Q2 2020 YRC Worldwide Inc Earnings Call
[music].
Good afternoon, and welcome to why our see worldwide <unk> second quarter 2020 earnings call.
All participants will be in listen only mode.
After today's presentation, there will be a question and answer session.
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I would now like to turn of the conference over to Eric Berg, Vice President of Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone welcome to wire she worldwide second quarter 2020, <unk> earnings conference call joining us on the call today are Darren Hawkins Chief Executive Officer.
Jamie Pierson, Chief Financial Officer, and TJ O'connor, Chief operating officer will be available for acuity.
The call, we're making forward looking statements within the meaning of federal Securities Law. These forward looking statement and all other statement that might be made in this call, which were not historical facts are subject to uncertainty and the number breadth.
And therefore actual results may differ materially before many of those calls we've not allow it to pull we just got all these risk factors.
For full discussion of the risk factors that could cause results to differ please refer to this afternoons earnings release and our most recent SEC filings, including our forms 10-K and thank you. These items are available on our website at wire CW Dot com.
Additionally, please see todays release for a reconciliation of net income to adjusted EBITDA.
In conjunction with today's earnings release, we issued a presentation, which me you referenced during the call. This presentation was filed and they take along with our earnings release and is available on our website I'll now turn the call over there.
Good afternoon, everyone and thanks for joining our second quarter 2020 earnings conference call.
I want to thank our 30000 American families that make up the population of wire see that'd be a companies for approaching their essential work with safety and diligence to take great care of our customers as every business, we interact with and serve has had unprecedented challenges during this roller coaster pandemic.
On behalf of our wire see that'd be a families and over 200000 customers, we would like to start by thanking Congress and the administration for passing the cares Act, which has provided liquidity the pandemic stricken companies like ours and tens of thousands of businesses that comprise our customer base.
The cares act and powered the administration to provide critical support to companies that are the last line of America supply chain.
After the quarter ended we announced that we had closed on a 700 million dollar alone with the U.S. Department of Treasury under the Cares Act. The first piece was the 300 million and tranche, a which the majority of was directed at deferred health welfare and pension payments and added to our July.
Liquidity, which we will report at the end of Q3.
The second piece of this loan was the 400 million and tranche b.
Tranche B is specifically targeted at reinvesting into rolling stock and gives us the opportunity to refresh our fleet with the latest and greatest that the Oems have to offer today.
Better fuel efficiency lower maintenance and the latest in safety technology, and let's not forget better experience for our employees and service for our customers make no mistake. This volume of equipment and upgrade coming into our network will allow us to shift into high gear.
Moving forward wire seed idea and our five powerful brands have over three years before any major debt maturity to complete our enterprise transformation to focus on running the business and taking great care of our customers. It has been a long time. Since this company has had this much runway in front of us.
And we intend to capitalize on every single day.
As I shared with you on the first quarter earnings call. We continue our transformation work toward a single enterprise.
The collective power if technology migration to a single enterprise platform.
Increase network density to optimize line haul mileage and a comprehensive plan for terminal asset utilization will result in a north American LTL industry leader designed to grow for the long term.
This new day at wire Sidibe Ya allows us to accelerate our transformation is we look to optimize and blend the very best service offerings by and among our five brands. So that the customer will have a variety of choices all under one company.
On a current note we see the pricing environment is stable and in the month of July wire see w. companies averaged plus or minus 3% on contract negotiations.
We'll now turn the call over to Jamie who will share additional details about the quarter and plans we have in place for the future after which I will provide closing comments.
Thank you Dan and good afternoon, everyone as usual I would tick through either result in fairly short order and will end with a little more color and my thoughts from you keep seat.
For the second quarter of 2020 wires de worldwide reported revenue of 1.02 billion down from 1.27 billion in 2019.
And reported an operating loss of 4.6 million, which included a $6 million net gain on property disposals compared to an operating income of 14.3 million into Q 19, which included a $6.2 million net gain on property disposals.
That's very adjusted EBITDA, We reported 37.9 million in second quarter. This year downturn, the 67.3 million into Q 19.
Over the last 12 month LTM adjusted EBITDA was 183.1 million down from that 259.1 million to comparable period in 2019.
For the second quarter of this year, our consolidated LTL tonnage per day down 14.8% compared to last year's comparable period.
The decrease in tonnage was led by 16% decrease in LTL shipments per day, which was offset by a 1.4% increase in weight per shipment.
[noise] Astra pricing year over year, LTL revenue per hundred weight, including fuel surcharge was down 5.7%.
In LTL revenue per hundredweight, excluding fuel surcharge was down 2.6%.
However.
As I have shared last quarter, given the increase in weight per shipment and better indicator for US right now is revenue per shipment ex fuel.
And to that end.
Year over year change in LTL revenue per shipment, excluding fuel surcharge was only down 1.2%.
On the tonnage side.
Trends for the quarter showed improvement each month during the second quarter would April LTL tonnage being down 22.6%.
May was down 14.5% in June was down 8.6%.
And preliminarily July was down about 4%.
As for investment back into the business during the quarter, we only spent $11.7 million on capital expenditures.
If you will remember because I know that you do back is they wanted to spend items that we can tell during the quarter to preserve and build liquidity.
The good news is we intend to fully utilize all $400 million the of Dick's onto the loan to start repricing the fleet and clipping the associated coupon that should come with brand new tractors and trailers.
On the balance sheet and capital structure Saturday equation Darrin touched on the size and uses of the tranche is in his opening remarks, but for a little more detail I would tell you that that $300 million <unk> Jay loan that is and it will be utilized for working capital deferred Hill welfare in.
Pension obligation as well as other deferred payment.
Yields in interest rate of LIBOR, plus 350 basis points, where the floor at 1%.
Oh, which 150 basis points a bit 350, it to be paid in cash and remaining 200 is to be paid in kind or additional accrual of debt.
And before you ask to date, we have drawn $245 million on this chart.
The 400 million dollar tranche b loan that we use for the acquisition of tractors and trailers simply yield an interest rate of LIBOR, plus 350 basis points with it for 1%.
Both of these charges are non amortizing and mature on September 20, 2024, I just over four years from now.
In addition, securing the carriers Act Sunday, we also made did our existing term loan for about a week you ended the LTM adjusted EBITDA Covenant holiday until December 2021 at which time, the new Minimed LTM adjusted EBITDA cabinet will just be $100 million.
The covenant stepped up to 150 million in one to 22, and it's not back yet to be an original agreed upon 200 million until the second quarter 2022.
Long story short, we do not have in minimum LTM adjusted EBITDA Covenant for the next five quarters.
And it's not backup to the original 200 million into the middle of 2022.
However in minimum required liquidity did increase and the result of the term loan amendment.
It increased to $125 million until we reach 200 million, an LTM adjusted EBITDA at which time than minimum liquidity Covenant goes away.
Finally, and I think it's important to highlight we amended our E. B L facility to extend its current maturity in June of next year, all the way out to January 2024, giving us an incremental two and a half years of additional runway on this facility.
All three of these financing actions provides us with an opportunity and runway to focus on the operations of the business.
Execution of our enterprise transformation to one CTO.
Taking great care of our customers.
And also has the added benefit of allowing us to significantly refresh athlete.
Turning to cash and HDL availability, our total liquidity increased to just over $300 million.
303 million to be exact.
Compare that to be 80 million at the end of 2019.
And 118 million at the ended the first quarter and I think you would agree that our liquidity preserving measures enacted in March of this year worked fairly well.
As a result, big going concern you mentioned in that first quarter 10 cheese has been alleviated.
Now as always I leave you with a few parting dot.
One.
Even before closing the carrier Zach loan we had built out of liquidity in the quarter at just a little over 300 million, which is the highest level in well over a decade.
Two.
700 million dollar care that loan further strengthens our short term liquidity position list the shrouded the deferred health welfare and pension payment.
And allows us to accelerate the capital investment into our fleet.
Three.
Please not lose sight of what we accomplished on the term loan and Agb element.
These amendments give us additional attitude and runway to focus on the business and the transformation there of.
For.
Volumes have stabilized and has certainly recovered from April is low points.
They have continued to improve in May June and preliminarily into the month of July.
In the same vein pricing on a revenue per shipment basis ex fuel has remained fairly stable and the economy slowly, but surely opens back up.
Obviously, no one knows where the economy in the industry heading in the next 369, even 12 month.
But I can tell you was 100% certainty that the capacity crunches real as we're having difficulty recruiting drivers to keep up with the increase in volumes.
In closing.
All I would say is that I agree with Gary.
It is a new day at why RFP worldwide.
Concentration many pallet start your theory, we did it again and artist thankful to all of those involved.
Now it is time to execute.
I'll turn the call back over to guarantee for some additional closing comments.
Thank you Jamie.
I want to close the call by acknowledging all of our employees customers and partners, who reached out to me as we successfully close the cares Act loan with Treasury on July 7th.
Hearing from our employees was rewarding as I shared with me they renewed commitment to our company and our customers as we move forward.
Hearing from so many of our customers failed may with gratitude for their belief fan and partnership with wire CW and our 30000 freight professionals who served them.
We're in Dade grateful for the opportunity provided to us and we will honor that trust placed in wire see the appeal with a commitment to serve Americas central domestic supply chain through this pandemic and beyond.
And now we would be glad to take any questions that you might have.
[noise] [noise] [noise] [noise] operator.
We will now begin the question and answer session.
You ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then to at this time, we will pause momentarily to assemble a roster.
[noise]. Our first question is from Jack Atkins with Stephens. Please go ahead.
Hi, guys good afternoon.
Hello, everybody taking my question.
Well before we get started just wanted to say congratulations year on.
Everything you guys were able to accomplish in the quarter I know there were just a lot of distractions you guys had your hand school and you you're really performed very well all things considered so congratulations on getting old dawn.
Thank you Jack we're very proud of our team.
You should be you should be <unk>. So I guess, let me just first off ask your question to make sure I look on the same page about the the a U.S. treasury funding.
Oh, you grit, you've drawn down.
I think you said 245 billion over 300 million tons or Oh trial Jay.
Tranche B have you drawn any of that.
What sort of the the timeline for when you expect to draw down there or would you expect to to fully utilize all 400 million this year.
Yeah, Yeah case, Jamie from my perspective, we have not twomey backup tell you that definitively we've not driving on term b or trying to be yet.
In terms of our expectations.
Since we just closed on literally lesson 30 days ago. It can take is probably the better part of four maybe up to six quarters, all $400 million to work you know as well as I do want you put the order in place stage and it up and by the time that they wrote off the factory floor would pay for it that's gonna be easily 60 Tonight.
Days from from now so it'll be well before we take our first delivery, but once we do we expect a role with a certain amount of pace and a intentionality to get as much as quickly as we possibly can.
Okay got you, but but it you I know there's been some speculation in the financial press about it there there's really I mean that that terms that tranche b is.
Fully signed sealed there there's no way that the federal government can go back on that correct me if you're talking about committee oversight piece, if that's what you're talking about Jack I mean, that's exactly what the committee was formed to do it's not to rubber stamp what the treasury did it to oversee what the treasury did from our perspective of we are.
Marching with the exact same pace that we did you know 30 days ago. We don't see any reason why we wouldn't get that fully funded between now and when we need to exhaust all $400 million Evan.
Okay. That's great and then you know Jamie I think as you sort of think about how you want to utilize at 400 million there you've got a fairly weak used equipment market right. Now you mentioned sort it may take some time to get you know new equipment from Oems.
What are your thoughts around maybe going into the U.S global market by some of this more lightly you newer model equipment any any thoughts around that that'd be a potential problem for some of the bloody yeah. Jack we're not leaving any stone unturned I know that likely use in an LTL environment is somewhat of an oxymoron.
On but we're going to stretch the dollars as far as we possibly can we've identified some pockets of used equipment that we could think that would fit our spec that challenge being is we want the latest and greatest safety equipment that comes with an Oh, we own back.
A unit.
And what we found is that some of the U.S market does not come with that even you know stuff that is you know one to even three years of age doesn't come with the anti collision avoidance technology that we'd like it has the same a maintenance oh profile and the same fuel efficiency, but we are going to be very judicious in very.
Intentional about the units that we buy we are not looking to cut corners. When it comes to safety and we will be availing ourselves of every dollar that we can.
Okay. That's not that's great to hear I guess I know this is probably a little more of a difficult question to answer, but what do you think about that 400 billion and how how far will that go.
To close some of the.
Sort of the the capital hole that you've been getting to fill now for you know a number of years you guys just sort of been behind the ball so to speak to you in terms of catching up on your on your capital.
Investment <unk>, how much of that yeah. That's one of the gap over the years, what $400 million close for you, but I'd say like a jet faces a once in a lifetime opportunity.
I never in a million years that I think coming back and being her seven months that we'd have $400 million, which to invest back into the backbone of this business.
As for the gap you know it's always a is we did it can be a multiyear journey is what I would consider and adrenaline shocked at the heart.
That will get us pointed in right direction is in fairly short order.
And jacket, Okay, yeah, yeah, there I'm sorry, Yeah go ahead.
Jack I was just going to add a that that this equipment comes without the leasing headwind that we've seen in the past it gives us an opportunity not only to take advantage of the fuel MPG and other pieces, but the uptime is a big part of that as well and without the leasing headwind the return on energy.
On a new tractor and our network.
A significant and a as you know, there's very low execution risk because you're replacing a an older unit with a a brand new unit that comes with the benefits of that so it's a a very nice return.
With this opportunity.
Okay makes sense, Okay. Let me ask one more question I'll turn it over to anyone else in Q, but.
You know what's been a customer response over the course of the last several weeks now that I'm you know this news around the U.S. Treasury funding has been finalized <unk> do you feel like customers are coming back or maybe even committing more afraid to you now that you have these liquidity issues resolved I easy any any sort of thoughts around.
Around that because to me I would think that if there were some customer concerns so they've got to be alleviate at this point Jack I'm, you know taking great care of the customer has always been our focus and you're familiar with my career is that's been a a focus of my entire career I can say this is being part of the wire ceded butane for a long period of time.
Through many different assignments as our customers are why we're here they supported us through difficult negotiations with a variety of different challenges over the years and our customers have always supported us because they recognize the value of our 30000 afraid professionals across the North American some.
A lot chain. So you put all that together we saw good strong support from our customers during unprecedented times when they were experiencing a hardships as well certainly some of those that had to make decisions about the company based on noise that was in the marketplace or an attempt to protect their overall.
All supply chain I would hope we would have the opportunity to revisit that would sound, but overtime. Our people makes a difference and when I sum it up.
Thank you know our over 200000 customers continually a choose to share market share with wire see Doug it companies because of the value we bring to the marketplace and also the diversity that we bring across all the geography is that we serve a with our multi speed carriers.
Okay, Okay, well well there thanks very much for that that comment and Jamie D.J.. Thanks for your time and I will.
Well turn it over to somebody else. Thanks, again have a good afternoon Jack.
The next question is from Scott Group with Wolfe Research. Please go ahead.
Hey, Thanks afternoon, guys. Good afternoon, yes.
Jamie I wasn't really clear the answer on the congressional oversight or or are we in a place where there's really nothing that they can do and this is your money or is there still some potential restrictions are based on whatever they they may say, we're not in terms of the ability to tap that.
400, I just wasn't clear with the answers are not a this is there and we went in to the loan agreement with United States Treasury on July 7th.
Congress certainly empowered the treasury to administer the cares Act we watch the process closely.
Submitted our application went through a very thorough diligence process with treasury or any comments beyond that as far as normal government, a oversight or other pieces that some necessary part a of the process, but at this time, we haven't been contacted.
But any groups our agency so really all we can comment on as what we've been involved in and that was a very thorough diligence process with treasury, where we were able to present the facts of our business for them to make 'em a discipline decision.
Okay.
And going forward is as you guys progress towards I guess, a one code.
Where do you think we weren't any plans in terms of further terminal consolidation anything in terms of.
Headcount and then or are there any restrictions as part of the treasury loans, either rationalizing terminals or reducing head count.
Got I'll open with that and then allow Jamie on T.J.. We started the year with 351 facilities. We're currently at 335 as I have said publicly or earlier on I believe we will land at around 325, Oh by the end of 2029.
Naturally much has changed since a I said that but overall from a demand standpoint, or even though we may pull down facilities, we won't give up any geographic coverage that we provide right now it will be because we have multiple facilities and one service area. So.
That will continue on as planned, but we will always protect capacity for our customers and each of the markets we serve.
Jamie anything additional.
Okay, and I would add the Scott this is TJ the.
The demand is there a would've recalled employees from lay off during the Pandemics and we're hiring at many locations. So the outlook is very good from an unemployment standpoint, and the demand is certainly strong.
Okay, and then just last last question.
Maybe Jamie any thoughts on an operating ratio do we do or we do we get back to profitability in the third quarter, and then any thoughts on longer term and where you where you'd like to see the operating ratio go as you sort of get through this one co process.
Well I tell you what from a hippos perspective. This is probably the most difficult time in anywhere careers to forecast, what's going to happen with a virus the economy impacting the industry and then it certainly the impact on our company so won't give any guidance as to if and when or what.
The or I won't be I will share with you that pumping $400 million and choose this deal and the backbone of this business getting tractors and trailers that come with full power train warranties relative to you know what we what we are currently writing today, yeah, Jason will be an immediate.
The positive impact to the bottom on and it's not just maintenance.
It's not just a interest increased fuel efficiency, it's not just the improvement in the safety performance you guys are very well aware of the atomic critic center have been issued as of late but it also the improvement in morale up our employees getting into brand New unit are they getting into one that is Dan quote unquote.
Lastly, use which is again, an oxymoron space, but it also less downtime in an improvement on our customer service. So this is a once in a lifetime opportunity that we're going to avail ourselves on an immediate basis, and we will run as fast and as diligent as we can't you invest those funds.
Okay makes sense and I, probably just one more just really quick one for you Jamie any of the health and welfare or whatever other costs you didn't actually pay in the second quarter did you still a crew those costs are they they're showing up in the operating ratio if we did.
Perfect. Thank you.
Again.
Excuse me again, if you have a question. Please press Star then one the next question is from Jeff Kauffman with loop capital markets. Please go ahead. Thank you very much a well congratulations guys I know it was a rough go so I want to come back to Scott.
A question on or in Capex. So so I'll start with Capex 400 million have you thought about a how well of course, you thought about it [laughter]. How how are you thinking to split that between tractors trailers, how many tractors can we buy at at that level you know one.
What percentage of the fleet or are we thinking about replacing at this point, yeah. So hey, a jet Jamie I'll feel about when I look at that a guarantee Jay Fishman. So the answer is it depends.
It depends on on two things, primarily one the depth and breadth in the U.S market are we talking about when we're trying to address jacks question. Don do you use units at the first thing we can find a deeper market that Pete a fit their staff will be able to get more.
If not then we'll go after the the OEM and by brand New units. It also depends on a the taxes you know if they're going to in some semblance do away with it with attack aspect of the thing is I think it favorites appointed 12 fast.
$12000 plus or minus so that obviously will go a long way when you take it across $400 million now in terms of the composition of tractors and trailers. What we're trying to do Jan is actually a go after the old This unit and then.
I'd call. It a tale of both fleet to tell the tractor fleet and the kill of the trailer fleet and we're going after those older units. It had the highest maintenance cost per mile. So we're going to go after that in a fairly equal weighted basis, if we could put all the money on.
Hi, and tractors, if we wanted to but that would not doing anything to change the age and the complexion of our trailer fleet. We're gonna go added on an equal basis and the amount that was actually will depend on the debt the U.S market and what happens with the taxes.
Oh, that's a great answer let me come back to a different way approximately what is your maintenance cost per mile on the existing fleet I got a pretty good idea or would it runs on new equipment, but I'm just kind of trying to figure out how much we might be able to bring down maintenance costs.
I won't give channel from all because I'll tell you when you buy a brand new unit rolls off the line a maintenance expense for a one year unit, it's somewhere and no. One to 2000 dollar range, obviously full power train warranty and you might ask why I wanted to $2000 or you've got few I mean, you've got.
Break you've got a antifreeze you've got oil he got everything goes up but the gaming maintenance event units and then you go out to 56789 10 years, you're getting into a number that is probably closer to 11 $12000. So we can easily.
The clip a 10000, maybe a little bit more coupon per tractor on maintenance expense alone and there's nothing to taking consideration what we can get on MPG and fuel efficiency and a big I know and am I apologize in advance shifted big I know is what it does.
As for kind of safety basis, because we don't know that cost of an accident that does not occur.
Mhm.
No that's great. Let me just ask a question and they're in and TJ and then I'll move on here you know Darren when we were talking about a year or so ago and you just negotiated the new labor plan.
You know back to Scott's question on all our you were thinking in the long term you know hopefully we get down to a 95 and take it from there and you had a series of steps that you were going to be implementing and things you were going to do.
As we sit today.
How is that changed and they kind of what are the big levers.
Separate from the capital spending that we can do to get the O R to where you want it to be and even though maybe covance push things out and the recessions push things out is your belief that in the long run. This is a company that's capable of 95 still.
Well certainly with the changes we should all from the invisible enemy this year or any type of guidance went out the window for the majority of publicly traded companies. What I will say is we've got a labor contract that runs through 2024, the carriers Act a alone.
Runs through 2024, the IB ill and the term loan go through 2024, so there's a runway there that's real and tangible part of a when I was talking last year about the trajectory of our company a big part of that was the equipment plan as it always is in a heavy asked.
<unk> based company was 60000 pieces of equipment that equipment plan is crucial it's certainly been assisted by this process that we've gone through but also that's what protects the overall investment that a variety of Ah constituents have made in this.
Company, So the equipment playing a solid it will a return a good return on investment we know that and that's why I said, there's very low execution risk outside of that the network optimization plan certainly we had to pause for six to eight weeks of while at the beginning of the pandemic and as we.
Set down as a team and determined how we were going to address something that America had never seen before the world had never seen before to this magnitude and this modern over time. So as we made those list and determine what to do network optimization stayed at the top of the lifts just because it'll.
Allows us to pivot depending on where the economy goes how deep the valley would become or how quickly we would recover from it that we could adjust to all those pieces because of the flexibility we have where these four asset base brands in our one non asset based brand. So all those things are still intact the play.
And for Henry Logistics naturally this event has created a demand in the residential area, where Henry plays very well.
It's also a allowed us to streamline parts of our line haul operation you put all that together and I think the company has a solid opportunity over this runway of time between now and 2024.
To be a very solid member of the national supply chain.
Mhm.
All right well congratulations and thank you.
Thank you Jeff.
The next question is a follow up from Jack Atkins with Stephens. Please go ahead.
Great. Thank you and I just had a couple of follow up questions here, but I guess kind of going back to you know Jamie your your comments around.
What the.
New equipment can do for you from a cost.
Perspective, and you think about that on top of the the your enterprise transformation initiatives that you guys are working on now for World, We're a little while.
When you think about benchmarking your cost per shipment relative to.
You are publicly traded peers.
Excluding you know.
Salaries and wages do you feel like that that these efforts. This this ability to refresh simply combined with.
The effort that you're doing to rationalize your your broader network does that close the majority of the gap in terms of your cost per shipment is there just.
Trying to understand it anyway to help us think about that.
Yeah, I would say it a there's two things for us and I answer your question very directly Jack It will start to close the gap will ever complete close again no. A you know won't every one of this call and those that alone. We are the I wanted to learn she has carries United States and we're proud to have those are fine folks is our partners as we work.
You this journey, what it does do for us.
With two things one it all the things already talked about on the maintenance fuel efficiency new safety. The one thing that guarantee touched on Olivia earlier don't lose out of the fact that also going to help us with the leasing headwind.
That we actually experience today my estimation, Jack is relative to our peers and they don't always publicly disclose it. So it's hard when she's in the dark a little bit and yet we were probably facing a 300 basis point margin headwind on the leasing expense alone relative to do the person.
The last Saturday I'll end, the right side of the out so even though you can do the math on saving about 11000.
Dollars per unit multiply that times, having as you think it will be able to get through this 400 million on attractor basis, and then you know do our best to minimize the leasing headwind going forward that will give you some semblance of big gap that we came close.
And Jack as a reminder, yeah.
As a reminder, on ER, our contractual side with the labor contract going through 2024 and that we've got new job classifications as part of this labor contract. It's something we havent talked about in a while because many other things have gotten in the way up just a normal operating discussion, but we've got the flexibility now around purchase.
Protection also the flexibility around job classification that helps align us with what our customers need us to do on a daily basis.
Okay, Great Great and then Jamie just kind of going back to a the award discussion for a moment and I. I know you you don't want to give guidance I'm not going to ask David give guidance, but can you help us think through maybe some of the puts and takes of some costs that maybe weren't in the second quarter and I know the lot of.
Transportation companies, maybe it's awesome some unexpected expenses tailwind from fuel problem, you know health care from from a whole host several items, you know where there's some some cost it may be work during the second quarter, maybe come back in to the third quarter, just trying to get appeal for you know if we get all make our assumptions around revenue trend sequentially.
We anything that would be different on the cost side, we're thinking about incremental or decremental sequentially.
You know Jackson, not a lot and I think Scott asking question in terms of the of deferrals that we had a experience should we think those answers, yes, or the cost that would come back in a third relative to the second would just be a similar to the folks that we furloughed when we started.
Taking our liquidity preserving levers and pulling those levers so its things around the fringes. The I don't think anything that would be down.
The level of materiality that you wouldn't be looking for.
Right, but those that I've got one off what was your been in tonnage you know so they'll go what I'll make make that Ah. Okay. I'd, just like a pretty unusual items last last question.
Maybe for TJ, if you could just sort of talk about a potential.
Purchased transportation inflation, given what we're seeing in that in the truckload market any sort of thoughts around.
That line, maybe creeping up on little bit faster than expected just given given where we're seeing truckload rates move in the market.
Jack I would say that the majority of our purchase transportation dollars move under contract or that we have a locked in prior to the pandemic in the car.
Circumstance, the transactional stuff I expect to go up and it has a slightly but the vast majority of our purchase France, which or am I do is up to 29% under the new contract.
It's under contract.
Okay. That's great. Thanks again.
Thanks Jack.
This concludes our earnings call I would like to turn the conference back over to Darren Hawkins for any closing remarks.
Thank you operator, thanks again to everyone for joining us today, please contact Eric with any additional questions that you may have this concludes our call and operator I'm turning it back to you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music] Hmm.
Uh-huh [noise].
[noise].
[music].
[music].
Good afternoon, and welcome to why RC worldwide second quarter 2020 earnings call.
All participants will be in listen only mode.
After today's presentation, there will be a question and answer session.
You asked a question you May press Star then one on your telephone keypad.
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I would now let's turn the conference over to Eric Berg, Vice President of Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone welcome to wire she worldwide second quarter 2012, <unk> earnings conference call joining the call today Art, Darren Hawkins, Chief Executive Officer, Jamie Pierson, Chief Financial Officer, Jim O'connor, Chief operating officer will be available for acuity.
During the call, we're making forward looking statements within the meaning of federal Securities law.
Forward looking statement and all other statements that might be made on this call, which were not historical facts are subject to uncertainty and the number Brett.
And therefore actual results may differ materially formidable it's Paul did not allow it well we just got all these risk factors.
Well well discussion of the risk factors that could cause results to differ please refer to this afternoons earnings release that our most recent let's see filings, including our forms 10-K and thank you. These items are available on our website at wire CW Dot com.
Additionally, please see todays release or a reconciliation of net income to adjusted EBITDA.
In conjunction with today's earnings release, we issued a presentation, which means you referenced during the call. This presentation was filed an 8-K along with our earnings release and is available on our website.
I'll now turn the call over there.
Good afternoon, everyone and thanks for joining our second quarter 2020 earnings conference call.
I want to thank our 30000 American families that make up the population of wire CW companies for approaching their essential work with safety and diligence to take great care of our customers as every business. We interact within serve has had unprecedented challenges during this roller coaster pandemic.
On behalf of our wire see that'd be a families and over 200000 customers, we would like to start by thanking Congress and the administration for passing the cares Act, which has provided liquidity the pandemic stricken companies like ours and tens of thousands of businesses that comprise our customer base.
The cares act and powered the administration to provide critical support the companies that are the life line of America supply chain.
After the quarter ended we announced that we had closed on a 700 million dollar alone what the U.S. Department of Treasury under the cares Act.
First piece was the 300 million and try Jay which the majority of was directed that deferred health welfare and pension payments and added to our July liquidity, which we will report at the end of Q3.
The second piece of this loan was the 400 million and tranche b.
Tranche B, a specifically targeted at reinvesting into rolling stock and gives us the opportunity to refresh our fleet with the latest and greatest that the Oems have to offer today.
Better fuel efficiency, lower maintenance and the latest and safety technology, and let's not forget better experience for our employees and service for our customers make no mistake. This volume of equipment and upgrade coming into our network will allow us to shift into high gear.
Moving forward wire seed idea and our five powerful brands have over three years before any major debt maturity to complete our enterprise transformation to focus on running the business and taking great care of our customers. It has been a long time. Since this company has had this much runway in front of us.
And we intend to capitalize on every single day.
As I shared with you on the first quarter earnings call. We continue our transformation work toward a single enterprise.
The collective power if technology migration to a single enterprise platform.
Increase network density to optimize line haul mileage and a comprehensive plan for terminal asset utilization will result in a north American LTL industry leader designed to grow for the long term.
This new day at wire Sidibe, Yeah allows us to accelerate our transformation as we look to optimize and blend the very best service offerings that and among our five brands. So that the customer will have a variety of choices all under one company.
On a current note we see the pricing environment is stable and in the month of July wire see that'd be a company's average plus or minus 3% on contract negotiations.
We'll now turn the call over to Jamie who will share additional details about the quarter and plans we have in place for the future after which I will provide closing comments.
Thank you Dan and good afternoon, everyone as usual I would kick three the result in fairly short order and well in with a little more color and let docherty keep seat.
For the second quarter of 2020 wire ski worldwide reported revenue of 1.02 billion down from 1.27 billion in 2019.
And reported an operating loss of 4.6 million, which included a $6 million net gain on property disposals compared to an operating income of 14.3 million in Twoq, you 19, which included a $6.2 million net gain on property disposals.
That's very adjusted EBITDA, we recorded 37.9 million in second quarter. This year down from the 67.3 million into Q 19.
Over the last 12 month LTM adjusted EBITDA was 183.1 million down from the 259.1 million to comparable period in 2019.
For the second quarter of this year, our consolidated LTL tonnage per day was down 14.8% compared to last year's comparable period.
The decrease in tonnage was led by 16% decrease in LTL shipments per day, which was offset by a 1.4% increase in weight per shipment.
[noise] Ashford pricing year over year, LTL revenue per hundredweight, including fuel surcharge was down 5.7%.
In LTL revenue per hundredweight, excluding fuel surcharge was down 2.6%.
However.
As I have shared last quarter, given the increase in weight per shipment and better indicator for US right now is revenue per shipment ex fuel.
And to that end.
Year over year change in LTL revenue per shipment, excluding fuel surcharge was only down 1.2%.
On the tonnage side.
Trends for the quarter showed improvement each month during the second quarter would April LTL tonnage being down 22.6%.
May was down 14.5% in June was down 8.6%.
And preliminarily July was down about 4%.
As for investment back into the business during the quarter, we only spent $11.7 million on capital expenditures.
You will remember because I know that you do topic is and wanted to spend items that we can tell during the quarter to preserve and build liquidity.
The good news is we intend to fully utilize all 400 million dollar the of the charge me loan just start refreshing their fleet and clipping the associated coupon that should come with brand new tractors and trailers.
On the balance sheet and capital structure Saturday equation guarantee touched on the size and uses of the tranches in his opening remarks, but for a little more detail I'll tell you that that $300 million five JLL and that is and will be utilized for working capital deferred health welfare and.
Pension obligation as well as other deferred payment.
Yields in interest rate of LIBOR, plus 350 basis point, where the floor of 1%.
Oh wage 150 basis points that 350, it should be paid in cash and remaining 200 is to be paid in kind or additional accrual of debt.
And before you ask to date, we have drawn $245 million on distraught.
The 400 million dollar tranche b loan that we use where the acquisition of tractors and trailers simply yield in interest rate of life were plus 350 basis point with it for 1%.
Both of these charges are non amortizing and mature on September 20, 2024, like just over four years from now.
In addition, securing the carriers next Sunday, we also amended our existing term loan for about a week ended the LTM adjusted EBITDA Covenant holiday until December 2021, now would find the news minimum LTM adjusted EBITDA cabinet will just be $100 million.
The covenant stepped up to 150 million in one Q 22, and it's not backup can be an original agreed upon 200 million until the second quarter 2022.
Long story short, we do not have in minimum LTM adjusted EBITDA Covenant the next five quarters.
And it's not backup to the regional 200 million until the middle of 2022.
However, the minimum required liquidity did increase and the result of the term loan amendment.
It increased to $125 million until we reach 200 million, an LTM adjusted EBITDA at which time than minimum liquidity Covenant goes away.
Finally, and I think it's important to highlight we amended our eight deal facility to extend its current maturity in June of next year, all the way out in January of 2024, giving us an incremental two and a half years of additional runway on this facility.
All three of east enhancing actions provides us with an opportunity and runway to focus on the operations of the business.
Execution of our enterprise transformation to one Carol.
Taking great care as our customers.
And also has the added benefit of allowing us to significantly refresh athlete.
Turning to cash and ABS availability, our total liquidity increased just over $300 million.
303 million to be exam.
Compare that to be 80 million at the end of 2019.
And $118 million ended the first quarter and I think you wouldn't agree that our liquidity projecting measures enacted in March of this year worked fairly well.
As a result, they going concern you mentioned in that first quarter 10-Q as being alleviated.
Now as always I'll leave you with a few parting dot.
One.
Even before closing the carriers that loan we had built out illiquidity in the quarter at just a little over 300 million with getting the highest level in well over a decade.
Two.
The 700 million dollar care that loan further strengthens our short term liquidity position list, that's shrouded the deferred health welfare and pension payment.
And allows us to accelerate the capital investment into our fleet.
Three.
Please not lose sight of what we accomplished on the term loan and a deal and then.
These amendments, giving us additional latitude and run wage and focus on the business and the transformation thereof.
Bore.
Volumes have stabilized and has certainly recovered from April is low point.
We had continued to improve in May June and preliminarily into the month of July.
In the same vein pricing on or revenue per shipment basis ex fuel has remained fairly stable as the economy slowly, but surely opens back up.
Obviously, no one knows where the economy any industry heading in the next 369, even 12 month.
But I can tell you with 100% certainty that the capacity crunches real as we're having difficulty recruiting drivers to keep up with the increase in volumes.
In closing.
All I wouldn't say is that I agree with Gary.
It is a new day at why RFP worldwide.
Concentration many pundits thoughts your theory, we did it again and our thankful to all of those involved.
Now it's time to execute.
I'll turn the call back over to guarantee from some additional closing comments.
Thank you Jamie.
I want to close the call by acknowledging all of our employees customers and partners, who reached out to me as we successfully close the cares Act loan with Treasury on July 7th.
Hearing from our employees was rewarding as they shared with me they renewed commitment to our company and our customers as we move forward.
Hearing from so many of our customers failed made with gratitude for their belief fan and partnership with wire CW and our 30000 freight professionals who serve them.
We are indeed grateful for the opportunity provided to us and we will honor that trust place then layer CW, whether commitment to serve Americas central domestic supply chain through this pandemic and beyond.
And now we wouldn't be glad to take any questions that you may have.
[noise] [noise] [noise] [noise] operator.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then to at this time, we will pause momentarily to assemble our roster.
[noise]. Our first question is from Jack Atkins with Stephens. Please go ahead.
Hi, guys good afternoon.
Hello, taking my question.
Well before we get started just wanted to say congratulations here on.
Everything you guys were able to accomplish in the quarter I know there were just a lot of distractions you guys had your hands full and you you're really performed very well all things considered so congratulations on getting all thought.
Thank you Jack we're very proud of our team.
You should be you should be so I guess, let me just first off ask your question to make sure I look on the same page about the the a U.S. treasury funding.
Oh, you grit, you've drawn down.
I think you said 245 billion of the 300 million tons are about trial Jay.
Trying to be have you draw on any of that.
What sort of the the timeline for when you expect to draw down there or would you expect to fully utilize all 400 billion. This year.
Yeah, Hey, it's Jamie from my perspective, we have not too I mean backup tell you that definitively we've not driving on the term b a coffee yet.
In terms of our expectations.
We just closed literally lesson 30 days ago. It can take is probably the better part of four maybe up to six quarters. All 400 million dollar for work you know as well as I do want you put the order in place stage in it up and by the time that they roll it off the factory floor would pay for it that's going to be easily 60 Tonight.
Days from from now so it'll be well before we take our first delivery, but once we do expect a role with a certain amount of pace and a intentionality didn't get as much as quickly as we possibly can.
Okay got you, but but you I know there's been some speculation in the financial press about it there there's really I mean that that terms that tranche b is.
Fully signed sealed there there's no way that the federal government can go back on that correct are you talking about committee oversight piece, if that's what you're talking about Jack I mean, that's exactly what the committee was formed to do it's not to rubber stamp what treasury data to oversee what the treasury did from our perspective of we are.
Marching whipping Jack same pace that we did 30 days ago, we don't see any reason why we wouldn't get that fully funded between now and when we need to exhaust all $400 million.
Okay. That's great and then you know Jamie I think as you sort of thinking about how you want to utilize at 400 million you've got a fairly weak used equipment market right. Now you mentioned sort it may take some time to get you know new equipment from Oems.
What are your thoughts around maybe going into the utility market buying some of this more lightly you newer model equipment any any thoughts around that that'd be a potential outlook for some of the flooding yeah. Jack we're not leaving any stone unturned I know that likely use in an LTL environment, it's somewhat of an oxymoron.
John.
But we're going to stretch the dollars as far as we possibly can we've identified some pockets of used equipment that we could think that would fit our spec that challenge being is we want the latest and greatest safety equipment that comes with enough OEM back.
Unit and what we found is that some of the U.S market does not come with that even you know stuff that is a one to even three years of age does that come with the anti collision avoidance technology that we like it has the same maintenance Oh profile and the same fuel efficiency, but we are going to be very judicious.
And very intentional about unit that we buy we are not looking to cut corners. When it comes to safety and we will be availing ourselves of every dollar that we can.
Okay. That's it that's great to hear I guess I know this is probably a little more of a difficult question to answer, but when you think about that 400 billion and as how how far will that go.
To close some of the up.
Sort of the capital hole that you've been needing to fill now for a number of years you guys have sort of been behind the ball. So to speak you in terms of catching up on your on your capital.
Investment.
How much of that yeah, that's funding gap over the years, what quarter million dollars close for yet well I'd say what Jack this is a once in a lifetime opportunity.
I never in a million years that I think coming back and being here seven months that we'd have $400 million.
Which to invest back into the backbone of this business.
As for the gap you know it's always a is we do it can be a multiyear journey is what I would consider an adrenaline shocked at the heart.
That will get us pointed have been right directions in fairly short order.
And John Okay, Yeah, Yeah, there I'm sorry, Yeah go ahead no problem Jack I was just going to add a that the test equipment comes without the leasing headwind that we've seen in the past it gives us an opportunity not only to take advantage of the fuel MPG and other pieces, but the uptime is a big part of that as well.
Ill and without the leasing headwear and the return on energy acting a new tractor and our network.
A significant and a as you know, there's very low execution risk because you're replacing a an older unit, where they are brand new unit that comes with the benefits of that so it's a a very nice return.
With this opportunity.
Okay makes sense, Okay. Let me ask one more question I'll turn it over to anyone else in Q, but.
You know what's been the customer response over the course of the last several weeks now that I'm you know this news around the U.S. government funding has been finalized <unk> do you feel like customers are coming back or maybe even committing more afraid to you now that you have these liquidity issues resolved you any sort of thoughts around.
Around that because to me I would think that if there were some customer concerns so they've got to be alleviate at this point Jack you know taking great care of the customer has always been our focus and you're familiar with my career as that's been a a focus of my entire career I can say this is being part of the wire ceded butane for a long period of time.
Through many different assignments or our customers are why we're here they supported us through difficult negotiations with a variety of different challenges over the years and our customers of all way supported us because they recognize the value of our 30000 afraid professionals across the North American supply.
Watching so you put all that together we saw good strong support from our customers during unprecedented times when they were experiencing hardships as well.
Certainly some of those that had to make decisions about the company based on noise that was under marketplace or an attempt to protect their overall supply chain I would hope we would have the opportunity to revisit that would sound, but overtime. Our people makes a difference and when I sum it up I think.
Our over 200000 customers continually.
Choose to share market share with wire see Doug companies because of the value we bring to the marketplace and also the diversity that we bring across all the geography is that we serve a with our multi speed carriers.
Okay, Okay, well well there thanks very much for that that comment and Jamie TJ. Thanks for your time and I will.
Well turn it over to somebody else. Thanks, again have a good afternoon Jack.
The next question is from Scott Group with Wolfe Research. Please go ahead.
Hey, Thanks afternoon, guys good afternoon.
Jamie I wasn't really clear the answer on the congressional oversight or are we in a place where there's really nothing that they can do and this is your money or is there still some potential restrictions are based on whatever they may say or not in terms of the ability to.
Not that 400, I just wasn't clear with the answers are not a this is there and we went in to the loan agreement with United States Treasury on July 7th.
Congress certainly empowered the treasury to administer the cares Act we watch the process closely.
Submitted our application went through a very thorough diligence process with treasury or any comments beyond that as far as normal government a oversight or other pieces, that's a necessary part a of the process, but at this time, we haven't been contacted.
Any groups our agency so really all we can comment on as what we've been involved in and that was a very thorough diligence process with treasury, where we were able to present the facts of our business for them to make 'em a discipline decision.
Okay.
And going forward is as you guys progress towards I guess, a one code.
Where do you think we weren't any plans in terms of further terminal consolidation anything in terms of.
Ah headcount and then or are there any restrictions as part of the treasury loans, either on rationalizing terminals or reducing headcount.
Scott I'll open with that and then allow Jamie and TJ. We started the year with 351 facilities. We're currently at 335.
As I have said publicly earlier on I believe we will land at around 325, Oh by the end of 2020 naturally I'm much has changed since a I said that but overall.
From a demand standpoint, or even though we may pull down facilities, we won't give up any geographic coverage that we provide right now it will be because we have multiple facilities and one service area.
So that will continue on as planned about we will always protect capacity for our customers and each of the markets we serve.
Jamie anything additional.
All right I would add Scott this is TJ the.
The demand is there a would recall employees from lay off during the Pandemics and we're hiring that many locations.
The outlook is very good from an unemployment standpoint, and the demand is certainly strong.
Okay, and then just last last question.
Maybe Jamie any thoughts on an operating ratio do we do or we do we get back to profitability in the third quarter, and then any thoughts on longer term and where you where you'd like to see the operating ratio go as you sort of come through this one co process.
Well I tell you what from a Cfos perspective. This is probably the most difficult time in any of our careers to forecast, what's going to happen with the virus via economy impacting the industry and then it certainly the impact on our company so won't give any guidance as to if and when.
At the or I won't be I'll show, you that pumping $400 million into this deal and it back one of his business getting tractors and trailers that come with full power train warranties.
Relative to you know what we what we are currently running today.
Gentle will be an immediate ER positive impact to the bottom on and it's not just maintenance.
It's not just the interest increased fuel efficiency, it's not just the improvement in the safety performance you guys are very well aware of the atomic credit competitor have been issued as of late but it also the improvement in morale up our employees getting into Moran new unit versus getting into one that has been quote unquote.
Likely use which is again an oxymoron this space, but it also less downtime in an improvement on our customer service. So this is a once in a lifetime opportunity that we are going to avail ourselves on an immediate basis, and we will run it fast and diligent as we can to invest those funds.
Okay makes sense and I, probably just one more just really quick one for your Jamie any of the health and welfare or whatever other costs you didnt actually pay in the second quarter did you still accrue those costs are they they're showing up in the operating ratio, yes, we did.
Okay perfect. Thank you.
Again.
Excuse me again, if you have a question. Please press Star then one the next question is from Jeff Kauffman with loop capital markets. Please go ahead. Thank you very much well congratulations guys like I know it was a rough go.
So I want to come back to Scott.
Question on or in Capex. So so I'll start with Capex 400 million have you thought about a how well of course, you've thought about it [laughter]. How how are you thinking to split that between tractors trailers, how many tractors can we buy at that level you know one.
What percentage of the fleet are are we thinking about replacing at this point, yeah, So hey, Jeff Jamie I'll feel downlink that Dan TJ fill in so the answer is it depends.
It depends on on two things, primarily one depth and breadth in the U.S market. We've talked about when we're trying to address jacks question. Don you used units at the first thing we can find a deeper market that see fit their spend will be able to get more.
If not then we'll go talk to the Oems and by brand New units. It also depends on the taxes, you know if they're going to and some semblance.
Do able with it with attack aspect of business I think it say with appointed 12 fast yet just $12000 plus or minus.
So that obviously will go a long way when you take it across $400 million now in terms of the composition of tractors and trailers. What we're trying to do Jan is actually go after the old This unit and in bad policy tale of both fleet.
I would tell the tractor fleet anatel of the trailer fleet and we're going after those old issue and if it had the highest maintenance cost per mile. So we're going to go after that in a fairly equal weighted basis. If we could put all the money on on tractors, if we wanted to but that would.
Not doing anything to change the age and the complexion of our trailer fleet. We're gonna go at it on an equal basis and the amount that was asked it will depend on the debt to be used market and what happens with attack.
That's a great answer I mean come back to a different way approximately what is your maintenance costs per mile on the existing fleet I got a pretty good idea what it runs on new equipment, but I'm, just kind of trying to figure out how much we might be able to bring down maintenance costs.
I'll get you know from all basins, I'd say, well when you buy a brand new unit rolls off the line.
<unk> expense for a one year unit it somewhere and no one to 2000 dollar range, obviously full power channel warranty and you might ask why one to $2000 or you've got few I mean, you've got right you've got a antifreeze you've got oil you got everything goes up.
The gaming maintenance of the units and then you go out to 56789 10 years, you're getting into a number that is probably closer to 11 $12000. So we can easily clip a 10000, maybe a little bit more coupon.
Her tractor on maintenance expense alone and does nothing to taking consideration what we can get on MPG and fuel efficiency and a big I know and am I apologize in advance shifted big I know is what it does for kind of safety basis, because we don't know that cost of an accident it doesn't.
Not occur.
<unk>.
No that's great. Let me just ask a question are there and in TJ and then I'll move on here.
You know Darren when we were talking about a year or so ago and you just negotiated the new labor plan.
You know back to Scott's question on all our you were thinking in the long term you know hopefully we get down to a 95 and take it from there and you had a series of steps that you were going to be implementing and things you were going to do.
As we sit today.
How has that changed and kind of what are the big levers.
Separate from the capital spending that we can do to get the O R to where you want it to be and even though maybe covitz push things out and the recessions push things out is your belief that in the long run. This is a company that's capable of 95 still.
Well certainly with the changes we shall from the invisible enemy this year or any type of guidance went out the window for the majority of publicly traded companies. What I will say is we've got a labor contract that runs through 2024, the cares Act a alone.
Runs through 2024, the Ivy Hill and the term loan go through 2024, so there's a runway there that's real and tangible part of a when I was talking last year about the trajectory of our company a big part of that was the equipment plan as it always is in a heavy asked.
<unk> based company with 60000 pieces of equipment that equipment, playing as crucial it's certainly been assisted by this process that we've gone through but also that's what protects the overall investment that a variety of Ah constituents have made in the.
The company so the equipment, playing a solid at world or a return a good return on investment we know that and that's why I said, there's very low execution risk outside of that the network optimization plan certainly we had to pause for six to eight weeks a while at the beginning of the pandemic and as we.
Set down as a team and determined how we were going to address as something that America had never seen before the world had never seen before to this magnitude and this modern over time. So as we made those list and determine what to do network optimization stayed at the top of the lifts just because it will.
Allows us to pivot depending on where the economy goes how deep the valley would become or how quickly or we would recover from it that we can adjust to all those pieces because of the flexibility. We have with these four asset base brands in our one non asset based brand. So all those things are still intact the play.
Dan for Henry Logistics naturally this event has created a demand in the residential area, where Henry plays very well.
It's also a allowed us to streamline parts of our line haul operation you put all that together and I think the company has a solid opportunity over this runway of time between now in 2024.
To be a very solid member of the national supply chain.
<unk>.
All right well congratulations and thank you.
Thank you Jeff.
The next question is a follow up from Jack Atkins with Stephens. Please go ahead.
Great. Thank you and I just had a couple of follow up questions here, but I guess kind of going back to you know Jamie your comments around.
What.
New equipment can do for you from a cost perspective, and you think about that on top of the the.
Enterprise transformation initiatives that you guys were working on now for World, We're a little while.
When you think about benchmarking your cost per shipment relative to.
You are publicly traded peers.
Excluding you know.
Salaries and wages do you feel like that that these efforts. This this ability to refresh simply combined with.
The effort that you're doing to rationalize your your broader network does that close the majority of the gap in terms of your cost per shipment is there just <unk>. That's what we're trying to understand it any way to help us think about that.
Yeah, I would say it does two things for us and I answer your question very directly Jack.
It will start to close the gap would ever complete close the gap no. A you know won't everyone on this call and those that alone. We are that one of the large United charismatic facing we're proud to have those find focuses our partners as we work through this journey what it does do for us.
Two things one I always think already talked about on the maintenance fuel efficient seem to safety. The one thing that guarantee touched on it live earlier don't lose out an attack. That's also going to help us with the leasing headwind.
That we actually experience today my estimation, Jack is relative to our peers and they don't always publicly disclose it so it's hard to shoot in the dark it little bit is that we would probably facing a 300 basis point margin headwind on the leasing expense alone relative to the of the person in.
The last Saturday I'll and the right side of the aisle. So even though you can do the math on saving about 11000.
Dollars per unit multiply that times, having as you think it will be able to get that is 400 million on attractive basis, and then you know do our best to minimize the leasing headwind going forward that will give you some semblance of big gap that we can close.
And Jack as a reminder, yeah.
As a reminder, on a our contractual side with the labor contract going through 2024 and that we've got new job classifications as part of this labor contract is something we haven't talked about in a while because many other things have gotten in the way of just a normal operating discussion, but we've got the flexibility now around purchase trying.
Protection also the flexibility around job classification that helps align us with what our customers need us to do on a daily basis.
Okay, Great Great and then Jamie just kind of going back to Oh, our discussion for a moment and I I know you don't want to give guidance I'm not going to ask you did give guidance, but can you help us think through maybe some of the puts and takes of some costs that maybe weren't in the second quarter and I know that a lot of.
Transportation companies, maybe saw some some unexpected expense tailwinds from fuel problem, you know health care from from a whole host ever items, you know, where there's some some cost and I'd be worked in the second quarter, then maybe come back in to the third quarter, just trying to get appeal for you know, we get all make our assumptions around revenue trend sequentially.
We are eating that would be different on the cost side, we think about incremental or decremental sequentially.
You know Jackson, not a lot and I think Scott asking a question in terms of the of deferrals that we had a experience should we think those answers yes, the cost that would come back in the third relative to the second would just be or some other folks that we furloughed when we started.
Taking our liquidity preserving levers and pulling those levers so if things around their fringes. The I don't think anything that would be down.
The level of materiality that you wouldn't be looking for.
Right, but they've got one off what was jump in and tonnage you know so it's about going all make makes sense.
Okay I was just what you're pretty unusual items last last question.
Maybe for TJ, if you could just sort of talk about a potential purchased transportation inflation, given what we're seeing in that in the truckload market any sort of thoughts around.
That line, maybe creeping up on little bit faster than expected just given given where we're seeing truckload rates move in the market.
Jack I would say that the majority of our purchase transportation dollars move under contract.
That we have a locked in prior to the pandemic in the car.
Circumstance, the transactional stuff I expect to go up and it has slightly but the vast majority of our purchase France, which are advisory was up to 29% under the new contract.
It's under contract.
Okay. That's great. Thanks again.
Thanks Jack.
This concludes our earnings call I would like to turn the conference back over to Darren Hawkins for any closing remarks.
Thank you operator, thanks again to everyone for joining us today, please contact Eric with any additional questions that you may have this concludes our call and operator I'm turning it back to you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.