Q1 2020 Earnings Call

Good morning, everyone and thank you for participating in today's conference call can discuss statues.

Financial results for the first quarter ended March 31st 2020.

During today's prepared remarks, or Chris Easter CEO, Jason Bates, CFO, and John Michelle VP of operations strategy. After their prepared remarks, the management team will take your questions. As a reminder, you may now download a PDF presentation slides I will accompany the remarks made on today's conference call as indicated in the press release, we issued earlier today you mean.

Axis, Besides Investor Relations section of our website before we go further I would like to turn the call over to Brooks Hamilton would be Alpha IR group, who will read the company's safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward looking statements Brooks. Please go ahead.

Thanks, Josh Please turn to slide two four view of our safe Harbor and non-GAAP statements.

Today's presentation contains forward looking statements as within the meaning of the private Securities Litigation Reform Act Nike 95.

Projected financial information, including our guidance outlook are forward looking statements.

Forward looking statements, including those with respect to revenues earnings performance strategies prospects and other aspects of that business based on management's current estimates projections and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from our expectations or projections.

I encourage you to read our filings with the Securities and Exchange Commission for discussion of the risk that can affect our business did not place undue reliance on any forward looking statements.

Undertakes no obligation to revise or forward looking statements to reflect events or circumstances occurring after day, whether as a result, you information future events or otherwise, except as may be required under applicable securities laws.

During the call there'll also be a discussion of some items that do not for U.S. generally accepted accounting principles or gap, including adjusted EBITDA adjusted operating at ratio adjusted operating income adjusted net income or loss and free cash flow.

Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix <unk> Investor presentation and press release issued this morning, both of which are available and investors had gassy website www dot dot dot com.

Now I would like to turn the call over to ASCII CEO Mr., Chris Easter Chris.

Thank you Brenda and good morning, everyone I'll begin today's call by providing an overview of our business operations and the progress, we're making as we execute against our key strategic priorities.

I will also take a few moments to discuss the aggressive actions. Our team has taken over the last nine months to improve this business and how they even reinforce the foundation of the company, which is critical as we work to navigate the unexpected challenges at the coded 19 pandemic has introduced to the global market.

First I think it's important to acknowledge the significant effort and hard work that our employees and contractors have contributed over the last few weeks, we've always been intently focused on safety adamski, but never more so than today.

We are following the CDC and local government guidelines to ensure that our people customers and communities are protected.

The way our extended ASCII family has stepped up to safely server customers and keep our business moving has been outstanding I want to thank everyone. Her team for their dedication and hard work.

Now moving to today's business beginning on slide three.

Well just change in the short time since we talked to our fourth quarter to quarter earnings call in early March starting with the good news, we announced late last month that we are welcome Jason Bates, It's a new desk. These new Chief Financial Officer, Oh formally introduce Jason later in the call. His joining our company was a critical step in the.

Process, a refreshing our executive leadership team after my appointment to CEO in February of this year.

Jason brings more than two decades of experience with public companies and the trucking and transportation industry. This includes some of the largest and most sophisticated truckers and our market gets spent the last 10 years, serving an executive role, helping drive both operational and financial improvements.

We will lean on Jason's industry and financial expertise as we continue to transform our business and improve our returns.

Yes, as you saw in our press release today, we have made the decision to strategically divest arvida transportation and energy services business I.

I think it's important for investors and analysts to understand that the actions. We are taken today with davita or not a knee jerk reaction to the code at 19 situation or significant impact on the oil and gas industry.

We have spent the last several months study of either business specifically in relation to our consolidated operational footprint within our specialized segments.

This process included the implementation of several actions to improve the vetoes operating performance and better align its cost structure with our own.

However, after careful review, we do not leave that the of either business is a good long term fit within our portfolio.

From a strategic perspective, this will further streamline our specialized segments and will significantly reduce our exposure to the oil and gas end market, which has presented headwinds to our consolidated results in recent quarters remaining ownership of the business will be classified as assets held for sale on our financial statements until we've concluded the price.

Yes.

Now I'd like to take a moment to provide some insight into the state of our businesses. We see it today as the Covidien 19 epidemic became a part of public awareness, we fast and took a number of proactive measures to ensure the safety of our employees contractors and the many physical spaces in which we do business.

What we intended effect was to preserve both the health of our workers and customers are proactive actions helped insulate our business from any meaningful co bit related interruptions to operations.

The rate environment continued to face some challenges for the first quarter as we expected, but our freight volumes held up well for the first 11 weeks of the year.

Well, we began to see volumes slow during the last two weeks of March across certain end markets. This continued into April and spreading to some additional end markets, but volumes appear to have plateaued towards the third week of April.

Although we're not experiencing weaker demand across all markets. We expect cobot related 19 volumes to decline Oh, there's volume declines to impact our performance in the second quarter.

Fortunately, we are prepared for this new environment, the operational and cost improvement initiatives, we put in place over the last few quarters have helped fortify our business. Our actions have helped us generate solid cash returns and have made our business model far more resilient today than it was just nine months ago.

That said our visibility remains somewhat challenge until our country starts to collectively get back to work. Thus we are withdrawing our full year guidance until we have a clear picture of the future economic landscape.

During these uncertain times, we're encouraged by our ample liquidity and improved balance sheet at the ended the quarter. We had over 191.9 million of available liquidity at our disposal comprised of 107.5 being up cash on hand at 84.4 million of Undrawn capacity on a revolving credit agreement.

As I mentioned, a moment ago, our business model has historically been high highly cash generative, which is evidenced by the over 70% increase and our cash on hand, and the 10% decline in our net debt levels year over year.

We have no significant near term debt maturities as our term loan does not mature until 2024.

This balance sheets ability and ample liquidity will enable our business to not only whether the near term headwinds, but given our market leadership standing should put us in a position to be on the offensive as we exit the crisis.

Moving to slide four.

I'd like to spend a moment walking you through the architecture of our business model, which we believe will provide stability and resiliency as we navigate this period of uncertainty.

First we have a largest slap in a specialized carrier in North America, holding a leading position in a high highly fragmented these market.

Second roughly 90% of our business is conducted directly with our customers in times like today, where the economic landscape and forecast are shifting in real time, the ability to directly managed customer relationships becomes paramount.

Many of our customers had trusted us for multiple decades, and we collectively help each other to multiple market cycles.

While our business is focused on the industrial marketplace. We survey highly diverse set of sub sectors and industries with no individual pocket of industry exposure large enough to be a single driver of our earnings results. In fact, our top 10 customers combined represent roughly one quarter of das fees revenue on average further.

The cargo we move for our customers as is often they're most vital equipment and many of the industries. We serve have been deemed essential parts of the national economic infrastructure.

Also it is important to note that though the eventual strategic divested divestment of our beat a bit through the additional strategic divestment of RV. The business, we will significantly reduce our exported exposure to the oil and gas sector.

And we had pointed out in recent quarters certain challenges in this market had weighed on our earnings results and massive of the great work, we've done with our operational excellence initiatives.

Last year oil and gas market represented roughly 13% of our total revenue.

But its profitability contribution was far less than that in both earnings and EBITDA had been trending down since early 2019, and fad of either as adjusted EBITDA has been down four straight quarters sequentially. It was less than $1 million total over the last nine months.

What we have successfully divested of EDA, our aggregate exposure to that market will be less than 2% of revenues. It will immediately improve the quality and stability of our future earnings all in given our leadership position in the market in the diversity and strength of our customer base. The commercial side of our business is defensible and resilient.

Moving to the right into the page what complements our strong positioning on the commercial side of our business as our corporate structure and flexible business model. Our model is balanced between asset asset light and non asset services, roughly 70% of our businesses on a variable cost structure.

Even more of an asset at a time with the demand landscape is uncertain.

Further our brokerage business offers a natural hedge to navigating any future changes in volumes.

Ultimately, we believe our size market leadership position diverse industry exposure within the broader industrial market and a larger largely variable cost structure will serve as strong competitive advantages as we manage through the current uncertain environment and will allow us to ask you to exit this period and the puzzle.

Mission of strength.

Turning to slide five will provide a snapshot of our performance for the first quarter.

Revenue for the quarter was 391 billion, reflecting some continued rate pressure, which was consistent with our prior forecast our operating ratio for the quarter was 102.1% or 97.2% on an adjusted basis consolidated adjusted EBITDA was 35 million, which.

Was down versus last last year's first quarter with a year over year decline driven primarily by continued weakness in the oil and gas end market.

It is clearly the actions we've taken over the last three quarters, our sustaining our performance and helping offset broader market weakness. This is further evidenced by the fact that our first quarter operating income results, excluding the impairment actually improved by $4 million year over year, despite the roughly 10% drop in our revenues.

Yes. This demonstrates that our model can shed certain revenues and actually become more profitable or the process through driving efficiencies and the capture a synergistic value across our portfolio.

Despite the headwinds faced a quarter our business continued display strong cash flow generation.

Delivering over 31 million of free cash flow in the quarter.

And 124 million on a trailing 12 month basis.

Deleveraging our balance sheet remains a key strategic objective and this solid cash flow performance is an important tool driving our deleveraging efforts our net deep our net debt decreased by over 62 million year over year.

We will continue to prioritize leverage reduction until we had debt levels more aligned with our long term targets. Our leverage is defined by our credit agreements with 3.2 times closely aligned with where we started the year.

Before turning the call over to John I want to take a brief moment to provide progress on a larger bid on our larger business transformation efforts. Please turn to slide six.

The ended the first quarter marked the successful completion of phase one of our operational and cost improvement plan to recap, we completed three business integrations merging some struggling operators into some of our strongest and most established ones, helping fix underlying performance issues and capture further further benefits of.

Scale.

We instituted collection of business improvement plans across our entire portfolio in an effort to drive the more optimized business footprint for underlying companies on top of that we also conducted a rightsizing of our corporate office and our realignment of the executive leadership team and board of directors in total these operational and cost efforts cost improvement.

Efforts have driven a 30 million dollar improvement in our operating income.

As we move forward, we're focused on executing phase two of our plan, which was launched in March the central pillars of the plan are similar to phase one and includes three more business integrations.

And new cross platform business optimization plans when complete we've reduced our operating companies from 16 to nine in less than one year, reducing our complexity in streamlining our business significantly.

Through phase two we're on track to deliver an additional 15 million of operating income improvement by year end.

While top line pressures may mass the impact of these plans on our profitability measures. They remain critical in these uncertain times will help us drive more profitable long term growth in the future.

With that ill now turn the call over to John Michelle to review, our financial performance last quarter John.

Thank you Chris our Q1 2020 financial details are presented on slide seven in the first quarter revenue was 391 million down approximately 10% compared to 433 million you're going to quarter.

The decline was driven by both lower volumes and freight rates both of our operating segments.

Net loss for the quarter was 17.3 million for 29 cents per share and included a non cash impairment charge of 13.4 million.

Adjusted EBITDA was 35 billion down about 20% compared to $43.8 million than a year ago quarter year over year decline was driven primarily by weakness in oil and gas in aerospace related end markets, but was partially offset by operational improvements from the phase one integrations.

Given the announcement, we've made today related to the via business I want to highlight the that excluding that business. Our first quarter net income would have increased by $8.9 million compared to Q1 of last year and our adjusted EBITDA would have actually been up 1% as well.

Further our adjusted or would have improved to 95.5%.

Again, given the tough topline decline that shows the real impact that our operational excellence initiatives are having in terms of driving efficiency productivity stronger bottom line performance.

Let me briefly do our corporate segment adjusted EBITDA, which is not operating segment includes corporate salaries and other administrative expenses and intersegment eliminations.

As a reminder, on our last call. We said we expected further reductions in the segment in 2020 as a direct result of the Rightsizing of our executive team and other cost containment initiatives.

During the first quarter, we continue to make solid progress on that goal as you can see on the bottom of the tape.

Moving onto a more detailed look at our specialized segment results on slide eight.

Specialized revenue in Q1 decreased 11% year over year to 240.4 billion.

Adjusted EBITDA for the first quarter decreased 32% to $24.1 billion, driven primarily by weakness in our oil and gas related end markets, coupled with softer manufacturing and aerospace environments, which was partially offset by decreased net fuel costs.

Our adjusted operating ratio was 96.2% compared to 93.8% first quarter 2019.

Especially as rate per mile decreased roughly 12% $3.24 for the quarter and revenue per tractor decreased 8% 57800, driven by similar factors that negatively impacted our adjusted you.

As we look forward and as Chris mentioned, our diverse customer base hedges our business someone specialized as many of our end markets are still new product like a wind project business.

In other markets are starting to see some pandemic holiday slowdowns that we'll have nag navigate through during the second quarter.

The resiliency of our non oil and gas markets could be seen on slide nine.

For to help some of you better model our business post the eventual veto bold divestiture, we provided a snapshot of our Q1 performance, excluding that oil and gas focus business.

When you exclude davita, especially as revenue would have follow up 7% versus 11%.

Adjusted EBITDA would have declined 7% versus 32%.

With EBITDA margins that would have been nearly flat.

Lastly, just do our would have been 92.9% versus 96.2%.

Moving to slide 10, you'll see our flat but segment results.

Net revenue in Q1 decreased 8% to 155.2 billion.

While adjusted EBITDA quarter decreased 2% 17.9 million.

Small decline to adjusted EBITDA was driven in part by softness in metals and manufacturing end markets, partially offset by decreased net fuel costs.

First quarter adjusted operating ratio for the flatbed segment was 93.9% showing a 280 basis point improvement compared to 96.7% near go quarter, driven by the integrations implementations of business improvement plans.

Flatbed rate per mile. The first quarter decreased 4.6% in two to $1.86 club at revenue per tractor increased 1.7% to 42300, highlighting those productivity gains.

Now turning to our balance sheet free cash flow as indicated on slide 11.

March 31, we had $107.5 billion in cash and liquidity of 191.9 billion, including the availability on our revolver.

Net debt was down $62.3 billion year over year to 586.1 billion and our leverage as defined in our debt agreements was 3.2 times well below our four times.

For the first quarter net cash provided by operating activities was 29.7 million.

Cash Capex was 4.5 billion and cash proceeds from the sale of equipment was $5.8 billion for free cash flow of 31 million.

For the quarter Capex financed with debt or capital leases totaled 9.8 million during the quarter.

Leaving you with a net of $21.2 billion after names Capex.

As our teams continue driving improved efficiency as it relates to our equipment, we continue to sell off some older underutilized assets.

We ended 2019 with an average fleet age of around 3.8 years and currently excluded Vito we're at 3.25 years.

With our shifting Capex parties that Chris will talk to in a few minutes, we will likely in the year 2020 around three years.

The key takeaway here is that we generated strong free cash flow continued our deleveraging efforts, while maintaining our balance sheet, which was supported by the benefits from the decisive actions we took in 2019.

Before I pass the call back to Chris I want to talk about another important digital initiatives that explains team has been focused on as a part of our ongoing transformation efforts.

We've implemented a set of new tools are providing us with real time access to operational metrics. Another powerful data that will help us becoming more efficient across the organization as we continue to shift to focus on operations.

Our improved digital environment, facilitating quicker and more precise response to rapidly changing business conditions.

We believe continued expansion of our digital capabilities will be a big factor in our bill and our ability to counteract impacts from Covance quickly stabilizer business to continue to optimize the operation or fleets.

With that I'll now hand, the call back over to Chris.

Thank you John into both John and our whole finance team I want to thank all of you for your hard work over the last six months as you all filled in admirably until we could find the right financial leader adjacent to join our team.

Slide 12 outlined some key balance sheet trends that I've referenced earlier on the call, which continue to benefit from our business improvement efforts are strengthening balance sheet and healthy cash position are going to be important differentiating factors as we navigate this ongoing economic uncertainty.

With almost 108 million on cash it how on hand at quarter's end and significant borrowing capacity available on our credit facility, we have more than sufficient liquid capital to weather the environment taken this a step further given the actions we've taken to improve our business and the tool kit we have at our disposal, we expect to continue to be a generator of free.

Cash flow.

For example, we outlined that a fewer end markets also uncoated related volume impact throughout April, but our cash position actually is increased during the month.

While de leveraging on that basis has been a key focus of ours over the last year. It is important to reiterate our strategic goals, including lowering our absolute level of debt as well our debt levels are stable and declining and we have no need to tap markets for additional capital. Additionally, our term loan effectively the main source of our debt outstanding.

Does not mature until 2024 this provides us greater flexibility and now we utilize our available cash capital and future free cash flow.

I'll close my remarks on slide 13, the foundational elements that we have executed on over the last nine months put us in a position of strength.

First we talked at length today about the stability of our business model the diversity of our customer base in the end markets. They operate it makes us resilient through economic cycles.

Lastly, as we have been fairly telling in terms of what the short term economic impact looks like.

We saw volume declined to binney beginning in the middle of March and accelerated somewhat through April as much of the country shutdown. Our teams did an x. excellent job of sharing volumes and shifting capacity to lessen the potential impacts of the overall market decline.

Towards the end of April you saw flattening of the decline.

As you really have all of the co bit related closures that we would expect.

Heading into May the expectation as we add more openings versus closings given the recent announcements by both our customers and the different states regarding their phase three opening plans. So we think we have is reasonable short term visibility into what the trough with like from a volume perspective during late April.

The question. It remains now is for how long and that is one that time will tell.

But we are fully prepared to navigate this uncertainty and prosper as key components of the industrial economy come back online.

We have almost 108 million in cash and our financially sound position to ride this pandemic out.

Third we showed just now after we could be in a short amount of time over the last nine months.

Tremendous confidence experience that ability of our leadership team, which will help us find new opportunities for further cost and productivity improvements if we move through 2020.

We have the tool kit, we need to navigate these uncertain times and continue to drive operational excellence.

Fourth we are taking proactive measures to further manage our cost and make sure. We are prepared should the pandemic lead to longer shelter in place conditions and currently expected.

These include the curtailment of all non essential discretionary expenses, the temporary furlough certain personnel as well as well as other select head count reductions and lastly, we've reduced our capex budget by roughly 15% and we've refocused our capital spending to fund our critical needs and now expected to committed somewhere between.

Mean $60 million to $65 million.

We're in a position to not only whether the coming storm, but thrive when it's behind US we have a clear path in a bright future.

Before I turn the call over to the operator for a few questions from our analyst.

I'd like to take a moment to introduce our new CFO, Jason Bates again adjacent brings tremendous industry experience as a former CFO of USA truck and of the Vice President Finance, a Swift transportation I know many of you already know Jason fairly well from his past lives and we're excited to add Jason.

Thanks, Chris and I'm excited to be here as well I'm looking forward to meeting with all of our key stakeholders over the coming months, including many of you on the call today.

I started that you just a few weeks ago, but I've already been hard at work alongside my finance team and the executive leadership team that Chris has put together.

As Chris mentioned at the top of the call I have two decades of industry experience and I'm looking forward to apply and my skills and expertise to the already impressive work being done here at ASCII.

I am excited by the challenge this opportunity affords and I believe that is truly at an inflection point in its development, but what drew me to the CFO role here was the ability to play a significant role in that development and fully Affectuate, Chris his vision for the company.

I believe we have tremendous assets and expertise across our business and when combined with the initiatives in place to further drive best in class operations.

Confident we can use our market leadership position to produce even better returns I'm thankful, but also very excited to get to work delivering results for our business.

So this concludes our teams prepared remarks, and we're excited to turn the call over to you for questions.

Thank you as a reminder to ask a question annuities Press star one on your telephone to withdraw your question, Chris the bone Keith.

Please stand by we composites using roster.

My first question comes from Jason Segel with Cowen You May proceed with your question.

Thanks, Operator, Hey, Chris.

Jason welcome to.

To desks.

And yes, we because we do know each other than previously twice.

I wanted to ask a couple of questions around those eight us some housekeeping some more strategic.

Given that you had a pretty good strong financial position here right now why sell of needed now would seemingly might be the bottom of the energy market is it just that you don't.

One of wheat. This thing out until we can bring a better price or is just not we're setting.

Yes, Jason I appreciate the question really what we're talking about today is simplified asking the operations Kris talked about taking those operations from 69, all the options are on the table, we're being much more aggressive on the revenue synergy side and really as we're reviewing this portfolio of building a business is resilient across.

Some market cycles.

Makes sense to exit this on completely.

Right I would imagine I mean, if you actually the completely you're not going to get much more given sort of the current rate environment, because I look at the numbers and their rate must have been down close to 20% in the quarter here, where you're giving your.

The numbers ex aveda and with innovative and given the size and have nearly as much EBITDA. So I would imagine is going to have minimal effect on year on year cash positions going forward.

The other question I have is when you break out your supplemental information in specialized solutions.

Is that in the quarter is due or those numbers now pretty statistics, including of eight or excluding them in and.

Yes, so Jason we've given the boat.

You've got the specialized segment includes Aveda and then the second slide which is slide nine shows lets say metrics excluding of either Okay. I was just looking at your press release, Okay. So.

I was trying to look at tractors and everything else. Okay. We can you can work with that going forward.

Could you talk a little bit you mentioned some of the announcements by your customers can can you talk a little bit about.

What they've told you and what's the expected pace of.

Of sort of the come back in the economy, if you will.

People back to work and what you expect in certain markets.

Yes, it and it's great to know you do know Jason we're very excited to add him onboard by the way. So appreciate the effective.

Thats Great news for US I think as we look across our landscape the and I think it also gives us a chance to reflect on the strength of desk in terms of diversification.

It's in it and it's a it's a mixed bag as you look at some of the customers. You mean early on we saw some more immediate impacts and things like the auto industry and Aerospace for example, you know in we've seen.

Strength or consistency in some of the others and I think likewise as we start to come back online and as folks are looking out it's kind of a mixed bag to at many of them are still trying to sort through it themselves yet we're seeing some of the auto manufacturers are starting to open back up but.

There's there's there's lots of and knows out there I think if anything.

And we got areas of strength, yet the wind energy for except love, which I know with had mentioned earlier to its been very strong and in some of the other infrastructure type projects construction and otherwise that we work on had been strong but as you look back at how things are going to open up if theres a lot of unknowns and that's again part of the reason why we have made the decision to withdraw guidance. We're just.

Certain of how those things are going to go is it going to be the a longer you is it going to BNL and I think beyond beyond that for us it's even within all those various industries. It could be a mixed bag of those types of impact, but what we do know is again, where we stand on liquidity, we know the things in our control the actions that are already have been underway.

And we know the multiple contingency actions and leverage we could pull if need be depended on the on how the markets react in the future.

Okay Fair enough will listen I'll. Those are my two I'll turn it over to somebody else and welcome aboard Jason. Thanks.

Thank you. Our next question comes from Greg Davis.

Securities You May proceed with your question.

Morning, guys. Thanks for taking my questions and congrats on the neural days.

It sounds like volumes held up pretty well first 11 weeks or so the quarter the slowdown back the last couple of weeks.

So I'm just wondering to comment on.

The degree to which things slowed down month last couple of weeks and maybe how that current and maybe how the current environment differs from the end of the first quarter and what you've seen in April.

Yes, so again, we did see it around in fact, the the week after our last earnings call, which I think the week of March 9th I think we had the call March 10th it was the week after that that all of sudden the the overall volume we started to see decline right up until that point, we had seen very very surgical impacts like aerospace and end.

Auto, but but then we saw started to see at a more broad decline.

Again, as we got into as we went into April that decline actually plateaued off and the but three I guess kind of three four weeks I think John of April kind of in the middle is where it levels off and we think we saw things plateau with about a 15% reduction in volumes overall that we saw it.

And with some some some areas of strength in some areas of weakness.

Right now that's kind of where we sit and that's that's kind of the at least the trough we see right now.

John if you want to anything on to that from from your view, Yes, no I think at dealing common is.

On the pricing and how that held up over the near the idea is that the pricing has held up pretty well yet were worse we're hearing.

Rumblings in things and it wouldn't be surprised of down the road there were some pricing pressures.

But I think time will tell at the same time, where we're seeing you know and sensing some indications as maybe some capacity exiting the market at the same time, which supply and demand always seems to ride itself. As you go through these types of situations.

Got it yeah, that's really helpful. And then if I could just follow up on the divestiture of the of EDA assets.

What state are we at I guess and that strategic sales the business and other interested parties that have reached out at this point.

Yes, Greg I think it's important to bid on on a on a view that we have sit still over the last couple of months right they've been under a business improvement plan, we've taken significant costs out of the business.

And the process shut down some of the smaller terminals up in Q1, which made the decision to formerly market. The rest of the business in our really pursuing all available options.

Cyclical asset, but it's got a substantial footprint for large to the market. It's just one that doesn't necessarily fit with us. So that's something that we we formally launched in Q1 and Thats kind of how we're moving those assets to to held for sale, but it's one that we're actively marketing today.

Got it Okay last one from me with just the if you could provide a little bit of color on I guess, the degree to which you expect capacity to tighten the second half of the year.

Maybe how your expectations for capacity improvements it changed since last quarter.

Yes.

Originally a that when I think before the pandemic most in the industry, including ourselves did expect some capacity tightening as we went through this year I think.

I certainly expect that still to be the case I think the degree to which we will see it actually translate is let's just say in Q3, and Q4 is going to be more than anything reflection on how long and deep the downturn is the longer the deeper and longer that we see a downturn whether.

Via you be l., whatever it ends up.

The more significant I think you'll see a capacity drop off.

Particularly around those that do not have liquidity to weather the storm and I also would say you know it didn't fit enough in our in our competitive landscape.

The more specialized in particular, our segment that more specialized area many of our competitors over a fairly small and in many times. They are tied to one industry vertical predominantly or maybe just a couple of customers back to the strength of the diversity of our model, yes were specialized but we have an ability to share capacity.

Acid and Thats, an exciting thing I've seen in the last say 30 to 60 days more than ever our team of leaders have pulled together and have responded in shared information or sharing capacity to help whether this store as something that our competitors don't have they don't have a sister company vacant they can lead to and look for health and share.

With each other as we do.

I don't want to belabor the point that just just kind of original that the beauty that do that portfolio right you have certain pockets with multiyear cycles, and just don't have that thing cyclicality as others and within desk, you've got the models with with lower operating leverage and higher operating leverage and kind of that brokerage business acts as a natural show.

Over if you will and allows us to really pivot.

Capacity engine shift as volume excellent point that brokerage is definitely allowing us to now sweat the assets, a little better than we would've otherwise and having that natural hedge and one other thing I should add on it as a real hats off to our operating team leaders out there you know as Don built this company over the last several years, bringing together. These good good up these great operators and business built.

There's we have we went into this this pandemic situation. They did not wait for corporate guidance on actions to take they know their business. They know those cycles in industries as soon as they saw things start to happen they started pulling levers and actions.

With our direction, which is exactly best part of this this this great model, we have as all these great businesses and they know how to run these businesses. A response, so it's really being it's been it's quite refreshing and it really does reinforces the strength of our model.

Okay. That's good here thanks, guys.

Thank you and as a reminder to ask a question you'll need to press star one of your telephone. Our next question comes from Ryan Cinco with Craig Hallum May proceed with your question.

Good morning, and welcome Jason.

Are you able to quantify how much volumes were down in April.

And given that's improved kind of at the end of the month are you able to also quantify kind of what that run rate or what it is over the last week or two.

Yes.

I think I'd, maybe eventually a little bit earlier, we're seeing it about a 15% again. This is excluding a beat I should say about a 15% drop overall.

We're not seeing anything that is indicating that necessarily going one way or the other right now where there were kind of as we go into May I'd say, we're not seeing it worse than are necessarily increase but we are starting to see the indications of some openings.

In terms of some of the plants at factories that had previously been close so it is.

It is still quite murky cloudy out there as Jason said, the Crystal ball is pretty cloudy.

Minted that are focused stays on the things, we can see and control that are within our ability and thats. What the again continues to give us confidence that we can navigate through it but right now we don't have a good enough line of sight to say what that horizon looks like say for Q2 or three right now.

Got it and then you mentioned the Covenant 3.2 times right now covenants for what's your confidence in staying below that given presumably EBITDA will decline here in Q2 and potentially.

Quarter's after that.

Yeah, Greg we've got several years pill that TLD matures right. So we have we have options and we're focused on all things, which is protected our cash flow generation.

Given the impact of Covisint continue to evaluate that and we're doing all things you would expect mature enough liquidity, reducing capex cost cutting measures and really those are the same things have been doing since last August.

Continued to show positive trajectory in the business and that team that's doing the right things and as of lenders. That's exactly the type of business that you have to support so.

Great Thats. It for me guys. Good luck I'll turn it over.

Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Chris Easter for any further remarks.

Thank you Josh these are uncertain times and I hope all of you on the phone today remains safe and healthy Fortunately here that we launched a series of decisive actions last August that have materially change the trajectory of our performance and because of these actions and the hard work of our team we stand prepared to navigate this economic downturn and exit this period and a strong.

Longer competitive position that when it began.

My team and I are prepared for multiple scenarios and how the economic recovery may take shape, and we will be prepared to attack each opportunity in the same proactive stance that we've taken over the last few quarters. Thanks again, everyone for joining us today and please say stay safe have a great day.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

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