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Edited Transcript of RRTS earnings conference call or presentation 12-Mar-19 2:00pm GMT

Q4 2018 Roadrunner Transportation Systems Inc Earnings Call

CUDAHY Mar 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Roadrunner Transportation Systems Inc earnings conference call or presentation Tuesday, March 12, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Chelsea Mitchell

Roadrunner Transportation Systems, Inc. - Senior Manager of Corporate Communications

* Curtis W. Stoelting

Roadrunner Transportation Systems, Inc. - CEO & Director

* Michael L. Gettle

Roadrunner Transportation Systems, Inc. - President, COO, Secretary & Director

* Terence R. Rogers

Roadrunner Transportation Systems, Inc. - Executive VP & CFO

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Conference Call Participants

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* Boris Senderzon

* Jizong Chan

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Roadrunner Transportation Systems 2018 Fourth Quarter and Full Year Financial Results Conference Call. Today's call is being recorded.

At this time, I will turn the call over to CEO, Curt Stoelting. Please go ahead, sir.

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [2]

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Thanks, Sarah. Good morning, and welcome to today's conference call. Joining me are Mike Gettle, our President and Chief Operating Officer; and Terry Rogers, our Executive Vice President and Chief Financial Officer. Also joining us is Chelsea Mitchell, our Senior Manager of Corporate Communications. The slides accompanying today's presentation can be accessed in the Events and Presentations tab in the Investor Relations section of our website at rrts.com.

To begin, I'd like Chelsea to cover the forward -- or I'm sorry, the safe harbor statement. Chelsea?

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Chelsea Mitchell, Roadrunner Transportation Systems, Inc. - Senior Manager of Corporate Communications [3]

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Before we begin, I would like to remind everyone that a number of statements made today will be forward-looking statements that relate to future events or performance. These statements reflect our current expectations, and we do not undertake to update or revise these forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied in these or other statements will not be realized. Please be cautioned that these statements involve risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties include the risk factors set forth in our SEC filings. Our commentary today will include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures for our reported results can be found in our press release, which we have posted to our website at rrts.com.

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [4]

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Okay. Thanks, Chelsea. On the call today, we'll cover the following topics: I'll provide some opening comments; Terry Rogers will provide a summary of our consolidated and segment financial results for 2018 Q4 and full year; Mike Gettle will cover Q4 business trends for each of our segments; I'll then give an update on our business improvements and our financial outlook. And finally, we'll wrap up with a Q&A session.

Moving on to Slide 5. Some quick opening comments. We continue to see our business grow with comparable 2018 full year revenue growth of 9.5%. We also are reporting improving operating trends with 2018 adjusted EBITDA improvement in the Q4 -- in Q4 of $6 million and $19 million for the full year.

So we continue to make progress on our operational improvements, while also -- while we are also improving our capital structure, as evidenced by the recently complete -- the recent completion of our rights offering and debt refinancing.

All of the above, plus the plans we have in place for our performing and underperforming businesses, give us a positive financial outlook for 2019 and beyond.

As we have stated in the past and we'll continue to point out, during a turnaround process, there are always some bumps along the way. However, we remain committed to long-term and lasting improvement in each of our segments and in our consolidated bottom line results.

I'll now turn the call over to Terry Rogers, our EVP and CFO.

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Terence R. Rogers, Roadrunner Transportation Systems, Inc. - Executive VP & CFO [5]

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Thanks, Curt, and good morning. I'll summarize our operating performance for the fourth quarter and the full year results for 2018. Turning to Slide 7, which is the summary of financial performance for the fourth quarter, revenues in the fourth quarter of 2018 were $551.5 million, a decrease of 1.6% from revenues in the fourth quarter of 2017 of $560.4 million, as growing revenues from ops from Ascent were offset by lower revenues in Truckload & Express Services due to primarily to lower air and ground expedite brokerage in the fourth quarter of '18 compared to the very strong market conditions in the fourth quarter of 2017.

We also had lower revenues at LTL as that segment focused on its core of Metro to Metro long-haul. The net operating loss in the fourth quarter of 2018 was $22.9 million, including corporate restructuring and restatement costs of $6.7 million, a contingent purchase obligation of $1.8 million and noncash impairment charges in intermodal services of $1.6 million.

Operating loss in the fourth quarter of 2017 was $22.3 million, which included corporate restructuring and restatement costs of $8.5 -- $8.7 million and legal reserves of $5.7 million.

The net loss of $58.4 million in the fourth quarter of 2018 compares to a $23.3 million net loss in the fourth quarter of 2017. This is due to substantially higher interest cost at $37.3 million in the fourth quarter of 2018 from $18.7 million in the 2017 fourth quarter.

The increase in interest expense is driven by higher interest expense of $34.1 million in the fourth quarter of '18 versus $16 million in 4Q of '17 related to the accrual of preferred dividends and changes in the fair market value of the preferred shares, which are recorded as debt.

These preferred shares were fully redeemed on February 25, 2019. Adjusted EBITDA improved by $6 million year-over-year, and I'll turn to Slide 8 to reconcile -- which reconciles our net loss to adjusted EBITDA for the fourth quarters of 2018 and 2017 for the reporting segments and the company.

Just a reminder that the company changed reporting segments for financial reporting beginning in 2018 with the primary difference from the prior segment reporting being the move of the Truckload Plus brokerage business from the truckload segment to the Ascent segment. The 3 segments are Truckload & Express Services, or TES; Less-than-Truckload or LTL; and Ascent Global, which is global logistics. The 2017 results have been adjusted for comparison purposes and Mike Gettle will provide insight on each of the segment's fourth quarter performance in a few minutes.

Turning first to TES. Our results -- our fourth quarter adjusted EBITDA declined by $2 million due to lower ground and air expedite revenue and margin versus the comparably strong fourth quarter of 2017 as well as margin pressure in the drive-in business due to maintenance and other fleet-related costs.

We also recorded a $1.6 million fleet impairment charge related to tractors used at intermodal services that were held for sale. While LTL adjusted EBITDA for the quarter was a loss of $8.3 million, it was an improvement over the prior year's adjusted EBITDA loss of $10.7 million.

Revenues declined year-over-year as we continue to focus on planned reductions in selected service areas where margins have improved. Lastly, the Ascent segment posted another strong quarter with adjusted EBITDA increasing by 15.9% over the 2017 fourth quarter, with strength across the segment.

The company had a $6 million improvement in adjusted EBITDA for the fourth quarter that included a $1.8 million charge for contingent purchase obligations related to the Central Cal matters discussed in our litigation disclosures. Additionally, we adjusted for a $6.7 million of corporate restructuring and restatements costs in 4Q '18 versus $8.7 million from the prior year's fourth quarter.

Slide 9 summarizes the change by segment and the company as a whole. You can see that we have improvements year-over-year in every area, except for TES as described earlier.

Next, I want to turn to the full year results, moving to Slide 11. Before we view the full results, I'd like to remind you of the sale of our Unitrans subsidiary on September 15, 2017. For comparison purposes, we have adjusted the results to exclude the impact of the Unitrans operating results and gains on sale incumbent in our full year results comparison.

Revenues adjusted for Unitrans revenue of $67.6 million in 2017 increased 9.5% to $2.216 billion. The net operating loss of $58.5 million in 2018 was higher than the 6 -- $36.5 million operating loss in 2017. However, again adjusting for (inaudible) for Unitrans, which during the 2017 period positively -- was positively impacted by the gain on sale of the Unitrans of $35.4 million and the $5.8 million of operating income generated before the sale.

Both periods were negatively impacted by costs related to the corporate restatement process or operating restructurings, which totaled $22.2 million in 2018 and $32.3 million in 2017. The 2017 period was also negatively impacted by a $15.9 million loss on debt extinguishment and $4.4 million of noncash goodwill impairment for the Ascent subsegment following the sale of Unitrans.

The net loss increased to $165.6 million in 2018 versus the net loss of $91.2 million for 2017, but this is largely attributed to increased interest expense of $116.9 million in 2018 versus $64 million in 2017. The portion of the interest expense related to the preferred shares increased to $105.7 million in 2018 from $49.7 million in 2017.

Remember these preferred shares were redeemed in February of this year. The preferred shares were outstanding for all of 2018 and were only outstanding from May 2 on 2017, which explains part of the increase year-over-year.

The interest on the preferred shares is not deductible for tax purposes, which along with lower statutory rates, drove the decrease in the benefit from taxes in 2018 of $9.8 million versus $25.1 million in 2017.

Adjusted EBITDA for 2018 was $17.3 million, a meaningful improvement year-over-year from the negative $1.6 million ex Unitrans in 2017.

Slide 12 shows the summary by segment and in total. Truckload & Express Services' adjusted EBITDA for 2018 of $37.1 million was an increase of $5.6 million or 17.8%. The performance was driven by year-over-year increase in ground and air expedited freight business as the strong demand environment drove higher volumes and rates and adjusted EBITDA.

Strong performance was partially offset by increased purchased transportation, equipment lease maintenance and IT costs for the segment. The less-than-truckload revenues declined by 2.4% to $452.3 million for 2018 due to decreased shipping volumes as we refocused on our core service areas and despite higher fuel surcharges and rates.

The LTL adjusted EBITDA loss for 2018 increased slightly to $23 million from a loss of $22 million in 2017. Contributing factors are the lower revenues and higher linehaul rates due to tight market conditions for purchase power and higher spot prices paid to brokers over the course of the year.

The segment results for 2018 compared to 2017, excluding the impact of Unitrans, showed improvements in revenue, operating income and adjusted EBITDA. Domestic freight management, international freight forwarding and retail consolidation all generated positive revenue and earnings. Ascent's revenues ex Unitrans were up year-over-year by 14% to $573.1 million and adjusted EBITDA increased by 27.7% to $33.5 million.

Again, Mike will provide more color on the segments in his discussion of business trends. My last slide, 14, -- I'm going to skip the change -- my last slide is going to be 14, which reflects the change in our capitalization during 2018 and more importantly, in early 2019. We -- as we have discussed in past, the preferred stock was recorded as debt for GAAP and accounting purposes.

As the value of the preferred grew, the capitalization became weighted to the debt side. The significant transactions that occurred in February of 2019 transformed the capital structure and improved our operating liquidity. The $450 million rights offering closed on February 25 and 2 days later, on February 27, the new ABL bank facility and bank term loan closed. The proceeds from these transactions allowed us to fully redeem the preferred stock, pay off our prior term loan and improve liquidity for operating purposes by over $45 million.

Even before completion of these transactions, we were able to add fleet equipment, financed by the captive finance companies of OEM manufacturers and other lenders. This allowed us to add approximately $25 million of fleet equipment in the fourth quarter and $54 million during 2018.

Today, we have over $70 million of liquidity under our new ABL structure and adequate financing commitments to replace aging tractors and trailers, to add capacity and to upgrade the fleet, which we expect will positively impact fleet rent expense and repairs and maintenance.

Now let me turn the call over to Mike, our President and Chief Operating Officer, who will discuss the trends in our businesses.

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Michael L. Gettle, Roadrunner Transportation Systems, Inc. - President, COO, Secretary & Director [6]

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Good morning and thanks, Terry. I'm pleased to be able to share some additional commentary regarding the operations in each of our segments. And I'm now on Chart 16.

Our Truckload & Express revenue in Q4 was $301 million and declined by 4.8% over 2017 Q4. Our adjusted EBITDA was $10.6 million and declined by 15.4% over 2017 Q4. Our Truckload & Express strategy is centered around integrations that improve our scale and rightsize our capacity to address both scheduled and unscheduled freight needs.

Looking at active on-demand. We see that the primary driver of the revenue shortfall on our Truckload & Express was our air revenue, which has declined by 25.5%, primarily related to brokered aircraft, which have a more modest impact on profitability.

Our ground revenue declined by 2.5% in Q4. And the volume of air loads and the rates for both ground and air expedite continue to moderate from their peak levels in Q4 of '17 and Q1 of '18. Our over-the-road capabilities include scheduled and expedited dry van, temperature control and flatbed. While revenues are growing modestly in our dry van fleet, margin continues to underperform as a result of increases in our maintenance and other fleet-related expenses.

Our temperature-control fleet is producing less revenue than a year ago due to fleet reductions associated with our Q2 2018 integration, but this unit continues to improve its margins both sequentially and over the prior year. Our Q4 intermodal growth of 4.8% was driven from improvement in rates per load, which has been partially offset by reductions in load counts.

Turning to LTL on Chart 17. Our revenue in Q4 was $108 million and decreased by 6.2% over 2017 Q4. Our Q4 adjusted EBITDA was a loss of $8.3 million and was approximately $2.5 million or 23% lower than a year ago. Our Q4 loss widened from 2018 Q3 due to typical seasonal patterns and some emerging revenue softness in November and December.

Our strategy at Roadrunner Freight is to focus on our core competency as a Metro to Metro long-haul carrier. This includes 3 main elements: reducing the pickup and delivery footprint to remove unprofitable areas and redeploy assets to more focused lanes; using sales and pricing discipline to drive volume into strategic lanes; and driving improvements in shipment, reliability and visibility through investments in technology, centralization of our teams and process harmonization across the network.

Our Q4 revenue decline of 6.2% was driven by a reduction in shipments per day of 17.5%, which reflects our continued focus on reducing our pickup and delivery footprint, reducing unprofitable freight, improving our freight profile and building density in strategic lanes.

While shipment counts declined, this focus produced improved Q4 revenue per shipment and yield with revenue per shipment, including fuel, increasing by 11.4% and yield, including fuel, increasing by 6.2% as compared with a year ago. And the 4.9% increase in weight per shipment is also a reflection of our improving freight profile. We continue to enjoy success in driving more Roadrunner Freight revenue into our Metro to Metro Tier 1 lanes with 64.7% of our revenue in Q4 in Tier 1 lanes as compared with 58% in the fourth quarter of '17.

From a cost perspective, our focus on yield, reducing service areas and improving our freight profile is improving our pickup and delivery costs, and our linehaul costs have improved due to network planning and efficiency as well as lower purchase transportation cost versus Q4 2017. Personnel and other operating expenses have not been reduced in proportion to shipment volume due to our continued investment in people, processes and technology.

Turning to Ascent Global Logistics on Chart 18. Our revenue in Q4 was $148 million, an increase by 12.6%. Our adjusted EBITDA was $8.5 million and was 15.9% higher than 2017 Q4. Our strategy in Ascent is based on improved integration, which enables easier access to more of our brokerage capability by more of our customers. As part of this integration, we are making investments to consolidate our IT capabilities under 1 domestic transportation management system.

Revenue was flat in our domestic freight management business as modest growth in brokered loads was offset by a reduction in the fleet used to back up our brokerage in certain tight lanes. International freight forwarding, accelerated its growth to 49% in Q4 from expanded volumes at current and new customers, including some potential acceleration of shipments in anticipation of potential future tariff impacts as well as rate increases. And our retail consolidation revenue growth remains strong, but has moderated to 18% due to fewer new customer starts during the quarter. That concludes our comments on the operating segments.

And I'll turn the presentation back over to Curt.

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [7]

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Thanks, Mike, and thanks, Terry. Moving on to Slide 19. I'll just take a minute to give an update on our business improvements and our financial outlook.

On Slide 20, you've seen this slide before, we are tracking and reporting on our business improvement in key -- in 5 key phases. We are now in the second phase of our business improvement, which is simplification and integration. We think the capital structure improvements that we just completed, that Terry detailed, will represent a key inflection point in the business improvement process and will allow us to move more quickly into the next phases.

On Slide 21, you can see that we have plans in place for both our performing and nonperforming businesses. If you do the math on the chart, you'll see that 2/3 of our businesses are now stable and growing. Active on-demand and Ascent have led the way, followed by our recently restructured flatbed temperature-controlled and intermodal businesses.

All of these businesses improved in 2018 and are positioned for success and growth in 2019. We are equally focused on our underperforming dry van businesses and LTL segment. In the case of dry van, we are developing plans to streamline these businesses, very similar to the work that we did last year in temperature controlled. For LTL, we have made structural improvements, and we are seeing positive operating metrics that Mike Gettle just covered. We expect to see revenue and profit improvement beginning in Q2 of 2019 when we begin to lap the service area and freight profile revenue reductions we initiated in Q2 of 2018.

On Slide 22, that provides a detailed summary of the simplification and integration efforts within each of our segments. I'm not going to take time to go through all the steps here, but I think these are all things that are giving us confidence as we move forward with each of our segments.

On Slide 23, I'll just update a couple other key initiatives. In the third quarter, as Terry mentioned, we began to upgrade our fleet equipment. These efforts will continue throughout 2019 and that will provide benefits in our safety and fuel efficiency, reduce our maintenance and short-term leasing costs and improve our service levels and productivity across the Roadrunner fleets. Newer equipment also improves the work experience for our drivers and in the case of LTL, for our dockworkers. And in both cases, retention is key with both drivers and dockworkers. We will continue to invest in IC enhancements and new capabilities across all 3 segments. As we've said before, we are increasing our efforts to improve our internal controls and our corporate functions to support our growth in 2019 and beyond. Lastly, we remain focused on key financial goals, such as return on invested capital and the normalization of operating margins across our businesses.

Finishing up on Slide 24, which provides a good summary of today's discussion and the positive trends that support our financial outlook. We have already discussed the benefits from the recent capital structure improvements. As we look at 2019, we are expecting adjusted EBITDA improvements in all 3 segments.

Over time, improving dry van and LTL results are expected to add significant value to Roadrunner. And longer-term, we expect to improve Truckload & Express Services and LTL segment margins to be in line with peer group margins. Current improvements in structural changes that we are making in the business are expected to increase our resiliency and success throughout the natural industry cycles.

With that, we'll turn it over for a Q&A session. Sarah, are you there?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Bruce Chan with Stifel.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [2]

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Just a few questions here, and I think I'd like to start with the TES segment, specifically with the Active On-Demand division. Obviously, the 25-plus-percent decline in air and fleet brokerage wasn't ideal, and obviously, a lot of that has to do with tough comps year-over-year. But it seems like maybe there was a little bit more coming from maybe some of the deceleration in the macro. So if you could maybe just talk about how much of that decline was expected? And given the outlook for the year, what you expect that business to do for the rest of 2019, I think that would be very helpful.

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Michael L. Gettle, Roadrunner Transportation Systems, Inc. - President, COO, Secretary & Director [3]

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Bruce, this is Mike. Great question. Very relevant given our Q4 experience. Active On-Demand is an event-driven business, any kind of disruption in the supply chain, strikes and floods, et cetera. In any month or quarter, we can have some volatility and we've seen the throughout the history of the business. And as you said, we have some tougher comps both in Q4 of 2017 and Q1 of '18 when the business was operating at really -- at peak levels. But as we look at that business over any kind of rolling longer-term period, these events, while they are unique, tend to repeat. And so we're not, at this point, changing our outlook for 2019 based on these Q4 results.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [4]

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Okay, that's helpful. And really the reason why I ask is because as you turn around a lot of the different pieces of the business, specifically the drive-in, OTR and the LTL business, I think a lot of investors have been looking at, certainly Ascent, but also the Active On-Demand business as kind of bolstering operations. And it seems like with a good bit of volatility on the Active On-Demand side, that presents a good bit of risk and certainly earnings volatility for the company and the stock. Is there anything that you can do to sort of derisk or smooth out the business in that active on-demand?

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [5]

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Well, we've done a number of things, Bruce. As you know, we've dramatically over the last 3 years, increased the amount of ground expedite that we're brokering, and we're running off of our proprietary bid board at Active On-Demand. And what that does is it does help offset some of the volatility in the air business. The air business is the most volatile. But as Mike mentioned, and as you pointed out, we had unprecedented levels of both ground and air expedite in Q4 of '17 and Q1 of '18. And we knew that, that wasn't going to repeat itself. And we didn't plan for that in our plans for 2019. And over the longer term, if you look at a 12-, 24-, and 36-month rolling profitability view of Active On-Demand, it's actually very stable. So we just -- we will point out the volatility on a month-to-month and quarter-to-quarter basis to our investors, but we'll also reassure them that it's a very well-positioned, well-run business that does generate significant free cash flow over a longer period of time.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [6]

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Okay, that's helpful. And then kind of turning it over to the drive-in side, can you talk about where you are in that turnaround process and what we should expect as far as the completion date or a completion time line? Obviously, a lot of the issues in the past couple of quarters have been related to equipment, so any visibility in terms of the fleet refreshments that are coming in and when you expect some of these margin pressures to subside?

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [7]

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Sure, I'll let Mike handle that one, and I may have a few comments at the end.

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Michael L. Gettle, Roadrunner Transportation Systems, Inc. - President, COO, Secretary & Director [8]

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Yes, okay. Bruce, we're just at the outset now of that streamlining effort. We have 3 businesses in dry van, which have overlapping and/or complementary lanes. So there's a nice opportunity for us to improve our density, or customer and freight selection. We also have equipment that is older and has less favorable maintenance and fuel economy. And we have a variety of types of capacity between company, ICs and some dedicated carriers. So there's some opportunity, both in the lanes and in the types of capacity. And then obviously, we have multiple systems and the opportunity to streamline that together with operations in the back office. So to get to the time frame, we're right at the outset, and we expect this to be progressing throughout 2019. I think it will take us much of 2019 to fully bed that in, but we can see benefits that will be building throughout the year.

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [9]

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Yes, first, I agree with Mike. I think I would point to the temp control restructuring we did last year, where we started with 3 or 4 different operating companies with a fleet of 600 or 700 trucks. And there, we had the complication of the reefer trailer pools as well that we had to analyze and consolidate. And we get that work done and about -- it took us about 6 months, I'd say, from start to finish. Now this dry van is a bigger operating group -- the combined group is bigger, it's over 1,000 trucks, but it's not dissimilar in terms of the types of analysis and the types of potential that we have. And if you remember on temp control, that business was losing money and -- pretty much on a monthly basis. And after pretty much right after the restructuring, we were able to start generating positive returns from that business almost immediately. And now we feel that business is very well-positioned for future growth. So I think it does take a little bit of time, but we've got some experience at it and we've got a good team throughout dry van that's working every day to now figure out the best way to move forward. So we'll keep you updated.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [10]

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Okay, great. And then maybe if you could go through a similar discussion with regard to LTL. Again, what are some of the guideposts that we should be looking for throughout the year and what's been the progress to date so far? And especially with regard to maybe some of the footprint reductions, kind of where are you in that process and when do we expect to have kind of an optimized footprint and terminal network?

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [11]

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Yes, Bruce. We've always said, and you've said the same thing, as a network business, LTL will take longer to recover than other businesses that we've already recovered or that we're in the process of recovering. And we are taking a very long-term view here in that we could have reduced expenses and reduced the amount of losses over the last couple of years, but what we decided to do was to build it right. We ended up really having to build it up from the ground with an entirely new management team, led by Frank Hurst, who was doing a great job. We like our management team there, but they are really building it from the ground up, terminal by terminal, lane by lane, customer by customer. And we see the progress they're making. I know it hasn't come through in the financials yet, but we're confident that it will. So I'll let Mike get into some more of the specifics, but that business is a -- when that business turns positive and it will turn positive, that will be a key value generator for Roadrunner.

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Michael L. Gettle, Roadrunner Transportation Systems, Inc. - President, COO, Secretary & Director [12]

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In terms of the progress, Bruce, most of the changes that we need to make in terms of the management team, a lot of the technology and the process harmonization have been done, and we're in the process of bedding all those in so that they are effective throughout the entire network. In terms of the freight profile specifically, those changes to reduce our footprint were initiated just about this time last year and ran, I'd say, from the end of February into April and early May. It's a continual process but that's when the bulk of that was done. So as we get into Q2, we're going to be lapping the periods where that freight at the end of Q2 was already out of the network, and so that should impact our growth rate pretty favorably. We're still targeting to exit 2019 at breakeven or generating slight profits.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [13]

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Okay, that's very helpful. And then now that we're 3 months into the year, almost 3 months into the year, can you give us some maybe updates on how your yield discussions and your volume has been progressing through the quarter in LTL, especially on the yield fronts, now that we've seen maybe some softening macro trends, maybe as we've seen some capacity easing, has it been more difficult to get rate from customers? Or are you still kind of moving on target?

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [14]

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I think Bruce, we still have 3 weeks left. Give us that. I think every transportation would tell you that March is kind of important, so let's not cut it off short. I'm teasing you.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [15]

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Well with no expectation -- so things can improve.

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [16]

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Yes, I know. You know I'm just teasing you, but go ahead, Mike.

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Michael L. Gettle, Roadrunner Transportation Systems, Inc. - President, COO, Secretary & Director [17]

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Yes, Bruce. In Q4, our contract renewals were at about 7.8%, which I think is still pretty good. We're going to be -- the issue is really more we're now increasingly lapping a lot of the yield activities that took place. So I'd expect that our Q1 contract renewals will come in a couple of points below that. But we're still -- because the service and the customer experience is improving, we're able to match that up with some pricing. So I think we'll be able to continue to make progress on our yield front throughout this year.

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [18]

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Roadrunner LTL on a historical basis has done well in, I'd say, softer economic markets. They were early out in 2010 because in those markets, customers and shippers are looking to optimize their freight spend. And we can be part of that. So we really believe the business benefits, to a certain extent, when the economy is a little choppier. And it also helps us that truckload spot rates are down because that's an input cost for part of our linehaul and LTL. So the combination of those 2 things create a nice natural hedge that maybe other LTLs don't naturally have.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [19]

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Okay. And since you mentioned the service aspect, I'm wondering if you can share any improvements that you've held on the service front. I mean it doesn't have to be an absolute, on time or claims percentage, but may be in terms of a point improvement year-over-year, do you have any metrics there that you could share with us?

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [20]

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Well, we are tracking service with more diligence than we ever have. And I'm so proud of our team for really doing it the right way. We haven't disclosed those service numbers at this point, I think we probably will in the future. But if you look at how we're doing in our core lanes, our long haul Metro to Metro, as Mike and Frank call them, our Tier 1 lanes. We definitely have not only seen the service metrics on on-time improve, but we've also just seen the reliability increase. So we're excited about that. What we need to improve the rest of the network is more density, and again, we're going to be lapping, kind of running off the bad freight, and we would expect over the rest of -- really beginning in Q2 and for the rest of '19, that we'll be adding density throughout the network, which will again help us across all of our lanes improve service metrics and reliability.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [21]

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Okay, that's helpful. Switching gears a little bit to Ascent. I'm curious about the Prime business, that's one that we don't necessarily talk about too much. But I guess first, can you share with us with the customer concentration looks like there? And then second, maybe you'll see where I'm getting at here, we've seen a lot of announcements from very large retail and e-com customers that they've been insourcing a certain amount of business. There was an announcement from Amazon that they were going to look to reduce the amount of direct fulfillments in favor of underfulfilled shipments. Is there any risk to your business there? Is that concerning to you at all? And how can you may be navigated around that in terms of your strategy?

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [22]

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Sure. We love our Ascent business. We think it's very well positioned. We have kind of 3 key service components. Mike mentioned in his comments that we are working hard to kind of finish the systems integration within our domestic freight management business and get the whole team on 1 TMS, which will have some real benefits to our customers and some real efficiencies internally. So we're excited about where that business is heading. Our international freight forwarding business grew nicely in the fourth quarter. We expect that to continue to grow. There's some nice trends happening despite all the noise around the tariffs, there's some real good business activity happening that's going to, I think, be good for our international freight forwarding business throughout '19. And then lastly, you mentioned Prime, which is our retail consolidation business. It's a really nice business, very well positioned. There isn't any large customer concentration there, Bruce. In fact, over the last few years, we've really been working to reduce our customer concentration, and we've got a very stable group of recurring customers, and we keep adding new customers to the mix. And the value we provide there, really, the benefactor are large retailers, such as Walmart and other large retailers that -- they're not the customer but they're the benefactor of the service we provide. And by taking what would be LTL shipments and turning them into truckload shipments, everybody wins there, the manufacturer or the supplier to Walmart saves money, Walmart saves money and we make money. So we think it's really a great business and off of our current footprint, we believe we can dramatically improve the profits that we earn. So we're not seeing any real impact in that business right now from some of the changes that you mentioned, and again, we have continued to invest in the team and in the technology and in enhanced capabilities to continue to grow and diversify that business.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [23]

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Okay, great. And then just back to the tariff pre-shipping, it sounds like the outlook for the international freight forwarding business is pretty good. I think there are a lot of people out there that are expecting somewhat of an air pocket here in 1Q. Have you seen that? Has other business been strong enough to offset any potential inventory preloading? And then what are your expectations there, given that we do have a couple of weeks left in March?

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [24]

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Yes, I can't really comment on the overall industry trends. Our business -- we're very much still a niche business here. We like the business. We intend to grow it. I think we are kind of maybe bucking the trends, and we have added some new customers, and we've also opened up some additional export that we think will drive positive trends throughout '19. So I don't know that we're a good barometer for the overall international transport business, but what I can tell you is I like what our management team has done there, and we're increasing our capabilities, and we're going after bigger and bigger customers. So I think we've got a lot of room to grow.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [25]

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Are you seeing any more competition on that kind of core trans-Pac trade lane? I mean it seems like we've been fortunate here in the U.S. to have some pretty healthy import demand growth. I think the lane concentration has sort of reflected that strength. We've heard that we're starting to see more competition and more interest from some of the big European players, maybe from some of the upstart digital forwarders out there. Can you comment briefly on how you see the competitive environment shaping up?

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [26]

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Bruce, because our business is smaller and a niche player, I think some of the macro headwinds don't impact us as much. And we can bring on new talent and new customers and there's so much share out there to be gained that we don't see that right now as quite as much of a headwind.

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Michael L. Gettle, Roadrunner Transportation Systems, Inc. - President, COO, Secretary & Director [27]

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Yes. I think the bigger longer-term macro trend is, and this has been going I think for a number of years, is you're seeing less share in the larger providers. So this is a business where service is really important and I think that will be the case for a long, long time because of just the nature of it, the risk associated with not doing a job right and having the combined freight forwarding and custom brokerage ability I think makes it very sticky. But I think overall the trend has been away from the larger consolidators in this industry and the growth has really been in smaller niche businesses like we are.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [28]

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Okay, interesting. So when you talk about winning some new customers, is that mostly then coming from those larger consolidators?

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [29]

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Well, it's coming from all over. In some cases, we may have customers that need more capabilities, so we're able to market to those customers. But generally, I think we're targeting, in terms of our customer base, larger customers, larger sort of as it relates to our current customer base. I don't exactly where they're coming from. And then we also have a good group of existing customers that we're retaining and are growing. So it's a combination.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [30]

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Okay, all right, great. Tying everything together, given the results this past quarter, given what you've seen so far this year, obviously, it's still a ways out, but you've had that roughly $100 million EBITDA target for 2020. How do you feel about that target, given everything that's happened? Still on plan? A little bit more conservative? A little bit more optimistic?

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [31]

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Well, I think we're going to do everything possible to stay on that target. We don't know what the economic or market conditions are going to be, but there's so many things that we control around that, that we continue to focus on that. And I think we've got multiple ways to win. So more to come as the year develops. We're still early on here in '19. I think you've heard from everybody else on their calls about weather impacts in the first quarter so no one is immune from that and that will have an impact I think on everybody's Q1s. But I think as I talk with customers and we talk with other folks in the industry, we're still expecting '19 to be a good year at Roadrunner and probably a good year in the transportation logistics business overall.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [32]

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Okay, very helpful. Just a couple final housekeeping questions, maybe best suited for Terry here. Wondering if you have any CapEx guidance for 2019? Any expectations on tax rate and also any update on the timing of a potential reverse split.

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Terence R. Rogers, Roadrunner Transportation Systems, Inc. - Executive VP & CFO [33]

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Yes, in terms of tax rate, starting in that order, we'll be somewhere closer to statutory rates this year now that we have moved off of the -- having the nondeductible interest expense from the preferred shares. In terms of CapEx, the numbers we put out there is $60 million to $65 million. We're still continuing to revisit that and figure out how we can best maximize the potential of the fleet, so we'll continue to monitor that number. And then in terms of the stock split, we're still working on that. We would expect to get that completed sometime early second quarter.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [34]

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Okay. And that's still expected to be a 35 to 1 or is that in flux?

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [35]

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We're still looking at the exact ratios. So we'll make a decision on that and again, we'll get an announcement out in due course, but we have plenty of time to get that done and stay in compliance with New York Stock Exchange.

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Operator [36]

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(Operator Instructions) Our next question -- it comes from Boris Senderzon with Hilbar Capital.

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Boris Senderzon, [37]

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I had a question about your refinancing, specifically on the term loan. I noticed that the margin has increased since the loan has been refinanced and so that's question 1. The second one, I noticed also that Elliott is one of the lenders, and I was wondering if you can make a comment on that.

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Terence R. Rogers, Roadrunner Transportation Systems, Inc. - Executive VP & CFO [38]

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Sure, we ran a process where we talked to a number of potential term loan providers who would help us on a refinance that. The market was defined really by that. As we move down the path, Elliott also bid on that and put in what was the most attractive combination with BMO, who was the agent on that, the most attractive combination of advance rates and spreads. So those spreads are market spreads. The fees were very much in line with the market and we got a little bit more advance rate out of it doing the structure that we did. So it was a competitive process, and Elliott with BMO turned out to be the best alternative for us.

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Operator [39]

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Our next question comes from the line of Joe Packer. He's a private investor.

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Unidentified Participant, [40]

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I have a question regarding your new relationship with Elliott and how do you see yourself working with them in terms of them helping you in the back office or helping you get new clients?

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [41]

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Joe, thanks for your question. This is Curt. Yes, we've actually been working -- Elliott's had a couple of board seats since the 2017 when they made the initial investments through the preferred shares and they have been a very good partner for us. They have been very supportive of the plans that we put in place and also have challenged us to think about things differently. So I think overall, it's a very good relationship and one that I think will continue to benefit all the Roadrunner stakeholders going forward.

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Unidentified Participant, [42]

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They have a big portfolio of companies that they have a lot of influence with that certainly have trucking needs. Do you see or have they helped you on that side?

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [43]

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They've -- it's up to us, Joe, as you know, but they have absolutely opened doors for us that created opportunities for us that we wouldn't have been able to do on our own. So we will continue to take advantage of the access and the knowledge that they have.

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Unidentified Participant, [44]

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Well, they have a great -- far greater interest today than they had in '17, so I would hope so.

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [45]

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Yes, I can assure you they're very interested.

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Operator [46]

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Thank you. There are no further questions at this time. I would now hand the call back to Curt Stoelting for any further remarks.

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Curtis W. Stoelting, Roadrunner Transportation Systems, Inc. - CEO & Director [47]

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Okay, thank you, Sarah. And I want to thank everybody for joining the call today. We look forward to speaking to you on future calls. Have a great day.

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Operator [48]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.