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Edited Transcript of YRCW earnings conference call or presentation 31-Oct-19 12:30pm GMT

Q3 2019 YRC Worldwide Inc Earnings Call

OVERLAND PARK Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of YRC Worldwide Inc earnings conference call or presentation Thursday, October 31, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Darren D. Hawkins

YRC Worldwide Inc. - CEO & Director

* Eric Birge

YRC Worldwide Inc. - VP of IR

* Stephanie D. Fisher

YRC Worldwide Inc. - CFO

* Thomas J. O'Connor

YRC Worldwide Inc. - COO & President of YRC Freight

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Conference Call Participants

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* David Griffith Ross

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics

* Jack Lawrence Atkins

Stephens Inc., Research Division - MD & Analyst

* Jeffrey Asher Kauffman

Loop Capital Markets LLC, Research Division - MD

* Scott H. Group

Wolfe Research, LLC - MD & Senior Transportation Analyst

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Presentation

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Operator [1]

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Good morning and welcome to YRC Worldwide Third Quarter 2019 Earnings Call. (Operator Instructions) Please note this event is being recorded.

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

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Eric Birge, YRC Worldwide Inc. - VP of IR [2]

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Thank you, operator, and good morning, everyone. Welcome to YRC Worldwide's Third Quarter 2019 Earnings Conference Call. Joining us today on the call today are Darren Hawkins, Chief Executive Officer; Stephanie Fisher, Chief Financial Officer; and T.J. O'Connor, Chief Operating Officer.

During the call, we will make some forward-looking statements within the meaning of Federal Securities Law. These forward-looking statements and all other statements that might be made on this call, which are not historical facts are subject to uncertainty and a number of risks. Therefore, actual results may differ materially. The format of this call does not allow for us to fully discuss all of these risk factors. For a full discussion of the risk factors that could cause the results to differ, please refer to this morning's earnings release and our most recent SEC filings, including our Forms 10-K and 10-Q. These items are also available on our website at yrcw.com. Additionally, please see today's release for a reconciliation of net loss to adjusted EBITDA on a consolidated basis and operating income and loss to adjusted EBITDA on a segment basis. During this call, we may refer to our non-GAAP measure of adjusted EBITDA simply as EBITDA. In conjunction with today's earnings release, we issued a presentation, which will be referenced during the call. The presentation was filed in an 8-K along with the earnings release and is available on our website.

I'll now turn the call over to Darren.

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Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [3]

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Good morning, everyone, and thanks for joining our third quarter earnings call. I will start with YRC Freight as I'm proud of the progress they made in Q3. Even with continued softness in the economy and slight moderation in yield improvement, they reported year-over-year increases in both operating income and operating ratio, which resulted in the best third quarter operating income in over 10 years. These improved financial results were achieved largely due to the labor contract efficiencies from box trucks that resulted in a significant decrease in the local purchase transportation expense and through increased line haul efficiency along with disciplined cost control across all areas.

Concerning our regional, operating results deteriorated due to depressed volume levels, which were particularly acute in the Midwest Rust Belt along with the labor disruption in the automotive sector where we have regional exposure and that did not help the last 2 weeks of the quarter. Our ability to leverage the operational flexibilities obtained from the labor contract for the regional companies has been hampered due to these muted volume levels, while labor cost have increased.

We will continue to remain disciplined with cost-control measures to balance capacity with asset and resource utilization needs while also continuing to focus on improving our density through network optimization, which should lead to improved operating performance from our regional network. 2019 has been a challenging freight environment all year long, but also a productive year for YRCW. As we look beyond Q3, our path forward is defined and currently well underway with our multi-year strategy.

We have cleared the hurdles of the ratification of a new 5-year labor agreement, providing us more stability and flexibility and an improved capital structure with our refinanced term loan. Additionally, we implemented an enterprise-wide sales and operations leadership structure while clearing and extending the runway for network optimization across all brands. These changes are intended to drive asset and property utilization while building density and creating efficiency across multiple productivity measures. With the focus on greater efficiencies, we have completed 12 consolidations of service centers and we are on track to hit our goal of approximately 25 service centers to be consolidated by the end of the year. As I've mentioned, this just scratched the surface of the effort and we will continue to enhance our network through terminal consolidations for the next several quarters.

In closing, while our network optimization strategy helps offset the weak demand environment we are experiencing in Q4, cost controls will continue to be a primary focus until these conditions improve. I would like to thank our 31,000 employees for their commitment to safety and dedication to getting the right things done to modernize all of our companies.

I will now turn the call over to Stephanie to share more details around our financial results.

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [4]

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Thank you, Darren, and good morning everyone. For the third quarter 2019, YRC Worldwide reported consolidated revenue of $1.26 billion, which is down from $1.3 billion or 3.6% when compared to prior year. Operating income for the third quarter was $23.8 million, compared to operating income of $41.2 million in the third quarter 2018. Additionally, the company reported adjusted EBITDA of $65.9 million for the third quarter 2019 compared to $84.2 million for the prior year. For the trailing 12 months, adjusted EBITDA was $240.8 million compared to $288.8 million in 2018.

Turning to our operating side. YRC Freight reported a third quarter 2018 year-over-year LTL tonnage per day was down 4%, which is due to a 3.5% decrease in LTL shipments per day and a 0.5% decrease in weight per shipment. Additionally, year-over-year LTL revenue per hundredweight including fuel surcharge was up 1.7% and LTL revenue per hundredweight excluding fuel surcharge was up 2.8%. Finally, year-over-year LTL revenue per shipment, including fuel surcharge was up 1.2% and up 2.3% when excluding fuel surcharge.

Moving to the regional segment. The third quarter 2019 year-over-year LTL tonnage per day was down 3.6%, which is due to a 3.9% decrease in LTL shipments per day as weight per shipment was flat year-over-year. Additionally, year-over-year LTL revenue per hundredweight including fuel surcharge was down 0.8% and LTL revenue per hundredweight excluding fuel surcharge was flat. Finally, year-over-year LTL revenue per shipment, including fuel surcharge was down 0.4% and flat when excluding fuel surcharge. The YRC Freight third quarter results indicate that even in this depressed volume environment, they've been able to take advantage of some of the operational efficiencies and absorb the increased labor costs.

For the regional companies on the other hand, the depressed volume environment has diminished their ability to fully leverage the operational efficiencies from the labor contract, specifically as it relates to utilizing lower labor cost opportunities. On a year-over-year basis, revenue for the regional companies decreased $27.9 million and wage and benefit expense increased by $8 million when compared to third quarter of 2018.

Going forward, we will continue to be disciplined to grow the right freight at the right price and increase our efforts around cost reductions throughout the network based on current volume trends. Additionally, we will continue to focus on the network optimization efforts as those efforts will provide additional cost reduction opportunities to reduce miles, increased density and reduced facility costs. Even with the benefits expected from network optimization, cost control measures identified over the last couple of quarters and the progress we have made on some of the operational efficiencies from the labor contract, volumes will still be the ultimate determining factor in our ability to achieve the $60 million to $80 million of margin expansion in 2020.

Moving to the balance sheet. As Darren mentioned, we recently announced the refinancing of our term loan agreement. Our new term loan provides additional liquidity, less restrictive covenant, 100 basis point decrease in interest rate and an extended maturity to June of 2024. In conjunction with the new term loan, we recognized an $11.2 million charge related to the extinguishment of our prior term loan, which negatively impacted our EPS by approximately $0.34 per share.

Regarding liquidity, our cash and cash equivalents that managed accessibility at September 30, 2019, was $150.1 million, which is a decrease of $52.7 million compared to December 31, 2018, and is comparable to liquidity levels we reported in June. We used approximately $41 million in cash to invest in revenue equipment and technology during the third quarter.

One final note, as it relates to fourth quarter. Similar to what we experienced in 2018, we expect to recognize a non-union pension settlement charge ranging from $8 million to $10 million during the fourth quarter of 2019 based on projected lump sum for the remainder of the year. This settlement charge is a non-cash charge and will not impact our adjusted EBITDA. In closing, as we move beyond Q3, we will continue our focus on the implementation of our multi-year strategic plan all the while ensuring we have appropriate cost control measures in place to manage through the current macroeconomic environment, position ourselves for margin expansion in 2020.

I'll now turn the call over to TJ.

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Thomas J. O'Connor, YRC Worldwide Inc. - COO & President of YRC Freight [5]

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Thank you, Stephanie, and good morning, everyone. As you heard from Darren, YRC Freight had a solid quarter. This quarter operating income was the best in over 10 years. We have benefited from operational efficiencies negotiated in our recent labor contract. This includes the new box truck language, which has allowed us to reduce the use of expensive local purchase transportation. Good cost control measures contributed to improved operating margin despite sluggish volumes.

I want to talk a bit about our regionals. Our new labor agreement provides higher wages and flexibilities and new job classifications, and these are necessary to be competitive in the market. However, with the depressed volumes, our ability to fully leverage the use of these flexibilities has been restricted in the short term. Year-over-year average wage has increased at the regionals, while revenue has decreased with the volumes. We are prepared for increased demand however, current conditions require continued use of strict cost control measures. As it relates to our operational efficiencies of our labor contract, there continues to be solid interest in our new non-CDL box truck driving positions. We are now operating approximately 250 box trucks. These company drivers provide a reduction in the use of expensive local purchase transportation while improving our service to customers.

Another exciting new offering is our next day service in Texas. YRC Freight has expanded its service offerings in Texas. As we transform our network and optimize our operations, we can now offer next day service through our Velocity Center in San Antonio. This allows for greater on-time service with less handling. This is just another example of opportunities from network optimization and the benefits it delivers to our customers.

In order to increase efficiencies and serve our customers, we have developed and deployed a new operational structure. This structure leverages our most experienced and talented field management leaders from all of our brands. The area and division managers are responsible for multiple operating company brands within their assigned geography. We are leveraging best practices from all brands including the regional next day model. In fact, the speed and flexibilities of the regional service models at Holland, New Penn and Reddaway remain a core fundamental in our network optimization.

All of our brands will remain strong and vibrant in their respective markets. Holland, New Penn and Reddaway all provide great value to our customers. These best-in-class regional LTL companies and then the size, scope and endless capabilities of YRC Freight to go anywhere in North America as well as our newest company HNRY Logistics.

Thanks for your time this morning. We'd now be happy to answer any questions that you may have.

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Questions and Answers

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Operator [1]

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Our first question will come from David Ross with Stifel.

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David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [2]

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First I guess talking about (inaudible) seemed to buck the trend in terms of weight per shipment. Everybody else is complaining about a drop in weight per shipment and you were showing it not only up year-over-year but also up sequentially. Any color on that?

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Thomas J. O'Connor, YRC Worldwide Inc. - COO & President of YRC Freight [3]

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Well, Dave, this is TJ. Good morning. I think there was some influence from truckload traffic in that mix that drove the weight per shipment up and that's a result of our non-asset based HNRY operation.

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Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [4]

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Yes. If you look at the LTL only, slightly down and then including HNRY logistics and the success we've had in the truckload focus of HNRY logistics, it makes it look quite different on the total.

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David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [5]

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Understood and I guess could you I guess walk through how the tonnage or shipment trends went through the quarter and what you're seeing in October for both the YRC Freight and YRC Regional.

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [6]

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Yes, sure, David. Good morning, this is Stephanie. So for YRC Freight and this is LTL tonnage only, July was down 3.3%. August was down 3.6%, September was down 5.3% and then October was down 4.1%. For the regional's LTL tonnage, July was down 1.5%, August was down 4.4%, September was down 4.5% and then October is down 6.2%.

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David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [7]

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And now that the strike is over, would you expect that October number to improve in November and December?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [8]

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Good question, David. Specific to the regionals and our largest regional carrier, the toughest part of the freight economy that we've seen is in the Midwest. That was even before the automotive labor disruption that we experienced for the last 2 weeks of the quarter and then the majority of the month of October. So I do expect a slight improvement in the Midwest. But overall, the Midwest was overall down more than any area of the country for us. So that will continue to be something we keep an eye on, but it certainly helps that we've got the labor disruption out of the way. And then also the news from most recently that other OEMs are getting contracts lined up that should prevent further disruption.

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Operator [9]

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The next question comes from Jack Atkins with Stephens.

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Jack Lawrence Atkins, Stephens Inc., Research Division - MD & Analyst [10]

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So just a couple of things here. Stephanie, your comments around the $60 million to $80 million in accretion related to the new labor agreement. You said that that is ultimately dependent upon being able to drive volume next year and I guess as you sort of think about; a, what's been captured so far? That $60 million to $80 million if there's a way to sort of quantify that. And b, if the economy doesn't improve next year, does that $60 million to $80 million number change? And can you help us sort of think through how that would look?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [11]

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Yes. So a couple of different things, Jack. As it relates to the $60 million to $80 million as T.J. mentioned in the prepared remarks. The box truck program is actually benefiting YRC Freight and we're seeing that move along nicely. We expect to continue to get benefit from that box truck movement really coming from a reduction in local card spend. That was about $5 million specifically for the quarter. We expect that to continue as we move forward into 2020. So that's something that we'll absolutely carry into 2020 and be part of that $60 to $80 million. As we think about the other pieces. The other pieces of the pie where wage classification, reduction in wages from classification of workers and casual workers that we have. Obviously, those kinds of items take additional volumes to come into play so those could be at risk. But I think the other thing that will help us in 2020 as we think about our 5-year strategic plan is the network optimization. And as we continue to consolidate service centers, which we've done 12 to date thus far and expect 25 by the end of this year and likely another 25 in 2020. We'll see some of those cost savings start to roll into 2020 as well, which will also help be part of the $60 million to $80 million. But to your point earlier, could the $60 million to $80 million come down? It could, depending on what happens with volume levels as we move into 2020.

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Jack Lawrence Atkins, Stephens Inc., Research Division - MD & Analyst [12]

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Okay. Got it. And then just thinking about all the different puts and takes here. I mean you guys are clearly executing on what you can control, which is the operational efficiencies and the network optimization. There is more to go there moving into the fourth quarter from the third, but you have headwinds related to some things at the regional subsidiaries. So I guess historically, we tend to see EBITDA decline a little bit 3Q to 4Q. But obviously, there are some cost opportunities there sequentially. How are you guys thinking about EBITDA in the fourth quarter relative to the third? I'm not asking you to give guidance, just kind of directionality given the different moving pieces that are out there right now.

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [13]

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Jack with the demand still being weak, we are obviously considering that as part of the EBITDA equation for 4Q. But the other part of that equation is the reductions that we can make from our salary wages and employee benefits perspective in the fourth quarter. So we will work to make sure that the workforce matches the volume levels that we have. So we still expect Q4 to have a decline from Q3, but we'll manage that through Q4 with our salary wages and employee benefits expenses.

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Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [14]

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And Jack, this is Darren. You will see that stringent cost control continue until we see conditions improve even throughout Q1. As we look at (inaudible) and when we look at what's played out this week with many other public companies announcing and giving us all some much-needed information about what's happening in October, we will keep cost control at the top of the list, like we always do. And certainly network optimization is good timing for that cost control, because it's not only building density in the network as we've taken these -- as we're on track to take the 25 terminals out that we've already guided to for this year and then we'll immediately start working on the next 25 right after that. It also eliminates redundant costs in our network. So as we are in an uncertain economy moving forward, network optimization will be a help to our cost control focus.

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Thomas J. O'Connor, YRC Worldwide Inc. - COO & President of YRC Freight [15]

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And Jack, this is T.J. If it's helpful, Stephanie referred to the box truck savings through the contract efficiencies. I said we had about 250 box truck currently in operation. The savings per box truck versus using expensive cartage for purchase transportation, which is outside purchase transportation, it's about $12,600 per month per truck.

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Jack Lawrence Atkins, Stephens Inc., Research Division - MD & Analyst [16]

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Okay. Got you. That is definitely substantial. Well, one last thing, Stephanie I'll turn it over, just a housekeeping item. Can you kind of help us think through, go forward interest expense under the new credit agreement?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [17]

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So it should be approximately, I think about $14 million to $15 million on a quarterly basis.

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Jack Lawrence Atkins, Stephens Inc., Research Division - MD & Analyst [18]

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Okay. Perfect. So $14 million to $15 million from the new credit agreement. In terms of P&L interest expense just for our models, what should we be plugging in there?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [19]

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Should be the same.

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Operator [20]

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The next question will be from Jeff Kauffman of Loop Capital Markets.

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Jeffrey Asher Kauffman, Loop Capital Markets LLC, Research Division - MD [21]

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Congratulations. A couple of questions. Number one, there had been some other folks that have talked a little bit about the strike at GM and I think what we've heard is about 2 weeks impact to the third quarter, in about 3 and change weeks impact to the fourth quarter. Can you help us parse out how this affected, I'm going to assume, mostly Holland, but your regional subs?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [22]

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Yes, certainly there was an impact on tonnage there from mainly those Tier 1 supplier groups, as we do have heavy exposure to the automotive sector through our largest regional carrier. Other than the last 2 weeks of the month, it had a negative impact on tonnage and then working through that in October, which was already a challenging freight environment even without that added piece. It was noticeable, but also overall, when we look at where the regionals landed in October from a negative tonnage environment, I think if you compare to August and September, that was more normalized than October. And I think that's kind of the metric to look at, moving forward, is that forward is that 4.4 to 4.5 decline.

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Jeffrey Asher Kauffman, Loop Capital Markets LLC, Research Division - MD [23]

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Okay. And looking at the regional subs, it appears in some of the benefits of the new labor contract at YRC Freight and look like a pretty decent quarter on metrics there. Why do you think the regionals are struggling so much more than YRC right now? I mean, even relative to other regional trucking companies, it seems that the regional division, whether I'm looking at it on a yield basis or on a tonnage basis. This doesn't seem to have the traction the rest of the market does. Could you help me understand maybe what might be going on under the hood?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [24]

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Yes, you bet, Jeff and think about, when we started negotiating our contract that was ratified in Q2 of this year. We started a year before that, and our focus, this time last year, our largest regional company was actually using price to turn down business on a daily basis. So as we were negotiating, we certainly put together competitive wage package through that ratification. And just as we ratified, we saw the bottom drop out of tonnage across the industry, not just at our regional companies or at our national company. That was an industry event that we've seen for several quarters now and those contract benefits for the regional companies were really targeted toward growth. We have, as T.J mentioned in his earlier comments, the service at the regionals is really good, it's a market-leading service and we had those companies positioned for growth. Although the economy just didn't cooperate and because of that, fortunately, we were down the road on our network optimization efforts, which will increase the density into the regional networks and allow us to start capturing these contract benefits, once we are improving density on the individual regional lines and their linked to haul and that's the target of network optimization.

So certainly in a tough spot with the regionals, but we've got good cost controls in place, we will continue those and the plan we have moving forward absolutely build density through network optimization, reduced the service center footprint. And through all that, we also enhanced the service and on-time delivery standards to our customers. None of those deteriorate through this process.

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Jeffrey Asher Kauffman, Loop Capital Markets LLC, Research Division - MD [25]

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All right. Switching gears, can you give us an update on HNRY? How that's moving along, I don't know if you're comfortable giving annualized revenue run rate just to give an idea of where the size is. But how is HNRY growing and how is it doing?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [26]

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I'm excited about HNRY logistics, we don't break those out. But certainly with David's question earlier around tonnage, you see where total tonnage -- when YRC Freight's numbers starting to be a noticeable impact in a positive way. So HNRY logistics, they've got a unique value proposition because they got the power for well-known LTL asset brands behind them and because of that, we've been able to continue growing our truckload business even through a very tough spot market in the truckload sector. We're very happy with the way our shipments have grown, much like what you've heard from other brokerages, this week and last week that have reported, our revenue per shipment has came down. Our margins are solid through that process, but because of the revenue per shipment dropping, our overall revenue impact in 2019 is less than we originally were talking about. We're on track for that $140 to $150 million range in HNRY logistics, where earlier we had reported a little stronger growth but revenue per shipment is the only impact there, the number of shipments. And basically doubling the business year-over-year is something we're still very proud of.

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Jeffrey Asher Kauffman, Loop Capital Markets LLC, Research Division - MD [27]

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All right. And then one last question for Stephanie and then I'm good. Stephanie, you called out the $1 million loss on the real estate sales, the $11 million impact to the debt agreement. It looked like kind of looking through the back pages of the release, there was a vendor bankruptcy impact that looked to be a benefit. And then, I was wondering whether there were any, what I would call unusual costs that you absorbed related to the new headquarters?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [28]

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So, we did have a severance charge that happened in September as we closed the New Penn headquarters. That was very actual minimal as there was only about 70 employees in total. You're right. You did see the impact of a vendor bankruptcy that was actually some recovery that we got in the third quarter from the vendor bankruptcy that we talked about earlier in the year and actually had written off some receivables in that space as well. So those 2 things are probably the only 2 unusual things on a quarter basis that I would call out.

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Jeffrey Asher Kauffman, Loop Capital Markets LLC, Research Division - MD [29]

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Okay. Well, congratulations.

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Operator [30]

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The next question will come from Scott Group with Wolfe Research.

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Scott H. Group, Wolfe Research, LLC - MD & Senior Transportation Analyst [31]

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Can you give us the pricing renewals in the quarter? And then more broadly talk about how you see the pricing environment and your focus, if it's more tonnage, more prices. How you're thinking about it?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [32]

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Scott, I'll start with that one. As far as our contract negotiations in Q3, 3% and that was true at the Regionals and YRC Freight if you average those contracts, specifically.

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Scott H. Group, Wolfe Research, LLC - MD & Senior Transportation Analyst [33]

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So does it feel like the pricing environment is getting more challenging? Do you think that's more the whole market, is it more of a focus on tonnage? Help us think about that.

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Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [34]

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Certainly, of course. As you saw, the regionals flat from a yield perspective, although very strong comps from last year, as they were tracking over 8% and then YRC Freight tracking a little better than that. Our contract renewals, we had over 1,000 of them in Q3. I would classify those renewals as very stable pricing environment, when most of these big renewals that we're reporting out on, you're dealing with 60,000 origin and destination pairs as you price these. So specifically with New Penn footprint or Reddaway footprint or a national footprint, there is lanes that we are targeting and going after that have a very solid contribution to our network. So there is puts and takes and weight per shipment, length of haul, and all those spaces as you look at the revenue per hundredweight impact. But from a profit impact on what we see and also, as we referenced YRC Freight strong quarter, a lot of that came from line haul efficiencies and we credit good accurate pricing and then, the use of our dimensioners to make sure we're verifying our network on a daily basis.

So overall, feel good about that and I think the longer we're in a negative tonnage environment, I think one of your recent note said that the industry has been in negative tonnage environment for 12 months now. And Scott, I think the longer that continues, we see pressure in this area, but from an LTL perspective, it appears to me very stable. I know our focus is on pricing for profit and using internal cost controls to weather the storm until we get back into a more normalized tonnage environment.

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Scott H. Group, Wolfe Research, LLC - MD & Senior Transportation Analyst [35]

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Okay. Are we in anyway ready yet to put any numbers around these 25 terminals, in terms of the cost savings?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [36]

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Well, I believe from Stephanie's comments and where we're going with that, 25 that we're completing just over the next several weeks and that were on track and will have consolidated by December 31. That's going to go into that $60 million to $80 million number that we put out there for 2020. Previously, I was talking about those in 2 separate buckets, but with what we see from a continued weak demand environment, we will use network optimization in conjunction with our labor efficiencies to make sure that we're moving the company in the right direction. We're getting that margin improvement overall. We've been signaling through this multiyear strategy that I believe is the only course for the company is the right course for the company and that's where my confidence comes from is that this as well laid out. Our path is defined in regardless of what the economy is doing. We will focus on those areas and use cost controls to make up the difference.

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Scott H. Group, Wolfe Research, LLC - MD & Senior Transportation Analyst [37]

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So just so I'm clear, if you do another 25 next year, which it sounds like you're planning to do with that, then be additive to the $60 million to $80 million or do you think you need another 25 next year to get you to the $60 million to $80 million?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [38]

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No, I would classify that as additive through that process, the 25 we've got under our belt where we've got the next 25 teed up. We will immediately start working on those. And as I think through that from a 2020 perspective and you look at a national footprint involving our Regionals and YRC Freight, somewhere around 320 terminals, total terminal count by the end of '20 would be a pretty good target in my mind.

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Scott H. Group, Wolfe Research, LLC - MD & Senior Transportation Analyst [39]

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Okay. Just along these; last quarter you had talked about $25 million of headcount savings as well. That was also separate from the $60 million to $80 million. Is that still separate or is that now getting lumped into the $60 million to $80 million. What you say?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [40]

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Yes, that's still separate and that's an annualized run rate. So that's the reductions we took from New Penn, some non-union headcount that we took out earlier in the year and those types of things. That's an annualized number that will roll into 2020.

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Scott H. Group, Wolfe Research, LLC - MD & Senior Transportation Analyst [41]

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Okay. And then just last question, Stephanie. I think the new covenant is $300 million of EBITDA. We're at $240 million, but have a pretty big number coming out of the calculation in the fourth quarter '18. How are you thinking about flexibility, if you need it? Do you think you need it?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [42]

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Yes, so we don't think we need it. With the demand environment being weak, we are managing costs very tightly and with the reductions that we can get from a salary wages and employee benefit perspective here in the fourth quarter, we think we will be in compliance.

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Scott H. Group, Wolfe Research, LLC - MD & Senior Transportation Analyst [43]

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I just want to make sure I'm not missing something, if we just keep EBITDA flat in the fourth quarter versus third quarter, doesn't like $40 million of EBITDA drop off?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [44]

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So that's already factored out of the $240 million, because the gains and losses don't necessarily count in the new EBITDA definition. That $30 million that we got from the property sale in the fourth quarter last year, that won't count towards this.

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Scott H. Group, Wolfe Research, LLC - MD & Senior Transportation Analyst [45]

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Okay, so what was the real EBITDA number last year?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [46]

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It was like $75 million.

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Operator [47]

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This concludes our earnings call. I would like to turn the conference back over to the company, for any closing remarks.

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Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [48]

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Thank you, operator, and thanks again to everyone for joining us today. Please contact Eric with any additional questions that you may have. This concludes our call. And operator, I'll turn the call back to you.

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Operator [49]

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Thank you, sir. The conference is now concluded. Thank you all for attending today's presentation. You may all disconnect your lines. Have a great day.