YRC Worldwide reports Second Quarter 2019 with net loss was $23.6 million

Posted on Aug 9, 2019 in Nuts & Bolts

Company moves full speed ahead with its Profit Initiatives following Labor Ratification

YRC Worldwide Inc. reported consolidated operating revenue for second quarter 2019 of $1.273 billion and consolidated operating income of $14.3 million, which included a $6.2 million net gain on property disposals. Operating income for second quarter 2019 includes a one-time charge for vacation benefits of $12.4 million related to prior periods as a result of the new labor agreement. As a comparison, for the second quarter 2018, the Company’s results included operating revenue of $1.327 billion and consolidated operating income of $50.9 million, which included a $2.2 million net loss on property disposals.

Darren Hawkins

“During May, we achieved ratification of our labor agreement which provides critical operational opportunities for our business. We believe these opportunities should provide the basis for improved profitability over time for the Company.  However, during the second quarter, the labor contract impacted us in several ways,” said Darren Hawkins, Chief Executive Officer of YRC Worldwide Inc.  “First, we saw declining revenues due to temporary customer concern surrounding the labor negotiation. Second, while the labor contract was ratified midway through May, the economic package was retroactive to April 1, 2019. In the short-term, this created cost headwinds that we were not fully able to offset during the quarter with revenue growth or cost savings. We believe less-than-truckload (LTL) industry pricing remains rational.  As we move into the back half of 2019, we are focused on profit initiatives that support our comprehensive strategic plan.”

The Company has developed a comprehensive business strategy to achieve long-term profitability and stability. Our strategic roadmap is built upon the proven alliance of our LTL regional and national networks, as well as our recently launched multi-mode freight brokerage solutions, HNRY Logistics, to provide a broad portfolio of freight and business services to our customers.

The key components of our multi-year strategic roadmap are:

• Labor contract ratification, along with implementation of operational efficiencies to achieve service excellence
• Capital structure improvement
• Network optimization
• Customer growth/engagement initiatives
• Capital investment in equipment and technology

During the quarter and up through this earnings announcement, the Company has commenced implementation of key initiatives that support our strategic plan:

• Named a new Chief Customer Officer to lead customer engagement initiatives
• Completed the reorganization of our enterprise-wide salesforce and initiated the consolidation of our New Penn corporate office to scale processes, when combined, should lead to expected future annualized savings of approximately $25.0 million
• Onboarded nearly 170 new non-CDL box trucks which allowed for continued reductions in local cartage and short-term rental expense
• Improved our mix of hourly wages with the use of part-time workers
• Initiated first phase of network optimization plans to consolidate service centers, with approximately 25 service centers expected to be completed by end of 2019

“As we move into the back half of 2019, we are aggressively moving forward with the operational changes available under the new labor agreement. In addition, we are prioritizing our network optimization initiatives, which should bolster longer-term profitability for the Company,” said Hawkins.

“Our plans with network optimization are focused on building density in the areas we service, executing on initiatives underway to enhance the customer experience and value proposition, and furthering efforts to control our cost structure and ensuring greater efficiency with equipment, our facilities and our resources. We are executing on plans to strategically reduce our 384-facility network through consolidation of service centers to improve revenue per terminal and productivity performance and enhance our servicing capabilities through technology and operational labor efficiencies.”

Hawkins continued, “Most recently, we announced a new Chief Customer Officer, Jason Bergman. He and his team will promote the power of our three best-in-class Regional operating companies, along with the expansive reach of YRC Freight and our in-house brokerage solution, HNRY Logistics, with leading-edge technology that provides turn-key solutions for our customers’ supply chain needs. I am proud of our approximately 31,000 team members for embracing the transformational initiatives that will allow our Company to capture revenue opportunities while also improving our profitability.”

“Finally, we believe an important step towards our long-term strategic plan is the pursuit of new financing alternatives to replace our existing term loan to provide for less restrictive covenants, lower interest rates and extended maturity.  Changes in our capital structure should provide the operational runway that allows us to invest in company specific initiatives and should position the company for stability during weaker demand cycles,” concluded Hawkins.

Financial Highlights

• In second quarter 2019, net loss was $23.6 million compared to net income of $14.4 million in second quarter 2018.
• On a non-GAAP basis, the Company generated consolidated Adjusted EBITDA of $57.6 million in second quarter 2019, a decrease of $43.2 million compared to $100.8 million for the same period in 2018 (as detailed in the reconciliation below). Last twelve month (LTM) consolidated Adjusted EBITDA was $278.7 million compared to $286.4 million a year ago.
• Second quarter operating results include one-time charges for vacation benefits relating to 2018 and first quarter 2019 totaling $8.4 million and $4.0 million, respectively, provided for in the new labor agreement. In accordance with the definition of Adjusted EBITDA pursuant to our credit facility agreement, a portion of the 2018 charge, $4.2 million, was added back to Adjusted EBITDA in second quarter, with the remaining amount being added back proportionately through the next two quarters in 2019.
• The total debt-to-Adjusted EBITDA ratio for second quarter 2019 improved to 3.12 times compared to 3.18 times for second quarter 2018.
• Investment in the business continued with $38.0 million in capital expenditures and new operating leases for revenue equipment with a capital value equivalent of $52.6 million, for a total of $90.6 million, which is equal to 7.1% of operating revenue for second quarter 2019. The majority of the investment was in tractors, trailers and technology.
• In second quarter 2019, workers’ compensation expense increased $8.5 million compared to the second quarter 2018, largely due to adverse development of claims related to current and prior years.

Operational Highlights

• The consolidated operating ratio for the second quarter 2019 was 98.9 compared to 96.2 in second quarter 2018. The operating ratio at YRC Freight was 98.0 compared to 96.8 for the same period in 2018. The Regional segment’s second quarter 2019 operating ratio was 99.4 compared to 94.1 a year ago.
• At YRC Freight, second quarter 2019 less-than-truckload (LTL) revenue per hundredweight, including fuel surcharge, increased 4.3% and LTL revenue per shipment increased 2.6% when compared to the same period in 2018.  Excluding fuel surcharge, LTL revenue per hundredweight increased 4.8% and LTL revenue per shipment increased 3.0%.
• At the Regional segment, second quarter 2019 LTL revenue per hundredweight, including fuel surcharge, increased 1.4% and LTL revenue per shipment increased 1.6% when compared to the same period in 2018. Excluding fuel surcharge, LTL revenue per hundredweight increased 1.8% and LTL revenue per shipment increased 2.0%.
• Second quarter 2019 LTL tonnage per day decreased 6.8% at YRC Freight and decreased 4.9% at the Regional segment compared to second quarter 2018.
• Total shipments per day for the second quarter 2019 declined 5.1% at YRC Freight and 5.4% at the Regional segment.

Liquidity Update

• At June 30, 2019, the Company’s outstanding debt was $865.0 million, a decrease of $45.7 million compared to $910.7 million as of June 30, 2018.
• The Company is currently pursuing new financing alternatives including a potential refinancing of the Term Loan Agreement to provide for less restrictive financial covenants, as well as potentially lowering interest rates and extending the maturing of the facility as compared to our current Term Loan Agreement.
• On July 25, 2019, the Company received an upgraded rating from Moody’s Investor Service. The rating was upgraded to a “B2” from a “B3”, with a stable outlook.
• The Company’s available liquidity, which is comprised of cash and cash equivalents and Managed Accessibility (as detailed in the supplemental information provided below) under its ABL facility totaled $156.8 million compared to $190.8 million as of June 30, 2018, a decrease of $34.0 million.
• For the six months ended June 30, 2019, cash used in operating activities was $29.5 million compared to cash provided by operating activities of $71.5 million for the six months ended June 30, 2018.

Key Segment Information – second quarter 2019 compared to second quarter 2018

(a) Percent change based on unrounded figures and not the rounded figures presented