Q1 2020 Earnings Call
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I would now like to turn the conference over to David Humphrey Vice President of Investor Relations. Please go ahead Sir.
Welcome to the best first quarter 2020, <unk> earnings Conference call.
Oh presentation. This morning, we'd be done by Judy Mcgrath, <unk>, Chairman, President and Chief Executive Officer about bad.
David Cob, Chief Financial Officer, Mark Best.
We thank you for joining us today.
In order to help you better understand arc bastard its results. Some forward looking statements could be made during this call.
As we all know forward looking statements by their very nature are subject to uncertainties and risks.
More complete discussions of factors that could affect the company's future results. Please refer to forward looking statements section of the company's earnings press release in the company's most recent FCC public filings.
In order to provide meaningful comparisons certain information disgusted list.
Conference call include non-GAAP financial measures as outlined and described in the tables in our earnings.
Pressure legs.
We will now begin with Judy Thank you David and good morning, everyone.
The cobot 19 pandemic has without a doubt presented our country and are in street with extraordinary challenges that have affected how we do business both on a professional and personal level the impact of the current virus pandemic husband Swift and there is still much unknown, particularly about the severe.
Dirty and recovery across the globe.
It is during these times, but I feel arcbests is especially well position because we have a strong foundation of long term relationships with our customers.
And because our balance sheet has kept us in a position of strength with financial liquidity.
And we have established a culture here that's strides every day to generate creative solutions for the challenges of the times.
As you will hear in more detail later over the last month, we have taken actions that further strengthened our financial position and provided for cost reductions throughout the company that helps preserve our cash resources.
While cautious.
The uncertainty of the pandemic severity or duration. We believe these were prudent steps to take.
Throughout this crisis, our top priority remains the health safety and well being of our employees. We began enacting safety measures back in February and we continue to follow CDC recommendations and the directed of our federal and state leaders regarding the implementation.
Safety and health precaution.
Over a two week period at our campuses and locations around the country, we successfully transitioned nearly 90% of our employees to work from home.
Those workplace changes have impacted about 2100 of our employees, including our union Billers all of whom have been working remotely for the last five weeks.
The strength of our technology and then innovations team continues to be a major asset in making this happen in a secure manner with very few issues.
The productivity level of our employees has remained high through this transition and our workforce has adapted very well to this new normal.
Only a few of our service centers were directly impacted by the virus and while both facilities were close for de cleaning we were able to make quick operational modifications in order to continue serving customers without interruption each of those facilities are back up and running and I appreciate.
The hard work of our team to get these locations back online as soon as possible, while taking the necessary precautions.
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Pardon me. This is the operator it appears that we have lost audio for the Speaker Mr. Humphrey are you still in the line.
Yes, I'm here.
Yes, Okay are we online I think so okay, sorry about that.
I think we lost our audio for a minute.
I'll go back and talk about our service centers only a few of our service centers were directly impacted by the virus and while those facilities workflows for de cleaning we were able to make quick operational modifications in order to continue serving our customers without interruption each of those facilities are back up and running.
And I appreciate the hard work of our team to get those locations back online as soon as possible, while taking the necessary precautions to ensure the safety and well being of our personnel equipment and cargo.
As a global logistics provider Arcbests, it's considered and essential business and we continue to support our customers, who are providing that food and product needs of our citizens throughout the country.
Our trucks have been involved in the delivery of all types of a central good including virus testing kits ventilators enhance sanitizer for one shipper in particular, we have delivered nearly 800000 protective Matt.
We supplied government agencies, including the C.D.C. with equipment and drivers and we continue to work with the state governments to stage needed shipments to help their citizens, we take great pride in being a part of our nation's response efforts and our employees have responded in amazing ways. During these challenging.
Fines.
Throughout April the full force at the pandemic has hit our nation and many of our customers as we reported earlier. This morning in an 8-K, a that we filed along with our earnings press release, we're experiencing large reductions in our business over a very short period of time, which required us to take.
Difficult actions in order to reduce cost then included reductions in hours work salaries wages and benefits for many of our employees and even layoffs in certain areas. Despite having to make these difficult decisions. We have continued to serve our customers and provide them with the superior level of service that.
They have come to expect from Arcbest.
Before I discuss the segment details of our first quarter results I want to say how pleased I am about our company's recent performance. This year as first quarter was one of the best first quarters in Arcbest history. Our company responded well to the seasonal business challenges that typically occur in the early months of year, our strong start.
Lets us in a good position as we face the challenges ahead.
Our asset base first quarter results benefited from tonnage growth and were positively impacted by our focus on matching customer shipments with available capacity in our freight network.
During the quarter, our folks did a good job of balancing system resources to business levels, while maintaining customer service. The overall pricing environment remains rational and we continue to find ways to effectively serve customers, while improving operational efficiencies and managing costs within our company.
Our asset base business began to experience the initial impacts of cobot 19 related slowdown late in the month of March.
Production in total shipments was the result of fewer LTL rated shipments being handled in our idea freight network shipments were down during the seasonally slower winter period due to the overall weakness in the manufacturing and industrial sector of the economy.
As a result, we increased our efforts to identify capacity opportunities and fill them with truck load rated spot loads as well as heavier transactional LTL rated shipments we had success and adding these shipments in the right places in our network and we benefited from the increase productivity and improvements in.
Ourself in several of our operational metrics.
This is not any different than we normally do and filling empty capacity, but so far this year. These transactional LTL shipments have also been apart about operational strategy.
The impacted these efforts can also be seen in our freight statistics that reflect higher shipment revenue and meaningful growth in weight per shipments.
Changes in freight mix and shipments size related to the additional spot and transactional shipments contributed to a decrease in first quarter revenue per hundredweight. That's total pricing metric was also impacted by lower fuel surcharge revenue compared to last year's first quarter.
Excluding fuel surcharge, we had a small increase in they average price of our LTL ready business the pricing environment is stable and the solid yield increases on our traditional published in contractual business were reflective of what we're currently seeing in the marketplace.
Our asset base costs benefited from focus management and efficiencies gained from additional freight tonnage moving through the IB F. network first quarter efforts to increase tonnage and improve line haul trailer load average while efficiently handling the additional tonnage across our dogs were successful.
As a result, the increase in our first quarter operating ratio relative to the fourth quarter was well below the recent historical increase average of approximately 400 basis points.
The cobot 19 pandemic did not have a meaningful impact on our asset base business during the first quarter.
We began hearing from our customers about its effects on their businesses earlier in March we first saw a significant change in our business. That's during the last full week of the month.
The light timing at these events resulted in them, having a limited impact on first quarter results. They significantly impacted business levels in April and that has continued into the first few days of Maine.
A reduction in total shipments combined with lower average revenue per shipment were the main contributors to the first quarter revenue decrease in the Arcbest asset light segment versus last year.
Access available truckload capacity and weakness in industrial manufacturing contributed to lower revenue per shipment for both our expedite and truckload services and significantly reduce the expedite shipment count during the quarter.
Shippers continued to have a greater number of low cost capacity options, that's reducing their need for expedite services.
Purchase transportation expense was below last year, but not at the rate of the revenue decline, that's reducing shipment margins and pressuring our bottom line.
I'll truckload shipments actually increase versus last year's first quarter, the double digit percent reduction in expedite shipments combined with a small reduction in average revenue on these shipments was the primary factor impacting the asset light loss in the first quarter.
Managed transportation services and the opportunity to offer our expertise in crafting. These unique solutions for customers continues to be a positive contributor to our asset light results as reflected in the 55% managed daily revenue growth versus last year's first quarter.
We engage with customers to understand the needs of their supply chains, we continue to find ways to craft innovative cost efficient solutions that support their service and transit time reliability needs. While we are growing with our existing customers. In this area. We continue to identify new opportunities to serve the managed solutions needs.
New customers and this trend should contribute to further growth in the future.
Overall, the first quarter Cobot 19 impact on our asset light business was not significant the services offered in the international portion of our asset light segment were below the prior year shipments and vessel movements out of the far east slowed down beginning in February.
In the second half of March we began seeing the impact of customer closures and reduce shipment levels from those asset light shippers, who continue to operate but as we saw in our asset base business. The late quarter timing minimize the effect on first quarter results at fleet that lower revenue resulted from a decrease in total events.
Primarily in roadside repair, resulting from milder winter weather during the first quarter.
Revenue and operating metrics from preventative maintenance service activity improved versus last year and positively contributed to first quarter results compared to last year. The reduction in this quarter's operating income was primarily a result of the shortfall in total events and next I would like to ask David Coptic over the earnings release.
Salt and operating statistics like.
Thank you Judy and good morning, everyone.
Let me begin with some consolidated information.
First quarter 2020, consolidated revenues were $701 million compared to $712 million in last year's first quarter. They per day decrease of 3%.
GAAP basis, we had first quarter 2020, net income of seven cents per diluted share.
As compared to 18 cents per share last year.
Changes in cash return value of life insurance policies, which we have consistently identified as a reconciling item or non-GAAP results contributed 20 cents this year over year difference.
Yes.
Excluding the life insurance impact and other items as detailed on the GAAP to non-GAAP reconciliation table. This morning's earnings press release.
Our adjusted first quarter 2020, net income was 36 cents per diluted share compared to 25 cents per share the same period last year.
Or best first quarter 2020, effective GAAP tax rate was 20.3 person.
The tax rate was lower than prior year, reflecting the recognition of tax credits for alternative fuel research and development.
In accordance with accounting guidance or this first quarter 2020 tax provision displacing the actual statutory tax rates as opposed to using annual effective tax rate because of the inability to providing reliable estimate of ordinary income for the full year in a reasonable range.
Roger the effects of the cobot 19 pay didn't make him a pre tax income tax rate for the full year of 2020 was estimated to be 25% to 26% well the effective rate in any quarter would be impacted the items discrete period.
That's it they <unk> first quarter revenue was $560 million, which was $10 million above last year. So because when additional business day was relatively consistent with last year.
Good day basis.
That's it based quarterly total tonnage per day increased 4.6 person versus last year's first quarter.
First quarter 2020 by month.
Yes, it based daily total tonnage versus same period last year.
<unk> by 5.7% in January increased by 7.5 persons in February and increased by one person in March.
As Judy mentioned earlier, increasing increase in first quarter total tonnage per day was driven by the addition of spot truckload weighted shipments in LTL rated transaction shipments.
Did in order to utilize available equipment capacity.
Yes, it based network.
Total shipments per day in the first quarter decreased by 2.2 person compared to last year's first quarter.
First quarter total billed revenue per hundred weight I said, they shipments decreased 4.3 person as compared to last year, excluding fuel surcharge billed revenue, yes. It they still feel rated freight increased slightly during the quarter.
When I said based customer contract renewals and deferred pricing agreements negotiated during the quarter you average increase was 4.3 person.
On an adjusted basis or asset base first quarter operating ratio was 96.5 per cent compared to 96.9% in 2019 first quarter.
As mentioned, we began to experience the effect of customers in response to the pandemic during March meaningfully during the last week in March and continuing into April.
Yes, it based cystic since April versus last year were.
Yes, it based revenue per day down 21 person.
Total tonnage per day down, 14% total shipments per day down 16%.
Total revenue per hundred weight down 7.5 person impacted by lower fuel surcharges and freight mix changes related to the addition of transaction shipments.
Decrease in total billed revenue per hundred weight flex a mid single digit decrease and build revenue per hundred weight, excluding fuel surcharge LTL shipments, which was driven by profile changes.
And with lower billed revenue per hundred weight on truckload rate and spot shipments moving in yesterday's network.
Oh, the April 2020, billed revenue right away measure excluding fuel surcharges.
Field related shipments was below the prior year price, even traditional published business.
Compared to April 2019 usage sequentially can improve compared to March 2020.
In addition, the average increases on contractual renewals and deferred pricing agreements negotiated during April 2020.
Comparable with those obtained in the first quarter.
We previously announced like 50% reduction in the salaries of all nonunion employees in equivalents, 50% reduction in the working over something on salary nonunion employees.
The previous announcement, including hiring freeze.
Mention of the company's matching contribution or non union for one K. plan.
Things that are paid Arcbests Board members and Board Committee chairs have also been reduced by 15% during this period.
Assuming all of these compensation are there other cost reduction measures or maintained throughout the end of June we projected the associated second quarter 2020 savings versus the same period in 2019 will be in a range of 15 million to $20 million.
In addition reductions personnel and other costs alone with operational changes in the idea freight network designed to better align resources with business levels have been made as an example, we've laid off 12% of a road drivers and 14% of our service center operations such labor employees.
During this period or cost reductions may not directly correspond to dramatic changes in business levels over in April year over year improvement in the U.S. it they segments operational productivity metrics.
Keep in the first quarter generally continued with a lower business levels.
Historically, the second quarter operating ratio for the I said, they segments seasonally improved versus the first quarter.
However, due to the impact of the Cobot 19, and gimmick 2020 sequential operating ratio comparison for second quarter versus first quarter is not currently expected to be comparable to historical trends may deteriorate only sequential basis, depending on business levels through June.
Due to the uncertainties ahead, we are unable to reason, we predict the business impacted the paint in acute segments financial performance.
Mutation to the operational changes in cost reductions that I mentioned may not directly correspond to changes in business levels, while serving customers.
In total daily revenue, even this asset light businesses decreased 5.6% versus last year's first quarter.
Electing revenue declines in both our best segment in it sleep.
The total asset light business lost about $400000 and the first quarter compared to operating income of $3.2 million last year.
Merely due to reductions in total business levels, particularly expedite business.
Yes, it like revenue was down approximately 17% in April compared to the prior year, mostly driven by lower volumes associated with the coven 19 and do it.
Just transportation transportation expense decrease more than revenue decline.
Bolting overall margin improvement for the month.
This improvement was driven by additional expedite project business related to the pandemic <unk>.
The margin improvement combined with the previously mentioned tossed reductions are expected to improve possibly levels in the month of April 2020, compared to April 2019, as well as compared to each month of first quarter 2020.
This morning, we filed an 8-K that included a first quarter 2020 earnings release, along with an exhibit that provided some additional information about our current quarterly financial results.
Along with our recent business levels in or future expectations on certain financial metrics.
Information that includes more details when or April business trends.
Should be helpful in modeling expectations for 2020 financial results.
As Judy mentioned earlier, we were already solid financial position as Cobot 19 begins to impact your business levels in the shipping activities our customers.
As previously announced in late March further prepare ourselves for the uncertainty that lies ahead, we took steps to enhance our liquidity and preserve our cash.
The draw down of the remaining $180 million available under our credit facility borrowings an additional $45 million <unk> Youre securitization agreement resulted in the strong.
Cash and short term investments balance in the $531 billion at the end of the first quarter.
Total liquids liquidity, including or cash and borrowing availability under existing facilities was $559 million at the end of the first quarter.
Our financial covenants or in a good places are adjusted leverage ratio, which is calculated using net debt or debt net of cash and consequently was not initially impacted by the draw down of our credit facilities.
Was that 0.56 to one compared to the maximum wealth of 3.5 to one our interest coverage ratio ended the quarter at 7.91.
Two one compared to the minimum allowed a 3.5 to one.
Early April 8-K announcements included a $40 million, 30% reduction or this 2020 net capital expenditures, which after the reduction is now expected to be in a range of 95 million $105 million, reflecting 40 items position the company the benefit from opportunities as conditions improve and in keeping with our loan.
And perspective.
2020, depreciation and amortization is now estimated to be approximately $110 million.
Our total debt at the end of first quarter 2020 was $534 million, which includes the increase balance of 250 million or credit revolver.
5 million Melbourne, Oldham, our receivable securitization.
No table, primarily on equipment for and I said based on operation equals $199 million the composite interest rate and all of our debt is now 2.6%, which represents a 50 basis point reduction from what we were paying at the end of 2019.
The interest cost net of interest income to hold the incremental cash.
As it related to recent drawdown is approximately $220000.
I believe we have lost audio and Mr. I'm pretty you on the line.
Since the operator I'm unable to hear any of the speakers at this time.
Hello can you hear me now.
I can hear your loud and clear. Thank you, okay, yes apologize for that let me pick up with Uh Huh.
Receivable discussion regarding our accounts receivable and the impact of the pandemic when our customers payment schedules.
We have reached out to customers to confirm their plans for payment of outstanding invoices.
As needed we are working on an individual basis to ensure payment based on agreed upon terms.
Pandemic, we'll have some impact on the timing of customer payments, we're actively managing that process relative to its impact on our cash flow.
Focused on our financial position are closely monitoring collections, along with our total cash flow, which was positive for the month of April.
Combined with our cash balances we ended the first quarter with net debt of just $3 million or best preliminary April Thirtyth 2020, consolidated cash and short term investments net of debt increased to approximately $12 million.
Net cash compared to the $3 million net debt position that ended the quarter.
Selecting positive EBITDA for the month since April.
Well details of our GAAP cash flow for the first quarter or included in our earnings press release.
We have continued to take actions to enhance shareholder value with our quarterly dividend payments and Treasury Splunk Perkins.
Capital allocated to these programs has been at reasonable levels.
Albert lease programs will be monitored in consideration of cash requirements for operations that might occur from further economic weakness in uncertainty.
Now I'll turn it over to Judy for some closing comments.
Thank you David.
Along with the steps that we've taken over the last several years to develop a full array of logistics services for our customers and the transportation marketplace as a whole had put us in a good place. The pandemic has cogs changes in our customer supply chains, which has created opportunities for our best to do what I believe it does better than any.
One else and that's providing innovative solutions for our customers most challenging needs.
Our best is well positioned to help our customers when they experienced supply chain disruptions and we're working with customers and capacity providers to make sure. We can effectively respond as quickly as possible.
During this period of uncertainty and continuing once things return to normal the solutions, we offer our customers will be responsive to their needs. We are committed to growing arcbest, regardless of the economic environment or any tests that we face our people and our capabilities are our strongest asset and a blessing to us.
Into our customers Cobot 19 has presented our company with a number of challenges, but also by tremendous opportunity to test our ability to effectively manage through a crisis I believe that one very important factor in surviving any crisis is a strong foundation the investments we've made in our people customers.
And carriers combined with our technology and innovations advancements have further strengthened our foundation in times like these we must work to improve what we can control I'm proud of this organization and of what we're accomplishing together, we have a 10 nations group of employees, who had the skill and the will to get the hard work.
Done throughout our nearly hundred years in business, we have face significant challenges and responded well to each one of them and now I'll turn it over to David have free to conduct our question and answer session.
Okay, then I think we're ready for some questions though.
Thank you if he would like to registry question. Please press the one followed by the four on your telephone you'll hear a three Tom prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration. Please press star one all by the three one moment. Please for the first question.
The first question, it's coming from the line of David Ross from Stifel. Your line is open. Please go ahead.
Yes, good morning, Judy and good morning, David.
Hi, good morning, doing well well just wanted to see about April little bit more color or whether there's a big difference between the first week of the month in the last week of the bunks and what's your customers are saying about may.
You know, we really haven't seen much of a different.
We'd gone through the month.
Again, we commented about the signal that we saw toward.
The end of March a really began seeing the effects I think probably on Wednesday, or Thursday about week of March and what we've seen has just continued through the month of April and we're not hearing anything other than just some news about companies reopening I think you know recently, we had a.
Conversation with a good number of our service center managers any asset base business across the country and just as you know hearing a lot of discussion about customers reopening and some of the detail there, but there still are a lot of companies I think that are there shut down or certainly working out.
Lower levels and we continue you know to understand that and make sure that we're adjusting our workforce accordingly.
Okay, and in an environment, where they seem to be printing money and.
The bailout.
That is back if you will are you hearing anything on the pension relief side that might give you guys. Some relief on the orphan liabilities that you have.
Well certainly we work on that always and we've looked as well as I know a other groups that are seeking that really for looking for opportunities for some legislation to address that issue I'm. So far there hasn't been any included in any of the phases or the bills that we've seen approved.
And signed by the President, but you know we are looking forward to perhaps an opportunity in the infrastructure bill a that could be coming but we don't have any idea about the timing of that and you know the likelihood of it but just know that that we work diligently on that issue and many many.
Others, do as well and so I I share your sentiment and that there's an opportunity for it but I wish I had more clarity for you than I do but we'll certainly let you know if we if we see or hear something.
And related to that lastly, if you could just remind us what.
The annual expenses related those orphan liabilities I don't know if you have that off the top your had there.
Well, David probably does I think that the total pension is around $150 million board for those union plans and about 50% of that is for central States.
And that's where the larger part of this issue is that I think on an overall basis, 50% about overall dollars are paid for people who have never worked like for our company and so there's there's a lot of opportunity for something better there.
Okay I appreciate it good to hear from you.
The next question as coming from the line of Chris Wetherbee from Citi. Your line is open. Please go ahead.
Great. Thanks, Good morning, guys good morning, Chris.
Morning.
Maybe can we talk a little bit about expense variability David you laid out some of the cost saving efforts and I think you've even mentioned April was EBITDA positive, but could you sort of more broadly maybe beyond Twoq you talk about sort of the portion of the business maybe on the asset based side, which is variable and then maybe also on the asset light side how much is.
Well, how much can you really attack here during the downturn on the cost side.
Yes, I think you know its.
We saw some a improved productivity measures in the first quarter.
And even with these lower business levels that were seeing into April were.
Seeing those productivity measures generally improve versus last year in so I think what that indicates to us is that we're able to scale with these lower business levels.
You know to that certain extent no.
I think it's it's a it's fair to say that as business levels declines you tend to have more costs that kind of proportionately get into sort of a more some of variable to fixed.
Fixed sort of nature I just by.
The virtue of those business levels. So.
It does become more challenging at lower business levels, but but I'm really impressed with the way to operations team is.
As aligned.
With business certainly you know that's that's our up a road drivers, we talked about that being down in our or service center touch labor being down 14% and so a bad alone with you know we've we've addressed cartilage we've addressed the purchase transportation.
We've addressed rules we've addressed.
Maintenance.
Parking some units.
So you know the things she would normally do we're doing so and it's good. So it's good to see I think the those metrics like I said to improve in April.
Okay. Okay. That's helpful. Appreciate that and then maybe just a question on the pricing side. So it sounds like as you've rolled through into April conversations around contractual pricing negotiations are relatively similar to what you're doing and getting in the first quarter.
I guess when you just sort of think about just the general process you know <unk>.
Do you think just due to sort of just general capacity and dynamics within LTL or do you think that theres the potential for some deceleration of maybe pricing as we go forward assuming cottages down in a relatively steep pace for most of the second quarter I guess I swore understand maybe sort of this new pricing dynamic that were in within LTL and sort of how.
How solid it is and how you guys feel about sort of variability around pricing.
I'll start with that I mean, you know we're.
We're seeing you know the pricing environment continue to be solids.
Rational I mean.
As you pointed out our deferred pricing agreements were comparable to the first quarter.
<unk>, we've been seeing in April.
In the midst of this lower business level. So so that's really encouraging and.
You know the way, we're able to price on some of this transactional business. We've talked about this in the past is that.
Is that a you know we look at those shipments on an individual basis to ensure that they are profitable for our business and our enterprise.
I think.
You know you.
If tonnage levels, where does the prolonged nature of the downturn you know that does.
That could present some pressure on pricing.
Well one thing I'd add David is just by virtue of the fact that their customers that are not at their normal workplaces. You know, we we've seen somewhat of a delay and in our normal pricing discussions nothing dramatic but you know there is some additional effort I think to get those.
Deferred negotiations and some other increases across the finish line. So but we were we were encouraged by the April results.
You know contracts in deferred pricing increase level was comparable to that that we saw in the first quarter, which was good and decent one of the better in the company's history, I think and a that you know that's encouraging and I do think that there is and understanding by customers of the.
Oh, you that were providing during this time because it is a difficult job and I think the knowledge and understanding of that is heightened right now and so we'll continue to watch it I think we've shown our efforts toward discipline, having that space based pricing that.
Aneurysm in place really helps us make sure that the shipments that were handling our you know we understand what they are and that we're able to price does well and so all of that plays in I think to the result that we saw in the first quarter and we'll continue to and we appreciate that we had that mechanism.
And then place.
Sure. Thanks, very much for the time this morning, alright, guys take care.
Thank you.
The next question is coming from the line of Scott Group from Wolfe Research. Your line is open. Please go ahead.
Hey, Thanks morning, guys nice to be back I've got nice color here.
So the positive EBITDA and in April can you comment was LTL did LTR positive operating income.
In April and and do you think LTL stays profitable in the quarter.
Scott I appreciate your a inquiring mind, but that's that's really the the level of detail. When you know I Hope you would you give us credit for for reaching onions, and giving you.
Not much but.
But that's <unk>.
You know what consolidated basis, you know were worse, we haven't closed the month.
Yet either but our view is that a we do have positive EBITDA for them on a consolidated basis for the month of April which is encouraging so.
Again, our Nick that what were the net cash position within the month as well coming from a net debt position. So that was good to see is.
Also so but anyway. Thank you Scott well and David I think it's safe to say that that that was I mean that positive EBITDA would be contributed to buy that segments of our business. You know I feel like that it's fair to say, but David dry we haven't finally close the books a we're in this period, where we know.
Some things about April, but we don't have the final final numbers and so we're trying to help you with a what we know.
No that but I appreciate that that's helpful. And then can you help me think about this transactional LTL business. So when.
I guess I'm struggling a little bit of pricing was up four but yields are down mid single digits.
Here's the transactional LTL business coming from as you taking LTL from another LTL.
Carrier and then what are the the net is this a good thing or a bad thing for margins profitability if its.
I'm a little just confused with the transactional overtime I. Appreciate the question you know what's interesting about these oh shipments as their opportunities that we were getting a we were these are customers that were quoting asked before and that we're you know we're able to have gone.
Greater visibility into where they can work well for us and creating operational efficiencies and the largest driver on adding these shipments is empty capacity and we've improved our network visibility the and gained some better information and that really allows us to make more intelligent decisions about each.
These shipments so in some cases, we can make you know lane based day the week decisions on adding these shipments to our network and we feel good about our ability to meet the customer and transact with them, where they are perhaps there they've got a tms system or something that they're utilizing but.
Add to the point of profitability, we judge these shipments based on their own individual profitability met merits. You know if you. If you think about each one and we feel like that's freight is incrementally profitable for us and so I think what what's different or what.
And advantage I think for US is just our greater and greater.
Greater visibility of being able to place these shipments in areas, where we know that can be beneficial to us for from a cost standpoint and for instance, if if you.
And looked at the first quarter.
Our empty miles were down 15%.
That's an indication that you know that the kind of the sum total of the different decisions that we've made based on published business based on quoted spot quoted business, both including Bbq and this transactional business.
Really worked well for us and so you know the I hope that helps you.
Just one off just to make sure I understand if I can David just so is this though is coming from another LTL do you think and then there's your history that this transactional LTL tends to be sticky and you'll have it again next year or its transaction and who knows I just went well certainly because the market really isn't.
We not much I mean, I'm, assuming that it would be coming but not necessarily from one but just from a number of different you know places and we feel like if were appropriately addressing this business with the customer that that creates a good experience for them and we feel like that over.
A period of time as we get more experiences with is that it will help us and grow our active account base.
Thank you for the bought Scott I appreciate you being Sykes.
The next question that's coming from the line of Todd Fowler from Keybanc capital markets. Your line is open. Please go ahead.
Great. Thanks, and good morning, and David Humphrey Dusted off the Stopwatch I guess can you guys hear me [laughter] I just can't start you got to that.
[laughter] I wanted to ask David copy you made some comments I'm in your prepared remarks, I think were outside of the 8-K about some head count reductions can you go over I think you said about 12% in is that a head count reduction or is that are for low and then would that cost takeout be in addition to the 15 to 20 million that you quantify.
Within the 8-K and then the release.
Very good yeah. Appreciate the clarifying question. The 15 to 20 million does not include the operational Oh, you know reductions cost reductions that that would happen at a b a free to network.
System.
The 12% was.
It's about 270 fewer road drivers that are that are laid off and then.
On the service center, it's about 14%, it's about 700 or so.
And our docking city operation So that's substantial.
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That and then Wichita <unk>.
Well David are those are you keeping any like benefit costs related to those individuals is it more of a furlough or is it a truly off where 100% of the cost would come out.
Right. So for us it's a it's 100 person who the cost and you know to extent that they have a benefits that a that a plan to multiemployer plan may provide those Oh go ahead, Bob those plans.
Yeah, and that and that's contractual in nature, you know the the contract that we have with the IBT for those employees.
Got it that helps and then Judy just on the mix shift you know baby into April you know it doesn't seem like there was a big increase in weight per shipment, even though you've got more truckload weighted freight coming into the network can you talk about any changes in characteristic or shipment that you're seeing with your customers and maybe a sense of what percent of your customers have been considered a central over.
It is non essential any impact on kind of the creek dynamics that you're seeing right now from a network balanced standpoint would be helpful.
That's why it's one thing that's interesting I think as we moved into April Ah compared to the first quarter.
Was we saw an increase in residential shipments.
No in and part of that I think is related to our E. Commerce relationships that we have with customers that you know we have some customers that are really a in total ecommerce companies and they do a lot of this there was a.
A greater interest if you can imagine a in having home delivery of things like treadmills, and a sheds and those kinds of items and so we had the benefit of participating in those and we feel good about those in terms of the impact.
That they have on the company Weve.
Adjusted I think over the years, our understanding of the cost elements of that in the and the pricing that is attached to it and what's what's been interesting as some of the the flexibility that we gained and what I mean by bad as we've had some relief that the tighter appointment.
Windows and of course, no one wants you to come home [laughter] into their home and so they're they're satisfied with you delivering you know what the curbside. So some of those things have have helped us from an operational standpoint that back to your question about the weight per shipment those tend to be lighter.
And you know because they had a greater influence in April were seeing the the the impact of that on weight per shipment. For example, the other thing that I'll mention is our as we go into the second quarter you pack, our household goods moving business and those tend to be a heavier shipments.
And because of the nature of that's pandemic not a lot is moving and so that will tend to have a negative effect on weight per shipment as well as we go into the second quarter hope that gives you a little bit more color.
Yeah, I know that's very helpful. Thanks for the time this morning.
Thanks, Todd stuff.
My next question is coming from the line of Jack Atkins from Stephens. Your line is open. Please go ahead.
Hey, Good morning, Judy Hey, David David Jack Good morning.
Well so let me go back to I could the commentary around what you're hearing from your customers about their plans for from a as the economy begets. The slowly you know reopen here.
You know could you maybe kind of just provide a little bit more color either or what's your service center folks are selling your what's your kind of what you're getting directly from your customers or you know just if you could help us think about you know what portion of that 14% tonnage declined and April was related to their customers that are shut down I'm, just trying to get appeal or as.
As the economy goes over back up how should we think about.
You know that ties decline mitigating a versus just whats ROI the slower underlying economic activity.
Well, yeah, we don't have a lot of I think general comments that could be made that really are are helpful. There. We got a lot of different anecdotes and stories, but you know one area that we've seen some weakness in that I think is meaningful is the auto dealers and what were or not.
The dealers that auto manufacturers and what we're hearing from them is that in mid may a number of them are going to be coming back online and you know that has been a weakness I think for the better part of this year and certainly in the last five or six weeks for our ground expedite business.
One of the things that Weve been able to do which has been nice is that a we've redeployed some of the resources that typically handle that business into a business that we've done with the CDC and the other kind of health care in life Sciences, a public admin.
Straighten kind of effort. So we you know we we feel as better than you might think about how things have gone out for our ground expedite team, but you know it will help a lot to have these auto manufacturers back open if you look at our overall.
And this and business, it's come largely from retailers and manufacturers and other than in this auto Ariad I'm not hearing a lot of specifics brown manufacturers yet.
Hoping to and then on the retail side I think it's it's just really very localized and you know so again, it's hard for us to make generalize comments that are really very helpful. Here, but I am glad to hear that there's some chatter about reopening, but just just don't have a lot of detail to offering.
No. That's that's helpful. Though Judy that keep thank you for that and I guess for my follow up you know, what you're thinking about the $15 million to $20 million at cost that you guys have taken out in the second quarter relative to the first quarter.
We think about that coming back again over the balance of this year.
As tonnage because the coda Declawed hopefully began began to moderate at what point, where you start layering on some of those non union related costs and benefits.
Well jacket.
First of all just wanted to clarify that that $15 million to $20 million is a year over year comparison, so compared to second quarter of 2019, that's that's the reduction calculation.
But we would we really just need to evaluate.
As as the business comes back and appreciate the optimism and then we have that as well or expectation afford to come back, but I would just say, we just need to evaluate where this goes I don't have a definite time period at this point in time.
But all the all only just to say that it will be constantly evaluate as.
Well on the other part of that that David mentioned earlier that is.
Naturally adjusted is the asset base business as we see things change is there a you know having folks and in layoffs at us. It just that's it that's I pool or a population at the workforce that we want to get back to work and and we have that to to tap into words, it's a good luck.
Lever for us as business levels change in that part of the business. So I you know I think we have to be very cautious about these things and we're we're on that side of the argument, let's just say.
Jack Law that makes it also looks like you.
Thanks, and I'll just say, we've got four people that you were going to get to all of you. We may go a little bit over but I wouldn't want to get or by the chance to ask questions.
Thank you. The next question is coming from the line of 10 Hoekstra from Bank of America. Please go ahead. Your line is up.
Hey, Great Judy Dave Dave Thanks for doing the life you appreciate everything.
Good morning, you hope, you're all well, let's say a few questions on the variability of cost David.
Something not really normally thought of with a unionized carrier and and you've gone through a lot of the adjustments, but do you see any chance to to make any structural changes given the volume shift here now that you've got rid of some of the you talked about some of the line all reductions in some of the office or the office staff and and that the service centers can you know do you look at.
Since I had these are there's a chance to make some of those structural changes we need to make to to keep the competitive.
Status.
Good insightful question and.
It is it does present, a unique opportunity really to reexamined.
The network design and so I think you know we will take this opportunity. They were you know we say this and we do this all the time that were examining our network to make sure it meets.
Customer service levels, and and you know is cost assumptions decision as possible, but but this is a little more unique a time to do that and so I agree yourself.
Does present an opportunity to.
Optimize the network, even further and so you know we achieve some so.
Pretty thank.
Yeah, good productivity metrics a in the quarter some of that's through some of the software that we've implemented and network optimization that we've done so.
I think just ongoing looking at that enhancing their software technologies.
We will well continue to service will in this time.
And that's just a quick follow up Judy your your focus kind of overtime in terms of the the move toward non asset at any change to that that strategy like how that setting as you move into this.
Into this new environment, maybe talk a bit up you know get just given the impact of covert shifting that business around and yet you're kind of commentary before about the transactional.
Shipped within the core.
Well you can great great thought and I appreciate the question.
One of the things that we've I thought about a lot is when you compare back to the great recession, although there's lot of differences I'm in the company one of those that stands out to US is the at the logistics company that we are today and that gives us so much.
<unk> benefit from the standpoint of being able to serve customers, particularly when their supply chains are disrupted if you look at the increase that we have I know, it's a smaller base, but the managed solutions increases 55% Oh in terms of revenue growth and that's a sign of that.
That that tells you that you know we as a logistics company can step back work with a customer a really develop the best solution and it oftentimes is the combination of full load or perhaps utilization of an LTL network for the final delivery and then also in this.
Period of a unique disruption you know that the ground expedite and time critical solutions that we have really really worked well and they've shown up for us in a number of different instances and so.
We feel great about that and then you know again, we talked earlier about our our customers shifting more to that E. Commerce, a those needs that have changed there you know we have some good capabilities that we've really I think.
As further strengthened over the years that really started over 20 years ago with argue pack home delivery business and that's serving US well during this time and you know I think.
I think that.
The sum total of that tells me that we're better positioned regardless of the need or the the kind of the difficulty and I appreciate being in that position and then also I really appreciate the fact that our asset base business is performing bad or a in the first quarter.
Her and that we've got.
Some good visibility into the Clos and adjustments that needed to be made there.
Great Great appreciate the answers thanks guys.
Hi, Good kids.
The next question, it's coming from the line of Jeff Kauffman from loop capital markets. Your last <unk> go ahead.
Thank you very much Hello again.
Yes, good for you.
For that very detailed 8-K. This morning that was very very helpful.
Good just a couple detailed questions.
When you said 100 million and DNA does that include the 5 million, an intangible amortization or 4 million a is it 115 or is it one time.
That is just depreciation and amortization on own assets. It does not include the software amortization of intangible amortization that would be that additional five.
Okay, and I'm with you gave a little guidance on interest expense, but can I ask you to repeat it because I don't think I, 100% understood what should I be thinking about on a run rate interest expense a quarterly with the drawdown on some of the credit lines.
Yeah. So so we talked about the incremental piece being about 120000 a month.
The mix between the interest income in the interest expense on the additional elevated cash level.
And so.
That you know again, we're investing keeping that cash safe and that's just you have a spread on on the rates.
Let's see since we gave a given interest.
Number David do you have that Andy.
We could.
That here were jokes. It was it was 2 million in the quarter versus a million.
In second quarter of last year. So that's our our estimate for the second quarter of 2020 will be a 2 million versus 1 million last year second quarter and that's net of interest income that's what I'd say, yes, yeah. That's important more did more so than it was right, yes, that's right and the Jeff He mentioned the hundred 20000 above.
Which is the incremental interest expense so on the drawdown.
I got you. Thank you that was helpful. You gave a number for tonnage and April you gave a number for asset light revenue per day can I ask you to break up that 17% asset like number and differentiate what fleet that is doing in April versus the other asked.
Light operation, So just trying to get to read of road traffic here.
Yeah. That's 17 person. It is just a is just.
Our best asset light, excluding Fleetnet, we didnt provide.
Got it and soon.
<unk> <unk> and I think has been running down about 10%, that's what I want to say, but we can follow up with you on that and give you that detail and they they have been down as well, mostly because of the roadside events or the lack of roadside events in that business.
Okay and one last question. Thank you.
The spot rate market for truckload is gone down pretty meaningfully during the month of April is that changing the attractiveness of any of this fill in freight.
That you've been using to Pat a blood gaps in the network last couple of quarters.
We have seen some impact of what you're saying on RVP Hugh.
Success, so to speak and and you know again as we talked about a couple of times that we just we evaluate those opportunities we look at what will attract 'em. We look at they need that we have in the asset base network to fill and you know make the best combination or or.
Just decision with all of that information involved and so it just I think that's a little bit more like levers you know that we can pull and that full load businesses is one of those and so we have that you know we've also talked about some of the other things that are going on in that business.
Got the transactional LTL and we then we had they they kind of this increase that we were experiencing with the E commerce residential delivery business in April. So you know I think what I step back and see there is it's helpful to have those levers and to have the greater.
Visibility to be able to see what's going to work best for US and then I think whats been better than it has its just the operational.
Execution in response to that and all of that seems to be coordinating well at this point.
Okay, Judy David David Thank you and congratulations on a difficult environment.
Thanks, a lot Jay I think you just take care and we've got one more is acute and so we'll take our last question.
Operator. Thank you. The next question is coming from Stephanie Benj Benjamin from Suntrust. Your line is open. Please go ahead ma'am.
Hi, good morning, everybody.
77.
This is just a quick question really a follow up.
David I knew you walked through a lot of just that productivity improvements and noted that you saw in the asset Bayside productivity improvement year over year in the first quarter and those continued in April is there a way for you to kind of bucket. The main categories. We are seeing doesn't prevent you did call out to software on maybe just tried to stick out.
A bucket some of those made improvements just so we can kind of wrap our heads around the that'd be great. Thank you.
Yeah.
You know I think you know we had a number of things.
Just the team really just pulled together I think in just had a remarkable results combined with the work of yield and customer management to to drive.
Business into the network, but a little yes. It lays network I mean, I think using that that network optimization software, but alluded to earlier.
Yes, it's paid dividends that was developed kind of in 2019 and no. There's several other projects in the pipeline I think that will help us.
Can you see improvements there like just just such a fleet planning and equipment optimization Incent driver utilization software.
The other thing, it's only be as well know the dog and street productivity that improve.
It's interesting during this during this time recently I guess in April with the.
With the closures and people being shut in there's less traffic on the road that does help your street operations.
You know somewhat but.
In the Judy mentioned earlier, I think around the new appointments and or the residential deliveries and those those are or more efficient and this time period as well.
But.
You know really on the older dock in the street just just in through the tighter management of labor hours to those levels business, you were seeing a suits and some of our new Labour management tools like a new mobile dispatch system that was implemented in late 2019 is also helping us there. So so so it's a it's kind of a common.
Notion of maybe things I would say has contributed all that well in that and then we mentioned earlier the empty miles and improvement in load average she has been a helpful.
Got it well I won't pick up any more of your time I really appreciate it. Thank you. Thank you all tied up and thanks a lot separately.
Well like that is our acute and I, Tom and use our call. We thank you for joining US. This morning, and we appreciate your interest in art Best This concludes our call. It thanks for joining us.
That does conclude the conference call for today, we thank you for your participation and I say it. Please disconnect your lines.
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