Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements included elsewhere in this report. This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Forward-looking statements include those preceded by, followed by or characterized by words such as “will,” “expect,” “intend,” “anticipate,” “believe,” “could,” “should,” “may,” “project,” “forecast,” “propose,” “plan,” “designed,” “estimate,” “enable” and similar expressions which speak only as of the date the statement was made. Forward-looking statements are inherently uncertain, are based upon current beliefs, assumptions and expectations of Company management and current market conditions, and are subject to significant business, economic, competitive, regulatory and other risks, uncertainties and contingencies, known and unknown, many of which are beyond our control. Readers are cautioned not to place undue reliance on any forward-looking statements. Our future financial condition and results could differ materially from those predicted in such forward-looking statements because of a number of factors, including (without limitation):
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•
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general economic factors, including (without limitation) customer demand in the retail and manufacturing sectors;
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•
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business risks and increasing costs associated with the transportation industry, including increasing equipment, operational and technology costs and disruption from natural disasters;
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•
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competition and competitive pressure on pricing;
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•
|
the risk of labor disruptions or stoppages if our relationship with our employees and unions were to deteriorate;
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•
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changes in pension expense and funding obligations, subject to interest rate volatility;
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•
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increasing costs relating to our self-insurance claims expenses;
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•
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our ability to finance the maintenance, acquisition and replacement of revenue equipment and other necessary capital expenditures;
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•
|
our ability to comply and the cost of compliance with, or liability resulting from violation of, federal, state, local and foreign laws and regulations, including (without limitation) labor laws and laws and regulations regarding the environment;
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•
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impediments to our operations and business resulting from anti-terrorism measures;
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•
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the impact of claims and litigation expense to which we are or may become exposed;
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•
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that we may not realize the expected benefits and costs savings from our performance and operational improvement initiatives;
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•
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our ability to attract and retain qualified drivers and increasing costs of driver compensation;
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•
|
a significant privacy breach or IT system disruption;
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•
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risks of operating in foreign countries;
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•
|
our dependence on key employees;
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•
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shortages of fuel and changes in the cost of fuel or the index upon which we base our fuel surcharge and the effectiveness of our fuel surcharge program in protecting us against fuel price volatility;
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•
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our ability to generate sufficient liquidity to satisfy our cash needs and future cash commitments, including (without limitation) our obligations related to our indebtedness and lease and pension funding requirements, and our ability to achieve increased cash flows through improvement in operations;
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•
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limitations on our operations, our financing opportunities, potential strategic transactions, acquisitions or dispositions resulting from restrictive covenants in the documents governing our existing and future indebtedness;
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•
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our failure to comply with the covenants in the documents governing our existing and future indebtedness;
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•
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fluctuations in the price of our common stock;
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•
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dilution from future issuances of our common stock;
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•
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our intention not to pay dividends on our common stock;
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•
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that we have the ability to issue preferred stock that may adversely affect the rights of holders of our common stock; and
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•
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other risks and contingencies, including (without limitation) the risk factors that are included in our reports filed with the SEC, including those described under “Risk Factors” in our annual report on Form 10-K and quarterly reports on Form 10-Q, including this quarterly report.
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Overview
MD&A includes the following sections:
Our Business
— a brief description of our business and a discussion of how we assess our operating results.
Consolidated Results of Operations
— an analysis of our consolidated results of operations for the
three months ended March 31, 2019
and
2018
.
Reporting Segment Results of Operations
— an analysis of our results of operations for the
three months ended March 31, 2019
and
2018
for our YRC Freight and Regional Transportation reporting segments.
Certain Non-GAAP Financial Measures
— presentation and an analysis of selected non-GAAP financial measures for the
three months ended March 31, 2019
and
2018
and trailing twelve months ended
March 31, 2019
and
2018
.
Financial Condition/Liquidity and Capital Resources
— a discussion of our major sources and uses of cash and an analysis of our cash flows and aggregate contractual obligations and commercial commitments.
The “
first quarter
” of the years discussed below refer to the
three months ended March 31
, respectively.
Our Business
YRC Worldwide is a holding company that, through its operating subsidiaries, offers our customers a wide range of transportation services. YRC Worldwide has one of the largest, most comprehensive LTL networks in North America with local, regional, national and international capabilities. Through its team of experienced service professionals, YRC Worldwide offers industry-leading expertise in LTL shipments and flexible supply chain solutions, ensuring customers can ship industrial, commercial and retail goods with confidence.
We measure the performance of our business on both a consolidated and reporting segment basis and using several metrics, but rely primarily upon (without limitation) operating revenue, operating income (loss), and operating ratio. We also use certain non-GAAP financial measures as secondary measures to assess our operating performance.
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•
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Operating Revenue:
Our operating revenue has two primary components: volume (commonly evaluated using tonnage, tonnage per day, number of shipments, shipments per day or weight per shipment) and yield or price (commonly evaluated using picked up revenue, revenue per hundredweight or revenue per shipment). Yield includes fuel surcharge revenue, which is common in the trucking industry and represents an amount charged to customers that adjusts with changing fuel prices. We base our fuel surcharges on the U.S. Department of Energy fuel index and adjust them weekly. Rapid material changes in the index or our cost of fuel can positively or negatively impact our revenue and operating income as a result of changes in our fuel surcharge. We believe that fuel surcharge is an accepted and important component of the overall pricing of our services to our customers. Without an industry accepted fuel surcharge program, our base pricing for our transportation services would require changes. We believe the distinction between base rates and fuel surcharge has blurred over time, and it is impractical to clearly separate all the different factors that influence the price that our customers are willing to pay. In general, under our present fuel surcharge program, we believe rising fuel costs are beneficial to us and falling fuel costs are detrimental to us in the short term, the effects of which are mitigated over time.
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•
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Operating Income (Loss):
Operating loss is operating revenue less operating expenses. Consolidated operating loss includes certain corporate charges that are not allocated to our reporting segments.
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•
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Operating Ratio:
Operating ratio is a common operating performance measure used in the trucking industry. It is calculated as (i) 100 percent (ii) minus the result of dividing operating income by operating revenue or (iii) plus the result of dividing operating loss by operating revenue, and is expressed as a percentage.
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•
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Non-GAAP Financial Measures:
We use EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, to assess the following:
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◦
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EBITDA:
a non-GAAP measure that reflects our earnings before interest, taxes, depreciation, and amortization expense. EBITDA is used for internal management purposes as a financial measure that reflects our core operating performance.
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◦
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Adjusted EBITDA:
a non-GAAP measure that reflects EBITDA, and further adjusts for certain net gains or losses on property disposals, non-cash impairment charges, letter of credit expenses, restructuring charges, transaction costs related to issuances of debt, nonrecurring consulting fees, permitted dispositions and discontinued operations, equity-based compensation expense, and non-union pension settlement charges, among other items, as defined in our credit facilities. Adjusted EBITDA is used for internal management purposes as a financial measure that reflects our core operating performance, to measure compliance with financial covenants in our term loan credit agreement and to determine certain management and employee bonus compensation.
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We believe our presentation of EBITDA and Adjusted EBITDA is useful to investors and other users as these measures represent key supplemental information our management uses to compare and evaluate our core underlying business results both on a consolidated basis and across our business segments, particularly in light of our leverage position and the capital-intensive nature of our business. Further, EBITDA is a measure that is commonly used by other companies in our industry and provides a comparison for investors to evaluate the performance of the companies in the industry. Additionally, Adjusted EBITDA helps investors to understand how the company is tracking against our financial covenants in our term loan credit agreement as this measure is calculated as prescribed in our term loan credit agreement and serves as a driving component of key financial covenants.
Our non-GAAP financial measures have the following limitations:
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◦
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EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or fund principal payments on our outstanding debt;
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◦
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Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or fund principal payments on our outstanding debt, letter of credit expenses, restructuring charges, transaction costs related to debt, or nonrecurring consulting fees, among other items;
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◦
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Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will generally need to be replaced in the future and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
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◦
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Equity-based compensation is an element of our long-term incentive compensation package, although Adjusted EBITDA excludes employee equity-based compensation expense when presenting our ongoing operating performance for a particular period; and
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◦
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Other companies in our industry may calculate Adjusted EBITDA differently than we do, potentially limiting its usefulness as a comparative measure.
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Because of these limitations, our non-GAAP measures should not be considered a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and use our non-GAAP measures as secondary measures.
New National Master Freight Agreement
On May 3, 2019, the IBT announced that employees at operating companies YRC Freight, Holland, and New Penn who are covered by the National Master Freight Agreement voted to ratify a new five-year national master contract (the “New NMFA”). These employees also voted to ratify all but one related regional supplemental agreement.
The New NMFA covers approximately 24,000 employees and will replace the existing agreement, which is scheduled to expire on May 31, 2019. The New NMFA outlines terms and conditions of employment that are customary in collective bargaining agreements and apply at a national level across the covered operations, such as wages, health benefits, multiemployer pension plan contribution rates, and various operational items. A few of the highlights in the New NMFA include:
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•
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Hourly wage increases in each year of the contract, beginning April 1, 2019 through 2023
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•
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Health and welfare and pension contribution rate increases
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•
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Restoration of an additional one-week of vacation
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•
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The expanded ability to utilize smaller trucks that can be operated by employees who do not have a commercial driver’s license
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•
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The ability to utilize additional hours of service, in accordance with Department of Transportation regulations
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•
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The increased ability to utilize purchased transportation at YRC Freight and Holland
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•
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The increased ability to utilize employees in non-driving positions
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•
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A newly-structured performance bonus program for employees, which replaces the existing program
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The supplemental agreements cover more localized work rules and other terms and conditions of employment. The New NMFA and supplement agreements that were ratified on May 3, 2019 will not go into effect until the one remaining open supplemental agreement is resolved, at which time the new agreements will go into effect immediately with wage and benefit improvements paid retroactively to April 1, 2019.
Consolidated Results of Operations
Our consolidated results include the consolidated results of our reporting segments and unallocated corporate charges. A more detailed discussion of the operating results of our reporting segments is presented in the “Reporting Segment Results of Operations” section below.
The table below provides summary consolidated financial information for the
first quarter
of
2019
and
2018
:
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First Quarter
|
|
(in millions)
|
2019
|
|
2018
|
|
Percent
Change
|
|
Operating revenue
|
$
|
1,182.3
|
|
|
$
|
1,214.5
|
|
|
(2.7
|
)%
|
|
Operating loss
|
(31.7
|
)
|
|
(4.3
|
)
|
|
NM*
|
|
|
Nonoperating expenses, net
|
27.1
|
|
|
23.2
|
|
|
16.8
|
%
|
|
Net loss
|
(49.1
|
)
|
|
(14.6
|
)
|
|
NM*
|
|
|
First Quarter
of
2019
Compared to the
First Quarter
of
2018
Our consolidated operating revenue
decreased
$32.2 million
, or
2.7%
, during the
first quarter
of
2019
compared to the same period in
2018
. The decrease in revenue is primarily attributed to a decrease in tonnage and fuel surcharge revenue due to severe winter weather, among other factors, while partially offset by an increase in base yield excluding fuel surcharge.
Total operating expenses
decreased
$4.8 million
, or
0.4%
, for the
first quarter
of
2019
compared to the
first quarter
of
2018
, and consisted primarily of lower salaries, wages and employee benefits and purchased transportation, partially offset by increased impairment charges.
Salaries, wages and employee benefits
. Salaries, wages and employee benefits
decreased
$11.5 million
, or
1.6%
, primarily due to a $13.0 million decrease in wage expense due to a decrease in tonnage that reduced the amount of hours needed to process freight, and a $3.1 million decrease in workers’ compensation expense. These decreases were partially offset by a $4.0 million increase in employee benefit costs, which are primarily related to contractual rate increases for union employees.
Fuel, operating expenses and supplies.
Fuel, operating expenses and supplies
increased
$5.7 million
, or
2.5%
, primarily due to a $6.8 million increase in other operating expenses as a result of vendor bankruptcy charges and settlement expenses, and a $2.7 million increase in professional fees as a result of fees associated with our union contract extension. These increases were partially offset by a $5.2 million decrease in fuel expense, which was largely a result of fewer miles driven.
Purchased transportation
. Purchased transportation
decreased
$9.1 million
, or
5.9%
, primarily due to a $13.2 million decrease in over-the-road purchased transportation expense due partially to reduced shipping volumes and a $2.7 million decrease from reduced usage of local purchased transportation and short-term equipment rentals. Purchased transportation expense also includes a $3.3 million increase in long-term equipment rentals in conjunction with the Company’s leasing strategy to reinvest in its fleet and a $2.5 million increase in third-party costs for customer-specific logistics solutions.
Other operating expense.
Other operating expense
increased
$
1.2 million
, or
1.9%
, primarily due to a $2.7 million increase in third-party liability claims expense largely due to current year claims, partially offset by a $1.4 million decrease in operating tax expense as a result of fewer miles driven.
Losses on property disposals
. Net losses on disposals of property were $1.6 million in the
first quarter
of
2019
, as compared to a $
3.2 million
loss in the
first quarter
of
2018
, both due to losses on the disposal of revenue equipment.
Impairment charges
. During the first quarter of 2019, we recorded an $8.2 million impairment charge at YRC Freight that reflects the write-down of an intangible asset as a result of rebranding strategies, leading to discontinued use of a tradename.
Nonoperating expenses, net.
Nonoperating expenses, net,
increased
$3.9 million
in the
first quarter
of
2019
compared to the
first quarter
of
2018
, primarily driven by a $1.7 million increase in non-cash foreign exchange expense and a $1.4 million increase in interest expense due to higher variable interest rates.
Our effective tax rate for the
first quarter
of
2019
and
2018
was
16.5%
and
46.9%
, respectively. The significant items impacting the
2019
rate include a net state and foreign tax provision, certain permanent items, and a change in the valuation allowance established for the net deferred tax asset balance projected for
December 31, 2019
. The significant items impacting the
2018
rate include a net state and foreign tax provision, foreign withholding taxes related to dividends from a foreign subsidiary, certain permanent items, and a change in the valuation allowance established for the net deferred tax asset balance that had been projected for
December 31, 2018
. We recognize valuation allowances on deferred tax assets if, based on the weight of the evidence, we determine it is more likely than not that such assets will not be realized. Changes in valuation allowances are included in our tax provision in the period of change. In determining whether a valuation allowance is warranted, we evaluate factors such as prior years’ earnings history, expected future earnings, loss carry-forward periods, reversals of existing deferred tax liabilities and tax planning strategies that potentially enhance the likelihood of the realization of a deferred tax asset. At
March 31, 2019
and
December 31, 2018
, substantially all of our net deferred tax assets were subject to a valuation allowance.
Reporting Segment Results of Operations
We evaluate our operating performance using our YRC Freight and Regional Transportation reporting segments:
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•
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YRC Freight
is the reporting segment that focuses on longer haul business opportunities with national, regional and international services. YRC Freight provides for the movement of industrial, commercial and retail goods, primarily through centralized management. This reporting segment includes YRC Freight, our LTL subsidiary, YRC Reimer, a subsidiary located in Canada that specializes in shipments into, across and out of Canada, and HNRY Logistics, our logistics solutions provider. In addition to the United States and Canada, YRC Freight also serves parts of Mexico and Puerto Rico.
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|
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•
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Regional Transportation
is the reporting segment for our transportation service providers focused on business opportunities in the regional and next-day delivery markets. Regional Transportation is comprised of Holland, New Penn and Reddaway. These companies each provide regional, next-day ground services in their respective regions through a network of facilities located across the United States, Canada, and Puerto Rico.
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The Company uses key operating metrics to provide a comparison with industry peers. Two primary components include volume (commonly evaluated using tonnage, tonnage per day, total shipments, shipments per day or weight per shipment) and yield or price (commonly evaluated as picked up revenue, revenue per hundredweight, or revenue per shipment). With the enhanced focus of service and product expansion and the launch of HNRY Logistics in late 2018, our increase in shipments over 10,000 pounds is growing, impacting the year-over-year revenue per hundredweight metrics that we have historically presented for YRC Freight, which includes the results of operations for HNRY Logistics.
Therefore, the Company has updated its presentation of operating metrics to separately present LTL operating statistics, which represents shipments less than 10,000 pounds. Shipments greater than 10,000 pounds are primarily transported using third-party purchased transportation.
YRC Freight Results
YRC Freight represented
62.9%
of consolidated operating revenue for the
first quarter
of
2019
, as compared to
61.9%
for the
first quarter
of
2018
. The table below provides summary financial information for YRC Freight for the
first quarter
of
2019
and
2018
:
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|
|
|
|
|
|
|
|
|
|
First Quarter
|
(in millions)
|
2019
|
|
2018
|
|
Percent Change
|
Operating revenue
|
$
|
743.8
|
|
|
$
|
751.3
|
|
|
(1.0)%
|
Operating loss
|
(21.1
|
)
|
|
(6.9
|
)
|
|
NM*
|
Operating ratio
(a)
|
102.8
|
%
|
|
100.9
|
%
|
|
(1.9) pp
|
|
|
(a)
|
pp represents the change in percentage points
|
(*)
not meaningful
First Quarter
of
2019
Compared to the
First Quarter
of
2018
YRC Freight reported operating revenue of
$743.8 million
in the
first quarter
of
2019
, a
decrease
of
$7.5 million
, or
1.0%
, compared to the same period in
2018
. The
decrease
in revenue is primarily attributed to a decrease in tonnage and fuel surcharge revenue due to severe winter weather, among other factors, partially offset by an improvement in base yield, excluding fuel surcharge. The table below summarizes the key revenue metrics for the YRC Freight reporting segment for the
first quarter
of
2019
compared to the
first quarter
of
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
2019
|
|
2018
|
|
Percent Change
(b)
|
Workdays
|
63.0
|
|
|
63.5
|
|
|
|
|
|
|
|
|
|
LTL picked up revenue (in millions)
|
$
|
688.3
|
|
|
$
|
698.6
|
|
|
(1.5
|
)%
|
LTL tonnage (in thousands)
|
1,155
|
|
|
1,236
|
|
|
(6.5
|
)%
|
LTL tonnage per day (in thousands)
|
18.33
|
|
|
19.46
|
|
|
(5.8
|
)%
|
LTL shipments (in thousands)
|
2,298
|
|
|
2,416
|
|
|
(4.9
|
)%
|
LTL shipments per day (in thousands)
|
36.47
|
|
|
38.05
|
|
|
(4.1
|
)%
|
LTL picked up revenue per hundred weight
|
$
|
29.80
|
|
|
$
|
28.27
|
|
|
5.4
|
%
|
LTL picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
26.33
|
|
|
$
|
24.90
|
|
|
5.8
|
%
|
LTL picked up revenue per shipment
|
$
|
300
|
|
|
$
|
289
|
|
|
3.6
|
%
|
LTL picked up revenue per shipment (excluding fuel surcharge)
|
$
|
265
|
|
|
$
|
255
|
|
|
3.9
|
%
|
LTL weight per shipment (in pounds)
|
1,005
|
|
|
1,023
|
|
|
(1.7
|
)%
|
|
|
|
|
|
|
Total picked up revenue (in millions)
(a)
|
$
|
738.0
|
|
|
$
|
747.5
|
|
|
(1.3
|
)%
|
Total tonnage (in thousands)
|
1,442
|
|
|
1,499
|
|
|
(3.8
|
)%
|
Total tonnage per day (in thousands)
|
22.90
|
|
|
23.60
|
|
|
(3.0
|
)%
|
Total shipments (in thousands)
|
2,331
|
|
|
2,450
|
|
|
(4.9
|
)%
|
Total shipments per day (in thousands)
|
37.01
|
|
|
38.59
|
|
|
(4.1
|
)%
|
Total picked up revenue per hundred weight
|
$
|
25.58
|
|
|
$
|
24.94
|
|
|
2.6
|
%
|
Total picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
22.66
|
|
|
$
|
21.99
|
|
|
3.1
|
%
|
Total picked up revenue per shipment
|
$
|
317
|
|
|
$
|
305
|
|
|
3.8
|
%
|
Total picked up revenue per shipment (excluding fuel surcharge)
|
$
|
280
|
|
|
$
|
269
|
|
|
4.3
|
%
|
Total weight per shipment (in pounds)
|
1,237
|
|
|
1,223
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
(in millions)
|
2019
|
|
2018
|
(a)
Reconciliation of operating revenue to total picked up revenue:
|
|
|
|
Operating revenue
|
$
|
743.8
|
|
|
$
|
751.3
|
|
Change in revenue deferral and other
|
(5.8
|
)
|
|
(3.8
|
)
|
Total picked up revenue
|
$
|
738.0
|
|
|
$
|
747.5
|
|
|
|
(a)
|
Does not equal financial statement revenue due to revenue recognition adjustments between accounting periods and the impact
|
of other revenue
|
|
(b)
|
Percent change based on unrounded figures and not the rounded figures presented
|
Operating loss for YRC Freight was
$21.1 million
in the
first quarter
of
2019
compared to operating loss of
$6.9 million
in the
first quarter
of
2018
. Operating expenses increased
$6.7 million
, or
0.9%
, primarily due to non-cash impairment charges, among other factors, which are more fully summarized below.
Salaries, wages and employee benefits.
Salaries, wages and employee benefits decreased $1.9 million, or 0.4%, primarily due to a $5.9 million decrease in wage expense due to a decrease in tonnage that reduced the amount of hours needed to process freight, partially offset by a $4.4 million increase in employee benefit costs, which are primarily related to contractual rate increases for union employees.
Fuel, operating expenses and supplies
. Fuel, operating expenses and supplies increased $2.2 million, or 1.6%, primarily due to a $7.8 million increase in other operating expenses as a result of vendor bankruptcy charges and settlement expenses, partially offset by a $3.2 million reduction in vehicle maintenance expense as a result of the acquisition of new equipment and a $2.9 million decrease in fuel expense, which was largely a result of fewer miles driven and improved fuel miles per gallon.
Purchased transportation
. Purchased transportation decreased $4.0 million, or 3.4%, primarily due to a $10.2 million decrease in over-the-road purchased transportation expense due partially to reduced shipping volumes and a $2.5 million decrease from reduced usage of short-term equipment rentals. Purchased transportation expense also includes a $4.8 million increase in long-term equipment rentals in conjunction with the Company’s leasing strategy to reinvest in its fleet and a $2.5 million increase in third-party costs for customer-specific logistics solutions.
Other operating expense.
Other operating expense increased $2.4 million, or 6.7%, primarily due to a $3.7 million increase in third-party liability claims expense due to significant current year claims, partially offset by a $0.9 million decrease in cargo claims expense.
Losses on property disposals
. Net losses on disposals of property were $1.1 million in the
first quarter
of
2019
, compared to a $2.8 million loss in the
first quarter
of
2018
, both due to losses on the disposal of revenue equipment.
Impairment charges.
During the first quarter of 2019, we recorded an $8.2 million impairment charge that reflects the write-down of an intangible asset as a result of rebranding strategies, leading to discontinued use of a tradename.
Regional Transportation Results
Regional Transportation represented
37.1%
of consolidated operating revenue for the
first quarter
of
2019
, as compared to
38.1%
for the
first quarter
of
2018
. The table below provides summary financial information for Regional Transportation for the
first quarter
of
2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
(in millions)
|
2019
|
|
2018
|
|
Percent Change
|
Operating revenue
|
$
|
438.6
|
|
|
$
|
463.3
|
|
|
(5.3) %
|
Operating income (loss)
|
(7.0
|
)
|
|
5.2
|
|
|
NM*
|
Operating ratio
(a)
|
101.6
|
%
|
|
98.9
|
%
|
|
(2.7) pp
|
(a) pp represents the change in percentage points
(*)
not meaningful
First Quarter
of
2019
Compared to the
First Quarter
of
2018
Regional Transportation reported operating revenue of
$438.6 million
for the
first quarter
of
2019
, a
decrease
of
$24.7 million
, or
5.3%
, from the
first quarter
of
2018
. The decrease in revenue is primarily attributed to a decrease in tonnage and fuel surcharge revenue due to severe winter weather, among other factors, partially offset by an improvement in base yield, excluding fuel surcharge. The table below summarizes the key revenue metrics for the Regional Transportation reporting segment for the
first quarter
of
2019
compared to the
first quarter
of
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
2019
|
|
2018
|
|
Percent Change
(b)
|
Workdays
|
63.0
|
|
|
63.5
|
|
|
|
|
|
|
|
|
|
LTL picked up revenue (in millions)
|
$
|
404.8
|
|
|
$
|
424.9
|
|
|
(4.7
|
)%
|
LTL tonnage (in thousands)
|
1,388
|
|
|
1,512
|
|
|
(8.2
|
)%
|
LTL tonnage per day (in thousands)
|
22.02
|
|
|
23.80
|
|
|
(7.5
|
)%
|
LTL shipments (in thousands)
|
2,193
|
|
|
2,387
|
|
|
(8.1
|
)%
|
LTL shipments per day (in thousands)
|
34.81
|
|
|
37.59
|
|
|
(7.4
|
)%
|
LTL picked up revenue per hundred weight
|
$
|
14.59
|
|
|
$
|
14.06
|
|
|
3.8
|
%
|
LTL picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
12.93
|
|
|
$
|
12.41
|
|
|
4.2
|
%
|
LTL picked up revenue per shipment
|
$
|
185
|
|
|
$
|
178
|
|
|
3.7
|
%
|
LTL picked up revenue per shipment (excluding fuel surcharge)
|
$
|
164
|
|
|
$
|
157
|
|
|
4.1
|
%
|
LTL weight per shipment (in pounds)
|
1,265
|
|
|
1,266
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
Total picked up revenue (in millions)
(a)
|
$
|
438.4
|
|
|
$
|
464.0
|
|
|
(5.5
|
)%
|
Total tonnage (in thousands)
|
1,726
|
|
|
1,914
|
|
|
(9.8
|
)%
|
Total tonnage per day (in thousands)
|
27.39
|
|
|
30.14
|
|
|
(9.1
|
)%
|
Total shipments (in thousands)
|
2,242
|
|
|
2,444
|
|
|
(8.3
|
)%
|
Total shipments per day (in thousands)
|
35.58
|
|
|
38.49
|
|
|
(7.6
|
)%
|
Total picked up revenue per hundred weight
|
$
|
12.70
|
|
|
$
|
12.12
|
|
|
4.8
|
%
|
Total picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
11.26
|
|
|
$
|
10.71
|
|
|
5.2
|
%
|
Total picked up revenue per shipment
|
$
|
196
|
|
|
$
|
190
|
|
|
3.0
|
%
|
Total picked up revenue per shipment (excluding fuel surcharge)
|
$
|
173
|
|
|
$
|
168
|
|
|
3.4
|
%
|
Total weight per shipment (in pounds)
|
1,540
|
|
|
1,566
|
|
|
(1.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
(in millions)
|
2019
|
|
2018
|
(a)
Reconciliation of operating revenue to total picked up revenue:
|
|
|
|
Operating revenue
|
$
|
438.6
|
|
|
$
|
463.3
|
|
Change in revenue deferral and other
|
(0.2
|
)
|
|
0.7
|
|
Total picked up revenue
|
$
|
438.4
|
|
|
$
|
464.0
|
|
|
|
(a)
|
Does not equal financial statement revenue due to revenue recognition adjustments between accounting periods
|
|
|
(b)
|
Percent change based on unrounded figures and not the rounded figures presented
|
Operating loss for Regional Transportation was
$7.0 million
for the
first quarter
of
2019
compared to operating income of
$5.2 million
for the
first quarter
of
2018
. Operating expenses decreased
$12.5 million
, or
2.7%
, primarily due to decreased salaries, wages and employee benefits and purchased transportation expense.
Salaries, wages and employee benefits.
Salaries, wages and employee benefits decreased $7.6 million, or 2.7%, primarily due to a $6.9 million decrease in wage expense due to a decrease in tonnage that reduced the amount of hours needed to process freight.
Fuel, operating expenses and supplies.
Fuel, operating expenses and supplies increased $0.3 million, or 0.3%, primarily due to a $2.4 million increase in vehicle maintenance expense due to our aging fleet, partially offset by a $2.4 million decrease in fuel expense, which was largely driven by fewer miles driven.
Purchased transportation
. Purchased transportation decreased $5.1 million, or 13.7%, primarily due to a $3.3 million decrease in local purchased transportation expense and a $1.8 million decrease in vehicle rent expense.
Certain Non-GAAP Financial Measures
As discussed in the “Our Business” section, we use certain non-GAAP financial measures to assess performance. These measures should be considered in addition to the results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, our GAAP financial measures. For segment Adjusted EBITDA, we present the reconciliation from operating income (loss) to Adjusted EBITDA as it is consistent with how we measure performance.
Consolidated Adjusted EBITDA
The reconciliation of net loss to EBITDA and EBITDA to Adjusted EBITDA (defined in our Term Loan Agreement as “Consolidated EBITDA”) for the
first quarter
of
2019
and
2018
, and the trailing twelve months ended
March 31, 2019
and
2018
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
Trailing Twelve Months Ended
|
(in millions)
|
2019
|
|
2018
|
|
March 31, 2019
|
|
March 31, 2018
|
Reconciliation of net loss to Adjusted EBITDA:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(49.1
|
)
|
|
$
|
(14.6
|
)
|
|
$
|
(14.3
|
)
|
|
$
|
(0.1
|
)
|
Interest expense, net
|
26.5
|
|
|
25.5
|
|
|
105.5
|
|
|
102.7
|
|
Income tax expense (benefit)
|
(9.7
|
)
|
|
(12.9
|
)
|
|
14.3
|
|
|
(16.1
|
)
|
Depreciation and amortization
|
40.0
|
|
|
37.7
|
|
|
150.0
|
|
|
148.3
|
|
EBITDA
|
7.7
|
|
|
35.7
|
|
|
255.5
|
|
|
234.8
|
|
Adjustments for Term Loan Agreement:
|
|
|
|
|
|
|
|
(Gains) losses on property disposals, net
|
1.6
|
|
|
3.2
|
|
|
(22.4
|
)
|
|
(0.1
|
)
|
Property gains on certain disposals
(a)
|
—
|
|
|
—
|
|
|
29.7
|
|
|
—
|
|
Impairment charges
|
8.2
|
|
|
—
|
|
|
8.2
|
|
|
—
|
|
Letter of credit expense
|
1.6
|
|
|
1.7
|
|
|
6.5
|
|
|
6.8
|
|
Restructuring charges
|
—
|
|
|
0.6
|
|
|
1.7
|
|
|
1.5
|
|
Transaction costs related to issuances of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
8.1
|
|
Nonrecurring consulting fees
|
2.4
|
|
|
1.5
|
|
|
8.6
|
|
|
1.5
|
|
Permitted dispositions and other
|
(1.1
|
)
|
|
0.5
|
|
|
(1.3
|
)
|
|
1.6
|
|
Equity-based compensation expense
|
2.3
|
|
|
1.6
|
|
|
7.0
|
|
|
6.7
|
|
Non-union pension settlement charge
|
—
|
|
|
—
|
|
|
10.9
|
|
|
7.6
|
|
Nonrecurring item (vendor bankruptcy)
|
3.7
|
|
|
—
|
|
|
8.0
|
|
|
—
|
|
Other, net
(b)
|
3.7
|
|
|
0.9
|
|
|
9.5
|
|
|
8.2
|
|
Adjusted EBITDA
|
$
|
30.1
|
|
|
$
|
45.7
|
|
|
$
|
321.9
|
|
|
$
|
276.7
|
|
|
|
(a)
|
Certain property gains are added back in the calculation of Adjusted EBITDA pursuant to the Term Loan Agreement which permits gains from the sale of excess property with continuing operations
|
|
|
(b)
|
As required under our Term Loan Agreement, Other, net shown above consists of the impact of certain items to be included in Adjusted EBITDA
|
Segment Adjusted EBITDA
The following represents Adjusted EBITDA by segment for the
first quarter
of
2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
(in millions)
|
2019
|
|
2018
|
Adjusted EBITDA by segment:
|
|
|
|
YRC Freight
|
$
|
18.3
|
|
|
$
|
22.1
|
|
Regional Transportation
|
11.3
|
|
|
22.6
|
|
Corporate and other
|
0.5
|
|
|
1.0
|
|
Adjusted EBITDA
|
$
|
30.1
|
|
|
$
|
45.7
|
|
The reconciliation of operating income (loss), by segment, to Adjusted EBITDA for the
first quarter
of
2019
and
2018
, is as follows:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
YRC Freight segment (in millions)
|
2019
|
|
2018
|
Reconciliation of operating loss to Adjusted EBITDA:
|
|
|
|
Operating loss
|
$
|
(21.1
|
)
|
|
$
|
(6.9
|
)
|
Depreciation and amortization
|
22.9
|
|
|
21.6
|
|
Losses on property disposals, net
|
1.1
|
|
|
2.8
|
|
Impairment charges
|
8.2
|
|
|
—
|
|
Letter of credit expense
|
1.0
|
|
|
1.0
|
|
Restructuring charges
|
—
|
|
|
0.1
|
|
Non-union pension and postretirement benefits
|
(0.1
|
)
|
|
0.6
|
|
Nonrecurring consulting fees
|
2.1
|
|
|
1.5
|
|
Nonrecurring item (vendor bankruptcy)
|
3.7
|
|
|
—
|
|
Other, net
(a)
|
0.5
|
|
|
1.4
|
|
Adjusted EBITDA
|
$
|
18.3
|
|
|
$
|
22.1
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
Regional Transportation segment (in millions)
|
2019
|
|
2018
|
Reconciliation of operating income (loss) to Adjusted EBITDA:
|
|
|
|
Operating income (loss)
|
$
|
(7.0
|
)
|
|
$
|
5.2
|
|
Depreciation and amortization
|
16.8
|
|
|
16.1
|
|
Losses on property disposals, net
|
0.5
|
|
|
0.4
|
|
Letter of credit expense
|
0.5
|
|
|
0.6
|
|
Nonrecurring consulting fees
|
0.3
|
|
|
—
|
|
Other, net
(a)
|
0.2
|
|
|
0.3
|
|
Adjusted EBITDA
|
$
|
11.3
|
|
|
$
|
22.6
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
Corporate and other (in millions)
|
2019
|
|
2018
|
Reconciliation of operating loss to Adjusted EBITDA
(a)
:
|
|
|
|
Operating loss
|
$
|
(3.6
|
)
|
|
$
|
(2.6
|
)
|
Depreciation and amortization
|
0.3
|
|
|
—
|
|
Letter of credit expense
|
0.1
|
|
|
0.1
|
|
Restructuring charges
|
—
|
|
|
0.5
|
|
Permitted dispositions and other
|
(1.1
|
)
|
|
0.5
|
|
Non-union pension and postretirement benefits
|
(0.2
|
)
|
|
(0.1
|
)
|
Equity-based compensation expense
|
2.3
|
|
|
1.6
|
|
Other, net
(a)
|
2.7
|
|
|
1.0
|
|
Adjusted EBITDA
|
$
|
0.5
|
|
|
$
|
1.0
|
|
(a) As required under our Term Loan Agreement, Other, net shown above consists of the impact of certain items to be included in Adjusted EBITDA.
Liquidity and Capital Resources
Our principal sources of liquidity are cash and cash equivalents, available borrowings under our asset-based loan facility and any prospective net cash flow from operations. As of
March 31, 2019
, our maximum availability under our ABL Facility was
$48.1 million
. Our Managed Accessibility was
$9.1 million
, which represents the maximum amount we would access on the ABL Facility and is adjusted for eligible receivables plus eligible borrowing base cash measured at
March 31, 2019
.
For the March 31, 2019 borrowing base certificate, which was filed in April of 2019, we reduced restricted cash
$20.0 million
by transferring the funds to our operating cash accounts. Our cash and cash equivalents and Managed Accessibility were
$155.7 million
. For the December 31, 2018 borrowing base certificate, which was filed in January of 2019, we transferred
$25.0 million
of cash into restricted cash to maintain the 10% threshold, as permitted under the ABL Facility, which transfer effectively put our cash and cash equivalents and Managed Accessibility to
$203.8 million
.
The table below summarizes cash and cash equivalents and Managed Accessibility as of
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
(in millions)
|
March 31, 2019
|
|
December 31, 2018
|
Cash and cash equivalents
|
$
|
126.6
|
|
|
$
|
227.6
|
|
Changes to restricted cash
|
20.0
|
|
|
(25.0
|
)
|
Managed Accessibility
|
9.1
|
|
|
1.2
|
|
Total cash and cash equivalents and Managed Accessibility
|
$
|
155.7
|
|
|
$
|
203.8
|
|
Outside of funding normal operations, our principal uses of cash include making contributions to various multi-employer pension funds and our single-employer pension plans, and meeting our other cash obligations including, but not limited to, paying principal and interest on our funded debt, making payments on our equipment leases, and funding capital expenditures.
As of
March 31, 2019
, we had
$884.5 million
in aggregate par value of outstanding indebtedness, the majority of which matures in 3-5 years. We also have future funding obligations for our various multi-employer pension funds and single-employer pension plans. We expect our funding obligations for the remainder of
2019
for our multi-employer pension funds and single-employer pension plans will be
$97.9 million
and
$7.9 million
, respectively. In addition, we have, and will continue to have, operating lease obligations. As of
March 31, 2019
, our operating lease payment obligations through
2030
totaled
$419.1 million
and are expected to increase as we lease additional revenue equipment. For the
first quarter
of
2019
, we entered into new operating leases for revenue equipment totaling
$19.3 million
in future lease payments, payable over an average lease term of
five
years.
Our capital expenditures for the
first quarter
of
2019
and
2018
were
$32.6 million
and
$23.5 million
, respectively. These amounts were principally used to fund the purchase of used tractors and trailers, for capitalized costs to improve our technology infrastructure and to refurbish engines for our revenue fleet. For the quarter ended March 31, 2019 we entered into new operating lease commitment for revenue equipment with a capital equivalent value of $25.3 million.
As of
March 31, 2019
, our Standard & Poor’s Corporate Family Rating was “B-” with a stable outlook and Moody’s Investor Service Corporate Family Rating was “B3” with a positive outlook.
Credit Facility Covenants
Our Term Loan Agreement has certain financial covenants that, among other things, restrict certain capital expenditures and require us to not exceed a maximum total leverage ratio (defined as Consolidated Total Debt divided by Consolidated Adjusted EBITDA). These covenants are more fully described in the “Debt and Financing” footnote to the consolidated financial statements. At
March 31, 2019
, we were in compliance with all such covenants.
We believe that our results of operations will be sufficient to allow us to comply with the covenants in the Term Loan Agreement, fund our operations, increase working capital as necessary to support our planned revenue growth and fund capital expenditures for at least the next twelve months. Our ability to satisfy our liquidity needs and meet future stepped-up covenants beyond the next twelve months is dependent upon our ability to achieve operating results consistent with levels achieved during 2018. Maintaining results will depend on a number of factors including our ability to successfully implement the provisions of the new labor agreement with our union employees. The union employees approved the New NMFA and all but one supplemental agreement on May 3, 2019. In accordance with the IBT’s ratification procedures, the approved labor agreement will not take effect until the remaining issues pertaining to the one supplemental agreement are resolved. Once effective, the approved labor agreement is set to expire on March 31, 2024.
Cash Flows
Operating Cash Flow
Cash used in operating activities was
$41.7 million
during the
first quarter
of
2019
, compared to
$3.7 million
during the
first quarter
of
2018
. The increase in cash used was primarily attributable to a $34.5 million increase in net loss, and the remaining difference is primarily related to timing differences in working capital accounts. We segregated non-cash expenses associated with ROU assets and lease liabilities from the payments that are recorded to lease liabilities, which are presented in the change in other operating liabilities.
Investing Cash Flow
Cash used in investing activities was
$31.8 million
during the
first quarter
of
2019
compared to
$20.5 million
during the
first quarter
of
2018
, an increase of $7.9 million largely driven by higher revenue equipment acquisitions and lower cash proceeds from the sale of real property.
Financing Cash Flow
Cash used in financing activities for the
first quarter
of
2019
and
2018
was
$2.5 million
and
$8.4 million
, respectively, which consist primarily of repayments on our long-term debt.
Contractual Obligations and Other Commercial Commitments
The following sections provide aggregated information regarding our contractual cash obligations and other commercial commitments as of
March 31, 2019
.
Contractual Cash Obligations
The following table reflects our cash outflows that we are contractually obligated to make as of
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
(in millions)
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5 years
|
ABL Facility
(a)
|
$
|
17.2
|
|
|
$
|
6.9
|
|
|
$
|
10.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Term Loan
(b)
|
780.4
|
|
|
83.2
|
|
|
159.2
|
|
|
538.0
|
|
|
—
|
|
Lease financing obligations
(c)
|
340.1
|
|
|
40.1
|
|
|
71.3
|
|
|
69.7
|
|
|
159.0
|
|
Pension deferral obligations
(d)
|
95.2
|
|
|
7.4
|
|
|
14.2
|
|
|
73.6
|
|
|
—
|
|
Workers’ compensation, property damage and liability claims obligations
(e)
|
359.5
|
|
|
102.1
|
|
|
115.4
|
|
|
50.0
|
|
|
92.0
|
|
Operating leases
(f)
|
419.1
|
|
|
139.1
|
|
|
208.7
|
|
|
57.9
|
|
|
13.4
|
|
Other contractual obligations
(g)
|
28.1
|
|
|
24.0
|
|
|
3.7
|
|
|
0.4
|
|
|
—
|
|
Capital expenditures and other
(h)
|
34.7
|
|
|
34.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total contractual obligations
|
$
|
2,074.3
|
|
|
$
|
437.5
|
|
|
$
|
582.8
|
|
|
$
|
789.6
|
|
|
$
|
264.4
|
|
|
|
(a)
|
The ABL Facility includes future payments for the letter of credit and unused line fees and are not included on the Company’s consolidated balance sheets.
|
|
|
(b)
|
The Term Loan includes principal and interest payments, but excludes unamortized discounts.
|
|
|
(c)
|
The lease financing obligations include interest payments of
$307.5 million
and principal payments of
$32.6 million
. The remaining principal obligation is offset by the estimated book value of leased property at the expiration date of each lease agreement.
|
|
|
(d)
|
Pension deferral obligations includes principal and interest payments on the Second A&R CDA.
|
|
|
(e)
|
The workers’ compensation, property damage and liability claims obligations represent our estimate of future payments for these obligations, not all of which are contractually required.
|
|
|
(f)
|
Operating leases represent future payments under contractual lease arrangements primarily for revenue equipment.
|
|
|
(g)
|
Other contractual obligations includes future service agreements and certain maintenance agreements and are not included on the Company’s consolidated balance sheets.
|
|
|
(h)
|
Capital expenditure and other obligations primarily includes noncancelable orders for revenue equipment the Company will either purchase or lease. If leased, the cash obligations will be scheduled over the multi-year term of the lease and ROU assets and liabilities will be recorded upon lease execution.
|
Other Commercial Commitments
The following table reflects other commercial commitments or potential cash outflows that may result from a contingent event.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration Per Period
|
(in millions)
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5 years
|
ABL Facility availability
(a)
|
$
|
48.1
|
|
|
$
|
—
|
|
|
$
|
48.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Letters of credit
(b)
|
341.5
|
|
|
—
|
|
|
341.5
|
|
|
—
|
|
|
—
|
|
Surety bonds
(c)
|
123.9
|
|
|
122.1
|
|
|
1.8
|
|
|
—
|
|
|
—
|
|
Total commercial commitments
|
$
|
513.5
|
|
|
$
|
122.1
|
|
|
$
|
391.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
(a)
|
Availability under the ABL Facility is derived by reducing the amount that may be advanced against eligible receivables plus eligible borrowing base cash by certain reserves imposed by the ABL Agent and our outstanding letters of credit.
|
|
|
(b)
|
Letters of credit outstanding are generally required as collateral to support self-insurance programs and do not represent additional liabilities as the underlying self-insurance accruals are already included in our consolidated balance sheets.
|
|
|
(c)
|
Surety bonds are generally required for workers’ compensation to support self-insurance programs, which include certain bonds that do not have an expiration date but are redeemable on demand, and do not represent additional liabilities as the underlying self-insurance accruals are already included in our consolidated balance sheets.
|
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements except for other contractual obligations for service agreements and capital purchases, letters of credit and surety bonds, which are reflected in the above tables.