of functional currency is recorded in the consolidated statements of operations of the foreign operating company as a component of foreign exchange gain or loss. Assets Held for Sale Assets held for sale is comprised of revenue equipment in our lease purchase program and is recorded as a component of prepaid and other current assets on the consolidated balance sheets. Assets held for sale at December 31, 2017 and 2016, totaled $9.9 million and $4.6 million, respectively. Assets held for sale totaled $7.0 million and $4.6 million for the Flatbed Solutions segment for the years ended December 31, 2017 and 2016, respectively. Assets held for sale totaled $2.9 million for the Specialized Solutions segment for the year ended December 31, 2017. Assets held for sale are not subject to depreciation, and are recorded at the lower of depreciated carrying value or fair market value less selling costs. The Company expects to sell these assets in its lease purchase program within twelve months of being classified as assets held for sale. Any gains (losses) from the sale of these assets is recognized as a deferred gain in the consolidated statement of cash flows. New Accounting Pronouncements In July 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-11, Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). ASU 2017-11 provides guidance on accounting for financial instruments with down round features and clarifies the deferral of certain provisions in Topic 480. ASU 2017-11 will become effective for annual periods beginning after December 15, 2018 and interim periods within those periods. The Company is currently evaluating the impact of adopting this guidance. In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718). ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award requires the application of modification accounting. Modification accounting will apply unless the fair value of the modified award is the same as the original award, the vesting conditions of the modified award are the same as the original award and the classification of the modified award as an equity instrument or liability instrument is the same as the original award. ASU 2017-09 will become effective for annual periods beginning after December 15, 2017 and interim periods within those periods. Early adoption is permitted. The Company does not expect ASU 2017-09 to have a material impact on its consolidated results of operations, financial condition, cash flows, or financial statement disclosures. In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350). ASU 2017-04 removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill F-12 F-13 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years beginning December 15, 2019, with early adoption permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017, and applied prospectively. The Company adopted this pronouncement on October 1, 2017 as a part of the annual goodwill assessment and the adoption had no impact on the Company’s consolidated results of operations, financial condition, cash flows or financial statement disclosures. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 provides new guidance intended to reduce diversity in practice in how certain cash receipts and payments are classified in the statement of cash flows, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, and distributions from certain equity method investees. ASU 2016-05 will become effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal years. Early adoption is permitted. ASU 2016-15 requires application using a retrospective transition method. The Company is currently evaluating the impact of adopting this guidance. In June 2016, the FASB issued ASU No. 2016-13, Accounting for Credit Losses (Topic 326). ASU 2016-13 requires the use of an “expected loss” model on certain types of financial instruments. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of adopting this guidance. In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718). ASU 2016-09 requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. ASU 2016-09 also allows for the Company to repurchase more of the Company’s shares for tax withholding purposes without triggering liability accounting. In addition, ASU 2016-09 allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted. The Company adopted this pronouncement on April 1, 2017 and election to account for forfeitures as they occur did not have a material impact on the Company’s consolidated results of operations, financial condition, cash flows or financial statement disclosures. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 amends various aspects of existing guidance for leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The main difference between previous GAAP and the amended standard is the recognition of lease assets and lease liabilities of lessees on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this ASU will have on its consolidated financial position and results of operations. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and related amendments. Topic 606 supersedes all industry revenue guidance. The core principle of the guidance is for an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective). To evaluate our current accounting processes, compared to the new standard, we completed an assessment of representative contracts from each of our revenue streams. Currently, we recognize revenue upon completion of transportation or other services. By nature, our services are short in duration, typically representing less than one week to completion. Under the new standard, we will recognize revenue over time as our customers simultaneously receive and consume the benefits of our services. Due to the short nature of our transactions, we have determined the differences between recognizing revenue upon completion and over time are minimal. The adoption of this standard will not have a material impact on our financial position, results of operations or cash flows. There will be additions and modifications to our existing financial disclosures. While the overall revenue, systems and controls will be minimally impacted by the new standard, the underlying recognition methodology will change. Under adoption of Topic 606, revenue for services will be recognized over time as our customers simultaneously receive and consume the benefits of our services. The primary difference between the two recognition approaches for our business is the recognition of revenue for in-transit services at each reporting period. The Company adopted this guidance, utilizing the modified retrospective method, on January 1, 2018, which did not result in a transition adjustment to the opening balance of retained earnings. NOTE 2 –BUSINESS COMBINATION On February 27, 2017, Hennessy consummated the merger of Hennessy’s wholly-owned subsidiary with and into Daseke, Inc., with Daseke, Inc. surviving as a direct wholly-owned subsidiary of Hennessy (the Business Combination) pursuant to the Agreement and Plan of Merger, dated December 22, 2016 (the Merger Agreement). The aggregate consideration received by Private Daseke stockholders upon closing was $266.7 million, consisting of newly issued shares of common stock at a value of $10.00 per share. The Merger Agreement contains an earn-out provision through which Private Daseke stockholders could receive up to 15 million additional shares of common stock (with up to 5 million shares payable annually with respect to 2017, 2018 and 2019 performance). The full 15 million shares are only payable if (i) the annualized Adjusted EBITDA (giving effect to acquisitions and as defined in the Merger Agreement) for 2017, 2018 and 2019 is at least $140.0 million, $170.0 million and $200.0 million, respectively, and (ii) the closing share price of the Company’s common stock is at least $12.00, $14.00 and $16.00 for any 20 trading days in a consecutive 30 trading day period in 2017, 2018 and 2019, respectively. For each year, the 5 million earn-out shares will be prorated to the extent the annualized Adjusted EBITDA (giving effect to acquisitions and as defined in the Merger Agreement) exceeds 90% but represents less than 100%, of the applicable earn-out target. Following the consummation of the Business Combination on February 27, 2017 (the Closing), there were 37,715,960 shares of common stock issued and outstanding, consisting of (i) 26,665,330 shares issued to Private Daseke stockholders pursuant to the Merger Agreement, (ii) 419,669 shares issued in a private placement that closed in conjunction with the Business Combination, (iii) 2,288,043 shares originally issued to Hennessy Capital Partners II LLC (the Sponsor) in a private placement that closed simultaneously with the consummation of the IPO, and (iv) 8,342,918 shares, following redemptions, which shares were originally issued in the IPO. In connection with the Business Combination, $65.0 million of Series A Preferred Stock (650,000 shares) were issued in a private placement. In conjunction with the Closing, the Company entered into (i) a $350.0 million term loan credit facility (the Term Loan Facility), which consists of a $250.0 million term loan funded on the closing date of the Term Loan Facility and up to $100.0 million of term loans to be funded from time to time under a delayed draw term loan facility, and (ii) an asset- based revolving credit facility (the ABL Facility), in an aggregate maximum credit amount equal to $70.0 million (subject to availability under a borrowing base). See Note 9 for more information regarding the Term Loan Facility and the ABL Facility. Prior to the Closing, the Company had a credit facility consisting of a term loan (Senior Term Loan) and a revolving line of credit (Line of Credit). F-14 F-15 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table is a summary of cash proceeds and utilization of proceeds in the Business Combination (in thousands): NOTE 3 – ACQUISITIONS Proceeds Public share proceeds(1) ................................................................................................................................. Issuance of Series A Preferred Stock ........................................................................................................... Term Loan Facility........................................................................................................................................ Cash(2) ........................................................................................................................................................... Total proceeds ............................................................................................................................................... $ 83,429 65,000 250,000 3,209 401,638 Use of Proceeds Repayment of Line of Credit(3) ...................................................................................................................... Repayment of Senior Term Loan(4) ............................................................................................................... Repayment of equipment loans(5) .................................................................................................................. Repayment of subordinated debt(6) ................................................................................................................ Payment of deferred financing fees(7) ............................................................................................................ Repurchase Main Street and Prudential shares(8) .......................................................................................... Hennessy transaction costs ............................................................................................................................ Daseke transaction costs(9) ............................................................................................................................ Total use of proceeds .................................................................................................................................... 16,717 122,724 89,488 67,460 14,148 36,168 19,063 1,204 366,972 Net cash received .......................................................................................................................................... $ 34,666 (1) - 8,342,918 public shares outstanding valued at $10.00 per share (2) - Daseke cash utilized for payment of deferred financing fees and transaction costs (3) - includes payment of $59 accrued interest recognized in interest expense (4) - includes payment of $422 accrued interest recognized in interest expense (5) - includes payment of $731 accrued interest recognized in interest expense (6) - includes payment of $745 accrued interest recognized in interest expense (7) - excludes $81 paid subsequent to the Closing (8) - Hennessy repurchased Private Daseke shares held by Main Street Capital II, LP, Main Street Mezzanine Fund, LP, Main Street Capital Corporation, Prudential Capital Partners IV, L.P., Prudential Capital Partners (Parallel Fund) IV, L.P. and Prudential Capital Partners Management Fund IV, L.P. (9) - $0.8 million and $0.4 million expensed in fourth quarter 2016 and first quarter 2017, respectively The Business Combination was accounted for as a reverse merger in accordance with GAAP. Under this method of accounting, Hennessy is treated as the “acquired” company. This determination was primarily based on Private Daseke comprising the ongoing operations of the combined company, Private Daseke’s senior management comprising the senior management of the combined company, and Private Daseke stockholders having a majority of the voting power of the combined company. For accounting purposes, Private Daseke is deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of Private Daseke (i.e., a capital transaction involving the issuance of stock by Hennessy for the stock of Private Daseke). Accordingly, the consolidated assets, liabilities and results of operations of Private Daseke are the historical financial statements of the combined company, and Hennessy’s assets, liabilities and results of operations are consolidated with Private Daseke beginning on the acquisition date. In connection with the Closing, Daseke, Inc. changed its name to Daseke Companies, Inc. and Hennessy Capital Acquisition Corp. II changed its name to Daseke, Inc. Daseke, Inc.’s common stock and warrants began trading under the ticker symbols DSKE and DSKEW, respectively, on February 28, 2017. The Company is a leading consolidator of the open-deck freight market in North America. From its inception in late 2008, the Company has successfully acquired more than 16 open-deck trucking companies. Negotiations and discussions with potential targets are an integral part of the Company’s operations, and the Company may be in varying stages of the acquisition process, from infancy to very mature, at any point in time. To date, the primary reason for each acquisition was to add resources and services in geographic areas, customers and markets that the Company wants to serve, resulting in recognized goodwill. The following is a summary of the preliminary allocation of the purchase price paid to the fair values of the net assets, net of cash acquired, of the Company’s recent acquisitions (in thousands): (all amounts in United States dollars) Belmont Moore Freight Roadmaster Group Tennessee Steel Haulers R&R Steelman Schilli Accounts receivable ........................................... $ Parts supplies ...................................................... Prepaid and other current assets ......................... Property and equipment ..................................... Goodwill & Intangibles ...................................... Other long-term assets ........................................ Deferred tax liabilities ........................................ Accounts payable and other liabilities ............... Total .................................................................... $ 240 $ — 107 1,548 3,527 — (645) (243) 4,534 $ 4,458 $ 312 301 21,978 36,477 114 (2,646) (1,997) 58,997 $ 9,806 $ 231 1,097 36,854 75,203 670 (10,666) (26,764) 86,431 $ 20,207 $ — 5,870 8,705 59,206 19,049 (7,496) (13,894) 91,647 $ 5,129 $ 149 1,515 16,887 26,686 156 (8,922) (3,362) 38,238 $ 4,383 $ 90 2,294 11,100 14,708 5,013 (3,151) (15,612) 18,825 $ 8,616 $ 1,681 3,786 41,423 14,992 915 (16,157) (27,896) 27,360 $ Big Freight 4,914 212 287 11,492 10,925 121 (3,868) (6,294) 17,789 The aggregate purchase price noted above was allocated to the major categories of assets acquired and liabilities assumed at estimated fair values as of the acquisition date, which were based, in part, upon outside preliminary appraisals for certain assets and subject to change when additional information concerning final asset and liability values is obtained. The Company has not completed its assessments of the fair value of purchased intangible assets for the Belmont, Moore Freight Service, Roadmaster Group and Tennessee Steel Haulers acquisitions, and no value has been allocated to them at this time. The final purchase price allocations may result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill, however none of purchase price allocations for the above acquisitions are considered final as of December 31, 2017. Belmont On December 29, 2017 the Company acquired 100% of the outstanding equity interests of Belmont Enterprises, Inc. (Belmont) based in Olympia, Washington. Total consideration paid was $4.6 million in cash funded through the Company’s line of credit under the ABL Facility. The acquisition was a stock purchase, therefore the values assigned to the intangible assets and goodwill are not deductible for tax purposes. Transaction expenses incurred in the acquisition, which are not deductible for tax purposes, were immaterial. Moore Freight Services On December 1, 2017 the Company acquired 100% of the outstanding equity interests of: (1) Moore Freight Service, Inc., (2) RT & L, LLC, (3) JD and Partners, LLC, (4) TM Transport and Leasing, LLC, and (5) Rand, LLC collectively (Moore Freight Services) based in Knoxville, Tennessee. Total consideration paid was $59.1 million, consisting of $35.1 million in cash and 145,129 shares of Daseke common stock valued at $1.8 million and $22.2 million of long-term debt repaid by the Company. The cash consideration was funded with cash on hand and the Term Loan Facility. The acquisition was a stock purchase, therefore the values assigned to the intangible assets and goodwill are not deductible for tax purposes. Approximately $0.6 million of transaction expenses were incurred in the acquisition, which are not deductible for tax purposes. F-16 F-17 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Roadmaster Group On December 1, 2017 the Company acquired 100% of the outstanding equity interests of Roadmaster Group, Inc. and subsidiaries, and Roadmaster Equipment Leasing, Inc. and all subsidiaries collectively the (Roadmaster Group) based in Phoenix, Arizona. Total consideration paid was $86.9 million, consisting of $37.5 million in cash and 3,114,247 shares of Daseke common stock valued at $39.1 million and $10.3 million of long-term debt repaid by the Company. The cash consideration was funded with cash on hand and the Term Loan Facility. The acquisition was a stock purchase, therefore the values assigned to the intangible assets and goodwill are not deductible for tax purposes. Approximately $0.6 million of transaction expenses were incurred in the acquisition, which are not deductible for tax purposes. Tennessee Steel Haulers & Co. On December 1, 2017 the Company acquired 100% of the outstanding equity interests of: (1) Tennessee Steel Haulers, Inc., (2) Alabama Carriers, Inc., and (3) Fleet Movers Inc. collectively (TSH & Co.) based in Nashville, Tennessee. Total consideration paid was $91.9 million, consisting of $74.9 million in cash and 972,680 shares of Daseke common stock valued at $12.0 million and $5.0 million of long-term debt repaid by the Company. The cash consideration was funded with cash on hand and the Term Loan Facility. The acquisition was a stock purchase, therefore the values assigned to the intangible assets and goodwill are not deductible for tax purposes. Approximately $0.5 million of transaction expenses were incurred in the acquisition, which are not deductible for tax purposes. R&R Trucking Holdings, LLC On September 1, 2017 the Company acquired 100% of the outstanding stock of R&R Trucking Holdings, LLC (R&R), based in Duenweg, Missouri. Total consideration paid was $38.4 million, consisting of $24.6 million in cash and the Company assumed and repaid of $13.8 million of long-term debt. The cash consideration was funded through a delayed draw on September 1, 2017 under the Term Loan Facility. The acquisition was a stock purchase, therefore the values assigned to the intangible assets and goodwill are not deductible for tax purposes. Approximately $0.6 million of transaction expenses were incurred in the acquisition, which are not deductible for tax purposes. The Steelman Companies On July 1, 2017, the Company acquired 100% of the outstanding stock of The Steelman Companies (Steelman), based in Springfield, Missouri, for consideration of $18.8 million, consisting of $11.2 million in cash and 746,170 shares of Daseke common stock valued at $7.6 million. The fair value of the 746,170 shares issued was determined based on the closing price of the stock on the acquisition close date. The cash consideration was funded through cash on hand. The acquisition was a stock purchase under GAAP. A Section 338(h)(10) election is being filed for certain of the entities acquired which will deem those acquisitions as an asset purchase for tax purposes, therefore approximately $14.9 million of the values assigned to the intangible assets and goodwill are expected to be deductible for tax purposes. Approximately $0.3 million of transaction expenses were incurred in the acquisition, which are not deductible for tax purposes. Schilli Transportation Services, Inc. On May 1, 2017, the Company acquired 100% of the outstanding stock of Schilli Transportation Services, Inc. and certain of its affiliates (Schilli), based in Remington, Indiana. Total consideration paid was $27.4 million, consisting of $21.0 million in cash, 232,885 shares of Daseke common stock valued at $2.3 million and $4.0 million of long-term debt refinanced by the Company. The fair value of the 232,885 shares issued was determined based on the closing price of the stock on the acquisition close date. The cash consideration was funded through a delayed draw on May 1, 2017 under the Term Loan Facility. The acquisition was a stock purchase, therefore the values assigned to the intangible assets and goodwill are not deductible for tax purposes. Approximately $0.4 million of transaction expenses were incurred in the acquisition, which are not deductible for tax purposes. Big Freight Systems, Inc. On May 1, 2017, the Company acquired 100% of the outstanding stock of Big Freight Systems, Inc. (Big Freight), based in Steinbach, Manitoba. Total consideration paid was $16.7 million consisting of $12.4 million in cash, 109,248 shares of Daseke common stock valued at $1.1 million and, the Company assumed approximately $3.2 million of outstanding debt. The fair value of the 109,248 shares issued was determined based on the closing price of the stock on the acquisition close date. Big Freight’s purchase agreement also contains an earn-out for additional cash consideration to be paid on the excess of each of 2017, 2018 and 2019’s earnings before interest, taxes, depreciation and amortization (EBITDA Amount) over 2016’s EBITDA Amount (as defined in the purchase agreement), multiplied by 0.4. A contingent liability of $1.1 million was included in the allocation of the purchase price for this earn-out. The cash consideration was funded through a delayed draw on May 1, 2017 under the Term Loan Facility and cash on hand. The acquisition was a stock purchase, therefore the values assigned to the intangible assets and goodwill are not deductible for tax purposes. Approximately $0.6 million of transaction expenses were incurred in the acquisition, which are not deductible for tax purposes. For the year ended December 31, 2017, revenue and net income of the acquired companies from their respective dates of acquisition was $154.0 million and $15.6 million, respectively. There were no acquisitions in 2016. Supplemental Pro Forma Information (Unaudited) The following supplemental pro forma financial information reflects the recent acquisitions as if they occurred on January 1, 2016. This pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the pro forma events taken place on January 1, 2016. Further, the pro forma financial information does not purport to project the future operating results of the consolidated company. (In millions) Pro forma revenues ................................................................................................................ $ Pro forma net income (loss) ................................................................................................... $ NOTE 4 – PREPAID AND OTHER CURRENT ASSETS Year Ended December 31, (unaudited) 2017 2016 1,294 $ 39 $ 1,198 (8) The components of prepaid expenses and other current assets are as follows as of December 31 (in thousands): 2016 6,358 Other assets ............................................................................................ $ 12,225 $ 2,246 Insurance ................................................................................................ 1,104 Other prepaids ........................................................................................ 2,772 Licensing, permits and tolls ................................................................... Highway and fuel taxes .......................................................................... 1,024 Total ....................................................................................................... $ 28,149 $ 13,504 7,642 2,948 4,096 1,238 2017 F-18 F-19 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 – GOODWILL AND INTANGIBLE ASSETS NOTE 6 – PROPERTY AND EQUIPMENT Changes in the carrying amount of goodwill for the years ended December 31, 2017 and 2016 are as follows (in thousands): The components of property and equipment are as follows at December 31 (in thousands): Total 88,611 Goodwill balance at January 1, 2016 ...................................................................................... $ (442) Impairment ............................................................................................................................. Goodwill acquired and adjustments to previously recorded goodwill .................................... 866 Goodwill balance at December 31, 2016 ................................................................................ 89,035 — Impairment ............................................................................................................................. 213,055 Goodwill acquired and adjustments to previously recorded goodwill .................................... Foreign currency translation adjustment ................................................................................. 612 Goodwill balance at December 31, 2017 ................................................................................ $ 105,866 $ 196,836 $ 302,702 Flatbed 45,794 $ — 866 46,660 — 59,206 — 42,817 $ (442) — 42,375 — 153,849 612 Specialized In December 2016, the Company identified and recorded a $0.9 million increase to goodwill and deferred tax liabilities related to the initial purchase accounting of Hornady Truck Lines, Inc., which the Company acquired in August 2015. The impact of this adjustment was not material to the prior year’s financial statements or as of and for the three months and year ended December 31, 2016. Intangible assets consisted of the following at December 31, 2017 and 2016 (in thousands): As of December 31, 2017 As of December 31, 2016 Accumulated Intangible Intangible Accumulated Intangible Amortization Assets, net Amortization Assets, net Assets (3,929) $ 4,421 Non-competition agreements ............................ $ 12,230 $ 37,132 (19,078) Customer relationships ...................................... 30,100 — Trade names ...................................................... Foreign currency translation adjustment ........... — — Total intangible assets ....................................... $ 122,806 $ (29,686) $ 93,120 $ 94,660 $ (23,007) $ 71,653 (5,765) $ 6,465 $ 8,350 $ (23,921) — — 56,210 30,100 — 45,169 41,180 306 69,090 41,180 306 Intangible Assets Revenue equipment ................................................................................ $ 544,876 $ 398,394 43,000 Buildings and improvements ................................................................. 14,421 Furniture and fixtures, office and computer equipment and vehicles ..... 455,815 (137,068) Accumulated depreciation ...................................................................... Total ........................................................................................................ $ 429,639 $ 318,747 53,366 20,805 619,047 (189,408) 2017 2016 Depreciation expense on property and equipment was $70.2 million, $61.5 million and $58.4 million for the years ended December 31, 2017, 2016 and 2015, respectively. NOTE 7 – SALES-TYPE LEASES The components of the net investment in sales-type leases at December 31, 2017 and 2016 are as follows (in thousands): Minimum lease receivable .................................................................. $ 62,587 $ 21,055 (3,049) Deferred gain ...................................................................................... 18,006 Net minimum lease receivable ............................................................ (3,671) Unearned interest income ................................................................... (9,352) 53,235 (10,432) 2017 2016 Net investment in sales-type leases ..................................................... Current portion .................................................................................... 42,803 (10,979) 14,335 (3,516) $ 31,824 $ 10,819 As of December 31, 2017, non-competition agreements and customer relationships had weighted average remaining useful lives of 2.64 and 8.47 years, respectively. See Note 3 for more information on intangible assets acquired. Amortization expense for intangible assets with definite lives was $6.7 million, $6.0 million and $5.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. Future estimated amortization expense is as follows (in thousands): The long-term portion of sales-type leases is classified in other long-term assets on the consolidated balance sheets at December 31, 2017 and 2016. Gain or loss on disposition of revenue equipment leased to owner-operators is included as a component of purchased freight in the consolidated statements of operations and comprehensive income (loss). For the years ended December 31, 2017, 2016 and 2015, the gain totaled approximately $1.4 million, $0.8 million and $0.5 million, respectively. Non-competition Customer Future minimum lease receipts are as follows (in thousands): Year ending December 31, 2018 ................................................................................................. $ 2019 ................................................................................................. 2020 ................................................................................................. 2021 ................................................................................................. 2022 ................................................................................................. Thereafter ......................................................................................... Total ................................................................................................. $ Agreements Relationships 5,399 5,399 5,399 5,399 5,399 18,174 45,169 2,154 $ 2,019 1,198 776 318 — 6,465 $ Year ending December 31, 2018 ......................................................................................................................... $ 2019 ......................................................................................................................... 2020 ......................................................................................................................... 2021 ......................................................................................................................... 2022 ......................................................................................................................... Thereafter ................................................................................................................. Total ......................................................................................................................... $ Amount 10,979 10,597 9,279 5,231 5,298 1,419 42,803 F-20 F-21 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 – ACCRUED EXPENSES AND OTHER LIABILITIES The components of accrued expenses and other liabilities are as follows at December 31 (in thousands): Brokerage and escorts ......................................................................... $ Unvouchered payables ........................................................................ Other accrued expenses ...................................................................... Owner operator deposits ..................................................................... Interest ................................................................................................ Dividends ............................................................................................ Fuel ..................................................................................................... Fuel taxes ............................................................................................ 2017 6,264 $ 4,156 4,977 8,431 540 — 1,130 378 2016 3,559 2,587 3,956 2,032 1,705 1,209 711 345 $ 25,876 $ 16,104 NOTE 9 – LONG-TERM DEBT Long-term debt consists of the following at December 31 (in thousands): Senior debt 2017 2016 Line of credit........................................................................................... $ 4,561 $ 6,858 Term loan facility ................................................................................... — 125,682 Senior term loan ...................................................................................... 111,882 Equipment term loans ............................................................................. 13,772 Real estate term loan ............................................................................... 13,818 Capital leases .......................................................................................... 272,012 Total senior debt ..................................................................................... (52,665) Less current portion ................................................................................ (4,117) Less unamortized debt issuance costs ..................................................... 215,230 Long-term portion ................................................................................... 498,462 — 126,227 — 5,757 635,007 (43,056) (17,650) 574,301 Subordinated debt Main Street Capital Corporation ............................................................. Prudential Capital Partners ..................................................................... LST Seller notes ..................................................................................... DTR Seller notes ..................................................................................... BHE Seller notes ..................................................................................... Total subordinated debt .......................................................................... — — — — — — 21,660 21,492 22,000 1,000 291 66,443 Total long-term debt ............................................................................... $ 574,301 $ 281,673 Term Loan Facility In conjunction with the close of the Business Combination on February 27, 2017, the Company entered into the $350.0 million Term Loan Facility under a loan agreement with Credit Suisse AG, Cayman Islands Branch, as administrative agent, and the lenders party thereto. The Term Loan Facility consists of (i) a $250.0 million term loan funded on the closing date of the Term Loan Facility (the Closing Date Term Loan); and (ii) up to $100.0 million of term loans to be funded from time to time under a delayed draw feature available until February 27, 2018. The size of the Term Loan Facility could increase from time to time pursuant to an uncommitted incremental facility in an aggregate amount for all such incremental loans and commitments up to the sum of (a) $65.0 million and (b) an uncapped amount based on the maximum first lien, secured and total leverage ratio-based formulas depending upon the security and ranking of the relevant incremental facility. The proceeds from the Closing Date Term Loan were used to partially refinance certain of the Company’s capital leases, purchase money debt, equipment and real estate financings and to pay transaction costs associated with the Business Combination and refinance the Line of Credit and the Senior Term Loan. The Term Loan Facility has a scheduled maturity date of February 27, 2024. Term loans under the Term Loan Facility are, at the Company’s election from time to time, comprised of alternate base rate loans (an ABR Borrowing) or adjusted LIBOR loans (a Eurodollar Rate Borrowing), with the applicable margins of interest being an alternate base rate (subject to a 2.00% floor) plus 4.50% per annum through November 28, 2017, amended to 4.00% on that date for ABR Borrowings and LIBOR (subject to a 1.00% floor) plus 5.50% per annum through November 28, 2017, amended to 5.00% on that date for Eurodollar Rate Borrowings. At December 31, 2017, the average interest rate on the Term Loan Facility was 6.5%. On August 16, 2017, the Company obtained an amendment of the Term Loan facility that increased the delayed draw incurrence condition relating to pro forma total leverage ratio to 4.25x from 3.5x, effective August 15, 2017 through the maturity of the delayed draw Term Loan Facility in February 2018, which enabled the Company to access $60.5 million from the delayed draw Term Loan Facility. On November 28, 2017, the Term Loan Facility was amended to provide for a $150.0 million tack-on to the existing Term Loan Facility. The Term Loan Facility is secured by all assets of the Company, except those assets collateralizing equipment and certain real estate lenders debt and subject to certain customary exceptions. As amended, on August 16, 2017, the Term Loan Facility contains a financial covenant requiring the Company to maintain a consolidated total leverage ratio as of the last day of any fiscal quarter of less than or equal to 4.25 to 1.00 commencing on June 30, 2017, stepping up to 4.75 to 1.00 on September 30, 2017, stepping down to 4.25 to 1.00 on March 31, 2018, stepping down to 4.00 to 1.00 on March 31, 2019 and stepping down to 3.75 to 1.00 on March 31, 2021. Additionally, as amended, the Term Loan Facility contains a pro forma total leverage ratio of less than or equal to 4.25 to 1.00 for term loans funded from the delayed draw feature. The consolidated total leverage ratio is defined as the ratio of (i) consolidated total debt minus unrestricted cash and cash equivalents and cash and cash equivalents restricted in favor of the administrative agent and the lenders, to (ii) consolidated adjusted EBITDA for the trailing 12 month period (with customary add-backs permitted to consolidated adjusted EBITDA, including in respect of synergies and cost-savings reasonably identifiable and factually supportable that are anticipated to be realized in an aggregate amount not to exceed 25% of consolidated adjusted EBITDA and subject to other customary limitations). The Term Loan Facility permits voluntarily prepayments of borrowings. In certain circumstances (subject to exceptions, exclusions and, in the case of excess cash flow, step-downs described below), the Company may also be required to make an offer to prepay the Term Loan Facility if it receives proceeds as a result of certain asset sales, debt issuances, casualty or similar events of loss, or if it has excess cash flow (defined as an annual amount calculated using a customary formula based on consolidated adjusted EBITDA, including, among other things, deductions for (i) the amount of certain voluntary prepayments of the Term Loan Facility and (ii) the amount of certain capital expenditures, acquisitions, investments and restricted payments). The percentage of excess cash flow that must be applied as a mandatory prepayment is 50% with respect to the initial excess cash flow period (the fiscal year ending on December 31, 2018) and will be 50%, 25% or 0% for future excess cash flow periods depending upon the first lien leverage ratio. F-22 F-23 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Term Loan Facility contains (i) certain customary affirmative covenants that, among other things, require compliance with applicable laws, periodic financial reporting and notices of material events, payment of taxes and other obligations, maintenance of property and insurance, and provision of additional guarantees and collateral, and (ii) certain customary negative covenants that, among other things, restrict the incurrence of additional indebtedness, liens on property, sale and leaseback transactions, investments, mergers, consolidations, liquidations and dissolutions, asset sales, acquisitions, the payment of distributions, dividends, redemptions and repurchases of equity interests, transactions with affiliates, prepayments and redemptions of certain other indebtedness, burdensome agreements, holding company limitations, changes in fiscal year and modifications of organizational documents. ABL Facility Also, in conjunction with the Closing on February 27, 2017, the Company entered into a five-year, senior secured asset- based revolving line of credit with an aggregate maximum credit amount equal to $70.0 million (subject to availability under a borrowing base equal to 85% of the Company’s eligible accounts receivable, 80% of the Company’s eligible unbilled accounts receivable and 50% of parts supplies) under a credit agreement with PNC Bank, National Association, as administrative agent and the lenders party thereto. The size of the ABL Facility could increase from time to time pursuant to an uncommitted accordion by an aggregate amount for all such increases of up to $30 million. The ABL Facility matures on February 27, 2022. The ABL Facility also provides for the issuance of letters of credit subject to certain restrictions and a sublimit of $20 million, as defined in the credit agreement. As of December 31, 2017, the Company had borrowings of $4.6 million and $11.5 million in letters of credit outstanding under the ABL Facility and could incur approximately $55.5 million of additional indebtedness under the ABL Facility. Borrowings under the ABL Facility bear interest at rates based upon the Company’s fixed charge coverage ratio and, at the Company’s election from time to time, either a base rate plus an applicable margin or an adjusted LIBOR rate plus an applicable margin. Margins on the ABL Facility are adjusted, if necessary to the applicable rates set forth in the following table corresponding to the fixed charge coverage ratio for the trailing 12 month period on the last day of the most recently completed fiscal quarter. Fixed Charge Coverage Ratio Less than 1.25 to 1.00 ......................................................................................... Greater than or equal to 1.25 to 1.00, but less than 1.50 to 1.00 ......................... Greater than or equal to 1.50 to 1.00, but less than 1.75 ..................................... Greater than or equal to 1.75 to 1.00 ................................................................... Base Rate Margins LIBOR Rate Margins 2.25 % 1.75 % 1.25 % 0.75 % 3.25 % 2.75 % 2.25 % 1.75 % The ABL Facility is secured by all of the Company’s United States based accounts receivable, parts supplies, cash and cash equivalents excluding proceeds of Term Loan Facility, securities and deposit accounts and other general assets not included in the Term Loan Facility collateral. The ABL Facility contains (i) a financial covenant similar to the consolidated total leverage ratio required under the Term Loan Facility (but, as amended on August 31, 2017, in any event requiring a leverage ratio of less than or equal to 4.75 to 1.00 for the fiscal quarter ended September 30, 2017, stepping down to 3.75 to 1.00 on March 31, 2021, in the same increments as the Term Loan Facility noted above) and (ii) during any period after a default or event of default or after excess availability falling below the greater of (x) $15.0 million and (y) 20% of the maximum credit amount, continuing until such time as no default or event of default has existed and excess availability has exceeded such amounts for a period of 60 consecutive days, a financial covenant requiring the Company to maintain a minimum consolidated fixed charge coverage ratio of 1.00x, tested on a quarterly basis. The Company’s fixed charge coverage ratio is defined as the ratio of (1) consolidated adjusted EBITDA minus unfinanced capital expenditures, cash taxes and cash dividends or distributions, to (2) the sum of all funded debt payments for the four quarter period then ending (with customary add-backs permitted to consolidated adjusted EBITDA). The ABL Facility contains affirmative and negative covenants similar to those in the Term Loan Facility, together with such additional terms as are customary for a senior secured asset-based revolving credit facility. As of December 31, 2017, the Company was in compliance with all covenants contained in the Term Loan and ABL Facilities. Line of Credit and Senior Term Loan Prior to the Closing, the Company had a credit facility under a credit agreement with PNC, as agent, and other lenders party thereto (the PNC Credit Agreement), which included a revolving line of credit and a term loan. In August 2016, the PNC Credit Agreement was amended, increasing the borrowing capacity to an aggregate $212.1 million from $150.0 million, consisting of a $75.0 million revolving line of credit and a $137.1 million senior term loan. In conjunction with the amendment, the Company refinanced $73.0 million of equipment notes with various lenders under the PNC Credit Agreement. The line of credit was subject to a borrowing base equal to 85% of the Company’s eligible accounts receivable, 80% of the Company’s eligible unbilled accounts receivable and 50% of parts supplies. As of December 31, 2016, borrowings on the line of credit bore interest at either (a) the Libor Rate (as defined in the credit agreement), plus a margin of 3.25%, or (b) the Base Rate (as defined in the credit agreement), plus a margin of 2.25%. The PNC revolving credit facility also provided for the issuance of up to $10 million in letters of credit. As of December 31, 2016, the Company had outstanding letters of credit thereunder totaling $4.1 million. Total availability under the line of credit was $33.0 million as of December 31, 2016. At December 31, 2016, the average interest rate on the line of credit was 4.5%. As of December 31, 2016, the Senior Term Loan was due in monthly installments of $1,690,154, plus applicable interest at either (a) the Libor Rate (as defined in the credit agreement), plus a margin of 4.00%, or (b) the Base Rate (as defined in the PNC Credit Agreement), plus a margin of 3.00%. At December 31, 2016, the average interest rate on the Senior Term Loan was 4.4%. Prior to the amendment in August 2016, debt on the Senior Term Loan had interest rates of either (a) the Libor Rate (as defined in the credit agreement), plus a margin of 3.75%, or (b) the Base Rate (as defined in the credit agreement), plus a margin of 2.75%. Margins on the line of credit and Senior Term Loan were adjusted, if necessary to the applicable rates set forth in the following table corresponding to the fixed charge coverage ratio for the trailing twelve month period on the last day of the most recently completed fiscal quarter. Base Rate Margins LIBOR Rate Margins Fixed Charge Coverage Ratio Less than 1.25 to 1.00 ....................................................................... Greater than or equal to 1.25 to 1.00, but less than 1.50 to 1.00 ....... Greater than or equal to 1.50 to 1.00, but less than 1.75 ................... Greater than or equal to 1.75 to 1.00 ................................................ Line of Credit Senior Term Loan Line of Credit Senior Term Loan 4.00 % 3.50 % 3.00 % 2.50 % 3.00 % 2.50 % 2.00 % 1.50 % 2.25 % 1.75 % 1.25 % 0.75 % 3.25 % 2.75 % 2.25 % 1.75 % The PNC Credit Agreement also contained a subjective acceleration clause, which permitted the lender to demand payment in the event of a material adverse change. Only the scheduled principal payments are being presented in the current portion of long-term obligations as the lender did not exercise the acceleration clause. Borrowings under the PNC Credit Agreement were secured by all assets of the Company, except those assets collateralizing equipment and certain real estate lenders debt. The PNC Credit Agreement contained certain financial F-24 F-25 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS covenants, including a minimum fixed charge coverage ratio, a senior secured debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) ratio and a funded debt to consolidated EBITDA ratio. Capital Leases Additionally, the PNC Credit Agreement contained negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements. As of December 31, 2016, the Company was in compliance with all covenants contained in the PNC Credit Agreement. The PNC Credit Agreement contained a required principal payment based on excess cash flow (as defined) beginning in fiscal 2016 and due 15 days following the delivery of the audited financial statements to PNC. No excess cash flow payment was required prior to refinancing in conjunction with the Business Combination. Equipment Term Loans and Mortgages As of December 31, 2017, the Company had term loans collateralized by equipment in the aggregate amount of $121.8 million with thirty (30) lenders (Equipment Term Loans). The Equipment Term Loans bear interest at rates ranging from 1.5% to 10.8%, require monthly payments of principal and interest and mature at various dates through January 2028. Certain of the Equipment Term Loans contain conditions, covenants, representations and warranties, events of default, and indemnification provisions applicable to the Company and certain of its subsidiaries that are customary for equipment financings, including, but not limited to, limitations on the incurrence of additional debt and the prepayment of existing indebtedness, certain payments (including dividends and other distributions to persons not party to its credit facility) and transfers of assets. The Company had a construction loan with a balance of $8.8 million incurred to finance the construction of a new headquarters and terminal in Arlington, Washington which was repaid in February 2017 in conjunction with the Business Combination. See Note 2 for additional details on the Business Combination. The construction loan was collateralized by such property and buildings. The initial principal amount on February 19, 2015 of $7.8 million was increased on April 26, 2016 to $8.8 million. The construction loan earned interest at 3.25% payable monthly. As of December 31, 2017, the Company has a bank mortgage loan with a balance of $3.7 million incurred to finance the construction of the headquarters and terminal in Redmond, Oregon. The mortgage loan is collateralized by such property and buildings. The mortgage is payable in monthly installments of $15,776, including interest at 3.7% through November 2020. The interest rate and monthly payments will be adjusted on November 1, 2020 to a rate of 2.5%, plus the three-year advance rate published by the Federal Home Loan Bank of Seattle in effect 45 days prior to November 1, 2020 (which will not be less than 3.7%). The bank mortgage loan matures November 1, 2023. Real Estate Term Loan In April 2016, the Company refinanced $14.2 million of its Line of Credit with bank debt (Real Estate Term Loan) utilizing nine wholly-owned real estate assets which previously served as collateral on the PNC Term Loan. The Real Estate Term Loan was subordinate to the PNC Credit Agreement and Equipment Term Loans and was due in monthly installments of $59,109 (based on 20 year amortization schedule), plus applicable interest at either (a) the Libor Rate (as defined in the loan agreement), plus a margin of 2.75%, or (b) the Default Rate (as defined in the loan agreement). The Company incurred debt issuance costs of $0.4 million, which were being amortized to interest expense over five years using the straight-line method. In conjunction with the Business Combination, the Real Estate Term Loan was repaid and all unamortized debt issuance costs written off to interest expense. See Note 2 for additional details on the Business Combination. The Company leases certain equipment under long-term capital lease agreements that expire on various dates through June 2024. As of December 31, 2017 and 2016, the book value of the property and equipment recorded under capital leases was $7.0 million and $24.1 million, net of accumulated depreciation of $5.8 million and $17.0 million, respectively. Depreciation expense related to lease equipment was $2.6 million, $7.0 million and $6.0 million for the years ended December 31, 2017, 2016 and 2015, respectively. Main Street Capital Corporation In 2013, Main Street Capital Corporation (Main Street) loaned the Company $20.0 million under a senior subordinated secured term loan (the Main Street Loan). The Main Street Loan was subordinate to the PNC Credit Agreement and Equipment Term Loans. Interest payments were due monthly through maturity at the rate of 12% per annum. Paid-in kind (PIK) interest, at a rate of 2.5% per annum, could have been paid monthly or accrued and added to the principal balance quarterly, at the option of the Company. For the years ended December 31, 2017 and 2016, $0.1 million and $0.5 million, respectively, of accrued PIK interest was added to the principal balance and accrued PIK interest of $0.1 million was recorded in accrued expenses as of December 31, 2016. In conjunction with Business Combination, the Main Street Loan was repaid in February 2017. See Note 2 for additional details on the Business Combination. Prudential Capital Partners In 2013, the Company issued senior secured subordinated promissory notes in the initial aggregate principal amount of $20.0 million (PCP Subordinated Notes) to Prudential Capital Partners IV, L.P., Prudential Capital Partners (Parallel Fund) IV, L.P. and Prudential Capital Partners Management Fund IV, L.P. (collectively, the PCP Investors) pursuant to the Securities Purchase Agreement, dated as of November 12, 2013, by and among the Company, certain of its subsidiaries and the PCP Investors. The PCP Subordinated Notes were subordinate to the PNC Credit Agreement and Equipment Term Loans. Interest payments were due monthly through maturity at the rate of 12% per annum. PIK interest, at a rate of 2.5% per annum, could have been paid monthly or accrued and added to the principal balance quarterly, at the option of the Company. For the years ended December 31, 2017 and 2016, $0.1 million and $0.5 million, respectively, of accrued PIK interest was added to the principal balance and $0.1 million accrued PIK interest was recorded in accrued expenses as of December 31, 2016. In conjunction with Business Combination, the PCP Subordinated Notes were repaid in February 2017. See Note 2 for additional details on the Business Combination. The Main Street Loan and the PCP Subordinated Notes (Subordinated Debt) were collateralized by all assets of the Company, except those assets collateralizing the Equipment Term Loans. The Main Street Loan and the PCP Subordinated Notes contained certain financial covenants, including a minimum fixed charge coverage ratio, a senior secured debt to consolidated EBITDA ratio and a funded debt to consolidated EBITDA ratio. Additionally, they contained negative covenants limiting, among other things, additional indebtedness, capital expenditures, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements. The Main Street Loan and the PCP Subordinated Notes were subject to a make-whole payment of 5.0% of the prepayment amount if such prepayment was made before the third anniversary of the agreements. LST Seller As part of the consideration paid to the seller of Lone Star Transportation, LLC and affiliates (LST), Daseke Lone Star, Inc. (a subsidiary of the Company) issued $22.0 million of subordinated notes (the LST Seller Notes). The LST Seller Notes bore interest at 10% payable monthly and were subordinate to the PNC Credit Agreement, Main Street Loan and PCP Subordinated Notes. In conjunction with the Business Combination, the LST Seller Notes were repaid in February 2017. See Note 2 for additional details on the Business Combination. F-26 F-27 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DTR Sellers As part of the consideration paid to the sellers of Davenport Transport & Rigging, LLC, LST issued $1.0 million of subordinated notes (the DTR Seller Notes). The DTR Seller Notes bore interest at 5% payable monthly and were subordinate to the PNC Credit Agreement, Main Street Loan and PCP Subordinated Notes. In conjunction with Business Combination, the DTR Seller Notes were repaid in February 2017. See Note 2 for additional details on the Business Combination. BHE Sellers As part of the consideration paid to the sellers of Bulldog Hiway Express (BHE), the Company issued $2.0 million of subordinated notes (the BHE Seller Notes). The BHE Seller Notes bore interest at 7% payable monthly. On December 19, 2016, a portion of the outstanding principal amount under the BHE Seller Notes was forgiven in exchange for the payment by the Company of certain pension liabilities of BHE. The BHE Seller Notes were subordinate to the PNC Credit Agreement and the Main Street Loan and the PCP Subordinated Notes. In conjunction with Business Combination, the BHE Seller Notes were repaid in February 2017. See Note 2 for additional details on the Business Combination. Future principal payments on long-term debt are as follows (in thousands): Year ending December 31, Term Loan Facility Equipment Term Loans Capital Leases Total 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,985 $ 2,500 2,500 2,500 2,500 483,477 35,842 $ 37,623 24,488 14,430 7,551 6,293 2,516 $ 43,343 41,796 1,673 27,982 994 17,642 712 10,218 167 490,045 275 Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan amount attributable to interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,337 (580) (580) Total (Present value of minimum lease payments on capital leases) . . . . $ 498,462 $ 126,227 Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,757 $ 630,446 (2,516) 3,241 NOTE 10 – INCOME TAXES The components of the Company’s United States and foreign provision for income taxes were as follows for the years ended December 31 (in thousands): 2017 2016 2015 Current: Federal .............................................................................................................. $ State .................................................................................................................. Total current taxes ............................................................................................ (47) 1,258 1,211 $ $ (70) 582 512 Deferred: (51,388) Federal .............................................................................................................. (1,863) State .................................................................................................................. (242) Foreign .............................................................................................................. (53,493) Total deferred taxes ............................................................................................. Provision (benefit) for income taxes ................................................................... $ (52,282) (1,139) 790 — (349) 163 $ $ — 456 456 6,430 577 — 7,007 7,463 A reconciliation between the effective income tax rate and the United States statutory income tax rate for the years ended December 31, 2017, 2016 and 2015 is as follows (in thousands): Income tax expense (benefit) at United States statutory income tax rate ............ $ Federal income tax effects of: 2017 (8,850) 2016 $ (4,241) 2015 $ 3,754 State income tax expense .................................................................................. Foreign taxes .................................................................................................... Foreign tax rate differential .............................................................................. Per diem and other nondeductible expenses ..................................................... Cumulative effect of change in effective tax rate ............................................. Tax credits ........................................................................................................ Other ................................................................................................................. (333) (242) 107 3,198 (46,068) (47) (47) Provision (benefit) for income taxes ................................................................... $ (52,282) Effective tax rate ................................................................................................. $ 206.8 % 370 — — 3,434 522 (70) 148 163 (1.3)% 1,208 — — 1,187 1,261 — 53 $ 7,463 69.6 % The increase in the effective tax rate for the year ended December 31, 2017 compared to the year ended December 31, 2016 is primarily the result of a one-time tax benefit related to changes in future tax rates on net deferred tax liabilities as a result of the enactment of the Tax Cuts and Jobs Act (TCJA) in December 2017. The decrease in the effective tax rate for the year ended December 31, 2016 compared to the year ended December 31, 2015 is primarily the result of an increase in nondeductible permanent differences related to driver per diems, nondeductible transaction expenses and the cumulative change in the state income tax rate applied to the beginning net deferred tax liabilities balance. United States Tax Reform On December 22, 2017, the United States government enacted the TCJA comprehensive tax reform legislation. Effective January 2018, the TCJA, among other things, reduces the marginal United States corporate income tax rate from 35% to 21%, limits the deductibility of interest expenses, limits the deduction for net operating losses, eliminates net operating loss carrybacks and modifies or eliminates many business deductions and credits. The TCJA also includes international provisions, which generally establish a territorial-style system for taxing foreign source income of domestic multinational corporations and imposes a mandatory one-time transition tax on undistributed international earnings. Financial statement impacts include adjustments for, among other things, the remeasurement of deferred tax assets and liabilities. United States GAAP accounting for income taxes requires that the Company record the impacts of any tax law change on deferred income taxes in the quarter that the tax law change is enacted. Due to the complexities involved in accounting for the enactment of TCJA, SEC Staff Accounting Bulletin 118 allows the Company to provide a provisional F-28 F-29 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS estimate of the impacts of the TCJA in the Company’s earnings for the fourth quarter and year ended December 31, 2017. Accordingly, based on currently available information, the Company was able to reasonably estimate the impact of the TCJA and has recorded a provisional income tax benefit for the reduction in net deferred income tax liabilities of approximately $46.0 million due to the remeasurement of net United States deferred tax liabilities at the lower 21% United States federal corporate income tax rate. Additionally, the Company has reasonably estimated stock compensation and 162(m) limitations and unremitted foreign earnings resulting in no adjustment on a provisional basis. The effects of temporary differences that give rise to significant elements of deferred tax assets and liabilities at December 31, 2017 and 2016 were as follows (in thousands): 2017 2016 As disclosed in Note 9, the BHE Sellers received subordinated notes as partial consideration. Interest paid to the BHE sellers was $0.1 million for the year ended December 31, 2016 and the period from July 1, 2015 to December 31, 2015. Interest paid for the year ended December 31, 2017 was immaterial. In conjunction with Business Combination, the BHE Seller Notes were repaid in February 2017. See Note 2 for additional details on the Business Combination. Related Party Leases The Company leases certain office facilities, terminals and revenue equipment from entities owned or partially owned by stockholders or employees on month-to-month and long term operating leases. Total lease expense related to these leases was $1.9 million, $0.9 million and $1.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. Future minimum lease payments under non-cancelable related party operating leases are as follows: Deferred tax assets (liabilities) Accrued expenses .................................................................................... $ Vacation accrual ...................................................................................... Accounts receivable ................................................................................. Prepaid expenses ...................................................................................... Net operating losses ................................................................................. Property and equipment ........................................................................... Intangible assets ....................................................................................... Sales-type leases ...................................................................................... 481(a) adjustment .................................................................................... Interest rate swap ..................................................................................... Deferred start-up costs ............................................................................. Stock compensation expense ................................................................... Foreign liabilities ..................................................................................... 5,623 329 126 (2,102) 14,941 (91,149) (21,020) 874 (446) 9 — — — Total deferred tax liabilities ................................................................ $ (90,434) $ (92,815) 3,977 $ 527 103 (2,700) 11,199 (83,642) (17,246) 1,233 (2,213) — 1,502 452 (3,626) At December 31, 2017, the Company has United States federal and state net operating loss carry forwards of approximately $41.1 million and $69.3 million, respectively, which begin to expire in 2022. The Company had no uncertain tax positions as of December 31, 2017 and 2016. The Company is no longer subject to United States federal income tax examinations by tax authorities for years before 2014. The Company is no longer subject to state income tax examinations by tax authorities for years before 2013. NOTE 11 – RELATED PARTY TRANSACTIONS Related Party Debt As described in Note 9, the Company issued Subordinated Debt to Main Street and PCP Investors. Both lenders were stockholders of the Company. For the years ended December 31, 2017, 2016 and 2015, Main Street received interest payments of $0.5 million, $2.6 million and $2.5 million, respectively. Accrued interest was $0.4 million as of December 31, 2016. For the years ended December 31, 2017, 2016 and 2015, PCP Investors received interest payments of $0.5 million, $2.6 million and $2.5 million, respectively. Accrued interest was $0.4 million as of December 31, 2016. In conjunction with Business Combination, the Main Street Loan and the PCP Subordinated Notes were both repaid in February 2017. See Note 2 for additional details on the Business Combination. As disclosed in Note 9, the LST seller received subordinated notes as partial consideration. Interest paid to the LST seller was $0.4 million for the year ended December 31, 2017 and $2.2 million for the years ended December 31, 2016 and 2015. Accrued interest was $0.2 million as of December 31, 2016. In conjunction with the Business Combination, the LST Seller Notes were repaid in February 2017. See Note 2 for additional details on the Business Combination. Year ending December 31, 2018 ........................................................................................................ $ 2019 ........................................................................................................ 2020 ........................................................................................................ 2021 ........................................................................................................ 2022 ........................................................................................................ Thereafter ................................................................................................ Total ........................................................................................................ $ Revenue Equipment Office and Terminals 2,597 110 $ 2,590 110 2,484 93 2,325 8 2,499 — — 7,414 321 $ 19,909 Other Related Party Transactions A stockholder has a 1% investment in an entity that is also a vendor. Total amounts paid to this vendor for product and subscription purchases were approximately $0.6 million, $0.8 million and $0.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. Amounts due to the vendor as of December 31, 2017 and 2016 totaled approximately $10,000 and $20,000, respectively. The Company does business with an entity in which two stockholders are minority owners. Revenue received from this customer totaled approximately $0.4 million, $0.5 million and $0.4 million for the years ended December 31, 2017, 2016 and 2015, respectively. Accounts receivable due from this entity totaled approximately $53,000 and $27,000 as of December 31, 2017 and 2016, respectively. Additionally, the Company does business with a carrier owned by a stockholder’s spouse. Revenue received from this carrier totaled approximately $0.2 million for the year ended December 31, 2017. There was no revenue received from this carrier for the years ended December 31, 2016 or 2015. NOTE 12 – STOCKHOLDERS’ EQUITY Common Stock Common stock has voting rights – one vote for each share of common stock. On September 19, 2017, the Company and certain stockholders of the Company (the Selling Stockholders) entered into an underwriting agreement (the Underwriting Agreement) with Stifel, Nicolaus & Company, Incorporated and Cowen and Company, LLC, as representatives of the several underwriters named therein (collectively, the Underwriters), in connection with an underwritten public offering (the Offering) of 5,292,000 shares of the Company’s common stock, par value $0.0001 per share, including 4,882,167 shares of common stock to be sold by the Company and 409,833 shares of common stock to be sold by the Selling Stockholders, at a price to the public of $12.00 per share ($11.34 per share net of F-30 F-31 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS underwriting discounts and commissions). Pursuant to the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to an additional 793,800 shares of common stock, which was exercised in full on September 20, 2017 and closed simultaneously with the Offering on September 22, 2017. Net proceeds received by the Company from its sale of 5,675,967 shares of common stock were approximately $63.6 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. As described in the prospectus supplement, dated September 19, 2017, filed with the SEC on September 20, 2017, the Company intends to use the net proceeds from the Offering for general corporate purposes, which may include, among other things, working capital, capital expenditures, debt repayment or refinancing or the financing of possible future acquisitions. As of December 31, 2017, the Company has approximately 1.8 million shares of common stock reserved for future issuances of stock options and restricted stock units under the Company’s 2017 Omnibus Incentive Plan. See Note 13 for additional details about the Company’s stock-based compensation plan. Preferred Stock At the Closing, the Company issued 650,000 shares of Series A Preferred Stock for cash of $65.0 million. Proceeds from the sales were part of the consideration received as part of a recapitalization and reverse acquisition completed in the Business Combination. See Note 2 for additional details about the Business Combination. The par value of Series A Preferred Stock is $0.0001 per share. Additional features of this preferred stock are as follows: Under the Certificate of Designations, Preferences, Rights and Limitations of the Series A Preferred Stock (the Certificate of Designations), each share of Series A Preferred Stock will be convertible, at the holder’s option at any time, initially into approximately 8.6957 shares of the Company’s common stock (assuming a conversion price of approximately $11.50 per share), subject to specified adjustments as set forth in the Certificate of Designations. If any holder elects to convert its Series A Preferred Stock after the seven-year anniversary of the issue date, if the then-current Conversion Price (as defined in the Certificate of Designations) exceeds the Weighted Average Price (as defined in the Certificate of Designations) for the common stock during any ten consecutive Trading Days (as defined in the Certificate of Designations), at its option by delivery of a Notice of Conversion in accordance with Section 8(b) of the Certificate of Designations no later than five business days following such tenth consecutive Trading Day, to convert any or all of such holder’s shares of Series A Preferred Stock into, at the Company’s sole discretion, either common stock, cash or a combination of common stock and cash; provided, that the Company shall provide such converting holder notice of its election within two Trading Days of receipt of the Notice of Conversion; provided further, that in the event the Company elects to issue common stock for all or a portion of such conversion, the Conversion Rate for such conversion (subject to the limitations set forth in Section 11 of the Certificate of Designations) shall mean the quotient of the Liquidation Preference (as defined in the Certificate of Designations) divided by the average Weighted Average Price for the common stock during the 20 consecutive Trading Days commencing on the Trading Day immediately following the Trading Day on which the Company provided such notice. If the Company does not elect a settlement method prior to the deadline set forth in the Certificate of Designations, the Company shall be deemed to have elected to settle the conversion entirely in common stock. Based on the assumed conversion rate, a total of 5,652,173 shares of Common Stock would be issuable upon conversion of all of the currently outstanding shares of Series A Preferred Stock. On or after the third anniversary of the initial issuance date but prior to the fifth anniversary of the initial issuance date, the Company will have the right, at its option, to give notice of its election to cause all outstanding shares of the Series A Preferred Stock to be automatically converted into shares of the Company’s common stock at the then-effective conversion rate, if the Weighted Average Price of Company’s common stock equals or exceeds 140% of the then-current conversion price for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days. On or after the fifth anniversary of the initial issuance date but prior to the seventh anniversary of the initial issuance date, the Company will have the right, at its option, to give notice of its election to cause all outstanding shares of the Series A Preferred Stock to be automatically converted into shares of Company’s common stock at the then-effective conversion rate, if the Weighted Average Price of Company’s common stock equals or exceeds 115% of the then-current conversion price for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days. On or after the seventh anniversary of the initial issuance date, the Company will have the right, at its option, to give notice of its election to cause all outstanding shares of the Series A Preferred Stock to be automatically converted into shares of Company’s common stock at the then-effective conversion rate, if the Weighted Average Price of Company’s common stock equals or exceeds the then-current conversion price for at least 10 consecutive trading days. If the Company undergoes certain fundamental changes (as more fully described in the Certificate of Designations but including, among other things, certain change-in- control transactions, recapitalizations, asset sales and liquidation events), each outstanding share of Series A Preferred Stock may, within 15 days following the effective date of such fundamental change and at the election of the holder, be converted into Company’s common stock at a conversion rate (subject to certain adjustments) equal to (i) the greater of (A) the sum of the conversion rate on the effective date of such fundamental change plus the additional shares received by holders of Series A Preferred Stock following such fundamental change (as set forth in the Certificate of Designations) and (B) the quotient of (x) $100.00, divided by (y) the greater of (1) the applicable holder stock price and (2) 66 2/3% of the closing sale price of the Company’s common stock on the issue date plus (ii) the number of shares of Company’s common stock that would be issued if any and all accumulated and unpaid dividends were paid in shares of Company’s common stock. The Series A Preferred Stock contains limitations that prevent the holders thereof from acquiring shares of the Company’s common stock upon conversion that would result in (i) the number of shares beneficially owned by such holder and its affiliates exceeding 9.99% of the total number of shares of the Company’s common stock then outstanding or (ii) the Series A Preferred Stock being converted into more than 19.99% of the shares of the Company’s common stock outstanding on the initial issue date of the Series A Preferred Stock (subject to appropriate adjustment in the event of a stock split, stock dividend, combination or other similar recapitalization) without, in the latter instance, stockholder approval of such issuance. Additional features of the Series A Preferred Stock are as follows: a. Liquidation – In the event of liquidation, holders of Series A Preferred Stock have preferential rights to liquidation payments over holders of common stock. Holders of Series A Preferred Stock shall be paid out of the assets of the Company at an amount equal to $100 per share plus all accumulated and unpaid dividends. b. Dividends – Dividends on the Series A Preferred Stock are cumulative at the Dividend Rate. The “Dividend Rate” is the rate per annum of 7.625% per share of Series A Preferred Stock on the liquidation preference ($100 per share). Dividends are payable quarterly in arrears in cash or, at the Company’s election and subject to the receipt of the necessary shareholder approval (to the extent necessary), in shares of the Company’s common stock. The Company’s board of directors declared quarterly dividends of $0.68 per share on April 24, 2017, and $1.91 per share on July 18, 2017, which were both then paid on July 28, 2017. On October 17, 2017 the Company’s board of directors declared a quarterly dividend of $1.91 per share, which was paid on October 20, 2017. On November 19, 2017 the Company’s board of directors declared a quarterly dividend of $1.91 per share, which was paid on December 15, 2017. There were no accrued dividends as of December 31, 2017. c. Voting rights – Except as required by Delaware law, holders of the Series A Preferred Stock will have no voting rights except with respect to the approval of any material and adverse amendment to the Company’s certificate of incorporation, and certain significant holders of Series A Preferred Stock may have approval rights with respect to certain key economic terms of the Series A Preferred Stock, as set forth in the Certificate of Designations. As of December 31, 2016, 64,500 shares of Series B Preferred Stock were issued and outstanding. Private Daseke’s board of directors declared quarterly dividends on the Series B Preferred Stock of $18.75 per share on October 13, 2016 and $12.50 per share on February 21, 2017. Both the October 13, 2016 and February 21, 2017 dividends were paid on February F-32 F-33 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 27, 2017. As of December 31, 2016, accrued dividends of $1.2 million were recorded in accrued expenses and other liabilities. In February 2017, in connection with, and immediately prior to, the Closing, the Series B Preferred Stock were converted into 9,301,150 shares of Private Daseke’s common stock. Warrants At December 31, 2017, there were a total of 35,040,658 warrants outstanding to purchase 17,520,329 shares of the Company’s common stock. Hennessy has issued warrants to purchase its common stock which were originally issued as part of units in the IPO (the Public Warrants). There are 19,959,902 Public Warrants outstanding. Hennessy has also issued 15,080,756 warrants (the Private Placement Warrants) to Sponsor in a private placement that closed simultaneously with the consummation of the IPO. Each warrant entitles the registered holder to purchase one-half of one share of the Company’s common stock at a price of $5.75 per one-half of one share ($11.50 per whole share), subject to adjustment. The warrants may be exercised only for a whole number of shares of the Company’s common stock. No fractional shares will be issued upon exercise of the warrants. The warrants will expire on February 27, 2022, five years after the completion of the Business Combination, or earlier upon redemption or liquidation. The Warrants are listed on the NASDAQ market under the symbol DSKEW. The Company may call the Public Warrants for redemption at a price of $0.01 per warrant if, and only if, the reported last sale price of the Company’s common stock equals or exceeds $24.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date the Company sends the notice of redemption to the Public Warrant holders. NOTE 13 – STOCK-BASED COMPENSATION On February 27, 2017, the Company and Hennessy’s common stockholders approved the 2017 Omnibus Incentive Plan (the Plan), whereby the Company may grant awards of stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and performance awards. Under the Plan, the Company is authorized to issue up to 4.5 million shares of common stock. All awards granted were authorized under the Plan. Stock Options The following table summarizes stock option grants under the Plan during the year ended December 31, 2017: Grantee Type # of Options Granted Issued and Outstanding Weighted Average Exercise Price Vesting Period Weighted Average Grant Date Fair Value Director Group ..................................................................... Employee Group .................................................................. Total ..................................................................................... 150,000 1,514,995 150,000 5 years $ 9.98 $ 654,000 1,505,995 5 years $ 10.40 $ 6,822,157 1,655,995 The Company’s calculations of the fair value of stock options granted during the year ended December 31, 2017 were made using the Black-Scholes option-pricing model. The fair value of the Company’s stock option grants was estimated utilizing the following assumptions for the year ended December 31, 2017: Weighted average expected life .............................................................................................................. Risk-free interest rates ............................................................................................................................ Expected volatility .................................................................................................................................. Expected dividend yield .......................................................................................................................... 6.5 years 1.95% to 2.23% 40.1% to 40.6% 0.00% Since the Company does not have a sufficient history of exercise behavior, expected term is calculated using the assumption that the options will be exercised ratably from the date of vesting to the end of the contractual term for each vesting tranche of awards. Risk-free interest rate is based on the United States Treasury yield curve for the period of the expected term of the stock option. Expected volatility is calculated using an index of publicly traded peer companies. Restricted Stock Units Restricted stock units are nontransferable until vested and the holders are entitled to receive dividends with respect to the non-vested units. Prior to vesting, the grantees of restricted stock units are not entitled to vote the shares. Restricted stock unit awards vest in equal annual increments over the vesting period. The following table summarizes restricted stock unit grants under the Plan during the year ended December 31, 2017: Grantee Type # of Restricted Stock Units Granted Vesting Period Grant Date Fair Value Employee Group .................................................................................................... 1,008,868 5 years $ 10,078,591 All stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized on a straight-line basis as expense over the employees’ requisite service period. Forfeitures will be recorded as a cumulative adjustment to stock-based compensation expense in the period forfeitures are incurred. Stock Options A summary of option activity under the Plan as of December 31, 2017 and changes during the year then ended are as follows: Weighted Average Remaining Contractual Terms (Years) Weighted Average Exercise Price Aggregate Intrinsic Value (in thousands) Shares Outstanding as of January 1, 2017 .............................................................. Granted ........................................................................................................ Exercised ..................................................................................................... Forfeited ...................................................................................................... Outstanding as of December 31, 2017 ........................................................ 1,664,995 — (9,000) 1,655,995 — 10.36 — 9.98 10.36 — $ — $ 10.0 — — 9.3 — — — 20 6,505 F-34 F-35 Exercisable as of December 31, 2017 ......................................................... — $ — — $ — The stock options’ maximum contract term is ten years. DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Restricted Stock Units A summary of restricted stock unit awards activity under the Plan as of December 31, 2017 and changes during the year then ended are as follows: NOTE 15 – EMPLOYEE BENEFIT PLANS Defined Contribution Plans Weighted Average Grant Date Fair Value (Per Unit) Units Outstanding as of January 1, 2017 ........................................................................................... Granted ..................................................................................................................................... Vested ...................................................................................................................................... Forfeited ................................................................................................................................... Outstanding as of December 31, 2017 ..................................................................................... — $ 1,008,868 — (245,277) 763,591 $ — 9.99 — 10.01 9.98 Aggregate stock-based compensation charges, net of forfeitures, were $1.9 million during the year ended December 31, 2017 and included as a component of salaries, wages and employee benefits on the accompanying consolidated statements of operations and comprehensive income (loss). As of December 31, 2017, there was $6.4 million and $6.9 million of unrecognized stock-based compensation expense related to stock options and restricted stock units, respectively. This expense will be recognized over the weighted average periods of 4.2 years for stock options and 4.5 years for restricted stock units. All outstanding stock options and restricted stock units are non-vested as of December 31, 2017. NOTE 14 – EARNINGS PER SHARE Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the Company’s earnings. For the year ended December 31, 2017, shares of the Company’s 7.625% Series A Convertible Cumulative Preferred Stock (Series A Preferred Stock) were not included in the computation of diluted earnings per share as their effects were anti-dilutive. For the years ended December 31, 2016 and 2015, shares of Private Daseke’s Series B Convertible Preferred Stock (Series B Preferred Stock) were not included in the computation of diluted loss per share as their effects were anti-dilutive. The following table reconciles basic weighted average common stock outstanding to diluted weighted average common stock outstanding: (In thousands except per share data) Numerator Year Ended December 31, 2016 2017 2015 Net income (loss) .............................................................................................................................................................. $ Preferred stock dividends .................................................................................................................................................. Net income (loss) available to common stockholders ......................................................................................................... 26,996 $ (4,964) 22,032 (12,279) $ (4,770) (17,049) 3,263 (4,736) (1,473) Denominator Basic weighted average common shares outstanding....................................................................................................... 37,592,549 20,980,961 20,980,961 Effect of dilutive securities: Equivalent shares issuable upon achievement of Merger Agreement earn-out provision ............................................... Equivalent shares issuable upon exercises of stock options ............................................................................................. Equivalent shares of restricted stock units........................................................................................................................ Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions ...................... 1,250,000 254,312 496,840 39,593,701 — — — 20,980,961 — — — 20,980,961 Basic earnings (loss) per common share .............................................................................................................................. $ 0.59 $ (0.81) $ (0.07) Diluted earnings (loss) per common share ........................................................................................................................... $ 0.56 $ (0.81) $ (0.07) On January 1, 2015, the Company established the Daseke, Inc. 401(k) Retirement Plan (Retirement Plan). The Retirement Plan is a defined contribution plan and intended to qualify under ERISA provisions of 401(k). Under the safe harbor matching requirements, the Company had expenses of approximately $2.4 million, $2.2 million and $1.3 million for the years ended December 31, 2017, 2016 and 2015, respectively. The Company sponsors defined contribution profit- sharing plans, including 401(k) provisions for substantially all employees of acquired companies whose plans have not been merged into the Retirement Plan at December 31, 2017. The Company provided matching contributions on some of these plans. Total contribution expenses under these plans were approximately $153,000 and $172,000 for the years ended December 31, 2017 and 2015. There were no such expenses for the year ended December 31, 2016. Defined Benefit Plan Prior to the acquisition of BHE by the Company, BHE adopted a non-contributory defined benefit pension plan (the Pension Plan) covering substantially all employees of BHE hired prior to January 1, 2001. The Pension Plan was funded from Company contributions through amounts necessary to meet the minimum funding requirements as set forth in employee benefit and tax laws. As part of the BHE acquisition, the Company’s defined benefit obligation was indemnified by the sellers of BHE. Employer contributions to the Pension Plan were funded by an escrow established on the date of acquisition. In June 2016, the Pension Benefit Guaranty Corporation (PBGC) approved the termination of the Pension Plan. In August 2016, the Pension Plan received a favorable determination letter from the IRS with regards to the Pension Plan, amendments and plan termination. The PBGC required funding and distribution of plan assets to participants by the end of 2016. On December 19, 2016, BHE finalized the termination of the Pension Plan. In accordance with the terms of the termination agreement, the Company contributed $3.2 million to the Pension Plan funded by the forgiveness of $1.7 million of debt owed under the BHE Subordinated Notes and a cash payment of $1.5 million to the Company from certain of the BHE sellers. The following table sets forth a reconciliation of the projected benefit obligation and plan assets for the year ended December 31, 2016 (in thousands): Projected benefit obligation at beginning of period .................................................. $ Actuarial gain............................................................................................................ Plan termination ........................................................................................................ Projected benefit obligation at end of period ............................................................ Fair value of plan assets at beginning of period ........................................................ Employer contributions............................................................................................. Distribution on plan termination ............................................................................... Fair value of plan assets at end of period .................................................................. 2016 9,298 (1,282) (8,016) — 4,798 3,218 (8,016) — Underfunded status ................................................................................................... $ — Upon termination of the Pension Plan in December 2016, no future benefit payments are required. F-36 F-37 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 – INTEREST RATE SWAPS The Company, from time to time, uses interest rate swaps to manage risks related to interest rate movements. These interest rate swaps are reported at fair value on the consolidated balance sheets in accrued expenses and other liabilities. The Company had an interest rate swap agreement which qualified for hedge accounting and accordingly was designated as a cash flow hedge. For this interest rate swap, the change in fair value on the effective portion of the hedge was recognized as a component of other comprehensive income. In conjunction with the Business Combination discussed in Note 2, this interest rate swap was terminated. At December 31, 2016, the fair value of this interest rate swap was a liability of $51,871. NOTE 17 – COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases certain office building facilities, terminal locations and revenue equipment under non-cancelable operating leases. Certain of the Company’s operating lease agreements contain provisions for future rent increases, free rent periods or periods in which rent payments are reduced (abated). The total amount of rent payments due over the lease terms are charged to rent expense on the straight-line, undiscounted method over the lease terms. Rent expense under operating leases was $17.0 million, $16.0 million and $11.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. Future minimum lease payments under non-cancelable operating leases, including related party leases, are as follows (in thousands): Office and Equipment Terminals Year ending December 31, 8,735 2018 ....................................................................................................... $ 16,672 $ 6,802 2019 ....................................................................................................... 6,058 2020 ....................................................................................................... 5,196 2021 ....................................................................................................... 4,578 2022 ....................................................................................................... Thereafter ............................................................................................... 15,121 Total ....................................................................................................... $ 40,161 $ 46,490 13,043 7,072 2,203 1,171 — Revenue Letters of Credit The Company had outstanding letters of credit at December 31, 2017 totaling approximately $13.7 million, including those disclosed in Note 9. These letters of credit cover primarily liability insurance claims. Contingencies The Company is involved in certain claims and pending litigation arising in the normal course of business. These proceedings primarily involve claims for personal injury or property damage incurred in the transportation of freight or for personnel matters. The Company maintains liability insurance to cover liabilities arising from these matters but is responsible to pay self insurance and deductibles on such matters up to a certain threshold before the insurance is applied. Company has disclosed a corporate segment, which is not an operating segment and includes acquisition transaction expenses, corporate salaries, interest expense and other corporate administrative expenses and intersegment eliminations. The Company’s operating segments also provide transportation and related services for one another. Such services are generally billed at cost, and no profit is earned. Such intersegment revenues and expenses are eliminated in the Company’s consolidated results. Intersegment revenues and expenses totaled $3.0 million, $2.2 million and $2.1 million for the Flatbed Solutions segment for the years ended December 31, 2017, 2016 and 2015, respectively. Intersegment revenues and expenses totaled $3.9 million, $2.4 million and $2.4 million for the Specialized Solutions segment for the years ended December 31, 2017, 2016 and 2015, respectively. The following table reflects certain financial data of the Company’s reportable segments for the years ended December 31, 2017, 2016 and 2015 (in thousands): Flatbed Solutions Specialized Solutions Corporate/ Consolidated Year Ended December 31, 2017 Segment Segment Eliminations Totals Total revenue ................................................................................... $ 354,106 $ 499,132 $ (6,934) $ 846,304 7,015 Operating income (loss) ................................................................... 70,168 Depreciation .................................................................................... 6,695 Amortization of intangible assets .................................................... 29,556 Interest expense ............................................................................... (25,286) Loss before income tax .................................................................... 1,125,668 Total assets ...................................................................................... 41,689 Capital expenditures ........................................................................ (26,791) 149 — 14,021 (18,163) 70,355 600 15,345 42,583 4,948 8,425 (6,288) 675,838 32,684 18,461 27,436 1,747 7,110 (835) 379,475 8,405 Year Ended December 31, 2016 Total revenue ................................................................................... $ 310,440 $ 345,998 $ (4,636) $ 651,802 10,633 Operating income (loss) ................................................................... 61,499 Depreciation .................................................................................... 6,001 Amortization of intangible assets .................................................... 23,124 Interest expense ............................................................................... (12,116) Income (loss) before income tax ...................................................... 570,235 Total assets ...................................................................................... 40,568 Capital expenditures ........................................................................ (21,288) 156 — 10,731 (14,951) 4,709 215 15,643 28,523 1,922 5,953 852 283,370 18,427 16,278 32,820 4,079 6,440 1,983 282,156 21,926 Year Ended December 31, 2015 Total revenue ................................................................................... $ 306,320 $ 377,052 $ (4,527) $ 678,845 31,008 Operating income (loss) ................................................................... 58,407 Depreciation .................................................................................... 5,166 Amortization of intangible assets .................................................... 20,602 Interest expense ............................................................................... 10,726 Income (loss) before income tax ...................................................... 627,607 Total assets ...................................................................................... 106,142 Capital expenditures ........................................................................ (12,377) 118 — 9,762 (10,316) 8,552 581 20,231 28,706 1,570 4,939 9,393 304,328 62,416 23,154 29,583 3,596 5,901 11,649 314,727 43,145 NOTE 18 – REPORTABLE SEGMENTS NOTE 19 – QUARTERLY RESULTS (UNAUDITED) The Company evaluates the performance of the segments primarily based on their respective revenues and operating income. Accordingly, interest expense and other non-operating items are not reported in segment results. In addition, the The following tables set forth certain unaudited consolidated quarterly financial data for each of the last eight quarters during our fiscal years ended December 31, 2017 and 2016. We have derived the information from unaudited Consolidated Financial Statements that, in the opinion of management, reflect all adjustments (consisting only of normal recurring F-38 F-39 DASEKE, INC. AND SUBSIDIARIES DASEKE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS adjustments) necessary for a fair presentation of such quarterly information. The operating results for any quarter are not necessarily indicative of the results to be expected for any future period. Revenue: Freight ..................................................................... $ Brokerage ............................................................... Logistics ................................................................. Fuel surcharge......................................................... Total revenue ............................................................ Operating expenses: Salaries, wages and employee benefits ................... Fuel ......................................................................... Operations and maintenance ................................... Communications ..................................................... Purchased freight .................................................... Administrative expense .......................................... Sales and marketing ................................................ Taxes and licenses .................................................. Insurance and claims .............................................. Acquisition transaction expenses ............................ Depreciation and amortization ................................ Gain on disposition of equipment ........................... Impairment ............................................................. Total operating expenses ........................................... Total other expense ................................................... Provision (benefit) for income taxes ......................... Net income (loss) ...................................................... Less dividends to preferred stockholders ................ Mar. 31 June. 30 Sep. 30 Dec. 31 2017 Quarter Ended (In thousands) 125,555 $ 20,869 — 14,010 160,434 149,654 $ 28,656 2,700 16,313 197,323 50,121 19,223 23,224 404 37,586 7,378 383 2,281 4,123 445 16,315 (200) — 161,283 9,667 (2,770) (7,746) (806) 58,186 20,466 28,967 549 49,760 8,022 555 2,611 5,042 1,037 17,638 26 — 192,859 6,387 2,184 (4,107) (1,693) 171,245 $ 34,198 7,871 18,008 231,322 64,955 24,734 35,132 539 61,598 8,619 488 2,963 6,351 773 19,805 (339) — 225,618 8,516 (2,862) 50 (1,225) 186,310 37,220 11,503 22,192 257,225 76,734 29,326 31,067 653 76,310 9,214 539 3,200 8,446 1,122 23,105 (187) — 259,529 7,731 (48,834) 38,799 (1,240) Net income (loss) attributable to common stockholders .............................................................. $ Net income (loss) per common share - Basic ............ $ Net income (loss) per common share - Diluted ......... $ (8,552) $ (0.32) $ (0.32) $ (5,800) $ (0.15) $ (0.15) $ (1,175) $ (0.03) $ (0.03) $ 37,559 0.82 0.62 Revenue: Freight ..................................................................... $ Brokerage ............................................................... Fuel surcharge......................................................... Total revenue ............................................................ Operating expenses: Salaries, wages and employee benefits ................... Fuel ......................................................................... Operations and maintenance ................................... Communications ..................................................... Purchased freight .................................................... Administrative expense .......................................... Sales and marketing ................................................ Taxes and licenses .................................................. Insurance and claims .............................................. Acquisition transaction expenses ............................ Depreciation and amortization ................................ (Gain) loss on disposition of equipment ................. Impairment ............................................................. Total operating expenses ........................................... Total other expense ................................................... Provision (benefit) for income taxes ......................... Net income (loss) ...................................................... Less dividends to preferred stockholders ................ Net loss available to common stockholders .............. $ Net loss per common share - Basic & Diluted .......... $ NOTE 20 – SUBSEQUENT EVENTS Mar. 31 June. 30 Sep. 30 Dec. 31 2016 Quarter Ended (In thousands) 126,259 $ 20,604 10,018 156,881 136,792 $ 21,778 11,787 170,357 135,415 $ 25,977 12,756 174,148 50,355 14,497 20,701 484 36,775 7,394 363 2,333 4,041 15 16,873 81 — 153,912 5,258 (1,049) (1,240) (1,243) (2,483) $ (0.12) $ 50,207 17,283 24,358 354 41,185 5,096 483 2,345 4,542 3 16,644 571 — 163,071 5,301 974 1,011 (1,243) (232) $ (0.01) $ 49,298 17,296 27,874 370 42,541 5,221 435 2,268 5,065 — 16,998 (495) 1,195 168,066 6,656 683 (1,257) (1,243) (2,500) $ (0.12) $ 119,395 19,051 11,970 150,416 47,929 17,789 23,167 410 33,553 7,539 462 2,276 5,466 7 16,985 (273) 810 156,120 5,534 (445) (10,793) (1,041) (11,834) (0.57) On February 14, 2018, the Company and one of the Company’s stockholders entered into an underwriting agreement with Cowen and Company, LLC and Stifel, Nicolaus & Company, Incorporated, as representatives of the several underwriters named therein, in connection with an underwritten public offering of 7,500,000 shares of the Company’s common stock, at a price to the public of $10.60 per share. Pursuant to the underwriting agreement, the Company granted the underwriters a 30-day option to purchase up to an additional 1,125,000 shares of common stock, which was exercised in full on February 16, 2018 and closed simultaneously with the offering on February 20, 2018. Net proceeds received by the Company were approximately $84.6 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company intends to use the net proceeds from the offering for general corporate purposes, which may include, among other things, working capital, capital expenditures, debt repayment or refinancing or the financing of possible future acquisitions. F-40 F-41

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