Q3 2020 YRC Worldwide Inc Earnings Call

November 2, 2020

Good afternoon, and welcome to why our C. Worldwides third quarter 2020 earnings call.

All participants will be in listen only mode.

After todays presentation, there will be a question and answer session.

Please note this event is being recorded.

I would now like to turn the conference over to Tony Carreno, Vice President of Investor Relations. Please go ahead.

Thank you operator, and good afternoon, everyone welcome to why RC Worldwides third quarter 2020 earnings conference call.

Joining us on the call today are Darren Hawkins, Chief Executive Officer, Dan All of their interim Chief Financial Officer, and TJ O'connor Chief operating officer. During this call. We may make some forward looking statements within the meaning of federal Securities Law. These.

Forward looking statements and all other statements that might be made on this call, which are not historical facts are subject to uncertainty and a number of risks and therefore actual results may differ materially the format of this call does not allow us to fully discuss all of these risk factors for a full discussion of the risk factors that could cause the results to differ please read.

Purchases this afternoons earnings release, and our most recent SEC filings, including our forms 10-K and 10-Q. These.

These items are also available on our website at why our CW Dot com.

Additionally, please see today's release for a reconciliation of net income to adjusted EBITDA.

In conjunction with today's earnings release, we issued a presentation, which may be ready reference during the call.

A presentation was filed in an 8-K along with the earnings release. It is available on our website at.

I will now turn the call over to Darren.

Thank you Tony and great to have you back.

Good afternoon, everyone and thanks for joining our third quarter 2020 earnings conference call before.

Before I get into the details of the Q3 results I would like to talk about the future for a moment.

The wire sea worldwide name was chosen over a decade ago, when the strategy of the company and Bob Global pursuits over.

Over the last several years, we have been and we plan to continue focusing our efforts on our strength that being a well position North American carrier.

We have never move shipments under the wire C. W name as it functions for the holding company only through an in depth perception and awareness marketing study, we analyze trademarks that we own for recognition brand approval and perception one name continued to outperform.

Him through the study and therefore and 2021, our holding company will be moving forward under the brand yellow.

We anticipate continuing under operating brands of Holland, New Pan Reddaway wire sea freight and Henry logistics as we execute our enterprise transformation that will result in a consolidated operating system for all companies along with a seamless super regional net.

Work that will cover all the geography, we currently serve I.

I would also like to announce two new additions to our board of directors, former New Mexico, Governor Susanna Martinez and Ms. Shauna D. Jones Governor Martinez is the first female Hispanic governor in United States history, and the first female governor.

Her of new Mexico. After her legal career as a successful prosecutor. She was first elected governor in 2010 and was reelected and 2014 and a landslide victory.

John I'd Jones currently serves as you asked director of diversity and inclusion at Cleary Gottlieb stain and Hamilton LLP.

This Jones has extensive experience in advising corporate leaders on matters related to diversity as well as transformation and strategic initiatives as we move forward with our work to operate as one company Governor Martinez and Ms. Jones's background will assist us in assuring that our.

Transition is inclusive and enhances our ability to grow while building our workforce with leaders that bring to us new perspectives and experiences.

Along with our board member additions it is a pleasure for me to announce a new member of our leadership team Darryl.

Darryl Harris, who most recently served as Chief Executive Officer of Express Global systems for the past four years. He is a 25 year industry veteran with extensive LTL experience there.

Merrell will serve in the newly created position of executive Vice President strategic initiatives reporting directly to me and will join my Enterprise leadership team Steering Committee I have known him for a number of years and closely followed his career as a continuously built a solid track record of Sir.

Access as an industry leader.

Daryl is joining the wire sea team at an opportune time, where his experience talents and leadership will contribute to our enterprise Super Regional network transformation customer service enhancements and our work to build the best team of LTL freight professionals in North America.

A few weeks ago, we filled our open general counsel position Leah Dawson, who previously served as assistant General Counsel for wire Cws. Since 2012 has been named Executive Vice President and General Counsel for.

For the past seven years I have worked with Lia on legal strategy corporate governance Securities and finance issues, while EMEA has been an integral part of many pivotal company transactions. Most recently she was instrumental in helping the company obtained cares Act funding working closely with me.

Our finance team and the board.

I look forward to working with Lee as our general counsel and as a member of the executive Steering Committee as.

As you may have seen in today's earnings release, we announced that Jamie Pierson has resigned from the company and the board Jane.

Jamie as a passionate and long time champion of wire CW and he has been instrumental and several financial transactions that helped protect and essential part of the American supply chain and the livelihoods of 30000 families and 2020 was no different Jamie was instrumental in the care.

Zach loan process and securing the other amendments to our credit facilities. The cares Act loan has been an incredible success for our company customers and employees, but it does come with limitations tied to 2019 compensation that impact certain of our key employees and those limitations.

Could remain in place for several years to come.

Given that Jamie started with the company in mid December 2019, the calculation as compensation limitation resulted in a maximum annual compensation structure that was not consistent with the compensation expectations for Jamie by Hanam or the company we thank Jamie for his.

Tireless work on behalf of wire CW, and we wish him the very best.

As a result of this change effective immediately Dan I'll beer has been appointed as interim CFO.

Dan has 22 years with the company, including 12 years as the Vice President of Finance at Holland, Our second largest brand and most recently as wire Sea Worldwide's, Vice President of financial planning and analysis. His knowledge of the company and the business will provide for a smooth transition.

And during this interim period.

Also effective immediately James fault has been appointed Chief Accounting Officer, James has been with the company since 2017 and financial leadership roles. Most currently as controller. He has over 15 years of accounting experience, including time spent with the Lloyd.

Turning to Q3 gearing.

During the quarter, we transitioned to managing our business and a tighter capacity environment and setting the stage for 2021.

Improving tonnage late in Q3 and growth in early Q4 has allowed LTL pricing to firm up with less volatility expected moving forward.

We began the quarter by securing financing with the US Treasury, we drew $245 million from tranche a in July and recently, the first $75 million from tranche B.

Now onto B is to be used to invest back into our fleet and this is significant due to the impact it will have on reducing maintenance expense improving safety features and achieving better fuel economy. In addition to driver satisfaction.

As we progress through the third quarter, we saw tonnage improve on the backend that has allowed pricing to stabilize for the month of October wire CW companies averaged around plus or minus 4% on contract negotiations.

As we move forward, we will be focused on onboarding, new rolling stock X.

Executing on our enterprise transformation and the recruiting training of additional layer C drivers at all companies. We also plan to drive the business forward through significant investments in technology box trucks containers and lift gates.

I will now turn the call over to Dan who will share additional details about the quarter.

Thank you Darren and good afternoon, everyone. Let me first say that I am excited to be here and I look forward to working with all of you.

For the third quarter of 2020 operating revenue was $1.183 billion compared to $1.257 billion in 2019.

Operating income for the third quarter was $19.4 million compared to $23.8 million in the prior year, which included a $1 million net loss on property disposals.

Adjusted EBITDA for the third quarter was $62 million compared to $65.9 million in the third quarter 2019.

As of the end of the third quarter LTM adjusted EBITDA was $179.8 million compared to 240.8 million at the end of the third quarter 2019.

As discussed during the second quarter earnings call, we do not have minimum LTM adjusted EBITDA covenant until the fourth quarter of 2021 at which point it is 100 million.

Stepped up to $150 million in the first quarter 2022, and $200 million in the second quarter of 2022 and thereafter.

Our consolidated revenue results for the third quarter reflect a 4.1% decrease in LTL tonnage per day, partially offset by a 2.2% increase in LTL weight per shipment.

Including fuel surcharge LTL revenue per hundredweight decreased 4% and LTL revenue per shipment decreased 1.9%.

Excluding fuel surcharge LTL revenue per hundredweight was down 1.4% and LTL revenue per shipment was up 0.8%.

Sequential LTL tonnage per day trends during the quarter were as follows and these are compared to the prior year.

July down, 4.3% August down, 6.4% and September down 1.9% we.

Preliminarily October LTL tonnage per day was up between one and 2%.

Total liquidity at the end of the third quarter was $454 million compared to $303 million at the end of the second quarter.

Capital expenditures for the quarter were $17.3 million.

As Darren stated now that we are managing the business in a tighter capacity environment, we fully expect to increase our level of reinvestment back into the business specifically on equipment and technology.

Now for a brief update on the $700 million of Us Treasury loan.

Related to the $300 million tried day loan during.

During the third quarter $245 million withdrawn 241 million of which was used to pay deferred health welfare and pension obligation and other deferrals and also for working capital.

Related to the $400 million tranche B loan.

The first $75 million was requested in funded during October and will be used for the acquisition of tractors and trailers during the fourth quarter none.

None of the $75 million was included in liquidity at the end of the quarter.

With that I will turn the call over to TJ.

Thank you Dan and good afternoon, everyone.

I think about the future of our company I'm excited about our refreshed fleet of tractors and trailers. This coupled with a comprehensive driver training and development process will put us in a great position to meet the needs of our customers and protect capacity in all geographies.

With the increase in volume seen during the quarter, we continued to bring back and hire more drivers as well as enhance our driving school expertise. Currently there are not enough qualified drivers in the market to meet our needs.

Consequently, we are increasing our driver academy capabilities as well as our mobile or pop up schools to tap into the driver base, who are not CDL qualified already.

We also see great potential in our box truck drivers were part of the wire CW team, but not yet qualified for with the CEO.

We continue to innovate and adapt to protect capacity and take great care of our customers.

As you heard from Darrin in addition to the tractors and trailers coming online through our tranche B investments. We're also investing capex dollars into information technology and equipment to improve operating performance and efficiencies.

Our network optimization plans continued to make progress.

Well impacted by COVID-19 issues, we're continuing with our transformation plans.

In early December we will be implementing are already approved intermodal change of operations in Memphis, Tennessee.

This change will allow the movement of shipments loaded on intermodal containers on the rail to and from our Western US operations. This is a key change that will provide increased capacity while improving efficiencies.

Lastly, I'd like to comment on our safety performance, we have sustained double digit frequency improvement in both line haul and city accident performance that began in Q1 of this year.

Our injury frequency performance has also improved nicely year over year.

My thanks to our dedicated safety minded professionals throughout our organization.

I will now turn the call back over to Darren for some closing comments.

Thank you TJ.

As we close I want to say that I'm excited about where the company stands today and its future with growing volume improving pricing investments in equipment and technology and strong leaders, joining our management team and board I remain confident that we are well positioned for 2021.

And beyond.

I want to thank our 30000 freight professionals from coast to coast in North America to work every day to serve our customers safely they're essential work and the support of their families gives reassurance to all Americans that as long as this pandemic persist the communities, we live and serve.

We'll continue to have the goods they need.

Thanks for your time. This afternoon, we would now be happy to answer any questions that you may have.

We will now begin the question and answer session.

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 key.

You withdraw your question. Please press Star then too.

At this time, we will pause momentarily to assemble the roster.

And our first question comes from Scott Group of Wolfe Research. Please go ahead.

Hey, Thanks afternoon, guys. So good afternoon Scott.

Thanks for the monthly tonnage trends can you just talk about them the progression of yield throughout the quarter and so far in October.

Well based on my comments in the script our contract negotiations were at plus or minus 4%. So we saw that improvement during the quarter from the previous quarter.

And that continues on through October.

And is that showing up in reported yield trends as well, yes, I would say volatility in weight per shipment and naturally it doesnt all go into revenue per hundred weight, but definitely with the offset a weight per shipment.

Now we're encouraged by the progress in our pricing efforts.

Okay got it any thoughts on how to think about.

Either margins or EBITDA sequentially in fourth quarter out the third I know it typically gets worse, but.

Maybe you can get better this time around as things are improving any thoughts there yep. Thank you for the question, Scott and I wont put any guidance around it I will say that just like everybody in the industry and certainly in your role Scott. We're looking at those leading indicators and you know that the consumer is standing up good.

Trucking capacity is very tight housing construction and demand is strong imports are at record levels and what we're seeing on the west coast I Havent seen in my entire career as far as the demand environment and then you put ecommerce on top of that and the expansion, we're seeing and and increased exposure in those areas.

I think we're in for several quarters of very strong demand, which typically allows us to make progress on pricing manage our efficiencies well and.

Have a positive outlook so from nicely I like where were sitting and then you put die SM report I saw come out this morning on top of that and there wasn't a single negative thing for trucking in that report.

Okay and then my just last question the 75 million.

For tractors and trailers, how much of that is going to new versus used equipment and then how quickly do you think you use the remaining 325 on that tranche b and any thoughts on how much of that goes new versus used yeah, great question and Dan take it away yeah. Thanks for the question Scott majority of that $75 million is going to be going to the new rolling.

Dock.

Apart, we're looking at about 300, new tractors in the fourth quarter.

950, or so new trailers we.

We do have as part of that about 200 trailers.

Used trailers that is.

Thats really the bulk of the $75 million.

As far as the 325 million.

Incentives requested by the remaining.

325 work throughout 2021, I mean, as Darren mentioned in his comments.

Investing in the fleet will provide significant benefit that make sense to make that investment sooner as opposed to later.

Okay. Thank you guys, hey, Thanks Scott.

Our next question will come from David Ross of Stifel. Please go ahead.

Yes, good afternoon, gentlemen, Hello, David.

Darren as you continue to move towards one network operation with the facility Count look like now and because tonnage is growing again in October is there any further rationalization or is that kind of a good baseline to use over the next year [laughter], yeah that is a great topic David.

With the demand environment were seeing and I am going to let TJ comment on a few I will tell you where we're right now at 333 facilities earlier this year before.

Full blown pandemic mode.

We thought we would get down to 325 by the end of the year, but as TJ mentioned in his script, we're not giving up any geography, and we're certainly not giving up any capacity right now so although there's a lot of opportunity for efficiencies through our network optimization and enterprise transformation.

We're making the technology investments to move over to one system, but I'll, let TJ give you the update on the overall network optimization, which is still a very important part of our plan.

But with the demand environment were seeing we will be moving forward with caution go hit T.J.. Thanks, Sarah and good question, David certainly as I mentioned the script. The Memphis intermodal change of operations is a really big change for us and has a.

Yes lots of benefits.

As well as adding capacity to and from the West also some efficiencies included there. So that's probably the biggest one will see the balance of this year. Although there are others, we sit at 333.

The ability to get some more done perhaps by the end of the year is definitely a possibility.

But right now we are favoring protecting capacity, making sure that the information transformation strategy stays intact and that the ITC work associated with that is also moving along and in.

Tandem with the operational changes. So yes, you may see a drop a little bit below 333, I think we provided a guideliner target earlier this year of maybe three in a quarter of by year end. So, we'll probably we probably won't hit during the quarter, but.

It will be somewhere between there and the 333, we have now.

And then on the purchased transportation side shipments were down but that number was up even with lower fuel.

Can you break out how much of that is rail PT, how much of that is line haul truck PT and how much might be pick.

Pickup and delivery PT.

And where do you see that going forward in terms of getting some of that back in line with historical norms, David I'll I'll, let Dan get broken ride and take that multi tiered questions. So Dan take it away. Thanks, David appreciate it and thanks, David Good question.

I don't have the specific breakdown of the components of it but what I'll say is.

Our PT costs for the third quarter increased roughly 16 million or about 10% year over year to your point a.

A little more than half of that increase actually was related to the the 35% year over year revenue growth at Henry logistics.

And the rest of the increase was more or less driven by the impact of the driver shortage. The TD referred to in his comments. So I'll, let him give you some color around that sure on the P.T. So on the over the road purchase trends.

That definitely increased year over year and keep in mind, David We've got the 29% cap now under the contract and we can use that any way we choose as opposed to the last contract. We had we had a.

Cap of 26% of which 20% could move on the rail 6% over the road. So we have.

The good news is the.

Theres a lot of cost efficiencies through the use of the rail and where we don't have sufficient driver capacity using over the road purchase Trans is a good thing.

The area that is expensive for us, but it's good to have is the local purchase trends, our cartage expense where we.

We don't have sufficient pickup and delivery drivers were able to use.

Partners that can help us with the pickup and delivery so little more expensive would prefer to do it with our own folks, but it's very good to supplement capacity where needed.

Yes, there was a problem for you guys a couple of years ago on the local cartage cost that you were trying to get down is that.

Crept back up is that something that you think can be resolved through obviously the driver.

David specific markets.

The West Coast thing, both California, perhaps.

Of words were been constrained more so than other parts of the market. We've got an eye and the new contract also the box truck language. So weve got approximately 400 non CDL box truck operators that were designed specifically to help develop CDL drivers over time, but also to reduce the local purchase France.

Expense associated with cartridge, so I view that as a temporary we did a heck of a job last year. After we got the contract negotiated of really.

Reducing that expense on the card side, and I expect us to get back to that.

That run rate here, shortly and when I prioritize that working capital and the strength of our working capital number right now Dave I think technology intermodal containers box trucks, that's that that is where we're putting that working capital to work.

Excellent. Thank you very much thank you David.

Again, if you would like to ask a question. Please press Star then one.

And our next question comes from Jeff Kauffman of Loop capital. Please go ahead. Thank.

Thank you very much congratulations everybody.

Yes, a couple of detailed questions for Dan for modeling and then it kind of a bigger picture question.

So Dan I saw the share count was about $48.7 million in the quarter, where should we be thinking about the share count for say 2021, because I'm assuming not all the shares were in that 48.7 million number or were they.

The new shares.

Yes, Jeff we would expect that the share count through 2021 with a relatively the same as what it is at the end of the third quarter. Okay. So 48 point Sevens right number yes ballpark, yet, okay, and you mentioned that about $325 million planned capex.

Next year based on tranche B, one other spending will be in that number and what are we probably looking at an all in capex basis 2021.

So while as you know, we don't give specific guidance about our total capex.

The 325 million will be primarily for rolling stock tractors and trailers.

There is some of the Capex will have on top of that like there and answer I think demented on containers box drug liftgate intake.

In technology those are the primary components of anything over and above tranche B and we're just not prepared to give any concrete guidance on that at this time Jeff.

Okay.

Switch gears to Henry you mentioned, a terrific 35% growth rate year on year, how big is Henry today, and do we think about breaking that out and 2021.

No I'm not thinking about breaking it out in 2021 have we continue to put resources, there and I'm very pleased with the growth trajectory of Henry logistics, we havent given any recent guidance on Henry certainly.

The Cove at 19 situation changed a lot of those things dramatically, but as you've seen in other reporting from a logistics standpoint, the truckload sector in the residential sector is things just seeing a really tremendous demand at Henry logistics. So its good timing I'm pleased with their growth and I'm looking forward to.

We're reporting out on it and once it becomes impactful to the overall business I'll start, giving you all the detail on that but from a customer perspective, I think it's been an excellent fit our consolidated Salesforce has a nice expertise and bring it to the marketplace and along with many other businesses.

Working remotely has performed very well for Henry logistics, and they havent missed a step.

Okay and one final question. Thank you Darren.

Dan.

We're consolidating the brand in house, we're rebranding yellow I am assuming we're staying with swap poly orange.

But is there any kind of house cleaning that might occur in Fourq you as we take a look at the IP and other brand names that the company is developed over time I assume if we take an adjustment will see it but I just wonder for modeling purposes, how should we be thinking about that goodwill.

And any IP on the balance sheet at where at Jeff. This is Darren we we held several trademarks as you know and keep many of them active just for this specific purpose and.

And were certainly proud to bring yellow to the holding company with the approval ratings and other pieces that that particular brand had from the marketing studies that we did but at this time, we don't anticipate changes in other areas that would result in any.

Of those directions, but if we do then certainly I will do the proper notifications on that but right now we don't anticipate changes to other brands that would have any adverse impact.

Okay, great well congratulations and thank you. Thank you Jeff Thanks, Jeff.

Our next question comes from David Ross of Stifel. Please go ahead.

Just to follow up quickly on Henry logistic there.

On the EBIT line was it a drag or a benefit for the overall company in the quarter.

Dave It was flat.

Okay.

And then a clarification question on the contract renewal increase you said October was up.

Plus or minus 4% on re discussions can you say that that was the average for the third quarter as well or is that a step up from some lower number in threeq.

It was a step up of a full percentage point from Q2, but for Threeq you the 4% was consistent and based.

Based on the leading indicators that I mentioned, we would anticipate continuing to see positive momentum in those contract negotiations and we've had some really big ones.

Come through.

Recently that we saw good momentum and so I'm encouraged by what we're seeing happening in that area today.

Excellent. Thank you. Thank you.

Our next question is a follow up from Jeff Kauffman of loop capital markets. Please go ahead.

All right guys Didnt expect to get back in that quick.

Darrel one last question bigger picture I don't know, if you're going to want to answer this but I'll ask anyway.

When we got the labor contract news.

There was a presentation that you had where you said I think we can get to a 96.

Oh are within say two three years time. This is based on our projections of acts and how we can change network now obviously cove its changed a lot of things and the.

Crunching and B loan have changed a lot of things.

And I guess, what I'd ask is.

His 96 still the multi year target as we think about yellow in its entirety and have the changes that have occurred if by some of them. All up made you more bullish are more cautious about getting there over a two three year timeframe.

Jeff first of all I appreciate your persistence in this area and thank you for let me address that when I think about our company right now I think about the operational execution runway that we've got you know that we don't have any major debt maturities any big labor negotiations prior to 2024, So we've got.

That three year runway right in front of us where we've got some really neat things happening and the equipment refresh that we're going through right now and that we're going to see in the coming year. It's just a great opportunity for this company you know what equipment mains all the benefits, we get out of it and the financial benefits that it brings.

Not to even mention the driver satisfaction.

Uptime and all the other things, but bottom line, that's going to be a nice contribution to our profitability moving forward enterprise transformation just getting these companies on one operating system and having that visibility across all the networks is going to be tremendous not only for our internal operations, but for our customers as well.

And then when I think about the overall network optimization, where we've got duplicate resources in so many areas and drivers and such high demand and that's not changing any time soon where the demographics that are out there around the CDL qualified driver in the United States retirements are at record levels because of coated.

And concerns moving forward in that area. So I think the demand is going to be strong I think TJ status position greatly to get the drivers that we need and so does the contract that we got in play so when I roll all that up together, that's where when I closed out the script and I talked about my confidence in this organization moving forward.

And then lastly, Geoff I'll say and you'll be disappointed here with all that confidence the volatility that's out there in a number of areas and also if we took the cautious approach about a second wave and other things that from a working capital standpoint, we're well positioned to weather those storms, but I'm not prepared.

Care to give any additional guidance at this time other than with all the things I've listed.

You know I have a lot of confidence in our employees and what can be accomplished in the coming quarters.

Well that was a fantastic answer and I will keep asking you that question, but thank you very much Jeff. Thanks for your interest I really appreciate you.

This.

Our question and answer session I would like to turn the conference back over to Darren Hawkins for any closing remarks.

Thank you operator and for all those that participated and listened to and I. Just appreciate your interest in our company and on behalf of our employees. Thank you for joining today, so and we'll see you later.

The conference is now concluded. Thank you for attending today's presentation you may now disconnect.

[music].

Good afternoon, and welcome to Y or Z worldwide third quarter 2020 earnings call.

All participants will be in listen only mode.

After todays presentation, there will be a question and answer session.

Please note this event is being recorded.

I would now like to turn the conference over to Tony Carreno, Vice President of Investor Relations. Please go ahead.

Thank you operator, and good afternoon, everyone welcome to why RC Worldwides third quarter 2020, <unk> earnings Conference call.

Joining us on the call today are Darren Hawkins, Chief Executive Officer, Dan All of their interim Chief Financial Officer at T.J. O'connor Chief operating officer. During this call. We may make some forward looking statements within the meaning of federal Securities law.

These forward looking statements and all other statements that might be made on this call, which are not historical facts are subject to uncertainty and a number of risks and therefore actual results may differ materially.

Format of this call does not allow us to fully discuss all of these risk factors for a full discussion of the risk factors that could cause the results to differ please refer to this afternoons earnings release and our most recent SEC filings, including our forms 10-K and 10-Q.

Things are also available on our website at why our CW Dot com.

Additionally, please see today's release for a reconciliation of net income to adjusted EBITDA.

In conjunction with today's earnings release, we issued a presentation, which made me right reference during the call.

A presentation was filed in an 8-K, along with the earnings release and is available on our website.

I'll now turn the call over to Darren.

Thank you Tony and great to have you back.

Good afternoon, everyone and thanks for joining our third quarter 2020 earnings conference call.

Before I get into the details of the Q3 results I would like to talk about the future for a moment.

The wire sea worldwide name was chosen over a decade ago, when the strategy of the company and Bob Global pursuits.

Over the last several years, we have been and we plan to continue focusing our efforts on our strengths are being well positioned in north American carrier.

During the study and therefore and 2021, our holding company well be moving forward under the brand yellow.

We anticipate continuing under operating brands of Holland, New Penn Reddaway wire sea freight and Henry logistics as we execute our enterprise transformation that will result in a consolidated operating system for all companies along with a seamless Super Regional network.

Or that will cover all the geography, we currently serve.

I would also like to announce two new additions to our board of directors, former New Mexico, Governor Susanna Martinez and Ms. Shauna Davy Jones Governor Martinez is the first female Hispanic governor in United States history, and the first female Gulf.

Winner of New Mexico. After her legal career as a successful prosecutor. She was first elected governor and 2010 and was reelected and 2014 and a landslide victory.

Sean I D. Jones currently serves as you asked director of diversity and inclusion.

Cleary Gottlieb stain and Hamilton LLP Miss Jones has extensive experience in advising corporate leaders on matters related to diversity as well as transformation and strategic initiatives.

As we move forward with our work to operate as one company Governor Martinez and Ms. Jones is background will assist us in assuring that our transition is inclusive and enhances our ability to grow while building our workforce with leaders that bring to us new perspectives and XP.

Your answers.

Along with our board member additions it is a pleasure for me to announce a new member of our leadership team Darryl.

Darryl Harris, who most recently served as Chief Executive Officer of Express Global systems for the past four years. He is a 25 year industry veteran with extensive LTL experience there and will serve in the newly created position of executive Vice President strict.

Dick initiatives reporting directly to me and will join in my Enterprise leadership team Steering Committee I have known him for a number of years and closely followed his career as seen continuously built a solid track record of success as an industry leader.

A few weeks ago, we filled our open general counsel position Les Dawson, who previously served as assistant General Counsel for wire Cws. Since 2012 has been named Executive Vice President and General Counsel for.

For the past seven years I have worked literally on legal strategy corporate governance securities and finance issues, while Laya has been an integral part of many pivotal company transactions. Most recently she was instrumental in helping the company obtained cares Act funding working closely with me.

Our finance team and the board.

I look forward to working with lay a as our general counsel and as a member of the executive steering Committee as.

As you may have seen and today's earnings release, we announced the Jamie Pierson has resigned from the company and the board Jamie.

Jamie as a passionate and long time champion of wire speed up yet and he has been instrumental and several financial transactions that help protect an essential part of the American supply chain and the livelihoods of 30000 families and 2020 was no different Jamie was instrumental in the carrier.

Back loan process and securing the other amendments to our credit facilities. The cares Act loan has been an incredible success for our company customers and employees, but it does come with limitations tied to 2019 compensation that impact certain of our key employees and those limitations.

Could remain in place for several years to come.

Tireless work on behalf of wire CW, and we wish him the very best.

As a result of this change effective immediately Daniela Bayer has been appointed as interim CFO.

Dan has 22 years with the company, including 12 years as the Vice President of Finance at Holland, Our second largest brand and most recently as why are seeing worldwide Vice president of financial planning and analysis. His knowledge of the company and the business will provide for a smooth transition.

During this interim period.

Turning to Q3 gearing.

During the quarter, we transitioned to managing our business and a tighter capacity environment and setting the stage for 2021.

Improving tonnage late in Q3 and growth and early Q4 has allowed LTL pricing to firm up with less volatility expected moving forward.

We began the quarter by securing financing with the US Treasury, we drew 245 million from tranche a in July and recently, the first 75 million from tranche B.

Today is to be used to invest back into our fleet and this is significant due to the impact it will have on reducing maintenance expense improving safety features and achieving better fuel economy. In addition to driver satisfaction.

As we move forward, we will be focused on onboarding, new rolling stock.

Executing on our enterprise transformation and the recruiting training of additional wire sea drivers at all companies. We also plan to drive the business forward through significant investments and technology box trucks containers and lift gates.

I will now turn the call over to Dan who will share additional details about the quarter.

Thank you Darren and good afternoon, everyone. Let me first say that I am excited to be here and I look forward to working with all of you.

For the third quarter of 2020 operating revenue was $1.183 billion compared to $1.257 billion in 2019.

Operating income for the third quarter was $19.4 million compared to $23.8 million in the prior year.

This included a $1 million net loss on property disposals.

Adjusted EBITDA for the third quarter was 62 million.

Compared to $65.9 million in the third quarter 2019.

As of the end of the third quarter LTM adjusted EBITDA was $179.8 million compared to 240.8 million at the end of the third quarter 2019.

As discussed during the second quarter earnings call, we do not have minimum LTM adjusted EBITDA covenant until the fourth quarter of 2021 at which point it is 100 million.

Stepped up to $150 million in the first quarter 2022, and $200 million in the second quarter of 2022 and thereafter.

Our consolidated revenue results for the third quarter reflect a 4.1% decrease in LTL tonnage per day, partially offset by a 2.2% increase in LTL weight per shipment.

Including fuel surcharge LTL revenue per hundredweight decreased 4% and LTL revenue per shipment decreased 1.9%.

Excluding fuel surcharge LTL revenue per hundredweight was down 1.4% and LTL revenue per shipment was up 0.8%.

Sequential LTL tonnage per day trends during the quarter were as follows and these are compared to the prior year July down 4.3%.

August down, 6.4% and September down 1.9%.

Preliminarily October LTL tonnage per day was up between one and 2%.

Total liquidity at the end of the third quarter was $454 million compared to $303 million at the end of the second quarter.

Capital expenditures for the quarter or $17.3 million.

As Darren stated now that we are managing the business in a tighter capacity environment, we fully expect to increase our level of reinvestment back into the business.

Typically on equipment and technology.

Now for a brief update on the $700 million of Us Treasury loan.

Related to the $300 million trots a loan.

In the third quarter 245 million withdrawn 241 million of which was used to pay deferred health welfare and thats, an obligation and other deferrals and also for working capital.

Related to the 400 million tranche B loan.

First $75 million was requested in funded during October and will be used for the acquisition of tractors and trailers during the fourth quarter.

None of the $75 million was included in liquidity at the end of the quarter.

With that I will turn the call over to TJ.

Thank you Dan and good afternoon, everyone.

When I think about the future of our company I am excited about our refreshed fleet of tractors and trailers. This coupled with a comprehensive driver training and development process will put us in a great position to meet the needs of our customers and protect capacity in all geographies.

With the increase in volume seen during the quarter, we continued to bring back and hire more drivers as well as enhance our driving school expertise.

Currently there are not enough qualified drivers in the market to meet our needs.

Consequently, we are increasing our driver academy capabilities as well as our mobile or pop up schools.

This happens the driver base were not CDL qualified already.

We also see great potential in our box truck drivers were part of the wire CW team, but not yet qualified for with the CEO.

We continue to innovate and adapt to protect capacity and take great care of our customers.

As you heard from Darrin in addition to the tractors and trailers coming online the right from the investments. We are also investing capex dollars into information technology and equipment to improve operating performance and efficiencies.

Our network optimization plans continue to make progress well.

While impacted by Tobin 19 issues, we're continuing with our transformation plans.

Early December we will be implementing are already approved intermodal change of operations in Memphis, Tennessee.

Lastly, I'd like to comment on our safety performance, we have sustained double digit frequency improvement in both line haul and city accident performance that began in Q1 of this year.

Our injury frequency performance has also improved nicely year over year.

My thanks to our dedicated to safety modest professionals throughout our organization.

I will now turn the call back over to Darren for some closing comments.

Thank you TJ.

As we close I want to say that I'm excited about where the company stands today and its future with growing volume and proving pricing investments in equipment and technology and strong leaders, joining our management team and board I remain confident that we are well positioned for 2021.

And beyond.

I want to thank our 30000 freight professionals from coast to coast in North America, who work every day to serve our customers safely they're essential work and the support of their families gives reassurance to all Americans that as long as this pandemic persist the communities, we live and serve.

We'll continue to have the goods they need.

Thanks for your time. This afternoon, we would now be happy to answer any questions that you may have.

We will now begin the question and answer session.

Ask a question you May press Star then one on your telephone keypad.

You are using a speakerphone please pick up your handset before pressing the key.

You withdraw your question. Please press Star then too.

At this time, we will pause momentarily to assemble the roster.

And our first question comes from Scott Group of Wolfe Research. Please go ahead.

Hey, Thanks afternoon, guys, so that Scott.

Thanks for the monthly tonnage trends can you just talk about them the progression of yield throughout the quarter and so far in October.

Well based on my comments in the script our contract negotiations were at plus or minus 4%. So we saw that improvement during the quarter from the previous quarter.

And that continues on through October.

We're encouraged in the progress in our pricing efforts.

Okay got it any thoughts on how to think about.

Either margins or EBITDA sequentially in fourth quarter out the third I know it typically gets worse, but.

Maybe you can get the better this time around as things are improving any thoughts there yep. Thank you for the question, Scott and I wont put any guidance around it I will say that just like everybody in the industry and certainly in your role Scott, where we're looking at those leading indicators and you know that the consumer is standing up good.

Trucking capacity is very tight housing construction and demand is strong imports are at record levels and what we're seeing on the west coast I haven't seen in my entire career as far as the demand environment and then you put ecommerce on top of that and the expansion, we're seeing an increased exposure in those areas.

I think we're in for several quarters of very strong demand, which typically allows us to make progress on pricing manage our efficiencies well and.

Have a positive outlook. So from my seat I like where were sitting and then you put the I assume report US all come out this morning on top of that and there wasn't a single negative thing for trucking and that report.

Okay and then my just last question the 75 million.

For tractors and trailers, how much of that is going to new versus used equipment and then how quickly do you think you use the remaining 325 on that tranche b and any thoughts on how much of that goes new versus used yeah, great question and Dan take it away. Yes. Thanks for the question Scott majority of that $75 million is going to be going to the new rolling.

But.

Apart, we're looking at about 300, new tractors in the fourth quarter.

950, or so new trailers we.

We do have as part of that about 200 trailers.

Used trailers that is.

That's really the bulk of the 75 million.

As far as the $325 million.

Incentives requested by the remaining.

Investment in the fleet will provide significant benefits that make sense to make that investment sooner as opposed to later.

Okay. Thank you guys hi, Thanks, Scott.

Our next question will come from David Ross of Stifel. Please go ahead.

Yes, good afternoon, gentlemen, Hello, David.

Darren as you continue to move towards one network operation with the facility Count look like now and because tonnage is growing again in October is.

Is there any further rationalization or is that kind of a good baseline to use over the next year.

Yes that is a great topic, David with the demand environment were seeing and I am going to let TJ comment on a few I will tell you. We're right now at 333 facilities earlier this year before.

Full blown pandemic mode.

I thought we would get down to 325 by the end of the year, but as TJ mentioned in his script, we're not giving up any geography, and we're certainly not giving up any capacity right now so although there's a lot of opportunity for efficiencies through our network optimization and enterprise transformation.

We're making the technology investments to move over to one system, but I'll, let TJ give you the update on the overall network optimization, which is still a very important part of our plan.

But with the demand environment were seeing we'll we'll be moving forward with caution go ahead TJ. Thanks, Sarah Good question, David certainly as I mentioned the script, the Memphis intermodal change of operations as a really big change for us and has.

US lots of benefits.

As well as adding capacity to and from the west.

Also some efficiencies included there so that's probably the biggest one will see the balance of this year. Although there are others, we sit at 333.

The ability to get some more done perhaps by the end of the year is definitely a possibility.

But right now we are favoring protecting capacity, making sure that the information transformation strategy stays intact and that the ITC work associated with that is also moving along and.

Tandem was the operational changes so you may see a drop a little bit.

Below 333, I think we provided a guideliner target earlier this year or maybe three in a quarter.

Year end, so probably it probably won't hit during the quarter, but.

It will be somewhere between there and the 333, we have now.

And then on the purchased transportation side shipments were down but that number was up even with lower fuel.

Can you break out how much of that is rail PT, how much of that is line haul truck PT and how much might be it.

Pickup and delivery PT.

And where do you see that going forward in terms of getting some of that back in line.

Historical norms, David I'll, I'll, let Dan get broken right and take that multi tiered questions. So Dan take it away. Thank Dan appreciate it and thanks, David Good question.

I don't have the specific breakdown of all the components of it but what I'll say is.

RPC costs for the third quarter increased roughly $16 million or about 10% year over year to your point a.

A little more than half of that increase actually was related to the the 35% year over year revenue growth at Henry logistics.

And the rest of the increase was more or less driven by the impact of the driver shortage. The TJ referred to in his comments. So I'll, let him give you some color around that sure on the PTC. So on the over the road purchase trends.

That definitely increased year over year and keep in mind in we've got the 29% cap now under the contract and we can use that any way we choose as opposed to the last contract. We had we had a.

Cap of 26% of which 20% could move on the rail 6% over the road. So we have.

The good news is the.

Theres a lot of cost efficiencies through the use of the rail and where we don't have sufficient driver capacity using over the road purchase trends is a good thing.

The area that is expensive for us, but it's good to have is the local purchase trends, our cartage expense where we.

We don't have sufficient pickup and delivery drivers were able to use.

Partners that can help us with the pickup and delivery so more expensive would prefer to do it with our own folks, but it's very good to supplement capacity where needed.

Yes that was a problem for you guys a couple of years ago.

The local cartage cost that you are trying to get down is that.

Crept back up is that something that you think can be resolved through December driver.

David specific markets.

The West Coast thing about California, perhaps.

Whereas women constrain more so than other parts of the market, we've got and the new contract also the box truck language. So weve got approximately 400, non CDL box truck operators that were.

Designed specifically to help develop CDL drivers over time, but also to reduce the local purchase France expense associated with cartridge. So I view that as a temporary we did a heck of a job last year. After we got the contract negotiated of really.

Reducing that expense on the card side, and I expect that to get back to that.

That run rate here, shortly and we're not prioritize that working capital and the strength of our working capital number right now today I think technology intermodal containers box drugs, that's that that is where were putting that working capital to work.

Excellent. Thank you very much thank you David.

Again, if you would like to ask a question. Please press Star then one.

And our next question comes from Jeff Kauffman of Loop capital. Please go ahead.

Thank you very much congratulations everybody.

Yes, a couple of detailed questions for Dan for modeling and then kind of a bigger picture question.

The new shares.

Yes, Jeff.

The fact that the share count through 2021 with a relatively the same as what it is at the end of the third quarter. Okay. So 48.7 is right number yes ballpark yet okay, and you mentioned that about 325 million a planned capex.

Next year based on tranche B, one other spending will be in that number and what are we probably looking at an all in capex basis 2021.

So while as you know, we don't give specific guidance about our total capex.

The 325 million will be primarily for rolling stock tractors and trailers.

There is some of the Capex will have on top of that like there and Thats and I think these dimensions on containers box drug liftgate intake.

And technology those are the primary components of anything over and above tranche B and we're just not prepared to give any concrete guidance on that at this time Jeff.

Okay.

Switch gears to Henry you mentioned, a terrific 35% growth rate year on year.

How big is Henry today, and do we think about breaking that out in 2021.

No I'm not thinking about breaking it out in 2021, we continue to put resources, there and I'm very pleased with the growth trajectory of Henry logistics, we havent given any recent guidance on Henry certainly.

The Cove at 19 situation changed a lot of those things dramatically, but as you've seen in other reporting from a logistics standpoint, the truckload sector in the residential sector is just seeing a really tremendous demand at Henry logistics. So its good timing I'm pleased with their growth and I'm looking forward to.

Working remotely has performed very well for Henry logistics, and they havent missed a step.

Okay and one final question. Thank you Darren.

Dan.

We're consolidating the brand in house, we're rebranding yellow I am assuming we're staying with swap poly orange.

But is there any kind of house cleaning that might occur in Fourq you as we take a look at the IP and other brand names that the company has developed over time.

Okay I assume if we take an adjustment we will see it but I just wonder for modeling purposes, how should we be thinking about that goodwill and any IP on the balance sheet that were at Jeff. This is there and we we held several trademarks as you know and keep many of them active just for this specific purpose.

Those directions, but if we do then certainly we'll do the proper notifications on that but right now we don't anticipate changes to other brands that would have any adverse impact.

Okay, great well congratulations and thank you. Thank you Jeff.

Our next question comes from David Ross of Stifel. Please go ahead.

Just to follow up quickly on Henry logistics there.

On the EBIT line was that a drag or a benefit for the overall company in the quarter.

Dave It was flat.

Okay.

And then Claire.

Clarification question on the contract renewal increase you said October was.

Plus or minus 4% on on re discussions did you say that that was the average for the third quarter as well or is that a step up from some lower number in threeq.

It was a step up of a full percentage point from Q2, but for three Q4 percent was consistent and.

Based on the leading indicators that I mentioned, we would anticipate continuing to see positive momentum in those contract negotiations and we've had some really big ones come through and recently that we saw good momentum and so I'm encouraged by what we're seeing happening in that area.

Thank you. Thank you.

Our next question is a follow up from Jeff Kauffman of loop capital markets. Please go ahead.

All right guys Didnt expect to get back in that quick.

[music].

And one last question bigger picture I don't know, if you're going to want to answer this but I'll ask anyway.

[music].

When we got the labor contract news.

There was a presentation that you had were you said I think we can get to a 96 Oh are within say two three years time. This is based on our projections of backs and how we can.

Change in network now, obviously cove its changed a lot of things and the B Tran.

Crunching and B loan have changed a lot of things and.

And I guess, what I'd ask is.

His 96 still the multiyear target as we think about yellow in its entirety and have the changes that have occurred if.

Some of them all up made you more bullish are more cautious about getting there over a two three year timeframe.

Yes, so first of all I appreciate your persistence in this area and thank you for let me address it.

When I think about our company right now I think about the operational execution runway that we've got that we don't have any major debt maturities any big labor negotiations prior to 2024. So we've got that three year runway right in front of us where we've got some really nice things happening the equipment refresh that we're going through.

Right now and that we're going to say in the coming year is just a great opportunity for this company you know what equipment means all the benefits we get out of it and the financial benefits that it brings not to even mention the driver satisfaction uptime and all the other things, but bottom line, that's going to be a nice.

Contribution to our profitability moving forward enterprise transformation, just getting these companies on one operating system and having that visibility across all the networks is going to be tremendous not only for our internal operations, but for our customers as well and then when I think about the overall network optimization where weve.

Duplicate resources in so many areas and drivers and such high demand and that's not changing anytime soon where the demographics that are out there around the CDL qualified driver in the United States retirements are at record levels, because the cobot and concerns moving forward in that area. So I think the demand is going to be strong.

And I think TJ status positioned correctly to get the drivers that we need and so does the contract that we've got in place. So when I roll all that up together, that's where when I closed out the script and I talked about my confidence in this organization moving forward and then lastly, Geoff I'll say and you'll be disappointed here with.

All that confidence the volatility that's out there in a number of areas and also if we took the cautious approach about a second wave and other things that from a working capital standpoint, we're well positioned to weather those storms, but I'm not prepared to give any additional guidance at this time other than with all the things I've list.

Good.

I have a lot of confidence and our employees and what can be accomplished in the coming quarters.

Well that was a fantastic answer and I will keep asking you that question, but thank you very much Jeff. Thanks for your interest I really appreciate you.

This.

Please.

Question and answer session I would like to turn the conference back over to Darren Hawkins for any closing remarks. Thank.

The conference is now concluded. Thank you for attending today's presentation you may now disconnect.

Q3 2020 YRC Worldwide Inc Earnings Call

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